CONSTITUTION

Art 107. Provisions as to Introduction and passing of bills.-(1) Subject to

the provisions of Articles 109 and 117 with respect to Money Bills and other
financial Bills, a Bill may originate in either House of Parliament.
(2) Subject to the provisions of Articles 108 and 109, a Bill shall not be
deemed to have been passed by the Houses of Parliament unless it has been
agreed to by both Houses, either without amendment or with such amendments
only as are agreed to by both Houses.
(3) A Bill pending in Parliament shall not lapse by reason of the
prorogation of the Houses.
(4) A Bill pending in the Council of States which has not been passed by the
House of the People shall not lapse on a dissolution of the House of the People.
(5) A Bill which is pending in the House of the People, or which having been
passed by the House of the People is pending in the Council of States, shall,
subject to the provisions of Article 108, lapse on a dissolution of the House of the.
People.
Legislation which includes the imposing of taxes and appropriation of moneys
is one of the main functions of Parliament. The legislative proposal is initiated in
either of the House in the form of a Bill. The detailed procedure relating to the
passage of a Bill in a House is laid down in the rules of procedure which each
House has made. The Constitution, in this chapter, lays down only basic rules of
procedure.
Clause (1) provides the rule as to the initiation of legislation in Parliament. It
enacts that all Bills, except financial or Money Bills, may be introduced in either
House of Parliament. Financial or Money Bills pertain to fiscal matters such as
Bills authorising expenditure of money out of the Consolidated Fund of India or
levying of taxes, and can only be introduced in the House of the People.
Clause (2) provides that every Bill needs the agreement of both .Houses. If
there is a disagreement between the Houses over any provision or provisions as
proposed in the Bill, or over amendments, the Bill cannot be deemed to have
been passed by both Houses. There are two exceptions to the rule when a Bill
will be deemed to have been passed by both Houses notwithstanding
disagreement between them over the Bill. The first exception relates to Money
Bills as defined in Article 109. These are governed by a special procedure which
dispenses with the necessity of agreement of the Council of States to the
provisions contained therein. The second exception is provided in Article 108
which provides for the passage of a Bill, other than a Money Bill, at a joint sitting
of the two Houses.
Clauses (1) and (2) indicate the respective roles of the two Houses in the
law-making process. The Constitution, it will be seen, does not confer the same
powers on both Houses. The powers of the Council of States or the Rajya Sabha
are restricted in two ways. Firstly, it has no power to initiate money or financial
Bills and secondly, its consent is dispensed with in case. of Money Bills. Other
Bills, even if not consented to by the Council of States, may become laws if
passed at a joint sitting in which the members of the House of the People
numerically dominate.
Clauses (3), (4) and (5) of the article describe the extent to which the
pending legislative business lapses by prorogation of the Houses or dissolution
of the House of the People. Prorogation, as we have noted, brings to an end not
the existence, but a session of Parliament. Prorogation has no effect on Bills
pending in Parliament. They do not lapse and may be continued in the next
session. A Bill remains pending even when it is referred to a select committee
and need not be reintroduced after the select committee has submitted its report.
The Indian rule, it will be observed, makes a distinct departure from the English
convention. In England, prorogation ends the session of both Houses
simultaneously and terminates all pending business. These Bills must, therefore,
begin at the earliest stage when Parliament is summoned again.
Dissolution of the House takes place at the end of every 5 years and may
take place earlier also if the Prime Minister so desires. The extent to which the
legislative business lapses is stated in clause (5). Bills which are pending in the
House of the People lapse. They are not kept alive for the new House. Further, a
Bill which has been passed by the House of the People but is pending in the
Council of States, lapses on the dissolution of the House of the People.
It has been held that Article 107(5) is exhaustive and accordingly only such
Bills as are pending before the House of the People are affected. Thus, a Bill
which has passed all the stages in the two Houses and is awaiting the assent of
the President does not lapse on the dissolution of the House of the People. In
Purushothaman Nambudri v. State of Kerala, the Supreme Court upheld the
impugned legislation though the Governor had given his assent to the Bill after
the dissolution of the legislative assembly.
Clause (4), which is more in the nature of an explanatory provision, makes it
clear that where a Bill is pending in the Council of States and the same has not
been passed by the House of the People, it shall not lapse on the dissolution of
the House of the People.
Art 108. Joint sitting of both Houses in certain cases.-(1) If after a Bill
has been passed by one House and transmitted to the other House
(a) the Bill is rejected by the other House; or
(b) the Houses have finally disagreed as to the amendments to be
made in the Bill; or
(c) more than six months elapse from the date of the reception of the
Art 113. Procedure in Parliament with respect to estimates.-(1) So much of
the estimates as relates to expenditure charged upon the Consolidated Fund of
India shall not be submitted to the vote of Parliament, but nothing in this clause
shall be construed as preventing the discussion in either House of Parliament of
any of those estimates.
(2) So much of the said estimates as relates to other expenditure shall be
submitted in the form of demands for grants to the House of the People, and, the
House of the People shall have power to assent, or to refuse to assent, to any
demand, or to assent to any demand subject to a reduction of the amount
specified therein.
(3) No demand for a grant shall be made except on the recommendation of
 the President.
Art 114. Appropriation Bills.-(1) As soon as may be after the grants under
Article 113 have been made by the House of the People, there shall be
introduced a Bill to provide for the appropriation out of the Consolidated Fund of
India of all moneys required to meet
(a) the grants so made by the House of the People; and
(b) the expenditure charged on the Consolidated Fund of India but not
exceeding in any case the amount shown in the statement previously
laid before Parliament.
(2) No amendment shall be proposed to any such Bill in either House of
Parliament which will have the effect of varying the amount or altering the
destination of any grant so made or of varying the amount of any expenditure
charged on the Consolidated Fund of India, and the decision of the person
presiding as to whether an amendment is inadmissible under this clause shall be
final.
(3) Subject to the provisions of Articles 115 and 116, no money shall be
withdrawn from the Consolidated Fund of India except under appropriation ,made
by law passed in accordance with the provisions of this article.
Art 115. Supplementary, additional or excess grants.-
(1) The Presidentshall
(a) if the amount authorised by law made in accordance with the provisions
of Article 114 to be expended for a particular service for the current
financial year is found to be insufficient for the purposes of that year or
when a need has arisen during the current financial year for
supplementary or additional expenditure upon some new service not
contemplated in the annual financial statement for that year, or
(b) if any money has been spent on any service during a financial year
in excess of the amount granted for that service and for that year,
cause to be laid before both the Houses of Parliament another statement
showing the estimated amount of that expenditure or cause to be presented
to the House of the People a demand for such excess, as the case may
be.
(2) The provisions of Articles 112, 113 and 114 shall have effect in relation to
any such statement and expenditure' or demand and also to any law to be
made authorising the appropriation of moneys out of the Consolidated Fund
of India to meet such expenditure or the grant in respect of such demand as
they have effect in relation to the annual financial statement and the
expenditure mentioned therein or to a demand for a grant and the law to be
made for the authorisation of appropriation of moneys out of the
Consolidated Fund of India to meet such expenditure or grant.
Art 116. Votes on account, votes of credit and exceptional grants.-(1)
Notwithstanding anything in the foregoing provisions of this Chapter, the House
of the People shall have power
(a) to make any grant in advance in respect of the e~timated expen diture .
 for a part of any financial year pending the completion of the
procedure prescribed in Article 113 for the voting of such grant and the
passing of the law in accordance with the provisions of Article 114 in
relation to that expenditure;
(b) to make a grant for meeting an unexpected demand upon the resources
of India when on account of the magnitude or the indefinite character of
the service the demand cannot be stated with the details ordinarily
given in an annual financial statement;
(c) to make an exceptional grant which forms no part of the current
service of any financial year;
and Parliament shall have power to authorise by law the withdrawal of moneys
from the Consolidated Fund of India for the purposes for which the said grants
a~e made.
(2) The provisions of Articles 113 and 114 shall have effect in relation to the
making of any grant under clause (1) and to any law to be made under that
clause as they have effect in relation to the making of a grant with regard to any
expenditure mentioned in the annual financial statement and the law to be made
for the authorisation of appropriation of moneys out of the Consolidated Fund of
India to meet such expenditure.
Financial procedure: Supply or expenditure.-Articles 112 to 116 relate to the
procedure for the supply or grant of money which is to be followed in
Parliament.28 These provisions ensure effective control of the people's elected
representatives over the government in financial matters, which is an essential
aspect of democracy and its operation.29 In financial matters the President is
required to lay before both the Houses of Parliament an annual financial
statement, commonly called the budget. This statement gives out the estimated
income and expenditure for the year. The estimates of expenditure show
separately the sums charged. upon the Consolidated Fund of India and the sums
required to meet other expenditure out of the Consolidated Fund. The sums on
revenue account are to be distinguished from other expenditure. These are
charged on the Consolidated Fund of India:
(i) the salary and allowances, etc., of the President;
(ii) debt charges, including interest, sinking fund and redemption and cost of
raising loans;
(iii) salary, allowances and pension payable to the Comptroller and Auditor
General of India;
(iv) salaries, allowances and .pensions of the Judges of the Supreme Court;
(v) pensions of the Judges of the High Courts;
vi) salaries and allowances of the Chairman and Deputy Chairman of the
Council of States and the Speaker and Deputy Speaker of the House
of the Peop1e;
(vii) the sums required to meet any judgment or award of any court or
arbitral
tribunal; and
(viii) any other expenditure charged by the Constitution or any Union Act on
 the Consolidated Fund. 30
The expenditure which is charged on the Consolidated Fund of India is not
submitted to the vote of Parliament, but it is open to either House to discuss
these non-votable items of expenditure. Other expenditure must be submitted in
the form of demands for grant to the House of the People. The House of the
People has the power to assent or refuse to assent to any demand, or to assent
to any demand subject to a reduction of the amount specified therein. Private
members have no power to propose new items of expenditure or increase the
amount specified in the statement for any head of expenditure. Thus the
maximum amount to be spent on any item or service is in the control of the
executive. This is in accord with the English practice. In England no proposal for
the expenditure of public revenue can be made except on the recommendation
of the executive.

