# N. NAGENDRA RAO AND CO v. STATE OF ANDHRA PRADESH

- **Citation:** [1994] Supp. 3 S.C.R. 144
- **Court:** Supreme Court of India
- **Decided:** 1994-09-06
- **Case number:** Civil Appeal No. 3856 of 1988
- **Bench:** R.M. Sahai, B.L. Hansaria
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/n-nagendra-rao-and-co-v-state-of-andhra-pradesh-12326
- **Pages:** 44

## Headnote

Tort-Vicarious liability-Essential Commodities Act, 195~Sections
6-A and 6-C(2}-Seizure and confiscation of a part of goods-Deterioration
in quality of goods while in custody of the Stat~ether seizure of goods
C under a statutory authority absolves State of liabi~tyfor damage or deteriora-
#on-#'hether person from whom goods are seized entitled to recover value
of goods which are not confiscated-Held, State is vicariously liable for
negligence of its officers-Held further, liability to return goods seized does
not stand discharged by offering them in any condition-Where goods being
D returned have deteriorated in quantity or quality, owner of goods entitled to
be paid its price-Administrative Law.
Tort-Sovereign immunity-Essential Commodities Act, 195~Sec
tions 6-A and 6-C-Whether seizure of goods effected· under statutory
provisions is an exercise of sovereign powers-Held, defence of sovereign
E immunity not available when the State or its officers act negligently in
discharge of their statutory dutitfs--Held further liability of the State even
today is same as of the East India Company, and the defence did not apply
to the Company-Suit filed by any person for negligence of the officers of the
State cannot be dismissed as being in exercise of sovereign power-Further,
the concept of sovereignty has changed over time and it now vests with the
F people-Constitution of India, Article 30o-Govemment of India Act, 1858,
Section 55.
Tort-'Sovereignty' and 'acts of State' distinguished-Held, sovereignty
rests in a person or body which is independent and supreme both externally
G and internally-Whereas 'acts of State' may be act done by delegate of a
sovereign within the limitS of the power vested which cannot be questioned in
a municipal court.
Essential Commodities Act, 195~Section 6-C(2}-Held, fiction of
sale incorporated therein to protect the interest of the owner of the goods , to
H be interpreted liberally and in favour of the owne.,-/nterpretation of statutes
144
·.
-
N. NAGENDRARAOv. STATE
145
Interpretation of Statutes-Section 6-A(2)-!'May'~ held, keeping in A
mind object of the statute and the contest in which it is used, to be read as
shal~'Speedy and natural decay", held, not an expression of art and must
be understood in a commonsense manner-"lt is expedient in the public
interest'~ held, to be understood so as to advance the legislative objective of
ensuring that the goods do not suffer either in quality or quantity.
B
The appellant carried on business in fertiliser and foodgrains under
lincence issued by the appropriate authorities. In action taken under the
Essential Commodities Act, 1955, on August 11, 1975, huge stocks of
fertilisers, foodgrai~s and even non-essential goods were seized from the
appellant's premises. The seized goods Were not distributed as directed by C
the District Revenue Officer, or diverted to the places mentioned by the
appellant, or released in favour of the appellant. On June 29, 1976, no
serious infringement having been found, the Collector directed confiscation of a nominal portion, and release of the rest of the seized stock to
the appellant. This order was also not complied with, and it was in March D
1977 a notice was issued to the appellant to take delivery of the stOck
released in its favour. The appellant however found that the stock had
deteriorated both a quality and quantity. The appellant thereafter made a
demand for value of the stock released by way of compensation.
In a suit filed for recovery of the amount, the Government raised, E
among other grounds, the plea of sovereign immunity, discharge of
statutory duty in good faith, absence of any right to claim damages when
seizure has been found valid for part of the goods, and that the only right
an owner of the goods has is to get back the stock irrespective of its
~di~
F
The trial court, taking the relationship between the appellant and
the respondent as between a bailor and bailor and bailee, rejected the plea
of sovereign immu

## Text

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A
B
N. NAGENDRA RAO AND CO.
v.
STATE OF ANDHRA PRADESH
SEPTEMBER 6, 1994
[R.M. SAHAI AND B.L. HANSARIA: JJ.)
Tort-Vicarious liability-Essential Commodities Act, 195~Sections
6-A and 6-C(2}-Seizure and confiscation of a part of goods-Deterioration
in quality of goods while in custody of the Stat~ether seizure of goods
C under a statutory authority absolves State of liabi~tyfor damage or deteriora-
#on-#'hether person from whom goods are seized entitled to recover value
of goods which are not confiscated-Held, State is vicariously liable for
negligence of its officers-Held further, liability to return goods seized does
not stand discharged by offering them in any condition-Where goods being
D returned have deteriorated in quantity or quality, owner of goods entitled to
be paid its price-Administrative Law.
