Jaipur Udyog Ltd. Co. v. Star Paper Mills Ltd — 1980 DIGILAW 1152 (ALL)

ORDER K.C. Agrawal, J. - This is a revision filed under Section 115 of the Code of Civil Procedure against a judgment of First Additional District Judge, Saharanpur, dated 29th May, 1980, overruling the preliminary objection raised by the defendant-applicant. 2. The plaintiff is a registered Company doing business at Saharanpur under the name and style M/s. Star Paper Mills. Defendant No. 1, M/s. Jaipur manufacturing cement at Sawaimadhopur in the State of Rajasthan. M/s. Bharat Overseas Private Ltd., which was arrayed as defendant 2, was the sole selling agent of defendant No 1. The plaintiff filed the suit for recovery of Rs. 21093.29, on the allegations that a sum of Rs. 17013.29 P. was advanced by the plaintiff to defendant No. 2. the sole selling agent of defendant No. 1, for supply of cement. As cement was not supplied, the plaintiff was entitled to receive 21093.29 P. 3. The defendant 1 contested the suit on various grounds. One of the grounds taken was that defendant No. 1 was a Relief Undertaking declared as such by the State Government of Rajasthan under the Rajasthan Relief Undertakings (Special Provisions) Act, 1961 and hence, the suit could not be instituted against it. 4. Subsequently, defendant 1 moved the application for the dismissal of the suit or suspension of the proceedings. The application was opposed by the plaintiff. On 23-4-1980, the Additional District Judge rejected the application. Against the aforesaid judgment, the present revision was filed. 5. For appreciating the point urged, a brief reference to the relevant provisions of Rajasthan Relief Undertakings (Special Provisions) Act. 1961 (hereinafter referred to as the Rajasthan Act) may be made. The aforesaid Act (Act No. 9 of 61) was published in Rajasthan Gazette on 4-4-1961. The object of the Act was to make certain industries as relief undertakings and for other matters in respect thereof. Sub-section (2) of Section 1 lays down that the Act shall extend to the whole of the State of Rajasthan. Sub-section (2) of Section 2 defines "Relief Undertaking. The definition is that "relief undertakings" means an industrial undertaking in respect of which a declaration under Section 3 is in force. Section 3 empowers the State Government to declare an industrial undertaking to be specified in the official Gazette as a relief undertaking. Sub-section (2) of Section 2 defines "Relief Undertaking. The definition is that "relief undertakings" means an industrial undertaking in respect of which a declaration under Section 3 is in force. Section 3 empowers the State Government to declare an industrial undertaking to be specified in the official Gazette as a relief undertaking. Sub-section (2) of Section 3 provides that a notification under sub-section (1) shall have effect for such period as may be specified in the notification. Section 4 deals with power to specify industrial relations and other facilities temporarily for relief undertaking. The relevant portion of Section 4 is quoted below:- (1) "Notwithstanding any law, usage, custom, contract, instrument, decree, order, award, submission, settlement, standing order or other provisions whatsoever, the State Government may, by notification in the official Gazette direct that.................... (a )................. (1) & (ii).............. (b) no suit or other legal proceedings shall be instituted or commenced, if pending, shall be proceeded with, against any industrial undertaking during the period for which it remains as relief undertaking. Explanation: "Legal proceeding" means any proceeding under any law before any court, tribunal, officer, authority or arbitrator, started on a plaint, petition of appeal, application, reference or otherwise." (2) and (3)............... 6. Pursuant to the power conferred by Section 3 of the Rajasthan Act, the State Government issued notifications from time to time declaring defendant 1 to be the relief undertaking. The argument advanced on behalf of defendant 1 was that in view of the mandate of Section 4 (1)(b) of Rajasthan Act, the plaintiff was not entitled to institute the suit and, as such, the suit filed was liable to be dismissed. In the alternative, the submission made was that the suit was liable to be suspended. The submission was met by the plaintiff by urging that a State Legislature is entitled to make laws in respect of its territory and the Rajasthan Act could apply to Rajasthan and not to territory beyond it. The plaintiff contended that the Rajasthan Act could not be applied to stay a suit which was pending at Saharanpur. The submission further was that in case the Act was applied to the suits pending beyond the territory of Rajasthan, the same could be hit by extra territoriality and would be inoperative. The plaintiff contended that the Rajasthan Act could not be applied to stay a suit which was pending at Saharanpur. The submission further was that in case the Act was applied to the suits pending beyond the territory of Rajasthan, the same could be hit by extra territoriality and would be inoperative. The learned Additional District Judge repelled the argument of defendant 1 and found that the suit in question could not be stayed under the Rajasthan Act. Being aggrieved defendant 1 filed the present revision. 