CONSTITUTION

Art 107. Provisions as to Introduction and passing of bills.-(1) Subject to the provisions of Articles 109 and 117 with respect to Money Bills and other financial Bills, a Bill may originate in either House of Parliament.

(2) Subject to the provisions of Articles 108 and 109, a Bill shall not be deemed to have been passed by the Houses of Parliament unless it has been agreed to by both Houses, either without amendment or with such amendments only as are agreed to by both Houses.

(3) A Bill pending in Parliament shall not lapse by reason of the

prorogation of the Houses.

(4) A Bill pending in the Council of States which has not been passed by the House of the People shall not lapse on a dissolution of the House of the People.

(5) A Bill which is pending in the House of the People, or which having been passed by the House of the People is pending in the Council of States, shall, subject to the provisions of Article 108, lapse on a dissolution of the House of the. People.

Legislation which includes the imposing of taxes and appropriation of moneys is one of the main functions of Parliament. The legislative proposal is initiated in either of the House in the form of a Bill. The detailed procedure relating to the passage of a Bill in a House is laid down in the rules of procedure which each House has made. The Constitution, in this chapter, lays down only basic rules of procedure.

Clause (1) provides the rule as to the initiation of legislation in Parliament. It enacts that all Bills, except financial or Money Bills, may be introduced in either House of Parliament. Financial or Money Bills pertain to fiscal matters such as Bills authorising expenditure of money out of the Consolidated Fund of India or levying of taxes, and can only be introduced in the House of the People.

Clause (2) provides that every Bill needs the agreement of both .Houses. If there is a disagreement between the Houses over any provision or provisions as proposed in the Bill, or over amendments, the Bill cannot be deemed to have been passed by both Houses. There are two exceptions to the rule when a Bill will be deemed to have been passed by both Houses notwithstanding disagreement between them over the Bill. The first exception relates to Money Bills as defined in Article 109. These are governed by a special procedure which dispenses with the necessity of agreement of the Council of States to the provisions contained therein. The second exception is provided in Article 108 which provides for the passage of a Bill, other than a Money Bill, at a joint sitting of the two Houses.

Clauses (1) and (2) indicate the respective roles of the two Houses in the law-making process. The Constitution, it will be seen, does not confer the same powers on both Houses. The powers of the Council of States or the Rajya Sabha are restricted in two ways. Firstly, it has no power to initiate money or financial Bills and secondly, its consent is dispensed with in case. of Money Bills. Other Bills, even if not consented to by the Council of States, may become laws if passed at a joint sitting in which the members of the House of the People numerically dominate.

Clauses (3), (4) and (5) of the article describe the extent to which the pending legislative business lapses by prorogation of the Houses or dissolution of the House of the People. Prorogation, as we have noted, brings to an end not the existence, but a session of Parliament. Prorogation has no effect on Bills pending in Parliament. They do not lapse and may be continued in the next session. A Bill remains pending even when it is referred to a select committee and need not be reintroduced after the select committee has submitted its report. The Indian rule, it will be observed, makes a distinct departure from the English convention. In England, prorogation ends the session of both Houses simultaneously and terminates all pending business. These Bills must, therefore, begin at the earliest stage when Parliament is summoned again.

Dissolution of the House takes place at the end of every 5 years and may take place earlier also if the Prime Minister so desires. The extent to which the legislative business lapses is stated in clause (5). Bills which are pending in the House of the People lapse. They are not kept alive for the new House. Further, a Bill which has been passed by the House of the People but is pending in the Council of States, lapses on the dissolution of the House of the People.

It has been held that Article 107(5) is exhaustive and accordingly only such Bills as are pending before the House of the People are affected. Thus, a Bill which has passed all the stages in the two Houses and is awaiting the assent of the President does not lapse on the dissolution of the House of the People. In Purushothaman Nambudri v. State of Kerala, the Supreme Court upheld the impugned legislation though the Governor had given his assent to the Bill after the dissolution of the legislative assembly.

Clause (4), which is more in the nature of an explanatory provision, makes it clear that where a Bill is pending in the Council of States and the same has not been passed by the House of the People, it shall not lapse on the dissolution of the House of the People.

Art 108. Joint sitting of both Houses in certain cases.-(1) If after a Bill

has been passed by one House and transmitted to the other House

(a) the Bill is rejected by the other House; or

(b) the Houses have finally disagreed as to the amendments to be

made in the Bill; or

(c) more than six months elapse from the date of the reception of the

Art 113. Procedure in Parliament with respect to estimates.-(1) So much of the estimates as relates to expenditure charged upon the Consolidated Fund of India shall not be submitted to the vote of Parliament, but nothing in this clause shall be construed as preventing the discussion in either House of Parliament of any of those estimates.

(2) So much of the said estimates as relates to other expenditure shall be submitted in the form of demands for grants to the House of the People, and, the House of the People shall have power to assent, or to refuse to assent, to any demand, or to assent to any demand subject to a reduction of the amount specified therein.

(3) No demand for a grant shall be made except on the recommendation of the President.

Art 114. Appropriation Bills.-(1) As soon as may be after the grants under Article 113 have been made by the House of the People, there shall be introduced a Bill to provide for the appropriation out of the Consolidated Fund of India of all moneys required to meet

(a) the grants so made by the House of the People; and

(b) the expenditure charged on the Consolidated Fund of India but not

exceeding in any case the amount shown in the statement previously laid before Parliament.

(2) No amendment shall be proposed to any such Bill in either House of Parliament which will have the effect of varying the amount or altering the destination of any grant so made or of varying the amount of any expenditure charged on the Consolidated Fund of India, and the decision of the person presiding as to whether an amendment is inadmissible under this clause shall be final.

(3) Subject to the provisions of Articles 115 and 116, no money shall be

withdrawn from the Consolidated Fund of India except under appropriation ,made by law passed in accordance with the provisions of this article.

Art 115. Supplementary, additional or excess grants.-

(1) The Presidentshall

(a) if the amount authorised by law made in accordance with the provisions of Article 114 to be expended for a particular service for the current financial year is found to be insufficient for the purposes of that year or when a need has arisen during the current financial year for supplementary or additional expenditure upon some new service not contemplated in the annual financial statement for that year, or

(b) if any money has been spent on any service during a financial year

in excess of the amount granted for that service and for that year, cause to be laid before both the Houses of Parliament another statement showing the estimated amount of that expenditure or cause to be presented to the

House of the People a demand for such excess, as the case may be.

(2) The provisions of Articles 112, 113 and 114 shall have effect in relation to any such statement and expenditure' or demand and also to any law to be made authorising the appropriation of moneys out of the Consolidated Fund of India to meet such expenditure or the grant in respect of such demand as they have effect in relation to the annual financial statement and the expenditure mentioned therein or to a demand for a grant and the law to be made for the authorisation of appropriation of moneys out of the Consolidated Fund of India to meet such expenditure or grant.

Art 116. Votes on account, votes of credit and exceptional grants.-(1) Notwithstanding anything in the foregoing provisions of this Chapter, the House of the People shall have power

(a) to make any grant in advance in respect of the e~timated expenditure . for a part of any financial year pending the completion of the procedure prescribed in Article 113 for the voting of such grant and the passing of the law in accordance with the provisions of Article 114 in relation to that expenditure;

(b) to make a grant for meeting an unexpected demand upon the resources of India when on account of the magnitude or the indefinite character of the service the demand cannot be stated with the details ordinarily given in an annual financial statement;

(c) to make an exceptional grant which forms no part of the current

service of any financial year;

and Parliament shall have power to authorise by law the withdrawal of moneys from the Consolidated Fund of India for the purposes for which the said grants a~e made.

(2) The provisions of Articles 113 and 114 shall have effect in relation to the making of any grant under clause (1) and to any law to be made under that clause as they have effect in relation to the making of a grant with regard to any expenditure mentioned in the annual financial statement and the law to be made for the authorisation of appropriation of moneys out of the Consolidated Fund of India to meet such expenditure.

