Amar Chand Butail vs Union Of India (Uoi) And Ors

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

Court: Supreme Court of India

Case Number: Appeal (civil) 563 of 1963

Decision Date: 11 March 1964

Coram: P.B. Gajendragadkar, K.N. Wanchoo, J.C. Shah, N.R. Ayyangar, S.M. Sikri

In the appeal titled Amar Chand Butail versus Union of India and others, decided on 11 March 1964, the Supreme Court bench comprised Chief Justice P. B. Gajendragadkar, Justice K. N. Wanchoo, Justice J. C. Shah, Justice N. R. Ayyangar and Justice S. M. Sikri. The appellant, Amar Chand Butail, instituted a suit against three respondents—the Union of India, the Himachal Pradesh Administration and Jishan Lal Kuthiala—seeking a recovery of Rs 1,44,522‑6‑9 together with future interest calculated at nine percent per annum. The appellant claimed to have acted as a contractor who was entrusted with the responsibility of supplying food grains and other essential commodities to labourers employed by the Jubbal State for the purpose of forest exploitation. In addition, the appellant asserted that he had been assigned the task of providing food grains and related commodities to the Jubbal State under its grains‑procurement scheme, for which he maintained a storage depot at Sanjauli.

The factual chronology revealed that on 1 April 1948 the Jubbal State discontinued its direct exploitation of forests and transferred that activity to a contractor named Jodha Mall Kuthiala. At that point the appellant possessed food grains valued at approximately Rs 94,198‑8‑3, which were intended to be delivered to the labourers engaged by the State. Pursuant to an order issued by the Jubbal Durbar, the appellant handed over the entire stock of grains to the Conservator of Forests, who subsequently delivered the goods to the contractor Jodha Mall Kuthiala. The contractor deposited Rs 70,000 in the credit of the Jubbal State and issued a cheque for the remaining balance of Rs 24,000‑odd in favour of the Chief Executive Officer, Jubbal. That cheque was endorsed by the payee to the Agent, Imperial Bank of India, Simla, and the proceeds were credited to the account of Raja Rana Sir Bhagat Chand of Jubbal. The plaint further alleged that the appellant owed Rs 24,000‑odd to a Karori named Mali Kuthiala, and that the State, by order, set off this amount against the total sum of Rs 94,000‑odd due to the appellant. Minor adjustments were also directed concerning the amount payable to the appellant, resulting in a final determination that Rs 71,818‑15‑0 was due to the appellant from the Jubbal State out of the original total of Rs 94,198‑8‑3. This final figure represented the net amount payable by the State to the appellant for the supplies of goods rendered to the State’s labour force, after accounting for the goods transferred to the contractor under the State’s directives.

In this suit the appellant’s second claim related to grain supplies made under the State’s grain‑procurement scheme. The appellant itemised the amount claimed under this head as two sums, namely Rs 37,669‑3‑6 and Rs 1,000‑12‑0. The bills presented by the appellant were examined and verified by the Jubbal Durbar, which consequently ordered respondent No 3, Jishan Lal Kuthiala, to pay the total amount to the appellant. Respondent No 3, who owed the State a sum greater than the amount claimed by the appellant, agreed to discharge the appellant’s dues as directed by the State. Accordingly, the appellant executed a receipt in favour of respondent No 3, and this receipt was delivered to the Conservator of Forests for the purpose of adjusting respondent No 3’s liability to the State. Subsequent to these events the former Jubbal State acceded to the Union of India and respondent No 2, the newly formed State, came into existence. Respondent No 2 then interposed a restraint on respondent No 3, forbidding him from making any payment to the appellant and directing him instead to deposit the amount due into the Government Treasury. Complying with that direction, respondent No 3 deposited in the Treasury more than Rs 1,15,000, which he owed to the Jubbal State. The appellant subsequently approached respondent No 2, seeking enforcement of the earlier arrangement among the Jubbal State, the appellant and respondent No 3. When that request failed, the appellant instituted the present suit against the three respondents.