There should be legal sanction for appropriating the necessary funds for
meeting the expenditure for the current financial year out of the Consolidated
Fund. Accordingly, after the grants have been made by the House of the People,
a Bill known as the Appropriation Bill is introduced in the House. The Bill
specifies: (i) all the grants made by the House of the People, and (ii) the charges
on the Consolidated Fund as shown in the statement previously laid before
Parliament. No amendments can be proposed to the Appropriation Bill which will
have the effect of varying the amount or altering the destination of any grant or
of varying the amount of any expenditure charged on the Consolidated Fund.
The Constitution does not permit any withdrawals from the Consolidated Fund in
excess of the amount provided in the Appropriation Act. The Legislation for
raising funds through taxation is contained in the Annual Finance Act.
Votes on Accounts.-Unless the Appropriation Act is passed no money can
be withdrawn from the Consolidated Fund. But if the Appropriation Act is not
passed before the beginning of the new financial year, i.e., April 1, there would
be no money for the executive to spend. Provision has, therefore, been made in
the Constitution for allotting a limited sum out of the Consolidated Fund to the
executive to be spent on services and other items until the Appropriation Act is
finally passed by Parliament.
Supplementary Grants.-If the amount authorised by the Appropriation Act
to be expended for a particular service in the current financial year is found to be
insufficient for the purpose of that year, or when a need has arisen for any
additional expenditure, a supplementary estimate has to be introduced in
Parliament. The procedure in relation to the annual budget is applicable to the
supplementary grant.
Votes of credit and exceptional grants.-A vote of credit is a grant obtained
for meeting an unexpected demand upon the resources of the government
when, on account of the magnitude or indefinite character of the service, the
demand cannot be stated with the details ordinarily given in the annual financial
statement.

An exceptional grant is a grant which forms no part of the current service of any
financial year.
Control by Parliament.-Financial control by Parliament is exercised in two
stages, viz., the stage of proposals and the stage of results. The first stage
involves the formulation of government policies and of financial proposals for
implementing them, which includes, inter alia, the imposition of taxes and the
voting of money for public services. Here the legislature serves as the grand
forum of debate. The second stage, viz., that of results, is also equally important,
because it is only by careful control of the moneys spent and the manner of their
spending that the financial stability of the country can be maintained. This is the
stage at which Parliament, through its Public Accounts Committee, conducts an
examination of the public accounts of the Union as compiled by the accounts
officers responsible for their preparation and of the reports of the Comptroller and
Auditor-General on these accounts.31
The responsibility for auditing the accounts of public departments and of
seeing that funds voted for one purpose are not used for another purpose rests
upon the Comptroller and Auditor-General of India and his department. Any
transfer of funds from the purpose for which they were voted to another purpose
is illegal.
31.There is another committee of the House of the People known as the Estimates
Committee which examines the details of the estimates presented to the House in the
budget. The purpose is (i) to report what economies. improvements in organisational
efficiency or administrative reform, consistent with the policy underlying the estimates, may
be effected; (ii) to suggest alternative policies in order to bring about efficiency and
economy in administration; (iil) to examine whether the money is well laid out within the
limits of the policy employed in the estimates; and (iv) to suggest the form in which the
estimates should be presented to Parliament.

Art 123. Power of President to promulgate Ordinances during recess of

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

(2) An Ordinance promulgated under this article shall have the same force and
effect as an Act of Parliament, but every such Ordinance ,
(a) shall be laid before both Houses of Parliament and shall cease to
operate at the expiration of six weeks from the reassembly of
Parliament, or, if before the expiration-of that period resolutions
disapproving it are passed by both Houses, upon the passing of the
second of those resolutions; and
(b) may be withdrawn at any time by the President.
Explanation.-Where the Houses of Parliament are summoned to reassemble
on different dates, the period of six weeks shall be reckoned from the later of
those dates for the purposes of this clause.
(3) If and so far as an Ordinance under this article makes any provision which
Parliament would not under this Constitution be competent to enact, it shall be
void.
42[(4) [* * *]]
Ordinance-making power of the President.-The power to make laws for
the
Union Government belongs to Parliament. The purpose of this article is to
provide a machinery for legislation during the period Parliament is not in session,
although the circumstances require immediate action. The President may
promulgate ordinances, which have the same force and effect as an Act of
Parliament, subject to the following limitations:
(a) The ordinance must be promulgated at a time when both Houses of
Parliament are not in session. The session of a House comes to an end
on its prorogation or dissolution. If one House is sitting, there is no bar
to the issuance of the ordinance.
(b) The President must be satisfied that circumstances exist which render it
necessary for him to take immediate action.
(c) Every ordinance made by the President during the recess of Parliament
must be laid before both Houses and it ceases to operate at the expiration
of six weeks from the reassembly of Parliament, or if before the expiration
of that period, resolutions disapproving the ordinance are passed by both
Houses, the ordinance ceases to operate from the date of the passing of
the second of those resolutions. Where the Houses of Parliament are
summoned to assemble on different dates, the period of six weeks shall be
reckoned from the later of those dates. If the ordinance is allowed to lapse
without being placed before Parliament, it cannot be treated as void ab
initio and acts done and completed under it before it ceases to operate
remain fully valid and effective. Thus an office abolished by an ordinance
does not revive after the ordinance ceases to operate without being placed
before Parliament.
(d) An ordinance made by the President shall be subject to the same limita
tions as a law made by Parliament.

Article 123 speaks of the satisfaction of the President who has to act on the
aid and advice of the Council of Ministers in this regard. Clause (4) was added to
Article 123 by the Constitution (Thirty-eighth Amendment) Act, 1975 to'make the
satisfaction of the President final and conclusive and beyond judicial review.. But
this clause was omitted in 1978 by the Constitution (Forty-fourth Amendment)
Act. The question of judicial review was raised in A.K. Roy v. Union of India in
respect of the passing of the National Security Ordinance, 1980. The Supreme
Court held that judicial review of the President's satisfaction regarding the
necessity to issue an Ordinance is not totally excluded. Moreover the satisfaction
of the preconditions of Article 123 cannot be regarded a purely political question
and kept beyond judicial review. However, the Court refused to go further into the
question since the Ordinance had been replaced by an Act by then and because
the material placed before it on this ground was meagre. The Court was quick to
point out that a prima facie case must be established by the petitioners as to the
non-existence of the circumstances necessary (or the issuance of the ordinance
before the burden can be cast on the President to establish those
circumstances. Every casual and passing challenge to the existence 'of the
necessary circumstances would not be entertained.
Again, in T. Venkata Reddy. v. State of A.P the Supreme Court held that since
the .
ordinance making power in Articles 123 and 213 is of legislative character, just
like
the exercise of legislative power its exercise cannot be questioned on grounds of
motives or non-application of mind or grounds of its propriety expediency and
necessity.
The exercise of ordinance making power may be challenged if it could be
established that the President has not acted bona fide. But where one House or
both Houses of Parliament are prorogued deliberately with a view to enabling
the
President to promulgate the ordinance, the exercise of the power by the
President cannot be called fraudulent or malafide. In K. Veerabhadrayya, Re, in
considering
the power of the Governor to promulgate ordinances under Section 88 of the
Government of India Act, 1935 the court observed:
It is open to the Governor to prorogue the legislature at any time he
pleases. There is nothing wrong in the Governor proroguing the assembly and
the council with a view to enable him to issue an ordinance under Section 88. It
is a well-known fact that the legislature, which is democratically constituted, is
very slow to move in the matter of legislation, having regard to the rules of
procedure laid down in that behalf, and if urgent action is necessary, at any rate,
when His Excellency the Governor has reasons to believe that immediate action
is necessary, it would be more expedient to have resort to the power of issuing
an ordinance under Section 88 rather than approach the legislature for the
necessary legislation.
It must not, however, be inferred from the above that the President can make
and promulgate an ordinance without the advice of the Ministers. In the matter of
issuing ordinances, as in other matters, the President acts on the advice of the
Ministers. The ordinance is promulgated in the name of the President and in a
constitutional sense on his satisfaction. However, in truth it is promulgated on the
advice of his Council of Ministers and on their satisfaction.
Same force and effect as an Act of Parliament-The power to issue an
ordinance is not an executive power but a legislative power of the President
devised to meet urgent situations and necessary for peace and good government
of the country. An ordinance has the same force and effect as an Act of
Parliament and is clothed with all the attributes of an Act carrying with it all its
incidents, immunities and limitations under the Constitution. The only difference
between an Act and an ordinance is with regard to the duration, otherwise there
is no other limitation upon the ordinance-making power of the President.
Accordingly, like an Act of Parliament, an ordinance may repeal parliamentary
enactments or an earlier ordinance or may give retrospective effect to its
provisions.
Subject to the like restrictions-An ordinance made under this article is
subject to like restrictions as the power of Parliament to make laws: thus the
President can make ordinances on matters included in List I and List III,
Schedule VII to the Constitution. There is no inhibition on the ordinance-making
power that it shall not be used to deal with a subject-matter which is already
covered by a law made by Parliament. But while a proclamation of emergency is
in operation, the President can make ordinances on matters included in List II
also, for then Parliament is authorised to make laws with respect to the State
subjects. Further, no ordinance made by the President can violate the provisions
of Part III of the Constitution. The power of Parliament will be the measure or the
yardstick of' the ordinance-making power of the President.
The ordinance-making power of the President in India is rather unusual in a
democratic Constitution and is not found in any other Commonwealth
Constitution. The convenience of having such a power with the executive can
well be understood, for during the recess of Parliament situations may suddenly
arise which require to be dealt legislatively immediately. Nevertheless, there is a
danger in this power; it could be abused by way of proroguing any House of
Parliament and then legislating by ordinances. But even so, such abuse can only
be temporary since both Houses of Parliament must assemble together at least
once a year to hear the President's speech under Article 87. Moreover, a gap of
more than six months between the two sessions of a House is not permissible
and once the Houses meet the procedure under clause (2) of Article 123
becomes operative.
In justification of the ordinance-making power, Dr Ambedkar, Chairman,
Drafting Committee, said:
. My submission to the House is that it is difficult to imagine cases wh,ere the
powers conferred by the ordinary law existing at any particular moment may be
deficient to deal with a situation which may suddenly and immediately arise.
What is the executive to do? The executive has got a new situation which it must
deal with ex hypothesi. It has not got the power to deal with that in the existing
code of law. The emergency must be dealt with, and it seems to me that the only
solution is to confer upon the President the power to promulgate the law which
will enable the executive to deal with that particular situation because it cannot
resort to the ordinary process of law because, again ex hypothesi, the legislature
is not in session. Therefore, it seems to me that fundamentally there is no
objection to the provisions contained in Article 123.59 The exceptional power of
law-making through ordinance cannot be used as a substitute for the legislative
power of Parliament and therefore the courts will invalidate the ordinances which
are repromulgated time and again without being brought before Parliament as
required in clause (2) of Article 123.
Art. 148. Comptroller and Auditor-General of India .-(1) There shall be a
Comptroller and Auditor-General of India who shall be appointed by the President
by warrant under his hand and seal and shall only be removed rom office in like
mariner and on the like grounds as a Judge of the Supreme Court.
(2) Every person appointed to be the Comptroller and Auditor-General of
India shall, before he enters upon his office, make and subscribe before the
President, or some person appointed in that behalf by him, an oath or affirmation
according to the form set out for the purpose in the Third Schedule.
(3) The salary and other conditions of service of the Comptroller and Auditor-
General shall be such as may be determined by Parliament by law and, until they
are so determined, shall be as specified in the Second Schedule:
Provided that neither the salary of a Comptroller and Auditor-General nor his
rights in respect of leave of absence, pension or age of retirement shall be varied
to his disadvantage after his appointment.
i

