Lachhman Das on Behalf of Firmtilak Ram vs State of Punjab and Others

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 23 April 1962

Coram: Bhuvneshwar P. Sinha, N. Rajagopala Ayyangar, J.R. Mudholkar, Venkatarama Aiyar

Lachhman Das, acting on behalf of Firmtilak Ram, filed a petition against the State of Punjab and other respondents. The matter was heard by a bench of the Supreme Court of India comprising Justice Bhuvneshwar P. Sinha, Justice N. Rajagopala Ayyangar and Justice J. R. Mudholkar. The judgment was delivered on 23 April 1962. The case is reported in the 1963 All India Report at page 222 and in the Supreme Court Reporter, second series, at page 353. Subsequent citations include references such as R 1964 SC 1223, F 1966 SC 1607, R 1967 SC 1581, RF 1973 SC 1461, RF 1974 SC 2009, R 1980 SC 452, R 1980 SC 801, R 1984 SC 200, and RF 1992 SC 1277. The issues considered involved the constitutional validity of a special procedure statute dealing with the determination and recovery of state dues, the powers of rulers of erstwhile states after their merger, and the status of an enactment, namely the Patiala Recovery of State Dues Act, Fourth Amendment of 2002, and its relevant sections 2, 3, 4, 5, 6 and 11, in light of Articles 14, 19(1)(f), 19(1)(g) and 363 of the Constitution of India. The headnote records that on 5 May 1948 the rulers of eight princely states, including Patiala and Nabha, entered into a covenant merging those states to form the new entity called the Pepsu Union. Under Article VI of that covenant, all rights, authority and jurisdiction of the rulers in relation to government were vested in the Union, while executive authority was placed in the Rajpramukh. Article X stipulated that, until a constitution drafted by the Constituent Assembly came into force, the Rajpramukh could make and promulgate ordinances for the peace and good government of the Union or any part thereof, and such ordinances would, for a period not exceeding six months from their promulgation, have the same force as an act passed by the Constituent Assembly. The Pepsu Union formally came into existence on 20 August 1948, with the ruler of Patiala serving as Rajpramukh. On that same date an ordinance was issued extending all laws applicable in the State of Patiala to the entire territory of the new Union. Because that ordinance was set to expire on 20 February 1949, a second ordinance with identical terms was promulgated on 15 February 1949. Subsequently, on 9 April 1949, the rulers executed a Supplementary Covenant amending Article X by removing the phrase “for the space of not more than six months from its promulgation,” thereby intending that all laws brought into force by the aforementioned ordinances would continue in effect until specifically repealed by fresh legislation. After the Constitution of India came into force, Pepsu was designated a Part B state and later, under the States Reorganisation Act of 1956, became part of the State of Punjab, with the laws previously in force in Pepsu continuing to operate in that area.

In this case the Court recorded that after the Constitution of India had come into force the territory of the former Patiala and East Punjab States Union (Pepsu) became part of the State of Punjab, and that all the laws previously in force in Pepsu continued to operate in that area. The Court noted that the Patiala State Bank had been created in 1917 by the then Ruler of the State of Patiala. The appellant maintained an account in one of the bank’s branches located in the former Patiala State, while the petitioner, in a related matter, held a similar account in a branch of the same bank situated in the former State of Nabha. The amounts due on both accounts remained unpaid after the commencement of the Constitution. The Bank therefore sought to recover the outstanding sums in accordance with the Patiala Recovery of State Dues Act, 2002 (BK), and the rules made under that Act. The Court explained that the Act had been passed by the State of Patiala before its merger into the new State. Section 3 of the Act defined “State Dues” to include debts owed to the Patiala State Bank. Section 4 empowered the Managing Director of the Bank to determine the exact amount of State Dues recoverable from a defaulter. Section 5 provided that State Dues could be recovered as if they were arrears of land revenue. Section 6 declared that a certificate issued by the Managing Director concerning the amount of State Dues served as conclusive proof of the matters stated therein. Finally, Section 11 excluded the jurisdiction of the civil courts with respect to matters entrusted to the Managing Director under the Act and its rules.

The appellants contested the validity of the Act and the proceedings instituted under it on two principal grounds. First, they argued that the Act had ceased to be effective after the six‑month period of the Ordinance issued by the Raj Pramukh on 15 February 1949 had expired, because the Rulers no longer possessed the authority to enter into the Supplementary Covenant after they had fully surrendered their sovereign powers to the new State by the Covenant dated 5 May 1948; consequently, they could not confer any legislative competence on the Raj Pramukh. Second, the appellants contended that, irrespective of the first ground, the Act and the rules made thereunder became void with the commencement of the Constitution of India, as they were inconsistent with Articles 14, 19(1)(f) and 19(1)(g). The Court, with Justice Subba Rao dissenting, held that the Patiala Recovery of State Dues Act, 2002 (BK) did not violate Article 14 of the Constitution. The Court observed that a bank established by a State possessed distinctive characteristics that set it apart from other banks, forming a separate category. Accordingly, the Act’s provision for distinct authorities to resolve disputes and its special summary procedure for recovering dues could not be described as discriminatory and were therefore constitutionally valid. The Court relied on the precedent set in Mannalal and Others v. Collector of Jhalawar and Others, (1961) 2 S.C.R. 962, to support this conclusion.

In this matter, the Court referred to earlier decisions including Choudhury v. Union of India and others (1950) S. C. R. 869 and Ram Krishna Dalmia v. Shri Justice S. B. Tandolkar and others (1959) S. C. R. 279. The Court observed that the Act could not be said to discriminate merely because, after the merger of the former Pepsu State into the present State of Punjab, the statute continued to operate only in the area that had previously formed Pepsu while other parts of Punjab were governed by different legislation. Such a situation, the Court explained, arose from historical circumstances and therefore furnished a legitimate basis for classification under Article 14 of the Constitution. To support this view, the Court also cited Bhaiya Lal Shukla v. The State of Madhya Pradesh (1962) Supp. 2 S. C. R. 257, State of Madhya Pradesh v. G. C. Mandawar (1955) 1 S. C. R. 599, State of Madhya Pradesh v. The Gwalior Sugar Company Ltd. (1962) 2 S. C. R. 619 and Bowman v. Lewis (1880) 101 U. S. 22: 25 L. E.D. 989, all of which were relied upon for analogous reasoning. Further, the Court, speaking through Chief Justice Sinha together with Justices Rajagopala Ayyangar, Mudholkar and Venkatarama Aiyar, set out several specific findings. First, it held that the Covenant dated 5 May 1948 had resulted in a complete surrender of all sovereign powers by the Rulers when the new State came into being on 20 August 1948; consequently, a Supplementary Covenant executed by the Rulers on 9 April 1949 could not amend the provisions of the original Covenant, a position that disapproved the view expressed in Prithi Singh v. State of Pepsu, A. I. R. 1952 Pepsu 161. Second, the Court determined that the question of whether the Patiala Recovery of State Dues Act, IV of 2002 (BK), remained in force at the relevant time arose from a provision in the 5 May 1948 Covenant, and that, under Article 363 of the Constitution, civil courts possessed no jurisdiction to examine that question, thereby distinguishing the case of Bholanath J. Phaker v. State of Saurashtra, A. I. R. 1956 S. C. 680. Third, the Court concluded that the Act did not offend Article 19(1)(f) because, although the procedure it prescribed for settlement of disputes might be characterized as harsh, the overall scheme of the Act and its rules was reasonable and did not violate the principles of natural justice. Fourth, the Court found that the Act was not inconsistent with Article 19(1)(g). In contrast, Justice Subba Rao, dissenting, warned that the Patiala Recovery of State Dues Act transgressed the equality principle embodied in Article 14 and could not be defended on the ground of reasonable classification. He cautioned that an excessive reliance on the doctrine of classification might erode the substantive meaning of equality, eventually allowing the doctrine of classification to supplant the fundamental right to equality before the law and equal protection of the laws.

The Court observed that the protective purpose of the law could be displaced by an application of the doctrine of classification. In the matter before it, the Court found that there were no genuine distinctions between the Patiala State Bank and other banks with respect to their claims against their respective constituents that would justify the special treatment afforded to the Patiala State Bank under the Act. Accordingly, the Court held that the provisions of the Patiala Recovery of State Dues Act, insofar as they applied to the Patiala State Bank, were void as they violated constitutional principles.

The judgment concerned original jurisdiction under Petitions Nos. 92 and 128 of 1959, which were filed under Article 22 of the Constitution of India for the enforcement of fundamental rights. These petitions were accompanied by Civil Appeals Nos. 210 and 211 of 1961, which were appeals from the Punjab High Court’s judgment and order dated 6 March 1959 in Civil Writ Nos. 133 of 1957 and 389 of 1958. Counsel for the petitioner in Petition 92 of 1959 and counsel for the petitioner in Petition 128 of 1959 presented their arguments, while counsel for the appellants, consisting of members of the joint Hindu family firm, also appeared. The State of Punjab was represented by the Advocate‑General, and counsel for the respondents in both the petitions and the appeals were also present. The judgment was delivered on 23 April 1962.

Justice Venkatarama Aiyar delivered the judgment on behalf of the Court, which also included Justices Sinha C.J., Rajagopala Ayyangar, and Mudholkar. The Court noted that the appellants were a joint Hindu family firm that had been conducting business since 1911 in activities such as trading grains, dal, cereals, cotton ginning and pressing, and oil manufacture at Lehragaga, a locality that formerly formed part of the State of Patiala. The firm maintained a cash‑credit account with the Patiala State Bank’s branch at Lehragaga and borrowed against pledged stock. In the commodity slump of 1951‑52, the market prices of the goods fell sharply, resulting in the bank’s advances exceeding the actual market value of the securities. To remedy a shortfall amounting to Rs 2,32,000, the firm entered into an arrangement with the bank on 23 May 1953, which gave rise to the present litigation.

