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  • provisions of Article 14 of the Constitution and the provisions of the U.P State Road Transport Act
  • section 77 of the Indian Railways Act and section 80 of the Code of Civil Procedure
  • S. 18(b), Presidency Small Cause Courts Act, S. 20, Civil P.C and Cl. 12
  • section 4 of the Displaced Persons (Institution of Suits) Act, 1948.
  • section 20 of the Code of Civil Procedure or clause 12
  • section 20 of the Code of Civil Procedure
  • SECTION 20 CIVIL PROCEDURE CODE
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Cites
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Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
Judges
Acts
  • provisions of Article 14 of the Constitution and the provisions of the U.P State Road Transport Act
  • section 77 of the Indian Railways Act and section 80 of the Code of Civil Procedure
  • S. 18(b), Presidency Small Cause Courts Act, S. 20, Civil P.C and Cl. 12
  • section 4 of the Displaced Persons (Institution of Suits) Act, 1948.
  • section 20 of the Code of Civil Procedure or clause 12
  • section 20 of the Code of Civil Procedure
  • SECTION 20 CIVIL PROCEDURE CODE
Smart Summary

Structured Summary of the Opinion (Bose, J.)

Factual and Procedural Background

The appellant is a partnership firm carrying on business in Calcutta, Chandari and Kanpur. On 26 February 1949 the appellant delivered a consignment of artificial silk goods to the then East Indian Railway for carriage from Chandari Station to Howrah Station. The goods were not delivered. After giving notice under section 77 of the Indian Railways Act and section 80 of the Code of Civil Procedure, the appellant filed a suit in this Court on 14 July 1950 claiming Rs. 25,547-6/- as compensation for non-delivery. No leave under clause 12 of the Letters Patent was obtained before instituting the suit. The learned trial Judge (G.K. Mitter, J.) dismissed the suit on the preliminary ground that this Court had no jurisdiction to entertain it. The present appeal challenges that dismissal, raising the jurisdictional question under clause 12 of the Letters Patent.

Legal Issues Presented

  1. Whether this Court has jurisdiction under clause 12 of the Letters Patent to entertain the appellant's suit because the Union of India, as owner of the Railway, can be said to be "carrying on business" at the Railway's Head Office in Calcutta (17 Netaji Subhas Road), and thus brought within the ordinary original civil jurisdiction of this Court.

Arguments of the Parties

Appellant's Arguments

  • The appellant (through Mr. I. P. Mukherjee) contended that the earlier view of this Court — that the State, by carrying on an undertaking like the railways, cannot be said to be "carrying on business" within the meaning of section 20 of the Code of Civil Procedure or clause 12 of the Letters Patent — is incorrect and requires modification.
  • The counsel argued that the Constitution of India and the conception of a welfare State alter the nature of the State's activities such that governmental undertakings (including railways) ought to be regarded as "carrying on business" for the purposes of jurisdictional provisions.
  • To support this contention, the appellant relied on a number of authorities (English and Indian) that were cited to the Court.

