COLLECTOR OF CUSTOMS & ORS.

PEDNEKAR AND COMPANY (PRIVATE) LIMITED (IN LIQUI-

DATION) & ANR.

March 31, 1976

[H. R. KHANNA AND P. K. GOSWAMI, JJ.] B

Sale of Goods Act (3 of 1930), s. 20-Time of passing of property in goods.

Constitution of India, 1950, Art. 226-When may be invoked.

Practice-Raising new contention, if permissible.

The. first respondent, an importer and dealer in sewing machines, was granted C an import licence for importing industrial sewing. machines and spare parts.

After importing some goods through the Bombay port, the first respondent was permitted by the Customs Authorities to import the rest through the Calcutta port, and the first respondent entered into contracts with Japanese companies for supply of a certain number of industrial sewing machines and oscillating rock shafts. Being in some financial difficulty the first respoildent approached the 2nd respondent, _and the latter stood guarantee to Bankers at Delhi enabling the first respondent to open the necessary letter of credit. Thereafter, while .the goods contracted for from the Japanese_ conlpanies were on the high seas, D there was an agreement by which the first respondent agreed to sell to the second respondent at a future date, certain quantities of sewing machines, heads and oscillating rock shafts.

When the goods arrived at Calcutta, the Customs authorities took the view that the goods were ascertained and specific goods,

that the property in them had passed to and vested in second respondent by reason of the agreement to sell, so that at the time of importation the goods were not covered by the licence in favour of the first respondent and ordered confiscation of the goods and the imposition of a penalty. Tue first respondent E thereupon moved the High Court and the High Court held against the appel - lant.

In appeal to this Court, the appellant-Collector of Customs, also raised the

contentio~ that though everything ostensibly was done by the 1st respondent, the real importer was the 2nd respondent and that, therefore, the importation was unauthorised~ and that the High Court had no jurisdiction to interfere under Art. 226, with the order of the Customs authority.

Dismissing the appeal, I

HELD.: ( 1) It is not possible to hold on the facts of this case, that the property in the goods passed to the second respondent at the time of the agreemeI?-t• and the High Court was right in holding that the property in the goods dtd not pass to the buyer till the time of delivery of the goods in Bombay..

[977E, G-HJ

(a) Te agreemet t~ sell related not to the entire consignment of the goods which were being l!llported by .the first respondent but only to part of G the goods . even though 1t was a maior part.

Out of 208 dozen rock shafts 1vh1ch wee 1mported, 200 dozen were to be sold to the 2nd respondent.

There was nothing to prevent the first repondent from selecting for itself any s dozen rock shafts, out of th~ consignment. The place of deliverY was the second respondents g?down 1n Bombay, and therefore, the property in the goods could n?t pass in favour of the second respondent until after the arrival of the goods in Bombay and the 200 dozen rock shafts to be delivered to the 2nd respondent w.ere separated. So far as the sewing machines were concerned, the property n them could also not pass to the buyer before the assing H of the i; iroperty 1n. rock safts as the contract was one indivisible c6ntract

No pecrfic QOods 1n a deliverable state were attached to the contract wh - ·~ was made. [977E-G] en '' ?{

(b) In many genuine commercial transactions guarantee can be arranged by a party importing or exporting goods under a valid licence. The mere fact of financial guarantee by the second respondent to a banker for the purpose of enabling the first respondent to open a letter of credit, without anything more~ would not convert the guarantor (2nd respondent) to be the o\vner_ of the property, the moment the contract was entered into, if the terms therein pointed to the contrary.

[978A-B]

(2) It was never the contention of the Customs authorities that the importaw tion of the goods was not done by the 1st respondent or that the 1st respondent'~ contracts with the Japanese suppliers were shan1.

Therefore the appellant cannot be permitted to raise the contention that the real importer was the 2nd respondent.

[977E-GJ

(3) The 1st respondent's licence was not an Actual User Licence and therefore the 1st respondent could sell the imported goods to others. The legal issue in the case was whether property had passed to the 2nd respondent at the time the agreement was entered into between the respondents and if on the terms of the agreement along with relevant facts and circumstances, the customs authorities had committed a manifest error of law apparent on the face of the order, the High Court's jurisdiction to interfere under Art. 226 is

' .

'°'

"ttracted. [978G-979Bl 1

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1434-1435 of 1968.

D Appeal from the Judgment and Order dated 6th April 1967 of the Calcutta High Court in Appeal from Original Order No. 175 of 1963 and 177 of 1963.

G. L. Sanghi and Girish Chandra, for the Appellant.

H. K. Puri and M. C. Dhingra, for Respondents.

E The Judgment of the Court was delivered by

GOSWAMI, J .-These two appeals are on certificate by the Cal- :.., cutta High Court from its common judgment of April 6, 1967, in Appeal Nos. 175 and 177 of 1963.

Respondent No. 1 prior to its liquidation was a private limited company carrying on business as an importer and dealer in sewing machines.

On or about April 16, 1958, the respondent was granted an import licence by the Joint Chief Controller of Imports and Exports, Bombay, by which it was authorised to import industrial sewing machines together with spare parts to the extent of 5 per cent of the total value of the goods to be imported. The total value of the imports authorised was Rs. 47,406/-. The respondent could under the licence import the goods through any port in India.

Out of the permitted value under the licence, goods worth about Rs. 9,919/- were imported by the respondent through the Bombay port. The respondent then wanted to arrange the rest of the import through the Calcutta port.

At the request of the respondent the Customs authorities of Bombay gave a release order in respect of the remaining goods to be imported in terms of the aforesaid licence through the Calcutta port.

By an indent of November 11, 1958, the respondent placed orders with M/s Fuji Trading Company Limited, Osaka, Japan, for supply of 162 pieces of industrial sewing machine head "Raruna Brand" and

~.,

~., +

.J,

208 dozen of oscillating rock shafts. By two other indents of Decem- A ber 3, 1958, the respondent sent orders to M/s Alickson & Company, Osaka, for the supply of 59 sets of industrial sewing machine head "Prosper Brand" and certain industrial sewing machine parts.

All these three indents were accepted by the two Japanese Companies in due comse. M/s Fuji Trading Company Limited shipped the goods against orders placed with them on January 30, 1959, by S. S. Sydney Marn. M/ s Alickson & Company also shipped the .goods covered by B the indents placed with them on January 28, 1959, by S. S. State of Andhm.

The respondent apparently had some, financial difficulties for rdeasing the goods at Bombay, as, according to it, it did not have sufficient credit with the Bombay Bank "to open the letter of credit with paymen'. of a nominal margin only".· The respondent, therefore approach- C ed the Bombay and Calcutta Cycle Company (briefly the Cycle Company), a partnership firm, which also used to carry on business as dealers in sewing machines and had previous dealings with the respondent.

The Cycle Company agreed to guarantee the letter of credit if it were opened through their Bankers at Delhi.

The respondent agreed to do so and thereupon at the request of the Cycle Company the Mercantile Bank Limited of Delhi agreed to act as the D respondent's Bankers and also to allow the respondent to open the letter of credit. Thereafter on or about December 29/30, 195S, the respondent opened with the Mercantile Bank Limited, Delhi, a lotter of credit being L. C. No. J()l/1085. The respondent advanced a sum of Rs. 2884.50 np by way of marginal deposit to the exteiat of 10 per cent of the value of the letter of credit and the necessary Bank charges.

On February 20, 1959, while the said goods were on the high seas there was au agreement between the respondent and the Cycle Company by which the respondent agreed to sell and the Cycle Company agreed to buy at a future date certain quantities of industrial sewing machine heads and oscillating rock shafts.

The contract of sale may be quoted in extenso : F

"SALE CONTRACT" We Messrs. Pednekar and Co. Private Ltd., 172, Girgaon Road, Bombay-4 hereby agree to seU in forward sale 'Industrial' Sewing Mechine Heads and part~ thereof to Messrs. Bombay & Calcutta Cycle Co. of 48, Popatwadi, Kalbadevi Road, Bombay, on the following terms and conditions :

Items and quantity: 221 pcs. Industrial Sewing Machine Head TA-1 Model complete with knee Lifter, accessories box Bobbin winder made in Japan.

200 dozen Oscillating Rock Shaft "Coto" brand made in Japan.

Rates and value : 221 pcs. Industrial Sewing Machine Heads @ 305/- per machine .

Rs. 67,405/- 200 dozen Oscillating Rock Shaft @ Rs. 24/- per dozen . .

Rs. 4,800/·

TOTAL Rs. 72,205/-

12-725SCI/76

A Payment: The sum of Rs. 13,300/- already received by the sellers from the buyers (Rs.7000/- received on 19th June, 1958, Rs. 2300/- received on 7th July, 1958, and Rs: 4.000/- received on 22nd December, 1958) will be adjusted against the above payment.

The sum of Rs. 56,000/- (Rs. fifty six thousand only) will be paid by the buyers as and when required before the delivery of the goods and the balance sum of Rs.

2,905/- will be paid by the buyer after the delivery of the goods to them in good condition in their godown.

Place of delivery: Buyers' Godown at Bombay.

Time of Delivery : June-July 1959.

Sales Tax : Buyers will issue 'K' Form (Bombay Sales Tax) against sellers Bill for the goods.

Bombay, dated 20th February, 1959.

We confirm.

For Bombay & Calcutta Cycle Co.

Sd/- Partner".

