Holding

The State is vicariously liable for the negligence of its officers; seizure under the Essential Commodities Act does not bar liability, and confiscation of part of the goods does not extinguish the owner’s right to claim the price of the remaining goods.

Summary

The appellant, a fertilizer and foodgrain dealer, had large stocks seized under the Essential Commodities Act, 1955. After part of the stock was confiscated, the remainder was ordered to be released, but the State failed to do so and the goods later deteriorated in quality and quantity. The appellant sued for compensation. The trial court held the State vicariously liable for the negligence of its officers and awarded damages. The High Court reversed, invoking sovereign immunity based on the Kasturi Lal decision. The Supreme Court allowed the appeal, holding that the State is liable for negligence of its officers, that statutory seizure does not immunise the State from liability, and that confiscation of part of the goods does not bar a claim for the remaining goods. Accordingly, the State must pay the market price of the deteriorated goods with interest.

Issues considered

Whether the State is vicariously liable for negligence of its officers in discharging statutory duties under the Essential Commodities Act.
Whether seizure of goods under statutory power confers sovereign immunity on the State against claims for loss or damage.
Whether confiscation of part of the seized goods extinguishes the owner’s right to claim compensation for the remaining goods.
Interpretation of Section 6-A(2) and Section 6-C(2) of the Essential Commodities Act, 1955 regarding return or payment for seized goods.

Legislation cited

Constitution of Indias. Article 300
Essential Commodities Act, 1955s. 6-A(2), s. 6-C(2)

Subjects

vicarious liabilitysovereign immunityEssential Commodities Actstate negligencestatutory seizurecompensationpublic law

Judgment

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

SEPTEMBER 6, 1994

B [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 confisca-
tion 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 dis-
charging 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
146 SUPREME COURT REPORTS (1994] SUPP. 3 S.C.R.

A 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.
B
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]
State of Gujarat v. Memon Mohamed Haji Hasan, AIR (1967) SC 1885
and Smt. Basava Kam Dyamogouda Patil v. State of Mysore,~ (1977) SC
F 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.
E
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
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
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 in-
demnify the wronged person. [169-D, EJ
B
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,

D
(1867) ILR 1 Calcutta 11 and Baxi Amrik Singh v. Union of India, (1973)
75 PLR : 1974 ACJ 105, referred to.

Peninsular & Oriental Steam Navigation Company v. Secretary of State
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.
E
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
c,
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 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
F
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]

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 indulg-
ing in hoarding and blackmarketing. Any power for regulating and con-
trolling 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] ·
F
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. Commis-
sioner 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•.
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
High Court in A No. 604 of 1979.

B. Kanta Rao for the Appellant.

T.V.S.N. Chari for the Respondent.
D
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 conse-
quence 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 confis-
cated (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
40 kgs. each 4 bags
c 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 appel-
lant.

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 relation-
ship 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 deteriora-
tion 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 discharg-
ing 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 F
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 G
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
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
at which the stocks were to be sold. It was in these circumstances and on
B 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 par-
ticular, 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 essen- C
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 in-
spection 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; E
(b) any package, covering or receptacle in which such essential
commodity is found; and

(c) any animal, vehicle, vessel or other conveyance used in car-
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 em-
powered 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
goods, packages or vessel or vehicle in which such essential commodity is
B 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 reasonable-
ness, 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
c 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 :

"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
F 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
G (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
I-I 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
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
B contravention of the order in respect of which an order of confis-
cation 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
c 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. The circumstances in which the goods are to be
E returned are;

(a) an order under Section 6A is modified or annulled by the
State Government;

(b) where the goods were confiscated in consequence of prosecu-
F tion of the person and he is acquitted;

( c) and in all these cases where it is not possible for any reason
to return the essenti~ commodity seized.

This provision cuts across the argument of the State that where even part
G is confiscated the person whose goods are seized is not liable to be
compensated for the remaining. The Section is dear that if only part of the
goods are confiscated then the remaining has to be returned. The very first
part of the sub-section indicates that where the order of confiscation is
modified in appeal meaning thereby if confiscation is confined to part only
H the Government is bound to release or return the remaining or pay the
N. NAGENDRARAO v. STAIB [SARAI, J.) 161

value thereof. But what is more significant of this sub-section which widens A
its reach is the expression, 'and in either case it is not possible for any
reason to return the essential commodity seized' then the State shall be
liable to pay the market price of the value with interest. The expression,
'for any reason' should be understood in broader and larger sense as it
appears from the context in which it has been used. The inability to rehJrn, B
giving rise to the statutory obligation of deeming it as sale to the Govern-
ment, may arise for variety of reasons and extends to any failure on the
part of the Government. For instance, the goods might have been sold in
pursuance of interim arrangement under Section 6-A(2). Or it might have
been lost or stolen from the place of storage. The goods might have
deteriorated or rusted in quality or quantity. The liability to return the C
goods seized does not stand discharged by offering them in whatever
condition it was. Confiscation of part of the goods thus could not affect the
right of owner to claim return of the remaining goods. Nor the owner is
bound to accept the goods in whatever condition they are. The claim of
the respondent, therefore, that the appellant was bound to accept the D
goods in whatever condition they were is liable to be rejected.

Having discurred the scheme of the Act, the stage is now set for
examining whether the High Court was justified, in reversing the decree of
the trial court for compensation, and dismissing the suit of the appellant,
as the seizure of the goods having been effected under the statutory E
provisions it was an exercise of sovereign powers. Thus, squarely covered
by the ratio laid down by this Court in Kasturi Lal (supra). Immunity of
the State from compensating its citizens for a wrong done by it or its
officers either for its activities of commercial or private nature or for acts
of State or for those for which suit could be brought into Municipal Courts F
has been through various stages due to reflection of English Juristic and
Philosophy that king can do no wrong, and its extension and application to.
our system of governance. In England it was recognised that the King could
not be sued. "In illustrating the doctrine that the 'Queen can do no wrong'
Prof. Dicey gives what he describes as an "absurd example", if Queen were
herself to shoot thet Prime Minister through the head, "he says", no court G
in England could take cognizance of the act". The basis for it in England
was both substantive and procedural. The former flowed from the divine
right of the Kings and the latter from the feudal principle that the King
could not be sued in his own courts. Yet it did not mean that he was above
law. The true meaning of the expression 'that king can do no wrong' .meant, H
162 SUPREME COURT REPORTS (1994] SUPP. 3 S.C.R.

