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Parliament and State Legislature – Indian Constitution

B. R. Kapoor v. State Of Tamil Nadu

  • Jayalalithaa, was convicted in two criminal cases by the trial court. On appeal, High Court suspended her sentences but her application for stay of judgment was rejected. She then contested elections and her nomination was rejected due to criminal convictions. Her party came into the majority and she became the Chief Minister. This was challenged in appeal.
  • Har Sharan Verma v. Tribhuvan Narain Singh,Chief Minister, U.P. – Person was not a member of either house of legislature of the state and was made Chief minister. Court held that Article 164(1) does not provide any qualification for person to be selected as Chief Minister. Accordingly, court held that it sees no reason as to why 164(4) be restricted to only cases where a Minister loses for some reaso11 his seat in the Legislature of the State.
  • Har Sharan Verma Union of India – Court considered the question in the context of membership of Parliament and Article 75(5), which is similar in terms to Article 164( 4). The Court said that a person who was not a member of either House of Parliament could be a Minister for not more than· six months; though lie would not have any right to vote, he would be entitled, by virtue of Article 88, to participate in the proceedings of Parliament.
  • P. Anand v. H.D. Deve Gowda – parity of reasoning if a person who is not a member of the State Legislature can be appointed a Chief Minister of a State under Article 164(4) for six months, a person who is not a member of either House of Parliament can be appointed Prime Minister for the same duration.
  • R. Chaudhuri v. State of Punjab – Using Article 164(4) same person was being made minister again and again during the same term without fighting the election which was not allowed by the court.
  • To answer the question before us, three sub-Articles of Article 164 need, in our view, to be read together, namely, sub-Articles (1),(2) and (4)…Necessarily implicit in sub-Article (4) read with sub- Articles (1) and (2) is the requirement that a Minister who is not a member of the legislature must seek election to the legislature and, in the event of his failing to secure a seat in the legislature within six months, he must cease to be a Minister. The requirement of sub- Article (4) being such, it follows as the night the day that a person who is appointed a Minister though he is not a member of the legislature shall be one who can stand for election to the legislature and satisfy the requirement of sub-Article (4). In other words, he must be one who satisfies the qualifications for membership of the legislature contained in the Constitution (Article 173) and is not disqualified from seeking that membership by reason of any of the provisions therein (Article 191) on the date of his appointment

Re Gujarat Assembly Election Matter

  • The dissolved Legislative Assembly of the State of Gujarat was constituted in March 1998 and its five-year term was to expire on 18.3.2003. On 19.7.2002 on the advice of the Chief Minister, the Governor of Gujarat dissolved the Legislative Assembly. The last sitting of the dissolved Legislative Assembly was held on 3rd April 2002. Immediately after dissolution of the Assembly, the Election Commission of India took steps for holding fresh elections for constituting the new Legislative Assembly. However, the Election Commission by its order dated 16th August, 2002 while acknowledging that Article 174(1) is mandatory and applicable to an Assembly which is dissolved and further that the elections for constituting new Legislative Assembly must be held within six months of the last session of the dissolved Assembly, was of the view that it was not in a position to a conduct elections before 3rd of October, 2002 which was the last date of expiry of six months from last sitting of the dissolved Legislative Assembly. It is in this context the President of India in exercise of powers conferred upon him by virtue of Clause (1) of Article 143 of the Constitution of India referred three questions for the opinion of the Supreme Court by this order dated 19th August, 2002 which run as under…
  • the first question that arises for consideration is whether Article 174(1) is applicable to a dissolved Assembly?… A plain reading of Article 174 shows that it stipulates that six months shall not intervene between the last sitting in one session and the date appointed for its first sitting in the next session. It does not provide for any period of limitation for holding fresh election in the event a Legislative Assembly is prematurely dissolved. It is true that after commencement of the Constitution, the practice has been that whenever either Parliament or Legislative Assembly were prematurely dissolved, the election for constituting fresh Assembly or Parliament, as the case may be, were held within six months from the date of the last sitting of the dissolved Parliament or Assembly…Article 174 deals with a live legislature. The purpose and object of the said provision is to ensure that an existing legislature meets at least every six months, as it is only an existing legislature that can be prorogued or dissolved.
  • Holding:-
  • Article 174(1) of the Constitution relates to an existing, live and functional Legislative Assembly and not to a dissolved Assembly.
  • The provision in Article 174(1) that six months shall not intervene between its last sitting in one session and the date appointed for its sitting in the next session is mandatory and relates to the frequencies of the sessions of a live and existing Legislative Assembly and does not provide for any period of limitation for holding fresh elections for constituting Legislative Assembly on premature dissolution of the Assembly.
  • The expressions “the House”, “either House” is synonymous with Legislative Assembly or Legislative Council and they do not refer to different bodies other than the Legislative Assembly or the Legislative Council, as the case may be.
  • Neither under the Constitution nor under the Representation of the People Act, any period of limitation has been prescribed for holding election for constituting Legislative Assembly after premature dissolution of the existing one. However, in view of the scheme of the Constitution and the Representation of the People Act, the elections should be held within six months for constituting Legislative Assembly from the date of dissolution of the Legislative Assembly.
  • Under the Constitution, the power to frame the calendar or schedule for elections for constituting Legislative Assembly is within the exclusive domain of the Election Commission and such a power is not subject to any law either made by Parliament or State Legislature.

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Union and State Executive – Indian Constitution

Union and State Executive

Ram Jawaya Kapur v. State Of Punjab

Writ petition under Article 32 of the Constitution, was filed by six persons who carried on the business of preparing, printing, publishing and selling text books for different classes in the schools of Punjab, particularly for the primary and middle classes, under the name and style “Uttar Chand Kapur & Sons”, It was alleged that the Education Department of the Punjab Government pursuant to their “so-called policy of nationalisation of text books”, issued a series of notifications since 1950 regarding the printing, publication and sale of these books which not only placed unwarranted restrictions upon the rights of the petitioners to carry on their business but also practically ousted them and other traders from the business altogether and this was a violation of their fundamental under Article 19(1)(g), It was contended that the restrictions were being imposed without the authority of law and therefore not saved by clause (6) of Article 19.

Mukherjea, C.J. –

Petitioner’s Contentions:-

Contention 1 – The executive Government of a State is wholly incompetent, without any legislative sanction, lo engage in any trade or business activity and that the acts of the Government in carrying out their policy of establishing monopoly in the business of printing and publishing text books for school students is wholly without jurisdiction and illegal

Contention 2 -assuming that the State could create a monopoly in its favour in respect of a particular trade or business, that could be done not by any executive act but by means of a proper legislation which should conform to the requirements of Article 19(6) of the Constitution

Contention 3 – it was not open to the Government lo deprive the petitioners of their interest in any business or undertaking which amounts to property without authority of law and without payment of compensation as is required under Article 31 of the Constitution

Contention 1 – Constitution clearly recognises a division of governmental functions into three categories viz, the legislative, the judicial and the executive, the function of the executive cannot but be to execute the laws passed by the legislature or to supervise the enforcement of the same. The legislature must first enact a measure which the executive can then carry out. (Used Article 73 & 162 and Australian Case)

Court’s reasoning – Article 73 provides that the executive powers of the Union shall extend to matters with respect to which Parliament has power to make laws and to the exercise of such rights, authority and jurisdiction as are exercisable by the Government of India by virtue of any treaty or any agreement.

Article 73 & 162 does not contain any definition as to what the executive function is and what activities would legitimately come within its scope. They are concerned primarily with the distribution of the executive power between the Union on the one hand and the States on the other. They do not mean, as petitioner seems to suggest, that it is only when Parliament or the State Legislature has legislated on certain items appertaining to their respective lists that the Union or the State executive, as the case may be, can proceed to function in respect to them. On the other hand, the language of Article 172 clearly indicates that the powers of the State executive do extend to matters upon which the State Legislature is competent to legislate and are not confined to matters over which legislation has been passed already. The same principle underlies Article 73 of the Constitution.