Tort-Sovereign immunity-Essential Commodities Act, 195~Sec
tions 6-A and 6-C-Whether seizure of goods effected· under statutory
provisions is an exercise of sovereign powers-Held, defence of sovereign
E immunity not available when the State or its officers act negligently in
discharge of their statutory dutitfs--Held further liability of the State even
today is same as of the East India Company, and the defence did not apply
to the Company-Suit filed by any person for negligence of the officers of the
State cannot be dismissed as being in exercise of sovereign power-Further,
the concept of sovereignty has changed over time and it now vests with the
F people-Constitution of India, Article 30o-Govemment of India Act, 1858,
Section 55.
Tort-'Sovereignty' and 'acts of State' distinguished-Held, sovereignty
rests in a person or body which is independent and supreme both externally
G and internally-Whereas 'acts of State' may be act done by delegate of a
sovereign within the limitS of the power vested which cannot be questioned in
a municipal court.
Essential Commodities Act, 195~Section 6-C(2}-Held, fiction of
sale incorporated therein to protect the interest of the owner of the goods , to
H be interpreted liberally and in favour of the owne.,-/nterpretation of statutes
144
·.
-
N. NAGENDRARAOv. STATE
145
Interpretation of Statutes-Section 6-A(2)-!'May'~ held, keeping in A
mind object of the statute and the contest in which it is used, to be read as
shal~'Speedy and natural decay", held, not an expression of art and must
be understood in a commonsense manner-"lt is expedient in the public
interest'~ held, to be understood so as to advance the legislative objective of
ensuring that the goods do not suffer either in quality or quantity.
B
The appellant carried on business in fertiliser and foodgrains under
lincence issued by the appropriate authorities. In action taken under the
Essential Commodities Act, 1955, on August 11, 1975, huge stocks of
fertilisers, foodgrai~s and even non-essential goods were seized from the
appellant's premises. The seized goods Were not distributed as directed by C
the District Revenue Officer, or diverted to the places mentioned by the
appellant, or released in favour of the appellant. On June 29, 1976, no
serious infringement having been found, the Collector directed confiscation of a nominal portion, and release of the rest of the seized stock to
the appellant. This order was also not complied with, and it was in March D
1977 a notice was issued to the appellant to take delivery of the stOck
released in its favour. The appellant however found that the stock had
deteriorated both a quality and quantity. The appellant thereafter made a
demand for value of the stock released by way of compensation.
In a suit filed for recovery of the amount, the Government raised, E
among other grounds, the plea of sovereign immunity, discharge of
statutory duty in good faith, absence of any right to claim damages when
seizure has been found valid for part of the goods, and that the only right
an owner of the goods has is to get back the stock irrespective of its
~di~
F
The trial court, taking the relationship between the appellant and
the respondent as between a bailor and bailor and bailee, rejected the plea
of sovereign immunity, and held that the Government had failed in discharging their responsibility to maintain the seized goods in proper con~ G
dition. On facts, the trial court found that the fertiliser fell in the category
of goods of utility which deteriorated by lapse of time, that the record did
not show any effort to dispose of the goods, and that the appellant had
repeatedly requested the disposal of the seized goods. Finding negligence
in dealing with the seized goods, the trial court decreed the suit in part,
for the loss suffered by the appellant.
H
A
B
146
SUPREME COURT REPORTS (1994] SUPP. 3 S.C.R.
On appeal, the High Court, relying on the ratio in M/s Kasturi Lal
and a Full Bench decision of the AP High Court, accepted the plea of the
sovereign power of the State. The High Court further held that the goods
having been seized in the exercise. of statutory power, and seizure having
been found valid at least in part, no compensation could be directed to be
paid.
On appeal, this Court was called upon to decide whether the State
is vicariously liable for negligence of its officers in discharge of their
statutory duties; whether seizure of the goods in exercise of statutory
powers immunises the State from liability for any loss or damage suffered
C
by th~ owner; and whether confiscation of part of the goods absolves the
State from any claim for the loss or damage suffered by the owner for the
goods which are directed to be released or returned to it.
Allowing the appeal, this Court
D
HELD : 1. Where the commodity seized became useless due to
negligence of the officers it ceased to be an essential commodity, and the
owner of the goods was entitled to be paid the price thereof as if the
essential commodity had been sold to the Government. The fiction of sale
which is incorporated in sub-section (2) of S.6C(2) of the Essential Com·
E
modities Act is to protect the interest of the owner of the goods. It has to
be construed liberally and in favour of the owner. The State was thus liable
to pay the price of the fertiliser with interest, as directed by the trial court.
[183-F·G]
F
State of Gujarat v. Memon Mohamed Haji Hasan, AIR (1967) SC 1885
and Smt. Basava Kam Dyamogouda Patil v. State of Mysore,~ (1977) SC
1749, relied on.
