Input:
Civil Appeal No. 1665 of 1974 From the Judgment and order dated 28.9.1973 of the Allahabad High Court in I.T. Reference No. 195 of 1971.
With Civil Appeal No. 145 of 1976.
Dalip Singh, K.C. Dua and Miss A. Subhashini for the Appellant.
Harish Salve, K.J. John, Ranjit Kumar and B.P. Singh for the Respondent.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
These two appeals were heard together.
Civil Appeal No. 1665 of 1974 arises from the decision of the High Court of Allahabad in Income Tax Reference No. 195 of 1971.
The assessee, Elgin Mills Ltd., at the relevant time, was a public limited company engaged in the business of manufacture of textile goods.
The assessment year involved is the year 1964 65 of which the relevant previous year ended on 30th September, 1963.
For the purposes of assessment under the provisions of Companies Profits (Surtax) Act, 1964, a dispute arose between the assessee and the revenue with regard to the computation of "Standard deductions".
The company claimed that the following amounts should be treated as 411 reserves for the purposes of computation of its capital: (a) Investment Reserve Rs.85,00,000 (b) Rehabilitation reserve Rs.40,00,000 (c) Forfeited Dividend reserve Rs.96,374 The Income tax Officer did not include any of the said 'reserves ' in the capital of the assessee company on the basis that these did not represent reserve in the real sense.
On appeal, the Appellate Assistant Commissioner held that the Rehabilitation reserve and Forfeited Dividends reserve represented reserves but the investment reserve account did not constitute real reserve.
Both the assessee as well as the revenue went up in appeal before the Tribunal.
The Tribunal disposed of these appeals by a similar order along with two similar appeals relating to the assessment year 1963 64 which arose out of proceedings under the .
The Tribunal held that all the three accounts represented reserves for the purposes of assessment under the .
The Tribunal was further of the view that all the three represented reserves for the purposes of assessment under the and as the principle involved was the same as under the Companies Profits (Surtax) Act, 1964, the Tribunal held that the accounts in question represented reserves under the latter Act also.
At the instance of the Commissioner, reference was made to the High Court for the assessment year 1964 65 on the following questions: "1.
Whether, on the facts and in the circumstances of the case, the tribunal was right in arriving at its decision by applying the principles laid down in the second schedule to the , instead of the provisions of the second Schedule to the Companies Profits (Surtax) Act, 1964, for computation of capital of the assessee company for the assessment year 1964 65. 2.
Whether, on the facts and in the circumstance of the case, the tribunal was right in holding that (a) Investment Reserve (b) Rehabilitation reserve (c) Forfeited Dividend Reserve were includible in the capital computation of the company in accordance with the second schedule to the Companies Profits (surtax) Act, 1964.
" 412 The High Court noted that in the connected reference No. 196 of 1971 Commissioner of Income tax vs Elgin Mills Company Ltd. (decision dated 19th July, 1973)) arising out of proceedings under the , it had already held that these accounts in question constituted reserve in the real sense and as such should be taken into consideration in determining the standard deductions under section 9(2) of the Act, 1963.
It was not disputed before the High Court that if the present reference had been under the , the accounts in question would have to be held as reserves by the High Court in view of its previous judgment.
But it was contended that the provisions of the Companies Profits (Surtax) Act, 1964 were different from the provisions of the Super Profit Tax Act, 1963.
The High Court did not accept this contention.
The High Court was of the view that under both the Acts, charging sections (section 4) were identically worded except that the expression "standard deduction" in had been replaced by the expression "statutory deductions" in the Companies Profits (Surtax) Act, 1964.
Under both Acts these deductions had to be computed with reference to the capital employed in the assessee company.
Under both the Acts reserves of the company were to be treated as its capital and the only difference was in the second schedule to the , an explanation had been added.
The said explanation was to the following effect: "For the removal of doubts it is hereby declared that any amount standing to the credit of any account in the books of a company as on the first day of the previous year relevant to the assessment year which is of the nature of item (5) or item (6) or item (7) under the heading "RESERVES AND SURPLUS" or of any item under the heading "CURRENT LIABILITIES AND PROVISIONS" in the column relating to "Liabilities" in the Form "Balance Sheet" given in of Schedule VI to the (I of 1956), shall not be regarded as a reserve for the purposes of computation of the capital of a company under the provision of this schedule.
" This explanation, the High Court noted, merely clarified what was implicit in the Super Profit Tax Act, 1963.
Item No. S in the prescribed Balance Sheet under the is "Surplus ' i.e. Balance in profit and loss account after providing for proposed alloca 413 tions, namely, Dividend, Bonus, or Reserves.
Item No. (6) was "Proposed additions to reserves" and item No. (7) was "Sinking Funds".
The Accounts mentioned in the explanation would not form a reserve for the purposes of the computation of capital of a company.
In any case the High Court was of the view that none of the accounts in dispute fell under the heading "current liabilities".
It was contended before the High Court on behalf of the revenue that any amount credited to those accounts during the relevant previous year would fall in item No. 6 viz. proposed additions to reserves.
The High Court found that there were no additions to those funds during the relevant previous year inasmuch as the amount standing in those accounts were being brought forward from year to year.
In those circumstances the Tribunal was right in deciding the question with regard to the admissibility of the three accounts in question on the principle application to .
This Court in Vazir Sultan Tobacco Co. Ltd. vs Commissioner of Income Tax, held that the expression "reserve '.
in and the Companies Profits (Surtax) Act, 1964 are in pari materia.
On merits, it was agreed that the points were covered by the previous decision of the High Court in the case of Commissioner of Income tax, Kanpur vs British India Corporation (P) Ltd., Accordingly, the High Court answered both the questions in the affirmative and in favour of the assessee.
This appeal arises out of the said decision of the High Court.
In Commissioner of Income tax, Kanpur vs British India Corporation (P) Ltd. (supra), the High Court noted the distinction between 'provision ' and 'reserves ' and observed that when an amount was set apart for a future liability, it was called a reserve and when it was set apart to meet an existing liability, it was called a provision.
The High Court was of the view that the Tribunal in that case was right in holding that capital reserve, stocks and stores reserves, bad and doubtful debts reserves, obsolescence reserve, loans and insurance reserves and investment reserves were to be included in the computation of capital.
The Tribunal was not right in including, according to the High Court, forfeited money reserve as the assessee had been transferring to this account dividends which had not been collected by the share holders after they had been declared, and as and when the shareholders made a claim, made payments and debited the same to the account.
The High Court, therefore, was of the view that this account represented a provision in respect of an existing liability.
The High Court in Income Tax Reference No. 196 of 1971 had to 414 deal with investment reserve account, rehabilitation reserve account, capital reserve account and depreciation reserve account and held that these were reserves but the account maintained as dividend account did not represent reserve.
The High Court in its judgment noted that on the 19th July 1973 relying on other judgment in Income Tax Reference No. 200 of 1917 Commissioner of Income Tax vs The Saran Engineering Co. Ltd. had answered the question by saying that the aforesaid items were re serves.
This is the subject matter of civil appeal No. 1599 of 1974 which will also be disposed of by another judgment of this Court.
Civil Appeal No. 1665 of 1974 and Civil Appeal No. 145 of 1976 which arose out of the Income Tax Reference No. 196 of 1971 have been heard together and are being disposed of by this judgment.
In this connection it would be desirable to dispose of Civil Appeal No. 145 of 1976 separately first.
It was submitted that the assessee had shown capital of Rs.2,63,79,218 which included the aforesaid reserves including investment reserves, rehabilitation reserve, capital reserve, depreciation reserve and forfeited dividends.
The submission on behalf of the revenue by Sree Dalip Singh was that the amount of Rs.85 lakhs in the relevant year as investment reserve was set apart by the assessee company to meet the liabilities of its Bombay Sub sidiaries, M/s Madhav Mills Ltd. and Calico Processors Ltd. which were known to the assessee on the date of the balance sheet.
The Directors ' report, according to the revenue, left no room for doubt that these were anticipated losses of the assessee company in the form of the investments made in its Bombay subsidiaries known at the date of the balance sheet.
These were liabilities, according to Sree Singh actually staring in the face of the assessee company when it prepared the balance sheet.
The Tribunal had held that it was a reserve because it was formed by transfer of the amount from capital/General reserve.
This according to the revenue, could not be accepted.
Revenue submitted that it was a common ground that originally the amount was set apart out of the undistributed mass of profits and therefore the moment it was taken out of the capital or general reserve, it ceased to be a capital or general reserve, and but for its being set apart to meet the liabilities of its subsidiaries, it had again gone back and formed part of the undistributed mass of profits and thereby assumed its original character.
It was submitted that the reserve in order that it might be so called in the real sense of the term must come out of the profits of the 415 company.
But if reserves were constituted out of assets which were sold A or by any other means it would be difficult to term the amounts shown as reserve.
It was submitted that the investments by the assessee company in the Bombay subsidiaries were in the nature of bad and doubtful debts.
Therefore, these were dead losses of the assessee company as the holding company, and these amounts were ultimately bound to be writ ten off and according to the revenue 's submission, the substance of the matter clearly was that the amount of RS.85 lakhs though shown as a reserve, was, in fact, a provision to meet the anticipated losses or bad and doubtful debts in the shape of investments in the two subsidiaries aforesaid which were shown at the date of the balance sheet.
