Radhakisan Laxminarayan Toshniwal vs Shridhar Ramchandra Alshi 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: 23 August 1960

Coram: B.P. Sinha, J.L. Kapur, K. Subba Rao, K.N. Wanchoo, P.B. Gajendragadkar

In this case, the Court recorded that the matter arose as an appeal by special leave from the judgment and decree of the High Court at Nagpur, which had been rendered in second appeal number 1720 of 1945 confirming the decree of the District Judge. The appellant had been named as defendant number one, while the respondents were the plaintiff and defendants numbers two and three. The dispute concerned a claim of pre‑emption based on co‑occupancy, a matter governed by Chapter fourteen of the Berar Land Revenue Code of 1928, hereinafter referred to as the Code. On September eleventh, nineteen forty‑three, which was before any sale deed had been executed, the respondent identified as Sridhar instituted a suit for pre‑emption against the appellant. He alleged that he possessed a co‑occupancy right in the disputed survey number because he owned Survey number fifteen slash two. The plaint asserted that the contractual documents dated April tenth and April twenty‑four, nineteen forty‑three, amounted to a sale and therefore fell within Sridhar’s prior pre‑emptive right. It further alleged that the price of the transaction had not been fixed in good faith. The appellant denied all of these allegations. Both the trial court and the District Judge concluded that Sridhar was entitled to the right of pre‑emption and fixed a fair consideration of three thousand three hundred six rupees. Accordingly, the suit was decreed by the trial court, and that decree was upheld on appeal by the District Judge. The appellant then appealed to the High Court, which likewise affirmed the decree of the subordinate courts.

The High Court held that the transaction in question was indeed a sale and therefore subject to the right of pre‑emption, and it determined that the failure to execute and register a sale deed was a subterfuge designed to defeat that right. The Court also observed that the proceedings for converting the agricultural land into non‑agricultural land were pending, and because the right of pre‑emption had already accrued through the subsequent acts of the vendor and the vendee, it could not be overcome. Furthermore, the Court noted that the order of the Sub‑Divisional Officer permitting conversion was conditional, meaning that the land could not be said to have been irrevocably diverted for a non‑agricultural purpose. The decree of the subordinate courts was therefore confirmed, and the appellant sought relief by filing this special leave appeal. The first question for decision was whether a right of pre‑emption had accrued to respondent Sridhar under the provisions of the Code. The Court referenced the historical background, indicating that before the cession of Berar by the Nizam of Hyderabad to the British Government in eighteen fifty‑three, the Mohammedan rule of pre‑emption was, according to one view, in force in the province of Berar and continued until the Berar Land Revenue Code of 1928 came into operation as from January first, nineteen twenty‑eight.

According to the record, the Code of 1896 became effective on 1 January 1897. However, two scholars who examined the Berar Land Revenue Code of 1896 disputed the view that the pre‑emptive right originated from Mohammedan law. In his 1896 annotation of the Code, Mr E S Reynolds observed that, although the right of pre‑emption with respect to agricultural land held under occupancy tenures had been recognised in Berar, it was not derived from Mohammedan law nor did it appear to be an ancient, customary right. He suggested that the right seemed to have developed from a decision of the Resident, who acted as the High Court, based on rule 10 of the Sub‑tenancy Rules. Similarly, the writer Hirurkar, in his commentary on the Land Revenue Code (pages 126‑127), stated that the pre‑emptive right was not founded on Mohammedan law and did not originally exist in Berar. He argued that the concept had likely been imported from the land laws of Punjab or the North‑West Provinces. The Berar Settlement Rules and the Berar Sub‑tenancy Rules of 1866 attached the right of pre‑emption to the relinquishment of shares by ryots in joint holdings, applying it to co‑shares; this mechanism differed from the rule under Mohammedan law. Section 205 of the Berar Land Revenue Code of 1896 provided that a pre‑emptive right arose when a co‑occupant of any Survey number transferred his interest by sale, mortgage foreclosure, or relinquishment to a specified person for valuable consideration, and that right vested in every other co‑occupant of the same Survey number. Consequently, the Code extended the pre‑emptive right—traditionally limited under Mohammedan law to sales—to include mortgage foreclosures and relinquishments for valuable consideration. In 1907, the Transfer of Property Act (IV of 1882) was extended to Berar, and the Code was re‑enacted in 1928, further broadening statutory pre‑emptive rights in Chapter XIV. Section 174 created a pre‑emptive right for transfers of unalienated agricultural land, requiring an occupant to notify all other occupants before transferring any part of his interest. Sections 176 to 178 extended the right to transfers by sale, usufructuary mortgages, leases exceeding fifteen years, and final decrees of foreclosure in conditional sales. Section 183 gave every occupant in a Survey number the right to pre‑empt any interest transferred by a civil suit, while section 184 extended the right to exchanges. These provisions demonstrated that the statutory pre‑emptive right had been expanded well beyond the limited scope envisioned under Mohammedan law and beyond what the earlier Berar Settlement Rules, Sub‑tenancy Rules, and the 1896 Code had recognised.

