Bi•hun4eo

Narain and Another v.

Seogenl Bal and Jagernath.

Bose.J.

Ma14

SUPREME COURT REPORTS (1951]

the same parties for the same relief. It will be more convenient and proper to have these matters decided there. Accordingly, we dismiss the plaintills' suit with costs throughout, but make it plain that in doing so we do not adjudicate upon their right to seek partition of such properties as they contend are omitted to be partitioned under the compromise decree in the pending suit.

Appeal di1mi11ed.

Agent for the appellants : R. C. Prasad.

Agent for respondent No. 1 : P. K. Chatteriee.

KARNANI INDUSTRIAL BANK, LIMITED

"· THE PROVINCE OF BENGAL AND OlHERS

[SAIYID FAzL Au, MuKHE!lJEA and

CliANDIUSEKHAl\A AlYAR JI.)

Transfer of Property Act (IV of 1882), ss. 106, 116-Lease for a term-Acceptance of rent for further period before expiry of term-New tenancy--Necessity of notice ta quit-Lessee's property becoming property of lessor by failure to remove within time-In junction against removal-Whether can be granted.

The context in which the provision for acceptance of rent finds a place in s. 116 of the Transfer of Property &t shows that what is contemplated is that the payment of rent should be made at such time and in such manner as to. be equivalent to the land lord assenting to the lessee continuing in possession.

Where payment is made at a time when there was no question of the lessor assenting to the lessee's continuing in possession and neither party treated the payment as importing such assent the case does not fall within s. 116.

A lease deed was executed on the 17th February, 1928, in respect of a land for a period of ten years from 24th February, 1928 the annual rent of Rs. 6,000 being payable in advance every year.

In April, 1937, a cheque for Rs. 6,000, being the rent from 1st April, 1937, to 31st March, 1938, was sent by the lessee and accepted by the lessor : Held, that as the rent was paid before expiry of the lease and neither party treated the payment of rent as importing assent on the part of the lessor to allow the lessee

to continue in possession as a lessee after the .period of the lease, no new tenancy was created under s. 116 of the Transfer of Property Act. The utmost that could be said was that by implied consent the period of the lease was extended up to the 31st March, 1938, and even then no notice under s. 106 of the Transfer of Property Act was necessary for terminating the lease.

K. B. Capadia v. Bai Jerbai Warden and Another [1949) F.C.R. 262 distinguished.

Where in accordance with thC terms of a lease bricks and other materials manufactured by the lessee on the leased premises had become the property of the lessor as they had not been removed by the lessee within the period fixed by the lease : Held that the lessor was entitled to ask for an injunction restraining the lessee from removing the materials even though he was not in possession of the leased premises.

Rathnasabhapathi Pillai and Others v. Ramaswami Aiyar (I.L.R. 33 Mad. 452). Bhramar Lal Banduri & Others v. Nanda/al Chowdhuri (24 I. C. 199) and Valia Thamburatti v. Parvati and Others (I. L. R. 13 Mad. 455) distinguished.

CML APPELLATE JmusDICTION.

Civil Appeal No- 58 of 1950.

Appeal against the Judgment and Decree dated the 13th February, 1948, of the High Court of Judicature at Calcutta (Mitter and Sharpe JJ.) in Appeal No. 117 of 1942 arising out of Decree elated the 24th November, 1941, in Suit No. 85 of 1938.

N. C. Chatteriee and Harish Chandra (K. C. Chopra and G. C. Mathur, with them) for the appellant.

Chandra Sekhar Sen ( C. N. Laik, with him) for respondent No. 1.

1951, May 4.

The Judgment of the Court was delivered by

F AZL Au J.

The principal question for determina-

Karnani Industrial Bank Limited v.

The Province of Bengal and Others.

tion in this appeal is whether a certain lease had validly Fazl Ali J. terminated by efflux of time or whether there was "holding over" by the lessee of the leasehold property as contemplated in section 116 of the Transfer of Property Act. The circumstances under which this question and several subsidiary questions to which reference will be made later have Erisen may be briefly stated as follows:

Karnani Indrutrlal Bank Limited v.

The Province of Bengal and Others.

Faz/ Ali J.

The Province of Bengal, (hereinafter referred to as the respondent No. 1 or plaintiff) is admittedly the owner of an area of 1125 bighas and odd of land in village Akra. On the 17th February, 1928, the respondent No. 1 executed a lease (exhibit 3) in respect of the said land for 10 years for manufacture of bricks in favour of the appellant, at a rental of Rs. 6,000 a year.

The lease was to commence from the 24th February, 1928, and a year's rent was payable in advance.

By the terms of the said lease, the lessee was prohibited from assigning or subletting the premises or any part thereof without the consent of the lessor except to a limited . company and the lease also contained a general provision that the lessee would at the expiration of the lease restore to the lessor the demised premises in as good condition as it was at the date of the lease, reasonable wear and tear excepted.

Two further clauses in the lease, which are material for the decision of this appeal, may be reproduced verbatim:-

Clause 11 of Part I of the Schedule

"The Secretary of State reserves the right to terminate the lease at any time subject to six months' notice in the event of the lessee's failing to observe and duly perform the conditions hereinbefore and after mentioned and it is hereby agreed that the lessee shall before the expiration or prior termination of the lease hereby granted remove his boilers engines trucks kilns railway and tram l.Tnes bricks tools and plant and all other materials whatsoever and yield up the said demised premises unto the Secretary of State and that those bricks tools and plant and other materials that shall not be removed before such expiration or prior termination shall become the property of the Secretary of State."

Clause 1 of Part Ill of the Schedule

''The lessee shall be at liberty to keep on the said premises hereby demised for three months after the expiration or prior termination of the term of this

lease any bricks boilers engines trucks kilns railway and tram lines and all other materials whatsoever as may have been manufactured by him in the premises in accordance with the conditions of these presents but any bricks and other-materials left in - contravention to this condition shall become the absolute property of the Secretary of State without payment.

It may be stated here that at the time of the execution of the lease, the lessee had purchased from the lessor for Rs. 50,000 "all the boilers, engines, trucks kilns, railway and tramway lines and all other movable property, plant and machinery on the demised . " premises.

The case of the respondent No. 1, who is the plaintiff in the present litigation, is that the appellant (defendant No. 1) had, in contravention of the terms of the lease, sublet the brickfield to defendants-respondents 2 to 18. without the consent of respondent No. 1, and they had caused serious damage to the brickfield in general and failed to maintain the embankments, sluices, etc. in proper repair resulting in a total loss of Rs. 16,840. It was further alleged that the defendants had refused to deliver possession though the lease had terminated, and they had not removed the bricks, pugmills and other materials within 3 months from the termination of the lease.

On these allegations, the respondent No.. 1 prayed for the fol\o:wing reliefs :--

(a) a decree for ejectment and khas possession over the brickfield ;

(b) damages amounting to Rs. 4,000 for the pe_riod betWeen the termination of the lease and institution of the suit and mesne profits for the subsequent perio1l;

( c) a decree for Rs. 16,840 for damages caused to. the field ; and

( d) a decree for permanent injunction restraining the defendants from removing or otherwise disposing of the bricks, pugmills, etc. which were claimed to have become the property of the plaintiff. 3-10 S- C. fndi:y'67

Kamani Industrial Bank

Limited v.

The PrtJl'i11ce of

t:t1Bengal and OtherJo

Fazal Ali J.

Karnani lndustrit1! Bank

Limited

T!tc Prorincc of

&ngal and 01/zt'rs.

Faz/ Ali J.

The suit was contested by the appellants, and the other defendants, and their defence was that the appellants had held over with the implied consent of respondent No. 1, and hence the lease had not validly terminated, that no damage or injury had been caused to the land, that the respondent No. 1 was not entitled to forfeit the properties of the appellants lying in the brickfield inasmuch as the term in the lease to that effect was by way of penalty and as such unenforceable, and that the respondent No. 1 was not entitled to the relief of injunction.

The trial Judge by his judgment dated the 24th November, 1941, held that there was no holding over with the assent of the plaintiff and both parties were under a mistaken belief that the lease had expired on the 23rd February, 1938.

He however held that the evidence did not show that there was any damage or injury caused to the property. On these findings, the suit was decreed in part, and the respendent No. 1 was directed to be put in possession of the brickfield and was also granted a decree for Rs. 4,000 as mesne profits up to the date on which the respondent No. 1 was put in possession. The prayer for damages for injury allegd to have been caused to the field and the prayer for injunction were however disallowed.

The trial Judge allowed the appellants 3 months' time "to remove their belongings from the Akra brickfield including kilns, pugmills, bricks, coals and any other brick-making material that may be lying there" after this period these properties, if any, left in the field, were to become the absolute properties of the plaintiff.

The appellants thereafter preferred an appeal to the High Court at Calcutta, and the respondent No. 1 also preferred a cross-objection claiming that the prayer for injunction should have been allowed -and the claim for damages should have been decreed in full.

The learned Judges of the High Court who heard the appeal, by their judgment dated the 13th February, 1948, dismissed the appeallants' appeal and allowed the cross-objection of the respondent No. 1 in part.

They held that on the facts established in the case there was no holding over, and that the clause in the lease stating that if the

.appellants did not remove the bricks etc. from the field within 3 months after termination of the lease they would become the property of respondent No. 1, was not a clause by way of penalty and should be given effect to.

They further held that the claim of respondent No. 1 for damages for injury caused to the demised premises was not established. The present appeal is directed against the judgement of the High Court.

The admitted facts of the case are briefly these.

The appellants duly paid Rs. 6,000 as rent to respondent No. 1 in February, 1928. In February, 1929, a sum of Rs. 6,714 and odd was paid by the appellants as rent for the period 17th February, 1929, to the 31st March,

1930, and thereafter they continued to pay Rs. 6,000 as rent for the yearly period, 1st April to 31st March of the succeeding year, and the last payment was made in April, 1937 by means of a cheque sent with a covering letter, the material portion of which runs as follows :- ·

"We beg to enclose herewith a cheque for Rs. 6,000 in payment of rent of Akra brickfield for the year 1937-38 ending 31st March, 1938, and shall thank. you to please favour us with your formal receipt for the above."

The cheque was duly cashed and the amount was entered in the cash book of the plaintiff in the following terms:-

"5-4-37 (date of receipt).

Received without prejudice from Karnani Industrial Bank Ltd. on account of yearly rent for Akra brickfield for the year ending 31st March, 1938."

. On the 27th August, 1937, the appellants applied to the Secretary to the Government of Bengal, Public

Works Department, for renewing the lease for a further period of 10 years, but no reply was received to that letter.

After addressing several other letters, the appellants received a letter dated the 23rd February. 1938, with which was enclosed a copy of an extract from a letter addressed by the Executive Engineer.

Katt1ani Industrial Bank Limited v.

