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Gupta Sanitary Stores Vs. Union of India and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtDelhi High Court
Decided On
Case NumberSuit Nos. 1358A of 1979 and 50A of 1980 and Interim Application No. 576 of 1982
Judge
Reported inAIR1985Delhi122; 1987(1)ARBLR296(Delhi); ILR1985Delhi169
ActsCode of Civil Procedure (CPC), 1908 - Sections 20; Arbitration Act, 1940 - Sections 14
AppellantGupta Sanitary Stores
RespondentUnion of India and anr.
Advocates: S.R. Khandelwal,; B. Dayal and; P. Dayal, Advs
Cases ReferredNalanda Ceramic v. N. S. Choudhary
Excerpt:
(i) civil procedure code - section 20--'carries on business'--explained and discussed.(ii) arbitration act, 1940 - sections 14 and 17--jurisdiction explained and discussed--whether delhi courts would have jurisdiction in all such proceedings against the union of india?the question for the consideration of the full bench were :(a) whether the u.o.i. 'carries on business' within the meaning of section 20 of the code of civil procedure, and;(b) whether the delhi courts have jurisdiction to entertain an application under sections 14 & 17 of the arbitration act. 1940 against the union of india solely on the ground that the u.o.i. has its seat of power at new delhi ?answering the question in the negative,;1. the expression 'actually and voluntarily resides' and 'personally works for gain'.....avadh behari rohatgi, j.(1) in this arbitration case the question referred to the full bench is one of jurisdiction. two questions arise on the reference. one whether the union of india 'carries on business' within the meaning of section 20 of the code of civil procedure. second whether the delhi courts have jurisdiction to entertain an application under sections 14 and 17 of the arbitration act against the union of india not on the ground that the cause of action arose here but solely on the ground that the union of india has its central seat of power at new delhi. (2) these are the facts. gupta sanitary stores, petitioner, entered into a contract with the respondent union of india, for 'improvement of water supply at joshimath' in 1969-70. there was an arbitration clause in the.....
Judgment:

Avadh Behari Rohatgi, J.

(1) In this arbitration case the question referred to the Full Bench is one of jurisdiction. Two questions arise on the reference. One whether the Union of India 'carries on business' within the meaning of section 20 of the Code of Civil Procedure. Second whether the Delhi Courts have Jurisdiction to entertain an application under sections 14 and 17 of the Arbitration Act against the Union of India not on the ground that the cause of action arose here but solely on the ground that the Union of India has its central seat of power at New Delhi.

(2) These are the facts. Gupta Sanitary Stores, petitioner, entered into a contract with the respondent Union of India, for 'improvement of water supply at Joshimath' in 1969-70. There was an arbitration clause in the contract. Disputes arose between the parties. They were referred to the sole arbitration of K. S. Sil, Commander Works Engineer, Bareilly Cantt. He made the award on 31-10-1979. Of the making of the award he gave notice to the parties.

(3) The petitioner made an application under sections 14 and 17 of the Arbitration Act (registered as Suit No.1358-A of 1979) on the original side of this court praying that the arbitrator be asked to file the award and the award be made a rule of the court.

(4) On notice from the court the arbitrator filed the award and the proceedings conducted by him. This was separately registered as Suit No. 50-A of 1980. Both the suits were consolidated. Substantially there is only one issue in these proceedings and that is about the validity of the award. But at the moment we are not concerned with this.

(5) On receipt of the award the court issued notice to the parties of the filing of the award by the arbitrator. The petitioner did not file any objections. The Union of India, on the other hand, has filed objections to the award, the preliminary objection being that this court has no jurisdiction to try the suit. The Union of India has also separately made an application under O. 7 r. 11, Code of Civil Procedure being is 576 of 1982 praying that the petition be returned to the petitioner for presentation to the proper court on the ground that this court has no territorial jurisdiction to try the suit.

(6) The court framed the following preliminary issue on 18-2-1982 :

'WHETHER this court has no jurisdiction to entertain this petition ?'

