Case Law Companies Act Prem Chand Jain and Anr Vs R. K. Chhabra

Case Law Companies Act

Prem Chand Jain and Anr Vs R. K. Chhabra




CITATION: 1984 AIR  981 1984 SCR  (2) 883 1984 SCC  (2) 302  1984 SCALE  (1)279 CITATOR INFO : R 1987 SC2034  (24)


ACT: University Grants Commission Act,  1956  (Act  III  of 1956) Sections  2 (f),  22 and  23, Scope of-Right to confer degree and Right to have the word “University” associated to the name  of an  institution-Whether the words “established” or “incorporated”  in section 2 (b), 22 and 23 also included a university registered under the Companies Act of 1913?

HEADNOTE: Section 2 (f) of  the University  Commission Act, 1956 defines “a University” to mean: “a University established or incorporated by or under a Central Act, a Provincial Act, or a State  Act, and  includes any  such institution, as may in consultation with the University concerned, be recognised by the Commission  in accordance  with the  regulations made in this behalf  under this  Act”. Section  22 which empower the right to  confer degrees  and Section  23 which  imposes the prohibition for  use of  the word “University” also provides that way.  Penalties  for  contravening  the  provisions  of sections 22  and 23 are provided under section 24 of the Act but the proviso to section 23 exempts any institution having a  suffix


“University”  before  the  commencement  of  the University Grants  Commission Act, for a period of two years only to  enable it  to  take  appropriate  steps  under  the University Grants Commission Act. Commercial University  which was  registered under the companies Act  of 1913  and before  the coming into force of the University  Commission Grants  Act, 1956  and was  doing useful service  to the  students community  did not take any steps as  required under the new Act even after the lapse of the two  years, and  therefore, the  appellant  came  to  be prosecuted for  the offences  under sections  22 and 23. The appellants having  lost their  case including  in  the  High Court have come up in appeal by way of special leave. Allowing the  appeal in  part  and       setting  aside  the convictions and sentence of fine, the Court 884 ^ HELD 1: 1 The University  Grants Commission  Act,       1956 did not  intend to  admit a  company incorporated  under the Companies Act  into the  definition of  a “University” under section 2  (f) or  for the  purposes of  Section 23. Several institutions  staying   themselves  as   `universities’  had started awarding degrees and diplomas which had no basis and could not  be accepted.  Keeping in  view the mischief which was sought  to be  eradicated and  the  consideration  which weighed with  Parliament to introduce the prohibition in the Act, the  Act recognises only those institutions established or  incorporated   under  special   statutes  of   sovereign legislatures. [890D-E] 1:2

The definition of university and the provisions in S.23 of  the Act refer to Acts of the Central, Provincial or the State legislatures by which one or more universities are established  or   incorporated  and   not  to   institutions incorporated  under   a  general   statute   providing   for incorporation. The  words  “established”  or  “incorporated” referred to  Act under which universities are established or incorporated. Several universities in this country have been either established  or incorporated  under special statutes, such  as   the  Delhi  University  Act,  the  Banaras  Hindu University Act,  the Allahabad  University Act etc. In these cases, there  is a  special Act either of the Central or the Provincial  or   the  State  legislatures  establishing  and incorporating the  particular universities.  There  is  also another pattern-where  under one  compoundious  Act  several universities  ere  either  established  or  incorporated-for instance, the Madhya Pradesh Universities Act 1973. [889G-E; F] 1:3  Commercial University Ltd. when incorporated under the Companies Act, therefore, did not satisfy the definition as also the provisions of section 23 of Act consequently the prosecution under section 23 was valid. [889H] Attorney General  v. H.R.H. Augushtis [1957] 1 All E.R. 49 (HL); Bhagwan Prasad v. Secretary of State; AIR 1940 P.C. 82, quoted with approval. 2:1  The definition  of University       given in  section 2 (f) or  the prohibition  in section  23 of  the Act  are not ultra  vires   the  Parliament   on  the  ground  that  such provisions are beyond its legislative competence. [891F] 2:2  `Education including       universities’  was  a  State subject until  by the  42nd Amendment of the Constitution in 1976, that  entry was  omitted from  the State list and, was taken into  entry 25  of the Concurrent list. The University Grants  Commissions   Act  essentially   intended  to   make provisions  for   the  coordination   and  determination  of standards in  universities and  that,  is  squarely  covered under entry  66 of  list I.

