Datasets:

priyankrathore

/

Legal_Json

like 0

3226.txt

No. 467 of 1972. Petition Under Article 32 of the Constitution of India. B. Sen and R. M. Mehta, section K. Dholakia and R. C. Bhatia, for the petitioner. L. N. Sinha, Solicitor General of India, G. A. Shah and section P. Nayar, for the respondent. The Judgment of the Court was delivered by UNTWALIA, J. By this petition under Article 32 of the Constitution of India the petitioner has challenged the constitutional validity ,of the Gujarat Vacant Lands in Urban Areas (Prohibition of Alienation) Act, 1972, Gujarat Act No. 12 of 1972 hereinafter referred to as the Act on the around that it violates the fundamental rights of the petitioner granted under articles 14 and 19 of the Constitution. In the writ petition the petitioner claims that he owns 9559 square yards ,of land situate in District Bulsar, sub district and Taluka Navsari, village Kohilpore. He intends to sell the said land but is unable to do so because of the prohibition of alienation imposed under the Act. Mr. B. Sen, learned counsel for the petitioner conceded, and in ID ,our opinion rightly, that since the Proclamation of Emergency is in operation under Article 358 of the Constitution, fundamental right guaranteed under Article 19 is under suspension and therefore the Act could not be assailed for infraction of Article 19 even if there be any. Counsel, however, submitted that it does violate the guarantee of equal protection of the law and offends Article 14. In the Act under section 2 is embodied a declaration that the Act is for giving effect to the policy of the State towards securing the principles specified in clauses (b) and (c) of Article 39 of the Constitution and consequently Article 31C would save the Act from attack on account of the infraction of Article 14. But it was submitted that the Act is not directly relatable to the object of Article 39(b) and (c) and hence Article 31C cannot protect it. In our opinion it is not necessary in this case to take recourse to Article 31C for upholding the constitutional validity of the Act as it does not infringe the equal protection of law guaranteed under Article 14 of the Constitution. Learned counsel for the petitioner endeavoured to make out the following points for attacking the Act as being violative of Article 14. (1) That the limit of Prohibition in respect of the area of the vacant land is the same irrespective of its situation and value thus putting unequals as equals. (2) That it does not apply to building lands and building areas have been left out. (3) That there is discrimination between the permissible limit of alienation on the basis of the irrational consideration of the area forming part of a compact block or not. 66 9 (4) That there is no rational basis for not applying the Act in respect of the alienation of vacant in favour of the State, Govt., the Central Govt. , Local authorities, Govt. companies, Govt. Corporations or the Cooperative House Building Societies. (5) There is no guideline provided in section 7 of the Art for exercise of the power of exemption. Learned Solicitor General appearing for the respondent, the State of Gujarat, submitted that none of the points urgea on behalf of the ,petitioners has got any substance and there is no violation of the equal protection of law guaranteed under Article 14 of the Constitution. We shall first refer to and wherever necessary read some of the relevant provisions of the Act. The Preamble of the Act indicates that it is an Act to prohibit alienation of certain vacant lands in urban areas in the State of Gujarat. The object of the Act is to prohibit alienation of the vacant lands so that ultimately the ownership and control of the material resources of the Community may be so distributed as best to sub serve the common good and may prevent the concentration of wealth to the common detriment. It may be pointed ,out here that the impugned Act is a temporary one. Originally it was to remain in force for one year but the period is being extended from time to time in order to enable the State Legislature to pass the Urban Property Ceilings Act. Prohibition of alienation by the Act is a preparatory measure for distribution of the material resources of the community. The definition section of the Act is section 3. Clause (b) defines "City" to mean a City as constituted under the Bombay Provincial Municipal Corporations Act, 1949. The definition of "Collector" includes certain other officers also as mentioned in clause (c). It is necessary to read clause (d) which defines the "compact block" to mean "any block of vacant land in an urban area exceeding one thousand square metres in extent, (whether owned by one person or jointly by more than one person or owned in contiguous parts separately by one or more members of a family unit) and whether or not divided by a private road, street, lane, footway, passage or drain, natural or artificial. " Under clause (dd) "family unit" means an indi vidual, his or her spouse and their children. " Clause (e) defines " 'municipal borough" to mean "a municipal borough as constituted or deemed to be constituted under the Gujarat Municipalities Act, 1963. " It is necessary to read clauses (i) and (j) of section 3 in full. (i) "urban area" means (1) any area which is comprised for the time being in a City or a municipal borough and also any such area in the vicinity thereof, within a distance, not exceeding sixteen kilometres from the local limits of the City, or as the case may be, of the municipal borough concerned, as the State Govt. may, having regard to the extent of and the scope for the urbani 670 sation of that area or other relevant considerations, by a notification in the Official Gazette, specify in this behalf; and (2) any other area which the State Government may, by notification in the Official Gazette declare to be an urban area. having regard to any project existing in that area on the appointed day or having regard to the possibility in the near future of any project being established in that area where any such project, in the opinion of the State Government, has led to or is likely to lead to urbanisation of that area; (j) "vacant land" means land in an urban area, agricultural or non agricultural, other than land on which any building has been or is being constructed in accordance with any law regulating such construction and the land appurtenant to such, building to the minimum extent required under such law or under the provisions of the Bombay; Town Planning Act, 1954 or any other corresponding law for the time being in force '. Explanation for the purposes of this clause any land which is vacant on the appointed day shall be 'deemed to be vacant land, notwithstanding that the construction of 2 a building thereon has been commenced on or after the said day. " Section 4 provides for prohibition of alienation etc. in these terms (1) No person who owns any vacant land shall, on or after the appointed day, alienate such land by way of sale, gift, exchange (mortgage other than simple.mortgage), lease or otherwise, or effect a partition or create a trust of such land ', and any alienation made, or, partition effected, or trust created in contravention of this section shall be null and void : Provided that nothing in this sub section shall apply to the alienation by any person of any one plot of vacant land owned by him not exceeding one thousand square metres in extent and not forming part of a compact block or to the effecting of a partition or creation of a trust of any such plot. (2) The provisions of sub section (1) shall apply to any sale, partition or creation of trust, of vacant land of any person in execution of a decree or order of a civil court or of any award or order of any other authority. Restrictions on registration of documents have been put in section 5. Section 6(1) says that "Nothing in this Act shall apply to any transfer of vacant land by or in favour of (a) A State Government or the Central Government or local authority;, 671 (b) A Government Company as defined in section 617 of the ; (c) a corporation established by or, under a Central Provincial or State Act, which in controlled or managed by a State Government or the Central Government; (d) such cooperative house building societies established for the purpose of providing housing accommodation to weaker sections of people, as may be approved by the State Government in this behalf. " Sub section (2) of section 6 makes a distinction in the application of sub section (2) of section: 4 in relation to the execution of a decree or an order of a civil court in favour of the Government or the local authority. Under subsection (1) of section 7 "the State Government, may, by a general or special order in writing and for reasons to recorded therein, exempt any area or any alienation or other transfer of any vacant land from all or any of The provisions of this Act." Under sub section (2), to avoid any hardship also, the State Government may, if it considers it necessary so to do, exempt, by an order in writing, any alienation or other transfer of any vacant land from all or any of the provisions of this article Subject to any rules that may be made in this behalf or to any general or special orders of the State Government, the Collector has. been authorised under sub section (3) of section 7 by order in writing, to exempt any alienation or other transfer of any vacant land from the Provisions of this Act in case the land is to be used for ;my educational, scientific, industrial or commercial purpose or for such other purpose as may be prescribed. "Prescribed" means under clause (g) of the third section "prescribed by rules made under this article ', The State Government has power under section 12 to make the rules. Sub section (4) enjoins that every order issued by the State Government, under sub sections (1) and (2) and by the Collector under section 3 shall be laid before the State Legislature as soon as possible after its issue. Alienation etc. made on or after the 1st July, 1972 but before the appointed day under the Act has also been affected under section 8. Section 9 gives a right to appeal against the order of the Collector under sub section (3) of section 7 to the State Government within the prescribed period and in the prescribed manner. The jurisdiction of the Civil Court has been barred under section 10. A penalty has been provided under section 11. The act overrides other laws in view of section 13. It would be noticed that the urban 'area means any area which is comprised in the City or a Municipal Borough. Surrounding, distance of the City or municipal borough has to,.be fixed by a notification of the State Government 'in the Official Gazette having regard to the relevant considerations. The maximum distance of such an area cannot exceed sixteen kilometres. We were informed at the Bar by, the learned Solicitor General that notifications have been issued fixing the maximum limit of 16 kilometres in case of big cities like Ahmedabad, Baroda etc. but lesser limits of distances have been notified in case of small municipal boroughs. Under the proviso to sub section (1) of L319SupCI/75 672 section 4 a person is not_ prohibited from alienating one plot of vacant land owned by him not exceeding 1000 sq. metres provided it does not form part of a compact block. When the limit of the distance outside the City or town area differed from place to place it was not necessary to fix the limit of permissible area of transfer with reference to the value of the land. It was neither feasible nor expedient to do so. From the permissible limit of transfer the area forming part of the compact block had to be excluded as it would have led to manipulations and manoeuvrings by persons belonging to the same family unit. The land belonging jointly to more than one person or owned in contiguous part separately by one or more members of a family unit, which unit is a narrow one as defined in clause (dd) of section 3, comes under the definition of compact block. Then only the permissible limit of transfer does not apply. Excluding the land on which any building has been or is being constructed in accordance with any law regulating such construction and only the permissible limit of the vacant land appertaining to it is a reasonable classification distinguishing the vacant land from the building land. The object of the act is to prevent alienation of certain vacant lands and that being so it is rightly excluded the building lands from its operation. It is plain that the main object of the act being ultimately to distribute the ownership and control of the material resources of the community as best to subserve the common good and to prevent concentration of wealth, a transfer in favour of the Government, local authorities, Government companies or Corporations had to be excluded as such transfer could not possibly defeat the object of the Act, rather, it would give a fillip to it. Permitting transfers of vacant lands in favour of Cooperative Housing Building Societies is obviously a step for the fulfilment of the object of the Act. The Act cannot be held to be discriminatory on such grounds. The power of the State Government under sub section (1) of section 7 to exempt any area or any alienation or other transfer of vacant land from all or any of the provisions of the Act is a power which is to be exercised for the reasons to be recorded in the general or the special order and in furtherance of the object of the Act. The guideline is to be found in the object of the act itself. The power under sub section (2) has to be exercised by the State Government for avoiding any hardship. There is sufficient guideline for exemption in case of hardship which will depend upon the facts and circumstances of each case. The order ;if exemption to be made by the Collector can only be in a case where the land is to be used for any educational, scientific, industrial or commercial purposes. It has not been left open to the Collector to decide for what other purpose he can grant the exemption. Such other purpose can be only that as may be prescribed by the State Government by rules made under section 12 of the Act. Sub section (4) of section 7 is a good safety valve. The State Legislature will act as a Supervisor of the orders of exemption 673 made by the State Government or the Collector. The exercise of the power of exemption by the Collector is further controlled by providing an appeal to the State Government under section 9 of the Act. In our opinion, therefore, there is no violation of the equal protection of law guaranteed under article 14 of the Constitution. Classifications are all reasonable and there is a clear nexus between the object of the act and the classifications. They have neither put unequals as equals nor has discriminated between equals. In the result the writ petition fails and is dismissed with costs. P.H.P. Petition dismissed.

The Gujarat Vacant Lands in Urban Area (Prohibition of Alienation) Act,, 1972 is enacted to prohibit the alienation of certain vacant lands in urban areas in the State of Gujarat. Section 2 of the Act embodies a declaration that the Act is for giving effect to the policy of the State towards securing the principles specific in clauses (b) and (c) of article 39 of the Constitution. Section 4 prohibits the alienation of vacant land after the appointed day. It however exempts one plot of vacant land owned by a person not exceeding 1000 sq. metres and not forming part of a compact block. The transfers in favour of the State Government, Central Government, local ' authority, Government company, statutory corporations and cooperative house building societies are also exempted. The State Government has been empowered by general or special order to exempt any area or any alienation from all or any of the provisions of the Act. This is subject to the rules made by the State Government. Every order made by the State Government and the Collector exempting any area or alienation from, any of the provisions of the Act is required to be laid before the State Legislature. The Learned Counsel for the petitioner conceded that in view of the proclamation of emergency fundamental right guaranteed under Article 19 is under suspension. It was contended that the Act offended Article 14 and that the Act was not directly relatable to the object of Article 39 (b) and (c) and, therefore, Article 31C could, not protect it. HELD : (i) It is not necessary to take recourse to Article 31C for upholding constitutional validity of the Act as, it does not infringe equal protection of law guaranteed under Article 14 of the Constitution. Urban area means any area which is comprised in the city or a municipal Borough. Surrounding area not exceeding 16 kms. has to be fixed ' by a notification of the State Government. By notifications limit of 16 kms. has been fixed in case of big cities like Ahmedabad, Baroda, etc. but lesser limits of distance have been notified in case of small municipal boroughs. When the limit of the distance outside the city or town area differed from place to, place it was not necessary to fix the limit of permissible area of transfer with reference to the value of the land. It was neither feasible nor expedient to do so. From the permissible limit of transfer the area forming part of the compact block had to be excluded as it would have led to monopolisation and monoeuvrings by persons belonging to the same family unit.[668F; 672 B] (ii) There is reasonable classification and there is a clear nexus between the object of the Act and the classification. The Act has neither put unequals as equals nor has it discriminated between equals. The object of the Act being to prevent alienation of vacant lands it rightly excludes the building lands from its operation. Since the object of the Act is to ultimately distribute ownership and control of the material resources to subserve the common good transfer in favour of Government, Local Authorities, Government Companies and Statutory Corporations has been excluded. Formation of Cooperative House Building Societies is obviously a step for fulfilment of the object of the Act. The power of the State Government to exempt any area or any alienation from all or any of the provisions of the Act is a power which is to be exercised for the reasons to be recorded and in furtherance of the object of the Act. The guideline is to be found in the object of the Act. The order of exemption to be made by the Collector is only where the land is to be used for any educational, scientific, industrial or commercial purposes. The exercise of the power by the Collector is further controlled by providing an appeal to the State Government. The orders are to be placed before the State Legislature which will act as a supervisory of the orders of exemption made by the State Government or this Collector. [672D H] 668