One Australian case discarded on the basis that the provision upon which it was based was not present in Indian constitution.

Motilal v. Government of the State of Uttar Pradesh – The point canvassed there was whether the Government of a State has power under the Constitution to carry on the trade or business of running a bus service in the absence of a legislative enactment authorising the State Government to do so. Chief Justice Malik was of opinion that in a written Constitution like ours the executive power may be such as is given lo the executive or is implied, ancillary or inherent. It must include all powers that may be needed to carry into effect the aims and objects of the Constitution. It must mean more than merely executing the laws. According to the Chief Justice the State has a right to hold and manage its own property and carry on such trade or business as a citizen has the right to carry on, so long as such activity does not encroach upon the rights of others or is not contrary lo law. An act would be within the executive power of the State if it is not an act which has been assigned by the Constitution of India to other authorities or bodies and is not contrary to the provisions of any law and does not encroach upon the legal rights of any member of the public.

Our Constitution, though federal in its structure, is modelled on the British parliamentary system where the executive is deemed to have the primary responsibility for the formulation of governmental policy and its transmission into law though the condition precedent to the exercise of this responsibility is its retaining the confidence of the legislative branch of the State. The executive function comprises both the determination of the policy as well as carrying it into execution. This evidently includes the initiation of legislation, the maintenance of order, the promotion of social and economic welfare, the direction of foreign policy, in fact the carrying on or supervision of the general administration of the State.

The Cabinet enjoying, as it does, a majority in the legislature concentrates in itself the virtual control of both legislative and executive functions; and as the Ministers constituting the Cabinet are presumably agreed on fundamentals and act on the principle of collective responsibility, the most important questions of policy are all formulated by them. Suppose now that the Ministry or the executive Government of a State formulates a particular policy in furtherance of which they want to start a trade or business. Is it necessary that there must be a specific legislation legalising such trade activities before they could be embarked upon? We cannot say that such legislation is always necessary. If the trade or business involves expenditure of funds, it is certainly required that Parliament should authorise such expenditure either directly or under the provisions of a statute. What is generally done in such cases is, that the sums required for carrying on the business are entered in the annual financial statement which the Ministry has to lay before the house or houses of legislature in respect of every financial year under Article 202 of the Constitution. So much of the estimates as relate to expenditure other than those charged on the consolidated fund are submitted in the form of demands for grants to the legislature and the legislature has the power to assent or refuse to assent to any such demand or assent to a demand subject to reduction of the amount (Article 203). After the grant is sanctioned, rule appropriation bill is introduced to provide for the appropriation out of the consolidated fund of the State of all moneys required to meet the grants thus made by the assembly (Article 204). As soon as the appropriation Act is passed, the expenditure made under the heads covered by it would be deemed to be properly authorised by law under Article 266(3) of the Constitution.

It is true that the appropriation Acts cannot be said to give a direct legislative sanction to the trade activities themselves. But so long as the trade activities are carried on in pursuance of the policy which the executive Government has formulated with the tacit support of the majority in the legislature, no objection on the score of their not being sanctioned by specific legislative provision can possibly be raised. Objections could be raised only in regard to the expenditure of public funds for carrying on of the trade or business and to these the appropriation Acts would afford a complete answer. Specific legislation may indeed be necessary if the Government require certain powers in addition to what they possess under ordinary law in order’ to carry on the particular trade or business. Thus when it is necessary to encroach upon private. rights in order to enable the Government to carry on their business, a specific legislation sanctioning such course would have to be passed.

Petitioner’s fundamental rights are not violated as there is a no fundamental right in the publishers that any of the books printed and published by them should be prescribed as text books by the school authorities. So the utmost that could be said is that there was merely a chance or prospect of any or some of their books being approved as text books by the Government. Such chances are incidental to all trades and businesses and there is no fundamental right guaranteeing them. Petitioner’s right to publish books is not taken away and since there is no fundamental right to be approved by the government or be prescribed in schools, there is no violation of any fundamental right.

S.P. Anand v. H.D. Deve Gowda

H.D. Deve Gowda, not being a member of either House of Parliament, was appointed as the Prime Minister of India. The petitioner contended that he was not eligible to be appointed as the Prime Minister of India and President of India committed a grave and serious constitutional error in swearing him in as the Prime Minister. This action of the President according to the petitioner, was violative of Articles 14, 21 and 75 of the Constitution and, therefore, void ab initio and deserved to be quashed by an appropriate writ, which may be issued under Article 32 of the Constitution.

Har Sharan Verma v. Tribltuvan Narain Singh, Chief Minister, U.P. – Interpreting the said clause in the context of Article 163 and other clauses of Article 164, this Court held that clause 4 of Article 164 had an ancient lineage and there was no reason to whittle down the plain thrust of the said provision by confining it to cases where a person being a member of the legislature and a Minister, for some reason, loses his seat in the State. The Court, therefore, on a combined reading of the aforesaid two provisions held that a person not being a member of either House of Parliament can be appointed a Minister up to a period of six months.

When we compare Articles 74 and 75 with Articles 163 and 164, the first point of difference is that while the former deal with the President and the Prime Minister, the latter deal with the Governor and the Chief Minister. Article 74(1) and Article 163(1) are substantially the same except that the sentence beginning with ‘except’ and ending with ‘discretion’, special to the Governor’s function, is not to be found in Article 74(1). The proviso to Article 74(1) which grants a special privilege to the President is not to be found in Article 163(1) whereas clause (2) of Article 163 is not to be found in Article 74. Clause (2) to Article 163 is a corollary to the exception clause in Article 163( l) and has no relevance to the issue on hand. Article 74(2) and Article 163(3) are verbatim.

Articles 75(1) and 75(2) are identical to Article 164(1) except that in the case of the latter, the two clauses have been combined into one. The proviso to Article 164(1) which is special to States, is not to be found in Article 75. The rest of the clauses of the two articles are identical except for consequential changes.

On a plain reading of Article 75(5) it is obvious that the Constitution-makers desired to permit a person who was not a member of either House of Parliament to be appointed a Minister for a period of six consecutive months and if during the said period he was not elected to either House of Parliament, he would cease to be a Minister. This becomes clear if one were to read the debates of the Constituent Assembly (the draft Articles were 62 and 144 for the present Articles 75 and 164). Precisely on the ground that permitting such persons to be appointed Ministers at the Union or State levels would “cut at the very root of democracy”, an amendment was moved to provide: “No person should be appointed a Minister unless at the time of his appointment, he is elected member of the House:” which amendment was spurned by Dr. Ambedkar

The Council of Ministers is made collectively responsible to the House of the People. The form of the oath prescribed in the Third Schedule under Article 75( 4) is the same for the Prime Minister as well as a Minister. In other words, the Constitution does not draw any distinction between the Prime Minister and any .other Minister in this behalf. This is not to say that the Prime Minister does not enjoy a special status; he does as the head of the Council of Ministers but the responsibility of the Council of Ministers to the House of the People is collective. Besides, the caption of Article 75 as a whole is “Other provisions as to Ministers”. No separate provision is to be found dealing with the appointment of the Prime Minister as such. Therefore, even though the Prime Minister is appointed by the President after he is chosen by such number of members of the House of the People as would ensure that he has the confidence of the House and would be able to command the support of the majority, and the Ministers are appointed on the advice of the Prime Minister, the entire Council of Ministers is made collectively responsible to the House and that ensures the smooth functioning of the democratic machinery.