The opinion does not set out a distinct, detailed narrative of the respondent's (Union of India or the State's) oral or written arguments; instead the Court's reasoning reflects the legal positions of earlier decisions, and the opinion responds directly to the appellant's submissions and authorities cited.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Shiels v. Great Northern Railway Co. Ltd. (L.J. 30 Q.B. 331) English authority showing a private railway company can be regarded as "carrying on business". The Court treated this English decision as distinguishable because it concerned a private company; it does not support treating the State as "carrying on business".
Brown v. London and North Western Railway Co. (122 E.R. 481 / 4 Best & Smith 326) Another English decision relied on to support the proposition that an entity can "carry on business" at its head office. The Court held it was distinguishable for the same reason as Shiels: it addresses private companies not the State, and thus does not compel a different conclusion about State activity under clause 12.
Subbaraya Mudali v. Government (1 Mad. H.C. R. 286) Listed among authorities on the broader question of State functions and legal personality. Referenced among the list of earlier cases; no detailed application beyond being part of the authorities considered.
Rundle v. Secretary of State (1 Hyde 37) Historical authority on State/Secretary of State matters. Listed among authorities; not specifically applied in analytic passages beyond citation.
Bipradas Dey v. Secretary of State (I.L.R. 14 Cal. 262) Older Calcutta decisions on State/Secretary of State jurisdictional questions (cited in footnote). Referenced as part of the historical corpus of decisions under clause 12; invoked to show continuity of older authority before present considerations.
Daya Narayan Tewari's case (14 Calcutta 256) Another older Calcutta decision relevant to clause 12 jurisprudence. Referenced as continuing to be cited in this Court's consideration of clause 12; no novel application beyond citation.
Rodrick's case (I.L.R. 40 Cal. 308) Listed among earlier Indian precedents. Included in the list of authorities; no separate analytical reliance stated in the opinion.
Govinda Rajalu Naidu v. Secretary of State (I.L.R. 50 Mad. 449) Madras decision relevant to State/Secretary of State matters. Referred to as part of the body of older decisions; no distinct usage beyond being cited.
R. J. Willie & Co. v. Secretary of State (A.I.R. 1930 Lahore 818) Regional precedent concerning the State/Secretary of State as defendant. Cited as part of the sweep of authorities; not singled out for a new rule in the present opinion.
Golabrai Paliram v. Secretary of State (I.L.R. 1941 (II) Cal. 160) Another authority in the Calcutta reports on State-related jurisdictional disputes. Listed among the earlier cases considered.
Dominion of India v. Jagadish Prosad Pannalal (84 C.L.J. 175) Case authority involving the Dominion/State in litigation. Referenced in the general survey of authorities.
Nilima Sarkar v. Governor General in Council (86 C.L.J. 98) Case involving State/Governor General jurisdiction issues. Included in the list of authorities; no separate distinct application in reasoning beyond citation.
Dominion of India v. R.C.K.C. Nath (A.I.R. 1950 Calcutta 207) Another decision involving the Dominion/State as litigant. Cited among authorities on the broad issue of State activity and suits against State.
Nagi Brothers v. Dominion of India (A.I.R. 1951 Punjab 92) Kapur, J.'s decision construing "carry on business" in section 4 of the Displaced Persons (Institution of Suits) Act, 1948 — holding Dominion of India could not be held within that definition. The Court noted this decision and treated it as supportive of the view that the State cannot be fitted into the "carry on business" language for the statutory context considered.
Calcutta Motor Cycle Co. v. Union of India (90 C.L.J. 25 : A.I.R. 1953 Calcutta 1) Decision of this Court which held that the State (or Government) could not be said to be "carrying on business" within the meaning of Clause 12 of the Letters Patent. This Court relied heavily on and reaffirmed that decision. Bose, J. described it as exhaustively dealing with the point and followed its conclusion; the present opinion adheres to that ruling.
Bata Shoe Co. Ltd. v. Union of India (A.I.R. 1954 Bombay 129) Bombay Division Bench adopted and followed the Calcutta Motor Cycle Co. decision and addressed the meaning of "business" in context of State activity. The Court accepted and expressly approved Gajendragadkar, J.'s narrower contextual construction of "business" when applied to the State; this decision was treated as supportive of the Court's conclusion.
Lakshmi Chand v. State of Punjab (A.I.R. 1954 Punjab 181) Punjab decision cited among authorities. Included in the list of authorities considered by the Court.
Azizuddin & Co. v. Union of India (A.I.R. 1955 Madras 345) Madras Division Bench decision which followed and adopted the Calcutta Motor Cycle Co. approach. The Court noted that the Madras Division Bench followed the Calcutta Motor Cycle decision; used as supporting authority for refusing to treat State activity as "business" under clause 12.
Calcutta Corporation v. Director of Rationing (A.I.R. 1955 Calcutta 282) Local authority concerning governmental activities. Listed among cited authorities in the opinion.
Achyut Anant Pai v. Governor General in Council (A.I.R. 1955 Calcutta 331) Calcutta decision on State-related legal questions. Included in the catalogue of authorities referred to by the Court.
Pratap Chandra Biswas v. Union of India / P.C. Biswas v. Union of India (A.I.R. 1956 Assam 85) Assam Division Bench decision (Ram Labhya, J.) holding that the State can be said to "carry on business" (applying s.20 Civil P.C.) when it engages in commercial ventures such as transport. The Court discussed this decision at length and explicitly rejected its reasoning as unsound; the Assam decision was identified as the principal contrary authority but was distinguished and dissented from.
Saghir Ahmed v. State of U.P. (A.I.R. 1954 S.C. 728) Supreme Court observation that the State does not cease to function as State merely because it engages in trade; relevant to the contemporary conception of State functions. The Court quoted an observation from this Supreme Court decision as pertinent and as providing an effective answer to the appellant's contention.
Trilok Chand Agarwall v. Dominion of India (A.I.R. 1959 Calcutta 281) Decision of a Division Bench of this Court (of which the present bench-member was a member) that the State could not be said to carry on business. Referred to as another decision of this Court affirming that the State cannot be said to carry on business; cited as supportive authority.
Bhuramal Champlal v. Union of India (1958 (I) C.L.J. 67) Listed among authorities on suits against the Union of India. Included in the Court's list of authorities considered.

