CHIEF CONSERVATOR OF FORESTS AND ORS.

RAITAN SINGH

April, 7, 1966

[K. N. WANCIHJO, J.C. SHAH ANDS. M. SIKRI, JJ.] Central Provinces and Rerar Forest Contract Rules-Rule 15(1)- Scope of.

Under r. 15(!) of th" Central Provinces and Berar Forest Contract Rules a forest contractc.r is responsible for any damage done in a reserved forest by h1mscll or his servants or agents and compensation for such damage is to be assessed by the Divisional Forest Officer. The respondent was, under " contract, granted a r:ght to the forest produce. By cl. 9 of the Contract any doubt or dispute arising between the parties as to the performance or breach of any of the conditions of the contract had to be referred lo the Chief Conservator of Forests for decision. The D.vis10nai Forest Officer, acting under r. 15(1), held that the contractor committed a breach of the contract and assessed the compensation for damages.

HELD: Rule 15(1) aoes not invest the Divisional Forest Officer \Vith authority to dctcrniine \\hether the contractor, his servants or his agents have committed a breach of the contract. When a dispul<> arises between the contractor and the forest authorities relating to the performance or breo, ch of the oontract, there has to be, under the terms of cl. 91 a refcrencl' to the officer denominated in the contract.

After liability is deterno, ne<l, there may have to be an assessment, by the Divisionel Forest Oflicer, of compensation payable by the contractor to the State_ ThL'l'C is no inconsistency bctv.ecn cl. 9 o( the Contract and r. 15 [161 i•'-11: 162 E-FJ.

(C!vIL APPEi.LATE JuR1sv1cr10:-i: Civil Appeal No. 255 of 1964.I

Appeal by special !cave from the judgment and order dated November 14, 1960 of the Madhya Pradesh High Court in Misc.

Petition No. 273 of 19j9.

B. Sen, R. P. Kapur and /. N. Shroff, for the appellants.

S. I'. Sinha, and S. Shaukat ll11ssai11, for the respondent.

The Judgment of the Court was delivered by

Shah, J. Under a contract dated October 14. 1956. the respondent was granted a right to the forest produce from Coupe No. 9. Lcndara in the Sainmura Borgain Reserved Forest in the

Kanker Forest Division of Bastar District of Madhya Pradesh, for G

the period October 14, 1956 to March 31, 1958. The Divisional

, J....

Forest Officer held an enquiry in respect of certain breaches committed by the respondent of the terms of the contract, and by order dated January 30. 1958 directed the respondent in exercise of the authority under r. 15( 11 of the Forest Contract Rules framed by the Government of Centi .11 Provinces & Bcrar, to pay Rs. 8,500 as H compensation assessed by him for Jamage done in the reserved

; !

I !!

. ~

forest and Rs. 500 as penalty under r. 30(1) of the Forest Contract Rules. An appeal against the order to the Conservator of Forests, and a revision petition to the Chief Conservator of Forests, Madhya Pradesh, were unsuccessful. The respondent then moved the High Court of Madhya Pradesh by a petition under Art. 226 of the Constitution for a writ quashing the order dated January 30,

1958 directing payment of compensation and penalty and restraining enforcement of the order. The High Court granted the petition and restrained the State and the forest authorities from recovering Rs. 9,000, ordered on January 30, 1958, from the respondent.

In this appeal, the appellants contended in the first instance that the High Court was in error in holding that by r. 15 of the C Forest Contract Rules the Divisional Forest Officer was not authorized to direct the contractor to PilY compensation for damage done by him or his agents or servants, because the coupe was not in "a reserved forest". Such a case, it was said, was never pleaded by the contractor in his petition, and the High Court in granting relief to the respondent made out a case which the appellants had no opportunity to meet. In support of their case tha.t the coupe is a D part of the reserved forest, the appellants have annexed to their petition for special leave a "true copy" of a notification issued under s. 20 of the Indian Forest Act, 1927, as applied to the Central Provinces, declaring that the State forests of the Bastar District in Tahsil Kanker Sainmura-Borgaon specified in the Schedule shall be reserved forests.

We agree with the appellants that the High Court has without any plea or evidence assumed that compensation under r. 15(1) could not be directed to be paid by the contractor for damage done in the coupe, for which he was given a contract, because the coupe was not included in a. reserved forest. The plea which appealed to the High Court was not raised in the petition, nor in the objections to the Divisional Forest Officer in reply to the notice to show cause, nor in the memorandum of appeal before the Conservator of Forests, nor in the petition invoking the revisional jurisdiction of the Chief Conservator of Forests. The High Court assumed that because the forest authorities charged the contractor with "illegal fellings in the coupe" granted to him, the "fellings could not be in a reserved forest''. For this assumption there is no warrant. The High Court was therefore in error in setting up the ground that the impugned order was not authorised by the terms of r. 15(1) .

But the appeal filed by the appellants must still fail on the grounds to be presently set out.

The following are the relevant terms of the contract: H "I. The Governor hereby agrees to sell to the forest contractor, and the forest contractor agrees to purchase the forest produce described in the First Schedule hereunder

160 SUPREllE COURT REPORTS

[1966] SL'PP. B.C.R.

Schedule after stated."

situated in the area speciJied in the said A on the conditions herein-

The First Schedule describes the area of the forest and sets out the torest produce sold under the contract.

''6. The forest contractor shall be subject to the Forest B Contract Rules as amended from time to time \a copy of which has been turnished to the torest contractor, the receipt of which the torcst contractor hereby acknowledges) and th~

Ruic; shall t>e oecmcd to oc part ol this contract m so far as they are appiicablc thereto:

Provided that the said Rub shall be deemed to be modic tied to the extent and in the manner .laid down in the Second Schedule hereunder."

"7. The forest contractor hereby bimls himself to perfom1 all acts and uutres requHed, and lo abstam by himsell and his servants or agents trom performing any act forbidden by the

Indian Forest Act, 1927, by the Forest Contract Rules and by tins contract. "

"9. Jn the event of any doubt or dispute arising between the parties as to the interpretation of any of the conditions of this contract or as to the performance or breach thereof, the matter shall be retcrred to the Chief Conservator of Forests, Madhya Pnidesh, :'iagpur, whose decision shall be final and bindmg on the parties hereto."

ily cl. o of the contract, the Forest Contract Rules framed by the 10<:al Government are made part of the contract. The material ..:tauses of the Rules read as follows:

"2. All contracts whereby Government sells forest produces to a purchaser shaU be subject to the following rules, in so far as they arc applicable, and these rules, 1n so far as they arc applicable. shall be deemed to be binding on every forest con11actor 1101 only as ruks made under the Forest Act, but also as conditions of his forest contract:

Provi, kd that the forest olliccr executing a forest contract shaU have power to vary these rules by express provision in such contract, and where these rules arc in conflict with such G an express provision, such express provision shall prevail:

Provided further " "15(1) A forest contractor shall be responsible for any damage that may be done in a reserved forest by himself or his servants and aents. The compensation for such damage II shall be assessed by the Divisional forest Ot!icer, whose decision shall be deemed to be that of an arbitrator and shall be

,, ,,

CONSERVATOR OF l<'ORESTS v. RATTAN SINGH (Shah, J.) 161

final and binding on the parties, except to the extent that it. shall be subject to an appeal to the Conservator of Forests.

Explanation.-

(2) Any sum assessed as damages under this rwe shall be recoverable as arrears of land revenue ................. .

"30(1) Where the forest contractor commits a breach of any of the conditions of his contract but it is not proposed to terminate his contract on account thereof, the whole penalty provided for in rule 28 shall not be recovered from him, but the Divisional Forest Officer shall have power to recover a portion thereof, not exceeding five hundred rupees, in accordance with the provisions of section 85 of the Act.

(2) An order of the Divisional Forest Officer under this rule shall be subject to appeal to the Conservator of Forests if the amount levied exceeds two hundred rupees, but shall otherwise be final.

(3) The payment of a sum assessed under this rule shall absolve the forest contractor from all further liabilities under his contract in respect of such brea.ch, except his liability under rule 15 for damage done in a reserved forest."

On behalf of the respondent it was urged before the High Court, as also before this Court, that where " dispute arose between the Divisional Forest Officer and the contractor, whether the contractor, his servants or agents had caused damage in a E reserved forest, the question could be deciued in the manner appointed in cl. 9 of the contract alone, i.e., by arbitration of the officer denominated, and not by the Divisional Forest Officer. In dealing with the validity of the order imposing penalty upon the contractor the High Court upheld that argument. Rule 15 in the first instance declares that the forest contractor shall be responsible for any damage done either by himself, or his servants or agents: F it then proceeds to state that compensation shaH be assessed by the Divisional Forest Officer whose decision shall be deemed to be that of an arbitrator, subject to an apprnl to the Conservator of Forests. The rule uoes not confer upon the Divisional Forest Officer authority to determine. when a dispute is raised, whether damage has been caused in a reserved forest by the contractor, his agents or his servants. The rule only declares that for damage that may G be done. by the contractor, his servants or agents, in the forest, the contractor shall be liable: the rule also invites the Divisional Forest Officer with authority to determine the amount of compensation payable by the contractor, but not to determine whether .the contractor, his servants or his agents have committed breach of the contract. Clause 9 of the contract confers authority upon the Chief H Conservator of Forests to adjudicate upon disputes, inter a/ia. as to the performance or breach of the contractor. By. cl. I read with the Schedule to the contract "the contractor had to fell or uproot

162 8Ul'REHE OOURT ~REPORTS i ; (1966] SUPP, S.C.R.

trees marked with a gcru band or to fell trees on coupes and section lines which bear a marking hammer impression on the stump buttends and all Karru over 9" at B.H. whether marked or not".