7. The submission made by the learned counsel for the applicant was that in view of the notification of the Government of Rajasthan dated 4-3-78 as extended from time to time, the court below erred in jurisdiction in holding that the suit was not liable to be stayed under Sections 3 and 4 of the Rajasthan Act. For the proposition advanced, counsel relied upon a decision of Punjab and Haryana High Court reported in Jaipur Udyog Ltd. Sawaimadhopur v. The Punjab University, (1980) 82 Pun LR 597. In the said case, the view taken was that the Company Jaipur Udyog could not be sued as long as it was a relief undertaking, whether within the State of Rajasthan or outside, as its obligation and liability would remain suspended during the currency of notification. 8. Relying upon this case, the counsel contended that the notification issued by the State Government under Sec. 3 of the Rajasthan Act, read with Section 4 (1)(b) was mandatory and applied to suits filed beyond Rajasthan as there was a territorial nexus between the suit filed at Saharanpur and the Act passed by the Rajasthan Legislature. 9. The question that arises is whether the Act is extra territorial in its application. In support of the plea of extra territoriality, it was urged by the plaintiff that the plaintiff was a resident of Uttar Pradesh and they carry on their business in Uttar Pradesh and the Act passed by the Rajasthan Legislature could not govern the action or activities of the persons living in Uttar Pradesh. 10. For the plaintiff, the submission was that Section 4 (1)(b) does not apply to suits or legal proceedings instituted or commenced outside Rajasthan and, as such, the Act could not apply to a suit filed at Saharanpur. 10. For the plaintiff, the submission was that Section 4 (1)(b) does not apply to suits or legal proceedings instituted or commenced outside Rajasthan and, as such, the Act could not apply to a suit filed at Saharanpur. In the alternative, the submission was that if the relevant provision in question was held to have extra territorial operation, the same be invalid as there is no connection between the State of Rajasthan and the plaintiff who filed the suit at Saharanpur for vindication of his rights. 11. In Wallace Brothers v. Income-tax Commissioner, Bombay, AIR 1948 PC 118 : (1948 All LJ 285), the Privy Council laid down the rule that has to be applied in judging or deciding this question. It held: "There is no rule of law that the territorial limits of the subordinate legislature define the possible scope of its Legislative enactments or mark the field open to its vision. The ambit of the powers possessed by a subordinate legislature depends upon the proper construction of the statute conferring those powers. No doubt the enabling statute has to be read against the background that only a defined territory has been committed to the charge of legislature. Concern by a subordinate Legislature with the affairs or persons outside its own territory may therefore suggest a query whether the Legislature is in truth minding its own business. It does not compel the conclusion that it is not. The enabling statute has to be fairly construed." 12. Reading clauses (1) and (2) of Article 245 of the Constitution, it is clear that the State Legislature has no power to make laws with extra State operation. In fact, any State Law affecting person or matter with whom or with which there is no territorial connection would be ultra vires. The rule of construction applicable to the interpretation of a State law is to presume that the law enacted is meant for the area of the State. To enact legislation having extra territorial effect, it is necessary that the intention must be clearly expressed. If there is nothing which points out to a contrary intention, the statute will not be taken to apply out of the State. A State law is to be interpreted and as intended to apply only to matters within the jurisdiction of the legislature with which it is concerned. If there is nothing which points out to a contrary intention, the statute will not be taken to apply out of the State. A State law is to be interpreted and as intended to apply only to matters within the jurisdiction of the legislature with which it is concerned. The area to which and the persons to whom an Act is to apply is to be gathered from the language of the particular enactment. (See (1896) 2 QB 425 (430), The Queen v. Jameson.) 