Court's Reasoning and Analysis

The Court framed the sole issue as whether the Union of India, by virtue of owning and operating the East Indian Railway, could be treated as "carrying on business" at the Railway's Head Office in Calcutta such that this Court would have jurisdiction under clause 12 of the Letters Patent.

The analytical approach adopted by the Court proceeded in these key steps, each grounded in the opinion's text:

  1. Reaffirmation of this Court's earlier, carefully reasoned decision in Calcutta Motor Cycle Co. v. Union of India (90 C.L.J. 25 : A.I.R. 1953 Calcutta 1), which concluded that the State does not become a business concern merely by carrying on an undertaking such as the railways. The present Court described that earlier treatment as exhaustive and persuasive and adopted its conclusion.
  2. Consideration of the appellant's submission that the constitutional shift to a welfare State requires revisiting that view. The appellant argued that the State now frequently runs undertakings of a commercial character and therefore should be treated as "carrying on business" for jurisdictional purposes.
  3. Careful review of the contrary Assam Division Bench decision in P.C. Biswas (A.I.R. 1956 Assam 85), which took the opposite view and held that the State may carry on business for the purposes of s.20 Civil P.C. The Court set out the Assam judgment's reasoning (that the modern State also engages in trade and industry and that the two functions of the State must be kept apart) and then addressed it directly.
  4. The Court rejected the Assam decision's reasoning for several reasons stated in the opinion:
    • The Court had already considered and discussed the relevant policy and conceptual difficulties in the earlier Calcutta Motor Cycle decision and remained unconvinced by the Assam court's analysis.
    • Decisions of other High Courts (Bombay and Madras) had accepted the Calcutta Motor Cycle approach (e.g., Bata Shoe Co. and Azizuddin & Co.) and those decisions were not considered by the Assam court in a way that would support the Assam conclusion.
    • English authorities relied upon by the appellant (Shiels and Brown) are distinguishable because they concern private companies; applying their reasoning to the State would improperly revive a "brain power/head office" theory unsuited to the State's legal character.
  5. The Court endorsed the reasoning of Gajendragadkar, J. (in Bata Shoe Co. Ltd. v. Union of India) that the word "business" must be construed contextually and that many activities which are commercial in private hands may not retain that character when conducted by the State in pursuance of welfare functions. The Court agreed that the running of railways may be an integral part of governance and national welfare, even when it produces revenue for the public exchequer, and that this distinguishes State activity from private commercial enterprise.
  6. The Court concluded that the appellant's reliance on the general change in State functions under the Constitution does not require a different conclusion: the State's engagement in welfare-oriented undertakings does not transform the State into a "business concern" for the purposes of clause 12 of the Letters Patent or s.20 Civil P.C.

