SUPREME COURT REPORTS

RAMNIKAL PITAMBARDAS MEHTA

INDRADAMAN AMRATLAL SHETH

(A. K. SARKAR, M. HIDAYATULLAH AND

RAGHUBAR DAYAL JJ.)

Bombay Rents, Hotel and Lodging House Rates Control Act, 19'47, s. 13(1) (g). (hh).-Premis" required bonafide for occupation aft<r carrying out repairs-Sub-section if applicable.

1be appellant was a tenant of the ground lloor of a house owned by responQent. The respondent sued for ejectment of the appellant on the groun'd that he required the entire house including the portion occupied by •PPellaot, for his residential purpose. The defence of the appellant was that respondent did not reasonably and bona fide require the premises for his occupation and for carrying out repairs. The trial court decreed the suit of the respondent on the ground that respondent bona fide required the premises for his occupation. The appelll of the appellant was dismissed. His revision petition was also dismissed. by Higli Court. The appellant came to this Court by special leave. The only question for decision before this Court was whether the case . of respon \lent came within the provisions of s. 13(l)(g) ors. 13(1) (bh), Dismi• ing the appeal,

HELD:-The case of respondent fell under cl. (g) as be required tho premises for his own occupation. The mere fact that he i.tendcd to make alterations in the house either on account of his sweet will or on account of absolute necessity in view of the condition of the house, did not affect the question of his requiring the hoe bona fide and reasonably for his occupation, when he had proved his need for occupying tho home. There was no such prohibition either in the language of cl. (g) or in any other provision of the Act lo the etFect that the landlord must occupy the house for resitlence without making any alteration in it.

There could be no logical ieaso~ for such a prohibition. The provisions of •· 13 are for the benefit of/the landlord and the various grounds for ejectment mentioned in tht/ection are such which reasonably justify the ejectment of the tenant in the exercise of the landlord's general right lo eject his tenant. There fs no reason why restrictions not mentioned in the grounds be read into them. The provisions of cl. (hh) cannot possibly apply to a case where a landlord reasonably and bona fide requires the premises for his own occupation even if he had to demolish the premises and erect a new building on them. The provisions of cl. (hh) apply to cases where the landlord does not require the premises for his own occupation but requires them for erectins a """ buildinc whicll it lo be let out lo tenants.

JI S. C.-4

April, It ..

1964 Krishanlal lshwarlal Desai v. Bai Viikor [1964] l S.C.R. 553, Krishna ...,,, ki""' l"t Das v. Bidhan Chandra, A.l.R. 1959 Cal. 181. McKenna •· Porter Moton

"'bada•

1 am- Ltd. [1956] A.C. 688, Betty's Cates Ltd. v. Phillips Furnishing Stores Ltd. v. (1959] A.C. 20, Manchharam Ghelabhai Pittalwala v. Surat Electricity Co. lndrad11man Ltd. Civil Revision Application No. 204/56 dated !st February, 1957 by Amratlal the Bombay High Court and Allarkha Fakirmahomed v. Surat Electricity Co. Ltd., Civil Revision Application No. 164/57, claled 8th October, 1957 by the Bombay High Court, referrett to.

CML APPELLATE JURISDICTION ; CIVIL APPEAL

No. 61 OJ!I 1964 Appeal by special leave from the judgment and decree dated October 28, 1963 of the Gujarat High Court in Civil Revision Application No. 697 of 1962.

Purshottam Trikamdas, M. I. Patel and /. N. Shroff, for the appellant.

S. T. Desai, B. J. Shelat, J.B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the respondent.

April 28, 1964. The Judgment of the Court was delivered by

h b D I RAGHUBAR DAYAL, J.-This appeal, by special leave, is "l.ag u ar UJ• J. directed against the order of the Bombay High Court and raises the question of the true construction of sub-els. (g) and (hh) of sub-s. ( 1.) of s. 13 of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 (Act LVII of 194 7), hereinafter called the Act.

The facts leading to the appeal, in short, are that the appellant is a tenant of the ground-floor of a house owned by the respondent..

The respondent sued for the ejectment of the appellant on the ground that he required the entire house, including the portion occupied by the appellant, for his residential purpose.

He further stated in the plaint:

"The whole suit bungalow is very old-built about

75 years ago and at present its different parts are likely to give way and collapse.

Before sometime, a little portion of an upper balcony had collapsed.

In the circumstances, on find in& it unsafe to stay in it without making addio tions, Iii.rations and necessary chan,., I, tho plainti!, 11D obliged to wait till I &et po119lion of thl whole bwlaatow.

--.

I, the plaintiff, have got the upper portion of the said 1964 suit bungalow vacated at present and only after Ramnlhl Pil .. the whole bungalow is got overhauled as stated bardu in para above. I, the plaintiff can utilize it for 1nJr:J-. my personal use." .ifmratlal

The appellant contested the suit on various grounds Raghub.,. Dr/• including the ones that the respondent did not reasonably and bona fide require the premises for his occupation and that he did not reasonably and bona fide require the premises for carrying out repairs.

The trial Court found that the respondent bona fide required the premises for his occupation. It repelled the contention of the appellant that the provisions of s. 13 (1 )(g) would not be applicable when the landlord did not wish to occupy the premises as such but intended to occupy it after carrying out major repairs. and decreed the respondent'' suit for ejectment.

The defendant went up in appeal.

It was dismissed.

The appellate Court, agreed with the views of the trial Court.

The defendant then presented a revision petition to the High Court. It was rejected. 1t is against this order that he has filed this appeal.

A preliminary objection has been taken that the revision to the High Court was incompetent as no question of jurisdiction was involved.

For the appellant it is urged that on the facts found. the trial Court assumed jurisdiction which it did not have and that therefore the revision was competent.

We uphold the preliminary objection and hold that the revision was incompetent.

The question raised was whether a decree in ejectment should be passed on the ground of personal requirement under s. 13 (l )(g) of the Act where it was proved that the landlord wanted to pull down the premises and build another and then occupy it.

It was said that in such a case he had to proceed under cl. (hh) of s. 13 (1). It is clear that the question so raised is one of interpretation of these two clauses.

Section 28 of the Act gives jurisdiction to the Court specified in it, to try a suit or proceeding between

196' a landlord and tenant relating to possession of the premises. Pllam- Th.at section expressely provides that no other Court, subbardtll ject to the provisions of sub-s. ( 2) which do not apply to .,~,,_ this case, has jurisdiction to entertain such suits.

It is clear

A.mrat/al from this section that the trial Court had full jurisdiction to ;,,,1r.,,;;;; D111a1 J. entertain the suit for ejectment.

That being so, it had jurisdiction to interpret whether cl. (g) of s. 13 (1) would apply to the present case. The appellate Court had jurisdiction to hear the appeal.

The High Court could not, therefore, interfere in revision with the decision of the appellate Court, even if it had gone wrong, on facts or law, in the exercise of its jurisdiction. It follows that the revision application had to be dismissed by the High Court and that this appeal too must fail.

Since the merits of the case have been argued fully before us, we express our opinion on the law point urged before us.

The sole question to determine in this appeal is whether the respondent's case came within the provfaions of s. 13 (1 )(g) of the Act or fell within the provisions of s.13(l)(hh). We may now set out these provisions:

"13 ( 1) NothwithstandinB anything contained in thi.i

Act but subject to the provisions of section 15, a landlord shall be entitled to recover possession of any premises if the Court is satisfied ...

(g) that the premises are reasonably and bona fide

required by the landlord for occupation by himself or by any person for whose benefit the premises are held or where the landlord is a trustee of a public charitable trust that the premises are required for occupation for the purposes of the trust; or

(hh) that the premises consist of not more than two floors and are reasonably and bona fide required by the landlord for the immediate puxposc

of demolishing them and such demolition is to be made for the purpose of erecting new building on the premises sought to be demolished."

A landlord can sue for the ejectment of his tenant in

19U view of s. 13 ( 1) for various reasons including the one that Ratnihl PIJ he requires the premises reasonably and bona fide for occu bardt11 pation by himself.

The respondent alleged, and the Ccurts Ja below have found, that he bona fide required the premises in AmratlaJ the suit for occupation by himself.

The respondent stated Ratllubar Da; in the plaint that he would take up residence in the premises after overhauling it.

It is on this account that the appellant submits that the case falls under s. 13(1)(hh), as the respondent wants the premises for the immediate purpose of demolishing it and erecting a new building.

It is further contended for the appellant that the two grounds for ejectment under els. (g) and (hh) are mutu11Iy exclusive and therefore a landlord cannot take advantage of cl. (g) when his case falls under cl. (hh) in view of the immediate steps he has to take after getting possession of the premises.

We need not express an opinion on this point, as, for reasons to be mentioned later, the case falls under cl. ( g) and not under cl. (hh) of s. 13 (1) of the Act.

We agree with the Courts below that the respondent's case fallsunder cl. (g) when he bona fide requires the premises for his own occupation. The mere fact that he intends to make alterations in the house either on account of his_

sweet will or on account of absolute necessity in view of the condition of the house, does not affect the question of his requiring the house bona fide and reasonably for his oc

cupation, when he has proved his need for occupying the house. There is no such prohibition either in the language of cl. (g) or in any other provision of the Act to the effect that the landlord must occupy the house for residence with out making any alterations in it.

