Shri Manna Lal And Another vs Collector Of Jhalawar And Others

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 88 of 1957

Decision Date: 7 December, 1960

Coram: A.K. Sarkar, Bhuvneshwar P. Sinha, S.K. Das, N. Rajagopala Ayyangar, J.R. Mudholkar

The matter titled Shri Manna Lal and Another versus Collector of Jhalawar and Others was decided by the Supreme Court of India on 7 December 1960. The judgment was authored by Justice A.K. Sarkar and the bench comprised Justices A.K. Sarkar, Bhuvneshwar P. Sinha, S.K. Das, N. Rajagopala Ayyangar and J.R. Mudholkar. The petitioners were Shri Manna Lal and another individual, while the respondent was the Collector of Jhalawar together with other respondents. The date of the judgment is recorded as 07/12/1960 and the bench is again listed as Justice A.K. Sarkar, Justice Bhuvneshwar P. Sinha, Justice S.K. Das, Justice N. Rajagopala Ayyangar and Justice J.R. Mudholkar. The case is reported in 1961 AIR 828 and 1961 SCR (2) 962, and further citator references include RF 1961 SC1704 (10), R 1963 SC 222 (23,58), D 1964 SC 1633 (9), R 1967 SC 1581 (20), RF 1974 SC 2009 (3,23), R 1980 SC 801 (8) and R 1984 SC 200 (7). The issue concerned a public demand arising from a loan to Jhalawar State Bank, whose assets had been transferred to the United State of Rajasthan under a covenant and later vested in the State of Rajasthan. The Court examined whether the recovery of this loan could be pursued as a public demand under Section 4 of the Rajasthan Public Demands Recovery Act, 1952. It also considered whether the Act infringed Article 14 of the Constitution by giving the Government a special facility as banker.

The headnote explained that Jhalawar State Bank originally belonged to the ruling State of Jhalawar, and its assets, including monies due to it, became vested in the United State of Rajasthan. This vesting occurred through a covenant executed by the ruler of Jhalawar together with other rulers who created the United State of Rajasthan. When the Constitution of India came into force, the United State of Rajasthan became the State of Rajasthan within the Indian Union. All assets, including the Jhalawar State Bank and its dues, therefore transferred to the State of Rajasthan. The headnote stated that monies owed by the appellants for advances made by Jhalawar State Bank when it was owned by the State of Jhalawar. These monies could be recovered by the State of Rajasthan after the bank vested in it, as a public demand under the Rajasthan Public Demands Recovery Act, 1952. The headnote further observed that the form prescribed in the Act required a certificate under Section 4 stating the period for which a public demand was due. That requirement was not applicable to a loan to the Government because there was no specific period for which the loan was due. The headnote concluded that the Rajasthan Public Demands Recovery Act did not offend Article 14 of the Constitution by granting the Government a special facility as banker. It held that the Government could be placed in a separate class for this purpose. The judgment section noted that the case was a civil appellate jurisdiction matter, identified as Civil Appeal No. 88 of 1957, arising from the judgment and order dated 18 January 1956 of the Rajasthan High Court, Jaipur.

The appeal was filed by counsel for the appellants and counsel for the respondents. The judgment was delivered on 7 December 1960 by Justice Sarkar. The appellants were traders residing in Jhalawar. The first respondent, the Collector of Jhalawar, served the appellants with a notice issued under section 6 of the Rajasthan Public Demands Recovery Act, 1952 (hereinafter “the Act”). The notice demanded recovery of a sum of Rs 2,24,607 ⅙ ⅙, which the Collector claimed was a public demand arising from loans that the appellants had taken from the Jhalawar State Bank. In response, the appellants filed a petition under section 8 of the Act, asserting, among other points, that the amount sought to be recovered was not a public demand within the meaning of the statute. The Collector thereafter asked the appellants to prove that the demand did not fall within the definition of public demand. Without complying with that request, the appellants approached the Rajasthan High Court, seeking a writ to quash the proceedings instituted under the Act. The High Court rejected the petition but issued a certificate indicating that the matter was suitable for appeal to the Supreme Court. Consequently, the present appeal was filed before this Court. The sole issue framed for determination is whether any loan owed to the Jhalawar State Bank may be treated as a public demand for the purposes of the Act.

A “public demand” under the Act is defined as “any money payable to the Government or to a department or an officer of Government under or in pursuance of a written instrument or agreement.” In this definition, “Government” refers to the Government of Rajasthan, because the Act was enacted by the Rajasthan State Legislature in 1952. The question, therefore, is whether money owed to the Jhalawar State Bank can be characterised as money payable to the Government of Rajasthan. The Jhalawar State Bank was established in 1932 when Jhalawar existed as a princely state. In or about April 1948, Jhalawar, together with nine other princely states of Rajputana, merged to form the United State of Rajasthan under a covenant signed by the rulers of those states. One clause of the covenant declared that “All the assets and liabilities of the covenanting States shall be the assets and liabilities of the United State.” Subsequently, on 30 March 1949, the states of Bikaner, Jaipur, Jaisalmer and Jodhpur also acceded to the United State of Rajasthan. When the Constitution of India came into force, the United State of Rajasthan became a Part B state within the Indian Union, and the assets and liabilities previously vested in the United State were transferred to the State of Rajasthan. The proceedings against the appellants were initiated by filing a requisition with the Collector by the Treasury Officer of Jhalawar and the Recovery Officer of the Jhalawar State Bank, invoking section 3 of the Act and asserting that the amount claimed was due from the appellants to the Government of Rajasthan in respect of the Jhalawar State Bank’s claims.

