COMMISSIONER OF INCOME TAX

GUJARAT HI, AHMEDABAD & ANOTHER

KURJI JINABHAI KOTECIIA

February 18, 1977

[P. K. GOSWAMI AND JASWAN.T Sii; GH, JJ.]

Inco1ne Tax Act 1922-Section 24(1)(2)-Whether expenses incurred in carrying 011 illegal business to be deducted-Whether loss arising out of illegal business can be set off aKainst profits fro1n le::al business-Whether loss of

' •

illegal business can be1 carried forward to future years-lnterpreration of statutes-Whether, oupht to be consistent l1dth morality-Whether. io1Uinuation r of illegal activity to be recognised. l.....

. Forward Contracts (Regulation) Act 1952-Sectlo~J 15(4)-lflegal con tracts-Effect of income tax law.

The assessee carries oo business of running Oil l\.Hll anJ dealing in groundnuts, groundnut seeds . and oil, speculative business in groundnuts,_ groundnut oil and groundnut seeds, and speculation business in cotton errands etc. The l.T.0. disallo\lled loss in forward contracts and groundnut oil, groundnuts and groundnut seeds .on the ground that it arose out of illegal contracts on account of the same being banned under section 15(4) of the Forward Contracts (Regulation) Act, 1952. The Appellate Assistant Commissioner on appeal confirmed the decision of the I.T.O. but bifurcated the loss into two headings, namely, loss incurred in hedging transactions in the banned items and loss incurred •in speculative transactions.

On second appeal, the Tribunal held that notwithstanding the illegality of the tran-sactions _ the loss could be set off and carried forward in accordance with the provisions of section 24(1) and 24(2) of the Income Tax Act, 1922. The Tribunal accoringly directed that the loss in hedging transactions of forw&rd business . in the banned contracts he set off against the other profits of the asses3ee for the relevant accounting year under section 24 ( 1) and that balance of Toss relating, to the speculative transactions in the banned contracts be carried forward to the following year under section 24(2) of the-Act to be set off against profit of the folTo\\-ing year from speculative business. On reference to the lligh Court, the High Court answered both the questions in favour of the assessee and upheld the judgment of the Tribunal. The High Court relied on its earlier judgment in the

crise of C.l.T. v. S.C. Kothari. ,

Allowing the appeal by certificate,

HELD: (I) The Joss icuITed-; in the hedging transa::tions cannot be set off against other profits in the previous year in view of the decision of this Court partly reversing the judgment of the High Court in the case of S.C. Kothari. [31C-D]

Commissioner of Inco1ns.tax. v. S.C. Kothari, 69 ITR 1. applied.

(2) It is admitted that the contract for specu!ation in the commodity in question is banned under the Forward Contracts (Regulation) Act 1952. To allow such a loss to be carried forward is to permit a benefit of adjustment of loss from an illegal business to spill over '.lnd continue in the fo1lo\ving year even in a lawful speculative business. -The , Speculative business v.hich is car- !ied on in the foltowing year must be a business of _]awful speculation pertain 1nj! to thf" t'lv.-fuJ end enforceable-- contracts.

An assesseecarrying on a lawful speculative business in the following year cannot derive benefit by carryin_g forward and setting off a loss from illegal speculative business of the earher year. Law will assume an illegal business to die out of existence with 3.tl itslosses to the assessee in the year of loss itself. The assessee can derive no benefit on account of the unlawful business in the following year. The matter will be different if a lawful speculative business after incurring loss is

C.l.T. V. K. J. KOTECHA -- __ 21

discontinued and Joss tbereuPOn is carried forward for set off ag_ainst any_ other A lawful speculative busines_s in the following year •. It is inconceivable that Jaw , can permit an illegal activity to be carried on from which a benefit could be

obtained. . The concept of carry forward is not the san1e thing a<i the setting pff of loss in @. , Darticular illegal business against profit of that il1egal business fn a particula_r year. The two concepts have to be kept distinctly separate even in a taxing statute. It is true that by earning income from illegal trading . activity th_e business does not get tainted so far as exigibility to tax is concerned. \Vhile computing income from illegal activity in a particular year all B losses incurred in earning that particular income are also taken into account for computation of real profits even in the illegal business.

There is a marked distinction between tHe computation of a partieu1:.lr year's profit from. illegl trading activity and carry forward of a loss to set it off against income in the subsequent years even.assuming that such illegal acvitity is continued against the. provisions of law.

No illegal activity can be perpetuated under 2.ny provisions of law nor benefit out of it. Law will mi.:; s its paramount object if it is not consistent with morality and any interpretation by courts cannot lead to a result \\'here continuation C)f illegal activity or benefit attached to it is C given rcognition. [31~-H. 32A-D]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 580 of 1972.

(From the Judgment and Order dated 8-9-1970 of the Gujarat High Court in Income-tax Reference No. 9/68).

B. B. Ahuja and R. N. Sachthey, for the Appellants.

D K. L. Hathi and P. C. Kapoor, for the respondent.

The Judgment of the Court was delivered by GOSWAMI, J. This appeal by certificate is from the judgment of the Gujarat High Court in an Income-tax Reference under section 66(1) of the Indian Income-tax Act, 1922 (briefly the Act).

The two questions which were earlier referred by the Tribunal to the High Court at the instance of the Commissioner of Income-tax, Gujarat Ill, are as follows :-

" (2) Whether, on the facts and i~ the circumstances of the case, the assessee was entitled to set off hedging loss of Rs. 317 45 /- against other profits of the previous year?

(2) Whether, on. the facts and in the circumstances of the

case, the assessee was entitled to carry forward the speculation loss of Rs. 41603/- to the next year?"

The fo:lowing facts appear from the statement of case and the order of the Tribunal :

The assessment year In question is 1957-58 and the corresponding previous year is the Samvat year 2012. The assessee is carrying on business by running an oil mill, and also qoing business in sales and purchase of groundnuts, groundnut seeds and oil; speculation busin_ess in grvundnuts, groundnut oil and groundnut seeds; and speculat1n business in cotton, errands, etc.

His total income for the year m question was determined by the Income-tax Officer as Rs. 1,71,632/-.

This was after allowing set off of loss brought forward from the year 1955-56 amounting to Rs. 2,11,431/-. In arriving at the figure of the total income, the Income-tax Officer disallowed loss amounting to

A Rs. 73,348/- in forward contract:s in groundnut oil, groundnuts and

groundnut seeds.

He disallowed this loss on the ground that it arose out. of illegal contracts on account o! the same being banned under ,._,-. sect10n 15 ( 4) of the Forward Contracts (Regulation) Act, l 952.

It will appear that the break-up of losses in the business of illegal forward contracts is as fol; ows :-

(I ) Groundnut oil Account ( 2) Groundnut Account

(3) Sin, c:lana (Groundnut seeds Account) at Yeraval

Rs. 49,664/- Rs. 22,522/-

Rs. 1,162/-

Total Rs. 73,348/-

The above third item of loss is arrived at by the Income-tax Officer after adjusting the profi: of the forward business in groundnut seeds at Rajkot.

Gn appeal by the asscssce the Appellate Assistant Commissioner affirmed the orcicr of the Income-tax Officer. The Appellate Assistant D Coinmissioner, however, bifurcated the loss ino two categories as fnllO\VS :--

(I) Los incurred in hedging transactions in the banncJ items Rs.33 ! .745/-

(2) Loss incurred in speculative transactions (other than hedging transactions) in the banned items.

Rs. 41.603 1-

Total : Rs. 73,348/-

The Appellate Assistant Commissioner held that the assessee was not entitled to the set olt of the Joss against the asscssce's other business under section 24 ( 1 ) of the Act and also that such Joss could not be carried forward to the fo]owing year under section 24(2) of the Act.

On a second appeal by the assessee before the Appellate Tribunal, the Tribunal held that notwithstandring the illegality of the transactions the loss could be set off and carried forward in accordance with the provisions of section 24(1) and 24(2) respectively of the Act.

The Tribunal accordingly directed that the loss in hedging transactions of forward business in the banned contmots amounting to Rs. 31,745/- be set off against the other profits of the assessce for the relevant accounting year under section 24 (1) and that the balance loss of Rs. 41,603/- relating to the speculatiYe transactions in the banned contracts be carried forward to the following year under section 24(2) of the Act to be set off against profits of the following -year from speculative business.

H As stated earlier at the instance of the Commissioner of Incometax, the two que:stios set out above were referred to the. High Court under section 66 ( 1) of the Act.

The High Court relyrng upon its

' 1

•earlier judgment in the Commissioner of Income-tax v.

S. C.

A Kothari(') answered both the questions in the affirmative in favour of tl1e asessee.

That. decision was, however, partly reversed by this Court. m the Comnuss1011er of Income-tax Gujarat v. S. C. Kothari(') (heremafter to be referred to as Kothari decision).

This Court held in the Kothari decision as follows :

". . . the taint of illegality of the business cannot detract B from the losses being taken into account for computation of the amount which can be subjected to tax as 'profits' under secllon 10(1) of the Act of 1922.