Financial procedure: Supply or expenditure.-Articles 112 to 116 relate to the procedure for the supply or grant of money which is to be followed in Parliament.28 These provisions ensure effective control of the people's elected representatives over the government in financial matters, which is an essential aspect of democracy and its operation.29 In financial matters the President is required to lay before both the Houses of Parliament an annual financial statement, commonly called the budget. This statement gives out the estimated income and expenditure for the year. The estimates of expenditure show separately the sums charged. upon the Consolidated Fund of India and the sums required to meet other expenditure out of the Consolidated Fund. The sums on revenue account are to be distinguished from other expenditure. These are charged on the Consolidated Fund of India:

(i) the salary and allowances, etc., of the President;

(ii) debt charges, including interest, sinking fund and redemption and cost of

raising loans;

(iii) salary, allowances and pension payable to the Comptroller and Auditor General of India;

(iv) salaries, allowances and .pensions of the Judges of the Supreme Court; (v) pensions of the Judges of the High Courts;

vi) salaries and allowances of the Chairman and Deputy Chairman of the Council of States and the Speaker and Deputy Speaker of the House of the Peop1e;

(vii) the sums required to meet any judgment or award of any court or arbitral

tribunal; and

(viii) any other expenditure charged by the Constitution or any Union Act on

the Consolidated Fund. 30

The expenditure which is charged on the Consolidated Fund of India is not submitted to the vote of Parliament, but it is open to either House to discuss these non-votable items of expenditure. Other expenditure must be submitted in the form of demands for grant to the House of the People. The House of the People has the power to assent or refuse to assent to any demand, or to assent to any demand subject to a reduction of the amount specified therein. Private members have no power to propose new items of expenditure or increase the amount specified in the statement for any head of expenditure. Thus the maximum amount to be spent on any item or service is in the control of the executive. This is in accord with the English practice. In England no proposal for the expenditure of public revenue can be made except on the recommendation of the executive.

There should be legal sanction for appropriating the necessary funds for meeting the expenditure for the current financial year out of the Consolidated Fund. Accordingly, after the grants have been made by the House of the People, a Bill known as the Appropriation Bill is introduced in the House. The Bill specifies: (i) all the grants made by the House of the People, and (ii) the charges on the Consolidated Fund as shown in the statement previously laid before Parliament. No amendments can be proposed to the Appropriation Bill which will have the effect of varying the amount or altering the destination of any grant or of varying the amount of any expenditure charged on the Consolidated Fund. The Constitution does not permit any withdrawals from the Consolidated Fund in excess of the amount provided in the Appropriation Act. The Legislation for raising funds through taxation is contained in the Annual Finance Act.

Votes on Accounts.-Unless the Appropriation Act is passed no money can be withdrawn from the Consolidated Fund. But if the Appropriation Act is not passed before the beginning of the new financial year, i.e., April 1, there would be no money for the executive to spend. Provision has, therefore, been made in the Constitution for allotting a limited sum out of the Consolidated Fund to the executive to be spent on services and other items until the Appropriation Act is finally passed by Parliament.

Supplementary Grants.-If the amount authorised by the Appropriation Act to be expended for a particular service in the current financial year is found to be insufficient for the purpose of that year, or when a need has arisen for any additional expenditure, a supplementary estimate has to be introduced in Parliament. The procedure in relation to the annual budget is applicable to the supplementary grant.

Votes of credit and exceptional grants.-A vote of credit is a grant obtained for meeting an unexpected demand upon the resources of the government when, on account of the magnitude or indefinite character of the service, the demand cannot be stated with the details ordinarily given in the annual financial statement.

An exceptional grant is a grant which forms no part of the current service of any financial year.

Control by Parliament.-Financial control by Parliament is exercised in two stages, viz., the stage of proposals and the stage of results. The first stage involves the formulation of government policies and of financial proposals for implementing them, which includes, inter alia, the imposition of taxes and the voting of money for public services. Here the legislature serves as the grand forum of debate. The second stage, viz., that of results, is also equally important, because it is only by careful control of the moneys spent and the manner of their spending that the financial stability of the country can be maintained. This is the stage at which Parliament, through its Public Accounts Committee, conducts an examination of the public accounts of the Union as compiled by the accounts officers responsible for their preparation and of the reports of the Comptroller and Auditor-General on these accounts.31

The responsibility for auditing the accounts of public departments and of seeing that funds voted for one purpose are not used for another purpose rests upon the Comptroller and Auditor-General of India and his department. Any transfer of funds from the purpose for which they were voted to another purpose is illegal.

31. There is another committee of the House of the People known as the Estimates Committee which examines the details of the estimates presented to the House in the budget. The purpose is (i) to report what economies. improvements in organisational efficiency or administrative reform, consistent with the policy underlying the estimates, may be effected; (ii) to suggest alternative policies in order to bring about efficiency and economy in administration; (iil) to examine whether the money is well laid out within the limits of the policy employed in the estimates; and (iv) to suggest the form in which the estimates should be presented to Parliament.

Art 123. Power of President to promulgate Ordinances during recess of Parliament.-(1) If at any time, except when both Houses of Parliament are in session, the President is satisfied that circumstances exist which render it necessary for him to take immediate action, he may promulgate such Ordinance as the circumstances appear to him to require.

(2) An Ordinance promulgated under this article shall have the same force and effect as an Act of Parliament, but every such Ordinance

,

(a) shall be laid before both Houses of Parliament and shall cease to operate at the expiration of six weeks from the reassembly of Parliament, or, if before the expiration-of that period resolutions disapproving it are passed by both Houses, upon the passing of the second of those resolutions; and

(b) may be withdrawn at any time by the President.

Explanation.-Where the Houses of Parliament are summoned to reassemble on different dates, the period of six weeks shall be reckoned from the later of those dates for the purposes of this clause.

(3) If and so far as an Ordinance under this article makes any provision which Parliament would not under this Constitution be competent to enact, it shall be void.

42[(4) [* * *]]

Ordinance-making power of the President.-The power to make laws for the

Union Government belongs to Parliament. The purpose of this article is to provide a machinery for legislation during the period Parliament is not in session, although the circumstances require immediate action. The President may promulgate ordinances, which have the same force and effect as an Act of Parliament, subject to the following limitations:

(a) The ordinance must be promulgated at a time when both Houses of Parliament are not in session. The session of a House comes to an end on its prorogation or dissolution. If one House is sitting, there is no bar to the issuance of the ordinance.

(b) The President must be satisfied that circumstances exist which render it

necessary for him to take immediate action.

(c) Every ordinance made by the President during the recess of Parliament must be laid before both Houses and it ceases to operate at the expiration of six weeks from the reassembly of Parliament, or if before the expiration of that period, resolutions disapproving the ordinance are passed by both Houses, the ordinance ceases to operate from the date of the passing of the second of those resolutions. Where the Houses of Parliament are summoned to assemble on different dates, the period of six weeks shall be reckoned from the later of those dates. If the ordinance is allowed to lapse without being placed before Parliament, it cannot be treated as void ab initio and acts done and completed under it before it ceases to operate remain fully valid and effective. Thus an office abolished by an ordinance does not revive after the ordinance ceases to operate without being placed before Parliament.

(d) An ordinance made by the President shall be subject to the same limita tions as a law made by Parliament.

Article 123 speaks of the satisfaction of the President who has to act on the aid and advice of the Council of Ministers in this regard. Clause (4) was added to Article 123 by the Constitution (Thirty-eighth Amendment) Act, 1975 to'make the satisfaction of the President final and conclusive and beyond judicial review.. But this clause was omitted in 1978 by the Constitution (Forty-fourth Amendment) Act. The question of judicial review was raised in A.K. Roy v. Union of India in respect of the passing of the National Security Ordinance, 1980. The Supreme Court held that judicial review of the President's satisfaction regarding the necessity to issue an Ordinance is not totally excluded. Moreover the satisfaction of the preconditions of Article 123 cannot be regarded a purely political question and kept beyond judicial review. However, the Court refused to go further into the question since the Ordinance had been replaced by an Act by then and because the material placed before it on this ground was meagre. The Court was quick to point out that a prima facie case must be established by the petitioners as to the non-existence of the circumstances necessary (or the issuance of the ordinance before the burden can be cast on the President to establish those circumstances. Every casual and passing challenge to the existence 'of the necessary circumstances would not be entertained.

