N. Nagendra Rao Co. v.

State Of Andhra Pradesh: Case

Analysis
On January 12, 2015 By kudrat

By Mounica Kasturi, Symbiosis Law School, Pune

“Editor’s Note: The principle of sovereign immunity lays down that an offence cannot
be committed by the state. This is based on the age old maxim that ‘King can do no
wrong’. Although, an employer can be vicariously held liable for the wrongful acts of
his employees committed in the scope of employment, yet the state was not held liable
for the offences committed by its servants due to the application of sovereign
immunity. With the passage of time, it came to be realised that the state cannot be
granted absolute immunity from liability and a distinction was made between sovereign
and non-sovereign functions of the state. While the state could not be held liable for
acts committed in the discharge of sovereign functions, it was held liable for offences
occurring during non-sovereign functions like commercial acts. With time, the ambit of
sovereign functions has been considerably narrowed down by courts.”

INTRODUCTION
Traditionally the duties of a state were confined only to the role of maintaining law and
order and its functions were mainly that of the police. However, with the ever
increasing interference of the state in our everyday lives to ensure a welfare state, the
traditional view of liability of the state cannot be accepted. Over the years, the courts
in determining the liability of the state for wrongs committed by its employees have
examined in depth the principle of sovereign immunity and the severability of the
state’s functions into sovereign and non-sovereign.

In this present analysis, the case of N. Nagendra Rao & Co. v. State of Andhra
Pradesh [i]shall be discussed in detail by analysis and counter- analysis with State of
Rajasthan v. Vidhyawati[ii]and Kasturilal Ralia Ram Jain v. State of Uttar Pradesh[iii].

FACTS
In this case, the appellant N. Nagendra & Co. carried on a business in fertiliser and
foodgrains under licence issued by the appropriate authorities. Its premises were
visited by the Police Inspector, Vigilance Cell 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 exercise of powers under Section 6-A of the Essential
Commodities Act, 1955 Act directed the fertiliser to be placed in the custody of
Assistant Agricultural Officer for distribution to needy and the foodgrains and non-
essential goods in the custody of Tehsildar for disposing it off immediately and
depositing the sale proceeds in the Treasury. The AAO did not take any steps to
dispose of the fertiliser. The appellant made application that since no steps were being
taken the fertiliser shall deteriorate and shall be rendered useless causing huge loss
to him. 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 his 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. In the meanwhile, the appellant’s licence was cancelled.
After repeated requests, the collector ordered that the goods be returned to the
appellants. However, the AAO did not comply with the orders. After repeated
consultations with various minsters, when the appellants finally obtained the stock, it
was spoiled both in quality and quantity.

PROCEDURAL HISTORY
In the present case, the non-disposal of the goods seized under various control orders
issued under the Essential Commodities Act, 1955 caused a loss to the appellants.
The trial court held that the state while performing its duty under a statute has been
negligent and issued a decree for the payment of a total value of Rs.1,06,125 towards
the damaged stock with interest thereon at the rate of 6% . However, this order was
struck down by the High Court of Andhra Pradesh which decided the case on the ratio
of Kasturilal case. The appellants appealed against the High Court judgement and
thus, approached the Supreme Court. 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.”

The issues under consideration in this case were:

1. Whether the employees of the state were negligent in disposing the goods.
2. Whether the seizure of the goods in exercise of statutory powers under the said
Act immunises the State, completely, from any loss or damage suffered by the
owner.

The Supreme Court examined in depth the various principles of law and dealt with the
concept of sovereign immunity in detail. The issue of whether the employees of the
state were negligent in disposing the goods is one question that had to be proven on
the basis of facts. Once the court was convinced that the state’s employees were
negligent, the issue that next arose was whether the state must be held vicariously
liable for the acts of its employees.

The issue was looked into in the light of the principle of sovereign immunity. The state
seized the goods under a statue and if this function can be said to be a sovereign
function performed by the state.

To analyse the case, a concurrent reading of Vidhyawati and Kasturilal is called for.

VIDHYAWATI CASE
This is a landmark judgement in the determination of liability of state and lays down a
distinction between the sovereign and non- sovereign functions.

The respondent’s husband was knocked down by a Government jeep car rashly and
negligently driven by an employee of the State of Rajasthan, and subsequently died
in hospital. The trial court decreed against the driver but dismissed the case against
the state. The High Court on appeal, disagreeing with the trial court, decreed the suit
as against the State as well. It was held by the High Court that the liability of the State
for damages in respect of a tortious act committed by its servant within the scope of
his employment and functioning was the same as that of any other employer. It did not
agree with the trial court’s reasoning of classifying the act as a part of the discharge
of the sovereign functions by the state. The state of Rajasthan appealed in the
Supreme Court against the same.

