IMPORTANT POINT
Rules of business made under Article 166(3) of the Constitution are mandatory.

Headnote:(a) Code of Civil Procedure, 1908 – Section 11 – Res judicata – The issues in the two writ petitions being different, principle of res judicata does not apply. (Para 24)
       (2000) 6 SCC 301 – Relied upon
       (2006) 1 SCC 32 – Distinguished impliedly
       (b) Doctrine of merger – It essentially refers to the merging of the orders passed by the superior courts with that of the orders passed by a subordinate court – Merger is essentially of the operative part of the order and the principle of merger of the order of the subordinate Court with the order of the superior Court cannot be applied when there is no order made by the superior Court on merits and the controversy between the parties has not been looked into by the superior Court. (Para 28)
       AIR 1970 SC 1 – Relied upon
       (2000) 6 SCC 359 – Referred
       (c) Constitution of India – Article 166(3) r/w Rule 3,6,7 and 9 of the Business Rules of the Government of Goa – Rules of Business – It is difficult to accept the contentions that Business Rules 3,6,7 and 9 are directory. (Paras 53 and 54)
       (1996) 2 SCC 26; (2006) 3 SCC 581; (2006) 1 SCC 667 – Relied upon
       (1952) SCR 612; (1964) 6 SCR 368; 1917 A.C. 170; 1999 (3) AER 231; 2001(1) AER 577; 2003(3) AER 508 – Distinguished
       (1986) 4 SCC 632; (2006) 7 SCC 188; (2006) 4 SCC 367; (1987) 3 SCC 34; 1962 Supp (3) SCR 713; (1991) 4 SCC 243; (1996) 2 SCC 26; (2005) 1 SCC 625; (1969) 3 SCC 775 – Referred
       (d) Indian Electricity Act, 1910 – Section 23 r/w Section 51-A and Rule 17 of the Rule of Business – Notification imposing additional burden on the State’s Exchequer by introducing a new class of consumers for grant of rebate retrospectively – Finalized by the Power Minister at his level – Should have been placed before the Council of Ministers or the Chief Minister – Not doing so violated the Business Rules – The decision is non est. (Para 60)
       (e) Constitution of India – Articles 154 and 166 and Rules made thereunder – The decisions of the State Government have to be in conformity with the mandate of these provisions – Otherwise such decision would not have the form of a Government decision and will be a nullity. (Para 62)
       (1973) 3 SCC 889 – Relied upon
       (f) Constitution of India – Article 166(3) r/w Article 166(2) – Mere authentication as required under Article 166(2) of the Constitution cannot make a decision a government decision in law nor would it validate a decision which is void ab initio in terms of Article 166(3). (Para 69)
       (g) Doctrine of indoor management – Turquand Rule – This doctrine protects outsiders dealing or contracting with a company, whereas doctrine of constructive notice protects the insiders of a company or corporation against dealings with the outsiders – The protection of the doctrine is not available where the circumstances surrounding the contract are suspicious and therefore invite inquiry. (Para 71)
       [1856] 6 E. & B. 327; [1927] 1 KB 246 (CA) – Relied upon
       AIR 1942 Oudh 417; AIR 1926 All 497 – Referred
       Facts of the case:
       1.The Government of Goa, in purported exercise powers conferred upon them by Section 23 of the Indian Electricity Act, 1910 issued a Notification on 30.09.1991, granting rebate of 25% in Tariff in respect of the power supply to the Low Tension and High Tension Industrial Consumers/appellants who apply for availing High Tension or Low Tension Power Supply on or after the 1st of October, 1991 for bona fide industrial activities and certified by the Industries Department, Government of Goa as eligible for concessional tariffs for a period of five years from the date on which electricity supply is made available to such units.
       2.The notification was rescinded but it was contended that the Government was committed to honour the concession granted by the Notification dated 30.09.1991 to the eligible industrial units who apply for High Tension and low tension power on or after 01.10.1991 till the date of withdrawal, i.e. 01.04.1995.
       Finding of the Court:
       No interference required.
       Result : Appeal dismissed.

Judgement Key Points

Key Points: - Rules of Business under Article 166(3) are mandatory, not directory (!) (!) (!) . - Non-compliance with mandatory Rules renders the government decision a nullity (!) . - Financial implications require prior concurrence of the Finance Department and Council of Ministers approval (!) (!) . - The doctrine of indoor management is not applicable to public law where suspicion of irregularity exists (!) . - Notifications issued without following mandatory procedures are void ab initio (!) (!) .