The Provinetof

Bengal and Others

Fazl All J.

Karnanl lndultrial Bank Limited ....

The Province of Bengal and Others.

Faz/ Ali J. ·

Suburban Division to the Assistant Engineer, No. III Sub-division, which was a under:-

"He is requested to make arrangements with Messrs. Karnani Industrial Bank Limited for vacant possesiion of the Akra bricklield on the 24th instant as the lease with the Bank will expire on the 23rd instant according to the terms of the agreement."

Ultimately, on the 17th March, 1938, the appellants received the following communkation from the Executive Engineer, Suburban Division :-

"I would inform you that it is not the intention of Government in this Department to lease out the bricklields and arrangement is being accordingly made to make over the lands to the Government in the Revenue Department for disposal."

In a subsequent letter dated the 14th September, !'938, the Executive Engineer wrote to the appellants as follows :-

"I am instructed to state that Government have decided that you cannot be allowed to continue in occupation of the premises any further ......... However, as a matter of grace Government will allow you time till the 30th day of September next, to dismantle the kilns and to remove all your bricks, boiler etc. from the site, on which date Government will take over possession of the property from you."

The correspondence to which reference has been made does not show that at any point of time the plaintiff had assented to the appellant's continuance of possession.

On the other hand, some of the letters written by the appellants show that, notwithstanding their having paid rent up to . the 31st March, 1938, they had proceeded all along on the footing that the lease was to expire in February, 1938. For instance, in the appellants' letter of the 23rd August, 1937, it is stated : "we are desirous of renewing the lease of the bricklield for a further period of 10 years from the date of the expiration of the period of the !ease dated

17-2-1928." Again, in the letter dated the 23rd October, 1937, reference is made to the appellants'

application for renewal of the lease for a further period of 10 years on its expiry. Even in the letter which was written on behalf of the appellants on the 3rd March, 1938, after the expiry of the date on which the lease was to terminate, the statement made in the earlier letters was repeated, and it was further stated : "we applied for renewal of the lease on the 23rd August, 1937, six months prior to the date of expiration of the lease." In this letter, it is nowhere suggested that the appellants were holding over by reason of the acceptance of rent up to the 31st March, 1938.

On the other hand, at the end of this letter, we find the following statement :-

"We therefore pray that if the Government is not at all inclined to renew the lease, time may be granted to us for dismantling and removing till the end of December, 1938, and we shall pay the proportional rent to the Government -for seven months time in pursuance of the terms of the lease."

The reference to the period of 7 months shows that it was assumed that the lease had expired in February, 1938.

The letters wr'itten on behalf of the Government point to the same conclusion, namely, that both the parties were acting on the assumption that the lease was to expire on the 23rd February, 1938.

For instance in a letter_ written on behalf of the Government on the 25th -February, 1938, the following statement is made :-

"I have the honour to inform you that none of your agents was present at the Akra brickfield today as previously arranged to make over the possession of the bnckfields.

You are therefore requested to please inform me about as to what arrangements are being

mde by you to make over the possession of the said brickfield to this department. The term of lease expires on the afternoon of the 23rd February, 1938."

Apart from the fact that the appellants did not set up in any of their letters a case -of holding over, we have to see whether the plea can be said to have been

19S1

Kornani lndwtrial Bank

Limited v.

The Province of Bengal and Othe,,.

Faz/ Ali J.

19SI

Kaman I lnrlwtria/ Bank Limited v.

The Province of

Bengal and Other$.

Faz/ All J.

successfully made out by them.

There is no doubt that the appellants have established that the rent was paid on their behalf up to the 31st March, 1938, and it was accepted by the respondent No. 1.

It has also been established that this payement was made by a cheque and that cheque has been cashed by the Government. Section 116 of the 'J1ransfer of Property Act, on which reliance was placed on behalf of the appellants, runs as follows :-

"If a lessee or underlessee of property remains in possession thereof after the determination of the lease granted to the lessee, and the lessor or his legal representative accepts rent from the lessee or underlessee, or otherwise assents to his continuing in possession, the lease is, in the absence of an agreement to the contrary, renewed from year to year, or from month to month, according to the purpose for which the pr<>- perty is leased ...... " ·

This sect'ion was construed by the Federal Court in K. B. Capadia v. Bai Jerbai Warden and Another (1), and it was held that where rem was accepted by the landlord after the expiration of the tenancy by efflux of time, section 116 applied even. though the landlord accepted the amount remitted to him as "part deposit towards his claim for .compensation for illegal use and occupation, and without prejudice to his rights". It is to be noted that in that case rent had been accepted after the expiry of the tenancy.

In our judgment, the present case cannot be governed by that decision because of the fact, which In our opinion is important; that here the payment of rent up to the 31st March, 1938, was made not after the date of expiry of the lease, but on the 5th April, 1937, nearly a year before the expiry of the lease.

A rcterence to section 116 of the Transfer of Property Act will show that for the application of that section, two things are necessary :-

(1) the lessee should be in possession after the tennination of the lease; and (2) the lessor or his representative should accept rem or otherwise assent to his continuing in possession.

The use of the word 'otherwise'

(l) [19S9] F.C.R.262

suggests that acceptance of rent by the landlords has been treated as a form of his giving assent to the tenant's continuance of possession.

There can be no question of the lessee "continuing in possession" until the lease has expired, and the context in which the provision for acceptance of rent finds a place clearly shows that what is conte111plated is that the payment of rent and its acceptance should be made at such a time and in such a manner as to be equivalent to the landlord assenting to the lessee continuing in possession.

Both the courts below, after dealing with the matter elaborately, have concurrently held that in the circumstances of the case of the consent of respondent No. 1 to the appellants' continuing in possession cannot be inferred, and we agree with this finding.

It was pointed out to us on behalf of the respondent that the entry relating to this payment in the books of the plaintiff contains the words : "received without prejudice from Karnani Industrial Bank .... " The same words however occur in several earlier entries, an<l we are not inclined to attach any special signifinance to them.

But it seems to us that the very fact, that the payment was made at a time when there was no question of the lessor assenting to the lessee's continuing in possession and neither party treated the payment as importing such assent, is sufficient to take the case out of the mischief of section 116 of the Transfer of Property Act.

There is also another view which we think is possible to take upon the facts of the case. As we have seen

the rent for the first year was paid in advance near about the tie of the execution of the lease, and nothing turns upon 1t.

When however the second payment was made, the sum paid was Rs. 6,714 and odd, and the payment was made in respect of rent up to the 31st March, 1930.

After this, all the subsequent payments were made up to the 31st March of the succeeding year, evidently because the financial year, which the parties considered themselves to be governed by, ran from the 1st April to the 31st March of the succeeding year. It was presumably in view of this fact that the

Karnani Industrial Bank Limited v.

Tfie Province <f Bengal and Otheri.

Faz/ Ali J,

Karnani lnduJtrial Bank Limited v.

The Province of Bengal and Others•

Faz Ali J.

plaintiff filed an application on the 6th November, 1941, for amending the plaint so as to include the following statement :-

"The plaintiff submits that even assuming that the registered lease terminated on the 23rd February, 1938, by an agreement between the plaintiff and the defendant No. 1, the latter was allowed to hold over up to the 31st March, 1938.''

This application however was rejected, because it was made at a very late stage, that is to say, after the defendants' evidence had been closed and an adjournment had been granted to the plaintiff to adduce rebutting evidence.

However that may be, the utmost that can be said upon the evidence as it stands is that by the implied consent of the parties the period of the lease was extended up to the 31st March, 1938.

In this view, the respondent No. I became entitled to re-enter after the 31st March, and no notice under section 106 of the Transfer of Property Act was necessary.

In the circumstances, the decree for ejectment passed by the courts below must be upheld.

The next question which arises in the case turns up the proper construction of clause 11 of Part I and clause I of Part III of the lease, which have already been quoted.

It seems to us that clause 11 should he read as a whole, and, when it is so read, it becomes clear that it was intended to be. applicable only where the Secretary of State decided to exercise his right to terminate the lease 'at any time subject to 6 months' notice," in the event of the lessee failing to observe and duly perform the conditions mentioned in the lease.

In such a case, if the lessee did not remove the boilers, engines and all other materials and yield up the premises to the Secretary of State, those articles were to become the property of the Secretary of State.

This clause is evidently not applicable to the present case.

The clause which applies to this case is clause 1 of Part III, which is intended to be applicable to the normal case of the . lease expiring by efllux of time.

This clause. as we have seen, provides that the lessee

shall be at liberty to keep on the demised pr!!mises for 3 months after the expiration of the lease any bricks, boilers, etc., but it also provides that "any bricks and other materials left in contravention of this condition shall become the absolute property of the Secretary of State without payment." There can be no doubt that under this clause, the bricks and other materials have become the absolute property of the plaintiff. The only question is as to the meaning of "other materials." It seems to us on an examination of the lease as a whole that there must be a distinction between materials, and machinery and tools and similar articles, and the words "other materials" have no reference to engines, trucks, railway and tramway lines and plant. They mean building materials such as bricks, tiles and similar articles that might have been manufactured by the appellants on the demised premises.

That being so, the decree under appeal should be modified accordingly.

The only other point which arises for consideration relates to the plaintiff's prayer for a decree for permanent injunction against the defendants, to restrain them from removing or otherwise disposing of . the1 articles in regard to which the decree is to be passed.

It was contended on behalf of the appellants that the respondent No. 1 not being in possession of these properties could not ask for the relief of injunction without asking for the declaration of its title in respect of them and possession over them, and in support of this proposition, the following cases were cited :-Ratnasabhapati Pillai and Others v. Ramaswami Aiyar (1), Bhramar Lal Banduri and Others v. Nanda Lal Chowdhuri (2) and Valia Tamburatti v. Paravati and Others (3).

After reading and fully considering those cases, we find them to be wholly inapplicable to the present case.

Jn the present case, it has been found that the bricks and other materials have become the property of the plaintiff, and there can be no legal objection to the granting of an injunction as prayed.

(I) I.L.R. 33 Mad. 482 .

.(2) 24 I.C. 199.

13) I.LR. 13 Mad. 455.

Karnani lndurtrlal Bank Limited v.

The Province of Bengal and Others

Faz/ Ali J.

Karnani Industrial Bank Limited v.

The Province of Bengal and Other1.

Faz/ Ali J.

May 4

The appeal therefore substantially fails and it is dismissed with costs.

But it should be made clear m the decree that only the building materials such as bricks, tiles . and similar articles that might have been manufactured by the appellants on the demised premises shall become the property of the respondent No. 1.

As for the boilers, engines, trucks, kilns, railway and tram lines, etc., three months' time is given from the date of this decree to enable the appellants to remove them from the demised premises.

Appeal dismissed.

Agent for the appellant : Raji11der Narain.

Agent for respondent No. 1 : P. K. Bose.