The tax collector cannot be heard to say that he will bring the gross receipts to tax.

He can only tax profits of a trade or business. That cannot be done without deducting the losses and the legitimate expenses of the business".

This Court, however, held that the High Court was in error in considering that any set off could be allowed in that case under the first JJroviso to section 24 (I) . This Court observed :

"The contract contemplated by Explanation 2 to the first proviso to section 24 (I) of the Income-tax Act, 1922, has to be an enforceable con:ract and not an unenforceable one by reason of any taint of illegality resdting in its invalidity.

Set-off cannot be allowed under the first proviso to section 24( 1), read with Explanation 2 thereto, of losses in contracts which are illegal and unenforceable on account of contravention of Section 15 ( 4) of the Forward Contracts (Regulation) Act. 1952''.

This Court held the contracts in that case in respect of which the loss was incurred by the asscssee as illegccl contracts.

It also held that the asscssee was not entitled to a set off under the first proviso to section 24 ( l) of the Act of the loss against its profit in speculative transactions.

Jt, however, held that if the business in which the loss was sustained in that case was the same as the b.usincss in which the profit was derived then the loss had to be taken into account while computing the profits of the business under section 10 ( 2) of the Act.

In the view it took this Court remitted the matter to the High Court to decide the point which was not clear on the findings whether the profits and losses were incurred in the same business even though that business involved the entering into of contracts some of which were illegal.

In the present case there is no dispute that the losses were incurred in connection with forward contracts which were banned under section 15 ( 4) of the Forward Contracts (Regulation) Act.

It is also clear that the Income-tax Officer adjusted the profit against the loss with regard to the illegal business in groundnut seeds which was carried on in two places, Veraval and Rajkot.

This set off is permissible under section 10(2) of the Act because it is only by

(I) 69 I.T.R, t,

(2) 82 I.T.R. 794.

30 SUPREME COU!lT REPORTS

[J 9771 3 SC.R.

setting off of the loss of the particular business in groundnut seed~ that. true profit with regard to that particular business can be computed under section 10(2). There is, therefore, no reason to remit this case as the course earnestly suggested by Mr. Hathi for the respondent.

In Kothari decision (supra) it was observed by this Court while remitting the case that "enough attention was not devoted to the buiness which the assessee was doing and in which the profit of Rs. 2,19,046/- was made and the loss of Rs. 3,40,4431was sustained''.

Such an uncertainty, however, is not present in the instant case. The submission of Mr. Hathi, therefore, cannot be accepted. '

The present case rests upon section 24 of the Act.

That section so far as material for our purpose reads as follows :-

"24 ( 1) Where any asses see sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set off against hlis income, profits or gains under any other head in that year :

Provided that in computing the profits and gains chargeable under the head 'Profits and gains of business, profession or vocation, any loss sustained in specnfative transactions which are in the nature of a business shall not be taken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions:

(2) Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, in any business, profession or vocation, and the loss cannot be wholly set off under sub-section ( l), so much of the loss as is not so set off or the whole loss where the assesscc had no other head of income shal! be carried forward to the following year, and

(i) where the loss was sustained by him in a busines's cOnsisting of speculative transactions, jt shall be set off only against the profits and gains, if any, of any business in epecnlative transactions carried on by him in that year;

(ii) whether loss was sustained by him in any other business, profession or vocation, it shall be set off against the profits and gains, if any, or any business, profession or vocation carried on by him in that year, provided that the business, profession of vocation in which the loss was originally sustained continued to be carried on by him in that year; and

___ __....,..

(iii) if the loss in either case cannot he wholly so set off, the amount of loss not so set off shall be carried forward to the following year and so on but no loss shall be so carried forward for more than eight years".

x x x x

In the instant case there is no dispute about the following findings of facts

The assessee sustained losses in the relevant accounting year amounting to Rs. 73,348/-. This figure was arrived at on a legitimate computation under section 10(2) of the Act.

No further question survives for a recomputation of the income under section

10(2) of the Act in this case.

The only question remains is as to whether the loss of Rs. 31.745/- can be set off against other profits in the previous year. This is the first question in the reference.

This question has to be answered in the negative in view of Kothari decision (supra) . The hedging Joss being in respect of a banned contract under section 15 ( 4) of the Forward Contracts (Regulation) Act, 1952, cannot be set off against the profits of other business of the previous year.

The second question is with regard to the assessee's claim for entitlement to carry forward the speculation loss of Rs. 41,603/- to :he next year.

It is also admitted that the contract for speculation in the commodity in question is banned under the Forward Contracts (Regulation) Act, 1952. It also appears that the said loss could not be set off in the previous year against profit in the same business i1t that year. The assessee contends that this Joss should be allowed to be carried forward under section 24(2) of the Act.

To allow such a claim is to permit a benefit of adjustment qf loss from an illegal business to spill over and continue in the [ollowing year even in a hiwful speculative business.

A speculative business which is carried on in the following year must be a business of lawful speculation pertaining to lawful and enforceable contracts.

The assessee carrying on a lawful speculative business in the following year cannot derive benefit by carrying forward and setting off a loss from an illegal speculative business of the earlier year.

Law will assume an illegal business to die out of existence with all its losses to the assessee in the year of loss itself.

The assessee can derive no beneJit on account of the unlawful business in the following year.

The matter will be different if a lawful speculative business after incurring Jo'ss is discontinued and loss therefrom is carried forward for set off against any other lawful speculative business in the following y.ear.

This is the true legal effect of section 24(2) (i) of the Act in this case.

It is inconceivable that law can perm; t an illegal activity to be carried on from which a benefit could be obtained.

The concept of carry forward is not the same thing as the setting off of loss in a particular illegal business against profit of thitt illegal business in a particular year.

The two concepts have to he kept distinctly separate

evn in a taxing statute .. There is no express. arrant for the subniission either under section 20(2) or under any other provision of the Act, far less on general principles.

It is true that by earning income from illegal trading activity the income does not get tainted so far as exigibility to tax 1s concerned.

While computing income from illegal actidty in a particular year all lo.sses incurred in earning that particular income are also taken into a:count for computation of real profifs even in .the illegal business.

That does not mean that fines imposed on the illegal activities detected, prosecuted and punished or other.vise penalised, will be taken into account for ascertainment of real profits.

The.re is, tr.erefore, a marked distinction between computation of a particular year's. profit from illegal trading activity and carry forward of a loss to set it oil against income~ in subsequent years even /assuming that such illegal activity is continued against the provisions of law. No illegal activity can be perpetuated under any provisions of law nor benefit out of it.

Law will miss its paramount object if it is not consistent with morality and any interpretation by courts cannot read to a result where continuation of illegal activity or benefit attached to it is given recognition.

The second question, therefore, must b~ answered in the negative and against the assssee. '

In the result the judgment of the Hi6h Court is set aside and the t\VO questions set aut abo.ve are ans\\'ered in the negative and in favour E of the Department.

The appeal is allowed with costs.

P.H.P.

Appeal allowed.

COMMISSIONER OF INCOME TAX GUJARAT III, AHMEDABAD & ANOTHER

February 18, 1977

P. K. GOSWAMI

Tax Act 1922

Section 24(1)(2)

Forward Contracts (Regulation) Act

section 15(4)

section 24(1) and 24(2)

Income Tax Act, 1922

section 24

section 24(2)

S.C. Kothari

Forward Contracts (Regulation) Act

B. B. Ahuja

R. N. Sachthey

D K. L. Hathi

P. C. Kapoor

GOSWAMI

section 66(1)

Indian Income-tax Act, 1922

Forward Contracts (Regulation) Act

Rajkot

section 24

section 24(2)

section 24(1) and 24(2)

section 24

section 24(2)

section 66

Kothari

section 24

section 24

Income-tax Act, 1922

section 24( 1)

Section 15

Forward Contracts (Regulation) Act

section 24

section 10

section 15

Forward Contracts (Regulation) Act

Veraval

section 10(2)

section 10(2)

Hathi

section 24

section 6

31st day of March, 1940

section 10(2)

section

10(2)

section 15

section 24(2)

section 24(2)

section 20(2)


BUSCHlNG SCHMITZ PRIVATE LTD. v.

P. T. MENGHANI AND ANR.

March, 17, 1977

[V. R. KRISHNA IYER AND JASWANT SINGH, JJ.]

/11tcrprctatiou of statute-Legislature can be assunied 1101 to intend obvious literal interpretation resulting into obscurity-Whether statute can be mocked at-Section 4(1)(c), Delhi Rent Control Act 1958- Sec. 14, 14A, 25B-Delhi Rent Control Ordinance 24 of 1975-Delhi Rent Control (Amendment) Act, 1976-/(iglit of Govenunent Offu; er who i's asked to racate Govenunent accom- 111odation to evict his tenant.-Whether can apply to preniises let out for com- 1nercial purpose-What is residential purpose-Triable is.sues-Meaning of.

The respondent No. 1 landlord let out his building to the appellant, a company to carry on business and use part of it for its manager's residence.

