<:OMMISSIONER OF INCOME-TAX, PUNJAB

M/S. CHANDER BHAN HARBHAJAN LAL

January 4, 1966

fA. K. SARKAR, J. R. MUDHOLKAR. A:-; D R. S. BACHAWAT, JJ.)

Income.tax Acr ( 11 of 1922), s. 66(2)-Parlner of one firm also partnLr in assesSiee-funr-Wlzether all the partners. of first firni are pt1rtnerf of the assessee-firm-1/ a substantial question of lav.

The nssessec.-firm, consisting of 14 partners, applied for registration under s. 26A of the Income-tax Act, 1922.

One G, who nas a partner of the assessee-firm, was also partner of another firm, the Ferozepore firm.

The Ferozepore firm consisted of 8 partners who had ogrttd that if any work y; as carried on by any one of them \\'ith others the profits and losses ario;; ing out of that work \\ould be divided amongst all the partners in proportion to their shares in that firm.

In the course of the proceedings for the registration of 1he assc$.SCO-fi.rm all irs partners had stated before 1he Income-lax Officer that G was a panncr in the assesace-- firm, not in his individual capacity but on behalf of the Ferozepore firm.

It was found by the lncome.-tax Officer that the capital of the ...........,_ firm was supplied by G who had taken the amount from the Feroupore firm, and, that the assessee.firm was to carry on the l'iame kind of business as the Ferozepore firm.

The Income.lax Officer rejected the application for the reason that in reality it was not G but the l'erozepore firm that was the partner of the assessee-firm and consequently, tho assesse<Hlrm wos illegally constituted because : (i) Ferozepore firm could not leplly he a partner in the asscssee--firm; (ii) the total number of partners of the assessee-firm would then be 21; and (iii) the individual shares of the partners of the Fero; repore firm were not specified in the partner<hip deed of the assessee-firm.

The Appellate Assistant Commissioner, on appeal. reversed that order, holding that G was a partner of the asscsrm in his individual capacity and not as a representative of the Feroupore firm and that the effect of his agreement to share his profits and looses

in the assessee-firm with the other partners of the Ferozepore firm was only to constitute a sub-partnersbif bet\cen G and the other partners in the Ferozepore firm, in respect o the share of G in the assessee-ftrm.

The Appellate Tribunal upheld the order of the Appellate Assistant Com

missioner on the short ground that there was no merit in the appeal in view of certain decisions cited by it, and also dil'imissed the application under s. 66( 1) 10 refer lo the High Court four questions of law.

The Commissioner preferred a petition befure the High Court under s. 66(2 l for directing the Tribunal to refer the questions; (I) whether G was a partner of the asscssce-firm tn his individual capacity or representing the partners of the Ferozepore. firm, and (ii) whether the Ferozeporo ftrm was a sub-partnership; but the High Court dismi., ed the application holding that the questions of iaw were well souled.

In appeal to this Court, it was contended that : (i) under the circwn- slance., G was a partner of the as"'8see-firm not in his individual capacity but on behalf of the Fero:repore firm; (ii) the Hih Court held that there was a sub-partne.rship on the erroneous assumpuon that the Ferozepore firm came into existence afler the ~-firm was constituted; and sia.oe

a aub-partnership can be entered into only after a partnership was eonsti toted, there could be no sub-partnenhip between the members ol the

• 1

r • •

/ > •

C. !. T. v. M/S. C. B. H. LAL 177

Feroupore firm; and (iii) as a question of law arose out of the order of Tribunal, the High Court was bound to call for a statement of case.

HELD : (per Sarkar and Bachawat, JJ.) on the materials on record. the Appellate Tribunal was entitled to come to the concluSion that G and not the Ferozepore firm was the partner in this assessee-firm [181 D-E] Conunissioner of Income-tax v. Sivr .. kasi Match Exporting Co. [1964] 8 S.C.R. 18, followed.

(ii) The question whether there, \\'a:J a sub-partnership between th~ members of the Ferozepore firm in respect of the share of G is not materail because, assumini; that there was no sub-partnership, the members of tile' Ferozepore firm dtd not become partners in the assessee-firm by virtue of the clause which only regulated the relationship of the partners of the Ferozepore firm inter se and created a partnership between them in respect of the share of G in the assessee-firm. [183 B-D]

(iii) Though a question of law arose out of the order of the Appellate Tribunal, since it was not a substantial question of 1aw and the answer to the question was self-evident, the High Court was not bound to require the Tubunal to refer the question. [1S4 DJ Per Mudholkar, J. (dissenting) : The1 main question \vhich aros,~ in the present case was whether in the circumstances of the case, the assesseefirm was registrable under s. 26A. Ascertainment of the legal effect of those circumstances would be a question of law. The Appellate Assistant

Commissioner and the Tribunal had not considered the question whether the application for registration reflected the true position as regards the real partners in the assessee-firm. The reasoning of the Appellate Assistant Commissioner was pertinent only to a case of sub-partnership, and the Tribunal merely referred to certain decisions and dismissed the Department's appe'!.1.

Since the finding of the Appellate Assistant Commi5sioner and also of the Tribunal was arrived at by ignoring the relevant facts found by the Income-tax Officer, the finding was vitiated by an error of law. The High Court has also committed an obvious error as to when the Ferozepore firm was constituted and that error has led to the further error that the Ferozepore firm was sub-partnership in relation to the assessee-firm.

Therefore, the High Court should have directed the Tribunal to refer the que•tion. [188 H;

190 H; 189 H; 188 A-B; 192 B-DJ

CIVIL APPELLATE JURISDICTION: Civil Appal No. 605 of 1963.

Appeal by special leave from the judgment and order dated the January 24, 1961 of the Punjab High Coun in Income-tax Case No. 16 of 1956.

Niren De, Additional Solicitor-General, Gopal Singh and R. N. Sachthcy, for the appellant.

Bishan Narain, O.C. Mathur and /. B. Dadachanji, for the A respondent.

The Judgment of Sarkar and Bachawat JJ. was delivered by Bachawat J. Mudholkar J, delivered a dissenting Opinion.

Bachawat, J.

This appeal by special leave is from an order B of the Punjab High Court rejecting an application by the Commissioner of Income-tax Punjab under s. 66(2) of the Ind; an Income-tax Act, 1922.

On April 21, 1953, 14 partners of the firm of Messrs. Chander Bhan Harbhajan Lal of Rupar (hereinafter referred to as the assessee fim1) constituted undr the instrument of partner, hip dated December 5, 1952, applied to C the Income-tax Officer. Project Circle, Ambala for registration of the firm under s. 26-A of the Indian Income-tax Act. It may be mentioned at this stage that there was arwther firm of the name of Chander Bhan & Co., of Ferozcpore (hereinafter referred to as the ferozepore firm), consisting of 8 partners and constituted under a deed dated June 14. 1952, which provided inter alia:

"If any one of the executants enters into business individually or along with another person all the partners of the firm shall be entitled to the profit and liable for the loss, accming from that business according to the shares hereinbefore mentioned."

One Gosain Chanucr Bhan was a partner of both the assesseefirm and the Fcrozeporc firm.

In course of proceedings arising out of the application for registration of the assessee firm under. s. 26-A, Harbhajan Lal, one of its partners, stated on January 30. 1954:

"I Harbhajan Lal son of Shri Ram Chand of Rupar solemnly declare that fim1 M's. Chander Bhan Harbhajan °Lal con,'sted of 14 prtners as mentioned in the return and deed of partnership.

Gosain Chander Bhan was partner not in his individual capacity but on behalf of the firm M/s.

Gosain Chander Bhan and Company Ferozepur having about six partners ....

Other partners are partners in their individual capacity."

It seems that other partners of the assessee firn1 made similar statement; on February 27, 1954.

The capital of the assessee firm was supplied by Gosain Chander Bhan. It appears that Gosain Chander Bhan had taken the capital from the Ferozepore firm, and the amount was shown as an item in his accounts with the Ferozcpor.e fim1.

I-•

• •'

)..__ t

• .. l

" • •

' •

C.1.T. v. M/S. c. B. H. LAL (Bachawat, J.) 17 9

By his order dated February 27, 1954, the Income-tax Officer rejected the application under s. 26-A. He held that ( 1) the deed dated December 5, 1952 did not specify the date of the constitution of the assessee firm; ( 2) some of the parties to the deed having no experience in the bminess of the fiI?1 were not really partners therein, and the number of partners m the firm had been artificially increased with a view to reduce the taxable liability; ( 3) the firm was not genuine, as it had no banking account, did not possess the income-tax clearance certificate, did not notify its constitution to the P.W.D., and payments were received from the P.W.D. in the name of Harbhajan Lal. On appeal, the Appellate Assistant Commissioner, Ambala Branch, set aside all thes.e findings of the Income-tax Officer. The correctness of the decision of the Appellate Assistant Commissioner on these points is no longer challenged.

The Income-tax Officer also held that though the deed dated December 5, 1952 stated that Gosain Chander Bhan was the D partner having 6/ 16th share, in reality the Ferozepore firm was

the partner of the assessee firm having 6/ 16th share therein and consequently. the assessee firm was illegally constituted, because ( 1 ) the F erozepore fim1 could not legally be a partner in the assessec fi.m1; (2) the total number of partners of the assessee E firm was 21; and ( 3) moreover, the individual shares of the eight partners of the Ferozepore firm were not specified in the deed

dat.d December 5, 1952.

On these findings, the Income-tax Officer rejected the application under s. 26-A.

On appeal, the Appellate Assistant Commiss; oner set aside these findings, and held that Gosain Chander Bhan was the partner of the assessee F firm in his individual capacitv and not as representative of and on behalf of all the partners of the Ferozepore Ii.rm. He held that Gosain Chander Bhan had merely agre.d to share his profits and losses in the assessee firm with his other partners of the Ferozepore firm. that such an agreement did not make the other partners of the firm, partners in the assessee firm, and the effect of the agreement was to comtitute a sub-partnership only.

On further appeal, the Income-tax Appellate Tribunal, Delhi Branch,. upheld these find; ngs of the Appellate Assistant Commissioner,. and held that those findings were supported by the decisions in Commissioner of lncomeJtax v. Messrs. Agardih Colliery (1) and

Commissioner of Income-tax v. Laxmi Trading Company (2) .

The Commissioner of Income-tax, Punjab then applied to the Appellate Tribunal under s. 66 ( 1) of the Indian Income-tax Act

(1) A.l.R. 1955 Patna 225.

(2) [1953] 24 LT.R. t73.