Respondent No 3 admitted that the Jubbal Durbar had instructed him to pay Rs 1,08,669‑15‑3 to the appellant and that the appellant had executed a receipt in his favour for that amount, although no actual payment was ever made. The receipt was handed to a Jubbal State officer for purpose of adjusting respondent No 3’s dues to the State. Thereafter respondent No 2 ordered respondent No 3 to deposit the said sum in the Treasury rather than pay the appellant, and respondent No 3 complied with that order. In effect, respondent No 3’s admissions substantially corroborated the material allegations set out by the appellant in the plaint.

The claim of the appellant was contested by respondents 1 and 2. They denied that the Jubbal Durbar owed any money to the appellant, either for food‑grains supplied to labourers employed by the Durbar or for grain supplied under the procurement scheme, and they disputed the other factual averments made by the appellant. Initially they even suggested, as an alternative, that respondent No 3 had actually paid the amount in question to the appellant, but they later abandoned that plea. At trial it was established as common ground that no payment had been made by respondent No 3 to the appellant and that the receipt executed by the appellant was without consideration. Their principal defence was that they were not liable to settle any liability of the Jubbal State and that the Municipal Courts lacked jurisdiction to entertain a claim concerning such liability. A plea of limitation was also raised, though it was not pursued to a conclusion. Additionally, they contended that respondents 1 and 2 had received no benefit from the alleged transactions with the appellant and therefore could not be held liable on the merits of the appellant’s claim.

In this case the respondents, identified as respondents 1 and 2, asserted that no payment had been made to the appellant by respondent 3 and that the receipt signed by the appellant was executed without any consideration. Their principal argument was that they could not be held liable for settling any alleged debt of the Jubbal State and that the Municipal Courts possessed no jurisdiction to entertain such a claim. Although a plea of limitation was initially raised, the respondents ultimately did not pursue that argument. In addition, the respondents contended that they had derived no benefit from the transactions alleged by the appellant and therefore could not be held liable on the merits of the claim.

The learned trial judge responded to these contentions by formulating the appropriate issues and, after examining the evidence presented, recorded findings largely in favour of the appellant on all material points. Consequently, the trial judge issued a decree directing respondents 1 and 2 to pay the appellant a sum of Rs 1,44,522‑6‑9, while expressly reserving judgment on any future interest. During the trial, the appellant requested that respondents 1 and 2 produce five documents; the respondents claimed privilege over those documents. The trial judge upheld the claim of privilege, and the documents were not produced, yet the final decision nevertheless went against the respondents.

The decree of the trial court gave rise to two separate appeals, designated as Civil Appeals Nos 5 and 6 of 1959. The first appeal, filed by the appellant, sought an order for future interest on the amount awarded by the trial court. The second appeal, filed jointly by respondents 1 and 2, challenged both the correctness and the legality of the trial court’s decree. Both appeals were heard together by the learned Judicial Commissioner of Himachal Pradesh. The Judicial Commissioner concurred with the trial judge’s findings on the important factual issues, but held that the contractual liability of the Jubbal State could not be enforced against respondents 1 and 2 because, after the merger of the Jubbal State with the Union of India, the substantial portion of that liability had not been acknowledged or recognised by either respondent. Nonetheless, he observed that the appellant’s claim of recognition was established in respect of a modest amount of Rs 1,818‑15‑0, and that this portion could appropriately be entertained by the Municipal Courts. Accordingly, the Judicial Commissioner modified the original decree, reducing the decretal amount to Rs 2,337‑5‑0 and ordering the payment of future interest. The appellant subsequently approached this Court by way of special leave against the modified decree.