For Pednekar & Co. Private Ltd.

Sd/- Managing Director 1

S. S. State of Andhra and S. S. Sydney Maru arrived at the port of Calcutta on February 26 and February 27, 1959, respectively The respondent instructed the Bankers to engage Ml s Mackinon Mackenzie & Co. Pvt. Ltd. (briefly the Clearing Agents) as Agents for clearing the goods arriving by the said two ships.

The Bankers were also asked to despatch the shipping documents to the Clearing Agents.

The Bankers carried out these instructions and the Clearing Agents filed with the Customs auhorities, Calcutta, bills of entry in respect of the aforementioned goods for consumption in the name of the respondent.

On the requisition of the Customs authorities several documents, as required, were supplied to them.

Informations as to who guaranteed for the letter of credit, who retained the documents and who paid for the goods were also supplied to the Customs authorities by the Clearing Agents as desired.

On October 23, 1959, the Assistant Collector of Customs for Appraisement issued a show cause notice on the respondent under section 167(8) and section 167(37) of the Sea Customs Act, 1878, read with section 3 (2) of the Imports and Exports (Controlj Act 194 7 relating to the goods that arrived by S. S. Sydney Maru.

On November 18, 1959, an exactly similar show cause notice was served upon the respondent by the Assistant Collector of Customs in respect of the goods arrived by S. S. State of Andhra.

In these notices it was alleged that the importation of the goods in question had been made by the Cycle Company without any valid import licence in their favour and not by the respondent and that the Cycle Company was the real owner of the goods.

It was further alleged that the respondent had aided and abetted in the unauthorised importation of the goods by the Cycle Company. There was a. further charge that the respondent had transferred the licence in favour of the Cycle

Company. It was alleged in the show cause notice of October 28, 1959, that the licence in any case did not cover the importation of oscillating rock shafts.

The respondent was asked to show cause within 14 days of receipt of the respective notices as to why the goods should not be confiscated and why a penalty should not be imposed on the respondent for being concerned in the unauthorised importation of the said goods.

The respondent was also asked in the first show cause notice to show cause why oscillating rock shafts of the value of Rs. 1373.19 np should not be confiscated under section 167(37) of the Sea Customs Act and why a penalty should not be imposed on the respondent.

The respondent submitted its explanation repudiating the allegations.

The respondent further contended that the oscillating rock shafts were spare parts of which clearance could be allowed to the extent of 5 per cent of the face value of the hcence.

The respondent denied the applicability of clause 3 7 of secllon 167 of the Sea Customs Act and demanded the release of the goods imt' mediately.

On December 17, 1959, the Assistant Collector addressed a Jetter to the respondent which is described as an additional show cause notice.

The substance of the allegations made in this letter is that the goods in question were ascertained and specific goods and that the property in the goods had passed from the respondent to the Cycle Company by reason of the agreement for forward sale elated February 20, 1959, and that the property in the goods had already vested in the Cycle Company at the time of importation so that the goods were not covered by the licence submitted by the respondent.

The respondent was asked to n; iake further submissions within a fortnight from receipt of this letter.

There was a similar additional E show cause letter dated December 22, 1959, addressed to the respondent with regard to goods which arrived by S. S. State of Anclhra.

The respondent sent a reply to the additional show cause notices. The respondent denied in its explanation that the property in the goods had passed to the Cycle Company before the goods were cleareJ.

• '

On March 18, 1960, the Deputy Collector of Customs passed an order by which the goods which arrived by S. S. State of Andhra were confiscated under section 167(8) of the Sea Customs Act read with section 3(2) of the Imports and Exports (Control) Act, 1947. A personal penalty of Rs. 3501was also imposed on the respondent as well as on the Cycle Company. Thereafter on March 23, 1960, the Deputy Collector of Customs passed another order by which the goods which arrived by S. S. Sydney Maru were confiscated and a personal penalty of Rs. 1000/- was imposed on the respondout as well as on the Cycle Company.

The above is the background which led to two writ applications in the High Court against the aforesaid two orders under article 226 of the Constitution of India which the respondent filed against . the

appelants impleading also the Cycle Company as respondent No. 4 therern.

The earned. sin_gle judge of te High Court dismissed the rcspnndent s wnt apphcallons except with reference to the oscillating rock

shafts.

According to the learned judge these shafts were properly imported under section 2, Part V, Item 76(a) of the Import Trade Control Policy Book, but these shafts also except 8 dozen were liable :...__ • to confiscation in view of his decision against the respondent in respect of 200 sewing machine heads. The respondent then appealed to the Division Bench of the High Court. The Division Bench allowed the appeals by setting aside the judgment of the single judge without disturbing at the same time the aforesaid portion of the judgment regarding oscillating rock shafts.

The High Court granted certificates to appeal to this Court under article 13 3 (1) (a) of the Constitution of India to the appellants.

We may note in passing that during the pendency of the p10ceedings before the lligh Court, the respondent was wound up by an order of the High Court of Bombay and necessary substitution was made.

We are only concerned in these appeals with the confiscation of '1 200 sewing machine heads and of 200 oscillating rock shafts.

Since there had been n;, appeal by the appellant against that part of the order of the single judge with regard to the importation of 8 oscillating rock shafts, Mr. Sanghi has, rightly, not addressed us in respect of the same.

Mr. Sanghi at the commencement of his argument submitted, to quote his own words, that "the main thrust of the show cause notice was the realness of the transaction". In other. words, he wanted to raise the question, which had also been unsuccessfully pressed into service before the Division Bench that though everything ostensibly was done by the respondent the real importer in the case was the Cycle Company and the respondent merely lent his name.

The "- Division Bench, in our opinion, rightly rejected the submis; ion holding that that was a completely new case which had not been made out either before the adjlldicator or before the learned single judge. The Division Bench further rightly helcl as follows :-

'It was never the contention of the Customs authorities that the importation of the goods was not done by the petitioner and that though everything is ostensibly done by the petitioner the real importer is B. C. Cycle Company. In the show cause notice there is no allegation made on the part of the Customs that the contract with the Japanese supplier was a sham or that the petitioner's contract with the B. C.

Calcutta Cycle Co., was also a sham transaction."

We are, therefore, unable to agree with Mr. Sanghi that he can be permitted to raise this question of a "make-believe" transaction by the respondent.

The only question, therefore, that arises for decision in this case and on which Mr. Sanghi has addressed us is as to the question whether property in the goods had passed to the Cycle Company when the contract.had been entered by the respondent with it, that is to say. prior to the arrival of the goods at Calcutta port for clearance. .

We may even quote what was stated in the additional show cause A notice:

• A "Thus it appears that the sale contract which purports

to be an 'agreement to sell' is actually a sale and that the property in the subject goods vested with M/s Bombay & Calcutta Cycle Co., at the time of importation."

The learned single judge answered the question in the following words:-

"In this case the goods were specific goods in a deliverable state as already held. There was nothing in the contract indicating that the property in the goods would pass to the buyer at a later stage.

Therefore, under section 20 of the Sale of Goods Act, the property passed at the time of the contract of sale and it was immaterial that time for payment of price and also time for delivery were postponed."

The Division Bench, on the other hand, after extensively dealing with all the facts and circumstances of the case including the terms of the contract, came to the conclusion that-

" .... no property could pass before the goods were delivered at the Bombay god owns of the B. C. Cycle Company."

The controversy bas to be resolved by reference to sections 18, 19 and 20 of the Sale of Goods Act, 1930.

It is, in our opinion, not possible to hold that the property in goods passed at the time of agreement dated February 20, 1959.

The contract to sell related not to the entire consignment of th~ goods which were being imported by the respondent but only to part of those goods, even though it may be a major part. Out of 208 dozen rock shafts which were imported, 200 dozen were to be sold by the respondent company to respondent No. 2.

There was nothing to prevent the respondent company from selecting for itself any eight dozen rock shafts out of the whole consignment.

The µlace of delivery of the goods was buyers godown in Bombay. The property in the goods could not pass in favour of respondent No. 2 until, after lhe arrival of the goods in Bombay, two hundred dozen rock shafts to be delivered to the buyer were separated. So far as industrial sewing machines were . concerned, the property in them could also not µass to the buyer before the passing of the property in rock shafts as the contract between the respondent company and the buyer was one indivisible contract. The High Court, in our opinion, rightly held that the property in the goods did not pass to the buyer till the time of the delivery of the goods Jn Bombay.

No specific goods in a deliberable state were attached to the contract when i• wns made.

Mr. Sanghi submits that the fact that the Cycle Company was Principally financing the whole transaction and stooJ guarantee to the H Bankers in Delhi enabling the respondent to open a lefter of credit for the importation of the goods clearly indicates that, notwithstanding the place of delivery in the contract; the parties intended that the

imported goods were appropriated to the contract when the same was. made. In many genuine commercial transactions guarantee can be arranged by a party importing or exporting goods under a valid , licence.

The mere fact of financial guarantee to a Banker for the ,\.. • purpose of opening a letter of credit, without any thing more, would not convert tne guarantor to be th(\ owner of the property the moment the contract was entered if the terms therein pointed to the contrary.

We are unable to hold that the mere fact of the Cycle Company being the guarantor with regard to the financial arraui; emunt, which the respondent made with the Bankers in Delhi, would lead to the inescapable conclusion that the property in the goods had passed to the Cycle Company at the time wheu the contract was made. The correspondent between the respondent and the Cycle Company, that between the part; es and the Banker and the arran geIU!lts for clearing the goods through the Calcutta Clearing House relied upon by Mr. Sanghi, do not lead to a contrary conclusion.