It was the case of the Divisional Forest Officer that the conlractor had, contrary to the terms of the contract, cut trees not marked with the gem band. Plainly, the Divisional Forest Ollicer claimed !hat the contractor had committed a breach of the terms of the contract, and when the contractor denied the breach. a dispute arose between the parties as to the performance or breach of the terms of the contract. and it had to be referred to the Chief Conservator of Forcs!s. It is conceded, and in our judgment counsel is right in so wnceding. that the expression "shall be referred to" means "shall be referred to the Officer denominated" as an arbitrator to decide 1hc dispute.

It was argued hcwever that by virluc of cl. 6 of the contract, the Forest Contract Rules were made part of the contract, and the Divisional Forest Oflicer was invested with authority not only to determine the amount of compensation which may be payable by the contractor for damage done in a reserved forest, but also to determine whclher the contractor or his agents or servanls had been responsible for causing the damage. This, for reasons already stated, we arc unable to accept.

There is no inconsistency between cl. 9 of the contract and

r. 15. It is unnecessary, therefore, lo consider whether in case of inconsiotency, the terms of the contract expressly setting out a ccr- E lain covenant may supersede the terms of the rule. Under r. 15 the liability for damage done in a reserved forest is declared against the contractor. He is also declared liable to pay compensation as may be asseS>ed by the Divisional Forest Officer. But the Divisional Forest Ollker is not invested with authority to determine whelhcr the damage was done hy the contractor, his agents or servants. That is a matter which must be determined in a refer- F ence under cl. 9 of the contract.

It was urged by 1hc appellants that it could not have been inlcnded by the rule-making authority. who had also prescribed the form as part •)f the rules in which lhe contract was required to be executed. to set up a complicated and clumsy procedure for G determination of a dispute about the breach of contract. If the

,.+ ..

language of the rules were ambiguous. this may be a relevant con-

1J. , ideration. When a dispute arises bc1ween the contractor and the forest authori1ics rdating to the performance or breach of the contract. there has. under the terms of cl. 9. lo be a reference to the Officer denominated in the contract. After liabilily is detcrmin- H ed. there may have to be an assessment by the Divisional Forest Officer of compensation payable by the contractor to the State.

That would necessitate another inquiry. The procedure is apparently clumsy and likely to be dilatory. But we are una.ble to ignore the plain terms of the contract and the rules, and to hold that in respect of the determination of responsibility for damage done in a reserved forest, there need be no reference under cl. 9 of the terms of the contract.

It was then urged that in any event a decision was in fact given by the Chief Conservator of Forests in this case, and that decision complied with the requirements of cl. 9 of the contract.

But as already stated, the Divisional Forest Officer passed an order holding the respondent .Hable to pay compensation for damage done in a reserved forest and assessing the compensation at Rs. 8,500 and penalty at Rs. 500. That order was confirmed in appeal by the Conservator of Forests, and in exercise of his revisional jurisdiction the Chief Conservator of Forests upheld the order of the Conservator of Forests. The Chief Conservator of Forests did not even purport to act as an arbitrator: he recorded no evidence, and expressly held that the Divisional Forest Officer was not obliged to refer the case for arbitration under cl. 9 of the contract. The trial was not of a proceeding in arbitration, but of a proceeding in exercise of supervisory or revisional jurisdiction. If in truth the dispute had to be referred for adjudication to the Chief Conservator of Forests, his decision that he found no reason to interfere with the "findings of the Divisional Forest Officer" who was one of the parties to the dispute, cannot conceivably be regarded as an award between two contesting parties. It must therefore be held that the order passed by the Divisional Forest Officer imposing liability for compensation for damage done by i1legal fellings cannot be sustained.

The second part of the order imposing penalty under r. 30(1) also suffers from the same infirmity. It is true that under the rule! the Divisional Forest Officer had power to impose penalty in a sum not exceeding Rs. 500. But exercise of that power is conditioned by the existence of a breach by the forest contractor of any of the terms of the contract. Where a. dispute arises whether there has been a breach of any of the terms of the contract, it is, for reasons already stated, to be determined by the Chief Conservator of Forests. That has admittedly not been done. The order imposing penalty under r. 30(1) must also be set aside.

The appeal therefore fails and is dismissed with costs.

Appeal dismissed.

CHIEF CONSERVATOR OF FORESTS AND ORS

RAITAN SINGH

C. SHAH ANDS. M. SIKRI, JJ.

cl. 9

cl. 91

cl. 9

Art. 226

Forest Contract Rules

s. 20

Indian Forest Act, 1927

First Schedule

First Schedule

Second Schedule

Indian Forest Act, 1927

section 85

cl. 9

Clause 9

cl. 6

cl. 9

cl. 9

cl. 9

cl. 9

cl. 9

cl. 9


., D

• G

INDIAN IRON & STEEL CO. LTD.

BISWANATH SONAR

March 22, 1966

[K. N. WANCHOO, M. HIDAYATULLAH AND J. C. SHAH, JJ.]

Bengal Non-Agricultural Tenancy Act, s. 9(l)(iii)-Benefit under section whether available in case of monthly tenancy-'Term' in section whether means agreed term or period of occupation.

The appellant company gave on lease a piece of land to the respondent in 1938. On June 28, 1950 the company gave notice to the respondent terminating the tenancy. The period mentioned in the notice, which was received by the respondent on June 29, 1950 was six months ending with the expiry of December 1950. Later the company filed a suit for the eviction of the respondent. The latter claimed benefit of s. 9(1) (iii) of the Bengal Non-Agricultural Tenancy Act.

The trial court decreed the suit and the first appellate Court upheld the decree, but the High Court set it aside and dismissed the suit.

By special leave, the company appealed to this Court contending that since the respondent's tenancy was from month to month s. 9

(1) (iii) did not apply, It was urged: (i) the phrase "for a term of more than one year but less than twelve years" in the first part of the section contemplated tenancies in which the agreed duration under a contract was more than: one year but less than 12 years; (ii) the phrase "six months' notice expiring with the end of a year of the tenancy" in the latter part of the section meant that the notice in writing must expire with the end of the year of the tenancy when the tenancy was from year to year and with the end of the term when it was more than one year's duration.

HELD: (i) The Act uses the word "term" both in the sense of a period of occupation and of a perfod agreed upon in a contract. The context must determine the sense in which it is to be understood. In the opening words of s. 9(1) (iii) it means that the land must be held, that is, occupied, for more than one year. It does not signify that there should be an agreed term of more than one year. [18 C-D; 19C; 20E]

(ii) The words "end of a year of tenancy" in the latter part of s. 9(1) (iii) are no doubt indicative of a tenancy from year to year but they are not such as to be inapplicable to a tenancy from month to month. What the section conterflplates is occupation for more than one year and it says that a tenant who has held the land for more than a year, dbeit, on a tenancy from month to month, shall only be evicted on the anniversary od' the day on which his tenancy commences.

[20 F-H]. ·

(iii) The tenancy having commenced as held by the High Court on December 1, 1938 the notice given by the company in the present case fell short of the statutory six months and was therefore invalid. [21 E-G].

C!vrL APPELLATE JuRrsmcnoN: Civil Appeal No. 1090 of 1963.

Appeal by special leave from the judgment and decree dated June 2, 1961 of the Calcutta High Court in Appeal from Appellate Decree No. 786 of 1956.

M. C. Setalvad and D. N. Mukherjee, for the appellant.

A. K. Sen and P. K. Chatterjee, for the respondent.

SUPREME COURT REPORTS (1966]

SUPP. S.C.R.

The Judgment of the Court was delivered by A

Hidayatullab, J. This appeal by special leave against the judgment and order of the High Court of Calcutta, December 5, 1961, arises from a suit between landlord and tenant. The Indian Iron & Steel Co. Ltd. (appellant) is the landlord and Biswanath Sonar (respondent) is the tenant, and the tenancy is in respect of a B piece of land with a rent of Rs. 4 /- per month. According to the Company the tenancy commenced in December 1938 and according to the tenant in the beginning of 1935. The two courts of fact have found in favour of the Company on this point and the High Court has very properly accepted this concurrent finding but has held that tenancy began on the 1st of December, 1938, but more of that later.