For the assessee Sree Salve drew our attention to the distinction between reserve and provision which has been discussed in the decision of this Court in Metal Box Co. Ltd. vs Their Workmen, at 67 68.
According to the revenue, the nature and object of the subsidiary companies have to be kept in view and the practical result, revenue contended before us, was that the shareholders of the holding company whose share capital had been employed for the floatation of the subsidiary companies had not only no power to control the dealings of the subsidiary companies but in fact had no knowledge of, nor any right to the knowledge of or dealings of the subsidiary companies.
The expressions 'Provision ' and 'Reserve ' are defined in Schedule VI Part III to the .
In the decision of this Court in Vazir Sultan 's case (supra) it has been held that a provision was meant to provide for any known liability and the substance of the matter had to be kept in view.
It was further submitted by Sree Singh that the depreciation reserve could not be considered to be reserve in the real sense at all.
Forfeited dividends reserve of R.S. 1,08,771 had to be a provision.
On the other hand, on behalf of the revenue, it was submitted that in order to constitute reserve, there must be an appropriation of profits current or accumulated and not a charge against the profits for the year.
The conduct must bear out the intention to create a reserve.
It must not be to set apart to meet any known liability, a liability known but existing on the date of the balance sheet.
The explanation 'reserve ' has been defined in the text books of Accountancy which has been noted by this Court.
It was urged that it could not be disputed 416 that reserve might be general or specific reserve, what was required was that amount should be kept aprat for one or the other purpose either general or specific.
The distinction between provision and reserve must be found out bearing in mind main features of the reserve.
These are (1) It must be an appropriation of profits, current or accumulated and not a charge against the profits for the year.
(2) The conduct of the parties must bear out that intention.
(3) It must not be to set apart to meet any known liability a liability known to exist on the date of the balance sheet.
Reference in this connection may be made to the observations of this Court in Vazir Sultan 's case (supra) at pages 569 70.
The Calcutta High Court in Commissioner of Income Tax vs Eyre Smelting Private Ltd., , noted the characteristics of 'provisions ' as well as 'reserves '.
It held, inter alia, that provisions were made against anticipated losses and contingencies, it held further that an amount set aside of the profits designed to meet a contingency or liability or commitment or diminution in the value of the assets known to exist would be a reserve, and an amount set aside to provide for a known liability to which the amount cannot be determined with substantial accuracy would be a provision.
The said High Court differed from the decision of the Allahabad High Court in British India Corporation (P) Ltd. (supra) in respect of 'bad and doubtful debts. ' Whether in respect of bad and doubtful debts the account could be treated as reserve or provision would depend upon the facts and circumstances of the case.
The distinction between 'provision ' and 'reserve ' has been clarified by this Court in Metal Box Company of India Ltd. vs Their Workmen (supra) at pages 67 68 which states as follows: "The next question is whether the amount so provided is a provision or a reserve.
The distinction between a provision and a reserve is in commercial accountancy fairly well known.
Provisions made against anticipated losses and contingencies are charges against profits and, therefore, to be taken into account against gross receipts in the P. & L. account and the balance sheet.
On the other hand, reserves are, appropriations of profits, the assets by which they are represented being retained to form part of the capital employed in the business.
Provisions are usually shown in the balance sheet by way of deductions from the assets in respect of which they are made whereas general reserves and reserve funds are shown as part of the proprietor 's interest 417 (see Spicer and Pegler 's Book keeping and Accounts, 15th A Edition, page 42).
An amount set aside out of profits and other surpluses, not designed to meet a liability, contingency, commitment or diminution in value of assets known to exist at the date of the balance sheet is a reserve but an amount set aside out of profits and other surpluses to pro vide for any known liability of which the amount cannot be determined with substantial accuracy is a provision: (see William Pickles Accountancy, second edition, p. 192; , clause 7, Schedule VI to the : which defines provision and reserve).
" This Court in Commissioner of Income Tax (Central) Calcutta vs Standard Vaccum oil Co., at 698, observed that the ordinary meaning of the expression reserve was something specifically kept apart for further use or for specific occasion.
The observations made therein will have to be understood in the light of the subsequent decisions of this Court in Metal Box (supra) and Vazir Sultan (supra).
This Court in Vazir Sultan Tobacco Co. Ltd. etc.
vs Commissioner of Income tax etc.
(supra) considered the expression 'reserve ' in the and Companies (Profit) Surtax Act, 1964.
It is not necessary to set out all the conclusions of this Court.
Our attention was drawn to Datta 's on the Company Law (Third Edition) at page 42 1.
"Reserves" consist of appropriations from profits and other surplus and retained for future use.
This, however, does not include any amount which had been kept to meet any liability or diminution in value of assets known to exist as on the date of the balance sheet.
The essence and substance of the matter has to be kept in view.
As reiterated before, the distinction between 'provision ' and 'reserve ' is while the 'provision ' is a charge of profits which are taken into account in the gross receipt of Profits & Loss Account, 'reserve ' is an appropriation of profit to provide for the asset which is represented.
Keeping these tests and the facts of these appeals in mind, we must hold that the conclusion of the High Court in Civil Appeal No. 1665 of 1974 holding that the investment reserve and rehabilitation reserve were reserves and were entitled to be treated so under the relevant Act is right.
But in the facts of the case, the High Court was 418 not right in holding that the forfeited dividend reserve was reserve and question No. 2 also in the affirmative.
It should have followed in this respect its previous decision in respect of forfeited dividend reserve in Commissioner of Income Tax vs British India Corporation (supra).
The appeal, therefore fails, except on the point of "Forfeited Dividend Reserve." In Civil Appeal No. 145 of 1976, we are concerned with five items as mentioned i.e. investment reserve, rehabilitation reserve, capital reserve, depreciation reserve and forfeited dividends and in view of the facts found, we are of the opinion that first four items constituted reserves and were entitled to be treated as such under the Act and the forfeited dividends did not represent reserve.
This appeal accordingly fails in view of the facts found by Tribunal and reiterated by the High Court and the principles applicable as mentioned hereinbefore.
The High Court in its order had excluded "Forfeited dividend account" from the reserve.
The High Court was right in so doing.
In the facts and circumstances of the case, the parties will pay and bear their own costs in both the appeals.
CA 1665/74 allowed in part.
M.L.A. CA 145/76 dismissed.

Output:
In Civil Appeal No. 1665 of 1974, a dispute arose between the respondent assessee and the Revenue with regard to the computation of "standard deductions" under the provision of Companies Profits (Surtax) Act, 1964.
The respondent assessee claimed that the three amounts in respect of three accounts, namely, (a) investment reserve (b) rehabilitation reserve and (c) forfeited dividend reserve should be treated as reserves for the purposes of computation of its capital for the assessment year 1964 65 of which the relevant previous year ended on 30th Sept., 1963.
The Income tax officer did not include any of the said "reserves" in the capital of the respondent company on the basis that these did not represent "reserve" in the real sense.
The matter, ultimately went before the Tribunal.
It held: (i) that all the three accounts represented "reserves" for the purposes of assessment under the and as the principle involved was the same as under the Companies Profits (Surtax) Act, 1964, the accounts in question represented "reserves" under the latter Act also.
The High Court also, relying on its earlier decision in Commissioner of Income tax, Kanpur vs British India Corporation (P) Ltd. 92 TIRE 38, affirmed the view taken by the Tribunal and held (i) that under both the Acts charging sections (section 4) were identically worded except that expression(Standard Deduction) in had been replaced by the expression "statutory deductions" in Companies Profits (Surtax) Act, 1964; (ii) that under both Acts these deductions had to be computed with reference to the capital employed in the assessee 's Companies; and (iii) that under both the Acts reserves of the company were to be treated as its capital and the only difference was in the 409 Second Schedule to the Companies Profits (Surtax) Act, 1964 where an A explanation had been added, and this explanation merely clarified what was implicit in the Super Profit Tax Act, 1963.
In C.A. No. 145 of 1976 the assessee respondent had shown capital of Rs.2,63,79,218 which included inter alia investment reserve, rehabilitation reserve, capital reserve, depreciation reserve and forfeited dividends.
The High Court held that the first four items constituted reserves and the forfeited dividends account did not represent reserve.
Dismissing the C.A. No. 145 of 1976 and allowing CA No. 1665 of 1974 in part, ^ HELD: 1.1 The conclusion of the High Court in CA 1665 of 1974 holding that the investment reserve and rehabilitation reserve were reserves and were entitled to be treated so under the relevant Act is right.
But, in the facts of the case, the High Court was not right in holding that the "forfeited dividend reserve" was reserve.
However, in CA No. 145 of 1976, the Tribunal and the High Court had rightly excluded "forfeited dividend account" from the reserve.
[417G H; 418D] 2.1 The Supreme Court in Vazir Sultan Tobacco Co. Ltd. vs Commissioner of Income Tax [1981] 132 TIRE, 559 held that the expression "reserve" in and the Companies Profits (Surtax) Act, 1964 are in pari materia.
[413C D] 2.2 The distinction between "provision" and "reserve" is while the "provision" is a charge of profits which are taken into account in the gross receipt of Profits and Loss Account, "reserve" is an appropriation of profit to provide for the asset which it represented.
Reserve might be general or specific reserve, what is required is that the amount should be kept apart for one or the other purpose either general or specific.