It is clear that the respondent had a valid import Iiceuce under the cover of which 1t imported the goods from Japan and, as we have held above, the property in the goods had never passed during the importation as alleged by the Customs auhorities.

The entire controversy before the adjudicator was with reference to the importation of the goods by the Cycle Company which fact was sought to be established against the respondent from the legal position urged with regard to the passing of property to the Cycle Company at the time the contract had been made on February 20,

1959. Mr. Sanghi submits that if, on the facts and circumstances, conduct of the parties and the correspondences during the relevant pceriod takethn withd' thd~ advance of finathnce and 1

aranhtee ohf the Gycle \, ompany, e a JU 1cator came to e cone us10n t at t e property had passed and the goods were liable to confiscation and the conclusion was prima facie reasonable the High Court had no jurisdiction to interfere with the order under article 226 of the Constitution.

This would be true,. says counsel. even if the High Court could on the same facts and circumstances take another view in the matter.

We are unable to accede to the submissi<m,

We ate dealing with an order of confiscation of ce; tain goods imported under a licence granted to the respondent.

It was never • disputed that it was a valid licence.

It was alsel not an Actual User licence. The respondent, therefore, could sell these imported goods to others. The whole matter, therefore, tamed on the legal issue as to whether property had passed at the time the respondent had enter- ) ed mto the contract for the sale of the imported goods. Even the Customs Authority in its additional show cause notice made particular reference to section 20 of the Said of Goods Act and pointed out that:-

"the ownership in the goods under consideration appears to have passf'd on to M/s Bombay. & Calcutta Cycle Co. right from the time the sale contract was concluded.''

When, therefore, on the terms of the contract along with other relevant facts and cilc11111Stances which had to be looked into by the adjudkator for application of section 20 of the Sale of Goods Act, he COIDllllUed a maruiest error of Jaw appaent on the face of the order the High Court's jurisdiction to interfere under article 226 of the Constitutio11 is clearly attracted. The sumbission of Mr. Sanghi is, therefore, without any force.

In the view we have taken regai:ding passing of property in the goods we need not d'al with Mr. Sangbi's submllision with reference to the provisions of warranty under section 12, of the Sale of Goods Act.

The orders of confiscation of the goods and penalities imposed are invalid and the High Court was right in quashing the same by issu- C ing the appropriate writs.

In the result the appeals are dismissed with costs.

V.P.S .

Appeals dismissed.

COLLECTOR OF CUSTOMS & ORS

PEDNEKAR AND COMPANY (PRIVATE) LIMITED (IN LIQUIDATION) & ANR

March 31, 1976

H. R. KHANNA

P. K. GOSWAMI, JJ.

Sale of Goods Act

s. 20

Constitution of India

Art. 226

Bombay

Calcutta

Delhi

Being in some financial difficulty the first respoildent approached the 2nd respondent, and the latter stood guarantee to Bankers at Delhi enabling the first respondent to open the necessary letter of credit.

Art. 226

Art. 226

G. L. Sanghi

Girish Chandra

H. K. Puri

M. C. Dhingra

GOSWAMI

April 6, 1967

April 16, 1958

India

Fuji Trading Company Limited

Osaka

Alickson & Company, Osaka

January 30, 1959

S. S. Sydney Marn

Alickson & Company

January 28, 1959

S. S. State of Andhm

Bombay Bank

Bombay and Calcutta Cycle Company

Mercantile Bank Limited of Delhi

December 29/30, 195S

Mercantile Bank Limited

February 20, 1959

19th June, 1958

7th July, 1958

22nd December, 1958

S. S. State of Andhra

S. S. Sydney Maru

Mackinon Mackenzie & Co. Pvt. Ltd.

October 23, 1959

section 167(8)

section 167(37)

Sea Customs Act, 1878

section 3

November 18, 1959

S. S. State of

Andhra

October 28, 1959

section 167(37)

Customs Act

clause 3

Customs Act

December 17, 1959

December 22, 1959

March 18, 1960

section 167(8)

Customs Act

section 3(2)

March 23, 1960

article 226

Constitution of India

section 2

article 13

Constitution of India

High Court of Bombay

Sanghi

B. C. Cycle Company

B. C.

Calcutta Cycle Co.

Bombay & Calcutta Cycle Co.

section 20

Sale of Goods Act

sections 18, 19 and 20

Sale of Goods Act, 1930

Japan

February 20,

article 226

section 20

Bombay. & Calcutta Cycle Co.

section 20

Sale of Goods Act

article 226

Sangbi

section 12

Sale of Goods Act


STATE OF MAHARASHTRA v.

NARAYAN VYANKATESH DESHPANDE

March 31, 1976

[P. N. BHAGWATI, A. C. GUPTA ANDS. MURTAzA FAzAL ALI, JJ.]

Bombay Paragana. and Kulkarni Watans (Abolition) Act, 195omf.ensa~ tion payable on resu1nption of land under s. 6(2)-Whether the wllt'!n was in respect of the soil or the watan was of land revenue-Construction of "Sanad" granted by the British Governnient in tertns "The Exemption From Land Revenue (No. I) Bombay Act 2 of 1863.

The respondent by virtue of the sanad granted to his ancestors by the British Government, claimed, in respect of certain lands situated in village Shiramba Taluka Koregaon, District North Satara, compensation under s. 6(2) of the Bombay Paragana and Kulkarni Watans (Abolition) Act, 1950, for the resumption of the lands by the appellant. The suit claim of Rs. 15,074-4-0 being "a sum equal to ten times the amount of such land revenue" was decreed by the trial court.

On appeal by the State, the High Court affirmed the same, after construing the sanad granted by the British Government in favour of the respondents' ancestors and other relevant records. as it was a watan of land revenue and not in respect of the soil.

Dismissing the State's appeal by special leave to this Court,

HELD : (I) The High Court was right in holding that the grant in favour of the ancestors of the respondent was a grant of land revenue only and not a grant of the soil and since the watan held by the respondent at the date of the coming into force of the .Act was a watan of land revenue, the respondent was entitled to con1pensation in the sum of Rs. 15,074-4-0 under s. 6(2) of the Bombay Paragana and Kulkarni Watan (Abolition) Act, 1950.

[982B-C]

(2) The sanad undoubtedly used the words "lands" to describe the subject matter of the grant. but the word "land" is defined in Bombay Act II of 1863 [The Exemption From Land Revenue (No. 1) Act 1863, l to include share of land revenue and this meaning would apply in the construction of the word "land" in the sanad since the sanad was apparently granted pursuant to the enquiry made under Bombay Act II of 1863. The description of the sUbjectmatter would not, therefore, necessarily indicate that it was a grant of the son.

In fact, this_ description standing alone would rather indicate that it was a grant of land revenue only, since grant of the soil would ordinarily be accom panied by words such as 'Darobast' or 'Jal', 'Tarn', 'TruDa', 'Kastha' and 'Pashan'. [981F-H]

[Their Lordships deprecated the litigious approach adopted by tbe State Government and observed "State Governments which have public accountability in respect of their actions should not lightly rush to this , Court to challenge a JUdgme'!t of the igh Court which is plainly and manifestly correct and drag the opposite party in unnecessary expense.]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1381 of • 1968. ,,,

(Appeal by Special Leave from the Judgment and Decree dated the 22-2-1967 of the Bombay High Court in First Appeal No. 12/1960).

M. N. Phadke, M. N. Shroff and S. P. Nayar, for the appellant.

V. S. Desai and D. Goburdhan, for the respondent.

MAHARASHTRA v. N. v. DESHPANDE (Bhagwati, J.) 981

The Judgment of the Court was delivered by

BHAGWATI, J.-This appeal by special leave raises a short ques- • tion as to whether the Watan held by the respondent at the date of coming into force of the Bombay Paragana and Kulkarni Watans (Abolition) Act, 1950 was .a Watan of the soil, or a Watan of land revenue ouly, in respect of certain lands situate in village shirambe, Taluka Koregaon, District North Statara. If the Watan was in respect of the soil, the respondent would not be entitled to any compensation for the resumption of the Watan lands, but if it was a Watan of land revenue only, the respondent would have a claim for compensation for a "a sum equal to ten times the amount of such land revenue" under s. 6(2) of the Act.

The respondent claimed that the Watan was of land revenue only and not of the soil and he was, therefore, entitled to compensation as provided in s. 6(2) of the Act and filed a suit for recovery of Rs. 15,074-4,0 by way of compensation against the State of Maharashtra in the Court of Civil Judge, Senior Division, r Satara. The claim was decreed by the learned Civil Judge, Senior Division and on appeal by the State of Maharashtra the High Court affirmed the view taken by the learned Civil Judge, Senior Division.

The High Court construed tl1e Sanad granted by tl1e British Government in favour of the ancestors of the respondent in the light of the surrounding circumstances and particularly the entries contempmaneously made in the alienation register and came to the conc!tision that the grant embodied in the Sanad was not a grant of the soil but was merely a grant of land revenne and the respondent was, threfore, entitled to claim compensation the basis laid down in s. 6(2) of the Act.

