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PETITIONER: M/S. HAJEE S.V.M. MOHAMED JAMALUDEEN BROS. & CO.

       Vs.

RESPONDENT: THE GOVERNMENT OF TAMIL NADU

DATE OF JUDGMENT:       24/02/1997

BENCH: MADAN MOHAN PUNCHHI, K.T. THOMAS

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T THOMAS, J.      Can the  government unilaterally  rescind a contract if the terms  thereof so  provide? A single judge of the Madras High Court  has held  that any such term in the agreement is null  and  void  being  repugnant  to  the  essence  of  the contract. Upon such a finding learned single judge granted a decree in favour of the appellant for a sum of nearly Rupees Thirty Six  lacs with  future interest. But a division bench of  the   same  High  Court,  before  which  the  government appealed, reversed  the decree and dismissed the suit of the appellant mainly  on the  strength of  the provisions of the Government grants  Act, 1895  (for short  ’the Grants Act’). Appellant  has  preferred  this  appeal  after  obtaining  a certificate from  the High  Court under Article 134-A of the Constitution of India.      Facts, bereft  of elaborate  details but  necessary for this appeal, are the following:      Pursuant  to  acceptance  of  the  offer  made  by  the appellant, being  the highest  bib, agreements were executed between Governments  of were  executed between government of Tamil Nadu  and the  appellant as per which right to collect "chank shells"  from four different costal sites situated in four different  districts in  Tamil Nadu  was granted to the appellant for  a period  of three years. Appellant deposited with the  government the required amount as security deposit in terms  of the  agreements and  spent some good amount for execution of  the fishing  work  at  four  different  sites. Fishing operations  commenced on  2.6.1971 government sent a communication to  the appellant,  the operative  portion  of which reads thus:      "In   pursuance   of   the   orders      contained  in  G.O.  cited  as  per      clause  7  of  the  agreement,  the      lease of  the above  area is hereby      cancelled   and    the   lease   is      terminated   with    effect    from      10.6.1971. The  proportionate lease      amount for the unexpired portion of      the lease  period and  the security

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    deposit remitted  by you in respect      of  the   above  fishery   will  be      refunded to you shortly."      Clause 7  of the agreement, which is referred to in the said communication, reads thus:      "The lease  shall also be liable to      be terminated  at any  time by  the      lessor  or   any  officer   of  the      department acting  for and  on  his      behalf   without    assigning   any      reasons therefor."      Government after  issuing the  communication returned a sum of Rs. 78,402/- to the appellant which comprises part of the rent  paid in advance and also the security deposit made by the appellant at the firs instance. Appellant receive the said amount under protest.      In the suit filed by the appellant claiming damages for the aforesaid  action of the Government, he contended, inter alia, that (i) the agreement had actually created a lease of land and  (ii) the clause empowering the lessor to terminate the lease  is void  and unenforceable  being repugnant t the core of  the contract  itself. Appellant  further  contended that  as  termination  of  the  contract  was  made  without affording an  opportunity to  him to  be heard the action of the Government  is bad  being in violation of the principles of natural justice. Appellant claimed damages to the tune of Rs. 36,44,705/-  being the  loss suffered  by him  including interest till the date of suit.      Government contended  that the  agreement  has  created only a  licence which  was revocable  at  the  will  of  the grantor. Government  defended the  action  of  revoking  the contract as  necessitated in  the larger public interest and relied on  the aforesaid  clause 7  of the  agreement as the source of power to revoke the contract. It was alternatively contended that appellant did not suffer any loss.      Learned single  judge found  that the  transaction  was only a  licence coupled  with  interest  and  hence  in  was irrevocable. Regarding  clause 7  or the  agreement  learned single judge accepted the stand of the appellant that it was unenforceable and  found that  appellant is  entitled to the entire damages  claimed by  him. Suit  was hence  decreed in terms of the plaint.      When a  Letters  Patent  Appeal  was  preferred  b  the Government a  division bench  of the  Madras High  Court set aside the  side decree  and dismissed  the suit holding that clause 7  of the  agreement is valid and enforceable in view of the  provisions in  the grants act and hence appellant is not entitled  to claim damages for the action resorted to by a government.      If clause  7 of the agreement is valid it is binding on both the  parties to  the contract and the corollary is that government had the power to revoke it unilaterally and hence termination of  the contract  is not liable to be questioned by the  other  party.  As  the  division  bench  upheld  the validity of  clause 7  only on  account of its protection as per the  Grants Act  we are  mainly called  upon  to  decide whether the  impugned clause  in the  agreement has the said protection.      Section 2  of the  Grants Act  insulates all grants and all transfers  of land  or any  interest therein made by the government from  the checks of the provisions of Transfer of Property Act. Section 3 of the Grants act protects the terms of such  grant from  the provisions  of any  other  law.  we extract the above two provision hereunder:      S.2 -  "Transfer of  Property  Act,

