Radhakisan Laxminarayan Toshniwal vs Shridhar Ramchandra Alshi And Others

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 167 of 1955

Decision Date: 23 August 1960

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

In this matter, the Supreme Court of India examined a special leave appeal that challenged the judgment and decree dated 22 November 1951 issued by the former Nagpur High Court in Second Appeal No 720 of 1945. The appeal arose from a civil suit in which the appellant, Radhakisan Laxminarayan Toshniwal, was designated as Defendant No 1, while the plaintiff and Defendant Nos 2 and 3 were identified as the respondents, including Shridhar Ramchandra Alshi. The dispute centered on a claim of pre‑emption based upon co‑occupancy rights, a matter governed by Chapter XIV of the Berar Land Revenue Code, 1928, hereinafter referred to as the Code. On 11 September 1943—preceding the execution of a sale deed—respondent Sridhar instituted a suit asserting his pre‑emptive right, alleging that he possessed co‑occupancy in the contested survey number, specifically as the proprietor of Survey No 15/2. The plaint alleged that contracts dated 10 April 1943 and 24 April 1943 effectively constituted a sale, thereby invoking Sridhar’s prior pre‑emptive right, and further contended that the sale price had not been determined in good faith. Both the trial court and the District Judge rejected these allegations, holding that Sridhar was entitled to pre‑empt and fixing the fair consideration at Rs 3,306. Consequently, the trial court decreed in favour of the respondent, a decision affirmed on appeal by the District Judge. The appellant subsequently appealed to the Nagpur High Court, which likewise upheld the decree of the subordinate courts.

The Nagpur High Court concluded that the transaction in question was indeed a sale and therefore subject to the pre‑emptive right, observing that the failure to execute and register a sale deed represented a subterfuge intended to defeat that right. The High Court further noted that proceedings to convert agricultural land to non‑agricultural use were pending, and because the pre‑emptive right had already vested through the actions of the vendor and vendee, it could not be negated by those subsequent steps. Moreover, the Court held that the order issued by the Sub‑Divisional Officer permitting conversion was conditional, and thus the land could not be said to have been irrevocably diverted to non‑agricultural purposes. On these grounds, the High Court confirmed the decree of the lower courts. Dissatisfied with this outcome, the appellant sought and obtained special leave to appeal before this Court, where the present arguments were presented before a Bench consisting of Justice J L Kapur, Justice Bhuvneshwar P Sinha, Justice P B Gajendragadkar, and Justice K N Wanchoo. Counsel for the appellant, identified as senior advocates, advanced their submissions, while counsel for respondent No 1, also senior advocates, presented the opposing view. The judgment of the Court was delivered by Justice Kapur.

The Court first considered whether a right of pre‑emption had vested in respondent Sridbar under the statutory provisions. It noted that before the cession of Berar by the Nizam of Hyderabad to the British Government in 1853, a Mohammedan rule of pre‑emption was said to be operative in the province. According to one view, that rule continued to apply until the Berar Land Revenue Code of 1896 became effective on 1 January 1897. However, the Court also examined the contrary opinion of two writers on the Berar Land Revenue Code. In the annotation of the Code, Mr E. S. Reynolds, writing in 1896, observed that although a right of pre‑emption concerning agricultural land on occupancy tenures had been recognised in Berar, the right was not derived from Mohammedan law and did not appear to be an ancient, immemorial custom. Reynolds suggested that the right had evolved from a ruling of the Resident acting as the High Court, based on rule 10 of the Sub‑tenancy Rules. Similarly, Hirurkar, in his commentary on the Land Revenue Code (pages 126‑127), stated that the right of pre‑emption was not founded on Mohammedan law and had not originally existed in Berar; instead, it seemed to have been imported from the land laws of the Punjab or the North‑West Provinces.

