Page 1 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 4458-4459 OF 2015

(ARISING OUT OF SLP (C) NOS. 37108-37109 OF 2012)

M/S. DHARAMPAL SATYAPAL LTD. .....APPELLANT(S)

VERSUS

DEPUTY COMMISSIONER OF CENTRAL

EXCISE, GAUHATI & ORS.

.....RESPONDENT(S)

J U D G M E N T

A.K. SIKRI, J.

Leave granted.

2)Union of India, vide Memorandum dated December 24, 1997,

unveiled a new industrial policy for the North-Eastern region. In

the said policy, in order to give stimulation to the development of

industrial infrastructure in the North-Eastern region, the said

region was made tax free zone for a period of ten years giving

incentives to those who wanted to establish industries in that

region. Pursuant thereto, the Notification dated July 08, 1999 was

issued granting new industrial units that had commercial

production on or after December 24, 1997 and certain types of

industrial units that increased their installed capacity after that

Civil Appeal Nos. 4458-4459 of 2015 Page 1 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 2 date, exemption on goods cleared from units located in growth

centres and integrated infrastructure centres.

3)The aforesaid Notification was issued under the provision of

Central Excise Act, 1944 as well as Additional Duties of Excise

(Goods of Special Importance) Act, 1957 and Additional Duties of

Excise (Textiles and Textile Articles) Act, 1978. However, on

December 31, 1999, another Notification was issued whereby

exemption of central excise was withdrawn in respect of goods

falling under Chapter 21.06 (pan masala) and Chapter 24

(tobacco and tobacco substitutes, including cigarettes, chewing

tobacco etc.).

4)This withdrawal Notification was challenged by the appellant by

filing the writ petition in the High Court of Gauhati. The learned

Single Judge dismissed the writ petition. However, appeal

preferred by the appellant was allowed by the Division Bench vide

judgment dated December 03, 2012. In nutshell, the High Court

held that the principal of Promissory Estoppel shall apply and

once a promise was given by the Union of India assuring that no

such duty would be charged for a period of ten years, it was not

open for the Union of India to withdraw the same. Challenging

that judgment, Union of India filed petitions for special leave.

Civil Appeal Nos. 4458-4459 of 2015 Page 2 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 3 Leave was granted and the petitions were registered as Civil

Appeal Nos. 8841-8844 of 2003.

5)After the filing of the aforesaid appeals, certain subsequent

events took place. It so happened that vide Section 154 of the

Finance Act, 2003 (hereinafter referred to as the 'Act of 2003'),

withdrawal of the benefit was effected from retrospective effect.

Effect thereof was to withdraw the benefit given under the

Notification issued earlier. Validity of Section 154 was questioned

and the issue was considered by this Court in R.C. Tobacco

Private Ltd. & Anr. v. Union of India & Anr.

1

This Court upheld

the constitutional validity of the aforesaid provision and repelled

the challenge so laid. The effect was to disentitle the appellant

and other similarly situated from getting any such benefit by virtue

of Section 154 of the Act of 2003 and knocking down the basis of

the judgment of the High Court, which lost its validity on the

aforesaid ground.

6)So far so good. The grievance of the appellant and other similarly

situated industries for not extending the benefit of Notification

dated July 08, 1999 is buried down. However, after notifying

Section 154 of the Act of 2003, which had nullified the effect of

1

(2005) 7 SCC 725

Civil Appeal Nos. 4458-4459 of 2015 Page 3 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 4 Notification No. 32 of 1999 retrospectively thereby annulling the

effect thereof altogether, respondent No.1 herein passed recovery

order dated June 03, 2003 for recovery of a sum of ₹2,93,43,244

(rupees two crores ninety three lakhs forty three thousand two

hundred and forty four only) from the appellant, which was the

benefit that had been drawn by the appellant for the period

November 1999 till February 2001 in terms of the Notification No.

32 of 1999. By another order dated June 06, 2003 issued by

respondent No.1, the appellant was directed to pay the excise

duty for the said period for which the benefit had been availed.

He also rejected the pending claim of refund for the period from

March 2001 till May 31, 2003. These recovery orders were

challenged by the appellant by filing appeal before the

Commissioner (Appeals). Along with the appeal, the appellant

also filed an application for interim order seeking stay against the

pre-deposit. On this application, orders dated March 31, 2004

were passed by the Commissioner (Appeals) directing the

appellant to deposit entire duty amount within a period of thirty

days. This order of pre-deposit was challenged by the appellant

by filing four writ petitions in the High Court of Gauhati. The

learned Single Judge of the High Court, however, dismissed these

writ petitions vide orders dated May 18, 2004. The appellant

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(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 5 carried this issue of pre-deposit to a higher forum in the form of

writ appeals before the Division Bench of the said Court. Interim

orders dated June 11, 2004 were passed in the writ appeals

directing the Commissioner (Appeals) not to dismiss the appeals

preferred by the appellant before him for non-deposit of the duty

amount. In other words, interim stay against the pre-deposit was

given. The Commissioner (Appeals) heard the appeals and

passed the orders dated June 15, 2005 deciding the appeals in

favour of the appellant. He held that issuance of show-cause

notice was mandatory before a valid recovery of demand could be

made from the appellant and, thus, remitted the matter to the

adjudicating authority. After this final order was passed by the

Commissioner (Appeals), writ appeals of the appellant before the

Division Bench were disposed of as infructuous in view of the fact

that the Commissioner (Appeals) had passed an order on merits

and, therefore, no cause survived which required further

adjudication in those appeals.

7)Insofar as the order of the Commissioner (Appeals) is concerned,

both the appellant as well as the Revenue felt aggrieved thereby.