The distinction between provision and reserve must be found out bearing in mind the main features of the reserve.
These are: (i) it must be an appropriation of profits, current or accumulated and not a charge against the profits for the year; (ii) the conduct of the parties must bear out that intention; (iii) it must not be to set apart to meet any known liability a liability known to exist on the date of the balancesheet.
[416A C] In the instant cases, keeping in view the aforesaid tests, invest 410 ment reserve, rehabilitation reserve, capital reserve and depreciation reserve constituted "reserves" and are entitled to be treated as such under Companies Profits (Surtax) Act, 1964.
The "forefeited dividends" do not represent "reserve".
[417G H; 418A B] Vazir Sultan Tobacco Co. Ltd. vs Commissioner of Income Tax, [ ]981] ; Metal Box Co. Ltd vs Their Workmen, at 67 68; and Commissioner of Income Tax (Central) Calcutta vs Standard Vaccum oil Co., at 698 relied upon.
Commissioner of Income tax, Kanpur vs British India Corporation (P) Ltd., approved.
Commissioner of Income Tax vs Eyre Smelting Private Ltd., referred to.


Input:
Appeal No. 1778 of 1967.
Appeal under section 116 A of the Representation of the People Act, 1951 from the judgment and order dated October 3, 1967 of the Bombay High Court, Nagpur Bench in Election Petition No. 14 of 1967.
C.B. Agarwala and A.G. Ratnaparkhi, for the appellant.
R.M. Hazarnavis, B.A. Masodkar, section B. Wad, V.D. Chetande and M.S. Gupta, for respondent No. 1.
The Judgment of the Court was delivered by Hegde, J.
The appellant is the returned candidate from the Rajura constituency of the Maharashtra State Legislative Assembly in the general election held in February 1967.
In that election he secured 21,435 votes as against 17,521 votes secured by his nearest rival, the first respondent herein, the nominee of the Indian National Congress.
The first respondent was representing that constituency prior to the said general election.
The first respondent challenged the validity of the appellant 's election in Election Petition No. 14 of 1967 in the High Court of Judicature at Bombay (Nagpur Bench) on two grounds namely (1) that the appellant was disqualified to be a candidate in that election and (2) that he was guilty of corrupt practices under section 123(4) of the Representation of the People Act, 1951 (to be hereinafter referred to as the Act).
The High Court allowed the petition and set aside the election of the appellant on the ground that he was guilty of publishing statements of facts which are false and which he either believed to be false or did not believe them to be true, in relation to the personal character and conduct of the first respondent.
It did not uphold the contention of the first respondent that the appellant was disqualified to be a candidate.
768 Though at one stage Mr. Hazarnavis, learned Counsel for the first respondent attempted to support the judgment of the trial court on the ground that the appellant was disqualified to be candid.ate, he finally gave up that contention.
Therefore it is no necessary to examine the same.
The High Court has found that the appellant was responsible for the publication of Exhs.
55 and 56 which ,according to contained statements of facts relating to the personal character and conduct of the first respondent and those statements were either false to his knowledge or at any rate he did not believe them to be true.
It further came to the conclusion that in some of the election meetings the appellant had falsely stated that the first respondent had a share in the contract secured by him for Abid Hussain.
The bulk of the evidence adduced in this case relates to the controversy whether the appellant was responsible for the printing and publication of Exhs.
55 and 56.
The High Court has accepted the case of the first respondent that the appellant was responsible for printing and publishing those pamphlets.
We have been taken through that evidence and we agree with the High Court on that aspect of the case.
It is not necessary to deal with that evidenced as we are of opinion that the statements contained in those pamphlets do not amount to corrupt practice under section 123 (4) of the Act Section 123(4) reads: "The publication by a candidate or his agent or by any other person (with the consent of a candidate or his election agent) of any statement of fact which is false, and which he either believes to be false or does.
not believe to be true in relation to the personal character or conduct of any candidate, or in relation to the candidature or withdrawal of any candidate, being a statement reasonably calculated to prejudice the prospects of that candidate 's election.
" The ingredients of the corrupt practice mentioned in this section are (1 ) the publication by a candidate or his election agent or by any other person with the consent of that candidate or his election agent of any statement of fact; (2) which statement is false and which was believed by the candidate to be false or a any rate was not believed by him to be true; (3) the said statement relate to the personal character or conduct of a candidate on in relation to his candidature or withdrawal and (4) the same being a statement reasonably calculated to prejudice the prospects of that candidate 's election.
As explained by this Court in Sheopat Singh vs Ram Pratap(1) section 123(4) is designed to achieve the dual purpose of protecting (1) ; 769 freedom of speech and prevention of malicious attack on the personal character ,and conduct of rivals.
A statement which reflects on the mental or moral character of a person is one relating to his personal character or conduct whereas any criticism of a person 's political or public activities and policies is outside it.
Section 123 (4)further requires that the candidate who made a false statement should have believed it to be false or did not believe it to be rue and lastly it should be a statement reasonably calculated to prejudice the prospects of the election of the candidate against whom it was made.
The word 'calculated ' means designed: it denotes more than mere likelihood and imports a design to affect voters.
The election law in this country as in England guarantees freedom of criticism of political nature at the time of election.
It is true that the freedom of criticism given might be sometime misused.
The political history of even countries like England shows that sensational false election propaganda against a political party, particularly on the eve of election might upset the party 's electoral fortune.
But the advantage gained from free criticism though sometimes it may turn out to be irresponsible in the long run outweighs the disadvantages.
It is in the interest of democracy that such criticism should be allowed.
This is the view of political thinkers.
A political party 's reputation is not built on shifting sands.
It has, at any rate, it should have, firmer foundation and should not be affected by passing winds.
But in the case of individuals a different approach is necessary.
A campaign of slander is likely to create prejudice in the mind of the people against him.
It cannot be put down as cynicism when it is sometimes said that the bigger the lie the greater is the chance of its being accepted as true.
There is unfortunately a tendency in the minds of the unwary public to believe the worst about individuals.
Democracy will be a farce if interested persons are allowed to freely indulge in character assassination during election.
Section 123(4) as we understand it embodies the two principles discussed above.
Every false allegation does not come within the mischief of section 123(4).
When any false allegation of fact pierce the politician and touches the person of the candidate then section 123(4) is contravened.
Dealing with the meaning of the expression 'personal character and conduct ' found in section 123(4) Subba Rao J. speaking for the Court in T.K. Gangi Reddyv.
M.C. Anjaneya Reddy and Ors.(1) observed at p. 266 of the report: "the words 'personal character or conduct ' are so clear that they do not require further elucidation or definition.
The character of a person may ordinarily (1) XXH, E.L.R. p. 266.
770 be equated with his mental or moral nature.
Conduct connotes a person 's actions or behaviour.
" Dealing with a provision similar to section 123(4) Darling J., Cumberland (Cockermouth Division) case(x) observed: "What the Act forbids is this.
You shall not make or publish any false statement of fact in relation to the personal character or conduct of such candidate; if you do, it is an illegal practice.
It is not an offence to say something which may be severe about another person nor which may be unjustifiable nor which may be derogatory unless it amounts to a false statement of fact in relation to the personal character or conduct of such candidate; and I think the Act says that there is a great distinction to be drawn between a false statement of fact which affects the personal character or conduct of a candidate and a false statement of fact which deals with the political position or reputation or action of the candidate.
If that were not kept in mind, this statute would simply have prohibited at election times all sorts of criticism which was not strictly true relating to the political behaviour and opinions of the candidate.
That is why it carefully provides that the false statement, in order to be an illegal practice, must relate to the personal character and personal conduct.
" The language of section 123 (4) is 'any statement of fact which is false ', and that language must be used in contrast to a false statement of opinion.
The language used is not merely a 'false statement ' .but a 'statement of fact which is false '.
The statement in question must be in relation to the personal character or conduct of a candidate, which means a false statement of fact bearing on the personal character or conduct of a candidate.
Further one of the ingredients of the corrupt practice under section 123 (4) is that the statement complained of must be one reasonably calculated to prejudice the prospects of the election of the person against whom it is made.
It may be noted that the section does not merely say 'being a statement calculated to prejudice the prospects of the candidate 's election ' but on the other hand it says 'being a statement reasonably calculated to prejudice the prospects of that candidate 's election '.
The meaning of that expression is as held by a Division Bench of the Bombay High Court in Dattatraya Narayan Patil vs Dattatraya Krishnaji Khenvikar and Ors.(2) that the publication of false statement of fact relating to the personal character or conduct must be such as would, in the estimation of the Court, having regard to the nature of the publication, the evidence ten (1) (1901) 5, O 'M & H.p.
(2) A.I R. 771 dered in Court and the surrounding circumstances have its natural and probable consequence of prejudicing the prospects of the candidate relating to whose personal character or conduct the publication has been made.
So far as the last limb of section 123(4) is concerned, the emphasis is not so much on the intention of the publisher but on the probable effect on the election of the candidate against whom those statements are directed.
It is trite to say that the burden of proving everyone of the ingredients of the corrupt practice alleged is on him who alleges it.
If he fails to establish any one of them to the satisfaction of the Court he must fail.
We shall now proceed to consider whether the statements of facts contained in Exhs.
55 and 56 fall within the mischief of section 123(4).
Before doing so it is necessary to give the background under which the statements complained of were made.