The reasoning is careful to confine itself to statutory and doctrinal construction: it emphasises that a literal or expansive reading of "carry on business" to include State welfare activities would be to read a fiction into the law, a step which the Court declines to take; instead such change should be legislated, if intended.

Holding and Implications

Holding: The appeal is dismissed. The Court continues to hold that the State does not "carry on business" within Clause 12 of the Letters Patent of 1865.

Implications and direct effects:

  • The trial Court's dismissal of the appellant's suit for want of jurisdiction (for failure to obtain leave under clause 12 before institution) is affirmed; the appeal is without substance and dismissed with costs.
  • The opinion reaffirms and follows the prior Calcutta Motor Cycle Co. decision and allied High Court decisions (Bombay and Madras divisions) rather than adopting the contrary approach of the Assam Division Bench in P.C. Biswas. The Court therefore maintained the existing line of authority in this jurisdiction rather than creating a new precedent that would treat State welfare undertakings as "business" for the purposes of clause 12.
  • Certified for two counsel. (Direct consequence for the parties: the appellant's suit fails in this jurisdiction for want of the required leave.)

The opinion is primarily a reaffirmation of existing judicial construction of clause 12 and related provisions; it expressly rejects the contrary view taken in the Assam decision and holds that any change to treat State welfare undertakings as "business" for jurisdictional purposes should come from legislation rather than judicial expansion.

    K.G Kalwani v. Union Of India .

    Bose, J.:— This is an appeal from a judgment and decree of G.K Mitter J., dismissing the plaintiff's suit for recovery of a sum of Rs. 25,547-6/- as compensation for non-delivery of certain goods entrusted to the then East Indian Railway, which was a State Railway. It appears that the appellant, which is a partnership firm and carries on business at 59, Cross Street, Calcutta and also at Chandari and Kanpur, delivered to the then East Indian Railway on 26th February, 1949, a consignment of artificial silk goods for carriage from Chandari Station to Howrah Station both on the East Indian Railway. The East Indian Railway at all material times had its Head Office at No. 17, Netaji Subhas Road, Calcutta. As the goods were not delivered to the appellant, the latter after giving notice under section 77 of the Indian Railways Act and section 80 of the Code of Civil Procedure filed a suit in this Court on the 14th July, 1950. No leave under clause 12 of the Letters Patent was, however, obtained before institution of the suit. The learned trial Judge has dismissed the suit on the preliminary ground that this court has no jurisdiction to entertain the suit.