The appellant was not satisfied with the order of remand and the

nature of relief granted even after accepting that issuance of

show-cause notice was mandatory before passing a valid

Civil Appeal Nos. 4458-4459 of 2015 Page 5 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 6 recovery of demand. The respondents were aggrieved of the

order passed on merit holding that show-cause notice was

mandatory. Therefore, both the appellant as well as the Revenue

filed appeals aggrieved against the order dated June 15, 2005

passed by the Commissioner (Appeals). The Customs Excise &

Service Tax Appellate Tribunal (for short 'CESTAT') decided these

appeals vide common order dated My 28, 2007. It reversed the

orders of the Commissioner (Appeals), which resulted in allowing

the appeal filed by the Revenue and dismissing the appeal

preferred by the appellant. A perusal of the judgment of the

CESTAT would reveal that it has primarily referred to the

judgment of this Court in R.C. Tobacco and held that the matter

stood concluded by the said judgment. The appellant challenged

the order of CESTAT by filing Central Excise Tax Reference No. 1

of 2008 before the High Court of Gauhati. This Reference was

dismissed by the High Court on December 01, 2011 on the

ground of res judicata holding that orders dated May 18, 2004

passed by the Single Judge dismissing the writ petitions of the

appellant had attained finality. The appellant preferred Review

Petition seeking review of the said order, which has also been

dismissed by the High Court on June 05, 2012. In the present

appeals, the appellant has challenged both the orders dated

Civil Appeal Nos. 4458-4459 of 2015 Page 6 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 7 December 01, 2011 passed in the Tax Reference as well as the

order dated June 05, 2012 passed in the Review Petition.

8)From the brief narration of the background facts mentioned

above, it is apparent that the frontal attack of the appellant against

the recovery orders passed by the respondents is premised on

the plea that no such recovery proceedings could be initiated

without a show-cause notice under Section 11-A of the Excise Act.

The appellant has also taken a plea in these appeals that order of

the Single Judge at pre-deposit stage could not operate as res

judicata on merits and, therefore, dismissal of the Tax Reference

by the High Court, and consequently the Review Petition, is

clearly erroneous and the High Court should have gone into the

merits of the issue decided by CESTAT.

9)As noted above, CESTAT has decided the case against the

appellant on the ground that issue now raised is covered by the

judgment of this Court in R.C. Tobacco (supra). As pointed out,

in R.C. Tobacco (supra), this Court has already upheld the

validity of Section 154 of the Act of 2003 thereby taking away the

benefit of Notification No. 32 of 1999 retrospectively insofar as

excisable goods falling under Chapter 24 are concerned.

Conscious of the position that judgment in R.C. Tobacco (supra)

Civil Appeal Nos. 4458-4459 of 2015 Page 7 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 8 stares at the face of the appellant, Mr. Soli Sorabjee, learned

senior counsel who appeared for the appellant, has also made an

endeavour to show that the said judgment in R.C. Tobacco

(supra) is in clear conflict with earlier three Judge Bench judgment

of this Court in M/s. J.K. Cotton Spinning and Weaving Mills

Ltd. v. Union of India

2

. Thus, following three issues have arisen

for consideration in these appeals:

(a) Whether order of the Single Judge at pre-deposit stage

can operate as res judicata on merits?

(b) Whether recovery proceedings can be initiated without

show-cause notice under Section 11A of the Excise Act,

which is mandatory?

(c) Whether there is a conflict between the three Judge

Bench judgment in J.K. Cotton (supra) and R.C.

Tobacco (supra)?

First issue is the basis for the judgment of the High Court.

10)For answering this issue, it would be necessary to take into

account the complete implication thereof with reference to the

nature of recovery orders passed by respondent No.1, challenge

thereto before the Commissioner (Appeals) and interim order of

pre-deposit passed by the Commissioner (Appeals) on March 31,

2004 as also the nature of challenge which was laid by the

2(1987) Supp SCC 350

Civil Appeal Nos. 4458-4459 of 2015 Page 8 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 9 appellant against the said order of pre-deposit in the writ petitions

filed in the High Court, which were dismissed by the learned

Single Judge on May 18, 2004.

11)By virtue of Notification dated July 08, 1999, the appellant was

granted refund of the duty deposited in cash up to February 2001.

After the enactment of Section 154 of the Act of 2003, recovery

order dated June 03, 2003 was passed for recovery of the

aforesaid amount which had been refunded to the appellant.

Simultaneously, another order dated June 06, 2003 was issued

asking the appellant to pay duty on the ground that such goods

were no more exempted from payment of duty. In the appeals

which were filed by the appellants before the Commissioner

(Appeals) challenging the aforesaid orders, the Commissioner

passed interim orders dated March 31, 2004 directing the

appellants to pay the amount demanded by the aforesaid orders.

This order dated March 31, 2004 of the Commissioner (Appeals)

reflects that the Commissioner went into various issues raised by

the appellant on the basis of which it was pleaded by the

appellant that it had a good case on merits and, therefore,

condition of pre-deposit be waived. Apart from the contention that

no show-cause notice was given before passing those orders, it

Civil Appeal Nos. 4458-4459 of 2015 Page 9 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 10 was even argued that by making the retrospective amendment in

the form of Section 154 of the Act of 2003, the only effect was to

validate the earlier actions but no demand of refund of any

amount could be made and no refund of the amount already paid

could be claimed. It was also argued that the matter of recovery

of amounts was pending consideration of Central Board of Excise

and Customs (CBEC) as well as in the Gauhati High Court. All

these issues were considered by the Commissioner (Appeals),

who gave his prima facie view thereupon observing that the

appellants did not have strong prima facie case on merits

resulting into the direction to deposit the entire amount within

thirty days.

12)The appellant had filed writ petitions against the aforesaid order of

the Commissioner (Appeals) with the prayer that the direction of

the Commissioner (Appeals) to deposit the entire amount within

thirty days be set aside and the prayer of pre-deposit of the

appellant be accepted. No doubt, while arguing for this relief, the

appellant had raised various contentions on the merits of the case

in its endeavour to demonstrate that it had a good case on merits.

It is also borne from the record that the learned Single Judge,

while dismissing the writ petition, dealt with these issues, which

Civil Appeal Nos. 4458-4459 of 2015 Page 10 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 11 touched upon the merits of the main issue. That is the reason

that the order dated May 18, 2004 of the learned Single Judge

dismissing the writ petition of the appellant runs into 37 pages.

