R.M. Sahai and B.L. Hansaria, JJ

MANU/SC/0530/1994
Equivalent Citation: AIR1994SC 2663, II(1996)C C R81(SC ), 1995GLH(1)298, JT1994(5)SC 572, 19951RRR378, 1994(3)SC ALE977, (1994)6SC C 205,
[1994]Supp3SC R144
IN THE SUPREME COURT OF INDIA

C.A. No. 3856 of 1988
Decided On: 06.09.1994
Appellants:N. Nagendra Rao & Co.
Vs.
Respondent:State of Andhra Pradesh
Hon'ble Judges/Coram:
R.M. Sahai and B.L. Hansaria, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: B. Kanta Rao, Adv
For Respondents/Defendant: T.V.S.N. Chari, Adv.
Case Note:
Consumer - vicarious liability - appellant carried business in fertilizer and food
grains under licence issued by appropriate authority - appellant's goods seized
- Assistant Agricultural Officer (AAO) did not make any steps to distribute
goods among needy - appellant made application that goods seized would
perish and would cause huge loss to him - despite Collector's order and Order
passed in appeal by Sessions Judge AAO did not release goods - whether
State vicariously liable for negligence of its officers in discharge of their
statutory duties - public policy requires Court to exercise power to
compensate owners of goods where loss or damage occurred by lapse on part
of its officers - State vicariously liable for acts of its officers.
ORDER
R.M. Sahai, J.
1 . Is the State vicariously liable for negligence of its officers in discharge of their
statutory duties was answered in the negative by the High Court of Andhra Pradesh on
the ratio laid down by this Court in Kasturi Lal Ralia Ram Jain v. State of U.P.
MANU/SC/0086/1964 : (1966)IILL J583SC , 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 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 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
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appellant for the goods which were directed to be returned. The further questions,
therefore, that arise for consideration are, whether seizure of the goods in exercise of
statutory powers under the Act immunises the State, completely, from any loss or
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.
2 . Since the High Court did not interfere with the findings recorded by 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
fertilisers, foodgrains and even non-essential goods were seized. On the report
submitted by the Inspector, the District Revenue Officer (in brief 'the DRO') 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 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 DRO and on 11th February, 1976 before AAO that since no steps were being taken
the fertiliser shall deteriorate 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 DRO nor any
action was taken by the AAO. On 29th June, 1976 the proceedings under Section 6A of
the Act were decided and the stock of horse gram (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
consequence of this finding, rather in absence of any material to prove that the
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 of the shock seized and released :

The appropriate authority while directing release of the stock or equivalent value
therefore made it subject to consent of the Vigilance Officer. But this condition was
deleted on 15th October, 1976 in appeal filed by the appellant.
3. 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 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 and
quantity. therefore, after getting its objection endorsed by the Officer concerned the
appellant came back and made a demand for value of the stock 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 on sovereign immunity of the State, discharge of statutory duty in good faith,
absence of any right to claim damages when seizure has been found to be valid for part
of the goods, absence of any right to claim value of the goods as the only right an
owner of the goods has to get back the stock irrespective of its condition etc.
4. The trial court did not accept the defence and held that the relationship between the
appellant and the respondent was of a bailor and bailee 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 deterioration 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 the goods were
maintained in proper condition. But they failed in discharging 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
the category of those goods the utility of which deteriorated by lapse of time. The trial
court did not believe the AAO, who appeared as witness, that he tried to dispose of the