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

(5) Subject to the provisions of this Constitution and of any law made by
Parliament,' the conditions of service of persons serving in the Indian Audit and
Accounts Department and the administrative powers of the Comptroller and
Auditor-General shall be such ,as may be prescribed by rules made by the
President after consultation with the Comptroller and Auditor-General.
(6) The administrative expenses of the office of the Comptroller and Auditor-
General, including all salaries, allowances and pensions payable to or in respect
of persons serving in that office, shall be charged upon the Consolidated Fund of
India.
Art 149. Duties and powers of the Comptroller and Auditor-General.-
The Comptroller and Auditor-General shall perform such duties and exercise
such powers in relation to the accounts of the Union and of the States and of
any other authority or body as may be prescribed by or under any law made by
Parliament and, until provision in that behalf is so made, shall perform such
duties and exercise such powers in relation to the accounts of the Union and of
the States as were conferred on or exercisable by the Auditor-General of India
immediately before the commencement of this Constitution in relation to the
accounts of the Dominion of India and the Provinces respectively.
Art [150. Form of accounts of the Union and of the States.-The accounts
of the Union and of the States. shall be kept in such form as the President may,
[on the advice of] the Comptroller and Auditor-General of India, prescribe.]

Art 151. Audit reports.-(1) The reports of the Comptroller and Auditor-
General of India relating to the accounts of the Union shall be submitted to the
President, who shall cause them to be laid before each House of Parliament.
(2) The reports of the Comptroller and Auditor-General of India relating to the
accounts of a State shall be submitted to the Governor of the
State, who shall cause them to be laid before the Legislature of the State.
There shall be a Comptroller and Auditor-General of India who shall be
appointed by the President by warrant under his hand and seal. He can be
removed from his office by the President on the ground of proved misbehaviour
or incapacity on an address of Parliament in the manner provided in clause (4) of
Article 124 relating to the removal of judges of the Supreme Court. His salary and
the administrative expenses of his office are charged upon the Consolidated
Fund of India. Before he enters upon his office, he shall make and subscribe
before the President, or some person appointed in that behalf by him, an oath or
affirmation in the prescribed form. After he has. ceased to hold office, he shall not
be eligible for further office under either the Government of India or the
Government of any State.
The Comptroller and Auditor-General has to ensure that withdrawal from the
Consolidated Fund are not made without adequate legal sanction. He has
functions in relation to accounts as well as to audit. He controls all disbursements
and audits all accounts of money administered by or under the authority of the
Union Parliament or the Legislature of a State. The combination of two functions,
namely, those of maintenance of accounts and audit, in the same agency has
been criticised because it makes the auditor, who is responsible for checking the
accounts, himself maintain the accounts which is an essentially administrative
function. In most progressive countries the agency for audit is different from and
completely independent of the agency maintaining accounts.
The reports of the Comptroller and Auditor-General of India relating to the
accounts of the Union are submitted to the President, who must place the same
before each House of Parliament. The reports relating to the accounts of a State
are submitted to the Governor, who must place them before the Legislature of the
State
FINANCE, PROPERTY, CONTRACTS AND SUITS
Art [264. Interpretation.-In this Part, "Finance Commission" means a
Finance Commission constituted under Article 280.]
Art 265. Taxes not to be Imposed save by authority of law.-No tax shall be levied
or collected except by authority of law.
No taxation except by authority of law.-This article embodies an important
constitutional principle, namely, that no tax shall be levied or collected except
under the authority of law. The term 'law' in this article means statute law, i.e., an
Act of the legislature. Accordingly, no levy can be imposed either by executive
action or by the resolution of a House. The expression 'authority or law' clearly
implies that the procedure for imposing the liability to pay a tax has to be strictly
complied with. Further, the law must be a valid law. A tax could only be imposed
by a law which is valid by conformity to the criteria laid down in the relevant
Articles of the Constitution. These are: (i) the law should be one within the
legislative competence of the legislature, being covered by the Legislative List
assigned to it by the Constitution,' (ii) the law should not be one prohibited by any
particular provision of the Constitution, for example, Articles 276, 285, 286, 289,
etc., (iii) the law or the relevant portion thereof should not be void unger Article
13, i.e., in conflict with the fundamental rights incorporated in Part ill of the
Constitution, and (iv) the law should not violate any other constitutional limitations
such as Articles 301 and 304. Thus, a tax law may be invalidated when it violates
the fundamental right to equality guaranteed by Article 14. Equally, the taxing
measure may be challenged if it violates the rights of a citizen under Article 19(1)
(f) or (g). In K. T. Moopil Nair v. State of Kerala, certain provisions of the Act
which prescribed the procedure for the levy of tax were struck down on the
ground of being obnoxious to Article 19(1)(1). This case well illustrates that not
only levy but matters pertaining to collection of tax also should be under the
authority of a law. In Khazan Chand v. State of J &K, the Court observed that the
power to make a law with respect to a tax comprehends within it the power to
levy that tax and to determine the persons who are liable to pay such tax, the
rates at which such tax is to be paid and the event which will attract liability in
respect of such tax. The power to make a law with respect to a tax includes the
power to make provisions in the relevant statute with respect to all matters
ancillary and incidental to the levy, assessment, collection and recovery of tax.
A very wide latitude is available to the legislature in the matter of
classification of objects, persons and things for purposes of taxation. It must be
so, having regard to the complexities involved in the formulation of a taxation
policy. Taxation is not now a mere source of raising money to defray expenses of
government. It is a recognised fiscal tool to achieve fiscal and social objectives
including reduction in inequalities and the goals laid down in Article 38. A divided
Court has also held that an illegally collected tax by the government need not be
 refunded unless the taxpayer bears the entire burden and has not transferred the
tax burden to others such as consumers. Such interpretation, the Court held,
was justified in view of Articles 39(b) & (c).
Tax and fee.- The Constitution recognises a clear distinction between a tax and
a fee in the three Lists in the Seventh Schedule. While there are several entries
in the Union and State Lists with regard to various forms of taxes, there is an
entry at the end of each List as regards fees which may be levied in respect of or
as incidental to the matter that is included in that List. The implication seems to
be.
that fees have special reference to governmental action undertaken in respect of
any of these matters. Thus, though a fee may be levied as incidental to
legislation with respect to any entry, no taxes can be imposed by virtue of the
general legislative power.
Article 265 applies to taxes and not to fee. The distinction between tax and
fee lies primarily in the fact that tax is levied as part of a common burden, while
fee is a payment for a special benefit or privilege. If the element of revenue for
the general purposes of the State predominates, the levy becomes a tax. In
regard to fee there is a correlation between the fee collected and the service
intended to be rendered. In the case of a fee it is the special benefit or privilege
accruing to an individual which is the reason for payment, whereas in the case of
a tax the particular advantage, if it exists at all, is an incidental result of State
action. Cases may arise where under the guise of levying a fee, an attempt may
be made to impose a tax. In the case of such a colourable exercise of power,
courts would have to scrutinise the scheme of the levy very carefully, and
determine whether in fact there is correlation between the service and the levy or
whether the levy is excessive to such an extent as to be a pretence of a fee and
not a fee in reality. Whether or not
a particular cess levied by a statute amounts to a fee or tax would always be a
question of fact to be determined in the circumstances of each case.