    2. The only question which arises for determination in this appeal is whether this court has jurisdiction under clause 12 of the Letters Patent to entertain the suit solely on the ground that the Union of India, as owner of the Railway, can be said to be carrying on business at the Head Office of the Railway which, it has already been stated, is at 17, Netaji Subhas Road, Calcutta, which is within the ordinary original civil jurisdiction of this Court. This question has been the subject of determination in various cases decided by the different High Courts. Mr. I.P Mukherjee, the learned counsel for the appellant, has taken us through a large number of decisions to persuade us to hold that the view previously expressed by this Court, to the effect that the government by carrying on an undertaking like the Railway cannot be said to be carrying on business within the meaning of section 20 of the Code of Civil Procedure or clause 12 of the Letters Patent, is not correct and requires modification due to a change in the conception of the State brought about by the Constitution of India, which envisages a welfare State. The cases cited by the learned counsel are (1) L.J 30 Q.B 331 (Shiels v. Great Northern Railway Co. Ltd.), (2) 122 English Reports 481 (Brown v. London and North Western Railway Company), (3) 1 Madras High Court Report 286 at page 291 (Subbaraya Mudali v. Government and Cunliffe), (4) 1 Hyde 37 at pages 40-41 (Rundle v. Secretary of State) (5) I.L.R 14 Calcutta 262 (Bripradas Dey v. Secretary of State) (cited at the foot note of that page) (6) 14 Calcutta 256 at 272-273 (Doya-narayan Tewari's case), (7) I.L.R 40 Calcutta 308 (Rodrick's case), (8) I.L.R 50 Madras 449 (Govinda Rajalu Naidu v. Secretary of State), (9) A.I.R, 1930 Lahore 818 (R.J Willie & Co. v. Secretary of State), (10) I.L.R 1941 (II) Calcutta 160 (Gola-brai Paliram v. Secretary of State), (11) 84 C.L.J 175 (Dominion of India v. Jagadish Prosad Pannalal). (12) 86 C.L.J 98 (Nilima Sarkar v. Governor General in Council), (13) A.I.R 1950 Calcutta 207 (Dominion of India v. R.C.K.C Nath), (14) A.I.R 1951 Punjab 92 (Nagi Brothers v. Dominion of India), (15) 90 C.L.J 25 (Calcutta Motor Cycle Co.…Plaintiff; v. Union Of India…Defendant.), (16) A.I.R 1954 Bombay 129 (Bata Shoe Co. Ltd. v. Union of India), (17) A.I.R 1954 Punjab 181 (Lakshmi Chand v. State of Punjab), (18) A.I.R 1955 Madras 345, (Azizuddin & Co. v. Union of India), (19) A.I.R 1955 Calcutta 282 (Calcutta Corporation v. Director of Rationing), (20) A.I.R 1955 Calcutta 331 (Achyut Anant Pai v. Governor General in Council), (21) A.I.R 1956 Assam 85 (P.C Biswas v. Union of India), (22) 1958 (I) C.L.J 67 (Bhuramal Champlal v. Union of India and (23) A.I.R 1959 Calcutta 281 (Trilok Chand Agarwall v. Dominion of India (now Union of India).

    3. In the case reported in 90 C.L.J 25, (15) (Calcutta Motor Cycle Co.…Plaintiff; v. Union Of India…Defendant.), my learned brother exhaustively dealt with the relevant cases on the point and after considering the question from all conceivable angles recorded the following conclusion at page 48 of that report:—

    “By carrying on a business the State itself does not become a business concern. By carrying on an undertaking like the railways the State itself does not become a railway corporation. The State is not an arithmetical or mechanical conglomeration of functions so that by undertaking a venture of commercial nature it is to be regarded as a commercial institution. I cannot persuade myself to accept the idea that the State in India is to be regarded as a trading corporation. It is quite true that one of its functions or even one of its duties in the welfare State might be to carry on an undertaking which formerly at any rate could only have been a private commercial enterprise. But does that mean that the State “carries on business” within the meaning and intention of clause 12 of the Letters Patent? I have given my most anxious and careful consideration to the problem and I have come to this conclusion that this is not what was intended by clause 12 of the Letters Patent.”

    4. This view has been accepted as correct by the Bombay and Madras High Courts in (16) (A.I.R 1954 Bom. 129) and (18) A.I.R (1955) Mad. 345, and has been followed uniformly by this Court in subsequent decisions. The sheet anchor of Mr. I.P Mukherjee's contention is the decision of the Assam High Court to which reference has already been made (21) (A.I.R 1956 Assam 85), and which came to a conclusion contrary to what has been held by my learned brother. Ram Labhya, J. observed, inter alia, that:

    “Government is not merely for administrative purposes, for maintenance of law and order, for doing justice and providing security but also for promoting the welfare of its people by engaging in trade and industry. The two functions of the Government have to be kept apart and if they are seen separately there is no difficulty in applying section 20 of the Code of Civil Procedure to the Union of India. It may not be said to reside in any particular place nor may it be said that it is carrying on business for personal gain or profit. But it does carry on business. Therefore, it would be wholly unrealistic to say that the Government is not carrying on business when it is providing transport of all descriptions in a country, so vast as India.”

