Deputy Commissioner, Hardoi vs Rama Krishna Narain And Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeal No. 59 of 1951

Decision Date: 8 October 1953

Coram: Mehr Chand Mahajan, B.K. Mukherjea, B. Jagannadhadas

In the case titled Deputy Commissioner, Hardoi versus Rama Krishna Narain and others, decided on 8 October 1953, the Supreme Court of India rendered its judgment. The bench that heard the matter comprised Justice Mehr Chand Mahajan, Justice B.K. Mukherjea and Justice B. Jagannadhadas. The petitioner was the Deputy Commissioner of Hardoi and the respondents were Rama Krishna Narain together with several other parties. The judgment was reported in 1953 AIR 521 and 1954 SCR 506. The dispute concerned the provisions of the Uttar Pradesh Encumbered Estates Act, 1934, specifically section 11(2), and concerned proceedings brought under that section, an appeal from an order that rejected a claim, and the question of whether creditors who had not actively participated in the earlier proceedings were necessary parties to the appeal.

The Court’s headnote stated that creditors who failed to take an active part in the original proceedings were not required to be impleaded as parties in an appeal from an order rejecting a claim under section 11(2) of the Uttar Pradesh Encumbered Estates Act, 1934. It further observed that the procedural rules of the Civil Procedure Code concerning the impleading of parties should not be rigidly applied to such specialised proceedings. Instead, a more liberal approach was appropriate, with constant attention to the absence of any collusion between the debtor and the claimant. The headnote also recorded that the decisions in Rameshwar v. Ajodhia Prasad (AIR 1941 Oudh 580), Chaudhri Bishuanth Prasad v. Sarju Saran Tewar (AIR 1942 Oudh 16), Lakshmi Narain v. Satgurnath (AIR 1942 Oudh 339) and Benares Bank Ltd. v. Bhagwandas (AIR 1947 All 18) were overruled by this judgment.

The appeal that reached the Supreme Court was Civil Appeal No. 59 of 1951. It arose from a judgment and decree dated 22 August 1944, delivered by the High Court of Judicature at Allahabad (Presided by Justices Verma and Hamilton) in First Appeal No. 345 of 1940. That judgment itself stemmed from a decree dated 24 August 1940 handed down by the Court of the Special Judge, First Grade of Shahjahanpur, in Miscellaneous Case No. 52 of 1940, which in turn was based on Original Suit No. 2 of 1938. The appellant was represented by counsel, while the respondent identified as No. 5 was represented by separate counsel. The Supreme Court judgment was delivered on 8 October 1953 by Justice Mahajan.

The sole question before the Court was whether the appeal that had been prefixed to the High Court was imperfectly constituted because not all the creditors had been impleaded as parties. The factual background disclosed that on 28 October 1936 Rama Krishna Narain and other landlords filed an application under section 4 of the Uttar Pradesh Encumbered Estates Act, 1934, before the Sub-Divisional Officer at Tilhar, Shahjahanpur, seeking to have the Act’s provisions applied to them. The Sub-Divisional Officer subsequently transferred the matter to the Court of the Special Judge, First Grade, Shahjahanpur. On 26 August 1938 the landlords filed a written statement before the Special Judge pursuant to section 8 of the Act, asserting, among other things, that they possessed a proprietary interest of ten annas share in fifty-two items of taluqdari villages that formed part of the taluka of Bharawan.

In the matter before the special judge, the landlords claimed a ten-annas share in fifty-two items of taluqdari villages that formed part of taluka Bharawan. As required by section 11(1) of the U.P. Encumbered Estates Act, a notice of this application was published in the U.P. Gazette on 13 May 1939. On 30 November 1939, Raja Dev Singh, who later became a ward of the Court of Wards, filed a claim petition under section 11(2) of the Act. In that petition he asserted that he was the proprietor of a six-and-a-half pies share in forty-seven items of property listed in schedule (A) of the landlords’ written statement. The special judge rejected Raja Dev Singh’s claim by an order dated 24 August 1940, holding that the petitioner was not the owner of the property which he had sought to claim.

The Deputy Commissioner of Hardoi, who acted as the Court of Wards for the Bharawan estate, appealed the special judge’s decision to the High Court. All the applicant-landlords were joined as respondents in that appeal, together with Unao Commercial Bank Ltd., a creditor who had participated in the proceedings before the special judge at that stage. The record showed that the other creditors neither filed written statements under section 10 nor alleged that the landlords had concealed any property. Consequently, their names did not appear in the memorandum of parties annexed to the memorandum of costs, and they were not joined as respondents in the appeal.