There is no generic difference between tax and fee. Both are compulsory
exactions of money by public authorities. Compulsion lies in the fact that
payment
is enforceable by law against a person in spite of his willingness or consent. A
levy in the nature of a fee does not cease to be a fee merely because there is an
element of compulsion or coerciveness present in it, nor is it a postulate of a fee
that it must have direct relation to the actual service rendered by the authority to
each individual who obtains the 'benefit of the service. If, with a view to providing
specific service, levy is imposed by law and expenses for maintaining the service
are met out of the amounts collected, there being a reasonable relation between
the levy and the expenses incurred for rendering the service, the levy would be in
the nature of a fee and not in the nature of a tax. A fee being a levy in
consideration of rendering service of a particular type, out correlation between
the expenditure incurred by the State and the levy must undoubtedly exist. But a
levy will not be regarded as a tax merely because .of the absence of uniformity in
its incidence, or because of compulsion in the collection thereof, nor because
some of the contributories do not obtain the same degree of service as others
may. For the purpose of finding out correlationship between the services
rendered to the fee payers and the fee charged from them, it is necessary to
know the cost incurred for organising and rendering the services. But matters
involving considerations of such a correlationship are not required to be proved
by a mathematical formula. On these principles the Supreme Court has upheld
State legislation on court fee including the provision for ad valorem fee where
one pays fee on the value of the subject-matter irrespective of utilisation of
judicial time.

The characteristics of the imposition of taxation are: firstly, the essence of

taxation is compulsion, that is to say, it is imposed under statutory power without
the taxpayers' consent and the payment is enforced by law. Secondly, taxation is
an imposition made for a. public purpose without reference to any special benefit
to be conferred on the payer of the tax. The tax once collected forms part of the
public revenues of the State, and there is no element of quid pro quo between
the taxpayer and the public authority. Taxation is for a public purpose even if
particular persons receive more benefit from the use of tax proceeds than others,
such as tariff duties for encouragement of manufacturers or licence fee with .a
view to regulate a particular trade or industry. Thirdly, taxation is a part of the
common burden, the quantum of imposition upon the taxpayer depends generally
upon his capacity to pay.
A fee is generally regarded to be a charge for a special service rendered to
individuals by some government agency. Thus, in determining whether a levy is a
fee the true test must be whether its primary and essential purpose is to render
specific services to a specified area or class, it may be of no consequence that
the State may ultimately and indirectly be benefitted by it. The power of any
legislature to levy a fee is conditioned by the fact that it must be by and large a
quid pro quo for the services rendered. However, correlationship between the
levy and the services rendered is one of general character and not as of
arithmetical exactitude. The quid pro quo need not be simultaneous, it may be
deferred also.The words 'licence fee' do not necessarily mean a fee in return for
the services rendered. In the Constitution, fee for licence and fee for services
rendered are contemplated as different kinds of levy. In City Corporation of
Calicut v. Thachambalath Sadasivam the Court observed:
"The traditional concept of quid pro quo in a fee is undergoing transfor-
mation. Though the fee must have relation to the services rendered, or the
advantages conferred, it is not necessary to establish that those who pay the
fee must receive direct or special benefit or advantage of the services
rendered for which the fee is being paid. If one who is liable to pay receives
general benefit from the authority levying the fee the element of service
required for collecting fee is satisfied."
Thus a licence fee can also be regulatory when the activities for which a licence
is given requires to be regulated or controlled.
In Jagannath Ramanuj Das v. State of Orissa, one of the essential elements
of fee as made out was its being set apart or specifically appropriated for the
rendering of services, and not merged in the general revenue of the State to be
spent for general public purposes. But later, in Secretary, Government of Madras,
Home Deptt. v. Zenith Lamp & Electrical Ltd. , the Supreme Court ruled that the
Constitution did not contemplate it to be an essential element of fee that it be
credited to a separate fund and not to the Consolidated Fund.

266. Consolidated Funds and public accounts of India and of the States.-(1)
Subject to the provisions of Article 267 and to the provisions of this Chapter with
respect to the assignment of the whole or part of the net proceeds of certain
taxes and duties to States, all revenues received by the Government of India, all
loans raised by that Government by the issue of treasury bills, loans or ways and
means advances and all moneys received by that Government in repayment of
loans shall form one consolidated fund to be entitled "the Consolidated Fund of
India", and all revenues received by the Government of a State, all loans raised
by that Government by the issue of treasury bills, loans or ways and means
advances and all moneys received by that Government in repayment of loans
shall form one consolidated fund to be entitled "the Consolidated Fund of the
State".
(2) All other public moneys received by or on behalf of the Government of
India or the Government .of a State shall be credited to the public account of
India or the public account of the State, as the case may be.
(3) No moneys out of the Consolidated Fund of India or the Consolidated
Fund of a State shall be appropriated except in accordance with law and for the
purposes and in the manner provided in this Constitution.
Consolidated Funds of India and the States.- This Article makes provision
for the consolidated funds of India and the States. It is laid down that all revenues
received by the Government of India, all moneys raised by loan and all moneys
received in repayment of loans shall form one consolidated fund and will be
called "the Consolidated Fund of India". But such taxes as are assigned to the
States do not form part of the Consolidated Fund of India.
Likewise, the Consolidated Fund of a State is formed by all revenues
received by the State, all moneys raised by loan and all moneys received in
repayment of loans.
No moneys out of the Consolidated Fund of India or of a State shall be
appropriated, except in accordance with law and for the purposes and in the
manner provided in the Constitution.
Public Account.-All revenues collected, and all moneys received on loan,
and all repayment of loans shall be credited to the respective consolidated funds
of the Union and the States. All other public moneys received by or on behalf of
the Government of India or the Government of a State shall be credited to the
Public Account of India, or the Public Account of the State, as the case may be.
For example, Article 284 enacts that all moneys received by or depo~ited with
any Union officer, other than revenues or public moneys raised or received by the
Government of India, or deposited with any court in India to the credit of any
cause, matter, account or person shall be paid into the Public Account of India or
of a State, as the case may be.
For the appropriation of any money out of the Consolidated Fund, the
procedure laid down in Articles 112 to 117 (or Articles 202 to 207) has to be
followed, but for withdrawing money out of the Public Account it is not necessary
to follow that procedure.
Art 267. Contingency Fund.-(1) Parliament may by law establish a Contingency
Fund in the nature of an imprest to be entitled "the Contingency Fund of India"
into which shall be paid from time to time such sums as may be determined by
such law, and the said Fund shall be placed at the disposal of the President to
enable advances to be made by him out of such Fund or the purposes of meeting
unforeseen expenditure pending authorisation of such expenditure by Parliament
 by law under Article 115 or Article 116.
(2) The Legislature of a State may by law establish a Contingency Fund in the
nature of an imprest to be entitled "the Contingency Fund of the State" into
which shall be paid from time to time such sums as may be determined by
such law, and the said Fund shall be placed at the disposal of the Governor of
the State to enable advances to be made by him out of such Fund for the
purposes of meeting unforeseen expenditure pending authorisation of such
expenditure by the Legislature of the State by law under Article 205 or Article
206.

Clause (1) empowers Parliament to establish a contingency fund. The fund

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

Section 2 of the Contingency Fund of India (Amendment) Act, 1970 made

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

Art 299. Contracts.-(1) All contracts made in the exercise of the executive
power of the Union or of a State shall be expressed to be made by the President,
or by the Governor of the State, as the case may be, and all such contracts and
all assurances of property made in the exercise of that power shall be executed
on behalf of the President or the Governor by such persons and in such manner
as he may direct or authorise.
(2) Neither the President nor the Governor shall be personally liable in
respect of any contract or assurance made or executed for the purposes of this
Constitution, or for the purposes of any enactment relating to the Government of
India heretofore in force, nor shall any person making or executing any such
contract or assurance on behalf of any of them be personally liable in respect
thereof.
Government Contracts.- The preceding article, we have noted, admits the
power of the Union and of each of the States to enter into contracts for any
purpose. This article lays down how Government contracts, including assurances
of property, are to be made and executed. A contract made with the Government
- Union or State - must satisfy three requirements: (i) the contract must be
'executed by a person authorised by the President or Governor, as the case may
be; (ii) the contract must be executed by such person on behalf of the President
or Governor, as the case may be; and (iii) the contract must be expressed to be
made by the President or the Governor, as the case may be. The provisions of
Article 299 are mandatory and their non-compliance would render a contract
void. It follows that no suit against the Government - Union or State - can be
brought if the requirements laid down in this article are not complied with.
Equally, the contract will not be enforceable by the Governments. Whether Article
299 has been complied with is not a pure question of law but a question
depending on investigation of facts. Article 299 does not apply to agreements
which are not contracts within that article.
But it has been held that so long as all the requirements of Section 175(3) of
the Government of India Act, 1935 (i.e., Article 299 of the Constitution) were
fulfilled and were clear from the correspondence, Section 175(3) did not
necessarily require the execution of any formal document, In Beharilal v. Bhumi
Devi, the Supreme Court held that though the contract was not executed strictly
in comformity with Article 299(1) but was in conformity with the rules approved by
the Rajpramukh. Therefore, it was not void because in substance it was on
behalf of the Governor.
The words "assurance of property" in clause (1) of Article 299 mean any
document of conveyance or the legal evidence of transfer of property.
The reason for enacting Article 299 of the Constitution of India is that in order
to bind a Government, there should be a specific procedure enabling the agents
of the Government to make contracts. The public funds cannot be placed in
jeopardy by contracts made by unspecified public servants without express
sanction of the law. It is a provision made to save the State from spurious claims
made on the strength of unauthorised contracts.
Article 299(1) is based on public policy. In case the executive engineer has
signed the contract but nowhere in the contract it was offered and accepted or
expressed to be made in the name of the Governor, it was held that it was not a
valid and binding contract.
Article 299 does not prescribe any particular mode in which authority must
be conferred on a person to execute a contract. Normally, such conferment will
be by notification in the Official Gazette but it can also be conferred ad hoc on
any person.
Where a contract entered into with the Government is void by reason of its
non-compliance with the provisions of Article 299(1) of the Constitution of India,
but goods have been delivered by the contractor to the Government in pursuance
of such a void contract, then an obligation is imposed upon the Government,
under Section 70 of the Contract Act, to make compensation to the person
delivering the goods,provided the conditions imposed under Section 70 are
satisfied, namely, the promisee must have acted lawfully and must not have
acted gratuitously. The contractor is also entitled to be restored back any
advantage received by the Government as provided under Section 65 of the
Contract Act, and if any amounts are paid to the contractor by the Government
under such a contract, the contractor is, unless the amounts are specially paid
towards particular items comprising such contracts entitled to appropriate such
amounts so paid to his advantage.