Under that arrangement, the bank sanctioned a demand‑loan of Rs 4,50,000. The firm furnished title deeds of its properties as security for the possible liability under the demand‑loan account, and the adult members of the family executed a promissory note for the loan amount together with a memorandum confirming the deposit of the title deeds. The Court further recorded that, in 1951, a separate firm named Yogiraj Neelkumar had been established at Lehragaga. The partners of that firm were Bhagirathlal, a senior member of the joint Hindu family of the appellant firm, and two unrelated individuals, Shri Kishore Chand and Shri Banwarilal, who operated as commission agents. The Court noted these factual details as the background to the dispute concerning the liability of the joint Hindu family’s properties for the amount owed by Yogiraj Neelkumar.

In the present dispute, the appellant firm had maintained a cash‑credit account with the Patiala State Bank at Lehragaga, from which it borrowed money for its business operations. The firm suffered heavy losses during the economic slump and, on 23 May 1953, it owed the bank a sum of Rs 2,17,957‑12‑6 as a shortfall. At the same time, another firm named Yogiraj Neelkumar, which had also obtained a cash‑credit account with the same bank, incurred a similar shortfall and on the same date owed the bank the identical amount of Rs 2,17,957‑12‑6. Under the arrangement dated 23 May 1953, the bank applied the sanctioned loan of Rs 4,50,000 to satisfy the shortfalls of both the appellant’s firm and the Yogiraj Neelkumar firm. The appellants contended that they had no connection with the Yogiraj Neelkumar firm, asserting that the latter had been started by Bhagirathlal together with two strangers as a separate concern, and therefore the joint Hindu family property of the appellants could not be held liable for the Rs 2,17,957‑12‑6 owed by Yogiraj Neelkumar. When the amount recoverable under the demand‑loan account remained unpaid, the bank proceeded to realise the debt in accordance with the Patiala Recovery of State Dues Act (the “Act”) and the rules made thereunder. For the purpose of the proceeding, the court found it necessary to set out the relevant provisions of the Act, whose validity and constitutional basis formed the central issue of the case. Section 3(1) of the Act defined “State dues” to include debts due to the Patiala State Bank. Section 3(2) defined “Department” to comprise the Patiala State Bank, and Section 3(6) defined “Head of department” as the Managing Director of the bank. Section 4(1) authorised the Head of department to determine the exact amount of State dues recoverable from a defaulter in the manner prescribed by the rules. Section 5(1)(a) provided that State dues could be recovered by the department through the Nazim as if they were arrears of land revenue. Section 6(1) required the Head of department to send a certificate stating the amount of State dues recoverable from the defaulter to the Nazim in Form I and to the Accountant‑General in Form II, with a proviso that where the Head of department was below the rank of Minister or Secretary, the certificate must be forwarded through the responsible Minister or Secretary, who would countersign it after being satisfied that the amount stated was correct. Section 6(2) declared such a certificate to be conclusive proof of the matters stated therein, and mandated that neither the Nazim nor the Accountant‑General could question the validity of the certificate or entertain any objection from the defaulter regarding the amount of State dues mentioned in it.

The judgment noted that Section 11 of the Act barred any civil court from exercising jurisdiction over matters that the Act or its rules assigned to the Head of the department or to any officer authorized by him. Section 12, on the other hand, empowered the State authority to formulate rules governing, among other things, the method for ascertaining the amount of State dues. The statutory rules made under Section 12 were officially published on 8 August 1945. Rule 3, issued under this authority, required the Head of the department to serve a notice on the defaulter in the manner prescribed by the rule. The notice had to state the exact amount of State dues claimed and had to demand that the defaulter either pay the amount before a specified date or appear before the Head of the department on that date and submit a written statement of defence. The prescribed date for appearance had to afford the defaulter a minimum of fifteen days to either make payment or to present his answer. If the defaulter failed to appear on the appointed day, the Head of the department was permitted to proceed ex parte, to determine in writing the amount of State dues recoverable, provided he was satisfied that the notice had been duly served; if he was not satisfied, he could order that a fresh notice be issued. Rule 6 dealt with the situation where the defaulter did appear on the fixed date and lodged his written statement. In such a case, the Head of the department or, as the circumstance required, the Inquiry Officer, was required to examine the objections raised in the statement against the relevant departmental records and, on the same day or on any later day, to issue a written order fixing the exact amount of State dues recoverable from the defaulter. Rule 7 stipulated that when the amount determined under Rules 5 or 6 remained unpaid, the Head of the department could issue another notice demanding payment of the State dues within fifteen days, and that, in case of default, recovery could be effected through the Nazim. Under Rule 8, an appeal against an order fixing the amount due under Rules 5 or 6 was to be lodged with the Board of Directors, and a revision of an order rejecting such an appeal lay with the Ministry. The rules also included a provision for serving notice on the defaulter when proceedings for the recovery of the amount were initiated.

Applying these procedural requirements, the Court described the actions taken by the Patiala Bank to recover amounts owed by the appellants. On 17 February 1955, the Bank issued a notice to the appellants in accordance with Rule 3(2), stating that a sum of Rs 5,17,863‑3‑4 was due from them. The notice invited the appellants either to pay the stated amount or, within fifteen days, to file a written statement setting out their defence to the claim. In response to this notice, the appellants sent a reply on 26 March 1955. The content of that reply is recorded only as having been sent on that date, and the judgment proceeds to consider subsequent steps in the recovery process.

On 26 March 1955 the appellants sent a reply to the Bank’s notice of 17 February 1955. In that reply they explained that they were unable to make payment because of a continuous slump in the market, and they requested that the Bank allow them to pay the outstanding sum in reasonable instalments. The appellants also mentioned that the Government intended to acquire certain lands belonging to them, which would trigger a compensation liability, and they prayed that the recovery proceedings be postponed until such compensation became payable. The Bank appears to have taken no further action for a period of time. On 21 November 1955 the Bank issued a fresh notice under rule 3, stating that a sum of Rs 5,24,593‑10‑10 was now due and again requiring payment or a defence within fifteen days. The appellants responded on 7 December 1955, asking that the representation they had previously made be considered by the Board of Directors. On 6 January 1956 the appellants sent another reply indicating that they expected to discharge a substantial portion of the loan shortly and again requested suspension of further proceedings. The Managing Director declined to accede to this request, and on 27 January 1956 a certificate under paragraph 7 of the Act was issued, certifying that Rs 4,98,589‑1‑6 was due from the appellants and directing the Deputy Commissioner of Patiala to recover the amount as arrears of land revenue. After additional attempts by the appellants to obtain a postponement of the recovery process, they filed a petition in the High Court of Punjab on 16 February 1957 under Article 226 of the Constitution (Writ Petition No. 133 of 1957), challenging the validity of the Act and the proceedings instituted under it on several grounds.

Subsequently, on 7 July 1956 the Bank issued another notice under rule 3(2), demanding from the appellants a sum of Rs 25,548‑4‑6 as due on the cash‑credit account at Lehragaga. The appellants replied denying any liability. On 4 October 1956 the Bank determined the liability ex parte at Rs 25,478‑15‑9. A notice under rule 7(1) was issued on 6 December 1956, and because it was not complied with, a further certificate under paragraph 7 of the Act was issued by the Managing Director. On 17 May 1958 the appellants filed another writ petition in the High Court of Punjab (Writ Petition No. 389 of 1958), challenging the validity of the October 4 1956 determination and the subsequent recovery proceedings on the same grounds as raised in the earlier petition of 1957. Both writ petitions were heard together, and by a judgment dated 6 March 1959 the learned judges held that the impugned Act and the proceedings were valid and dismissed the petitions. Nevertheless, the judges granted a certificate under Article 133, thereby permitting appeals. Additionally, the appellants filed a petition under Article 32 of the Constitution, again attacking the constitutionality of the Act and the recovery proceedings undertaken under it.

In this case, the Court observed that the grounds advanced in the petitions were the same as those raised in the appeals before it. For the sake of economy and consistency, the Court therefore heard the petitions together with the appeals, and it directed that the present judgment would determine the outcome of every matter that had been raised. The appellants relied on three distinct contentions to support their appeals. The first contention was that the proceedings undertaken under the Act for ascertaining the amount that the appellants were required to pay, and for enforcing recovery of that amount, were illegal because, on the dates relevant to those proceedings, the Act was no longer in force. The second contention was that the Act itself, together with the rules made under it, became void at the moment the Constitution came into operation, on the basis that those statutory provisions were inconsistent with Articles 14 and 19(1)(f) and (g) of the Constitution, and consequently any proceedings founded on them were unlawful. The third contention argued that the certificate issued pursuant to section 7 of the Act had not been made in conformity with the rules that were framed under the Act, and that this defect rendered the subsequent proceedings invalid.

The Court first examined the contention that the Act had ceased to be in force on the material dates and set out the factual background on which that claim rested. On 5 May 1948, the rulers of the independent States of Faridkot, Jind, Kapurthala, Malerkotla, Nabha, Patiala, Kalsia and Nalagarh entered into an agreement known as “the Covenant”. The Covenant provided for the creation of a new State called the Patiala and East Punjab States Union, abbreviated as “the Pepsu Union”, which would comprise the territories of the signatory States and would have a common executive, legislature and judiciary. Article III of the Covenant provided for the constitution of a Council of Rulers. Article VI stipulated that on the formation of the new State, “all rights, authority and jurisdiction belonging to the Ruler which appertain, or are incidental to the Government of the Covenanting State, shall vest in the Union and shall hereafter be exercisable only as provided by this Covenant or by the Constitution to be framed thereunder”. The same article also required the Union to assume “all duties and obligations of the Ruler pertaining or incidental to the Government of the Covenanting State” and “all the assets and liabilities of the Covenanting State”. Executive authority was to be vested, under Article X, in the Raj Pramukh. Article X further provided for the formation of a Constituent Assembly to frame a Constitution, and included a proviso stating that, until such Constitution came into operation with the assent of the Raj Pramukh, the Raj Pramukh could make and promulgate ordinances for the peace and good government of the Union, each such ordinance having the force of law for a period not exceeding six months, but being subject to control or supersession by any subsequent Act. Article XI dealt with the payment of the amount fixed in the Schedule as the privy purse of each Ruler, and Article XII guaranteed to the Ruler certain personal privileges, dignities and titles.