2. The liability under Section 6-C(2) to return the goods seized does
not stand discharge by offering them in whatever condition it was. Confis·
cation of part of the goods thus could not affect the right of the owner to
G claim return of the remaini~l-C]
·
·
3. The purpose of Section 6·A(2) of.the Act, which provides for the
interim arrangement of seized goods, is for protecting the goods seized _
under the Act. Once goods are seized, they are held by the State through
the Collector and his agents as custodia societus, unless it is found that the
H detention was illegal, in which case it shall be deemed to have been held .
•
N. NAGENDRARAOv. STATE
147
for th~ benefit of the perscn from whom it was seized. In either case, its A
proper maintenance and early disposal is statu~ory duty. It is more so as
the proceedings do not come to an end quickly. The rationale of the
provision appears to be to penalise the person whc;> acts in contravention
of the order, but protect the goods a~ they are essential for the society.
Loss in value of the goods in quality or quantity is neither in public nor B
in society's interest. Therefore, the Collector bas to form an opinion
regarding the category of the goods and once be comes to the conclusion
that they fall in one of the categories mentioned in the sub-section then be
has no option but to direct their disposal or selling off in the manner
provided. The interim arrangement provided by this section comes to an
end once an order of confiscation is passed. [158-E, 159-D to E]
C
The prime object of the Act is to secure availability of essential
commodities to be the general public at fair prices and to protect their
interest by way of equitable distribution. It is inherent in the power under
the Act that those who are entrusted with responsibility to implement it D
should act with reasonableness, fairness and to promote the purpose and
objective of the Act. [156-E; 158-C]
·
Mis Diwan Sugar and General Mills (.fyt) Ltd. v. Union of India, AIR
(1959) SC 626 = [1959] 2 SCR 123, referred to.
5. Public policy requires to court exercise the power in private· 1aw
·to compensate the owner where the damage or loss is suffered by the
negligence of officers of the State in respect of cause of action for which
suits are maintainable in civil court. Since the seizure and· confis~ation of
appellant's goods was not in exercise of power which could be considered
E
to be act of State of which no cognizance could be taken by the civil court, F
the suit of the appellant could not be dismissed. [185-F, G]
6. Keeping in mind the objective of the Act and the context in which
it bas been used, the word 'may' in section 6- A(2) should be read as 'shall'.
The expression 'speedy and natural decay' in section 6-~(2) is not an G
expression of art and must be understood in a commonsense manner. The
expression 'it is otherwise expedient in tbe public interest' has also to be
understood so as to advance the legislative objective of ensuring that the
goods do not suffer either in qua~ity or quantity. [159-D·G]
7. Tracing the history of State liability in tort, it is clear that H
..
148
SUPREME COURT REPORTS (1994) SUPP. 3 S.C.R.
A
sovereign immunity as a defence was never available where the State was
""'
B
involved in commercial or private undertaking nor was it available where
its officers were guilty of interfering with life and liberty of a citizen not
warranted by law. In both such infringements. the State is vicariously liable
and bound, constitutionally, legally and morally, to compensate and indemnify the wronged person. [169-D, EJ
H.W.R. Wade, Administrative Law, 6th edition, G.P. Verma, State
Liability in India, referred to.
Viscount Canterbury v. Attorney General, 1 PH (306): 41; English
C Reports Chancery 648, Narayan Krishna laud v. Gerard Nonnan, Collector of
Bombay, (1868-69) 5 Bom HCR 1; State of Rajasthan v. Mst. Vidhayawati,
AIR (1962) SC. 933;. Nobin Chunder Day v. Secreatary of State for India,
(1867) ILR 1 Calcutta 11 and Baxi Amrik Singh v. Union of India, (1973)
75 PLR : 1974 ACJ 105, referred to.
D
Peninsular & Oriental Steam Navigation Company v. Secretary of State
E
for Indi.a, (1868-69) 5 Bom HCR Appendix A 1, explained Secretary of State
for Indi.a in Council v. Hari Bhanji, (1882) 5 ILR Mad 273, applied.
Province of Bombay v. Khushaldas S. Advani, AIR (1950) SC 222,
partly relied on.
Shayam Sunder v. State of Rajas~, AIR (1974) SC 890 and Pushpa
Thakur v. Union of India, (1984) ACJ 559 (SC), l"!!ferred to.
8. The Indian law beginning from the Government of India Act, 1858
and ending with Article 300 of the Constitution did not acknowledge the
F
English principle of sovereign immunity. Immunity to officers of the East
India Company acting negligently and causing damage to the people was
contrary both to English and Indian Law. Truly speaking, the concept of
sovereign immunity in the English sense was non-exis~nt during British
rule. [172-F-H; 173-A]
.G
Mis Kasturi Lal Ralia Ram Jain v. State of U.P., AIR (1965) SC 1039,
explained and ·distinguished. .
·
State of Rajasthan v. Vidhyawati, AIR (1962) SC 933; Moodaley v.
East Indi.a Company, 1 Bro. C.C •. 469 and Secretary of State in Council of
H India v. Kamachee Baya Sahaba, 7 Moo. Indian Appeals 476, applied.