A 'that the king has no legal power to do wrong' (H.W.R. Wade, Administra-
tive Law, Sixth Edition). Therefore, the institution of the petition of rights
was founded upon the theory that the king, of his own free will, graciously
orders right to be done. But the petition lay only, to recover unliquidated
damages for breach of contract by the Crown. It was ~ot extended by the
B courts to claims arising out of torts. In Viscount Canterbury v. The Attorney
General, 1 PH 306 (41 English Reports Chancery p. 648), one of the
question that aorse was whether the Crow_n was liable to make good the
loss for the .fire which had been caused by the personal negligence of the
Commissioners. The answer given was, that even though the officer, who
was guilty of negligence was liable personally, the liability did not extend
C to the Crown. This immunity peculiar to the English system found its way
in our system of governance through various judgments rendered during
British period, more particularly after 1858, even though the maxim "lex
non protest peccare" that is the King can do no wrong had no place in
ancient India or in medieval India as the Kings in both the periods
D . subjected themselves to the rule of law and system of justice prevalent like
the ordinary subjects of the States. According to Manu, it was the duty of
· the King to uphold the law and he was as much subject to the law as any
other person. 'In the Vedic period Kingship was purely secular institution.
Ancient Indian philosophers were not prepared to recognise the divinity
of the unworthy Kings' (G.P. Verma - State Liability in India). It was said
E by Brihaspati 'where a servant commissioned by his master does any
improper act, for the benefit of his master, the later shall be held respon-
sible for it". Even during Muslim rule the fundamental concept under
Muslim law like Hindu law was that the authority of King was subordinate
to that of the law. It was no different during British rule. The courts leaned
F in favolir of holding the State responsible for the negligence of its officers.
(See Narayan Krishna Laud v. General Nonnan, Collector of Bombay, 5
Bombay High Court Reports (1868-69) p.l, a decision which has been

-
approved in State of Rajasthan v. Mst. Vulhyawati & Anr., AIR (1962) SC
933.)

G This principle was statutorily recognised when East India Company
was taken over by the Crown. Section 68 of the Government of India Act,
1858 permitted the Secretary of the State in Council to sue or be sued. It
was a departure from the English common law that no proceedings, civil
or criminal, could be filed against the Crown. In The Peninsular & Oriental
H Steam Navigation Company v. The Secretary of State for India, Bombay High
N. NAGENDRAR.f'\O v. STAIB [SAHA!, J.] 163

Court Reports, Vol. 5 (1868-69) Appendix A p. 1, which came up before A
the Supreme Court of Calcutta, on a reference made by the subordinate
Judge, on the liability of the State for negligence of its officers, Chief
Justice Peacock held that since East India Company was not a sovereign,
its liability for negligence of its officers would be same as of an employer
for acts of its employee. But the observations which were to influence the B
courts for years to come, both before coming into force of the Constitution
and thereafter, were made while deciding the other issue whether the
Secretary of the State in Council was personally liable. It was observed that
there was a 'clear distinction between acts done in exercise of what are
usually termed sovereign powers and acts done in the conduct of under-
takings which might be carried on by private individuals without having C
such powers delegated to them'. TQ that extent there could have been little
difficulty. But the learned Chief Justice in the next breath. went on to

- observe:

"It is clear that the East India Company would not have been liable D
for any act done by any of its officer or soldiers in carrying on
hostilities, or for the act of any of its naval officers in seizing as
prize property of a subject, under the supposition that it was the
property of an enemy, nor for any act done by a military or naval
officer or by any soldier or sailor, whilst engaged in military or
naval duty, nor for any acts of any of its officers or servants in the E
exercise of judicial functions".

Whether this was obiter dicta or not but this concession in favour of East
India Company, a trading concern, was both unnecessary and unfortunate.
It resulted in clothing the Company with powers which in law it did not F
have. The observation were irreconcilable with the earlier principle evolved
that the Company being not a sovereign it could not claim sovereign
immunity. Therefore, even though the Company was not. sovereign yet it
was made sovereign for carrying on hostilities and seizing the property.
And this enunciation of law, even though incorrect and uncalled for, was G
seized upon and extended further in Nobin Chunder Dey v. Secretary of
State for India, ILR 1 Calcutta II (1867) where the English principle of
sovereign immunity of the Crown Was applied and plaintiffs claim for
recovery of damages against the State for non-issuing of the excise pass
and in the alternative for refund of the auction money was rejected as it
was an act done by the Government in exercise of sovereign power of the H
164 SUP.REME COURT REPORTS (1994) SUPP. 3 S.C.R.

A State. This decision and its application in numerous cases led to denial of
relief to citizens and different principles were evolved but each revolving
round basic doctrine of sovereign immunity. It was dissented to by the
Madras High Court in The Secretary of State for India in Council v. Hari
Bhanji & Anr., ILR Vol. V Madras 273 (1882) and it was observed that
B Nobin Chunder Dey (supra) did not properly comprehend the law laid
down in Peninsular (supra). The Chief Justice of the Madras High Court,
after dealing with Peninsular and its erroneous application in Nobin
Chunder Dey, (supra) observed that defence of sovereign immunity was
available in those limited cases where the State could not be sued for its
acts, such as making war or peace, in Municipal Courts. Relevant observa-
C tions are extracted below : -

"Acts done by the Government in the exercise of the sovereign
powers of making peace and war and of concluding treaties ob-
viously do not fall within the province of municipal law, and
although in the administration of domestic affairs the Government
D ordinarily exercises powers which are regulated by that law, yet
there are cases in which the supreme necessity of providing for the
public safety compels the Government to 'acts which do not pretend
to justify themselves by any canon of municipal law.

E Acts thus done in the exercise of sovereign powers but which do
not profess to be justified by municipal law are what we understand
to be the acts of state of which municipal courts are not authorized
to take cognizance."

(emphasis supplied)
F
The doctrine or the defence by the 'act of state' is not the same as sovereign
immunity. The former flows from the nature of power exercised by the
State for which no action lies in civil court whereas the latter was developed
on the divine right of kings.

G When the law was in this fluid state, the Constitution was enforced
and in Province of Bombay v. Khushaldas S. Advani, AIR (1950) SC 222,
Justice Mukherjea, one of the members of the 7 Judges' Bench, who was
in minority: made following observations approving the ratio laid down in
Hari Bhanji (supra). On this aspect there was no conflict in majority and
H minority opinions. The Hon'ble Judge observed :
N.NAGENDRARAOv. STAIB[SAHAl,J.] 165

"It is true that theEast India Company was invested with powers A
and functions of a two-fold character. They had on the one hand
powers to carry on trade as merchants; on the other hand they had
delegated to them powers to acquire, retain and govern territories
to raise and maintain armies and to make peace and war with
native powers in India. But the liability of the East India Company B
to be sued was not restricted altogether to claims arising out of
undertakings which might be carried on by private persons; but
other claims if not arising out of acts of State could be entertained
by civil Courts, if the act were done under sanction of municipal
law and in exercise of powers conferred by such law. The law on
this point was discussed very ably by the Madras High Court in C
Secretary of State v. Hari Bhanji, 5 Madras 273."

The learned Judged also considered the Peninsular case (supra) and
observed as under :
D
"Much importance, cannot in my opinion be attached to the ob-
servation of Sir B. Peacock in Peninsular and Oriental Steam
Navigation Co. v. Secretary of State, 5 Born. H.C.R. App. 1. In that
case the only point for consideration was whether in the case of a
tort committed in the conduct of a business the Secretary of State
for India could be sued. The question was answered in the affirm- E
ative. Whether he could be sued in cases not connected with the
conduct of a business or commercial undertaking was not really a
question for the Court to decided."