The State of Maharashtra being aggrieved by the decree passed by the learned Civil Judge, Senior Division and affirmed by the High Court preferred the present appeal with special ;/ leave obtained from this Court.

We have carefully gone through ,!he judgment of the High Court and we find ourselves completely in agreement with the conclusion reached there.

The judgment of the High Court is a well reasoned judgment and the learned counsel appearing on behalf of the State of Maharashtra has not been able to show any infirmity in it. The opening part of the Sanad clearly shows that it was issued in recognition of a grant which was already made in favour of the ancestors of the respondent.

The Sanad 'undoubtedly used the word 'lands' to describe the subject-matter of the grant, but the word 'land' is defined in Bombay Act 2 of 1863 to include share of land revenue and this meaning should apply in the construction of the word 'land' in the Sanad, since the Sanad was apparently granted pur$nant to the enquiry made under Bombay Act 2 of 1863.

The description of the subject matter of the grant as 'lands' in the Sanad would not, therefore, necessarily indicate that it was a grant of the soil.

In fact, this description standing alone would rather indicate that it was a grant of land revenue only, since grant of the soil would ordinarily be accomoanied by words such as 'Darobast' or 'Jal', 'Taru', 'Truna', 'Kastha' and 'Pashan.' Moreover, the entries contemporaneously made in the alienation register also showed that the grant referred to in the Sanad was

a grant of land revenue only and not a grant of the soil.

The High

SUPREME COURT REPORTS

(1976) 3 S.C.R.

A Court has discussed these entries and it is not necessary for us to reiterate what has been so ably said by the High Court. The earlier documents relied upon by the respondent have also been referred to by the High Court and they clearly go to show that the grant was of >--• land revenue and not of the soil. This position was in fact accepted by the Revenue Officers all throughout and that is evident from the order of the District Deputy Collector, Satara dated 19th August, 1937 B (Ex. 28) and the decision dated 28th February, 1951 (Ex. 331) given by the Collector of North Satara allo_wing_ an appeal filed by the respondent.

We are, therefore, of the view that the High Court was right in holding that the grant in favour of the ancestors of the respondent was a grant of land revenue only and not a grant of the soil and since the Watan held by the respondent at the date of the coming into force of the Act was a Watan of land revenue, the res- C pondent was entitled to compensation in the sum of Rs. 15,074-4-0 under s. 6(2) of the Act.

It is indeed difficult to understand as to why the State of Maharashtra should have preferred the present appeal at all. The judgment of the High Court was pre-eminently a correct judgment based on a careful appreciation of the evidence on record and it did no more than adopt a construction of the grant which had throughout been accepted as the correct construction by the Revenue Officers over the last 7 5 years.

The learned counsel appearing on behalf of the State of Maharashtra in fact found it impossible to assail the reason ing of the judgment. It is evident that the appeal was filed by the

State of Maharashtra without giving much thought to the question and caring to enquire whether the judgment of the High Court suffered from any errors requiring to be corrected by a superior court.

We do not think it is right that State Governments should lightly prefer an appeal in this Court against a decision given by the High Court unless they are satisfied, on careful consideration and proper scrutiny, that the decision is erroneous and public interest requires that it should be brought before a superior court for being corrected.

The State Governments should not adopt a litigious approach and waste pnblic revenues on fruitless and futile litigation where there are no chances of success. It is unfortunately a fact that it costs quite a large sum of money to come to d1is Court and this Conrt has become untouchable and unapproachable by many litigants who cannot afford the large expense involved in fighting a litigation in this Court.

It is, therefore, all the more necessary that State Governments, which have public accountability in respect of their actions, should not lightly rush to this Court to challenge a judgment of the High Court which is plainly and manifestly correct and drag the opposite party in unnecessary expense, part of which would, in any event, not be compensated by award of cost.

The present appeal is an instance of the kind of unnecessary and futile litigation which the State Governments can and should avoid.

We accordingly dismiss the appeal with costs.

S.R.

Appeal dismissed.

STATE OF MAHARASHTRA

NARAYAN VYANKATESH DESHPANDE

March 31, 1976

P. N. BHAGWATI

s. 6(2)

Satara

s. 6(2)

s. 6(2)

Bombay Act II of 1863

Bombay Act II of 1863

M. N. Phadke

M. N. Shroff

S. P. Nayar

V. S. Desai

D. Goburdhan

BHAGWATI

s. 6(2)

s. 6(2)

State of Maharashtra

s. 6(2)

19th August, 1937

28th February, 1951

North Satara

331) given by the Collector of North Satara allowing an appeal filed by the respondent.

s. 6(2)


UNDAVILLI NAGARATHNAM & ANR. v.

REDDI SATYANARAYANA MURTHI & ORS.

April I, 1976

[H. R. KHANNA AND P. K. GOSWAMI, JJ.]

Transfer of Property Act 1882-Secs. 76 (a)(e), 105-Meaning of lease- Distinction between lease & settlement-Whether recital in a document conclugive-Andhra Pradesh (Andhra Area) Tenancy Act 1956 Secs. 2(/)(e) 16, 17-

Meaning of Landlord and Tenant-Bar of ; urisdiction.

One Mr. Subbarayudu had no male issue. He had his wife, plaintiff No. 2, and two daughters, one of whom is plaintiff No. 1 and another defendant No. 4.

The defendant No. 1 is the son of defendant No. 4.

Mr. SubbaraYudu and plaintiff No. 2 made various gifts in favour of their daughters. Shri Subbarayudu

made a settlement in the year 1955 whereby he gave the properties in Schedules A and B to the first plaintiff. The properties were to be enjoyed by Subbarayudu and plaintiff No. 2 during their life time and after the death of Subbarayudu plainti:ffi No. 1 was to get property mentioned in Schedule A and after the death of plaintiff No. 2 she was to get property mentioned in Sche-' dule B.

In 1958, Subbarayudu was alleged to have executed 4 documents including a Deed of Revocation revoking the settlement of 1955.

In 1958 Subbarayudu entered into a document with defendant No. 1 giVing him possession of the property in which he had life interest. The document provided that defendant No. 1 should deliver 43 bags of paddy every year to Subbarayudu and take a receipt.

After the death of Subbarayudu plaintiffs Nos. 1 and 2 basing their claim on the settlement of 1955 called upon the defendant No. 1 to deiiver the possession of the property. The two issues which now survive are whether defendant No. 1 is entitled to any protection under the Andhra Tenancy Act and secondly whether the deed executed by Subbarayudu in favour of first defendant is a settlement deed or a lease. The Trial Court found that the settlement deed of 1955 was valid and that the subsequent deed of revocation was invalid. The High Court confirmed the said findings.

The same are not under challenge. The Trial Court, however, held the document to be a settlement deed and not a lease and that. therefore, the first defendant was not entitled to any protection under the Andhra Pradesh (Andhra Area) Tenancy Act, 1956.

Accordingly, the Trial Court decreed the suit of posses_sion in favour of the plaintiffs.

The High Court in appeal came to the conclusion that the document satisl fied all the conditions of the definition of lease under section 105 of the Transfer of Property Act and could not b~ treated as settlement,

The appellant-plaintiffs contended

( 1) That the High Court was wrong in holding the document to be a lease and not a settlement.

(2) Subbarayudu had re_served only life interest in Schedule A and B (j Properties and after he gifted the same to the plaintiff No. 2 he could not in , law imperil her right to possession of the same after his death by leasing out "\ the same property .

. (3) In. any case it was .not. an act of pruden.t l!lanagement of the proper .. ttes in .which he. had only hfe .interest and the pnnc1ples applicable to a mort ..

gagee m possession under section 76(a) and (e) of the Transfer of Property Act would. b~ applicable in the present caseand the lease would not be binding on the plambffs.

( 4) Plaintiffs are not landlords within the meaning of Section ct and the defendant No. 1 is not a cultivating tenant under tiffs.

2(f) of the the plain-

Dismissing the appeal,

HELD : 1. The document is described as Settlement Deed but that recital is not decisive of the real intent of the document. The document makes it clear that the possession was handed over to defendant No. 1; that the defendant No. 1 was to give 43 bags of paddy every year and it further mentioDs "without subjecting me to do any expense \.vhatsoever and obtaining proper receipts from me". The document does not disclose the disposition of the pro~

'.B perty by a grandfather to a grandson but a business-like instrument. [988C-E]

2. Subbarayudu was old and the Settlement Deed made it clear tltat during his life time he would enjoy the produce of the land. and therefore, he was keen to have at least some paddy from the land during his life time as a source of income and perhaps thought that his grandsonwould faithfully carry out the conditions without creating any difficulties.

[699CDJ

3. Assuming without deciding that the principles under section 76(a) &

(e) of the Transfer of Property Act might be applicable, it cannot be said that granting of the lease to defendant No. 1 in the entire circumstances of the case was not a prudent act of management of the properties. In view of the relationship of the parties that was a natural arrangement for cultivation of the land.