U.N.R. Rao v. Indira Gandhi

During dissolution of the House of the People, there can be no Prime Minister The appellant contended that under the Constitution as soon as the House of the People was dissolved under Article 85(2), the Council of Ministers, i.e. the Prime Minister and other Ministers, ceased to hold office. This argument was based on the wording of Article 75(3), which provides that “the Council of Ministers shall be collectively responsible to the House of the People”. How can the Council .of Ministers be responsible to the House of the People when it has been dissolved under Article 85(2)? It was contended that it was not void in the carrying out of Governmental function will be created because the President can exercise the executive power of the Union either directly or through officers subordinate to him in accordance with Article 53(1) of the Constitution

It will be noticed that Article 74(1) is mandatory in form. We are unable to agree with the appellant that in the context the word ‘shall’ should be read as ‘may’. Article 52 is mandatory. In other words “there shall be a President of India’. So is Article 74(1). The Constituent Assembly did not choose the Presidential system of Government. If we were to give effect to this contention of the appellant we would be changing the whole concept of the Executive. It would mean that the President need not have a Prime Minister and Ministers to aid and advise in the exercise of his functions. As there would be no ‘Council of Ministers, nobody would be responsible to the House of the People. With the aid of advisers he would be able to rule the country at least till he is impeached under Article 61.

Now comes the crucial clause three of Article 75. The appellant urges that the House of People having been dissolved this clause cannot be complied with. According to him it follows from the provisions of this clause that it is was contemplated that on the dissolution of the House of People the Prime Minister and the other ministers must resign or be dismissed by the President and the President must carry on the Government .as best as he can with the aid of the Services. As we have shown above. Article 74(1) is mandatory and, therefore, the President cannot exercise the executive power without the aid and advice of the Council of Ministers We must then harmonise the provisions of Article 75(3) with Article 74(1) and Article 75(2). Article 75(3) brings into existence what is usually ·called “Responsible Government”. In other words the Council of Ministers must enjoy the confidence of the House of People. While the House of People is not dissolved under Article 85(2)(a), Article 75(3) has full operation. But when it is dissolved the Council of Ministers cannot naturally enjoy the confidence of the House of People. Nobody has said that the Council of Ministers does not enjoy the confidence of the House of People when it is prorogued. In the context, therefore, this clause must be read as meaning that Article 75(3) only applies when the House of People does not stand dissolved or prorogued. We are not concerned with the case where dissolution of the House of People takes place under Article 83(2) on the expiration of the period of five years prescribed therein, for Parliament has provided for that contingency in Section 14 of the Representation of Peoples Act, 1951.

Shamsher Singh v. State Of Punjab

Two freshers in the State Judiciary (the appellants), were on probation. Before the expiry of the period, the High Court having discovered unsavoury conduct of the appellants, as controlling authority, considered it fit to terminate their services on grounds of unsuitability. The Council of Ministers, on a consideration of the High Court’s report, acted on it and ended the probation of the appellants, although the Governor’s personal satisfaction about this step was neither sought nor secured. TI1e orders terminating probation were challenged primarily on the ground that the power of appointment being with the Governor (or the President, in the case of Central Services), the removal must be by him alone. Wherever the Constitution vests power in the Governor or President, it has to be exercised by him, applying his own mind to the materials. He can neither surrender the power to his Ministers nor delegate to his officers

First, there are several constitutional functions, powers and duties of the Governor. These are conferred on him eo nomine the Governor. The Governor, is, by and under the Constitution, required to act in his discretion in several matters. These constitutional functions and powers of the Governor eo nonmine as well as these in the discretion of the Governor are not executive powers of the State within the meaning of Article 154 read with Article 162.

Second, the Governor under Article 163 of the Constitution can take aid and advice of his Council of Ministers when he is exercising executive power of the State. The Governor can exercise powers and functions without the aid and advice of his Council of Ministers when he is required by or under the Constitution to act in his discretion, where he is required to exercise his constitutional functions conferred on him eo nomine as the Governor.

Third, the aid and advice of the Council of Ministers under Article 163 is different from the allocation of business of the government of the State by the Governor to the Council of Ministers under Article 166(3) of the Constitution. The allocation of business of government under Article 166(3) is an instance of exercise of executive power by the Governor through his Council by allocating or delegating his functions. The aid and advice is a constitutional restriction on the exercise of executive powers of the State by the Governor. The Governor will not be constitutionally competent to exercise these executive powers of the State without the aid and advice of the Council of Ministers.

Fourth, the executive powers of the State are vested in the Governor under Article 154(1). The powers of appointment and removal of Subordinate Judges under Article 234 have not been allocated to the Ministers under the Rules of Business of the State of Punjab. Rule 18 of the Rules of Business states that except as otherwise provided by any other rule cases shall ordinarily be disposed of by or under the authority of the Minister-in-charge who may, by means of Standing Orders, give such directions as he thinks fit for the disposal of cases in his department. Rule 7(2) in Part D of the Punjab Civil Service Rules which states that the Governor of Punjab may on the recommendation of the High Court remove from service without assigning any cause any Subordinate Judge-or revert him to his substantive post during the period of probation is incapable of allocation to a Minister. Rule 18 of the Rules of Business is subject to exceptions and Rule 7(2) of the Service Rules is such an exception. Therefore, the appellants contend that the power of the Governor to remove Subordinate Judges wider Article 234 read with the aforesaid Rule 7(2) of the Service Rules cannot be allocated to a Minister.

It is noticeable that though in Article 74 it is stated that there shall be a Council of Ministers with the Prime Minister at the head to aid and advise the President in the exercise of is functions, there is no provision in Article 74 comparable to Article I 63 ·that the aid and advice is except in so far as he is required to exercise his functions or any of them in his discretion. It is necessary to find out as to why the words ‘in his discretion’ are used in relation to some powers of the Governor and not in the case of the President.

State of U.P. v. Babu Ram Upadltya held that the power of the Governor to dismiss at pleasure, subject to the provisions of Article 311, is not an executive power under Article 154 but a constitutional power and is not capable of being delegated to officers subordinate to him. The Governor could not delegate his pleasure to any officer nor could any law provide for the exercise of that pleasure by an officer with the result that statutory rules governing dismissal were binding on every officer though they were subject to the overriding pleasure of the Governor. This would mean that the officer was bound by the rules but the Governor was not.

Moti Ram Deka ‘s case and this Court restated that proposition No. 2 must be read along with the subsequent propositions specified as propositions Nos. 3, 4, 5 and 6. The ruling in Moti Ram Deka’s case is that a law can be framed prescribing the procedure by which and the authority by whom the said pleasure can be exercised. The pleasure of the President or the Governor to dismiss can therefore not only be delegated but is also subject to Article 311. The true position as laid down in Moti Ram Deka ‘s case is that Articles 310 and 311 must no doubt be read together but once the true scope and effect of Article 311 is determined the scope of Article 310(1) must be limited in the sense that in regard to cases falling under Article 311 (2) the pleasure mentioned in Article 310(2) must be exercised in accordance with the requirements of Article 311.

The majority view in Babu Ram Upadltya’s case is no longer good law after the decision in Moti Ram Deka’s case

In making a report under Article 356 the Governor will be justified in exercising his discretion even against the aid and advice of his Council of Ministers. The reason is that the failure of the constitutional machinery may be because of the conduct of the Council of Ministers. This discretionary power is given to the Governor to enable him to report to the President who, however, must act on the advice of his Council of Ministers in all matters. In this context Article 163(2) is explicable that the decision of the Governor in his discretion shall be final and the validity shall not be called in question. The action taken by the President on such a report is a different matter. The President acts on the advice of his Council of Ministers. In all other matters where the Governor acts in his discretion he will act in harmony with his Council of Ministers. The Constitution does not aim at providing a parallel administration within the State by allowing the Governor to go against the advice of the Council of Ministers.

For the foregoing reasons we hold that the President as well as the Governor acts on the aid and advice of the Council of Ministers in executive action and is not required by the Constitution to act personally without the aid and advice of the Council of Ministers or against the aid and advice of the Council of Ministers. Where the Governor has any discretion the Governor acts on his own judgment. The Governor exercises his discretion in harmony with his Council of Ministers. The appointment as well as removal of the members of the Subordinate Judicial Service is an executive action of the Governor to be exercised on the aid and advice of the Council of Ministers in accordance with the provisions, of the Constitution. Appointments and removals of persons are made by the President and the Governor as the constitutional head of the Executive on the aid and advice of the Council of Ministers. That is why any action by any servant of the Union or the State in regard to appointment or dismissal is brought against the Union or the State and not against the President or the Governor.

