Judgment
1. The only question which requires to be decided in this appeal which is directed against the Order-in-Appeal No. 15-CH/G/84 dated 10.9.84 passed by the Collector of Customs (Appeals), New Delhi in C.No.APPL/DLH/CH/G/1/84, is whether the Collector of Customs (Appeals) has rightly interpreted the provisions of Section 27 of the Gold (Control) Act, 1968 and the rules made thereunder.2. Brief facts of the case so far as relevant for the purpose of deciding the controversy in hand are that the appellant firm applied for a Gold Dealers' licence under Gold (Control) Act, 1968 before the Collector, Central Excise, Chandigarh. The Deputy Collector, Central Excise, Chandigarh rejected the same. In rejecting the application, he took the view that out of the six partners of the appellant firm, M/s.
Talwar Diamonds, Chandigarh three were already partners in M/s. Talwar Jewellers, another firm which is already in possession of a Gold Dealer's licence. He had stated that in terms of the General Clauses Act, the firm is not a legal person and that, therefore, the conditions laid down under Rule 2(dd) of the Gold Control (Licensing of Dealers) Rules, 1969 are not satisfied. Being aggrieved, the appellant firm filed their appeal before the Collector, Customs (Appeals), New Delhi.
Before the Appellate Authority, a new ground, that is to say, that the three partners who are partners of M/s. Talwar Jewellers and also partners of the appellant firm M/s. Talwar Diamonds have become partners of the later firm, not in their individual capacity but as Kartas of their respective Hindu Undivided Families and their legal status as partners of the appellant firm M/s. Talwar Diamonds is, therefore, different from that either as partners in the earlier firm.
The learned Appellate Authority allowed this new ground to be urged before him and also allowed the appellant firm to file affidavits in support of the said new ground. After considering this new ground the Appellate Authority while agreeing with the Deputy Collector that a partnership not being a separate legal entity but merely an association of individuals, grant of any licence to the partnership of which the three partners of M/s Talwar Jewellers are members would militate against the provisions of Rule 2(dd), ibid, directed the Deputy Collector to grant a Gold Dealers' licence to the appellant firm on the basis of the new ground stated above. Being aggrieved, the Department has filed the captioned appeal before this Tribunal alleging that the Gold Control (Licensing of Dealers) Rules, 1969 do not make any distinction between an individual and a member or Karta of a Hindu Undivided Family and that it is not correct to say that Rule 2 of the Gold Control (Licensing of Dealers) rules, 1969 is not mandatory.
3. I have heard Smt. Nisha Chaturvedi, learned SDR for the appellant and Shri Manmohan Sarin, learned counsel for the respondent.
4. Smt. Nisha Chaturvedi, learned SDR for the appellant heavily contended before me that the provisions of Rule 2 of the Gold Control (Licensing of Dealers) Rules, 1969 are mandatory because the word "shall" appears in the said Rule. Shri Man Mohari Sarin, learned counsel for the respondent countered the said argument by submitting that the use of the word "shall" is not conclusive and decisive of the matter and the court has to ascertain the true, intention of the Legislature, which is the determining factor, and that must be done by looking carefully to the whole scope, nature and design of the statute.
I agree with the learned counsel for the respondent. For, it is trite law that the employment of the auxiliary word "shall" is inclusive and similarly the mere absence of the imperative is not conclusive either and the mere use of the word "shall", torn from its context, cannot make the provision of that section or rule obligatory and imperative.
No general rule can be laid down as to whether a provision in the statute is imperative or mere directory. It depends on the purpose for which the requirement has been enacted, particularly in the context of the other provisions of the Act and the general scheme thereof. Thus the question remains whether in the light of this settled legal position the provisions of Rule 2 of the Gold Control (Licensing of the Dealers) Rules, 1969 may be treated as mandatory. For deciding the question whether the requirements of Rule 2, ibid, are mandatory or obligatory in nature it would be useful to reproduce subsection (6) of Section 27 of the Gold Control Act, 1968 under which the aforesaid rules are made. Sub-section (6) runs thus - "(6)(a) No application for the issue of a licence to commence or carry on business as a dealer shall be granted unless the Administratory, having regard to such matters as may be prescribed in this behalf and after making such inquiry in respect of those matters as he may think fit, is satisfied that the licence should be issued." Sub-section (2)(e)(i) of Section 114 of the Gold Control Act, 1968 confers power on the Central Government to make Rules by notification for carrying out the purposes of the Act. In exercise of the powers so conferred by Section 114 read with Sub-section (6) of Section 27 of the Gold (Control) Act, 1968 the Central Government has made the Rules known as the Gold Control (Licensing of Dealers) Rules, 1969. Rule 2 of the said Rules provides that "on receipt of an application for the issue of a licence to commence or carry on business as a dealer, the Administrator shall have regard to the matters", (underlining mine) which have been serially mentioned in sub-clauses (a) to (f) of Rule 2.