The judgment recorded that the Covenant guaranteed the Ruler all personal privileges, dignities and titles that he had enjoyed immediately before the fifteenth day of August, 1947, and that Article XIV dealt with succession to the Gaddi according to law and custom. According to the Covenant, the new State was deemed to have come into existence on the twentieth day of August, 1948. On that same day the Ruler of Patiala assumed the position of Raj Pramukh for the new State. Immediately thereafter, the Raj Pramukh promulgated Ordinance No. 1 of 2005 (BK). That Ordinance provided, among other things, that all laws which were in force in the State of Patiala on the day of its promulgation would, mutatis mutandis, apply to the territories of the newly created State, and that, with effect from that date, all laws which had been in force in the Covenanting State immediately prior to that date would be repealed. By operation of this Ordinance, the impugned Act was thereby made the law of the Patiala and East Punjab States Union (Pepsu) Union. Article X of the Covenant stipulated that such an Ordinance would cease to have effect on the twentieth day of February, 1949, a six‑month period from its date of promulgation. Consequently, on the fifteenth day of February, 1949, the Raj Pramukh issued a second Ordinance, numbered 16 of 2005 (BK), which was drafted in terms substantially identical to Ordinance No. 1 of 2005. The appellants admitted that this second Ordinance was intra vires, that is, within the legal authority of the Raj Pramukh, and that, by virtue of this Ordinance, the impugned Act continued to remain in force beyond the expiry date of the first Ordinance, that is, after the twentieth day of February, 1949.

Article X of the Covenant further provided that Ordinances promulgated by the Raj Pramukh were to remain in force for only a period of six months, a provision that was intended to be a temporary measure pending the convening of a Constituent Assembly and the enactment of a regular Constitution. The anticipated Constitution, however, never materialised. As a result, on the ninth day of April, 1949, the Rulers reconvened and entered into a further agreement known as the “supplementary Covenant.” In that supplementary Covenant, Article X was amended by deleting the words “for the space of not more than six months from its promulgation.” The practical effect of this amendment was that the laws that had been brought into force by Ordinance No. 16 of 2005 (BK), including the impugned Act, would no longer lapse on the twentieth day of August, 1949, but would continue to remain in force until they were expressly repealed by fresh legislation. The appellants argued that the supplementary Covenant was void and inoperative because, under the original Covenant dated 5 May 1948, the Rulers had completely surrendered all of their sovereign powers to the new State. Accordingly, they claimed that on 9 April 1949, when the supplementary Covenant was executed, the Rulers possessed no residual sovereignty and therefore lacked any competence to confer upon the Raj Pramukh any authority to legislate. The respondents countered this contention by asserting that a proper construction of the original Covenant showed that it did not extinguish all the powers of the Rulers, and consequently the supplementary Covenant fell within the Rulers’ remaining competence. They further maintained that the question of the validity of the supplementary Covenant was a political question beyond the jurisdiction of the civil courts, invoking Article 363 of the Constitution, which bars judicial interference in such matters. The Court then indicated that it would now proceed to examine these opposing contentions, beginning with an analysis of the true effect of the Covenant.

In order to determine the legal effect of the Covenant, it was necessary first to set out the rule of international law that governs the situation when an independent State ceases to exist because it merges into another State. The textbook author Oppenheim observes that a State loses its status as an international person at the moment it ceases to exist. He illustrates this principle by describing several factual scenarios: the merger of one State into another, annexation following conquest in war, the fragmentation of a State into several new States, and the partition of a State whereby its portions are annexed by neighbouring States. Oppenheim further explains that when a State voluntarily merges into another, it abandons all its independence and becomes merely a part of the other State (International Law, Vol. 1, 150). Accordingly, when the new State of Pepsu was created, the eight former States that merged into it ceased to exist as independent entities, and consequently there could be no surviving claim to sovereignty by those former States or by their former Rulers. The appellants, however, argued that the loss of sovereignty need not occur at a single instant, but rather unfolded gradually over a period of about one year, during which both the original Covenant and the Supplementary Covenant were executed. It is acknowledged that the loss of sovereignty can be a continuing process extending over a considerable period, a view that this Court has recently affirmed in Promod Chandra Deb v. The State of Orissa (1). Nevertheless, the Court examined the actual terms of the Covenant and found them to be clear and unequivocal. Article VI, the pivotal provision, expressly provides that all rights, authority and jurisdiction of the Ruler in relation to Government shall vest in the Union, and it sets out the mechanisms for the Union’s exercise of those powers. This language indicates a complete extinction of the Rulers’ powers and a simultaneous vesting of those powers in the new State. By contrast, separate provisions preserve to the Rulers their privy purse, personal property and privileges, but these are distinct from sovereign authority. Consequently, the wording of the Covenant signifies a total divestiture of the Rulers’ sovereign rights at the moment the new State came into being on August 20 1948 (see 1962] Supp. 1 S.C.R. 405). The appellants further contended that the Covenant did not relinquish the entirety of the legislative power previously held by the Rulers, because Article X limited the Raj Pramukh’s authority to enact laws for a period of six months. They argued that because the legislative power was not fully transferred, a residual portion must remain with the Rulers and that the Supplementary Covenant was intended to remove that residual sovereignty. While this line of argument appears plausible, the Court concluded that it cannot be sustained on the basis of the original Covenant. The Court found that it is incorrect to assert that Article X left a portion of the Rulers’ legislative powers untransferred to the new State.

The Court observed that the Raj Pramukh, under the relevant article, possessed the authority to make and promulgate ordinances for the peace and good government of the Union or any part thereof, and that this grant of power contained no reservation whatsoever. The provision further stipulated that any such ordinance could remain in force for a period not exceeding six months. The Court explained that this limitation did not withhold any portion or field of legislative power from the Raj Pramukh, because the Raj Pramukh could simply renew the ordinance every six months and continue it indefinitely. The Court noted that it was unnecessary to consider a hypothetical scenario in which the Raj Pramukh might disregard the six‑month limit. What mattered for the present discussion, the Court said, was whether, despite the six‑month restriction, any residue of legislative power could be said to have continued with the Rulers. Article VI, the Court held, was clear beyond doubt that the entire rights, authority and jurisdiction of the Rulers were to vest in the Union and could be exercised only in the manner provided by the Covenant. Accordingly, it could not be contended that after 20 August 1948 the Rulers of the Covenanting States might pass any laws in their own territories on the ground that the Raj Pramukh’s power under Article X did not extend beyond six months. Moreover, even if the Raj Pramukh could not exercise the whole legislative power because of Article X, Article VI required that the residue of that power remain with the Union, not with the Rulers. The respondents then argued that, although the Rulers had surrendered their power to the Union under the original Covenant, international law did not prevent them from entering into a fresh Covenant. They relied on a passage from Oppenheim’s International Law stating that a treaty, even if concluded forever or for a period not yet expired, may always be dissolved by the mutual consent of the contracting parties. The respondents contended that, on this principle, the Rulers were competent to modify Article X through the Supplementary Covenant. The Court, however, pointed out that the quoted passage presupposes that, at the date of the later treaty that rescinds or modifies the earlier one, the contracting parties are sovereign. Since, as already held, the effect of the original Covenant was to divest the Rulers of their sovereign power, they could not be regarded as sovereign parties capable of entering into a new treaty.

The Court observed that the question of whether the Rulers could have entered into any treaty after the transfer of sovereignty was irrelevant because a treaty could be concluded only between sovereigns, and consequently the Supplementary Covenant could not be sustained under the principle of international law set out earlier. The Court further noted that reference had been made to Hyde’s International Law, volume 1, page 396, which states that when sovereignty changes by reason of cession, the grantor may, pending the actual transfer, exercise authority over certain matters. It was argued on that basis that the Rulers retained the competence to conclude the Supplementary Covenant in order to give effect to the original Covenant. However, the Court explained that this power is an exception to the rule articulated by the learned author, namely that on a change of sovereignty all legislative and political powers vest in the new sovereign. The exception is limited to the “authority necessary to maintain order and safeguard the economic conditions,” and even that interim authority ceases the moment the possession of the territory is actually handed over to the new sovereign. In the present case, possession was transferred on 20 August 1948; therefore, the Court held that the Rulers could not be said to have possessed any authority to enter into a covenant on 9 April 1949. The Court then turned to the authorities cited by the respondents for the purpose of interpreting the Covenant. In Virendra Singh v. State of Uttar Pradesh the Rulers of thirty‑five states entered into a Covenant in March 1948 that created the United State of Vindhya Pradesh. Because the integration did not succeed, they executed another agreement in December 1949 that dissolved the United State, and on 1 January 1950 they acceded to the Government of India under a merger agreement. Subsequently, the State Government repudiated certain land grants made under the merger; that action was challenged on the ground that the parties were within the protection of the merger agreement. The Court in that case held that although no rights could be founded on the merger agreement itself because it was an act of State, the subsequent conduct of the State in affirming the transfers gave rise to justiciable rights (see [1955] 1 S.C.R. 415, 429). The Court said that the question decided in Virendra Singh therefore had no bearing on the point presently in controversy. While narrating the events leading to the merger agreement, the judgment observed that “the Rulers of Charkhari and Sarila retained, at the moment of final cession, whatever measure of sovereignty they had when paramountcy lapsed, less the portion given to the Indian Dominion by their Instruments of Accession in 1947; they lost none of it during the interlude when they toyed with the experiment of integration.” The Court held that these observations could not be taken as a decision on the issue before it. It further added that the disintegration of the United State of Vindhya Pradesh and the re‑establishment of the former states would itself constitute an act of State. The Court also noted the reliance placed on Prithi Singh v. State of Pepsu.

