STATE OF ODISHA & ORS. VS MANJU NAIK- 04/12/2019

Statutory Interpretation: a particular provision of the statute should be construed with reference to other provisions of the same statute so as to construe the enactment as a whole. It would also be necessary to avoid an interpretation which will involve conflict with two provisions of the same statute and effort should be made for harmonious construction. In other words, the provision of a Rule cannot be used to defeat another Rule unless it is impossible to effect reconciliation between them.

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 9204 OF 2019
(Arising out of SLP(C) No.16283 of 2017

STATE OF ODISHA & ORS. APPELLANT(S)

VERSUS

MANJU NAIK RESPONDENT(S)

JUDGMENT

Hrishikesh Roy, J.

Leave granted.

2. This appeal arises out of the judgment and order dated 29.11.2016 in W.P. (C)No. 14413 of 2016 whereunder the High Court of Orissa has dismissed the appellants’ challenge to
the order dated 3.8.2015 of the Odisha Administrative Tribunal (hereinafter referred to as “the Tribunal”) under which the authorities were directed to consider sanction of invalid pension in favour of late Sagar Naik (husband of the respondent) and thereafter settle family pension in favour of the applicant, under the provisions of the Orissa Civil Services (Pension) Rules- 1992 (hereafter referred to as “the Pension Rules”).

3. The respondent filed the OA No. 18(B)/2010 before the Tribunal praying for fixation of pay of late Sagar Naik and for disbursal of his accrued financial benefits with effect from 1.1.1996 until he was retired on 6.7.1996 on being mentally incapacitated. The applicant also prayed for sanction of family pension from the date of death of her husband i.e. 24.7.1996.

4. The applicant projected before the Tribunal that her husband on being found incapacitated was made to retire from service on 6.7.1996 and he died soon thereafter on 24.7.1996 and therefore, the widow is entitled to family pension. She also tried to make out a case for grant of invalid pension in favour of her late husband.

5. Opposing the prayers, the Government Advocate on behalf of the State contended before the Tribunal that the applicant’s husband had not rendered the qualifying period of service so as to make him eligible for pension. Opposing the claim for invalid pension for the deceased husband, the appellants contended that Rule 39 of the Pension Rules governing invalid pension has to be read together with Rule 47 which specifies the qualifying service of ten years for grant of pension and accordingly it was argued that the applicant is disentitled to any relief from the Tribunal.

6. Notwithstanding the State’s above contention, the Tribunal concluded that the applicant’s husband is entitled to invalid pension under Rule 39 of the Pension Rules and accordingly, the authorities were directed to sanction the invalid pension for the applicant’s husband and after his death, to settle the family pension for the applicant, after regularizing the services of the deceased employee.

7. The above decision was challenged by the appellants through W.P.(C) No. 14413/2016 where the State projected that Rule 39 has to be read jointly with Rule 47 of the Pension Rules and if Rules are applied as it should be, conjointly, the deceased government employee is ineligible for invalid pension. However, without adverting to the specific contention raised by the appellants, the High Court observed that a reasoned order was passed by the Tribunal declaring entitlement for the invalid pension and accordingly the Tribunal’s impugned order was left undisturbed and the writ petition came to be dismissed.

8. Representing the State of Odisha and other appellants, Ms. Anindita Pujari, learned counsel submits that the deceased government employee was unauthorizedly absent from service from 1.2.1995 to 23.7.1995 and was under suspension from 24.7.1995 to 6.7.1996 and this period cannot be counted for determining the qualifying service. Thus, in his credit, the deceased employee had net qualifying service of 4 years 6 months and 29 days until he was superannuated on 6.7.1996. The learned counsel then refers to the provisions of Rule 47(2)(b) and 47(5)(i) to argue that without completing the qualifying service of ten years, the deceased employee is ineligible for pension. Due to such non-entitlement, the widow was granted the alternate benefit i.e., the service gratuity amount by computing the entitlement under Rule 47(5)(i)of the Pension Rules.

9. On account of the short duration of service rendered by the deceased employee, the State’s counsel then argues that the respondent’s husband cannot be granted invalid pension under Rule 39 as the provision has to be conjointly read with Rule 47 and Rule 56 of the Pension Rules which specify the qualifying service of ten years and also the consequences for those who do not satisfy the eligibility criterion for qualifying service.

10. Per-contra, Mr. Kedar Nath Tripathi, learned counsel for the respondent/applicant, would however argue that the government employee was allowed to retire from service on 6.7.1996 on the ground of mental incapacity and since invalid pension is envisaged under Rule 39 of the Pension Rules for such prematurely retiring employees suffering permanent incapacity, the Tribunal and the High Court have rightly ordered for grant of invalid pension for the respondent’s husband.

11. The learned counsel then submits that since the government servant died within few days of retirement, firstly he must be paid the invalid pension under Rule 39 and after his death on 24.7.1996, the respondent as the widow, should be held entitled to family pension.

12. The issue to be considered here is whether the minimum qualifying service prescribed under the Pension Rules can be ignored for the purpose of consideration of invalid pension under Rule 39 of the Pension Rules. As a corollary, whether
the Tribunal or the High Court erred in directing invalid pension for a government employee who did not have the qualifying service, prescribed under the Pension Rules.

13. At this stage, the relevant provisions of the Pension Rules are extracted hereinbelow for ready reference:-

“………………..

39. Invalid Pension – (1) invalid pension may be granted if a Government servant retires from the service on account of bodily or mental infirmity which permanently incapacitates him for the service.

(2) A Government servant applying for an invalid pension shall submit a medical certificate of incapacity from the following medical authority, namely : –

(a) Medical Board, in the case of all Gazetted and specially declared Gazetted Government servants, and

(b) A Chief District Medical Officer or Medical Officer of equivalent status in case of other Government servants.

47. Amount of pension (1)

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

2 (a) ******** ******** ****

(b) In the case of Government servant retiring in accordance with the provisions of these rules before completing qualifying service of thirty-three years, but after completing qualifying service of ten years, the amount of pension shall be proportionate to the amount of pension admissible under clause (a) and in no case the amount of pension shall be less than the minimum amount of pension admissible.

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

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

(5)(i) In the case of a Government servant retiring in accordance with the provisions of these rules before completing qualifying service of ten years, the amount of service gratuity shall be paid at a uniform rate on half month’s emoluments for every completed six monthly period of service.

56. Family Pension :

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

(2) Without prejudice to the provisions contained in Sub-rule (4) where a Government servant dies-

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

(c ) After retirement from service and was on the date of death in receipt of pension, or compassionate allowance, referred to in Chapter IV other than the pension referred to in rules 43 and 44 the family of the deceased shall be entitled to family pension, the amount of which shall be determined in accordance with the table below.

. …………………“

14. The respondent’s husband, late Sagar Naik was appointed on 22.8.1989 under the Rehabilitation Assistance Scheme as his father late Suri Naik died in harness, while serving in the M.K.C.G. Medical College and Hospital. The appointee was however found to be suffering from mental incapacity and accordingly, on the basis of the medical certificate issued by the HoD of the Psychiatric Department of the S.C.B. Medical College, Cuttack, the employee was retired from service on 6.7.1996 on the ground of mental incapacity. The case paper reveals that the service of the employee was erratic, as he remained absent from 1.2.1995 to 23.7.1995 and was under suspension from 24.7.1995 to 6.7.1996. Thus his net qualifying service for the benefits under the Pension Rules was taken as 4 years 6 months and 29 days only.

15. For government servants not completing ten years qualifying service prescribed in Rule 47(5)(i) of the Pension Rules, the service gratuity is to be paid at a uniform rate of half month’s emolument for every completed six months period of service. Such gratuity benefit as also the other terminal benefits like GPF, unutilized Earned Leave, Death-cum-Retirement Gratuity (DCRG), etc. were sanctioned and paid to the widow of the employee. Moreover, respondent was also appointed as a sweeper under the Rehabilitation Assistance Scheme and she is in regular government service, since 12.6.2006.

16. The gratuity and other benefits and the compassionate appointment was accepted by the respondent without raising any additional claim towards invalid pension for her deceased husband, who retired on 6.7.1996.Long after his death on 24.7.1996, the respondent approached the Tribunal to belatedly pray for firstly, fixation of pay for her husband in the revised scale with effect from 1.1.1996 till his superannuation and also to sanction family pension benefits for the applicant, following the death of the government employee (on 24.7.1996) along with all consequential and terminal benefits. The respondent never however prayed for invalid pension before the Tribunal. Yet, the Tribunal ordered for invalid pension for the respondent’s husband, under Rule 39 of the Pension Rules.

17. When the Tribunal’s decision was challenged in the High Court, the State specifically contended that Rule 39 has to be read together with Rule 47 of the Pension Rules and the specified qualifying service must be satisfied even for claiming invalid pension. But the High Court without adverting to the specific contention raised by the appellants, dismissed the writ petition with a cryptic order observing that the Tribunal has passed a reasoned order and that the husband of the respondent is entitled to invalid pension under Rule 39 of the Pension Rules.

18. The requirement of completing the qualifying service of ten years for receipt of pension is prescribed under Rule 47(2)(b) and for those government employees who retire before completing the qualifying service, alternate relief is envisaged under the Pension Rules itself. How the service gratuity is to be computed, is also prescribed in Rule 47(5)(1) of the Pension Rules.

19. The respondent’s husband was retired on the ground of mental infirmity and hence the service gratuity was paid and the widow had received the same, without any demur. She never raised any claim for invalid pension either at the time of retirement on 6.7.1996 or even when she approached the Tribunal i.e. 14 years later in the year 2010. Nevertheless, the Tribunal went beyond the prayers in the O.A. No. 18(B)/2010 and ordered for invalid pension for late Sagar Naik and then following his death, ordered for family pension for the widow. In declaring such entitlement the High Court and the Tribunal however ignored the qualifying service of ten years as prescribed in the Pension Rules although the State specifically argued that the qualifying service criterion has to be satisfied not only for the regular pension but also for the invalid pension since both claims are to be considered under the very same Pension Rules.

20. An employee becomes entitled to pension by stint of his long service for the employer and, therefore, it should be seen as a reward for toiling hard and long for the employer. The Pension Rules provide for a qualifying service of 10 years for such entitlement. When the question arises as to how certain provisions of the Pension Rules are to be understood, it would be appropriate to read the provision in its context which would mean reading the statute as a whole.

In other words, a particular provision of the statute should be construed with reference to other provisions of the same statute so as to construe the enactment as a whole. It would also be necessary to avoid an interpretation which will involve conflict with two provisions of the same statute and effort should be made for harmonious construction. In other words, the provision of a Rule cannot be used to defeat another Rule unless it is impossible to effect reconciliation between them. Pension as already stated is earned by stint of continuity and longevity of service and minimum qualifying service should therefore be understood as the requirement for invalid pension as well. The Pension Rules can be harmoniously construed in this manner and in that event, there shall be no clash between different provisions in the said Rules.

21. The condition of qualifying service prescribed in the Pension Rules must be satisfied to become eligible for invalid pension and the arguments made to the contrary that invalid pension can be claimed under Rule 39 without satisfying the stipulated qualifying service mentioned in the same Rules, do not appeal to us. The respondent’s husband who had served for lesser years then the 10 years qualifying service, was found entitled by his employers to service gratuity only, because of his premature retirement on the ground of mental incapacitation and this is what is prescribed by the Pension Rules. The dues toward service gratuity was paid accordingly. The Pension Rules definitely envisaged that there could be a situation where an employee may not be eligible for pension benefits for not satisfying the prescribed qualifying service of 10 years. For those with less than 10 years’ service, the Pension Rules provide for gratuity payment and therefore, it is difficult for us to conclude that for invalid pension, qualifying years of service, can be ignored.

22. The above view of ours is supported by the ratio in Union of India and Another Vs. Bashirbhai R. Khiliji1, where this Court was considering claim for invalid pension for an armed constable in the CRPF who suffered from pyrogenic meningitis and neurosensory deafness (bilateral). In that case, the CRPF personnel was declared unfit for active duty, and he was invalidated from service. He applied to authorities for invalid pension but that was rejected on the ground that he had not completed the qualifying service of 10 years. Instead, he was paid service gratuity. The High Court in that case however, took the view that since the CRPF Constable’s invalidity was 100 per cent, he was


1(2007) 6 SCC 16


entitled to invalid pension and the stipulation of 10 years of qualifying service could not be invoked to deny him the invalid pension. However, Justice A.K. Mathur, speaking for a two judge Bench of this Court while interpreting similar provisions in the applicable Rules, negated the High Court’s view and pronounced on the issue of qualifying service for invalid pension, in the following manner:-

“……………….. ..

9. We are presently concerned with two provisions of the Rules i.e., Rule 38 and

49. Rule 38, as reproduced above, contemplates the invalid pension. The procedure has been mentioned therein i.e. in case an incumbent retires from service on account of bodily or mental infirmity which permanently incapacitated him for the service, then a medical certificate of incapacity shall be given by the authorities concerned and in particular Form 23 the same may be applied before the competent authority. It is true that the qualifying service is not mentioned in Rule 38 but Rule 49 which deals with the amount of pension stipulates that a government servant retiring in accordance with the provisions of these Rules before completing qualifying service of ten years, the amount of service gratuity shall be calculated at the rate of half month’s emoluments for every completed six-monthly period of qualifying service. Therefore, the minimum qualifying service of ten years is mentioned in Rule 49. The word “qualifying service” has been defined in Rule 3(1)(q) of the Rules which read as under:

“3. (1)(q) ‘qualifying service’ means service rendered while on duty or otherwise which shall be taken into account for the purpose of pensions and gratuities admissible under these Rules;”

10. Therefore, the minimum qualifying service which is required for the pension as mentioned in Rule 49, is ten years. The qualifying service has been explained in various memos issued by the Government of India from time to time. But Rule 49 read with Rule 38 makes it clear that qualifying service of pension is ten years and therefore, gratuity is determined after completion of qualifying service of ten years. Therefore, for grant of any kind of pension one has to put in the minimum of ten years of qualifying service. The respondent in the present case, does not have the minimum qualifying service. Therefore, the authorities declined to grant him the invalid pension. But the amount of gratuity has been determined and the same was paid to him.

. …………………” (Underlining added)

23. The above enunciation of the law on requirement of qualifying service for invalid pension by the bench of two judges is reiterated and approved by us.

24. In a case like this, the need for compassion and the compliance of the norms has to be balanced. As earlier noted, the allowable gratuity benefits were granted on account of the respondent’s husband and after he died, the widow was appointed (on 12.6.2006) in a government job under the Rehabilitation Assistance Scheme. Thus, the needed means of sustenance was provided to the deceased’s family.