6967.txt

tition No. 90 of 1981 etc. etc, (Under Article 32 of the Constitution of India). Dr. Devi Prasad Pal, Dinesh Vyas, P.H. Parekh, B.N. Aggarwal, A.S. Rao, Ravinder Narain, section Ganesh, A.K. Verma, Amrita Mitra, Ms. Priya Hingorani, section Sukumaran, Ms. Amrita Mitra, Ms. S.Bagga, Krishan Kumar, Bhaskar Pradhan, Ms. Poonam Madan, Ms. Gauri Advani, section Pathak, B. Lal, B.P. Aggarwal, Ms. Geetanjali Mohan, P.K. Mukherjee and S.C. Patel for the Petitioners. S.C. Manchanda, B.B. Ahuja, Manoj Arora, section Rajappa and Ms. A. Subhashini for the Respondents. The Judgment of the Court was delivered by RANGANATHAN, J. The seeds of the present controversy were sown as early as in 1946. It is unfortunate that this matter should be coming up before this Court for its consideration nearly five decades later, though it must be pointed out that the issue in its present form is the outcome of an amendment made by the Finance (No.2) Act, 1980 (hereinafter referred to as 'the 1980 Act ') to the Income Tax Act, 1961* (hereinafter referred to as 'the 1961 Act '). It is also a curious co incidence that the 1980 Act effected two amendments in the 1961 Act with retrospective effect and the validity of both these provisions have been challenged before the courts. The first was the controversy with regard to the retrospective amendment of s.80 J which was settled by this Court by its decision in Lohia Machines Limited vs Union of India, It is the second amendment to the provisions contained in section 35(2) of the 1961 Act that has given rise to the present controversy between the parties. The question is really one of interpretation of two important provisions relating to the computation of business income for purposes of income tax. We may start with the provisions of the Indian lncome Tax Act, 1922 (hereinafter referred to as the '1922 Act '). The computation of business income for purposes of income tax was done in accordance with the provisions of section 10 of the said Act. In the process of making such computation, the Act provided for two important deductions (among others), in respect of the capital assets employed in the business. The first was the deduction under clause (vi) of Section 10(2) of an allowance in respect of the depreciation of building, machinery, plant or furniture being the property of the assessee and used for the purposes of the business, at a prescribed percentage of the written down value of such assets. This allowance is calculated, in respect of the year of acquisition of the property, at a percentage of its actual cost to the assessee and in subsequent years at a graduated scale on the basis of the actual cost less the depreciation allowances granted in the preceding years. In strict principle, this is an allowance of capital nature but it is now well settled that the allowance of depreciation has to be taken into account in order to ascertain the true profits of a business and, therefore, an assessee is permitted to deduct, in the computation of the business income year after year, the prescribed percentage of the value of the assets used for the purposes of business. The second allowance was not there in the 1922 Act originally and was introduced by the Income tax (Amendment) Act, 1946. The introduction was of certain allowances in respect of expenditure on. "scientific research related to the business", an expression which was defined in a fairly comprehensive manner by the statute. Three types of allowances were permitted in respect of this category of expenditure of which we are here concerned with only one. This provision was contained in clause (xiv) of S.10(2) which permitted a deduction. "in respect of any expenditure of a capital nature on scientific research related to the business, an allowance for each of the Five consecutive previous year. beginning with the year in which the expenditure was incurred, or where the expenditure was incurred prior to the commencement of the business, for each of the five consecutive previous years beginning with the year in which the business was commenced, equal 2to one fifth of such expenditure: Provided that no allowance shall be made for any expenditure incurred more than three years before the commencement of the business: A Provided further that XXX XXX XXX (d) where a deduction is allowed for any previous year under this clause in respect of expenditure represented wholly or partly by any asset, no deduction shall be allowed under clause (vi) or clause (vii) for the same previous year in respect of that asset; (e) where an asset is used in the business after it ceases to be used for scientific research related to that business, and a claim for an allowance under clause (vi) or clause (vii) is made in respect of that asset, the actual cost to the assessee of the asset shall be treated as reduced by the amount of any deductions allowed under this clause;" A cursory and conjoint reading of section 10(2) (vi) and section 10(2) (xiv) suggests that where an assessee incurs expenditure of a capital nature on scientific research related to the business and the expenditure results in the acquisition of an asset, the assessee can claim, under clause (vi), a deduction of the specified percentage of the written down value of the asset and under clause (xiv) he can ask for a deduction, in five consecutive years, of the expenditure he has incurred on the acquisition of the asset. For this purpose, we are assuming that an asset used for scientific research related to the business is also ipso facto an asset used for the purpose of business. There has been some debate before us as to whether this is always so but we need not enter into that controversy for the purposes of the present case. It will at once be seen that, if these two provisions are applied simultaneously, it would result in granting an assessee a double allowance in respect of the same expenditure one of the entire amount over a period of 5 years and the other a percentage of the expenditure over a number . consecutive years at a graded scale as already mentioned. The question at once leaps to the mind as to whether it could have been the intention of the legislature to permit both these deductions simultaneously to an assessee. The provisions of clauses (d) and (e) of the proviso to S.10(2) (xiv) contain a clue to answer this question. More about it later. We next turn to the provisions of 1961 Act. The topic of depreciation is dealt with by section 32. Section 32(1) (ii) provides for depreciation. As under the 1922 Act, it is allowed at a percentage of the written down value of certain capital assets employed in the bussiness. The topic of scientific research expenditure is dealt with by section 35. Section 35(1) provides for the deduction of four types of expenditure on scientific research and what we are concerned with is the deduction provided under section 35(1) (iv), which is to the following effect: (iv) in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub section (2). " Sub section (2) provides that, for the purposes of clause (iv)of sub section (1), one fifth of the capital expenditure incurred in any previous year shall be deducted for that previous year; and the balance of the expenditure shall be deducted in equal instalments in each of the four immediately succeeding previous years. There is an explanation which is not relevant for our present purposes. Reading S.35(2) further, it provides in clauses (iv) and (v) as follows: "(iv) where a deduction is allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under clauses (i), (ii) and (iii) of sub section (1) of section 32 for the same previous year in respect of that asset; (v) where the asset mentioned in clause (ii) is used in the business after it ceases to be used for scientific research related to that business, depreciation shall be admissible under clauses (i), (ii) and (iii) of sub section(1) of section 32. " Reference must also be made to Explanation 1 to section 43(1) in this context. It read as follows at the relevant time: "Explanation: Where an asset is used in business after it ceases to be used for scientific research related to that business and a deduction has to be made under clause (i), clause (ii) or clause (iii) of sub section (I) or sub section (1A) of section 32 in respect of that asset, the actual cost of the asset to the assessee, as reduced by the amount of any deduction allowed under clause (iv) of sub section (1) of section 35 or under any corresponding provision of the Indian Income tax Act, 1922 (11 of 1922). " From the above it will be seen that the provisions of Section 32(1) (ii) and Section 35(2) (i) (iv) and (v) read with Explanation 1 to s.43(1) virtually repeat the provisions contained in Section 10(2) (vi) and 10(2)(xiv) of the 1922 Act, so that the question earlier posed still loomed in the background of 1961 Act. In 1968 there was an amendment in the provisions of Section 35(2). The sub section was amended to read as follows: "(2) For the purposes of clause (iv) of sub section (1), (i) in a case where such capital expenditure is incurred before the 1st day of April, 1967, one fifth of the capital expenditure incurred in any previous year shall be deducted for that previous year; and the balance of the expenditure shall be deducted in equal instalments for each of the four immediately succeeding previous years; (i a) in a case where such capital expenditure is incurred after the 31st day of March, 1967, the whole of such capital expenditure incurred in any previous year shall be deducted for that previous year. " The effect of this amendment was only to provided that the entire amount of capital expenditure incurred in relation to scientific research was allowed as a deduction in one year instead of being spread over a period of five years as was the position earlier. This amendment does not touch the controversy in issue before us and it has no solution to offer to our present difficulty. The provisions of Section 10(2) (vi) and (xiv) of the old Act had been administered between 1946 and 1962 and the provisions of Section 32 and 35 of the 1961 Act have been administered since 1962. The question whether an assessee can simultaneously claim an allowance or deduction in respect of the same expenditure once under Section 32 and again in Section 35 must have cropped up in some cases and does appear that such a double claim was put forward in some cases. The contention on behalf of the assessees was that the allowances in respect of depreciation on the one hand and in respect of capital expenditure on scientific research on the other are two totally different and independent heads of allowances. one is a notional allowance to provide for the wear and tear of a capital asset employed in the business as the years roll by; the other is an allowance for actual expenditure of a capital nature granted, on the eve of our country 's independence, in order to give fillip to new industrial innovations and the development of indigenous know how and techniques by proper planning on research and development by various business houses. It is therefore suggested that there is nothing absurd in construing the statutes act as providing cumulatively for both types of deductions in respect of the same capital asset. The only limitations on this right are the two placed by the statute itself. The first limitation, contained in clause (d) of the proviso to Section 10(2) (xiv) and s.35(2) (iv) is that both the deductions cannot be claimed "for the same previous year" in respect of the same capital asset. The second limitation is found in clause (e) of the proviso to Section 10(2) (xiv) and s.35(2) (v) which say that if a capital asset used for scientific research ceases to be so used but is thereafter brought into a business for use therein, the actual cost for purposes of granting depreciation in respect of the asset thereafter should be taken as the amount of its original cost reduced by the amount of deductions allowed under Section 10(2) (xiv) or s.35(2). In other words, the contention of the assessee was and is that both the types of allowances are permissible under the statute except to the extent limited by clauses (d) and (e) of the proviso to Section 10(2) (xiv) of the 1922 Act and reproduced in clauses (iv) and (v) of Section 35(2) of the 1961 Act. Before us it is claimed on behalf of the assessee that this interpretation of the statutory provisions is very clear, patent and unambiguous. It is alleged that despite this, some Income tax Officers started disallowing the claim of depreciation in respect of such capital assets even in previous years during which no deduction was claimed or allowed under Section 10(2) (xiv) or Section 35(2), contrary to the clear language of clause (d) of s.10(2) (xiv) and s.35(2) (iv). These Of orders were reversed on appeal either by the Appellate Commissioner or by the Tribunal. It was suggested that these decisions were almost unanimously in favour of the assessee but the department persisted in pursuing the matter upto the stage of the High Court. Only one reference on this topic came up before the High Courts and is reflected in the decision of the Karnataka High Court, reported as CIT vs Indian Telephone Industries Ltd., This was a reference of the year 1977 made at the instance of the Commissioner of Income Tax and the Commissioner of Income Tax lost this reference. The High (Sourt re affirmed the position contended for by the assessee as the one and only possible interpretation of the statutory provisions. It is, therefore, contended that there was, and could have been, no doubt that an assessee was entitled to claim depreciation allowance in respect of such assets in respect of previous years other than those in which an allowance had been allowed under the other head. We shall revert later to this aspect of the matter. At this stage, the Finance (No.2) Act, 1980 intervened. It amended section 35(2) (iv) to read as follows: "(iv) where a deduction is allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under clauses (i), (ii) and (iii) of sub section (1) of section 32 for the same or any other previous year in respect of that asset. " (Emphasis added) The Finance Act made this amendment retrospective w.e.f. 1.4.62, that is, the date of the commencement of the 1961 Act. This amendment is undoubtedly far reaching in its effect. It will result in completion of the pending assessments of several years on the footing of the new provision. It will also involve re opening or rectification of completed assessments of earlier years, to the extent permissible under the provisions of sections 148 and 154, in cases where assessees had been granted "double allowance" accepting their contention at the time of the original assessments. The effect will be not for one assessment year but for a number of assessment years in succession. Painting a very grim picture of the consequences of giving full retrospective effect to the amendment, the assessees say that it will impose unexpected and impossible burden on them over the years. jeopardise their solvency and lay them open to action by creditor and financial institutions. Such an onerous burden, it is said. is unreasonable and oppressive and the provision imposing such burden violates the fundamental rights of the assessees under Articles 14 and 19(1) (g) of the Constitution of India. It is on this plea that, even though assessments and appeals are pending in several of these cases, the petitioners chose to approach this Court by way of writ petitions under Article 32 of the Constitution. These are mostly writ petitions of the year 1981 and are now coming up for hearing after a period of 10 years. Learned counsel for the assessees do not contest the competence of the legislature to enact the impugned provision, nor do they dispute the right of the legislature to give retrospective effect to statutory provisions. The contention only is that retrospective provisions may be permissible even in taxing statutes in certain special circumstances such as in the case of provisions clarifying the impact of a statute, provisions curing defective legislations in the light of the judicial decisions and the like. They, however, say that if the legislature chooses to impose a totally new burden, which was not at all in contemplation earlier and proceeds to give full retrospective effect thereto, such an attempt should be struck down as unreasonable and discriminatory. The principal questions, therefore, for our consideration are: 1) Were the earlier statutory provisions capable of only one interpretation, namely, that placed by the assessees or was there any ambiguity in relation thereto ? (2) If there was some doubt or ambiguity about the earlier legislation, and the 1980 Act clarified the position by a retrospective amendment, would it offend the provisions of the Constitution ? (3) If, on the other hand, the earlier provision was very clear and capable of only one interpretation, as placed by the assessee, was the legislature within its rights in amending the provision retrospectively w.e.f. 1.4.62 and thus imposing an unreasonable tax burden on the assessees? Taking up the first of the three questions, it has to be considered from two angles, one factual and the other, legal. An attempt was made on behalf of the petitioners to project an image as if the interpretation sought to be placed by the department on pre 1980 provisions to disallow depreciation on such assets was so far fetched that it never received the approval of the higher appellate authorities. It was suggested that the appeals by assessees against the disallowance invariably succeeded and it was the Department that had to move the High Court on reference, the first of which references came up before the Karnataka High Court in C.l. T. vs Indian Telephone Industries (1980) 126 I.T.R. 548 and was answered against the Department. On the basis of such allegations the petitioners attempted to make out that the Department 's interpretation was patently untenable and that the 1980 amendment is not in the nature of a statutory clarification of an ambiguity but a totally new and fresh imposition sought to be unjustifiably given retrospective effect. But, as Shri B.B. Ahuja has pointed out on the basis of the averments of the petitioner in one of the cases, viz., W.P.1153/81, the impression sought to be created by the petitioners does not accord with the correct facts. The position in the case is available only as it stood at the time when the writ petition and the counter affidavit were filed and subsequent developments are not known. Nevertheless, the picture that emerges is this. In that case, the Income tax Officer (I.T.O.) is said to have allowed depreciation on assets used for scientific research, for the assessment year 1969 70, though this is denied by the department. The claim was perhaps disallowed by the I.T.O. for the assessment year 1970 71, but it was allowed by the Allahabad Bench of the Income tax Appellate Tribunal (I.T.A.T.) by its order dated 30.8.76. For the assessment year 1971 72, the I.T.O. disallowed the depreciation. The Appellate Assistant Commissioner (A.A.C.) allowed it. The department appealed to the Delhi Bench of the I.T.A.T. which accepted the department 's plea by its order dated 13.8.79 placing reliance on the decision of a Special Bench of the I.T.A.T. It has been stated that the assessee filed an application for reference to the High Court which was pending when the writ petition was filed. For the assessment years 1972 73 to 1974 75, the assessments are pending as a stay order had been obtained for reasons which are not known. For the assessment years 1975 76 and 1976 77, the assessee claimed depreciation on a number of items of scientific research assets. The I.T.O. "allowed" the claims subject to the rider that "there is no provision to give deduction of more than 100% of the expenditure by way of depreciation". The assessee appealed to Commissioner of Income tax (Appeals) who disallowed the claim. For 1977 78, the l. T.O. disallowed the claim and the C.l.T. dismissed the assessee 's appeals. For assessment years 1978 79 to 1980 81, the assessments are stated to be pending. The above facts are sufficient to show that, atleast after 1.4.1968, there is no information before us as to the position between 1.4.1946 and 31.3.1968 the Department has been putting forward its objections on the issue and that the same was the subject matter of controversy at various appellate stages, some decided in favour of, and some against, the assessee. A Special Bench of the l. T.A.T. had indeed decided the issue against the assessee. In this background, it is not correct to say that the position was crystal clear and that, save for a few ITOs who took a biassed view, the authorities were all agreed that the Department 's stand was untenable. Some of the reported decisions also show that there was a live controversy and that references have been made to the High Court both at the instances or the assessees [see Alkali & Chemical Corporation of India Ltd. vs C.l.T. , and C.I.T. vs Indian Explosives Ltd., , as well as at the instance of the Revenue [see, C.I.T. vs International Instruments P. Ltd., ; C.I.T. vs Mahindra Sintered Products Ltd. and Warner Hindustan Ltd. vs CIT, The petitioner 's contention that, under the pre amended provisions, depreciation on such assets was recognised allround as clearly allowable is therefore rejected. We have dealt with this aspect only to meet an aspect that was urged. What is really important is the true and correct interpretation of those provisions, not what someone thought of it then and to this aspect we shall now turn. 4 The second aspect of the First of the three questions posed earlier for our consideration is the legal or interpretational aspect of the provisions as they stood prior to the 1980 Amendment. Under the provisions of the statute as they stood earlier, could the assessees have claimed continued grant of depreciation after the expiry of five previous years before the 1968 amendment and after the expiry or the first year after the 1968 amendment, even though the entire cost of the capital asset in question had been allowed to be written off completely against the business profits of those five previous years or one previous year as the case may be? We think the answer to this question must emphatically be in the negative. In our view, it is impossible to conceive of the legislature having envisaged a double deduction in respect of the same expenditure, even though it is true that the two heads of deduction do not completely overlap and there is some difference in the rationale of the two deductions under consideration. On behalf of the assessees reliance is placed on the following circumstances to support a contention that the statute did not intend one deduction to preclude the other : (i) lt is pointed out that s.10(2) (xiv) of the 1922 Act, was inserted in 1946 consequent on the insertion of a corresponding provision in the United Kingdom. That provision, viz. s.20(4) of the U.K. Finance Act, 1944 read thus : (4) Where a deduction is allowed for any year under this or the last preceding section in respect of expenditure represented wholly or partly by any assets, no deduction shall be allowed under any provisions of the Income tax Act other than this part of this Act in respect of wear and tear, obsolescence, depreciation or exceptional depreciation of these assets for any year of assessment during any part of which they are used by the person carrying on the trade for scientific research related to the trade. " (emphasis supplied) The Indian provision, it is said, has made a deliberate departure from the said provision and limited the bar of depreciation only to those previous years during which a deduction is allowed under S.10(2) (xiv); (ii) When the Income tax Bill, 1961 was under the consideration of the Law Commission, the provisions of S.10(2) (vi) and (xiv) were carefully reviewed. But changes were made and the provisions of the new Act in this regard were drafted in pari materia with those of the old Act ; (iii) The language used in clause (d) of the proviso to S.10(2) (xiv) and S.35(2) (iv) again is significantly different from the language used in various other provisions of the Act which, in like contexts of possible double allowances, emphatically rule out deductions in respect of the same expense or exemptions in respect of the same income under two different provisions for the same or even any other assessment year : See, for example, Sections 20(2) 35B(2), 35C(2), 35CC(4), 35CCA(3), 35CCB(3), 35D(b), 35E(8), 80GGA(4), 80HH(9A), 80HHA(7) and 80HHB(S); and (iv) When the relevant provisions say that depreciation shall not be allowed in certain previous years, it permits a disallowance only in those previous years and means, by necessary implication, that it shall be allowed in other years, if otherwise eligible on the language of the provision for depreciation. There is an apparent plausibility about these arguments, particularly in the context of the alleged departure in the language used by S.10(2)(xiv) from that employed in S.20 of the U.K. Finance Act, 1944. We may, however, point out that the last few underlined words of the English statute show that there is really no difference between the English and Indian Acts; the former also in terms prohibits depreciation only so long as the assets are used for scientific research. In our opinion, the other provisions of the Act to which reference has been made some of which were inserted after the present controversy started are not helpful and we have to construe the real scope of the provisions with which we are concerned. We think that all misconception will vanish and all the provisions will fall into place, if we hear in mind a fundamental, through unwritten, axiom that no legislature could have at all intended a double deduction in regard to the same business outgoing, and if it is intended it will be clearly expressed. In other words, in the absence of clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions both under S.10(2) (vi) and S.10(2) (xiv) under the 1922 Act or under S.32(1)(ii) and 35(2)(iv) of the 1922 Act qua the same expenditure. Is then the use of the words "in respect of the same previous year" in clause (d) of the proviso to S.10(2) (xiv) of the 1922 Act and section 35(2) (iv) of the 1961 Act a contra indication which permits a disallowance of depreciation only in the previous years in which the other allowance is actually allowed. We think the answer is an emphatic `no ' and that the purpose of the words above referred to is totally different. If, as contended for by the assessees, there can be no objection in principle to allowances being made under both the provisions as their nature and purpose are different, then the interdict disallowing a double deduction will be meaningless even in respect of the previous years for which deduction is allowed under S.10(2) (xiv) /S.35 in respect of the same asset. If that were the correct principle, The assessee should logically be entitled to deduction by way of depreciation for all previous years including those for which allowance have been granted under the provision relating to scientific research. The statute does not permit this. The restriction imposed would, therefore, be illogical and unjustified on the basis suggested by the assessees. On the other hand, if we accept the principle we have outlined earlier viz. that, there is a basic legislative scheme, unspoken but clearly underlying the Act, that two allowances cannot be, and are not intended to be, granted in respect of the same asset or expenditure, one will easily see the necessity for the limitation imposed by the quoted words. For, in this view, where the capital asset is one of the nature specified, the assessee can get only one of the two allowances in question but not both. Then the question would arise and might create a difficulty : in that event, which not the two allowance should the assessee be granted that which the assessee chooses or that which the assessing officer might prefer? It is necessary for the statute to define this and this is what has been done by the rider in clause (d) of the proviso to S.10 (2) (xiv)/S.35(2) (iv). It mandates that the assessee should, in such a case, be granted the special allowance for scientific research and not the routine and annual one for depreciation. Clause (d) of the proviso to S.10(2) (xiv) and S.30(2) (iv) thus fall into place as an appropriate and necessary provision. The provision contained in clause (e) of the proviso to S.10(2) (xiv) of the 1922 Act, re enacted in Explanation, to S.43 (1) of the 1961 Act, also reinforces this line of approach. It provides that the extent of capital expenditure written off under the second of the above headings (whether it be ]00% under the post 1968 provision or 20%, 40%, 60%, 80% or 100% under the pre 1968 provision) has to be pro tanto deducted in ascertaining the actual cost for purposes of depreciation. This provision militates, in our view, against the petitioners, contention that the allowances under the two provisions are by nature unconnected with, and independent of, each other. Its effect is this. Suppose a person uses an asset for scientific research for sometime and then brings it into his business for other use later, he would be thereafter entitled to depreciation thereon only on the actual cost less deduction allowed under S.10 (2) (xiv)/S.35. However, if the asset continues to be used in scientific research related to the business, he would be entitled to get depreciation on its full cost after the first few previous years during which allowance is granted under those provisions. This seems to be anomalous but Shri Ganesh says that there is no anomaly because this is a provision intended to act as a disincentive to persons who purport to purchase assets for scientific research but withdraw it from such use soon after. Granted that this is so, still the deduction of the allowances given on scientific research assets for computing depreciation is consistent only with the principle stated by us that they are deductions basically of the same nature intended to enable the assessee to write off certain items of capital expenditure against his business profits. We may add that the report of the Chocksi Committee, on the basis of which the 1980 amendment was effected only echoed the same view when it said in para 3.29 of its report : "3.29 Our attention has also been drawn to certain anomalous situations in the matter of allowance of depreciation. In certain cases where a full deduction has been allowed in relation to a capital asset under other sections (as for example, section 35 which permits a deduction in respect of capital expenditure for scientific research), the taxpayers have contended that such deduction is independent of the allowance by way of depreciation. In our view, the intention of the legislature is not to allow a double deduction (of 200%) in respect of the same asset, once under section 35 and, again, by way of depreciation under section 32. If and to the extent that there is any anomaly or contrary view possible on a construction of section 35, we recommend that the law should be clarified to provide that no depreciation under section 32 shall be allowable in respect of capital expenditure for scientific research qualifying for deduction under section 35. " For the reasons discussed above, we are of the view that, even before the 1980 amendment, the Act did not permit a deduction for depreciation in respect of the cost of a capital asset acquired for purposes of scientific research to the extent such cost has been written off under S.10(2) (xiv)/35 (1) & (2). Prior to 1968, such assets qualified for an allowance of one fifth of the cost of the asset in five previous years starting with that of its acquisition and during these years the assessee could not get any depreciation in relation thereto. In respect of assets acquired in previous year relevant to assessment year 1968 69 and thereafter, their cost was written off in the previous year of acquisition and no depreciation could be allowed in that year. This is clear from the statute. Equally, it is not envisaged, and indeed, it would be meaningless to say, that depreciation could be allowed on them thereafter with a further absurdity that it could be allowed starting with the original cost of the asset despite its user for scientific research and the allowances made under the 'scientific research ' clause. In our view, there was no difficulty at all in the interpretation of the provisions. The mere fact that a baseless claim was raised by some over enthusiastic assessees who sought a double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the true scope of the provisions as they stood earlier. We are, for the reasons discussed above, unable to approve of the cryptic view expressed by the Karnataka High Court in C.I.T. vs Indian Telephone Industries Ltd., or the view taken by the Bombay High Court in C.I.T. vs Hico Products, In view of the answer given by us to the first question posed by us, there is no need to answer the second and third questions since, even without the amendment, the assessees cannot claim the depreciation allowance in question. The second question can arise only if it is assumed that there was an ambiguity or doubt as to interpretation that was retrospectively clarified by the legislature. But it is common ground before us that, even on this hypothesis, the validity of the amendment cannot be challenged. This is indeed beyond all doubt: See Rai Ramkrishna vs State of Bihar, ; ; Asst Commissioner of Urban Land Tax vs Buckingham & Carnatic Co. Ltd., ; ; Krishnamurthi & Co. vs State of Madras, ; ; Hira Lal Rattan Lal vs Sales Tax Officer and Another, (1973) 31 S.T.C. 178 and Shiv Dutt Rai Fateh Chand vs Union of India, Even the Bombay decision inC.l. T. vs Hico Products, on which the assessees heavily rely, concedes, in our opinion rightly, this position. The assessees may have some possible case only if the earlier statutory provisions can be said to have been unambiguously in favour of the assessee and the 1980 amendment had radically altered the provisions to cast a new and substantial burden on the assessee with retrospective effect. It is this third alternative, reflected by the third question posed by us, that was success fully urged before the High Court by the assessees. But we are unable to accept this argument or conclusion. In our view, the first question has to be answered by saying that the pre 1980 provisions were capable of only one interpretation but that was as urged on behalf of the Revenue. The 1980 amendment has effected no change at all in the provision except to set out more clearly and categorically what the provision said even earlier. In this view, the second and third questions earlier posed do not arise. For the reasons discussed above, these Writ Petitions are dismissed. We, however, make no order as to costs. B.P JEEVAN REDDY, J. I agree with my learned brother Ran ganathan, J. that these writ petitions should fall. Having regard to the nature and significance of the question raised herein, however, I felt impelled to say a few words. The challenge in this batch of writ petitions is to the retrospective operation given to the amended clause (iv) of sub section (2) of Section 35 of Income Tax Act, 1961, by the Finance (No.2) Act, 1980. The said Finance Act added the words "or any other" in the said clause and gave it retrospective effect from April 1, 1962. As amended, clause (iv) reads as follows: "(iv) where a deduction is allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under clause (ii) or sub section (1) of section 32 for the same or any other previous year in respect of that asset. " Learned Counsel for the petitioners assessees contended that the retrospective effect given to the said amendment has the effect of taking away the rights vested in the assessees by the unamended provisions, making them liable to pay huge amounts by way of tax. Such payment, if enforced, has the effect of debilitating the assessees, industries beyond recall. It is submitted that the retrospectivity given to the said amendment is violative of the petitioners fundamental rights guaranteed by Articles 19(1) (g) and 14 besides the guarantee in Article 300A. In the year 1946, clause (xiv) among other clauses was introduced in sub section (2) of Section 10 of the Indian Income tax Act, 1922. It provided, for the first time, that even expenditure of a capital nature laid out on scientific research related to the business of the assessee shall be allowed to be deducted. The deduction was hundred per cent spread over a period of five consecutive previous years commencing from the previous year on which the expenditure was incurred. Sub clause (d) of clause (xiv) provided at the same time that "where a deduction is allowed for any previous year under this clause in respect of expenditure represented wholly or partly by any asset, no deduction shall be allowed under clause(vi) or clause (vii) for the same previous year in respect of that asset. " The effect of sub clause (d) was that if an assessee claimed and was allowed a deduction in respect of expenditure of a capital nature on scientific research, and where such expenditure took the shape of an asset, which in the normal course would be entitled to deduction on account of depreciation under clauses (vi) and (vii) of Section 10(2) no depreciation would be allowed in respect of that asset in those respective previous years. In other words, during the period of five previous years the assessee was allowed the deduction under clause (xiv) of sub section (2) of section 10, claim for depreciation under clauses (vi) an/or (vii) of the same sub section was excluded. In the Income tax Act, 1961, a similar provision was made in section 35. Clause (iv) of sub section (1) of section 35 provided for deduction of expenditure of a capital nature incurred on scientific research related to the business carried on by the assessee. Sub section (2) of Section 35 set out the manner in which and the terms subject to which the deduction was to be allowed. As enacted in 1961, sub section (2) provided, as was done by clause (xiv) of Section 10(2) of the 1922 Act that the said deduction shall be allowed in equal measure in five consecutive previous years, commencing from the previous year in which the expenditure was incurred. In the year 1967, however, sub section (2) was amended, providing for full deduction of the expenditure in the very previous year in which such expenditure was incurred. Clause (iv) of sub section (2), however, remained unchanged. Clause (iv) declares that where a deduction is allowed for any previous year under the said section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under clauses (i), (ii) and (iii) of sub section (I) or under sub section (1A) of section 32 for the same previous year in respect of that asset. Thus, the position obtaining under the 1922 Act and the previous Act is the same, with the difference that if such expenditure is incurred after April 1, 1967, hundred per cent deduction was granted in the very previous year in which the asset (representing the capital expenditure of the nature mentioned in clause (iv) of sub section (1) of Section 35) is acquired. The Revenue says that the deduction provided by Section 35(1) (iv) is in the alternative to the deduction provided by clauses (i), (ii) and (iii) of sub section (1) and sub section (1A) of Section 32. If one is availed of, the other is not available, not only during the year or years in which the deduction under Section 35(1) (iv) is availed of, but permanently. The reason, according to them, is obvious: if both are allowed to be availed of, it amounts to grant of 200% deduction viz., 100% under Section 35 (1) (iv) and another 100% under sub sections (1) and (1A) of Section 32. This is totally outside the contemplation of the Act, they say. On the other hand, the case of the asssessees is that the bar created by clause (iv) of sub section (2) applies only to that previous year or those previous years during which the said expenditure is allowed as a deduction. That is the express language of the clause. The bar does not extend beyond the year or years in which the deduction under Section 35(1) (iv) is availed. There is no reason more so in a taxing enactment to extend the said bar beyond the limit prescribed by the statute. They say, if the intention of the Parliament was to bar the claim of depreciation in respect of such asset for all time to come, nothing was easier than to say so in clear words, as was done by sub section (4), of section 20 of U.K. Finance Act, 1944. It is pointed out that clause (xiv) of sub section (2) of section 10 was introduced in the Indian Income tax Act within two years of the introduction of a similar provision in the English Act, evidently inspired by the Amendment in the English Act. But while incorporating the said provision, a conscious, departure was made by the Indian Legislature, say the assessees. Having regard to the scant investment in scientific research in India, it is submitted, the legislature must have thought it necessary to provide an additional inducement over and above the deduction on account of depreciation. Considerations of equity have no place in the interpretation of a taxing enactments, they say further. I find it difficult to agree with the reasoning of the assessees. Acceding to it would amount to placing an unreasonable interpretation upon the relevant provisions and to negating the intention of Parliament. I find it difficult to agree that the Indian Legislature as also the Parliament made a conscious departure from the English Amendment with the idea of providing an additional benefit to induce the Indian assessees to invest more in scientific research. I find the argument rather convoluted. If the intention of the Legislature/Parliament was to provide more than 100% deduction, they would have said so, as they have done in cases where they provided for what is called weighted deduction '. (For example, See Section 35(B) of 1961 Act). A double deduction cannot be a matter of inference, it must be provided for in clear and express language. regard having to its unusual nature and its serious impact on the Revenues of the State. Now, what does clause (iv) of Section 35(2) say? It says that during the years or the year in which the assessee avails of the deduction under Section 35(1 ) (iv) he shall not avail of the deduction on account of depreciation provided by clauses (i), (ii) and (iii) of sub section (1) and sub section (1A) of Section 32. What could be the underlying reason? It is obviously to ensure that the assessee doesn 't get double deduction. Take a case where the asset was acquired prior to April 1,1957. The deduction under Section 35(1) (iv) would be allowed in five consecutive years. If during the very five previous years, depreciation under the aforementioned provisions is also allowed, the assessee would obtain, at the end of five years, a double depreciation i.e., 100% under Section 35 and almost 100% under Section 32. (It may be noted that in many cases, the rate of depreciation under Section 32 is 20% or even higher). If such a course was barred by clause (iv) during the initial five years, would it be reasonable to say that same thing can be achieved by claiming the deduction after the expiry of five years? If both the deductions are in the alternative, as indicated by clause (iv), they must be understood as being in the alternative and not consecutive. It would be a rather curious thing to say (in the case of an asset acquired prior to April 1, 1967) that Parliament barred claim for depreciation under Section 32 even in the first year when only 20% of the cost of the asset is allowed as deduction under Section 35(1) (iv), it barred it in the second, third and fourth years, when the deduction has reached 40, 60 and 80 per cent, but permitted it be claimed after the fifth year, by which year the entire 100% cost was allowed as a deduction. No express provision was necessary to say what is so obvious. The position after April 1, 1967 is no different. That the aforesaid view is the correct one is indicated by Explanation (1) to clause (1) of section 43 [the corresponding provision in the 1922 Act being sub clause (e) of clause (xiv) of Section 10(2)]. Clause (1) of section 43 defines the expression `actual cost '. Explanation (1) appended , to the definition says "Where an asset is used in the business after it ceases to be used for scientific research related to that business and a deduction has to be made under clause (ii) of sub section (1) of section 32 in respect of that asset, the actual cost of the asset to the assessee shall be the actual cost to the assessee as reduced by the amount of any deduction allowed under clause (iv) of sub section (1) of section 35 or under any corresponding provision of the Indian Income tax Act, 1922 (11 of 1922). " Now what does this mean? Take a case where the asset of a like nature acquired prior to April 1, 1967 is diverted to other purposes after the expiry of two previous years; the `actual cost ' of the asset to the assessee in such a case would be 60% of the original cost. And if it is diverted after five years, it would be nil which means that the assessee cannot claim any depreciation on it at all. Counsel for the assessee explains this provision to say that it was meant to prevent diversion of such an asset from scientific research to assessee 's business purposes. The explanation does not stand scrutiny. The fallacy in the explanation can be demonstrated by taking the very same illustration, where the asset is acquired prior to April 1, 1967. Suppose, such an asset is diverted after first two previous years, its `actual cost ' to the assessee would be 60% of the original cost, which alone would qualify for deduction under Section 32(1) and (1A). The remaining 40% would not. This 40% goes without earning any depreciation. Why is it so, if the assessees are right in saying what they do. According to their reasoning, this 40% too should qualify for depreciation. The fallacy in their argument would become clearer, if the diversion is at the end of the fifth year. That the Parliament never intended to provide for a double deduction is also the opinion of the Direct Tax Law Committee. In its interim report, (December, 1977) the Committee (popularly known as 'Choksi Committee ') had this to say in para 3.29 of its report: "3.29. Our attention has also been drawn to certain anomalous situations in the matter of allowance of depreciation. In certain cases where a full deduction has been allowed in relation to a capital asset under other sections (as for example, section 35 which permits a deduction in respect of capital expenditure for scientific research), the tax payers have contended that such deduction is independent of the allowance by way of depreciation. In our view, the intention of the legislature is not to allow a double deduction (of 20%) in respect of the same asset, once under section 35 and, again, by way of depreciation under section 32. If and to the extent that there is any anomaly or contrary view possible on a construction of section 35, we recommend that the law should be clarified to provide that no depreciation under section 32 shall be allowable in respect of capital expenditure for scientificresearch qualifying for deduction under section 35. " lt is evidently on the basis of this recommendation that clause (iv) of sub section (2) of section 35 was amended to make express what was implicit in it. The amendment introduced the words "or any other" in the said clause. After amendment, clause (iv) of section 35 (2) reads as follows: "where a deduction is allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under clause (ii) of sub section (1) of section 32 for the same or any other previous year in respect of that asset. " In our opinion the said amendment is merely clarificatory in nature. It makes explicit what was implicit in the provisions. Question of its constitutionality, therefore, does not arise. Though purporting to be retrospective, it does not take away any rights which had legally vested in the assessees. The Bombay High Court has struck down the said amendment of clause (iv) in Commissioner of Income Tax vs Hico Products Pvt. Ltd., The approach of the Bombay High Court is at variance with ours. It has practically accepted the line of reasoning put forward by the assessees which has not commended to us. Among other reasons, the High Court was impressed by the difference in the language employed in Section 10(2)(xiv)(d) and the one employed in Section 20 (4) of the U.K.Finance Act, which reads as follows: "(4) Where a deduction is allowed for any year under this or the last preceding section in respect of expenditure represented wholly or partly by any assets, no deduction shall be allowed under any provisions of the Income tax Act other than this part of this Act in respect of wear and tear, absolescence, depreciation or exceptional depreciation of these assets for any year of assessment during any part of which they are used by the person carrying on the trade for scientific research related to the trade. " It is apparent that the scheme and structure of the English provision is different than ours, as has been demonstrated by my learned brother G Ranganathan, J. So far as the arguments of taking away of vested rights is concerned, it is evident from the facts stated in the writ petition 1153/81 which was treated as representative of the facts and contentions in all the writ petitions and with reference to which facts were arguments addressed itself that none of the assessments relating to any of the assessment years concerned herein has become final. They are pending at one or the other stage and in one or the other forum. I need not dilate upon this aspect inasmuch as the impugned amendment merely makes explicit what was implicit in the unamended clause, as explained hereinabove. In such a situation, the argument of any right vesting in the assessees is misplaced. The writ petitions accordingly fail and are dismissed. No costs. N.P.V. Petitions dismissed.