The suit was commenced in the Court of the Munsif at Asansol by C the Company after serving a notice dated June 28, 1950 terminating the alleged monthly tenancy of the respondent with the expiry of December, 1950. The notice was served on June 29, 1950. The Company asked for the relief of khas possession by evicting the tenant and reserved the relief of compensation for wrongful occupation after January 1, 1951, for a separate suit. The Company offered to pay such reasonable compensation for structures on the D land as the court might determine. The respondent claimed benefit of s. 9(i)(iii) of the Bengal Non-Agricultural Tenancy Act under which, he submitted, his tenancy could not be determined except by service of six months' notice in writing expiring with the year of tenancy. He contended that the notice served on the 29th of June terminating the tenancy at the end of December, 1950, was not in accordance with the provisions of the Act as the tenancy commenc- E ed in the beginning of 1935, and, therefore, the suit was not maintainable. The learned Munsif held the notice to be proper and decreed the suit. On appeal the Additional District Judge, Asansol confirmed the decree passed by the Munsif. On second appeal a learned single Judge in the High Court reversed the decision of the two courts below and ocdered the dismissal of the suit. He followed a decision of a special Bench of his Court reported in the Indian Iron F and Steel Co. Ltd. v. Baker Ali(') which had approved of two unreported decisions of the same Court reported in Sudhindra !Vath Roy v. Haran Chandra Mistry (S.A. No. 879of1950 dated 25-1-1955) and Narayan Chandra Sen v. Sripati Charan Kumar (S.A. No. 425 of 1952 dated 9-8-1955). The learned single Judge re.fused leave to file an appeal under the Letters Patent but the appellant was granted special leave by this Court to appeal against the judgment of the G learned single Judge.

In this appeal two questions arise, namely, (i) whether the provisions of s. 9(l)(iii) of the Non-Agricultural Tenancy Act apply to the present tenancy, and (ii) whether the notice served upon the respondent complied with the terms of the Act. In so far as the H

(') A.I.R. 198t Cal. 51~.

IRON & STEEL co. v. B. SONAR (llidayatuUah, J.) 17

-f A first question is concerned no further facts are necessary. This ques tion should have given no difficulty but for the fact that the langu .. ; age of the enactment is far from clear. Section 90)(iii!lJ reads as --< follows:-

"9. Incidents of non-agricultural tenancies held for less than

B twelve years.

(1) Notwithstanding anything contained in any other law for the time being in force or in any contract, if any non-agricultural land has been held for a term of more than one year but less than twelve yearsc

(a) under a lease in writing for a term of more than one year but less than twelve years to which the provisions of clause (5) of section 7 do not apply, or

(b) without a lease in writing, or

(c) under a lease in writing but no term is specifi

ed in such lease, D then the tenant holding such non-agricultural land shall be liable to ejectment on one or more of the following grounds and not otherwise, namely: - (i)

(ii)

(iii) on the ground that the tenancy has been terminated by the landlord by six months' notice in writing expiring with the end of a year of the tenancy served on the tenant in the prescribed manner in clause (b) : Provided that a tenant shall not be liable to eject ment on the ground specified in clause (iii) except on .

> F payment of such reasonable compensation as may be agreed upon between the landlord and the tenant or if they do not agree, as may be determined by the Court

,; f on the application of the landlord or such tenant.

" . <·\'..

G Difficulties arise in connection with two expressions in this section .

Firstly, what is meant by the phrase "for a term of more than one year but less than twelve years" in the opening part, and, secondly, what is meant by the phrase "six months' notice in writing expiring with the end of the year of the tenancy". The appellant contends that the first phrase contemplates tenancies in which the agreed H duration under a contract is more than one year but less than 12 years and the second phrase means that the notice in writing must expire with the end of the year of the tenancy when the tenancy is

18 SUPRElE (,'Ot:H1 REPORTS [1966)

8\; PP.

S.C.R.

from year to year and with the end of the term when it is more than one year's duration. The respondent contends that the two phrases respectively describe the duration for which non-agricultural land must actually be held and that the notice of six months must end on the anniversory of the commencement of the tenancy.

The appellant's contention, shortly stated, is that a monthly tenancy cannot get the benefit of s. 9(l)(iii) however long the occupation of the land. Both sides agree that this is non-agricultural land and that the tenancy is from month to month. It has also been found that it is a monthly tenancy. If the provisions of s. 9(l)(iii) apply also to a monthly tenant who has been in possession of land for more than a year, then the respondent will be protected from eviction, otherwise not. This depends on what is meant by the two phrases we have referred to earlier.

The construction of the first phrase is rendered difficult because the Act does not use the words strictly in the same_ sense throughout. Sometimes the word "term" is used to indicate a period of time without any reference to a contract determining it and sometimes to a period settled. agreed or determined by a contract. In

s. 9(l)(iii) the word "term" is used and the question arises whether D it indicates a period of occupation or a pericd agreed upon in a contract. To determine the right meJning we shall first analyse the provisions of the Act generally and then consider what is the true meaning of the two expressions in s. 9 on which there has been a difference of opinion between the High Court and the two courts below.

The Act was passed to make comprehensive provisions relat- E

ing to the law of landlord and tenant in respect of non-agricultural tenancies in West Bengal and is a part of protection given in modern times by law to tenancies of various kinds of which the Rent Control Acts and Acts relating to agricultural tenancies represent some other aspects. After defining the terms such as 'land', 'non-agricultural land' and 'non-agricultural tenants' (to which definitions F pointed reference here is unnecessary), the Act classifies non-agricultural tenants into tenants and under-tenants, and then it makes separate provisions for their protection. The Third Chapter (ss. 6 to 15) provides for tenants a11d the Fourtb Chapter for under-tenants. The remaining Chapters providing for the manner of transfer of non-agricultural tenancies', preparatioh of records of rights, settlement, rents, etc. do not presently concern us. We shall, there- G fore, confine our attention to the cha pier on tenants. Section 6 lays down the manner of use of non-agricultural lands. It states generally that the tenant may use land in any manner not inconsistent with the purpose of the tenancy but so as not to impair its value.

The section goes on to state that the tenants to whom ss. 7 and 8 apply may erect any structure including a pucca structure, dig any H tank, plant and enjoy the flowers and fruits and fell and utilise or dispose of timber of any tree on such land, but the tenants to whom

!RON & STEEL co. v. Jl, SOO!AR (liidayat!!Ua./i, J.) 19

s. 9 applies may only erect structures other than pucca structures and may not dig tank, or fell, utilise or dispose of, trees not planted by them. Sections 7, 8 and 9 lay down the incidents of two different kinds of tenancies: (a) those held for a term of not less than 12 years and (b) those held for a term of less than 12 years but more than one year and the question which we have stated earlier is whether by the word "term" is meant the duration of the lease agreed upon or merely the period of occupation of the non-agricultural land.

A close study of the Act shows that the word "term" is used in both senses and the context must determine in which sense it is to be understood. We need not reproduce here all the sections or c clauses in which the word "term" is used in one sense or the other because sub-sections (3) and (4) of s. 7 between them illustrate adequately this two-fold meaning. We may reproduce them here:

"7. Incidents of certain tenancies.

Notwithstanding anything contained in any other law for the time being in force or in any contract- D (]) (2)

(3) If any non-agricultural land has been held for a term of not less than twelve years under a lease in writing but no term is specified in such lease, or E

(4) if any non-agricultural land held under a lease in writing for a period specified therein continues to be held with the express or implied consent of the landlord after the expiration of the time limited by such lease and the total period for which such land is so held is not less than twelve years, or F :(5)

then-

(i) the tenant holding the non-agricultural land comprised in such tenancy shall not be ejected by his landlord from such land except on the ground that he has used such land in a manner which renders it unfit for use for the purposes of tenancy,

(ii) the interest of the tenant in the non-agriculural land comprised in such tenancy shall, m the case where such tenant dies intestate !n repect o~ such interest, be transmitted by mhentance m the same manner as his other immovable property:

SUPR~; ME COURT REPORTA

(1966) BUPP, s.o.B,

A bare perusal of these enactments is sufficient to show that A the word "term" used for the first time in (3) indicates that the period of occupation must not be less than 12 years. It cannot mean an agreed period because the latter part says that this applies where "no term" is specified in the lease and in this part the word "term" must obviously mean an agreed period. (4) shows that if B land is held beyond the period specified in the lease in writing and if the total period then becomes not less than 12 years, the protcction is again obtained. The word "term" thus may indicate a period specified in a lease or a period of occupation according as the context requires. This diversity of meaning is also illustrated by ss. 7(2), 8(1) and 8(3).

