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PETITIONER: BENGAL NAGPUR COTTON MILLS

       Vs.

RESPONDENT: BOARD OF REVENUE, MADHYA PRADESH & ORS.

DATE OF JUDGMENT: 30/07/1963

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. SARKAR, A.K. SHAH, J.C.

CITATION:  1964 AIR  888            1964 SCR  (4) 190  CITATOR INFO :  R          1964 SC1043  (96,134)  D          1971 SC 910  (6)

ACT: Octroi duty-Agreement-Exempted by former State-Liability  to pay  Octroi  duty-Merger of State-If Municipality  can  levy after merger.

HEADNOTE: The Ruler of the former State of Nandgaon established a mill called  Central Provinces Mills Ltd.  A firm  purchased  the said mill and changed its name to Bengal Nagpur Cotton Mills Ltd.   The ruler and the appellant company entered  into  an agreement on March 1, 1943.  By this agreement the appellant company  was exempted from liability to pay octroi  duty  to the  State  or to the municipality of the area.   The  ruler bound   himself  in  consideration  of  certain   advantages promised  to  him by the mill.  In consequence of  the  said agreement  neither the ruler nor the municipality  collected octroi  from the company.  On December 31, 1947,  the  State merged  with the State of Madhya Pradesh.  On September  20, 1952,  the Municipal Committee passed a  resolution  stating therein  that this committee would levy octroi duty  on  the appellant  company as the Darbar Agreement of 1943  was  not binding  on this committee.  The appellant  challenged  this resolution in a petition under Art. 226 and Art. 227 of  the Constitution   before  the  High  Court.   The  High   Court dismissed  the  application and hence the  appeal  has  been filed in this Court. Held  (i) that the agreement of 1943 cannot be  regarded  as law  as  it is in the shape of a contract between  both  the parties. 191 Madhaorao  Phalke v. State Madhya Pradesh, [1961]  1  S.C.R. 957, explained. Maharaja  Shree  Umaid Mills Ltd. v. Union of  India,  1963] Supp. 2 S. C. R. 515, relied on. (ii)  that  the agreements culminating in the  agreement  of 1943, could not be regarded as law but must be regarded only as  agreements  which might have bound the  sovereign  as  a contracting party and not the Municipal Committee.

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(iii)  that an indication of the will of the ruler meant  to bind  as a rule of conduct and enacted with  some  formality either  traditional or specially devised for  the  occasion, resulted in a law, but not an agreement to which there  were two parties, one of which was the ruler. (iv)  that  the  Municipal Committee’s  rules  and  bye-laws though  they applied to the appellant-company,  remained  in suspense because of the ruler’s desire not to collect octroi from  the appellant-comparty, but could be invoked when  the ruler’s wish ceased to operate. (v)  that  the  ruler’s desire that  octroi  should  not  be collected ceased to operate from the moment he ceased to  be the   ruler  and  therefore  the  resolution  of   Municipal Committee was in order and binding on the appellant.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 416 of 1961. Appeal  by special leave from the judgment and  order  dated April  4,  1959, of the Madhya Pradesh High Court  in  Misc. Petition No. 546 of 1956. S.   T. Desai and G. C. Mathur, for the appellant. H.   N.  Sanyal,  Solicitor-General  of  India,  and  A.  G. Ratnaparkhi, for respondent No. 2. July 30, 1963.  The Judgment of the Court was delivered by HIDAYATULLAH  J.-This is an appeal by special leave  against an order of the High Court of Madhya Pradesh dated April  4, 1959,  dismissing  a petition filed by the  appellant  under Art.  226  of  the  Constitution.   By  that  petition,  the appellant asked for a writ of certiorai to quash an order of the Board of Revenue, dated September 15, 1956, by which the right  of  the  Municipal Committee,  Rajnandgaon,  to  levy octroi from the appellant was recognised,and for a mandamus, directing  the  Committee  not to realise  octroi  from  the appellant, in the following circumstances : The appellant, Bengal Nagpur Cotton Mills Ltd., 192 Rajnandgaon,  is  a limited company incorporated  under  the Indian   Companies   Act,  and  carries   on   business   of manufacturing  textiles as Rajnandgaon with its head  office at  Calcutta.   Rajnandgaon was the capital  of  the  former State of Nandgaon in the Eastern States Agency Group  before it  merged with the State of Madhya Pradesh.  A mill  called the  Central  Provinces Mills Ltd., was established  in  the year  1893 by the then Ruler Raja Bahadur Balram  Dass,  who owned  most  of the shares.  The mill  was  in  difficulties owing to heavy losses, and in 1896, the Ruler agreed to sell it to M/s.  Shaw Wallace & Co. On August 5, 1896, the  Ruler wrote  a letter to Shaw Wallace & Co., promising  to  assist the  mill in various ways if the company purchased it.   The mill was bought by Messrs.  Shaw Wallace & Co., on September 13,  1896 and its name was changed to Bengal  Nagpur  Cotton Mills Ltd.  In 1897, there was an agreement between the Raja Bahadur  and  Shaw  Wallace  &  Co.,  which  contained   the following terms among others :               "2.  The Rajah will assist the New Company  by               the   special   privilege   of   freeing   its               manufactured  goods from octroi duties and  by               enhancing the present octroi of three pies per               rupee  ad valorem on imported goods which  are               the  product of other mills outside  the  said               State to one anna per rupee ad valorem.                3  The Rajah will cause that octroi on  goods               imported  into  Nandgaon by the  New  Company;

