JURISPRUDENCE, INTERPRETATION

AND
GENERAL LAWS

BY CS SHREYANS JAIN
Chapter Name Pg. No.

1 SOURCES OF LAWS 1- 23

2 CONSTITUTION OF INDIA 24– 67

3 INTERPRETATION OF STATUTES 68 – 95

4 ADMINISTRATIVE LAWS 96-114

5 LAW OF TORTS 115-130

LAW RELATING TO CIVIL

6 131 –156
PROCEDURE,

LAW RELATING TO CRIMINAL

7 157 – 189
PROCEDURE

8 LAW RELATING TO EVIDENCE 190 – 209

LAW RELATING TO SPECIFIC

9 210 – 222
RELEIF

10 LAW RELATING TO LIMITATION 223 –245

 Law relating to arbitration,
11 246-277
mediation and conciliation

12 Indian stamp law 278– 302

Law relating to registration

13 303 – 343
of documents

14 Right to information law 344-354

Law relating to information

15 -
technology

16 Contract law 355 –398

17 Law relating to sale of goods 399 – 418

Law relating to negotiable

18 419 – 446
instruments
 NAHATA PROFESSIONAL ACADEMY 1

CHAPTER -1
SOURCES OF LAWS

 Introduction to Law
 Jurisprudence
 Theories of law
 Sources of Indian laws
 Principal sources of laws
 Secondary sources of laws
 English laws and sources thereof
 Mercantile laws and sources thereof

INTRODUCTION
The nature and meaning of law has been described by various jurists. However, there is animity of opinion
regarding the true nature and meaning of law. The reason for animity on the subject is that the subject has
been viewed and dealt with by different jurists at different times and from different points of view (nature,
source, function and purpose of law) to meet the needs of some given period of legal development.

Therefore, it is not practicable to give a precise and definite meaning to law which may hold good for all
times to come. The various definitions of law propounded by legal theorists serve to emphasize the
different facets of law and build up a complete and rounded picture of the concept of law.

Meaning of Law

The term law refers to specific and concrete laws. These laws are laid down by specific legal system.
Example: Indian Laws follow Indian legal system. It is precisely a body or cluster of rules and regulations
promulgated by governmental bodies. The purpose of making laws is to regulate the human activities and
to define what is permissible and what is not permissible.

In broader sense law refers to the whole process, or legal system which is applied by the governmental
personnel and bodies in society so as to establish and maintain peaceful and orderly relation between
people. Under the Constitution of India, the inclusive definition of the term “Law” and “Laws in force” has
been provided under Article 13(3). Which says:

(a) “Law” includes any Ordinance, order, bye-law, rule, regulation, notification, custom or usage having
in the territory of India the force of law;
(b) “Laws in force” includes laws passed or made by a Legislature or other competent authority in the
territory of India before the commencement of the Constitution and not previously repealed,
notwithstanding that any such law or any part thereof may not be then in operation either at all or in
particular areas.

Ulpine defined Law as “the art or science of what is equitable and good.”
Cicero said that Law is “the highest reason implanted in nature.”
Justinian’s Digest defines Law as “the standard of what is just and unjust.”

So, the meaning of law may differ from person to person but the purpose is to provide a set of rules for
regulation
human conduct and maintain peaceful and orderly relations between people.

SIGNIFICANCE OF LAW

The law, and the system through which it operates, has developed over many centuries into the present
combination of statutes, judicial decisions, customs and conventions. By examining the sources from which
we derive our laws and legal system, we gain some insight into the particular characteristics of our laws.
 NAHATA PROFESSIONAL ACADEMY 2

Law is not static. As circumstances and conditions in a society change, laws are also changed to fit the
requirements of society. At any given point of time, the prevailing law of a society must be in conformity
with the general statements, customs and aspirations of its people.
Modern science and technology have unfolded vast prospects and have aroused new and big ambitions in
humans. Materialism and individualism are prevailing at all spheres of life. These developments and
changes have tended to transform the law patently and latently. Therefore, law has undergone a vast
transformation – conceptual and structural. The idea of abstract justice has been replaced by social justice.

The object of law is to form an order which in turn provides hope of security for the future. Law is expected
to provide socio-economic justice and remove the existing imbalances in the said structure and to play
special role in the task of achieving various socio-economic goals enshrined in our Constitution. It has to
serve as a vehicle of social change and as a harbinger of social justice.

RELEVANCE OF LAW TO CIVIL SOCIETY

Numerous duties are carried out by law to assist civil society. These need to be differentiated in practise as
well as theory. The failure to draw the required distinctions—whether deliberate or unintentional—leads to
the law’s restriction, distorting, or suppression of civil society.

In actuality, for civil society to function to its full potential, an enabling legal environment is required. It
promotes and defends civic society. But only if it also supports and empowers. Due to the fact that it
obstructs, restricts, and even suppresses people’s freedoms, law has a poor reputation in many sectors of
civil society.

JURISPRUDENCE

Jurisprudence is the study of the science of law. The study of law

Juris Law
in jurisprudence is about law in general, its concepts, its
Prudence Knowledge
principles and the philosophies underpinning it.
Different jurists/ legal philosophers have used the term in different ways. The meaning of ‘jurisprudence’
has changed over a period of time as the boundaries of this discipline are not rigid.
Howsoever the term jurisprudence is defined; it remains a study relating to law. The word ‘law’ itself is used
to refer more than one thing. However, various theorists define law in their own ways and this leads to a
corresponding jurisprudential study.
For example, law has two fold aspect: it is an abstract body of rules and also a social machinery for securing
order in the community. However, the various schools of jurisprudence, instead of recognizing both these
aspects, emphasize on one or the other.

Analytical jurisprudence concentrates on abstract theory of law, trying to discover the elements of pure
science which will place jurisprudence on the sure foundation of objective factors which will be universally
true, not on the shifting sands of individual preference, of particular ethical or sociological views.

Sociological jurisprudence highlights the limitations of pure science of law and says that since the very
purpose for the existence of law is to furnish an answer to social problems, some knowledge of these
problems is necessary if one seeks to understand the nature of law.

The teleological school of jurisprudence emphasizes that a mere collection of facts concerning social life is
of no avail. Law is the product of human reason and is intimately related to the notion of purpose. Hence,
this school seeks to find the supreme ends which law should follow.

MEANING OF JURISPRUDENCE BY DIFFERENT JURISTS:

B.E. King  Jurisprudence is not concerned with the exposition of law but with
disquisitions about law.
 NAHATA PROFESSIONAL ACADEMY 3

 Jurisprudence also improves the use of law by drawing upon insights from
other fields of study.

For example, substantive laws teach us about our right, duties and obligations and
the procedural laws talk about the legal process through which those rights can be
enforced or obligations met but jurisprudence would go into the analysis of what
rights, duties and obligations are; how and why do they emerge in a society?
Salmond  In the widest of its applications the term jurisprudence means the science of
law, using the word law in that vague and general sense, in which it includes
all species of obligatory rules of human action. He said that jurisprudence in
this sense can be further divided into three streams:
• Civil jurisprudence,
• International jurisprudence, and
• Natural jurisprudence.

 In a slightly narrower sense, the term jurisprudence applied to the study of

the science of civil law. Civil jurisprudence was further divisible into:
 Systematic jurisprudence (legal exposition),
 Historical jurisprudence (legal history) and
 Critical jurisprudence (science of legislation).
 Jurisprudence, in its narrowest sense includes only a part of the science of
the civil law, which can also be called the science of the ‘first principles’ of
civil law. These first principles are fundamental concepts and principles
which serve as the basis of concrete details of the law.
Jeremy He used ‘jurisprudence’ in two sense-
Bentham i. as ‘law’ referring to the substance and interpretive history of a given legal
norm, consisting of case laws, precedents, and other legal commentary and
ii. as ‘theory’ or the study of general theoretical questions about the nature of
laws and legal systems.
Jurisprudence in this use refers to a set of philosophical principles, or interpretive
theories, for making sense of laws.
Bentham also distinguished between:

‘Expository Jurisprudence’ ‘Censorial Jurisprudence’

It ascertains what the law is. It ascertain what law ought to be.

Bentham made a sub-division of

expository jurisprudence,
distinguishing between:
‘Authoritative ‘Unauthoritative
mode’ mode’
It is given by the It is given by any
state other authority.

Prof. Julius He defined ‘jurisprudence’ as the lawyer’s extraversion. According to him

Stone jurisprudence is the lawyer’s examination of the precepts, ideals and techniques of
the law in the light derived from present knowledge in disciplines other than the
law.
Prof. G.W. Acoording to him, Jurisprudence is founded on the attempt, not to find universal
Paton principles of law, but to construct a science which will explain the relationship
between law, its concepts, and the life of society. Jurisprudence is not primarily
 NAHATA PROFESSIONAL ACADEMY 4

interested in cataloguing uniformities, or in discovering rules which all nations

accept. In all communities which reach a certain stage of development there springs
up a social machinery which is called law and the task of jurisprudence is to study
the nature of law, the nature of legal institutions, the development of both the law
and the legal institutions and their relationship to society. In each society there is an
interaction between the abstract rules, the institutional machinery existing for their
application, and the life of the people. Legal systems seem to have developed for
the settlement of disputes and to secure an ordered existence for the community.
They still exist for those purposes but in addition they are part of the social
machinery used to enable planned changes and improvements in the organization
of society to take place in an ordered fashion. In order to achieve these ends each
legal system develops a certain method, an apparatus of technical words and
concepts, and an institutional system which follows those methods and uses that
apparatus. The pressure of the social needs which the law must satisfy will vary
from one community to another and jurisprudence studies the methods by which
these problems are solved, rather than particular solutions.

LEGAL THEORY
Legal theory is a field of intellectual enterprise within jurisprudence that involves the development and
analysis of the foundations of law. Two most prominent legal theories are the normative legal theory and
the positive legal theory. Positive legal theory seeks to explain what the law is and why it is that way, and
how laws affect the world, whereas normative legal theories tell us what the law ought to be. There are
other theories of law like the sociological theory, economic theory, historical theory, critical legal theory as
well.

JEREMY BENTHAM’S THEORY OF LAW

Jeremy Bentham was the pioneer of analytical jurisprudence in Britain. According to him ‘a law’ may be
defined as an assemblage of signs, declarative of volition, conceived or adopted by a sovereign in a state,
concerning the conduct to be observed in a certain case by a certain person or a class of persons, who in
the case in question are or are supposed to be subject to his power. Thus, Bentham’s concept of law is an
imperative one.
Bentham was of the initial contributors on the function that laws should perform in a society. He claimed
that nature has placed man under the command of two sovereigns- pain and pleasure. ‘Pleasure’ in
Bentham’s theory has a somewhat large signification, including altruistic and obligatory conduct, the
‘principle of benevolence’; while his idea of ‘interest’ was anything promoting pleasure.
The function of laws should be to bring about the maximum happiness of each individual for the happiness
of each will result in the happiness of all. The justification for having laws is that they are an important
means of ensuring happiness of the members of community generally.
Hence, the sovereign power of making laws should be used, not to guarantee the selfish desires of
individuals, but consciously to secure the common good.
Bentham said that every law may be considered in eight different respects:

1. Source: The source of a law is the will of the sovereign, who may conceive laws which he
personally issues, or adopt laws previously issued by sovereigns or subordinate
authorities, or he may adopt laws to be issued in future by subordinate
authorities. Sovereign according to Bentham is any person or assemblage of
person to whose will a whole political community is supposed to be in a
disposition to pay obedience, and than in preference to the will of any other
person.
2. Subjects: These may be persons or things. Each of these may be active or passive subjects,
i.e., the agent with which an act commences or terminates.
3. Objects: The goals of a given law are its objects.
4. Extent: Direct extent means that a law covers a portion of land on which acts have their
 NAHATA PROFESSIONAL ACADEMY 5

termination; indirect extent refers to the relation of an actor to a thing.

5. Aspects: Every law has ‘directive’ and a ‘sanctional’ part. The former concerns the aspects
of the sovereign will towards an act-situation and the latter concerns the force of a
law. The four aspects of the sovereign will are command, prohibition, non-
prohibition and non-command and the whole range of laws are covered under it.
These four aspects are related to each other by opposition and concomitancy.
6. Force: The motivation to obey a law is generated by the force behind the law.
7.Remedial These are a set of subsidiary laws addressed to the judges through which the
appendage: judges cure the evil (compensation), stop the evil or prevent future evil.
8. Expression: A law, in the ultimate, is an expression of a sovereign’s will. The connection with
will raises the problem of discovering the will from the expression.

Bentham after considering law with eight different respects went on to analyse the ‘completeness’ of law in
jurisprudential sense.
He said that a complete law would have the features of integrality as well as unity.
 Integrality means that a law should be complete in expression, connection and design.
— A law is complete in expression when the actual will of the legislation has been completely
expressed.
— A law is complete when various parts of it dealing with various aspects are well co-ordinated.
— If a law does not cover a specific situation that it might have wanted to cover while being
enacted, it is incomplete in design.
 The unity of a law would depend upon the unity of the species of the act which is the object of the
law.
Criticism of Bentham’s theory of law
 Due to Bentham’s strait-jacketing of laws into an imperative theory- all laws have to be either
command or permission, it does not take proper account of laws conferring power like the power
to make contracts, create title etc.
 Bentham did not give a fair treatment to custom as a source of law. He said customs could never
be ‘complete’.
 Bentham’s theory did not allow for judge made laws and hoped that such laws would be gradually
eliminated by having ‘complete laws’.
 To judge an action according to the pleasure- pain criterion is to judge it subjectively. The theory
did not provide how a subjective criterion of pain and pleasure can be transmuted into an
objective one.
 It is not always true that an increase in the happiness of a certain segment of society will lead to
an increase in the overall happiness level because it might be associated with a diminution in the
happiness of some other rival section of the society.

JOHN AUSTIN’S COMMAND THEORY OF LAW

Austin was a positivist, meaning that he John Austin a noted English legal theorist was the first
concerned himself on what the law was occupant of the chair of Jurisprudence at the University of
instead of going into its justness or London. Austin is known for the Command Theory of law.
fairness. Austin differentiated between Austin was a positivist.

‘Law properly so called’ and ‘laws improperly so called’ and said that laws properly so called are general
commands but not all of it is given by men for men. A specie ‘Laws properly so called’ are given by political
superiors to political inferiors.

According to Austin, law is the command of sovereign that is backed by sanction. He has propagated that
law is a command which imposes a duty and the failure to fulfil the duty is met with sanctions
 NAHATA PROFESSIONAL ACADEMY 6

(punishment). Thus Law has three main features:

1. It is a command.
2. It is given by a sovereign authority.
3. It has a sanction behind it.

 Command
It is an expression of wish or desire of an intelligent person, directing another person to do or to
forbear from doing some act, and the violation of this wish will be followed by evil consequences on
the person so directed. Command requires the presence of two parties- the commander (political
superior) and the commanded (political inferior).
 Sovereign
In Austin’s theory, sovereign is politically superior. He has defined sovereign as an authority that
receives habitual obedience from the people but itself does not obey some other authority habitually.
According to Austin, the sovereign is the source of all laws.
 Sanction
It is the evil consequence that follows on the violation of a command. To identify a law, the magnitude
of the sanction is not relevant but the absence of sanction disentitles an expression of the sovereign
from being a law in Austinian sense. Sanction should not also be confused with a reward that might be
on offer if a given conduct is followed or refrained from. Reward confers a positive right whereas a
sanction is a negative consequence.
Criticism of Austin’s Command Theory of law
 Welfare states pass a number of social legislations that does not command the people but confer
rights and benefits upon them. Such laws are not covered under the command theory.
 According to Austin the sovereign does not have to obey anyone but the modern states have
their powers limited by national and international laws and norms. For example, the
Government of India cannot make laws that are violative of the provisions of the Constitution of
India.
 Austin does not provide for judges made laws. He said that judges work under the tacit
command of the sovereign but in reality judges make positive laws as well.
 Since the presence of sovereign is a pre-requisite for a proposition to called law, Austin did not
recognize international laws as such because they are not backed by any sovereign.

JOHN WILLIAM SALMOND’S THEORY OF LAW:

Salmond claimed that the purpose of law was the deliverance of justice to the people and in this sense he
differed from Bentham and Austin who went into the analysis of law. But Salmond also necessitated the
presence of the state for implementation of laws just like Bentham and Austin.

Salmond differentiated
John William Salmond was a law professor in New Zealand who later also
between ‘a law’ and ‘the
served as a judge of the Supreme Court of New Zealand. He made
law’ and said that the
seminal contribution in the field of jurisprudence, law of torts and
former refers to the
contracts law.
concrete and the latter to
the abstract.

 In its abstract application we speak of civil law, the law of defamation, criminal law etc. Similarly we
use the phrases law and order, law and justice, courts of law.
 In its concrete sense, on the other hand, we talk about specific laws like the Indian Penal Code or the
Right to Information Act. Law or the law does not consist of the total number of laws in force. The
concrete term is not co-extensive with the abstract in its application.
According to Salmond
— Law is the body of principles which are recognized and applied by the state in the administration of
 NAHATA PROFESSIONAL ACADEMY 7

justice.
— His other definition said that law consists of a set of rules recognized and acted on in courts of
justice. The constituent elements which made up the law are not laws but rules of law or legal
principles.
— Human experience has made it clear that some form of compulsion is required to maintain justice.
— It is in the nature of things to have conflict (between the interests of man and man, and between
those of society at large) and men cannot be left to do what they believe is right in their own eyes.
Therefore, to maintain a just society, it is necessary to add compulsion.
— Hence, there exists various regulative or coercive systems, for the purpose of upholding and
enforcement of right and justice.
— One of the most important of such systems is the administration of justice by the state. The
administration of justice may therefore be defined as the maintenance of right within a political
community by means of physical force of the state.
— Another is the control exercised over men by the opinion of the society in which they live. Censure,
ridicule, contempt are the sanctions by which society (as opposed to the state) enforces the rules of
morality.

Salmond argued that the administration of justice was the primary task of a state and the laws were made
to achieve that objective. Administration of justice was thus antecedent to the laws. Laws thus are
secondary, accidental, unessential. Law consists of the pre-established and authoritative rules which judges
apply in the administration of justice, to the exclusion of their own free will and discretion. Salmond further
said that the administration of justice is perfectly possible without laws though such a system is not
desirable. A court with an unfettered discretion in the absence of laws is capable of delivering justice if
guided by equity and good conscience.

Salmond says that development and maturity of a legal system consists in the progressive substitution of
rigid pre-established principles for individual judgment, and to a very large extent these principles grow up
spontaneously within the courts themselves. That great aggregate of rules which constitutes a developed
legal system, is not a condition precedent of the administration of justice but a product of fit. Gradually
from various sources- precedent, custom, statute—there is a collected body of fixed principles which the
courts apply to the exclusion of their private judgment. Justice becomes increasingly justice according to
law, and courts of justice become increasingly courts of law.
Criticism of Salmond’s theory:
1. Salmond’s assertion that justice is the end and law is only a medium to realize it does not always
hold true because there are a number of laws that can be called ‘unjust’.
2. The pursuit of justice is not the only purpose of law, the law of any period serves many ends and
these ends themselves change with the passage of time.
3. There is a contradiction when Salmond says that the purpose of law is the administration of
justice but limits ‘jurisprudence’ to the study of the ‘first principles’ of civil law of a national legal
system because justice is a universal concept, the jurisprudential analysis of law should not be
constrained by national boundaries.

ROSCOE POUND’S THEORY OF LAW

 Roscoe Pound was one of the biggest proponents of sociological jurisprudence which emphasized
taking into account of social facts in making, interpretation and application of laws.
 Roscoe Pound drew a similarity between the task of a lawyer and an engineer and gave his theory of
social engineering.
 The goal of this theory was to build such a structure of society where the satisfaction of wants of
maximum was achieved with the minimum of friction and waste. Such a society according to Roscoe
Pound would be an ‘efficient’ society.
 Realisation of such a social structure would require balancing of competing interests. Roscoe Pound
defined interests as claims or wants or desires which men assert de facto, and about which law must
do something, if organised societies are to endure.
 NAHATA PROFESSIONAL ACADEMY 8

 For any legal order to be successful in structuring an efficient society, there has to be:
1. Recognition of certain interests- individual, public and social.
2. A definition of the limits within which such interest will be legally recognized and given effect
to.
3. Securing of those interests within the limits as defined.
 According to Roscoe Pound, for determining the scope and the subject matter of the legal system,
following five things are required to be done:
1. Peparation of an inventory of interests and their classification.
2. Selection of the interests which should be legally recognized.
3. Demarcation of the limits of securing the interest so selected.
4. Consideration of the means whereby laws might secure the interests when these have been
acknowledged and delimited, and
5. Evolution of the principles of valuation of interests.
Roscoe Pound’s classification of interests are as follows:
Individual interest: (i) Interest of personality: This includes physical
These are claims or demands integrity, freedom of will, honour and reputation, privacy
determined from the standpoint of and freedom of conscience.
individual’s life and concern. They are- (ii) Interest in domestic relations: This includes
relationships of parents, children, husbands and wives.
(iii) Interest of substance: This includes interests of
property, freedom of association, freedom of industry and
contract, continuity of employment, inheritance and
testamentary succession.
Public interest: (i) Interests of the state as a juristic person: It
These interests are asserted by includes integrity, freedom of action and honour of the
individual from the standpoint of state’s personality, claims of the politically organized
political life. They are: society as a corporation to property acquired and held for
corporate purposes.
(ii) Interests of the state as guardian of social interest.
Social interests: (i) Social interest in the general security: This
These are claims or demands thought includes general safety, peace and order, general health,
of in terms of social life and generalized security of acquisition and transaction.
as claims of the social group. It is from (ii) Social interest in the security of social institutions
the point of view of protecting the such as domestic, religious, political and economic
general interest of all members of the institutions.
society. Social interests include- (iii) Social interest in general morals like laws dealing
with prostitution, gambling, bigamy, drunkenness.
(iv) Social interest in the conservation of social
resources like the natural and human resource. This social
interest clashes to some extent with the individual interest
in dealing with one’s own property as on pleases.
(v) Social interest in general progress. It has three
aspects- economic, political and cultural.
(vi) Social interest in individual life. It involves self-
assertion, opportunity and conditions of life. Society is
interested in individual life because individuals are its
building blocks.
Having given various interest recognized by law, Roscoe Pound applied himself to figure out to balance
competing interests. He said that interests should be weighed on the same plane. According to him one
cannot balance an individual interest against a social interest, since that very way of stating them may
reflect a decision already made. Thus all the interests should be transferred to the same place, most
preferably to the social plane, which is the most general, for any meaningful comparison.
Criticism of Roscoe Pound’s theory of law
 NAHATA PROFESSIONAL ACADEMY 9

 Pound said that interest pre-exist laws and the function of legal system should be to achieve a
balance between competing interests but we see that a lot of interests today are a creation of
laws.
 The theory does not provide any criteria for the evaluation of interest. It is not interests as such,
but the yardstick with reference to which they are measured that matter. It may happen that
some interest is treated as an ideal in itself by a society, in which case it, not as an interest, but as
an ideal that determine the relative importance between it and other interests.
 Pound’s theory of balancing interests can be effectuated most effectively by judges because the
judges get to translate the activity involved in the cases before them in terms of interests and
select the ideal with reference to which the competing interests are to be measured. Thus his
theory gives more importance to judiciary in comparison to the legislature.
 Pound’s distinction between Public ans Social interests is doubtful and even the distinction
between Individual and Social Interest is of minor significance. It is the ideal with reference to
which any interest is considered that matters, not so much the interest itself, still less the
category in which it is placed.
 The recognition of a new interest is a matter of policy. The mere presence of a list of interests is,
therefore, of limited assistance in helping to decide a given dispute.

Prof. HLA Hart

Prof. HLA Hart, British Legal Philosopher listed many meanings associated with the term ‘positivism’ as
follows:
 Laws are commands.
 The analysis of legal concepts is
(a) worth pursuing,
(b) distinct from sociological and historical enquiries into law, and
(c) distinct from critical evaluation.
 Decisions can be deduced logically from predetermined rules without recourse to social aims, policy or
morality.
 Moral judgments cannot be established or defended by rational argument, evidence or proof.
 The law as it is laid down should be kept separate from the law that ought to be.
Positivism is most commonly understood as the fifth description above. Natural law theory claims that
a proposition is ‘law’ not merely because it satisfies some formal requirement, but by virtue of an
additional minimum moral content.
According to it, an immoral rule cannot be ‘law’ even if it satisfies all the formal requirements.

HANS KELSEN’S ‘PURE THEORY OF LAW’

 Kelsen
Hans Kelsen was an Austrian philosopher and jurist who is known for his ‘Pure
focused his
Theory of Law’. Kelsen, like Austin was a positivist. He believed that the
attention on
contemporary study and theories of law were impure as they were drew upon
what the law
from various other fields like religion and morality to explain legal concepts.
was and
divested moral, ideal or ethical elements from law.

 He discarded the notion of justice as an essential element of law because many laws, though not
just, may still continue as law.
 Kelsen described law as a “normative science’ as distinguished from natural sciences which are based
on cause and effect, such as law of gravitation.
 The laws of natural science are capable of being accurately described, determined and discovered
whereas,
 the science of law is knowledge of what law ought to be.
 NAHATA PROFESSIONAL ACADEMY 10

 Like Austin, Kelsen also considered sanction as an essential element of law but he preferred to call it
‘norm’. According to Kelsen
 ‘law is a primary norm which stipulates sanction’.
 ‘norm (sanction) is rules forbidding or prescribing a certain behaviour’.

 He saw legal order as the hierarchy of norms having sanction, and jurisprudence was the study of
these norms which comprised legal order.

 Kelsen distinguished moral norm with legal norm and said that:
 Though moral norms are ‘ought’ prepositions, a violation of it does not have any penal fallout.
 The ‘ought’ in the legal norm refers to the sanction to be applied for violation of law.

According to Kelsen, we attach legal-normative meaning to certain actions and not to others depending on
whether that event is accorded any legal-normative by any other legal norm. This second norm gains its
validity from some other norm that is placed above it. The successive authorizations come to an end at the
highest possible norm which was termed by Kelsen as ‘Grundnorm’. Thus, Kelsen’s pure theory of law is
based on pyramidical structure of hierarchy of norms which derive their validity from the basic norm.
Grundnorm or basic norm determines the content and gives validity to other norms derived from it. Under
Kelsen’s pure theory, the Grundnorm does not derive its validity from any other norm and its validity must
be presupposed. In his view the basic norm is the result of social, economic, political and other conditions
and it is supposed to be valid by itself.

The legal order as conceived by Kelsen receives its unity from the fact that the multiple norms which make
the legal system can be traced back to a final source. This final source is the basic norm or the Grundnorm
which he defined as “the postulated ultimate rule according to which the norms of this order are
established and annulled, receive or lose their validity. For example, In India a statue or law is valid because
it derives its legal authority from being duly passed by the Parliament and receiving the accent of the
President, the Parliament and the President, derive their authority from a norm i.e., the Constitution. As to
the question from where does the Constitution derive its validity there is no answer and, therefore, it is the
Grundnorm, according to Kelsen’s conception of pure theory of law.

Criticism of Kelsen’s Pure Theory

1. It is difficult to trace ‘grundnorm’ in every legal system. Also, there is no rule or yardstick to
measure the effectiveness of grundnorm. All that Kelsen maintained was that the grundnorm
imparts validity as long as the ‘total legal order’ remains effective, which he later revised to ‘by
and large’ effective. He did not give any measure of ‘total’ and ‘by and large’.
2. The Pure Theory also did not give the timeframe for which the effectiveness should hold for
the requirement of validity to be satisfied. Validity is a matter to be determined in the context
of a given point of time and depends on what judges are prepared to accept at that moment as
imparting law-quality.
3. Kelsen’s theory ceases to be ‘pure’ the moment one tries to analyse the grundnorm because
then one will have to draw upon subjects other than law like sociology, history and morality.
4. International law does not sit well with Kelsen’s Pure theory. He advocated a monist view of
the relationship between international and municipal law and declared that the grundnorm of
the international system postulated the primacy of international law. The actual experience
has been to the contrary and the countries of the world mostly give primacy to municipal laws
over international laws.

SCHOOLS OF LAW

Natural School of Law

Natural law says that certain rights are inherent by virtue of human nature and can be understood
universally through human reason. The law of nature, divine law, or the law that exists in all of nature is
 NAHATA PROFESSIONAL ACADEMY 11

how the natural school of law is typically understood. Though it was made by man, it is discovered via each
person’s unique personality. Religion has a significant influence on it. The fundamental tenet of this
philosophy is that human law can be judged for its applicability in light of a higher moral rule. There is a
notion that certain moral laws cannot be violated without retaining their moral or legal status. There is a
fundamental link between morality and the law under this theory.

This school of law is divided into four theories:

1. Ancient Theory
2. Medieval Theory
3. Renaissance Theory
4. Modern theory

1. Ancient Theory
There were two groups of philosophers. Under this school fall most of the ancient definitions given by
Roman and other ancient jurists.
(a) Roman philosopher (b) Greek philosopher
Roman Philosophers
Ulpine defined Law as “the art or science of what is equitable and good.”
Cicero said that Law is “the highest reason implanted in nature.”
Justinian’s Digest defines Law as “the standard of what is just and unjust.”
In all these definitions, propounded by Romans, “justice” is the main and guiding element of law.
(a) Heraclitus – He was one of the first Greek philosopher who identified three main features of law of
nature- destiny, reason and order. He stated that all these three elements are interconnected and
interrelated.

(b) Socrates – He was a prominent Stoic philosopher. He was of the view that just like Natural moral law,
there is also ‘human insight’. Human sights is what helps a man to distinguish between good and bad.

(c) Plato – He was the disciple of Socrates and his theory on natural law was characterized by two main
aspects – wisdom and reason.

(d ) Aristotle – He defined natural law as a ‘reason unaffected by desires’, inherent nature of man, human
insight and all this together shape the human will and articulate the actions, justice and morality at the
core level.

2. Medieval Theory
Medieval Theory is based on the theological idea i.e the God. This stage provide a divine based law i.e
law of nature is then law of God. And the law of god is actually the true Dharma connecting law with
that of god. Thus, ‘law’ is a part of “Dharma”. The major exponents of were-
Thomas Aquinas – He is the major exponent of this theory. He categorized the law into 4 categories:
(1) Law of God or Lex Aeterna
(2) Natural Law or Lex Naturalis
(3) Divine Law
(4) Human Law
3. Renaissance Theory This theory is marked by rationalism. Reason is the main foundation of this
theory. It has two distinct features –
More secular, political and was founded on human reasons
It advocates natural rights of a man and the state. Major proponents if this era were –
1. Hugo Grotius – He built his theory on ‘social contract’. Accordingly to him the duty of sovereign
is to safeguard its citizens. The sovereign is bound by natural law.
2. Immanuel Kant – He states that a man is guided by his own conscience. According to him,
natural law is not only based on reason but right reason.
4. Modern Theory This modern theory rejects then older theories and conceptions.
This theory was a Revival of Natural law.
 NAHATA PROFESSIONAL ACADEMY 12

Revival was a reaction against the positive and historical approaches but in a modified manner.
Stammler, Rawl, Fuller, are major propounder of this theory.
Stammler stated that law of nature means the just law, with harmonious purposes in the society.

ANALYTICAL SCHOOL OF LAW

The major exponent of this school was English jurist John Austin. He perceived and considered law in its
present form and not what it should be. This school of jurisprudence is also known as the positivist school
of law.

According to John Austin, “Law is the aggregate of rules set by man as politically superior, or sovereign, to
men as political subject.” In other words, law is the “command of the sovereign”. It obliges a certain course
of conduct or imposes a duty and is backed by a sanction. Thus, the command, duty and sanction are the
three elements of law.

Hans Kelsen gave a ‘pure theory of law’. According to him, law is a ‘normative science’. The legal norms are
‘Ought’ norms as distinct from ‘Is’ norms of physical and natural sciences. Law does not attempt to describe
what actually occurs but only prescribes certain rules. The science of law to Kelsen is the knowledge of
hierarchy of normative relations. All norms derive their power from the ultimate norm called ‘Grundnorm’.

Grundnorm – It is the fundamental law of land also known as superior law. Every other law has to adhere to
this law.

Superior Norm – It is those laws which govern the subordinate laws. They are inferior to Supreme law but
superior to subordinate law.

Subordinate Norm –Laws which are derived or made to assist the superior norm. These norms derives their
justification from superior norm.

HISTORICAL SCHOOL OF LAW

Savigny’s theory of law can be summarised as follows:
 That law is a matter of unconscious and organic growth. Therefore, law is found and not made.
 Law is not universal in its nature. Like language, it varies with people and age.
 Custom not only precedes legislation but it is superior to it. Law should always conform to the
popular consciousness.
 Law has its source in the common consciousness (Volkgeist) of the people.
 Legislation is the last stage of law making, and, therefore, the lawyer or the jurist is more important
than the legislator.
According to Sir Henry Maine, “The word ‘law’ has come down to us in close association with two notions,
the notion of order and the notion of force”.

PHILOSOPHICAL/ETHICAL SCHOOL

The exponents of this school believe that law and ethical values are co-related. The law, in order to
command respect in society must have an element of ethical value and ethical purpose. It considers law as
a means to
achieve its end by which individual will is to harmonize with the general will.

According to Hugo Grotius states that the rules of human conduct emerged from the right reason and
therefore, they receive public support of the community. Hegel believed that the purpose of making law is
to reconcile the conflicting egos in the society. Law is the means to achieve human perfection and to secure
individual liberty in the society.

SOCIOLOGICAL DEFINITION OF LAW

 NAHATA PROFESSIONAL ACADEMY 13

Duguit defines law as “essentially and exclusively a social fact.”

Ihering defines law as “the form of the guarantee of the conditions of life of society, assured by State’s
power of constraint”.

There are three essentials of this definition. First, in this definition law is treated as only one means of social
control. Second, law is to serve social purpose. Third, it is coercive in character.

Roscoe Pound analysed the term “law” in the 20th century background as predominantly an instrument of
social engineering in which conflicting pulls of political, philosophy, economic interests and ethical values
constantly struggled for recognition against background of history, tradition and legal technique.

Roscoe Pound thinks of law as a social institution to satisfy social wants – the claims and demands and
expectations involved in the existence of civilised society by giving effect to as much as may be satisfied or
such claims given effect by ordering of human conduct through politically organised society.

REALIST DEFINITION OF LAW

Realists define law in terms of judicial process.

According to Holmes, “Law is a statement of the circumstances in which public force will be brought to
bear upon through courts.”

According to Cardozo, “A principle or rule of conduct so established as to justify a prediction with

reasonable certainty that it will be enforced by the courts if its authority is challenged, is a principle or rule
of law.”

From the above definitions, it follows that law is nothing but a mechanism of regulating the human conduct
in society so that the harmonious co-operation of its members increases.

It thereby avoids the ruin by coordinating the divergent conflicting interests of individuals and of society
which, in its turn, enhances the potentialities and viability of the society as a whole.

The State, in order to maintain peace and order in society, formulates certain rules of conduct to be
followed by people. These rules of conduct are called ‘laws’.

To summarise, following are the main characteristics of law and a definition to become universal one,
must incorporate all these elements:
 Law pre-supposes a State
 The State makes or authorizes to make, or recognizes or sanctions rules which are called law
 For the rules to be effective, there are sanctions behind them
 These rules (called laws) are made to serve some purpose.
The purpose may be a social purpose, or it may be simply to serve some personal ends of a despot
Separate rules and principles are known as ‘laws’.

Such laws may be mandatory, prohibitive or permissive.

 A mandatory law calls for affirmative act, as in the case of law requiring the payment of taxes.
 A prohibitive law requires negative conduct, as in the case of law prohibiting the carrying of concealed
weapon or running a lottery.
 A permissive law is one which neither requires nor forbids action, but allows certain conduct on the
part of an individual if he desires to act

SOURCES OF INDIAN LAW

The expression “sources of law” has been used to convey different meanings. There are as many
interpretations of the expression “sources of law” as there are schools and theories about the concept of
law. The general meaning of the word “source”is origin. There is a difference of opinion among the jurists
 NAHATA PROFESSIONAL ACADEMY 14

about the origin of law. Austin contends that law originates from the sovereign. Savigny traces the origin in
Volkgeist (general consciousness of the people). The sociologists find law in numerous heterogeneous
factors. For theologians, law originates from God. Vedas and the Quran which are the primary sources of
Hindu and Mohammedan Law respectively are considered to have been revealed by God. Precisely,
whatever source of origin may be attributed to law, it has emanated from almost similar sources in most of
the societies. The modern Indian law as administered in courts is derived from various sources and these
sources fall under the following two heads:
i. Primary sources of Indian Laws.
ii. Secondary sources of Indian Laws.

PRINCIPLE SOURCES OF INDIAN LAW

(A) CUSTOMS OR CUSTOMARY LAW
• Custom is the most ancient of all the sources of law
• In primitive society, the lives of the people were regulated by customs. It was felt that a
particular way of doing things was more convenient than others.
• When the same thing was done again and again in a particular way, it assumed the form of
custom.
• Customs have played an important role in moulding the ancient Hindu Law.
• Most of the law given in Smritis and the commentaries had its origin in customs.

Customs worked as a re-orienting force in Indian Law. It has held the most important place in the
past, though its importance is now diminishing with the growth of legislation and precedent.

Classification of Customs:
The customs may be divided into two classes:
– Customs without sanction.
– Customs having sanction.
Customs without sanction are those customs which are non-obligatory and are observed due to the
pressure of public opinion. These are called as “positive morality”.
Customs having sanction are those customs which are enforced by the State. It is with these customs
that we are concerned here. These may be divided into two classes:

Legal Conventional
Legal Customs: These customs operate as a binding rule of law. Conventional Customs: These
They have been recognised and enforced by the courts and are also known as “usages”.
therefore, they have become a part of the law of land. Legal These customs are binding due
customs are again of two kinds: to an agreement between the
parties, and not due to any
legal authority independently
Local Customs General Customs
possessed by them. Before a
Court treats the conventional
Local custom is the custom A general custom is that which custom as incorporated in a
which prevails in some definite prevails throughout the contract, following conditions
locality and constitutes a source country and constitutes one of must be satisfied:
of law for that place only. But the sources of law of the land.  It must be shown that
there are certain sects or The Common Law in England is the convention is
communities which take their equated with the general clearly established and
customs with them wherever customs of the realm. it is fully known to the
they go. They are also local contracting parties.
customs. Thus, local customs There is no fixed
may be divided into two classes: period for which a
– Personal Local Customs convention must have
– Geographical Local been observed before
Customs it is recognised as
 NAHATA PROFESSIONAL ACADEMY 15

binding.
These customs are law only for a  Convention cannot
particular locality, section or alter the general law
community. of the land.
 It must be reasonable.
Like legal customs,
conventional customs
may also be classified
as general or local.
Local conventional
customs are limited
either to a particular
place or market or to a
particular trade or
transaction.

Requisites of a Valid Custom

A custom will be valid at law and will have a binding force only if it fulfills the following essential conditions:
Immemorial (Antiquity): A custom to be valid must be proved to be immemorial; It must be ancient.
A custom, to be legal and binding must have been used so long that the
memory of man runs not to the contrary. That means if anyone can show
the beginning of it, it is no good custom.
In India, all that is required to be proved is that the alleged custom is
ancient.
Certainty: The custom must be certain and definite, and must not be vague and
ambiguous.
Reasonableness: A custom must be reasonable. It must be useful and convenient to the
society. A custom is unreasonable if it is opposed to the principles of justice,
equity and good conscience.
Compulsory Observance: A custom to be valid must have been continuously observed without any
interruption from times immemorial and it must have been regarded by
those affected by it as an obligatory or binding rule of conduct.
Conformity with Law and A custom must not be opposed to morality or public policy nor must it
Public Morality: conflict with statute law. If a custom is expressly forbidden by legislation and
abrogated by a statute, it is inapplicable.
Unanimity of Opinion: The custom must be general or universal. If practice is left to individual
choice, it cannot be termed as custom.
Peaceable Enjoyment: The custom must have been enjoyed peaceably without any dispute in a law
court or otherwise.
Consistency: There must be consistency among the customs. Custom must not come into
conflict with the other established customs.

(B) JUDICIAL DECISION OR PRECEDENTS

Meaning of Precedents:
General meaning Some set pattern guiding the future conduct.
Judicial field meaning It means the guidance or authority of past decisions of the courts for
future cases.

Only such decisions which lay down some new rule or principle are called judicial precedents. The
principles of law expressed for the first time in court decisions become precedents to be followed as law
in deciding problems and cases identical with them in future.
 NAHATA PROFESSIONAL ACADEMY 16

The reason why a precedent is recognised is that

 A judicial decision is presumed to be correct.
 The practice of following precedents creates confidence in the minds of litigants.
 Law becomes certain and known and that in itself is a great advantage
 Administration of justice becomes equitable and fair.

The rule that a court decision becomes a precedent to be followed in similar cases is known as doctrine of
stare decisis.

High courts and supereme court

The decisions of High Court are binding on all the subordinate courts and tribunals within its jurisdiction.
The decisions of one High Court have only a persuasive value in a court which is within the jurisdiction of
another High Court. But if such decision is in conflict with any decision of the High Court within whose
jurisdiction that court is situated, it has no value and the decision of that High Court is binding on the court.

In case of any conflict between the two decisions of co-equal Benches, generally the later decision is to be
followed.
 In a High Court, a single judge constitutes the smallest Bench.
 A Bench of two judges is known as Division Bench.
 Three or more judges constitute a Full Bench. A decision of such a Bench is binding on a Smaller
Bench.

 One Bench of the same High Court cannot take a view contrary to the decision already given by
another co- ordinate Bench of that High Court. Though decision of a Division Bench is wrong, it is
binding on a single judge of the same High Court.

 Thus, a decision by a Bench of the High Court should be followed by other Benches unless they have
reason to differ from it, in which case the proper course is to refer the question for decision by a Full
Bench.

 The High Courts are the Courts of co-ordinate jurisdiction. Therefore, the decision of one High Court
is not binding on the other High Courts and have persuasive value only. Pre-Constitution (1950) Privy
Council decisions are binding on the High Courts unless overruled by the Supreme Court.

 The Supreme Court is the highest court and its decisions are binding on all courts and other judicial
tribunals of the country. Article 141 of the Constitution makes it clear that the law declared by the
Supreme Court shall be binding on all courts within the territory of India. The words “law declared”
includes an obiter dictum provided it is upon a point raised and argued (Bimladevi v. Chaturvedi, AIR
1953 All. 613).

 However, it does not mean that every statement in a judgement of the Supreme Court has the
binding effect. Only the statement of ratio of the judgement is having the binding force.

 The expression ‘all courts’ used in Article 141 refers only to courts other than the Supreme Court.
Thus, the Supreme Court is not bound by its own decisions. However, in practice, the Supreme Court
has observed that the earlier decisions of the Court cannot be departed from unless there are
extraordinary or special reasons to do so. If the earlier decision is found erroneous and is thus
detrimental to the general welfare of the public, the Supreme Court will not hesitate in departing
from it.

 English decisions have only persuasive value in India. The Supreme Court is not bound by the
 NAHATA PROFESSIONAL ACADEMY 17

decisions of Privy Council or Federal Court. Thus, the doctrine of precedent as it operates in India lays
down the principle that decisions of higher courts must be followed by the courts subordinate to
them. However, higher courts are not bound by their own decisions.

Kinds of Precedents
Precedents may be classified as:
Declaratory and Declaratory Precedents
Original Precedents :
Original
Precedents:  A declaratory precedent is
one which is merely the  An original precedent is one
application of an already which creates and applies a new
existing rule of law. rule of law.
 In the case of a declaratory  In the case of an original
precedent, the rule is applied precedent, it is law for the future
because it is already a law. because it is now applied.
 Declaratory precedents are  The number of original
more numerous. precedents is small but their
 A declaratory precedent is as importance is very great.
good a source of law as an  They alone develop the law of
original precedent. the country. They serve as good
evidence of law for the future.

The legal authority of both is exactly the same.

Persuasive A persuasive precedent is one which the judges are not obliged to follow but
Precedents: which they will take into consideration and to which they will attach great weight
as it seems to them to deserve.
A persuasive precedent, therefore, is not a legal source of law; but is regarded as
a historical source of law.
EXAMPLE:
 In India, the decisions of one High Court are only persuasive precedents in
the other High Courts.
 The rulings of the English and American Courts are persuasive precedents
only.
 Obiter dicta also have only persuasive value.
Absolutely An authoritative precedent is one which judges must follow whether they
Authoritative approve of it or not. Its binding force is absolute and the judge’s discretion is
Precedents: altogether excluded as he must follow it. Unlike a persuasive precedent which is
merely historical, an authoritative precedent is a legal source of law.
Absolutely authoritative precedents in India: Every court in India is absolutely
bound by the decisions of courts superior to itself.
EXAMPLE:
 The subordinate courts are bound to follow the decisions of the High
Court to which they are subordinate.
 A single judge of a High Court is bound by the decision of a bench of two
or more judges.
 All courts are absolutely bound by decisions of the Supreme Court.

Conditionally A conditionally authoritative precedent is one which, though ordinarily binding

Authoritative on the court before which it is cited, is liable to be disregarded in certain
Precedents circumstances. The court is entitled to disregard a decision if it is a wrong one,
i.e., contrary to law and reason.
EXAMPLE:
The decision of a single Judge of the High Court is absolutely authoritative so far
 NAHATA PROFESSIONAL ACADEMY 18

as subordinate judiciary is concerned,

but it is only conditionally authoritative when cited before a Division Bench of
the same High Court.

IMPORTANT DOCTRINES
Doctrine of Stare Decisis

The doctrine of stare decisis means “adhere to the decision and do not unsettle things which are
established”. A principle of law which has become settled by a series of decisions generally is binding on the
courts and should be followed in similar cases. Although doctrine should be strictly adhered to by the
courts, it is not universally applicable. The doctrine should not be regarded as a rigid and inevitable doctrine
which must be applied at the cost of justice.
Features:
 This doctrine is intended to bring about certainty and uniformity in the law.
 The principle means that like cases should be decided alike.
 This rule is based on public policy.
 The doctrine is not rigid and inevitable doctrine.
Ratio Decidendi
The underlying principle of a judicial decision, which is only authoritative, is termed as ratio decidendi. The
authority of a decision as a precedent lies in its ratio decidendi.
Where an issue requires to be answered on principles, the principles which are deduced by way of
abstraction of the material facts of the case eliminating the immaterial elements is known as ratio
decidendi and such principle is not only applicable to that case but to other cases also which are of similar
nature.
Features:
 Ratio decidendi is nothing more than the decision based on the material facts of the case.
 It is the ratio decidendi or the general principle which has the binding effect as a precedent.
 The determination or separation of ratio decidendi from obiter dictum is not so easy. It is for the judge
to determine the ratio decidendi and to apply it on case to be decided.
Obiter Dicta
The literal meaning of this Latin expression is “said by the way”. The expression is used to denote those
judicial utterances in a judgement which taken by themselves, were not strictly necessary for the decision
of the issue raised.
Obiter Dicta are of different kinds and of varying degree of weight. Some obiter dicta are deliberate
expressions of opinion given after consideration on a point clearly brought and argued before the court. It is
open to other judges to give a decision contrary to such obiter dicta.
Features:
 These statements go beyond the requirement of a particular case
 They have the force of persuasive precedents only.
 The judges are not bound to follow them but they can take advantage of them.
 These statements sometimes help the cause of the reform of law.

(C) STATUTES OR LEGISLATION

Legislation is that source of law which consists in the declaration of legal rules by an authority duly
empowered by the Constitution in that behalf. It is sometimes called jus scriptum (written law) as
contrasted with the customary law or jus non-scriptum (unwritten law).

Statute law or statutory law is what is created by legislation, for example, Acts of Parliament or of State
Legislature.
Legislation is either supreme or subordinate (delegated).
Supreme Legislation is that :
 which proceeds from the sovereign power in the State or
 which derives its power directly from the Constitution
 which cannot be repealed, annulled or controlled by any other legislative authority.
 NAHATA PROFESSIONAL ACADEMY 19

The Parliament of India possesses the power of supreme legislation. Acts of Parliament and the Ordinances
and other laws made by the President and Governors in so far as they are authorised to do so under the
Constitution are supreme legislation.
Subordinate Legislation is that :
 which proceeds from any authority other than the sovereign power.
 It is dependent for its continued existence and validity on some superior authority.

Such subordinate legislation is known as executive or delegated legislation.

The legislation made by various authorities like Corporations, Municipalities, etc. under the authority of the
supreme legislation are subordinate legislation.
Legislative powers have been given to the judiciary, as the superior courts are allowed to make rules for the
regulation of their own procedure. The executive, whose main function is to enforce the law, is given in
some cases the power to make rules.
EXAMPLE:
• Municipal bodies by delegation from the legislature, have a limited power of making regulations or
bye-laws for the area under their jurisdiction.
• Sometimes, the State allows autonomous bodies like universities to make bye-laws which are
recognised and enforced by courts of law.

The rule-making power of the executive is, however, hedged with limitations. The rules made by it are
placed on the table of both Houses of Parliament for a stipulated period and this is taken as having been
approved by the legislature. Such rules then become part of the enactment. Where a dispute arises as to
the validity of the rules framed by the executive, courts have the power to sit in judgement whether any
part of the rules so made is in excess of the power delegated by the parent Act.
(d) PERSONAL LAW
In many cases, the courts are required to apply the personal law of the parties where the point at issue is
not covered by any statutory law or custom.
In the case of Hindus, for instance, their personal The personal law of Mohammedans is to be
law is to be found in: found in:
(a) The Shruti which includes four Vedas. (a) The holy Quran.
(b) The ‘Smritis’ which are recollections (b) The actions, percept and sayings of the
handed down by the Rishis or ancient Prophet Mohammed which though not
teachings and precepts of God, the written during his life time were
commentaries written by various ancient preserved by tradition and handed
authors on these Smritis. There are three down by authorised persons. These are
main Smritis; the Codes of Manu, known as Hadis.
Yajnavalkya and Narada. (c) Ijmas, i.e., a concurrence of opinion of
the companions of the Prophet and his
disciples.
(d) Kiyas or reasoning by analogy. These are
analogical deductions derived from a
comparison of the Quran, Hadis and
Ijmas when none of these apply to a
particular case.
(e) Digests and Commentaries on
Mohammedan law, the most important
and famous of them being the Hedaya
which was composed in the 12th
century and the Fatawa Alamgiri which
was compiled by commands of the
Mughal Emperor Aurangzeb Alamgiri.
 NAHATA PROFESSIONAL ACADEMY 20

Hindus are governed by their personal law as Mohammedans are governed by their personal
modified by statute law and custom in all matters law as modified by statute law and custom in all
relating to inheritance, succession, marriage, matters relating to inheritance, wills,
adoption, coparcenary, partition of joint family succession, legacies, marriage, dowry, divorce,
property, pious obligations of sons to pay their gifts, wakfs, guardianship and pre-emption.
father’s debts, guardianship, maintenance and
religious and charitable endowments.

SECONDARY SOURCE OF INDIAN LAW

(i) Justice, Equity and Good Conscience

The concept of “justice, equity and good conscience” was introduced by Impey’s Regulations of 1781.
In personal law disputes, the courts are required to apply the personal law of the defendant if the
point at issue is not covered by any statute or custom.

The ancient Hindu Law had its own versions of the doctrine of justice, equity and good conscience.

In its modern version, justice, equity and good conscience as a source of law, owes its origin to the
beginning of the British administration of justice in India. The Charters of the several High Courts
established by the British Government directed that in the absence of any rule of a statutory law or
custom or personal law, the Indian courts apply “justice, equity and good conscience” to the decision
of a case, which may mean the rules of English Law in so far as they are applicable to Indian society
and circumstances.
The Supreme Court has stated that it is now well established that in the absence of any rule of Hindu
Law, the courts have authority to decide cases on the principles of justice, equity and good
conscience unless in doing so the decision would be repugnant to, or inconsistent with, any doctrine
or theory of Hindu Law.

(ii) Sources of English Law

Since the main body of rules and principles of Indian law is an adaptation of English law, the main
sources of English law are discussed here after:
The chief sources of English law are:

(i) Common Law:

1) The Common Law is the name given to those principles of law evolved by the judges in making
decisions on cases that are brought before them.
2) These principles have been built up over many years to form a complete statement of the law
in particular areas.
3) Common Law denotes that body of legal rules, the primary sources of which were the general
immemorial customs, judicial decisions and text books on Jurisprudence.
4) Common Law is unwritten law of England which is common to the whole of the realm.

(ii) Law Merchant:

The Law Merchant is the most important source of the Merchantile Law. Law Merchant means those
customs and usages which are binding on traders in their dealings with each other.
But before a custom can have a binding force of law, it must be shown that such a custom is
 ancient,
 general
 commands universal compliance.
In all other cases, a custom has to be proved by the party claiming it.

(iii) Principle of Equity:

Equity is a body of rules, the primary source of which was neither custom nor written law, but the
 NAHATA PROFESSIONAL ACADEMY 21

imperative dictates of conscience and which had been set forth and developed in the Courts of
Chancery.
The procedure of Common Law Courts was very technical and dilatory. Action at Common Law could
be commenced by first obtaining a writ or a process. The writs were limited in number and unless a
person was able to bring his case within one of those writs, no action could lie at Common Law. In
some cases, there was no remedy or inadequate remedy at Common Law. The King was considered
as the fountain head of justice; when people were dissatisfied or aggrieved with the decision of the
Common Law Court, they could always file a mercy petition with the King-in-Council. The King would
refer these petitions to his Chancellor. The Chancellor, who was usually a Bishop, would dispose of
these petitions not according to the rigid letter of the law but according to his own dictates of
commonsense, natural justice and good conscience. The law so administered by the Chancellor came
to be known as ‘Equity’ and such courts as ‘Equity Courts’.
These ‘Equity Courts’ acted on number of maxims e.g.,
1. “He who seeks equity must do equity”,
2. “He who comes to equity must come with clean hands”.
Some of the important principles and remedies developed by Equity Courts are recognition of:
a) the right of beneficiary to trust property,
b) remedy of specific performance of contracts,
c) equity of redemption in case of mortgages etc.

The Equity Courts had their separate existence from the Common Law Courts in England. After
passing of the Judicature Act of 1873, the separate existence of such courts was abolished.
All High Courts were empowered to grant either or both the remedies (Common Law as well as
Equity).

(iv) Statute Law:

Statute law is that portion of law which is derived from the legislation or enactment of Parliament or
the subordinate and delegated legislative bodies. It is now a very important source of Law. A written
or statute law overrides unwritten law, i.e., both Common Law and Equity. Some of the important
enactments in the domain of Mercantile Law are: The English Partnership Act, 1890, The English Sale
of Goods Act,1893, Bankruptcy Act, 1914, Carriers Act, 1830, The English Companies Act, 1948 etc.

SOURCES OF MERCANTILE LAW

The following are the main sources of Mercantile Law:
 Law Merchant
 Statute Law
 Comman Law
 Principle of Equity

These have already been discussed under the heading – Sources of English Law.

Mercantile Law in India

Prior to 1872, mercantile transactions were regulated by the law of the parties to the suit (i.e., Hindu Law,
Mohammedan Law etc.). In 1872, The Indian Contract Act, 1872 was enacted. Since then, various Acts have
been enacted to regulate transactions regarding partnership, sale of goods, negotiable instruments, etc.

Sources of Indian Mercantile Law

The main sources of Indian Mercantile Law are:
(a) English Mercantile Law: The Indian Mercantile Law is mainly an adaptation of English Mercantile
Law. However, certain modifications wherever necessary, have been incorporated in it in order to
suit Indian conditions. Its dependence on English Mercantile Law is so much that even now in the
absence of provisions relating to any matter in the Indian Law, the English Mercantile Law is the
recourse.
 NAHATA PROFESSIONAL ACADEMY 22

(ii) Acts enacted by Indian Legislature or Statute Law: The Acts enacted by the Indian legislature from
time to time which are important for the study of Indian Mercantile Law include,
(i) The Indian Contract Act, 1872,
(ii) The Sale of Goods Act, 1930,
(iii) The Indian Partnership Act, 1932,
(iv) The Negotiable Instruments Act, 1881,
(v) The Arbitration and Conciliation Act, 1996,
(vi) The Insurance Act, 1938.

(b) Judicial Decisions: Judges interpret and explain the statutes. Whenever the law is silent on a point,
the judge has to decide the case according to the principles of justice, equity and good conscience. It
would be accepted in most systems of law that cases which are identical in their facts, should also be
identical in their decisions so as to ensure justice for the individual claimant and a measure of
certainty for the law itself.

The English legal system has developed a system of judicial precedent which requires the extraction
of the legal principle from a particular judicial decision and, on fulfillment of certain conditions,
ensures that judges apply the principle in subsequent cases which are indistinguishable. The latter
provision being termed “binding precedents”. Such decisions are called as precedents and become
an important source of law. After independence, the Supreme Court of India is the final Court of
Appeal. The decisions of English Courts such are frequently referred to as precedents in deciding
certain cases and in interpreting Indian Statutes.

(c) Customs and Trade Usages: Most of the Indian Law has been codified. But even then, it has not
altogether done away with customs and usages. Many Indian statutes make specific provisions to the
effect that the rules of law laid down in a particular Act are subject to any special custom or usages
of trade.
For example,

Section 1 of the Indian Contract Act, 1872, lays down that, “Nothing herein contained shall effect the
provisions of any Statute, Act or Regulation not hereby expressly repealed, nor any usage or custom
of trade, nor any incident of any contract, not inconsistent with the provisions of this Act”.

Similarly Section 1 of the Negotiable Instruments Act, 1881, lays down that, “nothing herein
contained... affects any local usage relating to any instrument in any oriental language”.

It may be noted that the whole law relating to Hundis and the Kachhi and Pakki Adat Systems of
Agency is based on custom and usage of trade as recognised and given legal effect to by courts of law
in India.
 NAHATA PROFESSIONAL ACADEMY 23

QUESTIONS:
1. Discuss the ‘‘Doctrine of Stare Decisis’’, under the sources of law. [DEC-2019] (5 Marks)
2. Critically examine the statement by Austin that “Law is the command of sovereign”. [DEC-2018]
Or
3. Describe Austin’s “Command Theory of Law” under analytical school. [DEC-2021]
4. Critically examine Roscoe Pound’s theory of interests. [JUNE-2019] (5 Marks)
5. ‘Justice, Equity and Good Conscience’ is the main Secondary Source of Indian Law. Explain it.
[DEC-2020] (5 Marks)
6. Natural law says that certain rights are inherent by virtue of human nature and can be
understood universally through human reason. Explain. [JUNE-2021]
7. What are the essential conditions of a valid custom ? Discuss. Explain any four. [JUNE-2021]
Or
8. all customs cannot be accepted as sources of law, nor can all customs be recognized and enforced
by the courts.’’ Discuss the essential tests for customs to be recognized as valid sources of law.
[DEC-2021]
9. Define the concept of Kelson’s ‘Pure Theory of Law’ under Analytical School. [DEC-2021]
10. Describe Austin’s “Command Theory of Law” under analytical school. [DEC-2021]
11. Define and distinguish between declaratory and persuasive precedents. [JUNE-2022]
12. The sovereign power of making laws should be wielded, not to guarantee the selfish desires of
individuals, but consciously to secure the common good. Critically examine this statement of
Bentham. [JUNE-2022]
13. How ratio decidendi differs from obiter dicta? [JUNE-2022]
 NAHATA PROFESSIONAL ACADEMY 24

CHAPTER -2
CONSTITUTION OF INDIA

The object behind this chapter, Constitution of India is to make students aware about concept of supreme
legislation and delegated legislation, the manner in which laws are framed in India and also limitation
about such power to make laws, which is helpful to understand the procedure to make laws and grounds
on which constitutional validity of any law may be challenged.
 Nature of constitution
 Fundamental rights
 Enforcement of fundamental rights
 Directive principles of state policy
 Fundamental duties
 Law making power in India
 Held by parliament and state legislature
 Ordinance power vested with president and governor
 Interpretation of the power vested in schedule VII
 Delegated legislation
 Bills
 Types of court

The Preamble to the Constitution States WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute
India into a SOVEREIGN SOCIALIST SECULAR DEMOCRATIC REPUBLIC and to secure to all its citizens:

JUSTICE, social, economic and political;

LIBERTY of thought, expression, belief, faith and worship;

EQUALITY of status and of opportunity; and

to promote among them all FRATERNITY assuring the dignity of the individual and the unity and integrity of
the Nation;

IN OUR CONSTITUENT ASSEMBLY this twenty-sixth day of November, 1949, do HEREBY ADOPT, ENACT
AND GIVE TO OURSELVES THIS CONSTITUTION

INTRODUCTION

 The Constitution of India came into force on January 26, 1950. It is a comprehensive document
containing 395 Articles (divided into 22 Parts) and 12(originally 8) Schedules.
 Apart from dealing with the structure of Government, the Constitution makes detailed provisions for
the rights of citizens and other persons in a number of entrenched provisions and for the principles
to be followed by the State in the governance of the country, labelled as “Directive Principles of State
Policy”.
 All public authorities – legislative, administrative and judicial derive their powers directly or indirectly
from it and the Constitution derives its authority from the people.
 The Constitution of the country reflects the basic principles and laws of a nation, state, or social
group that determine the powers and duties of the government and guarantee certain rights to the
people in it. It reflects the ideology and system of the Nation.
 It is the prime source of other laws.
 NAHATA PROFESSIONAL ACADEMY 25

STRUCTURE

Constitution of India is basically federal but with certain unitary features. The majority of the Supreme
Court judges in Kesavananda Bharati v. State of Kerala, AIR 1973 SC 1461, were of the view that the
federal features form the basic structure of the Indian Constitution. However, there is some controversy as
to whether the Indian Constitution establishes a federal system or it stipulates a unitary form of
Government with some basic federal features. Thus, to decide whether our Constitution is federal, unitary
or quasi federal, it would be better to have a look at the contents of the Constitution.

The essential features of a Federal Polity or System are

Dual Government, distribution of powers, supremacy of the Constitution, independence of Judiciary,

written Constitution, and a rigid procedure for the amendment of the Constitution.

The political system introduced by our Constitution possesses all the aforesaid essentials of a federal polity
as follows:
(a) In India, there are Governments at different levels, like Union and States.
(b) Powers to make laws have been suitably distributed among them by way of various lists as per the
Seventh Schedule.
(c) Both Union and States have to follow the Constitutional provisions when they make laws.
(d) The Judiciary is independent with regard to judicial matters and judiciary can test the validity of
independently. The Supreme Court decides the disputes between the Union and the States, or the
States inter se.
(e) The Constitution is supreme and if it is to be amended, it is possible only by following the procedure
explained in Article 368 of the Constitution itself. From the above, it is clear that the Indian
Constitution basically has federal features. But the Indian Constitution does not establish two co-
ordinate independent Governments. Both the Governments co-ordinate, co-operate and collaborate
in each other’s efforts to achieve the ideals laid down in the preamble.

Peculiar Features of Indian Federalism Indian Constitution differs from the federal systems of the world
in certain fundamental aspects, which are as follows:

(a) The Mode of Formation: A federal Union, as in the American system, is formed by an agreement
between a number of sovereign and independent States, surrendering a defined part of their
sovereignty or autonomy to a new central organisation. Butthere is an alternative mode of
federation, as in the Canadian system where the provinces of a Unitary State may be transformed
into a federal union to make themselves autonomous. India had a thoroughly Centralised Unitary
Constitution until the Government of India Act, 1935 which for the first time set up a federal system
in the manner as in Canada viz., by creation of autonomous units and combining them into a
federation by one and the same Act.
(b) Position of the States in the Federation: In a federal system, a number of safeguards are provided
for the protection of State’s rights as they are independent before the formation of federation. In
India, as the States were not previously sovereign entities, the rights were exercised mainly by
Union, e.g., residuary powers.
(c) Citizenship etc.: The framers of the American Constitution made a logical division of everything
essential to sovereignty and created a dual polity with dual citizenship, a double set of officials and a
double system of the courts. There is, however, single citizenship in India, with no division of public
services or of the judiciary.
(d) Residuary Power: Residuary power is vested in the Union. Inotherwords,theConstitutionofIndia
isneitherpurely federal nor purely unitary. It is a combination of both and is based upon the principle
that “In spite of federalism the national interest ought to be paramount as against autocracy stepped
with the establishment of supremacy of law”
PART III
FUNDAMENTAL RIGHTS
General
Definition.—
 NAHATA PROFESSIONAL ACADEMY 26

In this Part, unless the context

otherwise requires, “the State”
includes The State
• the Government and includes:-
Parliament of India and (a) the Government and Parliament of India;
• the Government and the (b) the Government and
Legislature of each of the Legislature of each of States; and the
States and (c) all local or other authorities: (i) within the
territory of India; or (ii) under the control of the
• all local or other authorities Government of India.
within the territory of India or
under the control of the
Government of India.
The expression ‘local authorities’ refers to authorities like Municipalities, District Boards,
Panchayats, Improvement Trusts, Port Trusts and Mining Settlement Boards.

The Supreme Court has held that ‘other authorities’ will include all authorities created by
the Constitution or statute on whom powers are conferred by law and it is not necessary
that the authority should engage in performing government functions (Electricity Board,
Rajasthan Mohanlal, AIR 1967 SC 1957).

“under the control of the Government of India” bring, into the definition of State, not only
every authority within the territory of India, but also those functioning outside, provided
such authorities are under the control of the Government of India.

The Calcutta High Court has held that the electricity authorities being State within the
meaning of Article 12, their action can be judicially reviewed by this Court under Article
226 of the Constitution of India. (In re: Angur Bala Parui, AIR 1999 Cal. 102).
It has also been held that a university is an authority (University of Madras v. Shanta Bai,
AIR 1954 Mad. 67).
The Gujarat High Court has held that the President is “State” when making an order under
Article 359 of the Constitution (Haroobhai v. State of Gujarat, AIR 1967, Guj. 229).
The words In Bidi Supply Co. v. Union of India, AIR 1956 SC 479, State was
interpreted to include its Income-tax department

Sukhdev Singh The Supreme Court in, has pointed out that corporations acting as
v. Bhagatram, instrumentality or agency of government would become ‘State’ because
& R.D. Shetty v. obviously they are subjected to the same limitations in the field of constitutional
International or administrative law as the government itself, though in the eye of law they
Airports would be distinct and independent legal entities.
Authority Statutory and non-statutory bodies that get financial resources from government,
have deep pervasive control of government and with functional characters as such as
ICAR, CSIR, ONGC, IDBI, Electricity Boards, NAFED, Delhi Transport Corporation etc.
come under the definition of state. Statutory and Non-statutory bodies which are not
substantially generally financed by the government don’t come under definition of
state. Examples are autonomous bodies, Cooperatives.
Ajay Hasia v. In the Supreme Court has enunciated the following test for determining
Khalid Mujib whether an entity is an instrumentality or agency of the State:
(1) If the entire share capital of the Corporation is held by the Government, it
would go a long way towards indicating that the corporation is an
instrumentality or agency of the Government.
(2) Where the financial assistance of the State is so much as to meet almost
the entire expenditure of the corporation it would afford some
indication of the corporation being impregnated with government
character.
 NAHATA PROFESSIONAL ACADEMY 27

(3) Whether the corporation enjoys a monopoly status which is conferred or

protected by the State.
(4) Existence of deep and pervasive State control may afford an indication
that the corporation is a State agency or an instrumentality.
(5) If the functions of the corporation are of public importance and closely
related to government functions, it would be a relevant factor in
classifying a corporation as an instrumentality or agency of government.
(6) If a department of government is transferred to a corporation, it would
be a strong factor supporting an inference of the corporation being an
instrumentality or agency of government.
Pradeep An important decision on the definition of State in Article 12 is (2002) 5 SCC 111.
Kumar Biswas A seven Judge Bench of the Supreme Court by a majority of 5:2 held that CSIR is
v. Indian an instrumentality of “the State” falling within the scope of Article 12. The
Institute of multiple test which is to be applied to ascertain the character of a body as
Chemical falling within Article 12 or outside is to ascertain the nature of financial,
Biology, functional and administrative control of the State over it and whether it is
dominated by the State Government and the control can be said to be so deep
and pervasive so as to satisfy the court “of brooding presence of the
Government” on the activities of the body concerned.
A.R. Antualay Judiciary although an organ of State like the executive and the legislature, is not
v. R.S. Nayak specifically mentioned in Article 12. However, the position is that where the
Court performs judicial functions, e.g. determination of scope of fundamental
rights vis-a-vis legislature or executive action, it will not occasion the
infringement of fundamental rights and therefore it will not come under ‘State’
in such situation. While in exercise of non-judicial functions e.g. in exercise of
rule-making powers, where a Court makes rules which contravene the
fundamental rights of citizens, the same could be challenged treating the Court
as ‘State’.

13 Laws inconsistent with or in derogation of the fundamental rights.—

(1) All laws in force in the territory of India immediately before the commencement of this
Constitution, in so far as they are inconsistent with the provisions of this Part, shall, to the
extent of such inconsistency, be void. (Existing laws)

(2) The State shall not make any law which takes away or abridges the rights conferred by this
Part and any law made in contravention of this clause shall, to the extent of the
contravention, be void. (Future laws)
In State of Punjab v. Dalbir Singh AIR 2012 SC 1040 Supreme Court held that article 13(2)
clearly prohibits the making of any law by the state which takes away or abridges rights,
conferred by part III of the Constitution. In the event of such a law being made the same
shall be void to the extent of contravention
(3) In this article, unless the context otherwise requires,—
(a) “law” includes any Ordinance, order, bye-law, rule, regulation, notification, custom
or usage having in the territory of India the force of law;
(b) “laws in force” includes laws passed or made by a Legislature or other competent
authority in the territory of India before the commencement of this Constitution and
not previously repealed, notwithstanding that any such law or any part thereof may
not be then in operation either at all or in particular areas.

(4) Nothing in this article shall apply to any amendment of this Constitution made under article
368.
 NAHATA PROFESSIONAL ACADEMY 28

Article 13 gives teeth to the fundamental rights. It lays down the rules of interpretation in regard to laws
inconsistent with or in derogation of the Fundamental Rights.
DOCTRINE OF One thing to be noted in Article 13 is that, it is not the entire law which is affected
SEVERABILITY by the provisions in Part III, but the law becomes invalid only to the extent to
which it is inconsistent with the Fundamental Rights. So only that part of the law
will be declared invalid which is inconsistent, and the rest of the law will stand.
However, on this point a clarification has been made by the Courts that invalid
part of the law shall be severed and declared invalid if really it is severable, i.e., if
after separating the invalid part the valid part is capable of giving effect to the
legislature’s intent, then only it will survive, otherwise the Court shall declare the
entire law as invalid. This is known as the rule of severability.
The doctrine has been applied invariably to cases where it has been found possible
to separate the invalid part from the valid part of an Act. Article 13 only says that
any law which is inconsistent with the fundamental rights is void “to the extent of
inconsistency” and this has been interpreted to imply that it is not necessary to
strike down the whole Act as invalid, if only a part is invalid and that part can
survive independently.
A.K. Gopalan v. The Supreme Court ruled that where an Act was partly
State of Madras, invalid, if the valid portion was severable from the rest, the
A.I.R.1950 S.C. 27 valid portion would be maintained, provided that it was
sufficient to carry out the purpose of the Act.
DOCTRINE OF The other noteworthy thing in Article 13 is that, though an existing law
ECLIPSE inconsistent with a fundamental right becomes in-operative from the date of the
commencement of the Constitution, yet it is not dead altogether. A law made
before the commencement of the Constitution remains eclipsed or dormant to the
extent it comes under the shadow of the fundamental rights, i.e. is inconsistent
with it, but the eclipsed or dormant parts become active and effective again if the
prohibition brought about by the fundamental rights is removed by the
amendment of the Constitution. This is known as the doctrine of eclipse.
Bhikaji Narain The doctrine was first evolved in this case, the validity of C.P.
Dhakras v. State and Berar Motor Vehicles Amendment Act, 1947,
of M.P., A.I.R. empowering the Government to regulate, control and to take
1955 S.C. 781. up the entire motor transport business was challenged. The
Act was perfectly a valid piece of legislation at the time of its
enactment. But on the commencement of the Constitution,
the existing law became inconsistent under Article 13(1), as it
contravened the freedom to carry on trade and business
under Article 19(1)(g). To remove the infirmity the
Constitution (First Amendment) Act, 1951 was passed which
permitted creation by law of State monopoly in respect of
motor transport business. The Court held that the Article by
reason of its language could not be read as having obliterated
the entire operation of the inconsistent law or having wiped
it altogether from the statute book. In case of a pre-
Constitution law or statute, it was held, that the doctrine of
eclipse would apply. The relevant part of the judgement is:
“The true position is that the impugned law became as it
were, eclipsed, for the time being, by the fundamental right.
The effect of the Constitution (First Amendment) Act, 1951
was to remove the shadow and to make the impugned Act
free from all blemish or infirmity.”
DOCTRINE OF The doctrine of waiver of rights is based on the premise that a person is his best
WAIVER judge and that he has the liberty to waive the enjoyment of such rights as are
conferred on him by the State. However, the person must have the knowledge of
 NAHATA PROFESSIONAL ACADEMY 29

his rights and that the waiver should be voluntary.

Basheshar Nath v. where the majority expressed its view against the
C.I.T., AIR 1959 SC 149 waiver of fundamental rights. It was held that it was not
open to citizens to waive any of the fundamental rights.
Any person aggrieved by the consequence of the
exercise of any discriminatory power, could be heard to
complain against it.
DOCTRINE OF Since 1951, questions have been raised about the scope of amending process
BASIC contained in Article 368 of the Constitution. The basic question raised was
STRUCTURE whether the Fundamental Rights are amendable. The question whether the word
(Amendability of ‘Law’ in Clause (2) of Article 13 includes amendments or not or whether
the Fundamental amendment in Fundamental Rights guaranteed by Part III of the Constitution is
Rights) permissible under the procedure laid down in Article 368 had come before the
Supreme Court in Shankari Prasad v. Union of India, A.I.R. 1951 S.C. 458, in 1951
where the First Amendment was challenged. The Court held that the power to
amend the Constitution including the Fundamental Rights, was contained in
Article 368 and that the word ‘Law’ in Article 13(2) did not include an
amendment to the Constitution which was made in exercise of constituent and
not legislative power.
This decision was approved by the majority judgement in Sajjan Singh v.State of
Rajasthan, A.I.R. 1965 S.C. 845. Thus, until the case of I.C. Golak Nath v. State of
Punjab, A.I.R. 1967, S.C. 1643, the Supreme Court had been holding that no part
of our Constitution was unamenable and that Parliament might, by passing a
Constitution Amendment Act, in compliance with the requirements of Article 368,
amend any provision of the Constitution, including the Fundamental Rights and
Article 368 itself.
But, in Golak Nath’s case, a majority overruled the previous decisions and held
that the Fundamental Rights are outside the amendatory process if the
amendment takes away or abridges any of the rights. The majority, in Golak
Nath’s case, rested its conclusion on the view that the power to amend the
Constitution was also a legislative power conferred by Article 245 by the
Constitution, so that a Constitution Amendment Act was also a ‘law’ within the
purview of Article 13(2).
To nullify the effect of Golak Nath’s case, Parliament passed the Constitution
(Twenty-Fourth Amendment) Act in 1971 introducing certain changes in Article
13 and Article 368, so as to assert the power of Parliament(denied to it in Golak
Nath’s case)to amend the Fundamental Rights. The Constitutional validity of
the 24th Amendment was challenged in the case of Kesavanand Bharti v. State of
Kerala, A.I.R. 1973 S.C. 1461. The Supreme Court upheld the validity of
24th Constitutional Amendment holding that Parliament can amend any Part of
the Constitution including the Fundamental Rights. But the Court made it clear
that Parliament cannot alter the basic structure or framework of the
Constitution.
In Indira the appellant challenged the decision of the Allahabad High Court
Gandhi v. who declared her election as invalid on ground of corrupt
Raj Narain, practices. In the mean time Parliament enacted the 39th
AIR 1975 Amendment withdrawing the control of the S.C. over election
S.C. 2299, disputes involving among others, the Prime Minister. The S.C.
upheld the challenge and held that democracy was an essential
feature forming part of the basic structure of the Constitution.
The exclusion of Judicial review in Election disputes in this
manner damaged the basic structure. The doctrine of ‘basic
structure’ placed a limitation on the powers of the Parliament to
introduce substantial alterations or to make a new Constitution.
 NAHATA PROFESSIONAL ACADEMY 30

To neutralise the effect of this limitation, the Constitution(Forty-

Second Amendment)Act, 1976 added to Article 368 two new
clauses. By new clause (4), it has been provided that no
amendment of the Constitution made before or after the Forty-
Second Amendment Act shall be questioned in any Court on any
ground. New clause (5) declares that there shall be no
limitation whatever on the Constitutional power of parliament to
amend by way of addition, variation or repeal the provisions of
this Constitution made under Article 368.
The scope and extent of the application of the doctrine of basic
structure again came up for discussion before the S.C. in
Minerva Mill Ltd. v. Union of India, (1980) 3 SCC,625. The
Supreme Court unanimously held clauses (4) and (5) of
Article 368 and Section 55 of the 42nd Amendment Act
as unconstitutional transgressing the limits of the
amending power and damaging or destroying the basic
structure of the Constitution.

GVK The Court held that under our Constitution, while some features
industries v. are capable of being amended by Parliament, pursuant to the
The Income amending power granted by Article 368, the essential features -
Tax Officer the basic structure –of the Constitution is beyond such powers of
(2011) 4 SCC Parliament. The power to make changes to the basic structure of
36 the Constitution vests only in the people sitting, as a nation,
through its representatives in a Constituent Assembly.

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.

Right to Equality

Article 14 applies to all persons and is not limited to citizens. A corporation, which is a juristic person, is
also entitled to the benefit of this Article (Chiranjit Lal Chowdhurary v. Union of India, AIR 1951 SC 41). As
is evident, Article 14 guarantees to every person the right to equality before the law or the equal
protection of the laws.
‘equality The expression ‘equality before the law’ which is a declaration of equality of all
before the persons within the territory of India, implying thereby the absence of any special
law’ privilege in favour of any individual. Every person, whatever be his rank or position is
subject to the jurisdiction of the ordinary courts.
“the equal The second expression “the equal protection of the laws” directs that equal protection
protection of shall be secured to all persons within the territorial jurisdiction of the Union in the
the laws” enjoyment of their rights and privileges without favouritism or discrimination.

Legislative classification
A right conferred on persons that they shall not be denied equal protection of the laws does not mean the
protection of the same laws for all. It is here that the doctrine of classification steps in and gives content
and significance to the guarantee of the equal protection of the laws. To separate persons similarly situated
from those who are not, legislative classification or distinction is made carefully between persons who are
and who are not similarly situated.
State of Bihar v. The Supreme Court in held that now it is well settled and cannot be disputed that
Bihar State ‘Plus- Article 14 of the Constitution guarantees equality before the law and confers equal
2’ lectures protection of laws. It prohibits the state from denying persons or class of persons
Associations, equal treatment; provided they are equals and are similarly situated. It however,
 NAHATA PROFESSIONAL ACADEMY 31

does not forbid classification. In other words, what Article 14 prohibits is

discrimination and not classification if otherwise such classification is legal, valid and
reasonable.
Test of valid Since a distinction is to be made for the purpose of enacting a legislation, it must
classification pass the classical test enunciated by the Supreme Court. Permissible classification
State of West must satisfy two conditions, namely; (i) it must be founded on an intelligible
Bengal v. Anwar differentia which distinguishes persons or things that are grouped together from
Ali Sarkar, AIR others left out of the group; and (ii) the differentia must have a rational nexus with
1952 SC 75 the object sought to be achieved by the statute in question.
Ram Kishan The rules with respect to permissible classification as evolved in the various
Dalmiya v. Justice decisions have been summarised by the Supreme Court in as follows:
Tendulkar, AIR (i) Article 14 forbids class legislation, but does not forbid classification.
1958 SC, 538 (ii) Permissible classification must satisfy two conditions, namely, (a) it must be
founded on an intelligible differentia which distinguishes persons or things
that are grouped together from others left out of the group, and (b) the
differentia must have a relation to the object sought to be achieved by the
statute in question.
(iii) The classification may be founded on different basis, namely geographical,
or according to objects or occupations or the like.
(iv) In permissible classification, mathematical nicety and perfect equality are
not required. Similarly, non- identity of treatment is enough.
(v) Even a single individual may be treated a class by himself on account of
some special circumstances or reasons applicable to him and not applicable
to others; a law may be constitutional even though it relates to a single
individual who is in a class by himself.
(vi) Article 14 condemns discrimination not only by substantive law but by a law
of procedure.
(vii) There is always a presumption in favour of the constitutionality of an
enactment and the burden is upon him who attacks it to show that there
has been a clear transgression of the constitutional principles.
(P. Rajandran For a valid classification there has to be a rational nexus between the classification
State of Mysore, made by the law and the object sought to be achieved. For example a provision for
district-wise distribution of seats in State Medical colleges on the basis of
population of a district to the population of the State was held to be void
Single Person A law may be constitutional, even though it relates to a single individual, if that
Law single individual is treated as a class by himself on some peculiar circumstances. The
case is Charanjit Lal Chowdhary v. Union of India, AIR 1951 SC 41. In this case, the
petitioner was an ordinary shareholder of the Sholapur Spinning and Weaving Co.
Ltd. The company through its directors had been managing and running a textile mill
of the same name. Later, on account of mis-management, a situation had arisen
that brought about the closing down of the mill, thus affecting the production of an
essential commodity, apart from causing serious unemployment amongst certain
section of the community. The Central Government issued an Ordinance which was
later replaced by an Act, known as Sholapur Spinning & Weaving Co. (Emergency
Provisions) Act, 1950. With the passing of this Act, the management and the
administration of the assets of the company were placed under the control of the
directors appointed by the Government. As regards the shareholders, the Act
declared that they could neither appoint a new director nor could take proceedings
against the company for winding up. The petitioner filed a writ petition on the
ground that the said Act infringed the rule of equal protection of laws as embodied
in Article 14, because a single company and its shareholders were subjected to
disability as compared with other companies and their shareholders. The Supreme
Court dismissed the petition and held the legislation as valid. It laid down that the
law may be constitutional even though it applies to a single individual if on account
 NAHATA PROFESSIONAL ACADEMY 32

of some special circumstances or reasons applicable to him only, that single

individual may be treated as a class by himself. However, in subsequent cases the
Court explained that the rule of presumption laid down in Charanjit Lal’s case is not
absolute, but would depend on facts of each case.

15 Prohibition of discrimination on grounds of religion, race, caste, sex or place of birth.—

(1) The State shall not discriminate against any citizen on grounds only of religion, race, caste, sex,
place of birth or any of them.
(2) No citizen shall, on grounds only of religion, race, caste, sex, place of birth or any of them, be
subject to any disability, liability, restriction or condition with regard to—
(a) access to shops, public restaurants, hotels and places of public entertainment; or
(b) the use of wells, tanks, bathing ghats, roads and places of public resort maintained
wholly or partly out of State funds or dedicated to the use of the general public.
(3) Nothing in this article shall prevent the State from making any special provision for women and
children.
(4) Nothing in this article or in clause (2) of article 29 shall prevent the State from making any special
provision for the advancement of any socially and educationally backward classes of citizens or
for the Scheduled Castes and the Scheduled Tribes.
(5) Nothing in this article or in sub-clause (g) of clause (1) of article 19 shall prevent the State from
making any special provision, by law, for the advancement of any socially and educationally
backward classes of citizens or for the Scheduled Castes or the Scheduled Tribes in so far as such
special provisions relate to their admission to educational institutions including private
educational institutions, whether aided or unaided by the State, other than the minority
educational institutions referred to in clause (1) of article 30.
(6) Nothing in this article or sub-clause (g) of clause (1) of article 19 or clause (2) of article 29 shall
prevent the State from making,—
(a) any special provision for the advancement of any economically weaker sections of citizens
other than the classes mentioned in clauses (4) and (5); and

(b) any special provision for the advancement of any economically weaker sections of citizens
other than the classes mentioned in clauses (4) and (5) in so far as such special provisions
relate to their admission to educational institutions including private educational
institutions, whether aided or unaided by the State, other than the minority educational
institutions referred to in clause (1) of article 30, which in the case of reservation would be
in addition to the existing reservations and subject to a maximum of ten per cent. of the
total seats in each category.

Explanation.— For the purposes of this article and article 16, "economically weaker sections"
shall be such as may be notified by the State from time to time on the basis of family income and
other indicators of economic disadvantage.

16 Equality of opportunity in matters of public employment.—

(1) There shall be equality of opportunity for all citizens in matters relating to employment or
appointment to any office under the State.

(2) No citizen shall, on grounds only of religion, race, caste, sex, descent, place of birth, residence or
any of them, be ineligible for, or discriminated against in respect of, any employment or office
under the State.

(3) Nothing in this article shall prevent Parliament from making any law prescribing, in regard to a
class or classes of employment or appointment to an office under the Government of, or any
local or other authority within, a State or Union territory, any requirement as to residence within
that State or Union territory prior to such employment or appointment.
 NAHATA PROFESSIONAL ACADEMY 33

(4) Nothing in this article shall prevent the State from making any provision for the reservation of
appointments or posts in favour of any backward class of citizens which, in the opinion of the
State, is not adequately represented in the services under the State.

(4A) Nothing in this article shall prevent the State from making any provision for reservation in
matters of promotion, with consequential seniority, to any class] or classes of posts in the
services under the State in favour of the Scheduled Castes and the Scheduled Tribes which, in the
opinion of the State, are not adequately represented in the services under the State.

(4B) Nothing in this article shall prevent the State from considering any unfilled vacancies of a year
which are reserved for being filled up in that year in accordance with any provision for
reservation made under clause (4) or clause (4A) as a separate class of vacancies to be filled up in
any succeeding year or years and such class of vacancies shall not be considered together with
the vacancies of the year in which they are being filled up for determining the ceiling of fifty per
cent. reservation on total number of vacancies of that year.

(5) Nothing in this article shall affect the operation of any law which provides that the incumbent of
an office in connection with the affairs of any religious or denominational institution or any
member of the governing body thereof shall be a person professing a particular religion or
belonging to a particular denomination.

(6) Nothing in this article shall prevent the State from making any provision for the reservation of
appointments or posts in favour of any economically weaker sections of citizens other than the
classes mentioned in clause (4), in addition to the existing reservation and subject to a maximum
of ten per cent. of the posts in each category.

17 Abolition of Untouchability.—
“Untouchability” is abolished and its practice in any form is forbidden. The enforcement of any
disability arising out of “Untouchability” shall be an offence punishable in accordance with law.

18 Abolition of titles.—
(1) No title, not being a military or academic distinction, shall be conferred by the State.

(2) No citizen of India shall accept any title from any foreign State.

(3) No person who is not a citizen of India shall, while he holds any office of profit or trust under the
State, accept without the consent of the President any title from any foreign State.

(4) No person holding any office of profit or trust under the State shall, without the consent of the
President, accept any present, emolument, or office of any kind from or under any foreign State.

It has been pointed out by the Supreme Court that the framers of the Constitution prohibited
titles of nobility and all other titles that carry suffixes or prefixes as they result in the distinct
class of citizens. However, framers of the Constitution did not intend that the State should not
officially recognise merit or work of an extra ordinary nature. The National awards are not
violative of the principles of equality as guaranteed by the provisions of the Constitution. The
theory of equality does not mandate that merit should not be recognised. The Court has held
that the National awards do not amount to “titles” within the meaning of Article 18(1) and they
should not be used as suffixes or prefixes. If this is done, the defaulter should forfeit the
National award conferred on him/her, following the procedure laid down in regulation 10 of
each of the four notifications creating these National awards.

Right to Freedom
 NAHATA PROFESSIONAL ACADEMY 34

19 Protection of certain rights regarding freedom of speech, etc.

etc.—
(1) All citizens shall have the
right—
(a) to freedom of speech
and expression;
(b) to assemble peaceably
and without arms;
(c) to form associations or
unions or co-operative
societies;
(d) to move freely
throughout the
territory of India;
(e) to reside and settle in
any part of the territory
of India; and
(g) to practise any profession, or to carry on any occupation, trade or business.

(2) Nothing in sub-clause

lause (a) of clause (1) shall affect the operation of any existing law, or prevent
the State from making any law, in so far as such law imposes reasonable restrictions on the
exercise of the right conferred by the said sub sub-clause in the interests of the sovereignty
vereignty and
integrity of India, the security of the State, friendly relations with foreign States, public order,
decency or morality, or in relation to contempt of ourt, defamation or incitement to an
offence.

(3) Nothing in sub-clause

clause (b) of the said clause shall affect the operation of any existing law in so
far as it imposes, or prevent the State from making any law imposing, in the interests of the
sovereignty and integrity of India or public order, reasonable restrictions on the exercise of
the right
ht conferred by the said sub
sub-clause.

(4) Nothing in sub-clause

clause (c) of the said clause shall affect the operation of any existing law in so
far as it imposes, or prevent the State from making any law imposing, in the interests of the
sovereignty and integrity
rity of India or public order or morality, reasonable restrictions on the
exercise of the right conferred by the said sub
sub-clause.
(5) Nothing in sub-clauses
clauses (d) and (e) of the said clause shall affect the operation of any existing
law in so far as it imposes,
oses, or prevent the State from making any law imposing, reasonable
restrictions on the exercise of any of the rights conferred by the said sub
sub-clauses
clauses either in the
interests of the general public or for the protection of the interests of any Scheduled Tribe.
Tr

(6) Nothing in sub-clause

clause (g) of the said clause shall affect the operation of any existing law in so
far as it imposes, or prevent the State from making any law imposing, in the interests of the
general public, reasonable restrictions on the exercexercise
ise of the right conferred by the said sub-
sub
clause, and, in particular, nothing in the said sub sub-clause
clause shall affect the operation of any
existing law in so far as it relates to, or prevent the State from making any law relating to,—
to,
(i) the professional or technical
nical qualifications necessary for practising any profession or
carrying on any occupation, trade or business, or
(ii) the carrying on by the State, or by a corporation owned or controlled by the State, of
any trade, business, industry or service, whether to th the
e exclusion, complete or partial,
of citizens or otherwise.
These freedoms are those great and basic rights which are recognized as the natural rights inherent in the
status of a citizen. At the same time, none of these freedoms is absolute but subject to reasonable
restrictions specified under clauses (2) to (6) of the Article 19. The Constitution under Articles 19(2) to 19(6)
permits the imposition of restrictions on these freedoms subject to the following conditions:
(a) The restriction can be imposed byy law and not by a purely executive order issued under a statute;
(b) The restriction must be reasonable;
 NAHATA PROFESSIONAL ACADEMY 35

(c) The restriction must be imposed for achieving one or more of the objects specified in the
respective clauses of Article 19.

REASONABLENESS
It is very important to note that the restrictions should be reasonable. If this word ‘reasonable’ is not there,
the Government can impose any restrictions and they cannot be challenged. This word alone gives the right
to an aggrieved person to challenge any restriction of the freedoms granted under this Article.
Reasonableness of the restriction is an ingredient common to all the clauses of Article 19. Reasonableness is
an objective test to be applied by the judiciary. Legislative judgment may be taken into account by the
Court, but is not conclusive. It is subject to the supervision of Courts. The following factors are usually
considered to assess the reasonableness of a law:
(i) The objective of the restriction;
(ii) The nature, extent and urgency of the evil sought to be dealt with by the law in question;
(iii) How far the restriction is proportion to the evil in question
(iv) Duration of the restriction
(v) The conditions prevailing at the time when the law was framed.
The onus of proving to the satisfaction of the Court that the restriction is reasonable is upon the
State.

SCOPE AND LIMITATIONS ON THE FREEDOMS

Right to freedom of speech and expression

It need not be mentioned as to how important the freedom of speech and expression is in a democracy. A
democratic Government attaches a great importance to this freedom because without freedom of speech
and expression the appeal to reason which is the basis of democracy cannot be made.

The right to speech and expression includes right to make a good or bad speech and even the right of not to
speak. One may express oneself even by signs. The Courts have held that this right includes the freedom of
press and right to publish one’s opinion, right to circulation and propagation of one’s ideas, freedom of
peaceful demonstration, dramatic performance and cinematography. It may also include any other mode of
expression of one’s ideas.
Cricket Ass. of The Supreme Court in has held that this freedom includes the right to
Bengal v. the communicate through any media - print, electronic and audio visual.
Secretary,
Ministry of I & B
Romesh Thapar it was observed that “freedom of speech and of the press lay at the foundation of
v. State of all democratic organisations, for without free political discussion no public
Punjab, AIR 1950 education, so essential for the proper functioning of the process of popular
S.C. 124, Government is possible”. Imposition of pre-censorship on publication under clause
(2), is violative of freedom of speech and expression.
Commercial it was held in Hamdard Dawakhana v. Union of India, AIR 1960 SC 554 that they
advertisements do not fall within the protection of freedom of speech and expression because
such advertisements have an element of trade and commerce. A commercial
advertisement does not aim at the furtherance of the freedom of speech.
Later the perception about advertisement changed and it has been held that
commercial speech is a part of freedom of speech and expression guaranteed
under Article 19(1)(a) and such speech can also be subjected to reasonable
restrictions only under Article 19(2) and not otherwise (Tata Press Ltd. v. MTNL,
AIR 1995 SC 2438).
Union of India v. The Supreme Court has held that right to fly the National Flag freely with respect
Naveen Jindal, and dignity is a fundamental right of a citizen within the meaning of Article
(2004) 2 SCC 476, 19(1)(a) of the Constitution being an expression and manifestation of his
allegiance and feelings and sentiments of pride for the nation.
Dramatic performance is also a form of speech and expression. The right of a
 NAHATA PROFESSIONAL ACADEMY 36

citizen to exhibit films on the Doordarshan subject to the terms and conditions to
be imposed by the latter has also been recognized. (Odyssey Communications (P)
Ltd. v. Lokvidayan Sangathan, AIR 1988 SC 1642).
K.A. Abbas v. The Court held that censorship of films including (pre-censorship) is justified under
Union of India Article 19(1)(a) and (2) of the Constitution but the restrictions must be reasonable.

The freedom of speech and expression under Article 19(1)(a) means the right to express one’s convictions
and opinions freely by word of mouth, writing, printing, pictures or any other mode. This freedom includes
the freedom of press as it partakes of the same basic nature and characteristic (Maneka Gandhi v. Union of
India, AIR 1978 S.C. 597). However no special privilege is attached to the press as such, distinct from
ordinary citizens.

The right to freedom of speech is infringed not only by a direct ban on the circulation of a publication but
also by an action of the Government which would adversely affect the circulation of the paper. The only
restrictions which may be imposed on the press are those which clause (2) of Article 19 permits and no
other (Sakal Papers (P) Ltd. v. Union of India, AIR 1962 SC 305)

The right to know, ‘receive and impart information’ has been recognized within the right to freedom of
speech and expression (S.P. Gupta v. President of India, AIR 1982 SC 14).

A citizen has a fundamental right to use the best means of imparting and receiving information and as such
to have an access to telecasting for the purpose. (Secretary, Ministry of I&B, Govt. of India v. Cricket
Association of Bengal, (1995)

Clause (2) of Article 19 specifies the limits upto which the freedom of speech and expression may be
restricted. It enables the Legislature to impose by law reasonable restrictions on the freedom of speech
and expression under the following heads:
Sovereignty and integrity of India

Security of the State

Friendly relation with foreign States

Public Order
Permissible
Restrictions Decency or morality or

Contempt of Court

(2) Freedom of assembly

The next right is the right of citizens to assemble peacefully and without arms [Art. 19(1)(b)]. Calling
an assembly and putting one’s views before it is also intermixed with the right to speech and
expression discussed above, and in a democracy it is of no less importance than speech. However,
apart from the fact that the assembly must be peaceful and without arms, the State is also
authorised to impose reasonable restrictions on this right in the interests of:
(i) the sovereignty and integrity of India, or
(ii) Public order.
Freedom of assembly is an essential element in a democratic Government. In the words of Chief
Justice Waite of the Supreme Court of America, “the very idea of Government, republican in form,
implies a right on the part of citizens to meet peaceably for consultation in respect of public affairs”.
The purpose of public meetings being the education of the public and the formation of opinion on
religious, social, economic and political matters, the right of assembly has a close affinity to that of
 NAHATA PROFESSIONAL ACADEMY 37

free speech under Article 19(1)(a).

(3) Freedom to asccoation

The freedom of association includes freedom to hold meeting and to takeout processions without
arms. Right to form associations for unions is also guaranteed so that people are free to have the
members entertaining similar views. This right is also, however, subject to reasonable restrictions,
which the State may impose in the interests of:
(1) in the interests of the sovereignty and integrity of India or
(2) public order or
(3) morality

In Tikaramji v. Uttar Pradesh, AIR 1956 SC 676, the Supreme Court observed that assuming the right
to form an association “implies a right not to form an association, it does not follow that the negative
right must also be regarded as a fundamental right”. However, the High Court of Andhra Pradesh has
held, that this right necessarily implies a right not to be a member of an association.
Hence, the rules which made it compulsory for all teachers of elementary schools to become
members of an association were held to be void as being violative of Article 19(1)(c) (Sitharamachary
v. Sr. Dy. Inspector of Schools, AIR 1958 A.P. 78).

(4) Freedom of movement

Right to move freely throughout the territory of India is another right guaranteed under Article
19(1)(d). This right, however, does not extend to travel abroad, and like other rights stated above, it
is also subject to the reasonable restrictions which the State may impose
(1) in the interests of the general public or
(2) for the protection of the interests of any Scheduled Tribe.
The vital principle which has to be kept in mind is that the restrictive law should strike a proper
balance between the freedom guaranteed under Article 19(1)(g) and the social control permitted by
clause (6) of Article 19. The restriction must not be of an excessive nature beyond what is required in
the interests of the public.

(5) Freedom of residence

Article 19(1)(e) guarantees to a citizens the right to reside and settle in any part of the territory of
India. This right overlaps the right guaranteed by clause (d). This freedom is said to be intended to
remove internal barriers within the territory of India to enable every citizen to travel freely and
settle down in any part of a State or Union territory. This freedom is also subject to reasonable
restrictions in the interests of general public or for the protection of the interests of any Scheduled
Tribe under Article 19(5). That apart, citizens can be subjected to reasonable restrictions (Ebrahim v.
State of Bom., (1954) SCR 933, 950). Besides this, certain areas may be banned for certain kinds of
persons such as prostitutes (State of U.P. v. Kaushaliya, AIR 1964 SC 416)

(6) Freedom to trade and occupations

Article 19(1)(g) provides that all citizens shall have the right to practise any profession, or to carry on
any occupation, trade or business. An analysis of the case law reveals that the emphasis of the
Courts has been on social control and social policy. However, no hard and fast rules have been laid
down by the Court for interpreting this Article. The words ‘trade’, ‘business’, ‘profession’ used in
this Article have received a variety of interpretations. The word trade’ has been held to include the
occupation of men in buying and selling, barter or commerce, work, especially skilled, thus of the
widest scope (The Management of Safdarjung Hospital v. K.S. Sethi, AIR 1970 S.C. 1407).

The word ‘business’ is more comprehensive than the word ‘trade’. Each case must be decided
according to its own circumstances, applying the common sense principle as to what business is. A
profession on the other hand, has been held ordinarily as an occupation requiring intellectual skill,
often coupled with manual skill. Like other freedoms discussed above, this freedom is also subject to
reasonable restrictions.
 NAHATA PROFESSIONAL ACADEMY 38

Article 19(6) provides as under:

Nothing in sub-clause (g) of the said clause shall affect the operation of any existing law in so far as it
imposes, or prevent the State from making any law imposing, in the interests of the general public,
reasonable restrictions on the exercise of the right conferred by the said sub-clause, and, in
particular, nothing in the said sub-clause shall affect the operation of any existing law in so far as it
relates to, or prevent the State from making any law relating to,—
(i) the professional or technical qualifications necessary for practising any profession or carrying on any
occupation, trade or business, or
(ii) the carrying on by the State, or by a corporation owned or controlled by the State, of any trade,
business, industry or service, whether to the exclusion, complete or partial, of citizens or otherwise.

Article 19(1)(g) of the Constitution guarantees that all citizens have the right to practice any
profession or to carry on any occupation or trade or business. The freedom is not uncontrolled, for,
clause (6) of the Article authorises legislation which (i) imposes reasonable restrictions on this
freedom in the interests of the general public; (ii) prescribes professional or technical qualifications
necessary for carrying on any profession, trade or business; and (iii) enables the State to carry on any
trade or business to the exclusion of private citizens, wholly or partially. In order to determine the
reasonableness of the restriction, regard must be had to the nature of the business and conditions
prevailing in that trade. It is obvious that these factors differ from trade to trade, and no hard and
fast rules concerning all trades can be laid down.The word ‘restriction’ used in clause (6) is wide
enough to include cases of total prohibition also. Accordingly, even if the effect of a law is the
elimination of the dealers from the trade, the law may be valid, provided it satisfies the test of
reasonableness or otherwise. The vital principle which has to be kept in mind is that the restrictive
law should strike a proper balance between the freedom guaranteed under Article 19(1)(g) and the
social control permitted by clause (6) of Article 19. The restriction must not be of an excessive nature
beyond what is required in the interests of the public.

MONOPOLY
Chintamana In this leading case on the constitutionality of Madhya Pradesh Act was challenged. The
Rao v. State State law prohibited the manufacture of bidis in the villages during the agricultural
of M.P., season. No person residing in the village could employ any other person nor engage
himself, in the manufacture of bidis during the agricultural season. The object of the
provision was to ensure adequate supply of labour for agricultural purposes. The bidi
manufacturer could not even import labour from outside, and so, had to suspend
manufacture of bidis during the agricultural season. Even villagers incapable of engaging
in agriculture, like old people, women and children, etc., who supplemented their income
by engaging themselves manufacturing bidis were prohibited without any reason. The
prohibition was held to be unreasonable.

CORPORATIONS
The Supreme Court, initially expressed the view that a Corporation is not a citizen within the meaning of
Article 19 and, therefore, cannot invoke this Article. Subsequently the Supreme Court held that a company
is a distinct and separate entity from its shareholders and refused to tear the corporate veil for determing
the constitutionality of the legislation by judging its impact on the fundamental rights of the shareholders
of the company (TELCO v. State of Bihar).
R.C. The Supreme Court ruled that the test in determining whether the shareholder’s right is
Cooper v. impaired is not formal but is essentially qualitative. If the State action impaired the rights
Union of of the shareholders as well as of the company, the Court will not deny itself jurisdiction to
India grant relief. The shareholders’ rights are equally affected, if the rights of the company are
affected (Bennett Coleman & Co.).

20 Protection in respect of conviction for offences.—

(1) protection from ex-post facto laws
 NAHATA PROFESSIONAL ACADEMY 39

No person shall be convicted of any offence except for violation of a law in force at the time of
the commission of the Act charged as an offence, nor be subjected to a penalty greater than
that which might have been inflicted under the law in force at the time of the commission of
the offence.

Ex-post facto laws are laws which punished what had been lawful when done. If a particular
act was not an offence according to the law of the land at the time when the person did that
act, then he cannot be convicted under a law which with retrospective declares that act as an
offence. For example, what was not an offence in 1972 cannot be declared as an offence
under a law made in 1974 giving operation to such law from a back date, say from 1972.
Even the penalty for the commission of an offence cannot be increased with retrospective
effect. For example, suppose for committing dacoity the penalty in 1970 was 10 years
imprisonment and a person commits dacoity in that year. By a law passed after his committing
the dacoity the penalty, for his act cannot be increased from 10 to 11 years or to life
imprisonment.

In Shiv Bahadur Singh v. State of Vindhya Pradesh, AIR 1953 S.C. 394, it was clarified that
Article 20(1) prohibited the conviction under an ex post facto law, and that too the substantive
law. This protection is not available with respect to procedural law. Thus, no one has a vested
right in procedure. A law which nullifies the rigour of criminal law is not affected by the rule
against ex post facto law (Rattan Lal v. State of Punjab, (1964) 7 S.C.R. 676).

(2) Protection against double jeopardy

No person shall be prosecuted and punished for the same offence more than once.
According to Article 20(2), no person can be prosecuted and punished for the same offence
more than once. It is, however, to be noted that the conjunction “and” is used between the
words prosecuted and punished, and therefore, if a person has been let off after prosecution
without being punished, he can be prosecuted again.

(3) Protection against self-incrimination

No person accused of any offence shall be compelled to be a witness against himself.
According to Article 20(3), no person accused of any offence shall be compelled to be a witness
against himself.
In other words, an accused cannot be compelled to state anything which goes against him. But
it is to be noted that a person is entitled to this protection, only when all the three conditions
are fulfilled:
a. that he must be accused of an offence;
b. that there must be a compulsion to be a witness; and
c. such compulsion should result in his giving evidence against himself.

So, if the person was not an accused when he made a statement or the statement was not made
as a witness or it was made by him without compulsion and does not result as a statement
against himself, then the protection available under this provision does not extend to such
person or to such statement.

The ‘right against self-incrimination’ protects persons who have been formally accused as well
as those who are examined as suspects in criminal cases. It also extends to cover witnesses
who apprehend that their answers could expose them to criminal charges in the ongoing
investigation or even in cases other than the one being investigated. [Selvi v. State of
Karnataka, AIR 2010 SC 1974].

21 Protection of life and personal liberty.—

No person shall be deprived of his life or personal liberty except according to procedure
established by law.
 NAHATA PROFESSIONAL ACADEMY 40

Right to life The right to life includes those things which make life meaningful. For example, the
right of a couple to adopt a son is a constitutional right guaranteed under Article
21 of the Constitution (Philips Alfred Malvin v. Y.J. Gonsalvis and others, AIR 1999
Ker. 187). The right to life enshrined in Article 21 guarantees right to live with
human dignity. Right to live in freedom from noise pollution is a fundamental right
protected by Article 21 and noise pollution beyond permissible limits is an inroad
into that right. (Noise Pollution (v), in re, (2005) 5 SCC 733.
Satwant Singh In, it was held that right to travel is included within the expression ‘personal liberty’
Sawhney v. and, therefore, no person can be deprived of his right to travel, except according to
A.P.O., New the procedure established by law. Since a passport is essential for the enjoyment of
Delhi, AIR 1967 that right, the denial of a passport amounts to deprivation of personal liberty. In the
S.C. 1836 absence of any procedure pescribed by the law of land sustaining the refusal of a
passport to a person, it’s refusal amounts to an unauthorised deprivation of personal
liberty guaranteed by Article 21. This decision was accepted by the Parliament and the
infirmity was set right by the enactment of the Passports Act, 1967.
Right to personal That the expression ‘personal liberty’ is not limited to bodily restraint or to
liberty confinement to prison, only is well illustrated in Kharak Singh v. State of U.P, AIR 1963
SC 1295. In that case the question raised was of the validity of the police regulations
authorising the police to conduct what are called as domiciliary visits against bad
characters and to have surveillance over them. The court held that such visits were an
invasion, on the part of the police, of the sanctity of a man’s home and an intrusion
into his personal security and his right to sleep, and therefore violative of the
personal liberty of the individual, unless authorised by a valid law. As regards the
regulations authorising surveillance over the movements of an individual the court
was of the view that they were not bad, as no right to privacy has been guaranteed in
the Constitution.
However, in Gobind v. State of M.P., AIR 1975 S.C. 1378, Mathew, J. asserted that the
right to privacy deserves to be examined with care and to be denied only when an
important countervailing interest is shown to be superior, and observed that this right
will have to go through a process of case-by-case development. Mathew, J. explained
that even assuming that the right to personal liberty, the right to move freely
throughout the territory of India and the freedom of speech create an independent
right to privacy as emanating from them, the right is not absolute and it must be read
subject to restrictions on the basis of compelling public interest.
Refusal of an application to enter a medical college cannot be said to affect person’s
personal liberty under Article 21 (State of A.P. v. L. Narendranathan, (1971) 1 S.C.C.
607).
Maneka Gandhi It was stated that ‘personal liberty’ within the meaning of Article 21 includes within
v. Union of India, its ambit the right to go abroad, and no person can be deprived of this right except
AIR 1978 S.C. according to procedure prescribed by law. In this case, it was clearly laid down that
597, the fundamental rights conferred by Part III of the Constitution are not distinct and
mutually exclusive. Thus, a law depriving a person of personal liberty and prescribing
a procedure for that purpose within the meaning of Article 21 has still to stand the
test of one or more of fundamental rights conferred by Article 19 which may be
applicable to a given situation.
Justice KS the Supreme Court of India held that the right to privacy is protected by the
Puttaswamy Constitution of India. Right to privacy applies across the gamut of “fundamental”
(Retd.) Union of rights including equality, dignity (Article 14), speech, expression (Article 19), life, and
India AIR 2017 SC liberty (Article 21).
4161 Presently, this term personal liberty extends to variety of matters like right to bail,
right not to be handcuffed except under very few cases, right to speedy trial, right to
free legal aid etc.
 NAHATA PROFESSIONAL ACADEMY 41

Procedure established by law: The expression ‘procedure established by law’ means procedure laid down
by statute or procedure prescribed by the law of the State. Accordingly,
 first, there must be a law justifying interference with the person’s life or personal liberty, and
 secondly, the law should be a valid law, and
 thirdly, the procedure laid down by the law should have been strictly followed.

The law laid down in A.K. Gopalan v. State of Madras, AIR 1950 SC 27, that the expression ‘procedure
established by law’ means only the procedure enacted by a law made by the State was held to be incorrect
in the Bank Nationalisation Case (1970) 1 S.C.C. 248.

Subsequently, in Maneka Gandhi’s case (AIR 1978 SC 49), it was laid down, that the law must now be taken
to be well settled that Article 21 does not exclude Article 19 and a law prescribing a procedure for depriving
a person of ‘personal liberty’ will have to meet the requirements of Article 21 and also of Article 19, as well
as of Article 14.The procedure must be fair, just and reasonable. It must not be arbitrary fanciful or
oppressive. An interesting, follow-up of the Maneka Gandhi’s case came in a series of cases.

In Bachan Singh v. State of Punjab, AIR 1980 S.C. 898, it was reiterated that in Article 21 the founding
fathers recognised the right of the State to deprive a person of his life or personal liberty in accordance with
fair, just and reasonable procedure established by valid law.

21A Right to education.—

The State shall provide free and compulsory education to all children of the age of six to
fourteen years in such manner as the State may, by law, determine.

State of Tamil The Court held that right of a child should not be restricted only to free and
Nadu v. K. compulsory education, but should be extended to have quality education without any
Shyam Sunder discrimination on the ground of their economic, social and cultural background.
Environmental The Court held that in order to ensure compliance of article 21A of the Constitution,
& Consumers it is imperative that schools must have qualified teachers and basic infrastructure.
Protect found.
v Delhi Admin.
Fahima In the High Court of Kerala on September 19,2019 upheld that ‘Right to Internet
Shareen RK v. Access’ as a fundamental right. The Court declared that the right to have access to
State of Kerala Internet becomes the part of right to education as well as right to privacy under
and others Article 21 of the Constitution of India.
Swapnil In this case, Petitioners have sought a declaration that Supreme Court case
Tripathi and proceedings of “constitutional importance having an impact on the public at large or
Ors. vs. a large number of people” should be live streamed in a manner that is easily
Supreme accessible for public viewing. The three judge bench held that live-streaming of court
Court of India proceedings are important so as to enable administration of justice especially owing
and Ors. to the effect it has on public at large. It is important to re-emphasise the significance
(26.09.2018 - of live-streaming as an extension of the principle of open justice and open courts. it
SC) : AIR 2018 was stated in this cas as follows: “Live-streaming of proceedings is crucial to the
SC 4806 dissemination of knowledge about judicial proceedings and granting full access to
justice to the litigant. Access to justice can never be complete without the litigant
being able to see, hear and understand the course of proceedings first hand. Apart
from this, live-streaming is an important facet of a responsive judiciary which accepts
and acknowledges that it is accountable to the concerns of those who seek justice.”

22 Protection against arrest and detention in certain cases.—

(1) No person who is arrested shall be detained in custody without being informed, as soon as may
be, of the grounds for such arrest nor shall he be denied the right to consult, and to be
defended by, a legal practitioner of his choice.
 NAHATA PROFESSIONAL ACADEMY 42

(2) Every person who is arrested and detained in custody shall be produced before the nearest
magistrate within a period of twenty-four hours of such arrest excluding the time necessary for
the journey from the place of arrest to the court of the magistrate and no such person shall be
detained in custody beyond the said period without the authority of a magistrate.

(3) Nothing in clauses (1) and (2) shall apply—

(a) to any person who for the time being is an enemy alien; or
(b) to any person who is arrested or detained under any law providing for preventive
detention.

Preventive detention means detention of a person without trial. The object of preventive
detention is not to punish a person for having done something but to prevent him from doing it.
No offence is proved nor any charge formulated and yet a person is detained because he is
likely to commit an act prohibited by law. Parliament has the power to make a law for
preventive detention for reasons connected with defence, foreign affairs or the security of
India. Parliament and State Legislatures are both entitled to pass a law of preventive detention
for reasons connected with the security of State, the maintenance of public order, or the
maintenance of supplies and services essential to the community.
Safeguards against Preventive Detention
Article 22 contains following safeguards against preventive detention:
(a) such a person cannot be detained for a longer period than three months unless:
(i) An Advisory Board constituted of persons who are or have been or are qualified
to be High Court judges has reported, before the expiration of the said period of
three months that there is, in its opinion sufficient cause for such detention.
(ii) Parliament may by law prescribe the maximum period for which any person may
in any class or classes of cases be detained under any law providing for
preventive detention and the procedure to be followed by an Advisory Board.
(b) The authority ordering the detention of a person under the preventive detention law
shall:
(i) communicate to him, as soon as may be, the grounds on which the order for his
detention has been made, and
(ii) afford him the earliest opportunity of making the representation against the
order.
(iii) It may, however, be noted that while the grounds for making the order are to be
supplied,the authority making such order is not bound to disclose those facts
which it considers to be against the public interest.

Right against Exploitation

23 Prohibition of traffic in human beings and forced labour.—
(1) Traffic in human beings and begar and other similar forms of forced labour are prohibited and
any contravention of this provision shall be an offence punishable in accordance with law.

(2) Nothing in this article shall prevent the State from imposing compulsory service for public
purposes, and in imposing such service the State shall not make any discrimination on grounds
only of religion, race, caste or class or any of them.

24 Prohibition of employment of children in factories, etc.—

No child below the age of fourteen years shall be employed to work in any factory or mine or
engaged in any other hazardous employment.

Right to Freedom of Religion

 NAHATA PROFESSIONAL ACADEMY 43

25 Freedom of conscience and free profession, practice and propagation of religion.—

(1) Subject to public order, morality and health and to the other provisions of this Part, all persons
are equally entitled to freedom of conscience and the right freely to profess, practise and
propagate religion.

(2) Nothing in this article shall affect the operation of any existing law or prevent the State from
making any law—
(a) regulating or restricting any economic, financial, political or other secular activity which
may be associated with religious practice;
(b) providing for social welfare and reform or the throwing open of Hindu religious
institutions of a public character to all classes and sections of Hindus.

Explanation I.—The wearing and carrying of kirpans shall be deemed to be included in the
profession of the Sikh religion.
Explanation II.—In sub-clause (b) of clause (2), the reference to Hindus shall be construed as
including a reference to persons professing the Sikh, Jaina or Buddhist religion, and the
reference to Hindu religious institutions shall be construed accordingly.
State of The Supreme Court held that secularism means that State should have no
Karnataka v. religion of its own and each person, whatever his religion, must get an
Dr. Praveen assurance from the State that he has the protection of law to freely profess,
Bhai Thogadia, practise and propagate his religion and freedom of conscience
(Ratilal v. State The freedom of religion conferred by the present Article is not confined to the
of Bombay, citizens of Indian but extends to all persons including aliens and individuals
exercising their rights individually or through institutions

26 Freedom to manage religious affairs.—

Subject to public order, morality and health, every religious denomination or any section thereof
shall have the right—
(a) to establish and maintain institutions for religious and charitable purposes;
(b) to manage its own affairs in matters of religion;
(c) to own and acquire movable and immovable property; and
(d) to administer such property in accordance with law.

27 Freedom as to payment of taxes for promotion of any particular religion.—

No person shall be compelled to pay any taxes, the proceeds of which are specifically
appropriated in payment of expenses for the promotion or maintenance of any particular
religion or religious denomination.

28 Freedom as to attendance at religious instruction or religious worship in certain educational

institutions.—
(1) No religious instruction shall be provided in any educational institution wholly maintained out
of State funds.

(2) Nothing in clause (1) shall apply to an educational institution which is administered by the State
but has been established under any endowment or trust which requires that religious
instruction shall be imparted in such institution.

(3) No person attending any educational institution recognised by the State or receiving aid out of
State funds shall be required to take part in any religious instruction that may be imparted in
such institution or to attend any religious worship that may be conducted in such institution or
in any premises attached thereto unless such person or, if such person is a minor, his guardian
has given his consent thereto.
Cultural and Educational Rights
 NAHATA PROFESSIONAL ACADEMY 44

29 Protection of interests of minorities.—

(1) Any section of the citizens residing in the territory of India or any part thereof having a distinct
language, script or culture of its own shall have the right to conserve the same.

(2) No citizen shall be denied admission into any educational institution maintained by the State or
receiving aid out of State funds on grounds only of religion, race, caste, language or any of
them.

30 Right of minorities to establish and administer educational institutions.—

(1) All minorities, whether based on religion or language, shall have the right to establish and
administer educational institutions of their choice.

(1A) In making any law providing for the compulsory acquisition of any property of an educational
institution established and administered by a minority, referred to in clause (1), the State shall
ensure that the amount fixed by or determined under such law for the acquisition of such
property is such as would not restrict or abrogate the right guaranteed under that clause.

(2) The State shall not, in granting aid to educational institutions, discriminate against any
educational institution on the ground that it is under the management of a minority, whether
based on religion or language.

Right to Constitutional Remedies

32 Remedies for enforcement of rights conferred by this Part.—

(1) The right to move the Supreme Court by appropriate proceedings for the enforcement of the
rights conferred by this Part is guaranteed.
(2) The Supreme Court shall have power to issue directions or orders or writs, including writs in the
nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, whichever may
be appropriate, for the enforcement of any of the rights conferred by this Part.

(3) Without prejudice to the powers conferred on the Supreme Court by clauses (1) and (2),
Parliament may by law empower any other court to exercise within the local limits of its
jurisdiction all or any of the powers exercisable by the Supreme Court under clause (2).

(4) The right guaranteed by this article shall not be suspended except as otherwise provided for by
this Constitution.

It is a cardinal principle of jurisprudence that where there is a right there is a remedy (ubi jus ibi remedium)
and if rights are given without there being a remedy for their enforcement, they are of no use. It is really a
far reaching provision in the sense that a person need not first exhaust the other remedies and then go to
the Supreme Court. He can directly raise the matter before highest Court of the land and the Supreme
Court is empowered to issue directions or orders or writs in the nature of habeas corpus, mandamus,
prohibition, quo warranto and certiorari, whichever may be appropriate for the enforcement of the right,
the violation of which has been alleged.

The right guaranteed by Article 32 shall not be suspended except as provided in the Constitution.
Constitution does not contemplate such suspension except by way of President’s order under Article 359 when
a proclamation of Emergency is in force.

The right to move the Supreme Court is itself a guaranteed right and the significance of this has been
assessed by Gajendragadkar, J. in the following words:
The fundamental right to move this Court can therefore be appropriately described as the cornerstone of
the democratic edifice raised by the Constitution. That is why it is natural that this Court should, in the
words of Patanjali Sastri, J.,regard itself ‘as the protector and guarantor of fundamental rights’, and should
 NAHATA PROFESSIONAL ACADEMY 45

declare that “it cannot, consistently with the responsibility laid upon it, refuse to entertain applications
seeking protection against infringements of such rights. In discharging the duties assigned to it, this Court
has to play the role of ‘sentinel on the qui vive’ and it must always regard it as its solemn duty to protect
the said fundamental rights ‘zealously and vigilantly’.

Peoples’ Union for Where a fundamental right is also available against private persons such as the
Democratic Rights right under Articles 17, 23 and 24, the Supreme Court can always be approached
v. UOI, for appropriate remedy against the violation of such rights by private individuals.
Assam Sanmilata In the Court held that article 32 which has been described as the ‘heart and soul’
Mahasangha v. of the Constitution guarantees the right to move to the Supreme Court for
Union of India enforcement of all or any of the fundamental rights conferred by Part III of the
Constitution. This article is therefore, itself a fundamental right.

WRIT JURISDICTION OF HIGH COURTS AND SUPREME COURT

226 Power of High Courts to issue certain writs.—

(1) Notwithstanding anything in article 32, every High Court shall have power, throughout the
territories in relation to which it exercises jurisdiction, to issue to any person or authority,
including in appropriate cases, any Government, within those territories directions, orders or
writs, including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and
certiorari, or any of them, for the enforcement of any of the rights conferred by Part III and for
any other purpose.

(2) The power conferred by clause (1) to issue directions, orders or writs to any Government,
authority or person may also be exercised by any High Court exercising jurisdiction in relation to
the territories within which the cause of action, wholly or in part, arises for the exercise of such
power, notwithstanding that the seat of such Government or authority or the residence of such
person is not within those territories.

(3) Where any party against whom an interim order, whether by way of injunction or stay or in any
other manner, is made on, or in any proceedings relating to, a petition under clause (1),
without—
(a) furnishing to such party copies of such petition and all documents in support of the plea
for such interim order;
(b) and giving such party an opportunity of being heard, makes an application to the High
Court for the vacation of such order and furnishes a copy of such application to the
party in whose favour such order has been made or the counsel of such party, the High
Court shall dispose of the application within a period of two weeks from the date on
which it is received or from the date on which the copy of such application is so
furnished, whichever is later, or where the High Court is closed on the last day of that
period, before the expiry of the next day afterwards on which the High Court is open;
and if the application is not so disposed of, the interim order shall, on the expiry of that
period, or, as the case may be, the expiry of the said next day, stand vacated.

(4) The power conferred on a High Court by this article shall not be in derogation of the power
conferred on the Supreme Court by clause (2) of article 32.The right guaranteed by this article
shall not be suspended except as otherwise provided for by this Constitution.

In the words of Dicey, prerogative writs are ‘the bulwark of English Liberty’. The expression ‘prerogative
writ’ is one of Engish common law which refers to the extraordinary writs granted by the sovereign, as
fountain of justice on the ground of inadequacy of ordinary legal remedies.

In course of time these writs were issued by the High Court as extraordinary remedies in cases where there
was either no remedy available under the ordinary law or the remedy available was inadequate. Under the
 NAHATA PROFESSIONAL ACADEMY 46

Constitution by virtue of Article 226, every High Court has the power to issue directions or orders or writs
wr
including writs in the nature of Habeas corpus, Mandamus, Prohibition, Quo warranto and Certiorari or any
of them for the enforcement of Fundamental Rights stipulated in Part III of the Constitution or for any other
purpose.

(Ramdas Motors This power is exercisable by each High Court throughout the territory in relation to
Transport which it exercises jurisdiction. Where an effective remedy is available, the High
Company Court should not readily entertain a petition under Article 226 of the constitution of
Limited v. T.A. India e.g. under the Companies Act, a share holder has very effective remedies for
Reddy, prevention of oppression and mismanagement. Consequently High Court should not
entertain a petition under the said Article

The Supreme Court could be moved by appropriate proceedings for the issue of directions or orders or writs,
as referred to under Article 226 for the enforcement of the rights guaranteed by Part III of the Constitution.
Article 32 itself being a fundamental right, the Constitutional remedy of writ is available to anyone whose
fundamental rights are infringed by state action. Thus we see the power of the High Courts to issue these
writs is wider than that of the Supreme Court, Whereas:
(a) an application to a High Court under Arti
Article 226 will lie not only where some other limitation imposed
by the Constitution, outside Part III, has been violated, but, an application under Article 32 shall not
lie in any case unless the right infringed is ‘Fundamental Right’ enumerated in Part III of the
Constitution;
(b) while the Supreme Court can issue a writ against any person or Government within the territory of
India, a High Court can, under Article 226, issue a writ against any person, Government or other
authority only if such person or authori
authorityty is physically resident or located within the territorial
jurisdiction of the particular High Court extends or if the cause of action arises within such
jurisdiction.

(Romesh As stated earlier, the Supreme CoCourt

urt has been assigned by the Constitution a special
Thappar v. State role as “the protector and guarantor of fundamental rights” by Article 32 (1).
of Madras) AIR Although the Constitution has provided for concurrent writ jurisdiction of the High
1950 SC 124) Courts it is not necessary, that an aggri
aggrieved
eved petitioner should first apply to the High
Court and then to the Supreme Court
(Common Cause The jurisdiction of the High Court also extends to the enforcement of rights other
v Union of India, than Fundamental Rights provided there is a public duty. The Supreme Courts
A.I.R. 1999 SC jurisdiction to issue writs extends to all Fundamental Rights

Types of Writ
A brief discription of the various types of writs is given below:

Habeas Corpus The writ of Habeas corpus - an effective bulwark of personal liberty – is a remedy
available to a person who is confined without legal justification. The words ‘Habeas
Corpus’ literally mean “to have the body”. When a prima facie case for the issue of writ
has been made then the Court issues a rule nisi upon the relevant authority to show
cause why the writ should not be issued. This is in national order to let the Court know
on what grounds he has been confined and to set him free if there is no justification
for his detention. This writ has to be obeyed by the d detaining
etaining authority by producing
the person before the Court. Under Articles 32 and 226 any person can move for this
 NAHATA PROFESSIONAL ACADEMY 47

writ to the Supreme Court and High Court respectively. The applicant may be the
prisoner or any person acting on his behalf to safeguard his liberty for the issuance of
the writ of Habeas Corpus as no man can be punished or deprived of his personal
liberty except for violation of law and in the ordinary legal manner. An appeal to the
Supreme Court of India may lie against an order granting or rejecting the application
(Articles 132, 134 or 136). The disobedience to this writ is met with by punishment for
contempt of Court under the Contempt of Courts Act.
Mandamus The word ‘Mandamus’ literally means we command. The writ of mandamus is, a
command issued to direct any person, corporation, inferior court, or Government
requiring him or it do a particular thing specified therein which pertains to his or its
office and is further in the nature of a public duty. The applicant must have a legal right
to the performance of a legal duty by the person against whom the writ is prayed for.
It is not issued if the authority has discretion.

It commands activity. The writ is used for securing judicial enforcement of public
duties. In a fit case, Court can direct executives to carry out Directive Principles of the
Constitution through this writ (State of Maharashtra v. MP Vashi, 1995 (4) SCALE).

The Constitution of India by Articles 226 and 32 enables mandamus to be issued by the
High Courts and the Supreme Court to all authorities. It is a discretionary remedy and
the High Court may refuse if alternative remedy exists except in case of infringement
of fundamental rights.

Mandamus does not lie against the President or the Governor of a State for the
exercise of their duties and power (Article 361). It does not lie also against a private
individual or body except where the state is in collusion with such private party in the
matter of contravention of any provision of the Constitution of a statute.

This writ is used when the inferior tribunal has declined to exercise jurisdiction while
resort to certiorari and prohibition arises when the tribunal has wrongly exercised
jurisdiction or exceeded its jurisdiction and are available only against judicial and
quasi-judicial bodies. Mandamus can be issued against any public authority
Prohibition A writ of prohibition is issued to an Inferior Court preventing the latter from usurping
jurisdiction which is not legally vested in it. When a tribunal acts without or in excess
of jurisdiction, or in violation of rules or law, a writ of prohibition can be asked for. It is
generally issued before the trial of the case.
While mandamus commands activity, prohibition commands inactivity, it is available
only against judicial or quasi judicial authorities and is not available against a public
officer who is not vested with judicial functions. If abuse of power is apparent this
writ may be of right and not a matter of discretion.
Certiorari It is available to any person, wherever any body of persons having legal authority to
determine questions affecting the rights of subjects and having the duty to act
judicially in excess of their legal authority” (The King v. Electricity Commissioners,
(1924) I.K.B. 171, P. 204-5).
The writ removes the proceedings from such body to the High Court, to quash a
decision that goes beyond its jurisdiction. Under the Constitution of India, all High
Courts can issue the writ of certiorari throughout their territorial jurisdiction when the
subordinate judicial authority acts
(i) without or in excess of jurisdiction or in
(ii) contravention of the rules of natural justice or
(iii) commits an error apparent on the face of the record. The jurisdiction of the
Supreme Court to issue such writs arises under Article 32.
Although the object of both the writs of prohibition and of certiorari is the same,
prohibition is available at an earlier stage whereas certiorari is available at a later
 NAHATA PROFESSIONAL ACADEMY 48

stage but in similar grounds i.e. Certiorari is issued after authority has exercised its
powers.
Quo Warranto The writ of quo warranto enables enquiry into the legality of the claim which a person
asserts, to an office or franchise and to oust him from such position if he is a usurper.
The holder of the office has to show to the court under what authority he holds the
office. It is issued when:
(i) the office is of public and of a substantive nature,
(ii) created by statute or by the Constitution itself, and
(iii) the respondent has asserted his claim to the office. It can be issued even
though he has not assumed the charge of the office.
The fundamental basis of the proceeding of Quo warranto is that the public has an
interest to see that a unlawful claimant does not usurp a public office. It is a
discretionary remedy which the court may grant or refuse.
Centre for The Court held that before a citizen can claim a writ of quo warranto he
PIL v. Union must satisfy the court inter-alia that the office in question is a public
of India office and it is held by a person without legal authority and that leads
to the inquiry as to whether the appointment of the said person has
been in accordance with law or not. A writ of quo warranto is issued to
prevent a continued exercise of unlawful authority.

DIRECTIVE PRINCIPLES OF STATE POLICY

The Sub-committee on Fundamental Rights constituted by the Constituent Assembly had suggested two
types of Fundamental Rights – one which can be enforced in the Courts of law and the other which because
of their different nature cannot be enforced in the law Courts. Later on however, the former were put
under the head ‘Fundamental Rights’ as Part III which we have already discussed and the latter were put
separately in Part IV of the Constitution under the heading ‘Directive Principles of State Policy’

The Articles included in Part IV of the Constitution (Articles 36 to 51) contain certain Directives which are
the guidelines for the future Government to lead the country. Article 37 provides that the ‘provisions
contained in this part (i) shall not be enforceable by any Court, but the principles therein laid down are
neverthless (ii) fundamental in the governance of the country and it shall be the duty of the state to apply
these principles in making laws. The Directives, however, differ from the Fundamental Rights contained in
Part-III of the Constitution or the ordinary laws of the land in the following respects:

(i) The Directives are not enforceable in the courts and do not create any justiciable rights in favour of
individuals.
(ii) The Directives require to be implemented by legislation and so long as there is no law carrying out the
policy laid down in a Directive neither the state nor an individual can violate any existing law.
(iii) The Directives per-se do not confer upon or take away any legislative power from the appropriate
legislature.
(iv) The courts cannot declare any law as void on the ground that it contravenes any of the Directive
Principles.
(v) The courts are not competent to compel the Government to carry out any Directives or to make any law
for that purpose.
(vi) Though it is the duty of the state to implement the Directives, it can do so only subject to the limitations
imposed by the different provisions of the Constitution upon the exercise of the legislative and executive
power by the state.

Conflict between a Fundamental Right and a Directive Principle

The declarations made in Part IV of the Constitution under the head ‘Directive Principles of State Policy’ are
in many cases of a wider import than the declarations made in Part III as ‘Fundamental Rights’. Hence, the
question of priority in case of conflict between the two classes of the provisions may easily arise. What will
be the legal position if a law enacted to enforce a Directive Principle violates a Fundamental Right?
 NAHATA PROFESSIONAL ACADEMY 49

State of Madras Initialy, the Courts, adopted a strict view in this respect and ruled that a Directive
v. Champakram Principle could not override a Fundamental Right, and in case of conflict between the
Dorairajan, AIR two, a Fundamental Right would prevail over the Directive Principle. When the
1951 S.C. 226 matter came before the Supreme Court, where the validity of a Government order
alleged to be made to give effect to a Directive Principle was challenged as being
violative of a Fundamental Right, the Supreme Court made the observation that :
“The Directive Principles of State Policy have to conform to and run as subsidiary to the
chapter of Fundamental Rights.”
The Court ruled that while the Fundamental Rights were enforceable, the Directive
Principles were not, and so the laws made to implement Directive Principles could
not take away Fundamental Rights.

38 State to secure a social order for the promotion of welfare of the people.—
(1) The State shall strive to promote the welfare of the people by securing and protecting as
effectively as it may a social order in which justice, social, economic and political, shall inform
all the institutions of the national life.

(2) The State shall, in particular, strive to minimise the inequalities in income, and endeavour to
eliminate inequalities in status, facilities and opportunities, not only amongst individuals but
also amongst groups of people residing in different areas or engaged in different vocations.]

39 Certain principles of policy to be followed by the State.—

The State shall, in particular, direct its policy towards securing—
(a) that the citizens, men and women equally, have the right to an adequate means of
livelihood;
(b) that the ownership and control of the material resources of the community are so
distributed as best to subserve the common good;
(c) that the operation of the economic system does not result in the concentration of
wealth and means of production to the common detriment;
(d) that there is equal pay for equal work for both men and women;
(e) that the health and strength of workers, men and women, and the tender age of
children are not abused and that citizens are not forced by economic necessity to enter
avocations unsuited to their age or strength;
(f) that children are given opportunities and facilities to develop in a healthy manner and
in conditions of freedom and dignity and that childhood and youth are protected
against exploitation and against moral and material abandonment.

39A Equal justice and free legal aid.—

The State shall secure that the operation of the legal system promotes justice, on a basis of
equal opportunity, and shall, in particular, provide free legal aid, by suitable legislation or
schemes or in any other way, to ensure that opportunities for securing justice are not denied to
any citizen by reason of economic or other disabilities.

40 Organisation of village panchayats.—

The State shall take steps to organise village panchayats and endow them with such powers
and authority as may be necessary to enable them to function as units of self-government.

41 Right to work, to education and to public assistance in certain cases.—

The State shall, within the limits of its economic capacity and development, make effective
provision for securing the right to work, to education and to public assistance in cases of
unemployment, old age, sickness and disablement, and in other cases of undeserved want.

42 Provision for just and humane conditions of work and maternity relief.—
The State shall make provision for securing just and humane conditions of work and for
 NAHATA PROFESSIONAL ACADEMY 50

maternity relief.

43 Living wage, etc., for workers.—

The State shall endeavour to secure, by suitable legislation or economic organisation or in any
other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of
work ensuring a decent standard of life and full enjoyment of leisure and social and cultural
opportunities and, in particular, the State shall endeavour to promote cottage industries on an
individual or co-operative basis in rural areas.

43A Participation of workers in management of industries.—

The State shall take steps, by suitable legislation or in any other way, to secure the
participation of workers in the management of undertakings, establishments or other
organisations engaged in any industry.

43B Promotion of co-operative societies.—

The State shall endeavour to promote voluntary formation, autonomous functioning,
democratic control and professional management of co-operative societies.

44 Uniform civil code for the citizens.—

The State shall endeavour to secure for the citizens a uniform civil code throughout the
territory of India.

45 Provision for early childhood care and education to children below the age of six years.—
The State shall endeavour to provide early childhood care and education for all children until
they complete the age of six years.

46 Promotion of educational and economic interests of Scheduled Castes, Scheduled Tribes and
other weaker sections.—
The State shall promote with special care the educational and economic interests of the weaker
sections of the people, and, in particular, of the Scheduled Castes and the Scheduled Tribes,
and shall protect them from social injustice and all forms of exploitation.

47 Duty of the State to raise the level of nutrition and the standard of living and to improve
public health.—
The State shall regard the raising of the level of nutrition and the standard of living of its people
and the improvement of public health as among its primary duties and, in particular, the State
shall endeavour to bring about prohibition of the consumption except for medicinal purposes
of intoxicating drinks and of drugs which are injurious to health.

48 Organisation of agriculture and animal husbandry.—

The State shall endeavour to organise agriculture and animal husbandry on modern and
scientific lines and shall, in particular, take steps for preserving and improving the breeds, and
prohibiting the slaughter, of cows and calves and other milch and draught cattle.

48A Protection and improvement of environment and safeguarding of forests and wild life.—
The State shall endeavour to protect and improve the environment and to safeguard the
forests and wild life of the country.
49 Protection of monuments and places and objects of national importance.—
It shall be the obligation of the State to protect every monument or place or object of artistic or
historic interest, declared by or under law made by Parliament] to be of national importance,
from spoliation, disfigurement, destruction, removal, disposal or export, as the case may be.

50 Separation of judiciary from executive.—

 NAHATA PROFESSIONAL ACADEMY 51

The State shall take steps to separate the judiciary from the executive in the public services of
the State.

51 Promotion of international peace and security.—

The State shall endeavour to—
(a) promote international peace and security;
(b) maintain just and honourable relations between nations;
(c) foster respect for international law and treaty obligations in the dealings of organised
peoples with one another; and
(d) encourage settlement of international disputes by arbitration.

FUNDAMENTAL DUTIES
51A Fundamental duties.—
It shall be the duty of every citizen of India—
(a) to abide by the Constitution and respect its ideals and institutions, the National Flag and
the National Anthem;
(b) to cherish and follow the noble ideals which inspired our national struggle for freedom;
(c) to uphold and protect the sovereignty, unity and integrity of India;
(d) to defend the country and render national service when called upon to do so;
(e) to promote harmony and the spirit of common brotherhood amongst all the people of
India transcending religious, linguistic and regional or sectional diversities; to renounce
practices derogatory to the dignity of women;
(f) to value and preserve the rich heritage of our composite culture;
(g) to protect and improve the natural environment including forests, lakes, rivers and wild
life, and to have compassion for living creatures;
(h) to develop the scientific temper, humanism and the spirit of inquiry and reform;
(i) to safeguard public property and to abjure violence;
(j) to strive towards excellence in all spheres of individual and collective activity so that the
nation constantly rises to higher levels of endeavour and achievement;
(k) who is a parent or guardian to provide opportunities for education to his child or, as the
case may be, ward between the age of six and fourteen years.

LEGISLATIVE POWERS OF THE UNION AND THE STATES

245 Extent of laws made by Parliament and by the Legislatures of States.—
(1) Subject to the provisions of this Constitution, Parliament may make laws for the whole or any
part of the territory of India, and the Legislature of a State may make laws for the whole or any
part of the State.
(2) No law made by Parliament shall be deemed to be invalid on the ground that it would have
extraterritorial operation.

The Union Legislature, i.e., Parliament has the power to make laws for the whole of the territory of India
or any part thereof, and the State Legislatures have the power to make laws for the whole or any part of
the territory of the respective States. Thus, while the laws of the Union can be enforced throughout the
territory of India, the laws of a State cannot be operative beyond the territorial limits of that State. For
example, a law passed by the legislature of the Punjab State cannot be made applicable to the State of
Uttar Pradesh or any other state.

However, this simple generalisation of territorial division of legislative jurisdiction is subject to the
following clarification.

(A) Parliament
From the territorial point of view, Parliament, being supreme legislative body, may make laws for the whole
of India; or any partthereof; and it can also make laws which may have their application even beyond the
 NAHATA PROFESSIONAL ACADEMY 52

territory of India.
Article 246(4) provides that Parliament can make a law for a Union Territory with respect to any matter,
even if it is one which is enumerated in the State List. With regard to Union Territories, there is no
distribution of legislative powers. Parliament has thus plenary powers to legislate for the Union Territories
with regard to any subject.

(B) State Legislature

A State Legislature may make laws only for the state concerned. It can also make laws which may extend
beyond the territory of that State. But such law can be valid only on the basis of “territorial nexus”. That is,
if there is sufficient nexus or connection between the State and the subject matter of the law which falls
beyond the territory of the State, the law will be valid. The sufficiency of the nexus is to be seen on the
basis of the test laid down by our Supreme Court
In State of according to which two conditions, must be fulfilled:
Bombay v. (i) the connection must be real and not illusory; and
R.M.D.C., A.I.R. (ii) the liability sought to be imposed by that law must be pertinent to that
1957 S.C. 699 connection.
If both the conditions are fulfilled by a law simultaneously then only it is valid
otherwise not. To illustrate, in the case cited above a newspaper in the name of
“Sporting Star” was published and printed at Bangalore in Mysore (now Karnataka)
State. It contained crossword puzzles and engaged in prize competitions. It had
wide circulation in the State of Bombay (now Maharashtra) and most of its
activities such as the standing invitations, the filling up of the forms and the
payment of money took place within that State. The State of Bombay imposed a
tax on the newspaper. The publishers challenged the validity of the law on the
ground that it was invalid in so far it covered a subject matter falling beyond the
territory of that State because the paper was published in another State. The
Supreme Court, applying the doctrine of territorial nexus, held that the nexus was
sufficient between the law and its subject-matter to justify the imposition of the
tax. So in this way, the state laws may also have a limited extra-territorial operation
and it is not necessary that such law should be only one relating to tax-matters.

246 Subject-matter of laws made by Parliament and by the Legislatures of States.—

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

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

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

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

To understand the whole scheme, the Constitution draws three long lists of all the conceivable legislative
subjects. These lists are contained in the VIIth Schedule to the Constitution.
List I is named as the Union List. List II as the State List and III as the Concurrent List. Each list contains a
number of entries in which the subjects of legislation have been separately and distinctly mentioned. The
number of entries in the respective lists is 97, 66 and 47.
The subjects included in each of the lists have been drawn on certain basic considerations and not
 NAHATA PROFESSIONAL ACADEMY 53

arbitrarily or in any haphazard manner

Union list State list Concurrent list

hose subjects which are of national the subjects which are of Those subjects which ordinarily
interest or importance, or which local or regional interest are of local interest yet need
need national control and and on which local control is uniformity on national level or at
uniformity of policy throughout the more expedient, have been least with respect to some parts
country have been included in the assigned to the State List of the country, i.e., with respect,
Union List; and to more than one State have been
allotted to the Concurrent List.
Defence of India, naval, military and Public Order; police; Criminal law; marriage and
air forces; atomic energy, foreign prisons; local Government; divorce; transfer of property;
affairs, war and peace, railways, public health and sanitation; contracts; economic and social
posts and telegraphs, currency, trade and commerce within planning; commercial and
coinage and legal tender; foreign the State; markets and fairs; industrial insurance; monopolies;
loans; Reserve Bank of India; trade betting and gambling etc., social security and social
and commerce with foreign are some of the subjects insurance; legal, medical and
countries; import and export across included in the State List. other professions; price control,
customs frontiers; inter-State trade electricity; acquisition and
and commerce, banking; industrial requisition of property are some
disputes concerning Union of the illustrative matters
employees; coordination and included in the Concurrent List.
determination of Standards in
institutions for higher education are
some of the subjects in the Union
List.
With respect to the subject With respect to the subjects With respect to the subjects
enumerated in the Union, i.e., List I, enumerated in the State enumerated in the Concurrent
the Union Parliament has the List, i.e., List II, the List, i.e., List III, Parliament and
exclusive power to make laws. The legislature of a State has the State Legislatures both have
State Legislature has no power to exclusive power to make powers to make laws. Thus, both
make laws on any of these subjects laws. Therefore Parliament of them can make a law even with
and it is immaterial whether cannot make any law on any respect to the same subject and
Parliament has exercised its power of these subjects, whether both the laws shall be valid in so
by making a law or not. Moreover, the State makes or does not far as they are not repugnant to
this power of parliament to make make any law. each other. However, in case of
laws on subjects included in the repugnancy, i.e., when there is a
Union List is notwithstanding the conflict between such laws then
power of the States to make laws the law made by Parliament shall
either on the subjects included in prevail over the law made by the
the State List or the Concurrent List. State Legislature and the latter
If by any stretch of imagination or will be valid only to the extent to
because of some mistake – which is which it is not repugnant to the
not expected – the same subject former. It is almost a universal
which is included in the Union List is rule in all the Constitutions where
also covered in the State List, in distribution of legislative powers
such a situation that subject shall is provided that in the concurrent
be read only in List I and not in List field the Central law prevails if it
II or List III. By this principle the conflicts with a State law.
superiority of the Union List over However, our Constitution
the other two has been recognised. recognises an exception to this
general or universal rule under
article 254.
 NAHATA PROFESSIONAL ACADEMY 54

248 Residuary powers of legislation.—

(1) Subject to article 246A, Parliament has exclusive power to make any law with respect to any
matter not enumerated in the Concurrent List or State List.
(2) Such power shall include the power of making any law imposing a tax not mentioned in either
of those Lists.
With respect to all those matters which are not included in any of the three lists, Parliament has the
exclusive power to make laws. It is called the residuary legislative power of Parliament.

249 Power of Parliament to legislate with respect to a matter in the State List in the national
interest.—
(1) Notwithstanding anything in the foregoing provisions of this Chapter, if the Council of States
has declared by resolution supported by not less than two-thirds of the members present and
voting that it is necessary or expedient in the national interest that Parliament should make
laws with respect to goods and services tax provided under article 246A or any matter
enumerated in the State List specified in the resolution, it shall be lawful for Parliament to
make laws for the whole or any part of the territory of India with respect to that matter while
the resolution remains in force.

(2) A resolution passed under clause (1) shall remain in force for such period not exceeding one
year as may be specified therein:
Provided that, if and so often as a resolution approving the continuance in force of any such
resolution is passed in the manner provided in clause (1), such resolution shall continue in force
for a further period of one year from the date on which under this clause it would otherwise
have ceased to be in force.

(3) A law made by Parliament which Parliament would not but for the passing of a resolution
under clause (1) have been competent to make shall, to the extent of the incompetency, cease
to have effect on the expiration of a period of six months after the resolution has ceased to be
in force, except as respects things done or omitted to be done before the expiration of the said
period.

250 Power of Parliament to legislate with respect to any matter in the State List if a Proclamation
of Emergency is in operation.—
(1) Notwithstanding anything in this Chapter, Parliament shall, while a Proclamation of Emergency
is in operation, have power to make laws for the whole or any part of the territory of India with
respect to 1[goods and services tax provided under article 246A or] any of the matters
enumerated in the State List.

(2) A law made by Parliament which Parliament would not but for the issue of a Proclamation of
Emergency have been competent to make shall, to the extent of the incompetency, cease to
have effect on the expiration of a period of six months after the Proclamation has ceased to
operate, except as respects things done or omitted to be done before the expiration of the said
period.

251 Inconsistency between laws made by Parliament under articles 249 and 250 and laws made
by the Legislatures of States.—
Nothing in articles 249 and 250 shall restrict the power of the Legislature of a State to make
any law which under this Constitution it has power to make, but if any provision of a law made
by the Legislature of a State is repugnant to any provision of a law made by Parliament which
Parliament has under either of the said articles power to make, the law made by Parliament,
whether passed before or after the law made by the Legislature of the State, shall prevail, and
the law made by the Legislature of the State shall to the extent of the repugnancy, but so long
only as the law made by Parliament continues to have effect, be inoperative.
 NAHATA PROFESSIONAL ACADEMY 55

252 Power of Parliament to legislate for two or more States by consent and adoption of such
legislation by any other State.—
(1) If it appears to the Legislatures of two or more States to be desirable that any of the matters
with respect to which Parliament has no power to make laws for the States except as provided
in articles 249 and 250 should be regulated in such States by Parliament by law, and if
resolutions to that effect are passed by all the Houses of the Legislatures of those States, it
shall be lawful for Parliament to pass an act for regulating that matter accordingly, and any Act
so passed shall apply to such States and to any other State by which it is adopted afterwards by
resolution passed in that behalf by the House or, where there are two Houses, by each of the
Houses of the Legislature of that State.

(2) Any Act so passed by Parliament may be amended or repealed by an Act of Parliament passed
or adopted in like manner but shall not, as respects any State to which it applies, be amended
or repealed by an Act of the Legislature of that State.

253 Legislation for giving effect to international agreements.—

Notwithstanding anything in the foregoing provisions of this Chapter, Parliament has power to
make any law for the whole or any part of the territory of India for implementing any treaty,
agreement or convention with any other country or countries or any decision made at any
international conference, association or other body.

254 Inconsistency between laws made by Parliament and laws made by the Legislatures of
States.—
(1) If any provision of a law made by the Legislature of a State is repugnant to any provision of a
law made by Parliament which Parliament is competent to enact, or to any provision of an
existing law with respect to one of the matters enumerated in the Concurrent List, then,
subject to the provisions of clause (2), the law made by Parliament, whether passed before or
after the law made by the Legislature of such State, or, as the case may be, the existing law,
shall prevail and the law made by the Legislature of the State shall, to the extent of the
repugnancy, be void.

(2) Where a law made by the Legislature of a State with respect to one of the matters enumerated
in the Concurrent List contains any provision repugnant to the provisions of an earlier law
made by Parliament or an existing law with respect to that matter, then, the law so made by
the Legislature of such State shall, if it has been reserved for the consideration of the President
and has received his assent, prevail in that State.

Such law shall prevail in that State over the law of Parliament if there is any conflict between
the two. However, Parliament can get rid of such law at any time by passing a new law and
can modify by amending or repealing the law of the State.

356 Provisions in case of failure of constitutional machinery in States.

If the President, on receipt of a report from the Governor of a State or otherwise, is satisfied
that a situation has arisen in which the Government of the State cannot be carried on in
accordance with the provisions of this Constitution, the President may by Proclamation—
(a) assume to himself all or any of the functions of the Government of the State and all or
any of thepowers vested in or exercisable by the Governor or any body or authority in
the State other than the Legislature of the State;
(b) declare that the powers of the Legislature of the State shall be exercisable by or under
the authority of Parliament;
(c) make such incidental and consequential provisions as appear to the President to be
necessary or desirable for giving effect to the objects of the Proclamation, including -
.m0iiiiy000mmmprovisions for suspending in whole or in part the operation of any
provisions of this Constitution relating to any body or authority in the State:
 NAHATA PROFESSIONAL ACADEMY 56

Provided that nothing in this clause shall authorise the President to assume to himself any of
the powers vested in or exercisable by a High Court, or to suspend in whole or in part the
operation of any provision of this Constitution relating to High Courts.

INTERPRETATION OF THE LEGISLATIVE LISTS

For giving effect to the various items in the different lists the Courts have applied mainly the following
principles:

PLENARY The first and foremost rule is that if legislative power is granted with respect to a
POWERS subject and there are no limitations imposed on the power, then it is to be given the
widest scope that its words are capable of, without, rendering another item
nugatory. In the words of Gajenderagadkar, C.J.

“It is an elementary cardinal rule of interpretation that the words used in the
Constitution which confer legislative power must receive the most liberal
construction and if they are words of wide amplitude, they must be interpreted so
as to give effect to that amplitude. A general word used in an entry ... must be
construed to extend to all ancillary or subsidiary matters which can fairly and
reasonably be held to be included in it (Jagannath Baksh Singh v. State of U.P., AIR
1962 SC 1563).

Thus, a legislature to which a power is granted over a particular subject may make
law on any aspect or on all aspects of it; it can make a retrospective law or a
prospective law and it can also make law on all matters ancillary to that matter. For
example, if power to collect taxes is granted to a legislature, the power not to collect
taxes or the power to remit taxes shall be presumed to be included within the
power to collect taxes.
HARMONIOUS Different entries in the different lists are to be interpreted in such a way that a
CONSTRUCTION conflict between them is avoided and each of them is given effect. It must be
accepted that the Constitution does not want to create conflict and make any entry
nugatory. Therefore, when there appears a conflict between two entries in the two
different lists the two entries should be so interpreted, that each of them is given
effect and, for that purpose the scope and meaning of one may be restricted so as
to give meaning to the other also.
PITH AND The rule of pith and substance means that where a law in reality and substance falls
SUBSTANCE within an item on which the legislature which enacted that law is competent to
RULE legislate, then such law shall not become invalid merely because it incidentally
touches a matter outside the competence of legislature.
In a federal Constitution, as was observed by Gwyer C.J. “it must inevitably happen
from time to time that legislation though purporting to deal with a subject in one list
touches also upon a subject in another list, and the different provisions of the
enactment may be so closely intertwined that blind adherence to a strictly verbal
interpretation would result in a large number of statutes being declared invalid
because the legislature enacting them may appear to have legislated in a forbidden
sphere” (Prafulla Kumar v. Bank of Khulna, AIR 1947 PC 60). Therefore, where such
overlapping occurs, the question must be asked, what is, “pith and substance” of the
enactment in question and in which list its true nature and character is to be found.
For this purpose the enactment as a whole with its object and effect must be
considered.
(G. Chawla v. By way of illustration, acting on entry 6 of List II which reads
State of “Public Health and Sanitation”. Rajasthan Legislature passed a law
Rajasthan, AIR restricting the use of sound amplifiers. The law was challenged on
1959 SC 544). the ground that it dealt with a matter which fell in entry 31 of List I
which reads: “Post and telegraphs, telephones, wireless
 NAHATA PROFESSIONAL ACADEMY 57

broadcasting and other like forms of communication”, and,

therefore, the State Legislature was not competent to pass it. The
Supreme Court rejected this argument on the ground that the
object of the law was to prohibit unnecessary noise affecting the
health of public and not to make a law on broadcasting, etc.
Therefore, the pith and substance of the law was “public health”
and not “broadcasting”
COLOURABLE It is, in a way, a rule of interpretation almost opposite to the one discussed above.
LEGISLATION The Constitution does not allow any transgression of power by any legislature,
either directly or indirectly. However, a legislature may pass a law in such a way that
it gives it a colour of constitutionality while, in reality, that law aims at achieving
something which the legislature could not do. Such legislation is called colourable
piece of legislation and is invalid.

The motive of the legislature is, however, irrelevant for the application of this
doctrine. Therefore, if a legislature is authorised to do a particular thing directly or
indirectly, then it is totally irrelevant as to with what motives – good or bad – it did
that.
Kameshwar In this case the Bihar Land Reforms Act, 1950 provided that the
Singh v. State unpaid rents by the tenants shall vest in the state and one half of
of Bihar, A.I.R. them shall be paid back by the State to the landlord or zamindar
1952 S.C. 252, as compensation for acquisition of unpaid rents. According to the
provision in the State List under which the above law was passed,
no property should be acquired without payment of
compensation. The question was whether the taking of the whole
unpaid rents and then returning half of them back to them who
were entitled to claim, (i.e., the landlords) is a law which provides
for compensatioin. The Supreme Court found that this was a
colourable exercise of power of acquisition by the State
legislature, because “the taking of the whole and returning a half
means nothing more or less than taking of without any return and
this is naked confiscation, no matter in whatever specious form it
may be clothed or disguised”.

Ordinance-making power of president

The most important legislative power conferred on the President is to promulgate Ordinances. Article 123
of the Constitution provides that the President shall have the power to legislate by Ordinances at any time
when it is not possible to have a parliamentary enactment on the subject, immediately. This is a special
feature of the Constitution of India.
The ambit of this Ordinance-making power of the President is co-extensive with the legislative powers of
Parliament, that is to say it may relate to any subject in respect of which parliament has the right to legislate
and is subject to the same constitutional limitations as legislation by Parliament.

According to Article 13(3)(a) “Law” includes an “Ordinance”. But an Ordinance shall be of temporary
duration. It may be of any nature, i.e., it may be retrospective or may amend or repeal any law or Act of
Parliament itself.

123 Power of President to promulgate Ordinances during recess of Parliament.—

(1) If at any time, except when both Houses of Parliament are in session, the President is satisfied that
circumstances exist which render it necessary for him to take immediate action, he may
promulgate such Ordinances as the circumstances appear to him to require.

(2) An Ordinance promulgated under this article shall have the same force and effect as an Act of
Parliament, but every such Ordinance—
 NAHATA PROFESSIONAL ACADEMY 58

(a) shall be laid before both Houses of Parliament and shall cease to operate at the expiration
of six weeks from the reassembly of Parliament, or, if before the expiration of that period
resolutions disapproving it are passed by both Houses, upon the passing of the second of
those resolutions; and
(b) may be withdrawn at any time by the President.

Explanation.—Where the Houses of Parliament are summoned to reassemble on different dates,

the period of six weeks shall be reckoned from the later of those dates for the purposes of this
clause.

(3) If and so far as an Ordinance under this article makes any provision which Parliament would not
under this Constitution be competent to enact, it shall be void.

This independent power of the executive to legislate by Ordinance has the following peculiarities:
the Ordinance-making power will be available to the President only when both the Houses of Parliament have
been prorogued or is otherwise not in session, so that it is not possible to have a law enacted by
Parliament.
However, Ordinance can be made even if only one House is in Session because law cannot be made by that
House in session alone. Both the Houses must be in session when Parliament makes the law. The President’s
Ordinance making power under the Constitution is not a co-ordinate or parallel power of legislation along
with Legislature.
(i) this power is to be exercised by the President on the advice of his Council of Ministers.
(ii) the President must be satisfied about the need for the Ordinance and he cannot be compelled
(iii) the Ordinance must be laid before Parliament when it re-assembles, and shall automatically cease to
have effect at the expiration of 6 weeks from the date of re-assembly or before resolutions have
been passed disapproving the Ordinance.
(iv) the period of six weeks will be counted from the latter date if the Houses reassemble on different
dates.

Ordinance-making power Governor

The executive power of the State is vested in the Governor and all executive action of the State has to be
taken in the name of the Governor. Normally there shall be a Governor for each State but the same person
can be appointed as Governor for two or more States. The Governor of a State is not elected but is
appointed by the President and holds his office at the pleasure of the President. The head of the executive
power to a State is the Governor just as the President for the Union.
Powers: The Governor possesses executive, legislation and judicial powers as the Presidents except that he
has no diplomate or military powers like the President.

This power is exercised under the head of ‘legislative powers’. The Governor’s power to make Ordinances
as given under Article 213 is similar to the Ordinance making power of the President and have the force of
an Act of the State Legislature.

213 Power of Governor to promulgate Ordinances during recess of Legislature.—

(1) If at any time, except when the Legislative Assembly of a State is in session, or where there is a
Legislative Council in a State, except when both Houses of the Legislature are in session, the
Governor is satisfied that circumstances exist which render it necessary for him to take
immediate action, he may promulgate such Ordinances as the circumstances appear to him to
require:
Provided that the Governor shall not, without instructions from the President, promulgate any
such
Ordinance if—
(a) a Bill containing the same provisions would under this Constitution have required the
previous sanction of the President for the introduction thereof into the Legislature; or
 NAHATA PROFESSIONAL ACADEMY 59

(b) he would have deemed it necessary to reserve a Bill containing the same provisions for
the consideration of the President; or

(c) an Act of the Legislature of the State containing the same provisions would under this
Constitution have been invalid unless, having been reserved for the consideration of
the President, it had received the assent of the President.

(2) An Ordinance promulgated under this article shall have the same force and effect as an Act of
the
Legislature of the State assented to by the Governor, but every such Ordinance—
(a) shall be laid before the Legislative Assembly of the State, or where there is a Legislative
Council in the State, before both the Houses, and shall cease to operate at the
expiration of six weeks from the reassembly of the Legislature, or if before the
expiration of that period a resolution disapproving it is passed by the Legislative
Assembly and agreed to by the Legislative Council, if any, upon the passing of the
resolution or, as the case may be, on the resolution being agreed to by the Council; and
(b) may be withdrawn at any time by the Governor.

Explanation.—Where the Houses of the Legislature of a State having a Legislative Council are
summoned to reassemble on different dates, the period of six weeks shall be reckoned from
the later of those dates for the purposes of this clause.

(3) If and so far as an Ordinance under this article makes any provision which would not be valid if
enacted in an Act of the Legislature of the State assented to by the Governor, it shall be void:

Provided that, for the purposes of the provisions of this Constitution relating to the effect of
an Act of the Legislature of a State which is repugnant to an Act of Parliament or an existing
law with respect to a matter enumerated in the Concurrent List, an Ordinance promulgated
under this article in pursuance of instructions from the President shall be deemed to be an Act
of the Legislature of the State which has been reserved for the consideration of the President
and assented to by him.

While exercising this power Governor must act with the aid and advise of the Council of Ministers.

FREEDOM OF TRADE, COMMERCE AND INTERCOURSE

TRADE, COMMERCE AND INTERCOURSE WITHIN THE TERRITORY OF INDIA
301 Freedom of trade, commerce and intercourse.—
Subject to the other provisions of this Part, trade, commerce and intercourse throughout the
territory of India shall be free.

302 Power of Parliament to impose restrictions on trade, commerce and intercourse.—

Parliament may by law impose such restrictions on the freedom of trade, commerce or
intercourse between one State and another or within any part of the territory of India as may
be required in the public interest.

303 Restrictions on the legislative powers of the Union and of the States with regard to trade and
commerce.—
(1) Notwithstanding anything in article 302, neither Parliament nor the Legislature of a State shall
have power to make any law giving, or authorising the giving of, any preference to one State
over another, or making, or authorising the making of, any discrimination between one State
 NAHATA PROFESSIONAL ACADEMY 60

and another, by virtue of any entry relating to trade and commerce in any of the Lists in the
Seventh Schedule.