The landlord was occupying residential premises allotted by the Central Govern_ment.

After the amendment of the Delhi Rent Control Act, 1958, by OrCh nance 24 of 1975 which was later replaced by Delhi Rent Control (Amen<tment) 1\ct, 1976, section 14A and 25B were added to the Statute. Section 14 permits a landlord to evict the tenant if the premises let for residential purpose are required bonafide by the landlord for occupation as a residence for him.self or for any member of hip family dependent upon him. Section 14A provides that where a landlord is in occupation of any residential accommodation allotted to him by the Central Gnvemment or any local authority and if he is required by order made by that Government or authority to vacate such residential accom~

modation our the ground that he owns in the Union Territory of Delhi a residential accommOOation either in his own name or in the name of his wife or dependent child, there shall accrue to the landlord a right to recover immew diately possession of any premises let out by him. The said provision has been given effect notwithstanding anythlng to the contrary in the Delhi Rent Act or any other law or the, custom or usage..

Section 25B provides for a summarY remedy.

It prnvides that the Controller shall give to the1 tenant leave to contest the application if the, affidavit filed by' the tenant discloses such facts as would disentitle the landlord from obtaining an order for the recovery of possession on the ground specified in section 4(1)(c) or 14A.

The respondent was directed by the Government to vacate the Government accommodation on the ground that he had let out residential accon1modation of which he was owner. The respondent No. 1 accordingly filed eviction proceedings against the appellant claiminf:.': possession under Section

14A. 'fhe appellant contended before the Rent Control1er that the ground did D.ot fall within the sweep of section 14A since the. premises were let out for residential-cum-commercial purposes to a joint Stock Company which was carrying on business besides using it forr the residence of its Managing Director. This plea did not cut ice with the Controller who refused leave to contest. The appellant filed a writ petition in the High Court under Art. 226 of the Constitution which was dismissed.

Tn appeal by special leave, the appellant contended that

1. Nothing in s.14A compels the landlord to occupy the premises after evicting the tenant.

He could still let it for a higher rent take on lease from the private sector a sn1a1l house and make <i gain' from the difference flowing in rent. ~

2. The Controller could not shut him out from being heard if a triable issue emerged from the affidavit in opposition.

In the prsent case such issues were present and, therefore, the Rent Controller was not justified in refusing leave to contest.

3. Section 14A does not apply in the present case since the premises were not residential premises as they were let out both for commercial and residential purposes.

BUSCHING SCHMITZ (P) LTD. V. P. T. MENGHANI 313 (Krishna !yet, J.)

Dismissing the appeal,

HELD : (I) It is fallacious to approximate section 25B(5) with Order 37 rule 3 f the Code of Civil Procedure. The social setting de1nan<ling summary proceeding, the. nature of the subject matter and above all, the Jegislati\'e diction which has been deliberately designed, differ in the two provisions.

Disclosure of facts which disentitle recovery of possession is a sine qua non for grant of leave.

[320F-A, 321A]

(2) The definition of premises in section 2(i) covers any building or part of the building leased for use, residential, commercial or other. To attract section 14A the landlord must be in occupation of residential pfemises allott"d to him by the Central Government. He must be required by order of that Gove1nment to vacate his residential accommodation.

The Delhi Development Authority granted the land to respondent No. 1 for construction of a residcritial building although it \Vas let out for commercial purpose. Residential premises are not only plots which are let out for residential purposes nor do all kinds of structures where humans may manage to dwell are residential.

Use or purpose of the letting is no conclusive test. Whatever is suitable or adaptable for residential use, even by making son1e changes, can be designated residential premises.

Once it is residential in the liberal sense, section 14A stands attracted.

In the present case the house was built on land iiven for constructing a residence, is being used even now for residence is suitable otherwise for residence and is being credibly demanded for the re:pondenfs residence.

Residential suitability being the basic consideration, the. building is residential.

The 'purpose test' \\'ill enable officers who 0¥/n houses to defeat the statute that they do not own residential premises though it was sutably built for residence. The scheme of section 14A definitely contemplates a specific representation from landlord to the Controller that because he has been ordered to vacate the pre~ mises where he is residing he requires immediate possession for his occupation.

It's non-obstante clause, the vesting of a right to in1mediate recovery, the creation of a summary process and the package of connected provisions all (n1pha size that the amendments. have to be viewed as a "''hole. that the court cannot be fooled and the statute mocked at.

The c<1usc of action is not only th~ Government orders to vacate but consequential urgency to recover his own building.

Parliament cannot be assumed not to intend the obvious, or to inenJ th: ludicrous.

Literality is not right where obscurity is the result. {321 C-D. G-H

322 C-D. 323 A-B, G-H]

Gillespie Brothers & Co. Ltd. v. Roy Bowles Transport Ltd. [1973] 1 Q.B. 400 quoted in 39' Mod. L.R. 379 (1976) and Anderson v. Abbott 321 US 349 at 366-67 quoted in Univ. of Pennsylvenia Law Review Vol. 117

(1968) p.

I. 63, quoted with approval.

(3) Judicial machinery •.vhile enforcing the law shall forbid its being misused.

[325 E]

( 4) The possibility of the power of Government to issue orders to vacate being used discriminately should be carefully avoided. If exceptions are niade in the case of bi.g officers, naturally the middling and the lesser minions of Government may have a grievance. It n1ay perhaps be proper for Government when allotting_ good premises. for high officers who made fron1 their O\\'Il houses large returns to pay into the Government coffers some equitable part of the G gain so made, giving consideration to circumstances like Joane;, investmenti;; and

the like.

[325 G-H]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 81 of 1977.

(Appeal by Special Leave from the Judgment and Order dated 6-12-1976 of the Delhi High Court in C. R. No. 248/76).

F. S. Nariman, N. S. Sistani and K. C. Dua for the appellant.

K. K. Jain, S. K. Jain and P. Dayal, for respondent No. 1.

A The Judgment of the Court was delivered by

KRISHNA IYER, J.-Delhi, the home of Power and the nidus of paradoxes, presents many pathological problems to the students of history, social science, politics and law, often inter-acting with each other.

We are here concerned with the socio-legal malady of accommodation scarcity and the syndrome of long queues of government employees waiting, µot knowing for how long, for allotment of government quarters at moderate rents and the co-existence of several wellto-do officers enjoying, by virtue of their office, State-allotted residential accommodation while owning their own but letting them out at lucrative rents, making substantial incomes in the bargain.

The law awoke to eind this unhappy development and to help the helpless nonallottces get government accommodation.

Such is the back-drop to s. l 4A which, read along with s. 25B, of the Delhi Rent Control Act, 1958 (Act LIX of 1958) (for short, the Act), falls for our consideration in the present appeal by special leave.

A deeper understanding of the need for the new provisions just mentioned and the construction that they bear in the context necessitates stating a little more in detail the social setting. The seat of the capital of a vast country with varied activities naturally will be honeycombed with government offices, public organisations and growing armies of employees.

The higher echelons in public service, over the decades, have made generous use of the availability of government lands at low prices and of the know-how of utilising, to their advantage, the immense developmental potential in the years ahead if buildings were constructed with foresight.

Thus mny neatly organised colonies blossomed all around Delhi whose owners were in many instances officers who had the telescopic faculty to see the prospective c ; ireadout of Delhi of the future.

Taking time by the forelock, they wisely invested money (often on. soft loans from Government) in buildings which secured ambitious rnnts when India's headquarters did, as it was bound to, explosively expand.

Most of such officials let their premises for high rents to big businessmen, foreign establishments, company executives and others of the'r ilk.

Where did the officers themselves reside ? The strange advantage of Delhi is that houses, with lawns, servants' quarters and other amenities, built by government long years back are allotted to goverµment servants on rents which are a fraction of what similar accommodation in the private sector may fetch oftentimes.

The bigger officials according to the hierarch; cal system (almost perfected into some sort of official castes and sub-castes based on status and position in the mi, nistries and not on the heads of their families or office) occupied the classified quarters, the official 'brahmins', of course, getting the best.

The rents they paid as tenants were negligible compared to the returns they made as landlords.

Indeed, a sociological research into the whole system may perhaps unravel the semi-survival of quasifeudal life-styles and the unlovely phenomenon of public servants paying little and collecti, ng large.

H The socio-economic sequel was worse t'han this.

An stronomical increase in the number of government servants Jed to a terrific pressure for accommodation because, most of them-particularly at lhe lesser

BUSCHING SCHMITZ (P) LTD. V. P. T. MENGHANI 315 (Krishna Iyer, !.) levels-had no worthwhile salaries and were priced out of the private A sector where rentals had unconscionably rocketed. This rack-renting abuse can be checked, in some measure, by an activist policy of relentlessly enforcing fair rents through penal tags. That, of course, depends on the will and wisdom of Parliament and Government, and the court may not make any comment. Anyway, currently, controls in this essential area of human accommodation, in the capital city of our socialist republic, are a statute-book virtue.