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Union & Its Territory – Indian Constitution

In Re Berubari Union and Exchange of Enclaves

An agreement was entered between India and Pakistan to resolve the boundary dispute. Certain questions of law emerged with regard to implementation of agreement and President of India, in exercise of the powers under Article 143( I) of the Constitution, referred three questions to the Supreme Court for its advice:

Is any legislative action necessary for the implementation of the Agreement relating to Berubari Union?

If so, is a law of Parliament relatable to Article 3 of the Constitution sufficient for the purpose or is an a1nend1nent of the Constitution in accordance with Artic1e 368 of the Constitution necessary, in addition or in the alternative?

Is a law of Parliament relatable to Article 3 of the Constitution sufficient for implementation of the agreement relating to Exchange of Enclaves or is an amendment of the Constitution in accordance with Article 368 of the Constitution necessary for the purpose, in addition or ill the alternative?

Attorney General contended that the said Agreement is merely the recognition or ascertainment of the boundary which had already been fixed and in no sense is it a substitution of a new boundary or the alteration of the boundary implying any alteration of the territorial limits of India. He emphasises that the ascertainment or the settlement of the boundary in the light of the award by which both Governments were bound, is not an alienation or cession of the territory of India, and according to him, if, as a result of the ascertainment of the true boundary in the light of the award, possession of some land has had to be yielded to Pakistan it does not amount to cession of territory; it is merely a mode of settling the boundary.

In view of this factual position there should be no difficulty in holding that it falls within the territories which immediately before the commencement of the Constitution were comprised in the Province of West Bengal. Therefore, as a result of the implementation of this Agreement the boundaries of West Bengal would be altered and the content of Entry 13 in the First Schedule to the Constitution would be affected.

Mr. Chaterjee raises contention that Parliament has no power to cede territory and agreement must be declared void as:-

Framers were determined to keep the entire territory of India as inviolable and sacred. The very first sentence in the preamble, which declares that “We, the people of India, having solemnly resolved to constitute India into a sovereign democratic republic”, says Mr Chatterjee, irrevocably postulates that India geographically and territorially must always continue to be democratic and republican.

it is argued that whereas the Constitution has expressly given to the country the power to acquire other territories it has made no provision for ceding any part of its territory; and in such a case the rule of construction viz. expressio unius est exclusio alterius must apply.

Court held that the preamble is not a part of the Constitution, and, “it has never been regarded as the source of any substantive power conferred on the Govenm1ent of the United States, or on any of its departments. Such powers embrace only those expressly granted in the body of the Constitution and such as may be implied from those so granted”.

On a true construction of Article 1(3) (c) it is erroneous to assume that it confers specific powers to acquire foreign territories.

There can be no doubt that a sovereign State can exercise its right to cede a part of its territory to a foreign State.

In the Indian Constitution, the emphasis on the preservation of the territorial integrity of the constituent States is absent.

It may, therefore, be assumed that in construing Article 3 we should take into account the fact that the Constitution contemplated changes of the territorial limits of the constituent States and there was no guarantee about their territorial integrity.

The acquisition of foreign territory by India in exercise of its inherent right as a sovereign State automatically makes the said territory a part of the territory of India. After such territory is thus acquired and factually made a part of the territory of India the process of law may assimilate it either under Article 2 or under Article 3(a) or (b).

Can Parliament legislate in regard to the agreement under Article 3? Broadly stated Article 3 deals with the internal adjustment inter se of the territories of the constituent States of India. Article 3(a) enables Parliament to form a new State and this can be done either by the separation of the territory from any State, or by uniting two or more States or parts of States, or by uniting any territory to a part of any State. There can be no doubt that foreign territory which after acquisition becomes a part of the territory of India under Article 1(3) (c) is included in the last clause of Article 3(a) and that such territory may, after its acquisition, be absorbed in the new State which may be formed under Article 3(a). Thus Article 3(a) deals with the problem of the formation of a new State and indicates the modes by which a new State can be formed.

Article 3(c) deals with the problem of the diminution of the area of any State. Such · diminution may occur, where the part of the area of a State is taken out and added to another · State, and in that sense Articles 3(b) and 3(c) may in some cases be said to be correlated; but does Article 3(c) refer to a case where a part of the area of a State is taken out of that State and is not added to any other -State but is handed over to a foreign State? If the power to acquire foreign territory which is an essential attribute of sovereignty is not expressly conferred by the Constitution there is no reason why the power to cede a part of the national territory which is also an essential attribute of sovereignty should have been provided for by the Constitution. Both of these essential attributes of sovereignty are outside the Constitution and can be exercised by India as a sovereign State. Therefore, even if Article 3(c) receives the widest interpretation it would be difficult to accept the argument that it covers a case of cession of a part of national territory in favour of a foreign State. The diminution of the area of any State to which it refers postulates that the area diminished from the State in question should and must continue to be a part of the territory of India; it may increase the. area of any other State or may be dealt with in any other manner authorised either by Ai1icle 3 or other relevant provisions of the Constitution, but it would not cease to be a part of the territory of India. It would be unduly straining the language of Article 3(c) to hold that by implication it provides for cases of cession of a part of national territory. Therefore, we feel no hesitation in holding that the power to cede national territory cannot be read in Article 3(c) by implication.

It would not be competent to Parliament to make a law relatable to Article 3 of the Constitution for the purpose of implementing the Agreement. This· conclusion must inevitably mean that the law necessary to implement the Agreement has to be passed under Article 368.

The Agreement amounts to a cession of a part of the territory of India in favour of Pakistan; and so its implementation would naturally involve the alteration of the content of and the consequent amendment of Article I and of the relevant part of the First Schedule to the Constitution, because such implementation would necessarily lead to the diminution of the territory of the Union of India. Such an amendment can be made under Article 368. Parliament may, however, if it so chooses, pass a law amending Article 3 of the Constitution so as to cover cases of cession of the territory of India in favour of a foreign State.

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Federalism under Indian Constitution

Federalism

SR Bommai v. Union of India (Federalism)

The court examined issues such as the nature of Indian Constitution, certain aspects of the Centre-State relations.

Chief Minister, Bommai claimed he had the majority in the house and was willing to prove it on the floor of the house but the President exercised its power under Article 356 of the constitution issued Proclamation dissolving Bommai Government and the Assembly and assumed the administration of the State of Karnataka.

Sri Ram Janmabhoomi-Babjri Masjid Issue

After the demolition of Babri Masjid, UP government resigned and President took control of the state. Violent communal clashes soon followed across India and President dismissed the State Governments and dissolved the Legislative Assemblies of Rajasthan, Madhya Pradesh and Himachal Pradesh and assumed administration of the respective States In all of these states BJP was in power.

A.M. AHMADI –

In order to maintain the unity and integrity of the nation our Founding Fathers appear to have leaned in favour of a strong Centre while distributing the powers and functions between the Centre and the States.

Dicey – Federalism is, therefore, a concept which unites separate States into a Union without sacrificing their own fundamental political integrity, the essence of a federation is the existence of the Union and the States and the distribution of powers between them, Federalism, therefore, essentially implies demarcation of powers in a federal compact.

On a conjoint reading of these articles, it becomes clear that Parliament has the right to form new States, alter the 1ireas of existing States, or the name of any existing State. Thus the Constitution permits changes in the territorial limits of the States and does not guarantee their territorial integrity. Even names can be changed. In doing so, it has not to seek the concurrence of the State whose area, boundary or name is likely to be affected by the proposal.

Post-independence, some of the subjects of common interest were, however, transferred to the Union List, thereby enlarging the powers of the Union to enable speedy and planned economic development of the nation.

States depend for financial assistance upon the Union since their power to raise resources is limited.