While legislating for a purpose germane  to   the  subject   covered  by   that  entry   and establishing  a  University  Grants  Commission,  Parliament considered  it   necessary,  as  a  regulatory  measure,  to prohibit unauthorised  conferment of degrees and diplomas as also use  of the  word `university’ by institution which had not been  either  established  or  incorporated  by  special legisla- 885 ation. In  doing so  the Parliament  did not  entrench  upon legislative power reserved for the State legislature. [890E- G] 2:3. The  legal   position       is  well-settled  that  the entries incorporated  in the  lists covered  by Schedule VII are not  powers of  legislation but `fields’ of legislation. Such entries  are mere  legislative  heads  and  are  of  an enabling character.  The language  of the  entries should be given the  widest scope  or amplitude. Each general word has been asked  to be  extended to  all ancillary  or subsidiary matters which  can fairly and reasonably be comprehended. An entry confers  powers upon  the legislature to legislate for matters ancillary  or incidental,  including  provision  for avoiding the  law. As  long as the legislation is within the permissible field in pith and substance, objection would not be entertained  merely on  the ground  that  while  enacting legislation, provision  has been  made for  a  matter  which though  germane   for  the   purpose  for   which  competent legislation is  made it  covers an  aspect beyond  it. If an enactment substantially  falls within  the powers  expressly conferred by  the Constitution upon the legislature enacting it, it  cannot be  held to  be  invalid  merely  because  it incidentally  encroaches  on  matters  assigned  to  another legislature. [891A-E] Harakchand v. Union of India, [1970] 1 S.C.R. 479 at p. 489;  State   of  Bihar  v.  Kameswar,  [1952]  S.C.R.  889; Navinchandra v.  C.I.T. [1955] 2 S.C.R. 829 at p. 836; State of Madras  v. Cannon Dunkerley, [1959] S.C.R. 379 at p. 391;

The Check Post Officer & Others v. K.P. Abdulla Bros. [1971] 2 S.C.R. 817; State  of Karnataka  v. Ranganatha,  [1978] 1 S.C.R. 641  at p. 661; KSE Board v. Indian Aluminium, [1976] 1 S.C.R.  552; Subramanyam  Chettiar v.  Muthuswami,[1945] F.C.R. 179;  Prafulla Kumar  Mukherjee &  Others v.  Bank of Commerce, [1947]  F.C.R. 28;  Ganga Sagar Co. v. U.P. State, [1960] S.C.R. 769 at p. 782. 3. The observations  in Azeez Pasha & Anr v. Union of India [1968]  I.S.C.R. 833 were with reference to the rights of the  minority community  to  establish  a  university  in exercise of  its right  guaranteed  under  Art.  30  of  the Constitution.  Admittedly.   CUL  is   not  an   institution belonging  to   any  minority  community.  It  will  not  be appropriate either to allow arguments based on what has been observed with  reference to  an institution belonging to the minority community  or to  examine the vires of the Act with reference to  what does  not arise  for consideration in the appeals. [892A-B] 4. Though the proviso to s. 23 had specified a period of two  years within  which the  word `university’ had to be omitted by the institution not entitled to its use yet there is scope  for the submission that being incorporated under a Central Act,  the people connected with CUL worked under the bona fide  impression that  such incorporation satisfied the requirements  of   the  Act.   In  such  circumstances,  the conviction of the appellant must be set aside. [892D-E]


JUDGMENT: CRIMINAL APPELLATE JURISDICTION : Criminal Appeal Nos. 253-254 of 1972. From the  Judgment and  Order  dated  the 6th  day  of January, 886 1972 or  the Delhi  High Court in Criminal Appeal Nos. 103 & 104 of 71. Shanti Bhushan,  R.K. Garg,  Shiv Dayal  and S.K. Bagga for the Appellants. Hharbans Lal,  R. N. Poddar, Ms. Halda Khatun and C. V. Subba Rao for the Respondent. The Judgment of the Court was delivered by RANGANATH MISRA,  J. Both these appeals are by Special leave and  challenge is  to the  conviction and  sentence of fine imposed  under Section  24  of  the  University  Grants Commission Act,  1956 (III of 1956) (`Act’ for short) by the learned Additional  Sessions Judge  and upheld  by the Delhi High Court in appeal. Commercial       University  Limited  (CUL  for  short)  was incorporated under  the Companies  Act, 1913  (VII of  1913) with objects,  inter alia,  to promote commercial education, encourage  and   impart  commercial   education  by  opening institutes, colleges  and schools and provide, prescribe and maintain various  standards of  studies and  examinations in the study  of commercial  subjects and to ascertain by means of examinations and/or otherwise the persons who acquire the prescribed standards  and to  confer  on  such  persons  any academic diplomas, degrees, etc.

