Bombay Salt and Chemical Industries vs L.J. Johnson and Ors

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

Court: supreme-court

Case Number: Appeal (civil) 406 of 1956

Decision Date: 04/10/1957

Coram: S.K. Das, A.K. Sarkar, S.R. DAS, T.L.V. AIYYAR, V. BOSE

In the appeal titled Bombay Salt & Chemical Industries versus L.J. Johnson and others, decided on 4 October 1957, the Supreme Court of India heard the matter before a bench consisting of Chief Justice S.R. Das, Justice T.L.V. Aiyyur, Justice S.K. Das, Justice A.K. Sarkar, and Justice V. Bose. The case was recorded as Appeal (civil) 406 of 1956, and the judgment was authored by Justice A.K. Sarkar. The appeal was brought by special leave under Article 136 of the Constitution, challenging an order dated 20 April 1956 that had been issued by the Chief Settlement Commissioner, an officer appointed under the Displaced Persons’ (Compensation and Rehabilitation) Act, 1954. The principal issue before the Court concerned the interpretation and application of that Act, particularly as it related to the rights and protections afforded to displaced persons who were partners in the appellant firm.

The appellants were a partnership of displaced persons who owned salt pans in Wadala, Bombay, known as the Salamati Salt Factory. These salt pans were classified as evacuee property and were included in the compensation pool established under the 1954 Act. On 7 November 1950, a lease for the salt pans was granted to the appellants for three years; the lease was subsequently renewed on several occasions, most recently on 2 December 1955 for a term ending on 13 February 1956. On 23 December 1955, the Regional Settlement Commissioner, who is respondent No. 3 in the appeal, issued a public notice announcing that the salt pans would be sold at a public auction scheduled for 6 January 1956. The appellants contested the proposed sale before the Bombay High Court under Article 226 of the Constitution, arguing that the property’s value did not exceed Rs 50,000 and therefore, according to the Act, it could not be sold without first offering it to the appellants as compensation. The High Court stayed the sale pending a hearing on the application. The lease was again renewed on 2 February 1956 for a final period ending on 15 April 1956. After the hearing, the High Court dismissed the application, and the appellants appealed that dismissal while again seeking a stay of the sale. The Court declined to grant a further stay, but ordered that the sale not be confirmed for one week and accelerated the hearing of the appeal. The auction took place on 31 March 1956, where respondents No. 4 and No. 5, Parvatibai Wadhumal and Kakanbai Tulsimal, were declared the highest bidders with an offer of Rs 4,40,000. The appellants had themselves bid up to Rs 4,39,000. On 6 April 1956, the appellants withdrew their pending appeal in the Bombay High Court, stating that the matter involved disputed factual questions regarding the property's value, which would not be resolved through the constitutional application process, and noting that the sale had not yet been confirmed.

In the appellant’s view, the earlier withdrawal of the appeal was motivated by the presence of disputed and controversial factual issues relating to the value of the property, issues that would not have been determinable by a court exercising jurisdiction under Article 226 of the Constitution. At that stage the sale had not yet been confirmed. Subsequently, on 11 April 1956, the appellants filed an application before the Chief Settlement Commissioner, who is identified as respondent No 1 in the present appeal, seeking several orders. First, they requested that the confirmation of the sale arising out of the auction held on 31 March 1956 be stayed. Second, they asked to be allowed to substantiate their case on its merits. Third, they sought protection from eviction until their case was finally disposed of. Fourth, they prayed that the lease granted to them be extended until the end of the working season. The appellants supported this application on two principal grounds. The first ground relied on Section 29 of the Act, which provides that a person lawfully in possession of the property enjoys statutory immunity from eviction for a period of two years. The second ground asserted that the property should not have been sold at all; instead it ought to have been allotted to the appellants at a value not exceeding Rs 50,000. The Chief Settlement Commissioner entertained the application by granting a stay of the sale’s confirmation pending the hearing of the matter. However, the lease that covered the property expired on 15 April 1956. A few days later, on 20 April 1956, the Commissioner issued an order dismissing the appellants’ application, while allowing them a period of fourteen days to remove the salt lying in the pans. The same order expressly confirmed the sale to respondents No 4 and No 5 and directed that possession of the salt pans be handed over to them forthwith.

On 25 April 1956, the Managing Officer of Evacuee Property, who is also an officer appointed under the Act and is identified as respondent No 2 in this appeal, addressed a letter to the appellants. In that correspondence the Managing Officer informed the appellants that possession of the property would be taken over from them immediately and demanded that they surrender possession without delay. He further warned that, in the event of non‑compliance, the appellants would be evicted by the use of such force as might be necessary. It appears that on the same day the appellants were forcibly removed from the premises and that respondents No 4 and No 5 were placed in possession. Following this forced ejection the appellants applied to this Court for leave to appeal against the order of the Chief Settlement Commissioner dated 20 April 1956. Their request for leave was granted on 28 May 1956. Counsel appearing for the appellants, Mr Purshottam Trikamdas, argued that only Section 19 of the Act confers the power to evict by force, and that this provision was inapplicable to the present circumstances. Consequently, he submitted that the eviction of the appellants was illegal and ought to be set aside. Section 19, as quoted, provides that, subject to the rules made under the Act, the Managing Officer may terminate a lease under which any evacuee property is held; where, by reason of such termination, any person ceases to be entitled to possession of any evacuee property, the person shall on demand surrender possession thereof, and if he fails to do so, the Managing Officer may eject such person and take possession, using such force as may be necessary.