The Court further observed that the Berar Settlement Rules and the Berar Sub‑tenancy Rules of 1866 attached the right of pre‑emption to the relinquishment of shares in cases of ryots holding joint holdings, applying the right to co‑sharers. This mechanism differed from the rule of Mohammedan law. Under section 205 of the Berar Land Revenue Code of 1896, the Court explained, the right of pre‑emption arose when a co‑occupant in any survey number transferred his interest by sale, by foreclosure of a mortgage, or by relinquishment in favour of a specified person for valuable consideration. The right then vested in every other co‑occupant of that survey number. Consequently, the Court pointed out that, unlike the Mohammedan rule which applied only to sales, the statutory right also covered foreclosures of mortgages and relinquishments for valuable consideration.

The Court noted that in 1907 the Transfer of Property Act (IV of 1882) was extended to the province of Berar. The Code was subsequently re‑enacted in 1928, further expanding the pre‑emptive provisions in Chapter XIV. Under section 174, pre‑emptive rights arose in respect of transfers of un‑alienated land held for agricultural purposes, requiring an occupier who intended to transfer the whole or any portion of his interest to give notice of his intention to all other occupants. Sections 176 to 178 provided that the right of pre‑emption applied to transfers by way of sale, usufructuary mortgages, leases for a period exceeding fifteen years, and final decrees for foreclosure in a case of mortgage by conditional sale. Finally, section 183 stipulated that every occupant in a survey number possessed the right to pre‑empt the interest transferred, and section 184 extended that right to situations involving an exchange. The Court concluded that the statutory scheme had considerably broadened the scope of the right of pre‑emption beyond the limits of the earlier Mohammedan rule and the provisions of the Berar Settlement and Sub‑tenancy Rules of 1866.

In this case the Court noted that section 183 granted each occupant in a survey number the right to pre‑empt any interest that was transferred by a civil suit, and that section 184 extended that pre‑emptive right to situations involving an exchange. Consequently, the statutory provisions had expanded the right of pre‑emption far beyond the limited scope that Mohammedan law had originally contemplated and also beyond the rights that were recognised in the Berar Settlement Rules, the Berar Sub‑tenancy Rules and the Code of 1896.

The High Court had held that the word “sale” in section 176 of the Code possessed a wider connotation than the meaning attributed to “sale” in section 54 of the Transfer of Property Act. That conclusion was based on the judgment of Justice Vivian Bose, then a Judge of the High Court, in Jainarayan Ramgopal Marwadi v. Balwant Maroti Shingore, a decision that had subsequently been approved by later judgments of the same court. The High Court also expressed the view that the transaction in dispute gave rise to the exercise of the pre‑emptive right under the rule laid down in Begum v. Mohammad Yakub, and that, although a registered sale deed had not been executed, the transaction was in reality a sale; therefore the device adopted by the vendors and the appellant could not defeat the pre‑emptive right.

According to section 2 of the Transfer of Property Act, which was in force in Berar at the relevant time, section 54 was not one of the sections within Chapter II of that Act and therefore it overrode Mohammedan law and the provisions of that section, being exhaustive as to modes of transfer and governing all sales in the province. The Act defined “sale” as the transfer of ownership for a price paid or promised, or partly paid or partly promised. In the case of sale of tangible immovable property of a value of one hundred rupees or more, the Act required that the sale be effected only by a registered instrument. The language of the section itself states: “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 Privy Council, in Immudipattam Thirugnana S. O. Kondema Naik v. Peria Dorasami, a case concerning a zamindari estate, held that such an estate could not be transferred except by a registered instrument.

Nevertheless, it was submitted that when the term “sale” is used in the general law of pre‑emption it should not be construed in the narrow sense employed in the Transfer of Property Act. This broader interpretation had been accepted by the Judicial Committee in Sitaram Bhaurao Deshmukh v. Jiaul Hasan Sirajul Khan, where Sir John Edge, C. J., observed that the narrow statutory construction was not controlling for the purpose of determining the existence of a pre‑emptive right.