25. The respondent’s husband had not served for ten years and was therefore, he disentitled for regular pension. For the same reason, he cannot also be held entitled to invalid pension. The different provisions of the Pension Rules cannot be read in isolation and must be construed harmoniously and the requirement of qualifying service cannot be said to be irrelevant for claiming different service benefits under the same Rules. Here the employee did not satisfy the requirement of qualifying service and therefore the invalid pension could not have been ordered for him, under Rule 39 of the Pension Rules.

26. In the above context, it will bear emphasis that the respondent never prayed for invalid pension for her husband in her O.A. and yet the Tribunal as well as the High Court granted her the unclaimed relief. Such additional munificence, in addition to the job provided to the first respondent under the Rehabilitation Assistance Scheme for the sustenance of the deceased’s family, in our view, was unwarranted and the impugned order cannot be sustained.

27. In view of the foregoing, the impugned orders of Tribunal and the High Court are set aside and the Appeal stands allowed. The parties to bear their own cost.

J. [R.BANUMATHI]

J. [A.S.BOPANNA]

J. [HRISHIKESH ROY]

NEW DELHI
DECEMBER 04, 2019.


If a directs to do an act in certain manner, it necessarily prohibits doing of the act in any other manner.

If a statute has conferred a power to do an act and has laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any other manner than that which has been prescribed.

The principle behind the Rule is that if this were not so, the statutory provision might as well not have been enacted. A Magistrate, therefore, cannot in the course of investigation record a confession except in the manner laid down in Section 164. The power to record the confession had obviously been given so that the confession might be proved by the record of it made in the manner laid down. If proof of the confession by other means was permissible, the whole provision of Section 164 including the safeguards contained in it for the protection of Accused persons would be rendered nugatory. The section, therefore, by conferring on Magistrates the power to record statements or confessions, by necessary implication, prohibited a Magistrate from giving oral evidence of the statements or confessions made to him.

Municipal Corporation of Greater Mumbai (MCGM) Vs. Abhilash Lal & Ors-15/11/2019

Municipal Corporation of Greater Mumbai (MCGM) Vs. Abhilash Lal & Ors-15/11/2019

SUPREME COURT OF INDIA JUDGMENTS

STATUTORY INTERPRETATION-If a statute has conferred a power to do an act and has laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any other manner than that which has been prescribed.

The principle behind the Rule is that if this were not so, the statutory provision might as well not have been enacted. A Magistrate, therefore, cannot in the course of investigation record a confession except in the manner laid down in Section 164. The power to record the confession had obviously been given so that the confession might be proved by the record of it made in the manner laid down. If proof of the confession by other means was permissible, the whole provision of Section 164 including the safeguards contained in it for the protection of Accused persons would be rendered nugatory. The section, therefore, by conferring on Magistrates the power to record statements or confessions, by necessary implication, prohibited a Magistrate from giving oral evidence of the statements or confessions made to him.

SUPREME COURT OF INDIA

Municipal Corporation of Greater Mumbai (MCGM) Vs. Abhilash Lal & Ors.

[Civil Appeal No. 6350 of 2019]

ACT: Section 62 of the Insolvency and Bankruptcy Code, 2016

FROM: National Company Law Appellate Tribunal

S. RAVINDRA BHAT, J.

1. The Municipal Corporation of Greater Mumbai (hereafter “MCGM”) appeals under Section 62 of the Insolvency and Bankruptcy Code, 2016 (hereafter “IBC” or “the Code”) against the order of the National Company Law Appellate Tribunal (hereafter variously “NCLAT” and “the Appellate Tribunal”), rejecting its plea with respect to a resolution plan approved by the National Company Law Tribunal (“NCLT”) under the provisions of that Code.

2. MCGM owns inter alia, Plot Nos. 155156, 162 and 168 (all plots hereafter called “the lands”) in village Marol, Andheri (East) Mumbai. By a contract (dated 20th December, 2005) SevenHills Healthcare (P.) Ltd. (the company facing insolvency proceedings, hereafter “SevenHills”) agreed to develop these lands (which were to be leased to it for 30 years) and construct a 1500 bed hospital. MCGM stipulated several conditions, including that 20% of the beds had to be reserved for use by the economically deprived, and that SevenHills had to complete the construction in 60 months (excluding monsoons). The sixtymonth period ended on 24th April, 2013; the project however, was not completed. In terms of Clause 15(g), the lease deed had to be executed within a month after completion. However, the deed was not executed as the project was not completed. Further, SevenHills had to pay lease rent at the annual rate of 10,41,04,000. MGCM alleges that there were defaults in these payments. In these circumstances, MCGM issued a show cause notice on 23rd January, 2018, proposing termination of the contract/agreement. It is submitted that SevenHills owed MCGM an amount of Rs. 76,05,07,780.

3. On the strength of the contract, SevenHills had borrowed from banks and financial institutions. It had created security by way of mortgage of the said lands, citing Clause 5, which enabled the creation of such encumbrances. SevenHills’ inability to repay its debts led to the initiation of insolvency proceedings by Axis Bank. On 13th March, 2018, before the period given by MCGM’s showcause notice ended, the Petition (CP (IB) No. 282/7/HBD/2017) was admitted by the Hyderabad Bench of the NCLT. The first respondent was appointed as the Resolution Professional (hereafter “RP”); this was approved by the Committee of Creditors (“CoC”) as required by the Code, on 12 April, 2018. A publication for expression of interest (“EOP”) was issued on 14 May, 2018; later, on 25th June, 2018 and 16th July, 2018, the terms of the Request for Proposal (RFP) and criteria for evaluation (of RFPs received) were approved. As a result of the RFP published, a resolution plan was submitted by Dr. Shetty’s New Medical Centre (“SNMC”). After discussion with the CoC, a revised RFP was submitted by the RP. The revised resolution plan was approved by the CoC on 4th September, 2018.

4. The resolution plan projected infusion of over Rs.1000 crores by SNMC. That amount was to be borrowed; for this purpose, SevenHills’ properties movable and immovable, were proposed to be secured by hypothecation and mortgage respectively. Operational creditors were to be paid off to the extent of 75%. Further, the plan proposed payout to the tune of Rs.102.3 crores to MCGM as against its total claim of

Rs.140.88 crores, and also committed to honouring the terms of the agreement entered into by SevenHills and providing 20% of the beds (of the hospital to be constructed) to the poor and weaker sections of society. The networth certificate furnished by SNMC indicated that it possessed sufficient funds.

5. MCGM filed an application (I.A. No. 207/ 2018) claiming that it ought to be declared as a Financial Creditor and a Member of the Committee of Creditors. It made several submissions, which indicated that subject to stipulations with respect to completion of the hospital project in a timebound manner, and subject to SNMC providing 20% beds in the completed hospital, for use by the economically weaker sections (and at the disposal of MCGM) and, lastly subject to clearing its (MCGM’s) claims to the tune of Rs.140.88 crores, it was agreeable to the resolution plan.

However, later during the proceedings, it opposed the resolution plan, arguing that being a public body as well as a planning authority, it had to comply with the provisions of the Mumbai Municipal Corporation Act, 1888 (“MMC Act”), which meant that all action and approval had to be taken by the Improvement Committee of the Corporation. It was also stated that the show cause notice (“SCN”) dated 23rd January, 2018 had been already issued by MCGM proposing to terminate the contract (with SevenHills) to which there was no response and that in the absence of a lease, the provisions of Section 14(1)(d) of the Code could not prevent the MCGM from terminating the agreement. Another argument made was that the period of CIRP in the case began on 13th March, 2018 when the petition was admitted and the period of 270 days expired on 8th September, 2018; an extension of 90 days provided in Section 12(3) was granted by the Adjudicating Authority on 4th September, 2018 and the extended period came to an end on 7th December, 2018; thus the CIRP has lapsed by efflux of time.

6. The NCLT, after considering the views of the RP, MCGM, the creditors and SNMC, held that: “29. It may be relevant to note here that the Application for approval of the resolution plan was filed on 07.09.2018. The MCGM at a belated stage has come up with its objections to the Resolution Plan with the contention that it is undisputed owner of the plot on which one of the hospitals of the Corporate Debtor in Mumbai is built. The various objections raised by MCGM as enumerated hereinabove at a belated stage are neither tenable nor acceptable. It is clear from the record that MCGM is taking a stand which is totally contrary to its own decisions and factual submissions.

The final prayer of MCGM is to reject the ‘resolution plan’ and order for liquidation of the Corporate Debtor. The RP in his submissions has clearly pointed out as to why the averments of MCGM are erroneous and incorrect. For the sake of briefness, the submissions made by RP as stated supra are not discussed in detail once again. This Adjudicating Authority is of the view that the contentions raised by MCGM cannot be accepted due to the conflicting and contradictory stands taken by it in the course of hearings. Further, the contention of MCGM relating to expiry of the period of 270 days is untenable and unacceptable for the reason that the Application by the Resolution Professional for the approval of the Resolution Plan has been made well before the expiry of the period of CIRP and the same is in accordance with the provisions of the Code. Therefore, the objections raised by the MCGM are hereby rejected.”

7. The NCLT also held that the plan filed along with the application met the requirements of Section 30(2) of the Code, and Regulations 37, 38, 38(IA) and 39(4) of IBBI (CIRP) Regulations, 2016. It also held that the resolution plan did not contravene any of the provisions of Section 29A and was unanimously approved by that CoC; it provided for 78.07% of payment to financial creditors and 75% of payment to operational creditors including doctors, irrespective of claims in incorrect forms. Further, the resolution applicant is also addressing the dues payable to MCGM as stated in the resolution plan. Further, that NCLT observed that on comparison of the amount offered in the resolution plan with FormH submitted by the RP, it was seen that the amount proposed in the plan was more than that of the value of liquidation of the Corporate Debtor. It accordingly approved the plan.

8. Aggrieved by NCLT’s order, MCGM approached the Appellate Tribunal, before which several grounds were urged, including that since the conditions stipulated in the contract (with SevenHills Healthcare) had not been complied with, there was no lease deed and consequently no interest inured in the land, in favour of the Corporate Debtor. It was also urged that the resolution applicant was aware that the property belonged to MCGM, and had not vested in the Corporate Debtor. Despite these circumstances, the proposal and revised proposal incorporating encumbrances of the lands were made contrary to law. It was also specifically urged that mandatory provisions of the MMC Act requiring express authorization by the corporation for transfer or creation of any interest in land had not been complied with and resultantly, the proposal and revised proposal approved by the NCLT, so far as they dealt with the property and lands, were not enforceable against MCGM.

9. The NCLAT in its impugned order, took note of a memo filed on behalf of the MCGM on 20th April, 2019 (before the NCLT), that the revised resolution plan had been accepted and all terms specified in its written submissions, were to be incorporated. As a result, the NCLAT was of the opinion that there was no scope for interference with the order of the Adjudicating Authority/NCLT.

10. It is argued on behalf of MCGM by its learned senior counsel, Mr. Neeraj Kaul, that no lease deed was executed in favour of SevenHills, the Corporate Debtor. MCGM was the undeniable owner of the land; as there were no assets of the Corporate Debtor, it stated that a duly registered lease deed would be executed. The proposal and revised proposal seeking direction with regard to the lease deed, had to be necessarily dealt with in accordance with law. This meant that unless MCGM, expressly approved the revised plan, whereby a lease deed could be executed in favour of the SevenHills Healthcare Pvt. Ltd. (or in favour of the resolution applicant SNFC), neither the adjudicating authority nor the NCLAT could issue any direction seeking to bind MCGM with respect to the manner it had to deal with properties that belonged to it.

11. It was emphasised that the effect of the impugned order is to prevent MCGM from violating the law. The direction which was highlighted was in violation of Section 92 of the MMC Act. Learned senior counsel underlined that the written submissions filed on behalf of MCGM could not be construed as an admission, or that MCGM was bound to agree to the revised proposal. It was alternatively argued that at best, these submissions could be considered as concessions of law which were never binding on MCGM.

12. It was argued that there was no question of incorporating any direction or approving the revised plan, which in any manner affected MCGM’s properties. In this context, Mr. Neeraj Kaul, learned Senior Counsel, urged that the terms of the original contract (dated 20th December, 2005) had been violated; the 1500 bed hospital had not been completed by the stipulated date. Furthermore, arrears of lease rentals had mounted together every attendant liability. In these circumstances, even before the insolvency proceedings were initiated, MCGM issued a show cause notice proposing to terminate the contract. It was further emphasised that since the terms of the contract were infringed, in fact, there was no subsisting lease which could have been dealt with by the revised proposal and later by the Adjudicating Authority. It was submitted that the impugned order has completely noted these salient aspects.

13. On behalf of the RP (who has been arrayed as the first respondent) it is argued by Mr. C.A. Sundaram, learned senior counsel that MCGM had categorically consented to the resolution plan in writing before the NCLT and the Appellate Tribunal. He points out that in the written submissions dated 28th November, 2018, 29th April, 2019 and 14th May, 2019 MCGM categorically stated that the resolution plan be approved and its application before the NCLT ought to be disposed of in terms of the commitment given by the resolution applicant/SNMC. It is pointed out that the Appellate Tribunal, after hearing the submissions of MCGM that it had no objections to the resolution plan, affirmed it. MCGM, counsel submitted, has not refuted that such a statement was made before the NCLAT. It is therefore the undisputed position that MCGM had no objections to the resolution plan. That being the case, counsel argues that the appeal is not maintainable.

14. Mr. Sundaram argued that MCGM’s contentions that no interest or leasehold rights in the land were created in favour of the Corporate Debtor, flies in the face of its letters and also its application to the NCLT, which in para 4, admitted that the lands were leased to the Corporate Debtor. In fact, MCGM filed the application claiming that the lease was a capital or finance lease and the unpaid lease rentals were a financial debt within the meaning of the Code. Unlike the written submissions, MCGM did not even explain on what basis it had filed the application to the NCLT regarding its position that no leasehold rights subsisted.

15. Learned senior counsel submitted that MCGM was invited to attend and participate in CoC meetings due to its position as owner of the land on which the Mumbai hospital of the Corporate Debtor is located. The issue of whether or not the corporate debtor has any leasehold rights under the contract (of 2005) is a disputed question of fact which can only be adjudicated upon in civil proceedings after conducting a civil trial.

16. It is also argued alternatively, that assuming for the purpose of argument that no leasehold rights were created in favour of the Corporate Debtor, the resolution plan does not create any leasehold rights in favour of the respondent applicant/SNMC. Learned senior counsel argued that the resolution plan merely envisages a change in the shareholding of the Corporate Debtor but does not transfer any of MCGM’s assets to SNMC. Therefore, it is false to suggest that the resolution plan transfers MCGM’s assets to SNMC. It was argued furthermore that though MCGM was not entitled to, nor treated as a financial creditor, it was nevertheless invited to participate in CoC meetings, interact as well as negotiate favourable terms with potential resolution applicants. To further safeguard MCGM’s interests, the RFP also required all prospective resolution applicants to submit their plans to resolve the dispute with MCGM.

