3 S.C.R.

SUPREME COURT REPORTS 549

SIR CHUNILAL V. MEHTA AND SONS, LTD. v.

THE CENTURY SPINNING AND MANUFAC

TURING CO., LTD.

(B. P. SmHA, C.J., J. L. KAPUR, M. HIDAYATULLAH,

J. C. SHAH and J. R. MuDHOLKAR, JJ.) Supreme Court Appellate Jurisdiction of-Appeal against decree of affirmance-Substantial question of law-Construction of agreement, if such a question-Br.ach of contract-Liquidated

1amages-Constitution of India, Art. 133(1).

The appellants were appointed managing agents of the respondents for 21 years. Under cl. 10 of the agreement the appellants were entitled to a remuneration equal to 10% of the gross profits <if the respondents subject to a minimum of Rs. 6,000 per month. Clause 14 provided that if the agree ment was terminated otherwise in accordance with the provisions thereof the appellants would be entitled to liquidated damages "of not less than Rs. 6,000" per month for the unexpired portion of the agreement. The respondent wrongfully terminated the agreement before the expiry of the stipulated period. The appellants filed a suit for recovery of damages for breach of contract cin the basis of 10% of the gross profits of the respondents. The trial Judge granted a decree for Rs. 2,34,000 calculating the amount at.Rs. 6,000 per month. On appeal by the appellants the High Court affirmed the decree. The appellants applied to the High Court for a certificate of fitness for appeal to the Supreme Court but it declined to grant the same on the ground that though the question involved in the case relating to the interpretation of the agreement was a question of law it was not a substantial question of law as required by Art. 13(1) of the Constitution.

Held, that the case involved a substantial question of law and the appellants were entitled to the certificate as of right. A substantial question of law is one which is of general public importance or which directly and substantially affects _the rights of the parties and which have riot been finally settledby the Supreme Court, the Privy Council or the Federal Court or which is not free from difficulty or which calls for discussion of alternative views. The question involved in the present ca'3e as to the construction of the agreement was not only one of Jaw but it was neither simple nor free from doubt and was a substantial questiop of l'!'Y wi!hin th~ fllCi!nin? of Art, 133(1). · ·

March {J,

Sir Chunilol V. Afehta d: Som,

Ltd. ...

Tht Ctnli..17 SpiMing

d.: JI 4nrifa<turing

Co, Ltd.

M:Jdho/l;(l' J.

550 SUPREME COURT REPORTS (1962] SUPP.

Kaiklw.shroo Pirojsha Glzaira v. C.P. Syndicate Ltd.,( 1948) I. Born. L. R. 741; R~thunath Prasrul Singh v. Depuly Commissioner~( ParlaPVarh, ',1927) 54 l. A. 126 and Dinkarrrw v.

R'lllansey, I. L. R. ( 1949) Nag. 224, referred to. .

Rimmalap>; di Subb<1 Rtw v . • Voony l'eeraju, [. L. R. 1952

fad. 264, approved.

lleld, further that upon a proper construction of cl. 14 of the agreement the appellant; were entitled to damages at the rate of Rs. 6,000 per month only.

The words "not le<S than Rs. 6,000" in

cl. 14 could not be construed as meaning 10% of the gross profits as provided in cl. 10.

When in cl. 14 the parties named a sum of money to be paid ....,. as liquidated damages, it excluded the right to claim an unascertaincrl sum as darnages.

Crvn. APPELLATE JURISDICTION : Civil Appeal .No. 417 of 19:ii.

Appeal by spcial leave from the judgment and dceree tlatBd .\farch 14, 19.56, of tho Bombay High Court in Appeal No. 94 of 1955.

N. A. Palkhivala, J. B. Dadachanji, 8. N. Andie)/, R1tm.eshwar .l\'ath and P. L. Vohm, for the appellants. . llf. C. 8r1alvad; Attorney General of India, R .• !.

Joshi and R. P. Malteshwari, for the respondont.

Pon1!3 A. Melita and R. H. Dliehar, for the r ntervencr.

1962. March 5, The Judgment of the Court

1va~ delivered by

MuDIIOLll:AR, J.-This is an appeal by special lerive iigainst. tho Judgment of the High Court of

Bomh11.y in an appeal from the judment of a single .Judge of that Court. The claim in appeal before tho High Court was for a.bout 26 lakhs of rupees.

Being aggrieved by the decision of the High Court, 'h<> n.npelliint a.pp lied for a. certificate under Art.

I !l3(l )la) of the Con•titution. The ju :lgment of the High Court in appeal was in affirma.nco of the judgment of the learned single , Judge dismissing the

ppellant's suit. for qamages and therefore, it wa~

3 S.C.R. SUPREME COURT REPORTS 551

necessary for the appellant to establish that a substantial question of law was involved in the appeal.

On behalf of the appellant it was contended that the question raised concerned the interpretation to be placed on certain clauses of the mrmaging agency agreement upon which their claim in the suit was founded and that as the interpretation placed by the appeal court on those clauses was erroneous and thus deprived them of the claim to a substantial amount the matter deserved to be certified by the High Court under Art. 133(l)(a) of the Constitution.

The learned Judges, dismissed the 11.pplication without a judgment apparently following their previous decision in KaikhushrooPirojsha Ghaira v. C.P. Syndicate Ltd. (1).

The appellants, therefore, moved this Court under Art. 136 of the Constitution for grant of special leave which was granted. In the application for special leave the appellant had raised a specific contention to the effect that the view taken by the High Court with regard to the application for certificate under Art. 133 (1) (a) of the Constitution was wrong, that the appellant was entitled to appeal to this Court as a matter of right and that while considering the appeal this question should also be decided.

The appellant pointed out that tho view taken by the Bombay High Court on the point as to what is a substantial question of law runs contrary to the decision of the Privy Council in Raghunath Prasad Singh v. Deputy Commissioner of Partabgarh (2) and the decision of some High Courts

in India and that therefore, it is desirable that this Court should pron0unce upon the question in this appeal and set the matter at rest. We think that it is eminently desirable that the point should be considered in this appeal.

It is not dijputed before us that the question raised by the appellant in the appeal is one of Jaw because wh11t the appellant is challenging is the interpretation placed upon cert, ain clauses of the

(1) (\948) L. Born. LR. 744.

(2) (1927) 54 I.A. 126, 12&, . . '

Sir Chunilal V. Mehta cf! Sons,

Ltd.

The Century Spinning

& Manufacturing

Co, Ltd.

Mu<lolkaf' J,

Sir Churiilal J', .l[rli.t.1 ((_Sons,

' Lid.

Tht Ctnt11 )' ·"Pi1lni'ffg

&: .lloriuf1cturing

Co., I.id,

.\fudhr,, l!:ar J.

' .

552 SUPREME COURT REPORTS [1962) SUPP.

ma.naging agency a.greement which a.re the founda.-

tion of the claim in suit. Indeed it is well settled that the construction of a decument of title or of a

dooument which is the foundation of the rights of parties necessarily raises a question of law.

The next question is whether the interpretation of a document of the kind referred to abov11 raises a substantial question of la.w.

For, Art. I :~3( I) provides that where the judgment, decree or final order appealed from affirms the decision of the conrt immediately below in any case other than a. case referred to in sub-cl. ( c) an a.ppea.I sh&U lie to this Court if the High Court oertifics that tbe appeal involves some substantial question of law. To tho same effect are the provisions of s. IIO of tho Code

of Civil Procedure. In the old Judicial Commissioner's Court of Oudh tho view was taken that a substantial question of law meant a question of general importance. Following that view its successor, the Chief Court of Oudh, refused to grant a

cortificat~ to one Rcghunath Prasad Singh whose appeal it had dismissed. The appellant, therefore, moved tho Privy Council for special leave on the ground that the appeal raised a substantial question of law. The Privy Council grant<,>d speoial leave to the appellant ai1d while granting it ma.do the follow. ing observation in their judgment:

"Admittedly here the decision of the Court affirmed tho decision of tho Court immedia.tely below, and, thert>foro, the whole question turns upon whether there is a substantial question of law.

Thero seems to have been somo doubt, at any rato in the old Court of Oudh, to which the present Court succeeded, as to whether a. substantial questinn of law meant a. question of genera.I importance. Their J, ordshi ps think it is quite clear and indeed it was conceded by !\fr. De Gruyther t.ha.t that fS not the meaning, but that "substantiai

3 S.C.R.

SUPREME COURT REPORTS 553

question of law" is a substantial question of law as between the parties in the case involved." Then their Lordships observed that as the case had occupied the High Court for a very long time and on whieh a very elaborate judgment was delivered the appeal on its face raised as between the parties a substantial question of law. This case is reported in Raghunath Prashad Singh v. Deputy Commissioner of Partabgarh(l). What is a substantial question of law as between the parties would certainly depend upon the facts and circumstances of every case.

Thus for instance, if a question of law had been settled by the highest court of the country the question of law however important or diffi<'ult it may have been regarded in the past and however much it may affect any of the parties would cease to be a substantial question of law. Nor again, would a question of law which is palpably absurd be a subsLantial question of law as between the p1rties. The Bombay High Court, however, in their earlier decision already adverted to have not properly appreciated the test laid down by the Privy Council for ascertaining what is a substantial question of law. Apparently the judgment of the Privy Council was brought to their notice though they do not make a direct reference to it, they have observed as follows:

"The only guidance that we have had from the Privy Council is that. substantial question is not necessarily a question which is of public importance. It must be a substantial question of law as between the parties in the case involved. But here again it must not be forgotten that what is contemplated is not a question of law alone ; it must be a substantial question. One can define it nega- . tively. For instance, if there is a well established principle of law aIJq that principle i~ (I) (1927) 54!. A. 1261 12a.