Subsequently the appellant applied to have those unjoined creditors impleaded as respondents in the appeal and sought the benefit of section 5 of the Indian Limitation Act. That application was refused, and the appeal was dismissed on the ground that it was defective because it could not be entertained without all the creditors being impleaded as respondents. A cross-objection filed by Unao Commercial Bank concerning costs was allowed.

On 21 November 1944 the appellant filed a petition for leave to appeal to His Majesty in Council. The petition alleged that the valuation of the subject-matter of the appeal in the trial court, the High Court, and before His Majesty in Council exceeded Rs 10,000, and that, although the High Court’s judgment and decree affirmed those of the trial court, a substantial question of law of general interest was involved. Without deciding whether such a substantial question of law existed, the High Court granted leave to the appellant under section 110 of the Code of Civil Procedure, holding that the High Court’s judgment was a decree of variance and that the value of the dispute in both the trial court and the appeal to His Majesty in Council was above Rs 10,000, thereby satisfying the requirements of the provision.

Mr. Srivastava, who appeared on behalf of the debtors-landlords, raised a preliminary objection stating that the certificate issued under section 110 of the Civil Procedure Code was defective and therefore the appeal was incompetent and could not be entertained. He argued that the only alteration made by the High Court to the judgment of the trial judge concerned the award of costs, and that such a variation in costs alone did not create a decree of variance. Consequently, he maintained that the ground on which the High Court had granted the certificate was erroneous, and that a defective certificate could not support the appeal. The Court examined this contention and found it to be without merit. While it is true that costs are treated as extraneous to the substantive subject-matter of a suit and that a change in costs does not, by itself, render the appellate decree a decree of variance, the appellant had not sought the certificate on the basis of a cost variation. The appellant had expressly alleged that the decree was one of affirmance and that, because the subject of the suit and the appeal involved a sum exceeding Rs 10,000 and raised a substantial question of law, he was entitled to a certificate under section 110. The Court held that the ground relied upon by the High Court for dismissing the appeal indeed raised an important question of law for the parties, and that on that basis alone the appellant was entitled to a certificate. Accordingly, the certificate was valid even though the specific ground on which it was granted was erroneous. The Court further noted that an appellant may rely on grounds other than those expressly mentioned in the certificate when supporting the appeal. For these reasons, the preliminary objection filed by Mr. Srivastava failed.

To determine whether the creditors must be joined as parties in proceedings governed by chapters 3 and 4 of the Uttar Pradesh Encumbered Estates Act, 1934, the Court turned to the relevant statutory provisions. The Act was enacted to provide relief to encumbered estates in Uttar Pradesh. Section 4 of the Act stipulates that any landlord whose immovable property, or any portion thereof, is burdened by private debts may submit a written application to the Collector of the district. In this application the landlord must specify the amount of his private debts as well as any public debts, whether decreed or yet undecreed, and must request that the provisions of the Act be applied to his case. This provision affords the landlord an option to seek relief under the Act. Once the Collector receives such an application, he is required to forward it to the special judge appointed under the Act. A direct consequence of the Collector’s acceptance of the application is that the creditors are barred from instituting proceedings against the landlord in civil or revenue courts. Thus, the effect of the statutory mechanism is to deprive the creditors of their right to pursue their debts through ordinary judicial or revenue processes, reflecting the legislative intent to protect encumbered estates rather than to advance the contractual rights of the creditors.