Section 32 (1) (ii) of the Income Tax Act, 1961 provided for depreciation, while computing business income for purpose of income tax. It was allowed at a percentage of the written down value of certain capital assets employed in the business. Section 35(1) provided for the deduction of four types of expenditure on scientific research and the deduction provided under 35 (1 ) (iv) was to the effect that in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub section (2). Sub Section (2) provided that, for the purposes of clause (iv) of sub section (1), one fifth of the capital expenditure incurred in any previous year should be deducted for that previous year; and the balance of the expenditure should be deducted in equal instalments in each of the four immediately succeeding previous years. It further provided in clauses (iv) and (v) that where a deduction was allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction should be allowed under clauses (i), (ii) and (iii) of sub section (1) of section 32 for the same previous year in respect of that asset; and where the asset mentioned in clause (ii) was used in the business after it ceased to be used for scientific research related to that business, depreciation should be admissible under clauses (i), (ii) and (iii) of sub section (1) of Section 32. Explanation 1 to Section 43(1) also provided that where an asset was used in business after it ceased to be used for scientific research related to that business and a deduction had to be made under clause (i), clause (ii) or clause (iii) or sub section (1) or sub section (1A) of Section 32 in respect of that asset, the actual cost of the asset to the assessee, as reduced by the amount of any deduction allowed under clause (iv) of sub section (1) of Section 35. The provisions of Section 32(1) (ii) and Section 35(2) (1) (iv) and (v) read with Explanation 1 to Section 43(1) virtually repeated the provisions contained in Section 10(2) (vi) and 10(2) (xiv) of the 1922 Act. In 1968, there was an amendment in the provisions of Section 35(2). The effect of the amendment was that the entire amount of capital expenditure incurred in relation to scientific research was allowed as a deduction in one year, instead of being spread over a period of five years as was the position earlier. Thereafter, the Finance Act, 1980 made an amendment with retrospective effect from 1.4.1962, i.e. from the date of commencement of Act of 1961 which provided under clause (iv) of Section 35(2), that where a deduction was allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction should be allowed under clauses (i), (ii) and (iii) of sub section (1) of Section 32, for the same or any other previous year in respect of that asset. In the Writ Petitions filed before this Court on behalf of the asses sees it was contended that the allowances in respect of depreciation on the one hand and of capital expenditure on scientific research on the other are two totally different and independent heads of allowances; one was a notional allowance to provide for the wear and tear of a capital asset employed in the business as the years rolled by; and the other was an allowance for actual expenditure of a capital nature granted to give fillip to new industrial innovations and development of indigenous know how and techniques by proper planning on research and development by various business houses; and therefore there was nothing wrong in construing the statute as providing cumulatively for both types of deductions in respect of the same capital asset; that both the types of allowances were permissible under the statute except to the extent limited by clauses (iv) and (v) of Section 35 of the Act/Clauses (d) and (e) of the proviso to Section 10(2) (xiv) of the 1922 Act; that this interpretation of the statutory provisions was very clear. patent and unambiguous; that the retrospective amendment of the provision would impose unexpected and impossible burden on them over the years, jeopardise their solvency and lay them open to action by creditors and financial institutions and such an onerous burden was unreasonable and oppressive and the provision imposing such a burden violated the fundamental rights of the assessees under Articles 14 and 19(1) (g) of the Constitution that retrospective provisions may be permissible even in taxing statutes in certain special circumstances such as in the case of provisions clarifying the impact of a statute provision curing defective legislations in the light of the judicial decisions and the like but if the legislature chose to impose a totally new burden which was not at all in contemplation earlier and proceeded to give full retrospective effect thereto such an attempt should be struck down as unreasonable and discriminatory. that the amendment was not in the nature of a statutory clarification of an ambiguity but a totally new and fresh imposition sought to be unjustifiably given retrospective effect and that the statute did not intend one deduction to preclude other. On behalf of the Revenue it was contended that the deduction provided by Section 35 (1) (iv) was in the alternative to the deduction provided by clauses (i) (ii) and (iii) of sub section (1) and sub section (1A) of Section 32; if one was availed of the other was not available not only during the year or years in which the deduction under Section 35(1) (iv) was availed of but permanently; for the reason that if both were allowed to be availed of; it amounted to grant of 200% deduction viz., 100% under Section 35(1) (iv) and another 100% under sub sections (1) and (1A) of Section 32, and this was totally outside the contemplation of the Act. Dismissing the writ petitions, this Court, HELD: Per Ranganathan J. (For himself and Ramaswami, J.) 1.1. There is a fundamental, though unwritten, axiom that no legislature could have at all intended a double deduction in regard to the same business outgoing; if it is intended it will be clearly expressed. In other words, in the absence of clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions both under Section 10(2) (vi) and section 10(2) (xiv) under the 1922 Act or under Section 32 (i) (ii) and 35(2) (iv) of the 1961 Act qua the same expenditure. The use of the words "in respect of the same previous year" in clause (d) of the proviso to Section 10(2) (xiv) of the 1922 Act and Section 35 (2) (iv) of the 1961 Act is not a contra indication which permits a disallowance of depreciation only in the previous years in which the other allowance is actually allowed. The purpose of the words above referred to is totally different. That the two allowances cannot be and are not intended to be granted in respect of the same asset or expenditure, can be easily seen from the limitation imposed by these words. Where the capital asset is one of the nature specified, the assessee can get only one of the two allowances in question but not both. For determining which of the two allowances should be granted that which the assessee chooses or that which the assessing officer might prefer, it is necessary for the statute to define this and this is what has been done by the rider in clause (d) of the proviso to Section 10(2) (xiv) of the 1922 Act Section 35(2) (iv) of the 1961 Act. It mandates that the asssessee should, in such a case, be granted the special allowance for scientific research and not the routine and annual one for depreciation. Clause (d) of the proviso to Section 10(2) (xiv) of the 1922 Act and Section 30(2)(iv) of the 1961 Act thus fall into place as an appropriate and necessary provision. The provision contained in clause (e) of the proviso to Section 10(2) (xiv) of the 1922 Act, re enacted in Explanation to Section 43(1) of the 1961 Act, also reinforces this line of approach. Therefore, it is not correct to say that the allowances under the two provisions are by nature unconnected with, and indpendent of, each other. [171 D H; 172 A E] 1.2. Under the provisions of the statute as they stood earlier, the assessees could not have claimed continued grant of depreciation after the expiry of five previous years before the 1968 amendment and after the expiry of the first year after the 1968 amendment, even though the entire cost of the capital asset in question had been allowed to be written off completely against the business profits of those five previous years or one previous year as the case may be. It is impossible to conceive of the legislature having envisaged a double deduction in respect of the same expenditure even though it is true that the two heads of deduction do not completely overlap and there is some difference in the rationale of the two deductions under consideration. The last few words of the English statute, viz., "assets for any year of assessment during any part of which they were used by the person carrying on the trade for scientific research related to the trade" show that there is really no difference between the English and Indian Acts; the former also in terms prohibits depreciation only so long as the assets are used for scientific research. [169 F H; 171 B, C] 1.3. In the circumstances, it is clear that, even before the 1980 amendment, the Act did not permit a deduction for depreciation in respect of the cost of a capital asset acquired for purposes of scientific research to the extent such cost has been written off under Section 10(2) (xiv) of the 1922 Act/35(1) & (2) of the 1961 Act. Prior to 1968, such assets qualified for an allowance of one fifth of the cost of the asset in five previous years starting with that of its acquisition and during these years the assessee could not get any depreciation in relation thereto. In respect of assets acquired in previous year relevant to assessment year 1968 69 and thereafter, their cost was written off in the previous year of acquisition and no depreciation would be allowed in that year. This is clear from the statute. Equally, it is not envisaged, that depreciation could be allowed on them thereafter and also that it could be allowed starting with the original cost of the asset despite its user for scientific research and the allowances made under the 'scientific research ' clause. There was no difficult at all in the interpretation of the provisions. The mere fact that a baseless claim was raised by some over enthusiastic assessees who sought a double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the true scope of the provisions as they stood earlier. [173 E H; 174 A] C.I.T. vs Indian Telephone Industries Ltd., and C.l.T. vs Hico Products, (1991) 187 I.T.R. 517, overruled. Lohia Machines limited V. Union of India, S.C.; Alkali & Chemical Corporation of India Ltd, vs C.l.T., Cal.; C.l. T vs Indian Explosive Ltd., Cal.; C.I.T vs International Instruments P. Ltd., Kar. and Warner Hindustan Ltd. vs C.l.T., (1988) 171 I.T.R. 224 A.P., referred to. The assessees may have some possible case only if the earlier statutory provisions can be said to have been unambiguously in favour of the assessee and the 1980 amendment had radically altered the provisions to cast a new and substantial burden on the assessee with retrospective effect but there is no ambiguity. The 1980 amendment has effected no change at all in the provisions except to set out more clearly and categorically what the provision said even earlier. Thus, even without the amendment, the assessees cannot claim the depreciation allowance in question. Even if it is assumed that there was an ambiguity or doubt as to interpretation, that was retrospectively clarified by the legislature. Therefore, the validity of the amendment cannot be challenged. This is indeed beyond all doubt. [174 C G] Rai Ramkrishna vs State of Bihar, [1964] 1 S.C.R. 897;Asst. Commissioner of Urban Land Tax vs Buckingham & Carnatic Co. Ltd., ; ; Krishnamurthi & Co. vs State of Madras; , ; Hira Lal Rattan Lal vs Sales Tax Officer and Anr., (1973) 31 S.T.C. 178 and Shiv Dutt Rai Fateh Chand vs Union of India, (1984) 148 I.T.R. 644, referred to. Per Jeevan, Reddy, J. (Concurring) 1.1. A double deduction cannot be a matter of inference; it must be provided for in clear and express language, regard having to its serious impact on the revenues of the State. If the Legislature/Parliament wanted to provide for more than 100% deduction they would have said so, as they done in cases where they have provided for what is called "weighted deduction", vide Section 35(B) of the Act of 1961. It is not possible to agree that while introducing clause (xiv) in sub section (2) of Section 10 of the 1922 Act consequent on the introduction of Section 20(4) in the U.K. finance Act, 1944, the Indian Legislature as also the Parliament made a conscious departure from the English Amendment with the idea of providing an additional incentive over and above the deduction on account of depreciation, to induce the Indian assessees to invest more in scientific research. The underlying reason in clause (iv) of Section 35(2) of Act of 1961 providing that during the years or year in which the assessee avails of the deduction under Section 35(1) (iv) he should not avail of the deduction on account of depreciation provided by clauses (i), (ii) and (iii) of sub section (1) and sub section (1A) of Section 32 is to ensure that the assessee does not get double deduction for example, where the asset was acquired prior to April 1, 1957, the deduction under Section 35(1) (iv) would be allowed in five consecutive years. If during the very five previous years, depreciation under the aforementioned provisions is also allowed, the assessee would obtain, at the end of five years, a double depreciation i.e., 100% under Section 35 and almost 100% under Section 32. (In many cases, the rate of depreciation under Section 32 is 20% or even higher). If such a course was barred by clause (iv) during the initial five years, it would not be reasonable to say that same thing can be achieved by claiming the deduction after the expiry of five years. If both the deductions are in the alternative, as indicated by clause (iv), they must be understood as being in the alternative and not consecutive. It would be a rather curious thing to say (in the case of an asset acquired prior to April 1, 1967) that Parliament barred claim for depreciation under Section 32 even in the first year when only 20% of the cost of the asset is allowed as deduction under Section 35(1) (iv), it barred it in the second, third and fourth years, when the deduction had reached 40, 60 and 80 per cent but permitted it be claimed after the fifth year, by which year the entire 100% cost was allowed as a deduction. No express provision was necessary to say what is so obvious. The position after April 1. 1967 is no different. That the aforesaid view is the correct one is indicated by Explanation (1) to clause (1) of Section 43 [the corresponding provision in the 1922 Act being sub clause (e) of clause (xiv) of Section 10(2) of 1922 Act]. [177 H; 178 A E] 13. The amendment of Section 35(2) in 1980 is merely clarificatory in nature. It makes explicit what was implicit in the provisions. question of its constitutionality, therefore, does not arise. Though purporting to be retrospective, it does not take away any rights which had legally vested in the assessees. [180 B] Commissioner of Income Tax vs Hico Products Pvt. Ltd, , overruled. None of the assessments relating to any of the assessment years in question has become final. They are pending at one or the other stage and in one or the other forum. Since the amendment under challenge merely makes explicit which was implicit in the unamended clause, there is no question of any right vesting in the assessee and its being taken away. [180 H; 181 A]