(7) Before the learned judge (S. S. Chadha J.) the Government's case was that the Union of India does not carry on business and that as no part of the cause of action had arisen within the Union Territory the Delhi Courts have no jurisdiction to entertain the suit. it was submitted, and it has not been. disputed before us, that in this case the contract was entered into between the parties in U.P., and the work was executed in U.P. It was said that the Union of India in the contract was represented by Commander Works Engineer (P) Pithoragarh,whose headquarters were at Pithoragarh and head office at Bareilly and no part of the cause of action had arisen at Delhi. It is maintained that U.P. courts alone have jurisdiction to try the suit. The Government before the learned judge relied on a division bench ruling in Binani Bros. (P) Ltd. v. Union of India, 2nd (1975) 2 Del 196 (1). The petitioner, on the other hand, cited a decision of H. L. Anand J. in Bakhtawar Singh Bal Krishan v. Union of India, : AIR1983Delhi201 .

(8) The learned judge found that the division bench (S. N. Shankar and F. S. Gill JJ) ruling in Binani Bros. had been doubted by H. L. Anand J. in Bakhtawar Singh. By his referring order dated 3-1-83 he referred the question of jurisdiction to a full bench for an authoritative pronouncement. This is how the case has come to us.

(9) Before I deal with the question of Jurisdiction it is convenient to set out the provisions of section 20, Code of Civil Procedure;

'20.Other suits to be instituted where defendants reside or cause of action arises. Subject to the limitations aforesaid, every suit shall be instituted in a court within the local limits of whose jurisdiction (a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain; or (b) any of the defendants, where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or (c) the cause of action, wholly or in part, arises. Explanationn A corporation shall be deemed to carry on business at its sole or principal office in India or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place.'

(10) Jurisdiction means authority to decide or capacity conclusively to determine questions of a particular type, that is to be determined at the commencement and not at the conclusion of an inquiry and that questions of jurisdiction depend on the nature of the facts into which a tribunal has to inquire and

(11) Two observations may be made at the opening : (1) 'All Jurisdiction is properly territorial' [Sardar Gurdyal Singh v. Rajah of Faridkot (1895) 22 Cal. 222 (4) per Earl of Selborne]. (2) 'The foundation of jurisdiction is physical power'. [Mc Donald v. Mabee (1917) 243 U.S. 90 (5), 91 per Holmes J.]. In effect jurisdiction depends upon the presence of the defendant in India. Section 20, Code of Civil Procedure is based upon this theory.

(12) The principal question is the forum or the venue of suits against the Government. Section 2(c) and 31(1) of the Arbitration Act say that jurisdiction will be determined in arbitration cases in the same manner as in a suit if the subject matter of the reference had been the subject matter of the suit.

(13) In this case we are concerned only with a suit against the government. An application under sections 14 and 17 of the Arbitration Act is in the same position as an ordinary suit for purposes of jurisdiction. Now the government is not a natural person. Nor a juristic person. If the state carries on business through corporations created by Acts of Parliament or companies registered under the Companies Act the Explanationn to section 20 enlarges the meaning of the words 'carries on business' occurring in clauses (a) and (b) of section 20. The rise of modern corporations 'owned and controlled by the State' is a remarkable feature of recent times. A corporation is a statutory creature. But the present is not a case of corporation. The Government is not a Corporation.

(14) The rule as to forum is that the plaintiff can sue at the place where the defendant at the commencement of the suit 'actually and voluntarily resides, or carries on business, or personally works for gain'. It is with these three expressions used in clauses (a) and (b) that I am concerned in this case.

(15) All authorities are agreed that the expression 'actually and voluntarily resides' and 'personally works for gain' apply to natural persons and not to legal entities. The Government is neither a natural person nor a corporate personality. So it cannot be predicated of the Government that it resides or personally works for gain at a particular place. There is a territorial omnipresence of the Government throughout the country. But then what is Government On the analogy of an individual a Government cannot eat or sleep but it can have a seat. A seat of power. It can do business as the Constitution says. Legally speaking, it is an entity. It is a short hand form of a body of persons that constitute the governing authority of a political unit. In concrete terms it is a collection of officials comprising the governing body of the state.