Sir' Chunilal V. MtAta & Sons,

Ltd

•• TAe C1ritur1 Spinning

ch Manufacturing Co., Ltd.

Mudholkar J.

Sir Chunil~ V. MtlUtJ &, Soru,

Ltd.

•• r,,_ C.nM.1 Spio•;,, g

<6 Monufocturing

Cn., Ltd.

.\fudholk1r J,

554 SUPREME COURT REPORTS [1962] SUPP.

applied to a. given set of fa.ots, tha.t would certainly not be a substantial question of la.w.

Where tho que8tion of law is not well settled or where there is some doubt as to the principle of law involved, it certainly would ra.ise a substantial question of la.w which would require a final adjudication by the highest

Court."

One of the. points which the learned judges of the Bombay High Court had to consider in this case was whether the question of construction to be placed upon a. decree was a substantial question of law.

The learned Judges said in their judgment that the decree was undoubtedly of a complicated cha.racte r but even so they refused to grant a certificate under s. I IO of the Code of Civil Procedure for appeal to the Federal Court because the construction which the Court was called upon to place on the decree did not raiAe substantial question of law. Thny have obRerved tllat even though a decree may be of a complicated character what the Court ha.a to <lo is to look at its variolli! provisions and draw its inference therefrom. Thus according to the learned Judges merely because the inference to be drawn is from a complicated decree no subtan. tia.l question of law would arise.

Apparently in coming to this conclusion thoy omitted to a.ttach sufficient weight to the view of the Privy Council that a question of la.w is "a substantial question of law" when it affects tho rights of the parties to tho proceeding. Further the learned Judges seem to have taken the viow that there should be a doubt in the mind of the Court as to the principle of law involved and unless there is such doubt in it8 mind the question of law decided by it ca.nnot be said to be

"a substantial qu,, stion of law" 80 as to entitle n party to a. certificat.o under s. 110 oft.he Code of Civil Proure. It is trqo that the~ have µot sa\d

.3 S.C.R.

SOPREME COURT REPORTS 555

in so many words that such a doubt must be entertained by the Court itself but that is what we understand their judgment to mean and in particular the last sentence in the portion of their judgment which we have quoted above.

As against the view taken by the Bombay High Court there are two decisions of the High Courts in India to which reference was made before us.

One is Dinkarrao v. Rattansey ('). !n that case applying the Privy Council's decision the High Court held that a question of law is substantial as between the parties if the decision turns one way or another on the particular view taken of the law. If the view taken does not affect the decision then it cannot be substantial as between the parties ; but it would be otherwise if it did, even though the question may be wholly unimportant to others. It was argued before the High Court on the basis of certain decisions that no question of 111, w can be substantial within the meaning of s. llO of the Code of Civil Procedure unless the legal principles applied in the case are not well defined or unless there can be some reasonable divergence of opinion about the correctness of the view taken and unless the case involves a point of law such as would call for fresh definition and enunciation. Adverting to those cases Bose C. J., (as he then was) who delivered the judgment of the Court observed as follows :

"In the first case cited; it was also .held that a misapplication of principles of law does not raise any substantial question of law so as to attract the operation of s. llO ........ ..

There can be no doubt that that is a view which has been held by various High Courts in India, but the decision cited omit to consider two decisions of their Lordships of the Privy Council on this very point which, in or

(!) J. L. R. (1949) N•B 22~. . .

196B

Sir Chunilol V. M•hta &

Sons, Ltd.

Thi Cmtur1' Spinnin_f

&: M onufacturing

Co., Ltd

tUudholkar J.

Si< Chuni/.J V. ,\f, hla ti' Stma, Lld

•• Tiu Centur.1 Spitm; ng

<i :\-f an1ifacturinr

Co., Lid.

,.\1 udltolkar J .

556 SUPREfE COURT REPORTS [1962] SUPP.

opinion, very largely modify the views taken in the cases cited and which of course it is impos sible for us to ignore." (p. 226) Referring to th11 Privy C'-<mncil case the learned Chief Justic:e observed as follows :

"In the Lucknow case the only question was whether the defendant there obtained an absolute interest or a limited interest under I\

will.

That again was a question which was of no interest to anyone outside the parties to the suit. Nevertheless, their Lordships con sidered in both cases that the questions were substant.ial questions of law bec:iuse they were rnbstantial as between the parties. We can only consider this to mean that a question of law is substantial as between the parties if the decision turns one way or another on the particular view taken of the law. If it docs not affect the decision t.hen it cannot be su bstantial as between the parties. But if it substa.11 tially affects the decision then it is substan tial as between the parties though it may be wholly unimportant to others." (p. 228) It may be that in the case before it, the Nai?pur

High Court was justified in granting certificate because of the points involved was the construction of a deed of compromise and the High Court had interpreted that deed differently from the court below.

But it seems to us that some of the observations of Boso C. J., are a lit.tlo too wide.

We are prepared to assume that the learned Chief .Justice did not intend to say that where a question of law raised is palpably absurd it would still be regarded as a substantial question of law merely because it affects the decision of the case one way or the other, But at the s:ime time his observation that the view taken in the cases cited before him requires to be modified in the light of the Privy 9oµncjl decj.sjOIJ woulq imply tat a uestiop of l!i-1f

3 S.C.R.

SUPREME OOURT REPORTS 557

is deemed to be a substantial question of law even though the legal principles applicable to the case are well defined and there can be no reasonable divergence of opinion about the correctness of the view taken by the High Court. If we have understood the learned Chief Justice right, we think that he has gone further than was warranted by the decision of the Privy Council in Raghunath Prasad Singh's case (1).

The other case relied upon was Rimma"lapudi Subba Roo v. Noony Veeraju (2). In that case the test of the kind suggested by Bose C.J., was rejected on the ground that logically it would lead to the position that even a palpably absurd plea raised by a party would involve a substantial question of law because the decision. on the merits of the case would be directly affected by it. What was, however, said was that when a question of law is fairly arguable, where there is room for difference of opinion on it or where the Court thought it necessary to deal with that question at some length and discuss alternative view, then the question would be a sabstantial question of law. On the other hand if the question was practically covered by the decision of the highest court or if the general principles to be applied in determining the question are well settled and the only question was of applying those principles to the particular fact of the case it would not be a substantial question of Jaw.

We a.re in general agreement with the view taken by the Madras High Court and we think that while the view taken by the Bombay High Court is rather narrow the one taken by the former High Court of Nagpm~ is too wide. The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it

(!) (1927) 541.A.126, 128. (2J I.L.R. 1952 Mad. 264.

Sir Chunilal V.

M1hl a&: 'Sone, Ltd. v. l'lu Century Spinning

dJ M oii.ufacturinz,

Co., ltd.

Mudho/l:arJ.

S;, Chunil o1 Y.

JI eh ta &: Sons. W.

i Tiu Cmlu'' ,.,,,.ing

d Manujacluf'int

Co., Ltd.

MudhtlkM J.

~GS st; PhEME COURT REPORTS [1962J.St1Pt.

directly and substantially affects the rightR of th~ parti<'S and if so whether it is either an open ques tion in the sense that it is not finally settled hy

this Court or hy the Privy Council or by the Fede. ral Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest Court or the general principles to be applied in determining the question aro well settled and there is a mero queation of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law.

Applying these tests it would be clear that tho question involved in this appeal, that is, the construction of tho Managing Agency agreement is not only one of law but also it is neither simple nor free from doubt.

In the circumstances we have no hesitation in saying that the High Court was in error in refusing to grant the appellant a certificate that tht~ appeal involves a substantial question of law. It has to ho borne in mind that upon the success or the failure of tho contention of the parties, thoy stand to succeed or fail with respect to their claim for nearly 26 lakhs of rupees.

Now as to the merits. The relevant facts may be briofly stated. Chunilal Mehta & Co., Bombay were appointed Managing Agents of the respondent company for a term of :!l years by an agreement ' dated June 15, 1933.

By a resolution passed by the respondent company in October l!l45, Chunilal .Mehta. & Co., were permitted to assign the benefits of the afor<'said agreement to the present appellant, Sir Chunilal V. Mehta & Sons Ltd. On April 23, 1951, the Board of Directors of the Company terminat<'d the agreement of 1933 and passed a resolution removing the appellant as Managing Agents on April 23, 1951. The appellant thereupon filed a suit on the original side of the Bombay High Court

3 s.c.it.

SUPREME COURT REPORTS 559

claiming Rs. 50 lakhs by way of damages for wrong- 1962 ful termination of the agreement. Eventually with Sir Ch••ilal the permission of thll Court it amended the plaint V. Mehia &J Soos, and claimed instead Rs. 28,26,804/-. The company

U.,~· admitted before the Court that the termination of The C•ntur7 SpiMi"t

h 1 , f l d h &! Manufacturing t e appel ants employment was wrong u an so t e Co., IM. only question which the learned Judge before whom the matter went had to decide was the quantum of MudholkarJ. damages to which the appellant was entitled. This question depended upon the construction to be placed upon cl. 14 of the Managing Agency agreement.