C.I.T. v. M/ s. c. B. H. LAL (Bachawat, J.) 181

A Counsel for the appellant contended that all the partners of the Ferozepore firm were the partners in the assessee firm, having regard to ( 1) the fact that the capital of the assessee firm was secured by Gosain Chander Bhan from the Ferozepore firm, (2) the clause in the deed of partnership dated June 14, 1gs2 under which all the partners of the Ferozepore firm were entitled to the B profit and liable for the loss in respect of the share of Gosain Chander Bhan in the assessee firm, and (3) the statement of Harbhajan Lal and other partners of the assessee firm that Gosain Chander Bhan was a partner in the assessee firm not in his individual capacity but on behalf of the Ferozepore firm. We are unable to accept this contention. The real question before us is whether C any substantial question of law arises out of the order of the Tribunal.

We think that no such question arises.

The deed dated December 5, 1952 clearly stated that Gosaiii Chander Bhan and 13 other parties to the deed were the partners of the assessee firm.

On the face of the deed, it does not appear that Gosain Chander Bhan was a partner in a representative capacity D on behalf of the Ferozepore firm, or that the Ferozepore firm was the partner in the assessee firm.

On the materials on the record, the Appellate Tribunal was entitled to come to the conclusion that Gosain Chander Bhan and not the Ferozepore firm was the partner in the assessee finn.

E The capital of the assessee firm was supplied by Gosain Chander Bhan. Gosain Chander Bhan in his turn had taken the amount of the capltal from the Ferozepore firm, but there is no evidence to show that he took the money otherwise than in his individual capacity. The clause in the partnership deed constituting the Ferozepore firm to the effect that all the partners of F the Ferozepore firm are entitled to the profits and liable for the

losses accrued in the share of Gosain Chander Bhan in the assessee firm may show that there is a partnership between Gosain Chander Bhan and other partners of the Ferozepore firm in respect of the share of Gosain Chander Bhan in the profits and losses of the assessee firm.

This partnership, if any, between the members of G the Fero7.epore finn does not make the Ferozepore firm a partner in the assessee firm.

The Ferozepore firm is not a party to the agreement of partnership constituting the assessee firm.

Gosain Chander Bhan in his individual capacity could legally be a partner

in the assessee firm, and the fact that he secured the capital from the Ferozepore firm, or that he entered into a partnership with the H other members of the Ferozepore firm in respect of his share in the assessee firm does not show that the Ferozepore firm is a partner of the assessee firm, or that the assessoe firm is not validly

• '

C.I.T. v. M/S. c. B. H. LAL (Bachawat, J.) JS:l

We did noi enquire into the correctness of counsel's assumption that this passage is an authority for the proposition that there cannot be an agreement of sub-partnership in anticipation of the head partnership coming into existence.

But the question whether the relevant clause in the deed dated June 14, 1952 created a subpartnership in respect of the share of Chander Bhan in the assessee B firm having regard to the fact that this deed was executed before the assessee firm came to be constituted is not material for the purpose of the case, and need not be decided. The clau•e regulated the relationship of the partners of the Ferozepore firm inter , e, and created a partnership between them in respect of the share of Gosain Chander Bhan in the assessee firm. Assuming, with0ut C deciding that this partnership was not, strictly speaking, a subpartnersh'p, it does not follow that the partners of the Ferozepore firm became partners in the assessee firm. By reason of this clause vis-a-vis the partners of the Ferozepore firm, Gosain Chander Bhan could be reagrded as their representative in the a<sessee firm;

nevertheless, they were strangers to the contract of partnership constituting the assessee firm and did not become partners therin.

In Commissioner of Income-tax v. Bagyalakshmi & Co.('), Subba Rao, J. observed :

"A contract of partnership has no concern with the obligation of the partners to others in respect of their shares of profit in the partnership. It only regulates the rights and liabilities of the partners. A partner may be the Karla of a joint Hindu family; he may be a trustee; he may enter into a sub-partnership with others; he may under an agreement, express or implied, be the representative of a group of persons; he may he a benamidar for another. In all such cases he occupies a dual position. Qua the partnership, he functions in his personal capacity; qua the third parties, in his representative capacity. The third parties, whom one of the partners represents, cannot enforce their rights against the other partners nor the other partners can do so against the said third parties.

Their right is only to a share in the profi•s of their partner-representative in accordance with the terms of the agreement, as the case may be." Quite plainly, the relevant clause in the deed dated June 14. 1952 was not part of the agreement of partnership dated December 5, 1952 constituting the assessee firm, and did not affect the right of the partners of the assessee firm, to claim registration of

(I) [19,5] 2 S.C.R. 22, 26.

the assessee firm under s. 26-A. It is not possible to say that there arc no materials on the record to support the finding that Gosaia Chander Bhan was a partner of !he asscssee firm in his individual capacity and not as representing the Ferozepore firm.

The question whether there was a sub-partnership between the members of the Ferozepore firm in respect of the share of Gosain Chander Bhan is not material because assuming that there was no subpartnership 1hc members of the Ferozepore firm did not become partners in the assessee firm by virtue of the relevant clause in 1he deed dated June 14, 1952 or otherwise.

We are, therefore, satisfied tlrnl no subs1an1ial question of law <trises oul of lhe order of the Appellate Tribunal.

Counsel for the appellant submitted that as a question of law arose out of the order of the Tribunal, the High Court was bouad

to call for a st.ilernent of case.

We arc not inclined to accept this contention. Where, as in this case, the question of law is not substantial and the answer to the question is self-evident, the High Court is not bound to require the Tribunal to refer the question.

D In our opinion. the High Court in the exercise of its discretion under s. 66 (2) rightly rejected the appellant's application.

In the result, the appeal is dismissed with costs.

Mudholkar, J. This is an appeal from a judgment of the High E Court of Punjab rejecting a petition made by the Commissioner of Income-tax, Punjab under s. 66(2) of the Indian Income-tax Act, 1922 for calling upon the Income-tax Appellate Tribunal to rticr certain questions of law to the High Court.

The relevant facts are these :

On December 29, 1948 Gosain Chander Bhan and four others entered into a partnership for carrying on the business of contractors in the name of "Gosain Chander Bhan & Co." The partnership was entered into at Ferozepore and Gosain Chander Bhan was a major shareholder in the firm.

By a deed of partnership dated June 14, 1952 the firm was re-constituted and three other persons were admitted as partners therein. The old name, however, was continued. One of the terms of the partnership was that if any work was carried on by any one of the partners individually or in partnership with others, the profits and losses arising out of that work would be divided amongst all the partners in proportion of their shares in the firm.

On December 5, 1952 a partnership firm bearing the name of "Messrs. Chander Bhan Harbhajan Lall" was formed at Rupar.

The dead of partnership sets out the names

..,4

I ' ' '

C.I.T. v. M/S. c. I!. H. LAL (Mudholkar, !.) 185

A of 14 persons including Gosain Chander Bhan as partners and the object of the firm was to carry on business similar to that carried on by Gosain Chander Bhan & Co. It may be mentioned that in this firm also Gosain Chander Bhan was the major shareholder.

For convenience we would call the firm constituted on June 14, 1952 as the FerozeP, ore firm and the one constituted on December B 5, 1952 as the Rupar firm.

On April 21, 1953 an application was presented by the partners of the Rupar firm, accompanied by the deed of partnership dated December 5, 1952 before the Income-tax Officer, Ambala for registration of the firm under s. 26-A of the Act for the assessmst c year 1953-54. The Income-tu: Officer examined the partner1 coastituting the firm and recorded their statements in order to ascertain the true position with regard to the constitution of the finn.

Harbhajan Lal in his statement dated January 30, 1954 and tie other partners in their statements dated February 27, 1954 admitted that Gosain Chander Bhan had entered into the partnei:- D ship not in his individual capacity but on behalf of the Ferozepore firm. The Income-tax Officer also found that the funds invested in the Rupar firm in the name of Gosain Chander Bhan were allo provided by the Ferozepore firm.

Upon these and some other facts he came to the conclusion that the deed of partnership dated December 5, 1952 did not specify the real partners of the firm E and, therefore, the firm cannot be registered. He further came to the conclusion that as in reality all the partners of the Ferozepore firm and not Gosain Chander Bhan alone, were also partners along with 13 other persons in the Rupar firm, the total number of partners exceeded 20. Such a partnership being invalid in law the firm could not be registered under s. 26A of the Act. He, therefore, F dismissed the application by his order dated February 27, 1954.

In appeal his order was, however, reversed by the Appellate A.isi.stant Commissioner by his order dated August 12, 1954.

The appeal preferred therefrom by the Income-tax Officer before tile Income-tax Appellate Tribunal (Delhi Branch) was dismissed by it by its order dated September 5, 1955. In doing so the Tribunal G based itself on the decisions in The Commissioner of Income-tax

v. Agardih Colliery Company(') and Commissioner of lncom.etax v. Laxmi Trading Co.(") The Commissioner of Income-tax then applied to the Tribunal under s. 66( 1) to refer to the High Court four questions of law. The Tribunal, however, rejected the H application on March 5, 1956. The Commissioner thereupon preferred a petition before the High Court under s. 66(2) for

(I) A.I.R. 1955 Patna 225.

L 9 Sup C l/66~13

(2) (1953) 24 I.T.R. 173.

18,6

SIJPREMB

COURT

REPORTS

(1966] 3 SCR.

directing the Tribunal to refer four questions of Jaw to it. At the A hearing, however, only the following two questions were pressed on his behalf :

" ( 1 ) Whether there is any material on the record to support the finding that Gosain Chander Bhan was the real partner of the assessec firm and was not a partner in the representative capacity representing all the partners of Gosain Chander Bhan and Company of Ferozepur? ( 2) Whether the present is a case of sub-partnership to which two cases A.LR. 1935 Patna 225 and ( 1953) 24 I.T.R. 173 referred to in the order of the Tribunal apply?"

The High Court, as already stated, dismissed the application and now the matter is before us by special leave.

Before us the learned Additional Solicitor General, appearing for the department, has raised the following two points : (I) that there was a question of law which it was incumbent on the Tribunal to refer to the High Court; ( 2) that both the Tribunal and the High Court proceeded to decide the question of law on erroneous

premises.

The question of law, according to learned Additional Solicitor General, is : "whet!Ler on the facts and circumstances of the case the firm Chander Bhan Harbhajan Lal was registrable under s. 26-

A". It must be borne in mind that the question is not whether there was material on record on the basis of which the Tribunal F could come to the conclusion that the firm was registrable but whether, upon the facts found it was registrable. In other words, the question is as to what is the cumulative effect of all the facts and not what is the effect of only some of the facts found. The contention of learned Additional Solicitor General is that when a question of Jaw is said to arise the High Court is bound to call G for a reference and it is immaterial that the question is settled already.