Again, in T. Venkata Reddy. v. State of A.P the Supreme Court held that since the.

ordinance making power in Articles 123 and 213 is of legislative character, just like

the exercise of legislative power its exercise cannot be questioned on grounds of motives or non-application of mind or grounds of its propriety expediency and necessity.

The exercise of ordinance making power may be challenged if it could be

established that the President has not acted bona fide. But where one House or

both Houses of Parliament are prorogued deliberately with a view to enabling the

President to promulgate the ordinance, the exercise of the power by the President cannot be called fraudulent or malafide. In K. Veerabhadrayya, Re, in considering

the power of the Governor to promulgate ordinances under Section 88 of the

Government of India Act, 1935 the court observed:

It is open to the Governor to prorogue the legislature at any time he pleases. There is nothing wrong in the Governor proroguing the assembly and the council with a view to enable him to issue an ordinance under Section 88. It is a well-known fact that the legislature, which is democratically constituted, is very slow to move in the matter of legislation, having regard to the rules of procedure laid down in that behalf, and if urgent action is necessary, at any rate, when His Excellency the Governor has reasons to believe that immediate action is necessary, it would be more expedient to have resort to the power of issuing an ordinance under Section 88 rather than approach the legislature for the necessary legislation.

It must not, however, be inferred from the above that the President can make

and promulgate an ordinance without the advice of the Ministers. In the matter of issuing ordinances, as in other matters, the President acts on the advice of the Ministers. The ordinance is promulgated in the name of the President and in a constitutional sense on his satisfaction. However, in truth it is promulgated on the advice of his Council of Ministers and on their satisfaction.

Same force and effect as an Act of Parliament-The power to issue an ordinance is not an executive power but a legislative power of the President devised to meet urgent situations and necessary for peace and good government of the country. An ordinance has the same force and effect as an Act of Parliament and is clothed with all the attributes of an Act carrying with it all its incidents, immunities and limitations under the Constitution. The only difference between an Act and an ordinance is with regard to the duration, otherwise there is no other limitation upon the ordinance-making power of the President. Accordingly, like an Act of Parliament, an ordinance may repeal parliamentary enactments or an earlier ordinance or may give retrospective effect to its provisions.

Subject to the like restrictions-An ordinance made under this article is subject to like restrictions as the power of Parliament to make laws: thus the President can make ordinances on matters included in List I and List III, Schedule VII to the Constitution. There is no inhibition on the ordinance-making power that it shall not be used to deal with a subject-matter which is already covered by a law made by Parliament. But while a proclamation of emergency is in operation, the President can make ordinances on matters included in List II also, for then Parliament is authorised to make laws with respect to the State subjects. Further, no ordinance made by the President can violate the provisions of Part III of the Constitution. The power of Parliament will be the measure or the yardstick of' the ordinance-making power of the President.

The ordinance-making power of the President in India is rather unusual in a democratic Constitution and is not found in any other Commonwealth Constitution. The convenience of having such a power with the executive can well be understood, for during the recess of Parliament situations may suddenly arise which require to be dealt legislatively immediately. Nevertheless, there is a danger in this power; it could be abused by way of proroguing any House of Parliament and then legislating by ordinances. But even so, such abuse can only be temporary since both Houses of Parliament must assemble together at least once a year to hear the President's speech under Article 87. Moreover, a gap of more than six months between the two sessions of a House is not permissible and once the Houses meet the procedure under clause (2) of Article 123 becomes operative.

In justification of the ordinance-making power, Dr Ambedkar, Chairman, Drafting Committee, said:

. My submission to the House is that it is difficult to imagine cases wh,ere the powers conferred by the ordinary law existing at any particular moment may be deficient to deal with a situation which may suddenly and immediately arise. What is the executive to do? The executive has got a new situation which it must deal with ex hypothesi. It has not got the power to deal with that in the existing code of law. The emergency must be dealt with, and it seems to me that the only solution is to confer upon the President the power to promulgate the law which will enable the executive to deal with that particular situation because it cannot resort to the ordinary process of law because, again ex hypothesi, the legislature is not in session. Therefore, it seems to me that fundamentally there is no objection to the provisions contained in Article 123.59 The exceptional power of law-making through ordinance cannot be used as a substitute for the legislative power of Parliament and therefore the courts will invalidate the ordinances which are repromulgated time and again without being brought before Parliament as required in clause (2) of Article 123.

Art. 148. Comptroller and Auditor-General of India.-(1) There shall be a Comptroller and Auditor-General of India who shall be appointed by the President by warrant under his hand and seal and shall only be removed rom office in like mariner and on the like grounds as a Judge of the Supreme Court.

(2) Every person appointed to be the Comptroller and Auditor-General of India shall, before he enters upon his office, make and subscribe before the President, or some person appointed in that behalf by him, an oath or affirmation according to the form set out for the purpose in the Third Schedule.

(3) The salary and other conditions of service of the Comptroller and Auditor-General shall be such as may be determined by Parliament by law and, until they are so determined, shall be as specified in the Second Schedule:

Provided that neither the salary of a Comptroller and Auditor-General nor his rights in respect of leave of absence, pension or age of retirement shall be varied to his disadvantage after his appointment.

i

(4) The Comptroller and Auditor-General shall not be eligible for further office either under the Government of India or under the Government of any State after he has ceased to hold his office.

(5) Subject to the provisions of this Constitution and of any law made by Parliament,' the conditions of service of persons serving in the Indian Audit and Accounts Department and the administrative powers of the Comptroller and Auditor-General shall be such ,as may be prescribed by rules made by the President after consultation with the Comptroller and Auditor-General.

(6) The administrative expenses of the office of the Comptroller and Auditor-General, including all salaries, allowances and pensions payable to or in respect of persons serving in that office, shall be charged upon the Consolidated Fund of India.

Art 149. Duties and powers of the Comptroller and Auditor-General.- The Comptroller and Auditor-General shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States as were conferred on or exercisable by the Auditor-General of India immediately before the commencement of this Constitution in relation to the accounts of the Dominion of India and the Provinces respectively.

Art [150. Form of accounts of the Union and of the States.-The accounts of the Union and of the States. shall be kept in such form as the President may, [on the advice of] the Comptroller and Auditor-General of India, prescribe.]

Art 151. Audit reports.-(1) The reports of the Comptroller and Auditor-General of India relating to the accounts of the Union shall be submitted to the President, who shall cause them to be laid before each House of Parliament.

(2) The reports of the Comptroller and Auditor-General of India relating to the accounts of a State shall be submitted to the Governor of the

State, who shall cause them to be laid before the Legislature of the State.

There shall be a Comptroller and Auditor-General of India who shall be

appointed by the President by warrant under his hand and seal. He can be removed from his office by the President on the ground of proved misbehaviour or incapacity on an address of Parliament in the manner provided in clause (4) of Article 124 relating to the removal of judges of the Supreme Court. His salary and the administrative expenses of his office are charged upon the Consolidated Fund of India. Before he enters upon his office, he shall make and subscribe before the President, or some person appointed in that behalf by him, an oath or affirmation in the prescribed form. After he has. ceased to hold office, he shall not be eligible for further office under either the Government of India or the Government of any State.

The Comptroller and Auditor-General has to ensure that withdrawal from the Consolidated Fund are not made without adequate legal sanction. He has functions in relation to accounts as well as to audit. He controls all disbursements and audits all accounts of money administered by or under the authority of the Union Parliament or the Legislature of a State. The combination of two functions, namely, those of maintenance of accounts and audit, in the same agency has been criticised because it makes the auditor, who is responsible for checking the accounts, himself maintain the accounts which is an essentially administrative function. In most progressive countries the agency for audit is different from and completely independent of the agency maintaining accounts.

The reports of the Comptroller and Auditor-General of India relating to the accounts of the Union are submitted to the President, who must place the same before each House of Parliament. The reports relating to the accounts of a State are submitted to the Governor, who must place them before the Legislature of the State

FINANCE, PROPERTY, CONTRACTS AND SUITS

Art [264. Interpretation.-In this Part, "Finance Commission" means a

Finance Commission constituted under Article 280.]

Art 265. Taxes not to be Imposed save by authority of law.-No tax shall be levied or collected except by authority of law.