But it was not till 1962 that an occasion arose for this Court to examine F
the tortious act by servant of the State and whether a citizen who was
wronged by it was entitled to claim compensation. In Mst. Vidhyawati
(supra), the driver of a Government vehicle while driving the car along with
public road knocked down a person who was walking on the footpath by
the side of the public road on Udaipur city causing him multiple injuries
including fractures of the skull and backbone, resulting in his death three G
days later in the hospital where he had been removed for treatment. The
suit of his widow, minor daughter and mother was decreed, on the finding
that the driver was guilty on negligence. But the decree wa&~ranted against
the driver only. In appeal, however, the High Court decreed the suit against
the State as well. This court after examining in detail the scope of Article H
166 SUPREME COURT REPORTS (1994) SUPP. 3 S.C.R.

A 300 of the Constitution of India and the earlier provisions in the Govern-
ment of India Act beginning from Section 68 of the Act of 1858 approved
decision in Narayan Krishna Laud (supra) and observed that the decision
in Viscount Canterbury (supra) being based upon the principle that 'the
King cannot be guilty of personal negligence or misconduct and conse-
quently cannot be responsible for the negligence or misconduct of his
B servants' was not applicable as held in Peninsular's case (supra) as the
liability of the Secretary of State in Place of East India Company was
specifically provided for. The Court further held :

"This case also meets the second branch of the argument that the
c State cannot be liable for the tortious acts of its servants, when
such servants are engaged on an activity connected with the affairs
of the State. In this connection it has to be remembered that under
the Constitution we have established a welfare state, whose func-
tions are not confined only to maintaining law and order, but
extend to engaging in all activities including industry, public
D transport, state trading, to name only a few of them. In so far as
the State activities have such wide ramifications involving not only
the use of sovereign powers but also its powers as employers in so
many public sectors, it is too much to claim that the State should
be immune from the consequences of tortious acts of its employees
E committed in the ·course of their employment as such. In this
respect, the present set up of the Government is analogous to the
position of the East India Company, which functioned not only as
a Government with sovereign powers, as a delegate of the British
Government, but also carried on trade and commerce, as also
public transport like railways, post and telegraphs and road
F
transport business ....... ".

The Court after dealing with case law and Article 300 proceeded further
to hold: ·

G "Viewing the case from the point of view of first principles, there
should be no difficulty in holding that the State should be as much
liable for tort in respect of a tortious act committed by its servant
within tlte scope of his employment and functioning as such, as any
other employer. The immunity of the Crown in the United
H Kingdom was based on the old feudalistic notions of Justice,
N.NAGENDRARAOv. STATE[SAHAI,J.] 167

namely, that the King was incapable of doing a wrong, and, there- A
fore, of authorising or instigating one, and that he could not be
sued in his own courts. In India, ever since the time of the East
India Company, the sovereign has been held liable to be sued tort
or in contract, and the Co~on Law immunity never operated in
India. Now that we have, by our Constitution, established a
Republican fo~m of Government, and one of the objectives is to B
establish a Socialistic State with its varied industrial and other
activities, employing a large army of servants, there is no justifica-
tion, in principle, or in public interest, that the State should not be
held liable vicariously for the tortious act of its servant. This Court
has deliberately departed from the Common Law rule that a civil C
servant cannot maintain a suit against the Crown. In the case of
State of Bihar v.Abdul Majid, (1954] SCR 786: AIR (1954) SC 245,
this Court has recognised the right of a government servant to sue
the Government for recovery of arrears of salary. When the rule
of immunity in favour of the Crown, based on Common Law in D
the United Kingdom, has disappeared frqm the land of its birth,
there is no legal warrant for holding that it has any validity in this
country, particularly after the Constitution. As the cause of action
in this case arose after the coming. into effect of the Constitution,
in our opinion, it would be only recognising the old established
rule, going back to more than 100 years at least, if we uphold the E
vicarious liability of the State. Art. 300 of the Constitution itself
has saved the right of Parliament or the Legislature of a State to
enact such law as it may think fit and proper in this behalf. But so
long as the legislature has not expressed its intention to the
contrary, it must be held that the law is what it has been ever since F
the days of the East India Company."

(emphasis supplied)

But this Constitution Bench decision was distinguished in Kasturi Lal G
(supra) by another Constitution Bench as, 'the facts in Vidhyavati's case
(supra) fall in a category of claims which is distinct and separate from the
category in which the facts of the present case fall'. The Bench, therefore,
relying on the observation in Peninsular's case (supra) which were held to
be obiter in Province of Bombay, (supra) proceeded to hold : H
168 SUPREME COURT REPORTS [1994) SUPP. 3 S.C.R.

A "Thus, it is clear that this case recognises a material distinction
between acts committed by the servants employed by the State
where such acts are referable to the exercise of sovereign powers
delegated to public servants, and acts committed by public ser-
vants, which are not referable to the delegation of any sovereign
powers. If a tortious act is committed by a public servant and it
B gives rise. to a claim for damages, the question to ask is: was the
tortious act committed by the public servant in discharge of
statutory functions which are referable to, and ultimately based on,
the delegation of the sovereign powers of the State to such public
servant? If the answer is in the affirmative, the action for damages
c for loss caused by such tortious act will not lie. On the other hand,
if the tortious act has been committed by a public servant in
discharge of duties assigned to him not by virtue of the delegation
of any sovereign power, an action for damage would lie. The act
of the public servant committed by him during the course of his
employment is, in this category of cases, an act of a 'Servant who
D
might have been employed by a private individual for the same
purpose. This distinction which is clear and precise in law, is
sometimes not borne in mind in discussing questions of the State's
liability arising from tortious acts committed by public ser-
vants ...... ".
E
The Bench did not avert to Hari Bhanji's case (supra) which was approved
by this Court in Province of Bombay, (supra) ..

However, since 1965 when this decision was rendered the law on
p 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 transformation in social outlook with increasing
emphasis on human liberty resulted in more pragmatic approach to the
individual's dignity, his life and liberty and carving out of an exception by
the Court where the abuse of public power was violative of the constitu-
G tional 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. (See Rudul Shah v. State of Bihar & Anr., [1983] 4
SCC 141, Sebastian M. Hongrary v. Union of India, [1984) 3 SCC 82,
Women's Resourses Centre v. Commissioner of Police, Delhi, AIR (1990)
H SC 313, State of Maharashtra & Ors. v. Ravikant S. Patil, (1991] 2 SCC 373.
N. NAGENDRA RAO v. STATE [SARAI, J.) 169

In Nilabati Behera (Smt.) Alias Lalita v. State of Orissa & Ors., (1993) 2 A
SCC 746, Hon'ble Mr. Justice J.S. Verma observed as under:

".........It may be mentioned straightway that award of compensation
in a proceeding under Article 32 by this Court or by the High
Court under Article 226 of the Constitution is a remedy available
in public law, based on strict liability for contravention of fun- B
damental rights to which the principle of s<>vereign immunity does
not apply, even though it may be available as a defence in private
law in an action based on tort..........".

In the same decision, it was observed by Hon'ble Dr. Justice AS. Anand: C

"..........The purpose of public law is not only to civilize public power
but also to assure the citizen that they live under a legal system
which aims to protect their interests and preserve their rights."