If in the facts and circumstances of the case a question of :aw arises, there is little doubt that under s. 66 (I) the Tribunal a !xmnd tcdraw up a statement of the case and refer the ques- 11 tion to the High Court.

The Tribunal has no discretion in the matter.

Where, however, the Tribunal refuses to do so and the High Court is moved under s. 66(2) of the Act, the position

( .

• '

• t.,

• '

C.I.T. v. M/S. c. B. ii:. LAL (Mudho/kar, !.) 187

A becomes different.

Section 66 ( 2) confers a discretion on the High Court and if the High Court is of the opinion that though a question of law arises it is not substantial or that it is weli-settled it can reject the petition. What we have, therefore, to ascertain is whether a question of law at all arises in this case and if so whether it is a substantial question of law. In order to ascenain B whether a question of law arises it is necessary to ascertain the facts which have been found established by the Income-tax autho-· rities.

I will recapitulate the facts found by the Income-tax Officer.

( 1) The original firm Gosain Chauder Bhan & Co., was C formed at Ferozepore on December 29, 1948.

(2) Gosain Chand.er Bhan had a major share therein .

(3) This firm was dissolved and re-constituted on June

14. 1952. ( 4) In the original firm there were only 5 partners including Gosain Chander Bhan while in the reconstituted firm there were 8 partners including Gosain Chander Bhan.

( 5) The largest share in the re-constituted partnership was that of Gosain Chander Bhan. ( 6) The partnership deed of December 5 1952 specified the names of 14 persons including Gosain Chander Bhan as partners but did not specify the names of all the partners of Gosain Chander Bhan & Co. of Ferozepore.

F ( 7) The funds invested by Gosain Chander Bhan in the

Rupar firm came out of the funds belonging to the Ferozepore firm. ( 8) Harbhajan Lal and other partners of Rupar firm admitted that Gosain Chander Bhan was not a partner in the Rupar Firm in his individual capacity but had joined it on behalf of the Ferozepore firm. ( 9) Tlie business carried on by the Ruper firm is similar to that carried on by the Ferozepore firm .

None of these findings on questions of fact has been negatived or upset by the Aouellate Assistant Commissioner or by the Tribu- H nal.

These findings must, therefore, be taken as the basis for ascertaining whether a question of law arises, and if it doe.<i they have to be borne in mind for deciding the question.

At this stage

l would like to mention that the High Coun committed an obvious error in stating in its judgment that the re-ronstituted Ferozepore partnership was formed on June 14, 1954, that is, after the Rupar partnership was formed. This error has obviously led it into a funher error, that is, of coming to the conclusion that tllc Ferozepore partnership was a sub-partnership in relation to , the Rupar pannership. Now, ordinarily there can be a sub-partnership only when there is already in existence another partnership.

Since in point of fact the Rupar partnership came into existence after the fonnation of tb.e Ferozepore partnership the latter callnot stand in relation to the former as a sub-partnersh; p. The law as stated in Lindley on Partnership at p. 99 is :

"A sub-partnership is as it were, a partnership within a partnership : it presupposes the existence of a partnership to which it is itself subordinate."

The correctness of this statement of law is not assailed before us

by either side.

It ia no doubt settled law that where an application for registration of a firm complies with the requirements of s. 26-A and of the rules and it is found that the partnership is not genuine the Income-tax Officer is not bound to admit the firm to registration.

But it does not follow from this that for ascertaining whether the E requirements of law have been satisfied and for ascertaining whether a firm is genuine or is bogus or that it has no legal existence the Income-tax Officer must confine himself to the deed of partnership. He has power to examine the partners and to require them to adduce evidence for satisfying himself about the genuincncs.q or otherwise of the firm and also for satisfying himself about F compliance with the requirements of law.

Paragraphs 2 and 3 of the order of the Appellate Assistant Commissioner, however, show that he has treated the recitals in the partnenhip deed of December 5, 1952 as conclusive of the question as to who were the real partners in the Rupar firm. I can find no discussion or even reference to the findings of the Income-tax Officer which I G have earlier summarised.

No doubt in paragraph 4 he has referred to some of the facts found by the Income-tax Officer and the inference drawn by him and rejected them.

Leaving these facts out of account there are other facts which are relevant for consideration but they appear to have been ignored by the Appellate Assistant Commissioner.

Ascertainment of the legal H effect. of those facts would in my judgment be a question of law.

It is not disputed before us that the app!ir.etion for rcgis•ra-

...... ,

' • •

• ..

C.I.T. v. M/S. c. B. H. LAL (Mudholkar .. J.) 18

A tion should set out the names of all the persons who are real partners of the firm and, therefore it is incumbent on the Incometax authorities to ascertain whether any of the partners had joined the partnership in his individual capacity or as representing a group of persons. If, to the knowledge of the other partners he represents a group of persons, be they members of another B partnership or a joint Hindu family, it would be a question for decision as to whether all those persons have thereby become partners and that would be a question of law. In paragraph 6 of his order the Appellate Assistant Commissioner seems to have had this in mind and it will be useful to quote the relevant portion of the paragraph : c

"There are two essential conditions before it can be stated that contractual relationship has been brought about between the partners which is the relationship of a partnership and the two conditions are that the partners must agree to share the profits of the business and the business must be carried on by all or any of them for all of them.

There can in law be a partnership between the partner in a Head Firm and another individual in respect of the partner's share in the Head Firm so as to entitle the partners in the sub-firm to apply for registration thereof under section 26-A of the Indian Income-tax Act.

If several persons are partners and one of them agrees to share the profits derived by him with a stranger, this agreement does not make the stranger a partner in the original firm. The result of such an agreement is to constitute a sub-partnership. It makes the parties to it partners Inter se; it does not affect the other members of the principal firm: ...

The sole ground given by the Appellate Assistant Commissioner for holding that Gosain Chander Bhan was a partner in the Rupar firm in his individual capacity is that the preamble to G the partnership deed 'clearly sets out that the contracting parties were 14 and that Gosain Chander Bhan was a partner in his individual capacity.' It is true that he has repelled some of the grounds given by the Income-tax Officer in support of his conclusion but, as already stated, he has entirely omitted to consider other facts found by the Income-tax Officer which bear directly H on the point. It may be that the finding cannot be said to be based on no evidence but even so, as it has been arrived at by ignoring relevant facts, it is vitiated by an error of law.

The first sentence of para 6 of the order of the Appellate A Assi; tant Commissioner quoted above paraphrases the provisions of s. 4 of the Partnership Act and is unexceptionable.

The rest of the quotation appears to have been lifted from the head-note of the decision in Commissioner of lncometax, Punjab v. Laxmi Trading Co ( 1).

The question which fell for decision in that case was :

"Whether there could in law be a partnership between a partner in a head firm and another individual in respect of the partner's share in the head firm so as to entitle the partners in the sub-firm to apply for regis

tration thereof under section 26-A, Income-tax Act, 1922?"

and it was answered in the affirmative.

A sub-partnership can also, as stated by the learned Appellate Assistant C0mmissioner, apply for registration under s. 26-A.

But where does it all lead 10 '! Here the question which arises i1 whether the head firm as such has entered into partnership with

another or whether only one of the partners of the head firm has entered ir.to partnership with another. For, thal is what the question really is.

According to the appellant, the Ferozeporc firm

as a firm has become partner in the Rupar firm and not merely Gosain Chander Bhan. The learned Appellate Assistant Commi>- E sioner has not addressed himself to this aspect of the case.

At the end of the paragraph the I.earned Appellate Assistant Commissioner has observed : "there is no data on the record to substantiate the finding of the Incomi>-tax Officer that the firm was not genuine in view of the local enquiries by him." That, however, is not the whole question. The whole question which arises in this F case is whether in the facts and circumstances of this case the fim1 Chander Bhan Harbhajan Lal was registrable under s. 26-A, the circumstances being that a partner of another and pre-existi11g firm became a partner in Chander Bhan Harbhajan Lal on behalf of the partners of that other firm, that he had brought in funds belonging to that firm and that the new firm was to carry on busi- G ness of the same kind as the old firm was carrying on.· Further, the reasoning of the Appellate Assistant Commissioner would be pertinent only to a case of sub-partnership. To put it somewhat differently the question is whether tl1e application for registration reHects the true position as regards the real partners in the Rupar Firm. This has not heen considered either by the Appellate H Assistant Commissioner or hy the Tribunal.

(I) A 1.R. t955 Pat. 225.

' • •

• ,

C.I.T. v. M/S. c. !!. H. LAL (Mudholkar, /.) 191

A The Tribunal merely referred to the dec; sions in Laxmi

Trading Co.'s case (1) and in Agardih Colliery Co.'s case(') and dismissed the department's appeal.

The latter is also a case of sub-partnership and does not assist us in deciding the matter arising here.

It is contended on behalf of the respondents that the question arising here has already been settled by three decisions of this Court.

The first of these is Commissioner of Income-tax, Madras v. Sivakasi Match Exporting Co., Sivakasi('). In that case this Court held that the mere fact that one of the partners of the firm seeking registration brought his capital from another C firm of which he was one of the partners and the further circumstance that he shared the profits received by him from the former firm with his partners in the latter firm did not make the former partnership bogus. In the first place the circumstance that upolll a certain set of facts this Court arrived at a particular decision would not necessarily make that a binding precedent even though D the inference drawn by the Court upon which its judgment rests

is one of law. In the second place we have here the fact that one of the partners of the firm seeking registration was a partner in his representative capacity and not merely a partner in his individual capacity. The next case relied on is Commissiont!r of Income-tax, Ahmedabad v. Abdul Rahim & Co.(') In that case E this Court held that the circumstance that one of the partners was a benamidar for another does not justify a refusal to register the firm under s. 26-A and reiterated the essential conditions which must be satisfied by the. firm seeking registration which have been stated in Commissioner of Income-tax, Bombay v. Dwarka- F das Khetan & Co.(') It does not advance the respondent's case any further. The third decision is that in Commissioner of lncomt!- tax v. Bagya/akshmi & Co.(6). There Subba Rao J., speaking for the Court has observed :

"A partner may be the karta of a joint Hindu family; he may be a trustee; he may enter into a sub-partnership with others; he may, under an agreement, express or implied, be the representative of a group of persons; he may be a benamidar for another. In all such cases he occupies a dual position.

Qua the partnership he functions in his personal capacity; qua the third parties, in his representative capacity. The third parties, whom

(1) A.I.R. 1955 Pat. 225.

(2) (1953] 24 l.T.R. 173.

(4) (1965] 2 S.C.R, 13.