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             such as cotton, fuel, oil, stores and *C  (*as               in  the original) will be levied at  the  same               scale  of rates as that levied by  the  Nagpur               Municipality  on goods imported by the  cotton               mills in Nagpur."               "6. The Rajah agrees that his personal  claims               against the old company shall as from the date               of  sale  be considered as discharged  by  the               undertaking  agents as aforesaid that the  New               Company  will  pay to the Rajah a  royalty  of               twenty-five  per  cent per annum  on  all  net               profits  of the New Company after payment  out               of  such net profits to the proprietors  of  a               dividend  of  ten per cent per  annum  on  the               share capital of the New Company including  in               such  capital such money as may be  raised  by               way of debentures." 193 It  appears that the increase of’ octroi on  imported  goods produced by other mills was later found to hamper the  trade and  commerce  of the State, and the appellant  company  was persuaded  to  foraged  the protection,  and  the  Municipal Committee, by a special resolution passed on April 13, 1901, restored  the  original rate or’ three pies per  rupee.   On October  29,  1906, another agreement was  executed  by  the Ruler and the appellant-company.  This was necessary because differences  had arisen about the correct interpretation  of the  agreement,  and  the Ruler had a  large  claim  on  the appellant-company   for  royalty.   This   agreement   again referred  to the concessions which the Ruler had granted  to the  appellant-company.   On March 1, 1943,  there  was  vet another  agreement  between  the Ruler  and  the  appellant- company.   That  agreement came into force from  January  1, 1941.  It was divided into three parts and Part III referred to the concessions in the following words:- Agreement of 1896.               "III.    Save  only  as  modified  in   manner               aforesaid the Principal Agreement is confirmed               as valid and subsisting.               And the Darbar in consideration of the  relief               given.  to it by the Company by reason of  the               modification  in  the Principal  Agreement  as               stated  above hereby declares that the  Darbar               will  at all times hereafter as  hitherto  use               its  power  and authority in  maintaining  and               protecting  the  company  under  its   special               favour and hereby confirms the privileges  and               rights  heretofore enjoyed by the company  and               in  particular the Darbar with the  intent  to               bind  the  Chief for the  time  being  thereof               hereby covenants with the company as follows:-               1.That  the company shall during the  currency               of  the Principal Agreement continue to  enjoy               freedom from all cesses duties (whether excise               octroi  or otherwise) licences taxes or  other               impositions leviable either by the said  State               or by the Municipality of Rajnandgaon or other               local Authority in the said State on any goods               manufactured   by  the  Company  and  on   any               machinery   raw  materials  or   Mill   Stores               imported  into the said State by  the  company               for its               194               own use for the working of the Mills." From the time of the execution of the agreement of 1943, the

