Corporation of Madras vs The Reserve Bank of India, Madras

Jagadisan, J.—The petitioner is the Corporation of Madras. It leveled on the Reserve Bank of India, Madras, a tax called Companies tax

for six half years commencing from the second half year of 1955-56 to the first half year of 1958--59 at Rs. 1000 per year. The Bank objected to

the levy and preferred an appeal to the Taxation Appeals Committee. The Committee, however, confirmed the levy. Thereupon the Bank

preferred a further appeal to the Court of Small Causes at Madras and contended that the levy of tax was improper and invalid. The Court of

Small causes allowed the appeal and held that the Bank was not within the purview of the City Municipal Act and that the levy of companies tax

was therefore not in accordance with law. In this civil revision petition the Corporation of Madras contends that the order of the Court of Small

Causes cancelling the levy of tax imposed under the provisions of the City Municipal Act is unsustainable in law. In order to appreciate the legal

submissions made in the case, both by the learned Counsel for the Corporation and the learned Counsel for the Bank, it is necessary to refer

briefly to the relevant statutory provisions. The power of the Corporation to levy tax on companies is provided for under S. 110 of the Madras

City Municipal Act, 1919. It is in these terms:

If the Council by a resolution determines that a tax on companies shall be levied, every company which, after the date specified in the notice

published under Sub S. (2) S 98-A transacts business within the city in any half year for not less than sixty days in the aggregate shall pay, in

addition to any licence fee that may be leviable under this Act, a half-yearly tax assessed in accordance with the rules in Sch. IV, but in no case

exceeding rupees one thousand.

The proviso is omitted as it is not relevant for the present case. There is no difficulty in comprehending the scope of this provision of law. Every

company transacting business within the City in any half year for not less than sixty days in the aggregate is liable to pay the tax. It is the definition

of the word ""company"" which is really important and which calls for interpretation. S. 3 (9-A) of the Act defines "" company "" :

''Company'' means a company as defined in the Indian Companies Act, 1913, or formed in pursuance of an Act of Parliament of the United

Kingdom or of Royal Charter or Letters patent, or of an Act of the Legislature of British possession or of a law of an Indian State, and includes

any foreign company, whether incorporated or not, and any Co-operative Society registered or deemed to be registered under any law for the

time being in force in a part A State or apart C State.

I shall now refer to the terms of the Reserve Bank of India Act, 1934, as they have a bearing on the question whether the Reserve Bank falls

within the definition of the word ""company"" under the Madras City Municipal Act. The preamble to this Act reads:

Whereas it is expedient to constitute a Reserve Bank for India to regulate the issue of Bank notes and the keeping of reserves with a view to

securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage;................

S-2 (a) states that :--

the Bank'' means the Reserve Bank of India constituted by this Act;

S. 3 (1) provides that

A Bank to be called the Reserve Bank of India shall be constituted for the purposes of taking over the management of the currency from the

Central Government and of carrying on the business of banking in accordance with the provisions of this Act.

S. 3 (2) enacts that

the Bank shall be a body corporate by the name of the Reserve Bank of India having perpetual succession and a common seal, and shall by the

said name sue and be sued.

Ss. 2 and 3 and some other provisions of the Act came into force on 1st January, 1935, and the otter provisions in the Act came into force on 1st

April, 1935, and, this was by appropriate Notifications by the Central Government in the Gazette of India.

Now, turning to the definition section of the City Municipal Act, defining ""company"" it is obvious that the Reserve Bank is not a company as

defined under the Indian Companies Act, 1913, or the new Companies Act, 1956. Nor is it formed in pursuance of an Act of Parliament of the

United Kingdom or of Royal Charter or Letters Patent. But, certainly the Reserve Bank of India Act, 1934, is an Act of the Legislature of a British

possession, India having been a British possession in 1934 when the Act was brought upon the statute book. So far the position is clear. But there

are certain words in S. 3 (9-A) which should not be lost sight of. The company should be formed ""in pursuance of"" an Act of Parliament of the

United Kingdom or of Royal Charter or Letters Patent, or of an Act of the Legislature of a British possession or of a law of an Indian State. Can it

be said that the Reserve Bank has been formed ""in pursuance"" of an Act of the Legislature of a British possession ? That is the sole and vital

question now in issue.