That clause runs thus :

"fn case the Firm shall be deprived of the office of Agents of the Company for any reason or cause other than or except those reasons or causes specified in Clause 15 of these presents the Firm shall be entitled to receive from the Company as compensation or liquidated damages for the loss of such appointment a. sum equal to the aggregate amount of the monthly salary of not less than Rs. 6,000/- which the Firm would have been entitled to receive from the Company, for and during the whole of the then unexpired portion of the said period of 21 years if the said Agency of the Firm had not been determined." In order to appreciate the arguments advanced before us it would, however, be desirable to reproduce the two earlier clauses-els. 10 and 12.

They run thus :

10.

The Company shall pay to the Firm by way of remuneration for the services to be performed by the Firm as such Agents of the Company under this Agreement a monthly sum of Rs. 6,000/- provided that if at the

Sfr Clwnilol V.

M11tla &.· S01ts Lt4

560 SUPRE~IE COURT REPORTS [1962) SUPP.

T ht Ctn/tu_> SpiNrin g

th, Jlarrufaeluring 1- Co., /Jd.

clos<· of any y<'ar it shall be found that tho total remunerat.ion of the firm receivf'd in such year shall have been less than IO per cent of the gross profits of thtJ Company for such year the Company shall pay to the Firm in respect of uch year such additional sum by way of remuneration as will make the total sum received by the Firm in and in respect of such year equal to I 0 per cent of tho groSB profits of the Company in that year. The first payment of such remuneration shall bf,

made on the first day of August 19:l3.

M, dholkar J.

"12. The said monthly remuneration or Hillary shall accrue due from day to day but shall be payable by the company to tho l•'irm.

monthly, on the first day of the month immediatdy ucceeding tho month in which it shall have been earned."

Tho learned trial judge upon the interpretation placed by him on cl. 14 awarded to the appellant a sum of Rs. 2,:W, OCO/., calculating the amount at Ha. (),000/- p.m. for the unexpired period of the term of the Managing Agency agreement and also awarded interest thereon. Kow according t-0 l\Ir.

Palkhivala for the appellants, the interpretation placed upon cl. 14 by the trial judge and the appeal Court is erroneous in that it makes the words "not less than" in cl. 14 redundant. Learned counsel contends that on a proper construction of cl. 14 the appellants are entitled to compensation computed on the basis of the total estimated remuneration under cl. l 0 for the unexpired period. Under that clause, he contends, the appellants are entitled to 10% of the profits of the <:ompany subject to a minimum of Rs. 6,0UO/- p.m.

Alternatively learned counsel contends that cl. 14 is not exhaustive of the appellant's right to compensation and the right to be compensated in respect of contingent remunera-

3 s.c.k.

SUPREME COURT REPORTS 56l

tion based oa 10% of profits is left untouched by that clause.

A perusal of cl. 14. clearly shows that the parties have themselves provided for the precise amount of damages that would be payable by the Company t::> the Managing Agents if the Managing Agency agreement was terminated before the expiry of the period for which it was made. The clause clearly states that the Managing Agent shall receive from the Company as compensation or liquidated damages for the loss of appointment a sum equal to the aggregate amount of the monthly salary of not less than !ts. 6,000/- for and during the whole of the unexpired portion of the term of Agency.

Now, when parties name a sum of money to be paid as liquidated damages they must be deemed to exclude the right to claim an unascertaiued sum of money as damages. The contention of learned counsel is that the words "not less than" appearing before "Rs. 6,000/-" in cl. 14 clearly bring in cl. 10 and, therefore, entitle the appellant to claim 10% of the estimated profits for the unexpired period by way of damages. But if we accept the interpretation, it would mean that the parties intended to confer on the Managing Agents what is in fact a right conferred by s. 73 of the Contract Act and the entire cfause . would be rendered otiose.

Again the right to claim liquidated damages is enforceable under s. 74 of the Contract Act and where such a right is found to exist no question of ascertaining damages . really arises. Where the parties have deliberately specified the amount of liquidated damages there can be no presumption that they, at the same time, intended to allow the party who has suffered by the breach to give a go-by to the sum specified and claim instead a sum of money which was not ascertained or ascertainable at the date of the breach. Learned counsel contends that upon this view the words "not less than" would be rendered otiose. Inour opinion

196>

Sir Chunilal' V.

M1hta &! Sons, Ltd.

•• The Century Spinfting

& Manufaclur inV

1 Co. Ltd.

fl1udholkar J.

Sir Chunilal V.

Mehta~ Sons, Ltd. v.

Tht Century Spinnint klanufacturinl Co.

Lid

MudhollwJ.

662 SUPREME COURT REPORTs [1962) SUPP. •

thee wordR, as rightly-pointed out hy the High Court, were intended only to emphasise the fact that compensation will be computable at an amount not less than Rs. fi,000 p.m.

Apparently, they thought it desirable to emphasise the point that the amount of lts. 6,000 p.m. was regarded by them as reasonable and intended that it should not be reduced by the court in its discretion.

Mr. Palkhivah argued that what the appellants were entitled to was remuneration aud remuneration meant nothing but salal'y. The two words, according to him, have been used intorchangeahly in the various clauses of the agreement. If, therr.forc, salary in

cl. 14 is the same as remunerat.ion, which according to him it is, then as indieated in el. JO it would mean 10% of the gross profits of the Company subject to a minimum of Rs. 6,00P/-p.m.

Jn support of the argument that the two words wherever used in the agreement mean one and the same thing learned counsel relies on cl.12 which says that the monthly remuneration or salary shall accrue due from day to day. Then undoubtedly the two words clearly mean the same thing. But from a perusal of the clause it would a.ppear that remuneration there could mean nothing other than Rs.6,000/p.m.

For, that clause provides that the amount shall accure from day to day and be payable at the end of the month immediately succeeding the month in which it had been earned. Now, whether a company had made profits or not and if so what is the extent of the profits is determinable only at the end of its accounting year. To say, therefore, that the remuneration of 10% of the gross profits accrues from day to day and is' payable every month would be to ignore the nature of this kind of remuneration.

Therefore in our opinion, when the remuneration and salary were equated in cl. 12 nothing else was meant but Rs.u, OOOf-and when tho word salary was

used in cl. 14 we have no doubt that only that

1 '

as.a.&. sU:PR:EM:E cou&r REPORTS 563

amount was meant and no other. It may be that under cl. 10 the appellant was entitled to additional remuneration in case the profits were high upto a limit of 10% of the gross. profits. That was a right to claim something over and above Rs.6,000/-and could be characterised properly as additional remuneration and not fixed or normal remuneration which alone was apparently in the minds of the parties when they drew up cl. 14. In our opinion, therefore, the High Court was right in the construction placed by it upon the clause.

Coming to the alternative argument of Mr.

Palkhivala, we appreciate that the right which the appellant had of claiming 10% of profits was a valuable right and that but for cl. 14 he would have been entitled in a suit to claim damages estimated at 10% of the gross profits. We also appreciate his argument that a party in breach should not be allowed to gain by that breach and escape liability to pay damages amounting to a very much larger sum than the compensation payable under cl. 14 and that we should so interpret cl. 14 as to keep alive that right of the appellants. Even so, it is difficult, upon any reasonable construction of cl. 14, to hold that this right of the appellants were intended by the parties to he kept alive. If such were the intentions of the parties clearly there was no need whatsoever of providing for compensation in

cl. 14. If that clause had not been there the appellant would indeed have been entitled to claim damages at the rate of 10% for the entire period aubject to minimum of Rs. 6,000/- p.m. On the other hand it seems to us that the intention of the parties was that if the appellants were relieved of the duty to work as Managing Agent and to put in their own money for arrying on the duties of managing agents they should not be entitled to get anything more than Rs. 6,000/- p.m. by way of compensation.

Clause 14 as it stands deals with one subject only

Sir Chunilol V.

M1hla &t Sons, Ltd.

Vo The Centu, y Spinning

&: M anuJacturing

Co., Ltd.

Mudholkar J.

i962

Sir Cl11111il4l V.

M1hla 41 Sons1 Ud.

Tiu Ct11t111y Spinning

4' M"""fact,,.ing

C.. Lid.

M ui!rol /w J.

IHI

Morch 6t>

. , . . . . . . . ' ,.

SUPREME OOURT REPOR1'S [1962] SUPP.

and that is compenation. It does not expreBBly or by necessary implication keep alive the right tu claim damages under the general law. By providing for compensation in express terms the right tu claim damages under the general law is neceBSarily

ecluded and, therefore, in the face of that clause it is not open to tho appellant to oontend that that right is left unaffected. Thero is thus nu substance in the alternative contention put forward by the learned counsel.

Accordingly we affirm the decree of the High Com t and dismiss the appeal with cost.a.

Appe, al di, siniS&li.

KRISli.J.'i"A PRASAD AND .OTHER~

GAURI KUMAR! D.EVl

(P. B. GA.JK'.SDRAGADKAR, A. K. SARKAR and K. N. w AN CHOO, JJ.)

Bxecution-l'eroonal decree against mortgagor-Mortgaged e•late ieBting in t!.t State-Bjject on claim pendiny-Bihar Land Reform• Act, 19W(Acl 30 oj 1950), s. 4(d).

The appcllan t obtaine<l a preliminary decree, on an anomalous mortgage of a hare in the Zamindari village of Sonchari Mouza in the Patna lJistrict and khudkasht land appertaining to the Mouza, against the mortgaged properties with a direction for a personal decree for the balance and there followed a final mortgage decr<e on 30.9.1947. An application for execution against the mortgaged properties was dismissed on 9.1.1954 as in the meantime the mortgaged pro pcrtics \\hich constituted an estate within the meaning of s. 2(1) of the Bihar Land Reforms Act, 1950, had vested in the State.

