Tolaram Relumal And Another vs The State Of Bombay

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

Court: Supreme Court of India

Case Number: Criminal Appeal No. 18 of 1953

Decision Date: 13 May, 1954

Coram: Mehar Chand Mahajan, B.K. Mukherjea, Vivian Bose, Natwarlal H. Bhagwati

In the matter styled Tolaram Relumal and Another versus the State of Bombay, decided on 13 May 1954, the Supreme Court of India sat as a Constitution Bench comprising Justice Mehar Chand Mahajan, Justice B. K. Mukherjea, Justice Vivian Bose and Justice Natwarlal H. Bhagwati. The judgment was recorded by Justice Mehar Chand Mahajan, who is also noted as the author of the report. The appeal, designated Criminal Appeal No. 18 of 1953, was filed under article 134(1)(c) of the Constitution of India. It challenged the judgment and order dated 18 February 1953 rendered by the High Court of Judicature at Bombay in Criminal Appeal No. 592 of 1952, which itself arose from the judgment and order dated 21 May 1952 of the Court of the Presidency Magistrate, 19th Court, Bombay, in Case No. 147/P/1951. Counsel appearing for the appellants were Mr. B. H. Lulla and Mr. Rajinder Narain, while the respondent was represented by Mr. Porus A. Mehta.

The Court observed that in the present dispute the construction of the building was incomplete and that the unfinished work was of such significance that the parties had expressly agreed that the complainant would be allowed to take possession only after the building was fully completed. The Court explained that, under these circumstances, a tenant could not enforce any right to possession in a court of law until the building was finished. It further noted that if the landlord were unable to complete the building for any reason, the prospective tenant would have no enforceable right against the landlord. Accordingly, the Court found considerable merit in the contention advanced by Mr. Lulla that, even assuming the accused had received the sum of Rs. 2,400 as previously described, such receipt did not bring the parties within the mischief contemplated by section 18(1) of the Bombay Act because no lease had actually been granted. The arrangement consisted solely of an agreement that the landlord would lease a specific flat to the complainant after the building’s proper and complete construction. The Court indicated that section 18(1) does not cover executory agreements of this nature. A contrary view had been expressed in Criminal Revision No. 1178 of 1949 by another Bench of the High Court concerning the construction of section 18(1). The matter was therefore referred to a Full Bench, which framed the issue as follows: whether the acceptance by the owners of an incomplete building of Rs. 2,400 from the complainant, based on an agreement that the owners were bound to grant possession of flat No. 15 upon completion of the building at a rent of Rs. 75 per month, fell within the mischief of section 18 of the Bombay Act LVII. The Full Bench answered affirmatively, holding that although the oral agreement did not constitute a lease, it amounted to an agreement to grant a lease in the future and that receiving consideration for such an executory agreement was within the mischief of section 18(1). The Full Bench expressed its opinion in those terms, and the Division Bench later affirmed the decision, finding no merit in any other contentions raised by the appellants and dismissing the appeal. The case was certified as involving a substantial question of law suitable for appeal to this Court, and the present appeal raises the principal question of whether the Full Bench’s answer to the referred question was correct, specifically whether receipt of money by a person entering into an executory contract to grant a lease of a building under construction falls within the mischief of section 18(1) of the Act, which provides, “in respect of the grant, renewal or continuance of …”.

The Full Bench concluded that the oral agreement between the parties was not a lease but an agreement to grant a lease at a future date, and it held that receiving consideration for such an executory agreement fell within the mischief of section 18(1) of the Bombay Act. After the Full Bench returned, the Division Bench examined the additional submissions presented on behalf of the appellants. It found that none of those submissions possessed any merit, and consequently it dismissed the appeal. The Division Bench certified that the matter presented a substantial question of law and was therefore suitable for appeal to the Supreme Court. The present appeal, which is before this Court on that certificate, raises two principal issues: first, whether the answer given by the Full Bench to the question it was asked is correct; and second, whether the receipt of a sum of money by a person who enters into an executory contract to grant a lease of a building that is still under construction falls within the mischief of section 18(1) of the Act.

Section 18(1) provides: “in respect of the grant, renewal or continuance of a lease of any premises such landlord or person shall be punished” in the manner indicated by the section. Under this provision, the money must be received by the landlord in connection with the grant of a lease. The wording of the section speaks of the “grant, renewal or continuance of a lease,” and on its face it would not appear to cover an executory agreement to grant a lease. The expressions “renewal or continuance of a lease” clearly suggest that a lease must already exist and be either renewed or continued. In this context, “grant of tenancy” means the creation of a new or initial tenancy; “renewal of tenancy” refers to granting a tenancy after it has terminated; and “continuance” seems to contemplate the continuation of an existing tenancy. Whether an executory agreement for the grant of a lease falls within the scope of the section because of the words “in respect of” will be examined later. It is worth noting that, as a general rule, an instrument is construed as a lease when it contains words of present demise. However, it is treated as an executory agreement—even if it contains words of present demise—when the lessor must perform certain acts before the lease can be granted, such as completing, repairing, or improving the premises, or when the lessee must obtain sureties, as explained in Halsbury’s Laws of England, Second Edition, volume 20, pages 37-39. Applying this principle to the facts of the present case, the Full Bench correctly held that the oral agreement did not constitute a lease but was an agreement to grant a lease in the future. In fact, in this case the lease never came into existence. Moreover, because of the provisions of the Bombay Land Requisition Act XXXIII of 1948, as amended, the appellants were unable to let out the building even after its completion without a proper notice to the Controller of Accommodation, who did not exercise his powers under that Act.