As mentioned earlier the first respondent was representing the constituency in question prior to the general election in 1967.
Sometime before the election the cultivators in the Rajura constituency as in other places were required to deliver to the Government a portion of the juwar crop raised by them in pursuance of the levy orders made.
This circumstance must have undoubtedly caused dissatisfaction to the rooting.
Rajura Taluka was previously a part of the Nizam 's State and thereafter the State of Hyderabad till the formation of the Maharashtra State.
We understand that in that Taluka, the boundary stones had not been fixed.
The State of Maharashtra 'appears to have directed the landowners to fix the necessary boundary stones for their property within a certain period.
As some of them did not comply with that direction, the., Government took upon itself the responsibility of fixing those boundary stones at the cost of those ryots.
That work was given on contract to one Abid Hussain.
It was suggested that charges fixed were excessive.
It may be mentioned at this.
stage that during the time when the juwar levy was imposed and the contract for fixing the boundary stones was given (as also at present ), the Congress Party was in power in the State of Maharashtra.
The first respondent was a Congress M.L.A.
In the past tolls were levied on every vehicle entering the municipal limits of Rajura but some years before the election that levy had been .abolished but the same was again reimposed sometimes before the election At the time of the reimposition of that levy Shri Shankarrao Deshmukh, a Congressman was the Chairman of the Rajura Municipality.
Having mentioned these facts we shall now proceed to examine the statements in Exhts.
55 and 56.
55 is a Marathi poem composed by the appellant 's election agent Dr. Suresh Vishvanathrao Upaganlawer (R.W. 3).
Its English rendering is as follows: 772 "Request to Voters.
Rise Rise Oh Voters Awake at least now Understand and begin to work.
You have suffered for five years, auspicious day has dawned now, truthful to your conscience, wake to vote, Oh brothers wake to vote.
Today kick off (this) slavery in the freedom (and) you should expose; you should expose the sins of Vithalrao.
He held out to be the leader of the people (but) he put burden of stones (on the people) By those very stones (you) build his grave, brothers build his grave.
For recovery of levy (from us) unlimited force used against us.
They take white juwar and give red millow (to us) and now confront him (with this).
Today our luck has dawned (in that) we got a great leader.
For protecting the interests of poor people see this Guruji has taken an Avatar.
(His) name is Jivtode Shrihari, has responded to our immediate call.
By giving your invaluable vote.
To Jivtode and Kaushik Pleader, Elect them this time.
Take vow like Bhishma and begin working today brothers.
begin working today, Seeing Lion Symbol, by affixing rubber stamp on it We will show to the world, Brother we will show our candidates that success garlands (him.)" Exh. 56 is a pamphlet published in Marathi.
It purports to be an appeal by one Ganpat Patil Dhote.
The English translation of it is found at p. 563 565 of.the paper book.
It reads thus: VOTERS BE CAREFUL In the forthcoming General Elections the sitting M.L.A. Shri Vithalrao Dhote is standing for Maharashtra Legislative Assembly on behalf of Congress.
The poor people have had experience of Shri Vithalrao Dhote as M.L.A. 773 Having been elected in the 1St General Elections Shri Vithalrao Dhote would work for the benefit, of the people and develop the backward Rajura Taluka was our expectation.
But the People of Rajura Taluka have been utterly disappointed by Shri Vithalrao Dhote.
In the this Taluka the High School which was there in the times of Nizam the High School is there in whole of Rajura Taluka till to day.
Shri Vithalrao Dhote could not construct a Single Pucca Road.
Could not supply electricity to any village anywhere.
Could not make arrangements for watering agriculture.
In this Taluka though there is thousands of acres of fallow land, for distributing it to landless no effort was made by Shri Vithalrao Dhote.
In the last five years no work for the benefit of the people has been done by Vithalrao Dhote.
On the contrary, through his selfish and fraudulent companion Shri Shankarrao Deshmukh, the Municipal President of Rajura (he got) imposed the stopped toll tax on the bullock cart (Rengi and Bandi) of poor people coming to Rajura.
Its effect has been surely felt by every poor man in the Taluka.
Similarly by fixing boundary stones on the Dhuras of the cultivators in Rajura Taluka and by recovering price of stones Shri Vithalrao Dhote has worked for the benefit of Abid Husain Thekedar alone.
In this taluka the cultivators could not get Taccavi loans without giving bribe at the time of distributing taccavi, Shri Vithalrao Dhote could not check bribery.
Shri Vithalrao Dhote has neglected the poor people by looking to the interests of Thekedar (contractor) alone.
By this, poor people have lost all faith in Shri Vithalrao Dhote in Rajura Taluka.
By this the poor people are very much harassed.
When I myself moved in the villages in this Taluka, I found that public opinion is inclined against Shri Vithalrao Dhote.
People are organised as Shri Vithalrao Dhote has harassed the poorer for furthering interests of his selfish and deceitful companion.
Because of this and with great reluctance and keeping interests of public in view I am publishing this pamphlet against Amdar Vithalrao Dhote to keep the true facts before the public.
The man who is proving dangerous to the majority in the Society and poorer section of the public has to be pulled down from his office (and) except this, there is no other way is ' my belief.
Hence I humbly request the voters in Rajura Constituency that they should not vote for the Congress candi 774 date Shri Vithalrao Dhote.
Contesting candidate from Rajura Constituency Shri Jivatode Guruji has 'worked for spread of Education by opening Janata High Schools.
Shri Jiotode Guruji has benefited the poor people by opening all kinds of colleges of Chanda. "Shri Jiotode Guruji" will bring about the development of backward Rajura Taluka positively.
Hence by putting a cross on the Lion Symbol of Vidarbha Joint Front 's Shri Jiotode Guruji, Shri Jiotode Guruji be elected by a large majority is my humble and earnest request to the voters.
yours humbly Symbol of Lion Ganpat Patil Dhote Put Cross only on Lion.
In small type Publish: Ganpat Patil (Shivshakti of Chote r/o Nimani T. Rajura Chandrapur).
The various statements contained in these two pamphlets are summarised by the learned Trial Judge thus: "(a) (The Petitioner) has imposed the toll tax on poor citizens on their bullock carts through his selfish and bogus companion Shri Shankarrao Deshmukh, President of Rajura Municipality, which has caused undue suffering to every poor citizen residing in this part.
(b) Vithalrao Dhote has only secured advantage for Abid Husain, Contractor, by imposing the burden of paying for the border stones which were compulsorily ordered to be fixed.
(c) In this taluq no cultivator has been able to get taccavi without payment of bribe 'and Vithalrao is unable to prevent it.
(d) Vithalrao Dhote has solely protected the interest of the contractor and neglected the poor citizens and on that account Vithalrao Dhote has forfeited confidence of poor persons in Rajura taluq.
(e) The poor population is simply harassed and I have found that the inclination of the people is against Vithalrao Dhote when I went around in the village.
(f) Poor persons are simply harassed on account of exploitation and ruin caused by Vithalrao Dhote solely for the benefit of his selfish and bogus companions.
775 (g) Persons (meaning the petitioner) who is a menace W the majority of the community and poor persons must be sacked from the office in my firm conviction.
" None of the afore mentioned allegations can be hold to relate to the personal character or conduct of the first respondent.
They are undoubtedly criticism, true, false or exaggerated, of the first respondent 's roll as politician.
Those statements do not make any reflection on the moral or mental qualities of the first respondent.
As mentioned earlier a Congressman was the President of the Rajura Municipality 'at the time the tolls were reimposed.
It may be that the first respondent had no hand in the matter of reimposition of the tolls and that the accusation that he got it reimposed is not true but that in no manner can be said to reflect on the personal character or conduct of the first respondent.
Similarly the accusation that the first respondent secured advantage for Abid Hussein by imposing a burden on the land owners by making them pay for the boundary stones cannot be said to reflect on the private character of the first respondent whether the statement in question is true or false.
The appellant had a right to hold the first respondent responsible for the actions of the Government as he was a member of the party in power.
The allegation that in the Rajura Taluka no cultivator had been able to get Taccavi loans without payment of bribe and that the first respondent was unable to prevent it, is undoubtedly a legitimate criticism.
The allegation that he solely protected the interests of the contractor and ignored that of the poor citizens and on that account he has forfeited the confidence of the poor persons in his constituency is an expression of an opinion, whether the same is true or not.
The allegation that the poor population is simply harassed and that the signatory to the pamphlet found that the inclination of the people is against the first respondent when he went around in the village, is merely an opinion and not a statement of fact.
Similarly the allegation that the poor persons are being harassed on account of the exploitation and ruin caused by the first respondent solely for the benefit of his selfish and bogus companions is an expression of an opinion and it is a permissible criticism in a political debate.
The assertion that the first respondent is a menace to the majority as also to the poor and therefore he must be sacked from the office is as stated in the pamphlet itself is purported to be the conviction of the person who issued the statement.
He is entitled to hold that opinion and propagate it.
It must be remembered that during election time passions are roused; election propaganda should not be tested by the standards to be adopted in a debate carried on by intellectuals.
It may be that many of the charges levelled against a candidate as regards his political past or about his capacity to be a useful representative 776 are not true.
It is for the electorate 'to judge those accusations.
So long as those accusations do not affect the personal character or conduct of the candidate, the election law will not take note of it.