(16) The main question is whether the Government can 'carry on business'. On this question there was once a conflict of opinion. Most of the High Courts except the Assam High Court were of the view that the words 'carry on business' were in applicable to the case of the Union of India of the State Government. P. B. Mukharji J. in Calcutta Motor Cycle Co. v. Union of India, : AIR1953Cal1 expressed this view. This view was followed in Calcutta, Bombay and Madras decisions . (See K. G. Kalwani v. Union of India, : AIR1960Cal430 . The Assam High Court, however, took a different view. In P. C. bids was v. Union of India Air 1956 Gua 85 (8) Sarjoo Prasad Cj and Ram Labhaya J. held that the Government does carry on business and the expression 'carries on business' was as much applicable to Government as to an individual. In Union of India v. Ladu Lal Jain, : [1964]3SCR624 the Supreme Court approved the view of the Assam High Court and impliedly overruled the view of the other High Courts, The Supreme Court said :

'THE expression 'voluntarily resides' or 'personally works for gain' cannot be appropriately applied to the case of the Government. The Government can, however, carry on business. The mere fact that the expression 'carries on business' is used along with other expressions, does not mean that it would apply to such persons to whom the other two expressions regarding residence or of personally working for gain would apply. The provisions (Arts. 298 and 19(6) of the Constitution) clearly indicate that the State can carry on business and can even exclude citizens completely or partially from carrying on that business... Running of railways is such an 'activity which comes within the expression 'business'............. The Union of India thus carries on the business of running railways and the Union. Government can be sued in a Court within whose territorial jurisdiction the Headquarter of the railway run by the Union is situate.'

(17) This question came before court in Binani Bros. That was a case of an application under section 33, Arbitration Act. The contract in question was entered into between Binani Bros. and the Director of Supplies and Disposals, Bombay. The application was made in Delhi Courts on the ground that the Union of India was carrying on business through the Director of Supplies and Disposal at New Delhi and thereforee the Delhi Courts have jurisdiction in view of section 2(c) and section 31(1) of the Arbitration Act read with section 20, Code of Civil Procedure. The division bench rejected the argument. They said :

'IN the instant case we find that there is nothing on record to show that the Director of Supplies and Disposals. New Delhi carried on business at Delhi.'

(p. 201).

(18) They referred to Ladu Lal Jain observed that the case related to railways and running of railways, the Supreme Court has held, is a business. So the court within whose jurisdiction the headquarters of the Railway are situated has the Jurisdiction to try the suit. As to Ladu La! Jain they said :

'WE do not read the cited case, thereforee, to be laying down the rule that the courts at Delhi will have jurisdiction in regard to all disputes relating to all contracts executed by Union of India simply because the Union of India has its office in Delhi.'

(p. 202).

(19) On facts they held that Director General of Supplies and Disposals was the principal purchase organisation of the Government of India and was not carrying on business. The 'Government of India in its executive or sovereign capacity contracted to purchase 780 cwts of pig lead from Binani Bros. for a public purpose. This was not a 'business', they said. Basing themselves on Director of Rationing and Distribution v. Corporation of Calcutta, : 1960CriLJ1684 they held that purchases made by the purchase organisation were made in the exercise of governmental functions.

(20) In Sushil Ansal v. Union of India Air 1980 Del 43 (11) Sultan Singh, J. followed Binani Bros. and held that as the contract was made at Kanpur and no part of the cause of action had arisen at Delhi the courts at Delhi did not have jurisdiction. Simply because the Union of India has its seat at Delhi the courts at Delhi cannot entertain the petition under sections 14 and 17 of the Arbitration Act.

(21) H. L. Anand, J., however, in Bakhtawar Singh struck a different note. He took the view that Binani Bros. was in 'direct conflict' with the decision of the Supreme Court in Ladu Lal Jain. He opined that Binani Bros. 'cannot be said to have laid down any general proposition of law', (p. 214).