17. Mr. Sundaram also submitted that SNMC’s revised proposal to MCGM assured repayment of its entire dues. In light of a proposal of this nature, MCGM’s stand seeking liquidation of the Corporate Debtor appears not only arbitrary but also prima facie vindictive.

18. It is also submitted that the resolution plan is absolutely unconditional in nature and in no manner contingent on the resolution of the dispute with MCGM. It is submitted that such unconditionality is the most fundamental aspect of the resolution plan. This unconditional nature is recorded in the minutes of meetings of the 8th meeting of the CoC held on 20th August 2018. MCGM participated in the meetings of the CoC, including the 8th CoC meeting, and was provided a copy of the minutes contemporaneously. These minutes record SNMC’s categorical statement that the negotiations with MCGM are in progress and that the resolution plan is unconditional and in no manner dependent on the outcome of such negotiations. Further, there is no provision in the resolution plan (and none has been cited by MCGM) which suggests that the plan is conditional on settlement with it (i.e. MCGM).

19. It is also submitted that any dispute with MCGM in relation to the lease of the underlying land has no bearing on the validity of the resolution plan, under Section 31 of the Code. Having been approved by the CoC and the NCLT on merits, the plan attained finality and binds MCGM as a stakeholder in the Corporate Debtor. MCGM therefore, cannot hold the entire CIRP of the Corporate Debtor to ransom despite not even having raised a single objection on the validity of any specific term in the resolution plan under Section 30(2) of the Code.

20. Mr. Ramji Srinivasan, appearing on behalf of the CoC, argued that the financial creditors were interested in ensuring that their dues were paid, preferably in full. SNFC’s resolution plan held out the best assurance toward that end. He also argued that the question of obtaining any approval under Section 92A either for creation of charge, or for any other purpose did not arise, because the terms of the contract, which in fact amounted to a lease (as it was a registered instrument and MCGM had received over Rs. 10 crores as initial lease consideration). Therefore, the resolution plan approved by the NCLT, and later, NCLAT, were sound and did not call for interference.

21. It was argued, furthermore, that the reliance on Section 92 of the MMC Act is misguided as it seeks to superimpose provisions of the MMC Act on the provisions of the Code. This is clearly impermissible in terms of the nonobstante provision contained in Section 238 of the Code.

22. Mr. K.V. Vishwanathan, learned senior counsel for SNFC, argued that the plan approved provided the best solution for the financial woes of the Corporate Debtor. It was argued that SNFC never represented that it would mortgage or obtain any loan on the strength of the lease. Nor did it ever urge that MCGM’s permission was not necessary. He pointed to the terms of the resolution plan and submitted that they were subject to MCGM’s obligations to follow the law.

23. It was submitted that the proposed plan contemplates compliance with the various conditions of the contract agreement including without limitation, 20% reservation of beds for MCGM’s employees and settlement of MCGM’s claimed dues. The resolution plan proposed payment to MCGM (which was enhanced to 100% by a later proposal) at clause 2.2.2(b). Further, clause 2.2.3(f) of the resolution plan again records the proposed payment to MCGM by stating that while the resolution professional has not admitted the claims submitted by MCGM, SNMC recognizes such dues payable to it and shall pay 102 crores in terms of the Rs. offer made to MCGM as recorded.

24. In the present case, Section 92 of the MMC Act has no bearing on the validity of the resolution plan, the approval order or the impugned order. Section 92 of the MMC Act mandates and prescribes the manner in which disposal of land belonging to the appellant would take place. However, the resolution plan does not contemplate any disposal of the said land or creation of any additional rights and obligations of MCGM or the Corporate Debtor in relation to the lands. It is merely the shareholding of the Corporate Debtor which undergoes a change pursuant to the resolution plan. MCGM cannot place any embargo on such shareholding changes by resorting to proceeding under the Code.

25. It was urged that SNMC does not acquire any interest in the said land and only acquires managerial control over the Corporate Debtor by way of holding equity shares in the Corporate Debtor. Therefore, there arises no question of Section 92 of the MMC Act being violated through the resolution plan.

Discussion regarding the insolvency process and relevant provisions of the MMC Act

26. On admission of an insolvency application preferred by a financial creditor/operational creditor, a moratorium is declared on the continuation and initiation of all legal proceedings against the debtor. The NCLT appoints an interim resolution professional (“IRP”). The moratorium operates till the completion of the insolvency resolution process which, by law should be completed within a mandated time frame. During the moratorium period, the debtor cannot transfer, encumber or sell any asset. Upon appointment of an IRP, the board of directors stands suspended and management vests with the IRP. These professionals (IRPs) have to conduct the insolvency resolution process, take over the assets and management of the company, assist creditors in collecting information and manage the insolvency resolution process. The term of the IRP continues until an RP is appointed under Section 22. The IRP has to first determine the debtor’s financial position through information collection regarding assets, finances and operations. Information may include data relating to operations, payments, list of assets and liabilities. The IRP further has to receive and collate claims submitted by creditors.

27. The RP selected by the NCLT has to constitute a committee of creditors (CoC) comprising all the financial creditors of the corporate debtor. This provision is aimed at creditors adopting a collective approach towards insolvency resolution instead of proceeding individually. Key decisions of the process, and the plan to be eventually finalized are to be approved by the CoC upon its satisfaction that the provisions of the most acceptable plan would ensure that their dues are cleared.

28. The Code is principally aimed at aiding a corporate debtor in the resolution of its insolvency condition without approaching liquidation. The key to this process is the finalization of an insolvency resolution plan. A suitably structured plan would provide for repayment of the debtor’s outstanding liabilities after evaluating its financial worth, at the same time ensuring its survival as a going concern. The resolution plan must necessarily provision for repayment of the debt of operational creditors in a manner such that it shall not be lesser than the amounts that would be due, should the debtor be liquidated per Section 30(2) of the Code. Also, the plan should identify the manner of repayment of insolvency resolution costs, the implementation and supervision of the strategy, and should be in compliance with the law. If the terms (including the terms of repayment) under the resolution plan are approved by the committee of creditors, it has to be further approved by the NCLT, which is the adjudicating authority.

29. In this case, it is not the provisions of the IBC which this court has to primarily deal with; it is rather whether the process and procedure adopted by the NCLT and later the NCLAT, in overruling MCGM’s concerns and objections with regard to the treatment of its property (i.e. the lands) is in accordance with law. The relevant provisions of the Municipal Corporation of Greater Mumbai Act, 1888 are extracted below:

Provisions governing the disposal of municipal property:

Section 92. With respect to the disposal of property belonging to the corporation other than property vesting in the corporation for the purposes of the Brihan Mumbai Electric Supply and Transport Undertaking, the following provisions shall have effect, namely: –

(a) the Commissioner may, subject to the regulations made in this behalf, dispose of, by sale or otherwise, any movable property belonging to the corporation not exceeding in value, in each instance, five lakh rupees, of grant a lease of any immovable property belonging to the corporation, including any right of fishing or of gathering and taking fruit and the like, for any period not exceeding twelve months at a time : Provided that every lease of immoveable property granted by the Commissioner (other than a contract for a monthly tenancy) the annual rent where of at a rack rent exceeds 6 [fifty thousand rupees] shall be reported by him, within fifteen days after the same has been granted, to the Improvements Committee;

(b) the Commissioner may, –

(i) with the sanction of the concerned Committee, dispose off, by sale of otherwise any movable property held by the Corporation, the value of which exceeds rupees five lakhs ;

(ii) with the sanction of the 9[Standing Committee], dispose off any moveable property held by the Corporation, the value of which exceeds rupees two crores ;

(iii) with the sanction of the concerned Committee, grant a lease (other than a lease in perpetuity) of any immovable property belonging to the Corporation, including any such right as aforesaid; or sell, or grant a lease in perpetuity of any immovable property, the value of which does not exceed 50,000 rupees or the annual rent of which does not exceed 3,000 rupees ;

(c) with the sanction of the corporation, the Commissioner may lease, sell or otherwise convey any immovable property belonging to the corporation (cc) the consideration for which any immovable property or any right belonging to the corporation may be sold, leased or otherwise transferred shall not be less than market value of such premium, rent or other consideration;

(d) sanction of the corporation under clauses (b) and (c) may be given either generally for any class of cases or specially in any particular case ;

(dd) notwithstanding anything contained in this section, the Commissioner may, with the sanction of the Corporation, and with the approval of the State Government, grant a lease of immovable property belonging to the Corporation to a Cooperative Housing Society formed exclusively by the officers and servants of the Corporation, or to a public trust exclusively for medical and educational purposes registered under the Bombay Public Trust Act, 1950 or to a society registered under the Societies Registration Act, 1860 or the Maharashtra Cooperative Societies Act, 1960, a public trust registered under the Bombay Public Trust Act, 1950, or a company registered under the Companies Act, 1956 3[or any person for the purposes of provision of public latrines, urinals and similar conveniences or construction of a plant for processing excrementitious and other filthy matters of garbages] or to a person who is dishoused as a result of the implementation of any Development Scheme of the Corporation or to a Cooperative Housing Society formed exclusively by the persons who are dishoused as a result of the implementation of any Development Scheme of the Corporation, at such rent, which may be less than the market value of the premium, rent, or other consideration, for the grant of such lease, and subject to such conditions, as may be provided by the byelaws made under section 461;

(ddd) notwithstanding anything contained in this section, the Commissioner may, with the sanction of the Corporation, and with the approval of the State Government, grant a lease for a period not exceeding 60 years, of municipal land which is declared as a slum area under the provisions of the Maharashtra Slum Areas (Improvement, Clearance and Redevelopment) Act, 1971 to a cooperative society of slum dwellers occupying such land, at such rent, which may be less than the market value of the premium, rent, or other consideration, for grant of such lease, and subject to such conditions, as the Corporation may impose. The approval of the State Government under this clause may be given either generally for any class of cases of such lands or specifically in any particular case of such land : Provided that, the Commissioner may in like manner renew, from time to time ; the lease for such period and subject to such conditions as the Corporation may determine and impose ;

(dddd) All leases granted by the corporation of the immovable properties belonging to the corporation for whatever term shall be subject to the following conditions in addition to the conditions stipulated in the Leasedeed or Leaseagreement executed by the corporation, namely: – (i) Leasehold rights in respect of the properties belonging to the corporation and given on lease may be further assigned or transferred only with the prior permission of the Commissioner, on payment of such premium on account of unearned income and transfer fees or charges at such rates as may be specified by the corporation, from time to time.

(ii) In the case of any contravention of the provisions of subclause (i), the lessee or transferor of such leasehold rights, shall be liable to pay penalty in addition to such premium and transfer fees or charges, at such rates as may be specified by the corporation, from time to time.

(e) the aforesaid provisions of this section shall apply, respectively, to every disposal of property belonging to the Corporation made under or for any purpose of this Act; Provided that nothing in this section shall apply Dr. Bhau Daji Lad Museum or to the site thereof referred to in section 89C except with the previous sanction of 5[the 6[State] Government].

Section 92A. Where-

(1) the Commissioner has transferred by way of sale or exchange any immovable property belonging to the Corporation and the terms of such transfer direct that the property shall be applied or enjoyed in a particular manner or the use or enjoyment thereof shall be restricted in a particular manner, or

(2) the owner of any immovable property has entered into an agreement with the Corporation concerning the application, enjoyment or use of the property in a particular manner, such term, condition or obligation shall be held to be annexed to the property which is the subjectmatter of the transfer or agreement and shall be enforced against the transferee or owner and all persons deriving title or interest under or through him, notwithstanding-

(a) any law for the time being in force, and

(b) that the Corporation are not in possession of or interested in any immovable property for the benefit of which, the term, condition or obligation was agreed to, entered into or imposed.”

30. At this stage, it would be relevant to notice certain conditions in the contract.

Clause 2(i) stipulates the minimum lease rent as 10.40 crores for which SHCL agreed Rs. to pay 0.1% over and above the minimum lease rent.

Clause 5 of the agreement permitted SevenHills to mortgage and/or create charge of the schedule property. The conditions read as follows:

“5. The Owner hereby agrees to permit and allow the SHCL on the terms and conditions to be approved by the Owner which permission/approval shall not be unreasonably withheld, to mortgage and/or create charge on the Schedule Property and/or SHCL’s leasehold right thereon with or without the Buildings on the Schedule property during the lease period or prior thereto i.e. during the project period) in any manner whatsoever either in whole or in part as SHCL may require from time to time to the satisfaction of the lenders, for the purpose of raising financial assistance from the Financial Institutions/Banks/NBFOs/Cooperative Societies/ Trust/ UF/ Partnership/Proprietary Firm and any other lending individuals/institutions, whether incorporated or not, for any purpose for and in connection with the said Project including for the purpose of commencing, carrying out and completing the construction of the Buildings, setting up of hospital, Medical Educational institutions commercial and other establishments within the Frame work of Development Control Regulations in force, in such Buildings, their running, maintenance, renovation, reconstruction etc. For this purpose, the SHCL shall have to apply for permission not mortgage and/or create charge to Municipal Commissioner two months in advance and if the approval is not received within two months from the date of receipt of such a request by the Commissioner, it will be deemed as approved and SHCL shall be at liberty to create the mortgage of the Schedule Property in favour of the Lenders without any recourse to the Owner.”

31. Clause 15(a) which stated that the lease deed had to be entered into upon on completion of the project and contained other conditions, pertinently, reads as follows:

“15. LEASE OF PLOT: a) Lease period:

i) The SHCL shall enter into a Lease Deed on completion of project period for leasing the plot to SHCL for the period of 60 years. After 60 years, the lease period will be extended with the mutual consent of Owner and SHCL on the terms that may be mutually agreed upon by both the parties for further period.

ii) The lease period of 60 years shall commence from the date of completion of the Project period.

iii) On completion of the said Project the Owner shall issue to SHCL ‘Project Completion Certificate’. Till the completion and commissioning of the project and running of the Project facilities, till the end of lease period, this Contract Agreement is to be read, in conjunction with the said Lease Deed which both Parties will enter into on completion of the project period. iv) The SHCL shall complete the construction of the hospital building within the project period of 60 months excluding monsoon. the MCGM shall be liable to issue the Project Completion Certificate on written application by SHCL to that effect after completion of the project.

xxxxxx xxxxxx xxxxxx

e) Penalty for delay:

i) SHCL shall complete the entire Project and open the facility to public use within the approved time limit. SHCL shall submit the work programme with defined milestones. the progress of the work shall be strictly as per the programme of construction submitted by SHCL and approved by the Commissioner. In case SHCL fails to complete the Project as aforesaid within the said Project Period of 60 (sixty) months excluding monsoon from issuance of Commencement Certificate, and unless such failure is due to force Majeure conditions, penalty for delay shall be charged for the period of delay which will be equivalent to 25% of Lease Rent which SHCL would have paid to the Owner for that period, had the Project been completed within the Project Period and this shall be in addition to lease rent.

ii) SHCL shall have to separately pay the compensation for delay to the Owner at the end of notice period. iii) However, in case any delay occurs because of circumstances beyond the control of SHCL only suitable extension in the period of the Project without imposing penalty or demand for compensation for delay shall be granted for completing the Project. No other claim or compensation of whatsoever nature shall be entertained.

xxxxxx xxxxxx xxxxxx

g) Lease Deed: A Lease Deed shall be executed as per draft annexed to this Contract Agreement as Annexure’ II’ within one month from the expiry of the Project period or on intimation from the owner whichever is earlier. 17. MORTGAGE OF PLOT AND BUILDINGS a) The SHCL is hereby allowed to sublease; mortgage and create a charge on the said plot and buildings either in part or in total to the satisfaction of lenders for the purpose of raising financial assistance to commence, progress, complete, commission and run the hospital complex and other commercial activities during the Pendency of the lease period, from the financial institutions/ FIIS/Banks/Mutual Funds/Cooperative Societies, Trusts/individuals/HUFs/Partnership Firms, other lending institutions and lenders of any constitution for the said Project with the prior permission of the Commissioner, which permission shall not be unreasonably withheld, during the Project period and/or during the subsistence of the lease and the Owner shall be kept informed of such deals after permission by the Commissioner and SHCL shall file relevant documentary evidence to that effect for record of the owner.