In the appeal the High Court observed that the expression “sale” in section 176 of the Code must be given a broader meaning than the narrower definition supplied by section 54 of the Transfer of Property Act. That observation was founded on the decision of Justice Vivian Bose, then a Judge of the Nagpur High Court, in Jainarayan Ramgopal Marwadi v. Balwant Maroti Shingore (A.I.R. 1939 Nag. 35), which later judgments of the same court had endorsed. The Court further held that the transaction under dispute attracted the pre‑emptive right prescribed in the rule stated in Begum v. Mohammad Yakub ((1894) I.L.R. 16 All 344). Accordingly, even though the parties had not executed a registered deed of sale, the Court concluded that a genuine sale had in fact taken place; therefore the defendant could not defeat the pre‑emptive claim by relying on the technical absence of a registered instrument.

The Court then referred to section 2 of the Transfer of Property Act, which was the law applicable in Berar at the relevant time, and noted that section 54 did not belong to Chapter 2 of that Act. Consequently, the provisions of section 54 prevailed over any rule of Mohammedan law, and because that section is exhaustive with respect to the modes of transfer, it governed all sales in the province. Under that provision a sale is defined as the transfer of ownership for a price that is paid, promised, partly paid or partly promised, and, in the case of a tangible immovable property valued at one hundred rupees or more, the sale may be effected only by a registered instrument. The language of section 54 itself makes this requirement explicit by stating: “Such transfer, in the case of tangible immovable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument.”

The Court also cited the Privy Council’s decision in Immudipattam Thirugnana S. O. Kondema Naik v. Peria Dorasami ((1900) 28 I.A. 46), a case involving a zamindari estate, which held that such an estate could not be transferred except by a registered instrument. Nevertheless, the appellants submitted that when the concept of “sale” is invoked in the context of the general law of pre‑emption, it should not be confined to the narrow construction employed in the Transfer of Property Act. That position had been accepted by the Judicial Committee in Sitaram Bhaurao Deshmukh v. Jiaul Hasan Sirajul Khan ((1921) 48 I.A. 475), wherein the observations of Sir John Edge, C.J., in Begum v. Mohammad Yakub were affirmed.

In the factual scenario described in Sitaram Deshmukh’s case, one of two Mohammedan co‑sharers in Bombay, by an agreement dated 14 October 1908, consented to sell his share to a Hindu purchaser. The agreement expressly made the sale subject to the co‑sharer’s right of pre‑emption. After the vendor notified his co‑sharer that the share had been sold, the co‑sharer subsequently acted, after the …