[989E-FJ

4. When a person with fu11 knowledge of the Jaw, ignorance of which is no excuse, enters upon a lawful transaction or executes a valid docnrnent, the rights flowing from the ]a\v cannot be denied to those who are entitled to their benefit on the supposed theory of estoppel or a plea of contracting out by implication. [990A-BJ

5. Section 2(f) defines a landlord to mean the owner of holdin1! or part thereof who is entitled to evict the cultivating tenant from such holding and includes the heirs and assigns, legal representatives of such owners. <tr per sons deriving rights through him. Section 2 ( c) defines cultivating tenant to mean a person who cultivates by his own Jabour or by hired labonr under his supervision and control any land belonging to anq_ther under a tenancy agreement, express or implied. The High Court has found that defendant No. 1 was a cultivating tenant of the landlord. In view of the conclusion that the instrument is of lease there is no difficulty in holding that Subbarayudu was the, landlord and on the death of Subbarayudu plaintiffs are landlords. Section 16 of the Act provides for a special forum for adjudication of disputes under the Act including eviction of cultivating tenants and under section 17 of the Act the provisions of the act override anything inconsistent there\vith contained in any preexisting law, custom, usage, agreement or decree or order of a Court.

[990C-F, 991E-FJ

CIVIL APPELLATE JURISDICTION 1968.

Civil Appeal No. 1048 of

Appeal from the Judgment and Decree/Order dated the 26th April 1967 of the Andhra Pradesh High Court in Appeal No. 64 of 1962.

M. Natesan, K. Jayaram and R. Chandrasekar, for the Appelhnt.

B. V. Subramanyam, I. Balaiah and G. Narasimhulu, for Respondent No. 1.

Ex-parte for Respondents 2-4.

H The Judgment of the Court was delivered by

GOSWAMI; J .-This is an appeal on certificate from the judgment of the Andhra Pradesh High Court.

) ;

u. NAGARATHNAM v. R. s. MURTH! (Goswami,!.)

98S.

The two plaintiffs in the original suit are the appellants.

They brought a suit in the court of the Subordinate Judge, Rajahmundry, for evicting defendants. 1 to 3 from the properties in Schedule A, B and C and for delivery of possession of A and C Schedule properties to the first plaintiff and of the B Schedule properties either to the first plaintiff or to the second plaintiff. The suit properties were owned and possessed by Meenavalli.

Suhbarayudu of Vedurupaka (hereinafter to be described as Subbarayudu). Subbarayudu was the husband of the second plaintiff and .father of the first plaintiff. He had no male issue. He had only two daughters, plaintiff No. I and defendant No. 4,, who was the older of the two.

Subbarayudu made various dispositions of his property by executing several documents during his life time in favour of his daughters.

So did bis wife, the second plaintiff. While making such dispositions he was careful enough to make provision for himself and for his wife during their life time.

The fourth defendant was married in 1923 and defendant No. 1 is her son.

The first plaintiff was married in 1935.

After the marriage of the first plaintiff the mother executed a deed of gift (Ex. B-6) on February 13, 1935 in her favour in respect of certain land.

On the same day her father also executed in her favour of deed of gift (Ex. B-7) in respect of some other land.

On Jnne 7, 1935, Subbarayudu executed anothe.r deed of gift ii1 favour of his first daughter, defendant No. 4, giving her also some land (Ex. B-8).

All the three documents were registered on the same day, namely, on June 11, 1935.

After about nine years the mother executed a settlement deed (Ex. B-5) dated Jnne 7, 1944, in respect of her joint 1/3 share in certain properly in favour of her two daughters to be shared by them equally reserving life interest for herself.

Then followed a settlement deed (Ex. A-4) of Januarv 8, 1950, executed by Subbarayudu in favour of the first plaintiff gi'ving her ten acres of pasture land as mentioned in C Schedule.

Subbarayudu further executed a registered deed dated January 23, 1950

<Ex. A-B), described as will, whereby he gave to his daughters all the properties barring a few mentioned therein and stating that after his own life time and after the life time of his wife all his movable and immovable properties would be taken in equal shares by his two daughters.

On April 14, 1955, he executed a settlement deed (Ex. A-\) whereunder he gave A and B Schedule properties to the first plaintiff, his second daughter. By this document the A Schedule property was to be enjoyed by the first plaintiff after his life time and B Schedule property after the life time of her parents.

Three years later on August 4, 1958, Subbarayudu executed four more documents including a deed of revocation. Ex. B-10 is the document by which the earlier document Ex. A-1 was revoked stating that the earlier one had been brought about by fraud and misrepresentation.

Ex. B-11 was exec';'ted P';'rporting to settle his property on both the daughters to be en1oyed m equal shares after the life time of their parents. Ex. B-12 was executed in favour of his wife and the elder daughter giving them a certain extent of the land in Mellore village ?esides the house sites and houses in Vedurupaka. It was mentioned m Ex. B-12 that after his life time his wife would be in possession without powers of alianation and that thereafter the elder daughter

would be entitled to possession and enjoyment of the property as an absolute owner.

Ex. B-13 was executed in favour of the first defendant, namely, grandson of Subbarayudu through his first daughter, giving him possession of the properties in which he had life interest stipulating at the same time that he (the first defendant) should deliver forty three bags of paddy and obtain receipt from him every year during his life time.

The plaintiffs' case is that Subbarayudu had leased out A and B Schedule properties mentioned in Ex. A-1 on August 16, 1958, to the third defendant, the son of the second defendant and that both these defendants were in possession of the properties as tenants from that time.

Subbarayudu died on May 5, 1960.

After his death plaintiffs 1 and 2 basing their claim on Ex. A-1 respectively gave notice to the third defendant on June 14, 1960 and on July 11, 1960, to deliver back the lands in their possession.

The third defendant replied that he was only working as a farm servant under the first defendant and the latter was the lessee under a deed dated August 4, 1958 and that the settlement deed in favour of the plaintiffs had been removed by late Subbarayudu.

The firs\ plaintiff also had trouble with the first defendant when the latter drove away his watchman and lodged a complaint with the police claiming that he was in possession of the lands.

The first plaintiff thereupon sent a notice on August 20, 1960, to the first defenc, lant who, on the other hand, asserted his rights in the lands under a deed of settlement (Ex. B-13) dated August 4, 1958. That led to the institution of the present suit by the plaintiff out of which this appeal has arisen.

The first daughter of Subbarayudu was impleaded as defendant No. 4 in the plaint.

The first and the fourth defendants filed separate written statements. Defendants Nos. 2 and 3 filed a memo adopting the written , statement filed by the first defendant.

All of them repudiated the .plaintiffs' claim for possession of the lands.

Several issues were raised, but we are concerned in this. appeal only with Issue No. 5 and the additional Issue No. 1 which are as follows :-

"Issue No. 5.

Whether defendant No. 1 is entitled to any protection under the Andhra Tenancy Act ?

Addition"'! Issue No. 1 "Whether the deed dated 4-8-1958 executed by late Meenavalli Subarayudu in favour of the !st defendant is a settlement deed or a lease ?"

It may be mentioned that issue were raised regarding the validity Of Ex. A-1, Ex. B-10, Ex. B-11 and Ex. B-13. The trial court held that Ex. A-1 on which the plaintiffs based their suit was a valid document.

The trial court further held that the deed of revocation (Ex. B-10) and deed of settlement (Ex. B-11) were invalid.

The High Court affirmed these findings of the trial court and that con- troveTsy is closed.

/ I

With regard to Ex. B-13, the trial court held it to be a true document and that it was a settlement deed and not a lease and that the first defendant was not entitled to any protection under the Andhra Pradesh (Andhra Area) Tenancy Act, 1956 (briefly the Andhra Act) and tha! defendants 2 and 3 were not tenants in possession of the land at the time of institution of the suit. In the view it took the trial court decreed the suit for possession of A and C Schedule properties in favour of the first plaintiff and directing that the future profits, which would be payable. by the first defendant, were to be determined in separate proceedings.

The suit was also decreed in favour of the second plaintiff for possession of the B Schedule properties with similar orders regarding future profit>.

On appeal by the defendants the High Court, after hearing the parties, remanded the matter for a finding under order 41, rule 25.

Civil Procedure Code, by framing the following issue :

"Whether the plaintiffs accepted the gift of A and B Schedule properties by late Subbarayudu before its revocation on 4-8-1958 by late Subbarayudu"?

The subordinate judge returned a finding that the gift had been D accepted prior to the execution of the deed of revocation (Ex. B-10) .

The High Court thereafter heard the appeal and partly allowed the same.

The High Court, in disagreement with the trial court, came to the conclusion that the document Ex. B-13 satisfied all the conditions of the definition of lease under section 105 of the Transfer of Property Act and could not be treated as a settlement. The High Court further observed :

"The term of lease is co-terminus with the life of the lessor with the result that as soon as the life of Subbarayudu ended, the term of lease automatically expired.

On the death of Subbarayudu the property would pass to the persons specified in Ex. A-1. That must be the normal incidents of the transaction under the ordinary Jaw. At the time of the transaction of lease was entered into the Andhra Tenancy Act had already come into force. Subbarayudu was

the landlord and the 1st defendant was the cultivating tenant within the meaning of those terms in the Andhra Tenancy Act.

On the death of Subbarayudu his heirs, assignees and successors would likewise be landlords and they are entitled to evict the cultivating tenants".

Repelling the contention of the plaintiffs that the first defendant was not the tenant of Subbarayudu at all, but only a trespasser, the High Court held, on the oral and documentary evidence as well as on the admissions of defendants 2 and 3 with regard to the possession of defendant No. 1 as a lessee, that the defendant No. 1 was a cultivating tenant under the plaintiffs on the death of Subbarayudu. The High Court having come to that conclusion further held that the plaintiffs could evict the defendants only under the provisions of the

Andhra Act by making an appropriate application to the Tehsildar and not in the present sit in the civil court. The High Court, therefore, .grnted. all the reliefs prayed for by .the plaintiffs except that \., __ .,

of eviction from A and B Schedule properties which was directed to be obtamed by due recourse to the provisions of the Andhra Act.