Article 368 confers powers on Parliament to amend the Constitution, albeit by a specified majority. The power extends to amending matters pertaining to the executive as well as legislative powers of the States if the amendments are ratified by the legislatures of not less than one-half of the States. This provision empowers Parliament.to so amend the Constitution as to curtail the powers of the States. A strong Central Government may not find it difficult to secure the requisite majority as well as ratification by one half of the legislatures if one goes by past experience. These limitations taken together indicate that the Constitution of India cannot be said to be truly federal in character as understood by lawyers in the United States of America.

Under our Constitution the State as such has no inherent sovereign power or autonomous power which cannot be encroached upon by the Centre.

Constitution of India is differently described, more appropriately as ‘quasi-federal’ because it is a mixture of the federal and unitary elements, leaning more towards· the latter but then what is there in a name, what is important to bear in mind is the thrust and implications of the various provisions of the Constitution bearing on the controversy in regard to scope and ambit of the Presidential power under Article 356 and related provisions.

P.B. SAWANT, J. –

Article 1 of the Constitution states that India shall be a Union of States. Thus the States are constitutionally recognised units and not mere convenient administrative divisions.

HM Seervai in defence of federalism:-

It is no objection to our Constitution being federal that the States were not independent States before they became parts of a Federation. A federal situation existed, first, when the British Parliament adopted a federal solution in the G.O.I. Act, 1935, and secondly; when the Constituent Assembly adopted a federal solution in our Constitution;

Parliament’s power to alter the boundaries of States without their consent is a breach of the federal principle, but in fact it is not Parliament which has, on its own, altered the boundaries of States. By extra-constitutional agitation, the States have forced Parliament to alter the boundaries of States. In practice; therefore, the federal principle has not been violated;

The allocation of the residuary power off legislation to Parliament (i.e. the Federation) is irrelevant for determining the federal nature of a Constitution. The U.S. and the Australian Constitutions do not confer the residuary power on the Federation but on the States, yet those Constitutions are indisputably federal;

External sovereignty is not relevant to the federal feature of a Constitution, for such sovereignty must belong to the country as a whole. But the division of internal sovereignty by a distribution of legislative powers is an essential feature of federalism, and our Constitution possesses that feature.

The enactment in Article 352 of the emergency power arising from war or external aggression which threatens the security of India merely recognises de jure what happens de facto in great federal countries like the U.S., Canada and Australia in times of war, or imminent threat of war, because in war, these federal countries act as though they were unitary.

The power to proclaim an emergency originally on the ground of internal disturbance, but now only on the ground of armed rebellion, does not detract from the principle of federalism because such a power, as we have seen exists in indisputably federal constitutions.

The provisions of Article 355 imposing a duty on the Union to protect a State against external aggression and internal disorder are not inconsistent with the federal principle. The war power belongs to the Union in all Federal Governments.

both federal and State laws operate on the same individual, it must follow that in case of conflict of a valid federal law and a valid State law, the federal law must prevail and our Constitution so provides in Article 254.

Our Constitution has adopted the method of empowering the Union Government to give directions to the States to give effect to the Union law and to prevent obstruction in the working of the Union law. Such a power, though different in form, is in substance the same as the power of the Federal Government in the U.S. to enforce its laws, if necessary by force. Therefore, the power to give directions to the State Governments does not violate the federal principle;

Article 356 (read with Article 355) which provides for the failure of constitutional machinery was based on Article 4, Section 4 of the U.S. Constitution and Article 356, like Article 4, Section 4, is not inconsistent with the federal principle. As stated earlier, these provisions were meant to be the last resort, but have been gravely abused and can therefore be said to affect the working of the Constitution as a Federal Government. But the recent amendment of Article 356 by the 44th Amendment, and the submission to be made hereafter that the doctrine of the political question does not apply in India, show that the courts can now take a more active part in preventing a mala fide or improper exercise of the power to impose a President’s rule, unfettered by the American doctrine of the political question;

The view that unimpo1tant matters were assigned to the States cannot be sustained in face of the very important subjects assigned to the States in List II, and the same applies to taxing powers of the States, which are made mutually exclusive of the taxing powers of the Union so that ordinarily the States have independent source of revenue of their own. In addition to the exclusive taxing powers of the States, the States become entitled either to appropriate taxes collected by the Union or to’ a share in the taxes collected by the Union.

The fact that during emergency and in certain other eventualities their powers are overridden or invaded by the Centre is not destructive of the essential federal nature of our Constitution. The invasion of power in such circumstances is not a normal feature· of the Constitution. They are exceptions and have to be resorted to only occasionally to meet the exigencies of the special situations. The exceptions are not a rule.

Whatever the bias in favour of the Centre, it cannot be argued that merely because (and assuming it is correct) the Constitution is labelled unitary or qm1si-federal or a mixture of federal and unitary structure, the President has unrestricted power of issuing Proclamation under Article 356(1).

K. RAMASWAMI –

Indian Constitution federalism is not based on any agreement between federating units but one of integrated whole as pleaded with vision by Dr. B.R. Ambedkar on the floor of the Constituent Assembly at the very inception of the deliberations and the Constituent Assembly unanimously approved the resolution of federal structure.

the organic federalism designed by the Founding Fathers is to suit the parliamentary form of Government to suit the Indian conditions with the objective of promoting mutuality and common purpose rendering social, economic and political justice, equality of status and opportunity; dignity of person to all its citizens transcending regional, religious, sectional or linguistic barriers as complimentary units in working the Constitution without confrontation.

B.P. JEEVAN REDDY –

The fact that under the scheme of our Constitution, greater power is conferred upon the Centre vis-a-vis the States does not mean that States are mere appendages of the Centre. Within the sphere allotted to them, States are supreme. The Centre cannot tamper with their powers. More particularly, the courts should not adopt an approach, an interpretation, which has the effect of or tends to have the effect of whittling down the powers reserved to the States.

Federalism in the Indian Constitution is not a matter of administrative convenience, but one of principle – the outcome of our own historical process and recognition of the ground realities.

State Of West Bengal v. Union of India

The Political sovereignty of India is distributed between the Union of India and the States with greater weightage in favour of the Union.

Characteristics of Federalism:-

A truly federal form of Government envisages a compact or agreement between independent and sovereign units to surrender partially their authority in their common interest and vesting it in a Union and retaining the residue of the authority in the constituent units. Ordinarily each constituent unit has its separate Constitution by which it is governed in all matters except those surrendered to the Union, and the Constitution of, the Union primarily operates upon the administration of the units. Our Constitution was not the result of any such compact or agreement: Units constituting a unitary State which were non-sovereign were transformed by abdication of power into a Union,

Supremacy of the Constitution which cannot be altered except by the component units. Our Constitution is undoubtedly supreme, but it is liable to be altered by the Union Parliament alone and the units have no power to alter it. Distribution of powers between the Union and the regional units each in its sphere coordinate and independent of the other. The basis of such distribution of power is that in matters of national importance in which a uniform policy is desirable in the interest of the units authority is entrusted to the Union, and matters of local concern remain with the States.

Supreme authority of the courts to interpret the Constitution and to invalidate action violative of the Constitution. A federal Constitution, by its very nature, consists of checks and balances and must contain provisions for resolving conflicts between the executive and legislative authority of the Union and the regional units. Supreme authority of the courts to interpret the Constitution and to invalidate action violative of the Constitution. A federal Constitution, by its very nature, consists of checks and balances and must contain provisions for resolving conflicts between the executive and legislative authority of the Union and the regional units.

Therefore the power of the Union to legislate in respect of property situate in the States even if the States are regarded qua the Union as Sovereign, remains unrestricted, and the State property is not immune from its operation. Exercising powers under the diverse entries which have been referred to earlier, the Union Parliament could legislate so as to trench upon the rights of the States in the property vested in them. If exclusion of a State property from the purview of Union legislation is regarded as implicit in those entries in List I, it would be difficult if not impossible for the Union Government to carry out its obligations in respect of matters of national importance. No positive interdict against its exercise is perceptible in the Constitution: and the implication of such an interdict assumes a degree of sovereignty in the States of such plenitude as transcends the express legislative power of the Union. The Constitution which makes a division of legislative and executive powers between the Union and the States is not founded on such a postulate, and the concept of superiority of the Union over the States in the manifold aspects already examined negatives it.