stock 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, depot or super bazar. The trial court found that there was nothing on record to
show that any ryot or cultivator 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 various letters sent by the appellant, that it was evident that the
appellant had been 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 him. 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
opinion that it was incumbent on the 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 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 directions 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 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 Andhra Pradesh v. Devarasetty Rama Murthy (1985) 2 An. W.R.402.
5. 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 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 Diwan Sugar & General Mills (Pvt.) Ltd. v.
Union of India MANU/SC/0007/1959 : AIR1959SC626 , it was held that the 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 commodity" 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 accessories of automobiles, cotton and woollen textiles,
foodstuffs, iron and steel, 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 even prohibiting production, supply
and distribution of such goods. Clause (j) of Sub-section (2) of Section 3 empowers the
Government to make any provision for any incidental or supplementary matter including
in particular, the entry, search or examination of such premises, aircraft, vessels,
vehicles etc, to make seizure by a person authorised to make such entry, search or
examination. But the power in respect of the articles has been made subject to
reasonable belief that a contravention of the order has 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.
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 provided for by Section 6A of the Act.
Sub-section (1) of it is extracted below:
6-A. Confiscation of essential commodity. - (1) Where any essential 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
commodity is seized and whether or not a prosecution is instituted for the
contravention of such order, the Collector, may, if he thinks it expedient so to
do, direct the essential commodity so seized to be produced for inspection
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;
(b) any package, covering or receptacle in which such essential
commodity is found; and
(c) any animal, vehicle, vessel or other conveyance used in carrying
such essential commodity:
It requires a report of seizure of the essential commodity to be made without
unreasonable delay to the collector of the district who is empowered to direct
confiscation if he is satisfied that there has been a contravention of the order. This
requirement is to ensure that the higher 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 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 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 reasonableness, 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 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 technical violations such as failure to put up the
price list etc. or even discrepancies in stock.
6 . However, this appeal is primarily concerned with nature of power exercised by the
Collector under Sub-section (2) of Section 6A of the Act the purpose and objective of
which is to make interim arrangement of the 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 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
(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
Government or a State Government under this Act or under any
other law for the time being in force, the Collector may, 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 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. 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, 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 that penalise the person 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 interest. 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 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 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.
7 . But what happens when the goods seized are not confiscated. That has been
provided for by Sub-section (2) of Section 6C 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 contravention of the
order in respect of which an order of confiscation has been made under Section
6A, the person concerned is acquitted, and in either case it 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 therefore 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.
8 . This Sub-section ensures that a person who has been prosecuted or 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 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 prosecution of the
person and he is acquitted;
(c) and in all these cases where it is not possible for any reason to return the
essential commodity seized.
This provision cuts across the argument of the State that where even part is confiscated
the person whose goods are seized is not liable to be compensated for the remaining.
The Section is clear 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 the Government is bound to release or return the remaining or pay the value
thereof. But what is more significant of this Sub-section which widens 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
return, giving rise to the statutory obligation of deeming it as sale to the Government,
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 6A(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 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 goods in whatever condition they were is liable to be
rejected.
9. Having discarded 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 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 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 the Prime Minister through the head, "he says", no court 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, 'that the king has no legal power to do wrong' (H.W.R. Wade, Administrative
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 not extended by the courts to claims arising out of torts. In Viscount Canterbury
v. The Attorney General 1 PH 306 : 41 E R C. 648 , one of the question that arose was
whether the Crown 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 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 "complex 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 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 by Brihaspati 'where a servant
commissioned by his master does any improper act, for the benefit of his master, the
later shall be held responsible 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 in favour of holding
the State responsible for the negligence of its officers. (See Narayan Krishna Laud v.
General Norman, Collector of Bombay (1868) 5 Bom H CRp.1 , a decision which has
been approved in State of Rajasthan v. Mst. Vidhyawati and Anr. MANU/SC/0025/1962 :
AIR1962SC933 .)
10. 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 Steam Navigation Company v. The Secretary of State for India,
Bombay High Court Reports (1868) App A p 1 . which came up before 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 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 undertakings which might be carried on by private individuals
without having such powers delegated to them'. To 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 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 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 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 seized upon
and extended further in Nobin Chunder Dey v. Secretary of State for India
MANU/WB/0002/1875 : ILR (1867) Cal 2 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 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 and Anr. ILR (1882)
Mad 273 and it was observed that 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 observations are extracted below : -
Acts done by the Government in the exercise of the sovereign powers of making
peace and war and of concluding treaties obviously do not fall within the
province of municipal law, and although in the administration of domestic
affairs the Government 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.
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)
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.