-
-
N. NAGENDRARAOv. STATE
149
A. R. Blackshield, Toltious Liability of Govemment, (1966) 8 JILi 642, A
M.P. Jain, Outlines of Indian Legal History 5th edn., 1990 and H.W.R.
Wade, Administrative Law 6th edn., referred to.
9. East India Company was not a State itself. It was a delegate only.
The power granted to it was limited in its scope as its purpose was to
enable the Company to use it while dealing with Indian States. In fact the B
power granted to it was political in nature. [173-E]
Anthony Musgrave v. Jose Ignacio Pulido, (1879-80) 5 LR Appeal
Cases 102, relied on.
The Company was not a sovereign body and therefore, the doctrine
of sovereign immunity did not apply to the activities carried on by it in the
strict sense. Since the liability of the State even today is same as was of
East India Company, the suit filed by any person for regligence of officers
of the State cannot be dismissed as having been in exercise of sovereign
power. [180-F,HJ
c,
D
10. 'Sovereignty' and 'acts of State' are two different concepts. The
former vests in a person or body which is independent and supreme both
externalJy and internalJy, whereas latter may be an act done by delegate of
a sovereign within the limits of power vested in him which cannot be
questioned in a Municipal Court. [175-E-F]
E
William Harrison Moore, Acts of State in English Law quoted in
(1941) XLI Columbia Law Review 1313 and Salaman v. Secretary of State
for India, (1906) 1 K.B. 613, referred to.
11. The nature of power which the East India Company enjoyed was
delegation of the 'act of State'. But the defence of act of State is not
available when the State or its officers act negligently in discharge of their
statutory duties. Such activities are not acts of State. [175-F; H; 176-A]
F
12. In any case, the old and archaic concept of sovereignty does not G
survive. Sovereignty now vests with the people. (177-G]
Maganbhai Ishwarbhai Patel v. Union of India, [1970) 3 SCC 400,
referred to.
Federated State School Teacher's Association of Australia v. State of H
150
SUPREME COURT REPORTS [1994) SUPP. 3 S.C.R.
A
Vict01ia, (1928-29) 41 CLR 569, applied.
13. Whether a function is sovereign or non-sovereign depends on the
nature of the power and the manner of its exercise. One of the tests to
determine if the legislative or executive function is sovereign in nature is
whether the State is answerable for such actions in courts of law. For
B
instance, acts such as defence of the Country, raising armed forces and
maintaining it, making peace or war, foreign affairs, power to acquire and
retain territory, are functions which are indicative of external sovereignty
and are political in nature. The State is immune from being sued and the
jurisdiction of the courts in such matter is impliedly barred. But there the
C immunity ends. [178-G; 179-B-C-D]
14. Any watertight compartmentalisation of the functions of the State
as 'sovereign and non-sovereign' or 'governmental and non-governmental'
is not sound. It is contrary to modem jurisprudential thinking. The need
of the State to have extraordinary powers cannot be doubted. But with the
D conceptual change of statutory power being statutory duty for sake of
society and the people, the claim of a common man or ordinary citizen
cannot be thrown out merely because it was done by an officer of the State
even though it was against the law and done negligently. Needs of the State,
duty of its officials and right of the citizens are required to be reconciled
E so that the rule of law in a welfare state is not shaken. [179-F-G-B]
15. In determining the vicarious. liability of the State for negligence
of its officers, there is no rationale for the proposition that, even if the
officer is liable, the State cannot be sued. Since the _doctrine has b.ecome
outdated and sovereignty now vests in the people, the State cannot claim
F
any immunity and if a suit is maintainable against the officer personally,
then there is no reason to hold that it would not be maintainable against -
the State. [180-D-E]
16. The ratio of Kasturi Lal's case is available to those rare and
limited cases where the statutory authority acts as a delegate of such
G function for which it cannot be sued in a court of law. In Kasturi Lal's case
the property, for damages of which the suit was filed, was seized by the
police officers while exercising the power of arrest under section 54(1) (iv)
of the Criminal Procedure Code. The power to ·search and apprehend a
suspect under the Criminal Procedure Code is one of the inalienable
H powers of State. It was probably ·for this reason that the principle of
N. NAGENDRARAOv. STAIB
151
sovereign immunity in the conservative sense was extended by the Cwrt. A
By the same principle would not be available in large number of other
activities carried on by the state by enacting a law in its legislative
competence. [181-A-B-C]
Mis. Kasturi Lal Ralia Ram Jain v. State of U.P., AIR (1965) SC 1039, B
explained and distinguished.