KUMAR PASHUPATINATH MALIA & ANOTHER

DEBA PROSANNA MUKHERJEE.

[SHR1

HARILAL

KANIA C. J.,

PATANJALI SAsTRI and s. R. DAS JJ.]

Bengal Money Lenders Act (X of 1940), u. 2(22), 36(5)-Relief under s. 36--"Suit to which this Act applies"--Suit in which execution proceeding tvas pending on /an. 1~ 1939-Execution Case struck off but attachment continuing in force on Jan. l, 1939-Applicability of Act-Civil Procedure Code (V of 1908), 0. 21, r. 57-Striking off execution case keeping attachment in force-

JV he th er terminate)· execution proceeding--Submortgagee-W hether assignee of mortgage-Right to claim protection under s. 36(5).

~ decree on a mortgage was passed in a suit brought by the representatives in interest of a sub-mortgagee in 1929 and a personal decree for recovery of the amount remaining due after the sale of the mortgaged properties was passed in 1935. In 1936 the decree-holder started execution of the personal decree and attached certain properties of the judgment-debtor. The decree-holder filed a petition on January 30, 1937, praying that the execution case "may be struck off for non-prosecution, keeping the attachment in force" in Yiew of certain negotiations for amicable settlement, and the court passed an order that the: execution case "is dismissed for non-prosecution, the attachment

R. C. Prasad

P. K. Chatteriee

KARNANI INDUSTRIAL BANK, LIMITED

THE PROVINCE OF BENGAL AND OlHERS

Transfer of Property Act

ss. 106, 116

s. 116

s. 116

17th February, 1928

24th February, 1928

1st April, 1937

31st March, 1938

s. 116

Transfer of Property Act

s. 106

Transfer of Property Act

[1949) F.C.R. 262

High Court of Judicature at Calcutta

Mitter

Sharpe

N. C. Chatteriee

Harish Chandra

K. C. Chopra

G. C. Mathur

Chandra Sekhar Sen

C. N. Laik

F AZL Au

Fazl Ali J.

section 116

Transfer of Property Act

Akra

Clause 11

Clause 1

Kamani Industrial Bank

Limited

Fazal Ali

24th November, 1941

23rd February, 1938

High Court at Calcutta

13th February, 1948

Karnani Industrial Bank Ltd.

Akra brickfield for

27th August, 1937

Government of Bengal

Katt1ani Industrial Bank Limited

Provinetof

Bengal

Province of Bengal

Karnani Industrial Bank Limited

17th March, 1938

14th September, !'

30th day of September next

23rd August, 1937

23rd October, 1937

3rd March, 1938

25th -February, 1938

Kornani lndwtrial Bank

Limited

Section 116

section 116

5th April, 1937

section 116

Transfer of Property Act

Karnani Industrial Bank

section 116

Transfer of Property Act

31st March, 1930

Faz Ali

section 106

Transfer of Property Act

clause 11

clause 11

clause 1

Raji11der Narain

P. K. Bose

KUMAR PASHUPATINATH MALIA

DEBA PROSANNA MUKHERJEE

HARILAL

KANIA

PATANJALI SAsTRI

s. R. DAS

Bengal Money Lenders Act

s. 36

s. 36(5)

January 30, 1937


Karnani Industrial Bank Limited v.

The Province of Bengal and Other1.

Faz/ Ali J.

May 4

SUPREME COURT REPORTS [1951]

The appeal therefore substantially fails and it is dismissed with costs.

But it should be made clear m the decree that only the building materials such as bricks, tiles . and similar articles that might have been manufactured by the appellants on the demised premises shall become the property of the respondent No. 1.

As for the boilers, engines, trucks, kilns, railway and tram lines, etc., three months' time is given from the date of this decree to enable the appellants to remove them from the demised premises.

Appeal dismissed.

Agent for the appellant : Raji11der Narain.

Agent for respondent No. 1 : P. K. Bose.

KUMAR PASHUPATINATH MALIA & ANOTHER

DEBA PROSANNA MUKHERJEE.

[SHR1

HARILAL

KANIA C. J.,

PATANJALI SAsTRI and s. R. DAS JJ.]

Bengal Money Lenders Act (X of 1940), u. 2(22), 36(5)-Relief under s. 36--"Suit to which this Act applies"--Suit in which execution proceeding tvas pending on /an. 1~ 1939-Execution Case struck off but attachment continuing in force on Jan. l, 1939-Applicability of Act-Civil Procedure Code (V of 1908), 0. 21, r. 57-Striking off execution case keeping attachment in force-

JV he th er terminate)· execution proceeding--Submortgagee-W hether assignee of mortgage-Right to claim protection under s. 36(5).

~ decree on a mortgage was passed in a suit brought by the representatives in interest of a sub-mortgagee in 1929 and a personal decree for recovery of the amount remaining due after the sale of the mortgaged properties was passed in 1935. In 1936 the decree-holder started execution of the personal decree and attached certain properties of the judgment-debtor. The decree-holder filed a petition on January 30, 1937, praying that the execution case "may be struck off for non-prosecution, keeping the attachment in force" in Yiew of certain negotiations for amicable settlement, and the court passed an order that the: execution case "is dismissed for non-prosecution, the attachment

S.C.R-

SUPREME COURT REPORTS 573

already effected continuing".

On June 2, 1939, the decreeholder filed a petition statir>g that the decree had been adjusted and attachment may be withdrawn. The Bengal Money-lenders Act came into force on September 1, 1940, and on January 2, 1941 the legal representatives of the judgment-debtor filed a suit 'under s. 36 of the Act praying for re-opening the transactions.

The question being whether any proceeding or. executions was pending on or after January 1, 1939, w1thm the meaning of the definition of "a suit to which this Act applies", contained in s. 2(22) if the Bengal Money-lenders Act:

Held, per KANIA C. /. and DAs J.-That the order of January 30, 1937, was in form and in substance a final order of dismissal of the execution petition of 1936. The attachment continued not because there was a pending execution proceeding but because a special order for continuing" the attachment was made under

0. 21, r. 57 of the Civil Procedure Code as amended by the Calcutta High Court, and notwithstanding the fact that the attachment was continued there was no execution proceeding pending on January 1, 1939, and accordingly the decree sought to be reopened was not one passed in "a suit to which the Act applies" within the meaning of s. 2(22) of the Act and the Court had no power to re-open the transactions under s. 36 (2).

The petition of June 2, 1939, was also not a proceeding for execution but a mere certification by the decree-holder of satisfaction of the decree.

PATANJALI SAsTRI J.-The continuance of the attachment notwithstanding the dismissal of the execution petition, indicated that the proceeding which had resulted in the attachment was kept alive to be carried forward later on by sale of the attached property.

Attachment itself is "a proceeding in execution" and so long as it subsists, the proceeding in execution can well be regarded as pending.

In this view a proceeding in execution was pending on January 1, 1939, and the decree must be taken to have been passed in "a suit to which this Act applies". But inasmuch as the sub-mortgage to the respondent's predecessorin-title was bona fide and he obtained by virtue of the sub-mortgage the right to .sue the original mortgagor for recovery of the mortgage debt, the decree-holder was a bona fide assignee and his claim for the entire decree debt was protected by s. 36(5) of the Act.

Renu/a Bose v. Manmatha Nath Bose (L.R.

72 I.A. 156), Promode Kumar Roy v. Nikhil Bhusan Mukhopadhya (50 C.W.N.

407) and Promode Kumar Roy v. Nikhil Bhusan Mukhopadhya (L.R. 76 I.A. 74) referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 90 of 1960.

Appeal against the Judgment and Decree dated the 22nd July 1948 of the High Court of Judica-

!ure at Calcutta (K. C. Mitter, and K. C. Chunder JJ) m appeal from Original Decree No. 49 of 1942 arising

---0

Kumar PaJhupatinatf1

Malia and Another v.

Deba Pro1annfJ

Mukherjee

Kumar Ulashupatinath

Malia adAnvther v.

Debo Prosanna Mukherjee

out of Decree dated the 8th September 1941 of the Subordinate Judge at Asansole in Suit No. 1 of 1941.

Purusottam Chatterji (S. N. Mukherjee, with him) for the appellants.

Da, J.

Panchanan Chose, (P. C.

Chatterjee, with him) for the respondent.

1951. May 4. The following judgments were delivered:-

Dt.s J.-This appeal arises -out of a suit filed by the appellants on January 2, 1941, in the Court of the Subordinate Judge, Asansole.

That suit came to be filed in circumstances which may now be stated shortly.

A suit had been instituted by one Kumar Dakhineswar Malia against Rameswar Malia, Rani Bhaba Sundari and others for partition of the Searsole Raj Estate.

One Bhagabati Charan Mitra was appointed receiver of that estate in that suit. On August 10, 1908, the said receiver with the permission of the Court which had appointed him as receiver granted two mining leases, each for 999 years-one in respect of 5/16 share of the Malias in Mouza Monohar Bahal and • the other in respect of 230 bigh:is in village Marich Kota-to a firm then carrying on business under the name and style of Laik Banerjee & Company.

On the same day the said receiver with like permission mortgaged these properties to the said firm as security for the due repayment of the loan of Rs. 100,000 advanced by that firm.

The Malias joined the receiver in executing the aforesaid leases and the mortgage.

As a result of these transactions the firm of Laik Banerjee & Company became the lessees for 999 years of the two properties as well as the mortgagee of the lessors' interest in the same.

By diverse processes not necessary to be deailed, the appellants have become the successors in interest of the mortgagors and the respondent Deva Prasanna Mukherjee has become the successor in interest of the mortgagee under the mortgage. of August 10, 1908. ·

On March 31, 1922, Deva Prasanna filed suit No. 78 of 1922 for enforcing the mortgage of 1908. Preliminary decree was passed in the last mentioned suit on July 31, 1928, and a final decree for sale was made on February 26, 1929.

In execution of this final decree the mortgaged properties were sold at a Court sale and were purchased by Deva Prasanna for Rs. 59,000.

This sale was confirmed by the Court on June 30, 1931.

A large sum remaining still due: to Deva Prasanna, he applied for, and 6n October 30,

1935, obtained a personal decree for Rs. 1,27,179-0-6 against Raja Pramatha Nath Malia who had by inheritance acquired the lessors' interest and become the borrower.

In 1936, Deva Prasanna started execution case No. 118 of 1936 for execution of the personal decree and attached certain properties alleging that the same belonged to the Raja.

The exact date of the attachment does not appear from the printed record. The Raja as Sibait of a certain deity and his two sons, the appellants before us, objected to the attachment of these properties and filed a claim case.

Negotations for settlement .started and eventually, on January 30, 1937, a petition (Ex. 2) was filed in the executing Court stating as follows:-

"The judgment debtor having made special requests to the decree-holder for an amicable settlement of the aforesaid execution case, the decree-holder has agreed to the same. But some time is required to settle the talks and all the terms etc.