Nevertheless, we find that the observations which were made by

the learned Single Judge on the issues raised were only prima

facie in nature and the prime focus of the judgment rested on the

core issue, namely, whether the direction of the Commissioner

(Appeals) directing the appellant to make deposit of the amount

as a pre-condition for hearing of the appeal was sustainable or

not. The writ petition was dismissed affirming the said order.

Therefore, any observations made by the learned Single Judge,

which were tentative in nature, could not be taken into

consideration by the Division Bench in the impugned judgment,

thereby dismissing the Reference, invoking the principle of res

judicata. The order of the learned Single Judge dismissing the

writ petition was challenged before the Division Bench and the

Division Bench passed interim orders in the writ appeals not to

dismiss the appeals preferred by the appellant for non-deposit of

the duty. In this backdrop, appeals were heard and appellant

even partly succeeded. After the order of the Commissioner

(Appeals) dated June 15, 2005 deciding the appeals partly in

favour of the appellant, the writ appeals which were pending

Civil Appeal Nos. 4458-4459 of 2015 Page 11 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 12 before the Division Bench had become infructuous and disposed

of as such without going into the merit of the order passed by the

learned Single Judge. This is yet another reason to hold that the

order of the learned Single Judge could not be treated as res

judicata.

13)Having regard to the aforesaid position, we heard the instant

appeal on merits, namely, on the issue as to whether it was

mandatory to issue show-cause notice making an order of

recovery. The Commissioner (Appeals) has held it to be

mandatory and this order of the Commissioner (Appeals) has

been set aside by the CESTAT. The Reference petition against

the order of CESTAT, though wrongly is dismissed on the ground

of res judicata, the impugned order shows that it has mentioned

that such show-cause notice was not mandatory as held by the

learned Single Judge by order dated May 18, 2004.

14)Learned senior counsel appearing for the appellant as well as

learned Attorney General agreed that in this situation this Court

may decide the aforesaid issue finally. It is for this reason that we

have heard counsel for the parties at length on this aspect of the

matter.

Civil Appeal Nos. 4458-4459 of 2015 Page 12 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 13 15)The neat submission made by Mr. Soli Sorabjee on behalf of the

appellant was that the impugned demand of the Assistant

Commissioner was in the nature of adjudication whereby the

amount demanded in the order dated June 06, 2003 was

crystallized and, therefore, there could not have been demand for

recovery of the stipulated amount without issuing notice to the

appellant and giving the appellant herein right of hearing. He also

submitted that merely because vires of Section 154 of the Act of

2003 were upheld by this Court in R.C. Tobacco (supra) could

not be a ground to dispense with the aforesaid mandatory

requirements of principles of natural justice. His further

submission was that 'no prejudice' principle adopted by the

CESTAT amounted to erroneous approach. He sought to draw a

fine distinction in this behalf by contending that the Authority

passing the order could not presume that prejudice would not be

caused to a person against whom the action is contemplated and

on that presumption dispense with the mandatory requirement of

issuance of the notice. According to him, such a doctrine could

be applied only by the courts while dealing with such issues

where it is found that the action of the Authority was violative of

principles of natural justice, the Court could still choose not to

remit the case back to the concerned Authority if it finds that it will

Civil Appeal Nos. 4458-4459 of 2015 Page 13 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 14 be a futile exercise.

16)As a pure principle of law, we find substance and force in the

aforesaid submission of Mr. Sorabjee. No doubt, the Department

was seeking to recover the amount paid by virtue of Section 154

of the Act of 2003 which was enacted retrospectively and the

constitutional validity of the said Section had already been upheld

by this Court in R.C. Tobacco (supra) at the time of issuance of

notice for recovery. Further, no doubt, the effect of the said

amendment retrospectively was to take away the benefit which

was granted earlier. However, the question is whether before

passing such an order of recovery, whether it was necessary to

comply with the requirement of show-cause notice? The

appellant wanted to contend that Section 11A of the Excise Act

was applicable, which requires this procedure to be followed.

Even if that provision is not applicable, it is fundamental that

before taking any adverse action against a person, requirement of

principles of natural justice is to be fulfilled. This Court in

Collector of Central Excise, Patna & Ors. v. I.T.C. Limited &

Anr.

3

has held that show-cause and personal hearing is

necessary before saddling an assessee with additional demand.

It is also trite that when a statute is silent, with no positive words

3(1995) 2 SCC 38

Civil Appeal Nos. 4458-4459 of 2015 Page 14 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 15 in the Act or Rules spelling out need to hear the party whose

rights or interests are likely to be affected, requirement to follow

fair procedure before taking a decision must be read into statute,

unless the statute provides otherwise.

17)What is the genesis behind this requirement? Why it is necessary

that before an adverse action is taken against a person he is to be

given notice about the proposed action and be heard in the

matter? Why is it treated as inseparable and inextricable part of

the doctrine of principles of natural justice?

18)Natural justice is an expression of English Common Law. Natural

justice is not a single theory – it is a family of views. In one sense

administering justice itself is treated as natural virtue and,

therefore, a part of natural justice. It is also called 'naturalist'

approach to the phrase 'natural justice' and is related to 'moral

naturalism'. Moral naturalism captures the essence of

commonsense morality – that good and evil, right and wrong, are

the real features of the natural world that human reason can

comprehend. In this sense, it may comprehend virtue ethics and

virtue jurisprudence in relation to justice as all these are attributes

of natural justice. We are not addressing ourselves with this

connotation of natural justice here.

Civil Appeal Nos. 4458-4459 of 2015 Page 15 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 16 19)In Common Law, the concept and doctrine of natural justice,

particularly which is made applicable in the decision making by

judicial and quasi-judicial bodies, has assumed different

connotation. It is developed with this fundamental in mind that

those whose duty is to decide, must act judicially. They must deal

with the question referred both without bias and they must given

to each of the parties to adequately present the case made. It is

perceived that the practice of aforesaid attributes in mind only

would lead to doing justice. Since these attributes are treated as

natural or fundamental, it is known as 'natural justice'. The

principles of natural justice developed over a period of time and

which is still in vogue and valid even today were: (i) rule against

bias, i.e. nemo iudex in causa sua; and (ii) opportunity of being

heard to the concerned party, i.e. audi alteram partem. These are

known as principles of natural justice. To these principles a third

principle is added, which is of recent origin. It is duty to give

reasons in support of decision, namely, passing of a 'reasoned

order'.