1164.txt

Appeal No 621 of 1960. Appeal. by special leave from the Award dated January 15, 1960, of the Industrial Tribunal, Bombay, in Reference (I.T.) No. 94 of 1959, 712 B. Sen and I. N. Shroff, for the appellant. C. L. Dhudia and K. L. Hathi, for the respondent. April 3. The Judgment of the Court was delivered by GAJENDRAGADKAR, J. Two demands made by the respondents, the workmen of the appellant company, the Garment Cleaning Works, Bombay, were referred for industrial adjudication to the industrial tribunal under section 12(5) of the , XIV of 1947. These demands were for gratuity and provident fund respectively. The tribunal has framed a gratuity scheme and has passed an order that the appellant should draw up a scheme of provident fund on the lines of the model provident fund scheme drawn by the Government under the Employees ' Provident Funds Act, 1952 (XIX of 1952), with a rate of contribution of 6 1/4 per cent. of total wages. Both the gratuity scheme as drawn up and the directions as to the drawing up of a provident fund scheme are challenged by the appellant by its present appeal which it has brought to this Court by special leave. In regard to the direction as to the gratuity scheme the argument which has been urged before us by Mr. Sen is that the problem of starting such a scheme should have been considered on an industry cum region basis and considerations relevant to the said basis should have been taken into account. In support of this argument he has relied upon a judgment of this Court in The Bharatkhand Textile Mfg. Co. Ltd. & Ors. vs The Textile Labour Association, Ahmedabad (1). In that case the industrial court had no doubt dealt with a claim for gratuity made by the workmen on the industry cum region basis, and an attack against the validity of the said approach made by the employer in regard to the scheme was repelled by this Court. It would, however, be noticed that all that this Court decided in that case was that it was erroneous to contend that a gratuity scheme could never be based on industry cum region basis, and in support of this conclusion several considerations were set forth in the (1) [1960]3 S.C.R. 329. 713 judgment. It is clear that it is one thing to hold that the gratuity scheme can in a proper case be framed on industry cum region basis, and another thing to say that industry cum region basis is the only basis on which gratuity scheme can be framed. In fact, in a large majority of cases gratuity schemes are drafted on the basis of the units and it has never been suggested or held that such schemes are not permissible. Therefore the decision in the case of the Bharatkhand Textile Mfg. Co. Ltd.( ') does not support the proposition for which Mr. Sen contends. Mr. Sen has then criticised some of the provisions in the gratuity scheme. Clause (ii) (a) of the gratuity scheme provides that on retirement or resignation of a workman after ten years ' service ten day 's consolidated wages for each year 's service should be awarded as gratuity. Mr. Sen quarrels with this provision. He contends that no gratuity should be admissible under this clause until and unless fifteen years ' service has been put in by the employee. In support of this argument Mr. Sen has referred us to certain observations made by this Court in the case of The Express Newspapers (Private) Ltd. & Anr. vs The Union of India & Ors. In that case the provisions of section 5 (1)(a) (iii) of the Working Journalists (Conditions of Service) and Miscellaneous Provisions Act, 1955 (45 of 1955), was struck down on the ground that its provisions violated the fundamental right guaranteed by article 19(l)(g) The conclusion of this Court was that the provision for gratuity made by the said clause to an employee who had put in three years ' service imposes an unreasonable restriction on the employer 's right to carry on business and is therefore liable to be struck down as unconstitutional. Dealing with that provision this Court incidentally observed that where the employee has been in continuous service of the employer for a period of more than fifteen years he would be entitled to gratuity on his resigning his post. Mr. Sen contends that this observation indicates that an employee who resigns his post cannot be entitled to any gratuity (1) ; (2) , 154. 90 714 unless he has put in fifteen years ' service. In our opinion, the observation on which this argument is based was not intended to lay down a rule of universal application in regard to all gratuity schemes, and so it cannot be made the basis of an attack against a gratuity scheme where instead of fifteen years ' service 10 years ' minimum service is prescribed to enable an employee to claim gratuity at the rate determined if he resigns after ten years, service. Therefore, we do not think that the provision of cl. (ii)(a) can be successfully challenged as being unreasonable. Clause (iv) is then challenged by Mr. Sen. This clause provides that if a workman is dismissed or discharged for misconduct causing financial loss to the works gratuity to the extent of the loss should not be paid to the workman concerned. Mr. Sen contends that this clause is inconsistent with the principles on which gratuity claims are generally based. Gratuity which is in the nature of retrial benefit is based on long and meritorious service, and the argument is that if the service of an employee is terminated on the ground of misconduct it would not be open to him on principle to claim gratuity because misconduct puts a blot on the character of his service and that disqualifies him from any claim of gratuity. In this connection he has referred us to the definition of 'retrenchment ' contained in section 2 (oo) of the . Retrenchment, according to the definition, means, inter alia, the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action. Mr. Sen suggests that the retrenchment benefit and gratuity are payments made to the employee for a similar purpose, and if dismissal of an employee for misconduct does not entitle him to a claim for retrenchment benefit so should gratuity be denied to him in case he is dismissed for misconduct. A similar argument is based on the rules framed under the Employees ' Provident Funds Act, 1952. Rule 71 of the Provident Funds Scheme Rules provides for certain deductions from the account of a member dismissed for Serious and willful misconduct. By analogy 715 it is urged that this rule also shows that a dismissed employee is not entitled to gratuity. We are not impressed by these arguments. On principle if gratuity is earned by an employee for long and meritorious service it is difficult to under,stand why the benefit thus earned by long and meritorious )service should not be available to the employee even though at the end of such service lie may have been found guilty of misconduct which entails his dismissal. Gratuity is not paid to the employee gratuitously or merely as a matter of boon. It is paid to him for the service rendered by him to the employer, and when it is once earned it is difficult to understand why it should necessarily be denied to him whatever may be the nature of misconduct for his dismissal. Then, as to the definition of retrenchment in the , we are not satisfied that gratuity and retrenchment compensation stand exactly on the same footing in regard to the effect of misconduct on the rights of workmen. The rule of the provident fund scheme shows not that the whole provident fund is denied to the employee even if he is dismissed but it merely authorises certain deductions to be made and then too the deductions thus made do not revert to the employer either. Therefore we do not think that it would be possible to accede to the general argument that in all cases where the service of an employee is terminated for misconduct gratuity should not be paid to him. It appears that in awards which framed gratuity schemes sometimes simple misconduct is distinguished from gross misconduct and a penalty of forfeiture of gratuity benefit is denied in the latter case but not in the former, but latterly industrial tribunals appear generally to have adopted the rule which is contained in el. (ii) (b) of the present scheme. If the misconduct for which the service of an employee is terminated has caused financial loss to the works, then before gratuity could be paid to the employee he is called upon to compensate the employer for the whole of the financial loss caused by his misconduct, and after this compensation is paid to the employer if any balance from the gratuity claimable 716 by the employee remains that is paid to him. On the whole we are not satisfied that the clause thus framed by the Industrial Tribunal in the present case needs to be revised. The last contention raised by Mr. Sen in regard to the gratuity scheme has reference to cl. (v) of the scheme. This clause provides that for calculating years of service the entire service of the workmen should be taken into account. Mr. Sen contends that though the word "continuous" has not been used either in cl. (v) or in clauses (i), (ii) and (iii) we should make it clear that the service referred to in all the said clauses referred to continuous service. This position is not disputed by Mr. Dudhia for the respon dents. We would accordingly make it clear that the service referred to in clauses (i), (ii) and (iii) refers to continuous service. That takes us to the appellant 's grievance against the direction issued by the Tribunal in regard to the framing of the provident fund scheme on the lines of the model provident fund scheme drawn by the Government in the Employees ' Provident Funds Act. Mr. Sen contends that in issuing this direction the tribunal has not properly assessed the extent of the financial obligation which the scheme would impose upon the appellant and the limited nature of its financial capacity. It appears that when the appellant produced its balance sheet and other relevant papers it claimed privilege under section 21 of the . Inevitably the Tribunal could not discuss the figures disclosed by the said books in its award though it must have examined the said figures carefully. In the result the tribunal has naturally contented itself with the general observation as to the financial position of the appellant. It has observed that the question to consider in framing the provident fund scheme is whether the employer has made good profits, whether its future is assured, whether it has capacity to build up adequate reserves. Having thus posed the question the Tribunal ha, , come to the conclusion that the appellant satisfies all these requirements. Mr. Sen contends that the 717 tribunal did not take into account the fact that the appellant has no reserve&, and that it had borrowed large loans. We do not see how that would enable the appellant now to agitate a question which is purely a question of fact. Mr. Sen realised the difficulties in his way because, since his client had claimed the privilege of section 21 the Tribunal was fully justified in not discussing the figures in its award. He, therefore, faintly suggested that we may remand the case subject to any order as to costs that we may deem fit to make and ask the Tribunal to reconsider the matter in the light of the relevant documents, and he assured us that he would not claim privilege under section 21 after remand. This request is plainly untenable. If the appellant wanted the tribunal to consider the figures and state its conclusions in the light of the said figures in its award it need not have claimed privilege under section 21 at the trial. It is now too late to suggest that the privilege be waived and that the matter be considered afresh by the tribunal or by us in the appeal. Therefore we see no reason to interfere with the direction given by the Tribunal in regard to the framing of the provident fund scheme. The result is the appeal fails and is dismissed with costs. Appeal dismissed.