The judgment debtor has paid to . the decree holder the costs of this execution amounting to Rs. 76-14-0, and he having made requests for this execution case being struck off for the present on keeping the attachment in force, the decreeholder has agreed to it.

It is therefore, prayed that under the circumstances aforesaid, the Court may be pleased. to strike off this execution case keeping the attachment in fore~."

Neither the original nor a certified copy of the order made on that date by the executing Court on the

Kumar Pashupatinath Malia and Another v.

Deba Prosanna Mukherjee

Das J.

-1951

Kumar Pashupatinath

Malla and Another v.

Debo Prosanna

Mukherjee

.Da• J

above petition is forthcoming but the parties have definitely agreed that the order is substantially and correctly entered in column 20 of Ex. F which is a certified copy of extract from the Register of applications for executions of decrees relating to execution Case No. 118 of 1936. The heading of column 20 is "Date on which execution case was finally disposed of and purport of final order." The entry in column 20 under that head is :

"D. H. admits receipt of Rs. 76114/ - as costs of this case from the J. D. The execution case is dismissed for non-prosecution-the attachment already effected in this case continuing.

30th January 1937."

The entry under column 11 of that very exhibit reads as follows :-

"Claim case automatically drops as the execution case is dismissed.

It is, therefore, rejected without any sort of adjudication.

30th January 1937."

In May 1937, the Searsole Raj Estate came under the charge of the Court of Wards. By a Kobala executed with the permission of the Board of Revenue Raja Pramatha Nath Malia and his two sons Kumars Pashupati Nath Malia and Kshitipati Nath Malia represented by Kumar Kshitipati Nath Malia as the Manager of the Searsole Raj Wards Estate conveyed a property known as Seriapati Mahal to Deva Prasanna in full settlement of his claim under the personal decree against the Raja.

By an agreement of even date, Deva Prasanna agreed to reconvey Senapati Mahal to the Kumars if he was paid Rs. 90,000I - within two years from that date.

Senapati Mahal originally belonged to the Raja but had been transferred by him to his two sons.

A creditor, however, had filed-a suit under section 53 of the Transfer of Property Act challenging that transfer and had actually got a decree declaring that transfer as fraudulent and void as against the creditors of the Raja.

An appeal was filed by the Kwnars which was pending at the date of the Kobala of January 4, 1939, and, in the circumstances, it was considered safer to join the Raja in the last mentioned Kobala in favour of Deva Prasanna.

On June 2, 1939, a petition was filed in the Court of the Subordinate Judge, Asansole, on behalf of Deva Prasanna as the decree holder.

It was headed "Money Execution Case No. 118 of 1936.

The relevant portions of this petition were as follows :-' ·

"That the above execution case was disposed of On the 30th January 1937 with the attachment of the properties subsisting ; since then the decree put into execution in the above case has been adjusted after remission of a large amount of interest by the out and out sale of certain properties by a registered Kobala dated 4th January 1939 .............................. .. . . . . . . . . . . . . . . . . . . . . . . .. . . So there is no longer any need -0£ the said attachment remaining subsisting.

It is, therefore, prayed that the attachment may be withdrawn.' 1

On the same day the following order was made on th . . • at pet1tton :-

"Heard learned pleaders for the parties.

They jointly ask me to cancel the attachment (existing by special order) in Money Ex. 118 of 1936 though that case was dismissed.

Order

The said attachment is cancelled and the decree in question is recorded as adjusted as stated by learned pleader for the decree-holder and pleader of the judgment-debtor according to the adjustment mentioned but not detailed in this petition of to-day. Make necessary notes and send this petition to the District Record Room."

In the remarks column No. 22 in Ex. F the following entry was made :-

"The said attachment is cancelled and the decree in question is recorded as adjusted as stated y learned

Kumar Pashupatinath Malia and Another v.

Deba Prosanna Mukherjee

DaaJ.

Kumar Pashupatinatlr

Malia a_nd Another v.

Deba Prosanna

Mukherjee

Dai J.

pleader for the D. H. and the pleader of the Judgment Debtor according to the adjustment mentioned but not detailed in this petition of to.day.

Dated 2nd June 1939.''

The Raja died in August, 1940, leaving the two appellants as his sons and legal representatives.

The Bengal Money Lenders Act, 1940 (Bengal Act X of

1940) hereinafter called the Act, came into force on September l, 1940. On January 2, 1941, the appellants who, as the legal representatives of the Raja, became "borrowers" within the meaning of the Act filed the suit out of which the present appeal has arisen.

The suit was filed by the appellants against the respondent under section 36 of the Act praying for reopening the transactions and taking accounts and for release from all liabilities in excess of the limits specified by law.

In short, they asked the Court to give them relief by exercising the powers given to the Court by section 36 of the Act. There was also a prayer for reconveyance of the Senapati Mahal. The respondent filed his written statement setting up a variety of defences founded on merits as well as on legal pleas in bar.

On May 8, .1941, the Subordinate Judge settled the issues and fixed June 9, 1941, "for a preliminary hearing of the suit and particularly of such of the issues as have been based on the pleas in bar." Eventually, the case was taken up for preliminary hearing on September 4, 1941, and by his judgment delivered on September 8, 1941, the learned Subordinate Judge dismissed the suit on issue No. 2 which was as follows:

"Does the plaint disclose a valid cause of action for the suit ?"

The appellants preferred an appeal to the High Court at Calcutta.

Although the High Court (R. C. Mitter and K. C. Chunder JJ.) did not accept all the reasonings on which the learned Subordinate Judge had based his decision, they, however, agreed that the appellants could get no relief as the decrees in suit No. 78 of 1922 could not be reopened, as they were not passed in

"a suit to which this Act applies" and consequently . dismissed the appeal. The. appellants have now come up on appeal before us after having obtained a certificate from the High Court under section 110 of the Code of Civil Procedure.

Learned Advocate appearing in support of this appeal before us has contended that the High Court was in error in holding that the decrees in Suit No. 78 of 1922 were not liable to be reopened under the second proviso to section 36 (1).

Learned advocate for the respondent while joining issue on this point also raised a point which, however, did not find favour with the High Court, namely; that the respondent as a bona fide assignee for value of the mortgage debt was protected by sub-section (5) of section 36.

It is quite clear that if either of the two points is decided against the appelfants, this appeal must fail.

The main provisions of section 36 ( 1) are in the following terms :-

"Notwiths_tanding anything contained in any law for the time being in force, if in any suit to which this Act applies, or in any suit brought by a borrower for relief under this section, whether heard ex parte or otherwise, the Court has reason to believe that the exercise of one or more of the powers under this section will give relief to the borrower, it shall exercise all or any of the following powers as it may consider appropriate, namely, shall-

( a) reopen any transaction and take an account between the parties ;

(b) notwithstanding any agreement, purporting to close previous dealings and to create new obligations, r, eopen any account already taken between the parties ;

( c) release the borrower of all liability in excess of the Jimits specified in clauses (1) and

(2) of section 30;

(d) if anything has been paid or .allowed in account on or after the first day of January, 1939, in respect of the liability referred to in clause (c), order 4-10 S.C.India./67.

Kumar Pashupatinatll Malia and Another v.

Deha Prosa11na

Mukherjee.

Da11 J.

19~1

Kumar Pa3hupatinoth

Malia on4 Anothtr v.

Deba Proan11iJ

Mukherjee.

Da> J,

the. lender to repay any sum which the Court considers to be repayable in respect of such payment or allowance in account as aforesaid ; ( e) set aside either wholly or in part or .revise or alter any security given or agreement made in respect of any loan, and . if the lender has parted with the security, order him . to indemnify the borrower in such manner and to such extent as it may deem just."

It will be noticed (a) that the provisions of this section apply notwithstanding anything contained in any law for the time being in force, (b) that the powers conferred on the Court or to he exercised either in any suit to which this Act applies or in any suit brought by a borrower for relief under the section and ( c) that the Court is called upon to exercise all or any of the powers conferred on it by the section if the Court has reason to believe that the exercise of one or more of the powers will give relief to the borrower.

In the present case the borrowers have instituted a substantive suit for relief under section 36 and, therefore, if there was nothing also in the section and the Court had the requisite belief, the Court could exercise all or any of the powers and give relief to the borrowers in terms of the prayers of the plaint. There arc, however, two provisions to sub-section (1) of section 36.

The relevant portion of the second proviso is expressed in the words following :

"Provided that m Court shall not- (i) ..

exercise of these powers the

(ii) do anything which affects any decree of a Court, other than a decree in a suit to which the Act applies which was not fully sati; fied by the first day of January, 1939, or " <! * • ."

The proviso makes it quite clear that in exercise of the powers the Court cannot reopen or otherwise affect a decree of a Court unless such decree is one which was passed in a suit to which this Act applies and which was not fully satisfied by January 1, 1939.

In the light of the decision of the Full Bench of the

Calcutta High Court in Mrityunjay Mitra v. Satis Chandra Banerji(1) which was approved by the Privy Council in Jadu Nath Roy V Kshitish Chandra Acharyya(2), it has not been contended, in view of the fact that the personal decree for the balance remained unsatisfied on January 1, 1939, that the decrees in Suit No. 78 of 1922 were fully satisfied within the meaning of the above proviso.

Therefore, the on1y thing that remains to be ascertained is whether the decrees were passed in "a suit to which this Act applies." Section 2(22) of the Act is as follows :

"2. In this Act, unless there is anything repugnant in the subject or context,-

(22) "Suit to which this Act applies" means any suit or proceedi, ng instituted or filed on or after the 1st day of January, 1939, or pending on that date and includes a proceeding in execution-

( a) for the recovery of a loan advanced before or after the commencement of this Act ;

(b) for the enforcement of any agreement entered into before or after the commencement of this Act, whether by way of settlement of account or otherwise, or of any security so taken, in respect of any loan advanced whether before or after the commencement of this Act ; or

(c) for the redemption of any security given before or after the commencement of this Act in respect of any loan advanced whether before or after the commencement of this Act."

The words "instituted or filed on or after the 1st day of January, 1939, or pending on that date" have been read and understood as qualifying the words "any suit or proceeding" in the beginning of the definition as well as the words "proceeding in execution" occurring further down: see per Spens C. J. in Bank of Commerce Ltd., v. Amulya Krishna(3).

Accordingly, it has

(l) I.L.R. (1944) 2 Cal. 376; 48 C.W.N. 361

(2) L.R. 76 I.A. 179 at p. 190.

(3) (1944) F.C.R. 126; I.A.R. 1944 F.C. 18

Kumar Pashupati11ath

Malia a11d Another

Deba Prosanna

Mukherjee

Das J.

Kumar Pa•hupallnath

Malia and Another

•• Deba ProMnKa

Mukherj.e.