Sovereign immunity as defence was, thus, never available where the D
State was involved in commercial or private undertaking nor it is available
where it officers are guilty of interfering with life and liberty of a citizen
not warranted by law. In both such infringement the State is vicariously
liable and bound, constitutionally, legally and morally, to compensate and
indemnify the wronged person. But the shadow_ of sovereign immunity still E
haunts the private law, primarily, because of absence of any legislation even
though this Court in Kasturi Lal (supra) had expressed dissatisfaction on
the prevailing state of affairs in which a citizen has no remedy against -
negligence of the officers of the State and observed :

"............ In dealing with the present appeal, we have ourselves been F
disturbed by the thought that a citizen whose property was seized
by process of law, has to be told when he seeks a remedy in a court
of law on the ground that his property has not been returned to
him, that he can make no claim against the State. That, we think,
is not a very satisfactory position in law. The remedy to cure this G
position, however, lies in the hands of the Legislature."

Necessity of the Legislation apart, which shall be adverted later, it is
necessary to mention that in subsequent decisions rendered by this Court
the field of operation of the principle of sovereign immunity has been
substantially whittled down. In Shyam Sunder & Ors. v. State of Rajasthan, H
170 SUPREME COURT REPORTS (1994] SUPP. 3 S.C.R.

A AIR 1974 SC 890 where the question of sovereign immunity was raised and
reliance was placed on the ratio laid down in Kasiuri Lal's case (supra),
this Court after considering the principle of sovereign immunity as under-
stood in English and even applied in America observed that there was no
'logical or practical' ground for exempting the sovereign from the suitior
damages. In Pushpa Thakur v. Union of India & Anr., (1984) ACJ SC 559,
B this Court while reversing a decision of the Punjab & Haryana High Court
(1984 ACT 401) which in its turn placed reliance on a Full Bench decision
of that very Court in Baxi Amrik Singh v. Union of India, (1973) PLR Vol.
75 p.l = 1974 ACT 105 held that where the accident was caused by
negligence of the driver of military truck the principle of sovereign im-
C munity was not available to the State.

That apart, the doctrine of sovereign immunity has no relevance in
the present day context when the concept of sovereignty itself has under-
gone drastic change. Further, whether there was any sovereign in the
traditional sense during British rule of our country was not examined by
D the Bench in Kasturi Lal case (supra) though it seems it was imperative to
do so, as the Bench in Vidhayavati case (supra) has not examined the scope
of Article 300 of the Constitution, but after examining the legislative history
had observed :

"It will thus be seen that by the chain of enactments beginning with
E
the Act of 1858 and ending with the Constitution, the words "shall
and may have and take the same suits, remedies and proceedings"
in S. 65 above, by incorporation, apply to the Government of a
State to the same extent as they applied to the East India Com-
pany."
F
Therefore, the liability of the Secretary of State in Council till 1947
was and of the State thereafter is co-terminus with the liability that the East
India Company would have had for the negligence of its officers. That the
East India Company was not sovereign was recognised by the Privy Council
G in more than one decision both before and after the Government of India
Act, 1858. In Moodaley v. The East India Company, 1 Bro. C.C. 469
(referred inPeninsular's case) it was observed by the then Master of Rolls:

"I admit that n:o suit will lie in this court against a sovereig!l power
for anything done in that capacity, but I do not think the East India
H Company is within the rule".
N.NAGENDRARAOv. STA'IE(SAHAI,J.l 171

This was a decision when the Company, under the Charter issued by the A
British Government, carried on only trading activity. The Secretary of State
in Council of India v. Kamachee Boyee Sahaba, 7, Moo. Indian Appeal 476.
was rendered when the Company had been invested with dual power, one,
carrying on trade and other, to acquire and retain territory, wage war and
negotiate peace etc. It \yas held that for such latter acts the Company could B
not be sued in Municipal Courts. It was described as delegated power of
sovereign. All these decisions were rendered before the Government of
India Act of 1858 was enacted. Once Section 65 permitted Secretary of
State in Council to sue or be sued, -the concept of sovereign immunity, even
if it was there, ceased to have any relevance. The decision in Moodaley
(supra) and Kamachee (supra) furnished foundation in Peninsular's, case C
(supra) for deciding that the Crown having taken over from East India
Company which was not a sovereign it could not claim that the Secretary
of State in Council shall be immune for negligence of oflicers of the State.
The decision in Viscount Canterbury (supra) which formed the basis of
sovereign immunity in English law was held to be inapplicable as, 'action D
against the Secretary of State in Council having been expressly given by the
55th Section of the Act in lieu of that which formally existed against the
East India Company. The learned Chief Justice held: ·

"In determining the question whether the East Ind1:i Company
would, under the circumstances, have been liable to an a Jion, the E
general principles applicable to Sovereign anu State~,, , nd the
reasoning deduced from the maxim of the English law that the
King can do no wrong, would have no force. We concur entirely
in the opinion expressed by Chief Justice Grey in the case of Bank
of Bengal v. The East India Company (Bignell, Rep., p.120), which F
was cited in the argument, that the fact of the Company's having
been invested with powers usually called sovereign powers did not
constitute them sovereigns."

The Company ceased to exist after the Government of India Act, 1858,
came into force. The administration was taken over by the Crown. But G
Seccion 65 of the Government of India Act of 1858 expressly pro'<ided that
all Persons and Body Politic shall and may take the same suits, remedies
and proceedings, legal and equitable, against the Secretary of State in
Council in India as they could have done against the East India Company.
The effect of it was that the liability of the East India Co~pany and its H
172 SUPREME COURT REPORTS [1994] SUPP. 3 S.C.R.

A extent prior to 1858 become the foundation and furnished basis for deter-
mining liability of the Secretary of State in Council. If the East India
Company was not a sovereign and the rights that vested in the Crown
under Government of India Act, 1858 were no more than what was
possessed by the Company then where was the question of sovereign power
and sovereign immunity? East India Company was not sovereign de jure.
B Sovereignty could not be extended to it by analogy. The grant of power to
the Company in the Charters issued from time to time for enforcing
discipline in its staff or for administration of justice initially for British
subjects extended later to Indians, and even for acquisition of territory and
retraining it or making peace and war, could not result in making it
c sovereign. In any case, 'in East India company's affairs, "sovereign" and
"non-sovereign" activities were so tangled up that even if the distinction
between such activities does make sense, it could not sensibly be applied
to the Indian government' (AR. Blackshield, Tortious Liability of Govern-
ment, Journal of the Indian Law Institute Vol. 8 (1966) p. 642).
D
'(The) emergence of the British empire in India stands out as a ·
unique event in the history of the world. Unlike many other empires, the
huge edifice of this empire was created by merely a company which was
organised in England for furthering British commercial interests in over-
seas countries.' (M.P. Jain, Outlines of Indian Legal History Vth Ed. 1990).
E But no less greater event was the projection of the doctrine of sovereignty
and sovereign immunity for acts done by a trading company by the Judges
presiding in higher courts. 'English law never succeeded in distinguishing
effectively between the King's two capacities' (personal and political).
(H.W.R. Wade, Administrative Law, Sixth edition). No such difficulty
F existed in our system of governance either during British rule or thereafter.
The Indian law beginning from Government of India Act, 1858 and ending
with Article 300 of the Constitution did not acknowledge the English
principle of sovereign immunity. In England 'the judges had set their faces
against any remedy in torts' (Wade) because of the 'unfortunate by-product
of the law of master and servant in the nineteenth century' (Wade). This
G misfortune was thrust upon our system, a typical Judicial innovation, un-
paralled any where in the world, where a commercial company was deemed
to have such powers that it could not be, 'held liable for any act done by
any of its officers and soldiers in carrying on hostilities or for the act of
any of its naval officers in seizing the property .of a subject under the
H supposition that it was the property of an enemy'. The practical effect of
N.NAGENDRARAOv. STATE[SAHAI,J.] 173

it was that the officers of the Company acting negligently and causing A
damage to the people were rendered immune from any action in a court
of law. This was contrary both to English and Indian law. Truly speaking
the concept of sovereign immunity in the English sense, was non-existent
... during British rule.

