J. Narayana Rao vs V.G. Basavarayappa And Ors.

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 9 May, 1956

Coram: Imam

In this case the Supreme Court was asked to consider an appeal that arose from a decision of the High Court of Mysore. The High Court had issued a certificate allowing the appellant, who had been designated as defendant 3 in the original suit, to challenge the lower court’s order. The plaintiff had originally acquired the disputed property by executing a registered sale deed on 28 April 1943, purchasing it from a woman named Gangamma, who was the daughter of Grurushanthamma. At the time of the sale the property was already burdened by a mortgage, and consequently the plaintiff instituted a suit seeking both redemption of the mortgage and possession of the land. The appellant, however, claimed that he had bought the same property from the father of defendants 1 and 2 on 31 August 1942, before the plaintiff’s purchase, and asserted that he was a bona‑fide purchaser who had acquired the land without any knowledge of the existing mortgage. The appellant further contended that he had made substantial improvements to the property after acquiring it.

The Munsiff hearing the suit issued a preliminary decree for redemption and possession on 30 June 1945. In reaching that decree the Munsiff examined the evidence and concluded that the appellant was indeed a bona‑fide purchaser who had actually carried out improvements on the land. Accordingly, the Munsiff held that the appellant was entitled to compensation under Section 51 of the Transfer of Property Act. The decree directed the plaintiff, within a period of two months, to either pay the appellant the cost of the improvements and then take possession, or to sell the property to the appellant. On 25 July 1945 the plaintiff chose the first alternative, electing to pay the appellant the cost of the improvements and to obtain possession. The plaintiff then filed an application on 26 July 1946 seeking the preparation of a final decree.

To determine the amount of compensation for the improvements, the court appointed a Commissioner to investigate and report on the value of the work carried out by the appellant. The Munsiff examined the Commissioner’s report together with the testimonies of witnesses for both the plaintiff and the appellant. Based on that evidence the Munsiff found that, as of 30 June 1945, the cost of the old building that existed on the suit property at the time of the appellant’s purchase was Rs 10,854, while the cost of the new construction erected by the appellant amounted to Rs 18,840. By subtracting the value of the old structure, the Munsiff calculated the net cost of the improvement to be Rs 7,986. He ordered the plaintiff to deposit this amount with the court and to take possession of the property. It should be noted that this sum was in addition to the Rs 1,000 mentioned in the preliminary decree, which the plaintiff was required to pay toward the mortgage money, interest, costs, repairs and taxes. A final decree incorporating these directions was rendered on 27 February 1948.

Dissatisfied with the Munsiff’s decision, the appellant filed an appeal that was heard by the Additional Subordinate Judge at Bangalore. By an order dated 9 September 1948, the Subordinate Judge set aside the Munsiff’s decree and remanded the matter back to the Munsiff for a fresh determination of the issue relating to the improvement made by the appellant, specifically identified as Issue No. 5. In response to this remand, the plaintiff moved the High Court of Mysore seeking relief. The High Court subsequently set aside the Subordinate Judge’s order, thereby restoring the Munsiff’s original findings and decree.

The High Court set aside the order of the Subordinate Judge and directed that the appeal be heard anew and disposed of in accordance with law. Consequently, the appeal was reheard by a different Subordinate Judge. That Judge affirmed the earlier decision of the Munsiff that the appellant was entitled to compensation for the cost of improvement, but he disagreed with the Munsiff on the amount of compensation payable by the plaintiff. In his view, the cost of improvement should be measured as of 25‑7‑1945, which was the date on which the plaintiff elected to take possession, and he fixed that amount at Rs 14,146. The difference between this figure and the sum previously fixed by the Munsiff therefore amounted to Rs 6,160. Both the plaintiff and the appellant were dissatisfied with this assessment and each appealed to the High Court. The High Court held that the Munsiff’s assessment of the evidence was correct, and it set aside the Subordinate Judge’s order and restored the decree of the Munsiff. The present appeal was filed against the High Court’s decision. The Court noted that the appellant had been consistently held by all the lower courts to be a bona‑fide purchaser of the suit‑property without notice of the mortgage, and that there was no reason to depart from that conclusion. The lower courts had applied Section 51 of the Transfer of Property Act to determine the equities between the parties, and the Court thought that this application was proper, having regard to the Privy Council decision in Narayana‑Swami Ayyar v. Rama Ayyar, 57 Ind. App. 305 (AIR 1930 PC 297).

The appellant strongly contended that the lower courts erred in fixing 25‑7‑1945 as the date of election and consequently as the date of eviction for the purpose of assessing compensation. He argued that a true reading of Section 51 of the Transfer of Property Act makes the date of actual eviction the relevant date, and that the cost of improvement as of that date should determine the compensation payable. According to the appellant, the actual dispossession occurred on 1‑7‑1948. In an alternative submission, the appellant maintained that he did not seek a profit from the transaction; he merely wanted to be reimbursed for the amount he had spent on the improvement so that he would not be out of pocket. The appellant further submitted that, in any event, the High Court erred in restoring the Munsiff’s decision. The Court observed that the evidence, which was open to examination because the High Court’s judgment had reversed the earlier findings, showed that the newly constructed building, after the demolition of the old structure, was worth at least Rs 25,000. By contrast, the old building at the time of the appellant’s purchase was not worth more than Rs 4,522. It was also noted that the appellant had purchased the property, including the land and the old building, for Rs 8,750, and that the land on which the old building stood possessed its own value. In these circumstances, the minimum amount of compensation payable to the appellant should be assessed accordingly.

