M.G. Desai and Anr vs State of Bombay

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Appeal (crl.) 70 of 1956

Decision Date: 2 December 1959

Coram: B.P. Sinha (CJ), P.B. Gajendragadkar, K. Subbarao, K.C. Das Gupta, J.C. Shah

The Court recorded that the appeal titled M.G. Desai and Another versus State of Bombay had been decided on 2 December 1959 by the Supreme Court of India. The appeal was numbered 70 of 1956 and was filed by M.G. Desai and another against the State of Bombay. The judgment was pronounced on 2 December 1959. The bench that heard the matter consisted of Chief Justice B.P. Sinha, Justice P.B. Gajendragadkar, Justice K. Subbarao, Justice K.C. Das Gupta and Justice J.C. Shah. Justice Shah delivered the judgment. On 12 February 1957 this Court had ordered that the appeal be sent back to the Bombay High Court with instructions that the lower courts should ascertain whether the sanction for prosecuting the appellants had been issued by the Central Government under Indian Ordinance No III of 1946 or had been issued under the Bhor State Ordinance that was then in force in the Bhor State. In compliance with that order the Special Judicial Magistrate of the First Class (A.C. Branch) in Poona recorded that sanction had indeed been granted by the Central Government under Indian Ordinance No III of 1946 and also under the Bhor State Ordinance of 1946, but that the primary source of the sanction was the ordinance applicable in the Bhor State. The Additional Sessions Judge of Poona, to whom the record was forwarded for his opinion, likewise recorded that the sanction had been granted under the ordinance that was in force in the State of Bhor. The Bombay High Court, however, had not made any explicit finding on this particular question.

To understand the contentions raised in the appeal, the Court set out several material facts. Bhor was one of the princely states situated in the Deccan region. The Rajasaheb of Bhor had issued Act I of 1942, known as the Government of Bhor State Act, 1942, with the purpose of introducing constitutional reforms in the state. Section 25 of that Act empowered a council, to be constituted under the Act, to make, repeal or amend laws concerning the whole of Bhor State or any part of it and concerning the subjects of the Rajasaheb wherever they might be. Section 26, however, excluded from the council’s competence certain matters listed in sub-section 1, and Section 30 gave the Rajasaheb exclusive jurisdiction to legislate on those excluded matters. Section 31 authorised the Rajasaheb, if satisfied that an emergency existed requiring immediate action in matters outside the scope of Section 26, to frame any measure or regulation for that purpose; such a measure, once assented to by the Rajasaheb, would have the force of law for six months from its publication in the official Gazette, and the proviso allowed the Rajasaheb to extend its operation by an additional three months. Section 6 affirmed the inherent executive, legislative and judicial authority of the Rajasaheb despite any provisions of the Constitution Act, expressly stating that nothing in the Constitution Act or any other statute should be deemed to affect the Rajasaheb’s right and prerogative to make laws, issue proclamations, orders and ordinances. The Court also noted that Laxmi Textile Mills Limited, a limited liability company, had its registered office in Bhor State and that the two appellants were the managing directors of that company. On 12 January 1946 the Government of India, exercising powers conferred by Section 72 of the Government of India Act, 1935 and as set out in the IXth Schedule, promulgated Ordinance No III of 1946 titled the High Denomination Bank Notes (Demonetisation) Ordinance, 1946. Section 3 of that ordinance provided that, after 12 January 1946, all high-denomination bank notes would cease to be legal tender, notwithstanding any provision in Section 26 of the Reserve Bank of India Act, 1934.