The Court observed that, once the relief under the Act was granted, the debts of the landlord and every attachment made in execution of decrees became null and void, and no further execution process could be issued after that date. It further noted that the provisions of the Act adversely affected the contractual rights of the creditors and their remedies in civil law, and therefore the statute could not, by any interpretation, be said to have been enacted for the benefit of creditors. Section 8 of the Act empowered the special judge to require the applicant to submit, within a period fixed by the judge, a written statement containing full particulars of the public and private debts to which the applicant was subject or by which his immovable property was encumbered; the nature and extent of his proprietary rights in land; the nature and extent of his property liable to attachment and sale; and, where known, the names and addresses of the creditors. If the applicant failed to file the statement or to provide the information prescribed in the proviso to sub-section (2), the special judge was authorised to dismiss the application. The landlord was not obliged to implead any creditor as a respondent in his written statement, but he had to disclose the names and addresses of his creditors to the extent they were known or could be ascertained, and his failure to do so could result in dismissal. Section 9 required the special judge to publish, in the official gazette and in English, a notice inviting all persons claiming private debts, whether decreed or undecreed, against the landlord or his property to present to the judge a written statement of their claims within three months of the notice’s publication. The judge was also directed to cause the notice to appear in newspapers as he deemed appropriate, to exhibit it at his own office, at the collector’s office, and at a conspicuous place at the landlord’s residence, and to send a copy of the notice and a copy of the statement required under section 8(d) by registered post to each creditor whose name and address were listed. Section 10 mandated that every claimant referred to in section 9, in his written statement, must give full particulars of his claim and, to the extent known or ascertainable, state the nature and extent of the landlord’s proprietary rights in land and of any other property of the landlord.

The Court explained that under section ten a creditor must not only disclose the amount of his own debt but must also be given a chance to allege that the landlord has concealed additional property. Section eleven-one of the Act required the special judge to publish a notice that identified the property specified by the applicant in section eight or by any claimant in section ten. The purpose of the notice under section eleven-one was to discover the full extent of property that could be used for liquidating the debts identified in the later provisions of the Act. Section eleven-two then provided that any person claiming any interest in the property mentioned in that notice must, within three months from the date of its publication in the official gazette, file an application before the special judge stating his claim. The special judge was mandated to decide whether the property described in the claim, or any portion of it, was liable to attachment, sale, or mortgage in satisfaction of the applicant’s debts. Sub-section three directed the special judge to resolve such claims before determining the amount due to any creditor under section fourteen. He was further instructed not to pass any decree under section fourteen until a period of one month had elapsed from the last day on which he determined a claim under section eleven. Sub-section four of section eleven declared that any order issued by the special judge under this section would be deemed to be a decree of a civil court of competent jurisdiction.

The Court then turned to section thirteen, which provided that every claim, whether already decreed or not, against the landlord would, if not made within the prescribed time, be deemed for all purposes to have been duly discharged. Section fourteen set out the procedure for ascertaining the amount of debts. The judge was required to give notice of the date for inquiring into the creditors’ claims to all claimants and to the person who had made the application under section four. He was to examine each claim after hearing all parties who wished to be heard and after considering any evidence produced by them. The section also prescribed the method for calculating interest on the claims and allowed the provisions of the Usurious Loans Act to apply to proceedings under this Act. Sub-section seven specified that if the special judge found any amount due to a claimant, he would pass a simple money decree for that amount together with any costs he deemed appropriate for proceedings in his court and for proceedings in any civil court stayed under the Act, including pendente-lite and future interest at a rate not exceeding that specified in section twenty-seven. If the judge found no amount due, he could issue a decree for costs in favour of the landlord. Such a decree, the Court noted, would be treated as a decree of a civil court of competent jurisdiction, although no decree against the landlord would be executable in the United Provinces except under the provisions of this Act.

The Court observed that the decree issued by a civil court of competent jurisdiction could be executed against a landlord only under the provisions of the Encumbered Estates Act. Section 18, subject to the right of appeal or revision, stipulated that a decree rendered by the special judge pursuant to sub-section (7) of section 14 would extinguish any existing rights of the claimant, including any mortgage or lien securing those rights. Where the special judge substituted those rights with a right to recover the decree amount, the recovery had to be carried out in the manner and to the extent prescribed by the Act. Section 45 dealt with the procedure for filing appeals and revisions against the orders and decrees of the special judge. From these provisions, the Court concluded that the Uttar Pradesh Encumbered Estates Act functioned essentially as a code for administering the assets of a landlord-debtor and for providing him relief in various ways against the contractual claims of his creditors. The Act, in effect, removed the ordinary remedies available to creditors in regular civil courts and extinguished any mortgages they held. Section (2) of the Act addressed claims made by third parties to property that the landlord asserted as his own, directing the judge to determine whether such property could be attached or sold. The Court noted a procedural distinction: while section 14(1) required the special judge to follow a specific procedure, including fixing a date and giving notice of the inquiry into creditors’ claims to all claimants, section 11(2) did not prescribe any comparable procedure for third-party claims, although in practice a similar process was often followed.