(6) (1965] 2 S.C.R. 22.

one of the partners represents, cannot enforce their rights against the other partners nor the other partners can do so against the said third parties. Their right is only to a share in the profits of their partner-representative in accordance with law or in accordance with the tenns of the agreement, as the case may be." It is upon these observations that learned counsel for the respondenta has placed strong reliance.

These observations are based oa the fact that the person admitted as a parcner in the finn

seeking registration was so admitted as an individual. They cannot apply and were apparently not intended to apply to a kind

of case as the one we have here, that is, where the partner to the C kaowledge of other partners was joining on behalf of and representing several persons. What has to be detennined is the cumulative effect of this circumstance taken along wilh the other circwnstances established in the case.

That is a question of law and I am clear that that question is far from being settled and also that it is a substantial question of law.

A further question which arises on the particular facts of this case is whether the Rupar firm can be said to have legal existence because its real partners are not merely 14 persons but there are 7 persons in addition to that number.

Under the provisions of s. 11 of the Companies Act, 1956 (s. 4 of the 1913 Act) where E the number of partners exceeds 20 the firm has to be incorporated and that is admittedly not what has been done here. If, therefore, the number is in excess of 20 the firm being unincorporated, it cannot be said to have a legal existence. Unf0rtunately the Incomctax Appellate Tribunal has not discussed the facts and circumstances of this case but dismissed the second appeal preferred F by the appellant on the short ground that there was no merit in it in view of the decisions cited by it. It was necessary for the Tribunal to ascertain whether on the facts of this case those decisions concluded the matter.

Th~ questions which arise are, ia my opinion, substantial between the parties and are not settled.

For these reasons I allow the appeal, set aside the judgment of G the High Court and direct the Tribunal to refer the question earlier set out to the High Court. Costs so far incurred will abide the result.

ORDER In accordance with the opinion of the majority, Civil Appeal No. 605 of 1963 is dismissed with costs. Civil Appeals Nos. 810 and 811 are dismissed, but there will he no order as to costs.

OMMISSIONER OF INCOME-TAX, PUNJAB

M/S. CHANDER BHAN HARBHAJAN LAL

January 4, 1966

fA. K. SARKAR, J.

R. MUDHOLKAR

D R. S. BACHAWAT, JJ.

s. 66(2)

s. 26A

Income-tax Act, 1922

Ferozepore firm

s. 66( 1)

Bachawat

Ferozepore firm

[1964] 8 S.C.R. 18

Per Mudholkar

s. 26A

Niren De

Gopal Singh

R. N. Sachthcy

Bishan Narain

O.C. Mathur

B. Dadachanji

Sarkar

and Bachawat

Bachawat J. Mudholkar

Punjab High Court

s. 66(2)

Income-tax Act, 1922

April 21, 1953

s. 26

Income-tax Act

Chander Bhan & Co.

Ferozcpore

June 14. 1952

Gosain Chanucr Bhan

s. 26

Harbhajan Lal

January 30.

Harbhajan Lal

Ram Chand

Rupar

Chander Bhan Harbhajan °Lal

Gosain Chander Bhan

February 27, 1954

s. 26

December 5, 1952

s. 26

Commissioner of Income-tax, Punjab

s. 66

Income-tax Act

June 14, 1gs2

Gosaiii Chander Bhan

June 14, 1952

Chander Bhan

s. 26

Gosaia Chander Bhan

s. 66

Mudholkar

High E Court of Punjab

s. 66(2)

Indian Income-tax Act, 1922

December 29, 1948

Gosain Chander Bhan

Gosain Chander Bhan & Co.

Ferozepore

Chander Bhan Harbhajan Lall

December B 5, 1952

Rupar firm

Ambala

s. 26

January 30, 1954

s. 26A

August 12, 1954

September 5, 1955

s. 66( 1)

March 5, 1956

s. 66(2)

SIJPREMB

Chander Bhan Harbhajan Lal

s. 26

s. 66

s. 66(2)

Section 66

Gosain Chauder Bhan & Co.

Gosain Chand.er Bhan

June

14. 1952

December 5 1952

Gosain Chander Bhan & Co. of Ferozepore

Harbhajan Lal

Rupar Firm

June 14, 1954

Lindley

s. 26

section 26

Income-tax Act

A Assi

s. 4

section 26

Income-tax Act, 1922

s. 26

Ferozeporc firm

Chander Bhan Harbhajan Lal

s. 26

Laxmi

Trading Co.

Agardih Colliery Co.

s. 26

Subba Rao

(1965] 2 S.C.R. 22

Rupar firm

s. 11

Companies Act, 1956

s. 4


F .

• G

I '

SIR HUKUMCHAND & MANNALAL CO.

COMMISSIONER OF INCOME-TAX,

MADHYA PRADESH January 4, 1966

(K. SUBBA RAO, J. C. SHAH AND S. M. SIKRI, JJ.]

Income-tax Act ( 11 of 1922), s. 26A and Income-tax Rules, rr. 6A. and 6B---Order of cancellation under r. 6B-If appea/ab/e.

The Income1-tax Officer cancelJ-00 the certificate of renewal of reg; stration of the appellant-firm, under r. 6B of the Income-tax Rules, on the ground that the firm was not a genuine ono.

The Appellate Assistant C'<Jmmissioner, the Tribunal and the High Court o.n reference, held that no appeal lay against 1he order of the Incometax Officer to the Appellate Aaistant Commissioner under s. 30(1) of 1he Income-rnx Act, 1922.

In appeal to this Court, HELD :The words "refusal to register a firm" in s. 30 are wide enough to take in the orders made under rr. 6A and 6B refusing to renew

n~4!atration and also cancelling the certificate so renewed, and such an order directly attracts the appellate jurisdiction conferred on the Appellate A.o.sistant Commissioner under the section. [196 E; 197 F]

The fact that s. 30 provides for an appeal separately against the orders under s. 23 ( 4) either refusing to register a firm or cancelling the registration of a firm, but provides in the context of s. 26A, for an appeal only against an order refusing to register the firm, does not affect this con>- truction of s. 30, because, when s. 30 provides for an appeal against the orders under s. 23 ( 4), it has merely incorporated the two forms of orders embodied in s. 23 ( 4), and, when it provides for an appeal against the order under s. 26A, it has used a general word, for the nature of the order under s. 26A is not described but is left to be prescribed under the Rules. The application under s. 26A made to the Income-tax Officer on behalf of a firm for registration for the purposes of th<: Act, will be diaposed of in the manner prescribed by rr. 6A and 6B. Under these Rules, the Income-tax Officer is authorised to make three kinds of orders, namely,

(i) he can refuse to renew the registration; (ii) he can register; and (iii) he can cancel the1 renewal if he is satisfied that a renewal was obtained without there being a genuine firm in existence.

But the three kinds of orders, having regard to th~ circumstances of each case, will be made only on an application for renewal of registration, because, the Rules do not provide for independent proceedings to the cancellation. of the renewed eertificate.

When the Income-tax Officer cancels a renewed certificate, he sets aside his earlier order and refuses a renewal, with the result that, an order of refusal to renew a certificate and the order cancelling the renewed certificate are given the same effect, namely, refusal of the application to register.

It follows that the order cancelling registration is nothing more than refusing to rinew the certificate of registration. [196 A-E: 197 C-El

CIVIL APPELLATE JURISDICTION :Civil Appeal No. 223 of 1965.

Appeal from the judgment and order dated February 23, 1962 of the Madhya Pradesh High Court in Misc. Civil Case No. 165 of 1961.

N. A. Palkhiva/a, S. T. Desai, T.A. Ramachamlran, I. B.

A Dadac/zanji, for the appellant.

A. V. Viswanatha Sastri, R. H. Dhebar, N. D. Karkha11is and R. N. Sachthey, for the respondent.

The judgment of the Court was delivered by B Sobba Rao, J.

This appeal, on a certificate granted by the Madhya Pradesh High Court, raises the question whether an appeal lies under s. 30(1) of the Indian Income-tax Act, 1922, hereinafter called the Act, to the Appellate Assistant Commissioner against the order of an Income-tax Officer cancelling an order granting registration of a firm under s. 26-A of the Act.

The facts material for the said question may be briefly stated.

The appellant is a firm constituted under a deed of parlnership dated July 16. 1948. The Income-tax Officer registered the said firm under s. 26-A of the Act for the year 1950-51.

The registration was renewed for the years 1951-52 and 1952-53. On D November 30, 1957, the Income-tax Officer renewed the registration for the assessment year 1953-54. On March 6, 1959, on the ground that the firm was not a genuine one, the said officer cancelled the registration under Rule 6-B of the Income-tax Rules.

The appellant preferred an appeal against that order to the Appellate Assistant Commissioner, Indore.

On July 15, ~59, the E said Assistant Commissioner rejected the appeal for the reason that no appeal lay against the order of the Income-tax Officer cancelling the registration.

The appeal filed by the appellant against that order to the Income-tax Appellate Tribunal, Bombay, was dismissed.

At the instance of the appellant, the folfowing F question was referred to the High Court under s. 66 ( I ) of the Act:

"Whether on the facts and circumstances of the case, the order passed by the Income-tax Officer under Rule 6-B of the Indian Income-tax Rules cancelling the certificate of renewal of registration granted to the assessee is appealable under section 30 of the Incometax Act."

A Division Bench of the High Court of Madhya Pradesh answered the reference against the appellant. It held that no appeal lay

under s. 30 of the Act against the order of the Income-tax Officer H cancelling registration to the App.llate Assistant Commis, ioner.

Hence the appeal.

• ..

The only question in this appeal is, whether an order cancelling the certificate of renewal of registration made under s. 26A of the Act by an Income-tax Officer is subject to an appeal under s. 30( l) to tho Appellate Assistant Commissioner.

At the outset, the relevant provisions may be usefully read :

Section 26-A. ( 1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax.

(2) The application shall be made by such person or persons, and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed and it shall be dealt with by the Income-tax Officer in such manner as D may be prescribed.

Rule 6. Any firm to whom a certificate of registration has been granted under Rule 4 may apply to the Income-tax Officer to have the certificate of registration renewed for a subsequent year ........ .

Rule 6-A. On receipt of an application under Rule 6 the Income-tax Officer may, if he is satisfied that the application is in order and that there is or was a firm in existence constituted as shown in the Instrument of Partnership, grant to the assessee a certificate signed and dated by him in the following form :-

Rule 6-B. In th.e event of the Income-tax Officer being satisfied that the certificate granted under Rule 4, or under Rule 6-A, has been obtained without there beil1£ a genuine firm in existence, he may cancel the certificate ~; o granted.