13. Having thus held that as a general principle that States can legislate effectively only for their own territories, I proceed to consider whether the Rajasthan Act has extra territorial operation. It is a small Act containing four sections. The two material Sections are 3 and 4. There is nothing in Section 3 nor in Section 4 which lay down that the provisions contained in these two sections would have operation beyond the State of Rajasthan. Section 3 confers the powers on the State Government to declare by notification any industrial undertaking specified in it as a relief undertaking for the purposes of the Act. Upon the relief undertaking being declared, the State Government is entitled under sub-section (1) to issue a notification in relation to it directing that all or any of the laws mentioned in the Schedule to this Act would not apply. Clause (b) of sub-section (1) of Sec. 4 empowers the State Government to issue a notification directing that no suit or legal proceeding shall be instituted or commenced against any industrial undertaking during the period for which it remained an undertaking. Sub-section (2) of Section 4 lays down that the period during which any suit or legal proceeding cannot be instituted or commenced shall be excluded in computing the period of limitation prescribed by the Indian Limitation Act. These two provisions read together show that this period would apply to suit or legal proceeding which would commence in Rajasthan. In as much as the State Legislature has no power to make a similar provision of exclusion in respect of suits which could be filed outside its territory. Such a law can be made under Entry 13 of List III of the Seventh Schedule of the Constitution. In as much as the State Legislature has no power to make a similar provision of exclusion in respect of suits which could be filed outside its territory. Such a law can be made under Entry 13 of List III of the Seventh Schedule of the Constitution. Thus, there is inherent evidence in the Act itself showing that clause (b) of sub-section (1) of Section 4 could not apply to suits or legal proceedings to be commenced or instituted outside the State. 14. I am unable to find anything in the Rajasthan Act to justify a conclusion that the Act applied to suits or legal proceedings which had to be filed outside the State of Rajasthan. The words of Section 4 (1) of the Act do not justify the said conclusion. The essential rule applicable in this regard is that the words should generally be given the meaning which the normal speaker of English language could understand to bear in their context. It was said in Jones v. Director of Public Prosecutions, 1962 AC 635. at p. 688 : "It is a cardinal principle applicable to all kinds of statutes that you may not for any reason attach to a statutory provision a meaning which the word of that provision cannot reasonably be................." 15. After considering the Scheme of the Act and the various provisions contained therein, an irresistible conclusion thus follows is that it does not apply to transactions outside the State of Rajasthan. 16. In Cross's Statutory Interpretations 1976 Edition page 4 the law in this regard has been stated in the following words :- "The general rule with regard to territorial extent is that an Act of Parliament only applies to transactions within the United Kingdom and not the transactions outside." This rule applies to us as well. However, this is not more than a general rule. This does not mean that a State Legislature has no power at all to make a law affecting persons or matters outside the territorial limits of the State. This only means that the State Legislature cannot make such a law unless there is a sufficient territorial connection between the State and the person or matter to which the law is sought to be made applicable. This only means that the State Legislature cannot make such a law unless there is a sufficient territorial connection between the State and the person or matter to which the law is sought to be made applicable. The sufficiency of territorial nexus or relationship involves a consideration of two factors: (1) the connection must be real and not illusory and (2) that the liability sought to be imposed must be pertinent to that connection. The theory of nexus has been applied in a number of cases in India. Amongst these decisions the reference may be made to Governor-General v. Raleigh Investment Co. AIR 1944 FC 51; Wallace Brothers and Company Ltd. v. Commr. of Income-tax Bombay, AIR 1948 PC 118 : (1948 All LJ 285); A.H. Wadia v. Commr. of Income-tax, Bombay AIR 1949 FC 18: State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699 ; Tata Iron and Steel Co. Ltd. v. Bihar State, AIR 1958 SC 452 : State of Bihar v. Charusila Dasi AIR 1959 SC 1002 , and the State of Bihar v. Bhabapritananda Ojha, AIR 1959 SC 1073 . 17. The first important case found reported is State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699 . The Supreme Court upheld the doctrine of territorial nexus and laid down that. "The doctrine of territorial nexus is well established and there is no dispute as to the principles. As enunciated by learned counsel for the petitioners, if there is a territorial nexus between the person sought to be charged and the State seeking to tax him the taxing statute may be upheld. Sufficiency of the territorial connection involves a consideration of two elements, namely, (a) the connection must be real and not illusory and (b) the liability sought to be imposed must be pertinent to that connection." 