Execution was sought personally against the mortgagor I . by attachment and sale of other properties of the mortgagor and it was ultimately ordered by the executing <OUJ t.

The

549

SIR CHUNILAL V. MEHTA AND SONS, LTD

THE CENTURY SPINNING AND MANUFACTURING CO., LTD

L. KAPUR

M. HIDAYATULLAH,

J.

C. SHAH

R. MuDHOLKAR, JJ.

Constitution of India

Art. 133(1)

cl. 10

Clause 14

Art. 13(1)

cl. 14

cl. 14

cl. 10

cl. 14

Art. 133(l)(a)

Art. 136

Art. 133

the Code of Civil Procedure

s. 110

the Code of Civil Procedure

cl. 14

Clause 15

cl. 14

cl. 14

cl. 14

cl. 14

cl. 14

cl. 14

cl. 14

cl. 10

s. 73

s. 74

cl. 14

cl. 12

cl. 14

cl. 10

cl. 14

cl. 14

cl. 14

cl. 14

cl. 14

cl. 14

Clause 14

s. 4(d)

s. 2(1)

Bihar Land Reforms Act, 1950


i962

Sir Cl11111il4l V.

M1hla 41 Sons1 Ud.

Tiu Ct11t111y Spinning

4' M"""fact,,.ing

C.. Lid.

M ui!rol /w J.

IHI

Morch 6t>

. , . . . . . . . ' ,.

SUPREME OOURT REPOR1'S [1962] SUPP.

and that is compenation. It does not expreBBly or by necessary implication keep alive the right tu claim damages under the general law. By providing for compensation in express terms the right tu claim damages under the general law is neceBSarily

ecluded and, therefore, in the face of that clause it is not open to tho appellant to oontend that that right is left unaffected. Thero is thus nu substance in the alternative contention put forward by the learned counsel.

Accordingly we affirm the decree of the High Com t and dismiss the appeal with cost.a.

Appe, al di, siniS&li.

KRISli.J.'i"A PRASAD AND .OTHER~

GAURI KUMAR! D.EVl

(P. B. GA.JK'.SDRAGADKAR, A. K. SARKAR and K. N. w AN CHOO, JJ.)

Bxecution-l'eroonal decree against mortgagor-Mortgaged e•late ieBting in t!.t State-Bjject on claim pendiny-Bihar Land Reform• Act, 19W(Acl 30 oj 1950), s. 4(d).

The appcllan t obtaine<l a preliminary decree, on an anomalous mortgage of a hare in the Zamindari village of Sonchari Mouza in the Patna lJistrict and khudkasht land appertaining to the Mouza, against the mortgaged properties with a direction for a personal decree for the balance and there followed a final mortgage decr<e on 30.9.1947. An application for execution against the mortgaged properties was dismissed on 9.1.1954 as in the meantime the mortgaged pro pcrtics \\hich constituted an estate within the meaning of s. 2(1) of the Bihar Land Reforms Act, 1950, had vested in the State.

Execution was sought personally against the mortgagor I . by attachment and sale of other properties of the mortgagor and it was ultimately ordered by the executing <OUJ t.

The

Patna High Court in revision hi; ld tha! in view of s. 4( d) of the Bihar Land Reforms Act, 1950, the execution petition could not proceed and dismissed it.

On appeal to this Court it was contended that s. 4(d) of the Act prohibited execution only against the mortgaged pro• perty not in respect of the personal decree. It was brought to the notice of this Court that the appellant had preferred a claim under the Act and that the Claim Officer had deter mined a sum of Rs. 58,100/. with interest at 4 per cent as payable to the appellant from the compensation payable on abolition of the Estate.

Held, thats. 24(5) of the Act made the compensation payable on acquisition of the mortgaged estate a kind of sub. stituted security against which the mortgage claim would be enforced under the provisions of the Act. According to the - Scheme of the Act the debts of the proprietors in respect of the estate were to be investigated and adjusted exclusively by the Tribunal under the Act. On a proper construction, s. 4(d) of the Act precluded the executing Court from enforc. ing the direction for a personal tlecrre. for realising the mort gage debt at present ; it could only be done eventually if the realisation from the mortgaged property was found insufficient to satisfy the decree, as in the present case the whole of the mortgaged property was an estate, in respect of which a claim w•s pending.

Lion Insurance Association Ltd. v.

Tucker ( 1883) 12 Q.B.D. I 76, Raghubir v. Basudevanand, (1953) I.L.R. 32 Pat. 581, Mahantli Sukhdeo Das v. Krtshi Prasad Tiwari, A.I.R.

I 958 Pat. 630 and Rana Sheo Ambar Singh v. The Allahabad Bank Ltd .. (1962) 2 S.C.R. 441 referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 352 of 1959.

Appeal from the judgment and decree dated January 8, 1957, of the Patna High Court in Civil

Revision No. 590 of 1955.

L.K. Jha and B. P. Jha, for the appellants.

Sarjoo Prasad and R. a. Prasad, for the respondent.

1962. March 5. The Jqdgment .of tl1e Coqrt

\f!!,~ delivorad by

Kri1hntJ Prasad

Gauri umari Deni

Kris1ma Prosad

Gauri Kumari Dtri

Gaj111dratadk.1r J,

GAJEXDRAGADKAR, J.-This appeal has been brought to this Court with a eertificaro issued by the Patna High Co•irt and it raises as short question about the scope and effect of the provisions of section 4(d) of the Bihar Land Reform Act, 1950 (30 of 1950) (hereinafter called the Act).

The respondent Smt. Gauri Kumari Qcvi along with her husband, Rabu Shyamakant Lal, executed a regis tcrcd anomalous mortgago in favour of the appellants

Babu Krishna Prasad and his three sons on tho

10th of July, 1937, for a sum of Rs. 35,000/-.

The document evidenced a combination of Sudhama' as well as simple mort.agage and the period specified in it was fiv" years. The respondent was the principal mortgagor and by the mortgage deed she mortgaged I 0 annas and S pies Hakiat Milkiat of village Sonch'lri :lfouza o. 11912 in t.he district of Patna which was the Zamindari property and 16.41 acres of khudkasht land appertaining to khata No. 3 of the said Mouza.

The appellants sued on this mortgage to recover Rs. 69,8 HJ/5.!l 7 in the court of the Sub , Judgo at Patna. The said suit ended in a decree in favour of the appeVants on the 26th August,1946.

The trial J ndge ordered that for the satisfaction of the decrctal amount, "tho mortgage properties would bo charged preliminary and if the deerotal amount is not fully satisfied from them, thon alono the respon dont woulrl be pcrsonilly liable for the satisfaction of the balancn, if any." That is how a composite decree ca.me to be passed in the suit. By tho final decreo which followed on the 30th September, 1947, tho respondent'.• liability to pay ltH. 52,!150/3/- waa determined.

The appellants then filed an Execution Case No. 6 of i 9fi2 and claimed that the dAoretal amount should be realised by sale of the mortgaged Zaminclari properties. The respondent raised an objection against. tho appellants' claim on the ground that the mortgaged properties had iD ~'! .

meanwhile vested in the State of Bihar under the provisions of the Act and so, they were not liable to sale in execution proceedings as the respondent had ceased to have any interest in them. Ultimately, the Execution Case filed by the appellants was dismissed on the 9th January, 1954.

When the respondent contested the Execution Case on the ground that the mortgaged properties had vested in the State of Bihar, the appellants applied for transfer of their decree for the exgcu tion to the Ga ya Court. They intimAted to the Court that they wanted to execute the decree against the respondent by proceeding against her properties other than those which were the subject-matter of the mortgage and they alleged that they were entitled so to do by reason of the personal decree which had been passed against her, The application made by the appellants for the transfer of decree was granted and the decree was transferred on the 22nd of January, 1954 with a certificate of non-satisfaction.

The appellants then filed Execution Case No.19 of 1954 in the Court of the Subordinate Judge at Gaya and sought to recover the decretal amount by attachment and sale of other properties belonging to the respondent. In these pro'ceedings, the respondent filed an objection under section 4 7 of Code and it was numbered as Misc. Case No. 96 of 1954.

She urged that the appellants had not obtained a personal decree against her and so, the claim made by them iu their Execution Case was not maintainable.

She also contended that the appellants conld not proceed against her other properties because their remedy was to follow the compensation money which would be given by the State of Rihar to her in lieu of her properties which bad vested in the said State. It appears that on the 23rd December, 1954, the Misc. Case No. 116 of 1954 filed by the respon {lent was allowed ex-parte by the Sub-Judge at Ga!e,

Krishna Prasad v.

Gauri Kumm '.Devi

KriJhna Prasad

v, O"U'i K'w'IJari Dt'Tli

and, in consequence, the Execution Case No. 19 of

1954 filed by the appellants was dismissed.

The appellants then applied for review of tho said ord...r 1md prayed that their Execution Case should be restoroa to file and should be dealt with in accordance with law.

On tho 20th April. 1955, tho Executing Court allowed the appellants' application for revi1iw and held that the appellants had obtained . a personal decree against the respondent and that

they had a right to sell the other properties of tho respondent in execution of the said personal decree., That is how tho Executing Court directed that execution should proceed as prayed for by the appellants.