No taxation except by authority of law.-This article embodies an important constitutional principle, namely, that no tax shall be levied or collected except under the authority of law. The term 'law' in this article means statute law, i.e., an Act of the legislature. Accordingly, no levy can be imposed either by executive action or by the resolution of a House. The expression 'authority or law' clearly implies that the procedure for imposing the liability to pay a tax has to be strictly complied with. Further, the law must be a valid law. A tax could only be imposed by a law which is valid by conformity to the criteria laid down in the relevant Articles of the Constitution. These are: (i) the law should be one within the legislative competence of the legislature, being covered by the Legislative List assigned to it by the Constitution,' (ii) the law should not be one prohibited by any particular provision of the Constitution, for example, Articles 276, 285, 286, 289, etc., (iii) the law or the relevant portion thereof should not be void unger Article 13, i.e., in conflict with the fundamental rights incorporated in Part ill of the Constitution, and (iv) the law should not violate any other constitutional limitations such as Articles 301 and 304. Thus, a tax law may be invalidated when it violates the fundamental right to equality guaranteed by Article 14. Equally, the taxing measure may be challenged if it violates the rights of a citizen under Article 19(1)(f) or (g). In K. T. Moopil Nair v. State of Kerala, certain provisions of the Act which prescribed the procedure for the levy of tax were struck down on the ground of being obnoxious to Article 19(1)(1). This case well illustrates that not only levy but matters pertaining to collection of tax also should be under the authority of a law. In Khazan Chand v. State of J &K, the Court observed that the power to make a law with respect to a tax comprehends within it the power to levy that tax and to determine the persons who are liable to pay such tax, the rates at which such tax is to be paid and the event which will attract liability in respect of such tax. The power to make a law with respect to a tax includes the power to make provisions in the relevant statute with respect to all matters ancillary and incidental to the levy, assessment, collection and recovery of tax.

A very wide latitude is available to the legislature in the matter of classification of objects, persons and things for purposes of taxation. It must be so, having regard to the complexities involved in the formulation of a taxation policy. Taxation is not now a mere source of raising money to defray expenses of government. It is a recognised fiscal tool to achieve fiscal and social objectives including reduction in inequalities and the goals laid down in Article 38. A divided Court has also held that an illegally collected tax by the government need not be refunded unless the taxpayer bears the entire burden and has not transferred the tax burden to others such as consumers. Such interpretation, the Court held, was justified in view of Articles 39(b) & (c).

Tax and fee.- The Constitution recognises a clear distinction between a tax and a fee in the three Lists in the Seventh Schedule. While there are several entries in the Union and State Lists with regard to various forms of taxes, there is an entry at the end of each List as regards fees which may be levied in respect of or as incidental to the matter that is included in that List. The implication seems to be.

that fees have special reference to governmental action undertaken in respect of any of these matters. Thus, though a fee may be levied as incidental to legislation with respect to any entry, no taxes can be imposed by virtue of the general legislative power.

Article 265 applies to taxes and not to fee. The distinction between tax and fee lies primarily in the fact that tax is levied as part of a common burden, while fee is a payment for a special benefit or privilege. If the element of revenue for the general purposes of the State predominates, the levy becomes a tax. In regard to fee there is a correlation between the fee collected and the service intended to be rendered. In the case of a fee it is the special benefit or privilege accruing to an individual which is the reason for payment, whereas in the case of a tax the particular advantage, if it exists at all, is an incidental result of State action. Cases may arise where under the guise of levying a fee, an attempt may be made to impose a tax. In the case of such a colourable exercise of power, courts would have to scrutinise the scheme of the levy very carefully, and determine whether in fact there is correlation between the service and the levy or whether the levy is excessive to such an extent as to be a pretence of a fee and not a fee in reality. Whether or not

a particular cess levied by a statute amounts to a fee or tax would always be a question of fact to be determined in the circumstances of each case.

There is no generic difference between tax and fee. Both are compulsory exactions of money by public authorities. Compulsion lies in the fact that payment

is enforceable by law against a person in spite of his willingness or consent. A

levy in the nature of a fee does not cease to be a fee merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have direct relation to the actual service rendered by the authority to each individual who obtains the 'benefit of the service. If, with a view to providing specific service, levy is imposed by law and expenses for maintaining the service are met out of the amounts collected, there being a reasonable relation between the levy and the expenses incurred for rendering the service, the levy would be in the nature of a fee and not in the nature of a tax. A fee being a levy in consideration of rendering service of a particular type, out correlation between the expenditure incurred by the State and the levy must undoubtedly exist. But a levy will not be regarded as a tax merely because .of the absence of uniformity in its incidence, or because of compulsion in the collection thereof, nor because some of the contributories do not obtain the same degree of service as others may. For the purpose of finding out correlationship between the services rendered to the fee payers and the fee charged from them, it is necessary to know the cost incurred for organising and rendering the services. But matters involving considerations of such a correlationship are not required to be proved by a mathematical formula. On these principles the Supreme Court has upheld State legislation on court fee including the provision for ad valorem fee where one pays fee on the value of the subject-matter irrespective of utilisation of judicial time.

The characteristics of the imposition of taxation are: firstly, the essence of taxation is compulsion, that is to say, it is imposed under statutory power without the taxpayers' consent and the payment is enforced by law. Secondly, taxation is an imposition made for a. public purpose without reference to any special benefit to be conferred on the payer of the tax. The tax once collected forms part of the public revenues of the State, and there is no element of quid pro quo between the taxpayer and the public authority. Taxation is for a public purpose even if particular persons receive more benefit from the use of tax proceeds than others, such as tariff duties for encouragement of manufacturers or licence fee with .a view to regulate a particular trade or industry. Thirdly, taxation is a part of the common burden, the quantum of imposition upon the taxpayer depends generally upon his capacity to pay.

A fee is generally regarded to be a charge for a special service rendered to individuals by some government agency. Thus, in determining whether a levy is a fee the true test must be whether its primary and essential purpose is to render specific services to a specified area or class, it may be of no consequence that the State may ultimately and indirectly be benefitted by it. The power of any legislature to levy a fee is conditioned by the fact that it must be by and large a quid pro quo for the services rendered. However, correlationship between the levy and the services rendered is one of general character and not as of arithmetical exactitude. The quid pro quo need not be simultaneous, it may be deferred also.The words 'licence fee' do not necessarily mean a fee in return for the services rendered. In the Constitution, fee for licence and fee for services rendered are contemplated as different kinds of levy. In City Corporation of Calicut v. Thachambalath Sadasivam the Court observed:

"The traditional concept of quid pro quo in a fee is undergoing transformation. Though the fee must have relation to the services rendered, or the advantages conferred, it is not necessary to establish that those who pay the fee must receive direct or special benefit or advantage of the services rendered for which the fee is being paid. If one who is liable to pay receives general benefit from the authority levying the fee the element of service required for collecting fee is satisfied."

Thus a licence fee can also be regulatory when the activities for which a licence is given requires to be regulated or controlled.

In Jagannath Ramanuj Das v. State of Orissa, one of the essential elements of fee as made out was its being set apart or specifically appropriated for the rendering of services, and not merged in the general revenue of the State to be spent for general public purposes. But later, in Secretary, Government of Madras, Home Deptt. v. Zenith Lamp & Electrical Ltd. , the Supreme Court ruled that the Constitution did not contemplate it to be an essential element of fee that it be credited to a separate fund and not to the Consolidated Fund.

266. Consolidated Funds and public accounts of India and of the States.-(1) Subject to the provisions of Article 267 and to the provisions of this Chapter with respect to the assignment of the whole or part of the net proceeds of certain taxes and duties to States, all revenues received by the Government of India, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled "the Consolidated Fund of India", and all revenues received by the Government of a State, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled "the Consolidated Fund of the State".

(2) All other public moneys received by or on behalf of the Government of India or the Government .of a State shall be credited to the public account of India or the public account of the State, as the case may be.

(3) No moneys out of the Consolidated Fund of India or the Consolidated Fund of a State shall be appropriated except in accordance with law and for the purposes and in the manner provided in this Constitution.