In the passage that the Court attributed to the respondents, a direct decision was claimed on the question of whether the Rulers had surrendered all of their sovereign powers to the newly created State. The earlier judgment had examined Articles III, XI, XII and XIV of the Covenant and had concluded that the Rulers retained some sovereign authority. The present Court disagreed with that conclusion. Article III provides only for the creation of a Council of Rulers and authorises that Council to perform functions that are specifically assigned to it by the Covenant and, if any, additional functions that may be conferred by the Constitution of the Union. The wording of Article III makes it clear that no sovereign powers are vested in the Rulers themselves. Articles XI, XII and XIV, on the other hand, deal with the personal rights of the Rulers and, as already observed, underscore that the Rulers possess no sovereignty. The learned judges had relied upon a passage from Oppenheim on International Law, volume 1, page 842, to support their view, but the present Court found the reasons given for that reliance to be inapplicable. Consequently, the Court agreed with the appellants that the Supplementary Covenant could not be treated as effective for altering the provisions contained in the original Covenant.

The respondents then argued that even if the validity of the impugned Act were to be examined solely on the basis of the original Covenant, without reference to the Supplementary Covenant, the appellants ought to fail because the dispute originates from a provision of the Covenant and, under Article 363, a civil court lacks jurisdiction to adjudicate such a matter. The appellants do not contest the proposition that the Rulers who entered into the Covenant fall within the definition of “Rulers” in Article 363(2)(b), nor do they deny that the Government of the Dominion of India was a party to that Covenant. Their contention is that they are seeking only to establish that they are not liable under the impugned Act because, in their view, the Act is inoperative by reason of Article X of the Covenant, and that this particular dispute does not fall within the bar created by Article 363. To support this position, they cited the decision in Bholanath J. Thaker v. State of Saurashtra. In that case a judicial officer of the former Wadhwan State instituted a suit challenging the validity of an order issued by the State of Kathiawar, which had been formed by the merger of several states, including Wadhwan, and which resulted in the premature termination of his services. The issue before the Court was whether the suit was barred by Article 363. The Court held that the officer retained a right to continue in service under a Wadhwan law that had been enacted before the merger, that the Covenant was invoked merely to demonstrate that this right continued to exist, and that Article 363 did not bar the maintenance of the suit. The ratio of the decision was captured in the observation that there was no dispute arising out of the Covenant; the appellant was merely enforcing rights under existing laws that remained in force until they were repealed by appropriate legislation.

The Court observed that the dispute in the present case did not arise from the Covenant in the same manner as in the earlier decision. The appellant’s action was characterized as an attempt merely to enforce rights that existed under the prevailing laws until those laws were repealed by appropriate legislation. In other words, the earlier dispute concerned a right that was independent of, and affirmed by, the Covenant, making Article 363 inapplicable. The Court stressed that this is not the situation here. The liability of the appellants to remit the sums calculated under the impugned Act originates from the Covenant itself, and the appellants seek to escape that liability by relying on Article X. Consequently, the controversy springs directly from a provision of the Covenant, and Article 363 is therefore applicable. The Court further noted that even assuming the appellants are correct that Ordinances 1 and 16 of 2005 (Bk) ceased to operate after six months from their promulgation, that premise does not benefit them. Those Ordinances merely extended the operation of all Patiala statutes to the territories that had formed part of the other covenanting states. In the territories of the former State of Patiala, the laws continued to be in force proprio vigore, not by virtue of the said Ordinances. Hence, even if the Ordinances terminated on 20 August 1949, as the appellant contended, the liability under the impugned Act would remain unaffected because it derives from the Patiala territory’s own legislation. The Court characterized the issue of the Ordinances’ lapse as purely academic with respect to the appellants, noting that it does not arise for determination in Writ Petition No. 128 of 1959, where a resident of the former State of Nabha challenged the validity of the impugned Act and its proceedings on identical grounds. Having examined the questions fully, the Court concluded that the appellants’ contention must be rejected.

The Court then turned to the second contention raised by the appellants, namely that the Act and the rules made thereunder are inconsistent with Article 14 as well as Article 19 (1)(f) and (g), and that, therefore, they are void under Article 13 of the Constitution. Addressing the allegation of violation of Article 14, the Court identified two separate grounds advanced by the appellants. First, the appellants claimed that the Patiala State Bank is discriminated against in comparison with other banks. Second, the appellants argued that after the merger of the PEPSU Union into the State of Punjab under the States Reorganisation Act 1926, a disparity exists between the law as applied in the territories of the former PEPSU Union and the law as applied in the remaining parts of Punjab. The Court indicated that the argument concerning the first ground will now be considered.

In this case the Court observed that for banks other than the Patiala State Bank a dispute between a bank and its customers must be resolved under ordinary law. Such a dispute requires the parties to approach the regular courts or an arbitration forum, and any decree that emerges from those proceedings must be enforced according to the procedure laid down in the Code of Civil Procedure. By contrast, the Court noted that the impugned Act and the rules made thereunder required that a dispute between the Patiala State Bank and its customers be decided by the authorities created under the Act. The Court pointed out that the civil courts were expressly barred from exercising jurisdiction over such matters. The procedure prescribed by the Act and the rules was described as a special process that was widely different from the procedure followed by the civil courts. Furthermore, the Court explained that when the Patiala State Bank obtained a decree, the decree could be enforced through a summary process treating it as arrears of revenue, rather than by the mode of enforcement prescribed for decrees under the Code of Civil Procedure. The Court concluded that these features created a substantial difference between the rights of a customer dealing with the Patiala State Bank and the rights of a customer dealing with any other bank. The Court characterized this differentiation as arbitrary, lacking any rational relationship to the purpose of the legislation, and therefore violative of Article 14. While it could not be denied that the impugned Act and the rules placed the Patiala State Bank in a position different from that of other banks under ordinary law, the Court emphasized that the essential question was whether this difference amounted to discrimination prohibited by Article 14.

The Court then turned to the respondents’ contention that the Patiala State Bank constituted a distinct category and that the special procedure prescribed for disputes involving that bank was valid because it rested on a classification that bore a proper relation to the objectives of the legislation. The Court indicated that it was now necessary to assess the correctness of this contention. The Court explained that when a State establishes a bank, the capital used to run the bank comes from the State’s funds, which are contributed by the taxpayers. In this respect, a State bank differs from banks set up by private agencies, where the working capital is subscribed by private individuals. The Court noted that operating a bank is not part of the governmental functions of a State; rather, a State establishes a bank with the intention of providing benefits to the general public, such as promoting commerce and industry within the State’s territory. Conversely, the Court observed that banks created by private agencies are essentially investments for those who subscribe capital to them. Consequently, the Court held that a bank established by a State possesses distinctive features that differentiate it from other banks, and for the purpose of Article 14 it therefore forms a category in itself. The law is now well settled that while Art. 14 prohibits discriminatory legislation directed against one

In interpreting Article 14, the Court observed that the provision does not prohibit reasonable classification and that, for this purpose, even a single individual or a small group of persons may constitute a class. The Court cited Professor Willis, who in his treatise on Constitutional Law (page 580) stated that “a law applying to one person or one class of persons is constitutional if there is sufficient basis or reason for it.” This proposition was endorsed by the Court in the decision of Chiranjit Lal Chowdhry'v. Union of India (1). In that case the issue was whether a statute that conferred on the Government the power to manage and control a specifically named enterprise, the Sholapur Spinning & Weaving Company Ltd., violated Article 14. The Court held that a single company, when viewed in light of its distinctive features, can form its own category, and that unless the existence of other companies similarly situated is demonstrated, the legislation must be presumed constitutional and the challenge under Article 14 must fail. The Court later examined the scope of Article 14 in greater detail in Ram Krishna Dalmia v. Shri Justice S. R. Tendolkar (2). While articulating the principles for determining whether a law contravenes the Article, the Court observed that “a law maybe constitutional even though it relates to a single individual if on account of some special circumstances or reasons applicable to him and not applicable to others that single individual may be treated as a class by himself.” Applying these principles, the Court expressed the view that the Patiala State Bank constitutes a class of its own and that the State is within its legislative authority to enact a law dealing specifically with that bank. The Court further opined, citing the authorities (1) [1950] S.C.R. 869 and (2) (1959) S.C.R. 279,297, that the distinction between the Patiala State Bank and other banks bears a rational relation to the purpose of the legislation. If the assets of the Patiala State Bank are in fact State funds, a statute that aligns the procedure for determining and recovering amounts owed to the bank by its customers with the procedure prescribed for the determination and recovery of revenue arrears must be regarded as having a just and reasonable connection to the legislative objective. Likewise, a law that permits State funds to be advanced to customers through the State Bank may also provide for the recovery of those advances by the same mechanism used for revenue collection. A direct authority on this point is found in Mannalal v. Collector of Jhalawar (1). In that case the State of Jhalawar had established a bank, and the appellants, who were customers of that bank, owed substantial sums to it. After the State of Jhalawar merged into the State of Rajasthan, the Collector of Jhalawar, acting under section 6 of the Rajasthan Public Demands Recovery Act, 1952, issued a notice to the appellants proposing to recover the dues as a public demand. The validity of this demand was challenged on the ground that the provisions of the Act were obnoxious to Article 14 because they permitted the State to recover amounts due on banking accounts in a manner different from that applicable to other banks.

It was argued that the legislation allowed the State to recover sums owed on banking accounts by a procedure that differed from the method used for other banks. In rejecting this argument, the Court observed that the Act distinguished between ordinary bankers and the Government when it came to recovering money due. The Court held that the Government, even when acting as a banker, could justifiably be placed in a separate class because the dues of a State government represented the dues of the entire population of that State. Consequently, a law that provided a special facility for the recovery of such dues could not be said to violate Article 14 of the Constitution, as reflected in the citation “[1961] 2 S.C.R. 962.”

The Court agreed with those observations and applied the same reasoning to the impugned Act. It concluded that establishing distinct authorities to determine disputes and prescribing a special, summary‑process procedure for recovering dues did not breach Article 14. By creating separate bodies and a unique recovery method, the Act merely provided a tailored mechanism for State dues without creating unconstitutional discrimination.