In the case of Begum v. Mohammad Yakub, the observations of Justice J. were endorsed. In the matter of Sitaram Deshmukh, one of two Mohammedan co‑sharers in Bombay entered into an agreement dated 14 October 1908 to sell his share to a Hindu purchaser. The agreement expressly provided that the remaining co‑sharer possessed a right of pre‑emption. After the vendor notified his co‑sharer of the intended sale, the co‑sharer, following customary formalities on 15 October 1908, asserted his claim to recover the share from the purchaser. The sale deed was subsequently executed on 9 November 1908, and the pre‑emptor instituted a suit to enforce his right. The court held that the co‑sharer’s pre‑emptive right must be interpreted in light of the intention expressed by the parties to the sale; that intention determines which legal system governs the transaction and which date is to be regarded as the operative date for the purpose of performing the required ceremonies. The central issue therefore was what constitutes a “sale” sufficient to permit the pre‑emptor to proceed immediately with the ceremonial requirements. In addressing this, the court quoted Sir John Edge’s observation in Begum v. Mohammad Yakub, stating that the Chief Justice remarked on whether the Transfer of Property Act, which mandates registration, had altered the Mohammedan law principle that defined a sale for the purpose of fixing the relevant date for the ceremonies. Sir John Edge expressed that he could not conceive that the legislature, in enacting Act No IV of 1882 (the Transfer of Property Act), intended to modify directly or indirectly the long‑standing Mohammedan law of pre‑emption. This view aligns with the conclusion reached by the Bombay High Court, which emphasized that the parties’ intention must be examined to determine the applicable law and the date of sale referenced for the ceremonies. The respondents, however, argued that the Privy Council not only endorsed Sir John Edge’s remarks in Begum v. Mohammad Yakub but also affirmed the view of the Calcutta High Court in Jadu Lal Sahu v. Janki Koer, a Bihar case where the right of pre‑emption under Mohammedan law was judicially recognized as extending to Hindus as well. The remaining question, therefore, was whether the sale subject to pre‑emption fell under section 54 of the Transfer of Property Act or under the principles of Mohammedan law.

In this matter, the Court observed that the issue raised in the earlier cases was not the same as the point presently considered. It may be noted that in both the case decided by the Privy Council, Sitaram Bhaurao Deshmukh v. Jaiul Hasan Sirajul Khan (3), and the Calcutta decision Jadulal Sahu v. Janki Koer (2), the parties had executed and registered sale deeds before the suits for enforcement of pre‑emption were filed. In the Calcutta case, the kabala (possession) took place on 28 July 1904 and the ceremonial steps were carried out after that date. By contrast, in the Allahabad case, Begum v. Mohammad Yakub (1), the transaction consisted of only a verbal sale of a house followed by possession, and there was no registered document relating to the sale. The learned Chief Justice, speaking for the majority, stated that importing into Mohammedan law of pre‑emption the definition of the word “sale” with the restrictions contained in section 54 of the Transfer of Property Act would materially alter the Mohammedan law of pre‑emption and would enable fraudulent persons to evade the pre‑emption rule; Justice Bannerji agreed with this view. However, the Court considered that where the Transfer of Property Act applies, the transfer must be governed solely by the provisions of that statute, and that Mohammedan law of transfer of property cannot supersede the statutory law. Mahmood, J., in Janki v. Girjadat (4) though in a minority (four judges took a different view) was of the opinion that a valid and (1) (1894) I.L.R. 16 All. 344. a perfected sale was a condition precedent to the exercise of the right of pre‑emption and that the right of pre‑emption could not arise until such a sale had been effected. Section 17 read with section 49 of the Registration Act provides that a transfer of immovable property valued at one hundred rupees or more requires registration, and that an unregistered document does not affect the property and cannot be produced as evidence. The following observations of Justice Mahmood, taken from Janki v. Girjadat (1), are particularly relevant: “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 section 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 …”

The Court observed that when the vendee was unable to eject the vendor from possession, the pre‑emptor likewise could not succeed in ejecting the vendor, because in both situations the decisive question would be whether the sale was valid for the purpose of transferring ownership. The Court further noted that, even if a pre‑emptive suit such as the present one were filed, a vendor who had previously executed an invalid sale— a sale that in law did not divest him of his proprietary right—might later execute a valid and properly registered sale deed in favor of a co‑sharer other than the pre‑emptor, or in favor of a purchaser who paid value without notice of the alleged contract for sale. In such a circumstance, the Court found it difficult to imagine how the pre‑emptor, who had obtained a judgment in a suit of the present kind, could successfully resist the claim of that subsequent purchaser for possession of the property. The Court cited the decision in Janki v. Girjadat (1885) I.L.R. 7 All. 482 to support this reasoning.