(2) Nothing in clause (1) shall prevent Parliament from making any law giving, or authorising the
giving of, any preference or making, or authorising the making of, any discrimination if it is
declared by such law that it is necessary to do so for the purpose of dealing with a situation
arising from scarcity of goods in any part of the territory of India.

304 Restrictions on trade, commerce and intercourse among States.—

Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law—
(a) impose on goods imported from other States 1[or the Union territories] any tax to
which similar goods manufactured or produced in that State are subject, so, however,
as not to discriminate between goods so imported and goods so manufactured or
produced; and

(b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse
with or within that State as may be required in the public interest:
Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved
in the Legislature of a State without the previous sanction of the President.

305 Saving of existing laws and laws providing for State monopolies.—
Nothing in articles 301 and 303 shall affect the provisions of any existing law except in so far as
the President may by order otherwise direct; and nothing in article 301 shall affect the
operation of any law made before the commencement of the Constitution (Fourth
Amendment) Act, 1955, in so far as it relates to, or prevent Parliament or the Legislature of a
State from making any law relating to, any such matter as is referred to in sub-clause (ii) of
clause (6) of article 19.]

306 Appointment of authority for carrying out the purposes of articles 301 to 304.—
Parliament may by law appoint such authority as it considers appropriate for carrying out the
purposes of articles 301, 302, 303 and 304, and confer on the authority so appointed such
powers and such duties as it thinks necessary.

This heading has been given to Part XIII of the Constitution. This part originally consisted of seven articles –
Articles 301 to 307 – of which one (Art. 306) has been repealed. Out of these articles it is the first, i.e., 301
which, in real sense, creates an overall comprehensive limitation on all legislative powers of the Union and
the State which affect the matters covered by that Article. This Article guarantees the freedom of trade,
commerce and intercourse and runs in the following words:
“Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of
India shall be free”.
The opening words of this Article clearly show, and it has been so held by the Supreme Court, that except
the provisions contained under this Part, i.e., Articles 302 to 307 under no other provision of the
Constitution the free flow of trade and commerce can be interfered with. The object of the freedom
declared by this Article is to ensure that the economic unity of India may not be broken by internal barriers.

The freedom guaranteed by Article 301 is not made absolute and is to be read subject to the exceptions as
provided in Articles 302-305.

The concept of trade, commerce and intercourse today is so wide that from ordinary sale and purchase. It
includes broadcasting on radios, communication on telephone and even to non-commercial movement
from one place to another place. If such is the scope of trade and commerce then any law relating to any
matter may affect the freedom of trade, commerce and intercourse, e.g., it may be said that the law
which imposes the condition of licence for having a radio violates the freedom of trade and commerce,
 NAHATA PROFESSIONAL ACADEMY 61

or a law which regulates the hours during which the electricity in a particular locality shall be available
may be called as affecting the freedom of trade and commerce because during those hours one cannot
use the radio or television or one cannot run this factory. If that view is taken then every law shall
become contrary to Articles 301 and unless saved by Articles 302 to 307 shall be unconstitutional.

To avoid such situations the Supreme Court in the very first case on the matter (Atiabari Tea Co. v. State
of Assam, A.I.R. 1951 S.C.V232) declared that only those laws which “directly and immediately” restrict
or impede the freedom of trade and commerce are covered by Article 301 and such laws which directly
and incidentally affect the freedom guaranteed in that article are not within the reach of Article 301. The
word ‘intercourse’ in this article is of wide import. It will cover all such intercourse as might not be
included in the words ‘trade and commerce’.

Thus, it would cover movement and dealings even of a non-commercial nature (Chobe v. Palnitkar, A.I.R.
1954 Hyd. 207). The word, free in Article 301 cannot mean an absolute freedom. Such measures as traffic
regulations licensing of vehicles etc. are not open to challenge.

It was further held in the next case (Automobile Transport Ltd. v. State of Raj., A.I.R. 1962 S.C. 1906) that
regulations that facilitate the freedom of trade and commerce and compensatory taxes are also saved from
the reach of Article 301. About compensatory taxes the Supreme Court has doubted the correctness of its
own views in a later case Khyerbari Tea Co. v. State of Assam, A.I.R. 1964 S.C. 925.

With respect to regulatory laws also, we may say that if they are the laws which facilitate the freedom of
trade and commerce then they are not at all laws which impede the free flow of trade and commerce
directly or indirectly. The freedom of trade and commerce guaranteed under Article 301 applies throughout
the territory of India; it is not only to inter-state but also to intra-state trade commerce and intercourse. But
in no way it covers the foreign trade or the trade beyond the territory of India. Therefore, the foreign trade is
free from the restriction of Article 301.

Trade and commerce which are protected by Article 301 are only those activities which are regarded as
lawful trading activities and are not against policy. The Supreme Court held that gambling is not “trade”.
Similarly, prize competitions being of gambling in nature, cannot be regarded as trade or commerce and as
such are not protected under Article 301 (State of Bombay v. RMDC, AIR 1957 SC 699).

DELEGATED LEGISLATION
The increasing complexity of modern administration and the need for flexibility capable of rapid
readjustment to meet changing circumstances which cannot always be foreseen, in implementing our
socio-economic policies pursuant to the establishment of a welfare state as contemplated by our
Constitution, have made it necessary for the legislatures to delegate its powers. Further, the Parliamentary
procedure and discussions in getting through a legislative measure in the Legislatures is usually time
consuming.
The three relevant justifications for delegated legislation are:
(i) the limits of the time of the legislature;

(ii) the limits of the amplitude of the legislature, not merely its lack of competence but also its sheer
inability to act in many situations, where direction is wanted; and
(iii) the need of some weapon for coping with situations created by emergency.
The delegation of the legislative power is what Hughus, Chief Justice called, flexibility and practicability
(Currin Wallace 83 L. ed. 441).

Classification of delegated legislation

The American writes classify delegates legislation as contingent and subordinate. Further, legislation is
either supreme or subordinate. The Supreme Law or Legislation is that which proceeds from supreme or
sovereign power in the state and is therefore incapable of being repealed, annulled or controlled by any
other legislative authority. Subordinate legislation is that which proceeds from any authority other than the
 NAHATA PROFESSIONAL ACADEMY 62

sovereign power, and is, therefore, dependent for its continued existence and validity on some sovereign or
supreme authority.

Classification of Subordinate Legislation

Executive Legislation The tendency

endency of modern legislation has been in the direction of placing in the
body of an Act only few general rules or statements and relegating details to
statutory rules. This system empowers the executive to make rules and orders
which do not require expres
expresss confirmation by the legislature. Thus, the rules
framed by the Government under the various Municipal Acts fall under the
category.
Judicial Legislation Under various statues, the High Courts are authorised to frame rules for regulating
the procedure to be followed in courts. Such rules have been framed by the High
Courts under the Guardians of Wards Act, Insolvency Act, Succession Act and
Companies Act, etc.
Municipal Legislation Municipal authorities are entrusted with limited and sub-ordinate powers of
establishing special laws applicable to the whole or any part of the area under
their administration known as bye-laws.
Autonomous Under this head fall the regulations which autonomus bodies such as Universities
Legislation make in respect of matters which concern themselves.
Colonial Legislation The laws made by colonies under the control of some other nation, which are
subject to supreme legislation of the country under whose control they are.

Doctrine of implied powers

A body, to which powers of subordinate legislation are delegates must directly act within the powers
which are conferred on it and it cannot act beyond its powers except to the extent justified by the
doctrine of implied powers. The doctrine of implied powers means where the legislature has conferred
any power, it must be deemed to have also granted any other power without which that power cannot
be effectively exercised.
Subordinate legislation can not take effect unless published. Therefore, there must be promulgation and
publication
tion in such cases. Although there is no rule as to any particular kind of publication.

Conditional legislation is defined as a statute that provides controls but specifies that they are to come into
effect only when a given administrative authority finds the existence of conditions defined in the statue.

In other words in sub-ordinate

ordinate legislation the delegate completes the legislation by supplying details
within the limits prescribed by the statue and in the case of conditional legislation, the power of
legislation is exercised by the legislature conditionally, leaving to the discretion of an external authority,
the time and manner of carrying its legislation into effect ((Hamdard Dawa Khana v. Union of India, AIR,
1960 SC 554).
Principles applicable
 NAHATA PROFESSIONAL ACADEMY 63

While delegating the powers to an outside authority the legislature must act within the ambit of the powers
defined by the Constitution and subject to the limitations prescribed thereby. If an Act is contrary to the
provisions of the Constitution, it is void. Our Constitution embodies a doctrine of judicial review of
legislation as to its conformity with the Constitution.
In England, however, the position is different. Parliament in England may delegate to any extent and even
all its power of law-making to an outside authority. In U.S.A., the Constitution embodies the doctrine of
separation of powers, which prohibits the executive being given law making powers. On the question
whether there is any limit beyond which delegation may not go in India, it was held in In re-Delhi Laws Act,
1912 AIR 1951 SC 332, that there is a limit that essential powers of legislation or essential legislative
functions cannot be delegated. However, there is no specific provision in the Constitution prohibiting the
delegation. On the question whether such doctrine is recognised in our Constitution, a number of principles
in various judicial decisions have been laid down which are as follows:
(a) The primary duty of law-making has to be discharged by the Legislature itself. The Legislature
cannot delegate its primary or essential legislative function to an outside authority in any case.
(b) The essential legislative function consists in laying down the ‘the policy of the law’ and ‘making it a
binding rule of conduct’. The legislature, in other words must itself lay down the legislative policy
and principles and must afford sufficient guidance to the rule-making authority for carrying out the
declared policy.
(c) If the legislature has performed its essential function of laying down the policy of the law and
providing guidance for carrying out the policy, there is no constitutional bar against delegation of
subsidiary or ancillary powers in that behalf to an outside authority.
(d) It follows from the above that an Act delegating law-making powers to a person or body shall be
invalid, if it lays down no principles and provides no standard for the guidance of the rule-making
body.
(e) In applying this test the court could take into account the statement in the preamble to the act and
if said statements afford a satisfactory basis for holding that the legislative policy or principle has
been enunciated with sufficient accuracy and clarity, the preamble itself would satisfy the
requirements of the relevant tests.
(f) In every case, it would be necessary to consider the relevant provisions of the Act in relation to the
delegation made and the question as to whether the delegation made is intra vires or not will have
to be decided by the application of the relevant tests.
(g) Delegated legislation may take different forms, viz. conditional legislation, supplementary
legislation subordinate legislation etc., but each form is subject to the one and same rule that
delegation made without indicating intelligible limits of authority is constitutionally incompetent.

Bill
A Bill is a draft statute which becomes law after it is passed by both the Houses of Parliament and assented
to by the President. All legislative proposals are brought before Parliament in the forms of Bills.
Types of Bills and their Specific Features

(i) Bills may be broadly classified into Government Bills and Private Members’ Bills depending upon
their initiation in the House by a Minister or a Private Member.
(ii) Content wise, Bills are further classified into:
(a) Original Bills which embody new proposals, ideas or policies,
(b) Amending Bills which seek to modify, amend or revise existing Acts,
(c) Consolidating Bills which seek to consolidate existing law/enactments on a particular subject,
(d) Expiring Laws (Continuance) Bills which seek to continue Acts which, otherwise, would expire on
a specified date,
(e) Repealing and amending Bill to cleanse the Statute Book,
(f) Validating Acts to give validity to certain actions,
(g) Bills to replace Ordinances,
(h) Money and Financial Bills, and
(i) Constitution Amendment Bills.

(iii) However, procedurally, the Bills are classified as

 NAHATA PROFESSIONAL ACADEMY 64

(a) Ordinary Bills

(b) Money Bills and Financial Bills
(c) Ordinance Replacing Bills and
(d) Constitution Amendment Bills.
(iv) Money Bills are those Bills which contain only provisions dealing with all or any of the matters
specified in sub-clauses (a) to (f) of clause (1) of article 110 of the Constitution. Financial Bills can
be further classified as Financial Bills Categories A and B. Category A Bills contain provisions
dealing with any of the matters specified in sub-clauses (a) to (f) of clause (1) of article 110 and
other matters and Category B Bills involve expenditure from the Consolidated Fund of India.
Except Money Bills and Financial Bills, Category A, which can be introduced only in the Lok Sabha, a
Bill may originate in either House of Parliament. As per the provisions of article 109 of the
Constitution, the Rajya Sabha has limited powers with respect to Money Bills. A Money Bill after
having been passed by the Lok Sabha, and sent to Rajya Sabha for its recommendations, has to be
returned to Lok Sabha by the Rajya Sabha, with in a period of fourteen days from the date of its
receipt, with or without recommendations. It is open for the Lok Sabha, to either accept or reject
all or any of the recommendations of the Rajya Sabha. If the Lok Sabha accepts any of the
recommendations of the Rajya Sabha, the Money Bill is deemed to have been passed by both
Houses with the amendments recommended by the Rajya Sabha and accepted by the Lok Sabha. If
the Lok Sabha does not accept any of the recommendations of the Rajya Sabha, the Money Bill is
deemed to have been passed by both Houses in the form in which it was passed by the Lok Sabha
without any of the amendments recommended by the Rajya Sabha. In case a Money Bill is not
returned by the Rajya Sabha to the Lok Sabha within a period of fourteen days from the date of its
receipt, it is deemed to have been passed by both Houses in the form in which it was passed by the
Lok Sabha after the expiry of said period.
(v) Financial Bill Category A can only be introduced in the Lok Sabha on the recommendation of
the President. However once it has been passed by the Lok Sabha, it is like an ordinary Bill and
there is no restriction on the powers of the Rajya Sabha on such Bills.
(vi) Financial Bill Category B and Ordinary Bills can be introduced in either House of Parliament.
(vii) Ordinance replacing Bills are brought before Parliament to replace an Ordinance, with or without
modifications, promulgated by the President under article 123 of the Constitution of a subject. To
provide continuity to the provisions of the Ordinance, such a Bill has to be passed by the Houses of
Parliament and assented to by the President within six weeks of the reassembly of Parliament.
(viii) As per the procedure laid down in the Constitution, Constitution Amendment Bills can be of three
types viz.,
(a) requiring simple majority for their passage in each House;
(b) requiring special majority for their passage in each House i.e., a majority of the total
membership of a House and by a majority of not less than two-thirds of the members of that
House present and voting (article 368); and
(c) requiring special majority for their passage and ratification by Legislatures of not less than
one- half of the States by resolutions to that effect passed by those Legislatures (proviso to
clause (2) of article 368). A Constitution Amendment Bill under article 368 can be introduced
in either House of Parliament and has to be passed by each House by special majority.
(ix) Under provisions of article 108 of the Constitution, if after a Bill passed by one House and
transmitted to the other House:-
(a) is rejected by the other House; or
(b) the Houses have finally disagreed as to the amendments to be made in the Bill; or
(c) more than six months elapse from the date of its receipt by the other House without the Bill
being passed by it, the President may, unless the Bill has elapsed by reason of a dissolution
of the Lok Sabha, summon them to meet in a joint sitting for the purpose of deliberating and
voting on the Bill. If at the joint sitting of the two Houses, the Bill, with such amendments, if
any, as are agreed to in joint sitting, is passed by a majority of the total number of members
of both Houses present and voting, it shall be deemed to have been passed by both Houses.
However there is no provision of joint sittings on a Money Bill or a Constitution Amending
Bill.
(x) After the dissolution of Lok Sabha all Bills except the Bills introduced in the Rajya Sabha and
 NAHATA PROFESSIONAL ACADEMY 65

pending therein, lapse.

Law making process (How a Bill becomes an Act)

(i) A Bill undergoes three readings in each House of Parliament.
(ii) The First Reading consists of the Introduction of a Bill. The Bill is introduced after adoption of a
motion for leave to introduce a Bill in either of the House. With the setting up of the Department-
related Parliamentary Standing Committees, invariably all Bills, barring Ordinance replacing Bills;
Bills of innocuous nature and Money Bills, are referred to the these Committees for examination
and report within three months.
(iii) The next stage on a Bill i.e., second reading start only after the Committee summits its report on
the Bill to the Houses. The Second Reading consists of two stages: the ‘first stage’ consists of
discussion on the principles of the Bill and its provisions generally on any of the following motions:
that the Bill be taken into consideration; that the Bill be referred to a Select Committee of the
Rajya Sabha ; that the Bill be referred to a Joint Committee of the Houses with the concurrence of
the Lok Sabha; that it be circulated for the purpose of eliciting opinion thereon; and the ‘second
stage’ signifies the clause-by clause consideration of the Bill as introduced or as reported by the
Select/Joint Committee. Amendments given by members to various clauses are moved at this stage.
(iv) The Third Reading refers to the discussion on the motion that the Bill (or the Bill as amended) be
passed or returned (to the Lok Sabha, in the case of a Money Bill) wherein the arguments are based
against or in favour of the Bill. After a Bill has been passed by one House, it is sent to the other
House where it goes through the same procedure. However the Bill is not again introduced in the
other House, it is laid on the Table of the other House which constitutes its first reading there.
(v) After a Bill has been passed by both Houses, it is presented to the President for his assent. The
President can assent or withhold his assent to a Bill or he can return a Bill, other than a Money Bill,
for reconsideration. If the Bill is again passed by the Houses, with or without amendment made by
the President, he shall not withhold assent there from. But, when a Bill amending the Constitution
passed by each House with the requisite majority is presented to the President, he shall give his
assent thereto.
A Bill becomes an Act of Parliament after being passed by both the Houses of Parliament and
assented to by the President.

PARLIAMENTARY COMMITTEES
The work done by the Parliament in modern times is not only varied in nature, but considerable in volume.
The time at its disposal is limited. It cannot, therefore, give close consideration to all the legislative and other
matters that come up before it. A good deal of its business is, therefore, transacted by what are called the
Parliamentary Committees.
Parliamentary Committees play a vital role in the Parliamentary System. They are a vibrant link between the
Parliament, the Executive and the general public. The need for Committees arises out of two factors, the
first one being the need for vigilance on the part of the Legislature over the actions of the Executive, while
the second one is that the modern Legislature these days is over-burdened with heavy volume of work with
limited time at its disposal. It thus becomes impossible that every matter should be thoroughly and
systematically scrutinised and considered on the floor of the House. If the work is to be done with
reasonable care, naturally some Parliamentary responsibility has to be entrusted to an agency in which the
whole House has confidence. Entrusting certain functions of the House to the Committees has, therefore,
become a normal practice. This has become all the more necessary as a Committee provides the expertise
on a matter which is referred to it. In a Committee, the matter is deliberated at length, views are expressed
freely, the matter is considered in depth, in a business-like manner and in a calmer atmosphere. In most of
the Committees, public is directly or indirectly associated when memoranda containing suggestions are
received, on-the-spot studies are conducted and oral evidence is taken which helps the Committees in
arriving at the conclusions.
The Committees aid and assist the Legislature in discharging its duties and regulating its functions
effectively, expeditiously and efficiently. Through Committees, Parliament exercises its control and influence
over administration. Parliamentary Committees have a salutary effect on the Executive. The Committees
are not meant to weaken the administration, instead they prevent misuse of power exercisable by the
Executive. It may, however, be remembered that Parliamentary control in the context of the functioning of
 NAHATA PROFESSIONAL ACADEMY 66

the Committees may mean influence, not direct control; advice, not command; criticism, not obstruction;
scrutiny, not initiative; and accountability, not prior approval. This, in brief, is the rationale of the Committee
System. The Committees have functioned in a non non-partisan
partisan manner and their deliberations and conclusions
have been objective. This, in a large measure, accounts for the respect in which the recommendations of
the Parliamentary Committees are held.

Ad hoc and Standing Committees

Parliamentary Committees are of two kinds: Ad hoc Committees and the Standing Committees.
Ad hoc Committees are appointed for a specific purpose and they cease to exist when they finish the task
assigned to them and submit a report. The principal Ad hoc Committees are the Select and Joint
Committees on Bills. Others like the Railway Convention Committee, the Committees on the Draft Five Year
Plans and the Hindi Equivalents Committee were appointed for specific purposes.
Apart from the Ad hoc Committees, each House of Parliament has Standing Committees like the Business
Advisory Committee, the Committee on Petitions, the Committee of Privileges and the Rules Committee,
etc.

Other Committees
Of special importance is yet another class of Committees which act as Parliament’s ‘Watch Dogs’ over the
executive. These are the Committees on Subordinate Legislation, the Committee on Government
Assurances, the Committee on Estimates, the Commi
Committee
ttee on Public Accounts and the Committee on Public
Undertakings and Departmentally Related Standing Committees (DRSCs). The Committee on Estimates, the
Committee on Public Accounts, the Committee on Public Undertakings and DRSCs play an important role in
exercising a check over governmental expenditure and Policy formulation.
Parliamentary Committees:-

QUESTIONS:
(1) Discuss the test laid down by the Supreme Court of India to determine the entity of “State”,
whether it is ‘instrumentality or agency oof State’. [DEC-2018] (5 marks)
(2) Discuss the ‘Doctrine of Eclipse’ under the Constitution of India. [DEC
[DEC-2020] (5 marks)
(3) Article 14 of the Constitution of India says that state shall not deny to any person equality before
the law or the equal protection of laws within the territory of India. Explain it. Refer the relevant
Judgements.[JUNE-2019] (8 marks)
(4) Explain the freedom of association under the Constitution of India. What reasonable restrictions
have been imposed on this freedom under Article 19 of the Constitution of India ? [JUNE-2019]
[JUNE (5
marks)
(5) Article 19(1)(g) of the Constitution of India provides that all citizens shall have the right to practice
any profession, or to carry on any occupation, trade or Business. Explain. [DE[DEC-2020] (4 marks)
(6) What are the restrictions on right to freedom of speech and expression under Article 19 of the
 NAHATA PROFESSIONAL ACADEMY 67

Constitution of India ? [DEC-2018] (4 marks)

(7) “Article 20 of the Constitution of India guarantees protection against self incrimination”. Explain
briefly. [DEC-2018] (4 marks)
(8) Discuss ‘the procedure established by law’ under Article 21 of the Constitution of India with
decided case laws. [DEC-2018] (8 marks)
(9) Write a short note on writ of ‘Quo Warranto’. [DEC-2019] (4 marks)
(10) Rajasthan Legislature passed a law restricting the use of sound amplifiers. The law was challenged
on the ground that it deals with a matter which falls in entry 81 of List-I under the Constitution of
India which reads:
‘‘Post and telegraphs, telephones, wireless broadcasting and other like forms of communication’’
and therefore, the State Legislature was not competent to pass it.
Examine the proposition in the light of ‘‘Pith and Substance Rule’’ referring the case law on this
point.[DEC-2019] (5 marks)
(11) Discuss in brief the doctrine of severability. [JUNE-2013] (8 marks)
(12) Describe the right of minorities to establish and administer educational institutions as enshrined in
the Constitution of India. [JUNE-2013] (6 marks)
(13) What is meant by .preventive detention. ? What are the safeguards available against preventive
detention ? [JUNE-2013] (6 marks)
(14) "Article 14 of the Constitution of India does not rule out classification for purposes of legislation;
what it requires is a valid classification for the same." Explain. [DEC-2013] (8 marks)
(15) Describe the power of the President of India to promulgate ordinances. [DEC-2013] (6 marks)
(16) "Writ of habeas corpus is a bulwark of personal liberty." Justify this statement in the light of the
provisions stated in the Constitution of India. [JUNE-2014] (8 marks)
(17) "Right to fundamental freedoms is not absolute." Elaborate. [JUNE-2014] (6 marks)
(18) Explain the 'pith and substance' rule with the help of decided cases. [JUNE-2014] (4 marks)
(19) To what extent does the Indian Constitution differ from the federal system of other countries ?
[DEC-2014] (8 marks)
(20) "A declaration of fundamental rights is meaningless unless there is an effective judicial remedy for
their enforcement." Comment on this statement explaining the judicial remedies provided in the
Constitution of India. [DEC-2014] (6 marks)
(21) Briefly describe the Fundamental Rights against exploitation under Constitution of India? [DEC-
2021]
(22) ‘‘Article 16 of the Indian Constitution guarantees equal opportunity to all citizens of India in
matters related to public employment. However, there are certain exceptions of the Article 16’’.
Explain the reservation policy in India. [DEC-2021]
(23) “Any law which is inconsistent with the fundamental rights is void ‘to the extent of inconsistency’
and it is not necessary to strike down the whole Act as invalid, if only a part is invalid.” Discuss.
[JUNE-2021]
(22) Vijay, an accused, committed an offence of dacoity in 2015. At that time dacoity was punishable
with imprisonment of 10 years. In 2016 during his trial, a law was passed which made dacoity
punishable with life imprisonment. Which penalty would be applicable on accused Vijay ? Discuss
the answer with reference to Article 20(1) of the Indian Constitution. [JUNE-2021]
(23) “Under the Indian Constitution, Parliament is empowered to make law even on the subjects
enumerated in the State List”. Discuss the power of Parliament to make Laws on State List. [JUNE-
2021]
(24) Examine how far the essentials of federal polity is incorporated in Indian Constitution. [JUNE-2022]
(25) ‘A’ a state in the Union of India made provisions for district-wise distribution of seats in state
medical colleges on the basis of population of a district to the population of the state. Decide the
validity of this classification with the help of relevant case law[JUNE-2022].
(26) Discuss the fundamental duties as enumerated in Article 51A of the Constitution of India. Can it be
enforced through writs ? Give reasons.(8 marks each) [JUNE-2022]
 NAHATA PROFESSIONAL ACADEMY 68
29/6
CHAPTER -3
INTERPRETATION OF STATUTES
 Legislature provided for meaning of law
 Need of interpretation and construction
 Primary principles
 Principle of literal interpretation
 Principle of reasonable construction (ut res magis valeat quam pareat)
 Principle of harmonious construction
 Principle of Ejusdem generis
 Heydon’s mischief rule

 Secondary principles
 Specific inclusion of one things excludes the others
 Noscitor sociis
 Strict and liberal interpretation
 Contempornia expositio est re fortisimma in lege
 Internal aid to interpretation
 External aid to interpretation.

INTRODUCTION
A statute is a will of legislature conveyed in the form of text. The conventional way of interpreting or
construing a statute is to seek the intention of legislature. The intention of legislature assimilates two
aspects; one aspect carries the concept of ‘meaning’, and another aspect conveys the concept of ‘purpose’
and ‘object’ or the ‘reason’ or ‘spirit’ pervading through the statute. The process of construction, therefore,
combines both the literal and purposive approaches.

Necessity of interpretation would arise only:

 where the language of a statutory provision is ambiguous, not clear or
 where two views are possible or
 where the provision gives a different meaning defeating the object of the statute.
If the language is clear and unambiguous, no need of interpretation would arise.
For the purpose of construction or interpretation, the Court obviously has to take recourse to various
internal and external aids. When internal aids are not adequate, Court has to take recourse to external aids.
These internal aids include long title, preamble, headings, marginal notes, illustrations, punctuation,
proviso, schedule, transitory provisions, etc.

These external aids include parliamentary material, historical background, reports of a committee or a
commission, official statement, dictionary meanings, foreign decisions, etc.

Bouvier’s Law Dictionary,

A statute is “a law established by the act of the legislative power i.e. an Act of the legislature. The written
will of the legislature.

The Constitution of India does not use the term ‘statute’ but it employs the term “law” to describe an
exercise of legislative power.

Statutes are commonly divided into following classes:

Codifying when they codify the unwritten law on a subject;
Declaratory when they do not profess to make any alteration in the existing
law but merely declare or explain what it is;
 NAHATA PROFESSIONAL ACADEMY 69

Remedial when they alter the common law or the judge made (non-
statutory) law;
Amending when they alter the statute law;
Consolidating when they consolidate several previous statutes relating to the
same subject matter with or without alternations of substance;
Enabling when they remove a restriction or disability;
Disabling or restraining when they restrain the alienation of property;
Penal When they impose a penalty or forfeiture.

NEED FOR AND OBJECT OF INTERPRETATION

Denning L.J. in Seaford Court Estates Ltd. v. Asher, The need for statutory interpretation is instructive:
“It is not within human powers to foresee the manifold sets of facts which may arise; and that; even if it
were, it is not possible to provide for them in terms free from all ambiguity. The English language is not an
instrument of mathematical precision. This is where the draftsmen of Acts of Parliament have often been
unfairly criticized. A judge, believing himself to be fettered by the supposed rule that he must look to the
language and nothing else, laments that the draftsmen have not provided for this or that, or have been
guilty of some or other ambiguity. It would certainly save the judge’s trouble if Acts of Parliament were
drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears, a judge
cannot simply fold his hands and blame the draftsman.

He must set to work on the constructive task of finding the intention of Parliament, and he must do this,
not only from the language of the statute, but also from a consideration of the social conditions which gave
rise to it, and of the mischief which it was passed to remedy, and then he must supplement the written
word so as to give ‘force and life’ to the intention of the legislature.

To put into other words: A judge should ask himself the question: If the makers of the Act had themselves
come across this luck in the texture of it, how would they have straight ended it out? He must then do as
they would have done. A judge must not alter the material of which it is woven, but he can and should iron
out the creases.

Halsbury’s Laws Of England 3rd Ed., Vol.2, P.381

The object of interpretation has been explained as:

“The object of all interpretation of a ‘Written Document’ is to discover the intention of the author, the
written declaration of whose mind the document is always considered to be. Consequently, the
construction must be as near to the minds and apparent intention of the parties as possible, and as the law
will permit.

The function of the court is to ascertain what the parties meant by the words which they have used; to
declare the meaning of what is written in the instrument, and not of what was intended to have been
written; to give effect to the intention as expressed, the expressed meaning being, for the purpose of
interpretation, equivalent of the intention.

It is not possible to guess at the intention of the parties and substitute the presumed for the expressed
intention. The ordinary rules of construction must be applied, although by doing so the real intention of the
parties may, in some instances be defeated. Such a course tends to establish a greater degree of certainty
in the administration of the law”.

The object of interpretation, thus, in all cases is to see what is the intention expressed by the words used.
The words of the statute are to be interpreted so as to ascertain the mind of the legislature from the
natural and grammatical meaning of the words which it has used.
 NAHATA PROFESSIONAL ACADEMY 70

Meanings of Interpretation of Statutes

The phrase “Interpretation of Statutes” implies the judicial process of determining,, in accordance with
certain rules and presumptions, the true meaning of the Acts of the Parliament. In this context, the phrase
would mean a process or manner that conveys one’s understanding of the ideas of the creator, or
understand as having a particular meaning or significance, explanation, explication or a clarification for a
particular statute or law. It is often said that the purpose of interpretation is to ascertain the intention of
the Legislature. The object of interpretation is to see what is intended by the words used by the lawmaker.
But, sometimes it is very difficult to understand the meaning without making further inquiry. Therefore, it
becomes necessary to find out the correct meaning by applying various rules of interpretation. However,
there is no hierarchy of one rule over the other. The interpreter has to analyse which rule has to apply after
giving due consideration to the facts of the situation and intent of the statute.
It must be kept in the mind that there is a clear distinction between Interpretation and Legislation. The
court only interprets the law and does not legislate it. If the provision of law is misused and subjected to
the abuse of the process of law, it is for the Legislature to amend modify or repeal it by having recourse to
appropriate procedure if deemed necessary. Therefore, statutory interpretation is an exercise which
requires the court to identify the meaning borne by the words in question in the particular context.

casus omissus RULE

According to definition of Merriam-Webster, casus omissus rule is a situation omitted from or not provided
for by statute or regulation and therefore governed by the common law. There are two basic rules of
interpretation:
1. Every word in a statute to be given meaning.
2. The court cannot read anything into a statute or rewrite a provision which is unambiguous A court
generally interprets the law against rewriting.
1 It is corollary to the general rule of literal construction that nothing is to be added to or taken
out from a statute unless there are adequate grounds to justify the inference the legislature
intended something which it omitted to express.
2 When the language is clear and unambiguous and when there is no need to apply the tools of
interpretation, there is no need to interpret the word ‘or’, nor any need to read it as a
substitute word, instead of its plain and simple meaning denoting as ‘alternative’. However,
3the judge may read in or read out words which he considers to be necessarily implied or
surplus by words which are already in the statute; and the judge has a limited power to add
to, alter or ignore statutory words in order to prevent a provision from being unintelligible,
absurd or totally unreasonable, unworkable, or totally irreconcilable with the rest of the
statute.

Interpretation of Definition Clause

Usually, every statute has a definition section (also called ‘interpretation clause’) which provides definitions
of various words and phrases used in the statute.
Example Section 2 of the Companies Act, 2013 provides the definitions of various terms used in the statute.

In order to keep the definition relevant the words “unless the context otherwise required” are used in the
provisions relating to definition. These words means that the definition is only conclusive unless otherwise
context requires.

While interpreting, the interpreter should consider the context in which a word has been used, where the
definition of a word has not been given – the construction must be given in its popular sense and Object of
the statute should be given due consideration. Further, the definitions may be exhaustive definitions and
inclusive definitions. In exhaustive definitions, a restricted meaning is provided for a particular word and in
inclusive definitions, there is a scope of further reading into of the words according to the context.
 NAHATA PROFESSIONAL ACADEMY 71

Example
Exhaustive Definition: “abridged prospectus” means a memorandum containing such salient features of a
prospectus as may be specified by the Securities and Exchange Board by making regulations in this behalf.
(section 2(1) of the Companies Act, 2013.

Inclusive Definition: As per section 2(22AA) of the Income-tax Act, 1961 “document” includes an electronic
record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000

GENERAL PRINCIPLES OF INTERPRETATION

It must be clarified that, “It is only when the intention of the legislature as expressed in the statute is not
clear, that the Court will have any need for the rules of interpretation of statutes for interpreting it’’.

It may also be pointed out here that since our legal system is, by and large, modelled on Common Law
system, our rules of interpretation are also same as that of the system. It is further to be noted, that the so
called rules of interpretation are really guidelines.

The Primary Rule: Literal Construction

According to this rule, the words, phrases and sentences of a statute are ordinarily to be understood in
their natural, ordinary or popular and grammatical meaning unless such a construction leads to an
absurdity or the content or object of the statute suggests a different meaning. The objectives ‘natural’,
‘ordinary’ and ‘popular’ are used interchangeably.
Nand Prakash Interpretation should not be given which would make other provisions
Vohra v. State of redundant.
H.P.,
Whenever you have to construe a statute or document you do not construe it according to the mere
ordinary general meaning of the words, but according to the ordinary meaning of the words as applied to
the subject matter with regard to which they are used. (Brett M.R.)

It is a corollary to the general rule of literal construction that nothing is to be added to or taken from a
statute unless there are adequate grounds to justify the inference that the legislature intended something
which it omitted to express.

A construction which would leave without effect any part of the language of a statute will normally be
rejected. Some of the other basic principles of literal construction are:
(i) Every word in the law should be given meaning as no word is unnecessarily used.
(ii) One should not presume any omissions and if a word is not there in the Statute, it shall not be given
any meaning.

State of H.P v. Supreme Court held: One of the basic principles of interpretation of statutes is to
Pawan Kumar construe them according to plain, literal and grammatical meaning of the words.
(2005) 4 SCALE, P.1,
 If that is contrary to, or inconsistent with, any express intention or declared
purpose of the Statute, or if it would involve any absurdity, repugnancy or
inconsistency, the grammatical sense must then be modified, extended,
abridged, so far as to avoid such an inconvenience, but no further.
 The onus of showing that the words do not mean what they say lies heavily
on the party who alleges it.
 He must advance something which clearly shows that the grammatical
construction would be repugnant to the intention of the Act or lead to some
manifest absurdity.

The Mischief Rule or Heydon’s Rule

 NAHATA PROFESSIONAL ACADEMY 72

In Heydon’s Case, it was resolved “that for the sure and true interpretation of all statutes in general (be
they penal or beneficial, restrictive or enlarging of the Common Law) four things are to be discerned and
considered:

(1) What was the Common Law before the making of the Act;
(2) What was the mischief and defect for which the Common Law did not provide;
(3) What remedy the Parliament had resolved and appointed to cure the disease of the Commonwealth;
and
(4) The true reason of the remedy.

Although judges are unlikely to propound formally in their judgments the four questions in Heydon’s Case,
consideration of the “mischief” or “object” of the enactment is common and will often provide the solution
to a problem of interpretation.

Therefore, when the material words are capable of bearing two or more constructions, the most firmly
established rule for construction of such words is the rule laid down in Heydon’s case which has “now
attained the status of a classic”.

The rule directs that the Courts must adopt that construction which shall suppress the mischief and
advance the remedy.

But this does not mean that a construction should be adopted which ignores the plain natural meaning of
the words or disregard the context and the collection in which they occur.

Sodra Devi’s case, The Supreme Court has expressed the view that the rule in Heydon’s case is
AIR 1957 S.C. 832 applicable only when the words in question are ambiguous and are reasonably
capable of more than one meaning.

The correct principle is that after the words have been construed in their context and it is found that the
language is capable of bearing only one construction, the rule in Heydon’s case ceases to be controlling and
gives way to the plain meaning rule.

Rule of Reasonable Construction i.e. Ut Res Magis Valeat Quam Pareat

Normally, the words used in a statute have to be construed in their ordinary meaning, but in many cases,
judicial approach finds that the simple device of adopting the ordinary meaning of words, does not meet
the purpose of a fair and a reasonable construction.

Exclusive reliance on the bare dictionary meaning of words’ may not necessarily assist a proper
construction of the statutory provision in which the words occur. Often enough interpreting the provision,
it becomes necessary to have regard to the subject matter of the statute and the object which it is intended
to achieve.

According to this rule, the words of a statute must be construed ut res magis valeat quam pareat, so as to
give a sensible meaning to them. A provision of law cannot be so interpreted as to divorce it entirely from
common sense; every word or expression used in an Act should receive a natural and fair meaning.

It is the duty of a Court in constructing a statute to give effect to the intention of the legislature. If,
therefore, giving of literal meaning to a word used by the draftsman particularly in penal statute would
defeat the object of the legislature, which is to suppress a mischief, the Court can depart from the
dictionary meaning which will advance the remedy and suppress the mischief.
 NAHATA PROFESSIONAL ACADEMY 73

Tirath Singh v. only when the language of a statute, in its ordinary meaning and grammatical
Bachittar Singh, construction, leads to a manifest contradiction of the apparent purpose of the
A.I.R. 1955 S.C. 830 enactment, or to some inconvenience or absurdity, hardship of injustice,
presumably not intended, a construction may be put upon it which modifies the
meaning of the words and even the structure of the sentence.
Kanwar Singh v. Courts can depart from dictionary meaning of a word and give it a meaning which
Delhi will advance the remedy and suppress the mischief provided the Court does not
Administration, AIR have to conjecture or surmise. A construction will be adopted in accordance with
1965 S.C. 871 the policy and object of the statute.
Newman To make the discovered intention fit the words used in the statute, actual
Manufacturing Co. expression used in it may be modified. If the Court considers that the litera legis
Ltd. v. Marrables, is not clear, it, must interpret according to the purpose, policy or spirit of the
(1931) 2 KB 297, statute (ratio-legis). It is, thus, evident that no invariable rule can be established
Williams v. Ellis, for literal interpretation.
1880 49 L.J.M.C
RBI v. Peerless The Supreme Court stated that if a statute is looked at in the context of its
General Finance enactment, with the glasses of the statute makers provided by such context, its
and Investment Co. scheme, the sections, clauses, phrases and words may take colour and appear
Ltd. (1987) 1 SCC different than when the statute is looked at without the glasses provided by the
424. context. With these glasses we must look at the Act as a whole and discover what
each section, each clauses each phrase and each word is meant and designed to
say as to fit into the scheme of the entire Act

Rule of Harmonious Construction

Where in an enactment, there are two provisions which cannot be reconciled with each other, they should
be so interpreted that, if possible, effect may be given to both. This is what is known as the “rule of
harmonius construction”.

A statute must be read as a whole and one provision of the Act should be construed with reference to other
provisions in the same Act so as to make a consistent enactment of the whole statute. Such a construction
has the merit of avoiding any inconsistency or repugnancy either within a section or between a section and
other parts of the statute.

Raj Krishna v. Pinod It is the duty of the Courts to avoid “a head on clash” between two sections of
Kanungo, A.I.R. the same Act and, “whenever it is possible to do so, to construct provisions which
1954 S.C. 202 at appear to conflict so that they harmonise”
203
(Venkataramana The Supreme Court applied this rule in resolving a conflict between Articles
Devaru v. State of 25(2)(b) and 26(b) of the Constitution and it was held that the right of every
Mysore, A.I.R. 1958 religious denomination or any section thereof to manage its own affairs in
S.C. 255). matters of religion [Article 26(b)] is subject to a law made by a State providing for
social welfare and reform or throwing open of Hindu religious institutions of a
public character to all classes and sections of Hindus [Article 25(2)(b)].
In M/s New India It was observed by Supreme Court that It is a recognised rule of interpretation of
Sugar Mills Ltd. vs. statutes that the expressions used therein should ordinarily be understood in a
Commissioner of sense in which they best harmonise with the object of the statute, and which
Sales Tax, Bihar. SC, effectuate the object of the Legislature.
1963 AIR 1207

Rule of Ejusdem Generis

 NAHATA PROFESSIONAL ACADEMY 74

Ejusdem Generis, literally means “of the same kind or species”. The rule can be stated thus:

(a) In an enumeration of different subjects in an Act, general words following specific words may be
construed with reference to the antecedent matters, and the construction may be narrowed down by
treating them as applying to things of the same kind as those previously mentioned, unless of course, there
is something to show that a wide sense was intended;

(b) If the particular words exhaust the whole genus, then the general words are construed as embracing a
larger genus.

In other words, the ejusdem generis rule is that, where there are general words following particular and
specific words, the general words following particular and specific words must be confined to things of the
same kind as those specified, unless there is a clear manifestation of a contrary purpose.

To apply the rule the following conditions must exist:

(1) The statute contains an enumeration by specific words,
(2) The members of the enumeration constitute a class,
(3) The class is not exhausted by the enumeration,
(4) A general term follows the enumeration,
(5) There is a distinct genus which comprises more than one species, and
(6) There is no clearly manifested intent that the general term be given a broader meaning that the
doctrine requires.

Whether the rule of ejusdem generis should be applied or not to a particular provision depends upon the
purpose and object of the provision which is intended to be achieved.

OTHER RULES OF INTERPRETATION

(a) Expressio Unis Est Exclusio Alterius

The rule means that express mention of one thing implies the exclusion of another.

At the same time, general words in a statute must receive a general construction, unless there is in the
statute some ground for limiting and restraining their meaning by reasonable construction; because many
things are put into a statute ‘ex abundanti cautela’ (out of abundant caution; to use as many words as
possible so as not to leave room for guess) and it is not to be assumed that anything not specifically
included is for that reason alone excluded from the protection of the statute. The method of construction
according to this maxim must be carefully watched.

The maxim ought not to be applied when its application leads to inconsistency or injustice. Similarly, it
cannot be applied when the language of the Statute is plain with clear meaning.

(b) Contemporanea Expositio Est Optima Et Fortissima in Lege

The maxim means that a contemporaneous exposition is the best and strongest in law. Where the words
used in a statute have undergone alteration in meaning in course of time, the words will be construed to
bear the same meaning as they had when the statute was passed on the principle expressed in the maxim.

In simple words, old statutes should be interpreted as they would have been at the date when they were
passed and prior usage and interpretation by those who have an interest or duty in enforcing the Act, and
the legal profession of the time, are presumptive evidence of their meaning when the meaning is doubtful.
 NAHATA PROFESSIONAL ACADEMY 75

But if the statute appears to be capable of only interpretation, the fact that a wrong meaning had been
attached to it for many years, will be immaterial and the correct meaning will be given by the Courts except
when title to property may be affected or when every day transactions have been entered into on such
wrong interpretation.

(c) Noscitur a Sociis

The ‘Noscitur a Sociis’ i.e.“It is known by its associates”. In other words, meaning of a word should be
known from its accompanying or associating words.

The rule states that where two or more words which are susceptible of analogous meaning are coupled
together, they are understood in their cognate sense. It is only where the intention of the legislature in
associating wider words with words of narrower significance, is doubtful that the present rule of
construction can be usefully applied.

Bhagirathi G. It is not a sound principle in interpretation of statutes, to lay emphasis on one

Shenoy v. K.P. word disjuncted from its preceding and succeeding words. A word in a statutory
Ballakuraya, AIR provision is to be read in collocation with its companion words. The pristine
1999 SC 2143 principle based on the maxim ‘noscitur a socitis’ has much relevance in
understanding the import of words in a statutory provision.

The same words bear the same meaning in the same statute. But this rule will not apply:
(i) when the context excluded that principle.
(ii) if sufficient reason can be assigned, it is proper to construe a word in one part of an Act in a different
sense from that which it bears in another part of the Act.
(iii) where it would cause injustice or absurdity.
(iv) where different circumstances are being dealt with.
(v) where the words are used in a different context.

Many do not distinguish between this rule and the ejusdem generis doctrine. But there is a subtle
distinction as pointed out in the case of State of Bombay v. Hospital Mazdoor Sabha, (1960) 2 SCR 866.

(d) Strict and Liberal Construction

In Wiberforce on Statute Law, it is said that what is meant by ‘strict construction’ is that “Acts, are not to be
regarded as including anything which is not within their letter as well as their spirit, which is not clearly and
intelligibly described in the very words of the statute, as well as manifestly intended”, while by ‘liberal
construction’ is meant that “everything is to be done in advancement of the remedy that can be done
consistently with any construction of the statute”. Beneficial construction to suppress the mischief and
advance the remedy is generally preferred.

A Court invokes the rule which produces a result that satisfies its sense of justice in the case before it.
“Although the literal rule is the one most frequently referred to in express terms, the Courts treat all three
(viz., the literal rule, the golden rule and the mischief rule) as valid and refer to them as occasion demands,
but do not assign any reasons for choosing one rather than another. Sometimes a Court discusses all the
three approaches. Sometimes it expressly rejects the ‘mischief rule’ in favour of the ‘literal rule’. Sometimes
it prefers, although never expressly, the ‘mischief rule’ to the ‘literal rule’.

PRESUMPTIONS

Where the meaning of the statute is clear, there is no need for presumptions. But if the intention of the
legislature is not clear, there are number of presumptions.
These are:
(a) that the words in a statute are used precisely and not loosely.
 NAHATA PROFESSIONAL ACADEMY 76

(b) that vested rights, i.e., rights which a person possessed at the time the statute was passed, are not
taken away without express words, or necessary implication or without compensation.
(c) that “mens rea”, i.e., guilty mind is required for a criminal act. There is a very strong presumption
that a statute creating a criminal offence does not intend to attach liability without a guilty intent.
The general rule applicable to criminal cases is “actus non facit reum nisi mens sit rea” (The act
itself does not constitute guilt unless done with a guilty intent).
(d) that the state is not affected by a statute unless it is expressly mentioned as being so affected.
(e) that a statute is not intended to be inconsistent with the principles of International Law. Although
the judges cannot declare a statute void as being repugnant to International Law, yet if two
possible alternatives present themselves, the judges will choose that which is not at variance with
it.
(f) that the legislature knows the state of the law.
(g) that the legislature does not make any alteration in the existing law unless by express enactment.
(h) that the legislature knows the practice of the executive and the judiciary.
(i) legislature confers powers necessary to carry out duties imposed by it.
(j) that the legislature does not make mistake. The Court will not even alter an obvious one, unless it
be to correct faulty language where the intention is clear.
(k) the law compels no man to do that which is futile or fruitless.
(l) legal fictions may be said to be statements or suppositions which are known, to be untrue, but
which are not allowed to be denied in order that some difficulty may be overcome, and substantial
justice secured. It is a well settled rule of interpretation that in construing the scope of a legal
fiction, it would be proper and even necessary to assume all those facts on which alone the fiction
can operate.
(m) where powers and duties are inter-connected and it is not possible to separate one from the other
in such a way that powers may be delegated while duties are retained and vice versa, the
delegation of powers takes with it the duties.
(n) the doctrine of natural justice is really a doctrine for the interpretation of statutes, under which the
Court will presume that the legislature while granting a drastic power must intend that it should be
fairly exercised.

INTERNAL AND EXTERNAL AIDS IN INTERPRETATION

In coming to a determination as to the meaning of a particular Act, it is permissible to consider two points,
namely,

(1) the internal evidence derived from the Act itself.

(2) the external evidence derived from extraneous circumstances, such as, previous legislation and
decided cases etc., and

Internal Aids in Interpretation

The following may be taken into account while interpreting a statute:

Title The long title of an Act is a part of the Act and is admissible as an aid to its
construction. The long title sets out in general terms, the purpose of the Act and
it often precedes the preamble.

It is different from short title which implies only an abbreviation for purposes of
reference, the object of which is identification and not description.

The true nature of the law is determined not by the name given to it but by its
substance. However, the long title is a legitimate aid to the construction.
EXAMPLE: While dealing with the Supreme Court Advocates (Practice in High
Court) Act, 1951 bearing a full title as “An Act to authorise Advocates of the
 NAHATA PROFESSIONAL ACADEMY 77

Supreme Court to practice as of right in any High Court”, S.R. Das, J. observed:

“One cannot but be impressed at once with the wording of the full title of the
Act.

It is now a settled law that the title of a statute is an important part of the Act
and may be referred to for the purpose of ascertaining its general scope and of
throwing light on its construction, although it cannot override the clear meaning
of an enactment.
Preamble The true place of a preamble in a statute was at one time, the subject of
conflicting decisions.
 In Mills v. Wilkins, (1794) 6 Mad. 62, Lord Hold said: “the preamble of a
statute is not part thereof, but contains generally the motives or
inducement thereof”.
 On the other hand, it was said that “the preamble is to be considered, for
it is the key to open the meaning of the makers of the Act, and the
mischief it was intended to remedy”.
 The modern rule lies between these two extremes and is that where the
enacting part is explicit and unambiguous the preamble cannot be
resorted to, control, qualify or restrict it, but where the enacting part is
ambiguous, the preamble can be referred to explain and elucidate it (Raj
Mal v. Harnam Singh, (1928) 9 Lah. 260).
Two propositions are quite clear
 a preamble may afford useful light as to what a statute intends to reach
and
 if an enactment is itself clear and unambiguous, no preamble can qualify
or cut down the enactment”.

This rule has been applied to Indian statutes that even though the preamble
cannot be used to defeat the enacting clauses of a statute, it has been treated to
be a key for the interpretation of the statute.

Kamalpura Kochunni v. State of Madras, AIR 1960 SC 1080

Supreme Court pointed out that the preamble may be legitimately consulted in
case any ambiguity arises in the construction of an Act and it may be useful to fix
the meaning of words used so as to keep the effect of the statute within its real
scope.
Heading and Title In different parts of an Act, there is generally found a series or class of
of a Chapter enactments applicable to some special object, and such sections are in many
instances, preceded by a heading. It is now settled that the headings or titles
prefixed to sections or group of sections can be referred to in construing an Act
of the legislature.

But conflicting opinions have been expressed on the question as to what weight
should be attached to the headings.
 A “heading”, according to one view “is to be regarded as giving the key to
the interpretation of clauses ranged under it, unless the wording is
inconsistent with such interpretation; and so that headings, might be
treated “as preambles to the provisions following them”.
 But according to the other view, resort to the heading can only be taken
when the enacting words are ambiguous.

Frick India Ltd. v. Union of India, AIR 1990 SC 689, The Supreme Court observed
 NAHATA PROFESSIONAL ACADEMY 78

that,-
“the headings prefixed to sections or entries (of a Tariff Schedule) cannot control
the plain words of the provision; they cannot also be referred to for the purpose
of construing the provision when the words used in the provision are clear and
unambiguous; nor can they be used for cutting down the plain meaning of the
words in the provision. Only in the case of ambiguity or doubt the heading or the
sub-heading may be referred to as an aid for construing the provision but even in
such a case aid could not be used for cutting down the wide application of the
clear words used in the provision”
Marginal Notes England, the disposition of the Court is to disregard the marginal notes. In our
country the Courts have entertained different views. Although opinion is not
uniform, the weight of authority is in favour of the view that the marginal note
appended to a section cannot be used for construing the section.

“There seems to be no reason for giving the marginal notes in an Indian statute
any greater authority than the marginal notes in an English Act of Parliament”
(Balraj Kumar v. Jagatpal Singh, 26 All. 393).

Patanjali Shastri, J. After referring to the above case with approval observed:
“Marginal notes in an Indian statute, as in an Act of Parliament cannot be
referred to for the purpose of construing the Statute” (C.I.T. v. Anand Bhai Umar
Bhai, A.I.R. 1950 S.C. 134).
At any rate, there can be no justification for restricting the section by the
marginal note, and the marginal note cannot certainly control the meaning of the
body of the section if the language employed therein is clear and unambiguous.

When reference to marginal note is relevant?

The Supreme Court has held that the marginal note although may not be
relevant for rendition of decisions in all types of cases but where the main
provision is sought to be interpreted differently, reference to marginal note
would be permissible in law.

The Supreme Court in Western India Theatres Ltd. v. Municipal Corporation of

Poona, (1959) S.C.J. 390, has also held, that a marginal note cannot be invoked
for construction where the meaning is clear.
Interpretation It is common to find in statutes “definitions” of certain words and expressions
Clauses used elsewhere in the body of the statute. The object of such a definition is to
avoid the necessity of frequent repetitions in describing all the subject-matter to
which the word or expression so defined is intended to apply.

A definition section may borrow definitions from an earlier Act and definitions so
borrowed need not be found in the definition section but in some provisions of
the other Act.

The definition of a word in the definition section may either be restrictive of its
ordinary meaning or it may be extensive of the same.

When a word is defined to ‘mean’ such and such, the definition is prima facie
restrictive and exhaustive, whereas where the word defined is declared to
‘include’ such and such, the definition is prima facie extensive.

Further, a definition may be in the form of ‘means and includes’, where again the
 NAHATA PROFESSIONAL ACADEMY 79

definiton is exhaustive. On the other hand, if a word is defined ‘to apply to and
include’, the definition is understood as extensive. (See Balkrishan v. M. Bhai AIR
1999 MP 86)

A definition section may also be worded in the form ‘so deemed to include’ which
again is an inclusive or extensive definition and such a form is used to bring in by
a legal fiction something within the word defined which according to ordinary
meaning is not included within it.

A definition may be both inclusive and exclusive i.e. it may include certain things
and exclude others.

In such a case limited exclusion of a thing may suggest that other categories of
that thing which are not excluded fall within the inclusive definition. The
definition section may itself be ambiguous and may have to be interpreted in the
light of the other provisions of the Act and having regard to the ordinary
connotation of the word defined.

A definition is not to be read in isolation. It must be read in the context of the

phrase which it defines, realising that the function of a definition is to give
precision and certainty to a word or a phrase which would otherwise be vague
and uncertain but not to contradict or supplement it altogether.

When a word has been defined in the interpretation clause, prima facie that
definition governs whenever that word is used in the body of the statute. When a
word is defined to bear a number of inclusive meanings, the sense in which the
word is used in a particular provision must be ascertained from the context of the
scheme of the Act, the language, the provision and the object intended to be
served thereby.
Proviso As a general rule, a proviso is added to an enactment to qualify or create an
exception to what is in the enactment, and ordinarily, a proviso is not interpreted
as stating a general rule.

A distinction is said to exist between the provisions worded as ‘proviso’,

‘exception’ or ‘saving clause’.
 ‘Exception’ is intended to restrain the enacting clause to particular cases;
 ‘Proviso’ is used to remove special cases from the general enactment and
provide for them specially; and
 ‘Saving clause’ is used to preserve from destruction certain rights,
remedies or privileges already existing.
Illustrations and Illustrations attached to sections are part of the statute and they are useful so far
explanation as they help to furnish same indication of the presumable intention of the
legislature. But illustrations cannot have the effect of modifying the language of
the section and they cannot either curtail or expand the ambit of the section
which alone forms the enactment.
An explanation is at times appended to a section to explain the meaning of
words contained in the section. It becomes a part and parcel of the enactment.
An explanation, normally, should be so read as to harmonise with and clear up
any ambiguity in the main section and should not be so construed as to widen the
ambit of the section.
The schedules form a part of the statute and must be read together with it for all
purposes of construction. But expression in the schedule cannot control or
prevail against the express enactment.
 NAHATA PROFESSIONAL ACADEMY 80

If there is any appearance of inconsistency between the schedule and the

enactment, the enactment shall prevail. If the enacting part and the schedule
cannot be made to correspond, the latter must yield to the former.

There are two principles or rules of interpretation which ought to be applied to

the combination of an Act and its schedule. If the Act says that the schedule is to
be used for a certain purpose and the heading of the part of the schedule in
question shows that it is prima facie at any rate devoted to that purpose, then
the Act and the schedule must be read as if the schedule were operating for that
purpose only.

If the language of a clause in the schedule can be satisfied without extending it

beyond for a certain purpose, in spite of that, if the language of the schedule has
in its words and terms that go clearly outside the purpose, the effect must be
given by them and they must not be treated as limited by the heading of the part
of the schedule or by the purpose mentioned in the Act for which the schedule is
prima facie to be used.

One cannot refuse to give effect to clear words simply because prima facie they
seem to be limited by the heading of the schedule and the definition of the
purpose of the schedule contained in the Act. Whether a particular requirement
prescribed by a form is mandatory or directory may have to be decided in each
case having regard to the purpose or object of the requirement and its
interrelation with other enacting provisions of the statute; and it is difficult to lay
down any uniform rule. Where forms prescribed under the rules become part of
rules and, the Act confers an authority prescribed by rules to frame particulars of
an application form, such authority may exercise the power to prescribe a
particular form of application.

External Aids in Interpretation

Apart from the intrinsic aids, such as preamble and purview of the Act, the Court can consider resources
outside the Act, called the extrinsic aids, in interpreting and finding out the purposes of the Act. Where the
words of an Act are clear and unambiguous, no resource to extrinsic matter, even if it consists of the
sources of the codification, is permissible.

But where it is not so, the Court can consider, apart from the intrinsic aids, such as preamble and the
purview of the Act, both the prior events leading up to the introduction of the Bill, out of the which the Act
has emerged, and subsequent events from the time of its introduction until its final enactment like the
legislation.

Parliamentary The Supreme Court, enunciated the rule of exclusion of Parliamentary history in
History the way it is enunciated by English Courts, but on many occasions, the Court used
this aid in resolving questions of construction.

The Court has now veered to the view that legislative history within circumspect
limits may be consulted by Courts in resolving ambiguities. It has already been
noticed that the Court is entitled to take into account “such external or historical
facts as may be necessary to understand the subject-matter of the statute”, or to
have regard to “the surrounding circumstances” which existed at the time of
passing of the statute.
 NAHATA PROFESSIONAL ACADEMY 81

Like any other external aid, the inferences from historical facts and surrounding
circumstances must give way to the clear language employed in the enactment
itself.
Reference to The report of a Select Committee or other Committee on whose report an
Reports of enactment is based, can be looked into “so as to see the background against
Committees which the legislation was enacted, the fact cannot be ignored that Parliament
may, and often does, decide to do something different to cure the mischief. So we
should not be unduly influenced by the Report.

When Parliament has enacted a statute as recommended by the Report of a

Committee and there is ambiguity or uncertainty in any provision of the statute,
the Court may have regard to the report of the Committee for ascertaining the
intention behind the provision. But where the words used are plain and clear, no
intention other than what the words convey can be imported in order to avoid
anomalies.
Reference to other It has already been stated that a statute must be read as a whole as words are to
Statutes be understood in their context. Extension of this rule of context, permits reference
to other statutes in pari materia, i.e. statutes dealing with the same subject matter
or forming part of the same system.

“Statutes are in pari materia which relate to the same person or thing, or to the
same class of persons or things.When the two pieces of legislation are of differing
scopes, it cannot be said that they are in pari materia.

It is a well accepted legislative practice to incorporate by reference, if the

legislature so chooses, the provisions of some other Act in so far as they are
relevant for the purposes of and in furtherance of the scheme and subjects of the
Act. Generally speaking, a subsequent Act of a legislature affords no useful guide
to the meaning of another Act which comes into existence before the later one
was ever framed.

Under special circumstances the law does, however, admit of a subsequent Act to
be resorted to for this purpose but the conditions, under which the later Act may
be resorted to for the interpretation of the earlier Act are strict. Both must be laws
on the same subject and the part of the earlier Act which is sought to be
construed must be ambiguous and capable of different meanings.

Although a repealed statute has to be considered, as if it had never existed, this

does not prevent the Court from looking at the repealed Act in pari materia on a
question of construction. The regulations themselves cannot alter or vary the
meaning of the words of a statute, but they may be looked at as being an
interpretation placed by the appropriate Government department on the words of
the statute. Though the regulations cannot control construction of the Act, yet
they may be looked at, to assist in the interpretation of the Act and may be
referred to as working out in detail the provisions of the Act consistently with their
terms.
Dictionaries When a word is not defined in the Act itself, it is permissible to refer to
dictionaries to find out the general sense in which that word is understood in
common parlance. However, in selecting one out of the various meanings of the
word, regard must always be had to the context as it is a fundamental rule that
“the meaning of words and expressions used in an Act must take their colour from
the context in which they appear”. Therefore, when the context makes the
meaning of a word quite clear, it becomes unnecessary to search for and select a
 NAHATA PROFESSIONAL ACADEMY 82

particular meaning out of the diverse meanings a word is capable of, according to
lexicographers”. As stated by Krishna Aiyar, J. “Dictionaries are not dictators of
statutory construction where the benignant mood of a law, and more
emphatically the definition clause furnish a different denotation”. Further, words
and expressions at times have a ‘technical’ or a ‘legal meaning’ and in that case,
they are understood in that sense. Again, judicial decisions expounding the
meaning of words in construing statutes in pari materia will have more weight
than the meaning furnished by dictionaries.
Use of Foreign Use of foreign decisions of countries following the same system of jurisprudence
Decisions as ours and rendered on statutes in pari materia has been permitted by practice in
Indian Courts. The assistance of such decisions is subject to the qualification that
prime importance is always to be given to the language of the relevant Indian
Statute, the circumstances and the setting in which it is enacted and the Indian
conditions where it is to be applied.

PROSPECTIVE AND RETROSPECTIVE OPERATION

INTERPRETATION OF STATUTORY AND PROCEDURAL PROVISIONS

Statutory provisions creating substantive rights or taking away substantive rights are ordinarily prospective.
However, they are retrospective only if by express words or by necessary implication the Legislature has
made them retrospective. Generally, an amendment of substantive law is not retrospective unless expressly
laid down. It may be noted that Declaration about existing law is not an amendment. Whether the law is
declaratory and therefore retrospective or not depends upon the language of the Statute.

With respect to provisions of procedural nature, no person has a vested right in any course of procedure.
He has only the right of prosecution or defence in the manner prescribed for the time being by or for the
Court in which the case is pending and if by an Act of Parliament the mode of procedure is altered he has
no other right than to proceed according to the altered mode. A change in the law of procedure may
operate retrospectively and unlike the law relating to vested right is not only prospective.

Nabendu Dutta v. In it was held that interpretation of the words of any statute cannot be given
Arindam effect so as to frustrate or defeat the object of the act or to lead to an absurdity.
Mukherjee [2004] The language mentioned in clause (g) of sub section (1) of section 274 of the
121 Comp Cas 150 Companies Act, 1956, clearly suggests that on the date of the commencement of
(Cal) the amending act (Companies (Amendment) Act, 2000) if any person has been a
director in the defaulting company he will be affected by this subsection.
Although the Legislature has not made any retrospective operation expressly, yet
the language employed therein contextually makes it implicit that the Legislature
intends retrospective operation. The words “is already a director” suggest, a
person continuing to be director till the date of commencement of the
amendment act. This is supported by the words “has failed to repay its deposits”.
The plain grammatical position of these latter few words suggests that the failure
has started even before the commencement of the amendment act. If the
operation of the language is intended by the Legislature to indicate a future
event or occurrence, then the words “has failed to deposit” or “is already a
director” would not have been employed in the sub section.

USE OF “MAY” AND “SHALL”

The words “shall” or “may” used in a provision depends on the nature of compliance and gravity of
noncompliance. The standard rule is that the provision containing ‘shall’ is mandatory and the provision
containing ‘may’ is either permissive or discretionary. In other words, ‘shall’ conveys mandatory nature of
the provision, while ‘may’ conveys permissive or discretionary nature. The word ‘may’ is used where a
power, permission, benefit or privilege given to some person may but need not be exercised: exercise is
 NAHATA PROFESSIONAL ACADEMY 83

discretionary. The provision using the word ‘may’ is an enabling provision and permissive in nature.
However, this rule cannot be applied in all the situations while interpreting a statute. There are many cases
where ‘shall’ is used even if the nature of the provision is permissive or discretionary and may is used when
nature of the provision is mandatory. This may happen due to various reasons including mistake or
confusion of the draftsman. Also the drafters may find it easy to use ‘shall’ leaving it to the courts to
interpret the provision.

The word “may” is often read as “shall” or “must” when there is something in the nature of the thing to be
done which makes it the duty of the person on whom the power is conferred to exercise the power. There
are several court decisions in which the word ‘shall’ is held as ‘may’ and vice versa.

P.N Chockalingam The Madras High Court has decided the matter in which a question relating to
Pillai vs A. nature of provision regarding laying the notification before the Legislature was
Natarajan And Ors.: raised. The Madras High Court has decided as under:
(2001) 3 MLJ 661
“Considering the word “shall” used, the circumstance that the Legislature has
used a language of compulsive force is always of great relevance and in the
absence of anything contrary in the context indicating that a permissive
interpretation is permissible, the statute ought to be construed as pre-emptory.
The term “shall” in its ordinary significance is mandatory and the Court shall
ordinarily give that interpretation to that term unless such interpretation leads to
absurd or inconvenient or be at variance with the intent of the Legislature to be
collected from the other parts of the Act…. …We are in the agreement with the
conclusion of the learned Judge that the provisions of the statute conferring on
the State Government to lay the notification before the Legislature should be
strictly followed. We hold that the provision, namely Sub-section (6) in Section 1
is mandatory and not directory.”

USE OF “AND” AND “OR”

In ordinary usage, ‘and’ is conjunctive (that connects words, phrases and clauses in a sentence) and ‘or’ is
disjunctive (that separates words, phrases and clauses in a sentence). Thus ‘and’ connects two or more
items and makes a cumulative group of them whereas ‘or’ separates two or more items and makes them
alternative to one another. If a series of items lays down stipulations or conditions, all of them must be
complied with if they are connected by ‘and’. But sometimes it may be required to read ‘and’ in place of ‘or’
and vice versa. This may be understood with the help of following examples:
Example
Under Companies Act, 2013 “document” includes summons, notice, requisition, order, declaration, form
and register, whether issued, sent or kept in pursuance of this Act or under any other law for the time being
in force or otherwise, maintained on paper or in electronic form.
Under this situation if ‘and’ is used as conjunctive than the interpretation would not be correct.
Interpretation of proviso
A clause, as in a document or statute, that begins with the words Provided that is called ‘proviso’. The term
‘proviso’ is defined as a clause making some condition or stipulation; a clause in a statute, deed, or other
legal document introducing a qualification or condition to some other provision, frequently the one
immediately preceding the proviso itself.
Normally, a proviso is meant to be an exception to something within the main enactment or to qualify
something enacted therein which but for the proviso would be within the purview of the enactment. In
other words, a proviso cannot be torn apart from the main enactment nor can it be used to nullify or set at
naught the real object of the main enactment. While interpreting a proviso care must be taken that it is
used to remove special cases from the general enactment and provide for them separately. Thus, a proviso
in a statutory provision carves out an exception to the main provision to which it has been enacted and to
no other. The proper function of a proviso is to except and deal with a case, which would otherwise fall
within the general language of the main enactment, and its effect is to confine to that case.
 NAHATA PROFESSIONAL ACADEMY 84

It may ordinarily be presumed in construing a proviso that it was intended that the enacting part of the
section ould have included the subject-matter of the proviso. There is no rule that the proviso must always
be restricted to the ambit of the main enactment. Occasionally in a statute, a proviso is unrelated to the
subject-matter of the preceding section, or contains matters extraneous to that section, and it may then
have to be interpreted as a substantive provision, dealing independently with the matter specified therein,
and not as qualifying the main or the preceding section.
In some cases a proviso may be an exception to the main provision though it cannot be inconsistent with
what is expressed in the main provision. As a general rule in construing an enactment containing a proviso,
it is proper to construe the provisions together without making either of them redundant.

A.N. Sehgal & Ors It is a cardinal rule of interpretation that a proviso to a particular provision of a
1991 AIR SCW 1246 statute only embraces the field which is covered by the main provision. It carves
out an exception to the main provision to which it has been enacted by the
proviso and to no other. The proper function of a proviso is to except and deal
with a case which would otherwise fall within the general language of the main
enactment and its effect is to confine to that case. Where the language of the
main enactment is explicit and unambiguous, the proviso can have no
repercussion on the interpretation of the main enactment, so as to exclude from
it, by implication what clearly falls within its express terms. The scope of the
proviso, therefore, is to carve out an exception to the main enactment and it
excludes something which otherwise would have been within the rule. It has to
operate in the same field and if the language of the main enactment is clear, the
proviso cannot be torn apart from the main enactment nor can it be used to
nullify by implication what the enactment clearly says nor set at naught the real
object of the main enactment, unless the words of the proviso are such that it is
its necessary effect.

DEEMING PROVISIONS
A provision in a statute which contains the word ‘deemed’ is called a deeming provision or legal faction. To
deem means to regard or consider (something) in a specified way; to treat something as if it were
something else; assuming a fact which does not really exist.

Example Section 314(2)(a) of the Companies Act 1956 provides that ‘If any office or place of profit is held in
contravention of the provisions of sub-section (1), the director, partner, relative, firm, private company, or
the manager concerned, shall be deemed to have vacated his or its office as such on and from the date next
following the date of the general meeting of the company referred to in the first proviso....’ Sometimes a
deeming provision is used simply to provide that something will not be treated as a particular way, e.g.
‘Provided that nothing in this section shall be deemed to give validity to acts done by a director after his
appointment has been shown to the company to be invalid or to have terminated’. It is well settled that a
deeming provision is an admission of the non- existence of the fact deemed. The Legislature is quite
competent to enact a deeming provision for the purpose of assuming the existence of a fact which does not
really exist.

In construing the scope of legal fiction, it would be proper and necessary to assume all those facts, on
which alone the legal fiction can operate. The court is entitled and bound to ascertain the purpose for
which the statutory fiction is created to ascertain as to what persons are entitled to the benefit of statutory
fiction.

But a fiction created by law cannot operate beyond the purpose for which it has been created, It is a well
known principle of construction that in interpreting a provision creating a legal fiction, the Court is to
ascertain for what purpose the fiction is created, and after ascertaining this, the Court is to assume all those
facts and consequences which are incidental or inevitable corollaries to giving effect to the fiction. The full
effect must be given to the fiction and then it should be carried to its logical end.
 NAHATA PROFESSIONAL ACADEMY 85

REPUGNANCY WITH OTHER STATUTES

To ascertain the meaning of a section, it is not permissible to omit any part of it, the whole section must be
read together and an attempt should be made to reconcile all the parts. When reconciliation however is not
possible, it has to be determined as to which is the leading provision and which must give way to the other.
If this method also is not possible, then resort must be had to yet another well-established rule, namely
that if two sections are repugnant, the known rule is that the last one must prevail.

Therefore, an attempt should be made in construing different provisions to reconcile them if it is

reasonably possible to do so, and to avoid repugnancy. If repugnancy cannot possibly be avoided, then a
question may arise as to which of the two provisions should prevail. But that question can arise only if
repugnancy cannot be avoided.
CONFLICT BETWEEN GENERAL PROVISION AND SPECIAL PROVISION

Another well known rule of construction is that general provisions yield to special provisions. The rule that
general provisions should yield to specific provisions is not an arbitrary principle made by lawyers and
judges but springs from the common understanding that when the same person gives two directions one
covering a large number of matters in general and another to only some of them his intention is that these
latter directions should prevail as regards these while as regards all the rest the earlier direction should
have effect.

It is the duty of courts to avoid that and, whenever it is possible to do so, to construe provisions which
appear to conflict so that they harmonise. Provisions of one Section of a statute cannot be used to defeat
those of another unless it is impossible to effect re-conciliation between them.

This principle is also expressed in the Latin maxim Generalia specialibus non derogant (also known as the
rule of implied exception) meaning general things do not derogate from special things; things general do
not restrict or detract from things special; universal things do not detract from specific things. This well-
known proposition of law says that when a matter falls under any specific provision, then it must be
governed by that provision and not by the general provision. The general provisions must admit to the
specific provisions of law. It is a basic principle of statutory interpretation.
“
In Pretty v. Solly The rule is that whenever there is a particular enactment and a general
(1859-53 ER 1032), enactment in the same statute and the latter, taken in its most
Romilly, M. R., comprehensive sense, would overrule the former, the particular enactment
mentioned the rule must be operative, and the general enactment must be taken to affect only
thus: the other parts of the statute to which it may properly apply.”

SOCIALLY BENEFICIAL CONSTRUCTION

For a sure and true interpretation of all statutes in general (be they penal or beneficial, restrictive or
enlarging of common law), four things are to be discerned and considered:
(1) what was the common law before the making of the Act,
(2) what was the mischief and defect for which the common law did not provide,
(3) what remedy the Parliament had resolved and appointed to cure the disease (4) the true reason of
the remedy
After discerning, the office of all the Judges is always to make such construction as shall suppress the
mischief and advance the remedy and to suppress subtle inventions and evasions for the continuance of
the mischief and pro privato commodo, and to add force and life to the cure and remedy according to the
true intent of the makers of the statute pro bono publico.

In interpreting legislation which was clearly in furtherance of the Directive Principles of State Policy under
article 39 (b) and (c) of the constitution of India, the court cannot adopt a doctrinaire or pedantic approach.
It is a well-known rule of construction that in dealing with such a beneficent piece of legislation, the court
 NAHATA PROFESSIONAL ACADEMY 86

ought to adopt a construction which would subserve and carry out the purpose and object of the Act rather
than defeat it. Surplus Lands of the textile mills taken over under sub-section (1) of section 3 of the Textile
Undertakings (Taking over of Management) Act, 1983 are but a vital physical resource capable of
generating and sustaining economic growth of the Textile mills. There can be no doubt that the legislative
intent and object of the Act was to secure the socialization of such surplus lands with a view to sustain the
sick textile undertakings so that they could properly be utilized by the company for social good, i.e. in
resuscitating the dying textile undertakings.

In construing social welfare legislation, the courts should adopt a beneficent rule of construction and in any
event, that construction should be preferred which fulfils the policy of the legislation. Construction to be
adopted should be more beneficial to the purpose in favour of and in whose interest the Act has been
passed. So it is clear that in the matter of interpretation of a beneficial legislation, the approach of the
courts is to adopt a construction which advances the beneficent purpose underlying the enactment in
preference to a construction which tends to defeat that purpose. Further, it is a well-known canon of
interpretation of statutes that in interpreting social welfare legislation, the court will normally adopt an
interpretation which would favour persons sought to be benefited by the legislation. Where the courts are
faced with a choice between a wider meaning which carries out more fully what appears to have been the
object of the Legislature and a narrow meaning which carries it out less fully or not at all, they will often
choose the former.

It is a sound rule of construction to confine the provisions of a statute to itself. The benefits intended by
social welfare legislation such as the Employees Provident Funds and Miscellaneous Provisions Act and the
Employees State Insurance Act 1948, cannot be defeated by granting relief under section 633 of the
Companies Act to directors of the Companies in relation to offences under those Acts.

INTERPRETATION OF PROCEDURAL LAW

By its very nomenclature, Code of Criminal Procedure, 1973, is a compendium of law relating to criminal
procedure. The provisions contained therein are required to be interpreted keeping in view the well
recognized rule of construction that procedural prescription are meant for doing substantial justice. If
violation of the procedural provision does not result in denial of fair hearing or causes prejudice to the
parties, the same has to
be treated as directory notwithstanding the use of the word ‘shall’.

INTERPRETATION OF FISCAL AND TAXING STATUTES

While dealing with a taxing provision, the principle of ‘strict interpretation’ should be applied. The court
should not interpret the statutory provision in such a manner which would create an additional fiscal
burden on a person. It would never be done by invoking the provisions of another Act, which are not
attracted.
The principle was succinctly stated by Lord Russell of Killowon in Inland Revenue Commrs. v. Duke of
WestMinster, 1936 AC 1 at p. 24(A):

“I confess that I view with disfavour the doctrine that in taxation cases the subject is to be taxed if in
accordance with a Court’s view of what it considers the substance of the transaction, the Court thinks that
the case falls within the contemplation or spirit of the statute. The subject is not taxable by inference or by
analogy, but only by the plain words of a statute applicable to the facts and circumstance of his case.’

As Lord Cairns said many years ago in Partington v. The Attorney General, (1869) 4 H L 100 at p. 122 (B): ‘As
I understand the principle of all fiscal legislation it is this; if the person sought to be taxed, comes within the
letter of the law he must be taxed however great the hardship may appear to the judicial mind to be. On
the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the
law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to
be.’ Relying on the above cases and discarding the suggestion that in revenue cases ‘the substance of the
matter’ may be regarded as distinguished from the strict legal position,
 NAHATA PROFESSIONAL ACADEMY 87

A. V. Fernandez v. the Supreme Court said that “It is no doubt true that in construing fiscal statutes
The State of Kerala and in determining the liability of a subject to tax one must have regard to the
AIR 1957 SC 657: strict letter of the law and not merely to the spirit of the statute or the, substance
of the law. If the Revenue satisfies the Court that the case falls strictly within the
provisions of the law, the subject can be taxed. If, on the other hand, the case is
not covered within the four corners of the provisions of the taxing statute, no tax
can be imposed by inference or by analogy or by trying to probe into the
intentions of the legislature and by considering what was the substance of the
matter.”

DELEGATED LEGISLATIONS

Delegated legislation (subordinate legislation) is legislation made under powers conferred by an Act of
Parliament (an enabling statute, often called the parent Act). The bulk of delegated legislation is
governmental. It consists mainly of orders, regulations rules, directions, and schemes made by ministers. Its
primary use is to supplement Acts of Parliament by prescribing the detailed and technical rules required for
their operation. Unlike an Act, it has the advantage that it can be made (and later amended if necessary)
without taking up parliamentary time. Delegated legislation is also made by a variety of bodies outside
central government, examples being the Rules of the Supreme Court, and bodies such as SEBI.

It is a principle of statutory interpretation that when rules are validly framed, they should be treated as a
part of the Act. Rules made under a statute must be treated for all purposes of construction or obligation
exactly as if they were in the Act and are to be of the same effect as if contained in the Act, and are to be
judicially noticed for all purposes of construction or obligation. The statutory rules cannot be described as,
or equated with, administrative directions. However, in the preface to the Government publication
‘Clarifications and Circulars on Company Law’, Mr. K.K. Ray, the then Secretary to the Government of India
and Chairman, Company Law Board said: “A perusal of these clarifications, circulars, instructions and orders
will show that the Department has tried to take a broad and balanced view of the various issues in the light
of the intention underlying the statute and the accepted administrative policies of the Government relating
to trade, industry and corporate management. It should, however, be noted that these clarifications, etc.,
only reflect the thinking of the Department at the time when they were issued and do not bind it to that
line of thinking. The Department has always an open mind and will be perfectly willing to change its
thinking on any particular aspect of the matter, if a better view is shown to be possible. These clarifications
should not, therefore, be cited as an authority of a binding character as is usually done in courts.”

CONFLICT BETWEEN STATUTE, RULES AND REGULATIONS

It is well settled rule of statutory interpretation that when a rule or form prescribed under a statute
conflicts with a statutory provision, the latter will prevail. In General Officer Commanding-in-Chief v. Dr.
Subhash Chandra Yadav AIR 1988 SC 876, the Supreme Court inter alia stated that:
“It is well settled that rules framed under the provisions of a statute form part of the statute. In other
words, rules have statutory force. But before a rule can have the effect of a statutory provision, two
conditions must be fulfilled, namely, (1) it must conform to the provisions of the statute under which it is
framed; and (2) it must also come within the scope and purview of the rule making power of the authority
framing the rule. If either of these two conditions is not fulfilled, the rule so framed would be void.” In the
case Union of India v. Namit Sharma 2013 AIR SCW 5382, it was inter alia stated that if the rules are made
by the rule making authority and the rules are not in accordance with the provisions of the Act, the Court
can strike down such rules as ultra vires the Act, but the Court cannot direct the rule making authority to
make the rules where the Legislature confers discretion on the rule making authority to make rules.

DOCTRINE OF SUBSTANTIAL COMPLIANCE

In the domain of statutory interpretation, there exists the doctrine of substantial compliance. The Merriam
Webster’s Dictionary of Law defines the expression “substantial compliance” as “compliance with the
substantial or essential requirements of something (as a statute or contract) that satisfies or purpose or
 NAHATA PROFESSIONAL ACADEMY 88

objective even though its formal requirements are not complied with.” The Black’s Law Dictionary, 8th
edition, gives the following meaning of “substantial compliance” as under: “substantial performance
doctrine. The rule that if a good-faith attempt to perform does not precisely meet the terms of an
agreement or statutory requirements, the performance will still be considered complete if the essential
purpose is accomplished, subject to a claim for damages for the shortfall.” The Supreme Court has held that
tendency towards technicality is to be deprecated; it is the substance that counts and must take
precedence over mere form. Some rules are vital and go to the root of the matter; they cannot be broken;
others are only directory and a breach of them can be overlooked provided there is substantial compliance
with the rules read as whole and provided no prejudice ensures. Substance must take precedence over
form. Of course, there are some rules which are vital and go to the root of the matter which cannot be
broken. There are others where non-compliance may be condoned or dispensed with. In the latter case, the
rule is merely directory provided there is substantial compliance with the rules read as a whole and no
prejudice is caused.

Umesh Challiyil vs In this case, the matter of minor defect has been decided. It may be summarized
K.P. Rajendran 2008 as under:
AIR SCW 1743, Where in an affidavit it was stated “no part thereof is false” instead of “I believe
to be true”, the Supreme Court held that the substance and the essence had been
conveyed by the words used; both the phraseologies convey the same meaning;
practically the same sense was conveyed and it was not such a defect which could
entail dismissal of the election petition.

DOCTRINE OF IMPOSSIBILITY OF PERFORMANCE

The “doctrine of impossibility of performance” which is reflected in the following legal maxims which court
apply in interpreting a statutory provision: A l’impossible nul n’est tenu (No one is bound to do what is
impossible; Nobody is expected to do the impossible); Impossibilium nulla obligatio est (There is no
obligation to perform impossible things); Lex non cogit ad impossibilia (The law does not compel a man do
to that which he cannot possibly perform); Impotentia excusat legem (Impossibility excuses the law; The
law excuses someone from doing the impossible; Impossibility is an excuse in the law).

Enactments which impose duties are subject to these maxims and are understood as dispensing with the
performance of what is prescribed when performance of it is impossible. 8 In Broom’s Legal Maxims, 10th
edition, page 162,163, the doctrine of impossibility is explained as follows: A general rule which admits of
ample practical illustration, that impotentia excusat legem; where the law creates a duty or charge, and the
party is disabled to perform it, without default in him, and has no remedy over, there the law will in general
excuse him; and though impossibility of performance is in general no excuse for not performing an
obligation which a party has expressly undertaken by contract, yet when the obligation is one implied by
law, impossibility of performance is a good excuse.
Raj Kumar Dey and where the arbitrators could not take back the award from the custody of the
Others vs Tarapada Court to take any further steps for its registration, the Supreme Court held that
Dey and Others the entire period during which award remained in custody of Court should be
1987 AIR 2195, excluded and it could not be said that they failed to get the award registered as
1988 SCR (1) 118, the law required i.e. within period of four months.

STRICT CONSTRUCTION OF PENAL STATUTES

Generally, penal provisions should be construed strictly. But at the same time it is one of the settled
principles of interpretation of statutes that when two interpretations are possible of a penal provision, that
which is less onerous should be preferred.9 The rule of strict interpretation of penal statutes in favour of an
accused may not be of rigid or universal application. It may be considered along with other well established
rules of interpretation. When it is seen that the scheme and object of the statute are likely to be defeated
by a strict interpretation, courts may endeavour to resort to that interpretation which furthers the object of
the legislation. Section 138 of the Act being a penal provision as is held in Tolaram Relumal v. State of
Bombay, AIR 1954 SC 496, if two possible and reasonable constructions can be put on the said provision the
 NAHATA PROFESSIONAL ACADEMY 89

court should lean towards that construction which would exempt the subject from the penalty rather than
the one which would impose penalty.

READING METHODOLOGY OF THE COMPANIES ACT, 2013 AND ITS LEGAL AURA

The Companies Act, 2013 is not a standalone piece of legislation but a complete ecosystem. It contains
Orders, Rules, Notifications and Circulars. One should read each Section of the Act, with relevant Rule,
Notification and Circular.

The Act is a superior authority in law passed by the Legislature. Notifications and Rules are notified by the
Executive under the powers derived from the Act itself.

Understanding the structure of Companies Act and the manner of identifying complementary legislations.
The Principal Legislation/Statute Statute law is the body of law contained in Acts of Parliament. The
Companies Act, 2013 is principal legislation.

Schedules- It is appended to an Act, to form part of it. They are generally added to avoid encumbering the
statutes with matter of excessive details. Delegated Legislations

Delegated legislation (subordinate legislation) is a legislation made under powers conferred by an Act of
Parliament (an enabling statute, of ten called the parent Act). Here Parent Act is The Companies Act and the
delegated legislations are Rules notified by Ministry of Corporate Affairs. Example Companies (Corporate
Social Responsibility Policy) Rules 2014.

Rule, Regulation or By-Laws must not be ultra-vires, that is to say, if a power exists by statute to make rules,
regulations, by laws, forms etc., that power must be exercised strictly in accordance with the provisions of
the statute which confers the power, for a rule, etc.,if ultra-vires it will be held incapable of being enforced.

Before a Rule can have the effect of a statutory provision, two conditions must be fulfilled, namely (1) It
must confirm to the provision of statute under which it is framed; and (2) It must also come within the
scope and purview of the rule making power of the authority framing the rule. If either of these two
conditions is not fulfilled, the rules so framed would be void.

NOTIFICATIONS/CIRCULARS/CLARIFICATIONS BY MINISTRY OF CORPORATE AFFAIRS

A Notification means a notification published in the Official Gazette and the expression ‘notify’ and
‘notified’ shall be construed accordingly. In Bachu Lal vs. State-Allahabad High Court, it was held that the
words “notification, orders, rules and by-laws” have no reference to judicial orders the passing and
cancellation whereof is subject to and regulated by the procedural law of the land.

The Ministry of Corporate Affairs (MCA) has been entrusted with the responsibility of administering the
Companies Act, 2013 (Act). The MCA, from time to time, issues circulars and clarifications to clarify the
provisions of the Act and the rules made thereunder (Rules).
The Circulars are issued by the Department interpreting a particular provision of the Act or the Rule in
certain circumstances. The Companies Act, 2013 does not empower the Department to issue circular.

In a series of judicial decisions, the Supreme Court has consistently held that clarificatory circulars cannot
amend or substitute statutory rules. But if the Act or the Rules are silent then the Government can issue
clarifications to supplement the Rules by issuing instructions. Notifications under Section 462 exempt
certain companies from the applicable provision of the Act. At the time of reading a Section mentioned
under an Exemption Notification dealing with a certain class of companies, one must read such Section in
respect of that class of companies as amended by the Exemption Notification for that class. Exemption
notifications effectively amend these Sections for the purpose of the class of companies with which the
Exemption Notification deals.
 NAHATA PROFESSIONAL ACADEMY 90

The Central Government may amend schedules of the Act using power given under Section 467. Schedules
must be read with the main Section.

Wherever a Section of the Companies Act, 2013 use words “as may be prescribed” it is an indication the
Legislature has delegated powers to the Executive on that particular point. Section 469 empowers the
Central Government to make rules for Sections which do not delegate such powers to the Central
Government.

While provisions of the Act along with Exemption Notifications and Schedules, deals with the policy
framework of the law; rules deals with the procedures. Rules cannot change policy framework in any
manner and cannot override substantial provision of the Section empowering the Rules. Secretarial
Standards are standards prepared by Institute of Company Secretaries of India to standardize secretarial
practices under the Companies Act and other areas related to Secretarial Practices. By virtue of Explanation
to Section 205(1), secretarial standards issued by the Institute of Company Secretaries of India constituted
under section 3 of the Company Secretaries Act, 1980 and approved by the Central Government are part of
law itself. Further Section 118(10) mandates that every company shall observe secretarial standards with
respect to General and Board meetings. This whole ecosystem is called the Companies Law and should be
read collectively and comprehensive.

How to read and understand a Section?

The Companies Act, 2013 is to be read with relevant Rules, Schedules under Companies Act, Circulars/
Clarifications issued by Ministry of Corporate Affairs.

For example Section 135 (Relating to Corporate Social Responsibility) is to be read with the Companies
(Corporate Social Responsibility Policy) Rules 2014, Schedule VII (Activities relating to Corporate Social
Responsibility) and circulars/clarifications issued by Ministry of Corporate Affairs on Section 135 & Rules
made thereunder. Reading provisions of Companies Act, 2013 with delegated legislations For example
when you read sections relating to issue of capital you should read the sections with Companies (Share
Capital and Debentures) Rules, Companies (Prospectus and Allotment of Securities) Rules. Besides, other
legislative aspects including the provisions of SEBI Act, SEBI (ICDR) Regulations, SEBI (LODR) Regulations,
provisions of Depositories Act for dematerialization provisions and even the provisions of FEMA when the
shares are issued to non-residents, wherever applicable, are required to be read in collusion. Breaking
sections into parts and preparing notes for each section: Company law is so wide that it cannot be easily
remembered after only one reading. Students may make notes for each topic about sections, the genesis,
amendments notified, reasons for amendments along with delegated legislation. They may also make notes
on exemptions provided, exceptions and the reasons behind such exemptions/ exceptions. This will help in
understanding the background of the provisions, the spirit of law and would help in remembering the
provisions also. The exemptions provided for certain class of companies under Section 462 of Companies
Act are provided in the e-book at MCA portal under respective sections. Students may break the sections at
relevant places and giving emphasis on critical words and read for getting more clarity. For examples
Section 2(6) deals with the Definition of “Associate Company” which may be read with the following breaks.

“associate company”, in relation to another company ............................./, means a company in which that
other company has a significant influence ............................./, but which is not a subsidiary company of the
company having such influence and ............................./. includes a joint venture company. Explanation. –
For the purpose of this clause, –
(a) the expression “significant influence” means control of at least twenty percent of total voting power,
or control of or participation in business decisions under an agreement;
(b) the expression “joint venture” means a joint arrangement whereby the parties that have joint control
of the arrangement have rights to the net assets of the arrangement;

Thus the definition can be read by breaking at the places as indicated above, by understanding the terms
‘joint venture company’, ‘significant influence’ and the definition of subsidiary as mentioned in section
2(87).
 NAHATA PROFESSIONAL ACADEMY 91

Interpretations of some standard words and Phrases used in Statutes

“Proviso”- A clause, as in a document or statute, that begins with the words “Provided that” is called
‘proviso’.
The term ‘proviso’ is defined as a clause making some condition or stipulation; a clause in a statute, deed,
or other legal document introducing a qualification or condition to some other provision, frequently the
one immediately preceding the proviso itself. It is well settled that “the effect of an excepting or qualifying
proviso, according to the ordinary rules of construction, is to except out of the preceding portion of the
enactment, or to qualify something enacted therein, which but for the proviso would be within it.”

“Notwithstanding anything contained”

Notwithstanding means, in spite of; without being opposed or prevented by; nevertheless; although,
regardless of. A provision in a statute beginning with the words ‘Notwithstanding anything contained’ is
called a ‘nonobstante’ provision and is generally used in a statute to give an overriding effect to a particular
section or the statute as a whole. A non-obstante clause is used in a statutory drafting to create an
exception to or override the provision which this phrase follows.

“Subject to”- The ordinary meaning of the phrase ‘subject to’ is being dependent upon; conditional upon;
subordinate to; subservient to something else to happen or to be true; that on the condition of the
provisions of the specified section being observed or complied with. It is used to express the intention that
when while complying with one statutory provision, another provision relating to the subject matter also
must be complied with.

“Nothing contained in this section” shall apply

The phrase “Nothing in this section shall apply” or “Nothing contained in this section shall apply”, is
frequently used in legislative drafting. Literally, it means anything contained in the preceding part of the
section would not apply in the situation stated in the provision that begins with this phrase.

“Without prejudice to the provisions contained in this Act/any other Act”

The phrase ‘without prejudice’ means without dismissing, damaging, or otherwise affecting; without
detriment; harm. So when one provision says ‘without prejudice to any other provision’, it means that no
other provision is affected by that provision or that other provisions remain unaffected. This is a qualifying
phrase used in statutory drafting in a provision to protect the operation of another provision which it refers
to. In other words, both the provisions operate independently.

“That is to say” This phrase explains or clarifies the preceding word, phrase or expression.

“For the purposes of this section/provision/definition” It has limited applicability; it apples to only the
relevant section / provision/ definition but applies to the whole of it.

“As the case may be”- The phrase is used when in a provision two or more things are covered and the
provision is applicable to both or all of them.

“Shall”-When used in a statute, the presumption is that its use is mandatory and not merely directory.

“May” is either permissive or directory.

Brief of General Clause Act, 1897

The General Clauses Act, 1897 is a consolidating Act. It consolidate the General Clauses Act, 1868 and the
General Clauses Act, 1887. Before the enactment of the General Clauses Act, 1868, provisions of
Interpretation Act, 1850 were followed. The provisions of that Act and certain additions were framed
together and thus emerged the General Clauses Act, 1868. The object of the General Clauses Act, 1868 was
to shorten the language used in the Acts of the Governor-General of India in Council. It contained only 8
 NAHATA PROFESSIONAL ACADEMY 92

sections.

The General Clauses Act, 1897 has been enacted with the aim and objective to provide a one single statute
as a composite structure in defining different provisions as regards to the interpretation of words and legal
principles which would better placed to be defined for the general application for various rules and
regulations .

Importance of the General Clauses Act, 1897

The General Clauses Act 1897 belongs to the class of Acts which may be called as interpretation Acts. An
interpretation Act lays down the basic rules as to how courts should interpret the provisions of an Act of
Parliament. It also defines certain words or expressions so that there is no unnecessary repetition of the
definition of those words in other Acts. The General Clauses Act is a consolidating as well as an extending
measure. As a consolidating measure it did not purport to make any changes in the provisions of law
repealed and reenacted by it. By reason of section 3, the Act becomes statutorily a part of every Central Act
passed after 1897 and by its own force applies to the interpretation of every such enactment.

The Central Acts to which the General Clauses Act applies are:
(i) Acts of the Indian Parliament;
(ii) Acts of the Dominion Legislature passed between the 15th August, 1947 and the 26th January, 1950;
(iii) Acts passed before the commencement of the Constitution by the Governor-General in Council or the
Governor-General acting in a legislative capacity.

In the case of Chief Inspector of Mines vs. K.C.Thapar, AIR 1961, SC 838, 843, Supreme Court has observed
that “Whatever the General Clauses Act say whether as regards the meaning of words or as regards legal
principles, has to be read into every Act to which it applies.”

Definitions

Section 3 is the principal section of the Act which contain definitions. The section applies to the General
Clauses Act itself and to post- 1897 Central Acts and Regulations.

This section seeks to define phrases and terms commonly used in enactments and is intended to serve as a
dictionary for the phrases and terms so used and the Courts are expected to look into this dictionary in
thefirst instance for their interpretation. The reason why the definition section contains words like “unless
there is anything repugnant in the subject or context”. Ordinarily, terms defined in the section will have the
same meaning in subsequent enactments which employ the same terms unless there is anything
inconsistent with or repugnant to the context of the latter Act (N. Subramania Iyer v. Official Receiver, AIR
1958 SC 1).

Even when a definition given in an Act is exhaustive, it may have to be read differently in the context in
which it occurs. That is why definition sections always begin with the words “unless the context otherwise
requires” (which is another variation of the expression “unless there is anything repugnant in the subject or
context”). It has been observed in cases like Knightsbridge Estates Trust Ltd. v. Byrne & Co. (1940) AC 613
and Choudhary Mohammed v. Sebait of Sri Sri Ishwar etc., AIR 1943 Cal. 36, that the omission of words like
“unless there is anything repugnant in the subject or context” may be of little import in certain cases
because some such words would always be implied in statutes where the expressions which are interpreted
by a definition clause are used in a number of section with meanings sometimes of a wide and sometimes
of an obviously limited character. Important provisions of General Clauses Act, 1897 (GCA) are as under:

1. Applicability of the definitions to Central Laws: The definitions for the following words provided in
GCA apply also, unless there is anything repugnant in the subject or context, to all Central Acts made
after the third day of January, 1868, and to all Regulations made on or after the fourteenth day of
January, 1887. The words are:
“affidavit”, “barrister”, “District Judge”, “father”, “immovable property”, “imprisonment”,
 NAHATA PROFESSIONAL ACADEMY 93

“Magistrate”, “month”, “movable “movable property”, “oath”, “person”, “section”, “son”, “swear”,
“will”, and “year”. “abet”, “Chapter”, “commencement”, “financial year”, “local authority”, “master”,
“offence”, “part”, “public nuisance”, “registered”, “schedule”, “ship”, “sign”, “sub-section” and
“writing”.

2. Applicability of the definitions to all Laws: The following definitions in section 3 of the expressions
shall apply, unless there is anything repugnant in the subject or context, to all Indian laws. The words
are:
“British India”, “Central Act”, “Central Government”, “Chief Controlling Revenue Authority”, “Chief
Revenue Authority”, “Constitution”, “Gazette”, “Government”, “Government securities”, “High
Court”, “India”, “Indian Law”, “Indian State”, “merged territories”, “Official Gazette”, “Part A State”,
“Part B State”, “Part C State”, Provincial Government”, “State” and “State Government”.

3. Revenues of the Central Government or of any State Government: In any Indian law, references, by
whatever form of words, to revenues of the Central Government or of any State Government shall,
on and from the first day of April, 1950, be construed as references to the Consolidated Fund of India
or the Consolidated Fund of the State.

4. Effect of repeal: If GCA or any central Act or regulations repeals any enactment then, unless a
different intention appears, the repeal shall not-
(i) revive anything not in force or existing at the time at which the repeal takes effect.
(ii) affect the previous operation of any enactment so repealed or anything duly done or suffered
thereunder.
(iii) affect any right, privilege, obligation or liability acquired, accrued or incurred under any
enactment so repealed.
(iv) affect any penalty, forfeiture or punishment incurred in respect of any offence committed
against any enactment so repealed.
(v) affect any investigation, legal proceeding or remedy in respect of any such right, privilege,
(vi) obligation, liability, penalty, forfeiture or punishment as aforesaid.
(vii) more things are covered and the provision is applicable to both or all of them. “Shall”-When
used in a statute, the presumption is that its use is mandatory and not merely directory.“May”
is either permissive or directory.
(viii) and any such investigation, legal proceeding or remedy may be instituted, continued or
enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing
Act or Regulation had not been passed.

5. Repeal of Act making textual amendment in Act or Regulation:

If Central Act or Regulation repealsany enactment by which the text of any Central Act or Regulation
was amended by the express omission, insertion or substitution, then, unless a different intention
appears, the repeal shall not affect the continuance of any such amendment made by the enactment
so repealed and in operation at the time of such repeal.

6. Revival of repealed enactment: It shall be necessary, for the purpose of reviving` either wholly or
partially, any enactment wholly or partially repealed, expressly to state that purpose.

7. Computation of time: Where, by any Central Act or Regulation made after the commencement of
this Act, any act or proceeding is directed or allowed to be done or taken in any Court or office on a
certain day or within a prescribed period, then, if the Court or office is closed on that day or the last
day of the prescribed period, the act or proceeding shall be considered as done or taken in due time
if it is done or taken on the next day afterwards on which the Court or office is open.
8. Gender and number: In all Central Acts and Regulations, unless there is anything repugnant in the
subject or context,:
(i) words importing the masculine gender shall be taken to include females; and
(ii) words in the singular shall include the plural, and vice versa.
9. Power to issue, to include power to add to, amend, vary or rescind: Where, by any Central Act or
 NAHATA PROFESSIONAL ACADEMY 94

Regulation, a power to issue notifications, orders, rules or bye-laws is conferred, then that power
includes a power, exercisable in the like manner and subject to the like sanction and conditions (if
any), to add to, amend, vary or rescind any notifications, orders, rules or bye-laws so issued.
10. Recovery of fines: Sections 63 to 70 of the Indian Penal Code and the provisions of the Code of
Criminal Procedure for the time being in force in relation to the issue and the execution of warrants
for the levy of fines shall apply to all fines imposed under any Act, Regulation, rule or bye-law, unless
the Act, Regulation, rule or bye-law contains and express provision to the contrary.

11. Provision as to offences punishable under two or more enactments: where an act or omission
constitutes an offence under two or more enactments, then the offender shall be liable to be
prosecuted and punished under either or any of those enactments, but shall not be liable to be
punished twice for the same offence.
According to the Supreme Court in Baliah v. Rangachari, AIR 1969 SC 701, a plain reading of section
26 shows that there is no bar to the trial or conviction of an offender under two enactments, but
there is only a bar to the punishment of the offender twice for the same offence. In other words, the
section provides that where an act or omission constitutes an offence under two enactments, the
offender may be prosecuted and punished under either or both the enactments but shall not be
liable to be punished twice for the same offence.
12. Meaning of service by post: Where any Central Act or Regulation made after the commencement of
this Act authorizes or requires any document to be served by post, where the expression “serve” or
either of the expressions “give” or “send” or any other expression is used, then, unless a different
intention appears, the service shall be deemed to be effected by properly addressing, pre-paying and
posting by registered post, a letter containing the document, and, unless the contrary is proved, to
have been effected at the time at which the letter would be delivered in the ordinary course of post.

QUESTIONS:
1. Explain the ‘mischief rule’ under the Interpretation of Statutes. [DEC-2018] (4 Marks)
Or
Explain Heydon’s rule of Interpretation of Statute. [JUNE-2022]
2. Explain the ‘‘Rule of Beneficial Construction’’. [JUNE-2019] (4 Marks)
3. Explain the rule of ‘Ejusdem Generis’ under the Interpretation of statute. [JUNE-2019] (4 Marks)
Or
4. The rule of Ejusdem generis must be applied with great caution. Critically examine the merits and
demerits of this rule. [JUNE-2022]
5. Describe the ‘‘Rule of Reasonable Construction’’ under the Interpretation of Statutes. [DEC-2019]
(5 Marks)
6. Explain the role of ‘Preamble’ as internal aid in interpretation of statute. Though the preamble
cannot be used to defect the enacting clause of a statute, it has been treated to be a key for the
interpretation of the statute. Examine. [DEC-2019] (4 Marks)
7. Explain the rule of ‘Expressio Unis Est Exclusio Alterius’ under Interpretation of statutes. [DEC-
2020] (4 Marks)
8. Briefly mention internal and external aids to interpretation of statute. [JUNE-2009] (6 Marks)
9. Explain any four of the following : [DEC-2009]
 Rule of harmonious construction (4 Marks)
 Proviso (4 Marks)
 Rectification of an instrument (4 Marks)
10. Explain the mischief rule in the interpretation of statutes. [JUNE-2010] (6 Marks)
11. “Rule of ejusdem generis is merely a rule of construction to aid the courts to find out the true
intention of the legislature.” Explain. [DEC-2010] (6 Marks)
12. Write note on: Rules relating to presumption [DEC-2010] (4 Marks)
13. Write in brief the importance of the writ of habeaus corpus. [JUNE-2011] (6 Marks)
14. Discuss the rule of harmonious construction in the interpretation of statutes. [JUNE-2011] (8
Marks)
15. “Heydon’s rule is not always operative in interpretation of statutes.” [DEC-2011] (4 Marks)
 NAHATA PROFESSIONAL ACADEMY 95

16. What are the presumptions in the interpretation of statutes when the intention of the legislature
is not clear? . [JUNE-2012] (6 Marks)
17. The true place of a preamble in a statute was at one time the subject of conflicting decisions. Is
such an opinion still prevailing? Discuss, citing case law. [DEC-2012] (6 Marks)
18. Parliamentary history as an external aid in the interpretation of statutes. [DEC-2012] (4 Marks)
19. Explain the rule of ejusdem generis with the help of any case decided by the Supreme Court of
India. [JUNE-2013] (6 Marks)
20. Discuss in brief the primary rule of literal construction in the interpretation of a statute. [DEC-
2013] (6 Marks)
21. Explain the importance of rule of harmonious construction in the interpretation of a statute with
the help of a decided case law. [DEC-2014] (4 Marks)
22. If the intention of the legislature is not clear, there are number of presumptions. Explain any four
presumptions. [JUNE-2021]
23. Discuss the importance of ‘Illustrations’ for interpretation of statutes. [JUNE-2021]
24. Describe the role of ‘interpretation or definition clause’ in statutes. [DEC-2021]
25. Discuss the Rule of Harmonious Construction for the interpretation of statutes. [DEC-2021]
26. What are ‘External Aids’ in the interpretation of statutes ? Briefly describe any two external aids in
the interpretation of statutes. [DEC-2021]
27. Explain the provision as to offences punishable under two or more enactments under Section 26 of
the General Clauses Act, 1897. (4 marks each) [DEC-2021]
Or
Discuss the provision as to offences punishable under two or more enactments as stated under
Section 26 of the General Clauses Act, 1897. [JUNE-2022]
28. Where any central legislation or any regulation enacted after the commencement of the General
Clauses Act, 1897 repeals any Act, what shall not be affected by such repeal? [DEC-2019] (4 Marks)
29. Discuss the aim and objects of the General Clauses Act, 1897.
 NAHATA PROFESSIONAL ACADEMY 96

CHAPTER -4
ADMINISTRATIVE LAWS
Administrative laws are delegated legislations which consist of rules, regulations made by Central
government and regulators e.g. MCA, MOF and RBI, SEBI respectively, such laws are made by
administrators and relates to administration. It provides for constitution, power and duties of the
administrative authorities.

 Introduction
 Need of administrative laws
 Sources of administrative laws
 Administration discretion
 Judicial control/review over administrative discretion
 Constitutional
 At the time of delegation
 At the time of exercise of such delegation
 Abusement of power
 Non application of mind
 Statutory
 Equitable
 Principle of Natural justice
 Nemo judex in causa sua
 Audit alteram partem
 Exception of principle of natural justice
 Liability of state arising out of tort or contractual liability

INTRODUCTION

Administrative law is that branch of public law that deals with powers, functions and responsibilities of
various organs of the state. It controls the executive branch and makes sure that it deals fairly with the
public. There is no single universal definition of ‘administrative law’ because it means different things to
different theorists

A subset of public law is administrative law. It establishes the administrative and quasi-judicial authorities’
organisational framework and power structure in order to enforce the law. It establishes a control system
by which administrative agencies maintain their boundaries and is primarily concerned with official actions
and processes.

Kenneth Culp He was a leading an American legal scholar on administrative law. He defines it as
Davis the law concerning the powers and procedures of administrative agencies, including
especially the law governing the judicial review of administrative action. An
administrative agency, according to him, is a government authority, other than a
court and other than a legislative body, which affects the rights of private parties
either through adjudication or rulemaking. He further adds that apart from judicial
review, the manner in which public officials handle business unrelated to
adjudication or rule-making is not a part of administrative law. The formulation of
administrative agency in this definition is restrictive as it seeks to exclude agencies
having administrative authority pure and simple and not having adjudicative or
legislative functions. This definition also does not cover purely discretionary
functions which may be called (administrative) of administrative agencies not falling
within the category of legislative or quasi-judicial.
Albert Venn He was the great British constitutional scholar. According to him administrative law
Dicey relates to that portion of a nation’s legal system which determines the legal status
and liabilities of all state officials, which defines the rights and liabilities of private
individuals in their dealings with public officials, and which specifies the procedure
 NAHATA PROFESSIONAL ACADEMY 97

by which those rights and liabilities are enforced. Dicey’s formulation focuses on one
aspect of administrative law, i.e., judicial control over public officials. This definition
is narrow as it leaves out of consideration many aspects of administrative law, e.g.,
Public Corporations would not be covered under this definition because, strictly
speaking, they are not state officials.
Ivor Jennings He defined administrative law as the law relating to administration. It determines
the organization, powers and duties of administrative authorities. This formulation
is too broad and general as it does not differentiate between administrative and
constitutional law. It excludes the manner of exercise of powers and duties.

Administrative law is the by-product of ever increasing functions of the Governments. States are no longer
police states, limited to maintaining internal order and protecting from external threats. These, no doubt
continue to be the basic functions but a state that is limited to this traditional role will de-legitimize itself.
With the rise of political consciousness, the citizens of a state are no longer satisfied with the state’s
provisioning of traditional services. The modern state is, therefore, striving to be a welfare state. It has
taken the task to improve social and economic condition of its people. It involves undertaking a large
number of complex tasks. Development produces great economic and social changes and creates
challenges in the field of health, education, pollution, inequality etc. These complex problems cannot be
solved except with the growth of administration. States have also taken over a number of functions, which
were previously left to private enterprise. All this has led to the origin and the growth of administrative law.

Need for Administrative Law

The modern state typically has three organs- legislative, executive and judiciary. Traditionally, the
legislature was tasked with the making of laws, the executive with the implementation of the laws and
judiciary with the administration of justice and settlement of disputes. However, this traditional
demarcation of role has been found wanting in meeting the challenges of present era.

The legislature is unable to come up with the required quality and quantity of legislations because of
limitations of time, the technical nature of legislation and the rigidity of their enactments. The traditional
administration of justice through judiciary is technical, expensive and dilatory. The states have
empowered their executive (administrative) branch to fill in the gaps of legislature and judiciary. This has
led to an all pervasive presence of administration in the life of a modern citizen. In such a context, a study
of administrative law assumes great significance.
The ambit of administration is wide and embraces following elements within its ambit:-
1. It makes policies,
2. It executes, administers and adjudicates the law
3. It exercises legislative powers and issues rules, bye- laws and orders of a general nature.

The goal of administrative law is to ensure that the individual is not at receiving end of state’s
administrative power and in cases where the individual is aggrieved by any action of the administration, he
or she can get it redressed.

Administrative efficiency cannot be the end- all of administrative powers and the interests of people must
be at the centre of any conferment of administrative power. If exercised properly, the vast powers of the
administration may lead to the welfare state; but, if abused, they may lead to administrative despotism and
a totalitarian state.

Sources of Administrative Law

There are four principal sources of administrative law in India:-

Constitution It is the primary source of administrative law. Article 73 of the Constitution provides
 NAHATA PROFESSIONAL ACADEMY 98

of India: that the executive power of the Union shall extend to matters with respect to which
the Parliament has power to make laws. Similar powers are provided to States
under Article 62. Indian Constitution has not recognized the doctrine of separation
of powers in its absolute rigidity. The Constitution also envisages tribunals, public
sector and government liability which are important aspects of administrative law.

Acts/ Statutes: Acts passed by the central and state governments parliament or state legislature for
the maintenance of peace and order, tax collection, economic and social growth
empower the administrative organs to carry on various tasks necessary for it. These
Acts list the responsibilities of the administration, limit their power in certain
respects and provide for grievance redressal mechanism for the people affected by
the administrative action.

Ordinances, The power of president and governor to promulgate ordinances is co extensive with
Administrative the powers of parliament and state legislature and ordinances are issued when
directions, there are unforeseen developments and the legislature is not in session and
notifications therefore cannot make laws. The ordinances allow the administration to take
and Circulars: necessary steps to deal with such developments. Administrative directions,
notifications and circulars are issued by the executive in the exercise of power
granted under various Acts.

Judicial Judiciary is the final arbiter in case of any dispute between various wings of
decisions: government or between the citizen and the administration. The courts through their
various decisions on the exercise of power by the administration, the liability of the
government in case of breach of contract or tortuous acts of Governments servants
lay down administrative laws which guide their future conduct.

Rule of Law 29/6

Rule of Law was developed by British Jurist A.V. Dicey. He derived this term from French Principle ‘La
principle de legalite’ which means the principle of legality. It states that the government should be
governed by Rule of Law instead of Rule of Individual. Any dictator, monarch or one particular person
should not govern the functioning of any nation. Each country should follow legality of law.

Dicey was highly influenced by the French concept of administrative law’ (droit administratif) or the
‘administrative tribunals’ (tribunaux administratifs). According to this, a citizen’s lawsuit against a public
servant for a wrongdoing done in that capacity will be handled by a special court rather than a regular court
of law. Droit administratif contains a regulation that was created by the judges of the administrative court
rather than laws and rules created by the French parliament.
Three major principles given by Dicey in his book “Rule of Law” are –
1. Supremacy of law: It means that ordinary or regular laws shall remain supreme. Supremacy here
means absolute and pre-dominance of regular laws as against arbitrary or wide discretionary powers.

2. Equality before the law: According to Dicey, all classes must be equally subject to the ordinary law of
the land as administered by the ordinary law courts. He states that there should be equality between
people. According to Dicey, all classes must be equally subject to the ordinary law of the land as
administered by the ordinary law courts. It provides that all are equal before law and everyone will
be subjected to the same law.

3. The predominance of a legal spirit: Legal Spirit refers to the judicial precedents upon any dispute
raised by any individual. The judgment given in any case will be the legal spirit of that particular case.
It basically refers to the law as set by the precedents that have evolved over time. Few jurists have
criticized his rule of law theory being not clear between administrative discretion with arbitrary
discretion, emphasising on equality before law and feels that specific tribunals should not exist,
 NAHATA PROFESSIONAL ACADEMY 99

opposition between ordinary courts and special courts, failed to recognise the need of specific laws
and bodies etc.

Rule of Law in India the evolution of Rule of Law in India can be traced to British concept The evolution of
Rule of Law in India can be traced to British concept but the modern concept of Rule of Law was
introduced, only after the drafting of Constitution of India. Constitution of India laid the very foundation
of rule of law in India and is the essence of it. Rule of Law is embedded in Constitution under multiple
parts, important aspects are as under:
1. Preamble – the Preamble to the Constitution of India upholds the basic structure of the Constitution.
It talks about the justice, equality, liberty and dignity to all individuals. All of these aspects ensure
Rule of Law in the country.

2. Part III- Fundamental Rights – These are the rights and fundamental or core of the Constitution of
India. They imply a duty on the state towards ensuring the welfare of its citizens. It helps to keep a
check on the actions of administrative authorities and legislature.

3. Part IV- Directive Principles of State Policy (DPSP) – These are the basic guidelines to be followed by
all especially the government of India to ensure smooth functioning of the country. They are not
enforceable by court of law. Few examples of Laws made under DPSP includes law relating to wages,
labor laws etc.

Judicial Aspect Rule of Law in India has evolved with time. It can be understood with the help of given cases
hereafter.

State of The Supreme Court in this case, held that section 3 of Madhya Pradesh Public
Madhya Security Act, 1959 is unconstitutional on grounds that it vest wide discretionary
Pradesh and powers to the District Magistrate without any proper safeguards over such powers.
Ors. vs. Thakur It was observed that -
Bharat Singh “Our federal structure is founded on certain fundamental principles : (1) the
(23.01.1967 - sovereignty of the people with limited Government authority i.e. the Government
SC) : AIR 1967 must be conducted in accordance with the will of the majority of the people….the
SC 1170 official agencies of the executive Government possess only such powers as have
been conferred upon them by the people; (2) There is distribution of powers
between the three organs of the State - legislative, executive and judicial - each
organ having some check direct or indirect on the other; and (3) the rule of law
which includes judicial review of arbitrary executive actions. We have adopted
under our Constitution not the continental system but the British system under
which the rule of law prevails. Every Act done by the Government or by its officers
must, if it is to operate to the prejudice of any person, be supported by some
legislative authority.”
Kesavananda The most critical case in Indian Judicial history with respect to the evolution of Rule
Bharati of Law in India was Kesavananda Bharati case. This case changed the entire notion
Sripadagalvaru of doctrine of basic structure. A constitutional bench, consisting of 13 judges stated
and Ors. vs. that Rule of law is the part of basic structure of the constitution of India. They
State of Kerala observed -
and Anr. “That Article 31C subverts seven essential features of the Constitution, and destroys
(1973) 4 SCC ten Fundamental Rights, which are vital for the survival of democracy, the rule of
225 law and integrity and unity of the Republic. An amendment must be confined in its
scope to an alteration or improvement of that which is already contained in the
Constitution and cannot change its basic structure, include new grants of power to
the Federal Government, nor relinquish to the State those which already have been
granted to it”
 NAHATA PROFESSIONAL ACADEMY 100

Administrative Discretion
It means the freedom of an administrative authority to choose from amongst various alternatives but with
reference to rules of reason and justice and not according to personal whims. The exercise of discretion
should not be arbitrary, vague and fanciful, but legal and regular.

The government cannot function without the exercise of some discretion by its officials. It is necessary
because it is humanly impossible to lay down a rule for every conceivable eventuality that may arise in day-
to-day affairs of the government. It is, however, equally true that discretion is prone to abuse. Therefore
there needs to be a system in place to ensure that administrative discretion is exercised in the right
manner.

Judicial Control over Administrative Actions

Any country which claims to have a rule of law cannot have a government authority which has no checks on
its power. Administrative organs have wide powers and their exercise of discretion can be vitiated by a
number of factors. Therefore, the government must also provide for proper redressed mechanism. For
India, it is of special significance because of the proclaimed objectives of Indian polity to build a socialistic
pattern of society that has led to huge proliferation of administrative agencies and processes.

In India the modes of judicial control of administrative action can be conveniently grouped into three
heads:
(A) Constitutional
(B) Statutory
(C) Equitable

(A) Constitutional
The Constitution of India is supreme and all the organs of state derive their existence from it. Indian
Constitution expressly provides for judicial review.

Consequently, an Act passed by the legislature is required to be in conformity with the requirements of the
Constitution and it is for the judiciary to decide whether or not that Act is in conformity with the
Constitutional requirements. If it is found in violation of the Constitutional provisions the Court has to
declare it unconstitutional and therefore, void. The limits laid down by the Headings, Constitution may be
express or implied. Articles 13, 245 and 246, etc. provide the express limits of the Constitution.
Judicial Review

The biggest check over administrative action is the power of judicial review. Judicial review is the
authority of Courts to declare void the acts of the legislature and executive, if they are found in violation
of provisions of the Constitution.

Judicial Review is the power of the highest Court of a jurisdiction to invalidate on Constitutional grounds,
the acts of other Government agency within that jurisdiction.

The power of judicial review controls not only the legislative but also the executive or administrative act.
The Court scrutinizes the executive act for determining the issue as to whether it is within the scope of
authority or power conferred on the authority exercising the power. Where the act of executive or
administration is found ultra virus the Constitution or the relevant Act, it is declared as such and,
therefore, void.

The Court is not against the vesting of discretionary power in the executive, but it expects that there would
be proper guidelines for the exercise of power. The Court interferes when the uncontrolled and unguided
discretion is vested in the executive or administrative authorities or the repository (holder) of the power
abuses its discretion.
 NAHATA PROFESSIONAL ACADEMY 101

Airport In this case, the Supreme Court observed that the Court has erred in interfering with
Authority of the administration/policy decision of the tender making authority in exercise of
India vs. powers Under Article 226 of the Constitution of India even deciding it on merits. The
Centre for Court observed that -
Aviation “as per the settled position of law, setting of terms and conditions of invitation to
Policy, Safety tender are within the ambit of the administration/policy decision of the tender making
and Research authority and as such are not open to judicial scrutiny unless they are arbitrary,
and Ors. discriminatory or mala fide. In the matter of formulating conditions of a tender
(30.09.2022 - document and awarding a contract, greater latitude is required to be conceded to the
SC) State authorities unless the action of the tendering authority is found to be malicious
and a misuse of its statutory powers, interference by courts is not warranted”
S. Pratap Singh In this case Supreme Court summarised the power of judicial review by stating that -
vs. The State “The Court is not an appellate forum where the correctness of an order of
of Punjab: Government could be canvassed and, indeed, it has no jurisdiction to substitute its
AIR1964SC72 own view as to the necessity or desirability of initiating disciplinary proceedings, for
the entirety of the power, jurisdiction and discretion in that regard is vested by law in
the Government. The only question which could be considered by the Court is
whether the authority vested with the power has acted in mala fide for satisfying a
private or personal grudge of the authority against the officer. If the act is in excess of
the power granted or is an abuse or misuse of power, the matter is capable of
interference and rectification by the Court.”

Hind In this case the Supreme Court held that the action taken by the employer was
Construction unreasonable, unjust and disproportionate. Court observed that “The Tribunal is not
and required to consider the propriety or adequacy of the punishment or whether it is
Engineering excessive or too severe. But where the punishment is shockingly disproportionate,
Co. Ltd. vs. regard being had to the particular conduct and the past record or is such, as no
Their reasonable employer would ever impose in like circumstances, the Tribunal may treat
Workmen: the imposition of such punishment as itself showing victimization or unfair labour
AIR1965SC917 practice.”

Judicial review is exercised at two stages:

— at the stage of delegation of discretion(at the time framing of laws)
— at the stage of exercise of administrative discretion(at the time of implementation of laws)

JUDICIAL REVIEW AT THE STAGE OF DELEGATION OF DISCRETION

Any law can be challenged on the ground that it is violative of the Constitution and therefore laws
conferring administrative discretion can thus also be challenged under the Constitution. In the case of
delegated legislation the Constitutional courts have often been satisfied with vague or broad statements of
policy, but usually it has not been so in the cases where administrative discretion has been conferred in
matters relating to fundamental rights.

The court exercise control over delegation of discretionary powers to the administration by adjudicating
upon the constitutionality of the law under which such powers are delegated with reference to the
fundamental rights enunciated in Part III of the Indian Constitution. Therefore, if the law confers vague and
wide discretionary power on any administrative authority, it may be declared ultra vires Article 14, Article
19 and other provisions of the Constitution.

In certain situations, the statute though does not give discretionary power to the administrative authority
to take action, may still give discretionary power to frame rules and regulations affecting the rights of
citizens. The court can control the bestowing of such discretion on the ground of excessive delegation.
 NAHATA PROFESSIONAL ACADEMY 102

The fundamental rights thus provide a basis to the judiciary in India to control administrative discretion to a
large extent. There have been a number of cases in which a law, conferring discretionary powers, has been
held violative of a fundamental right.

Administrative Discretion and Article 14

Article14 of the Constitution of India provides for equality before law. It prevents arbitrary discretion being
vested in the executive. Article 14 strikes at arbitrariness in state action and ensures fairness and equality of
treatment.

Right to equality affords protection not only against discretionary laws passed by legislature but also
prevents arbitrary discretion being vested in the executive.

The Court in determining the question of validity of such statute examines whether the statute has laid
down any principle or policy for the guidance of the exercise of discretion by the government in the matter
of selection or classification. The Court will not tolerate the delegation of uncontrolled power in the hands
of Executive to such an extent as to enable it to discriminate.

In State of it was held that in so far as the Act empowered the Government to have cases or class
West Bengal of offences tried by special courts, it violated Article 14 of the Constitution. The court
v. Anwar Ali further held the Act invalid as it laid down “no yardstick or measure for the grouping
either of persons or of cases or of offences” so as to distinguish them from others
outside the purview of the Act. Moreover, the necessity of “speedier trial” was held to
be too vague, uncertain and indefinite criterion to form the basis of a valid and
reasonable classification.

Administrative Discretion and Article 19

Article 19 guarantees certain freedoms to the citizens of India, but they are not absolute. Reasonable
restrictions can be imposed on these freedoms under the authority of law. The reasonableness of the
restrictions is open to judicial review. These freedoms can also be afflicted by administrative discretion.

Dr. Ram where the D.M. was empowered under East Punjab Safety Act, 1949, to make an order
Manohar v. of externment from an area in case he was satisfied that such an order was necessary
State of to prevent a person from acting in any way prejudicial to public peace and order, the
Delhi Supreme Court upheld the law conferring such discretion on the executive on the
grounds, inter alia, that the law in the instant case was of temporary nature and it gave
a right to the externee to receive the grounds of his externment from the executive.

In Hari v. The Supreme Court upheld the validity of section 57 of the Bombay Police Act
Deputy authorizing any of the officers specified therein to extern convicted persons from the
Commissione area of his jurisdiction if he had reasons to believe that they are likely to commit any
r of Police offence similar to that of which they were convicted. This provision of law, which
apparently appears to be a violation of the residence, was upheld by court mainly on
the considerations that certain safeguards are available to the externee, i.e., the right
of hearing and the right to file an appeal to the State Government against the order.

H.R. Banthis SC declared a licensing provision invalid as it conferred an uncontrolled and unguided
v. Union of power on the executive. The Gold (Control) Act, 1968, provided for licensing of dealers
India in gold ornaments. The Administrator was empowered under the Act to grant or renew
licenses having regard to the matters, interalia, the number of dealers existing in a
region, anticipated demand, suitability of the applicant and public interest. The
Supreme Court held that all these factors were vague and unintelligible. The term
‘region’ was nowhere defined in the Act. The expression ‘anticipated demand’ was
 NAHATA PROFESSIONAL ACADEMY 103

vague one. The expression ‘suitability of the applicant and ‘public interest’ did not
contain any objective standards or norms.

JUDICIAL REVIEW AT THE STAGE OF EXERCISE OF ADMINISTRATIVE DISCRETION

No law can clothe administrative action with a complete finality even if the law says so, for the courts
always examine the ambit and even the mode of its exercise to check its conformity with fundamental
rights. The courts in India have developed various formulations to control the exercise of administrative
discretion, which can be grouped under two broad heads, as under:

1. Authority has not exercised its discretion properly- ‘abuse of discretion’.

2. Authority is deemed not to have exercised its discretion at all- ‘non-application of mind.

(a) Abuse of discretion

Mala fides If the discretionary power is exercised by the authority with bad faith or dishonest
intention, the action is quashed by the court. Malafide exercise of discretionary power
is always bad and taken as abuse of discretion. Malafide (bad faith) may be taken to
mean dishonest intention or corrupt motive. In relation to the exercise of statutory
powers it may be said to comprise dishonesty (or fraud) and malice. A power is
exercised fraudulently if its repository intends to achieve an object other than that for
which he believes the power to have been conferred. The intention may be to
promote another public interest or private interest.

In Tata Cellular v. Union of India, AIR 1996 SC 11 the Supreme Court has held that the
right to refuse the lowest or any other tender is always available to the Government
but the principles laid down in Article 14 of the Constitution have to be kept in view
while accepting or refusing a tender. There can be no question of infringement of
Article 14 if the Government tries to get the best person or the best quotation. The
right to choose cannot be considered to be an arbitrary power. Of course, if the said
power is exercised for any collateral purpose the exercise of that power will be struck
down.

Irrelevant If a statute confers power for one purpose, its use for a different purpose is not
consideration regarded as a valid exercise of power and is likely to be quashed by the courts. If the
s: administrative authority takes into account factors, circumstances or events wholly
irrelevant or extraneous to the purpose mentioned in the statute, then the
administrative action is vitiated.
Leaving out The administrative authority exercising the discretionary power is required to take
relevant into account all the relevant facts. If it leaves out relevant consideration, its action will
consideration be invalid.
s:
Arbitrary The order made should be based on facts and cogent reasoning and not on the whims
orders: and fancies of the adjudicatory authority.
Improper The discretionary power is required to be used for the purpose for which it has been
purpose: given. If it is given for one purpose and used for another purpose it will amount to
abuse of power.
Colourable Where the discretionary power is exercised by the authority on which it has been
exercise of conferred ostensibly for the purpose for which it has been given but in reality for
power: some other purpose, it is taken as colourable exercise of the discretionary power and
it is declared invalid.

Non- If the procedural requirement laid down in the statute is mandatory and it is not
compliance complied, the exercise of power will be bad. Whether the procedural requirement is
 NAHATA PROFESSIONAL ACADEMY 104

with mandatory or directory is decided by the court. Principles of natural justice are also
procedural required to be observed.
requirement

Exceeding The authority is required to exercise the power within the limits or the statute.
jurisdiction: Consequently, if the authority exceeds this limit, its action will be held to be ultra vires
and, therefore, void.

(b) Non-application of mind

Acting under Where the authority exercises its discretionary power under the instructions or
dictation: dictation from superior authority it is taken as non-exercise of power by the authority
and its decision or action is bad. In such condition the authority purports to act on its
own but in substance the power is not exercised by it but by the other authority. The
authority entrusted with the powers does not take action on its own judgment and
does not apply its mind. For example in Commissioner of Police v. Gordhandas Bhanji,
AIR 1952 SC 60, the Police Commissioner empowered to grant license for construction
of cinema theatres, granted the license but later cancelled it on the discretion of the
Government. The cancellation order was declared bad as the Police Commissioner did
not apply his mind and acted under the dictation of the Government.
Self restriction If the authority imposes fetters on its discretion by announcing rules of policy to be
applied by it rigidly to all cases coming before it for decision, its action or decision will
be bad. The authority entrusted with the discretionary power is required to exercise it
after considering the individual cases and the authority should not imposes fetters on
its discretion by adopting fixed rule of policy to be applied rigidly to all cases coming
before it.

Acting Non-application of mind to an issue that requires an exercise of discretion on the part
mechanically of the authority will render the decision bad in law.
and without
due care:

(B) Statutory
The method of statutory review can be divided into two parts:
Statutory There are some Acts, which provide for an appeal from statutory tribunal to the High
appeals Court on point of law. e.g. Section 30 Workmen’s Compensation Act, 1923.
Reference to There are several statutes, which provide for a reference or statement of case by an
the High Court administrative tribunal to the High Court. Under Section 256 of the Income-tax Act,
or statement 1961 where an application is made to the Tribunal by the assessee and the Tribunal
of case: refuses to state the case the assessee may apply to the High Court and if the High
Court is not satisfied about the correctness of the decision of the Tribunal, it can
require the Tribunal to state the case and refer it to the Court.

(C) Ordinary or Equitable

Apart from the remedies as discuss above there are certain ordinary remedies, which are available to
person against the administration, the ordinary courts in exercise of the power provide the ordinary
remedies under the ordinary law against the administrative authorities. These remedies are also called
equitable remedies and include:

1. Injunction
 NAHATA PROFESSIONAL ACADEMY 105

An injunction is a preventive remedy. It is a judicial process by which one who has invaded or is threatening
to invade the rights of another is restrained from continuing or commencing such wrongful act. In India, the
law with regard to injunctions has been laid down in the Specific Relief Act, 1963. An action for declaration
lies where a jurisdiction has been wrongly exercised or where the authority itself was not properly
constituted. Injunction is issued for restraining a person to act contrary to law or in excess of its statutory
powers. An injunction can be issued to both administrative and quasi-judicial bodies. Injunction is highly
useful remedy to prevent a statutory body from doing an ultra vires act, apart from the cases where it is
available against private individuals e.g. to restrain the commission or torts, or breach of contract or breach
of statutory duty. Injunction may be prohibitory or mandatory.

Prohibitory forbids the defendant to do a wrongful act, which would infringe the right of the
Injunction: plaintiff. A prohibitory injunction may be interlocutory or temporary injunction or
perpetual injunction.

Interlocutory Temporary injunctions are such as to continue until a specified

or temporary time or until the further order of the court. (Section 37 for the
injunction: Specific Relief Act). It is granted as an interim measure to
preserve status quo until the case is heard and decided.
Temporary injunction may be granted at any stage of a suit.
Temporary injunctions are regulated by the Civil Procedure Code
and are provisional in nature. It does not conclude or determine a
right. Besides, a temporary injunction is a mere order. The
granting of temporary injunction is a matter of discretion of the
court.
Perpetual A perpetual injunction is granted at the conclusion of the
injunction: proceedings and is definitive of the rights of the parties, but it
need not be expressed to have perpetual effect, it may be
awarded for a fixed period or for a fixed period with leave to apply
for an extension or for an indefinite period terminable when
conditions imposed on the defendant have been complied with;
or its operation may be suspended for a period during which the
defendant is given the opportunity to comply with the conditions
imposed on him, the plaintiff being given leave to reply at the end
of that time.
Mandatory When to prevent the breach of an obligation it is necessary to compel the
injunction: performance of certain acts which the court is capable of enforcing, the court may
in its discretion grant an injunction to prevent the breach complained of and also to
compel performance of the requisite acts. The mandatory injunction may be taken
as a command to do a particular act to restore things to their former condition or to
undo, that which has been done. It prohibits the defendant from continuing with a
wrongful act and also imposes duty on him to do a positive act.

2. Declaratory Action

In some cases where wrong has been done to a person by an administrative act, declaratory judgments may
be the appropriate remedy. Declaration may be taken as a judicial order issued by the court declaring rights
of the parties without giving any further relief. Thus a declaratory decree declares the rights of the parties.
In such a decree there is no sanction, which an ordinary judgment prescribes against the defendant. By
declaring the rights of the parties it removes the existing doubts about the rights and secures enjoyment of
the rights. It is an equitable remedy. It is a discretionary remedy and cannot be claimed as a matter of right.

3. Action for damages

 NAHATA PROFESSIONAL ACADEMY 106

If any injury is caused to an individual by wrongful or negligent acts of the Government servant, the
aggrieved person can file suit for the recovery of damages from the Government concerned.

Principles of Natural Justice

One of the most important principles in the administration of justice is that justice must not only be done
but also seen to be done. This is necessary to inspire confidence in the people in the judicial system.

Natural justice is a concept of Common Law and represents procedural principles developed by judges.
Though it enjoys no express constitutional status, it is one of the most important concepts that ensure that
people retain their faith in the system of adjudication.

Principles of natural justice are not precise rules of unchanging content; their scope varies according to the
context. Nevertheless it provides the foundation on which the whole super-structure of judicial control of
administrative action is based.

In India, the principles of natural justice are derived from Article 14 and 21 of the Constitution. The courts
have always insisted that the administrative agencies must follow a minimum of fair procedure, i.e.
principles of natural justice. The concept of natural justice has undergone a tremendous change over a
period of time. In the past, it was thought that it included just two rules: rule against bias and rule of fair
hearing. In the course of time many sub-rules were added.

Rule against bias (nemojudex in causa sua):

According to this rule no person should be made a judge in his own cause. Bias means an operative
prejudice whether conscious or unconscious in relation to a party or issue. It is a presumption that a
person cannot take an objective decision in a case in which he has an interest. The rule against bias has
two main aspects- one, that the judge must not have any direct personal stake in the matter at hand
and two, there must not be any real likelihood of bias.

Pecuniary The judicial approach is unanimous on the point that any financial interest of the
bias: adjudicatory authority in the matter, howsoever small, would vitiate the adjudication.
Thus a pecuniary interest, howsoever insufficient, will disqualify a person from acting as
a Judge.
Mohapatra In this case Odisha government formed an assessment committee to
and Co. and recommend books of certain authors to be sent to government
Ors. vs. State schools. Committee consisted of authors whose books were
of Orissa and recommended. The Supreme Court struck down the recommendation
Ors. stating that one cannot be both a writer and part of recommending
(10.08.1984 - committee, stating possibility of bias. Court observed that“when a
SC) : 1984 book of an author-member comes up for consideration, the other
AIR 1572 members would feel themselves embarrassed in frankly discussing its
merits. Such author-member may also be a person holding a high
official position whom the other members may not want to displease.
It can be that the other members may not be influenced by the fact
that the book which they are considering for approval was written by
one of their members. Whether they were so influenced or not is,
however, a matter impossible to determine. It is not, therefore, the
actual bias in favour of the author-member that is material but the
possibility of such bias. All these considerations require that an
author-member should not be a member of any such committee or
sub-committee.”
Personal There are number of situations which may create a personal bias in the Judge’s mind
bias: against one party in dispute before him. He may be friend of the party, or related to
 NAHATA PROFESSIONAL ACADEMY 107

him through family, professional or business ties. The judge might also be hostile to one
of the parties to a case. All these situations create bias either in favour of or against the
party and will operate as a disqualification for a person to act as a Judge.
Mineral It is a leading case on the matter of personal bias. In this case, the
Development petitioner company was owned by Raja Kamakhya Narain Singh, who
Ltd. V. State was a lessee for 99 years of 3026 villages, situated in Bihar, for
of Bihar, AIR purposes of exploiting mica from them. The Minister of Revenue acting
1960 SC 468. under Bihar Mica Act cancelled his license. The owner of the company
Raja Kamakhya Narain Singh, had opposed the minister in general
election of 1952 and the minister had filed a criminal case under
section 500, Indian Penal Code, against him. The act of cancellation by
the Minister was held to be a quasi- judicial act. Since the personal
rivalry between the owner of the petitioner’s company and the
minister concerned was established, the cancellation order became
vitiated in law.

Manek Lal v. Here the respondent had filed a complaint of professional misconduct
Prem Chand, against Manek Lal who was an advocate of Rajasthan High Court. The
AIR 1957 SC Chief Justice of the High Court appointed bar council tribunal to
425. enquire into the alleged misconduct of the petitioner. The tribunal
consisted of the Chairman who had earlier represented the
respondent in a case. He was a senior advocate and was once the
advocate-General of the State. The Supreme Court held the view that
even though Chairman had no personal contact with his client and did
not remember that he had appeared on his behalf in certain
proceedings, and there was no real likelihood of bias, yet he was
disqualified to conduct the inquiry on the ground that justice not only
be done but must appear to be done to the litigating public. Actual
proof of prejudice was not necessary; reasonable ground for assuming
the possibility of bias is sufficient.

Subject A judge may have a bias in the subject matter, which means that he himself is a party, or
matter bias: has some direct connection with the litigation. To disqualify on the ground of bias there
must be intimate and direct connection between adjudicator and the issues in dispute.
To vitiate the decision on the ground of bias as for the subject matter there must be real
likelihood of bias. Such bias can be classified into four categories.
(1) Partiality or connection to the issue
(2) Departmental bias
(3) Prior utterances and pre-judgment of issues
(4) Acting under dictation

2. Rule of fair hearing (audi alteram partem):

The second principle of natural justice is audi alteram partem (hear the other side) i.e. no one should be
condemned unheard. It requires that both sides should be heard before passing the order. This rule implies that a
person against whom an order to his prejudice is passed should be given information as to the charges against him
and should be given opportunity to submit his explanation thereto. Following are the ingredients of the rule of fair
hearing
Right to Hearing starts with the notice by the authority concerned to the affected person.
notice: Consequently, notice may be taken as the starting point of hearing. Unless a person
knows the case against him, he cannot defend himself. Therefore, before the
proceedings start, the authority concerned is required to give to the affected person the
notice of the case against him. The proceedings started without giving notice to the
affected party, would violate the principles of natural justice. The notice is required to be
 NAHATA PROFESSIONAL ACADEMY 108

served on the concerned person properly. However, the omission to serve notice would
not be fatal if the notice has not been served on the concerned person on account of his
own fault.
The notice must give sufficient time to the person concerned to prepare his case.
Whether the person concerned has been allowed sufficient time or not depends upon
the facts of each case. The notice must be adequate and reasonable. The notice is
required to be clear and unambiguous. If it is ambiguous or vague, it will not be treated
as reasonable or proper notice. If the notice does not specify the action proposed to be
taken, it is taken as vague and therefore, not proper.

Annamalai In this case the court insisted upon the adequacy of the show cause
Cotton Mills notice with respect to alleged electricity theft without any details
(P) Ltd. vs. The such as meter reading, time period, authority taking the action etc.
Chairman, Court observed that –
Tamilnadu “where an authority makes an order in exercise of a quasi judicial
Electricity function, it must record its reasons in support of the order it makes
Board and that every quasi judicial order must be supported by reasons. In
(02.01.1996 - the instant case, the 3rd respondent, who passed the impugned order,
MADHC) : AIR has not recorded his reasons in support of the order. Therefore, it is
1996 Mad 364 clear that the impugned order has been passed in violation of the
principles of natural justice and that it is without jurisdiction. The
show cause notice is also as vague as any notice can be since it only
states that the petitioner’s service connection was inspected and theft
of energy was reported. The notice itself, therefore, has to be quashed
for the reason of vagueness. As no one can be condemned unless he is
given full and adequate opportunity of being heard, issue of notice
calling upon to show cause is always the first step in that direction.
Therefore, the show cause notice as well as the impugned order are
bad in law as they both violated the basic principle of natural justice.”
Right to The party against whom proceedings have been initiated must be given full opportunity
present to present his or her case and the evidence in support of it. The reply is usually in the
case and written form and the party is also given an opportunity to present the case orally though
evidence: it is not mandatory.
Right to For the hearing to be fair the adjudicating authority is not only required to disclose to
rebut the person concerned the evidence or material to be taken against him but also to
adverse provide an opportunity to rebut the evidence or material.
evidence: 1. Cross-examination:
Examination of a witness by the adverse party is called cross- examination. The main aim
of cross-examination is the detection of falsehood in the testimony of the witness. The
rules of natural justice say that evidence may not be read against a party unless the
same has been subjected to cross-examination or at least an opportunity has been given
for cross-examination.
S.C. Girotra vs. In this case, bank dismissed the petitioner on the basis of a committee
United report. Report was prepared by an enquiry officer. The petitioner
Commercial claimed that he was not given the opportunity to cross examine
Bank (UCO enquiry offer. Court held that, denial of such opportunity is in violation
Bank) and Ors. of principle of natural justice, since he was not given the opportunity
(18.02.1994 - to cross examine the officer it was stated that the:
SC) : 1995
Supp (3) SCC “It is also clear that no opportunity was given to the appellant to
212 cross-examine either the makers of that report, Mr. ........... and Mr
......... or the officers who had granted such certificates which formed
evidence to prove the charges which led to the order of dismissal
passed by the disciplinary authority, even though those persons were
 NAHATA PROFESSIONAL ACADEMY 109

examined for the purpose of proving the documents relating to them.

In our opinion, the grievance made by the appellant that refusal of
permission to cross-examine these witnesses was denial of reasonable
opportunity of defence to the appellant, is justified.”
2. Legal Representation:
Ordinarily the representation through a lawyer in the administrative adjudication is not
considered as an indispensable part of the fair hearing. However, in certain situations
denial of the right to legal representation amounts to violation of natural justice. Thus
where the case involves a question of law or matter which is complicated and technical
or where the person is illiterate or expert evidence is on record or the prosecution is
conducted by legally trained persons, the denial of legal representation will amount to
violation of natural justice because in such conditions the party may not be able to meet
the case effectively and therefore he must be given the opportunity to engage
professional assistance to make his right to be heard meaningful.
Nandini The Supreme Court in this case stated that the accused must be
Satpathy vs. allowed the legal representative during custodial interrogation and
P.L. Dani and police must wait for reasonable time for arrival of such representative.
Ors. If not allowed, it would not only be violative of Article 22(1) of
(07.04.1978 - Constitution of India but also against the principle of natural justice. It
SC) : 1978 AIR was observed that -
1025 “The right to consult an advocate of his choice shall not be denied to
any person who is arrested. This does not mean that persons who are
not under arrest or custody can be denied that right. The spirit and
sense of Article 22(1) is that it is fundamental to’ the rule of law that
the services of a lawyer shall be available for consultation to any
accused person under circumstances of near custodial interrogation.”
Suresh Koshy In this case a committee was appointed to inquire about the alleged
George vs. malpractice by petitioner during examination. Committee gave a show
University of cause notice to petitioner to represent his case but was not given
Kerala and inquiry report. Court held that there was no breach of principle of
Ors. natural justice. It observed that -
(15.07.1968 - “the officer appointed to inquire was an impartial person; he cannot
SC) : 1969 AIR be said to have been
198 biased against the appellant; the charge against the appellant was
made known to him before he commencement of the inquiry; the
witnesses who gave evidence against him were examined in his
presence and he was allowed to cross-examine them and lastly he was
given every opportunity to present his case before the Inquiry Officer.
Hence we see no merit in the
contention that there was any breach of the principles of natural
justice”
Disclosure A party must be given full opportunity to explain every material that is sought to be
of relied upon against him. Unless all the material (e.g. reports, statements, documents,
evidence: evidence) on which the proceeding is based is disclosed to the party, he cannot defend
himself properly.

Speaking Reasoned decision may be taken to mean a decision which contains reason in its
orders: support. When the adjudicatory bodies give reasons in support of their decisions, the
decisions are treated as reasoned decision. It is also called speaking order. In such
condition the order speaks for itself or it tells its own story. Reasoned decision
introduces a check on the administrative powers because the decisions need to be based
on cogent reasons. It excludes or at least minimizes arbitrariness. It has been asserted
that a part of the principle of natural justice is that a party is entitled to know the reason
for the decision apart from the decision itself. Reason based judgments and orders allow
 NAHATA PROFESSIONAL ACADEMY 110

the party affected by it to go into the merits of the decision and if not satisfied, exercise
his right to appeal against the judgment/ order. In the absence of reasons, he might not
be able to effectively challenge the order.
Canara Bank The Supreme Court in this case held that Natural Justice rules are not
and Ors. vs. codified, written but can be traced backed in statues especially in
Debasis Das Constitution. In this case, it was observed that
and Ors. “Principles of natural justice are those rules which have been laid
(12.03.2003 - down by the Courts as being the minimum protection of the rights of
SC) : [(2003) 4 the individual against the arbitrary procedure that may be adopted by
SCC 557]. a judicial, quasi-judicial and administrative authority while making an
order affecting those rights. These rules are intended to prevent such
authority from doing injustice.”
Sunil Batra v. The Supreme Court while interpreting section 56 of the Prisons Act,
Delhi 1894, observed that there is an implied duty on the jail superintendent
Administration to give reasons for putting bar fetters on a prisoner to avoid invalidity
AIR 1980 SC of that provision under Article 21 of the Constitution. Thus, the
1579, Supreme Court laid the foundation of a sound administrative process
requiring the adjudicatory authorities to substantiate their order with
reasons.

Exceptions to Natural Justice

Though the normal rule is that a person who is affected by administrative action is entitled to claim natural
justice, that requirement may be excluded under certain exceptional circumstances.

1. Statutory Exclusion: The principle of natural justice may be excluded by the statutory provision.
Where the statute expressly provides for the observance of the principles of natural justice, the
provision is treated as mandatory and the authority is bound by it. Where the statute is silent as to the
observance of the principle of natural justice, such silence is taken to imply the observance thereto.
However, the principles of natural justice are not incapable of exclusion. The statute may exclude
them. When the statute expressly or by necessary implication excludes the application of the
principles of natural justice the courts do not ignore the statutory mandate. But one thing may be
noted that in India, Parliament is not supreme and therefore statutory exclusion is not final. The
statute must stand the test of constitutional provision. Even if there is no provision under the statute
for observance of the principle of natural justice, courts may read the requirement of natural justice
for sustaining the law as constitutional.

2. Emergency: In exceptional cases of urgency or emergency where prompt and preventive action is
required the principles of natural justice need not be observed. Thus, the pre-decisional hearing may
be excluded where the prompt action is required to be taken in the interest of the public safety or
public morality and any delay in administrative order because of pre-decisional hearing before the
action may cause injury to the public interest and public safety. However, the determination of the
situation requiring the exclusion of the rules of natural justice by the administrative authorities is not
final and the court may review such determination.

Maneka In the Supreme Court observed that a passport may be impounded in public interest
Gandhi v. without compliance with the principles of natural justice but as soon as the order
Union of impounding the passport has been made, an opportunity of post decisional hearing,
India remedial in aim, should be given to the person concerned. In the case, it has also
been held that “public interest” is a justiciable issue and the determination of
administrative authority on it is not final.

3. Interim disciplinary action: The rules of natural justice are not attracted in the case of interim
disciplinary action. For example, the order of suspension of an employee pending an inquiry against
 NAHATA PROFESSIONAL ACADEMY 111

him is not final but interim order and the application of the rules of natural justice is not attracted in
the case of such order.

Abhay an order was passed by the college authority debarring the student from entering
Kumar v. K. the premises of the college and attending the class till the pendency of a criminal
Srinivasan case against him for stabbing a student. The Court held that the order was interim
and not final. It was preventive in nature. It was passed with the object to maintain
peace in the campus. The rules of natural justice were not applicable in such case.

4. Academic evaluation: Where a student is removed from an educational institution on the grounds of
unsatisfactory academic performance, the requirement of pre-decisional hearing is excluded. The
Supreme Court has made it clear that if the competent academic authority assess the work of a
student over the period of time and thereafter declare his work unsatisfactory the rule of natural
justice may be excluded but this exclusion does not apply in the case of disciplinary matters.

5. Impracticability: Where the authority deals with a large number of person it is not practicable to give
all of them opportunity of being heard and therefore in such condition the court does not insist on the
observance of the rules of natural justice.
P. the entire M.B.A. entrance examination was cancelled on the ground of mass
Radhakrishna copying. The court held that it was not possible to give all the examinees the
v. Osmania opportunity of being heard before the cancellation of the examination.
University,

Effect of Failure of Natural Justice

When an authority required to observe natural justice in making an order fails to do so, should the order
made by it be regarded as void or voidable?
Generally speaking, a voidable order means that the order was legally valid at its inception, and it remains
valid until it is set aside or quashed by the courts, that is, it has legal effect up to the time it is quashed. On
the other hand, a void order is no order at all from its inception; it is a nullity and void ab initio. In most
cases a person affected by such an order cannot be sure whether the order is really valid or not until the
court decided the matter. Therefore, the affected person cannot just ignore the order treating it as a nullity.
He has to go to a court for an authoritative determination as to the nature of the order is void. For example,
an order challenged as a nullity for failure of natural justice gives rise to the following crucial question: Was
the authority required to follow natural justice?
Usually, a violable order cannot be challenged in collateral proceedings. It has to be set aside by the court in
separate proceedings for the purpose. Suppose, a person is prosecuted criminally for infringing an order. He
cannot then plead that the order is voidable. He can raise such a plea if the order is void. In India, by and
large, the judicial thinking has been that a quasi-judicial order made without following natural justice is void
and nullity.

Nawabkhan In this case, Section 56 of the Bombay Police Act, 1951 is talked about. It empowers the
v. Gujarat. Police Commissioner to extern any undesirable person on certain grounds set out
1974 AIR therein. An order passed by the Commissioner on the petitioner was disobeyed by him
1471 and he was prosecuted for this in a criminal court. During the pendency of his case, on
a writ petition filed by the petitioner, the High Court quashed the internment order on
the ground of failure of natural justice. The trial court then acquitted the appellant.
The government appealed against the acquittal and the High Court convicted him for
disobeying the order. The High Court took the position that the order in question was
not void ab initio; the appellant had disobeyed the order much earlier than date it was
infringed by him; the High Court’s own decision invalidating the order in question was
not retroactive and did not render it a nullity from its inception but it was invalidate
only from the date the court declared it to be so by its judgment. However, the matter
 NAHATA PROFESSIONAL ACADEMY 112

came in appeal before the Supreme Court, which approached the matter from a
different angle. The order of internment affected a fundamental right (Article 19) of
the appellant in a manner which was not reasonable. The order was thus illegal and
unconstitutional and hence void. The court ruled definitively that an order infringing a
constitutionally guaranteed right made without hearing the party affected, where
hearing was required, would be void ab initio and ineffectual to bind the parties from
the very beginning and a person cannot be convicted for non-observance of such an
order. The Supreme Court held that where hearing is obligated by statute which affects
the fundamental right of a citizen, the duty to give the hearing sound in constitutional
requirement and failure to comply with such a duty is fatal.

Liability
The liability of the government can either be contractual or tortious.
Liability of State or Government in Contract
The Constitution of India allows the central and the state governments to enter into contracts. According to
its provisions a contract with the Government of the Union or state will be valid and binding only if the
following conditions are followed:
1. The contract with the Government must be made in the name of the President or the Governor, as
the case may be.
2. The contract must be executed on behalf of the President or the Governor of the State as the case
may be. The word executed indicates that a contract with the Government will be valid only when it
is in writing.
3. A person duly authorized by the President or the Governor of the State, as the case may be, must
execute the contract.

Article 299 (2) of the Constitution makes it clear that neither the President nor the Governor shall be
personally liable in respect of any contract or assurance made or executed for the purposes of the
Constitution or for the purposes of any enactment relating to the Government of India. Subject to the
provisions of Article 299 (1), the other provisions of the general law of contract apply even to the
Government contract.

The Supreme Court has made it clear that the provisions of Article 299 (1) are mandatory and therefore the
contract made in contravention thereof is void and therefore cannot be ratified and cannot be enforced
even by invoking the doctrine of estoppel.

According to section 65 of the Indian Contract Act, 1872, when an agreement is discovered to be void, or
when a contract becomes void, any person who has received any advantage under such agreement or
contract is bound to restore it, or to make compensation for it to the person from whom he received it.
Therefore if the agreement with the Government is void as the requirement of Article 299(1) have not been
complied, the party receiving the advantage under such agreement is bound to restore it or to make
compensation for it to the person from whom he has received it.

Effect of a valid contract with Government

As soon as a contract is executed with the Government in accordance with Article 299, the whole law of
contract as contained in the Indian Contract Act, 1872 comes into operation. In India the remedy for the
breach of a contract with Government is simply a suit for damages.
Gujarat Earlier the writ of mandamus could not be issued for the enforcement of contractual
State obligations but the Supreme Court in its pronouncement in the present case has taken a
Financial new stand and held that the writ of mandamus can be issued against the Government or
Corporation its instrumentality for the enforcement of contractual obligations. The Court ruled that it
v. Lotus cannot be contended that the Government can commit breach of a solemn undertaking
Hotels, on which other side has acted and then contend that the party suffering by the breach of
1983 3 SCC contract may sue for damages and cannot compel specific performance of the contract
379, through mandamus.
 NAHATA PROFESSIONAL ACADEMY 113

Shrilekha In this case, the Supreme Court has made it clear that the State has to act justly, fairly
Vidyarathi and reasonably even in contractual field. In the case of contractual actions of the State
v. State of the public element is always present so as to attract Article 14. State acts for public good
U.P,1991 and in public interest and its public character does not change merely because the
SCC 212, statutory or contractual rights are also available to the other party. The court has held
that the state action is public in nature and therefore it is open to the judicial review even
if it pertains to the contractual field. Thus the contractual action of the state may be
questioned as arbitrary in proceedings under Article 32 or 226 of the Constitution. It is to
be noted that the provisions of Sections 73, 74 and 75 of the Indian Contract Act, 1872
dealing with the determination of the quantum of damages in the case of breach of
contract also applies in the case of Government contract.
Suit against State in Torts

A tort is a civil wrong arising out of breach of a civil duty or breach of non-contractual obligation and the
only remedy for which is damages. The essential requirement for the tort is beach of duty towards people
in general. Although tort is a civil wrong, yet it would be wrong to think that all civil wrongs are torts. A
civil wrong which arises out of the breach of contact cannot be put in the category of tort as it is different
from a civil wrong arising out of the breach of duty towards public in general.

When the responsibility of the act of one person falls on another person, it is called vicarious liability. For
example, when the servant of a person harms another person through his act, we held the servant as well
as his master liable for the act done by the servant. Similarly, sometimes the state is held vicariously liable
for the torts committed by its servants in the exercise of their duty. The State would of course not be liable
if the acts done were necessary for protection life or property.

Acts such as judicial or quasi-judicial decisions done in good faith would not invite any liability. There are
specific statutory provisions which protect the administrative authorities from liability. Such protection,
however, would not extend to malicious acts. The burden of proving that an act was malicious would lie on
the person who assails the administrative action. The principles of law of torts would apply in the
determination of what is a tort and all the defenses available to the respondent in a suit for tort would be
available to the public servant also.
Damages
The Courts in India are now becoming conscious about increasing cases of excesses and negligence on the
part of the administration resulting in the negation of personal liberty. Hence, they are coming forward
with the pronouncements holding the Government liable for damages even in those cases where the plea
of sovereign function could have negative the governmental liability.
Rudal Shah v. in this case,the petitioner was detained illegally in the prison for over fourteen years
State of Bihar after his acquittal in a full dressed trail. The court awarded Rs. 30,000 as damages to
the petitioner.
Bhim Singh v. In this case where the petitioner, a member of legislative Assembly was arrested
State of J&K, while he was on his way to Srinagar to attend Legislative Assembly in gross violation
of his constitutional rights under Articles 21 and 22(2) of the Constitution, the court
awarded monetary compensation of `50,000 by way of exemplary costs to the
petitioner.
C. Ramkonda It has been decided by the Andhra Pradesh, in which State plea of sovereign function
Reddy v. State, was turned down and damages were awarded despite its being a case of exercise of
sovereign function.
Saheli a Delhi, where the death of nine years old boy took place on account of unwarranted
Women’s atrocious beating and assault by a Police officer in New Delhi, the State Government
ResourceCenter was directed by the court to pay `75,000 as compensation to the mother of victim.
v. Co P
Lucknow In this case, the Supreme Court observed that where public servant by malafide,
Development oppressive and capricious acts in discharging official duty causes injustice,
Authority v. harassment and agony to common man and renders the State or its instrumentality
 NAHATA PROFESSIONAL ACADEMY 114

M.K. Gupta, liable to pay damages to the person aggrieved from public fund, the State or its
instrumentality is duly bound to recover the amount of compensation so paid from
the public servant concerned.
Liability of the Public Servant
Liability of the State must be distinguished from the liability of individual officers of the State. So far as the
liability of individual officers is concerned, if they have acted outside the scope of their powers or have
acted illegally, they are liable to same extent as any other private citizen would be. The ordinary law of
contact or torts or criminal law governs that liability. An officer acting in discharge of his duty without bias
or malafides could not be held personally liable for the loss caused to other person. However, such acts
have to be done in pursuance of his official duty and they must not be ultra vires his powers. Where a
public servant is required to be protected for acts done in the course of his duty, special statutory
provisions are made for protecting them from liability.
Liability of Public Corporation
The term ‘Statutory Corporation’ (or Public Corporation) refers to such organisations which are
incorporated under the special Acts of the Parliament/State Legislative Assemblies. Its management
pattern, its powers and functions, the area of activity, rules and regulations for its employees and its
relationship with government departments, etc. are specified in the concerned Act. It may be noted that
more than one corporation can also be established under the same Act. State Electricity Boards and State
Financial Corporation fall in this category.
 The principal benefits of the Public Corporation as an organizational device are its freedom from
government regulations and controls and its high degree of operating and financial flexibility. In this
form, there is a balance between the autonomy and flexibility enjoyed by private enterprise and the
responsibility to the public as represented by elected members and legislators. However, this form,
in its turn, has given rise to other problems, namely the difficulty of reconciling autonomy of the
corporation with public accountability.
 The public corporation (statutory corporation) is a body having an entity separate and independent
from the Government. It is not a department or organ of the Government. Consequently, its
employees are not regarded as Government servants and therefore they are not entitled to the
protection of Article 311 of the Constitution.
 It is to be also noted that a public corporation is included within the meaning of ‘State’ under
Article12 and therefore the Fundamental Rights can be enforced against it. Public corporation are
included with the meaning of ‘other authorities’ and therefore it is subject to the writ jurisdiction of
the Supreme Court under Article 32 and of the High Court under Article 226 of the Constitution.
 For the validity of the corporation contract, the requirements of a valid contract laid down in Article
299 are not required to be complied with. On principles of vicarious liability, corporation is liable to
pay damages for wrong done by their officers or servants. They are liable even for tort requiring a
mental element as an ingredient, e.g. malicious prosecution. In India, local authorities like
Municipalities and District Boards have been held responsible for the tort committed by their
servants or officers.
Examination Questions:
1. What are the principal sources of Administrative Law in India ? Explain in brief. [DEC-2020] (
2. Enumerate in short the exceptional circumstances of the application of natural justice under
Administrative Law. [DEC-2019] (4 Marks)
3. Judicial review is the authority of Courts to declare void the acts of the legislature and executive, if
they are found in violation of provisions of the Constitution. Comment. [DEC-2019] (4 Marks)
4. Under what circumstances the decision exercised by administrative authorities are treated as
abuse of discretion ? Explain any four. [DEC-2019] (4 Marks)
5. Explain in brief ‘Audi Alterum Partem Rule’ under the Administrative law. [DEC-2018] (4 Marks)
6. Explain in brief doctrine of ‘Nemo Judex in Causa Sua’. [JUNE-2019] [DEC-2020] (4 Marks)
7. Discuss the main feature of Statutory Corporation under Administrative Law. JUNE-2021]
(8) Administrative law is the by-product of ever increasing functions of the Governments. Now, States
have no longer policies limited to maintaining internal order and external threats. Examine. [JUNE-
2021]
(9) Examine the necessity of administrative discretion. . [JUNE-2022]
 NAHATA PROFESSIONAL ACADEMY 115

CHAPTER -5
LAW RELATING TO TORTS
This chapter explains torts and also provide for case wherein liability arises without default, even
provides for person liable for such wrong.
 Introduction
 Essentials of torts
 Principle of strict liability (liability without default)
 Principle of vicarious liability (person who is responsible to such default)
 Torts or wrongs to personal safety and freedom
 Remedies in torts

INTRODUCTION

The word ‘tort’ is a French equivalent of English word ‘wrong’. The word tort is derived from Latin language
from the word Tortum. Thus, simply stated ‘tort’ means wrong.