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    1882, not  to apply  to  Government      grants. -  Nothing in  the Transfer      of Property  Act,  1882,  contained      shall apply  or be  deemed ever  to      have applied  to any grant or other      transfer of land or of any interest      therein    heretofore    made    or      hereafter  to  be  made  by  or  on      behalf of,  any person  whomsoever;      but every  such grant  and transfer      shall be  construed and take effect      as if  the said  Act had  not  been      passed."      S.3-  "Government  grants  to  take      effect according  to their  tenor:-      All    provisions,    restrictions,      conditions     and     limitations,      contained  in  any  such  grant  or      transfer  as   aforesaid  shall  be      valid and  the effect  according to      their  tenor   any  rule   of  law,      statute   or   enactment   of   the      contrary notwithstanding."      The combined  effect of  the above  two sections of the Grants Act  is that  terms of  any grant  of  terms  of  any transfer of  land made  by a government would stand insulted from the  tentacles of  any statutory  law. Section 3 places the terms  of such grant beyond the reach of any restrictive provision contained  n any enacted law or even the equitable principles of  justice equity and good conscience adumbrated by common  law if such principles are inconsistent with such terms.  The  to  provisions  are  so  framed  as  to  confer unfettered discretion  on  the  government  to  enforce  any condition or  limitation or  restriction  in  all  types  of grants made by the government to any person. In other words, the rights, privileges and obligations of any grantee of the government would be completely regulated by the terms of the grant,  even   if  such  terms  are  inconsistent  with  the provisions of any other law.      The above  legal position  was recognised by the courts in India  before the  Constitution of India came into being. (Surja Kanta  Roy Choudhury  and  others  vs.  Secretary  of State, Air  1938 cal.  229, and  Raza Husain Khan & ors. vs. Sayid Mohd.  & ors.  , AIR  1938  Oudh  178).  The  position continued to  be so  even after  the Constitution  came into force [State of U.P. vs. Zahoor Ahmad, 1974 (1) SCR 344 ].      An attempt  was  made  to  show  that  the  transaction evidenced by  the agreement  was not  a grant but a lease of land. Though  it is  not now  open to the appellant to raise such contention (in view of the clear finding of the learned single judge  that it  was not  a lease  but only  a licence coupled with  interest, which  finding was not challenged by the appellant  before the  division bench  ) assuming the it was lease  of land  still appellant  cannot succeed  because lease  made  by  the  government  is  also  covered  by  the protection envisaged in Section 2 and 3 of the Act.      Alternatively it was argued that a licence coupled with interest created  by the instrument is not a grant and hence the provisions of the Grants Act cannot apply.      It is true that the world "grant" is not defined in the Grants Act  but it  is quite  evident that the word has been used in the Act is its etimological sense and, therefore, it should get its widest import. In Black’s Law Dictionary, the word "Grant" is shown to have the meanings (i) to bestow; to confer upon  someone other  than the  person of entity which

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makes the  grant; (ii)  to give  or present  as a  right  or privilege. (fifth Edn., Page 629)      The definition  of licence  in Section 52 of the Indian Easements Act  denotes that  it is the grant of a right made by the  grantor. Section  53 and  Section 54 of the said Act also refer  unequivocally to  the grant  of licence.  can be created.      In Mohsin Ali Vs. State of M.P. [1975 (2) SCC 122] this Court said  that "in the widest sense ’grant’ may comprehend everything that  is granted or passed from one to another by deed. But  commonly the term is applied to rights created or transferred by  the Crown  e.g. grants of pensions, patents, charters, franchise  (See Earl Jowtt’s Dictionary of English Law)."      The  word   "grant"  used  in  the  Grants  Act  could, therefore  envelop  within  it  everything  granted  by  the government to  any person.  Thus the licence which appellant obtained by  virtue of  the agreement would undoubtedly fall within the ambit of "grant" envisaged in the Grants Act.      The result is that appellant cannot by-pass clause 7 of the instrument  under which he obtained the right to collect "chank shells"  . The  said clause  adequately empowers  the government to  unilaterally  terminate  the  arrangement  or revoke the  grant without  assigning any  reason whatsoever. The said  clause is  valid and  could  be  enforced  by  the government  at   any  time  and  hence  the  action  of  the government in  rescinding the  contract was valid. Appellant is not therefore, entitled to damages.      We, therefore, dismiss this appeal without any order as to cost.