Are the Rules of Business framed under Article 166(3) of the Constitution mandatory or directory? Must the State Government comply with these Rules before issuing a notification that has financial implications?

JUDGMENT

H.L. Dattu, J.

In Civil Appeal Nos. 4220 of 2002, 4213 of 2002 and 4218 of 2002, the appellants have called in question the correctness of the judgment and order in Writ Petition No. 316 of 1998 dated 19/24.4.2001, passed by the High Court of Bombay Panaji Bench, at Goa in a Writ Petition brought in public interest by one Manohar Parrikar, a Member of Legislative Assembly, Goa (who later on became the Chief Minister of the State of Goa) questioning the legality, validity and propriety of two notifications issued by Government of Goa dated 15.5.1996 and 01.8.1996 in respect of grant of 25% rebate to Low Tension, High Tension and Extra High Tension Industrial consumers of electricity as a policy of the State Government.

In Civil Appeal No. 4219 of 2002 (M/s M.R.F. Ltd. & Anr. Vs. State of Goa & Anr.), the appellant has called in question the judgment and order passed by the High Court of Bombay Panaji Bench, at Goa in Writ Petition No. 364 of 1999 dated 24.4.2001, partly allowing the writ petition filed by the appellant.

In Civil Appeal No. 4214 of 2002 (Goa Glass Fibre Ltd. & Anr. Vs. The State of Goa & Anr.), the appellant has called in question the correctness or otherwise of the judgment and order passed by the High Court of Bombay Panaji Bench, at Goa in Writ Petition No. 254 of 1999 dated 25.4.2001 dismissing the writ petition filed by the appellant. In Civil Appeal No. 4217 of 2002 (Alcon Cement Company Limited & Anr. Vs. The State of Goa & Anr.), the appellant has called in question the correctness of the judgment and order passed by the High Court of Bombay Panaji Bench, at Goa in Writ Petition No. 277 of 1999 dated 24.4.2001 partly allowing the writ petition.

In Civil Appeal No. 4218 of 2008 (Mauvin Godinho Vs. Manohar Parrikar & Ors.), the appellant has called in question the correctness of the judgment and order passed by the High Court of Bombay Panaji Bench, at Goa in Writ Petition No. 316 of 1998 dated 19/24.4.2001

The material facts as pleaded by the Appellants in Civil Appeal Nos. 4220 of 2002, 4213 of 2002 and 4218 of 2002 are as under:

1)The Government of Goa, in purported exercise powers conferred upon them by Section 23 of the Indian Electricity Act, 1910 (‘Electricity Act’ for short) issued a Notification on 30.09.1991, granting rebate of 25% in Tariff in respect of the power supply to the Low Tension and High Tension Industrial Consumers/appellants who apply for availing High Tension or Low Tension Power Supply on or after the 1st of October, 1991 for bona fide industrial activities and certified by the Industries Department, Government of Goa as eligible for concessional tariffs for a period of five years from the date on which electricity supply is made available to such units.

2)This Notification was issued by the State Government in the name of the Governor of the State as per the Rules of Authentication framed under Article 166(2) of the Constitution of India by following the procedure prescribed by the Business Rules framed under the Provisions of Article 166(3) of the Constitution of India after the State Cabinet had approved it. Though the said Notification was in subsistence, except one Industrial Unit, none applied to the State Government for the grant of benefit of the Notification for a long period or at least till 31.03.1995. On 31.03.1995, the said Notification was rescinded by the State Government in purported exercise of power conferred on it under Section 21 of the General Clauses Act read with Sections 23 & 51-A of the Electricity Act with effect from 01.04.1995, by issuing a Notification dated 31.03.1995 strictly in accordance with the Business Rules and Rules of Authentication pursuant to the decision taken by the State Cabinet.

3)Though the Government rescinded the Notification dated 30.09.1991, number of industrial units approached the State Government and claimed benefit of 25% rebate in terms of Notification dated 30.09.1991 for the period between the date of supply of electricity

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2010 Supreme(SC) 395

IMPORTANT POINTRules of business made under Article 166(3) of the Constitution are mandatory.

Are the Rules of Business framed under Article 166(3) of the Constitution mandatory or directory? Must the State Government comply with these Rules before issuing a notification that has financial implications?

Cases Referred (18)

IMPORTANT POINT
Rules of business made under Article 166(3) of the Constitution are mandatory.