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Constitution – II (Federalism and Government)

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Agency – Law of Contracts II – Notes

  • A person is an agent only when he acts as a representative of the other in business negotiations, that is to say, in the creation, modification or termination of contractual obligations between that and other person. – Krishna v. Ganpathi
  • Parties have called their relationship as an agency is not conclusive enough to say it’s an agency and contradicting fact may prove otherwise.
  • A contract of minor by his agent is valid if minor himself is bound by contract.
  • Minor can become an agent but will not be liable to the principal.
  • Banker asked to keep goods and give to customer on payment. Held banker is a bailee and not an agent.
  • Factor – Agent entrusted with goods for purpose of selling them.
  • Broker – Agent appointed to negotiate and make contract to sale or purchase of goods on behalf of his principal.
  • Del Credere Agent – Agent undertaking on payment of extra commission to be liable to principal for failure of third party to perform contract. Not liable to buyer for default of principal. Not liable for dispute between buyer and principal relating to contract or sum due.
  • If a person authorises another to assume the apparent right of disposing of trade in the ordinary course of trade, it must be presumed that the apparent authority is the real authority. The agent may bind the principal within the limits of authority with which he has been clothed by the principal.
  • Wife is an agent of husband if she is buying things of necessity, and has a domestic establishment with husband.
  • Agencies of necessity – Such as selling of goods by carrier if perishable and delivery delayed due to some reason is valid.
  • A pre-existing agency is necessary to invoke agency of necessity. So finder of goods if spend money on property of other then it’s not agency.
  • Condition for invoking agency of necessity:-
    • Inability to communicate with principal
    • Act should be reasonable necessary
    • Bona fide in the interest of party concerned
  • Duties of Agent:-
    • Duty to Execute Mandate – E.g. Agent is asked to insure goods and he charges the premium but doesn’t insure the good then agent will be liable for any subsequent loss.
    • Duty to Follow Instructions or Customs – Agent instructed to store goods at a warehouse, agent stored goods at another equally safer warehouse. Agent held liable. Liley v. Doubleday
    • Duty of reasonable care and skill – Agent liable only for direct consequences of his act.
    • Duty to communicate with principal
    • Duty to avoid conflict of interest – If agent acts without principal’s consent or may conceal fact from principal or act in a manner disadvantageous to principal, then the principal may repudiate the transaction.
    • Principal has right to benefit gained by agent dealing on his own account in business of agency.
    • Duty not to make secret profit – If an agent sells his own stock to the principal without telling the same to the principal then he must hand over the commission even if he had sold the stock at prevailing market price.
    • Duty to remit sums
    • Duty to maintain accounts
    • Duty not to delegate – Permissible in following:-
      • Nature of Work – Agent employ auctioneer
      • Trade Custom – Architect appointing surveyor
      • Ministerial Action – Authority to sign
      • Principal’s contest
  • Sub agent if properly appointed as if principal’s agent only.
  • §192 – Sub agent is responsible to agent but not to principal except in case of fraud or wilful wrong.
  • Remedies of principal against agent:-
    • To ask for an account and also demand payment of secret & illicit profits
    • To seek damages for disregard of terms of agency as also want of care & skill
    • To resist the claims of the agent for commission and indemnity by the plea that the agent had acted for himself i.e. as a principal
  • Rights of agent against principal:-
    • Right to remuneration – Agent held auction, person takes information and directly approaches principal to buy house. Held agent entitled to commission. – Green v. Bartlett
    • Right to lien – Property held by agent for special purpose cannot be liened.
    • Right to indemnity – Agent be indemnified in all lawful contract even in wagering transaction where contract is void but not unlawful.
    • Right to compensation
  • Agent if having authority act even with improper motives can bind principal.
  • An agent placed in a certain position say manager has implied authority to do all the acts a person in that position ordinarily does.
  • §188 – An agent has authority to do necessary act like agent asked to sell manure without warranty sold manure without warranty and this warranty was usual in such transactions so agent was held not liable. – Dingle v. Hare
  • Apparent authority is real authority.
  • Possession of agent is possession of principal for all purposes.
  • If employer collect premium from wages and doesn’t pay, employer is an agent of insurance company and insurance company is bound to pay.
  • Principal liable for unauthorised act of agent falling under apparent authority.
  • So knowledge gained by the agent in course of business is considered to be with the principal.
  • In cases of fraud and misrepresentation exaggerated statements by agent are acceptable as long as they weren’t sanctioned by principal.
  • Principal whose name & existence is not made by the agent could only intervene subject to certain qualifications.
  • In case of undisclosed principal, principal would be bound by the terms between agent and other party.
  • Third party could repudiate a contract in case of undisclosed principal if third party shows that had him/her known who the principal he/she wouldn’t have contracted.
  • Principal is also liable to third party and if agent goes bankrupt principal needs to pay.
  • Agent not liable for principal’s contract even if getting commission.
  • If agent excludes personal liability from contract with foreign then agent’s liability is dissolved.
  • To make agent liable it is essential to show that principal cannot be sued.
  • Either agent or principal or both could be sued when agent is personally liable.
  • Agent gives warranty and not guarantees that if contract within his authority then principal would not breach contract.
  • For ratification:-
    • On Behalf of Another – If agent doesn’t mention of agency no ratification can take place.
    • Competence of Principal –
  • Only lawful acts could be ratified.
  • Doctrine Relation Back – Offer made to unauthorised agent later ratified then if party revoke offer also prior to ratification then also offer doesn’t get revoked.
  • If agent’s interest is merely incidental to arrangement say commission or pay out of rent then that could be revoked.
  • Agency gets over after sale is completed but some courts have held that it extend till proceeds of sale are being paid.

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Bailment – Law of Contracts II – Notes