20)Though the aforesaid principles of natural justice are known to

have their origin in Common Law, even in India the principle is

prevalent from ancient times, which was even invoked in

Civil Appeal Nos. 4458-4459 of 2015 Page 16 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 17 Kautilya's 'Arthashastra'. This Court in the case of Mohinder

Singh Gill & Anr. v. The Chief Election Commissioner, New

Delhi & Ors.

4

explained the Indian origin of these principles in the

following words:

“Indeed, natural justice is a pervasive facet of

secular law where a spiritual touch enlivens

legislation, administration and adjudication, to

make fairness a creed of life. It has many colours

and shades, many forms and shapes and, save

where valid law excludes, it applies when people

are affected by acts of authority. It is the bone of

healthy government, recognised from earliest times

and not a mystic testament of judge-made law.

Indeed from the legendary days of Adam – and of

Kautilya's Arthashastra – the rule of law has had

this stamp of natural justice, which makes it social

justice. We need not go into these deeps for the

present except to indicate that the roots of natural

justice and its foliage are noble and not

new-fangled. Today its application must be

sustained by current legislation, case law or other

extant principle, not the hoary chords of legend and

history. Our jurisprudence has sanctioned its

prevalence even like the Anglo-American system”.

21)Aristotle, before the era of Christ, spoke of such principles calling

it as universal law. Justinian in the fifth and sixth Centuries A.D.

called it 'jura naturalia', i.e. natural law.

22)The principles have sound jurisprudential basis. Since the

function of the judicial and quasi-judicial authorities is to secure

justice with fairness, these principles provide great humanising

factor intended to invest law with fairness to secure justice and to

4(1978) 1 SCC 405 : AIR 1978 SC 851

Civil Appeal Nos. 4458-4459 of 2015 Page 17 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 18 prevent miscarriage of justice. The principles are extended even

to those who have to take administrative decision and who are not

necessarily discharging judicial or quasi-judicial functions. They

are a kind of code of fair administrative procedure. In this context,

procedure is not a matter of secondary importance as it is only by

procedural fairness shown in the decision making that decision

becomes acceptable. In its proper sense, thus, natural justice

would mean the natural sense of what is right and wrong.

23)This aspect of procedural fairness, namely, right to a fair hearing,

would mandate what is literally known as 'hearing the other side'.

Prof. D.J. Galligan

5

attempts to provide what he calls 'a general

theory of fair treatment' by exploring what it is that legal rules

requiring procedural fairness might seek to achieve. He

underlines the importance of arriving at correct decisions, which is

not possible without adopting the aforesaid procedural fairness,

by emphasizing that taking of correct decisions would

demonstrate that the system is working well. On the other hand,

if mistakes are committed leading to incorrect decisions, it would

mean that the system is not working well and the social good is to

that extent diminished. The rule of procedure is to see that the

law is applied accurately and, as a consequence, that the social

5On 'Procedural Fairness' in Birks (ed), the Frontiers of Liability (Volume One) (Oxford 1994)

Civil Appeal Nos. 4458-4459 of 2015 Page 18 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 19 good is realised. For taking this view, Galligan took support from

Bentham

6

, who wrote at length about the need to follow such

principles of natural justice in civil and criminal trials and insisted

that the said theory developed by Bentham can be transposed to

other forms of decision making as well. This jurisprudence of

advancing social good by adhering to the principles of natural

justice and arriving at correct decisions is explained by Galligan in

the following words:

“On this approach, the value of legal procedures is

judged according to their contribution to general

social goals. The object is to advance certain

social goals, whether through administrative

processes, or through the civil or criminal trial. The

law and its processes are simply instruments for

achieving some social good as determined from

time to time by the law makers of the society. Each

case is an instance in achieving the general goal,

and a mistaken decision, whether to the benefit or

the detriment of a particular person, is simply a

failure to achieve the general good in that case. At

this level of understanding, judgments of fairness

have no place, for all that matters is whether the

social good, as expressed through laws, is

effectively achieved.”

Galligan also takes the idea of fair treatment to a second

level of understanding, namely, pursuit of common good involves

the distribution of benefits and burdens, advantages and

disadvantages to individuals (or groups). According to him,

principles of justice are the subject matter of fair treatment.

6A Treatise of Judicial Evidence (London 1825)

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(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 20 However, that aspect need not be dilated.

24)Allan

7

, on the other hand, justifies the procedural fairness by

following the aforesaid principles of natural justice as rooted in

rule of law leading to good governance. He supports Galligan in

this respect and goes to the extent by saying that it is same as

ensuring dignity of individuals, in respect of whom or against

whom the decision is taken, in the following words:

“The instrumental value of procedures should not

be underestimated; the accurate application of

authoritative standards is, as Galligan clearly

explains, an important aspect of treating someone

with respect. But procedures also have intrinsic

value in acknowledging a person's right to

understand his treatment, and thereby to determine

his response as a conscientious citizen, willing to

make reasonable sacrifices for the public good. If

obedience to law ideally entails a recognition of its

morally obligatory character, there must be suitable

opportunities to test its moral credentials.

Procedures may also be though to have intrinsic

value in so far as they constitute a fair balance

between the demands of accuracy and other social

needs: where the moral harm entailed by

erroneous decisions is reasonably assessed and

fairly distributed, procedures express society's

commitment to equal concern and respect for all.”

It, thus, cannot be denied that principles of natural justice

are grounded in procedural fairness which ensures taking of

correct decision and procedural fairness is fundamentally an

instrumental good, in the sense that procedure should be

7'Procedural Fairness and the Duty of Respect', (198) 18 OJLS 497

Civil Appeal Nos. 4458-4459 of 2015 Page 20 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 21 designed to ensure accurate or appropriate outcomes. In fact,

procedural fairness is valuable in both instrumental and

non-instrumental terms.