That is why it is said that a politician must be thick skinned and more so at election time.
As mentioned earlier it is not a corrupt practice to say something which may be severe about another person, nor which may be unjustifiable nor which may be derogatory unless it amounts to a false statement of fact in relation to his personal character or conduct.
It is unfortunate that the High Court exclusively focussed its attention on the question whether or not the appellant caused to get Exhs.
55 and 56 printed and published and completely ignored the true effect of the statements contained therein.
It proceeded on the erroneous impression that every false or unjustified criticism of a candidate amounts to a contravention of section 123(4).
Dealing with Exhs.
55 and 56 this is what the learned Trial Judge observed: "To say against anybody that he is responsible for imposition of a tax without ' justification through.
that person 's selfish and pretentious friend like the President of the Municipal Council is, to say the least, to suggest that such person is the direct cause of 'harassment on account of such taxation on poor people.
It is said in the third paragraph of the pamphlet and then there is a direct allegation against the petitioner that it is the petitioner who caused the cultivators in the Rajura taluq to be burdened with.
the expense of fixing.
the border stones and that in doing so the petitioner Vithalrao Dhote has solely secured an advance for Abid Hussain Thekedar.
In the fourth paragraph, it is categorically alleged that the petitioner Vithalrao Dhote has exploited and harassed poor people in order to benefit his i.e. Vithalrao selfish and pretentious friends and such harassment has caused untold miseries.
That these allegations are scurrilous does not admit of any doubt.
They are defamatory per se.
Every citizen is entitled to be presumed to be innocent until contrary is proved.
If therefore an allegation of a personal character is made against anyone, it is the maker of the allegation who has to establish that there is truth in the allegation.
" It is clear that the High Court failed to examine the effect of the statements contained in Exhs.
55 and 56 by the tests prescribed in section 123(4).
Further there is no proof in this case that the statements contained in Exhs.
55 and 56 are reasonably calculated to prejudice the election of the respondent.
The Trial Court did not give any finding effect.
777 This leaves us with the question whether the appellant had announced in his election meetings that the first respondent had a share in the profits earned by Abid Hussain in the matter of fixing boundary stones.
The High Court has held that the appellant made that accusation while 'addressing election meetings at two places.
If that finding is correct then undoubtedly there is a contravention of section 123(4) but after carefully examining the material on record we have come to the conclusion that finding is unsustainable.
The election petition was filed on April 11, 1967.
That petition merely sets out what according to the petitioner are the contents of Exts.
55 and 56.
It is not stated therein that apart from the statements contained in those pamphlets any other false statement of fact relating to the personal character or conduct of the first respondent had been made either by the appellant or his supporters.
The allegation that the appellant in his election meetings had stated that the first respondent had a share in the profits earned by Abid Hussain in the matter of fixing the boundary stone is not mentioned there.
An application to amend the election petition was made on June 24, 1967.
In that application also there is no reference to the allegation in question.
The election petition was again amended on 3 7 1967.
It was only then the following allegation was made: "He (the appellant) was falsely alleging that the petitioner was or had actively helped Abid Hussain for his selfish ends to make illegal gains and thus allege false corrupt motives to him." Even this allegation is vague.
That apart it is a highly belated allegation.
It appears to be an afterthought.
It is not necessary for us to decide in this case whether such an amendment could have been permitted after the limitation for filing the election petition had expired.
But the very circumstance that the allegation in question was made several months after the election petition was filed by itself casts serious doubt on the veracity of that allegation.
This circumstance was completely overlooked by the High Court.
The witnesses who spoke in support of the said allegation are the first respondent (P.W. 2), P.W. 9, Arjan Kashinath Masirkar and P.W. 12, Nazir Hussain Akbar Ali.
So far as P.W. 2 is concerned he is undoubtedly an interested witness.
In the circumstances mentioned above, his evidence can have very little persuasive value.
So far as P.W. 9 is concerned on his own showing he was highly interested in the first respondent and the Congress Party.
As elicited during his cross examination he was a Congress candid.ate for election as Sarpanch and as a member of the Panchayat Samiti.
The appellant 's cousin was his rival in that election.
Admittedly during the last election he canvassed for the 778 first respondent.
Under these circumstances much reliance cannot be placed on the testimony of this witness.
Then we come to the evidence of P.W. 12.
During his cross examination this is what he stated: "I have not received a summons.
Vithalrao had asked me to produce the register where the hire of cycles is noted and that is how the chits which I have filed came with the register . ." His evidence is to the effect that the appellant while presiding over the meeting at Rajura on February 13, 1967 stated that the first respondent had a share in the contract for fixing of border stones which was produced for him by Vithalrao.
When he was crossexamined about that meeting this is what he stated: "I don 't remember who was the President of the meeting.
I will ' not be able to name at this distance of time the names of persons from the town or the villagers who were listening at the meeting.
I will not be able to name a single person from amongst these.
" Obviously he is a procured witness.
No reliance can be placed on his evidence.
For the reasons mentioned above we hold that the election petitioner (first respondent herein ) has failed to make out that the appellant had contravened section 123(4).
Hence this appeal succeeds and the election petition stands dismissed.
We are of opinion that we should not award any costs to the appellant.
He had come forward with a false case and had protracted the trial of the case by adducing voluminous false evidence.
Hence we direct the parties to bear their own costs both in this Court as weld as in the High Court.
G.C. " Appeal allowed.

Output:
The appellant was the returned candidate from the Rajura constituency Maharashtra State Legislative Assembly in the general election held in February 1967.
The first respondent who was one of the defeated candidates challenged the appellant 's election in an election petition.
The High Court held that the appellant had made false statements about the personal character and conduct of the first respondent and was guilty of corrupt practice within the meaning of section 123(4) of the Representation of the People Act, 1951.
On this view the High Court allowed the election petition and set aside the election of the appellant who appealed to this Court.
HELD: (i) The election law in this country as in England guarantees freedom of criticism of political nature at the time of election.
The freedom of criticism may sometimes be misused, but the advantage gained from free criticism though sometimes it may turn out to be irresponsible in the long run outweighs the disadvantages.
It is in the interests of democracy that such criticism should be allowed.
However democracy will be a farce if interested persons are allowed to freely indulge in character assassination during election.
A political party may not be affected by passing winds but a campaign of slander against an individual is likely to create prejudice in the mind of the people against him.
Section 123(4) is designed to achieve the dual purpose of protecting freedom of speech and prevention of malicious attack on the personal character and conduct of rivals.
[769 C] (b) The ingredients of the corrupt practice mentioned in section 123(4) are (1) the publication by a candidate or his election agent or by any other person with the consent of that candidate or his election agent of any statement of fact; (2) which statement is false and which was believed by the candidate to be false or at any rate was not believed by him to be true; (3) the said statement relates to the personal character or conduct of a candidate or is in relation to his candidature or withdrawal; and (4) the same being a statement reasonably calculated to prejudice the prospects of that candidate 's election.
The burden of proving 'every one of the ingredients of the corrupt practice alleged is on him who alleges it.
[768 G; 77] (c) Every false allegation does not come within the mischief of section 123(4).
The language of the section is 'any statement of fact which is false ' and that language must be used in contrast to a false statement of opinion.
The statement in question must be in relation to the personal character of candidate.
It is when the false allegation pierces the politician and touches the person of the candidate that section 123(4) is contravened.
Further one of the ingredients of the corrupt practice under the section is that the statement complained of must be one reasonably calculated to prejudice the prospects of the election of the person against whom it is ' made. 'Calculated ' means designed: it denotes more than mere 767 likelihood and imports a design to affect voters.
The emphasis in the last limb of the section is not so much on the intention of the publisher but on the probable effect on the election of the candidate against whom those statements are directed.
[769 F G; 770 E] (ii) In the present case the statements alleged to have been made by the appellant did not amount to corrupt practice within the meaning of section 123(4) as they amounted either to fair political criticism or were mere expressions of opinion.
The complaint that the appellant had stated that the respondent had a share in the profits earned by a contractor is neither alleged in the election petition nor satisfactorily proved.
[777 D, F] Sheopat Singh vs Ram Pratap, [1965] t S.C.R. 175, T.K. Gangi Reddy M.C. Anjaneya Reddy & Ors., XXII E.L.R.p.
266 and Dattatraya Narayan Patil vs Dattatraya Krishnaji Khenvikar & Ors. , relied on.
Cumberland (Cockermouth Division) Case, , referred to.


Input:
l. Appeal No. 2095 of 1968.
16 Appeal from the judgment and order dated September 17, 1968 of the Mysore High Court in Writ Petition No. 1889 of 1968.
D. Narsaraju, M. C. Chagla, R. V. Pillai, Subodh Markendya and M. Narayana Reddy, for the appellant.
M. C. Setalvad, B. R. L. Iyengar and section P. Nayar, for respondents Nos. 1 to 3.
M. K. Nambyar, Shivaswamy and R. Gopalakrishnan, for respondent No. 4.
The Judgment of the Court was delivered by Bachawat J.
This appeal raises the question of the legality of the cancellation of the sale to the appellant of the exclusive privilege of retail vend of toddy and arrack for the year 1968 69 in a group of 1168 shops in Raichur and Gulbarga districts under the Mysore Excise Act, 1965 and the Mysore Excise (Disposal of Privileges of Retail Vend of Liquors) Rules, 1967.