It has a Board of Governors and the Registrar of the University is one of the Ex-Officio Governors. This  institution claims  to  have  expanded  its activities and  regular  convocations  have  been  held  for awarding degrees  and diplomas.  The Act  came into force in 1956 and  for the first time provided restrictions under ss. 22 and 23 of the Act to the following effect : “S.22. the right to confer degrees- (1)  The right  of conferring    or granting degrees shall be  exercised only by a University established or incorporated by  or under a Central  Act, a Provincial Act or  a State  Act or  an institution  deemed to be a University under  section 3 or an institution specially empowered by  an Act  of Parliament  to confer or grant degrees. (2)  Save as provided in sub-section (1) no person or authority shall confer, or grant, or hold himself or itself out as entitled to confer or grant, any degree. 887 (3) For the purpose of this section, “degree means any such  degree as  may, with the previous approval of the Central  Government, be specified in this behalf by the  Commission   by  notification  in  the   official gazette.” “S.53. No institution, whether a corporate body or not,   other   than   a   University   established or incorporated by  or under a Central  Act, a Provincial Act or  a State  Act shall be entitled to have the word `University’ associated  with its  name in  any  manner whatsoever: Provided that nothing in this section shall, for a period of   two years from the commencement of this Act, apply to  an institution which, immediately before such commencement, had the word `University’ associated with its name.” Penalties for  contravening the provisions of ss.22 and 23 were  provided in  s. 24  and whoever  contravened  those provisions became punishable with fine which would extend to rupees one  thousand and  if the  person contravening was an association or  other body  of individuals,  every member of such association  or other  body who  knowingly or willingly authorised or  permitted the  contravention  was  punishable with fine which would also extend to one thousand rupees.

The appellants came to be prosecuted  for the offence under s.  24 of  the  Act  as  CUL  continued  to  bear  the description of University even after the period indicated in the proviso to s. 23 of the Act was over. Before coming  into force of the  Act,  there  was  no legislation in India which prohibited any individual on body from establishing  a university and such university was free to  confer  degrees  and  diplomas.  Section  22  prohibited privately established  universities from  conferring degrees and restricted  such conferment  to universities established by Acts  passed  by  State  legislatures  or  Parliament  or institutions which  were deemed  to be  universities in  the manner provided  by the  Act. Similarly, before the Act came into force  there was no law which restricted the use of the word  `University’   and  all   institutions  were  free  to associate this  word with their names if they liked. Section 23, however,  imposed the  restriction in  absolute term and the proviso  allowed a  period of  two  years  within  which adjustments to the new situation brought about by law had to be made. 888 Originally there were five accused persons. One of them died and in respect of another the prosecution was withdrawn as he  resigned from  CUL. The prosecution continued against the remaining  three-Shri P.C.  Jain and  Smt. Sushila Sohni who are  appellants in  Criminal Appeal  No. 253 of 1972 and Shri L.N.  Mehra who  is appellant in the connected criminal appeal. Mr.  Shanti   Bhushan  appearing  for  the  appellants anvanced four  contentions:-(I) CUL  had  been  incorporated under the  Companies Act  of 1913  and is  deemed  to  be  a company  under   s.  3  of  the  Companies  Act,  1956,  the prosecution was misconceived as the prohibition in s. 23 was not attracted.  (II) The  restriction imposed under s. 23 of the Act  was ultra  vires because  entry 11  which  read  as “Education  including   universities”  was  in  list  II  of Schedule VII of the Constitution and was a State subject but the Act in question was passed by Parliament. The long title of the  Act reads  as “an  Act to  make  provision  for  the coordination and  determination of standards in universities and for  that purpose,  to  establish  a  University  Grants Commission” and  is covered  by entry  66 of  list I  of the Seventh Schedule.

The restriction provided by s. 23 as such does not  appear to be a matter squarely within the ambit of the entry  and therefore such a provision is ultra vires the Constitution. (III)  This Court observed in S. Azeez Basha & Anr. v. Union of India(1) as per Wanchoo, C. J.: “……we  should  like  to  say  that  the  words `educational institutions’ are of very wide import and would include  a university also. This was not disputed on behalf of the Union of India and therefore it may be accepted that  a religious  minority had  the right  to establish a  university under Art. 30 (1). The position with  respect  to       the  establishment  of  Universities before the  Constitution came  into force  in 1950  was this. There  was no  law in  India which prohibited any private   individual   or body  to  establish a university………Thus, in  law in  India there was no prohibition against  establishment of  universities  by private individuals or bodies and if any university was so established it must of necessity be granting degrees before it could be called a university. But though such a university  might be  granting  degrees       it  did  not follow that  the Government of the country was bound to recognise those degrees…………” 889 It was  urged by  Mr. Shanti Bhushan that since Art. 30 guaranteed the  right  to  establish  a  university  to  the minority communities,  the restrictions  imposed by  the Act would not  be operative  and to  that extent  the  provision would be  ultra vires  the Constitution;