But every wrong or wrongful act is not a tort. Wrongs, in law, are either public or private. Public wrongs
are the violations of ‘public law and hence amount to be offences against the State, while private wrongs
are the breaches of private law, i.e., wrongs against individuals. Public wrongs or crimes are those wrongs
which are made punishable under the penal law which belong to the public law group.

Tort is really a kind of civil wrong as opposed to criminal wrong. The distinction between civil and criminal
wrongs depends on the nature of the appropriate remedy provided by law.

Section 2(m) of the Limitation Act, 1963, states: “Tort means a civil wrong which is not exclusively a breach
of contract or breach of trust.”

Salmond “a civil wrong for which the remedy is a common law action for unliquidated damages
and which is not exclusively the breach of a contract or the breach of a trust or other
merely equitable obligation.”
Fraser “an infringement of a right in rem of a private individual giving a right of compensation
at the suit of the injured party.”
Winfield “Tortious liability arises from the breach of duty, primarily fixed by law; this duty is
towards persons generally and its breach is redressable by an action for unliquidated
damages”.

Two important elements can be derived from all these definitions, namely:
(i) that a tort is a species of civil injury of wrong as opposed to a criminal wrong, and
(ii) that every civil wrong is not a tort.

Laxmi Salt The Supreme Court of India observed that “Truly speaking entire law of torts is founded
Words (P)Ltd and structured on morality that no one has a right to injure or harm others intentionally
vs State Of or even innocently.
Gujarat,1994 Therefore, it would be primitive to class strictly or close finality the ever-expanding and
SCC(4)1, JT growing horizon of tortious liability. Even for social development, orderly growth of the
1994(3) 492 society and cultural refineness, the liberal approach to tortious liability by courts is
more conducive”

GENERAL CONDITIONS OF LIABILITY FOR A TORT

There is no fixed catalogue of circumstances, which mark the limit of what are torts. Certain situations have
been held to be torts and will continue to be so in the absence of statutory repeal, and others have been
held not to be torts. However, certain general conditions for tortuous liability can be laid down.
 NAHATA PROFESSIONAL ACADEMY 116

In general, a tort consists of some act or omission done by the defendant (tortfeasor) whereby he has
without just cause or excuse caused some harm to plaintiff.

To constitute a tort, there must be:

(i) Wrongful act: The act complained of, should under the circumstances, be legally wrongful as regards
the party complaining. In other words, it should prejudicially affect any of the above mentioned interests,
and protected by law. Thus, every person whose legal rights, e.g., right of reputation, right of bodily safety
and freedom, and right to property are violated without legal excuse, has a right of action against the
person who violated them, whether loss results from such violation or not.

Glasgow In this case, a corporation failed to put proper fencing to keep the children away
Corporation v. from a poisonous tree and a child plucked and ate the fruit of the same tree and
Taylor, 1922 died. Court held corporation liable for such omission.
General Cleaning In this case, an employer failed to provide safety belt for safe system of work
Corporation v. resulting in an employee suffering injuries. The employer shall be liable for the
Christmas, 953, consequences of such omission.

(ii) Legal damages: it is not every damage that is a damage in the eye of the law. It must be a damage
which the law recognizes as such. In other words, there should be legal injury or invasion of the legal right.
In the absence of an infringement of a legal right, an action does not lie. Also, where there is infringement
of a legal right, an action lies even though no damage may have been caused.
Legal damage is neither identical with actual damage nor is it necessarily pecuniary. Two maxims, namely :
(i) Damnum sine injuria, and (ii) injuria sine damnum, explain this proposition.

Damnum Sine Injuria

Damnum means harm, loss or damage in respect of money, comfort, health, etc. Injuria means
infringement of a right conferred by law on the plaintiff. The maxim means that in a given case, a man may
have suffered damage and yet have no action in tort, because the damage is not to an interest protected by
the law of torts. Therefore, causing damage, however substantial to another person is not actionable in law
unless there is also a violation of a legal right of the plaintiff.

Gloucester where the damage results from an act done in the exercise of legal rights. Thus, if I
Grammer School own a shop and you open a shop in the neighbourhood, as a result of which I lose
case, some customers and my profits fall off, I cannot sue you for the lose in profits,
because you are exercising your legal right.
Chasemore V In this case, water supply to Plaintiff’s mill was disrupted due to defendant’s
Richards, 1859 digging of his well. This resulted in cutting of water supply to plaintiff’s mill due to
which it was shut down. Court held defendant not liable because although
monetary losses were incurred there was no violation of legal right.

Injuria Sine Damnum

It means injury without damage, i.e., where there is no damage resulted yet it is an injury or wrong in tort,
i.e. where there is infringement of a legal right not resulting in harm but plaintiff can still sue in tort.

Some rights or interests are so important that their violation is an actionable tort without proof of damage.
Thus when there is an invasion of an “absolute” private right of an individual, there is an injuria and the
plaintiff’s action will succeed even if there is no Domnum or damages. An absolute right is one, the violation
of which is actionable per se, i.e., without the proof of any damage. Injuria sine domno covers such cases
and action lies when the right is violated even though no damage has occurred. Thus the act of trespassing
 NAHATA PROFESSIONAL ACADEMY 117

upon another’s land is actionable even though it has not caused the plaintiff even the slightest harm.

Ashby V White, In this case, the plaintiff was prevented from voting at an election by the
1703 defendant. Plaintiff sued defendant for compensation even if no monetary loss
was incurred by him. It was held that defendant was liable to pay compensation
because he has violated legal right of plaintiff to cast his vote. Defendant had
committed a tort.

(iii) Legal remedy: The third condition of liability for a tort is legal remedy. This means that to constitute a
tort, the wrongful act must come under the law. The main remedy for a tort is an action for unliquidated
damages, although some other remedies, e.g., injunction, may be obtained in addition to damages or
specific restitution may be claimed in an action for the detention of a chattel. Self-help is a remedy of which
the injured party can avail himself without going to a law court. It does not apply to all torts and perhaps
the best example of these to which it does apply is trespass to land.

For example, if “A” finds a drunken stranger in his room who has no business to be there in it, and is thus a
trespass, he (A) is entitled to get rid of him, if possible without force but if that be not possible with such
force as the circumstances of the case may warrant.

Mens Rea

How far a guilty mind of persons is required for liability for tort?

The General principle lies in the maxim “actus non facit reum nisi mens sit rea” i.e. the act itself creates no
guilt in the absence of a guilty mind. It does not mean that for the law or Torts, the act must be done with
an evil motive, but simply means that mind must concur in the Act, the act must be done either with
wrongful intention or negligence. However, to this principle cases of absolute or strict liability are
exceptions.

KINDS OF TORTIOUS LIABILITY

(A) Strict or Absolute Liability

In some torts, the defendant is liable even though the harm to the plaintiff occurred without intention or
negligence on the defendant’s part. In other words, the defendant is held liable without fault.
These cases fall under the following categories:
(i) Liability for Inevitable Accident – Such liability arises in cases where damage is done by the escape
of dangerous substances brought or kept by anyone upon his land. Such cases are where a man is
made by law an insurer of other against the result of his activities.
(ii) Liability for Inevitable Mistake – Such cases are where a person interferes with the property or
reputation of another.
(iii) Vicarious Liability for Wrongs committed by others – Responsibility in such cases is imputed by law
on grounds of social policy or expediency. These case involve liability of master for the acts of his
servant.

Rule in Rylands v. Fletcher

RULE: The rule is that a man acts at his peril and is the insurer of the safety of his neighbour
against accidental harm. Such duty is absolute because it is independent of negligence on
the part of the defendant or his servants. It was held in that case that: “If a person brings
or accumulates on his land anything which, if it should escape may cause damage to his
neighbours, he does so at his own peril. If it does not escape and cause damage he is
responsible, however careful he may have been, and whatever precautions he may have
taken to prevent damage.”
FACTS: The facts of this case were as follows: B, a mill owner employed independent
 NAHATA PROFESSIONAL ACADEMY 118

contractors, who were apparently competent to construct a reservoir on his land to

provide water for his mill. There were old disused mining shafts under the site of the
reservoir which the contractors failed to observe because they were filled with earth.
The contractors therefore, did not block them. When the water was filled in the
reservoir, it bursts through the shafts and flooded the plaintiff’s coal mines on the
adjoining land. It was found as a fact that B did not know of the shafts and had not been
negligent, though the independent contractors, had been, B was held liable.
Two conditions are necessary in order to apply the rule in Ryland v. Fletcher, these are:
(i) Escape from a place of which the defendant has occupation or over which he has a control to a place
which is outside his occupation or control or something likely to do mischief if it escapes; and
(ii) Non-natural use of Land: The defendant is liable if he makes a non-natural use of land. If either of
these conditions is absent, the rule of strict liability will not apply.

Exceptions to the Rule of Strict Liability

The following exceptions to the rule of strict liability have been introduced in course of time, some of them
being inherent in the judgment itself in Ryland v. Fletcher:

(i) Damage In Ryland v. Fletcher water collected in the reservoir in such large quantity, was held
due to to be non-natural use of land. Keeping water for ordinary domestic purpose is
Natural ‘natural use’. Things not essentially dangerous which is not unusual for a person to
Use of have on his own land, such as water pipe installations in buildings, the working of
the Land mines and minerals on land, the lighting of fire in a fire-place of a house, and
necessary wiring for supplying electric light, fall under the category of “natural use” of
land.

(ii) Consent Where the plaintiff has consented to the accumulation of the dangerous thing on the
of the defendant’s land, the liability under the rule in Ryland v. Flethcher does not arise.
plaintiff Such a consent is implied where the source of danger is for the ‘common benefit’ of
both the plaintiff and the defendant.

(iii) Act of If the harm has been caused due to the act of a stranger, who is neither defendant’s
Third servant nor agent nor the defendant has any control over him, the defendant will not
Party be liable. But if the act of the stranger, is or can be foreseen by the defendant and the
damage can be prevented, the defendant must, by due care prevent the damage.
Failure on his part to avoid such damage will make him liable.

(iv) Statutory Sometimes, public bodies storing water, gas, electricity and the like are by statute,
Authority exempted from liability so long as they have taken reasonable care.
Thus, in Green v. Chelzea Water Works Co. (1894) 70 L.T. 547 the defendant
company had a statutory duty to maintain continuous supply of water. A main
belonging to the company burst without any fault on its part as a consequence of
which plaintiff’s premises were flooded with water. It was held that the company was
not liable as the company was engaged in performing a statutory duty.

(v) Act of If an escape is caused, through natural causes and without human intervention
God circumstances which no human foresight can provide against and of which human
prudence is not bound to recognize the possibility, there is then said to exist the
defence of Act of God.
(vi) Escape Damage by escape due to the plaintiff’s own default was considered to be good
due to defence in Rylands v. Fletcher itself. Also, if the plaintiff suffers damage by his own
plaintiff’s intrusion into the defendant’s property, he cannot complain for the damage so
own caused.
Default
 NAHATA PROFESSIONAL ACADEMY 119

The Supreme Court has discussed the applicability of the rule of Reylands v. Fletcher in the case of M.C.
Mehta v. Union of India and Others (1987) 1. Comp. L.J. p. 99 S.C. while determining the principles on which
the liability of an enterprise engaged in a hazardous or inherently dangerous industry depended if an
accident occurred in such industry.

“We have to evolve new principle and lay down new norms which would adequately deal with the new
problems which arise in a highly industrialized economy. We cannot allow our judicial thinking to be
constricted by reference to the law as it prevails in England or for the matter of that, in any other foreign
country”.

On the question of the nature of liability for a hazardous enterprise the court while noting that the above
rule as developed in England recognizes certain limitations and responsibilities recorded it’s final view as
follows:

“We are of the view that an enterprise which is engaged in a hazardous or inherently dangerous industry
which poses a potential threat to the health and safety of the persons working in the factory and residing
in the surrounding areas, owes an absolute and non-delegable duty to the community to ensure that no
harm results to anyone on account of hazardous or inherently dangerous nature of the activity which it
has undertaken. The enterprise must be held to be under an obligation to provide that the hazardous or
inherently dangerous activity in which it is engaged, must be conducted with the highest standards of
safety; and if any harm results on account of such activity, the enterprise must be absolutely liable to
compensate for such harm; and it should be no answer to the enterprise to say that it had taken all
reasonable care and that the harm occurred without negligence on its part.”

Thus, while imposing absolute liability for manufacture of hazardous substances, the Supreme Court
intended that the requirement of non-natural use or the aspect of escape of a dangerous substance,
commonly regarded as essential for liability under Rylands v. Fletcher, need not be proved in India.

M. C Mehta Commonly known as Oleum Gas Leak, this case law changed the face of applicability of
& Ors. v. the rule of strict liability in India. There was an escape of Oleum gas from Units of
Union of Shriram Food & Fertilizers Industries on 4th and 6th December, 1985 and applications
India, AIR were filed for award of compensation to the persons who had suffered harm on
1987 SC 1086 account of escape of oleum gas. Court held that an industry is required to make sure
that no one is harmed when engaging in risky operations that could endanger the
health and safety of adjacent workers and residents. As part of the social cost of
conducting such risky activities on its property, this industry is required to carry out its
operations in accordance with the highest standards of safety and must be fully
accountable for compensating for any harm caused.

(B) Vicarious Liability

In case of vicarious liability the liability arises because of the relationship between the principal and the
wrongdoer but in case of absolute or strict liability the liability arises out of the wrong itself.

Normally, the tortfeasor is liable for his tort. But in some cases a person may be held liable for the tort
committed by another. A master is vicariously liable for the tort of his servant, principal for the tort of his
agent and partners for the tort of a partner. This is know as vicarious liability in tort.

The common examples of such a liability are:

a) Principal and Agent [Specific authority]

Qui facit per alium facit per se – he who acts through another is acting himself, so that the act of the agent
is the act of the principal. When an agent commits a tort in the ordinary course of his duties as an agent,
the principal is liable for the same.
 NAHATA PROFESSIONAL ACADEMY 120

Lloyd v. Grace, the managing clerk of a firm of solicitors, while acting in the ordinary course of
Smith & Co. (1912) business committed fraud, against a lady client by fraudulently inducing her to
A.C. 716 sign documents transferring her property to him. He had done so without the
knowledge of his principal who was liable because the fraud was committed in
the course of employment.
Dinbai R. Wadia In this case Bombay High Court stated that a principal may be held liable for
and Ors. v. Farukh fraud or any other illegal or malafide activity committed by his agent well within
Mobedjna and anr. his authority. Also, whether any particular act falls within the scope of his
AIR 1958 Bom 218 employment or not must necessarily depend upon the merits of each case.

b) Partners
For the tort committed by a partner in the ordinary course of the business of the firm, all the other partners
are liable therefore to the same extent as the guilty partner. The liability of the partners is joint and several.
Hamlyn v. Houston & Co. one of the two partners bribed the plaintiff’s clerk and induced him to divulge
(1903) 1 K.B. 81 secrets relating to his employer’s business. It was held that both the partners
were liable for the tort committed by only one of them.

c) Master and Servant [Authority by relation]

Lakshminarayan In this case, Supreme Court stated that “A servant acts under the direct control
Ram Gopal and and supervision of his master, and is bound to conform to all reasonable orders
Sons v. Govt of given him in the course of his work; an independent contractor, on the other
Hyderabad, AIR hand, is entirely independent of any control or interference, and merely
1954 SC 364 undertakes to produce a specified resulted employing his own means to produce
that result. An ament, though bound to exercise his authority in accordance with
all lawful instructions which may be given to him from time to time by his
principal, is not subject in its exercise to the direct control or supervision of the
principal. An agent, as such is not a servant, but a servant is generally for some
purposes his master’s implied agent, the extent of the agency depending upon
the duties or position of the servant”

An employer is liable whenever his servant commits a tort in the course of his employment. An act is
deemed to be done in the course of employment if it is either:

(1) a wrongful act authorized by the employer, or

(2) a wrongful and unauthorized mode of doing some act authorized by the employer.

So for as the first alternative is concerned there is no difficulty in holding the master liable for the tort of his
servant. A few examples are necessary to explain the working of the rule in the second. These are as
follows:
Century The director of a petrol lorry, while transferring petrol from the lorry to an
Insurance Co. Ltd. underground tank at a garage, struck a match in order to light a cigarette and
v. Northern then threw it, still alight on the floor. An explosion and a fire ensued. The House
Ireland Road of Lords held his employers liable for the damage caused, for he did the act in the
Transport Board course of carrying out his task of delivering petrol; it was an unauthorized way of
(1942) A.C. 509 doing what he was employed to do.

A master is liable not only for the acts which have been committed by the servant, but also for acts done by
him which are not specifically authorized, in the course of his employment.

The basis of the rule has been variously stated: on the maxim Respondeat Superior (Let the principal be
liable) or on the maxim Qui facit per alium facit per se (he who does an act through another is deemed to
do it himself).
 NAHATA PROFESSIONAL ACADEMY 121

The master is liable even though the servant acted against the express instructions, for the benefit of his
master, so long as the servant acted in the course of employment. The servant, of course, is also liable;
their liability is joint and several. In such cases
(1) liability of a person is independent of his own wrongful intention or negligence
(2) liability is joint as well several

d) Employer and Independent Contractor

It is to be remembered that an employer is vicariously liable for the torts of his servants committed in the
course of their employment, but he is not liable for the torts of those who are his independent contractors.

A servant is a person who is employed by another (the employer) to perform services in connection with
the affairs of the employer, and over whom the employer has control in the performance of these services.
An independent contractor is one who works for another but who is not controlled by that other in his
conduct in the performance of that work. These definitions show that a person is a servant where the
employer “retains the control of the actual performance” of the work.

Where Employer is Liable for the acts of Independent Contractor

The employer is not liable merely because an independent contractor commits a tort in the course of his
employment; the employer is liable only if he himself is deemed to have committed a tort. This may happen
in one of the following three ways:
(i) When employer authorizes him to commit a tort.
(ii) In torts of strict liability
(iii) Negligence of independent contractor

Employers of independent contractors are liable for the “collateral negligence” of their contractors in the
course of his employment. Where A employed B to fit casement windows into certain premises. B’s servant
negligently put a tool on the still of the window on which he was working at the time. The wind blew the
casement open and the tool was knocked off the still on to a passer by. The employer was held to be liable,
because the harm was caused by the work on a highway and duty lies upon the employer to avoid harm.

Where Employer is not Liable for the acts of an Independent Contractor

An employer is not liable for the tort of an independent contractor if he has taken care in the appointment
of the contractor. In Philips v. Britania Hygienic Laundry Co. (1923), the owner of lorry was held not liable
when a third-party’s vehicle was damaged, in consequence of the negligent repair of his lorry by a garage
proprietor.

(C) Vicarious Liability of the State

(a) The Position in England
At Common Law the Crown could not be sued in tort, either for wrongs actually authorized by it or
committed by its servants, in the course of their employment. With the passing of the Crown
Proceeding Act, 1947, the Crown is liable for the torts committed by its servants just like a private
individual. Thus, in England, the Crown is now vicariously liable for the torts of its servants.

(b) The Position in India

Unlike the Crown Proceeding Act, 1947 of England, we have no statutory provision with respect to
the liability of the State in India.
When a case of Government liability in tort comes before the courts, the question is whether the
particular Government activity, which gave rise to the tort, was the sovereign function or non-
sovereign function. It is a sovereign function it could claim immunity from the tortuous liability,
otherwise not. Generally, the activities of commercial nature or those which can be carried out by
the private individual are termed as non-sovereign functions.
 NAHATA PROFESSIONAL ACADEMY 122

Role of the State Tort Law

In any modern society, interactions between the State and the citizens are large in their number, frequent
in their periodicity and important from the point of view of their effect on the lives and fortunes of citizens.
Such interactions often raise legal problems, whose solution requires an application of various provisions
and doctrines. A large number of the problems so arising fall within the area of the law of torts. This is
because, where relief through a civil court is desired, the tort law figures much more frequently, than any
other branch of law. By definition, a tort is a civil wrong, (not being a breach of contract or a breach of trust
or other wrong) for which the remedy is unliquidated damages. It thus encompasses all wrongs for which a
legal remedy is considered appropriate. It is the vast reservoir from which jurisprudence can still draw its
nourishing streams. Given this importance of tort law, and given the vast role that the State performs in
modern times, one would reasonably expect that the legal principles relating to an important area of tort
law, namely, liability of the State in tort, would be easily ascertainable.
The law in India with respect to the liability of the State for the tortious acts of its servants has become
entangled with the nature and character of the role of the East India Company prior to 1858. It is therefore
necessary to trace the course of development of the law on this subject, as contained in article 300 of the
Constitution.

Article 300(1) of the Constitution provides first, that the Government of India may sue or be sued by the
name of the Union of India and the Government of a State may sue or be sued by the name of the State;
secondly, that the Government of India or the Government of a State may sue or be sued in relation to their
respective affairs in the like cases as the Dominion of India and the corresponding Provinces or the
corresponding Indian States might have sued or be sued, “if this Constitution had not been enacted”, and
thirdly, that the second mentioned rule shall be subject to any provisions which may be made by an Act of
Parliament or of the Legislature of such State, enacted by virtue of powers conferred by the Constitution.

State of So far as the Supreme Court is concerned,it is the first post- Constitution judgment on
Rajasthan Liability of the State in Tort. That was a case where the driver of a Government jeep,
vs. which was being used by the Collector of Udaipur, knocked down a person walking on
Vidyawati, the footpath by the side of a public road. The injured person died three days later, in the
AIR 1962 hospital. The legal representatives of the deceased sued the State of Rajasthan and the
SC 933 driver for compensation / damages for the tortious act Committed by the driver. It was
found by the court, as a fact, that the driver was rash and negligent in driving the jeep
and that the accident was the result of such driving on his part. The suit was decreed by
the trial court, and also by the High Court. The appeal against the High Court judgment
was dismissed by the Supreme Court.
The Supreme Court in State of Rajasthan vs. Vidyawati, AIR 1962 SC 933 which held as
under: “The State of Rajasthan has not shown that the Rajasthan Union, its predecessor,
was not liable by any rule of positive enactment or by Common Law. It is clear from
what has been said above, that the Dominion of India, or any constituent Province of the
Dominion, would have been liable in view of the provisions aforesaid of the Government
of India Act, 1858. We have not been shown any provision of law, statutory or
otherwise, which would exonerate the Rajasthan Union form vicarious liability for the
acts of its servants, analogous to the Common Law of England. It was impossible, by
reason of the maxim “The King can do no wrong”, to sue the Crown for the tortious act
of its servant. But it was realised in the United Kingdom, that that rule had become
outmoded in the context of modern developments in statecraft, and Parliament
intervened by enacting the Crown Proceedings Act, 1947, which came into force on
January 1, 1948. Hence the very citadel of the absolute rule of immunity of the
sovereign has now been blown up. Section 2 (1) of the Act provides that the “Crown
shall be subject to all those liabilities, in tort, to which it would be subject, if it were a
private person of full age and capacity, in respect of torts committed by its servants or
agents, subject to the other provisions of this Act….”
“Viewing the case from the point of view of first principles, there should be no difficulty
in holding that the State should be as much liable for tort in respect of tortious acts
committed by its servant within the scope of his employment and functioning as such, as
 NAHATA PROFESSIONAL ACADEMY 123

any other employer. The immunity of the Crown in the United Kingdom was based on
the old feudalistic notions of justice, namely, that the King was incapable of doing a
wrong, and, therefore, of authorising or instigating one, and that he could not be sued in
his own courts. In India, ever since the time of the East India Company, the sovereign
has been held liable to “be sued in tort or in contract,
and the Common law immunity never operated in India. Now that we have, by our
Constitution, established a Republican form of Government, and one of the objectives is
to establish a Socialistic State with its varied industrial and other activities, employing a
large army of servants, there is no justification, in principle, or in public interest, that the
State should not be held liable vicariously for tortious acts of its servant. This Court has
deliberately departed from the Common Law rule that a civil servant cannot maintain a
suit against the Crown.
State of In this case, Court has recognised the right of a Government servant to sue the
Bihar vs. Government for recovery of arrears of salary. When the rule of immunity in favour of
Abdul the Crown, based on Common Law in the United Kingdom, has disappeared from the
Majid, land of its birth, there is no legal warrant for holding that it has any validity in this
(1954) SCR country, particularly after the Constitution. As the cause in this case arose after the
786: (AIR coming into effect of the Constitution, in our opinion, it would be only recognising the
1954 SC 24 old established rule, going back to more than 100 years at least, if we uphold the
5), vicarious liability of the State.

However, a different note was struck by the Supreme Court itself in Kasturi Lal vs. State
of UP, AIR 1965 SC 1039. In that case, the plaintiff had been arrested by the police
officers on a suspicion of possessing stolen property. On a search of his person, a large
quantity of gold was found and was seized under the provisions of the Code of Criminal
Procedure. Ultimately, he was released, but the gold was not returned, as the Head
Constable in charge of the malkhana (wherein the said gold was stored) had absconded
with the gold. The plaintiff thereupon brought a suit against the State of UP for the
return of the gold (or in the alternative) for damages for the loss caused to him. It was
found by the courts, that the concerned police officers had failed to take the requisite
care of the gold seized from the plaintiff, as provided by the UP Police Regulations. The
trial court decreed the suit, but the decree was reversed on appeal by the High Court.
When the matter was taken to the Supreme Court, the court found, on an appreciation
of the relevant evidence, that the police officers were negligent in dealing with the
plaintiff’s property and also, that they had also not complied with the provisions of the
UP Police Regulations in that behalf. In spite of the said holding, the Supreme Court
rejected the plaintiff’s claim, on the ground that “the act of negligence was committed
by the police officers while dealing with the property of Ralia Ram, which they had
seized in exercise of their statutory powers. The power to arrest a person, to search him
and to seize property found with him, are powers conferred on the specified officers by
statute and in the last analysis, they are powers which can be properly categorized as
sovereign powers; and so, there is no difficulty in holding that the act which gave rise to
the present claim for damages has been committed by the employee of the respondent
during the course of its employment; but the employment in question being of the
category which can claim the special characteristic of sovereign power, the claim cannot
be sustained.”
Having thus rejected the claim, the Supreme Court made the following pertinent
observations in Kasturi Lal vs. State of UP (AIR 1965 SC 1039):
“Before we part with this appeal, however, we ought to add that it is time that the
Legislatures in India seriously consider whether they should not pass legislative
enactments to regulate and control their claim from immunity in cases like this, on the
same lines as has been done in England by the Crown Proceedings Act, 1947.

Distinction between Sovereign and Non-Sovereign Functions

N. The distinction between sovereign and non-sovereign functions was considered at
 NAHATA PROFESSIONAL ACADEMY 124

Nagendra some length in All the earlier Indian decisions on the subject were referred to. The
Rao vs. court enunciated the following legal principles, in this judgment:
State of AP “In the modern sense, the distinction between sovereign or non-sovereign power thus
(AIR 1994 does not exist. It all depends on the nature of the power and manner of its exercise.
SC 2663); Legislative supremacy under the Constitution arises out of constitutional provisions.
(1994) 6 The legislature is free to legislate on topics and subjects carved out for it. Similarly, the
SCC 205. executive is free to implement and administer the law. A law made by a legislature may
be bad
or may be ultra vires, but, since it is an exercise of legislative power, a person affected
by it may challenge its alidity but he cannot approach a court of law for negligence in
making the law. Nor can the Government, in exercise of its executive action, be sued for
its decision on political or policy matters. It is in (the) public interest that for acts
performed by the State, either in its legislative or executive capacity, it should not be
answerable in torts. That would be illogical and impracticable. It would be in conflict
with even modern notions of sovereignty”.
The court in the above case suggested the following tests –
“One of the tests to determine if the legislative or executive function is sovereign in
nature is, whether the State is answerable for such actions in courts of law. For
instance, acts such as defence of the country, raising (the) armed forces and
maintaining it, making peace or war, foreign affairs, power to acquire and retain
territory, are functions which are indicative of external sovereignty and are political in
nature. Therefore, they are not amenable to jurisdiction of ordinary civil court. No suit
under Civil Procedure Code would lie in respect of it. The State is immune from being
sued, as the jurisdiction of the courts in such matters is impliedly barred.”
The court proceeded further, as under:
“But there the immunity ends. No civilized system can permit an executive to play with
the people of its county and claim that it is entitled to act in any manner, as it is
sovereign. The concept of public interest has changed with structural change in the
society. No legal or political system today can place the State above (the law) as it is
unjust and unfair for a citizen to be deprived of his property illegally by negligent act of
officers of the State without any remedy.
…Any watertight compartmentalization of the functions of the State a “sovereign and
non-sovereign” or “governmental and non-governmental” is not sound. It is contrary to
modern jurisprudential thinking. The need of the State to have extraordinary powers
cannot be doubted. But with the conceptual change of statutory power being statutory
duty for (the) sake of society and the people, the claim of a common man or ordinary
citizen cannot be thrown out, merely because it was done by an officer of the State;
duty of its officials and right of the citizens are required to be reconciled, so that the
rule of law in a Welfare State is not shaken”.
The court emphasised the element of Welfare State in these words: “In a Welfare State,
functions of the State are not only defence of the country or administration of justice or
maintaining law and order, but it extends to regulating and controlling the activities of
people in almost every sphere, educational, commercial, social, economic, political and
even marital. The demarcating line between sovereign and non-sovereign powers, for
which no rational basis survives, has largely disappeared. Therefore, barring functions
such as administration of justice, maintenance of law and order and repression of crime
etc. Which are among the primary and inalienable functions of a constitutional
Government, the State cannot claim any immunity.
The Court linked together the State and the officers:
“The determination of vicarious liability of the State being linked with (the) negligence
of its officers, if they can be sued personally for which there is no dearth of authority
and the law of misfeasance in discharge of public duty having marched ahead, there is
no rationale for the proposition that even if the officer is liable, the State cannot be
sued.”
Jay Laxmi In this case, the Supreme Court of India observed that injury and damage are two basic
 NAHATA PROFESSIONAL ACADEMY 125

Salt Words ingredients of tort. Although these may be found in contract as well but the violations
(P) Ltd vs. which may result in tortious liability are breach of duty primarily fixed by the law while
State Of in contract they are fixed by the parties themselves. Further in tort the duty is towards
Gujarat, persons generally. In contract it is towards specific person or persons. An action for tort
1994 SCC is usually a claim for pecuniary compensation in respect of damages suffered as a result
(4) 1, JT of the invasion of
1994 (3) a legally protected interest. But law of torts being a developing law its frontiers are
492 incapable of being strictly barricaded. Liability in tort which in course of time has
judgement become known as ‘strict liability’, ‘absolute liability’, ‘fault liability’ have all gradually
dated 4 grown and with passage of time have become firmly entrenched. ‘Absolute liability’ or
May, 1994 “special use bringing with it increased dangers to others”(Rylands v. Fletcher’) and ‘fault
liability’ are different forms which give rise to action in torts. The distance (sic
difference) between ‘strict liability’ and ‘fault liability’ arises from presence and absence
of mental element. A breach of legal duty wilfully, or deliberately or even maliciously is
negligence emanating from fault liability but injury or damage resulting without any
intention yet due to lack of foresight etc. is strict liability. Since duty is the primary
yardstick to determine the tortious liability its ambit keeps on widening on the
touchstone of fairness, practicality of the situation etc.
Anita In this case, the husband of the petitioner went to bank to deposit the cash and
Bhandari alongside cash box of the bank was also being carried inside, the security guard in a
and Ors. v. haste ended up firing the petitioner’s husband thereby killing him. The petitioner
Union of claimed that the bank was vicariously accountable for the incident since the security
India guard had committed the conduct while on the job, but the bank argued that it had not
(2005) ACC given the employee permission to fire. The bank was found to be responsible by the
780 court because providing the guard with a gun amounted to giving him permission to
shoot when he felt it was necessary, even though the guard had acted too vigorously in
the performance of his duty.

TORTS OR WRONGS TO PERSONAL SAFETY AND FREEDOM

An action for damages lies in the following kinds of wrongs which are styled as injuries to the person of an
individual:

Battery Any direct application of force to the person of another individual without his consent
or lawful justification is a wrong of battery. To constitute a tort of battery, therefore,
two things are necessary:
(i) use of force, however, trivial it may be without the plaintiff’s consent, and
(ii) without any lawful justification.

Even though the force used is very trivial and does not cause any harm, the wrong is
committed. Thus, even to touch a person in anger or without any lawful justification is
battery.
Assault Assault is any act of the defendant which directly causes the plaintiff immediately to
apprehend a contact with his person. Thus, when the defendant by his act creates an
apprehension in the mind of the plaintiff that he is going to commit battery against
him, the tort of assault is committed.
The law of assault is substantially the same as that of battery except that apprehension
of contact, not the contact itself has to be established. Usually when there is a battery,
there will also be assault, but not for instance, when a person is hit from behind.
To point a loaded gun at the plaintiff, or to shake first under his nose, or to curse him
in a threatening manner, or to aim a blow at him which is intercepted, or to surround
him with a display of force is to assault him clearly if the defendant by his act intends
to commit a battery and the plaintiff apprehends it, is an assault.
 NAHATA PROFESSIONAL ACADEMY 126

Bodily Harm A wilful act (or statement) of defendant, calculated to cause physical harm to the
plaintiff and in fact causing physical harm to him, is a tort.
False False imprisonment consists in the imposition of a total restraint for some period,
Imprisonment however short, upon the liberty of another, without sufficient lawful justification. It
means unauthorized restraint on a person’s body. What happens in false
imprisonment is that a person is confined within certain limits so that he cannot move
about and so his personal liberty is infringed. It is a serious violation of a person’s right
and liberty whether being confined within the four walls or by being prevented from
leaving place where he is. If a man is restrained, by a threat of force from leaving his
own house or an open field there is false imprisonment.
Malicious Malicious prosecution consists in instigating judicial proceedings (usually criminal)
Prosecution against another, maliciously and without reasonable and probable cause, which
terminate in favour of that other and which results in damage to his reputation,
personal freedom or property. The following are the essential elements of this tort:
(i) There must have been a prosecution of the plaintiff by the defendant.
(ii) There must have been want of reasonable and probable cause for that
prosecution.
(iii) The defendant must have acted maliciously (i.e. with an improper motive and
not to further the end of justice).
(iv) The plaintiff must have suffered damages as a result of the prosecution.
(v) The prosecution must have terminated in favour of the plaintiff.
To be actionable, the proceedings must have been instigated actually by the
defendant. If he merely states the fact as he believes them to a policeman or a
magistrate he is not responsible for any proceedings which might ensue as a result of
action by such policeman or magistrate on his own initiative.
Nervous This branch of law is comparatively of recent origin. It provides relief when a person
Shock may get physical injury not by an impact, e.g., by stick, bullet or sword but merely by
the nervous shock through what he has seen or heard. Causing of nervous shock itself
is not enough to make it an actionable tort, some injury or illness must take place as a
result of the emotional disturbance, fear or sorrow.
Defamation Defamation is an attack on the reputation of a person. It means that something is said
or done by a person which affects the reputation of another. It is defined as follows:
“Defamation is the publication of a statement which tends to lower a person in the
estimation of right thinking members of society generally; or which tends to make
them shun or avoid that person.”

Defamation may be classified into two heads: Libel and Slander.

 Libel is a representation made in some permanent form, e.g. written words,
pictures, caricatures, cinema films, effigy, statue and recorded words. In a cinema films
both the photographic part of it and the speech which is synchronized with it amount
to tort.
 Slander is the publication of a defamatory statement in a transient form;
statement of temporary nature such as spoken words, or gestures.

Generally, the punishment for libel is more severe than for slander. Defamation is tort
as well as a crime in India. In India both libel and slander are treated as a crime.
Section 499 of the Indian Penal Code recognizes both libel and slander as an offence.
However, torts in criminal law are stricter than in law of tort.
Negligence Negligence means inadvertence or carelessness. Negligence refers to the situation
when a person might be innocent but has failed to act in reasonable manner.
Negligence has become an independent tort with the changes in technology and
regulatory environment. Negligence in treatment of patients is an important example
of Tort of Negligence. Negligence has been defined by Winfield “Negligence as a tort is
 NAHATA PROFESSIONAL ACADEMY 127

the breach of a legal duty to take care which results in damage, undesired by the
defendant, to the plaintiff. The Consumer Protection Act has also been developed and
provides for the unliquidated damages in cases of Negligence.

Following the ruling of the Supreme Court in the landmark judgement of Indian
Medical Association v. V.P. Shantha & Ors., services rendered by medical practitioners
were brought under the ambit of Section 2(1)(o) of the Consumer Protection Act, 1986
i.e. medical treatment was to be considered to be a service and accordingly, medical
practitioners could be liable for deficiency of service.
As per the decision of Poonam Verma vs. Ashwin Patel & Ors 1996 AIR 2111, 1996 SCC
(4) 332, the definition of negligence involves the following constituents:
(1) a legal duty to exercise due care;
(2) breach of the duty; and
(3) consequential damages

Poonam Verma vs. Ashwin Patel & Ors 1996 AIR 2111, 1996 SCC (4) 332 The court was
of the opinion that Respondent No.1, having practised in Allopathy, without being
qualified in that system, was guilty of Negligence per se and, therefore, the appeal
against him has to be allowed in consonance with the maxim Sic Utere tuo ut alienum
non loedas (a person is held liable at law for the consequences of his negligence)
The court also observed that if a person practices medicine without possessing either
the requisite qualification or enrollment under the Act on any State Medical Register,
he becomes liable to be punished with imprisonment or fine or both.
This matter has earlier been raised before the National Consumer Disputes Redressal
Commission.

LIABILITY OF A CORPORATE ENTITY/COMPANY IN TORTS

Corporates contributes significantly in the growth and economic activities of any country. The quantum of
business companies are engaged in are comparably complex than the proprietors. Therefore, the
companies are exposed to the risk under Law of Torts. However, the companies are not natural persons
therefore, liability has to be fastened after considering the lifting of corporate veil. In general, the
companies are responsible for the wrongs committed by the employees. The liabilities of the companies are
fastened on the basis of principle in legal maxim “Qui facet alium facet per se” which means He who acts
through another, acts through himself.
Union On the night intervening 2nd and 3rd of December 1984 there occurred at Bhopal in the
Carbide State of Madhya Pradesh in India the worst and the most tragic industrial disaster
Corporation known to mankind. There was a massive escape of a night noxious and abnormally
vs. Union of dangerous gas called Methyl Isocyanate (hereinafter called ‘MIC’). Thousands of
India 1987 persons sustained serious, and permanent injuries including acute respiratory distress
AIR 1086, syndrome, ocular and gastro-intestinal injuries and pain, suffering and mental distress.
1987 SCR (1) Court upheld the No Fault Liability or Absolute Liability Rule. Court stated –
819 “where an enterprise is engaged in a hazardous or inherently dangerous activity and
harm results to anyone on account of an accident in the operation of such hazardous or
inherently dangerous activity resulting, for example, in escape of toxic gas the
enterprise is strictly and absolutely liable to compensate all those who are affected by
the accident and such liability is not subject to any of the exceptions which operate vis-
à-vis the tortious principle of strict liability under the rule in Rylands v. Fletcher”

CONSUMER PROTECTION ACT AND LIABILITIES OF TORTS

The Consumer Protection Act has widened the scope and provides more protection to the consumer as
compared to Old Act which can be seen from the definition of the term ‘Consumer’ and ‘Unfair Trade
Practice’. The New Act has introduced the new concept of unfair contracts which includes those contracts
whose terms and conditions are in favour of the manufacturer or service provider and are against the
 NAHATA PROFESSIONAL ACADEMY 128

interest of the consumer. This concept would help to keep check on the business including banks and e-
commerce sites that take advantage of their dominance in the market. The other significant addition that
has taken place in 2019 is establishment of Central Consumer Protection Authority (CCPA) to regulate,
protect and enforce the interest of the consumer and matters
related to unfair trade practice.

Ministry of Consumer Affairs, Food and Public Distribution, Government of India, in exercise of the powers
conferred has enacted the various rules including Consumer Protection (E-Commerce) Rules, 2020.
Case Law

Branch The Complainants/respondents were the family members and were returning from
Manager, Kolkata to Agartala through the Indigo Airlines. Boarding passes were issued to the
Indigo complainants. The Airlines left all the complainants at Kolkata Airport without informing
Airlines and them despite all the Complainants being the Airport premises. A written complaint was
Anr. v. lodged at Indigo Office at Kolkata Airport but the office staff as well as the Airport staff
Kalpana at their counter did not accept the Complaint Application and forcibly snatched away
Rani their boarding passes and further did not pay heed to their request for making
Debbarma alternate arrangements for their flight to Agartala. The Complainant Approached the
and ors District Forum and was awarded with the compensation. State forum also enhanced the
compensation. Aggrieved by the decision, the Indigo Arline’s filed this Revision Petition
contended that the Airport Manager has stated that there were many announcements
at regular intervals and that the Indigo Airlines is not responsible if the passengers did
not report at the gate on time.
The NCDRC held that Indigo Airlines not only forcibly taking the boarding passes from
the Complainants, no effort was made by the Airline to compensate them by arranging
for their travel in the next scheduled flight to Agartala. It is not in dispute that the
Complainants were put to lot of mental agony and inconvenience as they had to stay in
a hotel for two days. The NCDRC dismissed the Revision Petitions with cost of Rs.
20,000/to be paid to Complainants.

According to the decision in a case Bolitho v. City and Hackney Health Authority, the factors which have to
be assessed in medical negligence are:
1. Whether the medical practitioner acted as per a practice accepted by a competent medical practitioner.
2. If no, if the deviation from the norm can be justified as being reasonable

It must be noted that the liability of the medical practitioner is three-fold: liability under the Consumer
Protection Act, 1986 for payment of damages; civil liability for tort of negligence where the provisions of
the Consumer Protection Act, 1986 do not apply; or criminal proceedings under the Indian Penal Code,
1860. According to Statement and Objects for the law relating to consumer protection, the emergence of
global supply chains, rise in international trade and the rapid development of e-commerce have led to new
delivery systems for goods and services and have provided new options and opportunities for consumers.
Equally, this has rendered the consumer vulnerable to new forms of unfair trade and unethical business
practices. Misleading advertisements, tele-marketing, multi-level marketing, direct selling and e-commerce
pose new challenges to consumer protection and will require appropriate and swift executive interventions
to prevent consumer detriment. Therefore, it has become inevitable to amend the Act to address the
myriad and constantly emerging vulnerabilities of the consumers.
On analysis of the cases and object of the Consumer Protection Act, it can be said that the complaints under
the Consumer Protection are in the nature that may be covered under Law of Torts in absence of Law
relating to Consumer protections.

REMEDIES IN TORTS
Judicial Remedies:
(i) Damages When a plaintiff’s right is violated by the defendant, the court will grant the plaintiff
damages, which are compensation for such infringement of the right for the loss they have suffered.
Only those damages can be recovered which are directly the result of the act of defendant. It is
 NAHATA PROFESSIONAL ACADEMY 129

based on the legal maxim, In jure non remota causa sed proxima spectator which means law
considers the direct or immediate cause and not the remote one. Damages are the primary judicial
remedy served in torts.
(ii) Injunction
Injunction is an order of the Court redirecting commission, omission or amendments to an act. It
orders a person to do an act, to not to do an act or correct his wrongful act. It is done entirely upon
the discretion of the Court. It can be prohibitory, mandatory, interim or perpetual in nature. Rule 1
Order 39 of Civil Procedure Code 1908 provides for the Cases in which temporary injunction may be
granted. Injunctions can also be granted under Specific Relief Act, 1963.
(iii) Specific Restitution of Property
This is the third kind of judicial remedy in which a court may direct for in case of any breach of rights.
Restitution is the process of returning property to its rightful owner. A person is entitled to the
restitution of his property when it has been unfairly taken away from him. Wrongly dispossession of
certain property invokes this remedy. For example, in case of immovable property, plaintiff may
bring an action for restitution under Section 6 of Specific Relief Act, 1963.

Extra Judicial Remedies

In certain cases it is lawful to redress one’s injuries by means of self help without recourse to the court.
These remedies are:
Self Defence It is lawful for any person to use reasonable forces to protect himself, or any other
person against any unlawful use of force.
Prevention of An occupier of land or any person with his authority may use reasonable force to
Trespass prevent trespassers entering or to eject them but the force should be reasonable
for the purpose.
Re-entry on Land A person wrongfully disposed of land may retake possession of land if he can do so
in a peaceful and reasonable manner.
Re-caption of It is neither a crime nor a tort for a person entitled to possession of a chattel to
Goods take it either peacefully or by the use of a reasonable force from one who has
wrongly taken it or wrongfully detained it.
Abatement of The occupier of land may lawfully abate (i.e. terminate by his own act), any
Nuisance nuisance injuriously affecting it. Thus, he may cut overhanging branches as
spreading roots from his neighbour’s trees, but (i) upon giving notice; (ii) by
choosing the least mischievous method; (iii) avoiding unnecessary damage.
Distress Damage An occupier may lawfully seize any cattle or any chattel which are unlawfully on his
Feasant land doing damage there and detain them until compensation is paid for the
damage. The right is known as that of distress damage feasant-to distrain things
which are doing damage.
QUESTION:
1. Swaraj an employer of ABC Company Ltd., appointed Rakesh as an independent contractor.
Discuss under what circumstances Swaraj would be liable for the fault of Rakesh. [DEC-2018] (5
Marks)
2. Distinguish between ‘Damnum Sine Injuria’ and ‘Injuria Sine Damnum’ under the law relating to
Torts. [DEC-2018] (4 Marks) or
Explain the Latin maxims ‘damnum sine injuria’ and ‘injuria sine damnum’. [DEC-2021]
3. Discuss the ‘Rule of Strict Liability’ under the Law of Torts. [DEC-2018] (4 Marks)
4. What remedies can be sought under the Law of Torts? [DEC-2018] (4 Marks)
5. Discuss the vicarious or tortious liability of state for the act of his servant. Refer relevant
Judgements. [JUNE-2019] (4 Marks)
6. Anil and Amit are two partners of a firm. Anil, while ordinarily dealing with another firm, bribed
that firm’s clerk to divulge secret relating to the other firm where that clerk was working. In this
case, who shall be liable—whether both the Partners i.e. Anil and Amit or only Anil? Explain. [DEC-
2019] (4 Marks)
7. Discuss any four Extra Judicial Remedies under Law of Torts. [DEC-2020] (4 Marks)
 NAHATA PROFESSIONAL ACADEMY 130

8. Explain the maxim damnum sine injuria under the law of torts. [JUNE-2009] (4 Marks)
9. Anurag, a child, entered the botanical garden of a municipality and consumed some attractive
looking but poisonous berries. As a result of that, he died. The representatives of the child sued
the municipality for damages. Will they succeed? Give reasons. [JUNE-2009] (4 Marks)
10. The managing clerk of a firm of solicitors, while acting in the ordinary course of business
committed fraud, against a lady client by fraudulently inducing her to sign a document transferring
her property to him. He had done so without the knowledge of his principal. Whether principal will
be liable? Give reasons. [DEC-2009] (6 Marks)
11. Distinguish between any four of the following :
 ‘Battery’ and ‘assault’. [JUNE-2010] [JUNE-2013] [DEC-2020]
 'Libel' and 'slander'. [DEC-2012] (4 Marks)
 'Damnum sine injuria' and 'injuria sine damno'. [JUNE-2014] (4 Marks)
12. The rule of strict liability as laid down in Rylands vs. Fletcher [DEC-2010] (4 Marks)
13. Explain with illustration the doctrine of ‘damnum sine injuria’ and ‘injuria sine damnum’. [DEC-
2010] (6 Marks)
14. Write note on Malicious prosecution. [JUNE-2011] (4 Marks) [DEC-2019]
15. Alok was running a school at a certain place. Bimal started another school near the school of Alok.
As a result of this, most of the students of Alok’s school left his school and joined Bimal’s school.
Due to competition, Alok had to reduce the fees by T40 per student per quarter thereby suffering
huge monetary loss. Alok instituted a suit against Bimal in the court for claiming compensation. Is
the suit instituted by Alok maintainable? [JUNE-2011] (6 Marks)
16. A mill owner employed an independent contractor to construct a reservoir on his land to provide
water for his mill. There were old disused mining shafts under ihe site of the reservoir, which the
contractor failed to observe because they were fillcd with soil. Therefore, the contractor did not
block them. When water was filled in the rcservoii, it burst through the shafts and flooded the
plaintiff’s coal mines on the adjoining land. Is ilic mill owner liable to compensate for loss or
damage caused to the plaintiff? Give reasons. [JUNE-2011] (6 Marks)
17. Explain strict or absolute liability under the law of torts. [DEC-2011] (6 Marks)
18. Describe the exceptions to the rule of strict liability. [JUNE-2012] (5 Marks)
19. The managing clerk of a firm of solicitors, while acting in the ordinary course of business
committed fraud against a lady client by fraudulently inducing her to sign documents transferring
her property to him. The clerk did so without the knowledge of his principal. Who is liable to the
lady in this case? Support your answer with reasons, citing case law, if any. [DEC-2012] (5 Marks)
20. The driver of a petrol lorry, while transferring petrol from the lorry to an underground tank at a
garage, struck a matchstick in order to light a cigarette and then threw it, still alight on the floor.
An explosion and a fire ensued.
Who is liable for the damage so caused? Decide giving case law on this point. [JUNE-2013] (5
Marks)
21. Discuss the following.
Vicarious liability of the State. [DEC-2013] (4 Marks)
27. ‘‘To constitute a tort, there must be a wrongful act and legal damages’’. Explain. [JUNE-2021]
28. The managing clerk of a firm of solicitors, while acting in the ordinary course of business
committed fraud, against a lady client by fraudulently inducing her to sign documents transferring
her property to him. He had done so without the knowledge of his Principal. Explain whether the
Principal will be liable ? (4 marks) [JUNE-2021]
Principal and Agent (Specific authority) Qui facit per alium facit per se –
29. Explain the liability of master for the act of his servant under the law of torts. (5 marks) [DEC-2021]
30. Explain the exceptions to the rule of strict liability under Law of Torts.
31. Critically examine the applicability of liability rule in the tort applied in cases of enterprises
engaged in a hazardous industry in India.
32. Describe the concept of False Imprisonment under Law of Torts. Cite case law in support of your
answer. [DEC-2021]
 NAHATA PROFESSIONAL ACADEMY 131

CHAPTER -6
LAW RELATING TO CIVIL PROCEDURE
The Civil Procedure Code consolidates and amends the law relating to the procedure of the Courts of Civil
jurisdiction.
 Introduction
 Definitions
 Jurisdiction
 Res sub judice
 Res judi cata
 Bar on further suit
 Place of suing
 Procedure on institution of suit
 Appeals
 Reference, Review and Revision
 Order XXIX, XXXII, XXXVII, XXXIX

The Company Secretary and the Secretarial Staff of a Company need to be familiar with the essentials of the
basic procedural laws of the country. While the specific corporate, industrial, taxation, property and urban
land laws have direct relevance for the efficient performance of the duties and responsibilities of the
Company Secretary, the procedural law also provides the parameters for the pursuance of legal action.
It is also therefore necessary to keep in view the requirement of the procedural law, or as such law is often
termed “adjective law”, in the handling of corporate business, even in initial stages, which could have legal
implications at some subsequent stage.
SCHEME OF THE CODE
The Civil Procedure Code consists of two parts. 158 Sections form the first part and the rules and orders
contained in Schedule I form the second part. The object of the Code generally is to create jurisdiction
while the rules indicate the mode in which the jurisdiction should be exercised. Thus the two parts should
be read together, and in case of any conflict between the body and the rules, the former must prevail.
AIM AND SCOPE OF CPC
The Code does not affect any special or local laws nor does it supersede any special jurisdiction or power
conferred or any special form of procedure prescribed by or under any other law for the time being in
force.
The Code is the general law so that in case of conflict between the Code and the special law the latter
prevails over the former. Where the special law is silent on a particular matter the Code applies, but
consistent with the special enactment.
SOME IMPORTANT TERMS
Cause of “Cause of action” means every fact which, if traversed, would be necessary for the
Action plaintiff to prove in order to support his right to the judgement of the Court. Thus,
cause of action is a bundle of essential facts which the plaintiff has to prove in order to
sustain his action. Under Order 2, Rule 2, of the Civil Procedure Code it means all the
essential facts constituting the rights and its infringement.
The cause of action must be antecedent to the institution of the suit. It consists of two
factors (a) a right, and (b) an infringement for which relief is claimed.

Judgement “Judgement” as defined in Section 2(9) of the Civil Procedure Code means the
statement given by the Judge on the grounds of a decree or order. Thus a judgement
must set out the grounds and reasons for the Judge to have arrived at the decision. In
other words, a “judgement” is the decision of a Court of justice upon the respective
rights and claims of the parties to an action in a suit submitted to it for determination
(State of Tamilnadu v. S. Thangaval, AIR (1997) S.C. 2283). Decree

Decree “Decree” is defined in Section 2(2) of the Code as

 NAHATA PROFESSIONAL ACADEMY 132

(i) the formal expression of an adjudication which, so far as regards the Court
expressing it;
(ii) conclusively;
(iii) determines the rights of the parties;
(iv) with regard to all or any of the matters in controversy;
(v) in the suit and may be either preliminary (i.e. when further proceedings have to
be taken before disposal of the suit) or final. But decree does not include:
(a) any adjudication from which an appeal lies as an appeal from an Order, or
(b) any order of dismissal for default.
According to the explanation to the definition, a decree may be partly preliminary and
partly final.
A decree comes into existence as soon as the judgement is pronounced and not on the
date when it is sealed and signed. (Order 20 Rule 7)
A decree is preliminary when further proceedings have to be taken before the suit can
be completely disposed of. A decree, shall be deemed to include the rejection of a
plaint but not any adjudication from which an appeal lies or any order of dismissal for
default. A preliminary decree decides the rights of parties on all or any of the matters in
controversy in the suit but does not completely dispose of the suit. A preliminary
decree may be appealed against and does not lose its appellate character by reason of
a final decree having been passed before the appeal is presented.
The preliminary decree is not dependent on the final. On the other hand, final decree is
dependent and subordinate to the preliminary decree, and gives effect to it.
The preliminary decree ascertains what is to be done while the final decree states the
result achieved by means of the preliminary decree.
If the preliminary decree is set aside the final decree is automatically superseded.
Vidyacharan The Court stated that “a decree is a formal expression of adjudication
Shukla vs. conclusively determining the rights of parties with regard to all or any
Khubchand of the controversies in a suit, whereas order is a formal expression of
Baghel and any decision of a civil court which is not a decree. Judgment is a
Ors. statement given by the judge of his grounds in respect of a decree or
(20.12.1963 - order. Ordinarily judgment and order are engrossed in two separate
SC) : 1964 documents. But the fact that both are engrossed in the same
AIR 1099 document does not deprive the statement of reasons and the formal
expression of a decision of their character as judgment or order, as
the case may be”
Decree- “Decree-holder” means any person in whose favour a decree has been passed or an
holder order capable of execution has been made. [Section 2(3)]

Thus, a person who is not a party to the suit but in whose favour an order capable of
execution is passed is a decree-holder.

Judgement- “Judgement-debtor” means any person against whom a decree has been passed or an
debtor order capable of execution has been made. [Section 2(10)]. The definition does not
include legal representative of a deceased judgement-debtor.

Order “Order” as set out in Section 2(14) of the Code means the formal expression of any
decision of a Civil Court which is not a decree.

According to Section 104 of the Code, no appeal lies against orders other than what is
expressly provided in the Code or any other law for the time being in force. Under the
Code appealable orders are:

(1) an order under Section 35A, i.e. for compensatory costs in respect of false or
 NAHATA PROFESSIONAL ACADEMY 133

vexatious claims within pecuniary jurisdiction of the Court, but only for the
limited ground that no order should have been made, or that such order should
have been made for a lesser amount.
(2) an order under Section 91 or Section 92 refusing leave to institute a suit under
Section 91 (Public nuisances and other wrongful acts affecting the public) or
Section 92 (alleged breach of trust created for public purposes of a charitable or
religious nature).
(3) an order under Section 95, i.e. compensation for obtaining arrest attachment or
injunction on insufficient grounds.
(4) an order under any of the provisions of the Code imposing a fine or directing the
arrest or detention in the civil prison of any person except where such arrest or
detention is in execution of a decree.
(5) any order made under rules from which an appeal is expressly allowed by the
rules. No appeal lies from any order passed in appeal under this section.

In the case of other orders, no appeal lies except where a decree is appealed from, any
error, defect or irregularity in any order affecting the decision of the case which is to be
set forth as a ground of objection in the memorandum of appeal.

The Court may, on the application of any party to a suit, pass orders on different
applications and any order which is not the final order in a suit is called an

“interlocutory order”. An interlocutory order does not dispose of the suit but is merely
a direction to procedure. It reserves some questions for further determination.
The main difference between an order and a decree is that
 in an adjudication which is a decree appeal lies and second appeal also lies on
the grounds mentioned in Section 100 of CPC. However, no appeal lies from an
order unless it is expressly provided under Section 104 and Order 43 Rule 1.
 No second appeal in any case lies at all even in case of appealable orders
[Section 104(2)].
 A decree conclusively determines the rights and liabilities of the parties with
regard to all or any of the matters in controversy in the suit and may be either
preliminary or final but this is not the case in order.
 A person in whose favour a decree has been passed not only includes a plaintiff
but in cases like decree for specific performance of an agreement executable
by either party, also includes a defendant.
Misjoinder of Parties –
Where more than one persons joined in one suit as plaintiffs or defendants in whom or
against whom any right to relief does not arise or against whom separate suits are
brought, no common question of law or fact would arise, it is a case of ‘misjoinder of
parties’.

To avoid such misjoinder, two factors are essential viz. (i) the right to relief must arise
out of the same act or transaction brought by the plaintiffs or against the defendants,
(ii) there is a common question of law or fact. The Code does not require that all the
questions of law or of fact should be common to all the parties. It is sufficient that if
there is one common question.

Misjoinder of Causes of Action – If the plaintiffs are not jointly interested in all the
causes of action there is misjoinder of causes of action.

STRUCTURE OF CIVIL COURTS

 NAHATA PROFESSIONAL ACADEMY 134

Section 3 of the Civil Procedure Code lays down that for the purposes of this Code, the District Court is
subordinate to the High Court and every Civil Court of a grade inferior to that of a District and every Court
of Small Causes is subordinate to the High Court and District Court.

JURISDICTION OF COURTS AND VENUE OF SUITS

Jurisdiction means the authority by which a Court has to decide matters that are brought before it for
adjudication. The limit of this authority is imposed by charter, statute or a commission. If no such limit is
imposed or defined, the jurisdiction is said to be unlimited. A limitation on jurisdiction of a Civil Court may
be of four kinds. These are as follows :-
(i) jurisdiction over the subject matter The jurisdiction to try certain matters by certain Court is limited
by statute; e.g. a small cause court can try suits for money due under a promissory note or a suit for
price of work done.
(ii) Place of suing or territorial jurisdiction A territorial limit of jurisdiction for each court is fixed by the
Government. Thus, it can try matters falling within the territorial limits of its jurisdiction.
(iii) Jurisdiction over persons All persons of whatever nationality are subject to the jurisdiction of the
Civil Courts of the country except a foreign State, its ruler or its representative except with the
consent of Central Government.
(iv) Pecuniary jurisdiction depending on pecuniary value of the suit
Section 6 deal with Pecuniary jurisdiction and lays down that save in so far as is otherwise expressly
provided Courts shall only have jurisdiction over suits the amount or value of which does not exceed
the pecuniary limits of any of its ordinary jurisdiction. There is no limit on pecuniary jurisdiction of
High Courts and District Courts.
Jurisdiction may be further classified into following categories depending upon their powers:
(i) Original Jurisdiction – A Court tries and decides suits filed before it.
(ii) Appellate Jurisdiction – A Court hears appeals against decisions or decrees passed by sub-
ordinate Courts.
(iii) Original and appellate Jurisdiction – The Supreme Court, the High Courts and the District
Courts have both original and appellate jurisdiction in various matters.

A.R. Antulay vs. The issue was whether the a case triable by Special Judge as provided under Criminal
R.S. Nayak and Law Amendment Act, 1952 could be transferred to High Court or not. It was held that
Ors. Court by its directions cannot confer jurisdiction to High Court of Bombay to try any
(29.04.1988 - case by itself for which it does not possess such jurisdiction. The power to create or
SC) : 1988 AIR enlarge jurisdiction is legislative in character, so also the power to confer a right of
1531 appeal or to take away a right of appeal. Parliament alone can do it by law and no
Court, whether superior or inferior or both combined can enlarge the jurisdiction of a
Court or divest a person of his rights of revision and appeal.

Courts to try all civil suits unless barred :

Section 9 of Civil Procedure Code states that the Courts shall have jurisdiction to try all suits of a civil nature
excepting suits of which their cognisance is either expressly or impliedly barred.
The explanation appended to the Section provides that a suit in which the right to property or to an office is
contested is a suit of civil nature, notwithstanding that such right may depend entirely on the decision on
questions as a religious rites or ceremonies.
Every person has an inherent right to bring a suit of a civil nature.
Civil Court has jurisdiction to decide the question of its jurisdiction although as a result of the enquiry it may
be found that it has no jurisdiction over the matter. Jurisdiction depends not on the truth or falsehood of
facts, but upon their nature.
Jurisdiction is determinable at the commencement not at the conclusion of the inquiry (Rex v. Boltan,
(1841) 1 QB 66, 74).
A suit is expressly barred if a legislation expressly says so and it is impliedly barred if a statute creates new
right or liability and prescribes a particular tribunal or forum for its assertion. When a right is created by a
 NAHATA PROFESSIONAL ACADEMY 135

statute and a special tribunal or forum is provided for its assertion and enforcement, the ordinary Civil
Court would have no jurisdiction to entertain such disputes.

STAY OF SUIT (DOCTRINE OF RES SUB JUDICE)

Section 10 provides that no Court shall proceed with the trial of any suit in which the matter in issue is
also directly and substantially in issue in a previously instituted suit between the same parties or
between parties under whom they or any of them claim, litigating under the same title, where such suit
is pending in the same or any other Court (in India) having jurisdiction to grant the relief claimed, or in
any Court beyond the limits of India established or continued by the Central Government and having like
jurisdiction, or before the Supreme Court.
However, the pendency of a suit in a foreign court does not preclude the Courts in India from trying a suit
founded on the same cause of action.
To prevent Courts of concurrent jurisdiction from simultaneously trying two parallel suits in respect of same
matter in issue, Section 10 is enacted. The purpose is also to avoid conflict of decision. It is really intended
to give effect to the rule of res judicata.
The institution of second suit is not barred by Section 10. It merely says that the trial cannot be proceeded
with.
(M/s. Wings A suit was instituted by the plaintiff company alleging infringement by the defendant
Pharmaceutica company by using trade name of medicine and selling the same in wrapper and carton
ls (P) Ltd. and of identical design with same colour combination etc. as that of plaintiff company. A
another v. subsequent suit was instituted in different Court by the defendant company against
M/s. Swan the plaintiff company with same allegation. The Court held that subsequent suit should
Pharmaceutica be stayed as simultaneous trial of the suits in different Courts might result in
ls and others, conflicting decisions as issue involved in two suits was totally identical

Essential conditions for stay of suits:

 The matter must be two suits instituted at different times
 The matter in issue in the latter suit should be directly and substantially in issue in the earlier suit
 Such suit should be between the same parties
 Each earlier suit is still pending either in the same Court or in any other competent Court but not
before a foreign Court
 If these conditions exist, the later suit should be stayed till the disposal of earlier suit, the findings of
which operate as res judicata on the later suit.
For the applicability of Section 10, the two proceedings must be suits e.g. suit for eviction of tenant in a rent
control statute cannot be sought to be stayed under Section 10 of Civil Procedure Code on the ground that
tenant has earlier filed a suit for specific performance against the landlord on the basis of agreement of sale
of disputed premises in favour of the tenant. In such a case, it cannot be said that the matter in earlier suit
for specific performance is directly and substantially in issue in later suit for eviction. The reason is that a
suit for specific performance of contract has got nothing to do with the question regarding the relationship
of landlord and tenant.

Even though if a case is not governed by the provisions of the Section and matters in issue may not be
identical, yet the courts have inherent powers to stay suit on principle analogous to Section 10.
Regarding the inherent powers under Section 151, for invoking the powers of the Court under this Section,
on the facts and circumstances of the case amounts to an abuse of the process of the Court and there can
be no doubt that such a course cannot be said to subserve the ends of the justice (N.P. Tripathi v.
Dayamanti Devi, AIR 1988 Pat. 123).

RES JUDICATA

Section 11 of the Civil Procedure Code deals with the doctrine of Res Judicata. According to this provision of
no Court shall try any suit or issue in which the matter has been directly and substantially in issue in a
former suit (i.e. suit previously decided) either between the same parties, or between parties under whom
 NAHATA PROFESSIONAL ACADEMY 136

they or any of them claim, litigating under the same title in a Court competent to try such subsequent suit
or the suit in which such issue has been subsequently raised an finally decided by such Court.

It is a pragmatic principle accepted and provided in law that there must be a limit or end to litigation on the
same issues. The doctrine underlines the general principle that no one shall be twice vexed for the same
cause (S.B. Temple v. V.V.B. Charyulu, (1971) 1 SCJ 215).

This doctrine is based on the following grounds of public policy:

(i) There should be an end to litigation;
(ii) The parties to a suit should not be harassed to agitate the same issues or matters already decided
between them;
(iii) The time of Court should not be wasted over the matters that ought to have been and should have
been decided in the former suit between the parties;
(iv) It is a rule of convenience and not a rule of absolute justice.

It prevents two different decrees on the same subject. Section 11 says that once a res is judicata, it shall not
be adjudged again. The principle applies to suits in Section 11 of the Code; but even where Section 11 does
not apply, the principle of res judicata has been applied by Courts for the purpose of giving finality to
litigation.

For the applicability of the principle of res judicata embodied in Section 11, the following requirements
are necessary:

(1) The matter directly and substantially in issue in former suit shall also be directly and substantially in
issue in later suit. The expression “directly and substantially in issue” means an issue alleged by one
party and denied or admitted by the other either expressly or by necessary implications (Lonakutty v.
Thomman, AIR 1976 SC 1645).

In the matter of taxation for levy of municipal taxes, there is no question of res judicata as each
year’s assessment is final for that year and does not govern latter years (Municipal Corporation v.
Madan Mohan, AIR 1976 43). A suit for eviction on reasonable requirement was compromised and
the tenant was allowed to continue as tenant for the subsequent suit for ejectment on the ground of
reasonable requirement, it was found that some reasonable requirement had been present during
the earlier suit. The second suit was not maintainable.

(2) The former suit has been decided – former suit means which is decided earlier.

(3) The said issue has been heard and finally decided. The issue or the suit itself is heard and finally
decided, then it operates as res judicata and not the reasons leading to the decision (Mysore State E.
Board v. Bangalore W.C. & S. Mills, AIR 1963 SC 1128). However, no res judicata operates when the
points could not have been raised in earlier suit. (See Prafulla Chandra v. Surat Roit AIR 1998 Ori. 41).
But when a suit has been decided on merits, and the appeal is dismissed on a preliminary point, it
amounts to the appeal being heard and finally decided and the decision operates as res judicata
(Mukunda Jana v. Kanta Mandal, AIR 1979 NOC 116).

(4) Such former suit and the latter are between the same parties or litigation under the same title or
persons claiming under parties above (Isher Singh v. Sarwan Singh, AIR 1965 SC 948).

In short, this principle applies where an issue which has been raised in a subsequent suit was directly
and substantially in issue in a former suit between the same parties and was heard and decided
finally. Findings incidentally recorded do not operate as res judicata (Madhvi Amma Bhawani Amma
v. Kunjikutty P.M. Pillai, AIR 2000 SC 2301).
 NAHATA PROFESSIONAL ACADEMY 137

Supreme Court in Gouri Naidu v. Thandrothu Bodemma and others, AIR 1997 SC 808, held that the law is
well settled that even if erroneous, an inter party judgement binds the parties if the court of competent
jurisdiction has decided the lis.

 The rule of res sub judice relates to a matter which is pending judicial enquiry while res judicata
relates to a matter adjudicated upon or a matter on which judgement has been pronounced.

 Res sub judice bars the trial of a suit in which the matter directly or substantially is pending
adjudication in a previous suit, whereas rule of res judicata bars the trial of a suit of an issue in
which the matter directly and substantially in issue has already been adjudicated upon in a
previous suit between the same parties under the same title.

 Res judicata arises out of considerations of public policy viz., that there should be an end to
litigation on the same matter.

 Res judicata presumes conclusively the truth of the former decision and ousts the jurisdiction of
the Court to try the case. It is however essential that the matter directly and substantially in issue
must be the same as in the former suit and not matters collaterally or incidentally in issue.

Bar to further suit

Section 12 puts a bar to every suit where a plaintiff is precluded by rules from instituting a further suit in
respect of any particular cause of action. Section comes into force only when a plaintiff is precluded by
rules.

PLACE OF SUING (TERRITORIAL)

Section 15 lays down that every suit shall be instituted in the Court of the lowest grade competent to try it.

Section 16, subject to the pecuniary or other limitations prescribed by any law, the following suits (relating
to property) shall be instituted in the Court within the local limits of whose jurisdiction the property is
situated :
(a) for recovery of immovable property with or without rent or profits;
(b) for partition of immovable property;
(c) for foreclosure of sale or redemption in the case of a mortgage or charge upon immovable property;
(d) for the determination of any other right to or interest in immovable property;
(e) for compensation for wrong to immovable property;
(f) for the recovery of movable property actually distraint or attachment.

It has also been provided by a proviso that where relief could be obtained through personal obedience of
the defendant such suit to obtain relief for compensation or respecting immovable property can be
instituted either in a local Court within whose local limits of jurisdiction the property is situated or in the
Court within whose local limits of jurisdiction the defendant voluntarily resides or carries on business or
personally works for gain.

According to the Explanation, “property” means property situated in India. Where immovable property is
situated within the jurisdiction of different Courts:

Section 17 Where the jurisdiction for a suit is to obtain relief respecting, or compensation for wrong to
immovable property situated within the local limits of jurisdiction of different Courts, the suit may be
instituted in any Court within the local limits of whose jurisdiction the property is situated provided the
value of the entire claim is cognizable by such Court.
 NAHATA PROFESSIONAL ACADEMY 138

Section 18 Where local limits of jurisdiction of Courts are uncertain: Where jurisdiction is alleged to be
uncertain as within the local limits of the jurisdiction of which of two or more Courts, any immovable
property is situated, then any of the said Courts may proceed to entertain the suit after having recorded a
statement to the effect that it is satisfied that there is ground for such alleged uncertainty.

Section 19 Where wrong done to the person or to movable property: Where a suit is for compensation for
wrong done to the person or to movable property, if the wrong was done within the local limits of the
jurisdiction of one Court and the defendant resides, or carries on business, or personally works for gain,
within the local limits of the jurisdiction of another Court, the suit may be instituted at the option of the
plaintiff in either of the Courts.

Section 20 Other suits: Subject to the limitations provided by Sections 15, 16, 18 and 19, every suit shall be
instituted in a Court within local limits of whose jurisdiction the defendant, or each of the defendants
(where there are more than one defendant) actually and voluntarily resides or carries on business or
personally works for gain or where such defendants actually and voluntarily resides or carries on business
or personally works for gain, provided either the leave of the Court is obtained or the defendant(s) who do
not reside or carry on business or personally work for gain at such place acquiesce in such institution or,
where the cause of action, wholly or in part, arises..

In the case of a body corporate or company it shall be deemed to carry on business at its sole or principal
office in India, or in case of any cause of action arising at any other place, if it has a subordinate office, at
such place.

Illustrations
(a) A is a tradesman in Calcutta, B carries on business in Delhi. B, by his agent in Calcutta, buys goods of
A and requests A to deliver them to the East Indian Railway Company. A delivers the goods
accordingly in Calcutta. A may sue B for the price of the goods either in Calcutta, where the cause of
action has arisen, or in Delhi, where B carries on business.

(b) A resides at Simla, B at Calcutta and C at Delhi. A, B and C being together at Benaras, B and C make a
joint promissory note payable on demand, and deliver it to A. A may sue B and C at Benaras, where
the cause of action arose. He may also sue them at Calcutta, where B resides, or at Delhi, where C
resides but in each of these cases, if the non-resident defendant objects, the suit cannot proceed
without the leave of the Court.

Where there might be two or more competent courts which could entertain a suit consequent upon a
part of cause of action having arisen therewith, if the parties to the contract agreed to vest jurisdiction in
one such court to try the dispute such an agreement would be valid (Angile Insulations v. Davy Ashmore
India Ltd., (1995) 3 SCALE 203).

INSTITUTION OF SUIT (ORDER IV)

(1) Suit ordinarily is a civil action started by presenting a plaint in duplicate to the Court containing concise
statement of the material facts, on which the party pleading relies for his claim or defence. In every
plaint the facts must be proved by an affidavit.
The plaint consists of a heading and title, the body of plaint and the relief(s) claimed.

(2) When the suit has been duly instituted, the Court issues an order (known as summons) to the
defendant to appear and answer the claim and to file the written statement of his defence if any
within a period of 30 days from the date of service of summons.
No summons is to be issued when the defendant has appeared at the presentation of plaint and admitted
the plaintiff’s claim.
Every summons must be signed by the judge or an authorised officer of the Court and sealed with the seal
of the Court and be accompanied by a copy of the plaint. (Order 5) If the requirement of personal
 NAHATA PROFESSIONAL ACADEMY 139

appearance of the defendant or plaintiff is felt by the Court, then it has to make an order for such
appearance.
The summons must contain a direction that it is for the settlement of issues only or for the final disposal of
the suit. Every summons must be accompanied by a copy of the plaint. Where no date is fixed for the
appearance of the defendant, the Court has no power to dismiss the suit in default.
The summons must also state that the defendant is to produce all documents in his possession or power
upon which he intends to rely in support of his case.
The defendant may appear in person or by a duly instructed pleader or by a pleader accompanied by some
person to be able to answer all material questions relating to the suit. The ordinary mode of service of
summons i.e. direct service is by delivery or tendering a copy of it signed by the judge or competent officer
of the Court to the person summoned either personally or to his agent or any adult male or female member
of his family, against signature obtained in acknowledgement of the services.
DELIVERY OF SUMMONS BY COURT Rule 9

 Where the defendant resides within the jurisdiction of the Court in which the suit is instituted, or has
an agent resident within that jurisdiction who is empowered to accept the service of the summons,
the summons shall, unless the Court otherwise directs, be delivered or sent either to the proper
officer, who may be an officer of a Court other than that in which the suit is instituted, to be served
by him or one of his subordinates or to such courier services as are approved by the Court.

 The services of summons may be made by delivering or transmitting a copy thereof by registered
post acknowledgement due, addressed to the defendant or his agent empowered to accept the
service or by speed post or by such courier services as are approved by the High Court or by the
Court referred to in sub-rule (1) or by any other means to transmission of documents (including fax
message or electronic mail service) provided by the rules made by the High Court. Provided that the
service of summons under this sub-rule shall be made at the expenses of the plaintiff.

 Where the defendant resides outside the jurisdiction of the Court in which the suit is instituted, and
the Court directs that the service of summons on that defendant may be made by such mode of
service of summons as is referred to in sub-rule (3) (except by registered post acknowledgement
due), the provisions of rule 21 shall not apply.

 When an acknowledgement or any other receipt purporting to be signed by the defendant or his
agent is received by the Court or postal article containing the summons is received back by the Court
with an endorsement purporting to have been made by a postal employee or by any person
authorised by the courier service to the effect that the defendant or his agent had refused to take
delivery of the postal article containing the summons or had refused to accept the summons by any
other means specified in sub-rule (3) when tendered or transmitted to him, the Court issuing the
summons shall declare that the summons had been duly served on the defendant:

 Provided that where the summons was properly addressed, pre-paid and duly sent by registered
post acknowledgement due, the declaration referred to in this sub-rule shall be made
notwithstanding the fact that the acknowledgement having been lost or mislaid, or for any other
reason, has not been received by the Court within thirty days from the date of issue of summons.

 Where the Court is satisfied that there is reason to believe that the person summoned is keeping out
of the way for the purpose of avoiding service or that for any other reason the summons cannot be
served in the ordinary way the Court shall order the service of the summons to be served by affixing
a copy thereof in some conspicuous place in the Court house and also upon some conspicuous part
of the house in which the person summoned is known to have last resided or carried on business or
personally worked for gain, or in such other manner as the Court thinks fit. (O.5, R.20, ‘substituted
service’)
 NAHATA PROFESSIONAL ACADEMY 140

 Where defendant resides in another province, a summons may be sent for service in another state to
such court and in such manner as may be prescribed by rules in force in that State. The above
provisions shall apply also to summons to witnesses. In the case of a defendant who is a public
officer, servant of railways or local authority, the Court may, if more convenient, send the summons
to the head of the office in which he is employed.
 In the case of a suit being instituted against a corporation, the summons may be served (a) on the
secretary or on any director, or other principal officer of the corporation or (b) by leaving it or
sending it by post addressed to the corporation at the registered office or if there is no registered
office, then at the place where the corporation carries on business. (O.29, R.2)

 Where persons are to be sued as partners in the name of their firm, the summons shall be served
either (a) upon one or more of the partners or (b) at the principal place at which the partnership
business is carried on within India or upon any person having the control or management of the
partnership business. Where a partnership has been dissolved the summons shall be served upon
every person whom it is sought to make liable.

(3) Written statement

The defendant has to file a written statement of his defence within a period of thirty days from the date of
service of summons. If he fails to file the written statement within the stipulated time period he is allowed
to file the same on such other day as may be specified by the Court for reasons to be recorded in writing.
The time period for filing the written statement should not exceed 90 days.

Provision though negatively worded is procedural. It does not deal with power of Court or provide
consequences of non-extension of time. The provision can therefore be read as directory. (Shaikh Salim Haji
Abdul Khayumsab v. Kumar & Ors, AIR 2006 SC 398.

Any document which ought to be produced in the Court but is not so produced, such document shall not be
received in evidence at the time of hearing of the suit without the leave of the Court (O.8, R.1 and 1A).
However this rule does not apply to documents produced for the cross-examination of the plaintiff
witnesses or handed over to a witness merely to refresh his memory.

 Besides, particulars of set-off must be given in the written statement. A plea of set-off is set up when
the defendant pleads liability of the plaintiff to pay to him, in defence in a suit by the plaintiff for
recovery of money.
 Any right of counter claim must be stated.
 In the written statement new facts must be specifically pleaded.
 The defendant must deal specifically with each allegation of fact of which he does not admit the
truth.
 An evasive denial is not permissible and all allegations of facts not denied specifically or by necessary
implication shall be taken to be admitted.

Set-off

Order VIII, Rule 6 deals with set-off which is a reciprocal acquittal of debts between the plaintiff and
defendant. It has the effect of extinguishing the plaintiff’s claim to the extent of the amount claimed by the
defendant as a counter claim.

Under Order VIII Rule 6 where in a suit for the recovery of money the defendant claims to set off against
the plaintiff’s demand any ascertained sum of money legally recoverable by him from the plaintiff not
exceeding the pecuniary jurisdiction of the Court and where both parties fill the same character as in the
plaintiff’s suit, the defendant may, at the first hearing of the suit, but not afterwards unless permitted by
the Court, present a written statement containing the particulars of the debt sought to be set-off.

Effect of Set-off
 NAHATA PROFESSIONAL ACADEMY 141

Under clause (2) the written statement shall have the same effect as a plaint in a cross-suit so as to enable
the Court to pronounce a final judgement in respect both of the original claim and of the set-off, but this
shall not affect the lien, upon the amount decreed, of any pleader in respect of the costs payable to him
under the decree.

Counter-claim

A defendant in a suit may, in addition to his right of pleading a set-off under Rule 6, set up by way of
counterclaim against the claim of the plaintiff, any right or claim in respect of a cause of action accruing to
the defendant against the plaintiff either before or after the filling of the suit but before the defendant
has delivered his defence or before the time limited for delivering his defence has expired, whether such
counter-claim is in the nature of claim for damages or not. Such counter-claim must be within the
pecuniary jurisdiction of the Court. (Order 8, Rule 6A)

Equitable set-off

In India distinction between legal and equitable set-off is recognised. Order 8, Rule 6 contains provisions as
to legal set-off. Order VIII, Rule 6A recognises the counter-claim by the defendant. Still an equitable set-off
can be claimed independently of the Code.

Sometimes, the defendant is permitted to claim set-off in respect of an unascertained sum of money where
the claim arises out of the same transaction, or transactions which can be considered as one transaction, or
where there is knowledge on both sides of an existing debt due to one party and a credit by the other party
found on and trusting to such debt as a means of discharging it. Generally the suits emerge from cross-
demands in the same transaction and this doctrine is intended to save the defendant from having to take
recourse to a separate cross-suit.

Where the defendant bases his defence upon a document or relies upon any document in his possession in
support of his defence or claim for set-off or counter claim, he has to enter such document in a list and
produce it in Court while presenting his written statement and deliver the document and a copy thereof to
be filed within the written statement.
Jitendra Kumar Khan The court stated that equitable set-off is different from legal set-off.
and Ors. vs. The Peerless Equitable set-off is based on principle of justice, equity and good conscience.
General Finance and It was stated:
Investment Company “that equitable set-off is different than the legal set-off; that it is
Limited and Ors. independent of the provisions of the Code of Civil Procedure; that the
(07.08.2013 - mutual debts and credits or cross-demands must have arisen out of the same
transaction or to be connected in the nature and circumstances; that such a
plea is raised not as a matter of right; and that it is the discretion of the court
to entertain and allow such a plea or not.”

(4) Appearance of parties and consequence of non-appearance –

If both the parties do not appear when the suit is called on for hearing, the Court may make an order that
the suit be dismissed (O.9, R. 3 and 4).

If the plaintiff is absent and the defendant is present at the hearing of the suit, the Court shall make an
order for the dismissal of the suit, unless the defendant admits the claim of the plaintiff or a part thereof in
which case the Court shall pass a decree in favour of the plaintiff in accordance with the admission of the
defendant and shall dismiss the suit to the extent of the remainder (O.9, R.8).

If the defendant is absent

 in spite of service of summons and the plaintiff appears, the Court may proceed ex-parte.
 NAHATA PROFESSIONAL ACADEMY 142

 In case the defendant is not served with summons, the Court shall order a second summon to be
issued. If the summons is served on the defendant without sufficient time to appear, the Court may
postpone the hearing to a further date.
 If the summon was not served on the defendant in sufficient time due to the plaintiff’s default, the
Court shall order the plaintiff to pay costs of adjournment.
 Where the hearing of the suit is adjourned exparte and the defendant appears at or before such
hearing and assigns a good cause for his previous nonappearance, the defendant may be heard in
answer to the suit on such terms as to costs or otherwise. The defendant is not precluded from
taking part in the proceedings even though he may not be allowed to file a written statement.

In any case in which a decree is passed ex-parte against a defendant

he may apply for setting aside the decree on the ground that the summons was not duly served on him or
that he was prevented by any sufficient cause from appearing when the suit was called on for hearing and
the Court shall set aside the decree on such terms as to costs payment into Court or otherwise as it deems
proper and shall appoint a day for proceeding with the suit (O.9, R.13).

A defendant has four remedies available if an ex-parte decree is passed against him :
(i) He may file an appeal against the ex-parte decree under Section 96 of the C.P.C.
(ii) He may file an application for review of the judgement. (O.47, R.1)
(iii) He may apply for setting aside the ex-parte decree.
(iv) A suit can also be filed to set aside an ex-parte decree obtained by fraud but no suit shall lie for non
service of summons.

(5) Discovery and interrogatories and production of documents

“Discovery” means finding out material facts and documents from an adversary.
The objects of discovery are to:
(a) ascertain the nature of the case of the adversary or material facts for the adversary’s case.
(b) obtain admissions of the adversary for supporting the party’s own case or indirectly by
impeaching or destroying the adversary’s case.
(c) narrow the points at issue.
(d) avoid expense and effort in proving admitted facts.
Discovery may be of two kinds – (a) by interrogatories (b) by documents.
Discovery by interrogations
Any party to a suit, by leave of the Court, may deliver interrogatories in writing for the examination
of the opposite parties. But interrogatories will not be allowed for the following purposes:
(i) to obtain disclosures injurious to public interests.
(ii) interrogatories that are of a ‘fishing’ nature i.e. which do not relate to some definite and
existing state of circumstances but are resorted to in a speculative manner to discover
something which may help a party making the interrogatories.
(iii) to interrogate any confidential communications between the adversary and his counsel.

Discovery by documents

All documents relating to the matters in issue in the possession or power of any adversary can be
inspected by means of discovery by documents. Any party may apply to the Court for an order
directing any other party to the suit to make discovery on oath the documents which are or which
have been in his possession or powers relating to any matter in question. The Court may on hearing
the application either refuse or adjourn it, if it is satisfied that such discovery is not necessary at all or
not necessary at the stage. Or if it thinks fit in its discretion, it may make order for discovery limited
to certain classes of documents.

Every party to a suit may give notice to the other party at or before the settlement of issues to
produce for his inspection any document referred to in the pleadings or affidavits of the other
 NAHATA PROFESSIONAL ACADEMY 143

party. If the other party refuses to comply with this order he shall not be allowed to put any such
document in evidence (O.11, R.15), unless he satisfies the Court that such document relates only to
his own title, he being a defendant to the suit or any other ground accepted by the Court.

Documents not referred to in the pleadings or affidavits may be inspected by a party if the Court
allows (O.11, R.18). A party may refuse to produce the document for inspection on the following
grounds :
(i) where it discloses a party’s evidence
(ii) when it enjoys a legal professional privilege
(iii) when it is injurious to public interest
(iv) denial of possession of document.

(6) Admission by parties “Admission” means that one party accepts the case of the other party in
whole or in part to be true. Admission may be either in pleadings or by answers to interrogatories,
by agreement of the parties or admission by notice.

(7) Issues
Issues arise when a material proposition of fact or law is affirmed by one party and denied by the
other.

Issues may be either of fact or of law.

It is incumbent on the Court at the first hearing of the suit after reading the plaint and the written
statement and after ascertaining and examination of the parties if necessary regarding the material
propositions of law and facts, to frame the issues thereon for decision of the case. Where the Court
is of the opinion that the suit can be disposed off on issues of law only, it shall try those issues first
and postpone the framing of the other issues until after that issue has been determined and may
deal with the suit in accordance with the decision of that issue.

Issues are to be framed on material proportions of fact or law which are to be gathered from the
following – (i) Allegations made in the plaint and written statement, (ii) Allegations made by the
parties or persons present on their behalf or their pleaders on oath, (iii) Allegations in answer to
interrogatories, (iv) Contents of documents produced by the parties, (v) Statements made by parties
or their representatives when examined, (vi) From examination of a witness or any documents
ordered to be produced.

(8) Hearing of the suit

The plaintiff has the right to begin unless the defendant admits the fact alleged by the plaintiff and
contends that either in point of law or on some additional facts alleged by the defendant, the
plaintiff is not entitled to any part of the relief sought by him and in such a case the defendant has a
right to begin (O.18, R.1).

Where there are several issues, the burden of proving some of which lies on the other party, the
party beginning has an option to produce his evidence on those issues or reserve it by way of an
answer to the evidence produced by the other party, and in the latter case, the party beginning may
produce evidence on those issues after the other party has produced all his evidence. Care must be
taken that no part of the evidence should be produced on those issues for which the plaintiff
reserves a right to produce evidence after the defence has closed his evidence, otherwise the
plaintiff shall lose his right of reserving evidence (O.18, R.3).

(9) Affidavit
An affidavit is a written statement of the deponent on oath duly affirmed before any Court or
Magistrate or any Oath Commissioner appointed by the Court or before the Notary Public. An
affidavit can be used in the following cases:
(i) the Court may at any time of its own motion or on application of any party order that any fact may
be proved by affidavits (Section 30).
 NAHATA PROFESSIONAL ACADEMY 144

(2) the Court may at any time order that the affidavit of any witness may be read at the hearing unless
either party bona fide desires to cross-examine him and he can be produced (O.19, R.1).
(iii) upon application by a party, evidence of a witness may be given on affidavit, but the court may at the
instance of either party, order the deponent to attend the court for cross-examination unless he is
exempted from personal appearance. Affidavits are confined to such facts as the deponent is able of
his own knowledge to prove except on interlocutory applications. (O.19, R.2&3).

(10) Judgement
The Court after the case has been heard shall pronounce judgement in an open court either at once
or on some future day as may be fixed by the court for that purpose of which due notice shall be
given to the parties or their pleaders (Order XX, Rule 1).
If the judgement is not pronounced at once every endeavour shall be made by the Court to
pronounce the judgement within a period of 30 days from the date on which the hearing of the case
was concluded. However, if it is not practicable to do so on the ground of exceptional and extra
ordinary circumstances of the case, the Court must fix a future day which should not be a day
beyond sixty days for the pronouncement of the judgement giving due notice of the day so fixed to
the concerned parties.

The judgement must be dated and signed by the judge. Once the judgement is signed it cannot
afterwards be altered or added to except as provided under Section 152 or on review.

In Kanhaiyalal v. Anup Kumar, AIR 2003 SC 689, where the High Court pronounced the judgment
after two years and six months, the judgment was set aside by the Supreme Court observing that it
would not be proper for a Court to sit tied over the matter for such a long period.

Following the decision of the Supreme Court in the above mentioned case, the Gujarat High Court
in Ramkishan Guru Mandir v. Ramavtar Bansraj, AIR 2006 Guj. 34, set aside the judgment which was
passed after two and a half years after conclusion of arguments holding that where a judgment was
delivered after two years or more, public at large would have reasons to say bad about the Court and
the judges.

The proper object of a judgement is to support by the most cogent reasons that suggest themselves
final conclusion at which the judge has conscientiously arrived.

It is a substantial objection to a judgement that it does not dispose of the question as it was
presented by the parties (Reghunatha v. Sri Brozo Kishoro, (1876) 3 I.A., 154). If a judgement in
unintelligible, the appellate court may set it aside and remand the case to the lower court for the
recording of judgement according to law after hearing afresh the arguments of the pleaders
(Harbhagwan v. Ahmad, AIR 1922 Lah. 122).

(11) Decree
On judgement a decree follows. Every endeavour must be made to ensure that decree is drawn up
expeditiously and in any case within a period of 15 days from the date on which the judgement is
pronounced.
It should contain the: (i) number of the suit(s); (ii) names and descriptions of the parties and their
registered addresses; (iii) particulars of the claim; (iv) relief granted or other determination of the
suit; (v) amount of cost incurred and by whom is to be paid.
(12) Execution
Execution is the enforcement of decrees or orders of the Court. A decree may be executed either by
the Court which passed it or by the Court to which it is sent for execution. (Section 36. For details
refer Order 21)

Saving of inherent powers of Court.

 NAHATA PROFESSIONAL ACADEMY 145

Section 151 of the Civil Procedure Code says ‘Nothing in this Code shall be deemed to limit or otherwise
affect the inherent power of the Court to make such orders as may be necessary for the ends of justice or
to prevent abuse of the process of the Court.’ Though it does not confer any specific power to the Courts, it
is one of the most used sections of the Code in litigation. Any situation that is not covered under the Code
can be brought under this Section.
The scope of Section 151 CPC has been explained by the Supreme Court in the case K.K. Velusamy v. N.
Palanisamy (2011) 11 SCC 275 as follows:
(a) Section 151 CPC is not a substantive provision which creates or confers any power or jurisdiction
on courts. It merely recognises the discretionary power inherent in every court as a necessary
corollary for rendering justice in accordance with law, to do what is “right” and undo what is
“wrong”, that is, to do all things necessary to secure the ends of justice and prevent abuse of its
process.
(b) As the provisions of the Code are not exhaustive, Section 151 recognises and confirms that if the
Code does not expressly or impliedly cover any particular procedural aspect, the inherent power
can be used to deal with such situation or aspect, if the ends of justice warrant it. The breadth of
such power is coextensive with the need to exercise such power on the facts and circumstances.

(c) A court has no power to do that which is prohibited by law or the Code, by purported exercise of
its inherent powers. If the Code contains provisions dealing with a particular topic or aspect, and
such provisions either expressly or by necessary implication exhaust the scope of the power of the
court or the jurisdiction that may be exercised in relation to that matter, the inherent power
cannot be invoked in order to cut across the powers conferred by the Code or in a manner
inconsistent with such provisions. In other words the court cannot make use of the special
provisions of Section 151 of the Code, where the remedy or procedure is provided in the Code.

(d) The inherent powers of the court being complementary to the powers specifically conferred, a
court is free to exercise them for the purposes mentioned in Section 151 of the Code when the
matter is not covered by any specific provision in the Code and the exercise of those powers
would not in any way be in conflict with what has been expressly provided in the Code or be
against the intention of the legislature.

(e) While exercising the inherent power, the court will be doubly cautious, as there is no legislative
guidance to deal with the procedural situation and the exercise of power depends upon the
discretion and wisdom of the court, and in the facts and circumstances of the case. The absence
of an express provision in the Code and the recognition and saving of the inherent power of a
court, should not however be treated as a carte blanche to grant any relief.

(f) The power under Section 151 will have to be used with circumspection and care, only where it is
absolutely necessary, when there is no provision in the Code governing the matter, when the
bona fides of the applicant cannot be doubted, when such exercise is to meet the ends of justice
and to prevent abuse of process of court.

APPEALS

Right of appeal is not a natural or inherent right attached to litigation. Such a right is given by the statute
or by rules having the force of statute (Rangoon Botatoung Company v. The Collector, Rangoon, 39 I.A.
197). There are four kinds of appeals provided under the Civil Procedure Code:
 Appeal from original decree (Sections 96-99, Order 41)
 Second Appeal (Sections 100-103, Order 42)
 Appeal from Orders (Sections 104-106, 0.43r. 1-2)
 Appeal to the Supreme Court (Sections 109-112, Order 45)
 NAHATA PROFESSIONAL ACADEMY 146

Appeals from original decrees may be preferred in the Court superior to the Court passing the decree. An
appeal may lie from an original decree passed ex parte. Where the decree has been passed with the
consent of parties, no appeal lies. The appeal from original decree lies on a question of law and of fact.

Second appeal: As per Section 100 of the Civil Procedure Code, an appeal lies to the High Court from every
decree passed in appeal by any subordinate Court if the High Court is satisfied that the case involves a
substantial question of law. As a general rule the second appeal is on questions of law alone. Under this
Section, an appeal may lie from an appellate decree passed ex parte.

The memorandum of appeal must precisely state the substantial question of law involved in the appeal. If
the High Court is satisfied that a substantial question of law is involved, such question shall be formulated
by it and the appeal is to be heard on the question so formulated.
The respondent is allowed to argue that the case does not involve such question. The High Court is
empowered to hear the appeal on any other substantial question of law not formulated by it if it is satisfied
that the case involves such question.

The Privy Council in Durga Choudharain v. Jawaher Singh, (1891) 18 Cal. 23 P.C., observed that there is no
jurisdiction to entertain a second appeal on the ground of an erroneous finding of fact, however gross or
inexcusable the error may seem to be. Where there is no error or defect in procedure, the finding of the
first appellate Court upon a question of fact is final, if that Court had before it evidence proper for its
consideration in support of the finding.

Appeal from orders (please go through the definition of Order)

REFERENCE, REVIEW AND REVISION

113. Reference to High Court.—Subject to such conditions and limitations as may be prescribed, any
Court may state a case and refer the same for the opinion of the High Court, and the High Court may
make such order thereon as it thinks fit:

Provided that where the Court is satisfied that a case pending before it involves a question as to the
validity of any Act, Ordinance or Regulation or of any provision contained in an Act, Ordinance or
Regulation, the determination of which is necessary for the disposal of the case, and is of opinion
that such Act, Ordinance, Regulation or provision is invalid or inoperative, but has not been so
declared by the High Court to which that Court is subordinate or by the Supreme Court, the Court
shall state a case setting out its opinion and the reasons therefor, and refer the same for the opinion
of the High Court.

114. Review.—Subject as aforesaid, any person considering himself aggrieved—

(a) by a decree or order from which an appeal is allowed by this Code, but from which no appeal has
been preferred.
(b) by a decree or order from which no appeal is allowed by this Code, or
(c) by a decision on a reference from a Court of Small Causes, may apply for a review of judgment to the
Court which passed the decree or made the order, and the Court may make such order thereon as it
thinks fit.

115. Revision.—
(1) The High Court may call for the record of any case which has been decided by any Court subordinate
to such High Court and in which no appeal lies thereto, and if such subordinate Court appears—
(a) to have exercised a jurisdiction not vested in it by law, or
(b) to have failed to exercise a jurisdiction so vested, or
(c) to have acted in the exercise of its jurisdiction illegally or with material irregularity, the High Court
may make such order in the case as it thinks fit:
 NAHATA PROFESSIONAL ACADEMY 147

Provided that the High Court shall not, under this section, vary or reverse any order made, or any order
deciding an issue, in the course of a suit or other proceeding, except where the order, if it had been made
in favour of the party applying for revision would have finally disposed of the suit or other proceedings.
(2) The High Court shall not, under this section, vary or reverse any decree or order against which an
appeal lies either to the High Court or to any Court subordinate thereto.
(3) A revision shall not operate as a stay of suit or other proceeding before the Court except where such
suit or other proceeding is stayed by the High Court.
Explanation.—In this section, the expression “any case which has been decided” includes any order
made, or any order deciding an issue in the course of a suit or other proceeding.

ORDER XXIX
Suits by or against corporations

Subscription and verification of pleading.—In suits by or against a corporation, any pleading may be signed
and verified on behalf of the corporation by the secretary or by any director or other principal officer of the
corporation who is able to depose to the facts of the case.

Service on corporation.—Subject to any statutory provision regulating service of process, where the suit is
against a corporation, the summons may be served—
(a) on the secretary, or on any director, or other principal officer of the corporation, or
(b) by leaving it or sending it by post addressed to the corporation at the registered office, or if there is no
registered office then at the place where the corporation carries on business.

Power to require personal attendance of officer of corporation.—The Court may, at any stage of the suit,
require the personal appearance of the secretary or of any director, or other principal officer of the
corporation who may be able to answer material questions relating to the suit.

ORDER XXXII
Suits by or against minors and persons of unsound mind

Minor to sue by next friend.—

Every suit by a minor shall be instituted in his name by a person who in such suit shall be called the next
friend of the minor.
Explanation.—In this Order, “minor” means a person who has not attained his majority within the meaning
of section 3 of the Indian Majority Act, 1875 (9 of 1875) where the suit relates to any of the matters
mentioned in clauses (a) and (b) of section 2 of that Act or to any other matter.

Where suit is instituted without next friend, plaint to be taken off the file.—
 Where a suit is instituted by or on behalf of a minor without a next friend, the defendant may apply
to have the plaint taken off the file, with costs to be paid by the pleader or other person by whom it
was presented.
 Notice of such application shall be given to such person, and the Court, after hearing his objections
(if any) may make such order in the matter as it thinks fit.

Guardian for the suit to be appointed by Court for minor defendants.—

 Where the defendant is a minor the Court, on being satisfied of the fact of his minority, shall appoint
a proper person to be guardian for the suit for such minor.
 An order for the appointment of a guardian for the suit may be obtained upon application in the
name and on behalf of the minor or by the plaintiff.

Who may act as next friend or he appointed guardian for the suit—
Any person who is of sound mind and has attained majority may act as next friend of a minor or as his
guardian for the suit:
 NAHATA PROFESSIONAL ACADEMY 148

Provided that the interest of such person is not adverse to that of the minor and that he is not, in the case
of a next friend, a defendant, or, in the case of a guardian for the suit, a plaintiff.

Course to be followed by minor plaintiff or applicant on attaining majority.—

 A minor plaintiff or a minor not a party to a suit on whose behalf an application is pending shall, on
attaining majority, elect whether he will proceed with the suit or application.
 Where lie elects to proceed with the suit or application, he shall apply for an order discharging the
next friend and for leave to proceed in his own name.
 Where he elects to abandon the suit or application, he shall, if a sole plaintiff or sole applicant, apply
for an order to dismiss the suit or application on repayment of the costs incurred by the defendant or
opposite party or which may have been paid by his next friend.

Suits by or against persons of unsound mind

Order 32, Rule 15 states that all the provisions of rule 1 to 14, applicable to minors except for rule 2A shall
be applicable to a person of unsound mind or lunatics. If a person before or during the pendency of the suit
are found to be of unsound mind. It shall also be applicable to persons who, though not so adjudged, are
found by the Court on enquiry to be incapable, by reason of any mental infirmity, of protecting their
interest when suing or being sued.

In Ram The Court held that a decree passed against a minor or lunatic without appointed legal
Chandra Arya guardian is void and not voidable. It was stated that “if a decree is passed against a
vs. Man Singh minor without appointment of a guardian, the decree is a nullity and is void and not
and Ors. merely voidable. This principle becomes applicable to the case of a lunatic in view of
(08.12.1967 - Rule. 15 of Order. 32 of the Code of Civil Procedure, so that the decree obtained
SC) : 1968 AIR against Ram Chandra was a decree which had to be treated as without jurisdiction and
954 void. In these circumstances, the sale held in executionof that decree must also be held
to be void”

ORDER XXXVII
SUMMARY PROCEDURE

A trail in summary way is a trial in which issues are to be resolved quickly by applying the speedy
procedure. Sections 260-265 of the Code of Criminal Procedure, 1908 provides the provisions relating to
summary trials. It facilitate the parties to seek justice for minor offenses in a shorter time.

Navinchandra In this case of the Gujarat High Court has observed that the relevant provisions prima
Babulal facie show that the object of the summary procedure is that in a large commercial
Bhavsar vs town certain types of litigation concerning the commercial community should be
Bachubhai expeditiously handled and brought to an end, including the realisation of the decretal
Dhanabhai amount, if a decree is passed. This is intended to give impetus to commerce and
Shah, AIR 1969 industry and thereby benefit the place as a whole by inspiring confidence in the large
Guj 124, commercial population of the town that their causes in respect of monetary claims of
(1968) GLR liquidated amounts would be justly and expeditiously disposed of and their claims will
409, not hang on for years blocking their money and transactions for long periods with a
comparatively greater disadvantage to them than in litigation of other types.

Courts and classes of suits to which the Order is to apply.—

This Order shall apply to the following Courts, namely:—
(a) High Courts, City Civil Courts and Courts of Small Causes; and
(b) other Courts:
Provided that in respect of the Courts referred to in clause (b) the High Court may, by notification in the
Official Gazette, restrict the operation of this Order only to such categories of suits as it deems proper, and
may also, from time to time, as the circumstances of the case may require, by subsequent notification in
 NAHATA PROFESSIONAL ACADEMY 149

the Official Gazette, further restrict, enlarge or vary, the categories of suits to be brought under the
operation of this Order as it deems proper.

Subject to the provisions of sub-rule (1), the Order applies to the following classes of suits, namely:—
(a) suits upon bills of exchange, hundies and promissory notes;
(b) suits in which the plaintiff seeks only to recover a debt or liquidated demand in money payable by
the defendant, with or without interest, arising,—
(i) on a written contract, or
(ii) on an enactment, where the sum sought to be recovered is a fixed sum of money or in the nature of
a debt other than a penalty; or
(iii) on a guarantee, where the claim against the principal is in respect of a debt or liquidated demand
only

Institution of summary suits.—

A suit, to which this Order applies, may if the plaintiff desires to proceed hereunder, be instituted by
presenting a plaint which shall contain,—
(a) a specific averment to the effect that the suit is filed under this Order;
(b) that no relief, which does not fall within the ambit of this rule, has been claimed in the plaint; and
(c) the following inscription, immediately below the number of the suit in the title of the suit, namely :—
“(Under Order XXXVII of the Code of Civil Procedure, 1908).”

The defendant shall not defend the suit referred to in sub-rule (1) unless he enters an appearance
and in default of his entering an appearance the allegations in the plaint shall be deemed to be
admitted and the plaintiff shall be entitled to a decree for any sum, not exceeding the sum
mentioned in the summons, together with interest at the rate specified, if any, up to the date of the
decree and such sum for costs as may be determined by the High Court from time to time by rules
made in that behalf and such decree may be executed forthwith.]

Procedure for the appearance of defendant—

(1) In a suit to which this Order applies, the plaintiff shall, together with the summons under rule 2,
serve on the defendant a copy of the plaint and annexures thereto and the defendant may, at any
time within 10 days of such service, enter an appearance either in person or by pleader and, in either
case, he shall file in Court an address for service of notices on him.
(2) Unless otherwise ordered, all summonses, notices and other judicial processes, required to be served
on the defendant, shall be deemed to have been duly served on him if they are left at the address
given by him for such service.
(3) On the day of entering the appearance, notice of such appearance shall be given by the defendant to
the plaintiff’s pleader, or, if the plaintiff sues in person, to the plaintiff himself, either by notice
delivered at or sent by a pre-paid letter directed to the address of the plaintiff's pleader or of the
plaintiff, as the case may be.
(4) If the defendant enters an appearance, the plaintiff shall thereafter serve on the defendant a
summons for judgment in as may be prescribed from time to time, returnable not less than 10 days
from the date of service supported by an affidavit verifying the cause of action and the amount
claimed and stating that in his belief there is no defence to the suit.
(5) The defendant may, at any time within 10 days from the service of such summons for judgment, by
affidavit or otherwise disclosing such facts as may be deemed sufficient to entitle him to defend,
apply on such summons for leave to defend such suit, and leave to defend may be granted to him
unconditionally or upon such terms as may appear to the Court or Judge to be just:
Provided that leave to defend shall not be refused unless the Court is satisfied that the facts
disclosed by the defendant do not indicate that he has a substantial defence to raise or that the
defence intended to be put up by the defendant is frivolous or vexatious:
Provided further that, where a part of the amount claimed by the plaintiff is admitted by the
defendant to be due from him, leave to defend the suit shall not be granted unless the amount so
admitted to be due is deposited by the defendant in Court.
 NAHATA PROFESSIONAL ACADEMY 150

(6) At the hearing of such summons for judgment,—

(a) if the defendant has not applied for leave to defend, or if such application has been made and is
refused, the plaintiff shall be entitled to judgment forthwith; or
(b) if the defendant is permitted to defend as to the whole or any part of the claim, the Court or Judge
may direct him to give such security and within such time as may be fixed by the Court or Judge and
that, on failure to give such security within the time specified by the Court or Judge or to carry out
such other directions as may have been given by the Court or Judge, the plaintiff shall be entitled to
judgment forthwith.
(7) The Court or Judge may, for sufficient cause shown by the defendant, excuse the delay of the
defendant in entering an appearance or in applying for leave to defend the suit.]

Uma Shankar Kamal This appeal was filed against the order passed by the Delhi High Court granting
Narain and Ors. vs. conditional leave to the appellants to defend in a summary suit. The appellants
M.D. Overseas Ltd. filed an application for leave to defend in the same suit. Learned Single Judge of
(2007) 4 SCC 133 the High Court found that the grounds taken in the application for leave to defend
were sham and moonshine. The appellants were directed to deposit the amount
of Rs. 39,30,856/- to the registry of the division bench of High Court. Conditional
leave to defend was granted to the appellants. Respondent wanted liberty to
withdraw the amount on deposit. High Court refused to accede to the prayer. The
position of law was noted and highlighted relating to summary suits by the
Supreme Court as under:
(a) If the defendant satisfied the Court that he has a good defence to the claim
on merits, the defendant is entitled to unconditional leave to defend.
(b) If the defendant raises a triable issue indicating that he has a fair or bona fide
or reasonable defence, although not a possibly good defence, 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, if the affidavit discloses that at the trial he may be able to
establish a defence to the plaintiff’s claim, the Court may impose conditions at
the time of granting leave to defend the conditions being as to time of trial or
made of trial but not as to payment into Court or furnishing security.
(d) If the defendant has no defence, or if the defence is sham or illusory or
practically moonshine, the defendant is not entitled to leave defend.
(e) If the defendant has no defence or the defence is illusory or sham or
practically moonshine, the Court may show mercy to the defendant by enabling
him to try to prove a defence but at the same time protect the plaintiff imposing
the condition that the amount claimed should be paid into Court or otherwise
secured.
Supreme Court directed to deposit a sum of Rs. 20,00,000/- within a period
of three months in the registry of the High Court.
Southern Sales and Services and Ors vs. Sauermilch Design and Handels
GMBH: 1982 AIR 1518 According to the ratio decidendi of this case “Deposit of
amount admitted in the court is an essential for granting Unconditional leave to
defend a suit”
Kashyap and Sons Supreme Court held that leave to defend should only be granted in exceptional
Ltd. vs. JMS Steels cases. The leave to defend shall be denied only on the grounds that there is no
and Power fair or reasonable defence. It was stated that:
Corporation and “application seeking leave to defend, it would not be a correct approach to
Ors. (18.01.2022 - proceed as if denying the leave is the Rule or that the leave to defend is to be
SC) : (2022) 3 SCC granted only in exceptional cases or only in cases where the defence would
294 appear to be a meritorious one. Even in the case of raising of triable issues, with
the Defendant indicating his having a fair or reasonable defence, he is ordinarily
entitled to unconditional leave to defend unless there be any strong reason to
deny the leave”
 NAHATA PROFESSIONAL ACADEMY 151

SUMMARY JUDGEMENT
One of the significant amendments which has been brought into the CPC by the Commercial Courts Act,
2015 is the insertion of Order 13A for summary judgment.

Order 13A of the the Commercial Courts Act, 2015 provides that disputes which are recognized as
commercial dispute under the Act, can be disposed off by the commercial court established under the Act
without a full-fledged trial.

Previously, suits which had more or less a clear outcome based on merits would still have to go through the
entire procedure enumerated under the CPC before the case could be disposed.

The technicalities led to inordinate delays for the parties concerned and also clogged the entire docket.

The amendment is on similar lines to summary suits provided in the CPC with the primary difference that
application for summary judgment can be in respect of any relief in a commercial dispute while summary
suits relate to such relief relating to liquidated demand or fixed sum of debt.Under mechanism as provided
under Order XIII-A, the application for summary judgment can be made by either party after the service of
summons to the defendant and before the framing of issues. Upon consideration and satisfaction of the
Court, a summary judgment may be given that (a) the plaintiff/defendant has no real prospect of
succeeding on the claim/defence, as the case may be; and (b) there is no other compelling reason as to why
the claim should not be disposed of before the recording of oral evidence

ORDER XXIX
temporary injunction and interlocutory orders

Cases in which temporary injunction may be granted.—

Where in any suit it is proved by affidavit or otherwise—
(a) that any property in dispute in a suit is in danger of being wasted, damaged or alienated by any party
to the suit, or wrongfully sold in execution of a decree, or
(b) that the defendant threatens, or intends, to remove or dispose of his property with a view to
defrauding his creditors,
(c) that the defendant threatens to dispossess, the plaintiff or otherwise cause injury to the plaintiff in
relation to any property in dispute in the suit, the Court may by order grant a temporary injunction
to restrain such act, or make such other order for the purpose of staying and preventing the wasting,
damaging, alienation, sale, removal or disposition of the property or dispossession of the plaintiff, or
otherwise causing injury to the plaintiff in relation to any property in dispute in the suit] as the Court
thinks fit, until the disposal of the suit or until further orders.

Dalpat The Court held that three main requirements are to be satisfied while granting
Kumar and temporary injunction-
Ors. vs. 1. There should be Prima facie case
Prahlad 2. If injunction not granted, it would lead to irreparable loss and,
Singh and 3. Balance of convenience
Ors. It was stated by the Court that : “satisfaction that there is a prima facie case by itself is
(16.12.1991 - not sufficient to grant injunction. The Court further has to satisfy that non-interference
SC) : AIR by the Court would result in “irreparable injury” to the party seeking relief and that
1993 SC 276 there is no other remedy available to the party except one to grant injunction and he
needs protection from the consequences of apprehended injury or dispossession.
Irreparable injury. The third condition also is that “the balance of convenience” must be
in favor of granting injunction.

Injunction to restrain repetition or continuance of breach.—

(1) In any suit for restraining the defendant from committing a breach of contract or other injury of any
kind, whether compensation is claimed in the suit or not, the plaintiff may, at any time after the
 NAHATA PROFESSIONAL ACADEMY 152

commencement of the suit, and either before or after judgment, apply to the Court for a temporary
injunction to restrain the defendant from committing the breach of contract or injury complained, of,
or any breach of contract or injury of a like kind arising out of the same contract or relating to the
same property or right.

(2) The Court may by order grant such injunction, on such terms as to the duration of the injunction,
keeping an account, giving security, or otherwise, as the Court thinks fit.

The grant of a temporary injunction is a matter of discretion of Courts. Such injunction may be granted if
the Court finds that there is a substantial question to be investigated and that matter should be preserved
in status until final disposal of that question. In granting injunction, the Court has to see the balance of
convenience and inconvenience of both sides. If the object of granting a temporary injunction is liable to be
defeated by the delay, the Court while passing an order granting interim or temporary injunction, has a
notice served on the defendant to show cause why the order granting the interim injunction should not be
confirmed. On hearing the objection of the defendant to such injunction, the Court either confirms the
interim injunction or cancels the order of injunction.

Interlocutory orders
Power to order interim sale.—
The Court may, on the application of any party to a suit, order the sale, by any person named in such order,
and in such manner and on such terms as it thinks fit, of any movable property, being the subject-matter of
such suit, or attached before judgment in such suit, which is subject to speedy and natural delay, or which
for any other just and sufficient cause, it may be desirable to have sold at once.

Detention, preservation, inspection, etc., of subject-matter of suit.—

The Court may, on the application of any party to a suit, and on such terms as it thinks fit,—
(a) make an order for the detention, preservation or inspection of any property which is the subject-
matter of such suit, or as to which any question may arise therein;
(b) for all or any of the purposes aforesaid authorise any person to enter upon or into any land or
building in the possession of any other party to such suit; and
(c) for all or any of the purposes aforesaid authorise any samples to be taken, or any observation to be
made or experiment to be tried, which may seem necessary or expendient for the purpose of
obtaining full information or evidence.

POWERS OF CIVIL COURTS AND THEIR EXERCISE BY TRIBUNALS

Tribunals are quasi-judicial authorities established by law. Generally, they are established for speedy
disposal of cases and possesses expertise on certain subject matters. These tribunals are empowered with
certain powers of Civil Procedure in order to effectively discharge the functions assigned to them.

Example National Company Law Tribunal and National Company Law Tribunal has, for the purposes of
discharging their functions under the Companies Act or under the Insolvency and Bankruptcy Code, 2016,
the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit in
respect of the following matters, namely:—
(a) summoning and enforcing the attendance of any person and examining him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavits;
(d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872, requisitioning any
public record or document or a copy of such record or document from any office;
(e) issuing commissions for the examination of witnesses or documents;
(f) dismissing a representation for default or deciding it ex parte;
(g) setting aside any order of dismissal of any representation for default or any order passed by it ex
parte; and
(h) any other matter which may be prescribed.
Few major enactments empowering the tribunals with the power of civil court are:
1. The Companies Act, 2013
 NAHATA PROFESSIONAL ACADEMY 153

2. The Securities Exchange Board of India

3. Income-tax Act, 1961
4. The Information Technology Act, 2000
5. The Prevention of Money-Laundering Act, 2002

The respective tribunal may exercise these powers of the Civil Court to discharge the functions assigned to
them under respective statute. However, the tribunals should exercise due care while using these powers
ensuring the powers used are for the purpose of achieving the object of legislation delegating the powers.

Padam Sen and Ors. vs. The State of Uttar Pradesh (27.09.1960 - SC) : 1961 AIR 218 The Court held that
inherent powers of court are not defined anywhere, it shall be freely exercised at the discretion of the
Court, as it may deem fit, but it shall not be in conflict or against the intention of legislature. It was stated
that:
“The inherent powers of the Court are in addition to the powers specifically conferred on the Court by the
Code. They are complementary to those powers and therefore it must be held that the Court is free to
exercise them for the purposes mentioned in s. 151 of the Code when the exercise of those powers is not in
any way in conflict with what has been expressly provided in the Code or against the intentions of the
Legislature.”

COMMERCIAL COURTS ACT, 2015

Introduction
The Government of India introduced the ‘The Commercial Courts, Commercial Division and Commercial
Appellate Division of High Courts Act, 2015’ (Commercial Courts Act, 2015 for short) to reduce the burden
on judiciary with respect to commercial disputes. This not only unburdened the judiciary but also enable
prospective foreign investors to gain more trust over their investments in Indian market.
Its main emphasis is on Commercial disputes which are special in nature since they affect the economy of a
nation, directly or indirectly. To expedite the process of disposal of cases of large economic value or
commercial cases, the Commercial Courts Act, 2015 (the Act) was introduced. It is an Act to provide for the
constitution of Commercial Courts, Commercial Division and Commercial Appellate Division in the High
Courts for adjudicating commercial disputes of specified value and matters connected therewith or
incidental thereto. The Commercial Courts Act, 2015 came into force on 23rd October, 2015. It enables
speedy redressal of cases holding large economic value.

Commercial Courts
According to Section 3 of the Act, the State Government may with the consultation of respective High Court
constitute the constitute Commercial Courts at District level, as it may deem necessary for the purpose of
exercising the jurisdiction and powers conferred on those Courts under this Act.
State Government, after consultation with the High Court may
(1) specify pecuniary value which shall not be less than three lakh rupees or such higher value. [Section
3(1A)]
(2) extend, alter, and reduce the jurisdiction of such court within local limits. [Section 3(2)]
(3) appoint one or more persons having experience in dealing with commercial disputes to be the
Judge or Judges, of such Courts.

Jurisdiction
According to Section 6 of the Act, the Commercial Court shall have jurisdiction to try all suits and
applications relating to a commercial dispute of a Specified Value arising out of the entire territory of the
State over which it has been vested territorial jurisdiction by State Government with the assistance of
concerned High Court.

According to Section 7 of the Act, all suits and applications relating to commercial disputes of a Specified
Value filed in a High Court having ordinary original civil jurisdiction shall be heard and disposed of by the
Commercial
 NAHATA PROFESSIONAL ACADEMY 154

Division of that High Court.

According to Section 10 of the Act, in case of matters of international commercial arbitration pertaining to
Arbitration and Conciliation Act, 1996 the matters shall be heard and disposed of by the Commercial
Division where such Commercial Division has been constituted in such High Court. In matters of arbitration
other than international commercial arbitration under Arbitration and Conciliation Act, 1996 that have
been filed on the original side of the High Court, matters shall be heard and disposed of by the Commercial
Division where such Commercial Division has been constituted in such High Court.

Determination of Specified Value

The Specified Value of the subject-matter of the commercial dispute in a suit, appeal or application shall be
determined by –
 In case of recovery of money – the value should include interest accrued so far, upto the date of
filing of application or suit.
 In case of Movable Property or right in it – the value shall be computed taking into account market
value of the movable property as on the date of filing of the suit or application.
 In case of immovable Property or right in it - the value shall be computed taking into account market
value of the immovable property as on the date of filing of the suit or application.
 In case of other intangible right - the value shall be computed taking into account estimated market
value of such right by plaintiff as on the date of filing of the suit or application.

Pre-Institution Mediation and Settlement

The very purpose of this Act was to resolve the commercial disputes without bringing them to the court of
law through mediation. Prior to approaching a commercial court for dispute commercial in nature, the Act
requires that parties attempt to settle their issues through mediation. The Central Government may,
authorise the Authorities constituted under the Legal Services Authorities Act, 1987 for the purposes of pre-
institution mediation.

Time Period
The process of pre-litigation mediation shall be completed within a period of three months from the date of
application made. It can be extended for a further period of two months with the consent of the parties.

Award/Settlement
The award or settlement of pre-litigation mediation shall be in writing and signed by the parties to the
dispute and the mediator. The award shall have the same status and effect as of an arbitral award under
section 30(4) of the Arbitration and Conciliation Act, 1996.
Appeals
Any person aggrieved by the judgment or order of a Commercial Court shall within sixty days of such
judgment
may file an appeal –
If he is aggrieved by the judgment of Commercial court below District Judge, he may appeal to the
Commercial Appellate Court.
If he is aggrieved by the judgment of Commercial court at District Judge or Commercial Division of a High
Court, he may appeal to the Commercial Appellate Division of that High Court
All the appeals filed shall be disposed of within a period of six month from the date of filing. Amendments
to the Provisions of the Code of Civil Procedure, 1908
Section 16 of the Act provides that the provisions of Code of Civil Procedure 1908 shall in their application
to any suit in respect of a commercial dispute of specified value stands amended in manner provided under
the schedule. The following provisions have been amended by the Schedule in their application
 Section 26 – Institution of Suits
 Section 35-A- Compensatory Costs
 Section 35- Costs
 Order 5 – Issuance and Service of Summons
 Order 6, 7 and 8 – Pleadings
 NAHATA PROFESSIONAL ACADEMY 155

 Order 11- Discovery and Inspection of Documents

 Order 18 – Examination of Witness
 Order 20 – Judgment and Decree, etc.
Certain provisions were also inserted to enable the fast track process of Commercial Courts.
Daimler The petitioner is a non-banking finance company. The opposite parties obtained loan
Financial which they failed to repay and the matter was then referred to sole arbitrator. On
Services India being dissatisfied with the arbitral award they approached to Commercial Court,
Pvt. Limited vs. Dhanbad. The Commercial Court dismissed the petition on grounds of having no
Vikash Kumar pecuniary jurisdiction. The court stated,
and Ors. “The learned Court below observed that the said Court below is at present having
(24.06.2020 - pecuniary jurisdiction of one crore rupees or such higher value as may be notified by
JHRHC) : the Central Government as there is no notification of the State in compliance of
Section 3(1-A) of the Commercial Courts Act, 2015 as amended by the amendment
Act of 28 of 2018, and came to a conclusion that the Court below has no jurisdiction
to decide the execution petition and dismissed the same for being non-
maintainable.”
Telangana The court held that if the specified value of commercial suit is one crore and above it
State Tourism shall be referred to Commercial Courts Act under Section 9 of Arbitration and
Development Conciliation Act 1996.
Corporation “On a cumulative reading of Section 2(1)(C)(vii), Section 101 and Section 122, it is
Limited vs. apparent that if a dispute arising out of an agreement concerning immovable
A.A.Avocations property which is exclusively used in trade or commerce and whose ‘specified value’
Pvt. Ltd. is more than one crore, then, it is a ‘commercial dispute’ and only the commercial
Court has jurisdiction to deal with application filed under Section 9 of the Act, 1996.”

Q.1: Distinguish between the following :

• ‘Res judicata’ and ‘stay of suits’. [JUNE-09]
• ‘Review’ and ‘revision’ in civil law. [DEC-09] [JUNE-13]
• ‘Set-off’ and ‘counter-claim’. [DEC-10] [JUNE-13]
• ‘Decree’ and ‘order’. [DEC-11] [JUNE-14]
• ‘Legal set-off’ and ‘equitable set-off’. [JUNE-12]
• 'Doctrine of res sub judice' and 'doctrine of res judicata'. [DEC-13]
Q.2: A suit was instituted by the plaintiff company alleging infringement by the defendant company for
using trade name of medicine and selling the same in wrapper and carton of identical designs with
same colour combination, etc., as that of plaintiff company. A subsequent suit was instituted in a
different court by the defendant company against the plaintiff company with similar allegations. In
such a situation, advise the plaintiff company the procedure adopted by the courts. [DEC-09]
Q.3: Anil was a trustee of a trust. After Anil’s death, Brij wrongfully takes the possession of the trust
property. Chandan, the son of Anil files a suit for recovery of possession of the property against
Brij as the legal heir of Anil in his individual capacity. But Chandan did not succeed. Then Chandan
files another suit for recovery of trust property against Brij in the capacity of trustee as he was
appointed as trustee after the death of Anil. Whether the second suit is barred by the doctrine of
constructive res judicata ? Explain. [JUNE-10]
Q.4: Mohan filed a suit against Sohan and Rohan for partition of coparcenery property ‘P-1’. The suit
has been decided. Mohan files another suit against Sohan and Rohan for the partition of
coparcenery property ‘P-2’, which was in existence at the time of filing of the first suit. Decide.
[JUNE-10]
Q.5: Define res judicata and state the conditions of its application. [JUNE-11]
Q.6: Amit is the resident of Jaipur and Babita is of Delhi. The marriage between two was solemnised at
Ajmer. Both Amit, husband and Babita, wife lived together at Udaipur. Amit treated his wife
Babita with cruelty. Babita, the wife comes to you as an advocate to file a suit against Amit for
divorce on the ground of ‘cruelty’. Advise Babita, in which court Babita has the right to file the suit.
Decide citing the relevant provisions of law. [DEC-11]
Q.7: Explain in brief ‘Cause of action’ under the Code of Civil Procedure, 1908[JUNE-12]
 NAHATA PROFESSIONAL ACADEMY 156

Q.8: A transport company has its head office at Kolkata and branch offices at Allahabad, Lucknow and
Puri. A dispute cropped up between Hassan and the transport company in respect of a
transaction through Allahabad office. Hassan files a suit in respect of this dispute against the
company in a court at Puri. Is the court at Puri competent to decide this case ? Give reasons.
Q.9: Explain the rules relating to delivery of summons by court under the Code of Civil Procedure
(Amendment) Act, 2002. [DEC-12]
Q.10: A suit was instituted by the plaintiff company alleging infringement by the defendant company by
using trade name of medicine and selling the same colour combination, etc., as that of plaintiff
company. A subsequent suit was instituted in a different court by the defendant company
containing the same allegations. Advise the plaintiff company about the steps to be taken by it
giving reference to relevant legal provisions and case law. [DEC-12]
Q.11: Summary suit applies to a suit to prevent unreasonable obstruction by a defendant. [DEC-13]
Q.12: Discuss the doctrine of ‘Res Sub Judice’ under Section 10 of Civil Procedure Code, 1908. [DEC-18]
Q.13: In a civil case what remedies are available for the defendant against whom an ex-parte decree has
been passed by the court? [JUNE, 13], [DEC-18] [JUNE, 22]
Q.14: Distinguish between review and revision under the Civil Procedure Code 1908. [JUNE-19]
Q.15: The Civil Court has power to grant temporary injunction, but for obtaining the same the plaintiff is
required to satisfy the Court. Explain in brief. [JUNE-19, JUNE,21]
Q.16: ‘Explain provisions of summary procedure’ including leave to defend under Civil Procedure Code.
[JUNE-19]
Q.17: Explain the difference if any, in between ‘Res Judicata’ and ‘Res Sub-Judice’. [JUNE-19]
Q.18: What do you understand by ‘set off’ and ‘counter-claim’ under the Civil Procedure Code, 1908 ?
What is the effect of set-off ? [DEC-19]
Q.19: How ‘Decree’ is defined under Section 2(2) of the Civil Procedure Code, 1908 and mention
essentials of a Decree. [DEC-2020]
Q.20: Elaborate the provisions of Civil Procedure Code, 1908 regarding suits by or against minors and
what will be the impact after minor attains the age of majority? [DEC-2020]
(21) Whether in case of consent and compromise decree in between parties, principle of Res Judicata
shall apply ? Discuss.
(22) What is Temporary injuction under the Code of Civil Procedure, 1908 ? Under what circumstances
can it be granted ? Discuss. OR
It is well settled law that for grant of temporary injunction, three factors have to be satisfied,
which are prima facie case, balance of convenience and irreparable loss. Discuss. [DEC-2021]
(23) Discuss the provision of Civil Procedure Code, 1908 which prevents multiplicity of suits in respect
of same cause of action. [DEC-2021]
(24) Discuss the provisions relating to place of suing under section 16 of the Code of Civil Procedure,
1908. (4 marks each) [DEC-2021][JUNE,22]
 NAHATA PROFESSIONAL ACADEMY 157

CHAPTER -7
LAWS RELATING TO CRIME AND ITS PROCEDURE
 Introduction
 Stages of crime and punishments thereon
 Essentials of offence
 Cognizable and non cognizable offence, summon and warrants
 Offences and punishment thereof
 Theft,extortion,robbery
 Misappropriation of movable property
 Breach of trust
 Cheating
 Disposal of property
 Defamation

INTRODUCTION
Crime is a social phenomenon. It is a wrong committed by an individual in a society. Wrong may be ethical
or legal. Wrong should be legal wrong for coming into the definition. Crime is any act which is not legal and
done or committed by a person. Law regulates the social interest, arbitrates conflicting claims and
demands. The security of persons and property which is essential function for a State which is achieved
through the instrumentality of criminal law. Crime being a relative conception is an act defined by State as a
crime. The concept of crime changes from time to time and as per the society. For determination of crime
there is no fixed rule. Crime is what the law says it is.
Criminal Offence vs. Civil Wrong
The difference between a criminal offence and a civil wrong is that while the former is considered a wrong
against the society because of their grave nature, a civil wrong is a wrong done to an individual. It is
believed that serious crimes threaten the very existence of an orderly society, and therefore, if such a crime
is committed, it is committed against the whole society.
It should be kept in mind that what is criminal, illegal or unlawful may still be a socially acceptable practice.
It is also likely that all that a society considers as reprehensible is not criminal in the eyes of law. The
divergence of criminal law, however, with the moral and cultural standards of society cannot be too great
because governments in framing and amending criminal laws cannot be ignorant of the societal standards.
In India, the base of the crime and punitive provision has been laid down in Indian Penal Code, 1860. In this
Code the definition of crime has not been attempted or defined but according to section 40 the word
‘Offence’ denotes a thing made punishable by the Indian Penal Code, 1860 (IPC). The meaning of offence
under chapter IV (General Exceptions), VA (Criminal Conspiracy) and sections 64, 65, 66, 67, 71, 109, 110,
112, 114, 115, 116, 117, 118, 119 and 120, 187, 194, 195, 203, 211, 213, 214, 221, 222, 223, 224, 225, 327,
328, 329, 330, 331, 347, 348, 388, 389 and 445, the word “offence” denotes a thing punishable under
Indian Penal Code, or under any special or local law. In sections 141, 176, 177, 201, 202, 212, 216 and 441,
the word “offence” has the same meaning when the thing punishable under the special or local law is
punishable with imprisonment for a term of six months or upwards, whether with or without fine.
Indian Penal Code
The Indian Penal Code (IPC) is a colonial legislation which was retained as the main penal law of the country
even after India became independent in 1947. The Indian Penal Code was passed in the year 1860 but it
came into force on 1st January, 1862, and it applies to the whole of India. The Indian Penal Code, 1860 is a
substantive law of crimes. It defines acts which constitute an offence and lays down punishment for the
same. It lays down certain principles of criminal law. The procedural law through which the IPC is
implemented is the Criminal Procedure Code, 1973. IPC consists of 23 chapters and 511 sections. It has two
parts - General Principles and Defences & Specific Offences.
Code of Criminal Procedure
The Code of Criminal Procedure, 1898 (Cr. P.C.) was repealed by the Code of 1973 enacted by Parliament on
25th January, 1974 and made effective from 1.4.1974 so as to consolidate and amend the law relating to
Criminal Procedure. Company Secretaries and the secretarial profession would have relatively less to do
with the Code of Criminal Procedure than with other procedural laws, except for safeguarding against
incurring of liability for criminal offences by Directors, Secretary, Manager or other Principal Officer under
 NAHATA PROFESSIONAL ACADEMY 158

different corporate and industrial laws. Nevertheless, it is necessary that company secretaries and other
secretarial staff should be familiar with some of the relevant features of the Criminal Procedure Code. It is
an Act to consolidate and amend the law relating to the procedure to be followed in apprehending the
criminals, investigating the criminal cases and their trial before the Criminal Courts. It is an adjective law but
also contains provisions of substantive nature (e.g. Chapters VIII, IX, X and XI).
Its object is to provide a machinery for determining the guilt of and imposing punishment on offenders
under the substantive criminal law, for example, the Indian Penal Code (IPC). The two Codes are to be read
together. The Cr. P. C. also provides machinery for punishment of offences under some other Acts. Cr.PC
consists of 37 chapters and 484 sections.

THE STAGES OF CRIME

The commission of a crime consists of some significant stages. If a person commits a crime voluntarily, it
involves four important stages, viz.
1. Criminal Intention Criminal intention is the first stage in the commission of offence.
Intention is the conscious exercise of mental faculties of a person to do an act for the purpose of
accomplishing or satisfying a purpose. Law does not as a rule punish individuals for their evil
thoughts or criminal intentions. The criminal court does not punish a man for mere guilty intention
because it is very difficult for the prosecution to prove the guilty intention of a man. Intention means
doing any act with one’s will, desire, voluntariness, malafides and for some purpose. In the IPC, all
these varied expressions find place in the various sections of the Code. Intention can also be imputed
under the law. For example, if a man drives in a rash and reckless manner resulting in an accident
causing death of a person, the reckless driver cannot plead innocence by stating that he never
intended to cause the death of the person. It may be true in the strict sense of term. But a reckless
driver should know that reckless driving is likely to result in harm and can even cause death of the
persons on the road, So, by virtue of definition of the word ‘voluntarily’ in the Code, a reckless driver
who causes death of a person can be presumed or deemed to have intended to cause the death of
the person.
2. Preparation
Preparation means to arrange necessary measures for commission of intended criminal act.
Preparation itself is not punishable as it is difficult to prove that necessary preparations were made
for commission of the offence. But in certain exceptional cases mere preparation is also punishable.
Under the IPC, mere preparation to commit offences is punishable as they are considered to be
grave offences. Some of them are as follows:
(i) Preparation to wage war against the Government (section 122).
(ii) Preparation for counterfeiting of coins or Government Stamps (sections 233 to 235, 255 and
257).
(iii) Possessing counterfeit coins, false weights or measurements and forged documents (section
242, 243, 259, 266 and 474).
(iv) Making preparation to commit dacoity (section 399).
3. Attempt
Attempt, which is the third stage in the commission of a crime, is punishable. Attempt has been
called as a preliminary crime.
Section 511 of the IPC does not give any definition of ‘attempt’ but simply provides for punishment
for attempting to commit an offence. Attempt means the direct movement towards commission of a
crime after necessary preparations have been made. When a person wants to commit a crime, he
firstly forms an intention, then makes some preparation and finally does something for achieving the
object; if he succeeds in his object he is guilty of completed offence otherwise only for making an
attempt. It should be noted that whether an act amounts to an attempt to commit a particular
offence is a question of fact depending on the nature of crime and steps necessary to take in order to
commit it. The act constituting attempt must be proximate to the intended result.
Under the IPC, the sections on attempt can be divided into four broad categories:
(i) Those sections in which the commission of an offence and the attempt to commit are dealt within
the same section, the extent of the punishment being the same for both the offence as also the
attempt. The examples of this category are those offences against the State such as waging or
attempting to wage war against the Government of India, assaulting or attempting to assault the
 NAHATA PROFESSIONAL ACADEMY 159

President or Governor with intent to compel or restrain the exercise of lawful power, sedition, a
public servant accepting or attempting to accept gratification, using or attempting to use evidence
knowing it to be false, dacoity etc.
(ii) Those offences in which the attempt to commit specific offences are dealt side by side with the
offences themselves, but separately, and separate punishments have been provided for the attempt
other than that provided for the offences which have been completed. The examples of this category
are attempt to commit an offence punishable with death or imprisonment for life including robbery,
murder etc.
(iii) Attempt to commit suicide specifically provided under section 309 IPC.
(iv) The fourth category relates to the attempt to commit offences for which no specific punishment has
been provided in the IPC. Such attempts are covered under section 511. This section of the Code
provides that whoever attempts to commit an offence punishable by IPC with imprisonment for life
or imprisonment, or cause such an offence to be committed, and in such attempt does any act
towards commission of the offence, shall, where no express provision is made by IPC for the
punishment of such attempt, be punished with imprisonment of any description provided for the
offence, for a term which may extend to one-half of the imprisonment for life or, as the case may be,
one- half of the longest term of imprisonment provided for that offence, or with such fine as is
provided for the offence, or with both.
4. Commission of Crime or Accomplishment:-
The last stage in the commission of crime is its accomplishment. If the accused succeeds in his
attempt, the result is the commission of crime and he will be guilty of the offence. If his attempt is
unsuccessful, he will be guilty for an attempt only. If the offence is complete, the offender will be
tried and punished under the specific provisions of the IPC.

PUNISHMENT
Punishments:- The punishments to which offenders are liable under the provisions of IPC are –
1. Death:- A death sentence is the harshest of punishments provided in the IPC, which involves the
judicial killing or taking the life of the accused as a form of punishment. The Supreme Court has ruled
that death sentence ought to be imposed only in the ‘rarest of rate cases’. The IPC provides for capital
punishment for the following offences: (a) Murder (b) Dacoity with Murder. (c) Waging War against
the Government of India. (d) Abetting mutiny actually committed. (e) Giving or fabricating false
evidence upon which an innocent person suffers death (f) Abetment of a suicide by a minor or insane
person; (g) Attempted murder by a life convict. The capital punishment is awarded only in two
categories of offences, namely treason and murder. In either of the cases, when the court decides that
death penalty is the appropriate sentence to be imposed in the light of the gravity of matter and
consequences of the offence committed and the absence of mitigating factors, then the court under
the provisions of section 354(3), CrPC has to give special reasons as to why the court came to this
conclusion.
2. Life Imprisonment:- Imprisonment for life meant rigorous imprisonment, that is, till the last breath of
the convict.
3. Imprisonment:- Imprisonment which is of two descriptions namely – (i) Rigorous Imprisonment, that is
hard labour; (ii) Simple Imprisonment
4. Forfeiture of property:- Forfeiture is the divestiture of specific property without compensation in
consequence of some default or act forbidden by law. The Courts may order for forfeiture of property
of the accused in certain occasions. The courts are empowered to forfeit property of the guilty under
section 126 and section 127 of the IPC.
5. Fine:- Fine is forfeiture of money by way of penalty. It should be imposed individually and not
collectively. When court sentences an accused for a punishment, which includes a fine amount, it can
specify that in the event the convict does not pay the fine amount, he would have to suffer
imprisonment for a further period as indicated by the court, which is generally referred to as default
sentence.

Difference between Fine and Penalty

Fine
According to merriam-webster dictionary fine “a sum imposed as punishment for an offense”.
 NAHATA PROFESSIONAL ACADEMY 160

Penalty
According to merriam-webster dictionary, “the suffering or the sum to be forfeited to which a person
agrees to
be subjected in case of non fulfillment of stipulations.”

Analysis
An inference may be drawn from the definitions above that punishments are against offences and penalties
are against non-compliances.
According to section 2(38) of the General Clauses Act, 1897, offence shall mean any act or omission made
punishable by any law for the time being in Force.
According to Merriam-webster dictionary, the meaning of Non-compliances is failure or refusal to comply
with something (such as a rule or regulation) : a state of not being in compliance.
Accordingly, we can analyse that the mention of fine and penalty in a particular provision may depend upon
the nature of provision i.e. Criminal or Civil.
Example

According to section 12(8) of the Companies Act, 2013, if any default is made in complying with the
requirements of section 12, the company and every officer who is in default shall be liable to a penalty of
one thousand rupees for every day during which the default continues but not exceeding one lakh rupees.
In this provision, we may note that here the default is in nature of non-compliance there the provision
creates the liability of penalty.

According to section 16(3) of the Companies Act, 2013, if a company makes default in complying with any
direction given under section 16(1), the company shall be punishable with fine of one thousand rupees for
every day during which the default continues and every officer who is in default shall be punishable with
fine which shall not be less than five thousand rupees but which may extend to one lakh rupees. In this
provision, we may note that here the default is in nature of offence and the provision provides for fine as a
punishment.

Further, it may be noted that in the Companies Act, 2013, where monetary penalty is provided for any
default, generally no punishment by way of imprisonment is provided. But, Fine and imprisonment are
mostly provided together. Two such examples may be referred as under:

Section 8(11) of Companies Act, 2013 “If a company makes any default in complying with any of the
requirements laid down in this section, the company shall, without prejudice to any other action under the
provisions of this section, be punishable with fine which shall not be less than ten lakh rupees but which
may extend to one crore rupees and the directors and every officer of the company who is in default shall
be punishable with imprisonment for a term which may extend to three years or with fine which shall not
be less than twentyfive thousand rupees but which may extend to twenty-five lakh rupees, or with both”

Section 26(9) of the Companies Act, 2013 “If a prospectus is issued in contravention of the provisions of
this section, the company shall be punishable with fine which shall not be less than fifty thousand rupees
but which may extend to three lakh rupees and every person who is knowingly a party to the issue of such
prospectus shall be punishable with imprisonment for a term which may extend to three years or with fine
which shall not be less than fifty thousand rupees but which may extend to three lakh rupees, or with
both.”

The same may also be analysed from SEBI Act, 1992, where imprisonment and fine and kept together for
imposition but liability of penalties are provided for non-compliances.

THE FUNDAMENTAL ELEMENTS OF CRIME

The basic function of criminal law is to punish the offender and to deter the incidence of crime in the
society. A criminal act must contain the following elements:
1. Human Being – The first requirement for commission of crime is that the act must be committed by
a human being. The human being must be under legal obligation to act in particular manner and be
 NAHATA PROFESSIONAL ACADEMY 161

physically and mentally fit for conviction in case he has not acted in accordance with the legal
obligation. Only a human being under legal obligation and capable of being punished can be the
proper subject of criminal law.
2. Mens rea – The basic principle of criminal liability is embodied in the legal maxim ‘actus non
facitreum, nisi mens sit rea’. It means ‘the act alone does not amount to guilt; the act must be
accompanied by a guilty mind’. The intention and the act must both concur to constitute the crime.
Mens rea is defined as the mental element necessary to constitute criminal liability. It is the attitude
of mind which accompanies and directs the conduct which results in the ‘actusreus’. The act is
judged not from the mind of the wrong-doer, but the mind of the wrong-doer is judged from the act.
‘Mens rea’ is judged from the external conduct of the wrong-doer by applying objective standards.
Girja Nath v. Supreme Court said that mens rea is a loose term of elastic signification and
State covers a wide range of mental status and conditions the existence of which give
criminal hue to actus reus.

Intention, Negligence and recklessness are the important forms of mens rea.
(i) Intention:- Intention is defined as ‘the purpose or design with which an act is done’. Intention
indicates the position of mind, condition of someone at particular time of commission of
offence and also will of the accused to see effects of his unlawful conduct. Criminal intention
does not mean only the specific intention but it includes the generic intention as well. For
example: A poisons the food which B was supposed to eat with the intention of killing B. C
eats that food instead of B and is killed. A is liable for killing C although A never intended it.
(ii) Negligence:- Negligence is the second form of mens rea. Negligence is not taking care, where
there is a duty to take care. Negligence or carelessness indicates a state of mind where there
is absence of a desire to cause a particular consequence. The standard of care established by
law is that of a reasonable man in identical circumstances. What amounts to reasonable care
differs from thing to thing depending situation of each case. In criminal law, the negligent
conduct amounts to means rea.
(iii) Recklessness:- Recklessness occurs when the actor does not desire the consequence, but
foresees the possibility and consciously takes the risk. It is a total disregard for the
consequences of one’s own actions. Recklessness is a form of mens rea.
The word ‘mens rea’ as such is not used in the Indian Penal Code, 1860, but the idea
underlying in it is seen in the entire Code. Generally, in the IPC, every offence is defined with
precision embodying the necessary mens rea in express words. The mens rea or evil intent of
the wrong-doer is indicated by the use of such words asintentionally, voluntarily, fraudulently,
dishonestly, maliciously, knowingly etc.
There are many exceptional cases where mens rea is not required in criminal law. Some of them
are as follows:
(a) Where a statute imposes liability, the presence of absence of a guilty mind is irrelevant. The
classical view of that ‘no mens rea, no crime’ has long been eroded and several laws in India
and abroad, especially regarding economic crimes and departmental penalties, have created
severe punishment even where the offences have been defined to exclude mens rea. Many
laws passed in the interest of public safety and social welfare imposes absolute liability. This is
so in matters concerning public health, food, drugs, etc. There is absolute liability (mens rea is
not essential) in the licensing of shops, hotels, restaurants and chemists establishments. The
same is true of cases under the Motor Vehicles Act and the Arms Act, offences against the
State like waging of war, sedition etc.
(b) Where it is difficult to prove mens rea and penalties are petty fines. In such petty cases,
speedy disposal of cases is necessary and the proving of mens rea is not easy. An accused may
be fined even without any proof of mens rea.
(c) In the interest of public safety, strict liability is imposed and whether a person causes public
nuisance with a guilty mind or without guilty mind, he is punished.
(d) If a person violates a law even without the knowledge of the existence of the law, it can still be
said that he has committed an act which is prohibited by law. In such cases, the fact that he
was not aware of the law and hence did not intend to violate it is no defense and he would be
 NAHATA PROFESSIONAL ACADEMY 162

liable as if he was aware of the law. This follows from the maxim ‘ignorance of the law is no
excuse’.
Corporate Body and Mens Rea
With the proliferation in juristic persons and a growth in their activities which increasingly touch
upon the daily lives of ordinary people, criminal law has evolved to bring such persons within its
ambit. For example, according to section 11 of the IPC, the word ‘person’ includes any Company or
Association, or body of persons, whether incorporated or not. Thus companies are covered under
the provisions of the IPC. Virtually in all jurisdictions across the world governed by the rule of law,
companies can no longer claim immunity from criminal prosecution on the ground that they are
incapable of possessing the necessary mens rea for the commission of criminal offences. The criminal
intent of the ‘alter ego’ of the company/ body corporate, i.e., the person or group of persons that
guide the business of the company, is imputed to the company.
State of In it was held that the question whether a corporate body should or should not
Maharashtra be liable for criminal action resulting from the acts of some individual must
v. M/s depend on the nature of offence disclosed by the allegations in the complaint
Syndicate or in the charge sheet, the relative position of the officer or agent vis-à-vis the
Transport, AIR corporate body and other relevant facts and circumstances which could show
1964 Bom 195, that the corporate body, as such, meant or intended to commit that act.

3. Actus Reus (act or omission): The third essential element of crime is Actus Reus. A human being and
an evil intent are not enough to constitute a crime for one cannot know the intentions of a man.
Actus Reus means overt act or unlawful commission must be done in carrying out a plan with the
guilty intention. Actus Reus is defined as a result of voluntary human conduct which law prohibits. It
is the doing of some act by the person to be held liable. An ‘act’ is a willed movement of body.
A man may be held fully liable even when he has taken no part in the actual commission of the
crime. For example, if a number of people conspire to murder a person and only one of them actually
shoots the person, every conspirator would be held liable for it. A person will also be held fully
responsible if he has made use of an innocent agent to commit a crime

COGNIZABLE AND NON-COGNIZABLE OFFENCES

Basis Cognizable
of Offence Non-Cognizable Offence
Difference
Definition “Cognizable offence” means an “Non-cognizable offence” means an offence for
offence for which, and “cognizable which, and “non-cognizable” case means a case in
case” means a case in which, a which, a police officer has no authority to arrest
police officer may, in accordance without warrant. Thus, a non-cognizable offence
with the First Schedule or under any needs special authority to arrest by the police
other law for the time being in force, officer. [Section 2(l)]
arrest without warrant. [Section In order to be a cognizable case under Section
2(c)] 2(c) of the Code, it would be enough if one or
more (not ordinarily all) of the offences are
cognizable.
(Note: It may be observed from the First Schedule
that non-cognizable offences are usually bailable
while cognizable offences are generally non-
bailable).
Warrant Warrant is not necessary in case of Warrant is necessary in case of Non Cognizable
Cognizable offence Offences.

Nature of Nature of offence is serious in Nature is not much serious in case of Non-
offence cognizable offence Cognizable Offences.

Information Generally, Information relating to The substance of the Information given should be
of cases the cognizable offence, should be entered the in a book to be kept by such officer
 NAHATA PROFESSIONAL ACADEMY 163

reduced to writing and be read over and refer the informant to the Magistrate. Police
to the informant, if given orally. officer should not investigate a non-cognizable
Information, whether given in case without the order of a concerned
writing or reduced to writing as Magistrate.
aforesaid, should be signed by the
person giving it.
Examples Rioting, Murder, Being a thug, Giving or fabricating false evidence in a judicial
Voluntarily causing grievous hurt proceeding, Intentional insult or interruption to a
etc. public servant sitting in any stage of a judicial
proceeding, Voluntarily causing hurt, Assault,
Cheating, Forgery etc.

26. Courts by which offences are triable.—

(1) Subject to the other provisions of this Code,—
(a) any offence under the Indian Penal Code (45 of 1860) may be tried by−
(i) the High Court, or
(ii) the Court of Session, or
(iii) any other Court by which such offence is shown in the First Schedule to be triable:
Provided that any offence under section 376, section 376A, section 376AB, section 376B, section
376C, section 376D, section 376DA, 376DB or section 376E of the Indian Penal Code (45 of 1860)
shall be tried as far as practicable by a Court presided over by a woman.

(b) any offence under any other law shall, when any Court is mentioned in this behalf in
such law, be tried by such Court and when no Court is so mentioned, may be tried by—
(i) the High Court, or
(ii) any other Court by which such offence is shown in the First Schedule to be triable.

28. Sentences which High Courts and Sessions Judges may pass.—
(1) A High Court may pass any sentence authorised by law.
(2) A Sessions Judge or Additional Sessions Judge may pass any sentence authorised by law; but any
sentence of death passed by any such Judge shall be subject to confirmation by the High Court.
(3) An Assistant Sessions Judge may pass any sentence authorised by law except a sentence of
death or of imprisonment for life or of imprisonment for a term exceeding ten years.

29. Sentences which Magistrates may pass.—

(1) The Court of a Chief Judicial Magistrate may pass any sentence authorised by law except a
sentence of death or of imprisonment for life or of imprisonment for a term exceeding seven
years.
(2) The Court of a Magistrate of the first class may pass a sentence of imprisonment for a term not
exceeding three years, or of fine not exceeding 1[ten thousand rupees], or of both.

(3) The Court of Magistrate of the second class may pass a sentence of imprisonment for a term not
exceeding one year, or of fine not exceeding 2[five thousand rupees], or of both.
(4) The Court of a Chief Metropolitan Magistrate shall have the powers of the Court of a Chief
Judicial Magistrate and that of a Metropolitan Magistrate, the powers of the Court of a
Magistrate of the first class.

30. Sentence of imprisonment in default of fine.—

(1) The Court of a Magistrate may award such term of imprisonment in default of payment of fine as
is authorised by law: Provided that the term—
(a) is not in excess of the powers of the Magistrate under section 29;
(b) shall not, where imprisonment has been awarded as part of the substantive sentence,
exceed one-fourth of the term of imprisonment which the Magistrate is competent to inflict as
 NAHATA PROFESSIONAL ACADEMY 164

punishment for the offence otherwise than as imprisonment in default of payment of the fine.

(2) The imprisonment awarded under this section may be in addition to a substantive sentence of
imprisonment for the maximum term awardable by the Magistrate under section 29.

31. Sentence in cases of conviction of several offences at one trial.—

When a person is convicted at one trial of two or more offences, the Court may, subject to the
provisions of section 71 of the Indian Penal Code (45 of 1860), sentence him for such offences,
to the several punishments prescribed therefor which such Court is competent to inflict; such
punishments when consisting of imprisonment to commence the one after the expiration of the
other in such order as the Court may direct, unless the Court directs that such punishments shall
run concurrently.

Inherent Power of High Court

Section 482 of Cr.P.C. is one of the most important sections of the Code. It says that nothing in this Code
shall be deemed to limit or affect the inherent powers of the High Court to make such orders as may be
necessary to give effect to any order under this Code, or to prevent abuse of the process of any Court or
otherwise to secure the ends of justice.
The powers of the High Court U/s 482 Cr.P.C are partly administrative and partly judicial. Inherent powers
u/s 482 of Cr.P.C. include powers to quash FIR, investigation or any criminal proceedings pending before the
High Court or any Courts subordinate to it and are of wide magnitude and ramification. Court can always
take note of any miscarriage of justice and prevent the same by exercising its powers under section 482 of
Cr.P.C. These powers are neither limited nor curtailed by any other provisions of the Code. However, such
inherent powers are to be exercised sparingly and with caution.

Madhu Limaye v. The Supreme Court has held that the following principles would govern the
State of exercise of inherent jurisdiction of the High Court:
Maharashtra, 1978 1. Power is not to be resorted to, if there is a specific provision in the Code
AIR 47, for redress of grievances of aggrieved party.
2. It should be exercised very sparingly to prevent abuse of process of any
Court or otherwise to secure ends of justice.
3. It should not be exercised as against the express bar of the law engrafted
in any other provision of the code.
It is well settled that the inherent powers under section 482 can be exercised only
when no other remedy is available to the litigant and not where a specific remedy
is provided by the statute. If an effective alternative remedy is available, the High
Court will not exercise its powers under this section, especially when the applicant
may not have availed of that remedy.

CHAPTER V ARREST OF PERSONS PROCESSES TO COMPEL APPEARANCE

Summons

41. When police may arrest without warrant.—

(1) Any police officer may without an order from a and without a warrant, arrest any person—
(a) who commits, in the presence of a police officer, a cognizable offence;
(b) against whom a reasonable complaint has been made, or credible information has been
received, or a reasonable suspicion exists that he has committed a cognizable offence
punishable with imprisonment for a term which may be less than seven years or which
may extend to seven years whether with or without fine, if the following conditions are
satisfied, namely:—
(i) the police officer has reason to believe on the basis of such complaint,
information, or suspicion that such person has committed the said offence;
(ii) the police officer is satisfied that such arrest is necessary—
 NAHATA PROFESSIONAL ACADEMY 165

(a) to prevent such person from committing any further offence; or

(b) for proper investigation of the offence; or
(c) to prevent such person from causing the evidence of the offence to
disappear or tampering with such evidence in any manner; or
(d) to prevent such person from making any inducement, threat or promise
to any person acquainted with the facts of the case so as to dissuade him
from disclosing such facts to the Court or to the police officer; or
(e) as unless such person is arrested, his presence in the Court whenever
required cannot be ensured, and the police officer shall record while
making such arrest, his reasons in writing:
Provided that a police officer shall, in all cases where the arrest of a person is
not required under the provisions of this sub-section, record the reasons
in writing for not making the arrest.];
(ba) against whom credible information has been received that he has committed a
cognizable offence punishable with imprisonment for a term which may extend to more
than seven years whether with or without fine or with death sentence and the police
officer has reason to believe on the basis of that information that such person has
committed the said offence;]
(c) who has been proclaimed as an offender either under this Code or by order of the State
Government; or
(d) in whose possession anything is found which may reasonably be suspected to be stolen
property and who may reasonably be suspected of having committed an offence with
reference to such thing; or
(e) who obstructs a police officer while in the execution of his duty, or who has escaped, or
attempts to escape, from lawful custody; or
(f) who is reasonably suspected of being a deserter from any of the Armed Forces of the
Union; or
(g) who has been concerned in, or against whom a reasonable complaint has been made,
or credible information has been received, or a reasonable suspicion exists, of his having
been concerned in, any act committed at any place out of India which, if committed in
India, would have been punishable as an offence, and for which he is, under any law
relating to extradition, or otherwise, liable to be apprehended or detained in custody in
India; or
(h) who, being a released convict, commits a breach of any rule made under sub-section (5)
of section 356; or
(i) for whose arrest any requisition, whether written or oral, has been received from
another police officer, provided that the requisition specifies the person to be arrested
and the offence or other cause for which the arrest is to be made and it appears
therefrom that the person might lawfully be arrested without a warrant by the officer
who issued the requisition.
(2) Subject to the provisions of section 42, no person concerned in a non-cognizable offence or
against whom a complaint has been made or credible information has been received or
reasonable suspicion exists of his having so concerned, shall be arrested except under a
warrant or order of a Magistrate.

41A. Notice of appearance before police officer.—

(1) The police officer shall, in all cases where the arrest of a person is not required under the
provisions of sub-section (1) of section 41, issue a notice directing the person against whom a
reasonable complaint has been made, or credible information has been received, or a
reasonable suspicion exists that he has committed a cognizable offence, to appear before him
or at such other place as may be specified in the notice.
(2) Where such a notice is issued to any person, it shall be the duty of that person to comply with
the terms of the notice.
(3) Where such person complies and continues to comply with the notice, he shall not be arrested
in respect of the offence referred to in the notice unless, for reasons to be recorded, the police
 NAHATA PROFESSIONAL ACADEMY 166

officer is of the opinion that he ought to be arrested.

(4) Where such person, at any time, fails to comply with the terms of the notice or is unwilling to
identify himself, the police officer may, subject to such orders as may have been passed by a
competent Court in this behalf, arrest him for the offence mentioned in the notice.

41B. Procedure of arrest and duties of officer making arrest.—

Every police officer while making an arrest shall—
(a) bear an accurate, visible and clear identification of his name which will facilitate easy
identification;
(b) prepare a memorandum of arrest which shall be—
(i) attested by at least one witness, who is a member of the family of the person
arrested or a respectable member of the locality where the arrest is made;
(ii) countersigned by the person arrested; and
(c) inform the person arrested, unless the memorandum is attested by a member of his
family, that he has a right to have a relative or a friend named by him to be informed of
his arrest.

41C. Control room at districts.—

(1) The State Government shall establish a police control room—
(a) in every district; and
(b) at State level.
(2) The State Government shall cause to be displayed on the notice board kept outside the control
rooms at every district, the names and addresses of the persons arrested and the name and
designation of the police officers who made the arrests.
(3) The control room at the Police Headquarters at the State level shall collect from time to time,
details about the persons arrested, nature of the offence with which they are charged and
maintain a database for the information of the general public.

41D. Right of arrested person to meet an advocate of his choice during interrogation.—
When any person is arrested and interrogated by the police, he shall be entitled to meet an
advocate of his choice during interrogation, though not throughout interrogation.

42. Arrest on refusal to give name and residence.—

(1) When any person who, in the presence of a police officer, has committed or has been accused
of committing a non-cognizable offence refuses, on demand of such officer, to give his name
and residence or gives a name or residence which such officer has reason to believe to be false,
he may be arrested by such officer in order that his name or residence may be ascertained.

(2) When the true name and residence of such person have been ascertained, he shall be released
on his executing a bond, with or without sureties, to appear before a Magistrate if so required:
Provided that, if such person is not resident in India, the bond shall be secured by a surety or
sureties resident in India.

(3) Should the true name and residence of such person not be ascertained within twenty-four
hours from the time of arrest or should he fail to execute the bond, or, if so required, to furnish
sufficient sureties, he shall forthwith be forwarded to the nearest Magistrate having
jurisdiction.

43. Arrest by private person and procedure on such arrest.—

(1) Any private person may arrest or cause to be arrested any person who in his presence commits
a non-bailable and cognizable offence, or any proclaimed offender, and, without unnecessary
delay, shall make over or cause to be made over any person so arrested to a police officer, or,
in the absence of a police officer, take such person or cause him to be taken in custody to the
nearest police station.
 NAHATA PROFESSIONAL ACADEMY 167

(2) If there is reason to believe that such person comes under the provisions of section 41, a police
officer shall re-arrest him.

(3) If there is reason to believe that he has committed a non-cognizable offence, and he refuses on
the demand of a police officer to give his name and residence, or gives a name or residence
which such officer has reason to believe to be false, he shall be dealt with under the provisions
of section 42; but if there is no sufficient reason to believe that he has committed any offence,
he shall be at once released.

44. Arrest by Magistrate.—

(1) When any offence is committed in the presence of a Magistrate, whether Executive or Judicial,
within his local jurisdiction, he may himself arrest or order any person to arrest the offender,
and may thereupon, subject to the provisions herein contained as to bail, commit the offender
to custody.

(2) Any Magistrate, whether Executive or Judicial, may at any time arrest or direct the arrest, in his
presence, within his local jurisdiction, of any person for whose arrest he is competent at the
time and in the circumstances to issue a warrant.

45. Protection of members of the Armed Forces from arrest.—

(1) Notwithstanding anything contained in sections 41 to 44 (both inclusive), no member of the
Armed Forces of the Union shall be arrested for anything done or purported to be done by him
in the discharge of his official duties except after obtaining the consent of the Central
Government.

(2) The State Government may, by notification, direct that the provisions of sub-section (1) shall
apply to such class or category of the members of the Force charged with the maintenance of
public order as may be specified therein, wherever they may be serving, and thereupon the
provisions of that sub-section shall apply as if for the expression “Central Government”
occurring therein, the expression “State Government” were substituted.

46 Arrest how made.—

(1) In making an arrest the police officer or other person making the same shall actually touch or
confine the body of the person to be arrested, unless there be a submission to the custody by
word or action:

Provided that where a woman is to be arrested, unless the circumstances indicate to the
contrary, her submission to custody on an oral intimation of arrest shall be presumed and,
unless the circumstances otherwise require or unless the police officer is a female, the police
officer shall not touch the person of the woman for making her arrest.

(2) If such person forcibly resists the endeavour to arrest him, or attempts to evade the arrest,
such police officer or other person may use all means necessary to effect the arrest.