The High Court accordingly partly allowed the appeal refusing the prayer for eviction from A ;µid B Schedule properties but at the same e declaring that. the plaintiffs were entitled to the suit properties m terms of Ex. A-1. The C Schedule property was not the subject matter of appeal before the High Court and the decree in relation to that property was unaffected.

Mr. Natesan, the learned counsel appearing on behalf of the appellants, submits that the High Court is wrong in holding that Ex. B-13 is a lease and not a settlement.

We have perused tl1e document (Ex. B-13). It is true that it is described in the very opening words of the document as "settlement deed". But that recital is not decisive of the real intent of the docu- 1' ment.

Under section 105 of the Transfer of Property Act, a lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or inlplied, or in perpetuity, m consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.

The necessary ingredients mentioned 1mder section 105 of the, Transfer of Propertv Act are found in the document (Ex. B-13). It is clear from the recitals that possession of the land was handed over by Subbarayudu to the first defendant for enjoying the same during the life time of Subbarayudu in consideration of "!ortythree weighed bags of paddy worth Rs. 800/-

.... every year commencing from 15-1-1959". The document does not disclose a disposition of the property by a grandfather to a grandson out of love and affection but is a business-like instrument. To illustrate, the document refers to paddy to be delivered to Subbarayudu "without subjecting me to any expenses whatsoever and obtaining proper receipts from me".

It goes on to say that "payment no,'. borne by receipt need not be given credit to you". We are satisfied that the document (Ex. B-13) fulfils the ingredients of a lease. under section 105 of the Transfer of Property Act.

The submission of Mr. Natesan, therefore, cannot be accepted.

Mr. N atesan next contends that Subbarayudu reserving only "life interest" in the Schedule A and B properties after he had gifted the same to the plaintiffs by Ex. A-1 on April 14, 1955, could not in law 1 imperil their rights to possession of the same a1ter his death by .,- leasing out the same properties in 1958 in the manner done in view / of the provisions of the Andhra Act which had already come into force in 1956. At any rate, says Mr. Natesan, it was not an act of prudent management of the properties in which he had only life interest and the principles applicable to a mortgagee in possession under section 76(a) and (e) of the Transfer of Property Act would be applicable in the present case and the lease will not be binding on the plaintiffs.

In Ex. A-1 itself, which is the sheet-anchor of plaintiffs' claim, A there was reference, inier alia, to two things relevant for consideration on this aspect of the matter.

Firstly, it is stated there :

"I and my wife, Bapanamma, who is your mother shall during our life time, be in enjoyment of the A Schedule mentioned property and B Schedule mentioned property respectively without powers of disposition by way of gift, sale, B etc., but only enjoying the produce got there by paying all Government taxes".

Secondly, further :

"After my life time you take possession of the A Schedule mentioned property and after your mother's life-time the B Schedule mentioned property".

In the first extract just set out, Subbarayudu made it clear that during his life he would enjoy the produce of the land "got there by t paying all Government taxes". Subbarayudu was a1ready an old man in 1955 and was apparently unable personally to look after cultivation of the land. His wife and younger daughter were also, perhaps, considered by him no better for the purpose. Besides, it appears D that he was keen to have at least some paddy to come to him from the land during his life time as a source of income and perhaps thought that his grandson, the -first defendant, would faithfully carry out the conditions without creating difficulties. This position does not appear to have been disapproved even by the plaintiffs during the life time of Subbarayudu.

Assuming, but not deciding, that the principles under section 76(a) and (e) of the Transfer of Property Act may even be applicable in this case, we are unable to hold that granting of the lease to defendant No. 1 in the entire circumstances of the case was not a prudent act of management of the properties.

In view of the relationship of the parties, that was a natural arrangement for cultivation of the land.

Mr. Natesan drew our attention to several decisions of this Court dealing with section 7 6 of the Transfer of Property Act and in particular to the decision in Prabhu v. Ramdev & Ors. (1), wherein this Court held that-

"evcn in regard to tenants inducted into the laud by a mortgagee cases may arise where the said tenants may acquire rights of special character by virtue of statutory provisions which may, in the meanwhile, come into operation. A permissible settlement by a mortgagee in possession with a tenant in the course of prudent management and the springing np of rights in the tenant conferred or created by statute based on the nature of the land and possession for the requisite period, it was observed, was a different matter altogether".

(I) [1966] 3 S.C.R. 676.

I 3-725SCI/76

A Counsel submits that the present case is clearly distinguishable from the above case since prior to the execution of Ex. B-13 in 1958 the Andhra Act had already come into force and it was not a case :- . where certain special rights were created "in the meanwhile". •"'

When a person with full knowledge of the law, ignorance of which is no excuse, enters upon a lawful transaction or executes a valid B document, the rights flowing from the law cannot be denied to those who are entitled to their benefit on the supposed theory of estoppel or a plea of contracting out by implication. Prabhu's case (supra) is not an authority for such a proposition which counsel seeks to spell out. The provisions of the Andhra Act will, therefore, be attracted to the tenancy created by Ex. B-13. c

It is further contended by Mr. Natesan that the plaintiffs are not landlords within the meaning of section 2(f) of the Andhra Act.

He also submits that defendant No. 1 is not a cultivating tenant under the plaintiffs.

By section 2(f) of the Andhra Act, "'landlord' means, the owner of a holding or part thereof who is entitled to evict the cultivating tenant from such holding or part, and includes the heirs, assignees, legal representatives of such owner, or person deriving right5 through him".

By section 2(c) of the said Act, "'cultivating tenant' means a person who cultivates by his own labour or by that of any other member of his family or by hired Jabour under his supe.rvision and control, any land belonging to another under a tenancy agreement, express or implied, but does not include a mere intermediary".

The High Court has found that defendant No. 1 was a cultivating tenant of the landlord under Subbarayudu relying on Ex. B-13 and also on admissions by the defendants 2 and 3 who conceded possession of the land by defendant No. 1 as a lessee under Subbarayudu and their own possession as farm servants under the first defendant.

We have no reason to take a contrary view.

In view of our conclusion that Ex. B-13 is an instrument of lease, there is no difficulty in holding that Subbarayudu was the quondam landlord of the first defendant within the meaning of section 2 (f) of the Andhra Ac, t.

Once tbat is established, section 10 of the Andhra Act takes care of the tenancy that has been.created under Ex. B-13. .

Section 10 of the Andhra Act at the relevant time reads as under:-

"10(1) "The minimum period of every lease entered into between a landlord and his cultivating tenant on or after the commencement of this Act, shall be six years.

Every such lease shall be in writing and shall specify the holding, its extent and the rent payable therefor, with such other particulars, as may be prescribed. The stamp and registration charges for every such lease shall be borne by the landlord and the cultivating tenant in equal shares.

(2) Notwithstanding anythnig contained in sub-section (1 ) all tenancies subsisting on the date of promulgation of the Andhra Cultivating Tenants' Protection Ordinance, 1956 ( Andhra Ordinance 1 of 19 5 6) , and protected by that Ordinance, and all subsequent tenancy agreements entered into up to the commencement of this Act, shall continue for a period of five years from the 1st June 1956 or until the expiry of the lease in the normal course, whichever is later, on the same terms and conditions as before, bnt subject to the determination of fair rent in case of dispute.

(3) After such termination, the landlord may resume the land from the cultivating tenant without any notice, and if the tenant does not surrender possession, the landlord may

by an application before the Tahsildar obtain an order for C delivery of possession in the prescribed manner".

Thus under section 10 ( 1) when Ex. B-13 was executed on August f 4, 1958, the lease created would by statute continue upto August 4, 1964 and even for further periods by later amendments of the Act.

Taking the original section 10(1) itself, the landlord Subbarayudn died in May 1960 and there is no question of the lease ceasing on his D death in view of the clear provision under section 10 ( 1) . As assignees by gift the plaintiffs are landlords on the death of Subbarayudu.

Under section 11, the ownership thus being changed on the death of the landlord, the tenancy, which subsists by operation of law, will continue on the same terms and conditions for the unexpired portion of the lease under the scheme of the ct as amended. The expression "currency of the lease" in section 11 will include the E statutory extension of the lease under the provisions of the Andhra , t Act.

Termination of tenancy under the Andhra Act is provided for under section 13. Under section 16, there is a special forum for adjudication of disputes under the Act including eviction of cultivating tenants.

Under section 17 the provisions of the Andhra Act over- F ride anything inconsistent th'erewith contained in any pre-existing law, custom, usage, agreement or decree or order of a Court.

It is, therefore, clear that the civil litigation between the parties having established their respective rights based on the two documents, Ex. A-1 and Ex. B-13, and the plaintiffs being landlords and defendant No. 1 being a cultivating tenant, eviction will have to be sought for in accordance with the provisions of the Andhra Act.

The High Court is right in refusing eviction through the process of the civil court.

In the result we are unable to interfere with the decree of the High Court.

The appeal is dismissed. however, no order as to costs.

judgment and There .will be,

P.H.P.

Appeal dismissed.