Section 30. ( 1) Any assessee ........ objecting to the cancellation by an Income-tax Officer of the registration of a firm under sub-section ( 4) of section 23 or to a refusal to register a firm under sub-section ( 4) of section 23 or section 26-A ............ may appeal to the Appellate Assistant Commissioner against the assessment or against such refusal or order."

The gist of the said provisions relevant to the prnt enquiry may A be stated thus : Under s. 26-A of the Act an application may be made to the Income-tax Officer on behalf of a firm for registration for the purposes of the Act.

Such an application has to be tiled and disposed of in the manner prescribed in the Act. Under the Rules, an application for the renewal of registration of a finn which has already been registered in the previous years has 10 he lilcd before the Income-tax Officer.

That application will be disposed of in the manner prescribed by Rules 6-A and 6-B. l.lnder those rules, the Income-tax Officer is authorized to make three kinds of orders, viz .. (i) he can refuse to renew the registration of the firm; (ii) he can register the firm; and (iii) he can

ancel the renewal of registration if he is satisfied that the renewal has been obtined without there being a genuir.e firm in existence.

The crucial point to be noticed is that the said three kinds of orders, having regard to the circumstances of each case, will be made only in the application for renewal of registration.

The Rules do not provide for independent proceedings for the cancellation of the renewed certificate. In effect, the Income-tax Officer, after setting aside his earlier wrong order made under a misapprehension, refuses renewal of the certificate of registration.

If , o, it follows that the order cancelling registration is nothing more than refusing to renew the certificate of regitration. If that be the construction of an order made cancelling the certificate renewed, such an order directly attracts the appellate jurisdiction conferred on the Appellate Assistant Commissioner under s. 30 of the Act.

But Mr. Viswanatha Sastry for the Revenue contended that there was internal evidence in s. 30 of the Act itself to show tht F such a construction was not possible.

He further argued that under the Income-lax law there was no scope for equitable considerations. and under the express provisions of s. 30 no appeal lay against the order of the Income-tax Officer cancelling the certificate of registration.

In support of his contention he relied upon that part of s. 30 of the Act which we have extracted earlier G and contended that when the Legislature in the context of th.e orders made under s. 23 ( 4) spoke separately of the order of canccllation of registration of a firm and an order refusing to register a firm and in the same section, in the context of s. 26-A, it mentioned only refusal to register a firm, it clearly expressed its mind that in the former case an appeal would lie against both the H orders, whereas in the latter case an appeal would lie only against one of the orders. There is some force in this argument.

But a

. )

' •

A careful reading of the provisions of s. 23 ( 4) and s .. 26A brings out the difference in the phraseology used in s. 30 in the matter of appeals against orders made under the said two sections. The relevant parts of s. 23(4) ands. 26-A(2) may be placed in juxtaposition:

B Section 23(4) ...... the incometax Officer . ... in t)ae case of a firm, may refuse to reaiiter it or may cancel its regist ration if it is already registered.

Section 26-A(2) The application shall be ...... dealt with by the Incometax Officer in such manner as may be prescribed.

c A comparative study of the relevant parts of these two provisions at once shows the distinction between the two. Under s. 23( 4) while the Income-tax Officer can make an order refusing to regiilter a firm or may cancel the registration if it is already registered, under s. 26-A(2) he can only make an order in such manner as may be prescribed. The manner prescribed, as we have already D indicated earlier, provides for three different kinds of orders to bo made in the same application with the result that an order of refusal to renew a certificate and the order cancelling the certificate renewed are given the same effect, namely, refusal of the application to register.

That apart, when s. 30 provides for an appeal against the orders under s. 23 ( 4) and also against orders under E a. 26-A, it has incorporated the two forms of orders embodied in s. 23 ( 4) and used a general word in providing an appeal againat an order under s. 26-A, for the nature of order is not described but left to be prescribed under the Rules.

If so, it follows that the words "refusal to register a firm" in F s. 30 of the Act are wide enough to take in the orders made under rr. 6-A and 6-B refusing to renew the registration and also cancelling the certificate so renewed.

By so holding we are not unaware that equity has no place in construing the provisions of the Income-tax Act. Indeed, we have G not introduced any equitable consideration in the matter of construction. We have come to the conclusion on a fair reading of the relevant provisions of the Act and the Rules made thereunder.

In the result, we answer the question propounded for the High Court's decision in th.c affirmative. The order of the High Court is set aside and the appeal is allowed 'With costs.

Appeal allowed.

SIR HUKUMCHAND & MANNALAL CO

K. SUBBA RAO, J.

C. SHAH

S. M. SIKRI, JJ.

Income-tax Act

s. 26A

s. 30(1)

Income-rnx Act, 1922

s. 30

s. 30

s. 23

s. 26A

s. 30

s. 30

s. 23

s. 23

s. 26A

s. 26A

s. 26A

Madhya Pradesh High Court

N. A. Palkhiva

S. T. Desai

T.A. Ramachamlran

A. V. Viswanatha Sastri

R. H. Dhebar

N. D. Karkha11is

R. N. Sachthey

B Sobba Rao

s. 30(1)

Indian Income-tax Act, 1922

s. 26

s. 26

November 30, 1957

March 6, 1959

Indore

July 15, ~59

Income-tax Appellate Tribunal, Bombay

s. 66

section 30

High Court of Madhya Pradesh

s. 30

s. 26A

s. 30( l)

Section 26

Section 30

section 23

section 23

section 26

s. 26

s. 30

Viswanatha Sastry

s. 30

s. 30

s. 30

s. 23

s. 26

s. 23

s. 30

s. 23(4)

Section 23(4)

Section 26

s. 23( 4)

s. 26

s. 30

s. 23

s. 23

s. 26

s. 30

Income-tax Act


RAMESH AND ANOTHER

SETH GENDALAL MOTILAL PATNI AND

OTHERS January 6, 1966

[P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO, M. HIDAYATULLAll, V. RAMASWAMI AND

P. SATYANARAYANA RAJU, JJ.J

Constitution of India, Art. 133-Appea/ whether lies to Supreme Court /rotn High Court's order in extraordinary civil jurisdiction under Art. 226 --l'roceeding 11der Art. 226 when a 'civil procuding"-'Final order', wh•t C 1$.

In proceedings under s. 19(1) of lhe Madhya Pradesh Abolition of Proprie1ory Righls (Esta1es, Mabals, Alienaled Lands) Act. 1950. on the application of the appellanl, i1 was held by lhe Claims Officer 1hat the debl due to P, lhe first respondent, was a secured debt despile the fac1 1bat a decree had been passed in respect of the debt. The Claims Officer asked P to file a s1a1ement of claim under s. 22 of the Act.

Although the Board of Revenue held that the Claims Officer had no Jurisdict'on to delermine lhc nature of debt. P, by way of caution, filed a slatement of clam under r. 22.

The Claims Officer held it lo be out of time and discharged lhe debt.

On appeal hy P the Commissioner held that although the Claims Officer had jurisdiclion to decide on the nature of the deb!, the debt was wrongly discharged by him as action under s. 22( 1) had not been

taken. The appellant thereupon filed a peliti-.1n under Arts. 226 and 227 on the ground inter a!UJ that the Commi~\:_oner had no jurisdiction to entertain anJ decide the appeal. me High Court summarily dismissed the pctilion.

The appellants next applied for a certificale of fitness which was refused.

The appellants came to this Court by special leave and con 4 tended 1hat the High Court had wrongly refused the cen:ficare.

The quc.o; tions 1h~1t came up for consideration were: (i) \Vhether the petition under Art. 226 in the High Court was a 'civil proceeding', (2) whether an appeal under Art. DJ lay only in a proceeding in the exercise of the appellate or ordinary civil jurisdiction of the High Court, and not the C"Xtraordinary original c'vil jurisdiction under Art. 226 and (3) whelbcr

the order of the High Court summarily dismissing the wr:t petition of the appellants \\as a final order.

HELD : (i) A proc1.....:din~ under Art. 226 for a \Vrit to bring up a proceeding for considraion is a "civil proceeding' if the original proceeding concerned civil rights. (203 GJ

....

The dichotomy between c'vil and criminal proceedings made by the G t civil law jurists is apparently followed in Arts. 133 and 134 and any pro- ' cecding affecting civil i.e. private rights, \Vhich is not criminal in nature. is civil. [203 El I S. A .. l. Narr.yan Row & Anr. v. Jshwar/al Bhagwandas & Anr ..

A.LR. 1965 S.C. 1818. [1966] 1 S.C.R. 190, relied on.

In the present '"'case the Claim!ii Officer purported to excrci5e a juri!i.- diction under which he could order the discharge of a debt which means H that the order affected the civil ri.2hts of the parties.

The C.Ommio;; sioner's order reversing the order of the Claims Officer also affected the same cvil rights.

The proceedings before the revenue authorities were therefore

• •

) D

RAMESH v. G. M. PATNI (Hidayatul/ah J.) 19&

civil proceedigs and those in !be High Court must also be regarded as of the same nature. [203 C"E]

(ii) It is not permissible by reference to the history of appeals to the Privy Council under ss. 109 and 110 of the ClVll Procedure Code to exclude from the scope of Art. 133 matters beard by the High Court in the exerci•e of extraordinary original civil jurisdiction. Article 133 uses the wid"'t possible language. The intention is not onll' to include all judgments, decrees and orders passed in the exercise of appellate .and rdt nary civil jurisdiction but other jurisct:ctions as well in which c!Vll rights would come up before tho High Court for decision. The drafters of the Constitution were aware that a new jurisdiction was be:ng conferred on. the High Courts under Art. 226 and that the new jurisdiction would often resulr in decision affecting civil i.e. private rights, and the need to prvide

for appeals to this Court against such decisions must have been obv'Ous.

The nght of appeal is thus stated in general words in Arts. 132 and 133 and no exception not mentioned in the articles can be implied. [204 D-GJ

(iii) A petition to the High Court invoking jurisdiction under Art. 226 is a pr0; eeeding quite independent of the original controversy.

A decision in the exercise of this jurisdiction whether interfering w; th the procec:dings impugned or declining to do so is a final decision in so far as the High Court is concerned if the effect is to terminate the controversy before it. [206 C-D] In the present case the High Court by summarily dismissing the appellants' writ petition upheld the jurisdiction of the Commissioner t@ make the order he did and the fact that the High Court's order was not a speaking order made no difference.

The High Court" order had the effect of once again reviving the debt in question.

The order must be regarded as final for the purpose of appeal to this Court. [206 H-207 CJ

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 950 of 1965.

Appeal by special leave from the judgment and order dated February 1, 1965 of the Bombay High Court (Nagpur Bench) at Nagpur in Misc. Application No. 13 of 1965.

C. B. Agarwala, B. R. L. Iyengar, G.· L. Sanghi and A. G.

Ratnaparkhi, for the appellant.