The Supreme Court first analysed the liability of the state with respect to the
Government of India Act,1935, and others and held that the liability of the state post-
independence is the same as that of the East India Company as held in the case
of Peninsular and Oriental Steam Navigation Co. v. The Secretary of State for
India.[iv] The issue that arose for consideration was the extent of the vicarious liability
of Government for the tortious acts of its employees, acting in the course of their
employment. The next question that was to be answered was whether the act of driving
the car back from the repair shop was an exercise of sovereign powers of the state.

The Supreme Court upheld the view of the High Court. It held that the state must be
equally liable as other companies for the acts of its employees. The concept of
sovereign immunity and the rule of ‘king can do no wrong’ are no longer applicable.
The Crown Proceedings Act removes such unlimited immunity in the Common Law
countries. Also our Constitution envisages a Republican form of Government, and one
of the objectives is to establish a Socialist 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.

The case of N. Nagendra must be read in light of this case. In this case, the liability
was imposed on the state and the concept of sovereign immunity was not adopted.
The act of driving a government vehicle during the course of employment cannot make
the state immune when it substantially interferes with the right to life of the citizens.
The state today undertakes a plethora of activities under the umbrella of a welfare
state such as transportation, trading, construction and others. It would be unfair to
immunise the state for any mistake committed by itself or its employees during the
course of these activities. In N.Nagendra Rao’s case as well when the state seized
certain goods under the Essential Commodities Act for public welfare, the onus fell on
the state to ensure that the said goods are carefully preserved as is necessary. Thus,
the state was held liable to pay the compensation for the loss incurred.

However, the view in the case of Vidhyawati was not upheld by the Supreme Court in
Kasturilal Ram case. The court laid down its ration on the basis of sovereign function
of the state through police and distinguished Vidhyawati case.

KASTURILAL’S CASE
In this present case, the police authorities had seized certain goods of the appellants
in the exercise of its statutory powers. The police seized the goods under suspicion
and detained Kasturilal at Meerut. Later, when the police confirmed that the goods
belonged to Kasturilal and that he had the title to the goods, he was let free. However,
in the meanwhile, a constable of the police has stolen the goods. The police were,
thus, negligent in the safe custody of the goods. As a result of such negligence, the
appellant suffered a loss of the gold articles and thus sued the state to recover the
loss. The trial court decreed against the state but was overruled by the High Court.
The appellants approached the Supreme Court.

It was argued in this case that once the negligence of the state is established, no
further deliberation is needed. It was argued that the principle laid down in Vidyawati
case must be applied as both cases included loss suffered due to the negligence of
state employees. Nonetheless, the judges distinguished the case of Vidyawati. The
course of public employment of the Vidyawati case was not that of a sovereign
function. The power to arrest a person, to search him, to seize property found with
him, are powers conferred on specified officers by statute, and are powers which could
be properly characterised as sovereign powers. So, even though, the employees of
the state were negligent during the course of their employment, the state cannot be
held liable because the employment in question was of the category which falls under
the characteristic of sovereign power.

Thus, the Supreme Court ruled in this case held that the state cannot be held liable
to compensate the appellant as the act of the state falls under the sovereign function
of the state.

This view can nevertheless be accepted. Sovereign immunity as a defence can never
be available where the state was involved in commercial or public activity and it
interferes with the life and liberty of a citizen. The state must be legally and morally
bound to compensate the victims for the wrongs committed. No doubt the state must
have protection so as to conduct its activities for the public interest without being sued
every now and then by the people. However, this cannot be applied to every case
where the state fails to take necessary care to protect the interests of the public. The
state cannot have the absolute power to act according to its whims and caprice.

Also the changing structure of the society, a democratic political system and an
unbiased Constitution, cannot permit an executive to have absolute powers. The rule
of law does not permit the state to be above law. The state vis-à-vis an individual must
be treated equally. Today when the functions of the state extend to regulating and
controlling the activities of the people in almost every sphere, educational, commercial,
social, economic, political and even marital, the line demarcating between sovereign
and non-sovereign functions is largely disappearing.

CONCLUSION
In the case of N. Nagendra Rao, the Supreme Court upheld the view in Vidyawati case
and distinguished Kasturilal. The court held that 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 act of seizure of goods for the public
interests is under the welfare state functions and not under the primary functions.

With respect to the principle of vicarious liability, it was held that if the officers can be
sued personally for negligence and misfeasance in discharge of public, there is no
rationale for the proposition that even if the officer is liable the State cannot be sued.
Now, since the doctrine has become outdated and sovereignty rests with the people,
the state cannot claim any immunity. Thus, the State of Andhra Pradesh was directed
to pay the appellants the amount as decided by the trial court with costs.