The respondent challenged this order by preferring a Civil R"lvision Application before the Patna High Court and it. was numbered as 590 of I !l.~5.

The High Court held that a personal decree had been passed in favour of the appellants, though that part of the direction given in the judgment had not been formally incorporated in the decree.

The High Court therefore, rejected the respondent's contention that no personal decree had been passed since an application had not been made by the appellants under Order 34 Rul'l 6 of the C.P.C.

The High Court also rejeeted the respondent's argu. ment that a Review Application did not lie against the first order pass1•d by the Executing Court, though it thought that there was some substance in the contention raised by the respondent that, on the merits, the review need not ha.vo been granted.

Even so, the High Court did not choose to base its decision on this contention. It has allowed the Revision Application on the merits because it has held that the appellants have no right to execute the personal decree by proceeding to sell the other properties of the respondent, for section 4( <l) of. the Act constitutes a ba.r against such proceedings. On this view, the Higb Court allowed the Reviiion Application, set aside the order passed by the Executing . . ..

Court in. favour of the appellants and has ordered that the Executfon Application filed by the appel- 1 ants should be dismissed.

The appellants then applied for and obtained a certificate from the High Court and it is with the said certificate that they have come to this Court; and so, the point which falls to be decided is in regard to the scope and effect of section 4( d) of the Act. We ought to add that the respondent's objection against the competence of the appellants' application for review has not been pressed before us.

Before dealing witb. the said point, it would be convenient to state some material facts.

The first material fact is that all the properties mortgaged by the respondent in favour of the appellants constitute an estate under section 2( 1) of the Act, so that we are dealing with a case where the entire mortgaged proparty belongillg to the mortgagor proptietor has vested in the State of Bihar. It is not a case where part of the properties mortgaged has vested in the Stat, e while some of them continue to be vested ia tne mortg&gor.

The second point which has to be borne in mind in dealing with the present controversy is that the appellants seek to execute the personal decree against the respondent. There is no doubt that under 0. 34 R. 6 of the Code, a personal decree can be passed on an application made by the mortgagee decree-holder only wh, ere the net proceeds of any sale held under 0.34 R. 5 are found to be insufficient to pay the amount due to the decree-holder, that is to say, it is only after the mortgagee decree-hglder has exhausted his remedy against the mortgaged property that he is entitled to apply to recover the balance from the mortgagor judgment-debtor personally otherwise than out of the properties mortgaged. It may be that in th, e. ' . .

196B

Krishna Prasad

Gauri K'umari DevJ

Gajendragadkar J;

196t

Kriahu Pra1aJ

•• Gdttt i K umari Dlfri

Gajtn4ragadk"1 J.

caae of a composite decree, an application as contemplated by 0. 34 R. 6, may not be necessary ; but in that conn<'ction, it may be relevant to bear in mind that under the normal procedure prescribed by 0. 34 R.6, recovery of the ba Janee due under a mortgage decree is ordered on an application by the mortgagee decree-holder where it is shown that the net proceeds of any sale held under the mortgage decree are insufficient to pay the amount due under the decree.

Besides, the order passed by the trial Court in its judgment which has been treated in substance to constitute a personal decree in tho prcsi>nt proceedings, makes the position quite clear. Tho learned Judge directed that for the satisfaction of the decretal amount, the mortgaged properties would be charged prelimin'1ry and he added that if the decretal amount is not fully satisfied from them, thon the appellants would be entitled to proceed against t.hti respondent personally. In othn words, tlie decree clearly and unambiguously provides that the appellants would be justified in executing tho personal decree against the respondent only if and after they have exhausted thcir remedy against the mortgaged properties and have not been abfo tP recover the whole of the decrotal amount by that pro<'ess.

That is tho second material fact which has to be borne in mind.

Then the third fact to which reference must be made is that after the precribed notification was issued and the mortgaged properties belonging to the respondent harl vosted in t be Sta, te of Bihar, the a.ppellants appliml undr Ae<tion 14 of tho Act notifying their claim under tho mortgage <lecrce to the Claims Officer, and, iu fact, on the 24th November, 1956, tho Claims Ofllcer has determined that 1i sum of l{s. 5~.100/- plu" future interest at 4% per annum over tho principal amount only but limited to the total interest uot exceeding the 1uµount of the principal, would be pay-able to thll

appellants out of the oompensation amount payable to the respondent in respeot of' the properties mortgaged. This fact was not known to the respondent at the time when her Revision Application was argued before the High Court, because it appears that the respondent did not appear in the proceedings before the Claims Officer. The said fact has, however, been stated before us by the respondent oh an affidavit and its correctness is not disputed by the appellants. It is in the light of these facts that we have to decide whether the High Court was right in holding that the appellants' application for execution at the present stage is incompetent in view of the provisions of section 4(d) of the Act.

Let us then briefly refer to the relevant pro visions of the Act which would enable us to construe section 4(d) and determine its scope and effect.

As is wellknown, the Act was passed to provide for the transference to the State of the interests of proprietors and tenureholders in land and of the mortgagees and lessees of such interests and to provide for the constitution of a Land Commission for the State of Bihar with powers to advise the State Government on the agrarian policy to be pursued by the said Government consequent upon such transference and for other matters connected therewith. The object of the Act which is writ large on its provisions was to eliminate the inter mediaries and establish direct relation between the State and the cultivators. This policy has subsequently been adopted in many other States in orrler to bring about the much needed agrarian reform, Section 2(1) defines an "estate" meaning any land included under one entry in any of the general registers of revenue-paying lands and revenue-free lands, prepared and maintained under the law for the time being in force by the Collector of a district

11, d includes revenue-free land nc;>t entered in anr

1902

Krishna Prasad v, Gauri Kumari Devi

Gajendragadkar J.

, J95Z

1'1ishu Prasad

•• Gaw' E111141i Devi

572 SUPREME OOURT REPORTS [1962] SUPP

register and a share in or of an estate. It is common ground that the mortgaged properties with which we are concerned in the present appeal are an estate under section 2{i).

Similarly, it is common ground that tho respondent is a proprietor as defined in s. 2 (o).

Section 3 enables the State Government to declare from time to time by notification that the estates or tenures of a proprietor or tenure-holder, specified in the notification, have passed to and become vested in the State. Tho notification contemplated by s. 3 (I) h&a been issued in respect of the estate in question. Section 4 proscribes the consequences of vesting of an estate or tenure in the State. Broadly stated, the effect of s. 4(a) is that an estate in respect of which a notification has been iS!med shall; with effect from the date of vesting, vest absolutely in the State free from all incumbrances and the proprietor of the said estate shall cease to havP any interests in such estate, other than tho interest expreHsly saved by or under the provisions of tho Act.

That takes us to section 4(d) which provides th<J.t no suit shall lie in any Civil r.ourt for tho recovery of any money due from such proprietor or tenure-holder the payment of which is secured by a mortgage of, or is a charge on, such estate or tenure and all suitH and proceedings for the recovery of any such money which may be pending on the date of vesting shall be dropped. It is conceded that s. 4( d) takes in cases where decrees have been passed and that the word "proceedings" used in its latter portion covers execution proceedings.

It is, however, urged that the bar created bys. 4

(d) applies only to execution proceedings which a.re

ts.ken by mortgagees deoree-holders to recover their clecretal amount from estates which have vested in the State and that execution proceedings in which decree-holders seek to recover their decretal dues from properties other than those which

~ve -rested in the Stt\te are outside te iscief

3. s.c.R.

SuPREME cobRT it:i!iPORTS

of s. 4 (d). In other words, Mr. Jha for the appellants contends that the High Court was in error in adopting the broad and literal construction of section 4(d).

Before we deal with this argum1mt, it would be convenient to refer to the other relevant sections of the Act. Section 14(1) prescribes the time. within which a secured creditor has to file his claims. Every creditor, whose debt is secured by a mortgage of an estate, has, within the prescribed time, to .notify in the prescribed manner his claim in writing to the Claims Officer appointed in that behalf. It is the function of the Claims Officer to determine the amount of debt legally and justly payable to each creditor in respect of his claim.

Thus, it is clear that a mortgagee decree-holder has to apply within the specified time before the Claims Officer and that the Claims Officer would . have to determine what is legally and justly due to him. Section 14(3) makes it clear that if the mortgagee decree-holder fails to notify his claim as required by s. 14(1), the. said claim shall be barred, subject to the proviso which it is unnecesary to consider. The effect of section 14\3)., therefore, is that if a claim of the nature referred to in sub section ( 1) is not duly notified to the Claims Officer within the time and in the manner prescribed by the said sub-section, the said claim would be barred.

The penalty for noneompliance with section 14(1) is thus clear. Section 15 requires the creditor to furnish full particulars and do cu ments in support of his claim. Section 16(1) lays down that the Claims Officer shall determine the principal amount justly due to each creditor and interest due at: the date of such determination in respect of such principal amount, the determination, to be made in accordance with the rule1 made under the Act. Section 16(2) prescribes a scheme for the scaling down of the debts due by the judgment-debtor. Clauses (b) and (dl of section 16(2)

Krishnt Prasad

•• Gauri liumari Devi•

Gnjendragodker J.

Krishfla Prasad

•• G1U1Ji Eumtui Dei-i

574 SUPREME COURT REPORTS [1962] sui>i>.

cle11.rly uggest that the policy of the Act, int, er alia, is to give relief to the debtors whoso estates ha vc by operation of the law vested in the State .