M. S. Gupta, for respondent No. 1

D. R. Prem and B. R. G. K. Achar, for respondents Nos. 2 and 3. ·

The judgment of the Court was delivered by

Hidayatullah, J. This is an appeal by special leave against an order dated February 1, 1965 of the High Court of Bombay (Nagpur Bench) in Miscellaneous Petition No. 13 of 1965 refusing a certificate under Art. 133(1) (a) or (c) of the Constitu tion. This certificate was asked by the appellants in respect of the

o'.dr of t_he _High Court dated September 21, 1964 in Special C1v!I App!Jcahon No. 471 of 1964. Both these orders summariiv dismissed the respective petitions. Against the main order Special

Leave Petition (Civil) No. 395 of 1965 has been filed but by an order of this Court dated July 30, 1965, it has been kept pending sine die with liberty to bring it up for hearing after the disposal of the prc, cnt appeal. This is because the appellants claim in this appeal lhat appeal lay as of right to this court and the certificate was wrongly refused by the High Court.

Before we discuss the question mooted before us we shall state the facts sufficient for the purpose.

On the passing of the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals. Alienated Lands) Act, 1950,

th.: appellants applied under s. 19( 1) of the Act for the deteraination of their debts, specifying the amounts and particulars of all secured debts and claims together with the name> of tac creditors. One such creditor, named by them, is Gendalal Motilal J.'atni who is the first respondent.

His debt was a mortgage debt originally but had resulted in a decree for Rs. 2,16,309.

Pat!!.i objected that this had ceased to be a secured debt or secured claim for the application of s. 17 (a) of the Abolition Act.

D The objection was taken under s. 21.

The Claims Officer overruled the objection of Patni by an order dated November 19, 1951. He held that although the debt had merged in a decree it remained a secured debt nevertheless and that as the amount was recoverable on the date of ve.-ting, the E provisions of the Act were applicable to it. By another order of the same date the Claims Officer called upon Patni to file his statement of claim under s. 22 of the Act. Patni did not file the statement but instead preferred an appeal against the main order before the fonner Madhya Pradesh Board of Revenue. The Board of Revenue held on June 15, 1954 that the Claims Officer had no •· jurisdiction to determine the character of the debt and only the Civil Court could decide this issue.

In reaching this conclusion the Board followed a decision of the Nagpur High Court rep'1rted

in Ramkrislma v. Board of Revenue(').

Patni next moved the Civil Court and the Civil Court decided that the debt in question was a secured debt for the application of the Abolition Act.

Patni appealed to the High Court but out of caution filed his statement of claim before the Claims Officer on January 23, 1958. The ex-proprietors (the appellants here) objected to the statement on the ground that it was out of time and asked that the claim be held discharged. The Claims Officer accepted the objection and discharged the claim by an order dated

(I) A.l.R. t954 Nag. 248.

~- I "

I •

I , L

I < ' •

":t

~ \

I \ ,

> -

) • '

' 1

A December 24, 1962. Patni appealed to the Commissioner, Nagpur Division, Nagpur (Rev. Appeal No. 2/57 /62/63) and by an order of May 5, 1964 the order of the Claims Officer was set aside.

The Commissioner pointed out that the decision of the Nagpur High Court earlier referred to was overruled in the subsequent case of the High Court reported in A.I.R. 1956 Nagpur 193 B and the Claims Officer had jurisd 'ction to pronounce on the character of the debt. The order of the Claims Officer of November 19, 1951 was thus held to have revived but the claim could not be discharged as action under s. 22 ( 1) had not been taken.

The case was remanded to the Claims Officer for disposal accord- C ing to law.

The appellants thereupon filed a petition under Arts. 226 and 227 of the Constitution in the High Court of Bombay (Nagpur Bench) on the ground that the Commissioner had no jurisdiction . to entertain and decide the appeai and that the Claims Officer had ordered the continuation of the proceedings and so the order of D the Commissioner was w/ong.

The High Court summarily dismissed the petition by its first order dated September 21, 1964 against which Special Leave Petition (Civil) No. 395 of 1965 has been filed.

The appellants next applied for a certificate which was refused by order dated February 1, 1965, impugned in the present appeal, and the question involved is : whether the E appellants were entitled to a certificate as of right under Art. 133 (1 )(a) or (b) ?

This question falls to be considered under Art. 133 of the constitution.

That article reads :

133. Appellate jurisdiction of Supreme Court in appeals from High Courts in regard to civil matters.

( 1) An appeal shall lie to the Supreme Court from any judgment, decree or final order .in a civil proceeding of a High Court in the territory of India if the High Court certifies-

(a) that the amount or value of the subject-matter of the dispute in the court of first instance and still in dispute on appeal was and is not less than twenty thousand rupees or such other sum as may be specified in that behalf by Parliament by law; or

(b) that the judgment, decree or final order involves directly or indirectly some claim or question 19 Sup CI/66-J.1

202 SUPllEME

COURT P.EPOllTS

[ 1966] 3 S.C.R.

respecting property of the like amount or value; or

( c) that the case is a fit one for appeal to the Supreme Court; and, where the judgment, decree or final order appealed from affirms the decision of tho court immediately below in any case other than a case referred to in sub-clause ( c). 1f the High Court further certifies that the appeal

involves some substantial question of law. (Clauses (2) and (3) of Art. 133 are not relevant).

Under sub-els. (a) and (b) of cl. (I) of this article an appeal lies on certificate of the High Court.

Tha~ certificate may only be issued in cases in which the amount or value of the subject . matter of the dispute in the court of first instance and still in dispute on appeal to the Supreme Court was or is not less than Rs.

20,000 or the Judgment, decree or final order involves directly or indirectly some claim or question respecting property of the like amout or value.

Sub-clause ( c) is free from any monetary valuation, and under it a special certificate can be issued even in cases involving claims or questions respecting properly less than Rs. 20,000 if the High Court considers the case as fit for appeal.

Other considerations then apply which need not be considered here. The present appeal involves a consideration of sub-els. (a) and (b) only, because, it is submitted, the certificate was claimable as of right.

There is, to begin with, no doubt that the amount or value of

the subject matter of the dispute in the High Court and still in dispute on appeal to this Court is well above Rs. 20,000.

This F attracts sub-cl. (a). In any event, the decision of the High Court mvolves directly or indirectly a claim above that amount and that attracts sub-cl. (b). Mr. M. S. Gupta for the answering respondent docs not rightly contest this fact. He submits that cl. (I) of Art. 133, considered as a whole, gives a right of appeal only against judgments, decrees or final orders passed by !he High G Court in the exercise of either the appellate jurisdiction or ordinary original civil jurisdiction (where a High Court possesses that jurisdiction under its Letters Patent) but not against a judgment, decree or final order cpassed in the exercise of extra-ordinary original civil jurisdiction under Art. 226 of the Constitution. He further submits that an order dismissing summarily a petition 11 under Art. 226 of the Constitution is not a judgment. decree or final order from which an appeal can properly be brought under

< • '

• •

• ). (

I \

'} • ' '

Art. 133.

Lastly, he submits that a proceeding co=enced on an application for a writ is not a civil proceeding at all.

Article 133 must cover all civil proceedings because no exception is indicated.

The question is whether the proceeding in tire High Court Cl!n be described as civil proceedings. The High Court in the present case was invited to interfere by issuing writs of certiorari and prohibition against the reopening of the case in which the Claims Officer had discharged a debt due to the answering respondent.

The revenue authorities in such matters act analogously to civil courts, have a duty to act judicially, and pronounce upon the rights of parties. In the present case the Claims Officer purported to exercise a jurisdiction under which he could order the discharge of a debt which means that the order affected the civil rights of the parties. The Commissioner's order reversing the order of the Claims Officer also affected the same civil rights of the parties. The proceedings before the revenue authorities thus were concerned with the civil rights of two contending parties.

They were civil proceedings. The proceedings in the High Court must also be regarded as of the same nature.

The term civil proceeding has been held in t.i:tis Court to include, at least, all proceedings affecting civil rights, which are not criminal.

The dichotomy between civil and criminal proceedings made by the Civil Law jurists is apparently followed in Arts. 133 and 134 E and any proceeding affecting civil i.e. private rights, which is not criminal in nature, is civil. This view was expressed recently by this Court in S. A. L. Narayan Row and another, etc. v. lshwarlal Bhagwandas and another, etc.('). Shah J, speaking for the majority, first summarises all the provisions in the Constitution bearing upon appeals to this Court -and after analysis, holds that F the words "civil proceeding" are used in the widest sense, that in contradistinction to criminal proceedings they cover all proceedings which affect directly civil rights.

A proceeding under Art. 226 for a writ to bring up a proceeding for consideration must be a civil proceeding, if the original proceeding concerned civil rights.

Here the civil rghts of the parties were directly involved and the G proceeding before the High Court was thus a civil proceeding.

The first requisite for the application of Art. 133(1) is thus satisfied.

The n.ext question is what are the different kinds of decision~ from which appeals lie under Art. 133. Mr. Gupta's conten- H tion that under that article an appeal can only lie in respect of a judgment or decree or final order passed b the exercise of appel-

(1) A.l.R. 1965 S.C. 1818 : (1966] 1.S.C.R. 190

A late or ordinary original civil jurisdiclion but not of ex1raordinary original civil jurisdiction, is not right.

He is apparently harking back to the provisions for appeal in ss. I 09 and 110 of the Code of Civil Procedure and inasmuch as appeals under those sections were available against judgments, decrees and final orders passed in the exercise of appellate or ordinary original civil jurisdictions only, he thinks, the same position continues still to obtain B and judgments, decrees or final orders passed in the exercise of the extraordinary or.g.nal civil jurisdicti.u1 are excluded.

He seeks, in other words, to iimit the opening words of Art. 133 (!) by reference to the history of appeals to the Privy Council under ss. 109 and 110 of the Code of Civil Procedure.

In M1111icipal C Officer, Aden v. Abdul KtUim( 1) this distinction in fact was made

and the provisions of the amended cl. ( 40) of the Letters Patent of the Bombay Hgh Court were called in aid.

Mr. Gupta cannot avail himself of the same argument in view of the use of the words "any judgment. decree or final order in a civil proceeding of a High Court" in the opening part of Art. 133(1).

Article 133 not only discards the distinction between appeilate and original jurisdictions but deliberately u•ed words which are as wide as language can make them.

The intention is not only to include all judgments, decrees and orders passed in the exercise

of appellate and ordinary original civil jur:sdiction but also to make the language wide enough 10 cover other jurisdictions under Ii:. which civil rights would come before the High Court for decision.