    5. It may be pointed out that the decision of my learned tbrother does not at all overlook this aspect of the matter. He was fully alive to it and after a very illuminating discussion of this matter and after a very thoughtful analysis of the various cases, he came to the conclusion, which I have already quoted. As I have also pointed out already, this view of my learned brother has found favour with the other High Courts and it is only this decision of the Assam High Court which has struck a different note, but it appears to us that there is nothing new in this decision or in the argument of Mr. I.P Mukherjee which can induce us to take a different view. Before concluding this judgment, I may refer to an observation made by B.K Mukherjea, J. in the case of Saghir Ahmed v. The State of Uttar Pradesh (24) A.I.R 1954 Supreme Court 728 at page 741, which is as follows:—

    “In our opinion, the argument of Mr. Pathak that the State cease to function as a State as soon as it engages itself in a trade like ordinary trader, cannot bo accepted as a sound proposition of law under the Constitution of India at the present day.”

    6. Although this was a case in which the provisions of Article 14 of the Constitution and the provisions of the U.P State Road Transport Act came up for consideration, the observation quoted above is pertinent to the question at issue and provides an effective answer to the contention which has been put forward on behalf of the appellant.

    7. In our view there is no substance in this appeal and it must accordingly be dismissed with costs. Certified for two Counsel.

    P.B Mukharji, J.:— I agree.

    8. Clause 12 of Queen Victoria's Letters Patent of the 28th December, 1865, for this Court, still exhibits surprising vitality. It is not a dead horse even after riding it for nearly a century. It is still running new races on unpredictable tracks or even old races with undiminished vigour. Kabul campaigns have come and gone, their sound and fury stilled but the cases on this Clause of the Letters Patent on the aftermath of Kabul campaign like Bipradas v. Secretary of State (5) (1886) 14 Cal. 262 (foot-note) and Daya Narayan Tewari v. Secretary of State (6) (1886) 14 Cal. 256, continue to resound in the halls of this Court.

    9. In this appeal, we are asked to reconsider the old familiar question whether the State or the Government can be said to be a defendant carrying on business within the meaning of Clause 12 of the Letters Patent of 1865, in which year States perhaps did not carry on business at all and certainly not on the scale and in the manner and in the fields that they do now.

    10. The point came up for consideration before me in the case of The Calcutta Motor Cycle Co.…Plaintiff; v. Union Of India…Defendant., (15) 90 Calcutta Law Journal, 25 : A.I.R 1953 Calcutta p. 1, where, after considering the different aspects of the controversy, and a review of all relevant authorities then existing, I came to the conclusion that the State or the Government could not be said to be carrying on business within the meaning of Clause 12 of the Letters Patent.

    11. Mr. I.P Mukherjee, the learned counsel for the appellant, who very ably canvassed his point of view, has not however argued any point which I had not noticed, discussed and determined in the Calcutta Motor Cycle case. I, therefore, see no reason to come to any different conclusion than the one that I reached in the Calcutta Motor Cycle Co.…Plaintiff; v. Union Of India…Defendant. (15).

    12. My attention, however, has been drawn to the subsequent decision of the Assam High Court in Pratap Chandra Biswas v. Union of India (21) reported in A.I.R (1956) Assam 85, a decision of a Division Bench of Sarjoo Prosad C.J and Earn Labhaya J. on section 20 of the Civil Procedure Code. The judgment in the Assam case was given by Ram Labhaya, J. At page 93 of that report, the learned Judge says:—

    “The. State may not be converted into a business concern by carrying on business. It still remains a State. It has got its governmental activity or business which is distinguishable from commercial business. But it has a legal entity and if in addition to ordinary governmental functions of the police State it takes on itself the duty or the obligation of starting commercial ventures, there should be no difficulty in law in holding that the State is carrying on business of a commercial nature.

    I find it difficult to hold that even commercial ventures of the Government assume the colour of its ordinary administrative or governmental functions. In its commercial undertakings the Government is entering into contracts with the citizen. These contracts are governed by the ordinary law of the land and they are enforceable between the parties. The Government has got no privileged position in regard to these contracts nor can it have any privileged position for purposes of clause 12 of the Letters Patent or S. 20, Civil P.C unless the law lays down expressly that these provisions or parts of these provisions have no application to business undertakings of the Government.