The Court explained that the Rajasaheb possessed the power to prolong the effect of any measure or regulation for an additional three months. Section six of the Act affirmed the Rajasaheb’s inherent executive, legislative, and judicial authority, stating that nothing contained in the Constitution Act or any other legislation could be construed as limiting the Rajasaheb’s right and prerogative to enact laws, issue proclamations, orders, or ordinances. The Court then noted that Laxmi Textile Mills Ltd., a limited liability company, had its registered office in Bhor State and that the two appellants served as the company’s managing directors. On 12 January 1946, the Government of India, exercising the powers granted by section 72 of the Government of India Act, 1935, issued Ordinance No. III of 1946, titled the High Denomination Bank Notes (Demonetisation) Ordinance, 1946, as provided in the Ninth Schedule. Section three of that ordinance provided that, after 12 January 1946, all high-denomination bank notes would cease to be legal tender throughout British India, irrespective of the provisions of section 26 of the Reserve Bank of India Act, 1934. Section four prohibited the transfer of any high-denomination note to another person. Section six made provisions for the exchange of such notes held by persons other than banks or government treasuries. Clause nine of section six stipulated that high-denomination notes whose value exceeded ten lakh rupees could be exchanged only with the Reserve Bank of India at Bombay, Calcutta or Madras. Clause two of section six required every owner who wished to tender high-denomination notes for exchange to complete a declaration in the prescribed form, signing it and furnishing all particulars required by that form. Section seven penalised any person who made a declaration known to be wholly or partially false. Sub-section 3 of section seven further provided that prosecution for an offence under that section could be instituted only after obtaining prior sanction from the Central Government. By a notification dated 19 January 1946, the Rajasaheb of Bhor applied Ordinance No. III of 1946 “mutatis mutandis” to the entire territory of Bhor State with immediate effect. The prosecution alleged that on 12 January 1946 the two appellants possessed high-denomination bank notes totalling Rs 10,55,000. To evade the restrictions of clause nine of section six, the appellants conspired with an individual identified as H. R. Karandikar and divided the total amount into three portions—Rs 9,69,000, Rs 24,000 and Rs 62,000. They then submitted false declarations and exchanged the notes from the Bhor Treasury through the Reserve Bank of India at Bombay on 21 January 1946, thereby receiving payment.

On February 4 1946 the prosecution alleged that the two appellants together with H. R. Karandikar made false statements concerning the receipt of money from several entities. They claimed that, out of a total sum of rupees 10,55,000, an amount of rupees 9,69,000 had been deposited with Laxmi Textile Mills, even though they themselves knew that the company had never received such a deposit. They also asserted that rupees 24,000 had been received on 9 January 1946 in the cloth-import department of Laxmi Textile Mills Ltd. from a person named Keshav Govind Agashe, although in reality no money had been received from that source. Furthermore, they declared that rupees 62,000 had been received by Laxmi Trading Company from a Mrs. C. Vimal Ben of Kurundwad on 9 January 1946, and that the first appellant had obtained the same amount on 11 January 1946 for a theatre belonging to Laxmi Trading Company, when in fact Laxmi Trading Company had not received any such sum. These false declarations were presented in order to obtain an exchange of the high-denomination bank notes totalling rupees 10,55,000 on the same day of 4 February 1946 from the Reserve Bank of India, Bombay, through the Bhor Treasury.

Subsequently, on 23 February 1953 the Central Government granted permission to prosecute the appellants and Karandikar for an offence punishable under sub-section 1 of section 7 of Ordinance No. III of 1946. A charge-sheet was filed on 9 July 1953 in the Court of the Special Judicial Magistrate First Class (A. C. Branch), Poona. The charge-sheet alleged that the accused had submitted false declarations and, contrary to section 6, clause 9 of Ordinance No. III of 1946, had obtained an exchange of the rupees 10,55,000 bank notes on 4 February 1946 from the Reserve Bank of India, Bombay, through the Bhor Treasury. It further alleged that the accused fabricated false documents by showing fictitious deposits to secure the exchange of those bank notes, thereby committing an offence punishable under section 7 of the same Ordinance, as well as offences under sections 420, 467 and 468 of the Indian Penal Code read with section 34 of the Indian Penal Code. At the trial before the Special Judicial Magistrate First Class, Poona, the appellants raised several objections: (1) that the charge of violating Ordinance No. III of 1946 could not be maintained because the Ordinance had lapsed long before the investigation began; (2) that any false representation, if made, occurred within the territory of Bhor State, where the Ordinance promulgated by the Rajasaheb of Bhor was operative, and that they could only be prosecuted under that Ordinance; (3) that even under the Bhor State Ordinance no prosecution was possible because that Ordinance had expired many years before the proceedings were initiated; and (4) that at the relevant time Bhor State was an independent Indian State and the appellants could not be tried in a Bombay State court without the sanction required by section 188 of the Code of Criminal Procedure. The learned Magistrate rejected all of these contentions raised by the appellants.