The second ground of attack asserted that, after the merger of the Patiala‑East Punjab States Union (Pepsu) into the State of Punjab under the State Reorganisation Act 1956, the Act and its Rules continued to operate in the former Pepsu territories but did not apply to the rest of Punjab, allegedly creating fresh discrimination. The Court found no merit in this objection. It noted that before the 1956 reorganisation, Pepsu and Punjab were two separate States with different legislative authorities. Discrimination under Article 14 can arise only when a single authority enacts a law, as explained in “The State of Madhya Pradesh v. G. C. Mandawar.” After the reorganisation, the coexistence of different laws in different parts of the enlarged State was a consequence of historical circumstances, a classification that has long been recognized as permissible under Article 14.

The Court further supported its view by referring to the American case of Bowman v. Lewis, where a Missouri law that provided different appellate routes for different regions of the State was challenged under the Fourteenth Amendment. Citing the judgment of Bradley J., the Court noted that the Fourteenth Amendment does not require every person in the United States to enjoy identical laws, emphasizing that diversity of legal procedures across regions does not automatically constitute unconstitutional inequality.

In its discussion, the Court observed that the uniformity of remedies need not be compulsory across the nation, and that considerable differences in legal and judicial processes could exist even between two states that are adjacent to each other and separated merely by an imaginary boundary. The Court reasoned that if such variations among separate states are permissible without contravening the equality clause of the Fourteenth Amendment, there is no compelling justification for refusing comparable variations within different regions of a single state. The Court further illustrated this principle by describing a hypothetical situation in which a Mexican territory, acquired by treaty, was incorporated into an adjoining American state, and the two merged to form a new state. In that scenario, the Court held that it would be reasonable for the newly created state to permit the Mexican legal system and courts to continue operating unchanged in one part of the territory, while allowing the common‑law system and its courts to operate in the other part. Such a dual arrangement, the Court said, would not be prohibited by any fair construction of the Fourteenth Amendment because it would be based solely on municipal considerations and the overall welfare of all persons residing within the respective jurisdiction, rather than on any distinction between classes of persons.

The Court then turned to domestic precedent, referring to the decision in State of Madhya Pradesh v. Gwalior Sugar Company Ltd., where the validity of a Gwalior‑state law imposing a cess on sugarcane was challenged after the merger of Gwalior into Madhya Bharat. The challenger argued that because Madhya Bharat did not impose a similar tax, the Gwalior law became discriminatory under Article 14. The Court rejected that contention and upheld the legislation as not violative of Article 14, citing the report (1962) S.C.R. 619. The same issue resurfaced in Bhaiyalal Shukla v. State of Madhya Pradesh. After the reorganisation of Madhya Pradesh, four distinct Sales Tax Acts operated in different regions of the state. Consequently, a resident of the former Vindhya Pradesh was required to pay sales tax on building materials used in work contracts, whereas a resident of the former Madhya Pradesh was not, leading to an allegation of breach of the equal‑protection clause of Article 14. Overruling that challenge, the Court observed that the sales‑tax law of Vindhya Pradesh had been validly enacted and had retained its validity under section 119 of the State Reorganisation Act when Vindhya Pradesh merged with Madhya Pradesh. The Court held that the continued existence of different laws in different parts of the enlarged state could be sustained because the differentiation arose from historical reasons, and that such a geographical classification based on history had previously been upheld by this Court. This authority, the Court remarked, provided a complete answer to the appellants’ contention. Accordingly, the Court expressed the opinion that the impugned Act and the Rules could not be attacked as being repugnant to Article 14. The Court then proceeded to consider whether the Act and the Rules were repugnant to Article 19(1)(f) and...

The Court observed that there was no basis for alleging a breach of Article 19 (1) (g) of the Constitution because the challenged statutes did not, either directly or indirectly, interfere with the appellants’ right to engage in trade or business. The Court explained that a statute dealing with the recovery of debts does not fall within the ambit of a law regulating the carrying on of trade or business, even though the debtor might be a trader. Turning to Article 19 (1) (f), the appellants put forward several specific contentions. They argued that the Act removed the jurisdiction of civil courts over disputes between the bank and its customers and created special authorities to resolve such disputes. The first‑instance decision‑maker under the Act is the Managing Director, who also administers the bank’s affairs. The appellants contended that designating the Managing Director as the arbiter of disputes arising from the bank’s own dealings effectively placed him in the dual role of plaintiff and judge, a situation that contravenes the fundamental principles of judicial fairness. Moreover, the appellants pointed out that the Act and its rules do not prescribe any procedural steps for the Managing Director to follow when hearing a dispute; he is merely required to decide the matter based on the bank’s documents. Consequently, the appellants claimed that customers are denied a genuine and effective opportunity to present their case. Although the Act provides for an appeal against the Managing Director’s decision, the appellants noted that the Managing Director is also a member of the Board that hears the appeal, rendering the appellate provision a mere formality. The further revision to the Minister was described as another formal exercise. The appellants further explained that amounts adjudged payable are to be recovered through the Nazim as if they were arrears of land revenue, and that, under Section 6 (2), the certificate issued by the Head of the Department authorising the recovery is conclusive proof of the matters it contains. In sum, the appellants maintained that the procedure established by the Act and the rules for settling disputes is unfair, violates the rules of natural justice, and that actions taken against property to enforce orders issued under such a procedure infringe Article 19 (1) (f) and therefore must be set aside.

The counsel for the respondents, appearing on behalf of the State, countered the appellants’ position at the outset. The counsel argued that Article 19 (1) (f) was inapplicable to the present case because the appellants’ liability arose under a contractual relationship, and the provisions of the Act and the rules operated as contractual terms binding on the parties. The counsel further likened the provision that disputes should initially be resolved by the Managing Director to an arbitration clause in a private agreement, emphasizing that the restrictions imposed by the Act and the rules were self‑imposed restraints for which the appellants could not claim relief under Article 19 (1) (f). The Court considered this submission and determined that the contention warranted careful examination. It noted that while the Constitution permits reasonable restrictions on the right to practice any profession, trade, or business, the validity of such restrictions depends on whether they are reasonable and not arbitrary. The Court indicated that the matter required thorough analysis, but it was not necessary at this stage to resolve the broader question of whether the Act’s provisions, when invoked through contractual consent, escape the ambit of Article 19 (1) (f). Instead, the Court focused on the specific arguments raised regarding the manner in which the Act removed judicial oversight, the absence of procedural safeguards, and the potential conflict of interest inherent in the Managing Director’s dual role, assessing whether these features rendered the statutory scheme unreasonable and violative of the constitutional guarantee of a fair procedure.

It was argued that when Article 19 speaks of laws imposing reasonable restrictions, the reference is to statutes that bind persons who have no choice but to obey them. The argument continued that if the operation of a law is triggered by a contract that a person freely entered into, the restriction under Article 19 would not apply because the parties would then be limited to the rights and remedies provided by that contract. The Court, however, observed that it did not need to decide that question because it had already considered the substantive contentions of the appellants and found them unnecessary to address further. The Court reiterated its earlier finding that the State Bank formed a distinct class, that the legislature was competent to enact a law dealing exclusively with that class, and that such a law did not offend Article 14. The remaining issue was whether the statute conflicted with Article 19(1)(f). For that determination, the Court explained that the inquiry centered on whether the law was unreasonable, unfair, or contrary to the principles of natural justice, and consequently whether it fell outside the protection of Article 19(5). The Court asked whether the appellants had successfully demonstrated such unreasonableness. It reminded that the rules of natural justice are not a rigid code that must be followed in every proceeding; rather, they vary according to the facts and circumstances of each case and cannot be defined in a single universal manner. The Court cited the observation of a learned judge in Russell v. Duke of Norfolk that the requirements of natural justice depend upon the nature of the case, the inquiry undertaken, the rules governing the tribunal, and the subject‑matter before it. This principle guided the Court’s approach to the factual matrix before it.

The Court then turned to the factual background. It noted that the impugned Act and its Rules were not limited solely to the recovery of money owed to the Patiala State Bank. Instead, the legislation was a general law intended to facilitate the realisation of all revenue due to the State, with dues owed to the Bank expressly included in the definition of “State dues” in section 3(1) of the Act. The Court observed that this approach is typical of revenue legislation. Since State revenues may be directed toward banking purposes, it was reasonable that their recovery should be governed by the same revenue law framework. The Court proceeded to describe the hierarchy of officers created by the Act. At the apex were the Ministers, followed by a Board of Directors, then the Managing Director, and beneath the Managing Director a large number of officers responsible for the various departments and branches. The composition of the Board of Directors was specified as the Prime Minister, the Finance Minister, three members nominated by the Ruler—two of whom were non‑officials representing significant clients of the Bank—and the Managing Director. Finally, the Court recorded that the Managing Director possessed the authority to sanction loans on personal security up to a prescribed limit.

The Court observed that loans may be sanctioned up to Rs. 3,000 on personal security and up to Rs. 25,000 on pledge of goods; any loan exceeding those limits must be sanctioned by the Board of Directors. The appellants then argued that the procedure prescribed by the Act and the Rules contravened the principles of natural justice. Their first objection was that the Managing Director, who oversees the day‑to‑day administration of the Bank, should not be the adjudicator of the dispute because his own actions could be subject to challenge. The Court found no merit in this contention. It noted that the Managing Director occupies a senior position with a salary ranging from Rs. 1,600 to Rs. 2,500 and is provided a furnished residence; he does not possess any personal interest in the transaction and there is no indication of bias or a conflict between his interests and his duties. Loans are sanctioned by the appropriate authorities under the Rules, while customers operate their accounts through cheques and deposit receipts, leaving no scope for attacking the Managing Director’s actions. The Court further illustrated the insubstantial nature of the objection by referring to the loan dated 23 May 1953, which, under the Rules, could have been sanctioned only by the Board and not by the Managing Director.