The Court explained that the provision allowing a Managing Officer to eject a person and to use such force as may be necessary was the version of the provision that existed before its amendment by Act LXXXVI of 1956. The Court noted that the amendment was irrelevant to the present proceedings because it became effective only after the appellants had already been removed from the premises. Counsel for the appellants, Mr. Pursushottam Trikamdas, argued that there had been no cancellation of the appellants’ lease and therefore the provision could not be applied to their case. He consequently contended that the eviction of the appellants was unlawful and ought to be set aside.

The Court held that the argument concerning the cited provision did not arise from the facts of the case. The matter before the Court did not involve any eviction effected under Section 19. The appellants, in their application to the Chief Settlement Commissioner, made no claim under Section 19 and were unable to do so. At the time of the auction and at the time the application was filed, the lease remained in force and there was no question of the Managing Officer terminating the lease under Section 19, nor was there any threat of eviction pursuant to that section. In the application the appellants sought protection on the ground that the property, being valued at less than Rs. 50, 000, should have been allotted to them rather than sold, and they further asserted that, even if the sale were valid, they could not be evicted because of the protections afforded by Section 29 of the Act. Their request for a stay of eviction was premised on the fear that their lease would expire before the application could be decided, not on any power under Section 19. The respondents did not rely on Section 19 either. Whether the eviction might have been illegal for reasons unrelated to the grounds raised in the application was deemed irrelevant, as no eviction had actually taken place at the date of the application or when the Commissioner issued his order. Accordingly, the point raised by Mr. Pursushottam Trikamdas was rejected. The Court then turned to the first ground of the application, namely that a property valued below Rs. 50, 000 should have been allotted to the appellants rather than sold, noting that this issue was not pressed before the Court. Finally, the Court proceeded to consider the contention based on Section 29 of the Act, reproducing the language of that section for further analysis.

In this portion, the Court explained the effect of Section 29(1) of the Act. It states that any person who is in lawful possession of immovable property covered by the class specified in sub‑section (2) shall, upon transfer of that property to another person, be treated as a tenant of the transferee. This tenancy is to be on the same terms and conditions, including rent, that governed the occupancy immediately before the transfer. The provision further adds that, regardless of any terms and conditions, the tenant cannot be evicted for a period not exceeding two years, as may be prescribed for that class of property, unless one of the specific grounds listed in the section is satisfied. Applying this provision, Mr. Purshottam Trikamdas argued that the appellants, as tenants of respondents Nos. 4 and 5, were entitled to remain in possession of the property for a period of two years, the period prescribed by Rule 121 of the Rules made under the Act. The Court noted that it was not contested that the appellants fell within the category of persons to whom Section 29 applied, that the property belonged to the class mentioned in sub‑section (2) of Section 29, and that none of the statutory grounds for ejectment were present. Nevertheless, Mr. Trikamdas was required to establish that a transfer of the salt pans had occurred and that his clients were in lawful possession thereafter. The learned Solicitor‑General, representing the respondents, opposed this claim, contending that no transfer had taken place and that the appellants were not in lawful possession. The Court then examined whether a transfer had indeed taken place. Mr. Trikamdas relied on the auction held on 31‑3‑1956, asserting that the sale to respondents Nos. 4 and 5 amounted to a transfer. To resolve the issue, the Court referred to Section 20 of the Act, which authorises the managing officer, subject to any rules, to transfer property out of the compensation pool by sale, either to a displaced person, an association of displaced persons, or any other person, and allows such sale to be effected by public auction or otherwise. Mr. Trikamdas maintained that the auction constituted a sale under this section and that the transfer was completed when respondents Nos. 4 and 5 were declared the highest bidders. The Court, however, expressed disagreement with the proposition that the mere occurrence of an auction automatically consummates a sale. It observed that the existence of a transfer depends upon the specific conditions attached to the auction, which must be scrutinised to determine the moment at which title passes. The Court noted that it is possible for an auction to result in a sale that is not finalized until, for example, a conveyance document is executed.