There could ot 'Je any logical reason for such a prohibition. Under ordinary faw, the landlord is entitled to eject his tenant whenever he likes, after following certain procedure except in case' where he has contracted not to eject him before the happening of a certain event.

The Act restricts that general right of the landlord in the special circumstances prevailing in regard to the availability of accommodation and the incidental abuse of those circumstances by landlords in dcmandmg unjustifiably high rents.

~ The Act has provided sufficient protection to the teuants -nikal l'itlllfl against being harassed by threat of ejectment in case they

ba~iu are unable to satisfy landlords' demands. ' Various restric IndraJa,,..,. tions have been placed on the right of the landlord to eject

A.lal the tenant.

Section 12 O) provides that the landlora shall 01hubar D1qal J. not be entitled to the recovery of possession of any premises so long as the tenant pays or is ready and willing to pay the amount of the standard rent and permitted i!_!creases, if any, and observes and performs the other conditions of e tenancy in so far as they are consistent with the provisions of the Act. Section 13 provides exceptional cases in which the landlord can eject the tenant even though he had been paying rent regularly or be ready and willing to pay rent.

The provisions of s. 13 are for the advantage of the landlord and the various grounds for ejectment mentioned in that section are such which reasonably justify the ejectment of the tenant in the ercise of the landlord's general right to eject his tenant.

There is therefore no reason why restric tions not mentioned in the grounds be read into them. We do not therefore agree with the contention that cl. (g) will apply only when the landlord bona fide needs to occupy the premises without making any alteration in them, i.e., to occupy the identical building which 'the tenant occupies.

There is no justification to give such a narrow construction either to the word 'premises' or to the word 'occupies' which have been construed by this Court in Krishamal lshwar/al Desai v. Bai Vijkor(') referred to later.

There are provisions in the Act which ensure that the provisions of cl. (g) are not abused. Section 17 provides that if the premises are not occupied within a period of one month from the date the landlord recovers possession or the premises are re-let within a period of one year of the said date to any person other than the original tenant, the Court may order the landlord, on the application of the original tenant, within the time prescribed, to place him in occupa tion of the premises on the original terms and conditions, This tends to ensure that a landlord does not eject a tenant unless he really requires the premises for occupation by himsell.

(1) [1964] 1, S.C.R. 553.

We are therefore of opinion that once the landlord estal964 blishes that he bona fide requires the premises for his occu- RllmnlM Pl pation. he is entitled to recover possession of it from the barda1 tenant in view of the provisions of sub-cl. (g) of s. 13(1) Indt~1M irrespective of the fact whether he would occupy the pre- A.mratlal mises without making, any alterations to them or after mak- Raihub,; D. ing the necessary altetations.

I The provisions of cl. (hh) cannot possibly apply to the case where a landlord reasonably and bona fide requires the premises for his own occupation even if he had to demolish the premises and /to erect a new building on them.

The provisions of cl. '(hh) apply to cases where the landlord does not require the premises for his own occupation but requires them for erecting a new building which is to be let out to tenants.

This is clear from the provisions of sul:>- s. (3A) which provide that a landlord has to give certain undertaking before a decree for eviction can be passed on the ground specified in cl. (hh). He has to undertake that the new building will have not less than two times the number of residential tenements and not less than two times the fioor area contained in the premises sought to be demolished, that the work of demolishing the premises shall be commenced by him not later than one month and shall be completed not later than three months from the date he recovers posession of the entire premises and that the work of erection of the new building shall be completed by him not later than fifteen months from the said date.

These undertakings thus provide for a time schedule for the new building to come up into existence and ensures atleast the doubling of the residential tenements, i.e., rooms or groups of rooms rented or offered for rent as a unit: vide s. 5(12) of the Act. ·

Such undertakings would be unnecessary if the landlord seeks to eject the tenant from the premises in order to occupy the premises himself after making the necessary alterations to suit his conveniences. Further, s. 17 A provides for the ejected tenant's re-occupying the premises in case the landlord does not start the work of demolition within the period specified in sub-s. (3A).

Section 17B provides for the ejected tenant to notify to the landlord within six months

1914 from the date on which he delivered vacant possession of the 1'.itampremises of his intention to occupy a tenement in the new bardtu building on its completion on the conditions specified in the Jan section. Section 17C provides that the landlord. would inti-

.4.mrotlal mate to the tenant the date when the new building would be •gltub-;;; Dayal J. complete and that the tenant would be entitled to occupy the tenement on that date. These provisions clearly establish that the provisions of cl. (hh) apply when the landlord desires to demolish the premises for the purpqse of erecting a new building on the premises for being let to tepants.

We may mention that the provisions of clauses similar to els. (g) and (hh) of sub-s. ( 1) of s. 13 of the Act have been construed in this way in Krishna Das v. Bidhan Chandra('), McKenna v. Porter Motors Ltd. (2), and Betty's Cafes Ltd.

v. Phillips Furnishing Stores Ltd. (3 ).

The appellant has referred us to two cases of the Bombay High Court which tend to support him in so far as it is held in them that in circumstances similar to the present one, the case would come under cl. (hh) of s. 13 (1) and not under

cl. (g).

They are: Manchharam Ghe/abhai Pittalwala v.

The Surat Electricity Co. Ltdt.(') and A/larkha Fakirmahomed v. The Surat Electricity Co. Ltd.(•). The latter case followed the previous one. In the former case the High Court said:

"Indeed the expression 'occupation' occurring in clause (g) means 'possession followed by actual occupation', while for the purpose of clause (hh) what is necessary is 'possession for the purpose of demolition'. 'Occupation' within clause (g) would include 'possession', as it is obvious that one cannot occupy unless one is able to possess. but in the case of clause (hh) it is clear that. it is not necessary to occupy for the purpose of' demolition.

What is necessary is that the l.and-

(1) A.LR. 1959, Cal. 181 ;

(2) [1956] A. c. 688;

(3) f1959] A. C. 20 ; (4)-Civil Revisio~ /lpplication No. 204/56 decided on I-2-57 by the Bomb•!' High Court.

(5) Civil Revision Appu<:lltion No. 164/57 decided on s-10-57 by the

l!ombay Hiah Cuurt.

lord must possess in order to enable him to 1961 demolish and erect a new building." Rmltnikal PIW Demolition of the existing building and subsequent erec- lion of a new building are only intermediate steps in order lndr~ Amratlal to make Jhe building fit for occupation by the landlord; In Krishan/al I swarlal Desai' s case ( 1) this Court said in R.aghubar Dayal oonnection with the provisions of s. 17 ( 1) of the Act:

"What is, hoyiever, clear beyond any doubt is that when the possession is obtained in execution it must be followed by an act of occupation which must inevitably consist of some overt act in that behalf .•••.• ,,

'Occupation' of the premises in cl. ( g) does not necessarily refer to occupation as residence.

The owner can occupy a place by making use of it in any manner. In a case like the present, if the plaintiffs on getting possession start their work of demolition within the prescribed period, they would have occupied the premises in order to erect a building fit for their . occupation.

We therefore hold that the respondent's case came within

cl. (g) of sub-s. (1) of s. 13 of the Act and therefore dismiss the appeal with costs. Three months allowed for vac.atmg the premises on the defendant tenant undertaking to vacate the premises himself during this period.

Appeal dismissed.

COMMISSIONER OF INCOME-TAX, MADRAS v.

THE AMRUTANJAN LTD., MADRAS ,

(K. SUBBA RAO, J.C. SHAH ANDS. M. SU; RI, JJ.)

Income Tax-Object and scope of s. 23-A-"Company in which tht! pu1, lic are substantially interested''-Mt:aning of-Indian Income T~ Ac1, 1922 (11 of 1922), 1. 23-A.

The Income-tax Officer found that the respondent company had declare.I during the three years ending March 31, 1947, March 31, 1948

(I) (1964] r S.C.R. 553.

April, 2/t..

RAMNIKAL PITAMBARDAS MEHTA

INDRADAMAN AMRATLAL SHETH

A. K. SARKAR

M. HIDAYATULLAH

RAGHUBAR DAYAL JJ.

s. 13(1)

s. 13(l)(g)

Purshottam Trikamdas

M. I. Patel

N. Shroff

S. T. Desai

B. J. Shelat

J.B. Dadachanji

. C. Mathur

Ravinder Narain

h b D I RAGHUBAR DAYAL

s. 13

Ramnlhl Pil

Raghub

s. 13

s. 13

s. 13

Section 28

s. 13

s. 13

section 15

s. 13

AmratlaJ

Ratllubar Da

s. 13(1)(hh)

s. 13

Section 12

01hubar D1qal

Section 13

s. 13

Section 17

s. 13(1)

s. 5(12)

s. 17

Section 17B

Section 17C

s. 13

Bombay High Court

s. 13

Amratlal

Krishan/al I swarlal Desai

R.aghubar Dayal

s. 17

s. 13

COMMISSIONER OF INCOME-TAX, MADRAS

AMRUTANJAN LTD., MADRAS

K. SUBBA RAO

MADRAS ,

(K. SUBBA RAO, J.C. SHAH ANDS.

J.C. SHAH ANDS

s. 23


20.J.