(3) Nothing in this section gives a right to cause the death of a person who is not accused of an
offence punishable with death or with imprisonment for life.
(4) Save in exceptional circumstances, no woman shall be arrested after sunset and before sunrise,
and where such exceptional circumstances exist, the woman police officer shall, by making a
written report, obtain the prior permission of the Judicial Magistrate of the first class within
whose local jurisdiction the offence is committed or the arrest is to be made.
 NAHATA PROFESSIONAL ACADEMY 168

61. Form of summons.—

Every summons issued by a Court under this Code shall be in writing, in duplicate, signed by the
presiding officer of such Court or by such other officer as the High Court may, from time to
time, by rule direct, and shall bear the seal of the Court.

62. Summons how served.—

(1) Every summons shall be served by a police officer, or subject to such rules as the State
Government may make in this behalf, by an officer of the Court issuing it or other public
servant.
(2) The summons shall, if practicable, be served personally on the person summoned, by delivering
or tendering to him one of the duplicates of the summons.
(3) Every person on whom a summons is so served shall, if so required by the serving officer, sign a
receipt therefor on the back of the other duplicate.

63. Service of summons on corporate bodies and societies.—

Service of a summons on a corporation may be effected by serving it on the secretary, local
manager or other principal officer of the corporation, or by letter sent by registered post,
addressed to the chief officer of the corporation in India, in which case the service shall be
deemed to have been effected when the letter would arrive in ordinary course of post.
Explanation.—In this section, “corporation” means an incorporated company or other body
corporate and includes a society registered under the Societies Registration Act, 1860 (21 of
1860).

64. Service when persons summoned cannot be found.—

Where the person summoned cannot, by the exercise of due diligence, be found, the summons
may be served by leaving one of the duplicates for him with some adult male member of his
family residing with him, and the person with whom the summons is so left shall, if so required
by the serving officer, sign a receipt therefor on the back of the other duplicate.
Explanation.—A servant is not a member of the family within the meaning of this section.

65. Procedure when service cannot be effected as before provided.—

If service cannot by the exercise of due diligence be effected as provided in section 62, section
63 or section 64, the serving officer shall affix one of the duplicates of the summons to some
conspicuous part of the house or homestead in which the person summoned ordinarily resides;
and thereupon the Court, after making such inquiries as it thinks fit, may either declare that the
summons has been duly served or order fresh service in such manner as it considers proper.

66. Service on Government servant.—

(1) Where the person summoned is in the active service of the Government, the Court issuing the
summons shall ordinarily send it in duplicate to the head of the office in which such person is
employed; and such head shall thereupon cause the summons to be served in the manner
provided by section 62, and shall return it to the Court under his signature with the
endorsement required by that section.
(2) Such signature shall be evidence of due service.

67. Service of summons outside local limits.—

When a Court desires that a summons issued by it shall be served at any place outside its local
jurisdiction, it shall ordinarily send such summons in duplicate to a Magistrate within whose
local jurisdiction the person summoned resides, or is, to be there served.

68. Proof of service in such cases and when serving officer not present.—
When a summons issued by a Court is served outside its local jurisdiction, and in any case
where the officer who has served a summons is not present at the hearing of the case, an
affidavit, purporting to be made before a Magistrate, that such summons has been served, and
 NAHATA PROFESSIONAL ACADEMY 169

a duplicate of the summons purporting to be endorsed (in the manner provided by section 62
or section 64) by the person to whom it was delivered or tendered or with whom it was left,
shall be admissible in evidence, and the statements made therein shall be deemed to be correct
unless and until the contrary is proved. (2) The affidavit mentioned in this section may be
attached to the duplicate of the summons and returned to the Court.

Warrant of arrest
70. Form of warrant of arrest and duration.—
Every warrant of arrest issued by a Court under this Code shall be in writing, signed by the presiding officer
of such Court and shall bear the seal of the Court.
Every such warrant shall remain in force until it is cancelled by the Court which issued it, or until it is
executed. The requisites of a warrant are as follows:
1. It must be in writing.
2. It must bear the name and designation of the person who is to execute it;
3. It must give full name and description of the person to be arrested;
4. It must state the offence charged;
5. It must be signed by the presiding officer; and
6. It must be sealed.
Such warrant is only for production of a person before the concerned Court and not before the police
officer. Under Section 76 the police officer or other person executing the warrant of arrest shall (subject to
the provisions of Section 71 as to security) bring the person arrested before the Court without unnecessary
delay provided that such delay shall not in any case exceed 24 hours exclusive of the time necessary for the
journey from the place of arrest to the Magistrate’s Court.

PROCLAMATION AND ATTACHMENT

Where a warrant remains unexecuted, the Code provides for two remedies:
If a Court has reason to believe that any person against whom a warrant has been issued by it has
absconded or is concealing himself so that such warrant cannot be executed, the Court may publish a
written proclamation requiring him to appear at a specified place and at a specified time not less than 30
days from the date of publishing such proclamation. (Section 82)
While issuing proclamation, the Magistrate must record to his satisfaction that the accused has absconded
or is concealing himself. The object of attaching property is not to punish him but to compel his
appearance.

SUMMONS TO PRODUCE
Sometimes it is necessary that a person should produce a document or other thing which may be in his
possession or power for the purposes of any investigation or inquiry under this Code. This can be compelled
to be produced by issuing summons (Sections 91 and 92) or a warrant (Sections 93 to 98).

SEARCH WARRANT
According to Section 93, a search warrant can be issued only in the following cases:
(a) Where any Court has reason to believe that a person to whom a summons order under section 91 or
a requisition under sub-section (1) of section 92 has been, or might be, addressed, will not or would
not produce the document or thing as required by such summons or requisition, or
(b) where such document or thing is not known to the Court to be in the possession of any person, or
(c) where the Court considers that the purposes of any inquiry, trial or other proceeding under this Code
will be served by a general search or inspection, it may issue a search-warrant;
and the person to whom such warrant is directed, may search or inspect in accordance therewith
and the provisions hereinafter contained.

But such warrant shall not be issued for searching a document, parcel or other thing in the custody of the
postal or telegraph authority, by a Magistrate other than a District Magistrate or Chief Judicial Magistrate,
nor would such warrant be issued so as to affect Sections 123 and 124 of the Indian Evidence Act, 1872 or
the Bankers’ Book Evidence Act, 1891.
 NAHATA PROFESSIONAL ACADEMY 170

In terms of Section 97 any District Magistrate, Sub-Divisional Magistrate or Magistrate of the first class who
has reasons to believe that any person is confined under such circumstances that the confinement amounts
to an offence, he may issue a search warrant for the search of the person so confined. The person if found
shall be immediately produced before the Magistrate for making such orders as in the circumstances of the
case he thinks proper.

SUMMARY TRIALS
Summary trial is a speedy trial by dispensing with formalities or delay in proceedings. By summary cases is
meant a case which can be tried and disposed of at once. Generally, it will apply to such offences not
punishable with imprisonment for a term exceeding two years.
Section 260(1) of the Criminal Procedure Code sets out the provisions for summary trials. It says:
(a) any Chief Judicial Magistrate;
(b) any Metropolitan Magistrate;
(c) any Magistrate of the First class who is specially empowered in this behalf by the High Court, may, if
he thinks fit, try in a summary way all or any of the following offences:
(i) offences not punishable with death, imprisonment for life or imprisonment for a term
exceeding two years;
(ii) theft under Section 379, Section 380 or Section 381 of the Indian Penal Code, where the
value of the property stolen does not exceed `2,000;
(iii) receiving or retaining stolen property, under Section 411 of the Indian Penal Code, where
the value of such property, does not exceed `2,000;
(iv) assisting in the concealment or disposal of stolen property, under Section 414 of the Indian
Penal Code, where the value of such property does not exceed `2,000;
(v) offences under Sections 454 and 456 of the Indian Penal Code;
(vi) insult with intent to provoke a breach of the peace, under Section 504 of the Indian Penal
Code;
(vii) abetment of any of the foregoing offences;
(viii) an attempt to commit any of the foregoing offences, when such attempt is an offence;
(ix) any offence constituted by an act in respect of which a complaint may be made under
Section 20 of the Cattle Trespass Act, 1871.
Sub-section (2) states that when in the course of a summary trial it appears to the Magistrate that the
nature of the case is such that it is undesirable to try it summarily, the Magistrate shall recall any witnesses
who may have been examined and proceed to re-hear the case in the manner provided in this Code.
Section 262 envisages procedure for summary trials. Sub-section (1) lays down that in all summary trials the
summons-case procedure should be followed irrespective of the nature of the case i.e. whether it is a
summonscase or a warrant case. Sub-section (2) laying down the limit of the sentence of imprisonment
states that no sentence of imprisonment for a term exceeding 3 months shall be passed in any conviction in
summary trials. Judgement in summary trials
In every case tried summarily in which the accused does not plead guilty, the Magistrate shall record the
substance of the evidence and a judgement containing a brief statement of the reason for the finding. The
concerned Magistrate must sign such record and judgement.

COMPOUNDING OF OFFENCES

Section 320 of the Cr.PC enumerates the provisions related to compounding of offences. Compounding
means settlement of offence committed by a person. The settlement must be with the consent of the court
of law. There may be the times when parties to a suit do not want to continue further proceedings in the
court and they want to settle it out of the court amicably, then the compounding comes into picture. In
such case, future proceedings do not take place in the court.

Compoundable offence and its authority Section 320(2) list of the offences which are punishable under the
sections of the Indian Penal Code can be compounded only with the permission of the court. Few examples
are provided herewith.
 NAHATA PROFESSIONAL ACADEMY 171

Section of IPC Name of the offence Who can compound the offence
Section 325, 337, 338 Voluntarily causing grievous hurt. Who can compound the offence To
IPC) whom hurt has been caused
Section 357 IPC Assault or criminal force in attempting The person assaulted or to whom
wrongfully to confine a person. the force was used
Section 381 IPC Theft, by clerk or servant of property in The owner of the property stolen.
possession of master.
Section 406, 408 IPC Criminal breach of trust. The owner of the property on
which a breach of trust has
occurred.
Section 418 IPC Cheating with knowledge that wrongful The person who has been cheated.
loss may ensue to a person whose interest
offender is bound to protect.
Section 420 IPC Cheating and dishonestly inducing The person who has been cheated.
delivery of property.

BAIL
Bail means the release of the accused from the custody and entrusting him to the private custody of
persons who are sureties to produce the accused to answer the charge at the stipulated time or date.
Chapter XXXIII of the Cr. P.C. deals with Provisions as to Bail and Bonds.

Types of Bail
Regular Bail Interim Bail Anticipatory Bail
A bail granted after the offence A bail given during pendency A bail given when a person has
is committed. of application. apprehension that he may be
arrested on an accusation of
having committed a non-bailable
offence.

Bail in cases of Bailable offences (Section 436)

According to section 436, if a person accused of an offence other than non-bailable offence (i.e. Bailable
Offence) is arrested or detained without warrant by an officer in charge of a police station, or appears or is
brought before a Court, and he is prepared to give bail, such person shall be released on bail.

Further, if such officer or Court, if he or it thinks fit, may, and shall, if such person is indigent and is unable
to furnish surety, instead of taking bail from such person, discharge him on his executing a bond without
sureties for his appearance.

Where a person is unable to give bail within a week of the date of his arrest, it shall be a sufficient ground
for the officer or the Court to presume that he is an indigent person for the purposes of above.

However, where a person has failed to comply with the conditions of the bail-bond as regards the time and
place of attendance, the Court may refuse to release him on bail, when on a subsequent occasion in the
same case he appears before the Court or is brought in custody and any such refusal shall be without
prejudice to the powers of the Court to call upon any person bound by such bond to pay the penalty
thereof under section 446 of Cr. P. C.

Bail in cases of Non-Bailable Offences (Section 437) When any person accused of, or suspected of, the
commission of any non-bailable offence is arrested or detained without warrant by an officer in charge of a
police station or appears or is brought before a Court (other than the High Court or Court of session), he
may be released on bail but subject to:
(i) such person shall not be so released if there appear reasonable grounds for believing that he has
been guilty of an offence punishable with death or imprisonment for life;
(ii) such person shall not be so released if such offence is a cognizable offence and
 NAHATA PROFESSIONAL ACADEMY 172

(a) he had been previously convicted of an offence punishable with death, imprisonment for life
or imprisonment for seven years or more, or
(b) he had been previously convicted on two or more occasions of a cognizable offence
punishable with imprisonment for three years or more but not less than seven years.

However, the Court may direct that a person referred to in clause (a) or clause (b) above be released on bail
if such person is under the age of sixteen years or is a woman or is sick or infirm.

Further, the Court may also direct that a person referred to in clause (b) above be released on bail if it is
satisfied that it is just and proper so to do for any other special reason.
The bail may also be cancelled. If, in a case triable by a Magistrate, the trial of a person accused of any non-
bailable offence is not concluded within a period of sixty days from the first date fixed for taking evidence in
the case, such person shall, if he is in custody during the whole of the said period, be released on bail to the
satisfaction of the Magistrate, unless for reasons to be recorded in writing, the Magistrate otherwise
directs.

If, at any time, after the conclusion of the trial of a person accused of a non-bailable offence and before
judgment is delivered, the Court is of opinion that there are reasonable grounds for believing that the
accused is not guilty of any such offence, it shall release the accused, if he is in custody, on the execution by
him of a bond without sureties for his appearance to hear judgment delivered.
Example
X has been arrested by the Police Officer on charges of Non-Bailable Offence. Can X apply for bail? Yes,
bail may be given in Non-Bailable offences.

Bail to require accused to appear before next appellate Court

Before conclusion of the trial and before disposal of the appeal, the Court trying the offence or the
Appellate Court, shall require the accused to execute bail bonds with sureties, to appear before the higher
Court as and when such Court issues notice in respect of any appeal or petition filed against the judgment
of the respective Court and such bail bonds shall be in force for six months.

If such accused fails to appear, the bond stand forfeited and the procedure under section 446 shall apply
which
is related to the procedure for forfeiting the bail bond.(Section 437A)

Anticipatory Bail (Section 438)

When a person has reason to believe that he may be arrested on an accusation of non-bailable offence, he
may apply to the High Court or the Court of Session for a necessary direction and that Court may, direct
that in the event of such arrest, he shall be released on bail.
When the High Court or the Court of Session grants bail under section 438(1), it may include such
conditions, as it may think fit, including:
(i) a condition that the person shall make himself available for interrogation by a police officer as and
when required;
(ii) a condition that the person shall not, directly or indirectly, make any inducement, threat or promise
to any person acquainted with the facts of the case so as to dissuade him from disclosing such facts
to the Court or to any police officer.
(iii) a condition that the person shall not leave India without the previous permission of the Court;
(iv) such other condition as may be imposed under section 437(3), as if the bail were granted under that
section.

CONTINUING OFFENCES
Continuing offence means an offence which is committed for a very long period. It is neither clearly
defined in the Indian Penal Code or Cr.PC. Whether the offence is continuing one or not, it clearly
depends on its nature.
 NAHATA PROFESSIONAL ACADEMY 173

The offence which is happening and continuing again and again comes in the category of continuing
offence. Example
A kidnaps B on 1st December, 2021 and demands money from B’s relatives. A committed a continuing
offence as long as A is in possession of B. The offence will be over as soon as the B is rescued from A.
Section 472 of Cr. PC mentioned the term Continuing offence and states that in the case of a continuing
offence, a fresh period of limitation shall begin to run at every moment of the time during which the
offence continues.

Udai Shankar In the Supreme Court observed that the expression, ‘continuing offence’ has not
Awasthi v. State of been defined in the Cr.P.C. because it is one of those expressions which does not
U.P. (2013), have a fixed connotation, and therefore, the formula of universal application
cannot be formulated in this respect.
Gokak Patel the Supreme Court held that the question whether a particular offence is a
Volkart Ltd. v. ‘continuing offence’ or not must, therefore, necessarily depend upon the language
Dundayya of the statute which creates that offence, the nature of the offence and the
Gurushiddaiah purpose intended to be achieved by constituting the particular act as an offence.
Hiremath
In Balakrishna the Court observed that a continuing offence is an act which creates a continuing
Savalram Pujari source of injury, and renders the doer of the act responsible and liable for the
Waghmare & Ors. continuation of the said injury. In case a wrongful act causes an injury which is
v. Shree complete, there is no continuing wrong even though the damage resulting from
Dnyaneshwar the said act may continue. If the wrongful act is of such character that the injury
Maharaj Sansthan caused by it itself continues, then the said act constitutes a continuing wrong. The
& Ors., distinction between the two wrongs therefore depends, upon the effect of the
injury.
State of Bihar v. “A continuing offence is one which is susceptible of continuance and is
Deokaran Nenshi distinguishable from the one which is committed once and for all. It is one of those
& Anr., AIR 1973 offences which arises out of a failure to obey or comply with a rule or its
SC 908, requirement and which involves a penalty, the liability for which continues until
the rule or its requirement is obeyed or complied with. On every occasion that
such disobedience or non-compliance occurs and recurs, there is the offence
committed. The distinction between the two kinds of offences is between an act
or omission which constitutes an offence once and for all and an act or omission
which continues and therefore, constitutes a fresh offence every time or occasion
on which it continues. In the case of a continuing offence, there is thus the
ingredient of continuance of the offence which is absent in the case of an offence
which takes place when an act or omission is committed once and for all.”

OFFENCES AGAINST PROPERTY

Chapter XVII (Section 378 to 402) of the Indian Penal Code, 1860, provides the provisions and law related to
the offences against property.
The Property is of two kinds i.e. movable and immovable. The offence which is committed in regard to any
kind of property whether it is movable or immovable is punishable under the provisions of the Chapter XVII
of the Indian Penal Code.

Theft (Section 378) Whoever, intending to take dishonestly any movable property out of the possession of
any person without that person’s consent, moves that property in order to such taking, is said to commit
theft.
The essentials elements of theft are:
1. There should an intention to dishonestly take the property.
2. The property should be movable property.
3. The property should be taken out of the possession without that person’s consent.
4. The property should be moved in order to take that property.
 NAHATA PROFESSIONAL ACADEMY 174

Explanation 1. A thing so long as it is attached to the earth, not being movable property, is not the
subject of theft; but it becomes capable of being the subject of theft as soon as it is
severed from the earth. Example: Wood of the tree.

Explanation 2. A person is said to cause a thing to move by removing an obstacle which prevented it from
moving or by separating it from any other thing, as well as by actually moving it. Example:
Opening the tap for the purpose of taking the expensive liquid kept thereunder.

Situations which constitute theft

Illustration 1- A cuts down a tree on Z’s ground, with the intention of dishonestly taking the tree out of
Z’s possession without Z’s consent. Here, as soon as A has severed the tree in order to such
taking, he has committed theft.

Illustration 2- A puts a bait for dogs in his pocket, and thus induces Z’s dog to follow it. Here, if A’s
intention be dishonestly to take the dog out of Z’s possession without Z’s consent, A has
committed theft as soon as Z’s dog has begun to follow A.

Situations which do not constitute theft

Illustration 3- Z, going on a journey, entrusts his plate to A, the keeper of a warehouse, till Z shall return.
A carries the plate to a goldsmith and sells it. Here the plate was not in Z’s possession. It
could not therefore be taken out of Z’s possession, and A has not committed theft, though
he may have committed criminal breach of trust.

Illustration 4- A finds a ring lying on the highroad, not in the possession of any person. A, by taking it,
commits no theft, though he may commit criminal misappropriation of property.

Section 379 of IPC provides the punishment for theft and states that whoever commits theft shall be
punished with imprisonment of either description for a term which may extend to three years, or with
fine, or with both.

However, there are different punishment for theft depending upon situation, which may understood
with the help of below:

Punishment for theft

Situation Punishment
Theft in dwelling house, etc Imprisonment of either description for a term which
may extend to seven years, and shall also be liable to
fine.
Theft by clerk or servant of property in Imprisonment of either description for a term which
possession of master may extend to seven years, and shall also be liable to
fine.
Theft after preparation made for causing Rigorous imprisonment for a term which may extend
death, hurt or restraint in order to the to ten years, and shall also be liable to fine
committing of the theft

Extortion (Section 383) Whoever intentionally puts any person in fear of any injury to that person, or to any
other, and thereby dishonestly induces the person so put in fear to deliver to any person any property, or
valuable security or anything signed or sealed which may be converted into a valuable security, commits
“extortion”.
The essentials elements of theft are:
1. There should be an intention to put any person in fear of any injury.
 NAHATA PROFESSIONAL ACADEMY 175

2. By that fear of injury, dishonestly induces the person so put in fear to deliver any property, or
valuable security or anything signed or sealed which may be converted into a valuable security
Situations which constitute extortion

Illustration 1: A threatens to publish a defamatory libel concerning Z unless Z gives him money. He thus
induces Z to give him money. A has committed extortion.

Illustration 2: A threatens Z that he will keep Z’s child in wrongful confinement, unless Z will sign and deliver
to A a promissory note binding Z to pay certain monies to A. Z sings and delivers the note. A
has committed extortion.

Punishment of Extortion

Section 384 provides the punishment for extortion and states that whoever commits extortion shall be
punished with imprisonment of either description for a term which may extend to three years, or with
fine, or with both. However, there are different punishment for extortion depending upon situation,
which may understood with the help of below:

Situation Punishment
Putting person in fear of injury in order to mprisonment of either description for a term which
commit extortion may extend to two years
Extortion by putting a person in fear of death Imprisonment of either description for a term which
or grievous hurt may extend to ten years
Putting person in fear of death or of grievous Imprisonment of either description for a term which
hurt, in order to commit extortion may extend to seven years
Extortion by threat of accusation of an Imprisonment of either description for a term which
offence punishable with death or may extend to ten years
imprisonment for life, etc.
Putting person in fear or accusation of Imprisonment of either description for a term which
offence, in may extend to ten years

In Jadunandan Singh v. Emperor (AIR 1941 Pat 129), the accused, along with others, assaulted two persons
and forcibly took their thumb impressions on three blank papers. The court observed that cases frequently
occur which turn on the difference between the giving and taking of thumb impression. The forcible taking
of the victim’s thumb impression does not necessarily involve inducing the victim to deliver papers with
thumb impressions. Therefore, the offence of extortion is not established. It is not a case of theft because
papers were not taken from the victim’s possession. It is a case of criminal force or assault (Sec. 325).

Distinction between Extortion and Theft Both are different from in following respects:
(i) Extortion is done by wrongfully getting the consent of the owner while there is no present of consent
in case of theft.

(ii) Both movable and immovable property may be the subject of an extortion whereas theft is limited to
movable property only because of its nature.

Robbery (Section 390)

As per Section 390 of IPC, in all robbery there is either theft or extortion. When theft is robbery. — Theft is
“robbery” if, in order to the committing of the theft, or in committing the theft, or in carrying away or
attempting to carry away property obtained by the theft, the offender, for that end voluntarily causes or
attempts to cause to any person death or hurt or wrongful restraint, or fear of instant death or of instant
hurt, or of instant wrongful restraint.
Example:
 NAHATA PROFESSIONAL ACADEMY 176

If during committing of theft, the offender, voluntarily causes or attempts to cause to any person death or
hurt or wrongful restraint, or the fear of these or of instant wrongful restraint, he Commits Robbery.

When extortion is robbery. —Extortion is “robbery” if the offender, at the time of committing the
extortion, is in the presence of the person put in fear, and commits the extortion by putting that person in
fear of instant death, of instant hurt, or of instant wrongful restraint to that person or to some other
person, and, by so putting in fear, induces the person so put in fear then and there to deliver up the thing
extorted. The offender is said to be present if he is sufficiently near to put the other person in fear of
instant death, of instant hurt, or of instant wrongful restraint.

Example:
If during committing of extortion, the offender is present before victim and commits the extortion by
putting that person in fear of instant death, of instant hurt, or of instant wrongful restraint, he commits
robbery.

Situations which constitute robbery

Illustration 1: A holds Z down, and fraudulently takes Z’s money and jewels from Z’s clothes, without Z’s
consent. Here A has committed theft, and, in order to the committing of that theft, has
voluntarily caused wrongful restraint to Z. A has therefore committed robbery.

Situation which does not constitute robbery

Illustration 4: A obtains property from Z by saying “Your child is in the hands of my gang, and will be put to
death unless you send us ten thousand rupees”. This is extortion, and punishable as such:
but it is not robbery, unless Z is put in fear of the instant death of his child.

Punishment for Robbery Section 392 of IPC provides the punishment for robbery and states that whoever
commits robbery shall be punished with rigorous imprisonment for a term which may extend to ten years,
and shall also be liable to fine; and, if the robbery be committed on the highway between sunset and
sunrise, the imprisonment may be extended to fourteen years. Punishment for attempt of Robbery

As per section 393 of IPC, whoever attempts to commit robbery shall be punished with rigorous
imprisonment for a term which may extend to seven years, and shall also be liable to fine.

Dacoity (Section 391)

When five or more persons conjointly commit or attempt to commit a robbery, or where the whole number
of persons conjointly committing or attempting to commit a robbery, and persons present and aiding such
commission or attempt, amount to five or more, every person so committing, attempting or aiding, is said
to commit “dacoity”.
The essentials elements of Dacoity are:
1. There should be at least five persons by active participation or aiding.
2. They will commit robbery or its attempt.
3. Every person whether committing or aiding is said to commit dacoity. Case Law

In the case of Emperor v. Lashkar (1921) 2 Lah. 275, a gang of five dacoits, one of whom had a gun, raided
the house of X. After looting, while they were running away with their booty, they shot down one villager. It
was held that the murder committed by the dacoits while carrying away the stolen property was murder
committed in the commission of dacoity, and every offender was therefore liable for the murder.

Punishment for dacoity

Whoever commits dacoity shall be punished with imprisonment for life, or with rigorous imprisonment for
a term which may extend to ten years, and shall also be liable to fine. However, there are different
punishment for robbery and/or dacoity depending upon situation.
 NAHATA PROFESSIONAL ACADEMY 177

Dishonestly receiving stolen property

Whoever dishonestly receives or retains any stolen property, knowing or having reason to believe the same
to be stolen property, shall be punished with imprisonment of either description for a term which may
extend to three years, or with fine, or with both.

Criminal Misappropriation of Property

Section 403 and 404 of the Indian Penal Code, 1860 deal with Criminal Misappropriation of Property.

Dishonest misappropriation of property (Section 403)

Whoever dishonestly misappropriates or converts to his own use any movable property, shall be punished
with imprisonment of either description for a term which may extend to two years, or with fine, or with
both.
Illustrations
(a) A takes property belonging to Z out of Z’s possession, in good faith believing at the time when he
takes it, that the property belongs to himself. A is not guilty of theft; but if A, after discovering his
mistake, dishonestly appropriates the property to his own use, he is guilty of an offence under
this section.
(b) A, being on friendly terms with Z, goes into Z’s library in Z’s absence, and takes away a book
without Z’s express consent. Here, if A was under the impression that he had Z’s implied consent
to take the book for the purpose of reading it, A has not committed theft. But, if A afterwards
sells the book for his own benefit, he is guilty of an offence under this section.
(c) A and B, being, joint owners of a horse, A takes the horse out of B’s possession, intending to use
it. Here, as A has a right to use the horse, he does not dishonestly misappropriate it. But, if A sells
the horse and appropriates the whole proceeds to his own use, he is guilty of an offence under
this section.

Explanation 1. A dishonest misappropriation for a time only is a misappropriation within the meaning of
this section.
Illustration A finds a Government promissory note belonging to Z, bearing a blank endorsement. A,
knowing that the note belongs to Z, pledges it with a banker as a security or a loan,
intending at a future time to restore it to Z. A has committed an offence under this section.

Explanation 2. A person who finds property not in the possession of any other person, and takes such
property for the purpose of protecting it for, or of restoring it to, the owner, does not
take or misappropriate it dishonestly, and is not guilty of an offence; but he is guilty of
an offence above defined, if he appropriates it to his own use, when he knows or has the
means of discovering the owner, or before he has used reasonable means to discover
and give notice to the owner and has kept the property a reasonable time to enable the
owner to claim it.

What are reasonable means or what is a reasonable time in such a case, is a question of fact.

It is not necessary that the finder should know who the owner of the property is or that any particular
person is the owner of it; it is sufficient if, at the time of appropriating it, he does not believe it to be his
own property, or in good faith believe that the real owner cannot be found.
Illustrations
(a) A finds a rupee on the high road, not knowing to whom the rupee belongs, A picks up the
rupee. Here A has not committed the offence defined in this section.
(b) A finds a letter on the road, containing a bank note. From the direction and contents of the
letter he learns to whom the note belongs. He appropriates the note. He is guilty of an offence
under this section.
(c) A finds a cheque payable to bearer. He can form no conjecture as to the person who has lost
the cheque. But the name of the person, who has drawn the cheque, appears. A knows that
this person can direct him to the person in whose favour the cheque was drawn. A
 NAHATA PROFESSIONAL ACADEMY 178

appropriates the cheque without attempting to discover the owner. He is guilty of an offence
under this section.
(d) A sees Z drop his purse with money in it. A picks up the purse with the intention of restoring it
to Z, but afterwards appropriates it to his own use. A has committed an offence under this
section.
(e) A finds a purse with money, not knowing to whom it belongs; he afterwards discovers that it
belongs to Z, and appropriates it to his own use. A is guilty of an offence under this section.
(f) A finds a valuable ring, not knowing to whom it belongs. A sells it immediately without
attempting to discover the owner. A is guilty of an offence under this section.

Dishonestly is an essential ingredient of the offence and the Code provides that whoever does anything
with the intention of causing wrongful gain to one person or wrongful loss to another person, is said to do
that ‘dishonestly’.

Misappropriation means the intentional, illegal use of the property or funds of another person for one’s
own use or other unauthorized purpose.
There are two things necessary before an offence under section 403 can be established.
Firstly, that the property must be misappropriated or converted to the use of the accused, and, secondly,
that he must misappropriate or convert it dishonestly.
Bhagiram In it has been held that under Section 403 criminal misappropriation takes place even
Dome v. Abar when the possession has been innocently come by, but where, by a subsequent
Dome, (1888) change of intention or from the knowledge of some new fact which the party was not
15 Cal 388, 400, previously acquainted, the retaining become wrongful and fraudulent.

Mohammad Ali In fifteen bundles of electric wire were seized from the appellant but none including
v. State, 2006 electricity department claimed that wires were stolen property. Evidence on records
CrLJ 1368 (MP), showed that impugned electric wire was purchased by the applicant from scrap
seller. Merely applicant not having any receipt for purchase of impugned wire cannot
be said to be guilty of offence punishable under Section 403 of the Code. Order of
framing charge was, therefore, quashed by the Supreme Court and the accused was
not held guilty under section 403 of the Indian Penal Code, 1860.
U. Dhar v. State there were two contracts- one between the principal and contractor and another
of Jharkhand, between contractor and sub-contractor. On completion of work sub-contractor
(2003) 2 SCC demanded money for completion of work and on non-payment filed a criminal
219 complaint alleging that contractor having received the payment from principal had
misappropriated the money. The magistrate took cognizance of the case and High
Court refused to quash the order of magistrate. On appeal to the Supreme Court, it
was held that matter was of civil nature and criminal complaint was not maintainable
and was liable to be quashed. The Supreme Court also observed that money paid by
the principal to the contractor was not money belonging to the complainant, sub-
contractor, hence there was no question of misappropriation.

Dishonest misappropriation of property possessed by deceased person at the time of his death (Section
404)
Whoever dishonestly misappropriates or converts to his own use property, knowing that such property was
in the possession of a deceased person at the time of that person’s death, and has not since been in the
possession of any person legally entitled to such possession, shall be punished with imprisonment of either
description for a term which may extend to three years, and shall also be liable to fine, and if the offender
at the time of such person’s death was employed by him as a clerk or servant, the imprisonment may
extend to seven years.
Illustration Z dies in possession of furniture and money. His servant A, before the money comes into the
possession of any person entitled to such possession, dishonestly misappropriates it. A has
committed the offence defined in this section.
 NAHATA PROFESSIONAL ACADEMY 179

The offence under this section consists in the pillaging of property during the interval which elapses
between the time when the possessor of the property dies, and the time when it comes into the possession
of some person or officer authorized to take charge of it.

CRIMINAL BREACH OF TRUST

Section 405 and 409 of the Indian Penal Code, 1860 deal with Criminal Misappropriation of Property.
Criminal breach of trust (Section 405)
Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly
misappropriates or converts to his own use that property, or dishonestly uses or disposes of that
property in violation of any direction of law prescribing the mode in which such trust is to be discharged,
or of any legal contract, express or implied, which he has made touching the discharge of such trust, or
wilfully suffers any other person so to do, commits “criminal breach of trust”.

Explanation 1. A person, being an employer of an establishment whether exempted under section

17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of
1952) or not who deducts the employee’s contribution from the wages payable to
the employee for the credit to a Provident Fund or Family Pension Fund established
by any law for the time being in force, shall be deemed to have been entrusted with
the amount of contribution so deducted by him and if he makes default in the
payment of such contribution to the said Fund in violation of the said law, shall be
deemed to have dishonestly used the amount of the said contribution in violation
of a direction of law as aforesaid.
Explanation 2.— A person, being an employer, who deducts the employees’ contribution from the
wages payable to the employee for credit to the Employees’ State Insurance Fund
held and administered by the Employees’ State Insurance Corporation established
under the Employees’ State Insurance Act, 1948 (34 of 1948), shall be deemed to
have been entrusted with the amount of contribution so deducted by him and if he
makes default in payment of such contribution to the said Fund in violation of the
said Act, shall be deemed to have dishonestly used the amount of said contribution
in violation of a direction of law as aforesaid.
Illustrations
(a) A, being executor to the will of a deceased person, dishonestly disobeys the law which directs him
to divide the effects according to the will, and appropriates them to his own use. A has committed
criminal breach of trust.
(b) A is a warehouse-keeper. Z going on a journey, entrusts his furniture to A, under a contract that it
shall be returned on payment of a stipulated sum for warehouse room. A dishonestly sells the
goods. A has committed criminal breach of trust.
(c) A, residing in Calcutta, is agent for Z, residing at Delhi. There is an express or implied contract
between A and Z, that all sums remitted by Z to A shall be invested by A, according to Z’s direction.
Z remits a lakh of rupees to A, with directions to A to invest the same in Company’s paper. A
dishonestly disobeys the directions and employs the money in his own business. A has committed
criminal breach of trust.
(d) But if A, in the last illustration, not dishonestly but in good faith, believing that it will be more for
Z’s advantage to hold shares in the Bank of Bengal, disobeys Z’s directions, and buys shares in the
Bank of Bengal, for Z, instead of buying Company’s paper, here, though Z should suffer loss, and
should be entitled to bring a civil action against A, on account of that loss, yet A, not having acted
dishonestly, has not committed criminal breach of trust.
(e) A, a revenue-officer, is entrusted with public money and is either directed by law, or bound by a
contract, express or implied, with the Government, to pay into a certain treasury all the public
money which he holds. A dishonestly appropriates the money. A has committed criminal breach of
trust.
(f) A, a carrier, is entrusted by Z with property to be carried by land or by water. A dishonestly
misappropriates the property. A has committed criminal breach of trust. The gist of the offence of
criminal breach of trust as defined under section 405 of the Indian Penal Code, 1860 is ‘dishonest
misappropriation’ or ‘conversion to own use’, another person’s property.
 NAHATA PROFESSIONAL ACADEMY 180

CRIMINAL BREACH OF TRUST – ESSENTIAL INGREDIENTS

The essential ingredients of the offence of criminal breach of trust are as under;
1. The accused must be entrusted with the property or with dominion over it,
2. The person so entrusted must use that property, or;
3. The accused must dishonestly use or dispose of that property or wilfully suffer any other person to
do so in violation,
(i) of any direction of law prescribing the mode in which such trust is to be discharged, or;
(ii) of any legal contract made touching the discharge of such trust.

V.R. Dalal v. The Supreme Court of India has held that the first ingredient of criminal breach of
Yugendra Naranji trust is entrustment and where it is missing, the same would not constitute a
Thakkar, 2008 (15) criminal breach of trust. Breach of trust may be held to be a civil wrong but when
SCC 625 mens-rea is involved it gives rise to criminal liability also. The expression
‘direction of law’ in the context of Section 405 would include not only legislations
pure and simple but also directions, instruments and circulars issued by authority
entitled therefor.
Pratibha Rani v. In a landmark judgment of, the appellant alleged that her stridhan property was
Suraj Kumar, AIR entrusted to her in–laws which they dishonestly misappropriated for their own
1985 SC 628 use. She made out a clear, specific and unambiguous case against in–laws. The
accused were held guilty of this offence and she was held entitled to prove her
case and no court would be justified in quashing her complaint.
Onkar Nath Mishra The Supreme Court in has held that in the commission of offence of criminal
v. State (NCT of breach of trust, two distinct parts are involved. The first consists of the creation
Delhi), 2008 CrLJ an obligation in relation to property over which dominion or control is acquired
1391 (SC), by accused. The second is a misappropriation or dealing with property dishonestly
and contrary to the terms of the obligation created.

Suryalakshmi it was held that a cheque is property and if the said property has been
Cotton Mills Ltd. v. misappropriated or has been used for a purpose for which the same had not been
Rajvir Industries handed over, a case under Section 406 of the Code may be found to have been
Ltd., 2008 (13) SCC made out.
678,
S.K. Alagh v. State where demand drafts were drawn in the name of company for supply of goods
of U.P.and others, and neither the goods were sent by the company nor the money was returned,
2008 (5) SCC 662 the Managing Director of the company cannot be said to have committed the
offence under Section 406 of Indian Penal Code. It was pointed out that in
absence of any provision laid down under statute, a director of a company or an
employer cannot be held vicariously liable for any offence committed by company
itself.

In another case, In, After analyzing all the cases we may conclude that for an offence to fall under this
section all the four requirements are essential to be fulfilled.
1. The person handing over the property must have confidence in the person taking the property so as
to create a fiduciary relationship between them or to put him in position of trustee.
2. The accused must be in such a position where he could exercise his control over the property i.e;
dominion over the property.
3. The term property includes both movable as well as immovable property within its ambit.
4. It has to be established that the accused has dishonestly put the property to his own use or to some
unauthorized use. Dishonest intention to misappropriate is a crucial fact to be proved to bring home
the charge of criminal breach of trust.

Punishment for criminal breach of trust. (Section 406)

 NAHATA PROFESSIONAL ACADEMY 181

Whoever commits criminal breach of trust shall be punished with imprisonment of either description for a
term which may extend to three years, or with fine, or with both.

Criminal breach of trust by carrier (Section 407)

Whoever, being entrusted with property as a carrier, wharfinger or warehouse-keeper, commits criminal
breach of trust in respect of such property, shall be punished with imprisonment of either description for a
term which may extend to seven years, and shall also be liable to fine.

Criminal breach of trust by clerk or servant (Section 408)

Whoever, being a clerk or servant or employed as a clerk or servant, and being in any manner entrusted in
such capacity with property, or with any dominion over property, commits criminal breach of trust in
respect of that property, shall be punished with imprisonment of either description for a term which may
extend to seven years, and shall also be liable to fine.
Criminal breach of trust by public servant, or by banker, merchant or agent (Section 409)
Whoever, being in any manner entrusted with property, or with any dominion over property in his capacity
of a public servant or in the way of his business as a banker, merchant, factor, broker, attorney or agent,
commits criminal breach of trust in respect of that property, shall be punished with imprisonment for life,
or with imprisonment of either description for a term which may extend to ten years, and shall also be
liable to fine.

The acts of criminal breach of trust done by strangers is treated less harshly than acts of criminal breach of
trust on part of the persons who enjoy special trust and also in a position to be privy to a lot of information
or authority or on account of the status enjoyed by them, say as in the case of a public servant. In respect of
public servants a much more stringent punishment of life imprisonment or imprisonment up to 10 years
with fine is provided. This is because of special status and the trust which a public servant enjoys in the eyes
of the public as a representative of the government or government owned enterprises. The persons having
a fiduciary relationship between them have a greater responsibility for honesty as they have more control
over the property entrusted to them due to their special relationship. Under this section the punishment is
severe and the persons of fiduciary relationship have been classified as public servants, bankers, factors,
brokers, attorneys and agents.

Bagga Singh v. the appellant was a taxation clerk in the Municipal Committee, Sangrur. He had
State of Punjab collected arrears of tax from tax-payers but the sum was not deposited in the funds of
the committee after collection but was deposited after about 5 months. He pleaded
that money was deposited with the cashier Madan Lal, a co-accused, who had
defaulted on the same but the cashier proved that he had not received any such sum
and was acquitted by lower court. The mere fact that the co-accused cashier was
acquitted was not sufficient to acquit accused in the absence of any proof that he had
discharged the trust expected of him. As such the accused was liable under section
409 of Indian Penal Code, 1860.
Bachchu Singh the appellant was working as ‘Gram Sachiv’ for eight gram panchayats. He collected a
v. State of sum of Rs. 648 from thirty villagers towards the house tax and executed receipts for
Haryana, AIR the same. As he was a public servant, and in that capacity he had collected money as
1999 SC 2285 house tax but did not remit the same, he was charged under Section 409 of Indian
Penal Code, 1860. It was held that the appellant dishonestly misappropriated or
converted the said amount for his own use and his conviction under section 409 of
Indian Penal Code, 1860 was upheld by the Supreme Court.
Girish Saini v. , a public servant was accused of neither depositing nor making entries of stationery
State of required for official purpose. Accused public servant was in charge of the store in the
Rajasthan concerned department at the time of commission of offence. Hence entrustment was
proved. It was held accused could not take the benefit of misplacing of one of registers
of company as he could not prove maintenance of two registers by department.
Therefore, the accused was held guilty of committing criminal breach of trust.
 NAHATA PROFESSIONAL ACADEMY 182

CHEATING
Sections 415 to 420 of Indian Penal Code, 1860 deal with the offence of cheating.
In most of the offences relating to property the accused merely get possession of thing in question, but in
case of cheating he obtains possession as well as the property in it.
Section 415 provides that whoever, by deceiving any person, fraudulently or dishonestly induces the person
so deceived to deliver any property to any person, or to consent that any person shall retain any property,
or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit
if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that
person in body, mind, reputation or property, is said to “cheat”.
Explanation.—A dishonest concealment of facts is a deception within the meaning of this section.
Illustrations
(a) A, by falsely pretending to be in the Civil Service, intentionally deceives Z, and thus dishonestly
induces Z to let him have on credit goods for which he does not mean to pay. A cheats.
(b) A, by putting a counterfeit mark on an article, intentionally deceives Z into a belief that this article
was made by a certain celebrated manufacturer, and thus dishonestly induces Z to buy and pay for
the article. A cheats.
(c) A, by exhibiting to Z a false sample of an article intentionally deceives Z into believing that the
article corresponds with the sample, and thereby dishonestly induces Z to buy and pay for the
article. A cheats.
(d) A, by tendering in payment for an article a bill on a house with which A keeps no money, and by
which A expects that the bill will be dishonoured, intentionally deceives Z, and thereby dishonestly
induces Z to deliver the article, intending not to pay for it. A cheats.
(e) A, by pledging as diamond articles which he knows are not diamonds, intentionally deceives Z, and
thereby dishonestly induces Z to lend money. A cheats.
(f) A Intentionally deceives Z into a belief that A means to repay any money that Z may lend to him
and thereby dishonestly induces Z to lend him money, A not intending to repay it. A cheats.
(g) A intentionally deceives Z into a belief that A means to deliver to Z a certain quantity of indigo plant
which he does not intend to deliver, and thereby dishonestly induces Z to advance money upon the
faith of such delivery. A cheats; but if A, at the time of obtaining the money, intends to deliver the
indigo plant, and afterwards breaks his contract and does not deliver it, he does not cheat, but is
liable only to a civil action for breach of contract.
(h) A intentionally deceives Z into a belief that A has performed A’s part of a contract made with Z,
which he has not performed, and thereby dishonestly induces Z to pay money. A cheats.
(i) A sells and conveys an estate to B. A, knowing that in consequence of such sale he has no right to
the property, sells or mortgages the same to Z, without disclosing the fact of the previous sale and
conveyance to B, and receives the purchase or mortgage money from Z. A cheats.

Cheating – Main Ingredients The main ingredients of cheating are as under:

1. Deception of any person.
2. (a) Fraudulently or dishonestly inducing that person
(i) to deliver any property to any person; or
(ii) to consent that any person shall retain any property; or
(b) Intentionally inducing that person to do or omit to do anything which he would not do or omit
if he were not so deceived, and which act or omission causes or is likely to cause damage or
harm to that person in body, mind, reputation or property.
Iridium India The Supreme Court has held that deception is necessary ingredient under both parts
Telecom Ltd. v. of section. Complainant must prove that inducement has been caused by deception
Motorola Inc exercised by the accused. It was held that non-disclosure of relevant information
and Ors., would also be treated a misrepresentation of facts leading to deception.
M.N. Ojha and The Supreme Court has held that where the intention on the part of the accused is to
others v. Alok retain wrongfully the excise duty which the State is empowered under law to recover
Kumar from another person who has removed non-duty paid tobacco from one bonded
Srivastav and warehouse to another, they are held guilty of cheating.
anr,
 NAHATA PROFESSIONAL ACADEMY 183

T.R. Arya v. it was held that negligence in duty without any dishonest intention cannot amount to
State of cheating. A bank employee when on comparison of signature of drawer passes a
Punjab, 1987 cheque there may be negligence resulting in loss to bank, but it cannot be held to be
CrLJ 222, cheating.

Cheating by personation
As per section 416 a person is said to “cheat by personation” if he cheats by pretending to be some other
person, or by knowingly substituting one person for another, or representing that he or any other person is
a person other than he or such other person really is.
Explanation.—The offence is committed whether the individual personated is a real or imaginary person.
Illustrations
(a) A cheats by pretending to be a certain rich banker of the same name. A cheats by personation.
(b) A cheats by pretending to be B, a person who is deceased. A cheats by personation.

Punishment for cheating Section 417 provides that whoever cheats shall be punished with imprisonment of
either description for a term which may extend to one year, or with fine, or with both.

Cheating with knowledge that wrongful loss may ensue to person whose interest offender is bound to
protect
According to section 418 whoever cheats with the knowledge that he is likely to cause wrongful loss to a
person whose interest in the transaction to which the cheating relates, he was bound, either by law, or by a
legal contract, to protect, shall be punished with imprisonment of either description for a term which may
extend to three years, or with fine, or with both.

Punishment for cheating by personation

Section 419 states that whoever cheats by personation shall be punished with imprisonment of either
description for a term which may extend to three years, or with fine, or with both. Cheating and dishonestly
inducing delivery of property

As per section 420 whoever cheats and thereby dishonestly induces the person deceived to deliver any
property to any person, or to make, alter or destroy the whole or any part of a valuable security, or
anything which is signed or sealed, and which is capable of being converted into a valuable security, shall
be punished with imprisonment of either description for a term which may extend to seven years, and
shall also be liable to fine.
Simple cheating is punishable under section 417 of the IPC. Section 420 comes into operation when there is
delivery or destruction of any property or alteration or destruction of any valuable security resulting from
the act of the person deceiving.
Kuriachan In the money circulation scheme was allegedly mathematical impossibility and
Chacko v. State promoters knew fully well that scheme was unworkable and false representations
of Kerala, (2004) were being made to induce persons to part with their money. The Supreme Court
12 SCC 269, held that it could be assumed and presumed that the accused had committed
offence of cheating under section 420 of the IPC.
Mohd. Ibrahim the accused was alleged to have executed false sale deeds and a complaint was filed
and others v. by real owner of property. The accused had a bonafide belief that the property
State of Bihar belonged to him and purchaser also believed that suit property belongs to the
and another, accused. It was held that accused was not guilty of cheating as ingredients of
cheating were not present.
Shruti it was held that mere breach of contract cannot give rise to criminal prosecution
Enterprises v. under section 420 unless fraudulent or dishonest intention is shown right at the
State of Bihar beginning of transaction when the offence is said to have been committed. If it is
and ors, 2006 established that the intention of the accused was dishonest at the time of entering
CrLJ 1961, into the agreement then liability will be criminal and the accused will be guilty of
offence of cheating. On the other hand, if all that is established is that a
representation made by the accused has subsequently not been kept, criminal
 NAHATA PROFESSIONAL ACADEMY 184

liability cannot be fastened on the accused and the only right which complainant
acquires is to a decree of damages for breach of contract.

Fraudulent Deeds and Dispositions of Property

Fraudulent Deeds and Dispositions of Property are covered under section 421 to 424 of the Indian Penal
Code, 1860. These sections deal with fraudulent conveyances referred to in section 53 of the Transfer of
Property Act and the Presidency-towns and Provincial Insolvency Acts.

Dishonest or fraudulent removal or concealment of property to prevent distribution among creditors

(Section 421)
Whoever dishonestly or fraudulently removes, conceals or delivers to any person, or transfers or causes to
be transferred to any person, without adequate consideration, any property, intending thereby to prevent,
or knowing it to be likely that he will thereby prevent, the distribution of that property according to law
among his creditors or the creditors of any other person, shall be punished with imprisonment of either
description for a term which may extend to two years, or with fine, or with both.

Guwahati High Court in Ramautar Chaukhany v Hari Ram Todi & Anr, 1982 CrLJ 2266, held that an offence
under this section has following essential ingredients:

(i) That the accused removed, concealed or delivered the property or that he transferred, it caused it to
be transferred to someone;
(ii) That such a transfer was without adequate consideration;
(iii) That the accused thereby intended to prevent or knew that he was thereby likely to prevent the
distribution of that property according to law among his creditors or creditors of another person;
(iv) That he acted dishonestly and fraudulently.

This section specifically refers to frauds connected with insolvency. The offence under it consists in a
dishonest disposition of property with intent to cause wrongful loss to the creditors. It applies to movable
as well as immovable properties. In view of this section, the property of a debtor cannot be distributed
according to law except after the provisions of the relevant enactments have been complied with.

Dishonestly or fraudulently preventing debt being available for creditors (Section 422)
Whoever dishonestly or fraudulently prevents any debt or demand due to himself or to any other person
from being made available according to law for payment of his debts or the debts of such other person,
shall be punished with imprisonment of either description for a term which may extend to two years, or
with fine, or with both.
This section, like the preceding section 421, is intended to prevent the defrauding of creditors by masking
property. The expression ‘debt’ has not been defined in the IPC or in the General Clauses Act but there are
judicial pronouncements on the same.
In Commissioner of Wealth Tax v G.D. Naidu, AIR 1966 Mad 74, it was held that the essential requisites of
debt are- (1) ascertained or ascertainable, (2) an absolute liability, in present or future, and (3) an obligation
which has already accrued and is subsisting. All debts are liabilities but all liabilities are not debt.
The Supreme Court in Mangoo Singh v. Election Tribunal, AIR 1957 SC 871, has laid down that the word
‘demand’ ordinarily means something more than what is due; it means something which has been
demanded, called for or asked for, but the meaning of the word must take colour from the context and so
‘demand’ may also mean arrears or dues.

Dishonest or fraudulent execution of deed of transfer containing false statement of consideration

(Section 423)
Whoever dishonestly or fraudulently signs, executes or becomes a party to any deed or instrument which
purports to transfer or subject to any charge on property, or any interest therein, and which contains any
false statement relating to the consideration for such transfer or charge, or relating to the person or
persons for whose use or benefit it is really intended to operate, shall be punished with imprisonment of
either description for a term which may extend to two years, or with fine, or with both. This section deals
 NAHATA PROFESSIONAL ACADEMY 185

with fraudulent and fictitious conveyances and transfers. The essential ingredient of an offence under
section 423 is that the sale deed or a deed subjecting an immovable property to a charge must contain a
false statement relating to the consideration or relating to the person for whose use or benefit it is
intended to operate.
Though dishonest execution of a benami deed is covered under this section, the section stands superseded
by The Prohibition of Benami Properties Transactions Act, 1988 because the latter covers a wider filed,
encompassing the field covered by this section.
Dishonest or fraudulent removal or concealment of property (Section 424)
Whoever dishonestly or fraudulently conceals or removes any property of himself or any other person, or
dishonestly or fraudulently assists in the concealment or removal thereof, or dishonestly releases any
demand or claim to which he is entitled, shall be punished with imprisonment of either description for a
term which may extend to two years, or with fine, or with both.
The essential ingredients to bring an offence under section 424 are as follows:
(i) There is a property;
(ii) That the accused concealed or removed the said property or assisted in concealing or removing the
said property;
(iii) That the said concealment or removal or assisting in removal or concealment was done dishonestly
or fraudulently.
Or,
(i) That the accused was entitled to a demand or claim;
(ii) That the accused released the same;
(iii) That he so released dishonestly or fraudulently.

Forgery
Forgery is defined under section 463 of the Indian Penal Code, 1860 and the punishment for it is prescribed
under section 465.
Forgery (Section 463)
Whoever makes any false document or false electronic record or part of a document or electronic record,
with intent to cause damage or injury, to the public or to any person, or to support any claim or title, or to
cause any person to part with property, or to enter into any express or implied contract, or with intent to
commit fraud or that fraud may be committed, commits forgery.
Punishment for forgery (Section 465)
Whoever commits forgery shall be punished with imprisonment of either description for a term which may
extend to two years, or with fine, or with both. The making of a false document or false electronic record is
defined under section 464 of the Indian Penal Code, 1860.
Ramchandran The Supreme Court has held that to constitute an offence of forgery document must be
v. State, AIR made with dishonest or fraudulent intention. A person is said to do a thing fraudulently
2010 SC 1922, if he does that thing with intent to defraud but not otherwise.

Parminder The Supreme Court has held that mere alteration of document does not make it a
Kaur v. State forged document. Alteration must be made for some gain or for some objective.
ofUP,
Balbir Kaur v. There was allegation against the accused was that she furnished a certificate to get
State of employment as ETT teacher which was found to be bogus and forged in as much as
Punjab, 2011 school was not recognized for period given in certificate. However the certificate did
CrLJ 1546 not anywhere say that school was recognized. It was held that merely indicating
(P&H), teaching experience of the accused, per-se, cannot be said to indicate wrong facts. So
the direction which was issued for prosecution is liable to be quashed.

DEFAMATION
Section 499 provides that whoever, by words either spoken or intended to be read, or by signs or by visible
representations, makes or publishes any imputation concerning any person intending to harm, or knowing
or having reason to believe that such imputation will harm, the reputation of such person, is said, except in
the cases hereinafter excepted, to defame that person.
 NAHATA PROFESSIONAL ACADEMY 186

Explanation 1.— It may amount to defamation to impute anything to a deceased person, if the
imputation would harm the reputation of that person if living, and is intended to be
hurtful to the feelings of his family or other near relatives.
Explanation 2.— It may amount to defamation to make an imputation concerning a company or an
association or collection of persons as such.
Explanation 3.— An imputation in the form of an alternative or expressed ironically, may amount to
defamation.
Explanation 4.— No imputation is said to harm a person’s reputation, unless that imputation directly
or indirectly, in the estimation of others, lowers the moral or intellectual character of
that person, or lowers the character of that person in respect of his caste or of his
calling, or lowers the credit of that person, or causes it to be believed that the body of
that person is in a lothsome state, or in a state generally considered as disgraceful.
Illustrations
(a) A says— “Z is an honest man; he never stole B’s watch”; intending to cause it to be believed
that Z did steal B’s watch. This is defamation, unless it fall within one of the exceptions.
(b) A is asked who stole B’s watch. A points to Z, intending to cause it to be believed that Z stole
B’s watch. This is defamation, unless it fall within one of the exceptions.
(c) A draws a picture of Z running away with B’s watch, intending it to be believed that Z stole B’s
watch. This is defamation, unless it fall within one of the exceptions.

Exceptions
First Exception.—Imputation of truth which public good requires to be made or published.—It is not
defamation to impute anything which is true concerning any person, if it be for the public good that the
imputation should be made or published. Whether or not it is for the public good is a question of fact.

Second Exception.—Public conduct of public servants.—It is not defamation to express in good faith any
opinion whatever respecting the conduct of a public servant in the discharge of his public functions, or
respecting his character, so far as his character appears in that conduct, and no further.

Third Exception.—Conduct of any person touching any public question.—It is not defamation to express in
good faith any opinion whatever respecting the conduct of any person touching any public question, and
respecting his character, so far as his character appears in that conduct, and no further.

Illustration It is not defamation in A to express in good faith any opinion whatever regarding Z’s conduct
in petitioning Government on a public question, in signing a requisition for a meeting on a
public question, in presiding or attending at such meeting, in forming or joining any society
which invites the public support, in voting or canvassing for a particular candidate for any
situation in the efficient discharge of the duties of which the public is interested.

Fourth Exception.—Publication of reports of proceedings of courts.—It is not defamation to publish

substantially true report of the proceedings of a Court of justice, or of the result of any such proceedings.

Explanation.—A Justice of the Peace or other officer holding an enquiry in open Court preliminary to a trial
in a Court of Justice, is a Court within the meaning of the above section.

Fifth Exception.—Merits of case decided in Court or conduct of witnesses and others concerned.—
It is not defamation to express in good faith any opinion whatever respecting the merits of any case, civil or
criminal, which has been decided by a Court of Justice, or respecting the conduct of any person as a party,
witness or agent, in any such case, or respecting the character of such person, as far as his character
appears in that conduct, and no further.
Illustrations
(a) A says—“I think Z’s evidence on that trial is so contradictory that he must be stupid or
dishonest.” A is within this exception if he says this in good faith, inasmuch as the opinion
which he expresses respects Z’s character as it appears in Z’s conduct as a witness, and no
farther.
 NAHATA PROFESSIONAL ACADEMY 187

(b) But if A says—“I do not believe what Z asserted at that trial because I know him to be a man
without veracity”; A is not within this exception, inasmuch as the opinion which express of Z’s
character, is an opinion not founded on Z’s conduct as a witness.

Sixth Exception.—Merits of public performance.—It is not defamation to express in good faith any opinion
respecting the merits of any performance which its author has submitted to the judgment of the public, or
respecting the character of the author so far as his character appears in such performance, and no further.

Explanation.—A performance may be submitted to the judgment of the public expressly or by acts on the
part of the author which imply such submission to the judgment of the public.

Illustrations
(a) A person who publishes a book, submits that book to the judgment of the public.
(b) A person who makes a speech in public, submits that speech to the judgment of the public.
(c) An actor or singer who appears on a public stage, submits his acting or singing to the
judgment of the public.
(d) A says of a book published by Z—“Z’s book is foolish; Z must be a weak man. Z’s book is
indecent; Z must be a man of impure mind.” A is within the exception, if he says this in good
faith, inasmuch as the opinion which he expresses of Z respects Z’s character only so far as it
appears in Z’s book, and no further.
(e) But if A says “I am not surprised that Z’s book is foolish and indecent, for he is a weak man and
a libertine.” A is not within this exception, inasmuch as the opinion which he expresses of Z’s
character is an opinion not founded on Z’s book.

Seventh Exception.—Censure passed in good faith by person having lawful authority over another.—It is
not defamation in a person having over another any authority, either conferred by law or arising out of a
lawful contract made with that other, to pass in good faith any censure on the conduct of that other in
matters to which such lawful authority relates.

Illustration A Judge censuring in good faith the conduct of a witness, or of an officer of the Court; a head
of a department censuring in good faith those who are under his orders, a parent censuring in
good faith a child in the presence of other children; a schoolmaster, whose authority is
derived from a parent, censuring in good faith a pupil in the presence of other pupils; a master
censuring a servant in good faith for remissness in service; a banker censuring in good faith
the cashier of his bank for the conduct of such cashier as such cashier- are within this
exception.

Eighth Exception.—Accusation preferred in good faith to authorised person.—It is not defamation to

prefer in good faith an accusation against any person to any of those who have lawful authority over that
person with respect to the subject-matter of accusation.
Illustration If A in good faith accuses Z before a Magistrate; if A in good faith complains of the conduct of
Z, a servant, to Z’s master;if A in good faith complains of the conduct of Z, a child, to Z’s
father- A is within this exception.

Ninth Exception.—Imputation made in good faith by person for protection of his or other’s interests.—It
is not defamation to make an imputation on the character of another provided that the imputation be
made in good faith for the protection of the interests of the person making it, or of any other person, or for
the public good.
Illustrations
(a) A, a shopkeeper, says to B, who manages his business—“Sell nothing to Z unless he pays you
ready money, for I have no opinion of his honesty.” A is within the exception, if he has made
this imputation on Z in good faith for the protection of his own interests.
 NAHATA PROFESSIONAL ACADEMY 188

(b) A, a Magistrate, in making a report to his own superior officer, casts an imputation on the
character of Z. Here, if the imputation is made in good faith, and for the public good, A is
within the exception.

Tenth Exception.—Caution intended for good of person to whom conveyed or for public good.—It is not
defamation to convey a caution, in good faith, to one person against another, provided that such caution be
intended for the good of the person to whom it is conveyed, or of some person in whom that person is
interested, or for the public good.

Punishment for defamation

According to section 500 whoever defames another shall be punished with simple imprisonment for a term
which may extend to two years, or with fine, or with both.
According to Lord Macaulay, who had a major role in drafting of the Indian Penal Code, the essence of
offence of defamation consists in its tendency to cause that description of pain which is felt by a person
who knows himself to be the object of the unfavourable sentiments of his fellow creatures, and those
inconveniences to which a person who is the object of such unfavourable sentiments is exposed.

Kinds of Defamation
The wrong of defamation is of two kinds- libel and slander.
In libel, the defamatory statement is made in some permanent and visible form, such as writing, printing or
pictures.
In slander it is made in spoken words or in some other transitory form, whether visible or audible, such as
gestures or inarticulate but significant sounds. The ambit of ‘publish’ is very wide. The publication of
defamatory matter means that it is communicated to some person other than the person about whom it is
addressed.
Printing or engraving matter known to be defamatory
Section 501 provides that whoever prints or engraves any matter, knowing or having good reason to believe
that such matter is defamatory of any person, shall be punished with simple imprisonment for a term which
may extend to two years, or with fine, or with both.
A person printing or engraving defamatory matter abets the offence of defamation and is guilty under
section 501.
Printing or engraving of defamatory material is not sufficient and the court is required to be satisfied that
the accused knew or had good reasons to believe that such a matter was defamatory before holding a
person guilty under section 501.
In Sankaran v. Ramkrishna Pillai, AIR 1960 Ker 141, the defamatory matter was printed in Malayalam and
the accused did not know the language, his mens rea was absent and he was not guilty. Sale of printed or
engraved substance containing defamatory matter Whoever sells or offers for sale any printed or engraved
substance containing defamatory matter, knowing that it contains such matter, shall be punished with
simple imprisonment for a term which may extend to two years, or with fine, or with both.
To bring an offence under section 502, it must be:
(i) That the published material was defamatory as per section 499 of the IPC.
(ii) That the published material was either printed or engraved.
(iii) That the accused knew that such matter contained defamatory imputation
(iv) That the accused sold or offered for sale the defamatory matter.

Q.1: In exceptional cases, mere ‘preparation’ to commit an offence is punishable under Indian Penal
Code, 1860. Discuss.
Q.2: The ‘mens rea’ is an essential element to constitute an offence under Indian Penal Code, 1860.
Discuss briefly. [DEC-18]
Q.3: Naveen takes property belonging to Ganesh out of Ganesh possession in good faith belonging at
the time when he takes it that the property belongs to himself. Later on Naveen discovers his
mistake, dishonestly misappropriates the property to his own use. Explain what offence he has
done ? [JUNE-19]
Q.4: Describe kinds of offences under which capital punishment may be awarded by Court under Indian
Penal Code. [DEC-19]
 NAHATA PROFESSIONAL ACADEMY 189

Q.5: Distinguish between ‘Libel’ and ‘Slander’ under Indian Penal Code, 1860. [DEC-2020]
(6) Discuss the important forms of ‘mens rea’ under the Indian Penal Code, 1860.
(7) Define ‘criminal breach of trust’ under section 405 of the Indian Penal Code, 1860. State the
essential ingredients of the offence of criminal breach of trust.
&
‘A’ is a warehouse-keeper. ‘Z’ going on a journey, entrusts his furniture to A, under a contract that it shall
be returned on payment of a stipulated sum for warehouse room. A dishonestly sells the goods.
Discuss, when offence, if any, committed by A ? [DEC-2021]
(9) The Parliament passed many laws in the interest of public safety and social welfare. It imposes
absolute liability in Criminal Law. Elaborate. [DEC-2021]
(10) Companies can no longer claim immunity from criminal liability on the ground that they are
incapable of possessing the necessary mens rea for commission of offences. Critically examine.
(11) ‘A’ under a bonafide belief that certain property belongs to him and purchaser also under the
same belief purchased the property from A. Subsequently real owner ‘C’ filed a complaint of
cheating against ‘A’ for having executed a false sale deed. Whether A is liable for punishment
under Indian Penal Code, 1860 ? Discuss.
(12) Discuss the summary trial by a Magistrate under the Criminal Procedure Code, 1973. [DEC-2018]
(13) Distinguish between cognizable and non-cognizable offence under the Criminal Procedure Code,
1973. (4 marks) [JUNE-19]
(14) Enumerate any four categories of cases in which a police officer may arrest a person without an
order from magistrate and without a warrant under section 41 of Cr.P.C., 1973. [DEC-2019] (4
marks) [DEC-2020] (5 Marks)
(15) Describe in brief the cases in which a Search Warrant can be issued under Section 93 in the
Criminal Procedure Code, 1973.[DEC-2019] (4 marks)
(16) Explain the requisites of a ‘warrant of arrest’. What is the time limit within which the police officer
should bring the person arrested before the court.
(17) Explain the procedure given in Criminal Procedure Code, 1973 for publication of proclamation
regarding absconding persons. [DEC-2021]
(18) Discuss in brief the power of the court to try offences under Indian Penal Code and any other law
as laid down in Criminal Procedure Code, 1973
(19) What are the duties of a police officer while making an arrest under Section 41B and the right of an
arrested person under Section 41D of Criminal Procedure Code, 1973 ?
(20) A magistrate of the first class passed a sentence of imprisonment for a term of three years with a
fine of Rs.4,000 and in lieu of non-payment thereof an additional imprisonment for another one
year. Has the aggrieved person any right to appeal against this sentence ? [DEC-2010] (6 Marks)
[JUNE-2014] (5 Marks)
(21) Angad is charged for murder of Binod. The charge sheet is filed in the court of Chief Judicial
Magistrate, who passed an order of sentence of imprisonment for life. Angad engages you as an
advocate. Advise the course of action to Angad giving reasons. [DEC-2010] (5 Marks)
(22) Sohan is tried summarily by the Metropolitan Magistrate on the charge of committing theft and is
sentenced to undergo imprisonment for a period of six months. Can Sohan challenge this decision
? If so, on what grounds ? . [JUNE-2012] (5 Marks) [DEC-2013] (5 Marks)
 NAHATA PROFESSIONAL ACADEMY 190

CHAPTER 8
LAW RELATING TO EVIDENCE
The “Law of Evidence” may be defined as a system of rules for ascertaining controverted questions of fact
in judicial inquiries. This system of ascertaining the facts, which are the essential elements of a right or
liability and is the primary and perhaps the most difficult function of the Court, is regulated by a set of rules
and principles known as “Law of Evidence”.
Rules of evidence in civil and criminal proceeding
In general the rules of evidence are same in civil and criminal proceedings but there is a strong and marked
difference as to the effect of evidence in civil and criminal proceedings. In the former a mere
preponderance of probability due regard being had to the burden of proof, is sufficient basis of a
decision, but in the latter, specially when the offence charged amounts to felony or treason, a much higher
degree of assurance is required.
The persuasion of guilt must amount to a moral certainty such as to be beyond all reasonable doubt.

1 Applicability of Indian Evidence Act, 1872

The Indian Evidence Act, 1872 extends to the whole of India and applies to all judicial proceedings
in or before any Court, including Courts-martial, other than Courts-martial convened under
• the Army Act (44 & 45 Vict., c. 58)]
• the Naval Discipline Act [29 & 30 Vict., 109]; or
• the Indian Navy (Discipline) Act, 1934 (34 of 1934),] or
• the Air Force Act (7 Geo. 5, c. 51)
but not to affidavits presented to any Court or officer, nor to proceedings before an arbitrator;

3 Interpretation-clause.
Court–– includes all Judges and Magistrates, and all persons, except arbitrators, legally authorised
to take evidence.
Fact –– means and includes––
(1) anything, state of things, or relation of things, capable of being perceived by the senses;
(2) any mental condition of which any person is conscious.
Illustrations
(a) That there are certain objects arranged in a certain order in a certain place, is a fact.
(b) That a man heard or saw something, is a fact.
(c) That a man said certain words, is a fact.
(d) That a man holds a certain opinion, has a certain intention, acts in good faith or
fraudulently, or uses a particular word in a particular sense, or is or was at a specified
time conscious of a particular sensation, is a fact.
(e) That a man has a certain reputation, is a fact.

Relevant One fact is said to be relevant to another when the one is connected with the other in
any of the ways referred to in the provisions of this Act relating to the relevancy of facts.

Facts in issue–– means and includes––

 any fact from which, either by itself or in connection with other facts, the existence, non-
existence, nature or extent of any right, liability, or disability, asserted or denied in any
suit or proceeding, necessarily follows.
 Explanation.––Whenever, under the provisions of the law for the time being in force
relating to Civil Procedure,1 any Court records an issue of fact, the fact to be asserted or
denied in the answer to such issue is a fact in issue.
Illustrations
A is accused of the murder of B. At his trial the following facts may be in issue:––
• That A caused B’s death;
• That A intended to cause B’s death;
• That A had received grave and sudden provocation from B;
That A, at the time of doing the act which caused B’s death, was, by reason of unsoundness of
 NAHATA PROFESSIONAL ACADEMY 191

mind, incapable of knowing its nature.

Logical relevancy and legal relevancy

A fact is said to be logically relevant to another when it bears such casual relation with the other
as to render probably the existence or non-existence ofthe latter. All facts logically relevant are
not, however, legally relevant. Relevancy under the Act is not a question of pure logic but of law,
as no fact, however logically relevant, is receivable in evidence unless it is declared by the Act to
be relevant. Of course every fact legally relevant will be found to be logically relevant; but every
fact logically relevant is not necessarily relevant under the Act as common sense or logical
relevancy is wider than legal relevancy. A judge might in ordinary transaction, take one fact as
evidence of another and act upon it himself, when in Court, he may rule that it was legally
irrelevant. And he may exclude facts, although logically relevant, if they appear to him too remote
to be really material to the issue.
Under Indian Evidence Act, 1872, Legal relevancy is to considered as against logical relevancy.

Legal relevancy and admissibility

Relevancy and admissibility are not co-extensive or interchangeable terms. A fact may be legally
relevant, yet its reception in evidence may be prohibited on the grounds of public policy, or on
some other ground. Similarly every admissible factis not necessarily relevant. The tenth Chapter
ofthe Act makes a number of facts receivable in evidence, but these facts are not “relevant”
under the second Chapter which alone defines relevancy.

Document. –– means any matter expressed or described upon any substance by means of letters,
figures or marks, or by more than one of those means, intended to be used, or which may
be used, for the purpose of recording that matter.
Illustrations
• A writing is a document;
• Words printed lithographed or photographed are documents; A map or plan is a
document;
• An inscription on a metal plate or stone is a document; A caricature is a document.

Evidence means and includes ––

• all statements which the Court permits or requires to be made before it by witnesses, in
relation to matters of fact under inquiry; such statements are called oral evidence;
• all documents including electronic records produced for the inspection of the Court;such
documents are called documentary evidence.

5. Evidence may be given of facts in issue and relevant facts. ––

Evidence may be given in any suit or proceeding of the existence of non-existence of every fact in
issue and of such other facts as are hereinafter declared to be relevant, and of no others.
Explanation.––This section shall not enable any person to give evidence of a fact which he is
disentitled to prove by any provision of the law for the time being in force relating to Civil
Procedure
Illustrations
A is tried for the murder of B by beating him with a club with the intention of causing his death. At
A’s trial the following facts are in issue:––
A’s beating B with the club;
A’s causing B’s death by such beating;A’s intention to cause B’s death.
A suitor does not bring with him, and have in readiness for production at the first hearing of the
case, a bond on which he relies. This section does not enable him to produce the bond or prove
its contents at a subsequent stage of the proceedings, otherwise than in accordance with the
conditions prescribed by the Code of Civil Procedure.

6. Relevancy of facts forming part of same transaction.––

 NAHATA PROFESSIONAL ACADEMY 192

Facts which, though not in issue, are so connected with a fact in issue as to form part of the same
transaction, are relevant, whether they occurred at the same time and place or at different times
and places.
Illustrations
(a) A is accused of the murder of B by beating him. Whatever was said or done by A or B or the
by-standers at the beating, or so shortly before or after it as to form part of the
transaction, is a relevant fact.
(b) A is accused of waging war against the Government of India by taking part in an armed
insurrection in which property is destroyed, troops are attacked and gaols are broken
open. The occurrence of these facts is relevant, as forming part of the general transaction,
though A may not have been present at all of them.
(c) A sues B for a libel contained in a letter forming part of a correspondence. Letters between
the parties relating to the subject out of which the libel arose, and forming part of the
correspondence in which it is contained, are relevant facts, though they do not contain the
libel itself.
(d) The question is, whether certain goods ordered from B were delivered to A. The goods
were delivered to several intermediate persons successively. Each delivery is a relevant
fact.

7. Facts which are the occasion, cause or effect of facts in issue. ––

Facts which are the occasion, cause or effect, immediate or otherwise, of relevant facts, or facts
in issue, or which constitute the state of things under which they happened, or which afforded an
opportunity for their occurrence or transaction, are relevant.
Illustrations
(a) The question is, whether A robbed B.
The facts that, shortly before the robbery, B went to a fair with money in his possession,
and that he showed it, or mentioned the fact that he had it, to third persons, are
relevant.
(b) The question is, whether A murdered B.
Marks on the ground, produced by a struggle at or near the place where the murder was
committed, are relevant facts.
(c) The question is, whether A poisoned B.
The state of B’s health before the symptoms ascribed to poison, and habits of B, known to
A, which afforded an opportunity for the administration of poison, are relevant facts.

8. Motive, preparation and previous or subsequent conduct.––

Any fact is relevant which shows or constitutes a motive or preparation for any fact in issue or
relevant fact.
The conduct of any party, or of any agent to any party, to any suit or proceeding, in reference to
such suit or proceeding, or in reference to any fact in issue therein or relevant thereto, and the
conduct of any person an offence against whom is the subject of any proceeding, is relevant, if
such conduct influences or is influenced by any fact in issue or relevant fact, and whether it was
previous or subsequent thereto.
Explanation 1.––The word “conduct” in this section does not include statements, unless those
statements accompany and explain acts other than statements; but this explanation is not to
affect the relevancy of statements under any other section of this Act.
Explanation 2.––When the conduct of any person is relevant, any statement made to him or in
his presence and hearing, which affects such conduct, is relevant.
Illustrations
(a) A is tried for the murder of B.
The facts that A murdered C, that B knew that A had murdered C, and that B had tried to
extort money from A by threatening to make his knowledge public, are relevant.
(b) A sues B upon a bond for the payment of money, B denies the making of the bond.
The fact that, at the time when the bond was alleged to be made, B required money for a
 NAHATA PROFESSIONAL ACADEMY 193

particular purpose, is relevant.

(c) A is tried for the murder of B by poison.
The fact that, before the death of B, A procured poison similar to that which was
administered to B, is relevant.
(d) The question is, whether a certain document is the will of A.
The facts that, not long before, the date of the alleged will, A made inquiry into matters to
which the provisions of the alleged will relate; that he consulted vakils in reference to
making the will, and that he caused drafts of other wills to be prepared, of which he did
not approve, are relevant.
(e) A is accused of a crime.
The facts that, either before, or at the time of, or after the alleged crime, A provided
evidence which would tend to give to the facts of the case an appearance favourable to
himself, or that he destroyed or concealed evidence, or prevented the presence or
procured the absence of persons who might have been witnesses, or suborned persons
to give false evidence respecting it, are relevant.
(f) The question is, whether A robbed B.
The facts that, after B was robbed, C said in A’s presence –– “the police are coming to look
for the man who robbed B,” and that immediately afterwards A ran away, are relevant.
(g) The question is, whether A owes B rupees 10,000.
The facts that A asked C to lend him money, and that D said to C in A’s presence and
hearing–– “I advise you not to trust A, for he owes B 10,000 rupees,” and that A went
away without making any answer, are relevant facts.
(h) The question is, whether A committed a crime.
The fact that A absconded, after receiving a letter, warning him that inquiry was being
made for the criminal, and the contents of the letter, are relevant.
(i) A is accused of a crime.
The facts that, after the commission of the alleged crime, he absconded, or was in
possession of property or the proceeds of property acquired by the crime, or attempted
to conceal things which were or might have been used in committing it, are relevant.
(j) The question is, whether A was ravished.
The facts that, shortly after the alleged rape, she made a complaint relating to the crime,
the circumstances under which, and the terms in which, the complaint was made, are
relevant.
The fact that, without making a complaint, she said that she had been ravished is not
relevant as conduct under this section, though it may be relevant as a dying declaration
under section 32, clause (1), or as corroborative evidence under section 157.
(k) The question is, whether A was robbed.
The fact that, soon after the alleged robbery, he made a complaint relating to the offence,
the circumstances under which, and the terms in which, the complaint was made, are
relevant.
The fact that he said he had been robbed, without making any complaint, is not relevant,
as conduct under this section, though it may be relevant as a dying declaration under
section 32, clause (1), or as corroborative evidence under section 157.

9. Facts necessary to explain or introduce relevant facts.––

Facts necessary to explain or introduce a fact in issue or relevant fact, or which support or rebut
an inference suggested by a fact in issue or relevant fact, or which establish the identity of any
thing or person whose identity is relevant, or fix the time or place at which any fact in issue or
relevant fact happened, or which show the relation of parties by whom any such fact was
transacted, are relevant in so far as they are necessary for that purpose.
Illustrations
(a) The question is, whether a given document is the will of A.
The state of A’s property and of his family at the date of the alleged will may be relevant
facts.
(b) A sues B for a libel imputing disgraceful conduct to A; B affirms that the matter alleged
 NAHATA PROFESSIONAL ACADEMY 194

to be libellous is true.
The position and relations of the parties at the time when the libel was published may be
relevant facts as introductory to the facts in issue.
The particulars of a dispute between A and B about a matter unconnected with the
alleged libel are irrelevant, though the fact that there was a dispute may be relevant if it
affected the relations between A and B.
(c) A is accused of a crime.
The fact that, soon after the commission of the crime, A absconded from his house, is
relevant under section 8, as conduct subsequent to and affected by facts in issue.
The fact that, at the time when he left home, he had sudden and urgent business at the
place to which he went, is relevant, as tending to explain the fact that he left home
suddenly.
The details of the business on which he left are not relevant, except in so far as they are
necessary to show that the business was sudden and urgent.
(d) A sues B for inducing C to break a contract of service made by him with A. C, on leaving
A’s service, says to A –– “I am leaving you because B has made me a better offer.”
This statement is a relevant fact as explanatory of C’s conduct, which is relevant as a fact
in issue.
(e) A, accused of theft, is seen to give the stolen property to B, who is seen to give it to A’s
wife. B says as he delivers it––“A says you are to hide this.”
B’s statement is relevant as explanatory of a fact which is part of the transaction.
(f) A is tried for a riot and is proved to have marched at the head of a mob. The cries of the
mob are relevant as explanatory of the nature of the transaction.

17. Admission defined.––

An admission is a statement, oral or documentary or contained in electronic form, which suggests
any inference as to any fact in issue or relevant fact, and which is made by any of the persons, and
under the circumstances, hereinafter mentioned.

18. Admission by party to proceeding or his agent.––

Statements made by a party to the proceeding, or by an agent to any such party, whom the
Court regards, under the circumstances of the case, as expressly or impliedly authorised by him
to make them, are admissions.
by suitor in representative character.––Statements made by parties to suits suing or sued in a
representative character, are not admissions, unless they were made while the party making
them held that character.
Statements made by ––
(1) by party interested in subject-matter.––persons who have any proprietary or pecuniary
interest in the subject-matter of the proceeding, and who make the statement in their
character of persons so interested, or
(2) by person from whom interest derived.––persons from whom the parties to the suit
have derived their interest in the subject-matter of the suit, are admissions, if they are
made during the continuance of the interest of the persons making the statements.

19. Admissions by persons whose position must be proved as against party to suit. ––
Statements made by persons whose position or liability, it is necessary to prove as against any
party to the suit, are admissions, if such statements would be relevant as against such persons in
relation to such position or liability in a suit brought by or against them, and if they are made
whilst the person making them occupies such position or is subject to such liability.
Illustration
 A undertakes to collect rents for B.
 B sues A for not collecting rent due from C to B. A denies that rent was due from C to B.
 A statement by C that he owed B rent is an admission, and is a relevant fact as against A,
if A denies that C did owe rent to B.
 NAHATA PROFESSIONAL ACADEMY 195

20. Admissions by persons expressly referred to by party to suit. ––

Statements made by persons to whom a party to the suit has expressly referred for information
in reference to a matter in dispute are admissions.
Illustration
The question is, whether a horse sold by A to B is sound.
A says to B –– “Go and ask C, C knows all about it.” C’s statement is an admission.

24 Confession caused by inducement, threat or promise, when irrelevant in criminal proceeding.–

A confession made by an accused person is irrelevant in a criminal proceeding, if the making of
the confession appears to the Court to have been caused by any inducement, threat or 2promise
having reference to the charge against the accused person, proceeding from a person in
authority and sufficient, in the opinion of the Court, to give the accused person grounds which
would appear to him reasonable for supposing that by making it he would gain any advantage or
avoid any evil of a temporal nature in reference to the proceedings against him.

According to Section 24, confession caused by inducement, threat or promise is irrelevant.

To attract the prohibition contained in Section 24 of the Evidence Act the following six facts
must be established:
(a) that the statement in question is a confession;
(b) that such confession has been made by an accused person;
(c) that it has been made to a person in authority;
(d) that the confession has been obtained by reason of any inducement, threat or promise
proceeded from a person in authority;
(e) such inducement, threat or promise, must have reference to the charge against the
accused person;
(f) the inducement, threat or promise must in the opinion of the Court be sufficient to give
the accused person grounds, which would appear to him reasonable for supposing that by
making it he would gain any advantage or avoid any evil of a temporal nature in reference
to the proceedings against him.

To exclude the confession it is not always necessary to prove that it was the result of
inducement, threat or promise. It is sufficient if a legitimate doubt is created in the mind of the
Court or it appears to the Court that the confession was not voluntary. It is however for the
accused to create this doubt and not for the prosecution to prove that it was voluntarily made. A
confession if voluntary and truthfully made is an efficacious proof of guilt

An admission must be clear, precise, not vague or ambiguous.

In Basant Singh v. Janky Singh, (1967) 1 SCR 1, The Supreme Court held:
“(1) Section 17 of the Indian Evidence Act, 1872 makes no distinction between an admission
made by a party in a pleading and other admission. Under the Indian law, an admission
made by a party in a plaint signed and verified by him may be used as evidence against
him in other suits. However, this admission cannot be regarded as conclusive and it is
open to the party to show that it is not true.
(2) All the statements made in the plaint are admissible as evidence. The Court is, however,
not bound to accept all the statements as correct. The Court may accept some of the
statements and reject the rest.”
Admission means conceding something against the person making the admission. That
is why it is stated as a general rule (the exceptions are in Section 21), that admissions
must be self-harming; and because a person is unlikely to make a statement which is
self-harming unless it is true evidence of such admissions as received in Court.
These Sections deal only with admissions oral and written. Admissions by conduct are
not covered by these sections. The relevancy of such admissions by conduct depends
upon Section 8 and its explanations.
Oral admissions as to the contents of electronic records are not relevant, unless the
 NAHATA PROFESSIONAL ACADEMY 196

genuineness of the record produced is in question. (Section 22A)

25 Confession to police-officer not to be proved.––
No confession made to a police-officer, shall be proved as against a person accused of any
offence.

26 Confession by accused while in custody of police not to be proved against him.––

No confession made by any person whilst he is in the custody of a police-officer, unless it be
made in the immediate presence of a Magistrate, shall be proved as against such person.
Explanation.––In this section “Magistrate” does not include the head of a village discharging
magisterial functions in the Presidency of Fort St. George or elsewhere, unless such headman is
a Magistrate exercising the powers of a Magistrate under the Code of Criminal
Procedure, 1882 (10 of 1882).

The Privy It was observed that: No statement that contains self exculpatory matter can amount
Council in to confession, if the exculpatory statement is of some fact which if true would negative
Pakala the offence alleged to be confessed. All confessions are admissions but not vice versa.
Narayanasw A confession must, either admit, in terms the offence, or substantially all the facts which
ami v. constitute the offence.
Emperor, An admission of a gravely incriminating fact, is not of itself a confession. For example, an
(1929) PC 47, admission that the accused was the owner of and was in recent possession of the knife
or revolver which caused a death with no explanation of any other man’s possession of
the knife or revolver. A confession cannot be construed as meaning a statement by the
accused suggesting the inference that he committed the crime

30. Consideration of proved confession affecting person making it and others jointly under trial
for same offence.––
When more persons than one are being tried jointly for the same offence, and a confession
made by one of such persons affecting himself and some other of such persons is proved, the
Court may take into consideration such confession as against such other person as well as
against the person who makes such confession.
Explanation.––“Offence,” as used in this section, includes the abetment of, or attempt to
commit, the offence.
Illustrations
(a) A and B are jointly tried for the murder of C. It is proved that A said––“B and I murdered
C”. The Court may consider the effect of this confession as against B.
(b) A is on his trial for the murder of C. There is evidence to show that C was murdered by A
and B, and that B said ––“A and I murdered C”.
This statement may not be taken into consideration by the Court against A, as B is not being
jointly tried.

Confessions Vs. Admissions

 A confession, however, is received in evidence for the same reason as an admission, and like an
admission it must be considered as a whole. Further,
 there can be an admission either in a civil or a criminal proceedings, whereas there can be a
confession only in criminal proceedings.
 An admission need not be voluntary to be relevant, though it may affect its weight; but a
confession to be relevant, must be voluntary.
 There can be relevant admission made by an agent or even a stranger, but, a confession to be
relevant must be made by the accused himself. A confession of a co-accused is not strictly relevant,
though it may be taken into consideration, under Section 30 in special circumstances.

Confessions are classified as: (a) judicial, and (b) extra-judicial.

 NAHATA PROFESSIONAL ACADEMY 197

Judicial confessions are those made before a Court or recorded by a Magistrate under Section 164 of the
Criminal Procedure Code after following the prescribed procedure such as warning the accused that he
need not to make the confession and that if he made it, it would be used against him.

Extra-judicial confessions are those which are made either to the police or to any person other than Judges
and Magistrates as such.
An extra-judicial confession if voluntary, can be relied upon by the Court along with other evidence. It will have to be
proved just like any other fact. The value of the evidence depends upon the truthfulness of the witness to whom it is
made.

In Ram The Supreme Court held that where an extra-judicial confession was made before a
Khilari v. witness who was a close relative of the accused and the testimony of said witness was
State of reliable and truthful, the conviction on the basis of extra judicial confession is proper.
Rajasthan, In another case, the Supreme Court has further held that the law does not require that
AIR 1999 SC the evidence of an extrajudicial confession should be corroborated in all cases. When
1002, such confession was proved by an independent witness who was a responsible officer
and one who bore no animus against the accused, there is hardly any justification to
disbelieve it.Also,where the Courtfinds thatthe confession made by the accused to his
friend was unambiguous and unmistakably conveyed that the accused was the
perpetrator of the crime and the testimony of the friend was truthful, reliable and
trustworthy, a conviction based on such extra-judicial confession is proper and no
corroboration is necessary. Much importance could not be given to minor discrepancies
and technical errors (Vinayak Shivajirao Pol v. State of Maharashtra, 1998 (1) Scale 159).
R. the accused murdered and then went to Vice- President of the panchayat Board and
Kuppusamy confessed his crime. The court observed that legal provisions well settled that an extra-
V. State, judicial confession is capable of sustaining a conviction provided that given case which
2013 (3) SCC will, however, depend upon the facts and circumstances of each case and on satisfaction
322, of the court as to the reliability of the confession. Keeping in view the circumstances in
which the confession is made, the person to whom it is alleged to have been made and
the facts available as to truth of such confession that will determine whether together
the extra judicial confession ought to be made a basis for holding the accused guilty or
not.

STATEMENTS BY PERSONS WHO CANNOT BE CALLED AS WITNESSES

32. Cases in which statement of relevant fact by person who is dead or cannot be found, etc., is
relevant. ––
Statements, written or verbal, of relevant facts made by a person who is dead, or who cannot be
found, or who has become incapable of giving evidence, or whose attendance cannot be
procured without an amount of delay or expense which under the circumstances of the case
appears to the Court unreasonable, are themselves relevant facts in the following cases: ––
(1) When it relates to cause of death.––When the statement is made by a person as to the
cause of his death, or as to any of the circumstances of the transaction which resulted in
his death, in cases in which the cause of that person’s death comes into question.
Such statements are relevant whether the person who made them was or was not, at
the time when they were made, under expectation of death, and whatever may be the
nature of the proceeding in which the cause of his death comes into question.
Illustrations
(a) The question is, whether A was murdered by B; or

A dies of injuries received in a transaction in the course of which she was

ravished. The question is whether she was ravished by B; or

(b) The question is, whether A was killed by B under such circumstances that a
 NAHATA PROFESSIONAL ACADEMY 198

suit would lie against B by A’s widow.

Statements made by A as to the cause of his or her death, referring respectively to the
murder, the rape and the actionable wrong under consideration, are relevant facts.

(2) or is made in course of business.––When the statement was made by such person in
the ordinary course of business, and in particular when it consists of any entry or
memorandum made by him in books kept in the ordinary course of business, or in the
discharge of professional duty; or of an acknowledgement written or signed by him of
the receipt of money, goods, securities or property of any kind; or of a document used
in commerce written or signed by him; or of the date of a letter or other document
usually dated, written or signed by him.
Illustrations
(a) The question is as to the date of A’s birth.
An entry in the diary of a deceased surgeon regularly kept in the course of
business, stating that, on a given day he attended A’s mother and delivered
her of a son, is a relevant fact.
(b) The question is, whether A was in Calcutta on a given day.
A statement in the diary of a deceased solicitor, regularly kept in the course of
business, that on a given day the solicitor attended A at a place mentioned, in
Calcutta, for the purpose of conferring with him upon specified business, is a
relevant fact.
(c) The question is, whether a ship sailed from Bombay harbour on a given day.
A letter written by a deceased member of a merchant’s firm by which she was
chartered to their correspondents in London, to whom the cargo was
consigned, stating that the ship sailed on a given day from Bombay harbour, is
a relevant fact.

(3) or against interest of maker.––When the statement is against the pecuniary or

proprietary interest of the person making it, or when, if true, it would expose him or
would have exposed him to a criminal prosecution or to a suit for damages.

(4) or gives opinion as to public right or custom, or matters of general interest.––When

the statement gives the opinion of any such person, as to the existence of any public
right or custom or matter of public or general interest, of the existence of which, if it
existed, he would have been likely to be aware, and when such statement was made
before any controversy as to such right, custom or matter had arisen.

(5) or relates to existence of relationship.––When the statement relates to the existence

of any relationship by blood, marriage or adoption] between persons as to whose
relationship 1[by blood, marriage or adoption the person making the statement had
special means of knowledge, and when the statement was made before the question in
dispute was raised.
Illustration
The question is, whether A and B were legally married.
The statement of a deceased clergyman that he married them under such
circumstances that the celebration would be a crime, is relevant.
(6) or is made in will or deed relating to family affairs.––When the statement relates to
the existence of any relationship by blood, marriage or adoption between persons
deceased, and is made in any will or deed relating to the affairs of the family to which
any such deceased person belonged, or in any family pedigree, or upon any tombstone,
family portrait or other thing on which such statements are usually made, and when
such statement was made before the question in dispute was raised.
 NAHATA PROFESSIONAL ACADEMY 199

Illustrations
(a) The question is, whether A, who is dead, was the father of B. A statement
by A that B was his son, is a relevant fact.
(b) The question is, what was the date of the birth of A.
A letter from A’s deceased father to a friend, announcing the birth of A on a
given day, is a relevant fact.
(c) The question is, whether, and when, A and B were married.
An entry in a memorandum book by C, the deceased father of B, of his
daughter’s marriage with A on a given date, is a relevant fact.
(7) or in document relating to transaction mentioned in section 13, clause (a).––When the
statement is contained in any deed, will or other document which relates to any such
transaction as is mentioned in section 13, clause (a).
(8) or is made by several persons and expresses feelings relevant to matter in question.––
When the statement was made by a number of persons, and expressed feelings or
impressions on their part relevant to the matter in question.
Illustrations
(a) A sues B for a libel expressed in a painted caricature exposed in a shop
window. The question is as to the similarity of the caricature and its libellous
character.
The remarks of a crowd of spectators on these points may be proved.
(b) The question is, whether rent was paid to A for certain land.
A letter from A’s deceased agent to A, saying that he had received the rent on
A’s account and held it at A’s orders is a relevant fact.
(c) The question is, whether A, a person who cannot be found, wrote a letter on a
certain day. The fact that a letter written by him is dated on that day is
relevant.
(d) The question is, what was the cause of the wreck of a ship.
A protest made by the Captain, whose attendance cannot be procured, is a
relevant fact.
(e) The question is, whether a given road is a public way.
A statement by A, a deceased headman of the village, that the road was public,
is a relevant fact.
(f) The question is, what was the price of grain on a certain day in a particular
market.
A statement of the price, made by a deceased banya in the ordinary course of
his business, is a relevant fact.

STATEMENTS MADE UNDER SPECIAL CIRCUMSTANCES

33. Entries in books of account when relevant.––

Entries in the books of account, including those maintained in an electronic form, regularly kept
in the course of business, are relevant whenever they refer to a matter into which the Court has
to inquire, but such statements shall not alone be sufficient evidence to charge any person with
liability.
Illustration
A sues B for Rs. 1,000, and shows entries in his account books showing B to be indebted to him
to this amount.
The entries are relevant, but are not sufficient, without other evidence, to prove the debt.

34 Relevancy of entry in public record made in performance of duty.––

An entry in any public or other official book, register or record or an electronic record, stating a
fact in issue or relevant fact, and made by a public servant in the discharge of his official duty, or
by any other person in performance of a duty specially enjoined by the law of the country in
 NAHATA PROFESSIONAL ACADEMY 200

which such book, register or record or an electronic record, is kept, is itself a relevant fact.
35 Relevancy of statements in maps, charts and plans.––

Statements of facts in issue or relevant facts, made in published maps or charts generally
offered for public sale, or in maps or plans made under the authority of the Central Government
or any State Government, as to matters usually represented or stated in such maps, charts or
plans, are themselves relevant facts.

36 Relevancy of statement as to fact of public nature contained in certain Acts or notifications. –

When the Court has to form an opinion as to the existence of any fact of a public nature, any
statement of it, made in a recital contained in any Act of Parliament of the United Kingdom or in
any Central Act, Provincial Act or a State Act or in a Government notification or notification by
the Crown Representative appearing in the Official Gazette or in any printed paper purporting to
be the London Gazette or the Government Gazette of any Dominion, colony or possession of his
Majesty is a relevant fact.

37 Relevancy of statements as to any law contained in law-books.––

When the Court has to form an opinion as to a law of any country, any statement of such law
contained in a book purporting to be printed or published under the authority of the
Government of such country and to contain any such law, and any report of a ruling of the
Courts of such country contained in a book purporting to be a report of such rulings, is relevant.

OPINIONS OF THIRD PERSONS WHEN RELEVANT

45. Opinions of experts

When the Court has to form an opinion upon a point of foreign law or of science, or art, or as to
identity of handwriting or finger impressions, the opinions upon that point of persons specially
skilled in such foreign law, science or art, or in questions as to identity of handwriting or finger
impressions are relevant facts. Such persons are called experts.
Illustrations
(a) The question is, whether the death of A was caused by poison.
The opinions of experts as to the symptoms produced by the poison by which A is
supposed to have died, are relevant.
(b) The question is, whether A, at the time of doing a certain act, was, by reason of
unsoundness of mind, incapable of knowing the nature of the act, or that he was doing
what was either wrong or contrary to law.
The opinions of experts upon the question whether the symptoms exhibited by A
commonly show unsoundness of mind, and whether such unsoundness of mind usually
renders persons incapable of knowing the nature of the acts which they do, or of knowing
that what they do is either wrong or contrary to law, are relevant.
(c) The question is, whether a certain document was written by A. Another document is
produced which is proved or admitted to have been written by A.
The opinions of experts on the question whether the two documents were written by the
same person or by different persons, are relevant.

46. Facts bearing upon opinions of experts.––

Facts, not otherwise relevant, are relevant if they support or are inconsistent with the opinions
of experts, when such opinions are relevant.
Illustrations
(a) The question is, whether A was poisoned by a certain poison.
The fact that other persons, who were poisoned by that poison, exhibited certain symptoms
which experts affirm or deny to be the symptoms of that poison, is relevant.
(b) The question is, whether an obstruction to a harbour is caused by a certain sea-wall.
The fact that other harbours similarly situated in other respects, but where there were no such
 NAHATA PROFESSIONAL ACADEMY 201

sea-walls, began to be obstructed at about the same time, is relevant.

47 Opinion as to hand-writing, when relevant.––

When the Court has to form an opinion as to the person by whom any document was written or
signed, the opinion of any person acquainted with the handwriting of the person by whom it is
supposed to be written or signed that it was or was not written or signed by that person, is a
relevant fact.
Explanation.––A person is said to be acquainted with the hand-writing of another person when
he has seen that person write, or when he has received documents purporting to be written by
that person in answer to documents written by himself or under his authority and addressed to
that person, or when, in the ordinary course of business, documents purporting to be written by
that person have been habitually submitted to him.
Illustration
The question is, whether a given letter is in the hand-writing of A, a merchant in London.
B is a merchant in Calcutta, who has written letters addressed to A and received letters
purporting to be written by him. C, is B’s clerk whose duty it was to examine and file B’s
correspondence. D is B’s broker, to whom B habitually submitted the letters purporting to be
written by A for the purpose of advising with him thereon.
The opinions of B, C and D on the question whether the letter is in the handwriting of A are
relevant, though neither B, C nor D ever saw A write.

47A Opinion as to digital signature, when relevant.––

When the Court has to form an opinion as to the electronic signature of any person, the opinion
of the Certifying Authority which has issued the electronic Signature Certificate is a relevant
fact.

48. Opinion as to existence of right or custom, when relevant.––

When the Court has to form an opinion as to the existence of any general custom or right, the
opinions, as to the existence of such custom or right, of persons who would be likely to know of
its existence if it existed, are relevant.
Explanation.––The expression “general custom or right” includes customs or rights common to
any considerable class of persons.
Illustration
The right of the villagers of a particular village to use the water of a particular well is a general
right within the meaning of this section.

49 Opinion as to usages, tenets, etc., when relevant. ––

When the Court has to form an opinion as to––
the usages and tenets of any body of men or family,
the constitution and government of any religious or charitable foundation, or
the meaning of words or terms used in particular districts or by particular classes of people, the
opinions of persons having special means of knowledge thereon are, relevant facts.

50 Opinion on relationship, when relevant. ––

When the Court has to form an opinion as to the relationship of one person to another, the
opinion, expressed by conduct, as to the existence of such relationship, of any person who, as a
member of the family or otherwise, has special means of knowledge on the subject, is a relevant
fact:
Provided that such opinion shall not be sufficient to prove a marriage in proceedings under the
Indian Divorce Act, 1869 (4 of 1869), or in prosecutions under section 494, 495, 497 or 498 of
the Indian Penal Code (45 of 1860).
Illustrations
(a) The question is, whether A and B, were married.
The fact that they were usually received and treated by their friends as husband and
 NAHATA PROFESSIONAL ACADEMY 202

wife, is relevant.
(b) The question is, whether A was the legitimate son of B. The fact that A was always
treated as such by members of the family, is relevant.

FACTS OF WHICH EVIDENCE CANNOT BE GIVEN (PRIVILEGED COMMUNICATIONS)

121. Judges and Magistrates. ––

No Judge or Magistrate shall, except upon the special order of some Court to which he is
subordinate, be compelled to answer any questions as to his own conduct in Court as such Judge
or Magistrate, or as to anything which came to his knowledge in Court as such Judge or
Magistrate; but he may be examined as to other matters which occurred in his presence whilst
he was so acting.
Illustrations
(a) A, on his trial before the Court of Session, says that a deposition was improperly taken
by B, the Magistrate. B cannot be compelled to answer questions as to this, except upon
the special order of a superior Court.
(b) A is accused before the Court of Session of having given false evidence before B, a
Magistrate. B cannot be asked what A said, except upon the special order of the
superior Court.
(c) A is accused before the Court of Session of attempting to murder a police-officer whilst
on his trial before B, a Sessions Judge. B may be examined as to what occurred.

122. Communications during marriage. ––

No person who is or has been married shall be compelled to disclose any communication made
to him during marriage by any person to whom he is or has been married; nor shall he be
permitted to disclose any such communication, unless the person who made it, or his
representative in interest, consents, except in suits between married persons, or proceedings in
which one married person is prosecuted for any crime committed against the other.

123. Evidence as to affairs of State. ––

No one shall be permitted to give any evidence derived from unpublished official records
relating to any affairs of State, except with the permission of the officer at the head of the
department concerned, who shall give or withhold such permission as he thinks fit.

Section 126 to 129 deal with the professional communications between a legal adviser and a client, which
are protected from disclosure. A client cannot be compelled and a legal adviser cannot be allowed without
the express consent of his client to disclose oral or documentary communications passing between them in
professional confidence. The rule is founded on the impossibility of conducting legal business without
professional assistance and securing full and unreserved communication between the two. Under Sections
126 and 127 neither a legal adviser i.e. a barrister, attorney, pleader or vakil (Section 126) nor his
interpreter, clerk or servant (Section 128) can be permitted to disclose any communication made to him in
the course and for the purpose of professional employment of such legal adviser or to state the contents or
condition of any document with which any such person has become acquainted in the course and for the
purpose of such employment.
In general it is not open to a party to test the credit or impeach the “truthfulness of a witness offered by
him. But the Court can in its discretion allow a party to cross examine his witness” if the witness
unexpectedly turns hostile. (Section 154)

PRESUMPTIONS
The Act recognises some rules as to presumptions. Rules of presumption are deduced from
enlightened human knowledge and experience and are drawn from the connection, relation and
coincidence of facts and circumstances. A presumption is not in itself an evidence but only
makes a prima facie case for the party in whose favour it exists. A presumption is a rule of law
 NAHATA PROFESSIONAL ACADEMY 203

that courts or juries shall or may draw a particular inference from a particular fact or from
particular evidence unless and until the truth of such inference is disproved. There are three
categories of presumptions:
(i) presumptions of law, which is a rule of law that a particular inference shall be drawn by
a court from particular circumstances.
(ii) presumptions of fact, it is a rule of law that a fact otherwise doubtful may be inferred
from a fact which is proved.
(iii) mixed presumptions, they consider mainly certain inferences between the
presumptions of law and presumptions of fact.
The terms presumption of law and presumption of fact are not defined by the Act. Section 4 only
refers to the terms “conclusive proof”, “shall presume” and “may presume”. The term
“conclusive proof” specifies those presumptions which in English Law are called irrebuttable
presumptions of law; the term “shall presume” indicates rebuttable presumptions of law; the
term “may presume” indicates presumptions of fact. When we see a man knocked down by a
speeding car and a few yards away, there is a car going, there is a presumption of fact that the
car has knocked down the man.

ORAL, DOCUMENTARY AND CIRCUMSTANTIAL EVIDENCE

As discussed above, all facts (except two Sections 56 and 58) which are neither admitted nor are
subject to judicial notice must be proved. The Act divides the subject of proof into two parts: (i)
proof of facts other than the contents of documents; (ii) proof of documents including proof of
execution of documents and proof of existence, condition and contents of documents

All facts except contents of documents or electronic records may be proved by oral evidence
(Section 59) which must in all cases be “direct” (Section 60). The direct evidence means the
evidence of the person who perceived the fact to which he deposes.
Thus, the two broad rules regarding oral evidence are:
(i) all facts except the contents of documents may be proved by oral evidence;
(ii) oral evidence must in all cases be “direct”.
Oral evidence means statements which the Court permits or requires to be made before it by
witnesses in relation to matters of fact under inquiry. But, if a witness is unable to speak he may
give his evidence in any manner in which he can make it intelligible as by writing or by signs.
(Section 119)

DIRECT EVIDENCE
In Section 60 of the Evidence Act, expression “oral evidence” has an altogether different
meaning. It is used in the sense of “original evidence” as distinguished from “hearsay” evidence
and it is not used in contradicition to “circumstantial” or “presumptive evidence”. According to
Section 60 oral evidence must in all cases whatever, be direct; that is to say:
— if it refers to a fact which could be seen, it must be the evidence of a witness who says
he saw it;
— if it refers to a fact which could be heard, it must be the evidence of a witness who says
he heard it;
— if it refers to a fact which could be perceived by any other sense or in any other manner,
it must be the evidence of a witness who says he perceived it by that sense or in that
manner;
— if it refers to an opinion or to the grounds on which that opinion is held, it must be the
evidence of the person who holds that opinion on those grounds.

Thus, if the fact to be proved is one that could be seen, the person who saw the fact must
appear in the Court to depose it, and if the fact to be proved is one that could be heard, the
person who heard it must appear in the Court to depose before it and so on.

In defining the direct evidence in Section 60, the Act impliedly enacts what is called the rule
 NAHATA PROFESSIONAL ACADEMY 204

against hearsay. Since the evidence as to a fact which could be seen, by a person who did not
see it, is not direct but hearsay and so is the evidence as to a statement, by a person who did
hear it.

DOCUMENTARY EVIDENCE
A “document” means any matter expressed or described upon any substance by means of
letters, figures or marks, or by more than one of those means, intended to be used, or which
may be used for the purpose of recording that matter. Documents produced for the inspection
of the Court is called Documentary Evidence. Section 61 provides that the contents of a
document must be proved either by primary or by secondary evidence.

Primary evidence
Primary evidence means the document itself produced for the inspection of the Court (Section
62). The rule that the best evidence must be given of which the nature of the case permits has
often been regarded as expressing the great fundamental principles upon which the law of
evidence depends. The general rule requiring primary evidence of producing documents is
commonly said to be based on the best evidence principle and to be supported by the so called
presumption that if inferior evidence is produced where better might be given, the latter would
tell against the withholder.

Secondary evidence
Secondary evidence is generally in the form of compared copies, certified copies or copies made
by such mechanical processes as in themselves ensure accuracy. Section 63 defines the kind of
secondary evidence permitted by the Act. According to Section 63, “secondary evidence” means
and includes.
(1) certified copies given under the provisions hereafter contained;
(2) copies made from the original by mechanical processes which in themselves ensure the
accuracy of the copy, and copies compared with such copies;
(3) copies made from or compared with the original;
(4) counterparts of documents as against the parties who did not execute them;
(5) oral accounts of the contents of a document given by some person who has himself
seen it.
Illustrations:
(a) A photograph of an original is secondary evidence of its contents, though the two have
not been compared, if it is proved that the thing photographed was the original.
(b) A copy compared with a copy of a letter made by a copying machine is secondary
evidence of the contents of the letter if it is shown that the copy made by the copying
machine was made from the original.
Section 65 stipulates the cases in which secondary evidence relating to documents may be given.
As already stated, documents must be proved by primary evidence but in certain cases for
example, where the document is lost or destroyed or the original is of such a nature as not to be
easily, movable, or consists of numerous documents, or is a public document or under some law
by a certified copy, the existence, condition or contents of the document may be proved by
secondary evidence.

CIRCUMSTANTIAL EVIDENCE
In English law the expression direct evidence is used to signify evidence relating to the ‘fact in
issue’ (factum probandum) whereas the terms circumstantial evidence, presumptive evidence
and indirect evidence are used to signify evidence which relates only to “relevant fact” (facta
probandum). However, under Section 60 of the Evidence Act, the expression “direct evidence”
has altogether a different meaning and it is not intended to exclude circumstantial evidence of
things which could be seen, heard or felt. Thus, evidence whether direct or circumstantial under
English law is “direct” evidence under Section 60. Before acting on circumstances put forward
are satisfactorily proved and whether the proved circumstances are sufficient to bring the guilt
to the accused the Court should not view in isolation the circumstantial evidence but it must
 NAHATA PROFESSIONAL ACADEMY 205

take an overall view of the matter.

115 ESTOPPEL
The general rule of estoppel is when one person has by his declaration, act or omission,
intentionally caused or permitted another person to believe a thing to be true and to act upon
such belief, neither he nor his representative shall be allowed, in any suit or proceeding
between himself and such person or his representative to deny the truth of that thing (Section
115).

However, there is no estoppel against the Statute. Where the Statute prescribes a particular
way of doing something, it has to be done in that manner only.

PRINCIPLE OF ESTOPPEL is based on the maxim ‘allegans contratia non est audiendus’ i.e. a
person alleging contrary facts should not be heard. The principles of estoppel covers one kind of
facts. It says that man cannot approbate and reprobate, or that a man cannot blow hot and
cold, or that a man shall not say one thing at one time and later on say a different thing.
Estoppel is a rule of evidence and does not give rise to a cause of action. Estoppel by record
results from the judgement of a competent Court (Section 40, 41).

DIFFERENT KINDS OF ESTOPPEL:

1. Estopple by attestation
2. Estoppel by contract
3. Constructive estoppel
4. Estoppel by election
5. Equitable estoppel
6. Estoppel by negligence
7. Estoppel by silence

Privy It was laid down that the rule of estoppel does not apply where the statement is made to
Council in a person who knows the real facts represented and is not accordingly misled by it. The
Mohori principle is that in such a case the conduct of the person seeking to invoke rule of estoppel
Bibee v. is in no sense the effect of the representation made to him. The main determining
Dharmodas element is not the effect of his representation or conduct as having induced another to act
Ghosh, on the faith of such representation or conduct.
(1930) 30
Cal. 530 PC,
Sorat The doctrine of estoppel is based on the principle that it would be most inequitable and
Chunder v. unjust that if one person, by a representation made, or by conduct amounting to a
Gopal representation, has induced another to act as he would not otherwise have done, the
Chunder. person who made the representation should not be allowed to deny or repudiate the
effect of his former statement to the loss and injury of the person who acted on it
Biju Patnaik In one private university permitted to conduct special examination of students
University prosecuting studies under one time approval policy. After inspection, 67 students were
of Tech. permitted to appear in the examination and their results declared. However, university
Orissa v. declined to issue degree certificates to the students on the ground that they had to
Sairam appear for further examination for another condensed course as per syllabus of university.
College, AIR It was held that once students appeared in an examination and their results declared, the
2010 (NOC) university is estopped from taking decision withholding degree certificate after declaration
691 of results.
(Orissa),

ELECTRONIC EVIDENCE (E-evidence) Legal framework for electronic evidence

Under Section 65A of the Evidence Act, the contents of electronic records have to be proved as evidence in
accordance with the requirements of Section 65B. Both Sections 65A and 65B were inserted through the
 NAHATA PROFESSIONAL ACADEMY 206

Indian Evidence (Amendment) Act, 2000, and form part of Chapter V of the Evidence Act, which deals with
documentary evidence. In Anvar P.V. vs. P.K.Basheer & Ors. on 18 September, 2014, Supreme Court, it was
clarified that as Section 65B begins with a non-obstante clause, if forms a complete code for the
admissibility of electronic evidence.
Under Section 65B(1), any information contained in an electronic record, which has been stored, recorded
or copied as a computer output, shall also be deemed as a ‘document’ – and shall be admissible as evidence
without further proof or production of the originals, if the conditions mentioned are satisfied. Section
65B(2) lays down the criteria that must be satisfied for the information to be categorized as a ‘computer
output.’ What gave rise to conflicting interpretations is the provision in Section 65B(4), which states that if
the electronic evidence is to be used in any judicial proceeding, a certificate shall have to be produced
which identifies the electronic record, and gives particulars of the device involved in the production of the
electronic record . This certificate shall have to be signed by a person occupying a responsible official
position in relation to the operation of the relevant device, or from a person who is in the management of
the relevant activities involved. This signature shall be evidence of the authenticity of the certificate.
Section 65B(4) also mentions that the contents of the certificate should be stated “to the best of the
knowledge and belief of the person stating it.” A confusion had arisen as to whether a certificate under
Section 65B(4) would have to be obtained even when an original copy of the electronic record is produced
as evidence. Another issue that arose was whether it was mandatory to comply with the provisions of
Section 65B(4) or can the requirement to obtain a certificate be dispensed with. The case below has
clarified the position.
Analysis of the Supreme Court decision in Arjun v. Kailash
Supreme Court held that, the Court had to adjudicate on an election petition which challenged the election
of a a candidate from Jalna-101 Legislative Assembly Constituency, on the ground that the nomination
papers were filed after the stipulated deadline. The Respondents wished to rely on video camera recordings
to prove that the candidate had filed his nomination after the stipulated deadline. The Election Commission
produced CDs which contained a copy of the video camera recordings, in accordance with the direction
given by the High Court. However, the necessary certificates were not produced in accordance with Section
65B(4) by the Election Commission, despite multiple requests made by the Petitioner. During the cross
examination, an officer of the Election Commission testified that the video camera recordings were
authentic. Based on this testimony, the High Court admitted the evidence of the video recordings even
though the certificate in accordance with Section 65B (4) had not been produced. The High Court held that
it was satisfied that there was “substantial compliance” with Section 65B, as a competent officer had
testified that the video recordings were authentic.
In this scenario, the Supreme Court had to interpret Section 65B(4) for determining the following issues:
Whether a certificate under Section 65B(4) must be produced even when an original record of the
electronic evidence is available, or does it have to be given only when a secondary record of the
electronic evidence is produced?
Whether compliance with Section 65B(4) is mandatory even in a situation when it is not possible to
obtain the certificate from the competent entity?
It was noted that Section 65B(1) differentiates between the ‘original’ electronic record, which is contained
in the computer in which the information is first stored – and the secondary copies that are made from the
primary electronic record. For instance, in the present case, the original electronic record would be the
computer of the Election Commission in which the video footage is first stored. The CDs where the content
of the video recording is copied shall constitute the secondary copies of the electronic record. It was held
that a certificate under Section 65B(4) shall have to be obtained only when the secondary copies of the
electronic record are produced before the Court.
Production of a certificate shall not be necessary when the original electronic record is produced. The
original electronic record can be adduced directly as evidence if the owner of the computer/tablet/mobile
phone steps into the witness box and establishes that the device where the information is first stored is
owned/operated by him. If the “computer” where the electronic record was first stored happens to be part
of a “computer network” or “computer system” (as defined under the Information Technology Act, 2000),
and it is not possible to bring such a network/system physically to the Court, then secondary copies can be
produced along with the certificate stipulated by Section 65B(4).
It was also agreed that with the view taken in Anvar v. Basheer – which held that Section 65B is a complete
code in itself for the admissibility of electronic evidence and shall not be affected by other provisions of the
 NAHATA PROFESSIONAL ACADEMY 207

Evidence Act. Anvar v. Basheer also held that – “…if an electronic record as such is used as primary evidence
under Section 62 of the Evidence Act, the same is admissible in evidence, without compliance with the
conditions in Section 65-B of the Evidence Act.” Justice Nariman clarified that this dictum should be read by
omitting the words “under Section 62 of the Evidence Act.” This is because Section 65B is a complete code
for electronic evidence and shall supersede other provisions such as Section 62.
It was implied here that it is not necessary to refer to Section 62, as Section 65B(1) itself distinguishes
between
the original electronic record and the secondary copies of the electronic record.

WITNESSES
Who may testify
All persons shall be competent to testify(Give evidence) unless the Court considers that they are prevented
from understanding the questions put to them, or from giving rational answers to those questions,
(i) by tender years, (ii) extreme old age,
(iii) disease, whether of body or mind, or (iv) any other cause of the same kind.
Explanation. A lunatic is not incompetent to testify, unless he is prevented by his lunacy from
understanding the questions put to him and giving rational answers to them. Witness unable to
communicate
A witness who is unable to speak may give his evidence in any other manner. The requirement is that he
should make it intelligible such as by writing or by signs. However, such writing must be written and the
signs made in open Court. The evidence so given shall be deemed to be oral evidence.
Also, if the witness is unable to communicate verbally, the Court shall take the assistance of n interpreter or
a special educator in recording the statement, and such statement shall be video graphed.
Spouse as a witness
In civil proceedings, the spouse of the parties is a competent witness. They may testify in favour or in
against. In criminal proceedings against any person, the spouse may give evidence. However, these
provisions are subject section 122 of the Evidence Act, 1872.

BURDEN OF PROOF
Whoever desires any Court to give judgment as to any legal right or liability dependent on the existence of
facts which he asserts, must prove that those facts exist. When a person is bound to prove the existence of
any fact, it is said that the burden of proof lies on that person.
Example
 A desires a Court to give judgment that B shall be punished for a theft which A says B has
committed. A must prove that B has committed the theft.
 A desires a Court to give judgment that he is entitled to certain land situated in Delhi which is in the
possession of B, by reason of facts which he asserts, and which B denies, to be true. A must prove
the existence of those facts.
 The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all
were given on either side.
Example A files a suit against B for his due of salary. A has worked for B, this has been admitted, but B says
that I have paid advance to B, which A denies. If no evidence were given on either side, A would succeed, as
the service is not disputed and the advance payment has been not proved. Therefore the burden of proof is
on B. However, when a person is accused of any offence, the burden of proving the existence of
circumstances bringing the case within any of the General Exceptions in the Indian Penal Code, or within
any special exception or proviso contained in any other part of the same Code, or in any law defining the
offence, is upon him, and the Court shall presume the absence of such circumstances.
Example
A, accused of theft, alleges that, by reason of unsoundness of mind, he did not know the nature of the act.
The burden of proof is on A.

Improper admission & rejection of evidence

The improper admission or rejection of evidence is not a ground for start of a new trial or reversal of any
 NAHATA PROFESSIONAL ACADEMY 208

decision. But the court should of the view that, independently of the evidence objected to and admitted,
there was sufficient evidence to justify the decision, or that, if the rejected evidence had been received, it
ought not
to have varied the decision.

PRESUMPTIONS
The Act recognises some rules as to presumptions. Rules of presumption are deduced from enlightened
human knowledge and experience and are drawn from the connection, relation and coincidence of facts
and circumstances. A presumption is not in itself an evidence but only makes a prima facie case for the
party in whose favour it exists. A presumption is a rule of law that courts or juries shall or may draw a
particular inference from a particular fact or from particular evidence unless and until the truth of such
inference is disproved.
The terms presumption of law and presumption of fact are not defined by the Act. Section 4 only refers to
the terms “conclusive proof”, “shall presume” and “may presume”. The term “conclusive proof” specifies
those presumptions which in English Law are called irrebuttable presumptions of law; the term “shall
presume” indicates rebuttable presumptions of law; the term “may presume” indicates presumptions of
fact.
Example
When we see a man knocked down by a speeding car and a few yards away, there is a car going, there is a
presumption of fact that the car has knocked down the man.

QUESTIONS:
Q-1. Distinguish between ‘Admission’ and ‘Confession’ under Indian Evidence Act, 1872. [DEC-18]
OR
How far confession differs from admission as defined in Indian Evidence Act, 1872 ? . [JUNE-22]
Q-2. What is ‘documentary evidence’ under Indian Evidence Act, 1872 ? Explain briefly. [DEC-18]
Q-3. Explain in brief ‘Principle of Estoppel’ under Indian Evidence Act, 1872. [DEC-18]
Q-4. The ‘Privileged Communications’ are based on Public Policy and a witness cannot be compelled to
answer the same during the evidence in the Court or before any other authority. Explain in brief.
[JUNE-19]
Q-5. ‘Confession caused by inducement, threat or promise is irrelevant’. Explain briefly. [JUNE-19]
Q-6. Opinion of experts under section 45 of the Indian Evidence Act, 1872. [JUNE-19]
Q-7. Explain the special provisions as to Evidence relating to Electronic Record under the provisions of
the Indian Evidence Act, 1872. [DEC-19]
Q-8. Distinguish between ‘Primary Evidence’ and ‘Secondary Evidence’, under the Indian Evidence Act,
1872. [DEC-2020]
Q-9. Section 3 of the Indian Evidence Act, 1872 deals with the term ‘Evidence’. Explain it.(4 marks) [DEC-
2020]
Q-10. Write short notes on the following :
1. Circumstantial evidence[DEC-10]
2. Primary and secondary evidence. [JUNE-11]
3. “An instrument admitted in evidence is not to be questioned.” [DEC-11]
4. ‘Expert opinion’ under the Indian Evidence Act, 1872[JUNE-2009] [JUNE-12]
5. Circumstantial evidence. [DEC-09]
Q-11. On 20th March, Kamal told his wife that he was going to Berhmpore, as Pankaj’s wife has written a
letter and asked him to come and receive payments due to him. On 21st March, Kamal left his
house in time to catch a train for Berhmpore, where Pankaj lived with his wife. On 23rd March,
Kamal’s dismembered body was found in a box which had been purchased for Pankaj. Decide
whether on the trial of Pankaj for the murder of Kamal, the statement made by Kamal to his wife
was admissible in evidence. If so, on what grounds ? [JUNE-09]
Q-12. Distinguish between the following :
1. ‘Admission’ and ‘confession’. [DEC-09] [DEC-13]
2. ‘Primary evidence’ and ‘secondary evidence’. [JUNE-10]
3. ‘Facts in issue’ and ‘issues of fact’. [DEC-11]
 NAHATA PROFESSIONAL ACADEMY 209

Q-13. Kamini informed Ajay in the year 2001 that she had committed theft of the jewellery of her
neighbour. Thereafter, Kamini and Ajay were married in 2002. In the year 2003, criminal
proceeding were instituted against Kamini in respect of the theft of jewellery. Ajay is called to give
evidence in the case. Decide whether Ajay can disclose the communication made to him by Kamini.
[JUNE-10]

Q-14. A confession made by an accused on the faith of a promise made by the police officer making the
investigation that he would get off if he made a disclosure of the offence committed by him or
would get pardon. Whether such a confession made by the accused is admissible in evidence ?
Answer citing the relevant provisions of law. [DEC-11]

Q-15. The law looks into the substance and effect (or intended effect) of the text of the instrument and
not the physical medium through which it is recorded. Comment. [DEC-12]

Q-16. Ragini told Rajendra in the year 2007 that she had committed theft of the jewellery of her
neighbour Asha. Thereafter, Ragini and Rajendra were married in the year 2008. In the year 2009,
criminal proceedings were instituted against Ragini in respect of the theft of the said jewellery.
Rajendra is summoned to give evidence in the said criminal proceedings.
Decide whether Rajendra can disclose the communication made to him by Ragini in the year
2007, in the criminal proceedings in respect of the theft of the jewellery. [JUNE-13]

Q-17. Mohan and Sohan are jointly tried for the murder of Rohan. It is proved that Mohan said, ‘‘Sohan
and I murdered Rohan.’’ Can the court consider the effect of this confession as against Sohan ?
Give reasons. [JUNE-13]

Q-18. Discuss the following.

A person taking the benefit of an instrument must also bear the burden of the instrument. [DEC-
13]

Q-19. Ramu is accused of a crime. He suddenly left his house after commission of the crime. He explained
to the court that he had sudden and urgent business at the place to which he had gone. He also
gave the details of his business there. Discuss, what facts are relevant and not relevant in this case.
[JUNE-14]

Q-20. There are some facts of which evidence cannot be given, though they are relevant. They are also
referred to as 'privileged communications'. Discuss briefly. [DEC-14]

Q-21 The principle of estoppel says that a man shall not say one thing at one time and later on say a
different thing. Comment. [DEC-12]

(22) A’ is accused of the murder of ‘B’ by beating him. Discuss the rule of relevancy of fact of the
statement said or done by ‘A’ or, ‘B’ or the bystanders at the beating, or so shortly before or after
it. [DEC-2021]

(23) What is Professional Communications ? In a case Ramesh, a client, says to Ashwin, his Advocate, ‘‘I
stole a bike and I whish you to defend me’’ Ashwin refused to plead his case. Later on Ashwin gives
evidence against Ramesh about this communication. Is this communication protected from
disclosure under the Indian Evidence Act, 1872 ? Explain. [DEC-2021]

(24) State the physical and psychological fact with suitable examples as enumerated in Indian Evidence
Act, 1872. (4 marks each)
 NAHATA PROFESSIONAL ACADEMY 210

CHAPTER 9
LAW RELATING TO SPECIFIC RELEIF

Act consists of 44 sections (43 and 44 are omitted) and a schedule with respect to reliefs relating to
specific reliefs
 Recovery of possession of property (section 5-8)
 Specific performance of contract(section 9-25)
 Contracts which can be specifically enforced
 Contracts which cannot be specifically enforced
 Persons for or against whom contracts may be specifically enforced
 Rectification of instrument(section 26)
 Rescission of contracts (section 27-30)
 Cancellation of instruments (section 31-33)
 Declaratory decrees(section 34-35)
Preventive relief
 Injunction (section 36-42)

It is not an exhaustive act, as it does not consolidate the whole law on the subject. It does not purport to
lay down specific relief in all its ramifications. There are other kind of specific remedy provided for by
other enactments e.g. The Transfer of property Act deals with specific remedies available to a mortgage
or mortgagee; The Partnership Act deals with the specific remedy like dissolution and accounts between
partners

3. Savings.—
Except as otherwise provided herein, nothing in this Act shall be deemed—
(a) to deprive any person of any right to relief, other than specific performance, which he
may have under any contract; or
(b) to affect the operation of the Indian Registration Act, 1908 (16 of 1908), on documents.

4. Specific relief to be granted only for enforcing individual civil rights and not for enforcing
penal laws.—
Specific relief can be granted only for the purpose of enforcing individual civil rights and not for
the mere purpose of enforcing a penal law.

RECOVERING POSSESSION OF PROPERTY

5. Recovery of specific immovable property.—

A person entitled to the possession of specific immovable property may recover it in the manner
provided by the Code of Civil Procedure, 1908 (5 of 1908).

6. Suit by person dispossessed of immovable property.—

If any person is dispossessed without his consent of immovable property otherwise than in due
course of law, he or any person through whom he has been in possession or any person claiming
through him may, by suit, recover possession thereof, notwithstanding any other title that may
be set up in such suit
No suit under this section shall be brought—
(a) after the expiry of six months from the date of dispossession; or
(b) against the Government.
No appeal shall lie from any order or decree passed in any suit instituted under this section, nor
shall any review of any such order or decree be allowed.
Nothing in this section shall bar any person from suing to establish his title to such property and
to recover possession thereof
 NAHATA PROFESSIONAL ACADEMY 211

7. Recovery of specific movable property.

A person entitled to the possession of specific movable property may recover it in the manner
provided by the Code of Civil Procedure, 1908 (5 of 1908).
Explanation 1.—A trustee may sue under this section for the possession of movable property to
the beneficial interest in which the person for whom he is trustee is entitled.
Explanation 2.—A special or temporary right to the present possession of movable property is
sufficient to support a suit under this section.

8 Liability of person in possession, not as owner, to deliver to persons entitled to immediate

possession.—
Any person having the possession or control of a particular article of movable property, of which
he is not the owner, may be compelled specifically to deliver it to the person entitled to its
immediate possession, in any of the following cases:—
(a) when the thing claimed is held by the defendant as the agent or trustee of the plaintiff;
(b) when compensation in money would not afford the plaintiff adequate relief for the loss
of the thing claimed;
(c) when it would be extremely difficult to ascertain the actual damage caused by its loss;
(d) when the possession of the thing claimed has been wrongfully transferred from the
plaintiff.
Explanation.—Unless and until the contrary is proved, the court shall, in respect of any article of
movable property claimed under clause (b) or clause (c) of this section, presume—
(a) that compensation in money would not afford the plaintiff adequate relief for the loss
of the thing claimed, or, as the case may be;
(b) That it would be extremely difficult to ascertain the actual damage caused by its loss.

9. Defences respecting suits for relief based on contract.—

Except as otherwise provided herein where any relief is claimed under this Chapter in respect of
a contract, the person against whom the relief is claimed may plead by way of defence any
ground which is available to him under any law relating to contracts.

10. Specific performance in respect of contracts.—

The specific performance of a contract shall be enforced by the court subject to the provisions
contained in sub-section (2) of section 11, section 14 and section 16.

11. Cases in which specific performance of contracts connected with trusts enforceable.—
(1) Except as otherwise provided in this Act, specific performance of a contract shall, be enforced
when the act agreed to be done is in the performance wholly or partly of a trust.
(2) A contract made by a trustee in excess of his powers or in breach of trust cannot be specifically
enforced.

12. Specific performance of part of contract.—

(1) Except as otherwise hereinafter provided in this section, the court shall not direct the specific
performance of a part of a contract.
(2) Where a party to a contract is unable to perform the whole of his part of it, but the part which
must be left unperformed be a only a small proportion to the whole in value and admits of
compensation in money, the court may, at the suit of either party, direct the specific
performance of so much of the contract as can be performed, and award compensation in
money for the deficiency.

Example
A contracts to sell B a piece of land consisting of 100 bighas. It turns out that 98 bighas of the
land belongs to A and the two remaining bighas to a stranger, who refuses to part with them.
The two bighas are not necessary for the use of enjoyment of the 98 bighas, nor so important
 NAHATA PROFESSIONAL ACADEMY 212

for such use or enjoyment that the loss of them may not be made in goods or in money. A
may be directed at the suit of B to convey to B the 98 bighas and to make compensation to
him. For not conveying the two remaining bighas; B may be directed at the suit of A, to pay to
A, on receiving the conveyance and possession of the land, the stipulated purchase money less
the sum awarded as compensation for the deficiency.

(3) Where a party to a contract is unable to perform the whole of his part of it, and the part which
must be left unperformed either—
(a) forms a considerable part of the whole, though admitting of compensation in money; or
(b) does not admit of compensation in money; he is not entitled to obtain a decree for
specific performance; but the court may, at the suit of the other party, direct the party
in default to perform specifically so much of his part of the contract as he can perform,
if the other party—
(i) in a case falling under clause (a), pays or has paid the agreed consideration for the
whole of the contract reduced by the consideration for the part which must be left
unperformed and in a case falling under clause (b) pays or has paid the consideration
for the whole of the contract without any abatement; and
(ii) in either case, relinquishes all claims to the performance of the remaining part of the
contract and all right to compensation, either for the deficiency or for the loss or
damage sustained by him through the default of the defendant.

A contracts to sell B, a piece of land consisting of 100 bighas for Rs. 1,00,000. It turns out that
only 50 bighas of land belong to A. 50 bighas are substantial part of the contract.
A cannot demand specific performance of the contract but B can demand specific
performance to get 50 bighas of land from A by paying the full consideration i.e. Rs.
1,00,000.

(4) When a part of a contract which, taken by itself, can and ought to be specifically performed,
stands on a separate and independent footing from another part of the same contract which
cannot or ought not to be specifically performed, the court may direct specific performance of
the former part. Explanation.—For the purposes of this section, a party to a contract shall be
deemed to be unable to perform the whole of his part of it if a portion of its subject-matter
existing at the date of the contract has ceased to exist at the time of its performance.

13 Rights of purchaser or lessee against person with no title or imperfect title.—

Where a person contracts to sell or let certain immovable property having no title or only an
imperfect title, the purchaser or lessee (subject to the other provisions of this Chapter), has
the following rights, namely:—
(a) if the vendor or lessor has subsequently to the contract acquired any interest in the
property, the purchaser or lessee may compel him to make good the contract out of
such interest;
(b) where the concurrence of other person is necessary for validating the title, and they are
bound to concur at the request of the vendor or lessor, the purchaser or lessee may
compel him to procure such concurrence, and when a conveyance by other persons is
necessary to validate the title and they are bound to convey at the request of the
vendor or lessor, the purchaser or lessee may compel him to procure such conveyance;
(c) where the vendor professes to sell unencumbered property, but the property is
mortgaged for an amount not exceeding the purchase money and the vendor has in
fact only a right to redeem it, the purchaser may compel him to redeem the mortgage
and to obtain a valid discharge, and, where necessary, also a conveyance from the
mortgagee;
(d) where the vendor or lessor sues for specific performance of the contract and the suit is
dismissed on the ground of his want of title or imperfect title, the defendant has a right
to a return of his deposit, if any, with interest thereon, to his costs of the suit, and to a
lien for such deposit, interest and costs on the interest, if any, of the vendor or lesser in
 NAHATA PROFESSIONAL ACADEMY 213

the property which is the subject-matter of the contract.

The provisions of sub-section (1) shall also apply, as far as may be, to contracts for the sale or
hire of movable property.

14 Contracts not specifically enforceable.—

The following contracts cannot be specifically enforced, namely:—
(a) where a party to the contract has obtained substituted performance of contract in
accordance with the provisions of section 20;
(b) a contract, the performance of which involves the performance of a continuous duty
which the court cannot supervise;
(c) a contract which is so dependent on the personal qualifications of the parties that the
court cannot enforce specific performance of its material terms; and
(d) a contract which is in its nature determinable.

14A Power of court to engage experts.—

Without prejudice to the generality of the provisions contained in the Code of Civil Procedure,
1908 (5 of 1908), in any suit under this Act, where the court considers it necessary to get expert
opinion to assist it on any specific issue involved in the suit, it may engage one or more experts
and direct to report to it on such issue and may secure attendance of the expert for providing
evidence, including production of documents on the issue.
The court may require or direct any person to give relevant information to the expert or to
produce, or to provide access to, any relevant documents, goods or other property for his
inspection.
The opinion or report given by the expert shall form part of the record of the suit; and the court,
or with the permission of the court any of the parties to the suit, may examine the expert
personally in open court on any of the matters referred to him or mentioned in his opinion or
report, or as to his opinion or report, or as to the manner in which he has made the inspection.

The expert shall be entitled to such fee, cost or expense as the court may fix, which shall be
payable by the parties in such proportion, and at such time, as the court may direct.

15 Who may obtain specific performance.—

Except as otherwise provided by this Chapter, the specific performance of a contract may be
obtained by—
(a) any party thereto;
(b) the representative in interest or the principal, of any party thereto:
Provided that where the learning, skill, solvency or any personal quality of such party is
a material ingredient in the contract, or where the contract provides that his interest
shall not be assigned, his representative in interest or his principal shall not be entitled
to specific performance of the contract, unless such party has already performed his
part of the contract, or the performance thereof by his representative in interest, or his
principal, has been accepted by the other party;
(c) where the contract is a settlement on marriage, or a compromise of doubtful rights
between members of the same family, any person beneficially entitled thereunder;
(d) where the contract has been entered into by a tenant for life in due exercise of a
power, the remainderman;
(e) a reversioner in possession, where the agreement is a covenant entered into with his
predecessor in title and the reversioner is entitled to the benefit of such covenant; a
(f) reversioner in remainder, where the agreement is such a covenant, and the reversioner
is entitled to the benefit thereof and will sustain material injury by reason of its breach;
(fa) when a limited liability partnership has entered into a contract and subsequently
becomes amalgamated with another limited liability partnership, the new limited
liability partnership which arises out of the amalgamation.
(g) when a company has entered into a contract and subsequently becomes amalgamated
 NAHATA PROFESSIONAL ACADEMY 214

with another company, the new company which arises out of the amalgamation;
(h) when the promoters of a company have, before its incorporation, entered into a
contract for the purposes of the company, and such contract is warranted by the terms
of the incorporation, the company:
Provided that the company has accepted the contract and has communicated such
acceptance to the other party to the contract.

16 Personal bars to relief.—

Specific performance of a contract cannot be enforced in favour of a person—
(a) who has obtained substituted performance of contract under section 20; or
(b) who has become incapable of performing, or violates any essential term of, the
contract that on his part remains to be performed, or acts in fraud of the contract, or
wilfully acts at variance with, or in subversion of, the relation intended to be
established by the contract; or
(c) who fails to prove that he has performed or has always been ready and willing to
perform the essential terms of the contract which are to be performed by him, other
than terms the performance of which has been prevented or waived by the defendant.
Explanation.—For the purposes of clause (c),—
(i) where a contract involves the payment of money, it is not essential for the plaintiff to
actually tender to the defendant or to deposit in court any money except when so
directed by the court;
(ii) the plaintiff must prove performance of, or readiness and willingness to perform, the
contract according to its true construction.

17 Contract to sell or let property by one who has no title, not specifically enforceable.—
contract to sell or let any immovable property cannot be specifically enforced in favour of a
vendor or lessor—
(a) who, knowing himself not to have any title to the property, has contracted to sell or let
the property;
(b) who, though he entered into the contract believing that he had a good title to the
property, cannot at the time fixed by the parties or by the court for the completion of the
sale or letting, give the purchaser or lessee a title free from reasonable doubt.
The provisions of sub-section (1) shall also apply, as far as may be, to contracts for the sale or
hire of movable property.

18 Non-enforcement except with variation.—

Where a plaintiff seeks specific performance of a contract in writing, to which the defendant
sets up a variation, the plaintiff cannot obtain the performance sought, except with the variation
so set up, in the following cases, namely:—
(a) where by fraud, mistake of fact or mis-representation, the written contract of which
performance is sought is in its terms or effect different from what the parties agreed to,
or does not contain all the terms agreed to between the parties on the basis of which
the defendant entered into the contact;
(b) where the object of the parties was to produce a certain legal result which the contract
as framed is not calculated to produce;
(c) where the parties have, subsequently to the execution of the contract, varied its terms.

19 Relief against parties and persons claiming under them by subsequent title.—
Except as otherwise provided by this Chapter, specific performance of a contract may be
enforced against—
(a) either party thereto;
(b) any other person claiming under him by a title arising subsequently to the contract,
except a transferee for value who has paid his money in good faith and without notice
of the original contract;
 NAHATA PROFESSIONAL ACADEMY 215

(c) any person claiming under a title which, though prior to the contract and known to the
plaintiff, might have been displaced by the defendant;
(ca) when a limited liability partnership has entered into a contract and subsequently
becomes amalgamated with another limited liability partnership, the new limited
liability partnership which arises out of the amalgamation.
(d) when a company has entered into a contract and subsequently becomes amalgamated
with another company, the new company which arises out of the amalgamation;
(e) when the promoters of a company have, before its incorporation, entered into a
contract for the purpose of the company and such contract is warranted by the terms
of the incorporation, the company:
Provided that the company has accepted the contract and communicated such
acceptance to the other party to the contract.

20 Substituted performance of contract.—

Without prejudice to the generality of the provisions contained in the Indian Contract Act, 1872
(9 of 1872), and, except as otherwise agreed upon by the parties, where the contract is broken
due to non-performance of promise by any party, the party who suffers by such breach shall
have the option of substituted performance through a third party or by his own agency, and,
recover the expenses and other costs actually incurred, spent or suffered by him, from the party
committing such breach.

No substituted performance of contract under sub-section (1) shall be undertaken unless the
party who suffers such breach has given a notice in writing, of not less than thirty days, to the
party in breach calling upon him to perform the contract within such time as specified in the
notice, and on his refusal or failure to do so, he may get the same performed by a third party or
by his own agency:
Provided that the party who suffers such breach shall not be entitled to recover the expenses
and costs under sub-section (1) unless he has got the contract performed through a third party
or by his own agency.

Where the party suffering breach of contract has got the contract performed through a third
party or by his own agency after giving notice under sub-section (1), he shall not be entitled to
claim relief of specific performance against the party in breach.

Nothing in this section shall prevent the party who has suffered breach of contract from claiming
compensation from the party in breach.

20A Special provisions for contract relating to infrastructure project.—

No injunction shall be granted by a court in a suit under this Act involving a contract relating to
an infrastructure project specified in the Schedule, where granting injunction would cause
impediment or delay in the progress or completion of such infrastructure project.
Explanation.—For the purposes of this section, section 20B and clause (ha) of section 41, the
expression “infrastructure project” means the category of projects and infrastructure Sub-
Sectors specified in the Schedule.
The Central Government may, depending upon the requirement for development of
infrastructure projects, and if it considers necessary or expedient to do so, by notification in the
Official Gazette, amend the Schedule relating to any Category of projects or Infrastructure Sub-
Sectors.
Every notification issued under this Act by the Central Government shall be laid, as soon as may
be after it is issued, before each House of Parliament, while it is in session, for a total period of
thirty days which may be comprised in one session or in two or more successive sessions, and if,
before the expiry of the session immediately following the session or the successive sessions
aforesaid, both Houses agree in making any modification in the notification or both Houses
agree that the notification should not be made, the notification shall thereafter have effect only
 NAHATA PROFESSIONAL ACADEMY 216

in such modified form or be of no effect, as the case may be; so, however, that any such
modification or annulment shall be without prejudice to the validity of anything previously done
under that notification.

20B. Special Courts.—

The State Government, in consultation with the Chief Justice of the High Court, shall designate,
by notification published in the Official Gazette, one or more Civil Courts as Special Courts,
within the local limits of the area to exercise jurisdiction and to try a suit under this Act in
respect of contracts relating to infrastructure projects.

20C. Expeditious disposal of suits.—

Notwithstanding anything contained in the Code of Civil Procedure, 1908 (5 of 1908), a suit filed
under the provisions of this Act shall be disposed of by the court within a period of twelve
months from the date of service of summons to the defendant:
Provided that the said period may be extended for a further period not exceeding six months in
aggregate after recording reasons in writing for such extension by the court.

21 Power to award compensation in certain cases.—

(1) In a suit for specific performance of a contract, the plaintiff may also claim compensation for its
breach in addition to such performance.
(2) If, in any such suit, the court decides that specific performance ought not to be granted, but that
there is a contract between the parties which has been broken by the defendant, and that the
plaintiff is entitled to compensation for that breach, it shall award him such compensation
accordingly.

(3) If, in any such suit, the court decides that specific performance ought to be granted, but that it is
not sufficient to satisfy the justice of the case, and that some compensation for breach of the
contract should also be made to the plaintiff, it shall award him such compensation accordingly.

(4) In determining the amount of any compensation awarded under this section, the court shall be
guided by the principles specified in section 73 of the Indian Contract Act, 1872 (9 of 1872).

(5) No compensation shall be awarded under this section unless the plaintiff has claimed such
compensation in his plaint:
Provided that where the plaintiff has not claimed any such compensation in the plaint, the court
shall, at any stage of the proceeding, allow him to amend the plaint on such terms as may be
just, for including a claim for such compensation.
Explanation.—The circumstances that the contract has become incapable of specific
performance does not preclude the court from exercising the jurisdiction conferred by this
section.

22 Power to grant relief for possession, partition, refund of earnest money, etc.
(1) Notwithstanding anything to the contrary contained in the Code of Civil Procedure,1908 (5 of
1908), any person suing for the specific performance of a contract for the transfer of immovable
property may, in an appropriate case, ask for—
(a) possession, or partition and separate possession, of the property, in addition to such
performance; or
(b) any other relief to which he may be entitled, including the refund of any earnest money
or deposit paid or made by him, in case his claim for specific performance is refused.
(2) No relief under clause (a) or clause (b) of sub-section (1) shall be granted by the court unless it
has been specifically claimed:
Provident that where the plaintiff has not claimed any such relief in the plaint, the court shall, at
any stage of the proceeding, allow him to amend the plaint on such terms as may be just for
including a claim for such relief.
 NAHATA PROFESSIONAL ACADEMY 217

(3) The power of the court to grant relief under clause (b) of sub-section (1) shall be without
prejudice to its powers to award compensation under section 21.

23 Liquidation of damages not a bar to specific performance.—

A contract, otherwise proper to be specifically enforced, may be so enforced, though a sum be
named in it as the amount to be paid in case of its breach and the party in default is willing to
pay the same, if the court, having regard to the terms of the contract and other attending
circumstances, is satisfied that the sum was named only for the purpose of securing
performance of the contract and not for the purpose of giving to the party in default an option
of paying money in lieu of specific performance.
When enforcing specific performance under this section, the court shall not also decree
payment of the sum so named in the contract.

24 Bar of suit for compensation for breach after dismissal of suit for specific performance.—
The dismissal of a suit for specific performance of a contract or part thereof shall bar the
plaintiff’s right to sue for compensation for the breach of such contract or part, as the case may
be, but shall not bar his right to sue for any other relief to which he may be entitled, by reason
of such breach.

25 Application of preceding sections to certain awards and testamentary directions to execute

settlements.—
The provisions of this Chapter as to contracts shall apply to awards to which 2[the Arbitration
and Conciliation Act, 1996 (26 of 1996)], does not apply and to directions in a will or codicil to
execute a particular settlement.

26 When instrument may be rectified.—

(1) When, through fraud or a mutual mistake of the parties, a contract or other instrument in
writing not being the articles of association of a company to which the Companies Act, 1956 (1
of 1956), applies does not express their real intention, then—
(a) either party or his representative in interest may institute a suit to have the instrument
rectified; or
(b) the plaintiff may, in any suit in which any right arising under the instrument is in issue,
claim in his pleading that the instrument be rectified; or
(c) a defendant in any such suit as is referred to in clause (b), may, in addition to any other
defence open to him, ask for rectification of the instrument
(2) If, in any suit in which a contract or other instrument is sought to be rectified under sub- section
(1), the court finds that the instrument, through fraud or mistake, does not express the real
intention of the parties, the court may, in its discretion, direct rectification of the instrument so
as to express that intention, so far as this can be done without prejudice to rights acquired by
third persons in good faith and for value.
(3) A contract in writing may first be rectified, and then if the party claiming rectification has so
prayed in his pleading and the court thinks fit, may be specifically enforced.
(4) No relief for the rectification of an instrument shall be granted to any party under this section
unless it has been specifically claimed:
Provided that where a party has not claimed any such relief in his pleading, the court shall, at
any stage of the proceeding, allow him to amend the pleading on such terms as may be just for
including such claim.

27 When rescission may be adjudged or refused.—

(1) Any person interested in a contract may sue to have it rescinded, and such rescission may be
adjudged by the court in any of the following cases, namely:—
(a) where the contract is voidable or terminable by the plaintiff;
(b) where the contract is unlawful for causes not apparent on its face and the defendant is
more to blame than the plaintiff.
 NAHATA PROFESSIONAL ACADEMY 218

(2) Notwithstanding anything contained in sub-section (1), the court may refuse to rescind the
contract—
(a) where the plaintiff has expressly or impliedly ratified the contract; or
(b) where, owing to the change of circumstances which has taken place since the making of
the contract (not being due to any act of the defendant himself), the parties cannot be
substantially restored to the position in which they stood when the contract was made;
or
(c) where third parties have, during the subsistence of the contract, acquired rights in good
faith without notice and for value; or
(d) where only a part of the contract is sought to be rescinded and such part is not
severable from the rest of the contract.
Explanation.—In this section “contract” in relation to the territories to which the Transfer of
Property Act, 1882 (4 of 1882), does not extend, means a contract in writing.

28 Rescission in certain circumstances of contracts for the sale or lease of immovable property,
the specific performance of which has been decreed.—
(1) Where in any suit a decree for specific performance of a contract for the sale or lease of
immovable property has been made and the purchaser or lessee does not, within the period
allowed by the decree or such further period as the court may allow, pay the purchase money or
other sum which the court has ordered him to pay, the vendor or lessor may apply in the same
suit in which the decree is made, to have the contract rescinded and on such application the
court may, by order, rescind the contract either so far as regards the party in default or
altogether, as the justice of the case may require.
(2) Where a contract is rescinded under sub-section (1), the court—
(a) shall direct the purchaser or the lessee, if he has obtained possession of the property
under the contract, to restore such possession to the vendor or lessor, and
(b) may direct payment to the vendor or lessor of all the rents and profits which have
accrued in respect of the property from the date on which possession was so obtained
by the purchaser or lessee until restoration of possession to the vendor or lessor, and, if
the justice of the case so requires, the refund of any sum paid by the vendee or the
lessee as earnest money or deposit in connection with the contract.

(3) If the purchase or lessee pays the purchase money or other sum which he is ordered to pay
under the decree within the period referred to in sub-section (1), the court may, on application
made in the same suit, award the purchaser or lessee such further relief as he may be entitled to,
including in appropriate cases all or any of the following reliefs, namely:—
(a) the execution of a proper conveyance or lease by the vendor or lessor;
(b) the delivery of possession, or partition and separate possession, of the property on the
execution of such conveyance or lease.

(4) No separate suit in respect of any relief which may be claimed under this section shall lie at the
instance of a vendor, purchaser, lessor or lessee, as the case may be.

(5) The costs of any proceedings under this section shall be in the discretion of the court.

29 Alternative prayer for rescission in suit for specific performance.—

A plaintiff instituting a suit for the specific performance of a contract in writing may pray in the
alternative that, if the contract cannot be specifically enforced, it may be rescinded and
delivered up to be cancelled; and the court, if it refuses to enforce the contract specifically, may
direct it to be rescinded and delivered up accordingly.

30 Court may require parties rescinding to do equity.—

On adjudging the rescission of a contract, the court may require the party to whom such relief is
 NAHATA PROFESSIONAL ACADEMY 219

granted to restore, so far as may be, any benefit which he may have received from the other
party and to make any compensation to him which justice may require.

31 When cancellation may be ordered.—

(1) Any person against whom a written instrument is void or voidable, and who has reasonable
apprehension that such instrument, if left outstanding may cause him serious injury, may sue to
have it adjudged void or voidable; and the court may, in its discretion, so adjudge it and order it
to be delivered up and cancelled.

(2) If the instrument has been registered under the Indian Registration Act, 1908 (16 of 1908), the
court shall also send a copy of its decree to the officer in whose office the instrument has been
so registered; and such officer shall note on the copy of the instrument contained in his books
the fact of its cancellation.

32 What instruments may be partially cancelled.

Where an instrument is evidence of different rights or different obligations, the court may, in a
proper case, cancel it in part and allow it to stand for the residue.

33 Power to require benefit to be restored or compensation to be made when instrument is

cancelled or is successfully resisted as being void or voidable.—
(1) On adjudging the cancellation of an instrument, the court may require the party to whom such
relief is granted, to restore, so far as may be any benefit which he may have received from the
other party and to make any compensation to him which justice may require.
(2) Where a defendant successfully resists any suit on the ground—
(a) that the instrument sought to be enforced against him in the suit is voidable, the court
may if the defendant has received any benefit under the instrument from the other
party, require him to restore, so far as may be, such benefit to that party or to make
compensation for it;
(b) that the agreement sought to be enforced against him in the suit is void by reason of his
not having been competent to contract under section 11 of the Indian Contract Act, 1872
(9 of 1872), the court may, if the defendant has received any benefit under the
agreement from the other party, require him to restore, so far as may be, such benefit to
that party, to the extent to which he or his estate has benefited thereby

34 Discretion of court as to declaration of status or right.—

Any person entitled to any legal character, or to any right as to any property, may institute a suit
against any person denying, or interested to deny, his title to such character or right, and the
court may in its discretion make therein a declaration that he is so entitled, and the plaintiff need
not in such suit ask for any further relief:
Provided that no court shall make any such declaration where the plaintiff, being able to seek
further relief than a mere declaration of title, omits to do so.
Explanation.—A trustee of property is a “person interested to deny” a title adverse to the title of
some one who is not inexistence, and for whom, if in existence, he would be a trustee.

35 Effect of declaration.—
A declaration made under this Chapter is binding only on the parties to the suit, persons
claiming through them respectively, and, where any of the parties are trustees, on the persons
for whom, if in existence at the date of the declaration, such parties would be trustees.

Preventive Relief (Sections 36-42)

An injunction is a specific order of the Court forbidding the commission of a wrong threatened or the
continuance of a wrongful course of action already begun, or in some cases (when it is called a ‘mandatory
 NAHATA PROFESSIONAL ACADEMY 220

injunction’) commanding active restitution of the former state of things. Lord Halsbury defines injunction as
“a judicial process whereby a party is ordered to refrain from doing or to do a particular act or thing”.

The main difference between an injunction and specific performance is that the remedy in case of an
injunction is generally directed to prevent the violation of a negative act and therefore deals not only with
contracts but also with torts and many other subjects of purely equitable one, whereas specific
performance is directed to compelling performance of an active duty.
It is known as a “judicial process by which one, who has invaded or is threatening to invade the rights (legal
or equitable) of another is restrained from continuing or commencing such wrongful act. Injunction is the
most ordinary form of preventive relief. For the effective administration of justice, this power to prevent
and to restrain is absolutely necessary.

Characteristics of an injunction
An injunction has three characteristic features;
(a) It is a judicial process.
(b) The object of this judicial process is to restrain or to prevent.
(c) The act restrained or prevented is a wrongful act. An injunction acts or operates always in personam.
If the wrongful act has already taken place, the injunction prevents its repetition. If it is merely
threatened, the threat is prevented from being executed.

36 Preventive relief how granted.—

Preventive relief is granted at the discretion of the court by injunction, temporary or perpetual.

37 Temporary and perpetual injunctions.—

(1) Temporary injunctions are such as are to continue until a specific time, or until the further order
of the court, and they may be granted at any stage of a suit, and are regulated by the Code of
Civil Procedure, 1908 (5 of 1908).
A perpetual injunction can only be granted by the decree made at the hearing and upon the
merits of the suit; the defendant is thereby perpetually enjoined from the assertion of a right, or
from the commission of an act, which would be contrary to the rights of the plaintiff.

Specific performance is decreed to compel the performance of an active duty, while injunction is decreed to
prevent the violation of a negative duty. Normally, the former deals with contracts, while the latter with
torts and other subjects of equitable nature. If a contract is positive in its nature, it calls for the relief of
specific performance, on the other hand, if it is negative in its nature, it calls for relief of injunction.
Example
‘X’ contracts with ‘A’ that he will paint a house belonging to A in 1 month and during that time he will not
paint any other premises. ‘A’ is not entitled to decree for specific performance of this contract. But he is
entitled to an injunction restraining ‘X’ from painting any other premises.

The principle governing the award of injunction as a mode of enforcement of contracts is similar to that of
specific performance. This is clearly borne out by Section 38(2) of the Act. Thus, the enforcement of a
contract is governed by both specific relief and injunction. “The jurisdiction of equity to grant such
injunction is substantially coexistent with its jurisdiction to compel a specific performance”. But still their
fields of operation are separate from each other. While a promise to do is enforced by specific
performance, a promise to forbear is enforced by injunction. Section 41(e) further provides that contract
which will not be affirmatively enforced by a decree of specific performance, will not be negatively
enforced by issuing an injunction. The only exception to this rule is found in Section 42.

38 Perpetual injunction when granted.—

(1) Subject to the other provisions contained in or referred to by this Chapter, a perpetual
injunction may be granted to the plaintiff to prevent the breach of an obligation existing in his
favour, whether expressly or by implication.
 NAHATA PROFESSIONAL ACADEMY 221

When any such obligation arises from contract, the court shall be guided by the rules and
provisions contained in Chapter II.
When the defendant invades or threatens to invade the plaintiff’s right to, or enjoyment of,
property, the court may grant a perpetual injunction in the following cases, namely:—
(a) where the defendant is trustee of the property for the plaintiff;
(b) where there exists no standard for ascertaining the actual damage caused, or likely to
be caused, by the invasion;
(c) where the invasion is such that compensation in money would not afford adequate
relief;
(d) where the injunction is necessary to prevent a multiplicity of judicial proceedings.

39 Mandatory injunctions.—
When, to prevent the breach of an obligation, it is necessary to compel the performance of
certain acts which the court is capable of enforcing, the court may in its discretion grant an
injunction to prevent the breach complained of, and also to compel performance of the
requisite acts

40 Damages in lieu of, or in addition to, injunction.—

(1) The plaintiff in a suit for perpetual injunction under section 38, or mandatory injunction under
section 39, may claim damages either in addition to, or in substitution for, such injunction and
the court may, if it thinks fit, award such damages.
(2) No relief for damages shall be granted under this section unless the plaintiff has claimed such
relief in his plaint:
Provided that where no such damages have been claimed in the plaint, the court shall, at any
stage of the proceedings, allow the plaintiff to amend the plaint on such terms as may be just for
including such claim.
(3)
The dismissal of a suit to prevent the breach of an obligation existing in favour of the plaintiff
shall bar his right to sue for damages for such breach.

41 Injunction when refused.—

An injunction cannot be granted—
(a) to restrain any person from prosecuting a judicial proceeding pending at the institution of
the suit in which the injunction is sought, unless such restraint is necessary to prevent a
multiplicity of proceedings;
(b) to restrain any person from instituting or prosecuting any proceeding in a court notsub-
ordinate to that from which the injunction is sought;
(c) to restrain any person from applying to any legislative body;
(d) to restrain any person from instituting or prosecuting any proceeding in a criminal matter;
(e) to prevent the breach of a contract the performance of which would not be specifically
enforced;
(f) to prevent, on the ground of nuisance, an act of which it is not reasonably clear that it will
be a nuisance;
(g) to prevent a continuing breach in which the plaintiff has acquiesced;
(h) when equally efficacious relief can certainly be obtained by any other usual mode of
proceeding except in case of breach of trust;
(ha) if it would impede or delay the progress or completion of any infrastructure project or
interfere with the continued provision of relevant facility related thereto or services being
the subject matter of such project.
(i) when the conduct of the plaintiff or his agents has been such as to disentitle him to be
the assistance of the court;
(j) when the plaintiff has no personal interest in the matter.
 NAHATA PROFESSIONAL ACADEMY 222

42 Injunction to perform negative agreement.

Notwithstanding anything contained in clause (e) of section 41, where a contract comprises an
affirmative agreement to do a certain act, coupled with a negative agreement, express or
implied, not to do a certain act, the circumstance that the court is unable to compel specific
performance of the affirmative agreement shall not preclude it from granting an injunction to
perform the negative agreement:
Provided that the plaintiff has not failed to perform the contract so far as it is binding on him.
EXAMINATION QUESTIONS
Q-1. Describe the contracts which cannot be specifically enforced under Specific Relief Act, 1963. [DEC-
2020]
Q-2. Enumerate the circumstances in which perpetual injunction can be granted under Specific Relief Act,
1963.[DEC-2020]
Q-3. What are the contracts which cannot be specifically enforced under the Specific Relief Act, 1963 ?
[DEC-19]
Q-4. A contracts to sell B a piece of land consisting of 100 bighas. It turns out that 98 bighas of the land
belongs to A and the two remaining bighas to a stranger, who refuses to part with them. B files the suit
for specific performance against A. Decide with the help of the legal provisions, whether the specific
performance suit is maintainable. [DEC-18]
Q-5. Against whom specific performance of a contract may be enforced under the Specific Relief Act,
1963 ? Explain. [JUNE-19]
6. Against whom the specific performance of a contract cannot be enforced under The Specific Relief
Act, 1963.
7. When perpetual injunction may be granted under the Specific Relief Act, 1963 ?
8. Rectification of Instrument and Cancellation of Instrument.
9. What are the contracts which cannot be specifically enforced under the Specific Relief Act, 1963 ?
 NAHATA PROFESSIONAL ACADEMY 223

CHAPTER -10
LAW RELATING TO LIMITATION
 Introduction
 Bar to the jurisdiction
 Doctrine of sufficient clause
 Commencement of limitation period and exclusions there from
 Commencement of fresh period of limitation
 Constitutional validity of
 limitation act, 1963

STRUCTURE OF THE ACT

 Limitation Act, 1963 is a consolidatory and amendatory act which contains 32 section and a schedule
which consists of 137 articles that prescribe period of limitation and the date from which such period shall
commence in relation to
 suit from article 1-113
 appeal from article 114-117
 applications from article 118-137
 Limitation act is a procedural and adjective law, which is exhaustive in nature
 From where limitation period shall commence, extension therein, exclusion therefrom, even
fresh period of limitation and certain other matters for which no period of limitation lies.
 Applicability of the Act only on courts and not on tribunals and executive authority unless and
until the special act so provide e.g. Companies Act, 2013 [L.S. Synthetics Ltd vs Fairgrowth
Financial Services Ltd. & another]
 Law of limitation bars the remedy but not the right
 Law of limitation is based on the following maxims
 “vigilantibus non dormientibus Jura subveniunt” which means the law will assist only those who are
vigilant with their rights and not those who sleep upon it
 “Interest Republicae Ut Sit Finis Litium” – interest of state requires that there should be an end to
litigation.

S.3 Bar of limitation.—

Subject to the provisions contained in sections 4 to 24 (inclusive), every suit instituted, appeal
preferred, and application made after the prescribed period shall be dismissed, although
limitation has not been set up as a defence.

The provisions of Section 3 are mandatory. The Court can suo motu take note of question of limitation. The
question whether a suit is barred by limitation should be decided on the facts as they stood on the date of
presentation of the plaint. It is a vital section upon which the whole limitation Act depends for its efficacy.

The effect of Section 3 is not to deprive the Court of its jurisdiction. Therefore, decision of a Court
allowing a suit which had been instituted after the period prescribed is not vitiated for want of
jurisdiction. A decree passed in a time barred suit is not a nullity.