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

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

In view of Article 299(1) there can be no implied contract between the

Government and another person, the reason being that if such implied contracts
between the Government and another person were allowed, they would in effect
make Article 299(1) useless, for then a person who had a contract with the
Government which was not executed at all in the manner provided in Article
299( 1) could get away by saying that an implied contract may be inferred on the
facts and circumstances of a particular case. This is, of course, not to say thai if
there is a valid contract as envisaged by Article 299(1), there may not be
implications arising out of such a contract,
The provisions of Article 299(1) are mandatory in character and the
contravention of these provisions nullifies the contracts and makes them void.
There is no question of estoppel or ratification in such a case. The reason is that
Article 299(1) has not been enacted for the sake of mere form but has been
enacted for safeguarding the Government against unauthorised contracts. If the
plea regarding estoppel or ratification is admitted, that would mean in effect the
repeal of an important constitutional provision intended for the protection of the
general public.

In State of Haryana v. Lal Chand, the Supreme Court held that "there is a
distinction between contracts which are executed in exercise of the executive
powers and contracts which are statutory in nature". Article 299(1) applies to a
contract made in exercise of the executive power of the Union and the State.
Such a contract becomes nullified and becomes void if the contract is not
executed in conformity with the provisions of Article 299(1) and there is no
question of estoppel or ratification in such cases. Nor can there be an implied
contract between the Government and another person. But Article 299(1) has no
application to a case where a particular statutory authority as distinguished from
the Union or the States enters into a contract which is statutory in nature." This
case related to the Punjab Excise Act, 1914, Sections 59 and 60 and Punjab
Liquor Licence Rules, 1956. The
court held that the grant of exclusive privilege of liquor vend by auction-sale in.
exercise of statutory powers gives rise to a contract of statutory nature, distinct
from that excluded under Article 299(1) and therefore compliance with Article
299(1) is not required in such cases.
Where the tender notice issued by the Ministry of Railways in the
Government of India in respect of sale of surplus released serviceable and scrap
rails invited offers to be addressed to the President of India through the Director
of Railway Stores, Railway Board and. in the general conditions the seller was
defined to be the President of India acting through the Director of Railway Stores,
and in the default clause it was provided that where the buyer fails to execute the
conn:act, the seller has power under the hand of the Director of Railway Stores,
to declare the contract at an end and the draft contract showed that the contract
was to be executed by the President of India acting through the Director of
Railway Stores as the seller, it was held that there is little doubt that the only
person authorised to enter into contract on behalf of the President is the Director
of Railway Stores.
There is nothing in Article 298 to show that the trade or business carried
on by a State must be restricted to the areas within its territorial limits. On the
contrary, the article envisages the carrying on of the trade and business by a
State without any territorial limitations. The only restrictions on the executive
power of the State in this respect is contained in clause (b) of the proviso to that
Article. According to that clause, the executive power of the State shall, insofar as
such trade or business is not one with respect to which the State legislature may
make laws, be subject to legislation by Parliament.
Fairness in Government Contracts.-Although ordinarily, subject to the ap-
plicable law of contract the Government as a contracting party must stand in the
same position as any other party to a contract, through a series of cases it has
been established that even as contractor the government must comply with
certain requirements of public law such as the rule of law and fundamental rights,
particularly right to equality, not required to be complied by non-government
contracting
parties. It is being emphasised time and again that government bodies or
statutory
authorities even when acting within the range of private law area such as
contract must observe the propriety of fairness in consonance with the Preamble
of the Constitution, fundamental rights and the directive principles of State policy.
The issues of fairness are acquiring special attention in view of liberalisation
and privatisation of economy in which the State is getting more and more work
done through contractors rather than doing it departmentally. On the one hand
the courts have approved the constitutionality of such policy, which means
acknowledgment of the fact that the government is one of the parties to the
contract and has the liberty which a party to the contract has in entering into
contracts. On the other hand the government represents the people and their
interests. Therefore, it is expected to act on their behalf and in their interest even
in matters of contract. In this respect its position is different from any other party
to a contract. Its actions, even in matters of contract, have, therefore, to 'be
justified by standards which may not apply to private contracting parties. These
standards may not be and are not exactly the same as applicable to State action
when the State is acting in its capacity other than a contracting party. But some
minimum standards have to be observed so that the government does not
deviate from the path of acting in the public interest. Thus, admitting time and
again, that the government must have necessary flexibility in the matter of
contracts so that it may get its work done efficiently and expeditiously, the courts
have held that the government must also observe certain minimum standards of
public behaviour. They have repeatedly held that though normally they will be
reluctant to intervene in the exercise of contractual power by the government,
they will not hesitate to intervene if such exercise is unreasonable or arbitrary,
actuated by mala fides, affected by bias or is in disregard of the prescribed
mandatory procedures. The courts will not readily entertain such allegations
against the government, but if they can be proved, they will act in the interest of
justice.
Article 299 and Equitable Estoppel.-It is open to a party which has acted on a
representation made by the Government to claim that the Government shall be
bound to carry out the promise made by it even though the promise is not
recorded in the form of a formal contract as required by Article 299 of the
Constitution. For the application of this principle, it is necessary to establish that
there has been a promise or representation on the part of the Government
relying on which the citizen has acted to his detriment. Thus, in Union of India v.
Indo-Afghan Agencies, the Central Government under the Export Control
Scheme made under the Imports Control Order, 1955, declared that import
licences would be granted for materials up to 100 per cent of the f.o.b. value of
the goods exported. The petitioner had acted on the representation and made
export of goods of certain value. The Government did not grant the import
certificate for the full value of the goods exported. On a writ petition by the
importer, Indo-Afghan Agencies, it was contended on behalf of the Union of
India, inter alia, that there being no formal contract as contemplated under
Article 299, the Government could not be compelled to fulfill its earlier
declaration. Rejecting the contention of the Government, the Court held that the
petitioners were not seeking to enforce any contractual right. Their claim was
founded on the equity which arises in their favour as a result of a representation
made on behalf of the Union of India in the Export Promotion Scheme, and the
action taken by the respondents acting upon that representation under the belief
that the Government would carry out the representation made by it. The Court
cited with approval the decision of the Bombay High Court in the City of Bombay
v. Secretary of State59. In that case, in answer to a requisition of the
Government of Bombay, addressed to the municipal commissioner, to remove
certain fish and vegetable markets to facilitate the construction of an arterial
road, the municipal commissioner offered to remove the structures if the
Government would agree to rent to the municipality other land mentioned in his
letter at a nominal rent. The Government accepted the proposal and sanctioned
the application for a site for establishing the new markets. The municipal
commissioner then took possession of the land so made available and
constructed stables, workshops, etc. Twenty-four years thereafter, the
Government of Bombay served notice 'on the municipal commissioner
terminating
the tenancy and requesting the commissioner to deliver possession of the land
occupied by the markets and to pay in the meantime rent at the rate of Rs
12,000 per annum. The municipality contested the claim of the Government on
the plea that the events which had transpired had created an equity in favour of
the municipality and accordingly they could not be ejected. The Court accepted
the plea of the municipality since an equity was created in favour of the
municipality and held that in equity the Government could not enforce any claim
against it. Jenkin, C,J. delivering the judgment of the Court, said:
"The doctrine involved in this phase of the case is often treated as one of
estoppel, but I doubt whether this is correct, though it may be a convenient
 name to apply. .The doctrine with which I am now dealing takes its origin
from the jurisdiction assumed by courts of equity to intervene in the case of
or to prevent fraud."
Executive necessity.-It has been claimed that in England the Crown
cannot
bind itself so as to fetter its future executive action, and therefore, the
.Government may refuse to carry out the contract made by it if the altered
circumstances necessitated such action. The justification is the executive
necessity. The well-known case relied in support that the Crown cannot fetter its
future action is of Rederiaktiebolaget Amphitrite v. King. In that case, during the
First World War, certain neutral shipowners obtained an undertaking from the
British Government that if the shipowners sent a particular ship to the United
Kingdom with a specific cargo, she shall not be detained. On the face of that
undertaking, the owners sent the ship to a British port with that specific cargo.
The British Government withdrew their undertaking and refused her clearance.
In an action for damages for breach of contract, it was held that the
Government's undertaking was not enforceable in a court of law, it not being
within the competence of the Crown to make a contract
which would have the effect of limiting its power of executive action in the
future.
The doctrine has been subsequently doubted in Robertson v. Minister of
Pensions and Reilly v. King. The doctrine of executive necessity has no
application in India.
The Supreme Court has said:
"We are unable to accede to the contention that the executive necessity
releases the Government from honouring its solemn promises relying on
which citizens have acted to their detriment. "
No personal liability -Though Government contracts are made in the
name of the President and in the States in the name of the Governor, these
persons are not personally answerable in respect of any contract. Similarly, the
officers who contract on behalf of the Government are not personally liable since
they are acting for the Government and not for themselves. The same is the law
in England. In Macbeath v. Haldimand, which arose out of supplies of stores for a
fort under the control of the Government of Quebec, it was held that public
officers cannot be sued, either personally or in their official capacity, for contracts
made by them in their official capacity.
300. Suits and proceedings.-(1) The Government of India may sue or be
sued by the name of the Union of India and the Government of a State may sue
or be sued by the name of the State and may, subject to any provisions which
may be made by Act of Parliament or of the Legislature of such State enacted by
virtue of powers conferred by this Constitution, sue or be sued in relation to their
respective affairs in the like cases as the Dominion of India and the
corresponding Provinces or the corresponding Indian States might have sued or
been sued if this Constitution had not been enacted.
(2) If at the commencement of this Constitution
(a) any legal proceedings are pending to which the Dominion of India
is a party, the Union of India shall be deemed to be substituted for
 the Dominion in those proceedings; and
(b) any legal proceedings are pending to which a Province or an Indian
State is a party, the corresponding State shall be deemed to be
substituted for the Province or the Indian State in those proceedings.
Article 300(1) consists of three parts. The first part deals with the question
about the form and the cause title for a suit intended to be filed by or against the
Government of India or the Government of a State. The second part provides,
inter alia, that the Union of India or a State may sue or be sued in relation to its
affairs in cases like those in which the Dominion of India or a corresponding
Province or an Indian State as the case may be, might have sued or been sued if
the Constitution had not been enacted. The third part provides that it would be
competent to the Parliament or the Legislature of a State to make appropriate
provisions in regard to the topic covered by Article 300(1).
Form and cause.- The first part of Article 300 prescribes the way in which suits
and proceedings by or against the Government may be instituted. It enacts that
the Government of India may sue and be sued by the name of the Union of India,
a State may sue and be sued by the name of the State. There is a difference
between the "Government of India" and the "Union of India". The Government of
India is not a legal entity; the Union of India is a legal entity, a corporate body
which possesses rights and obligations. Likewise, each State has been endowed
with juristic personality, with power to sue and the liability to be sued. Except as
provided in Article 131, suits or proceedings by or against the Government or its
officers will be brought in the ordinary courts of the land.
Extent of liability.-The liability of the Dominion and the Provinces of India
before the commencement of the present Constitution was described in Section
176 of the Government of India Act, 1935 as follows:
"The Federation may sue or be sued by the name of Federation of India
and a Provincial Government may sue or be sued by the name of the
Province, and, without prejudice to the subsequent provisions of this chapter,
may, subject to any provisions which may be made by Act of the Federal or a
Provincial Legislature enacted by virtue of powers conferred on that
Legislature by this Act, sue or be sued in relation to their respective affairs in
the like cases as the Secretary of State-in-Council might have sued or been
sued if this Act had not been passed."
Section 176, it will be noticed, instead of directly stating the liability, refers
back to the legal position as it obtained before the enactment of that Act, that is
to say, as it existed on the enactment of Section 32 of the Government of India
Act, 1915. Sub-sections (1) and (2) of Section 32 were in these words:
"(1) The Secretary of State-in-Council may sue and be sued by the name
of Secretary of State-in-Council, as a body corporate.
(2) Every person shall have the same remedies against the Secretary of
State-in-Council as he might have had against the East India Company, if the
Government of India Act, 1858, and this Act had not been passed."
Accordingly, under Section 32, the remedies against the Secretary of State-
in
Council shall be the same as against the East India Company, if the Government
of India Act, 1858 and the Government of India Act, 1915 had not been passed.
We are thus referred further back to the Act of 1858. This Act transferred the
Government of India to Her Majesty and made provisions for succession of
power, authority, rights and liabilities. Section 65 of the Act of 1858, which is
relevant for our present purpose, was in the following terms:
"The Secretary of State-in-Council shall and may sue and be sued as well in
India as in England by the name of the Secretary of State-in-Council as a body
corporate; and all persons and bodies politic shall and may have and take the
same suits, remedies and proceedings, legal and equitable, against the
Secretary of State-in-Council of India as they could have done against the said
company; and the property and effects hereby vested in Her Majesty for the
purposes of the Government of India, or acquired for the said purposes, shall be
subject and liable to the same judgments and executions as they would while
vested in the said company have been liable to in respect of debts and liabilities
lawfully contracted and incurred by the said company."
It will thus be seen that by the chain of enactments beginning with the Act of
1858 the Government of India and the Government of each State are in the line
of succession of the East India Company. In other words, the liability of the
Government is the same as that of the East India Company before 1858. In
every case, therefore, the question that has got to be answered is: Would such a
suit lie against the East India Company, had the case arisen prior to 1858? This
liability could be either tortious, contractual or otherwise. But in each case the
same question had to be answered.
Liability in Tort.-First we shall consider the extent of vicarious liability of the
Government for the tortious acts of its employees acting in the course of their
employment as such. The question, therefore, is: What was the extent of liability
of the East India Company for the tortious acts of its servants committed in the
course of their employment as such? This important question arose before the
Supreme Court of Calcutta in 1861 in the leading case of P. & O. Steam
Navigation Co. v. Secretary of State for India. .
In that case, a servant of the plaintiff was travelling from Garden Reach to
Calcutta in a carriage and was passing by the Kidderpore Dockyards which was
government property. Some workmen employed in the dockyards were carrying
a heavy piece of iron for the purpose of repairing a steamer. These men were
walking in the very centre of the road when there was sufficient space on both
sides of it. The coachman and the syce in the carriage called out to the dockyard
servants, and the coach was slowed. The men carrying the iron attempted to
move away, but those in front moved to one side of the road while those behind,
to the opposite direction. The result was that the coach was quite near the load
and the bearers were still in the middle of the road. Seeing the horse and
carriage close to them, they dropped the iron, whereupon the horse, frightened
by the clang, rushed forward against the iron and was injured. The plaintiff filed a
suit against the Secretary of State for India-in-Council for the damage that was
suffered due to the negligence of the servants employed by the Government of
India. The small cause court judge, before whom the case went, decided that the
dockyard servants were negligent, though he expressed some doubt as to
whether the plaintiff's coachman had not advanced in a manner that was more
than absolutely necessary. He stated a case to the Supreme
.Court which the latter have enunciated thus:
"Whether the Secretary of State for India is liable for the damages
occasioned by the neligence of the servants in the service of the
Government, assuming them to have been guilty of such negligence as
would have rendered an ordinary employer liable."
The Supreme Court (Chief Justice Peacock, and Wells and Jackson, J1.) de-
livered a very learned judgment through the Chief Justice and answered the
questions in the affirmative. The Court pointed out the principle of law that "the
Secretary of State-in-Council of India is liable for the damages occasioned by the
negligence of servants in the service of Government if the negligence is such as
would render an ordinary employer liable".