Section J 7 providts for an appeal a!(ainst the decision of the 1Claimo Officer to a Board whose constftution is prescribed by section 18( J).

Section 18(3) lays down that the decision of the Board and, where no appeal has been preferred to the Board, the decision of the Claims Officer shall be final.

So, the scheme of Chapter IV which consists of sections 14 to 18 clearly is that all claims based on mortgages relating to estates have to be submitted to the ClaimR Officer and tho amounts duo to the creditors have to be determined in accordance with the principll's laid down by the Act.

Where the whole of the property mortgaged is an estate, there can be no doubt that the prooedure prescribed by Chapter IV has to be followed in order that the amount due to the creditor should he determined by the Claims Officer.

The decision of the Claims Officer or tht1 Board has been made final by the Act.

Chapter V deals with the problem of the asses;; ment of compensation. Section 24 provides for the rates of compensation. Section 24(5} lays down, inter 11lia, that in tho case where the interest of a proprietor is subject to a mortgage, or chiirge, the compellllation shall first be payable to the creditor holding such mortgage or charge and tho balance, if ariy, shall be payable to the proprietor.

It adds that the amount of compensation payable to a.. creditor shall be the amount determined under Chaptor IV which, notwithstanding anything contained in any law for the time being in force, shall not in any case exceed the amount of compansation payable in respect of the eHtato or portion thereof which is subjcet to such mortgage, and where there are two or more such creditors, the compensation shall be payable to

them in the order determined under the said Chapter. This provision is, in a sense, consequential and it provides for the payment of the amount already detrirmined to be justly and legally due to the creditor and so. a claim which is made under section 14 would be determined under section 16 and the amount so determined will be paid under s. 24( 5).

Chapter VI deals with the payment of compensation, and section 32 provides for the manner of its payment. Thus, the seheme of Chapters IV, V & VI is clear. The provisions in the said Chapters constitute an integrated and self-sufficient Code for the determination of the amount due to the creditors in .question and for their payments, and e. section 35 which occurs in Chiipter VIII prescribes a bar to the jurisdiction of Civil Courts in the matters included in it. lJnder this section, no suit shall be brought in any Civil Court in respect of any entry in or omission from a Compensation Assessment Roll or in respect of any order passed under Chapters II to VI or concerning any matter which is or has already been the subject of any application made or proceedings taken under the said Chapters. There can, therefore, be no doubt that the scheme of the Act postulates that where the provisions of the Act apply, claims of creditors have to be submitted before the ()!aims Officer, the claimants have to follow the procedure prescribed by the Act and cannot avail of any remedy outside the Act by instituting a suit or any other proceedings in the court of ordinary civil jurisdiction .

. It is in the light of this scheme of the Act that we must revert to section 4(b) and determine what its true scope and effect are. Mr. Jha contends that in construing the words of Section 4(d) it would be necessary to bear in mind the object of the Act which was merely to provide for the transference to

1962 '

Krishna Prasad v.

Gauri Kumari Devi

Gajendragadkar J.

. 1968

K rU/tM Prasad

v. auri Kumivi J)evi

Oajtndrogadl; tw J,

~76 SUPREME COURT REPORTS (1962J StJi>P.

the 3tatc of the interests of thll proprietors and tenure holders in land and of tho mortgagees and lessees of such interesw. lt was not the object of the Act, says Mr. Jha, to extinguish debts due by tho proprietors or tenure hoklers and so, it would be reasonable to confine the operation of s. 4{d) only to tho claims made against the est.ates which have vested in tho State and no others. In our opinion, this argil.mont proceeds on an imperfect view of the aim and object of the Act.

It is true that one of the objects of the Act was to provide for the transference to the State of the estates as specified.

But as we have already seen, the provisions containnd in section 16 in regard to the Sl'aling down of the debts duo by the proprietors and tenure-holders clearly indicate that another object which tho Act waated to achiove was to give some redress to the dJfitors whose estates have beon taken away from thorn by the notifications issued under section 3.

Therefore, in construing s. 4(d), it would not be right to assume that the interests of the debtors affected by the provisions of the Act do not fall within the protection of the Act.

Mr. Jha fairly conceded that if the words used in s. 4(d) are literally construed and they are given their natural grammatical meaning, it would not be easy to limit the operation of s. 4(d) to execution proceedings where relief is claimed against the properties which have ve,; ted in the Stato.

The relevant clause in section 'i(d) provides that all suits and proceedings for the rcoovcry of any such money which may be pending on the dato of the vesting shall be dropped; and these words are wide enough to include within their sweep exocution prncecdiugs,, even though the recovery of the amount due may have been claimed by the decreo.holder from properities other than those which have vested in the State. The only limitation imposed by the clauee is that the execution proceedings should be for the recovery of any such money meaning any money due from the

proprietor on the strength of a mortgage executed by him in respect of an estate. We have already emphasised that in the present case, the whole of the mortgaged property is an estate and, therefore, it is unnecessary for us to consider what would be the effect of the provisions of s. 4( d) in cases where part of the mortgaged property is an estate and part is not. It is also unnecessary to consider whether s.4( d) would create a bar even in cases where the compensation amount payable to the mortgagor is insufficient to satisfy the mortgagee decreeholder's claim even to the extent of the amounts scaled down under section 16.

Mr. Jha, however, suggested that rules of grammer should not be allowed to have an overriding effect if it is shown that putting a literal and grammatical construction on the relevant words would lead to unreasonable or anomalous results and in support of this argument, he has invited our attention to the observations made by Brett, M. R. in the case of the Lion Insurance Association LU. v.

Tucker.(!) ''When you construe a statute or document"

observed Brett, M. R., "you do not construe it, according to the mc:re ordinary general meaning of the words, but according to the ordinary meaning of the words as applied to the subject-matter with regard to which they are used, unless there is something what obliges you to 'read them in a sense which is not their ordinary sense in the English language as so applied. That, I take it,.is the cardinal rule.". We do not see how this principle can assist Mr. Jha in the present case.

The scheme of the relevant provisions of the Act to which we have already referred unambiguously suggests that where the whole of the mortgaged property is an estate, certain consequences follow. The decree-holder has to make a claim; the claim has to be enquired into by the Claims Officer; the amount due to the decreeholder has to be determined by the Claims Officer

(I) (1883) 12 Q.B.D. 176, 166.

1B62

Kri•hna Pr11s4tl

G'auri Kumori Dea_\

KrisMa PrqsaJ

Oawi Kumeri l)tvi

Oa_itntlragodkttr J.

and the amount so determined has to be paid to the deorec-holder from out of the componsation money payable to the judgment-debtor. Having regard to the said M:heme, it is difficult to conliiw the application of s. 4(d) only to execution proceed ings in which the decree-holder seeks to proceed against the estate of tho debtor. In fact, an exccu tion proceeding to recover the decretal amount from the. estate which has already vested in the State, would be incompetent because the said estate

no longer belong to the judgment-debtor. That being so, we are Hatisfied that on the facts of this case, the High Court was right in holding that the application made by the appellants to execute the decree against the respondent by proceeding against her non-mortgagee! properties is incompetent at the present stage. The amount duo to the appellants under the decreli in question has been already determined by tho Claims Officer and tbe appellants must first seek to recover that amount as provided by the relevant provisions of the Act before they proceed to exe<:ute the personal decree.

This conclusion follows even on the terms of the decree itseif. We h11vo already socn that the direction issued by the trial Court is explicit and elea.r.

The said direction which is consistent with the provisions of 0. 34 R. 6 would enable the appellants to proceed personally against the respondent only if it is shown that the decreta.l a.mount is not fully satisfied from the prooeeds of the mortgaged property. In the present case, the mortgaged pro

perty cannot be sold because it has vested in tho State free of incumbrance; but in lieu of the mortgaged property, the respondent has become entitled to certain compensation amount and tho appellants are given the statutory right to reoeive the a.mount due to them fr<:m the said compensation a.mount under section 2<(5). This provision is some what similar to tho provision of section 73(2) of the

Transfer of Property Act which provides, inter alia that where the mortgaged property is acquired under the Land Acquisition Act, or any other enactment for the time being in force providing for thd compulsory acquisition of immoveable property, the mortgagee shall be entitled to claim payment of the mortgage-money, in whole or in part, out of the amount due to the mortgagor as compensation. In a sense, the compensation amount payable to the respondent may prima facie be treated to be like a security substituted in the place of the original mortgaged property under section 73(~) of the Transfer uf Property Act. However that may be, the terms of the decree require that the appellants must first seek their remedy from the said compensation amount before they can proceed against the non-mortgaged property of the respondent. The relevant directions in the decree 'do not justify the appellants' contention that because the mortgaged property has vested in the State, they are entitled to execute the personal decree wHhout taking recourse to the remedy available to them under section 24(5) of the Act.

It now remains to refer to some decisions of the Patna High Court to which our attention was drawn during the hearing of this appeal.

In Raghubir v. Basudevanand, (1) the High Court has held that section 4( d) of the Act is_ not applicable to a case where money is secured by a mortgage or charge on estates, some of which are notified under section 3 of the Act and the others are not notified.

In such a ca, se, according to the High Court s. 4 ( d) will be a bar to the suit or execution proceedings so far as the vested estates a.re conmirned, but the creditor will be entitled to prosecute the suit or execution proceedings as regards the estates or portions of estates which are not vested in the State. Since we are dealing with a case where the whole of the mortgaged property is an estate, it

(1) (1953) I.LR. 32, 581.