SUPREME COURT REPORTS

1964 sought to be put upon the expression "income~ in su!J:.s.' (2)

CJ.T; o( s. 26 by the Revenue is . accepted, then the absence of

Express v'. Newstli.~! _word in the ?rov!-5° destroys the argume?t.

Bu! the. papers Lldi' more reasonable .view IS that both the sul>-section and. the

Subba-ao J. pov_is() deal only with the profits unclr ihe 4th head men" tioJ'led in s. 6 and, so construed, it cxcludci capital g:tlns:· 'fl1e argument that sub-s:. (2) of s. 26 re..:d v, ith the prbviso theretO _indicates that the total · income of the person st1cceeded. is the !=r!_terion f_?r' separate .assessment ·~-~,.: __ ..- sub-s. (2) and for assessment and realisaticm-unoer the ··pf.ovis0 is on. the assumption.thatruO:S.-(2) and the proviso_ deal with all the huds n1entionect in s. 6 of the Act; nut. if,· as; ve.hav(fbeld, the scope of sul>-s.-(2)of s. 26 fa only ---- ·fonrted to the income from the busirtess, ; the" share' under ---- suJ; s. (2) and the assessment and realisation•· under the

l\fay 7

pro.visa can only relate to the inrome , from the businCs.5.

The argument is really begging the question itself. Jn the' result we agree with the High Court in regard to" the answer it has given in respect of the second question.

In. this view no other ' questidn" arises . for· oor consideiatiOn: , In the result, the appeal fails and is dismissed with costs. .

Appeal 'dismin.ed:

COMMISSIONER OF INCOME~TAX, MADRAS

KUMBAKONAM MUTUAL' BENEFiT FUNn LTD.

I •; • . • ._ • .' • '. • ' ; / . ' • . . (K. SUBBA RAo, J. C. SHAH ANDS. M. SIKRI, J.J.)

Mutual Btnefit Socfety2-company engd:; id ili'"bmillng bU°sine.U restrldeii"J

to ml'mbers-Not e,,•ery member-made deposit} or_ loaii.J-.P~ mainly earned fr~1n ln.s to mmber;-All me"m.be~$ enlitlM.llt.;

diVidend~Whe.tfi~, rquiren?e;.tt"' of 'mUfi, Y' 1>et;:een 'cOnt~.c;;-· -

,.-.,.--- .·

- , ••! ' "';,; -, '"- .,.

P. - . ' • '<'

I '•·.'I arid · partici,, Dtors satisfied~Ther_tfore. wtller company eic1"pt ,,;, a; r i. •1ocziiwi;'1.Coine-i;._,, ;1c;;-1m · ·

~ ;,_._-' (_ 1' 1-· .; ii·;.-' h, ;~ ,; j._A .•.

I ·, /1'.:.,_ ,,~,- .The ~Ssee~ Kumb3.kon3.in tutual Be1:iefit Fund;. _Ltd. •. carried_. on,: ruiokini' buSiDcSS wbiCh. 'wis-- reStncted i.o! its s?iareholdd.t! In the"COum . . . ' ' . . . . . .

">f ill working, recurring monthly deposits were obtained from members for an agreed number of months at the end of which, an amount, which

included interest, was returned to them. From the funds accumulated .. a result of these deposits, loans were given to members and the intezat from such Joans constituted the assessee's main income.

After the payment out of this income of interest on the deposits as also aU

the other expenses and outgoings of management, etc., the balance was divided among the members pro rata according to their shareholdings.

The shareholders who were thus entitled to participate in the profits need not have either made deposits or taken loans. Although it was c.ontendcd on behalf of the assessee that it was exempt from assessment to tax as a Mutual Benefit Society under s. 10 of the Income-tax Act, 1922, on the principle in Ne"" York Life Assurane< Co. v. Styles, 2 T.C.

~. which was followed in Board of Revenue v. Mylapore Hindu

Permanent Fund Ltd., (1924) l.L.R. 47 Mad. I. the Income-tax Officer the entire profits. of the asscssee. It was held by him that the profits made by the fund belonged to the members as shareholders and not as borrowers from the fund or in the capacity of individuals who had in any way utilised the facilities afforded by the fund.

The require: ment of identity between contributors and participators as in Style's cast! was not satisfied.

1be Appellate Assistant Commissioner and the Incon1etax Appellate Tribunal, upon appeals made lo them in turn, upheld the order of the lnoome-tax Officer; the Tribunal, however, referred to the High Court,

inlt alia, the question whether there were materials for the tribunal to hold that the assessee as a banking concern, asses'iahle under s. 10 and was not therefore exempt.

The High Court in answering the question in the negt\tivc applied the test that both the right to contribute and the right to participate

must be available to an identical body but il was not nece.;;; ary that every member should contribute before he could lie allovted to participale.

Held: (i) The test applied by the High Court was not sound. There was a clear distinction between a case where profit which a company made out of its shareholders as customers-even if it was limited to trading only with them-and distributed to them as shareholders, and the case where all that a company did was to collect money from its members and applied it for the benefit of those same people, not as shareholders, but as people who subscribed it. For the principle in Style's case to apply, it was essential that all contributors to the conimon fund must be entitled to participate in the surplus and all participators mmt be cootributors to the common fund; and not only that all part:-

cipators must be entitle"d to contribute.

Municipal Mutual Insurance Ltd. v. Hills, 16 T.C. 430. C.I.T. >.

R'1,1Dl Western Indian Turf Club Ltd .• [1954] S.C.R. 289. Dibrugarh

Di!lrict Chit Ltd. v. C.l.T., :Assam, 2 l.T.C. 521, Thomas v. Richarl Evans & Co .• 11 T.C. 790, The National Association of Local Govern-

CJ.T. ..

M. Bt,..fit Ftmd Ltd.

Fund Ltd.

SiUI J.

ment Officers v. Watkins, 18 T.C. 499 and lsmailia Grain Mi!rcliant¥ Association v. C.l.T., A.1.R. 1958 Born. 32. referred to:

The decision in the Board of Revenue v. The Mylapore Rirtlb.t Permanent Fund Ltd. (1924) I.LR. 47 Mad. J, could not haW> been rightly based on Style's case.

The Madura Hindn Permallent Fund Ltd. v. C.1.1'., 6 I.T.C. 3?6, referred ro.

The decisions in the Sivaganga Sri Meenakshi Swadeshi Saswatlra Nidhi ltd. v. C.l.T., 8 l.T.C. 83 llnd TtrtJjore Permanent Fund v. CJ.T. 5 I.T.R. 160, were base<! on the decision in the Mylapore Hindu Permanent Fu1Zd Case but in none of these cases was the pOint debated as to what the position would. be when shareholders participated in profits as shareholders and not as contributors.

Civil Appellate Jurisdiction: Civil Appeals Nos. 637-- 644 Of 1963.

Appeals from the judgment and order dated October 20. 1960, of the Madras High Court in Case Referred No. 78 of 1956.

K. N. Rajagopa/ Sastri and R. N. Sachthey, for th~ appellant.

P. Kesava Iyengar, M. S. K. Iyengar and Krishna Pillai, for the respondent.

May 7. 1964.

The Judgment of the (ourt was delivered by

StKRI J.-The respondent. the Kumbakonam Mutual Benefit Fund Ltd., hereinafter referred to as the assessee, is a company incorporated under the Indian Companies Act. 1882, limited by shares.

Since 1938. the nominal capital of the assessee is Rs. 33,00,000 divided into sh.ares of Re. I each.

It carries on banking business restricted ti' its shareholders. i.e .. the shareholders are entitled to participate in the various recurring deposit schemes of the assessee or to obtain loans on security.

The statement of the case describes the working of the assesscc thus:

"Recurring deposits are obtained from members for fixed - amounts to be contributed monthly by them for a fixed number of months as stipulated.

i 'F

-!-,_

at the end of which a fixed mnount is returned to them according to published tables. 'The amount so returned will cover the compound interest of the period.

These recurring deposits constitute the main source of funds of the assessee for advancing loans.

Such loans are restricted only to members who have. however. to offer substantial security, therefor, by way of either the paid up value of their recurring deposits. if any, or immovable properties within the Tanjore district.

Out of the interest realised by the assessee on the loans which constitute its main income. interest on the recurring deposits aforesaid are paid as also all the other outgoings and expenses of managemer.t and the balance is divided among the members pro rata according to their shareholdings after making provision for reserves, etc .. as required by the Memorandum of Articles aforesaid.

The shareholders who are thus entitled to participate in the profits need not have either taken loans or have made recurring deposits."

The Income-Tax Officer assessed the entire profits for eight years from 1946-47 to 1953-54.

In a detailed and closely reasoned order, dated February 29, 1952, which is part of the statement. of the case, passed in respect of the assessment year 1947-48, the Incm>1e Tax Officer held that New York Life A.n11ra11ce Cnmpany v. Styles(') did not apply to the facts of this case.

He distinguished Style's<') case thus:

"Whereas the New York Life Assurance Company paid to its members what it had saved, the assessee fund pays to its members what it has earned.

A share-holder in the New York Life Assurance Company did not get back anything more than what he contributed. a share-holder of the Kumbakonam Mutual Benefit Fund does --------·------·-

(IJ 2 T.C. 46o

C.l.T.

K. M. Be"41

Fund Ltd.

Slkri I.

CJ.T.