The permission which shall be granted by the Owner to SHCL to mortgage the Schedule Property in favour of the lender (s) for raising finance will remain irrevocable and irreversible during the tenure of the Project period and lease period except when the contact is terminated. In case the contract is terminated for valid reason, the Owner shall not bear any cost and consequences of resultant termination of mortgage by SHCL to any Financial Institution. While the right of ownership will remain with the Owner, the leasehold rights to the property will remain free from encumbrances and dedicated to the lenders during the currency of loan or the lease period whichever is earlier and the lenders shall continue to enjoy the same rights and privileges as that of SHCL. SHCL is also hereby allowed, with prior written permission from Commissioner to sublet the whole or part thereof and/or the buildings on the Schedule Property.

The SHCL shall be entitled to sublet the Schedule Property and the Building/s thereon from time to time in whole or in part for any duration (not beyond the lease period) to any other Party/ies (sublessee/ s) on such terms and conditions, as may be agreeable to SHCL within the frame work of the tender and this Agreement and for the same or similar purposes for which agreement is intended, by means of duly registered Deed/s. SHCL shall have to apply for permission to Municipal Commissioner two months in advance and if the approval is not received within two months from the date of receipt of such a request by the Commissioner, it shall be deemed as approved.”

32. A cumulative reading of the stipulations reveals that the contract/agreement contemplates that the lease deed was to be executed after the completion of the project. The contract reveals that (a) the project period was for 60 months starting from the date excluding the monsoon period; (b) by Clauses 5 and 17, SevenHills could mortgage the property for securing advances from financial institutions for the construction of the project and thereafter towards its working. Such mortgage/charge or interest was subject to approval by MCGM. In the event the contract was to be terminated, it was agreed that MCGM would not in any manner be liable towards the mortgaged amount and all its rights and ownership would continue to vest in it free from encumbrances (Clause 17).

33. The show cause notice in this case preceded admission of the insolvency resolution process. In view of the clear conditions stipulated in the contract, MCGM reserved all its rights and its properties could not have therefore, in any manner, been affected by the resolution plan. Equally in the opinion of this Court, the adjudicating authority could not have approved the plan which implicates the assets of MCGM especially when SevenHills had not fulfilled its obligations under the contract.

34. The argument of the RP, the financial institutions (CoC), and the SNMC with regard to MCGM’s interest not being affected, in this court’s opinion is insubstantial. SNMC’s proposed insolvency plan on the one hand no doubt provided for the liquidation of MCGM’s liabilities initially to the tune of 102 crores Rs. (later revised to over Rs.140 crores). However, the provisions of the resolution plan clearly contemplated infusion of capital to achieve its objectives. One of the modes spelt out in the plan for securing capital was mortgaging the land. Initially, no doubt, SNMC stepped into the shoes of SevenHills and assumed its control. What is important to notice is that the corporate restructuring was a way of taking over of the company’s liquidation by SNMC as it was not only Seven Hills’ project with shares and liquidation of debts, but also the restructuring of the company’s liabilities if necessary, by creating fresh debts and mortgage of the land which directly affected MCGM.

35. Section 92 unequivocally prescribes the method whereby MCGM’s properties can be dealt with through lease or by way of creation of any other interest. The only mode permitted is through prior permission of the corporation. It is a matter of record that in the present case, the resolution plan was never approved by the corporation and that it was put to vote. The contesting parties, including the RP and CoC were unable to point out to anything on the record to establish that a valid permission contemplated by Section 92 was ever obtained with regard to the proposal in the resolution plan. The proposal was approved by the NCLT and MCGM’s appeal was rejected by NCLAT. The proposal could be approved only to the extent it did not result in encumbering the land belonging to MCGM.

36. It is evident from a plain reading of Section 92(c), that the Commissioner (of MCGM) is empowered to, with the sanction of the corporation, “lease, sell or otherwise convey any immovable property belonging to the corporation.” It is not in dispute that the original contract entered into on 20122005 contemplated the fulfilment of some important conditions, including firstly, the completion of the hospital project within a time frame; and secondly, timely payment of annual lease rentals. It is a matter of record that the hospital project was scheduled to be completed by 24th April, 2013. MCGM cites Clause 15(g) of the contract to urge that within a month of this event, i.e. completion of the hospital, a lease deed had to be executed.

This event never took place. Therefore, the terms of the contract remained, in the opinion of the court, an agreement to enter into a lease; it did not per se confer any right or interest, except that in the event of MCGM’s failure or omission to register the lease (in the event SevenHills had complied with its obligations under the contract), it could be sued for specific performance of the agreement, and compelled to execute a lease deed. That event did not occur; SevenHills did not complete construction of the 1600 bed hospital. Apparently, it did not even fulfill its commitment, or pay annual lease rentals. In these circumstances, MCGM was constrained to issue a show cause notice before the insolvency resolution process began, and before the moratorium was declared by NCLT on 13 th March, 2018. According to MCGM, in terms of Clause 26 (of the contract), even the agreement stood terminated due to default by SevenHills. This court does not propose to comment on that issue, as that is contentious and no finding has been recorded by either the adjudicating authority or the NCLAT.

37. In Ram Singh Vijay Pal Singh & Ors. v. State of U.P. & Ors (2007) 6 SCC 44, this court dealt with a similar provision, requiring prior approval of the statutory authority without which the property could not be disposed of. The court held that: “The proviso to Subsection (1) of Section 12 of the Act would show that the Mandi Samiti (Committee) is not empowered to transfer any immovable property without the previous approval in writing of the State Agricultural Produce Markets Board (Mandi Parishad). Section 26L of the Act deals with the powers and functions of the Board. The Director of Mandi Parishad (Board) has not been conferred any power whereunder he may issue a general direction that the shops, godowns and sheds of the Mandi Parishad shall be transferred or sold to the traders on hirepurchase basis.

Therefore, the appellants can derive no benefit from the letter of the Director dated 4.11.1995, wherein it was mentioned that a decision had been taken to give the shops on hirepurchase basis. In the counter affidavit the respondents have specifically asserted that the Board never took any such decision to sell the property of the Mandi Samiti to the traders either on hirepurchase basis or otherwise. No document has been filed to show that the Board ever took any such decision. It is the case of the respondents that the letter sent by the Director was his own action which had never been authorized by the Board. At any rate the proposal made by the Director never fructified as no such decision was taken by the Board and the Board never authorized the Mandi Samities (Committees) of various districts in the State to transfer the property of the Samiti in favour of the traders of agricultural produce who had been allotted the shops, godowns and sheds by the Mandi Parishad. In this view of the matter, the appellants have no legal right to claim that the property be given to them on hirepurchase basis.”

38. In Essar Bulk Terminal Limited & Anr. v. State of Gujarat & Ors. (2018) 3 SCC 750, again, this court held as follows: “16. Despite this, what is clear from the record is that the Appellants appear to have actually dredged the channel to a depth of 14 meters and appear to have reclaimed an area of 164 hectares plus 170 hectares to the south of the mangroves, without any permission at all. When this was pointed out to Shri Mihir Joshi, the answer given was that when permission is granted Under Section 35(1) of the Gujarat Maritime Board Act, a letter granting such permission specifically says that it is permission that is granted Under Section 35(1) and for this purpose, a letter dated 2nd August, 2008 was referred to. According to him, therefore, the letter dated 14th June, 2007, which referred only to an NOC for reclamation, could not be given the status of permission Under Section 35(1).

According to the learned Counsel, therefore, if Section 35(1) were to be read with Section 35(2), it would be clear that permission for reclamation would only be necessary if a private asset were to be created in the hands of a private person. However, it is clear that the asset to be created belonged only to the Government of Gujarat and it was for the GMB to grant permission to the Appellants to use the same. We are afraid that it is difficult for us to accept this line of argument. Section 35(1) is couched in negative language and does not refer to private rights being created. Section 35(2) cannot be read so as to throw light on Section 35(1), as Under Section 35(2), the GMB is only given a discretionary power to require a person, who has acted in contravention of Section 35(1), to remove the illegal erection.

The wide language of Section 35(1) cannot be whittled down by Section 35(2) in the manner argued by Shri Joshi, as the GMB may or may not utilise the discretionary power granted to it Under Section 35(2). The plain language of Section 35(1) cannot be curtailed by reading by inference, into Subsection (2), the fact that the GMB may, by notice, require a person to remove an erection, only when it has been made without previous permission, so as to create a private asset in the hands of a private person. The wide language of Section 35(1) makes it clear that any reclamation within the limits of the GMB cannot be carried out except with the previous permission in writing of the GMB. It is clear, therefore, that dredging to a depth of below 8 meters and reclamation of any area to the south of the mangroves was done by the Appellants in the teeth of Section 35(1) of the Gujarat Maritime Board Act.

17. Mr. Sibal laid great stress on the letter dated 15th November, 2012 to show that, in point of fact, what the Appellants were really angling for was to conduct commercial operations beyond the captive requirements of the Essar Steel plant at Hazira. This letter, while asking for an addition of 3700 meters in addition to the existing 1100 meters waterfront, also went on to speak of developing a 700 meters berth, along with the GMB, for handling commercial cargo. Apart from this, Essar planned to build a world class container terminal and a dry dock, which would serve the shipping industry generally. It also proposed to reclaim a further 334 hectares land on the southern side with the additional dredged material. A perusal of this letter would leave no doubt about the fact that despite Essar Steel’s production being at much less than what was projected, the Appellants’ continued demands would show that the real motive was to go beyond a captive jetty and to develop a commercial port which, as we have seen, cannot be done without a global tender under the Gujarat Infrastructure Development Act.

18. As stated hereinabove, as many as three MOUs were executed between the Appellants, the GMB and the State Government, which MOUs were valid only for a period of 12 months and were stated not to have granted any right to the Appellants, who would incur all the expenditure for the same. This being the case, it is a little difficult to appreciate Shri Joshi’s contention that any legitimate expectation could be based on any of the aforesaid expired MOUs. The High Court is correct in its conclusion that no such expectation could possibly have arisen out of the aforesaid MOUs or the correspondence between the Appellants and the GMB referred to.

19. It is also important to note from the correspondence between the Appellants and the GMB, that the Appellants were clearly told that the land to be reclaimed by the Appellants would not only belong to the Government of Gujarat, but also that the GMB could utilize the aforesaid land for any purpose. What seems to emerge on a reading of the letters between the parties is that the Appellants wished to dredge the canal, at their own cost, which was next to their captive jetty, for their own purposes, for which they obtained the necessary permission. However, since dumping of earth, which would emerge as a consequence of dredging, into the open sea would be extremely expensive, it was stated that instead this earth could be dumped to create reclaimed land next to the captive jetty, which would then benefit both the Appellants and the GMB.

In point of fact, 140 hectares out of 195 hectares that is reclaimed by the Appellants is allocated to the Appellants for their own purposes, the balance to be given as and when a jetty of 1100 meters plus 3700 meters of waterfront is constructed. The argument that huge amounts had been spent to reclaim land is wholly fallacioushuge amounts were spent to dredge a canal which was permitted as the Appellants alone were to bear the cost, and as an increased draft would benefit all, as the canal was open to all to use. Therefore, any plea as to a legitimate expectation of reclaimed land being allocated for the Appellants’ own use, thanks to large amounts being spent, is contrary to the correspondence by the Appellants themselves.” An identical approach was adopted in Saroj Screens Pvt. Ltd. v Ghanshyam & Ors., (2012) 11 SCC 434.

39. The principle that if a statute requires a thing to be done in a particular manner, it should be done in that manner or not at all, articulated in Nazir Ahmad v. Emperor, AIR 1936 PC 253, has found widespread acceptance. In the context of this case, it means that if alienation or creation of any interest in respect of MCGM’s properties is contemplated in the statute through a particular manner, that end can be achieved only through the prescribed mode, or not at all.

40. This Court also notices that an initial No Objection Certificate was issued by MCGM voluntarily, for creation of interest in respect of its properties. Upon its refusal to grant approval, SevenHills filed proceedings under Article 226 before the Bombay High court (W.P. No 1728 of 2011), in which the Court directed to grant issuance of certificate. At the same time, the High Court observed as follows:

“11. …… It is, however, required to be noted here that the Corporation is nor borrowing any amount for its purpose….If the petitioners want financial assistance from the Bank, naturally, it cannot mortgage only the superstructure but the entire property is required to be mortgaged. Aprart from that even if there is a defect in the title in the matter of creating mortgage, the Corporation is not going to suffer in any manner and it is for the concerned Bank to consider the same while giving financial assistance.

The Corporation is not going to get any financial assistance from the Bank and, therefore, whatever documents which the petitioners may execute in favour of the Bank, the Corporation is not bound by the same….The said NOC can be granted by the Corporation without prejudice to its rights and contentions that the land in question belongs to them and, therefore, no mortgage could have been created for the same. It is always open to the Corporation to ascertains right to the extent that they are not bound by execution of such documents with the Bank….However, such grant of NOC, would be without prejudice to the rights and contentions of the Corporation. The Corporation may also mention such aspect while giving NOC to the petitioners that such NOC is given without prejudice to the rights and contentions that their land could not have been mortgaged by the petitioners with the Bank.

(emphasis supplied)

12. ……Apart from the same, by granting NOC it cannot be construed that the Corporation has also mortgaged its property in favour of Axis Bank in any manner….