We now come to s. 9 which we have already quoted. It begins by excluding any other law or ccntract of lease from considerac

tion and speaks in the opening part of land held for a term of more than one year but not less than twelve years thereby distinguishing between tenancies on the basis of the length of occupation. As the marginal note says. the section deals with tenancies held for less than twelve years. Clauses (a), (b) and (c) also estab- D lish the above meaning because (a) applies to leases in writing for a term of more than one year but less than twelve years, (b) refers to cases in which the occupation is without a lease in writing and

(c) refers to cases in which there is a lease in writing but no term is specified. In those cases in which there is no written lease or in which no term is specified in the lease in writing, the opening portion must obviously mean that the land must be held, that is, B occupied for more than one year. The difference between ss. 7 and 8 on the one hand and s. 9 on the other lies in the kind of protection afforded. A tenant who has held the land under lease for more --- than 12 years cannot be ejected at all unless he has used such land in a manner which renders it unfit for use for the purpose of the tenancy. and his interest becomes heritable, transferable and devisable .like any other immovble property. A tenant who has held F land in occupation for less than 12 years but more than one year can only be ejected by a notice of six months expiring with the end of a year of the tenancy. It is argued that the words "end of a year of tenancy" are inappropriate where the tenancy is from month to month because there is no year of tenancy. Those words

no doubt are indicative of a tenancy from year to year but they are not such as to be altogether inapplicable to a tenancy from G month to month. What the section contemplates is occupation for more than one year and it says that a tenant who has held the land F for more than a year, albeit, on a tenancy from month to month,

shall only be evicted on the anniversary of the day on which his tenancy commences. Where the tenancy is from month to month "year" means a period of twelve months and the tenant may only H be required to quit at the expiry of the whole year, that is to say, on the anniversary of the commencement of the lease.

IRON & STEEL CO. V. B. SONAR (Hidayf!tullah, J.) 21

It is argued that this would have the effect of converting the tenancy from month to month into a tenancy from year to year.

This is J:>erhaps true. In the matter of certain rights of the tena1:1ts, particularly in the matter of termination of their tenancy by notice, it appears that this legislation intends to bring even a .m?nthly tenant, who has occupied land for more than a year, withm the protection of six months' notice before he is evicted. A different protection is given to a tenant who occupies land for 12 years and in that case he cannot be evicted even by notice unless he uses the land in a manner which renders it unfit for the purposes of the tenancy or his other property goes to Government and his interest in the land is extinguished.

Section 9(1)(iii) was interpreted in much the same way in the three decisions of the High Court of Calcutta above referred to and in our judgment those cases took the right view of the matter. The Company itself served a notice in June expiring with the end of the year alleging that the tenancy had commenced in December 1938 indicating quite plainly that it also considered that a notice of 15 days expiring with the end of the month of the tenancy would not be sufficient. In its view also, the notice to be a valid notice had to be of six months expiring with the end of the year of tenancy. Therefore, the notice was despatched on the 28th of June, 1950 and was served on the following day. It asked the tenant to quit at the end of December, 1950. The High Court held that the tenancy must be deemed to have commenced on December I, 1938 and the notice fell short of six months. In fact, the notice would fall short of the necessary period unless the tenancy had commenced on a date between the 29th and 31st December,

1938. There is no proof when the tenancy really commenced and the Company has not cared to give evidence on this part of the case. Even if we reject the finding of the High Court that the tenancy commenced on the !st of December, we are not in a position to say that it commenced on any p>rticular date. We are, however relieved of the trouble to make the effort because the account books of the Company show that the tenant was on the land even in November and had paid rent. In view of this and in view of the construction we have placed on s. 9(1)(iii) it is quite plain that the notice must fall short of the statutory six months. It was, therefore,. quite neffoctive and the High Court was right in holding that 1t was mvahd although our reasons are different.

The appeal has thus no force. If fails and will be dismissed with costs.

Appeal dismissed.

G

INDIAN IRON & STEEL CO. LTD

BISWANATH SONAR

K. N. WANCHOO

M. HIDAYATULLAH

C. SHAH, JJ.

Bengal Non-Agricultural Tenancy Act

s. 9(l)(iii)

s. 9(1)

s. 9

s. 9(1)

s. 9(1)

s. 9(i)(iii)

s. 9(l)(iii)

Section 90

section 7

s. 9(l)(iii)

s. 9(l)(iii)

s. 9(l)(iii)

s. 9

ss. 6 to 15

Section 6

ss. 7 and 8

s. 9

Sections 7, 8 and 9

s. 7

ss. 7(2), 8(1) and 8(3)

s. 9

ss. 7 and 8

s. 9

Section 9(1)(iii)

s. 9(1)(iii)


VITHAL DAS A

RUPCHAND & ORS.

B April 7, 1966

(K. SUB!IA RAO A~D V. RAMASWAMl. JJ.J

Trusts Act 1882. ss. 2.1. 90 and 95-Appellant in possession oj partnership property after dissolution-Collecting rental income-:-Whcther on partition interest pauable by him under s. 23 read teit.h s.<. 90 and 95 either as co-01DnP.r derit:ing advantage in derogation t C Tights of other partners or on lireaeh of tru.<t or beca>c<e of dday in payment of shares of income of other partners.

Interest Act, 1839, s. I-Scope of.

The plaint:!Ts instituted a suit for partition of immovable property constituting two blocks and for rendition of account•. They claimecl that the property was purchased with the capital of the partnership firm in which the plaintiffs and the defendant were partners D and that by two documents dated July 2, !937 and July 16.1937, the properties continued to remain in the ownership of the partnership firm, though the firm was dissolved in 1937. The defendant contested the suit on various grounds and also alleged that he had invested Rs. 10,000/- for constructing a building on the land in one of the blocks The trial Court granted the plaintiffs a decree for most of the reliefs sought. The High Court, in appeal. held that the plaintiffs were E entitled to claim half >hare in the properties and that the defendant was liable to account for the income from the date of dissolution i.e.

July 2. 1937 in the case of one block ancl from 1939 Lri th• case of the other block and furthermore that the plaintiffs were liable to pay haI.f th<• amount spent by the defendant in constructing the building on one of the blocks. Upon a remand of the case to the trial Court a Commissioner v..as appointed to examinr the accounts of rent rcali zed bv the defendant and on the basis of his report. the trial court r iirantcd the plointiffs a decree for the amount payable to them as their half share, together with interest upto April 1957 and after deducting the plaintiffs' shart> of the expenditure incurred by the defendant on the building. In further appeals to the High Court by both the parties the decision of the trial court was substantially confirmed.

In the appeal to this Court b;· the defendant, it was contended. inter a!ia. on his behalf that the trial court and the High Court had erroneously decided that the defendant was liable to pav interest for G the period prior to the institution of. the suit on the half share of the ,..;, rental ; ncome on the ground that the relationship between the parties was in the nature of a trust under Section 90 of the Trusts Act, 1882. ~

On the other hand the contentions for the respondents were that interest nrior to the date of institution of the suit could be paid to H em under the. Interest Act. 1839: that the defendant was in posseS'- sion of the entire pronert1es as co-owner after the dissolution of

the partnership by the document dated July 16, 1937 and that a! he

---: ..---- -_,.,

) I / •

VITIIAL DAS"· RUPCHAND. (Ramaswami, J.) 165

A.\ was realizing rents of the .properties, he was in ihe position of a

 constructive trustee under s. 95 of the Trusts Act and was liable therefore to pay interest on the plaintiffs' share of rent under s. 23 read with s. 95 of the Act; and that he was in any event liable to pay interest under s. 23(b) of the Trusts Act because there was unreasonable delay in paying the trust money to the beneficiary,

HELD: Interest wao "only payable to the plaintiffs at the rate of 6% per annum from the date of the final decree on the amount found due to the plaintiffs.

It is well-established that interest may be awarded for the period prior to the date of_ the institution of the suit if there is an agreement for the payment of interest at fixed rate or if interest is payable by the usage of trade having the force of Jaw, or under the provisions of any substantive law as for instance under s. 80 of Negotiable Instruments Act or s. 23 of the Trusts Act. It was admitted in the present case that the two agreements between the parties dated July 2, 1937 and July 16, 1937 did not provide for payment of interest 1n the rental realised by the defendant on the joint properties. Nor was interest payable under any provision of law governiiig the case.

Under the Interest Act, 1839, the court may allow interest if the amount claimed is a sum certain which is payable at a certain time by virtue of a written instrument but it was conceded that was not the position in the present case. The provision in s. 1 of the Interest" Act that "interest shall be payable in all cases in which it is now pay- able by Jaw," applied only. to cases in which the Court of Equity exercised jurisdiction to allow interest. [168 B-D].

Bengal Nagpur Railway c'o:Ltd. v. Ruttanji Ramji 65 I.A. CG.

Thawardas PharumaL v. Union of India. [1955] 2 S.C.R. 48. Union of India v. Rallia Ram, A.I.R.1963 S.C. 168!1 and Union of India v. Watkins Mayor & Co. A.LR. 1966 S. C. 275, referred to.