The appellants also claimed that the hearing before the Managing Director was merely perfunctory because Rule 6 apparently limits the Director to examining objections stated in the written statement against the relevant departmental records, thereby denying the parties a real opportunity to present their case. The Court held that this argument misinterpreted the true scope of Rule 6. The rule does not prohibit parties from examining witnesses or producing additional documentary evidence. Under Rule 6, the Managing Director must consider the written statement and the Bank’s records insofar as they relate to the disputed points, which ordinarily constitute the relevant material. However, the rule does not preclude the Director from examining witnesses or taking into account other documentary evidence if he deems it necessary for a proper determination, and such discretion rests entirely with him. Referring to a similar question concerning the language of section 68‑D(2) of the Motor Vehicles Act, 1939, the Court cited Malik Ram v. State of Rajasthan (1) (1949) 1 All. E.R. 109, 118, stating: “It will therefore be for the State Government, or as in this case the officer concerned, to decide in case any party desires to lead evidence whether firstly the evidence is necessary and relevant to the inquiry before it. If it considers that evidence is necessary, it will give a reasonable opportunity to the party desiring to produce evidence to give evidence relevant to …”

In this case, the Court observed that the officer conducting the enquiry possessed, within reasonable limits, the same authority to control, admit and record evidence as any court of law. Consequently, subject to the overriding authority of the State Government or the designated officer, the parties were entitled to present both documentary and oral evidence during a hearing conducted under section 68‑D(2). The Court then addressed the argument that an appeal to the Board of Directors was a mere formality because the Managing Director, whose decision was being challenged, also sat on the Board. It noted that the Board included, in addition to the Managing Director, Ministers who were his superiors and two non‑official representatives of the customers. The presence of these members, the Court held, dispelled any suspicion that the Board hearing would be a farce. The Court further mentioned that English practice permits a judge who tried a criminal case to sit as a member of the Court of Appeal hearing an appeal against his own order, a practice affirmed in R. v. Lovegrove. A similar approach was recognized in appeals against the decision of a single judge under the Presidency Small Cause Courts Act, 1882, when such appeals were taken to the full court.

The Court then examined the contention that section 11 of the Act barred the jurisdiction of civil courts over disputes triable under the Act, calling the contention unreasonable. It stated that at this stage it was untimely to argue that statutes creating a special jurisdiction and excluding civil courts violated natural justice. The Court reminded that an exclusion of civil‑court jurisdiction does not affect the jurisdiction of the High Court under article 226, nor the jurisdiction of this Court under articles 32 or 136, when appropriate grounds exist. Regarding section 6(2) of the Act, which declared the certificate of the Head of Department conclusive, the Court noted that this provision was not unreasonable because the issue concerned the recovery of a sum already adjudged due, analogous to the rule in the Civil Procedure Code that a court executing a decree may not go behind it. After examining the Act and its Rules as a whole, the Court concluded that they were reasonable and did not contravene any rules of natural justice. It added that even if the challenged proceedings had disregarded natural justice and caused prejudice, the appellants would have been able to seek relief under article 226, which was not the grievance they raised.

When the notice required by rule 3 was served on the respondents on 21 November 1955, they failed to appear and the proceedings continued in their absence. In the replies that they sent to the Bank concerning the demand, the respondents never denied that they owed the money; they merely requested additional time to make payment. After their request for time was not granted, the respondents adopted the position that the statute and the accompanying rules were void because they were unreasonable and contravened Article 19 (1) (g) of the Constitution. The Court examined this claim and found it without merit. It concluded that no infringement of Article 14 or of Article 19 (1) (f) or (g) had occurred, and therefore the contention that the Act and its rules were invalid must be rejected.

The respondents also argued that the certificates issued by the Managing Director under section 6 (1) of the Act were invalid because they were not countersigned by the Minister or the Secretary, as the proviso to that subsection seems to require. They relied on the decision of the Full Bench of the Punjab High Court in General S. Shivdev Singh v. State of Punjab to support the view that the Punjab Government could not delegate functions assigned under Section 42 of the East Punjab Holdings (Consolidation and Prevention of Fragmentation) Act, 1948, to the Additional Director, and that the Minister or Secretary could not transfer their duties under the Act to the Managing Director. The Court, however, noted that Forms No. 1 and 11 prescribed by the Act expressly direct that the countersignature field be struck out when the certificate is issued by the Managing Director. Consequently, the combined effect of section 6 (1) and these forms is that a countersignature is required only when the certificate is issued by an officer subordinate to the Minister, other than the Managing Director. Accordingly, the respondents’ reliance on the High Court decision was misplaced and their contention was dismissed. All of the grounds raised in support of the appeals and Writ Petition No. 92/1961 were found to fail, resulting in the dismissal of the petitions with costs and the award of one hearing fee. The judgment then turned to Petition No. 128 of 1959, a petition filed under Article 32 of the Constitution by a merchant who operated a steel‑rolling mill at Jaitu, formerly part of the State of Nabha. By a covenant dated 5 May 1948, the former State of Nabha had merged into the Patiala and East Punjab States Union (PEPSU) on 20 August 1948, which itself was merged into the State of Punjab on 1 November 1956 under the States Reorganisation Act, 1956. The petitioner had maintained an account with the Nabha Branch of the Patiala State Bank and had borrowed monies for his business. On 20 February 1951, he executed a mortgage deed in favour of the Bank for the sum of Rs. 52,000 representing the amount owed to the Bank.

The Bank of Patiala initiated proceedings under the Patiala Recovery of State Dues Act—hereinafter called the Act—in November 1953 in order to recover the sums that remained unpaid on the mortgage executed by the petitioner. In response to those proceedings, the petitioner instituted Writ Petition No. 252 of 1955 before this Court, invoking the remedy of Article 32 of the Constitution and seeking the quashing of the Bank’s action on the basis that the Act and its accompanying rules were unconstitutional. On 3 February 1956 the parties reached a settlement; under that agreement the petitioner paid a portion of the outstanding debt and undertook to discharge the remaining balance by way of instalments. Consequently, the writ petition was formally withdrawn on 11 May 1956. However, after the petitioner subsequently failed to honour the instalment schedule, the Bank resumed its recovery proceedings. The petitioner now challenges those renewed proceedings, contending that the Act was not operative on the relevant dates, that it is void for violating Articles 14 and 19(1)(f) and (g) of the Constitution, and that the certificate issued by the Managing Director under section 6(1) of the Act does not comply with the proviso to that section and is therefore invalid. The respondents opposed the petition. This petition was heard together with Civil Appeals Nos. 210 and 211 of 1961 and Writ Petition No. 92 of 1961, all of which raised the same legal questions for determination. By the judgment delivered in those matters on the same day, the Court rejected the contentions raised, and accordingly dismissed the present petition, ordering the petitioner to pay costs and a hearing fee.

Justice Subba Rao expressed a dissenting view, stating that he could not agree with the opinion of Justice Venkatarama Aiyar. In his opinion, the Patiala Recovery of State Dues Act (No. IV of 2002 BK) represents a clear breach of the doctrine of equality guaranteed by Article 14 of the Constitution. Since he intends to strike down the Act on the ground that it contravenes Article 14, he refrained from addressing the other questions raised before the Court. He noted that the factual background has already been fully detailed in his brother’s judgments and therefore did not repeat those facts, except for those that are directly relevant to his analysis. He further outlined the historical background: the Bank of Patiala was founded in 1917 by the Maharaja of Patiala. On 5 May 1948 the rulers of eight princely states, including Patiala, executed a covenant merging those states into a single entity known as the Patiala and East Punjab States Union, commonly abbreviated as PEPSU. The Union was formally constituted on 20 August 1948 with the Maharaja of Patiala appointed as its Rajpramukh. Exercising the authority conferred upon him by the covenant, the Rajpramukh promulgated an ordinance that extended all laws existing in the State of Patiala, including the Patiala Recovery of State Dues Act, 2002 BK, to the entire territory of PEPSU.

In Pepsu, after an inquiry lasting six months, the Rajapramukh issued a second Ordinance that extended, for an additional six months, the laws that had been made applicable to the State of Pepsu by the earlier Ordinance. Subsequently, exercising a power that had been conferred on the Rajapramukh by a Supplementary Covenant, the Rajapramukh caused the Patiala Recovery of State Dues Act to be extended indefinitely so that it would continue to operate throughout the State of Pepsu. Following the proclamation of the Constitution of India on 26 January 1950, Pepsu became a Part B state within the Indian Union, and under the constitutional provisions the Act remained in force throughout that State. Later, under the States Reorganisation Act, Pepsu was merged into the State of Punjab, and the Act continued to have effect in the portion of Punjab that had previously been Pepsu. After the Constitution came into force, the petitioners and the appellants in the writ petitions and civil appeals respectively obtained loans from the Patiala Bank, securing those loans with their properties. The Bank authorities determined the amounts owed by the borrowers and sought to recover those amounts from the borrowers’ properties in the manner prescribed by the Act. After the formation of the State of Pepsu, the Patiala Bank operated throughout the entire Pepsu area, and after its merger with the State of Pun. jab, the Bank maintained branches not only in Pepsu but also in other parts of Punjab. Several other banks, including the State Bank of India, were also carrying on similar business in the territory where the Patiala Bank operated. The appellants and petitioners submitted that, although the banks and their debtors were similarly situated for the purpose of ascertaining debts and recovering amounts due, the provisions of the Act discriminated against the debtors of the Patiala Bank in comparison with debtors of other banks, thereby violating the equality principle embodied in Art. 14 of the Constitution. To assess this claim, it was necessary to examine in detail the provisions of the Act to determine whether any discrimination existed and, if so, whether such classification could be justified as reasonable. The long title of the Act is the Patiala Recovery of State Dues Act. Within the Act, “State dues” is defined as any amount due to the Rajpramukh of the State, to the State itself, or to any department of the State from any person, and this definition expressly includes, among other things, debts due to the Patiala State Bank. The term “department” is defined to include the Patiala State Bank. The term “defaulter” means a person from whom State dues are due and includes a person who is responsible as surety for the payment of any such due, and the term “head of department” means the Managing Director in the case of the Patiala State Bank.