In the matter before the Court, the co‑sharer who held a share in a property exercised a right of pre‑emption on 15 October 1908 by claiming to recover the share from the purchaser. The parties executed a sale deed on 9 November 1908, and subsequently the pre‑emptor instituted a suit. The Court held that the co‑sharer possessed a pre‑emptive right that must be interpreted in accordance with the intention expressed by the parties to the sale. To determine which legal system should apply and which date of sale should control the performance of the required formalities, the Court examined the parties’ intention. The central issue therefore was what constituted a sale sufficient to allow the pre‑emptor to proceed immediately to the ceremonial requirements. In resolving this question, the Court quoted the observation of Sir John Edge, Chief Justice, in Begum v. Mohammad Yakub (1894) I.L.R. 16 All. 344, which stated: “I cannot think that it was the intention of the Legislature in passing Act No. IV of 1882 (the Transfer of Property Act) to alter directly or indirectly the Mohammedan law of pre‑emption as it existed and was understood for centuries prior to the passing of Act IV of 1882.” The Court noted that this passage was consistent with the conclusion reached by the High Court at Bombay, namely that the intention of the parties must be looked at to decide the applicable law and the relevant date of sale for the performance of the ceremonies.

The respondents contended that the Privy Council had not only endorsed Sir John Edge’s observation but had also approved the view expressed by the Calcutta High Court in Jadu Lal Sahu v. Janki Koer (1908) I.L.R. 35 Cal. 575, a case from Bihar where the right of pre‑emption under Mohammedan law was judicially recognized as extending to Hindus as well. The respondents argued that the question in that case was not whether the sale to be pre‑empted fell under section 54 of the Transfer of Property Act or under the principles of Mohammedan law. It was observed that, in both the case that proceeded to the Privy Council—Sitaram Bhaurao Deshmukh v. Jaiul Hasan Sirajul Khan (1921) 48 I.A. 475—and the Calcutta case, the sale deeds were executed and registered before the suits invoking pre‑emption were filed. In the latter case, the kabala was dated 28 July 1904 and the ceremonial rites were performed after that date, underscoring that the formalities followed the execution and registration of the deed.

According to the record, the kabala occurred on July 28, 1904 and the related ceremonies were carried out after that date. In the Allahabad case, Begum v. Mohammad Yakub (1894) I.L.R. 16 All. 344, the transaction involved a verbal sale of a house that was followed by possession, but no registered document was produced. The learned Chief Justice, delivering the majority judgment, observed that if the definition of “sale” under section 54 of the Transfer of Property Act, with its restrictions, were imported into Mohammedan law of pre‑emption, the result would be a material alteration of that law and would enable fraudulent persons to evade the pre‑emption requirement; Justice Bannerji dissented from that view. The Court held, however, that where the Transfer of Property Act governs a transfer, the transaction must be governed solely by the provisions of that Act, as also affirmed by the Privy Council, and that Mohammedan law of transfer cannot supersede the statutory regime. Justice Mahmood, speaking in Janki v. Girjadat (1885) I.L.R. 7 All. 482, although in the minority joined by four judges, expressed the opinion that a valid and perfected sale formed a condition precedent to the exercise of the right of pre‑emption, and that the right could not arise until such a sale had been completed. Section 17, read together with section 49 of the Registration Act, required that any transfer of immovable property valued at one hundred rupees or more be registered; a document that was not so registered did not affect the property and could not be admitted as evidence. Justice Mahmood’s observations in Janki v. Girjadat were therefore highly relevant, and he stated: “If a valid and perfected sale were not a condition precedent to the exercise of the pre‑emptive right, consequences would follow which the law of pre‑emption does not contemplate or provide for. In this very case, supposing the so‑called vendor, notwithstanding the application of the 15th August, 1882 (which cannot amount to an estoppel under the circumstances) continues or re‑enters into possession of the property, it is clear that the so‑called vendee would have no title under the so‑called sale, to enable him to recover possession – the transaction being, by reason of s. 54 of the Transfer of Property Act, ineffectual as transfer of ownership. The right of pre‑emption being only a right of substitution, the successful pre‑emptor’s title is necessarily the same as that of the vendee and if the vendee took nothing under the sale, the pre‑emptor can take nothing either; and it follows that if the vendee could not oust the vendor, the pre‑emptor could not do so either, because in both cases the question would necessarily arise whether the sale was valid in the sense of transferring ownership. Again, if notwithstanding a pre‑emptive suit such as this, the so‑called vendor, who has executed an invalid sale which does not in law divest him of the proprietary right, subsequently executes a valid and registered sale‑deed.”