The Industrial Tribunal, on a reference under section 12 Of the , framed a gratuity scheme for the appellant company. The company challenged the validity of some of the provisions of the scheme on the grounds, inter alia, (1) that the scheme was framed on the basis of the units, while it should have been done on industry cum region basis, (2) that the scheme provided for the award of gratuity on the retirement or resignation of a workmen after ten years ' service instead of fixing the period as fifteen years, and (3) that cl. (ii)(b) of the scheme which provided that if a workman was dismissed or discharged for misconduct causing financial loss to the works, gratuity to the extent of the loss should not be paid to the workman concerned, was erroneous, because, on principle, misconduct put a blot on the character/of his service and that disqualified him from any claim of gratuity. Held:(1) that industry cum region basis is not the only basis on which a gratuity scheme could be framed and one framed on the basis of the units cannot be challenged as in valid. The Bharatkhand Textile Manufacturing Co. Ltd. vs The Textile Labour Association, Ahmedabad, ; , explained. (2) that the clause in the scheme prescribing ten years ' minimum service to enable an employee to claim gratuity is valid. The Express Newspapers (P.) Ltd. vs Union of India, , explained. (3) that gratuity is not paid to an employee gratuitously or merely as a matter of boon, but is paid to him for the service rendered by him to the employer; consequently he should not be wholly deprived of the benefit thus earned by long and meritorious service even though at the end of such service he might have been found guilty of misconduct which entailed his dismissal. Accordingly, cl. (ii)(b) of the scheme is a valid provision.

3962.txt

: Criminal Appeal No. 10 of 1974. Appeal by Special Leave from the Judgment and Order dated 22 11 1973 of the Karnataka High Court in Criminal Appeal No. 221/73 section section Javali and B. P. Singh for the Appellant. M. Veerappa and J. R. Dass for the Respondent. The Judgment of the Court was delivered by FAZAL ALI, J. In this appeal by Special Leave the appellant has been convicted under section 34 of the Mysore Excise Act and sentenced to three months ' rigorous imprisonment and a fine of Rs. 100/ for being in possession of 48 bottles of liquor which were recovered from a car which was being driven by the appellant. Mr. Javali appearing for the appellant has raised a short point before us. He has submitted that the Inspector of Excise who searched the car along with the panchas had no jurisdiction to do so because he did so without complying with 1132 the provisions of section 54 of the Excise Act. In our opinion, the contention is well founded and must prevail, Section 53 runs thus: "If a Magistrate, upon information and after such inquiry (if any) as he thinks necessary, has reasons to believe that an offence under section 32, section 33, section 34, section 36 or section 37 has been, is being or is likely to be committed, he may issue a warrant (a) for the search of any place in which he has reason to believe, that any intoxicant still, utensil, implement, apparatus or materials which are used for the commission of such offence or in respect of which such has been, is being, or is likely to be, committed, are kept or concealed, and (b) for the arrest of any person whom he has reason to believe to have been, to be, or to be likely to be engaged in the commission of any such offence. " Thus this section relates to a contingency where the Statute enjoins that any inspector before searching a place must obtain a warrant from the magistrate. Section 54 is a special provision which arises in urgent cases where it may not be possible for the officer concerned to get a warrant from the Magistrate. Section 54 runs thus: "Whenever the Excise Commissioner or a Deputy Commissioner or any police officer not below the rank of an officer uncharge of a police station or any Excise Officer not below such rank as may be prescribed has reason to believe that an offence under section 32, section 33, section 34, section 36, or section 37 has been, is being, or is likely to be committed, and that a search warrant cannot be obtained without affording the offender an opportunity of escape or of concealing evidence of the offence, he may after recording the grounds of his belief (a) at any time by day or by night enter and search any place and seize anything found therein which he has reason to believe to be liable to confiscation under this Act, and (b) detain and search and, if he thinks proper, arrest any person found in such place whom he has reason to believe to be guilty of such offence as aforesaid. " In the instant case, it is admitted that the inspector who searched the car of the appellant had not made any record of any ground on the basis 1133 of which he had a reasonable belief that an offence under the Act, was being committed before proceeding to search the car and thus the provisions of section 54 were not at all complied with. This, therefore, renders the entire search without jurisdiction and as a logical corollary, vitiates the conviction. We feel that both sections 53 and 54 contain valuable safeguards for the liberty of the citizen in order to protect them from ill founded or frivolous prosecution or harassment. The point was taken before the High Court which appears to have brushed aside this legal lacuna without making any real attempt to analyses the effect of the provisions of section 53 and 54. The High Court observed that these two sections were wholly irrelavant. With due respect, we are unable to approve of such a cryptic approach to a legal question which is of far reaching consequences. It was, however, suggested that the word "place" would not include the car, but the definition of the word "place" under the Act clearly includes vehicle which would include a car. Thus the ground on which the argument of the petitioner has been rejected by the High Court cannot be sustained by us. We are satisfied that there has been a direct non compliance of the provisions of section 54 which renders the search completely without jurisdiction. In this view of the matter, the appeal is allowed, the conviction and sentence passed on the appellant is set aside and he is acquitted of the charges framed against him. M.R Appeal allowed.

The appellant was convicted under section 34 of the Mysore Excise Act and sentenced to three months R.I. and a fine of Rs. 100/ for being in possession of 48 bottles of liquor, recovered from the car being driven by him. It was contended that the provisions of section 54 had not been complied with, and the search was made without jurisdiction. Allowing the appeal, the Court, ^ HELD: 1. The Inspector who searched the car of the appellant had not made any record of any ground on the basis of which he had a reasonable belief that an offence under the Act, was being committed, before proceeding to search the car, and thus the provisions of section 54 were not at all complied with, thereby rendering the entire search without jurisdiction and, as a logical corollary, vitiating the conviction. [1132H, 1133A B] 2. Both, Sections 53 and 54 contain valuable safeguards for the liberty of the citizen in order to protect them from ill founded or frivolous prosecution or harassment. [1133B]