DaJ J.

been held in Ram Kumar De v. Abhoya Pada Bhatia> charjee (') that where a decree is such that the suit in which it was passed had terminated before January 1, 1939, and no proceeding in execution was started or was actually pending on or after that date it is not a decree in "a suit to which this Act applies" and cannot be reopened.

The same view was upheld by a Special Bench of the Calcutta High Coutt in Aparna Kumari

v. Girish Chandra (2) which overruled two earlier decisions to the contrary. The construction put upon section 2 (22) by the Special Bench and th~ reasons given by them appear to us to be well-founded.

In the case now before us, the Suit No. 78 of 1922 was insf1tuted and all the three decrees were passed long before the specified date.

The only question that has, therefore, to be considered is whether any proceeding in execution was pending on or after that date.

The answer to this question wilt depend on the true meaning and effect of the orders made by the executing Court (i) on January 30, 1937, and (ii) on June 2, 1939.

As to (i).:--It Is not disputed that the order of January 30, 1937, was made under Order XXI, rule 57, as amended by the Calcutta High Court. Order XXI, rule 57, is expressed in the following terms :-

"Where any property has been attached in execution of a decree but by reason of the decree-hofder's default the Court is unable to proceed further with the application for execution, it shall either dismiss the application or for any sufficient reason adjourn the proceedings to a future date.

Upon the dismissal of such application the attachment shall cease."

The marginal note of the rule is determination of attachment.

The reason why rule 57 was introduced in the Code of 1908 has been explained by Rankin C. J, in Shibnath Singh Ray v. Sheikh Saberuddin Ahmad (") as follows :-

(I) 46C.W.N.SS7; A.I.R.!942Cal.44l.

(2) 48 C.W.N.,406.

(3) 1.L.R. S6 Cal. 416 at pp. 421-422.

"Rule 57 of Order XXI was a new provision introduced in 1908.

It is evident from the language of the rule itself, and it is still more evident from the circumstances under which it was passed, that it was intended to provide a remedy for the grievance or inconvenience which is apt to arise, where, after an attachment in exec; ution, the application for execution cannot further be proceeded with by reason of the decree-holder's default.

This was, and still is, a very common case.

The decree-holder makes some informal arrangement to give the judgment-debtor time without obtaining full satisfaction of the decree ; the application for execution is not further prosecuted ; it is not withdrawn ; neither party attends.

In these cirumstances, the object of the rule is to say that the Court must make either an order for adjournment or an order of dismissal.

The reason why it was necessary to require the Court, if it did not adjourn a proceeding to a definite date, to dismiss the application for execution formally and definitely can be amply illustrated from the decided cases.

In the absence of a definite order of dismissal the files of the Courts became encumbered with a number of applications for execution which were water-logged and derelict, and a practice arose whereby such applications were ordered to be 'struck off.' This was a practice not justified by the Code and in cases where attachments in execution had already been entered, the question arose whether the effect of an order 'striking off' was that the attachment made upon application for execution was itself struck off or whether it remained notwithstanding such an order.

Many other awkward and important questions arose out of this practice and the object of rule 57 was to ensure that this illogical and inconvenient practice should be stopped.

Applications for execution were to be definitely dismissed if they were not adjourned to a future date.

The object of the last sentence in rule 57 is to settle the question whether, when the application in execution is dis- missed, any attachment made , under that application should fall to the ground or should subsist, and

Kumar Pash11patinath

Malta and Another

Deba Proaanna Mukherjee

Da& J,

Kumar PtUhupat/nath

Malia and Another v.

Deba Projanna

Mu/ohel'}ee

Dai I.

the legislature has provided that it is to fall to the

ground."

The new rule thus introduced left two distinct courses open to the executing Court in the situation envisaged by the rule.

Each course had its advantage as well as its disadvantage.

Thus the adjournment of the execution proceedings kept the attachment alive without any special irection. While the adoption of this course helped bona fide arrangement between the decree-holder and the judgment-debtor as to the time and manner of satisfaction of the decree it was calculated also to encourage desultory proceedings resultfog in undesirable congestion in the files of the Execut. ing Court by keeping alive so many execution proceedings. On the other hand, while the dismissal of an application in the circumstances mentioned in the rule had the merit of preventing a congestion of the file by finally disposing of the application by a final order, it was calculated to discourage deqeeholders from giving even reasonable accommodation to the judgment-debtor on account of the destruction of the attachment which left the judgment-debtor free to deal with the property to the detriment of the decreeholder after the attachment ceased.

It was evidently with a view to preserve the advantage of a dismissal and at the same "time to avoid the disadvantage of the rigid rule of cesser of the attachment that the Calcutta High Court amended rule 57 by adding the words "unless the Court shall make an order to the contrary" at the end of the last sentence of that rule. The rule thus amended leaves three courses open to the Executing Court in case it finds it difficult to proceed with the execution case by reason of the default of the decree-holder. It may (I) adjourn the proceedings for good reason which will automatically keep the attachment alive or (2) simply dismiss the application which will automatically destroy the attachment or (3) dismiss the application but specifically keep alive the attachment by an express order. The rule, as amended, therefore, contemplates three distinct forms of order, any one of which may be made by the Court in the

circumstances mentioned in the rule. The question before us is as to the category in which the order made on January 30, 1937, in Execution Case No. 118 of 19 36 falls.

It will be recalled that the order of January 30, 1937, was made on a petition (Exhibit 2) filed on that day in Execution Case No. 118 of 1936.

Great stress was laid by the learned advocate for the appellants on the words "struck off for the present" occurring in the body of that petition.

It will be noticed that those words formed part of the request of the judgmentdebtor which was being recited in the petition. In the actual prayer portion the decree-holder did not use the words "for the present" but only asked the Court "to strike off the execution case keeping the attachment in force." Further, apart from wh, at the parties wanted, the Court made its intention - clear in the very order that it passed and which is entered in column ,20 of Exhibit F.

The Court regarded the willingness of the the decree-holder to enter into a long and protracted negotiation with the judgment-debtor as eviP, ence of unwillingness on the part of the decree-holder to diligently prosecute the execution proceedings and accordingly dismissed the execution case for nonprosecution but thought fit to expressly keep alive the attachment.

It is quite obvious that the Court made an order of the third kind mentioned above. The three forms of order permissible under rule 57 as amended by the High Court are quite distinct ano independent of each other and there is no room for their overlapping.

If the mere continuation of attachment will automatically convert an express order of dismissal of the execution application which is a final order into an order of adjournment which is not a final order then there was no point in the High Court taking the trouble of amending rule 57 at all.

The Court could by simply adjourning the proceedings automatically continue the attachment without any express direction in that behalf.

The fact that the Court gave an express direction that the attachment should continue clearly indicates that the

Kumar PaJhupatinath

Malia and Another

Deba Prooanna

Mukherjee

Dao J.

19SI

Kumc.r P llShupatinath

Malia and Another

Deba Prolanna

Mukherjee

Das J.

Coun intended to make a final order of dismissal.

Again, the heading of column 20 in Exhibit F clearly indicates that only a final order is to be entered in that column.

The fact that the order was entered in that column affords some justification for the conclusion that the Court made a final order of dismissal.

That the claim case was automatically dropped is yet another indication that the execution case was at an end. The fact that the judgment-debtor had paid the full costs of the execution case is also a feature which goes to show, to a certain extent at any rate if not decisively, that the execution proceeding was finally disposed of by the order. The following endorsement appears on the petition Ex. 2(a), dated June 2, 1939:

"Heard learned pleaders for the parties.

They jointly ask me to cancel the attachment (existing by special order) in Money Ex. 118 of 1936 though that case was dismissed."

This endorsement also clearly shows that the Court itself understood that the order that it made on January .30, 1937, was a final order of dismissal and that the attachment had been continued by a special order.

On a consideration of all these matters I have not the least doubt in my mind that the order of January 30, 1937, was in form and in substance a final order of dismissal of the Execution Case No. 118 of 1936 and that the attachment was continued by a special order such as is contemplated and authorised bv the amendment made by the Calcutta High Court in rule 57.

Learned advocate for the appellants contended that if the execution case came to an end the attachment could not be left hanging in the air. There is no substance in this argument.

Ordinarily an attachment is supported by an execution case and if the execution case is simply dismissed the attachment must fall with it. But rule 57, as amended, expressly empowers the Court to dismiss an execution application but at the same time to keep alive the attachment by a special order.

That is what was done in this case.

Here the attachment docs not, to use the expression of the learned advocate for the appellants,

hang in the air.

It rests upon the solid foundation of a special order which rule 57, as amended, in terms authorises the Court to make.

The continuance of the attachment, in the circumstances, needs no execution proceeding to support it.

Take the case of an attachment before judgment. Under Orders XXXVIII, rule 11, where after an order of attachment before judgment a decree is passed in favour of the plaintiff, it is not necessary upon an application for execution of such a decree to apply for re-attachment of the property.

It means that the attachment continues and the judgmentdebtor cannot deal with the property to the disadvantage of the decree-holder.

After the decree is passed, the attachment continues but nobody will say that although there has been no application for the execution of the decree at any time by the decree-holder there is, nevertheless, an execution proceeding pending merely because the attachment continues.

Here also the attachment subsists and rests only upon the terms of Order, XXXVI rule 11, and without any proceeding.

Such attachment cannot be called a proceeding in execution, for none was ever initiated after the decree was passed.

In my judgment, the order of January 30, 1937, was a final order which brought the Execution Case No. 118 of 1936, to an end and the attachment continued, not because there was a pending execution proceeding but because a special order was made under Order XXI, rule 57, as amended by the High Court.

As to (ii).-Lcarned advocate for the appellants then contended that the petition (Ex. 2a) dated June 2, 1939, amounted to a proceeding in execution and as that was instituted and was pending after January 1, 1939 the proceedings came within the definition in section 2 (22) of "a suit to which this Act applies". I do not think this argument is sound. The petition (Ex. 2a) was not really an application at all.

See Raja Shri Prakash Singh v. The Allahabad Bank Ltd. (1). In substance, it was nothing but a certification by the decreeholder of the satisfaction of the decree.

The mere fact

(I} 33 C.W.N. 267; A.l.R. !929 P.C. 19.

Kumar PaJhupatinath

Malia and Another v.

Deba Prosanna Mukherjee

Das J.

Kumar Pashupat; natll

Malia and Another

Deba Pro1anna

Mukherjee

Das J.

K.1nia C. J.

Patanjali Sa11r; J.

that the document was in the form of a petition could not convert what was really the usual certifying procedure into a proceeding in execution for recovery of a loan or for enforcement of any agreement. It was purely an intimation given to the Court by the decrecholder that the decree had been satisfied out of Court and the prayer for withdrawal of the attachment was merely consequential and would follow as a matter of course on full satisfaction of the decree being recorded.