On May 10, 1968 the excise commissioner of Mysore published a notice stating that the exclusive privilege would be sold by tender cum auction by the divisional commissioner, Gulbarga on May 28 and inviting tenders by May 27.
On May 27, the appellant made a tender offering Rs. 9,99,999/ towards the monthly rental of the shops and deposited the requisite earnest money amounting to Rs. 1,85,168/ as required by r. 7(f).
Respondent No. 4 K.V. Niranjan made a tender offering Rs. 9,69,999/ towards the monthly rental.
The appellant was the only bidder present at the auction on May 28.
His offer being the highest was accepted by the divisional commissioner, Gulbarga, under r. 17(1).
The appellant deposited another sum of Rs. 8,14,831/ which together with the earnest money made up one month 's rent as required by r. 17(5).
On June 4, the divisional commissioner, Gulbarga, confirmed the sale under r. 17(1).
On June 6, the deputy commissioner, Gulbarga, issued a notice asking the appellant to make deposits according to r. 19 immediately and to obtain licences from the concerned tahsil officers after completing other formalities.
Under r. 19(2) the appellant was required to deposit another one month 's rent within 15 days from the date of the sale.
By June 15, the appellant deposited in all Rs. 39,99,996/ amounting to 4 months ' rent.
By a letter (exhibit B 1) the appellant informed the excise commissioner that he had deposited 4 months ' rent as required by circular No. EXE.
1. 15 7 5 issued by the excise commissioner on December 12, 1967 and asked for permission to obtain licences from the deputy commissioners of Raichur and Gulbarga.
On June 18/19 he applied to the divisional commissioner, Gulbarga, for the issue of licences.
June 19, the divisional commissioner, issued a 17 notice to the appellant stating that as he had not submitted a solvency certificate of his property or the property of his sureties he was required to deposit the balance to make up six months ' rent as required by r. 19 (3 ) (i) and to furnish security for six months rental or sureties as require by r. 19(3) (ii) and (iii) by June 25, and that in default action would be taken under r. 20(2).
A notice to the same effect was given orally on June 19, when he met the divisional commissioner at Bellary.
On June 22, he presented a petition under section 62 to the, state government asking for the issue of licences, as he had complied with the conditions of the circular.
In view of the subsequent writ petition the government did not pass any orders on this petition.
The notice dated.
June 19 was received by the appellant on June, 23.
On June 25, he wrote to the divisional commissioner stating, that he had complied with the conditions of the rules read with the, circular and was entitled to the licences, that he had reason to believe that necessary orders would be passed by the state: government on his petition under section 62 and that if necessary, the terms for compliance with the requirements of r. 19 be extended.
by two months.
On the same date the divisional commissioner, rejected the application for extension of time, and issued a notice to the appellant asking him to show cause before June 26,why in view of the non compliance with the notices dated June 6 and 19, the sale should not be cancelled and the deposits already made should not be forfeited to the government.
The notice was served on his advocate on June 25 at 7.40 p.m.
On June 26, the.
appellant submitted a petition to the divisional commissioner stating that he had complied with the terms of r. 19 and the circular, that abrupt cancellation of the sale would result in irreparable injury and that in any event the time to deposit the balance two, months ' rental be extended for a reasonable time.
By an order dated June 26, (exhibit J), the divisional commissioner rejected the application for extension of time and cancelled the sale starting that (1) the appellant did not "at one& ' apply in writing, for licences in accordance with r. 19(1); (2) though he deposited two months ' rent as required by r. 19 (2), he did not file a statement of his immovable properties in accordance with r. 19(1); and should therefore be, considered as a person of doubtful solvency; (3) he was, therefore, required to deposit another 2 months ' rent under r. 19 (3) (i) and to furnish securities for six months ' rental or surety under r. 1 9 ( 3 ) (ii) and (iii) ; (4) he failed to comply with r. 19 in spite of notices dated June 6 and ' June 19; (5) the circular issued by the excise commissioner was opposed to r. 19 and could not be acted upon; (6) that even under the circular he was required to give two months ' collateral security in addition to 4 months ' cash deposit if he was a person, of doubtful solvency; and (7) that the sale conducting,officer has no power to extend the time for compliance with the formalities. 18 On June 28, the appellant filed writ petition No. 1889 of 1968 against the State of Mysore and others in the High ,Court of Mysore for quashing the order dated June 26, (exhibit Jr) and for the grant of licences to him to vend liquors in the combined groups of shops in Raichur and Gulbarga ,districts and for other reliefs.
The appellant submitted that (1) he had complied with the rules read with the cir cular; (2) he did not file any statement of his immovable properties under r. 19(1) as he had immovable properties in Andhra Pradesh; (3) as there was no inquiry nor, finding by any tahsildar ,that he was of doubtful solvency r. 19(3) was not attracted; (4) ,the divisional commissioner, Gulbarga, was not competent to ask for deposits and security under r. 19(3), nor was he competent to pass an order cancelling the sale; and (5) r. 19(3) was violative of articles 14 and 19 of the Constitution.
On June 28, the High Court admitted the writ petition and ,directed the state government to stay further proceedings and to issue licences to the appellant.
Subsequently the High Court ,confirmed the stay order on condition that the appellant would deposit another two months ' rent.
The appellant deposited about Rs. 20,00,000/ in accordance with the order.
On June 30, the divisional commissioner granted licences to him.
On July 1, he commenced his business in all the 1168 shops.
Thereafter he ,duly deposited about Rs. 30,00,000/ on account of rent for the months of July, August and September.
The state government, the excise commissioner and the divisional commissioner filed separate affidavits disputing the appellant 's contentions.
The rival tenderer, K. V. Niranjan was added as respondent No. 4 in W.P. No. 1889 of 1968 on his own application under an order of the High Court dated July 7.
K. V. Niranjan filed an affidavit stating that the appellant was a benamidar for other persons and the acceptance of his tender was forbidden by r. 12.
K. V. Niranjan also filed W.P. No. 2088 of 1968 for quashing the orders of the divisional commissioner dated May 28, and June 4, whereby the appellant 's tender was accepted and for a mandamus directing the acceptance of his next highest tender under r. 17(4).
The two writ petitions were heard together and were dismissed by the High Court by a common judgment delivered on September 17.
The High Court held that (1) the appellant did not comply with the mandatory requirements of r. 19; (2) r. 19(3) was not ultra vires the rule making power under section 71 nor violative of articles 14 and 19, and the appellant was estopped from challenging it; (3) the circular of the excise commissioner could not modify r. 19; the appellant could not rely on the circular as he came to know of it long after the sale, nor had he complied with its terms by depositing the entire four months rent before 19 June 12;(4) the appellant was a benamidar for other person or persons and in view of r. 12 was incompetent to bid and (5) the, order dated June 26 (exhibit J) was valid.
On these findings the High Court dismissed W.P. No. 1889 of 1968.
With regard to W.P. No. 2085 of 1968 the High Court said that as the sale to the appellant had been cancelled by exhibit J, it was not necessary to set aside the order accepting and confirming his bid.
The High Court held that under r. 17 (4) it was not obligatory on the officer conducting the sale to accept the next highest offer of respondent No. 4.
The High Court, however, said "in the circumstances of the case, it is necessary to observe that the authorities concerned will consider the advisability of accepting the bid of the fourth respondent, subject to his complying with all the requirements of the Act and the Rules.
" With these observations the High Court dismissed W.P. No. 2085 of 1968.
By a telegram dated September 18, the excise commissioner instructed the divisional commissioner, Gulbarga, to direct the tahsildars of Raichur and Gulbarga to issue licences to respondent No. 4 on his complying with certain conditions.
On the same date licences were issued to respondent No. 4.
On September 19, the High Court dismissed an application for stay of operation of its order dated September 17, and on the same day granted to the appellant a certificate under article 1 3 3 ( 1 ) (b) of the Constitution.
On September 25, the appellant filed a stay application in this Court.
On September 27, the Court passed an order restraining the respondents from forfeiting the deposits made by the appellant.
It is convenient at this stage to refer to the relevant provisions of the Mysore Excise Act, 1965 and the Mysore Excise (Disposal of Privileges of Retail Vend of Liquors) Rules, 1967.
Section 3(1) of the Act provides that the excise commissioner, "shall be the chief controlling authority in all matters connected with the administration of this Act." Section 15(1) provides that "no intoxicant shall be sold except under the authority and subject to the terms and conditions of a licence granted in that behalf." Under section 15 (2) a licence for sale can be granted (a) by the deputy commissioner if the sale is within a district or (b) by the excise commissioner if the sale is in more than one districts Section 17 ( 1 ) (b) empowers the state government to lease to any person, on such conditions and for such period as it thinks fit the exclusive or other right of selling by the wholesale or by retail any Indian liquors within any specified area.
Contravention of the Act or any Rules made thereunder is punishable under section 32.
Section 71 empowers the state government to make rules.
Rule 3 of the Mysore Excise (Disposal of Privileges of Retail Vend of Liquors) Rules, 1967 provides that the right of retail vend of liquors shall 20 be disposed of by tender or by auction or by tender cum auction.
The auction is conducted by the deputy commissioner or the divisional commissioner under r. 5 and the tender has to be made to them under r. 7 (1).
The tenderer is required by r. 7 (f ) to deposit as, earnest money an amount equal to 1/4 of the shop rental of the previous year of the shop or groups of shops.