1962 ---- Kri1hna Pr•sd

Gauri Kumari Dt11 1

Gajendratadkaf' J ,

v. ' G®ri Kurnwi Dec~;

is unnecessary for ue to consider whether the view taken by the Patna High Court in this caso is corr ect or not.

In 1llahanth S'llkltdcu IJrJS v.

Kashi Prasad 'l'iwari ( ') the full Bench of the High Court had occasion to consider whether a mortgagee decreeholder of the interest of the proprietor whose estate has vested in the State, is entitled to pro eecd against the Bakasht lands of the proprietor comprised in the said estate for recovery of the amount due to him under the mortgage decree, and it was held that in such a case, the mortgagee can not be forced to seek his remedy under section 14 and to satisfy his mortgage debt out of the compensation payable under the Act, It appears that the Full Bench was inclined to take the view that the interost of the judgmontdebtor in the bakasht land was one of the interests saved by section 6 and that, in consequence, the bakasht lands continued to remain in tho possession of the ex-proprie tor not in the character of ba.kasht lands but as raiyati lands; and 8incc these lands were a part of the security offered by the mortgage-deed, the decree-holder was entitled to proceed against them without ta.king his remedy undor section 14 of the Act.

This conclusion was based on the view that the effect of s. 4(d) read with sections 3 and 6 oC the Act was not to destroy the mortgage in its entirety but only with respect. to that part of the estate which had vested absolutely in the State and no interest therein is left with the mortgagor proprietor or tenure-holder. It is conceded by Mr.

Jba that this decision also proceeds on the assump tion that the mortgage security consists of an estate which has vested in tho State and of bakasht lands which did not, in substance, vest in tho State but continued with the mortgagor as raiyati lands. Therefore, it is not necessary for us to examine the merits of the conclusion reached by

(I) A.I.R. 1958, Pat. 630.

the Full Bench in this case. It may, however, be not out of place to add incidentally that Mr. Sarjoo Prasad for the respondent has suggested that the assumption made by the Full Bench about the character of the bakasht lands by virtue of the provisions of section 6 is inconsistent with the decisions of this Court in Rana Shoo Anwar Singh v.

The Allahabad Banlc Ltd. (1).

His argument is that the provisions of section 6 of the Act correspond to the provisions of section 18 of the U. P. Zamindari Abolition and Land Reforms Act (I of 1951), and that what this Court has said about the effect of the provisions of section 18, has shaken the validity of the conclusion of the Full Bench in regard to the effect of section 6 of the Act. We do n.ot think it necessary to consider this point as well in the present appeal. In any case, both the decisions on which Mr. Jha has relied afford no assistance to us in dealing with the point with which we are concerned in the present appeal.

The result is, the order passed by the High Court is confirmed and the appeal is dismissed with costs.

Appeal dismissed.

(I) (1962]2. S.C.R. 441.

196Z

Krishna Prasad. '' .., Gauri Kumari Bevi

Gajendraga<lkar J.

GAURI KUMAR! D.EVl

A. K. SARKAR

s. 4(d)

s. 2(1)

Bihar Land Reforms Act, 1950

s. 4( d)

Bihar Land Reforms Act, 1950

s. 4(d)

s. 4(d)

(1962) 2 S.C.R. 441

section 4(d)

Bihar Land Reform Act, 1950

section 4

C.P.C

section 4( <l)

section 4( d)

section 2( 1)

s. 5

section 4(d)

section 4(d)

Section 2(1)

section 2

s. 2

Section 3

s. 3

Section 4

s. 4(a)

section 4(d)

s. 4( d)

s. 4

section 4(d)

Section 14(1)

Section 14(3)

s. 14(1)

section 14

section 14(1)

Section 15

Section 16(1)

Section 16(2)

section 16(2)

section 18( J)

Section 18(3)

sections 14 to 18

Section 24

section 32

section 35

section 4(b)

Section 4(d)

s. 4

section 16

section 3

s. 4(d)

s. 4(d)

s. 4(d)

s. 4( d)

s.4( d)

section 16

s. 4(d)

section 2

section 73(2)

Transfer of Property Act

section 73(~)

section 24(5)

section 4( d)

section 3

s. 4

section 14

section 6

section 14

s. 4(d)

sections 3 and 6

section 6

section 6

section 18

section 18

section 6


Jlorch 5,

' 582

SUPREME COURT REPORTS [I 962] SUPP.

.JARDINE HENDERSON LTD.

?!.

THE WORKMEN AND ANOTHEii

(P. B.

GA.JENl)J\AGADKAR, A. K. SARKAR, and

K. N. 'VAN CHOO, , J, J.) lnduJtrial Dispute-Bon u•-A vaila/ile Surpl u.•-Determi natio!'.of-C/0.<ing Bonus- Implied tum uf agreement or ctnidtt1on of seri-1r:e-Custo1nary bonu..•L

fhe appellant is a company carr} ing on business in Calcutta an<l ha<l bcP.n paying a bonus callc<l closing bonus to its v.orkmcn at the. rate of one month's pay from 1948 to

1957, but as the profits of the appellant considerably fell in 1958, the quantun1 of closing bonus was reduced to half a month's pay; consequently, a reference \Vas made to the tribunal for dccision 1 \\'hcthcr the management ,, as jui; tified in reducing the qaantum of closing bonus to half a month's pay in 1958. The workmen claimed that closing bon,.s had been paid at a uniforrn rate from 1918 to 1957 an<l had beco1nc an implied condition of service between the workmen and appellant: in the alternative, the claim was that the payment ha<l acquire.cl the character of customary honus aud \Vas not dependent upon profits earned. by the appelLmt.

The tribunal held, that the payment of closing bonus had not become an implied condition of service and also held, that the bonus cou1cl not be hclc..I to be a cutomary bonus.

It held that there "as s11fficient available surplus to \varrant payment of one month's pay as profits bonus and ordered thas half a n1onth's bac:ic salary, be further paid as profit bonus to the \\ork1nen for the year in disputr.

Held, that the fact that a company declares dividend

t morr. or less than six percentum is no reason for changing the rate of interest allr)\\•e<l under the Full Bench formula on paid-up capital.

. field, further that custornary Uonus is ahvays connected v.•ith some festival.

As closing bonus is not r.onnectcd with anv festival it cannot he trt":ated as customary bonus of the

kid dealt \Vith the Graham's case.

Graham Tra./ing Co. J, td. v. lts workmen, (l!IGO) IS .. C. 11. 107, R. }.T. F, lia .. and Co. Ltd. Emplnytr.'s lJnio1i v. IJ. iV.

J~"lia.ll and Co. Limited. ( 1%0) 3 S. C. R. 382 and As.<ix:iated Cement Com7vmies Lt<l v. It.• Irorkmw, (1959) S. C.R. 925, referred to.

In tbe present case during the whole of the period from 1948 to 1957 when closing bonus was paid there was no loss .,.

incurred by the appellant. Further the bonus was paid only after the trading results of the year were known.

Ii eld, that taking all circumstances into account it appears that closing bonus had been paid on the basis of the trading results of the previous year and depended upon the profits

earned in the previous year, and it could not be held, that one month's pay as closing bonus was payable as an implied condition of se.rvice irrespective of profit made by the appellant.

M/B. lsphani Ltd. Ciflcutta] v. 18phani Employees Union

(1960) I S. C. R. 24, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 359 of 1961.

Appeal by special leave from the award dated April 18, 1960, of the Third Industrial, Tribunal

\Vest Bengal, in case No. VIII-153 of 1959.

B. Sen, Sukumar Ghose and B. N. Ghosh, for the appellant. D. N. Mukhe1; jee, for the respondent No.I.

1962. March 5. The Judgment of the court was delivered by

WANCHOO, J:-This appeal by special leave arises out of a question of bonus referred by the Government of West Bengal to the Third Industrial Tribunal. The appellant is a company carrying on business in Calcutta and the dispute relates to closing bonus for the year 1958. It appears that the appellant had beon paying a bonus which was called closing bonus. to its workmen at the rate of one month's pay from 1948 to 1957.

In 1958, however, as the profits. of the appellant fell considerably, the quantum of closing bonus was reduced to half a month's p<J.y.

In consequence a dispute was raised by the respondents workmen represented by two unions and their claim was that they should have been paid one month's bonus as usual. Consequently reference was made to the tribunal and the question for decision was whether the management was

Jardin• HmtUrson

Ltd. v.

The Workmen

Wanchoo J,

.!~Jint 'Htndtrso11

Ltd.

The W1trknun

Wanclioo J.

justified in reducing the quantum of closing bonus to half a month's pay in 1958 .

The case of the workmen was that the appellant had been paying two kinds of bonuses to its workmen each year, namely, (i) Puja bonus which was paid usually before the Puja festival, and (ii) closing bonus which was paid after the elosc. of the financial year ending on llfarch 31st each year. Tho workmen claimed that cloRing bonus had been paid at a uniform rate from 1948 to 19iii and this payment ha<l therefore become an implied condition of service between tho workmen and the appellant ; in the alternative the claim was that the payment had acquired tho character of customary bonus and was not dependent upon profits earned by the appellant.

On the other hand the contention of the appellant was that the payment of closing bonus at a uniform rate of one month's pay for ten years previous to 1958 had not in faot turned the payment into an implied condition of service as this bonus was of the nature of profit bonus and it.s payment depended upon the prpfits made by the appellant.