.There wasno force in the contention that s. 90 of the Trusts Act applied to this case. A ct>-owner in possession of all the joint properties does not become a trustee by the mere fact of his collection of the full amount of rent from the tenants. If the co-owner .is to be clothed "with the status of a trustee, it must be shown that he has gained some advanage in derogation of the other co-o\vners interested in the property and that he gained such n G<!vanlage by availing himself of his position as co-owner. In the present case,, there was no allegation or finding by the trial court that the defendant had gained any such advantage. [170 E] Even assum!ng that the .defendant was in the position of a constructive trustee, he would be liable to pay interest under s. 23 only if he committed a breach of trust and in the present case there was no question of any such breach on his part. Furthermore, he was not liable to pay interest under s. 23(b) as that provision contemplates cases where there is an obligation on the part of the trustee to pay the trust money to the beneficiary at fixed intervals or on demand. [170 F].

Blogg v. Johnson, [1867] 2 Ch. A 225, Silkstone and Haigh Moor _ Coal Co. v. Edey, [1900] 1 Ch. 167; Mal!and v. Gray 63 E.R. 744 and Guildrey v. Stevens 46, L.T. 761, referred to.

 OVIL APPELLATE JURISDICTION: Civil Appeals Nos. 926 and 927 of 1965.

Appeals from the judgment and decree dated November 25, 1962 of the Madhva Pradesh High Court (Indore Bench) at Indore, in First Appeals Nos. 19 and 23 of 1957 respectively.

BUPR~:ME COURT REPORTS

(1966] SUPP. S.C.R.

S. V. Gupte, Solicitor-Genert1l, Rameslnvar Nmh, S.

A Andley, P. L. Vohra and Mahinder Narain, for the appellant.

S. P. Sinha, Ga11pat Rai. £. C. Agarwala and P. C. Agarwala. for the respondent.

The Judgment of the Court was delivered by

Ramaswami, J. These appeals are brought by certificate on behalf of the defendant from the judgment of the High Court of Madhya Pradesh. Indore Bench, dated November 20, 1962 in First Appeals Nos. 19 and 23 of 1957.

The plaintiffs, Rup Chand and Hukam Chand instituted Civil Suit No. 8 of S. 1999 in the Court of District Judge, Ujjain, against the defendant Vithal Das and three others, for partition of houses and for rendition of accounts. Two of the defendants, Bheronlal and lndermal died in the course of the suit and the suit was continued against Vithal Das. The plaintiffs alleged that the immovable property constituting Blocks Nos. 206 and 207 in Freeganj, Ujjain was purchased with the capital of the partnership firm in which the plaintiffs and the defendant were, at one time, partners and by two documents dated July 2, 1937 and July 16, 1937, the properties continued to remain in the ownership of the partnership firm. though the firm had been dissolved in the year 1937. The plaintiffs claimed that the properties were managed by the defendant on behalf of the plaintiffs and the defendant realised rents from the tenants on their behalf and plaintiffs were therefore entitled to receive half the amount realised as rent and the defendant was liable to render accounts thereof. The plaintiffs also claimed partition of the joint properties, or in the alternative, the sale of the property by auction and after deducting the cost of auction. half of the sale proceeds. The defendant contested the suit on the ground that at the time of the execution of the document dated July 2. 1937 there were only three blocks in partnership which were at that time open land. The defendant claimed that Block No. 206 and the building constructed thereon was not a partnership property. It was further alleged that the defendant had invested Rs. 10,000 in the three blocks of land which were held in partnership for constructing a building. The trial court accepted the plaintiffs' case and granted a decree for partition of the blocks and for an account of income realised in respect of the property situated on block No. 207. As regards block No. 206 and the property standing thereon the trial court directed the defendant either to remove the construction nr accept his share of money spent by the defendant over it and created a charge over the property in respect of the amount so held payable. Both the parties preferred appeals in the High Court of Madhya Pradesh against the judgment of the trial court which partially allowed the appeals and remanded the case to the trial Court. The High Court held that the plaintiffs were entitled to claim half share in both the properties built on blocks Nos. 206 and 207 and the defendant was liable to account

VITBAL DAS:v. RUPCHAND (Ramaswami,_J.) 167

A for the income of the properties on block No. 207 from the date of dissolution i.e., from July 2, 1937 and of block No. 206 from the year 1939. The High Court also held that the plaintiffs were liable to pay half the costs spent by the defendant in constructing t!ie building on block No. 206. After the order of remand the tnal Court appointed a Commissioner for examining the accounts of B rent realised by the defendant. After considering the report of the Commissioner, the trial Court determined the total amount of rent of both the blocks Nos. 206 and 207 at Rs. 41,829/3/7 and the half share of the plaintiffs was determined at Rs. 20,914/4/9. The trial Court also awarded interest to the plaintiffs on the half share of the income to the extent of Rs. 6,67617 / 3 calculated upto April 11, 1957. The total amount thus due to the plaintiffs was determine ed at Rs. 27,591/ 1 /-. Out of this amount the trial court allowed a sum of Rs. 9,75517 /3 on account of the half costs of construction and interest thereon and expenses incurred for house-tax, watertax, legal expenses and repairs. The net amount thus awarded to the plaintiffs was Rs. 17,6701919. As regards the partition of blocks Nos. 206 and 207, the trial court held that in view of the method of construction of the blocks it was not possible to make D partition in equal shares and therefore the trial court directed that the two blocks should be auctioned in separate lots and the parties should be at liberty to bid at the auction and the parties would have equal rights to the amount of the auction. Aggrieved by the judgment of the trial court both the parties preferred appeals to the High Court of Madhya Pradesh, namely, First Appeals Nos. 19 and 23 of 1957. The defendant's appeal was registered as Civil E First Appeal No. 19 of 1957 and the plaintiffs' appeal was registered as Civil First Appeal No. 23 of 1957. Both the appeals were heard and disposed of by a common judgment by the High Court which modified the trial court's finding as to the income of blocks 206 and 207 to the extent of Rs. 803 / 5 / 3 by reducing the income of the two blocks by that figure. The total income was thus reduced from Rs. 41,829/3/7 to Rs. 41,015/14/4 with the corresponding F reduction in the amount of interest. The High Court affirmed the finding of the trial court that the defendant was liable to pay interest on the half share of the rental income on the ground that the relationship between the parties was in the nature of a trust under s. 90 of the Trusts Act (Act II of 1882). The plaintiffs' appeal No. 23 of 1957 was allowed to the extent of Rs. 4,942/9/- and

after adjustment, the plaintiffs' claim was decreed for Rs. 22,103/-.

The first question for consideration in these appeals is whether the High Court was right in granting interest to the plaintiffs on their share of rental income to the extent of Rs. 6,676/7 /3 for the period prior to the institution of the suit. It was argued by the Solicitor-General on behalf of the appellant that the High Court was in error in holding that the relationship between the parties was governed by s. 90 of the Trusts Act and the plaintiffs were therefore entitled to interest on their share of rent under the provi

L/S5SCI-13

&U?RE~E COURT REPORTS

[1966) SUPP. 8.C.R.

sions of s. 23 of that Act. In our opinion, the contention put forward by the SolicitorGeneral is wellfounded and must be accepted as correct.

It is well-established that interest may be awarded for the period prior to the dale of the institution of the suit if there is an agreement for the payment of interest at fixed rate or if interest is payable by the usage of trade having the force of law, or under the provisions of any substantive law as for instance s. 80 of Negotiable Instruments Act or s. 23 of the Trusts Act. It is admitted in the present case that the two agreements between the parties dated July 2, 1937 and July 16, 1937 did not provide for payment of interest on the rent~! realised by the defendant on the joint properties. Nor is interest payable by virtue of any provision of the law governing rhe case. U!!der the Interest Act, 1839, the Court may allow interest lo the plai;11iff if the amount claimed is a sum certain which is payable at a certain time by virtue of a written instrument. But it is conceded that the position in the present case is different. It was suggested by Mr. S. P. Sinha on behalf of the respondents that interest ma; be awarded under the I ntercst Act which contains a provision tJiat "interest shall be payable in all cases in which it is now payab:~ by law''. Hut this provision only applies to cases in which the Court of Equity exercises jurisdiction to allow interest.

The legal position has been explained by the Judicial Committee in Bengal Na1•r>ur Rly. Co. Ltd. v. Ruttanji Ramji(') at p. 72 as follows:

"As observed by Lord Tomlin in Maine and New Brunswick Ekclrical Power Co. v. Hart, 0929) A.C. 631. alp. 640; (AIR 1939 PC 185 at p. 188), 'In order to invoke a rule of equity it is necessary in the first instance to establish the existen,:e of a state of circumstances which attracts the equitable jurisdiction, as, for example, the non-performance of a contract of which equity can give specific performance'." The decision of the Judicial Committee in Bengal Nagpur Rly. Co.

Ltd. v. Rullanji Ramji('I was relied upon by this Court in Tlzawardas Pherumal v. Union of India(') in rejecting a claim for interest.

In that case. a contractor entered into a contract with the Dominion of India for the supply of bricks. A clause in the contract required all disputes arising out of or relating to the contract to be referred to arbitration. The dispute having arisen. the matter was referred lo arbitration and the arbitrator gave an award in the contractor's farnur. The Union of India which has succeeded to the rights and obligations of the Dominion, contested the award on various grounds one of which was the liability to pay interest on the amount awarded. It was held by this Court that the interest awarded to the contractor could not, in law, be awarded and the arbitrator is not a Court within the meaning of the Interest Act, 1839 and. in any event. interest could only be awarded if there was

(') f..5 I.A. 66.