UNDAVILLI NAGARATHNAM & ANR

REDDI SATYANARAYANA MURTHI & ORS

H. R. KHANNA

P. K. GOSWAMI, JJ.

Transfer of Property Act 1882

Tenancy Act 1956

Subbarayudu

Tenancy Act, 1956

section 105

Transfer of Property Act

section 76(a)

Transfer of Property Act

Subbarayudu

section 76(a)

Transfer of Property Act

Section 2(f)

Section 2

Section 16

section 17

M. Natesan

K. Jayaram

R. Chandrasekar

B. V. Subramanyam

I. Balaiah

G. Narasimhulu

GOSWAMI

Subordinate Judge, Rajahmundry

Meenavalli

Suhbarayudu

Vedurupaka

February 13, 1935

Jnne 7, 1935

June 11, 1935

January 23, 1950

April 14, 1955

August 4, 1958

Mellore village

August 16, 1958

May 5, 1960

June 14, 1960

July 11, 1960

August 20, 1960

Meenavalli Subarayudu

Tenancy Act, 1956

order 41, rule 25

Civil Procedure Code

section 105

Transfer of Property Act

Natesan

section 105

Transfer of Property Act

section 105

Transfer of Propertv Act

section 105

Transfer of Property Act

N atesan next

section 76(a)

Transfer of Property Act

Bapanamma

section 76(a)

Transfer of Property Act

section 7

Transfer of Property Act

[1966] 3 S.C.R. 676

Prabhu

section 2(f)

section 2(f)

section 2(c)

section 2

section 10

Section 10

Protection Ordinance, 1956

1st June 1956

section 10

August f 4, 1958

August 4, 1964

section 10(1)

Subbarayudn

section 10

section 11

section 11

section 13

section 16

section 17


INDIAN ALUMINIUM CABLES LTD. v.

STATE .OF HARYANA

April 2, 1976

[A. N. RAY, C.J., M. H. BEG AND JASWANT SINGH, JJ.]

Exemption froni tax liability-General Tax exemption--Central Sales Tax .A.ct (74 of 1956)-Section 8(2A) and Explanation thereto-Meaning of "exempt from tax geenrally".

Punjab Sales Tax Act-Section 5(2) (a) (iv) -Nature of exemption granted under the Section-Whether in specified circuni stances or under specified conditions.

Under section 5(2)(a)(iv) of the Punjab Sales Tax Act "taxable turnover" meant that part of a dealer's gross turnover during any period which remains after deducting therefrom, his turnover during that period on sales to any undertaking supplying electrical energy to the public under a licence or sanction. granted under the Indian Electricity Act, 1910. of goods for use by it in the generation or distribution of such energy.

Under section 8 of the Central Sales Tax, every dealer~ who in the course 4t of inter state trade or commerce sells to the Goernment any goods; or sells to a registered dealer other than the Government goods of the description referred to in sub section ( 3) shall be liable to pay tax under the Act, which shall be three per cent of his turnover. Section 8(2A) reads as follows:-

"Notwithstanding anything contained in sub-section (IA) of section 6 or sub section (1) or sub section (2) of this section, the tax payable under this Act by a dealer on his turnover in so far as the turnover or any part thereof relates to the sale of any goods, the §ale or, as the case may be, the purchase of which is. under the sales tax law of the appropriate state, exempt, from tax generf!llY, or subject to tax

enerally at a rate which is lower than three per cent, (whether called a tax or fee or by any other name), shall be riil or, as the case may be, shall be calculated at the lower rate.

Explanation : For the purpose of this sub-section or sale or purchase of any goods shall not be deemed to be exempt from tax generally under the sales tax law of the appropriate state, if under the law the sale or purchase of such goods is exempt only in specified circumstances or under specified conditions or the tax is levied on the sale or vurchase of such g_9ods is exempt only in specified circumstances or under specified conditions or the tax is levied on the sale or purchase of such goods at specified stages or otherwise than with reference to the turnover of the goods." The appellants were suppliers of poles and cables to the Delhi Electric Sup_ply Undertaking and the sales were in the course of inter state trade or commerce and admittedly exempt under the state sales tax u/s 5(2)(a)(iv)'.

The state assessed tax u/s 8 of the Central Sales Tax Act, 1956 on the ground that the exemption granted ufs 5(2)(a)(iv) of the state Act fell under Explanation to s. 8(2A) of the Central Sales Tax Act. The High Court held that the sales by the undertaking supplying electrical energy were not exempt from tax generally within the meaning of section 8 ( 1A) of the Central Act read with section 5(2)(a)(iv) of the State Act.

Dismissing the appeal, by special leave, the Court.

HELD : (1) General exemption means that goods should be totally exempt from tax before similar exemption from the. levy of central ses .tax can become available. Where the exemption from taxation is conferred by conditions or in certain circumstances there is no exe1nDtion from tax generally.

Section 6 of the State Act does not speak of exemption but deals with tax free goods. Section 6 deals with specified goods on '\Vhich no tax is: payable~

INDIAN ALUMINIUM CABLES v. H"-RYANA (Ray, CJ.) 993

Section 5 of the State Act deals with what has to be excluded from taxable turnover of the dealer. Both the sections deal with goods which do not sulfer from sales tax. Section 8(2A) of the Central Act exempts goods from inter state sales tax where a tax law of the state has exempted them from sales tax.

The explanation to section 8(2A) of the Central Act takes away the exemption where it is not general and has been granted in specified circumstances or under

•pecified conditions. The provisions contained in section 5(2)(a)(iv) of the state Act exclude sales which are made under specified circumstances or specified conditions. The specified circumstances are that the sale ml!St be to an undertaking engaged in supplying electrical energy to the public under a licence or sanction granted under the Indian Electricijy Act,. 191-0. The specified condition is that the goods purchased by the undertaking must be used for the generation or distribution of electrical energy.

If the circumstances do not exist or if the conditions are not performed then the sales of goods cannot be exempted from tax. The expression "generation or distribution of such energy" specifies the condition under which exemption is granted.

[996H,

997A-D]

Commissioner of Sales Tax, M.P. v. Kapoor Dari Niwar &: Co., Gwalior 22 STC p. 152; Hindustan Safety Glass Works (P) Ltd. v. The State of U.P. and j Anr. 34 STC 209, discusse<l-

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 68 of 1974 and 936 of 1975.

Appeals by Special Leave from the Judgment and Order dated D 5-11-1973 of the Punjab & Haryana High Court in Sales Tax Reference Nos. 12 and 11 of 1969.

R. S. Desai, (In CA No. 936/75), P. C. Bhartari, R. Narain, K.

J. John, 0. C. Mathur for the Appellants.

B. Sen, (In CA No. 68/74), and R. N. Sachthey for the Respondent.

P. C. Bhariari for Applicant/Interveners (In CA No. 68/74).

The Judgment of the Court was delivered by

RAY, C.J.

This appeal by special leave is on the question whether the appellant is exempt from inter-State tax on the sales of poles and cables to the Delhi Electric Supply Undertaking by reason of the provi- F sions contained in section 5 (2)(a)(iv) of the Punjab Sales Tux Act hereinafter referred to as the State Act.

Section 5(2)(a)(iv) of the State Act is as follows:

"5 (2) In this Act the expression "taxable turnover" means that part of a dealer's gross turnover during any period which remains after deducting therefrom- G

(a) his turnover during that period on-

(iv) sales to an~ undertaki".g supplying electrical energy to the public under a licence or sanction granted or deemed to have been granted under the Indian Electricity Act, 1910, of goods for use by it in the generation or distribution of such energy." H

Under section 8 of the Central Sales Tax Act hereinafter referred to as the Central Act, every dealer, who in the course of inter-State

99~

SUPREME COUR'J: REPORTS

[1976] 3 S.C.R.

trade or commerce sells to the Government [lny goods; or sells to a registered dealer other than the Government goods of the desciption referred to in sub-section (3) shall be liable to pay tax under this Act, which shall be three per cent of his turnover.

The provisions in section 8(2A) of the Central Act are as follows:-

"Noitwithstandrng anything contained in sub-section (IA) of section 6 or sub-section ( 1) or sub-section (2) of this section, the tax payable under this Act by a dealer on his turnover in so far as the turnover or any part thereof relates to the sale of any goods, the sale or, as t_he case may be, the purchase of which is, under the sales t'ax law of the appropriate State, exempt from tax generally or subject to tax generally at a rate which is lower than three_ per cent, (whether called a tax or fee or by any other name), shall be nil or, as the case may be, shall be calculated at the lower rate.

EXPLANATION: For the purposes, oL this sub-section a sale or purchase of any goods shall not be deemed to be . . exempt from tax generally under the sales tax law of the appropriate State if under that law the sale or purchase of_ such goods is exempt only in SJl_ecified circumstances or under specified conditions or the tax is levied on the sale or purchase of such goods at specified stages or otherwise than with reference to the tnrnover of the goods."

The contention on behalf of the appellant is that by reason of the Explanation to section 8 (2A) of the Central Act read with section 5 (2)(a) (iv) of the State Act the appellant is exempt from payment of inter-State sales tax. The words "goods for use by it in the generation or distribution of such energy" occurring in section 5(2)(a)(iv) of the State Act are said by counsel for the appellant to be descriptive of the goods. fa short, the appellant's contention is that goods for use by the undertaking supplying electrical energy are generally exempt from taxation, and, therefore, they should not be included in the turnover.