25)It is on the aforesaid jurisprudential premise that the fundamental

principles of natural justice, including audi alteram partem, have

developed. It is for this reason that the courts have consistently

insisted that such procedural fairness has to be adhered to before

a decision is made and infraction thereof has led to the quashing

of decisions taken. In many statutes, provisions are made

ensuring that a notice is given to a person against whom an order

is likely to be passed before a decision is made, but there may be

instances where though an authority is vested with the powers to

pass such orders, which affect the liberty or property of an

individual but the statute may not contain a provision for prior

hearing. But what is important to be noted is that the applicability

of principles of natural jsutice is not dependent upon any statutory

provision. The principle has to be mandatorily applied

irrespective of the fact as to whether there is any such statutory

provision or not.

De Smith

8

captures the essence thus - “Where a statute

authorises interference with properties or other rights and is silent

8Judial Review of Administrative Action (1980), at page 161

Civil Appeal Nos. 4458-4459 of 2015 Page 21 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 22 on the question of hearing, the courts would apply rule of

universal application and founded on plainest principles of natural

justice”.

Wade

9

also emphasizes that principles of natural justice

operate as implied mandatory requirements, non-observance of

which invalidates the exercise of power. In Cooper v.

Sandworth Board of Works

10

the Court laid down that:

'...although there is no positive word in the statute requiring that

the party shall be heard, yet justice of common law would supply

the omission of Legislature”. Exhaustive commentary explaining

the varied contours of this principle can be traced to the judgment

of this Court in Managing Director, ECIL, Hyderabad & Ors. v.

B. Karunakar & Ors.

11

, wherein the Court discussed plenty of

previous case law in restating the aforesaid principle, a glimpse

whereof can be found in the following passages:

“20. The origins of the law can also be traced to

the principles of natural justice, as developed in the

following cases: In A. K. Kraipak v. Union of India,

(1969) 2 SCC 262 : (1970) 1 SCR 457, it was held

that the rules of natural justice operate in areas not

covered by any law. They do not supplant the law

of the land but supplement it. They are not

embodied rules and their aim is to secure justice or

to prevent miscarriage of justice. If that is their

purpose, there is no reason why they should not be

made applicable to administrative proceedings also

especially when it is not easy to draw the line that

9Administrative Law (1977), at page 395

10(1863) 14 GB (NS)

11(1993) 4 SCC 727

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Page 23 demarcates administrative enquiries from quasi-

judicial ones. An unjust decision in an

administrative inquiry may have a more far

reaching effect than a decision in a quasi-judicial

inquiry. It was further observed that the concept of

natural justice has undergone a great deal of

change in recent years. What particular rule of

natural justice should apply to a given case must

depend to a great extent on the facts and

circumstances of that case, the framework of the

law under which the inquiry is held and the

constitution of the tribunal or the body of persons

appointed for that purpose. Whenever a complaint

is made before a Court that some principle of

natural justice has been contravened, the Court

has to decide whether the observance of that rule

was necessary for a just decision on the facts of

that case. The rule that inquiry must be held in

good faith and without bias and not arbitrarily or

unreasonably is now included among the principles

of natural justice.

21. In Chairman, Board of Mining Examination v.

Ramjee, (1977) 2 SCC 256, the Court has

observed that natural justice is not an unruly horse,

no lurking landmine, nor a judicial cure-all. If

fairness is shown by the decision-maker to the man

proceeded against, the form, features and the

fundamentals of such essential processual

propriety being conditioned by the facts and

circumstances of each situation, no breach of

natural justice can be complained of. Unnatural

expansion of natural justice, without reference to

the administrative realities and other factors of a

given case, can be exasperating. The Courts

cannot look at law in the abstract or natural justice

as mere artifact. Nor can they fit into a rigid mould

the concept of reasonable opportunity. If the totality

of circumstances satisfies the Court that the party

visited with adverse order has not suffered from

denial of reasonable opportunity, the Court will

decline to be punctilious or fanatical as if the rules

of natural justice were sacred scriptures.

22. In Institute of Chartered Accountants of India v.

L. K. Ratna, (1986) 4 SCC 537, Charan Lal Sahu v.

Union of India, (1990) 1 SCC 613 (Bhopal Gas

Civil Appeal Nos. 4458-4459 of 2015 Page 23 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 24 Leak Disaster Case) and C. B. Gautam v. Union of

India, (1993) 1 SCC 78, the doctrine that the

principles of natural justice must be applied in the

unoccupied interstices of the statute unless there is

a clear mandate to the contrary, is reiterated.”

In his separate opinion, concurring on this fundamental

issue, Justice K. Ramaswamy echoed the aforesaid sentiments in

the following words:

“61. It is now settled law that the proceedings must

be just, fair and reasonable and negation thereof

offends Articles 14 and 21. It is well settled law that

principles of natural justice are integral part of

Article 14. No decision prejudicial to a party should

be taken without affording an opportunity or

supplying the material which is the basis for the

decision. The enquiry report constitutes fresh

material which has great persuasive force or effect

on the mind of the disciplinary authority. The supply

of the report along with the final order is like a post

mortem certificate with putrefying odour. The failure

to supply copy thereof to the delinquent would be

unfair procedure offending not only Arts. 14, 21 and

311(2) of the Constitution, but also, the principles of

natural justice.”

26)Likewise, in C.B. Gautam v. Union of India & Ors.

12

, this Court

once again held that principle of natural justice was applicable

even though it was not statutorily required. The Court took the

view that even in the absence of statutory provision to this effect,

the authority was liable to give notice to the affected parties while

purchasing their properties under Section 269-UD of the Income

Tax Act, 1961. It was further observed that the very fact that an

12(1993) 1 SCC 78

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(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 25 imputation of tax evasion arises where an order for compulsory

purchase is made and such an imputation casts a slur on the

parties to the agreement to sell leads to the conclusion that before

such an imputation can be made against the parties concerned

they must be given an opportunity to show-cause that the under

valuation in the agreement for sale was not with a view to evade

tax. It is, therefore, all the more necessary that an opportunity of

hearing is provided.