    To say that the Government is not carrying on business for purpose of s. 20, Civil P.C or Cl. 12 of the Letters Patent, even when actually it is engaged in the business of transport is to introduce a legal fiction into the law. The legislature has the power to do so. But the Courts may not exercise that privilege. For, introducing a fiction involves reading something into the law which is not there. In fact the words ‘carries on business’ in S. 20 would lose their meaning if they are not applied merely because the defendant happens to be the Government.

    The change in the conception of the Government which the Constitution has introduced creates no difficulty. On the contrary it facilitates their application. It brings out into bold relief the situation that Government is not merely for administrative purposes, for maintenance of law and order, for doing Justice and providing security but also for promoting the welfare of its people by engaging in trade and industry. The two functions of the Government have to be kept apart and if we see them separately there is no difficulty in applying the provision of S. 20, Civil P.C to the Union of India. It may not be said to reside in any particular place, nor may it be said that it is carrying on business for personal ‘gain or profit. But it does carry on business.”

    13. I have dealt with and discussed each one of the above reasons in my decision in Calcutta Motor Cycle Co.…Plaintiff; v. Union Of India…Defendant., (15) 90 C.L.J 25 : A.I.R (1953) Calcutta 1 to say that I do not with respect consider the reasons to be sound. The Assam High Court did not consider either the Division Bench decision of the Bombay High Court of Gajendragadkar and Vyas, JJ. in Bata Shoe Co. Ltd. v. Union of India, (16) A.I.R (1954) Bombay 129 or the Division Bench decision of the Madras High Court of Rajamannar, C.J and Iyengar, J. in Azizuddin & Co. v. Union of India (18) A.I.R (1955) Madras 345, both of which followed and adopted my decision in the Calcutta Motor Cycle Co.…Plaintiff; v. Union Of India…Defendant., (15) A.I.R 1953 Cal. 1. Nor do I find that the Assam High Court discussed or noticed the decision of Kapur J. in Nagi Brothers v. Dominion of India (14) A.I.R (1951) Punjab 92. Kapur, J. in the last mentioned case came to the conclusion that the Dominion of India, now the Union of India, could not be brought within the definition of the phrase “carry on business or personally work for gain in India” while construing that expression in section 4 of the Displaced Persons (Institution of Suits) Act, 1948. On the same Act but on the concept of State carrying on busi ness a Division Bench of this Court in Triloke Chand Agarwalla (23) A.I.R 1959 Cal. 281, a Bench of which I was a member, decided at pp. 283–6 that the State could not be said to carry on business.

    14. Gajendragadkar J., in the case of Bata Shoe Co. Ltd. v. Union of India, (16) A.I.R (1954) Bombay 129, after considering at page 131, the different meanings and connotations of the word “business” observed:—

    “But we are disposed to hold that the context in which the word has been used in S. 18(b), Presidency Small Cause Courts Act, S. 20, Civil P.C and Cl. 12 of the Letters Patent, requires that this word should not be construed in such a wide and unrestricted sense.

    It is well known that the Union of India and the Governments of respective States in India have set before themselves the ideal of a Welfare State and for achieving this ideal Government have inevitably to carry on many undertakings which in the hands of private agencies partake of the character of commerce or trade. If a private person starts a hospital for patients, it may, in a sense be business in his hands, because the primary object of the private individual is to make a profit. But if the State starts hospitals to render service to the invalid and the sick, the dominant intention is to render social service and the motive of profit-making is totally absent. If a merchant conducts a grain-shop, it is a business. But if the State undertakes the supply of essential foodstuffs to its citizens to enforce its policy of controls, that is not business.

    It seems to us that activities or undertakings which may properly be treated as commercial in the hands of private agencies would not necessarily continue to partake of the same character when they are undertaken by the Government of the State in pursuit of its welfare policies. In our opinion, therefore, the fact that the running of the Railway would have been treated as a business in the hands of the Railway Company would not necessarily show that it is business when it is undertaken by the Government of the State. Indeed, in regard to the running of the Railway itself as such, it is possible to take the view that it forms an important part of the governance of the State. The State naturally requires the lines of transport to be kept in order, both for the purpose of keeping internal peace and for the purpose of defending the borders of the country in case of emergency.