Under section 3 of the Act a requisition was issued stating that a specified sum was payable by the appellants to the Government of Rajasthan in respect of the claims of the Jhalawar State Bank against them. This requisition appears to have been made shortly before 16 June 1953, the date on which respondent No 1 executed a certificate identifying the amount of the demand, detailing certain particulars, and lodged the certificate in his own office pursuant to section 4 of the Act. In compliance with section 6, a notice announcing the signing and filing of that certificate was served upon the appellants. The notice and the proceedings that subsequently followed have been referenced at the outset of this judgment. The substance of the claim therefore relates to monies allegedly owed to the Jhalawar State Bank. If the Bank were not the property of the former State of Jhalawar, its indebtedness could not be said to have merged into the present State of Rajasthan.

The appellants initially contended that the Jhalawar State Bank was not the property of the State of Jhalawar. To support this contention they relied upon certain regulatory rules framed by the Ruler of Jhalawar concerning the Bank’s operation. It was observed that those rules made the Bank appear similar to any other commercial enterprise. The Court was unable to accept the proposition that such similarity precluded the Bank from being an institution belonging to the State. Nothing in the law prevented the Jhalawar State from conducting a commercial undertaking; if it did so, the assets of that undertaking would be deemed State assets and, as noted earlier, would now be vested in the State of Rajasthan. The appellants also argued that the rules indicated management of the Bank rested with a board that included non‑official members, contending that this fact demonstrated the Bank’s non‑State character. The Court found that the rules clearly established that the Bank was not the property of the board, which was constituted from time to time by the Ruler and whose majority of members were State officers. This composition showed that the Ruler exercised full control over the Bank as a State undertaking. While the rules permitted the Bank to sue or be sued in relation to transactions it entered into, this merely identified the name under which legal actions could be brought and did not confer a separate legal identity on the Bank. Moreover, it was unmistakable that the Bank’s capital was derived solely from the funds of the Jhalawar State, with no contribution from any other source, and that one of the Bank’s explicit objects was to invest the surplus funds of the State.

In this case, the Court observed that the business of the Bank was ultimately under the control of the Ruler and that the Jhalawar State guaranteed the Bank’s financial liabilities. The name “Jhalawar State Bank” itself indicated that the institution belonged to the State of Jhalawar. At the time of the formation of the United State of Rajasthan in 1948, the Chief Executive Officer of Jhalawar issued a public notification. In that notification, after referring to the article in the Covenant that stipulated that the assets and liabilities of the covenanting States would become the assets and liabilities of the United State, it was stated that, by virtue of that article, on the formation of the new State the responsibility and guarantee for the existing transactions with the various departments of Jhalawar State or with the Jhalawar State Bank would now belong to the newly formed United State of Rajasthan. The Court said that this statement demonstrated that all parties treated the assets of the Jhalawar State Bank as assets of the former Jhalawar State, and that, upon the creation of the United State of Rajasthan, those assets vested in the latter State. The Court further noted that no other person or entity had ever claimed any right over the assets of the Jhalawar State Bank. Consequently, the Court concluded beyond any doubt that the Jhalawar State Bank was an asset of Jhalawar State and that the ownership of those assets had passed to the State of Rajasthan. The appellants also argued that the dues of the Jhalawar State Bank had, in any event, been transferred by the Government of Rajasthan to the Bank of Rajasthan Ltd. under certain notifications that the Court would later examine. They contended that the Bank of Rajasthan Ltd., as its name suggests, was a limited company with an independent existence and not a department of the Government of Rajasthan. It was further argued that this vesting occurred before the proceedings under the Act were initiated, and therefore, at the commencement of those proceedings, the amount claimed from the appellants as due to the Jhalawar State Bank was not a public demand within the meaning of the Act. The Court found that this contention, which relied on the earlier‑mentioned notifications, was not well founded. For the purpose of analysis, the Court assumed that the Bank of Rajasthan Ltd. was not a department of the Government of Rajasthan. The issue before the Court was whether the effect of the two notifications was to vest the dues of the Jhalawar State Bank in the Bank of Rajasthan Ltd. The first notification, dated 15 February 1951, stated that the Government of the State of Rajasthan had decided to transfer, among other things, the Jhalawar State Bank to the Bank of Rajasthan Ltd. It was argued that this notification transferred the assets of the Jhalawar State Bank to the Bank of Rajasthan Ltd. The Court expressed that it did not consider that to be the effect of the notification, noting that the notification contained two very significant provisions that required further examination.