Similarly, the B suggestion, in the course of his submissions, made by counsel for the appellants, that the true solution is for the State to build more accommodation for its servants and not eject tenants like his client is commendable as a text book panacea but 'a consummation to be wished' in practical expectations !

Nevertheless, the State took cognizance of the sinister develop- C ment of several officers owning private residences and occupying government premises and making handsome dividends out of the d!Sparity in rents and, ergo, a large nnmber of less fortunate officials having to wait in a queue for years hoping against hope that some day some government quarters would be allotted ! These latter, with broken domestic budgets, huddle together in small private te, nements (or even servants' quarters) paying rents beyond their means.

The politics D and economics of scarcity are we;] known.

Out of this distressing situation was born s. 14A of the Act.

A f'asciculus of clauses creating substantive and procedural provisions to meet the evil and advance the scheme in that behalf came in, first by ordinance 24 of 1975 in December 1975, duly replaced by the Delhi Rent Control (Amendment) Act, 18 of 1976.

The chronic disease needed drastic treatment and the legislative draftsmen E created a chain of stiff provisions.

Speaking generally, the government, after satisfying itself about the official having let out his reisidential building and occupying officially allotted quarters, directed the person to vacate government premises but he had quickly to get back his own house.

So a new right ( s. 14A) was created, accelerated remedial procedures were prescribed (s. 25A and 25B). This appeal turns on the meaning of s. 14A.

The purpose of the project has been explained by Chandrachud J. in Sarwan Singh(') :

"The object of Section 14A, as shown by its marginal note, is to confer a right on certain landlords to recover immediate possession of premises' belonging to them and which are in the pilssession of their tenants. n the significant language of the marginal note, such a right is 'to accrue' to a class of persons. The same concept is pursued and clarified in the body of Section 14A by providing that in the contingencies mentioined in the section, a right will accrue to the landlord 'to recover immediately possession of any premises let out by him' ... "

* * • •

"Whatever be the merits of that philosophy, the theory H is that an allottee from Central Government or a local

(I) Sarw>n Singh v. Kasturi Lal, A.LR. 1977 S.C. 265, 272.274.

authority should not be at the mercy of law's delays while being faced with instant eviction by his landlord save on payment of what in practice is penal rent.

Faced with a Robson's choice, to quit the official residence or pay the market rent for it, the allottee had in turn to be afforded a quick and expeditious remedy against his own tenant. With that end in view it was provided that nothing, not even the Slum Clearance Act, shall stand in the way of the allottee from evictng his tenant by resorting to the summary procedure prescribed by Chapter IHA.

The tenant is even deprived of the elementary right of a defendant to defend a proceeding brought against him, save on obtaining leave of the Rent Controller. If 1he leave is refused, by section 25B ( 4) the statement made by the landlord in the application for eviction shall be deemed to be admitted by the tenant and the landlord is entitled to an order for eviction. No appeal or second appeal lies against that order. Section 25B(8) denies that right and provides \nstead for a revision to the High Court whose jurisdiction is limited to finding out whether the order complained of is according to law."

D It is a notorious fact that, vesting a right is long years' distance away from getting the remedy, thanks to our legal process with its slow motion mood.

A jurisprudence of quick-acting and comprehensive remedies, demanding re-structuring and streamlining of the judicative apparatus and imparting operational speed and modernisation of the whole adjectival law and practice, is urgent and important-an observation we make hoping that Parliament will programme for such E a constructive change for the good of the community, in consultation with the Court and the Bar.

That legal instrumentality alone truly sustains the rule of law which delivers justice with inexpensive colority, finality and fullness.

The big right-remedy gap is the bane of our system.

We regard it our duty to mention this dime 1nsion of justice a, nd this desideratum of systemic reform so that repetitive Litanies to end law's delays may be intelligently heeded by the law-makers ins- F tead of joining the chorus against the court.

Back to the statute.

Section 14-A, with a non-obstante rider, follows upon and is partly supplemental to s. 14 which primarily governs eviction by landlords of tenants.

We may extract a part of s. 14 and the whole of s. 14A :

"14(1) Notwithstanding anything to the contrary in any other law or contract, no order or decree for the recovery of possession of any premises shall be made by any court or Controller in favour of the landlord against a tenant :

Provided that the Controller may, on an application made to him in the prescribed manner make an order for H the recovery of possession of the premises on one or more of the following grounds only, namely,-

(a) to (d) * * * *

. -

BUSCHING SCHMITZ (P) LTD. V. P. T. MENGHANI 317 (Krishna Iyer, J.) ( e) that the premises let for residential purposes are required bona fide by the landlord for occupation as a residence for himself or for any member of his family dependeint

on him, if he is the owner thereof, or for any person for whose benefit the premises are held and that the landlord or such person has no other reasonably suitable residential accommodation :

Explanation.-For the purposes of this clause, "premises let for residential purposes, includes any premises Which having been let for use as a residence arc, without the consent of the landlord, used incidentally for commercial or other purposes, .... "

x x x x

"l 4A. Right to recover immediate possession of premises to accrue to certain persons.-

( 1) Where a landlord who, being a person in occupation of a, ny residential premises allotted to him by the Central

Government or any local authority is required, by, or in D pursuance of any general or special order made by that Government or authority, to vacate such residential accommodation, or in default, to incur certain obligations, on the g, round that he owns, in the union territory of Delhi, a residential accommodation either in his own name or in the name of his wife or dependent child, there shall accrue, on and from the date of such order, to such landlord, notwith- E standing anything contained elsewhere in this Act or in any other law for the time being in force or in any contract (whether express or implied), custom or usage to the contrary, a right to recover immediately possession of any premises let out by him :

Provided that nothing in this section shall be construed as conferring a right Oj11 a landlord owning, in the union territory of Delhi two or more dwelling houses, whether in his own name or in the name of his wife or dependent child, to recover the possession of more than one dwelling house and it shall be lawful for such landlord to indicate the dwelling house, possession of which he intends to recover.

(2) Notwithstanding anything contained elsewhere in this Act or in any other law for the time being in force or in any contract, custom or usage to the contrary, where the landlord exercises the right of recovery conferred qn him by sub-section (1), no compensation shall be payable by. him to the tenant or any person claiming through or under him and no claim for such compensation shall be entertained by any court, tribunal or other authority :

Provided that where the landlord had received,-

(a) any rent in advance from the tenant, he shall, within a period of ninety days from the da, te of recovery of possession of the premises by him, refnnd to the tenant such amount as represents the rent payable for the unexpired portion of the contract, agreement or lease;

(b) any other payment, he shall, within the period aforesaid, refund to the tenant a sum which shall bear the same proportion to the total amount so received, as the unexpired portion of the, contract or agreement, or lease bears to the total period of contract or agreement or lease;

Provided further that, if any default is made in making any refund as aforesaid, the landlord shall be liable to pay simple interest at the rate of six per cent per annum on the amount which he has omitted, or failed to refund."

A summary remedy is provided by s. 25B which reads :

"25.B. Special procedure for the disposal of applications for eviction on the ground of bona fide requirement.-

( i) Every applicati~ by a landlord for the recovery of possession of any premises on the ground specified in clause (a) of the proviso to sub-section (1) of Section 14, or under Section 14A, shall be dealt with in accordance with the procedure specified in this section.

(2) The Controller shall issue summons, in relation to every application referred to in sub-section ( 1), in the form specified in the Third Schedule.

(3) (a) The Controller shall, in acquisition to, and simultaneously with, the issue of summons for service on the tenant, also direct the summons to be served by registered post, acknowledgment due, addressed to the tenant or his agent empowered to accept the service at the place where the tenant or his agent actually and voluntarily resides or carries on business or personally works for gain and may, if the circumstances of the case so require, also direct the publication of the summons in a newspaper circulating in the locality in which the tenant is last known to have resided or carried on business or personally worked for gain.

(b) When an acknowledgment purporting to be signed by the tenant or his agent is received by the Controller or the registered article containing the summons is received 'Jack with an endorsement purporting to have been made by a postal employee to the effect that the tenant or his agent had refused to take delivery of the registered article, the Controller may declare that there has been a valid service of snmmons. '

• -

BUSCHING SCHMITZ (P)LTD. V. P. T. MENGHANI 319 (Krishna Iyer, J.) ( 4) The tenant on whom the summons is dully served (whether in the ordinary way or by registered post) in the form specied in the Third Schedule shall not contest the prayer for eviction from the premises unless he files an aJfidavit stating the grounds on which he seeks to contest the application for eviction and obtains leave from the Controller as hereinafter provided; and in default of his appearance in pursuance of the summons or his obtaining such leave, the statement made by the landlord in the application for eviction shall be deemed to be committed by the tenant and the applicant shall be entitled to an order for eviction on the ground aforesaid.

(5) The Controller shall give to the tenant leave to contest the application if the affidavit filed by the tenant discloses such facts as would disentitle the landlord from obtaining an order for the recovery of possession of the premises on the ground specified in clause (a) of the proviso to sub-section (1) of Section 14, or under Section 14A.

(6) Where leave is granted to the tenant to contest the D application, the Controller shall commence the hearing of the application as early as practicable.