K. ltl. Bctw(ii Fwtd Ltd.

on the other hand get more than wh.1t he contributes.

A fixed depositor gets back on maturity of the deposit not only the amount he deposited but also th.e interest thereon.

A r~ curring depositor who pays, say a rupee eacil month for eighty-six months does not get back Rs. 86 only, or something less, but Rs. 100, the balance of Rs. 14 representing the interest on his deposit.

What is returned to him is not a mere refund and there is no question here, as in the case of the New York Life Assurance Company, of his contributing m1mcy for .a .common purpose and getting back that much of his contribution as is not required for the common purpose. From the point of view of the individual member, an investment in the assessee fund is just like any other lucrative investment and his primary object in invsting his money with the fund is the income. which comes to him in the guise of interest or dividend."

Sikri J.

Relying on Rowlatt, .l.'s, observations in Thomas v.

Richard Evans Co. Ltd., ( 1) that 'it does not come back to them as purchasers or customers; it comes back to them as share-holders upon their shares', the Jncome Tax Officer held that "the profits made by the fund belong to them as share-holders and not as borrowers from the fund or in the capacity of individuals who have in any way utilised the facilities afforded by the fund." He further held that "there should firstly be a common fund and then it must be proved that the contributors to this common fund and the participators in the surplus are one and the same.

As far as I can see, there is no common fund in this case. The income of the assessee is derived from interest on loans let to its members, interest on Government securities, rents from property, etc., and it is distributed to the members either in the shape of guaranteed interest or dividends or both.

As far as the .allegedly "mutual" transactions of the assessee are concerned, the contributors to the income of the company

(I) II T.C. 790

8 S.C.R.

SUPREME COURT REPOI~TS 209

are those members who have borrowed from t_he assessee and paid interest on their borrowings. If the requirement of the complete identity between contributors and participators were to be satisfied, then the above contributors should also be entitled to participate in the profits." He further pointed out that a shareholder may not hold any deposit with the fund and may not utilise the borrowing facilities afforded by the fund but may be content to receive such dividend as is declared.

The Appe!late Assistant Commissioner, on appeal, upheld the order of the Income Tax Officer.

It was urged before him, inter alia, that the decision in the case of Roard of Revenue Madras v. The Mylapore Hindu Permanent Fund Ltd.,(1 ) applied to the facts because the capital was also fluctuating in this case.

He, however, held that it was not a case of fluc.tuating capital but only a steady increase of capital.

He further held that a shareholder need not be a subscriber to the fixed or recurring deposits, and a shareholder may not participate in the interest earnings if 110 dividend is declared.

On further appeal, the Income Tax Appellate Tribunal held as follows:

"The fund's claim that it is in reality a mutual benefit society is untenable.

The cardinal requirement is th.at all the contributors to the common fund must be able to participat~ in the surplus and that all the participators in the surplus must be contributors to the common fund. In other words, complete identity between the contri butors and the participators is essential.

Firstly, there is no common fund. Secondly, the shareholders may or may not receive a dividend.

But those sh.1reholders who contribute to the recurring deposits of various duration receive guaranteed interest.

The persons who contnbute to the income of the company are those shareholders who borrow from the appellant and pay interest on their borrowings. ----

(1) [1924] I.L.R. •7 Mad. 1

51 S.C.-14

C.1.T.

Fund Ltd.

Sikri J.

C.1.T.

"· re. M. B•M(il

Fund Lid.

Sikri J.

SUPREME COURT REPOR1~ [1964)

Out of the income so derived, the guaranteed interest to the shareholders who make monthly deposits, receive guaranteed interest but the shareholders who do not contribute monthly deposits may or may not receive any dividend.

Thus, the complete identity between co11tributors and participators does not exist.

The nature of the business of the appellant is that of ordinary banking though the business is restricted to its members or shareholders only.

This restriction does not in the least take the income of the appellant out of the purview of the charging sections of the Act.

In our opinion, the Income-tax authorities were right in treating the appellant as a banking concern." The Appellate Tribunal, however, stated a consolidated case in respect of the assessment years, 1946-47 to 1953-54, and referred the following questions to the High Court:

" ( 1) Whether there were materials for the Tribunal to hold that the assessee is a banking concern assessable under Section 10 for all the assessment years and not exempt.

(2) If the answer to the above question is in the affirmative and against the assessee, whether the payments to the non-recognised provident fund by the assessee for the six years of assessment 1946-47 and 1948-49 to 1952-53 are allowable deductions under any provisions of the Act." We are here only concerned with question No. 1. The High Court, for reasons which will be shortly stated, answered the question in the negative, and awarded costs Rs. 250.

It further ordered the refund to the assessee of the institution fee of Rs. 100 for each of the references "as part of the costs to which as successful assessee it will be entitled to."

The High Court, after a review of the cases cited before it, came to the conclusion that the assessee satisfied the con ditions necessary for the applicability of Style's case(').

According to it, the facts that the benefits of the association

(1) T.C. 460

are available only to members thereof and no non-member can particip(lte in the benefits, and that the profits that arise from this mutu1l trading are the result of the interest collected from members who take advantage of the loans offered by the fund and also of the default interest paid by members who delay payment of recurring deposits, and that the 'profit' after payment of interest to depositors and after meeting the other expenses of administration of the fund are availal>le for distribution among the entire body of the members, showed that there was complete mutuality.

It had that "what is accordingly required is that both the right to contribute and the right to participate must be available to an identical body and it is not necessary that every member should contribute before he can be allowed to participate.

That this test is also satisfied in the present case is beyond question." It is this test which is attacked as unsound by the learned counsel for the appellant.

The High Court certified the cases as being fit for appeal to this Co mt, under s. 66 (A) ( 2) of the Indian Income Tax Act, and the appeals are now before us for disposal.

The question that arises in this case is whether the Style's(') case covers the facts of this case. In other words. to use the language of Lord Macmillan in Municipal Mutual Insurance Limited v. Hills(') has the cardinal requirement, namely, 'that all the contributors to the common fund must be entitled to particip.ate in the surplus and that all the participators in the surplus must be contributors to .the common fund; in other words, there must be complete identity between the contributors and the participators', been satisfied?

Most of the cases, both English and Indian. bearing on the point under discussion, were reviewed by this Court in Commissioner of Income Tax v. Royal Western Indian Turf Club Ltd. (3), and this relieves us of the task of reviewing al! of them again.

We will, however, shortly deal with those in which companies limited by sh.ares were concerned for they stand on a slightly different footing from companies limited by guarantee.

(r) 2 T.C. 460

(2) 16 T.C. 430

(3) [1954] S.C.R. 289

C.l.T.

Fund Ltd.

Sikri I.

C.I.T. v.

K. M, Benefit Fund Ltd.

Sikri J.

Although the f.acts in the Ruyal Western Turf Club case were different, this Court laid down the following:

"The principle that no one can make a profit out of himself is true enough but may in its application easily lead to confusion. There is nothing per se to prevent a comp.any from making a profit out of its own members.

Thus a railway company which earns profits by carrying passengers may also make a profit by carrying its shareholders or a trading company may make a profit out of its trading with its members besides the profit it makes from the general pwblic which deals with it but that profit belongs to the members as shareholders and does not come back to them as persons who had contributed them. Where a company collects money from the members and applies it for their benefit not as shareholders but as persons who put up the fund the company makes no profit. In such cases where there is identity in the character of those who contribute and of those who participate in the surplus. the fact of incorporation may be immaterial and the incorporated company may well be regarded as a mere instrument, a convenient agent for carrying out what the members might more laboriously do for themselves.

But it c1nnot be said that incorporation which brings into being a legal entity separate from its constituent members is to be disregarded always and that the legal entity can never make a profit out of its own members."

In the Dibrugarh District Club Lid. v. The Commissioner of Income Tax, Assam(1 ), which was noticed by this Court, the Calcutta High Court distinguishing Style's(') case held that the fact of incorporation could be neglected on the facts of the case. In that club, out of the members of the club only 69 were shareholders and 220 were non

{I) 2 I.T.C. 521

(2)T.C. 460

Cl.T.

' shareholders, while 7 4 out of 445 of the shares were held by non-members of the club, and the profits of the club were being distributed every year as dividend to shareholders.

K. M. B•~

Rowlatt J., in our opinion, correctly points out that if profits are distributed to sh.1reholders as shareholders, the principle of mutuality is not satisfied.

In Thomas v. Richard Evans and Co.('), at pp. 822-823, he observes thus:

"Bur a company can make a profit out of its members as customers, although its range of customers is limited to its shareholders. If a railway company makes a profit by earring its bareho_lders, or if a trading company, by trad- .1g with the shareholders-even if it is limitea to tradi11g with them-makes a profit, that profit belopgs to the shareholders, in a sense, but it belongs to them qua shareholders.

It does not come back to -them as purchasers or customers. It comes back to thein as shareholders, upon th.eir shares. Where all that a company does is to collect money from a certain mun- 1>er of poeple--it does not matter whether they

are called members of the company, or participating policy holders-and apply it for the benefit of those same people, not as shareholders in the company, but as the people who subscribed it, then, as I understand the New Yark c.ase, thre is no profit. If the people were to do the . thing for themselves, there would be no profit, and the fact that they mcorporate a legal entity to do it for them makes no difference. there is still no profit.