17. The Essential Commodities Act, 1955 deals with persons indulging in hoarding and blackmarketing. Any power for regulating and controlling the essential commodities and the delegation of power to
authorised officers to inspect, search .and seize the property for carrying C
out the object of the State can not claim immunity. No constitutional
system can, either on State necessity or public policy, condo.ne negligent
functioning of the State and its officers. [181-F-G]
Geddis v. Proprietors of Bonn Reservoir, (1878) 3 App. Cas. and State
Rajasthan v. Mst. Vidhyawati, AIR (1962) SC 933, referred to.
D
18. Since 1965, when Kasturi Lal was decided, the law on vicarious
liability has marched ahead. The ever increasing abuse of power by public
authorities and interference with life and liberty of the citizens arbitrarily,
coupled with increasing emphasis on human liberty resulted in more E
pragmatic approach to the individual's dignity, his life and liberty and
carving out an exception by the Court where the abuse of public power was
violative of the constitutional guarantee. Such infringements have been
held to be wrong in public law which do not brook any barrier. and the
State has been held liable to compensate the victims. [168-F-G]
·
Rudul Sah v. State of Bihar, (1983) 4 SCC 141; Sebastian M. Hongray
v. Union of India, [1984] 3 ~CC 82; Women's Resources Centre v. Commissioner of Police, Delhi, AIR (1990) SC 313; State of Maharashtra v. Ravikant
S. Patil, (1991) 2 SCC 373 and Nilabati Behera (Smt.) ali<lS Lalitha v. State
of Orissa, [1993) 2 SCC 746, referred to •.
F
G
19. The absence of a law . of vicarious liability of the State for
neglig~nce of its officers has meant that the citizens of the independent
nation who are governed by its own people and Constitution and not by the
Crown are still faced, even after well-nigh fifty years ofindependence, when
they approach the court or law for redress against negligence of officers of H
152
SUPREME COURT REPORTS (1994) SUPP. 3 S.C.R.
A
the State in private law, with the question whether the East India Company
would have been liable and, if so , to what. extent for tortious acts of its
servants committed in course of its employment. Necessity to enact a law in
keeping with the dignity of the country and to remove the uncertainty and
dispel the misgivings, therefore, cannot be doubted. (187-B-C]
B
Report of the First Law Commission on the Liability of the State in
Tort, 1956, referred to~
·
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3856 of
1988
C
From the Judgment and Order dated 24.U.87 of the Andhra Pradesh
D
High Court in A No. 604 of 1979.
B. Kanta Rao for the Appellant.
T.V.S.N. Chari for the Respondent.
The Judgment of the Court was delivered by
R.M. SABAi, J. Is the State vicariously liable for negligence of its
officers in discharge of their statutory duties was answered in the negative
E by the High Court of Andhra Pradesh\on the ratio laid down by this Court
in M/s. Kasturi Lal Ralia Ram lain v~ State of U.P., AIR (1965) SC 1039,
while reversing the decree for payment of Rs. 1,06,125.72 towards value of
the damaged stock with interest thereon at the rate of 6% granted by the
trial court for loss suffered by the appellant due to non-disposal of the
goods seized under various control orders issued under the Essential
F
Commodities Act, 1955 (hereinafter referred to as 'the Act'). But for
determining correctness of the view taken by it, the High Court granted
certificate under Article 133(1) of the Constitution of India as the case
involved, 'substantial questions of law, of general importance'. Although
the-claim of the appellant was negatived mainly on the sovereign power of
. the State, but, that was only one of the reasons, as the High Court further
G held that the goods of the appellant having been seized in the exercise of
statutory power for violation of the Control Orders and the seizure having
been found, by the appropriate authorities, to be valid at least for part, no
compensation was liable to be paid to the appellant for the goods which
were directed to be returned. The further questions, therefore, that arise
H for consideration are, whether seizure of the goods in exercise of st3ltutory
N. NAGENDRARAO v. STAIB [SAHA!, J.)
153
powers under the Act immunises the State, completely, from any loss or A
damage suffered by the owner. Whether confiscation of part of the goods
absolves the State from any claim for the loss or damage suffered by the
owner for the goods which are directed to be released or returned to it.
Since the High Court did not interfere with the findings recorded by B
the trial court and decided the appeal as a matter of law, it is not necessary
to narrate the facts in detail, except a gist of it so far it is helpful in deciding -
the issues in question. It has been found and is not disputed that the
appellant carried on business in fertiliser and foodgrains under licence
issued by the appropriate authorities. Its premises were visited by the
Police Inspector, Vigilance Cell on 11th August, 1975 and huge stocks of C
fertilisers, foodgrains and even non-essential goods were seized. On the
report submitted by the Inspector, the District Revenue Officer (in brief
'the ORO') on 31st August, 1975, in exercise of powers under Section 6A
of the Act, directed the fertiliser to be placed in the custody of Assistant
Agricultural Officer (in brief 'AAO') for distribution to needy ryots and D
the foodgrains and non-essential goods in the custody of Tehsildar for
disposing it of immediately and depositing the sale proceeds in the
Treasury. The AAO did not take any steps to dispose of the fertiliser.