There are observations in the judgment which suggest that the liability of
the Government in that case arose because the act was done in the course of a
non-sovereign function, Le., the maintenance of a dockyard was a function
which could have been undertaken by any private person without any
delegation of sovereign power and, therefore, the East India Company would
have been held liable for the wrong complained of. On the other hand, if the act
had arisen in the course of exercise of sovereign powers, there would have
been no liability of the East India Company and so of the Secretary of State for
India-in-Council, its successor. Peacock, C.J. recognised the distinction
between the sovereign and non-sovereign functions of the Government and
said:
"There is a great and clear distinction between acts done in exercise of
what are usually termed sovereign powers and acts done in the conduct of
undertakings which might be carried on by private individuals without having
such powers delegated to them."
And added:
"Where an act is done, or a' contract is entered into, in the exercise of
powers usually called sovereign powers, by which we mean powers which
cannot be lawfully exercised except by a sovereign, or private individual
delegated by a sovereign to exercise them, no action will lie."
Again, in the judgment it was pointed out that the Company would not have
been liable for any act done by its officers or soldiers in carrying on hostility or in
seizing property as prize property or while engaged in military or naval action. In
such cases, no action will lie for the negligence of their servants or officers "in
navigating a river steamer or in repairing the same or in doing any act in
connection with such repairs".