The Court explained that the Act appointed a Director for the Patiala State Bank and that Section 4 dealt with the way State dues were to be determined. Under that provision the head of the department was required to calculate, in the manner prescribed, the precise amount of State dues that his department could recover from the defaulter. The section also empowered the head of department, pending the final calculation, to direct the Nazim to issue a notice that would forbid the defaulter from alienating any of his property. In addition, the head of department could order that any debt owed to him by any person, or any money payable to him by the State, be limited to the probable amount of State dues recoverable from the defaulter. The same provision further authorised the head of department to direct the Accountant‑General to withhold from the State any payment that was due to the defaulter, again to the extent of the estimated recoverable dues.

Section 5 prescribed the mode of recovery of those dues. According to that section the department was to recover the State dues through the Nazim as if the dues were arrears of land revenue, and through the Accountant‑General by refusing to make any payment to the defaulter that the State might otherwise have been required to pay. Section 6 required the head of department to forward a certificate stating the amount of State dues that could be recovered from the defaulter to the Nazim. The Court noted that the certificate, once transmitted, was to be treated as conclusive proof of the matters it contained. Neither the Nazim nor the Accountant‑General were permitted to question the validity of that certificate, nor were they allowed to entertain any objection raised by the defaulter concerning the amount mentioned in the certificate or the defaulter’s liability to pay those dues.

Section 10 laid down a limitation on the operation of the certificate. It provided that neither the Nazim nor the Accountant‑General could act upon a certificate unless it was sent within the limitation period prescribed by the Limitation Act— the same period within which the Bank could have filed a suit in a civil court for recovery of the dues. Sub‑section (2) of Section 10 directed the head of department, in the certificate, to state the date on which the debt had fallen due and to include a declaration that the debt was within the prescribed limitation period.

Section 11 excluded the jurisdiction of civil courts over any matter that the head of department, or any authority or officer authorised by him, was empowered to decide under the Act or the rules made thereunder. The Court observed that, exercising the power conferred on the Government to make rules, the Patiala Recovery of State Dues Rules, 2002 BK, were promulgated. Those rules established a machinery for determining the amount due to the Bank. In particular, Rule 3 required the head of department to which the State dues were payable to cause a notice, in the prescribed form, to be served on the defaulter, specifying the amount of dues and the date on which they fell due, and demanding payment by a specified deadline.

Under the rules, a notice must be served on the defaulter stating the amount of state dues, the date on which the dues fell due, and requiring the defaulter either to pay the amount before a specified deadline or to appear before the head of department or the officer named in the notice. If the defaulter fails to appear on the date fixed in the notice, the head of department or, as the case may be, the Inquiry Officer is empowered to proceed ex parte. In such an ex parte proceeding the authority may pass a written order determining the amount of state dues that can be recovered from the defaulter. When the order is issued by an Inquiry Officer, that order does not become final until it is confirmed by the head of department. Conversely, if the defaulter does appear on the date fixed, the head of department or the Inquiry Officer, as appropriate, must consider any objections the defaulter has raised in a written statement. These objections are to be examined in the light of the relevant departmental records. After such examination, the authority must issue an order fixing the exact amount of state dues recoverable from the defaulter. In cases where the Inquiry Officer conducts the inquiry, he must forward his report to the head of department, who then issues a final written order determining the amount recoverable from the defaulter.

Rule 8 provides the defaulter with a right of appeal against the order of the head of department in matters involving the Patiala State Bank. The appeal must be made to the Board of Directors of the Bank. If the Board of Directors rejects the appeal, the defaulter may seek a revision before the Ijlas‑i‑Khas. In summary, the Act and the rules made thereunder vest the Managing Director of the Bank with the power to decide whether a liability exists and, if so, the extent of that liability after conducting the prescribed inquiry. This decision is subject to the limited avenues of appeal to the Board of Directors and revision to the Ijlas‑i‑Khas. Once a liability is affirmed, the dues are realized either through the Nazim, treating them as arrears of land revenue, or through the Accountant‑General, who is authorized to withhold from the defaulter any amounts due to any State department. No civil court holds jurisdiction over any matter that the head of department or any other officer authorized by the Act is empowered to decide or dispose of. Consequently, the creditor effectively determines his own claim and enforces it by the prescribed coercive process. It is also noteworthy that the Managing Director of the Bank concurrently serves as Secretary of the Board of Directors. The appeal mechanism therefore operates solely between one Bank authority and another, while the revision to the Ijlas‑i‑Khas is confined to a transfer between government departments. In effect, the creditor becomes the judge of his own cause, empowered to determine and recover the dues, leaving the debtor at the mercy of the creditor. He may

In the situation described, the debtor may plead and protest his case, yet he possesses no other remedy to obtain an unbiased determination of his claim or a decision on his objections. The Court observed that such a machinery might have had relevance in feudal times, but questioned whether the Constitution of India sanctions an out‑moded procedure of this kind. To address this issue, the Court found it convenient to briefly examine the scope of Article 14 of the Constitution, which is pertinent to the present inquiry. Article 14 states: “The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.” The Court noted that this subject has arisen so frequently and recently before it that an extensive discussion was unnecessary.

Referring to the decision in State of U.P. v. Deoman Upadhyaya, the Court recalled its earlier description of the doctrine of equality. The judgment in that case held: “All persons are equal before the law is fundamental of every civilised constitution. Equality before law is a negative concept; equal protection of law is a positive one. The former declares that everyone is equal before law, that no one can claim special privileges and that all classes are equally subjected to the ordinary law of the land; the latter postulates an equal protection of all alike in the same situation and under like circumstances. No discrimination can be made either in the privileges conferred or in the liabilities imposed. But these propositions conceived in the interests of the public, if logically stretched too far, may not achieve the high purpose behind them. In a society of unequal basic structure, it is well nigh impossible to make laws suitable in their application to all the persons alike. So, a reasonable classification is not only permitted but is necessary if society should progress. But such a classification cannot be arbitrary but must be based upon differences pertinent to the subject in respect of and the purposes for which it is made.”

The Court added a cautionary remark drawn from the opinion of Brower, J., in Gulf, Colorado and Santa Fe Railway Co. v. Ellis, stating: “While good faith and a knowledge of existing conditions on the part of a Legislature is to be presumed, yet to carry that presumption to the extent of always holding there must be some undisclosed and unknown reason for subjecting certain individuals or corporations to hostile and discriminating legislation is to make the protecting clauses of the Fourteenth Amendment a mere rope of sand, in no manner restraining state action.” (1897) 165 U.S. 150; 41 L.Ed. 666. The Court emphasized that every citizen is entitled to the fundamental right of equality before the law and that the doctrine of classification is a subsidiary rule devised by courts to give practical effect to that fundamental doctrine. The Court warned that an over‑emphasis on classification, or an anxious and sustained attempt to discover a basis for classification, may gradually and imperceptibly deprive Article 14 of its intended content. That process, the Court concluded, must be guarded against to preserve the guarantee of equality before the law and equal protection of the laws.

In this passage the Court warned that allowing the doctrine of classification to dominate would replace the fundamental principle of equality before the law with a mere categorisation scheme, thereby eroding the right to equal protection. The Court reiterated that the guarantee of equal protection is applicable to both substantive and procedural legislation. Referring to Jennings in the third edition of “Law of the Constitution” (page 49), the Court explained that equality before the law requires that the law be uniform among equals and that like situations receive alike treatment. Jennings further clarified that the rights to sue, be sued, prosecute, or be prosecuted for the same type of action must be equally available to all citizens who are of full age and understanding and who are not discriminated against on the basis of race, religion, wealth, social status, or political influence. The Court also cited Dicey’s observation in “Law of the Constitution” (1959, page 193) that equality before the law does not demand absolute sameness among persons, which is impossible, but does forbid any special privilege or denial based on birth, creed, or similar considerations, and mandates that every individual and class be subject to the ordinary law administered by ordinary courts.

The Court then turned to several judicial pronouncements that have affirmed this principle. In Ram Prasad Narayan Sahi v. State of Bihar (1) Mukherjea, J. observed that even the humblest citizen possesses a right of access to a court for the redress of his legitimate grievances. The Court also referred to its own decision in The State of West Bengal v. Anwar Ali Sarkar (2), where it struck down section 5 of the West Bengal Special Courts Act, 1950, because the provision allowing a special court to try offences designated by the State Government violated Article 14 of the Constitution. Mahajan, J. stated that equality of right is a republican principle embodied in Article 14, which requires that the same rules of evidence and procedural modes apply to everyone in similar circumstances. Mukherjea, J. reinforced this view at page 322, emphasizing that procedural rules enacted by law fall within the ambit of Article 14 just as substantive rules do, and that litigants who are similarly situated must be able to enjoy procedural rights for relief and defence without discrimination. The Court reiterated this doctrine in Ram Prasad Narain Sahi v. State of Bihar (1) and noted that the Court of Wards had previously granted the appellants a large tract of land belonging to the Bettiah Raj, which was then under the management of the Court of Wards.

The Bihar Legislature enacted a law that declared the land settlements previously granted to the appellants to be null and void. The same enactment authorized the Collector to evict the appellants if they refused to relinquish the lands. While examining this legislation, Chief Justice Patanjali Sastri held that the dispute was strictly a private matter to be resolved by properly constituted courts. He emphasized that, in a free and civilized society, courts are charged with adjudicating contested legal rights after observing well‑established procedural safeguards, such as the right to be heard and the right to produce witnesses. He further observed that the law guarantees these protections equally to every person, and that Article 14 of the Constitution forbids the State from denying any individual such protection. In the case of Ameerunnissa Begum v. Mahboob Begum, the Court was called upon to assess the validity of an Act passed by the Hyderabad Legislature. That Act declared that the claims of Mahboob Begum, Kadiran Begum, and their children to partake in the distribution of the late Nawab’s matrooka were dismissed, and it stipulated that the decision could not be questioned in any court of law. Though the situation was extreme, the Court, through Justice Mukherjea, pronounced the legislation unconstitutional. Justice Mukherjea observed that the statute went beyond ordinary regulation and denied the specifically named individuals the right to enforce their claims in a court of law in accordance with the personal law governing their community. He noted that these persons were discriminated against compared with the rest of their community concerning a valuable right that the law generally secures, and he questioned the basis upon which such apparently hostile and discriminatory legislation could be supported. (1) [1953] S.C.R. 404,415.