The Court observed that the appellants were not entitled to let out the building after its construction unless a proper notice had been given and the Controller of Accommodation chose not to exercise the powers granted to him under the Act. In the present case the Controller of Accommodation requisitioned the building immediately upon its completion, so there was no opportunity to give effect to the executory contract that the parties had agreed upon. The issue for determination, therefore, was whether the provision of section 18(1) makes it an offence to receive money at a time when the lease had not yet come into existence and when there existed a real possibility that the contemplated lease might never be created. The Court noted that the provisions of section 18(1) are penal in nature and that a well-settled rule of construction of penal statutes requires the Court, where two reasonable meanings are possible, to adopt the interpretation that favours exemption from penalty rather than one that imposes it. The Court further stated that it is not within its competence to enlarge the meaning of a legislative expression simply to achieve the Legislature’s intended purpose. Referring to the authority of Lord Macmillan in London and North Eastern Railway Co. v. Berriman, the Court quoted that “where penalties for infringement are imposed it is not legitimate to stretch the language of a rule, however beneficent its intention, beyond the fair and ordinary meaning of its language.” The High Court, the Court said, had held that without extending the language of section 18(1) beyond its ordinary meaning, the phrase “in respect of” clearly presupposes the existence of a lease and the payment of an amount in relation to that lease. In the absence of a lease there can be no reference to it. If the Legislature had intended to punish the receipt of illegal gratuities on merely executory contracts, it should have expressed that intention in clear and unambiguous terms. The construction adopted by the Court is supported by the fact that section 18(1) is situated in Part I of the Act, and section 6 of that Part provides that “in areas specified in Schedule I, this Part shall apply to premises let for residence, education, business, trade or storage.” Thus, Part I deals with premises that are let – that is, premises that have been demised or leased – and not with premises that are merely promised to be let, where a lease may or may not materialise. Moreover, the definition of “landlord” in section 5 reinforces the same interpretation. The Act defines a landlord as any person who is, at the relevant time, receiving or entitled to receive rent in respect of any premises, whether on his own account, on behalf of another, as a trustee, guardian, receiver, or in any similar capacity.

In this case the Court noted that the definition of “landlord” indicated that a person would receive rent only if the premises were actually let to a tenant. Accordingly it was obvious that, on the basis of an executory agreement, the appellants would not be entitled to receive any rent. Their right to rent could arise only after the lease was duly executed and the actual demise or transfer of the premises was made in favour of the complainant. The definition of the expression “tenant” reinforced the same construction. Counsel for the State, while endorsing the High Court’s emphasis on the words “in respect of,” argued that the same interpretation could be supported by reference to sub-section (3) of section 18, which reads: “18(3) – Nothing in this section shall apply to any payment made under any agreement entered into before the first day of September, 1940, or to any payment made by any person to a landlord by way of a loan, for the purpose of financing the erection of the whole or part of a residential building or a residential section of a building on the land held by him as an owner, a lessee or in any other capacity, entitling him to build on such land, under an agreement which shall be in writing and shall, notwithstanding anything contained in the Indian Registration Act, 1908, be registered. Such agreement shall inter alia include the following conditions, namely, (1) that the landlord is, to let to such person the whole or part of the building when completed for the use of such person or any member of his family…”. It was suggested that, but for this exception, the executory agreement would fall within the mischief of section 18(1) and that, unless such agreements were within that mischief, there would be no reason to exempt them from the provision. The Court found this contention unsound. Firstly, the exception was introduced by Act 42 of 1951, after the agreement in question, and for the purposes of the present case section 18(1) must be read as it stood at the time the alleged offence was committed. Moreover, sub-section (3) was added because some courts had interpreted section 18(1) in the manner adopted by the Full Bench, and the Legislature, by enacting clause (3), made clear that agreements of the type described were never intended to be covered by section 18(1). In the Court’s view the language of sub-section (3) offered little assistance in construing the main provisions of section 18(1). Consequently the Court concluded that the receipt of money by the appellants from the complainant at the time of the oral executory lease agreement was not punishable under the statute.

The Court observed that the conduct for which the appellants had been prosecuted did not fall within the scope of section 18(1) of the Act and was therefore outside the mischief that the provision was intended to address. Consequently, the Court held that the Presidency Magistrate had committed an error when he convicted the appellants, because the statutory basis for the conviction was absent. The Court further determined that the High Court had likewise erred in affirming the conviction, since it relied upon the same mistaken interpretation of the statutory provision. In view of these findings, the Court concluded that the appeal was well founded. Accordingly, the Court set aside the convictions that had been recorded against the appellants and directed that they be formally acquitted of the charges. The order of the Court was recorded as an allowance of the appeal.