(7) Notwithstanding anything contained in sub-section

(2) of Section 17, the Controller shall, while holding an inquiry in a proceeding to which this Chapter applies, follow the practice and procedure of a Court of Small Causes, in- E eluding the recording of evidence.

(8) No appeal or second appeal shall lie against an order for the recovery of possession of any premises made by the Controller in accordance with the procedure specified in this section;

Provided that the High Court may, for the purpose of sati'sfying itself that an order made by the Controller under this section is according to law, call for the records of the case and pass such order in respect thereto as it thinks fit.

(9) Where no application has been made to the High Court on revision, the Controller may exercise the powers of review in accordance with the provisions of Order XL VIX of the first Schedule to the Code of Civil Procedure, 1908

(5 of 1908).

(10) Save as otherwise provided in this Chapter, the procedure for the disposal of an application for eviction on the ground specified in clause ( e) of the proviso to sub- H section (1) of Section 14, or under Section 14A, shl\ll be the same as the procedure for the disposal of applications by

Controllers."

A The landlord-respondent no. 1 wa's a government servant who 'had let !Us own building to the appellant-tenant (a company) to carry ou busmess and use part of it for its manager's residence.

He himself was occupying residential premises allotted by the Central Govern- 'T ment and, since Jie was directed by that Government to vacate, on the ground that he had let out 'residential accommodation' of which B he was own.er, he _'sought .refuge uuder s. 14A.

The eviction proceedm~ ; vas resisted, inter alw, on the score that the ground did uot fall w1thm the sweep of s. 14A, the premises 'havina been Jet out for a residential-cum-commercial purpose to a joint stck company which was carrying ou its business .... besides using it for the residence of its Managing Director'.

This plea did not cut ice with the Controller who refused leave to contest under s. 25B(4l of the Act. The 1efusal c would ordinarily have led to an order i'or eviction but this consequence was intercepted by a writ petition uuder Art. 226 of the Constitution and a revision to the High Court, a's provided by th~ proViso to subs. ( 8) of s. 25B of the Act.

Dismissal of these proceedings has

"' brought the appellant, special leave having been granted, to this Court as the last hope.

Of course, the issue is of some moment, legally and otherwi'se.

For while solving the twin problems, viz., making more D accommodation available to government servants in need and ending the vice of officers gaining by letting their own residential houses, s. 14A " creates another, viz., the ejectment of tenants by summary procedure on a new ground.

Maybe, as between the two hardships Parliament has made the ch, oice and the Court implements the law based on the

'II policy deci'sion of the legislature. Mr. Nariman sought to expose the weakness of this legislative policy by stating that nothing in s. 14A E compelled the officer-landlorc! to occupy the premises after evicting • the tenant.

He could still let it for a higher rent, take on lease from the private sector a small house and make a gain flowing froni the difference in rents.

While we, as Judges, cannot fail to apply the provision merely because dubious ingenuitieS can circumvent it, we will later interpret the section eliminating the possible evil pointed out.

'-"f

F The short but insistent submission made by the counsel for the appellant was that tlJe Controller could not shut him out from being >- heard, as he did, if only a triable issue emerged from the affidavit-inopposition filed under s. 25B(4). Such an issue (in fact, more than one) was obviously present here, urged counsel.

But we make it plain even at this stage that it is fallacious to approximate (as was sought • G to be done) s. 25B(5) with Order 37, r. 3 of the Code of Civil Procedure.

The social setting demanding summary proceeding, the nature of the subject-matter and, above all, the legislative diction which has - been deliberately designed, differ in the two provisions.

The legal ' ambit and judicial discretion are wider in the latter while, in the former with which we are concerned, the scope for opening the door to defence >- is narrowed down by the strict words used.

The Controller's power . ( H to give leave to contest is cribbed by the condition that the 'affidavit filed by the tenant discloses such facfs as wouli dis.entitle the landl.ord from obtaining an order for the recovery of possess10n of the premises on the ground specified in cl. ( e) of the proviso to sub-s. (1) of s. 14

-~. ,

BUSCHING SCHMITZ (P) LTD. V. P. T. MENGHANI

32 I (Krishna Iyer, J.) or under s. 14A. Disclosure of facts which disentitle recovery of A possession is .a sine qua mm for grant of leave.

Are there facts disentitling the invocation of s. 14A?

The thrust of Shri Nariman's contention is that s. 14A does not apply at all, as a matter of construction of the expression 'residential premises'. This is net something factual but essentially legal B and perhaps the question deserves our decision. For, if we explain, as declaratory of the law, what the true scope of s. 14A is, vis a vis the premises involved, the Controller may then proceed on that footing and decide whether there is any fact disclosed which disentitlcs eviction.

Let us break down s. 14A, to the basic components_ creative of c the new right to recover possession of premises let to a tenant. 'Premises', by definition, covers any building or part of a building let for use, residential, commercial or other (s. 2(i)). We confine ourselves to the considerations relevant to our case.

To attract s. 14A, the landlord must be in occupation of 'residential premises' allotted to him by the Central Government.

He must be required by order of that Government to vacate such 'residential accommodation'.

D These are fulfilled here.

The ground for such order to vacate must be 'that he owns, in the Union Territory of Delhi, a residential accommodation'. If so, there accures to such landlord the right 'to recover immediately possession of any premises let out by him' ( emphasis added).

The bone of contention between the parties is as to whether the E premises let out are 'residential accommodation'.

It may be a pursuit of subtle nicety to chase the reason for using different expressions like 'residential premises' and 'residential accommodation' in the sante section. If at all, 'accommodation' is ampler than 'premises'.

What is residential accommodation ? If the building in dispute answers that description, the tenant must 'submit to eviction.

So this is the key question.

Admittedly, the building was let out for commercial purpose also.

Is the purpose of the lease decisive of the character of the accommodation? For a long itme it was used as an office of the tenant's business, the manager also residing in a part thereof. Docs user clinch the issue ?

At present, the main use to which the building is put is as residence of G the manager.

The Delhi Development Authority granted the land to the government servant-respondent for construction of a residential building although he later let it out for non-residential use, apparently for getting large rent_s, silencing his compunction about the basis on which he secured the allotment of the land at low cost.

But can the court H conclude from the object of the land assignment whether the building later put up is residential or not ? Marginal relevance there may. be in these diverse factors, telling value they do not possess. Law, bemg

6-436SCI/77

pragmatic, responds to the purpcise for which it is made, cognises the current capabilities of technology and life-style of the community and flexibly fulfils the normative role, taking the conspectus of circumstances in the given case and the nature of the problem to solve which the statute was made.

Legislative futility is to be ruled out so long as interpretative possibility permits.

Residentiality depends for its sense on th~ conte1't and purpose of the statute and the project promoted.

Guided by this project-orinted approach, we reject .the rival ex- . treme positions urged before us by Shri Nariman and Shri Jain. Residential premises are not only these which are let out for residential purposes as the appellant would have it. Nor do they cover all kinds of structures where humans may manage to dwell. If a beauhful bungalow were let out to a businessman to run a show-room or to a meditation group or music society for meditational or musical uses, it remains none-the-less a residential accommodation. Otherwise, premises may one day be residential, another day commercial and, on yet a later day, religious. Use or purpose of the letting is no conclusive test.

Likewise, the fact that many poor persons may sleep under bridges or live in large hume pipes or crawl into verandahs of shops and bazars cannot make them residential premises.

That is a case of reductio ad absurdum.

Engineering skills and architectural designing have advanced far enough to make multi-purpose edifices and, by minor adaptations, make a buildi11g serve a residential, commercial or other use. The art of building is no longer rigid and the character of a -house is not an 'either or'. It can be both, as needs demand. It iS so common to see a rich home turned into a business house, a dormitory into a factory.

Many smallCscale industries are run in former living quarters. To petrify engineering concepts is to betray the law's purpose.

Whatever is suitable or adaptable for residential uses, even by making some changes, can be designated 'residential premises'.

And once it is 'residential' in the liberal sense, s. 14A stands attracted.

Dictionary meaning, commonsense understanding and architectural engineering concur in the correctness of this construction.

What falls outside the ambit of 'residential purposes' may be limited but not non-existent.

A shop in Connaught Place, a factory in an area prescribed by any municipal regulation for residential use or any sthlcture too patently non-residential such as a hothouse for botanical purposes or a bath and toilette or teashop by the road margin are obvious instances.

We may visualise other cases but that is not our purpose here.

The house we are considering was built on land given for constructing a residence is being used even now for residence, is suitable otherwise for residence and is being credibly demanded for the respondent's residence. Residential suitability being the basic consideration, this building fills the bill.

Nothing said in the affidavit-in-opposition puts it out of the pale of residential accommodation.

A building which reasonably accommodates a residen-

--\-.

BUSCHING SCHMITZ (P) LTD. V. P. T. MENGHANI 323 (Krishna Iyer, J.)

tial user is a residential accommodation-nothing less, nothing else.

The circumstances of the landlord are not altogether out of place in reaching a right judgment.