(') [1955) 2 S.C.R. 48.

F ,

' F ~;

VITIIAL DAS v. RUPOHAND (Ramaswami, J.) 169

a debt or a sum certain payable at a certain time or otherwise by virtue of some written contract and there must have been a demand in writing stating that interest will be demanded from the date of the demand. The same view has been expressed by this Court in two later cases-Union of India v. Rallia Ram(') and Union of India v. Watkins Mayor and Co.(').

It was, however, pointed out for the respondents that the defendant was in possession of the entire properties as co-owne after the dissolution of the partnership by the document dated July 16, 1937. It was argued that the defendant was realising rents of all the properties and he was in the position of a constructive trustee under s. 95 of the Trust Act and was liable therefore to pay interest on the plaintUfs' share of rent under s. 23 read with s. 95 of the Act. We do not consider there is any justification for this argument. Section 90 of the Act states:

"Where a tenant for life, co-owner, mortgagee or other qualified owner of any property, by availing himself of his position as such, gains an advantage in derogation of the rii:hts of the other persons interested in the property, or where any such owner, as representing all persons interested in such property, gains any advantage, he must hold, for the benefit of all persons so interested, the advantage so gained, but subject to payment by such persons of their due shares of the expenses properly incurred, and to an indemnity by the same persons against liabilities properly contracted, in gaining such advantage." Section 95 provides as follows:

"The person holding property in accordance with any of the preceding sections of this Chapter must, so far as may be, perform the same duties and is subject, so far as may be, to the same liabilities and disabilities, as if he were a trustee of the property for the person for whose benefit he holds it:

Provided tfl!'t (a) where he rightfully cultivates the property or employs it in trade or business, he is entitled to reasonable remuneration for his trouble, skill wnd loss of time in such cultivation or employment; and (b) where he holds the property by virtue of a contract with a person for whose benefit he holds it, or with any one through whom such person claims, he may, without the permission of the Court, buy or become lessee or mortgagee of the properly or any part thereof." Secfrlll 23 reads as follows:

"Where the trustee commits a breach of trust, he is liable to make good the loss which the trust property or the benefi ciary has thereby sustained, unless the beneficiary has by

(1) A.l.H. I!lti~ S.C. 1!330, L/S5SCI-l :J(o)

('J A.I.n. !D66 s.c. 275.

170 SUPRfilIE COURT REPORTS

(1966] SUPP, S.C.R,

fraud induced the trustee to commit the breach;-or the beneficiary, being competent to contract,· has himself, without coercion or undue influence having been brought to bear on him, concurred in the breach, or subsequently acquiesced therein, with full knowledge of the facts of the case and of his rights as against the trustee.

- . A trustee committing a breach of trust is not liable to pay interest. except in the following cases: -

(a) where he has actually received interest;

(b) where the breach consists in unreasonable delay in paying trust money to the beneficiary;

(c) where the trustee ought to have received interest, but.

C has not done so;

(d) where he may be fairly presumed - to have received

\ interest. ·

He is liable, in case (a), to account for the interest actually received, and, in cases (b), (c) and (d) to account for simple interest at the rate of six per cent. per annum, unless the Court otherwise directs. . • • . .. • . • ,.

We do not agree with the contention of the respondents that s. 90 of the Trusts Act applies to this case. A co-owner in possession of all the joint properties does not become a trustee by the mere fact of his collection of the full amount of rent from the tenants. If the co-owner is to be clothed with the status of a trustee it must be shown that he has gained some advantage in derogation of the other co-owners interested in the property and that he gained .such an advantage by availing himself of his position as co-owner.

In the present case, there is no allegation made by the plaintiffs that . the defendant has gained any advantage in derogation of the rights of the plaintiffs, nor is there any finding of the lower courts that -the defendant gained any advantage by availing himself of his

position as co-owner. We shall. however. assume in favour of the respondents that the defendant is in the position of a constructive trustee in view of the provisions of s: 90 of the Trusts Act. Even upon that assumption we are of opinion that the defendant is not liable to pay interest to the plaintiffs for their share of the rent of _

the properties. The reason is that the trustee is liable to pay interest G only if he commits a breach of trust under s. 23 of the Trusts Act.

There is also the restriction contained in s. 23 of the Trusts Act. namely, that a trustee committing a breach of trust is not liable to pay interest except in the cases mentioned in that section. It was argued by Mr. S. P. Sinha for the respondents that the defendant was liable to pay interest under s. 23(b) of the Trusts Act because there was unreasonable delay in paying the trust money to the beneficiary. We are unable to accpt this argument n• correct. In

. ..J

VITHAL DAS v. RUPCHAND (Ra . .nswami, J.) 171

our opinion, s. 23(b) contemplates oases where there is an obligation on the part of the trustee to pay the trust money to the beneficiary at fixed intervals or on demand. In our opinion, there is no question of breach of trust on the part of the defendant in the present case and the provisions of s. 23(b) of the Trusts Act are not attracted. The view that we have expressed is borne out by several authorities. In Blogg v. Johnson('), Lord Chelmsford, L.C. stated that "the Court will not charge an executor who has been guilty of delay in accounting, with interest on arrears of income unpaid by him''. In that, case, X was entitled to a life income from the estate of her husband, and died in 1861. A bill was filed by her executor, in 1862, against the executor of her husband's will, who had been his partner in business, for an account of income due to her estate; in 1863 accounts were directed. In 1866 a certificate was made, finding that a large sum was due from the husband's executor. It was held by Lord Chelmsford, L.C. that he was not chargeable with interest before the date of the certificate. Again, in Silkstone and Haigh Moor Coal Co. v. Edey('), it was held by the Chancery Court that upon the setting aside of a sale by a trustee of trust property to himself, and the reconveyance of the property to the beneficiaries, it is not the practice of the Court to charge the trustee with interest on the rents and profits received by him since the date of the sale. Interest was, however, charged on arrears in some cases as in Malland v.

Gray(") and Guildrey v. Stevens('), but these cases fall within the range of another principle of equity that where a1n executor or a trustee unnecessarily detains money in his hand which he ought either to have invested or to have paid over to the person entitled to it, he will have to pay interest for it. As Lord Chelmsford, L.C. observed in Blogg v. Johnson(') at p. 228:

"Where money is thus improperly retained, it appears to me to be immaterirul how the sum has arisen, whether from a legacy, or a distributive share, or a residue, or the arrears of income. In the latter case, the claim for interest is not made on account of the arrears, but for the improper keeping back or a sum of money, from whatever source derived, which the executor or trustee ought to have paid over." We have already given reasons for holding that the provisions of s. 23(b) of the Trusts Act do not apply to the present case and the plaintiffs are not entitled to claim any interest on arrears of rent and the High Court has fallen into an error in granting such interest.

The next contention raised on behalf of the appellant is that the Commissioner examined the accounts and submitted his report from July 2, 1937 to December 31, 1954 and the High Court was not justified in granting a decree to the plaintiffs for the subsequent

(1) 1867 2 Ch.A. 225,

( 8)

6~ E.R. 744. (') [1900] ! Oh. 167,

(') 46 L.T. 761,

1•9

~ SL'PR~:llR COL'l\T REPORTS [1966] BUPP. s.c.R.

period from January I, 1955 to April l I. 1957 on the basis of the A figures found from the Commissioner's report. It was argued that the High Court had no basis for assuming that the same rental income was recc1•1ed by the defendant for the period from January

I. 1955 to April 11. 1957 as for the prior period. In our opinion. there is great force in this argument and we should, in the normal '-:>- course, rconnd the cse to the High Court for a finding as to the B accounts of the subse4uent period. Mr. Sinha, however, pointed out that the litigation commenced in 1942 and has already been protracted ton Ion~. W do not, therefore. wish to remand the case to the H'gh Court for further inquiry. Having examined the evidence on the record of this case, we consider that, in the circumstances. a sum of Rs. 2.400:- (instead of Rs. 3,100/-) for the period from January I. 1955 to April 11. 1957 should be granted lo the plain- C tiffs as their share of profits.

We direct that the interest may be ranted to the plaintiffs at the rate of 6 per cent p.a. from November 20. 1962 which is the date of the final decree on the amount found due to the plaintiffs.