The Court noted that the Special Judicial Magistrate First Class at Poona had concluded that the prosecution against the appellants was valid and proceeded according to law. When the appellants filed a revision application against that finding, the Court of Session at Poona dismissed their arguments and refused to refer the matter to the High Court of Bombay for the purpose of setting aside the proceedings. Thereafter the appellants sought relief from the Bombay High Court by invoking the jurisdiction conferred by Section 561A of the Code of Criminal Procedure, but their petition was unsuccessful. Consequently, the appellants appealed to the Supreme Court by way of a special leave petition against the order of the High Court. By an order dated 12 February 1957, the Supreme Court remanded the appeal back to the Bombay High Court, directing that the High Court call upon the Special Judicial Magistrate First Class, Poona, to decide whether the sanction dated 23 February 1953 had been granted under the Bhor State Ordinance or under the ordinance applicable in British India. The Magistrate, after consideration, held that the sanction could be viewed as having been issued under both statutes, but that it was primarily grounded in the Bhor State Ordinance. The Court of Session at Poona concurred with this view, holding that the sanction must be regarded as having been issued under the Bhor State Ordinance.

For a clear understanding of the effect of the sanction granted by the Central Government, the Court reproduced the relevant order. The order, issued by the Ministry of Finance, Department of Economic Affairs, Government of India, New Delhi, and dated 23 February 1953, stated that under subsection (3) of Section 7 of the High Denomination Bank Notes (Demonetisation) Ordinance, 1946 (No III of 1946), the Central Government authorised the institution of prosecution against three individuals: Shri M. C. Desai, Shri D. B. Pathak and Shri H. R. Karandikar. The order alleged that on 21 January 1946 the three had submitted false declarations in violation of Section 6 of the same ordinance, knowingly presenting false statements, and had committed forgery by fabricating fictitious depositors in order to obtain exchange of high-denomination bank notes of Rs 1,000 each, amounting in total to Rs 10,55,000, from the Reserve Bank of India through the Bhor Treasury. The exchange was said to have taken place on 4 February 1946. The Treasury would have refused payment had the true facts about the possession of the amount been disclosed. Accordingly, the three were described as having cheated both the Reserve Bank of India and the Bhor Treasury and were thus liable to prosecution under Section 7 of the ordinance and other applicable laws. The order was signed by N. C. Sen Gupta, Deputy Secretary to the Government of India. In a subsequent notification dated 19 January 1946, the Rajasaheb of Bhor applied Ordinance No III of 1946, promulgated by the Central Government, mutatis mutandis to the entire territory of Bhor State, thereby indicating that the sanction was intended to be exercised under the Bhor State Ordinance rather than under the ordinance operative in British India.

The Court observed that the reference to Ordinance No III of 1946 in the text of the sanction, together with the statement that it applied “by the Central Government to the whole of Bhor State with immediate effect,” could not be read to mean that the sanction was issued under the ordinance then in force in British India. The recitals contained in the ordinance made it unmistakably clear that the Central Government intended to act under the Bhor State Ordinance. The Court noted that the recitals specifically mentioned that the Reserve Bank of India, Bombay and the Bhor State Treasury had been cheated by false declarations made by the appellants and by Karandikar. Consequently, a reference to the alleged deception of the Bhor State Treasury was material only if the sanction was based on a breach of the Bhor State Ordinance. The Court found no support in the recitals for the view that the authority conferred by Section 7, sub-section 3 of Ordinance No III of 1946, as it stood in British India, was meant to be exercised. In the absence of any indication that the Central Government’s authority to grant the sanction for prosecuting the appellants and Karandikar was exercised under the British-Indian ordinance rather than under the Bhor State Ordinance, the Court concluded that the sanction must have been given pursuant to the authority vested in the Central Government by the Bhor State Ordinance.

