Valjibhai Muljibhai Soneji and Anr vs State Of Bombay (Now Gujarat) and Ors

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

Court: Supreme Court of India

Case Number: Appeal (civil) 122-123 of 1963

Decision Date: 8 May 1963

Coram: S.K. Das, K. Subbarao, R. Dayal, N.R. Ayyangar, J.R. Mudholkar

In this case the Supreme Court recorded that the appeal was titled Valjibhai Muljibhai Soneji and Another versus the State of Bombay, now Gujarat, and others, and that the judgment was rendered on 8 May 1963. The bench that heard the matter consisted of Justice S K Das, Justice K Subbarao, Justice R Dayal, Justice N R Ayyangar and Justice J R Mudholkar. The case was listed as Appeal (civil) numbers 122‑123 of 1963, with Valjibhai Muljibhai Soneji and another as petitioners and the State of Bombay (now Gujarat) and other respondents. The judgment was delivered by Justice Mudholkar, who noted that the decision would also be binding on Civil Appeal No 123 of 1963. Both appeals reached the Supreme Court after special leave was granted on 27 April 1960.

The petitioners had originally been plaintiffs in suits instituted before the Second Joint Civil Judge in Ahmedabad. In those suits they contested the legality of certain actions taken by the then Government of Bombay to acquire a parcel of land that belonged to respondent number 2. The government intended to acquire the land for the purpose of constructing a bus depot required by the State Transport Corporation, as well as for erecting offices and other buildings for that corporation. In addition to challenging the acquisition, the petitioners sought an injunction that would restrain both the State of Bombay and the State Transport Corporation from proceeding with the acquisition and from dispossessing the petitioners of the land.

The suit was founded on several grounds, but when the matter proceeded to the High Court on a second appeal, counsel Rajni Patel, appearing for the petitioners, limited the challenge to three specific points. First, he argued that the purpose stated in the notification issued under section 4 of the Land Acquisition Act 1894 was indefinite or vague, rendering the notification defective. Second, he contended that the proceedings were collusive and had been initiated by the State Government for the benefit of the landowner, who was respondent number 2. Third, he maintained that the State Transport Corporation was not a local authority within the meaning of the Act but merely a company, and therefore the requirements of Part VII of the Land Acquisition Act had not been complied with, making the acquisition invalid. Counsel J C Bhatt, appearing for the petitioners before this Court, confined his arguments to the same three grounds.

On behalf of the respondents, it was submitted in the lower courts and reiterated before this Court that the State Transport Corporation qualified as a local authority as contemplated by the Land Acquisition Act. The respondents further argued that even if the corporation were not a local authority, the acquisition had been made at public expense and served a public purpose. They emphasized that the petitioners could not look behind the government’s notification issued under section 4 of the Act, and they asserted that the acquisition was neither mala fide nor collusive. The learned Attorney‑General also appeared for the respondents, supporting these positions.

The Court observed that respondents 1 and 3 argued the suits were premature because they had been instituted before a notification under section 6 of the Land Acquisition Act had been issued. However, the Court noted that no such plea was advanced by the respondents in the trial court, because the State Government had already issued the section 6 notification before the written statement was filed. Consequently, the suits proceeded on the premise that there was no formal defect affecting their maintainability, and the Court considered it unfair to dismiss the suits solely on a technical ground. Turning to the first argument raised by the appellants, the Court pointed out that the notification issued under section 4 of the Act expressly declared that the acquisition was for a public purpose, namely State Transport. The subsequent notification under section 6 reiterated this purpose and further specified that the land was required for the purposes of, and at the expense of, the State Transport Corporation. Thus, the Government made a clear declaration that the purpose of the acquisition was public, and the Court recalled earlier rulings, such as Smt. Somawanti v. The State of Punjab [1963 (2) SCR 774], which hold that a governmental declaration of public purpose is final unless it constitutes a colourable exercise of power. That declaration remains conclusive unless it is shown to be a colourable exercise of governmental power. Therefore, unless the appellants can demonstrate collusion between respondents 1 and 3 on one side and respondent No. 2 on the other, the notification must be treated as decisive on the issue of public purpose. Accordingly, even though the land was being acquired for a corporation rather than directly for the State, the acquisition is still characterised as a public purpose, as affirmed in Somawanti’s case, provided the Government’s action is not a colourable exercise of power. The Court then considered whether the Government’s action could be described as colourable, collusive, or mala fide, which are matters of fact. The Court noted that the determination of collusion or mala fides is a factual enquiry that the lower courts had already examined. The High Court and the two subordinate courts had concluded that the appellants had not been able to substantiate their allegations. The Court affirmed that it would not re‑examine the evidence where the lower courts have arrived at concurrent findings of fact, except in extraordinary circumstances, which were absent here. Accordingly, the Court held that the notifications issued under sections 4 and 6 of the Land Acquisition Act are conclusive on the question that the land was required for a public purpose, and the Court recorded the remark, “We must, however,”.