15. ….It is clarified that this order is passed without prejudice to the rights and contentions of both the sides and it will have no effect so far as deciding the matter on merit is concerned…..”

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

41. The material placed on record by MCGM before this Court also reveals that the meeting held by the Corporation on 14th December, 2018, referred back to the resolution proposal given by SNMC. The minutes of the meeting records that three members were unanimous in their view that since SevenHills had not complied with the terms and had even sought to encumber the property by mortgage, SNMC, a UAE based company, ought not be granted approval to take over the plot and proceed with its project.

42. Now, this court proposes to deal with the contention that the provisions of the Code override all other laws and hence, that the resolution plan approved by the NCLT acquires primacy over all other legal provisions. Facially, this argument appears merited. Section 238 enacts that: “238. Provisions of this Code to override other laws. – The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”

43. The scope of this provision has been the subject matter of debate in several judgments of this court. In Jaipur Metals & Electricals Employees Organization v. Jaipur Metals & Electricals Ltd. (2019) 4 SCC 227, the correctness of a High Court’s view which refused to transfer winding up proceedings pending before it and set aside the NCLT’s order admitting an insolvency resolution application at the behest of a financial creditor, was in issue. This court held as follows, setting aside the judgment impugned in that case: “It is clear that Respondent No. 3 has filed a Section 7 application under the Code on 11.01.2018, on which an order has been passed admitting such application by the NCLT on 13.04.2018. This proceeding is an independent proceeding which has nothing to do with the transfer of pending winding up proceedings before the High Court. It was open for Respondent No. 3 at any time before a winding up order is passed to apply under Section 7 of the Code. This is clear from a reading of Section 7 together with Section 238 of the Code which reads as follows:

“238. Provisions of this Code to override other laws. – The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.” 18. Shri Dave’s ingenious argument that since Section 434 of the Companies Act, 2013 is amended by the Eleventh Schedule of the Code, the amended Section 434 must be read as being part of the Code and not the Companies Act 2013, must be rejected for the reason that though Section 434 of the Companies Act, 2013 is substituted by the Eleventh Schedule of the Code, yet Section 434, as substituted, appears only in the Companies Act, 2013 and is part and parcel of that Act. This being so, if there is any inconsistency between Section 434 as substituted and the provisions of the Code, the latter must prevail. We are of the view that the NCLT was absolutely correct in applying Section 238 of the Code to an independent proceeding instituted by a secured financial creditor, namely, the Alchemist Asset Reconstruction Company Ltd. This being the case, it is difficult to comprehend how the High Court could have held that the proceedings before the NCLT were without jurisdiction. On this score, therefore, the High Court judgment has to be set aside.”

44. In the recent judgment in Duncans Industries v. A.J. Agrochem 2019 SCC Online (SC) 1319, the issue was that action under Section 16D(4) of the Tea Act, which provides that the Central Government could take such steps as may be necessary for the purpose of efficiently managing the business of the undertaking, had been taken. It was urged that any notification under Section 16D has effect for five years, which could only be extended if the Central Government was of the opinion that it is expedient to do so in public interest, for such period not exceeding one year at a time, and for total period not exceeding six years. It was submitted that Section 16E refers to the power of the Central Government to restart the tea undertaking if it is found necessary in the interest of the general public. The argument was that an insolvency process is also meant to culminate in liquidation, if there is no revival, and that since the Tea Act permits the Central Government to take over the management of a tea estate which is not run properly, prior permission under Section 16G is applicable to such an estate, the management of which has been taken over by the Government. This contention was negatived, by this court, which relied on Section 238 of the Code.

45. In Macquaire Bank Ltd. v. Shilipi Cable Techologies Ltd. (2018) 2 SCC 674, one of the issues was the interplay between Section 9 of the Code and provisions of the Advocates Act. It was argued that a demand notice issued through an advocate was not permissible and that the provisions of the Code overrode all other laws. This court negative the contention, holding that it is only in the case of inconsistency, that by reason of Section 238 of the Code would its provisions prevail. On a harmonious construction of the seemingly inconsistent provisions, if the court could give effect to both, it would do so.

46. Dharani Sugars & Chemicals Ltd. v. Union of India & Ors. (2019) 5 SCC 480 is a relevant recent decision of this court. The question which arose in that case was the legality and constitutionality of directions issued by the Reserve Bank of India, through a circular of 12th February, 2018 regulating resolution of stressed assets of debtors. This court elaborately dealt with provisions of the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934 and held that the power to issue directions regarding initiation of insolvency proceedings vested in the RBI, subject to the approval of the Central Government. The court significantly held that the power was contained “within the four corners” of Section 35AA and observed as follows:

“A conspectus of all these provisions shows that the Banking Regulation Act specifies that the Central Government is either to exercise powers along with the RBI or by itself. The role assigned, therefore, by Section 35AA, when it comes to initiating the insolvency resolution process under the Insolvency Code, is thus, important. Without authorisation of the Central Government, obviously, no such directions can be issued.

30. The corollary of this is that prior to the enactment of Section 35AA, it may have been possible to say that when it comes to the RBI issuing directions to a banking company to initiate insolvency resolution process under the Insolvency Code, it could have issued such directions Under Sections 21 and 35A. But after Section 35AA, it may do so only within the four corners of Section 35AA.

31. The matter can be looked at from a slightly different angle. If a statute confers power to do a particular act and has laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any manner other than that which has been prescribed. This is the wellknown Rule in Taylor v. Taylor, [1875] 1 Ch. D. 426, which has been repeatedly followed by this Court. Thus, in State of U.P. v. Singhara Singh, (1964) 4 SCR 485, this Court held: ‘The Rule adopted in Taylor v. Taylor [(1875) 1 Ch D 426, 431] is well recognised and is founded on sound principle. Its result is that if a statute has conferred a power to do an act and has laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any other manner than that which has been prescribed.

The principle behind the Rule is that if this were not so, the statutory provision might as well not have been enacted. A Magistrate, therefore, cannot in the course of investigation record a confession except in the manner laid down in Section 164. The power to record the confession had obviously been given so that the confession might be proved by the record of it made in the manner laid down. If proof of the confession by other means was permissible, the whole provision of Section 164 including the safeguards contained in it for the protection of Accused persons would be rendered nugatory. The section, therefore, by conferring on Magistrates the power to record statements or confessions, by necessary implication, prohibited a Magistrate from giving oral evidence of the statements or confessions made to him. (at pp. 490-491).

Following this principle, therefore, it is clear that the RBI can only direct banking institutions to move under the Insolvency Code if two conditions precedent are specified, namely,

(i) that there is a Central Government authorisation to do so; and

(ii) that it should be in respect of specific defaults. The Section, therefore, by necessary implication, prohibits this power from being exercised in any manner other than the manner set out in Section 35AA.”

47. In the opinion of this court, Section 238 cannot be read as overriding the MCGM’s right – indeed its public duty to control and regulate how its properties are to be dealt with. That exists in Sections 92 and 92A of the MMC Act. This court is of opinion that Section 238 could be of importance when the properties and assets are of a debtor and not when a third party like the MCGM is involved. Therefore, in the absence of approval in terms of Section 92 and 92A of the MMC Act, the adjudicating authority could not have overridden MCGM’s objections and enabled the creation of a fresh interest in respect of its properties and lands.

No doubt, the resolution plans talk of seeking MCGM’s approval; they also acknowledge the liabilities of the corporate debtor; equally, however, there are proposals which envision the creation of charge or securities in respect of MCGM’s properties. Nevertheless, the authorities under the Code could not have precluded the control that MCGM undoubtedly has, under law, to deal with its properties and the land in questionwhich undeniably are public properties. The resolution plan therefore, would be a serious impediment to MCGM’s independent plans to ensure that public health amenities are developed in the manner it chooses, and for which fresh approval under the MMC Act may be forthcoming for a separate scheme formulated by that corporation (MCGM).

48. The last contention of the respondents, that MCGM was bound by the statement made by its counsel, in the opinion of this court, cannot prevail. As held earlier, there is no approval for the plan, in accordance with law; in such circumstances, the written plea accepting the plan, by a counsel or other representative who is not demonstrated to possess the power to bind MCGM, is inconclusive. In this regard, the court notices the wellknown principle that there can be no estoppel against the express provisions of law. (Ref. Kasinka Trading v. Union of India (1995) 1 SCC 274, Darshan Oils (P) Ltd. v. Union of India (1995) 1 SCC 345, Shrijee Sales Corporation v. Union of India (1997) 3 SCC 398, Shree Sidhbali Steels Ltd. v. State of U.P. (2011) 3 SCC 193, Pappu Sweets and Biscuits v. Commr. of Trade Tax, U.P. (1998) 7 SCC 228 and Commr. of Customs v. Dilip Kumar & Co. (2018) 9 SCC 1.)

49. In view of the foregoing reasons, this court holds that the impugned order and the order of the NCLT cannot stand; they are hereby set aside. The appeal is accordingly allowed, without orders on costs.

J. [ARUN MISHRA]

J. [VINEET SARAN]

J. [S. RAVINDRA BHAT]

New Delhi,

November 15, 2019.


 

Function of a proviso

Proviso means

In Nagar Palika Nigam vs. Krishi Upaj Mandi Samiti and others (supra), this Court held:

“8. The normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. As was stated in Mullins vs. Treasurer of Survey 1880 (5) QBD 170, (referred to in Shah Bhojraj Kuverji Oil Mills and Ginning Factory vs. Subhash Chandra Yograj Sinha (AIR 1961 SC 1596) and Calcutta Tramways Co. Ltd. vs. Corporation of Calcutta (AIR 1965 SC 1728); when one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject matter of the proviso.

The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment and its effect is confined to that case. It is a qualification of the preceding enactment which is expressed in terms too general to be quite accurate. 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. “If the language of the enacting part of the statute does not contain the provisions which are said to occur in it you cannot derive these provisions by implication from a proviso.” Said Lord Watson in West Derby Union vs. Metropolitan Life Assurance Co. 1897 AC 647 (HL). Normally, a proviso does not travel beyond the provision to which it is a proviso. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other. (See A.N. Sehgal and others vs. Raje Ram Sheoram and others (AIR 1991 SC 1406), Tribhovandas Haribhai Tamboli vs. Gujarat Revenue Tribunal and others (AIR 1991 SC 1538) and Kerala State Housing Board and others vs. Ramapriya Hotels (P) Ltd. and others (1994) 5 SCC 672).”


Ref: AIR 2010 SC 112 : (2009) 12 SCR 929 : (2009) 16 SCC 1

Absolute enactment Vs directory enactment.

When a statute is passed for the purpose of enabling something to be done, and prescribed the way in which it is to be done, it may be either an absolute enactment or a directory enactment.

The difference being that an absolute enactment must be obeyed or fulfilled exactly, but it is sufficient if a directory enactment be obeyed or fulfilled substantially.

No universal rule can be laid down as to whether mandatory enactments shall be considered directory only or obligatory with an implied nullification for disobedience.

The intention of the provision here is that where in the course of any enquiry into, or trial of, an offence, it appears to the Courts from the evidence that any person not being the accused has committed any offence, the Court may proceed against him for the offence which he appears to have committed. At that stage, the Court would consider that such a person could be tried together with the accused who is already before the Court facing the trial. The safeguard provided in respect of such person is that, the proceedings right from the beginning have mandatory to be commenced afresh and the witnesses re-heard. In short, there has to be a de novo trial against him. The provision of de novo trial is mandatory. It vitally affects the rights of a person so brought before the Court. It would not be sufficient to only tender the witnesses for the cross-examination of such a person. They have to be examined afresh. Fresh examination in chief and not only their presentation for the purpose of the cross-examination of the newly added accused is the mandate of Section 319(4). The words ‘could be tried together with the accused’ in Section 319(1), appear to be only directory. ‘Could be’ cannot under these circumstances be held to be ‘must be’. The provision cannot be interpreted to mean that since the trial in respect of a person who was before the Court has concluded with the result that the newly added person cannot be tried together with the accused who was before the Court when order under Section 319(1) was passed, the order would become ineffective and inoperative, nullifying the opinion earlier formed by the Court on the basis of evidence before it that the newly added person appears to have committed the offence resulting in an order for his being brought before the Court.

The mandate of the law of fresh trial is mandatory whereas the mandate that newly added accused could be tried together the accused directory. The construction to be placed on a provision like this has to commend to justice and reason. It has to be reasonable construction to promote the ends of justice. The words ‘could be tried together with the accused’ in Section 319(1) cannot be said to be capable of only one construction. If it was so, approach to be adopted would be different since the intention of the Parliament is to be respected despite the consequences of interpretation. There is, however, a scope for two possible construction. That being the position, a reasonable and common sense approach deserves to be adopted and preferred rather than a construction that would lead to absurd result of newly added escaping the trial despite passing on an order against him on Court’s satisfaction under Section 319(1) and despite the fact that the proceedings against him have to commence afresh.

Moreover, a Magistrate is empowered to take cognizance of an offence in the manner provided under Section 190 of the Code. Section 209 enjoins upon a Magistrate to commit the case of the Court of Session when it appears to the Magistrate that the offence is triable exclusively by the Court of Session. Section 193 provides for the power of the Court of Session to take cognizance of any offence. It uses the expression ‘cognizance of any offence’ and not that of ‘offender.’ These three provisions read with Section 319 make it clear that the words ‘could be tried together with the accused’ in Section 319 is only for the purpose finding out whether such a person could be put on trial for the offence. Once it is so found, sub-section (4) of Section 319 comes into play [Shashikant Singh v. Tarkeshwar Singh and Anr. (2002) 5 SCC 738]

K.H. Nazar Vs. Mathew K. Jacob & Ors -30/09/2019

SUPREME COURT OF INDIA JUDGMENTS

INTERPRETATION OF STATUTE: While interpreting a statute, the problem or mischief that the statute was designed to remedy should first be identified and then a construction that suppresses the problem and advances the remedy should be adopted. 9 It is settled law that exemption clauses in beneficial or social Indian Performing Rights Society v. Sanjay Dalia, (2015) 10 SCC 161 welfare legislations should be given strict construction 10. It was observed in Shivram A. Shiroor v. Radhabai Shantram Kowshik (supra) that the exclusionary provisions in a beneficial legislation should be construed strictly so as to give a wide amplitude to the principal object of the legislation and to prevent its evasion on deceptive grounds. Similarly, in Minister Administering the Crown Lands Act v. NSW Aboriginal Land Council11, Kirby, J. held that the principle of providing purposive construction to beneficial legislations mandates that exceptions in such legislations should be construed narrowly.

Provisions of beneficial legislation have to be construed with a purpose-oriented approach. The Act should receive a liberal construction to promote its objects. Also, literal construction of the provisions of a beneficial legislation has to be avoided. It is the Court’s duty to discern the intention of the legislature in making the law. Once such an intention is ascertained, the statute should receive a purposeful or functional interpretation.