Therefore, the appellant made applications on 17th September, 1975 and
21st September, 1975 before the ORO and on 11th February, 1976 before
AAO that since no steps were being taken the fertiliser shall deteriorate E
and shall be rendered useless causing huge loss of the appellant. Request
was made for diverting the fertiliser either to the places mentioned by the
appellant as the demand was more there or to release it in its favour for
disposal and deposit of the sale price. But neither any order was passed
by the ORO nor any action was taken by the AAO. On 29th June, 1976 F
the proceedings under Section 6-A of the Act were decided and the stock
of horsegram (foodgrain) was confiscated as the appellant's licence had
been cancelled. As regards fertiliser it was held that the explanation of the ·
appellant for difference in stock was not satisfactory. The only violation of
Control Orders found was improper maintenance of accounts. In consequence of this finding, rather in absence of any material to prove that the G
appellant was guilty of any serious infringement such as black marketing
or adulteration or selling at high price then the controlled price, the
Collector was left with little option except to direct confiscation of part of
the stock and the rest was released in favour of the appellant. That the
confiscated stock was only nominal, shall be clear from a comparative chart H
(_
154
SUPREME COURT REPORTS [1994] SUPP. 3 S.C.R.
A--' of the shock seized and released :
Stock seized
Stock confiscated (bags)
1.
Ammonium Sulphate
392 bags
29
B
2.
Ammonium Phosphate
6 bags
2
3.
Puskhhal ( 12-6-6)
787 bags
x
4. , Super Phosphate
1247 bags
x
5.
Murate of Potash
15 11
5 bags
6.
Super Phosphate
135 n of
c
40 kgs. each
4 bags
7.
125" of
50 kgs. each
12 bags
8.
Urea
2 Bags
3 Bags
9.
Ammonium Phosphate
581 bags
x
'(19,5; 19.5;0)
D·
10. Complex 17:17:17:
121 bags
x
11. Complex 14:28:14
36 bags
x
12. Mixture
0:12:80
13 bags
x
The appropriate authority while directmg release of the stock or equivalent
E
value therefor made it subject to consent of the Vigilance Officer. But this
condition was deleted on 15th October, 1976 in appeal filed by the appellant.
Despite Collector's order and the order passed in appeal by the
Sessions Judges , the AAO did not release the stock and the efforts of the
F
appellant with the Chief Minister, Revenue Minister, Agriculture Minister
and various other departmental heads did not yield any result. However,
the AAO issued a notice in the last week of March, 1977 to the appellant
to take delivery of the stock released in its favour. But when the appellant
went to take delivery it found that the stock had been spoilt both the quality
G and quantity. Therefore, after getting its objection endorsed by the Officer
concerned the appellant came back and made a demand for value of the
sto~k released by way of compensation. When no response came it gave
notice and filed the suit for recovery of the amount which has given rise to
this appeal. The suit was contested amongst other grounds oil sovereign
immunity of the State, discharge of statutory duty in good faith, absence of
li ~y right to claim damages when seizure has been found to be valid for
N.NAGENDRARAOv. STAIB[SAHAI,J.)
155
part of the goods, absence of any right to claim value of the goods as the A
only right an owner of the goods has to get back the stock irrespective of
its condition etc.
The trial court did not accept the defence and held that the relationship between the appellant and the respondent was of a bailor and bailee B
and the bailee could not refuse delivery of the goods nor in could delay it
when it was demanded by the appellant. It further held that the deterioration of the goods in the custody of the respondents was not in exercise of
sovereign function of the State. The Court held that the seizure of the
goods was no doubt in pursuance of statutory obligation but once it was
seized then it was the responsibility of the State Government to ensure that C
the goods were maintained ih proper condition. But they failed in discharging their obligation and in any case there was no justification for retaining
the goods after the order was passed by the Sessions Judge directing the
AAO to return the goods without any permission from the Vigilance
Inspector. The trial court was also of the opinion that the fertiliser fell in D
the category of those goods the utility of which drtteriorated by lapse of
time. The trial court did not believe the AAO, who appeared as witness,
that he tried to dispose of the stcx:k as there was nothing on the record to
show that any such effort was made.· Not only that, even when the higher
authorities directed him to sell away the stocks and make a compliance
report he did not make any effort nor contacted any co-operative society, E
depot or super bazar. The trial court found that there was nothing on
record to show that any ryot or cultivat01: had refused to purchase the
seized stocks of fertilisers on the ground that its quoted price was higher
than the market price. It was further held, after discussing variolis letters
sent by the appellant, that it was evident that the appellant had been
repeatedly requesting the AAO to take prompt and necessary measures to
dispose of the seized fertilisers or stocks and to release its value but no
steps were taken by hiin. The trial court believed appellant's version, which
stood supported from the evidence of the respondents, that when new
fertilisers come in the market the demand for it is more than for old stocks.