That the Reserve Bank is a statutory corporation created by the special enactment does not admit of any doubt. In fact, the express provision of

the Act also expressly states that the Bank shall be a body corporate by the name of the Reserve Bank of India. I may here mention one argument

of Mr. Chengalvarayan, the learned Counsel for the petitioner, only to reject it. He contends that the Bank came into existence not as a direct

result of the passing of the enactment, but by a separate notification under the Act and that brought the Bank within the provisions of the City

Municipal Act. It seems to me that this contention is repugnant to the substantive provisions of the Reserve Bank of India Act, as unmistakably the

Act states that the Bank is constituted by the Act. It is true that S. 3 of the Act which states that a Bank stall be constituted for the purpose of

taking over the management of the currency came into operation by a notification of the Central Government published in the Gazette of India. This

notification was issued only to bring into effect certain provisions of the Act including Ss. 2 and 3. The Bank is incorporated by the Act and the

notification was merely instrumental in setting the wheels of the Act in motion.

The decision in Elve v. Boyton (1891) 1 Ch.50l, is of no assistance to Mr. Chengalvarayan, who cited it in support of his contention that the

Bank was not the creature of the Act but the creature of the notification. In Elve v. Boyton (1), by an Act of Parliament the Crown was

empowered to grant a charter of incorporation to a marine insurance company pursuance of this Act the Crown granted a charter to a concern

called the London Assurance. A trustee of a Will, who had power to invest in shares of ""any company incorporated by Act of Parliament"" invested

in shares of the London Assurance. The question raised was whether the London Assurance was a company incorporated by an Act of Parliament

within the meaning of the investment clause. The Court of Appeal held that it was such a company. The following observation of Lindley L. J. at

page 508 has been relied upon by the learned Counsel

Now let us take the case and stop there, and ask ourselves whether such a corporation so created is not, in the language of this Will incorporated

by Act of parliament ? It is said, no : it is incorporated by charter, the answer is, it would have been impossible, without the Act of Parliament, to

create such a corporation by that charter or any other charter. The real truth is, that, if you look at it very closely, the corporation owed its birth

and creation to the joint effect of the charter and of the Act of Parliament, and you can no more neglect the Act of Parliament than you can neglect

the charter. It appears to us that, upon any reasonable construction of this clause, this first corporation was a corporation incorporated by Act of

Parliament within the true meaning of that clause.

That was a case quite different from the present case, the Act of Parliament empowered the grant of a charter of incorporation to a marine

insurance company. It was open to the competent authorities to issue or not to issue a charter. Without a charter the insurance company would not

get special privileges as contemplated. In the opinion of the learned Lord Justice, the charter was as essential and important as the Act of

Parliament and certainly the charter was not a negligible factor. The corporation itself could not have come into existence without the charter. It

cannot be said in the present case that the incorporation of the Bank was as a result of the notification. It is familiar legislative practice to bring into

operation portions of an enactment on different dates according to the attendant circumstances. S. 1 (3) of the Reserve Bank of India Act reads--

This section shall come into force at once, and the remaining provisions, of this Act shall come into force on such date or dates as the Central

Government may by notification in the Gazette of India appoint.

It seems to me that because portions of the Act came into force on a certain day and the other portions, on a certain other day it cannot be said

that the incorporation of the creation of the statutory body itself was caused by the Central Government''s notification of the date of operation of

the incorporating provision.

In the view that the Bank is constituted by the Act the question would be whether it fails within the purview of the definition of ""company"" under

the Madras City Municipal Act. It is the precise meaning of the words ""in pursuance of"" that arises for decision and which is of clinching

importance. The learned Counsel for the Corporation contends that the words ""in pursuance of"" really means ""by"". This is met by the learned

Counsel for the Bank who contends that the proper meaning of the expression is ""under"". The genesis of the rival contentions put forward in the

present case is really the decision of this Court in G. Narayanaswami Naidu Vs. C. Krishnamurthi and Another, . One of the questions that came in

for consideration in that case was whether the disqualification of a candidate for election to the Legislative Assembly or Legislative Council of a

State was one which could properly be described as imposed by or under any law made by Parliament. It was in this connection that Rajagopala