ACTS: Section 2 (5) and Section 81 (1) (q) of the Kerala Land Reforms Act, 1963

SUPREME COURT OF INDIA

K.H. Nazar Vs. Mathew K. Jacob & Ors.

[Civil Appeal Nos. 7699-7700 of 2019 arising out of SLP (C) Nos. 7792-7793 of 2019]

L. NAGESWARA RAO, J.

Leave granted.

1. The width and amplitude of the expression ‘commercial site’ in Section 2 (5) and Section 81 (1) (q) of the Kerala Land Reforms Act, 1963 (for short, “ the Act”), falls for our consideration in these Appeals. Commercial sites are exempted from the purview of the Act. The question whether a rocky land which is used for quarrying purposes can be treated as a ‘commercial site’ and thereby excluded from the applicability of the Act was answered by a learned Single Judge of the Kerala High Court by holding that mere blasting of rocks and conversion into metals does not render the area a ‘commercial site’.1 Twenty years after the said judgment, a Division Bench of the Kerala High Court took a different view. Quarrying was held to be a commercial operation involving the process of manufacture. Hence, it was held that a quarry falls within the ambit of ‘commercial site’ and is exempted from the applicability of the Act.2

2. The Appellant requested environmental clearance for his quarry which was recommended in his favour by the District Expert Appraisal Committee (DEAC) on 25.04.2017. Respondents No.1 and 2 filed a Writ Petition aggrieved by the said recommendation to permit quarry on land which was a plantation site. It is relevant to note that the Appellant’s land was exempted from the realm of the Act as it was a plantation. The objection of Respondent No.1 and 2 was that the Appellant cannot be permitted to use the land for a purpose other than plantation, especially for quarrying operations. After examining the judgments of the High Court in K. Krishnankutty v. State of Kerala and Others (supra) and State of Kerala v. Mohammedali Haji (supra), a learned Single Judge of the High Court of Kerala doubted the correctness of the latter K. Krishnankutty v. State of Kerala and Others. CRP No.1245/1975 State of Kerala v. Mohammedali Haji. (1996) 1 KLT 584 (DB) judgment in State of Kerala v. Mohammedali Haji (supra) and referred the matter to a larger Bench.

3. The Writ Petition filed by Respondent No.1 and 2 was heard by a Full Bench of the Kerala High Court comprising three Judges. The majority opinion was in favour of Respondent No.1 and 2. It was held by the majority that the land which is used for quarrying is not covered by the expression ‘commercial site’. Therefore, there can be no exemption of such land from the applicability of the Act. The Appellant is aggrieved by the said judgment of the Full Bench of the High Court.

4. Mr. K. V. Vishwanathan, learned Senior Counsel for the Appellant took us through the provisions of the Act including Sections 2(5), 81 and 83 to argue that a quarry is a commercial site, which is exempted under Section 81 (1)

(q) of the Act. He alluded to the statement of objects and reasons to submit that the legislation was made to protect the interests of all stake-holders. He referred to the meaning of the words ‘commercial activities’ and ‘business’ to submit that the activity of quarrying is done for profit. Hence, quarrying is a commercial activity. According to him, there can be no distinction between activities done above and below the surface of land for the purpose of deciding whether land is a commercial site or not. He criticized the plurality opinion for erroneously invoking the mischief rule. He commended the judgment of the dissenting Judge for our acceptance. He emphasized that environmental issues are not germane for interpretation of Sections 2 (5) and 81 (1) (q) of the Act.

5. Mr. Pallav Shishodia, learned Senior Counsel appearing for the State of Kerala resisted the submissions made on behalf of the Appellant by submitting that the expression ‘commercial site’ is a term of art and has to be interpreted on the basis of the context in which it is used.

6. Mr. Romy Chacko, learned counsel for the Respondent No.1 and 2 asserted that the Act is a beneficial legislation. When there is a doubt about the meaning of expressions used in such a statute, literal interpretation should be avoided and Courts should adopt the principles of purposive construction. He submitted that the exemption provision should be narrowly construed.

7. Before we consider the submissions made by the learned counsel, it is necessary to examine the provisions of the Act. Section 83 of the Act provides that no person shall be entitled to own or hold or possess under a mortgage, lands in the aggregate in excess of the ceiling area with effect from the date notified by the Government of Kerala in the Gazette. The ceiling area of land is specified in Section 82 of the Act. Lands exempted under Section 81 shall be excluded from computation of the ceiling area as per Section 82 (6) of the Act. Section 81 of the Act is as follows:

81. Exemptions: – (1) the provisions of this Chapter shall not apply to-

a) Lands owned or held by the Government of Kerala or the Government of any other State in India or the Government of India or a local authority [or the Cochin Port Trust] or any other authority which the Government may, in public interest, exempt, by notification in the Gazette, from the provisions of this Chapter.

[Provided that the exemption under this clause shall not apply to lands owned by the Government of Kerala and held by any person under lease whether current or time expired or otherwise.]

Explanation I. – “Lands owned by the Government of Kerala” shall, for the purposes of this clause, have the same meaning as “Government lands” under sub- section (1) of Section 2 of the Kerala Government land Assignment Act, 1960 [but lands escheated to the Government and held by tenants entitled to fixity of tenure under Section 13 shall not be deemed to be lands owned by the Government of Kerala;]

Explanation II – Lands, the right, title and interest in respect of which have vested in the Government under sub-section (9) of Section 66 or Section 72, shall not be deemed to be “lands owned by the Government of Kerala” for the purposes of this clause;]

Explanation III – For the purposes of this clause, “other authority” shall include a corporation owned or controlled by the Government of Kerala or the Government of any other State in India or the Government of India;]

b) Lands taken under the management of the Court of Wards;

Provided that the exemption under this clause shall cease to apply at the end of three years from the commencement of this Act;

c) Lands comprised of mills, factories or workshops and which are necessary for the use of such mills, factories or workshops;

d) Private forests;

e) Plantations;

f) x x x x

g) x x x x

h) lands mortgaged to the Government, or to a co-operative society (including a co-operative land mortgage bank) registered or deemed to be registered under the Co-operative Societies Act for the time being in force, or to the Kerala Financial Corporation, or to the Kerala Industrial Development Corporation, or to the State Small Industries Corporation, as security for any loan advanced by the Government or by such society or Corporation, so long as the mortgage subsists:

provided that the exemption under this clause shall cease to apply at the end of three years from the commencement of this Act;

i) lands purchased by the Kerala Co-operative Central Land Mortgage Bank or a Primary Mortgage Bank under Section 18 of the Kerala Co-operative Land Mortgage Banks Act, 1960 [or by the Kerala State Co- operative Bank Ltd., or by a primary agricultural credit co-operative society or by a scheduled bank as defined in the Reserve Bank of India Act, 1934] so long as such lands continue in the possession of the bank;

j) Lands purchased by the Kerala Financial Corporation or lands the management of which has been taken over by that Corporation, under Section 32 of the State Financial Corporations Act, 1951, so long as such lands remain in the ownership, or continue under the management, as the case may be, of the said Corporation:

provided that the exemption under this clause shall not apply in the case of lands the management of which has been taken over by the Corporation on or after the 1st day of April, 1964;

k) lands belonging to or held by an industrial or commercial undertaking at the commencement of this Act, and set apart for use for the industrial or commercial purpose of the undertaking: Provided that the exemption under this clause shall cease to apply if such land is not actually used for the purpose for which it has been set apart, within such time as the District Collector may, by notice to the undertaking, specify, in that behalf;
l) x x x x

m) house sites, that is to say, sites occupied by dwelling houses and lands, wells, tanks and other structures necessary for the convenient employment of the dwelling houses.

Explanation.- For the avoidance of doubt, it is hereby declared that a compound wall shall not be deemed to be a structure necessary for the convenient enjoyment of a dwelling house, if the land on which the dwelling house is situated and enclosed by the compound wall is more than the land necessary for the convenient enjoyment of the dwelling house.

n) x x x x

o) sites of temples, churches, mosques and cemeteries and burial and burning grounds:

p) sites of buildings and including warehouses;

q) commercial sites;

r) land occupied by educational institutions including land necessary for the convenient use of the institutions and playgrounds attached to such institutions;

s) lands vested in the Bhoodan Yagna Committee;

t) lands owned or held by-

i. a University establishment by law; or ii. a religious, charitable or educational institutions of a public nature; or iii. a public trust which expression shall include a wakf; Provided that-

(i) the entire income of such lands is appropriated for the University, institution or trust concerned, and

(ii) where the University, institution or trust come to hold the said lands after the commencement of this Act, the Government have certified previously that such lands are bona fide required for the purposes of the University, institution or trust, as the case may be; and u) lands granted to defence personnel for gallantry.

(2) [xxx]
(3) The Government may if they are satisfied that it is
necessary to do so in the public interest-

(a) on account of any special use to which any land is put; or

(b) on account of any land being bona fide required for the purpose of conversion into plantation or for the extension or preservation of an existing plantation or for any commercial, industrial, educational or charitable purpose, by notification in the Gazette, exempt such land from the provisions of this Chapter, subject to such restrictions and conditions as they may deem fit to impose:

Provided that the land referred to in clause (b) shall be used for the purpose for which it is intended within such time as the Government may specify in that behalf; and, where the land is not so used within the time specified, the exemption shall cease to be in force.

8. In the present case, the Appellant is claiming exemption on the ground that a quarry would fall within the sweep of ‘commercial site’ as stated in Section 81 (1)

(q). Commercial site is defined in Section 2 (5) as follows:

‘‘2(5) “commercial site” means any land (not being a kudiyiruppu or a kudikidappu or karaima) which is used principally for the purposes of any trade, commerce, industry, manufacture or business;’’

9. The Appellant contended that the definition of ‘commercial site’ is very wide and any land which is principally used for the purpose of trade, commerce, industry, manufacture or business is a commercial site. According to the Appellant, breaking of rock is a manufacturing activity. Quarrying operations involve digging land and breaking of rocks into metal pieces. It was submitted that digging of land and breaking of rock is for a commercial activity and the sale of stones is for the purpose of trade and business. We are afraid that we cannot agree.

10. The dominant legislative intent of the Act is the imposition of ceiling on land holdings and distribution of excess land among landless people.3 Large number of State of Kerala v. K. A. Gangadharan (1977) 1 SCC 208 people have no place of abode in the State of Kerala, which is known as God’s own country. To provide land to such landless people by taking it from those who possess in excess is the major objective of the Act.4

11. Provisions of a beneficial legislation have to be construed with a purpose-oriented approach. 5 The Act should receive a liberal construction to promote its objects.6 Also, literal construction of the provisions of a beneficial legislation has to be avoided. It is the Court’s duty to discern the intention of the legislature in making the law. Once such an intention is ascertained, the statute should receive a purposeful or functional interpretation7.

12. In the words of O. Chinnappa Reddy, J. 8, the principles of statutory construction of beneficial legislation are as follows:

4. The principles of statutory construction are well settled. Words occurring in statutes of liberal import such as social welfare legislation and human rights’ legislation are not to be put in Procrustean beds or shrunk to Liliputian dimensions. In construing these One Earth One Life & Ors. v. State of Kerala, WP (C) No.28496 of 2016 Regional Executive, Kerala Fishermen’ Welfare Fund Board v. Fancy Food, (1995) 4 SCC 34 Bombay Anand Bhavan Restaurant v. ESI Corporation, (2009) 9 SCC 61 and Union of India v. Prabhakaran Vijay Kumar, (2008) 9 SCC 527 Bharat Singh v. Management of New Delhi Tuberculosis Centre, (1986) 2 SCC 614.

Workmen v. American Express International Banking Corpn. (1985) 4 SCC 71 legislations the imposture of literal construction must be avoided and the prodigality of its misapplication must be recognised and reduced. Judges ought to be more concerned with the “colour”, the “content” and the “context” of such statutes (we have borrowed the words from Lord Wilberforce’s opinion in Prenn v. Simmonds [(1971) 3 All ER 237] ). In the same opinion Lord Wilberforce pointed out that law is not to be left behind in some island of literal interpretation but is to enquire beyond the language, unisolated from the matrix of facts in which they are set; the law is not to be interpreted purely on internal linguistic considerations. In one of the cases cited before us, that is, Surendra Kumar Verma v. Central Government Industrial Tribunal-cum-Labour Court [(1980) 4 SCC 443], we had occasion to say, “Semantic luxuries are misplaced in the interpretation of ‘bread and butter’ statutes. Welfare statutes must, of necessity, receive a broad interpretation. Where legislation is designed to give relief against certain kinds of mischief, the Court is not to make inroads by making etymological excursions.

13. While interpreting a statute, the problem or mischief that the statute was designed to remedy should first be identified and then a construction that suppresses the problem and advances the remedy should be adopted. 9 It is settled law that exemption clauses in beneficial or social Indian Performing Rights Society v. Sanjay Dalia, (2015) 10 SCC 161 welfare legislations should be given strict construction 10. It was observed in Shivram A. Shiroor v. Radhabai Shantram Kowshik (supra) that the exclusionary provisions in a beneficial legislation should be construed strictly so as to give a wide amplitude to the principal object of the legislation and to prevent its evasion on deceptive grounds. Similarly, in Minister Administering the Crown Lands Act v. NSW Aboriginal Land Council11, Kirby, J. held that the principle of providing purposive construction to beneficial legislations mandates that exceptions in such legislations should be construed narrowly.

14. There is no dispute that the Act is a beneficial legislation. The extent of land that can be held is fixed and any land in excess has to be surrendered to the Government, which is distributed in favour of the landless people in the State. The interpretation of the provisions of the Act should be in a manner which promote the said object.

15. Section 81 exempts among others, lands comprised of mills, factories or workshops, lands occupied by Shivram A. Shiroor v. Radhabai Shantram Kowshik, (1984) 1 SCC 588 [2008] HCA 48 educational institutions, and lands owned by Universities, religious and charitable institutions. House sites, sites of temples, churches and mosques, sites of buildings including warehouses and commercial sites are also exempted. There is a definite distinction between the expressions ‘lands’ and ‘sites’ in the context in which they have been used. Commercial sites read along with the other clauses dealing with sites clearly indicate that land occupied by structures is described as ‘site’. As stated above, the other clauses in Section 81 dealing with sites are house sites, temples, churches and mosques and buildings. As such, the expression ‘commercial site’ cannot take into its fold vacant lands, including lands used for the purpose of quarrying. It has a restrictive meaning in comparison to the other categories of ‘land’ in Section 81. Therefore, quarry cannot fit into the terms ‘commercial site’. Mr. Bechu Kurian, leaned Senior Counsel argued on behalf of the Appellant that digging the land for extracting stones is for a commercial purpose of making profit and hence quarry is a commercial site. We do not agree. A commercial site is a land on which there is a structure being utilized for an industrial or commercial purpose. Extension of the words ‘commercial site’ to quarries would result in defeating the purpose of the Act.