In this part of the judgment the Court observed that before any notification can be issued under sub‑section (1) of section 6 of the Land Acquisition Act, the conditions laid down in the proviso to that subsection must be fulfilled. The Court reproduced the wording of section 6(1) together with its proviso, which states: “Subject to the provisions of Part VII of this Act, when the appropriate Government is satisfied after considering the report, if any, made under section 5A, sub‑section (2), that any particular land is needed for a public purpose, or for a Company, a declaration shall be made to that effect under the signature of a Secretary to such Government or of some officer duly authorised to certify its orders: Provided that no such declaration shall be made unless the compensation to be awarded for such property is to be paid by a Company, or wholly or partly out of public revenues or some fund controlled or managed by a local authority.” The Court explained that the proviso clearly bars the Government from issuing a declaration under sub‑section (1) of section 6 unless the compensation for the land is either payable by a Company or is payable wholly or partly from public revenues or from a fund that is controlled or managed by a local authority.

The Court then noted that the appellants had consistently maintained that the State Transport Corporation was a company, and that the entire amount of compensation was to be drawn from the funds of the State Transport Corporation. The Court observed that if the Court were to accept the appellants’ contention that the corporation qualified as a company, then the requirement of the proviso would be satisfied because the compensation would be payable by that company. Conversely, the respondents argued that the State Transport Corporation was not a company but a local authority. The respondents raised this point because they claimed that the procedures prescribed in Part VII of the Act had not been observed, and therefore, even if the acquisition were on behalf of a company, it would nevertheless be invalid on the ground of non‑compliance with Part VII.

To resolve this disagreement, the Court turned to the definition of “company” contained in section 3(e) of the Land Acquisition Act. That provision defines a company as “a Company registered under the Indian Companies Act, 1882 or under the (English) Companies Acts, 1862 to 1890, or incorporated by an Act of Parliament of the United Kingdom or by an Indian law, or by Royal Charter or Letters Patent and includes a society registered under the Societies Registration Act, 1860, and a registered society within the meaning of the Co‑operative Societies Act, 1912.” The Court examined the status of the State Transport Corporation and found that it was not registered under any Companies Act, nor was it incorporated by Royal Charter or Letters Patent. It also was not a society registered under the Societies Registration Act, 1860, nor a registered society under the Co‑operative Societies Act, 1912. The Court further observed that the corporation was not incorporated by an Act of the Parliament of the United Kingdom. Consequently, on the basis of the statutory definition, the State Transport Corporation could not be classified as a “company” within the meaning of section 3(e).