Noharlal The Supreme Court observed that, if the statute stipulates a particular period of
Verma vs. limitation, no concession or order would make an application barred by time to be
District within the limitation and the authority had no jurisdiction to consider such application
Cooperative on merits.
Central Bank
Limited,
Jagdalpur,
(SC), 2008
S.M. Ghogbhai In this case, the Appeal was filed against the Order dated 16th November, 2021 passed
vs. Schedulers by National Company Law Tribunal, Mumbai Bench, Court-III by which the Application
 NAHATA PROFESSIONAL ACADEMY 224

Logistics India C.P. No. 3857/I & B/2019 filed by the Appellant under Section 9 of the Insolvency and
Pvt. Ltd. Bankruptcy Code, 2016 was rejected as barred by time. Tribunal dismissed the appeal
(23.05.2022 - stating “We are satisfied that for the limitation for filing Section 9 application it is
NCLAT) :2022 Article 137 of the Limitation Act, 1963 which is attracted. Under Article 137, time from
SCC OnLine which period begins to run is “when the right to apply accrues” the right to apply
NCLAT 216 accrues when invoices issued by the Appellant to the Corporate Debtor were not paid.
Invoices on the basis of which payment is claimed are more than three years earlier
from the date of filing of Section 9 Application which is the basis for rejection of the
Application of the Appellant by the Adjudicating Authority.”

S.4. Expiry of prescribed period when court is closed.—

Where the prescribed period for any suit, appeal or application expires on a day when the court
is closed, the suit, appeal or application may be instituted, preferred or made on the day when
the court reopens.

Explanation.— A court shall be deemed to be closed on any day within the meaning of this
section if during any part of its normal working hours it remains closed on that day.

S.5 Extension of prescribed period in certain cases.—

Any appeal or any application, other than an application under any of the provisions of Order
XXI of the Code of Civil Procedure, 1908 (5 of 1908), may be admitted after the prescribed
period if the appellant or the applicant satisfies the court that he had sufficient cause for not
preferring the appeal or making the application within such period.

Explanation.—The fact that the appellant or the applicant was missed by any order, practice or
judgment of the High Court in ascertaining or computing the prescribed period may be sufficient
cause within the meaning of this section.

The Section is not applicable to applications made under any of the provisions of Order XXI of the Code of
Civil Procedure, 1908 and also to suits. The Court has no power to admit a time barred suit even if there is a
sufficient cause for the delay. It applies only to appeals or applications as specified therein. The reason for
non- applicability of the Section to suits is that, the period of limitation allowed in most of the suits extends
from 3 to 12 years whereas in appeals and application it does not exceed 6 months. For the applicability of
Section 5, the “prescribed period” should be over. The prescribed period means any period prescribed by
any law for the time being in force.

The party applying for condonation of delay should satisfy the Court for not making an appeal or application
within the prescribed period for sufficient cause. The term sufficient cause has not been defined in the
Limitation Act. It depends on the circumstances of each case. However, it must be a cause which is beyond
the control of the party.

In Ramlal v. the Supreme Court held that once the period of limitation expires then the appellant
Rewa Coal has to explain the delay made thereafter for day by day and if he is unable to explain
Fields Ltd., the delay even for a single day, it would be deemed that the party did not have
AIR 1962 SC sufficient cause for delay.
361,

It is the Court’s discretion to extend or not to extend the period of limitation even after the sufficient cause
has been shown and other conditions are also specified. However, the Court should exercise its discretion
judicially and not arbitrarily.
What is sufficient cause and what is not may be explained by the following Judicial observations:

1. Wrong practice of High Court which misled the appellant or his counsel in not filing the appeal should
be regarded as sufficient cause under Section 5;
 NAHATA PROFESSIONAL ACADEMY 225

2. In certain cases, mistake of counsel may be taken into consideration in condonation of delay. But such
mistake must be bona fide;
3. Wrong advice given by advocate can give rise to sufficient cause in certain cases;
4. Mistake of law in establishing or exercising the right given by law may be considered as sufficient
cause. However, ignorance of law is not excuse, nor the negligence of the party or the legal adviser
constitutes a sufficient cause;
5. Imprisonment of the party or serious illness of the party may be considered for condonation of delay;
6. Time taken for obtaining certified copies of the decree of the judgment necessary to accompany the
appeal or application was considered for condoning the delay.
7. Non-availability of the file of the case to the State counsel or Panel lawyer is no ground for
condonation of inordinate delay (Collector and Authorised Chief Settlement Commissioner v. Darshan
Singh and others, AIR 1999 Raj. 84).
8. Ailment of father during which period the defendant was looking after him has been held to be
asufficient and genuine cause (Mahendra Yadav v. Ratna Devi & others, AIR 2006 (NOC) 339 Pat).

The quasi-judicial tribunals, labour courts or executive authorities have no power to extend the period
under this Section.

[R B The test of “sufficient cause” is purely an individualistic test. It is not an objective test.
Ramlingam v. Therefore, no two cases can be treated alike. The statute of limitation has left the
R B concept of sufficient cause’ delightfully undefined thereby leaving to the court a well-
Bhvansewari intended discretion to decide the individual cases whether circumstances exist
(2009) 2 SCC establishing sufficient cause. There are no categories of sufficient cause. The categories
689]. of sufficient cause are never exhausted. Each case spells out a unique experience to be
dealt with by the Court as such.
G. The Supreme Court held that the expression ’sufficient cause’ in Section 5 of the
Ramegowda, Limitation Act, 1963 must receive a liberal construction so as to advance substantial
Major, Etc. v. justice and generally delays in preferring appeals are required to be condoned in the
Special Land interest of justice where no gross negligence or deliberate inaction or lack of bona fides
Acquisition is imputable to the party seeking condonation of the delay.
Officer ,
Bangalore,
B.K. In this case, the question raised by the Appellants was whether the Limitation Act, 1963
Educational will apply to applications that are made under Section 7 and/or Section 9 of the
Services Insolvency and Bankruptcy Code, 2016 on and from its commencement on 01.12.2016
Private till 06.06.2018. The Supreme Court held that Limitation Act, 1963 is applicable to
Limited v. proceedings under Sections 7 and 9 of the Insolvency and Bankruptcy Code, 2016
Parag Gupta retrospectively since its inception. It was stated –
and Associates “that, relying upon the Report of the Insolvency Law Committee of March, 2018, that
(2019) 11 SCC the object of the Amendment Act which introduced Section 238A into the Code was to
633 clarify the law and, thus, Section 238A must be held to be retrospective.
…It is thus clear that since the Limitation Act is applicable to applications filed Under
Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the
Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default
occurs. If the default has occurred over three years prior to the date of filing of the
application, the application would be barred Under Article 137 of the Limitation Act,
save and except in those cases where, in the facts of the case, Section 5 of the
Limitation Act may be applied to condone the delay in filing such application”

S.6 Legal disability.—

(1) Where a person entitled to institute a suit or make an application for the execution of a decree
is, at the time from which the prescribed period is to be reckoned, a minor or insane, or an
idiot, he may institute the suit or make the application within the same period after the
 NAHATA PROFESSIONAL ACADEMY 226

disability has ceased, as would otherwise have been allowed from the time specified there for
in the third column of the Schedule.

(2) Where such person is, at the time from which the prescribed period is to be reckoned, affected
by two such disabilities, or where, before his disability has ceased, he is affected by another
disability, he may institute the suit or make the application within the same period after both
disabilities have ceased, as would otherwise have been allowed from the time so specified.
(3) Where the disability continues up to the death of that person, his legal representative may
institute the suit or make the application within the same period after the death, as would
otherwise have been allowed from the time so specified.
(4) Where the legal representative referred to in sub-section (3) is, at the date of the death of the
person whom he represents, affected by any such disability, the rules contained sub-sections (1)
and (2) shall apply.
(5) Where a person under disability dies after the disability ceases but within the period allowed to
him under this section, his legal representative may institute the suit or make the application
within the same period after the death, as would otherwise have been available to that person
had he not died.
Explanation.—For the purposes of this section, ‘minor’ includes a child in the womb.

S.7. Disability of one of several persons.—

Where one of several persons jointly entitled to institute a suit or make an application for the
execution of a decree is under any such disability, and a discharge can be given without the
concurrence of such person, time will run against them all; but, where no such discharge can be
given, time will not run as against any of them until one of them becomes capable of giving such
discharge without the concurrence of the others or until the disability has ceased.

Explanation I.—This section applies to a discharge from every kind of liability, including a liability
in respect of any immovable property.

Explanation II.—For the purposes of this section, the Manager of a Hindu undivided family
governed by the Mitakshara law shall be deemed to be capable of giving a discharge without the
concurrence of the other members of the family only if he is in management of the joint family
property.

S.8. Special exceptions.

Nothing in section 6 or in section 7 applies to suits to enforce rights of pre- emption, or shall be
deemed to extend, for more than three years from the cessation of the disability or the death of
the person affected thereby, the period of limitation for any suit or application.

Sections 6, 7 and 8 must be read together. Section 8 imposes a limitation on concession provided under
Sections 6 and 7 to a person under disability up to a maximum of three years after the cessation of
disability. The Section applies to all suits except suits to enforce rights of pre-emption.

The period of three years under Section 6 of this Act has to be counted, not from the date of attainment of
majority by the person under disability, but from the date of cessation of minority or disability.

Both Sections 6 and 7 go together. Section 7 is an extension of Section 6, where the point of time at which
the existence of disability is to be recognised “the time from which the period of limitation is to be
reckoned”.

Section 7 is only an application of the principle in Section 6 to a joint-right inherited by a group of persons
wherein some or all of whom are under the disability. The disability of all except one does not prevent the
running of time, if the discharge can be given without the concurrence of the other. Otherwise the time will
run only when the disability is removed.
 NAHATA PROFESSIONAL ACADEMY 227

To apply Section 7, disability must exist when the right to apply accrued, i.e., at the time from which period
of limitation is to be reckoned.

In other words, Section 8 provides that in those cases where the application of Section 6 or 7 of the Act
results in an extension of the period prescribed by Schedule, that extension is not to be more than three
years after the cessation of the disability.
Section 6 is an enabling section to enable persons under disability to exercise their legal rights within a
certain time. Section 7 supplements Section 6, Section 8 controls these sections, which serves as an
exception to Sections 6 and 7. The combined effect of Sections 6 and 8 is that where the prescribed period
of limitation expires before the cessation of disability, for instance, before the attainment of majority, the
minor will no doubt be entitled to a fresh period of limitation from the attainment of his majority subject to
the condition that in no case the period extended by Section 6 shall by virtue of Section 8 exceeds three
years from cessation of disability, i.e. attainment of majority.

S.9. Continuous running of time.—

Where once time has begun to run, no subsequent disability or inability to institute a suit or
make an application stops it:

Provided that, where letters of administration to the estate of a creditor have been granted to
his debtor, the running of the period of limitation for a suit to recover the debt shall be
suspended while the administration continues.
The applicability of this Section is limited to suits and applications only and does not apply to appeals unless
the case fell within any of the exceptions provided in the Act itself.

For the applicability of Section 9 it is essential that the cause of action or the right to move the application
must continue to exist and subsisting on the date on which a particular application is made. If a right itself
had been taken away by some subsequent event, no question of bar of limitation will arise as the starting
point of limitation for that particular application will be deemed not to have been commenced.

Thus, time runs when the cause of action accrues. True test to determine when a cause of action has
accrued is to ascertain the time, when plaintiff could have maintained his action to a successful result first if
there is an infringement of a right at a particular time, the whole cause of action will be said to have arisen
then and there.
Section 9 contemplates only cases where the cause of action continues to exist.

12 Exclusion of time in legal proceedings.—

(1) In computing the period of limitation for any suit, appeal or application, the day from which
such period is to be reckoned, shall be excluded.
(2) In computing the period of limitation for an appeal or an application for leave to appeal or for
revision or for review of a judgment, the day on which the judgment complained of was
pronounced and the time requisite for obtaining a copy of the decree, sentence or order
appealed from or sought to be revised or reviewed shall be excluded.

(3) Where a decree or order is appealed from or sought to be revised or reviewed, or where an
application is made for leave to appeal from a decree or order, the time requisite for obtaining a
copy of the judgment shall also be excluded.
(4) In computing the period of limitation for an application to set aside an award, the time requisite
for obtaining a copy of the award shall be excluded.
Explanation.—In computing under this section the time requisite for obtaining a copy of a
decree or an order,

The term “time requisite for obtaining a copy” means the time which is reasonably required for obtaining
such a copy, On the explanation to Section 12, the Supreme Court in the case of Udayan China Bhai v. R.C.
 NAHATA PROFESSIONAL ACADEMY 228

Bali, AIR 1977 SC 2319, held that by reading Section 12(2) with explanation it is not possible to accept the
submission that in computing the time requisite for obtaining copy of a decree by an application made
after preparation of the decree, the time that elapsed between the pronouncement of the judgement
and the signing of the decree should be excluded.

13. Exclusion of time in cases where leave to sue or appeal as a pauper is applied for.—
In computing the period of limitation prescribed for any suit or appeal in any case where an
application for leave to sue or appeal as a pauper has been made and rejected, the time during which
the applicant has been prosecuting in good faith his application for such leave shall be excluded, and
the court may, on payment of the court fees prescribed for such suit or appeal, treat the suit or
appeal as having the same force and effect as if the court fees had been paid in the first instance.

14 Exclusion of time of proceeding bona fide in court without jurisdiction.—

(1) In computing the period of limitation for any suit the time during which the plaintiff has been
prosecuting with due diligence another civil proceeding, whether in a court of first instance or of
appeal or revision, against the defendant shall be excluded, where the proceeding relates to the
same matter in issue and is prosecuted in good faith in a court which, from defect of jurisdiction
or other cause of a like nature, is unable to entertain it.

(2) In computing the period of limitation for any application, the time during which the applicant
has been prosecuting with due diligence another civil proceeding, whether in a court of first
instance or of appeal or revision, against the same party for the same relief shall be excluded,
where such proceeding is prosecuted in good faith in a court which, from defect of jurisdiction
or other cause of a like nature, is unable to entertain it.

(3) Notwithstanding anything contained in rule 2 of Order XXIII of the Code of Civil Procedure, 1908
(5 of 1908), the provisions of sub-section (1) shall apply in relation to a fresh suit instituted on
permission granted by the court under rule 1 of that Order, where such permission is granted on
the ground that the first suit must fail by reason of a defect in the jurisdiction of the court or
other cause of a like nature.
Explanation.—For the purposes of this section,—
(a) in excluding the time during which a former civil proceeding was pending, the day on
which that proceeding was instituted and the day on which it ended shall both be
counted;
(b) a plaintiff or an applicant resisting an appeal shall be deemed to be prosecuting a
proceeding;
(c) misjoinder of parties or of causes of action shall be deemed to be a cause of a like
nature with defect of jurisdiction.
The following conditions must co-exist for the applicability of this Section:
(a) that the plaintiff or the applicant was prosecuting another civil proceedings against the defendant with
due diligence;
(b) that the previous suit or application related to the same matter in issue;
(c) that the plaintiff or the applicant prosecuted in good-faith in that court; and
(d) that the court was unable to entertain a suit or application on account of defect of jurisdiction or other
like cause.

15 Exclusion of time in certain other cases.—

(1) In computing the period of limitation of any suit or application for the execution of a decree, the
institution or execution of which has been stayed by injunction or order, the time of the
continuance of the injunction or order, the day on which it was issued or made, and the day on
which it was withdrawn, shall be excluded.
(2) In computing the period of limitation for any suit of which notice has been given, or for which
the previous consent or sanction of the Government or any other authority is required, in
accordance with the requirements of any law for the time being in force, the period of such
 NAHATA PROFESSIONAL ACADEMY 229

notice or, as the case may be, the time required for obtaining such consent or sanction shall be
excluded.
Explanation.—In excluding the time required for obtaining the consent or sanction of the
Government or any other authority, the date on which the application was made for obtaining
the consent or sanction and the date of receipt of the order of the Government or other
authority shall both be counted.
(3) In computing the period of limitation for any suit or application for execution of a decree by any
receiver or interim receiver appointed in proceedings for the adjudication of a person as an
insolvent or by any liquidator or provisional liquidator appointed in proceedings for the winding
up of a company, the period beginning with the date of institution of such proceeding and
ending with the expiry of three months from the date of appointment of such receiver or
liquidator, as the case may be, shall be excluded.
(4) In computing the period of limitation for a suit for possession by a purchaser at a sale in
execution of a decree, the time during which a proceeding to set aside the sale has been
prosecuted shall be excluded.
(5) In computing the period of limitation for any suit the time during which the defendant has been
absent from India and from the territories outside India under the administration of the Central
Government, shall be excluded.

16. Effect of death on or before the accrual of the right to sue.—

(1) Where a person who would, if he were living, have a right to institute a suit or make an
application dies before the right accrues, or where a right to institute a suit or make an
application accrues only on the death of a person, the period of limitation shall be computed
from the time when there is a legal representative of the deceased capable of instituting such
suit or making such application.

(2) Where a person against whom, if he were living, a right to institute a suit or make an application
would have accrued dies before the right accrues, or where a right to institute a suit or make an
application against any person accrues on the death of such person, the period of limitation shall
be computed from the time when there is a legal representative of the deceased against whom
the plaintiff may institute such suit or make such application.

(3) Nothing in sub-section (1) or sub-section (2) applies to suits to enforce rights of pre-emption or
to suits for the possession of immovable property or of a hereditary office.

17 Effect of fraud or mistake.—

(1) Where, in the case of any suit or application for which a period of limitation is prescribed by this
Act,—
(a) the suit or application is based upon the fraud of the defendant or respondent or his
agent; or
(b) the knowledge of the right or title on which a suit or application is founded is concealed
by the fraud of any such person as aforesaid; or
(c) the suit or application is for relief from the consequences of a mistake; or
(d) where any document necessary to establish the right of the plaintiff or applicant has
been fraudulently concealed from him, the period of limitation shall not begin to run
until the plaintiff or applicant has discovered the fraud or the mistake or could, with
reasonable diligence, have discovered it; or in the case of a concealed document, until
the plaintiff or the applicant first had the means of producing the concealed document
or compelling its production:

Provided that nothing in this section shall enable any suit to be instituted or application to be
made to recover or enforce any charge against, or set aside any transaction affecting, any
property which—
(i) in the case of fraud, has been purchased for valuable consideration by a person who
 NAHATA PROFESSIONAL ACADEMY 230

was not a party to the fraud and did not at the time of the purchase know, or have reason to
believe, that any fraud had been committed, or
(ii) in the case of mistake, has been purchased for valuable consideration subsequently to
the transaction in which the mistake was made, by a person who did not know, or have reason
to believe, that the mistake had been made, or
(iii) (iii) in the case of a concealed document, has been purchased for valuable consideration
by a person who was not a party to the concealment and, did not at the time of purchase know,
or have reason to believe, that the document had been concealed.
(2) Where a judgment-debtor has, by fraud or force, prevented the execution of a decree or order
within the period of limitation, the court may, on the application of the judgment-creditor made
after the expiry of the said period extend the period for execution of the decree or order:
Provided that such application is made within one year from the date of the discovery of the
fraud or the cessation of force, as the case may be.

18 Effect of acknowledgment in writing.—

(1) Where, before the expiration of the prescribed period for a suit or application in respect of any
property or right, an acknowledgment of liability in respect of such property or right has been
made in writing signed by the party against whom such property or right is claimed, or by any
person through whom he derives his title or liability, a fresh period of limitation shall be
computed from the time when the acknowledgment was so signed.
(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of
the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of
1872), oral evidence of its contents shall not be received.
Explanation.—For the purposes of this section,—
(a) an acknowledgment may be sufficient though it omits to specify the exact nature of the
property or right, or avers that the time for payment, delivery, performance or enjoyment has
not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is
coupled with a claim to set off, or is addressed to a person other than a person entitled to the
property or right,
(b) the word “signed” means signed either personally or by an agent duly authorised in this
behalf, and
(c) an application for the execution of a decree or order shall not be deemed to be an
application in respect of any property or right.

Laxmi Pat This case has discussed, that a fresh period of limitation is required to be computed
Surana vs. from the date of acknowledgment of debt by the principal borrower. The Supreme
Union Bank of Court stated that-
India and Ors. “Suffice it to conclude that there is no substance even in the second ground urged by
(26.03.2021 - the Appellant regarding the maintainability of the application filed by the Respondent-
SC) : AIR 2021 financial creditor Under Section 7 of the Code on the ground of being barred by
SC 1707 limitation. Instead, we affirm the view taken by the NCLT and which commended to
the NCLAT - that a fresh period of limitation is required to be computed from the date
of acknowledgment of debt by the principal borrower from time to time and in
particular the (corporate) guarantor/corporate debtor vide last communication dated
08.12.2018. Thus, the application Under Section 7 of the Code filed on 13.02.2019 is
within limitation.”
Asset The supreme court addressed the issue as to whether an entry made in a balance sheet
Reconstruction of a corporate debtor would amount to an acknowledgement of liability Under Section
Company 18 of the Limitation Act. The Supreme Court held that several judgments of this Court
(India) Limited have indicated that an entry made in the books of accounts, including the balance
vs. Bishal sheet, may amount to an acknowledgement of liability within the meaning of Section
Jaiswal and 18 of the Limitation Act but subject to further examination. It stated- that there is a
Ors. compulsion in law to prepare a balance sheet but no compulsion to make any
 NAHATA PROFESSIONAL ACADEMY 231

(15.04.2021 - particular admission, is correct in law as it would depend on the facts of each case as to
SC) : AIR 2021 whether an entry made in a balance sheet qua any particular creditor is unequivocal or
SC 5249 has been entered into with caveats, which then has to be examined on a case by case
basis to establish whether an acknowledgement of liability has, in fact, been made,
thereby extending limitation Under Section 18 of the Limitation Act”

19 Effect of payment on account of debt or of interest on legacy.—

Where payment on account of a debt or of interest on a legacy is made before the expiration of
the prescribed period by the person liable to pay the debt or legacy or by his agent duly
authorised in this behalf, a fresh period of limitation shall be computed from the time when the
payment was made:

Provided that, save in the case of payment of interest made before the 1st day of January, 1928,
an acknowledgment of the payment appears in the handwriting of, or in a writing signed by, the
person making the payment.

Explanation.—For the purposes of this section,—

(a)where mortgaged land is in the possession of the mortgagee, the receipt of the rent or
produce of such land shall be deemed to be a payment;
“debt” does not include money payable under a decree or order of a court.

24 Computation of time mentioned in instruments

All instruments shall for the purposes of this Act be deemed to be made with reference to the
Gregorian Calendar. (Section 24).

25 Acquisition of ownership by possession

Section 25 applies to acquisition of easements. It provides that the right to access and use of
light or air, way, watercourse, use of water, or any other easement which have been peaceably
enjoyed without interruption and for twenty years (thirty years if property belongs to
Government) shall be absolute and indefeasible. Such period of twenty years shall be a period
ending within two years next before the institution of the suit.

Ravinder Kaur In this case, the question was whether a person claiming the title by virtue of adverse
Grewal and possession can maintain a suit Under Article 65 of Limitation Act, 1963 for declaration
Ors. vs. Manjit of title and for a permanent injunction seeking the protection of his possession
Kaur and Ors. thereby restraining the Defendant from interfering in the possession or for restoration
(07.08.2019 - of possession in case of illegal dispossession by a Defendant whose title has been
SC): 2019 SCC extinguished by virtue of the Plaintiff remaining in the adverse possession or in case of
OnLine SC 975 dispossession by some other person? Court held that there is no bar under Limitation
Act, 1963 to file a suit. It stated that “In our opinion, consequence is that once the
right, title or interest is acquired it can be used as a sword by the Plaintiff as well as a
shield by the Defendant within ken of Article 65 of the Act and any person who has
perfected title by way of adverse possession, can file a suit for restoration of
possession in case of dispossession….
We hold that plea of acquisition of title by adverse possession can be taken by Plaintiff
Under Article 65 of the Limitation Act and there is no bar under the Limitation Act,
1963 to sue on aforesaid basis in case of infringement of any rights of a Plaintiff.”

LIMITATION AND WRITS UNDER THE CONSTITUTION

The subject of limitation is dealt with in entry 13, List III of the Constitution of India. The Legislature may,
without violating
the fundamental rights, enact statutes prescribing limitation within which actions may be brought or
 NAHATA PROFESSIONAL ACADEMY 232

varying or changing the existing rules of limitation either by shortening or extending time provided a
reasonable time is allowed for enforcement of the existing right of action which would become barred
under the amended Statute.
The Statute of Limitation is not unconstitutional since it applies to right of action in future. It is a shield and
not
a weapon of offence.

The State cannot place any hindrance by prescribing a period of limitation in the way of an aggrieved
person seeking to approach the Supreme Court of India under Article 32 of the Constitution. To put curbs in
the way of enforcement of Fundamental Rights through legislative action might well be questioned under
Article 13(2) of the Constitution. It is against the State action that Fundamental Rights are claimed
(Tilokchand Motichand v H.P. Munshi, AIR 1970 SC 898).

The Limitation Act does not in terms apply to a proceeding under Article 32 or Article 226 of the
Constitution. But the Courts act on the analogy of the statute of limitation and refuse relief if the delay is
more than the statutory period of limitation (State of M.P. v. Bhai Lal Bhai, AIR 1964 SC 1006). Where the
remedy in a writ petition corresponds to a remedy in an ordinary suit and latter remedy is subject to bar of
a statute of limitation, the Court in its writ jurisdiction adopts in the statute its own rule of procedure and in
absence of special circumstances imposes the same limitation in the writ jurisdiction.

If the right to property is extinguished by prescription under Section 27 of the Limitation Act, 1963, there is
no subsisting right to be enforced under Article 32 of the Constitution. In other case where the remedy
only, not the right, is extinguished by limitation the Court will refuse to entertain stale claims on the ground
of public policy (Tilokchand Motichand v. H.P. Munshi, AIR 1970 SC 898).

THE SCHEDULE
(Periods of Limitation) and 3]

2. Against a factor for an account. Three years When the account is, during
the continuance of the agency,
demanded and refused or,
where no such demand is
made, when the agency
terminates.
3. By a principal against his agent for movable Three years When the account is, during
property received by the latter and not the continuance of the agency,
accounted for. demanded and refused or,
where no such demand is
made, when the agency
terminates.
4. Other suits by principals against agents for Three years When the neglect or
neglect or misconduct. misconduct
becomes known to the
plaintiff.
5. For an account and a share of the Three years The date of the dissolution.
profits of a dissolved partnership.
PART II — SUITS RELATING TO CONTRACTS
6. For a seaman’s wages. Three years The end of the voyage during
which the wages are earned.
7. For wages in the case of any other person. Three years When the wages accrue due.
 NAHATA PROFESSIONAL ACADEMY 233

8. For the price of food or drink sold by the Three years When the food or drink is
keeper of a hotel, tavern or lodging- house. delivered.

9. For the price of lodging. Three years When the price becomes
payable.
10. Against a carrier for compensation for losing Three years When the loss of injury occurs.
or injuring goods.
11. Against a carrier for compensation for non- Three years When the goods sought
delivery of, or delay in delivering goods.

12. For the hire of animals, vehicles, boats or Three years When the hire becomes
household furniture. payable.
13. For the balance of money advanced in Three years When the goods ought to be
payment of goods to be delivered. delivered.
14. For the price of goods sold and delivered Three years The date of delivery of the
where no fixed period of credit is agreed goods.
upon.

15. For the price of goods sold and delivered to Three years When the period of credit
be paid for after the expiry of a fixed period expires.
of credit.

16. For the price of goods sold and delivered to Three years When the period of the
be paid for by a bill of exchange, no such bill proposed bill elapses.
being given.

17. For the price of trees or growing crops sold Three years The date of the sale.
by the plaintiff to the defendant where no
fixed period of credit is agreed upon.

18. For the price of work done by the plaintiff for Three years When the work is done.
the defendant at his request, where no time
has been fixed for payment.

19. For money payable for money lent. Three years When the loan is made.
20. Like suit when the lender has given a cheque Three years When the cheque is paid.
for the money.
21. For money lent under an agreement that it Three years When the loan is made.
shall be payable on demand.
22. For money deposited under an agreement Three years When the demand is made.
that it shall be payable on demand
including money of a customer in the hands
of his banker so payable.

23. For money payable to the plaintiff for Three years When the money is paid.
money paid for the defendant.
 NAHATA PROFESSIONAL ACADEMY 234

24. For money payable by the defendant to the Three years When the money is received.
plaintiff for money received by the
defendant, for the plaintiff’s use.

25. For money payable for interest upon money Three years When the interest becomes due.
due form the defendant to the plaintiff.

26. For money payable to the plaintiff for Three years When the accounts are stated in
money found to be due from the defendant writing signed by the defendant
to the plaintiff on accounts stated between or his agent duly authorised in
them. this behalf unless where the
debt is, by a simultaneous
agreement in writing signed as
aforesaid, made payable at a
future time, and then when that
time arrives.
27. For compensation for breach of a promise to Three years When the time specified arrives
do anything at a specified time, or upon the or the
happening of a specified contingency. contingency happens.

28. On a single bond, where a day is Three years The day so specified.
specified for payment.
29. On a single bond, where no such day Three years The date of executing the bond.
is specified.
30. On a bond subject to a condition. Three years When the condition is broken.

31. On a bill of exchange or promissory Three years When the bill or note falls due.
note payable at a fixed time after date.
32. On a bill of exchange payable at sight, Three years When the bill is presented.
or after sight, but not at a fixed time.
33. On a bill of exchange accepted payable at a Three years When the bill is presented at
particular place. that place.
34. On a bill of exchange or promissory note Three years When the fixed time expires.
payable at a fixed time after sight or after
demand.
35. On a bill of exchange or promissory note Three years The date of the bill or note.
payable on demand and not accompanied by
any writing restraining or postponing the
right to sue.
36. On a promissory note or bond payable by Three years The expiration of the first term
instalments. of payment as to the part then
payable; and for the other parts,
the expiration of the respective
terms of payment.
37. On a promissory note or bond payable by Three years When the default is made unless
instalments, which provides that, if default where the payee or obligee
be made in payment of one or more waives the benefit of the
instalments, the whole shall be due. provision and then when fresh
default is made in respect of
 NAHATA PROFESSIONAL ACADEMY 235

which there is no such waiver.

38. On a promissory note given by the maker to a Three years The date of the delivery to the
third person to be delivered to the payee payee.
after a certain event should happen.
39. On a dishonoured foreign bill where protest Three years When the notice is given.
has been made and notice given.
40. By the payee against the drawer of a bill of Three years The date of the refusal to
exchange, which has been dishonoured by accept.
non-acceptance.
41. By the acceptor of an accommodation Three years When the acceptor pays the
– bill against the drawer. amount of the bill.
42. By a surety against the principal debtor. Three years When the surety pays the
creditor.
43. By a surely against a co-surety. Three years When the surety pays anything
in excess of his own share.
44. (a) On a policy of insurance when the sum Three years The date of the death of the
insured is payable after proof of the death deceased or where the claim on
has been given to or received by the insurers. the policy is denied, either partly
or wholly, the date of such
denial.
(b) On a policy of insurance when the sum Three years The date of the occurrence
insured is payable after proof of the loss has causing the loss, or where the
been given to or received by the insurers. claim on the policy is denied,
either partly or wholly, the date
of such denial.
45. By the assured to recover premia paid under Three years When the insurers elect to avoid
a policy voidable at the election of the the policy.
insurers.
46. Under the Indian Succession Act, 1925, Three years The date of the payment or
Section 360 or Section 361, to compel a distribution.
refund by a person to whom an executor or
administrator has paid a legacy or distributed
assets.
47. For money paid upon an existing Three years The date of the failure.
consideration which afterwards fails.
48. For contribution by a party who has paid the Three years The date of the payment in
whole or more than his share of the amount excess of
due under a joint decree, or by a sharer in a the plaintiff’s own share.
joint estate who has paid the whole or more
than his share of the amount of revenue due
from himself and his co-shares.
49. By a co-trustee to enforce against the estate Three years When the right to contribution
of a deceased trustee a claim for accrues.
contribution.
50. By the manager of a joint estate of an Three years The date of the payment.
undivided family for contribution, in respect
of a payment made by him on account of the
estate.
 NAHATA PROFESSIONAL ACADEMY 236

51. For the profits of immovable property Three years When the profits are received.
belonging to the plaintiff which have been
wrongfully received by the defendant.
52. For arrears of rent. Three years When the arrears become due.

53. By a vendor of immovable property for Three years The time fixed for completing
personal payment of unpaid purchase- money. the sale, or (where the title is
accepted after the time fixed for
completion) the date of the
acceptance.
54. For specific performance of a contract Three years The date fixed for the
performance, or, if no such date
is fixed, when the plaintiff has
noticed that performance is
refused.
55. For compensation for the breach of any Three years When the contract is broken or
contract, express or implied not herein (where there are successive
specially provided for. breaches) when the breach in
respect of which the suit is
instituted occurs or (where the
breach is continuing) when it
ceases.
PART III — SUITS RELATING TO DECLARATIONS
56. To declare the forgery of an instrument Three years When the issue or
issued or registered. registration
becomes known to the plaintiff.
57. To obtain a declaration that an alleged Three years When the alleged adoption
adoption is invalid, or never, in fact, took becomes
place. known to the plaintiff.

58. To obtain any other declaration. Three yearsWhen the right to sue first
accrues.
PART IV — SUITS RELATING TO DECREES AND INSTRUMENTS
59. To cancel or set aside an instrument or decree Three years When the facts entitling the
or for the rescission of a contract. plaintiff to have the instrument
or decree cancelled or set aside
or the contract rescinded first
becomes known to him.
60. To set aside a transfer of property made by
the guardian of a ward —
(a) by the ward who has attained majority; Three years When the ward attains majority.

(b) by the ward’s legal representative

—
(i) When the ward dies within three years Three years When the ward attains majority.
from the date of attaining majority;

(ii) when the ward dies before attaining Three years When the ward dies.
majority.
 NAHATA PROFESSIONAL ACADEMY 237

PART V — SUITS RELATING TO IMMOVABLE PROPERTY

61. By a mortgagor —
(a) to redeem or recover the possession of Thirty years When the right to redeem or to
immovable property mortgaged; recover possession accrues.
(b) to recover possession of immovable Twelve years When the transfer becomes
property mortgaged and afterwards known to
transferred by the mortgagee for a valuable the plaintiff.
consideration.
(c) to recover surplus collection received by Three years When the mortgagor re-enters
the mortgagee after the mortgage has been on the mortgaged property.
satisfied.
62. To enforce payment of money secured by a Twelve years When the money sued for
mortgage or otherwise charged upon becomes due.
immovable property.
63. By a mortgagee:
(a) for foreclosure; Thirty years When the money secured by the
mortgagee becomes due.
(b) for possession of immovable property Twelve years When the mortgagee becomes
mortgaged. entitled to possession.
64. For possession of immovable property based Twelve years The date of dispossession.
on previous possession and not on title, when
the plaintiff while in possession of the
property has been dispossessed.
65. For possession of immovable property or any Twelve years When the possession of the
interest herein based on title. defendant
becomes adverse to the plaintiff.
Explanation — For the purposes of this
article—
(a) where the suit is by a remainderman, a
reversioner (other than a landlord) or a
devisee, the possession of the defendant shall
be deemed to become adverse only when
the estate of the remainderman, rever-
sioner or devisee, as the case may be, falls
into possession;
(b) where the suit is by a Hindu or Muslim
entitled to the possession of immovable
property on the death of a Hindu or Muslim
female, the possession of the defendant shall
be deemed to become adverse only when the
female dies;
(c) where the suit is by a purchaser at a sale
in execution of a decree when the judgement
debtor was out of possession at the date of
the sale, the purchaser shall be deemed to be
a representative of the judgement debtor
who was out of possession.
66. For possession of immovable property when Twelve years When the forfeiture is incurred
the plaintiff has become entitled to or the condition is broken.
possession by reason of any forfeiture or
breach of condition.
67. By a landlord to recover possession from a Twelve years When the tenancy is
 NAHATA PROFESSIONAL ACADEMY 238

tenant. determined.
PART VI — SUITS RELATING TO MOVABLE PROPERTY
68. For specific movable property lost, or Three years When the person having the
acquired by theft, or dishonest right to the possession of the
misappropriation or conversion. property first learns in whose
possession it is.
69. For other specific movable property. Three years When the property is wrongfully
taken.
70. To recover movable property deposited or Three years The date of refusal after
pawned from a depository or pawnee. demand.
71. To recover movable property deposited or Three years When the sale becomes known
pawned, and afterwards bought from the to the
depository or pawnee for a valuable plaintiff.
consideration.

PART VII — SUITS RELATING TO TORT

72. For compensation for doing or for omitting to One year When the act or omission takes
do an act alleged to be in pursuance of any place.
enactment in force for the time being in the
territories to which this Act extends.

73. For compensation for false One year When the imprisonment ends.
imprisonment.
74. For compensation for a malicious One year When the plaintiff is acquitted
prosecution. or the
prosecution is otherwise
terminated.
75. For compensation for libel. One year When the libel is published.
76. For compensation for slander. One year When the words are spoken,
or if the words are not
actionable in themselves, when
the special damage complained
of results.
77. For compensation for loss of service One year When the loss occurs.
occasioned by the seduction of the plaintiff’s
servant or daughter.

78. For compensation for inducing a person to One year The date of the breach.
break a contract with the plaintiff.

79. For compensation for an illegal, One year The date of the distress.
irregular or excessive distress.
80. For compensation for wrongful seizure of One year The date of the seizure.
movable property under legal process.
81. By executors, adminis-trators or One year The date of the death of the
representatives’ under the Legal Represen- person wronged.
tatives’ Suits Act, 1855.
 NAHATA PROFESSIONAL ACADEMY 239

82. By executors’ adminis-trators or Two years The date of the death of the
representatives under the Indian Fatal person killed.
Accidents Act, 1855.

83. Under the Legal Representatives’ Suits Act, Two years When the wrong complained of
1855, against an executor, an administrator is done.
or any other representative.
84. Against one who having a right to use Two years When the perversion first
property for specific purposes, perverts it to becomes
other purposes. known to the person injured
thereby.
85. For compensation for obstructing a way or a Three years The date of the obstruction.
water-course.
86. For compensation for diverting a water- Three years The date of the diversion.
course.
87. For compensation for trespass upon Three years The date of the trespass.
immovable property.
88. For compensation for infringing copyright or Three years The date of the infringement.
any other exclusive privilege.

89. To restrain waste. Three years When the waste begins.

90. For compensation for injury caused by an Three years When the injunction ceases.
injunction wrongfully obtained.

91. For compensation —

(a)for wrongfully taking or detaining any Three years When the person having the
specific movable property lost, or acquired by right to the possession of the
theft, or dishonest misappro-priation or property first learns in whose
conversion; possession it is.
(b)for wrongfully taking or injuring or Three years When the property is wrongfully
wrongfully detaining any other specific taken or injured, or when the
movable property. detainer’s possession becomes
unlawful.
PART VIII — SUITS RELATING TO TRUSTS AND TRUST PROPERTY
92. To recover possession of immovable property Twelve years When the transfer becomes
conveyed or bequeathed in trust and known to
afterwards transferred by the trustee for a the plaintiff.
valuable consideration.

93. To recover possession of movable property Three years When the transfer becomes
conveyed or bequeathed in trust and known to
afterwards transferred by the trustee for a the plaintiff.
valuable consideration.
 NAHATA PROFESSIONAL ACADEMY 240

94. To set aside a transfer of immovable property Twelve years When the transfer becomes
comprised in a Hindu, Muslim or Buddhist known to
religious or charitable endowment, made by a the plaintiff.
manager thereof for a valuable consideration.

95. A set aside a transfer of movable property Three years When the transfer becomes
comprised in a Hindu, Muslim or Buddhist known to
religious or charitable endowment, made by a the plaintiff.
manager thereof for a valuable consideration.

96. By the manager of a Hindu, Muslim or Twelve years The date of death, resignation or
Buddhist religious or charitable endowment removal of the transferor or the
to recover possession of movable or date of appointment of the
immovable property comprised in the plaintiff as manager of the
endowment which has been transferred by a endowment whichever is later.
previous manager for a valuable
consideration.

106. For a legacy or for a share of a residue Twelve years When the legacy or share
bequeathed by a testator or for a distributive becomes payable or deliverable.
share of the property of an interstate against
an executor or an administrator or some
other person legally charged with the duty of
distributing the estate.

107. For possession of a hereditary office. Twelve years When the defendant takes
Explanation — A hereditary office is possession
possessed when the properties thereof are of the office adversely to the
usually received or if there are no properties plaintiff.
when the duties thereof are usually
performed.

108. Suit during the life of a Hindu or Muslim Twelve years The date of the alienation.
female by a Hindu or Muslim who if the
female died at the date of instituting the suit,
would be entitled to the possession of land,
to have an alienation of such land made by
the female declared to be void except for her
life or until her re- marriage.

109. By a Hindu governed by Mitakshara law to set Twelve years When the alienee takes
aside his father’s alienation of ancestral possession of the property.
property.
 NAHATA PROFESSIONAL ACADEMY 241

110. By a person excluded from a joint family Twelve years When the exclusion becomes
property to enforce a right to share therein. known
to the plaintiff.

111. By or on behalf of any local authority for Thirty years The date of the dispossession or
possession of any public street or road or any discontinuance.
part thereof from which it has been
dispossessed or of which it has discontinued
the possession.

112. Any suit (except a suit before the Supreme Thirty years When the period of limitation
Court in the exercise of its original would begin to run under this Act
jurisdiction) by or on behalf of the Central against a like suit by a private
Government or any State Government, person.
including the Government of the State of
Jammu & Kashmir.

PART X — SUITS FOR WHICH THERE IS NO PRESCRIBED PERIOD

113. Any suit for which no period of limitation is Three years When the right to sue accrues.
provided elsewhere in this Schedule.
Second Division — Appeals
114. Appeal from an order of Acquittal —
(a)under Sub-section (1) or Sub- section (2) of Ninety days The date of the order appealed
Section 417 of the Code of Criminal from.
Procedure, 1898;
(b)under Sub-section (3) of Section 417 of Thirty days The date of the grant of special
that Code. leave.
115. Under the Code of Criminal Procedure, 1898.

(a)from a sentence of death passed by a Court Thirty days The date of the sentence.
of Session or by a High Court in exercise of its
Original Criminal Jurisdiction;

(b)from any other sentence or any order not

being an order of acquittal –
(i)to the High Court; Sixty days The date of the sentence or order.
(ii)to any other Court. Thirty days The date of the sentence or order.
116. Under the Code of Civil Procedure, 1908 –
 NAHATA PROFESSIONAL ACADEMY 242

(a)to a High Court from any decree or order; Ninety days The date of the decree or order.

(b)to any other Court from any decree or Thirty days The date of the decree or order.
order.
117. From a decree or order of any High Court to Thirty days The date of the decree or order.
the same Court.
Third Division — Applications
118. For leave to appear and defend a suit Ten days When the summons is served.
under summary procedure.
119. Under the Arbitration Act, 1940.
(a)for the filing in Court of an award. Thirty days The date of service of the notice
of the making of the award.
(b)for setting aside an award or getting Thirty days The date of service of the notice
an award remitted for reconsideration. of the
filing of the award.

120. Under the Code of Civil Procedure, 1908, Ninety days The date of death of the plaintiff,
to have the legal representative of a appellant, defendant or
deceased plaintiff or appellant or of a respondent as the case may be.
deceased defendant or respondent,
made a party.
121. Under the same Code for an order to set Sixty days The date of abatement.
aside an abatement.
122. To restore a suit or appeal or application Thirty days The date of dismissal.
for review or revision dismissed for
default of appearance or for want of
prosecution or for failure to pay costs of
service of process or to furnish security
for costs.
123. To set aside a decree passed ex parte or Thirty days The date of the decree or where
to re-hear an appeal decreed or heard ex the summons or notice was not
parte. duly served, when the applicant
Explanation: For the purpose of this had knowledge of the decree.
article, substituted service under rule 20
of Order V of the Code of Civil
Procedure, 1908, shall not be deemed to
be due service.
124. For a review of judgement by a Court Thirty days The date of the decree or order.
other than the Supreme Court.

125. To record an adjustment or satisfaction Thirty days When the payment or adjustment
of a decree. is made.
126. For the payment of the amount of a Thirty days The date of the decree.
decree by instalments.

127. To set aside a sale in execution of a Sixty days The date of the sale.
decree, including any such application by
a judgement-debtor.
 NAHATA PROFESSIONAL ACADEMY 243

128. For possession by one dispossessed of Thirty days The date of the dispossession.
immovable property and disputing the
right of the decree-holder or purchaser
at a sale in execution of a decree.
129. For possession after removing resistance Thirty days The date of resistance or
or obstruction to delivery of possession obstruction.
of immovable property decree or sold in
execution of a decree.
130. For leave to appeal as a Pauper —
(a) to the High Court; Sixty days The date of decree appealed
from.
(b) to any other Court. Thirty days The date of decree appealed
from.
131. To any Court for the exercise of its Ninety days The date of the decree or order or
powers of revision under the Code of sentence sought to be revised.
Civil Procedure, 1908 or the Code of
Criminal Procedure, 1973.
132. To the High Court for a certificate of Sixty days The date of the decree, order or
fitness to appeal to the Supreme Court sentence.
under Clause (1) of Article 132, Article
133 or sub-clause (c) of clause (1) of
Article 134 of the Constitution or under
any other law for the time being in force.
133. To the Supreme Court for special leave
to appeal—
(a) in a case involving death sentence; Sixty days The date of the judgement, final
order
or sentence.
(b) in a case where leave to appeal was Sixty days The date of the order of refusal.
refused by the High Court;
(c) in any other case. Ninety days The date of the judgement or
order.
134. For delivery of possession by a purchaser One year When the sale becomes absolute.
of immovable property at a sale in
execution of a decree.

135. For the enforcement of a decree Three years The date of the decree or where a
granting a mandatory injunction. date
is fixed for performance, such
date.
136. For the execution of any decree (other Twelve years When the decree or order
than a decree granting a mandatory becomes enforceable or where
injunction) or order of any Civil Court. the decree or any subsequent
order directs any payment of
money or the delivery of any
property to be made at a certain
date or at recurring periods, when
default in making the payment or
delivery in respect of which
execution is sought, takes place:
Provided that an application for
the enforcement or execution of a
decree granting a perpetual
 NAHATA PROFESSIONAL ACADEMY 244

injunction shall not be subject to

any period of limitation.

137. Any other application for which no Three years When the right to apply accrues.
period of limitation is provided
elsewhere in this Division.

CLASSIFICATION OF PERIOD OF LIMITATION

Depending upon the duration, period of limitation for different purposes may be classified as follows:
Period of 30 years: The maximum period of limitation prescribed by the Limitation Act is 30 years and it is
provided only for three kinds of suits:

1. Suits by mortgagors for the redemption or recovery of possession of immovable property mortgaged;
2. Suits by mortgagee for foreclosure;
3. Suits by or on behalf of the Central Government or any State Government including the State of
Jammu and Kashmir.
Period of 12 years: A period of 12 years is prescribed as a limitation period for various kinds of suits relating
to immovable property, trusts and endowments.

Period of 3 years: A period of three years has been prescribed for suits relating to accounts, contracts,
declaratory suits, suits relating to decrees and instruments and suits relating to movable property.

Period varying between 1 to 3 years: The period form 1 to 3 years has been prescribed for suits relating to
torts and other miscellaneous matters and suits for which no period of limitation is provided in the
schedule to the Act.

Period in days varying between 90 to 10 days: The minimum period of limitation of 10 days is prescribed for
application for leave to appear and defend a suit under summary procedure from the date of service of the
summons. For appeals against a sentence of death passed by a court of session or a High Court in the
exercise of its original jurisdiction the limitation period is 30 days. For appeal against any sentence other
than a sentence of death or any other not being an order of acquittal, the period of 60 days for the appeal
to High Court and 30 days for appeal to any other Court is prescribed. Period of leave to appeal as a pauper
from the date of the decree is 60 days when application for leave to appeal is made to the High Court and
30 days to any other Court.
 NAHATA PROFESSIONAL ACADEMY 245

QUESTIONS:

1. Explain the importance of ‘time requisite for obtaining a copy’ under Limitation Act, 1963 with the
help of case law. [June-2022]
2. The Law of Limitation under the Limitation Act, 1963 bars the remedy but it does not extinguish
the right. Explain in brief. [June-2019] (4 Marks)
3. Discuss the provisions relating to persons under legal disability under the Limitation Act,
1963.[DEC-2019] (4 Marks)
4. Manoj died on 3rd August, 2016 before a right to institute a suit accrued, leaving behind a minor
son of the age of 15 years. Decide the time from where the period of limitation shall be calculated
under Limitation Act, 1963. [Dec-2018] (4 Marks)
5. What is the effect of acknowledgment on the period of limitation ? Discuss. [June-2019] (4 Marks)
6. The test of ‘Sufficient Cause’ is purely an individualistic test, under the Limitation Act, 1963. Clarify.
[DEC-2020] (4 Marks)
7. Describe in brief the provisions of Section 19 of the Limitation Act, 1963 regarding the effect of
payment on account of debt or of interest on legacy. [DEC-2020] (4 Marks)
8. “Where once time has begun to run, no subsequent disability or inability to institute a suit or make
an application can stop it.” Discuss. [JUNE-2009] (4 Marks)
9. Arpit took a debt of Rs.10,000 from Bharat on January, 1998 and promised to pay by 31st
December, 2003. He could not pay such debt within the stipulated time. On 1st December, 2006,
Arpit paid Rs.500 as interest against such debt to Bharat against receipt. Bharat filed a suit against
Arpit to recover such debt on 15th December, 2008. Whether the suit filed by Bharat is within the
period of limitation ? Decide with reasons citing relevant provisions of the law. [JUNE-2009] (5
Marks)
10. The law of limitation bars thc remedy in a court of law when the period of limitation has expired.
However, there are certain exclusions in the computation of the pei‘iod of limitation. Explain.
[JUNE-2011] (4 Marks)
11. “Law of limitation bars the remedy, but does not extinguish the right.” Explain the statement with
its exceptions. [DEC-2011] (4 Marks)
12. State the effects of ‘acknowledgement’ and ‘payment against debt’ on the period of limitation.
[DEC-2011] (4 Marks)
13. “Where once time has begun to run, no subsequent disability or inability to institute a suit or
make an application can stop it.” [DEC-2011]
14. Explain the ‘doctrine of sufficient cause’ for condonation of delay as provided in section 5 of the
Limitation Act, 1963. [JUNE-2012] (5 Marks)
15. Comment on the following :
Computation of period of limitation for an appeal or an application for leave to appeal. [DEC 2012]
(4 Marks)
16. "The law of limitation bars the remedy in a court of law only when the period of limitation has
expired, but it does not extinguish the right that it cannot be enforced by judicial process."
Elaborate. [JUNE-2014] (4 Marks)
17. "Where once time has begun to run, no subsequent disability or inability to institute a suit or make
an application can stop it." Discuss. [DEC-2014] (4 Marks)
18. The decision of a Court allowing a suit which had been instituted after the period prescribed is not
vitiated for want of jurisdiction. Discuss it in the light of provisions under section 3 relating to Bar
of Limitation under Limitation Act, 1963.
[JUNE-2021]
19. What is the effect of acknowledgement on the period of limitation under the section 18 of the
Limitation Act, 1963 ? Explain.
[JUNE-2021]
20. What is maximum and minimum period of limitation prescribed by Limitation Act, 1963 and also
state that in which kind of suits it is provided ? [DEC-2021]
 NAHATA PROFESSIONAL ACADEMY 246

CHAPTER -11
LAW REALING TO ARBITRATION, MEDIATION AND CONCILIATION

Like Civil Courts, arbitrators also determine issues and give decisions in form of awards which are binding
on the parties to the dispute but unlike courts which are established by law and bound to follow civil
procedure, arbitrators are appointed by parties or arbitral instituition and not bound to follow civil
procedure
An Act to consolidate and amend the law relating to
 domestic arbitration,
 international commercial arbitration and
 enforcement of foreign arbitral awards as also
 to define the law relating to conciliation and for matters connected therewith or incidental thereto.

Types of Arbitration
1. Ad hoc Arbitration - This is a type of arbitration that is not handled by a formal organisation rather
the number of arbitrators, mode of selection, and how the arbitration will be conducted, may be
decided by the parties. The procedural aspects should also be decided by the parties.
2. Domestic Arbitration - The arbitration in which the disputes are subject to Indian laws and the cause
of action is entirely based in India are called Domestic arbitration.
3. International Arbitration - It is an arbitration relating to disputes where at least one of the parties is:
(i) an individual who is a national of, or habitually resident in, any country other than India; or
(ii) a body corporate which is incorporated in any country other than India; or
(iii) an association or a body of individuals whose central management and control is exercised in
any country other than India; or
(iv) the Government of a foreign country.
4. Institutional arbitration - In Institutional arbitration, the matter is to be administered by established
arbitration institutions.

Essentials of Arbitral Process

1. Seat of Arbitration – The parties are free to select any location as the arbitration’s seat.
2. Venue of Arbitration – The Venue or location, for the sessions of the arbitral proceedings may be
decided by the parties.
3. Arbitral Institution – The parties may select the arbitral institution for conducting the proceedings. The
rules of such arbitration institution will apply to proceedings.
4. Law – The parties may by agreement choose any law .
5. Language – The parties may also agree on the language of the arbitration proceedings.
6. Number of arbitrators – The parties are free to determine the number of arbitrators, provided that
such number shall not be an even number. However, Failing the determination, the arbitral tribunal
shall consist of a sole arbitrator.
7. Cost – The Court or arbitral tribunal have the discretion to determine the cost which includes the
decision as to:
(a) whether costs are payable by one party to another;
(b) the amount of such costs; and
(c) when such costs are to be paid.

Cases that do not fall under purview of arbitration

Most civil rights disputes with damages as the remedy are reffered to arbitration. However Section 2(3) of
the Act provides that Part I shall not affect any other law for the time being in force by virtue of which
certain disputes may not be submitted to arbitration.

S. 2(1) DEFINITIONS
(a) “arbitration” as to mean any arbitration whether or not administered by a permanent arbitral
institution
 NAHATA PROFESSIONAL ACADEMY 247

(b) “Arbitration agreement” means an agreement referred to in Section 7.

(c) “Arbitral award” includes an interim award.

(ca) “Arbitral Institution” means an arbitral institution designated by the Supreme Court or a High
Court under this Act.

(d) “Arbitral tribunal” means a sole arbitrator or a panel of arbitrators.

(e) Court means,

(i) in the case of an arbitration other than international commercial arbitration, the
principal Civil Court of original jurisdiction in a district, and includes the High Court in
exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the
questions forming the subject-matter of the arbitration if the same had been the
subject-matter of a suit, but does not include any civil court of a grade inferior to such
principal Civil Court, or any Court of Small Causes;
(ii) in the case of international commercial arbitration, the High Court in exercise of its
ordinary original civil jurisdiction, having jurisdiction to decide the questions forming
the subject-matter of the arbitration if the same had been the subject-matter of a suit,
and in other cases, a High Court having jurisdiction to hear appeals from decrees of
courts subordinate to that High Court. [Section 2(1)(e)].

(f) “International commercial arbitration” means an arbitration relating to disputes arising out
of legal relationships, whether contractual or not, considered as commercial under the law in
for in India and where at least one of the parties is,
(i) an individual who is a national of, or habitually resident in, any country other than
India; or
(ii) a body corporate which is incorporated in any country other than India; or
(iii) an association or a body of individuals whose central management and control is
exercised in any country other than India; or
(iv) the Government of a foreign country.

(g) “Legal representative” means a person who in law represents the estate of a deceased
person, and includes any person who intermeddles with the estate of the deceased, and,
where a party acts in a representative character, the person on whom the estate devolves on
the death of the party so acting.

(h) “Party” means a party to an arbitration agreement.

7 Arbitration agreement.
(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to
arbitration all or certain disputes which have arisen or which may arise between them in
respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the
form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in—

 NAHATA PROFESSIONAL ACADEMY 248

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication
including communication through electronic means which provide a record of the agreement;
or
(c) an exchange of statements of claim and defence in which the existence of the
agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an

arbitration agreement if the contract is in writing and the reference is such as to make that
arbitration clause part of the contract.

8 Power to refer parties to arbitration where there is an arbitration agreement.—

(1) A judicial authority, before which an action is brought in a matter which is the subject of an
arbitration agreement shall, if a party to the arbitration agreement or any person claiming
through or under him, so applies not later than the date of submitting his first statement on
the substance of the dispute, then, notwithstanding any judgment, decree or order of the
Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no
valid arbitration agreement exists.

(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied
by the original arbitration agreement or a duly certified copy thereof:
Provided that where the original arbitration agreement or a certified copy thereof is not
available with the party applying for reference to arbitration under sub-section (1), and the
said agreement or certified copy is retained by the other party to that agreement, then, the
party so applying shall file such application along with a copy of the arbitration agreement
and a petition praying the Court to call upon the other party to produce the original
arbitration agreement or its duly certified copy before that Court.

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue
is pending before the judicial authority, an arbitration may be commenced or continued and
an arbitral award made.
9 Interim measures, etc., by Court.
(1) A party may, before or during arbitral proceedings or at any time after the making of the
arbitral award but before it is enforced in accordance with section 36, apply to a court—
(i) for the appointment of a guardian for a minor or person of unsound mind for the
purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of the following matters,
namely
(a) the preservation, interim custody or sale of any goods which are the subject-
matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing which is
the subject- matter of the dispute in arbitration, or as to which any question
may arise therein and authorising for any of the aforesaid purposes any
person to enter upon any land or building in the possession of any party, or
authorising any samples to be taken or any observation to be made, or
experiment to be tried, which may be necessary or expedient for the
purpose of obtaining full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the Court to be
just and convenient, and the Court shall have the same power for making
orders as it has for the purpose of, and in relation to, any proceedings
before it.
(2) Where, before the commencement of the arbitral proceedings, a Court passes an order for
 NAHATA PROFESSIONAL ACADEMY 249

any interim measure of protection under sub-section (1), the arbitral proceedings shall be
commenced within a period of ninety days from the date of such order or within such further
time as the Court may determine.

(3) Once the arbitral tribunal has been constituted, the Court shall not entertain an application
under sub-section (1), unless the Court finds that circumstances exist which may not render
the remedy provided under section 17 efficacious.

10 Number of arbitrators.—
(1) The parties are free to determine the number of arbitrators, provided that such number shall
not be an even number.
(2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a
sole arbitrator.

11 Appointment of arbitrators
(1) a person of any nationality may be an arbitrator, unless otherwise agreed by the parties.

(2) subject to Section11 (6), the parties are free to agree on a procedure for appointing the
arbitrator or arbitrators.

(3) failing any agreement referred to in Section 11(2) above, in an arbitration with three
arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators, shall
appoint the third arbitrator who shall act as the presiding arbitrator.

(3A) Supreme Court and the High Court shall have the power to designate, arbitral institutions,
from time to time, which have been graded by the Council under section 43-I, for the
purposes of the Act. It may be noted that in respect of those High Court jurisdictions, where
no graded arbitral institution are available, then, the Chief Justice of the concerned High
Court may maintain a panel of arbitrators for discharging the functions and duties of arbitral
institution and any reference to the arbitrator shall be deemed to be an arbitral institution for
the purposes of this section and the arbitrator appointed by a party shall be entitled to such
fee at the rate as specified in the Fourth Schedule. Further it may be noted that the Chief
Justice of the concerned High Court may, from time to time, review the panel of arbitrators.

(4) if the appointment procedure in sub-section (3) applies and

(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request
to do so from the other party; or
(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days
from the date of their appointment, “the appointment shall be made, on an
application of the party, by the arbitral institution designated by the Supreme Court,
in case of international commercial arbitration, or by the High Court, in case of
arbitrations other than international commercial arbitration, as the case may be.

(5) failing any agreement referred to in Section 11(2), in an arbitration with a sole arbitrator if
the parties fail to agree on the arbitrator within thirty days from receipt of a request by one
party from the other party to so agree the “the appointment shall be made on an application
of the party in accordance with the provisions contained in Section 11(4).

(6) where, under an appointment procedure agreed upon by the parties,

a. a party fails to act as required under that procedure; or
b. the parties, or the two appointed arbitrators, fail to reach an agreement expected of
them under that procedure; or
c. a person, including an institution, fails to perform any function entrusted him or it
under that procedure, “the appointment shall be made, on an application of the
 NAHATA PROFESSIONAL ACADEMY 250

party, by the arbitral institution designated by the Supreme Court, in case of

international commercial arbitration, or by the High Court, in case of arbitrations
other than international commercial arbitration, as the case may be”; take the
necessary measure, unless the agreement on the appointment procedure provides
other means for securing the appointment.

the arbitral institution referred to in Section 11(4), Section 11(5) and Section 11(6), before
appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in
terms of section 12(1), and have due regard to-
a. any qualifications required for the arbitrator by the agreement of the parties; and
b. the contents of the disclosure and other considerations as are likely to secure the
appointment of an independent and impartial arbitrator

(9) in the case of appointment of sole or third arbitrator in an international commercial

arbitration, the arbitral institution designated by the Supreme Court may appoint an
arbitrator of a nationality other than the nationalities of the parties where the parties belong
to different nationalities.

(11) where more than one request has been made under Section 11(4), Section 11(5) and Section
11(6), to different arbitral institutions, the arbitral institution to which the request has been
first made under the relevant sub-section shall be competent to appoint.

(12) where the matter referred to in Section 11(4), Section 11(5) and Section 11(6) and Section 11
(8) arise in an international commercial arbitration or any other arbitration, the reference to
the arbitral institution in those sub-sections shall be construed as a reference to the arbitral
institution designated under Section 11(3A).

(13) that an application for appointment of an arbitrator or arbitrators shall be disposed of by the
arbitral institution within a period of thirty days from the date of service of notice on the
opposite party

(14) the arbitral institution shall determine the fees of the arbitral tribunal and the manner of its
payment to the arbitral tribunal subject to the rates specified in the Fourth Schedule. It may
be noted that Section 11(14) shall not apply to international commercial arbitration and in
arbitrations (other than international commercial arbitration) where parties have agreed for
determination of fees as per the rules of an arbitral institution.

12 Grounds of challenge
(1) When a person is approached in connection with his possible appointment as an arbitrator,
he shall disclose in writing any circumstances,—
(a) such as the existence either direct or indirect, of any past or present relationship with
or interest in any of the parties or in relation to the subject-matter in dispute, whether
financial, business, professional or other kind, which is likely to give rise to justifiable
doubts as to his independence or impartiality; and
(b) which are likely to affect his ability to devote sufficient time to the arbitration and in
particular his ability to complete the entire arbitration within a period of twelve
months.
Explanation1.—The grounds stated in the Fifth Schedule shall guide in determining whether
circumstances exist which give rise to justifiable doubts as to the independence or
impartiality of an arbitrator.
Explanation 2.—The disclosure shall be made by such person in the form specified in the
Sixth Schedule.

(2) An arbitrator may be challenged only if—

(a) circumstances exist that give rise to justifiable doubts as to his independence or
 NAHATA PROFESSIONAL ACADEMY 251

impartiality, or
(b) he does not possess the qualifications agreed to by the parties.

(3) A party may challenge an arbitrator appointed by him, or in whose appointment he has
participated, only for reasons of which he becomes aware after the appointment has been
made.

(4) Notwithstanding any prior agreement to the contrary, any person whose relationship, with
the parties or counsel or the subject-matter of the dispute, falls under any of the categories
specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes having arisen between them, waive the
applicability of this sub-section by an express agreement in writing.

13 Challenge procedure.—
(1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an
arbitrator.

(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an
arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral
tribunal or after becoming aware of any circumstances referred to in sub-section(3) of
section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.

(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other
party agrees to the challenge, the arbitral tribunal shall decide on the challenge.

(4) If a challenge under any procedure agreed upon by the parties or under the procedure under
sub- section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings
and make an arbitral award.

(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator
may make an application for setting aside such an arbitral award in accordance with section
34.

(6) Where an arbitral award is set aside on an application made under sub-section (5), the Court
may decide as to whether the arbitrator who is challenged is entitled to any fees.

14 Failure or impossibility to act.—

(1) The mandate of an arbitrator shall terminate and he shall be substituted by another
arbitrator, if—
(a) he becomes de jure or de facto unable to perform his functions or for other reasons
fails to act without undue delay; and
(b) he withdraws from his office or the parties agree to the termination of his mandate.

(2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section
(1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the
termination of the mandate.

(3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office
or a party agrees to the termination of the mandate of an arbitrator, it shall not imply
acceptance of the validity of any ground referred to in this section or sub-section(3) of section
12.

15 Termination of mandate and substitution of arbitrator.—

(1) In addition to the circumstances referred to in section 13 or section 14,the mandate of an
 NAHATA PROFESSIONAL ACADEMY 252

arbitrator shall terminate—

(a) where he withdraws from office for any reason; or
(b) by or pursuant to agreement of the parties.

(2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed
according to the rules that were applicable to the appointment of the arbitrator being
replaced.

(3) Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2),
any hearings previously held maybe repeated at the discretion of the arbitral tribunal.

(4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior
to the replacement of an arbitrator under this section shall not be invalid solely because
there has been a change in the composition of the arbitral tribunal.

16 Competence of arbitral tribunal to rule on its jurisdiction.—

(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with
respect to the existence or validity of the arbitration agreement, and for that purpose,—
(a) an arbitration clause which forms part of a contract shall be treated as an agreement
independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail
ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the
submission of the statement of defence; however, a party shall not be precluded from raising
such a plea merely because that he has appointed, or participated in the appointment of, an
arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon
as the matter alleged to be beyond the scope of its authority is raised during the arbitral
proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section
(3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3)
and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral
proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an
arbitral award in accordance with section 34.

Jivan Kumar Lohia In this case, revocation of the authority of the arbitrator was sought by the
v. Durgadutt respondent applicants before the High Court on the ground of bias on the part of
Lohia AIR 1992 SC the arbitrator. It was stated that “reasonable apprehension of bias or likelihood of
188 bias in the mind of either party is a ground for termination of the arbitrator.”
BCC Developers & In this case, it was observed that just because the appointed arbitrators happen to
Promoters Ltd v. be ex-employees of one of the parties, it shall not make them ineligible for such
DMRC appointment. “the plea urged by petitioner seeking appointment of sole Arbitrator
and disqualification of panel of proposed/nominated Arbitrators by the respondent
being hit by provision of Section12 of the Act, is not maintainable.”
Chloro Controls (I) In this case, court observed on the rule of kompetenz kompetenz. Court held
P. Ltd v. Severn “challenge to the existence or validity of the arbitration agreement will not prevent
Trent Water the arbitral tribunal from proceeding with hearing and ruling upon its jurisdiction.
Purification Inc The negative effect of the kompetenz kompetenz principle is that arbitrators are
 NAHATA PROFESSIONAL ACADEMY 253

and Ors 2012(9) N entitled to be the first to determine their jurisdiction which is later reviewable by
SCALE 595 the court, when there is action to enforce or set aside the arbitral award. Where
the dispute is not before an arbitral tribunal, the Court must also decline
jurisdiction unless the arbitration agreement is patently void, inoperative or
incapable of being performed.”

17 Interim measures ordered by arbitral tribunal

(1) A party may, during the arbitral proceedings, apply to the arbitral tribunal—
(i) for the appointment of a guardian for a minor or person of unsound mind for the
purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of the following matters,
namely:—
(a) the preservation, interim custody or sale of any goods which are the subject-
matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing which is the
subject- matter of the dispute in arbitration, or as to which any question may
arise therein and authorising for any of the aforesaid purposes any person to
enter upon any land or building in the possession of any party, or authorising
any samples to be taken, or any observation to be made, or experiment to be
tried, which may be necessary or expedient for the purpose of obtaining full
information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the arbitral tribunal
to be just and convenient, and the arbitral tribunal shall have the same power
for making orders, as the court has for the purpose of, and in relation to, any
proceedings before it.
(2) Subject to any orders passed in an appeal under section 37, any order issued by the arbitral
tribunal under this section shall be deemed to be an order of the Court for all purposes and
shall be enforceable under the Code of Civil Procedure,1908 (5 of 1908), in the same manner
as if it were an order of the Court

18 Equal treatment of parties.—

The parties shall be treated with equality and each party shall be given a full opportunity to
present this case.

19 Determination of rules of procedure

(1) The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908) or
the Indian Evidence Act, 1872 (1 of 1872).

(2) Subject to this Part, the parties are free to agree on the procedure to be followed by the
arbitral tribunal in conducting its proceedings.

(3) Failing any agreement referred to in sub-section (2), the arbitral tribunal may, subject to this
Part, conduct the proceedings in the manner it considers appropriate.

(4) The power of the arbitral tribunal under sub-section (3) includes the power to determine the
admissibility, relevance, materiality and weight of any evidence.

20 Place of arbitration.—
(1) The parties are free to agree on the place of arbitration.
 NAHATA PROFESSIONAL ACADEMY 254

(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be
determined by the arbitral tribunal having regard to the circumstances of the case, including
the convenience of the parties.

(3) Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise
agreed by the parties, meet at anyplace it considers appropriate for consultation among its
members, for hearing witnesses, experts or the parties, or for inspection of documents,
goods or other property.

21 Commencement of arbitral proceedings.—

Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular
dispute commence on the date on which a request for that dispute to be referred to
arbitration is received by the respondent.

22 Language.—
(1) The parties are free to agree upon the language or languages to be used in the arbitral
proceedings.

(2) Failing any agreement referred to in sub-section (1), the arbitral tribunal shall determine the
language or languages to be used in the arbitral proceedings.

(3) The agreement or determination, unless otherwise specified, shall apply to any written
statement by a party, any hearing and any arbitral award, decision or other communication
by the arbitral tribunal.

(4) The arbitral tribunal may order that any documentary evidence shall be accompanied by a
translation into the language or languages agreed upon by the parties or determined by the
arbitral tribunal.

23 Statements of claim and defence.—

(1) Within the period of time agreed upon by the parties or determined by the arbitral tribunal,
the claimant shall state the facts supporting his claim, the points at issue and the relief or
remedy sought, and the respondent shall state his defence in respect of these particulars,
unless the parties have otherwise agreed as to the required elements of those statements.

(2) The parties may submit with their statements all documents they consider to be relevant or
may add a reference to the documents or other evidence they will submit.
(2A) The respondent, in support of his case, may also submit a counterclaim or plead a set-off,
which shall be adjudicated upon by the arbitral tribunal, if such counterclaim or set-off falls
within the scope of the arbitration agreement.]

(3) Unless otherwise agreed by the parties, either party may amend or supplement his claim or
defence during the course of the arbitral proceedings, unless the arbitral tribunal considers it
inappropriate to allow the amendment or supplement having regard to the delay in making it.

(4) The statement of claim and defence under this section shall be completed within a period of
six months from the date the arbitrator or all the arbitrators, as the case may be, received
notice, in writing of their appointment.

24 Hearings and written proceedings.—

(1) Unless otherwise agreed by the parties, the arbitral tribunal shall decide whether to hold oral
hearings for the presentation of evidence or for oral argument, or whether the proceedings
shall be conducted on the basis of documents and other materials:
Provided that the arbitral tribunal shall hold oral hearings, at an appropriate stage of the
 NAHATA PROFESSIONAL ACADEMY 255

proceedings, on a request by a party, unless the parties have agreed that no oral hearing shall
be held:
Provided further that the arbitral tribunal shall, as far as possible, hold oral hearings for the
presentation of evidence or for oral argument on day-to-day basis, and not grant any
adjournments unless sufficient cause is made out, and may impose costs including exemplary
costs on the party seeking adjournment without any sufficient cause.
(2) The parties shall be given sufficient advance notice of any hearing and of any meeting of the
arbitral tribunal for the purposes of inspection of documents, goods or other property.
(3) All statements, documents or other information supplied to, or applications made to the
arbitral tribunal by one party shall be communicated to the other party, and any expert
report or evidentiary document on which the arbitral tribunal may rely in making its decision
shall be communicated to the parties.

25 Default of a party.
(1) Unless otherwise agreed by the parties, where, without showing sufficient cause,—
(a) the claimant fails to communicate his statement of claim in accordance with sub-
section (1) of section 23, the arbitral tribunal shall terminate the proceedings;
(b) the respondent fails to communicate his statement of defence in accordance with sub-
section (1) of section 23, the arbitral tribunal shall continue the proceedings without
treating that failure in itself as an admission of the allegations by the claimant and
shall have the discretion to treat the right of the respondent to file such statement of
defence as having been forfeited.
(2) a party fails to appear at an oral hearing or to produce documentary evidence, the arbitral
tribunal may continue the proceedings and make the arbitral award on the evidence before
it.

26 Expert appointed by arbitral tribunal.—

(1) Unless otherwise agreed by the parties, the arbitral tribunal may—
(a) appoint one or more experts to report to it on specific issues to be determined by
the arbitral tribunal, and
(b) require a party to give the expert any relevant information or to produce, or to
provide access to, any relevant documents, goods or other property for his
inspection.

(2) Unless otherwise agreed by the parties, if a party so requests or if the arbitral tribunal
considers it necessary, the expert shall, after delivery of his written or oral report, participate
in an oral hearing where the parties have the opportunity to put questions to him and to
present expert witnesses in order to testify on the points at issue.

(3) Unless otherwise agreed by the parties, the expert shall, on the request of a party, make
available to that party for examination all documents, goods or other property in the
possession of the expert with which he was provided in order to prepare his report.

27 Court assistance in taking evidence.—

(1) The arbitral tribunal, or a party with the approval of the arbitral tribunal, may apply to the
Court for assistance in taking evidence.
(2) The application shall specify—
(a) the names and addresses of the parties and the arbitrators;
(b) the general nature of the claim and the relief sought;
(c) the evidence to be obtained, in particular,—
(i) the name and address of any person to be heard as witness or expert
witness and astatement of the subject-matter of the testimony required;
(ii) the description of any document to be produced or property to be inspected.
 NAHATA PROFESSIONAL ACADEMY 256

(3) The Court may, within its competence and according to its rules on taking evidence, execute
the request by ordering that the evidence be provided directly to the arbitral tribunal.

(4) The Court may, while making an order under sub-section (3), issue the same processes to
witnesses as it may issue in suits tried before it.

(5) Persons failing to attend in accordance with such process, or making any other default, or
refusing to give their evidence, or guilty of any contempt to the arbitral tribunal during the
conduct of arbitral proceedings, shall be subject to the like disadvantages, penalties and
punishments by order of the Court on the representation of the arbitral tribunal as they
would incur for the like offences in suits tried before the Court.

(6) In this section the expression “Processes” includes summonses and commissions for the
examination of witnesses and summonses to produce documents.

28 Rules applicable to substance of dispute.—

(1) Where the place of arbitration is situate in India,—
(a) in an arbitration other than an international commercial arbitration, the arbitral
tribunal shall decide the dispute submitted to arbitration in accordance with the
substantive law for the time being in force in India;
(b) in international commercial arbitration,—
(i) the arbitral tribunal shall decide the dispute in accordance with the rules of
law designated by the parties as applicable to the substance of the dispute;
(ii) any designation by the parties of the law or legal system of a given country
shall be construed, unless otherwise expressed, as directly referring to the
substantive law of that country and not to its conflict of laws rules;
(iii) failing any designation of the law under clause (a) by the parties, the arbitral
tribunal shall apply the rules of law it considers to be appropriate given all
the circumstances surrounding the dispute.

(2) The arbitral tribunal shall decide ex aequoet bono or as amiable compositeur only if the
parties have expressly authorised it to do so.

(3) While deciding and making an award, the arbitral tribunal shall, in all cases, take into account
the terms of the contract and trade usages applicable to the transaction.

29 Decision making by panel of arbitrators.—

(1) Unless otherwise agreed by the parties, in arbitral proceedings with more than one arbitrator, any
decision of the arbitral tribunal shall be made by a majority of all its members.

(2) Notwithstanding sub-section (1), if authorised by the parties or all the members of the arbitral
tribunal, questions of procedure may be decided by the presiding arbitrator.

29A Time limit for arbitral award.—

(1) The award in matters other than international commercial arbitration shall be made by the
arbitral tribunal within a period of twelve months from the date of completion of pleadings
under sub-section (4) of section 23:
Provided that the award in the matter of international commercial arbitration may be made
as expeditiously as possible and endeavor may be made to dispose of the matter within a
period of twelve months from the date of completion of pleadings under sub-section (4) of
section 23.
 NAHATA PROFESSIONAL ACADEMY 257

(2) If the award is made within a period of six months from the date the arbitral tribunal enters
upon the reference, the arbitral tribunal shall be entitled to receive such amount of
additional fees as the parties may agree.

(3) The parties may, by consent, extend the period specified in sub-section (1) for making award
for a further period not exceeding six months.

(4) If the award is not made within the period specified in sub-section (1) or the extended period
specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless
the Court has, either prior to or after the expiry of the period so specified, extended the
period:
Provided that while extending the period under this sub-section, if the Court finds that the
proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it
may order reduction of fees of arbitrator(s) by not exceeding five per cent. for each month of
such delay.
Provided further that where an application under sub-section (5) is pending, the mandate of
the arbitrator shall continue till the disposal of the said application:
Provided also that the arbitrator shall be given an opportunity of being heard before the fees
is reduced.

(5) The extension of period referred to in sub-section (4) may be on the application of any of the
parties and may be granted only for sufficient cause and on such terms and conditions as may
be imposed by the Court.

(6) While extending the period referred to in sub-section (4), it shall be open to the Court to
substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the
arbitral proceedings shall continue from the stage already reached and on the basis of the
evidence and material already on record, and the arbitrator(s)appointed under this section
shall be deemed to have received the said evidence and material.

(7) In the event of arbitrator(s) being appointed under this section, the arbitral tribunal thus
reconstituted shall be deemed to be in continuation of the previously appointed arbitral
tribunal.

(8) It shall be open to the Court to impose actual or exemplary costs upon any of the parties
under thissection.

(9) An application filed under sub-section (5) shall be disposed of by the Court as expeditiously as
possible and endeavour shall be made to dispose of the matter within a period of sixty days
from the date of service of notice on the opposite party.

29B Fast track procedure.

(1) Notwithstanding anything contained in this Act, the parties to an arbitration agreement, may,
at any stage either before or at the time of appointment of the arbitral tribunal, agree in
writing to have their dispute resolved by fast track procedure specified in sub-section (3).

(2) The parties to the arbitration agreement, while agreeing for resolution of dispute by fast track
procedure, may agree that the arbitral tribunal shall consist of a sole arbitrator who shall be
chosen by the parties.

(3) The arbitral tribunal shall follow the following procedure while conducting arbitration
proceedings under sub-section (1):—
(a) The arbitral tribunal shall decide the dispute on the basis of written pleadings,
 NAHATA PROFESSIONAL ACADEMY 258

documents and submissions filed by the parties without any oral hearing;
(b) The arbitral tribunal shall have power to call for any further information or
clarification from the parties in addition to the pleadings and documents filed by
them;
(c) An oral hearing may be held only, if, all the parties make a request or if the arbitral
tribunal considers it necessary to have oral hearing for clarifying certain issues;
(d) The arbitral tribunal may dispense with any technical formalities, if an oral hearing is
held, and adopt such procedure as deemed appropriate for expeditious disposal of
the case.

(4) The award under this section shall be made within a period of six months from the date the
arbitral tribunal enters upon the reference.

(5) If the award is not made within the period specified in sub-section (4), the provisions of sub-
sections (3) to (9) of section 29A shall apply to the proceedings.

(6) The fees payable to the arbitrator and the manner of payment of the fees shall be such as
may be agreed between the arbitrator and the parties.]

30 Settlement.—
(1) It is not incompatible with an arbitration agreement for an arbitral tribunal to encourage
settlement of the dispute and, with the agreement of the parties, the arbitral tribunal may
use mediation, conciliation or other procedures at any time during the arbitral proceedings to
encourage settlement.

(2) If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall
terminate the proceedings and, if requested by the parties and not objected to by the arbitral
tribunal, record the settlement in the form of an arbitral award on agreed terms.

(3) An arbitral award on agreed terms shall be made in accordance with section 31 and shall state
that it is an arbitral award.

(4) An arbitral award on agreed terms shall have the same status and effect as any other arbitral
award on the substance of the dispute.

31 Form and contents of arbitral award.—

(1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral
tribunal.

(2) For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the
signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long
as the reason for any omitted signature is stated.

(3) The arbitral award shall state the reasons upon which it is based, unless—
(a) the parties have agreed that no reasons are to be given, or
(b) the award is an arbitral award on agreed terms under section 30.

(4) The arbitral award shall state its date and the place of arbitration as determined in
accordance with section 20 and the award shall be deemed to have been made at that place.

(5) After the arbitral award is made, a signed copy shall be delivered to each party.

(6) The arbitral tribunal may, at any time during the arbitral proceedings, make an interim
arbitral award on any matter with respect to which it may make a final arbitral award.
 NAHATA PROFESSIONAL ACADEMY 259

(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for
the payment of money, the arbitral tribunal may include in the sum for which the
award is made interest, at such rate as it deems reasonable, on the whole or any
part of the money, for the whole or any part of the period between the date on
which the cause of action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise
directs, carry interest at the rate of two per cent. higher than the current rate of
interest prevalent on the date of award, from the date of award to the date of
payment.
Explanation.—The expression “current rate of interest” shall have the same meaning as
assigned to it under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978).]

(8) The costs of an arbitration shall be fixed by the arbitral tribunal in accordance with section
31A.
Explanation.—For the purpose of clause (a), “costs” means reasonable costs relating to—
(i) the fees and expenses of the arbitrators and witnesses,
(ii) legal fees and expenses,
(iii) any administration fees of the institution supervising the arbitration, and
(iv) any other expenses incurred in connection with the arbitral proceedings and the
arbitral award.
32 Termination of proceedings.—
(1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the
arbitral tribunal under sub-section (2).

(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings
where—
(a) the claimant withdraws his claim, unless the respondent objects to the order and the
arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of
the dispute,
(b) the parties agree on the termination of the proceedings, or
(c) the arbitral tribunal finds that the continuation of the proceedings has for any other
reason become unnecessary or impossible.

(3) Subject to section 33 and sub-section (4) of section 34, the mandate of the arbitral tribunal
shall terminate with the termination of the arbitral proceedings.

33 Correction and interpretation of award; additional award.—

(1) Within 30 days from the receipt of the arbitral award, unless another period of time has been
agreed upon by the parties—
(a) a party, with notice to the other party, may request the arbitral tribunal to correct
any computation errors, any clerical or typographical errors or any other errors of a
similar nature occurring in the award;
(b) if so agreed by the parties, a party, with notice to the other party, may request the
arbitral tribunal to give an interpretation of a specific point or part of the award.

(2) If the arbitral tribunal considers the request made under sub-section (1) to be justified, it
shall make the correction or give the interpretation within 30 days from the receipt of the
request and the interpretation shall form part of the arbitral award.

(3) The arbitral tribunal may correct any error of the type referred to in clause (a) of sub-section
(1), on its own initiative, within 30 days from the date of the arbitral award.

(4) Unless otherwise agreed by the parties, a party with notice to the other party, may request,
within 30 days from the receipt of the arbitral award, the arbitral tribunal to make an
additional arbitral award as to claims presented in the arbitral proceedings but omitted from
 NAHATA PROFESSIONAL ACADEMY 260

the arbitral award.

(5) If the arbitral tribunal considers the request made under sub-section (4) to be justified, it
shall make the additional arbitral award within 60 days from the receipt of such request.

(6) The arbitral tribunal may extend, if necessary, the period of time within which it shall make a
correction, give an interpretation or make an additional arbitral award under sub-section (2)
or sub-section (5).

(7) Section 31 shall apply to a correction or interpretation of the arbitral award or to an

additional arbitral award made under this section.

34 Application for setting aside arbitral award.

(1) Recourse to a Court against an arbitral award may be made only by an application for setting
aside such award in accordance with sub-section (2) and sub-section (3).

(2) An arbitral award may be set aside by the Court only if—
(a) the party making the application establishes on the basis of the record of the
arbitral tribunal that—
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties
have subjected it or, failing any indication thereon, under the law for the
time being in force; or
(iii) the party making the application was not given proper notice of the
appointment of an arbitrator or of the arbitral proceedings or was otherwise
unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling
within the terms of the submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be

separated from those not so submitted, only that part of the arbitral award
which contains decisions on matters not submitted to arbitration may be set
aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in
accordance with the agreement of the parties, unless such agreement was in
conflict with a provision of this Part from which the parties cannot derogate,
or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration
under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.

Explanation 1.—For the avoidance of any doubt, it is clarified that an award is in conflict with
the public policy of India, only if,—
(i) the making of the award was induced or affected by fraud or corruption or
was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2.—For the avoidance of doubt, the test as to whether there is a contravention
with the fundamental policy of Indian law shall not entail a review on the
merits of the dispute.
 NAHATA PROFESSIONAL ACADEMY 261

(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations,
may also be set aside by the Court, if the Court finds that the award is vitiated by patent
illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous
application of the law or by re appreciation of evidence.

(3) An application for setting aside may not be made after three months have elapsed from the
date on which the party making that application had received the arbitral award or, if a
request had been made under section 33, from the date on which that request had been
disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause
from making the application within the said period of 3 months it may entertain the
application within a further period of 30 days, but not thereafter.

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and
it is so requested by a party, adjourn the proceedings for a period of time determined by it in
order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to
take such other action as in the opinion of arbitral tribunal will eliminate the grounds for
setting aside the arbitral award.

(5) An application under this section shall be filed by a party only after issuing a prior notice to
the other party and such application shall be accompanied by an affidavit by the applicant
endorsing compliance with the said requirement.

(6) An application under this section shall be disposed of expeditiously, and in any event, within
a period of one year from the date on which the notice referred to in sub-section (5) is served
upon the other party.

State of It was decided that if any ground not initially raised cannot be raised after the expiry
Maharashtra v. of prescribed period given under section 34
Hindustan
Construction Co.
TPI Ltd. v. Union The Court upheld the constitutionality of Section 34 stating that matter in dispute is
of India, 2001(3) not related to judicial review, challenge to arbitral award can be made only on the
grounds specified by the legislature and not just on merit
Oil and Natural It was decided that ‘public policy’ should not be interpreted in narrow terms with
Gas Corpn. Ltd v. respect to just the Indian Laws, it should be interpreted in a way that aims at
Saw Pipes Ltd broadening public interest and fairness. “Public policy, however, is not the policy of a
AIR 2003 SC 262 particular government. It connotes some matter which concerns the public good and
the public interest. The concept of what is for the public good or in the public
interest or what would be injurious or harmful to the public good or the public
interest has varied from time to time. It must be held that the enforcement of a
foreign award would be refused on the ground that it is contrary to public policy if
such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii)
the interests of India; or (iii) justice or morality. If the arbitral tribunal does not
dispense justice, a Court would be well within its right in upholding the challenge to
the award on the ground that it is in conflict with the public policy of India.”

35 Finality of arbitral awards.—

Subject to this Part an arbitral award shall be final and binding on the parties and persons
claiming under them respectively.
 NAHATA PROFESSIONAL ACADEMY 262

36 Enforcement.
(1) Where the time for making an application to set aside the arbitral award under section 34 has
expired, then, subject to the provisions of sub-section (2), such award shall be enforced in
accordance with the provisions of the Code of Civil Procedure, 1908 (5 of 1908), in the same
manner as if it were a decree of the court.
(2) Where an application to set aside the arbitral award has been filed in the Court under section
34, the filing of such an application shall not by itself render that award unenforceable, unless
the Court grants an order of stay of the operation of the said arbitral award in accordance with
the provisions of sub-section (3), on a separate application made for that purpose.

(3) Upon filing of an application under sub-section (2) for stay of the operation of the arbitral
award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation
of such award for reasons to be recorded in writing:
Provided that the Court shall, while considering the application for grant of stay in the case of
an arbitral award for payment of money, have due regard to the provisions for grant of stay of
a money decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908).]
Provided further that where the Court is satisfied that a Prima facie case is made out that,—
(a) the arbitration agreement or contract which is the basis of the award; or
(b) the making of the award,
was induced or effected by fraud or corruption, it shall stay the award unconditionally
pending disposal ofthe challenge under section 34 to the award.

Explanation.—For the removal of doubts, it is hereby clarified that the above proviso shall
apply to all court cases arising out of or in relation to arbitral proceedings, irrespective of
whether the arbitral or court proceedings were commenced prior to or after the
commencement of the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016).

37. Appealable orders.—

(1) Notwithstanding anything contained in any other law for the time being in force, an appeal]
shall lie from the following orders (and from no others) to the Court authorised by law to hear
appeals from original decrees of the Court passing the order, namely:—
(a) refusing to refer the parties to arbitration under section 8;
(b) granting or refusing to grant any measure under section 9;
(c) setting aside or refusing to set aside an arbitral award under section 34.]

(2) Appeal shall also lie to a court from an order of the arbitral tribunal—
(a) accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or
(b) granting or refusing to grant an interim measure under section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this
section shall affect or takeaway any right to appeal to the Supreme Court.

38 Deposits.—
(1) The arbitral tribunal may fix the amount of the deposit or supplementary deposit, as the case
may be, as an advance for the costs referred to in sub-section (8) of section 31, which it expects
will be incurred in respect of the claim submitted to it: Provided that where, apart from the
claim, a counter-claim has been submitted to the arbitral tribunal, it may fix separate amount of
deposit for the claim and counter-claim.

(2) The deposit referred to in sub-section (1) shall be payable in equal shares by the parties:
Provided that where one party fails to pay his share of the deposit, the other party may pay that
share:
Provided further that where the other party also does not pay the aforesaid share in respect of
the claim or the counter-claim, the arbitral tribunal may suspend or terminate the arbitral
 NAHATA PROFESSIONAL ACADEMY 263

proceedings in respect of such claim or counter-claim, as the case may be.

(3) Upon termination of the arbitral proceedings, the arbitral tribunal shall render an accounting to
the parties of the deposits received and shall return any unexpended balance to the party or
parties, as the case may be.

39 Lien on arbitral award and deposits as to costs.—

(1) Subject to the provisions of sub-section (2) and to any provision to the contrary in the
arbitration agreement, the arbitral tribunal shall have a lien on the arbitral award for any unpaid
costs of the arbitration.

(2) If in any case an arbitral tribunal refuses to deliver its award except on payment of the costs
demanded by it, the Court may, on an application in this behalf, order that the arbitral tribunal
shall deliver the arbitral award to the applicant on payment into Court by the applicant of the
costs demanded, and shall, after such inquiry, if any, as it thinks fit, further order that out of the
money so paid into Court there shall be paid to the arbitral tribunal by way of costs such sum as
the Court may consider reasonable and that the balance of the money, if any, shall be refunded
to the applicant.

(3) An application under sub-section (2) may be made by any party unless the fees demanded have
been fixed by written agreement between him and the arbitral tribunal, and the arbitral tribunal
shall be entitled to appear and be heard on any such application.

(4) The Court may make such orders as it thinks fit respecting the costs of the arbitration where
any question arises respecting such costs and the arbitral award contains no sufficient provision
concerning them.

40 Arbitration agreement not to be discharged by death of party thereto.—(

An arbitration agreement shall not be discharged by the death of any party thereto either as
respects the deceased or as respects any other party, but shall in such event been forceable by
or against the legal representative of the deceased.

The mandate of an arbitrator shall not be terminated by the death of any party by whom he was
appointed.
Nothing in this section shall affect the operation of any law by virtue of which any right of action
is extinguished by the death of a person.

41. Provisions in case of insolvency.—

Where it is provided by a term in a contract to which an insolvent is a party that any dispute
arising there out or in connection therewith shall be submitted to arbitration, the said term
shall, if the receiver adopts the contract, be enforceable by or against him so far as it relates to
any such dispute.
Where a person who has been adjudged an insolvent had, before the commencement of the
insolvency proceedings, become a party to an arbitration agreement, and any matter to which
the agreement applies is required to be determined in connection with, or for the purposes of,
the insolvency proceedings, then, if the case is one to which sub-section (1) does not apply, any
other party or the receiver may apply to the judicial authority having jurisdiction in the
insolvency proceedings for an order directing that the matter in question shall be submitted to
arbitration in accordance with the arbitration agreement, and the judicial authority may, if it is
of opinion that, having regard to all the circumstances of the case, the matter ought to be
determined by arbitration, make an order accordingly.
In this section the expression “receiver” includes an Official Assignee.

42 Jurisdiction.
 NAHATA PROFESSIONAL ACADEMY 264

Notwithstanding anything contained elsewhere in this Part or in any other law for the time being
in force, where with respect to an arbitration agreement any application under this Part has
been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and
all subsequent applications arising out of that agreement and the arbitral proceedings shall be
made in that Court and in no other Court.

42A Confidentiality of information.—

Notwithstanding anything contained by any other law for the time being in force, the arbitrator,
the arbitral institution and the parties to the arbitration agreement shall maintain confidentially
of all arbitral proceedings except award where its disclosure is necessary for the purpose of
implementation and enforcement of award.

42B Protection of action taken in good faith.—

No suit or other legal proceedings shall lie against the arbitrator for anything which is in good
faith done or intended to be done under this Act or the rules or regulations made thereunder.

43 Limitations.—
(1) The Limitation Act, 1963 (36 of 1963), shall apply to arbitrations as it applies to proceedings in
court. (2) For the purposes of this section and the Limitation Act, 1963 (36 of 1963),an
arbitration shall be deemed to have commenced on the date referred to in section 21.
(2) For the purposes of this section and the Limitation Act, 1963 (36 of 1963),an arbitration shall be
deemed to have commenced on the date referred to in section 21.
(3) Where an arbitration agreement to submit future disputes to arbitration provides that any claim
to which the agreement applies shall be barred unless some step to commence arbitral
proceedings is taken within a time fixed by the agreement, and a dispute arises to which the
agreement applies, the Court, if it is of opinion that in the circumstances of the case undue
hardship would otherwise be caused, and notwithstanding that the time so fixed has expired,
may on such terms, if any, as the justice of the case may require, extend the time for such period
as it thinks proper.
(4) Where the Court orders that an arbitral award be set aside, the period between the
commencement of the arbitration and the date of the order of the Court shall be excluded in
computing the time prescribed by the Limitation Act, 1963 (36 of 1963),for the commencement
of the proceedings (including arbitration) with respect to the dispute so submitted.

ARBITRATION COUNCIL OF INDIA (ACI)

Part IA as inserted in the Amendment Act, 2019 deals with Arbitration Council of India. Section 43A of Act
contains definitions of terms used in Part IA such as Chairperson, Council and Member.

Establishment and incorporation of Arbitration Council of India

Section 43B empowers the Central Government to establish the Arbitration Council of India to perform the
duties and discharge the functions under the Arbitration Conciliation Act, 1996. The Council shall be a body
corporate by the name aforesaid, having perpetual succession and a common seal, with power, subject to
the provisions of this Act, to acquire, hold and dispose of property, both movable and immovable, and to
enter into contract, and shall, by the said name, sue or be sued. The head office of the Council shall be at
Delhi. The Council may, with the prior approval of the Central Government, establish offices at other places
in India.

Composition of Council
According to Section 43C of the Act, the Council shall consist of the following Members, namely:––
(a) a person, who has been, a Judge of the Supreme Court or, Chief Justice of a High Court or, a Judge of
a High Court or an eminent person, having special knowledge and experience in the conduct or
administration of arbitration, to be appointed by the Central Government in consultation with the
Chief Justice of India– Chairperson;
(b) An eminent arbitration practitioner having substantial knowledge and experience in institutional
 NAHATA PROFESSIONAL ACADEMY 265

arbitration, both domestic and international, to be nominated by the Central Government–Member;

(c) an eminent academician having experience in research and teaching in the field of arbitration and
alternative dispute resolution laws, to be appointed by the Central Government in consultation with
the Chairperson– Member;
(d) Secretary to the Government of India in the Department of Legal Affairs, Ministry of Law and Justice
or his representative not below the rank of Joint Secretary–Member, ex office
(e) Secretary to the Government of India in the Department of Expenditure, Ministry of Finance or his
representative not below the rank of Joint Secretary– Member, ex officio;
(f) one representative of a recognised body of commerce and industry, chosen on rotational basis by
the Central Government–Part-time Member; and
(g) Chief Executive Officer-Member-Secretary, ex officio.

The Chairperson and Members of the Council, other than ex officio Members, shall hold office as such, for a
term of three years from the date on which they enter upon their office.

Chairperson or Member, other than ex officio Member, shall not hold office after he has attained the age of
seventy years in the case of Chairperson and sixty-seven years in the case of Member.

The salaries, allowances and other terms and conditions of the Chairperson and Members as may be
prescribed by the Central Government. The Part-time Member shall be entitled to such travelling and other
allowances as may be prescribed by the Central Government.

Duties and functions of Council

Section 43D provides that it shall be the duty of the Council to take all such measures as may be necessary
to promote and encourage arbitration, mediation, conciliation or other alternative dispute resolution
mechanism and for that purpose to frame policy and guidelines for the establishment, operation and
maintenance of uniform professional standards in respect of all matters relating to arbitration.

For the purposes of performing the duties and discharging the functions under this Act, the Council may—
(a) frame policies governing the grading of arbitral institutions;
(b) recognise professional institutes providing accreditation of arbitrators;
(c) review the grading of arbitral institutions and arbitrators;
(d) hold training, workshops and courses in the area of arbitration in collaboration of law firms, law
universities and arbitral institutes;
(e) frame, review and update norms to ensure satisfactory level of arbitration and conciliation;
(f) act as a forum for exchange of views and techniques to be adopted for creating a platform to make
India a robust centre for domestic and international arbitration and conciliation;
(g) make recommendations to the Central Government on various measures to be adopted to make
provision for easy resolution of commercial disputes;
(h) promote institutional arbitration by strengthening arbitral institutions;
(i) conduct examination and training on various subjects relating to arbitration and conciliation and
award certificates thereof;
(j) establish and maintain depository of arbitral awards made in India;
(k) make recommendations regarding personnel, training and infrastructure of arbitral institutions; and
(l) Such other functions as may be decided by the Central Government. Vacancies, etc., not to invalidate
proceedings of Council Section 43E states that no act or proceeding of the Council shall be invalid
merely by reason of—
(a) any vacancy or any defect, in the constitution of the Council;
(b) any defect in the appointment of a person acting as a Member of the Council; or
(c) any irregularity in the procedure of the Council not affecting the merits of the case.
Resignation of Members

According to Section 43F, the Chairperson or the Full-time or Part-time Member may, by notice in writing,
under his hand addressed to the Central Government, resign his office. Provided that the Chairperson or
 NAHATA PROFESSIONAL ACADEMY 266

the Full-time Member shall, unless he is permitted by the Central Government to relinquish his office
sooner, continue to hold office until the expiry of three months from the date of receipt of such notice or
until a person duly appointed as his successor enters upon his office or until the expiry of his term of office,
whichever is earlier.

Removal of Member Section 43G (1) provides that the Central Government may, remove a Member from
his office if he––
(a) is an undischarged insolvent; or
(b) has engaged at any time (except Part-time Member), during his term of office, in any paid
employment; or
(c) has been convicted of an offence which, in the opinion of the Central Government, involves moral
turpitude; or
(d) has acquired such financial or other interest as is likely to affect prejudicially his functions as a
Member; or
(e) has so abused his position as to render his continuance in office prejudicial to the public interest; or
(f) has become physically or mentally incapable of acting as a Member.

According to Section 43G(2) notwithstanding anything contained in sub-section (1), no Member shall be
removed from his office on the grounds specified in clauses (d) and (e) of that sub-section unless the
Supreme Court, on a reference being made to it in this behalf by the Central Government, has, on an
inquiry, held by it in accordance with such procedure as may be prescribed in this behalf by the Supreme
Court, reported that the Member, ought on such ground or grounds to be removed.

Appointment of experts and constitution of Committees thereof

Section 43H provides that the Council may, appoint such experts and constitute such Committees of
experts as it may consider necessary to discharge its functions on such terms and conditions as may be
specified by the regulations.

General norms for grading of arbitral institutions

Section 43-I states that the Council shall make grading of arbitral institutions on the basis of criteria relating
to infrastructure, quality and calibre of arbitrators, performance and compliance of time limits for disposal
of domestic or international commercial arbitrations, in such manner as may be specified by the
regulations.

Norms for accreditation

43J. The qualifications, experience and norms for accreditation of arbitrators shall be such as may be
specified by the regulations.

Depository of awards
According to the Section 43K the Council shall maintain an electronic depository of arbitral awards made in
India and such other records related thereto in such manner as may be specified by the regulations.

Power to make regulations by Council

Section 43L empowers the Council may, in consultation with the Central Government, make regulations,
consistent with the provisions of this Act and the rules made thereunder, for the discharge of its functions
and perform its duties under the Act.

Chief Executive Officer

Section 43M states that there shall be a Chief Executive Officer of the Council, who shall be responsible for
dayto-day administration of the Council.

The qualifications, appointment and other terms and conditions of the service of the Chief Executive Officer
shall be such as may be prescribed by the Central Government.

The Chief Executive Officer shall discharge such functions and perform such duties as may be specified by
 NAHATA PROFESSIONAL ACADEMY 267

the regulations. There shall be a Secretariat to the Council consisting of such number of officers and
employees as may be prescribed by the Central Government.

The qualifications, appointment and other terms and conditions of the service of the employees and other
officers of the Council shall be such as may be prescribed by the Central Government.’

Conditions for enforcement of foreign awards.—

(1) Enforcement of a foreign award may be refused, at the request of the party against whom it
is invoked, only if that party furnishes to the court proof that—
(a) the parties to the agreement referred to in section 44 were, under the law
applicable to them, under some incapacity, or the said agreement is not valid under
the law to which the parties have subjected it or, failing any indication thereon,
under the law of the country where the award was made; or
(b) the party against whom the award is invoked was not given proper notice of the
appointment of the arbitrator or of the arbitral proceedings or was otherwise
unable to present his case; or
(c) the award deals with a difference not contemplated by or not falling within the
terms of the submission to arbitration, or it contains decisions on matters beyond
the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated
from those not so submitted, that part of the award which contains decisions on
matters submitted to arbitration may be enforced; or
(d) the composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties, or, failing such agreement, was not in
accordance with the law of the country where the arbitration took place ; or
(e) the award has not yet become binding on the parties, or has been set aside or
suspended by a competent authority of the country in which, or under the law of
which, that award was made.
(2) Enforcement of an arbitral award may also be refused if the Court finds that—
(a) the subject-matter of the difference is not capable of settlement by arbitration
under the law of India; or
(b) the enforcement of the award would be contrary to the public policy of India.

Explanation 1.—For the avoidance of any doubt, it is clarified that an award is in conflict
with the public policy of India, only if,—
(i) the making of the award was induced or affected by fraud or corruption or was in
violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.—For the avoidance of doubt, the test as to whether there is a contravention
with the fundamental policy of Indian law shall not entail a review on the merits of the
dispute.
(3) If an application for the setting aside or suspension of the award has been made to a
competent authority referred to in clause (e) of sub-section (1) the Court may, if it considers
it proper, adjourn the decision on the enforcement of the award and may also, on the
application of the party claiming enforcement of the award, order the other party to give
suitable security.

CONCILIATION

Conciliation is an informal process in which the conciliator (the third party) tries to bring the disputants to
agreement. He does this by lowering tensions, improving communications, interpreting issues, providing
technical assistance, exploring potential solutions and bringing about a negotiated settlement.
 NAHATA PROFESSIONAL ACADEMY 268

Mediation is a structured process in which the mediator assists the disputants to reach a negotiated
settlement of their differences. Mediation is usually a voluntary process that results in a signed agreement
which defines the future behaviour of the parties.

The mediator uses a variety of skills and techniques to help the parties reach the settlement, but is not
empowered to render a decision. Basically, these processes can be successful only if the personality of the
conciliator or the mediator is such that he is able to induce the parties to come to a settlement. The Act
gives a formal recognition to conciliation in India. Conciliation forces earlier and greater hold of the case. It
can succeed only if the parties are willing to re-adjust. According to current thinking conciliation is not an
alternative to arbitration or litigation, but rather complements arbitration or litigation

61 Application and scope.—

(1) Save as otherwise provided by any law for the time being in force and unless the parties have
otherwise agreed, this Part shall apply to conciliation of disputes arising out oflegal relationship,
whether contractual or not and to all proceedings relating thereto.
(2) This Part shall not apply where by virtue of any law for the time being in force certain disputes
may not be submitted to conciliation.

62 Commencement of conciliation proceedings.—

(1) The party initiating conciliation shall send to the other party a written invitation to conciliate
under this Part, briefly identifying the subject of the dispute.

(2) Conciliation proceedings, shall commence when the other party accepts in writing the invitation
to conciliate.
(3) If the other party rejects the invitation, there will be no conciliation proceedings.

(4) If the party initiating conciliation does not receive a reply within thirty days from the date on
which he sends the invitation, or within such other period of time as specified in the invitation,
he may elect to treat this as a rejection of the invitation to conciliate and if he so elects, he shall
inform in writing the other party accordingly.

63 Number of conciliators.
(1) There shall be one conciliator unless the parties agree that there shall be two or three
conciliators.

(2) Where there is more than one conciliator, they ought, as a general rule, to act jointly.

64 Appointment of conciliators
(1) Subject to sub-section (2)—
(a) in conciliation proceedings, with one conciliator, the parties may agree on the name of
a soleconciliator;
(b) in conciliation proceedings with two conciliators, each party may appoint one
conciliator;
(c) in conciliation proceedings with three conciliators, each party may appoint one
conciliator and the parties may agree on the name of the third conciliator who shall act
as the presiding conciliator.

(2) Parties may enlist the assistance of a suitable institution or person in connection with the
appointment of conciliators, and in particular,—
(a) a party may request such an institution or person to recommend the names of
suitableindividuals to act as conciliator; or
(b) the parties may agree that the appointment of one or more conciliators be made
 NAHATA PROFESSIONAL ACADEMY 269

directly bysuch an institution or person:

Provided that in recommending or appointing individuals to act as conciliator, the
institution or person shall have regard to such considerations as are likely to secure the
appointment of an independent and impartial conciliator and, with respect to a sole or third
conciliator, shall take into account the advisability of appointing a conciliator of a nationality
other than the nationalities of the parties.

65 Submission of statements to conciliator.—

(1) The conciliator, upon his appointment, may request each party to submit to him a brief written
statement describing the general nature of the dispute and the points at issue. Each party shall
send a copy of such statement to the other party.

(2) The conciliator may request each party to submit to him a further written statement of his
position and the facts and grounds in support thereof, supplemented by any documents and
other evidence that such party deems appropriate. The party shall send a copy of such
statement, documents and other evidence to the other party.

(3) At any stage of the conciliation proceedings, the conciliator may request a party to submit to
him such additional information as he deems appropriate.
Explanation.—In this section and all the following sections of this Part, the term "conciliator"
applies to a sole conciliator, two or three conciliators, as the case may be.

66 Conciliator not bound by certain enactments.—

The conciliator is not bound by the Code ofCivil Procedure, 1908 (5 of 1908)or the Indian
Evidence Act, 1872 (1 of 1872).

67 Role of conciliator.—(
(1) The conciliator shall assist the parties in an independent and impartialmanner in their attempt
to reach an amicable settlement of their dispute.
(2) The conciliator shall be guided by principles of objectivity, fairness and justice, giving
consideration to, among other things, the rights and obligations of the parties, the usages of the
trade concerned and the circumstances surrounding the dispute, including any previous
business practices between the parties.

(3) The conciliator may conduct the conciliation proceedings in such a manner as he considers
appropriate, taking into account the circumstances of the case, the wishes the parties may
express, including any request by a party that the conciliator hear oral statements, and the need
for a speedy settlement of the dispute.

(4) The conciliator may, at any stage of the conciliation proceedings, make proposals for a
settlement of the dispute. Such proposals need not be in writing and need not be accompanied
by a statement of the reasons therefor.

68 Administrative assistance.—
(1) In order to facilitate the conduct of the conciliation proceedings, the parties, or the conciliator
with the consent of the parties, may arrange for administrative assistance by a suitable
institution or person.

69 Communication between conciliator and parties.—

(1) The conciliator may invite the parties to meet him or may communicate with them orally or in
 NAHATA PROFESSIONAL ACADEMY 270

writing. He may meet or communicate with the parties together or with each of them
separately.
(2) Unless the parties have agreed upon the place where meetings with the conciliator are to be
held, such place shall be determined by the conciliator, after consultation with the parties,
having regard to the circumstances of the conciliation proceedings.

70 Disclosure of information.—
When the conciliator receives factual information concerning the dispute from a party, he shall
disclose the substance of that information to the other party in order that the other party may
have the opportunity to present any explanation which he considers appropriate:
Provided that when a party gives any information to the conciliator subject to a specific
condition thatit be kept confidential, the conciliator shall not disclose that information to the
other party.

71 Co-operation of parties with conciliator.—

The parties shall in good faith co-operate with the conciliator and, in particular, shall endeavour
to comply with requests by the conciliator to submit written materials, provide evidence and
attend meetings.

72 Suggestions by parties for settlement of dispute.—

Each party may, on his own initiative or at the invitation of the conciliator, submit to the
conciliator suggestions for the settlement of the dispute.

73 Settlement agreement.
(1) When it appears to the conciliator that there exist elements of a settlement which may be
acceptable to the parties, he shall formulate the terms of a possible settlement and submit
them to the parties for their observations. After receiving the observations of the parties, the
conciliator may reformulate the terms of a possible settlement in the light of such observations.
(2) If the parties reach agreement on a settlement of the dispute, they may draw up and sign a
written settlement agreement. If requested by the parties, the conciliator may draw up, or
assist the parties in drawing up, the settlement agreement.

(3) When the parties sign the settlement agreement, it shall be final and binding on the parties
and persons claiming under them respectively.

(4) The conciliator shall authenticate the settlement agreement and furnish a copy thereof to
each of the parties.

74 Status and effect of settlement agreement.—

(1) The settlement agreement shall have the same status and effect as if it is an arbitral award on
agreed terms on the substance of the dispute rendered byan arbitral tribunal under section 30.

75 Confidentiality.—
Notwithstanding anything contained in any other law for the time being in force, the conciliator
and the parties shall keep confidential all matters relating to the conciliation proceedings.
Confidentiality shall extend also to the settlement agreement, except where its disclosure is
necessary for purposes of implementation and enforcement.

76 Termination of conciliation proceedings.—

 NAHATA PROFESSIONAL ACADEMY 271

The conciliation proceedings shall be terminated—

(a) by the signing of the settlement agreement by the parties, on the date of the
agreement; or
(b) by a written declaration of the conciliator, after consultation with the parties, to the
effect that further efforts at conciliation are no longer justified, on the date of the
declaration; or
(c) by a written declaration of the parties addressed to the conciliator to the effect
that theconciliation proceedings are terminated, on the date of the declaration; or
(d) by a written declaration of a party to the other party and the conciliator, if
appointed, to theeffect that the conciliation proceedings are terminated, on the date of
the declaration.

77 Resort to arbitral or judicial proceedings.—

The parties shall not initiate, during the conciliation proceedings, any arbitral or judicial
proceedings in respect of a dispute that is the subject-matter of the conciliation proceedings
except that a party may initiate arbitral or judicial proceedings where, in his opinion, such
proceedings are necessary for preserving his rights.

MEDIATION
The adversarial method of dispute resolution is one in which the opposing claims of parties are presented
to a neutral third party for resolution. As opposed to the adversarial mode of dispute resolution, non-
adversarial Alternate Dispute Resolution mechanisms like mediation are informal, friendly to people, and
simpler. They also enable the parties to communicate with each another about the issues driving their
conflict, identify their shared interests, and concentrate on coming to a resolution on their own. Such non-
adversarial conflict settlement techniques aid in the parties’ time and financial savings.

Definition and Meaning

According to the Civil Procedure ADR and Mediation Rules, 2003 - “Mediation” means the process by which
a mediator appointed by the parties or by the Court, as the case may be, mediates the disputes between
them by applying the provisions of the Mediation Rules contained in Part-II, and in particular by facilitating
discussion between the parties directly or by communicating with each other through the mediator, by
assisting the parties in identifying the issues, reducing misunderstandings, clarifying priorities, exploring
areas of compromise, generating options in an attempt to solve the dispute and emphasizing that it is their
own responsibility for making decisions which affect them.

According to Section 4 of Mediation Bill, 2021 - Mediation shall be a process, whether referred to by the
expression mediation, pre-litigation mediation, online mediation, community mediation, conciliation or an
expression of similar import, whereby party or parties, request a third person referred to as mediator or
mediation service provider to assist them in their attempt to reach an amicable settlement of a dispute.
Mediation is a voluntary, party-centred and structured negotiation process where a neutral third party
assists the parties in amicably resolving their dispute by using specialized communication and negotiation
techniques. Mediation encourages the active and direct participation of the parties in the resolution of their
dispute. Though the mediator, advocates, and other participants also have active roles in mediation, the
parties play the key role in the mediation process.

Mediation in essence is an assisted negotiation process. Mediation addresses both the factual/ legal issues
and the underlying causes of a dispute. Thus, mediation is broadly focused on the facts, law, and underlying
interests of the parties, such as personal, business/commercial, family, social and community interests. The
goal of mediation is to find a mutually acceptable solution that adequately and legitimately satisfies the
needs, desires and interests of the parties. Mediation provides an efficient, effective, speedy, convenient
and less expensive process to resolve a dispute with dignity, mutual respect and civility.
 NAHATA PROFESSIONAL ACADEMY 272

Types of Mediation
Court- Referred Mediation - It applies to cases pending in Court and which the Court would refer for
mediation under Sec. 89 of the Code of Civil Procedure, 1908. The courts have mediation centres where
cases are referred, and following a preliminary investigation, the cases are assigned to skilled and qualified
mediators from the Mediation Centres’ Panel of Mediators.

1. Court Annexed Mediation - In Court-Annexed Mediation the mediation services are provided by the
court as a part and parcel of the same judicial system as against Court-Referred Mediation, wherein
the court merely refers the matter to a mediator.
2. Statutory/Mandatory Mediation - Some disputes, like those involving labour and family laws, are
required by law to go through the mediation procedure. Mandatory mediation simply refers to the
act of attempting mediation rather than requiring parties to resolve their problems through
mediation.
3. Private Mediation - In private mediation, qualified mediators offer their services on a private, fee-
for- service basis to the Court, to members of the public, to members of the commercial sector and
also o the governmental sector to resolve disputes through mediation. Private mediation can be used
in connection with disputes pending in Court and pre-litigation disputes.
4. Online Mediation - Online mediation including pre-litigation mediation may be conducted at any
stage of mediation under this Act, with the written consent of the parties including by the use of
electronic form or computer networks.

Merits of Mediation Mediation is :

– Quick and responsive.
– Economical.
– There is no extra cost.
– Harmonious settlement.
– Creating solutions and remedies.
– Confidential and informal.
– Parties controlling the proceedings. Mediation Bill 2021

The adversarial nature of the Indian legal system is well known. However, increase in case pending times
continue to a difficulty in judicial and quasi-judicial forums. The government has taken a number of steps to
address this, including the creation and promotion of alternative dispute settlement methods. Although
arbitration has changed throughout the years, institutionalising mediated settlements is now on the table.
In truth, India has debated enacting a comprehensive law on mediation for a very long time. Finally, on
December 20, 2021, Rajya Sabha, the upper chamber of the Indian Parliament, received the Mediation Bill,
2021 (“Bill”). It was forwarded to the Parliamentary Standing Committee on Law and Justice for additional
consideration.

The current draft consists of ten schedules and 65 clauses. It covers a wide range of topics, including the
institutional mediation framework, the creation of a regulatory body, the recognition of organisations that
mediate disputes, the role, credentials, and training of mediators, community mediation, online mediation,
the resolution of cross-border disputes through mediation, pre-litigation mediation that is required, and the
enforcement of mediated settlement agreements.

This bill was passed to promote and facilitate mediation, especially institutional mediation, for resolution of
disputes, commercial or otherwise, enforce mediated settlement agreements, provide for a body for
registration of mediators, to encourage community mediation and to make online mediation as acceptable
and cost effective process and for matters connected therewith or incidental thereto.
This bill when becomes Act shall apply where mediation is conducted in India, and –
(i) all or both parties habitually reside in or are incorporated in or have their place of business in India;
(ii) the mediation agreement provides that any dispute shall be resolved in accordance with the
provisions of this Act; or
(iii) there is an international mediation.
 NAHATA PROFESSIONAL ACADEMY 273

It shall not be applicable wherein one of the parties to the dispute is the Central Government or a State
Government, or agencies, public bodies, corporations and local bodies, including entities controlled or
owned by such Government, except where the matter pertains to a commercial dispute:

Provided that nothing shall prevent the Central Government or a State Government from notifying, such
kind of dispute, as it deems appropriate for such Government, for resolution through mediation under this
Act, wherein such Government, or agencies, public bodies, corporations and local bodies including entities
controlled or owned by them, is a party.

Mediation under Various Laws

There are various laws that provides for mediation as dispute redressal mechanism. An inclusive list of laws
along with the related provisions covering the subject matter is provided below:
1. The Companies Act, 2013
2. Industrial Disputes Act, 1947
3. Code of Civil Procedure, 1908
4. Legal Services Authority Act, 1987 read with Section 89 of CPC
5. Micro, Small and Medium Enterprises (MSME) Development Act, 2006
6. Hindu Marriage Act, 1955 and Special Marriage Act, 1954
7. Real Estate (Regulation and Development) Act, 2016
8. Commercial Courts Act, 2015 and the Commercial Courts (Pre- Institution Mediation and Settlement)
Rules, 2018
9. The Consumer Protection Act, 2019

Salem Advocate In this case, writ petitions were filed seeking to challenge Amendments made to
Bar Association v. the Code of Civil Procedure (CPC) by the Amendment Act 46 of 1999 and
Union of India Amendment Act 22 of 2002 especially Section 89 of CPC. Supreme Court
(UOI) (25.10.2002 emphasised on the need to promote the alternative dispute mechanisms. It stated
- SC) : (2005) 6 that -
SCC 344 it is quite obvious that the reason why Section 89 has been inserted to try and see
that all the cases which are filed in court need not necessarily be decided by the
court itself. Keeping in mind the laws delay and the limited number of Judges which
are available, it has now become imperative that resort should be had to
Alternative Dispute Resolution Mechanism with a view to bring to an end litigation
between the parties at an early date. The Alternative Dispute Resolution (ADR)
mechanism as contemplated by Section 89 is arbitration or conciliation or judicial
settlement including settlement through Lok Adalat or mediation. Sub-section (2)
of Section 89 refer to different acts in relation to arbitration, conciliation or
settlement through Lok Adalat, but with regard to mediation Section 89(2)(d)
provides that the parties shall follow the procedure as may be prescribed. Section
89(2)(d), therefore, contemplates appropriate rules being framed with regard to
mediation.
In certain countries of the world where ADR has been successful to the extent that
over 90 per cent of the cases are settled out of court, there is a requirement that
the parties to the suit must indicate the form of ADR which they would like to
resort to during the pendency of the trial of the suit. If the parties agree to
arbitration, then the provisions of the Arbitration and Conciliation Act, 1996 will
apply and that case will go outside the stream of the court but resorting to
conciliation or judicial settlement or mediation with a view to settle the dispute
would not ipso facto take the case outside the judicial system. All that this means is
that effort has to be made to bring about an amicable settlement between the
parties but if conciliation or mediation or judicial settlement is not possible, despite
efforts being made, the case will ultimately go to trial.
Afcons In this case, question arose to whether the section 89 of Civil Procedure Code
Infrastructure Ltd. empowers the court to refer the parties to a suit to arbitration without the consent
and Ors. v. of both parties and scope of the said section. Court held that
 NAHATA PROFESSIONAL ACADEMY 274

Cherian Varkey “If the parties are not agreeable for either arbitration or conciliation, both of which
Construction Co. require consent of all parties, the court has to consider which of the other three
(P) Ltd. and Ors. ADR processes (Lok Adalat, Mediation and Judicial Settlement) which do not
(26.07.2010 - SC) : require the consent of parties for reference, is suitable and appropriate and refer
[2010 (8) SCC 24] the parties to such ADR process. If mediation process is not available (for want of a
mediation centre or qualified mediators), necessarily the court will have to choose
between reference to Lok Adalat or judicial settlement. If facility of mediation is
available, then the choice becomes wider. It the suit is complicated or lengthy,
mediation will be the recognized choice. If the suit is not complicated and the
disputes are easily sortable or could be settled by applying clear cut legal principles,
Lok Adalat will be the preferred choice. If the court feels that a suggestion or
guidance by a Judge would be appropriate, it can refer it to another Judge for
dispute resolution. The court has to use its discretion in choosing the ADR process
judiciously, keeping in view the nature of disputes, interests of parties and
expedition in dispute resolution.”
Chloro Controls (I) In this case, court observed on the rule of kompetenz kompetenz. Court held
P. Ltd v. Severn “challenge to the existence or validity of the arbitration agreement will not prevent
Trent Water the arbitral tribunal from proceeding with hearing and ruling upon its jurisdiction.
Purification Inc The negative effect of the kompetenz kompetenz principle is that arbitrators are
and Ors 2012(9) N entitled to be the first to determine their jurisdiction which is later reviewable by
SCALE 595 the court, when there is action to enforce or set aside the arbitral award. Where
the dispute is not before an arbitral tribunal, the Court must also decline
jurisdiction unless the arbitration agreement is patently void, inoperative or
incapable of being performed.”

Case Laws
Arbitration v. Mediation
Since both options looks appealing to resolve business disputes, there is a need to distinguish between the
two:
1. Mediation is when a neutral third party aims to assist the parties in arriving at a mutually agreeable
solution whereas arbitration is like litigation which is outside the court and which results in an award
like an order.
2. Mediation is more collaborative; arbitration is more adversarial.
3. The process of mediation is more informal than that of arbitration.
4. The outcome in mediation is controlled by the parties whereas in arbitration it is controlled by the
arbitrator.
5. In mediation, the dispute may or may not be resolved whereas in arbitration it is always settled in
either party’s favour.

MEDIATION RULES MADE BY HIGHER COURTS

Supreme Court Manual
Supreme Court has made a Mediating Training Manual with regards to the benefits and/or suitability of
ADR methods of dispute resolution. It aims at facilitating and help guiding mediation in growing not as an
alternative dispute resolution mechanism, but as another effective mode of disputes resolution. It is a
uniform Training Manual applicable throughout India, which can be used by the Trainers, Mediators,
Referral judges, Litigants etc. So far as formal litigation system is concerned, mediation, along with other
methods of Alternative Disputes Resolution, has been statutorily recognized by the Civil Procedure Code
(Amendment) Act, 1999 which introduced amendment in section 89 thereto.
Mediation is a dynamic process in which the mediator assists the parties to negotiate a settlement for
resolving their dispute. In doing so, the mediator uses the four functional stages of mediation, namely,
(i) Introduction and Opening Statement;
(ii) Joint Session;
(iii) Separate Session; and
(iv) Closing.
 NAHATA PROFESSIONAL ACADEMY 275

These functional stages are used in an informal and flexible manner so that the mediation process gains
momentum.
This manual provides for the practical aspects involved in mediation including the procedure of mediation,
stages of mediation, the code of conduct to be followed by all the parties including mediator involved,
training of mediators, how to communicate – kinds of communication, barriers to it etc, the art of
negotiation and bargaining, the role of referral judges, lawyers, parties among other aspects of it.

Mediation rules made by High Court

High Courts in India has come up with their own ADR Rules. For instance, Alternative Disputes Resolution
Rules, 2003 and Mediation Rules are formulated by Chandigarh High Court for effective disposal of suits via
ADR methods. Part I of these rules talks about Alternative Disputes Resolution Rules with special emphasis
at Arbitration.

According to these rules, Arbitration as a means the process by which an arbitrator appointed by the parties
or by the Court, to adjudicate the disputes between them and passes an award by applying the provisions
of the Arbitration and Conciliation Act, 1996. Further, Conciliation means the process by which a conciliator
who is appointed by the parties or by the Court, as the case may be, conciliates the disputes between them
in exercise of his powers under Sections 67 and 73 of that Act, by making proposals for a settlement of the
dispute and by formulating or reformulating the terms of a possible settlement.

And, Mediation means the process by which a mediator appointed by the parties or by the court, as the
case may be, mediates the disputes between them by applying the provisions of the Mediation Rules
contained in Part II.

And also ‘Judicial Settlement’ means a final settlement by way of compromise before a Lok Adalat or before
a suitable institution or person, which shall be deemed to be a settlement before a Lok Adalat within the
meaning of the Legal Services Authorities Act, 1987.

Rule 5 talks provides the rules relating to procedure for reference by the Court to the different modes of
settlement be it through arbitration, mediation, conciliation or judicial settlement. According to rule 4 High
Courts shall take steps to have training courses to facilitate smooth understanding ADR Mechanism. Part II,
lays emphasis on mediation and conciliation and has been named as “Mediation Rules”. Rule 2 and 3 talks
about appointment and panel of mediators or conciliators. Whereas, Rule 4 enumerates the qualification of
such mediator or conciliator, which are as under:
a) (i) Retired Judges of the Supreme Court of India;
(ii) Retired Judges of the High Courts;
(iii) Retired District and Sessions judges / Additional District and Sessions Judges and retired Civil
Judges.Legal practitioners with at least five years standing at the Bar in the Supreme
Court/High Court/ District Court.
b) Experts or other professionals with at least fifteen years standing or retired senior bureaucrats or
retired senior executivec)Institutions which are themselves experts in mediation and have been
recognized as such by the High Court.

Rule 5, talks about the disqualification of such mediator or conciliator. These are as under:
(a) any person who has been adjudged insolvent;
(b) any person against whom criminal charges involving moral turpitude have been framed by a criminal
court and are pending ; or
(c) any person who has been convicted by a criminal court for any offence involving moral turpitude;
(d) any person against whom disciplinary proceedings have been initiated by the competent authority or
who has been punished in such proceedings;
(e) such other categories of persons as may be notified by the High Court.
(f) These rules also states Procedure of mediation as given in Rule 10. The mediator/conciliator shall
attempt to facilitate voluntary resolution of the dispute by the parties and communicate the view of
each party to the other, assist them in identifying issues, reducing misunderstandings, clarifying
priorities, exploring areas of compromise and generating options in an attempt to solve the dispute,
 NAHATA PROFESSIONAL ACADEMY 276

emphasizing that it is the responsibility of the parties to take decision which affect them. However,
he shall not impose terms of settlement on the parties as mentioned in Rule 15.
These rules also inter alia covers Time limit for completion of mediation (Rule 17), Confidentiality
disclosure and inadmissibility of information (Rule 19), Communication between
mediator/conciliator and the Court (Rule 22), Settlement Agreement (Rule 24) among other
important provisions.
The rules facilitate the courts for effecting the resolution of disputes through Alternate Dispute
Resolution method.

1: What is an ‘arbitral award’ under the Arbitration and Conciliation Act, 1996? Explain. [JUNE-15, 20]
[DEC-18]
2: What is meant by 'arbitration agreement' under the Arbitration and Conciliation Act, 1996? Should
the arbitration agreement be in writing and whether jurisdiction of civil court is barred? [DEC-15]
[JUNE-19] [DEC-19]
3: What is meant by alternative dispute resolution (ADR)? Which are the areas in which ADR works?
[JUNE-16]
4: Explain briefly the terms 'conciliation' and 'mediation'. [DEC-16]
5: Does the Alternate Dispute Resolution (ADR) processes provide procedural flexibility of a
conventional trial? Explain. [JUNE-17]
6: Discuss the provisions regarding the appointnent of arbitrators under the Arbitration and
Conciliation Act, 1996. [JUNE-17]
7: Explain the provisions regarding the appointment of Conciliator under Arbitration and Conciliation
Act, 1996. State the role of the Conciliator to settle the dispute. [DEC-17]
8: What is Conciliation? Bring out some differences between Arbitration and Conciliation. [JUNE-18]
[JUNE-19]
9: Discuss in detail, the grounds for setting aside arbitral award with special reference to public policy
doctrine under the Arbitration and Conciliation Act, 1996. [JUNE-18] [JUNE-16] [DEC-19]
10: Discuss briefly the grounds for opposing the ‘foreign award’ made under the Arbitration and
Conciliation Act, 1996. [DEC-18]
11: Explain in brief the ‘International Commercial Arbitration’ under the Arbitration and Conciliation
Act, 1996. [DEC-18]
12: Discuss in brief the provisions for challenging the arbitrator under the Arbitration and Conciliation
Act, 1996. [DEC-18]
13: Explain the provisions for obtaining interim relief from Court, when there exists arbitration
agreement among parties. [JUNE-19]
14: Explain the basic features of Arbitral Award under the Arbitration and Conciliation Act, 1996.
[JUNE-19]
15: What do you mean by the term ‘foreign award’? State the grounds upon which the enforcement of
the foreign award may be opposed in India. [DEC-19]
16: When would the Arbitral Tribunal shall issue an order for the termination of Arbitral Proceedings
under Arbitral and Concilliation Act, 1996. [DEC-2020]
17: What is meant by ‘Fast Track Procedure’ to resolve the dispute between the parties, under the
Arbitration and Conciliation Act, 1996. State the procedure to be followed by the arbitral tribunal
while conducting arbitration proceedings. [DEC-2020]
18: State the provisions of Section 25 in Arbitration and Conciliation Act, 1996 regarding default of a
party. [DEC-2020]
19: Explain the following :
• Appointment of experts by an arbitral tribunal under the Arbitration and Conciliation Act,
1996[DEC-10]
• Making of additional award by arbitral tribunal. [DEC-12]
20: Anil prefers an appeal for setting aside the arbitral award on the ground that he was not given a
proper notice of arbitral proceedings and thereby not being able to present his case. He also
furnishes sufficient proof and pleads before the court that he received the arbitral award just 15
days back. Decide with reasons ––
 NAHATA PROFESSIONAL ACADEMY 277

(i) whether Anil will succeed in his prayer; and

(ii) whether the law of limitation will not be a bar? [DEC-10] [DEC-13] [JUNE-14]
21. Ram and Shyam entered into an agreement to refer a dispute relating to genuineness of a will to
an arbitral tribunal. Inspite of this, Shyam commenced proceedings rclaiing to iliis dispute in the
district court of competent jurisdiction. Ram filed an application for stay of legal proceedings
under the Arbitration and Conciliation Act, 1996. Will Ram succeed? Explain. [JUNE-11]
22. “Conciliation is an informal process in which the conciliator (the third party) tries to bring the
disputants to agreement.” [DEC-11]
23. What are the grounds on which an arbitral award may be challenged before the court? [JUNE-12]
24. Distinguish between the following :
'Arbitration' and 'conciliation'. [DEC-12]
25. Define ‘international commercial arbitration’. [JUNE-14]
26. What is ad hoc arbitration? [DEC-14]
27. How has the 'court' been defined under the Arbitration and Conciliation Act, 1996? [DEC-14]
28. Define 'legal representative' under the Arbitration and Conciliation Act, 1996. [DEC-14]
29. Alternative Dispute Resolution is not an alternative to the court system but only meant to
supplement the same aiming on less lawyering’’. Comment. [DEC-2021]
 NAHATA PROFESSIONAL ACADEMY 278

CHAPTER -12
INDIAN STAMP LAW

The Indian Stamp Act, 1899 is the law relating to stamps which consolidates and amends the law relating
to stamp duty. It is a fiscal legislation envisaging levy of stamp duty on certain instruments. The Act is
divided into eight Chapters and there is a schedule which contains the rates of stamp duties on various
instruments.
2 Defintions
(2) “instrument” to include every document by which any right or liability is, or purports to be,
created, transferred, limited, extended, extinguished or recorded

The definition is an inclusive definition, and is not necessarily restricted to those documents
which are specifically mentioned in the definition. A reading of section 2(14) makes clear where
a document creates some right or liability between the parties transferring certain rights, then it
comes within the meaning of definition of an ‘instrument’ and is chargeable. Briefly stated, an
instrument includes conveyances, leases, mortgages, promissory notes and wills, but not
ordinary letters or memoranda or accounts. Following instances may be noted:

(i) An unsigned draft document is not an “instrument” (because it does not create or
purport to create any right, etc).
(ii) An entry in a register, containing the terms of hiring of machinery is an “instrument”,
where it is authenticated by the thumb impression of the hirer. (Reason is, that it
purports to create, a liability etc.)
(iii) A letter which acknowledges receipt of a certain sum as having been borrowed at a
particular rate of interest and for a particular period and that it will be repaid with
interest on the due date is an “instrument”.
(iv) These examples show, that the law looks to the substance and effect (or intended
effect) of the text of the instrument and not the physical medium through which it is
recorded.]
(v) Photocopy of an agreement is not an instrument as defined under Section 2(14) of the
Act. Ashok Kalam Capital Builders v. State & Anr., AIR 2010 (NOC) 736 (Del).

Bill of exchange.—“bill of exchange” means a bill of exchange as defined by the Negotiable

Instruments Act, 1881, (26 of 1881), and includes also a hundi, and any other document
entitling or purporting to entitle any person, whether named therein or not, to payment by any
other person of, or to draw upon any other person for, any sum of money;

(3) Bill of exchange payable on demand. —“bill of exchange payable on demand” includes—
(a) an order for the payment of any sum of money by a bill of exchange or promissory note,
or for the delivery of any bill of exchange or promissory note in satisfaction of any sum
of money, or for the payment of any sum of money out of any particular fund which
may or may not be available, or upon any condition or contingency which may or may
not be performed or happen;
(b) an order for the payment of any sum of money weekly, monthly or at any other stated
period; and
(c) a letter of credit, that is to say, any instrument by which one person authorises another
to give credit to the person in whose favour it is drawn;

(4) Bill of lading.— “bill of lading” includes a “through bill of lading”, but does not include a
mate's receipt:

A bill of lading is a receipt by the master of a ship for goods delivered to him for delivery to X
or his assigns. Three copies are made, each signed by the master. One is kept by the consignor
of the goods, one by the master of the ship and one is forwarded to X, the consignee, who, on
receipt of it, acquires property in the goods. It is a written evidence of a contract for the
 NAHATA PROFESSIONAL ACADEMY 279

carriage and delivery of goods by sea, for certain freight. When goods are delivered on board
a ship, the receipt is given by the person incharge at that time. This receipt is known as the
mate’s receipt. The shipper of the goods returns this receipt to the master before the ship
leaves and receives from him bill of lading for the goods, signed by the master.

Bond. — “bond” includes—

(a) any instrument whereby a person obliges himself to pay money to another, on
condition that the obligation shall be void if a specified act is performed, or is not
performed, as the case may be;

(b) any instrument attested by a witness and not payable to order or bearer, whereby a
person obliges himself to pay money to another; and

(c) any instrument so attested, whereby a person obliges himself to deliver grain or other
agricultural produce to another; but does not include a debenture;

Lease. — “lease” means a lease of immovable property, and includes also—

(a) a patta;
(b) a kabuliyat or other undertaking in writing, not being a counterpart of a lease, to
cultivate, occupy, or pay or deliver rent for, immovable property;
(c) any instrument by which tolls of any description are let;

A patta is an instrument given by the Collector of District or any other receiver of the revenue,
to the cultivator, specifying the condition or conditions upon which the lands are to be held
and the value or proportion of the produce to be paid therefor.

A Kabuliyat is executed by the lessee, accepting the terms of the lease and undertaking to
abide by them. Although, it is not a lease under Section 105 of the Transfer of Property Act, it
is expressly included in the definition for the purposes of the Stamp Act.

Promissory note.—“promissory note” means a promissory note as defined by the Negotiable

Instruments Act, 1881 (XXVI of 1881);

It also includes a note promising the payment of any sum of money out of any particular fund
which may or may not be available, or upon any condition or contingency which may or may not
be performed or happen;

It means a promissory note as defined by the Negotiable Instruments Act, 1881. It also includes
a note promising the payment of any sum of money out of a particular fund which may or may
not be available, or upon any condition or contingency which may or may not be performed or
happen.

Requisities of a promissory note as per the Negotiable Instruments Act, 1881 are the following:
(a) the document must contain an unconditional undertaking to pay;
(b) the undertaking must be to pay money only;
(c) the money to be paid must be certain;
(d) it must be payable to or to the order of a certain person or to bearer;
(e) the document must be signed by the maker.
Illustrations

An instrument in the form:

 “I do acknowledge myself to be indebted to B in Rupees 10,000 to be paid on demand

for value received” is a promissory note.
 NAHATA PROFESSIONAL ACADEMY 280

 “I have received a sum of £20 which I borrowed from you and I have to be
accountable for the sum with interest” held not to be a promissory note.

 “On demand I promise to pay to the trustees of W&C or their treasurer for the time
being £100” was held a good promissory note.

Receipt.—“receipt” includes any note, memorandum or writing—

(a) where by any money, or any bill of exchange, cheque or promissory note is
acknowledged to have been received, or
(b) where by any other moveable property is acknowledged to have been received in
satisfaction of a debt, or
(c) where by any debt or demand, or any part of a debt or demand, is acknowledged to
have been satisfied or discharged, or
(d) which signifies or imports any such acknowledgment, and whether the same is or is not
signed with the name of any person;

Settlement.—“settlement” means any non-testamentary disposition, in writing, of moveable

or immovable property made—
(a) in consideration of marriage,
(b) for the purpose of distributing property of the settler among his family or those for
whom he desires to provide, or for the purpose of providing for some person
dependent on him, or
(c) for any religious or charitable purpose;

and includes an agreement in writing to make such a disposition 1[and, where any such
disposition has not been made in writing, any instrument recording, whether by way of
declaration of trust or otherwise, the terms of any such disposition];

3 Instruments chargeable with duty.—

(1) Subject to the provisions of this Act and the exemptions contained in Schedule I, the following
instruments shall be chargeable with duty of the amount indicated in that Schedule as the
proper duty therefore respectively, that is to say—
(a) every instrument mentioned in that Schedule which, not having been previously
executed by any person, is executed in India on or after the first day of July, 1899;
(b) every bill of exchange payable otherwise than on demand or promissory note drawn or
made out of India on or after that day and accepted or paid, or presented for
acceptance or payment, or endorsed, transferred or otherwise negotiated, in India; and
(c) every instrument (other than a bill of exchange, or promissory note) mentioned in that
Schedule, which, not having been previously executed by any person, is executed out of
India on or after that day, relates to any property situate, or to any matter or thing done
or to be done, in India and is received in India:

Provided that no duty shall be chargeable in respect of—

(1) any instrument executed by, or on behalf of, or in favour of, the Government incases
where, but for this exemption, the Government would be liable to pay the duty
chargeable in respect of such instrument;
(2) any instrument for the sale, transfer or other disposition, either absolutely or byway of
mortgage or otherwise, of any ship or vessel, or any part, interest, share or property of
or in any ship or vessel registered under the Merchant Shipping Act 1894, Act No. 57 &
58 Vict. c. 60 or under Act XIX of 1838 Act No. or the Indian Registration of Ships Act,
1841, (CX of 1841) as amended by subsequent Acts.
(3) Any instrument executed by, or, on behalf of, or in favour of, the Developer or Unit or in
connection with the carrying out of purposes of the special Economic Zone.
 NAHATA PROFESSIONAL ACADEMY 281

Re Swadeshi Cotton Mills, AIR 1932 All 291, “the first thing to be noticed is that thing which is
made liable to duty is an instrument. If a contract of purchase and sale or a conveyance by
way of purchase and sale, can be, or is carried out without an instrument the case is not
within the section and no tax is imposed. It is not the transaction of purchase and sale which
is struck at; it is the instrument whereby the purchase and sale are effected which is struck at.
And if any one carries through a purchase and sale without an instrument, then the
Legislature has not reached that transaction”.

In re Swadeshi Cotton Mills, AIR 1932 All 291, it was held that if after entry into a contract of
sale the parties (in spite of the risk that either party may resile from the contract), refrain
from getting an actual deed of conveyance prepared, they can successfully evade the
payment of higher duty. It is no argument that the Government loses revenue, if such a
course is permitted”.

Substance and description

Courts have invariably upheld the principle of substance of the transaction, over the form, in
the matter of deciding the nature of the instrument. The substance of the transaction contained
in the document may not necessarily embody the description given at the head thereof. It is the
substance of the transaction as contained in the instrument and not the form of the instrument,
that determines the stamp duty, though the duty is leviable on the instrument and not on the
transaction. In determining whether a document comes within the description of a document
upon which a stamp is required by the Act, one has to look at the entire document to find out
whether it falls within the description. Where a single instrument contains several purposes, the
instrument as a whole should be read to find out its dominant purpose. To determine whether a
document is sufficiently stamped the Court must look at the document itself, as it stands.

4 Several instruments used in single transaction of sale, mortgage or settlement.—

(1) Where, in the case of any sale, mortgage or settlement, several instruments are employed for
completing the transaction, the principal instrument only shall be chargeable with the duty
prescribed in Schedule I, for the conveyance, mortgage or settlement, and each of the other
instruments shall be chargeable with a duty of one rupee instead of the duty (if any) prescribed
for it in that Schedule.
(2) The parties may determine for themselves which of the instrument so employed shall, for the
purposes of sub-section (1), be deemed to be the principal instrument:
Provided that the duty chargeable on the instrument so determined shall be the highest duty
which would be chargeable in respect of any of the said instruments employed.

(3) Notwithstanding anything contained in sub-sections (1) and (2), in the case of any issue, sale or
transfer of securities, the instrument on which stamp-duty is chargeable under section 9A shall
be the principal instrument for the purpose of this section and no stamp-duty shall be charged
on any other instruments relating to any such transaction.

Illustrations (Section 4 held applicable)

(i) A executed a conveyance of immovable property. On the same deed his nephew
(undivided in status) endorsed his consent to the sale, as such consent was considered
to be necessary. It was held that the conveyance was the principal instrument. The
consent was chargeable with only one rupee (ILR 13 Bom 281).
(ii) Subsequent to a sale of immovable property, two declarations were executed reciting
that the sale was subject to an equitable mortgage created by the vendor. These
declarations were held to be chargeable, together with the sale deed, as having
completed the conveyance (Somaiya Organics Ltd. v. Chief Controlling Revenue
Authority, AIR 1972 All 252).
 NAHATA PROFESSIONAL ACADEMY 282

(iii) Brother A executed in favour of brother B a gift of all his property. By another deed,
brother B made provision for the living expenses of brother A and hypothecating in
favour of brother A a part of the property included in the above mentioned gift deed, in
order to secure the payment of the living expenses. It was held that the two documents
were part of the same transaction. They amounted to a settlement and Section 4
applied (Maharaj Someshar Dutt, ILR 37 All 264).
(iv) B conveyed the whole of his property to three persons who undertook to provide for
him and to perform his obsequies. By another document, the three donees agreed to
provide for B. This was mentioned in the deed executed by A also. It was held that the
two documents had to be construed as part of the same act; the first was liable to duty
as a conveyance while the second was liable to a duty of Rupee 1 only (Dadoba v.
Krishna, ILR 7 Bom. 34).
(v) A company executed, first a deed of trust and mortgage stating that the company was
to issue notes for raising loans secured by the sale deed. It was held as under: (1) The
deed was principal or primary security (and not a collateral security). It was chargeable
as mortgage under Article 14.
(vi) The notes issued subsequently were debentures and not principal instruments (Madras
Refinery Ltd. v. Chief Controlling Revenue Authority, Madras, AIR 1977 SC 500).
(vii) The Rangoon Gymkhana executed a duly stamped trust deed, mortgaging its assets as
security for the repayment of the debenture stock issued by it. In addition, it had issued
certificates of debenture stock to the subscribers, but these did not contain any promise
to repay any need, but merely stated the amount standing in each shock holder’s name.
It was held that the certificates were not debentures, but were instruments employed
to complete the mortgage [Rangoon Gymkhana In re, AIR 1927 Rang. 37 (Section 4
applied)].

5 Instruments relating to several distinct matters.—

Any instrument comprising or relating to several distinct matters shall be chargeable with the
aggregate amount of the duties with which separate instruments, each comprising or relating to
one of such matters, would be chargeable under this Act.

Under Section 5, an instrument comprising or relating to several distinct matters is chargeable

with the aggregate amount of the duties with which each separate instrument, relating to one
of such matters, would be chargeable under the Act (This is the reverse of the situation
governed by Section 4).
The Section deals with multifarious instruments. The expression “distinct matter” means
distinct transactions (Ram Swarup v. Joti, (1933) Allahabad Law Journal 427; Board of Revenue,
Madras v. Narasimhan, AIR 1961 Mad 504).
Section 5 applies even where the two (or more) matters are of the same description.

Illustrations as to “distinct matters”

(i) A document containing both an agreement for the dissolution of a partnership and a
bond, is chargeable with the aggregate of the duties with which two such separate
instruments would be chargeable. The two are “distinct matters” (Chinmoyee Basu v.
Sankare Prasad Singh, AIR 1955 Cal. 561 (cf. AIR 1936 Lah. 449).

(ii) An agreement containing two covenants making certain properties chargeable in the
first instance and creating a charge over certain properties if the first mentioned
properties are found insufficient does not fall within Section 5 (Tek Ram v. Maqbul Shah,
AIR 1928 Lah. 370).
 NAHATA PROFESSIONAL ACADEMY 283

(iii) A grant of annuity by several persons requires only one stamp (because there is only
one transaction).

(iv) A lease to joint tenants requires only one stamp.

(v) A conveyance by several persons jointly relating to their separate interest in certain
shares in an incorporated company requires only one stamp.

(vi) A power of attorney executed by several persons authorising the agent to do similar
acts for them in relation to different subject matter is chargeable under Section 5,
where they have no common interest.

(vii) Where a person having a representative capacity (as a trustee) and a personal capacity
delegates his powers in both the capacities, section 5 applies. In law, a person acting as
a trustee is a different entity from the same person acting in his personal capacity.

6 Instruments coming within several descriptions in Schedule I.—

Subject to the provisions of the last preceding section, an instrument so framed as to come
within two or more of the descriptions in Schedule I, shall, where the duties chargeable
thereunder are different, be chargeable only with the highest of such duties:
Provided that nothing in this Act contained shall render chargeable with duty exceeding one
rupee a counterpart or duplicate of any instrument chargeable with duty and in respect of
which the proper duty has been paid.

8A Securities dealt in depository not liable to stamp duty.—

Notwithstanding anything contained in this Act or any other law for the time being in force,—
(a) an issuer, by the issue of securities to one or more depositories, shall, in respect of such
issue, be chargeable with duty on the total amount of securities issued by it and such
securities need not be stamped;
(b) the transfer of registered ownership of securities from a person to a depository or from
a depository to a beneficial owner shall not be liable to duty;

Explanation.—For the purposes of this section, the expression “beneficial ownership” shall have
the same meaning as assigned to it in clause (a) of sub-section (1) of section 2 of the
Depositories Act, 1996 (22 of 1996)]

8B Corporatisation and demutualisation schemes and related instruments not liable to duty.—
Notwithstanding anything contained in this Act or any other law for the time being in force,—
(a) a scheme for corporatisation or demutualisation, or both of a recognised stock
exchange; or
(b) any instrument, including an instrument of, or relating to, transfer of any property,
business, asset whether movable or immovable, contract, right, liability and obligation,
for the purpose of, or in connection with, the corporatisation or demutualisation, or
both of a recognised stock exchange pursuant to a scheme, as approved by the
Securities and Exchange Board of India under sub-section (2) of section 4B of the
Securities Contracts (Regulation) Act, 1956(42 of 1956), shall not be liable to duty under
this Act or any other law for the time being in force.

Explanation. —For the purposes of this section,—

 NAHATA PROFESSIONAL ACADEMY 284

(a) the expressions “corporatisation”, “demutualisation” and “scheme” shall have the
meanings respectively assigned to them in clauses (aa), (ab) and (ga) of section 2 of the
Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(b) “Securities and Exchange Board of India” means the Securities and Exchange Board of
India established under section 3 of the Securities and Exchange Board of India Act,
1992(15 of 1992).]

9 Power to reduce, remit or compound duties. —

(1) The Government may, by rule or order published in the Official Gazette, —
(a) reduce or remit, whether prospectively or retrospectively, in the whole or any part of
the territories under its administration, the duties with which any instruments or any
particular class of instruments, or any of the instruments belonging to such class, or any
instruments when executed by or in favour of any particular class of persons, or by or in
favour of any members of such class, are chargeable, and
(b) provide for the composition or consolidation of duties 6[of policies of insurance and] in
the case of issues by any incorporated company or other body corporate 7[or of
transfers (where there is a single transferee, whether incorporated or not)] of
debentures, bonds or other marketable securities.

(2) In this section the expression “the Government” means, —

(a) in relation to stamp-duty in respect of bills of exchange, cheques, promissory notes, bills
of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies
and receipts, and in relation to any other stamp-duty chargeable under this Act and
falling within entry 96 in List I in the Seventh Schedule to the Constitution, expect the
subject matters referred to in clause (b) of sub-section (1)]; the Central Government;
(b) Save as aforesaid, the State Government.

9A Instruments chargeable with Duty for transactions in Stock Exchanges and Depositories –
Notwithstanding anything contained in this Act:
1. when the sale of any securities, whether delivery based or otherwise, is made through a
stock exchange, the stamp-duty on each such sale in the clearance list shall be collected
on behalf of the State Government by the stock exchange or a clearing corporation
authorised by it, from its buyer on the market value of such securities at the time of
settlement of transactions in securities of such buyer, in such manner as the Central
Government may, by rules, provide.
2. when any transfer of securities for a consideration, whether delivery based or otherwise,
is made by a depository otherwise than on the basis of any transaction referred to in
clause (a), the stamp-duty on such transfer shall be collected on behalf of the State
Government by the depository from the transferor of such securities on the
consideration amount specified therein, in such manner as the Central Government
may, by rules, provide:
3. when pursuant to issue of securities, any creation or change in the records of a depository
is made, the stamp-duty on the allotment list shall be collected on behalf of the State
Government by the depository from the issuer of securities on the total market value of
the securities as contained in such list, in such manner as the Central Government may,
by rules, provide.
4. the instruments referred to in above point no.s 1 to 3 shall be chargeable with duty as
provided therein at the rate specified in Schedule I and such instruments need not be
stamped. However, no such duty shall be chargeable in respect of the instruments of
transaction in stock exchanges and depositories established in any International
Financial Services Centre set up under section 18 of the Special Economic Zones Act,
2005.
5. From the date of commencement of this Part, no stamp-duty shall be charged or collected
by the State Government on any note or memorandum or any other document,
 NAHATA PROFESSIONAL ACADEMY 285

electronic or otherwise, associated with the transactions mentioned in in point no. 1 to

3.
6. Every stock exchange or the clearing corporation authorised by it and depository shall
submit to the Government details of the transactions referred to in point no.s 1 to 3 in
such manner as the Central Government may, by rules, provide.

9B Instruments chargeable with Duty for transactions otherwise than through Stock Exchanges
and Depositories –
Notwithstanding anything contained in this Act:
when any issue of securities is made by an issuer otherwise than through a stock exchange or
depository, the stamp-duty on each such issue shall be payable by the issuer, at the place where
its registered office is located, on the total market value of the securities so issued at the rate
specified in Schedule I.
when any sale or transfer or reissue of securities for consideration is made otherwise than
through a stock exchange or depository, the stamp-duty on each such sale or transfer or reissue
shall be payable by the seller or transferor or issuer, as the case may be, on the consideration
amount specified in such instrument at the rate specified in Schedule I.

10 Duties how to be paid.—

(1) Except as otherwise expressly provided in this Act, all duties with which any instruments are
chargeable shall be paid, and such payment shall be indicated on such instruments, by means of
stamps —
(a) according to the provisions herein contained; or
(b) when no such provision is applicable thereto—as the State Government may be rule
direct.

(2) The rules made under sub-section (1) may, among other matters, regulate,—
(a) in the case of each kind of instrument—the description of stamps which may be used;
(b) in the case of instruments stamped with impressed stamps—the number of stamps
which may be used;
(c) in the case of bills of exchange or promissory notes the size of the paper on which they
are written.

11. Use of adhesive stamps.—

The following instruments may be stamped with adhesive stamps, namely: —
(a) instruments chargeable with a duty not exceeding ten naye paise, except parts of bills of
exchange payable otherwise than on demand and drawn in sets;
(b) bills of exchange, and promissory notes drawn or made out of India;
(c) entry as an advocate, vakil or attorney on the roll of a High Court;
(d) notarial acts; and
(e) transfers by endorsement of shares in any incorporated company or other body
corporate.

12 Cancellation of adhesive stamps.—

(1) (a) Whoever affixes any adhesive stamp to any instrument chargeable with duty which has
been executed by any person shall, when affixing such stamp, cancel the same so that it
cannot be used again; and

(b) whoever executes any instrument on any paper bearing an adhesive stamp shall, at the
time of execution, unless such stamp has been already cancelled in manner aforesaid,
cancel the same so that it cannot be used again.
(2) Any instrument bearing an adhesive stamp which has not been cancelled so that it cannot be
used again, shall, so far as such stamp is concerned, be deemed to be unstamped.
 NAHATA PROFESSIONAL ACADEMY 286

(3) The person required by sub-section (1) to cancel an adhesive stamp may cancel it by writing on
or across the stamp his name or initials or the name or initials of his firm with the true date of
his so writing, or in any other effectual manner.

(a) In Mahadeo Koeri v. Sheoraj Ram Teli, ILR 41 All 169; AIR 1919 All 196, it was held that
a stamp may be treated as having been effectively cancelled by merely drawing a line
across it.

(b) But, in Hafiz Allah Baksh v. Dost Mohammed, AIR 1935 Lah. 716, it was held that if it is
possible to use a stamp a second time, inspite of a line being drawn across it, there is no
effectual cancellation. Again, the question whether an adhesive stamp has been
cancelled in an effectual manner has to be determined with reference to the facts and
circumstances of each case.

(c) In Melaram v. Brij Lal, AIR 1920 Lah. 374, it was held that a very effective method of
cancellation is the drawing of diagonal lines right across the stamps with ends extending
on to the paper of the document. A cross marked by an illiterate person indicating his
acknowledgement, was held to be an effective cancellation of the stamp in Kolai Sai v.
Balai Hajam, AIR 1925 Rang. 209.
Accordingly, where the adhesive stamps on promissory note were cancelled by drawing
lines on them in different directions and stretching beyond the edge of the stamp on
the paper on which the promissory note was written, it was held that the stamp had
been effectually cancelled. Where one of the four stamps used on an instrument had a
single line drawn across the face of the stamp, the second had two parallel lines, the
third three parallel lines and the fourth two lines crossing each other, it was held that
the stamps must be regarded as having been cancelled in manner so that they could not
be used again (In re Tata Iron Steel Company, AIR 1928 Bom. 80). Putting two lines
crossing each other is effective (AIR 1961 Raj. 43).
(d) However, putting a date across the stamp by a third party on a date subsequent to the
date on which the bill had been drawn, was held to be not proper cancellation in Daya
Ram v. Chandu Lal, AIR 1925 Bom. 520 Cf. Rohini v. Fernandes, AIR 1956 Bom. 421, 423.
Similarly, crossing by drawing lines and signing on the adjacent stamp was held to be
not a cancellation of the first stamp in U. Kyaw v. Hari Dutt, AIR 1934 Rang. 364. Cross is
a good way of cancellation. AIR 1976 Cal. 99.
(e) Where it is alleged that the cancellation was made at later stage than that of execution,
the burden of proving it, lies on the party who so alleges. Where an instrument prima
facie appears to be duly stamped and cancelled by the drawer at the date of execution,
the burden of providing the contrary lies on the party who avers that the cancellation
was not effected at the time of execution. In the absence of evidence to the contrary, it
may be inferred that the stamp was duly affixed and cancelled.

13 Instruments stamped with impressed stamps how to be written.—

Every instrument written upon paper stamped with an impressed stamp shall be written in such
manner that the stamp may appear on the face of the instrument and cannot be used for or
applied to any other instrument.

14 Only one instrument to be on same stamp.—

No second instrument chargeable with duty shall be written upon a piece of stamped paper
upon which an instrument chargeable with duty has already been written:
Provided that nothing in this section shall prevent any endorsement which is duly stamped or is
not chargeable with duty being made upon any instrument for the purpose of transferring any
 NAHATA PROFESSIONAL ACADEMY 287

right created or evidenced thereby, or of acknowledging the receipt of any money or goods the
payment or delivery of which is secured thereby.

15 Instrument written contrary to section 13 or 14 deemed unstamped

Every instrument written in contravention of section 13 or section 14 shall be deemed to be
unstamped.

16 Denoting duty.—
Where the duty with which an instrument is chargeable, or its exemption from duty, depends
in any manner upon the duty actually paid in respect of another instrument, the payment of
such last-mentioned duty shall, if application is made in writing to the Collector for that
purpose, and on production of both the instruments, be denoted upon such first-mentioned
instrument by endorsement under the hand of the Collector or in such other manner (if any) as
the State Government] may by rule prescribe.
The object of this section is to spare parties to an instrument, the inconvenience of having to
produce (in cases in which the duty payable on an instrument depends upon the duty already
paid on another instrument), and the original or principal instrument in order to prove that
the second instrument has been duly stamped.

17 Instruments executed in India.—

All instruments chargeable with duty and executed by any person in India shall be stamped
before or at the time of execution.
The scope of Section 17 is restricted to only instruments executed in India. If the executant of
a document has already completed the execution of the document and in the eye of law the
document, could be said to have been executed, a subsequent stamping, (however close in
time) could not render the document as one stamped at the time of execution.
Thus, where a promissory note is executed by ‘A’ and ‘B’ and a stamp is afterwards affixed
and cancelled by ‘A’ by again signing it, the stamping has taken place subsequent to the
execution and hence, the provisions of Section 17 are not complied with (Rohini v. Fernandes,
AIR 1956 Bom 421).
A receipt stamped subsequent to its execution, but before being produced in the Court is not
stamped in time and accordingly, not admissible in evidence.

18 Instruments other than bills and notes executed out of India.—

(1) Every instrument chargeable with duty executed only out of India, and not being a bill of
exchange or promissory note, may be stamped within three months after it has been first
received in India.
(2) Where any such instrument cannot, with reference to the description of stamp prescribed
therefore, be duly stamped by a private person, it may be taken within the said period of three
months to the Collector, who shall stamp the same, in such manner as the State Government
may by rule prescribe, with a stamp of such value as the person so taking such instrument may
require and pay for.
Where an instrument is brought to the Collector after the expiry of three months, the
Collector may, instead of declining to stamp it, validate it under Sections 41 and 42 if he is
satisfied that the omission to stamp in time was due to a reasonable cause.

The object of Section 18 is to facilitate the stamping of the documents within a period of
three months, in as much as, by the very nature of things, Section 17 relating to instruments
executed in India cannot be complied with. Section 18 is intended to mitigate the
inconvenience and hardship that will entail if the instrument concerned is required to be
stamped before or at the time of execution as laid down in Section 17. Instrument executed
in India is not within Section 18 (Nath Bank v. Andhar Mamik Tea Co., AIR 1960 Cal 779).
 NAHATA PROFESSIONAL ACADEMY 288

19 Bills and notes drawn out of India.—

The first holder in India of any bill of exchange payable otherwise than on demand, or
promissory note drawn or made out of India shall, before he presents the same for acceptance
or payment, or endorses, transfers or otherwise negotiates the same in India, affix thereto the
proper stamp and cancel the same:

Provided that,—
(a) if, at the time any such bill of exchange, or note comes into the hands of any holder
thereof in India, the proper adhesive stamp is affixed thereto and cancelled in manner
prescribed by section 12 and such holder has no reason to believe that such stamp was
affixed or cancelled otherwise than by the person and at the time required by this Act,
such stamp shall, so far as relates to such holder, be deemed to have been duly affixed
and cancelled;
(b) nothing contained in this proviso shall relieve any person from any penalty incurred by
him for omitting to affix or cancel a stamp.

20 Conversion of amount expressed in foreign currencies.—

(1) Where an instrument is chargeable with ad valorem duty in respect of any money expressed in
any currency other than that of India such duty shall be calculated on the value of such money
in the currency of India according to the current rate of exchange on the day of the date of the
instrument.

(2) The Central Government may, from time to time, by notification in the Official Gazette,
prescribe a rate of exchange for the conversion of British or any foreign currency into the
currency of 1[India] for the purposes of calculating stamp-duty, and such rate shall be deemed
to be the current rate for the purposes of sub-section (1).

21 Stock and marketable securities how to be valued. —

Where an instrument is chargeable with ad valorem duty in respect of any stock or of any
marketable or other security, such duty shall be calculated on the market value of such stock or
security.
Provided that the market value for calculating the stamp-duty shall be, in the case of—
(i) options in any securities, the premium paid by the buyer;
(ii) repo on corporate bonds, interest paid by the borrower; and
(iii) swap, only the first leg of the cash flow.

22 Effect of statement of rate of exchange or average price.—

Where an instrument contains a statement of current rate of exchange, or average price, as
the case may require, and is stamped in accordance with such statement, it shall, so far as
regards the subject-matter of such statement, be presumed, until the contrary is proved, to
be duly stamped.