In addressing the principal issue that counsel for the appellant raised in this appeal, the Court first summarized the essential findings recorded by the lower courts that were favorable to the appellant. Both the trial court and the Judicial Commissioner concluded that the appellant had supplied food‑grains and other commodities valued at Rs. 94,198‑8‑3 to the Conservator of Forests. Those supplies were partially used for the labourers employed by the Jubbal State and the remainder were transferred by the State to the contractor Jodha Mall Kuthiala, who then utilized them. A comparable finding was recorded with respect to the appellant’s claim for Rs. 38,669‑15‑6 arising out of the grains procurement scheme operated by the Jubbal State. Furthermore, the Judicial Commissioner found that the Jubbal State had formally sanctioned a payment of Rs. 1,08,669‑15‑6 to the appellant and had issued a direction that respondent No. 2 should make that payment to him.

Having established these factual findings, the Judicial Commissioner examined the legal position of the appellant’s claim against respondents 1 and 2, taking into account that the Jubbal State had merged with the Union of India and subsequently became part of Himachal Pradesh. A critical question in this context was whether respondents 1 and 2 had acknowledged the liability of the former Jubbal State to pay the amounts sought by the appellant. The Commissioner observed that, apart from a modest sum of Rs. 1,818‑15‑0 for which the recognition of liability was proven, the respondents had not recognised any other portion of the claim, and therefore the Commissioner ruled against the appellant on that point.

The appellant also contended before the Judicial Commissioner that certain documents he had requested from respondents 1 and 2 should have been ordered to be produced, and that the claim of privilege advanced by those respondents ought to have been rejected by the trial judge. The Commissioner held that, in view of the earlier orders issued by his predecessor on this matter, the appellant could not reopen the issue at that stage. He concluded that the matter had already been finally decided and was therefore barred by the principle of res judicata. Consequently, the Commissioner considered the appellant’s contention that the respondents had, in effect, recognised his claim against the Jubbal State, based on the evidence that was on record.

The counsel for the appellant contended that the lower courts erred in upholding the privilege plea asserted by respondents 1 and 2 concerning the five documents that the appellant had sought to produce in the trial court.

The documents that the appellant had called for in the trial court consisted of the following: an original letter dated 20 March 1951 from the Chief Conservator of Forests, Himachal Pradesh, addressed to the Attorney‑General of Punjab and Himachal Pradesh; the original report of the accountant of the Jubbal Sub‑Treasury dated 17 February 1951; the original report dated 28 November 1948 of the Audit Officer, Shri Dasaundhi, addressed to the Sub‑Divisional Officer of Jubbal; office records relating to the report of the Minister of Civil Supplies; and a report of the Sub‑Divisional Officer of Jubbal to the Chief Conservator of Forests, prepared sometime in the fourth week of February 1951. At the trial stage, an affidavit was filed purporting to claim privilege on behalf of respondent No. 2. That affidavit bore the signature of Padam Dev, who was then the Home Minister of Himachal Pradesh. The Court observed that, on the question of privilege, the appellant could not be barred by a plea of res judicata in the present appeal, because whatever effect the interlocutory orders of the Judicial Commissioner might have had on that point, the matter now reached the Supreme Court as an appeal against the final decree. Consequently, the appellant was free to argue that the lower courts erred in upholding the claim of privilege, and that position could not be contested. Therefore, the Court identified the key issue for determination as whether the claim of privilege was properly justified. The Court then turned to the scope and effect of Section 123 of the Evidence Act, a matter previously examined in State of Punjab v. Sodhi Sukhdev Singh, MANU/SC/0006/1960 : [1961] 2 SCR 371. Section 123 barred any person from giving evidence based on unpublished official records relating to affairs of the State unless the head of the concerned department granted permission. In the Punjab case, the Court held that although Sections 123 and 162 prevented the Court from enquiring into the possible public‑interest injury that might follow disclosure—leaving that decision to the authority—it remained competent to conduct a preliminary enquiry to determine the validity of the objection to production. Such an enquiry required the Court to decide whether the document indeed related to affairs of the State within the meaning of Section 123. Noting that Section 123 conferred wide powers on departmental heads, the Court warned that those heads must exercise their discretion with scrupulous care and must not invoke privilege merely or chiefly because disclosure would undermine the State’s defence. The Court emphasized that considerations justifying privilege on the ground of public injury must be distinguished from considerations of expediency that might persuade a department to raise a privilege claim in order to protect a defensive strategy.

