Sir Chunilal V. Mehta and Sons Ltd. v Century Spinning and Manufacturing Co. Ltd. (1962)

Since the amendment which took effect on 1 February 1977, a second appeal to the High Court lies only where the case involves a substantial question of law, which the High Court must formulate before hearing the appeal, and on which alone the appeal is then heard. Everything in second-appeal practice therefore turns on the meaning of that phrase.

This case supplies the test. It was decided on a certificate for appeal to the Supreme Court, not on a second appeal, but the phrase construed is the same phrase, and the formulation given here is the one that is applied to s. 100.

Chunilal Mehta and Co., Bombay, were appointed Managing Agents of the respondent company for a term of twenty-one years by an agreement dated 15 June 1933. By a resolution of October 1945 they were permitted to assign the benefit of that agreement to the appellant, Sir Chunilal V. Mehta and Sons Ltd.

On 23 April 1951 the Board of Directors terminated the 1933 agreement and removed the appellant as Managing Agents. The appellant sued on the original side of the Bombay High Court claiming Rs 50 lakhs as damages for wrongful termination, later amending the claim, with the court's permission, to Rs 28,26,804.

The company admitted that the termination was wrongful. The only question left was the quantum of damages, and that depended on the construction of clause 14 of the Managing Agency agreement. The single judge dismissed the suit; the appellate bench of the High Court affirmed. The claim in appeal was for about 26 lakhs of rupees.

The appellant applied for a certificate under Art. 133(1)(a). Because the appellate judgment was one of affirmance, the appellant had to establish that the appeal involved a substantial question of law. The High Court dismissed the application without a judgment, apparently following its earlier decision in Kaikhushroo Pirojsha Ghiara v C.P. Syndicate Ltd. (1949). The appellant moved the Supreme Court under Art. 136 and special leave was granted, the appellant expressly contending that the High Court's view of what amounts to a substantial question of law was wrong and ran contrary to the Privy Council's decision in Raghunath Prasad Singh v Deputy Commissioner.

The Bombay view — too narrow. A well-established principle applied to a given set of facts raises no substantial question of law; a question is substantial only where the law is not well settled or there is some doubt about the principle involved — and, as the Supreme Court read the judgment, a doubt entertained by the court itself. That view failed to give sufficient weight to the Privy Council's position that a question of law is substantial when it affects the rights of the parties.

The Nagpur view — too wide. In Dinkarrao v Rattansey (1949) it was held that a question of law is substantial as between the parties if the decision turns one way or the other on the particular view taken of the law; if the view taken does not affect the decision it is not substantial, but if it does, it is, even though the question may be wholly unimportant to others.

The Madras view — accepted. In R. Subba Rao v N. Veeraju (1951) the Full Bench rejected the Nagpur test on the ground that it would logically make even a palpably absurd plea raise a substantial question of law, since the decision on the merits would be directly affected by it. It held instead that a question is substantial where it is fairly arguable, where there is room for a difference of opinion on it, or where the court thinks it necessary to deal with the question at some length and to discuss alternative views; and that it is not substantial where the question is practically covered by a decision of the highest court, or where the general principles are well settled and the only question is of applying them to the particular facts.

The Supreme Court was in general agreement with the Madras view, holding the Bombay view rather narrow and the Nagpur view too wide. The proper test is:

Whether the question of law is of general public importance, or whether it directly and substantially affects the rights of the parties; and, if so, whether it is either

- an open question, in the sense that it is not finally settled by the Supreme Court, the Privy Council or the Federal Court; or - not free from difficulty; or - calls for a discussion of alternative views.

The question is not substantial where it is settled by the highest court; or where the general principles to be applied are well settled and there is a mere question of applying those principles; or where the plea raised is palpably absurd. A question once settled by the highest court in the country ceases to be a substantial question of law however important or difficult it may once have been regarded, and however much it may affect the parties.

The question in the appeal — the construction of the Managing Agency agreement — was not only one of law but was neither simple nor free from doubt. The High Court was in error in refusing a certificate. The court noted that on the success or failure of the parties' contention depended a claim for nearly 26 lakhs of rupees.

For a s. 100 question, set out the section as it now stands — a second appeal lies to the High Court from every decree passed in appeal by a subordinate court only where the High Court is satisfied that the case involves a substantial question of law — add Order XLII Rule 2, which requires the High Court to formulate the question and provides that the appeal is heard on the question so formulated, the appellant not being at liberty to urge any other ground without leave; and then give this test.

Follow it with the standard corollaries, which examiners expect in the same answer: a finding of fact, however erroneous, is not a substantial question of law; a concurrent finding of fact is not open to interference; the exception is a finding based on no evidence or reached by ignoring material evidence; and the value of the subject-matter is not the measure of whether a question is substantial.

There are two independent gateways in the test, not one. A question may be substantial because it is of general public importance, or because it directly and substantially affects the rights of the parties. A candidate who treats general public importance as a necessary condition has stated the Bombay view that this case rejected.