In view of the fact that in P. & O. Steam Navigation Co. case the plaintiff got
relief on the principle that for the tortious acts of the government servants the
Secretary of State-in-Council was as much liable as a private employer for
similar acts of his employees, the additional remarks of the Chief Justice could
have very well been treated as obiter. But in Nobin Chunder Dey v. Secretary of
State, perhaps the very next case, the Calcutta High Court gave full effect to
these remarks in rejecting the plaintiff's plea for damages against wrongful
refusal to him of a licence to sell certain excisable liquors and drugs resulting in
the closure of his business on the ground that the grant or refusal of a licence
was a sovereign function lying beyond the reach of the tortious liability of the
State. From then onwards the distinction between the sovereign and non-
sovereign functions of the State has been the basis of a number of judicial
pronouncements. Thus, for example, it has been held that (l) commandeering
.goods during war, (ii) making or repairing military road, (iii) administration of
justice, (iv) improper arrest, negligence or trespass by police officers, (v)
negligence of officers of the court of wards in the administration of estate in their
charge, (vi) negligence of officers in the discharge of statutory duties, (vii) loss
of moveable property in the custody of government, (viii) removal of child by the
negligence of the authorities of hospital maintained out of the revenues of the
State are sovereign functions in the performance of which the State is not liable
in torts. On the other hand, there have been decisions holding the State liable in
torts for the actions of its servants on the ground that the tortious act was
committed in the exercise of non-sovereign functions of the State.
Side by side there have been some cases where the courts have denied that
the P. & O. Steam Navigation Co. case laid down any distinction between the
sovereign and non-sovereign functions of the State for the purpose of its liability.
Thus, in Secretary of State v. Hari Bhanji, disagreeing with Nobin Chunder Dey,
the Madras High Court denied the distinction between the sovereign and non-
sovereign functions and held that where an act is done under the sanction of
municipal law and in the exercise of powers conferred by that law the fact that it
is done in the exercise of sovereign functions and is not an act which could
possibly be done by a private individual does not oust its justiciability. There have
been some other cases also to that effect including the Supreme Court decision
in Province of Bombay v. Khusaldas in which, though the majority did not touch
the issue, one of the minority judges, Mukherjea, J. held that not much
importance could be given to the remarks of Peacock, C,J. in P. & O. Steam
Navigation Co. case because the only point for consideration in that case was
whether in the case of a tort committed in the conduct of business the Secretary
of State for India could be sued and that was answered in the affIrmative.
"Whether he could be sued in the cases not connected with the conduct of
business or commercial undertaking was not really a question for the Court to
decide.
It is in this state of affairs that the Rajasthan High Court after holding the
State of Rajasthan liable in tort certifIed the case fit to be taken to the Supreme
Court in State of Rajasthan v. Mst Vidhyawati. In that case the husband of the
respondent was fatally injured while walking along a public road by a jeep car
driven by a driver employed by the appellant State. The car and its driver were
being maintained for the official use of the District Collector and at the time of
accident the car was being driven back from a workshop after some repairs to
the collector's residence. On a suit for damages by the widow and minor
daughter of the deceased, While the lower court absolved the State from any
liability the High Court found the State liable and held:
"In our opinion, the State is in no better position insofar as it supplies cars and
keeps drivers for its civil service. It may be clarified that we are not here
considering the case of drivers employed by the State for driving vehicles which
are utilised for military or public service."
After quoting these words of the High Court as a statement of correct legal
position, for a unanimous constitution Bench of five judges, Sinha, C.J. went into
the background of Article 300 as stated above, discussed and treated the P. & O.
Steam Navigation Co. case as a leading authority, also quoted from it the
remarks relating to the distinction between the sovereign and non-sovereign
functions, and held:91
"Viewing the case from the point of view of first principle there should be
no difficulty in holding that the State should be as much liable for tort in
respect of a tortious act committed by its servant within the scope of his
employment
and functioning as such as any other employer."
The common law rule of sovereign immunity which was later modified by the
Crown Proceedings Act, 1947, the Court observed, did not apply in India and the
distinction between the affairs of the State and other activities of the State was
outdated in a modem welfare State.
While the law appeared to have been settled in favour of rejection of the
distinction between the sovereign and non-sovereign functions of the State for
the purpose of tortious liability, in Kasturi Lai v. State of U.P another constitution
Bench of the Supreme Court, again speaking unanimously through
Gajendragadkar, C.J. heavily relied on the distinction of such functions referred
to in P. & O. Steam Navigation Co. case and held:
"If a tortious act is committed by a public servant and it gives rise to a claim for
damages, the question to ask is: Was the tortious act committed by the public
servant in discharge of statutory functions which are referable to, and ultimately
based on, the delegation of the sovereign powers of the State to such public
servant? If the answer is in the affirmative, the action for damages for loss
caused by such tortious act will not lie. On the other hand, if the tortious act has
been committed by a public servant in discharge of duties assigned to him not
by virtue of any delegation of any sovereign power, an action for damages
would lie. The act of the public servant committed by him during the course of
his employment is, in this category of cases, an act of a servant who might have
been employed by a private individual for the Same purpose. This distinction
which is clear and precise in law, is sometimes not borne in discussing
questions of the State's liability arising from tortious acts committed by public
servants."
The Court did not find the Vidhyawati case having decided anything different
from this which, according to it, had always been the law since P. & O. Steam
Navigation Co. and was consistently followed. It expressed its displeasure with
this legal position in a welfare State where the activities of the State had
enormously increased and asked the State to take necessary legislative steps
to remedy the situation on some such lines as the Crown Proceedings Act, 1947
in England. The Court also expressed its distress over the plight of the appellant
who could not know his position and get any relief.
The appellant in this case was apprehended by the police at Meerut and
some silver and gold in his possession was seized and deposited in the police
custody in the belief that it was stolen property. On the release of the appellant
his silver was returned to him but not gold. After his repeated demands for the
return of gold were of no avail he filed a suit for its recovery and in the alternative
for its price. In defence the State pleaded that the gold had been misappropriated
by a head constable who had fled to Pakistan and was untraceable. In the
circumstances State could not return the gold nor was it liable for its price or any
damages because firstly there was no negligence on the part of the police and
secondly the gold was seized and kept in the police custody in the exercise of
sovereign functions. The Court found gross negligence on the part of police
authorities concerned, yet it held:
"In the present case, the act of negligence was committed by the police
officers while dealing with the property of Ralia Ram which they had seized in
exercise of their statutory powers. Now the power to arrest a person, to
search him, and to seize property found with him, are powers conferred on
the specified officers which can be properly characterised as sovereign
powers; and so there is no difficulty in holding that the act which gave rise to
the present claim for damages has been committed by the employee of the
respondent during the course of its employment; but the employment in
question being of the category which can claim the special characteristic of
sovereign power, the claim cannot be sustained."
Thus the Court not only reversed what appeared to be the legal position after
Vidhyawati but also reinforced an additional qualification to the State liability by
referring to statutory powers; in a way holding that the State is not liable for any
torts committed by its servants in the exercise of statutory powers. Had the Court
pursued Vidhyawati approach, it would have brought the law in tune with the
times as has been done in most of the advanced countries and would have also
relieved it from the shackles of common law doctrine of sovereign immunity and
brought it in line with most of the continental countries where the State is not
considered any better than a corporation for the purpose of torts committed by its
servants.
Although Kasturi Lal has not been overruled or reconsidered by a constitutional
bench of the Supreme Court, great dissatisfaction has been expressed about it
in several writings and judicial decisions. Consequently, the Court has found
escape routes, either by restricting its ratio (binding principle) or by innovating
new remedies. An important decision restricting its ratio is N. Nagendra Rao &
Co. v. State of A.P in which the Court held the State of Andhra Pradesh liable
for the loss caused to the appellant by the negligent exercise of powers by the
State officials under the Essential Commodities Act, 1955. Retracing the history
of State liability in tort in England and India, particularly with reference to Article
300, the Court drew a distinction between the 'sovereign acts' and 'acts of State'
and held that it is only with respect to the latter that Kasturi LaI or earlier cases
in that line exempt the State from liability in tort. The East India Company was
not a sovereign. It was a delegate of the sovereign. The powers delegated to it
included some political powers, including the waging of war and concluding
peace. In the exercise of these political powers it could perform acts of State
which were not subject to the jurisdiction of municipal courts. The Court also
clarified that the concept of sovereignty has undergone a change in the last
centuries. Sovereignty now vests among the people and not in a ruler or
invisible State. Moreover, in a welfare State the distinction of sovereign and
non-sovereign functions of the State gets blurred and becomes inappropriate. In
Nagendra Rao though the State officials caused loss to the appellant in the
exercise of statutory authority as in Kasturi LaI, the Court distinguished the two
and found the State liable. It said that even the defence of 'act of State' is not
available when the State or its officials act negligently in the discharge of their
statutory duties. The Court also adverted to the expanding liability of the State
in other countries and lamented the fact that in spite of the Law Commission's
recommendation in 1958 and initiation of legislative proposals in mid-sixties, no
legislation on modem lines has been enacted in this regard. Incidentally the
Court also said that the State is not liable in tort for any loss caused by the
exercise of its legislative or executive powers. In this regard it may be
mentioned that there are some countries like France which sometimes hold the
State liable for the loss caused by the exercise of even the legislative powers.
How much validity this two-judge bench decision holds against the Constitu-
tional (5 judges) bench decision in Kasturi LaI is debatable, but the judicial trend
so far has been to restrict and discard Kasturi Lal. In Common Cause, A
Registered Society v. Union of India, relying heavily on Nagendra Rao the Court
held that allotment of petrol outlets by a minister could not be treated as "act of
the State" and the rule of immunity could not be invoked. As regards Kasturi LaI
the Court observed that "much of its efficacy as a binding precedent has been
eroded" . The Court has followed the same approach in Chairman, Railway
Board v. Chandrima Das and repeated the above statement about the efficacy of
Kasturi Lal as a binding precedent.
Prior to the above decisions the Court also circumvented Kasturi LaI by
resorting to a suggestion made in it that the sovereign functions of the State must
be narrowly and strictly construed, has been taken seriously. In Shyam Sunder v.
State of Rajasthan , the Court held the State liable for the tortious act of a truck-
driver engaged in the State famine relief work. In Pushpa Thakur v. Union of
India, the Supreme Court held the Union of India liable for the negligent driving
by a military jawan of a military truck resulting in serious injuries to the appellant
and granted compensation to the amount of Rs 1,00,000. The Court said that on
the facts and circumstances of the case the principle of sovereign immunity of
the State for the acts of its servants had no application. Again, awarding
damages to a foreigner for rape committed on her by railway employees while
she was staying in the railway Yatri Niwas at Howrah Station, the Court held that
Railways cannot claim sovereign immunity for their activities which are
essentially of commercial nature.
An important development in this regard, already noted under Part ll!, has
taken place under Article 21 read with Article 32. Without any reference to any
of the' above cases or to the sovereign immunity of the State, in Rudul Sah v.
State of Biharl, Rudul Sah was granted compensation for his wrongful
detention in jail after he was acquitted by the court. In Sebastian M. Hongray v.
Union of Indial, the Court directed the Union of India to pay exemplary costs to
the widows of two persons detained by the jawans of 21st Sikh Regiment who
could not be produced by the respondents even after the direction of the Court
nor their whereabouts could be established. And in Bhim Singh v. State of
J&KI8 the petitioner, a member of the legislature was wrongfully arrested in