This is not because the entity of the company is to be disregarded, it is because there is no profit, the money being simply collected from those people and handed back to them, not in the character of shareholders, but in the character of those who have paid it.

That, as I understand it, is the effect of the decision in the New

York case."

)Ii T.C. 790

Fund Ltd.

Silr•i '

CJ.T.

K. M. Benefit Fund Ltd.

It seems to us that the test applied by the High Court is not sound.

It is not consistent with the true decision in Style's case, as understood by this Court and in other subsequent cases. It wat be noticed that Lord Macmillan clearlv said that all participators must be contributors to the com~ mon fund and not that all participators must be entitled to contribute.

The essence of mutuality lies in the return of what one has contributed to a common fund.

Sikri J.

Das, J., as he then was, in the passage quoted above, in Commissioner of Income Tax v. Royal Western Indian Turf Club Ltd. ( 1) reiterated the same idea.

The learned counsel for the assessee, relying on The National Association of Local Government Officers v.

Watkins('), urged that it is not necessary that all must contribute to the common fund. But in that case it was an unincorporated association, and Finlay, J., regarded that as a matter of fundamental importance, for it followed from it, as held by Finlay, J., "that the property belongs to the members and it is a fallacy, as had been pointed out in several cases, one at least of which was cited to me, to say in the case of such a club that, where a member orders a dinner and consumes it, there is any sale to him.

There is not a sale.

The fundamental thing is that the whole property is vested in the members." He emphasized this again when he says that "it may be that where you have a separate entity, where you have a company, in a great many cases the test is that you have to look at the subscribers, look at the participants, and see if they are the same. Here it seems to me to lie at the root of the thing that the property was not the property of the Association; it was the property of the members themselves ..... "

It is this feature of the case which Chagla, C.J ., failed to notice in Ismailia Grain Merchants Association v.

Commissioner of Income Tax(").

We may now deal with the cases decided by the Madra~: High Court, and relied on by the learned coupsel for the assessee.

In Board of Revenue v. The Mylapore Hindu

(1) [1954] S.C.R. 289

(2) 18 T.C. 49'

(3) A.I.R. 1'58 Born. 32

Permanent Fund Ltd.,(') the Fund was registered under the Indian Companies Act of 1866. A shareholder subscribed one rupee per share per mensem and at the end of 7 years drew Rs. 102-8-0, and then he ceased to be shareholder (qua the share). A shareholder had to pay interest on the subscription, if not paid within the time prescribed by the rules. Apart from the interest on the subscription, the Fund derived income from interest on loans . given exclusively to its members, every one of them being entitled under the rules to take loan, and occasionally from interest from outside investments with bank. The High Court held the Style's(') case applied and ~!so held that the income earned by the Fund by way of interest from its own members was not taxable under the Income Tax Act, 1918, in spite of the fact that such profits were devided among directors and distributed among the shareholders with reference to the number of shares and the number of months during which they hau held them.

But the point urged by Mr.

Rajagopal Sastri was not raised before the High Court and the High Court was' content to apply the test 'whether the income comes in from outside and not from within'.

But as held by the Full Bench in The Madura Hindu Permanent Fund Ltd. v. The Commissioner of Income Tax( 3 ), this case could not have been rightly based on Style's case.

In The Sivaganga Shri Meenakshi Swadeshi Saswatha Nidhi Ltd. v.

The Commissioner of Income Tax (4) the High Court, without adverting to doubts expressed in the decision in Madura Hindu Permanent Fund Ltd.,(') regarding the applicability of Stvle's case, which was referred to in the statement of the case, and without giving any reasons, held that the Mylapore Hindu Permanent Trust(') case applied.

In Tanjore Permanent Fund v. Commissioner of Income Tax(") the High Court held that there was no conflict between the decision in Mylapore Hindu Permanent Fund(') case and the Madura Hindu Permanent Fund(') case. As

(I) [19241 I.L.R. 47 Mod. I

(3) 6 l.T.r.. 326

(5) 11.T.R. 160

(2) 2 T.C. 460

(4)81.TC 83

CJ.T.

"· K. M. B•n•

Fund Ltd.

Sikri /.

C.1.T.

M. B<n•fit Fund Ltd.

Sikri I.

the facts in the case were similar to that in Mylapore Hindu Permanent Fund (1) case, the High Court refused to reopen the question and disturb the practice, but however added that '"though the term 'shareholder' has been here used, we do not wish to be understood as deciding that these subscribers are shareholders properly so called within the meaning of the Companies Act." As already pointed out, in none of these cases the point was debated as to what is the position when shareholders participate in profits as shareholders and not as contributors.

It seems to us that it is difficult to hold that Style's(') case applies to the facts of the case.

A shareholder in the assessee company is entitled to participate in the profits without contributing to the funds of the company by taking loans.

He is entitled to receive his dividend as long as he holds .a share.

He has not to fulfil any other condition.

His position is in no way different from a shareholder in a banking company, limited by shares.

Indeed, the position <>f the assessee is no different from an ordinary bank except that it lends money to and receives deposits from its shareholders. This does not by itself make its income any the less income from business within s. 10 of the Indian Income Tax Act.

In our opinion, the answer to the question referred to the High Court should be in the affirmative. The appeals are accordingly accepted, but in view of the fact that the Mylapore Fund(') case has held .the field in Madras since 1923, we do not wish to burden the assessee with costs.

Accordingly, the parties will bear their own costs through- <>Ut.

A subsidiary point was raised by Mr. Sastri that the High Court had no jurisdiction to order the refund of the reference fees deposited by the .assessee.

This is true. Isut the High Courts can, if they so deem fit in a particular case. 11Ssess the costs in such a way as to include the sum of rts. I 00 deposited as reference fee.

----·----

(1) [1924] I.L.R. 47 Mad. 1

Appeal allowed.

(2) 2 T.C. 460

s. 26

s. 6

s. 26

s. 6

s. 26

COMMISSIONER OF INCOME~TAX, MADRAS

KUMBAKONAM MUTUAL' BENEFiT FUNn LTD

K. SUBBA RAo

C. SHAH ANDS. M. SIKRI

s. 10

Income-tax Act, 1922

Assistant Commissioner

s. 10

K. N. Rajagopa/

R. N. Sachthey

P. Kesava Iyengar

M. S. K. Iyengar

Krishna Pillai

Kumbakonam Mutual Benefit Fund Ltd.

Companies Act

Tanjore district

February 29, 1952

New York Life Assurance Company

Kumbakonam Mutual Benefit Fund

Sikri

Rowlatt

Income Tax Appellate Tribunal

Fund Ltd.

Section 10

s. 66

C.l.T.

Fund Ltd.

Calcutta High Court

K. M. B•~

Rowlatt

New

York

Macmillan

Sikri J.

Das

Finlay

Chagla

Permanent Fund Ltd.

Companies Act

Rajagopal Sastri

Madura Hindu Permanent Fund Ltd.

Stvle

Mylapore Hindu Permanent Trust(')

Mylapore Hindu Permanent Fund

Madura Hindu Permanent Fund

K. M. B•n•

Fund Ltd.

Companies Act

s. 10

Mylapore Fund

Madras

Sastri


s s .. c.R.

SUPREME COURT REPORTS 239

.Partnership Act, therefore, does not apply to him. He is

not a partner of the finn and, therefore, he cannot be ad\uruca£ed insolvent for the acts of insolvency committed by

respondents 2 and 3, ithe partners of the finn.

The order of the High Court is correct.

In the result, the appeal fails and is dismissed with costs.

\ Appeal dismissed.

MURARILAL v.

DEV KARAN (P. B. GAJENDRAGADKAR, C.J., M. HIDAYATULLAH, K. c.

DAS GUPTA, J. c. SHAH AND RAGHUBAR DAYAL, JJ.)

Jlortgage-Clog on equity of rtdemption-Enforcetbility-Principk tJ/

Justice, equity and good conscience-A.pplication-Power of Coun.

The respoodent sought to redeem a mortgage eetuted in the Sta~ of Alwar in 1919. By a stipulation in the mortgage deed the mortgagor aareed that if the debt was not paid within l.S years the mortgagee would become the owner of the property. The respondent's case was that the transaction was a mortgage and that he could redeem the mortgage even though the stipulated period was over. The appellant resisted the auit on the ground that the transaction amounted to a sale and not a mortgage. The trial Judge dismissed the suit holding that the claim for redemption was not maintainable after the expiry of the stipulated period. The Rajasthan High Court on appeal reversed the decision of the trial Judge holding that the stipulation was a clog on the equity of redemption and remanded the suit. The stipulation in question was u follows,-

.. After the expiry of the stipulated penod of lS yean this shop

would be deemed as an absolute transfer 'Mala Kalam' for this amount. Till the mortgage money is paid, I shall have

no concern with the shop ...

Held: If the stipulation were to prevail, the use of the words 'mala llllamt, which meant that there would be no scope for the mortgagor to say anything, W<'uld indicate that the mortgagee became the absolute owner of the property.

But the stipulation, which was undoubtedly a clog on the equity ol redemption, must fail and the suit for redemption must succ:eed.

ShivagoiiiU

"' C lunulrakttrtt ·

Sllbba Rao 1.