(IV) All the three accused appellants  had severed  their connection  with CUL- Smt. Sohni resigned in August, 1962; Shri Mehra in December, 1965; and  Shri Jain  in 1970. On the same analogy which led to withdrawal  of the  prosecution against Shri Anand Singh, the present prosecution should not have been pursued against the appellants. The word  `university’ has been defined in s. 2 (f) of the Act  to mean:  “a University established or incorporated by or  under a Central Act, a Provincial Act or a State Act, and includes  any such  institution as  may, in consultation with  the   University  concerned,   be  recognised  by  the commission in  accordance with  the regulations made in this behalf under  this Act”.  Section 23 of the Act imposing the prohibition for  use of  the word `University’ also provides that way. Undoubtedly under the Companies Act when a company is  duly   registered,  it   gets  incorporated   and   such incorporation brings  into existence  an  independent  legal entity different from the share-holders constituting it. Yet we are  not prepared  to agree  with Mr. Shanti Bhushan that the Act  intended to  admit a company incorporated under the Companies Act  into the  definition or for the purpose of s. 23. The  word “established”  or “incorporated”  referred  to Acts   under   which   universities   are   established   or incorporated Several  universities in this country have been either established  or incorporated  under special statutes, such  as   the  Delhi  University  Act,  the  Banaras  Hindu University Act,  the Allahabad  University Act etc.

In these cases, there  is a  special Act either of the Central or the Provincial  or   the  State  legislatures  establishing  and incorporating the  particular universities.  There  is  also another pattern-where  under  one  compendious  Act  several universities are  either  established  or  incorporated  for instance, the  Madhya Pradesh  Universities Act,  1973.  The definition of  university and provisions in s. 23 of the Act refer to  Acts of  the  Central,  Provincial  or  the  State legislatures  by   which  one   or  more   universities  are established  or   incorporated  and   not  to   institutions incorporated  under   a   general   statue   providing   for incorporation. We do not accept the contention of Mr. Shanti Bhushan that  CUL when  incorporated under the Companies Act satisfied the  definition as also the provisions of s. 23 of Act and, therefore, there could 890 be no  prosecution. We  agree with  the observation  of Lord Somervell to the effect: “The    mischief   against  which   the  statute  is directed and,  perhaps though  to an  undefined extent, the surrounding circumstances can be considered”, “In ascertaining the true legislative intention. (A. G. v. H.  R. H. Augustus(1). Lord Porter also spoke to the same effect while speaking for the Board in the following words: “A right  construction of  the  Act  can  only  be attained if its whole scope and object together with an analysis of  its working and the circumstances in which it is enacted are taken into consideration.” Bhagawan  Prasad  v.  Secretary  of  State(2).

Several institutions  styling   themselves  as   `universities’  had started awarding degrees and diplomas which had no basis and could not  be accepted.  Keeping in  view the mischief which was sought  to be  eradicated and  the  consideration  which weighed with  Parliament to introduce the prohibition in the Act, it  must be  held that  the Act  recognises only  those institutions  established   or  incorporated  under  special statutes of sovereign legislatures. `Education including  universities’ was a State subject until by  the 42nd  Amendment of  the Constitution  in 1976, that entry  was omitted  from the  State list and, was taken into entry 25 of the concurrent list. But as already pointed out the  Act essentially intended to make provisions for the coordination and  determination of standards in universities and that,  as already  indicated, is  squarely covered under entry 66  of list I. While legislating for a purpose germane to the  subject covered  by that  entry and  establishing  a University  Grants   Commission,  Parliament  considered  it necessary, as a regulatory measure, to prohibit unauthorised conferment of  degrees and  diplomas as also use of the word `university’  by  institution  which  had  not  been  either established or  incorporated by  special legislation. We are not inclined to agree with the submission advanced on behalf of the  appellants that  in doing  so Parliament  entrenched upon legislative  power reserved  for the State legislature. The legal position is well- 891 settled that  the entries  incorporated in the lists covered by Schedule  VII are  not powers of legislation but `fields’ of legislation. Harakchand v. Union of India(1). In State of Bihar v.  Kameswar(2) this  Court has  indicated  that  such entries are  mere legislative  heads and  are of an enabling character. This  Court, has  clearly ruled that the language of  the   entries  should  be  given  the  widest  scope  or amplitude.. Navinchandra v. C.I.T. (3) Each general word has been asked  to be  extended to  all ancillary  or subsidiary matters which can fairly and reasonably be comprehended. See State of  Madras v.  Gannon Dunkerley(4).