The Court noted that the State Road Transport Corporation had been incorporated by an Indian Law. In order to understand the legal position, the Court referred to the relevant statutes. It observed that the Central Legislature had enacted the Road Transport Corporation Act, 1948, which obtained the Governor‑General’s assent on 16 April 1948 and was brought into operation in the former province of Bombay by a subsequent notification. Under that Act, Section 2 defined the term “Corporation” to mean a Road Transport Corporation appointed by the Provincial Government pursuant to the Act. Section 4 of the same Act authorised the Provincial Government to appoint such a corporation. The Court explained that, exercising those statutory powers, the State of Bombay appointed the State Road Transport Corporation. Further, Section 4 stipulated that a corporation appointed by a Provincial Government under the Act would be a body corporate possessing perpetual succession and a common seal, and that it could sue and be sued under the applicable provincial law. The Court then turned to the legislation enacted by the Bombay State Legislature on 26 May 1950, namely the Bombay State Road Transport Act, 1950 (Act 25 of 1950). Although the precise date on which that Act became effective was not clear, the Court held that the exact commencement date was immaterial, and that there was no dispute that the Act had indeed been brought into force. Subsequently, by Act 64 of 1950, Parliament repealed the Road Transport Corporation Act, 1948, and substituted it with a comprehensive new law. The earlier statute had comprised only seven sections, whereas the new legislation provided an elaborate framework covering the establishment of Road Transport Corporations in the States, their incorporation, constitution, powers, duties, finance, accounts, audit and related matters. Within the new Act, Section 3 dealt with the establishment of Road Transport Corporations in the States, and Section 4 provided that every corporation would be a body corporate bearing the name notified under Section 3, possessing perpetual succession and a common seal, and would be capable of suing and being sued by that name. The Court then cited the special provision contained in Section 47 of the Act, which related specifically to Bombay. That provision read: “(1) The body known as the Bombay State Road Transport Corporation and the Board thereof, referred to in the notification of the Government of Bombay, No. 1780/5, dated 16 November 1949 (hereinafter referred to as ‘the existing Corporation’ and ‘Board’ respectively) shall, notwithstanding any defect in, or invalidity of, the enactment or order under which they were constituted, be deemed for all purposes to have been validly constituted as if all the provisions of the said notification had been included and enacted in this section and this section had been in force continuously on and from the said date, and accordingly – (a) all action by, and all transactions with, the existing Corporation or Board, including any action or transaction by which any property, asset or right was acquired or any liability or obligation whether by contract or otherwise, was incurred, shall be deemed to have been validly and lawfully taken or done; and (b) no suit, prosecution”.

The provision states that no suit, prosecution, or other legal proceeding may be brought against the Government of Bombay, any Board member, or any officer or servant of the existing Corporation concerning any action taken in connection with the establishment of the existing Corporation or Board, solely on the basis that the enactment or order creating the Corporation or Board was defective or invalid. Section two provides that when a new Corporation is established under section three in the State of Bombay, referred to as the New Corporation, several consequences follow. (a) The existing Corporation and its Board are deemed dissolved and must cease to function. (b) All property and assets that previously vested in the existing Corporation automatically vest in the New Corporation. (c) Every right, liability, and obligation of the existing Corporation, whether arising from a contract or any other source, is transferred to become the corresponding right, liability, and obligation of the New Corporation. (d) All licences, permits, contracts, and instruments that were granted to, made with, or executed on behalf of the existing Corporation or Board are deemed to have been granted to, made with, or executed on behalf of the New Corporation, and they continue to operate accordingly. The Court observed that these provisions make it clear that the old Corporation was always considered to have possessed a valid legal status and to have been properly incorporated. According to the Court, the establishment of a Corporation under section three of the 1950 Act caused the old Corporation to be dissolved, yet every action taken by or transaction with the old Corporation, including any acquisition of property or assets, is deemed to have been validly and lawfully performed. The Court noted that it is universally accepted that the passage of the 1950 Act impliedly repealed the Bombay Act of 1950, and that the Bombay Act 29 of 1955 expressly repealed it. The Court further pointed out that the provisions previously cited demonstrate that the State Transport Corporation, having been incorporated under an Indian statute, qualifies as a company. The Court then posed the question whether the requirement of the proviso to sub‑section (1) of section 6 is satisfied, given that compensation for the acquisition is to be paid solely by the Corporation and no contribution is made by the Government. The Attorney‑General, appearing for the respondent, contended that the Corporation’s funds originate from public revenue because they consist of monies provided by the State of Bombay. The Court remarked that even if the Corporation’s funds consist exclusively of money supplied by the State of Bombay, it is difficult to regard those funds as part of public revenue. The Court acknowledged that while the source of the funds is public revenue, the funds themselves belong to the Corporation and are held as its own property. The Court concluded that, therefore, the funds cannot be treated as public revenue in any sense. They.

