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Allahbad High Court
S.S.DHAVAN,K.B.ASTHANA
Sheo Prasad - Appellant
Versus
State of U.P. - Respondent
Decided On : 12/18/1963
SALES TAX - LIABILITY - AUTHORISED CONTROLLER - APPOINTMENT QUASHED - LIABILITY OF PARTNERS - INDEMNITY - SUBSTANTIAL QUESTION OF LAW - CERTIFICATE UNDER ART. 133(1)(A) AND (C) GRANTED.
Fact of the Case:
The petitioner, Seth Sheo Prasad, was appointed as an authorised controller of a cotton spinning mill under the U.P. Industrial Disputes Act, 1947. During his tenure, the mill incurred losses and was eventually closed. The State Sales Tax authorities assessed the firm, Messrs. Lallamal Harden Das Cotton Spinning Mills Company, to sales tax in respect of sales made during the assessment years 1949-50 to 1953-54. The total amount assessed came to Rs. 1,01,487.16 nP. The tax was not paid and the Sales Tax Authorities took proceedings for its realisation from one of the partners, Seth Shanti Swarup. He resisted the attempt and filed a petition under Art. 226 in the High Court, which allowed the petition on the ground that he was not liable as a partner because the sales were made by the authorised Controller, Seth Sheo Prasad (the present petitioner) as a representative of the U.P. and the Central Government. The State did not appeal against this order. Subsequently, the petitioner filed a petition under Art. 226 challenging the right of the State to recover the tax from him, contending that he functioned as a salaried servant acting under the orders of the Government and was not liable to pay any sales tax under the assessment orders made against the firm. This petition was dismissed by the High Court. The petitioner filed a Special Appeal from the order of the High Court, which was also dismissed by a Division Bench. The petitioner then applied for a certificate under Art. 133 of the Constitution for leave to appeal to the Supreme Court.
Finding of the Court:
The High Court held that the proceedings under Art. 226 were civil proceedings and that a substantial question of law was involved in the case. The Court also held that the petitioner was entitled to a certificate under Art. 133(1)(a) and (c) to enable him to appeal to the Supreme Court.
Issues: 1. Whether the proceedings under Art. 226 were civil proceedings? 2. Whether a substantial question of law was involved in the case? 3. Whether the petitioner was entitled to a certificate under Art. 133(1)(a) and (c) to enable him to appeal to the Supreme Court?
Ratio Decidendi: 1. The Court held that the proceedings under Art. 226 were civil proceedings because they were for the enforcement of the petitioner's right of property and protection of his personal freedom. 2. The Court held that a substantial question of law was involved in the case because it raised the issue of whether the petitioner was liable to pay sales tax on the sales made by him as an authorised Controller. 3. The Court held that the petitioner was entitled to a certificate under Art. 133(1)(a) and (c) to enable him to appeal to the Supreme Court because the amount in dispute was Rs. 1,01,487.60 nP. and the case was a fit one to appeal to the Supreme Court.
Final Decision: The Court granted the petitioner a certificate under Art. 133(1)(a) and (c) to enable him to appeal to the Supreme Court.
DHAVAN, J. : This is an application by Seth Sheo Prasad under clauses (a), (b) and (c) of Art. 133(1) of the Constitution for a certificate enabling him to appeal to the Supreme Court from a decision of this Court rejecting his appeal from an order of Oak, J. dismissing his petition under Art. 226 and refusing to restrain the State of Uttar Pradesh, the Sales Tax Officer, Hathras and the Collector of Aligarh from recovering from him a certain amount of sales tax assessed on the firm of which the petitioner was a partner. The facts are these : Messrs. Lallamal Harden Das Cotton Spinning Mills Company was a partnership firm consisting of the partners including the petitioner Seth Sheo Prasad. It owned a cotton spinning mill in Hathras and carried on the business of producing and selling cotton yarn. In 1944 differences arose between the partners and one of them Raghunath Prasad, filed a suit for the dissolution of the partnership. This suit was dismissed on a preliminary ground and an appeal from it is decision was filed in this Court. During the pendency of this appeal, receivers were appointed for working the mills under the directions of the Court. In 1949 the receiver reported to the Court that the mill could be run only at a loss and thereupon the Court directed that the mill be closed. At this stage the State Government intervened and in 21st July 1949 passed an order under S. 3(f) of the U.P. Industrial Disputes Act, 1947 appointing an authorised controller of the mill. The petitioner was selected for this post. The order of appointment directed him to take possession of the mill to the exclusion of the partners and run it subject to the general supervision of the District Magistrate of Aligarh. He was allowed a salary of Rs. 1000 per month and commission at the rate of 12 annas per cent on sales. This order was challenged by one of the partners, Seth Shanti Swarup by a petition under Art. 226 which was rejected on 19-7-1953. During the pendency of the petition, on 31st October, 1952, the Union of India intervened and passed an order under S. 3(4) of the Essential Supplies (Temporary Powers) Act, 1946 appointing the applicant as authorised controller and directed him to run the mill on the same terms and remunerations as under the previous order of the State Government.
2. The terms of the two orders, which are identical, are important. The authorised controller was to act under the general supervision of the District Magistrate of Aligarh. He was further required to dispose of the funds of the undertaking for (a) payment of all arrears of wages and other dues to the employees, (b) payment of the expenses of the undertaking, and (c) the distribution of profits after meeting all the expenses. He was also required to undertake such essential repairs and renewals of machinery as he might consider necessary for securing the efficient working of the undertaking. The order also restrained all persons having control over the affairs of the undertaking from selling, gifting, transferring, disbursing or disposing of in any manner whatsoever the assets of the undertaking. In effect the order placed the control of the Mill with the authorised Controller and deprived all the partners of their powers of management. The terms of the order must he read with S. 4 of the Central Act which enjoined the authorised Controller appointed under S. 3 to exercise his junctions in accordance with any instructions given to him by the Central Government and also directed any person having any functions of management to comply with the directions of the authorised Controller. As subsequently observed by the Supreme Court, the authorised Controller was, under the U.P. Industrial Disputes Act, "practically exempted from all obligations and responsibilities normally attaching to an agent" and the effect of the order of the Central Government was to have deprived the partners of their right of property within the meaning of Art. 31 of the Constit
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