Thus for deciding the nature of the provisions as to whether the same are mandatory or obligatory, the word "shall" cannot be read in isolation but will have to be read in conjunction with the words "have regard to". In other words, the expression "shall have regard to" is to be read as a whole. So read, I am of the view that the proper interpretation of the expression "shall have regard to" is "shall take into consideration." In Ryots of Garabandho v. Zemindar of Parlakimedi, 70 Ind App 129 (AIR 1943 PC 164) (B), the Judicial Committee had to - consider the question of interpretation of words "shall have regard to" in S. 168 of the Madras Estates Land Act, 1908. The majority of the Board of Revenue had taken the view that the requirement to "have regard to" the provisions in question had no more definite or technical meaning than that of ordinary usage, and only required that these provisions must be taken into consideration. The Judicial Committee, after pointing out that this view, of the effect of the direction to "have regard to" the provisions of the Act was supported by the previous decision of the Madras High Court in Valluri Narasimha Rao v.Ryots of Peddamarnidipalli, ILR 49 Mad 499: (AIR 1926 Mad 480)(C) and certain observations of Reilly J. in Rajah of Mandasa v. Jagannayakulu, 63 Mad LJ 450: (AIR 1932 Mad 612) (FB) (D) decided that this was the correct interpretation to be put on such words and that, as a matter of English, this view was nearer to the ordinary meaning of the phrase "have regard to" than the view that the provision must be obeyed. This was followed by the Calcutta High Court in the case of S.E.E. Works v.Radha Devi reported in AIR 1957 Cal. 227. In this view of the law it seems to me clear that Rule 2 of the Gold Control (Licensing of Dealers) Rules, 1969 is mandatory to the extent that the Administrator is required to take into consideration the matters which are serially mentioned in sub-clauses (a) to (f) of Rule 2 of the Gold Control (Licensing of Dealers) Rules, 1969 in deciding whether to grant or refuse the licence. This interpretation is further borne out by Sub-section (6) of the main Section 27 of the Gold Control Act itself which is couched in the negative language and provides that no licence to commence or carry on business as a dealer shall be granted unless the Administrator having regard to such matters as may be prescribed in this behalf, that is to say, as prescribed under rule 2 of the Gold Control (Licensing of dealers) Rules 1969 and after making such inquiry in respect of those matters as he may think fit, is satisfied that the licence should be issued.
5. As regards the next contention of the learned SDR that the Gold Control (Licensing of Dealers) Rules, 1969 do not make any distinction between an individual and a member or Karta. of a Hindu Undivided Family, I find that there is much force in it. The learned Administrator has rejected the application of the appellant for the grant of gold dealers' Licence on the ground that the appellant firm is a partnership firm and from the photostat copy of the partnership deed which appellant firm has executed on 10.10.80, it is clear that the appellant firm is partnership firm consisting of six partners and out of these six partners, three partners of the appellant firm are already partners in another Gold dealer firm that is to say, M/s. Talwar Jewellers and hence the condition laid down in Rule 2(dd) of the Gold Control (Licensing of Dealers) Rules, 1969, which provides as to whether the applicant is a person who does not hold a valid licence to carry on business as a licenced dealer in his name or is a person who is not a partner of a firm which holds such licence, are not satisfied in the instant case. The Administrator further held that a partnership firm is not a legal entity like a natural person and therefore the rights and obligations of a firm are really the rights and obligations of the individual partners of the firm. On appeal by the respondent, the learned Collector of Customs (Appeals), New Delhi, while agreeing with the Adjudicating Authority that a partnership firm not being a separate legal person but merely an association of individuals, grant of any licence to the partnership of which the three partners of M/s.