The Court rejected the argument that the Bhor State Ordinance had ceased to operate before the prosecution began. It held that the Rajasaheb of Bhor, in promulgating the ordinance, was exercising his inherent power under Section 6 of Act I of 1942 of the Bhor State. The legislative act of the Rajasaheb, performed in the exercise of that inherent power, was not subject to any temporal limitation unless expressly stated otherwise. The contention raised by counsel for the appellants that Section 31 of the Act overrode Section 6 of Act I of 1942 was found to be untenable. Section 6 provides that, “Notwithstanding anything contained in this or any other Act, all powers—legislative, executive and judicial—in relation to the Bhor State and its Government are hereby declared to be and to have always been inherent in and possessed and retained by the Ruler for the time being of the Bhor State; and nothing contained in this or any other Act shall be deemed to have affected the right and prerogative of the Ruling Prince to make laws, and issue proclamations, orders and ordinances by virtue of his inherent authority.” Accordingly, the Court held that the inherent right and prerogative to exercise legislative powers remained unabated, irrespective of any provision of the Act. While both Section 6 and Section 31 could be used to exercise authority in the same legislative field, this dual possibility did not diminish the Rajasaheb’s competency to enact laws.

In this case, the Rajasaheb retained the power to issue ordinances whenever he deemed it appropriate, exercising his inherent authority. It was permissible for him to act either under Section 6 or under Section 31 of the 1942 Act. The specific ordinance that applied the ‘Mutatis Mutandis’ Ordinance No. III of 1946, issued by the Central Government to Bhor State, was promulgated expressly pursuant to the authority granted by Section 6 of Act I of 1942. Consequently, the ordinance was not subject to the six-month limitation that might otherwise have caused it to lapse after its date of promulgation. Consequently, the ordinance continued in force beyond the six-month period that would otherwise have applied to a temporary measure. Thus, the Rajasaheb could choose the statutory provision that best suited the purpose of the ordinance he intended to issue. The Court observed that the existence of parallel powers under Sections 6 and 31 did not diminish the inherent prerogative of the ruler to legislate. Accordingly, the validity of the ordinance derived from Section 6 remained unaffected by any temporal limitation that might have applied to an ordinance issued under Section 31. Because the promulgation was expressly made under Section 6, the six-month expiration rule applicable to Section 31 ordinances was inapplicable. The Court therefore concluded that the ordinance remained operative and enforceable well beyond its initial promulgation date.

The question now before the Court was whether the Bhor State ordinance ceased to operate upon the merger of the State with the Dominion of India. Prior to 1947, the ruler of Bhor was one of the treaty chiefs who exercised both criminal and civil jurisdiction within his territory. The Indian Independence Act, 1947, terminated the suzerainty of the British Crown over the Indian States effective 15 August 1947. With that termination, all treaties, agreements and powers previously enjoyed by the Crown in relation to the Indian States and their rulers also ended. Nevertheless, the Instruments of Accession transferred to the Dominion Government of India the same powers and jurisdiction that the Crown Representative had exercised. To regulate the exercise of those powers, the Parliament enacted the Extra-Provincial Jurisdiction Act (later renamed the Foreign Jurisdiction Act), 1947. That statute authorized the Central Government to exercise, or to delegate to any officer or authority, the foreign jurisdiction vested in it by treaties, agreements, grants, usage, sufferance or other lawful means. In February 1948, the ruler of Bhor decided to integrate his State with Bombay Province and executed a merger agreement. Clause 1 of that agreement, reproduced in Appendix 13 of the White Paper on Indian States, provided that Bhor State ceded full and exclusive authority, jurisdiction and powers to the Dominion Government. The agreement further stipulated that administration of the State would be transferred on the specified date and that, from that day, the Dominion Government would hold those powers in whatever manner it deemed appropriate. Subsequently, by Notification No. 150-1B dated 25 February 1948, the Government of India delegated to the Government of Bombay the powers under Section 4 of the Foreign Jurisdiction Act relating to the Deccan States. Those delegated powers covered any matters enumerated in List II or List III of the Seventh Schedule to the Government of India Act, 1935.