23 Instruments reserving interest.—

Where interest is expressly made payable by the terms of an instrument, such instrument shall
not be chargeable with duty higher than that with which it would have been chargeable had no
mention of interest been made therein.
For instance, a promissory note for ` 10,000 is drawn with the recital of interest at the rate of 18
percent per annum, payable by the promissor; stamp is leviable on the basis that the
instrument is for Rs. 10,000 only.

23A Certain instruments connected with mortgages of marketable securities to be chargeable as

agreements. —
(1) Where an instrument (not being a promissory note or bill of exchange)—
 NAHATA PROFESSIONAL ACADEMY 289

(a) is given upon the occasion of the deposit of any marketable security by way of security
for money advanced or to be advanced by way of loan, or for an existing or future
debt, or
(b) makes redeemable or qualifies a duly stamped transfer, intended as a security, of any
marketable security, it shall be chargeable with duty as if it were an agreement or
memorandum of an agreement chargeable with duty under Article No. 5 (c) of
Schedule I.
(2) A release or discharge of any such instrument shall only be chargeable with the like duty.

24 How transfer in consideration of debt, or subject to future payment, etc., to be charged.

Where any property is transferred to any person in consideration, wholly or in part, of any debt
due to him, or subject either certainly or contingently to the payment or transfer of any money
or stock, whether being or constituting a charge or incumbrance upon the property or not, such
debt, money or stock is to be deemed the whole or part, as the case may be, of the
consideration in respect whereof the transfer is chargeable with ad valorem duty:

Provided that, nothing in this section shall apply to any such certificate of sale as is mentioned
in Article No. 18 of Schedule I.

Explanation.—In the case of a sale of property subject to a mortgage or other incumbrance, any
unpaid mortgage money or money charged, together with the interest (if any) due on the same,
shall be deemed to be part of the consideration for the sale:

Provided that, where property subject to a mortgage is transferred to the mortgagee, he shall
be entitled to deduct from the duty payable on the transfer the amount of any duty already
paid in respect of the mortgage.

Illustrations

(1) A owes B Rs. 1,000. A sells a property to B, the consideration being Rs. 500 and the
release of the previous debt of Rs. 1,000. Stamp-duty is payable on Rs. 1,500.

(2) A sells a property to B for Rs. 500 which is subject to a mortgage to C for Rs. 1,000 and
unpaid interest Rs 200. Stamp-duty is payable on Rs. 1,700.

(3) A mortgages a house of the value of Rs. 10,000 to B for Rs. 5,000. B afterwards buys the
house from A. Stamp-duty is payable on Rs. 10,000 less the amount of stamp-duty
already paid for the mortgage.

What Section 24 means is that where property is sold subject to the payment by the
purchaser, discharging a debt charged on the property, then the purchaser is really paying a
consideration which includes the amount of that debt also (Somayya Organics Ltd. v. Board of
Revenue, AIR 1986 SC 403).

Proviso to Section 24 operates for the benefit of assignee of the mortgage. When the
mortgaged property is sold to the mortgagee along with other properties, the stamp duty
already paid is to be deducted from the duty payable on the deed of sale. In order to entitle
the mortgagee to a deduction of the duties payable the entire property mortgaged should be
transferred and not merely a portion of it (In re Mirabai, in re Laxman and Ganpat, ILR 29
Bom. 203).

25 Valuation in case of annuity, etc.—

 NAHATA PROFESSIONAL ACADEMY 290

Where an instrument is executed to secure the payment of an annuity or other sum payable
periodically, or where the consideration for a conveyance is an annuity or other sum payable
periodically, the amount secured by such instrument or the consideration for such
conveyance, as the case may be, shall, for the purposes of this Act, be deemed to be,—
(a) where the sum is payable for a definite period so that the total amount to be paid can
be previously ascertained—such total amount;
(b) where the sum is payable in perpetuity or for an indefinite time not terminable with
any life in being at the date of such instrument or conveyance—the total amount
which, according to the terms of such instrument or conveyance, will or may be payable
during the period of twenty years calculated from the date on which the first payment
becomes due; and
(c) where the sum is payable for an indefinite time terminable with any life in being at the
date of such instrument or conveyance— the maximum amount which will or may be
payable as aforesaid during the period of twelve years calculated from the date on
which the first payment becomes due.

Illustration
By a document, ‘A’ binds himself and his posterity on the security of some immovable property
for the annual payment to a temple of Rs. 2,200/-. It is a mortgage deed, chargeable with duty
calculated on 20 years’ payment.

26 Stamp where value of subject-matter is indeterminate.—

Where the amount or value of the subject-matter of any instrument chargeable with ad
valorem duty cannot be, or (in the case of an instrument executed before the commencement
of this Act) could not have been, ascertained at the date of its execution or first execution,
nothing shall be claimable under such instrument more than the highest amount or value for
which, if stated in an instrument of the same description, the stamp actually used would, at the
date of such execution, have been sufficient:
Provided that, in the case of the lease of a mine in which royalty or a share of the produce is
received as the rent or part of the rent, it shall be sufficient to have estimated such royalty or
the value of such share, for the purpose of stamp-duty,—
(a) when the lease has been granted by or on behalf of the Government, at such amount or
value as the Collector may, having regard to all the circumstances of the case, have
estimated as likely to be payable by way of royalty or share to the Government under
the lease, or
(b) when the lease has been granted by any other person, at twenty thousand rupees a
year, and the whole amount of such royalty or share, whatever it may be, shall be
claimable under such lease:
Provided also that where proceedings have been taken in respect of an instrument under
section 31 or 41, the amount certified by the Collector shall be deemed to be the stamp
actually used at the date of execution.

27 Facts affecting duty to be set forth in instrument. —

The consideration (if any) and all other facts and circumstances affecting the
chargeability of any instrument with duty, or the amount of the duty with which it its
chargeable, shall be fully and truly set forth therein.

Section 27 provides that the consideration and all other facts and circumstances affecting the
chargeability of any instrument with duty or the amount of duty with which it is chargeable
shall be fully and truly set forth in the instrument. “Value of any property” would mean that
real value of the property in the open market at the time the document was executed and
not at the time when the executant acquired it. Where there is no value set forth in the
instruments, there would be contravention of Section 27, but the omission does not render
the document inadmissible or liable to be impounded and taxed in the manner provided in
 NAHATA PROFESSIONAL ACADEMY 291

Section 35 (Vinayak v. Hasan Ali, AIR 1961 MP 6).

28 Direction as to duty in case of certain conveyances.—

(1) Where any property has been contracted to be sold for one consideration for the whole, and is
conveyed to the purchaser in separate parts by different instruments, the consideration shall
be apportioned in such manner as the parties think fit, provided that a distinct consideration
for each separate part is set forth in the conveyance relating thereto, and such conveyance
shall be chargeable with ad valorem duty in respect of such distinct consideration.

(2) Where property contracted to be purchased for one consideration for the whole, by two or
more persons jointly, or by any person for himself and others, or wholly for others, is conveyed
in parts by separate instruments to the persons by or for whom the same was purchased, for
distinct parts of the consideration, the conveyance of each separate part shall be chargeable
with ad valorem duty in respect of the distinct part of the consideration therein specified.

(3) Where a person, having contracted for the purchase of any property but not having obtained a
conveyance thereof, contracts to sell the same to any other person and the property is in
consequence conveyed immediately to the sub-purchaser the conveyance shall be chargeable
with ad valorem duty in respect of the consideration for the sale by the original purchaser to
the sub-purchaser.

(4) Where a person, having contracted for the purchase of any property but not having obtained a
conveyance thereof, contracts to sell the whole, or any part thereof, to any other person or
persons and the property is in consequence conveyed by the original seller to different persons
in parts, the conveyance of each part sold to a sub-purchaser shall be chargeable with ad
valorem duty in respect only of the consideration paid by such sub-purchaser, without regard
to the amount or value of the original consideration; and the conveyance of the residue (if any)
of such property to the original purchaser shall be chargeable with ad valorem duty in respect
only of the excess of the original consideration over the aggregate of the considerations paid by
the sub-purchasers:

Provided that the duty on such last-mentioned conveyance shall in no case be less than one
rupee.

(5) Where a sub-purchaser takes an actual conveyance of the interest of the person immediately
selling to him, which is chargeable with ad valorem duty in respect of the consideration paid by
him and is duly stamped accordingly, any conveyance to be afterwards made to him of the
same property by the original seller shall be chargeable with a duty equal to that which would
be chargeable on a conveyance for the consideration obtained by such original seller, or, where
such duty would exceed five rupees, with a duty of five rupees.

29

30 Obligation to give receipt in certain cases.—

Any person receiving any money exceeding twenty rupees in amount, or any bill of exchange,
cheque or promissory note for an amount exceeding twenty rupees, or receiving in satisfaction
or part satisfaction of a debt any movable property exceeding twenty rupees in value, shall,
on demand by the person paying or delivering such money, bill, cheque, note or property,
give a duly stamped receipt for the same.

Any person receiving or taking credit for any premium or consideration for any renewal of any
contract of fire-insurance, shall, within one month after receiving or taking credit for such
premium or consideration, give a duly stamped receipt for the same.
 NAHATA PROFESSIONAL ACADEMY 292

31 Adjudication as to proper stamp

(1) when
(i) an instrument, (whether executed or not and whether previously stamped or not), is
brought to the Collector, and
(ii) the person bringing it applies to have the opinion of that officer as to the duty if any,
with which it is chargeable, and
(iii) pays a fee (not exceeding Rs. 5 and not less than 50 naya paise as the Collector may
direct), the Collector shall determine the duty if any with which in his judgment, the
instrument is chargeable.

(2) The Collector may require to be furnished with an abstract of the instrument and also with such
affidavit or other evidence as he may deem necessary to prove that all the facts and
circumstances affecting the chargeability of the instrument with duty, or the amount of duty
with which it is chargeable, are fully and truly set-forth therein, and may refuse to proceed
upon accordingly. However, no evidence furnished pursuant to this section shall be used
against any person in any civil proceeding, except in an enquiry as to the duty with which the
instrument to which it relates is chargeable. Every person by whom such evidence is furnished
shall, on payment of the full duty, be relieved from any penalty which he may have incurred
under the Act by reason of the omission to state truly in such instrument any of the facts or
circumstances.

The duty of the Collector under Section 31 is only to determine the stamp duty payable upon
the instrument. He is not authorised to impound the instrument or to impose any penalty if he
comes to the conclusion that the instrument is not sufficiently stamped. Where a person has
obtained the opinion of the Collector on any draft instrument, and thereafter does not want to
proceed any further to execute the instrument, no consequences will follow and, after
determination of the duty, the Collector becomes functus officio. But where the party wants to
proceed with effectuating the instrument or using it for the purposes of evidence, he has to pay
the duty determined by the Collector and obtain from the Collector under Section 32, an
endorsement that the full duty with which the instrument is chargeable has been paid.
Normally, the determination by the Collector of the duty payable on an instrument under
Section 31 is final.

32 Certificate by Collector –
(1) when an instrument is brought to the Collector with an application for having an opinion as to
the proper duty chargeable thereon, and – the Collector is of the opinion that the instrument is
already fully stamped or – the duty determined by the Collector under Section 31 or such a sum
as (with the duty already paid in respect of the instrument), is equal to the duty so determined,
has been paid, the Collector shall certify by endorsement on such instrument, that the full duty
(stating the amount) with which it is chargeable has been paid.

(2) When the Collector is of opinion that any such instrument brought to him is not chargeable
with duty, he shall certify in the same manner that such instrument is not so chargeable.
(3) any instrument upon which an endorsement has been made by the Collector shall be deemed
to be duly stamped or not chargeable with duty as the case may be, and if chargeable with
duty, shall be receivable in evidence or otherwise and may be acted upon and registered as if it
had been originally duly stamped.
The proviso to Section 32(3) categorically provides that the Collector shall not make any
endorsement on any instrument under Section 32, where –
(a) any instrument is executed or first executed in India and brought to him after the
expiration of one month from the date of its execution or first execution, as the case
may be;
(b) any instrument is executed or first executed out of India and brought to him after the
expiration of three months after it has been first received in India; or
 NAHATA PROFESSIONAL ACADEMY 293

(c) any instrument chargeable with a duty not exceeding 10 naya paise or any bill of
exchange or promissory note, is brought to him after the drawing or execution thereof,
on paper not duly stamped.
In effect, the proviso to Section 32(3) lays down the time limit within which the Collector of
Stamps can make any endorsement on any instrument brought to him, for his opinion as to the
duty chargeable thereon.

33 Examination and impounding of instruments. —

Every person having by law or consent of parties authority to receive evidence, and every
person in charge of a public office, except an officer of police, before whom any instrument,
chargeable, in his opinion, with duty, is produced or comes in the performance of his functions,
shall, if it appears to him that such instrument is not duly stamped, impound the same.

For that purpose every such person shall examine every instrument so chargeable and so
produced or coming before him, in order to ascertain whether it is stamped with a stamp of the
value and description required by the law in force in India when such instrument was executed
or first executed:

Provided that—
(a) nothing herein contained shall be deemed to require any Magistrate or Judge of a
Criminal Court to examine or impound, if he does not think fit so to do, any instrument
coming before him in the course of any proceeding other than a proceeding under
Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (V of 1898);
(b) in the case of a Judge of a High Court, the duty of examining and impounding any
instrument under this section may be delegated to such officer as the Court appoints in
this behalf.

For the purposes of this section, in cases of doubt, —

(a) the State Government may determine what offices shall be deemed to be public offices;
(b) the State Government may determine who shall be deemed to be persons in charge of
public offices.

The object of this Section is to protect the revenue, and the Court or public officer authorised
by this Section must, exercise the powers under the Section suo moto and the jurisdiction of
the Court does not depend upon raising of an objection by the parties.

For the purposes of this section, the State Government may determine what offices are public
offices. The Section also provides that the instrument must be impounded, before it can be
admitted in evidence. Once it is admitted in evidence, the instrument cannot be impounded
at a later stage and a court, after it becomes functus officio, cannot rectify an earlier error.

The word ‘produced’ has to be properly understood. It means produced in response to a

summon or produced voluntarily for some judicial purpose, such as, for supporting an
evidence. It does not refer to a document which accidentally or incidentally falls into a judge’s
hand. The Court is not justified in impounding a document which the witness had not been
called upon to produce (Narayandas v. Nathuram, ILR 1943 Nag. 520; AIR 1943 Nag. 97).

Similarly, a Court before which a copy of a document has been produced cannot compel the
party to produce the original document with a view to impounding it, having received
information that is not sufficiently stamped. It is open to the party to refuse to obey the order
of the Court in this respect (Uttam Chand v. Permanand, AIR 1942 Lah. 265).

Where a Magistrate issued a warrant with a view to discovering registers kept by the accused
 NAHATA PROFESSIONAL ACADEMY 294

containing documents not stamped in accordance with the provisions of the Stamp Act, and
in course of the search, the registers were seized and produced before the Magistrate, it was
held that the documents thus produced could be impounded as the word ‘comes’ is
sufficiently wide to include documents produced by the search under a search warrant
(Emperor v. Balu Kuppayyan, ILR 25 Mad. 525). This case should be confined to its facts.

An arbitrator has the consent of parties to adjudicate the issues coming before him and
where the parties tender evidence, an arbitrator has a statutory duty under Section 33(1) to
check whether the instrument so produced is duly stamped and if not, to impound the same.

However, this shall not compel any Magistrate or Judge of a Criminal Court to examine or
impound (if he does not think it fit to do so) any instrument coming before him in the course
of any proceeding other than possession proceedings and maintenance proceedings. Also, a
Judge of a High Court can delegate the duty of examining and impounding any instrument to
any other person appointed by the court in this behalf.

34 Special provision as to unstamped receipts.—

Where any receipt chargeable 2[with a duty not exceeding ten nayepaise] is tendered to or
produced before any officer unstamped in the course of the audit of any public account, such
officer may in his discretion, instead of impounding the instrument, require a duly stamped
receipt to be substituted therefore.

35 Instruments not duly stamped inadmissible in evidence, etc.—

No instrument chargeable with duty shall be admitted in evidence for any purpose by any
person having by law or consent of parties authority to receive evidence, or shall be acted upon,
registered or authenticated by any such person or by any public officer, unless such instrument
is duly stamped:
Provided that—
(a) any such instrument shall be admitted in evidence on payment of the duty with which
the same is chargeable, or, in the case of any instrument insufficiently stamped, of the
amount required to make up such duty, together with a penalty of five rupees, or, when
ten times the amount of the proper duty or deficient portion thereof exceeds five
rupees, of a sum equal to ten times such duty or portion;
(b) where any person from whom a stamped receipt could have been demanded, has given
an unstamped receipt and such receipt, if stamped, would be admissible in evidence
against him, then such receipt shall be admitted in evidence against him on payment of
a penalty of one rupee by the person tendering it;
(c) where a contract or agreement of any kind is effected by correspondence consisting of
two or more letters and any one of the letters bears the proper stamp, the contract or
agreement shall be deemed to be duly stamped;
(d) nothing herein contained shall prevent the admission of any instrument in evidence in
any proceeding in a Criminal Court, other than a proceeding under Chapter XII or
Chapter XXXVI of the Code of Criminal Procedure 1898 (V of 1898);
(e) nothing herein contained shall prevent the admission of any instrument in any Court
when such instrument has been executed by or on behalf of the Government, or where
it bears the certificate of the Collector as provided by section 32 or any other provision
of this Act.

36 Admission of instrument where not to be questioned.—

Where an instrument has been admitted in evidence, such admission shall not, except as
provided in section 61, be called in question at any stage of the same suit or proceeding on the
ground that the instrument has not been duly stamped
 NAHATA PROFESSIONAL ACADEMY 295

Section 36 provides that where an instrument has been admitted in evidence, such an
admission shall not (except as provided in Section 61) be called in question at any stage of the
same suit or proceeding on the ground that the instrument has not been duly stamped.

Section 36 is mandatory (Guni Ram v. Kodar, AIR 1971 All 434, 437).

If notwithstanding any objection, the trial Court admits the document, the matter ends there
and the Court cannot subsequently order the deficiency to be made and levy penalty
(Bhupathi Nath v. Basanta Kumar, AIR 1936 Cal. 556; AIR 1933 Lah. 240).

Where a question as to the admissibility of a document is raised on the ground that it has not
been stamped, or has not been properly stamped, it has to be decided then and there when
the document is tendered in evidence. Once the Court, rightly or wrongly, decides to admit
the document in evidence, so far as the parties are concerned, the matter is closed. (Javer
Chand and ors. v. Pukhraj Surana, AIR 1961 SC 1665)

37 Admission of improperly stamped instruments.—

The State Government may make rules providing that, where an instrument bears a stamp of
sufficient amount but of improper description, it may, on payment of the duty with which the
same is chargeable, be certified to be duly stamped, and any instrument so certified shall then
be deemed to have been duly stamped as from the date of its execution.

38 Instruments impounded, how dealt with.—

When the person impounding an instrument under section 33 has by law or consent of parties
authority to receive evidence and admits such instrument in evidence upon payment of a
penalty as provided by section 35 or of duty as provided by section 37, he shall send to the
Collector an authenticated copy of such instrument, together with a certificate in writing,
stating the amount of duty and penalty levied in respect thereof, and shall send such amount to
the Collector, or to such person as he may appoint in this behalf.

In every other case, the person so impounding an instrument shall send it in original to the
Collector.

39 Collector’s power to refund penalty paid under section 38, sub-section (1).—
When a copy of an instrument is sent to the Collector under section 38, sub-section (1), he may,
if he thinks fit, refund any portion of the penalty in excess of five rupees which has been paid in
respect of such instrument.
When such instrument has been impounded only because it has been written in contravention
of section 13 or section 14, the Collector may refund the whole penalty so paid.

40 Collectors power to stamp instruments impounded.—

When the Collector impounds any instrument under section 33, or receives any instrument sent
to him under section 38, sub-section (2), not being an instrument chargeable with a duty not
exceeding ten naye paise only or a bill of exchange or promissory note, he shall adopt the
following procedure:—

(a) if he is of opinion that such instrument is duly stamped, or is not chargeable with duty,
he shall certify by endorsement thereon that it is duly stamped, or that it is not so
chargeable, as the case may be;
(b) if he is of opinion that such instrument is chargeable with duty and is not duly stamped,
 NAHATA PROFESSIONAL ACADEMY 296

he shall require the payment of the proper duty or the amount required to make up the
same, together with a penalty of five rupees; or, if he thinks fit, 5[an amount not
exceeding] ten times the amount of the proper duty or of the deficient portion thereof,
whether such amount exceeds or falls short of five rupees:

Provided that, when such instrument has been impounded only because it has been written in
contravention of section 13 or section 14, the Collector may, if he thinks fit, remit the whole
penalty prescribed by this section.

Every certificate under clause (a) of sub-section (1) shall, for the purposes of this Act, be
conclusive evidence of the matters stated therein.

Where an instrument has been sent to the Collector under section 38, sub-section (2), the
Collector shall, when he has dealt with it as provided by this section, return it to the impounding
officer.

41 Instruments unduly stamped by accident.—

If any instrument chargeable with duty and not duly stamped, not being an instrument
chargeable 1[with a duty not exceeding ten nayepaise] only or a bill of exchange or promissory
note, is produced by any person of his own motion before the Collector within one year from
the date of its execution or first execution, and such person brings to the notice of the Collector
the fact that such instrument is not duly stamped and offers to pay to the Collector the amount
of the proper duty, or the amount required to make up the same, and the Collector is satisfied
that the omission to duly stamp such instrument has been occasioned by accident, mistake or
urgent necessity, he may, instead of proceeding under sections 33 and 40, receive such amount
and proceed as next herein- after prescribed.

42 Endorsement of instruments on which duty has been paid under section 35, 40 or 41.—
When the duty and penalty (if any), leviable in respect of any instrument have been paid under
section 35, section 40 or section 41, the person admitting such instrument in evidence or the
Collector, as the case may be, shall certify by endorsement thereon that the proper duty or, as
the case may be, the proper duty and penalty (stating the amount of each) have been levied in
respect thereof, and the name and residence of the person paying them.

Every instrument so endorsed shall thereupon be admissible in evidence, and may be registered
and acted upon and authenticated as if it had been duly stamped, and shall be delivered on his
application in this behalf to the person from whose possession it came into the hands of the
officer impounding it, or as such person may direct:
Provided that—
(a) no instrument which has been admitted in evidence upon payment of duty and a
penalty under section 35, shall be so delivered before the expiration of one month from the
date of such impounding, or if the Collector has certified that its further detention is necessary
and has not cancelled such certificate;
(b) nothing in this section shall affect the1 Code of Civil Procedure (XIV of 1882), section
144, clause 3.

43 Prosecution for offence against Stamp-law.—

The taking of proceedings or the payment of a penalty under this Chapter in respect of any
instrument shall not bar the prosecution of any person who appears to have committed an
offence against the Stamp-law in respect of such instrument:
Provided that no such prosecution shall be instituted in the case of any instrument in respect of
which such a penalty has been paid, unless it appears to the Collector that the offence was
 NAHATA PROFESSIONAL ACADEMY 297

committed with an intention of evading payment of the proper duty.

44 Persons paying duty or penalty may recover same in certain cases.—

When any duty or penalty has been paid under section 35, section 37, section 40 or section 41,
by any person in respect of an instrument, and, by agreement or under the provisions of section
29 or any other enactment in force at the time such instrument was executed, some other
person was bound to bear the expense of providing the proper stamp for such instrument, the
first-mentioned person shall be entitled to recover from such other person the amount of the
duty or penalty so paid.

For the purpose of such recovery, any certificate granted in respect of such instrument under
this Act shall be conclusive evidence of the matters therein certified.

Such amount may, if the Court thinks fit, be included in any order as to costs in any suit or
proceeding to which such persons are parties and in which such instrument has been tendered
in evidence. If the Court does not include the amount in such order, no further proceedings for
the recovery of the amount shall be maintainable.

45 Power to Revenue-authority to refund penalty or excess duty in certain cases.—

Where any penalty is paid under section 35 or section 40, the Chief Controlling Revenue-
authority may, upon application in writing made within one year from the date of the payment,
refund such penalty wholly or in part.

Where, in the opinion of the Chief Controlling Revenue-authority, stamp-duty in excess of that
which is legally chargeable has been charged and paid under section 35 or section 40, such
authority may, upon application in writing made within three months of the order charging the
same, refund the excess.

46 Non-liability for loss of instruments sent under section 38.

If any instrument sent to the Collector under section 38, sub-section (2), is lost, destroyed or
damaged during transmission, the person sending the same shall not be liable for such loss,
destruction or damage.

When any instrument is about to be so sent, the person from whose possession it came into the
hands of the person impounding the same, may require a copy thereof to be made at the
expense of such first-mentioned person and authenticated by the person impounding such
instrument.

47 Power of payer to stamp bills, and promissory notes received by him unstamped.—
When any bill of exchange or promissory note chargeable with a duty not exceeding ten
nayepaise is presented for payment unstamped, the person to whom it is so presented, may
affix thereto the necessary adhesive stamp, and, upon cancelling the same in manner
hereinbefore provided, may pay the sum payable upon such bill 3[or note], and may charge the
duty against the person who ought to have paid the same, or deduct it from the sum payable as
aforesaid, and such bill or note, shall, so far as respects the duty, be deemed good and valid:
Provided that nothing herein contained shall relieve any person from any penalty or proceeding
to which he may be liable in relation to such bill, or note.

48. Recovery of duties and penalties.—

All duties, penalties and other sums required to be paid under this Chapter may be recovered
by the Collector by distress and sale of the movable property of the person from whom the
same are due, or by any other process for the time being in force for the recovery of arrears of
 NAHATA PROFESSIONAL ACADEMY 298

land-revenue.

49 Allowance for spoiled stamps.—

Subject to such rules as may be made by the State Government as to the evidence to be
required, or the enquiry to be made, the Collector may, on application made within the period
prescribed in section 50, and if he is satisfied as to the facts, make allowance for impressed
stamps spoiled in the cases herein after mentioned, namely:—
(a) the stamp on any paper inadvertently and undesignedly spoiled, obliterated or by error
in writing or any other means rendered unfit for the purpose intended before any
instrument written thereon is executed by any person:
(b) the stamp on any document which is written out wholly or in part, but which is not
signed or executed by any party thereto:
(c) in the case of bills of exchange 3[payable otherwise than on demand] 4*** or
promissory notes—
(1) the stamp on any such bill of exchange signed by or on behalf of the drawer
which has not been accepted or made use of in any manner whatever or
delivered out of his hands for any purpose other than by way of tender for
acceptance:
provided that the paper on which any such stamp is impressed, does not bear
any signature intended as or for the acceptance of any bill of exchange to be
afterwards written thereon:
(2) the stamp on any promissory note signed by or on behalf of the maker which
has not been made use of in any manner whatever or delivered out of his
hands:
(3) the stamp used or intended to be used for any such bill of exchange or
promissory note signed by, or on behalf of, the drawer thereof, but which
from any omission or error has been spoiled or rendered useless, although the
same, being a bill of exchange may have been presented for acceptance or
accepted or endorsed, or, being a promissory note, may have been delivered
to the payee: provided that another completed and duly stamped bill of
exchange or promissory note is produced identical in every particular, except
in the correction of such omission or error as aforesaid, with the spoiled bill,
or note;
(d) the stamp used for an instrument executed by any party thereto which—
(1) has been afterwards found to be absolutely void in law from the beginning:
(2) has been afterwards found unfit, by reason of any error or mistake therein, for
the purpose originally intended:
(3) by reason of the death of any person by whom it is necessary that it should be
executed, without having executed the same, or of the refusal of any such
person to execute the same, cannot be completed so as to effect the intended
transaction in the form proposed:
(4) for want of the execution thereof by some material party, and his inability or
refusal to sign the same, is in fact incomplete and insufficient for the purpose
for which it was intended:
(5) by reason of the refusal of any person to act under the same, or to advance any
money intended to be thereby secured, or by the refusal or non-acceptance of
any office thereby granted, totally fails of the intended purpose:
(6) becomes useless in consequence of the transaction intended to be thereby
effected being effected by some other instrument between the same parties
and bearing a stamp of not less value:
(7) is deficient in value and the transaction intended to be thereby effected has
been effected by some other instrument between the same parties and bearing
a stamp of not less value:
(8) is inadvertently and undesignedly spoiled, and in lieu whereof another
 NAHATA PROFESSIONAL ACADEMY 299

instrument made between the same parties and for the same purpose is
executed and duly stamped:
Provided that, in the case of an executed instrument, no legal proceeding has been
commenced in which the instrument could or would have been given or offered
in evidence and that the instrument is given up to be cancelled.
Explanation.—The certificate of the Collector under section 32 that the full duty with which an
instrument is chargeable, has been paid is an impressed stamp within the meaning of this
section.

50 Application for relief under section 49 when to be made.—

The application for relief under section 49 shall be made within the following periods, that is to
say,—
(1) in the cases mentioned in clause (d) (5), within two months of the date of the
instrument:
(2) in the case of a stamped paper on which no instrument has been executed by any of the
parties thereto, within six months after the stamp has been spoiled:
(3) in the case of a stamped paper in which an instrument has been executed by any of the
parties thereto, within six months after the date of the instrument, or, if it is not dated,
within six months after the execution thereof by the person by whom it was first or
alone executed:
Provided that,—
(a) when the spoiled instrument has been for sufficient reasons sent out of 1
[India], the application may be made within six months after it has been
received back in 1[India] ;
(b) when, from unavoidable circumstances, any instrument for which another
instrument has been substituted, cannot be given up to be cancelled within the
aforesaid period, the application may be made within six months after the date
of execution of the substituted instrument.

51 The Chief Controlling Revenue-authority or the Collector if empowered by the Chief

Controlling Revenue-
authority in this behalf may, without limit of time, make allowance for stamped papers used for
printed forms of instruments by any banker or] by any incorporated company or other body
corporate, if for any sufficient reason such forms have ceased to be required by the said banker,
company or body corporate: provided that such authority is satisfied that the duty in respect of
such stamped papers has been duly paid.

52 Allowance for misused stamps.—

(a) When any person has inadvertently used for an instrument chargeable with duty, a stamp
of a description other than that prescribed for such instrument by the rules made under
this Act, or a stamp of greater value than was necessary, or has inadvertently used any
stamp for an instrument not chargeable with any duty; or
(b) when any stamp used for an instrument has been inadvertently rendered useless under
section 15, owing to such instrument having been written in contravention of the
provisions of section 13;
the Collector may, on application made within six months after the date of the instrument, or, if
it is not dated, within six months after the execution thereof by the person by whom it was first
or alone executed, and upon the instrument, if chargeable with duty, being re-stamped with the
proper duty, cancel and allow as spoiled the stamp so misused or rendered useless.

53 Allowance for spoiled or misused stamps how to be made.—

 NAHATA PROFESSIONAL ACADEMY 300

In any case in which allowance is made for spoiled or misused stamps, the Collector may give in
lieu thereof —
(a) other stamps of the same description and value; or
(b) if required and he thinks fit, stamps of any other description to the same amount in
value; or
(c) at his discretion, the same value in money, deducting 1[ten nayepaise] for each rupee or
fraction of a rupee

54 Allowance for stamps not required for use.—

When any person is possessed of a stamp or stamps which have not been spoiled or rendered
unfit or useless for the purpose intended, but for which he has no immediate use, the Collector
shall repay to such person the value of such stamp or stamps in money, deducting 4[ten
nayepaise] for each rupee or portion of a rupee, upon such person delivering up the same to be
cancelled, and proving to the Collector's satisfaction—
(a) that such stamp or stamps were purchased by such person with a bona fide intention to
use them; and
(b) that he has paid the full price thereof; and
(c) that they were so purchased within the period of six months next preceding the date on
which they were so delivered:
Provided that, where the person is a licensed vendor of stamps, the Collector may, if he thinks
fit, make the repayment of the sum actually paid by the vendor without any such deduction as
aforesaid.

55 Allowance on renewal of certain debentures.—

When any duly stamped debenture is renewed by the issue of a new debenture in the same
terms, the Collector shall, upon application made within one month, repay to the person issuing
such debenture, the value of the stamp on the original or on the new debenture, whichever
shall be less:
Provided that the original debenture is produced before the Collector and cancelled by him in
such manner as the State Government may direct.
Explanation.—A debenture shall be deemed to be renewed in the same terms within the
meaning of this section notwithstanding the following changes:—
(a) the issue of two or more debentures in place of one original debenture, the total
amount secured being the same;
(b) the issue of one debenture in place of two or more original debentures, the total
amount secured being the same;
(c) the substitution of the name of the holder at the time of renewal for the name of the
original holder; and
(d) the alteration of the rate of interest or the dates of payment thereof.

REFERENCE AND REVISION- SECTION 56 to 61

Sections 56 to 61 deal with Reference and Revision. Section 56 provides that the powers exercisable by a
Collector under Chapter IV and V and under clause (a) of the first proviso to Section 26 shall in all cases be
subject to the control of the Chief Controlling Revenue Authority. Further, if any Collector, acting under
Sections 31, 40 or 41, feels doubt as to the amount of duty with which any instrument is chargeable, he
may draw up a statement of the case, and refer it, with his own opinion thereon, for the decision of the
Chief Controlling Revenue Authority [Section 56(2)].

Such authority shall consider the case and send a copy of its decision to the Collector, who shall proceed to
assess and charge the duty (if any) in conformity with such decision. As per Section 57(1), the Chief
Controlling Revenue Authority may state any case referred to it under Section 56(2) or otherwise coming to
its notice, and refer such case, with its own opinion thereon to the High Court and the same shall be
decided by not less than three Judges of the High Court and the majority decision shall prevail.
 NAHATA PROFESSIONAL ACADEMY 301

According to Section 58, if the High Court is not satisfied that the statements contained in the case are
sufficient to enable it to determine the questions raised thereby, the court may refer the case back to the
Revenue Authority for further feed back. The High Court shall decide the questions raised and give its
judgment to the Authority who shall dispose of the case as per the judgment. As per Section 60, any
subordinate Court can also refer such case to the High Court like the Revenue Authority but should be
through proper channel. In Section 61(1) of the Act it is provided that a Court may take into consideration
on its own motion or on application of the Collector, an order of the lower Court admitting the instrument
as duly stamped or as not requiring stamp duty or on payment of duty and penalty. According to sub-
section 2 of Section 61, if such Court is not in agreement with the stand of the lower Court, it may require
that the instrument be produced before it and may even impound the same if necessary. While doing so,
the Court shall send a copy of its order to the Collector and to the office/Court from which such instrument
has been received. [Section 61(3)]

PROSECUTION
As per Section 61(4), the Collector has got the power notwithstanding anything contained in the order of
the lower court, to prosecute a person if any offence against the Stamp Act which he considers that the
person has committed in respect of such an instrument. The prosecution is instituted when he is satisfied
that the offence is committed with an intention of evading the proper stamp duty. The order of the lower
Court as to the instrument shall be valid except for the purposes of prosecution in this respect. Sections 62
to 72 deal with penalties for offences.
1 Distinguish between executed and execution under Indian Stamp Act, 1889. [June-2019] (
(2) Define the term 'bill of lading' under the Indian Stamp Act, 1899. [Dec- 2015] (5 marks)
(3) Define ‘Lease’ under the Indian Stamp Act, 1889. [Dec-2018] (4 marks)
(4) Explain the terms ‘Patta’ and ‘Kabuliyat’, under the Indian Stamp Act, 1899. [DEC-2020] (4 marks)
(5) What is the extent of liability of instruments to stamp duty where several instruments are
executed in a single transaction ? Explain with any one illustration. .[DEC-2019] (4 marks)
(6) Are securities dealt in depository liable to stamp duty under the provisions of Indian Stamp Act,
1899? [June-2017] (5 marks)
(7) Examine with reasons, whether the following transactions are exempted under the Indian Stamp
Act, 1899 :[Dec-2020]
(a) A lease is executed and got registered. A second document is executed altering the terms
of the first document. (1 mark)
(b) A purchaser of land executes a mortgage of the land in favour of the vendor for a portion
of the purchase money. (1 mark)
(c) Any instrument executed by the developer or unitor in connection with carrying out of
purposes of the Special Economic Zone (SEZ). (1 mark)
(d) A scheme for corporatisation or demutualisation or both of a recognised stock exchange.
(1 mark)
(e) The transfer of beneficial ownership of securities, dealt with by a depository. (1 mark)
(8) When the instruments may be stamped with adhesive stamps, under the Indian Stamps Act,
1899 ? When and by whom such adhesive stamps may be cancelled? [Dec-2018] (5 marks)
(9) Write a note on ‘mode of cancellation of adhesive stamps’ under the Indian Stamp Act, 1899.
[June-2015] [JUNE-2009] (4 MARKS)
(10) A promissory note is executed by Suresh and Udit and stamp is afterwards affixed and cancelled
by Suresh by again signing it. Explain whether the provisions of section 17 relating to time of
stamping instruments have been complied with ? [June-2019] (4 marks)
(11) Atul mortgages his house of the value of `50,000 to Vijay. After some time Vijay buys the house
from Atul for `25,000. Decide the amount on which Vijay has to pay the stamp duty under Indian
Stamp Act, 1889. [Dec-2018] (4 marks)
(12) "If once the 'instrument' has been admitted in evidence, it shall not be questioned later on in the
same suit on the ground that it does not bear the adequate stamp duty or no stamp." Discuss
briefly with reference to case law. [June-2016] (5 marks)

(13) Describe the concept of ‘E-Stamping’ under Indian Stamp Act, 1899. [DEC-2020][Dec-16]
(14) State the provisions of Indian Stamp Act, 1899 regarding the payment of stamp duty for
 NAHATA PROFESSIONAL ACADEMY 302

renewing debentures. [Dec-2017] (5 marks)

(15) Name of the officers of the Company who can be held liable in case the Company has issued
share warrant without proper stamp duty. What shall be the penalty as prescribed under Sec.
62(2) of the Stamp Act. [DEC-2019] (4 marks)
(17) Four adhesive stamps were used on an instrument. First adhesive stamp had a single line drawn
across the face of the stamp. On the second stamp, there were two parallel lines. The third stamp
had three parallel lines, and the fourth stamp had two lines crossing each other. What are the
provisions for cancellation of adhesive stamps and which adhesive stamps referred to above will
be considered to have been properly cancelled ? [DEC-2009] (6 marks)
(18) Explain the consequences of the instruments which are not duly stamped under the Indian Stamp
Act, 1899. . [JUNE-2010] (4 MARKS)
(19) List any ten instruments which are chargeable with duty under the Indian Stamp Act, 1899. [DEC-
2010] (5 marks)
(20) Abhay’s agricultural land was purchased by the government for the purpose of construction of a
factory but no duty was paid for this transfer by the government. Abhay wanted to take back his
land on the ground that the government has not paid the duty and, therefore, no sale deed was
executed. Will Abhay succeed ? Give reasons. [DEC-2010] (4 marks)
(21) Mention the circumstances under which refund of stamp duty or penalty may be made by
revenue authorities. . [JUNE-2011] (4 marks)
(22) Discuss the remedies available to a person who has been refused to register a document by a
sub-registrar. Can registration of documents be refused on the ground of under-valuation of
stamp duty ? . [DEC-2011] (5 marks)
(23) State the instruments which are chargeable with duty under the Indian Stamp Act, 1899. [DEC-
2011] .(4 marks)
(26) Discuss the evidentiary value of an instrument not duly stamped under the Indian Stamp Act,
1899. [DEC-2012] [JUNE 2013](4 marks)
(28) An instrument bears a stamp of sufficient amount, but of improper description. Can it be
certified as duly stamped ? How the instrument can be rectified and what would be the date of
its execution ? [JUNE 2013](6 marks)
(29) Achal gives an instrument to Basu which is unstamped. This instrument is also not registered —
Will the instrument be admitted in evidence ? Will the situation change if the instrument is
stamped but not registered before passing to Basu and Basu gets it registered subsequently ?
[june 2013](5 marks)
(31) (An instrument bears a stamp of sufficient amount, but of improper description. Can it be
certified as duly stamped ? How the instrument can be rectified and what would be the date of
its execution ? [JUNE-2013] (6 marks)
(32) A document, which is apparently an agreement granting a franchise, is produced in the court, but
is not stamped. Examine, citing the relevant provisions of the Indian Stamp Act, 1899, whether —
i. the document is void;
ii. the document can be admitted on payment of penalty; and
iii. the parties are liable to be prosecuted. [DEC-2013] (6 marks)
(33) Atul, executed in favour of his brother, Bimal, a gift of all his property. By another deed, Bimal
made provision for the living expenses of his brother Atul and hypothecated in favour of Atul, a
part of the property included in the above mentioned gift deed, in order to secure the payment
of the living expenses. Decide, whether the gift made by Atul and making a hypothecation in his
favour by Bimal are one and the same transaction or more than one transaction. Further, is it a
case of 'settlement' under the Indian Stamp Act, 1899 ? [DEC-2013] (5 marks)
(34) Explain the consequences that follow where the instruments are not duly stamped under the
Indian Stamp Act, 1899. [DEC-2014] (4 marks)
(36) Explain the Collector's power to stamp an instrument which is impounded. [JUNE-2014] (4 marks)
(37) Explain the term ‘‘Receipt” under the Indian Stamp Act, 1899. [JUNE-2021]
(38) It is the substance of the transaction as contained in the instrument that determines the stamp
duty. Elucidate.
(39) Discuss the instruments which are Chargeable with duty under section 3 of the Indian Stamp Act,
1899. [DEC-2021]
 NAHATA PROFESSIONAL ACADEMY 303

CHAPTER -13
LAW RELATING TO REGISTRATION OF DOCUMENTS

 Documents of which registration is compulsory or optional

 Time for presenting documents for registration
 Person with whom such documents be registered
 Registration of wills and authority to adopt
 Consequences of non registration of documents
 Procedure of registration, refusal and appeal thereon

17. Documents of which registration is compulsory.—

(1) The following documents shall be registered,
(a) instruments of gift of immovable property;

In a case where the donor dies before registration, the document may be presented
for registration after his death and if registered it will have the same effect as
registration in his life time. On registration the deed of gift operates as from the date
of execution.

It was held by the Privy Council in Kalyana Sundram v. Karuppa, AIR 1927 PC 42, that
while registration is a necessary solemnity for the enforcement of a gift of immovable
property, it does not suspend the gift until registration actually takes place, when the
instrument of gift has been handed over by the donor to the donee and accepted by
him, the former has done everything in his power to complete the donation and to
make it effective. And if it is presented by a person having necessary interest within
the prescribed period the Registrar must register it. Neither death nor the express
revocation by the donor, is a ground for refusing registration, provided other
conditions are complied with. (Cf. Mulla Registration Act (1998), page 36)

Delay in registration of a gift does not postpone its operation. Section 123, Transfer of
Property Act, 1882 merely requires that donor should have signed the deed of gift.
Hence a gift deed can be registered even if the donor does not agree to its
registration.

(Kalyan Sundaram Pillai v. Karuppa Mopanar, AIR 1927 PC 42; Venkata Rama Reddy v.
Pillai Rama Reddy, AIR 1923 Mad. 282).

(b) other non-testamentary instruments which purport or operate to create, declare,

assign, limit or extinguish, whether in present or in future, any right, title or interest,
whether vested or contingent, of the value of one hundred rupees and upwards, to or in
immovable property;

A document which is plainly intended to be operative immediately is non-

testamentary (Umrao Singh v. Lachhman, (1911) 1 LR 33 All 344, 355 (PC); Mulla,
Registration Act (1998), page 40).

Description of a document as a will does not make it a will (Tirugnannpal v.

Poonamma, AIR 1921 PC 89).

Whether an instrument requires registration under Section 17(1)(b) depends upon

whether it operates or purports to bring about a change in legal relation in respect of
some property. For purposes of Section 17(1)(b) a distinction should be drawn
between
 a right in or to property and
 NAHATA PROFESSIONAL ACADEMY 304

 such rights as are merely incidental to the ownership of property and are
really in the nature of powers or options which every owner is free to exercise in
dealing with his property in a particular way.
The latter may be described as rights in relation to the property, but strictly speaking,
they are not rights in or to property. Generally, when a right in or to property is
assigned, created, declared, limited or extinguished, then there must be a definite
change of legal relation to the property.

(c) non-testamentary instruments which acknowledge the receipt or payment of any

consideration on account of the creation, declaration, assignment, limitation or
extinction of any such right, title or interest; and

This clause requires an acknowledgement in the form of a receipt to be registered, but

not an acknowledgement of the fact that a transaction has taken place. To be
registrable under this clause a receipt must satisfy the following two conditions:

(i) it must be the receipt of a consideration; and

(ii) it must on the face of it be an acknowledgement of payment or some consideration on
account of the creation, declaration, assignment, limitation or extinction of an interest
of the value of Rs. 100 or upwards in immovable property.

The receipt must be such as to be linked with the creation etc. of a right. A mere
acknowledgement of payment is not compulsorily registrable.

(d) leases of immovable property from year to year, or for any term exceeding one year, or
reserving a yearly rent;

(e) non-testamentary instruments transferring or assigning any decree or order of a Court

or any award when such decree or order or award purports or operates to create,
declare, assign, limit or extinguish, whether in present or in future, any right, title or
interest, whether vested or contingent, of the value of one hundred rupees and
upwards, to or in immovable property:

Provided that the State Government may, by order published in the Official Gazette,
exempt from the operation of this sub-section any lease executed in any district, or part
of a district, the terms granted by which do not exceed five years and the annual rents
reserved by which do not exceed fifty rupees.

The documents containing contracts to transfer for consideration, any immovable property
for the purpose of section 53A of the Transfer of Property Act, 1882

(2) Nothing in clauses (b) and (c) of sub-section (1) applies to—
(i) any composition deed; or

(ii) any instrument relating to shares in a joint stock Company, notwithstanding that the
assets of such Company consist in whole or in part of immovable property; or

(iii) any debenture issued by any such Company and not creating, declaring, assigning,
limiting or extinguishing any right, title or interest, to or in immovable property
except in so far as it entitles the holder to the security afforded by a registered
instrument whereby the Company has mortgaged, conveyed or otherwise
transferred the whole or part of its immovable property or any interest therein to
trustees upon trust for the benefit of the holders of such debentures; or

(iv) any endorsement upon or transfer of any debenture issued by any such Company; or
 NAHATA PROFESSIONAL ACADEMY 305

(v) any document other than the documents specified in sub-section (1A)] not itself
creating, declaring, assigning, limiting or extinguishing any right, title or interest of
the value of one hundred rupees and upwards to or in immovable property, but
merely creating a right to obtain another document which will, when executed,
create, declare, assign, limit or extinguish any such right, title or interest; or

(vi) any decree or order of a Court except a decree or order expressed to be made on a
compromise and comprising immovable property other than that which is the
subject-matter of the suit or proceeding; or

(vii) any grant of immovable property by Government; or

(viii) any instrument of partition made by a Revenue-Officer; or
(ix) any order granting a loan or instrument of collateral security granted under the Land
Improvement Act, 1871 (26 of 1871), or the Land Improvement Loans Act, 1883 (19
of 1883); or
(x) any order granting a loan under the Agriculturists, Loans Act, 1884 (12 of 1884), or
instrument for securing the repayment of a loan made under that Act; or
(xa) any order made under the Charitable Endowments Act, 1890 (6 of 1890), vesting any
property in a Treasurer of Charitable Endowments or divesting any such Treasurer of
any property; or]
(xi) any endorsement on a mortgage-deed acknowledging the payment of the whole or
any part of the mortgage-money, and any other receipt for payment of money due
under a mortgage when the receipt does not purport to extinguish the mortgage; or
(xii) any certificate of sale granted to the purchaser of any property sold by public
auction by a Civil or Revenue-Officer.

(3) Authorities to adopt a son, executed after the 1st day of January, 1872, and not conferred by
a will, shall also be registered.

18 Documents of which registration is optional.—

Any of the following documents may be registered under this Act, namely:—
(a) Instruments (other than instruments of gift and wills) which purport or operate to
create, declare, assign, limit or extinguish, whether in present or in future, any right,
title or interest, whether vested or contingent, of a value less than one hundred
rupees, to or in immovable property;

(b) instruments acknowledging the receipt or payment of any consideration on account

of the creation, declaration, assignment, limitation or extinction of any such right,
title or interest;

(c) leases of immovable property for any term not exceeding one year, and leases
exempted under section 17;

(cc) instruments transferring or assigning any decree or order of a Court or any award
when such decree or order or award purports or operates to create, declare, assign,
limit or extinguish, whether in present or in future, any right, title or interest,
whether vested or contingent, of a value less than one hundred rupees, to or in
immovable property;]

(d) instruments (other than wills) which purport or operate to create, declare, assign,
limit or extinguish any right, title or interest to or in movable property;

(e) wills; and

 NAHATA PROFESSIONAL ACADEMY 306

(f) all other documents not required by section 17 to be registered.

23 Time for presenting documents.—

Subject to the provisions contained in sections 24, 25 and 26, no document other than a will
shall be accepted for registration unless presented for that purpose to the proper officer
within four months from the date of its execution:
Provided that a copy a of a decree or order may be presented within fourmonths from the
day on which the decree or order was made, or, where it is appealable, within four months
from the day on which it becomes final.

These limits are mandatory (Ram Singh v. Jasmer Singh, AIR 1963 Punj. 100). If delay is due
to act of Court, it has to be disregarded (Raj Kumar v. Tarapa, AIR 1987 SC 2195).

Unstamped document - If the document is not sufficiently stamped its presentation is still
good presentation though penalty under the Stamp Act can be levied (Mahaliram v.
Upendra Nath, AIR 1960 Pat 470).

23A Re-registration of certain documents.—

Notwithstanding anything to the contrary contained in this Act, if in any case a document
requiring registration has been accepted for registration by a Registrar or Sub-Registrar from
a person not duly empowered to present the same, and has been registered, any person
claiming under such document may, within four months from his first becoming aware that
the registration of such document is invalid, present such document or cause the same to be
presented, in accordance with the provisions of Part VI for re-registration in the office of the
Registrar of the district in which the document was originally registered;
The section is mainly intended to deal with situations where the original presentation was
by a person not duly authorised.

24 Documents executed by several persons at different times.—

Where there are several persons executing a document at different times; such document
may be presented for registration and re- registration within four months from the date of
each execution.

25 Provision where delay in presentation is unavoidable.—

If, owing to urgent necessity or unavoidable accident, any document executed, or copy of a
decree or order made, in India is not presented for registration till after the expiration of the
time hereinbefore prescribed in that behalf, the Registrar, in cases where the delay in
presentation does not exceed four months, may direct that, on payment of a fine not
exceeding ten times the amount of the proper registration-fee, such document shall be
accepted for registration.

26 Documents executed out of India.—

When a document purporting to have been executed by all or any of the parties out of India is
not presented for registration till after the expiration of the time hereinbefore prescribed in
that behalf, the registering officer, if satisfied—
(a) that the instrument was so executed, and
(b) that it has been presented for registration within four months after its arrival in
India, may, on payment of the proper registration-fee accept such document for
registration.
A document executed outside India is not valid unless it is registered in India (Nainsukhdas
v. Gowardhandas, AIR 1948 Nag. 110).
Incidentally, Section 26 indicates that the Act applies to ex-India documents relating to
property in India. (Mulla, page 166).
 NAHATA PROFESSIONAL ACADEMY 307

27 Wills may be presented or deposited at any time.—

A will may at any time be presented for registration or deposited in manner hereinafter
provided.

28 Place for registering documents relating to land.—

Save as in this Part otherwise provided, every document mentioned in section 17, sub-
section (1), clauses (a), (b), (c) , (d) and (e), section 17, sub-section (2), insofar as such
document affects immovable property, and section 18, clauses (a), (b) (c) and (cc), shall
be presented for registration in the office of a Sub-Registrar within whose sub- district the
whole or some portion of the property to which such document relates is situate.

There is nothing in law to prohibit a person conveying property in one district and residing
and owing property in another district and asking the vendee to accept a conveyance also
of some small property in the district in which he resides, so that the sale-deed may be
registered there and he may not be put to the trouble and expense of a journey to the
other district. It is not correct to say in such a case that the sale-deed is not validly
registered at the place where it is got registered.

Registration of a document elsewhere has been held to be void (Harendra Lal Roy
Chowdhuri v. Hari Dasi Debi, (1914) ILR 41 Cal. 972, 988 (PC);

29 Place for registering other documents.—

(1) Every document not being a document referred to in section 28 or a copy of a decree or
order, may be presented for registration either in the office of the Sub-Registrar in whose
sub-district the document was executed, or in the office of any other Sub- Registrar under
the State Government] at which all the persons executing and claiming under the document
desire the same to be registered.
(2) A copy of a decree or order may be presented for registration in the office of the Sub-
Registrar in whose sub-district the original decree or order was made, or, where the decree
or order does not affect immovable property, in the office of any other Sub-Registrar under
the State Government at which all the persons claiming under the decree or order desire the
copy to be registered

30 Registration by Registrars in certain cases.—

Any Registrar may in his discretion receive and register any document which might be
registered by any Sub-Registrar subordinate to him.

31 Registration or acceptance for deposit at private residence.—

In ordinary cases the registration or deposit of documents under this Act shall be made only
at the office of the officer authorised to accept the same for registration or deposit:
Provided that such officer may on special cause being shown attend at the residence of any
person desiring to present a document for registration or to deposit a will, and accept for
registration or deposit such document or will.

32 Persons to present documents for registration.—

Except in the cases mentioned in sections 31, 88 and 89, every document to be registered
under this Act, whether such registration be compulsory or optional, shall be presented at
the proper registration-office,—
(a) by some person executing or claiming under the same, or, in the case of a copy of a
decree or order, claiming under the decree or order, or
(b) by the representative or assign of such person, or
 NAHATA PROFESSIONAL ACADEMY 308

(c) by the agent of such person, representative or assign, duly authorised by power-of-
attorney executed and authenticated in manner hereinafter mentioned.

It is immaterial whether the registration is compulsory or optional; but, if it is presented for registration by
a person other than a party not mentioned in Section 32, such presentation is wholly inoperative and the
registration of such a document is void (Kishore Chandra Singh v. Ganesh Prashad Bhagat, AIR 1954 SC 316).

However, Sections 31, 88 and 89 provide exceptions to this requirement.

For the purpose of Section 32, a special power of attorney is required as provided under Section 33. A
general power of attorney will not do. Section 33 requires that a power of attorney, in order to be
recognised as giving authority to the agent to get the document registered, should be executed before and
then authenticated by the Registrar within whose district or sub-district the principal resides. (Sections 32
to 35)

Compulsory affixing of photograph, etc. Every person presenting any document at the proper registration
office under section 32 shall affix his passport size photograph and fingerprints to the document: However,
where such document relates to the transfer of ownership of immovable property, the passport size
photograph and fingerprints of each buyer and seller of such property mentioned in the document shall
also be affixed to the document.

Inquiry before Registration by registering officer For registering a document the persons executing such
document or their representatives, assigns or authorised agents must appear before the registering officer
within the time allowed for presentation. (Section 34)

In Section 34, the expression “person executing” not only includes the agent who has signed (with
authority), but also the principal who is a party (Puran Chand v. Manmotho Nath, AIR 1928 PC 38).

It is the compliance with the provisions of Sections 34, 35, 58 and 59 of the Act, which really constitutes
registration and not the presence of the certificate. Hence, subsequent acts of the Registrar which are
ministerial acts, cannot affect the validity of the registration and the absence of final certificate of
registration under section 60 cannot affect its validity.

40 Persons entitled to present wills and authorities to adopt.—

(1) The testator, or after his death any person claiming as executor or otherwise under a will, may
present it to any Registrar or Sub- Registrar for registration.

(2) The donor, or after his death the donee, of any authority to adopt, or the adoptive son, may
present it to any Registrar or Sub-Registrar for registration.

41 Registration of wills and authorities to adopt.—

(1) A will or an authority to adopt, presented for registration by the testator or donor, may be
registered in the same manner as any other document.

(2) A will or authority to adopt presented for registration by any other person entitled to present it
shall be registered if the registering officer is satisfied—
(a) that the will or authority was executed by the testator or donor, as the case may be;
(b) that the testator or donor is dead; and
(c) that the person presenting the will or authority is, under section 40, entitled to present
the same.

42 Deposit of wills.—
Any testator may, either personally or by duly authorised agent, deposit with any Registrar his
will in a sealed cover supercribed with the name of the testator and that of his agent (if any)
 NAHATA PROFESSIONAL ACADEMY 309

and with a statement of the nature of the document.

43 Procedure on deposit of wills.—

On receiving such cover, the Registrar, if satisfied that the person presenting the same for
deposit is the testator or his agent, shall transcribe in his Register-book No. 5 the superscription
aforesaid, and shall note in the same book and on the said cover the year, month, day and hour
of such presentation and receipt, and the names of any persons who may testify to the identity
of the testator or his agent, and any legible inscription which may be on the seal of the cover.

The Registrar shall then place and retain the sealed cover in his fire-proof box.

47 Time from which registered document operates.—

A registered document shall operate from the time from which it would have commenced to
operate if no registration thereof had been required or made, and not from the time of its
registration.

As between two registered documents, the date of execution determines the priority. Of the
two registered documents, executed by same persons in respect of the same property to two
different persons at two different times, the one which is executed first gets priority over the
other, although the former deed is registered subsequently to the later one (K.J. Nathan v.
S.V. Maruthi Reddy, AIR 1965 SC 430; Mulla page 207).
In effect1 Section 47 means that a document operates from the date of execution (as between
the parties).

48 Registered documents relating to property when to take effect against oral agreements.—
All non-testamentary documents duly registered under this Act, and relating to any
property, whether movable or immovable, shall take effect against any oral agreement or
declaration relating to such property, unless where the agreement or declaration has been
accompanied or followed by delivery of possession and the same constitutes a valid transfer
under any law for the time being in force:
Provided that a mortgage by deposit of title-deeds as defined in section 58 of the Transfer of
Property Act, 1882 (4 of 1882), shall take effect against any mortgage-deed subsequently
executed and registered which relates to the same property.

49 Effect of non-registration of documents required to be registered.—

No document required by section or by any provision of the Transfer of Property Act, 1882 (4 of
1882), to be registered shall—
(a) affect any immovable property comprised therein, or
(b) confer any power to adopt, or
(c) be received as evidence of any transaction affecting such property or conferring such
power, unless it has been registered:

Provided that an unregistered document affecting immovable property and required by this Act
or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence
of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877
(1 of 1877) or as evidence of any collateral transaction not required to be effected by registered
instrument.

Section 49 is mandatory, and a document which is required to be registered cannot be

received in evidence as affecting immovable property. (Mulla, pages 223 to 228)

An unregistered document which comes within Section 17 cannot be used in any legal
proceeding to bring out indirectly the effect which it would have if registered.
 NAHATA PROFESSIONAL ACADEMY 310

However, as provided in Section 49, proviso, an unregistered document affecting immovable

property and required by this Act or the Transfer of property Act, 1882 to be registered may
be received as evidence of a contract in a suit for specific performance or as evidence of part
performance of a contract for the purposes of Section 53A of the Transfer of Property Act,
1882 or as evidence of any collateral transaction not to be effective by registered instrument.
All that the proviso to Section 49 permits is that in a suit for specific performance an
unregistered document affecting immovable property may be given in evidence. The purpose
is that the document which has not conveyed or passed title may still be used as evidence of
the terms.

In K. Narasimha Rao v. Sai Vishnu, AIR 2006 NOC (A.P.) p. 80, it has been held that: It is
settled legal principle that an unstamped instrument is not at all admissible in evidence even
for collateral purpose. But an unregistered instrument originally unstamped, if duly stamped
subsequently can be admitted in evidence even though it continues to be unregistered for
collateral purpose but actual terms of transaction cannot be looked into. In instant case,
however settlement deed in question produced by defendant was not only unregistered but
also insufficiently stamped. That apart on an objection raised by plaintiff, Court had already
passed an order directing impounding of document, which was never complied with by
defendant. In such circumstances, document in question, which still remained insufficiently
stamped could not be admitted in evidence even for collateral purpose. Application filed by
defendant seeking to admit said document for collateral purpose is liable to be dismissed.

50 Certain registered documents relating to land to take effect against unregistered documents
Every document of the kinds mentioned in clauses (a), (b), (c) and (d) of section 17, sub-section
(1), and clauses (a) and (b) of section 18, shall, if duly registered, take effect as regards the
property comprised therein, against every unregistered document relating to the same
property, and not being a decree or order, whether such unregistered document be of the
same nature as the registered document or not.

REGISTERED DOCUMENT RELATING TO PRIORITY WHEN TO TAKE EFFECT AGAINST ORAL AGREEMENT
Generally, priority to rights accorded by different transfers is governed by the principles embodied in the
maxim qui prior tempore potior est jure that is “he who is first in time is better in law”. But this general
rule is subject to exceptions created by Sections 48 and 50. Section 48 refers to the priority of the
registered agreements over oral agreements and Section 50 refers to the priority of registered agreements
over non-registered agreements. (Section 48)
Notice
In spite of the explicit wording of Section 48, it has for long time been held, that a subsequent registered
deed will not prevail over a prior unregistered deed or a prior oral transaction if the subsequent transferee
had notice of the prior transaction. (Mulla Registration Act (1998), pages 215-216)
51 Register-books to be kept in the several offices.—
The following books shall be kept in the several offices hereinafter named, namely:—
A—In all registration offices—

Book 1, “Register of non-testamentary documents relating to immovable property”;

Book 2, “Record of reasons for refusal to register”;
Book 3, “Register of wills and authorities to adopt”; and
Book 4, “Miscellaneous Register”.

B—In the offices of Registrars—

Book 5, “Register of deposits of wills”;

In Book 1 shall be entered or filed all documents or memoranda registered under sections 17,
18 and 89 which relate to immovable property, and are not wills.
 NAHATA PROFESSIONAL ACADEMY 311

In Book 4 shall be entered all documents registered under clauses (d) and (f) of section 18
which do not relate to immovable property.

Nothing in this section shall be deemed to require more than one set of books where the
office of the Registrar has been amalgamated with the office of a Sub-Registrar.

71 Reasons for refusal to register to be recorded.—

Every Sub-Registrar refusing to register a document, except on the ground that the property to
which it relates is not situate within his sub-district, shall make an order of refusal and record
his reasons for such order in his Book No. 2, and endorse the words “registration refused” on
the document; and, on application made by any person executing or claiming under the
document, shall, without payment and unnecessary delay, give him a copy of the reasons so
recorded.

No registering officer shall accept for registration a document so endorsed unless and until,
under the provisions hereinafter contained, the document is directed to be registered.

72 Appeal to Registrar from orders of Sub-Registrar refusing registration on ground other than
denial of execution.—
Except where the refusal is made on the ground of denial of execution, an appeal shall lie
against an order of a Sub-Registrar refusing to admit a document to registration (whether the
registration of such document is compulsory or optional) to the Registrar to whom such Sub-
Registrar is subordinate, if presented to such Registrar within thirty days from the date of the
order; and the Registrar may reverse or alter such order.
If the order of the Registrar directs the document to be registered and the document is duly
presented for registration within thirty days after the making of such order, the Sub-Registrar
shall obey the same, and thereupon shall, so far as may be practicable, follow the procedure
prescribed in sections 58, 59 and 60; and such registration shall take effect as if the document
had been registered when it was first duly presented for registration.

73 Application to Registrar where Sub-Registrar refuses to register on ground of denial of

execution.—
When a Sub-Registrar has refused to register a document on the ground that any person by
whom it purports to be executed, or his representative or assign, denies its execution, any
person claiming under such document, or his representative, assign or agent authorised as
aforesaid, may, within thirty days after the making of the order of refusal, apply to the Registrar
to whom such Sub-Registrar is subordinate in order to establish his right to have the document
registered.
Such application shall be in writing and shall be accompanied by a copy of the reasons recorded
under section 71, and the statements in the application shall be verified by the applicant in
manner required by law for the verification of plaints.

74 Procedure of Registrar on such application.—

In such case, and also where such denial as aforesaid is made before a Registrar in respect of a
document presented for registration to him, the Registrar shall, as soon as conveniently may
be, enquire.—
(a) whether the document has been executed;
(b) whether the requirements of the law for the time being in force have been complied
with on the part of the applicant or person presenting the document for registration, as the
case may be, so as to entitle the document to registration.

75 Order by Registrar to register and procedure thereon.—

 NAHATA PROFESSIONAL ACADEMY 312

If the Registrar finds that the document has been executed and that the said requirements
have been complied with, he shall order the document to be registered.
If the document is duly presented for registration within thirty days after the making of such
order, the registering officer shall obey the same and thereupon shall, so far as may be
practicable, follow the procedure prescribed in sections 58, 59 and 60.

Such registration shall take effect as if the document had been registered when it was first duly
presented for registration.
The Registrar may, for the purpose of any enquiry under section 74, summon and enforce the
attendance of witness, and compel them to give evidence, as if he were a Civil Court and he
may also direct by whom the whole or any part of the costs of any such enquiry shall be paid,
and such costs shall be recoverable as if they had been awarded in a suit under the Code of Civil
Procedure, 1908 (5 of 1908).

77 Suit in case of order of refusal by Registrar.—

(1) Where the Registrar refuses to order the document to be registered, under section 72 or
section 76, any person claiming under such document, or his representative, assign or agent,
may, within thirty days after the making of the order of refusal, institute in the Civil Court,
within the local limits of whose original jurisdiction is situate the office in which the document
is sought to be registered, a suit for a decree directing the document to be registered in such
office if it be duly presented for registration within thirty days after the passing of such decree.

(2) The provisions contained in sub-sections (2) and (3) of section 75 shall, mutatis mutandis,
apply to all documents presented for registration in accordance with any such decree, and,
notwithstanding anything contained in this Act, the documents shall be receivable in
evidence in such suit.
Exemption from Act
Exemption of certain documents executed by or in favour of Government.
Nothing contained in this Act or in the Indian Registration Act, 1877 (3 of 1877), or in the
Indian Registration Act, 1871 (8 of 1871), or in any Act thereby repealed, shall be deemed to
require, or to have at any time required, the registration of any of the following documents
or maps, namely:—
(a) documents issued, received or attested by any officer engaged in making a
settlement or revision or settlement of land-revenue, and which form part of the records of
such settlement; or
(b) documents and maps issued, received or authenticated by any officer engaged on
behalf of Government in making or revising the survey of any land, and which form part of
the record of such survey; or
(c) documents which, under any law for the time being in force, are filed periodically in
any revenue office by patwaris or other officers charged with the preparation of village
records; or
(d) sanads, inam, title-deeds and other documents purporting to be or to evidence
grants or assignments by Government of land or of any interest in land; or
(e) notices given under section 74 or section 76 of the Bombay Land-Revenue Code, 1879
(Bomb. 5 of 1879), or relinquishment of occupancy by occupants, or of alienated land by
holders of such land.
All such documents and maps shall, for the purposes of sections 48 and 49, be deemed to
have been and to be registered in accordance with the provisions of this Act.
Following are some of the pre-requisits for registration of document:
Attest blanks, erasures, alterations: If there are any blanks, erasures, interlineations and alterations in the
document, the parties shall attest them with their signatures or initials. So, please check whether there are
any blanks, erasures, etc; in the document which require attestation by the parties before submitting it to
Registrar for registration.
 NAHATA PROFESSIONAL ACADEMY 313

Full and identifiable property description: Property shall be described with full details to identify the same
without any ambiguity.

In case of agriculture property, the survey number (old and new), full extent of survey number, extent of
property under transaction, village name, panchayat name, mandal name, district name shall be written
clearly. The details like pattadar pass book and title deeds may also be recorded to link the ownership with
the details of property.

In respect of house property, the details like door number (old and new), assessment number of the
property, street name, and village/city name shall be mentioned.

In respect of vacant lands situated in remote places the property description requires a lot more caution
and effort. The people are cheated by fraudsters by creating multiple documents by selling the same
property with various descriptions.

Check whether property is Assigned/Government/ Wakf/Endowment Lands, etc.: Purchase or otherwise

dealing with the government, assigned, Wakf, Endowment, Scheduled Areas lands is prohibited and entails
criminal proceedings. Therefore, it is advised to check and ensure that the property under transaction is not
one of these lands.

Document shall be presented for registration within four months from the date of signing: Document
other than will deed shall be presented for registration within four months from signing by the parties. In
case of delay in presenting within the stipulated four months citing unavoidable circumstances by the
parties, the Registrar may condone the delay after collecting the penalty. But in any case, the delay shall
not exceed four months. That means a document shall be presented before the concerned Registering
Officer for registration within four months without any penalty; and within eight months by paying penalty.
But no document shall be accepted for registration after lapse of eight months from the date of signing
(execution) by the parties. Therefore, the parties are advised to present the document before the
Registering Officer concerned at the earliest possible day after execution of the document.
In respect of document executed outside India, the document can be presented for registration before the
jurisdiction Registering Officer within four months after its arrival in India. The party presenting the
document may have to prove to the satisfaction of the Registering Officer that the document was received
in India on a particular date with documentary evidence like courier delivery receipt, affidavit from carrier
of the document

Will deeds can be presented at any time: There is no time limit to present will deeds. A will can be
presented for registration even after 50 years. A Will can be presented by the beneficiary/executor even
after the death of the testator/testatrix. The Registering Officer will conduct enquiry as per the provisions
of Registration Act, and may register the will if he is satisfied that the will was properly executed by the
deceased testator.

Competent Registrar/Sub Registrar Office: Documents in respect of immovable property transactions such
as sale, lease, mortgage, release, partition, agreement/development agreements etc shall be presented to
the jurisdiction Registrar/Sub Registrar Office for registration. It is always advisable to get the documents
registered with the jurisdiction Sub Registrar. Documents other than immovable property transactions like
movable property transactions, affidavits, etc., may be registered in any Registrar/Sub Registrar Office.

Persons competent to present the document for registration: Person signing the document is called
executant of the document. The executant can present the document for registration. If there is more than
one executant in the document, then any one of the executants can present the document. But admission
of execution shall be done by all the executants.

Affixing of photograph and fingerprints: In respect of sale deed, the photographs and fingerprints of both
the seller and buyer shall be affixed in the prescribed format under Section 32A of Registration Act, 1908.
 NAHATA PROFESSIONAL ACADEMY 314

Route Map: A map/sketch shall be enclosed with the non-testamentary document affecting immovable
properties clearly drawing the route leading to the scheduled property. This route map shall be drawn so
that even a stranger can locate the property by using the landmarks mentioned in the map. The map must
indicate where exactly the property is located and the nearby landmarks such as post office, police station,
temple, mosque, chowrastha etc.

Address proof of parties, witnesses/identifying witnesses: Along with the document, the parties shall also
enclose copies of address proof of the executing, claiming parties, attesting witnesses and identifying
witnesses. The address proof recognizable by the department includes passport, ration card, Aadhar card
(UID), bank passbook containing the full address of the person, driving licence etc.

Production of PPBs & TDs at the time of registration and to get entries made : The parties shall produce
pattadar passbooks and title deeds issued by revenue department if the document affects agricultural land.
Now, production of pattadar passbooks and title deeds is made compulsory. Parties shall ensure that
relevant entries are made by the Registering Officer in these books regarding the transaction.
 NAHATA PROFESSIONAL ACADEMY 315

TRANSFER OF PROPERTY ACT, 1882

Applicability of the Act- territorial and subject matter
Types of property- Movable and Immovable property
 Absoloute interest, vested interest, contingent interest,
 Condition precedent, condition subsequent
 Reversion and remainder
Specific transfers:-
 Sale
 Mortgage and charge
 Lease
 Exchange
 Gift
 Actionable claims

The law relating to transfer of property is governed by the Transfer of Property Act, 1882. Before this Act
came into force there was practically no law as to real property in India. Barring few points which were
covered by certain Regulations and Acts, the Courts in India in the absence of any statutory provisions,
applied rules of English law as the rule of justice, equity and good conscience.
The Act was enacted with the object to amend the law relating to the transfer of property by act of parties.
The Act excludes from its purview the transfers by operation of law, i.e. by sale in execution, forfeiture,
insolvency or intestate succession. The scope of the Act is limited, as it is confined to transfers inter vivos
and excludes testamentary succession, i.e. transfers by will.
The very preamble to the Act suggests that it simply defines and amends certain parts of the law relating to
transfer of property by act of parties, and it does not at all profess to be an exhaustive enactment as is
revealed by the omission of the word “consolidate”. Therefore, the Act leaves the scope for applying rules
of justice, equity and good conscience if a particular case is not covered by any of the provisions of the Act.
But if it is covered, the Act must be applied.

Transfer
By Act of Parties By Operation of Law e.g. Execution, Insolvency, Succession, etc.

| |
Testamentary Inter vivos (takes
(takes effect after effect between
death and two living persons
governed by the and governed by
Indian Succession the T.P. Act.)
Act) |
| |
Transfer of Property whether Special Transfers of Immoveable Property
Moveable or Immoveable |
| | | | | |
Sales Mortgages Leases Exchanges Gifts Actionable
and claims
charges
(Ss.54- (Ss.58- (Ss.105- (Ss.118- (Ss.122- (Ss.130-
57) 104) 117) 121) 129) 137)

IMPORTANT DEFINITIONS
However, while explaining the provisions of the Act, the terms used are defined there itself, yet some of the
 NAHATA PROFESSIONAL ACADEMY 316

important terms used under the Act are as follows:

Instrument- means a non-testamentary instrument.
Attached to the earth means:
(a) rooted in the earth, as in the case of trees and shrubs;
(b) imbedded in the earth, as in the case of walls or buildings; or
(c) attached to what is so embedded for the permanent beneficial enjoyment of that to which it is
attached.

Absolute Interest
When a person owns property, he has an “absolute interest” in the property. Ownership consists of a
bundle of rights, the right to possession, right to enjoyment and right to do anything such as selling,
mortgaging or making gift of the property. If A is the owner of a land, he has an absolute interest in the
land. If A sells his land to B, then B becomes the owner and he acquires an absolute interest in the land he
has purchased from A. Likewise if A makes a gift of his property to B, there again B gets an absolute interest
in the property which is gifted to him. These are instances where persons may have an absolute interest.

Reversion and Remainder

Some interests in the property are called in English Law, reversion and remainders. A “reversion” is the
residue of an original interest which is left after the grantor has granted the lessee a small estate. For
example, A, the owner of a land may lease it to B for a period of five years. The person who grants the lease
is the lessor and the person who takes the lease is called the lessee. Here, after the period of 5 years the
lease will come to an end and the property reverts back to the lessor. The property which reverts back to
him is called the reversion or the reversionery interest. The grantor has a larger and an absolute interest
out of which he carves out a smaller estate and gives to the grantee, i.e. the lessee.
When the owner of the property grants a limited interst in favour of a person or persons and gives the
remaining to others, it is called a “remainder”. For instance, A the owner of a land transfers property to B
for life and then to C absolutely. Here the interest in favour of B is a limited interest, i.e., it is only for life. So
long as A is alive he enjoys the property. He has a limited right since he cannot sell away the property. His
right is only to enjoy the property. If he sells this interest it will be valid so long as he is alive. So after B’s
death the property will go to C, interest is called a remainder. In the case of a “remainder”, the property
will not come back to the owner, but it goes over to the other person.

Vested and Contingent Interests

The word “vested” is used in two different senses. It may mean “vested in possession” or “vested in
interest”. A right is said to be “vested in possession” when it is a right to present possession of property and
it is said to be “vested in interest” when it is not a right to present possession but a present right to future
possession. For instance, if a land is given to A for life with a remainder to B, A’s right is vested in
possession, B’s right is vested in interest. In the above example, the interest of B is not subject to any
uncertain condition. It will come into his possession after A’s life comes to an end. Therefore, an interest is
said to be vested when it is not subject to any condition precedent, i.e., when it is to take effect on the
happening of an event which is certain, whereas an estate is contingent when the right to enjoyment
depends upon the happening of an event which may or may not happen. Thus, a gift to A on the death of B
creates a vested interest in A even during the life time of B for there is nothing more certain than death.
But a gift to A on the marriage of B creates a contingent interest, for B may never marry at all but that
contingent interest becomes vested if and when B marries.
A vested interest is transferable and heritable. If property is given to A for life and afterwords to B, B gets a
vested interest and if B transfers this interest to C, C will take when the life estate of A comes to an end. B’s
interest, since it is vested, is also heritable. Therefore, if B dies during the lifetime of A, C will get the
property after the death of A.
A contingent interest, as said above, is an interest which takes effect after the condition is satisfied. It is
subject to a condition precedent, i.e., unless A marries B’s daughter, he will not get the property. The
 NAHATA PROFESSIONAL ACADEMY 317

following example will illustrate this point. Property is given to A for life and then to B if he marries C. B
should marry C before A dies. If he does so, his interest is converted into vested interest. Before B marries C
his interest is contingent. The contingent interest is not heritable although it is transferable. In a vested
interest the transfer is complete, but when the interest is contingent the transfer depends upon a condition
precedent. In a condition precedent the estate is not vested in the grantee until the condition is fulfilled.

MOVEABLE AND IMMOVEABLE PROPERTY

The term “property” signifies the subject matter over which the right of ownership or any less right carved
out of ownership (e.g. mortgage right) is exercised. The Act deals with (i) various specific transfers relating
to property. Chapter II of the Act is divided into two parts. Parts A deals with the rules pertaining to both
moveable and immoveable property (Section 5 to 37), Part B embodies the rules relating to immoveable
property (Section 38 to 53A). The other chapters of the Act deal with transfers such as sales, mortgages,
leases, gifts, exchanges and actionable claims.
Moveable property The Transfer of Property Act does not define the term “moveable property”. Therefore,
it is to be defined with the help of other statutes. For e.g., it has been defined in the General Clauses Act,
1897 as to mean “property of every description except immoveable property”.The Registration Act defines
“moveable property” to include property of every description excluding immoveable property but including
standing timber, growing crops and grass.
For the purpose of law, moveable property is sometimes regarded as immoveable property. This may
happen when a thing of chattel is attached or embedded in earth. For instance, if a machinery or a plant is
installed on the land, the question arises whether the machinery or the plant is moveable property or
immoveable property. If the machinery is fixed on the land permanently then it becomes immoveable
property, whereas if the machinery or engine or any other thing is fixed on a temporary basis, then it will be
regarded as moveable property.
Case Law-Thus, where the owner of a piece of land installed a bone mill along with machinery being held by
iron bars which have been dug to a considerable depth then it is a permanent fixture and this will become
immoveable property. Similarly, the machinery installed on a cement platform and held in position by being
attached to iron pillars fixed in the ground was held to be immoveable property as the annexation was
made by the person who owned the buildings as well as the machinery (Mohamed Ibrahim v. Northern
Circars Fibre Trading Company, A.I.R. 1944 Mad. 492).

Immoveable property
The term “immoveable property” is also not defined under the Act. However, it is defined in the negative
sense as “the immoveable property does not include standing timber, growing crops, or grass” (S. 3 Para 2).
Standing timber are trees fit for use for building or repairing houses. This is an exception to the general rule
that growing trees are immoveable property.
The General Clauses Act defines the term “immoveable property” but not exhaustively. It states:
“immoveable property shall include land, benefits to arise out of land and things attached to the earth, or
permanently fastened to any thing attached to the earth” [Section 3(25)]. The Registration Act expressly
includes under to immoveable property the benefits to arise out of land, hereditary allowances, rights of
way, lights, ferries and fisheries.
Growing crops: It includes all vegetable growths which have no existence apart form their produce such as
pan leaves, sugar cane etc. Grass: Grass is moveable property, but if it is a right to cut grass it would be an
interest in land and hence forms immoveable property.
Concluding Definition:
If the definitions of “immoveable property” as given in the Transfer of Property Act, the General Clauses Act
and the Registration Act are viewed together, it is evident that they do not say what immoveable property
is. They only say what is either included or excluded therein. Still, reading the definition in the Act with one
in the General Clauses Act, immoveable property will be found to include land, benefit to arise out of land
such as rent, and things attached to the earth like trees and buildings but not standing timber, growing
crops and grass. The last three things are regarded as severable from the land on which they stand and,
therefore, they are not included in the term “immoveable property”.
 NAHATA PROFESSIONAL ACADEMY 318

Thus, the meaning of immoveable property is as under: Immoveable property” means land, benefits to
arise out of land, and things attached to the earth, or permanently fastened to anything attached to the
earth.
Example A orally grants to B for Rs. 700/- the rights to catch and carry away fish from his lake. Is the grant
valid? The Supreme Court in Ananda Behra v. State of Orissa, (1956) SCJ p. 96, that such a right is a benefit
arising out of immoveable property namely the lake. So under General Clauses Act it is immoveable
property. The sale requires a registered instrument for its validity under Section 54 of the Transfer of
Property Act. Therefore, the oral grant is invalid and cannot pass away any title in favour of B.
The following have been recognized as The following have been held not as
immoveable property: immoveable property:
• Right to collect rents of immovable  Right to worship
property  Government promissory notes
• A right to way  Royalty
• A right to collect dues rom fair on a piece
 A right to recover maintenance
of land
allowance
• Hereditary offices
 Copyright
• The equity of redemption
 A decree for sale of mortgage deed
• The interest of the mortgagee
 A decree for arrears of rent
• A right to ferry
• A right to fishery
• Right to receive future rents and profit
• A reversion in property leased

Distinction between moveable and immoveable property

The distinction between moveable and immoveable property was explained in the case of Sukry Kurdepa v.
Goondakull, (1872) 6 Mad. H.C. 71, by Holloway J. as moveability may be defined to be a capacity in a thing
of suffering alteration. Immoveablity for such alteration e.g., a piece of land in all circumstances is
immoveable. If a thing cannot change its place without injury to the quality it is immoveable. Certain things
e.g. trees attached to the ground are so long as they are so attached, immoveable when the severance has
been effected they become moveable.

MEANING OF TRANSFER OF PROPERTY - 5

5 In the following sections “transfer of property” means an act by which a living person conveys
property, in present or in future, to one or more other living persons, or to himself, or to
himself and one or more other living persons; and “to transfer property” is to perform such act.
In this section “living person” includes a company or association or body of individuals, whether
incorporated or not, but nothing herein contained shall affect any law for the time being in
force relating to transfer of property to or by companies, associations or bodies of individuals.

The term ‘transfer’ in the act basically involves transfer through a mortgage, exchange, gift, sale, actionable
claim or lease.
Example A owns three properties of which he wanted to transfer one property to his grandfather B but he
died two years ago the transfer will not be held valid because the transfer of property should happen
between two living persons.
It may be noted that the Transfer of Property Act talks about the transfer between two living persons
where the Indian Succession Act talks about the transfer from dead person to living person. The words in
present or in future qualify the words ‘conveys’, and not the word ‘property’. A transfer of property not in
existence operates as a contract to be performed in future which may be specially enforced as soon as the
property comes into existence [Jugalkishore v. Ram Cotton Company, (1955) I SCR 1369].
 NAHATA PROFESSIONAL ACADEMY 319

Sec. 6 What may be transferred.—(properties which are not transferable)

Property of any kind may be transferred, except as otherwise provided by this Act or by any
other law for the time being in force.
(a) The chance of an heir-apparent succeeding to an estate, the chance of a relation
obtaining a
(b) legacy on the death of a kinsman, or any other mere possibility of a like nature, cannot
be transferred.
(c) A mere right of re-entry for breach of a condition subsequent cannot be transferred to
any one except the owner of the property affected thereby.
(d) An easement cannot be transferred apart from the dominant heritage.
(e) An interest in property restricted in its enjoyment to the owner personally cannot be
transferred by him.
(dd) A right to future maintenance, in whatsoever manner arising, secured or determined,
cannot be transferred.]
(f) A mere right to sue cannot be transferred.
(g) A public office cannot be transferred, nor can the salary of a public officer, whether
before or after it has become payable.
(h) Stipends allowed to military,naval,air-force and civil pensioners of Government and
political pensions cannot be transferred.
(i) No transfer can be made (1) in so far as it is opposed to the nature of the interest
affected thereby, or (2) for an unlawful object or consideration within the meaning of
section 23 of the Indian Contract Act, 1872 (9 of 1872), or (3) to a person legally
disqualified to be transferee.
(j) Nothing in this section shall be deemed to authorise a tenant having an untransferable
right of occupancy, the farmer of an estate in respect of which default has been made
in paying revenue, or the lessee of an estate under the management of a Court of
Wards, to assign his interest as such tenant, farmer or lessee.

The words “property of any kind” indicate that transferability is the general rule and the right to property
includes the right to transfer the property to another person. Property of any kind excludes from its
purview the future property. A transfer of future property can only operate as a contract which may be
specifically performed when the property comes into existence. Exceptions to the general rule of
transferability made by other laws Certain restrictions are placed by Hindu law and Mohammedan law on
the transfer of property.

Sec. 7 Persons competent to transfer. (who can transfer the property)

Every person competent to contract and entitled to transferable property, or authorised to
dispose of transferable property not his own, is competent to transfer such property either
wholly or in part and either absolutely or conditionally, in the circumstances, to the extent
and in the manner, allowed and prescribed by any law for the time being in force.

Every person competent to contract and having ownership or who are authorised to transfer property can
also transfer property validly, However, there are exceptions to this. If a person holds himself out is the
owner with the consent of the owner i.e. doctrine of holding out or if a person represents to be the owner
i.e. doctrine of feeding the grant by estoppel.

According to Indian Contract Act, a person is competent to contract when he is a major and of sound mind
and is not disqualified from contracting by any law to which he is subject. But a minor can be a transferee
as there is nothing in the Transfer of Property Act to disqualify a person, who is a minor to be a transferee.
Thus, a mortgage can be validly executed in favour of a minor who has paid the consideration [Hari
 NAHATA PROFESSIONAL ACADEMY 320

Mohan v. Mohini, 22 C.W.C. 130, Raghava v. Srinivasa, (1917) 60 Mad. 308].

Although a minor is not competent to be a transferor yet a transfer to a minor is valid.
Example A, aged 16 years, is son of Mr. B. Mr. B owns a plot in Delhi and wants to transfer it to his son, A.
Now, Mr. B can do so as he is competent to enter into contract. A, being a minor, can be transferee by
virtue of Section 7.

FORMALITIES OF TRANSFER
Property can be transferred either orally or by writing. Moveable property can be transferred by delivery of
possession or by registration. Section 54 lays down the mode of transfer of immoveable property. Such
transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or
in the case of a reversion or other intangible thing, can be made only by a registered instrument. In the case
of tangible immoveable property of a value less than one hundred rupees, such transfer may be made
either by a registered instrument or by delivery of the property .
When a transfer is effected in writing, the person who signs the document professing to transfer the
property is called the executant. Execution consists in affixing his signature to the document to the effect
that he is transferring the property. An illiterate person who cannot write may direct some literate person
to sign it on his behalf and in his presence and the illiterate person may put his thumb impression.
(i) Attestation
Attestation is an important formality in connection with the execution of transfer. “Attest” means to testify
a factor, to bear witness to a fact. Attestation, in relation to a document, signifies the fact of authentication
of the signature of the executant of that document by the attestator by putting down his own signature on
the document in testimony of the fact of its execution. All transfers do not require attestation. For example,
a sale or a lease does not require attestation. But a mortgage or a gift requires that a mortgage deed or a
gift deed must be attested by two or more witnesses.
Attestation is valid and complete when two witnesses sign the instrument. According to the definition given
in the Transfer of Property Act (Section 3), the following essentials are required for a valid attestation:
(a) There must be at least two or more witnesses;
(b) Each witness must see (i) the executant’s sign or affix his mark to the instrument, or (ii) some other
person sign the instrument in the presence and by the direction of the executant, or (iii) receive from the
executant a personal acknowledgement of his signature or mark or of the signature of such other person;
and
(c) Each witness must sign the instrument, (i.e. document), in the presence of the executant.

It is not necessary that both attesting witnesses should be present at the same time. The instrument may
be attested after its execution by each of the attestators at different times. Attestation cannot take place
before the execution of the deed. The Act does not insist on any particular form of attestation. The
attesting witness may not be described as such on the face of the document (Yakub v. Kalzurkan, 52
Bombay 203). However, the attesting witness must have put his signature antmus attestandi, i.e., with
intention to attest. Thus, where a Registrar or an identifying witness puts his signature on the document he
cannot be regarded as an attesting witness unless it is duly proved that he signed with the necessary
intention to attest.
(ii) Registration Registration is an essential legal formality to effect a valid transfer in certain cases. The
advantage of registering a document is that any person who deals with the property would be bound by the
rights that are created in earlier registered document.
(iii) Notice Notice, may be actual or constructive. If a person knows about a fact, he has an actual notice.
But, in certain circumstances law treats a man who ought to have known a fact even though he did not in
fact know it. This is called constructive notice.
The equitable doctrine of notice is recognised in various Sections of this Act. For instance in Section 39 of
the Act, where a transfer is made of property out of which a person has a right to receive maintenance, the
transferee takes subject to that right if he had notice of it, but not otherwise. Similarly under Section 40 if A
conveys to C property, which he had by a previous contract agreed to sell to B, then B can enforce the
 NAHATA PROFESSIONAL ACADEMY 321

contract against C, if C had notice of it, but not otherwise. If C had notice of the prior contract, he purchases
with knowledge that it was unconscionable of A to sell to him, and it is therefore, unconscionable of him to
buy. A person is deemed in the eye of law to have constructive notice of a fact when (i) but for willful
absentation from an enquiry or search which he ought reasonably to have made; or (ii) gross negligence on
his part, he would have known it. Constructive notice arises from an irrefutable presumption of notice. In
law such a presumption will arise when (i) there is a willful absentation on the part of a person to make
necessary enquiries regarding the existence of certain facts, or (ii) he showed gross negligence in the
matter.
The words “wilful absentation” suggest want of bona fide in respect of particular transaction (Joshua v.
Alliance Bank, 22 Cal. 185).
Thus, a person who refuses to receive a registered letter is, deemed to have constructive notice of its
contents.
Similarly, if a person proposes to sell his property to X who, at the same time knows that rents due in
respect of the property are paid by the tenants to a third person Y, X will be fixed with notice of the rights
of Y (Mernt v. Luck (1902) 1 Ch. 429).
In so far as gross negligence is concerned, it does not mean a mere carelessness but means carelessness of
such an aggravated nature as to indicate mental indifference to obvious risks. For example, if A buys
property from B and does not care to ask whether any amount by way of municipal tax is due on that
property and if the municipal corporation asks him to pay the arrears of tax, then B is responsible, and if he
does not pay, then the arrears of tax may be made a charge on the property. Other Illustrations
Where a purchaser was informed that the title deeds were in the possession of a bank for safe custody and
yet failed to make any enquiry in the bank. It was held that he was guilty of gross negligence and must be
deemed to have notice of the rights of the bank which has the custody of the title needs (Imperial Bank of
India vs. Rai Gyand, I A 283).
Where a person abstained from making further enquiries about the right of a person and did not cause a
search, to be made in the office of the SubRegistrar to ascertain if there was any encumbrance over the
property, his omission must be held to be wilful or grossly negligent and he would be said to have notice of
the prior encumbrances [Rangappa Goundan vs. Marapa Goundan, AIR (1958) Madras 515].
The three Explanations to the definition of notice in Section 3, further mention certain circumstances
wherein statutorily presumption of knowledge arises. These circumstances relate to the fact of registration
(Explanation-I, Explanation-II) actual possession and notice to an agent (Explanation-III).

Sec.10 Condition restraining alienation.—

Where property is transferred subject to a condition or limitation absolutely restraining the
transferee or any person claiming under him from parting with or disposing of his interest in
the property, the condition or limitation is void, except in the case of a lease where the
condition is for the benefit of the lessor or those claiming under him:
provided that property may be transferred to or for the benefit of a woman (not being a
Hindu, Muhammadan or Buddhist), so that she shall not have power during her marriage to
transfer or charge the same or her beneficial interest therein.

Section 10 of the Act says that when property is transferred, the transferee should not be restrained
absolutely from alienating the property. One may give property to another subject to a condition, but the
condition should not be one which absolutely prevents the transferee from alienating the property.
Suppose, B gives property to A and his heirs adding a condition that if the property is alienated it should
revert to B. This condition is invalid and the transferee can ignore such condition. The transfer takes effect
and is valid, and the condition not to alienate the property is void.

Examples of absolute restraint Suppose, A gives to B property worth only Rs. 2,000 rupees and adds a
condition that B should sell property for Rs.50,000 and not below that amount, this condition will at once
become invalid for no one will buy the property which is only worth Rs.2,000 for Rs. 50,000. Similarly, A
 NAHATA PROFESSIONAL ACADEMY 322

gives to B property worth Rs.50,000 and stipulates that if B wants to sell the property he should sell it to C
only for Rs. 1,000. This again will operate as an absolute restraint.
Rosher vs. Rosher, In this case, the testator gave his estate to his son and added a condition
(1884) 26, Ch. D. 801 that if his son wanted to sell the property he should first give an option to
the testator’s wife who should be able to buy for £ 3,000. The market
value of the property when the testator died was £ 15,000. It was held by
the Court that the condition which compelled the son to sell the property
for £ 3,000 was void.
Trichinpoly Varthaga In this case, there was a partition between a Hindu father and his five sons.
Sangum vs. Shunmoga The deed of partition provided that if any one of the sons wanted to sell
Sunderam, (1939) his share, he should not sell it to a stranger but to one of his brothers who
Madras 954 should have the option to buy for a sum not exceeding Rs.1,000. It was
held by the Court that the condition absolutely prevented the son from
selling the property to any one for good value. In this case the market
value of the property of the son was far greater than Rs.1,000. Hence, the
condition was declared invalid.

Partial restraint valid

Though absolute restraints are bad in law, partial restraints are valid. If there are conditions which restrain
the transferee not to alienate the property outside the family, it has been held by the Courts that they are
partial restraints. For example, whenever there are conditions in a family settlement whereby the members
are not allowed to sell their shares to a stranger, such conditions are valid.
But it is not permissible to restrict the alienation to a particular time. Such a restriction is not partial but an
absolute restraint and as such invalid.

When absolute restraint valid?

There are two exceptions to the rule that absolute restraints are void. Firstly, in the case of a lease, the
lessor can impose a condition that the lessee shall not sublet the property or sell his leasehold interest.
Such conditions are valid. The reason why such an exception is made in the case of a lease is that the lessor
may have confidence in the lessee but may not have the same confidence in some other person. So, if the
lessor puts a condition restraining the lessee from transferring the property to someone, the condition is
valid. The second exception is made in respect of a woman who is not a Hindu, Buddhist or Muslim. In such
a case, a condition to the effect that she shall not have power during her marriage to transfer the property
is valid.
RESTRAINT ON ENJOYMENT
Sec.11 Restriction repugnant to interest created.—
Where, on a transfer of property, an interest therein is created absolutely in favour of any
person, but the terms of the transfer direct that such interest shall be applied or enjoyed by
him in a particular manner, he shall be entitled to receive and dispose of such interest as if
there were no such direction.
Where any such direction has been made in respect of one piece of immoveable property for
the purpose of securing the beneficial enjoyment of another piece of such property, nothing
in this section shall be deemed to affect any right which the transferor may have to enforce
such direction or any remedy which he may have in respect of a breach thereof.

Section 11 of the Act also embodies a rule which is based on the principle that restraint on the enjoyment
of the property is invalid. The section lays down that where land is transferred by one to another, the
transferor should not impose conditions as to how and in what manner the transferee should enjoy the
property.
Illustrations
(a) A sells his house to B and adds a condition that B only should reside in that house, the condition is
invalid. This is subject to the exception that, if a person transfers a plot of land keeping another plot for
 NAHATA PROFESSIONAL ACADEMY 323

himself, he can impose certain conditions which may interfere with the right of enjoyment of the
transferee.
(b) A has properties X and Y. He sells property Y to B and puts a condition that B should not construct on
property Y more than one storey so that A’s property X which he retains should have good light and free air.
Thus, it is clear in the above illustration that the condition which is imposed by A is for the benefit of
another property which he retains. Such a condition is valid.

Sec.12 Condition making interest determinable on insolvency or attempted alienation.—

Where property is transferred subject to a condition or limitation making any interest therein,
reserved or given to or for the benefit of any person, to cease on his becoming insolvent or
endeavouring to transfer or dispose of the same, such condition or limitation is void.
Nothing in this section applies to a condition in a lease for the benefit of the lessor or those
claiming under him.

Section 12 also makes the transfer void if a property is transferred to any person adding a condition that if
such person becomes insolvent he ceases to hold that property. Such a condition is not recognised as valid
in law. Again, this is subject to the exception that if a landlord leases his property he can impose a condition
on the lessee that if the lessee becomes insolvent the lease should come to an end.

TRANSFER FOR BENEFIT OF UNBORN PERSON

Sec. 13 Transfer for benefit of unborn person.—
Where, on a transfer of property, an interest therein is created for the benefit of a person not
in existence at the date of the transfer, subject to a prior interest created by the same transfer,
the interest created for the benefit of such person shall not take effect, unless it extends to the
whole of the remaining interest of the transferor in the property.

Illustration
A transfers property of which he is the owner to B in trust for A and his intended wife successively for their
lives, and after the death of the survivor, for the eldest son of the intended marriage for life, and after his
death for A’s second son. The interest so created for the benefit of the eldest son does not take effect,
because it does not extend to the whole of A’s remaining interest in the property

Thus if a property is given to an unborn person, two conditions should be satisfied:

(i) It should be preceded by a life estate in favour of person living.
(ii) It should comprise the whole of the remaining interest of the transferor so that there can be no
further interest in favour of others.

Sec. 14 Rule against perpetuity.—

No transfer of property can operate to create an interest which is to take effect after the
lifetime of one or more persons living at the date of such transfer, and the minority of some
person who shall be in existence at the expiration of that period, and to whom, if he attains full
age, the interest created is to belong.

Perpetuity has been described as “exemptions from intermission or ceasing”. This has been said to be
“odious in law, destructive to the commonwealth, and an impediment to commence, but preventing the
wholesome circulation of property”.
A perpetuity in the primary sense of the word, “is a disposition which makes property inalienable for an
indefinite period” (Jarman on Wills, 8th ed., vol. 1, P. 284). Section 14 of the Act adopted with certain
 NAHATA PROFESSIONAL ACADEMY 324

modifications the English rule against perpetuities which is enunciated by Jarman as “Subject to the
exceptions to be presently mentioned, no contingent or executory interest in property can be validity
created, unless it must necessarily vest within the maximum period of one or more lives in being and
twenty-one years afterwards”. Section 14 of the Act fixes the perpetuity period as: Life (or Lives) living at
the time of transfer and actual minority of the then unborn ultimate transferee.
The policy of the law has been to prevent property being tied up for ever. The vesting cannot be postponed
beyond the life time of any person living at the date of transfer. For example, if an estate is given to a living
person A for life and then to the unborn son of A, the son of A must be in existence on or before the date of
the expiry of the life estate in favour of A. The vesting of absolute interest in favour of an unborn person
may be postponed until he attains majority. For example, an estate may be transferred to A, living person,
and after his death to his unborn son when he attains the age of 18. Such transfer would not be violative of
the rule against perpetuity.

Any number of successive estates can be created between the transferees who are living persons e.g. A
transfer may be made to A for life and then to B for life and then to C for life and so on, provided that A, B
and C are all living persons at the date of the transfer. But if the ultimate beneficiary is some one who is not
in existence at the date of the transfer, the whole residue of the estate should be transferred to him. If he is
born before the termination of the last prior estate, he takes a vested interest at birth and takes possession
on the termination of the last prior estate but if he is not born till the termination of the last prior estate,
the transfer to him fails.
Further, the rule is not that vested interest is created at the birth of the beneficiary but that vested interest
cannot be delayed in any case beyond his minority. Therefore, the rule against perpetuity is that the
minority of the ultimate beneficiary is the latest period at which an estate can be made to vest.
In India minority terminates at the end of 18 years.
The rule against perpetuities applies to both moveable and immoveable property. Thus, the rule against
perpetuity contains two propositions, i.e.:
 No transfer is valid after the life time of one or more persons living at the dateof such transfer.
Transfer can remain in effect only during the life time of an existing person
 Transfer can be extended to a person who is not in existence but if he is in existence at the time of
termination of the period of last transfer. The moment the person is borm he shall have contingent interest
and after minority i.e.after age of 18 years he shall have vested interest.
Sec.16 Transfer to take effect on failure of prior interest.—(Effect of a transfer on failure of prior
interest)
Where, by reason of any of the rules contained in sections 13 and 14, an interest created for
the benefit of a person or of a class of persons fails in regard to such person or the whole of
such class, any interest created in the same transaction and intended to take effect after or
upon failure of such prior interest also fails.
For example, property is transferred to A for life then to his unborn son B for life and then to C, who is living
at the date of transfer, absolutely. Here B is given only a life interest. So the transfer to B is invalid. The
subsequent transfer to C absolutely is also invalid, because according to Section 16, if a prior transfer fails,
the subsequent transfer will also fail.

Sec. 17 Direction for accumulation.—

(1) Where the terms of a transfer of property direct that the income arising from the property shall
be accumulated either wholly or in part during a period longer than—
(a) the life of the transferor, or (b) a period of eighteen years from the date of the transfer,
such direction shall, save as hereinafter provided, be void to the extent to which the period
during which the accumulation is directed exceeds the longer of the aforesaid periods, and at
the end of such last-mentioned period the property and the income thereof shall be disposed
of as if the period during which the accumulation has been directed to be made had elapsed.

This section shall not affect any direction for accumulation for the purpose of—
 NAHATA PROFESSIONAL ACADEMY 325

(i) the payment of the debts of the transferor or any other person taking any interest
under the transfer, or
(ii) the provision of portions for children or remoter issue of the transferor or of any
other person taking any interest under the transfer, or
(iii) the preservation or maintenance of the property transferred;
and such direction may be made accordingly.

Sec. 18 Transfer in perpetuity for benefit of public.—

The restrictions in sections 14, 16 and 17 shall not apply in the case of a transfer of property
for the benefit of the public in the advancement of religion, knowledge, commerce, health,
safety, or any other object beneficial to mankind.

DOCTRINE OF LIS PENDENS - SECTION 52

Sec. 52 Transfer of property pending suit relating thereto.—
During the pendency in any Court having authority within the limits of India excluding the State
of Jammu and Kashmir or established beyond such limits by the Central Government, of any
suit or proceeding which is not collusive and in which any right to immoveable property is
directly and specifically in question, the property cannot be transferred or otherwise dealt with
by any party to the suit or proceeding so as to affect the rights of any other party thereto
under any decree or order which may be made therein, except under the authority of the
Court and on such terms as it may impose.

Explanation.—For the purposes of this section, the pendency of a suit or proceeding shall be
deemed to commence from the date of the presentation of the plaint or the institution of the
proceeding in a Court of competent jurisdiction, and to continue until the suit or proceeding
has been disposed of by a final decree or order and complete satisfaction or discharge of such
decree or order, has been obtained, or has become unobtainable by reason of the expiration of
any period of limitation prescribed for the execution thereof by any law for the time being in
force.

Lis means dispute, Lis pendens means a pending suit, action, petition or the like. Section 52 of the T.P. Act
incorporates the doctrine of Lis pendens. It states that during the pendency of a suit in a Court of Law,
property which is subject to a litigation cannot be transferred.
Example
A and B are litigating in a Court of law over property X and during the pendency of the suit A transfers the
property X to C. The suit ends in B’s favour. Here C who obtained the property during the time of litigation
cannot claim the property. He is bound by the decree of the Court wherein B has been given the property.
Section 52 lays down the Indian rule of Lis pendens being the legislative expression of the Maxim- “ut lite
pendente nihil innovetur” ‘During litigation nothing new should be introduced’.
Essentials
In order to constitute a Lis pendens, the following elements must be present:
(a) There mustbe a suit or proceeding pending in a court of competent jurisdiction
(b) The suit or proceeding must not be collusive
(c) The litigation must be onein which right to immovable property is directly and specifically in question
(d) There must be transfer of or otherwise dealing with property in dispute by any party to the litigation
(e) Such transfer must effect the rights of the other party that may be ultimately accrue under the terms
of the decree or order
The rule is based on the doctrine of expediency i.e., the necessity for final adjudication. A plea of lis
pendens will be allowed to be raised even though the point is not taken in the pleadings or raised as an
issue.
 NAHATA PROFESSIONAL ACADEMY 326

When an application to sue in forma pauperis is admitted, the suit is pending from the time of presentation
of the application to the Court but not if it is rejected.
A suit in foreign Court cannot operate as lis pendens. The doctrine of lis pendens does not apply to
moveables. It is the essence of the rule that a right to immoveable property is directly and specifically in
question in the suit. The doctrine is not applicable in favour of a third-party.
Effect
If the parties to the litigation, are completely prevented from transferring the property in litigation, it would
cause unnecessary delay and hardship, as they would have to wait till the final disposal of the case. So,
Section 53 creates a limitation over the transfer by making it subject to the result of the litigation. The
effect of this doctrine is not to invalidate or avoid the transfer, or to prevent the vesting of title in the
transfer, but to make it subject to the decision of the case, and the rule would operate even if the
transferee pendente lite had no notice of the pending suit or proceeding at the time of the transfer.

DOCTRINE OF PART-PERFORMANCE
Sec 53A PART-PERFORMANCE
Where any person contracts to transfer for consideration any immoveable property by writing
signed by him or on his behalf from which the terms necessary to constitute the transfer can be
ascertained with reasonable certainty, and the transferee has, in part performance of the
contract, taken possession of the property or any part thereof, or the transferee, being already
in possession, continues in possession in part performance of the contract and has done some
act in furtherance of the contract, and the transferee has performed or is willing to perform his
part of the contract, then, notwithstanding that, or, where there is an instrument of transfer,
that the transfer has not been completed in the manner prescribed therefor by the law for the
time being in force, the transferor or any person claiming under him shall be debarred from
enforcing against the transferee and persons claiming under him any right in respect of the
property of which the transferee has taken or continued in possession, other than a right
expressly provided by the terms of the contract:
Provided that nothing in this section shall affect the rights of a transferee for consideration
who has no notice of the contract or of the part performance thereof

A contract for the sale of land has been entered into between A and B. The transferee has paid the price
entering into possession and is willing to carry out his contractual obligations. As registration has not been
effected A, the transferor, seeks to evict B from the land. Can he do so? No, B will not be allowed to suffer
simply because the formality of registration has not been through. The legislature grants some relief to such
a transferee under, which embodies the doctrine of part-performance.
The rule did not exist on the statute book before 1929. Section 53A, was inserted by an amendment to the
Act in 1929. Followings are the essential conditions for the operation of the doctrine of part-performance
according to Section 53A.
(1) There must be a contract to transfer immoveable property.
(2) It must be for consideration.
(3) The contract should be in writing and signed by the transferor himself or on his behalf.
(4) The terms necessary to constitute the transfer must be ascertainable with reasonable certainty from
the contract itself.
(5) The transferee should have taken the possession of the property in part performance of the contract.
In case he is already in possession, he must have continued in possession in part performance of the
contract and must have done something in furtherance of the contract.
(6) The transferee must have fulfilled or be ready to fulfill his part of the obligation under the contract.

If all the abovementioned conditions are satisfied, then, the transferor and the persons claiming under him
are debarred form exercising any right in relation to the property other than the rights expressly provided
by the terms of the contract notwithstanding the fact that the instrument of transfer has not been
 NAHATA PROFESSIONAL ACADEMY 327

registered or complete in the manner prescribed therefor by the law for time being in force. It should be
noted that Section 53A does not confer any positive right on the transferee. It only prohibits exercise of the
right of ownership in relation to the property in order to evict the transferee from the property because
legal requirements have not been satisfied. However, the doctrine of part-performance will not affect the
right of a subsequent transferee for consideration without notice of the earlier contract and of its being
partly performed.
The right conferred by this section is a right only available to a defendant to protect his possession. This
section does not create a title on the defendant. It merely operates as a bar to the plaintiff asserting his
title. It is limited to cases where the transferee had taken possession, and against whom the transferor is
debarred from enforcing any right other than that expressly provided by the contract. The section imposes
a bar on the transferor. When the conditions mentioned in the sections are fulfilled, it debars him from
enforcing against the transferee any right or interest expressly provided by the contract. So far as the
tranferee is concerned, the section confers a right on him to the extent it imposes a bar on the transferor
[Delhi Motor Co. v. Basurkas, (1968) SCR 720]
The English rules as to what acts constitute part-performance have been generally followed in India. These
rules are as follows:
(1) An act of part-performance must be an act done in performance of the contract. An act introductory
to and previous to the agreement, cannot therefore, be act of part-performance.
(2) The acts relied upon must be unequivocally and referable to no other contract than that alleged.
(3) An act of part-performance must be the act of the party seeking to avail himself of the equity.

PROVISIONS RELATING TO SPECIFIC TRANSFERS

The Act expressly provides for special types of transfers such as sale, exchange, gift, mortgage and lease.
These are as follows:
In a sale, exchange and gift, there is a transfer of the ownership of property but mortgage is a transfer of an
interest in specific immoveable property and lease is a transfer of the right to enjoy immoveable property.
SALE
Sec.54 “Sale” defined.
“sale” has been defined as a transfer of ownership in exchange for a price paid or promised or
part paid and part-promised.

Sale how made.— (Mode of transfer by sale)Such transfer, in the case of tangible
immoveable property of the value of one hundred rupees and upwards, or in the case of a
reversion or other intangible thing, can be made only by a registered instrument. In the case
of tangible immoveable property of a value less than one hundred rupees, such transfer may
be made either by a registered instrument or by delivery of the property. Delivery of tangible
immoveable property takes place when the seller places the buyer, or such person as he
directs, in possession of the property.

Contract for sale.—A contract for the sale of immoveable property is a contract that a sale of
such property shall take place on terms settled between the parties. It does not, of itself,
create any interest in or charge on such property.
Essentials
(a) The seller must be a person competent to transfer. The buyer must be any person who is not
disqualified to be the transferee under Section 6(h)(3).
(b) The subject matter is transferable property.
(c) There is a transfer of ownership. This feature distinguishes a sale from mortgage, lease etc., where
there is no such transfer of ownership.
(d) It must be an exchange for a price paid or promised or part paid and part promised.
(e) There must be present a money consideration. If the consideration is not money but some other
valuable consideration it may be an exchange or barter but not a sale.
 NAHATA PROFESSIONAL ACADEMY 328

EXCHANGE (Sections 118 to 121 of the Transfer of Property Act, 1882 deal with “Exchanges”).
Sec.118 “Exchange” defined.—
When two persons mutually transfer the ownership of one thing for the ownership of
another , neither thing or both things being money only, the transaction is called an
“exchange”.
A transfer of property in completion of an exchange can be made only in manner provided
for the transfer of such property by sale.
Essentials
(i) The person making the exchange must be competent to contract.
(ii) There must be mutual consent.
(iii) There is a mutual transfer of ownership though things and interests may not be identical.
(iv) Neither party must have paid money only.This Section applies to both moveable and immoveable
property.

MORTGAGES (Sections 58 to 104 of the Act deal with “Mortgages”).

Sec.58 “Mortgage”, “mortgagor”, “mortgagee”, “mortgage-money” and “mortgage-deed”

defined.—
(a) A mortgage is the transfer of an interest in specific immoveable property for the purpose of
securing the payment of money advanced or to be advanced by way of loan, an existing or
future debt, or the performance of an engagement which may give rise to a pecuniary
liability.
The transferor is called a mortgagor, the transferee a mortgagee; the principal money and
interest of which payment is secured for the time being are called the mortgage-money, and
the instrument (if any) by which the transfer is effected is called a mortgage -deed.

Essentials of a mortgage:
(1) Transfer of interest: The first thing to note is that a mortgage is a transfer of interest in the specific
immoveable property. The mortgagor as an owner of the property is possessed of all the interests
in it, and when he mortgages the property to secure a loan, he only parts with an interest in that
property in favour of the mortgagor. After mortgage, the interest of the mortgagor is reduced by
the interest which has been transferred to the mortgagee. His ownership has become less for the
time being by the interest which he has parted with in favour of the mortgagee. If the mortgagor
transfers this property, the transferee gets it subject to the right of the mortgagor to recover from
it what is due to him, i.e., the principal plus interest.
(2) Specific immoveable property: The second point is that the property must be specifically
mentioned in the mortgage deed. Where, for instance, the mortgagor stated “all of my property” in
the mortgage deed, it was held by the Court that this was not a mortgage. The reason why the
immoveable property must be distinctly and specifically mentioned in the mortgage deed is that, in
case the mortgagor fails to repay the loan the Court is in a position to grant a decree for the sale of
any particular property in a suit by the mortgagee.
(3) To secure the payment of a loan: Another characteristic of a mortgage is that the transaction is for
the purpose of securing the payment of a loan for the performance of an obligation which may give
rise to pecuniary liability. It may be for the purpose of obtaining a loan, or if a loan has already
been granted to secure the repayment of such loan. There is thus a debt and the relationship
between the mortgagor and the mortgagee is that of debtor and creditor. When A borrows 100
bags of paddy and further quantity by way of interest, it is mortgage transaction for the
performance of an obligation.
Where, however, a person borrows money and agrees with the creditor that till the debt is repaid he will
not alienate his property, the transaction does not amount to a mortgage. Here the person merely says that
 NAHATA PROFESSIONAL ACADEMY 329

he will not transfer his property till he has repaid the debt; he does not transfer any interest in the property
to the creditor. In sale as distinguished from a mortgage, all the interest or rights of ownership are
transferred to the purchaser. In a mortgage, as stated earlier, only part of the interests are transferred to
the mortgagee, some of them remaining vested in the mortgagor.
To sum up, it may be stated that there are three outstanding characteristics of a mortgage:
(a) the mortgagee’s interest in the property mortgaged terminates upon the performance of the
obligation secured by the Mortgage.
(b) the mortgagor has a right of foreclosure upon the mortgagor’s failure to perform.
(c) the mortgagor has a right to redeem or regain the property on repayment of the debt or
performance of the obligation.

(b) Simple mortgage.—

Where, without delivering possession of the mortgaged property, the mortgagor binds himself
personally to pay the mortgage-money, and agrees, expressly or impliedly, that, in the event of
his failing to pay according to his contract, the mortgagee shall have a right to cause the
mortgaged property to be sold and the proceeds of sale to be applied, so far as may be
necessary, in payment of the mortgage-money, the transaction is called a simple mortgage and
the mortgagee a simple mortgagee.

In a simple mortgage, the mortgagor binds himself personally to pay the debt and agrees in the event of his
failure to pay the mortgage money, the mortgagee shall have the right to cause the property to be applied
so far as may be necessary by means of a decree for the sale of property. If the mortgaged property is not
sufficient to discharge the debt, the mortgagee can bring a personal action against the mortgagor and
obtain a decree which, like any other money decree, can be executed against other properties of the
mortgagor. In simple mortgage, no right of possession or foreclosure is available to the mortgagee.

(c) Mortgage by conditional sale.—

Where the mortgagor ostensibly sells the mortgaged property—
on condition that on default of payment of the mortgage-money on a certain date the sale shall
become absolute, or

on condition that on such payment being made the sale shall become void, or

on condition that on such payment being made the buyer shall transfer the property to the
seller, the transaction is called a mortgage by conditional sale and the mortgagee a mortgagee
by conditional sale:

Provided that no such transaction shall be deemed to be a mortgage, unless the condition is
embodied in the document which effects or purports to effect the sale

In this type of mortgage, the property is mortgaged with a condition super added that in the event of a
failure by the debtor to repay the debt at the stipulated time, the transaction should be regarded a sale,
and in case the loan is repaid at the stipulated time, the sale shall be invalid, or on condition that on such
payment being made the buyer shall transfer the property to the seller.
In case of mortgage by conditional sale, there is no personal covenant. That is unlike in the case of a simple
mortgage, the mortgagor in this case does not bind himself personally to repay the debt. The mortgagee is
not given the possession of the property in this type of mortgage. This is also the position in the case of a
simple mortgage. Again, in a mortgage by conditional sale, the mortgagee’s remedy is ‘foreclosure’, that is
he becomes the owner of the property in default of payment of the debt by the mortgagor, he has to
institute a regular suit in a Court of law to “foreclose” the mortgage. To “foreclose” means to debar the
mortgagor from redeeming the property forever.
 NAHATA PROFESSIONAL ACADEMY 330

(d) Usufructuary mortgage.—

Where the mortgagor delivers possession or expressly or by implication binds himself to
deliver possession] of the mortgaged property to the mortgagee, and authorises him to retain
such possession until payment of the mortgage-money, and to receive the rents and profits
accruing from the property or any part of such rents and profits and to appropriate the same in
lieu of interest, or in payment of the mortgage -money, or partly in lieu of interest or partly in
payment of the mortgage-money, the transaction is called an usufructuary mortgage and the
mortgagee an usufructuary mortgagee.
Thus, a usufructuary mortgage has the following characteristics:
1. Possession of property must be delivered to the mortgagee;
2. There is no personal liability on the part of the mortgagor to pay;
3. The mortgagee is entitled to rents and profits in lieu of interest or principal or both; and
4. The mortgagee however is not entitled to foreclose the mortgagee or to sue for sale.
Thus is this type of mortgage the mortgagor has to deliver possession of the property to the mortgagee. If
the possession is not given, the mortgagee can sue for possession. The mortgagee is authorised to retain
possession and receive rents, etc., until he recovers the whole debt and the interest. The usufructuary
mortgagee has to look only to the profits that arise out of the property for realising his debt; there is no
personal liability on the part of the mortgagor.
Similarly, the mortgagee has no right to foreclose the mortgage or to sue for sale.
A mortgage may be regarded as usufructuary even though the entire debt is not to be paid out of the
profits of the property. Therefore, a usufructuary mortgage may be either (i) where the entire mortgage
money is to be paid from the profit of the land; or (ii) where only part of the mortgage money is principal or
interest amount is to be paid from the profit of the land.
If in a usufructuary mortgage a time is mentioned during which the mortgagee should recover the debt,
etc., then after the time is over, the mortgagee should deliver back the property to the mortgagor. He
cannot refuse to give back the property, if he has not been able to recover the debt and the interest, etc.
A usufructuary mortgagee is supposed to remain in possession of the mortgaged property and manage the
same as a person of ordinary prudence would manage subject to the conditions of mortgage agreement.

(e) English mortgage.—

Where the mortgagor binds himself to re-pay the mortgage-money on a certain date, and
transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he
will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed, the
transaction is called an English mortgage.

The essential features of an English mortgage are as under:

1. The mortgagor binds himself to repay the mortgage money on a certain day. In other words, there
should be a personal undertaking to pay.
Here the mortgagor transfers the ownership of the property as security and the mortgagee promises
to re- transfer the ownership, if the money is paid within a definite time. There is also a personal
covenant as the mortgagor promises to repay within a certain date. In this type of mortgage, there is
proviso that if money is repaid the property would be reconveyed. The remedy of the mortgagee is
sale of the property to recover the debt.
2. The mortgaged property is absolutely transferred to the mortgagee.
3. Such absolute transfer is subject to a proviso that the mortgagee will reconvey the property to the
mortgagor upon payment by him of the mortgage money on the fixed day.

Distinction between English mortgage and mortgage by conditional sale

An English mortgage looks like a mortgage by conditional sale but there are obvious differences between
the two:
 NAHATA PROFESSIONAL ACADEMY 331

1. In English mortgage there is a personal liability undertaken by the mortgagor to pay the debt. In a
mortgage by conditional sale there is no personal covenant (agreement for payment of the mortgage
money and mortgagee has his remedy against the mortgaged property only;
2. In English mortgage the ownership in the mortgaged property is absolutely transferred to the
creditor (i.e. mortgagee) which however, may be divested on repayment of the loan on the fixed day.
In a mortgage by conditional sale, the mortgagee gets only a qualified ownership which may,
however, ripen into an absolute ownership in default of payment of the mortgage money.

(f) Mortgage by deposit of title-deeds.—

Where a person in any of the following towns, namely, the towns of Calcutta, Madras, and
Bombay, and in any other town which the State Government concerned may, by notification in
the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title
to immoveable property, with intent to create a security thereon, the transaction is called a
mortgage by deposit of title-deeds.

This type of mortgage is called equitable mortgage in English law. In this transaction, a person delivers to
the creditor or his agent documents of title of his immoveable property with an intention to create a
security, and obtains a loan. The requisites of such a mortgage are (i) a debt, (ii) deposit of title deeds, and
(iii) an intention that the deeds shall be security for the debt.
In order that a valid mortgage on an immoveable property should be effected, it must be in writing and
attested by two witnesses and the document must be registered. But in case of a mortgage by deposit of
title deeds, it need not be registered and an oral agreement between the person and the creditor followed
by the delivery of the documents of title to the property is enough. The creditor will have the possession of
the documents and he will advance the money at the stipulated rate of interest. In case the mortgagor does
not repay the loan,the creditor on the basis of having the title deeds in his possession can sue the debtor to
recover the money. This type of mortgage has been recognized due to expediency. Many persons, specially
the business people, may need money urgently and they cannot wait till a formal document is written,
signed, attested and then registered. So they will simply approach the creditor and hand over the title
deeds of their property and borrowmoney. This avoids delay and other formalities for effecting a valid
mortgage.
There must be a clear intention on the part of the person who hands over the title deeds to effect a valid
mortgage. In the absence of any intention, the mere holding in possession of the title deeds will not create
a valid mortgage.
The term ‘documents of title’ or title deeds means such documents as will show prima facie or apparent
title to the property of the person who is borrowing money. Accordingly, in one case it was held that tax
receipt was not a document of title to the property on which the tax was paid.
What is necessary to deposit is a document which gives him his right to the property and the creditor
should insist on the production of this document before he gives money on a pledge of documents.
Title deeds should be delivered in these areas, the property of the person may be situated elsewhere. If the
deposit of title deeds has taken place in any other town, it will not be a valid mortgage. Similarly, if the
property is situated in any one of the towns mentioned above, but the deposit of title deeds is made in
other towns or areas then again it will not be a valid mortgage.
It should be noted that this type of mortgage can be created only in certain towns and not everywhere in
India. The facility to create a valid mortgage is available in the following towns in India: Calcutta, Madras,
Bombay, Adoni, Ajmer, Allahabad, Alwar, Bangalore, Bellary, Cochin, Coimbatore, Delhi, Jaipur, Jodhpur,
Kanpur, Rajahmundry, Udaipur, Vellor, Ellora, Pali, Bhilwara, Bikaner, Kakinada, Narayanganj, Mysore, and
Madurai. Though this type of mortgage is limited to specific cities it is at par with any other legal mortgage
(K.J. Nathan v. S.V. Maruthi Rao, A.I.R. 1965 S.C. 443).

(g) Anomalous mortgage.—

A mortgage which is not a simple mortgage, a mortgage by conditional sale, an usufructuary
 NAHATA PROFESSIONAL ACADEMY 332

mortgage, an English mortgage or a mortgage by deposit of title-deeds within the meaning of

this section is called an anomalous mortgage.

Thus, an anomalous mortgage is a combination of various other mortgages, for example, a usufructuary
mortgage may be created and the mortgagee shall have the right of sale. You have already noticed that in a
usufructuary mortgage only possession is given to the mortgagee and there is no right of sale. But in an
anomalous mortgage the right of sale along with the possession of the property may be given. You have
also seen that in the case of usufructuary mortgage, there is no personal liability on the part of a mortgagor
but if the mortgagor assumes personal liability to pay the mortgage money, it will be an anomalous
mortgage.
Again, a mortgagee may be given possession of the property for a fixed period with a condition that in case
the debt is not discharged at the expiry of the period mentioned, the mortgage shall be regarded as a
mortgage by conditional sale. In this case, the mortgage has got a right of “foreclosure” and after the expiry
of the period if the debt is not paid, the mortgagee will become the owner of the property.

Sec.59 Mortgage when to be by assurance.—

Where the principal money secured is one hundred rupees or upwards, a mortgage other
than a mortgage by deposit of title-deeds can be effected only by a registered instrument
signed by the mortgagor and attested by at least two witnesses.
Where the principal money secured is less than one hundred rupees, a mortgage may be
effected either by a registered instrument signed and attested as aforesaid, or (except in the
case of a simple mortgage) by delivery of the property.

Two other terms in common use in connection with mortgage may be considered here. These terms are (i)
Submortgage; and (ii) Puisne mortgage.
Sub-mortgage: Where the mortgagee transfers by mortgage his interest in the mortgaged property, or
creates a mortgage of a mortgage the transaction is known as a sub-mortgage. For example, where A
mortgages his house to B for Rs. 10,000 and B mortgage his mortgagee right to C for Rs. 8,000. B creates a
sub-mortgage.
Puisne mortgage: Where the mortgagor, having mortgaged his property, mortgages it to another person to
secure another loan, the second mortgage is called a puisne mortgage. For example, where A mortgages his
house worth Rs. one lakh to B for Rs.40,000 and mortgages the same house to C for a further sum of
Rs.30,000, the mortgage to B is first mortgage and that to C the second or puisne mortgage. C is the puisne
mortgagee, and can recover the debt subject to the right of B, the first mortgagee, to recover his debt of
Rs.40,000 plus interest.

Rights of mortgagor:
By mortgaging the property the mortgagor does not cease to be its owner, he only transfers an interest in
it. The law, therefore, grants him the following rights:
(a) Right of redemption: The first and the most important right of the mortgagor is the right to redeem
i.e., take back the mortgaged property by paying the mortgage money at any time after the
stipulated date for repayment. Section 60 of the Act provides that “any time” after the principal
amount has become due, the mortgagor has a right to redeem the property.
Although the Act gives him the right to redeem “any time” after their debt has become due, it
enjoins upon the mortgagor the obligation to exercise this right before the right is extinguished by
the Act of parties or by a decree of Court, or before it is barred by the Limitation Act. According to
the Law of Limitation the, mortgagor can redeem the property within 60 years after the money has
become due.
This right to redeem the property even after the time of payment has elapsed is called the Right of
Equity or Redemption. But the mortgagor is not entitled to redeem before the mortgage money
becomes due on the date fixed for repayment of the loan. His right to redeem arises only when
 NAHATA PROFESSIONAL ACADEMY 333

mortgage money becomes due and not before.

(b) Right against clog on equity of redemption: Right of redemption or equity of redemption is the
essence of a mortgage, and any provision inserted in the mortgage deed to prevent, evade or
hamper redemption is void. Any condition which prevents the mortgagor from redeeming the
property is called a “clog” on the equity or right of redemption and is void. The rule of equity that
once a mortgage always a mortgage prohibits a clog on the right of redemption. In other words, once
a transaction is found to be a mortgage, the Court would not permit any condition in a mortgage
deed which would prevent or impede redemption or repayment of the loan for which the security
was given.
(c) Right of partial redemption: A mortgage, as a rule, being one and indivisible for the debt and every
part of it, the mortgagor cannot redeem piecemeal; he must redeem the whole property.
But Section 61 of the Act gives a right of partial redemption stating that “a mortgagor who has
executed two or more mortgages in favour of the same mortgagee shall, in the absence of a contract
to the contrary, when the principal money of any two or more of the mortgages has become due, be
entitled to redeem any one such mortgage separately or any two or more of such mortgages
together.”

Implied contract by mortgagor

The parties are free to enter into any terms they like. Where, however, the contract does not contain all the
terms, Section 65 provides for implied terms as follows:
In the absence of a contract to the contrary, the mortgagor shall be deemed to have contracted with the
mortgagee that the:
(a) mortgagor is entitled to transfer the interest (covenant for title);
(b) mortgagor will assist the mortgagee to enjoy quiet possession;
(c) mortgagor will pay public charges in respect of the mortgaged property;
(d) mortgagor covenants as to payment of the rent due on lease where, the mortgaged property is leased;
(e) mortgagor covenants as to payment of interest and principal on prior encumbrances, where the
mortgage is a second or subsequent encumbrance on the property.

Rights of mortgagee and his remedies:

If the mortgagor does not pay the mortgage money, the mortgagee may proceed to recover (i) from the
mortgaged property, or (ii) sue for recovery from the mortgagor personally.
Thus the mortgagor has two remedies: one against the property and the other against the mortgagor
personally.

CHARGE
Sec.100 “Charges”
Where immoveable property of one person is by act of parties or operation of law made
security for the payment of money to another, and the transaction does not amount to a
mortgage, the latter person is said to have a charge on the property; and all the provisions
hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to
such charge.
Nothing in this section applies to the charge of a trustee on the trust property for expenses
properly incurred in the execution of his trust, and, save as otherwise expressly provided by
any law for the time being in force, no charge shall be enforced against any property in the
hands of a person to whom such property has been transferred for consideration and
without notice of the charge.

As is evident from the above definition, a charge comes into existence either by the act of parties or by
operation of law.
 NAHATA PROFESSIONAL ACADEMY 334

Charge by act of parties: When in a transaction for value, both the parties (debtor and creditor) intend that
the property existing or future shall be made available as security for the payment of a debt and that the
creditor shall have a present right to have it made available, there is a charge.

Charge by Operation of Law: Charges created by law are those which arise on account of some statutory
provisions. They are not created by the voluntary action of parties but arise as a result of some legal
obligation.

Floating charge: A charge may be floating as well as fixed. A fixed charge is a charge on specific property
but a floating charge is an equitable charge on the assets for time being of a going concern. It is peculiar to
companies which are able to borrow money without any interference with their assets so long as they are
going concern. In other words, it is a charge on a class of the assets of the company, present as well as
future. The assets of the company are constantly undergoing a change but the creditors will not normally
interfere with the assets of the company unless there is breach of some condition. As Professor Gower says,
the assets are liquid and the charge is floating. It is ambulatory and shifting in its nature hovering over and
so to speak floating with the property which it is intended to effect. As it does not attach to any specific
property, it remains document until it crystallises.
A floating charge has the following characteristics:
1. It is a charge on class of assets both present and future.
2. The class of assets charged is one which in the ordinary course of business would be changing from time
to time.
It is contemplated by the charge that until some future step is taken by those who are interested in the
charge the company may carry on its business in the ordinary way, i.e., it may use its assets charged in the
ordinary course of its business [Per Roman L.J. in Reyork Shive Wool Combers Associated Limited, (1903) 2
Ch. 284]. A floating charge is created by debentures on the company’s undertaking or its estate, property
and effects. It is not necessary that the charge should be on all company’s assets. Thus a mortgage of a
cinema and of the chattels used in the cinema premises was held to be a floating charge as to the chattles
[National Provisional Bank of England Limited v. Charteb Electric Theatres Limited, (1916) Ch. 132].
Similarly, a floating charge was created by a mortgage of book and other debts which shall become due
during the continuance of this security [Reyork Shive Wool Combers Association (supra)].
Crystallisation of floating charge
A floating charge becomes fixed or crystallises in the following cases:
1. When the money becomes payable under a condition in the debenture and the debenture holder, (i.e.,
the creditor) takes some steps to enforce the security;
2. When the company ceases to carry on business; and
3. When the company is being wound-up. Distinction between Mortgage and Charge
Although in a charge, the property is made a security for the payment of the loan, yet the transaction does
not amount to mortgage. It is important, therefore to distinguish between a charge and mortgage.
(a) A mortgage is transfer of an interest in the property made by the mortgagor as a security for the
loan, while the charge is not the transfer of any interest in the property though it is security for the
payment of an amount.
(b) A charge may be created by act of parties or by operation of law. A mortgage can only be created by
act of parties.
(c) A mortgage deed must be registered and attested by two witnesses, while a charge need not be
made in writing, and if reduced to writing, it need not be attested or registered.
(d) In certain types of mortgage (viz., mortgage by conditional sale and anomalous mortgage) the
mortgagor can foreclose the mortgaged property but in charge, the charge-holder cannot foreclose
though he can get the property sold as in a simple mortgage.
(e) From the very nature of it, a charge as a general rule, cannot be enforced against a transferee for
consideration without notice. But in a mortgage, the transferee of mortgaged property from the
 NAHATA PROFESSIONAL ACADEMY 335

mortgagor, can only acquire the remaining interest of the mortgagor, and is therefore, only bound by
the mortgage.
(f) In a charge created by act of parties the specification of the particular fund or property negatives a
personal liability and the remedy of the charge-holder is against the property only. In a mortgage,
there can be security as well as personal liability. In fact, the absence of a personal liability is the
principal test that distinguishes a charge from a simple mortgage.

LEASE
Sec.105 “lease”
A lease of immoveable property is a transfer of a right to enjoy such property, made for a
certain time, express or implied, or in perpetuity, in consideration of a price paid or promised,
or of money, a share of crops, service or any other thing of value, to be rendered periodically
or on specified occasions to the transferor by the transferee, who accepts the transfer on such
terms.

“lease” of immoveable property is a transfer of a right to enjoy property. Since it is a transfer to enjoy and
use the property, possession is always given to the transferee. The lease of immoveable property must be
made for a certain period. For example, you may give a lease of property for a definite number of years, or
for life, or even permanently.
Essentials
The essentials of a lease are:
(1) It is a transfer of a right to enjoy immoveable property;
(2) Such transfer is for a certain time or perpetuity;
(3) It is made for consideration which is either premium or rent or both;
(4) The transfer must be accepted by the transferee. The transferor is called the lessor, the transferee is
called the lessee, the price is called premium and the money, share, service or any other thing of value to
be so rendered is called the rent. The parties to the lease (i.e. lessor and lessee), must be competent to
make and to take the lease respectively.
Lease and licence
A lease should be distinguished from a licence. A licence is a right to do or continue to do in or upon the
immoveable property of the grantor, something which would, in the absence of such a right, be unlawful.
A licence does not transfer any interest in the property and the licencee has no right to possession. A
licence can be revoked by the grantor at any time, whereas a lease cannot be revoked. If, I sell the fruits of
my garden to you, you are given permission or licence to enter my garden and take away the fruits. A lease
involves a transfer of interest followed by possession of the property for a specified period. The real test is
the intention of the parties.
If the document creates an interest in the property, it is a lease but if it only permits another to make use of
the property of which the legal possession continues with the owner, it is a licence because it does not
create any interest in that property [Associated Hotel of India v. R.N. Kapoor, AIR (1956) SC 1962].
The question is not of words but of substance and the label which the parties choose to put upon the
transaction though relevant is not decisive.

Formalities
According to Section 107, a lease from year to year or for any term exceeding one year can be made only by
a registered document. If a lease is for a term below one year, it can be made by an oral agreement. If a
lease is created by oral agreement, it must be accompanied by delivery of possession. If the lease is for a
year or more, it must be effected by a registered document. If after the registration, the lessor does not
give possession, the lessee can sue for possession.

Requirements of a valid notice

 NAHATA PROFESSIONAL ACADEMY 336

In order that a notice to quit is valid it must be a proper notice. The notice must convey the intention to
terminate the tenancy as a whole and must specify the date on which the tenancy would expire. As
mentioned earlier, if the lease is a lease from month to month, 15 days, notice is required. If it is from year
to year 6 months’ notice is required. A lease of the moveable property for agricultural or manufacturing
purposes shall be deemed to be a lease from year to year. The notice should expire with the end of the
period of the tenancy. If it is a lease from month to month and the notice is given by the landlord, the
tenant should be asked to quit at the end of the month of the tenancy. The landlord cannot ask his tenant
to quit at any time before the expiry of a month or a year of the tenancy.

Determination of leases
Section 111 of the Transfer of Property Act spells out the various contingencies in which a lease comes to
an end. A lease is determined, i.e., comes to an end in the following ways:
(1) By efflux of time or lapse of time: A lease for a definite period, such as a lease for a year, or for a
term of years, expires on the last day of the term and the lessor or any person entitled to get back
the property may enter without notice or any other formality. Since a lease is a transfer of interest
in the property, if during the period for which a lease is valid, the lessee dies, the heirs of the lessee
can continue the lease till the expiry of the period.
(2) By the happening of a special event: When a lease is granted subject to the happening of an event,
it comes to an end when the event takes place. Thus, if B grants lease to A for life, it comes to an
end on the death of A. Similarly, if a lease is granted for the duration of the war, it comes to an end
when the war ends. Where the interest of the lessor is limited, the lease comes, to an end when he
loses the interest or where he does not have any power to grant a lease. For example, a tenant for
life can grant a lease only to last during his life time. It comes to an end on his death.
(3) Merger: A lease comes to an end when the lessee buys the property of the lessor or when the
lessee takes the lessor’s interest by succession. Here the right of the lessee merges in that of the
lessor. Naturally, the lessee becomes the owner of the property after he acquires it. So there will
be no more a lease.
(4) By surrender: A lease may come to an end by surrender. Surrender may be either express or
implied.
Express surrender arises when the lessee yields up his interst under a lease by mutual consent.
Implied surrender occurs, as follows :- if during the subsistence of the lease, a new lease is granted
to the tenant to commence at once in substitution for the existing lease, it operates as a surrender
of the old lease. For example, a lessee, accepts to take effect during the continuance of the existing
lease. This is an implied surrender of the former lease and such lease comes to an end. Similarly,
when the landlord reserves possession without any objection on the tenant’s part, there is a
surrender by implication. Mere non- payment of rent does not amount to surrender.
(5) By forfeiture: A lease also comes to an end by forfeiture. A forfeiture occurs when there is breach
of a condition in a lease contract by the lessee. Under the Transfer of Property Act, forfeiture
occurs in the following circumstances—the first case in which forfeiture occurs is the case when the
lessee breaks an express condition which may be of various types such as, if the lessee does not
pay the rent regularly, or if the lessee becomes insolvent, or where the lessee sublets the property
to another person. In all such cases there will be a forfeiture. But the condition that the lessee
breaks must be an express condition which must have been incorporated in the contract of lease.
Then only the lessor can re-enter the leased property and claim that the lease shall be forfeited.
In the case of a forfeiture due to default in payment of the rent, if the lessor sues the lessee to quit,
the Court can direct the lessee to pay the rent or arrears of rent and continue the lease. But in a
breach of any other condition, such as the breach of a condition preventing the lessee from
subletting the property, the Court will not help the lessee if he breaks the condition. He will incur
forfeiture. A breach of condition by the lessee gives an option to the lessor to bring the lease to an
end. But if he does not exercise the option the lease will continue validly.
The lessee, however, cannot on breaking the condition, take advantage of his wrong and terminate
the lease.
 NAHATA PROFESSIONAL ACADEMY 337

The second case of forfeiture occurs when the tenant denies the title of the landlord and claims
that somebody else or he himself is the owner of the property. In order that a denial of the
landlord’s title should work as a forfeiture of the lease, three things are necessary: (a) the tenant
must set up title either in himself or in a third-party; (b) the denial must be direct and not casual;
(c) it must be made known to the landlord.

Duties of the Lessor

Following are some of the duties of the lessor:
(a) The lessor is bound to disclose to the lessee any material defect in the property with reference to its
intended use of which the lessor is and the lessee is not aware. This rule applies only to physical
defects of the property such as the condition and the nature of the property leased. You will note
that the lessor is not bound to disclose whether or not he has title to the property.
(b) The next duty of the lessor is to put the lessee in possession of the property. A lease is a transfer of
possession the consideration being rent and, therefore, it follows that the landlord cannot recover
the rent unless he has delivered possession to the tenant. If a contract of lease has been executed
and the lessor does not give possession of the property to the lessee, the lessee can sue the lessor
for possession.
(c) The next duty that is cast on the lessor is what is usually called convenant for quiet enjoyment. The
covenant, that is the right to undisturbed possession, so long as the lessee pays the rent,
presupposes possession and, therefore, no action can be brought on this convenant unless the lessee
has first obtained possession. The covenant for possession gives the lessee the right to obtain
possession; the covenant for quiet enjoyment gives the lessee a right to continue in such possession.
If the lessee’s possession is disturbed, he can sue for damages or, in case a part of the leased
property is taken possession of either by the lessor or by any third-party; the lessee can hold a part
of the leased property and pay a proportionate rent.
Duties of the lessee
The lessee has the following duties:
(a) The lessee is bound to disclose to the lessor any fact as to nature or extent of the interest that the
lessee is about to take, of which the lessee is, and the lessor is not aware and which materially
increases the value of such interest.
(b) The lessee is bound to pay or tender at the proper time and place, the premium or rent to the lessor
or his agent in this behalf. We have already seen that in case the lessee does not pay the rent, he
may incur forfeiture of the tenancy. The liability to pay the rent commences from the date the tenant
is put into possession.
(c) The next duty of the lessee is that he uses the property as a person of ordinary prudence would
make use of. But he shall not permit another person to use the property for purposes other than that
for which it was leased.
(d) He should not do any act which is destructive of or permanently injurious to the property.
(e) The lessee must not, without the lessor’s consent, erect on the property any permanent structure
except for agricultural purpose. If he wants to erect certain fixtures or chattel on the leased property,
it must be all the things attached to the earth. If permanent fixtures are to be made, the lessee must
obtain the consent of the landlord.
(f) If the lessee comes to know of any proceedings by way of suit to recover the property of the lessor,
the lessee should immediately inform the lessor. Since, the tenant is in possession of the property he
is the person who is not likely to know of any encroachment on the landlord’s property and he
should therefore inform the landlord.
(g) The lessee should hand over the property at the end of the lease.
Rights of the lessee
The lessee enjoys the following rights:
(a) If during the continuance of the lease any accession is made to the property, such accession is
 NAHATA PROFESSIONAL ACADEMY 338

deemed to be comprised in the lease, the lessee has a right to enjoy the accretions of the leased
property.
(b) Where, under the contract, the landlord has agreed to repair the property, the lessee can carry out
the repairs and deduct the expenses from the rent if the landlord fails to do so.
(c) If the lessee has made payment which the lessor is bound by law to pay such as payment of
Government revenues or municipal taxes on the property, the lessee can deduct the amount from
the rent and pay the balance to the lessor. He can even take interest on the amount he has paid.
(d) The lessee has a right to remove the fixtures he has erected-during the term of the lease.
(e) If, due to no fault of his, the lease comes to an end (i.e., when the lease is of uncertain duration), the
lessee or his legal representatives are entitled to all the crops planted or grown by the lessee. The
lessee or his representatives have got a right to come and carry away the crops, etc., which are
growing on the land. If the lease is of a definite period, such a right cannot be claimed, particularly,
when lessee has committed a fault, e.g., where he has committed a breach of a condition entailing
forfeiture.

GIFT
122 “Gift” defined.—
Gift” is the transfer of certain existing moveable or immoveable property made voluntarily and
without consideration, by one person, called the donor, to another, called the donee, and
accepted by or on behalf of the donee.
Acceptance when to be made.—Such acceptance must be made during the lifetime of the
donor and while he is till capable of giving, If the donee dies before acceptance, the gift is void.

Essentials
1. There must be a transfer of ownership.
2. The subject matter of gift must be a certain existing moveable or immoveable property.
3. The transfer must be made voluntarily. 4. It must be done without consideration.
5. There must be acceptance by or on behalf of the donee, and such acceptance must be made during
the lifetime of the donor and while he is capable of giving.
There are two parties to the gift: donor and donee. The donor must be a person competent to transfer;
whereas the donee may be any person. The gift can be made to any one, to an incompetent person or even
to a juridicial person. The essence of a gift is that it is a gratuitous transfer.

A gift which comes into existence on the fulfilment of a condition, that is to say, a gift which is subject to a
condition precedent is also valid. A condition precedent, as already explained in this study dealing with
vested interest and contingent interest, is one which must be fulfilled before the transfer takes effect. But
the condition attached to the gift should not be illegal or immoral. For instance, a gift to A on condition that
he murders B is not valid.

Sec 123. Transfer how effected.—

For the purpose of making a gift of immoveable property, the transfer must be effected by a
registered instrument signed by or on behalf of the donor, and attested by at least two
witnesses.
For the purpose of making a gift of moveable property, the transfer may be effected either by
a registered instrument signed as aforesaid or by delivery. Such delivery may be made in the
same way as goods sold may be delivered.

According to Section 123, a gift of immoveable property must be made by a registered instrument signed by
or on behalf of the donor and attested by at least two witnesses. A gift of moveable property may be made
by a registred instrument or by delivery of property. Where the donee is already in possession of the
 NAHATA PROFESSIONAL ACADEMY 339

moveable property, as no future delivery is possible, the donor may make a declaration of the gift in his
favour.
For example, where a piece of furniture or a television set belonging to the donor is lying with a friend of
his, the donor may simply declare that he makes a gift of the furniture or the television set and the gift is
complete. The declaration must be clear and the donee must accept the gift. A gift of immoveable property,
as said above, must be effected by registration.
Where a gift in favour of someone is registered but it is not accepted by the donee, the gift is incomplete.
Suppose, a document is executed by the donor who makes a gift of immoveable property and the deeds
are delivered to donee, and the donee accepts the gifts but the document is not registered. Will the gift
be valid?
It has been held by the Courts that the gift is valid. While registration is a necessary formality for the
enforcement of a gift of immoveable property, it does not suspend the gift until registration actually takes
place. The donee in such a case can ask the donor to complete the gift by registration. Thus, the most
essential thing for the validity of a gift is its acceptance. If the gift is accepted but not registered it is a valid
gift.
The Privy Council in Kalyan Sundram v. Kumarappa, A.I.R. 1925 P.C. 42, decided that after acceptance of
the deed of gift and before registration, the donor cannot revoke the gift. The gift which is accepted by the
donee, will take effect from the date of the execution of the document by the donor, even though it is
registered at a later date.
If the deed of gift is executed but never communicated to the intended donee and remains in the
possession of the donor undelivered, it cannot be compulsory registered at the instance of the donee. The
reason is that the donee did not accept the gift, the donor can at any time before such acceptance revoke
the gift. But once a gift is accepted by the donee, the donor cannot revoke it.
A gift may, however, be revoked if it is brought about by a fraud or misrepresentation or undue
influence(section 126)
Example Mr. Ramesh gifts his plot to Mrs. Ramesh by a gift deed. Mrs. Ramesh accepted the gift. Now, Mr.
Ramesh wants to revoke the gift and changed his mind before the registration of the deed. He cannot do so
as the gift is duly accepted by Mrs. Ramesh.
S. 124. Gift of existing and future property.—
A gift comprising both existing and future property is void as to the latter.
For example, A makes a gift of his house and also makes a gift of the additions that he is likely to make in
future. Here the gift of the house is valid but the gift of the additions that are yet to be made is invalid.
S. 126. When gift may be suspended or revoked.—
The donor and donee may agree that on the happening of any specified event which does not
depend on the will of the donor a gift shall be suspended or revoked; but a gift which the parties
agree shall be revocable wholly or in part, at the mere will of the donor, is void wholly or in part,
as the case may be.

A gift may also be revoked in any of the cases (save want or failure of consideration) in which, if
it were a contract, it might be rescinded.

Save as aforesaid, a gift cannot be revoked.

Nothing contained in this section shall be deemed to affect the rights of transferees for
consideration without notice.
The other essential characteristic of a gift is that it cannot be revoked at the will and pleasure of the
grantor. A revocable gift is one which may be revoked by the donor at any time. Its revocation would
depend upon the mere will or pleasure of the donor. Such a gift is void. But on the other hand, if the
condition is one which does not depend on the will or pleasure of the donor, the gift can be revoked on the
happening of such condition.
S.127 Onerous gifts.—
Where a gift is in the form of a single transfer to the same person of several things of which one
 NAHATA PROFESSIONAL ACADEMY 340

is, and the others are not, burdened by an obligation, the donee can take nothing by the gift
unless he accepts it fully.

Where a gift is in the form of two or more separate and independent transfers to the same
person of several things, the donee is at liberty to accept one of them and refuse the others,
although the former may be beneficial and the latter onerous.

Onerous gift to disqualified person.—A donee not competent to contract and accepting
property burdened by any obligation is not bound by his acceptance. But if, after becoming
competent to contract and being aware of the obligation, he retains the property given, he
becomes so bound.
It may be that several things are transferred as a gift by single transaction. Whereas some of them are really
beneficial the others convey burdensome obligations. The result is that the benefit which it confers is more
than counter balanced by the burden it places.
For instance, A makes a gift of shares in the companies X and Y. X is prosperous but heavy calls are
expected in respect of shares in Y company. The gift is onerous.
The rule as laid down in Section 127 is that the donee takes nothing by the gift unless he accepts it fully.
Where the gift is in the form of two or more independent transfers to the same person of several things,
the donee is at liberty to accept one of them and refuse the other.
The rules pertaining to gifts in the Transfer of Property Act do not apply to the gifts by Mohammedans. If
a gift is made by a Mohammedan, its validity has to be judged according to Muslim law and not according
to the Transfer of Property Act.
ACTIONABLE CLAIMS
“Actionable claim” A claim to any debt, other than a debt secured by mortgage of immoveable property or
by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in
the possession, either actual or constructive, of the claimant, which the Civil courts recognize as affording
grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.
Actionable claims are claims, to unsecured debts. If a debt is secured by the mortgage of immoveable
property it is not an actionable claim, because the Section clearly excludes such a debt. A debt is a
liquidated money obligation which is usually recoverable by a suit.
To create a debt, first of all, there must be a liquidated or definite sum which is actually due. For
example, arrears of rent due. The term debt may also include a sum of money which is due in the sense
that it exists, but is not actually payable until a later date.
For example, A borrows money from B on the 1st of January and promises to repay on March 15, the
amount is not payable till the 15th of March, but certainly it is a debt and it is an accruing debt.
Another essential of an actionable claim is that it is not in possession of a person and the person can claim
such a debt by bringing an action in a Court of law.The Section also says that it must be a claim to any debt
which the Civil Courts recognise as affording grounds for relief to the person who claims it. Illustrations of
actionable claims:
(i) Arrears of rent accrual constitute a ‘debt’ so it is an actionable claim (Sheu Gobind Singh v. Gauri
Prasad, AIR 1925 Pat. 310).
(ii) Provident Fund that is standing to the credit of a member of the Provident Fund.
(iii) Money due under the Insurance Policy.
(iv) A partner’s right to sue for accounts of dissolved partnership is an actionable claim being a beneficial
interest in moveable property not in possession (Thakardas vs. Vishindas).
NON-ACTIONABLE CLAIMS
(1) Debentures are secured debts and therefore not regarded as actionable claims.
(2) Copy right though a beneficial interest in immoveable property is not an actionable claim since the
owner has actual or constructive possession of the same [Savitri Devi v. Dwarka Bhatya, (1939) All 305].
Again, an actionable claim includes a beneficial interest in the moveable property not in possession. Now, a
benefit of a contract for the purchase of goods is a beneficial interest in moveable property.
 NAHATA PROFESSIONAL ACADEMY 341

QUESTIONS:
(1) State the documents whose registration is compulsory under Registration Act,1908. [Dec-2017]
[JUNE-2010] (4 marks)
(2) State at least four instruments which are exempted from the provisions of Section 17(1) of the
Registration Act, 1908. [DEC-2019] (4 marks)
(3) Advise in the matter of the following, the provisions of registration of documents under the
Registration Act, 1908 with reference to section applicable:
i. Lease agreement for eleven months with rent payable monthly, having an option to the tenant to
renew for further for the same period and so on. (1 mark)
ii. Lease agreement is only for a year with a reserved rent for the period granted vis. one year. (1
mark)
iii. Lease agreement for one with reserving yearly rent. (1 mark)
iv. Lease agreement for a fixed term of five years with yearly rent payable. (2 marks) [June-2019]
(4) Enumerate the documents, registration of which is optional under the provisions of the Registration
Act, 1908. [Dec- 2015] [Dec-2018] [June-2019] [JUNE-2009] (4 marks)
(5) What is the time limit for presentation of a document for its registration under the Registration
Act, 1908? [June-2019] (3 marks)
(6) A has executed a document outside India. Whether this document is valid in India? Discuss with
reference to the Registration Act, 1908. [Dec-2019] (3 marks)
(7) “Is it necessary that registration of documents should be done only where the property is
situated”? Discuss the provision of the of Registration Act, 1908 dealing with the matter.[June-
2018] (5 marks)
(8) Who can present the documents for registration under the Registration Act, 1908 ? [Dec-2018] (5
marks each) [DEC-2020]
(9) A executes a will of his all moveable and immovable property in favour of B, his grandson. He
wants to register the will. Advise A regarding the presentment for its registration and deposit of
will with reference to the provisions of the Registration Act, 1908. [DEC-2020] (5 marks)
(10) What do you understand by registration of documents? State the effect of non- registration of
documents required to be registered. [Dec-2016] (5 marks)
(11) Under what circumstances a Sub-Registrar can refuse to register a document under the
Registration Act, 1908? [June-2017] (3 marks)
(12) When a sub-registrar may refuse to register a document? Whether registration of a document
may be refused, on the ground of undervaluation of stamp duty, under the Registration Act,
1908. [DEC-2020] (3 marks)
(13) X presents a sale deed for registration of a plot before the Sub-Registrar and the registration is
refused on the ground of undervaluation of stamp. What remedy is available to X in such
situation under the Registration Act, 1908? [Dec-2019] (5 marks) [DEC-2011] (5 marks)
(14) Discuss in brief the remedy available to party if registration of document is refused by Registrar
under The Registration Act, 1908. [June-2018] (5 marks)
(16) Gautam executed a document on 20th October, 2007 in favour of Thomas. Thereafter, Gautam
executed another document on 1st December, 2007 in favour of Peter in respect of the same
property. The document between Gautam and Thomas was registered on 15th January, 2008
whereas the document between Gautam and Peter was registered on 15th December, 2007.
Which document gets priority and why? [DEC-2009] (5 marks)
(18) A document was executed outside India and it was presented for registration after a lapse of four
months from the date of its arrival in India. Whether the document may be accepted for
registration by the Registrar? Decide. [JUNE-2010] (6 marks)
(19) Ashok sells a house to Vinay by a written document and delivers possession to Vinay, but the
document is not registered. After one year, Ashok sues Vinay to take back the possession of the
property on the ground that non-registration of a document has no validity. Will Ashok succeed?
Which doctrine of law can be invoked by Vinay in his defence? [JUNE-2010] (6 marks)
(20) A document was executed by several persons at different times. The person in whose favour
such execution was made, presented the document for re-registration after expiry of three
months. Can such document be registered and if so, within what period? [JUNE-2011] (5 marks)
(21) Rohit executes a sale deed of a house in favour of Prem. The house is situated at NOIDA (Uttar
 NAHATA PROFESSIONAL ACADEMY 342

Pradesh), but the transferor (Rohit) and transferee (Prem) want the sale deed to be registered at
Lucknow, which is capital of the State. Can they do so? Discuss. [DEC-2011] (5 marks)
(24) State the places where documents relating to immovable property may be presented for
registration under the Registration Act, 1908. [JUNE-2012] (5 marks)
(25) Shyam executes a sale deed of a house in favour of Krishna. The house is situated in Faridabad,
but the transferor and the transferee want the sale deed to be registered at Gurgaon, which has
also a District Court of Haryana State. Can they do so? Give reasons. [JUNE-2012] (6 marks)
(27) What is the effect of non-registration of documents required to be registered? [DEC-2013] (4
marks)
(30) State the effect of non-registration of documents required to be registered under the
Registration Act, 1908. [JUNE-2014] (5 marks)
(31) Arun representing that the tenants on his land were all at will, sells it to Barun, and conveys it to
him by an instrument dated 1st January, 1977. Soon after that day, Arun fraudulently grants to
Chandan, a lease of part of the land, and procures the lease dated 1st October, 1976 to be
registered under the Registration Act, 1908. Explain whether Barun can obtain cancellation of
the lease, and if so, on what terms. [JUNE-2014] (5 marks)
(35) What are the cases in which a compulsorily registrable document can be used in evidence, even if
it has not been registered ? [DEC-2014] (5 marks each)
(37) Amrit executed a gift deed in his life time in favour of Bhanu. The gift deed was not
registered during the life time of Amrit. Bhanu, after death of Amrit, presented the gift deed
before the Registrar for its registration. Rakshit, brother of Amrit, raised an objection for the
registration of gift deed on the ground of fake signature of Amrit. Both the witnesses to the gift
deed contended that the signatures were made in their presence by the donor at the time of
execution of gift deed. Whether the gift deed will be treated valid for registration under the
Registration Act, 1908? [DEC-2014] (6 marks)
(40) Who can present documents for registration at the proper registration office under the
Registration Act, 1908 ? Explain. [JUNE-2021]
(41) When lease of immovable property is compulsorily registrable?
(42) What is the object of registration of documents under Registration Act, 1908 ? [DEC-2021]

TRANSFER OF PROPERTY ACT, 1882

Q-1. Enumerate the properties which cannot be transferred under the provisions of the Transfer of
Property Act, 1882. [JUNE-16]
Q-2. X gives to Y property worth only `5,000 and adds a condition that Y should sell property for `75,000
and not below that amount, this condition will at once become invalid for no one will buy the
property which is only worth `5,000 for `75,000 Similarly X gives property to Y worth `75,000 and
stipulates that if Y wants to sell the property he should sell it to Z for `2,000. Decide with help of
case law whether it is an absolute restraint under law relating to Transfer of Property Act,
1882.[DEC-2020]
Q-3. Describe the essential conditions required for transfer for benefit of unborn person. [DEC-16]
Q-4. Tarun has two properties, Property-X and Property-Y. He sells his Property-Y to Jolly and puts a
condition that Jolly should not construct more than one storey on Property-Y so that Property-X,
which he retains, shall have good light and free air.
Whether the condition imposed by Tarun is 'valid' under the Transfer of Property Act, 1882 ? Give
reasons.[DEC-16]
Q-5. What do you mean by ‘immovable property’ under the Transfer of Property Act, 1882 ?[JUNE-15]
Q-6. Differentiate between ‘Reversion’ and ‘Remainder’, under the law relating to the Transfer of
Property Act, 1882. [DEC-18]
Q-7. What is meant by the doctrine of "Lis-Pendens" under Transfer of Property Act, 1882. Discuss its
essential elements. [DEC-17]
Q-8. X has two properties, property ‘A’ and property ‘B’. He sells his property ‘A’ to Y and puts a
condition that Y should not construct more than one storey on property ‘A’, so that property ‘B’,
which he retains, shall have good light and free air.
Ascertain, whether condition imposed by X is valid under the Transfer of Property Act, 1882 ?[DEC-19]
 NAHATA PROFESSIONAL ACADEMY 343

Q-9. A transfers his property to B, worth rupees two lakh and by the same instrument asks B to transfer
the property for rupees one lakh to C. If B does not accept the same, the property will revert to A.
But before B exercises his option, A dies. Decide, whether C can claim the right in the given
property. [DEC-19]
Q-12. Distinguish between 'moveable property' and 'immoveable property'.[JUNE-16]
Q-13. What do you understand by 'crystallisation of floating charge' under the Transfer of Property Act,
1882? [JUNE-16]
Q-14. "Every transfer of immoveable property made with intent to defeat or delay the creditors of the
transferor shall be voidable at the option of any creditor so defeated or delayed, for which he may
move to the court." Comment.[JUNE-16]
Q-15. “Nothing new should be introduced in a pending litigation”, is a well-known concept of property
law. Critically evaluate this concept. [JUNE-18]
Q-16. Discuss briefly the ‘doctrine of part-performance’, which is embodied in Section 53A of the
Transfer of Property Act, 1882. [JUNE-18]
Q-17. Ram, the owner of a land, entered into a contract for sale with Shyam. Shyam has paid the price
and took the possession and is willing to carry out his contractual obligations. As registration has
not been effected. Ram, the transferor, seeks to evict Shyam from the land.
Can he do so ? Explain briefly with reference to the title of land. [JUNE-19]
Q-18. Right conferred by section 53-A of the Transfer of Property Act, 1882 is available to defend and to
protect possession but does not create any title ? Comment. [DEC-2020]
Q-19. A and B are litigating in a count of law over property X and during the pendency of the suit, A
transfers the property X to C. The suit ends in B’s favour. Decide, who shall be entitled for property
X under the provisions of the Transfer of Property Act, 1882 ? [DEC-19]
Q-20. Distinguish between the following :
(a) Vested and contingent interest. .[JUNE-17] [DEC-19]
(b) Mortgage and Charge [DEC-18] [JUNE-19][JUNE-22]
Q-21. A contract for the sale of land has been entered into between A and B. The transferee has paid the
price entering into possession and is willing to carry out his contractual obligations. As registration
has not been effected, A the transferor, seeks to evict B from the land. Can he do so ? Explain.
[DEC-18]
Q-22. Explain the meaning of 'Usufructuary Mortgage' as given under the Transfer of Property Act, 1882.
[DEC-17]
Q-23. Define the term ‘Puisne Mortgage’.[JUNE-18]
Q-24. Sachin made an unconditional gift of property to Amit but continued in possession of gifted
property. Sachin revoked the gift deed transferred it to Naresh. Amit wants to recover possession
from Naresh. Discuss it in the light of provisions of Transfer of Property Act, 1882 whether Naresh
can withhold the gifted property? [JUNE-19]
Q-25. A contract for the sale of land has been entered into between Vishal and Akash. Akash, the
transferee, has paid the price entering into possession and is willing to carry out his contractual
obligations. As registration has not been effected Vishal, the transferor, seeks to evict Akash from
the land. Whether Vishal can do so ? Give reasons in support of your answer.
26. A gifts ` one lakh to B, reserving right to take back ` ten thousand out of that at his desire with B’s
assent. Decide the validity of this gift in the light of relevant provisions of law. (4 marks)
27. Tommy has two properties, Property-M and Property-N. He sells his Property-N to John and puts a
condition that John should not construct more than one storey on Property-N so that Property-M,
which he retains, shall have good light and free air. Whether the condition imposed by Tommy is
‘valid’ under the Transfer of Property Act, 1882 ? Give reasons. (4 marks)
28. Distinguish between 'English mortgage' and 'mortgage by conditional sale'.[DEC-16]
1. Avtar made an unconditional gift of property to Ashok but continued in possession of the gifted
property. Having possession of the gifted property Avtar revoked the gift and transfered it to
Suresh. Ashok wants to recover possession from Suresh. State in the context of the transfer of
Property Act, 1882, whether Suresh can withhold the property ? [DEC-2020]
29. What is meant by 'onerous gift' ? [JUNE-16]
30. If the gift of an immoveable property is accepted but not registered, does it amount to a valid gift ?
Give reasons.[JUNE-16]
 NAHATA PROFESSIONAL ACADEMY 344

CHAPTER -16
LAW RELATING TO RIGHT TO INFORMATION
INTRODUCTION
Throughout the world, the is seen by many as the key to strengthening participatory democracy and
ensuring more people-centred development. In India also, the Government enacted Right to Information
(RTI) Act in 2005 which came into force w.e.f. October 12, 2005.