Talwar Jewellers are members would militate against the provisions of Rule 2(dd), allowed the appeal and directed the Administrator to grant the licence holding as follows :- "However, I find that it was not agitated before the Deputy Collector that the three partners who are partners of M/s. Talwar Jewellers and also partners of the appellant firm, have become partners of the latter firm, not in their individual capacity, or as heads of nuclear family but as kartas of their respective Hindu Undivided Families. This submission was, however, made in the appeal, and in pursuance of the submissions, each of the partners has submitted an affidavit before me from which it is seen that the various persons other than those who are partners of M/s. Talwar Diamonds are represented, and their interest safeguarded, by each of these partners acting in their capacities as kartas of their Hindu Undivided Families. The affidavit also affirms that these partners do not have any personal interest in the partnership, arid the capital contributed to the firm is also from the joint family properties. These factors are significant for distinguishing this case from a case where the partners in both the firms represent only themselves." 6. In my opinion, the distinction drawn by the Collector of Customs (Appeals) between an individual and a member or karta of Hindu Undivided Family is against the very concept of Hindu law. For, it is trite law that a Hindu joint family is not a juristic person for all purposes. As a joint family it cannot enter into a partnership. For the purpose of entering into partnership, the joint family cannot be treated as a juristic person. All the individual members of a joint family could enter into a partnership with the members of another joint family or even with other individuals. In that case also, they will be treated in the eye of law only an individual partners and not as a joint family. That is also the case with representative of the joint family even if they are karta or manager. For this purpsoe, it may be advantageous to extract the principles laid down in Kshetra Mohan Sannyasi Charan v. Commr. of Excess Profits Tax, 24 ITR 488: (AIR 1953 SC 516 at p.518): "When two kartas of two Hindu undivided families enter into a partnership agreement the partnership is popularly described as one between the two Hindu undivided families but in the eye of the law it is a partnership between the two kartas and the other members of the families do not ipso facto become partners. There is, however, nothing to prevent the individual members of one Hindu undivided family from entering into a partnership with the individual members of another Hindu undivided family and in such a case it is a partnership between the individual members and it is wholly inappropriate to describe such a partnership as one between two Hindu undivided families." Following the said observations, the Kerala High Court in the case of Venkideswara Prabhu Ravindranatha Prabhu v. Surendranatha Prabhu Sudhakara Prabhu and Ors., reported in AIR 1985 Kerala 265, further held that :- "In all such cases, even where the partner is the karta or manager of a joint family, the partnership agreement is only between him and the other partners. No member of the family except the partner acquires right or interest in the partnership. The members who are not partners could only enforce their claims against their representative partner for share of profits treating the partnership profit as joint family asset." In Ram Laxman Sugar Mills, v. Commr. of Income Tax (1967) 66 ITR 613 (SC), it was decided : "A Hindu undivided family is undoubtedly a "person" within the meaning of the Income-tax Act; it is however not a juristic person for all purposes, and cannot enter into an agreement of partnership with either another undivided family or individual. It is open to the manager of a joint Hindu family as representing the family to agree to become a partner with another person. The partnership agreement in that case is between the manager and the other person, and by the partnership agreement no members of the family except the manager acquires a right or interest in the partnership. The junior members of the family may make a claim against the manager for treating the income or profits received from the partnership as a joint family asset, but they cannot claim to exercise the rights of partners nor be liable as partners.