The 'purpose test' will enable officers who own houses to defeat the government by pleading that they do not own 'residential premises' because the lease is for commercial use, built though it was and suitable though it is, for residence. Similarly, the 'possibility test' may make nonsense of the provision.

The contrast in the phraseology betweens. 14(1) (e) and s. 14A strengthens our inference. The legislature has, in the former provision, used the expression 'premises let for residential purposes', thus investing the

purpose of the lease with special significance.

The deliberate omission of such words in s. 14A and, instead, the use of the flexible but potentially more comprehensive, though cryptic, expression 'residential accommodation' cannot be dismissed as accidental.

Shri Nariman argued that the court must have the power to consider whether the order of the government stating that the government servant's building is residential, is valid or no.t.

We do not deny that in the last resort it i's within the Court's province to do so.

Bnt it must give due-not deadly-weight to the decision of the government that the premises owned by its officer is residential. Perversity and mala {ides will, of course, invalidate government orders here, as elsewhere. They are the exceptions but as a practical guideline, the government's order may be taken as correct.

For, after all, while courts must finally pronounce, others familiar with the work-aday world and enquire before passing orders are not too inexpert or incompetent to be brushed aside.

The power to render binding decisions vests in the judicial process, not because it is infallible or occult but because it Is habitually independent and professionally trained to consider contending view points aided by counsel for a adversaries.

The humility that makes for wisdom behoves the judge to show respect for-not obedience to-the view of an administrative agency.

There remains the conundrum raised by Shri Nariman. Supposing the landlord, after exploiting the easy process of s. 14A, re-lets the premises for a higher rent; the social goal boomerangs because the tenant is ejected and the landlord does not occupy, as he would have been bonnd to do, if he had sought eviction for bona fide occupation under s. 141(e). Section 19 obligates the landlord in this behalf.

In literal terms, that section does not apply to eviction obtained under s. 14A. But the cheme of that section definitely contemplates a

ecific representation by the petitioner-landlord to the Controller that because he has been ordered to vacate the premises where he is residing, therefore he requires immediate possession for his occupation.

The non-obstante clause, the ve'sting of a right to immediate recovery, the creation of a summary process under s. 25B and the package of connected provisions, a:u emphasize that the amendments have to be viewed as a whole, that the Court cannot be fooled and the stafute mocked at.

The law, as Mr. Bumble (in Oliver Twist) said. 'is a ass-a idiot', but today the socio-economic project cannot be frustrated by legalistics. Underlying the whole legislative plan and provision is the fundamental anxiety to recover, for the officers occupation, his own premises.

Once we grasp this cardinal point, the

A officer's application for eviction under s. 14A can be entertained oniy on his averment that he, having been asked to vacate, must get into possession of his own.

For instance, if he has a vacant house of his own and, on getting an order to vacate, he moves into his vacant house, he cannot thereafter demand recovery under s. 14A.

The cause of action is not only the government order to vacate, but his consequential urgency to recover his own building.

That is the B ra~<onale legis. To interpret otherwise is to vindicate Mr. Bumble l We hold that Shri Nariman's apprehension is unfounded and s. 14A is largely a rider to s. 14 and the condition indicated in s. 19 must, mutatis mutandis, bind the landlord.

Parliament cannot be assumed not to intend the obvious, or to intend the ludicrous. Literality is

not right where absurdity is the result. ·

The same result is reached by reading into every application for eviction by a landlord a necessarily implied representation to court that for the reason of his being directed to get out he must be given possession of his own residence for his own occupation with the aid of the judicial process. If the finale is reached and possession obtained, the Court will not allow a party to reduce its process to a mere make. believe, or a clever parody, breaking faith with the judicial process itseif.

Such paths can be interdicted by the use of the inherent power of the court.

The re-letting to someone else or non-occupation, even after a reasonable time or without reasonable cause, will be regarded as an abuse of the process of the court and, at the instance of the affected tenant or otherwise, the eviction order cancelled and possession restored.

We affirm this legal position Jest overly cute but qualmless landlords should hopefully hoax the court and reduce its decree to a joke.

Every tribunal has the inherent power to prevent its machinery from being made a sham, thereby running down the rule of law itself as an object of public ridicule.

It will and must prove any strategem self-defeating if a party indulges in making the law the langhing stock, for, the court will call him to order.

We are not adventuring into any innovation of legal principle in inhibiting unconscionability in the enforcement of rights.

Lord Denning M. R. said :

"What is the justification for the courts in this or any other case, departing from the ordinary meaning of words ?

If you examine all the cases you will, I think, find that at bottoll) it _is because the clause (relieving a man from his own negligence) ls unreasonable or is being applied unreasonably in the circumstances of the particular case.

The judges have then, time after time, sanctioned a departure from the ordinary meaning ...... Are the courts then powerless ?

Are they to permit the party to enforce his unreasonable clause, even when it is nnconscionable, or applied so unreasonably as to be nnconscionable ? When it ets to this point, I would say, as I said many years ago : 'There is the vigilance of the common law which, while allowing freedom of contract, watches to see that it is not abused.' "

x x x x x

BUSCH!NG SCHMITZ (P) LTD. V. P. T. MENGHANI (Krishna Tyer, !.) He continued :

"I know that the judges hitherto have never confessed openly to the test of reasonableness. But it has been the driving force behind many of the decisions."(')

We agree that, in the words of Lord Erskine, 'there is no branch of the jurisdiction of this couft more delicate than that, which goes to restrain the exercise of a legal right'.

But the principle of unconscionability clothes the court with the power to prevent its process being rendered a parody.

The justice of the law steps in end, in the area of eviction 0£ a tenan~ by a landlord, the tribunal cannot tolerate double-dealing or thwarting the real intendment of the statute.

The same conclusion can be reached through another line of reasoning expressed by Justice Jackson of the Supreme Court of the United States in D' Cench Duhme: (2 )

"If the judicial power is helpless to protect a legislative

program from schemes for easy avoidance, then indeed it has D become a handy implement of high finance. . . . Once the purpose or effect of the scheme is clear, once the legislative policy is plain, we would indeed forsake a great tradition to say we were helpless to fashion the instruments for appropriate relief."

The doctrine that the judicial machinery, while enforcing the law, E shall forbid its being misused is another dimension of two deeply rooted, but inter-connected maxims.

Actus curiae neminem gravabit (An act of the court shall prejudice no man : J enk. Cent. 118) and Actus legis est damnosus (The act of the law is hurtful to no one : 2 Inst. 287) : Actus legis nemini facit in-juriam (The act of the law docs injury to no one : 5 Coke. 116).

This principle is fundamental to any system of justice and applies to our jurisprudence.

An Aftnword

The possibility of the power of government to issue orders to vacate being used discriminatorily should be carefully avoided.

If exceptions are made in the case of big officers, naturally the middling and the lesser minions of government may have a grievance.

It .may perhaps be proper if government, when allotting good premises for high officers who make from thair own houses large returns by way o[ rentals, makes them pay into government coffers some equitable part of the gain so made, giving consideration to circumstances like loans, investments and the like.

This, again, is a matter falling with-

(0 39 Mod. L.R. 379 (1976)

(2) Referred to in 318 U.S. 366, at 366-67; Quoted in Univ. of Pennsylvania Law Review Vol. 117 (1968) p. I, 63.

A in the province of the sense of justice of the Administration.

But

we mention it only to save the legislation from the aspersion of invidiousness in the exercise of the power.

In the view we have already taken, it follows that the appeal must be dismissed and we hereby do so; but the parties, in the circumstances, will bear their own costs throughout.

P.H.P.

Appeal dismissed. '

BUSCHlNG SCHMITZ PRIVATE LTD

P. T. MENGHANI AND ANR

V. R. KRISHNA IYER

JASWANT SINGH, JJ.

Section 4(1)(c)

Delhi Rent Control Act 1958

Sec. 14, 14A, 25B

Delhi Rent Control Ordinance

section 14A and 25B

Section 14

Section 14A

Delhi

Section 25B

section 4(1)(c)

Section

14A

section 14A

Art. 226

Section 14A

BUSCHING SCHMITZ (P) LTD

P. T. MENGHANI

Krishna !

section 25B(5)

Order 37 rule 3

the Code of Civil Procedure

section 2(i)

section 14A

Delhi Development Authority

section 14A

section 14A

F. S. Nariman

N. S. Sistani

K. C. Dua

K. K. Jain

S. K. Jain

P. Dayal

KRISHNA IYER

s. 25B

Delhi Rent Control Act, 1958

India

Krishna Iyer

Parliament

s. 14A

s. 14A

s. 25A and 25B

s. 14A

Chandrachud

Sarwan Singh

Section 14A

Section 14A

Central Government

The same concept is pursued and clarified in the body of Section 14A by providing that in the contingencies mentioined in the section, a right will accrue to the landlord 'to recover immediately possession of any premises let out by him' ... "

  • •

"Whatever be the merits of that philosophy, the theory H is that an allottee from Central Government or a local

(I) Sarw>n Singh v. Kasturi Lal, A.LR.

section 25B

Section 25B(8)

Section 14

s. 14

s. 14

s. 14A

Krishna Iyer

s. 25B

Section 14

Section 14A

Third Schedule

BUSCHING SCHMITZ

Third Schedule

Section 14

Section 14A

Section 17

Code of Civil Procedure, 1908

Section 14

Section 14A

s. 14A

s. 14A

s. 25B

s. 14A

Nariman

s. 14A

s. 25B(4)

s. 25B(5)

the Code of Civil Procedure

s. 14

s. 14A

s. 14A

s. 14A

s. 14A

s. 14A

s. 2(i)

s. 14A

Jain

s. 14A

Connaught Place

s. 14A

s. 14A

s. 14A

s. 141(e)

Section 19

s. 14A

s. 25B

Bumble

s. 14A

s. 14A

s. 14A

s. 14

s. 19

Denning M. R.