11. When the law was in this fluid state, the Constitution was enforced and in Province
of Bombay v. Khushaldas S. Advani MANU/SC/0034/1950 : [1950]1SCR621 , 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 minority opinions. The Hon'ble Judge
observed :
It is true that the East India Company was invested with powers 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
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
Secretary of State v. Hari Bhanji 5 Mad 273 .
The learned Judged also considered the Peninsular case (supra) and observed as under
:
Much importance, cannot in my opinion be attached to the observation of Sir B.
Peacock in Peninsular and Oriental Steam Navigation Co. v. Secretary of State 5
Bom. 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 affirmative.
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 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 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 was granted 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 300 of the Constitution of India and the earlier provisions in
the Government 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 consequently cannot be responsible for the
negligence or misconduct of his 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 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 functions are not confined only to maintaining law and order, but
extend to engaging in all activities including industry, public 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 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 transport business....
The Court after dealing with case law and Article 300 proceeded further to hold :
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 the scope of his employment and
functioning as such, as any other employer. The immunity of the Crown in the
United Kingdom was based on the old feudalistic notions of Justice, namely,
that the King was incapable of doing a wrong, and, therefore, 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 Common Law immunity never operated in
India. Now that we have, by our Constitution, established a Republican form of
Government, and one of the objectives is to establish a Socialistic State with its
varied industrial and other activities, employing a large army of servants, there
is no justification, 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 servant cannot
maintain a suit against the Crown. In the case of State of Bihar v. Abdul Majid
MANU/SC/0120/1954 : (1954)IILL J678SC , 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 the United Kingdom, has disappeared from 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 vicarious liability of the State. Article 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 the days of the East India Company.
(emphasis supplied)
But this Constitution Bench decision was distinguished in Kasturi Lal (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 :

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 servants, which are not referable to the delegation of any
sovereign powers. If a tortious act is committed by a public servant and it 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 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 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 servants....
The Bench did not avert to Hari Bhanji's case (supra) which was approved by this Court
in Province of Bombay, (supra).
12. However, since 1965 when this decision was rendered 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 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 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. (See
Rudul Shah v. State of Bihar and Anr. MANU/SC/0380/1983 : 1983CriL J1644 ,
Sebastian M. Hongrary v. Union of India MANU/SC/0080/1984 : 1984CriL J830 ,
Women's Recourses center v. Commissioner of Police, Delhi MANU/SC/0051/1990 :
[1990]184ITR548(SC) , State of Maharashtra and Ors. v. Ravikant S. Patil
MANU/SC/0561/1991 : (1991)2SCC373 .
In Nilabati Behera (Smt.) Alias Lalita v. State of Orissa and Ors. MANU/SC/0307/1993 :
1993CriLJ2899 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 fundamental rights to which the principle of sovereign
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 A.S. Anand:
...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.
1 3 . Sovereign immunity as defence was, thus, never available where the 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 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 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 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
and Ors. v. State of Rajasthan MANU/SC/0208/1974 : [1974]3SCR549 where the
question of sovereign immunity was raised and reliance was placed on the ratio laid
down in Kasturi Lal's case (supra), this Court after considering the principle of
sovereign immunity as understood in English and even applied in America observed that
there was no 'logical or practical' ground for exempting the sovereign from the suit for
damages. In Pushpa Thakur v. Union of India and Anr. MANU/SC/0387/1984 : (1984)
ACJ SC 559 this Court while reversing a decision of the Punjab & Haryana High Court
MANU/PH/0432/1983 : 1984 ACJ 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 75 p.1
MANU/PH/0325/1972 : 1974 ACJ 105 held that where the accident was caused by
negligence of the driver of military truck the principle of sovereign immunity was not
available to the State.
14. That apart, the doctrine of sovereign immunity has no relevance in the present day
context when the concept of sovereignty itself has undergone drastic change. Further,
whether there was any sovereign in the traditional sense during British rule of our
country was not examined by 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 the Act of
1858 and ending with the Constitution, the words "shall and may have and take
the same suits, remedies and proceedings" in Section 65 above, by
incorporation, apply to the Government of a State to the same extent as they
applied to the East India Company.
15. 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 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 in Peninsular's case) it was observed by the then Master of Rolls:
I admit that no suit will lie in this Court against a sovereign power for anything

