Union Of India And Another vs Ladu Lal Jain

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 717 of 1961

Decision Date: 7 May, 1963

Coram: Raghubar Dayal, J. R. Mudholkar

In this matter the Supreme Court of India delivered its judgment on 7 May 1963. The case was titled Union of India and Another versus Ladu Lal Jain. The opinion was authored by Justice Raghubar Dayal, who was joined by Justice J.R. Mudholkar. The petitioners were the Union of India together with an additional party, while the respondent was Ladu Lal Jain. The bench is recorded in the report as Dayal, Raghubar, Subbarao, K. Mudholkar, J.R. The decision appears in the 1963 volume of the All India Reporter at page 1681 and in the 1964 Supreme Court Reports (Third Series) at page 624. It is also cited in the legal citators as D 1988 SC 1003 (paragraphs 2 and 3) and R 1990 SC 104 (paragraph 4). The substantive issues concerned the jurisdiction of a civil court under the Code of Civil Procedure, 1908, specifically sections 20 and 115, and the constitutional power of the State to carry on a business, as set out in articles 19(6) and 298 of the Constitution of India. The factual backdrop involved a railway whose headquarters were situated within the territorial limits of the court that was claimed to have jurisdiction.

The plaintiff‑respondent instituted proceedings in the court of the Additional Subordinate Judge at Gauhati against the Union of India and the Northern Frontier Railway, the railway being represented by its General Manager. The railway’s headquarters were located at Pandu, an area that fell within the jurisdiction of that Subordinate Judge. The plaintiff sought the recovery of Rs 8,250 on the ground that goods consigned to the plaintiff’s firms had not been delivered. The consignment had been booked from Kalyanganj station of the defendant railway to Kanki station, both stations belonging to the same railway. The plaint alleged that the cause of action arose at Pandu, where the railway’s principal place of business existed because its headquarters were situated there. The defendants opposed the suit on the ground that the court lacked jurisdiction to entertain the claim. Relying on the decision of the Assam High Court in P. C. Biswas v. Union of India, A.I.R. 1956 Assam 85, the trial court held that the principal place from which railway administration in a particular area is carried on constitutes the principal place of business for purposes of jurisdiction under section 20 of the Code of Civil Procedure, 1908, and therefore ruled in favour of the plaintiff. The appellants filed a revision petition, which the High Court dismissed. The present appeal reached this Court after a special leave was granted. In the appeal the appellants contended that the operation of a railway by the Union of India should not be characterised as carrying on a business, and therefore the presence of the Northern Frontier Railway’s headquarters at Pandu within the Gauhati court’s territorial jurisdiction could not confer jurisdiction under section 20 of the Code.

The Court observed that articles 19(6) and 298 of the Constitution clearly demonstrate that the State is competent to carry on business and may lawfully exclude citizens, wholly or partially, from that business. It further noted that the activity of running railways, although a business when undertaken by private companies or individuals, does not cease to be a

The Court observed that an activity continues to be classified as a business even when it is undertaken by the Government. The character of the activity is determined solely by its nature, and the identity of the operator or the purpose behind the operation does not alter that classification. The Court explained that a profit motive is not an indispensable element of a business, although most businesses are profit‑seeking. Consequently, the fact that the Government operates the railways to provide inexpensive transportation for passengers and freight, as well as to serve strategic objectives, does not transform the activity from a business into a sovereign act of the State. Accordingly, the Union of India was held to be carrying on the business of running railways and could be sued in the Subordinate Court of Gauhati whose territorial jurisdiction encompassed the headquarters of that railway. In arriving at this conclusion, the Court cited several authorities, namely State of Bombay v. Hospital Mazdoor Sabha [1960] 2 S.C.R. 866, The Corporation of the City of Nagpur v. Ito Employees [1960] 2 S.C.R. 942, and Satya Narain v. District Engineer, P.W.D., A.I.R. 1962 S.C. 1161.

The judgment related to Civil Appeal No. 717 of 1961, which was filed by special leave against the order dated 10 April 1961 of the Assam High Court in Civil Revision No. 10 of 1961. The appeal was presented on 7 May 1963, and the opinion was delivered by Justice Raghu Bar Dayal. The appellant’s counsel represented the parties, while the respondent did not appear before the Court. The appeal challenged the High Court’s dismissal of a revision filed under section 115 of the Code of Civil Procedure, which contested the finding of the Additional Subordinate Judge of Gauhati that he possessed jurisdiction to try a money suit. The suit itself had been instituted by the plaintiff‑respondent against the Union of India and the Northern Frontier Railway, represented by its General Manager, whose headquarters were at Pandu. The plaintiff claimed a recovery of Rs 8,250 for the non‑delivery of goods consigned to the firm of M/s Ladu Lal Jain. The consignment consisted of 134 bags of rice, booked for carriage from Kalyanganj station of defendant No. 2 to Kanki station of the same defendant on 13 April 1958. Because the goods were not delivered, the plaintiff served a notice under section 77 of the Indian Railways Act and a notice under section 80 of the Code. The plaint alleged that the cause of action arose at Pandu, which lay within the jurisdiction of the Gauhati court.