Though the Company was not a sovereign but it did exercise some B
power as .a delegate of the Crown. What was the nature of this power? In
the charter issued during what is known as, 'double Government period'
the Company was permitted, in addition to carrying on trading activities,
power to carry on war, inflict hostilities, seize property, negotiate peace,
etc. with the Indian states. The activities such as these are indicia of what C
is legally known as 'act of State'. It means :

"an act of the executive as a matter of policy performed in the
course of its relations with another State, including its relations
with the subjects of that State".
D
[E.S.C. Wade, Act of State in England Law British Year Book of
International Law, extracted in State Liability in India p. 257 by
G.P. Verma].

But the company was not a State itself. It was a delegate only. The power E
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 power
granted to it was political in nature. In Sir Anthony Musgrave v. Jose Ignacio
Pulido, 1879-80 Vol. 5 LR Appeal Cases p.102, which was a case from
Jamaica where the plaintiff claimed damages for unlawful detention of the
ship by the Governor in Chief of Island and reliance was placed on F
decisions given by the Privy Council on disputes which arose between the
Company and the rulers of the Indian State, this aspect was explained and
it was held that those were the decision in which the suit filed by Raja or
Nabab was dismissed as the cause of action was political in nature. It would
be worthwhile extracting the observation :
G
"Several cases were cited during the argument of actions brought
against the East India Company, and the Secretary of State for
Indian in which questions have arisen whether the acts of the
Indian Government were or were not acts of sovereignty or state,
and so beyond the cognizance of the Municipal Courts. The East H
174 SUPREME COURT REPORTS [1994) SUPP. 3 S.C.R.

A India Company, though exercising (under limits) delegated
sovereign power, was subject to the jurisdiction of the Municipal
Courts in Indian, and it will be found from the decisions that many
acts of the Indian Government, though in some sense they may be
designated 'acts of State," have been declared to be within the ,.
cognizance of those Courts. Thus, in the Rajah of Tanjore's Case,
B 13 Moore, PC 22, the question to be decided was thus stated by
Lord Kingsdown in giving the judgment of the Committee: "What
is the real character of the act done in this case? Was it a seizure
by arbitrary power on behalf of the Crown of Great Britain of the
dominion and property of a neighbouring state, an act not affecting
c to justify itself on grounds of municipal law, or was it in whole or
in part a possession taken by the Crown under colour of legal title
of the property of the late Rajah, in trust for those who by law
might be entitled to it? If it were the letter, the defence set up, of
course, has no foundation." This Committee, in deciding the ques-
tions thus raised, held that the seizure was of the former character,
D
and therefore not cognizable by a Municipal Court. The answer of
the East India Company in that case did not rest on the simple
assertion that the seizure was an act of state, but set out the
circumstances under which the Rajah's property was taken. After
referring to the treaties made with the Rajah, it averred that in
E entering into these treaties, and in treating the sovereignty and
territories of Tanjore as lapsed to the East Indian Company in
trust for the Crown, the Company acted in their public political
capacity, and in exercise of the powers (referring at length to them)
committed to them in trust for the Crown of Great Britain, and
that all the acts set forth in the answer "were acts and matters of
F
state."

As far as their Lordships are aware, it will be found that in all
the suits brought against the Government of India, whether in this
country or in India, the pleas and answers of the Government have
G shewn, with more or less particularity, the nature and character of
the acts complained of, and the grounds on which, as being political
acts of sovereign power, they were not cognizable by the Courts,
(See the Nabob of Camatic v. East India Company, 1 Ves. Jun.
388; Ex- Rajah of Coorg v. East India Company, 29 Beav. 300; Rajah
H Salig Ram v. Secretary of State for India, Law Rep. Ind. App. Sup.
N. NAGENDRARAO v. STATE [SARAI, J.] 175

Vol. P. 119, in which judgment was given by this Committee on A
the 27th of August, 1872)."

... It was thus judicially recognised that the activities of the Company apart
from trading were limited and no more than political in character. Such
activities carried on by a State are :
B
"acts which concern some matter of state; and "the type of 'matter
.- of state' is the matter between states which, whether it be regulated
by international law or not, and whether the acts in question are
or are not in accord with international law, is not a subject of
municipal jurisdiction". "(William Harrison Moore, Acts of State in C
English Law, quoted in 1941 Columbia Law Review Vol. XLI
p.1313).

In Salaman v. Secretary of State for India, (1906) lK.B. 613 at 639, it was
explained:
D
"An act of State is essentially an exercise of sovereign power and
hence cannot be challenged, controlled or interferred with by
municipal courts. Its sanction is not that of law, but that of
sovereign power and whatever it be municipal courts must accept
it as it is without question".
E
'Sovereignty' and 'acts of State' are thus two different concepts. The
former vests in a person or body which is independent and supreme both
externally and internally whereas latter may be act done by a delegate of
sovereign within the limits of power vested in him which cannot be ques-
tioned in a Municipal Court. The nature of power which the company F
enjoyed was delegation of the 'act of State'. An exercise of political power
by the State or its delegated does not furnish any cause of action for filing
a suit for damages or compensation against the State for negligence of its
officers. Reason is simple. Suppose there is a war between two _countries
or there are outbreak of hostilities between two indiependent states in G
course of which a citizen suffers damage. He cannot sue for recovery of
the loss in local courts as the jurisdiction to entertain such suit would be
barred as the loss was caused when the State was carrying on its activities
which are politically and even jurisprudentially known as; 'acts of State'.
But that defence is not available when the State or its officers act negligent-
ly in discharge of their statutory duties. Such activities are not acts of State. H
176 SUPREME COURT REPORTS [1994] SUPP. 3 S.C.R.

A In Sir Anthony Musgrave (supra) the Privy Council while determining
liability of the Government observed that it cannot :

"be assumed that he possesses general sovereign power. · His
authority is derived from his commission, and limited to the powers
thereby expressly or impliedly entrusted to him. Let it be granted
B that, for acts of power done by a Governor under and within the
limits of his commission, he is protected, because in doing them
he is the servant of the Crown, and is exercising its sovereign
authority; the like protection cannot be extended to acts which are
wholly beyond the authority confided to him. Such acts, though the
c Governor, cannot be considered as done on behalf of the Crown,
nor to be in any proper sense acts of state."

The Company was, thus, immune from being sued in courts only in those
limited case where its activities were political and mainly in relation to the
D Indian State. It did not enjoy any soverign immunity like the Crown in
England.