RIGHT TO KNOW
Before dwelling on the RTI Act, 2005, mention should be made that in “R.P. Limited v Indian Express
Newspapers”, the Supreme Court read into Article 21 the right to know. The Supreme Court held that right
to know is a necessary ingredient of participatory democracy. In view of transnational developments when
distances are shrinking, international communities are coming together for cooperation in various spheres
and they are moving towards global perspective in various fields including Human Rights, the expression
“liberty” must receive an expanded meaning. The expression cannot be limited to mere absence of bodily
restraint. It is wide enough to expand to full range of rights including right to hold a particular opinion and
right to sustain and nurture that opinion. For sustaining and nurturing that opinion it becomes necessary to
receive information.

Article 21 confers on all persons a right to know which include a right to receive information.
It may be pointed out that the right to impart and receive information is a species of the right to freedom of
speech and expression. Article 19(1) (a) of our Constitution guarantees to all citizens freedom of speech and
expression. At the same time, Article 19(2) permits the State to make any law in so far as such law imposes
reasonable restrictions on the exercise of the rights conferred by Article 19(1) (a) of the Constitution in the
interest of sovereignty and integrity of India, the security of the State, friendly relations with foreign States,
public order, decency, morality, contempt of court, defamation and incitement of offence.

Thus, a citizen has a right to receive information and that right is derived from the concept of freedom of
speech and expression comprised in Article 19(1) (a).

The State is not only under an obligation to respect the Fundamental Rights of the citizens, but it is
equally under an obligation to ensure conditions under which these rights can meaningfully and
effectively be enjoyed by one and all.

Right to freedom of speech and expression in Article 19 (1)(a) carries with it the right to propagate and
circulate one’s views and opinions subject to reasonable restrictions as mentioned above. The
prerequisite for enjoying this right is knowledge and information. Information adds something “new to
our awareness and removes vagueness of our ideas”.

THE RIGHT TO INFORMATION (RTI) ACT, 2005

The Right to Information Act, 2005 provides an effective framework for effectuating the right to
information recognized under Article 19 of the Constitution. It may be pointed out that the Right to
Information Bill was passed by the Lok Sabha on May 11, 2005 and by the Rajya Sabha on May 12, 2005 and
received the assent of the President on June 15, 2005. The Act considered as watershed legislation, is the
most significant milestone in the history of Right to Information movement in India allowing transparency
and autonomy and access to accountability.

SALIENT FEATURES OF THE ACT

As stated above, the RTI Act confers on all citizens a right to information. The Act provides for setting out
the practical regime of right to information for citizens to secure access to information held by public
authorities to promote transparency and accountability in the working of every public authority.

In the case of Anjali Bhardwaj and Others Vs. Union of India and Others in Writ Petition (Civil) No. 436 of
2018 Judgement dated February 15, 2019 the Hon’ble Supreme Court of India in Paragraph 18, 19 and 68
observed that there is a definite link between right to information and good governance. In fact, the RTI Act
itself lays emphasis on good governance and recognises that it is one of the objective which the said Act
 NAHATA PROFESSIONAL ACADEMY 345

seeks to achieve. The RTI Act would reveal that four major elements/objectives required to ensure good
governance are:
(i) greater transparency in functioning of public authorities;
(ii) informed citizenry for promotion of partnership between citizens and the Government in decision
making process;
(iii) improvement in accountability and performance of the Government; and
(iv) reduction in corruption in the Government departments..

The right to information, therefore, is not only a constitutional right of the citizens but there is now a
legislation in the form of RTI Act which provides a legal regime for people to exercise their fundamental
right to information and to access information from public authorities. The very preamble of the Act
captures the importance of this democratic right which reads as “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.”
This Act is enacted not only to sub-serve and ensure freedom of speech. On proper implementation, it has
the potential to bring about good governance which is an integral part of any vibrant democracy. Attaining
good governance is also one of the visions of the Constitution.

Applicability of the act

Central Board of Secondary Education and Anr vs. Aditya Bandopadhyay and Ors.
Hon’ble Supreme Court of India observed that “Indiscriminate and impractical demands or directions under
RTIAct for disclosure of all and sundry information (unrelated to transparency and accountability in the
functioning of public authorities and eradication of corruption) would be counterproductive as it will
adversely affect the efficiency of the administration and result in the executive getting bogged down with
the non- productive work of collecting and furnishing information. The Act should not be allowed to be
misused or abused, to become a tool to obstruct the national development and integration, or to destroy
the peace, tranquillity and harmony among its citizens. Nor should it be converted into a tool of oppression
or intimidation of honest officials striving to do their duty. The nation does not want a scenario where 75%
of the staff of public authorities spends 75% of their time in collecting and furnishing information to
applicants instead of discharging their regular duties. The threat of penalties under the RTI Act and the
pressure of the authorities under the RTI Act should not lead to employees of a public authorities
prioritising ‘information furnishing’, at the cost of their normal and regular duties.”
Further, the Hon’ble Supreme Court of India observed that the RTI Act provides access to all information
that is available and existing. This is clear from a combined reading of section 3 and the definitions of
‘information’ and ‘right to information’ under clauses (f) and (j) of section2 of the Act. If a public authority
has any information in the form of data or analysed data, or abstracts, or statistics, an applicant may access
such information, subject to the exemptions in section 8 of the Act. But where the information sought is not
a part of the record of a public authority, and where such information is not required to be maintained
under any law or the rules or regulations of the public authority, the Act does not cast an obligation upon
the public authority, to collect or collate such non-available information and then furnish it to an applicant.
A public authority is also not required to furnish information which require drawing of inferences and/or
making of assumptions. It is also not required to provide ‘advice’ or ‘opinion’ to an applicant, nor required
to obtain and furnish any ‘opinion’ or ‘advice’ to an applicant. The reference to ‘opinion’ or ‘advice in the
definition of ‘information’ in section 2(f) of the Act, only refers to such material available in the records of
the public authority. Many public authorities have, as a public relation exercise, provide advice, guidance
and opinion to the citizens. But that is purely voluntary and should not be confused with any obligation
under the RTI Act.

Act not to apply in certain organisations.—

Nothing contained in this Act shall apply to the intelligence and security organisations specified in the
Second Schedule, being organisations established by the Central Government or any information furnished
by such organisations to that Government:
Provided that the information pertaining to the allegations of corruption and human rights violations shall
not be excluded under this sub-section:
Provided further that in the case of information sought for is in respect of allegations of violation of human
 NAHATA PROFESSIONAL ACADEMY 346

rights, the information shall only be provided after the approval of the Central Information Commission,
and notwithstanding anything contained in section 7, such information shall be provided within forty-five
days from the date of the receipt of request.

Second Schedule- IB, R&AW,Directorate of Revenue Intelligence, Central Economic Intelligence Bureau,
Directorate of Enforcement, Narcotics Control Bureau, Aviation Research Centre, Special Frontier Force,
BSF, CRPF, ITBP, CISF, NSG, Assam Rifles, Special Service Bureau, Special Branch (CID), Andaman and
Nicobar, the Crime Branch-CID- CB, Dadra and Nagar Haveli and Special Branch, Lakshadweep Police.
Agencies specified by the State Governments through a Notification will also be excluded.

DEFINITIONS

2. Definitions.—In this Act, unless the context otherwise requires,—

(h) "public authority" means any authority or body or institution of self- government established
or constituted—
(a) by or under the Constitution;
(b) by any other law made by Parliament;
(c) by any other law made by State Legislature;
(d) by notification issued or order made by the appropriate Government, and
includes any—
(i) body owned, controlled or substantially financed;
(ii) non-Government organisation substantially financed, directly or indirectly by funds
provided by the appropriate Government;

(i) "record" includes—

(a) any document, manuscript and file;
(b) any microfilm, microfiche and facsimile copy of a document;
(c) any reproduction of image or images embodied in such microfilm (whether enlarged or
not); and
(d) any other material produced by a computer or any other device;

"right to information" means the right to information accessible under this Act which is held by
or under the control of any public authority and includes the right to—
(i) inspection of work, documents, records;
(ii) taking notes, extracts or certified copies of documents or records;
(iii) taking certified samples of material;
(iv) obtaining information in the form of diskettes, floppies, tapes, video cassettes or in any
other electronic mode or through printouts where such information is stored in a computer or
in any other device;

"information" means any material in any form, including records, documents, memos, e-mails,
opinions, advices, press releases, circulars, orders, logbooks, contracts, reports, papers,
samples, models, data material held in any electronic form and information relating to any
private body which can be accessed by a public authority under any other law for the time
being in force;

"third party" means a person other than the citizen making a request for information and
includes a public authority.

3. Right to information.—
Subject to the provisions of this Act, all citizens shall have the right to information.

4. Obligations of public authorities.—

 NAHATA PROFESSIONAL ACADEMY 347

Every public authority shall—

(a) maintain all its records duly catalogued and indexed in a manner and the form which
facilitates the right to information under this Act and ensure that all records that are
appropriate to be computerised are, within a reasonable time and subject to availability
of resources, computerised and connected through a network all over the country on
different systems so that access to such records is facilitated;
(b) publish within one hundred and twenty days from the enactment of this Act,—
(i) the particulars of its organisation, functions and duties;
(ii) the powers and duties of its officers and employees;
(iii) the procedure followed in the decision making process, including channels of
supervision and accountability;
(iv) the norms set by it for the discharge of its functions;
(v) the rules, regulations, instructions, manuals and records, held by it or under its
control or used by its employees for discharging its functions;
(vi) a statement of the categories of documents that are held by it or under its
control;
(vii) the particulars of any arrangement that exists for consultation with, or
representation by, the members of the public in relation to the formulation of
its policy or implementation thereof;
(viii) a statement of the boards, councils, committees and other bodies consisting of
two or more persons constituted as its part or for the purpose of its advice, and
as to whether meetings of those boards, councils, committees and other bodies
are open to the public, or the minutes of such meetings are accessible for
public;
(ix) a directory of its officers and employees;
(x) the monthly remuneration received by each of its officers and employees,
including the system of compensation as provided in its regulations;
(xi) the budget allocated to each of its agency, indicating the particulars of all plans,
proposed expenditures and reports on disbursements made;
(xii) the manner of execution of subsidy programmes, including the amounts
allocated and the details of beneficiaries of such programmes;
(xiii) particulars of recipients of concessions, permits or authorisations granted by it;
(xiv) details in respect of the information, available to or held by it, reduced in an
electronic form;
(xv) the particulars of facilities available to citizens for obtaining information,
including the working hours of a library or reading room, if maintained for
public use;
(xvi) the names, designations and other particulars of the Public Information
Officers;
(xvii) such other information as may be prescribed; and thereafter update these
publications every year;

5 Designation of Public Information Officers.

(1) Every public authority shall, within one hundred days of the enactment of this Act, designate as
many officers as the Central Public Information Officers or State Public Information Officers, as
the case may be, in all administrative units or offices under it as may be necessary to provide
information to persons requesting for the information under this Act.
(2) Without prejudice to the provisions of sub-section (1), every public authority shall designate an
officer, within one hundred days of the enactment of this Act, at each sub-divisional level or other
subdistrict level as a Central Assistant Public Information Officer or a State Assistant Public
Information Officer, as the case may be, to receive the applications for information or appeals
under this Act for forwarding the same forthwith to the Central Public Information Officer or the
State Public Information Officer or senior officer specified under sub-section (1) of section 19 or
the Central Information Commission or the State Information Commission, as the case may be:
 NAHATA PROFESSIONAL ACADEMY 348

Provided that where an application for information or appeal is given to a Central Assistant Public
Information Officer or a State Assistant Public Information Officer, as the case may be, a period of
5 days shall be added in computing the period for response specified under sub-section (1) of
section 7.

(3) Every Central Public Information Officer or State Public Information Officer, as the case may be,
shall deal with requests from persons seeking information and render reasonable assistance to
the persons seeking such information.

(4) The Central Public Information Officer or State Public Information Officer, as the case may be,
may seek the assistance of any other officer as he or she considers it necessary for the proper
discharge of his or her duties.

(5) Any officer, whose assistance has been sought under sub-section (4), shall render all assistance to
the Central Public Information Officer or State Public Information Officer, as the case may be,
seeking his or her assistance and for the purposes of any contravention of the provisions of this
Act, such other officer shall be treated as a Central Public Information Officer or State Public
Information Officer, as the case may be.

6. Request for obtaining information.

(1) A person, who desires to obtain any information under this Act, shall make a request in writing
or through electronic means in English or Hindi or in the official language of the area in which
the application is being made, accompanying such fee as may be prescribed, to—
the Central Public Information Officer or State Public Information Officer, as the case may be, of
the concerned public authority;
(a) the Central Assistant Public Information Officer or State Assistant Public Information
Officer,
(b) as the case may be, specifying the particulars of the information sought by him or her:

Provided that where such request cannot be made in writing, the Central Public Information
Officer or State Public Information Officer, as the case may be, shall render all reasonable
assistance to the person making the request orally to reduce the same in writing.

(2) An applicant making request for information shall not be required to give any reason for
requesting the information or any other personal details except those that may be necessary
for contacting him.

(3) Where an application is made to a public authority requesting for an information,—

(i) which is held by another public authority; or
(ii) the subject matter of which is more closely connected with the functions of another public
authority, the public authority, to which such application is made, shall transfer the
application or such part of it as may be appropriate to that other public authority and
inform the applicant immediately about such transfer:
Provided that the transfer of an application pursuant to this sub-section shall be made as soon
as practicable but in no case later than five days from the date of receipt of the application.

7 Disposal of request.—
(1) Subject to the proviso to sub-section (2) of section 5 or the proviso to sub-section (3) of section
6, the Central Public Information Officer or State Public Information Officer, as the case may be,
on receipt of a request under section 6 shall, as expeditiously as possible, and in any case within
30 days of the receipt of the request, either provide the information on payment of such fee as
may be prescribed or reject the request for any of the reasons specified in sections 8 and 9:
Provided that where the information sought for concerns the life or liberty of a person, the
same shall be provided within 48 hours of the receipt of the request.
 NAHATA PROFESSIONAL ACADEMY 349

(2) If the Central Public Information Officer or State Public Information Officer, as the case may be,
fails to give decision on the request for information within the period specified under sub-
section (1), the Central Public Information Officer or State Public Information Officer, as the
case may be, shall be deemed to have refused the request.
(3) Where a decision is taken to provide the information on payment of any further fee
representing
the cost of providing the information, the Central Public Information Officer or State Public
Information Officer, as the case may be, shall send an intimation to the person making the
request, giving—
(a) the details of further fees representing the cost of providing the information as
determined by him, together with the calculations made to arrive at the amount in
accordance with fee prescribed under sub-section (1), requesting him to deposit that
fees, and the period intervening between the despatch of the said intimation and
payment of fees shall be excluded for the purpose of calculating the period of thirty
days referred to in that sub-section;
(b) information concerning his or her right with respect to review the decision as to the
amount of fees charged or the form of access provided, including the particulars of the
appellate authority, time limit, process and any other forms.

(4) Where access to the record or a part thereof is required to be provided under this Act and the
person to whom access is to be provided is sensorily disabled, the Central Public Information
Officer or State Public Information Officer, as the case may be, shall provide assistance to
enable access to the information, including providing such assistance as may be appropriate for
the inspection.

Where access to information is to be provided in the printed or in any electronic format, the
applicant shall, subject to the provisions of sub-section (6), pay such fee as may be prescribed:
Provided that the fee prescribed under sub-section (1) of section 6 and sub-sections (1) and (5)
of section 7 shall be reasonable and no such fee shall be charged from the persons who are of
below poverty line as may be determined by the appropriate Government.

Notwithstanding anything contained in sub-section (5), the person making request for the
information shall be provided the information free of charge where a public authority fails to
comply with the time limits specified in sub-section (1).

Before taking any decision under sub-section (1), the Central Public Information Officer or State
Public Information Officer, as the case may be, shall take into consideration the representation
made by a third party under section 11.
Where a request has been rejected under sub-section (1), the Central Public Information Officer
or State Public Information Officer, as the case may be, shall communicate to the person
making the request,—
(i) the reasons for such rejection;
(ii) the period within which an appeal against such rejection may be preferred; and
(iii) the particulars of the appellate authority.

An information shall ordinarily be provided in the form in which it is sought unless it would
disproportionately divert the resources of the public authority or would be detrimental to the
safety or preservation of the record in question.

8 Exemption from disclosure of information.—

(1) Notwithstanding anything contained in this Act, there shall be no obligation to give any
citizen,—information, disclosure of which would prejudicially affect the sovereignty and
integrity of
(a) India, the security, strategic, scientific or economic interests of the State, relation with
foreign State or lead to incitement of an offence;
 NAHATA PROFESSIONAL ACADEMY 350

(b) information which has been expressly forbidden to be published by any court of law or
tribunal or the disclosure of which may constitute contempt of court;
(c) information, the disclosure of which would cause a breach of privilege of Parliament or
the State Legislature;
(d) information including commercial confidence, trade secrets or intellectual property, the
disclosure of which would harm the competitive position of a third party, unless the
competent authority is satisfied that larger public interest warrants the disclosure of
such information;
(e) information available to a person in his fiduciary relationship, unless the competent
authority is satisfied that the larger public interest warrants the disclosure of such
information;
(f) information received in confidence from foreign Government;
(g) information, the disclosure of which would endanger the life or physical safety of any
person or identify the source of information or assistance given in confidence for law
enforcement or security purposes;
(h) information which would impede the process of investigation or apprehension or
prosecution of offenders;
(i) cabinet papers including records of deliberations of the Council of Ministers, Secretaries
and other officers:
Provided that the decisions of Council of Ministers, the reasons thereof, and the
material on the basis of which the decisions were taken shall be made public after the
decision has been taken, and the matter is complete, or over:
Provided further that those matters which come under the exemptions specified in this
section shall not be disclosed;
(j) information which relates to personal information the disclosure of which has no
relationship to any public activity or interest, or which would cause unwarranted
invasion of the privacy of the individual unless the Central Public Information Officer or
the State Public Information Officer or the appellate authority, as the case may be, is
satisfied that the larger public interest justifies the disclosure of such information:
Provided that the information which cannot be denied to the Parliament or a State
Legislature shall not be denied to any person.

(2) Notwithstanding anything in the Official Secrets Act, 1923 (19 of 1923) nor any of the
exemptions permissible in accordance with sub-section (1), a public authority may allow access
to information, if public interest in disclosure outweighs the harm to the protected interests.

(3) Subject to the provisions of clauses (a), (c) and (i) of sub-section (1), any information relating to
any occurrence, event or matter which has taken place, occurred or happened twenty years
before the date on which any request is made under section 6 shall be provided to any person
making a request under that section:
Provided that where any question arises as to the date from which the said period of twenty
years has to be computed, the decision of

9 Grounds for rejection to access in certain cases.—

Without prejudice to the provisions of section 8, a Central Public Information Officer or a State
Public Information Officer, as the case may be, may reject a request for information where such
a request for providing access would involve an infringement of copyright subsisting in a person
other than the State.

10. Severability.—
(1) Where a request for access to information is rejected on the ground that it is in relation to
information which is exempt from disclosure, then, notwithstanding anything contained in this
 NAHATA PROFESSIONAL ACADEMY 351

Act, access may be provided to that part of the record which does not contain any information
which is exempt from disclosure under this Act and which can reasonably be severed from any
part that contains exempt information.

Where access is granted to a part of the record under sub-section (1), the Central Public
Information Officer or State Public Information Officer, as the case may be, shall give a notice to
the applicant, informing—
(a) that only part of the record requested, after severance of the record containing
information which is exempt from disclosure, is being provided;
(b) the reasons for the decision, including any findings on any material question of fact,
referring to the material on which those findings were based;
(c) the name and designation of the person giving the decision;
(d) the details of the fees calculated by him or her and the amount of fee which the
applicant is required to deposit; and
(e) his or her rights with respect to review of the decision regarding non-disclosure of part
of the information, the amount of fee charged or the form of access provided, including
the particulars of the senior officer specified under sub-section (1) of section 19 or the
Central Information Commission or the State Information Commission, as the case may
be, time limit, process and any other form of access.

Chief Information Commissioner vs. High Court of Gujarat and Ors. (04.03.2020 - SC) :
(2020)4SCC702 In this case, an appeal was filed with regards to the right of a third party to
apply for certified copies to be obtained from the High Court by invoking the provisions of Right
to Information Act without resorting to Gujarat High Court Rules prescribed by the High Court.
Court observed that“We do not find any merit in the above submission and that such
cumbersome procedure has to be adopted for furnishing the information/certified copies of the
documents. When there is an effective machinery for having access to the information or
obtaining certified copies which, in our view, is a very simple procedure i.e. filing of an
application/affidavit with requisite court fee and stating the reasons for which the certified
copies are required, we do not find any justification for invoking Section 11 of the RTI Act and
adopt a cumbersome procedure. This would involve wastage of both time and fiscal resources
which the preamble of the RTI Actitself intends to avoid.”

Central Information Commission.— State Information Commission.—

The Central Government shall, by notification in Every State Government shall, by notification in
the Official Gazette, constitute a body to be the Official Gazette, constitute a body to be
known as the Central Information Commission to known as the ......... (name of the State)
exercise the powers conferred on, and to perform Information Commission to exercise the powers
the functions assigned to, it under this Act. conferred on, and to perform the functions
The Central Information Commission shall consist assigned to, it under this Act.
of— The State Information Commission shall consist
(a) the Chief Information Commissioner; and of—
(b) such number of Central Information (a) the State Chief Information
Commissioners, not exceeding ten, as may be Commissioner, and
deemed necessary. (b) such number of State Information
Commissioners, not exceeding ten, as may be
deemed necessary.
The Chief Information Commissioner and The State Chief Information Commissioner and
Information Commissioners shall be appointed by the State Information Commissioners shall be
the President on the recommendation of a appointed by the Governor on the
committee consisting of— recommendation of a committee consisting of—
(i) the Prime Minister, who shall be the (i) the Chief Minister, who shall be the
Chairperson of the committee; Chairperson of the committee;
(ii) the Leader of Opposition in the LokSabha; (ii) the Leader of Opposition in the Legislative
 NAHATA PROFESSIONAL ACADEMY 352

and Assembly; and

(iii) a Union Cabinet Minister to be (iii) a Cabinet Minister to be nominated by
nominated by the Prime Minister. the Chief Minister.

The Chief Information Commissioner or an

Information Commissioner shall not be a Member
of Parliament or Member of the Legislature of any
State or Union territory, as the case may be, or
hold any other office of profit or connected with
any political party or carrying on any business or
pursuing any profession.
Chief Information Commissioner shall hold office The State Chief Information Commissioner shall
for such term as may be prescribed by the Central hold office for such term as may be prescribed by
Government and shall not be eligible for the Central Government and shall not be eligible
reappointment: for reappointment:

Provided that no Chief Information Commissioner Provided that no State Chief Information
shall hold office as such after he has attained the Commissioner shall hold office as such after he
age of sixty-five years. has attained the age of sixty-five years.

Every Information Commissioner shall hold office Every State Information Commissioner shall hold
for such term as may be prescribed by the Central office for such term as may be prescribed by the
Government or till he attains the age of sixty-five Central Government or till he attains the age of
years, whichever is earlier, and shall not be sixty-five years, whichever is earlier, and shall not
eligible for reappointment as such Information be eligible for reappointment as such State
Commissioner: Information Commissioner:
Provided that every State Information
Provided that every Information Commissioner Commissioner shall, on vacating his office under
shall, on vacating his office under this sub-section this sub- section, be eligible for appointment as
be eligible for appointment as the Chief the State Chief Information Commissioner in the
Information Commissioner in the manner manner specified in sub-section (3) of section 15:
specified in sub-section (3) of section 12: Provided further that where the State
Information Commissioner is appointed as the
Provided further that where the Information State Chief Information Commissioner, his term
Commissioner is appointed as the Chief of office shall not be more than five years in
Information Commissioner, his term of office shall aggregate as the State Information Commissioner
not be more than five years in aggregate as the and the State Chief Information Commissioner.
Information Commissioner and the Chief
Information Commissioner.

POWER OF COMMISSION
The Central Information Commission has a duty to receive complaints from any person—
— who has not been able to submit an information request because a PIO has not been appointed;
— who has been refused information that was requested;
Where disclosure would cause breach of privilege of parliament or state legislature;
— who has received no response to his/her information request within the specified time limits;
— who thinks the fees charged are unreasonable;
— who thinks information given is incomplete or false or misleading; and
— any other matter relating to obtaining information under this law.
If the Commission feels satisfied, an enquiry may be initiated and while initiating an enquiry the
Commission has same powers as vested in a Civil Court.

19 APPELLATE AUTHORITIES
 NAHATA PROFESSIONAL ACADEMY 353

Any person who does not receive a decision within the specified time or is aggrieved by a
decision of the PIO may file an appeal under the Act.

First Appeal: First appeal to the officer senior in rank to the PIO in the concerned Public
Authority within 30 days from the expiry of the prescribed time limit or from the receipt of the
decision (delay may be condoned by the Appellate Authority if sufficient cause is shown).

Second Appeal: Second appeal to the Central Information Commission or the State Information
Commission as the case may be, within 90 days of the date on which the decision was given or
should have been made by the First Appellate Authority (delay may be condoned by the
Commission if sufficient cause is shown).

Third Party appeal against PIO’s decision must be filed within 30 days before first Appellate
Authority; and, within 90 days of the decision on the first appeal, before the appropriate
Information Commission which is the second appellate authority.
Burden of proving that denial of information was justified lies with the PIO. First Appeal shall
be disposed of within 30 days from the date of its receipt or within such extended period not
exceeding a total of forty-five days from the date of filing thereof, for reasons to be recorded in
writing. Time period could be extended by 15 days if necessary. (Section 19)

20 PENALTIES
Section 20 of the Act imposes stringent penalty on a Public Information Officer (PIO) for failing
to provide information. Every PIO will be liable for fine of Rs.250 per day, up to a maximum of
Rs.25,000/-, for -
(i) not accepting an application;
(ii) delaying information release without reasonable cause;
(iii) malafidely denying information;
(iv) knowingly giving incomplete, incorrect, misleading information;
(v) destroying information that has been requested; and
(vi) obstructing furnishing of information in any manner.

The Information Commission (IC) at the Centre and at the State levels will have the power to
impose this penalty. They can also recommend disciplinary action for violation of the law
against the PIO for persistently failing to provide information without any reasonable cause
within the specified period.

23. Bar of jurisdiction of courts.—

No court shall entertain any suit, application or other proceeding in respect of any order made
under this Act and no such order shall be called in question otherwise than by way of an appeal
under this Act.

WHO IS EXCLUDED?
The Act excludes Central Intelligence and Security agencies specified in the Second Schedule like IB, R&AW,
Directorate of Revenue Intelligence, Central Economic Intelligence Bureau, Directorate of Enforcement,
Narcotics Control Bureau, Aviation Research Centre, Special Frontier Force, BSF, CRPF, ITBP, CISF, NSG,
Assam Rifles, Special Service Bureau, Special Branch (CID), Andaman and Nicobar, the Crime Branch-CID-
CB, Dadra and Nagar Haveli and Special Branch, Lakshadweep Police. Agencies specified by the State
Governments through a Notification will also be excluded. The exclusion, however, is not absolute and
these organizations have an obligation to provide information pertaining to allegations of corruption and
human rights violations. Further, information relating to allegations of human rights violation shall be given
only with the approval of the Central Information Commission within forty- five days from the date of the
receipt of request. (Section 24)
 NAHATA PROFESSIONAL ACADEMY 354

Q-1. Discuss in brief the composition and the powers of Central Information Commission (CIC) given
under the Right to Information Act, 2005. [DEC-18]
Q-2. Explain the provisions for appeal under the Right to Information Act, 2005. [JUNE-19]
Q-3. Explain any four categories of ‘information’ which have been exempted from disclosure under
the Right to Information Act, 2005. [DEC-19]
Q-4. State any four obligations of Public Authority prescribed under Section 4(1)(b) of the Right to
Information Act, 2005. [DEC-2020]

Q-5. Section 20 of the Right to Information Act, 2005 deals with the penalties imposed on a Public
Information Officer (PIO). Explain. [DEC-2020] (4 marks)

Q-6. Specify the categories of information that have been exempted from disclosure under the Right
to Information Act, 2005.[JUNE-2009]
Q-7. Penalties vhich can be imposed on public information officer under section 20 of the Right to
Information Act, 2005[JUNE-11]
Q-8. What do you understand by ‘Public Information Officer’ (PIO) under the Right to Information Act,
2005 ? What are the duties of PIO under the said Act ? [DEC-11]
Q-9. Salient features of the Right to Information Act, 2005[JUNE-12]
Q-10. Bimal made an application in writing with prescribed fee to the Public Information Officer (PIO)
for obtaining the information which is permissible under the relevant statute. The PIO neither
provided the required information nor rejected the application of Bimal for providing the
required information although a period of 45 days elapsed from the date of submitting the
aforesaid application to the PIO. Bimal wants to file a suit in the civil court for not providing
the required information to him. Advise Bimal. [DEC-12]
Q-11. When is the Central Information Commission/State Information Commission duty bound to
receive complaints from any person ? [DEC-13]
Q-12. Amar is a citizen of India and lives in Delhi with his family. He makes an application to the Public
Information Officer (PIO) under the Right to Information Act, 2005 and completes all the
formalities. The information sought relates to Cabinet papers including records of deliberations
of the Council of Ministers. The PIO rejects the application. Has Amar any right to go to the
court or to the Central Information Commission against the decision of the PIO ? Give your
answer quoting the relevant provisions of law. [DEC-13]
Q-13. Specify the categories of information that have been exempted from disclosure under the Right
to Information Act, 2005. [JUNE-14]
Q-14. State in brief the powers of Information Commission under the Right to Information Act, 2005.
[JUNE-14]
Q-15. Certain organisations have been exempted from the ambit of the Right to Information Act, 2005,
subject to certain conditions. Which are those organisations? What type of information these
organisations are bound to provide ? [DEC-14]
Q-16 In R. P. Ltd. Vs. Indian Express Newspapers, the Supreme Court read into Article 21 – the right to
know. Discusss how right to know is related to Right to Information under The Right of
Information Act, 2005. [JUNE-21]
Q-17 Discuss the term of office and conditions of service of Chief Information Commissioner and
Information Commissioner under the Right to Information Act, 2005. [DEC-2021]

(18) State the types of information, other than those exempted information in Section 8, a public
authority is not under an obligation to furnish to an applicant under Right to Information Act,
2005.
 NAHATA PROFESSIONAL ACADEMY 355

CHAPTER 16
CONTRACT LAW
To understand:
⮞ General Principles relating to the formation and Enforceability of Contracts
⮞ Types of Contracts
⮞ Offer and Acceptance
⮞ Consideration
⮞ Capacity to Contract
⮞ Free Consent
⮞ Termination of Contract
⮞ Remedies for breach of Contract
⮞ Indemnity and Guarantee
⮞ Bailment and Pledge
⮞ Agency and types of Agents
⮞ E-Contracts
⮞ Joint Venture Agreements

FORMATION OF AN AGREEMENT, INTENTION TO CREATE LEGAL RELATIONSHIP

Meaning and Nature of Contract

 The law relating to contract is governed by the Indian Contract Act, 1872. The Act came into force on
the first day of September, 1872.
 The preamble to the Act says that it is an Act “to define and amend certain parts of the law relating
to contract”.
 It extends to the whole of India except the State of Jammu and Kashmir.
 The Act is by no means exhaustive on the law of contract. It does not deal with all the branches of
the law of contract. Thus, contracts relating to partnership, sale of goods, negotiable instruments,
insurance etc. are dealt with by separate Acts.
 The Indian Contract Act mostly deals with the general principles and rules governing contracts. The
Act is divisible into two parts.
 The first part (Section 1-75) deals with the general principles of the law of contract, and therefore
applies to all contracts irrespective of their nature.
 The second part (Sections 124-238) deals with certain special kinds of contracts, namely contracts of
Indemnity and Guarantee, Bailment, Pledge, and Agency.

The Indian Contract Act has defined contract in Section 2(h) as “an agreement enforceable by law”.

These definitions indicate that a contract essentially consists of two distinct parts. First, there must be an
agreement. Secondly, such an agreement must be enforceable by law. To be enforceable, an agreement
must be coupled with an obligation.
A contract therefore, is a combination of the two elements: (1) an agreement and (2) an obligation.

(1) Agreement
(a) An agreement gives birth to a contract.
As per Section 2(e) of the Indian Contract Act “every promise and every set of promises, forming the
consideration for each other, is an agreement. It is evident from the definition given above that an
agreement is based on a promise.
(b) What is a promise?
According to Section 2(b) of the Indian Contract Act “when the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes
a promise. An agreement, therefore, comes into existence when one party makes a proposal or offer
to the other party and that other party signifies his assent thereto. In nutshell, an agreement is the
sum total of offer and acceptance.”
 NAHATA PROFESSIONAL ACADEMY 356

(2) Obligation
An obligation is the legal duty to do or abstain from doing what one has promised to do or abstain
from doing. A contractual obligation arises from a bargain between the parties to the agreement
who are called the promisor and the promisee. Section 2(b) says that when the person to whom the
proposal is made signifies his assent thereto, the proposal is said to be accepted; and a proposal
when accepted becomes a promise. In broad sense, therefore, a contract is an exchange of promises
by two or more persons, resulting in an obligation to do or abstain from doing a particular act, where
such obligation is recognised and enforced by law.

Intention to Create Legal Relations

Intention to Create Legal Relations is an essential element of a valid contract is that there must be an
intention among the parties that the agreement should be attached by legal consequences and create legal
obligations. If there is no such intention on the part of the parties, there is no contract between them.
Agreements of a social or domestic nature do not contemplate legal relationship. As such they are not
contracts.

A proposal or an offer is made with a view to obtain the assent to the other party and when that other
party expresses his willingness to the act or abstinence proposed, he accepts the offer and a contract is
made between the two. But both offer and acceptance must be made with the intention of creating legal
relations between the parties. The test of intention is objective. The Courts seek to give effect to the
presumed intention of the parties. Where necessary, the Court would look into the conduct of the parties,
for much can be inferred from the conduct. The Court is not concerned with the mental intention of the
parties, but rather with what a reasonable man would say, was the intention of the parties, having regard
to all the circumstances of the case.
For example, if two persons agree to assist each other by rendering advice, in the pursuit of virtue, science
or art, it cannot be regarded as a contract. In commercial and business agreements, the presumption is
usually that the parties intended to create legal relations. But this presumption is rebuttable which means
that it must be shown that the parties did not intend to be legally bound.

Agreements which are not Contracts

Agreements in which the idea of bargain is absent and there is no intention to create legal relations are not
contracts. These are:
(a) Agreements relating to social matters: An agreement between two persons to go together to the
cinema, or for a walk, does not create a legal obligation on their part to abide by it. Similarly, if I
promise to take you for a dinner and break that promise, I do not expect to be liable to legal penalties.
There cannot be any offer and acceptance to hospitality.
(b) Domestic arrangements between husband and wife: In Balfour v. Balfour (1919) 2 KB 571, a husband
working in Ceylone, had agreed in writing to pay a housekeeping allowance to his wife living in
England. On receiving information that she was unfaithful to him, he stopped the allowance. Held, he
was entitled to do so. This was a mere domestic arrangement with no intention to create legally
binding relations. Therefore, there was no contract.

ESSENTIAL ELEMENTS OF A VALID CONTRACT

Section 10 of the Indian Contract Act, 1872 provides that “all agreements are contracts if they are made by
the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and
are not hereby expressly declared to be void”.
Therefore, the essential elements of a valid contract are:
A. An offer or proposal by one party and acceptance of that offer by another party resulting in an
agreement – consensus-ad-idem.
B. An intention to create legal relations or an intent to have legal consequences.
C. The agreement is supported by a lawful consideration.
D. The parties to the contract are legally capable of contracting.
E. Genuine consent between the parties.
F. The object and consideration of the contract is legal and is not opposed to public policy.
 NAHATA PROFESSIONAL ACADEMY 357

G. The terms of the contract are certain.

H. The agreement is capable of being performed i.e., it is not impossible of being performed.
Therefore, to form a valid contract there must be (1) an agreement, (2) based on the genuine consent of
the parties, (3) supported by a lawful consideration, (4) made for a lawful object, and (5) between the
competent parties.

Offer or Proposal

One of the early steps in the formation of a contract lies in arriving at an agreement between the
contracting parties by means of an offer and acceptance. Thus, when one party (the offeror) makes a
definite proposal to another party (the offeree) and the offeree accepts it in its entirety and without any
qualification, there is a meeting of the minds of the parties and a contract comes into being, assuming that
all other elements are also present.

What is an Offer or a Proposal?

A proposal is also termed as an offer. The word ‘proposal’ is synonymous with the English word “offer”. An
offer is a proposal by one person, whereby he expresses his willingness to enter into a contractual
obligation in return for a promise, act or forbearance. The person making the proposal or offer is called the
proposer or offeror and the person to whom the proposal is made is called the offeree.
Kinds of Offers
There are generally 7 type of Offers with difference as to type of offers and their parties. They are as under:
1. Particular offer/Specific Offer: The offer is made and addressed to a certain person only. It can only be
accepted by person to whom it has been made or its authorized person.
2. General Offer: In general offers, the Offer are made to public at large and may be accepted by any
one. Tickets are one such example of general offer. Tickets purchased for entrance into places of
amusement, or tickets issued by railways or bus companies, clock- room tickets, and many other
contracts set out in printed documents contain numerous terms, of many of which the party receiving
the ticket or document is ignorant. If a passenger on a railway train receives a ticket on the face of
which is printed “this ticket is issued subject to the notices, regulations and conditions contained in
the current time-tables of the railway”, the regulations and conditions referred to are deemed to be
communicated to him and he is bound by them whether or not he has read them. He is bound even if
he is illiterate and unable to read them. But it is important that the notice of the conditions is
contemporaneous with the making of the contract and not after the contract has been made.
3. Cross Offers: When two parties gives offers to each other. This is not material that the counter offers
are made with similar terms of different terms. Even when two offers were made with similar terms
and no offer was accepted, there can be no concluded contract.
4. Open/Continuing/Standing Offer: Where a person offers to another to supply specific goods, up to a
stated quantity or in any quantity which may be required, at a certain rate, during a fixed period, he
makes a standing offer. Thus, a tender to supply goods as and when required, amounts to a standing
offer.
A standing offer or a tender is of the nature of a continuing offer. An acceptance of such an offer
merely amounts to intimation that the offer will be considered to remain open during the period
specified and that it will be accepted from time to time by placing order for specified quantities. Each
successive order given, while the offer remains in force, is an acceptance of the standing offer as to
the quantity ordered, and creates a separate contract. It does not bind either party unless and until
such orders are given.
Where P tendered to supply goods to L upto a certain amount and over a certain period, L’s order
did not come up to the amount expected and P sued for breach of contract Held: Each order made
was a separate contract and P was bound to fulfill orders made, but there was no obligation on L to
make any order to all [Percival Ltd. vs. L.C.C. (1918)].

5. Counter offer: An offer made against an offer already made. In these offers, the contracts can be
made only after acceptance of counter offer.

6. Contracts by Post: Contracts by post are subject to the same rules as others, but because of their
 NAHATA PROFESSIONAL ACADEMY 358

importance, these are stated below separately:

(a) An offer by post may be accepted by post, unless the offeror indicates anything to the contrary.
(b) An offer is made only when it actually reaches the offeree and not before, i.e., when the letter
containing the offer is delivered to the offeree.
(c) An acceptance is made as far as the offeror is concerned, as soon as the letter containing the
acceptance is posted, to offerors correct address; it binds the offeror, but not the acceptor.
An acceptance binds the acceptor only when the letter containing the acceptance reaches the offeror.
The result is that the acceptor can revoke his acceptance before it reaches the offeror.
(d) An offer may be revoked before the letter containing the acceptance is posted. An acceptance can be
revoked before it reaches the offeror.

7. Contracts over the Telephone: Contracts over the telephone are regarded the same in principle as
those negotiated by the parties in the actual presence of each other. In both cases an oral offer is
made and an oral acceptance is expected. It is important that the acceptance must be audible, heard
and understood by the offeror. If during the conversation the telephone lines go “dead” and the
offeror does not hear the offerees word of acceptance, there is no contract at the moment. If the
whole conversation is repeated and the offeror hears and understands the words of acceptance, the
contract is complete [Kanhaiyalal v. Dineshwarchandra (1959) AIR, M.P. 234].

Rules Governing Offers

A valid offer must comply with the following rules:
(a) An offer must be clear, definite, complete and final. It must not be vague. For example, a promise to
pay an increased price for a horse if it proves lucky to promisor, is too vague and is not binding.
(b) An offer must be communicated to the offeree. An offer becomes effective only when it has been
communicated to the offeree so as to give him an opportunity to accept or reject the same.
(c) The communication of an offer may be made by express words-oral or written-or it may be implied by
conduct. A offers his car to B for Rs. 10,000. It is an express offer. A bus plying on a definite route goes
along the street. This is an implied offer on the part of the owners of the bus to carry passengers at the
scheduled fares for the various stages.
The communication of the offer may be general or specific. Where an offer is made to a specific
person it is called specific offer and it can be accepted only by that person. But when an offer is
addressed to an uncertain body of individuals i.e. the world at large, it is a general offer and can be
accepted by any member of the general public by fulfilling the condition laid down in the offer.

The leading case on the subject is Carlill v. Carbolic Smoke Ball Co. The company offered by
advertisement, a reward of `100 to anyone who contacted influenza after using their smoke ball in the
specified manner. Mrs. Carlill did use smoke ball in the specified manner, but was attacked by
influenza. She claimed the reward and it was held that she could recover the reward as general offer
can be accepted by anybody. Since this offer is of a continuing nature, more than one person can
accept it and can even claim the reward. But if the offer of reward is for seeking some information or
seeking the restoration of missing thing, then the offer can be accepted by one individual who does it
first of all. The condition is that the claimant must have prior knowledge of the reward before doing
that act or providing that information.

In India also, in the case of HarbhajanLal v. HarcharanLal (AIR 1925 All. 539), the same rule was
applied. In this case, a young boy ran away from his fathers home. The father issued a pamphlet
offering a reward of `500 to anybody who would bring the boy home. The plaintiff saw the boy at a
railway station and sent a telegram to the boys father. It was held that the handbill was an offer open
to the world at large and was capable to acceptance by any person who fulfilled the conditions
contained in the offer. The plaintiff substantially performed the conditions and was entitled to the
reward offered.

Offer must be distinguished from

(a) An invitation to treat or an invitation to make an offer: e.g., an auctioneers request for bids (which
are offered by the bidders), the display of goods in a shop window with prices marked upon them, or
 NAHATA PROFESSIONAL ACADEMY 359

the display of priced goods in a self- service store or a shopkeepers catalogue of prices are invitations
to an offer.
(b) A mere statement of intention: e.g., an announcement of a coming auction sale. Thus, a person who
attended the advertised place of auction could not sue for breach of contract if the auction was
cancelled [Harris v. Nickerson (1873) L.R. 8 QB 286].
(c) A mere communication of information in the course of negotiation: e.g., a statement of the price at
which one is prepared to consider negotiating the sale of piece of land [Harvey v. Facey (1893) A.C.
552].
An offer that has been communicated properly continues as such until it lapses, or until it is revoked
by the offeror, or rejected or accepted by the offeree.

Lapse of Offer
Section 6 deals with various modes of lapse of an offer. It states that an offer lapses if—
(a) it is not accepted within the specified time (if any) or after a reasonable time, if none is specified;
(b) it is not accepted in the mode prescribed or if no mode is prescribed in some usual and reasonable
manner, e.g., by sending a letter by mail when early reply was requested;
(c) the offeree rejects it by distinct refusal to accept it;
(d) either the offeror or the offeree dies before acceptance;
(e) the acceptor fails to fulfill a condition precedent to an acceptance;
(f) the offeree makes a counter offer, it amounts to rejection of the offer and an offer by the offeree may
be accepted or rejected by the offeror.

Revocation of Offer by the Offeror

An offer may be revoked by the offeror at any time before acceptance.
Like any offer, revocation must be communicated to the offeree, as it does not take effect until it is actually
communicated to the offeree. Before its actual communication, the offeree, may accept the offer and
create a binding contract. The revocation must reach the offeree before he sends out the acceptance. An
offer to keep open for a specified time (option) is not binding unless it is supported by consideration.

Acceptance
A contract emerges from the acceptance of an offer. Acceptance is the act of assenting by the offeree to an
offer. Under Section 2(b) of the Contract Act when a person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted. A proposal, when accepted becomes a promise.

Rules Governing Acceptance

(a) Acceptance may be express i.e. by words spoken or written or implied from the conduct of the
parties.
(b) If a particular method of acceptance is prescribed, the offer must be accepted in the prescribed
manner.
(c) Acceptance must be unqualified and absolute and must correspond with all the terms of the offer.
(d) A counter offer or conditional acceptance operates as a rejection of the offer and causes it to lapse,
e.g., where a horse is offered for Rs. 1,000 and the offeree counter-offers Rs. 990, the offer lapses by
rejection.
(e) Acceptance must be communicated to the offeror, for acceptance is complete the moment it is
communicated. Where the offeree merely intended to accept but does not communicate his
intention to the offeror, there is no contract. Mere mental acceptance is not enough.
(f) Mere silence on the part of the offeree does not amount to acceptance.
(g) Ordinarily, the offeror cannot frame his offer in such a way as to make the silence or inaction of the
offeree as an acceptance. In other words, the offeror can prescribe the mode of acceptance but not
the mode of rejection.
(h) If the offer is one which is to be accepted by being acted upon, no communication of acceptance to
the offeror is necessary, unless communication is stipulated for in the offer itself.
(i) Thus, if a reward is offered for finding a lost dog, the offer is accepted by finding the dog after
reading about the offer, and it is unnecessary before beginning to search for the dog to give notice of
 NAHATA PROFESSIONAL ACADEMY 360

acceptance to the offeror.

(j) Acceptance must be given within a reasonable time and before the offer lapses or is revoked. An
offer becomes irrevocable by acceptance.
An acceptance never precedes an offer. There can be no acceptance of an offer which is not
communicated. Similarly, performance of conditions of an offer without the knowledge of the
specific offer, is no acceptance. Thus in Lalman Shukla v. Gauri Dutt (1913), where a servant brought
the boy without knowing of the reward, he was held not entitled to reward because he did not know
about the offer.

CONSIDERATION

Need for Consideration

Consideration is one of the essential elements of a valid contract. The requirement of consideration stems
from the policy of extending the arm of the law to the enforcement of mutual promises of parties. A mere
promise is not enforceable at law. For example, if A promises to make a gift of Rs. 500 to B, and
subsequently changes his mind, B cannot succeed against A for breach of promise, as B has not given
anything in return. It is only when a promise is made for something in return from the promisee, that such
promise can be enforced by law against the promisor. This something in return is the consideration for the
promise.

Definition of Consideration
Sir Fredrick Pollock has defined consideration “as an act or forbearance of one party, or the promise thereof
is the price for which the promise of the other is bought”.
It is “some right, interest, profit, or benefit accruing to one party or some forbearance, detriment, loss or
responsibility, given, suffered or undertaken by the other” [Currie v. Misa (1875) L.R. 10 Ex. 153].
Section 2(d) of the Indian Contract Act, 1872 defines consideration thus: “when at the desire of the
promisor, the promisee or any other person has done or abstained from doing, or does or abstains from
doing, or promises to do or to abstain from doing something, such act or abstinence or promise is called a
consideration for the promise”.
The fundamental principle that consideration is essential in every contract, is laid down by both the
definitions but there are some important points of difference in respect of the nature and extent of
consideration and parties to it under the two systems:
(a) Consideration at the desire of the promisor: Section 2(d) of the Act begins with the statement that
consideration must move at the desire or request of the promisor. This means that whatever is
done must have been done at the desire of the promisor and not voluntarily or not at the desire of
a third party. If A rushes to B’s help whose house is on fire, there is no consideration but a
voluntary act. But if A goes to B’s help at B’s request, there is good consideration as B did not wish
to do the act gratuitously.
(b) Consideration may move from the promisee or any other person: In English law, consideration
must move from the promisee, so that a stranger to the consideration cannot sue on the contract.
A person seeking to enforce a simple contract must prove in court that he himself has given the
consideration in return for the promise he is seeking to enforce.

In Indian law, however, consideration may move from the promisee or any other person, so that a stranger
to the consideration may maintain a suit.
In Chinnaya v. Ramaya, (1882) 4 Mad. 137, a lady by a deed of gift made over certain property to her
daughter directing her to pay an annuity to the donors brother as had been done by the donor herself
before she gifted the property. On the same day, her daughter executed in writing in favour of the donors
brother agreeing to pay the annuity. Afterwards the donee (the daughter) declined to fulfil her promise to
pay her uncle saying that no consideration had moved from him. The Court, however, held that the uncle
could sue even though no part of the consideration received by his niece moved from him. The
consideration from her mother was sufficient consideration.

Doctrine of Privity of Contract and of Consideration

Privity of Contract
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A stranger to a contract cannot sue both under the English and Indian law for want of privity of contract.
The following illustration explains this point.

In Dunlop Pneumatic Tyre Co. v. Selfridge Ltd. (1915) A.C. 847, D supplied tyres to a wholesaler X, on
condition that any retailer to whom X re-supplied the tyres should promise X, not to sell them to the public
below Ds list price. X supplied tyres to S upon this condition, but nevertheless S sold the tyres below the list
price. Held: There was a contract between D and X and a contract between X and S. Therefore, D could not
obtain damages from S, as D had not given any consideration for Ss promise to X nor was he party to the
contract between D and X.
Thus, a person who is not a party to a contract cannot sue upon it even though the contract is for his
benefit. A, who is indebted to B, sells his property to C, and C the purchaser of the property, promises to
pay off the debt to B. In case C fails to pay B, B has no right to sue C for there is no privity of contract
between B and C.

The leading English case on the point is Tweddle v. Atkinson (1861) 1B and Section 393. In this case, the
father of a boy and the father of a girl who was to be married to the boy, agreed that each of them shall pay
a sum of money to the boy who was to take up the new responsibilities of married life. After the demise of
both the contracting parties, the boy (the husband) sued the executors of his father-in-law upon the
agreement between his father-in-law and his father. Held: the suit was not maintainable as the boy was not
a party to the contract.

Exception to the doctrine of privity of contract:

Both the Indian law and the English law recognize certain exceptions to the rule that a stranger to a
contract cannot sue on the contract. In the following cases, a person who is not a party to a contract can
enforce the contract:
(i) A beneficiary under an agreement to create a trust can sue upon the agreement, though not a party
to it, for the enforcement of the trust so as to get the trust executed for his benefit.
In Khawaja Muhammad v. Hussaini Begum, (1910) 32 All. 410, it was held that where a
Mohammedan lady sued her father-in- law to recover arrears of allowance payable to her by him
under an agreement between him and her own father in consideration of her marriage, she could
enforce the promise in her favour in so far as she was a beneficiary under the agreement to make a
settlement in her favour, and she was claiming as beneficiary under such settlement.
(ii) An assignee under an assignment made by the parties, or by the operation of law (e.g. in case of
death or insolvency), can sue upon the contract for the enforcement of his rights, tittle and interest.
But a mere nominee (i.e., the person for whose benefit another has insured his own life) cannot sue
on the policy because the nominee is not an assignee.
(iii) In cases of family arrangements or settlements between male members of a Hindu family which
provide for the maintenance or expenses for marriages of female members, the latter though not
parties to the contract, possess an actual beneficial right which place them in the position of
beneficiaries under the contract, and can therefore, sue.
(iv) In case of acknowledgement of liability, e.g., where A receives money from B for paying to C, and
admits to C the receipt of that amount, then A constitutes himself as the agent of C.
(v) Whenever the promisor is by his own conduct estopped from denying his liability to perform the
promise, the person who is not a party to the contract can sue upon it to make the promisor liable.
(vi) In cases where a person makes a promise to an individual for the benefit of third party and creates a
charge on certain immovable property for the purpose, the third party can enforce the promise
though, he is stranger to the contract.

Privity of consideration
In India privity of consideration is not strictly applicable. It means that consideration may be paid by parties
or any other person. The doctrine of privity of contract provides that a contract cannot confer rights or
impose obligations upon any person who is not a party to the contract. It is applicable in India with certain
exception like trust, covenant running with land, family settlements etc.

Kinds of Consideration
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Kinds of consideration

Executory consideration Executed consideration Past which means a past act or

forbearance

Consideration may be:

(a) Executory or future which means that it makes the form of promise to be performed in the future,
e.g., an engagement to marry someone; or
(b) Executed or present in which it is an act or forbearance made or suffered for a promise. In other
words, the act constituting consideration is wholly or completely performed, e.g., if A pays today Rs.
100 to a shopkeeper for goods which are promised to be supplied the next day, A has executed his
consideration but the shopkeeper is giving executory consideration—a promise to be executed the
following day. If the price is paid by the buyer and the goods are delivered by the seller at the same
time, consideration is executed by both the parties.
(c) Past which means a past act or forbearance, that is to say, an act constituting consideration which
took place and is complete (wholly executed) before the promise is made.

According to English law, a consideration may be executory or executed but never past. The English law is
that past consideration is no consideration. The Indian law recognizes all the above three kinds of
consideration.

Rules Governing Consideration

(a) Every simple contact must be supported by valuable consideration otherwise it is formally void
subject to some exceptions.
(b) Consideration may be an act of abstinence or promise.
(c) There must be mutuality i.e., each party must do or agree to do something. A gratuitous promise as
in the case of subscription for charity, is not enforceable. For example, where A promises to
subscribe Rs. 5,000 for the repair of a temple, and then refuses to pay, no action can be taken
against him.
(d) Consideration must be real, and not vague, indefinite, or illusory, e.g., a son’s promise to “stop being
a nuisance” to his father, being vague, is no consideration.
(e) Although consideration must have some value, it need not be adequate i.e., a full return for the
promise. Section 25 (Exp. II) clearly provides that “an agreement to which the consent of the
promisor is freely given is not void merely because the consideration is inadequate”. It is upon the
parties to fix their own prices. For example, where A voluntarily agreed to sell his motor car for Rs.
500 to B, it became a valid contract despite the inadequancy of the consideration.
(f) Consideration must be lawful, e.g., it must not be some illegal act such as paying someone to commit
a crime. If the consideration is unlawful, the agreement is void.
(g) Consideration must be something more than the promisee is already bound to do for the promisor.
Thus, an agreement to perform an existing obligation made with the person to whom the obligation
is already owed, is not made for consideration. For example, if a seaman deserts his ship so breaking
his contract of service and is induced to return to his duty by the promise for extra wages, he cannot
later sue for the extra wages since he has only done what he had already contracted for: Stilk v.
Myrick (1809).

When Consideration not Necessary

The general rule is that an agreement made without consideration is void. But Section 25 of the Indian
Contract Act lays down certain exceptions which make a promise without consideration valid and binding.

Thus, an agreement without consideration is valid:

 NAHATA PROFESSIONAL ACADEMY 363

(1) if it is expressed in writing and registered under the law for the time being in force for the
registration of documents, and is made on account of natural love and affection between parties
standing in a near relation to each other ; or
(2) if it is a promise to compensate, wholly or in part, a person who has already voluntarily done
something for the promisor, or something which the promisor was legally compellable to do; or
(3) if it is a promise, made in writing and signed by the person to be charged therewith, or by his agent
generally or specially authorized in that behalf, to pay wholly or in part a debt of which the
creditor might have enforced payment but for the law for the limitation of suits.
(4) Besides, according to section 185 of Indian Contract Act, consideration is not required to create an
agency.
(5) In case of gift actually made, no consideration is necessary. There need not be nearness of relation
and even if it is, there need not be any natural love and affection between them.

Illustrations
(a) A promises, for no consideration, to give to B Rs. 1,000. This is a void agreement.
(b) A, for natural love and affection, promises to give his son, B, Rs. 1,000. A puts his promise to B into
writing and registers it. This is a contract.
(c) A finds Bs purse and gives it to him. B promises to give A Rs. 50. This is a contract.
(d) A supports Bs infant son. B promises to pay As expenses in so doing. This is a contract.

The requirements in the above exceptions are noteworthy. The first one requires written and registered
promise. The second may be oral or in writing and the third must be in writing. Whether

Illustrations
 A, for natural love and affection, promises to give his son B Rs. 10,000. A put his promise to B into
writing and registered it. This is a contract.
 A registered agreement between a husband and his wife to pay his earnings to her is a valid
contract, as it is in writing, is registered, is between parties standing in near relation, and is for love
and affection [Poonoo Bibi v. FyazBuksh, (1874) 15 Bom L.R. 57].
 But where a husband by a registered document, after referring to quarrels and disagreement
between himself and his wife, promised to pay his wife a sum of money for her maintenance and
separate residence, it was held that the promise was unenforceable, as it was not made for love
and affection [Rajluckhy Deb v. Bhootnath (1900) 4 C.W.N. 488].

Gratuitous Promise can be enforced

A gratuitous promise to subscribe to a charitable cause cannot be enforced, but if the promisee is put to
some detriment as a result of his acting on the faith of the promise and the promisor knew the purpose and
also knew that on the faith of the subscription an obligation might be incurred, the promisor would be
bound by promise (KedarNath v. Gorie Mohan 64).

It may be noted that it is not necessary that the promisor should benefit by the consideration, it is sufficient
if the promisee does some act from which a third person is benefited and he would not have done that act
but for the promise of the promisor.

for example, Y requests X for loan, who agrees to give loan to Y if S gives guarantee of repayment of the
loan. S gives such a guarantee of repayment by Y. Thereupon X gives loan to Y. Here S will be promisor
and X the promisee, but from X’s action, benefit is derived by Y and not by S. X would not have given the
loan to Y had S not given the guarantee of repayment of loan. Thus, the benefit conferred on Y by X at
the request of S is a sufficient consideration on the part of X as against the promise of S to repay the loan.
Alternatively, it may be said that the detriment which X suffered by giving loan to Y at the request of S is
sufficient consideration on the part of X in respect of the promise of S to repay the loan.
 NAHATA PROFESSIONAL ACADEMY 364

Consideration therefore, is some detriment to the promisee or some benefit to the promisor. Detriment to
one person and benefit to the other are the same things looked from two angles. Ordinarily a promisor is
not bound by his promise, unless some consideration is offered by the promisee.

Terms must be Certain

It follows from what has been explained in relation to offer, acceptance and consideration that to be
binding, an agreement must result in a contract. That is to say, the parties must agree on the terms of their
contract. They must make their intentions clear in their contract. The Court will not enforce a contract the
terms of which are uncertain. Thus, an agreement to agree in the future (a contract to make a contract) will
not constitute a binding contract e.g., a promise to pay an actress a salary to be “mutually agreed between
us” is not a contract since the salary is not yet agreed: Loftus v. Roberts (1902).

The legal maxim, therefore, is “a contract to contract is not a contract”. If you agree “subject to contract”
or “subject to agreement”, the contract does not come into existence, for there is no definite or
unqualified acceptance.

Similarly, where the terms of a final agreement are too vague, the contract will fail for uncertainty. Hence,
the terms must be definite or capable of being made definite without further agreement of the parties.

VOID, VOIDABLE & ILLEGAL CONTRACTS:

There may be the circumstances under which a contract made under these rules may still be bad, because
there is a flaw, vice or error somewhere. As a result of such a flaw, the apparent agreement is not a real
agreement. Where there is no real agreement, the law has three remedies:
(a) Void Agreement
A void agreement is one which is destitute of all legal effects. It cannot be enforced and confers no rights on
either party. It is really not a contract at all, it is non-existent. Technically the words ‘void contract’ are a
contradiction in terms. But the expression provides a useful label for describing the situation that arises
when a ‘contract’ is claimed but in fact does not exist. For example, a minor’s contract is void.
(b) Voidable Contract
A voidable contract is one which a party can put to an end. He can exercise his option, if his consent was
not free. The contract will, however be binding, if he does not exercise his option to avoid it within a
reasonable time. The consent of a party is not free and so he is entitled to avoid the contract, if he has
given his consent due to misrepresentation, fraud, coercion or undue influence.
(c) Illegal Agreement
An illegal agreement is an unlawful agreement. The law prohibits agreements made with unlawful object or
consideration. Such an agreement, like the void agreement has no legal effects as between the immediate
parties. Further, transactions collateral to it also become tainted with illegality and are, therefore, not
enforceable. Parties to an unlawful agreement cannot get any help from a Court of law, for no polluted
hands shall touch the pure fountain of justice. On the other hand, a collateral transaction can be supported
by a void agreement..

FLAWS IN CONTRACT AND FREE CONSENT

The chief flaws in contract are:
Capacity to contract
Flaw in Capacity – Capacity and Persons
In law, persons are either natural or artificial. Natural persons are human beings and artificial persons are
corporations. Contractual capacity or incapacity is an incident of personality.
The general rule is that all natural persons have full capacity to make binding contracts. But the Indian
Contract Act, 1872 admits an exception in the case of:
(i) minors,
(ii) lunatics, and
(iii) persons disqualified from contracting by any law to which they are subject.

These persons are not competent to contract. Section 11 provides that every “person is competent to
 NAHATA PROFESSIONAL ACADEMY 365

contract who is of the age of majority according to the law to which he is subject, and who is of sound
mind, and is not disqualified from contracting by any law to which he is subject”. A valid agreement
requires that both the parties should understand the legal implications of their conduct. Thus, both must
have a mature mind. The legal yardstick to measure maturity according to the law of contract is, that both
should be major and of sound mind and if not, the law would presume that the maturity of their mind has
not reached to the extent of visualising the pros and cons of their acts, hence, a bar on minors and lunatics
competency to contract.
The contractual capacity of a corporation depends on the manner in which it was created.
Minor’s Contract
According to the Indian Majority Act, 1875, a minor is a person, male or female, who has not completed the
age of 18 years. In case a guardian has been appointed to the minor or where the minor is under the
guardianship of the Court of Wards, the person continues to be a minor until he completes his age of 21
years. According to the Indian Contract Act, no person is competent to enter into a contract who is not of
the age of majority. It was finally laid down by the Privy Council in the leading case of Mohori Bibi v.
DharmodasGhose, (1903) 30 Cal. 539, that a minor has no capacity to contract and minors contract is
absolutely void. In this case, X, a minor borrowed Rs. 20,000 from Y, a money lender. As a security for the
money advanced, X executed a mortgage in Y’s favour. When sued by Y, the Court held that the contract by
X was void and he cannot be compelled to repay the amount advanced by him.
Indian Courts have applied this decision to those cases where the minor has incurred any liability or where
the liabilities on both sides are outstanding. In such cases, the minor is not liable. But if the minor has
carried out his part of the contract, then, the Courts have held, that he can proceed against the other party.
The rationale is to protect minors interest. According to the Transfer of Property Act, a minor cannot
transfer property but he can be a transferee (person accepting a transfer). This statutory provision is an
illustration of the above principle.
The following points must be kept in mind with respect to minors contract:
(a) A minor’s contract is altogether void in law, and a minor cannot bind himself by a contract. If the
minor has obtained any benefit, such as money on a mortgage, he cannot be asked to repay, nor
can his mortgaged property be made liable to pay.
(b) Since the contract is void ab initio, it cannot be ratified by the minor on attaining the age of
majority.
(c) Estoppel is an important principle of the law of evidence. To explain, suppose X makes a statement
to Y and intends that the latter should believe and act upon it. Later on, X cannot resile from this
statement and make a new one.
In other words, X will be estopped from denying his previous statement. But a minor can always
plead minority and is not estopped from doing so even where he had produced a loan or entered
into some other contract by falsely representing that he was of full age, when in reality he was a
minor.
But where the loan was obtained by fraudulent representation by the minor or some property was
sold by him and the transactions are set aside as being void, the Court may direct the minor to
restore the property to the other party.
Thus, according to Section 33 of the Specific Relief Act, 1963 the Court may, if the minor has
received any benefit under the agreement from the other party require him to restore, so far as
may be such benefit to the other party, to the extent to which he or his estate has been benefited
thereby.
(d) A minors estate is liable to pay a reasonable price for necessaries supplied to him or to anyone
whom the minor is bound to support (Section 68 of the Act).
The necessaries supplied must be according to the position and status in life of the minor and must
be things which the minor actually needs. The following have also been held as necessaries in India.
Costs incurred in successfully defending a suit on behalf of a minor in which his property was in
jeopardy; costs incurred in defending him in a prosecution; and money advanced to a Hindu minor
to meet his marriage expenses have been held to be necessaries.
(e) An agreement by a minor being void, the Court will never direct specific performance of the
contract.
(f) A minor can be an agent, but he cannot be a principal nor can he be a partner. He can, however, be
admitted to the benefits of a partnership.
 NAHATA PROFESSIONAL ACADEMY 366

(g) Since a minor is never personally liable, he cannot be adjudicated as an insolvent.

(h) An agreement by a parent or guardian entered into on behalf of the minor is binding on him
provided it is for his benefit or is for legal necessity. For, the guardian of a minor, may enter into
contract for marriage on behalf of the minor, and such a contract would be good in law and an
action for its breach would lie, if the contract is for the benefit of the minor (Rose Fernandez v.
Joseph Gonsalves, 48 Bom. L. R. 673) e.g., if the parties are of the community among whom it is
customary for parents to contract marriage for their children. The contract of apprenticeship is also
binding.
However, it has been held that an agreement for service, entered into by a father on behalf of his
daughter who is a minor, is not enforceable at law (Raj Rani v. PremAdib, (1948) 51 Bom. L.R. 256).

Lunatics Agreement
A person of unsound mind is a lunatic. That is to say for the purposes of making contract, a person is of
unsound mind if at the time when he makes the contract, he is incapable of understanding it and of forming
rational judgment as to its effect upon his interests.
A person of unsound mind cannot enter into a contract. A lunatics agreement is therefore void. But if he
makes a contract when he is of sound mind, i.e., during lucid intervals, he will be bound by it.
A sane man who is delirious from fever, or who is so drunk that he cannot understand the terms of a
contract, or form a rational judgement as to its effect on his interests cannot contract whilst such delirium
or state of drunkenness lasts. A person under the influence of hypnotism is temporarily of unsound mind.
Mental decay brought by old age or disease also comes within the definition.
Agreement by persons of unsound mind are void. But for necessaries supplied to a lunatic or to any
member of his family, the lunatics estate, if any, will be liable. There is no personal liability incurred by the
lunatic.
If a contract entered into by a lunatic or person of unsound mind is for his benefit, it can be enforced (for
the benefit) against the other party but not vice-versa [Jugal Kishore v. Cheddu, (1903) l All. L.J 43].
Other Persons qualified and disqualified from contracting
Some statues disqualify certain persons governed by them, to enter into a contract. For example, Oudh
Land Revenue Act provides that where a person in Oudh is declared as a ‘disqualified proprietor under the
Act, he is incompetent to alienate his property.

Alien Enemies
A person who is not an Indian citizen is an alien. An alien may be either an alien friend or a foreigner whose
sovereign or State is at peace with India, has usually contractual capacity of an Indian citizen. On the
declaration of war between his country and India he becomes an alien enemy. A contract with an alien
enemy becomes unenforceable on the outbreak of war.
For the purposes of civil rights, an Indian citizen of the subject of a neutral state who is voluntarily resident
in hostile territory or is carrying on business there is an alien enemy. Trading with an alien enemy is
considered illegal, being against public policy.

Foreign Sovereigns and Ambassadors

Foreign sovereigns and accredited representatives of foreign states, i.e., Ambassadors, High
Commissioners, enjoy a special privilege in that they cannot be sued in Indian Courts, unless they
voluntarily submit to the jurisdiction of the Indian Courts. Foreign Sovereign Governments can enter into
contracts through agents residing in India. In such cases the agent becomes personally responsible for the
performance of the contracts.
Professional Persons
In England, barristers-at law are prohibited by the etiquette of their profession from suing for their fees. So
also are the Fellow and Members of the Royal College of Physicians and Surgeons. But they can sue and be
sued for all claims other than their professional fees. In India, there is no such disability and a barrister, who
is in the position of an advocate with liberty both to act and plead, has a right to contract and to sue for his
fees [Nihal Chand v. Dilawar Khan, 1933 All. L.R. 417].
Corporations
A corporation is an artificial person created by law, e.g., a company registered under the Companies Act,
public bodies created by statute, such as Municipal Corporation of Delhi. A corporation exists only in
 NAHATA PROFESSIONAL ACADEMY 367

contemplation of law and has no physical shape or form.

The Indian Contract Act does not speak about the capacity of a corporation to enter into a contract. But if
properly incorporated, it has a right to enter into a contract. It can sue and can be sued in its own name.
There are some contracts into which a corporation cannot enter without its seal, and others not at all. A
company, for instance, cannot contract to marry. Further, its capacity and powers to contract are limited by
its charter or memorandum of association. Any contract beyond such power in ultra vires and void.
Married Women
In India there is no difference between a man and a woman regarding contractual capacity. A woman
married or single can enter into contracts in the same ways as a man. She can deal with her property in any
manner she likes, provided, of course, she is a major and is of sound mind.
Under the English law, before the passing of the Law Reform (Married Women and Tortfeasors) Act, 1935, a
husband was responsible for his wifes contracts but since 1935 this liability no longer arises unless the wife
is acting as the husbands agent. Now, therefore, even in England a married woman has full contractual
capacity, and can sue and be sued in her own name.
Free Consent: Flaw in Consent
The basis of a contract is agreement, i.e., mutual consent. In other words, the parties should mean the
something in the same sense and agree voluntarily. It is when there is consent, that the parties are said to
be consensus ad idem i.e. their minds have met. Not only consent is required but it must be a free consent.
Consent is not free when it has been caused by coercion, undue influence, misrepresentation, fraud or
mistake. These elements if present, may vitiate the contract.

When this consent is wanting, the contract may turn out to be void or voidable according to the nature of
the flaw in consent. Where there is no consent, there can be no contract as in the case of mutual mistake.
Where there is consent, but it is not free, a contract is generally voidable at the option of the party whose
consent is not free. In the case of misrepresentation, fraud, coercion, undue influence, the consent of one
of the parties is induced or caused by the supposed existence of a fact which did not exist.

Coercion
Coercion as defined in Section 15 means “the committing or threatening to commit any act forbidden by
the Indian Penal Code, or unlawful detaining or threatening to detain, any property to the prejudice of any
person whatever with the intention of causing any person to enter into an agreement”. Simply stated, the
doing of any act forbidden by the Indian Penal Code is coercion even though such an act is done in a place
where the Indian Penal Code is not in force. If A at the point of a pistol asks B to execute a promissory note
in his favour and B to save his life does so he can avoid this agreement as his consent was not free. Even a
threat to third-party, e.g., where A compels B to sign a document threatening to harm C, in case B does not
sign would also amount to coercion.
It has been held that mere threat by one person to another to prosecute him does not amount to coercion.
There must be a contract made under the threat and that contract should be one sought to be avoided
because of coercion (Ramchandra v. Bank of Kohlapur, 1952 Bom. 715). It may be pointed out that coercion
may proceed from any person and may be directed against any person, even a stranger and also against
goods, e.g., by unlawful detention of goods.

Undue Influence
Under Section 16 of the Indian Contract Act, 1872, a contract is said to be produced by undue influence
“where the relations subsisting between the parties are such that one of the parties is in a position to
dominate the will of the other and uses that position to obtain an unfair advantage over the other”.
The elements of undue influence are (i) a dominant position, and (ii) the use of it to obtain an unfair
advantage. The words “unfair advantage” do not limit the jurisdiction to cases where the transaction would
be obviously unfair as between persons dealing on an equal footing. In the words of Lord Kingston, “the
principle applies to every case where influence is acquired and abused where confidence is reposed and
betrayed”.
Sub-section (2) of Section 16 provides that a person is deemed to be in a position to dominate the will of
another—
(a) Where he holds a real or apparent authority over the other or where he stands in a fiduciary relation
to the other, e.g., minor and guardian; trustee and beneficiary; solicitor and client. There is, however,
 NAHATA PROFESSIONAL ACADEMY 368

no presumption of undue influence in the relation of creditor and debtor, husband and wife (unless
the wife is a parda-nishin woman) and landlord and tenant. In these cases the party has to prove that
undue influence has been exercised on him, there being no presumption as to existence of undue
influence.
(b) Where he makes a contract with a person whose mental capacity is temporarily or permanently
affected by reason of age, illness or mental or bodily distress e.g., doctor and patient.

Illustration
A, having advanced money to his son B, during his minority, upon B’s coming of age obtains, by misuse of
parental influence a bond upon B for a greater amount than the sum due in respect of the advance.

A employs undue influence. A, a man enfeebled by disease or age is induced by B’s influence over him as
his medical attendant, to agree to pay B an unreasonable sum for his professional services. B employs
undue influence.

A parent stands in a fiduciary relation towards his child and any transaction between them by which any
benefit is procured by the parent to himself or to a third party, at the expense of the child will be viewed
with jealousy by Courts of Equity and the burden will be on the parent or third-party claiming the benefit
of showing that the child while entering into the transaction had independent advice, that he thoroughly
understood the nature of transaction and that he was removed from all undue influence when the gift
was made [Marim Bibi v. Cassim Ebrahim (1939) 184 I.C. 171 (1939) A.I.R. 278].

Where there is a presumption of undue influence, the presumption can be rebutted by showing that
(i) full disclosure of all material facts was made,
(ii) the consideration was adequate, and
(iii) the weaker party was in receipt of independent legal advice.

Transaction with parda-nishin women

The expression ‘parda-nishin denotes complete seclusion. Thus, a woman who goes to a Court and gives
evidence, who fixes rents with tenants and collects rents, who communicates when necessary, in matters of
business, with men other than members of her own family, could not be regarded as a parda-nishin woman
[Ismail Musafee v. Hafiz Boo (1906) 33 Cal. LR 773 and 33 I.A. 86]. The principles to be applied to
transactions with parda-nishin woman are founded on equity and good conscience and accordingly a
person who contracts with parda-nishin woman has to prove that no undue influence was used and that
she had free and independent advice, fully understood the contents of the contract and exercised her free
will. “The law throws around her a special cloak of protection” [Kali Baksh v. Ram Gopal (1914) L.R. 41 I.A.
23, 28-29, 36 All 81, 89].
Unconscionable transactions: An unconscionable transaction is one which makes an exorbitant profit of the
others distress by a person who is in a dominant position. Merely the fact that the rate of interest is very
high in a money lending transaction shall not make it unconscionable. But if the rate of interest is very
exorbitant and the Court regards the transaction unconscionable, the burden of proving that no undue
influence was exercised lies on the creditor. It has been held that urgent need of money on the part of the
borrower does not itself place the lender in a position to dominate his will within the meaning of this
Section [Sunder Koer v. Rai Sham Krishen (1907) 34 Cal. 150, C.R. 34 I.A. 9].

Misrepresentation (Section 18)

The term “misrepresentation” is ordinarily used to connote both “innocent misrepresentation” and
“dishonest misrepresentation”. Misrepresentation may, therefore, be either
(i) Innocent misrepresentation, or (ii) Wilful misrepresentation with intent to deceive and is called fraud.

Innocent Misrepresentation
If a person makes a representation believing what he says is true he commits innocent misrepresentation.
Thus, any false representation, which is made with an honest belief in its truth is innocent. The effect of
innocent misrepresentation is that the party misled by it can avoid the contract, but cannot sue for
damages in the normal circumstances.
 NAHATA PROFESSIONAL ACADEMY 369

But in order to avoid a contract on the ground of misrepresentation, it is necessary to prove that:
(i) there was a representation or assertion.
(ii) such assertion induced the party aggrieved to enter into the contract.
(iii) the assertion related to a matter of fact ( and not of law as ignorance of law is no excuse).
(iv) the statement was not a mere opinion or hearsay, or commendation (i.e., reasonable praise). For
example an advertisement saying, “washes whiter than the whitest”.
(v) the statement which has become or turned out to be untrue, was made with an honest belief in its
truth. Damages for Innocent Misrepresentation.

Damages for Innocent Misrepresentation

Generally the injured party can only avoid the contract and cannot get damages for innocent
misrepresentation. But in the following cases, damages are obtainable:
(i) From a promoter or director who makes innocent misrepresentation in a company prospectus
inviting the public to subscribe for the shares in the company;
(ii) Against an agent who commits a breach of warranty of authority:
(iii) From a person who (at the Courts discretion) is estopped from denying a statement he has made
where he made a positive statement intending that it should be relied upon and the innocent party
did rely upon it and thereby suffered damages;
(iv) Negligent representation made by one person to another between whom a confidential relationship,
like that of a solicitor and client exists.

Wilful Misrepresentation or Fraud (Section 17)

Fraud is an untrue statement made knowingly or without belief in its truth or recklessly, carelessly, whether
it be true or false with the intent to deceive. The chief ingredients of a fraud are:
(i) a false representation or assertion,
(ii) of fact (and not a mere opinion),
(iii) made with the intention that it should be acted upon, the representation must have actually induced
the other party to enter into the contract and so deceived him,
(iv) the party deceived must thereby be indemnified, for there is no fraud without damages, and the
statement must have been made either with the knowledge that it was false or without belief in its
truth or recklessly without caring whether it was true or false.
It is immaterial whether the representation takes effect by false statement or with concealment. The party
defrauded can avoid the contract and also claim damages.

Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud,
unless silence is in itself equivalent to speech, or where it is the duty of the person keeping silent to speak
as in the cases of contracts uberrimaefidei- (contracts requiring utmost good faith).

Contracts Uberrimae Fidei There are contracts in which the law imposes a special duty to act with the
utmost good faith i.e., to disclose all material information. Failure to disclose such information will
render the contract voidable at the option of the other party.

Contracts uberrimae fidei are:

(a) Contract of insurance of all kinds: The assured must disclose to the insurer all material facts and
whatever he states must be correct and truthful.
(b) Company prospectus: When a company invites the public to subscribe for its shares, it is under
statutory obligation to disclose truthfully the various matters set out in the Companies Act. Any
person responsible for non-disclosure of any of these matters is liable to damages. Also, the contract
to buy shares is voidable where there is a material false statement or non- disclosure in the
prospectus.
(c) Contract for the sale of land: The vendor is under a duty to the purchaser to show good title to the
land he has contracted to sell.
 NAHATA PROFESSIONAL ACADEMY 370

(d) Contracts of family arrangements: When the members of a family make agreements or
arrangements for the settlement of family property, each member of the family must make full
disclosure of every material fact within his knowledge.

Difference between Fraud and Innocent Misrepresentation

1. Fraud implies an intent to deceive, which is lacking if it is innocent misrepresentation.

2. In case of misrepresentation and fraudulent silence, the defendant can take a good plea that the
plaintiff had the means of discovering the truth with ordinary diligence. This argument is not available
if there is fraud (Section 19- exception).
3. In misrepresentation the plaintiff can avoid or rescind the contract. In fraud, the plaintiff can claim
damages as well.
4. If there is fraud, it may lead to prosecution for an offence of cheating under the Indian Penal Code.

Mistake (Sections 20 and 21)

The law believes that contracts are made to be performed. The whole structure of business depends on this
as the businessmen depend on the validity of contracts. Accordingly, the law says that it will not aid any
one to evade consequences on the plea that he was mistaken.
On the other hand, the law also realises that mistakes do occur, and that these mistakes are so
fundamental that there may be no contract at all. If the law recognises mistake in contract, the mistake will
render the contract void.

Effect of Mistake
A mistake in the nature of miscalculation or error of judgement by one or both the parties has no effect on
the validity of the contract. For example, if A pays an excessive price for goods under a mistake as to their
true value, the contract is binding on him [Leaf v. International Galleries (1950) 1 All E.R. 693].

Therefore, mistake must be a “vital operative mistake”, i.e. it must be a mistake of fact which is
fundamental to contract. To be operative so as to render the contract void, the mistake must be:
(a) of fact, and not of law or opinion;
(b) the fact must be essential to agreement, i.e., so fundamental as to negative the agreement; and
(c) must be on the part of both the parties.

Thus, where both the parties to an agreement are under a mistake as to a matter of fact essential to
agreement, the agreement is void (Section 20). Such a mistake prevents the formation of any contract at all
and the Court will declare it void. For example, A agrees to buy from B a certain horse. It turns out that the
horse was dead at the time of bargain though neither party was aware of the fact. The agreement is void.

Mistake of Law and Mistake of Fact

Mistakes are of two kinds: (i) mistake of law, and (ii) mistake of fact. If there is a mistake of law of the land,
the contract is binding because everyone is deemed to have knowledge of law of the land and ignorance of
law is no excuse (ignorantia juris non-excusat).
But mistake of foreign law and mistake of private rights are treated as mistakes of fact and are execusable.
The law of a foreign country is to be proved in Indian Courts as ordinary facts. So mistake of foreign law
makes the contract void. Similarly, if a contract is made in ignorance of private right of a party, it would be
void, e.g., where A buys property which already belongs to him.

Mutual or Unilateral Mistake

Mistake must be mutual or bilateral, i.e., it must be on the part of both parties. A unilateral mistake, i.e.,
mistake on the part of only one party, is generally of no effect unless (i) it concerns some fundamental fact
and (ii) the other party is aware of the mistake. For this reason, error of judgement on the part of one of
the parties has no effect and the contract will be valid.

Mutual or Common Mistake as to Subject-matter

 NAHATA PROFESSIONAL ACADEMY 371

A contract is void when the parties to it assume that a certain state of things exist which does not actually
exist or in their ignorance the contract means one thing to one and another thing to the other, and they
contract subject to that assumption or under that ignorance. There is a mistake on the part of both the
parties. Such a mistake may relate to the existence of the subject matter, its identity, quantity or quality.

(a) Mistake as to existence of the subject matter: Where both parties believe the subject matter of the
contract to be in existence but in fact, it is not in existence at the time of making the contract, there is
mistake and the contract is void.

In Couturier v. Hastie (1856), there was a contact to buy cargo described as shipped from port A to
port B and believed to be at sea which in fact got lost earlier unknown to the parties and hence not in
existence at the time of the contract. Held, the contract was void due to the parties mistake.

(b) Mistake as to identity of the subject matter: Where the parties are not in agreement to the identity of
the subject matter, i.e., one means one thing and the other means another thing, the contract is void;
there is no consensus ad idem.
In Raffles v. Wichelhhaks (1864), A agreed to buy from B a cargo of cotton to arrive “ex Peerless from
Bombay”. There were two ships called “Peerless” sailing from Bombay, one arriving in October and the
other in December. A meant the earlier ship and B the latter. Held, the contract was void for mistake.
(c) Mistake as to quantity of the subject matter: There may be a mistake as to quantity or extent of the
subject matter which will render the contract void even if the mistake was caused by the negligence of
a third-party.
In Henkel v. Pape (1870), P wrote to H inquiring the price of rifles and suggested that he might buy as
many as fifty. On receipt of a reply he wired send three rifles. Due to the mistake of the telegraph clerk
the message transmitted to H was send the rifles. H despatched 50 rifles. Held, there was no contract
between the parties.
(d) Mistake as to quality of the subject-matter or promise: Mistake as to quality raises difficult questions.
If the mistake is on the part of both the parties the contract is void. But if the mistake is only on the
part of one party difficulty arises.
The general rule is that a party to a contract does not owe any duty to the other party to discloses all
the facts in his possession during negotiations. Even if he knows that the other party is ignorant of or
under some misapprehension as to an important fact, he is under no obligation to enlighten him. Each
party must protect his own interests unaided. In contract of sale of goods, this rule is summed up in
the maxim caveat emptor (Let the buyer beware.) The seller is under no duty to reveal the defects of
his goods to the buyer, subject to certain conditions.

Unilateral Mistake as to Nature of the Contract

The general rule is that a person who signs an instrument is bound by its terms even if he has not read it.
But a person who signs a document under a fundamental mistake as to its nature (not merely as to its
contents) may have it avoided provided the mistake was due to either-
(a) the blindness, illiteracy, or senility of the person signing, or
(b) a trick or fraudulent misrepresentation as to the nature of the document.

Unilateral Mistake as to the Identity of the Person Contracted With

It is a rule of law that if a person intends to contract with A, B cannot give himself any right under it. Hence,
when a contract is made in which personalities of the contracting parties are or may be of importance, no
other person can interpose and adopt the contract. For example, where M intends to contract only with A
but enters into contract with B believing him to be A, the contract is vitiated by mistake as there is no
consensus ad idem.

Mistake as to the identity of the person with whom the contract is made will operate to nullify the
contract only if:
(i) the identity is for material importance to the contracts; and
(ii) the mistake is known to the other person, i.e., he knows that it is not intended that he should become
 NAHATA PROFESSIONAL ACADEMY 372

a party to the contract.

Legality of Object
One of the requisites of a valid contract is that the object should be lawful. Section 10 of the Indian
Contract Act, 1872, provides, “All agreements are contracts if they are made by free consent of parties
competent to contract for a lawful consideration and with a lawful object...” Therefore, it follows that
where the consideration or object for which an agreement is made is unlawful, it is not a contract.

Section 23 of the Indian Contract Act, 1872 provides that the consideration or object of an agreement is
(i) lawful unless it is forbidden by law; or
(ii) it is of such nature that if permitted it would defeat the provisions of law; or (iii) is fraudulent; or
(iv) involves or implies injury to the person or property of another; or
(v) the Court regards it an immoral or opposed to public policy.

illustration
(i) X, Y and Z enter into an agreement for the division among them of gains acquired by them by fraud.
The agreement is void as its object is unlawful.
(ii) X promises to obtain for Y an employment in the Government service and Y promises to pay Rs.
1,500 to X. The agreement is void, as the consideration for it is unlawful.
(iii) X promises to Y to drop a prosecution which he has instituted against Y for robbery, and Y promises
to restore the value of the things taken. The agreement is void as its object is unlawful.
(iv) A who is B’s mukhtr promises to exercise his influence, as such, with B in favour of C and C promises
to pay Rs. 1,000 to A. The agreement is void because it is immoral.
(v) An agreement by the proprietors of a newspaper to indemnify the printers against claims arising
from libels printed in the newspaper is void as it implies or involves injury to the person of another.

In each of these cases the consideration or object of an agreement is said to be unlawful. Every agreement
of which the object or consideration is unlawful is void.

Void and Illegal Contracts

A void contract is one which is destitue of legal effects altogether. An illegal contract too has no legal effect
as between the immediate parties to the contract, but has the further effect of tainting the collateral
contracts also with illegality. For instance A borrows from B Rs. 1,000 for lending to C a minor. The contract
between A and C is void, but B can nevertheless recover the money from A, On the other hand, if A had
borrowed Rs. 1,000 from B to buy a pistol to shoot C, the question whether B can recover the money hinges
on whether B was aware of the purpose for which money was borrowed. If B had knowledge of the illegal
purpose, he cannot recover. Therefore, it may be said that all illegal agreements are void but all void
agreements are not necessarily illegal.

Consequence of Illegal Agreements

an illegal agreement is entirely void;
(a) no action can be brought by a party to an illegal agreement. The maxim is “Ex turpi cause non- oritur
action” - from an evil cause, no action arises;
(b) money paid or property transferred under an illegal agreement cannot be recovered. The maxim is in
parti delicto potierest condition defendeties- In cases of equal guilt, more powerful is the condition
of the defendant;
(c) where an agreement consist of two parts, one part legal and other illegal, and the legal parts is
separable from the illegal one, then the Court will enforce the legal one. If the legal and the illegal
parts cannot be separated the whole agreement is illegal; and
(d) any agreement which is collateral to an illegal agreement is also tainted with illegality and is treated
as being illegal, even though it would have been lawful by itself [Film Pratapchand v. Firm Kotri Re.
AIR (1975) S.C. 1223].

Exception to General Rule of no Recovery of Money or Property

In the following cases, a party to an illegal agreement may sue to recover money paid or property
 NAHATA PROFESSIONAL ACADEMY 373

transferred:
(a) Where the transfer is not in pari delicto (equally guilty) with the defendant, i.e. the transferee. For
example, where A is induced to enter into an illegal agreement by the fraud of B, A may recover the
money paid if he did not know that the contract was illegal.
(b) If the plaintiff can frame a cause of action entirely dependent of the contract.
(c) Where a substantial part of the illegal transaction has not been carried out and the plaintiff is truly
and genuinely repentant. [Bigos v. Bonstead (1951), All E.R. 92].

AGREEMENTS VOID AS BEING OPPOSED TO PUBLIC POLICY

The head public policy covers a wide range of topics. Agreements may offend public policy by tending to
the prejudice of the State in times of war, by tending to the abuse of justice or by trying to impose
unreasonable and inconvenient restrictions on the free choice of individuals in marriage, or their liberty to
exercise lawful trade or calling. The doctrine of public policy is a branch of Common Law and like any other
branch of Common Law it is governed by the precedents [Gherulal Parakh v. Mahadeodas Maiya (1959) 2
S.C.R. (Suppl.) 406; AIR 1959 S.C. 781].

The doctrine of public policy is not to be extended beyond the classes of cases already covered by it and no
Court can invent a new head of public policy [Lord Halsbury, Janson v. Driefontien Consolidated Mines
(1902) A.C. 484, 491].

It has been said by the House of Lords that public policy is always an unsafe and treacherous ground for
legal decisions. Even if it is possible for Courts to evolve a new head of public policy, it should be done
under extraordinary circumstances giving rise to incontestable harm to the society.
The following agreements are void as being against public policy but they are not illegal:
(a) Agreement in restrain of parental rights: An agreement by which a party deprives himself of the
custody of his child is void.
(b) Agreement in restraint of marriage: An agreement not to marry at all or not to marry any particular
person or class of persons is void as it is in restraint of marriage.
(c) Marriage brokerage or brokerage Agreements: An agreement to procure marriage for reward is
void. Where a purohit (priest) was promised Rs. 200 in consideration of procuring a wife for the
defendant, the promise was held void as opposed to public policy, and the purohit could not
recover the promised sum.
(d) Agreements in restraint of personal freedom are void: Where a man agreed with his money lender
not to change his residence, or his employment or to part with any of his property or to incur any
obligation on credit without the consent of the money lender, it was held that the agreement was
void.
(e) Agreement in restraint of trade: An agreement in restraint of trade is one which seeks to restrict a
person from freely exercising his trade or profession.

AGREEMENTS IN RESTRAINT OF TRADE VOID

Section 27 of the Indian Contract Act states that every agreement by which any one is restrained from
exercising a lawful profession, trade or business of any kind, is, to that extent, void.

This Section is not happily worded and has been criticised by many authors. It appears from the wording
that every kind of restraint, whether total or partial falls within the prohibition of this Section. In English law
the Courts have held that if a restraint is reasonable, it will be valid. Leading case on his point is Nordenfelt
v. Maxim Nordenfelt Guns Co., (1894) A.C. 535. N was an inventor and a manufacturer of guns and
ammunition. He sold his world-wide business to M and promised not to manufacture guns anywhere in the
world for 25 years. The House of Lords held that the restraint was reasonable as it was no more than is
necessary for the protection of the company, the contract was binding. Whether a restraint is reasonable or
not depends upon the facts of each case.

Other type of restrains is personal covenants between an employer and his employee whereby the latter
agrees not to compete with the former or serve with any of his competitors after employment.
 NAHATA PROFESSIONAL ACADEMY 374

Our courts are not consistent on the point whether reasonable restraints are permitted or not.

In Madhub Chunder v. RaCoomar (1874) 14 Bang. L.R. 76, A paid Rs. 900 to B’s workman. B undertook to
stop his business in a particular locality in Calcutta. He did not keep his promise. A’s suit for the sum was
dismissed since the agreement was void under Section 27. The reasonableness or otherwise of the
restraint was not discussed. However, if a restrictive meaning is adopted, most of the ordinary mercantile
agreements may be hit. Thus, the Courts have held that if the restraint is one which is really necessary for
the carrying on business, the same is not prohibited. In Mackenzie v. Sitarmiah, (1891) 15 Mad. 79, A
agreed to sell to B all the salt he manufactured and B agreed to buy such salt. A further agreed not to sell
salt to third-parties. The Court held that the agreement was valid.

This issue came before the Supreme Court in Niranjan Shanker Golikari v. The Century Spinning and
Manufacturing Co. Ltd., AIR 1967 S.C. 1098. In this case N entered into a bond with the company to serve
for a period of five years. In case, N leaves his job earlier and joins elsewhere with companys competitor
within five years, he was liable for damages. N was imparted the necessary training but he left the job and
joined another company. The former employer instituted a suit against N. The Supreme Court, held that the
restraint was necessary for the protection of the companys interests and not such as the Court would
refuse to enforce.

In other case, it has been reiterated that the restriction should be reasonable taking into account the
facts and circumstances of the case. In Superintendence Company of India Ltd. v. Krishna Murgai [(1981)
2 SCC 246], the Supreme Court laid down that a restraint beyond the term of service would be void and
the only ground on which it can be justified is by showing it is necessary for the protection of the
employers goodwill.

The words “to the extent” in Section 27 make it clear that if in an agreement there are some convenants
which are prohibited whereas the others are not and if the two parts can be separated then only those
convenants which operate as restraint of trade would be void and not whole of the agreement itself. To
illustrate, in Brahmputra Tea Co. Ltd. v. Scarth(1885) I.L.R. Cal. 545, the employee agreed with the employer
firstly, not to compete with latter after leaving the job and, secondly, not to injure employer’s interest
during employment. The Court held that the first condition is a restraint of trade but the second is binding.

When Contracts in Restraint of Trade Valid

Prima facie every restraint of trade is void , but certain exceptions to this general rule are recognised. If a
partial and reasonable restraint falls under any of the following exceptions, the contract will be
enforceable:
(a) Sale of goodwill: Where the seller of the goodwill of a business undertakes not to compete with the
purchaser of the goodwill, the contract is enforceable provided the restraint appears to be reasonable
as to territorial limits and the length of time.
(b) Partners agreements: Section 11(2) of the Indian Partnership Act permits contracts between partners
to provide that a partner shall not carry on any business other than that of the firm while he is a
partner.
(c) Section 36(2) and Section 54 of the Indian Partnership Act provide that a partner may make an
agreement with his partners that on ceasing to be a partner he will not carry on any business similar to
that of the firm within specified period or within specified limits. The agreement shall be binding if the
restrictions are reasonable.

Trade Combinations: An agreement, the object of which is to regulate business and not to restrain it is
valid. Thus, an agreement in the nature of a business combination between traders or manufactures e.g.
not to sell their goods below a certain price, to pool profits or output and to divide the same in an agreed
proportion does not amount to a restraint of trade and is perfectly valid [Fraster& Co. v. Laxmi Narain,
(1931) 63 All 316].

Negative stipulations in service agreements: An agreement of service by which a person binds himself
during the term of the agreement not to take service with anyone else is not in restraint of lawful
 NAHATA PROFESSIONAL ACADEMY 375

profession and is valid.

Wagering Agreements
The literal meaning of the word “wager” is a “bet”. Wagerning agreements are nothing but ordinary betting
agreements. For example, A and B enter into an agreement that if Englands Cricket Team wins the test
match, A will pay B Rs. 100 and if it loses B will pay Rs. 100 to A. This is a wagering agreement and nothing
can be recovered by winning party under the agreement.
The essence of gaming and wagering is that one party is to win and the other to lose upon a future event
which at the time of the contract is of an uncertain nature that is to say, if the event turns out one way A
will lose; but if it turns out the other way he will win [Thacker v. Hardy, (1878) 4 OBD 685].

Wagering Agreements Void

In India except Mumbai, wagering agreements are void. In Mumbai, wagering agreements have been
declared illegal by the Avoiding Wagers (Amendment) Act, 1865. Therefore, in Mumbai a wagering
agreement being illegal, is void not only between the immediate parties, but taints and renders void all
collateral agreements to it.

Thus, A bets with B and losses, applies to C for a loan, who pays B in settlement of A’s losses. C cannot
recover from A because this is money paid “under” or “in respect of” a wagering transaction which is illegal
in Mumbai. But in respect of India such a transaction (i.e., betting) being only void, C could recover from A.
Of course, if A refused to pay B the amount of the bet that he has lost, B could not sue A anywhere. Again,
where an agent bets on behalf of his principal and looses and pays over the money to the winner, he cannot
recover the money from his principal, if the transactions took place in Mumbai, but elsewhere he could
recover. But if the agent wins, he must pay the winnings to the principal, as this money was received on
behalf of the principal.

Sometimes, commercial transactions assume the form of wagering contracts. The sample test to find out
whether a particular transaction is a wager or a genuine commercial transaction is: “Where delivery of the
goods sold is intended to be given and taken, it is valid contract, but where only the differences are
intended to be paid, it will be a wagering contract and unenforceable”.

In a wagering contract there must be mutuality in the sense that the gain of one party should be loss to the
other on the happening of an uncertain event which is the subject matter of the contract.

Void Agreements
The following types of agreements are void under Indian Contract Act:
(a) Agreement by or with a minor or a person of unsound mind or a person disqualified to enter into a
contract - Section 11.
(b) Agreement made under a mistake of fact, material to the agreement on the part of the both the
parties - Section 20.
(c) An agreement of which the consideration or object is unlawful - Section 23.
(d) If any part of a single consideration for one or more objects, or any one or any part of any one of
several considerations for a single object, is unlawful, the agreement is void - Section 24.
(e) An agreement made without consideration subject to three exceptions provided to Section 25.
(f) An agreement in restraint of marriage - Section 26.
(g) An agreement in restraint of trade - Section 27.
(h) An agreement in restraint of legal proceedings - Section 28.
(i) Agreements, the meaning of which is not certain, or capable of being made certain - Section 29.
(j) Agreement by way of wager- Section 30.
(k) An agreement to enter into an agreement in the future.
(l) An agreement to do an act impossible in itself - Section 56(1)

When contract becomes void

An agreement not enforceable by law is void ab initio - Section 2(g).
A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable - Section
 NAHATA PROFESSIONAL ACADEMY 376

2( j) A contract becomes void when, by reason of some event which the promisor could not prevent, the
performance of the contract becomes impossible, e.g., by destruction of the subject- matter of the contract
after the formation of the contract.
A contract becomes void by reason of subsequent illegality. A in India agrees to supply goods to B in
Pakistan. After the formation of the contract war breaks out between India and Pakistan and the supply of
goods to Pakistan is prohibited by legislation. The contract becomes void.
A contingent contract to do or not do to anything if an uncertain future event happens becomes void if the
event becomes impossible.
Where a contract is voidable at the option of the aggrieved party, the contract becomes void when the
option is exercised by him.

Restitution
When a contract becomes void, it is not to be performed by either party. But if any party has received any
benefit under such a contract from the other party he must restore it or make compensation for it to the
other party. A agrees to sell to B after 6 months a certain quantity of gold and receives Rs. `500 as advance.
Soon after the agreement, private sales of gold are prohibited by law. The contract becomes void and A
must return the sum of Rs. 500 to B.
Restitution is also provided for by Section 65 where an agreement is discovered to be void. A pays Rs. 500 in
consideration of B’s promising to marry, C, A’s daughter C is dead at the time of the promise. The
agreement is discovered to be void and B must pay back Rs. 500.
But there is no resolution where the parties are wholly incompetent to contract, e.g., where one of the
parties is a minor. The minor cannot be asked to restore the benefit, e.g., a minor borrowed Rs. 1,000 from
B, he cannot be asked to pay back Rs. 1,000 to B because the contract is void (Mohori Bibis case).

Contingent Contract (section 31)

As per Section 31, a contingent contract is a contract to do or not to do something, if some event collateral
to such contract, does or does not happen. For example, A contracts to sell B 10 bales of cotton for Rs.
20,000, if the ship by which they are coming returns safely. This is a contingent contract.
Contract of insurance and contracts of indemnity and guarantee are popular instances of contingent
contracts.
Rules regarding contingent contracts
The following rules are contained in Section 32-36:
(a) Contracts contingent upon the happening of a future uncertain event cannot be enforced by law
unless and until that event has happened. If the event becomes impossible, the contract becomes void
- Section 32.
(i) A makes a contract to buy B’s house if A survives C. This contract cannot be enforced by law
unless and until C dies in A’s lifetime.
(ii) A contracts to pay B a sum of money when B marries C, C dies without being married to B. The
contract becomes void.
(b) Contracts contingent upon the non-happening of an uncertain future event can be enforced when the
happening of that event becomes impossible and not before - Section 33.
A contracts to pay B a certain sum of money if a certain ship does not return. The ship is sunk. The
contract can be enforced when the ship sinks.
(c) If a contract is contingent upon how a person will act at an unspecified time, the event shall be
considered to become impossible when such person does anything which renders it impossible that he
should so act within any definite time or otherwise than under further contingencies - Section 34.
(d) Contracts contingent on the happening of an event within a fixed time become void if, at the
expiration of the time, such event has not happened, or if, before the time fixed, such event becomes
impossible - Section 35.
(e) Contracts contingent upon the non-happening of an event within a fixed time may be enforced by law
when the time fixed has expired and such event has not happened or before the time fixed has
expired, if it becomes certain that such event will not happen - Section 35.
(f) Contingent agreements to do or not to do anything if an impossible event happens, are void, whether
the impossibility of the event is known or not known to the parties to the agreement at the time when
it is made- Section 36.
 NAHATA PROFESSIONAL ACADEMY 377

CERTAIN RELATIONS RESEMBLING THOSE OF CONTRACT (QUASI CONTRACTS)

Nature of Quasi-Contracts
A valid contract must contain certain essential elements, such as offer and acceptance, capacity to contract,
consideration and free consent. But sometimes the law implies a promise imposing obligations on one party
and conferring right in favour of the other even when there is no offer, no acceptance, no consensus ad
idem, and in fact, there is neither agreement nor promise. Such cases are not contracts in the strict sense,
but the Court recognises them as relations resembling those of contracts and enforces them as if they were
contracts, hence the term quasi- contracts (i.e., resembling a contract).
A quasi-contract rests on the equitable principle that a person shall not be allowed to enrich himself
unjustly at the expense of another. In truth, it is not a contract at all. It is an obligation which the law
creates, in the absence of any agreement, when any person is in the possession of other persons money, or
its equivalent, under such circumstances that in equity and good conscience he ought not to retain it, and
which in justice and fairness belongs to another. It is the duty and not an agreement or intention which
defines it. A very simple illustration is money paid under mistake. Equity demands that such money must be
paid back.

Quasi-Contracts or Implied Contracts under the Indian Contract Act

The following types of quasi-contracts have been dealt within the Indian Contract Act—
(a) Necessaries supplied to person incapable of contracting or to anyone whom he is illegally bound to
support - Section 68.
(b) Suit for money had and received - Section 69 and 72.
(c) Quantum Meruit.
(d) Obligations of a finder of goods - Section 71.
(e) Obligation of person enjoying benefit of a non-gratuitous act - Section 70.

Necessaries
Contracts by minors and persons of unsound mind are void. However, Section 68 of the Indian Contract Act
provides that their estates are liable to reimburse the trader, who supplies them with necessaries of life.

Suit for money had and received

The right to file a suit for the recovery of money may arise
(a) Where the plaintiff paid money to the defendant (i) under a mistake, (ii) in pursuance of a contract the
consideration for which has failed, or (iii) under coercion, oppression, extortion or other such means.
A debtor may recover, from a creditor the amount of an over-payment made to him by mistake. The
mistake may be mistake of fact or a mistake of law.
(b) Payment to third-party of money which another is bound to pay. For example, where A’s goods are
wrongfully attached in order to realise arrears of Government revenue due by B, and A pays the
amount to save his goods from being sold, he is entitled to recover the amount from B.
(c) Money obtained by defendant from third-parties. For example, where an agent has obtained a secret
commission or a fraudulent payment from a third-party, the principle can recover the amount from
the agent.

Quantum Meruit
The expression “Quantum Meruit” literally means “as much as earned” or reasonable remuneration. It is
used where a person claims reasonable remuneration for the services rendered by him when there was no
express promise to pay the definite remuneration, Thus, the law implies reasonable compensation for the
services rendered by a party if there are circumstances showing that these are to be paid for.
The general rule is that where a party to a contract has not fully performed what the contract demands as a
condition of payment, he cannot sue for payment for that which he has done. The contract has to be
indivisible and the payment can be demanded only on the completion of the contract.
But where one party who has performed part of his contract is prevented by the other from completing it,
he may sue on a quantum meruit, for the value of what he has done.
The claim on a quantum meruit arises when one party abandons the contract, or accepts the work done by
another under a void contract.
 NAHATA PROFESSIONAL ACADEMY 378

The party in default may also sue on a “quantum meruit” for what he has done if the contract is divisible
and the other party has had the benefit of the part which has been performed. But if the contract is not
divisible, the party at fault cannot claim the value of what he has done.

Obligations of finder of lost goods

The liability of a finder of goods belonging to someone else is that of a bailee. This means that he must take
as much care of the goods as a man of ordinary prudence would take of his own goods of the same kind. So
far as the real owner of the goods is concerned, the finder is only a bailee and must not appropriate the
goods to his own use. If the owner is traced, he must return the goods to him. The finder is entitled to get
the reward that may have been offered by the owner and also any expenses he may have incurred in
protecting and preserving the property.

Obligation of a person enjoying benefit of non-gratuitous act

Section 70 of the Indian Contract Act provides that where a person lawfully does something for another
person or delivers anything to him without any intention of doing so gratuitously and the other person
accepts and enjoys the benefit thereof, the latter must compensate the former or restore to him the thing
so delivered. For example, when one of the two joint tenants pays the whole rent to the landlord, he is
entitled to compensation from his co-tenant, or if A, a tradesmen, leaves goods at B’s house by mistake and
B treats the goods as his own, he is bound to pay A for them.

DISCHARGE OR TERMINATION OF CONTRACTS

A contract is said to be discharged or terminated when the rights and obligations arising out of a contract
are extinguished.
Contracts may be discharged or terminated by any of the following modes:

(a) Performance of Contracts (Section 37)

Section 37 of the Act provides that the parties to a contract must either perform or offer to perform
their respective promises, unless such performance is dispensed with or excused under the provision
of the Indian Contract Act, or any other law. In case of death of the promisor before performance,
the representatives of the promisor are bound to perform the promise unless a contrary intention
appears from the contract.

Tender of Performance (Section 38)

In case of some contracts, it is sometimes sufficient if the promisor performs his side of the contract.
Then, if the performance is rejected,the promisor is discharged from further liability and may sue for
the breach of contract if he so wishes. This is called discharge by tender.

To be valid, a tender must fulfil the following conditions

i. it must be unconditional;
ii. if must be made at a proper time and place;
iii. it must be made under circumstances enabling the other party to ascertain that the party by
whom it is made is able and willing then and there to do the whole of what he is bound, to do
by his promise;
iv. if the tender relates to delivery of goods, the promisee must have a reasonable opportunity of
seeing that the thing offered is the thing which the promisor is bound by his promise to
deliver;
v. tender made to one of the several joint promisees has the same effect as a tender to all of
them.

Who can demand performance?

Generally speaking, a stranger to contract cannot sue and the person who can demand performance
is the party to whom the promise is made. But an assignee of the rights and benefits under a
contract may demand performance by the promisor, in the same way as the assignor, (i.e., the
 NAHATA PROFESSIONAL ACADEMY 379

promisee) could have demanded.

Effect of refusal of party to perform wholly

Section 39 provides that when a party to a contract has refused to perform or disabled himself from
performing his promise in its entirety, the promisee may put an end to the contract unless he had
signified by words or conduct his acquiescence in its continuance.

By whom contract must be performed

Under Section 40 of the Act, if it appears from the nature of the case that it was the intention of the
parties to a contract that it should be performed by the promisor himself such promise must be
performed by the promisor himself. In other cases, the promisor or his representative may employ a
competent person to perform it.

Devolution of Joint Liabilities

Under Section 42 of the Indian Contract Act, where two or more persons have made a joint promise
then, unless a contrary intention appears from the contract all such persons should perform the
promise. If any one of them dies, his representatives jointly with the survivor or survivors should
perform. After the death of the last survivor, the representatives of all jointly must fulfil the promise.
Under Section 43 of the Indian Contract Act when two or more persons made a joint promise, the
promisee may, in the absence of an express agreement to the contrary compel any one or more of
such joint promisors to perform the whole of the promise. Each of two or more joint promisors may
compel every other joint promisor to contribute equally with himself to the performance of the
promise unless a contrary intention appears from the contract. If any one of two ore more promisors
make default in such contribution, the remaining joint promisors should bear the loss arising from
such default in equal share.

Under Section 44 of the Act, where two or more persons have made a joint promise, a release of one
of such joint promisors by the promisee does not discharge the other joint promisor(s); neither does
it free the joint promisor so released from responsibility to the other joint promisor or joint
promisors.

Devolution of Joint Rights

A promise may be made to two or more persons. The promisees are called joint promisees. For
example, X may give a promise to repay Rs. 1,000 given by Y and Z jointly. In such case, in the
absence of a contrary intention, the right to claim, performance rests with Y and Z. If Y dies, Y’s
representative jointly with Z may, demand performance. If Z also dies, the representatives of Y and Z
may demand jointly performance from X.

Assignment
The promisee may assign rights and benefits of contract and the assignee will be entitled to demand
performance by the promisor. But the assignment to be complete and effectual, must be made by an
instrument in writing.

An obligation or liability under a contract cannot be assigned. For example, if A owes B Rs. 500 and A
transfers the liability to C i.e. asks C to pay the sum to B, this would not bind B, and B may not
consent to this arrangement, as he may know nothing of C’s solvency. But if B consents to accept
performance by C, there is a substitution of new contract and the old contract is discharged and all
rights and liabilities under it are extinguished. This is technically called novation.

(b) Discharge by Mutual Agreement or Consent (Sections 62 and 63)

A contract may be discharged by the agreement of all parties to the contract, or by waiver or release
by the party entitled to performance.
Methods stipulated under Sections 62 and 63 of the Indian Contract Act for discharging a contract by
mutual consent are:
 NAHATA PROFESSIONAL ACADEMY 380

Novation – when a new contract is substituted for existing contract either between the same parties
or between different parties, the consideration mutually being the discharge of the old contract.
Alteration – change in one or more of the material terms of a contract.
Rescission – by agreement between the parties at any time before it is discharged by performance or
in some other way.
Remission – acceptance of a lesser sum than what was contracted for or a lesser fulfilment of the
promise made.
Waiver – deliberate abandonment or giving up of a right which a party is entitled to under a
contract, where upon the other party to the contract is released from his obligation.

(c) Discharge by Lapses of Time

The Limitation Act, in certain circumstance, affords a good defence to suits for breach of contract,
and infact terminates the contract by depriving the party of his remedy to law. For example, where a
debtor has failed to repay the loan on the stipulated date, the creditor must file the suit against him
within three years of the default. If the limitation period of three years expires and he takes no
action he will be barred from his remedy and the other party is discharged of his liability to perform.

(d) Discharge by Operation of the Law

Discharge under this head may take place as follows:
(a) By merger: When the parties embody the inferior contract in a superior contract.
(b) By the unauthorised alteration of items of a written document: Where a party to a written contract
makes any material alteration without knowledge and consent of the other, the contract can be
avoided by the other party.
(c) By insolvency: The Insolvency Act provides for discharge of contracts under particular circumstances.
For example, where the Court passes an order discharging the insolvent, this order exonerates or
discharges him from liabilities on all debts incurred previous to his adjudication.

(e) Discharge by Impossibility or Frustration (Section 56).

A contract which is entered into to perform something that is clearly impossible is void. For instance,
A agrees with B to discover treasure by magic. The agreement is void by virtue of Section 56 para 1
which lays down the principle that an agreement to do an act impossible in itself is void.

Sometimes subsequent impossibility (i.e. where the impossibility supervenes after the contract has
been made) renders the performance of a contract unlawful and stands discharged; as for example,
where a singer contracts to sing and becomes too ill to do so, the contract becomes void. In this
connection, para 2 of Section 56 provides that a contract to do an act, which after the contract is
made, becomes impossible or by reason of some event which the promisor could not prevent,
unlawful, becomes void when the act becomes impossible or unlawful.
If the impossibility is not obvious and the promisor alone knows of the impossibility or illegally then
existing or the promisor might have known as such after using reasonable diligence, such promisor is
bound to compensate the promisee for any loss he may suffer through the non-performance of the
promise inspite of the agreement being void ab-initio (Section 56, para 3).

Discharge by Supervening Impossibility

A contract will be discharged by subsequent or supervening impossibility in any of the following ways:
(a) Where the subject-matter of the contract is destroyed without the fault of the parties, the
contract is discharged.
(b) When a contract is entered into on the basis of the continued existence of a certain state of
affairs, the contract is discharged if the state of things changes or ceases to exist.
(c) Where the personal qualifications of a party is the basis of the contract, the contract is
discharged by the death or physical disablement of that party.

Discharge by Supervening Illegality

A contract which is contrary to law at the time of its formation is void. But if, after the making of the
contract, owing to alteration of the law or the act of some person armed with statutory authority the
 NAHATA PROFESSIONAL ACADEMY 381

performance of the contract becomes impossible, the contract is discharged. This is so because the
performance of the promise is prevented or prohibited by a subsequent change in the law. A enters
into contract with B for cutting trees. By a statutory provision cutting of trees is prohibited except
under a licence and the same is refused to A. The contract is discharged.
Cases in which there is no supervening impossibility
In the following cases contracts are not discharged on the ground of supervening impossibility–
(a) Difficulty of performance: The mere fact that performance is more difficult or expensive than
the parties anticipated does not discharge the duty to perform.
(b) Commercial impossibilities do not discharge the contract. A contract is not discharged merely
because expectation of higher profits is not realised.
(c) Strikes, lockouts and civil disturbance like riots do not terminate contracts unless there is a
clause in the contract providing for non-performance in such cases.

Supervening impossibility or illegality is known as frustration under English Law.

(f) Discharge by Breach

Where the promisor neither performs his contract nor does he tender performance, or where the
performance is defective, there is a breach of contract. The breach of contract may be
(i) actual; or (ii) anticipatory.
The actual breach may take place either at the time the performance is due, or when actually
performing the contract. Anticipatory breach means a breach before the time for the performance
has arrived. This may also take place in two ways – by the promisor doing an act which makes the
performance of his promise impossible or by the promisor in some other way showing his intention
not to perform it.

ANTICIPATORY BREACH OF CONTRACT

Breach of contract may occur, before the time for performance is due. This may happen where one of the
parties definitely renounces the contract and shows his intention not to perform it or does some act which
makes performance impossible. The other party, on such a breach being committed, has a right of action
for damages.
He may either sue for breach of contract immediately after repudiation or wait till the actual date when
performance is due and then sue for breach. If the promisee adopts the latter course, i.e., waits till the date
when performance is due, he keeps the contract alive for the benefit of the promisor as well as for his own.
He remains liable under it and enables the promisor not only to complete the contract in spite of previous
repudiation, but also to avail himself of any excuse for non- performance which may have come into
existence before the time fixed for performance.

In Hochester v. De La Tour (1853) E.R. 922, A hired B in April to act as a courier commencing employment
from 1st June, but wrote to B in May repudiating the agreement, B sued A for breach of contract
immediately after repudiation. A contended that there could not be breach of contract before June 1.
Held, B was immediately entitled to sue and need not wait till 1st June, for his right of action to accrue.

In Avery v. Bowden (1856) 116 E.R. 1122, A hired B’s ship to carry a cargo from Russia. Later on B
repudiated the contract. A delayed taking action hoping B would change his mind before the performance
date. War broke out between Russia and Britain before the performance date frustating the contract.
Held, A lost his right to sue B for damages by his delay.

In Frost v. Knight (1872) L.R. 7 Ex. 111, the law on the subject of anticipatory breach was summed up as
follows: “The promisee if he pleases may treat the notice of intention as inoperative and await the time
when the contract is to be executed and then hold the other party responsible for all the consequences of
non-performance: but in that case he keeps the contract alive for the benefit of the other party as well as
his own; he remains subject to all his own obligations and liabilities under it, and enables the other party
not only to complete the contract, if so advised, notwithstanding his previous repudiation of it, but also to
take advantage of any supervening circumstances which would justify him in declining to complete it.”
 NAHATA PROFESSIONAL ACADEMY 382

REMEDIES FOR BREACH OF CONTRACT

Where a contract is broken, the injured party has several courses of action open to him. The appropriate
remedy in any case will depend upon the subject-matter of the contract and the nature of the breach. In
case of breach of contract, the injured party may:
(i) Rescind the contract and refuse further performance of the contract;

When a party to a contract has broken the contract, the other party may treat the contract as rescinded
and he is absolved from all his obligations under the contract. Under Section 65, when a party treats the
contract as rescinded, he makes himself liable to restore any benefits he has received under the contract to
the party from whom such benefits were received. Under Section 75 of the Indian Contract Act, if a person
rightfully rescinds a contract, he is entitled to a compensation for any damage which he has sustained
through the non-fulfilment of the contract by the other party. Section 64 deals with consequences of
rescission of voidable contracts, i.e., where there is flaw in the consent of one party to the contract. Under
this Section when a person at whose option a contract is voidable rescinds, the other party thereto need
not perform any promise therein contained in which he is the promisor. The party rescinding a voidable
contract shall, if he has received any benefit thereunder, from another party to such contract, restore such
benefit so far as may be, to the person from whom it was received.

(ii) Damages for Breach of Contract

Under Section 73 of the Indian Contract Act, when a contract has been broken, a party who suffers by such
breach is entitled to receive, from the party who has broken the contract, compensation for any loss or
damage, caused to him thereby, which naturally arose in the usual course of things from such breach or
which the parties knew, when they made the contract to be likely to result from the breach of it. Such
compensation is not to be given for any remote and indirect loss or damage sustained by reason of the
breach.
The foundation of the claim for damages rests in the celebrated case of Hadley v. Baxendale, (1854) 9 Ex.
341. The facts of this case were as follows:
There was a breakdown of a shaft in A’s mill. He delivered the shaft to B, a common carrier to be taken to
a manufacturer to copy and make a new one. A did not make known to B that delay would result in loss
of profits. By some neglect on the part of B, the delivery of the shaft was delayed in transit beyond a
reasonable time. As a result, the mill was idle for a longer period than it would otherwise have been, had
there been no such delay. It was held, B was not liable for the loss of profits during the period of delay as
the circumstances communicated to A did not show that the delay in the delivery of the shaft would
entail loss of profits to the mill. In the course of the judgement it was observed:
“Where two parties have made a contract which one of them has broken, the damages which the other
party ought to receive in respect of such breach of contract should be such as may fairly and reasonably
be considered either arising naturally, i.e., according to the usual course of things from such breach of
contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties
at the time they made the contract as the probable result of the breach of it. Now, if the special
circumstances under which the contract was actually made were communicated by the plaintiffs to the
defendants and thus known to both the parties, the damages resulting from the breach of such a contract
which they would reasonably contemplate, would be the amount of injury which would ordinarily follow
from a breach of contract under these special circumstances so known and communicated. But, on other
hand, if these special circumstances were wholly unknown to the party breaking the contract, he at the
most could only be supposed to have had in his contemplation, the amount of injury which would arise
generally and in the great multitude of cases not affected by any special circumstances from such breach
of contract. For, had the special circumstances been known, the parties might have specially provided for
the breach of contract by special terms as to damages in that case and of this advantage it would be very
unjust to deprive them.”

Liquidated and Unliquidated damages: Where the contracting parties agree in advance the amount
payable in the event of breach, the sum payable is called liquidated damages.
 NAHATA PROFESSIONAL ACADEMY 383

Where the amount of compensation claimed for a breach of contract is left to be assessed by the Court,
damages claimed are called unliquidated damages.
Unliquidated Damages
Those are of the following kinds:
(a) general or ordinary damages,
(b) special damages,
(c) exemplary or punitive damages, and
(d) nominal damages.
Ordinary Damages
These are restricted to pecuniary compensation to put the injured party in the position he would have been
had the contract been performed. It is the estimated amount of loss actually incurred. Thus, it applies only
to the proximate consequences of the breach of the contract and the remote consequences are not
generally regarded. For example, in a contract for the sale of goods, the damages payable would be the
difference between the contract price and the price at which the goods are available on the date of the
breach.
Special Damages
Special damages are those resulting from a breach of contract under some peculiar circumstances. If at the
time of entering into the contract, the party has notice of special circumstances which makes special loss
the likely result of the breach in the ordinary course of things, then upon his-breaking the contract and the
special loss following this breach, he will be required to make good the special loss. For example, A
delivered goods to the Railway Administration to be carried to a place where an exhibition was being held
and told the goods clerk that if the goods did not reach the destination on the stipulated date he would
suffer a special loss. The goods reached late. He was entitled to claim special damages.
Exemplary Damages
These damages are awarded to punish the defendant and are not, as a rule, granted in case of breach of
contract. In two cases, however, the court may award such damages, viz.,
(i) breach of promise to marry; and
(ii) wrongful dishonour of a customer scheque by the banker.
In a breach of promise to marry, the amount of the damages will depend upon the extent of injury to the
partys feelings. In the bankers case, the smaller the amount of the cheque dishonoured, larger will be
damages as the credit of the customer would be injured in a far greater measure, if a cheque for a small
amount is wrongfully dishonoured.
Nominal Damages
Nominal damages consist of a small token award, e.g., a rupee of even 25 paise, where there has been an
infringement of contractual rights, but no actual loss has been suffered. These damages are awarded to
establish the right to decree for breach of contract.

Liquidated Damages and Penalty

Where the contracting parties fix at the time of contract the amount of damages that would be payable in
case of breach, in English law, the question may arise whether the term amounts to “liquidated damages”
or a “penalty”? The Courts in England usually give effect to liquidated damages, but they always relieve
against penalty.
The test of the two is that where the amount fixed is a genuine pre-estimate of the loss in case of breach, it
is liquidated damages and will be allowed. If the amount fixed is without any regard to probable loss, but is
intended to frighten the party and to prevent him from committing breach, it is a penalty and will not be
allowed.
In Indian law, there is no such difference between liquidated damages and penalty. Section 74 provides
for “reasonable compensation” upto the stipulated amount whether it is by way of liquidated damages
or penalty. For example, A borrows Rs. 500 from B and promises to pay Rs. 1,000 if he fails to repay Rs.
500 on the stipulated date. On A’s failure to repay on the given date, B is entitled to recover from A such
compensation, not exceeding Rs. 1,000 as the Court may consider reasonable. (Union of India v. Raman
Iron Foundry, AIR 1974 SC 1265).

(iii) Specific Performance

It means the actual carrying out by the parties of their contract, and in proper cases the Court will insist
 NAHATA PROFESSIONAL ACADEMY 384

upon the parties carrying out this agreement. Where a party fails to perform the contract, the Court may, at
its discretion, order the defendant to carry out his undertaking according to the terms of the contract. A
decree for specific performance may be granted in addition to or instead of damages.
Specific performance is usually granted in contracts connected with land, e.g., purchase of a particular plot
or house, or to take debentures in a company. In case of sale of goods, it will only be granted if the goods
are unique and cannot be purchased in the market, e.g., a particular race horse, or one of special value to
the party suing by reason of personal or family association, e.g., an heirloom.
Specific performance will not be ordered:
(a) where monetary compensation is an adequate remedy;
(b) where the Court cannot supervise the execution of the contract, e.g., a building contract;
(c) where the contract is for personal service; and
(d) where one of the parties is a minor.

(iv) Injunction
An injunction, is an order of a Court restraining a person from doing a particular act. It is a mode of securing
the specific performance of a negative term of the contract, (i.e., where he is doing something which he
promises not to do), the Court may in its discretion issue an order to the defendant restraining him from
doing what he promised not to do. Injunction may be prohibitory or mandatory. In prohibitory, the Court
restrains the commission of a wrongful act whereas in mandatory, it restrains continuance of a wrongful
commission. In Lumley v. Wagner (1852) 90 R.R. 125. W agreed to sing at L’s theatre and nowhere else. W,
in breach of contract with L entered into a contract to sing for Z. Held, although W could not be compelled
to sing at L’s theatre, yet she could be restrained by injunction from singing for Z.

CONTRACT OF INDEMNITY AND GUARANTEE (SECTIONS 124 TO 147)

Meaning of Indemnity
A contract of indemnity is a contract by which one party promises to save the other party from loss caused
to him by the conduct of the promisor himself, or by the conduct of any other person (Section 124).

The person who promises to indemnify or make good the loss is called the indemnifier and the person
whose loss is made good is called the indemnified or the indemnity holder. A contract of insurance is an
example of a contract of indemnity according to English Law. In consideration of premium, the insurer
promises to make good the loss suffered by the assured on account of the destruction by fire of his
property insured against fire.

Under the Indian Contract Act, the contract of indemnity is restricted to such cases only where the loss
promised to be reimbursed, is caused by the conduct of the promisor or of any other person. The loss
caused by events or accidents which do not depend on the conduct of any person, it seems, cannot be
sought to be reimbursed under a contract of indemnity.

Rights of Indemnity Holder when Sued

Under Section 125, the promisee in a contract of indemnity, acting within the scope of his authority, is
entitled to recover from the promisor—
1. all damages which he may be compelled to pay in any suit in respect of any matter to which the
promise to indemnify applies;
2. all costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not
contravene the orders of the promisor, and acted as if it would have been prudent for him to act in the
absence of any contract of indemnity, or if the promisor authorised him to bring or defend the suit;
and
3. all sums which he may have paid under the terms of any compromise of any such suit, if the
compromise was not contrary to the orders of the promisor, and was one which it would have been
prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor
authorised him to compromise the suit.

Meaning of Contract of Guarantee

 NAHATA PROFESSIONAL ACADEMY 385

A contract of guarantee is a contract to perform the promise, or discharge the liability of a third person in
case of his default. The person who gives the guarantee is called the Surety, the person for whom the
guarantee is given is called the Principal Debtor, and the person to whom the guarantee is given is called
the Creditor (Section 126). A guarantee may be either oral or written, although in the English law, it must
be in writing.

illustration
Like a contract of indemnity, a guarantee must also satisfy all the essential elements of a valid contract.
There is, however, a special feature with regard to consideration in a contract of guarantee. The
consideration received by the principal debtor is sufficient for surety. Section 127 provides that anything
done or any promise made for the benefit of the principal debtor may be a sufficient consideration to the
surety for giving the guarantee.
illustration
(i) B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee
the payment of the price of the goods. C promises to guarantee the payment in consideration of A’s
promise to deliver the goods. This is sufficient consideration for C’s promise.
(ii) A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a year, and
promises that if he does so, C will pay for them in default of payment by B. A agrees to forbear as
requested. This is sufficient consideration for C’s promise.

Like a contract of indemnity, a guarantee must also satisfy all the essential elements of a valid contract.
There is, however, a special feature with regard to consideration in a contract of guarantee. The
consideration received by the principal debtor is sufficient for surety. Section 127 provides that anything
done or any promise made for the benefit of the principal debtor may be a sufficient consideration to the
surety for giving the guarantee.

Distinction between Indemnity and Guarantee

A contract of indemnity differs from a contract of guarantee in the following ways:
(a) In a contract of indemnity there are only two parties: the indemnifier and the indemnified. In a
contract of guarantee, there are three parties; the surety, the principal debtor and the creditor.
(b) In a contract of indemnity, the liability of the indemnifier is primary. In a contract of guarantee, the
liability of the surety is secondary. The surety is liable only if the principal debtor makes a default, the
primary liability being that of the principal debtor.
(c) The indemnifier need not necessarily act at the request of the debtor; the surety gives guarantee only
at the request of the principal debtor.
(d) In the case of a guarantee, there is an existing debt or duty, the performance of which is guaranteed
by the surety, whereas in the case of indemnity, the possibility of any loss happening is the only
contingency against which the indemnifier undertakes to indemnify.
(e) The surety, on payment of the debt when the principal debtor has failed to pay is entitled to proceed
against the principal debtor in his own right, but the indemnifier cannot sue third-parties in his own
name, unless there be assignment. He must sue in the name of the indemnified.

Extent of Surety’s Liability

The liability of the surety is co-extensive with that of the principal debtor unless the contract otherwise
provides (Section 128). A creditor is not bound to proceed against the principal debtor. He can sue the
surety without suing the principal debtor. As soon as the debtor has made default in payment of the debt,
the surety is immediately liable. But until default, the creditor cannot call upon the surety to pay. In this
sense, the nature of the surety’s liability is secondary.

Section 128 only explains the quantum of a surety’s obligation when terms of the contract do not limit it.
Conversely it doesn’t follow that the surety can never be liable when the principal debtor cannot be held
liable. Thus, a surety is not discharged from liability by the mere fact that the contract between the
principal debtor and creditor was voidable at the option of the former, and was avoided by the former.
Where the agreement between the principal debtor and creditor is void as for example in the case of
minority of principal debtor, the surety is liable as a principal debtor; for in such cases the contract of the
 NAHATA PROFESSIONAL ACADEMY 386

so-called surety is not collateral, but a principal contract [Kashiba v. Shripat (1894) 19 Bom. 697].

Kinds of Guarantees
A contract of guarantee may be for an existing debt, or for a future debt. It may be a specific guarantee, or
it may be a continuing guarantee. A specific guarantee is given for a single debt and comes to an end when
the debt guaranteed has been paid.
A continuing guarantee is one which extends to a series of transactions (Section 129). The liability of surety
in case of a continuing guarantee extends to all the transactions contemplated until the revocation of the
guarantee. As for instance, S, in consideration that C will employ P in collecting the rents of C’s Zamindari,
promises C to be responsible to the amount of Rs. 5,000 for the due collection and payment by P of these
rents. This is a continuing guarantee.

Revocation of Continuing Guarantee

A continuing guarantee is revoked in the following circumstances:
(a) By notice of revocation by the surety (Section 130): The notice operates to revoke the surety’s liability
as regards future transactions. He continues to be liable for transactions entered into prior to the
notice [Offord v. Davies (1862) 6 L.T.S. 79].
(b) By the death of the surety: The death of the surety operates, in the absence of contract [Lloyds v.
Harper (188) 16 Ch. D. 290] as a revocation of a continuing guarantee, so far as regards future
transactions (Section 131). But for all the transactions made before his death, the surety’s estate will
be liable.

Rights of Surety
A surety has certain rights against the creditor, (Section 141) the principal debtor (Sections 140 and 145)
and the co-securities (Sections 146 and 147). Those are—
(a) Surety’s rights against the creditor: Under Section 141 a surety is entitled to the benefit of every
security which the creditor has against the principal debtor at the time when the contract of
suretyship is entered into whether the surety knows of the existence of such security or not; and, if
the creditor losses or, without the consent of the surety parts with such security, the surety is
discharged to the extent of the value of the security.
(b) Rights against the principal debtor: After discharging the debt, the surety steps into the shoes of the
creditor or is subrogated to all the rights of the creditor against the principal debtor. He can then sue
the principal debtor for the amount paid by him to the creditor on the debtors default; he becomes a
creditor of the principal debtor for what he has paid.
In some circumstances, the surety may get certain rights even before payment. The surety has
remedies against the principal debtor before payment and after payment. In Mamta Ghose v. United
Industrial Bank (AIR 1987 Cal. 180) where the principal debtor, after finding that the debt became due,
started disposing of his properties to prevent seizure by surety, the Court granted an injunction to the
surety restraining the principal debtor from doing so. The surety can compel the debtor, after debt has
become due to exonerate him from his liability by paying the debt.
(c) Surety’s rights gains co-sureties: When a surety has paid more than his share of debt to the creditor,
he has a right of contribution from the co-securities who are equally bound to pay with him. A, B and C
are sureties to D for the sum of Rs. 3,000 lent to E who makes default in payment. A, B and C are liable,
as between themselves to pay Rs. 1,000 each. If any one of them has to pay more than Rs. 1,000 he
can claim contribution from the other two to reduce his payment to only Rs. 1,000. If one of them
becomes insolvent, the other two shall have to contribute the unpaid amount equally.

Discharge of Surety
A surety may be discharged from liability under the following circumstances:
(a) By notice of revocation in case of a continuing guarantee as regards future transaction (Section 130.)
(b) By the death of the surety as regards future transactions, in a continuing guarantee in the absence of a
contract to the contrary (Section 131).
(c) Any variation in the terms of the contract between the creditor and the principal debtor, without the
consent of the surety, discharges the surety as regards all transactions taking place after the variation
(Section 133).
 NAHATA PROFESSIONAL ACADEMY 387

(d) A surety will be discharged if the creditor releases the principal debtor, or acts or makes an omission
which results in the discharge of the principal debtor (Section 134). But where the creditor fails to sue
the principal debtor within the limitation period, the surety is not discharged.
(e) Where the creditor, without the consent of the surety, makes an arrangement with the principal
debtor for composition, or promises to give time or not to sue him, the surety will be discharged
(Section 135).
(f) If the creditor does any act which is against the rights of the surety, or omits to do an act which his
duty to the surety requires him to do, and the eventual remedy of the surety himself against the
principal debtor is thereby impaired, the surety is discharged (Section 139).
If the creditor loses or parts with any security which at the time of the contract the debtor had given in
favour of the creditor, the surety is discharged to the extent of the value of the security, unless the
surety consented to the release of such security by creditor in favour of the debtor. It is immaterial
whether the surety was or is aware of such security or not (Section 141).

CONTRACT OF BAILMENT AND PLEDGE

(a) Bailment
A bailment is a transaction whereby one person delivers goods to another person for some purpose, upon a
contract that they are, when the purpose is accomplished to be returned or otherwise disposed of
according to the directions of the person delivering them (Section 148). The person who delivers the goods
is called the bailor and the person to whom they are delivered is called the bailee.
Bailment is a voluntary delivery of goods for a temporary purpose on the understanding that they are to be
returned in specie in the same or altered form. The ownership of the goods remains with the bailor, the
bailee getting only the possession. Delivery of goods may be actual or constructive, e.g., where the key of a
godown is handed over to another person, it amounts to delivery of goods in the godown.
Gratuitous Bailment
A gratuitous bailment is one in which neither the bailor nor the bailee is entitled to any remuneration. Such
a bailment may be for the exclusive benefit of the bailor, e.g., when A leaves his dog with a neighbour to be
looked after in A’s absence on a holiday. It may again be for exclusive benefit of the bailee, e.g., where you
lend your book to a friend of yours for a week. In neither case any charge is made.
A gratuitous bailment terminates by the death of either the bailor or the bailee (Section 162).

Under Section 159 the lender of a thing for use may at any time require its return if the loan was gratuitous,
even though he lent it for a specified time or purpose. But if on the faith of such loan made for a specified
time or purpose, the borrower has acted in such a manner that the return of the thing lent before the time
agreed upon would cause him loss exceeding the benefit actually derived by him from the loan, the lender
must, if he compels the return, indemnify the borrower the amount in which the loss so occasioned
exceeds the benefit so derived.
Bailment for Reward
This is for the mutual benefit of both the bailor and the bailee. For example, A lets out a motor-car for hire
to B. A is the bailor and receives the hire charges and B is the bailee and gets the use of the car. Where, A
hands over his goods to B, a carrier for carriage at a price, A is the bailor who enjoys the benefit of carriage
and B is the bailee who receives a remuneration for carrying the goods.

Duties of Bailee
The bailee owes the following duties in respect of the goods bailed to him:
(a) The bailee must take as much care of the goods bailed to him as a man of ordinary prudence would
take under similar circumstances of his own goods of the same bulk, quality and value as the goods
bailed (Section 151). If he takes this much care he will not be liable for any loss, destruction or
deterioration of the goods bailed (Section 152). The degree of care required from the bailee is the
same whether the bailment is for reward or gratuitous.
Of course, the bailee may agree to take special care of the goods, e.g., he may agree to keep the
property safe from all perils and answers for accidents or thefts. But even such a bailee will not be
liable for loss happening by an act of God or by public enemies.
(b) The bailee is under a duty not to use the goods in an unauthorised manner or for unauthorised
purpose (Section 153). If he does so, the bailor can terminate the bailment and claim damages for any
 NAHATA PROFESSIONAL ACADEMY 388

loss or damage caused by the unauthorised used (Section 154).

(c) He must keep the goods bailed to him separate from his own goods (Sections 155-157).
If the bailee without the consent of the bailor, mixes the goods of the bailor with his own goods, the
bailor and the bailee shall have an interest, in production to their respective shares, in the mixture
thus produced. If the bailee without the consent of the bailor, mixes the goods of the bailor with his
own goods, and the goods can be separated or divided, the property in the goods remains in the
parties respectively; but the bailee is bound to bear the expenses of separation, and any damages
arising from the mixture.
If the bailee without the consent of the bailor mixes, the goods of the bailor with his own goods, in
such a manner that it is impossible to separate the goods bailed from the other goods and deliver
them back, the bailor is entitled to be compensated by the bailee for the loss of goods.
(d) He must not set up an adverse title to the goods.
(e) It is the duty of the bailee to return the goods without demand on the expiry of the time fixed or when
the purpose is accomplished (Section 160). If he fails to return them, he shall be liable for any loss,
destruction or deterioration of the goods even without negligence on his part (Section 161).
(f) In the absence of any contract to the contrary, the baliee must return to the bailor any increase, or
profits which may have accrued from the goods bailed; for example, when A leaves a cow in the
custody of B to be taken care of and the cow gets a calf, B is bound is deliver the cow as well as the calf
to A (Section 163).

Bailees Particular Lien (Section 170)

Where the goods are bailed for a particular purpose and the bailee in due performance of bailment,
expands his skill and labour, he has in the absence of an agreement to the contrary a lien on the goods, i.e.,
the bailee can retain the goods until his charges in respect of labour and skill used on the goods are paid by
the bailor. A gives a piece of cloth to B, a tailor, for making it into a suit, B promises to have the suit ready
for delivery within a fortnight, B has the suit ready for delivery. He has a right to retain the suit until he is
paid his dues. The section expresses the Common Law principle that if a man has an article delivered to him
on the improvement of which he has to bestow trouble and expenses, he has a right to detain it until his
demand is paid.

The right of lien arises only where labour and skill have been used so as to confer an additional value on the
article.

Particular and General Lien

Lien is of two kinds: Particular lien and General lien. A particular lien is one which is available only against
that property of which the skill and labour have been exercised. A bailee’s lien is a particular lien.
A general lien is a right to detain any property belonging to the other and in the possession of the person
trying to exercise the lien in respect of any payment lawfully due to him.
Thus, a general lien is the right to retain the property of another for a general balance of accounts but a
particular lien is a right to retain only for a charge on account of labour employed or expenses bestowed
upon the identical property detained.
The right of general lien is expressly given by Section 171 of the Indian Contract Act to bankers, factors,
warfingers, attorneys of High Court and policy-brokers, provided there is no agreement to the contrary.

Duties of bailor
The bailor has the following duties:
(a) The bailor must disclose all the known faults in the goods; and if he fails to do that, he will be liable for
any damage resulting directly from the faults (Section 150). For example, A delivers to B, a carrier,
some explosive in a case, but does not warn B. The case is handled without extraordinary care
necessary for such articles and explodes. A is liable for all the resulting damage to men and other
goods.
In the case of bailment for hire, a still greater responsibility is placed on the bailor. He will be liable
even if he did not know of the defects (Section 150). A hires a carriage of B. The carriage is unsafe
though B does not know this. A is injured. B is responsible to A for the injury.
(b) It is the duty of the bailor to pay any extraordinary expenses incurred by the bailee. For example, if a
 NAHATA PROFESSIONAL ACADEMY 389

horse is lent for a journey, the expense of feeding the house would, of course, subject to any special
agreement be borne by the bailee. If however the horse becomes ill and expenses have been incurred
on its treatment, the bailor shall have to pay these expenses (Section 158).
(c) The bailor is bound to indemnify the bailee for any cost or costs which the bailee may incur because of
the defective title of the bailor of the goods bailed (Section 164).

Termination of bailment
Where the bailee wrongfully uses or dispose of the goods bailed, the bailor may determine the bailment
(Section 153.)
As soon as the period of bailment expires or the object of the bailment has been achieved, the bailment
comes to an end, and the bailee must return the goods to the bailor (Section 160). Bailment is terminated
when the subject matter of bailment is destroyed or by reason of change in its nature, becomes incapable
of use for the purpose of bailment.
A gratuitous bailment can be terminated by the bailor at any time, even before the agreed time, subject to
the limitation that where termination before the agreed period causes loss in excess of benefit, the bailor
must compensate the bailee (Section 159).
A gratuitous bailment terminates by the death of either the bailor or the bailee (Section 162).

Finder of Lost Goods

The position of a finder of lost goods is exactly that of a bailee. The rights of a finder are that he can sue the
owner for any reward that might have been offered, and may retain the goods until he receives the reward.
But where the owner has offered no reward, the finder has only a particular lien and can detain the goods
until he receives compensation for the troubles and expenses incurred in preserving the property for
finding out the true owner. But he cannot file a suit for the recovery of the compensation [Section 168].

Thus, as against the true owner, the finder of goods in a public or quasi public place is only a bailee; he
keeps the article in trust for the real owner. As against every-one else, the property in the goods vests in
the finder on his taking possession of it.
The finder has a right to sell the property—
(a) where the owner cannot with reasonable diligence be found, or
(b) when found, he refuses to pay the lawful charges of the finder and—
(i) if the thing is in danger of perishing or losing greater part of its value, or
(ii) when the lawful charges of the finder for the preservation of goods and the finding out of the owner
amounts to two-thirds of the value of the thing (Section 169).

Carrier as Bailee
A common carrier undertakes to carry goods of all persons who are willing to pay his usual or reasonable
rates. He further undertakes to carry them safely, and make good all loses, unless they are caused by act of
God or public enemies. Carriers by land including railways and carriers by inland navigation, are common
carriers. Carriers by Sea for hire are not common carriers and they can limit their liability. Railways in India
are now common carriers.
Inn-keepers: The liability of a hotel keeper is governed by Sections 151 and 152 of the Contract Act and is
that of an ordinary bailee with regard to the property of the guests.
C stayed in a room in a hotel. The hotel-keeper knew that the room was in an insecure condition. While C
was dining in the dining room, some articles were stolen from his room. It was held that the hotel-keeper
was liable as he should have taken reasonable steps to rectify the insecured condition of the rooms (Jan &
San v. Caneron (1922) 44 All. 735).

(b) Pledge
Pledge or pawn is a contract whereby an article is deposited with a lender of money or promisee as security
for the repayment of a loan or performance of a promise. The bailor or depositor is called the Pawnor and
the bailee or depositee the “Pawnee” (Section 172). Since pledge is a branch of bailment, the pawness is
bound to take reasonable care of the goods pledged with him. Any kind of goods, valuables, documents or
securities may be pledged. The Government securities, e.g., promissory notes must, however, be pledged
 NAHATA PROFESSIONAL ACADEMY 390

by endorsement and delivery.

The following are the essential ingredients of a pledge:
(i) The property pledged should be delivered to the pawnee.
(ii) Delivery should be in pursuance of a contract.
(iii) Delivery should be for the purpose of security.
(iv) Delivery should be upon a condition to return.

Rights of the Pawnee

No property in goods pawned passes to the pawnee, but the pawnee gets a “special property to retain
possession even against the true owner until the payment of the debt, interest on the debt, and any other
expense incurred in respect of the possession or for preservation of the goods pledged” (Section 173). The
pawnee must return the goods to the pawnor on the tender of all that is due to him. The pawnee cannot
confer a good title upon a bona fide purchaser for value.
Should the pawnor make a default in payment of the debt or performance of the promise at the stipulated
time, the pawnee may-
(i) file a suit for the recovery of the amount due to him while retaining the goods pledged as collateral
security; or
(ii) sue for the sale of the goods and the realisation of money due to him; or
(iii) himself sell the goods pawned, after giving reasonable notice to the pawnor, sue for the deficiency, if
any, after the sale.
If the sale is made in execution of a decree, the pawnee may buy the goods at the sale. But he cannot
sell them to himself in a sale made by himself under (iii) above. If after sale of the goods, there is
surplus, the pawnee must pay it to the pawnor (Section 176).

Rights of Pawnor
On default by pawnor to repay on the stipulated date, the pawnee may sell the goods after giving
reasonable notice to the pawnor. If the pawnee makes an unauthorised sale without giving notice to the
pawnor, the pawnor has the following rights—
(i) He can file a suit for redemption of goods by depositing the money treating the sale as if it had never
taken
(ii) place; or He can ask for damages on the ground of conversion.
Pledge by Non-owners
(a) Ordinarily, the owner of the goods would pledge them to secure a loan but the law permits under
certain circumstances a pledge by a person who is not the owner but is in possession of the goods. Thus, a
valid pledge may be created by the following non-owners.
A mercantile agent: Where a mercantile agent is, with the consent of the owner, in possession of goods or
the documents of title to goods, any pledge made by him, when acting in the ordinary course of business of
a mercantile agent, is as valid as if he were expressly authorised by the owner of the goods to make the
same. But the pledge is valid only if the pawnee acts in good faith and has not at the time of the pledge
notice that the pawnor has not the authority to pledge (Section 178).
(b) Pledge by seller or buyer in possession after sale: A seller, left in possession of goods sold, is no more
the owner, but pledge by him will be valid, provided the pawnee acted in good faith and had no notice
of the sale of goods to the buyer (Section 30 of The Sale of Goods Act 1930).
(c) Pledge where pawnor having limited interest: When the pawnor is not the owner of the goods but
has a limited interest in the goods which he pawns, e.g., he is a mortgagee or he has a lien with
respect of these goods, the pledge will be valid to the extent of such interest.
(d) Pledge by co-owner in possession: One of the several co-owners of goods in possession thereof with
the assent of the other co-owners may create a valid pledge of the goods.
(e) Pledge by person in possession under a voidable contract: A person may obtain possession under a
contract which is voidable at the option of the lawful owner on the ground of misrepresentation,
fraud, etc. The person in possession may pledge the goods before the contract is avoided by the other
party (Section 178A).

LAW OF AGENCY
 NAHATA PROFESSIONAL ACADEMY 391

Creation of Agency
A contract of agency may be express or implied, (Section 186) but consideration is not an essential element
in this contract (Section 185). Agency may also arise by estoppel, necessity or ratification.
(a) Express Agency: A contract of agency may be made orally or in writing. The usual form of written
contract of agency is the Power of Attorney, which gives him the authority to act on behalf of his
principal in accordance with the terms and conditions therein. In an agency created to transfer
immovable property, the power of attorney must be registered. A power of attorney may be general,
giving several powers to the agent, or special, giving authority to the agent for transacting a single act.
(b) Implied Agency: Implied agency may arise by conduct, situation of parties or necessity of the case.

(i) Agency by Estoppel (Section 237): Estoppel arises when you are precluded from denying the truth of
anything which you have represented as a fact, although it is not a fact. Thus, where P allows third-
parties to believe that A is acting as his authorised agent, he will be estopped from denying the agency
if such third-parties relying on it make a contract with A even when A had no authority at all.
(ii) Wife as agent: Where a husband and wife are living together, the wife is presumed to have her
husbands authority to pledge his credit for the purchase of necessaries of life suitable to their
standard of living. But the husband will not be liable if he shows that (a) he had expressly warned the
trademan not to supply goods on credit to his wife; or (b) he had expressly forbidden the wife to
pledge his credit; or (c) his wife was already sufficiently supplied with the articles in question; or (d)
she was supplied with a sufficient allowance.
Similarly, where any person is held out by another as his agent, the third-party can hold that person
liable for the acts of the ostensible agent, or the agent by holding out. Partners are each others agents
for making contracts in the ordinary course of the partnership business.
(iii) Agency of Necessity (Sections 188 and 189): In certain circumstances, a person who has been
entrusted with anothers property, may have to incur unauthorised expenses to protect or preserve it.
Such an agency is called an agency of necessity. For example, A sent a horse by railway and on its
arrival at the destination there was no one to receive it. The railway company, being bound to take
reasonable steps to keep the horse alive, was an agent of necessity of A.
A wife deserted by her husband and thus forced to live separate from him, can pledge her husbands
credit to buy all necessaries of life according to the position of the husband even against his wishes.
(iv) Agency by ratification (Sections 169-200): Where a person having no authority purports to act as
agent, or a duly appointed agent exceeds his authority, the principal is not bound by the contract
supposedly based on his behalf. But the principal may ratify the agents transaction and so accept
liability. In this way an agency by ratification arises. This is also known as ex post facto agency—
agency arising after the event. The effect of ratification is to render the contract binding on the
principal as if the agent had been authorised before hand. Also ratification relates back to the original
making of the contract so that the agency is taken to have come into existence from the moment the
agent first acted, and not from the date the principal ratified it.

Classes of Agents
Agents may be special or general or, they may be mercantile agents:
(a) Special Agent: A special agent is one who is appointed to do a specified act, or to perform a specified
function. He has no authority outside this special task. The third-party has no right to assume that the
agent has unlimited authority. Any act of the agent beyond that authority will not bind the principal.
(b) General Agent: A general agent is appointed to do anything within the authority given to him by the
principal in all transactions, or in all transactions relating to a specified trade or matter. The third-party
may assume that such an agent has power to do all that is usual for a general agent to do in the
business involved. The third party is not affected by any private restrictions on the agents authority.

Sub-Agent
A person who is appointed by the agent and to whom the principal’s work is delegated to known as sub-
agent. Section 191 provides that “a sub-agent is a person employed by, and acting under the control of the
original agent in the business of the agency.” So, the sub-agent is the agent of the original agent.
 NAHATA PROFESSIONAL ACADEMY 392

As between themselves, the relation of sub-agent and original agent is that of agent and the principal. A
sub- agent is bound by all the duties of the original agent. The sub-agent is not directly responsible to the
principal except for fraud and wilful wrong. The sub-agent is responsible to the original agent. The original
agent is responsible to the principal for the acts of the sub-agent. As regards third persons, the principal is
represented by sub-agent and he is bound and responsible for all the acts of sub-agent as if he were an
agent originally appointed by the principal.

mercantile agent
Section 2(9) of the Sale of Goods Act, 1930, defines a mercantile agent as “a mercantile agent having in the
customary course of business as such agent authority either to sell goods or consign goods for the purposes
of sale, or to buy goods, or to raise money on the security of goods”. This definition covers factors, brokers,
auctioneers, commission agents etc.

factors
A factor is a mercantile agent employed to sell goods which have been placed in his possession or contract
to buy goods for his principal. He is the apparent owner of the goods in his custody and can sell them in his
own name and receive payment for the goods. He has an insurable interest in the goods and also a general
lien in respect of any claim he may have arising out of the agency.

brokers
A broker is a mercantile agent whose ordinary course of business is to make contracts with other parties for
the sale and purchase of goods and securities of which he is not entrusted with the possession for a
commission called brokerage. He acts in the name of principal. He has no lien over the goods as he is not in
possession of them.

del credere agent

A del credere agent is a mercantile agent, who is in consideration of an extra remuneration guarantees to
his principal that the purchasers who buy on credit will pay for the goods they take. In the event of a third-
party failing to pay, the del credere agent is bound to pay his principal the sum owned by third-party.

auctioneers
An auctioneer is an agent who sells goods by auction, i.e., to the highest bidder in public competition. He
has no authority to warrant his principals title to the goods. He is an agent for the seller but after the goods
have been knocked down he is agent for the buyer also for the purpose of evidence that the sale has taken
place.

partner
In a partnership firm, every partner is an agent of the firm and of his co-partners for the purpose of the
business of the firm.

banker
The relationship between a banker and his customer is primarily that of debtor and creditor. In addition, a
banker is an agent of his customer when he buys or sells securities, collects cheques dividends, bills or
promissory notes on behalf of his customer. He has a general lien on all securities and goods in his
possession in respect of the general balance due to him by the customer.

Duties of the Agent

An agent’s duties towards his principal are as follows (which give corresponding rights to the principal who
may sue for damages in the event of a breach of duty by the agent):
(a) An agent must act within the scope of the authority conferred upon him and carry out strictly the
instructions of the principal (Section 211).
(b) in the absence of express instructions, he must follow the custom prevailing in the same kind of
business at the place where the agent conducts the business (Section 211).
(c) He must do the work with reasonable skill and diligence whereby the nature of his profession, the
agent purports to have special skill, he must exercise the skill which is expected from the members of
 NAHATA PROFESSIONAL ACADEMY 393

the profession (Section 212).

(d) He must disclose promptly any material information coming to his knowledge which is likely to
influence the principal in the making of the contract.
(e) He must not disclose confidential information entrusted to him by his principal (Section 213).
(f) He must not allow his interest to conflict with his duty, e.g., he must not compete with his principal
(Section 215).
(g) The agent must keep true accounts and must be prepared on reasonable notice to render an account.
(h) He must not make any secret profit; he must disclose any extra profit that he may make.
Where an agent is discovered taking secret bribe, etc., the principal is entitled to (i) dismiss the agent
without notice, (ii) recover the amount of secret profit, and (iii) refuse to pay the agent his
remuneration. He may repudiate the contract, if the third-party is involved in secret profit and also
recover damages.
(i) An agent must not delegate his authority to sub-agent. A sub-agent is a person employed by and
acting under the control of the original agent in the business of agency (Section 191). This rule is based
on the principle: Delegatus non-potest delegare — a delegate cannot further delegate (Section 190).
But there are exceptions to this rule and the agent may delegate (i) where delegation is allowed by the
principal, (ii) where the trade custom or usage sanctions delegation, (iii) where delegation is essential
for proper performance, (iv) where an emergency renders it imperative, (v) where nature of the work
is purely ministerial, and (vi) where the principal knows that the agent intends to delegate.

Rights of Agents
Where the services rendered by the agent are not gratuitous or voluntary, the agent is entitled to receive
the agreed remuneration, or if none was agreed, a reasonable remuneration. The agent becomes entitled
to receive remuneration as soon as he has done what he had undertaken to do (Section 219).
Certain classes of agents, e.g., factors who have goods and property of their principal in their possession,
have a lien on the goods or property in respect of their remuneration and expense and liabilities incurred.
He has a right to stop the goods in transit where he is an unpaid seller.
As the agent represents the principal, the agent has a right to be indemnified by the principal against all
charges, expenses and liabilities properly incurred by him in the course of the agency (Sections 222-223).

Extent of Agent’s Authority

The extent of the authority of an agent depends upon the terms expressed in his appointment or it may be
implied by the circumstances of the case. The contractual authority is the real authority, but implied
authority is to do whatevers incidental to carry out the real authority. This implied authority is also known
as apparent or ostensible authority, Thus, an agent having an authority to do an act has authority to do
everything lawful which is necessary for the purpose or usually done in the course of conducting business.
An agent has authority to do all such things which may be necessary to protect the principal from loss in an
emergency and which he would do to protect his own property under similar circumstances. Where butter
was becoming useless owing to delay in transit and was therefore sold by the station master for the best
price available as it was not possible to obtain instructions from the principal, the sale was held binding
upon the principal.

Responsibilities of Principal to Third-parties

The effect of a contract made by an agent varies according to the circumstances under which the agent
contracted.
There are three circumstances in which an agent may contract, namely—
(a) the agent acts for a named principal;
(b) the agent acts for an undisclosed principal; and
(c) the agent acts for a concealed principal.
(a) Disclosed principal: Where the agent contracts as agent for a named principal, he generally incurs
neither rights nor liabilities under the contract, and drops out as soon as it is made. The contract is
made between the principal and the third-party and it is between these two that rights and obligations
are created. The legal effect is the same as if the principal had contracted directly with the third-party.
The effect is that the principal is bound by all acts of the agent done within the scope of actual,
apparent or ostensible authority. This ostensible authority of the agent is important, for the acts of a
 NAHATA PROFESSIONAL ACADEMY 394

general agent are binding on the principal if they are within the scope of his apparent authority,
although they may be outside the scope of his actual authority. Therefore, a private or secret
limitation or restriction of powers of an agent do not bind innocent third- party.
(b) Undisclosed principal: Where the agent disclose that he is merely an agent but conceals the identity of
his principal, he is not personally liable, as he drops out in normal way. The principal, on being
discovered, will be responsible for the contract made by the agent.
(c) Concealed principal: Where an agent appears to be contracting on his own behalf, without either
contracting as an agent or disclosing the existence of an agency (i.e., he discloses neither the name of
the principal nor his existence), he becomes personally liable. The third-party may sue either the
principal (when discovered) or the agent or both. If the third-party chooses to sue the principal and
not the agent, he must allow the principal the benefit of all payments made by him to the agent on
account of the contract before the agency was disclosed. The third-party is also entitled to get the
benefit of anything he may have paid to the agent.
If the principal discloses himself before the contract is completed, the other contracting party may
refuse to fulfil the contract if he can show that, if he had known who the principal in the contract was,
or if he had known that the agent was not the principal, he would not have entered into the contract.

Personal Liability of Agent to Third-party

An agent is personally liable in the following cases:
(a) Where the agent has agreed to be personally liable to the third-party.
(b) Where an agent acts for a principal residing abroad.
(c) When the agent signs a negotiable instrument in his own name without making it clear that he is
signing it only as agent.
(d) When an agent acts for a principal who cannot be sued (e.g., he is minor), the agent is personally
liable.
(e) An agent is liable for breach of warranty of authority. Where a person contracts as agent without any
authority there is a breach of warranty of authority. He is liable to the person who has relied on the
warranty of authority and has suffered loss.
(f) Where authority is one coupled with interest or where trade, usage or custom makes the agent
personally liable, he will be liable to the third-party.
(g) He is also liable for his torts committed in the course of agency.

Meaning of Authority Coupled with Interest (Section 202)

An agency is coupled with an interest when the agent has an interest in the authority granted to him or
when the agent has an interest in the subject matter with which he is authorised to deal. Where the agent
was appointed to enable him to secure some benefit already owed to him by the principal, the agency was
coupled with an interest. For example, where a factor had made advances to the principal and is authorised
to sell at the best price and recoup the advances made by him or where the agent is authorised to collect
money from third-parties and pay himself the debt due by the principal, the agencies are coupled with
interest. But a mere arrangement that the agent’s remuneration to paid out of the rents collected by him, it
does not give him any interest in the property and the agency is not the one coupled with an interest. An
agency coupled with interest cannot be terminated in the absence of a contract to the contrary to the
prejudice of such interest.

Termination of Agency
An agency comes to an end or terminates—
(a) By the performance of the contract of agency; (Section 201)
(b) By an agreement between the principal and the agent;
(c) By expiration of the period fixed for the contract of agency;
(d) By the death of the principal or the agency; (Section 201)
(e) By the insanity of either the principal or the agent; (Section 201)
(f) By the insolvency of the principal, and in some cases that of the agent; (Section 201)
(g) Where the principal or agent is an incorporated company, by its dissolution;
(h) By the destruction of the subject-matter; (Section 56)
(i) By the renunciation of his authority by the agent; (Section 201)
 NAHATA PROFESSIONAL ACADEMY 395

(j) By the revocation of authority by the principal. (Section 201)

When Agency is Irrevocable

Revocation of an agency by the principal is not possible in the following cases:
(a) Where the authority of agency is one coupled with an interest, even the death or insanity of the
principal does not terminate the authority in this case (Section 202).
(b) When agent has incurred personal liability, the agency becomes irrevocable.
(c) When the authority has been partly exercised by the agent, it is irrevocable in particular with regard to
obligations which arise from acts already done (Section 204).

When Termination Takes Effect

Termination of an agency takes effect or is complete, as regards the agent when it becomes known to the
agent. If the principal revokes the agents authority, the revocation will take effect when the agent comes to
know of it. As regards the third-parties, the termination takes effect when it comes to their knowledge
(Section 208). Thus, if an agent whose authority has been terminated to his knowledge, enters into a
contract with a third-party who deals with him bona fide, the contract will be binding on the principal as
against the third-party. The termination of an agent’s authority terminates the authority of the sub-agent
appointed by the agent (Section 210).
The revocation of agency as regards the agent and as regards the principal takes effect at different points of
time. Section 209 charges the agent with duty to protect the principal’s interest where the principal dies or
becomes of unsound mind. It provides that when an agency is terminated by the principal dying or
becoming of unsound mind, the agent is bound to take, on behalf of the representatives of his late
principal, all reasonable steps for the protection and preservation of the interest entrusted to him. So it is
the duty of the agent to take all steps to protect the interest of his deceased principal on his death.