The order made on that petition also shows that the decree was recorded as adjusted and the attachment was cancelled. In my judgment, that petition (Ex. 2a) was not an application such as would initiate a proceeding in execution for any of the purposes mentioned in clauses (a) or (b) or ( c) of section 2 (22) of the Act.

For reasons stated above, the decrees sought to be reopened were not decrees made in "a suit to which this Act applies".

Suit No. 78 of 1922 was neither instituted on or after January 1, 1939, nor was it pending on that date, all the three decrees having been passed long before that date. Nor was any proceedihg in execution such as is contemplated by section 2 (22) instituted or pending on or after that date.

The Execution Case No. 118 of 1936 was at an end on January 30, 1937, and the petition of June 2, 1939, was not an application at all and was certainly not a proceeding in execution within the meaning of section 2 (22) o~ the Act. This conclusion is sufficient to dismiss this appeal and it is not necessary for us to consider the other question raised by the respondent on the strength of section 36 (5) of the Act and I express no opinion on that question.

The result is that this appeal must stand dismissed with costs and I order accordingly.

KANIA C. J.-1 agree,

PATANJALI SAsTRI J.-Thc facts bearing on the dispute in this appeal arc fully stated in the judgment of my brother Das which I have had he advantage of reading and it is unnecessary to recapitulate them here.

The appellant mortgagor seeks in these proceedings the reliefs provided by the Bengal Money lenders Act, 1940 (hereinafter referred to as the Act) in respect of a decree debt payable by him.

The respondent who represents the sub-mortgagee decree-holder invokes the protection of two exemptions contained in the Act : (1) Section 36(1), proviso (ii), which exempts inter alia "any decree other than a decree in a suit to which this Act applies which was not fully satisfied by the first day of January, 1939".

This raises a dispute as to whether the respondent's decree was passed in a suit to which the Act applies.

(2) Section 36 (5) which exempts "the rights of any assignee or holder for value if the Court is satisfied that the assignment to him was bona fide and that he had not received the notice referred to in clause

(a) of sub-section ( 1) of section 28".

This raises the question whether a sub-mortgagee is an assignee within the meaning of the Act.

On the first question, "a suit to which this Act applies" is defined in section 2(22) as meaning "any suit or proceeding instituted or filed on or after the 1st day of January, 1939, or pending on that date and includes a proceeding in execution for (among other things) the recovery of loan advanced before or after the commencement of this Act." This definition has been construed as requiring that the "proceeding in execution" referred to therein should be pending on 1st January, 1939, and the question accordingly arises whether the order of the executing court dated 30th January, 1937, which purported to dismiss the respondent's execution case for non-prosecution while cc5ntinuing the attachment already effected, terminated the proceeding in execution which had resulted in the attachment.

It was said that the order was made in accordance with Order XXI, rule 57, of the Civil Procedure Code as amended by the Calcutta High Court and must, therefore, be taken to have been intended to put an end to the execution proceeding altogether I am not satisfied that such was the result of the dismissal.

The amendment wliich added the words "unless the court shall make an order to the contrary"

Kumar Pashupatinath

MaUa and Another

•• Deba Pro!anna

Mukherjee

Patan}ali

Sa.•tri J.

Kumar Pa.Jbupalinath

MJ/ia end .4n11flt6

"' Drflh11. Pmsantra..

Mi:kherj~~

Patanju/j s, ntrj J.

at the end of the rule envisages a dismissal of an "application for execution" while at the same time continuing a subsisting attachment. The dismissal of 30th January, 1937, must, therefore, be taken to be a dismissal of the execution application then before the court and cannot be taken to have any wider operation.

On the other hand, the continuance, in express terms, of the attachment notwithstanding the dismissal, indicates that the proceeding which had resulted in the attachment was kept alive to be carried forward later on by sale of the attached property.

Attachment itself is a "proceeding in execution" and, so long as it subsists, the proceeding in execution can well be regarded as pending.

In In re Clagett's Estate; Fordham v. Clagett(') Jessel M. R. declared that "a pending matte( in any court of justice means one in which some proceeding may still be taken".

The attachment was cancelled by the court only on 2nd June, 1939, when the decree in question was recorded as adjusted and then and not before, could execution of the decree be properly considered to have terminated.

In this view, a "proceeding in execution" was pending on the 1st day of January, 1939, and the respondent's decree must be taken to have been passed "in a suit to which this Act applies'', with the result that the respondent's claim to exemption under proviso (ii) to sub-section (1) of section 36 of the Act must fail.

I am, however, of opinion that the respondent's claim to recover his decree debt is protected under section 36(5).

There is no question here but that the submortgage to the respondent's predecessor in title was bona fide.

Nor could he have received the . notlce referred to in clause (a) of sub-section (1) of section 28 as the transaction took place long before the Act was passed.

It is not disputed that section 36(5) applies to pre-Act debts. [See Renula Bos-e v. Manmatha Nath

Bose(')]. The only question, therefore, is whether the respondent as sub-mortgagee is an assignee within the meaning of sub-section (5) of section 36.

The learned

(I) 20 ch. D. 637,

(2) L.R. 72 I.A. 156.

Judges in the court below held that he was not, following an earlier decision of their own court in Promode

Kumar Roy v. Nikhi1 Bhusan Mukhopadhya(1).

That decision, however, was reversed by the Privy Council in Promode Kumar Roy v. Nikhil Bhusan Mukhopadhya (2) where their Lordships dealt with the question now before us in the following terms :-

"It was suggested, in the judgment of Mitter J. (with which Waight J. agreed), and in the argument for the

re; pondents that if a sub-mortgagee were an 'assignee' within section 36, sub-section (5), of the Act, certain di':fficulties and anomalies would result. Their Lordships cannot agree with this suggestion.

They express no view as to the position which arises if the sub-mortgage contains only a charge on the original mortgage debt, but when it contains an assignment of that debt, and of all the rights of the mortgagee, the position appears to be free from difficulty. Relief can be given to the original mortgagor as against the original mortgagee under section 36, but such relief must not affect the rights of the assignee by way of sub-mortgage.

To take an imaginary case by way of illustration, let it be assumend that the amount due on the original mortgage, for principal and interest at the original rate, is Rs. 1,000, and the sum due on the sub-mortgage by assignment, for principal and interest at the original rate, is Rs. 500.

Let it further be assumed that if relief could be given, and were given, under section 36 as against both mortgagee and sub-mortgagee, the sums due to them respectively would be Rs. 800 and Rs. 400.

By reason of sub-section (5), the sub-mortgagee's rights. cannot be affected. He can therefore as assignee of the mortgage debt, claim his full Rs. 500, as against both mortgagor and original mortgagee.

But if the court gives the mortgagor relief as against the original mortgagee, the mortgagor will only be liable to pay to the original mortgagee Rs. 300, the balance of the reduced debt aiteL paying the sub-mortgagee in full.

As to contention (b), it is impossible to read subsection (5) of section 36 as referring only to an assignee

(I) 50C.W.N.407.

(2) L. R. 76 I.A. 74.

Kumar Pa3hupatinath

Malia and Another v.

Deba Prosanna

Mukherjee. -!

Patanjafi

Sa3tri J.

19SI

Kumar Pa:Jhupatinat h

Malia and Another v.

Dba Pro1anna

Mukherjee.

Patan}a/i Sajtrl J.

of a mortgage decree. The words 'and that he had not received the notice referred to in clause (a) of subsection (1) of section 28' make it plain that an assignee of a mortgage debt is within the sub-section, since section 28, sub-section (1) is concerned only with assignment of debts" (pp- B-84).

The sub-mortgage here in question also contains an assignment of the debt due under the original mortgage debt and of "the entire interest" of the origioal mortgagee. After reciting tlieir original mortgage, the mortgagees proceed to state in the deed of submortgage:

"We mortgage all that is at present due and that will in future become due to us, the first, second, third and fourth parties, on account of the said one lakh of rupees together . with interest and the entire interest under the mortgage taken by us on the basis of the

said Indenture in respect of five annas share of the said Niskar Mouza Monoharbahal and in respect of sixteen annas of the surface and underground rights in the said Monza Marichkota and we make over the said Deed of Indenture to you" : ·

The decision referred to above is, therefore, directly in point and rules the present case.

It was suggested that the said decision was inconsistent with the earlier decisions of the same tribunal in Ram Kinkar Banriee v. Satya Charan Srimani(1) and fagadamba Loan Co. v.

Raia Shiba Prasad Singh ( 2). Stress was laid upon the expression "all the rights of the mortgagee" used by their Lordships in the passage quoted above, and it was pointed out that in the earlier decisions they held that in India a legal interest remained in the mortgagor even when the mortgage was in the form an English mortgage, and that the interest taken by the mortgagee was not an absolute interest.

This proposition, it was said, implied that in a sub-mortgage all the rights of the original mortgagee are not assigned to the sub-mortgagee and that the mortgagee still retains a legal

(I) 64 l. A. SO.

12) 68 I.A. 67.

interest in the original mortgage.

This is a rather superficial view of the matter. In the earlier cases their Lordships were considering the quantum of interest transferred , by a mortgagor to a mortgagee in a mortgage of leasehold interest for the purpose of determining whether or not there was privity of estate between the landlord and the mortgagee. If the mortgage could operate as an assignment of the entire intest of the mortgagor in the lease, the mortgagee would be liable by privity of estate for the burdens of the lease. If, on the other hand, it operated only as a partial assignment of the mortgagor's interest, no such result would follow. It was sin determining that issue that their Lordships held that no privity of estate arose in India because a legal interest remained in the mortgagor and the interest taken by the mortgagee was not an absolute interest.

These cases had no bearing on the question, which arose in Promode Kumar Roy v. Nikhil, Bhusan Mukhopadhya(1) and arises in the present case, as to whether a sub-mortgagee

becoms at). assignee of the mortgage debt and of the mortgagee's right to recover the debt from the original mortgagor.

The Act affo.i:ds relief to certain classes of debtors by curtailing pro tanto the rights of the creditors, subject to certain exceptions in regard to "assignments of loans". In such a context the only relevant consideration could be whether the assignment is such as 10 establish a debtor and creditor relation between the assignee and the debtor so as to bring the case within the purview of the Act.

If the sub-mortgagee obtained, by virtue of, the sub-mortgage, the right to sue the original mortgagor for recovery of the mortgage debt, that would seem sufficient to make him an assignee within the meaning of the Act. It was from this point of view that the question as to the nature of the right transferred to a sub-mortgagee under his sub-mortgage was considered in Promode Kumar Roy

v. Nikhil Bhusa11 Mukliopadli}w(1) as it has to be considered in the present case, and the reference to the sub-mortgage containing an assignment of , if/ the rights

(l) 76 I. A. 74.

l9Sl

Kumar Pashupatinath Malia and .Another

Deha ProJanna Mukherjee.