The appellant complied with the requirement of r. 7 (f ).
Rule 10 requires an intending bidder or tenderer to furnish a certificate of his solvency or two sureties having similar certificates or bank guarantee or cash deposit to cover four times the earnest money fixed under rule 7(f).
It is not disputed that the appellant made sufficient cash deposits in compliance with r. 10.
Rule 12 read & : "Benami bids not allowed.
No person except a power of attorney holder shall be entitled to bid for another person.
" The sale to the appellant was not cancelled on the ground that he bid for another person.
Rule 17 regulates the procedure at sales.
Rule 17(1) empowers, the officer conducting the auction to accept the highest offer.
The acceptance is subject to the condition of confirmation by the deputy commissioner or by the divisional commissioner.
The confirmation is effective unless revised by the excise commissioner or the government.
Rule 17(2) empowers the excise commissioner or the government to revise the order of confirmation.
Rule 17(4) provides that if the officer conducting the sale rejects the highest bid or offer, he may either accept the next highest bid or offer or re sell the shop.
Rule 17 (5) requires the person whose bid is accepted to make a further deposit which together with the earnest money would make up one month 's rent.
The appellant made the deposit required by r. 17(5).
His bid was accepted and was later confirmed by the divisional commissioner.
Neither the excise commissioner nor the state government passed any order under r. 17(2) revising the decision confirming the acceptance of his bid.
Rule 19 provides as follows : "19 Successful bidder to apply for licence: Every person to whom the right of retail vend of liquors is sold or whose tender in respect thereof has been accepted under these rules and who has made deposits as hereinbefore provided shall (1) at once apply in writing for licence for such shop confirmed in his name and within a week thereafter furnish to the Tahsildar the, details of boundaries of the site selected by him for the location of the shop and a statement in the prescribed form annexed to the notification showing details of the immovable property possessed by him or in which he has an interest together with accurate and full details of encumbrances, if any, thereon; 22 (5) The purchaser shall get the bond and the mortgage deed registered under the Indian at his expense.
(6) The purchaser or his surety shall produce an encumbrance certificate in cases where immovable property is mortgaged to the Governor of Mysore.
" It is not alleged that the appellant did not furnish the details of the shop sites as required by r. 19 sub.
r. (1) within 15 days of the date of the confirmation of the sale.
The appellant made a deposit of two months rent as required by r. 19 sub r.
The appellant did not furnish a statement of immovable properties under r. 19 sub r.
(1) nor did not he furnish security or sureties under r. 19 sub r.
It is also alleged that he did not apply for licences at once as required by r. 19 sub r.
Rule 20(2) provides : "On failure to comply with the provisions of rr.
17 and 19 the deposits already made shall be forfeited and the right of retail vend of liquors in such shop or groups disposed of in such manner under these rules, as the Excise Commissioner may direct".
No order was passed by the excise commissioner under r. 20(2).
In our opinion, the provision of r. 19sub.
r.(1) requiring the successful bidder to furnish a statement of his properties to the Tahsildar and the provisions of r. 19 sub rr.
(3) and (4) do not apply where the shops in respect of which the right of retail vend is sold is situated in more than one tahsil.
The opening part of r. 19 sub r.(1) requires the purchaser to furnish to "the tahsildar" the location of the shops and the boundaries of the shop sites.
The expression "the tahsildar" is not defined, but it is reasonable to think that the details regarding the shops should be furnished to the tahsildar within whose tahsil the shops are situated.
If the shops are situated in more than one tahsil, the details can be furnished to several tahsildars.
But it is not possible to give effect to the last part of sub rule (1) and the provisions of sub rr.
(3) and (4) in cases where the shops are situated in more than one tahsil.
The statement of immovable properties under the last part of sub r.
(1 ) can be furnished to, only one tahsildar so that he can peruse the same and on such perusal or on independent inquiry ascertain under sub r.
(3) whether or not the purchaser is of doubtful solvency and satisfy himself under sub r.
(4)whether or not the value of the immovable properties tendered as security is adequate.
Sub rr.
(3) and (4) do not contemplate findings by more than one tahsildar nor do they provide any machinery for resolving the conflict of opinion, if any, between two or more tahsildars.
In our opinion, the last part of sub r.
(1) and the provisions of sub rr.
(3) and (4) do not apply where the shops are situated in two or more tahsils.
23 The right of retail vend sold to the appellant is in respect of shops situated in 19 Tahsils in the districts of Raichur and Gulbarga Consequently, those provisions were not attracted to this sale and the appellant was not required to comply with those provisions.
The divisional commissioner, Gulbarga, could not record a finding under r. 19 sub r.
(3) that the purchaser was of doubtful solvency.
Even a tahsildar could not record such a finding without making an independent inquiry where no statement regarding.
immovable properties was furnished under sub rule (1).
No independent inquiry under sub r.
(3) was made by any tahsildar For this reason also the appellant cannot be regarded as a person of doubtful solvency and he was therefore not required to comply with the provisions of sub r.
The appellant has so far deposited about Rs. 90,00,000/ and it is impossible to believe that he is a person of doubtful, solvency.
The remaining charge is that the appellant did not "at once" ' apply for licences.
Rule 20(2) provides for the forfeiture of the deposits on failure to comply with the provisions of r. 19.
Under the Mysore Excise Licences (General Conditions) Rules, 1967 a licensee is required to commence his business on July 1.
The purpose of the Act and the Rules is achieved if the application for licence is made within sufficient time so as to enable the issue of licences before July 1.
Having regard to the object of the Act and the Rules the expression "at once" in r. 19 sub.
(1) means within a reasonable time before July 1.
It could not have, been intended that the deposits would be forfeited where the purchaser applies for licence within a reasonable time.
The appellant sufficiently complied with r. 19 sub r.
(1) by applying under exhibit B, to the excise commissioner for permission to obtain licences and by applying to the divisional commissioner on June 18 for the issue of licences.
The divisional commissioner, Gulbarga was not competent to pass the impugned order (Ex, J) cancelling the sale.
Only the excise commissioner or the state government could under r. 17(2) revise his previous order confirming the sale and on such revision cancel the sale.
The divisional commissioner, Gulbarga was not authorised by r. 17(2) to revise his own order or to cancel it.
In hi ,, notice dated June 19, the divisional commissioner, Gulbarga, stated that he would take action under r. 20(2).
In his notice dated June 25, he asked the appellant to show cause why the sale should not be cancelled and why the deposits already made should not be forfeited to the government.
But he did not pass any order forfeiting the deposits.
Nor was he competent to pass any order under r. 20(2).
Only the excise commissioner could pass such an order.
24 It follows that the High Court was in error in holding that the appellant committed breaches of r. 19.
The finding of the divisional commissioner, Gulbarga, that the appellant committed such breaches is erroneous, nor was he competent to record the finding or to pass an order cancelling the sale.
In view of this conclusion it is not necessary to consider whether r. 19 sub r.
(3) offends articles 14 and 19 of the Constitution and we express no opinion on the question.
We cannot agree with the proposition that the appellant is estopped from challenging the constitutionality and vires of the sub rule.
It is true that .r.
24 provides that the purchaser shall be bound by all the rules.
But if r. 19 sub r.
(3) offends articles 14 and 19 it is non est and there can be no question of the appellant being bound by a rule which does not exist.
Though we express no opinion on the vires ,of the sub rule, we must observe that r. 19 is clumsily drafted, its import is not clear, its tight time schedule works hardship and its ,procedure is cumbersome.
The government should immediately ,consider the question of re drafting r. 19.
It may be noted that Mr. Narasaraju conceded that r. 19 is not beyond the rule making powers of the state government.
The appellant relied on the circular No. EXE.1.1575/67 (exhibit E) dated December 12, 1967.
Exhibit E is a letter from 'the excise commissioner to the deputy commissioner, Bangalore, ,,on the subject of securities to be furnished by the excise contractors.
The letter stated that the procedure of r. 19 was number some and not clear, that several deputy commissioners sought clarifications on 'the subject and that the state government had been moved to clarify and simplify the matter.
The excise commissioner directed that pending receipt of the government order the following procedure should be followed : In addition to obtaining two months ' cash deposits, (1) two months cash security might be accepted and in the absence of cash security four months ' collateral security might be insisted; (2) if the deputy commissioner/tahsildar was doubtful about the solvency of the contractor he could insist on six months ' collateral security and (3) while accepting the collateral securities care should be taken to see that "the contractor executed the necessary mortgage bond.
Admittedly, similar instructions were issued to other deputy commissioners and were enforced in several districts.
There is a dispute on the ,question whether the circular was sent to the districts of Gulbarga and Raichur.
In so far as the circular attempted to modify r. 19 it was in effective.
The excise commissioner, had no power to abrogate or modify a rule framed under section 71.
On behalf of the appellant it was argued that as the chief controlling authority the ,excise commissioner could frame regulations under section 3 read with r. 24 and could issue general instructions on the subject of taking 25 security in cases not covered by r. 19.
We express no opinion on this question, as the government has already withdrawn the circular.
But we must observe that relying on this circular the appellant deposited two months ' rent as required by the circular in addition to the two months ' rent as required by r. 19 sub r.
(2) and that such deposits were duly made within 15 days from the date of the sale.