Consolidated Funds of India and the States.- This Article makes provision for the consolidated funds of India and the States. It is laid down that all revenues received by the Government of India, all moneys raised by loan and all moneys received in repayment of loans shall form one consolidated fund and will be called "the Consolidated Fund of India". But such taxes as are assigned to the States do not form part of the Consolidated Fund of India.

Likewise, the Consolidated Fund of a State is formed by all revenues received by the State, all moneys raised by loan and all moneys received in repayment of loans.

No moneys out of the Consolidated Fund of India or of a State shall be appropriated, except in accordance with law and for the purposes and in the manner provided in the Constitution.

Public Account.-All revenues collected, and all moneys received on loan, and all repayment of loans shall be credited to the respective consolidated funds of the Union and the States. All other public moneys received by or on behalf of the Government of India or the Government of a State shall be credited to the Public Account of India, or the Public Account of the State, as the case may be. For example, Article 284 enacts that all moneys received by or depo~ited with any Union officer, other than revenues or public moneys raised or received by the Government of India, or deposited with any court in India to the credit of any cause, matter, account or person shall be paid into the Public Account of India or of a State, as the case may be.

For the appropriation of any money out of the Consolidated Fund, the procedure laid down in Articles 112 to 117 (or Articles 202 to 207) has to be followed, but for withdrawing money out of the Public Account it is not necessary to follow that procedure.

Art 267. Contingency Fund.-(1) Parliament may by law establish a Contingency Fund in the nature of an imprest to be entitled "the Contingency Fund of India" into which shall be paid from time to time such sums as may be determined by such law, and the said Fund shall be placed at the disposal of the President to enable advances to be made by him out of such Fund or the purposes of meeting unforeseen expenditure pending authorisation of such expenditure by Parliament by law under Article 115 or Article 116.

(2) The Legislature of a State may by law establish a Contingency Fund in the nature of an imprest to be entitled "the Contingency Fund of the State" into which shall be paid from time to time such sums as may be determined by such law, and the said Fund shall be placed at the disposal of the Governor of the State to enable advances to be made by him out of such Fund for the purposes of meeting unforeseen expenditure pending authorisation of such expenditure by the Legislature of the State by law under Article 205 or Article 206.

Clause (1) empowers Parliament to establish a contingency fund. The fund shall be placed at the disposal of the President to enable advances to be made by him out of the fund for the purposes of meeting unforeseen expenditure. The expenditure, however, must su6sequently be authorised by Parliament. Under clause (2) a similar fund may be established by a State legislature.

Section 2 of the Contingency Fund of India (Amendment) Act, 1970 made an amendment in Section 2 of the Contingency Fund of India Act, 1950, and substituted the words 'thirty crores of rupees' for the words 'fifteen crores of rupees'. Thus the amount to be paid out of the Consolidated Fund of India towards the Contingency Fund has been doubled.

Art 299. Contracts.-(1) All contracts made in the exercise of the executive power of the Union or of a State shall be expressed to be made by the President, or by the Governor of the State, as the case may be, and all such contracts and all assurances of property made in the exercise of that power shall be executed on behalf of the President or the Governor by such persons and in such manner as he may direct or authorise.

(2) Neither the President nor the Governor shall be personally liable in respect of any contract or assurance made or executed for the purposes of this Constitution, or for the purposes of any enactment relating to the Government of India heretofore in force, nor shall any person making or executing any such contract or assurance on behalf of any of them be personally liable in respect thereof.

Government Contracts.- The preceding article, we have noted, admits the

power of the Union and of each of the States to enter into contracts for any purpose. This article lays down how Government contracts, including assurances of property, are to be made and executed. A contract made with the Government - Union or State - must satisfy three requirements: (i) the contract must be 'executed by a person authorised by the President or Governor, as the case may be; (ii) the contract must be executed by such person on behalf of the President or Governor, as the case may be; and (iii) the contract must be expressed to be made by the President or the Governor, as the case may be. The provisions of Article 299 are mandatory and their non-compliance would render a contract void. It follows that no suit against the Government - Union or State - can be brought if the requirements laid down in this article are not complied with. Equally, the contract will not be enforceable by the Governments. Whether Article 299 has been complied with is not a pure question of law but a question depending on investigation of facts. Article 299 does not apply to agreements which are not contracts within that article.

But it has been held that so long as all the requirements of Section 175(3) of the Government of India Act, 1935 (i.e., Article 299 of the Constitution) were fulfilled and were clear from the correspondence, Section 175(3) did not necessarily require the execution of any formal document, In Beharilal v. Bhumi Devi, the Supreme Court held that though the contract was not executed strictly in comformity with Article 299(1) but was in conformity with the rules approved by the Rajpramukh. Therefore, it was not void because in substance it was on behalf of the Governor.

The words "assurance of property" in clause (1) of Article 299 mean any document of conveyance or the legal evidence of transfer of property.

The reason for enacting Article 299 of the Constitution of India is that in order to bind a Government, there should be a specific procedure enabling the agents of the Government to make contracts. The public funds cannot be placed in jeopardy by contracts made by unspecified public servants without express sanction of the law. It is a provision made to save the State from spurious claims made on the strength of unauthorised contracts.

Article 299(1) is based on public policy. In case the executive engineer has signed the contract but nowhere in the contract it was offered and accepted or expressed to be made in the name of the Governor, it was held that it was not a valid and binding contract.

Article 299 does not prescribe any particular mode in which authority must be conferred on a person to execute a contract. Normally, such conferment will be by notification in the Official Gazette but it can also be conferred ad hoc on any person.

Where a contract entered into with the Government is void by reason of its non-compliance with the provisions of Article 299(1) of the Constitution of India, but goods have been delivered by the contractor to the Government in pursuance of such a void contract, then an obligation is imposed upon the Government, under Section 70 of the Contract Act, to make compensation to the person delivering the goods,provided the conditions imposed under Section 70 are satisfied, namely, the promisee must have acted lawfully and must not have acted gratuitously. The contractor is also entitled to be restored back any advantage received by the Government as provided under Section 65 of the Contract Act, and if any amounts are paid to the contractor by the Government under such a contract, the contractor is, unless the amounts are specially paid towards particular items comprising such contracts entitled to appropriate such amounts so paid to his advantage.

In Karamshi v. State of Bombay, the appellant firm entered into contract with the Minister of the Public Works Department, where under the appellant was entitled to irrigate his land holdings. Subsequently, the canal officer, under instructions of the Government, repudiated the agreements and their main defence was that all contracts must be expressed in the name of the Governor who represents the State. A Minister or for that matter anyone, could not contract to bind the State unless authorised under Article 299. The appellant on the other hand, pleaded for specific performance of the contract which complied with the provisions of the Irrigation Act. Alternatively, it claimed damages for the breach. Subba Rao, J. was emphatic in dismissing. the appeal solely upon the preliminary ground of non-compliance of the mandatory constitutional requirements of Section 17,5(3) of the Government of India Act, 1935 corresponding to Article 299 of the present Constitution.

In New Marine Coal Co. v. Union of India, a contract entered into by the appellant with the Government of India for the supply of coal to the railway administration was found to have been made in contravention of Section 175(3), Government of India Act, 1935 (or of Article 299 of the present Constitution) and therefore void and unenforceable between the parties. But since the appellant had performed his part and the Government of India had received the benefit of the performance of the contract by the appellant, Section 70, Contract Act, was applied and the Government of India was held bound to make compensation.

In view of Article 299(1) there can be no implied contract between the Government and another person, the reason being that if such implied contracts between the Government and another person were allowed, they would in effect make Article 299(1) useless, for then a person who had a contract with the Government which was not executed at all in the manner provided in Article 299( 1) could get away by saying that an implied contract may be inferred on the facts and circumstances of a particular case. This is, of course, not to say thai if there is a valid contract as envisaged by Article 299(1), there may not be implications arising out of such a contract,

The provisions of Article 299(1) are mandatory in character and the contravention of these provisions nullifies the contracts and makes them void. There is no question of estoppel or ratification in such a case. The reason is that Article 299(1) has not been enacted for the sake of mere form but has been enacted for safeguarding the Government against unauthorised contracts. If the plea regarding estoppel or ratification is admitted, that would mean in effect the repeal of an important constitutional provision intended for the protection of the general public.