Aiyangar, J. as he then was, dealt with the distinction between ""by"" and ""under"" a law. At page 359 the following observations occur:

That the Article in the Constitution does draw a distinction between a disqualification imposed ''by'' a law made by Parliament and one imposed

''under'' a law made by Parliament would appear to admit of no doubt.......... It is this idea which is expressed in the following passage in Stroud''s

Judical Dictionary dealing with the word ""by"": ""A company incorporated by Act of Parliament."" means one which ""by"" an Act is brought into

existence, and does not include a company incorporated under an Act; therefore a power to invest in the shares etc, of a company incorporated by

an Act, does not include the shares etc, of a company registered under the Companies Act, 1862 (Re Smith Davidson v. Myrtle (1896) 2 Ch. 590

, This distinction is too well known to need any further elaboration.

The words that I have to construe are ""in pursuance of"". These are not words of art; nor do they connote any definite legal concept. One has

necessarily to be guided by the dictionary meaning to ascertain their true sense. ""Pursuance"" means carrying cut or following out. ""Pursue"" means to

proceed in accordance with. One of the meanings given to the word ""by"" is ""in accordance with."" A body corporate incorporated by a special

enactment can well be said to have been so created in pursuance of the Act. 1 do not think it would be misuse of the English language to

understand the expression ""in pursuance of"" as ""by"" in a particular context. I may refer to the decision of the Rajasthan High Court in Sadaria and

Another Vs. The Rajasthan Board of Revenue and Others, just to point out that the words ""in pursuance of"" have a wide range of meaning. At

page 225 one of the learned Judges observes as follows :

The words ''in pursuance of'' do not mean what would be conveyed by ''in exercise of power conferred by''. The words in pursuance of"" have

several meanings, and the most appropriate in the present case would be ""con formable to"" or "" in accordance with "".

In that case, there was an Ordinance in the following terms:

The Rajasthan (Protection of Tenants) Ordinance, shall come into force at once shall remain in force for a period of two years unless this period is

further extended by the Rajpramukh by notification in the Rajasthan Gazette.

The extension of the life of the Ordinance was made by a notification which ran thus :

In pursuance of Sub-S. (3) of S. 1 of the Rajasthan (Protection,) of Tenants Ordinance, 1949 (No. 9 of 1949), His Highness the Rajpramukh is

pleased to extend the period for which the said Ordinance shall remain in force for a further term of two years with effect from 2lst June, 1951.

The contention urged was that there was delegation of legislative powers as the extension was made by somebody and not in accordance with

the provisions of the Ordinance. This was not accepted by the Division Bench of the Rajastan High Court. The appropriateness of this citation is

only for the specific purpose of showing that the words ""in pursuance of"" have to be understood and interpreted having regard to the context in

which they are found. There is no indication in the scheme of the provisions of the City Municipal Act relating to the levy of tax on companies that

the Legislature intended that the subject of the levy should only be such corporate bodies as are not directly created by a statute, but, which came

into existence as a result of certain enabling provisions of enactments. It is not the intention that matters, but the words employed. No rule of

interpretation of statutes, however, forbids the ascertainment of the legislative mind to the extent indicated by the phraseology. If the contention

urged on behalf of the Bank were to be accepted, it would really mean that a large section of corporate bodies which spring into existence as a

direct result of Constitution under statutes shall go out of the purview of the Municipal Act. It seems to me that the general trend of the definition of

the word ""company"" occurring in S. 3(9-A) of the City Municipal Act is such as to bring within its scope all corporate bodies, irrespective of the

fact whether they were the direct progeny of a statutory enactment or the indirect result of a statute which enabled the body to come into existence.

I should think that the term ""company"" as defined in the City Municipal Act has to receive a liberal interpretation giving the words occurring therein

their full and comprehensive meaning. I have no hesitation in holding that the words ""in pursuance of"" are of wide amplitude, not susceptible of

being limited to and read as equivalent to the word ""under"" in contrast to the word ""by"", I hold that the Reserve Bank of India is a company under

S. 3 (9-A) of the City Municipal Act, and that the levy of companies tax under S. 110 was properly made.

In the result, the civil revision petition is allowed. The order of the Court of Small Causes, Madras, is set aside. There will, however, be no

order as to costs throughout.