(22) The learned judge made an extensive reference to cases under the Industrial Disputes Act dealing with the meaning of 'industry'. He refused to read any words of limitation in the expression 'carries on business' (p. 205). He observed that 'the Union could be legitimately understood as carrying on business when it performs its functions whether regal or .otherwise.' (p. 210). On the case before him he held that the Union was 'carrying on business in relation to ordnance factories' and 'the manufacture of arms and ammunitions is an activity which is analogous to carrying on business' (u. 211). So he decided that the Union can be sued at the 'seat of power at the center' 'where the brain or the decision-making apparatus resided', and which was 'the pivotal point of control' (p. 211).

(23) Is the view taken in Bakhtawar Singh right In fact this is the question referred to us. We heard arguments of both sides. After the close of arguments counsel for Union of India brought to our notice that an appeal the judgment of H. I- Anand J. was set aside by D. K. Kapur and S, Ranganathan Jj in Union of India v. Bakhtawar Singh Bal Krishan (1984) D.L.T. 153 (12). They 'respectfully' followed the decision in Binani Bros. and distinguished Ladu Lal Jain as 'limited to those cases in which the Government was carrying on commercial activities as opposed to sovereign activity'. They disapproved the reasoning of Anand J. and said :

'IT would not be possible for us to hold that a suit against the Union of India can be instituted in any court in India merely because the Union of India is located throughout India and, thereforee, the Union of India carries on business throughout India',

(p. 155).

(24) When Chadha J. made the referring order on 3-1-1983 the appeal of the Union of India had not been decided in Bakhtawar Singh's case. It was decided on 18-11-1983. So the learned judge referred the case to the full bench.

(25) For a correct conclusion on the meaning of the words 'carries on business' it is essential to know what exactly it is that Ladu Lal Jain decides. A historical survey of cases on the subject prior to Ladu Lal Jain showed a conflict of opinion amongst the High Courts which Ladu Lal Jain set at rest. In agreement with Assam High Court the Supreme Court found that 'private companies and individuals carried on the business of running railways, prior to the State taking them over' and thereforee running of railways did not cease to be a business which the Government now carries on. It all depends on the nature of the activity in which the Government is engaged. 'It is the nature of the activity which defines its character', they said.

(26) But there are no universally accepted canone turn the characterisation of activity. One system might regard the running of a railway as a public law function, while another may regard it as a private law one. A United States Court held that a contract for the purchase of army boots was a sovereign act, an Italian held it was not. Supply of cigarettes to the army has been held to be a public act by a French Court. Each Municipal system makes the distinction on somewhat arbitrary premsies. [See D.P.O's Connell International Law (2nd ed.) Vol. 2 p. 8451

(27) The Supreme Court of India has held that running of railways is a business activity. We are bound by the Supreme Court. They have asked us to examine in each case the nature and character of the activity. Referring to Director of Rationing and Distribution (supra) they said that that was a case where the department was discharging the elementary duty of a sovereign to ensure proper and equitable distribution of foodgrains with a view to maintaining peace and good government.

(28) If the activity is in the nature of a commercial venture as in the case of Railways, the suit against the Union of India can be instituted at the place of central management and control of that business. The headquarters of the railway are their principal place of business. Ladu Lal Tain is not an authority for the proposition that the plaintiff can institute the suit against the Union of India at the principal seat of the government. He can institute the suit only at the headquarters of the railway run by the government which in the case of Ladu Lal Jain was in Gauhati jurisdiction. But not at New Delhi on th$ ground that the Union of India is located throughout India and New Delhi is its seat of power.

(29) The Supreme Court in Ladu Lal Jain premise their decision on the salutary principle underlying section 20. They said :

'THE principle behind the provisions of els. (a) and (b) of section 20 is that the suit be instituted at a place where the defendant be able to defend the suit without undue trouble.'

(p. 1683).

(30) What does 'business' mean This is the question. The expression 'business' imports a fixed place from where the person can control and direct his business. Just as residing connotes some fixed place in which a man personally lives, so carrying on business connotes a fixed place in which a man personally transacts a business. Halsbury says :

'BUSINESS is a wider term than, and not synonymous with, trade; and means practically anything which is an occupation as distinguished from a pleasure. Profit or the intention to make profit is not an essential part of the legal definition of a trade or business; and payment or profit does not 'constitute a trade or business that which would not otherwise be such'

(38 Halsbury's Laws (3rd edn.) 10,11). Lindiey, L.J. said :

'THE word 'business'.............. means almost anything which is an occupation, as distinguished from a- pleasure anything which is an occupation or duty which requires attention is a business.'