5966.txt

ivil Appeal No. 1795 of 1982. From the Judgment and Order dated 3.2. 1982 of the High Court of Calcutta in Appeal No. 75 of 1981. Shanti Bhushan, Ms. Lira Goswami, section Ganesh, R. Narain and D.N. Mishra for the Appellant. 478 C.S. Vaidyanathan, S.R. Setia, K.V Mohan and K.V. Viswanathan for the Respondents. The Judgment of the Court was delivered by K.N. SAIKIA, J. This appeal by special leave is from the appellate judgment of the Calcutta High Court in Appeal No. 75 of 1981 dismissing the appeal and upholding the judgment of the learned Single Judge granting stay of the appellant 's suit on the respondent 's application under section 34 of the . The appellant as plaintiff has instituted suit No. 736 of 1978 on 29.9.1978 in the original side of the Calcutta High Court against the respondent as first de fendant and Canara Bank as second defendant stating in the plaint, inter alia, that the first defendant, was the sole and absolute owner of two fishing trawlers, Ave Maria I and Ave maria II, registered under No. 1567 dated 30th January, 1974 and No. 1568 dated 30th January, 1974 with the Regis trar of Indian Ships, Cochin that the said trawlers were imported by the first defendant with financial assistance of the second defendant, Canara Bank, under Import Licence No. P/CC/2062299 dated 3rd March, 1971 issued by or on behalf of the Chief Controller of Imports & Exports, Ministry of Commerce, Government of India, New Delhi, that in or about March, 1977 the first defendant as owner agreed to charter and the plaintiff as charterer agreed to take on charter for the purpose of deep sea fishing, the said two trawlers on the terms and conditions contained in a "Bare Boat Charter Party" dated the 21st March, 1977, hereinafter called, the agreement, executed at Calcutta, subject to the owner first defendant obtaining the requisite permission in writing from the Chief Controller of Imports & Exports and the No Objec tion Certificate of the second defendant for chartering the said trawlers; that within seven days of receipt of the approval of the Chief Controller of Imports & Exports or no objection certificate from the Canara Bank the first defend ant owner will deliver the said trawlers to the plaintiff charterer at the Port of Vishakapatnam for carrying out the inspection of the said trawlers by its authorised agents to ascertain repairs to be carried out to the trawlers for making them fully operational without any defect whatsoever and also to ascertain the cost of such repairs and thereaf ter the Chatterer will undertake the repairs at the cost of the owner and bring them to fully operational condition without any defect including all aspects of refrigeration equipment; that the charterer will then conduct fishing trials to ascertain actual condition of the trawlers and in case the condition is fully satisfied according to the Charterer, and the 479 owner furnishes to the Charterer all documents certifying sea worthiness and also supplies proof of compliance of pre condtions, the Charter hiring shall commence on or from the date fishing trials are ended; that the charterer shall pay to the owner Rs.50,000 per trawler per month payable in advance every month and shall continue to pay up to and including the date of redelivery of each trawler to the owner at Vishakapatnam (unless lost sunk); that he shall keep a deposit of Rupees one lakh per trawler with the owner during the period of the agreement to be adjusted without interest towards the charter hire against the last two months of charter period; that by a Letter No. CG/N 2 143 70 71 dated 18th August, 1977 the Chief Control ler of Imports & Exports granted permission to the first defendant to charter the said trawlers to the plaintiff on a charter rental of Rs.50,000 per month per trawler for a period of three years; that the owner delivered the said two trawlers for repairs to the plaintiff at Vishakapatnam on or about 30th September, 1977 and thereafter on or about 2nd February, 1978 the parties agreed to modify the agreement in the manner stated in a subsequent written agreement dated 2nd February, 1978 executed at Calcutta; and that according to the agreement after modification, the charter hire com menced from 15.1.1978 and the charter hire revised to Rs.6,25,000 per trawler per year. The plaintiff 's main averments in the plaint are that the permission dated 18th August, 1977 granted by the Chief Controller of Imports & Exports to the first defendant for chartering the said trawlers to the plaintiff was given under the said Import Licence to the first defendant and the permission was given subject to two conditions, namely, that the charter rental would be Rs.50,000 per month and that the charter would be for a period of three years but the agree ment dated 21st March, 1977 was, in fact, for a period of two years with an option to the plaintiff to continue the hire for a further period of three years and as such the agreement was in contravention of and contrary to the terms of the said permission and consequently to the said Import Licence, and hence, illegal, against public policy and void; that the plaintiff and the first defendant entered into the agreement and its modification dated 2nd February, 1978 on the basic, essential and fundamental assumption that the trawlers would be made fully operational and free from all defects by effecting repairs as contemplated thereby but the assumption was mistaken and not true and was subsequently discovered to be so mistaken that it rendered the agreement with its modifications void; that pursuant to the agreement the plaintiff paid to the first defendant through the second defendant the initial deposit of Rupees two lakhs in respect of the said two trawlers of the 480 charter rent as agreed up to and for the month of July 1978, but in or about early September 1978 the plaintiff having discovered the agreement to have been void and illegal called upon the first defendant to take back or obtain permission of the said trawlers lying at Vishakapatnam at the risk and cost of the first defendant but he failed and neglected to do so; and that the first defendant is bound to pay or make compensation for all the advantages which he had received under the agreement and its modifications and the costs, charges and expenses which the plaintiff has incurred on the said trawlers, being assessed at Rs. 39,64,34 1 as per Schedule 'D ' to the plaint. In the alternative it has been averred that in supplying the said trawlers the first defendant committed a fundamental breach of the agreement and its modifications which went to the root and affected the very substance of the same and which made its perform ance impossible and such a breach on the part of the first defendant has produced a situation fundamentally different from anything which the parties could as reasonable persons have contemplated when the agreement was entered into, and as the plaintiff has not been able to use or obtain any benefit out of the said trawlers, the plaintiff never was nor is bound by the obligation under the agreement and the modification thereof and was entitled to and had duly re scinded the same and the plaintiff had in the premises suffered loss and damages which the first defendant is bound to compensate and such loss and damage is assessed reasona bly at Rs.39,64 341 particulars whereof have been given in Schedule 'D ' thereof; and that the plaintiff is entitled to recover the said sum of Rs.39,64,34 1 as money paid to and or on account of the first defendant and expenses so in curred without any consideration and or for consideration which has totally failed and/or to the use of the first defendant. The plaintiff accordingly claimed, inter alia, a decla ration that the agreement dated 2 Ist March, 1977 and the modifications thereof dated 2nd February, 1978 were, and are illegal, against public policy and void; a decree for Rs.39,64,341 against the first defendant; alternatively an enquiry into the amount due to the plaintiff from the first defendant and decree for a sum found due on such enquiry; in the alternative decree for the same amount as compensation for loss and damage and or as money paid to or expenses incurred without any consideration or for consideration which has totally failed or to the use of the first defend ant; and further and other reliefs. In the matter of the aforesaid Suit No. 736 of 1978, hereinafter referred to as 'the suit ', the first defendant after receiving summons 481 and entering appearance moved on 25th April, 1979 and appli cation under section 34 of the , here inafter referred to as 'the Act ', impleading the plaintiff (instant appellant) as first respondent and Canara Bank second defendant as second respondent stating, inter alia, that the agreement as modified on 2nd February, 1978 con tained an arbitration clause; that the agreement has been and is perfectly binding and not violative of the conditions of the permission granted by the Controller of Imports & Exports; that the defects in the refrigeration system as alleged are factually wrong; that the plaintiff, his serv ants and agents have themselves materially deteriorated the machines and hence no amount was payable to the plaintiff as claimed in the plaint; and that all the disputes, conten tions alleged to have arisen between the plaintiff and the defendant were wholly covered by the said arbitration clause contained in the agreement which was binding between the parties. Accordingly, it was prayed that the suit and all proceedings therein be stayed and interim orders, costs and other reliefs be granted. The plaintiffs filed affidavit in opposition to the application and the applicant first de fendant filed affidavit in reply. The learned Single Judge in his judgment dated 11.2. 1981 held, inter alia, that there was no question of inva lidity for non compliance of the conditions of the licence granted to the first defendant applicant as necessary per mission was obtained in respect of the agreement from the Chief Controller of Imports and Exports vide his letter dated 18th August, 1977 and the modification of the agree ment on 2nd February, 1978 could not and did not materially alter its terms to impair its validity and there was sub stantial compliance with the obtained permission; that though in a particular case if there was any doubt about facts, the matter had to be decided by trial on evidence, in this case, having regard to the admitted facts and conduct of the parties, it was not necessary to set down the matter for trial on evidence to determine the facts as the same could not be disputed; that having regard to the conduct of the parties in admitted documents, being the licence of the petitioner granted by the Chief Controller of Import & Export in respect of the said two trawlers and the provi sions of the Import and Export Control Act, 1947, and Appen dix 31 of the Import & Export Trade Control Hand Book for Rules and Procedures, 1979, the correspondence between the parties before the alleged discovery of purported mistake and illegality by the respondent (plaintiff) and particular ly the letter dated 18th July, 1978 from the respondent No. 1 (plaintiff) to the applicant 1(first defendant) and the Balance Sheet of the plaintiff (Respondent No. 1) I.T.C. Ltd, for the year 1978, there is no question of any illegal ity or any mutual mistake; that the alleged 482 fundamental breach is wholly covered by the arbitration clause as it wide enough to include the same; that the arbitration clause is valid and binding between the parties; that the allega tion of breach of contract and the claims made are within the jurisdiction of the arbitrator; and that all the condi tions under section 34 of the Act have been satisfied in this case. Accordingly the learned Judge granted stay of the suit and directed the parties to take immediate steps for initiation of reference under the arbitration agreement. On appeal, the learned Division Bench by an elaborate and erudite judgment dismissed the appeal holding, inter alia, that in the facts and circumstances of the case it could not be held that the trial court erred in exercising its discretion to decide the controversy, namely, whether the contract being void the arbitration clause also was void, in the application without evidence and on the basis of pleadings only, nor was the discretion exercised improp erly; that the learned Judge was not wrong in coming to the conclusion that the mistake as pleaded as to quality of the goods was not a mistake of such nature as to make the thing contracted for something different, and in holding that there was no case of mutual mistake of such a type as to quality of the thing contracted for which could have avoided the parent contract which contained the arbitration clause; and that the learned Single Judge was right in so far as he held that the matters were arbitrable apart from the ques tion of illegality of the contract. It was further held that there was no breach of conditions of the permission or the provisions of the Import & Export Control Act to render the contract illegal or void; and that the Court having held that all the contentions and allegations were arbitrable, the granting stay in the suit was reasonable and proper. Mr. Shanti Bhushan, the learned counsel for the appel lant submits, inter alia, that the subject matter of the suit, namely, the question whether the agreement was void ab initio for mutual mistake was not arbitrable at all and the learned Courts below erred in holding so; that even assuming but not admitting that the subject matter was arbitrable, it having involved complicated questions of facts the court ought not to have exercised jurisdiction on the application under section 34 and in doing so it acted without jurisdiction and, assuming that the court had juris diction, it should have decided only after taking oral and documentary evidence and not merely on affidavits; that the agreement itself having been void ab initio due to mutual mistake the arbitration clause, namely, clause 18 of the charter party, also perished with it and there was no scope for arbitration at all and the learned 483 courts below erred in holding that all the contentions raised and allegations made in the suit were arbitrable under the arbitration clause; and that the agreement was void being violative of the conditions of the permission and for that matter the import licence and the provisions of the Import and Export Control Act. Mr. C.S. Vaidyanathan, the learned counsel for the respondent refuting submits that there having been no mutual mistake so as to invalidate the agreement, the arbitration clause remains binding and the subject matter of the suit has rightly been held to be arbitrable; that the court rightly exercised jurisdiction on the application under section 34 of the on the basis of the affi davits and at no stage before argument the appellant as respondent No. 1 applied to the court for permission to adduce oral evidence, and stay of the suit was granted in accordance with law on the basis of the evidence on record; that the agreement as modified was not void on the ground of violation of the permission or of the import licence or of the provisions of the Import & Export Control Act; and that the direction to proceed to arbitration is just and proper and the respondent has no objection to a Retired Supreme Court Judge being appointed arbitrator. The first question to be decided in this appeal, there fore, is whether in an application under section 34 of the Indian the court has jurisdiction to decide the validity of the Contract containing the arbitration clause, and if so, whether it has to be decided on affida vits or on evidence. To decide the question we may conveniently refer to the provisions of section 34 of the ; Section 34: Power to stay legal proceedings where there is an arbitration agreement. Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay proceed ings; and if satisfied that there is no suffi cient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time, when the proceedings were commenced, and 484 still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings. This section deals with the staying of a suit where there is an arbitration agreement concerning the subject matter of the suit and between the same parties, for the Court to have power to exercise the discretion conferred upon it by this section, there must have been a valid agree ment to submit to arbitration. Where the objection is that the arbitration is a nullity, it amounts to an objection of want of jurisdiction. The term "arbitration agreement" includes "agreement to refer", and "submission" to arbitra tor. A submission forming part of a void contract is itself void and cannot be enforced. Where a firm of bookmakers had engaged in betting transactions with the defendants on the terms that any dispute which might arise should be referred to arbitration, it was held that the whole contract was void and unenforceable and that the defendants could not be compelled to submit to arbitration: Joe Lee vs Lord Dalneny, Where there is no valid arbitration agree ment on the subject matter of the suit, there is no justifi cation for staying a suit for that will deprive the plain tiff of his fight to sue on that subject matter. In Heyman vs Darwins, , Lord Macmillan pointed out at Pages 370 371: "If it appears that the dispute is whether there has ever been a binding contract between the parties, such a dispute cannot be covered by an arbitration clause in the challenged contract. If there has never been a contract at all, there has never been as part of it an agreement to arbitrate. The greater includes the less. Further, a claim to set aside a contract on such grounds as fraud, duress or essential error cannot be the subject matter of a reference under an arbitration clause in the contract sought to be set aside. Again, an admittedly binding contract containing a general arbitration clause may stipulate that in certain events the contract shall come to an end. If a question arises where the con tract has for any such reason come to an end I can see no reason why the arbitrator should not decide that question. It is clear, too, that the parties to a contract may agree to bring it to an end to all intents and purposes and to treat it as if it had never existed. In such a case, if there be an arbitration clause in the contract, it perishes with the con 485 tract. If the parties substitute a new con tract for the contract which they have abro gated the arbitration clause in the abrogated contract cannot be invoked for the determina tion of questions under the new agreement. All this is more or less elementary. " Earlier in Monro vs Bognor Urban District Council, ; where a building contract had been en tered into between the plaintiff and the defendants for a construction of sewerage works contained an arbitration clause which provided that if at any time any question, dispute or difference should arise between the parties upon or in relation to or in connection with the contract, the matter should be referred to arbitration and during the progress of the works disputes arose between the parties mainly as to the nature of the site upon which the works had to be carried out, which the plaintiff alleged was different from that which he had been led to believe by the specifica tions. The plaintiff having brought an action against the defendants claiming, inter alia, damages for fraudulent misrepresentation whereby he was induced to enter into the contract, the defendants took out a summons asking that all proceedings in the action be stayed and the matter be re ferred to arbitration. It was held that the action, being based on fraud, referred to matters wholly outside the powers of the arbitrator, with which he could not possibly deal, and so could not be said to be a question, dispute or difference upon or in relation to or in connection with the contract and as such referable to arbitration under the arbitration clause. In Jawaharlal Burman vs Union of India, [1962] 3 S.C.R. 769 it was held that section 32 of the Act creates a bar against the institution of suits with regard to an arbitra tion agreement or award on any ground whatsoever. Thus if a party affirms the existence of an arbitration agreement or its validity it is not open to the party to file a suit for the purpose of obtaining a declaration about the existence of the said agreement or its validity. The bar to the suit thus created by section 32 of the Act inevitably raises the question as to what remedy is open to a party to adopt in order to obtain an appropriate declaration about the exist ence or validity of an arbitration agreement. 1t was held that having regard to the scheme of sections 31, 32 and 33 of the Act in matters which fail within the bar created by section 32, if a suit cannot be filed it is not necessarily intended that an application can be made under the Court 's powers provided for by section 31 and impliedly recognised by section 32 of the Act. In the later part of section 33 an application can be made to have the effect or purport of the agreement 486 determined but not its existence. That means that an appli cation to have the effect of the agreement can be made provided the existence of the agreement is not in dispute, and that a party affirming the existence of an arbitration agreement cannot apply under section 3 for obtaining a decision that the agreement in question exists. In Waverly Jute Mills Co. Ltd. vs Raymon & Co. (India) Pvt. Ltd., ; ; the Constitution Bench reiterated the decision in Khardah Co. Ltd. vs Raymon & Co. India Ltd., ; where it was held that if a contract is illegal and void, the arbitration clause which is one of the terms of the contract thereof must also perish along with it and that a dispute relating to the validity of the contract is in such a case for the court and not for the arbitration to decide. Where the arbitration clause is a term of the particular contract whose validity is in question it has no existence apart from the impugned contract and must perish with it. In Renusagar Co. vs General Electric Co., ; at page 507 it has been reiterated that though section 34 of the confers a discretion upon the Court in the matter of granting stay of legal proceedings where there is an arbitration agreement, it cannot be disputed that before granting the stay the Court has to satisfy itself that arbitration agreement exists factually and legally and that the disputes between the parties are in regard to the matters agreed to be referred to arbitration and that decided cases have taken the view that the Court must satisfy itself about these matters before the stay order is issued. In other words, Court under section 34 must finally decide those issues before granting stay. Among High Court decisions reference may be made to Banwari Lal vs Hindu College, Delhi, A.I.R. 1949 East Punjab 165 wherein it has been held at paragraph 33 that the Arbi tration Act has been enacted merely with the object of consolidating the law relating to arbitrations, and the question of the existence or validity of the contract con taining an arbitration agreement being not a matter falling within the purview of the Act, it cannot be said, with any show of reason, that section 32 takes away the jurisdiction of the courts to give appropriate relief in suit brought either to contest or to establish, the existence or validity of the contract. In Johurmull Parasram vs Louis Dreyfus Cx. Ltd., 52 C.W.N. (1947 48) 137; A.I.R. 1949 Cal. 179 it was held at para 14 that the court must consider a suit as it is pleaded and framed. If it comes to a conclusion that a suit as pleaded in a suit on the contract or arising out of the contract containing the arbitration clause 487 then the suit should be stayed. But on the other hand if the suit is pleaded as a suit independent of the contract then the Court has no power to stay the suit although it is satisfied that the frame of the suit is merely a means of avoiding the consequences of alleging the true nature of the claim. In considering the question of stay of the suit the Court is not entitled to go into the question as to what is substantially the nature of the claim. So also in Pramada Prasad vs Sagar Mal Aggarwal, A.I.R. 1952 Patna 352 it was observed that from the language of the Section 34 it is clear that party can apply to stay a legal proceeding only when the repudiation is of the right or obligation in re spect of any matter agreed to be referred, and not when the very existence of the agreement is repudiated. The court relied on the decision in Monro vs Bognor Urban District Coun, In Narsingh Prasad vs Dhanraj Mills, I.L.R. 21 Patna 544; A.I.R. 1943 Pat 53 Harries, C.J. held that where an agreement is impeached on the ground of fraud and the dispute is as to the factum or validity of contract, such a dispute does not fail under the arbitration clause and should be decided by the Court. Similarly in Birla Jute Manufacturing Co. Ltd. vs Dulichand, AIR 1953 Calcutta 450 it was held at paragraph 15 that a dispute as to the validity of the contract cannot be held to be within an arbitration agreement contained in the contract itself and such a dispute cannot be referred to arbitrators or dealt with by them under such an agreement, unless the parties agreed to include it in the arbitration clause. Otherwise where the contract itself is repudiated in the sense that its original existence or its binding force is challenged, for example, where it is said that the parties were never 'ad idem ' or where it is said that the contract is voidable ad initio on the ground of fraud, misrepresenta tion or mistake and it has been avoided, the parties are not bound by any contract and escape the obligation to perform any of its terms, including the arbitration clause, unless the provisions of that clause are wide enough to include the question of jurisdiction as well. In W.F. Ducat & Co. Pvt. Ltd. vs Hiralal Pannalal, A.I.R. 1976 Calcutta 126, Salil K. Roy Choudhary, J. held at paragraph 8 that where in a suit the plaintiff alleges that the contract containing the arbitration clause is void and illegal and prima facie it appears that there are sufficient grounds on which the legality of the said contract has been challenged for non compliance of the statutory requirement, the court should decline to exercise discretion in favour of the stay of the suit. Similarly in General Enterprises vs Jardine Handerson Ltd., A.I.R. 1978 Calcutta 407, Sabyasachi Mukharji, J., as his Lordship then was, held that if the contract containing the arbitration clause was obtained by fraud the stay of the suit could not be granted under Section 34 of the Act. Thus, while there is not doubt 488 about the law as enunciated in the above English and Indian decisions, namely, where the validity, existence or legality of the contract is challenged in the suit on grounds de hors, independent of, or external to the terms or stipula tions of the contract, the court in an application under Section 34 of the Act shall have no jurisdiction to go into the question, and that in large majority of cases it would be applicable, in appropriate cases, having regard to the nature of the dispute raised in the pleadings of the suit, the compass and scope of the arbitration clause in the contract, the surrounding facts and circumstances of the case having a bearing on the question of genuine grievance falling outside or inside the arbitration agreement and the objects and spirit of the , the court may be justified in deciding the validity, existence or legality of the challenged contract containing the arbitration agree ment. In Heyman vs Darwins, (supra) Viscount Simon, L.C. stated thus: "if the dispute is whether the contract which contains the clause has ever been entered into at all that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he had ever joined in the submission. Similarly, if one party to the alleged contract is contending that it is void ab initio (Because for example, the making of such a contract is illegal), the arbitration clause cannot operate for on this view the clause itself also is void. But, in a situa tion where the parties are at one in asserting that they entered into a binding contract, but a difference has arisen between them whether there has been a breach by one side or the other, or whether circumstances have arisen which have discharged one or both parties from further performance, such differences should be regarded as difference which have arisen 'in respect of ' or 'with regard to ' or 'under ' the contract, and an arbitration clause which uses these, or similar, expressions should be construed accordingly. " Section 34 of the , deals with the staying of a suit where reference concerning the subject matter of the suit and between the same parties is pending. This section corresponds to Section 4 of the English . Whether a particular dispute arising out of a particular contract is referable to arbitration or not must necessarily depend on the intention of the parties as embodied in the arbitration clause. If the dispute is squarely covered by the arbitration clause the 489 relevant provisions of the Act will be attracted. Section 32 puts a bar to suits contesting arbitration agreement or award by providing that notwithstanding any law for the time being in force, no suit shall lie on any ground whatsoever for a decision upon the existence, effect or validity of an arbitration agreement or award, nor shall any arbitration agreement or award be enforced, set aside, amended modified or in any way affected or otherwise than as provided in the Act. Section 33 of the Act provides that any party to an arbitration or any person claiming under him desiring to challenge the existence or validity of an arbitration agree ment or an award to have the effect of either determined shall apply to the Court and the Court shall decide the question on affidavits: Provided that where the Court deems it just and expedient it may set down the application for hearing on other evidence also, and it may pass such orders for discovery and particulars as it may do in a suit. It may be noted that section 32, 33 and 34 speak of an arbitration agreement as defied in section 2(a) of the Act which means a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not. In the instant case the arbitration clause forms a part of the agreement, namely, the charter party. The question is whether the validity or otherwise of the charter party itself can be said to have been covered within the arbitration clause. On scrutiny of clause 18 we find that any dispute or difference in respect of the construc tion, meaning or effect or as to the rights and liabilities of the parties thereunder or any other matter arising out of this agreement shall be referred to arbitration. Can the validity of the contract itself as embodied in the charter party be said to have arisen out of the contract or can the validity or otherwise of the contract in the charter party itself be said to be construction, meaning or effect or rights and liabilities of the party thereunder? In our opinion, the answer is in the negative. The arbitration agreement is not the same as the contract in the charter party. It cannot, therefore, be said that the validity or otherwise of the chartery party was covered by clause 18. In Khardah Company Ltd. vs Raymon & Co. (India) Pvt. Ltd., ; the appellant company entered into a contract on September 7, 1955 for the purchase of certain goods and clause 14 thereto provided that all disputes arising out of or concerning the contract should be referred to the arbitration of the Bengal Chamber of Commerce. The respondents having failed to deliver the goods as agreed the appellants applied to the Bengal Chamber of Commerce for arbitration and an award made in favour of the appellant. Thereupon the respondent filed an application in the High Court of Calcutta under 490 section 33 of the challenging the validity of the award on the ground that the contract dated September 7, 1955 itself was illegal as it was in contraven tion of the notification of the Central Government dated October 29, 1953. It was held that the dispute as to the validity of the contract dated September 7, 1955, was not one which the arbitrators were competent to decide under clause 14 and that in consequences the respondents were entitled to maintain the application under section 33 of the Act and that where an agreement is invalid every part of it including clause as to arbitration contained therein must also be invalid. In Anderson Wright Ltd. vs Moran and Compa ny, [1955] 1 S.C.R. 862 it has been laid down that in order that a stay may be granted under section 34 of the Act, it is necessary, among others, that the legal proceeding which is sought to be stayed must be in respect of a matter agreed to be referred and the Court must be satisfied that there is no sufficient reason why the matter should not be referred to an arbitrator in accordance with the arbitration agree ment. The question whether the dispute in the suit falls within the arbitration clause really pre supposes that there is such agreement and involves consideration of two matters, i.e. (i) what is the dispute in the suit and (ii) what dispute the arbitration clause covers. It is incumbent upon the Court to decide whether there is a binding contract for arbitration between the parties. If it is found that the dispute in the suit is not covered by the arbitration clause the application for stay may be dismissed. In Damodar Valley Corporation vs K.K. Kar; , it has been held that as the contract is an outcome of the agreement between the parties it is equally open to the parties thereto and to Court to bring to an end or to treat it as if it never existed. It may also be open to the parties to terminate previous contract and substitute in the place a new contract or alter the original contract in such a way that it cannot subsist. In all these cases since the entire contract is put to an end to, the arbitration clause, which is a part of it, also perishes along with it. Where, therefore, the dispute between the parties is that the contract itself does not subsist either as a result of its being substituted by a new contract or by rescission on alteration, that dispute cannot be referred to the arbitration as the arbitration clause itself would perish if the averment was found to be valid. As the very jurisdiction of the arbitrator is dependent upon the existence of the arbitration clause under which he is appointed, the parties have no right to invoke a clause which perished with the contract. In case of rescission it would put an end to the rights of the parties to the con tract in future but it may permit claiming of damages either for previous breaches or for the breach which constitute the termination. The contract being consensual, the question whether the 491 arbitration clause survives or perishes would depend on the nature of the controversy and its effect upon the existence of survival of the contract itself. A dispute as to the binding nature of the contract cannot be determined by resort to arbitration because the arbitration clause itself stands or falls according to the determination of the ques tion in dispute. As was held in Hirji Mulji vs Cheong Yue Steamship Co., , "a contract that has deter mined is in the same position as one that has never been concluded at all". In Heyman vs Darwins, (supra) Lord Porter pointed out "that it is not in every instance in which it is claimed that the arbitrator has no jurisdiction the Court, will refuse to stay an action. If this were the case such a claim would always defeat an agreement to submit disputes to arbitration, at any rate, until the question of jurisdiction had been decided. The Court to which an application for stay is made is put in possession of the facts and arguments and must in such a case make up its mind whether the arbitrator has jurisdiction or not as best it can on the evidence before it. Indeed, the application for stay gives an oppor tunity for putting these and other considerations before the court that it may determine whether the action shall be stayed or not. " These observations were accepted by S.R. Das, J in the case of Khusiram vs Hanutmal, [1948] 53 C.W.N. 505,518 wherein it was held that where on an application made under section 34 of the for stay of a suit, an issue is raised as to the formation, existence or validity of the contract containing the arbitration clause, the Court is not bound to refuse a stay but may in its discretion, on the application for stay, decide the issue as to the existence or validity of the arbitration agreement even though it may involve incidentally a decision as to the validity or existence of the present contract (Emphasis supplied). Their Lordships in Anderson Wright Ltd. vs Moran and Company, (supra) reiterating the above passage observed: "We are in entire agreement with the view enunciated above." Thus, where in an application under section 34 of the Act an issue is raised as to the validity or existence of the contract containing the arbitration clause, the court has to decide first of all whether there is a binding arbitration agreement, even though it may involve incidentally a deci sion as to the validity or existence of the parent contract. The court has to bear in mind that a contract is an agree ment enforcible at law and that it is for the parties to make their own contract and not for the court to make one for them. Court is only to interpret the contract. The stipulations in the contract have, therefore, to be examined in the light of the dispute raised in the pleadings of the suit. If it is found that the dispute raised in the suit outside or independent of the contract it follows that the arbitration clause will not encompass that dispute. However, as the parties were 492 free to make their own contract they were also free to have agreed as to what matters would be referred to arbitration. If the arbitration clause is so wide as to have included the very validity or otherwise of the contract on the grounds of fraud, misrepresentations, mutual mistake or any valid reason the arbitrator will surely have jurisdiction to decide even that dispute. Two extreme cases have to be avoided, namely, if simply because there is an arbitration clause all suits including one questioning the validity or existence or binding nature of the parent contract is to be referred to arbitrator irrespective of whether the arbitra tion clause covered it or not, then in all cases of con tracts containing arbitration clause the parties shall be deprived of the right of a civil suit. On the other hand if despite the arbitration clause having included or covered ex facie even a dispute as to the existence, validity or bind ing nature of the parent contract, to allow the suit to proceed and to deprive the arbitrator of his jurisdiction to decide the question will go contrary to the policy and objects of the as embodied in Sections 32, 33 and 34 of the Act. Both the extremes have, therefore, to be avoided. The proper approach would be to examine the issues raised in the suit and to ascertain whether it squarely fails within the compass of the arbitration clause and take a decision before granting the stay of the suit. If an issue is raised as to the formation existence or validity of the contract containing the arbitration clause, the court has to exercise discretion to decide or not to decide the issue of validity or otherwise of the arbitration agreement even though it may involve incidentally a decision as to validity or existence of the challenged contract. Should the court find the present contract to be void ab initio or illegal or non existent, it will be without jurisdiction to grant stay. If the challenged contract is found to be valid and binding and the dispute raised in the suit covered by the arbitration clause, stay of the suit may be justified. In the instant case considering the issues raised, the arbitration clause and surrounding circumstances and the part played by the parties pursuant to the charter party since execution to the modification and thereafter till objection raised by the appellant plaintiff, we are of the view that the learned trial court did not err in proceeding to decide the issue of validity or legality of the parent contract. The question whether the validity and legality of the parent contract could be decided without taking oral evi dence need not detain us long. All the relevant documents and affidavits were before the court and were considered. Mr. Shanti Bhushan submits that in deep sea fishing, use of trawlers, requirement and standard of refrigeration system in the trawlers so as to maintain 20F temperature in their fish 493 holds are highly technical matters and given the opportunity the appellant plaintiff could have produced expert evidence in the matter. Counsel, however, states, that at no stage of the proceedings before argument any written or even oral application was made seeking permission to adduce oral evidence. Admittedly, it was only during agreement that oral prayer was made. We are, therefore, of the view that no illegality was committed by the trial court in this regard considering the facts and circumstances of the case. The learned judge rightly observed that if there was any doubt about facts, the matter had to be decided by trial on evi dence, in this case the admitted facts could not be disput ed. The learned courts have also exercised discretion to grant stay. Even if it appears that the discretion could have also been exercised to decide the issue of invalidity in a trial on evidence adduced, this court would not substi tute its view for that of the trial court, unless the ends of justice required it to be done. Since it was said by the Court of Appeal in Ormerod vs Todmordon, that while it had jurisdiction to review the descreation of the judge it would not do so except in a case in which it clearly though that the judge had wrongly exercised his discretion and that an injustice had thereby been done by his order. This was approved in Charles Osenton & Co. vs Johnston, holding that a legitimate exercise of the jurisdiction would not be disturbed in appeal but a wrongful exercise of the discretion will be corrected by the House of Lords. Referring to Gardner vs Jay, [1885] 29 Ch. D. it was ruled in the Printers (Mysore) Pvt. Ltd. vs Pothan Joseph, ; that this court would not light ly interfere under Article 136 of the Constitution with the concurrent exercise of discretion of the Courts below under Section 34 of the Act. Before it can justly do so, the appellant must satisfy the court, on the relevant facts referred by the courts below, that they exercised their discretion in a manifestly unreasonable or perverse way, which was likely to defeat the ends of justice. The appel lant has failed to do so in this case. The next question is whether the learned courts below were correct in holding that there was no mutual mistake so as to render the agreement void ab initio under section 20 of the Contract Act. Section 20 of the provides that where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. The explanation to the section says that an erroneous opinion as to the value of the thing which forms subject matter of the agreement is not to be deemed a mistake as to a matter of fact. Where the parties make mutual mis 494 take misunderstanding each other and are at cross purposes, there is no real correspondence of offer and acceptance and the parties are not really consensus ad idem. There is thus no agreement at all; and the contract is also void. A common mistake is there where both parties are mistaken about the same vital fact although both parties are ad idem, e.g. the subject matter of the contract has already perished. The contract in such a case is void as the illustrations to the section make clear. In U.P. Government vs Nanhoo Mal, A.I.R. 1960 Allahabad 420 it has been observed that section 20 is concerned with common mistake of fact and not mutual mis take. A common mistake is made or shared alike by both while mutual means made or entertained by each of the persons towards or with regard to each other. In Cooper vs Phibbs, ; , A agreed to take a lease of a fish ery from B, though contrary to the belief of both parties at the time, A was tenant for life of the fishery and B had no title at all. Lord Westbury applied the principle that if parties contract under a mutual mistake and misapprehension as to their relative and respective rights, the result is that the agreement is liable to be set aside as having proceeded upon a common mistake. The transfer of ownership being impossible, the stipulation was naturali ratione inunitilis. This principle of Cooper vs Phibbs has been followed in Earl Beauchamp vs Winn and Hudders field Banking Co. vs Henry Lister & Sons, [1895] 2 Ch. 273. However, Lord Atkin in Bell vs Lever Bros Ltd., ; ; , 27 followed in Kennedy vs Panama Royal Mail Co., and Smith vs Hughes, described the state ment of Westbury too wide and said that the correct view was that there was a contract which the vender was either inca pable of performing or had committed breach of a stipulation as to title; the contract was unenforceable but not void. In Bell vs Lever Bros Ltd., (supra) an agreement of service between the company and two of the directors of its subsidi ary company was terminated on payment of compensation. The parties proceeded on the assumption that the service agree ment was not liable to immediate termination by reason of misconduct of the directors which assumption proved to be mistaken. Fraud was however negatived. In an action by the company for recession of contract and repayment of moneys paid the agreement was set aside on the ground of mutual mistake as to the quality of the service contract. The accepted proposition was that whenever it is to be inferred from the terms of the contract or its surrounding circum stances that the consensus has been reached upon the basis of a particular contractual assumption, and that assumption is not true, the contract is avoided; i.e. it is void ab initio if the assumption is of present fact and it ceases to bind if the assumption is of future 495 fact. The assumption must have been fundamental to the continued validity of the contract or a foundation essential to its existence. Lord Atkin observed that the common stand ard for mutual mistake and implied conditions as to the existing or as to future fact is: Does the state of new facts destroy the identity of the subject matter as it was in the original state of facts? In the words of Lord Than kerton the error must be such that it either appeared on the face of the contract that the matter as to which the mistake existed was an essential and integral element of the sub ject matter of the contract or was an inevitable inference from the nature of the contract that all parties so regarded it. Where each party is mistaken as to the other 's inten tion, though neither realises that the respective promises have been misunderstood, there is mutual mistake. The illus tration in Cheshire and Fifoots Law of Contract is, if B were to offer to sell his Ford Comina Car to A and A were to accept in the belief that the offer related to a Ford Zeph yr. In such a case, no doubt, if the minds of the parties could be probed, genuine consent would be found wanting. But the question is not what the parties had in their minds, but what reasonable third parties would infer from their words or conduct. The court has to ascertain "the sense of the promises". In other words, it decides whether a sensible third party would take the agreement to mean what A under stood it to mean or what B understood it to mean, or whether indeed any meaning can be attributed to it at all. Blackman J in Smith vs Hughes, ,607 said "if whatever a man 's real intention may be he so conducts him self what a reasonable man would believe that he was assent ing to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree the other party 's terms". This case establishes that a contract is void at law only if some term can be implied in both offer and accept ance which prevents the contract from coming into operation. In Solle vs Butcher, (691) Lord Denning said that once a contract has been made, that is to say, once the parties, whatever their in most states of mind, have to all outward appearances agreed with sufficient certainty in the same terms on the subject matter, then the contract is good unless and until it is set aside for fail ure of some condition on which the existence of the contract depends, or for fraud, or on some equitable ground. Neither party can rely upon his own mistake to say that it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake. A fortiori, if the other party did not know of the 496 mistake but shared it. There is no doubt that the applica tion of the doctrine of mutual mistake depends upon the true construction of the contract made between the parties. A mutual misunderstanding will not nullify a contract but only if terms of the contract construed in the light of the nature of the contract and of the circumstances believed to exist at the time it was done show that it was never intend ed to apply to the situation which in reality existed at that time, will the contract be held void. Mistake as to the quality of the article contracted for may not always avoid the contract. As Lord Atkin said in Bell vs Lever Bros Ltd. (supra) mistake as to the quality of the thing contracted for raises more difficult questions. In such a case a mis take will not affect assent unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be. A distinction has, therefore, to be made between a mistake as to substance or essence on the one hand, and a mistake as to quality or attributes on the other. A mistake of the former type, will avoid the contract whereas a mistake of the latter type will not. Such a distinction was made in Kennedy vs Panama, Royal Mail Co. Ltd., (supra). It may be said that if there be misapprehension as to the substance of the thing there is no contract; but if it be a difference in some quality or accident, even though the misapprehension may have been the actuating motive to the purchaser, yet the contract remains binding. Thus a mistake as to an essential and integral element in the subject matter of the contract will avoid the contract. A mistake will not affect assent unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing without the quality essential ly different from the thing as it was believed to be. A distinction, therefore, should be drawn between a mistake as to the substance of the thing contracted for, which will avoid the contract and mistake as to its quality which will be without effect. According to circumstances even a mistake as to the substance of the thing contracted for may not necessarily render a contract void as was observed in Solle vs Butcher (supra). Similarly in Frederick E. Rose (London) Ltd. vs William H. Pim Junior & Co. Ltd., where both parties entered into a contract for the sale of horse beans, which were quite different from the feveroles which they each believed them to be, yet the contract was held not to be void. Thus there must be a difference so complete that, if the contract were enforced in the actual circumstances which have unexpectedly emerged, this would involve an obligation fundamentally different from that which the parties believed they were undertaking. In Sheikh. Brothers Ltd. vs Arnold, ; Belly. Lever Bros (supra) was applied. 497 Applying the above principles of law to the facts of the instant case, we find that the two fishing trawlers Ave Maria I and Ave Mariall were imported by the respondent on 30.1.1974 and were operated by him based at Vishakapatnam. At the time of negotiations survey report relating to the trawlers dated 20.2. 1977 of ABS Worldwide & Technical Services India Pvt. Ltd. was handed over by the respondent to the appellant and thereafter the agreement was executed on 21.3.1977. Delivery of the trawlers was to be made seven days after receipt of the approval or no objection certifi cate for carrying out inspection to ascertain repairs to be carried out for making the trawlers fully operational and to ascertain the cost of such repairs. On 10.7. 1977 trawlers were delivered to the charterer for inspection and repairs. On 12.11.1977 the charterer wrote to the owner asking for payment of hire charges from 1.10.1977 and pointing out delays in repairs. The owner also requested the charterer to pay port charges with effect from 1.10.1977. On 2.2.1978 the charter party was modified to the extent that charter hire would commence from 15.1.1978 and that as the charterer had incurred substantial charges on repairs the owner shall bear only Rs. 1.5 lakhs per trawler for repairs carried out up to the commencement of the charter hire. The charter hire was revised to Rs.6,25,000 per trawler per year and an amount of Rs.6,70,000 paid towards deposit and charter hire from 15.1.1978 to May 1978. In the first week of March, 1978 the charterer paid Rs. 1,04,000 towards charter hire for June 1978. On 18.7.1978 the charterer wrote to the owner setting out payments made and claiming adjustment of Rs.90,000 towards repair charges and transferring Rs.14,000 towards charter hire. It was only on 14.9.1978 that the charterer for the first time raised some complaints and objections on the trawlers and questioned the very validity of the agree ment. On 14.9. 1978 the trawlers were inspected by Kamath & D 'Abrie Marine Surveyors who submitted their report on 26.9. 1978 and the suit was filed on 29.9. The appellant plaintiff 's averment, as we have already mentioned, is that the trawlers suffered from inherent and latent defects in the refrigeration system which was an essential part of such trawlers and which were not discover able by ordinary diligence at the time of entering into the agreement on 21st March 1977 and as such they were not fully operational. It is not their grievance that there was no refrigeration system at all in the trawlers but that only it was not of a particular standard, namely that even after extensive repairs it could not be brought to the standard of minus 20 degree F but attained only minus 10 degree F. The learned counsel for the appellant submits that 498 for deep sea fishing the temperature in the trawler 's fish hold has to be minus 20 degree F and minus 10 degree F would not be adequate and as a result the trawlers cannot be used for deep sea fishing. The grievance has been made that no opportunity to lead expert evidence on this question was available to the appellant. The question, therefore, arises under the facts and circumstances of the case, namely, whether the deficiency in the refrigeration systems to the extent of minus 10 degree F made the trawlers essentially different from trawlers with a refrigeration system of minus 20 degree F. The other question is whether this standard of the refrigeration system was in the minds of the parties at the time of entering into the contract and there was a mutual mistake regarding this, and the contracting minds were, therefore, not ad idem. From the series of steps taken for repairs and the stipulations in the charter party in cluding the modifications thereof we are unable to hold that it was a case of mutual mistake as to a quality which made the trawlers transferred essentially different from the trawlers that the parties in their minds agreed to transfer. This being the position we have to agree with the learned courts below that there was no mutual mistake and the con tract would not be avoided on this ground. The next question is that of illegality or otherwise of the agreement. The learned trial court exercised its discre tion to go into the question and arrived at the finding that there was no illegality on the ground of violation of the permission or the condition of licence granted by the Chief Controller of Exports and Imports. The learned lower appel late court upheld that finding. It is settled law that where the subject matter of a reference is illegal no award can be of any binding effect. In Taylor vs Barnett, [1953] W.L.R. 562; the plaintiff had agreed to purchase goods from the defendants. The defendants had agreed to deliver. The goods were subject to the price control, sales at price in excess of the control price being forbidden by regulations at the time of making the contract (though not at the time of the delivery). The control price was less than the agreed price. The umpire awarded the plaintiffs damages and the award was good on the face of it, but it was held that the award should be set aside for illegality. If the contract itself was illegal, the controversy as to whether it was illegal or not would not be a dispute arising out of the contract as also would be the question whether the contract was void ab initio. When, however, it is found that a binding contract was made which was not illegal what follows from such a contract would be covered by the expression "dispute arising out of the contract". To stay a suit under section 34 of the Act the Court has to see, inter alia, whether there was a valid agreement to have the dispute concerned settled by arbitration and that the 499 proceedings are in respect of a dispute so agreed to be referred. In Taylor vs Barnett, (supra) Singleton J; ex pressed the opinion that an arbitrator is guilty of miscon duct if he knows or recognises that a contract is illegal and thereafter proceeds to make award upon dispute arising under that contract. The illegality of a contract can be an issue in deciding want of jurisdiction. The first and essen tial pre requisite to making an order of stay under section 34 of the Act, as was ruled in Anderson Wright Ltd. (supra) is that there is a binding arbitration agreement between the parties to the suit which is sought to be stayed. Public policy imposes certain limitations on the freedom of con tract by forbidding the making of certain contracts. In such cases though all other requisites for formation of the contract are complied with, parties to such forbidden con tracts are not allowed to enforce any rights under them. In clear cases the law strikes at the agreement itself by making the contract illegal. However, the effect and nature of illegality will depend upon on the facts and circum stances of each case. Thus, the effects of illegality are by no means uniform. In other words, the effect of illegality is not the same in all cases. Where a statute makes a con tract illegal or where a certain type of contract is ex pressly prohibited there can be no doubt that such a con tract will not be enforcible. In Rearbitration between Mahmoud and Isphani, by a war time statu tory order it was forbidden to buy or sell linseed oil without a licence from the Food Controller. The plaintiff had a licence to sell to other licenced dealers. He agreed to sell and deliver to the defendant a quantity of linseed oil, and before the contract was made, asked the defendant whether he possessed a licence, the defendant falsely as sured him that he did. Subsequently; however, the defendant refused to accept the oil on the ground that he had no licence. The plaintiff having brought an action for damages for nonacceptance, the Court of Appeal refused to entertain the action even if the plaintiff was ignorant, at the time the contract was made, of the facts which brought it within the statutory prohibition observing that it was a clear and unequivocal declaration by the legislature in the public interest that this particular kind of contract shall not be entered into. A contract which was not illegal from the beginning may be rendered illegal later by the method of performance which did not comply with the statutory require ments. The appellant 's burden was to show that the charter party was illegal to take it out of the arbitration clause for if the contract is illegal and not binding on the par ties the arbitration clause would also be not binding. Once it is shown to have been illegal it would be unenforcible as ex turpi causa non oritur actio. Again it is a settled principle that one who knowingly enters into a contract with improper object cannot enforce his rights thereunder. The learned 500 counsel for the appellant submitted that the import of trawlers was subject to the conditions of the import li cence, and one of the conditions was that the goods imported under it will be utilised in the licence holder 's factories and that no portion thereof will be sold or will be permit ted to be utilised by any other party or placed with any financier other than the banks authorised to deal in the foreign exchange and State Financial Corporation, provided that particulars of goods to be pledged are reported by the licence to the licencing authorities. We are of the view that this was a proforma condition in the licence No. P/CC/206299 dated3.3.1971 and could not appropriately be applied to the two imported trawlers. Needless to observe that the appellant plaintiff was also a party to the agree ment of charter party in respect of the two imported trawl ers. We are also of the view that though it purported to be actual user 's licence there was no violation of this condi tion in view of the express permission granted by the Con troller vide his Memo No. GG.IV/28/143/70/71/374 dated 17.8.1977 with specific reference to the licence No. P/CC/2062299 dated 3.3.1971 allowing the chartering of the two imported trawlers to be delivered to plaintiff M/s. I.T.C. India Ltd. We also agree with the learned courts below that the modifications dated 2.2.1978 did not make any alteration so as to make the agreement contrary to the terms and conditions of the permission inasmuch as the permission was for a period of three years. The option to continue hire of the trawler for a further period of three years did not ipso facto violate the permission. There was also no viola tion as to the duration of the charter party. The next question is whether the dispute under the charter party raised in the suit are arbitrable. The divi sion bench held that the learned Single Judge was right in so far as he held that the matters were arbitrable apart from the question of illegality, invalidity of the contract. We agree with this view inasmuch as it is obvious that the question of invalidity of the contract due to the alleged mutual mistake would be de hors and independent of the contract and as such would not be referable under the arbi tration clause, In so far as the question of illegality of the charter party is concerned as the appellant plaintiff has not established that the charter party was illegal or void ab initio the question whether the modification as alleged had rendered the contract illegal would be covered by arbitration clause which reads: "Any dispute or difference at any time arising between the parties hereto in respect of the construction meaning or effect or as to the rights and liabilities of the parties afore said hereunder or any other matter arising out of this 501 agreement, shall be referred to arbitration in accordance with the subject to the provision of the Indian or any statutory modification or re enactment thereto or thereof for the time being in force and the venue of Arbitration shall be Madras or Cal cutta, and not elsewhere and the Award or Awards in such arbitration shall be made a rule of court of competent jurisdiction at the instance of either party". We agree that under the above clause the reliefs claimed in the suit other than the question of ab initio invalidity or illegality of the contract would be referable. However, it will be within the jurisdiction of the arbitrator to decide the scope of his jurisdiction as we have said earlier that the court cannot make a contract between the parties and its power ends with interpretation of the contract between them. The same principle also applies to the arbi tration agreement unless of course, the parties to the arbitration agreement authorises the court to make and modify the agreement for themselves. Mr. C.S. Vaidyanathan for the respondents states that the respondent shall have no objection to a retired Judge of the Supreme Court being appointed as Arbitrator and the respondents shall not raise the question of limitation as indicated by Mr. Shanti Bhushan learned counsel for the appellant. We have no doubt that the Arbitrator so appointed shall proceed in accordance with law to decide the questions including that of the jurisdiction, if raised. In the result, we find no merit in this appeal and hence it is dismissed leaving the parties to bear their own costs. T.N.A. Appeal dis missed.