On 2 June 1948 the Government of Bombay issued an order titled “The Administration of the Indian States Order” in exercise of the powers conferred by Section 4 of the Extra-Provincial Jurisdiction (Foreign) Act, 1947. Paragraph 4 of that order provided that the provisions of any law that were in force immediately before the appointed day in any Indian State, including Bhor State, would continue in force until altered, repealed or amended by an order made under the same Act. Subsequently, on 28 July 1948 another order called “The Indian States (Application of Laws) Order, 1948” was issued. That order extended to Bhor State the laws that were in force in the Province of Bombay and it repealed the corresponding laws that had previously operated in Bhor State. However, the Bhor State Ordinance was not repealed by that order, nor was Ordinance No. III of 1946 made applicable to Bhor State in place of the Bhor State Ordinance. On 27 July 1949 the Governor-General issued the “States Merger (Governor’s Provinces) Order, 1949”. Paragraph 4 of that order declared that all laws which were in force in the merged states immediately before the appointed day, that day being 1 August 1949, would continue to remain in force until repealed, modified or amended by a competent legislature. Clause 1 of Article 372 of the Constitution of India provided that all laws in force in the territory of India immediately before the Constitution came into effect would remain in force until repealed or amended by a competent legislature or authority. Accordingly, the Bhor State Ordinance continued to operate despite the merger of Bhor State, first by virtue of the order issued under Section 4 of the Foreign Jurisdiction Act, 1947, and thereafter by Article 372 which kept it in operation even after the Constitution was enacted. The Court therefore affirmed that the High Court was correct in holding that the Ordinance had not ceased to be in operation on the date when the prosecution against the appellants and Karandikar commenced. The contention that, in the absence of adaptations which the President of India is authorised to make under Clause 2 of Article 372, the Bhor State Ordinance had lapsed was rejected. Clause 2 authorises the President to adapt existing laws, but the application of those laws is not conditioned upon the President actually making any adaptation or modification. Likewise, the argument that the Province of Bombay was incompetent to extend the Bhor State Ordinance to the area formerly administered by Bhor State, on the ground that its competence was limited to matters enumerated in Schedules 2 and 3 of the Government of India Act, 1935, was without merit, because the Ordinance remained in operation by virtue of the order issued under Section 4 of the Foreign Jurisdiction Act, not by any express enactment of the Provincial Government.

In this case, the Court observed that the Bhor State Ordinance continued to operate by reason of the Extra Provincial Jurisdiction Act, and not because of any specific enactment by the Government of the Province of Bombay exercising delegated powers from the Central Government. The Court further held that the argument that a sanction from the Provincial Government was necessary for the prosecution of the appellants had no merit. The merger agreement transferred to the Central Government all the powers formerly exercised by the Ruler of Bhor State. Although the Central Government delegated certain authority to the Provincial Government, that delegation did not extinguish the Central Government’s original powers. Consequently, the Central Government retained the authority to sanction prosecutions for violations of the Bhor State Ordinance. The Court noted that the contention that the appellants could not be prosecuted without a sanction under section 188 of the Code of Criminal Procedure had not been properly presented before it. Accordingly, the Court affirmed the High Court’s conclusion that there was no ground for setting aside the proceedings that had been initiated against the appellants before the Special Judicial Magistrate First Class, A C Branch, in Poona. The appeal was therefore dismissed. Finally, the Court expressed the hope that the pending proceedings against the appellants and Karandikar would be scheduled for hearing without unnecessary delay and would be conducted swiftly.