18. Relying upon the decision of the said case Counsel for the applicant urged that although the Organiser of 'Prize Competition' was outside the State of Bombay, but the Supreme Court still found that the tax imposed by the Bombay Legislature was valid. Relying upon the decision of the said case Counsel for the applicant urged that although the Organiser of 'Prize Competition' was outside the State of Bombay, but the Supreme Court still found that the tax imposed by the Bombay Legislature was valid. In this case it was found that the paper through which the price competition was conducted was printed and published outside the State of Bombay but it had a wide circulation in the State of Bombay and that all the activities which the gambler was expected to undertake took place mostly, if not wholly, within the State of Bombay. In this background, the Supreme Court held that there was a sufficient territorial nexus to enable the Bombay Legislature to tax the respondent, who was resident outside the State. This case, therefore, is distinguishable. What is worthy of being noticed is that the Supreme Court itself observed in this case that "the question whether in a given case there is sufficient territorial nexus is essentially one of fact." From the above observations it would follow that the question to be determined in each case is whether there is necessary nexus between the law and the person or transaction sought to be brought under it. 19. The next case relied upon is State of Bihar v. Bhabapritananda Ojha, AIR 1959 SC 1073 . In that case the Bihar Hindu Religious Trusts Act, 1951 provided that S. 92 of the C. P. Code would not apply to any religious trust as defined in the State of Bihar. Having received the assent of the President under Article 254 (2), it was competent for the State of Bihar to amend the C.P. Code to the above effect. The Act applied to any religious trust situated in the State of Bihar, any part of whose property was also within the State. Once these two conditions were satisfied the territorial nexus with the State of Bihar was established. 20. In 1897, there was a suit under Section 92 of the C.P.C. relating to the Viadyanath Dham temple and in that suit a scheme was settled by the District Court of the Burdhwan. At that time the temple was in the State of Bengal. After the creation of the State of Bihar, the temple was included in the territory of that State. 21. At that time the temple was in the State of Bengal. After the creation of the State of Bihar, the temple was included in the territory of that State. 21. Challenging the validity of the Bihar Hindu Religious Trusts Act, 1951 it was contended that the Bihar Act could not be applied to this temple because it was governed by a scheme settled by a Court in another State and that the Bihar Legislature did not have the power to take away the jurisdiction of the Burdhwan Court. The Supreme Court did not accept this argument and found that as the Bihar Legislature was competent to legislate with respect to charitable trusts, including trusts having parts of its property in another State which property itself was taken away out of the purview of Section 92 of the C.P. Code, so that the Courts in the other State could not claim any such jurisdiction in respect of such property. 22. This decision of the Supreme Court had a different situation and is distinguishable and does not help the petitioner in advancing his argument. On the facts, the Supreme Court held territorial relationship had been established. 23. The next case relied upon is State of Bihar v. Charusila Dasi, ( AIR 1959 SC 1002 ) (supra). The following observations of this judgment may be quoted with advantage;- "The Bihar Act purports to do nothing more. Its aim, as recited in the preamble, is to provide for the better administration of Hindu Religious Trusts in the State of Bihar and for the protection of properties appertaining thereto. This aim is sought to be achieved by exercising control over the trustees in personam. Where the trust is situate in Bihar, the State has legislative power over it and also over its trustees or their servants and agents who must be in Bihar to administer the trust. Therefore, there is really no question of the Act having extra-territorial operation. Where, therefore, the religious endowment is itself situated in Bihar and the trustees function there, the connection between the religious institution and the property appertaining thereto is real and not illusory, indeed, the religious institution and the property appertaining thereto form one integrated whole and one cannot be dissociated from the other. Where, therefore, the religious endowment is itself situated in Bihar and the trustees function there, the connection between the religious institution and the property appertaining thereto is real and not illusory, indeed, the religious institution and the property appertaining thereto form one integrated whole and one cannot be dissociated from the other. If, therefore, any liability is imposed on the trustees, such liability must affect the trust property, even if it is situated outside the State of Bihar. The Act applies to such a trust and the provisions of the Act cannot be struck down on the ground of extra-territoriality." 