The Court held that the appropriate amount of compensation to be paid to the appellant was approximately Rs. 21,000. On the plaintiff’s side it was contended that the decision of the Munsiff was correct and that the High Court was right in restoring that decision. It was argued that the Subordinate Judge had arrived at a valuation of Rs. 25,000 for the new building on the basis of unreliable evidence presented by witnesses who were not competent and who gave only vague estimates of the building’s value. The Court observed that, under law, the “date of election” should be regarded as the date of eviction, and that the actual date of dispossession could not be considered the true date because an eviction could occur only after the decree had been formulated and put into effect.

Regarding the application of Section 51 of the Transfer of Property Act, the Court expressed the view that the provision merely sets out an equitable principle that enables a court to balance the equities between the parties. The Court noted that a decree in the form passed in this case, which was a suit for redemption and possession, could have been issued. It cited the decision of the Privy Council reported in 57 Ind App 305 (A.I.R. 1930 P C 297) as authority supporting this position. Nevertheless, the Court emphasized that, in accordance with Section 51, when the evidence permits, a court should assess the value of the improvement as close as possible to the actual date of eviction rather than relying on the date of election, a method that had been employed in the present case.

The Court then turned to the evidence before it. It observed that the appellant had created difficulty for himself by failing to produce his books of account, which would have shown precisely how much he had spent on the improvements and would have assisted the Court in determining the saleable value of the improved property, as discussed in Kidar Nath v. Mathu Mal (40 Cal 555). The oral evidence offered by the appellant was considered not very convincing. The Court identified the only reliable evidence as that of the Commissioner, P. W. 6, who had been appointed by the Court. The Commissioner, a qualified Executive Engineer of the City Improvement Trust Board, Bangalore, regularly performed building valuations in his official capacity. A careful reading of his testimony did not reveal any substantial reason to doubt his conclusions. Consequently, the Court decided to base its judgment primarily on the Commissioner’s evidence and any other supporting material. The Commissioner had been examined on 25‑7‑47 and reported that he had verified his measurements several times in January and February 1947. He provided the prevailing rates for various years and computed valuations for both the old and the new constructions. The Court presented a comparative table to illustrate his findings, showing that the old building, as built in 1941‑42, was valued at Rs. 4,522, while the new building, as built in 1942‑43, was valued at Rs. 10,200.

From the evidence adduced by the Commissioner a detailed schedule of assessed values for the two structures was prepared. The schedule listed the value of the older building as Rs 5,818 for the financial year 1942‑43; Rs 10,990 for 1943‑44; the same amount of Rs 10,990 recorded on 5 June 1944; Rs 18,840 as of 30 June 1945; Rs 16,489 for the year 1945‑46; and Rs 20,776 on 16 July 1946. In addition the Commissioner gave a figure of Rs 13,566 for the older building if it had been constructed in January 1947. For the newer building the Commissioner recorded a value of Rs 6,332 for the year 1943‑44, the same amount again on 5 June 1944, Rs 10,854 on 30 June 1945, Rs 9,044 for the year 1945‑46, Rs 11,395 on 16 July 1946 and, finally, Rs 24,733 for the building as it stood in February 1947. The table was intended to show the respective values of the old and the new building at the time of the preliminary decree, at the date when the plaintiff elected to claim, and at a point close to the appellant’s dispossession, assuming that the structures had been erected at those stages.

There was no direct evidence presented concerning the actual cost of constructing either the old building or the new one. Nevertheless, the appellant’s witness, identified as B Sagappa and recorded as document DW 10, testified unequivocally that in the year 1945 the older building was worth between Rs 9,000 and Rs 10,000. The Court found that this testimony corroborated the Commissioner’s valuation of the old building on 30 June 1945, which stood at Rs 10,854 for the new building and Rs 18,840 for the old building. Accordingly, the Court adopted the Commissioner’s calculations and concluded that at the time the appellant purchased the property in August 1942, and at the approximate time of the building’s demolition, the old structure was valued at roughly Rs 5,818. By contrast, the newly constructed building was valued at about Rs 24,733 as of February 1947. Subtracting the former amount from the latter gave an estimated improvement made by the appellant of approximately Rs 18,915, based on the February 1947 figures.

The Court noted that, in the absence of definitive proof, it is impossible to determine the precise monetary value of the improvement with exactitude. The only feasible approach, therefore, is to arrive at a fair assessment using the material that is available. The evidence of the Commissioner was considered sufficient for this purpose, and the Court found no justification for calling additional evidence. It emphasized that in cases of this nature the decisive factor is not the actual cost incurred in making the improvement but the market worth of the property as a vendible subject. The value arrived at by the lower courts was deemed unacceptable. On the basis of the evidence, the Court held that the improvement effected by the appellant was worth, in round figures, Rs 19,000. This amount was ordered to be entered in the decree as the compensation payable by the plaintiff to the appellant, which would also entitle the appellant to possession. Because the appellant had already been dispossessed, the Court further held that he would be entitled to restitution should the plaintiff fail to pay the balance of the compensation after deducting the sum already deposited in Court.

The Court directed that the plaintiff must pay the remaining portion of the compensation owed to the appellant, and that such payment shall be made on or before the thirty‑first day of November, 1956. In stating this order, the Court clarified that the balance refers to the amount still outstanding after the partial compensation that had already been deposited with the Court, as previously determined in the decree. The deadline was set to ensure that the appellant receives full satisfaction of the compensation award without further delay.

Having considered the submissions and the evidence, the Court concluded that the appeal filed by the appellant was substantially successful. Consequently, the Court allowed the appeal and accordingly modified the decree of the lower Court in accordance with the directions set out above. The modification reflects the corrected assessment of the improvement value and the corresponding compensation to be paid. Because the appellant achieved a substantial portion of the relief he sought, the Court held that the appellant is entitled to be awarded the costs of the appeal. Those costs are to be paid by the plaintiff respondent, who is thereby ordered to satisfy the appellant for the expenses incurred in prosecuting the appeal before this Court.