done in that capacity, but I do not think the East India Company is within the
rule.
This was a decision when the Company, under the Charter issued by the British
Government, carried on only trading activity. The Secretary of State in Council of India
v. Kamachee Boyee Sahaba 7 Moo Ind App 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 was held that for such latter acts the
Company could 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 (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 officers 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 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 India Company would, under the
circumstances, have been liable to an action, the general principles applicable
to Sovereign and States and 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 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 Section 65 of the Government of
India Act of 1858 expressly provided 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 Company and its extent
prior to 1858 become the foundation and furnished basis for determining 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. 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 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'
(A.R. Blackshield, Tortious Liability of Government, Journal of the Indian Law Institute
Vol. 8 (1966) p. 642).
16. '(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 overseas countries.' (M.P. Jain, Outlines of Indian Legal History
Vth Ed. 1990). 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 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
misfortune was thrust upon our system, a typical Judicial innovation, un-parallel 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 supposition that it was the property of an enemy'. The practical
effect of it was that the officers of the Company acting negligently and causing 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.
17. Though the Company was not a sovereign but it did exercise some 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 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.
[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 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. 5 LR App Cas.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 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 :
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 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, 13 Moo 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 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 questions thus raised, held that
the seizure was of the former character, 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 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 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 shown , 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 Salig Ram v.
Secretary of State for India Law Rep. Ind. App. Sup. Vol. P. 119, in which
judgment was given by this Committee on 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 :
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 English Law, quoted in 1941 Col. L. R 41.1313
In Salomon v. Secretary of State for India (1906) 1K.B. 613 it was explained :
An act of State is essentially an exercise of sovereign power and hence cannot
be challenged, controlled or interfered 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.
18. '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 questioned in a Municipal Court. The nature of power
which the company 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 independent states in 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 negligently in discharge of
their statutory duties. Such activities are not acts of State.
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 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 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 Indian State. It did not
enjoy any sovereign immunity like the Crown in England.
1 9 . Even otherwise the concept of sovereign immunity and the distinction between
sovereign and non-sovereign powers were neither relevant either before or after the
Constitution came into force. The doctrine of sovereign as propounded by theorists in
medical 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 supreme coercive power and it was by possession of sovereignty
that the State was distinguished from all other forms of human association.' The
original concept of sovereignty was of a unitary State. Hebert 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 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 modern period. Manifestation of former is freedom to protect
its border, negotiate peace, enter into treaty etc., whereas latter is the liberty to enact
laws, provide machinery for enforcing it, maintain law and order, administer justice etc.
'The modern 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 over lordship or
papal interference...virtually unlimited capacity to make new law'. 'Austin's sovereign
was postulated as 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 modern
collectivist States and federal systems, quite the reverse is true. Bentham thus accepts
divided and partial sovereignty. (Lloyd's Introduction to Jurisprudence, 5th Ed.).
According to Dias, 'the attributes of 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 limited by the other
and each has a limited power to prescribe for the other.' (Dias Jurisprudence. 5th Ed.
1985).
2 0 . 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 English doctrine of Parliamentary 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 ?It is the
people'. It was said by Pt. Jawahar Lal Nehru while moving the Objective Resolution in
the Constituent Assembly on December 13, 1946, 'all power and 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".
21. The old and archaic concept of sovereignty thus does not survive. Sovereignty now
vests in the people . 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
Maganbhai Ishwarbhai Patel Etc. v. Union of India and Anr. MANU/SC/0044/1969 :
[1969]3SCR254 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 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.
22. In Federated State School Teachers' Association of Australia v. State of Victoria and
Ors. (1928) 41 CLR 569 the distinction between sovereign and non-sovereign functions
was categorised as regal and non-regal functions. The former was confined to
legislative power, the administration of the laws and exercise of the judicial power. In
respect of non-regal functions, which could be assumed by legislative power, the State
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 legislative power,
the administration of the laws, the exercise of the 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.