  • Essentials of Bailment
    • Delivery of Possession
    • Delivery should be upon contract
    • Delivery should be upon some purpose
  • Delivery of Possession – Custody without possession is not bailment. Waiter takes coat at restaurant and then coat is missing. Here possession hence bailment. – Ultzen v. Nicolls
  • Lady kept jewellery in a box at defendant’s place but kept the key of the box with her possession not given no bailment. – Kaliaperumal v. Vishalakshi  Similarly bank lockers also do not fall within the ambit of bailment.
  • Actual possession is physical transfer of goods. Constructive possession is when there is no change in physical delivery but something is done by the bailor so as to put the goods in possession of bailee.
  • Case involving insurance claim, where in case of an accident car had to be delivered to nearest garage for repairs. Later on car caught fire and this delivery was held sufficient to constitute insurance company as bailee and the garage keeper as sub bailee. – N.R. Srinivasa Iyer v. New India Insurance Co.
  • Delivery should be upon contract – Person’s ornament got stolen later on police recover it and it gets stolen from them. Held no bailment as there was no contract. – Ram Gulam v. Govt. of U.P.
  • The above stated view has been changed later on and it has been held that bailment can arise without an enforceable contract. –  State of Gujarat v. Memon Mahomed
  • Delivery should be upon some purpose – Bailment is to be for some purpose and is subject to the condition that when purpose is accomplished goods will be returned to bailor or disposed of as per his mandate. – R. v. Ashwel
  • Plaintiff gave several promissory notes and asked defendant’s servants to consolidate them into one single note. The servants lost the notes and he sued them as bailee. Court held since notes were not to be retuned no bailment. – Secy. of State v. Sheo Singh Rai
  • Similarly deposit with bank is not bailment as not same note and coins are to be returned. – U.O.I. v. K.V. Venugopalan
  • In sale ownership is transferred and buyer is not compelled to return good. In case of soft drink bottle where terms stipulates that  buyer will get money back on return of bottle then it is sale as buyer may not return the bottle.
  • Bailor has duty to tell bailee of any possible condition which put him at risk.  If goods damage then even if he is unaware he is liable however he is not liable for all damages but which could care and skill can guard against.
  • The burden of proof is on bailee to show that he was not negligent.
  • If bailee’s own goods are lost along with that of bailor then its not a valid excuse for showing reasonable care except when bailor knows of bailee’s negligent conduct. – Lakshmidas v. Megh Raj
  • Involuntary bailee is a person who comes into possession of something without his consent. He is not liable for any loss if he has taken reasonable care of goods.
  • Even if a clause in contract absolve bailee from his liability even if he has not taken reasonable care then that clause is valid as per §151 and §152 could only mean to take even higher duty of care and not below.
  • §154  – Provides that bailee must only use goods for purpose allowed to him by the bailor and if he uses them in other way then he is liable absolutely and even act of god won’t be a defence.
  • §155 -157 – Bailee must not mix his goods with that of bailor and if he does so and if the goods are separable then he must separate them and bear the expense of separating them or otherwise compensate the bailor.
  • §161 – If goods are not returned by bailee after completion of bailment then any loss to goods even due to act of god will be incurred by bailee. – Prakash Road Lines v. Oriental Fire and General Insurance Co.
  • §159 – If bailor take back good lend in gratuitous bailment then if bailee suffer any loss due to such pre-pone of bailment then bailor must pay for the same.
  • §162 – Bailment is terminated either by death of bailor or bailee.
  • Bailee is not entitled to keep goods even if bailor is not the true owner of the goods. He is liable to return the goods to bailor and he will not be liable for conversion while doing so.
  • If bailee return good to third person he need to show that third person had better claim over the goods. Seizure of goods from bailee by authority of law is permissible.
  • Finder of good is a bailee having only right to lien.
  • §170 – Particular lien could only be exercised when it improves good such as horse trainer and not merely maintaining good such as keeping and feeding horse a stable.
  • General lien could not be applied to deposit of money as then there is no bailment. It also does not apply to paper, security if they are kept for purpose of security or some other purpose.
  • Money could be considered as good and lien could be used. – Mercantile Bank of India Ltd. v. Rochaldas Gidumal
  • Bank could exercise lien on joint accounts. – Syndicate Bank v. Vijay Kumar
  • If security is deposited for one loan then it could not be used for another loan.
  • Factor or agent could only lien good that come in their possession in capacity of agency and also they could not lien good that come in their possession for specific purpose.
  • Solicitor forfeit their right to lien the moment they discharge themselves by misconduct or decide not to act for client or cannot represent client such as in a case where firm of lawyer got dissolved individual lawyer cannot lien.
  • If bailor wants to sue sub bailee then he is bound to the terms between bailee and sub bailee.

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Guarantee – Law of Contracts II – Notes

  • Guarantee has four elements:-
    • Recoverable Debt
    • Consideration
    • Wilful consent
    • Oral or written form
  • Recoverable Debt – Bank gave overdraft facility. Law prohibited overdraft and considered them void. Thus bank sued the surety the court held that when nothing is due on the behalf of debtor only then liability of surety stands to nothing.  – Swan v. Bank of Scotland
  • Guarantee may be enforceable in case of a void debt when debt is void due to void contract rather than void due to statute.
  • In case of minor, surety knows of minor’s age then he is liable as contract then is not collateral but principal.
  • Consideration – Past consideration is valid consideration. – SICOM Ltd. v.  Padmashri Mahipat J. Shah (2005)
  • Third illustration depicts that anything done applies to only those scenario where creditor suffer deterrence due to the surety.
  • Consent – §142 talks about misrepresentation and §143 talks about concealment both absolving surety from its liabilities.
  • Gave guarantee for servant who had committed dishonesty earlier, was not told this by the employer so held not liable. – London General Omnibus Co v. Holloway
  • Writing not necessary – §126 states both written & oral guarantee are valid.
  • §128 states that surety’s liability is coextensive to that of principal debtor.
  • If principal creditor had some security with him and he sells it off then liability of surety gets reduced accordingly. – Harigopal Agarwal v. State Bank of India.
  • If surety signs only on the belief that there would be other co-sureties then if signature of one of surety is forged then other sureties are not liable if the premise of the contract was to make sureties jointly and severable liable. Plaintiff took guarantee of three directors, one of director’s signatures were forged. Held, not liable. – James Graham v. Southgate Sands
  • Principal creditor may directly go after surety instead of exhausting its means against the principal debtor. – Bank of Bihar v. Damodar
  • In case where surety could be prevailed over such as husband – wife relation surety could be absolved if it could be shown that there was undue influence. – Barclays Bank v. O’ Brien
  • Surety has the right to limit his liability or make it conditional.  In case surety liability was upto Rs. 15,000 and also the amount decreed by the court. It was held that the surety’s liability would be no more than Rs 15,000. – Bapanna v. Devata
  • If surety does not demand for another co-surety and merely has the knowledge that there are other co-sureties then in case of absence of these co-sureties surety’s liability will not dissolve. – Traill v. Gibbons
  • In case of impossibility of contract, surety’s liability is not dissolved.  Debtor took loan to develop and maintain bee culture but bees died due to infection. Surety was held liable. Florence Mabel v. State of Kerala
  • §129 – Continuing guarantee extend to series of transactions.
  • Bank guarantee is different and is independent of underlying transaction. In case of unconditional bank guarantee liability of bank is absolute and court won’t interfere unless there is element of fraud or possibility of irretrievable justice. – Hindustan Steelworks Corp. Ltd. v. Tarapore & Co.
  • Bank’s liability in bank guarantee is unconditional and court can only interfere in case where irretrievable injustice would be done. Hindustan Steelworks Corp. Ltd. v. Tarapore & Co.
  • Bank guarantee is unequivocal and unconditional. Beneficiary need not show loss suffered by non fulfilment of contract. – Amrok Logistics Ltd. v. Digvijay Cement Ltd.
  • Where contract was alleged to be impossible and there was allegedly concealment of important facts then also debtor was not able to prevent encashment of guarantee. – D.T.H. Corp. v. S.A.I.L.
  • Failure of party to point out exact amount of loss suffered despite having the means to know so was considered fraudulent and stay was provided. Banerjee & Banerjee v. H.S.W. Constructions Ltd.
  • If encashment of guarantee is contrary to law stay is provided. In case where person had to bid by putting security withdrew its bid before it could be accepted. – Kirloskar Pneumatic Co Ltd. v, N.T.P.C.
  • Enforcement of bank guarantee cannot be made subject-matter of arbitration proceeding. – National Project Constn. Corp. v. G. Ranjan
  • §132 provide if joint debtor has some arrangement amongst themselves and even if creditor knows about it then also their liability towards creditor remains unaffected.
  • Discharge of Surety’s Liability:-
    • Revocation §130
    • Death §131
    • Variance in Terms §133
    • Discharge of principal debtor §134
    • Act or Omission on part of creditor §139
  • §130 provide in revocation of continuing guarantee, guarantor is absolved only from future transactions. Provided guarantee of 600 pounds for 12 months and revoked it before credit was provided and accordingly surety was not liable. – Offord v. Davies
  • Death of surety becomes effective only for future transactions and estate is liable for existing debts. – Durga Priya Chowdhury v. Durga Pd Roy
  • The liability of deceased surety could be extended to its heirs but only to extent of property inherited by them. – R.K. Dewan v. State of U.P.
  • Surety is discharged as soon as original contract is altered without his consent. – Pratapsingh v. Keshavlal
  • If change in terms is not material say guarantee is lowered from Rs 25,000 to Rs 20,000 then it would not absolve surety. – M.S. Anirudhan v. Thomco Bank Ltd.
  • Any alteration that absolves surety also releases property of surety if given as guarantee.  Debtor took further loan than told to surety and then consolidated previous and new loans in a new deed. The surety’s property was released. – Bolton v. Salmon
  • Guarantee is absolved of its liability if substituted by another guaranteed bond signed by other guarantors. – P.N.B. v. Yarlapadda
  • Extension of cash limit does not absolve surety as its liability is limited to its guarantee. – M.V. Shantanarasimhaiah v. Dena Bank
  • Advance authorisation of surety for alteration of terms in contract is contrary to what is stated in §133 and hence void. Consent may be prior or subsequent to alteration though.
  • If creditor obtains a decree against debtor and in it accepts a payment less than he is entitled to then that does not absolve surety. – U.O.I. v. Manku Narayana
  • If creditor accept compromise and discharge debtor then surety is also discharged. – Kahn Singh v. Tek Chand
  • Liability of surety is coextensive to that of debtor. Debt Relief Act case – Mani v. Devassy
  • Act or omission on part of creditor leading to discharge of debtor’s liability also discharges surety’s liability.
  • Composition of debt by parties and not by court discharges surety.
  • Extension of time without surety’s consent even if it is for benefit of surety discharges surety.
  • If creditor promises not to sue debtor then surety is discharged but this is to be distinguished from forbearance to sue.
  • Prevailing view in India is that the surety is not discharged even if creditor fails to sue debtor within limitation period.
  • If creditor fails to realise the proper value of goods put as security then liability of surety is reduced accordingly. – State Bank of Saurashtara v. Chitranjan
  • Surety’s right against debtor:-
    • Right of Subrogation §140
    • Right to indemnity §145
  • Surety is vested with all rights which creditor had against debtor after he has paid all he is liable for. – Babu Rao Ramchandra Rao v. Babu Manaklal
  • If debtor is selling off his personal property lest surety after paying his debt seize them then surety is entitled to an injunction by the court to prevent debtor from doing so. – Mamata Ghose v. Union Industrial Bank
  • Surety is only entitled to be indemnified for the amount he paid rightly. Anything paid wrongfully would not be indemnified.
  • Surety is entitled to any security given to creditor by debtor after paying off the debts even if the surety doesn’t know about existence of such security.
  • There are different view  (Pg 653 &654) when surety has paid its part of debt and demands proportionate share in security in cases where surety’s liability is less than value of security. In some cases it was held that interest of creditor is paramount whereas in others it was held that all power of creditor are vested in surety from the moment he makes the payment as per §140.
  • Surety can only claim reduction in payment if there has been a voluntary act on part of creditor in loosing security.  Industrial Finance Corp. v. Cannaore Spg
  • If creditor or some third party has some goods in his hands as lien then surety after paying debt has right against creditor and such third party to lien these goods.
  • §138 – Release of one co surety does not discharge other
  • §146 – Co sureties liable to contribute equally
  • §147 – Liability of co sureties in different sum
  • It does not matter whether co-surety knows or not about other co-sureties.
  • Liability under indemnity is contingent whereas in guarantee it is subsisting in the sense that once a guarantee has been acted upon liability of surety automatically arises, though it remains suspended animation till principal debtor commits default.
  • Undertaking in a guarantee is collateral in an indemnity it is original.
  • Indemnity has two parties guarantee has three parties.
  • Indemnity has only one contract whereas in a guarantee there are three contracts, debt, between creditor and surety, debtor and surety.