The drafters of the Constitution were aware that a new jurisdiction was being conferred on the High Courts by Art. 226 of the Constitution and proceedings before any court or Tribunal within the jurisdiction of the High Court, including in appropriate cases before Government would he broul!ht before the High Court and F dealt with by issuing writs of certiorari, mandamus and prohibition.

That the new jurisdiction would often result in decisions affecting civil i.e. private rights must have been apparent and the need to provide for armeals to thi< Court from the determinations of the Courts must have been equally obvious.

The right of appeal to this Court is thus stated in general words in Arts. 132, 133 and no excention not mentioned in the articles can be implied.

Ca<es involving an interpretation of the Constitution are dealt with in Art. 132.

That article covers all cases in which a High Court certifie, that any judgment. decree or final order of the H High Court involves a substantfal question as to the interpretation --- ,,_ ·-·- -·· ·-. - (I) l.L.R. 28 Born. 292.

I I

• ,/

, •

RAMESH V. G. M. PATNI (Hidaya(ullah J.) 205

A of the Constitution. A certificate under that article may issue in any civil, criminal or other proceeding to bring to appeal a judgment, decree or final order of the High Court. The reference to "other proceedings" was considered necessary because there are certain proceedings, which are not strictly civil or criminal in nature and they may yet involve the interpretation of the consti- B tution.

Article 132, therefore, omits no decision if a substantial question as to the interpretation of the Constitution is necessary to be decided, provided, of course, that the decision in respect of which the certificate is asked or granted is "a judgment, decree or final order". c Article 133, on the other hand, provides for appeals against any judgment, decree or final order in a "civil proceeding". We have explained what is meant by a civil proceeding and have held that such proceedings must concern civil rights including those arising from status as well as contract. Once that test is satisfied the word "proceeding" is a word of very wide import. We have D held that the proceeding in the High Court wa< a civil proceeding and although it was for the exerc se of ex<raordinary original civil jurisdiction, the word "any" must take in a decision provided it is a judgment, decree or final order.

Mr. Gupta, however, submits that the order of the High Court E was not "a judgment, decree or final order" and gives two reasons.

He says that as the order said nothing about the merits of the controversy it cannot amount to the kind of determination wh"ch those words contemplate and that as it does not of its own force affect the rights of the parties or finally put an end to the controversy it cannot be regarded as final.

F There is no doubt that the order must possess a finality for that is what the article itself says. It is also true that it has been held that an order is not a final order, unless it finally disposes of the rights of the parties and does not leave them to be determined in the ordinary way or as it is said that if the suit is still a Jive suit G in which the rights of the parties have still to be determned, there is no finality and no appeal lies. Mr. Gupta has brought to our notice all the cases of the Judicial Committee and this Court in which this test has been appfad.

The submissions of Mr. Gupta would have had considerable force if we were considering the exerche of appellate or revis'onal H jurisdictions of the High Ourt and the whole of the controversy

had not been decided by the High Court. An appeo.1 and a revision is a continuation of the original suit or proceeding and the

finality must therefore attach to the whole of the matter and the A matter should not be a live one after the decision of the High Court if it is to be regarded as final for the purpose of appeal under Art. 133. ••

We are concerned here with the exerc.se of extraordinary original civil jurisdiction under Art. 226.

Under that jurisdiction. the High Court docs nol hear an appeal or revision.

The High Court is moved to intervene <md to bring before itself, the record of a case decided by or pending before a court or tribunal or any authority within the High Court's jurisdiction. A petition

to the High Court invoking this jurisdiction is a proceeding quite independent of the original controversy. The controvcr.; y in the C High Court, in proceedings arising under Art. 226 ordinarily is whether a decision of or a proceeding before, a court or tribunal or authority. should be allowed to stand or should be quashed. for want of jurisdiction or on account of errors of law apparent on the face of the record.

A decision in the exercise of this jurisdiction, whether interfering with the proceeding impugned or declining to do so, is a final decision in so far as the High Court is concerned because it terminates finally the special proceeding before it.

But it is not to be taken that any order will be a final order.

There are orders and orders.

The question will always arise what has the High Court decided and what is the effect of the order.

If. for example. the High Court declines to interfere because all the remedies open under the law are not exhausted, the order of the High Court may not possess that finality wh; ch the article contemplates.

But the order would be final if the jurisdiction of a tribunal is questioned and the High Court either upholds it or does not. In either case the controversy in the High Court is finally decided.

To judge whether the order is final m that sense it is no! alw:iys necessary to correlate the decision m every case with the facts in controvc"y especially where the question is one of jurisdiction of the court or tribunal.

The answer to the question whether the order is final or not will not depend on vhether the controversy is finally over hut whether the controversy raised before the High Court is finally over or not.

If it is, theorder will be appealable provided the other condit:on' arc satified, otherwise not.

In the present case the question raised was whether the Commissioner had jurisdiction to set aside the discharge of the debt ordered by the Claims Officer.

This jurisdiction was challenged hy the proceedings under Art. 226. The High Court sum-

• ,

; ).

• ' . '

marily dismissed the petition. In other words, it upheld the jurisdiction and in the cfrcumstances it makes no difierence whether the High Court pronounced a speaking order or not. By its decision the High Court has finally decided the question of jurisdiction.

It is obvious that if the High Court had decided to hold that there was no jurisdiction, the debt would have stood discharged. The order once again revived the debt. Now the order of the Commissioner was challenged on the ground of jurisdiction in a separate proceeding. The High Court decided to dismiss the petition and the order that was passed must be regarded as final for the purpose of appeal to this Court. As the other requirements of the article were satisfied the High Court was in error in refusing the certificate in this case.

The appeal must, therefore, succeed. The order dated Feb< ruary 1, 1965 is set aside and the case will now go back to the High Court for disposal according to law. The first respondent shall bear the costs of the appellant.

Civil Miscellaneous Petition No. 2180 of 1965 was not pressed and is dismissed. There will be no order as to costs in this petition.

Appeal allowed.

RAMESH AND ANOTHER

SETH GENDALAL MOTILAL PATNI AND

OTHERS

January 6, 1966

P. B. GAJENDRAGADKAR, C.J.

K. N. WANCHOO

V. RAMASWAMI

P. SATYANARAYANA RAJU, JJ

Constitution of India

Art. 133

Art. 226

Art. 226

s. 19(1)

s. 22

s. 22( 1)

Arts. 226 and 227

Art. 226

Art. 226

Art. 226

Arts. 133 and 134

[1966] 1 S.C.R. 190

ss. 109 and 110

Art. 133

Article 133

Art. 226

Arts. 132 and 133

Art. 226

CIVIL APPELLATE JURISDICTION

C. B. Agarwala

B. R. L. Iyengar

G.· L. Sanghi

A. G.

Ratnaparkhi

M. S. Gupta

D. R. Prem

B. R. G. K. Achar

Hidayatullah

Art. 133(1)

July 30, 1965

s. 19( 1)

Gendalal Motilal J.'atni

s. 17

s. 21

Patni

November 19, 1951

s. 22

Madhya Pradesh Board of Revenue

June 15, 1954

Nagpur High Court

Patni

Commissioner, Nagpur Division, Nagpur

s. 22

Arts. 226 and 227

High Court of Bombay (Nagpur Bench)

September 21, 1964

February 1, 1965

Art. 133

Art. 133

Supreme Court

India

Parliament

Art. 133

M. S. Gupta

Art. 133

Art. 226

Art. 226

Art. 133

Article 133

Arts. 133 and 134

Shah

Art. 226

Art. 133(1)

Art. 133

Gupta

the Code of Civil Procedure

Art. 133

ss. 109 and 110

the Code of Civil Procedure

Art. 133(1)

Article 133

Art. 226

Arts. 132, 133

Art. 132

RAMESH V. G. M. PATNI

Article 132

Article 133

Art. 133

Art. 226

Art. 226

Art. 226

Feb< ruary 1, 1965


K. V. SRINIVASA AYYANGAR

P. N. VENKATASUBRAMANIA IYER AND OTHERS

January 6, 1966

[A. K. SARKAR, J. R. MUDHOLKAR AND R. S. BACHAWAT, JJ.)

Madras Agriculturists' Relief Act (4 of 1938), s. 8 Explanarion Ill-Scope of.

In 1932, the appellant renewed a promissory note executed in 1930 by his brother in favour of N, the father of the respondents, for Rs. l,000. The promissory note was renewed in 19.17, 1940 and 1944 for the principal amount logethcr with interest. rhc last 3 promissory notes were taken in the name of a Bank wh ch \Vas admittl!dly under the control of N.

Jn 1946, at the instance of the appellanr, N paid off the debt due from the appcibnt to the Bank and obtained a prom•ssory note in his O\\:n f; tvour for R:-o. 10,600, the amount then due.

As no repayment was made. N inStti'u'e<l a suit on the original side of the lligh L'ourt which was decided by a judge sitting singly.

Applying Explanation III to s. 8 of the !\-fadras Agricullurists' Re-lief Act, 1938, he gave a decree only for Rs. 1.350 togeth!!r , .. ith interest at 6.\% from the date of the Act.

In appeal therefrom under the Letter. Parent, the High Court held that the respondents \\-ere. entitled to a decree for the entire amount of Rs. 10,600 v.-ilh interest 011 6!~(.

Before thi.s Court, it wa9 contended that. under the Explanation as. amended by Act 24 of 1950, once i! \l."<Lo; found that a document was

in renewal of a previous debt the benefit of s. 8 \\'Ou!d be av:1iLthl~ \\'<.is E promisor even if the creditor in 1,1, hosc name the deht y.as rcne\\:cd was different from the one \\ho had originally advanced the Joan and also oven \vherc the origin; il debtor \vas different fron1 the one who executed the document under which the debt \\las renewed.

HELD : Though the requirement of the Explanation pertaining to the debtor was satisfied in the sense that the same person had been the debtor. the requirement \\'Lh respect to !he creditor was not satisfied. The benefit F of the Act would ho available to a debtor if :he rene\val was in favour of:

(a) the same creditor: or (b) any other person acting in hi' behalf; or

(c) any other person acting in hiS> in'.crcst. Since the Bank has an inde~ pendent exitence, even though the controlling interest herein was with N,

( I

1t v.ould not be corrcc! to ay !ha! there was identity bel\VCn him and the Bank. Neither was there any material to show that the Bank acted on N's behalf when the appeliant c:itecuted the promissory notes in favour of the G t Bank; and. even if ?he \\'Ord'i "in the inlercst or• mean "for ihe henefit of' > it cannot be sad that the Bank, in obtain.ing the promissory notes in ,\ rene\\al of thJ original dchl v.as acting in N's interc.."if.