Even otherwise the concept of seovereign immunity and the distinc-
tion between sovereign and non-sovereign powers were neither relevant
either before or after the Constitution came into force. The doctrine of
E sovereigny as pronounded by theorists in medival period has radically
changed. The earlier theory was on outcome of old thinking, in the social
set up then prevailing, where the monarch was the sovereign and all powers
legislative, .executive or judicial vested in him. It was observed by Laski
'that sovereignty was the s,upreme coercive power and it was by possession
F of sovereignty that the State was distinguished from all other forms of
human association.' The original concept of sovereignty was of a unitary
State. Hibert in his book on Jurisprudence explained the term 'sovereign'
as, 'a political superior who is not subject to any other political superior'.
Holland explained sovereignty to mean, 'the sovereignty of the ruling part
G has two aspects. It is 'external', as independent of all control from without;
'internal' as paramount over all action within.' A state or a country or a
nation which does not enjoy independence of control from other State or
external power, cannot be considered to be a sovereign in the ordinary
sense as understood either in medieval period or in the modem period.
Manifestation of former is freedom to protect its border, negotiate peace,
H enter into treaty etc., whereas latter is the liberty to enact laws, provide
N.NAGENDRARAOv.STATE[SAHAl,J.] 177
machinery for enforcing it, maintain law and order, administer justice etc. A
'The modem doctrine of sovereignty which heralded the end of the
medieval period........was the rise of the new national States anxious to
assert their total independence in a new age of economic expansion and to
reject all feudal notions of overlordship or papal interference .......virtually
unlimited capacity to make new law'. 'Austin's sovereign was postulated as B
an illimitable, indivisible entity ; ..... Form a conceptual standpoint there is
no necessity for a sovereign to be undivided and unlimited. Indeed, in the
complex societies that have developed since Bentham's day, particularly
the modem collectivist States and federal systems, quite the reverse is true.
Bentham thus accepts divided and partial sovereignty. (Lloyd's Introduc-
tion to Jurisprudence, 5th Ed.). According to Dias, 'the attributes of C
sovereignty are interesting. Such power is indefinite unless limited by
express convention of by religious or political motivations. The sovereign
may consist of more than one body, each of which is obeyed in different
respects. Habitual obedience may thus be divided and partial, i.e. owned
in certain areas of conduct. When divided in this way the power of each is D
limited by the other and each has a limited power to prescribe for the
other.' (Dias Jurisprndence. 5th Ed. 1985).

This change in outlook is consequence of gradual growth of the
concept that sovereignty vests in the people. Its roots germinated with the
rise of federalism in Amrica. The Enghlish doctrine of Parliamentary E
sovereignty was superseded in America by the doctrine of popular of
sovereignty. Wills in the book on Constitutional Law of the United States
observed, 'who then is in the United States the sovereign?lt is the people'.
It was said by Pt. Jawahar Lal Nehru while moving the Objective Resolu-
tion in the Constituent Assembly on December 13, 1946, 'all power and p
authority of the sovereign independent India; its constituent and part and
organs of the Government are derived from the people'. Justice Douglas
in his book from Marshall to Mukherji observed, 'India and the United
States both recognise that people are the basis of all sovereignty'.

The old and archaic concept of sovereignty thus does not survive. G
. Sovereignty now vests in the poeple. The legislature, the executive and the
judiciary have been created and constituted to serve the people. In fact the
concept of sovereignty in the Austinian sense, that king was the source of
law and the fountain of justice, was never imposed in the sense it was
understood in England upon our country by the British rulers. In H
178 SUPREME COURT REPORTS [1994] SUPP. 3 S.C.R.

A Maganbhai lshwarbhai Patel Etc. v. Union of India & Anr., [1970] 3 SCC
400 where the question was if the Government was justified in agreeing to
transfer certain village to Pakistan without approval of Parliament, it was
observed by a Constitution Bench, 'the question is one of authority. Who
in the State can be said to possess plenum dominium depends upon the
B Constitution and the nature of the adjustment'. In America the power vests
in the court. Therefore, even such actions of the Government which are
solely concerned with relations between two independent States are now
amenable to scrutiny by courts to be examined on the anvil of constitutional
provisions and exercise of authority under constitutional framework. ,...
C In Federated State School Teachers' Association of Australia v. State
of Victoria & Ors. (1928-29) 41 CLR 569 at 585, the distinction between
sovereign and non-sovereign functions was categorised as regal and non-
regal functions. The former was confined to legislative power, the ad-
ministration of the laws and exercise of the judicial power. In respect of
non-regal functions, which could be assumed by legislative power, the State
D was held as a corporation analogous to a private company. The learned
Judge observed as under :

"Regal functions are incapable and inalienable. Such are the legis-
lative power, the administration of the laws, the exercise of the
E judicial power. Non-regal functions may be assumed by means of
the legislative power. But when they are assumed the State acts
simply as a huge corporation, with its legislation as the charter.
Its action under the legislation, so far as it is not regal execution
of the law is merely analogous to that of a private company similarly
authorised."
F
This decision reflects modem thinking. The State is treated in performance
of its functions like a private company. It would obviously be answerable
for negligence of its employees. ·

In the modem sense the distinction between sovereign or non-
G sovereign power thus does not exist. It all depends on the nature of power
and manner of its exercise. Legislative supremacy under the Constitution
arises out of constitutional provisions. The legislature is free to legislate on
topics and subjects carved out for it. Similarly, the executive is free to
implement and administer the law. Klaw made by a legislature may be bad
H or may be ultra vires, but since it is an exercise of legislative power, a
N.NAGENDRARAOv.STATEOFAP.[R.M.SAHAI,J.] 179

person affected by it may challenge its validity but he cannot approach a A
court of law for negligence in making the law. Nor can the Government in
exercise of its executive action be sued for its decision on political or policy
matters. It is in public interest that for acts performed by the State either
in its legislative or executive capacity.it should not be answerable in torts.
That would be illogical and impractical. It would be in conflict with even B
modern notions of so~ereignty. One of the t.ests to determine if the legis-
lative or executive function is sovereign in nature is whether the State is
answerable for such actions in courts of law. For 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 C
nature. Therefore, they are not amenable to jurisdiction of ordinary civil
court. No suit under Civil Procedure Code would lie in respect of it. The
State is immune from being sued, as the jurisdiction of the courts in such
matter is impliedly barred.
D
But there the immunity ends. No civilised. system can permit an
executive to play with the people of its country and claim that it is entitled
to act in any manner as it is sovereign. The concept of public interest has
changed with structural change in the society. No legal or political system
to-day can place the State above law as it is unjust and unfair for a citizen
to be deprived of his property illegally by negligent act of officers of the E
State without any remedy. From sincerity, efficiency and dignity of State as
a juristic person, propounded in Nineteenth Century as sound sociological
basis for state immunity the circle has gone round and the emphasis now
is more on liberty equality and the rule of law. The modern social thinking
of progressive societies and the judicial approach is to do away with archaic F
State protection and place the State or the Government at par with any
other juristic legal entity. Any watertight compartmentalization of the
functions of the state as "sovereign and non-sovereign" or "governmental
and non-government" is not sound. It is contrary to modern jurisprudential
thinking. Th need of the State to have extra-ordinary powers cannot be
doubted. But with the conceptual change of statutory power being statutory G
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 law and negligently. Needs
of the State, duty of its officials and right of the citizens are required to be
reconciled so that the rule of law in a welfare State is not shaken. Even in H
180 SUPREME COURT REPORTS [1994] SUPP. 3 S.C.R.