16. We disagree with the opinion of the dissenting Judge that the expression ‘commercial site’ should be attributed its natural and original meaning. On the basis of the statement made by the learned Additional Advocate General, the dissenting Judge held that if lands used for quarrying operations prior to the Act coming into force stood exempted under Section 81 (1) (k), a quarry should be considered as commercial site. Further, it was observed that if a quarry can be exempted under Section 81 (3) by the Government in public interest, then quarrying is a commercial activity falling within the sweep of Section 81 (1) (q) of the Act.

17. We uphold the view of the majority that exemption of quarries by the Government under Section 81 (3) would not arise if quarries are covered by Section 81 (1)

(q) of the Act. In other words, if quarries are commercial sites, the need for their exemption in public interest does not arise. Section 81(3) of the Act empowers the Government to exempt lands for commercial purposes in public interest. The overriding power conferred on the Government to exempt lands from the applicability of the Act cannot be utilized for the purpose of interpretation of Section 81 (1) (q) which exempts commercial sites from the purview of the Act. Section 81 (1) (k) exempts unused lands of industrial or commercial undertakings at the time of commencement of the Act. The provision presupposes that an industrial or commercial undertaking was existing on the date of the commencement of the Act and there was some land set apart for the use of the undertaking in future. The said land is exempted only if the land is used for the industrial or commercial purposes of the undertaking within the time to be fixed by the authority. If the land is not used for the purpose for which it was set apart, the exemption ceases to operate. It is clear from the above that Section 81(1) (k) deals with a completely different type of land belonging to an industrial or commercial undertaking set apart for use of the said undertaking. Therefore, we are not in agreement with the support sought by the dissenting Judge from Section 81 (1) (k) to interpret the expression ‘commercial site’ in Section 81 (1) (q).

18. Another submission of the Appellant that quarrying includes a manufacturing activity does not appeal to us. Breaking of rock into small pieces of stone, according to us, is not a manufacturing activity. For this view, we seek support from a judgment of this Court in Rajasthan SEB v. Associated Stone Industries 12. It was held in the said judgment that cutting and polishing stones into slabs is not a process of manufacture for the obvious and simple reason that no new and distinct commercial product came into existence as the end product still remained stone and thus its original identity continued.

19. The findings recorded in the majority opinion on the issue pertaining to the environment is not relevant for the decision of the dispute. The concern of the Court should have been restricted to the gamut of the expression ‘commercial site’. The interpretation of Section 81 which exempts certain lands and sites should be interpreted in a manner, which promotes the object of (2006) 6 SCC 141 the Act and restricts concentration of large swathes of land in favour of a few individuals. Wider construction of the words ‘commercial site’ would defeat the laudable object of the Act.

20. The upshot of the above discussion is that there is no error in the majority opinion of the Full Bench in the impugned judgment which requires to be upheld.

21. The Appeals are dismissed, accordingly.

 L. NAGESWARA RAO

HEMANT GUPTA

New Delhi,

September 30, 2019


Judgments Relied :

1 K. Krishnankutty v. State of Kerala and Others. CRP No.1245/1975

2 State of Kerala v. Mohammedali Haji. (1996) 1 KLT 584 (DB)

3 State of Kerala v. K. A. Gangadharan (1977) 1 SCC 208

4 One Earth One Life & Ors. v. State of Kerala, WP (C) No.28496 of 2016

5 Regional Executive, Kerala Fishermen’ Welfare Fund Board v. Fancy Food, (1995) 4 SCC 34

6 Bombay Anand Bhavan Restaurant v. ESI Corporation, (2009) 9 SCC 61 and Union of India v. Prabhakaran Vijay Kumar, (2008) 9 SCC 527

7 Bharat Singh v. Management of New Delhi Tuberculosis Centre, (1986) 2 SCC 614.

8 Workmen v. American Express International Banking Corpn. (1985) 4 SCC 71

9 Indian Performing Rights Society v. Sanjay Dalia, (2015) 10 SCC 161

10 Shivram A. Shiroor v. Radhabai Shantram Kowshik, (1984) 1 SCC 588

11 [2008] HCA 48

12 (2006) 6 SCC 141

Literal meaning of a statutory provision producing unjust result: SC supplied solution

Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the Court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction.

The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by Judge Learned Hand that one should not make a fortress out of dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meaning.


Vasant Ganpat Padave (D) by LRS. & Ors. Vs. Anant Mahadev Sawant (D) through LRS. & Ors-18/09/2019

The Vanguard Fire and General Insurance Co. Ltd Madras Vs M/s. Fraser and Ross and another- 04/05/1960

SUPREME COURT OF INDIA JUDGMENTS

Interpretation of Statutes- All STATUTORY DEFINITIONS or abbreviations must be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or the context. That is why all DEFINITIONS in statutes generally begin with the qualifying words similar to the words used in the present case, namely, unless there is anything repugnant in the subject or context.

AIR 1960 SC 971 : (1960)3 SCR 857

(SUPREME COURT OF INDIA)

The Vanguard Fire and General Insurance Co. Ltd Madras Vs M/s. Fraser and Ross and another

(Before : P. B. Gajendragadkar, K. N. Wanchoo And K. C. Das Gupta, JJ.)

Civil Appeal No. 21 of 1960, Decided on : 04-05-1960.

Insurance Act, 1938—Sections 2D and 33—Insurer—Meaning of—The definition clause is subject to the context where it is used.

Insurance Act, 1938—Section 2D and 33—Insurer—Meaning of—The premises as defined in the definition clause is subject to context of the other provision and therefore, it shall include a person who has closed all classes of insurance business.

On a plain reading of Section 2D there can be no doubt that an insurer who has closed all classes of his insurance business remains subject to all the provisions of the Act in relation to such classes so long as his liabilities in India remains unsatisfied or not otherwise provided for. Therefore Section 33 will certainly apply to a case where all classes of insurance business have been closed so long as the liabilities remains unsatisfied or not otherwise provided for.

Interpretation of Statutes- All STATUTORY DEFINITIONS or abbreviations must be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or the context. That is why all DEFINITIONS in statutes generally begin with the qualifying words similar to the words used in the present case, namely, unless there is anything repugnant in the subject or context.

Counsel for the Parties:

Mr. C. B. Aggarwala, Senior Advocate, (M/s. S. N. Andley, J. B. Dadachanji and Rameshwar Nath, Advocates of M/s. Rajinder Narain and Co. with him), for Appellant

M/s. R. Ganapathy Iyer, H. J. Umrigar, R. H. Dhebar and T. M. Sen, Advocates, for Respondent No. 2.

Judgment

Wanchoo, J—This is an appeal on a certificate granted by the Madras High Court. The appellant Company had been carrying on various classes of insurance business other than life insurance after its incorporation in September 1941. On October 15, 1956, an extraordinary general meeting of the shareholders of the Company passed a resolution by which all its insurance business was to cease forthwith and no further policies of insurance of any kind were to be issued thereafter, It was also resolved that no application should be made for renewal of the certificate granted under S. 3 of the Insurance Act No. IV of 1938, (hereinafter called the Act) and that thenceforward the Company should only carry on the business of money-leading as a loan-company and also to do investment business. In consequence of these resolutions, the Company informed the Controller of Insurance in December 1956 that it was not applying for renewal of its registration for carrying on the business of insurance. In May 1957, the Controller wrote to the Company that its certificates for carrying on insurance business would be deemed to be cancelled from July 1, 1957, and the cancellation was notified in the Gazette of India.

2. It appears that the Government of India had been receiving complaints against the Company. Consequently on July 17, 1957, the Government of India passed an order under S. 33 of the Act directing the Controller of Insurance to investigate the affairs of the Company and to submit a report. Thereupon the Controller appointed Messrs. Fraser and Ross to act as auditors to assist him in the investigation. The Company was informed of this order in September 1957. Thereupon it wrote to the Controller that no order under S. 33 of the Act could be passed against it, as it had closed its business of insurance and the order in question was without jurisdiction. The Controller sent a reply to this communication and pointed to the provisions of S. 2D of the Act in justification of the order. Thereupon the Company made an application under Art. 226 of the Constitution in the Madras High Court. Two main contentions were raised by it in the petition. In the first place it was submitted that the Company having closed all its insurance business no order could be passed against it under S. 33, as that section only applied to companies actually carrying on the business of insurance and that in any case no such order could be passed even with the help of S. 2D of the Act. In the second place it was contended that even if such an order could be passed under S. 33 read with S. 2D of the Act, it could not be done in the present case, as the Company’s liabilities in respect of its insurance business did not remain unsatisfied or not otherwise provided for. Messrs. Fraser and Ross, as well as the Controller, were made parties to the petition. The petition was opposed on behalf of the Controller, and his contention was that the case was clearly covered by S. 2D of the Act and therefore the order under S. 33 was validly passed in this case and that it had not been shown that the liabilities had been satisfied or had been otherwise provided for.

3. The learned Single Judge held that an order under S.33 read with S.2D could be passed against the Company and that it had not been shown that the Company’s liabilities had been satisfied or otherwise provided for. He, therefore, dismissed the writ petition. This was followed by an appeal by the Company, which was dismissed. The Division Bench substantially agreed with the view taken by the learned Single Judge. Thereupon the Company applied for a certificate to enable it to appeal to this Court obtained it, and that is how the matter has come up before us.

4. Mr. Aggarwala appearing for the Company has urged the same two points before us. The Act was passed in 1938 to control persons carrying on the business of insurance. Section 2 (9) thereof defines an ‘insurer’ inter alia as meaning any body corporate (not being a person specified in sub-cl. (c) of this clause) carrying on the business of insurance, which is a body corporate incorporated under any law for the time being in force in India or stands to any such body corporate in the relation of a subsidiary company within the meaning of the Indian Companies Act, 1913 as defined by sub-s. (2) of S. 2 of that Act. Section 3 provides for registration of any person carrying on the business of insurance and no such business can be carried on unless a certificate of registration for the particular class of insurance business has been obtained from the Controller. Section 3 (4) gives power to the Controller to cancel the certificate for reasons specified therein and S. 3 (5B) lays down that when a registration is cancelled the insurer shall not after the cancellation has taken effect, enter into new contracts of insurance, but all rights and liabilities in respect of contracts of insurance entered into by him before such cancellation takes effect shall, subject to the provisions of sub-s. (5D), continue as if the cancellation had not taken place. In order to safeguard the interest of policy-holders, S. 7 provides for deposits by the insurer for various classes of his business. Section 8 lays down that any deposit made under S. 7 shall be deemed to be part of the assets of the insurer but shall not be susceptible of any assignment or charge; nor shall it be available for the discharge of any liability other than liabilities arising out of policies of insurance issued by the insurer so long as any such liability remains undischarged; nor shall it be liable to attachment in execution of any decree except a decree obtained by a policy-holder of the insurer in respect of a debt due upon a policy which debt the policy-holder has failed to realise in any other way. Section 9 (1) lays down that where an insurer has ceased to carry on in India any class of insurance business in respect of which a deposit has been made under S. 7 and his liabilities in India in respect of business of that class have been satisfied or are otherwise provided for, the court may on the application of the insurer order the return to the insurer of so much of the deposit as does not relate to the classes of insurance, if any, which he continues to carry on. Under S. 10 an insurer who carries on business of more than one kind is required to keep a separate account of all receipts and payments in respect of each such class of insurance business. Section 33 (1) with which we are directly concerned, is in these terms:

“The Central Government may at any time by order in writing direct the controller or any other person specified in the order to investigate the affairs of any insurer and to report to the Central Government on any investigation made by him:

Provided that the controller or the other person may, wherever necessary, employ an auditor or actuary or both for the purpose of assisting him in any investigation under this section.”

Section 2D is in these terms:

“Every insurer shall be subject to all the provisions of this Act in relation to any class of insurance business so long as his liabilities in India in respect of business of that class remain unsatisfied and not otherwise provided for.”

5. The contention of Shri Aggarwala is that S. 33 and S. 2D both refer to an insurer which is defined in S. 2 (9) as a person carrying on the business of insurance. He, therefore, contends that as soon as the insurer who was carrying on the business of insurance closes it down completely he no longer remains an insurer and the provisions of the Act do not apply to him. Therefore, according to him, when S. 33 provides for an order of investigation by the Central Government such an order can only be made in respect of a person who is actually carrying on the business of insurance and is thus an insurer and cannot be made against a person who was an insurer but has closed his business. Further, according to Mr. Aggarwala, S. 2D also speaks of an insurer and makes him subject to all the provisions of the Act with respect to any class of insurance business so long as his liabilities in respect of that class remain unsatisfied or not otherwise provided for an therefore S. 2D would only apply to those cases where insurance business is being carried on though some class of insurance business might have been closed. The contention, therefore, is that reading Ss. 33 and 2D together, no order under S. 33 can be made in case of an insurer who has completely closed his business of insurance.

6. The main basis of this contention is the definition of the word “insurer” in S.2(9) of the Act. It is pointed out that that definition begins with the words “insurer means” and is therefore exhaustive. It may be accepted that generally the word “insurer” has been defined for the purposes of the Act to mean a person or body corporate etc. which is actually carrying on the business of insurance, i.e., the business of effecting contracts of insurance of whatever kind they might be. But S. 2 begins with he words “in this Act, unless there is anything repugnant in the subject or contest” and then come the various definition clauses of which (9) is one. It is well settled that all STATUTORY DEFINITIONS or abbreviations must be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or the context. That is why all DEFINITIONS in statutes generally begin with the qualifying words similar to the words used in the present case, namely, unless there is anything repugnant in the subject or context. Therefore in finding out the meaning of the word “insurer” in various sections of the Act, the meaning to be ordinarily given to it is that given in the definition clause. But this is not inflexible and there may be sections in the Act where the meaning may have to be departed from on account of the subject or context in which the word has been used and that will be giving effect to the opening sentence in the definition section, namely, unless there is anything repugnant in the subject or context. In view of this qualification, the court has not only to look at the words but also to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning intended to be conveyed by the use of the words under the circumstances. Therefore, though ordinarily the word “insurer” as used in the Act would mean a person or body corporate actually carrying on the business of insurance it may be that in certain sections the word may have a somewhat different meaning.