In this case, the Court observed that a department may invoke a privilege plea on the basis that producing a document would defeat the defence advanced by the State, and it noted that this particular aspect of the problem had already been decided by this Court in the previously cited authority. The Court further explained that the other dimension of the issue, also settled in that earlier decision, concerned the proper method for asserting privilege. It was held in that precedent that, as a general rule, the claim for privilege should be made by the Minister who heads the department politically, and that the accompanying affidavit must demonstrate that each document cited in the claim had been read carefully, considered thoroughly, and that the affiant was sincerely convinced that disclosure of the document would cause injury to the public interest. Applying these two principles, the Court turned to the point raised by counsel for the petitioner, identified in the record as Mr. Setalvad, for determination. The Court recalled that a document bearing the signature of the Home Minister of Himachal Pradesh had been filed, but counsel for the petitioner argued that the document could not be treated as an affidavit at all. Although the document contained the words “solemnly affirmed,” the Court agreed that the person who made that affirmation appeared not to be familiar with the statutory requirements for an affidavit. The Court noted that the learned Additional Solicitor‑General had conceded that, on its face, the document did not satisfy the formal requirements of an affidavit which must be filed to support a claim of privilege. Consequently, the Court held that, on this preliminary ground alone, the claim of privilege was liable to be rejected. The Court further examined the merits of the claim and found no reason to accept it. The statement of the Home Minister did not reveal that he had given serious thought to the contents of the documents or examined whether their disclosure would harm public interest. The Court observed that this situation illustrated how a claim of privilege could sometimes be made in a casual or perfunctory manner, without appreciating the solemnity and significance attached to the power vested in the head of a department to invoke such privilege. Moreover, the Court indicated that one of the documents produced under its directions appeared to show that the sole motive for claiming privilege over that document was the fear, which was rightly entertained, that disclosure would completely defeat the entire defence advanced by respondents 1 and 2. To determine whether the lower courts had correctly upheld the claim, the Court ordered respondents 1 and 2 to produce the relevant documents for inspection. The available documents were then produced before the Court, and the Court referred specifically to one of those documents in its further analysis.

After reviewing the documents that had been produced before the Court, it was concluded that the claim of privilege asserted by respondent number two was wholly unjustified and could even be described as lacking good faith. Having therefore decided to admit the documents into the record, the Court considered whether it would be appropriate, in the interest of justice, to send the matter back to the lower courts with an instruction that the disputes between the parties be tried there in view of the newly admitted evidence. The Court heard the arguments of the learned Additional Solicitor‑General and determined that such a remand was unnecessary in the present circumstances. The learned Additional Solicitor‑General himself agreed that the Court could proceed to examine the merits of the case on the basis of the entire evidence without ordering a remand. The legal position concerning the liability of respondents one and two to satisfy the appellant’s claim regarding the transactions between the appellant and the State of Jubbal is clear and undisputed. If it can be demonstrated that either respondent one or respondent two had acknowledged the appellant’s claim against the State of Jubbal, that acknowledgment would give the appellant a valid cause of action against both respondents. This point does not require elaborate discussion because the constitutional provision embodied in Article 295 of the Constitution plainly settles the issue. Recognition of the appellant’s claim may be established either by an explicit acknowledgment or by inference drawn from the relevant facts and circumstances. In other words, the claim may be recognized expressly or implicitly, and in cases of implied recognition the Court may legitimately infer acknowledgment from facts and circumstances that reasonably support such a conclusion. In the facts before the Court there is no difficulty in holding that respondent number two expressly recognized the appellant’s claim in a document dated 20 March 1951, which was written by the Chief Conservator of Forests to the Accountant‑General of the Punjab, Himachal Pradesh Section, Simla. The Chief Conservator of Forests, who also served as the Secretary of the Forests Department of the Government of Himachal Pradesh, possessed unquestioned authority to issue such a letter. In that letter he detailed the history of the transactions between the appellant and the State of Jubbal and, in clear and unequivocal language, admitted liability to pay the amount claimed by the appellant in the present suit. It is unnecessary to repeat the detailed contents of the letter; it suffices to note that every material allegation set out in the appellant’s plaint is fully corroborated by this document. After presenting these facts in a straightforward manner, the Chief Conservator of Forests further stated that the only remaining course for respondent number two was to pay the appellant the sum of Rs 1,08,669‑15‑6 directly, urging that the payment be authorised within the financial year 1951.