In State of Haryana v. Lal Chand, the Supreme Court held that "there is a distinction between contracts which are executed in exercise of the executive powers and contracts which are statutory in nature". Article 299(1) applies to a contract made in exercise of the executive power of the Union and the State. Such a contract becomes nullified and becomes void if the contract is not executed in conformity with the provisions of Article 299(1) and there is no question of estoppel or ratification in such cases. Nor can there be an implied contract between the Government and another person. But Article 299(1) has no application to a case where a particular statutory authority as distinguished from the Union or the States enters into a contract which is statutory in nature." This case related to the Punjab Excise Act, 1914, Sections 59 and 60 and Punjab Liquor Licence Rules, 1956. The

court held that the grant of exclusive privilege of liquor vend by auction-sale in. exercise of statutory powers gives rise to a contract of statutory nature, distinct from that excluded under Article 299(1) and therefore compliance with Article 299(1) is not required in such cases.

Where the tender notice issued by the Ministry of Railways in the Government of India in respect of sale of surplus released serviceable and scrap rails invited offers to be addressed to the President of India through the Director of Railway Stores, Railway Board and. in the general conditions the seller was defined to be the President of India acting through the Director of Railway Stores, and in the default clause it was provided that where the buyer fails to execute the conn:act, the seller has power under the hand of the Director of Railway Stores, to declare the contract at an end and the draft contract showed that the contract was to be executed by the President of India acting through the Director of Railway Stores as the seller, it was held that there is little doubt that the only person authorised to enter into contract on behalf of the President is the Director of Railway Stores.

There is nothing in Article 298 to show that the trade or business carried on by a State must be restricted to the areas within its territorial limits. On the contrary, the article envisages the carrying on of the trade and business by a State without any territorial limitations. The only restrictions on the executive power of the State in this respect is contained in clause (b) of the proviso to that Article. According to that clause, the executive power of the State shall, insofar as such trade or business is not one with respect to which the State legislature may make laws, be subject to legislation by Parliament.

Fairness in Government Contracts.-Although ordinarily, subject to the applicable law of contract the Government as a contracting party must stand in the same position as any other party to a contract, through a series of cases it has been established that even as contractor the government must comply with certain requirements of public law such as the rule of law and fundamental rights, particularly right to equality, not required to be complied by non-government contracting

parties. It is being emphasised time and again that government bodies or statutory

authorities even when acting within the range of private law area such as contract must observe the propriety of fairness in consonance with the Preamble of the Constitution, fundamental rights and the directive principles of State policy.

The issues of fairness are acquiring special attention in view of liberalisation and privatisation of economy in which the State is getting more and more work done through contractors rather than doing it departmentally. On the one hand the courts have approved the constitutionality of such policy, which means acknowledgment of the fact that the government is one of the parties to the contract and has the liberty which a party to the contract has in entering into contracts. On the other hand the government represents the people and their interests. Therefore, it is expected to act on their behalf and in their interest even in matters of contract. In this respect its position is different from any other party to a contract. Its actions, even in matters of contract, have, therefore, to 'be justified by standards which may not apply to private contracting parties. These standards may not be and are not exactly the same as applicable to State action when the State is acting in its capacity other than a contracting party. But some minimum standards have to be observed so that the government does not deviate from the path of acting in the public interest. Thus, admitting time and again, that the government must have necessary flexibility in the matter of contracts so that it may get its work done efficiently and expeditiously, the courts have held that the government must also observe certain minimum standards of public behaviour. They have repeatedly held that though normally they will be reluctant to intervene in the exercise of contractual power by the government, they will not hesitate to intervene if such exercise is unreasonable or arbitrary, actuated by mala fides, affected by bias or is in disregard of the prescribed mandatory procedures. The courts will not readily entertain such allegations against the government, but if they can be proved, they will act in the interest of justice.

Article 299 and Equitable Estoppel.-It is open to a party which has acted on a representation made by the Government to claim that the Government shall be bound to carry out the promise made by it even though the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution. For the application of this principle, it is necessary to establish that there has been a promise or representation on the part of the Government relying on which the citizen has acted to his detriment. Thus, in Union of India v. Indo-Afghan Agencies, the Central Government under the Export Control Scheme made under the Imports Control Order, 1955, declared that import licences would be granted for materials up to 100 per cent of the f.o.b. value of the goods exported. The petitioner had acted on the representation and made export of goods of certain value. The Government did not grant the import certificate for the full value of the goods exported. On a writ petition by the importer, Indo-Afghan Agencies, it was contended on behalf of the Union of India, inter alia, that there being no formal contract as contemplated under Article 299, the Government could not be compelled to fulfill its earlier declaration. Rejecting the contention of the Government, the Court held that the petitioners were not seeking to enforce any contractual right. Their claim was founded on the equity which arises in their favour as a result of a representation made on behalf of the Union of India in the Export Promotion Scheme, and the action taken by the respondents acting upon that representation under the belief that the Government would carry out the representation made by it. The Court cited with approval the decision of the Bombay High Court in the City of Bombay v. Secretary of State59. In that case, in answer to a requisition of the Government of Bombay, addressed to the municipal commissioner, to remove certain fish and vegetable markets to facilitate the construction of an arterial road, the municipal commissioner offered to remove the structures if the Government would agree to rent to the municipality other land mentioned in his letter at a nominal rent. The Government accepted the proposal and sanctioned the application for a site for establishing the new markets. The municipal commissioner then took possession of the land so made available and constructed stables, workshops, etc. Twenty-four years thereafter, the Government of Bombay served notice 'on the municipal commissioner terminating

the tenancy and requesting the commissioner to deliver possession of the land occupied by the markets and to pay in the meantime rent at the rate of Rs 12,000 per annum. The municipality contested the claim of the Government on the plea that the events which had transpired had created an equity in favour of the municipality and accordingly they could not be ejected. The Court accepted the plea of the municipality since an equity was created in favour of the municipality and held that in equity the Government could not enforce any claim against it. Jenkin, C,J. delivering the judgment of the Court, said:

"The doctrine involved in this phase of the case is often treated as one of

estoppel, but I doubt whether this is correct, though it may be a convenient

name to applyThe doctrine with which I am now dealing takes its origin

from the jurisdiction assumed by courts of equity to intervene in the case of or to prevent fraud."

Executive necessity.-It has been claimed that in England the Crown cannot

bind itself so as to fetter its future executive action, and therefore, the .Government may refuse to carry out the contract made by it if the altered circumstances necessitated such action. The justification is the executive necessity. The well-known case relied in support that the Crown cannot fetter its future action is of Rederiaktiebolaget Amphitrite v. King. In that case, during the First World War, certain neutral shipowners obtained an undertaking from the British Government that if the shipowners sent a particular ship to the United Kingdom with a specific cargo, she shall not be detained. On the face of that undertaking, the owners sent the ship to a British port with that specific cargo. The British Government withdrew their undertaking and refused her clearance. In an action for damages for breach of contract, it was held that the Government's undertaking was not enforceable in a court of law, it not being within the competence of the Crown to make a contract

which would have the effect of limiting its power of executive action in the future.

The doctrine has been subsequently doubted in Robertson v. Minister of Pensions and Reilly v. King. The doctrine of executive necessity has no application in India.

The Supreme Court has said:

"We are unable to accede to the contention that the executive necessity releases the Government from honouring its solemn promises relying on which citizens have acted to their detriment. "

No personal liability -Though Government contracts are made in the name of the President and in the States in the name of the Governor, these persons are not personally answerable in respect of any contract. Similarly, the officers who contract on behalf of the Government are not personally liable since they are acting for the Government and not for themselves. The same is the law in England. In Macbeath v. Haldimand, which arose out of supplies of stores for a fort under the control of the Government of Quebec, it was held that public officers cannot be sued, either personally or in their official capacity, for contracts made by them in their official capacity.

300. Suits and proceedings.-(1) The Government of India may sue or be sued by the name of the Union of India and the Government of a State may sue or be sued by the name of the State and may, subject to any provisions which may be made by Act of Parliament or of the Legislature of such State enacted by virtue of powers conferred by this Constitution, sue or be sued in relation to their respective affairs in the like cases as the Dominion of India and the corresponding Provinces or the corresponding Indian States might have sued or been sued if this Constitution had not been enacted.