27)From the aforesaid discussion, it becomes clear that the

opportunity to provide hearing before making any decision was

considered to be a basic requirement in the Court proceeding.

Later on, this principle was applied to other quasi-judicial

authorities and other tribunals and ultimately it is now clearly laid

down that even in the administrative actions, where the decision

of the authority may result in civil consequences, a hearing before

taking a decision is necessary. It was, thus, observed in A.K.

Kraipak's case (supra) that if the purpose of rules of natural

justice is to prevent miscarriage of justice, one fails to see how

these rules should not be made available to administrative

inquiries. In the case of Maneka Gandhi v. Union of India &

Anr.

13

also the application of principle of natural justice was

13(1978) 1 SCC 248

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Page 26 extended to the administrative action of the State and its

authorities. It is, thus, clear that before taking an action, service

of notice and giving of hearing to the noticee is required. In

Maharashtra State Financial Corporation v. M/s. Suvarna

Board Mills & Anr.

14

, this aspect was explained in the following

manner:

“3. It has been contended before us by the learned

counsel for the appellant that principles of natural

justice were satisfied before taking action under

Section 29, assuming that it was necessary to do

so. Let it be seen whether it was so. It is well

settled that natural justice cannot be placed in a

straight-jacket; its rules are not embodied and they

do vary from case to case and from one

fact-situation to another. All that has to be seen is

that no adverse civil consequences are allowed to

ensue before one is put on notice that the

consequence would follow if he would not take care

of the lapse, because of which the action as made

known is contemplated. No particular form of

notice is the demand of law: All will depend on facts

and circumstances of the case.”

28)In the case of East India Commercial Company Ltd., Calcutta

& Anr. v. The Collector of Customs, Calcutta

15

, this Court held

that whether the statute provides for notice or not, it is incumbent

upon the quasi-judicial authority to issue a notice to the

concerned persons disclosing the circumstances under which

proceedings are sought to be initiated against them, failing which

the conclusion would be that principle of natural justice are

14(1994) 5 SCC 566

15AIR 1962 SC 1893

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Page 27 violated. To the same effect are the following judgments:

a) U.O.I. & Ors. v. Madhumilan Syntex Pvt. Ltd. & Anr.

16

b) Morarji Goculdas B&W Co. Ltd. & Anr. v. U.O.I. & Ors.

17

c) Metal Forgings & Anr. v. U.O.I. & Ors.

18

d) U.O.I. & Ors. v. Tata Yodogawa Ltd. & Anr.

19

29)Therefore, we are inclined to hold that there was a requirement of

issuance of show-cause notice by the Deputy Commissioner

before passing the order of recovery, irrespective of the fact

whether Section 11A of the Act is attracted in the instant case or

not.

30)But that is not the end of the matter. While the law on the

principle of audi alteram partem has progressed in the manner

mentioned above, at the same time, the Courts have also

repeatedly remarked that the principles of natural justice are very

flexible principles. They cannot be applied in any straight-jacket

formula. It all depends upon the kind of functions performed and

to the extent to which a person is likely to be affected. For this

reason, certain exceptions to the aforesaid principles have been

invoked under certain circumstances. For example, the Courts

16(1988) 3 SCC 348

17(1995) Supp 3 SCC 588

18(2003) 2 SCC 36

191988 (38) ELT 739 (SC) :: 1988 (19) ECR 569 (SC)

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Page 28 have held that it would be sufficient to allow a person to make a

representation and oral hearing may not be necessary in all

cases, though in some matters, depending upon the nature of the

case, not only full-fledged oral hearing but even

cross-examination of witnesses is treated as necessary

concomitant of the principles of natural justice. Likewise, in

service matters relating to major punishment by way of

disciplinary action, the requirement is very strict and full-fledged

opportunity is envisaged under the statutory rules as well. On the

other hand, in those cases where there is an admission of charge,

even when no such formal inquiry is held, the punishment based

on such admission is upheld. It is for this reason, in certain

circumstances, even post-decisional hearing is held to be

permissible. Further, the Courts have held that under certain

circumstances principles of natural justice may even be excluded

by reason of diverse factors like time, place, the apprehended

danger and so on.

31)We are not concerned with these aspects in the present case as

the issue relates to giving of notice before taking action. While

emphasizing that the principles of natural justice cannot be

applied in straight-jacket formula, the aforesaid instances are

Civil Appeal Nos. 4458-4459 of 2015 Page 28 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 29 given. We have highlighted the jurisprudential basis of adhering

to the principles of natural justice which are grounded on the

doctrine of procedural fairness, accuracy of outcome leading to

general social goals, etc. Nevertheless, there may be situations

wherein for some reason – perhaps because the evidence against

the individual is thought to be utterly compelling – it is felt that a

fair hearing 'would make no difference' – meaning that a hearing

would not change the ultimate conclusion reached by the

decision-maker – then no legal duty to supply a hearing arises.

Such an approach was endorsed by Lord Wilberforce in Malloch

v. Aberdeen Corporation

20

, who said that a 'breach of

procedure...cannot give (rise to) a remedy in the courts, unless

behind it there is something of substance which has been lost by

the failure. The court dos not act in vain'. Relying on these

comments, Brandon LJ opined in Cinnamond v. British Airports

Authority

21

that 'no one can complain of not being given an

opportunity to make representations if such an opportunity would

have availed him nothing'. In such situations, fair procedures

appear to serve no purpose since 'right' result can be secured

without according such treatment to the individual. In this behalf,

we need to notice one other exception which has been carved out

20(1971) 1 WLR 1578 at 1595

21(1980) 1 WLR 582 at 593

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Page 30 to the aforesaid principle by the Courts. Even if it is found by the

Court that there is a violation of principles of natural justice, the

Courts have held that it may not be necessary to strike down the

action and refer the matter back to the authorities to take fresh

decision after complying with the procedural requirement in those

cases where non-grant of hearing has not caused any prejudice

to the person against whom the action is taken. Therefore, every

violation of a facet of natural justice may not lead to the

conclusion that order passed is always null and void. The validity

of the order has to be decided on the touchstone of 'prejudice'.