1N4 .,,. '

Murarilal

Dev Kar"

The equitable principle of justice, equity and good conscience, Jon1 and consistntly applied by Civil Courts in Inoia, could be applied in the State of Alwar even though the Transfer of Property Act had no application there at the time when the mortgage document was executed or its period expired. The strict provisions of the texts of Hindu Law in this regard wouJd be of no avail.

Namdeo Lokman Lodhi v. Narmadabai, [1953} S.C.R. 1009, applied.

Pattabhiramier v. Vencutarow Naicken and Narasimha Naicken,.

(1870) 13 M.I.A. 560 and Thumbusaway Moodelly v. Hossain Rowthen, I.L.R. 1 Mad. 1. cons:dered.

V nkata Reddy v. Pai'Vati A.mmal. 1 Mad. H.C. Rep. 460, Ramii bin Tukaram v. Chinto Sakharam, 1 Born. H.C. Rep. 199 (1864), Bapuji A.paji v. Senavaraji Marvadi, l.L.R. II Bom. 231, Ramasami Sastrigal Y.

Samiyappanayakan, I.L.R. 4 Mad. 179, Amba Lal v. Amba Lal, l.L.R. 1957 Raj. 964, Seleh Raj v. Chandan Mal, I.L.R. 1960 Raj. 88 aDd N"inu Y. Kishan Singh, A.I.R. 1957 H.P. 46, referred to.

CIVIL APPELLATE JURISDICTioN: Civil Appeal No. 484 of 1961.

Appeal by special leave from the judgment and decree dated Ma.:h 28, 1958 of the Rajasthan High Court (Jaipur Bench) at Ja.ipur in D. B. Civil First Appeal No. 64 of 1951.

Sarjoo Prasad and Harbans Singh, for the appellants.

B. P. Sinha and Naunit Lal, for the respondents.

1fay 8, 1964.

The Judgmnt of the Court was delivered by

GAJENDRAGADKAR, C.J. This appeal by special leave arises out of a redemption suit filed by the respondent Dev Karan against the appellant Murarilal. The mortgage sought to be redeemed was executed on the 19th March, 1919 for a sum of Rs. 6,500.

The mortgaged property

con~.isted of a shop which was delivered over in the

posession of the mortgagee after the execution of the mortgage deed.

The mortg.ge deed had provided that the amount due under the mortgage should be repaid to the mortgagee within 15 years, whereupon the property would be redeemed. It had also stipulated that if the payment was not made within 15 years, the mortgagee would become the owner of the property. The mortgagor was Man gal

Ram who died and the respondent claims to be the heir and

legal representative of the said deceased mortgagor.

In the plaint filed by the respondent, it was averred that the transaction was, in substance, a mortgage and the

mortgagor's right to redeem was alive even though the stipulated period of 15 years for the repuyment of the loan had passed. On these allegations, the respondent claimed

a decree for redemption of the suit mortgage on payment of Rs. 6,500. It appears that the original mortgagee Gangadhar had also died before the institution of the suit, and so, the appellant Murarilal was impleaded as the defendant on the basis that he was the only heir and legal

representative of the deceased mortgagee Gangadhar.

The claim for redemption thus made by the respondent was resisted by the appellant on several grounds.

It was alleged that after the expiry of the stipulated period of 15 years, the property had become the absolute property of the mortgagee and it was urged that the original transaction was, in substance, and in reality, not a mortgage but a sale.

Several other pleas were also raised by the appellant in resisting the respondent's claim, but it is unnecessary to refer to them. The learned trial Judge framed appropriate issues which arose on the pleading of the parties.

In substance, he held that the claim for redemption made long after the 15 years' period had expired could not be su r;; tc.ined. Findings were made on other issues also and they were against the respondent. In the result, the respondent's suit was dismissed.

The respondent then took: the m.atter in appeal bctore the Rajasthan High Court. He urged that the view taken by the trial Court that the stipulation as to the mortgagors liability to re-pay the loan withjn 15 years did not bar his present suit for redemption, because the said stipulation amounted to a clog on the equity of redemption and as such, could not affect the mortgagor's right to redeem, and he added that the transaction, in substance, was a mortgage

and not a sale, and so, his right to redeem was alive and could be effectively enforced by the present suit.

The High Court has upheld his first contention that the relevant

51 S.C.-16.

Murarikll v.

Dev Karan

Gajendragadka c.].

Murariltzl

Gajendragadkar

C.J.

provision as to the period within which the mortgage amount had to be repaid amounted to a clog on the equity of redemption and could not be pleaded as a bar to the present suit.

But on the question about the character of the original transaction itself, the High Court appears to have been inclined to take the view that the relevant clause on whkh

the plea about the bar was raised did not really support the said plea, because it was by no means clear that even after the expiration of 15 years, the mortgagee was intended to be the absolute owner of the property.

On these findings, the decree passed by the tria] Court dismissing the respondent's suit has been reversed and the suit h.as been remanded to the trial Court to be disposed of in accordance with law.

It is against this order that the appellant has come to this Court by special leave.

Pending the appeal before this Court, both the appellant and the respondent have died, and

their respective heirs have been brought on the record.

The first question which calls for our decision is whether the relevant clause on which the appellant relies rn akes the mortgagee the owner of the property at the end of the stipulated period of 15 years.

The mortgage provides, inter alia, that after the house which w.1s the mortgage property was delivered over to the mortgagee~ it \vas open to him either to live in it, or to let it out to tenants.

Te mortgagee was further given liberty to spend up to Rs. ~5 for repairing the house and if more expenses were intended to be incurred. the said expenditure would be incurred through -the mortgagor.

On the expenditure thus incurred the mortgagor was liable to pay interest at the rate of As. 0-6-0 per ce-nt per month. Then the document proceeded to add that the mortgagor would get the property redeemed on payment of the mortgage amount as weJI t1s

the cost of Patta which may have been incurred by tl1e mortgagee and the repairing expenses within a period of l 5 years.

Then, occurs the relevant clause: ''After the expiry of the stipulated period of 1:; :·: ::trs, this shop would be deemed as an absolute transfer ''Mala Kalam" for this very amount.

Till the mortgage money is paid, I shaH have ;-lc concern with the shop." The High Court appears to haY~ taken the view that the words "Mala Kalam .. which oc•t!r t

the end of the relevant clause do not necessarily impon the notion that the mortgage property w9uld be the absolute property of the mortgagee.

According to the High Court, the said words literally mean "where there is no scope for having any say". If that is the meaning of the relevant words, it seems difficult to accept the view that the docent did not intend to make the mortgagee the owner of the property at the end of . 15 years if the debt due was not paid within that period. When the document says that there would be no scope for the ortgagor to say anything, it neeessarily means, in the context, that the mortgagor would, in tbat case, have lost his title . to the property, and that means the mortgagee would become the absolute owner of the property. Therefore, we feel no difficulty in holding that if the terms of the document were to prevail, the appellanes contention that the present suit for redemption is barred, must succeed. It is common ground that the amount due under the mortgage deed was not paid by the mungagor or his heir within the stipulated period and that would extinguish the title of the mortgagor and make the mortgagee to be the owner of the property.

Rut the question is whether such a stipulation c.'ln be allowed to be pleaded as a bar to the respondent's claim for redemption.

Just as it is common ground that if the terms of the document were to prevail, the suit would be barred, it is also common ground that if the doctrine that the clog on the equity of redemption cannot be enforced is to prevail in the present proceedings, the respondent's action for edemption must succeed. The fact that a stipulation of tbe kind with which we are concerned in the present case amounts to a clog on the equity of redemption, is not and cannot be disputed.

Therefore, the main question which arises in the present appeal is: does the equitable doctrine ensuring the mortgagors equity of redemption in spite of a clog created on such equity by stipulations in the mortgage deed apply to the present case? Thh question arises in this form, because the Transfer of Pr.operty Act did not apply to Alwar at the time when tbe mortgage was executed nor at the time when the 15 years' stipulated period expired.

Mlll"ffriW

"· Dn 'KANII

Gajendragadw

C. I.

1964 - Mur11rllal

Gajendr(igadkar

C.J.

SUPREMR COURT REPORTS [rg64]

Mr. Sarjoo Prasad for the appellant contends that the High Court w.as in error in applying the equitable principle, because tHe said principle cannot be invoked in cases where the Transfer of Property Act does not apply.

In support of this argument, he has very strongly relied on an early decision of the Privy Council pronounced in 1870, in the case of Pattabhiramier v. Vencatarow Naicken and Narasimha Naicken(l). In that case, the Privy Council was dealing with a Bye4bilwutfa, or mortgage and conditional sale usufructuary executed in 1806 under which the mortgagees were put in possession. The deed contained a condition that if the mortgagor failed to redeem within five years, the conditional sale was to be absolute. The mortgagor failed to redeem within the stipulated period, and the mortgagee, without foreclosing the mortgage, sold the mortgaged property.

Thereafiter, the mortgagor's representative sued to redeem the mortgage under s. 8 of the Madras Regulation XXXIV of 1802. The Privy Council held that the interest of the mortgagee after the expiry of the stipulated period had become absolute.

In dealing with thiS' question, Lord Chelmsford who delivered the opinion of the Board observed that the form of security with which the Board was concerned had long been common in India, and he added that the sti pulations in such contracts were recognised and enforced according to their letter by the ancient Hindu law as well as under Mohammedan law; and in support of this statement, reference -was made to certain passages from Colebrooke's Digest on Hindu Law and Baillie's introduction to his book on M'ohammedan Law of Sale.