For the very nature of its fluctuating composition consisting of members, some of whom may not have attained the age of majority and some may at a given time be unborn, the family as a unit is incapable of entering into a partnership agreement contemplating the creation of mutual rights of agency among its members." 7. The matter however does not rest here. From the impugned order-in-appeal, I observe that the affidavits filed by the three partners of the appellant firm clearly affirm that the capital contributed to the appellant firm is also from the joint family properties. Thus, to say that the three partners of the appellant firm who are also partners of M/s. Talwar Jewellers have no personal interest in the partnership is not tenable in law. For the same reasons the contention of the appellant that these partners have become partners of the appellant firm in their capacity as kartas does not change the complex of the case. For this purpose, it may be advantageous to extract the principles laid down in C.I.T. v.Mahendrasingh Mohansingh, (1980) 123 I.T.R. 938 at page 945: "A person can be a partner in his capacity as a karta, trustee, representative of his sub-partners or of a group of persons or a benamidar for another. In all such cases his is a dual position. He functions in his personal capacity in relation to partners while in his representative capacity in relation to the persons whom he represents he is a representative. The persons who are represented by a partner cannot enforce their rights against the other partners and vice versa. Their right is only to a share in the profits of their partner-representative in accordance with law or in accordance with the terms of the agreement, as the case may be (vide CIT v. Bagyalakshmi & Co. (1965) 55 ITR 660 (SC)." Even otherwise the Appellate Authority committed a mistake of law in entertaining and deciding in whom the beneficial interest in the share in the partnership vests. For, it is now well settled law that in considering an application for registration of a partnership firm the Authorities concerned are not required to determine in whom the beneficial interest in the share in partnership vests as held by the Hon'ble Supreme Court in Commr. of Income Tax v. Bagyalakshmi & Co. AIR 1965 SC 1708 and Commr. of Income Tax v. A. Abdul Rahim & Co. 55 ITR 8. The other observation of the Appellate Authority below to quote his own words "thus the refusal of the grant of licence to M/s. Talwar Jewellers on this ground effects adversely the interests not only of these three partners, but of the other members of the Hindu joint families, and the spectrum of interests represented by the appellant firm is far wider than represented by M/s. Talwar Diamonds" is also not understandable because in the instant case, to say that the refusal to grant licence to M/s. Talwar Jewellers is wrong on the face of the record and further to say that the spectrum of interests represented by the appellant firm is far wider than that represented by M/s. Talwar Diamonds is again wrong on the face of the record because in the instant case the appellant is M/s. Talwar Diamonds and not M/s. Taiwar Jewellers. Moreover, the question of effecting the interests of other three partners of M/s. Talwar Diamonds appellant herein does not arise because the Administrator has clearly said in his Order-in-Original that these remaining three partners if file an application for a gold dealers' licence, the same would be considered if otherwise eligible, in terms of the provisions of Gold Control Act, 1968 read with the Gold Control (Licensing of dealers) Rules, 1969. The apprehension of the Appellate Authority below that if the Administrator's interpretation is followed in viewing the provisions of Sub-rule (dd) of Rule 2 of the Gold Control (Licensing of Dealers) Rules, 1969 it would follow that a licenced dealer should not be permitted to open a branch either in the city where he is located or elsewhere as that would amount to encouraging the growth of monopolies is also misconceived because in that case various considerations such as volume of work enjoyed by the existing dealers in that town where opening of the branch is proposed, pending application, if any for dealer's licence from local residents of that place, new entrants from the city/town concerned etc. arises.
Further the policy of the Government is that the licence for opening of a branch by the existing licenced dealers in town/city other than the one in which the dealers hold the licence or a partnership in a licence dealers firm may not be refused, however, subject to other provisions of the licensing rules, including Rule 2(f). In this connection it would be useful to quote the Circular No. 27/78 dated 28.9.78 issued by the Government of India, Ministry of Finance (Department of Revenue), New Delhi - "... Further, there should be no objection if a trader/dealer wishes to extend his business at another place where there is scope for increase in a particualr licence without affecting the interests of local traders there.
It has accordingly been decided that the licences for opening of branches by the existing licensed dealers in town/city other than the one on which the dealer holds the licence or a partnership in a licensed dealer's firm may not be refused. No doubt grant of such licences would be subject to other provisions in the licensing Rules, including Rule 2(f) and priority may be given to new entrants from the same city/town. Before allowing a dealer to open a branch in another town you may take care to see that the volume of work enjoyed by the existing dealers in that town will not suffer and pending applications for dealer's licence from local residents get reference." 9. Further from the Order-in-Original I observe that the appellant firm also furnished some incorrect information in their application for licence. The Administrator however did not take any serious view of the said lapse stating that because he is rejecting their application for licence he is not taking any serious view in the matter.
10. In the light of the foregoing discussions I am of the opinion that the Order-in-original passed by the Administrator refusing the dealers licence was perfectly in accordance with the facts and circumstancers of the case and the provisions of the Act and Rules made thereunder and he, if after satisfying himself with regard to the matters enumerated in Sub-rule (dd) of Rule 2 ibid, has refused to grant the licence it cannot be said that he acted illegally or his order was perverse. As such in the absence of any illegality or perversity in his order there was no scope for the Appellate Authority below to interfere with his order and to direct him to issue the licence to the appellant firm.
11. In the result, I allow the appeal and set aside the impugned Order-in-Appeal and restore the Order -in-Original passed by the Administrator.