Rolls v. Miller (1884) 27 Ch. D. 71, C.A., per Lindley, L.J at p. 88.

(31) The essential notion of a business as contemplated by section 20 is that it is commercial in character.

(32) Where the Code refers to the defendant and the local limits of the court's jurisdiction within which he 'carries on business' it is clearly business in a commercial sense that is meant. The word has a commercial flavour and envisages a defendant carrying on commercial enterprises. The expression 'carries on business' refers to something of a permanent character (10 Halsbury Laws of England 4th ed. Para 108 p. 67). It was argued that we should interpret the word 'business' as covering all kinds of activity defined in Webster's Dictionary. In my opinion that is not what the section says. No doubt it is quite legitimate colloquially to say of any person who is doing his duty that he is doing what it is his business to do. But I do not think the word is used in that sense. The phrase I have to interpret connotes that there is a defendant of whom it can properly be said that he is carrying on a business in the ordinary commercial sense. Sovereign functions of the state are outside the pale of 'business'.

(33) Business is a large and indeterminate word. The legislature is using the word in a commercial sense. It includes an undertaking or enterprise and the process of carrying it on. Business is not confined to being busy; in many businesses long intervals of inactivity occur.

(34) What the legislature has in mind is the place of business. The Code refers to the particular place at which the party carries on business. The place of business is the 'place of suing', to use the. words of the Code. It has a defined locale. The place has geographical limits. These limits define the jurisdiction of courts. Which means the place of suing where the defendant can defend without undue trouble, as the Supreme Court has said in Ladu Lal Jain.

(35) It is a misuse of language to say that Governmental functions appertaining to the administration of a country are comprehended within the expression 'carrying on business'. That it is the business of the government to perform its sovereign functions does not mean that the government carries on business, irrespective of the nature of the activity, whether sovereign or commercial. It will introduce the greatest uncertainty and inconvenience to hold it so. The plaintiff may go to the remotest and smallest place to sue the government or to the seat of power as he likes. There will be nothing to regulate the place where the government may be sued in the courts of this country. Jurisdiction will then become fluid. It will not be fixed. In a leading English case Blackburn, J. said :

'BUSINESS can only be said to be carried on where it is managed. No doubt there may be cases where a man carries on more businesses than one and in different places, but such cases are quite exceptional, and the place of business in general, must be the place where the general superintendence and management take place. . . A railway company carries on its business at the principal station only.'

Brown v. London & North Western Ry. Co. (1863) 32 LJ. Q.B. 318 (13), per Blackburn J. at p. 321.

(36) As long ago as 1862 Wells J. in Cubit Sparhall Rundle v. Secretary of State in Council. (1862) 1 Hyd 37 (14) pointed out the danger of taking a wide and unrestricted view in these words:

'AND what is the position of the Government The Government of India is represented in this city which is its principal seat by the Governor-General or in his absence by the President in Council and throughout its extensive territories by its various officers, civil and military, in every grade of official rank. It may, thereforee, be said to be present everywhere and be constructively dwelling in each and every 'place at the same time. But it cannot be allowed that universal dwelling can give a plaintiff the right to elect the forum in which to sue the Government or to give every Court of Justice in India the concurrent jurisdiction in all cases against the Government. Such a rule will be one sided in its operation and would place the Government at a disadvantage which in the case of a private individual would amount to an evil of the greatest magnitude.'

(37) The authorities are at one that the argument of territorial omnipresence of the Government throughout the country cannot be pushed to its logical extreme because such an extreme view 'would place the Government at a disadvantage which in the case of a private individual would amount to an evil of the greatest magnitude', to use the words of Wells J. In my opinion the view of Anand J. would not only cause great hardship to the Government but would introduce the greatest confusion in the matter of jurisdiction of courts.