It has  also been held by  this Court in The Check Post Officer and Others. v. K.P. Abdulla  Bros(5) that  an entry  confers power upon the legislature  to   legislate   for   matters   ancillary   or incidental, including  provision for  avoiding the  law.  As long as  the legislation  is within the permissible field in pith and  substance,  objection  would  not  be  entertained merely  on  the  ground  that  while  enacting  legislation, provision has  been made  for a  matter which though germane for the  purpose for  which competent legislation is made it covers an  aspect beyond  it. In  a series of decisions this Court has  opined that  if an  enactment substantially falls within the  powers expressly  conferred by  the Constitution upon the  legislature enacting  it, it  cannot be held to be invalid merely because it incidentally encroaches on matters assigned to  another legislature.  See State of Karnataka v. Ranganatha  (6);   KSE  Board   v.  India   Aluminium   (7); Subramanyam  Chettiar   v.  Mutuswami  (8);  Prafulla  Kumar Mukherjee &  Other v.  Bank of Commerce (9); Ganga Sugar Co. v. U.P.  State  (10).  We,  therefore,  do  not  accept  the submission that  the definition  of university given in s. 2 (f) or  the prohibition  in s. 23 of the Act are ultra vires the Parliament on the ground that such provisions are beyond its legislative competence. 892 In the  decision of  this Court  in the  case of  Azeez Basha, the  observations relied  upon were with reference to the  rights   of  the  minority  community  to  establish  a university in exercise of its right guaranteed under Art. 30 of the  Constitution. Admittedly,  CUL is not an institution belonging to  any minority  community. We do not think it is appropriate to  allow arguments to be canvassed in this case on the  basis of what had been observed with reference to an institution belonging  to the  minority community. Nor is it appropriate that  the vires  of the  Act should  be examined with reference  to what  does not arise for consideration in the appeals before us.

There is no dispute that prosecution against Shri Anand Singh was  withdrawn as  he had  resigned from CUL after the case was  launched. The claim of Mr. Shanti Bhushan that the three accused  persons have resigned between 1962 to 1970 as already indicated  has not been disputed. Though the proviso to s.  23 had  specified a  period of two years within which the word  `university’ had  to be omitted by the institution not entitled  to  its  use,  yet  there  is  scope  for  the submission of  Mr. Shanti  Bhushan that  being  incorporated under a  Central Act,  the people  connected with CUL worked under the  bona  fide  impression  that  such  incorporation satisfied   the   requirements   of   the   Act.   In   such circumstances,  we   think  it  appropriate  to  accept  the submission advanced on behalf of the appellants to a limited extent and allow the appeals and set aside the conviction of the appellants under s. 24 of the Act. They are acquitted of the offence and fines if already realised be refunded. Before we part with the matter, we think it appropriate to deal with another aspect. Under s. 3 of the Act provision has been  made that the Central Government may on the advice of the  Commission declare  by notification  in the official gazette any  institution for  higher education  other than a university to  be deemed to be a university for the purposes of the  Act and  when such  declaration  is  made,  all  the provisions of  the Act would apply to such an institution as if it were a university within the definition of the term in s. 2  (f).

CUL  may  make  an  application  to  the  Central Government for  such recognition  and on  the advice  of the University Grants  Commission, the Central Government should dispose of  the same  in accordance  with law.  We have been told  that   the   institution   has   been   working   very satisfactorily and  has, to  its credit,  a long  history of service in the field of 893 education. We  are hopeful  that  taking  all  aspects  into consideration  both  the  Commission  as  also  the  Central Government would  consider the request of the institution to be recognised  under s. 3 of the Act. If it is so recognised the institution  would be able to confer degrees as provided in s. 22 of the Act. It is  for the  Central  Government  next to  consider whether an  institution covered by s. 3 of the Act would not satisfy the  provision of  s. 23  of the  Act and  if in the opinion of the Central Government such an institution is not covered, whether  an appropriate  amendment to  s. 23 should not be  made so  as to exclude recognised institutions under s. 3  of the Act from the field of prohibition covered by s. 23 of  the Act.  CUL should  make the application within one month from now and the Central Government should examine the matter appropriately  and pass  proper orders  or directions within six  months thereafter.  At any  rate the institution should have  reasonable time-until  end of 1984-to take such appropriate steps  as it  may be  advised, to  avoid further Prosecution under the Act. S.R.

Appeal partly allowed. 894

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