Case: N. Nagendra Rao &amp; Co Vs. The State Of A.P

It has been found and is not disputed that the appellant carried on business in fertilizer 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 fertilizers, 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 fertilizer 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 fertilizer. 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 fertilizer shall deteriorate and shall be rendered useless causing huge loss to the appellant. Request was made for diverting the fertilizer 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 6-A of the Act were decided and the stock of horsegram (foodgrain) was confiscated as the appellants licence had been cancelled. As regards fertilizer 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 higher price than 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 stock 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 Collectors order and the order passed in appeal by the Sessions Judge, 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 in 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 it 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 fertilizer 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 fertilizers 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 fertilizers or stocks and to release its value but no steps were taken by him. The trial court believed appellants version, which stood supported from the evidence of the respondents, that when new fertilizers 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 fertilizers before expiry of the relevant season. The trial court did not believe the AAO that he could not dispose of the stock as the appellant was insisting that the sale should not be made below a particular price, as no 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 but 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) am.W.R. 402.

Court's reasoning:
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 as, 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 6C to be returned is also the essential commodity. Any commodity continues to be so, so long as it retains its characteristics 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 fertilizer with interest, as directed by the trial court.29. In State of Gujarat v. Memon Mahomed Haji Hasam, AIR 1967 SC 1885 , where the confiscation by the Customs authorities was set aside in appeal and the goods were directed to be returned which 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 heldthe facts of the present case, the State Government no doubt seized the said vehicles pursuance 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 respondents 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.Similarly, in Smt. Basava Kom Dyamagouda Patil v. State of Mysore and another, AIR 1977 SC 1749 , the question arose regarding powers of the Court in indemnifying the owner of the property which is destroyed or lost whilst in the custody of the Court. The goods were seized from the possession of the accused. They were placed in the custody of the Court. When the appeal of the accused was allowed and the goods were directed to be returned it was found that they had been lost. The court, in the circumstance, heldis 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 prima 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.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 for which suits are maintainable in civil court. Since the seizure and confiscation of appellants 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 be dismissed. In either view of the matter, the judgment and order of the High Court cannot be upheld.32. 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 uncertainly 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,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 factorise and manage them. The State carries on works departmentally. The doctrine of laizzez 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 helpCommission after referring to various provisions in the Legislation of other countries observedold 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 Friendman observesis 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 incorporation 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 inunfortunately 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 welling 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 tortuous 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 misgiving, therefore, cannot be doubted.