If the ancient Jaw of the country, observed Lord Chelmsford, has been modified by any later rule, having the force of law, that rule must be founded either on positive legislation, or on established practice; and since neither any specific statutory provision had been cited before the Board, nor established practice in that behalf had been proved, the Privy Council upheld the mortgagee's plea that he became the absolute owner of the property at the expiration of the stipulated period. While pronouncing this decision, Lord Chelmsford, however, took the precaution of adding that while the Board was allowing

(I) [ISgo] I3 Moore's I.A. s6o

the appeal, "it must not be supposed that their Lordships design to disturb any rule of property established by judicial decisions so as to form part of the Law of the Forumt wherever such may prevailt or to affect any title founded thereon." As we will presently point outt the appeal of Pattabhiramier was pending before the Privy Council for as many as 10 years.

Meanwhile, Indian High Courts were enforcing the equitable principle that stipulations contained in mortgage-deeds which amounted to clog on the equity of redemption could not be enforced. In other words, the iurisdiction which courts of equity exercised in England by refusing to enforce clogs on the equity of redemption, was being exercised by High Courts in India.

However, before we refer to those decisions, it would be convenient to cite another decision of the Privy Council pro--

nounced in Thumbusawmy Moodelly v. Hossain Rowthen &

Ors(l). In that case, the Privy Cmmcil held that the contract of mortgage by conditional sale is a form of security known throughout India, and by the ancient law of India, it must be taken to prevail in every part of India, where it has not been modified by actual legislation or established practice, and so, must be enforced according to its letter.

In this case, Sir James W. Col vile who delivered the opinion of the Board, referred to the earlier decision of the Privy

Council in Pattabhiramiers case(2), noticed the trend of judicial pronouncements made by the High Courts in India while Pattabhiramier's case was pending before the Privy Council, and strongly reiterated the view that the said decisions of the High Courts were radically unsound.

He referred to the fact that unfortunately, Pattabhiramier's case "slept for nine years, and that in the interval .the Sudar Court, and afterwards the High Court which succeeded it, continued the course of decision which the former had given in 1858,. Then he mentioned the relevant decisions of the Madras and the Bombay High Courts and expressed the opinion that in trying to enforce principles of equity in dealing with stipulations contained in mortgage documents, the High Coons were really assuming the functions of Legislature. So, it is clear that the Privy Council emphatically

(I) I.L.R. I Mad. I

Murarilal

Gaiendragadkar

C.J.

Murarilal v.

Dev Karan - Gajendragadkar

C.J.

declared in 1875 that unless there is a legislative enactment or established practice to the contrary, terms in the contract of mortgage by conditional sale must be taken to prevail in every part of India and must be strictly enforced according to their letter.

Mr. Sarjoo Prasad naturally relies on these decisions and contends that so far as the State of Alwar is concerned, there is no legislative enactment to the contrary, nor is there any established practice on which the equitable doctrine could be pleaded by the respondent in support of his case that though 15 years have elapsed, his right to redeem still survives.

There are two other decisions of the Privy Council to which we may refer at this stage. In Kader Moideen v.

Nepean(l), the Privy Council was dealing with a case from Burma, and it observed that the Burmese Courts are direct ed, in the absence of any statutory law applicable to accounts against a mortgagee in possession, to follow the guidance of justice, equity, and good conscience.

Acting on this principle, the Privy Council accepted Mr. Haldane's contention that there was no rule of abstract justice in taking the accounts of a mortgagee in possession, and that the Indian rule, which was embodied ins. 76 of the Transfer of Property Act, should, though the Act had not been extended to Burma, be followed there in preference to the English practice. It would thus be seen that the equitable principle underlying the provisions of s. 76 was extended to the case on the specific ground that the Bunnese Courts had been directed by the relevant sta.tutory provision to follow the guidance of justice, equity and good conscience in the absence of any statutory law applicable to accounts against a mortgagee in possession.

This decision, therefore, is in line with the two earlier decisions of the Privy Council.

Similarly, in Mehrban Khan v. Makhna(2 ), where the Privy Council was dealing with the provisions in a mortgage deed conferring on the mortgagee upon redemption an interest in the mortgaged property, it was held that the said provisions amounted to a clog or fetter on the equity of redemption and as such, were void not only against the mortgagor, but also against the purchaser of his interest,

(t) 25l.A. 24t (~)57 l.A. t68

8 S.C.R.

SUPRErv!E COURT REPORTS 247

since they were inconsistent with the very nature and essence of a mortgage.

In this case, again, s. 28 of Regulation No. VII which was applicable to the North-West Frontier Province, had expressly provided that in cases not otherwise specially provided for, the Judges shall decide according to justice, equity 'lnd good conscience; and so, recourse to the equitable doctrine was pcrmissib!e .because there was the statutory mandate requiring the Judges to l1pply t!1e said doctrine where there was no specific legislative provi~, ion in relation to the matter with which they were dea1ing. .

Though the position of the Privy Council decisions is thus clear and consistent, the trend of the decisions of the High Courts in India continued to conform to the same pattern which was set up by the decision of the Madras High Court in the case of Venkata Reddi v. Parvati Ammal(l) and adopted by the Bombay High Court in Ramji bin Tukaram v.

Chinto Sakharam(2). The question was elaborately argued on .several occasions before the said High Courts .and the two earlier decisions of the Privy Council in the case of Pattabhiramier( 3 ) as well as in the case of Thumbusawmy Moodelly(4 ) were cited and yet, the High Courts have con- sistently adhered to the view that in dealing .with mortgage transactions which contain unfair~ unjust or oppressive stipulations unreasonably restricting the mortgago{s right to redeem, the Court would be justified in refusing to enforce such stipulations and recognising the paramount character of the equity of redemption.

In Bapuji Apaji v. Sonavaraji Marvati(i>), Westropp, C.J., h().s elaborately considered the relevant aspects of this question.

He referred to the two Privy Council's decisions and observed that the doctrine of Ramji v. Chinto() had been uniformly folJO\ved jn the Bombay Preidency in a multitude of cases, and he aw no reason to depart from that decision.

In expressing his firm adherence to the pattern of the law prescribed by the decision of .the Bombay High Court in Ramji v. Cldmo, the le3rned Chief Justice elaborately considered ali the prece dents on the point. trend of authorities bearing on the question, the opinion of scholars~ and held that he was inclined

(I) I Mad. H.C. Rep. 460

(2) I Born. H.C.'Rep. 199 [rS6.d

(3) [IS7o] 13 M.I.A. 560

(4) I.L.R. I Mad. I,

(5) J.L.R. II Born. 231

!vlurarilal

Gnjendragadkar

C.J.

Murarilal

to take the law to be that which was settled in Ramji v.

Chinto(l) and gave effect to it.

So far as the Bombay High Court is concerned, the practice consistently had been

Gajendragadkar

C.J.

to follow the decision of Westropp, C.J. till the Transfer of Property Act was extended to Bombay.

In Madras, we find that same position.

In Ramasmi Sastrigal v. Samivappanayakan(:l), the majority view of the Full Bench was that in the Madras Presidency, where conw tracts of mortgage by way of conditional sale have been entered into subsequent to the year 1858, redemption after the expiry of the term limited by the contract must be allowed.

The point with which we are dealing in the present appeal was elaborately .argued before the 1vladra5 High Court; the opinion expressed emphatica1ly by the Privy Council was cited, but Turner, C.J ., with whose opinion Muttusami Ayyar, J., agreed made a very significant observation after elaborately examining the merits of the question. "For these reasons," said the learned C.J ., "we conceive that we shall not be wanting in due respect for the distinguished tribunal by whose decisions we are bound, if we follow the course they have pronounced there were strong reasons for adopting and apply the rules introduced, however erroneously, by judicial decisions in these provinces." That view has prevailed in the Madras High Court ever since.

These decisions show that the High Courts in India conformed to the view that whether or not there is a statutory provision directing the Judges to give effect to the principles of justice, equity and good conscience. it is their duty to enforce that principle where they are dealing with stipulations introduced in mortgage transactions which appear to them to be unreasonable, oppresive or unjust.

It is true that according to the strict letter of the ancient Hindu Law, a stipulation that the mortgagor shall pay the amount advanced to him by the mortgagee within a specified

priod, was intended to be enforced.

The ancient Hindu bw texts use the word "Adhi'' to denote pledge of a movable or mortgage of immovable property.

Nar. IV 124 divides

Ahi into two sorts, viz., one that is to be redeemed within ----------------- tt) 1 Bon H.C. Rep. 199 (1864)

(2) I.L.R. 4 Mad. 179 at p. 1.90

a certain time fixed (by agreement at the ti.rile of contracting the debt) or to be retained till the debt is paid off. In regard to the first category of mortgages, if the money is not paid at the time fixed, the thing pledged or mortgaged would belong to the creditor (vide Yaj. II. 58 and as explained by Mitakshara) ( 1). It also appears that if the mortgage is not redeemed even when the debt has grown to double of the principal by non-payment of the interest agreed upon, the mortgagor lost his title over the mortgaged property; so that it must be conceded that under the strict letter of the Hindu law texts, if a mortgage deed contains a stipulation for the repayment of the mortgage amount within a specified period, at the expiration of the said period the mortgagor may Jose his title over the mortgaged property. The principle underlying this provision appears to be that Hindu law as enunciated by the ancient texts, attached considerable importance to a person keeping his promise.