Two other points were raised by the Solicitor-General in the course of argument. It was pointed out, in the first place. that First Appeal No. 23 of 1957 filed by the plaintiffs in the High Court was barred by limitation and the High Court should have dismissed the appeal on that ground. It was argued that the trial court's judgment was delivered on April 11. J 957 and the appeal to the High Court was filed on July 22, 1957. A certified copy of the judgment was delivered to the plaintiffs on May 4, 1957 but the endorsement on the certified copy with regard to the date was fraudulently made. An application was made by the defendant to the High Court on November 20. 1961 drawing the attention of the High Court with regard to the endorsement on the certified copy of the judgment. There is. however, no reference in the judgment of the High Court on the question of limitation and it should, therefore. be taken that the point was not pressed on behalf of the defendant at the time of the hearing of the appeal by the High Court. It is, therefore. not possible for us to entertain the argument of the appellant al the present stage. in the absence of any finding of the High Court. The other objection put forward by the Solicitor-General is that the High Court has not taken into account vacancies in the computation of the rental income due to the plaintiffs. It was said that the High Court was wrong in holding that the defendant was liable as a trustee for the rents he ought to have realised even though there was no letting of the building. The Solicitor-General may be right in his argument that the defendant cannot be held liable as a constructive trustee for the rent he has not realised from the tenants and for the premises which were not let out to tenants and which had been lying vacant. but the ground upon which the High Court has made the defendant liable is different. The High.' Court bas taken the view that the defendant has

VITHAL DAS v. RUPCITAND (Ramaswami, J.) '173

not kept proper accounts of the income of the rents realised from the shops. In the absence of proper accounts it is not possible to accept the case of the defendant regarding the vacancies. In our opinion, the finding of the High Court on this point is not vitiated by any error of law and the argument of the Solicitor-General must be rejected on this aspect of the case.

For the reasons already expressed, we hold that these appeals should be partly allowed with proportionate costs and the decree of the High Court dated November 20, 1962 should be modified to the extent indicated in this judgment.

Appals allowed in part.

VITHAL DAS

A

RUPCHAND & ORS

K. SUB!IA RAO

Trusts Act 1882

ss. 2

s. 23

Interest Act, 1839

Section 90

Trusts Act, 1882

Interest Act

s. 95

s. 23

s. 95

s. 23(b)

s. 80

Negotiable Instruments Act

s. 23

Interest Act, 1839

s. 1

[1955] 2 S.C.R. 48

s. 90

s. 23

s. 23(b)

S. 1999

s. 90

s. 90

s. 23

s. 80

Negotiable Instruments Act

s. 23

Interest Act, 1839

[1955) 2 S.C.R. 48

s. 95

s. 23

s. 95

Section 90

Section 95

s. 90

s. 23

s. 23

s. 23(b)

s. 23(b)

s. 23(b)

s. 23(b)


COMMISSIONER OF WEALm TAX WEST BENGAL

IMPERIAL TOBACCO CO. OF INDIA LID.

April 15, 1966

[K. N. WANCHOO, J. c. SHAii AND s. M. Soon. JJ.J

Wealth Tax Act (37 of 1957), ss. 17(b) and 27-Divergence of views in High Courts as to meaning of "lnjormation" in s. 34(1)(b) Income Tax Act which is in pari rnateria 1vith s. 17(b)-Duty of Tribunal to make re/<!rence to High Court.

Orders of reassosmnent under s. 16(3) read with s. 17(b) of the 0 Wealth Tax Act were passed by the Wealth Tax Officer in respect of two assessment years. and by those orders, amounts which had been formerly allowed as deduction were included in the total

wealth of the respondent. The orders were set aside by the Tribu- nal on the ground that the reassessment was based on a mere change of opinion on the part of the Officer, because, there was no "information" in his possession, as required by s. 17(b), which could lead him to believe that chargeable wealth of the respondent had escaped as- D sessment. The appellant's applications to the Tribunal and the High Court, for a reference to the High Court, were dismissed.

In appeal to this Court, HELD: The Tribunal should be directed to make n reference either to the High Court under s. 27 (I) or to this Court under s. 27

(3A) of the Wealth Tax Act. [179 G].

There is a divergence cxf opinion among the High Courts as to the E meaning of the word "information" in s. 34(1)' (b) of the Income-tax Act, and some High Courts have taken the view that a change of opinion by the Income-tax Officer, in certain circumstances. will justify the issue of notice under s. 34 (l)(b) of the l'ncome-tax :Act. Since that section is in pari materia withs. 17(b) of the Wealth Tax Act, a question of law did arise as to the interpretation of the word "information" in s. 17(b) of the Wealth Tax Act and it should have been referred by the Tribunal to the High Court. [179 El F , C!v!L APPELLATE JURrsmcnos: Civil Appeals Nos. 1062 and 1063 of 1966.

Appeals by special leave from the judgment and order dated February 15. 1965 of the Calcutta High Court in matters Nos. 231 and 232 of J 964.

R. M. l/azarnavis, K. D. Karklranis, R. H. Dlrebar and R. N.

G Sachthey, for the appellant.

A. K. Sen, T. A. Ramachandran, 'J. B. Dadachanji, 0. C.

Mathur and Ravinder Narain, for the respondent.

The judgment of the Court was delivered by

Wancboo, J. These two appeals by special leave arise out of B two applications by the appellant to the Income-tax Appellate

I ""'

w. TAX COMMR. v. IMPERIAL TOBACCO (Wanchoo, J.) 175

A Tribunal for reference to the High Court of a question of law, which was formulated as follows: -

"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the reassessment proceedings under s. 17(b) of the Wealth Tax Act were not validly initiated and in setting aside the same." The facts which led to the applications for reference are briefly these. The respondent submitted wealth-tax returns for the years 1957-58 and 1958-59. For the year 1957-58 the respondent claimed that an amount of Rs. 51 lakhs and odd being provision for taxation and another amount of Rs. 37 lakhs and odd being provision for contingencies, being ascertained liability, should be allowed as deduction from the total wealth. For the year 1958-59, the respondent claimed Rs. 31 lakhs and odd being provision for contingencies as ascertained liability as deduction from the total wealth.

Assessment for the year 1957-58 was completed on December 30, 1957 and the Wealth-tax Officer accepted the contention of the respondent and allowed the claim for deduction. Subsequently the Commissioner of Wealth-tax by his order dated December 29, 1958 passed under s. 25(2) of the Wealth Tax Act, No. XXXVII of 1957, (hereinafter referred to as the Act) disallowed the deduction of Rs. 51 lakhs and odd being the provision for taxation for the assessment year 1957-58. The order of the Wealth-tax Officer allowing deduction for contingencies for the assessment year 1957-58 however stood. The assessment for the year 1958-59 was completed on December 9, 1958 and deduction was allowed for contingencies only. It may be added that we are not concerned in the present appeals so far as deduction for provision for taxation is concerned. On March 22, 1960, the Wealth-tax Officer completed the assessment of the respondent for the year 1959-60 and disallowed the claim for deduction of the provision for contingencies.

On June 2, 1960, the Wealth-tax Officer issued two notices under s. l 7(b) of the Act for reassessment of net wealth for the years 1957-58 and 1958-59. On September 24, 1961 orders of reassessment under s. 16(3) read withs. 17(b) of the Act were passed in respect of the assessment years 1957-58 and 1958-59 and by these orders the amounts which had been formerly allowed as deduction with respect to contingencies were included in the total wealth of the respondent. The respondent then went in appeal against the two reassessment orders and the Appellate Assistant Commissioner sustained the decision of the Wealth-tax Officer with respect to the reassessments in question. The case of the respondent was that the Wealth-tax Officer had no information on the basis of which he could proceed to reassess the net wealth of the respondent and in this connection reliance was placed on the words "in consequence of any information in his possession" appearing in s. l 7(b) of the Act.

176 ~L"PREllE CO\:RT REPORTS

[1966] SL"PP. S.C.R.

The re5pondent then went in appeal to the Appellate Tribunal and his contention there was that the issue of notices under s.

I 7(b) of the Act was invalid as it was based on a mere change of opinion on the part of the Wealth-tax Officer, as at that time there was no informat; on in the possession of the Wealth-tax Officer which could lead him to believe that the net wealth chargeable to tax hd escaped assessment. It was contended that such information must be information which came into possession of the

Wealth-tax Olticer subsequent to the making of the orig; nal assessment and that the information must lead him to believe that income chargeable to tax had escaped assessment.

The Tribunal accepted this contention of the respondent.

It may be pointed out that the assessment made by the Wealth-tax Officer for the year

1959-60 was taken in appeal to the Appellate Assistant Commissioner by the respondent and the respondent's appeal was dismissed in November 1960. The Tribunal pointed out that if the Wealth-tax Officer had waited till after the decision of the Appellate Assistant Commissioner about the assessment for the year

I 959-60 and then issued notices there would have been sufficient information for the purpose of s. I 7tb) with the Wealth-tax Officer to authorise him to issue notice thereunder; but as the Wealth-tax Officer issued the notices in June 1960 before that appeal was decided, it was only a case of change of opinon by the Wealth-tax Officer which did not justify issue of notices under s. I 7(b).

The Tribunal also pointed out that the departmental representative was specifically asked what the information was upon which the Wealth-tax Otfaer came to the conclusion that taxable wealth had escaped assessment. The departmental representative was unable to point to any specific information which came into the possession of the Wealth-tax Officer and which could lead him to issue the notices in question.