This decision reflects modern thinking. The State is treated in performance of its
functions like a private company. It would obviously be answerable for negligence of its
employees.
2 3 . In the modern sense the distinction between sovereign or non-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. A law made by a legislature may
be bad or may be ultra vires, but since it is an exercise of legislative power, a person
affected by it may challenge its validity but he cannot approach 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 modern notions of sovereignty. 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 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. 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.
24. 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 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 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. The need of the State to have extra-ordinary powers cannot be
doubted. But with the 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 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 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 doctrine 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 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 has largely disappeared.
therefore, barring functions such as administration 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 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 immune on doctrine of sovereign immunity. Since the
doctrine has become outdated 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 be maintainable against the State.
25. 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 immunity for negligence in discharge of their statutory duties under protective
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 offices of the State cannot be dismissed as it was
in exercise of sovereign power. Ratio of Kasturi Lal (supra) is available to those rare
and limited cases where the statutory authority acts as a delegate of such function for
which it cannot be sued in 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 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.
26. 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 while 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 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 seeable 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 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 commodities and the delegation of power to authorised officers to inspect,
search and seize the property for carrying out the object of the State cannot 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. Cas p. 430
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.
27. Matter may be examined from yet another angle. Article 300 of the 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 State and may, subject to any provisions which
may be made by Act of Parliament or of the Legislature of such State enacted
by virtue 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 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 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 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 like cases as
the corresponding Provinces or the corresponding Indian States might have
sued or been sued if this Constitution had not been enacted; and
(3) that the second part is subject to any provisions which may be made by an
Act of the Legislature of the State concerned, in due exercise of its legislative
functions, in pursuance of 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 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.
28. 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 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 retains its characteristic of
being useful and serviceable. If the commodity ceased to be of any use or is rendered
waste due to its deterioration or rusting, it ceases to be commodity much less essential
commodity. therefore, 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 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
fiction 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
respondents were thus liable to pay the price of the fertiliser with interest, as directed
by he trial court.
29. In State of Gujarat v. Memon Mahomed Haji Masam MANU/SC/0016/1967 : AIR
(1967) SC 1885 where the confiscation by the Customs authorities was set aside in
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 Criminal Procedure Code, it was held by this Court that the suit for recovery of the
goods or value thereof was maintainable and it was held :
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 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 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 found that the seizure and confiscation
were not sustainable. There being thus a legal obligation to preserve the
property intact and 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 became 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 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 return
it.

3 0 . Similarly, in Smt. Basava Kom Dyamogouda Patil v. State of Mysore and Anr.
MANU/SC/0675/1977 : 1977CriL J1141 , 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 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 complainant/appellant
and had been stolen from her house. It is, therefore, clear that the articles were
the subject-matter of an 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 prime facie defence
made out that the State or its officers had taken due care and caution to protect
the property, the Magistrate may, in an 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.
31. 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 owner of
the goods had no remedy in private law and the Court was not empowered to pass an
order or grant 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 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.
3 2 . Before parting with this case, the Court shall be failing in its duty if it is not
brought to the attention of the appropriate authority that for more 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 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 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
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 departmentally. The doctrine of lazes faire - which
leaves every one to look after himself to his best advantage has yielded place to

the ideal 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 :
The old distinction between sovereign and non-sovereign functions or
governmental and non-governmental functions should no longer be invoked to
determine the liability of the State. As Professor Friedman observes :
'It is now increasingly necessary to abandon the lingering fiction of a
legally indivisible State, and of a feudal conception of the Crown, and
to substitute for it the principle of legal liability where the State, either
directly or through incorporated public authorities engages in activities
of a commercial, industrial or managerial character. The proper test is
not an impracticable distinction between governmental and non-
governmental functions, but the nature and form of the activity in
question.
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 it lapsed. And 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 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 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.
33. For these reasons, the appeal succeeds and is allowed. The judgment 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.
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MANU/SC/0530/1994

IN THE SUPREME COURT OF INDIA

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