It was urged further that the very fact that this bouus was paid after the accounts for the year were made up and the profit ascertained showed that it was a bonus depending upon profits ; the circumstance that it was paid at a uniform rate for sometime was only fortuitous, particularly as tho appellant had increased the Puja bonus as its profits increased in order to holp the workmen at festival time. As to the alternative ca.so of customary bonus, the appellant cont-Ondcd that this bonus had no connection with any fcAtiyaJ and wa8 paid after the state of profits e:;, rned by the appellant was known and therefore could not be demander! aa a customary bonus.

Finally, appellant pleaded that if closing bonus was treated a.s profit bonus there was no available surplus to justify tho grant of

any further amount as bonus besides half a month's pay which the appellant had already given to the workmen.

The tribunal came to the conclusion that it had not been proved .that the payment of closi?g bonus had become an implied condition of servrne

and in that connection relied on the decision of this Court in Messrs. lspahani Limited Calcutta v.

Ispalwni Employees' Union. (') Further, it held that the bonus could uot be held to be a customary bonus as there was nothing to show that it had been paid even in a year of loss. It therefore negative the case of the workmen that closing bonus of one month's pay was payable every year after the accounts were closed either as an implied condition of service or as a customary bonus. The tribunal then went into the question whether any further amount besides half a month's pay which had already been paid by the appellant as bonus could be awarded as profit bonus on the basis of the Full-Bench formula approved by this Court in the Associated Cement Companie-~ Limited

v. Its Workmen('). It held that there sufficient available surplus to warrant payment of one month's pay as profits bonus and therefore ordered that half a month's basic salary be further paid as profit bonus to the workmen for the year in dispute. It is this decision of the tribunal which has been assailed before us by the appellant.

So far as profit bonus is concerned, the main contention on behalf of the appellant is that the tribunal went wrong in allowing 2 1/2 per centum interest on paidup capital and that it should have allowed, 6 per centum interest, which is the usual amount allowed under the Full-Bench formula.

The reason why the tribunal allowed 2 1/2 per centum interest was that the appellant had paid dividend at 2 1/2 per centum in that year as its

(l) [1960] 1 S.C.R. 24. \2) (1959] s.c.R. 92~,

Jardine Hinder son Ltd. v.

TM Workmen

WanchOD J.

Jardiru Htntkr•on

Lid.

The Workmen

Wonchoo J.

586 SUPREME OOURT REPORTS [19112] SUPP.

profits harl show a considerable fall. W c are of opinion th&t the tribunal wa.s wrong in allowing only 2 1/2 per centum 'interest on paid-up capital on the ground that the actual dividend doclared by the appellant was only 2 l/2 per cent.um for that year.

The return on paid-up capita.I provided in the .Full Bench formula is not linked with actual dividends that. might be declared by a company. Many a time companieR declare dividends higher than six per centum. But under the formula they are usually allowed Aix per centum interest on paid-up ea.pita] irrcspecti\'e of the dividends declared.

It is only where a company can make out an exceptional case for allowing more than six per contum interest on paid-up capital thn, t the tribunal can award moro.

Similarly it. is onl.Y when an exceptional Calle is made out for allowing less than six per cent.um interest that thn tribunal would be justified in allowing Jes•. We arc of opinion that the fact that a company declares rfr; idend at more or less than six per centum

i• no rea8on for ch1mging the rate of inwrest allowed under the Full-Bench formula on paid up capital. In the present case no reP..son lms h'"'ll shown beRides th•' fact th1t the di\' id"nd declared was less than Rix per cent.um to rerluco t.Jw usual rate of interest from six por cent.um to 2 1 /2 per ccntum We arc therefore of opinion that the tribunal should have allowed six per centum interest mi paid-up capital in this coasc and that. would increase the amount due under this head from Rs. 5 lacs to Hs. 12 lacA. It is not dispukd by lcarnerl counAel for the rnspondcnts that if six per centum interest is allowed on paid-up c1tpital in this caAe as is usually done there will be no justificittion for allowing more ns profit bonus than what the appellant has already giwn. In the result t.hc tribunal's award of half a month's further 11a.ges as bonus on th!l grom1d that. there . is available surplus to justify it must be 8ct aside,

Learned counsel for the respondents however submitted that even though no further bonus could be allowed on the basis of the Full-Bench formula, the workmen were entitled to one month's pay as closing bonus either as an implied condition of service or as a customary bonus.

So far as customary bonus is concerned, it is enough to say that customary bonus of the nature dealt with in Graham Trading Co. Ltd,. v, Its Workmen(l) is always connected with some festival. In the present case it is not in dispute that the closing bonus is not connected with a, ny festival and therefore cannot be treated as customary bonus of the kind dealt . with in Graham's case.

This was pointed out by this Court in B. N. Elias & Co. Ltd,. Employees' Union v. 13.N.Elias & Co. Limited, (2) where it was observed that it was difficult to introduce the payment of customary bonus between employer and employees where terms of service are governed by contrnct, express or implied, except where the bonus may be connected with a festival,. whether puja in Bengal or some other equally important festiv!;11 in any other part of the country. Therefore as closing bonus is admittedly not connected with any festival it cannot be allowed as a customary bonus of the type considered in Graham's case( 3 ).

Turning now to the question whether payment of one month's pay as closing bonus has become an implied condition of service, the first point to be noticed is that closing bonus was always paid after the trading results of the year were known. Under these circumstances it would not be improper to infer that closing boims was dependent upon profits made by the appellant, f'or it was paid only after profits for the previous year had been ascertained.

In the present case during the whole of the period from 1948 to 1957 when the closing bonus was paid

(1) [1960] 1s.c.R.107.

(2) [1960] 3 S, C.R. 332.

(3) [1960] 1S.C.R.107,

J ardint Hender•rm

Ltd.

The orkmen

Wanchoo J.

Jardine Htndtrsnn

Ltd.

Th 1 IV ortnum

there was no loss incurred by tho appellant. As was pointed out in lspaliani's ca.e the "fact that bonus was paid during a year of loss also would ho an important circumstance in coming to the conclusion th; it pa, vmf)nt was a matter of obligation baRed on an implied agreement. In the present ca.se that important circumstance is absent.

The absence of this oirr:umstancc along with the fact that the bonus was paid only after the trading results of the year were knmvn and therefore in all probability depended upon the profits would show that it could not be a matter of obligation based upon implied agreement.

BPsides it appears that this company formerly belonged to another owner and merged with thn appellant in 1946. When the former company was the owrwr it does not appear that it paid any closing bonus as such from 1940 t.o 1945.

Even after the appellant took over no payment was made in

194() and 194 7. It was only from 1948 after the

tradin~ rnsults for the year ending on 1Iarch 31, 1948 11ere known that oud mm1th'8 basic wages hegau to be paid 1i.s closing bonus in a.dditiu11 to puja bonus which was origin:dly paid at tho rate of one month's basic wages but which was gradually increased to two months' basic wages from '1951i, For the year in dispute the appellant has paid two months' puja bonus; but it reducer! tho closing

bonus from one month to half 11 month's basic wages because of the fall in profits which fell from Rs. 27 lac' in 1957 to a little over Rs. 15 lacs in 1958.

It i8 clear therefore that the closing bonus has not been pa.id from tho beginning when th() appellant took

over the business of the previous company, though it was paid at a. uniform rato fr1>m 1!148 to 1957. It may be mantioncd that in 1 fl!i9 when profits went up again the appellant has paid one month's pay S\8 closing bonus. Taking therefore all the circumstances into account it appears that closing bonqs 4as

38.C.R.

SUPREME COUR'i: REPORTS 589

been paid on the basis of the trading results of the previous year and depended upon the profits earned in the previous year. In the .oircumstances it cannot be held that one month's pay as closing bonus is payable as an implied condition of service irrespective of the profit made by the appellant. It seems to have been of the nature of profit bonus, even though it may have been paid at a uniform rate for ten years.

We therefore allow the appeal, set aside the order of the tribunal and reject the claim of the. workmen for any closing bonus over and above that paid by the appellant for the year 1958.

In the circumstances we order the parties to bear their own costs.

Appeal aUowed.

THE MANAGEMENT OF INDIAN CABLE CO.,

LTD., CALCUTTA

ITS WORKMEN

(B. P. SINHA, C.J., K. SuBBA Rao, N. Ra.r.AGOPA.LA

AYYANGAR, J. R. MuDHOLKAR and T. L.

VENK.AT.AR.AM.A AIY.AR, JJ.) Industrial Dispute-Closure of branch-Retrenchment of workmen-Right to be absorbed in other branches-Branch if an industrial establishment-Individual dispute and industrial dispute-DiBtinction-Dispute raised by majority of workmen if an industrial dispute-Competence of State Government t~ make reference-"lndustrial dispute" "industrial establishment", meaning of-Industrial Dispute. Act, 1947 (14 of 1947), ss. 2(k), 10, 25G.

Section 25-G of the Industrial Disputes Act, 1947 provided : "Where any workman in an industrial csta: blishment •... is to be retrenched and he belongs to a

Jardine ilendersen '

Lit.

V, The W 011'mtn

Wonchoo J.

1961 ·-- March 6.

LTD.

?!.

THE WORKMEN AND ANOTHEii

A. K. SARKAR

[1960] 1 S.C.R. 24

ss. 2(k), 10, 25G

Section 25

Industrial Disputes Act, 1947