(38) The provisions of section 20 make no distinction between the Government and the individual. If an individual defendant cannot be sued any where the plaintiff likes, likewise the Government cannot be sued anywhere a plaintiff likes. It can be sued at its principal place of business or headquarters if it is engaged in a commercial venture. That it does .business. can no longer be doubted in view of Ladu Lal Jain. All that has to be seen is (1) the purpose of the activity in question and (ii) if it is a commercial activity the government can be sued at the place of central management and control of that business. This is how I read Ladu Lal Jain.

(39) It is a misreading of Ladu Lal Jain to say that it gives a carte blanche to a plaintiff to sue the government at any place throughout India or at its central seat of power. We ought not to place the government at a disadvantage as compared to an individual defendant. Wells J's warning is as true today as it was in 1862.

(40) Nationalisation of business has raised a new problem. During the nineteenth century- states rarely engaged in trading activities. During the present century state trading has become quite common. The distinction between governmental acts and purely commercial acts has to be drawn to understand the true meaning of the expression 'carries on business'. This distinction between governmental and commercial acts is not always precise. You have to look to the purpose of the act. For instance, the purchase of boots for the army would be regarded by a layman as a commercial act but if you look at the purpose of the act it is a governmental act. This is what Binani Bros. decides. This is where I would respectfully dissent from the view of Anand J. that modernisation of an ordnance factory is a 'business'.

(41) There are no definable boundaries of sovereign power. It is true that the dividing line where administration ends and business begins or where administration begins or business ends is difficult to draw. The reason is that sovereignty is illimitable and indivisible. The activities of the state cannot always be compartmentalised into trading or governmental activities. It is not always easy to decide whether the act is a commercial act or an act of sovereignty. (Playa Larga v. 1 Congresco del Partido (1983) A.C. 244 (15) at 264 per Lord Wilberforce). In the socialist thesis the state absorbs in the interests of planning commercial activities traditionally reserved to the individual. But maintenance of its army by the state is a sovereign function. This is really elementary.

(42) The dividing line will vary with every change in the conception of states recognised spheres of sovereign activities. What is and what is not a 'public' function or use is a question that cannot be answered in the abstract. The nature and object of the particular activity must be closely examined to determine whether or not it really pertains to the functions of the sovereign state. The question in each case is : Is it 'a pure business undertaking though run by the Government' Or is the activity a public service undertaken 'in the exercise of the sovereign power of the state or of governmental functions' (Ladu Lal Jain p. 168-1). In other words, is it a governmental function or a non-governmental function

(43) We are now avowedly a socialist state after the Forty Second Constitutional Amendment Act, 1976. The question what is purely a business activity and what is a sovereign activity is more difficult to answer now than ever before. In 1908 when the Code of Civil Procedure was enacted the legislature did not contemplate that the state will do business. The farmers of the Code had human beings or corporations in mind. The theory of .government in fashion in those days was 'that Government is best which governs least'. But today we are a 'most governed' nation, to use a phrase of Maitland.

(44) The reasoning in Ladu Lal Jain is that since the Railway transport was being run previously by private individuals or private companies as a business proposition so it has not ceased to be a business. Mainly because the Constitution has authorised the state to carry on business even to the extent of exclusion of citizens, [see Art. 298 and An. 19(6)]. This Means that the state can carry on what may be called for want of a better term 'socialised business', as there is socialised medicine in Britain. The business the state now carries on is a business affected with public interest. This is the change which a socialist constitution has brought about. The keystone of socialism is the reduction of private enterprise.

(45) In future there will be more and more of corporations 'owned and controlled by the State' [Art. 19(6)1 through which the state will do business. Public corporations today are the core of the governmental system. We have state transport corporations. We have air corporations. Soon we may have a space corporation for going to the moon.

(46) These public corporations are in effect the alter ego of the govenrment. (Mellenger v. New Brunswick Development Corporation (1971) 2 All E.R. 593 (16) at 596. State-controlled enterprises, with legal personality, ability to trade and to enter into contracts of private law, though wholly subject to the control of their state, are a well-known feature of the modern commercial scene. (playa Larga (supra) at p. 258].

(47) But a suit against a corporation is not a suit against the government merely because it has been incorporated by the direction of the government, and is used as a government agent, and its stock is owned solely by the government.