In this matter the Court observed that, once a co‑sharer other than the pre‑emptor or a purchaser for value who possessed no notice of the alleged contract for sale obtained possession, it was difficult to imagine how the pre‑emptor, who had previously succeeded in a suit of the present kind, could successfully oppose the claim of such a purchaser for possession of the property. The Court then turned to section 54 of the Transfer of Property Act, noting that a contract for sale, by itself, does not create any interest in or charge on immovable property. Consequently, the contract that was the subject of the present dispute did not confer any interest on the vendee, and the legal title did not pass from the vendors to the vendee. Until the transfer of ownership was completed, no right to enforce pre‑emption could arise. The Court further emphasized that wherever the Transfer of Property Act is applicable, personal laws such as Mohammedan Law are irrelevant to the transfer of immovable property, and title can pass only in accordance with that Act. Accordingly, at the time the suit was instituted there was no completed sale that could be subject to a pre‑emptive right.

The next contention raised was that the appellant had acted fraudulently by deliberately failing to execute a deed of sale so as to defeat the pre‑emptors’ rights, even though the price had been paid, possession had been transferred and, for all practical purposes, the appellant had become the owner. The Court rejected this allegation, explaining that the right of pre‑emption could not be exercised until a transfer that was capable of being pre‑empted had actually occurred, and that the courts do not regard the pre‑emptive right with particular favour because it limits the owner’s freedom to alienate his property. The Court held that it is neither illegal nor fraudulent for the parties to a transaction to avoid a pre‑emptive claim by employing lawful means. It cited the jurisprudence of Punjab, where the statutory right of pre‑emption is likewise not looked upon unfavourably when the vendor and vendee use legitimate methods to prevent its accrual. This approach had been endorsed by this Court in Bishan Singh v. Khazan Singh [(1959) S.C.R. 878 at 884], where Justice Subba Rao observed that “the right being a very weak right, it can be defeated by all legitimate methods, such as the vendee allowing the claimant of a superior or equal right being substituted in his place.” In the present case, the Court noted that the sale was not completed until the deed was executed on 1 February 1944, and that any actions taken before that date could not ordinarily be characterized as fraud intended to deprive a pre‑emptor of his statutory right. The Court concluded that there were no equitable considerations in favour of a pre‑emptor whose sole purpose was to disrupt a valid transaction that had been lawfully completed.

The Court explained that when a person avoids the operation of the pre‑emption rule by using any method that is lawful, such avoidance does not constitute fraud on the part of either the seller or the buyer. It affirmed that every individual is entitled to keep clear of the statutory pre‑emption right by employing only legitimate means that are authorized by law. Consequently, the exercise of a lawful strategy to bypass the pre‑emptive interest is permissible and does not attract any liability for fraudulent conduct.

In the matter before it, the Court noted that the parties had submitted that the deed of sale was actually executed on 1 February 1944. However, the respondent named Sridhar had instituted his suit not on the cause of action that arose from that 1944 sale, but rather on the earlier transactions dated 10 April 1943 and 24 April 1943. The Court observed that those earlier dates represented only contracts of sale and had not yet created any vested interest in the purchaser; therefore, no enforceable right of pre‑emption existed in favour of respondent No. 1 under the Code. Counsel for the respondent argued that the timing of the suit was irrelevant and that the suit was essentially intended to pre‑empt a sale that was alleged to have been contemplated in April 1943, even though in reality no sale had been completed at that time. The Court further considered that, had the respondent based his claim on the later 1 February 1944 sale, the appellant would have been entitled to raise a defence that the law permits, namely that the conversion of the land from agricultural to non‑agricultural use extinguishes the pre‑emptive right. The Court emphasized that the right of pre‑emption is a weak right and that courts do not generally favour it, so they are not inclined to assist a pre‑emptor beyond what the law provides. On the basis of this reasoning, the Court held that the judgment of the High Court was erroneous. Accordingly, the appeal was allowed, the High Court’s judgment and decree were set aside, and the suit was dismissed with costs awarded throughout. The appeal was therefore allowed.