order to prevent him from attending the session of the legislature, was awarded
compensation for his wrongful arrest and detention. From the Kasturi Lal case
 standards in all these three cases the servants of the State were performing
sovereign as well as statutory functions yet the Court held the State liable for
their wrongs. But it has to be remembered that all these three cases involved
deprivation of personal liberty and proceedings for habeas corpus under Article
32 and not a suit for compensation for the torts of the public servants. However,
following these decisions the Andhra Pradesh High Court has held that Kasturi
LaI does not apply where volation of life or liberty is involved and civil suit for
damages against the State can be filed. Again, without citing any precedents or
assigning any reasons in Kumari v. State of T.N. the Supreme Court has
awarded compensation against the State for the death of a child who fell into
an uncovered sewerage tank. However, in Nilabati Behra v. State of Orissa
awarding compensation to the petitioner for the death of her son in police
custody, the Court has expressly held that principle of sovereign immunity does
not apply to the public law remedies under Articles 32 and 226 for the
enforcement of the fundamental rights. Kasturi Lal is confined to private law
remedies only.
The distinction between public and private law and the remedies under the
two has been further emphasised and followed in the Common Cause and
Chandrima Das cases mentioned above. Quoting from the former and citing
various cases in
, which the public remedy was granted for torts committed by State officials in
the latter case the Court stated: "Where public functionaries are involved and the
matter relates to the violation of fundamental rights or the enforcement of public
duties, the remedy would still be available under the public law notwithstanding
that a suit could be filed for damages under private law. And, as we have already
noted, some of the fundamental rights, particularly life and liberty in Article 21
have widely expanded covering much of what is covered by private law and
sometimes even more. Moreover, it opens up the possibility of development of
public law torts which requires different considerations than the private law torts
and which is more suitable for State liability in tort. It also leads to emerging
concept of constitutional liability of State.
English Law.-In England the law on this subject has greatly been changed by
the Crown Proceedings Act, 1947. Before 1947, if a government servant
committed a tort, it was not possible to bring an action against the Crown. But the
action always could be brought against the actual wrongdoer. It is not very clear
on what grounds the exemption of the Crown was based. Many hold that the true
basis of the doctrine is the constitutional maxim "the King can do no wrong". But
as Holdsworth suggests, the rule that no action lies against the Crown is
procedural rather than substantive. On principle, there could be no justification
for exempting the Government from the liability for torts of its servants. The
Crown Proceedings Act, however, has placed the Government as regards the
right to sue and to be sued in the same position as a private individual. Now the
Crown or the departments can be sued for torts of the government employees
done in the course of their employment. In the United States the common law
rule prevailed, though now the law has greatly' been changed.
Liability in Contract.-In early cases, we find observations that contractual
liability of the Government, as in the case of tortious liability, would depend upon
the question whether the liability was incurred in the course of sovereign or non-
sovereign functions. Peacock, C.J. in the P. & O. Steam Navigation Co. case,
had asserted that "where a contract is entered in the exercise of powers usually
called sovereign powers, no action will lie". In Nobin Chunder Dey case it was
applied, though later decisions do not allude to the distinction between sovereign
and non-sovereign functions. In regard to the contractual liability of the Govern-
ment, the generally accepted view has been that the Government's contractual
liability is the same as that of a private individual. In fact, Article 299 of the
Constitution leaves no doubt that the contractual liability is the same as that of a
private person.
The rule of English law that a civil servant cannot maintain a suit against the
Crown for the recovery of arrears of salary does not prevail in India, .and has
been negatived by the provisions of the statute law in India. What could be
claimed in England by a Petition of Right can be claimed in this country by
ordinary process.
Subject to any provision.-It will be noted that Article 300 provides that it would
be competent to the Parliament or the Legislature of a State to make a ppropriate
provisions in regard to the liability of the Government. There is no condition in regard to
such a law and it would be competent for the legislature to define the liability of the
government differently from that obtaining before the commencement of the Constitution.
No such law has, however, been passed by any government so far.
Corresponding Indian States.-It may sometimes be difficult to ascertain which State
corresponds to which former Indian State. Provision has, therefore, been made in Article
366(7) to meet such difficulties. It lays down that in cases of difficulty the term
"corresponding State" will mean such State as may be determined by the President to
be the corresponding State.
Act of State.-It is well settled that there is no liability of the government 'for what are
known as acts of State. In the leading case, Secretary of State for India-in-Council v.
Kamachee Boye Saheba31, upon the death of the Raja of Tanjore, without issue, who
was a sovereign in treaty relation with the East India Company, the .directors of
the Company declared the Raj to have lapsed to the British Government.
The widow of the Raja, Rani Kamachee Boye Saheba, filed a suit against the
East India Company in the Supreme Court of Madras praying for a declaration
that she was entitled to possess and inherit the estate and that the East India
Company may be restrained by an injunction from disposing her property. The
Madras Supreme Court granted her prayers. The Secretary of State for India,
who had assumed the responsibilities of the East India Company, filed an appeal
in the Privy Council. The appellant contended before the Privy Council that the
seizing of the property was an act of State and that the Supreme Court could not
inquire into it. He also contended that an act done by an agent of the
Government, when it is ratified and adopted by the Government, must be
considered to have been done with its previous authority. The respondent replied
that the seizure in that case was not an act of State but a mere succession by an
asserted legal title, to the property alleged to have lapsed to the Company. The
Privy Council accepted the contention of the appellant. It held:
"(i) the Raja of Tanjore was an independent sovereign of India;
(ii) the seizing of the State of Tanjore was an act of State, i.e., it was not an
act affecting to justify itself on grounds of municipal law and was
directed
against an independent sovereign State;
(iii) the transactions between independent States are governed by laws
 other than those which municipal courts administer; such courts' have
neither the means of deciding what is right nor the power of enforcing
any decision which they may take."
In the course of the judgment the Privy Council said:
"The result, in their Lordships' opinion, is that the property now claimed by
the respondent has been seized by the British Government, acting as a
sovereign power, through its delegate, the East India Company; and that the act
done, with its consequences, is an act of State over which the Supreme Court of
Madras has no jurisdiction. Of the propriety or justice of that act, neither the court
below nor the Judicial Committee have means of forming, or the right of
expression, if they had formed, any opinion. It may have just or unjust, politic or
impolitic, beneficial or injurious effects taken as a whole' to those whose interests
are affected. These are considerations into which Their Lordships cannot enter. It
is sufficient to say that even if a wrong has been done~ it is a wrong for which no
municipal court of justice can afford remedy.
In the next case, Forrester v. Secretary of State one Begum Samroo, widow
of a French soldier of fortune, held a jagir under the Scindia Government on a
jaidad tenure, i.e., as grant of land, together with the public revenues thereof, on
condition of keeping up a body. of troops to be employed when called in service
of the Scindia Government. On the conquest of the State, the Jagirdar remained
in the same position till the year 1836, when on the death of the Begum the
estate was resumed by an order of the Government. On the basis of a will by the
Begum in his favour Dyce Sombre, a lunatic, brought a suit against the
Government to recover the possession of the jagir. The defence set up on behalf
of the Government of India was that the resumption of the jagir was an "act of
State" and was therefore not justiciable in municipal courts. The Privy Council
rejected the plea of act of State. Lord Hatherly, L.C., who delivered the judgment
of the Board, distinguished the Tanjore case from the case before them where
the seizure of land was under colour of legal title, and held that when possession
is taken by Government under colour of legal title, it does not constitute an act of
State. Their Lordships said:
"The act of Government in this case was not the seizure by arbitrary power of
territories which up to that time had belonged to another sovereign State; it
was the resumption of lands previously held from the Government under a
particular tenure, upon the alleged determination of that tenure. The
possession was taken under colour of a legal title; that title being the
undoubted right of the sovereign power to resume, and retain or assess to
the public revenue all lands within its territories upon the determination of the
tenure under which they may have been exceptionally held rent-free. If by
means of the continuance of the tenure or for other cause, a right be claimed
in derogation of this title of the Government, that claim, like any other arising
between the Government and its subjects, would prima facie be cognizable
by the municipal courts of India. "
A similar question had to be considered by the Bombay High Court in
Jahangir
v. Secretary of State for India. The plaintiff in that case had filed a suit
claiming damages for defamatory statements contained in a resolution issued by.
the Government. One of the contentions raised was that the power to censure or
reprimand government servant was an act of State and therefore, not cognizable
by the court. Batty, J. who decided the case, pointed out that though the
appointment or dismissal of a certain class of officers is among the functions of
the government and is not exercisable by private individuals as such, it is a
power which is exercisable only in pursuance of an authority conferred and
regulated by municipal law and deriving its justification therefrom, and subject to
limitations thereby imposed. The learned Judge observed:
"An act of State in respect of which the jurisdiction of the courts is barred
must be an act which does not purport to be done under colour of legal title at
all, and which must rest for its justification on consideration of external
politics
and inter-State duties and rights. In dealing with its own subjects,
therefore,
a Government must defend its action as justified by positive law, and cannot
rely on a plea of political expediency which would only justify action in
relation to foreign matters to which the law of the land does not extend."
Further, the learned Judge made it quite clear that there could be no such thing
as an act of State between the sovereign and his subjects.
In Firm Bansidhar v. State of Rajasthan, where the former erstwhile State had
granted certain tax concessions to start a market and the respondent State after
the merger agreement repudiated this agreement, it was pleaded that the
repudiation constituted a breach of contractual liability devolved on the
respondent State by succession. The Supreme Court did not accept this plea and
stated that cession of one State to another is an 'act of State' and there is no
question of subrogation. The successor State is not subrogated ipso jure to the
contracts with the merged State. Such contracts terminate with the change in
sovereignty, unless the contract is ratified by the succeeding sovereign State. .
Analysing some of the cases mentioned above and others in N. Nagendra
Rao & Co. v. State of A.P the Supreme Court has drawn the following
conclusion:
" 'Sovereignty' and 'acts of State' are thus two different concepts. The
former vests in a person or body which is independent and supreme
both externally and internally whereas latter may be act done by a delegate
of sovereign within the limits of power vested in him which cannot be
questioned in a Municipal Court. . . . An exercise of political power by the
State or its delegate does not furnish any cause of action for filing a suit for
damages or compensation against the State for negligence of its officers."
This statement does not seem to be making any improvement over the
above
quoted statement in Jahangir which laid down that there is no act of State
between a State and its own citizens. Later the Court has held that allotment of
petrol outlets by the government is not an act of State which may claim immunity
from challenge in the COurts.39
State bound by Statute.- The English common law rule based on the royal
prerogative is that the Crown is not bound by a statute save by express provisions or
necessary implication. In Director of Rationing v. Corporation of Calcutta, the majority
held that the rule of interpretation of statutes that the State was not bound by statute
unless it is provided in express terms or by necessary implication w~ the law in India
before the commencement of the Constitution and continues to be good law after the
commencement of the Constitution also. Wanchoo, J. in his dissenting opinion, however,
held that the rule of construction which was based on the royal prerogative as known to
the common law of England could not be applied to India now and since there was no
Crown in India the common law of England was not applicable and that therefore the
State was bound by a statute

Recommended Reading-
Constitution of India- By V N Shukla