Under an import licence dated 3rd March, 1971 issued by the Chief Controller of Imports and Exports the respondent imported two fishing trawlers with the financial assistance of the second respondent Canara Bank. The respondent con ducted negotiations with the appellant for a charter party agreement in respect of the said trawlers. On 21st March, 1977, an agreement between the parties was executed 470 under which the appellant agreed to take on charter hire the said two trawlers for the purpose of deep sea fishing for a period of two years with an option to continue the hire for a further period of three years. Under the terms of the agreement the respondent was to deliver the said trawlers to the appellant at Vishakhapatnam within seven days of the receipt of approval from the Chief Controller of Imports and Exports or no objection certificate from the Canara Bank, for making the said trawlers fully operational and to ascer tain the cost of such repairs. The appellant charterer was then to conduct fishing trials to ascertain actual condi tions and thereafter the charter hiring was to commence from the date the fishing trials were ended. On 18th August, 1977, the Chief Controller of Imports and Exports granted permission to the respondent to charter the said trawlers to the appellant on the conditions that the charter rent would be Rs.50,000 per month per trawler and that the charter would be for a period of three years. On 30th September, 1977, the respondent delivered the said two trawlers for repairs to the appellant. On 2nd February, 1978, the parties modified the agree ment revising the rate of charter hire and the date of commencement of hire, to the extent that the charter hire would commence from 15th January, 1978 and the revised rate of hire would be Rs.6,25,000 per trawler per year. The appellant charterer raised objections alleging that the trawlers suffered from inherent and latent defects in the refrigeration system which was an essential part of such trawlers and as such the trawlers were not fully operational because even after carrying out extensive repairs the re frigeration system could not be brought to the required standard of minus 20 degree F but attained only minus 10 degree F. On 29.9.1978, the appellant instituted a suit in the original side of the Calcutta High Court claiming (i) a decree for a sum of Rs.39,64,341 towards cost, charges, damages and compensation incurred on the said trawlers and, (ii) a declaration that the agreement was contrary to the terms of the permission granted by the Chief Controller of Imports and Exports and consequently illegal and against public policy and void; (iii) that the Parties had entered into the agreement on the basic fundamental assumption that by effecting necessary repairs the trawlers would be made fully operational but the assumption was subsequently dis covered to be mistaken because of the deficiency in the refrigeration system and it rendered the agreement void. 471 The respondent filed an application under Section 34 of the praying that the suit instituted by the appellant, and all proceedings therein be stayed because the disputes were wholly covered by the arbitration clause as contained in the modified agreement dated 2nd February, 1978 which was binding between the parties. The Single Judge held that there was no invalidity for non compliance of the conditions of the licence granted because necessary permission was obtained in respect of the agreement from the Chief Controller of Imports and Exports and the modifications of the agreement did not impair its validity; though in a particular case if there was any doubt about facts, the matter had to be decided by trial on evi dence but in the instant case, having regard to the admitted facts and conduct of the parties it was not necessary to set down the matter for trial on evidence; there was no illegal ity or mutual mistake; that the alleged fundamental breach was wholly covered by the arbitration clause; that the arbitration clause was valid and binding between the par ties; and that all the conditions of Section 34 were satis fied. Accordingly, the Single Judge granted stay of the suit and directed the parties to take immediate steps for initia tion of reference under the arbitration agreement. The judgment and order of the Single Judge was confirmed by the Division Bench by dismissing the appeal. In this appeal by special leave it was contended on behalf of the appellants that (i) the subject matter of the suit, namely, the question whether the agreement was void ab initio for mutual mistake was not arbitrable; and the courts below erred in holding so; (ii) assuming that the subject matter was arbitrable, the court should not have exercised its jurisdiction on the application under Section 34 because it involved complicated questions of fact and in exercising such jurisdiction the courts acted without jurisdiction; (iii) the court should have decided only after taking oral and documentary evidence and not merely on affidavits; (iv) the agreement was void being violative of the conditions of the permission granted by the Chief Controller of Imports and Exports; (v) the agreement itself having been void ab initio due to mutual mistake, the arbitration clause per ished with it and the courts below erred in holding that the disputes were arbitrable. Dismissing the appeal, the Court, HELD: 1. Section 34 deals with the staying of a suit where there 472 is an arbitration agreement concerning the subject matter of the suit and between the same parties. For the Court to have power to exercise the discretion conferred upon it by this section, there must have been a valid agreement to submit to arbitration. Where the objection is that the arbitration is a nullity, it amounts to an objection of want of jurisdic tion. The term "arbitration agreement" includes "agreement to refer", and "submission" to Arbitrator. A submission forming part of a void contract is itself void and cannot be enforced. [484B C] 1.1 Whether a particular dispute arising out of a par ticular contract is referable to arbitration or not, must necessarily depend on the intention of the parties as em bodied in the arbitration clause. If the dispute is squarely covered by the arbitration clause, the relevant provisions of the Act will be attracted. The question whether the dispute in the suit fails within the arbitration clause really pre supposes that there is such agreement and in volves consideration of two matters, that is (i) what is the dispute in the suit, and (ii) what dispute the arbitration clause covers. It is incumbent upon the court to decide whether there is a binding contract for arbitration between the parties. If it is found that the dispute in the suit is not covered by the arbitration clause the application for stay may be dismissed. [488H; 489A] 2. Where in an application under Section 34 of the Act an issue is raised as to the validity or existence of the contract containing the arbitration clause, the court has to decide first of all whether there is a binding arbitration agreement, even though it may involve incidentally a deci sion as to the validity or existence of the parent contract. If the arbitration clause is so wide as to have included the very validity or otherwise of the contract on the grounds of fraud, mis representations, mutual mistake or any valid reason the arbitrator will surely have jurisdiction to decide even that dispute. The proper approach would be to examine the issue raised in the suit and to ascertain wheth er it squarely falls within the compass of the arbitration clause and take a decision before granting the stay of the suit. If an issue is raised as to the formation, existence or validity of the contract containing the arbitration clause, the court has to exercise discretion to decide or not to decide the issue of validity or otherwise of the arbitration agreement even though it may involve incidental ly a decision as to validity or existence of the challenged contract. Should the Court find the parent contract to be void ab initio or illegal or non existent, it will be with out jurisdiction to grant stay. If the challenged contract is found to be valid and binding and the dispute raised in the suit covered by the arbitration clause, stay of the suit may be justified. [491F G; 492A B, D F] 473 2.1 In the instant case, considering the issues raised, the arbitration clause and the surrounding circumstances and the part played by the parties pursuant to the charter party since execution to the modification and thereafter till objection raised by the appellant plaintiff. it must be held that the trial court did not err in proceeding to decide the issue of validity or legality of the parent contract. [492F G] 3. Where the validity, existence or legality of the contract is challenged in suit on grounds de hors, independ ent of, or external to the terms or stipulations of the contract, the court in an application under Section 34 of the Act shall have no jurisdiction to go into the question, and that in a large majority of cases it would be applica ble, in appropriate cases, having regard to the nature of the dispute raised in the pleadings of the suit, the compass and scope of the arbitration clause in the contract, the surrounding facts and circumstances of the case having a bearing on the question of genuine grievance failing outside or inside the arbitration agreement and the objects and spirit of the , the Court may be justified in deciding the validity, existence or legality of the chal lenged contract containing the arbitration agreement. [488A C] 3.1 In the instant case, the arbitration clause formed part of the agreement. The arbitration agreement is not the same as the contract in the charter party. It cannot, there fore, be said that the validity or otherwise of the charter party was covered by the arbitration clause. [489D E] Jee Lae vs Lord Dalmeny, ; Heyman vs Darwins, ; Monro vs Bognor Urban District Council, ; Jawaharlal Burman vs Union of India, ; Waverly Jute Mills Co. Ltd. vs Raymon & Co. (India) Pvt. Ltd.; ,3 S.C.R. 209; ; Khardah Co. Ltd. vs Raymon & Co. India Ltd., ; ; Renusagar Co. vs General Electric Co., ; ; Anderson Wright Ltd. vs Moran and Company, [1955] 1 S.C.R. 862; Damodar Valley Corporation vs K.K. Kar; , ; Hirji Mulji vs Cheong Yue Steamship Co., ; applied. Banwari Lal vs Hindu College, A.I.R. 1949 East Punjab 165; Johurmull Parasram vs Louis Dreyfus Co. Ltd. 52 C.W.N. (1947 48) 137 A.I.R. 1949 Cal 179; Pramada Prasad vs Sagar Mal Aggarwal, A.I.R. 1952 Patna 352; Narsingh Prasad vs Dhanraj Mills. I.L.R. 21 Patna 544; A.I.R. 1943 Patna 53; Birla Jute Manufacturing Co. Ltd. vs Dulichand. A.I.R. 1953 Calcutta 450; W.F. Ducat & Co. Pvt. Ltd. vs 474 Hiralal Pannalal, A.I.R. 1976 Calcutta 126; General Enter prises vs Jardine Handerson Ltd., A.I.R. 1978 Calcutta 407; Khusiram vs Hanutmal, , approved. In the instant case, facts were admitted. [493B C] All the relevant documents and affidavits were before the Court and were considered by it. Therefore no illegality was committed by the trial court in not setting down the matter for trial on evidence and deciding the validity and legality of the matter without taking oral evidence. [49211; 493B] 4.1 Even if it appears that the discretion could have also been exercised to decide the issue of invalidity in a trial on evidence adduced, this court would not substitute its view for that of the trial court, unless the ends of justice required it to be done. This Court would not lightly interfere under Article 136 of the Constitution with the concurrent exercise of discretion of the courts below under Section 34 of the . Before it can justly do so, the appellant must satisfy the Court, on the relevant facts referred to by the Courts below, that they exercised their discretion in a manifestly unreasonable or perverse way which was likely to defeat the ends of justice. The appellant has failed to do so in the instant case. [493C, E F] Ormarod vs Todmordon, ; Charles Osenton and Co. vs Johnston, ; Gardner vs Jay, ; Printers (Mysore) Pvt. Ltd. vs Pothan Joseph; , , applied. Where the parties make mutual mistake misunderstand ing each other and are at cross purposes, there is no real correspondence of offer and acceptance and the parties are not really consensus ad idem. There is thus no agreement at all; and the contract is void. Section 20 is concerned with common mistake of fact and not mutual mistake. A common mistake is there where both parties are mistaken about the same vital fact although both parties are ad idem, e.g., the subject matter of the contract has already perished. A con tract in such a case is void. Where each party is mistaken as to the other 's intention, though neither realises that the respective promises have been misunderstood, there is mutual mistake. 1493H; 494A B] 6. A mistake will not affect assent unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing 475 without the quality essentially different from the thing as it was believed to be. Neither party can rely upon his own mistake to say that it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamen tal, and no matter that the other party knew that he was under a mistake. A fortiori, if the other party did not know of the mistake but shared it. The question is not what the parties had in their minds, but what reasonable third par ties would infer from their words or conduct. The court has to ascertain the "sense of the promises". [496E; 495G H] 7. The application of the doctrine of mutual mistake depends upon the true construction of the contract made between the parties. A mutual misunderstanding will not nullify a contract but only if the terms of contract con strued in the light of the nature of the contract and of the circumstances believed to exist at the time it was done show that it was never intended to apply to the situation which in reality existed at that time, will the contract be held void. Thus a mistake as to an essential and integral element in the subject matter of the contract will avoid the con tract. A mistake as to the quality of the article contracted for may not always avoid the contract. A distinction, there fore, should be drawn between a mistake as to the substance of the thing contracted for, which will avoid the contract and mistake as to its quality which will be without effect. According to circumstances even a mistake as to the sub stance of the thing contracted for may not necessarily render a contract void. Thus there must be a difference so complete that, if the contract were enforced in the actual circumstances which have unexpectedly emerged, this would involve an obligation fundamentally different from that which the parties believed they were undertaking. [496A H] 8. From the series of steps taken for repairs and the stipulations in the charter party including the modifica tions thereof, it is not possible to hold that it was a case of mutual mistake as to a quality which made the trawlers transferred essentially different from the trawlers that the parties in their minds agreed to transfer. Therefore, there was no mutual mistake and the contract would not be avoided on this ground. [498C D] Cooper vs Phibbs, ; ; Ear/Beauchamp vs Winn., ; Hudders field Banking Co. vs Henry Lister & Sons, [1895] 2 Ch. 273; Bell vs Laver Brs. Ltd.; , ; Kannedy vs Panama Royal Mail Co., ; Smith vs Hughes, [1871] L.R. 6 Q.B. 597; Solle vs Butcher, 476 Fraderick E. Rose (London) Ltd. vs William H. Pim Junior & Co. Ltd. ; Sheikh Brothers LId. vs Arnold, ; referred to. U.P. Government vs Nanhoo Mal, A.I.R. 1960 All. 420, approved. It is settled law that where the subject matter of a reference is illegal, no award can be of any binding effect. If the contract itself was illegal, the controversy as to whether it was illegal or not would not be a dispute arising out of the contract as also would be the question whether the contract was void ab initio. When, however, it is found that a binding contract was made which was not illegal what follows from such a contract would be covered by the expres sion "dispute arising out of contract". To stay a suit under Section 34 the Court has to see whether there was a valid agreement to have the dispute settled by arbitration and that the proceedings are in respect of a dispute so agreed to be referred. [498E, (; H; 499A] 10. Public policy imposes certain limitations on the freedom of contract by forbidding the making of certain contracts. In such cases though all other requisites for formation of the contract are complied with, parties to such forbidden contracts are not allowed to enforce any rights under them. In clear cases the law strikes at the agreement itself by making the contract illegal. However, the effect and nature of illegality are by no means uniform and will depend upon the facts and circumstances of each case. Where a statute makes a contract illegal or where a certain type of contract is expressly prohibited there can be no doubt that such a contract will not be enforcible. [499B D] 11. A contract which was not illegal from the beginning may be rendered illegal later by the method of performance which did not comply with the statutory requirements. The appellant 's burden was to show that the charter party was illegal to take it out of the arbitration clause for if the contract is illegal and not binding on the parties the arbitration clause would also be not binding. Once it is shown to have been illegal it would be unenforcible as ex turpi causa non oritur actio. [499G H] 12. One who knowingly enters into a contract with im proper object cannot enforce his rights thereunder. The appellant in the instant case was also a party to the agree ment of charter party in respect of the two imported trawl ers. Though it purported to be actual user 's licence 477 there was no violation of this condition in view of the express permission granted by the Controller of Imports and Exports allowing the chartering of the two imported trawl ers. The modifications to the contract did not make any alteration so as to make the agreement contrary to the terms and conditions of the permission inasmuch as the permission was for a period of three years. The option to continue hire of the trawlers for a further period of three years did not ipso facto violate the permission. There was also no viola tion as to the duration of the charter party. [499H; 500C E] Taylor vs Barnett, ; Anderson Wright Ltd. vs Moran and Company, [1955] 1 S.C.R. 862; In Re arbi tration between Mahmoud and Isphani, ; applied. 13. The Courts below were right in holding that the matters were arbitrable apart from the question of illegali ty, invalidity of the contract. The question of invalidity of the contract due to the alleged mutual mistake would be de hors and independent of the contract and as such would not be referable under the arbitration clause. In so far as the question of illegality of the charter party is concerned as the appellant has not established that the charter party was illegal or void as initio, the question whether the modification as alleged had rendered the contract illegal would be covered by the arbitration clause. [500F G] 14. In the instant case, the reliefs claimed in the suit other than the question of ab initio invalidity or illegali ty of the contract would be referable. However, it will be within the jurisdiction of the arbitrator to decide the scope of his jurisdiction. The Court cannot make a contract between the parties and its power ends with the interpreta tion of the contract between them. The same principle also applies to the arbitration agreement unless the parties to the arbitration agreement authorises the court to make and modify the agreement. The arbitrator shall proceed in ac cordance with law to decide the questions including that of jurisdiction, if raised. [501C 1).