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Municipal Committee Rainandgaon, did not collect octroi  and other duties contemplated by the agreement as indeed it  had not, ever since 1896.  On December 31, 1947, Nandgaon  State merged with the State of Madhya Pradesh.  It seems that  for a few years, the Municipal Committee did not recover  octroi from  the  appellant company.  On September  20,  1952,  the Municipal Committee at a general meeting passed a resolution in the following terms:               "This Committee, therefore, resolves that  the               so  called  Darbar agreement of  1943  is  not               binding  on  this  Committee  when  the  State               Government  has  already  started   collecting               taxes  and  cases exempted under Clause  I  of               Chapter  III  and,  therefore,  the  Committee               shall  levy octroi duty (on the  imports)  and               other legitimate dues on Bengal Nagpur  Cotton               Mills from 1st November, 1952." On   October  19,  1952,  the  Deputy  Commissioner,   Durg, suspended  the  resolution, but on May 19,  1953,  the  Gov- ernment of Madhya Pradesh rescinded the order of suspension. The  Municipal  Committee  on June 14,  1953,  informed  the appellant-company    that   octroi   would   be    collected retrospectively  from  November  1,  1952,  and  asked   the appellant-company to furnish full particulars including cost of  imports  made  by it after  that  date.   The  appellant company  filed  an appeal before  the  Deputy  Commissioner, Durg,  under  s.  83(1) of the  Central  Provinces  &  Berar Municipalities  Act, challenging the imposition  of  octroi. The Deputy Commissioner, by his order dated March 13,  1954, quashed the imposition and the demand made, but the Board of Revenue,  Madhya Pradesh, on September 15, 1956,  purporting to act under s. 83A of the Municipalities Act, set aside the order of the Deputy Commissioner in a revision filed by  the Municipal Committee.  The appellant company thereupon  filed a  petition under Articles 226 and 227 of  the  Constitution for   the  writs  above-mentioned.   On  the  High   Court’s dismissing the petition, the present appeal has been filed. The appellant-company contends that it was exempted 195 from the operation of the bye-laws of the Municipality which imposed octroi by the Ruler, and his will however expressed, must  be  regarded  as  law  which  continued  to  bind  the Municipal  Committee  unless  it  was  set  aside  by  other competent  authority.   It  further  contends  that  as  the Municipal   Committee  was  not  authorised  to  grant   the exemption,  it had no power to rescind the  exemption  which could not be held to be granted by it, and thus take away an exemption granted by a sovereign ruler, which could only  be taken  away  by  the  succeeding  sovereign  by  appropriate legislation.  The appellant-company further contends that if the  resolution  passed by the Municipal Committee  did  not impose  the tax and it could not be construed as  rescinding an exemption since no exemption was granted by the Municipal Committee,  then  so  long as the agreement  stood  and  the appellant-company paid the royalty, the exemption could  not be withdrawn.  Lastly, it is contended that the order passed by the Board of Revenue was barred by time. The main question is whether the agreement of 1943  operated as a law before the merger and it must continue so to govern the Municipal Committee till it is repealed or abrogated  by suitable   legislation.    Reliance  is  placed   upon   the observations  in  Madhaorao Phalke v. the  State  of  Madhya Bharat(1),  where this Court observes that in  dealing  with the question as to whether the orders issued by an  absolute monarch  amount to laws or regulations having the  force  of

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law  or whether they constitute mere administrative  orders, it is important to bear in mind that the distinction between executive  orders and legislative commands, is likely to  be merely academic where the ruler is the source of all  power, and  that all the orders of the ruler; however issued,  must be regarded as law.  It is contended that these observations show  that  the  order  of the  ruler  incorporated  in  the agreement  of 1943 must be read as a law enjoining upon  the Municipal   Committee  not  to  recover  octroi   from   the appellant-company  and abrogating the law imposing the  levy in  respect  of  the mill.  It is  also  contended  that  in determining  whether a particular order bears the  character of law, the name which the orders bear is not (1) [1961] 1 S.C.R. 957 at 964. 196 conclusive,  and its character, its content and its  purpose must be independently considered. The above observations were made by this Court in connection with certain Kalanibandis which were issued by the Ruler  of Gwalior and which created a tenure to which certain  persons were  subject,  granting to them at the same  time  military pensions.   Those Kalambandis were held by this Court to  be laws  binding upon the subsequent Government until  repealed or replaced by other laws.  In a subsequent case decided  by this  court between The Maharaja Shree Umaid Mills  Ltd.  v. the  Union of India and others(1), the earlier case in  this Court was considered and explained.  The latter case is more in  point.  In that case, an agreement was entered  into  by the  Umaid Mills, and The Maharaja of Jodhpur  relieved  the mills of some taxes and also promised to obtain an exemption from  any  federal  tax or excise which  was  likely  to  be imposed if Jodhpur joined the Indian Federation when it came into being under the Government of India Act, 1935.  It  was contended in that case that the agreement was in the  nature of a law which bound the succeeding sovereign unless it  was repealed or abrogated by suitable legislation, and the mills were,  therefore,  entitled to exemption  from  the  Central excise  duty.   This  contention was not  accepted  by  this Court.  This Court pointed out that where the enforceability of  an  exemption from tax depends not upon a law  but  upon consensus,  what results is not a law granting an  exemption but only an agreement which is enforceable as an  agreement. Mr.  S. T. Desai, arguing for the mill in the present  case, attempts to distinguish the Umaid Mills’ case on the  ground that  in  that case the promise was to obtain  an  exemption from  another sovereign in future and the ratio of the  case was that one sovereign could not bind another sovereign.  No doubt,  the decision was also rested on this aspect  of  the case,  but it was quite clearly laid down in the case,  that an agreement cannot rank as a law enacted by the Ruler.  The consensus  aspect  of  the  document  there  considered  was pointed  out  in  Umaid Mills’ case.  It is  plain  that  an agreement of the Ruler expressed in the shape of a  contract cannot  be  regarded  as  a law.   A  law  must  follow  the customary (1)  [1963] Supp. 2 S.C.R. 515. 197 forms of law-making and must be expressed as a binding  rule of  conduct.  There is generally an established  method  for the enactment of laws, and the laws, when enacted have  also a distinct form.  It is not every indication of the will  of the  Ruler, however expressed, which amounts to a  law.   An indication  of the will meant to bind as a rule  of  conduct and  enacted  with  some  formality  either  traditional  or specially devised for the occasion, results in a law but not