In the first notification, dated 15 February 1951, two substantive provisions were set out. The notice informed all debtors of the State Banks, irrespective of the class, category or nature of the debt, that they must settle their accounts with the State Banks within one month of the notice’s publication. The State Banks would thereafter continue only to clear old accounts, and the securities pledged by the debtors would automatically be transferred to the Bank of Rajasthan Ltd. The Bank of Rajasthan Ltd. was to be authorised, on behalf of the State, to carry out the necessary recoveries and to settle the accounts. The notification expressly stated that the transfer of these debts to the Bank of Rajasthan Ltd. would not, in any circumstance, deprive the Government of Rajasthan of its inherent right to recover the amounts guaranteed by the respective covenanting States. The government retained the authority to recover and settle the dues in accordance with the existing rules or any law that might be enacted thereafter for the recovery of State dues or debts. From these provisions, it was clear that the Bank of Rajasthan Ltd. acted merely as an agent of the Rajasthan Government for the purpose of recovery, and that the dues of the Jhalawar State Bank remained the dues of the Government of Rajasthan. The last paragraph of the notice reinforced this position, preserving the State’s right to recover the amounts due to the Jhalawar State Bank under any future legislation. Consequently, under this notification, the debts owed to the Jhalawar State Bank were not transferred in ownership to the Bank of Rajasthan Ltd.; they continued to be payable to the Government of Rajasthan.

The second notification, issued on 16 April 1952, reiterated that the banks mentioned in the earlier notice, including the Jhalawar State Bank, would be merged into the Bank of Rajasthan Ltd. The Court observed that this later notice did not expressly cancel the earlier provision that preserved the State’s power to collect the debts. Rather, it simply restated the Government’s intention to merge the banks into the Bank of Rajasthan Ltd. The notice contained no specific language addressing the dues of these banks or the manner of their recovery. Therefore, the provisions of the earlier notification continued to have effect with respect to the debts. Moreover, there was no documentary evidence showing that the debts due to the Jhalawar State Bank had been transferred or vested in the Bank of Rajasthan Ltd. as its property. In the absence of such a transfer, the debts could not be said to have become the Bank of Rajasthan Ltd.’s own liabilities. Accordingly, the Court concluded that the debts remained debts of the Government of the State of Rajasthan and were not the property of the Bank of Rajasthan Ltd.

The Court observed that there was no basis for the claim that the debts owed by the appellants had become debts of the Bank of Rajasthan Limited in its own right. Consequently, the Court held that the debts continued to be liabilities of the Government of the State of Rajasthan. The appellants had also argued that the monies claimed from them were not payable under any written instrument or agreement, a contention the Court found wholly unfounded. The Court noted that the loans had been granted by the Jhalawar State Bank on the appellants’ own applications, each application containing a declaration that the appellants desired a loan, agreed to repay the principal together with interest at the rate specified, and offered to hypothecate various properties as security. The applications and the accompanying receipts were signed by the appellants, and the receipts also bore the signatures of the bank officers as evidence of sanction. In the Court’s view, these applications and receipts together constituted written instruments that created a binding obligation on the appellants to repay the monies advanced. The appellants further contended that the law required a single document to constitute a public demand, whereas in each case there were two documents – the application and the receipt. The Court rejected this argument, explaining that the statute does not prescribe a single instrument and that, under ordinary statutory construction, a singular term includes the plural. Accordingly, the two documents formed a complete written agreement satisfying the requirement of the Act, even when read in the manner suggested by the appellants.

The fourth point raised by the appellants concerned the alleged defect in the certificate issued under the Act, which they claimed rendered the proceedings a nullity. Section 4 of the Act mandates that the certificate be fashioned in the prescribed form, including a specific statement of the period for which the demand is due. The Court observed that the certificate in the present case omitted any reference to a period. However, the Court concluded that this omission did not amount to a defect because a loan demand does not involve a particular period of liability. The requirement to specify a period, the Court explained, was intended for demands relating to revenue, rent, or similar claims that accrue over a defined time. In the case of a loan owed to the Government, which qualifies as a public demand under the Act, no such period needs to be indicated. Therefore, the certificate complied with the statutory form, and the absence of a period specification did not invalidate the proceedings.

In its analysis, the Court observed that the certificate issued in the proceeding was not defective. The final contention raised before the Court was that the provision of the Act which permitted the recovery of sums owed to the Government arising from its trading activities, by way of a public demand, violated Article 14 of the Constitution. It was submitted that the Act created a distinction between ordinary bankers and the Government exercising the function of a banker for the purpose of recovering monies due. The Court held that the Government, even when it functions as a banker, could legitimately be placed in a separate category. The Court further explained that the debts owed to a State Government represented the debts of the entire population of that State. Consequently, a statute that provided a special mechanism for recovering such debts could not be said to offend the principle of equality enshrined in Article 14. After having examined every point raised in the appeal, the Court found no merit in any of the arguments for the reasons previously articulated. Accordingly, the Court concluded that the sum claimed from the appellants constituted a public demand within the meaning of the Act and that the recovery proceeding was lawful. The appeal was therefore dismissed, the costs were awarded, and the order to dismiss the appeal with costs was entered.