Patanjali

Sa8fri J.

19SI

Kumar Pa1hupatinath

Malia and Another v.

Deba ProJanna

Mukherjee

Patanfali

Sastri J.

of the mortgagee must, in that context, be understood with reference to the sufficiency of the right assigned to enable the sub-mortgagee to sue the original mort gagor in his own right, so a~ to bring the relevant provisions of the Act into play as between them. The reservation made by their Lordships in the case of a sub-mortgage containing only a charge on the original mortgage is signification and supports this view. I do not consider, therefore, that there is any inconsistency between Promode Kumar Roy v.

Nikhil Bhusan Mukhopadhya(') and the earlier decisions, and even if

there be any such inconsistency it has no relevance to the present case.

In the result I agree that the appeal fails and should be dismissed with costs.

Appeal dismissed.

Agent for the appellants : R. R. Biswas. ' Agent for the respondent : Sukumar Ghose.

EASTERN INVESTMENTS LTD. v.

COMMISSIONER OF INCOME-TAX,

WEST BENGAL.

[SHRI HARILAL KANIA c. J., PATANJALI SASTRI,

S. R. DAs and VIVIAN BosE JJ.] Indian Income-tax Act (XI of 1922), s. 12(2)-Business expenditure-Interest on debentures-Reducing capital of company hy taking over shares and giving debentures to shareholder-Income of company reJucd-lnterest on Jebentures,.whether allowable.

A private limited company formed for dealing in shares and securities had a share capital of 250 )acs of rupees of which shares of the face value of 50 lacs were held by A and the remaining shares were held by his nominee's.

As the company was in need of money it was resolved, with the consent of A, to reduce the share capital by 50 lacs by the oompany taking over the 50 lacs shares which were held by A and giving to A instead debentures of the face value of Rs. 50 lacs carrying interest at 5 per. cent. per annum.

The Income-tax Appellate Tribunal and

(I) 76 I. A. 74.

Raji11der Narain

P. K. Bose

KUMAR PASHUPATINATH MALIA & ANOTHER

DEBA PROSANNA MUKHERJEE

KANIA

PATANJALI SAsTRI

s. R. DAS JJ.

Bengal Money Lenders Act

s. 36

s. 36(5)

January 30, 1937

June 2, 1939

September 1, 1940

January 2, 1941

s. 36

s. 2(22)

Calcutta High Court

January 1, 1939

s. 2(22)

s. 36

s. 36(5)

L.R.

72 I.A. 156

L.R. 76 I.A. 74

K. C. Mitter

K. C. Chunder

Kumar PaJhupatinatf1

49 of 1942 arising
0

Kumar PaJhupatinatf1

Malia and Another v.

Deba Pro1annfJ

Mukherjee

Kumar Ulashupatinath

Malia adAnvther v.

Debo Prosanna Mukherjee

out of Decree dated the 8th September 1941 of the Subordinate Judge at Asansole in Suit No.

Purusottam Chatterji

S. N. Mukherjee

Panchanan Chose

P. C.

Chatterjee

Kumar Dakhineswar Malia

Rameswar Malia

Rani Bhaba Sundari

Searsole Raj

Bhagabati Charan Mitra

August 10, 1908

Mouza Monohar Bahal

Marich Kota

Laik

Banerjee & Company

Malias

Laik Banerjee & Company

Deva Prasanna Mukherjee

March 31, 1922

Deva Prasanna

July 31, 1928

February 26, 1929

June 30, 1931

October 30,

1935

Raja Pramatha Nath Malia

Kumars Pashupati Nath Malia

Kshitipati Nath Malia

Kumar Kshitipati Nath Malia

Senapati Mahal

section 53

Transfer of Property Act

January 4, 1939

30th January 1937

4th January 1939

Deba Prosanna

Mukherjee

Dai J.

Bengal Money Lenders Act, 1940

Bengal Act X of

Raja

section 36

section 36

May 8, .1941

June 9, 1941

September 4, 1941

September 8, 1941

High Court at Calcutta

R. C. Mitter

section 110

the Code of Civil Procedure

section 36

section 36

section 36

section 30

Kumar Pa3hupatinoth

Malia

section 36

section 36

1, 1939

Section 2(22)

1st day of January, 1939

L.R. 76 I.A. 179

(1944) F.C.R. 126

Kumar Pashupati11ath

Calcutta High Coutt

section 2

Rankin

Kumar Pash11patinath

Deba Projanna

Kumar PaJhupatinath

Dao

Das

January .30, 1937

section 2

Deba Prosanna Mukherjee

Das J.

Kumar Pashupat

Das J.

K.1nia C. J.

Patanjali Sa11r

section 2

section 2

section 2

section 36

KANIA

Das

Section 36(1)

first day of January, 1939

Section 36

section 28

section 2(22)

1st January, 1939

30th January, 1937

Kumar Pashupatinath

Kumar Pa.

Jessel M. R.

2nd June, 1939

section 36

section 36(5)

section 28

section 36(5)

section 36

L.R. 72 I.A. 156

Mitter

Waight

section 36

section 36

section 36

section 36

L. R. 76 I.A. 74

Kumar Pa3hupatinath

Deba Prosanna

Kumar Pa:Jhupatinat h

Malia

section 28

section 28

India

Kumar Pashupatinath Malia

Deha ProJanna Mukherjee

Kumar Pa1hupatinath

Deba ProJanna

Mukherjee

R. R. Biswas

Sukumar Ghose

COMMISSIONER OF INCOME-TAX,

WEST BENGAL

SHRI HARILAL KANIA

PATANJALI SASTRI

S. R. DAs

VIVIAN BosE

Indian Income-tax Act

s. 12(2)


19SI

Kumar Pa1hupatinath

Malia and Another v.

Deba ProJanna

Mukherjee

Patanfali

Sastri J.

SUPREME COURT REPORTS [1951]

of the mortgagee must, in that context, be understood with reference to the sufficiency of the right assigned to enable the sub-mortgagee to sue the original mort gagor in his own right, so a~ to bring the relevant provisions of the Act into play as between them. The reservation made by their Lordships in the case of a sub-mortgage containing only a charge on the original mortgage is signification and supports this view. I do not consider, therefore, that there is any inconsistency between Promode Kumar Roy v.

Nikhil Bhusan Mukhopadhya(') and the earlier decisions, and even if

there be any such inconsistency it has no relevance to the present case.

In the result I agree that the appeal fails and should be dismissed with costs.

Appeal dismissed.

Agent for the appellants : R. R. Biswas. ' Agent for the respondent : Sukumar Ghose.

EASTERN INVESTMENTS LTD. v.

COMMISSIONER OF INCOME-TAX,

WEST BENGAL.

[SHRI HARILAL KANIA c. J., PATANJALI SASTRI,

S. R. DAs and VIVIAN BosE JJ.] Indian Income-tax Act (XI of 1922), s. 12(2)-Business expenditure-Interest on debentures-Reducing capital of company hy taking over shares and giving debentures to shareholder-Income of company reJucd-lnterest on Jebentures,.whether allowable.

A private limited company formed for dealing in shares and securities had a share capital of 250 )acs of rupees of which shares of the face value of 50 lacs were held by A and the remaining shares were held by his nominee's.

As the company was in need of money it was resolved, with the consent of A, to reduce the share capital by 50 lacs by the oompany taking over the 50 lacs shares which were held by A and giving to A instead debentures of the face value of Rs. 50 lacs carrying interest at 5 per. cent. per annum.

The Income-tax Appellate Tribunal and

(I) 76 I. A. 74.

the High Court held that the interest on the debentures could not be allowed as business expenditure under s. 12(2) of the Income-tax Act, the main grounds on which this conclusion was arrived at. being (i) the pµrpose of the transaction was to effect. the conversion, (ii) the taxable income of the company was reduced, (iii) it was the same person who brought about the transaction, to whom .the share money was paid and who took the debentures, (iv) the transaction was more in the interest of that person than the company, ( v) the capital of the company could have been reduced in other ways :

Held by the Full Court

(KANIA C, /. PATANJALI SAsTR1, DAs and BosE, JJ.) that the test for deciding whether the expenditure was allowable under s. 12(2) was whether the transaction was properly entered into as part of the company's ordinary undertakings to facilitate the carrying on of its business for :he purpose of earning income, and in. the absence of fraud the High Court was not justified in . coming to the conclusion that the interest on the debentures was not allowable on the considerations mentioned above.

On the facts it was clear that the transaction was entered into in order to facilitate the carrying on of the business of the company and that it was made on the ground of commercial expediency.

The interest on the debentures was accordingly allowable under s. 12(2). Farmer v.

Scottish North American Trust Ltd. [1912) A. C. 118 referred to.

CIVIL

APPELLATE JuiusI>IcTION.

Civil Appeal No. 89 of 1950.

Appeal against the . Judgment and Order dated 5th . July, 1949, of the High Court of Judicature at Calcutta (G. N. Das and Mukherjee JJ.) in Ip.come-tax Reference No. 11 of 1948.

S. Mitra (S. N. Mukherjee, with him) for the appellant.

M. C. Setalvad, Attorney-General for India (S. M.

Sikri, with him) for the respondent.

1951.

May 4. The Judgment. of the Court was delivered by

BosE J.-This is an assessee's appeal from a judgment of the High Court at Calcutta . delivered on a reference made to it under section 66( 1) of the Incometax Act.

The question submitted for the High Court's opinion was as follows :-

,_10 S.C.India/67.

19SI

Eastern lnveJtment Ltd; v.

Commissioner of Income-tax, We.rt Bengaf.

Bose J.

EaJtern lnveJtmenta Ltd. v.

CommisJioner of

lncometax, West Bengal.

Bose J.

"Whether in the circumstances of this case, the interest paid by the assessee on debentures was incurred solely for the purpose of making or earning such income, profits or gains which are assessable under sub.section ( 1) of section 12."

The assessce is a private limited company which was incorporated on 3rd January, 1927.

It is an investment company known as the Eastern Investments Limited. The objects set out in the memorandum of association are to buy, sell and otherwise deal with shares, securities, bonds and so forth generally. The company was originally formed for acquiring, holding and otherwise .dealing with shares and Government securities which had previously belonged to one Lord Cable. The share capital of the company at the elate of its incorporation was 250 lacs and consisted partly of preference shares and partly of ordinary shares. Of these Lord Cable held the majority including the 50,000 ordinary shares of the face value of Rs. 50,00,000 with which we are here concerned.

The rest of the share capital was held by the nominees of the late Lord Cable.

Lord Cable died on the 28th of March, 1937, leaving an estate in Great Britain as well as in India.

One Geoffrey Lacy Scott was appointed administrator of his estate in India and held these 50,000 shares in question in that capacity.