(2) If at the commencement of this Constitution

(a) any legal proceedings are pending to which the Dominion of India

is a party, the Union of India shall be deemed to be substituted for

the Dominion in those proceedings; and

(b) any legal proceedings are pending to which a Province or an Indian State is a party, the corresponding State shall be deemed to be substituted for the Province or the Indian State in those proceedings.

Article 300(1) consists of three parts. The first part deals with the question about the form and the cause title for a suit intended to be filed by or against the Government of India or the Government of a State. The second part provides, inter alia, that the Union of India or a State may sue or be sued in relation to its affairs in cases like those in which the Dominion of India or a corresponding Province or an Indian State as the case may be, might have sued or been sued if the Constitution had not been enacted. The third part provides that it would be competent to the Parliament or the Legislature of a State to make appropriate provisions in regard to the topic covered by Article 300(1).

Form and cause.- The first part of Article 300 prescribes the way in which suits and proceedings by or against the Government may be instituted. It enacts that the Government of India may sue and be sued by the name of the Union of India, a State may sue and be sued by the name of the State. There is a difference between the "Government of India" and the "Union of India". The Government of India is not a legal entity; the Union of India is a legal entity, a corporate body which possesses rights and obligations. Likewise, each State has been endowed with juristic personality, with power to sue and the liability to be sued. Except as provided in Article 131, suits or proceedings by or against the Government or its officers will be brought in the ordinary courts of the land.

Extent of liability.-The liability of the Dominion and the Provinces of India before the commencement of the present Constitution was described in Section 176 of the Government of India Act, 1935 as follows:

"The Federation may sue or be sued by the name of Federation of India and a Provincial Government may sue or be sued by the name of the Province, and, without prejudice to the subsequent provisions of this chapter, may, subject to any provisions which may be made by Act of the Federal or a Provincial Legislature enacted by virtue of powers conferred on that Legislature by this Act, sue or be sued in relation to their respective affairs in the like cases as the Secretary of State-in-Council might have sued or been sued if this Act had not been passed."

Section 176, it will be noticed, instead of directly stating the liability, refers

back to the legal position as it obtained before the enactment of that Act, that is to say, as it existed on the enactment of Section 32 of the Government of India Act, 1915. Sub-sections (1) and (2) of Section 32 were in these words:

"(1) The Secretary of State-in-Council may sue and be sued by the name

of Secretary of State-in-Council, as a body corporate.

(2) Every person shall have the same remedies against the Secretary of State-in-Council as he might have had against the East India Company, if the Government of India Act, 1858, and this Act had not been passed."

Accordingly, under Section 32, the remedies against the Secretary of State-in

Council shall be the same as against the East India Company, if the Government of India Act, 1858 and the Government of India Act, 1915 had not been passed. We are thus referred further back to the Act of 1858. This Act transferred the Government of India to Her Majesty and made provisions for succession of power, authority, rights and liabilities. Section 65 of the Act of 1858, which is relevant for our present purpose, was in the following terms:

"The Secretary of State-in-Council shall and may sue and be sued as well in India as in England by the name of the Secretary of State-in-Council as a body corporate; and all persons and bodies politic shall and may have and take the same suits, remedies and proceedings, legal and equitable, against the Secretary of State-in-Council of India as they could have done against the said company; and the property and effects hereby vested in Her Majesty for the purposes of the Government of India, or acquired for the said purposes, shall be subject and liable to the same judgments and executions as they would while vested in the said company have been liable to in respect of debts and liabilities lawfully contracted and incurred by the said company."

It will thus be seen that by the chain of enactments beginning with the Act of

1858 the Government of India and the Government of each State are in the line of succession of the East India Company. In other words, the liability of the Government is the same as that of the East India Company before 1858. In every case, therefore, the question that has got to be answered is: Would such a suit lie against the East India Company, had the case arisen prior to 1858? This liability could be either tortious, contractual or otherwise. But in each case the same question had to be answered.

Liability in Tort.-First we shall consider the extent of vicarious liability of the Government for the tortious acts of its employees acting in the course of their employment as such. The question, therefore, is: What was the extent of liability of the East India Company for the tortious acts of its servants committed in the course of their employment as such? This important question arose before the Supreme Court of Calcutta in 1861 in the leading case of P. & O. Steam Navigation Co. v. Secretary of State for India..

In that case, a servant of the plaintiff was travelling from Garden Reach to Calcutta in a carriage and was passing by the Kidderpore Dockyards which was government property. Some workmen employed in the dockyards were carrying a heavy piece of iron for the purpose of repairing a steamer. These men were walking in the very centre of the road when there was sufficient space on both sides of it. The coachman and the syce in the carriage called out to the dockyard servants, and the coach was slowed. The men carrying the iron attempted to move away, but those in front moved to one side of the road while those behind, to the opposite direction. The result was that the coach was quite near the load and the bearers were still in the middle of the road. Seeing the horse and carriage close to them, they dropped the iron, whereupon the horse, frightened by the clang, rushed forward against the iron and was injured. The plaintiff filed a suit against the Secretary of State for India-in-Council for the damage that was suffered due to the negligence of the servants employed by the Government of India. The small cause court judge, before whom the case went, decided that the dockyard servants were negligent, though he expressed some doubt as to whether the plaintiff's coachman had not advanced in a manner that was more than absolutely necessary. He stated a case to the Supreme

.Court which the latter have enunciated thus:

"Whether the Secretary of State for India is liable for the damages occasioned by the neligence of the servants in the service of the Government, assuming them to have been guilty of such negligence as would have rendered an ordinary employer liable."

The Supreme Court (Chief Justice Peacock, and Wells and Jackson, J1.) delivered a very learned judgment through the Chief Justice and answered the questions in the affirmative. The Court pointed out the principle of law that "the Secretary of State-in-Council of India is liable for the damages occasioned by the negligence of servants in the service of Government if the negligence is such as would render an ordinary employer liable".

There are observations in the judgment which suggest that the liability of the Government in that case arose because the act was done in the course of a non-sovereign function, Le., the maintenance of a dockyard was a function which could have been undertaken by any private person without any delegation of sovereign power and, therefore, the East India Company would have been held liable for the wrong complained of. On the other hand, if the act had arisen in the course of exercise of sovereign powers, there would have been no liability of the East India Company and so of the Secretary of State for India-in-Council, its successor. Peacock, C.J. recognised the distinction between the sovereign and non-sovereign functions of the Government and said:

"There is a great and clear distinction between acts done in exercise of what are usually termed sovereign powers and acts done in the conduct of undertakings which might be carried on by private individuals without having such powers delegated to them."

And added:

"Where an act is done, or a' contract is entered into, in the exercise of powers usually called sovereign powers, by which we mean powers which cannot be lawfully exercised except by a sovereign, or private individual delegated by a sovereign to exercise them, no action will lie."

Again, in the judgment it was pointed out that the Company would not have

been liable for any act done by its officers or soldiers in carrying on hostility or in seizing property as prize property or while engaged in military or naval action. In such cases, no action will lie for the negligence of their servants or officers "in navigating a river steamer or in repairing the same or in doing any act in connection with such repairs".

In view of the fact that in P. & O. Steam Navigation Co. case the plaintiff got relief on the principle that for the tortious acts of the government servants the Secretary of State-in-Council was as much liable as a private employer for similar acts of his employees, the additional remarks of the Chief Justice could have very well been treated as obiter. But in Nobin Chunder Dey v. Secretary of State, perhaps the very next case, the Calcutta High Court gave full effect to these remarks in rejecting the plaintiff's plea for damages against wrongful refusal to him of a licence to sell certain excisable liquors and drugs resulting in the closure of his business on the ground that the grant or refusal of a licence was a sovereign function lying beyond the reach of the tortious liability of the State. From then onwards the distinction between the sovereign and non-sovereign functions of the State has been the basis of a number of judicial pronouncements. Thus, for example, it has been held that (l) commandeering .goods during war, (ii) making or repairing military road, (iii) administration of justice, (iv) improper arrest, negligence or trespass by police officers, (v) negligence of officers of the court of wards in the administration of estate in their charge, (vi) negligence of officers in the discharge of statutory duties, (vii) loss of moveable property in the custody of government, (viii) removal of child by the negligence of the authorities of hospital maintained out of the revenues of the State are sovereign functions in the performance of which the State is not liable in torts. On the other hand, there have been decisions holding the State liable in torts for the actions of its servants on the ground that the tortious act was committed in the exercise of non-sovereign functions of the State.