    It is true that in normal times and in an ordinary way the Railways bring income to the State. But it is difficult to hold that the Railway has been nationalised by the State for the purpose of making income or profit. The running of this railway may, and indeed does, bring profit; but such profit goes to the Public Exchequer; and that makes a material difference. That is why nationalisation is often described as socialisation. In a sense, many of the essential services which the State undertakes to render in modern times could easily be converted into business in the hands of private agencies. But it would be difficult to describe these activities as business when they are carried on by the Government of the State for the benefit of its citizens.”

    15. I respectfully agree with these observations of Gajendragadkar, J. and if I have quoted His Lordship at great length, that is because I find the above observations as completely answering the line of reasoning of Ram Labhya J. in Pratap Chandra Biswas v. Union of India, (21) A.I.R (1956) Assam 85.

    16. Indeed it is precisely this difficulty which led me to observe in the Calcutta Motor Cycle Co.…Plaintiff; v. Union Of India…Defendant., (15) 90 C.L.J 25 at page 47-48:

    “Railway is said to provide, and rightly so, a form of public transport on which the welfare of the nation depends on a very large measure. Providing public transport in that sense, therefore, can also be considered as providing a kind of public service which is part of good administration and good government of a country. The question here is not one of mere degree but of changing notions of quality of the State. With the developing ideas of the functions, powers and duties in a welfare State, it is, I consider, difficult, and perhaps subtle, to draw the line where administration ends and business begins or where administration begins and business ends. It appears to be a variable line which is bound to shift from time to time and relative in its concept with reference both to the time and society that the State has to serve. What was, therefore, in a police State of the nineteenth century a clear-cut notion and simplified formula, of broad distinction between governmental and non-governmental functions as providing a workable test to deter mine the liability of the State, requires in the contemporary world, to be moulded in its application to fit in with a service State or a welfare State.”

    17. I am, therefore, unable to accept the correctness of the observations of Ram Labhya, J. in Pratap Chandra Biswas v. Union of India (21) A.I.R 1956 Assam 85 and respectfully dissent from the view expressed therein.

    18. Mr. Mukherjee, the learned counsel for the appellant, relied on two English decisions of Shiels v. The Great Northern Railway Co. (1) L.J 30 Q.B 331 and In re: Brown v. London and North Western Railway Co., (2) 4 Best and Smith 326. The latter case did not find favour with the Division Bench of the Bombay High Court where Gajendragadkar, J. considered that English authority.

    19. These two English cases are clearly distinguishable on the ground that there it was not a State or Government but a private company which certainly carried on business. That a private company or corporation can carry on business within the meaning of Clause 12 of the Letters Patent is too well-settled to permit re-agitation. The point here is, whether a State or Government can be said to carry on business within the meaning of that Clause.

    20. Secondly, these two English decisions proceed on the principle that in respect of a private company or corporation, the words “carry on business”, must be given a sensible meaning and, in doing so, seem to emphasise the jurisdiction of the court of that place where the head office is or where the control is. To apply that test in the case of a State or a Government will again be an attempt to revive the old “brain power theory” under the garb of the “head office theory”. I have already given my detailed reasons in the (15) Calcutta Motor Cycle Company's case why that theory cannot be accepted and applied to a State. I adhere to those reasons and have nothing further to add on this point.

    21. I am, therefore, of opinion that those two English cases cannot and do not lead to any different conclusion and that they cannot induce us to hold that in the case of a State or Government it could be said to carry on business within the meaning of Clause 12 of the Letters Patent.

    22. This Court therefore continues to hold that the State does not “carry on business” within Clause 12 of this Court's Letters Patent of 1865.

    S.K.B

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    K.G Kalwani v. Union Of India .
    (Feb 11, 1960)