In this matter the Court observed that a sale made under the Act could remain incomplete until, for example, a conveyance document was executed, and that the Act expressly required any transfer to be governed by the Rules made under the Act. Consequently, the Court declined to accept the argument that the mere declaration of the highest bidder at an auction automatically resulted in a completed sale and a transfer of the property. The Court examined the provisions of Rule 90, which prescribed the procedure for public‑auction sales, and found that the Rule did not support such a conclusion. Sub‑rule (3) of Rule 90 required that a notice of the intended sale be issued fifteen days before the auction and that the notice specify, among other matters, the terms and conditions of the sale. Sub‑rule (8) mandated that the person declared the highest bidder must immediately pay, on the fall of the hammer, a deposit not exceeding ten per cent of the bid amount, and that failure to make this deposit could lead to the property being resold. Sub‑rule (10) provided that the bid for which the initial deposit had been accepted would be subject to the approval of the Settlement Commissioner or an officer appointed by him, and that no bid could be approved until seven days after the date of the auction had elapsed. Sub‑rule (11) required that the highest bidder, thereafter referred to in the Rules as the “auction purchaser,” receive written notice of either approval or rejection of the bid, and that, upon approval, the auction purchaser must, within fifteen days of that notice, furnish or produce a Treasury challan for the balance of the purchase price. Sub‑rule (15) stipulated that when the full purchase price had been realised from the auction purchaser, the Managing Officer was to issue a sale certificate in the form prescribed in Appendix 22 or 23, as appropriate. Appendix 23 related to lease‑hold property and was not applicable here; Appendix 22 dealt with freehold property and contained the wording: “This is to certify that … has been declared the purchaser at a sale by public auction held in pursuance of the powers conferred upon me under section 20 of the Displaced Persons (Compensation and Rehabilitation) Act, 1954 (XLIV of 1954) on the … day of … 195… of the property described in the schedule.” By virtue of Rule 15, the certificate had to be signed by the Managing Officer. The Court further noted that, in the present case, the notice of sale had imposed certain conditions on the auction, as allowed by sub‑rule (3) of Rule 90. The notice expressly stated that the sale was subject to the provisions of the Act and the Rules.

In this case the notice of sale stated that the auction was to be conducted in accordance with the Act and the Rules. Condition number two provided that displaced persons were not required to make an initial deposit, but that they had to file an indemnity bond, whereas other bidders were required to pay the initial deposit. The condition further explained that filing the indemnity bond or receipt of the initial deposit did not create any commitment on the part of the officer to accept the bid, because acceptance of the bid was subject to the approval of the Regional Settlement Commissioner. The Commissioner was not bound to accept the highest bid, but any bidder whose bid was approved would be held to that bid for a period of six months. Condition number four required that within fifteen days after the bidder received notice of approval, the auction‑purchaser must send a receipted Treasury challan showing payment of the balance of the purchase money. Condition number seven stipulated that when the purchase price had been realized in full from the auction‑purchaser, the Managing Officer should transfer complete ownership of the property and issue a sale certificate in the prescribed form.

It follows from the Rules and from the conditions of sale set out above that the declaration of a person as the highest bidder does not constitute a complete sale or a transfer of the property to that person. The need for approval by the Settlement Commissioner shows that, until such approval is granted, the auction‑purchaser has no right at all. Moreover, even after approval, the approval does not itself effect a transfer because the purchaser must still pay the balance of the purchase price, and the Rules provide that failure to pay the balance deprives the purchaser of any claim to the property. The correct legal position is that, on approval of the bid by the Settlement Commissioner, a binding contract for the sale of the property to the auction‑purchaser comes into existence. The provision concerning the sale certificate indicates that only upon issuance of that certificate does the transfer of the property take place. Condition number seven expressly provided that ownership would be transferred and a sale certificate issued only after full payment of the purchase price. Consequently, the appellants bear the burden of demonstrating that the property had been transferred. They have not shown that a sale certificate was issued nor that the balance of the purchase money was paid. In these circumstances, it must be held that no transfer of the salt pans to respondents numbers four and five has yet occurred. The appellants therefore cannot rely on the benefit of section twenty‑nine to avoid eviction. Mr Purshottam Trikamdas argued that the sale certificate would inevitably be granted and that, once granted, the transfer would relate back to the date of the auction.

In response to the contention that the format of the sale certificate indicated that the transfer of ownership would retroactively relate back to the date of the auction, the Court observed that even if that suggestion were accepted – a proposition that the Court noted was far from evident and which it chose not to determine – no transfer could be said to have taken effect on any date until such a certificate had actually been issued, and at that stage no certificate had been issued. Accordingly, the Court held that the assumption of a retroactive transfer could not be treated as factual because the essential step of granting the certificate had not occurred, and therefore the legal effect of transfer remained absent. On the basis of this view concerning the existence of a transfer, the Court found it unnecessary to consider the additional issue of whether the appellants might be regarded as being in lawful possession of the property, since the question of lawful possession could arise only if a transfer had been completed. Because there was no transfer, the question of lawful possession was deemed moot and required no determination. Consequently, the Court concluded that the appeal could not succeed. The appeal was therefore dismissed in its entirety, and the Court ordered that the costs of the proceedings be awarded against the appellant.