Therefore, the trial court was of opll;llon that it was incumbent on the
respondents to have taken prompt and immediate steps to dispose of the
fertilisers before expiry of the relevant season. The trial court did not
believe the AAO that he be could not dispose of the stock as the appellant
was insisting that the sale should· not be made below a particular price, as
F
G
on such restriction was placed by the DRO, and the AAO who was duty H
~
.
156
SUPREME COURT REPORTS [1994] SUPP. 3S.C.R.
A
bound to comply with directions of his superior failed to carry it out. In
these circumstances the trial court held the AAO acted negligently in not
disposing of the stocks in time but also in failing to obtain necessary
direC:tions from the DRO if no purchaser was forthcoming or, if any doubt
was entertained by him, regarding the right of the appellant for the rates
B
at which the stocks were to be sold. It was in these circumstances and on
the findings recorded on the negligence of the AAO that the trial court
decreed the suit in part for the loss suffered by the appellant. In appeal
the findings recorded by the trial court on negligence were not interfered
but the decree was set aside as a matter of law relying on the ratio of M/s.
kasturi Lal (supra) and the Full Bench decision of that Court in State of
C Andhra Pradesh v. Devarasetty Rama Murthy, (1985) 2 An. W.R. 402.
Prior to adjudicating upon the legal issues, it appears appropriate to
examine in brief the objective of the Act, the provisions dealing with search,
seizure and confiscation and the nature of their powers and manner of its
D exercise as it shall assist in determining if the statutory authorities are
responsible for any loss. or damage to the stocks and, if so, to what extent.
The Act was enacted in 1955 in the interest of the general public for the
control of the production, supply and distribution of essential commodities
and trade and commerce. In M/s. Diwan Sugar & General Mills (Pvt.) Ltd.
v. Union of India, AIR (1959) SC 626 = [1959] 2 SCR 123, it was held that.
E
tb.e prime object of the legislation was to secure availability of essential
commodities to the general public at fair prices and to protect their interest
by way of equitable distribution. "Essential co:mm.odity" under clause (a) of
Section 2 of the Act means any of the commodities mentioned therein. It
extends to such varied items as cattle fodder, coal, component parts and
F
accessories of automobiles, cotton and woollen textiles, foodstuffs, iron and
stee~ paper, petroleum, raw cotton, jute and any other class of commodity
notified by the appropriate Government. Section 3 is the main provision
directed towards securing equitable distribution of the essential commodity
and its availability at fair price. To achieve this objective, its various
sub-sections confer powers on Government to issue order regulating or
G even prohibiting production, supply and distribution of such goods. Clause
G) of sub-section (2) of Section 3 empowers the Government to malce any
provision for any incidental or supplementary matter including in particular, the entry, search or examination of such premises, aircraft, vessels,
vehichles etc, to make seizure by a person authorised to make such entry,
H search or examination. But the power in respect of the articles has been
N. NAGENDRARAO v. STATE [SARAI, J.]
157
made subject to reasonable belief that a contravention of the order has A
been, is being, or about to be committed. The reach of the sub-section is
very wide as it empowers the person authorised to seize even if any
contravention is about to be committed. The expression 'reason to believe'
has been interpreted by this Court to mean that even though formation of
opinion may be subjective but it must be based on material on the record. B
It cannot be arbitrary, capricious of whimsical. It is, thus, a check on
exercise of power to seize the goods. The procedure after seizure is
a&·
provided for by section 6-A of the Act. Sub-section (1) of it is extracted
below:
"6-A. Confiscation of essential commodity. - (1) Where any essenC
tial commodity is seized in pursuance of an order made under
Section 3 in relation thereto, a report of such seizure shall, without
unreasonable delay, be made to the Collector of the district or the
presidency town in which such essential comodity is seized and
whether or not a prosecution is instituted for the contravention of D
such order, the Collector, may, if he thinks it expedient so to do,
direct the essential commodity so seized to be produced for inspection before him, and if he is satisfied that there has been a
contravention of the order may order confiscation of-
(a) the essential commodity so seized;
(b) any package, covering or receptacle in which such essential
commodity is found; and
(c) any animal, vehicle, vessel or other conveyance used in carE
rying such essential commodity:
F
It requires a report of seizure of the essential commodity to be made
without unreasonable delay to the collector of the district who is empowered to direct confiscation if he is satisfied that there_ has been a
contravention of the order. This requirement is to ensure that the higher G
authority shall apply its mind and take necessary steps in accordance with
law. For instance in this case even non-essential goods were seized. If the
Collector would have applied its mind and perused the report he would
have immediately directed release of such goods instead of directing its
sale by Tehsildar as the provision of the Act and the Control Orders do
not apply to non-essential goods. The exercise of power was obviously H
158
SUPREME COURT REPORTS [1994] SUPP. 3 S.C.R.