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Indemnity – Law of Contracts II – Notes

  • Indemnity (English Law) – Promise to save a person harmless from the consequences of an act.
  • It could be express or implied. – Secretary of State v. Bank of India Ltd.
  • Shefield Corp. v. Barclay – A corporation, having registered a transfer if stock on the request of a banker, was held entitled to recover indemnity from the banker when the transfers were discovered to be forged.
  • §124 talks of loss caused by the promisor himself or other person and therefore loss by accident like fire or peril of sea is not covered.  It must be by human agency only. – Gajanan Moreshwar v, Moreshwar Madan
  • §124 does not deal with indemnity between principal and agent.
  • Persons can only encash indemnity to meet losses suffered. Anything more would be undeserved windfall doe one and penalty for other. – Cargill Intl. v. Bangladesh Sugar & Food Ind. Corp.
  • If the liability of the indemnity-holder has become absolute then the indemnifier must indemnify the indemnity-holder even if the indemnity-holder hasn’t damnified. –Moreshwar v. Moreshwar

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Pledge – Law of Contracts II – Notes

  • Delivery of Possession – Property pledged should be delivered to the pawnee.  When producer of a film borrowed a sum of money and agreed to deliver the prints of film when ready, it was not pledge as no actual transfer of possession took place.
  • Delivery of possession may be constructive or actual.
  • Delivery by attornment – When delivery is made to third person on direction of pledger.
  • Delivery of documents of tile is effective to create a pledge. – Morvi Mercantile Bank v. Union of India
  • Pledgee having bailment of goods as security for payment will have same remedied as owner of goods against third person for deprivation of goods or injury to them.
  • Pledge by Hypothecation – When goods are allowed to remain in custody of pledger for special purposes.
  • If pledger pledges the good to A by hypothecation and later on pledges good again to B then B cannot claim anything from goods as long as A’s claim is not satisfied.
  • In pursuance of contract – Pledge shall be made in pursuance to contract.
  • Blundell Leigh v. Attenborough – The case involved that plaintiff gave jewellery to X to let her know what offer he could to him as to lending money, and in return jewellery was kept as advance. X pledged jewellery to Y for 1000 pounds and gave 500 pounds to plaintiff.  Then X died and plaintiff after paying 500 pounds sued Y for jewellery and contended no pledge took between X and Y as X had first become gratuitous bailee and later on advancement of money possession was already passed from plaintiff to X. Court held otherwise.
  • §173 & §174 – Pawnee may retain goods till all due including interest is paid but may do only so for the debt goods were pledged and not for other debt.
  • Pawnee has first claim over goods than any other creditor. Bank had rights over the stock of sugar then cane commissioner for remaining dues as goods were pledged to bank and cane commissioner was an unsecured creditor. Central Bank of India v. Siriguppa Sugars & Chemicals Ltd.
  • In case of hypothecated pledge pawnee cannot seize the good himself and need court’s decree for the same.
  • Duty of Care – Pledgee need to take reasonable care of goods or else suffer loss.
  • Security holder is not bound to proceed against the security first or surrender it before maintaining a summary suit against the buyer.  – Suraj Sanghi Finance Ltd. v. Credential Finance Ltd.
  • Requirement of Notice – Pledgee before making the sale of goods kept as security needs to give a reasonable notice of his intention to sell. This requirement cannot be done away with a contract to the contrary.
  • Banker sold goods as right to sell of pledgee, the buyer returned goods and banker sold the goods to somebody else for lower price and sued pledger for balance. Court dismissed the claim stating that should have consulted the pledger before refunding the amount. L.N.  Arjundas v. State Bank of India
  • If consent of pledgee is real it is immaterial if consent has been obtained by fraud or misrepresentation. Jeweller took jewellery stating that he has a customer and then later on pledged it, the pledge was valid.- Ah San v. Maung Ba Thi
  • Plaintiff sent diamond for sell, the pawnbroker asked his friend to pledge them. Pledge not valid as it is not in course of business of a mercantile agent to ask a friend to pledge goods. – De Gorter v. George Attenborough & Sons
  • When the transfer of possession is voidable merely by reason of its being induced by fraud, which can be rescinded at the option of the owner, the consent which followed false representation is a sufficient consent within the meaning of section 30(2) of the Sale of Goods Act. But where the fraud induced an error regarding the identity of the person to whom or the property in respect of which possession was given, the whole thing is void and there is no consent in the sense of an agreement of two persons on the same thing in the same sense.
  • If contract is rescinded before pledge takes place then no valid title passes such as if a swindler gives a cheque then if police is informed and Automobile Association is informed to trace the vehicle then its sufficient to show of intent to rescind.
  • §179 – When a person pledges goods in which he has only a limited interest, he pledge is valid to the extent of that interest.
  • If a pledgee further pledge the goods pledged to him, original pledger is still entitled to his goods as long as he is willing to pay the amount for which he pledged the goods. – Thakurdas v. Mathura Prasad
  • If the original pledge made to pledgee is not valid then any pledge further made by pledgee is also equally ineffective. – Jaswantrai Manilal Akhaney v. State of Bombay

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