Though that is so, we ought also to add that according to Sir R. B. Ghose, ordinarily, time was not of the essence of the contract of mortgage in Hindu law(2), and in support of this opinion the learned author quotes with approval Colebrooke's opinion.

Basing himself on this position of the Hindu law, Mr.

Sarjoo Prasad contends that we ought to assume that Hindu Law which as applicable to Alw.ar recognised the importance of compelling the mortgagor to perform his promise that he would repay the debt within a specified time and if he failed to do so, he would lose his title over the mortgaged property. He urged that the dispute between the parties in the present appeal should be dedded in the light of this position of the Hindu law as well as the principles enunciated by the Privy Council in the cases of Pattabhiramier(3 ) and Thumbusawmy Moodelly(4').

In dealing with this argument, it would be relevant to observe that traditionally,· courts in India have been con sistently enforcing the principles of equity which prevent the enforcement of stipulations in mortgage deeds which unreasonably restrain or restrict the mortgagor's right to

(I) Dr. Kane's HistoryofDharmasastra Vol. III. p. 428 (::) Ghose on (The Law of Mortgage in India, Tagore Law Lectures I87S-6t 5thEd. Vol. I. p. 56.

{3) [1870] 13 M.I.A. 560

(4) I.L.R. I Mad. I

Mllrarilal

Dev Katan

Gajendragadka;

C. I.

M11rarilal

'Jajendragadkar

C.J.

redeem. We may, in this connection, refer to some of the statutes which were in force in India. The old Bengal Regulation III of 1793 by s. 21 directed the Judges of the District and City Courts in cases where no specific rule existed to act according to justice, equity and good con~ science.

Similar proli'; ion occurs in s. 17 of the Madras Regulation II of 1802. The Bengal Civil Courts Act, 1887, and the Madras Civil Courts Act, 1873. contain similar pro~ visions in ss. 37 and 16 respectively.

Likewise, in regurd to Courts in the Mufassal of Bombay! Bombay Regulation IV of 1827 by s. 26 provides that the law to be observed in the trial of suits shall be Acts of Parli3ment and Regulations of Government applicable to the case; in the absence of such Acts and Regulations, the usage of the country in which the suit arose; if none such appears, the law of the defendant, and in the absence of specific law and usage, equity and good conscience. In fact, in Namdeo Lokman Lodhi v.

Narmadabai(l), this Court has emphaticaiJy observed that it is axiomatic that the courts must apply the principles of justice, equity .and good conscience to transactions which come before them for determination even though the statutory provisions of the Transfer of Property Act are not made applicable to these transactions. These observations, in substance, represent the same traditional judicial approach in dealing with oppressive~ unjust and unreasonable restrictions imposed by the mortgagees on needy mortgagors when mortgage documents are executed.

There is one other circumstance to which we ought to refer.

We do not know what the true position of the Hindu law was in the State of Alwar at the relevant time. In fact, we do not know what the provisions of the Contract Act were in the State of Alwar.

Even so, \Ve think it would be reasonable to assume that civil courts established in the State of Alwar were like civil courts .aU over the country~ required to administer justice and equity where there was no specific statutory provision to deal with the question raised before them.

Whether or not the Hindu law which prevailed in Alwar was similar to that prescribed by ancient Hindu Sanskrit texts, is a point on which no material is produced

(I) [1953] S.C.R. I009

c---

' •

8 :S.C.R.

SUPREME CUURT REPORTS 251

before us. It may well be that just as in Bombay and Madras, notwithstanding the ancient provisions of Hindu Law which seem to entitle the mortgagee to insist upon the performance of a stipulation as to time within which the mortgage debt has to be paid, the High Courts had consistently refused to enforce such stipulations, the Courts in the State of Alwar also may have adopted the same approach.

In the absence of any material on the record on the point~

we are reluctant to accept Mr. Sarjoo Prasad's atgument that the. doctrine of equity and justice should be treated as irrelevant in dealing with the present dispute .

. In this connection, it is material to refer to the recent decisions pronounced by the Rajasthan High Court in which this position has been upheld either because it was conceded, or because the High Court took the view that the principles of equity were enforceable in dealing with mortgage transactions in Rajasthan.

In Amba Lal v. Amba Lal(l), the Rajasthan High Court held that s. 60 and its proviso contained a general principle of law applicable to mortgages in this country, which should be applicable even in those places where the Transfer of Property Act m.ay not be in force as such, but where its principles may be in force.

The property in question which was the subject-matter of the mortgage was situated in the State of Udaipur.

Similarly, in the case of Seleh Raj v. Chandan Mal(2), the Rajasthan High Court held that the principle underlying s. 60 may well be regarded to be a salutary one and in accordance with the principles of equity, justice .and good conscience.

Accordingly it too.1c the view that though the Transfer of Property Act may not be in force in the territory in question, it would not be unreasonable to decide a case in accordance with the principles underlying the said section.

The property with which the Court was concerned in this case was situated in the State of Jodhpur.

The same principle has been applied in Himachal Pradesh (vide Nainu v. Kishan Singh) (3).

(t) I.L.R. 1957 Raj. 964.

(2) I.L.R. 1960 Raj. 88.

(3) A.I.R. 1957 H . .P. 46.

Murarilal v.

Dev Karan

Gajendragadkar

C. I.

Murarilal v.

Dev Karan

Gajendragadkar

C. I.

1964 - May, 8

Thus, it is clear that the equitable principle of justice, equity .and good conscience has been consistently applied by Civil Courts in dealing with mortgages in a substantial part of Rajasthan and that lends support to the contention of the respondent that it was recognised even in Alwar that if a mortgage deed contains a stipulation which unreasonably restrains or restricts the mortgagor's equity of redemption, courts were empowered to ignore that stipulation and enforce the mortgagor's right to redeem, subject, of course, to the general law of limitation prescribed in that behalf.

We are, therefore, satisfied that no case has been made out by the appellant to justify our interference with the conclusion of the Rajasthan High Court that the relevant stipulation on which the appellant relies ought to be enforced even though it creates a clog on the equity of redemption.

In the result, the appeal fails and is dismissed with costs.

Appeal dismissed

SRI JAGADGURU KARl BASAVA

RAJENDRASWAMI OF GAVIMU'IT

COMMISSIONER OF

HINDU

RELIGIOUS

CHARITABLE ENDOWMENTS, HYDERABAD

(P. B. GAJENDJUGADKAR, C.J., M. HIDAYATULLAH, J. c.

SHAH, RAGHUBAR DAYAL AND S.M. SIKRI, JJ.)

Constitution of India, Art. 19(1)(/)-Mutt-Framing of 5clreme-

Repeal of old Act by new Act-Promulgation of Comtitution -in the meantime-Notice on Matadhipati to hand over possession to Executive Officer-Validity-Scheme, it must be tested by funda~ mental rights conferred by the Constitution-Madras Hirz•lu Religious

and Charitable Endowments Act, 1951 (Mad. XIX of 1951), ss.

103(d), 62(3)(a)-(Mad. 11 of 1923), a. 63.

lbe appellant, who was a Matadhipati, moved the High Court for a writ quashina the notice served on him in 1952 by the Executive Oftlcer to hBDd over to the latter the administration and the properties

' .-

,':;

MURARILAL

DEV KARAN (P. B. GAJENDRAGADKAR, C.J.

M. HIDAYATULLAH

DAS GUPTA, J.

c. SHAH

RAGHUBAR DAYAL, JJ.

Rajasthan High Court

Murarilal

Inoia

Alwar

Transfer of Property Act

Ramasami Sastrigal

CIVIL APPELLATE JURISDICTioN

Sarjoo Prasad

Harbans Singh

B. P. Sinha

Naunit Lal

GAJENDRAGADKAR

Murarilal

Gangadhar

Alwar

Thereafiter

s. 8

Chelmsford

India

Colebrooke

Baillie

Pattabhiramier

England

James W. Col

Pattabhiramiers

Sudar Court

Madras

Bombay High Courts

Murarilal

Sarjoo Prasad

Burma

Haldane

Transfer of Property Act

s. 76

s. 28

Madras High Court

Bombay High Court

Thumbusawmy Moodelly(4

Westropp

vlurarilal

Gnjendragadkar

Gajendragadkar

Transfer of Property Act

Madras Presidency

Turner

Muttusami Ayyar

Mitakshara

R. B. Ghose

Alw.ar

Kane

Ghose

Dev Katan

Gajendragadka

s. 21

s. 17

Bengal Civil Courts Act, 1887

Madras Civil Courts Act, 1873

ss. 37 and 16

s. 26

Transfer of Property Act

Bombay

Rajasthan

s. 60

Transfer of Property Act

Udaipur

s. 60

Transfer of Property Act

Jodhpur

Dev Karan

P. B. GAJENDJUGADKAR

S.M. SIKRI

Constitution of India

Art. 19(1)(/)

Repeal of old Act by new Act

and Charitable Endowments Act, 1951

ss.

103(d), 62(3)(a)