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an agreement to which there are two parties, one of which is the Ruler. Judged  from  this  angle,  it is  quite  obvious  that  the document  of 1943, was merely intended to bind  consensually and not by a dictate of the Ruler.  The Ruler bound  himself in  consideration of certain advantages promised to  him  by the mill.  The document is not worded as a law is ordinarily expected  to be.  It records a contract and Part  III  where the concessions occur is also worded as a contract and  uses language familiar in agreements between two parties  dealing with  each  other at arm’s length.  It is not  necessary  to refer in detail to Part 111, but the words,               "And the Darbar in consideration of the relief               given  to it by the Company by reason  of  the               modification  in  the Principal  Agreement  as               stated  above hereby declares that the  Darbar               will  at all times hereafter as, hitherto  use               its  power  and authority in  maintaining  and               protecting  the  company  under  its   special               favour and hereby confirms the privileges  and               rights  heretofore enjoyed by the Company  and               in  particular the Darbar with the  intent  to               bind  the  Chief for the  time  being  thereof               hereby   covenants   with  the   company   as.               follows", etc. indicate   that   the   Darbar   was   binding   itself   in consideration% of certain acts done by the appellant-company in  the  past,  and  others,  which  the   appellant-company undertook   to  perform  in  the  future.   This   document, therefore,  is  of the same character as the one  which  was considered   in  Umaid  Mills’  case  where  the   sovereign expressed himself not in a rule of law but in an  agreement. The   present   document  stands  distinguished   from   the Kalambandis which not only ordered that the pensions were to be  paid but also laid down the rules of succession  to  the privileges and the kind of’ tenure which the holders for the time being were to enjoy. 198 We  are, therefore, satisfied that in the present case,  the agreements  culminating in the agreement of 1943, cannot  be regarded  as  law but must be regarded  only  as  agreements which might have bound the sovereign as a contracting  party but not the Municipal Committee. The  Municipal Committee had already imposed octroi  in  the State  but the ruler ordered the Municipal Committee not  to collect  the dues from the appellant-company because of  the agreement.   No  doubt,  the Dewan,  who  entered  into  the agreement  of 1943, was also the ’local government’ and  the Chief  Officer of the Municipality, but the capacity of  the Dewan  in  entering  the agreement was  different  from  his capacity  as the head of the Municipality or as  the  ’local government’  of Nandgaon State.  His action as the Dewan  in foregoing  the collection of octroi was not anything he  did on  behalf  of  the  Municipality  but  on  behalf  of   the sovereign.   The  resulting  position, thus,  was  that  the sovereign did not collect octroi from the  appellant-company because  of  the agreement, and  the  Municipal  Committee’s rules  and bye-laws, though they applied to  the  appellant- company remained in suspense because of the Ruler’s  desire. After the State merged with the State of Madhya Pradesh  and the Municipal Committee was not controlled in any way by the Ruler or by his agreement, the imposition of octroi upon the appellant-company  which  was  in suspense,  began  to  take effect  from such date as the Municipal Committee  chose  to determine.  The Municipal Committee ceased to be subject  to

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the  wish of the Ruler after the merger, and for a  time  it did  not collect octroi from the  appellant-company  because the  succeeding  Government was accepting the  royalty.   In 1952,  the  Municipal Committee resolved to  recover  octroi from  the appellant-company in accordance with the  original imposition  of  the tax in the State and there  was  nothing which stood in the way of the Committee.  The resolution was neither a fresh imposition of octroi because it had  already been  imposed nor the cancellation of an  exemption  because the Municipal Committee had not granted an exemption to  the appellant-company.   The resolution only indicated  that  on and  from a particular date, the Municipal  Committee  would recover octroi which it had already imposed a long time  ago upon all and sundry and to which the appellant- 199 company was also subject and which was no longer affected by the  will  of the quondam sovereign.  The agreement  of  the Ruler bound the Municipal Committee only indirectly, because the Ruler to whom the amount recovered would have gone,  had agreed  to  forego it, but the Ruler’s  desire  that  octroi should not be collected ceased to operate from the moment he ceased to be the Ruler. The Resolution of the Municipal Committee was thus in  order and the demand was rightly made.  The point about limitation was properly abandoned because it has no substance.        The appeal fails and is dismissed with costs. Appeal dismissed.