Krishna Tyer

Erskine

Jackson

Supreme Court of the United States

S. 366


M. L. MANCHANDA & ORS.

UNION TERRITORY OF CHANDIGARH & ORS.

March, 17, 1977

[V. R. KRISHNA IYER AND JASWANT SINGH, JJ.]

Punjab. Industrial Housing Rules, 1972, R.4(3), whether ultra vires the Punjab Industrial Housing Act, 1956-Whetlur operates retrospectively.

The appellants and respondents Nos. 3 tQ 37 herein, were allottees of house3 in Chandigarh constructed by the State Government for low paid industrial C workers under the Industrial Housing Scheme subsidised by the Central Government.

The Labour Inspector, Union Territciry, Chandigarh gave them notices i.n terms of the proviso to rule 4(3) of the Punjab Industrial Housirfg Rules, 1956, as' amended vide Notification dated November 7, 1972, to show cause why their allotments should not be cancelled.

The income of each of them exceeded Rs. 350/ - per mensem, which disentitled them to retain their allotments. The appellants and the said respondents filed a joint petition in the High Court for a writ to quash the amendment to rule 4, and to restrain the Government from cancelling their allotments and evicting them. The writ peti- D tion was dismissed.

The appellants contended firstly, that rule 4(3) was ultra vires the Punjab Industrial Housing Act, 1956 as it took out industrial workers with income exceeding Rs. 350/- p.m. from the scope of section 2(e) of the Act which defines industrial workers; and secondly, that the authority competent to make. rules u/s. 24 of the- Act cannot frame rules having retrospective effect, and as the amended rule- 4(3) operates retrospectively it is invalid.

Dismissing the appeal by special leave, the Court, E

HELD:

( 1) The allotment of accommodation to an industrial worker is not unconditional but is subject to conditions which can be changed unilatera1ly by the Government from time to thne by altering the rules in exercise' of the powers conferred on it under section 24 of the Act. Section 24 specifically em- F powers the State Government to make rules to provide inter aliaJor the manner of allotment of accommodation and conditions relating to its occupation. The impugned amendment which squarely falls within the purview of the aforesaid provisions of section 24, was validly made, and was not ultra vires.

[331 G~H. 331 (a)Cl

(2) Section 7 of the Act embodies a deeming provision and gives a mandate to treat a person as an unauthorised occupant not only if he ceases to be an industrial worker under the Act, but also if being an allotteo, he ceases tOi fulfil any ?f the .Prscribed conditions then in force, including the one relating to the hm1t of his rncome, and thereby becomes amenable to action under section 9(2) of the Act. [33J(a)AB]

(3) The proviso to rule 4(3) clearly shows that the allotment of an indus trial ':vorker whose income exceeds Rs. 350/- per mensem is to stand cancelled not from the date whe11 his income started exceeding Rs. 350 /· per mensem H but n the expiry of one month's notiee in writing of the cancellation. The rule IS not mtended to operate retrospectively on industrial worke<s who had been allotted and were in occupation of industrial houses immediately before'

A the amendment of the Punjab Industrial Housing (Chandigarh First Amendment) Rules, 1972. [33l(a) E-F]

The Court observed:-

The scheme being meant for the benefit of the low paid industrial workers and the number of th_e_ houses constructed thereunder being very limited, the Govement could leg1ttmately evolve the method which it did, todisentitle industnal workers whose monthly income was relatively large, to retain the houses. [33J(a)-C-D]

CivIL APPELLATE JURISDICTION: Civil Appeal No. 1744 of 1976.

(Appeal by Special Leave from the Judgment and Order dated 28.4.1975 of the Punjab & Haryana High Court in Civil Writ Petition No. 1819175)

M. K. Ramamurlhi and J. Ramamurthi, for the appellants.

Madan Mohan, for the respondents 4-8, 10-25, 27-30 & 32-36.

lJ. D. Sharma & R. N. Sachthey, for respondents 1-2.

The Judgment of the Court was delivered by

JASWANT SINGH, J.-This appeal by special leave which is directed against the judgment and order dated April 28, 1975, of the High Court of Punjab and Haryana at Chandigarh, dismissing Civil Writ Petition No. 1819 of 1975 filed by the appellants and respondents 3 to 3 7 herein, who are industrial workers employed in Factories situate in the industrial area in Chandigarh.

The facts leading to this appeal arc : In 1956, the Legislatme of the then State of Punjab enacted what is called the Punjab Industrial Housing Act, 1956 (Punjab Act 16 of 1956) (hereinafter referred to as 'the Act') to provide for allotment, recovery of rent, eviction and other ancillary matters in respect of houses constructed under the subsidised Industrial Housing Scheme for industrial workers in the State of Punjab. In exercise of the powers conferred on it under section 24 of the Act, the State Government made rules called the Punjab Industrial Housing Rules, 1956 (hereinafter referred to as the Rules').

Rule 4 of the Rules as originally made ran as under:.-

"4. Eligibility for allotment-(!) Two-roomed tenements shall be allotted to industrial workers whose income exceeds Rs. I 00 per mensem.

(2) One-roomed tenements shall be allotted to workers with an income not exceeding Rs. 100 per mensem."

M. L. MANCJIANDA v. u. T. OF CHANDIGARH (Jaswant Singh, J.) 329

This rule was amended vide Notification No.

4119-2HG-60 A 29333 dated October 5, 1960.

The rule, after its aforesaid amendment, read as under:-

"4. Eligibility for allotment-( l) Two roomed tenements shall be allotted to industrial workers whose income does not exceed Rs. 350.00 per mensem.

(2) One roomed/small two roomed tenements shall be allotted to workers with an income not exceeding Rs. 250.00 per mensem; provided that where sufficient number of industrial workers witl1 income exceeding Rs. 250.00 per mensem is not forthcoming for allotment, the Labour Commissioner may, with the approval of the State Government, allot two roomed tenements to industrial workers with an income not exceeding Rs. 250.00 per mensem.

Notes : In towns, where only roomed/small two roomed tcncmcnLs have been built, applications should first be invited from such workers only, whose monthly income does not exceed Rs. 250.00. It is only after the demand from these workerc has been met that unallotted tenements should be made available for allotment to workers, whose income exceed Rs. 250.00 per mensem.

Where these tenements arc given to higher paid workers the normal subsidised rent should be charged from them till such time as the regular two roomed tenements do not become available for them.

When the two-roomed tenements become available the higher paid workers must be removed from the smaller tenements, failing which they should be charged the full econo1nic rent.

(ii) Jn cases where after allotment of one roomed/small two roomed tenements 'a worker crosses the wage limit of Rs. 250.00 per mensem, he may be allowed to continue in occupation of the house allotted to him on payment of subsidised rent, till such time as the regular two roomed house does not become available, in other respects the procedure as prescribed in note (i) should be followed .

(iii) Two-roomed tenements should in the first instance, be offered from allotment to workers whose income is in between Rs. 251.00 and Rs. 350,00 per mensem."

Vidc Notification No. 7480-4H(8)-72/21542 dated November 7, 1972, the Chief Commissioner, Union Territory, Chandigarh, made in exercise of the powers conferred by section 24 of the Act what are called the Puniab Industrial Housing, Chandigarh (First Amendment) Rules, 1972 adding the following, after sub rule (2) in Rule 4 of the Rules:-

" ( 3) An industrial worker shall become ineligible to retain the industrial house allotted to him from the date his income exceeds Rs. 350/- per mensem and his allotment of it shall stand cancelled with effect from that date.

Provided that in case such an industrial worker has been allotted and is in occupation, of an industrial house immediately before the commencement of the Punjab Industrial Housing (Chandigarh First Amendment) Rules, 1972, his allotment shall be cancelled by the Labour Commissioner after giving him one month's notice in writing of such cancellation.

The Chief Commissioner also ordained that the following shall be C added in form 'C' of the Rules after condition (24) :-

"(25) The allottee shall become ineligible to retain the industrial house, allotted to him from the date his income exceeds rupees 350 per mensem and. his allotment shall be deemed to have been cancelled from that date."