JOINT VENTURE/ FOREIGN COLLABORATION/MULTINATIONAL AGREEMENTS

International business professionals use the term “modes of entry” to describe the different methods and
approaches available to enter markets and conduct business in other countries. One mode of entry is the
joint venture where two or more organizations join together in a cooperative effort to further their
business goals. The joint venture is one of the most common and effective means of conducting business
internationally. The joint venture documents and agreements are critical to the success of the venture. The
joint venture agreement forms the basis of the understanding between and among the parties. It is relied
upon to ensure that all parties understand their roles, rights, responsibilities, and remedies in the conduct
of the venture. Organizations enter into joint ventures in good faith but closely scrutinize the joint venture
documents if anything goes awry.
The importance of the documents and the purpose of this part is to cover, step by step, the critical
elements to consider and include in joint venture agreements. Equity participation, for example, may or
may not be as important as operational control. Technical participation in the venture may or may not be as
important as the intellectual property rights that may result from the venture. A key to developing joint
venture agreements is to determine goals and objectives in advance and ensure that the interests are
reflected in the agreement.
Selection of good local partner is the key to success of any joint venture. Personal interviews with a
prospective joint venture partner should be supplemented with proper due diligence. Once a partner is
selected generally the parties highlighting the basis of the future joint venture agreement sign a
memorandum of understanding or a letter of intent. Before signing the joint venture agreement, the terms
should be thoroughly discussed to avoid any misunderstanding at a later stage. Negotiations require an
understanding of the cultural and legal background of the parties.
It is difficult to prepare a set frame of the terms and conditions. The conditions may differ according to the
requirements. While drafting a foreign collaboration agreement, the following factors should be kept in
mind:
 Capability of the collaborator and the requirements of the party are clearly indicated.
 Clear definitions of technical terms are given.
 Specify if the product shall be manufactured/sold on exclusive or non-exclusive basis.
 Terms and conditions regarding nature of technical know-how, disclosure of drawings, specifications
 NAHATA PROFESSIONAL ACADEMY 396

and other documents, furnishing of technical information in respect of processes with flow charts
etc., plant outlay list of equipment, machinery and tool with specification have to be provided.
 Provisions for making available the engineers and/or skilled workers of the collaborator on payment
of expenses relating to their stay per diem etc. are given.
 Details regarding specification and quality of the product to be manufactured are given.
 Quality control and trademarks to be used are also specified.
 Responsibility of the collaborator in establishing or maintaining assembly plants should be clearly
determined and provided for.
 If sub-contracting of the work is involved, clarify if there would be any restrictions.
 The rate of royalty, mode of calculation and payment etc. Also, make provision as to who will bear
the taxes/cess on such payments.
 Use of information and industrial property rights should also be provided for in the agreement.
 A clause on force majeure should be included.
 A clause that the collaborating company has to train the personnel of Indian company within a
specified period should be incorporated The clause should also specify the terms and conditions of
such assistance, place of training, period of training and fees payable.
 A comprehensive clause on arbitration containing a clear provision as to the kind of arbitrator and
place of arbitration should be included.
 There should be provision in the agreement for payment of interest on delayed payments.
E-CONTRACT
Electronic contracts are not paper based but rather in electronic form are born out of the need for speed,
convenience and efficiency. In the electronic age, the whole transaction can be completed in seconds, with
both parties simply affixing their digital signatures to an electronic copy of the contract. There was initially
an apprehension amongst the legislatures to recognize this modern technology, but now many countries
have enacted laws to recognize electronic contracts. The conventional law relating to contracts is not
sufficient to address all the issues that arise in electronic contracts. The Information Technology Act, 2000
solves some of the peculiar issues that arise in the formation and authentication of electronic contracts
As in every other contract, an electronic contract also requires the following necessary ingredients:
 An offer needs to be made
 The offer needs to be accepted
 There has to be lawful consideration
 There has to be an intention to create legal relations
 The parties must be competent to contract
 There must be free and genuine consent
 The object of the contract must be lawful
 There must be certainty and possibility of performance.
Basic Type of e-contracts
1. Shrink wrap agreements: In these type of agreements the product is wrapped. Terms and Conditions
are placed with the product itself. These are End user Licence Agreements. Example: purchase of Anti
Virus.
2. Clickwrap Agreements: These agreements requires the users to accept the proposal by clicking the “I
agree”. User agree by clicking on the agree button. Example: Creation of email id.
3. Browse Wrap Agreements: These agreements are entered by continued use of the website. By using
the website, the user is deemed to have accepted the conditions. Example: Sale and Purchase on
online platforms.
4. Scroll Wrap Agreements: In these agreements, Where users are required to scroll to the complete
terms and conditions of the documents and give their implied consent. Example: Few mobile
applications requires the user to scroll down.
5. Sign-In Wrap Agreements: In these agreements, user agree by signing in to a particular website or
mobile application. User agree with the terms and conditions by Signing in.
E-contracts are binding only if they have all the essentials required under Indian Contract Act. If any
term or condition are not in accordance with the law than the agreements are valid.
Q-1. State the difference in rules of making offer and acceptance when the mode of making the same
varies from post to telephone and e-mail as governed by the Information Technology Act,
 NAHATA PROFESSIONAL ACADEMY 397

2000.[DEC-16]
Q-2. "No consideration, no contract; subject to certain exceptions." Explain briefly.[DEC-15]
Q-3. What is meant by 'privity of contract'? Discuss briefly the exceptions to privity of contract.[DEC-15]
Q-4. X and Y are husband and wife, respectively. X, by a registered document, after referring to quarrels
and disagreement between himself and his wife Y, promised to pay his wife, a sum of money for
her maintenance and separate residence. Whether this document is a contract enforceable by law
? Give reasons with reference to decided case law, if any. [DEC-15]
Q-6. A young boy ran away from his father's home. His father issued a pamphlet offering a reward of `5
lakh to anybody who would bring the boy home. Arun saw the boy at a railway station and sent an
e-mail to the boy's father.
(i) Is Arun entitled for reward ?
(ii) In the light of the above case, explain the rules governing offer. [DEC-16]
Q-7. A agreed to supply B certain goods to be produced from Indonesia. The goods could not be
produced due to riots and civil disturbances in Indonesia. Decide, whether the non-performance of
the contract may be excused? [DEC-17]
Q-8. Mr. X in consideration that Mr. Y will employ Mr. Z in collecting the rent of Zamindari, promises to
Mr. B to be responsible to the amount of ` 10,000 for the due collection and payment by Mr. Z of
these rents.Decide, whether it is a contract of guarantee ? Which type of guarantee it is ? When
such guarantee may be revoked.[DEC-17]
Q-9. Whether a Barrister of law, Advocate and/or Physicians and Surgeons can sue for his/her
professional fee? [DEC-18]
Q-10. When a contract becomes void, under the Indian Contract Act, 1872 ? [DEC-18]
Q-11. ‘X’, the father of a boy of marriageable age and ‘Y’ the father of a girl, who was to be married to
boy, agreed that each of them shall pay a sum of money to the boy who was to take up the new
responsibilities of married life. After the demise of both the contracting parties, the boy (husband)
sued the executors of his father- in- law upon the agreement between his father-in-law and his
father. Whether suit of the boy (husband) is maintainable against the executor of his father-in-law
in the Court of Law under Indian Contract Act, 1872. [DEC-19]
Q-12. What do you mean by the doctrine of ‘Quantum Meruit’ under Indian Contract Act, 1872 ? State
the circumstances under which this doctrine may be applied.[DEC-19]
Q-13. “An agreement to do an act impossible in itself is void.” Explain.[JUNE-15]
Q-14. Mention the main flaws in a contract[JUNE-15]
Q-15. How does a valid contract get discharged by impossibility of performance ?[JUNE-16]
Q-16. What is meant by contracts "uberrimae fidei" ? Which contracts are in general may be treated as
contracts "uberrimae fidei" ?[JUNE-17]
Q-17. A invites B to stay with him during winter vacation at his residence. B accepts the invitation and
informs A accordingly. When B reaches A’s house, he finds it locked and he has to stay in a hotel.
Can B claim damages from A ?[JUNE-17]
Q-18. Aman hired a room in a hotel and paid a week's rent in advance. After registering, he went up to
occupy the room. Aman found a notice on the wall that "The proprietor will not be responsible for
articles lost or stolen, unless handed over to the manager of the hotel for safe custody." Owing to
the negligence ofthe hotel staff, a thief gained access to the room and stole some goods of Aman.
State whether the proprietor of the hotel is liable for the loss caused to Aman ? State also which
tlpe of contract it is? [JUNE-17]
Q-19. “Contract cannot confer rights or impose obligations arising under it on any person or agent except
the parties to the contract”. Critically analyze this statement.[JUNE-18]
Q-20. John, who is a known minor, fraudulently overstates his age and takes delivery of a motor car after
executing a promissory note in favour of the dealer for its price. He does not knowingly honour his
promissory note; that is to say he does not pay the price of the said motor car. What is the remedy
available to the motor car dealer in the above situation?Advise[JUNE-18
Q-21. Gamaxo Ltd. offered a reward of `10,000 by advertisement to anyone who infected influenza after
using their smoke ball in the specified manner. Mrs. Upma uses smoke ball in the specified
manner, but still infected by influenza. She claims the reward. Decide the case with the help of
leading decided case laws and related sections of the Indian Contract Act, 1872. [JUNE-18]
Q-22. What are the obligations of finder of lost goods ? Explain briefly with reference to Indian Contract
 NAHATA PROFESSIONAL ACADEMY 398

Act, 1872. [JUNE-19]

Q-23. Alok consigns 500 bales of jute to Aswin, who has made advance to him on such jute. Alok desires,
Aswin to sell the jute and to repay himself out of the sale prices and recoup the advance. Which
type of agency it is ? Can it be terminated. State also the condition, under which such agency may
be created? [DEC-2020]
Q-24. State the various ways in which an offer lapses under the Indian Contract Act, 1872. [DEC-2020]
Q-25. Ram promised to pay `5,000 per month to his wife Sunita. She was living in Delhi. On receiving
information that she was unfaithful to him, Ram stopped payment of `5,000 to Sunita. Sunita
approaches you to file a case against Ram. Advise her referring to the Provision of the Indian
Contract Act, 1872. [DEC-2020]
Q-26. Amit’s son absconded. He sent Suresh, his servant in search of the boy. When Suresh had left,
Amit, by hand bills, offered to pay `5,001 to anyone finding his son. Suresh found the son and after
coming to know about the offer, claimed the amount. Examine the validity of claim raised by
Suresh.[DEC-2020]
Q-27. A advertises in the newspaper that he will pay ` 1,000 to any one who brings to him his lost son. B
without knowing of this reward finds A’s lost son and restore him to A. Can B claim for the reward
under the provisions of the Indian Contract Act, 1872 ? [DEC-19]
Q-28. Avanti, took out motor car insurance from Healthy Trip Insurance Company. A cheque was issued
under a contract of insurance of motorcar by the insured for the payment of premium of the
policy. However, the cheque was dishonoured for want of funds in the account. Meanwhile the car
met with an accident and badly damaged, killing the insured owner. The claim for insured amount
was repudiated by the company. Decide :
(i) Whether the contract of insurance has been performed ? Analyse the provisions of the Indian
Contract Act, 1872 in this respect ?
(ii) Whether the claim of the insured amount may be recovered from Healthy Trip Insurance Company
? [DEC-19]
Q-29. Distinguish between the following :
(a) Void and illegal agreements (b) Contract of Indemnity and Guarantee [DEC-18]
(c) Specific performance and Injunction
Q-30. The ABZ company offered by an advertisement, a reward of `1,000 to anyone who contacted
influenza after using smoke ball in the specified manner. Amita used the smoke ball in the
specified manner, but was attacked by influenza. She filed the suit against ABZ company and
claimed the reward. Decide whether the suit is maintainable. [DEC-18]
Q-31. Ram employed in Mumbai promised to pay `8,000 per month to his wife Sunita. She was living in
Delhi. On receiving information that she has become unfaithful to him, Ram stopped the payment
of `8,000 to Sunita. Sunita approaches to file a case against Ram. Advise her with reference to the
Indian Contract Act, 1872. [JUNE-19]
Q-32. A minor fraudulently overstated his age and purchased a motor car after executing a promissory
note in favour of the owner of the motor car for its price. The car owner compelled the minor to
pay the amount of the promissory note. Whether the car owner will succeed ? Examine it with
reference to Indian Contract Act, 1872 and Specific Relief Act, 1963. [JUNE-19]
33. "Every agreement in which anyone is restrained from exercising a lawful profession, trade or
business of any kind is, to that extent, void." Discuss.[JUNE-16]
34. In pandemic of Covid 19 a drug company made an offer by advertisement, a reward of `10,000 to
anyone suffering from Covid after using their drug in prescribed manner. Mrs. Romila having taken
the drug as per prescription could not be cured. She claimed for the money. Will she succeed ?
35. Raman borrows `5,000 from Boman and promises to pay `10,000, if he fails to pay on a stipulated
date. Is on Raman’s failure to repay on stipulated date, Boman is entitled to recover 10,000 from
Raman ? Examine the validity of claim of stipulated damages.
36. Quantum Meruit and Anticipatory Breach
37. F, for natural love and affection, promises to give her daughter D `1,00,000. But after some time F
refuses to fullfil his promise. Advice D what she should do ? (4 marks)
38. A puts M as apprentice to B, and gives a guarantee to B for his fidelity. B promises on his part that
he will, at least once a month, see M make up the cash. B omits to see this done as promised and
M embezzles. State whether A is liable to B under the Indian Contract Act, 1872?
 NAHATA PROFESSIONAL ACADEMY 399

LESSON 17
LAW RELATING TO SALE OF GOODS
⮞ Introduction
⮞ Important Definitions
⮞ Contract of Sale of Goods
⮞ Distinction between Sale and Agreement to Sell
⮞ Sale and Bailment
⮞ Sale and Contract for Work and Labour
⮞ Subject matter of contract of Sale of Goods
⮞ Implied Warranties
⮞ Doctrine of Caveat Emptor
⮞ Effects of Contracts
⮞ Performance of the Contract of Sale
⮞ Suits for Breach of Contract
⮞ Unpaid Seller

INTRODUCTION
Sale of Goods Act is one of very old mercantile law. Sale of Goods is one of the special types of contract.
Initially, this was part of Indian Contract Act itself. Later, this was deleted in Contract Act, and separate Sale
of Goods Act was passed in 1930. Sale of Goods Act is complimentary to Contract Act. Basic provisions of
Contract Act apply to contract of Sale of Goods Act also. Basic requirements of contract i.e. Offer and
acceptance, legally enforceable agreement, mutual consent, parties competent to contract; free consent,
lawful object, consideration etc. apply to contract of Sale of Goods Act also. This lesson is to be taught after
the students have been made familiar with the general principles of contract in which the emphasis is on
understanding and appreciating the basic essentials of a valid contract and on the existence of contractual
relationship in various instances. In today’s era, the need for awareness of buyers and sellers rights is of
utmost importance.
The law relating to sale of goods is contained in the Sale of Goods Act, 1930. It has to be read as part of the
Indian Contract Act, 1872 [Sections 2(5) and (3)].

IMPORTANT DEFINITIONS
Section 2, Definitions.—In this Act, unless there is anything repugnant in the subject or context,—
(1) “buyer” means a person who buys or agrees to buy goods;
(2) “delivery” means voluntary transfer of possession from one person to another;
(3) goods are said to be in a “deliverable state” when they are in such state that the buyer would under
the contract be bound to take delivery of them;
(4) “document of title to goods” includes a bill of lading, dock-warrant, warehouse keeper’s certificate,
wharfingers’ certificate, railway receipt, multimodal transport document, warrant or order for the
delivery of goods and any other document used in the ordinary course of business as proof of the
possession or control of goods, or authorising or purporting to authorise, either by endorsement or
by delivery, the possessor of the document to transfer or receive goods thereby represented;
(5) “fault” means wrongful act or default;
(6) “future goods” means goods to be manufactured or produced or acquired by the seller after the
making of the contract of sale;
(7) “goods” means every kind of movable property other than actionable claims and money; and
includes stock and shares, growing crops, grass, and things attached to or forming part of the land
which are agreed to be severed before sale or under the contract of sale;
(8) a person is said to be “insolvent” who has ceased to pay his debts in the ordinary course of business,
or cannot pay his debts as they become due, whether he has committed an act of insolvency or not;
(9) “mercantile agent” means a mercantile agent having in the customary course of business as such
agent authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or
to raise money on the security of goods;
(10) “price” means the money consideration for a sale of goods;
(11) “property” means the general property in goods, and not merely a special property;
(12) “quality of goods” includes their state or condition;
 NAHATA PROFESSIONAL ACADEMY 400

(13) “seller” means a person who sells or agrees to sell goods;

(14) “specific goods” means goods identified and agreed upon at the time a contract of sale is made; and
expressions used but not defined in this Act and defined in the Indian Contract Act, 1872, have the
meanings assigned to them in that Act.

CONTRACT OF SALE OF GOODS

According to Section 4, a contract of sale of goods is a contract whereby the seller:
(i) transfers or agrees to transfer the property in goods,
(ii) to the buyer,
(iii) for a money consideration called the price.
It shows that the expression “contract of sale” includes both a sale where the seller transfers the ownership
of the goods to the buyer, and an agreement to sell where the ownership of goods is to be transferred at a
future time or subject to some conditions to be fulfilled later on.

The following are thus the essentials of a contract of sale of goods:

(i) Bilateral contract: It is a bilateral contract because the property in goods has to pass from one party
to another. A person cannot buy the goods himself.
(ii) Transfer of property: The object of a contract of sale must be the transfer of property (meaning
ownership) in goods from one person to another.
(iii) Goods: The subject matter must be some goods.
(iv) Price or money consideration: The goods must be sold for some price, where the goods are
exchanged for goods it is barter, not sale.
(v) All essential elements of a valid contract must be present in a contract of sale.

DISTINCTION BETWEEN SALE AND AGREEMENT TO SELL

The following points will bring out the distinction between sale and an agreement to sell:
(a) In a sale, the property in the goods sold passes to the buyer at the time of contract so that he
becomes the owner of the goods. In an agreement to sell, the ownership does not pass to the
buyer at the time of the contract, but it passes only when it becomes sale on the expiry of certain
time or the fulfilment of some conditions subject to which the property in the goods is to be
transferred.
(b) An agreement to sell is an executory contract, a sale is an executed contract.
(c) An agreement to sell is a contract pure and simple, but a sale is contract plus conveyance.
(d) If there is an agreement to sell and the goods are destroyed by accident, the loss falls on the seller.
In a sale, the loss falls on the buyer, even though the goods are with the seller.
(e) If there is an agreement to sell and the seller commits a breach, the buyer has only a personal
remedy against the seller, namely, a claim for damages. But if there has been a sale, and the seller
commits a breach by refusing to deliver the goods, the buyer has not only a personal remedy
against him but also the other remedies which an owner has in respect of goods themselves such
as a suit for conversion or detenue, etc.

SALE AND BAILMENT

A “bailment” is a transaction under which goods are delivered by one person (the bailor) to another (the
bailee) for some purpose, upon a contract that they be returned or disposed of as directed after the
purpose is accomplished (Section 148 of the Indian Contact Act, 1872).
The property in the goods is not intended to and does not pass on delivery though it may sometimes be the
intention of the parties that it should pass in due course. But where goods are delivered to another on
terms which indicate that the property is to pass at once the contract must be one of sale and not bailment.

SALE AND CONTRACT FOR WORK AND LABOUR

The distinction between a “sale” and a “contract for work and labour” becomes important when question
of passing of property arises for consideration.
However, these two are difficult to distinguish. The test generally applied is that if as a result of the
contract, property in an article is transferred
to one who had no property therein previously for a money consideration, it is a sale, where it is otherwise
 NAHATA PROFESSIONAL ACADEMY 401

it is a contract for work and labour.

SALE AND HIRE PURCHASE AGREEMENT
A “hire purchase agreement” is basically a contract of hire, but in addition, it gives the hirer an option to
purchase the goods at the end of the hiring period. Consequently, until the final payment, the hirer is
merely a bailee of goods and ownership remains vested in the bailor. Under such a contract, the owner of
goods delivers the goods to person who agrees to pay certain stipulated periodical payments as hire
charges. Though the possession is with the hirer, the ownership of the goods remains with the original
owner.
The essence of hire purchase agreement is that there is no agreement to buy, but only an option is given to
the hirer to buy by paying all the instalments or put an end to the hiring and return the goods to the owner,
at any time before the exercise of the option.
Since the hirer does not become owner of the goods until he has exercised his option to buy, he cannot
pass any title even to an innocent and bona fide purchaser. The transaction of hire-purchase protects the
owner of the goods against the insolvency of the buyer, for if the buyer becomes insolvent or fails to pay
the instalments, he can take back the goods as owner. And if the hirer declines to take delivery of the
goods, the remedy of the owner will be damages for non-hiring and not for rent for the period agreed.
It is important to note the difference between a hire purchase agreement and mere payment of the price
by instalments because, the latter is a sale, only the payment of price is to be made by instalments.
The distinction between the two is very important because, in a hire-purchase agreement the risk of loss or
deterioration of the goods hired lies with the owner and the hirer will be absolved of any responsibility
therefor, if he has taken reasonable care to protect the same as a bailee. But it is otherwise in the case of a
sale where the price is to be paid in instalments.
SUBJECT MATTER OF CONTRACT OF SALE OF GOODS
Goods
The subject matter of the contract of sale is essentially goods. According to Section 2(7) of the Sale of
Goods Act, “goods” means every kind of movable property other than actionable claims and money and
includes stock and shares, growing crops, grass and things attached to or forming part of the land which are
agreed to be severed before sale or under the contract of sale.
Actionable claims and money are not goods and cannot be brought and sold under this Act. Money means
current money, i.e., the recognised currency in circulation in the country, but not old and rare coins which
may be treated as goods. An actionable claim is what a person cannot make a present use of or enjoy, but
what can be recovered by him by means of a suit or an action.
H. Anraj & Ors. vs. it was held that lottery tickets were goods and not actionable claims. Thus, sale of
Govt. of Tamil lottery tickets is sale of goods.
Nadu & Ors.
Rash Behari v. A debt due to a man from another is an actionable claim and cannot be sold as
Emperor, (1936) 41 goods, although it can be assigned. Under the provisions of the Transfer of
C.W.N. 225; M.B. Property Act, 1882, goodwill, trade marks, copyrights, patents are all goods, so is a
Electric Supply Co. ship. As regards water, gas, electricity, it is doubtful whether they are goods
Ltd. vs. State of
Rajasthan,
CST, MP, Indore the Supreme Court observed that the electricity can be transmitted, transferred,
vs. MPEB, Jabalpur delivered, stored, possessed, etc., in the same way as any other movable property.
If there can be sale and purchase of electric energy like any other movable object,
we see no difficulty in holding that electric energy was intended to be covered by
the definition of goods.

Goods may be (a) existing, (b) future, or (c) contingent. The existing goods may be (i) specific or generic, (ii)
ascertained or unascertained.

Existing Goods
Existing goods are goods which are either owned or possessed by the seller at the time of the contract. Sale
of goods possessed but not owned by the seller would be by an agent or pledgee.
Generic or unascertained goods are goods which are not specifically identified but are indicated by
description. If a merchant agrees to supply a radio set from his stock of radio sets, it is a contract of sale of
 NAHATA PROFESSIONAL ACADEMY 402

unascertained goods because it is not known which set will be delivered. As soon as a particular set is
separated or identified for delivery and the buyer has notice of it, the goods are ascertained and become
specific goods.

Future Goods
Future goods are goods to be manufactured or produced or acquired by the seller after the making of the
contract of sale. A agrees to sell all the mangoes which will be produced in his garden next season. This is
an agreement for the sale of future goods. [Section 2(6)]

Contingent Goods
Where there is a contract for the sale of goods, the acquisition of which by the seller depends upon a
contingency which may or may not happen—such goods are known as contingent goods. Contingent goods
fall in the class of future goods. A agrees to sell a certain TV set provided he is able to get it from its present
owner. This is an agreement to sell contingent goods. In such a case, if the contingency does not happen for
no fault of the seller, he will not be liable for damages.
Actual sale can take place only of specific goods and property in goods passes from the seller to buyer at
the time of the contract, provided the goods are in a deliverable state and the contract is unconditional.
There can be an agreement to sell only in respect of future or contingent goods.

Effect of Perishing of Goods

In a contract of sale of goods, the goods may perish before sale is complete. Such a stage may arise in the
following cases:
(i) Goods perishing before making a contract
Where in a contract of sale of specific goods, the goods without the knowledge of the seller have, at
the time of making the contract perished or become so damaged as no longer to answer to their
description in the contract, the contract is void. This is based on the rule that mutual mistake of fact
essential to the contract renders the contract void. (Section 7)
If the seller was aware of the destruction and still entered into the contract, he is estopped from
disputing the contract. Moreover, perishing of goods not only includes loss by theft but also where
the goods have lost their commercial value.
(ii) Goods perishing after agreement to sell
Where there is an agreement to sell specific goods, and subsequently the goods without any fault of
any party perish or are so damaged as no longer to answer to their description in the agreement
before the risk passes to the buyer, the agreement is thereby avoided. The provision applies only to
sale of specific goods. If the sale is of unascertained goods, the perishing of the whole quantity of
such goods in the possession of the seller will not relieve him of his obligation to deliver. (Section 8)

With a view to boosting the sales HNMA Automobiles sells a motorcar to Mr. A on a trial basis for a
period of three days with a condition that if Mr. A is not satisfied with the performance of the car, he can
return back the car. However, the car was destroyed in a fire accident at the place of Mr. A before the
expiry of three days. Decide whether Mr. A is liable for the loss suffered.

Provision: As per Section 8 of the Sale of Goods Act, 1930, where there is an agreement to sell specific
goods, and subsequently without any fault on the part of the seller or buyer the goods perish or become so
damaged as no longer to answer to their description, the agreement is thereby avoided. Thus, the contract
becomes void.

In the given case that the subject matter of the contract i.e. Motorcar was destroyed before the transfer of
property from the seller to the buyer. As no ownership is passed on to the buyer, the risk is also not passed
on to him. The ownership and risk are still with the seller (ie. HNMA Automobiles). Conclusion/Decision:
Therefore, in the present case Mr. A is not liable for the loss suffered due to the fire accident over which A
has no control. HNMA Automobiles will have to bear whatever loss that has taken place due to the fire
accident

Modes of Fixing Price (Sections 9 and 10)

 NAHATA PROFESSIONAL ACADEMY 403

The price may be fixed:

 At the time of contract by the parties themselves
 May be left to be determined by the course of dealings between the parties
 May be left to be fixedin some way stipulated in the contract
 Maybe left to be fixed by some third party

Where the contract states that the price is to be fixed by a third-party and such third-party fails to do so,
the contract is void. But if the buyer has already taken the benefit of the goods, he must pay a reasonable
price for them. If the third-party’s failure to fix the price is due to the fault of the seller or buyer, then that
party is liable for an action for damages.

Where nothing is said by the parties regarding price, the buyer must pay a reasonable price. What is a
reasonable price is a question of fact dependent upon the circumstances of each particular case. Generally,
the market price would be a reasonable price.

No sale can take place without a price. Thus, if there is no valuable consideration to support a voluntary
surrender of goods by the real owner to another person, the transaction is a gift, and is not governed by the
Sale of Goods Act. Therefore, price, which is money consideration for the sale of goods, constitutes the
essence for a contract of sale. It may be money actually paid or promised to be paid. If a consideration
other than money is to be given, it is not a sale.

Conditions and Warranties (Sections 12-17)

The parties are at liberty to enter into a contract with any terms they please. As a rule, before a contract of
sale is concluded, certain statements are made by the parties to each other. The statement may amount to
a stipulation, forming part of the contract or a mere expression of opinion which is not part of the contract.
If it is a statement by the seller on the reliance of which the buyer makes the contract, it will amount to a
stipulation. If it is a mere commendation by the seller of his goods it does not amount to a stipulation and
does not give the right of action.
The stipulation may either be a condition or a warranty. Section 12 draws a clear distinction between a
condition and a warranty. Whether a stipulation is a condition or only a warranty is a matter of substance
rather than the form of the words used. A stipulation may be a condition though called a warranty and vice
versa.

Conditions
If the stipulation forms the very basis of the contract or is essential to the main purpose of the contract, it is
a condition. The breach of the condition gives the aggrieved party a right to treat the contract as
repudiated. Thus, if the seller fails to fulfil a condition, the buyer may treat the contract as repudiated,
refuse the goods and, if he has already paid for them, recover the price. He can also claim damages for the
breach of contract.

Warranties
If the stipulation is collateral to the main purpose of the contract, i.e., is a subsidiary promise, it is a
warranty. The effect of a breach of a warranty is that the aggrieved party cannot repudiate the contract but
can only claim damages. Thus, if the seller does not fulfil a warranty, the buyer must accept the goods and
claim damages for breach of warranty.
Section 11 states that the stipulation as to time of payment are not to be deemed conditions (and hence
not to be of the essence of a contract of sale) unless such an intention appears from the contract. Whether
any other stipulation as to time (e.g., time of delivery) is of the essence of the contract or not depends on
the terms of the contract.

When condition sinks to the level of warranty

In some cases a condition sinks or descends to the level of a warranty. The first two cases depend upon the
will of the buyer, but the third is compulsory and acts as estoppel against him.
(a) A condition will become a warranty where the buyer waives the condition; or
 NAHATA PROFESSIONAL ACADEMY 404

(b) A condition will sink to the level of a warranty where the buyer treats the breach of condition as a
breach of warranty; or
(c) Where the contract is indivisible and the buyer has accepted the goods or part thereof, the breach of
condition can only be treated as breach of warranty. The buyer can only claim damages and
cannotreject the goods or treat the contract as repudiated.

Sometimes the seller may be excused by law from fulfilling any condition or warranty and the buyer will not
then have a remedy in damages.

Example X ordered basmati rice 5 kg at ` 200 per kg to Y. Mr. Y delivered kolam rice 5 kgs at ` 120 per kg.
Now X would have canceled the contract but he was in urgent need of rice so he accepted kolam rice
instead of basmati rice and he claimed damages from Mr. Y. However, where there is a term in the
contract, that the buyer can reject the goods and repudiate the contract, the buyer can still exercise his
right as the breach of condition.

Aron & Co. v. There was an offer of sale of goods c.i.f. Antwerp to be shipped in October. The
Comptoir vendor was not to reject delivery even if there was any difference in the type or
Wegimont, 1921-3 value or grade specified. The goods couldn’t be transported till November by
KB 435 virtue of strike at the port. It was held that the purchaser could decline to take
delivery of the goods.

Implied Warranties/Conditions

Even where no definite representations have been made, the law implies certain representations as having
been made which may be warranties or conditions. An express warranty or condition does not negative an
implied warranty or condition unless inconsistent therewith.

Implied Warranties [Section 14(b), 14(c) and 16(3)]

(a) Implied warranty of quiet possession: If the circumstances of the contract are such as there is an
implied warranty that the buyer shall have and enjoy quiet possession of the goods.
(b) Implied warranty against encumbrances: There is a further warranty that the goods are not subject
to any right in favour of a third-party, or the buyer’s possession shall not be disturbed by reason of
the existence of encumbrances. This means that if the buyer is required to, and does discharge the
amount of the encumbrance, there is breach of warranty, and he is entitled to claim damages from
the seller.

Implied Conditions [Sections 14(a), 15(1), (2), 16(1) and Proviso 16(2), and Proviso 16(3) and 12(b) and
12(c)].

Different implied conditions apply under different types of contracts of sale of goods, such as sale by
description, or sale by sample, or sale by description as well as sample. The condition, as to title to goods
applies to all types of contracts, subject to that there is apparently no other intention.

Implied Conditions as to title

There is an implied condition that the seller, in an actual sale, has the right to sell the goods, and, in an
agreement to sell, he will have a right to sell the goods at the time when property is to pass. As a result, if
the title of the seller turns out to be defective, the buyer is entitled to reject the goods and can recover the
full price paid by him.
Rowland v. Divall The complainant, a car dealer, purchased a car from the defendant. He painted the car
(1923) 2 K.B. and displayed it and sold it to a customer. The police impounded the car two months
later as it was stolen. It was then returned to the original owner. The complainant as
well as the defendant did not know the car was stolen. The complainant returned the
car to the consumer and filed a lawsuit under the Sale of Goods Act against the
defendant. The defendant did not have the right to sell the goods as he did not obtain
good title from the thief. Ownership remained with the original owner. The defendant
 NAHATA PROFESSIONAL ACADEMY 405

was using the car for 2 months and was not obliged to pay for it and the plaintiff was
not entitled to compensation for his work and money spent on the car. It was held
that defendant had broken the condition as to title and complainant was therefore,
entitled to recover the purchase money from defendant.

Example X brought a bike from Y. Y had no title to the bike. He had stolen the bike from Z. X had to hand
over it true owner, Z. There is a breach of implied condition as to title from Y, and X can recover the price of
a bike as well as can claim damages from Y.

Question: Jolly bought a second-hand car from Yogesh for ` 85,000 and paid for it. After Jolly had used
the car for six months he was deprived of it because Yogesh had no title to it. Can Jolly recover the price
of the car from Yogesh? Advice Jolly.
As per Section 14 of the Sale of Goods Act, 1930, in ‘contract of sale’, the seller should have a good and
valid title, so that he can transfer good and valid title to the buyer. If it turns out that the seller’s title is
defective, then the buyer can repudiate the contract.
In the given case, “implied condition as to title” is violated by Yogesh. Jolly can recover the price of the car
as well as can claim damages from Yogesh.

Implied conditions under a sale by description

In a sale by description there are the following implied conditions:
(a) Goods must correspond with description: It is provided under Section 15 of the Act that when there
is a sale of goods by description, there is an implied condition that the goods shall correspond with
description.
In a sale by description, the buyer relies for his information on the description of the goods given by
the seller, e.g. in the contract or in the preliminary negotiations.
Where ‘A’ buys goods which he has not seen, it must be sale by description, e.g., where he buys a
‘new Fiat car’ from ‘B’ and the car is not new, he can reject the car.

Beale v. Taylor The defendant announced a 1961 Triumph Herald 1200 car for sale which he
(1967)[2] believed to be real. The plaintiff tested the car and saw a metal disc in the
back of the car written “1200” and bought the car. The car was subsequently
found to consist of a rear 1961 Herald Triumph 1200 sold to the front of a
former Triumph Herald 948 model. It was held to be a breach of Section 13
despite the fact that claimant had inspected the car as he relied on the
description in the advertisement and the metal disc at the rear of the car.
Nagan Das If a buyer orders goods of a certain description, and the seller delivers goods
Mathura Das v. of a different description, it is open to the buyer to reject them. But if he does
N.V. not reject them but keeps the goods, even if he does so in ignorance of the
Valmamohomed fact that they are of a description different from that provided for by the
(1930)[6] AIR contract he is debarred from rejecting the goods thereafter, and can only fall
1930 Bombay back upon a claim for damages, as upon a breach of warranty.
249
Wallis, Son & In this case, the buyer could recover loss, as there was a breach of condition
Wells v. Pratt & on contract for sale of seeds referred to as Sainfoin’ the seeds supplied to the
Haynes [1911] purchaser were of a different quality.
A. C. 394
Baldry v. A consulted a car seller for the acquisition of a car appropriate for touring
Marshall L.R. purposes. The vendor sold a car saying that it will deliver the needs of a buyer.
[1925] 1 K.B. The car ended up being unfit for touring purposes. It was held that the
260 purchaser can restore the car and get back the cost as well as damages, on the
ground of breach of condition. In this case, the contract will not be void if the
purchaser demands for a good car.

(b) Goods must also be of merchantable quality: If they are bought by description from dealer of goods
 NAHATA PROFESSIONAL ACADEMY 406

of that description. [Section 16(2)]

Merchantable quality means that the goods must be such as would be acceptable to a reasonable
person, having regard to prevailing conditions. They are not merchantable if they have defects which
make them unfit for ordinary use, or are such that a reasonable person knowing of their condition
would not buy them. ‘P’ bought black yarn from ‘D’ and, when delivered, found it damaged by the
white ants. The condition of merchantability was broken.
But, if the buyer has examined the goods, there is no implied condition as regards defects which such
examination ought to have revealed. If, however, examination by the buyer does not reveal the
defect and he approves and accepts the goods, but when put to work, the goods are found to be
defective, there is a breach of condition of merchantable quality.
The buyer is given a right to examine the goods before accepting them. But a mere opportunity
without an actual examination, however, cursory, would not suffice to deprive him of this right.
Example A inspects a hot water bottle at a chemist’s shop and enquires whether it will stand
boiling water. A is told that it will stand hot water but not boiling water and then he buys it. The
moment A puts hot water into the bottle, it bursts causing him an injury. Has A any remedy against
the chemist? Would there be any difference if he had asked for the hot water bottle under its
patent name of “fuller’s flaw lets Bottle”?
As per Section 16(2) of the Sale of Goods Act, 1930, where goods are bought by description from a
seller who deals in goods of that description, there is an implied condition that the goods shall be of
merchantable quality. The term ‘merchantable quality’ is not defined in the Sale of Goods Act, 1930.
For the present case it means, the bottle must be properly sealed. In other words, if the goods are
purchased for self-use, they should be reasonably fit for a purpose for which it is being used. In the
instant case, on an examination of the hot water bottle, it exploded and injured the buyer. Applying
the provision of section 16(2), Mr. Amit would succeed in claiming damage from the owner of the
shop.

Mareli v Fitch A buyer bought a Stone’s Ginger Wine. While he was attempting to draw its
and Gibbons cork with a corkscrew and with due care, the bottle broke off and injured the
hand of the buyer. It was held that the bottle was not of merchantable quality,
so the seller was liable.
Effect of buyer examining goods: If the buyer has examined the goods there
shall be no implied condition with regard to defects, which such inspection
ought to have revealed. However, the implied condition as to merchantability
will continue to apply so far as latent defects in the goods are concerned, since
such defects cannot be discovered by ordinary examination of the goods.

(c) Condition as to wholesomeness: The provisions, (i.e., eatables) supplied must not only answer the
description, but they must also be merchantable and wholesome or sound. ‘F’ bought milk from ‘A’
and the milk contained typhoid germs. ‘F’s wife became infected and died. ‘A’ was liable for
damages. Again, ‘C’ bought a bun at ‘M’s bakery, and broke one of his teeth by biting on a stone
present in the bun. ‘M’ was held liable.
(d) Condition as to quality or fitness for a particular purpose: Ordinarily, in a contract of sale, there is
no implied warranty or condition as to the quality or fitness for any particular purpose of goods
supplied.
But there is an implied condition that the goods are reasonably fit for the purpose for which they are
required if:
(i) the buyer expressly or by implication makes known to the seller the particular purpose for
which the goods are required, so as to show that he relies on the seller’s skill and judgement,
and
(ii) the goods are of a description which it is in the course of the seller’s business to supply
(whether he is the manufacturer or producer or not). There is no such condition if the goods
are bought under a patent or trade name.

Priest v. Last a hot water bottle was bought by the plaintiff, a draper, who could not be
 NAHATA PROFESSIONAL ACADEMY 407

(1903) 2 K.B. expected to have special skill knowledge with regard to hot water bottles,
148 from a chemist, who sold such articles stating that the bottle will not stand
boiling water but was intended to hold hot water. While being used by the
plaintiff’s wife, the bottle bursted and injured her. Held, the seller was
responsible for damages as the bottle was not fit for use as a hot water
bottle.
Grant v. ‘G’ a doctor purchased woollen underpants from ‘M’ a retailer whose
Australian business was to sell goods of that description. After wearing the
Knitting Mills underpants, ‘G’ developed some skin diseases. Held, the goods were not fit
(1936) 70 for their only use and ‘G’ was entitled to avoid the contract and claim
MLJ 513 damages.

Implied conditions under a sale by sample (Section 17)

In a contract of sale by sample:
(a) there is an implied condition that the bulk shall correspond with the sample in quality;
(b) there is another implied condition that the buyer shall have a reasonable opportunity of comparing
the bulk with the sample;
(c) it is further an implied condition of merchantability, as regards latent or hidden defects in the goods
which would not be apparent on reasonable examination of the sample. “Worsted coating” quality
equal to sample was sold to tailors, the cloth was found to have a defect in the fixture rendering the
same unfit for stitching into coats. The seller was held liable even though the same defect existed in
the sample, which was examined.

Example X send 3 sample of sugar and named them as Sugar fine, Sugar refined, sugar superfine
to Y. Y orders 500 kg of Sugar refined to X. The whole lot of sugar should be of quality of the
sample send by X. This is sale by sample.

James In this case it was observed that the buyer can abandon the contract on
Drummond& sons discovering the defect in the supplied of cloth (not as per sample) by the
v. E H van ingen seller.
Company

Implied conditions in sale by sample as well as by description

In a sale by sample as well as by description, the goods supplied must correspond both with the samples as
well as with the description. Thus, in Nichol vs. Godts (1854) 158 E.R. 426, there was a sale of “foreign
refined rape-oil having warranty only equal to sample”. The oil tendered was the same as the sample, but it
was not “foreign refined rape-oil” having a mixture of it and other oil. It was held that the seller was liable,
and the buyer could refuse to accept.

IMPLIED WARRANTIES
Implied warranties are those which the law presumes to have been incorporated in the contract of sale
inspite of the fact that the parties have not expressly included them in a contract of sale. Subject to the
contract to the contrary, following are the implied warranties in a contract of sale:
(i) Warranty as to quiet possession: Section 14(b) of the Sale of Goods Act provides that there is an
implied warranty that the buyer shall have and enjoy quiet possession of goods. If the buyer’s
possession is disturbed by anyone having superior title than that of the seller, the buyer is entitled to
hold the seller liable for breach of warranty.
(ii) Warranty as to freedom from encumbrances: Section 14(c) states that in a contract of sale, there is
an implied warranty that the goods shall be free from any charge or encumbrance in favour of any
third party not declared or known to the buyer before or at the time when the contract is made. But
if the buyer is aware of any encumbrance on the goods at the time of entering into the contract, he
will not be entitled to any compensation from the seller for discharging the encumbrance.
(iii) Warranty to disclose dangerous nature of goods: If the goods are inherently dangerous or likely to be
 NAHATA PROFESSIONAL ACADEMY 408

dangerous and the buyer is ignorant of the danger, the seller must warn the buyer of the probable
danger.
(iv) Warranties implied by the custom or usage of trade: Section 16(3) provides that an implied warranty
or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade.

DOCTRINE OF CAVEAT EMPTOR

This principle states that it is for the buyer to satisfy himself that the goods which he is purchasing are of
the quality which he requires. If he buys goods for a particular purpose, he must satisfy himself that they
are fit for that purpose. The doctrine of caveat emptor is embodied in Section 16 of the Act which states
that “subject to the provisions of this Act and of any other law for the time being in force, there is no
implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under
a contract of sale”. In simple words, it is not the seller’s duty to give to the buyer the goods which are fit for
a suitable purpose of the buyer. If he makes a wrong selection, he cannot blame the seller if the goods turn
out to be defective or do not serve his purpose.

The principle was applied in the case of Ward vs. Hobbs, (1878) 4 A.C. 13, where certain pigs were sold by
auction and no warranty was given by seller in respect of any fault or error of description. The buyer paid
the price for healthy pigs. But they were ill and all but one died of typhoid fever. They also infected some of
the buyer’s own pigs. It was held that there was no implied condition or warranty that the pigs were of
good health. It was the buyer’s duty to satisfy himself regarding the health of the pigs.
Exceptions: Section 16 lays down the following exceptions to the doctrine of Caveat Emptor:
(1) Where the seller makes a false representation and the buyer relies on it.
(2) When the seller actively conceals a defect in the goods which is not visible on a reasonable
examination of the same.
(3) When the buyer, relying upon the skill and judgement of the seller, has expressly or impliedly
communicated to him the purpose for which the goods are required.
(4) Where goods are bought by description from a seller who deals in goods of that description.

Example A goes to B shop and purchases silk-saree thinking that it is made of Banarsi silk. The
shopkeeper knows that A thinking is wrong. He however does not correct A impression. Later on,
when A discovers that the saree is not made of Banarsi silk he wants to avoid the contract. Would A
succeed? Give reasons.
Generally, it is no part of the seller’s duty in a contract of sale of goods to give to the buyer an article
suitable for a particular purpose, or of a particular quality. Also, the seller is under no obligation to point
out the defects in the goods. It is the duty of the buyer to thoroughly examine the goods or to make
known to the seller the purpose for which goods are required before he buys. If he makes the wrong
choice, he cannot blame the seller. In the given case, A himself has made the selection without
depending upon the skills and judgment of the seller. Therefore, A cannot avoid the contract.

Position of the doctrine of Caveat Emptor as enshrined in the present era.

With the enactment of Consumer Protection Act, 2019, the legislature corroborated the rights of buyers as
against the misleading and delusive practices of the vendors. It has been established that goods being
transacted in large numbers and online purchases are two of the most crucial reasons behind why Caveat
Emptor in isolation will not be feasible for modern day contracts. However, this does not mean that Caveat
Emptor should be eradicated in absolute sense. A blend of both the doctrines should be applied to ensure
that the blanket immunity which the doctrine of Caveat Emptor places on the sellers is being restricted with
the help of Caveat Venditor which confers accountability on sellers as well.

Mandava Krishna In the case of It was opined that the rule of Caveat Emptor has become
Chaitanya vs. UCO insignificant instead the doctrine of Caveat Venditor has gained momentum within
Bank, Asset the commercial contracts. However, with the help of detailed interpretation of the
Management relevant sections of the statute along with perusal of some of the landmark
Branch judgments by the Indian judiciary, it can be said that Caveat Venditor has relieved
(21.02.2018 - consumers from exercising utmost caution and has essentially divided the
 NAHATA PROFESSIONAL ACADEMY 409

HYHC): responsibility between both the parties.

EFFECTS OF CONTRACTS
Passing of Property or Transfer of Ownership (Sections 18-20)
The sole purpose of a sale is the transfer of ownership of goods from the seller to the buyer. It is important
to know the precise moment of time at which the property in the goods passes from the seller to the buyer
for the following reasons:
(a) The general rule is that risk follows the ownership, whether the delivery has been made or not. If the
goods are lost or damaged by accident or otherwise, then, subject to certain exceptions, the loss falls
on the owner of the goods at the time they are lost or damaged.
(b) When there is a danger of the goods being damaged by the action of third parties, it is generally the
owner who can take action.
(c) The rights of third parties may depend upon the passing of the property if the buyer resells the goods
to a third-party, the third-party will only obtain a good title if the property in the goods has passed to
the buyer before or at the time of the resale. Similarly, if the seller, in breach of his contract with the
buyer, attempts to sell the goods to a third party in the goods, has not passed to the buyer, e.g.,
where there is only an agreement to sell.
(d) In case of insolvency of either the seller or the buyer, it is necessary to know whether the goods can
be taken over by the official assignee or the official receiver. It will depend upon whether the
property in the goods was with the party adjudged insolvent.

Thus in this context, ownership and possession are two distinct concepts and these two can at times remain
separately with two different persons.

Passing of property in specific goods

In a sale of specific or ascertained goods, the property in them passes to the buyer as and when the parties
intended to pass. The intention must be gathered from the terms of the contract, the conduct of the parties
and the circumstances of the case.
Unless a contrary intention appears, the following rules are applicable for ascertaining the intention of the
parties:
(a) Where there is an unconditional contract for the sale of specific goods in a deliverable state, the
property in the goods passes to the buyer when the contract is made. Deliverable state means such a
state that the buyer would be bound to take delivery of the goods. The fact that the time of delivery
or the time of payment is postponed does not prevent the property from passing at once. (Section
20)
Example: X sales a machine to Y which was ready for delivery. Y tells X that he will take delivery
the next day. At night, the machine was destroyed by fire without the fault of any party. As the
machine was in a deliverable state, property in goods had passed to Y and he has to bear the loss.
(b) Where there is a contract for the sale of specific goods not in a deliverable state, i.e., the seller has to
do something to the goods to put them in a deliverable state, the property does not pass until that
thing is done and the buyer has notice of it. (Section 21)
Example X offered to sell a car to Y for ` 50,000 after doing some repair work, which was accepted
Y. While the car being repaired, it was destroyed without the fault of any party. It is clear from the
contract that parties had the intention to pass the property in goods after repair and the car had
destroyed before repair, hence no property in goods was transferred to Y and X has to bear the
loss.

(Rugg vs. Minett A certain quantity of oil was brought. The oil was to be filled into casks by the
(1809) 11 East seller and then taken away by the buyer. Some casks were filled in the
210). presence of buyer but, before the remainder could be filled, a fire broke out
and the entire quantity of oil was destroyed, Held, the buyer must bear the
loss of the oil which was put into the casks (i.e., put in deliverable state) and
the seller must bear the loss of the remainder
 NAHATA PROFESSIONAL ACADEMY 410

(c) Where there is a sale of specific goods in a deliverable state, but the seller is bound to weigh,
measure, test or do something with reference to the goods for the purpose of ascertaining the price,
the property to the goods for the purpose of ascertaining the price, does not pass until such act or
thing is done and the buyer has notice of it. (Section 22)
(d) When goods are delivered to the buyer “on approval” or “on sale of return” or other similar terms
the property therein passes to the buyer:
(i) when he signifies his approval or acceptance to the seller, or does any other act adopting the
transaction;
(ii) if he does not signify his approval or acceptance but retains the goods without giving notice
of rejection, in such a case—
(a) if a time has been fixed for the return of the goods, on the expiration of such time;
and
(b) if no time has been fixed, on the expiration of a reasonable time.

Example Amar delivers some cotton bales to Bharat on a sale or return basis. Bharat then delivers the
same goods to Chandan and Chandan further delivers it to Dhruv on the same terms and conditions on
which Amar delivers to Bharat. Before Dhruv could give his acceptance, goods are suddenly destroyed by
fire. Who is to bear the loss under these circumstances? Give reasons in support of your answer.

As per Section 24 of the Sale of Goods Act, 1930, when goods are delivered to the buyer on sale or return
terms, the property passes to the buyer, if. the buyer does any act adopting the transaction.
Property in goods gets transferred from A to B, when B delivers watch on sale or return basis to C, from B to
C, when C delivers watch on sale or return basis to D and from C to D, when D delivers watch on sale or
return basis to E. Ownership is with D and hence he will bear the loss.

Example Ankur agreed to sell a horse to Eswar on the condition that Eswar will keep the horse for 10 days
on a trial basis and have the option to return the horse within the stipulated period if he does not find
the horse suitable. However, the horse died on the third day without any fault of either seller or buyer.
State the legal position.

In case of ‘sale or return basis, if goods get lost before property passes to the buyer without the fault of
either party, the loss has to be borne by the seller.
In the given case horse died on the 3rd day whereas the buyer has the time of 10 days to signify his assent
and he has not yet given his approval adopting the transaction. Thus, property in the horse has not been
passed to the buyer and hence seller will bear the loss.

Ownership in unascertained goods

The property in unascertained or future goods does not pass until the goods are ascertained.
Unascertained goods are goods defined by description only, for example, 100 quintals of wheat; and not
goods identified and agreed upon when the contract is made.
Unless a different intention appears, the following rules are applicable for ascertaining the intention of the
parties in regard to passing of property in respect of such goods:
(a) The property in unascertained or future goods sold by description passes to the buyer when goods of
that description and in a deliverable state are unconditionally appropriated to the contract, either by
the seller with the assent of the buyer or by the buyer with the assent of the seller. Such assent may
be expressed or implied and may be given either before or after the appropriation is made. (Section
23)
(b) If there is a sale of a quantity of goods out of a large quantity, for example, 50 quintals of rice out of
a heap in B’s godown, the property will pass on the appropriation of the specified quantity by one
party with the assent of the other.
(c) Delivery by the seller of the goods to a carrier or other buyer for the purpose of transmission to the
buyer in pursuance of the contact is an appropriation sufficient to pass the property in the goods.
(d) The property in goods, whether specific or unascertained, does not pass if the seller reserves the
 NAHATA PROFESSIONAL ACADEMY 411

right of disposal of the goods. Apart from an express reservation of the right of disposal, the seller is
deemed to reserve the right of disposal in the following two cases:
(i) where goods are shipped or delivered to a railway administration for carriage by railway and by the
bill of lading or railway receipt, the goods are deliverable to the order of the seller or his agent.
(ii) when the seller sends the bill of exchange for the price of the goods to the buyer for this acceptance,
together with the bill of lading, the property in the goods does not pass to the buyer unless he
accepts the bill of exchange.

Passing of Risk (Section 26)

The general rule is that goods remain at the seller’s risk until the ownership is transferred to the buyer.
After the ownership has passed to the buyer, the goods are at the buyer’s risk whether the delivery has
been made or not.

For example, ‘A’ buys goods of ‘B’ and property has passed from ‘B’ to ‘A’; but the goods remain in ‘B’s
warehouse and the price is unpaid. Before delivery, ‘B’s warehouse is burnt down for no fault of ‘B’ and
the goods are destroyed. ‘A’ must pay ‘B’ the price of the goods, as he was the owner. The rule is resperit
domino- the loss falls on the owner.

But the parties may agree that risk will pass at the time different from the time when ownership passed.
For example, the seller may agree to be responsible for the goods even after the ownership is passed to the
buyer or vice versa.

Consolidated Coffee one of the terms adopted by coffee board for auction of coffee was the
Ltd. v. Coffee property in the coffee knocked down to a bidder would not pass until the
Board, (1980 3 SCC payment of price and in the meantime the goods would remain with the seller
358), but at the risk of the buyer, In such cases, risk and property passes on at
different stages.
Multanmal goods were despatched by the seller from Bombay to Bellary through a public
Champalal v. Shah carrier. According to the terms of the contract, the goods were to remain the
& Co., AIR (1970) property of the seller till the price was paid though the risk was to pass to the
Mysore 106 buyer when they were delivered to public carrier for despatch. When the
goods were subsequently lost before the payment of the price (and the
consequent to the passing of the property to the buyer), the Court held that
the loss was to be borne by the buyer.

It was further held in the same case that the buyer was at fault in delaying delivery unreasonably and
therefore on that ground also he was liable for the loss, because such loss would not have arisen but for
such delay.
Thus, where delivery has been delayed through the fault of either the buyer or the seller, in such a case, the
goods are at the risk of the party at fault as regards any loss which might not have occurred but for such
fault.

Transfer of Title by Person not the Owner (Section 27-30)

The general rule is that only the owner of goods can sell the goods. Conversely, the sale of an article by a
person who is not or who has not the authority of the owner, gives no title to the buyer. The rule is
expressed by the maxim; “Nemo Dat Quod Non Habet” i.e. no one can pass a better title than he himself
has. As applied to the sale of goods, the rule means that a seller of goods cannot give a better title to the
buyer than he himself possess. Thus, even a bona fide buyer who buys stolen goods from a thief or from a
transfree from such a thief can get no valid title to them, since the thief has no title, nor could he give one
to any transferee.
Example:
(1) A, the hirer of goods under a hire purchase agreement, sells them to B, then B, though a bona fide
purchaser, does not acquire the property in the goods. At most he can acquire such an interest as
the hirer had.
(2) A finds a ring of B and sells it to a third person who purchases it for value and in good faith. The
 NAHATA PROFESSIONAL ACADEMY 412

true owner, i.e. B can recover from that person, for A having no title to the ring could pass none
the better.

Exception to the General Rule

The Act while recognizing the general rule that no one can give a better title than he himself has, laid down
important exceptions to it. Under the exceptions the buyer gets a better title to the goods than the seller
himself. These exceptions are given below:
(a) Sale by a mercantile agent: A buyer will get a good title if he buys in good faith from a mercantile
agent who is in possession either of the goods or documents of title to the goods with the consent of
the owner, and who sells the goods in the ordinary course of his business.

Example: X gives his car to A, a mercantile agent for sale not below ` 1,00,000. A sells the car for `
75,000 to Y. Y bought in good faith and without notice of instruction given by X to A. Y gets a good
title.

(b) Sale by a co-owner: A buyer who buys in good faith from one of the several joint owners who is in
sole possession of the goods with the permission of his co-owners will get good title to the goods.
Example Aman, Raman, and Vinod were joint-owners of a truck, and possession of the said truck
was with Raman. Sudhir purchased the truck from Raman without knowing that Aman and Vinod
were also co-owners of the truck. Decide in the light of the provisions of the Sale of Goods Act,
1930 whether the sale between Raman and Sudhir is valid.
No one can give a better title to the goods than what he himself has. However, as per Section 28 of
the Sale of Goods Act, 1930, if one of several joint owners of goods has the sole possession of goods
with the permission of other co-owners, the property in the goods is transferred to the person who
buys in good faith and has not to notice that the seller has no authority to sell. In the given case, one
of the joint owners Raman had possession of the Truck and Sudhir had purchased the truck without
knowing that Aman and Vinod were also co-owners of the truck. Hence, applying the provision of
section 28 property in Truck has been passed to the Sudhir.

(c) Sale by a person in possession under a voidable contract: A buyer buys in good faith from a person
in possession of goods under a contract which is voidable, but has not been rescinded at the time of
the sale.
Example: X purchases jewelry from Y, by committing fraud. But before Y terminate the contract,’ X
sells the jewelry to Z who buys it in good faith and without notice of X’s defective title. Z gets a
good title.

(d) Sale by seller in possession after sale: Where a seller, after having sold the goods, continues or is in
possession of the goods or of the documents of title to the goods and again sells them by himself or
through his mercantile agent to a person who buys in good faith and without notice of the previous
sale, such a buyer gets a good title to the goods.
Example: B buys a mobile from S which he agrees to deliver to B the next day. S sells the same
mobile to T who pays a higher price than B. T buys in good faith and without notice of the previous
sale. T gets a good title

(e) Sale by buyer in possession: If a person has brought or agreed to buy goods obtains, with the seller’s
consent, possession of the goods or of the documents of title to them, any sale by him or by his
mercantile agent to a buyer who takes in good faith without notice of any lien or other claim of the
original seller against the goods, will give a good title to the buyer. In any of the above cases, if the
transfer is by way of pledge or pawn only, it will be valid as a pledge or pawn.
Example: B bought a TV on hire purchase from S. B sold it to T, who purchased it in good faith. T
gets a good title.

(f) Estoppel: If the true owner stands by and allows an innocent buyer to pay over money to a third-
party, who professes to have the right to sell an article, the true owner will be estopped from
denying the third- party’s right to sell.
 NAHATA PROFESSIONAL ACADEMY 413

Example: In presence of Z, X sells goods to Y by telling that goods belong to him (X). Z does not
object to X’s statement, Y gets a good title and Z will be estopped from denying the want of
authority of X.

(g) Sale by an unpaid seller: Where an unpaid seller has exercised his right of lien or stoppage in transit
and is in possession of the goods, he may resell them and the second buyer will get absolute right to
the goods.

(h) Sale by person under other laws: A pawnee, on default of the pawnee to repay, has a right to sell
the goods, pawned and the buyer gets a good title to the goods. The finder of lost goods can also sell
under certain circumstances. The Official Assignee or Official Receiver, Liquidator, Officers of Court
selling under a decree, Executors, and Administrators, all these persons are not owners, but they can
convey better title than they have.

PERFORMANCE OF THE CONTRACT OF SALE

It is the duty of the seller and buyer that the contract is performed. The duty of the seller is to deliver the
goods and that of the buyer is to accept the goods and pay for them in accordance with the contract of sale.
Unless otherwise agreed, payment of the price and the delivery of the goods are concurrent conditions, i.e.,
they both take place at the same time as in a cash sale over a shop counter.

Delivery (Sections 33-39)

Delivery is the voluntary transfer of possession from one person to another. Delivery may be actual,
constructive or symbolic. Actual or physical delivery takes place where the goods are handed over by the
seller to the buyer or his agent authorised to take possession of the goods. Constructive delivery takes
place when the person in possession of the goods acknowledges that he holds the goods on behalf of and
at the disposal of the buyer. For example, where the seller, after having sold the goods, may hold them as
bailee for the buyer, there is constructive delivery. Symbolic delivery is made by indicating or giving a
symbol. Here the goods themselves are not delivered, but the “means of obtaining possession” of goods is
delivered, e.g, by delivering the key of the warehouse where the goods are stored, bill of lading which will
entitle the holder to receive the goods on the arrival of the ship.
Rules as to delivery
The following rules apply regarding delivery of goods:
(a) Delivery should have the effect of putting the buyer in possession.
(b) The seller must deliver the goods according to the contract.
(c) The seller is to deliver the goods when the buyer applies for delivery; it is the duty of the buyer to
claim delivery.
(d) Where the goods at the time of the sale are in the possession of a third person, there will be delivery
only when that person acknowledges to the buyer that he holds the goods on his behalf.
(e) The seller should tender delivery so that the buyer can take the goods. It is no duty of the seller to
send or carry the goods to the buyer unless the contract so provides. But the goods must be in a
deliverable state at the time of delivery or tender of delivery. If by the contract the seller is bound to
send the goods to the buyer, but no time is fixed, the seller is bound to send them within a
reasonable time.
(f) The place of delivery is usually stated in the contract. Where it is so stated, the goods must be
delivered at the specified place during working hours on a working day. Where no place is
mentioned, the goods are to be delivered at a place at which they happen to be at the time of the
contract of sale and if not then in existence they are to be delivered at the place at which they are
manufactured or produced.
(g) The seller has to bear the cost of delivery unless the contract otherwise provides. While the cost of
obtaining delivery is said to be of the buyer, the cost of the putting the goods into deliverable state
must be borne by the seller. In other words, in the absence of an agreement to the contrary, the
expenses of and incidental to making delivery of the goods must be borne by the seller, the expenses
of and incidental to receiving delivery must be borne by the buyer.
(h) If the goods are to be delivered at a place other than where they are, the risk of deterioration in
transit will, unless otherwise agreed, be borne by the buyer.
 NAHATA PROFESSIONAL ACADEMY 414

(i) Unless otherwise agreed, the buyer is not bound to accept delivery in instalments.

Acceptance of Goods by the Buyer Acceptance of the goods by the buyer takes place when the buyer:
(a) Intimates to the seller that he has accepted the goods; or
(b) Retains the goods, after the lapse of a reasonable time without intimating to the seller that he has
rejected them; or
(c) Does any act on the goods which is inconsistent with the ownership of the seller, e.g., pledges or
resells. If the seller sends the buyer a larger or smaller quantity of goods than ordered, the buyer
may:
(i) reject the whole; or
(ii) accept the whole; or
(iii) accept the quantity ordered and reject the rest.

If the seller delivers with the goods ordered, goods of a wrong description, the buyer may accept the goods
ordered and reject the rest, or reject the whole.

Where the buyer rightly rejects the goods, he is not bound to return the rejected goods to the seller. It is
sufficient if he intimates the seller that he refuses to accept them. In that case, the seller has to remove
them.

Example Amil sells to Sachin a specific horse which is to be delivered to Sachin the next week. Sachin is to
pay the price on delivery. In the next week, Sachin was ready to pay price for the horse. But Amil was not
in a position to deliver the horse to Sachin. Amit asks Sachin to take the delivery of the horse after
another week. The horse dies before it is delivered to and paid for. Who shall bear the loss? Explain.
As per Section 32 of the Sale of Goods Act, 1930, unless otherwise agreed, delivery of the goods and
payment of the price are concurrent conditions. Thus, the seller shall be ready and willing to give
possession of the goods to the buyer in exchange for the price and the buyer shall be ready and willing to
pay the price in exchange for possession of the goods. In the given case Anil’s main duty is to deliver the
horse to the buyer Sachin. He has failed to perform his part under the contract of sale. Hence, Anil will bear
the loss.
J & H Ritchie Ltd v. Lloyd Mr Ritchie bought an all in one seed drill and harrow from Lloyd Ltd. It did
Ltd (2007)[5] not work. Lloyd Ltd agreed to take it back, investigate, and repair it. Lloyd
Ltd returned it, and just said it had been repaired to factory gate standard.
Mr Ritchie found out a serious defect. He would be using this in the next
summer and till that time manufacturers guarantee would be affected. So,
Mr Ritchie rejected the machine. Under sec 35. The House of Lords all
agreed that Mr Ritchie was entitled to reject the equipment, even though it
had in fact been repaired.

INSTALMENT DELIVERIES
When there is a contract for the sale of goods to be delivered by stated instalments which are to be
separately paid for, and either the buyer or the seller commits a breach of contract, it depends on the
terms of the contract whether the breach is a repudiation of the whole contract or a severable breach
merely giving right to claim for damages.

Suits for Breach of Contract

Where the property in the goods has passed to the buyer, the seller may sue him for the price.
Where the price is payable on a certain day regardless of delivery, the seller may sue for the price, if it is not
paid on that day, although the property in the goods has not passed.

Where the buyer wrongfully neglects or refuses to accept the goods and pay for them, the seller may sue
the buyer for damages for non-acceptance.

Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue him
for damages for non-delivery.
 NAHATA PROFESSIONAL ACADEMY 415

Where there is a breach of warranty or where the buyer elects or is compelled to treat the breach of
condition as a breach of warranty, the buyer cannot reject the goods. He can set breach of warranty in
extinction or diminition of the price payable by him and if loss suffered by him is more than the price he
may sue for the damages.

If the buyer has paid the price and the goods are not delivered, the buyer can sue the seller for the recovery
of the amount paid. In appropriate cases the buyer can also get an order from the court that the specific
goods ought to be delivered.
Chhunna Mal Ram Nath Plaintiffs entered into contract for taking deliveries of the goods packed
vs. Mool Chand Ram in wooden boxes from the defendants, which latter was to secure from
Bhagat (1928) 30 BOMLR `London. Since British government prohibited the supply of such goods
837 in wooden boxes, hence, defendants offered to supply the goods in
bales to which plaintiffs refused and “cancel[ed] the goods” without
claiming any compensation thereof in any of the correspondences.
Plaintiffs later claimed damages for non-delivery.

Plaintiffs upon the ancillary breach of defendants claimed to have ‘put

an end to the contract’ u/s 39; however, it is the plaintiffs themselves
who by wrongfully refusing to take deliveries under the contract have
given a chance to defendants to ‘put an end to it’. Nevertheless,
defendants did not exercise this option and by acquiescence continued
it; but Plaintiffs by insisting on “cancellation of goods” to be supplied by
the defendants, had expressly dispensed with the performance by the
latter such that no claim for damages could be brought against the any
breach by latter.

Anticipatory Breach
Where either party to a contract of sale repudiates the contract before the date of delivery, the other party
may either treat the contract as still subsisting and wait till the date of delivery, or he may treat the
contract as rescinded and sue for damages for the breach.
In case the contract is treated as still subsisting it would be for the benefit of both the parties and the party
who had originally repudiated will not be deprived of:
(a) his right of performance on the due date in spite of his prior repudiation; or
(b) his rights to set up any defence for non-performance which might have actually arisen after the date
of the prior repudiation.

Measure of Damages
The Act does not specifically provide for rules as regards the measure of damages except by stating that
nothing in the Act shall affect the right of the seller or the buyer to recover interest or special damages in
any case where by law they are entitled to the same. The inference is that the rules laid down in Section 73
of the Indian Contract Act will apply.

Suresh Kumar The plaintiff sold, through the commission agents, the goods and claimed
Rajendra Kumar v. compensation from the buyer who had rejected them. While doing so the plaintiff
K Assan Koya & had taken all the measures necessary to sell the goods urgently in the ordinary
sons (1990)[8] course of business. In the absence of any records to show that the sale was
conducted in an improper manner, it was held by the court that the plaintiff was
entitled to claim the difference between the price at which the rice was supposed
to be sold to the defendants, and the price at which it was finally sold

UNPAID SELLER (SECTIONS 45-54)

Who is an unpaid seller? (Section 45)
The seller of goods is deemed to be unpaid seller:
 NAHATA PROFESSIONAL ACADEMY 416

(a) When the whole of the price has not been paid or tendered; or
(b) When a conditional payment was made by a bill of exchange or other negotiable instrument, and the
instrument has been dishonoured.

Rights of an Unpaid Seller against the Goods

An unpaid seller’s right against the goods are:
(a) Right of Lien (Sections 47-49 and 54): An unpaid seller in possession of goods sold, may exercise his
lien on the goods, i.e., keep the goods in his possession and refuse to deliver them to the buyer until
the fulfilment or tender of the price in cases where:
(i) the goods have been sold without stipulation as to credit; or
(ii) the goods have been sold on credit, but the term of credit has expired; or
(iii) the buyer becomes insolvent.
The lien depends on physical possession. The seller’s lien is possessory lien, so that it can be
exercised only so long as the seller is in possession of the goods. It can only be exercised for the non-
payment of the price and not for any other charges.
A lien is lost –
(i) When the seller delivers the goods to a carrier or other bailee for the purpose of transmission
to the buyer, without reserving the right of disposal of the goods;
(ii) When the buyer or his agent lawfully obtains possession of the goods;
(iii) By waiver of his lien by the unpaid seller.
(b) Stoppage in transit (Sections 50-52): The right of stoppage in transit is a right of stopping the goods
while they are in transit, resuming possession of them and retaining possession until payment of the
price.
The right to stop goods is available to an unpaid seller
(i) when the buyer becomes insolvent; and
(ii) the goods are in transit.
The buyer is insolvent if he has ceased to pay his debts in the ordinary course of business, or cannot
pay his debts as they become due. It is not necessary that he has actually been declared insolvent by
the court.
The goods are in transit from the time they are delivered to a carrier or other bailee like a wharfinger
or warehousekeeper for the purpose of transmission to the buyer and until the buyer takes delivery
of them. The transit comes to an end in the following cases:
(i) If the buyer obtains delivery before the arrival of the goods at their destination;
(ii) If, after the arrival of the goods at their destination, the carrier acknowledges to the buyer
that he holds the goods on his behalf, even if further destination of the goods is indicated by
the buyer;
(iii) If the carrier wrongfully refuses to deliver the goods to the buyer.

If the goods are rejected by the buyer and the carrier or other bailee holds them, the transit will be
deemed to continue even if the seller has refused to receive them back.

The right to stop in transit may be exercised by the unpaid seller either by taking actual possession of
the goods or by giving notice of the seller’s claim to the carrier or other person having control of the
goods. On notice being given to the carrier, he must redeliver the goods to the seller who must pay
the expenses of the redelivery.

The seller’s right of lien or stoppage in transit is not affected by any sale on the part of the buyer
unless the seller has assented to it. A transfer, however, of the bill of lading or other document of
seller to a bona fide purchaser for value is valid against the seller’s right.
(c) Right of re-sale (Section 54): The unpaid seller may re-sell:
(i) where the goods are perishable;
(ii) where the right is expressly reserved in the contract;
(iii) where in exercise of right of lien or stoppage in transit, the seller gives notice to the buyer of
his intention to re-sell, and the buyer, does not pay or tender the price within a reasonable
time.
 NAHATA PROFESSIONAL ACADEMY 417

If on a re-sale, there is a deficiency between the price due and amount realised, he is entitled to
recover it from the buyer. If there is a surplus, he can keep it. He will not have these rights if he has
not given any notice and he will have to pay the buyer profit, if any, on the resale.

(d) Rights to withhold delivery: If the property in the goods has passed, the unpaid seller has right as
described above. If, however, the property has not passed, the unpaid seller has a right of
withholding delivery similar to and co-extensive with his rights of lien and stoppage in transit.

Rights of an unpaid seller against the buyer (Sections 55 and 56)

An unpaid seller may sue the buyer for the price of the goods in case of breach of contract where the
property in the goods has passed to the buyer or he has wrongfully refused to pay the price according to
the terms of the contract.
The seller may sue the buyer even if the property in the goods has not passed where the price is payable on
a certain day.
Under Section 56, the seller may sue the buyer for damages or breach of contract where the buyer
wrongfully neglects or refuses to accept and pay for the goods.

Auction Sales (Section 64)

A sale by auction is a public sale where goods are offered to be taken by bidders. It is a proceeding at which
people are invited to complete for the purchase of property by successive offer of advancing sums.
Section 64 lays down the rules regulating auction sales. Where goods are put up for sale in lots, each, lot is
prima facie deemed to be the subject of a separate contract of sale. The sale is complete when the
auctioneer announces its completion by the fall of the hammer or in other customary manner. Until such
announcement is made, any bidder may retract his bid.
A right to bid may be reserved expressly by or on behalf of the seller. Where such right is expressly so
reserved, the seller or any other person on his behalf may bid at the auction. Where the sale is not notified
to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to
employ any person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or
any such person. Any sale in contravention of this rule may be treated as fraudulent by the buyer. The sale
may be notified to be subject to a reserved price. Where there is such notification, every bid is a conditional
offer subject to its being up to the reserve price. Where an auctioneer inadvertently knocks down to a
bidder who has bid less than the reserved price, there is no contract of sale. If the seller makes use of
pretended bidding to raise the price, the sale is voidable at the option of the buyer.

Trading Contracts Involving Rail or Sea Transit

In the case of a contract for the sale of goods which are to be shipped by sea a number of conditions are
attached by the parties or by custom and practice of merchants. Some of the important types of such
contracts are given below:
(a) F.O.B.(Free on Board): Under an F.O.B. contract, it is the duty of the seller to put the goods on board
a ship at his own expenses. The property in goods passes to the buyer only after the goods have
been put on board the ship, and they are at buyer’s risk as soon as they are put on board the ship,
usually named by the buyer. The seller must notify the buyer immediately that the goods have been
delivered on board, so that the buyer may insure them. If he fails to do so the goods shall be deemed
to be at seller’s risk during such sea transit.
(b) F.O.R. (Free on Rail): Similar position prevails in these contracts as in the case of F.O.B. contracts.
(c) C.I.F. or C.F.I. (Cost Insurance and Freight): A CIF contract is a contract for the sale of insured goods
lost or not lost to be implemented by transfer of proper documents.
In such types of contracts, the seller not only bears all the expenses of putting the goods on board
the ship as in an F.O.B. contract, but also to bear the freight and insurance charges. He will arrange
for an insurance of the goods for the benefit of the buyer. On the tender of documents, the buyer is
required to pay and then take delivery. He has a right to reject the goods if they are not according to
the contract.
(a) Ex-Ship: Here the seller is bound to arrange the shipment of the goods to the port of destination, and
to such further inland destination as the buyer may stipulate. The buyer is not bound to pay until the
 NAHATA PROFESSIONAL ACADEMY 418

goods are ready for unloading from the ship and all freight charges paid. The goods travel at the
seller’s risk, but he is not bound to insure them.

Q-1. What do you understand by the term “Unpaid Seller” ? Explain unpaid seller’s right to lien.[DEC-
2020]
Q-2. What do you understand by the term ‘Caveat Emptor’ ? Enumerate its exceptions.[DEC-
2020]
Q-3. A doctor purchased woollen undergarments from S, a retailer shopkeeper whose business was to
sell goods of the description. But after wearing the undergarments, the doctor got developed some
skin disease. Can the doctor claim damages from S under the Sale of Goods Act, 1930 ?
Decide.[DEC-19]

Q-4. Mohit finds a ring of Shardha and sells it to a third person Prachi who purchases it for value and in
good faith. Whether Shardha can file a suit to recover the ring? Advise with cogent reasons. [DEC-
18]

Ramesh buys a second-hand car from Suresh for `4 Lakh. The car is a stolen property of Dinesh.
After two months of use Dinesh claims the car and deprives Ramesh of the car. Can Ramesh claim
compensation from Suresh ? (4 marks)
7. Write short note on Auction Sales under the Sales of Goods Act, 1930.
8. A hot water bottle was bought by Shreya, who could not be expected to have special skill
knowledge with regard to hot water bottles, from a chemist, who sold such articles stating that the
bottle will not stand boiling water but was intended to hold hot water. While being used by
Shreya, the bottle bursted and injured her. Whether seller is responsible for damages ? Give
reasons in support of your answer.
 NAHATA PROFESSIONAL ACADEMY 419

CHAPTER 18
LAW RELATING TO NEGOTIABLE INSTRUMENTS

 Definition of negotiable instrument, Important characteristics of negotiable instruments

 Classification of negotiable instruments
 Kinds of negotiable instruments, essentials, parties thereof and distinction therein
 Liability and protection of banker, grounds of refusal, crossing of cheques
 Maturity, Holder and holder in due course, Liabilities of parties
 Negotiation, difference between negotiation and assignment, types of endorsement
 Presentment, acceptance, discharge, dishonour, noting and protest
 Penal provisions, hundi and types thereof

DEFINITION OF A NEGOTIABLE INSTRUMENT

A negotiable instrument may be defined as “an instrument, the property in which is acquired by anyone
who takes it bona fide, and for value, notwithstanding any defect of title in the person from whom he took
it, from which it follows that an instrument cannot be negotiable unless it is such and in such a state that
the true owner could transfer the contract or engagement contained therein by simple delivery of
instrument” (Willis—The Law of Negotiable Securities, Page 6).
According to this definition the following are the conditions of negotiability
(i) The instrument should be freely transferable. An instrument cannot be negotiable unless it is such
and in such state that the true owner could transfer by simple delivery or by endorsement and
delivery
(ii) The person who takes it for value and in good faith is not affected by the defect in the title of the
transferor.
(iii) Such a person can sue upon the instrument in his own name

Negotiability involves two elements namely, transferability free from equities and transferability by delivery
or endorsement (Mookerjee J. In Tailors Priya vs. Gulab Chand, AIR 1965 Cal).

But the Act recognises only three types of instruments viz., a Promissory Note, a Bill of Exchange and a
Cheque as negotiable instruments. However, it does not mean that other instruments are not negotiable
instruments provided that they satisfy the following conditions of negotiability:
1. The instrument should be freely transferable by the custom of trade. Transferability may be by
(i) delivery or
(ii) endorsement and delivery.
2. The person who obtains it in good faith and for consideration gets it free from all defects and can
sue upon it in his own name.
3. The holder has the right to transfer. The negotiability continues till the maturity.

The law relating to negotiable instruments is contained in the Negotiable Instruments Act, 1881. It is an
Act to define and amend the law relating to promissory notes, bills of exchange and cheques. The Act
does not affect the custom or local usage relating to an instrument in oriental language i.e., a Hundi.

Effect of Negotiability

The general principle of law relating to transfer of property is that no one can pass a better title than he
himself has (nemodat quad non-habet). The exceptions to this general rule arise by virtue of statute or by a
custom. A negotiable instrument is one such exception which is originally a creation of mercantile custom.

Thus a bona fide transferee of negotiable instrument for consideration without notice of any defect of title,
acquires the instrument free of any defect, i.e., he acquires a better title than that of the transferor.

IMPORTANT CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS

 NAHATA PROFESSIONAL ACADEMY 420

Following are the important characteristics of negotiable instruments:

 The holder of the instrument is preumed to be owner of the property contained in it
 They are freely transferable
 A holder in due course gets theinstrument free from all defects of title of any previous holder
 The holder in due course is entitled to sue on the instrument in his name
 The instrument is transerable till maturity and in case of cheque till becomes stale
 Certain equal presumption are applicable to all negotiable instruments unless the contrary is
proved

CLASSIFICATION OF NEGOTIABLE INSTRUMENTS

The negotiable instruments may be classified as under:
1. Bearer Instruments
A promissory note, bill of exchange or cheque is payable to bearer when (i) it is expressed to be so
payable, or (ii) the only or last endorsement on the instrument is an endorsement in blank. A person
who is a holder of a bearer instrument can obtain the payment of the instrument.
2. Order Instruments
A promissory note, bill of exchange or cheque is payable to order (i) which is expressed to be so
payable; or (ii) which is expressed to be payable to a particular person, and does not contain any
words prohibiting transfer or indicating an intention that it shall not be transferable.
3. Inland Instruments (Section 11)
A promissory note, bill of exchange or cheque drawn or made in India, and made payable, or drawn
upon any person, resident in India shall be deemed to be an inland instrument. Since a promissory
note is not drawn on any person, an inland promissory note is one which is made payable in India.
Subject to this exception, an inland instrument is one which is either:
(i) drawn and made payable in India, or
(ii) drawn in India upon some persons resident therein, even though it is made payable in a
foreign country.
4. Foreign Instruments
An instrument which is not an inland instrument, is deemed to be a foreign instrument. The
essentials of a foreign instrument include that:
(i) it must be drawn outside India and made payable outside or inside India; or
(ii) it must be drawn in India and made payable outside India and drawn on a person resident
outside India.
5. Demand Instruments (Section 19)
A promissory note or a bill of exchange in which no time for payment is specified is an instrument
payable on demand.
6. Time Instruments
Time instruments are those which are payable at some time in the future. Therefore, a promissory
note or a bill of exchange payable after a fixed period, or after sight, or on specified day, or on the
happening of an event which is certain to happen, is known as a time instrument. The expression
“after sight” in a promissory note means that the payment cannot be demanded on it unless it has
been shown to the maker. In the case of bill of exchange, the expression “after sight” means after
acceptance, or after noting for non-acceptance or after protest for non- acceptance.

Ambiguous Instruments (Section 17)

S.17 Ambiguous instruments.—
Where an instrument may be construed either as a promissory note or bill of exchange, the
holder may at his election treat it as either, and the instrument shall be thenceforward treated
accordingly.
An instrument, which in form is such that it may either be treated by the holder as a bill or as a note, is an
ambiguous instrument. Section 5(2) of the English Bills of Exchange Act provides that where in a bill, the
drawer and the drawee are the same person or where the drawee is a fictitious person or a person
incompetent to contract, the holder may treat the instrument, at his option, either as a bill of exchange or
 NAHATA PROFESSIONAL ACADEMY 421

as a promissory note.
Bill drawn to or to the order of the drawee or by an agent on his principal, or by one branch of a bank on
another or by the direction of a company or their cashier are also ambiguous instruments. A promissory
note addressed to a third person may be treated as a bill by such person by accepting it, while a bill not
addressed to any one may be treated as a note. But where the drawer and payee are the same, e.g., where
A draws a bill payable to A’s order, it is not an ambiguous instrument and cannot be treated as a promissory
note. Once an instrument has been treated either as a bill or as a note, it cannot be treated differently
afterwards.

Inchoate or Incomplete Instrument (Section 20)

S.20 Inchoate stamped instruments.—
Where one person signs and delivers to another a paper stamped in accordance with the law
relating to negotiable instruments then in force in 2[India], and either wholly blank or having
written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to
the holder thereof to make or complete, as the case may be, upon it a negotiable instrument,
for any amount specified therein and not exceeding the amount covered by the stamp. The
person so signing shall be liable upon such instrument, in the capacity in which he signed the
same, to any holder in due course for such amount: provided that no person other than a holder
in due course shall recover from the person delivering the instrument anything in excess of the
amount intended by him to be paid thereunder.

When one person signs and delivers to another a paper stamped in accordance with the law relating to
negotiable instruments, and either wholly blank or having written thereon an incomplete negotiable
instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case
may be, upon it a negotiable instrument, for any amount specified therein, and not exceeding the amount,
covered by the stamp. Such an instrument is called an inchoate instrument. The person so signing shall be
liable upon such instrument, in the capacity in which he signs the same, to any holder in due course for
such amount, provided that no person other than a holder in due course shall recover from the person
delivering the instrument anything in excess of the amount intended by him to be paid thereon.

The authority to fill up a blank or incomplete instrument may be exercised by any “holder” and not only the
first holder to whom the instrument was delivered. The person signing and delivering the paper is liable
both to a “holder” and a “holder-in-due- course”. But there is a difference in their respective rights. A
“holder” can recover only what the person signing and delivering the paper agreed to pay under the
instrument, while a “holder-in- due- course” can recover the whole amount made payable by the
instrument provided that it is covered by the stamp, even though the amount authorised was smaller.

KINDS OF NEGOTIABLE INSTRUMENTS

The Act recognises only three kinds of negotiable instruments under Section 13 but it does not exclude any
other negotiable instrument provided the instrument entitles a person to a sum of money and is
transferable by delivery. Instruments written in oriental languages i.e. hundis are also negotiable
instruments. These instruments are discussed below:

S. 4 “Promissory note.”— A “Promissory note” is an instrument in writing (not being a bank-note or

a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain
sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.
Illustrations
A signs instruments in the following terms:
(a) “I promise to pay B or order Rs. 500.”
(b) “I acknowledge myself to be indebted to B in Rs. 1,000, to be paid on demand, for value
received.”
(c) “Mr. B, I O U Rs. 1,000.”
(d) “I promise to Pay B Rs. 500 and all other sums which shall be due to him.”
(e) “I promise to Pay B Rs. 500, first deducting thereout any money which he may owe me.”
 NAHATA PROFESSIONAL ACADEMY 422

(f) “I promise to Pay B Rs. 500 seven days after my marriage with C.”
(g) “I promise to Pay B Rs. 500 on D's death, provided D leaves me enough to pay that sum.”
(h) “I promise to Pay B Rs. 500 and to deliver to him my black horse on 1st January next.”
The instruments respectively marked (a) and (b) are promissory notes. The instruments
respectively marked (c), (d), (e), (f), (g) and (h)are not promissory notes.

Parties to a Promissory Note:

The maker: the person who makes or executes thenote promsising to pay the amount therein.
The Payee: one to whom the note is payable
The holder: is either the payee or some other person to whom he may have endorsed the note
The endorser,The endorsee

Essentials of a Promissory Note:

To be a promissory note, an instrument must possess the following essentials:
(a) It must be in writing. An oral promise to pay will not do.
(b) It must contain an express promise or clear undertaking to pay. A promise to pay cannot be inferred.
A mere acknowledgement of debt is not sufficient. If A writes to B “I owe you (I.O.U.) Rs. 500”, there
is no promise to pay and the instrument is not a promissory note.
(c) The promise or undertaking to pay must be unconditional. A promise to pay “when able”, or “as soon
as possible”, or “after your marriage to D”, is conditional. But a promise to pay after a specific time
or on the happening of an event which must happen, is not conditional, e.g. “I promise to pay Rs.
1,000 ten days after the death of B”, is unconditional.
(d) The maker must sign the promissory note in token of an undertaking to pay to the payee or his
order.
(e) The maker must be a certain person, i.e., the note must show clearly who the person is engaging
himself to pay.
(f) The payee must be certain. The promissory note must contain a promise to pay to some person or
persons ascertained by name or designation or to their order.
(g) The sum payable must be certain and the amount must not be capable of contingent additions or
subtractions. If A promises to pay Rs. 100 and all other sums which shall become due to him, the
instrument is not a promissory note.
(h) Payment must be in legal money of the country. Thus, a promise to pay Rs. 500 and deliver 10
quintals of rice is not a promissory note.
(i) It must be properly stamped in accordance with the provisions of the Indian Stamp Act, 1899. Each
stamp must be duly cancelled by maker’s signature or initials.
(j) It must contain the name of place, number and the date on which it is made. However, their
omission will not render the instrument invalid, e.g. if it is undated, it is deemed to be dated on the
date of delivery.
Note : A promissory note cannot be made payable or issued to bearer, no matter whether it is
payable on demand or after a certain time (Section 31 of the RBI Act, 1934).

S. 5 “Bill of exchange.”—A “bill of exchange” is an instrument in writing containing an unconditional

order, signed by the maker, directing a certain person to pay a certain sum of money only to, or
to the order of, a certain person or to the bearer of the instrument.

A promise or order to pay is not “conditional”, within the meaning of this section and section 4,
by reason of the time for payment of the amount or any instalment thereof being expressed to
be on the lapse of a certain period after the occurrence of a specified even which, according to
the ordinary expectation of mankind, is certain to happen, although the time of its happening
may be uncertain.

The sum payble may be “certain”, within the meaning of this section and section 4, although it
includes future interest or is payable at an indicated rate of exchange, or is according to the
 NAHATA PROFESSIONAL ACADEMY 423

course of exchange, and although the instrument provides that, on default of payment of an
instalment, the balance unpaid shall become due.

The person to whom it is clear that the direction is given or that payment is to be made may be
a “certain person”, within the meaning of this section and section 4, although he is mis-named
or designated by description only.

The following are parties to a bill of exchange:

(a) The Drawer: the person who draws the bill.
(b) The Drawee: the person on whom the bill is drawn.
(c) The Acceptor: one who accepts the bill. Generally, the drawee is the acceptor but a stranger may
accept it on behalf of the drawee.
(d) The payee: one to whom the sum stated in the bill is payable, either the drawer or any other person
may be the payee.
(e) The holder: is either the original payee or any other person to whom, the payee has endorsed the bill.
In case of a bearer bill, the bearer is the holder.
(f) The endorser: when the holder endorses the bill to any one else he becomes the endorser.
(g) The endorsee: is the person to whom the bill is endorsed.
(h) Drawee in case of need: Besides the above parties, another person called the “drawee in case of
need”, may be introduced at the option of the drawer. The name of such a person may be inserted
either by the drawer or by any endorser in order that resort may be had to him in case of need, i.e.,
when the bill is dishonoured by either non-acceptance or non-payment.
(i) Acceptor for honour: Further, any person may voluntarily become a party to a bill as acceptor. A
person, who on the refusal by the original drawee to accept the bill or to furnish better security, when
demanded by the notary, accept the bill supra protest in order to safeguard the honour of the drawer
or any endorser, is called the acceptor for honour.

Essentials of a bill of exchange

(1) It must be in writing
(2) It must contain an unconditional order to pay money only and not merely a request
(3) It must be signed by the drawer
(4) The parties must be certain
(5) The sum payable must also be certain.
(6) It must comply with other formalities e.g. stamps and date etc.

Distinction between Bill of Exchange and Promissory Note

The following are the important points of distinction between a bill of exchange and a promissory note:
(a) A promissory note is a two-party instrument, with a maker (debtor) and a payee (creditor). In a bill
there are three parties—drawer, drawee and payee, though any two out of the three capacities may
be filled by one and the same person. In a bill, the drawer is the maker who orders the drawee to pay
the bill to a person called the payee or to his order. When the drawee accepts the bill he is called the
acceptor.
(b) A note cannot be made payable to the maker himself, while in a bill, the drawer and payee may be the
same person.
(c) A note contains an unconditional promise by the maker to pay to the payee or his order; in a bill there
is an unconditional order to the drawee to pay according to the directions of the drawer.
(d) A note is presented for payment without any prior acceptance by the maker. A bill payable after sight
must be accepted by the drawee or someone else on his behalf before it can be presented for
payment.
(e) The liability of the maker of a pro-note is primary and absolute, but the liability of the drawer of a bill
is secondary and conditional.
(f) Foreign bill must be protested for dishonour but no such protest is necessary in the case of a note.
(g) When a bill is dishonoured, due notice of dishonour is to be given by the holder to the drawer and the
intermediate endorsee, but no such notice need to be given in the case of a note.
(h) A bill can be drawn payable to bearer provided it is not payable on demand. A promissory note cannot
 NAHATA PROFESSIONAL ACADEMY 424

be made payable to bearer, even if it is made payable otherwise than on demand.

Inland Bills (Sections 11 and 12)

A bill of exchange is an inland instrument if it is (i) drawn or made and payable in India, or (ii) drawn in India
upon any person who is a resident in India, even though it is made payable in a foreign country. But a
promissory note to be an inland should be drawn and payable in India, as it has no drawee.
Two essential conditions to make an inland instrument are:
(i) the instrument must have been drawn or made in India; and
(ii) the instrument must be payable in India or the drawee must be in India.

Foreign Bills
All bills which are not inland are deemed to be foreign bills. Normally foreign bills are drawn in sets of three
copies.

Trade Bill
A bill drawn and accepted for a genuine trade transaction is termed as a trade bill. When a trader sells
goods on credit, he may make use of a bill of exchange.

Accommodation Bill
S.43 Negotiable instrument made, etc., without consideration.—
A negotiable instrument made, drawn, accepted, indorsed or transferred without consideration,
or for a consideration which fails, creates no obligation of payment between the parties to the
transaction. But if any such party has transferred the instrument with or without indorsement to
a holder for consideration, such holder, and every subsequent holder deriving title from him,
may recover the amount due on such instrument from the transferor for consideration or any
prior party thereto.
Exception I.—No party for whose accommodation a negotiable instrument has been made,
drawn, accepted or indorsed can, if he have paid the amount thereof, recover thereon such
amount from any person who became a party to such instrument for his accommodation.
Exception II.—No party to the instrument who has induced any other party to make, draw,
accept, indorse or transfer the same to him for a consideration which he has failed to pay or
perform in full shall recover thereon an amount exceeding the value of the consideration (if any)
which he has actually paid or performed.

All bills are not genuine trade bills, as they are often drawn for accommodating a party. An accommodation
bill is a bill in which a person lends or gives his name to oblige a friend or some person whom he knows or
otherwise. In other words, a bill which is drawn, accepted or endorsed without consideration is called an
accommodation bill. The party lending his name to oblige the other party is known as the accommodating
or accommodation party, and the party so obliged is called the party accommodated. An accommodation
party is not liable on the instrument to the party accommodated because as between them there was no
consideration and the instrument was merely to help. But the accommodation party is liable to a holder for
value, who takes the accommodation bill for value, though such holder may not be a holder in due course.
Thus, A may be in need of money and approach his friends B and C who, instead of lending the money
directly, propose to draw an “Accommodation Bill” in his favour in the following form:

If the credit of B and C is good, this device enables A to get an advance of Rs. 1,000 from his banker at the
commercial rate of discount. The real debtor in this case is not C, but A the payee who promises to
reimburse C before the period of three months only. A is here the principal debtor and B and C are mere
sureties. This inversion of liability affords a good definition of an accommodation bill: “If as between the
original parties to the bill the one who should prima facie be principal is in fact the surety whether he be
drawer, acceptor, or endorser, that bill is an accommodation bill”.

Bills in Sets (Section 132 and 133)

 NAHATA PROFESSIONAL ACADEMY 425

Foreign bills are usually drawn in sets to avoid the danger of loss. They are drawn in sets of three, each of
which is called “Via” and as soon as any one of them is paid, the others become inoperative. All these parts
form one bill and the drawer must sign and deliver all of them to the payee. The stamp is affixed only on
one part and one part is required to be accepted. But if the drawer mistakenly accepts all the parts of the
same bill, he will be liable on each part accepted as if it were a separate bill.

Right to Duplicate Bill

Where a bill of exchange has been lost before it was overdue, the person who was the holder to it may
apply to the drawer, to give him another bill of the same tenor. It is only the holder who can ask for a
duplicate bill, promissory note or cheque.

Bank Draft
A bill of exchange is also sometimes spoken of as a draft. It is called as a bank draft when a bill of exchange
drawn by one bank on another bank, or by itself on its own branch, and is a negotiable instrument. It is very
much like the cheque with three points of distinction between the two. A bank draft can be drawn only by a
bank on another bank, usually its own branch. It cannot so easily be counter-manded. It cannot be made
payable to bearer.

Specimen of a Bank Draft

A.B.C. Bank
X.Y.Z. Branch
No.....................
Date...................
On demand pay ‘A’ or order the sum of rupees one thousand five hundred only for value received.

To
‘B’ Branch, (Place)

Rs.1,500/-
Sd./- Manager

In the above demand draft, the drawer is X.Y.Z. Branch, the drawee is ‘B’ branch and the payee is ‘A’.

CHEQUES

S. 6 “Cheque.”—A “cheque” is a bill of exchange drawn on a specified banker and not expressed to
be payable otherwise than on demand and it includes the electronic image of a truncated
cheque and a cheque in the electronic form.

Explanation I.—For the purposes of this section, the expressions—

“a cheque in the electronic form” means a cheque drawn in electronic form by using any
computer resource and signed in a secure system with digital signature (with or without
biometrics signature) and asymmetric crypto system or with electronic signature, as the case
may be;
“a truncated cheque” means a cheque which is truncated during the course of a clearing cycle,
either by the clearing house or by the bank whether paying or receiving payment, immediately
on generation of an electronic image for transmission, substituting the further physical
movement of the cheque in writing.

Explanation II.— For the purposes of this section, the expression “clearing house” means the
clearing house managed by the Reserve Bank of India or a clearing house recognised as such by
the Reserve Bank of India.

Explanation III.—For the purposes of this section, the expressions “asymmetric crypto system”,
 NAHATA PROFESSIONAL ACADEMY 426

“computer resource”, “digital signature”, “electronic form” and “electronic signature” shall have
the same meanings respectively assigned to them in the Information Technology Act, 2000(21 of
2000).]

S.7 “Drawer” “Drawee”.—The maker of a bill of exchange or cheque is called the “drawer”; the person
thereby directed to pay is called the “drawee”.
“Drawee in case of need”.— When in the Bill or in any indorsement thereon the name of any person
is given in addition to the drawee to be resorted to in case of need such person is called a “drawee in
case of need.”
“Acceptor”.—After the drawee of a bill has signed his assent upon the bill, or, if there are more parts
thereof than one, upon one of such parts, and delivered the same, or given notice of such signing to
the holder or to some person on his behalf, he is called the “acceptor”.
“Acceptor for honour”.— 4[When a bill of exchange has been noted or protested for non-acceptance
or for better security,] and any person accepts it supra protest for honour of the drawer or of any one
of the indorsers, such person is called an “acceptor for honour”.
“Payee”.—The person named in the instrument, to whom or to whose order the money is by the
instrument directed to be paid, is called the “Payee”.

Essentials of a Cheque
(1) It is always drawn on a banker.
(2) It is always payable on demand.
(3) It does not require acceptance. There is, however, a custom among banks to mark cheques as good for
purposes of clearance.
(4) A cheque can be drawn on bank where the drawer has an account.
(5) Cheques may be payable to the drawer himself. It may be made payable to bearer on demand unlike a
bill or a note.
(6) The banker is liable only to the drawer. A holder has no remedy against the banker if a cheque is
dishonoured.
(7) A cheque is usually valid for fix months. However, it is not invalid if it is post dated or ante-dated.
(8) No Stamp is required to be affixed on cheques.

Distinction between Cheques and Bills of Exchange

As a general rule, the provisions applicable to bills payable on demand apply to cheques, yet there are few
points of distinction between the two, namely:
(a) A cheque is a bill of exchange and always drawn on a banker, while a bill may be drawn on any one,
including banker.
(b) A cheque can only be drawn payable on demand, a bill may be drawn payable on demand, or on the
expiry of a specified period after sight or date.
(c) A bill payable after sight must be accepted before payment can be demanded, a cheque does not
require acceptance and is intended for immediate payment.
(d) A grace of 3 days is allowed in the case of time bills, while no grace is given in the case of a cheque, for
payment.
(e) The drawer of a bill is discharged, if it is not presented for payment, but the drawer of a cheque is
discharged only if he suffers any damage by delay in presentment for payment.
(f) Notice of the dishonour of a bill is necessary, but not in the case of a cheque.
(g) The cheque being a revocable mandate, the authority may be revoked by countermanding payment,
and is determined by notice of the customer’s death or insolvency. This is not so in the case of bill.
(h) A cheque may be crossed, but not a bill.

A cheque is a bill of exchange drawn on a specified banker and always payable on demand. A cheque is
always drawn on a particular banker and is always payable on demand. Consequently, all cheques are bills
of exchange but all bills are not cheques.

Specimen of a Cheque
 NAHATA PROFESSIONAL ACADEMY 427

A.B.C. Bank
X.Y.Z. Branch

Pay ‘A’ or the bearer sum of rupees only.

A/c No............... LF.............

Date...................................

Rs. /-

No..................................... Sd/-

A cheque is a bill of exchange drawn on a specified banker and always payable on demand. A cheque is
always drawn on a particular banker and is always payable on demand. Consequently, all cheques are bills
of exchange but all bills are not cheques.

Specimen of a Cheque
A.B.C. Bank
X.Y.Z. Branch

Date...................................

Pay ‘A’ or the bearer sum of rupees only.

A/c No............... LF............. Rs. /-

No..................................... Sd/-

Banker
A banker is one who does banking business. Section 5(b) of the Banking Regulation Act, 1949 defines
banking as, “accepting for the purpose of lending or investment, of deposits of money from the public,
repayable on demand or otherwise and withdrawable by cheque, draft or otherwise.” This definition
emphasises two points:
(1) that the primary function of a banker consists of accepting of deposits for the purpose of lending or
investing the same;
(2) that the amount deposited is repayable to the depositor on demand or according to the agreement.
The demand for repayment can be made through a cheque, draft or otherwise, and not merely by
verbal order.

Customer
The term “customer” is neither defined in Indian nor in English statutes. The general opinion is that a
customer is one who has an account with the bank or who utilises the services of the bank.
The special features of the legal relationship between the banker and the customer may be termed as the
obligations and rights of the banker. These are:
1. Obligation to honour cheques of the customers.
2. Obligation to collect cheques and drafts on behalf of the customers.
3. Obligation to keep proper record of transactions with the customer.
4. Obligation to comply with the express standing instructions of the customer.
5. Obligation not to disclose the state of customer’s account to anyone else.
6. Obligation to give reasonable notice to the customer, if the banker wishes to close the account.
7. Right of lien over any goods and securities bailed to him for a general balance of account.
8. Right of set off and right of appropriation.
9. Right to claim incidental charges and interest as per rules and regulations of the bank, as
communicated to the customer at the time of opening the account.
 NAHATA PROFESSIONAL ACADEMY 428

Liability of a Banker
By opening a current account of a customer, the banker becomes liable to his debtor to the extent of the
amount so received in the said account and undertakes to honour the cheques drawn by the customer so
long as he holds sufficient funds to the customer’s credit. If a banker, without justification, fails to honour
his customer’s cheques, he is liable to compensate the drawer for any loss or damage suffered by him. But
the payee or holder of the cheque has no cause of action against the banker as the obligation to honour a
cheque is only towards the drawer.

The banker must also maintain proper and accurate accounts of credits and debits. He must honour a
cheque presented in due course. But in the following circumstances, he must refuse to honour a cheque
and in some others he may do so.

When Banker must refuse Payment

In the following cases the authority of the banker to honour customer’s cheque comes to an end, he must
refuse to honour cheques issued by the customer:
(a) When a customer countermands payment i.e., where or when a customer, after issuing a cheque
issues instructions not to honour it, the banker must not pay it.
(b) When the banker receives notice of customer’s death.
(c) When customer has been adjudged an insolvent.
(d) When the banker receives notice of customer’s insanity.
(e) When an order (e.g., Garnishee Order) of the Court, prohibits payment.
(f) When the customer has given notice of assignment of the credit balance of his account.
(g) When the holder’s title is defective and the banker comes to know of it.
(h) When the customer has given notice for closing his account.

When Banker may refuse Payment

In the following cases the banker may refuse to pay a customer’s cheque:
(a) When the cheque is post-dated.
(b) When the banker has no sufficient funds of the drawer with him and there is no communication
between the bank and the customer to honour the cheque.
(c) When the cheque is of doubtful legality.
(d) When the cheque is not duly presented, e.g., it is presented after banking hours.
(e) When the cheque on the face of it is irregular, ambiguous or otherwise materially altered. (f ) When
the cheque is presented at a branch where the customer has no account.
(g) When some persons have joint account and the cheque is not signed jointly by all or by the survivors
of them.
(h) When the cheque has been allowed to become stale, i.e., it has not been presented within six months
of the date mentioned on it.

Protection of Paying Banker (Sections 10, 85 and 128)

Section 85 lays down that where a cheque payable to order purports to be endorsed by or on behalf of the
payee the banker is discharged by payment in due course. He can debit the account of the customer with
the amount even though the endorsement turns out subsequently to have been forged, or the agent of the
payee without authority endorsed it on behalf of the payee. It would be seen that the payee includes
endorsee. This protection is granted because a banker cannot be expected to know the signatures of all the
persons in the world. He is only bound to know the signatures of his own customers.
Therefore, the forgery of drawer’s signature will not ordinarily protect the banker but even in this case, the
banker may debit the account of the customer, if it can show that the forgery was intimately connected
with the negligence of the customer and was the proximate cause of loss.
In the case of bearer cheques, the rule is that once a bearer cheque, always a bearer cheque. Where,
therefore, a cheque originally expressed by the drawer himself to be payable to bearer, the banker may
ignore any endorsement on the cheque. He will be discharged by payment in due course. But a cheque
which becomes bearer by a subsequent endorsement in blank is not covered by this Section. A banker is
discharged from liability on a crossed cheque if he makes payment in due course.
 NAHATA PROFESSIONAL ACADEMY 429

Payment in due Course (Section 10)

S.10 “Payment in due course”.—“
Payment in due course” means payment in accordance with the apparent tenor of the
instrument in good faith and without negligence to any person in possession thereof under
circumstances which do not afford a reasonable ground for believing that he is not entitled to
receive payment of the amount therein mentioned.

Any person liable to make payment under a negotiable instrument, must make the payment of the amount
due thereunder in due course in order to obtain a valid discharge against the holder.
A payment in due course means a payment in accordance with the apparent tenor of the instrument, in
good faith and without negligence to any person in possession thereof.
Under Sections 10 and 128, a paying banker making payment in due course is protected.

Collecting Banker
Collecting Banker is one who collects the proceeds of a cheque for a customer. Although a banker collects
the proceeds of a cheque for a customer purely as a matter of service, yet the Negotiable Instruments Act,
1881 indirectly imposes statutory obligation, statutory in nature. This is evident from Section 126 of the Act
which provides that a cheque bearing a “general crossing” shall not be paid to anyone other than banker
and a cheque which is “specially crossed” shall not be paid to a person other than the banker to whom it is
crossed. Thus, a paying banker must pay a generally crossed cheque only to a banker thereby meaning that
it should be collected by another banker. While so collecting the cheques for a customer, it is quite possible
that the banker collects for a customer, proceeds of a cheque to which the customer had no title in fact. In
such cases, the true owner may sue the collecting banker for “conversion”. At the same time, it cannot be
expected of a banker to know or to ensure that all the signatures appearing in endorsements on the reverse
of the cheque are genuine. The banker is expected to be conversant only with the signatures of his
customer. A customer to whom a cheque has been endorsed, would request his banker to collect a cheque.
In the event of the endorser’s signature being proved to be forged at later date, the banker who collected
the proceeds should not be held liable for the simple reason that he has merely collected the proceeds of a
cheque. Section 131 of the Negotiable Instruments Act affords statutory protection in such a case where
the customer’s title to the cheque which the banker has collected has been questioned. It reads as follows:

The Amendment Act, 2002 has added a new explanation to Section 131 which provides that it shall be the
duty of the banker who receives payment based on an electronic image of a truncated cheque held with
him, to verify the prima facie genuineness of the cheque to be truncated and any fraud, forgery or
tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care.
(Explanation II)
The requisites of claiming protection under Section 131 are as follows:
(i) The collecting banker should have acted in good faith and without negligence. An act is done in good
faith when it is done honestly. The plea of good faith can be rebutted on the ground of recklessness
indicative of want of proper care and attention. Therefore, much depends upon the facts of the case.
The burden of proving that the cheque was collected in good faith and without negligence is upon the
banker claiming protection. Failure to verify the regularity of endorsements, collecting a cheque
payable to the account of the company to the credit of the director, etc. are examples of negligence.
(ii) The banker should have collected a crossed cheque, i.e., the cheque should have been crossed before
it came to him for collection.
(iii) The proceeds should have been collected for a customer, i.e., a person who has an account with him.
(iv) That the collecting banker has only acted as an agent of the customer. If he had become the holder for
value, the protection available under Section 131 is forfeited—Where for instance, the banker allows
the customer to withdraw the amount of the cheque before the cheque is collected or where the
cheque has been accepted in specific reduction of an overdraft, the banker is deemed to have become
the holder for value and the protection is lost. But the explanation to Section 131 says that the mere
crediting of the amount to the account does not imply that the banker has become a holder for value
because due to accounting conveniences the banker may credit the account of the cheque to the
customer’s account even before proceeds thereof are realised.
 NAHATA PROFESSIONAL ACADEMY 430

Overdue, Stale or Out-of-date Cheques

A cheque is overdue or becomes statute-barred after three years from its due date of issue. A holder
cannot sue on the cheque after that time. Apart from this provision, the holder of a cheque is required to
present it for payment within a reasonable time, as a cheque is not meant for indefinite circulation. In India,
a cheque, which has been in circulation for more than six months, is regarded by bankers as stale. If, as a
result of any delay in presenting a cheque, the drawer suffers any loss, as by the failure of the bank, the
drawer is discharged from liability to the holder to the extent of the damage.

Liability of Endorser
In order to charge an endorser, it is necessary to present the cheque for payment within a reasonable time
of its delivery by such endorser.

Rights of Holder against Banker

A banker is liable to his customer for wrongful dishonour of his cheque but it is not liable to the payee or
holder of the cheque. The holder has no right to enforce payment from the banker except in two cases,
namely,
(i) where the holder does not present the cheque within a reasonable time after issue, and as a result the
drawer suffers damage by the failure of the banker in liquidation proceedings; and
(ii) where a banker pays a crossed cheque by mistake over the counter, he is liable to the owner for any
loss occasioned by it.

Modes of Crossing (Sections 123-131A)

There are two types of crossing which may be used on cheque, namely: (i) General, and (ii) Special. To these
may be added another type, i.e. Restrictive crossing.
It is general crossing where a cheque bears across its face an addition of two parallel transverse lines and/
or the addition of the words “and Co.” between them, or addition of “not negotiable”. As stated earlier,
where a cheque is crossed generally, the paying banker will pay to any banker. Two transverse parallel lines
are essential for a general crossing (Sections 123-126).

In case of general crossing, the holder or payee cannot get the payment over the counter of the bank but
through a bank only. The addition of the words “and Co.” do not have any significance but the addition of
the words “not negotiable” restrict the negotiability of the cheque and in case of transfer, the transferee
will not give a better title than that of a transferor.

Where a cheque bears across its face an addition of the name of a banker, either with or without the words
“not negotiable” that addition constitutes a crossing and the cheque is crossed specially and to that banker.
The paying banker will pay only to the banker whose name appears across the cheque, or to his collecting
agent. Parallel transverse lines are not essential but the name of the banker is the insignia of a special
crossing.

In case of special crossing, the paying banker is to honour the cheque only when it is prescribed through the
bank mentioned in the crossing or it’s agent bank.

Account Payee’s crossing: Such crossing does, in practice, restrict negotiability of a cheque. It warns the
collecting banker that the proceeds are to be credited only to the account of the payee, or the party
named, or his agent. If the collecting banker allows the proceeds of a cheque bearing such crossing to be
credited to any other account, he will be guilty of negligence and will not be entitled to the protection given
to collecting banker under Section 131. Such crossing does not affect the paying banker, who is under no
duty to ascertain that the cheque is in fact collected for the account of the person named as payee.

Not Negotiable Crossing

A cheque may be crossed not negotiable by writing across the face of the cheque the words “Not
Negotiable” within two transverse parallel lines in the case of a general crossing or alongwith the name of a
banker in the case of a special crossing. Section 130 of the Negotiable Instruments Act provides “A person
 NAHATA PROFESSIONAL ACADEMY 431

taking a cheque crossed generally or specially bearing in either case with the words ”not negotiable” shall
not have and shall not be capable of giving, a better title to the cheque than that which the person from
whom he took it had”. The crossing of cheque “not negotiable” does not mean that it is non-transferable. It
only deprives the instrument of the incident of negotiability. Normally speaking, the essential feature of a
negotiable instrument as opposed to chattels is that a person who takes the instrument in good faith,
without negligence, for value, before maturity and without knowledge of the defect in the title of the
transferor, gets a good title to the instrument. In other words, he is called a holder in due course who
acquires an indisputable title to the cheque. (When the instrument passes through a holder-in-due course,
it is purged of all defects and the subsequent holders also get good title). It is exactly this important feature
which is taken away by crossing the cheque “not negotiable”. In other words, a cheque crossed “not
negotiable” is like any other chattel and therefore the transferee gets same title to the cheque which his
transferor had. That is to say that the transferee cannot claim the rights of a holder-in- due-course. So long
as the title of the transferors is good, the title of the transferees is also good but if there is a taint in the title
to the cheque of one of the endorsers, then all the subsequent transferees’ title also become tainted with
the same defect they cannot claim to be holders- in-due-course.

The object of this Section is to afford protection to the drawer or holder of a cheque who is desirous of
transmitting it to another person, as much protection as can reasonably be afforded to him against
dishonestly or actual miscarriage in the course of transit. For example, a cheque payable to bearer is
crossed generally and is marked “not negotiable”. It is lost or stolen and comes into the possession of X
who takes it in good faith and gives value for it, X collects the cheque through his bank and paying banker
also pays. In this case, both the paying and the collecting bankers are protected under Sections 128 and 131
respectively. But X cannot claim that he is a holder-in-due course which he could have under the normal
circumstances claimed. The reason is that cheque is crossed “not negotiable” and hence the true owner’s
(holder’s) right supercedes the rights of the holder-in-due-course. Since X obtained the cheque from a
person who had no title to the cheque (i.e. from one whose title was defective) X can claim no better title
solely because the cheque was crossed “not negotiable” and not for any other reason. Thus “not
negotiable” crossing not only protects the rights of the true owner of the cheque but also serves as a
warning to the endorsees’ to enquire thoroughly before taking the cheque as they may have to be
answerable to the true owner thereof if the endorser’s title is found to be defective.
“Not negotiable” restricts the negotiability of the cheque and in case of transfer, the transferee will not get
a better title than that of a transferor.
If the cheque becomes “not negotiable” it lacks negotiability. A cheque crossed specially or generally
bearing the words “not negotiable”, lacks negotiability and therefore is not a negotiable instrument in the
true sense. It does not restrict transferability but restricts negotiability only.

MATURITY

S.21 “At sight”.—“On presentment”.—

Ina promissory note or bill of exchange the expressions “at sight” and “on presentment” mean on
demand. The expression “After sight”—“after sight” means, in a promissory note, after
presentment for sight, and, in a bill of exchange, after acceptance, or nothing for non-
acceptance, or protest for non-acceptance.

S.22 “Maturity”.—
The maturity of a promissory note or bill of exchange is the date at which it falls due.
Days of grace.—Every promissory note or bill of exchange which is not expressed to be payable
on demand, at sight or on presentment is at maturity on the third day after the day on which it
is expressed to be payable.

S.23 Calculating maturity of bill or note payable so many months after date or sight.—
In calculating the date at which a promissary note or bill of exchange, made payable a stated
number of months after date or after sight, or after a certain event, is at maturity, the period
 NAHATA PROFESSIONAL ACADEMY 432

stated shall be held to terminate on the day of the month which corresponds with the day on
which the instrument is dated, or presented for acceptance or sight, or noted for non-
acceptance, or protested for non-acceptance, or the event happens, or, where the instrument is
a bill of exchange made payable a stated number of months after sight and has been accepted
for honour, with the day on which it was so accepted. If the month in which the period would
terminate has no corresponding day, the period shall be held to terminate on the last day of
such month.
Illustrations
(a) A negotiable instrument, dated 29th January, 1878, it made payable at one month after
date. The instrument is at maturity on the third day after the 28th February, 1878.
(b) A negotiable instrument, dated 30th August, 1878, it made payable three months after
date. The instrument is at maturity on the 3rd December, 1878.
(c) A promissory note or bill of exchange, dated 31st August, 1878, is made payable three
months after date. The instrument is at maturity on the 3rd December, 1878.

S.24 Calculating maturity of bill or note payable so many days after date or sight.
In calculating the date at which a promissory note or bill of exchange made payable a certain
number of days after date or after sight or after a certain event is at maturity, the day of the
date, or of presentment for acceptance or sight, or of protest for non-acceptance, or on which
the event happens, shall be excluded.

S.25 When day of maturity is a holiday.

When the day on which a promissory note or bill of exchange is at maturity is a public holiday,
the instrument shall be deemed to be due on the next preceding, business day.
Explanation.—The expression “public holiday” includes Sundays: and any other day declared by
the Central Government, by notification in the Official Gazette, to be a public holiday.

HOLDER

S.8 “Holder”.—
The “holder” of a promissory note, bill of exchange or cheque means any person entitled in his
own name to the possession thereof and to receive or recover the amount due thereon from
the parties thereto.
Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the
time of such loss or destruction.

According to Section 8 of the Act a person is a holder of a negotiable instrument (i) who is entitled in his
own name to the possession of the instrument, and (ii) to recover or receive its amount from the parties
thereto. It is not every person in possession of the instrument who is called a holder. To be a holder, the
person must be named in the instrument as the payee, or the endorsee, or he must be the bearer thereof.
A person who has obtained possession of an instrument by theft, or under a forged endorsement, is not a
holder, as he is not entitled to recover the instrument. The holder implies de jure (holder in law) holder and
not de facto (holder in fact) holder. An agent holding an instrument for his principal is not a holder although
he may receive its payment.

S.9 “Holder in due course”.

“Holder in due course” means any person who for consideration became the possessor of a
promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee
thereof, if payable to order, before the amount mentioned in it became payable, and without
having sufficient cause to believe that any defect existed in the title of the person from whom he
derived his title
 NAHATA PROFESSIONAL ACADEMY 433

Section 9 states that a holder in due course is (i) a person who for consideration, obtains possession of a
negotiable instrument if payable to bearer, or (ii) the payee or endorsee thereof, if payable to order, before
its maturity and without having sufficient cause to believe that any defect existed in the title of the person
from whom he derived his title.
A holder in due course is in a privileged position. He is not only himself protected against all defects of the
persons from whom he received the instrument as current coin, but also serves as a channel to protect all
subsequent holders. A holder in due course can recover the amount of the instrument from all previous
parties, although, as a matter of fact, no consideration was paid by some of the previous parties to the
instrument or there was a defect of title in the party from whom he took it. Once an instrument passes
through the hands of a holder in due course, it is purged of all defects. It is like current coin. Whoever takes
it can recover the amount from all parties previous to such holder.

CAPACITY OF PARTIES

S.26 Capacity to make, etc., promissory notes, etc.—

Every person capable of contracting, according to the law to which he is subject, may bind
himself and be bound by the making, drawing, acceptance, indorsement, delivery and
negotiation of a promissory note, bill of exchange or cheque.
Minor.—A minor may draw, indorse, deliver and negotiate such instrument so as to bind all
parties except himself.
Nothing herein contained shall be deemed to empower a corporation to make, indorse or accept
such instruments except in cases in which, under the law for the time being in force, they are so
empowered.
Capacity to incur liability as a party to a negotiable instrument is co-extensive with capacity to contract.
Negatively, minors, lunatics, idiots, drunken person and persons otherwise disqualified by their personal
law, do not incur any liability as parties to negotiable instruments. But incapacity of one or more of the
parties to a negotiable instrument in no way, diminishes the abilities and the liabilities of the competent
parties. Where a minor is the endorser or payee of an instrument which has been endorsed all the parties
accepting the minor are liable in the event of its dishonour.

S.30 Liability of drawer.—

The drawer of a bill of exchange or cheque is bound, in case of dishonour by the drawee or
acceptor thereof, to compensate the holder, provided due notice of dishonour has been given
to, or received by, the drawer as hereinafter provided.

S.31 Liability of drawee of cheque.—

The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to
the payment of such cheque must pay the cheque when duly required so to do, and , in default
of such payment, must compensate the drawer for any loss or damage caused by such default.

S.32 Liability of maker of note and acceptor of bill.—

In the absence of a contract to the contrary, the maker of a promissory note and the acceptor
before maturity of a bill of exchange are bound to pay the amount thereof at maturity according
to the apparent tenor of the note or acceptance respectively, and the acceptor of a bill of
exchange at or after maturity is bound to pay the amount thereof to the holder on demand.
In default of such payment as aforesaid, such maker or acceptor is bound to compensate any
party to the note or bill for any loss or damage sustained by him and caused by such default

S.35 Liability of indorser.—

In the absence of a contract to the contrary, whoever indorses and delivers a negotiable
instrument before maturity without, in such it indorsement, expressly excluding or making
conditional his own liability, is bound thereby to every subsequent holder, in case of dishonour
by the drawee, acceptor or maker, to compensate such holder for any loss or damage caused to
him by such dishonour, provided due notice of dishonour has been given to, or received by, such
 NAHATA PROFESSIONAL ACADEMY 434

indorser as hereinafter provided.

Every indorser after dishonour is liable as upon an instrument payable on demand.

S.36 Liability of prior parties to holder in due course.—

Every prior party to a negotiable instrument is liable thereon to a holder in due course until the
instrument is duly satisfied.

S.37 Maker, drawer and acceptor principals.—

The maker of a promissory note or cheque, the drawer of a bill of exchange until acceptance,
and the acceptor are, in the absence of a contract to the contrary, respectively liable thereon as
principal debtors, and the other parties thereto are liable thereon as sureties for the maker,
drawer or acceptor, as the case may be.

S.38 Prior party a principal in respect of each subsequent party.—

As between the parties so liable as sureties, each prior party is, in the absence of a contract to
the contrary, also liable thereon as a principal debtor in respect of each subsequent party.
Illustration
A draws a bill payable to his own order on B, who accepts. A afterwards indorses the bill to C, C
to D, and D to E. As between E and B, B is the principal debtor, and A, C and D are his sureties. As
between E and A, A is the principal debtor, and C and D are his sureties. As between E and C, C is
the principal debtor and D is his surety.

S.41 Acceptor bound, although, indorsement forged.—

An acceptor of a bill of exchange already indorsed is not relieved from liability by reason that
such indorsement is forged, if he knew or had reason to believe the indorsement to be forged
when he accepted the bill.

S.42 Acceptance of bill drawn in fictitious name.—

An acceptor of a bill of exchange drawn in a fictitious name and payable to the drawer's order is
not, by reason that such name is fictitious, relieved from liability to any holder in due course
claiming under an indorsement by the same hand as the drawer's signature, and purporting to
be made by the drawer.

NEGOTIATION

S.14 Negotiation.—
When a promissory note, bill of exchange or cheque is transferred to any person, so as to
constitute that person the holder thereof, the instrument is said to be negotiated.
A negotiable instrument may be transferred by negotiation or assignment. Negotiation is the transfer of an
instrument (a note, bill or cheque) for one person to another in such a manner as to convey title and to
constitute the transferee the holder thereof. When a negotiable instrument is transferred by negotiation,
the rights of the transferee may rise higher than those of the transferor, depending upon the circumstances
attending the negotiation. When the transfer is made by assignment, the assignee has only those rights
which the assignor possessed. In case of assignment, there is a transfer of ownership by means of a written
and registered document.

Negotiability and Assignability Distinguished

A transfer by negotiation differs from transfer by assignment in the following respects:
(a) Negotiation requires mere delivery of a bearer instrument and endorsement and delivery of an order
instrument to effectuate a transfer. Assignment requires a written document signed by the transferor.
 NAHATA PROFESSIONAL ACADEMY 435

(b) Notice of transfer of debt (actionable claim) must be given by the assignee to the debtor in order to
complete his title; no such notice is necessary in a transfer by negotiation.
(c) On assignment, the transferee of an actionable claim takes it subject to all the defects in the title of,
and subject to all the equities and defences available against the assignor, even though he took the
assignment for value and in good faith. In case of negotiation the transferee, as holder-in-due course,
takes the instrument free from any defects in the title of the transferor.

Importance of Delivery
Negotiation is effected by mere delivery of a bearer instrument and by endorsement and delivery of an
order instrument. This shows that “delivery” is essential in negotiable instruments. Section 46 expressly
provides that making acceptance or endorsement of negotiable instrument is not complete until delivery,
actual or constructive, of the instrument. Delivery made voluntarily with the intention of passing property
in the instrument to the person to whom it is given is essential.

Negotiation by Mere Delivery

S.47 Negotiation by delivery.—
Subject to the provisions of section 58, a promissory note, bill of exchange or cheque payable to
bearer is negotiable by delivery thereof.
Exception.—A promissory note, bill of exchange or cheque delivered on condition that it is not
to take effect except in a certain event is not negotiable (except in the hands of a holder for
value without notice of the condition) unless such event happens.
Illustrations
A, the holder of a negotiable instrument payable to bearer, delivers it to B's agent to keep for B.
The instrument has been negotiated.
A, the holder of a negotiable instrument payable to bearer, which is in the hands of A's banker,
who is at the time the banker of B, directs the banker to transfer the instrument to B's credit in
the banker's account with B. The banker does so, and accordingly now possesses the instrument
as B's agent. The instrument has been negotiated, and B has become the holder of it.

A bill or cheque payable to bearer is negotiated by mere delivery of the instrument. An instrument is
payable to bearer:
(i) Where it is made so payable, or
(ii) Where it is originally made payable to order but the only or the last endorsement is in blank.
(ii) Where the payee is a fictitious or a non-existing person.
These instruments do not require signature of the transferor. The person who takes them is a holder, and
can sue in his own name on them. Where a bearer negotiates an instrument by mere delivery, and does not
put his signature thereon, he is not liable to any party to the instrument in case the instrument is
dishonoured, as he has not lent his credit to it. His obligations are only towards his immediate transferee
and to no other holders.
A cheque, originally drawn payable to bearer remains bearer, even though it is subsequently endorsed in
full. The rule is once a bearer cheque always a bearer cheque.

Negotiation by Endorsement and Delivery

An instrument payable to a specified person or to the order of a specified person or to a specified person or
order is an instrument payable to order. Such an instrument can be negotiated only by endorsement and
delivery. Unless the holder signs his endorsement on the instrument, the transferee does not become a
holder. Where an instrument payable to order is delivered without endorsement, it is merely assigned and
not negotiated and the holder thereof is not entitled to the rights of a holder in due course, and he cannot
negotiate it to a third person.

S.48 Negotiation by indorsement.—

Subject to the provisions of section 58, a promissory note, bill of exchange or cheque payable to
order, is negotiable by the holder by indorsement and delivery thereof.
 NAHATA PROFESSIONAL ACADEMY 436

Endorsement (Sections 15 and 16)

S.15 Indorsement.—
When the maker or holder of a negotiable instrument signs the same, otherwise than as such
maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed
thereto, or so signs for the same purpose a stamped paper intended to be completed as a
negotiable instrument, he is said to indorse the same, and is called the “indorser”.

S.16 Indorsement “in blank” and “in full”.—

(1) If the indorser signs his name only, the indorsement is said to be “in blank,” and if he adds a
direction to pay the amount mentioned in the instrument to, or to the order of, a specified
person, the indorsement is said to be “in full”, and the person so specified
“Indorsee”.—is called the “indorsee” of the instrument.
The provisions of this Act relating to a payee shall apply with the necessary modifications to an
indorsee.

Where the maker or holder of a negotiable instrument signs the same otherwise than as such maker for the
purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto (called Allonge),
or so, signs for the same purpose, a stamped paper intended to be completed as a negotiable instrument,
he is said to endorse the same (Section 15), the person to whom the instrument is endorsed is called the
endorsee.
In other words, ‘endorsement’ means and involves the writing of something on the back of an instrument
for the purpose of transferring the right, title and interest therein to some other person.

Classes of endorsement
An endorsement may be (a) Blank or General, (b) Special or Full, (c) Restrictive, or (d) Partial, and (e)
Conditional or Qualified.
(a) Blank or General: An endorsement is to be blank or general where the endorser merely writes his
signature on the back of the instrument, and the instrument so endorsed becomes payable to bearer,
even though originally it was payable to order. Thus, where bill is payable to “Mohan or order”, and he
writes on its back “Mohan”, it is an endorsement in blank by Mohan and the property in the bill can
pass by mere delivery, as long as the endorsement continues to be a blank. But a holder of an
instrument endorsed in blank may convert the endorsement in blank into an endorsement in full, by
writing above the endorser’s signature, a direction to pay the instrument to another person or his
order.
(b) Special or Full: If the endorser signs his name and adds a direction to pay the amount mentioned in
the instrument to, or to the order of a specified person, the endorsement is said to be special or in full.
A bill made payable to Mohan or Mohan or order, and endorsed “pay to the order of Sohan” would be
specially endorsed and Sohan endorses it further. A blank endorsement can be turned into a special
one by the addition of an order making the bill payable to the transferee.
(c) Restrictive: An endorsement is restrictive which prohibits or restricts the further negotiation of an
instrument. Examples of restrictive endorsement: “Pay A only” or “Pay A for my use” or “Pay A on
account of B” or “Pay A or order for collection”.
(d) Partial: An endorsement partial is one which purports to transfer to the endorsee a part only of the
amount payable on the instrument. A partial endorsement does not operate as negotiation of the
instrument. A holds a bill for Rs. 1,000 and endorses it as “Pay B or order Rs. 500”. The endorsement is
partial and invalid.
(e) Conditional or qualified: An endorsement is conditional or qualified which limits or negatives the
liability of the endorser. An endorser may limit his liability in any of the following ways:
(i) By sans recourse endorsement, i.e. by making it clear that he does not incur the liability of an
endorser to the endorsee or subsequent holders and they should not look to him in case of
dishonour of instrument. The endorser excludes his liability by adding the words “sans
recourse” or “without recourse”, e.g., “pay A or order sans recourse”.
(ii) By making his liability depending upon happening of a specified event which may never
happen, e.g., the holder of a bill may endorse it thus: “Pay A or order on his marrying B”. In
 NAHATA PROFESSIONAL ACADEMY 437

such a case, the endorser will not be liable until A marries B.

It is pertinent to refer to Section 52 of the Negotiable Instruments Act, 1881 here. It reads
“The endorser of a negotiable instrument may, by express words in the endorsement exclude
his own liability thereon, or make such liability or the right of the endorsee to receive the
amount due thereon depend upon the happening of a specified event, although such event
may never happen”.

Negotiation Back
Where an endorser negotiates an instrument and again becomes its holder, the instrument is said to be
negotiated back to that endorser and none of the intermediary endorsees are then liable to him. The rule
prevents a circuity of action.
Where an endorser so excludes his liability and afterwards becomes the holder of the instrument, all the
intermediate endorsers are liable to him. “the italicised portion of the above Section is important”.

Forged Endorsement
The case of a forged endorsement is worth special notice. If an instrument is endorsed in full, it cannot be
negotiated except by an endorsement signed by the person to whom or to whose order the instrument is
payable, for the endorsee obtains title only through his endorsement. Thus, if an instrument be negotiated
by means of a forged endorsement, the endorsee acquires no title even though he be a purchaser for value
and in good faith, for the endorsement is a nullity. Forgery conveys no title. But where the instrument is a
bearer instrument or has been endorsed in blank, it can be negotiated by mere delivery, and the holder
derives his title independent of the forged endorsement and can claim the amount from any of the parties
to the instrument.

Acceptance of a Bill of Exchange

The drawee of a bill of exchange, as such, has no liability on any bill addressed to him for acceptance or
payment. A refusal to accept or to pay such bill gives the holder no rights against him. The drawee becomes
liable only after he accepts the bill. The acceptor has to write the word ‘accepted’ on the bill and sign his
name below it. Thus, it is the acceptor who is primarily liable on a bill.
The acceptance of a bill is the indication by the drawee of his assent to the order of the drawer. Thus, when
the drawee writes across the face of the bill the word “accepted” and signs his name underneath he
becomes the acceptor of the bill.
An acceptance may be either general or qualified. A general acceptance is absolute and as a rule, an
acceptance has to be general. Where an acceptance is made subject to some condition or qualification,
thereby varying the effect of the bill, it is a qualified acceptance. The holder of the bill may either refuse to
take a qualified acceptance or non- acquiescence in it. Where he refuses to take it, he can treat the bill as
dishonoured by non- acceptance, and sue the drawer accordingly.

Acceptance for Honour

When a bill has been noted or protested for non-acceptance or for better security, any person not being a
party already liable thereon may, with the consent of the holder, by writing on the bill, accept the same for
the honour of any party thereto. The stranger so accepting, will declare under his hand that he accepts the
protested bill for the honour of the drawer or any particular endorser whom he names.
The acceptor for honour is liable to pay only when the bill has been duly presented at maturity to the
drawee for payment and the drawee has refused to pay and the bill has been noted and protested for non-
payment. Where a bill has been protested for non-payment after having been duly accepted, any person
may intervene and pay it supra protest for the honour of any party liable on the bill. When a bill is paid
supra protest, it ceases to be negotiable. The stranger, on paying for honour, acquires all the right of holder
for whom he pays.

Presentment for Acceptance

It is only bills of exchange that require presentment for acceptance and even these of certain kinds only.
Bills payable on demand or on a fixed date need not be presented. Thus, a bill payable 60 days after due
date on the happening of a certain event may or may not be presented for acceptance. But the following
bills must be presented for acceptance otherwise, the parties to the bill will not be liable on it:
 NAHATA PROFESSIONAL ACADEMY 438

(a) A bill payable after sight. Presentment is necessary in order to fix maturity of the bills; and
(b) A bill in which there is an express stipulation that it shall be presented for acceptance before it is
presented for payment.

Section 15 provides that the presentment for acceptance must be made to the drawee or his duly
authorised agent. If the drawee is dead, the bill should be presented to his legal representative, or if he has
been declared an insolvent, to the official receiver or assigner.
The presentment must be made before maturity, within a reasonable time after it is drawn, or within the
stipulated period, if any, on a business day within business hours and at the place of business or residence
of the drawee. The presentment must be made by exhibiting the bill to the drawee; mere notice of its
existence in the possession of holder will not be sufficient.
When presentment is compulsory and the holder fails to present for acceptance, the drawer and all the
endorsers are discharged from liability to him.

Presentment for Acceptance when Excused

Compulsory presentment for acceptance is excused and the bill may be treated as dishonoured in the
following cases:
(a) Where the drawee cannot be found after reasonable search.
(b) Where drawee is a fictitious person or one incapable of contracting.
(c) Where although the presentment is irregular, acceptance has been refused on some other ground.

Presentment for Payment

Section 64 lays down the general rule as to presentment of negotiable instruments for payment. It says all
notes, bills and cheques must be presented for payment thereof respectively by or on behalf of the holder
during the usual hours of business and of the maker or acceptor, and if at banker’s within banking hours.
[Section 64(1)]

As mentioned earlier, the definition of cheque has been broadened to include the electronic image of a
truncated cheque and a cheque in the electronic form. Thus, the section has also been suitably amended to
provide rules as to presentment of truncated cheque. The amendment, despite recognising electronic
image of a truncated cheque, has made provision for the drawee bank to call for the truncated cheque in
original if it is not satisfied about the instrument.

Section 64(2) stipulates, where an electronic image of a truncated cheque is presented for payment, the
drawee bank is entitled to demand any further information regarding the truncated cheque from the bank
holding the truncated cheque in case of any reasonable suspicion about the genuineness of the apparent
tenor of instrument, and if the suspicion is that of any fraud, forgery, tampering or destruction of the
instrument, it is entitled to further demand the presentment of the truncated cheque itself for verification:

Provided that the truncated cheque so demanded by the drawee bank shall be retained by it, if the
payment is made accordingly.

Presentment for Payment when Excused

No presentment is necessary and the instrument may be treated as dishonoured in the following cases:
(a) Where the maker, drawer or acceptor actively does something so as to intentionally obstruct the
presentment of the instrument, e.g., deprives the holder of the instrument and keeps it after maturity.
(b) Where his business place is closed on the due date.
(c) Where no person is present to make payment at the place specified for payment.
(d) Where he cannot, after due search be found. (Section 61)
(e) Where there is a promise to pay notwithstanding non-presentment.
(f) Where the presentment is express or impliedly waived by the party entitled to presentment.
(g) Where the drawer could not possibly have suffered any damage by non-presentment.
(h) Where the drawer is a fictitious person, or one incompetent to contract.
(i) Where the drawer and the drawee are the same person.
(j) Where the bill is dishonoured by non-acceptance.
 NAHATA PROFESSIONAL ACADEMY 439

(k) Where presentment has become impossible, e.g., the declaration of war between the countries of the
holder and drawee.
(l) Where though the presentment is irregular, acceptance has been refused on some other grounds.

DISCHARGE
The discharge in relation to negotiable instrument may be either (i) discharge of the instrument or (ii)
discharge of one or more parties to the instrument from liability.

Discharge of the Instrument

A negotiable instrument is discharged:
(a) by payment in due course;
(b) when the principal debtor becomes the holder;
(c) by an act that would discharge simple contract;
(d) by renunciation; and
(e) by cancellation.

Discharge of a Party or Parties

When any particular party or parties are discharged, the instrument continues to be negotiable and the
undischarged parties remain liable on it. For example, the non-presentment of a bill on the due date
discharges the endorsers from their liability, but the acceptor remains liable on it.
A party may be discharged in the following ways :
(a) By cancellation by the holder of the name of any party to it with the intention of discharging him.
(b) By release, when the holder releases any party to the instrument
(c) Discharge of secondary parties, i.e., endorsers.
(d) By the operation of the law, i.e., by insolvency of the debtor.
(e) By allowing drawee more than 48 hours to accept the bill, all previous parties are discharged. (f) B y
non-presentment of cheque promptly the drawer is discharged.
(g) By taking qualified acceptance, all the previous parties are discharged.
(h) By material alteration.

MATERIAL ALTERATION (SECTION 87)

An alteration is material which in any way alters the operation of the instrument and the liabilities of the
parties thereto. Therefore, any change in an instrument which causes it to speak a different language in
legal effect from that which it originally spoke, or which changes legal character of the instrument is a
material alteration.
A material alteration renders the instrument void, but it affects only those persons who have already
become parties at the date of the alteration. Those who take the altered instrument cannot complain.
Section 88 provides that an acceptor or endorser of a negotiable instrument is bound by his acceptance or
endorsement notwithstanding any previous alteration of the instrument.

There is no material alteration and the instrument is not vitiated in the following cases:
(i) correction of a mistake, (ii) to carry out the common intention of the parties, (iii) an alteration made
before the instrument is issued and made with the consent of the parties, (iv) crossing a cheque, (v)
addition of the words “on demand” in an instrument where no time of payment is stated.

Section 89 has been amended to provide for the amendment in the definition of cheque so as to provide
for electronic image of a truncated cheque. The section provides that any bank or a clearing house which
receives a transmitted electronic image of a truncated cheque, shall verify from the party who transmitted
the image to it, that the image so transmitted to it and received by it, is exactly the same. Where there is
any difference in apparent tenor of such electronic image and the truncated cheque, it shall be a material
alteration. In such a case, it shall be the duty of the bank or the clearing house, as the case may be, to
ensure the exactness of the apparent tenor of electronic image of the truncated cheque while truncating
and transmitting the image. If the bank fails to discharge this duty, the payment made by it shall not be
regarded as good and it shall not be afforded protection.
 NAHATA PROFESSIONAL ACADEMY 440

Retirement of a Bill under Rebate

An acceptor of a bill may make payment before maturity, and the bill is then said to be retired, but it is not
discharged and must not be cancelled except by the acceptor when it comes into his hands. It is customary
in such a case to make allowance of interest on the money to the acceptor for the remainder of the time
which the bill has to run. The interest allowance is known as rebate.

DISHONOUR AND ITS REMEDIES

Dishonour by Non-payment (Section 92)
A promissory note, bill of exchange or cheque is said to be dishonoured by non-payment when the maker of
the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required
to pay the same. Also, a negotiable instrument is dishonoured by non-payment when presentment for
payment is excused and the instrument when overdue remains unpaid.
If the bill is dishonoured either by non-acceptance or by non-payment, the drawer and all the endorsers of
the bill are liable to the holder, provided he gives notice of such dishonour. The drawee is liable only when
there is dishonour by non-payment.

Notice of Dishonour (Sections 91-98 and Sections 105-107)

When a negotiable instrument is dishonoured either by non-acceptance or by non-payment, the holder or
some party liable thereon must give notice of dishonour to all other parties whom he seeks to make liable.
Each party receiving notice of dishonour must in order to render any prior party liable to himself, give
notice of dishonour to such party within a reasonable time after he has received it. The object of giving
notice is not to demand payment but to whom the party notified of his liability and in case of drawer to
enable him to protect himself as against the drawee or acceptor who has dishonoured the instrument
issued by him. Notice of dishonour is so necessary that an omission to give it discharges all parties other
than the maker or acceptor. These parties are discharged not only on the bill or note, but also in respect of
the original consideration.
Notice may be oral or in writing, but it must be actual formal notice. It must be given within a reasonable
time of dishonour.

NOTING AND PROTEST (SECTIONS 99-104 A)

Noting
Where a note or bill is dishonoured, the holder is entitled after giving due notice of dishonour, to sue the
drawer and the endorsers. Section 99 provides a convenient method of authenticating the fact of dishonour
by means of “Noting”. Where a bill or note is dishonoured, the holder may, if he so desires, cause such
dishonour to be noted by a notary public on the instrument, or on a paper attached thereto or partly on
each. The noting or minute must be recorded by the notary public within a reasonable time after dishonour
and must contain the fact of dishonour, the date of dishonour, the reason, if any, assigned for such
dishonour if the instrument has not been expressly dishonoured the reasons why the holder treats it
dishonoured and notary’s charges.

Protest
The protest is the formal notarial certificate attesting the dishonour of the bill, and based upon the noting
which has been effected on the dishonour of the bill. After the noting has been made, the formal protest is
drawn up by the notary and when it is drawn up it relates back to the date of noting.
Where the acceptor of a bill has become insolvent, or has suspended payment, or his credit has been
publicly impeached, before the maturity of the bill, the holder may have the bill protested for better
security. The notary public demands better security and on its refusal makes a protest known as “protest
for better security”.
Foreign bills must be protested for dishonour when such protest is required by the law of the place where
they are drawn. Foreign promissory notes need not be so protested. Where a bill is required by law to be
protested, then instead of a notice of dishonour, notice of protest must be given by the notary public.
A protest to be valid must contain on the instrument itself or a literal transcript thereof, the names of the
parties for and against whom protest is made, the fact and reasons for dishonour together with the place
and time of dishonour and the signature of the notary public. Protest affords an authentic evidence of
 NAHATA PROFESSIONAL ACADEMY 441

dishonour to the drawer and the endorsee.

PRESUMPTIONS OF LAW
A negotiable instrument is subject to certain presumptions. These have been recognised by the Negotiable
Instruments Act under Sections 118 and 119 with a view to facilitate the business transactions. These are
described below:
It shall be presumed that:
(1) Every negotiable instrument was made or drawn for consideration irrespective of the consideration
mentioned in the instrument or not.
(2) Every negotiable instrument having a date was made on such date.
(3) Every accepted bill of exchange was accepted within a reasonable time before its maturity.
(4) Every negotiable instrument was transferred before its maturity.
(5) The instruments were endorsed in the order in which they appear on it.
(6) A lost or destroyed instrument was duly signed and stamped.
(7) The holder of the instrument is a holder in due course.
(8) In a suit upon an instrument which has been dishonoured, the Court shall presume the fact of
dishonour, or proof of the protest.
However these legal presumptions are rebuttable by evidence to the contrary. The burden to prove to the
contrary lies upon the defendant to the suit and not upon the plaintiff.

Payment of Interest in case of dishonour

The Negotiable Instruments Act, 1881 was amended in the year 1988, revising the rate of interest as
contained in Sections 80 and 117, from 6 per cent to 18 per cent per annum payable on negotiable
instruments from the due date in case no rate of interest is specified, or payable to an endorser from the
date of payment on a negotiable instrument on its dishonour with a view to discourage the withholding of
payment on negotiable instruments on due dates.

PENALTIES IN CASE OF DISHONOUR OF CHEQUES

Chapter XVII of the Negotiable Instruments Act provides for penalties in case of dishonour of certain
cheques for insufficiencies of funds in the accounts. Sections 138 to 147 deal with these aspects.
Chapter XVII has been amended by the Negotiable Instruments (Amendment and Miscellaneous Provisions)
Act, 2002. The amendments have provided the drawer with more time to send notice, made the
punishment for the offence more stringent, given power to court for condonation of delay in filing of
complaint, excluded liability of government nominated directors, made provision for summary trial of cases
under the Chapter and time bound disposal of cases, have relaxed the rules of evidence, and made the
offences under the Act compoundable.

Further Chapter XVII amended by the Negotiable Instruments (Amendment) Act, 2015. The amendment
focused on clarifying the jurisdiction related issues for filing cases for offence committed under section 138
of the Negotiable Instruments Act, 1881. The Negotiable Instruments (Amendment) Act, 2015, facilitates
filing of cases only in a court within whose local jurisdiction the bank branch of the payee, where the payee
delivers the cheque for payment through his account, is situated, except in case of bearer cheques, which
are presented to the branch of the drawee bank and in that case the local court of that branch would get
jurisdiction. The Negotiable Instruments (Amendment) Act, 2015 provides for retrospective validation for
the new scheme of determining the jurisdiction of a court to try a case under Section 138 of the Negotiable
Instruments Act, 1881. The Negotiable Instruments (Amendment) Act, 2015 also mandates centralisation of
cases against the same drawer.
With a view to address the issue of undue delay in final resolution of cheque dishonour cases so as to
provide relief to payees of dishonoured cheques and to discourage frivolous and unnecessary litigation,
Parliament enacted the Negotiable Instruments (Amendment) Act, 2018 and notified by the Central
Government on 1st September, 2018. The Amendments Act strengthen the credibility of cheques and help
trade and commerce in general by allowing lending institutions, including banks, to continue to extend
financing to the productive sectors of the economy. The Negotiable Instruments (Amendment) Act, 2018
inserted two new sections i.e. Section 143A dealing with Power to direct interim compensation and Section
148 dealing with Power of Appellate Court to order payment pending appeal against conviction.
 NAHATA PROFESSIONAL ACADEMY 442

Dishonour of Cheque for Insufficiency, etc., of Funds in the Account

Section 138 of the Act provides that where any cheque drawn by a person on an account maintained by him
with a banker for payment of any amount of money to another person from out of that account for the
discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because
of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it
exceeds the amount arranged to be paid from that account by an agreement made with that bank, such
person shall be deemed to have committed an offence and shall, without prejudice to any other provision
of this Act, be punished with imprisonment for a term which may be extended to two years’, or with fine
which may extend to twice the amount of the cheque, or with both.

Presumption in Favour of Holder

As per Section 139 of the Act, it shall be presumed, unless the contrary is proved, that the holder of a
cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part,
of any debt or other liability.
Once the execution of cheque is admitted, Section 139 creates a presumption that the holder of a cheque
receives the cheque in discharge, in whole or in part, of any debt or other liability, Basalingappa vs.
Mudibassapa, 2019 SCC OnLine SC 491.

Defence which may not be Allowed in any Prosecution under Section 138
Section 140 states that it shall not be a defence in a prosecution for an offence under section 138 that the
drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on
presentment for the reasons stated in section 138.

Offences by Companies
According to Section 141(1) of the Act, if the person committing an offence under section 138 is a company,
every person who, at the time the offence was committed, was in charge of, and was responsible to, the
company for the conduct of the business of the company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded against and punished accordingly.
Provided that nothing contained in this sub-section shall render any person liable to punishment if he
proves that the offence was committed without his knowledge, or that he had exercised all due diligence to
prevent the commission of such offence.
Provided further that where a person is nominated as a Director of a company by virtue of his holding any
office or employment in the Central Government or State Government or a financial corporation owned or
controlled by the Central Government or the State Government, as the case may be, he shall not be liable
for prosecution under Chapter XVII.
Further Section 141(2) states that notwithstanding anything contained in sub-section(1), where any offence
under this Act has been committed by a company and it is proved that the offence has been committed
with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager,
secretary or other officer of the company, such director, manager, secretary or other officer shall also be
deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Cognizance of Offences
As per Section 142(1) of the Act, notwithstanding anything contained in the Code of Criminal Procedure,
1973 -
(a) no court shall take cognizance of any offence punishable under Section 138 except upon a complaint,
in writing, made by the payee or, as the case may be, the holder in due course of the cheque;
(b) such complaint is made within one month of the date on which the cause of action arises under clause
of the proviso to Section 138.
Clause (c) of the proviso to Section 138 provides that the drawer of such cheque fails to make the
payment of the said amount of money to the payee or, as the case may be, to the holder in due course
of the cheque, within fifteen days of the receipt of the said notice.
Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if
the complainant satisfies the Court that he had sufficient cause for not making a complaint within such
period;
(c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try
 NAHATA PROFESSIONAL ACADEMY 443

any offence punishable under Section 138.

Further, Section 142(2) provides that the offence under Section 138 shall be inquired into and tried
only by a court within whose local local jurisdiction—
(i) if the cheque is delivered for collection through an account, the branch of the bank where the payee
or holder in due course, as the case may be, maintains the account, is situated; or
(ii) if the cheque is presented for payment by the payee or holder in due course, otherwise through an
account, the branch of the drawee bank where the drawer maintains the account, is situated.

Validation for Transfer of Pending Cases

Section 142A(1) of the Negotiable Instrument Act states that notwithstanding anything contained in the
Code of Criminal Procedure, 1973 or any judgment, decree, order or direction of any court, all cases
transferred to the court having jurisdiction under section 142(2), as amended by the Negotiable
Instruments (Amendment) Ordinance, 2015, shall be deemed to have been transferred under this Act, as if
that sub-section had been in force at all material times.
As per Section 142A(2), notwithstanding anything contained in Section 142(2) or Section 142(1) , where the
payee or the holder in due course, as the case may be, has filed a complaint against the drawer of a cheque
in the court having jurisdiction under section 142(2) or the case has been transferred to that court under
Section 142(1) and such complaint is pending in that court, all subsequent complaints arising out of section
138 against the same drawer shall be filed before the same court irrespective of whether those cheques
were delivered for collection or presented for payment within the territorial jurisdiction of that court.
Section 142A(3) states that if, on the date of the commencement of the Negotiable Instruments
(Amendment) Act, 2015, more than one prosecution filed by the same payee or holder in due course, as the
case may be, against the same drawer of cheques is pending before different courts, upon the said fact
having been brought to the notice of the court, such court shall transfer the case to the court having
jurisdiction under Section 142(2), as amended by the Negotiable Instruments (Amendment) Ordinance,
2015, before which the first case was filed and is pending, as if that sub-section had been in force at all
material times.

Power of Court to try Cases Summarily

Section 143(1) of the Act provides that notwithstanding anything contained in the Code of Criminal
Procedure, 1973 all offences under Chapter XVII of the Act shall be tried by a Judicial Magistrate of the first
class or by a Metropolitan Magistrate and the provisions of sections 262 to 265 (both inclusive) of the Code
of Criminal Procedure, 1973 shall, as far as may be, apply to such trials.
Provided that in the case of any conviction in a summary trial under this section, it shall be lawful for the
Magistrate to pass a sentence of imprisonment for a term not exceeding one year and an amount of fine
exceeding five thousand rupees.
Provided further that when at the commencement of, or in the course of, a summary trial under this
section, it appears to the Magistrate that the nature of the case is such that a sentence of imprisonment for
a term exceeding one year may have to be passed or that it is, for any other reason, undesirable to try the
case summarily, the Magistrate shall after hearing the parties, record an order to that effect and thereafter
recall any witness who may have been examined and proceed to hear or rehear the case in the manner
provided by the

Code of Criminal Procedure, 1973 .

As per Section 143(2), the trial of a case under this section shall, so far as practicable, consistently with the
interests of justice, be continued from day to day until its conclusion, unless the Court finds the
adjournment of the trial beyond the following day to be necessary for reasons to be recorded in writing.
Section 143(3) states that every trial under this section shall be conducted as expeditiously as possible and
an endeavour shall be made to conclude the trial within six months from the date of filing of the complaint.

Power to Direct Interim Compensation

Section 143A(1) Negotiable Instruments Act provides that notwithstanding anything contained in the Code
of Criminal Procedure, 1973, the Court trying an offence under section 138 of the Negotiable Instrument
Act, 1881 (Dishonour of cheque for insufficiency, etc., of funds in the account) may order the drawer of the
cheque to pay interim compensation to the complainant—
 NAHATA PROFESSIONAL ACADEMY 444

(a) in a summary trial or a summons case, where he pleads not guilty to the accusation made in the
complaint; and
(b) in any other case, upon framing of charge.

Section 143A(2) states that the interim compensation under sub-section (1) shall not exceed twenty per
cent. of the amount of the cheque.

Section 143A(3), the interim compensation shall be paid within sixty days from the date of the order under
sub- section (1), or within such further period not exceeding thirty days as may be directed by the Court on
sufficient cause being shown by the drawer of the cheque.

As per Section 143A(4), if the drawer of the cheque is acquitted, the Court shall direct the complainant to
repay to the drawer the amount of interim compensation, with interest at the bank rate as published by the
Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the
date of the order, or within such further period not exceeding thirty days as may be directed by the Court
on sufficient cause being shown by the complainant.

Section 143A(5) provides that the interim compensation payable section 143A may be recovered as if it
were a fine under section 421 of the Code of Criminal Procedure, 1973.

As per Section 143A(6), the amount of fine imposed under section 138 or the amount of compensation
awarded under section 357 of the Code of Criminal Procedure, 1973, shall be reduced by the amount paid
or recovered as interim compensation under this section.

Mode of Service of Summons

According to Section 144 of the Act, a Magistrate issuing a summons to an accused or a witness may direct
a copy of summons to be served at the place where such accused or witness ordinarily resides or carries on
business or personally works for gain, by speed post or by such courier services as are approved by a Court
of Session.
Where an acknowledgment purporting to be signed by the accused or the witness or an endorsement
purported to be made by any person authorised by the postal department or the courier services that the
accused or the witness refused to take delivery of summons has been received, the Court issuing the
summons may declare that the summons has been duly served.

Evidence on Affidavit
Section 145 of the Act provides that notwithstanding anything contained in the Code of Criminal Procedure,
1973, the evidence of the complainant may be given by him on affidavit and may, subject to all just
exceptions be read in evidence in any enquiry, trial or other proceeding under the Code of Criminal
Procedure, 1973.
The Court may, if it thinks fit, and shall, on the application of the prosecution or the accused, summon and
examine any person giving evidence on affidavit as to the facts contained therein.
Bank’s Slip Prima Facie Evidence of Certain Facts
According to Section 146, the Court shall, in respect of every proceeding under this Chapter, on production
of Bank’s slip or memo having thereon the official mark denoting that the cheque has been dishonoured,
presume the fact of dishonour of such cheque, unless and until such fact is disproved.
Offences to be Compoundable
Section 147 of the Act provides that notwithstanding anything contained in the Code of Criminal Procedure,
1973, every offence punishable under the Negotiable Instrument Act shall be compoundable.
Power of Appellate Court to Order Payment Pending Appeal against Conviction
Section 148(1) provides that notwithstanding anything contained in the Code of Criminal Procedure, 1973,
in an appeal by the drawer against conviction under section 138 of the Negotiable Instrument Act, 1881
(Dishonour of cheque for insufficiency, etc., of funds in the account), the Appellate Court may order the
appellant to deposit such sum which shall be a minimum of twenty per cent. of the fine or compensation
awarded by the trial Court.
The amount payable shall be in addition to any interim compensation paid by the appellant under section
 NAHATA PROFESSIONAL ACADEMY 445

143A.
Section 148(2) states that the amount referred to in sub-section (1) shall be deposited within sixty days
from the date of the order, or within such further period not exceeding thirty days as may be directed by
the Court on sufficient cause being shown by the appellant.
As per Section 148(3) the Appellate Court may direct the release of the amount deposited by the appellant
to the complainant at any time during the pendency of the appeal:
It may be noted that if the appellant is acquitted, the Court shall direct the complainant to repay to the
appellant the amount so released, with interest at the bank rate as published by the Reserve Bank of India,
prevalent at the beginning of the relevant financial year, within sixty days from the date of the order, or
within such further period not exceeding thirty days as may be directed by the Court on sufficient cause
being shown by the complainant.

Hundis
Hundis are negotiable instruments written in an oriental language. They are sometimes bills of exchange
and sometimes promissory notes, and are not covered under the Negotiable Instruments Act, 1881.
Generally, they are governed by the customs and usages in the locality but if custom is silent on the point in
dispute before the Court, this Act applies to the hundis. The term “hundi” was formerly applicable to native
bills of exchange. The promissory notes were then called “teep”. The hundis were in circulation in India
even before the present Negotiable Instrument Act, 1881 came into operation. The usages attached to
these hundis varied with the locality in which they were in circulation.
Generally understood, the term “hundi” includes all indigenous negotiable instruments whether they are
bills of exchange or promissory notes. An instrument in order to be a hundi must be capable of being sued
by the holder in his own name, and must by the custom of trade be transferred like cash by delivery.
Obviously the customs relating to hundis were many. In certain parts of the country even oral acceptance
was in vague.
The following types of hundis are worth mentioning :
1. Shah Jog Hundi “Shah” means a respectable and responsible person or a man of worth in the bazar.
Shah Jog Hundi means a hundi which is payable only to a respectable holder, as opposed to a hundi
payable to bearer. In other words the drawee before paying the same has to satisfy himself that the
payee is a ‘SHAH’.
2. Jokhmi Hundi A “jokhmi” hundi is always drawn on or against goods shipped on the vessel
mentioned in the hundi. It implies a condition that money will be paid only in the event of arrival of
the goods against which the hundi is drawn. It is in the nature of policy of insurance. The difference,
however, is that the money is paid before hand and is to be recovered if the ship arrives safely.
3. Jawabee Hundi According to Macpherson, “A person desirous of making a remittance writes to the
payee and delivers the letter to a banker, who either endorses it on to any of his correspondents near
the payee’s place of residence, or negotiates its transfer. On the arrival, the letter is forwarded to the
payee, who attends and gives his receipt in the form of an answer to the letter which is forwarded by
the same channel of the drawer or the order.” Therefore, this is a form of hundi which is used for
remitting money from one place to another.
4. Nam jog Hundi It is a hundi payable to the party named in the bill or his order. The name of the payee
is specifically inserted in the hundi. It can also be negotiated like a bill of exchange. Its alteration into a
Shah Jog hundi is a material alteration and renders it void.
5. Darshani Hundi This is a hundi payable at sight. It is freely negotiable and the price is regulated by
demand and supply. They are payable on demand and must be presented for payment within a
reasonable time after they are received by the holder.
6. Miadi Hundi This is otherwise called muddati hundi, that is, a hundi payable after a specified
period of time. Usually money is advanced against these hundis by shroffs after deducting the advance
for the period in advance. There are other forms of hundis also like.
Dhani Jog Hundi - A hundi which is payable to “dhani” i.e., the owner.
Firman Jog Hundi - which is payable to order if can be negotiated by endorsement and delivery.

National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS)
National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating one-to-one funds
transfer. Under this Scheme, individuals, firms and corporates can electronically transfer funds from any
 NAHATA PROFESSIONAL ACADEMY 446

bank branch to any individual, firm or corporate having an account with any other bank branch in the
country participating in the Scheme.
NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which
settles transactions in batches. In DNS, the settlement takes place with all transactions received till the
particular cut- off time. These transactions are netted (payable and receivables) in NEFT whereas in RTGS
the transactions are settled individually. For example, currently, NEFT operates in hourly batches. Any
transaction initiated after a designated settlement time would have to wait till the next designated
settlement time Contrary to this, in the RTGS transactions are processed continuously throughout the RTGS
business hours.
The acronym ‘RTGS’ stands for Real Time Gross Settlement, which can be defined as the continuous (real-
time) settlement of funds transfers individually on an order by order basis (without netting). ‘Real Time’
means the processing of instructions at the time they are received rather than at some later time; ‘Gross
Settlement’ means the settlement of funds transfer instructions occurs individually (on an instruction by
instruction basis). Considering that the funds settlement takes place in the books of the Reserve Bank of
India, the payments are final and irrevocable.
Advantages of NEFT
 Round the clock availability on all days of the year.
 Near-real-time funds transfer to the beneficiary account and settlement in a secure manner.
 Pan-India coverage through large network of branches of all types of banks.
 The beneficiary need not visit a bank branch for depositing the paper instruments. Remitter can
initiate the remittances from his / her home / place of work using internet banking, if his / her bank
offers such service.
 Positive confirmation to the remitter by SMS / e-mail on credit to beneficiary account.
 Penal interest provision for delay in credit or return of transactions.
 No levy of charges by RBI from banks.
 No charges to savings bank account customers for online NEFT transactions.
 The transaction charges have been capped by RBI.
 Besides funds transfer, NEFT system can be used for a variety of transactions including payment of
credit card dues to the card issuing banks, payment of loan EMI, inward foreign exchange
remittances, etc.
 The transaction has legal backing.
Benefits of RTGS
 It is a safe and secure system for funds transfer.
 RTGS transactions / transfers have no amount cap set by RBI.
 The system is available on all days on 24x7x365 basis. There is real time transfer of funds to the
beneficiary account.
 The remitter need not use a physical cheque or a demand draft.
 The beneficiary need not visit a bank branch for depositing the paper instruments.
 The beneficiary need not be apprehensive about loss / theft of physical instruments or the likelihood
of fraudulent encashment thereof.
 Remitter can initiate the remittances from his / her home / place of work using internet banking, if
his / her bank offers such service.
 The transaction charges have been capped by RBI.
 The transaction has legal backing.

Q-1. X draws a cheque in favour of Y, a minor, Y endorses the same in favour of Z. The cheque is
dishonoured by bank on grounds of inadequate funds. What legal remedy is available to Z under the
provisions of the Negotiable Instruments Act, 1881 ? [DEC-19]
Q-2. Distinguish between the following :
Negotiability and Assignability. [DEC-18]
Q-4. A draws and B accepts the bill payable to C or order. C endorses the bill to D and D to E, who is
‘holder in due course’. Decide from whom E can recover the amount under the Negotiable Instrument
Act, 1881 ? [JUNE-19