The ultimate test is always the same, viz., the test of prejudice or

the test of fair hearing.

32)In Managing Director, ECIL (supra), the majority opinion, penned

down by Sawant, J., while summing up the discussion and

answering the various questions posed, had to say as under qua

the prejudice principle:

“30. Hence the incidental questions raised above

may be answered as follows:

xx xx xx

(v) The next question to be answered is what is the

effect on the order of punishment when the report

of the enquiry officer is not furnished to the

employee and what relief should be granted to him

in such cases. The answer to this question has to

be relative to the punishment awarded. When the

Civil Appeal Nos. 4458-4459 of 2015 Page 30 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 31 employee is dismissed or removed from service

and the inquiry is set aside because the report is

not furnished to him, in some cases the

non-furnishing of the report may have prejudiced

him gravely while in other cases it may have made

no difference to the ultimate punishment awarded

to him. Hence to direct reinstatement of the

employee with back-wages in all cases is to reduce

the rules of justice to a mechanical ritual. The

theory of reasonable opportunity and the principles

of natural justice have been evolved to uphold the

rule of law and to assist the individual to vindicate

his just rights. They are not incantations to be

invoked nor rites to be performed on all and sundry

occasions. Whether in fact, prejudice has been

caused to the employee or not on account of the

denial to him of the report, has to be considered on

the facts and circumstances of each case. Where,

therefore, even after the furnishing of the report, no

different consequence would have followed, it

would be a perversion of justice to permit the

employee to resume duty and to get all the

consequential benefits. It amounts to rewarding

the dishonest and the guilty and thus to stretching

the concept of justice to illogical and exasperating

limits. It amounts to an “unnatural expansion of

natural justice” which in itself is antithetical to

justice.”

33)So far so good. However, an important question posed by Mr.

Sorabjee is as to whether it is open to the authority, which has to

take a decision, to dispense with the requirement of the principles

of natural justice on the ground that affording such an opportunity

will not make any difference? To put it otherwise, can the

administrative authority dispense with the requirement of issuing

notice by itself deciding that no prejudice will be caused to the

person against whom the action is contemplated? Answer has to

Civil Appeal Nos. 4458-4459 of 2015 Page 31 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 32 be in the negative. It is not permissible for the authority to jump

over the compliance of the principles of natural justice on the

ground that even if hearing had been provided it would have

served no useful purpose. The opportunity of hearing will serve

the purpose or not has to be considered at a later stage and such

things cannot be presumed by the authority. This was so held by

the English Court way back in the year 1943 in the case of

General Medical Council v. Spackman

22

. This Court also spoke

in the same language in the case of The Board of High School

and Intermediate Education, U.P. & Ors. v. Kumari Chittra

Srivastava & Ors.

23

, as is apparent from the following words:

“8. The learned counsel for the appellant, Mr. C.B.

Aggarwal, contends that the facts are not in dispute

and it is further clear that no useful purpose would

have been served if the Board had served a show

cause notice on the petitioner. He says that in view

of these circumstances it was not necessary for the

Board to have issued a show cause notice. We are

unable to accept this contention. Whether a duty

arises in a particular case to issue a show cause

notice before inflicting a penalty does not depend

on the authority's satisfaction that the person to be

penalised has no defence but on the nature of the

order proposed to be passed.”

34)In view of the aforesaid enunciation of law, Mr. Sorabjee may also

be right in his submission that it was not open for the authority to

dispense with the requirement of principles of natural justice on

221943 AC 627

23(1970) 1SCC 121 : AIR 1970 SC 1039

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Page 33 the presumption that no prejudice is going to be caused to the

appellant since judgment in R.C. Tobacco (supra) had closed all

the windows for the appellant.

35)At the same time, it cannot be denied that as far as Courts are

concerned, they are empowered to consider as to whether any

purpose would be served in remanding the case keeping in mind

whether any prejudice is caused to the person against whom the

action is taken. This was so clarified in the case of Managing

Director, ECIL (supra) itself in the following words:

“31. Hence, in all cases where the enquiry officer's

report is not furnished to the delinquent employee

in the disciplinary proceedings, the Courts and

Tribunals should cause the copy of the report to be

furnished to the aggrieved employee if he has not

already secured it before coming to the Court/

Tribunal and given the employee an opportunity to

show how his or her case was prejudiced because

of the non-supply of the report. If after hearing the

parties, the Court/Tribunal comes to the conclusion

that the non-supply of the report would have made

no difference to the ultimate findings and the

punishment given, the Court/Tribunal should not

interfere with the order of punishment. The Court/

Tribunal should not mechanically set aside the

order of punishment on the ground that the report

was not furnished as it regrettably being done at

present. The courts should avoid resorting to short

cuts. Since it is the Courts/Tribunals which will

apply their judicial mind to the question and give

their reasons for setting aside or not setting aside

the order of punishment, (and not any internal

appellate or revisional authority), there would be

neither a breach of the principles of natural justice

nor a denial of the reasonable opportunity. It is

only if the Court/Tribunal finds that the furnishing of

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Page 34 the report would have made a difference to the

result in the case that it should set aside the order

of punishment.”

36)Keeping in view the aforesaid principles in mind, even when we

find that there is an infraction of principles of natural justice, we

have to address a further question as to whether any purpose

would be served in remitting the case to the authority to make

fresh demand of amount recoverable, only after issuing notice to

show cause to the appellant. In the facts of the present case, we

find that such an exercise would be totally futile having regard to

the law laid down by this Court in R.C. Tobacco (supra).

37)To recapitulate the events, the appellant was accorded certain

benefits under Notification dated July 08, 1999. This Notification

stands nullified by Section 154 of the Act of 2003, which has been

given retrospective effect. The legal consequence of the

aforesaid statutory provision is that the amount with which the

appellant was benefitted under the aforesaid Notification becomes

refundable. Even after the notice is issued, the appellant cannot

take any plea to retain the said amount on any ground

whatsoever as it is bound by the dicta in R.C. Tobacco (supra).