Therefore, the Explana:ion was not availahlc to the appellant. (212 D-G: 213 A-El /

CIVIL APPELLATF. JURISDICTION : Civil Appeal No. 543 of 1963.

Appeal from the judgment and decree, dated October 10, 1958 of the Madras High Court in O.S. Appeal No. 1 of 1954.

' >. )

SRINIVASA V. VENKATASUBRAMANIA (Mudholkar, !.) 209

A T. V. R. Tatachari, for the appellant.

M. Sundaram, K. Jayaram and R. Thiagarajan, for respondent No. I.

The Judgment of the Court was delivered by

Mudholkar, J.

This is an appeal from .a judgment of the Madras High Court modifying the decree passed by a single Judge of that High Court in a suit for recovery of money.

Admittedly the appellant had executed a promissory note at Madras for a sum of Rs. 10,600 in favour of one Narayana Iyer, since deceased, on January 28, 1946 and agreed to pay interest on that amount at 12% p.a.

It is also admitted , that no repayment was made by the appellant.

Narayana Iyer, therefore, instituted a suit against him for recovery of a sum of Rs. 14,402-5-0, which includes interest upon the sum of Rs. 10,600.

The appellant contended that the promissory note was only a renewal of a previous promissory note which itself as well as three earlier prnmissory notes were in renewal of the original promissory note for Rs. 1,000 executed in the year 1930.

According to the appellant that promissory note was executed by his brother but was renewed by the appellant himself in the year 1932; that this promissory note was renewed on January 11, 1937 by him and that at that time Narayana Iyer had given an additional amount of Rs. 350 to him.

The amount for which !his promissory note was executed was Rs. 4,000 and it included interest on the first advance up to that date.

Narayana Iyer, however, instead of taking a promissory note in his own name took it in the name of General Bank which is a private limited company which admittedly was under his control.

The debt was renewed in favour of the General Bank on January 3, 1940 by executing a fresh promissory note for Rs. 5,650 on that date and again on September 13, 1944 when it was renewed by obtaining a promissory note for Rs. 9 ,27 5.

According to the respondents Narayana Iyer paid off the dues to the General Bank at the instance of the appellant and obtained a promissory note in his favour for Rs. 10,600.

As the amount was not paid, Narayana Iyer instituted the suit out of which this appeal arises.

He, however, died during the pendency of the suit and is now represented by his sons, the respondents.

Upon the aforesaid facts and the further fact that the appellant is an agriculturist he claimed that he was entitled to the benefits of the Madras Agricul-

SUPREME

COURT

REPORTS

[1966] 3 S.C.R.

iurists Relief Act IV of 1938. He claimed that under the provisions of that Act he was entitled to have the debts scaled down.

His pka was upheld by the learned single Judge of the High C:ourt who held that the respondents after scaling down the interest as provided in the Act were entitled to a um of Rs. 1,350 together with interest thereon at 6t% from March 22, 1938 up to the date of the decree.

In the appeal preferred by the respondents under the Letters Patent the appeal court held that the respondent> were enritle<l to a decree for the entire amount for which the promissory note was executed, that is, Rs. 10,600 together with interest thereon at 6i% p.a.

In coming to this conclusion the appeal court placed an interpretation on explanation III to s. 8 of the Act different from that placed by the learned single Judge.

Section 7 of the Act provides that all debts payable by an agriculturist at the commencement of the Act shall be scaled down in accordance with the provisions of Chapter II.

The Act received assent of the Governor General on March 11, 1938 and was first published in the Official Gazette on March 22, 1938 and must be deemed to have come into force as from the former date.

Section 8 provides for the scaling down of debts incurred before December 1, 1932.

Sub-section (I) thereof says that all interest outstanding on the 1st of October, 193 7 against an agriculturist shall be deemed to be discharged and only the principal outstanding on that date shall be deemd to be the amount repayable by the agriculturist debtor.

Sub-sections (2), ( 3) and ( 4) of that Act deal with classes of cases in which payments have been made from time to time by the debtor to the creditor.

It is not necessary to refer to them because even according to the appellant he had not made any repayments before the cxecutic.n of the rromissory note in the suit.

It is common ground th:tt explanations I, II and IV have no applica1ion to the present case.

The only explanation which is relevant is explanation III.

This explanation has been twice amended. The original explanation was as follows :

"Where a debt has been renewed or included in a fresh document in favour of the same creditor the principal originally advanced by the creditor together with such sums, if anv, as have been subsequently advanced as principal shall alone be treated as the principal sum repayable by the agriculturist under this section."

' .,,_ \

SRINIVASA v. VENKATASUBRAMANIA (Mudho/kar, J.) 211

The amending Act 23 of 1948 substituted for it the following :

"Where a debt has been renewed or included in a fresh document executed before or after the commencement of this Act, whether by the same or a different debtor and whether in favour of the same or a different creditor the principal originally advanced together with such sums, if any, as have been subsequently advanced as principal shall alone be treated as the principal sum repayable unaer this section." . This was amended by Madras Act 24 of 1950 and now runs

thus :

"Where a debt has beeu renewed or included in a fresh document executed before or after the commencement of this Act, whether by the same debtor or by his heirs, legal representatives or assigns or by any other person acting on his behalf or in his interest and whether in favour of the same creditor or of any other person acting on his behalf or in his interest, the principal originally advanced together with such items, if any, as have been subsequently advanced as principal shall alone be treated as the principal sum repayable under this section."

It is common ground that it is the explanation which was. amended by Act 24 of 1950 which applies to the case before us.

It will be seen that under the original explanation the benefit of sub-s. (1) of s. 8 was available only in cases where the debt had been renewed in favour of the same creditor as the one from whom it was originally obtained.

It is contended on the appellant's behalf that by virtue of the amendment of 1948 the benefit of the provision was available even if the creditor in whose name the debt was renewed was different from the one who had originally

dvanced the loan and also even where the original debtor was different from the one who executed the document under which the debt was renewed.

It is pointed out that the second amendment was necessitated by reason of certain decisions of the Madras High Court holding that the words "different creditor" in Explanation Ill to s. 8 did not include a third party in whose favour the debtor had executed a document renewing an earlier debt.

According to learned counsel this interpretation defeated the object which the Legislature had in view in amending Explanation Ill in 1948 and that, therefore, that explanation was amended a second time to make it

SUPREME

COURT

REPORTS

(1966) JS.CR.

clear that once it is found that a document was in renewal of a A previous debt the benefit of s. 8 would be available to the prombor whether the person renewing it or the person in whose favour it is renewed is different.

It is unnecessary for us to consider what the reason for umending Explanation Ill by Act 23 of 1948 was.

All that we arc B concerned wi1h is the ex;1lanation as amended by Act 24 of 1950.

By vinue of this explanation the benefit of s. 8 ( 1) would be available in a case where (a) a <lcht h<ts been renewed or included in a fresh document; an<l where that is <lone

(b) (i) by the same debtor, or

(ii) by his heirs, legal representatives or assigns; or

(iii) by any olher person acling on his behalf; or

(iv) by any other person ac1ing in his interest.

Such a lransaclion will he en1itlcd lo the benefit of the Act if the renewal or frc, h ugrcemctll is in favour of (a) the same creditor; or ( b) of any other person acting in his behalf or ( c) any other person acting in his interest.

In the instant case though the debtor in the transaction of 1930 was stated to be the appellant's brother, in all subsequent tr:rnsactions it was the appellant who was the debtor It would follow, therefore, that the requirements of the explanation perlaining to the debtor arc satisfied in the sense that the same per>cltl h:" been the debtor.

The second requirement of the explanation is with respect to the creditor.

As already stated, after 1940 ii was n!ll '.; arayana Iver but the G.'neral Bank which was the creditor up to January 28, 1946 on which date the promissory note in suit was executed by the appellant in his favour. The General Bank has an independent existence and even though the controlling interest therein was with Narayana Iyer and his family it would not he correct to say that there is an identity between that bank and Narayana Iyer. Mr. Tatachari, however, contended that it was Narayana Iyer who was the original creditor and that as he had full power of management and control with respect to the General Bank he went on obtaining promissory notes from the appellants. sometimes in his own favour and some times in favour of the Bank.

For all praclical purposes, therefore, accordin~ to the appelbnt, the creditor has been the same throughout.

We cannot accept this argument in the ah, ence of any material to show that the Bank a<:ted on his behalf when the appellant executed the rromissory notes, dated January 3, 1940 and Septcrnhcr :JO, 1944 in favour of the Bank.

The contention

, J 1 '

l ' ". \

SRIN!VASA V. VENKATASUBRAMANIA (Mudholkar, !.) 213

of Mr. Tatachari then is that the Bank in obtaining those promissory notes in renewal of the original debt was acting in his interest and that, therefore, the explanation was available to the appellant.

In the High Court it was urged that when the appellant executed the promissory note dated January 28, 1946 Narayana Iyer acted in the interest of the Bank.

The ground on which the argument advanced before the High Court and tho argument advanced before us is, however, the same.

It is that the words "in the interest of" mean "for the benefit of".

Even assuming that that is the meaning to be given to these words the argument of learned counsel cannot be sustained on the facts of this case.

It has been found as a fact by the appeal court that Narayana Iyer actually paid Rs. 10,600 by cheque in favour of the General Bank Ltd., to the credit of the appellant.

It has also been found by the High Court that Narayana Iyer paid off the debt due from the appellant to the Bank at the request of the appellant for discharging the appellant's liability upon the promissory note executed by him in favour of the Bank.

These findings of the High Court have not been seriously challenged before us and in our opinion quite rightly.

In view of these findings the contention of learned counsel that the payment was made "in the interest of the creditor" cannot be sustained. In the circumstances, therefore, we uphold the decree of the appeal court and dismiss the appeal with costs.

Appeal dismissed.

K. V. SRINIVASA AYYANGAR

P. N. VENKATASUBRAMANIA IYER AND OTHERS

January 6, 1966

A. K. SARKAR, J.

R. MUDHOLKAR

R. S. BACHAWAT, JJ.

s. 8

s. 8

Re-lief Act, 1938

s. 8

Madras High Court

SRINIVASA

VENKATASUBRAMANIA

T. V. R. Tatachari

M. Sundaram

K. Jayaram

R. Thiagarajan

Mudholkar

Madras

Narayana Iyer

January 11, 1937

Narayana Iyer

January 3, 1940

September 13, 1944

Madras Agricul-

Relief Act IV of 1938

March 22, 1938

s. 8

Section 7

March 11, 1938

Section 8

December 1, 1932

1st of October, 193

s. 8

s. 8

s. 8

s. 8

G.'neral Bank

Tatachari

General Bank Ltd.