The Tribunal therefore held that the reassessment proceedings under s. I 7(b) for the years 1957-58 and 1958-59 were not validly initiated and set them aside. Thereupon the appellant applied to the Tribunal for making references under s. 27(1) of the Act. The Tribunal rejected the applications.

The appellant then applied to the High Court under s. 27(3) of the Act for direction to the Tribunal to state a case.

The High Court however rejected the applications summarily.

Thereupon the appellant applied to thi> Court for special leave which was granted; and that is how the matter has come before us.

The main contention that ha, been urged on behalf of the appellant before us is that there is divergence of opinion among the High Courts on the question as to what constitutes "information" for the purpose of s. 34(1)(b) of the Indian Income-tax Act.

No. II of 1922, (hereinafter referred to as the Income-tax Act).

H That section is in pari materia with s. I 7(b) of the Act and therefore a question of law did arise which should have been referred to the

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w. TAX COM1lR. v. IMPERIAL TOBACCO (Wanclwo, J.) 177

High Court for its decision on the question raised by the appellant. Reliance in this connection is placed on the deci5ion of this Court in Maharajkumar Kamai Singh '" Commissioner of Income- /ax Bihar(') where this Court held that "the word 'information' in section 34(1)(b) included information as to the true and correct state of the law, and so would cover information as to relevant judicial decisions". A further question was raised in that case, namely, "whether it would be open to the Income-tax Officer to take action under s. 34(1) on the ground that he thinks that his orii:inal decision in making the order of assessment was wrong without any fresh information from an external source or whether the successor of the Income-tax Officer can act under s. 34 on the ground that the order of assessment passed by his predecessor was erroneous". That question was not decided by this Court in that case, though this Court pointed out that in construing the scope and effect of s. 34, the High Courts had expressed divergent views on the point. It is urged on behalf of the appellant that the precise question left undecided by this Court in Maharajkumar Kamalsingh's case(') arises in the present case, and as there are divergent views taken by the High Courts on that question, a question of law did arise on the order of the Appellate Tribunal and therefore the Tribunal should have made a reference.

In Commissioner of Income-tax Bombay v. Sir Mohomed Yusuf Ismail(') it was held by the Bo:nbay High Court as far back as 19-43 that under s. 34 a mere change of opinion on the same facts or on a question of law or the mere discovery of a mistake of law is not sufficient information within the meaning of s. 34 and that in order to take action under s. 34 there must be some information as a fact which leads the Income-tax Officer to discover that income has escaped or has been under-assessed.

The same view was taken in a later case by the Nagpur High Court in IncomMax A ppllate Tribunal Bombay v. B. P. Byramji

& Co.(') where it was again emphasised that a mere change of opinion by the Income-tax Officer is no ground for taking action under s. 3-4.

Further in Bhimraj Pannalal v. Commissioner of Incometax Bihar(') it was held by the Patna High Court that "an order of assessment made after investigation by a particular officer should not at his sweet will and pleasure be allowed to be revised merely because he changed his opinion and that there must exist something either suppressed by the assessee or a fact or a point of law which was inadvertently or otherwise omitted to be considered by the Income-tax Officer, before he can proceed to act under s. 34; and a mere change of opinion on the same facts and law is not covered by tl!at section." -----c--------- -·--------- (') [1959] Supp. I 8.C.R. 10, (19b9) ~5 LT.I\. I.

('! (19"\ 12 I.T.R. 8. uu~~ ~~·~-

178 SUPREllE COURT REPORTS

(1966] SUPP. 8.0.R.

The appellant on the other hand relies on some recent decisions which show that there is some divergence of opinion in the High Courts on this question.

In Salem Provident F1111d Society Limited v. Commissioner of Income-tax Madras(') the Madras High Court held that "information for the purpose of section 34 need not be wholly extraneous to the record of the original assessment. A mistake apparent on the face of the order of assessment would itself constitute 'information'; whether someone else gave that information to the Income-tax Officer or whether he informed himself was immaterial."

In Commissioner of Income-tax v. Rathinasabhapathy M11da- 1iar(') the Madras High Court again held that "the discovery of the Income-tax Officer after he had made the assessments that he had committed an error in not including the minor's income in the father's assessment was 'information' obtained after the assessment, and even though all the facts were in the original records. the case was covered by section 34(1)(b) of the Income-tax Act and the reassessment was not invalid, and this was not a case of mere change of opinion on the same facts but a case of getting information that income had escaped assessment."

Jn Canara Industrial and Banking Syndicate Limited v. Commissioner of Income-tax, Mysore,(') the Mysore High Court held that "if income had escaped assessment owing to the failure of the Income-tax Officer to understand the true implication of a notification. and the Income-tax Officer later on finds that on a correct interpretation of the notification the income was liable to be assessed. he can take proceedings under section 34 for assessment of such income; the word 'information' in section 34 is wide enough to apply to such a case."

The last case to which reference is made is Asghar Ali Mohammad Ali v. Commissioner of Income-tax(') wherein the Allahabad High Court held that "the word 'information' used in the provision covers all kinds of information received from any person whatsoever or in any manner whatsoever; all that is required is that the Tncomo-tax Officer should learn something i.e. he should know something which he did not know previously." It was further held that "if there is information leading to the belief that income has escaped assessment, the mere fact that this information has resulted in a change of opinion will not make section 34 inapplicable. A change of opinion is not sufficient for initiating proceedings under s. 34, only when such change of opinion is the result of a different method of reasoning. and not based on 'information'".

(') (19BI) 42 I.T.I\ . .'>17.

(') (19M) 61 LT.R. 479.

(') (1964) 51 I.T.R. 204. (') (loo.I) 62 I.T.R, 962.

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J.._'

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w. '.!'AX COMMR. v. IM:Pll!\IAL TOBACCO (Wanchoo, J.) 179

It does appear that some High Courts at any rate are taking the view that a change of opinion by the Income-tax Officer in certain circumstances will be sufficient for the purpose of s. 34(1)

(b) and will justify the issue of a notice thereunder. It may be added that after the decision of this Court in Maharajkumar Kamal Singh's case(') it is now settled that "information in s. 34(J)(b) included information as to the true and correct state of law, and so would cover information as to relevant judicial decisions" and that such information for the purpose of s. 34(l)(b) of the Income-tax Act need not be confined only to cases where the Income-tax Officer discovers as a fact that income has escaped assessment. To that extent the decision of the Bombay High Court in Sir Mohamed Yusuf Ismail(') has been over-ruled. That is why the Appellate Tribunal stated in its decision that if the notices in the present case had been issued after the decision of the Appellate Assistant Commissioner in the appeal from: the assessment for the year 1959-60, there would have been information in possession of t1ie Wealth-tax Officer to justify him in issuing notices under s. 17(b) of the Act. But in the present case the Wealth-tax Officer issued notices before that decision was known to him and the question is whether in the circumstances, in view of the later decisions of the High Courts to which we have referred, a question of law arose or not. The language of s. 17(b) of the Act is in pari materia with the language of s. 3'4(l)(b) of the Income-tax Act and therefore the decisions under s. 34([)(b) of the latter Act would be relevant in construing the scope and effect of s. l 7(b) of the Act. There does appear to be divergence of opinion among the High Courts as to the meaning of the word "information" in section 34(l)(b) of the Income-tax Act, and in view of that divergence we are of opinion that a question of law did arise in the present case as to the interpretation of the word "information" ins. 17(b) of the Act and should have been referred by the Tribunal.

We therefore allow the appeals, set aside the order of the High Court and direct the Tribunal to state a case referring the question of law arising in these cases in the form suggested by the appellant. The Tribunal will be free to decide whether to refer the matter to the High Court under s. 27(1) or to this Court under s. 27 (3A) of the Act. Costs of this Court will abide the result of the reference.

Appeals allowed.

(') [1059] Supp. I S.C.R. 10.

" Q-1-t. 12 I.T.R. 8.

COMMISSIONER OF WEALm TAX WEST BENGAL

IMPERIAL TOBACCO CO. OF INDIA LID

K. N. WANCHOO, J.

Wealth Tax Act

ss. 17(b) and 27

s. 34(1)(b)

Income Tax Act

s. 17(b)

s. 16(3)

s. 17(b)

Wealth Tax Act

s. 17(b)

s. 27

s. 27

s. 34(1)

Income-tax Act

s. 34

s. 17(b)

s. 17(b)

s. 25(2)

s. 16(3)

s. 27(1)

s. 27(3)

s. 34(1)(b)

Income-tax Act

Income-tax Act

section 34(1)(b)

s. 34(1)

s. 34

s. 34

s. 34

s. 34

s. 34

s. 3

s. 34

section 34

section 34(1)(b)

Income-tax Act

section 34

section 34

section 34

s. 34

s. 34(1)

s. 34(J)(b)

s. 34(l)(b)

Income-tax Act

s. 17(b)

s. 17(b)

s. 3

Income-tax Act

s. 34([)(b)

section 34(l)(b)

Income-tax Act

s. 27(1)

s. 27