The contention on behalf of the State is that the exemption granted under sectio.:i. 5(2)(a)(iv) of the State Act is exemption in specified circumstances and under specified conditions. The specified circumstances are said to be sales to an undertaking supplying electriC'al energy to the public under the Indian Electricity Act, 1910. The specified conditions are that the goods are for use by the undertaking in the generation or distribution of such energy.

The answer to the question in this appeal is whether the exemption mentioned in section 5(2) (a) (iv) -0f the State Act is in specified circumstances or under specified conditions, as the c-ase may be, or it i£ a general exemption as the appellant contends in cases of sales of goods to an Electric Supply Undertaking for use by it in the generation or distribution of such energy.

INDIAN ALUMINIUM <; A1JJ, ES V. HARYANA (Ray, C.J.) 995

The appellant referred to Schedule B read with section 6 of the State Act iiad in particular Items 33 and 46 to illustrate what would be exemption under specified circumstances or specified conditions. In Scbedule B there are two columns.

The first column describes the goods.

The second cofomn describes the conditions which make the goods tax free. In Item 33 in Schedule B "Photographs including Xrays photographs" mentioned in the first column are tax free "when sold by photographers and radiologists preparing them" as mentioned in the second column. In Item 46 "hand spun yarn" mentioned in the first column becomes tax free "when sold by oae who deals in hand spun yarn exclusively" as mentioned in the second column.

Section 5 (2) of the State Act deals with taxable turnover. There is no dispute that electricity poles and cables sold to the undertakingi supplying electric energy are exempt under the State Act from beil1g included within the taxable turnover. The question is whether such S'ales made in the course of inter-State trade are also exempt from the levy of Central Sales Tax.

The appellant contends that the exemption in the State Act is general because exemption applies in respect of goods without iiay enumeration or classification of goods. Further, it is said that exemp- D lion is general because the sales are for use in generation and distribution of electrical energy. According to the appellant sales of all goods to the undertaking supplyiiag electrical energy are exempt from being included in the taxable turnover as long as the goods answer the description that they are for use in the generation or distribution of electrical energy.

The appellant relied on the decision of the Madhya Pradesh High Court in Commissioner of Sales Tax, Madhya Pradesh v. Kapoor Dori Niwar & Co., Gwalior(') ill support of the meaning of the expression "exempt from tax generally". In the Madhya Pradesh case (supra) the State Government issued a notification in the year 1959 exempting from the payment of sales tax for a period of one year sales of niwar by a dealer registered under the 1958 relevant State Act. The exemption was later on extended up to 31 March, 1963. The assessee a registered dealer claimed exemption on rater-State sales of niwar. The Madhya Pradesh High Court held that during the period of the exemption, the sales of niwar by a registered dealer were exempt from tax generally within the meaning of section 8(2A) of the Central Act, and, therefore, the assessee's inter-State sales of niwar were exempt from tax under the Central Act.

The expression "exempt only in specified circurustances or under specified conditions" occurring in the Explanation to section 8 (2A) of the Central Act was held to mean such circumstances or conditions the n1?U-existence or non-performance of which precludes the grant of exemption. In other words, if those circumstances do not exist or those conditions are not performed then the sales of goods cannot be exempted from tax even if they are effected by a class of dealers to whom exemption is granted and durrag the period for which exemption is granted.

(l) 22 S.T.C. 152.

SUPREME COURT REPORTS

In the Madhya Pradesh case (supra) there was no dispnte that the sales effected by the assessee fell under section 8 ( 1) of the Central Act. The State Act granted exemption from sales_ tax on sales of l!iwar ' ~- • effected by a registered dealer. The. exemption granted to sales by a registered dealer under the notificatidil was without any restriction or limitation so far as sales by a registered dealer were concerned. Though the period of exemption was fixed, it was. not regarded as a condition imposed in relation to the exemption. It was also contended there that because the exemption was granted to the registered dealers the exemp- B

tion was granted to a class of dealers, and, therefore, it should be construed to be an exemption in specified circumstances or under specified conditions. The Court repelled the contention by stating that the exemption was to all registered dealers without any restriction or condition.

The other decision on which the appellant relied is of the Allahabad High Court in Hindustan Safety Glass Works (P.) Ltd. v. The State of Uttar Pradesh & Anr.(') In the Safety Glass Works case (supra) the company manufactured toughened glasses and mirrors in its factories.

Under a notification issued by the State Governme1,1t under the State Act sales of mirrors and safety glasses were liab)e to sales tax either at the point of sale by the importer of such gcoos or at the point o~ sale by the manufacturer thereof.

Subsequently, a notification was issued by the State Government exempting toughened glasses and mirrors manufactured by the company at Allahabad from payment of sales tax for a period of three years. The company claimed that the turnover of sales of toughened glasses and mirrors manufactured by E it, being generally exempt from tax under the State Act, was also not liable to Central Sales Tax because of the provisions contained in section 8(2A) of the Central Act. It was held that for purposes of sectidn 8 ( 2A) of the Central Act, sale of mirrors and toughened glasses manufactured by the company was under no condition and in no circumstance liable to be taxed in the hands of the company. The reasons given were that normally it will be taken that the sale of mirrors and toughened glasses by the company was exempt from tax generally unless it could be shown , that such goods belonged to the F

class specified in the Explanation to section 8(2A) of the Central Act.

As the toughened glasses and mirrors manufactured by the company did not fall in such a category the turnover of the sales of those goods in the hands of the company was not liable to tax under the Central Act.

The stipulation in the notification in the Safety Glass Works case '(supra) that the turnover of such sales would fpr a period of three years be exempt from payment of sales tax did not amount to exempt- 'ing the turnover of such goods from tax under specified circumstances or specified conditions.

Section 6 of the State Act does not speak of exemption, but deals with tax free goods. In other words, section 6 deals with specified goods on which no tax is payable. Section .5 of the State Act deals with what has to be excluded from the taxable turnover of the dealer.

(1) 34 S.T-C. 209.

JNDIAN ALUMINIUM CABLES V. HARYANA (Ray, C.J.) 997

Both the sections deal with goods which do not suffer from.. sales tax.

Section 8(2A) of th Central Act exempts goods from inter-State sales

• A tax where a tax Jaw of the State has exempted them from sales tax. The Explamtion to section 8(2A) of the Central Act takes' away the exemption where it is not general and has been granted jn specified circumstances or under specified cdnditions. The provisions contained in section 5 ( 2) (a) (iv) of the State Act exclude sales which are made under specified circumstances or specified conditions.

The specified circumstances are that the sale must be to an undertaking engaged in supplying electrical energy to the public under a licence or sa'ilction granted under the Indian Electricity Act, 1910. The specified condition is that the goods purchased by the undertaking must be used for the generation or distribution of electrical energy. If the circumstances do not exist or if the cdnditions are not pedormed then the sales of goods cannot be exempted from tax.

General exemption means that the goods should be totally exempt from tax before similar exemption from the levy of Central sales tax can become available. Where the f exemption from taxation is conferred by conditions or in certain circumstances there is no exemptio,1 from tax generally.

The contention of the appellant that the words "in the generation or distribution of such energy" in section 5 (2)(a)(iv) of the State Act are descriptive of goods is unacceptable. The expq:ssion "generation or distribution of such e'aergy" specifies the condition under which , exemption is granted. -

For these reasons we are of opinion that the High Court was correct in holding that the sales by the undertaking supplying electrical energy were not exempt from tax generally within the meaning of E

.1 sectioo 8 ( 2A) of the Central Act read with setion 5 ( 2 )(a)( iv) of the State Act. The appeal is cjismissed. In view of the fact that the High Court directed the parties to pay and bear their own costs, similar order is made here.

S.R.

Appeal dismissed .

INDIAN ALUMINIUM CABLES LTD

STATE .OF HARYANA

A. N. RAY, C.J.

M. H. BEG

JASWANT SINGH, JJ.

Section 8(2A)

Punjab Sales Tax Act

Section 5(2)

section 5(2)(a)(iv)

Indian Electricity Act, 1910

section 8

Section 8(2A)

section 6

s 5(2)(a)(iv)

s 8

Central Sales Tax Act, 1956

s. 8(2A)

Central Sales Tax Act

section 8

section 5(2)(a)(iv)

Section 6

Section 6

Section 5

Section 8(2A)

section 8(2A)

section 5(2)(a)(iv)

R. S. Desai

P. C. Bhartari

R. Narain

K.

J. John

. C. Mathur

B. Sen

R. N. Sachthey

P. C. Bhariari

RAY

Delhi Electric Supply Undertaking

The appellants were suppliers of poles and cables to the Delhi Electric Supply Undertaking and the sales were in the course of inter state trade or commerce and admittedly exempt under the state sales tax u/s 5(2)(a)(iv)'.

section 5

Section 5(2)(a)(iv)

Indian Electricity Act, 1910

section 8

Central Sales Tax Act

section 8(2A)

section 6

section 8

section 5

section 5(2)(a)(iv)

Indian Electricity Act, 1910

section 5(2)

V. HARYANA

section 6

Section 5

Madhya Pradesh High Court

31 March, 1963

section 8(2A)

section 8

section 8

Allahabad High Court

Allahabad

section 8(2A)

section 8(2A)

Section 6

section 6

JNDIAN ALUMINIUM CABLES V. HARYANA

Section 8(2A)

section 8(2A)

section 5

Indian Electricity Act, 1910

section 5