24. Applying the principles laid down in these cases. I find that as there is no nexus between the plaintiff and the State of Rajasthan, Section 4 (1)(b) could not be applied to the suit filed at Saharanpur. I have given my considered thought to the decision of Punjab and Haryana High Court in Jaipur Udyog Ltd. Sawaimadhopur v. The Punjab University, (1980) 82 Punj LR 597, on which strong reliance has been placed by the applicant's learned counsel. In this case the view taken was that neither the Rajasthan Act nor notification issued take away the jurisdiction of any Court outside the State of Rajasthan but takes away the Company from being sued against so that the Courts situate outside the State of Rajasthan will decline to deal with the case against the Company during the pendency of the notification under which it continues to be a relief undertaking. I am unable to subscribe to this view. If Section 4 (1)(b) is applied to suits or legal proceedings situate outside the State of Rajasthan, it would affect the person who is claiming a right against the relief undertaking. The person living outside would be denied the right to avail the remedy for the period during which the notification is in operation. Neither with such a person nor with the transaction in respect of which the relief is being claimed outside Rajasthan, there is any territorial nexus or relationship. Applying the Rajasthan Act to such suit would mean bringing within its purview persons or transactions over which it has no jurisdiction. As pointed out earlier, the legal remedies may become time barred if the restriction imposed by clause (b) of sub-section (2) of Section 4 is held applicable to the proceedings or suits outside the State of Rajasthan. 25. Applying the Rajasthan Act to such suit would mean bringing within its purview persons or transactions over which it has no jurisdiction. As pointed out earlier, the legal remedies may become time barred if the restriction imposed by clause (b) of sub-section (2) of Section 4 is held applicable to the proceedings or suits outside the State of Rajasthan. 25. Reliance was also placed on a decision of the Supreme Court in Inderjeet C. Parekh v. B.K. Bhatt, AIR 1974 SC 1183 . In that case, the controversy was altogether different. The Supreme Court was not called upon to decide the question of extra territoriality. A notification issued by the State of Gujarat under Section 4 (1)(a)(iv) of the Bombay Relief Undertakings (Special Provisions) Act, 1958 declaring Rajnagar Spinning and Weaving Manufacturing Company Ahemdabad, was challenged. The Supreme Court was called upon to decide whether the immunity covered the individual obligations and liability of Directors and other officers of the undertaking. The Supreme Court held that such a personal liability did not fall within the scope of Section 4 (1)(a)(iv) of the Act. This case is of no assistance to the learned counsel for the applicant. 26. The Supreme Court cases relied upon do not support the contention which was raised before me. In these cases territorial nexus was found. In the present case, however, such a relationship or connection is missing. The plaintiff was a resident of Saharanpur and it had right to bring the suit for recovery of money in respect of which a cause of action arose at Saharanpur against defendant No. 1. The mere fact of residence of defendant No. 1 in Rajasthan was not relevant for invoking S. 4 (1)(b) of the Rajasthan Act. In my opinion, that was a quite insufficient ground in itself to make good the lack of connection of the plaintiff with the State of Rajasthan. The plaintiff had no connection of any nature which could justify the operation of the aforesaid section to the suit filed by him. The person, who is domiciled in Rajasthan and the person who is not so domiciled, cannot be treated alike. In my view, this would be an unreasonable construction to place on the statute. That it was not so intended would, indeed, seem to follow from the provision of cl. (b) of sub-sec. (1) of Section 4 itself. The person, who is domiciled in Rajasthan and the person who is not so domiciled, cannot be treated alike. In my view, this would be an unreasonable construction to place on the statute. That it was not so intended would, indeed, seem to follow from the provision of cl. (b) of sub-sec. (1) of Section 4 itself. Thus, I find that there is no sufficient territorial nexus between the State and the activities of the plaintiff who is not in the State. That being so, Section 4 (1)(b) could not be applied to the suit filed at Saharanpur. 27. In the result, the revision fails and is dismissed with costs.