In this case, the Court observed that the funds of the State Transport Corporation could not be characterised as “public revenue” in any sense. The argument advanced by the learned Attorney‑General relied on several provisions of the Act to contend that the Government exercised control over the Corporation, that the Corporation’s profits would ultimately accrue to the Government, and that, upon winding up, all assets of the Corporation would pass to the Government. From those premises, it was suggested that the Corporation might be considered merely a limb of the Government. The Court, however, noted that despite such control, the Corporation was not a department of Government; it was a separate legal entity. Consequently, any monies that originated from public revenue, whether they were invested, loaned, or granted to the Corporation, lost their original character at the moment they were transferred and became the Corporation’s own funds or assets. Therefore, although the proviso requiring compensation to be paid by the Corporation might be satisfied, the acquisition would still be invalid because the provisions of Part VII of the Land Acquisition Act had not been complied with.

The learned Attorney‑General then attempted to overcome this difficulty by arguing that the State Transport Corporation should be regarded as a “local authority.” The Court noted that the expression “local authority” is not defined in the Land Acquisition Act but is defined in section 3(31) of the General Clauses Act, 1897, which states that “local authority” means a municipal committee, district board, body of port commissioners or any other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund. The Court explained that the definitions contained in the General Clauses Act govern all Central Acts and regulations made after that Act’s commencement. Although the General Clauses Act was enacted after the Land Acquisition Act, it is a consolidating and amending legislation, and its definition of “local authority” is identical to those in the earlier statutes of 1868 and 1887. Accordingly, the Court held that the definition in section 3(31) must be applied to interpret the term “local authority” wherever it appears in the Land Acquisition Act.

Having restated the definition, the Court observed that, unless it is shown that the State Transport Corporation is an “authority” legally entitled to or entrusted by the Government with the control or management of a local fund, it cannot be deemed a local authority. The Court found that no material had been placed before it to demonstrate that the Corporation’s funds could be regarded as local funds. While the learned Attorney‑General submitted that the Government supplied the Corporation with funds to commence its business, the Court expressed difficulty in seeing how such an infusion of capital would transform those funds into local funds. The Attorney‑General further relied on section 29 of the Bombay State Road Transport Act, 1950, which provides that the Corporation shall for all purposes be deemed to be a local authority. The Court acknowledged that provision but held that the definition in the General Clauses Act cannot be overridden by a later statute unless there is a direct repugnancy in the subject or context. Since no repugnancy was identified, the definition in the General Clauses Act remained controlling for construing “local authority” in the Land Acquisition Act.

The Court observed that the Transport Act of 1950 contains a provision stating that, for every purpose, the Corporation shall be deemed to be a local authority. While this provision is clear, the Court held that the definition supplied by that Act cannot supersede the definition contained in the General Clauses Act of 1897. The General Clauses Act alone must be employed to interpret the expression “local authority” when it appears in a Central statute such as the Land Acquisition Act, unless a direct repugnancy between the statutes is shown. The Court noted that, although land acquisition now falls within the concurrent list and consequently the State legislature has the power to enact laws on the subject, the Bombay Act had not obtained the President’s assent and therefore could not prevail over the meaning of “local authority” as fixed in the Central Act. No repugnancy was identified by the parties. The Court then turned to the provisions of the 1948 Act, which had empowered the Province of Bombay, along with other provinces, to establish Road Transport Corporations and had conferred upon the Provincial Governments, under sections five and six, the authority to handle compensation matters and the winding‑up of such corporations. After the Constitution came into force, the State Legislature of Bombay enacted the Bombay Act of 1950 pursuant to those powers. However, the Court explained that the Central Act of 1950 subsequently repealed the 1948 Act, thereby removing the legal foundation that supported the continued existence of the Bombay Act of 1950. In addition, section forty‑one of the Central Act expressly provided that a corporation shall be deemed a local authority only within the meaning given by the Motor Vehicles Act of 1939 and not within the meaning of any other law. Consequently, the Court concluded that the provision of section twenty‑nine in the Bombay Act could not survive in any circumstance. In view of these considerations, the learned Attorney‑General chose not to press his argument further. The Court then held that the land acquisition challenged in this case, although undertaken for a public purpose and for the benefit of a corporation, was invalid because no portion of the compensation was to be drawn from public revenues and the requirements of Part VII of the Land Acquisition Act had not been satisfied. Accordingly, the Court allowed the appeals, set aside the challenged acquisition, and decreed the suits of the appellants, ordering costs to be awarded in all courts.