The appellants and the aforesaid respondents, who were allottees of houses in Sector 30, Chandigarh constructed by the Sfate Government for occupation of industrial workers under the Industrial Housing Scheme subsidised by the Central Government and declared under section 3(2) of the Act to be houses covered by the provisions of the Act were given notices by the Labour Inspector, Union Territory, Chandigarh, in terms of the proviso to sub-rule ( 3) of rule 4 of the Rules, as amended by the aforesaid Notification No. 7480- 4H(8)-72/2!542 dated November 7, 1972, calling upon them to show cause as to why the allotment of houses made to them should not be cancelled as the income of each one of them exceeded Rs. 350/- pei'. mensem which disentitled them to retain their respective allotments. The aJ>p!'llants and the aforesaid respondents thereupon filed a joint writ petition, being writ petition No. 1819 of 1975 under Articles 226 and 227 of the Constitution in the High Court of Punjab and Haryana for issue of an appropriate writ, order or direction quashing the said notices and notification No. 7480-4H(8)-72/21542 da!ed November 7, 1972 amending Rule 4 of the Rules and restraining respondents I and 2 from proceeding with the cancellation of their respective allotments and evictmg them from the houses. They contended that the aforesaid rule 4 as amended was ultra vires the Act ln so far as it carved out an exception to the statutory definition of 'industrial worker' as contained in section 2 ( e) of the Act within the scope of which they admittedly fell.

The High Court repelled their contention and dismissed their writ petition by its judgment dated April 28, 1975. Aggrieved by this judgment and order, the appellants and the said respondents made an application to the High Court for issue of a certificate of fitness under Article 133 of the Constitution which was refused by the High Court by its order dated May 9, 1975.

Thereupon they moved this Conrt for special leave under Article 136 of the Conslitution which wa's granted.

M. L. MANCllANDA v. u. T. OF CHANDIGARH (Jaswant Singh, J.) 331

Appearing in support of the appeal, Mr. Ramamurthy has reiterated before us that since the appellants and respondents 3 to 3 7 are admittedly industrial workers as defined in clause ( e) of section 2 of the Act, the impugned rule 4 which is designed to cancel their allotment, on the ground that their salary exceeded Rs. 350/- per mensem i's clearly repupant to that clause and as such utra vires and invalid as it takes out industrial workers with income exceeding Rs. 350/- per mensem from the scope of the definition. He has further , contended that since the authority competent to make rules under section 24 of the Act cannot frame any rule having a retrospective effect and the impugned rule-rule 4(3) as amended operates retrospectively, the same is invalid.

He has lastly urged that the impugned notification is also invalid as it makes hostile and arbitrary discrimination against industrial workers whose income exceeds Rs. 350/- per mense.m, and thereby violates the guarantee enshrined in Article 14 of the Constitution.

We shall deal seriatim with all the three contentions raised by Mr. Ramamurthy. Before embarking on that task, we consider it appropriate to scan the scheme of the Act.

Section 3 of the Act clearly states that the Act shall be applicable to houses constructed by the State Government for the occupation of industrial workers under the Industrial Housing Scheme subsidised by the Central Government.

The scheme, as evident from the affidavit of the Home Secretary, Chandigarh Government, is meant for the benefit of the low aid industrial workers and economically weaker sections of the community. Section 9(1) of the Act provides that the occupation by any person of a house shall at all times be subject to such conditions relating to its occupation as may be prescribed, or as may be intimated from time to time by the Labour Commissioner. Section 7 of the Act sets out the circumstances in which a person shall be treated to be in unauthorised occupation of any house. Clause (b) of the section explicity states that a person shall be deemed to be in unauthorised occupation "where being an allottee he has by reason of cancellation of an allotment under sub-section

(2) of section 9 ceased to be entitled to occupy the house".

Sub-section (2) of section 9, which is necessary to be referred to at this stage and which because of the rwn-obstante clause contained in its opening part overrides all other laws for the time being in force, authorises the Labour Commissioner after giving notice to the allottee and considering the explanation tendered by him to cancel the allotment under which a house is held or occupied by him.

Section 24 of the Act not only empowers the State Government generally to make rules to effectuate the purposes of the Act but also specifically confers on it the power to make rules to provide inter alia for the manner of allotment of accommodation and conditions relating to its occupation [see section 24(2)(ii)] as also for the matters which are to be or may be prescribed [see section 24(2)(x)]. A conspectus of the aforesaid provisions of the Act leaves no room for doubt that the allotment of accommodation to an industrial worker is not unconditional but is subject to conditions wbich can be changed unilaterally by the Government from time to time by altering the rules in exercise of the powers conferred on it

under section 24 of the Act.

Se<:tion 7 of the Act which embodies a deeming provision gives a mandate to treat a person as an unauthorised occupant not only if he ceases to be an industrial worker under the Act but also if being an allottee, he ceases to be entitled to eccupy the accommodation by reason of cancellation of the allotment under sub-section (2) of section 9 of the Act.

A combined reading of se<:- tioru; 7 and 9 of the Act goes to show that if at any time a person be<:omes an unauthorised occupant of the house by reason of his ceasing to be an industrial worker or by otherwise ceasing to fulfil any of the prescribed conditions then in force including the one relating to the limit of his income, he becomes amenable to action under se<:tion 9(2) of the Act.

The result is that even though the allotree may continue to be an industrial worker, still the allotment under which he holds a house can be cancelled if his occupation becomes nn authorised on any one of the grounds laid down in section 7 of the Act.

We are, therefore, satisfied that the impugned amendment which squarely falls within the purview of the aforesaid provisions of ·

section 24 of the Act was validly made and the contention urged by Mr. Ramamurthy that it is ultra vires is misconceived and untenable.

We may state here in passing that the aforesaid scheme being meant for the benefit of the low paid industrial workers and the number of the houses constructed thereunder being very limited, the Government cauld legitimately evolve the method which it did to disentitlc industrial workers like the appellants whose monthly salaries appear to range between Rs. 974.71 and Rs. 186L27 and the aforesaid respondents whose monthly income is also relatively large to retain the houses in question.

The contention of Mr. Ramamurthi that the impugned rule is retroactive in operation is also devoid of merit. A careful study of the proviso to rule 4(3) of the Rules which appears to have been inserted to allay fears and remove misapprehensions would show that the rule is not intended to operate retrospe<:tively on industrial workers who had been allotted and were in occupation of industrial houses immediately before the amendment of the Punjab Industrial Housing (Chandigarh First Amendment) Rules, 1972. It unequivocally states that allotment of an industrial worker who is in occupation of an industrial house in pursuance thereof immediately before the amendment of the Punjab Industrial Housing (Chandigarh First Amendment) Rules, 1972 shall not be cancelled without one month's notiee in writing. The proviso therefore clearly shows that the allotment of an industrial worker whose income exceeds Rs. 350/- per mensem is to stand cancelled not from the date when his income started exceeding Rs. 350/- per mensem but on the expiry of one month's notice in writing of the cancellation. The second contention raised by Mr. Ramamuithi is also, therefore, repelled.

The third contention advanced by the learned counsel on behalf of the appellants not having been raised before the High Court cannot be permitted to be raised at this stage. The contention can also not be allowed to be raised in view of the Presidential Order dated June 27,

M. L. MANCHANDA v. u. T. OF CHANDIGARH (Jaswant Singh, J.) 33 I(b)

1975 promulgated under clause (1) of Art. 359 of the Constitution suspending inter alia Article 14 of the Constitution for the period during which the proclam<1tion of emergency made under clause ( l) of Article 352 of the Constitution on December 3, 1971 and on June 25, 1975 are both in force.

For the foregoing reasons, we do not find any merit in this appeal which is dismissed but in the circumstances of the case without any order a

as to costs. Counsel for the appellants submits that he may be given time for vacating thei premises. We grant time till 31st August 1977 on the undertaking given by the counsel that vacant possession will be given on or before \hat date.

M.R .

Appeal dismissed.

M. L. MANCHANDA & ORS

UNION TERRITORY OF CHANDIGARH & ORS

March, 17, 1977

V. R. KRISHNA IYER

JASWANT SINGH, JJ.

Industrial Housing Rules, 1972

Punjab Industrial Housing Act, 1956

Central Government

Punjab Industrial Housirfg Rules, 1956

Punjab Industrial Housing Act, 1956

section 2(e)

s. 24

section 24

Section 24

section 24

Section 7

section 9(2)

M. K. Ramamurlhi

J. Ramamurthi

Madan Mohan

lJ. D. Sharma

R. N. Sachthey

Chandigarh

section 24

Jaswant Singh

October 5, 1960

section 24

Sfate Government

section 3(2)

November 7, 1972

Articles 226 and 227

High Court of Punjab and Haryana

section 2

April 28, 1975

Article 133

May 9, 1975

Article 136

Ramamurthy

section 2

section 24

Article 14

Section 3

Chandigarh Government

Section 9(1)

Section 7

section 9

section 9

Section 24

section 24(2)(ii)

section 24(2)(x)

section 24

section 9

section 7

section 24

Ramamurthi

Ramamuithi

Art. 359

Article 14

Article 352

June 25, 1975

31st August 1977