The Court then considered whether the procedural rules contained in the First Schedule to the Code of Civil Procedure should be applied strictly to proceedings under the Encumbered Estates Act, and whether creditors—who are unquestionably interested parties and who would ultimately be entitled to recover their decretal debts from the property under enquiry in section II—should be treated as necessary parties in the enquiry or merely as proper parties entitled only to notice. To answer this, the Court examined Order 1, Rules 1 and 3 of the Code of Civil Procedure, which govern the joinder of plaintiffs and defendants in suits. Rule 1 states that all persons may be joined as plaintiffs in one suit when any right to relief arising from the same act, transaction, or series of transactions exists, whether jointly, severally, or alternatively, and when separate suits by those persons would raise common questions of law or fact. Similarly, Rule 3 provides that all persons may be joined as defendants when any right to relief arising from the same act, transaction, or series of transactions exists, whether jointly, severally, or alternatively, and when separate suits would present common questions of law or fact. The Court concluded that, because proceedings under the Encumbered Estates Act are not suits in the ordinary sense, the strict application of these rules is inappropriate; consequently, creditors are not required to be impleaded as respondents in an objection application under section 11, but their interests must still be considered in the inquiry.

Rule 1 of Order 1 of the Code of Civil Procedure states: “All persons may be joined in one suit as plaintiff, in whom any right to relief in respect of or arising out of the same act or transaction or series of acts or transactions is alleged to exist, whether severally or in the alternative, where, if such persons brought separate suits, any common question of law or fact would arise.” Rule 3 provides: “All persons may be joined as defendants against whom any right to relief in respect of or arising out of the same act or transaction or series of acts or transactions is alleged to exist, whether jointly, severally or in the alternative, where, if separate suits were brought against such persons any common question of law or fact would arise.” The Court observed that, strictly speaking, the provisions of these rules cannot be applied to the proceedings contemplated by the Uttar Pradesh Encumbered Estates Act because such proceedings are not suits. It was conceded at the Bar that an inquiry into third-party claims under section 11(2) of that Act does not constitute a suit. Neither section 8 nor section 11 requires that creditors be impleaded as parties-respondents in an objection application. The statute merely obliges the applicant to furnish the names of the creditors and the amounts due to them.

The Court explained that, until a decree is passed under section 14 in favour of a creditor, no creditor can be said to be entitled to share in the debtor’s property. Only when a creditor makes a claim under section 10 and that claim matures into a decree does the creditor acquire a right to share in the landlord’s assets. If a creditor defaults in filing a written statement of his claim under section 10, the claim is discharged under section 13. In the present case it was not clear whether any creditor other than the Una Commercial Bank had made a claim under section 10, nor was it clear whether any decree under section 14 had been passed in favour of any creditor. The Court noted that an inquiry to determine the quantum of the landlord’s debts can be undertaken only after the third-party claims have been settled pursuant to section 11(2).

Given these statutory provisions, the Court found it difficult to hold that the technical and strict rules on impleading parties under the Civil Procedure Code apply to proceedings under section 11 of the Uttar Pradesh Encumbered Estates Act. While the creditors must be given notice and an opportunity to state whether the landlord has concealed any property, the Court said that if the creditors are satisfied with the disclosures made by the landlord, they do not acquire any further interest in the quantum of the property mentioned by the landlord in his written statement under section 8. Consequently, if a third party asserts a claim to any item of property listed by the landlord, the controversy at that stage exists solely between the landlord and that claimant.