Side by side there have been some cases where the courts have denied that the P. & O. Steam Navigation Co. case laid down any distinction between the sovereign and non-sovereign functions of the State for the purpose of its liability. Thus, in Secretary of State v. Hari Bhanji, disagreeing with Nobin Chunder Dey, the Madras High Court denied the distinction between the sovereign and non-sovereign functions and held that where an act is done under the sanction of municipal law and in the exercise of powers conferred by that law the fact that it is done in the exercise of sovereign functions and is not an act which could possibly be done by a private individual does not oust its justiciability. There have been some other cases also to that effect including the Supreme Court decision in Province of Bombay v. Khusaldas in which, though the majority did not touch the issue, one of the minority judges, Mukherjea, J. held that not much importance could be given to the remarks of Peacock, C,J. in P. & O. Steam Navigation Co. case because the only point for consideration in that case was whether in the case of a tort committed in the conduct of business the Secretary of State for India could be sued and that was answered in the affIrmative. "Whether he could be sued in the cases not connected with the conduct of business or commercial undertaking was not really a question for the Court to decide.

It is in this state of affairs that the Rajasthan High Court after holding the State of Rajasthan liable in tort certifIed the case fit to be taken to the Supreme Court in State of Rajasthan v. Mst Vidhyawati. In that case the husband of the respondent was fatally injured while walking along a public road by a jeep car driven by a driver employed by the appellant State. The car and its driver were being maintained for the official use of the District Collector and at the time of accident the car was being driven back from a workshop after some repairs to the collector's residence. On a suit for damages by the widow and minor daughter of the deceased, While the lower court absolved the State from any liability the High Court found the State liable and held:

"In our opinion, the State is in no better position insofar as it supplies cars and keeps drivers for its civil service. It may be clarified that we are not here considering the case of drivers employed by the State for driving vehicles which are utilised for military or public service."

After quoting these words of the High Court as a statement of correct legal position, for a unanimous constitution Bench of five judges, Sinha, C.J. went into the background of Article 300 as stated above, discussed and treated the P. & O. Steam Navigation Co. case as a leading authority, also quoted from it the remarks relating to the distinction between the sovereign and non-sovereign functions, and held:91

"Viewing the case from the point of view of first principle there should be no difficulty in holding that the State should be as much liable for tort in respect of a tortious act committed by its servant within the scope of his employment

and functioning as such as any other employer."

The common law rule of sovereign immunity which was later modified by the Crown Proceedings Act, 1947, the Court observed, did not apply in India and the distinction between the affairs of the State and other activities of the State was outdated in a modem welfare State.

While the law appeared to have been settled in favour of rejection of the distinction between the sovereign and non-sovereign functions of the State for the purpose of tortious liability, in Kasturi Lai v. State of U.P another constitution Bench of the Supreme Court, again speaking unanimously through Gajendragadkar, C.J. heavily relied on the distinction of such functions referred to in P. & O. Steam Navigation Co. case and held:

"If a tortious act is committed by a public servant and it gives rise to a claim for damages, the question to ask is: Was the tortious act committed by the public servant in discharge of statutory functions which are referable to, and ultimately based on, the delegation of the sovereign powers of the State to such public servant? If the answer is in the affirmative, the action for damages for loss caused by such tortious act will not lie. On the other hand, if the tortious act has been committed by a public servant in discharge of duties assigned to him not by virtue of any delegation of any sovereign power, an action for damages would lie. The act of the public servant committed by him during the course of his employment is, in this category of cases, an act of a servant who might have been employed by a private individual for the Same purpose. This distinction which is clear and precise in law, is sometimes not borne in discussing questions of the State's liability arising from tortious acts committed by public servants."

The Court did not find the Vidhyawati case having decided anything different from this which, according to it, had always been the law since P. & O. Steam Navigation Co. and was consistently followed. It expressed its displeasure with this legal position in a welfare State where the activities of the State had enormously increased and asked the State to take necessary legislative steps to remedy the situation on some such lines as the Crown Proceedings Act, 1947 in England. The Court also expressed its distress over the plight of the appellant who could not know his position and get any relief.

The appellant in this case was apprehended by the police at Meerut and some silver and gold in his possession was seized and deposited in the police custody in the belief that it was stolen property. On the release of the appellant his silver was returned to him but not gold. After his repeated demands for the return of gold were of no avail he filed a suit for its recovery and in the alternative for its price. In defence the State pleaded that the gold had been misappropriated by a head constable who had fled to Pakistan and was untraceable. In the circumstances State could not return the gold nor was it liable for its price or any damages because firstly there was no negligence on the part of the police and secondly the gold was seized and kept in the police custody in the exercise of sovereign functions. The Court found gross negligence on the part of police authorities concerned, yet it held:

"In the present case, the act of negligence was committed by the police officers while dealing with the property of Ralia Ram which they had seized in exercise of their statutory powers. Now the power to arrest a person, to search him, and to seize property found with him, are powers conferred on the specified officers which can be properly characterised as sovereign powers; and so there is no difficulty in holding that the act which gave rise to the present claim for damages has been committed by the employee of the respondent during the course of its employment; but the employment in question being of the category which can claim the special characteristic of sovereign power, the claim cannot be sustained."

Thus the Court not only reversed what appeared to be the legal position after

Vidhyawati but also reinforced an additional qualification to the State liability by referring to statutory powers; in a way holding that the State is not liable for any torts committed by its servants in the exercise of statutory powers. Had the Court pursued Vidhyawati approach, it would have brought the law in tune with the times as has been done in most of the advanced countries and would have also relieved it from the shackles of common law doctrine of sovereign immunity and brought it in line with most of the continental countries where the State is not considered any better than a corporation for the purpose of torts committed by its servants.

Although Kasturi Lal has not been overruled or reconsidered by a constitutional bench of the Supreme Court, great dissatisfaction has been expressed about it in several writings and judicial decisions. Consequently, the Court has found escape routes, either by restricting its ratio (binding principle) or by innovating new remedies. An important decision restricting its ratio is N. Nagendra Rao & Co. v. State of A.P in which the Court held the State of Andhra Pradesh liable for the loss caused to the appellant by the negligent exercise of powers by the State officials under the Essential Commodities Act, 1955. Retracing the history of State liability in tort in England and India, particularly with reference to Article 300, the Court drew a distinction between the 'sovereign acts' and 'acts of State' and held that it is only with respect to the latter that Kasturi LaI or earlier cases in that line exempt the State from liability in tort. The East India Company was not a sovereign. It was a delegate of the sovereign. The powers delegated to it included some political powers, including the waging of war and concluding peace. In the exercise of these political powers it could perform acts of State which were not subject to the jurisdiction of municipal courts. The Court also clarified that the concept of sovereignty has undergone a change in the last centuries. Sovereignty now vests among the people and not in a ruler or invisible State. Moreover, in a welfare State the distinction of sovereign and non-sovereign functions of the State gets blurred and becomes inappropriate. In Nagendra Rao though the State officials caused loss to the appellant in the exercise of statutory authority as in Kasturi LaI, the Court distinguished the two and found the State liable. It said that even the defence of 'act of State' is not available when the State or its officials act negligently in the discharge of their statutory duties. The Court also adverted to the expanding liability of the State in other countries and lamented the fact that in spite of the Law Commission's recommendation in 1958 and initiation of legislative proposals in mid-sixties, no legislation on modem lines has been enacted in this regard. Incidentally the Court also said that the State is not liable in tort for any loss caused by the exercise of its legislative or executive powers. In this regard it may be mentioned that there are some countries like France which sometimes hold the State liable for the loss caused by the exercise of even the legislative powers.

How much validity this two-judge bench decision holds against the Constitutional (5 judges) bench decision in Kasturi LaI is debatable, but the