Likewise, even the officer who passed the order has no choice but

to follow the dicta in R.C. Tobacco (supra). It is important to note

that as far as quantification of the amount is concerned, it is not

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Page 35 disputed at all. In such a situation, issuance of notice would be

an empty formality and we are of the firm opinion that the case

stands covered by 'useless formality theory'.

38)In Escorts Farms Ltd. (Previously known as M/s. Escorts

Farms (Ramgarh) Ltd.) v. Commissioner, Kumaon Division,

Nainital, U.P. & Ors.

24

, this Court, while reiterating the position

that rules of natural justice are to be followed for doing substantial

justice, held that, at the same time, it would be of no use if it

amounts to completing a mere ritual of hearing without possibility

of any change in the decision of the case on merits. It was so

explained in the following terms:

“64. Right of hearing to a necessary party is a

valuable right. Denial of such right is serious

breach of statutory procedure prescribed and

violation of rules of natural justice. In these

appeals preferred by the holder of lands and some

other transferees, we have found that the terms of

government grant did not permit transfers of land

without permission of the State as grantor.

Remand of cases of a group of transferees who

were not heard, would, therefore, be of no legal

consequence, more so, when on this legal question

all affected parties have got full opportunity of

hearing before the High Court and in this appeal

before this Court. Rules of natural justice are to be

followed for doing substantial justice and not for

completing a mere ritual of hearing without

possibility of any change in the decision of the case

on merits. In view of the legal position explained

by us above, we, therefore, refrain from remanding

these cases in exercise of our discretionary powers

under Article 136 of the Constitution of India.”

24(2004) 4 SCC 281

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Page 36 39)Therefore, on the facts of this case, we are of the opinion that

non-issuance of notice before sending communication dated June

23, 2003 has not resulted in any prejudice to the appellant and it

may not be feasible to direct the respondents to take fresh action

after issuing notice as that would be a mere formality.

40)With this we advert to the last submission of Mr. Sorabjee that the

judgment in R.C. Tobacco (supra) (which is a two Judge Bench

decision) is in conflict with the three Judge Bench judgment in

J.K. Cotton (supra). This argument is not even open to the

appellant for the simple reason that the judgment in J.K. Cotton

(supra) was specifically taken note of and discussed in R.C.

Tobacco (supra). Paragraph 13 of the judgment in R.C.

Tobacco (supra) would reflect that the appellant therein had

specifically relied upon the judgment in J.K. Cotton (supra) in

support of the submission that retrospectivity was harsh and

excessive since there is, in fact, a retrospective imposition of

excise duty. It was also argued that justification of such

retrospective imposition of tax must be overwhelming and no such

overriding consideration had been disclosed. The submission

went to the extent of pleading that if the appellant is called upon

to pay the excise duty now it will cripple its unit. More pertinent

Civil Appeal Nos. 4458-4459 of 2015 Page 36 of 38

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Page 37 was another submission, which is relevant for our purpose, that

the demand which was raised could not be sustained as it was

made without issuing any show-cause notice and was in

contravention of Section 11A of the Act. In support of this view,

few judgments, including J.K. Cotton (supra), were relied upon.

The Court, however, did not find any merit in the aforesaid

submissions and dealt with the issue as under, duly taking note of

the judgment in J.K. Cotton (supra):

“40. In J.K. Cotton Spg. & Wvg. Mills Ltd. v. Union

of India, (1987) Supp. SCC 350, relied upon by the

petitioners, by virtue of the retrospective

amendment of Rules 9 and 49 of the Central

Excise Rules in 1982, commodities obtained at an

intermediate stage of manufacture in a continuous

process were deemed to have been 'removed'

within the meaning of Rule 9(1) thereby making

such intermediate products dutiable under the Act

with effect from the commencement of the Act i.e.

1944. In this context the Court held that the

amended Rules 9 and 49 would take effect subject

to Section 11-A. The decision is distinguishable.

The circumstances in which the Court held that the

demands for duty could only be limited to six

months prior to the amendment was

unquestionably different from those present in the

case before us. What we have to consider here is

whether the benefit granted in 1999 could be

withdrawn in 2003. Besides, the Court in J.K.

Cotton Spg. & Wvg. Mills Ltd. case rejected the

contention of the Union of India that Section 51 of

the 1982 Finance Act by which the amendments

were made to Rules 9 and 49 overrode the

provisions of Section 11-A saying: (SCC p. 363,

para 32) “if the intention of the legislature was to

nullify the effect of Section 11-A,.. the legislature

would have specifically provided for the same.”

Similarly our decision in National Agricultural Coop.

Marketing Federation of India Ltd. v. Union of India,

Civil Appeal Nos. 4458-4459 of 2015 Page 37 of 38

(arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 38 (2003) 5 SCC 23 which dealt with an amendment

to Section 80-P(2)(a)(iii) of the Income Tax Act,

1961 noted that: (SCC p.35, para 29)

“The amendment does not seek to touch on

the periods of limitation provided in the Act,

and in the absence of such express provision

or clear implication, the legislature clearly

could not be taken to intend that the amending

provisions authorizes the Income Tax Officer to

commence proceedings which before the new

Act came into force, had, by the expiry of the

period provided become barred".

In the present case Section 154(4) specifically and

expressly allows amounts to be recovered within a

period of thirty days from the day Finance Bill,

2003 received the assent of the President. It

cannot but be held therefore that the period of six

months provided under Section 11-A would not

apply.”

40A)In the aforesaid scenario, when the Court was conscious of the

principle laid down in J.K. Cotton (supra) and explained the

same in a particular manner while deciding the appeal in R.C.

Tobacco (supra), it cannot be argued that the judgment in R.C.

Tobacco (supra) runs contrary to J.K. Cotton (supra).

41)For all these reasons, the appeals are dismissed.

.............................................J.

(A.K. SIKRI)

.............................................J.

(ROHINTON FALI NARIMAN)

NEW DELHI;

MAY 14, 2015.

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