In the circumstances, the only remaining alternative for respondent No 2 was to pay the appellant directly the sum of Rs 1,08,669‑15‑6, and the Chief Conservator of Forests concluded his letter by stating that he would be obliged if the payment of that amount was authorised within the financial year 1951. In other words, the Accountant General was instructed to disburse the said amount to the appellant within a fortnight, and it was emphatically emphasized that prompt payment was essential because any delay would expose respondent No 2 to a civil suit, for which notice had already been served on respondent No 2 by the appellant. There was no doubt that the letter constituted a complete recognition and acknowledgement by respondent No 2 of its liability to pay the appellant the sum due from the Jubbal State. It was further observed that the claim of privilege raised by respondent No 2 in the courts below had been wholly unjustified and should never have been made. It was regrettable that, in resisting the appellant’s legitimate claim, respondent No 2 initially advanced frivolous factual pleas, later abandoned them, and nevertheless persisted in pressing the unfounded privilege argument. Since the admitted document unequivocally proved that respondent No 2 had recognised the appellant’s claim against the Jubbal State, the trial court’s decree in favour of the appellant was justified. Accordingly, the decree issued by the Judicial Commissioner was set aside and the decree of the trial court was restored, directing respondents 1 and 2 to pay the appellant Rs 1,44,522‑6‑9. The next question concerned interest payable on that amount from the date of the suit until actual payment. Counsel for the appellant argued that the commercial practice in the State of Jubbal required interest at nine per cent, relying on the fact that interest at that rate had previously been awarded to the appellant for periods preceding the suit, and contended that the same rate should apply to future interest. The Court declined to adopt that argument, holding that irrespective of the rate applicable before the suit, interest could not be awarded at nine per cent per annum from the date of the suit onward. The Court concluded that justice would be best served by directing respondents 1 and 2 to pay interest at four per cent per annum from the commencement of the suit until the amount was actually paid, noting that four per cent is the rate normally allowed for future interest. Consequently, the decree of the trial court regarding the principal sum was restored, with the added direction that interest on the principal be paid by respondents 1 and 2 at the rate of four per cent per annum.

The Court ordered that interest on the principal sum would begin to accrue from the date on which the suit was filed and would continue to accrue until such time as the full amount was actually paid by the respondents. The Court explained that this period of interest entitlement covered the entire interval between the filing of the suit and the final discharge of the monetary liability, thereby ensuring that the appellant would receive compensation for the delay in payment. In addition, the Court held that the appellant was entitled to recover his entire costs of the proceedings from respondents numbered one and two. The entitlement to costs was directed to apply for the whole duration of the litigation, meaning that the appellant could claim all expenses that he had incurred from the commencement of the suit through to its conclusion. The Court therefore affirmed that the respondents were required to bear the financial burden of the appellant’s legal expenses in full, and that this obligation would remain in effect for the entire course of the case. Consequently, the decree restored the amount originally specified by the trial court, supplemented by the order that interest at the specified rate would be payable from the filing date until payment, and that the appellant could recover all costs from the two respondents throughout the litigation.