Turning to the provisions of section 54 of the Transfer of Property Act, the Court explained that a contract for sale by itself does not create any interest in or charge upon immovable property. Consequently, the contract that was the subject of the present dispute did not create any enforceable interest in favour of the vendee, and the vendor’s proprietary title did not validly pass to the vendee. Until such transfer of title was completed, no right to enforce pre‑emption could arise. The Court emphasized that wherever the Transfer of Property Act is applicable, personal laws such as Mohammedan Law are inapplicable to transfers of immovable property, and title can pass only in accordance with the Act. Accordingly, at the time the suit was instituted, there was no completed sale that could be subject to a claim of pre‑emption.

The appellant contended that fraud had been committed because, in order to defeat the pre‑emptors’ rights, a deed of sale had not been executed despite the fact that the price had been paid, possession had been taken, and the appellant had, for all practical purposes, become the owner of the property. The Court rejected this allegation, holding that the right of pre‑emption cannot be exercised until a transfer that is capable of being pre‑empted has actually occurred. Moreover, the Court observed that courts generally do not regard the right of pre‑emption with great favour, since it operates as a limitation on the owner’s freedom to alienate his property. The Court stated that it is neither illegal nor fraudulent for parties to a transaction to avoid or defeat a claim of pre‑emption by employing legitimate means.

Referring to the legal position in Punjab, where the right of pre‑emption is also statutory, the Court noted that the courts there have not looked unfavourably upon attempts by a vendor and a vendee to prevent the accrual of a pre‑emptive right through lawful methods. This approach has been endorsed by this Court in Bishan Singh v. Khazan Singh (1959) S.C.R. 878, 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.” The Court therefore concluded that the use of lawful strategies to avoid triggering pre‑emptive rights does not constitute fraud on the part of either the vendor or the vendee.

In this case the sale transaction had not become complete until the sale deed was executed on 1 February 1944. Actions taken before that date could not normally be described as fraud intended to deprive a pre‑emptor of his statutory right of pre‑emption. The Court observed that there were no equities in favour of a pre‑emptor whose sole purpose was to disturb a valid transaction that the statute had already recognised. It further held that using lawful methods to avoid the operation of the pre‑emptive right did not constitute fraud on the part of either the vendor or the vendee, and that a person was entitled to avoid the pre‑emptive law by any legitimate means.

It was then submitted that, as a matter of fact, the sale deed had indeed been executed on 1 February 1944; however, the respondent, Sridhar, had instituted his suit not on the cause of action arising from that sale, but on the basis of the transactions dated 10 April 1943 and 24 April 1943. Those earlier dates represented only contracts of sale which did not create any interest in the vendee, and consequently no pre‑emptive right could be enforced against the respondent under the Code. Counsel for the appellant argued that the timing of the later sale was irrelevant and that the suit, as framed, sought to pre‑empt a sale of April 1943, a sale that in reality had never occurred. The Court noted that, had the respondent based his claim on the February 1944 sale, the appellant would have been entitled to raise the defence permitted by law, including the argument that the land had been converted from agricultural to non‑agricultural use, a conversion that would negate the pre‑emptive right and would have required the appellant to produce appropriate proof.

The Court reiterated that the right of pre‑emption is a weak right and is not looked upon favourably by courts, which are therefore reluctant to assist a pre‑emptor beyond what the law provides. In its view, the judgment of the High Court was erroneous. Accordingly, the Court allowed the appeal, set aside both the judgment and the decree of the High Court, dismissed the suit with costs throughout, and recorded that the appeal was allowed.