4376.txt

"ition Nos. 5931 and 5932 of 1980.\n(Under Article 32 of the Constitution.) N. M. Ghatate and sectio(...TRUNCATED)

"Allowing the petitions, the Court ^ HELD: The supply to the detenus of the grounds of detention in (...TRUNCATED)

6750.txt

"ON: Civil Appeal No. 4297 of 1983.\nFrom the Judgment and Order dated 26.10.1979 of the Allahabad H(...TRUNCATED)

"The respondents are manufacturers of high strength spirit.\nThey also used to manufacture and bottl(...TRUNCATED)

1122.txt

"Appeal No. 364 of 1957.\nAppeal from the judgment and order dated February 22, 1956, of the former (...TRUNCATED)

"The appellants were shareholders of a company known as Navjivan Mills Ltd. which held a large numbe(...TRUNCATED)

4244.txt

"Civil Appeal No. 1950 of 1979 From the Judgment and Order dated 24 4 1979 of the Andhra Pradesh Hig(...TRUNCATED)

"One V. Krishna Reddy filed an election petition against Veera Reddy, respondent No. 1, a returned c(...TRUNCATED)

2357.txt

"Appeal No. 433 of 1965.\nAppeal from the judgment and order dated January 7, 1963 of the Punjab Hig(...TRUNCATED)

"The respondent who was a permanent official in the Delhi Administration was appointed to the Punjab(...TRUNCATED)