A
mechanical. This is· being mentioned only to demonstrate the nature of
power and how it is expected to be exercised. Nothing turns on it so far
this appeal is concerned. But what needs~ to be mentioned is that since the·
power is very wide as a person violating the Control orders is to be visited
with serious consequences leading not only to the confiscation of the seized
B
c
goods, packages or vessel or vehicle in which such essential commodity is
found or is conveyed or carried, but is liable to be prosecuted and
penalised under Section 7 of the Act, it is inherent in it that those who are
entrusted with responsibility to implement it should act with reasonableness, fairness and to promote the purpose and objective of the Act.
Further, it should not be lost sight of that the goods seized are liable to be
confiscated only if the Collector is satisfied about violation of the Control
Orders. The language of the Section and its setting indicate that every
contravention cannot entail confiscation. That is why the Section uses the
word 'may'. A trader indulging in black marketing or selling adulterated
·goods etc. should not, in absence of any violation, be treated at par with
D technical violations such as failure to put up the price list etc. or even
discrepancies in stock.
However, this appeal is primarily concerned with nature of power·
exercised by the Collector under sub-section (2) of Section 6-A of the Act
the purpose and objective of which is to make interim arrangement of the
E goods which are seized. The sub-section is extracted below :
F
G
I-I
"Where the Collector, on receiving a report of seizure or on
inspection of any essential commodity under sub-section (1), is of
the opinion that the essential commodity is subject to speedy and
natural decay or it is otherwise expedient in the public interest so
to do, he may -
(i)
order the same to be sold at the controlled price, if any, fixed
for such essential commodity under this Act or under any
other law for the time being in force; or
(ii) where no such price is fixed, order the same to be sold by
public auction:
Provided that it the case of any such essential commodity
the retail sale price whereof has been fixed by the Central
Government or a State Government under this Act or under
N. NAGENDRA RAO v. STAIB [SARAI, J.]
159
any other law for the time being in force, the Collector may, A
for its equitable distribution and availability at fair prices,
order the same to be sold through fair price shops at the
price so fixed."
When a statute gives a power and requires the authority to exercise it in B
public interest then the person exercising the power must be vigilant and
should take it as a duty discharge the obligation in such a manner that the
object of the enactment is carried into effect. The purpose of sub-section
(2) is for protecting the goods seized by the Collector whether they are
eatables or they are foodstuffs or they are iron steel, as, if they are spoilt
or they deteriorate then it is a loss not only to the owner but to the society. C
Loss in value of goods or its deterioration in quality and quantity would be
in violation of the purpose and spirit of the Act. Even though the Section
uses the word 'may' but keeping in view the objective of the Act and the
context in which it has been used it should be read as 'shall'; otherwise it
would frustrate the objective of the sub-section. Once goods are seized, D
they are held by the State through the Collector and his agents as custodia
societus, unless it is found that the detention was illegal in which case it
shall be deemed to have been held for the benefit of the person from whom
it was seized. In either case, its proper maintenance and early disposal is
statutory duty. It is more so as the proceedings do not come to an end
quickly. The rationale of the provision appears to be t_hat penalise the E
peson whom acts in contravention of the order but protect the goods as
they are essential for the society. Loss in value of the goods in quality or
quantity is neither in public nor in society 's mterest. Therefore, the
Collector has to form an opinion if the goods seized are of one or the other
category and once he comes to conclusion that they fall in one of the F
categories mentioned in the sub-section then he has no option but to direct
their disposal or selling of in the manner provided. The expression 'speedy
and natural decay' does not need any elucidation, It is not an expression
of art and must be understood in a common sense manner. The other
expression, 'it is otherwise expedient in the public interest' has also to be
understood so as to advance the legislative objective of ensuring that the G
goods do not suffer either in quality or quantity. For instance, fertiliser may
not be susceptible to speedy and natural decay but it is expedient in public
interest to ensure that it is either sold to the agriculturist or disposed of at
least before the next season. This interim arrangement comes to an end
once an order of confiscation is passed.
H
160
SUPREME COURT REPORTS [1994) SU:PP. 3 S.C.R.
A
But what. happens when the goods seized are not confiscated. That
B
c
has been provided for by sub-section (2) of Section 6-C relevant part of
which reads as under :
"Where an order under section 6A is modified or annulled by the
State Government, or where in a prosecution instituted for the
contravention of the order in respect of which an order of confiscation has been. made under Section 6A, the person concerned is
acquitted, and in either case ii is not possible for any reason to
return the essential commodity seized, such person shall, except
as provided by sub-section (3) of section 6A, be paid the price
therefor as
it the essential commodity had been sold to the
Government with reasonable interest calculated from the day of
the seizure of the essential commodity; and such price shall be
determined."
This sub-section ensures that a person who has been prosecuted or
D ·whose goods have been confiscated does not suffer if the ultimate order
either in appeal or any proceeding is in his favour. It is very wide in its
import as it statutorily obliges the Government to return the goods seized
or to pay the value of the goods if for any reason it cannot discharge its
obligation to return it.