(48) Cases like Ladu Lal Jain where the historical antecedents were the main determinant of the present character of railway as a business are likely to be fewer in future. In any case the principle is that 'it is the nature of the activity which defines its character.' (Ladu Lal Jain). Whether the state carries on business itself or through its statutory creature, the corporation, the place of suing will be the place where the management and control of that business or corporation abide. The theory of 'seat of power' propounded by Anand J. is contrary to principle and precedent alike.

(49) The cases which have come to courts, with the exception of Ladu Lal Jain were mainly cases of sovereign or regal or executive function. In Binani Bros. an executory contract to purchase pig lead was held to be a governmental function. In Director of Rationing the Supreme Court held that an equitable distribution of food grains was 'an elementary duty of a sovereign'. In Bakhtawar Singh the contract entered into by the state was a contract in connection with the execution of civil work for modernisation and augmentation of an ordnance factory at Muradnagar. The ordnance factory is a part of military organisation. Every state maintains a military force of great strength to survive in the present day world where governments are piling up armaments despite talks of disarmament. The present day tendency is to speak of the state almost excursively in terms of military power. Likewise a contract for the improvement of water supply at joshimath in the present case is essentially a military engineering contract. It is the primary duty of the state to defend its borders. For that purpose it must maintain military might.

(50) Two criticisms may be validly leveled against the view of Anand J. One that the manufacture of arms and ammunitions is not a business. It is a part of the military organisation. Tile supreme command of the defense Forces of the Union is vested in the Chief Executive, the President, by the Constitution. (Art. 53). It is a part of the sovereign functions of the state to raise an army and supply arms to combatants. Military includes soldiers, arms and war. The country's military needs include supply of arms and ammunitions. It is the function of the civil authority to meet them. Secondly the theory of 'seat of power at the Centre' will produce an evil of the greatest magnitude, as Wells J. said. All roads will then lead to Rome.

(51) For example, construction of dam does not amount to carrying on business by the government. (Associated Commercial Engineers v. State of M.P : AIR1979MP96 . The court held that the plaintiff has not placed any material to show that the construction of dam was only a business proposition and not a duty cast on the state under the directive principles of State Policy.

(52) In Badrinarayan v. Excise Commissioner, Hyderabad Air 1962 A.P. 382 (18), a division bench (Chandra Reddy Cj and Jagan Mohan Reddy J.) of Andhra Pradesh held that collection of revenue from abkari was not a 'business' of the government in the commercial sense. Collection of revenue is a sovereign function. Badrinarayan was followed in Binani Bros. by this court. It was followed by another division bench of Andhra Pradesh in Ganga Reddy, Dharma Reddy & Co., v. State of Andhra Pradesh (1969) 2 AWR 475 (19) (Ekbote and Rao JJ).

(53) In Ganga Reddy the learned judges refer to Ladu Lal Jain. They reach the same conclusion as in Badrinaravan that in gathering revenues from various sources the Government acts in its sovereign capacity. They held that a suit for recovery of money for loss in abkari trade instituted at Hyderabad on the ground that it was the principal seat of government did not lie as the cause of action .wholly arose at Warangal. In my opinion Badrinarayan and Ganga Reddy strongly support the view taken in Binani Bros. by this court in which I respectfully concur.

(54) I will summarise my conclusions in the following propositions :

(1)Ladu Lal Jain holds that the state can and does carry on business as in the case of railways.

(2)That where the state carries on business the suit can be instituted at the principal place of general superintendence and management. It is with the central control and management of the business that we are concerned. In Ladu Lal Jain it was held that central control and management of the Northern Frontier Railway abide at the headquarters at Pandu within the jurisdiction of Gauhati Courts. The headquarters are the principal office where the centre of control exists. We are not concerned with the seat of the Central Government, 'the seat of power'. It is a fallacy to think that Ladu Lal Jain lays down that the Union can be sued at the seat of power because it carries on business or is present everywhere in India,

(3)That expression 'business' means commercial business and not duties or functions of a sovereign character.

(4)Whether the state is carrying on business is a pure question of fact.