7. A perusal of a few sections of the Act will illustrate this and immediately show that the word “insurer” has been used in some sections to mean not merely a person actually carrying on business of insurance but also a person who intends to carry on the business of insurance but has not actually started it and also a person who was carrying on the business of insurance but has ceased to do so. For example, S. 3 (2) which deals with an application for registration which naturally has to be made before the business of insurance actually commences, lays down in cl. (b) that the application shall be accompanied by the name, address and the occupation, if any, of the directors where the insurer is a company incorporated under the Indian Companies Act. Here the word “insurer” has been used to indicate the company which is not actually carrying on the business of insurance but is intending to do so and is applying for registration. Further in S. 3 (2) (e) which also deals with an application for registration, it is provided that an insurer having his principal place of business or domicile outside India shall send along with the application a statement verified by an affidavit of the principal officer of the insurer setting forth various requirements. Here again, the word “insurer” has been used for an intending insurer, for the business of insurance would only begin after the registration certificate is granted on the application made under S. 3 (2). Then in S. 9 it is provided that where an insurer has ceased to carry on business, the court may on the application of the insurer order the return to him of the deposit made under S. 7. This shows that though the insurer is not actually carrying on the business of insurance he is still termed an insurer and on his application the deposit may be refunded to him. Again S. 55 which deals with a situation arising out of the winding-up of an insurance company or the insolvency of any other insurer, provides that the value of the assets and liabilities of the insurer shall be ascertained in such manner and upon such basis as the liquidator or the receiver in insolvency thinks fit. The word “insurer” has thus been used in this section for a person or body corporate etc. which is not actually carrying on the business of insurance and has gone into liquidation or has become insolvent. Therefore, though the ordinary meaning to be given to the word “insurer” is as given in the definition clause (S. 2(9)) and refers to a person or body corporate etc. carrying on the business of insurance, the word may also refer in the context of certain provisions of the Act to any intending insurer or quondam insurer. The contention therefore that because the word “insurer” has been used in S. 33 or S. 2D those sections can only apply to insurers who are actually carrying on business cannot necessarily succeed, and we have to see whether in the context of these provisions an insurer will also include a person who was an insurer but has closed his business.

8. As we have said already the Act was passed to control the business of insurance in the interest of policy-holders and the general public and S. 33 is obviously a provision by which the Central Government can order investigation into the affairs of any insurer in order to carry out the policy of the Act. Could it be said in the circumstances that S. 33 only applies to insurers actually carrying on business and not to insurers who have closed their business? If the policy of the Act is to be carried out and the policy-holders and the general public are to be protected, the need for making investigation into the affairs of an insurer who has closed his business is greater, for he may have done so dishonestly. We are therefore opinion that the word “insurer” as used in S. 33 not only refers to a person who is actually carrying on business but in the context of that section and taking into account the policy of the Act and the purposes for which the control envisaged by the Act was imposed on insurers also refers to insurers who were carrying on the business of insurance but have closed it. Further if there were any doubt whether the word “insurer” in S. 33 refers to those insurers also who had closed their business that doubt in out opinion is completely dispelled by S. 2D. That section provides that every insurer shall be subject to all the provisions of the Act in relation to any class of insurance business so long as his liability in India in respect of business of that class remains unsatisfied or not otherwise provided for. Obviously this section applies to those insurers who have closed their business. It was not necessary to enact this section if the word “insurer” here also meant a person actually carrying on the business of insurance, for the provisions of the Act apply to such a person proprio vigore. Therefore, when the word “insurer” is used in S. 2D it must mean a person who was carrying on the business of insurance but has closed it. If that is so, S. 33, which provides for investigation, would apply to such an insurer who has closed his business, by virtue of S. 2D.

9. Mr. Aggarwala next contends that S. 2D would only apply to those cases where an insurer was carrying on different classes of insurance business and had closed some of them but not all of them. He contends that the section provides that the insurer shall remain subject to the provisions of the Act in relation to any class of insurance business so long as his liabilities with respect to that class of business remain unsatisfied or not otherwise provided for. This according to him, contemplates a closure of only some out of many classes of business of insurance and not of all. We see no reason however to limit the words used in this section only to a case where out of many classes of business some are closed and others are being carried on. Under S. 13 of the General Clauses Act, No. 10 of 1897, in all Central Acts and Regulations, unless there is anything repugnant in the subject or context, words in the singular shall include the plural and vice versa. Though therefore S. 2D speaks of any class of insurance business in the singular it includes the plural also and would refer to all classes of insurance business. Mr. Aggarwala does not contend that where, for example, four classes of business are being carried on and three of them are closed and one is continued, the section will not apply; but he contends that at least one must continue and the section will not apply if all are closed. We do not see why if the section applies, even though the word “class” is in the is in the singular to a case where three out of four classes are closed and one is continued it should not apply to a case were all four classes are closed. We see no repugnancy in the context in holding that if all classes of business are closed the insurer shall be subject to all the provisions of the Act so long as his liabilities in India in respect of any business of all classes remain unsatisfied or not otherwise provided for. Therefore on a plain reading of S. 2D there can be no doubt that an insurer who has closed all classes of his insurance business remains subject to all the provisions of the Act in relation to such classes so long as his liabilities in India remain unsatisfied or not otherwise provided for. Therefore S. 33 certainly apply to a case where all classes of insurance business have been closed so long as the liabilities remain unsatisfied or not otherwise provided for. The first contention of the appellant therefore that no investigation can be ordered under S. 33 in its case because it had closed all classes of its insurance business fails.

10. Turning now to the second contention, the argument on behalf of the appellant is three-fold. In the first place it is urged that an order can only be made under S. 33 read with S. 2D when the Central Government is satisfied that the liabilities have not been satisfied or otherwise provided for, and that the order should show on the face of it that the Central Government had considered this aspect of the matter and had come to the conclusion that the liabilities remained unsatisfied or not otherwise provided for. Further there is nothing in the present order to show that the Central Government ever considered this aspect of the matter and was satisfied that the liabilities of the appellant-Company remained unsatisfied or not otherwise provided for. There is no doubt that the order is utterly silent on this point and it was only in his letter of October 15, 1957, that the Assistant Controller pointed out S. 2D of the Act and referred to this aspect of the matter. It seems to us only just and proper that when an order is being passed under S. 33 read with S. 2D of the Act it should show on the face of it that the Central Government was prima facie satisfied that the liabilities had remained unsatisfied or not otherwise provided for, for it is only when the liabilities have not been satisfied or otherwise provided for that an order under S. 33 read with S. 2D would be justified in the case of an insurer who has closed his business. We use the word “prima facie” advisedly, for it seems to have been suggested in the High Court that no order could be passed under S. 33 unless it was proved to the hilt that there were liabilities which remained unsatisfied or otherwise unprovided for. It is obvious that such proof would only be available after investigation in the affairs of the insurer. Therefore in order that S. 2D may be workable, all that is required under it is that the Central Govt. should be satisfied after such prima facie inquiry as it considers necessary that there are reasons to believe that the liabilities of the insurer who has closed his business remain unsatisfied or not otherwise provided for and in coming to this prima facie conclusion the Central Government may make enquiry from the insurer with respect to complaints that it may have received against him. But the fact that the order does not on the face of it show that the Central Government considered this aspect of the matter would not make it bad, if in subsequent proceedings taken to challenge it, it is shown that there were materials before the Central Government which would justify its coming to the prima facie conclusion that the liabilities had not been satisfied or otherwise provided for, and therefore an investigation into the affairs was called for. In the present case we find from the materials on the record that there were complaints before the Central Government from those who had claims against the company. Those complaints were apparently referred to the Company and it does not appear that the Company satisfied the Central Government that the complaints were unjustified. It was in this situation that the order for investigation was made in July 1957 after the Company had closed its insurance business. Further on the materials available on the record it does appear that even now there are claims pending to the tune of about one lac of rupees against the Company. So it cannot be said that there were no liabilities of the Company outstanding which were not satisfied or otherwise provided for when the order was made in July 1957. In the circumstances the order cannot be held to be bad because it does not show on the face of it that there were liabilities which had remained unsatisfied or not otherwise provided for.

11. In the second place it is urged that there can be no question of satisfying or otherwise providing for liabilities unless the liabilities are ascertained and either admitted or proved. In other words the argument is that it is only those liabilities which are admitted by the insurer or which have been decreed against him and the decrees have become final which can be taken into account in deciding whether the liabilities have remained unsatisfied or not otherwise provided for. It is urged that only those liabilities which are ascertained and either undisputed or proved can be satisfied and that the same applies to their being otherwise provided for. It is true that only those liabilities, which are ascertained and either admitted or proved, can be satisfied; but is does not follow that “provision otherwise” must also be only of liabilities which are ascertained and either admitted or proved. If that were so a dishonest insurer who closes his business could always get out of the provisions of S. 33 read with S. 2D by repudiating all claims made against him and then saying that there are no liabilities which remained unsatisfied or otherwise unprovided for. There can be no doubt therefore if these provisions have to serve the purpose for which they were enacted, (namely, the protection of the interest of the policy-holders and the general public), the words “not otherwise provided for” in S. 2D must refer to liabilities in the nature of claims against the insurer whether the insurer admits them or not and whether a decree has been finally passed in respect of them or not. The intention of making this provision is S.2D is to ensure that probable claims arising out of the insurance business that is closed are provided for before the insurer who has closed his business can say that he is not governed by all the provisions of the Act. There can be no doubt therefore that when “provision otherwise” has to be made it must be with respect to probable claims also that are likely to arise out of the insurance business which has been closed. In the present case even the Company admits that there are probable claims to the tune of about rupees one lac still pending and in the circumstances until they are satisfied or it is shown that they have been provided for otherwise, all the provisions of the Act, including S. 33, will apply to the Company.

12. The last argument in support of the second contention is that the liabilities have been otherwise provided for. It is said that the Company deposited ` 3,94,000/- as security under S. 7 of the Act, which is still available to pay off the liabilities of the Company and therefore when such liabilities do not appear to exceed that amount they have otherwise been provided for. The question thus raised is whether the Company is entitled to take into account the security deposit under S. 7 in order to show that the liabilities have been otherwise provided for. The contention on behalf of the Controller is that when the Act envisages “provision otherwise”, this provision has to be over and above the security deposit made by the Company under S. 7. It appears from S. 8 that this deposit is available for the discharge of liabilities arising out of policies of insurance issued by the insurer so long as any such liability remains unsatisfied. But even if a decree has been obtained by a policy-holder on the basis of a liability under policy he is not entitled to attach any part of this deposit until he shows that he has failed to realise the decree in any other way. Further it appears that S. 8 only contemplates policy-holders holding a decree attaching part of the security deposit in case they fail to realise their debt in any other way; it does not contemplate, for example, third parties who have decrees against an insurer, like the Company, (which in its motor insurance business indemnifies the policy-holders against third party risk upto a certain extent) doing so. Such third parties cannot under any circumstances attach any part of the deposit, for S. 8 only permits its attachment in the last resort by a policy-holders of the insurer in respect of a debt due upon a policy. But under S. 2D the decree of a third party in such a case would be the liability of the insurer in respect of his motor insurance business which could not be realised by attachment of any part of deposit under S. 7 Besides, even with respect to decrees of policy-holders the deposit could only be attached when all other ways of realizing the money have failed. In these circumstances it can hardly be said that the fact that this deposit is there is itself a “provision otherwise” to meet the liabilities of the insurer. The policy-holder cannot attach this deposit unless he first exhausts all other means. Even if he has got a decree and even if the insurer admits his claim and wants to pay it, he cannot do so out of the money in deposit under S. 7. As for the third parties who may have decrees against the insurer, they can never attach this deposit in view of the provisions of S. 8. It could not be the intention of the legislature when it was in effect exempting the insurer from all the provisions of the Act on his liabilities being otherwise provided for that such provision should include the security deposit under S. 7, when it has made it so difficult for a policy-holder to get his debt satisfied from that party could not in any way attach the deposit. In these circumstances we are of opinion that when S. 2D provides that the insurer shall be subject to all the provisions of the Act so long as his liabilities in India in respect of the business which is closed remain unsatisfied or not otherwise provided for, the satisfaction or “provision otherwise” does not refer to the deposit under S. 7 and has to be over and above that deposit. It is true that S. 9 provides that the insurer can take back the deposit after satisfying the Court that he has satisfied or otherwise provided for his liabilities. But this “provision otherwise” for the purposes of S.9 must obviously be other than the deposit itself. Further when the insurer wants to take back his deposit on making “provision otherwise” he will have to satisfy the Court that the “provision otherwise” has been fully made and the Court will be in a position to investigate into the matter. This, however, does not mean that if the insurer does not want to take advantage of S. 9 of the Act he can say without submitting to the terms of that section that he has made “provision otherwise”, because the deposit which is made under S. 7 is more than all his liabilities of the insurance business that he has closed. It is urged that it is hard, for example, on an insurer who has a large deposit and whose liabilities are small that he should not be able to fall back on his deposit for the purposes of S. 2D. We do not however see any hardship in a case of this kind, for if it is a fact that the deposit of the insurer is large and his liabilities are small he can always take advantage of S. 9 of the Act and submit to an investigation by the Court and take back his deposit after depositing the small sum required to meet his liabilities. We are therefore of opinion that when S. 2D speaks of satisfaction or “provision otherwise” for the liabilities of insurance business which is closed it contemplates such satisfaction or “provision otherwise” over and above the deposit made under S. 7. It is not in dispute in this case that there are some liabilities still pending; it is also not in dispute that they are not satisfied and no provision has been made otherwise for them irrespective of the security deposit. This also appears to have been the position when the order was made in July 1957. In the circumstances, the order is good and cannot be called in question by the Company.

13. The appeal therefore fails and is hereby dismissed with costs.

Dictionary of Statutory Interpretation

What is the meaning of “quasi-judicial body”

Explaining the meaning of quasi-judicial body Civil Appeal arising out of SLP (C) No. 23127 of 2018 Page 21 of 27 in Indian National Congress (I) vs. Institute of Social Welfare & Ors.3 , it was held that-

When any body of persons has a legal authority to determine questions affecting the rights of subjects and a duty to act judicially, such body of persons constitute a quasi-judicial body and decision given by them is a quasi-judicial decision. It would also be a quasi-judicial order if the statute empowers an authority to decide the lis not between the two contesting parties but also when the decision prejudicially affects the subject as against the authority, provided that the authority is required by the statute to act judicially. Further, what differentiates an administrative act from the quasi-judicial act is that a quasijudicial body is required to make an enquiry before arriving at a conclusion. In addition, an administrative authority is the one which is dictated by policy and expediency whereas a quasi-judicial authority is required to act according to the rules.

Question of Res Judicata: 

Supreme Court in Shrimati Ujjambai vs. State of Uttar Pradesh & Anr[AIR 1962 SC 1621] has held that the principles of res judicata equally apply to quasi-judicial bodies. Whenever a judicial or quasi-judicial Tribunal gives a finding on law or fact, its findings cannot be impeached collaterally or in a second round and are binding until reversed in appeal or by way of writ proceedings. The characteristic attribute of a judicial act or decision is that it binds, whether right or wrong. Thus, any error, either of fact or law, committed by such bodies cannot be controverted otherwise by way of an appeal or a writ unless the erroneous determination relates to the jurisdictional matter of that body