A America where this doctrine of sovereignty found its place either because
of the 'financial instability of the infant American States rather than to the
stability of the doc~rine theoretical foundation', or because of 'logical and
practical ground;, or that 'there could be no legal right as against the State
which made the law' gradually gave way to the movement from, 'state
irresponsibility to state responsibility'. In welfare State, functions of. the
B State are not only defence of the country or administration of justice or
maintaining law and order but it extends to regulating and controlling the
activities of people in almost every sphere, educational, commercial, social,
economic, political and even marital. The demarcating line between
sovereign and non-sovereign powers for which no rational basis survives
C has largely disappeared. Therefore, barring functions such as administra-
tion of justice, maintenance of law and order and repression of crime etc.
which are among the primary and inalienable functions of a constitutional
Government, the State cannot claim any immunity. The determination of
vicarious liability of the State being linked with negligence of its officers, if
D they can be sued personally for which there is no dearth of authority and
the law of misfeasance in discharge and public duty having marched ahead,
there is no. rationale for the proposition that even if the officer is liable the
State cannot be sued. The liability of the officer personally was not doubted
even in Viscount Canterbury (supra). But the Crown was held inimune on
doctrine of sovereign immunity. Since the doctrine has become outdated
E and sovereignty now vests in the people, the State cannot claim· any
immunity and if a suit is maintainable against the officer personally, then
there is no reason to hold that it would not b!'! maintainable against the
State.

F In the light of what has been discussed, it can well be be said that
the East India Company was not a sovereign body and therefore, the
doctrine of sovereign immunity did not apply to the activities carried on by
it in strict sense. Since it was a delegate of the Crown and the activities
permitted under the Charter to be carried on by it were impressed with
political character, the State or its officers on its analogy cannot claim any
G immunity for negligence in discharge of their statutory duties under protec-
tive cover of sovereign immunity. The limited sovereign power enjoyed by
the Company could not be set up as defence in any action of torts in private
law by State. Since the liability of the State even to-day is same as was of
the East India Company, the suit filed by any person for negligence of
H offices of the State cannot be dismissed as it was in exercise of sovereign
N. NAGEND RA RAO v. STATE [SARAI, J.] 181

power. Ratio of Kasturi Lal (supra) is available to those rare and limited A
cases where the statutory authority acts as a delegate of such function for
which it cannot be sued in court of lll;w. 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 B
Criminal Procedure Code is one of the inalienable powers of State. It was
probably for this reason that the principle of sovereign immunity in the
conservative sense was extended by the Court. But 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.
c
A law may be made to carry out the primary or inalienable functions
of the State. Criminal Procedure Code is one such law. A search or seizure
effected under such law could be taken to be an exercise of power which
may be in domain of inalienable function. Whether the authority to whom
this power is delegated is liable for negligence in discharge of duties ~hile D
performing such functions is a different matter. But when similar powers
are conferred under other statute as incidental or ancillary power to carry
out the purpose and objective of the Act, then it being an exercise of such
State function which is not primary or inalienable, an officer acting
negligently is liable personally and the State vicariously. Maintenance of E
law and order or repression of crime may be inalienable function, for
proper exercise of which the State may enact a law and may delegate its
functions, the violation of which may not be sueable in torts, unless it·
trenches into and encroaches on the fundamental rights of life and liberty
guaranteed by the Constitution. But that principle would not be attracted
where similar powers are conferred on officers who exercise statutory
F
powers which are otherwise than sovereign powers as understood in the
modern sense. The Act deals with persons· indulging in hoarding and black
marketing. Any power for regulating and controlling the essential com-
modities and the delegation of power to authorised officers to inspect,
search and seize the property for carrying out the object of the State .cannot G
be a power for negligent exercise of which the State can claim immunity.
No constitutional system can, either on State necessity or public policy,
condone negligent functioning of the State or its officers. The rule was
succinctly stated by Lord Blackburn in Geddis v. Proprietors of Bonn
Reservoir, (1878) 3 App. Cases p. 430 at p. 435 : H
182 SUPREME COURT REPORTS £1994) SUPP. 3 S.C.R.

A "No action will lie for doing that which the Legislature has
authorised, if it be done without negligence, although it does
occasion damage to any one; but an action does lie for doing that
which the legislature has authorised if it be done negligently."

Matter may be examined from yet another angle. Article 300 of the
B Constitution of India is extracted below :

"Art. 300. Suits and proceedings - (1) The Government of India
may sue or be sued by the name of the Union of India and the
Government of a State may sue or be sued by the name of the
c State and may, subject to any provisions which may be made by
Act of Parliament or of the Legislature of such State enacted by
virture of powers conferred by this Constitution, sue or be sued in
relation to their respective affairs in the like cases as the Dominion
of India and the corresponding Provinces or the corresponding
Indian States might have sued or been sued if this Constitution has
D not been enacted.

(2) If at the commencement of this Constitution-

(a) any legal proceedings are pending to which the Dominion of
India is a party, the Union of India shall be deemed to be
E . substituted for the Dominion in those proceedings; and

(b) any legal proceedings are pending to which a Province or an
Indian State is a party, the corresponding State shall be
deemed to be substituted for the Province or the Indian State
F in those proceedings."

In Vidhyavati (supra) it was held that this Article consisted of three parts:

(1) that the State may sue or be sued by the name of the State;

(2) that the State may sue or be sued in relation to its affairs in
G like cases as the corresponding Provinces or the correspond-
ing Itidian States might have sued or been sued if this Con-
stitution had not been enacted; and

(3) that the second part is subject to any provisions which may
H be made by an Act of the Legislature of the State concerned,
N. NAGEND RA RAO v. STAIB [SAHA!, J.] 183

in due exercise of its legislative functions, in pursuance of A
powers conferred by the Constitution.

In Vidhyawati (supra) and Kasturi Lal (supra) it was held that since no law
had been framed by the Legislature, the liability of the State to compensate
for negligence of officers was to be decided on general principle. In other B
words, if a competent Legislature enacts a law for compensation or damage
for any act done by it or its officers in discharge of their statutory duty then
a suit for it would be maintainable. It has been explained earlier that the
Act itself provides for return of the goods if they are not confiscated for
any reason. And if the goods cannot be returned for any reason then the
owner is entitled for value of the goods with interest. C

In this case after conclusion of proceedings the authorities intimated
the appellant to take the goods as they having not been confiscated, he was
entitled for return of it. The appellant in response to the intimation went
there but it refused to take delivery of it is, according to it, the commodity D
had deteriorated both in quality and quantity. This claim has been accepted
by the lower courts. What was seized by the authority was an essential
commodity within the meaning of clause (d) of sub-section (2). What the
law requires under sub-section (2) of Section 60 to be returned is also the
essential commodity. Any commodity continues to be so, so long as it E
retains its characteristic of being useful and servicable. If the commodity
ce.ased to be of any use or is rendered waste d~- to its d_eterioration or
rusting, it ceases to be commodity much less essential commodity. There-
fore, if the commodity of the appellant which was seized became useless
due to negligence of the officers it ceased to be an essential commodity
and the appellant was well within its rights to claim that since it was not F
possible for the authorities to return the essential commodity seized by
them, it was entitled to be paid the price thereof as if the essential
commodity had been sold to the Government. The fictio~ ·of sale which is
incorporated in sub-section (2) is to protect the interest of the owner of
the goods. It has to be construed liberally.and in favour of the owner. The G
respondents were thus liable to pay the price of the fertiliser with interest,
as directed by he trial court.