The Court further explained that a creditor deciding his own case could not be placed in a better position than the Legislature, which, by an Act, rejected the claim of a particular person. Subsequently, in Shree Meenakshi Mills Ltd., Madurai v. Sri A. V. Viswanatha Sastri, the Court struck down section 5(1) of the Taxation on Income (Investigation Commission) Act, 1947 (Act XXX of 1947). The basis for the striking down was that the procedure prescribed under that section was discriminatory, especially considering that, under the amended section 34 of the Indian Income‑Tax Act, 1922, persons falling under both provisions belonged to the same class. The Court restated that Article 14 of the Constitution guarantees equal protection not only with respect to substantive law but also concerning procedural law. It was also pointed out that although the Act had been valid before the Constitution came into force, the discriminatory procedure could not continue after the Constitution became operative. In Suraj Mall Mahta & Co. v. A. V. Viswanatha Sastri, the Court, again dealing with the same Act XXX of 1947, observed that while the two procedures shared some similarity for detecting evaded income, the overall effect was substantially discriminatory.

The Court observed that the overall picture demonstrated substantial discrimination between the two procedures. In the decision of Muthiah versus the Commissioner of Income‑tax, Madras, the Court held that section 5(1) of Act XXX of 1947 violated Article 14 of the Constitution when considered in light of the amendment to section 34 of the Indian Income‑tax Act effected by Act XLVIII of 1948 and Act XXXIII of 1954. In its reasoning, the Court, citing the earlier authorities [1955] 1 S.C.R. 787, [1955] 1 S.C.R. 448 and [1955] 2 S.C.R. 1247, declared that after the Constitution came into force, persons whose cases had been referred for investigation by the Central Government after 1 September 1948 were subjected to a harsh procedure under Act XXX of 1947, whereas similarly situated persons were dealt with by the Income‑tax Officer under the amended provision of section 34 of the Income‑tax Act, 1922. The Court therefore stated that it could not, in good conscience, countenise procedures that were not merely formal but that substantially prejudiced parties in asserting their rights or defending themselves against unjust claims. From this, the Court affirmed that the Constitution guarantees every individual equal treatment in similar circumstances, particularly with regard to access to the courts. While the Court acknowledged that a reasonable classification may justify the creation of special tribunals for cases of a particular nature, it emphasized that differentiation between cases belonging to the same class or nature remains impermissible. The question before the Court was whether the impugned Act could be justified on the basis of a reasonable classification. To determine the existence of such a classification, the Court identified three inquiries: first, what is the object of the impugned Act; second, what are the differences between the classes of persons covered by the Act and those excluded; and third, whether those differences have a reasonable relation to the object sought to be achieved. It was submitted that the object of the Act is to recover amounts advanced by the Government to finance businesses promptly and fully, so that the funds may become available for further advances to others in the interests of trade and industry. It was further submitted that a distinction exists between the State acting as a creditor and a borrower from the State, and any other bank acting as a creditor and its debtor. The argument continued that these distinctions are connected to the stated object, on the ground that the recovery of public funds is more important than the replenishment of private purses. The Court examined this argument from the perspectives of creditor, debtor, debt, and the realisation of debt. The Court noted that the Patiala Act, after the Constitution came into force, was extended to the entire PEPSU area, and identified three classes of creditors in that area: the Patiala Bank, the State Bank of India, and any private bank.

In the illustration, three classes of creditors existed in the area: the Patiala Bank, the State Bank of India and a private bank. Each of these banks could advance a sum of Rs 10,000 to either a single debtor or to three different debtors, provided that adequate security was given. The Patiala Bank, through its officers, was able to determine the amount owed to it and to realise that amount either by sale through the Nazim or by recovery through the Accountant General; the debtor was barred from challenging the determination of the amount or its realisation in a civil court. By contrast, the State Bank of India and the private bank had to institute suits, obtain decrees and execute those decrees in the ordinary course of law. In the matters of ascertaining the debt and of realising it, all three banks occupied the same position. Consequently, it could not be justified, on any sound basis, to hold that a summary procedure which disregarded all principles of natural justice was reasonable or necessary in the case of a debt claimed by the Patiala Bank, while such a procedure was unnecessary for the other two banks. If the Managing Director of the Patiala Bank could be relied upon to determine the bank’s dues, there was no reason to prevent the Managing Director of the State Bank or of a private bank from performing the same function. It could not be stated as a rule of law that the Managing Director of the Patiala Bank would necessarily be more honest or more competent than his counterpart in other banks, thereby making him a judge of his own cause. The entire arrangement, therefore, amounted to a violation of the principle of natural justice. From the debtor’s perspective, the discrimination was even more striking. The inconsistency of the situation became evident if the same debtor borrowed different amounts from the three banks: the two public‑sector or private banks would resort to litigation, whereas the Patiala Bank would decide the amount due by itself and recover the sum directly from the debtor. All three categories of debtors had borrowed money, provided security and were ordinarily entitled to an equal judicial process for the determination and realisation of their liabilities. They could possess valid defences to the claim and, under normal circumstances, were entitled to an impartial tribunal to ascertain the amounts due and to a right of appeal to another impartial tribunal for correction of any error. There was no material difference between the three categories of debtors that related to the object sought to be achieved. The debtors could have interchanged the banks, borrowed the same amount on the same security, and each would remain liable to pay the creditor, having borrowed for business purposes and having furnished security, and therefore each would be entitled to raise any defence. The mere fact that a debtor borrowed from one bank rather than another could not be regarded as a difference relevant to the purpose of the legislation. The analysis then proceeded to consider the matter from the standpoint of the debt.

In this case the Court observed that there was no suggestion that the Patiala Bank was extending loans on unusually favourable terms without security while other banks imposed harsher conditions. The Court stressed that every loan in question was secured, attracted interest and was payable in the same manner as any ordinary debt. It further noted that although the Patiala Bank originated from an authoritarian structure and the other two banks operated within a democratic framework, the historical origin of the institution was irrelevant to the present dispute because the Court was examining the constitutional validity of the statutory provisions that applied to debts advanced after the Constitution came into force. The Court then referred to Article 13(1) of the Constitution, which declares that any law existing in India before the Constitution and inconsistent with the provisions of Part III shall be void to the extent of the inconsistency. Accordingly, Article 13 does not allow an unconstitutional law to survive merely because of its historical pedigree. The Court rejected the contention that the Act, in substance, merely created special tribunals to determine the amount owed to the Patiala Bank and that the procedure was therefore reasonable and did not deprive the appellants or petitioners of the right to approach a civil court. The Court found that argument untenable. The real grievance, as articulated by the appellants and petitioners, was that the Act effectively authorised the creditor to decide the quantum of liability and to adjudicate objections to the creditor’s claim, a procedure that violated the basic principles of natural justice. The Court dismissed the suggestion that the creditor’s status as a Government department guaranteed a fair decision after following judicial procedure, observing that the same concern could be raised regarding other banks that are not Government departments. The Court further explained that the analogies drawn from the Co‑operative Societies Act and the Arbitration Act were misleading, because under those statutes a third party—either appointed by the Government or by the parties—examines the dispute, not the creditor itself. Moreover, the Court held that the constitutionality of one statute cannot be determined by assuming the validity of another; each statute must be scrutinised on its own terms. Finally, the Court questioned why the Managing Director or Board of Directors of the Patiala Bank should be presumed to possess greater integrity or efficiency than the Managing Director of the State Bank or any other reputable bank, noting that such a presumption could be equally justified for any other bank.

The Court observed that permitting the bank in Patiala, or indeed any bank in India, to be entrusted with judicial powers for deciding its own claims and for realizing dues through the governmental coercive machinery would effectively destroy the rule of law in the country. The Court further noted that the petitioners contended that the sections of the Act which authorised recovery through the Nazim by a coercive process, or through the Accountant‑General by withholding payment of amounts due to debtors, could be upheld on the basis of the doctrine of reasonable classification. However, the Court held that the provisions dealing with the actual realization of amounts could not be separated from the provisions that dealt with the determination of the debt, because both sets of provisions formed an integral part of a single scheme. The effect of those provisions, as previously examined by the Court, was that the debt would be determined and the amount would be realised through a coercive process, and the debtor would be barred from questioning either the determination of the debt or its realisation in any court of law.

The judgment relied upon the decision in Manna Lal v. Collector of Jhalawar [(1961) 2 SCR 962]. The Court explained that the question in that case was whether a loan due to the Jhalawar State Bank could be recovered as a public demand. The Court in that case held that such recovery was permissible and rejected the argument that the provision, insofar as it allowed recovery of moneys due to the Government from its trading activities by way of public demand, violated Article 14 of the Constitution on the ground that the Government, even as a banker, could be placed in a separate class. The Court clarified, however, that the issue now before it—whether a State Bank could act as a judge in its own cause—had not been raised or decided in Manna Lal, and therefore that decision did not govern the present controversy.

In its view, the Court found no real differences between Patiala Bank and other banks concerning their claims against their constituents that could justify the special treatment accorded to Patiala Bank under the Act. The Court characterised the differential treatment as discrimination that was evident on the face of the legislation. Consequently, the Court concluded that no further question warranted consideration. The Court held that the provisions of the Act as they applied to Patiala Bank were constitutionally void, and it issued a writ of mandamus directing the bank not to proceed with the recovery of the alleged debt from the appellants under those provisions. Accordingly, the Court ordered that the appeals and the writ petitions be allowed with costs.

In a separate note, the Court recorded that, in view of the majority opinion, the appeals and the writ petitions were dismissed with costs and a hearing fee, and that the appeals and petitions were dismissed.