(5)Binani Bros. was rightly decided. It is not in conflict with Ladu Lal Jain. Rather it loyally follows it. In my opinion it lays down good law.

(6)Balditawar Singh decided by H. L. Anand, J. was rightly reversed by the division bench in Union of India v. Bakhtawar Singh Balkrishan (1984). D.L.T. 153. I cannot assent to the reasoning of Anand, J. In my respectful opinion it is against the current of judicial decisions. Bakhtawar Singh Balkrishnan v. Union of India, : AIR1983Delhi201 , is thereforee, not good law. Nor do I think it was open to the learned judge to doubt the correctness of Binani Bros., a decision of two judges. Sitting singly he was unquestionably bound by it. It was an express decision on the issue before him

(7)Cases on 'industry' under the Industrial Disputes Act are a misleading guide to the interpretation of section 20. Code of Civil Procedure. Industrial disputes have a socio economic overtone, an after-taste, a flavour that lingers in the mind. 'At heart they are a struggle, constantly becoming more intense on the part of the employed group engaged in co-operation with employing group in rendering services .to the community essential for a higher general human welfare, to share in that welfare in a greater degree.' [Federated State School Teachers' Association of Australia v. Victoria (1929) 41 C.L.R. 569 (20) per Isaac's J. at pp. 576-57^1. The. expression carries on business', on the other hand, is ordinary plain English. It stands in no need of any aid to construction. It is its own interpreter.

(8)I take the test to be this : What is the nature and purpose of the activity in question If it is commercial in character the suit can be filed at the principal place of business or principal office. And also at the place where the cause of , action arises wholly or in part. [Ram Rattan Bhartia v. ' Food Corporation of India, : AIR1978Delhi183 ].

(9)In most cases where the business is not of a commercial nature the suit must be filed against the government at the place where the cause of action arises wholly or in part. For example, if the contract is entered into at Calcutta the courts at Calcutta will have jurisdiction [Nalanda Ceramic v. N. S. Choudhary & Co., : AIR1977SC2142 .

(10)Cases show that rail transport is a business. Rationing, collection of revenue, modernisation of ordnance factory and construction of dam are not businesses. Contracts for the purchase and sale of goods required for public purpose are contracts which the state makes in exercise of sovereign authority. They are not commercial transactions. These are but few examples of multitudinous ramifications of human activity in which the government holds absolute sway.

(55) The concept of commercial and sovereign activity requires value judgments which rest on political assumptions as to the proper sphere of state activity and of priorities in state policies. The socialist state advocates an extensive public sector, as a concomitant of a modicum of planning.

(56) Ladu Lal Jain must be confined to running of railways which the highest court held in the climate of 1963 to be a business. But the importance of Ladu Lal Jain lies not in this. It lies in the division and distinction that it makes between purely commercial acts and sovereign acts. For example a contract for the purchase of army uniforms, supply of arms to the army, are sovereign acts.

(57) In business the suit can brought against the Union at the principal place of business. On the theory of 'seat of power' as the territorial basis of jurisdiction I find there is a sea of adverse authority.

(58) On the hole my conclusion is that the concept of carrying on business cannot be imported into activities of the description with which Anand J. was concerned in Bakhtawar Singh. Modernisation of an ordnance factory engaged in the manufacture of arms and ammunition is undoubtedly a sovereign activity of the state. It is not a known and recognised commercial venture.

(59) On the facts of the present case I must hold that Delhi courts have no jurisdiction to entertain the petition under sections 14 and 17 of the Arbitration Act. The contract was made in U.P. The work was executed in U.P. The Commander Works Engineer has his headquarters and head office in U.P. No part of the cause of action has arisen in Delhi. The Union of India does not carry on business when it enters into a military engineering contract for the improvement of water supply at Joshimath. It is a public service, undertaken in the exercise of the sovereign power of the state.

(60) For these reasons I would rule that Delhi courts have no jurisdiction to entertain the petition. I would order that the petition, award arbitrator's proceedings and objection petition be returned to the petitioner for presentation to the proper court. In the circumstances of the case I would leave the parties to bear their own costs.


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