However, it is not necessary for the appellant to rely on the terms of the circular.
He has complied with the provisions of r. 19 and the sale in his favour cannot be cancelled.
On behalf of respondent No. 4 it is argued that the appellant bought the right of retail vend as benamidar for some other person, that his benami bid was opposed to r. 12 and could not be accepted and that as the sale of liquor by the real buyer without a licence in his favour was illegal in view of sections 15 and 26, the appellant was not entitled to any relief in view of the decision in Venkata Subbayya vs Attar Sheik Mastan(1).
The onus is upon the respondent to prove that the appellant made a benami purchase.
It appears that the appellant is a retired inspector drawing a pension of about Rs. 75/ per month.
He is not an income tax or a wealth tax assessee, He does not own any property in Mysore State.
The appellant says that he owns immovable properties in Andhra Pradesh but he did not file the title deeds in respect of them.
However, the appellant was in possession of a large amount of ready cash.
Before June 25, he deposited about Rs. 40 lakhs and thereafter deposited about Rs. 50 lakhs.
There can be no doubt that the appellant has the backing of powerful financiers.
There is no specific charge that some named person is the real purchaser.
From the materials on the record it is not possible to record a finding that the appellant is a benamidar and that that some other person is the real purchaser.
The purchase is not illegal merely because the appellant obtained the necessary funds from some financiers.
The government never alleged that the appellant 's bid was a benami bid and opposed to r. 12.
His bid was accepted and such acceptance was subsequently confirmed.
Under r. 17(1) the confirmation is effective until revised by the appropriate authority.
It is neither alleged nor proved that sonic person other than the appellant had been managing the shops and selling liquor in contravention of section 15.
Respondent No.4 has failed to establish contravention of either r. 12 or section 15.
The High Court was in error in holding that the appellants bid was opposed to r. 12.
Having regard to the fact that the appellant had already deposited about Rs. 40 lakhs the divisional commissioner, Gulbarga, acted rather precipitately and harshly in cancelling the sale.
(1) A.I.R. 1949 Mad. 252.
Sup CI/69 3 26 For the reasons already given ,the order of cancellation (Ex.J) is invalid.
The order must be set aside and a writ of mandamus must issue for the grant of licences to the appellant.
Some complication arises out of the fact that the licences have been granted to respondent No. 4 after the disposal of the, writ petitions by the High Court.
Licences cannot be given to both the appellant and respondent No. 4 for retail vend of liquors in respect of the same groups of shops.
In order to give effect to our order for the issue of licences in favour of the appellant it is necessary to give the further direction that the licences issued to respondent No. 4 should be cancelled.
We can give this direction as respondent No. 4 is a party to this appeal.
While holding that r. 17 sub r.
(4) did not compel the officer conducting the sale to accept the next highest offer of respondent No. 4 the High Court observed that the authorities concerned should consider the advisibility of accepting his bid.
This observation is not in accordance with law and has given rise to unnecessary complications.
Rule 17(4) provides that "if the officer conducting the sale rejects the highest bid or offer, he may either accept the next highest bid or offer or re sell the shop.
" The sub rule cannot be invoked if the officer conducting the sale has accepted the highest offer.
In the present case, the officer accepted the appellant 's highest offer and later confirmed it.
The confirmation is still effective under r. 17(1).
If for some reason the confirmation is subsequently revised or set aside, the officer cannot act under r. 17(4).
In such a case there must be a fresh disposal of the right of retail vend of liquor in accordance with the Rules.
It follows that the bid of respondent No. 4 could not be accepted under r. 17(4) after the disposal of the writ petitions on September 19.
It is rather surprising that the Government acted so hastily and issued licences to respondent No. 4 on or about September 18.
It is not quite clear how licences in respect of 1168 shops could be issued on a single day.
The effect of this precipitate action on, the part of the government was that the appellant could not on the next day obtain a stay of the operation of the High Court 's order.
There is ground for suspecting that the government was favouring respondent No. 4.
In the result the appeal is allowed with costs in this Court and in the High Court.
The order passed by the High Court is set aside.
Writ Petition No. 1889 of 1968 is allowed.
The order dated June 26, 1968 (exhibit J) is set aside.
Respondents 1 and 2 ;ire directed to grant immediately licences to the appellant to vend liquors in the combined groups of shops in Raichur and 27 Gulbarga districts for the remaining period of the year 1968 1969.
Respondents 1 and 2 are also directed to cancel forthwith the licences issued to respondent No. 4 in respect of the aforesaid groups of shops.
Y.P. Appeal allowed.

Output:
The appellant was the highest bidder for the exclusive privilege of retail vend of toddy and arrack for the year 1968 69, in a group of 1168 shops situated in 19 tehsils in the districts of Raichur and Gulbarga.
He made the deposits of money required under rr. 7(f) 'and 10 of the Mysore Excise (Disposal of Privileges of Retail Vend of Liquors) Rules, 1967 made under section 71 of the Mysore Excise Act, 1965.
The highest bid of the appellant was accepted and confirmed by the Divisional Commissioner of Gulbarga under r. 17(1) on June 4, 1968.
Thereafter, the appellant made further deposits required by rr.
17(5) and 19(2).
In all he deposited about Rs. 40 lakhs by June 15.
On June 18 he applied to the Divisional Commissioner for the issue licence.
He however, did not comply with r. 19(1) and (3) which required that a statement of immovable Properties should be furnished and that he should furnish security or sureties, respectively.
The Divisional Commissioner Gulbarga issued a notice to the appellant to show cause why the sale should not be cancelled and the deposits already made forfeited under r. 20(2).
The appellant prayed for two months time for compliance with the requirements of r. 19, but the Divisional Commissioner rejected the application and cancelled the sale.
He did not pass any order forfeiting the deposits.
The appellant filed a writ petition in the High Court for quashing the order and under directions of the Court deposited another Rs. 50 lakhs.
The 4th respondent, who was the next highest bidder applied to be made a party to the petition and contended that the appellant was a benamidar for other persons and so acceptance of his tender was forbidden by r. 12.
The High Court dismissed the writ petition holding (1) that the appellant did not comply with the mandatory requirements of r. 19 in that he did not furnish the statements and apply 'at once ' for licences as required by r. 19(1); (2) the appellant was a benamidar; and (3) the authorities should consider the advisability of accepting the bid of the 4th respondent.
On the very next day after the judgment of the High Court, the respondent State issued licences in respect of 1168 shops to the 4th respondent.
In appeal to this Court.
HELD : The licences issued to the 4th respondent should be cancelled and a writ of mandamus should issue for the grant of licences to the appellant.
[26 A] 15 (1)(a) The opening part of r. 19(4) requires the purchaser to furnish to 'the tehsildar ' the location of shops and the boundaries of the shop sites that is to the tahsildar within whose tehsil the shops are situated.
If the shops are situated in more than one tehsil, the details can be fur nished to the several tahsildars, but in such a case it is not possible to give effect to the last part of the sub rule and also to the provisions of sub rr.
(3) and (4).
The statement of immovable properties under the last part of sub r.
(1) can be furnished to only one tahsildar so that he can peruse the same; and on such perusal or on independent inquiry ascertain under sub r.
(3) whether or not purchaser is of doubtful solvency and satisfy himself under sub r.
(4) whether or not the value of the immovable property tendered as security is adequate.
Sub rr.
(3) and (4) do not contemplate findings by more than one tahsildar nor do they provide any machinery for resolving the conflict of opinion, if any, between two or more tahsildars.
The last part of sub r.
(1) and sub rr.
(3) and (4) do not apply where the shops are situated in two or more tahsils.
Consequently, those provisions were not attracted to the sale in the present case and the appellant was not required to comply with those provisions.
[22 E] (b) In the absence of 'an independent enquiry under sub r.
(3), the appellant could not be regarded as a person of doubtful solvency.
(c) Under the Mysore Excise Licences (General Conditions) Rules, 1967, a licencee is required to commence his business on July 1.
The expression 'at once ' in r. 19(1), means within a reasonable time before July 1.
In the present case, the appellant sufficiently complied with subrule.
[23 D E] (d) Under r. 17(2) it is only the excise commissioner or the State Government that could revise the order of the divisional commissioner confirming a sale and the divisional commissioner himself was not authorised to revise his, own order or cancel it.
[23 G] Therefore, the High Court was in error in holding that the appellant committed breaches of r. 19.
[Rule 19 is clumsily drafted, its import is not clear, its tight time schedule works hard ship and its procedure is cumbersome.
The Government should immediately consider the question of redrafting the rule.] [24 C D] (2) The appellant was a retired inspector drawing a pension of about Rs. 75 per month and, is not an income tax or wealth tax assessee.
He evidently has the backing of powerful financiers, but the purchase is not illegal merely because the appellant obtained necessary funds from some financiers.
The onus of proving that appellant was a benamidar was on the 4th respondent and from the materials on record it is not possible to hold that he is a benamidar for some other person.
[25 D] (3) Under r. 17(4), it is only when the highest bid is rejected that the next highest bid may be considered.
Where there is an acceptance of the highest offer and 'if for some reason it is revised, r. 17(4) cannot be invoked.
In such a case there must be a fresh disposal of the right of retail vend of liquor in accordance with the Rules.
Therefore, the High Court erred in observing that the 'authorities should consider the advisability of accepting the 4th respondents bid.
[26 E]