The plaintiff argued that the suit fell within the jurisdiction of the Gauhati Court because the notice issued under section 80 of the Code of Civil Procedure was duly served on the defendant railway at Pandu, and the suit was subsequently filed in that Court, which, according to the plaintiff, encompassed the railway’s principal place of business by virtue of its headquarters being situated at Pandu. The plaintiff further maintained that the service of notice at Pandu satisfied the statutory requirement that the suit be instituted in a Court having territorial jurisdiction over the place where the cause of action arose. Accordingly, the plaintiff contended that the Gauhati Court was the appropriate forum for adjudicating the dispute.

The two defendants responded by filing a joint written statement. The statement pointed out that the consigning station, Kalyanganj, lay in the State of West Bengal, while the destination station, Kanki, was located in the State of Bihar, and the Gauhati Court was situated in the State of Assam. On this factual matrix, the defendants argued inter alia that the Gauhati Court lacked any territorial jurisdiction to try the suit because neither of the railway stations involved lay within the Court’s territorial limits, and the goods had never travelled through any part of Assam; consequently, the cause of action could not arise within the jurisdiction of any Court in Assam. The defendants further asserted that merely serving a notice, which the plaintiff did not admit, on the defendants at a place within the Court’s jurisdiction did not, by itself, confer territorial jurisdiction upon the Court. They emphasized that Defendant No. 1, the Union of India, did not have its principal place of business at Pandu or any other location within the jurisdiction of the Gauhati Court, its head office being in New Delhi. Additionally, the defendants stated that Defendant No. 2, the Northern Frontier Railway, was owned and managed by Defendant No. 1, that the Pandu office of Defendant No. 2 was owned and controlled by Defendant No. 1, and that the Pandu office functioned as a branch of the Union of India, which was ultimately directed from New Delhi. Relying on the precedent set in P.C. Biswas v. Union of India (1), the trial Court decided the preliminary jurisdictional issue in favour of the plaintiff, holding that the principal place from which the railway administration is carried out in a particular area constitutes the principal place of business for the purposes of section 20 of the Code. The single judge of the High Court upheld the trial Court’s decision, rejecting the revision on the same basis. The Court noted that, in general, the territorial jurisdiction of a Court is determined by the provisions of section 20 of the Code, which reads: “Subject to the limitations aforesaid, every suit shall be instituted in a Court within the local limits of whose jurisdiction – (a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain; or (b) any of the defendants, where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or (c) the cause of action, ….”

In this part of the judgment, the Court explained that the cause of action may arise wholly or in part at a particular place. Explanation I stated that when a person has a permanent dwelling at one location and a temporary residence at another, the person is deemed to reside at both places for any cause of action that arises at the place of the temporary residence. Explanation 11 clarified that a corporation is deemed to carry on business at its sole or principal office in India, and also at any subordinate office where a cause of action arises. The Court observed that the purpose of clauses (a) and (b) of section 20 of the Code is to allow a suit to be instituted at a place where the defendant can defend the suit without undue difficulty. The expression “voluntarily resides or personally works for gain” was noted as inapplicable to the Government, because the Government may nevertheless carry on business. The Court emphasised that the mere inclusion of the phrase “carries on business” alongside the other expressions does not limit its application only to those persons to whom the residence or personal‑work criteria apply. The sole contention raised by the appellants before this Court was that the Union’s operation of railways could not be characterised as “carrying on business,” and consequently the location of the Northern Frontier Railway Administration headquarters at Pandu, within the jurisdiction of the Gauhati Court, would not confer jurisdiction under section 20. The appellants argued that any activity undertaken by the Government, even if it would amount to a business if performed by a private individual, does not constitute “carrying on business” by the Government when there is no profit‑making element. The Court observed that the written statement made no allegation that the Government does not run railways for profit, and no issue was framed on that point. The lower Court therefore made no decision on the matter, and it cannot be presumed that the Government is not earning profit or does not have a profit motive in operating the railways. The Court further held that the fact the Government runs railways to provide quick, inexpensive transport for people and goods and for strategic purposes does not transform an activity that qualifies as “carrying on business” into something else merely because it is performed by the sovereign State. The Court referred to Article 298 of the Constitution, which provides that the executive power of the Union and each State extends to “carrying on any trade or business,” and to clause (6) of Article 19, which states that nothing in sub‑clause (g) of clause (1) of that Article shall prevent the State from making any law relating to the carrying on by the State or by a corporation owned or controlled by the State of any trade, business, industry, or service, whether wholly or partially to the exclusion of citizens or otherwise.