In State of Gujarat v. Memon Mahomed Haji Masam, AIR (1967) SC
1885, where the confiscation by the Customs authorities was set aside in H
184 SUPREME COURT REPORTS [1994] SUPP. 3 S.C.R.

A appeal and the goods were directed to be returned with order could not ·
be complied as the goods had been disposed of under order of a Magistrate
passed under Section 523 of Crimir,_.~ Procedure Code, it was held by this
Court that the suit for recovery 01 the goods or value thereof was main-
tainable and it was held : ·

B
"On the facts of the present case, the State Government no doubt
seized the said vehicles pursuant to the power under the Customs
Act. But the power to seize and confiscate was dependent upon a
customs offence having been committed or a suspicion that such
offence had been committed. The order of the Customs officer was
c not final as it was subject to an appeal and if the appellate authority
found that there was no good ground for the exercise of that power,
the property could no longer be retained and had under the Act
to be returned to the owner. That being the position and the
property being liable to be returned there was not only a statutory
D obligation to return but until the order of confiscation became final
an implied obligation to preserve the property intact and for that
purpose to take such care of it as a reasonable person in like
circumstances is expected to take. Just as a finder of property has
to return it when its owner is found and demands it, so the State
Government was bound to return the said vehicles once it was
E found that the seizure and confiscation were not sustainable. There
being thus a legal obligation to preserve the property intact ~d
also the obligation to take reasonable care of it so as to enable the
Government to return it in the -same condition in which it was
seized, the position of the State Government until the order be-
F came final would be that of a bailee. If that is the correct position
once the Revenue Tribunal set aside the order of the Customs
officer and the Government became liable to return the goods the
owner had the right either to demand the property seized or its
value, if, in the meantime the State Government had precluded
itself from returning the property either by its own act or that of
G its agents or servants. This was precisely the cause of action on
which the respondent's suit was grounded. The fact that an order
for its disposal was passed by a Magistrate would not in any way
interfere with or wipe away the right of the owner to demand the
return of the property or the obligation of the Government to
H return it."
N.NAGENDRARAOv.STATE[SAIW,J.) 185

Similarly, in Smt. Basava Kom Dyamogouda Patil v. State of Mysore A
& Anr., AIR 1977 SC 1749, the question arose regarding powers of the
Court in indemnifying the owner of the property which is destroyed or lost
whilst in the custody of the Court. The goods were seized from the
possession of the accused. They were placed in the custody of the Court.
When the appeal of the accused was allowed and the goods were directed B
to be returned it was found that they had been lost. The Court, in the
circumstances, held :-

"It is common ground that these articles belonged to the com-
plainant/appellant and had been stolen from her house. It is,
therefore, clear that the articles were the subject-matter of an C
offence. This fact, therefore, is sufficient to clothe the Magistrate
with the power to pass an order for return of the property. Where
the property is stolen, lost or destroyed and there is no prima f acie
defence made out that the State or its officers had taken due care
and caution to protect the property, the Magistrate may, in an D
appropriate case, where the ends of justice so require, order
payment of the value of the property. We do not agree with the
view of the High Court that once the articles are not available with
the Court, the Court has no power to do anything in the matter
and is utterly helpless."
E
Therefore, where the goods confiscated or seized are required to be
returned either under orders of the Court or because of the provision in
the Act, this Court has not countenanced the objection that the goods
having been lost or destroyed the own<!r of the goo'ds had no remedy in
private law and the Court was not empowered to pass an order or grant p
decree for payment of the value of goods. Public policy requires the court
to exercise the power in private law 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 of for which suits are maintainable in civil court.
Since the seizure and confiscation of appellant's goods was not in exercise
of power which could be considered to be act of State of which no G
cognizance could be taken by the civil court, the suit of the appellant could
not be dismissed. In either view of the matter, the judgment and order of
the High Court cannot be upheld.

Before parting with this case, the Court shall be failing in its duty if H
186 SUPREME COURT REPORTS [1994) SUPP. 3 S.C.R.

A it is not brought to the attention of the appropriate authority that for in.ore
than hundred years, the law of vicarious liability of the State for negligence
of its officers has been swinging from one direction to other. Result of all
this has been uncertainty of law, multiplication of litigation, waste of money
of common man and energy and time of the courts. Federal of Torts Claims
B Act was enacted in America in 1946. Crown Proceedings Act was enacted
in England in 1947. As far back as 1956 the First Law Commission in its
Report on the liability of the State in tort, after exhaustive study of the law
and legislations in England, America, Australia and France, concluded :

"In the context of a welfare State it is necessary to establish a just
c relation between the rights of the individual and the responsibilities
of the State. While the responsibilities of the State have increased,
the increase in its activities has led to a greater impact on the
citizen. For the establishment of a just economic order industries
are nationalised. Public utilities are taken over by the State. The
State has launched huge irrigation and flood control schemes. The_
D production of electricity has practically become a Government
concern. The State has established and intends to establish big
factories and manage them. The State carries on works departmen-
tally. The doctrine of laizzez faire - which leaves every one to look
after himself to his best advantage has yielded place to the ideal
E of a welfare State - which implies that the State takes care of those
who are unable to help themselves."

The Commission after referring to various· provisions in the Legislation of
other countries observed :

F "The old distinction between sovereign and non-sovereign func-
tions or governmental and non-governmental functions should no
longer be invoked to determine the liability of the State. As
Professor Friendman observes :

'It is now increasingly necessary to abandon the lingering
G fiction of a legally indivisible State, and of a feudal concep-
tion of the Crown, and to substitute for it the principle of
legal liability where the State, either directly or through in-
corporated public authorities engages in activities of a com-
mercial, industrial or managerial character. The proper test
H is not an impracticable distinction between governmental and
N. NAGENDRARAOv. STATE [SARAI, J.] 187

non-governmental functions, but the nature and form of the A
activity in question.n

Yet unfortunately the law has not seen the light of the day even though in
wake of Kasturi Lal (supra), "Govt. (Liability in Tort) Bill, 1965" was
introduced but it was withdrawn and reintroduced in 1967 with certain
modifications suggested in it by the Joint Committee of the Parliament but . B
it lapsed. And the citizens of the independent nation who are governed by
its own people and Constitution and not by the Crown C:II'e still faced, even
after well-nigh fifty years of independence, when they approach the court
of law for redress against negligence of officers of the State in private law,
with the question whether the East India Company would have been liable C
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 misgiv-
ings, therefore, cannot be doubted.

F01; these reasons, the appeal succeeds and is allowed. The judgment D
and order of the High Court is set aside and that of the trial court
decreeing the suit of the appellant is restored with costs.

U.R. Appeal allowed.