In the situation described, the dispute is between the claimant and the landlord, and the creditors may ultimately either gain or lose portions of the assets that the landlord has identified in his application as subject to attachment and sale for the satisfaction of decrees that could be issued in the creditors’ favour. It is reasonable to assume that, at this stage, the contest represents a genuine adversarial proceeding between the objector and the landlord, and that the landlord’s position will effectively embody the interests of all the creditors. Consequently, any judgment rendered either for or against the landlord will, by virtue of explanation 6 to section 11 of the Civil Procedure Code, bind every creditor, irrespective of whether the outcome ultimately benefits or harms them. Accordingly, if the claimant is defeated and the landlord prevails, an appeal against that decision need only involve the landlord as a respondent; there is no requirement to join every creditor as a respondent solely because the final result will affect them. Nevertheless, the court retains the discretion, when it deems the presence of the creditors essential for the hearing, to serve notice of the appeal upon them, thereby granting them an opportunity to present their objections. Observing such a procedure can contribute to a fair hearing of the appeal, even when the creditors have not previously raised any plea before the special judge. By contrast, where the creditors allege that the landlord has concealed certain property and assert that such property should be included in the schedule, and a third party subsequently claims that property, the creditors become genuine parties to the controversy. In that circumstance, the failure to implead them could render the appeal improperly constituted. Applying these principles to the present case, the appeal should be considered properly constituted because every party who raised any dispute concerning the ownership of the property in question was duly impleaded. The Court acknowledges that the view expressed above does not align with several decisions of the Oudh Chief Court and the Allahabad High Court, and therefore it is necessary to scrutinise those precedents to determine whether their reasoning is sound. In the judgment of Rameshwar v. Ajodhia Prasad (1), a Bench of the Oudh Court held that all creditors who had been impleaded as parties to the application under the Encumbered Estates Act must also be treated as necessary parties to an appeal filed by the objector against an adverse order passed under section 11. That judgment was predicated on the assumption that, because the creditors were impleaded in the original application but not named as respondents in the appeal, the appeal was rendered imperfectly constituted. The present discussion therefore raises the question, under the provisions of the Encumbered Estates Act, whether an applicant is required to implead creditors as parties to the original application.

In the earlier authorities it was neither argued nor examined that every creditor must be joined as a party to the claimants’ application under the Act; instead, a presumption was made that all creditors ought to be impleaded as parties to that application. The Court identified that presumption as plainly incorrect. According to section 4 of the Encumbered Estates Act, an applicant may approach the Collector and request that the provisions of the Act be applied to him and that relief be granted pursuant to those provisions. At this initial stage the applicant is under no obligation to disclose the names and addresses of any creditors, and consequently there is no requirement to implead any person as a respondent. Only after the Collector forwards the application to the Special Judge does the Special Judge acquire the authority to require the applicant to file a written statement. In that written statement the applicant must, as far as he knows or can discover, furnish the names and addresses of his creditors. However, even when the Special Judge orders the filed written statement, the applicant is not directed to implead any individuals as parties in the sense employed by the Code of Civil Procedure. Because of this procedural distinction, the decision cited from the Oudh Court does not aid the point presently under consideration.

The Court then turned to the decision in Chaudhri Bishunath Prasad v. Sarju Saran Tewari, reported in A.I.R. 1941 Oudh 580, where another Bench of the Oudh Court held that the Special Judge must conduct an enquiry into the landlord’s indebtedness in the presence of all the creditors. The Court observed that each creditor is motivated not only to establish his own debt against the landlord but also to prevent the landlord from withholding any of the property from the Court. The Bench explained that if a claimant under section 11 succeeds in establishing a title to the property shown by the landlord to belong to him, the immediate contest may appear to be between the claimant and the landlord. Nevertheless, the ultimate interest of the whole body of creditors lies in the determination that the property belongs to the landlord, because a decision favoring the landlord enables all creditors to satisfy their debts from that property, whereas a decision against the landlord would place the property beyond the creditors’ reach, thereby depriving them of any means to recover what is owed. The Court further held that because the creditors had not been joined as parties to the appeal, yet they were materially interested in the outcome, the appeal could not be said to be wholly unconcerned with their rights and therefore could not be dismissed as untenable. The present Court expressed the view that the judges in that earlier case had not clearly appreciated the distinction between the provisions of sections 11 and 14 of the Act, a distinction that is essential for determining the proper procedure for creditor participation.