In this case the Court observed that the constitutional provisions make it clear that the State is permitted to carry on any trade, business, or service and may, if it chooses, exclude citizens wholly or partially from participating in that activity. Accordingly, the running of railways falls within the meaning of a business, a classification that is not denied by any authority. Historically private companies and individuals operated railway services before the State assumed control, and the only question that remained was whether the character of the activity changed when the Government became the operator. The Court found no convincing reason to hold that the activity ceased to be a business merely because the State now performed it. It emphasized that the nature of the activity itself determines its character; the fact that railways are operated by the Government and the motive behind the operation do not alter the fact that the activity is a business. The Court then turned to its earlier decisions for guidance on how to determine the nature of governmental activities. In State of Bombay v. The Hospital Mozdoor Sabha [1961] 2 S.C.R. 866 the issue was whether the provisions of the Industrial Disputes Act, 1947 applied to a group of hospitals run by the State of Bombay and whether those hospitals qualified as an “industry” within the meaning of section 2(j) of the Act. That section defines industry as any business, trade, undertaking, etc., of employers. The Court examined whether the activity of running a hospital would be an undertaking if carried out by private citizens. It concluded that a privately run hospital engaged for profit would indeed be an undertaking in the ordinary sense of trade or business. The Court then stated that the character of the activity, not the identity of the operator, determines whether the activity attracts the provisions of section 2(j); whether the activity is carried out for profit is immaterial. Similar reasoning was expressed in The Corporation of the City of Nagpur v. Its Employees, where the Court held that if a service performed by an individual or a private person qualifies as an industry, the same service provided by a corporation also qualifies as an industry. The Court further noted earlier that monetary considerations are not an essential characteristic of industry, reinforcing the view that the defining feature is the nature of the activity itself rather than who performs it or the profit motive behind it.

In this passage the Court observed that, apart from the sovereign or regal functions of a municipality, any other activity that would be regarded as industry if performed by a private individual must also be regarded as industry when performed by a municipal authority. The observation was recorded in the 1960 Supreme Court Reports at pages 942 and 962. The Court then turned to the decision in Satya Narain v. District Engineer, P.W.D. to examine whether the operation of motor buses by the Government as a commercial enterprise could be characterized as the provision of a public service. The Court explained that the term “public service” is difficult to define and that each activity must be examined individually to determine whether it qualifies as a public service. The Court said that activities undertaken in the exercise of the State’s sovereign power or in the performance of governmental functions are unquestionably public services. By contrast, a purely commercial undertaking, even if run by the Government, cannot be classified as a public service.

The Court further noted that when an activity involves a public utility, a question may arise as to whether it falls in the category of a sovereign service or a commercial one. The Court emphasized that the mere usefulness of an activity to the public does not automatically make it a public service. An activity that is beneficial and useful to the people cannot be regarded as a public service if the activity is of a type that could be performed by private individuals and if the Government carries it out with a clear profit motive. The Court illustrated this point by observing that the operation of stage‑carriage buses, although undertaken for hire, is a government activity intended to provide the public with a cheap, regular and reliable mode of transport. Nevertheless, the activity remains a commercial one if it is pursued for profit.

According to the Court, private operators also aim to attract customers by providing facilities similar to those offered by the Government. Consequently, the Court found it difficult to discern any substantive difference between commercial activities carried out by private persons and those carried out by the State. The Court concluded that the mere fact that a commercial undertaking is owned and operated by the State does not, by itself, transform it into a “public service.” The decision therefore held that a commercial activity undertaken with a profit motive cannot be described as a public service. However, the Court did not rule that a Government‑run commercial activity lacking a profit motive would cease to be a business.

The Court expressed the view that a profit element is not an essential ingredient of a business, although businesses are usually undertaken for profit. The Court assumed that the railways are generally operated for profit, while acknowledging that they may occasionally be run at a loss. The discussion referenced the case reported as Director of Rationing & Distribution v. The Corporation of Calcutta, which was cited in support of these observations.

The Court observed that the decision of the Calcutta case cited by the appellants did not assist their argument. That earlier judgment related to activities performed by the State in its sovereign capacity and had held that the State was not bound by any statute unless the statute expressly said so or it was necessarily implied. The present contention that the Government could not invoke the protection of the statute in relation to its commercial undertakings was neither rejected nor examined in detail, because the Court found no basis for it. The record showed no evidence that the Food Department of the Government of West Bengal, by carrying out rationing and distribution of food in an orderly manner, had entered into any trade or business. In the absence of any indication of a commercial motive, the Department appeared to be merely performing the fundamental sovereign function of ensuring the proper and equitable distribution of available foodstuffs so as to maintain peace and good governance. The Court therefore relied on the precedent reported in (1) [1961] I & C A? 158 to support its view. Applying the same reasoning, the Court held that the Union of India is engaged in the business of operating railways and therefore may be sued before the Subordinate Judge of Gauhati whose territorial jurisdiction includes the headquarters of one of the Union‑run railways. Accordingly, the appeal was dismissed with costs, and the order of dismissal was affirmed.