According to the statement of the case drawn up by the Income-tax Appellate Tribunal in its reference to the High Coun, "money was needed by the executors of Lord Cable", and accordingly the administrator of the estate in India reached an agreement with the company on 9th February, 1937, the terms of which were as follows :-

The company agreed to reduce its share capital by Rs. 50 lacs and to do it by taking over from Scott the 50,000 shares mentioned above which. stood in Lord Cable's name at the rate of Rs. 100 a share. Scott on his part agreed to forego cash payment and agreed instead to receive debentures of the face value of

Rs. 50 lacs carrying interest at 5 per cent. per annum "redeemable at the option of the registered holder at any time". The sanction of the Calcutta _ High Court . was obtained in due course and the agreement was earned out by the parties.

The 5 per cent. interest paid to Scott on these debentures forms the subject-matter of the question before the Court. The company claims to deduct this from its income as part of its working expenses .under section 12(2) of the Income-tax Act, that is to say, to use the words of the section, as

"expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of making or earning such income, profits or gains."

This contention failed before the Income-tax Appellate Tribunal and also before the High Court. It was agreed all through that the expenditure was not in the nature of capital expenditure, but the view of the Income-tax Commissioner is that (a) it is not expenditure incurred for the purpose of earning the income, profits and gains of the company and (b) that even if it is, it is at any rate not expenditure incurred solely for that purpose. In general, the Income-tax Appellate Tribunal and the High Court both took that view.

The grounds on which these conclusions were based may be summarised as follows :

( 1) the purpose of the agreement was to effect the conversion without in any way disturbing the holding of the investments of the company or interfering with the earning of its income ;

(2) by this transaction the taxable of the company was diminished ;

(3) There was complete identity of the person who-

(a) - brought about this transaction without disturbing the affairs of the company,

(b) to whom the share money was repaid, and ( c) who took up the debentures ;

Eatern Investments Ltd. v.

Commissioner of

income-ta;)(!, We8t Bengal.

Bose J.

Ea!.lern Investment.t Ltd. v.

Commi.tsioner of inco1ne-tax, W e!.t Bengal

Bose J.

and (4) that the transaction was more in the interest of the shareholder Scott than that of the company.

The decision of this appeal rests on the true construction of section 12(2).

In our opinion, the law on this point has been correctly summarised in the judgment of the High Court. The following principles are relevant:

(a) though the question must be decided on the facts of each case, the final conclusion is one of law : Indian Radio & Cable Communications Ltd. v. The Commissioner of Income-tar, Bombay(') and Thta Hydro-Electric Agencies Ltd. v. The Commissioner of Income-tar, Bombay(2) ;

(b) it is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned : Moore v. Stewart & Lloyds(') and Usher's case(')2;

( c) it is enough to show that the money was expended "not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency, and in order indirectly to facilitate the carrying on of the busin.ess" : British Insulated & Helsby Cables Ltd. v.

Atherton(") ; and

( d) beyond that no hard and fast rule can be laid down to explain what is meant by the word "solely".

A case somewhat similar to the present is Parmer

v. Scottish North American Trust Ltd. ( 0 ) where it was held that interest paid on an overdraft required for p11rchasing shares (the shares purchased being retained as security for the overdraft) was an outgoing which could be deducted from the receipts to ascertain the taxable profits and gains which were earned by them. In our opinion, the present case falls within these principles.

(1) 1937 I.T.R. 270 P.C.

(3) 6 Tax caSes SOI

(5) 1926 A.C. 205 at 221 and 235

(2) 1937 1.T.R. 202 P.C'.

(4) 1915 A.C. 433

(6) 1912 A.C.118

One of the points which weighed with the Incometax Appellate Tribunal and the High Court was that though the conversion did not in any way disturb the holding of the investments of the company or interfere with the earning of its income ; it had the effect of diminishing its taxable income.

In our judgment, this is not a proper consideration when the transaction is not challenged on the ground of. fraud.

In the present case there is not even an allegation of fraud.

The next point on which some stress was placed was that there was complete identity of person between the person whose shares were sold and the person who took the debentures and that the transaction resulted .in considerable benefit to him.

In the absence of a suggestion fraud this is not relevant at all for giving effect to the provisions of section 12(2) of the Incoriietax Act.

Most commercial transactions are entered into for the mutual benefit of both sides, or at any rate each side hopes to gain something for 'itself.

The test for present purposes is not whether the other party benefited, nor indeed whether this was a prudent transaction which resulted in ultimate gain to the appellant, but whether it was properly entered into as a part of the appellant's legitimate commercial undertaking in order indirectly to facilitate the carrying on of its business.

The High Court doubted whether the transaction could be brought within the functions of an investment company and found it difficult to reconcile it with the objects set out in the Memorandum of Association.

But we sec no such difficulty.

Clause S empowers a reduction of capital of the company and clause 3(3) empowers the company to borrow or raise money by the issue of debentures.

The matter is clearly "writ in the bond".

Morever, we do not think that this inquiry is relevant, for we are dealing with a question of income-tax and not judging the legality or propriety of the transaction on an application to reduce the capital of the company. The only question is whether this was done in the ordinary course of business for the purposes we have already

EaJtern Investments Ltd. v.

Commi5sioner of

income-I°"• West Bengal.

Bose J.

Ea:1ter:1 Investment8 Ltd. v.

CommiJstoner of

incom~-tax, West Bengal.

Bose J.

pointed out, however mistaken the directors and shareholders of the company may have been.

Therefore, as stated by the Income-tax Appellate Tribunal in its statement of the case, the executors of Lord Cable's estate needed money.

In the next place, . the transaction was brought about "at instance of the holder of the majority of ordinary shares", and also that the shares were originally held by Lord Cable and his nominees.

It seems evident therefore that Scott could have compelled the company to pay him . cash for the shares.

He seems to have had the whip hand.

Instead of doing that he entered into an arrangement which, while giving him the necessary facilities, appears to have satisfied the company by allowing it to retain its investments without a precipitate liquidation of a large portion thereof.

It docs not matter whether the company was right in this view or wrong, and in any event we arc in no position to judge of the soundness of its decision because we have not all the materials before us.

It has to be remembered that considerations of this kind go deeper than the apparent profit or loss on an isolated transaction standing by itself.

It is not enough to say that the 50,000 shares which were cancelled earned in the following year only 3! per cent. 'interest as against 5 per cent. on the debentures because we do not kno'l!I" to what extent the holdings of the company would have been disturbed if this had not been done.

What we do know is what the Income-tax Appellate Tribunal has stated, namely, that-

"the change brought about had been so designed that the investments of the company were not to be disturbed and as a consequence the income accrued was in no way to be affected."

This has only to be stated to show the commercial nature of the transaction from the company's point of view.

The High Court considered that the capital of the company could have been reduced in other ways.

But that again is not point.

There arc usually many

ways in which a given thing can be brought about in business circles but it is not for the Court to decide which of them should have been employed when the Court is deciding a question under section 12(2) of the Income-tax Act.

It was argued on behalf of the respondent (basing the same on paragraph 7 of the appellant's application to the High Court dated 5th April, 1947) that the company had at the time sufficient liquid resources to effect the reduction of capital desired and so it was not necessary to resort to this process.

But that again is not the point The company chose to do it this way, and as there was not even a suggestion of fraud, the only question is whether it was gone through as an ordinary commercial proposition. But we doubt if that is what paragraph 7 meant because in paragraph 4 of the application to the High Court dated 11th February, 1944, the petitioner stated that the money on hand and at short notice was only Rs. 8,94,379.

That is a good deal short of 50 lacs. However, we need not enter into this in detail.

On a full review of the facts it is clear that this transaction was voluntarily entered into in order indirectly to facilitate the carrying on of the business of the company and was made on the ground of commercial expediency.

It therefore falls within the purview of section 12(2) of the Income-tax Act, 1922 before its amendment in 1939.

This being an investment company, if it borrowed money and utilised the same for its investments on. which it earned income, the interest paid by it on the loans will clearly be a permissible deduction under section 12(2) of the Income-tax Act. Whether the loan is taken on an overdraft, or is a fixed deposit or on a debenture makes no difference in law. The only argument urged against allowing this deduction to be made is that the person who took the debentures was the party who sold the ordinary shares.

It cannot be disputed that if the debentures were held by a thinl party, the interest payable on the same would be an

L/N2S.C.L.

Ea$tern

lnvestmnts Ltd1

CommiS$ioner of income-tax, W eJt Bengal.

BO$C J,

Eal tern /nreltment!Ltd.

Commissioner of

income-ta;;, We.1t Bengal.

Bose J.

allowable deduction in calculating the total income of the assessee company. What difference does it make if the holder of the debentures is a shareholder ? There appears to be none in principle in view of the fact that no suggestion of fraud is made in respect of the transaction which is carried out between the company and the Administrator and which has been sanctioned bv the Court. If the debentures had been paid for in casi1 by the same party, no objection could have been taken to allowing the interest amount to be deducted.

In principle, there appears to us no difference, if instead of paying in cash the payment of the price is in the shape of giving over shares of the company, when the transaction is not challenged on the ground of fraud and is approved by the Court in the re-organisation of the capital of the company.

In our opinion, therefore, the ground on which the Income-tax Appellate Tribunal and the High Court disallowed the claim of the assessee is not sound.

In our opinion, the High Court has failed to appreciate the true position and the question submitted for its opinion should be answered in the affirmative. The appeal is therefore allowed.

The respondent will pay the costs . of the appeal in this Court and of the reference in the High Court.

Appeal allorued

Agent for the appellant : P. K. Chatterjee.

Agent for respondent : P. A. Mehta.

Sastri J.

R. R. Biswas

Sukumar Ghose

EASTERN INVESTMENTS LTD

COMMISSIONER OF INCOME-TAX,

WEST BENGAL

SHRI HARILAL KANIA

S. R. DAs

VIVIAN BosE JJ.

Indian Income-tax Act

s. 12(2)

Income-tax Appellate Tribunal

s. 12(2)

Income-tax Act

KANIA C

PATANJALI SAsTR1

s. 12(2)

s. 12(2)

G. N. Das

Mukherjee

S. Mitra

S. N. Mukherjee

M. C. Setalvad

S. M.

Sikri

BosE

section 66( 1)

Eastern lnveJtment Ltd

Bose

CommisJioner of

lncometax, West Bengal

section 12

3rd January, 1927

Cable

28th of March, 1937

Britain

India

Geoffrey Lacy Scott

9th February, 1937

Scott

Calcutta _ High Court

section 12(2)

Income-tax Act

section 12(2)

Usher

Incometax Appellate Tribunal

section 12(2)

clause 3(3)

section 12(2)

Income-tax Act

5th April, 1947

11th February, 1944

section 12(2)

Income-tax Act, 1922

section 12(2)

Income-tax Act

P. K. Chatterjee

P. A. Mehta