Section 14 of the Uttar Pradesh Encumbered Estates Act prescribes a specific procedure for examining the claims of creditors. Under this provision each creditor is required to prove his claim against the landlord in the same manner as he would if he were instituting a suit. This examination is conducted only after the value of the debtor’s property has been determined in accordance with section 11. The judgment noted that a creditor who wishes to dispute the amount of the property can raise such a dispute in the written statement filed under section 10; in that circumstance the creditor is directly interested in the enquiry contemplated by section 11. However, the Court found it difficult to regard all other creditors—who have accepted the debtor’s list of property as correct—as being directly interested in the section 11 enquiry, and therefore not as necessary parties whose presence is indispensable for the proceeding to continue. The Court further explained that Rules I and 3 of Schedule I of the Code of Civil Procedure do not impose a requirement that every person who may ultimately be affected by the outcome of a suit be impleaded as a defendant. Those rules merely mandate that all persons against whom a right to relief is claimed, and whose right arises out of the same act, transaction or series of transactions, should be joined, provided that a common question of law or fact is involved. Consequently, it cannot be said that an objector can assert a right to relief against the creditors as a class. The right to relief in the section 11 enquiry is directed solely against the landlord who claims ownership of the property that the creditor alleges belongs to him. The creditors themselves have no proprietary interest in the property asserted by the objector. Accordingly, the test of “ultimate benefit” formulated by the Oudh Court for deeming all creditors necessary parties in a section 11 enquiry does not satisfy the conditions set out in the Code for joining parties as plaintiffs or defendants. Because they are not necessary parties in the true sense of the term, their non-impleading as respondents in the appeal is not fatal to the proceeding.

The Court then referred to earlier authorities that had addressed the same issue. In Lakshmi Narain v. Satgurnath (1) A.I.R. 1942 Oudh 339, another bench of the Oudh Court adhered to the earlier Oudh decisions and reiterated that creditors are parties to proceedings under the Encumbered Estates Act. Similarly, in Benares Bank Ltd., Benares v. Bhagwandas (1), a full bench of the Allahabad High Court examined the question and arrived at the same conclusion that had been expressed by the Oudh Court decisions mentioned above. The judgment thus affirmed that the earlier view—that creditors are parties in such proceedings—remains authoritative. Mr.

Justice Braund, who was a member of the Full Bench, expressed his agreement with the majority opinion only with great reluctance and out of deference to the reasoning of Pathak J. He indicated that, had he been alone, he would have reached a different conclusion. The majority judgment was authored by Pathak J., who set out two criteria for determining whether a particular individual is a necessary party in a proceeding. The first criterion requires that the party against whom relief is sought must have a right to that relief concerning the subject matter of the proceeding. The second criterion demands that an effective decree could not be issued in the absence of that party. Applying these criteria, Pathak J. observed that creditors of a landlord who seek relief under the Encumbered Estates Act are necessary parties to proceedings under that Act, because the purpose of the Act is to compel the landlord to surrender his entire property for the benefit of his creditors and to liquidate the debts of all creditors in accordance with the limits permitted by the statute.

While acknowledging that these tests are the proper method for identifying a necessary party, the Court examined whether, under those tests, the creditors of a landlord under the Uttar Pradesh Encumbered Estates Act can be deemed necessary parties in an enquiry conducted under section 11. The Court first held that it is mistaken to presume that the objective of the Act is to grant relief to the creditors; rather, the Act is intended to provide relief to the indebted landlord by reducing his liabilities and by depriving creditors of the securities they hold. Consequently, no right of relief exists in an objector under section 11 against the creditors. Moreover, it is difficult to assert that an effective decree concerning title to the property cannot be issued without the participation of the creditors. The effectiveness of a decree is measured by its ability to be executed without the creditors, and in execution proceedings a warrant of attachment and a delivery of possession are directed against the owner, that is, the landlord, not against the creditors. In these proceedings the special judge cannot grant any relief to the objector against the creditors. Accordingly, on the basis of the two tests articulated by the learned judge, the Court concluded that the creditors are not necessary parties in the administrative proceedings under the Encumbered Estates Act, although they may be given notice and a chance to monitor the proceedings to ensure that property is not concealed from them.

The Court observed that the creditors of a debtor do not constitute necessary parties in the administrative proceedings brought under the Encumbered Estates Act, although they may be served with notice of those proceedings and allowed to monitor them so that they can ensure that no property is concealed from them and that the property remains available for the satisfaction of any decrees that might later be issued in their favor. In the judgment of Pathak J., it was noted that although the landlord is a party to the dispute under section 11, it appears evident that the principal party having a vital interest in that dispute is the whole body of creditors, because the question that emerges from such a claim is whether the property that forms the subject of the claim is liable to satisfy the debts owed to the entire body of creditors. The Court, however, found this statement to be insufficiently precise. It held that it is inaccurate to assert that the outcome of a decision in such a claim makes the property liable for the satisfaction of debts owed to the entire body of creditors who had made claims at that stage. The property, the Court explained, is liable only for the satisfaction of decrees that may be passed thereafter under section 14. Moreover, the Court recognised that among the persons identified as creditors under section 8, some may have no interest whatsoever in the result of the decision of the claim under section II. Consequently, it was described as an over-statement to claim that the entire body of creditors is the main party having a vital interest in the dispute. The dispute, the Court said, concerns title to the property and, according to the established principles governing the impleading of parties, the decisive test is not the eventual benefit a person may obtain from a decision but whether the party is truly necessary or merely a proper party. Pathak J. further observed, “Could it be suggested that in a suit under Order XXI, rule 63, Civil Procedure Code, the decree holders who desire to seize the property belonging to the judgment-debtor are not necessary parties?” The Court respectfully held that this analogy was not appropriate. Under Order XXI, rule 63, only the attaching creditor possesses the right to file a suit or to be impleaded as a defendant by the judgment-debtor. Creditors of the judgment debtor who have not attached the property are not necessary parties in a suit under Order XXI, rule 63, although, following the decision in that suit, they may become entitled to share in the rateable distribution of the property if they file an application for that purpose. In a limited sense, it is correct to say that in any suit filed by a creditor against a debtor who owes money to several creditors, each of the other creditors has an interest in seeing that the creditor’s suit is dismissed or that his debt is substantially reduced.

In this case the Court observed that although a decree holder may be reduced in size, that reduction does not imply that every other creditor must be joined as a necessary party in a suit instituted on a promissory note by one creditor against the debtor. The Court further explained that the mere prospective interest of a party in the outcome of litigation cannot be regarded as the proper test for determining who must be impleaded under the Code of Civil Procedure, and it would be inappropriate to adopt that same test in administrative proceedings brought under the Uttar Pradesh Encumbered Estates Act. The Court reminded that Section 11 of that Act contains no provision requiring notice to be given to all creditors. Reference was also made to Rule 6 made under the Encumbered Estates Act, which provides that proceedings under the Act shall be governed by the Code of Civil Procedure to the extent that its provisions are applicable. The Court noted that, as previously indicated, the provisions of Order 1, Rules 1 and 3 of the Code cannot be suitably applied to such proceedings. Consequently, the view expressed by Justice Pathak, that all creditors become parties to the proceedings under the Act in the technical sense once notice is served upon them and they have filed written statements, and that they remain parties until the debts are liquidated or the proceedings are terminated according to the Act, could not be upheld. The Court considered that statement to be overly expansive. It further rejected the proposition that, after each individual creditor obtains a decree under Section 14, every such creditor must be impleaded as a party in any appeal filed either by that creditor or by the debtor; the Court found no basis to answer that proposition affirmatively. The Court then turned to the view of Mr. Justice Braund, holding that his approach was correct. He had ruled that the technical rules of the First Schedule of the Code concerning the impleading of parties should not be invoked in administrative proceedings, and that a more liberal construction should be adopted, always keeping in mind that there is no collusion between debtor and claimant and that persons litigating in good faith under Section 11 are entitled to their rights. Accordingly, where a bona-fide dispute results in a decree and an appeal against that decree, it is sufficient to implead those who actively participated in the proceedings under Section II. The Court emphasized that it is not necessary to implead every creditor who either did not appear, failed to file a written statement under Section 10, or took no active part in the proceedings under Section 11(2). In the view adopted by the Court, such extensive impleading of all creditors is not required.

The Court set out to determine whether the High Court had correctly declined to exercise the authority conferred by Order XLI, rule 20, to implead the creditors as respondents in the appeal. After considering the material placed before it and the reasons previously discussed, the Court concluded that the appeal was maintainable and therefore allowed it. Accordingly, the Court set aside the judgment of the High Court and directed that the matter be remitted to that court for a fresh hearing of the appeal in accordance with the applicable law and on its substantive merits. The Court further observed that, should the High Court consider that the attendance of any of the creditors would assist it in reaching a correct determination of the issues, it may, in its discretion, issue notice to such creditors informing them of the date of the hearing. The Court ordered that each party should bear its own costs of this appeal. Consequently, the appeal was allowed. The appellant was represented by an agent named C. P. Lal, while the respondent identified as No. 5 was represented by an agent named S. S. Shukla. The remand order required the High Court to conduct the hearing in accordance with procedural rules and to issue any further orders that may be necessary for the fair disposal of the appeal.