Pulavarthi Venkata Subba Rao and Ors vs Valluri Jagannadha Rao and Ors

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 17 of 1959

Decision Date: 13 March, 1963

Coram: M. Hidayatullah, P.B. Gajendragadkar, J.C. Shah

In this matter the Supreme Court of India heard an appeal that had been granted by special leave. The appeal concerned a dispute between Pulavarthi Venkata Subba Rao and others, who were the petitioners, and Valluri Jagannadha Rao and others, who were the respondents. The judgment was delivered on 13 March 1963 by a bench comprising Justice M. Hidayatullah, Justice P. B. Gajendragadkar and Justice J. C. Shah. The case is reported in the 1967 All India Reporter at page 591 and in the 1964 Supreme Court Reports (Second Series) at page 310, and it has subsequently been cited in various other reports. The central statutory framework involved the Madras Agriculturists Relief Act of 1938, its amendment enacted in 1948, and the specific provisions of section 16 (ii) of the Amending Act.

The factual background began in 1941 when the decree‑holder instituted a suit seeking recovery of a sum of Rs 50,000 from the respondents. The respondents contended that, being agriculturists, they were entitled under the Madras Agriculturists Relief Act, 1938, to have their liability reduced, or “scaled down,” in accordance with the protections the Act afforded to persons engaged in agricultural pursuits. The parties eventually entered into a compromise and the suit was settled for a reduced amount of Rs 37,000, of which some payments were subsequently made. In 1949 the respondents filed a fresh application seeking further scaling down of the debt on the ground that the amendment to the 1938 Act, made in 1948, should now apply to them. The decree‑holder argued that the amendment could not be invoked because, under section 16 (ii) of the Amending Act, the compromise decree had already become final and therefore the principle of res judicata barred any fresh claim. The decree‑holder also maintained that the respondents were not agriculturists because they were members of a joint Hindu family that owned an estate for which a peshkash exceeding Rs 500 was payable. The trial court, after examining the matter, held that the decree was subject to scaling down under the provisions of the Amending Act. The decree‑holder appealed this finding, and the case proceeded to the High Court on a revision petition.

The High Court ordered the trial court to take evidence and to determine specifically whether the respondents qualified as agriculturists. Upon investigation the trial court concluded that the judgment‑debtors indeed formed a joint Hindu family that owned an estate and that the peshkash payable on that estate exceeded Rs 500, leading the trial court to hold that the respondents were not agriculturists. The High Court, however, disagreed with that conclusion. It observed that the estate was not held jointly by the family in undivided shares but rather in definite individual shares, and that the peshkash attributable to each of the two villages that comprised the estate could not be aggregated for the purpose of the test. Consequently, the peshkash actually paid by each individual judgment‑debtor was held to be less than Rs 500, satisfying the statutory condition for agricultural status. The High Court further held that the compromise decree could not be regarded as final for the purposes of section 16 (ii) of the Amending Act and that the doctrine of res judicata therefore did not bar the respondents’ claim for reduction. Accordingly, the High Court granted the respondents’ relief and ordered that the decree be scaled down.

The respondents then approached this Court by way of a special leave petition. The Supreme Court affirmed the High Court’s conclusions. It held that the appeal was devoid of merit and must fail. The Court confirmed that the judgment‑debtors were indeed agriculturists because the peshkash paid by each of them individually did not exceed Rs 500, and therefore they were entitled to have their debts scaled down under the statutory scheme. The Court also clarified that all decrees which had been fully executed and satisfied before the commencement of the Amending Act in January 1949 were not affected by the amendment, whereas any decree that remained unexecuted, either wholly or partly, at that time fell within the ambit of the amendment. The decree‑holder, however, was not required to refund any amount that had already been paid or realized. No distinction was drawn between decrees passed after a contested trial and those passed after a compromise; both categories were subject to the provisions of section 19 (2) of the 1938 Act and section 16 (ii) of the 1948 amendment. The Court further observed that the case was governed by section 16 (iii) of the Amending Act rather than by section 16 (ii). Finally, the Court noted that the respondents had, by not pressing the claim for reduction earlier, engaged in conduct that was relevant to the considerations of the case.

The Court stated that the appeal possessed no merit and therefore had to be rejected. It was held that the judgment‑debtors qualified as agriculturists because the peshkash each of them paid individually did not exceed five hundred rupees, and on that basis they were entitled to have their debts reduced. The Court further explained that any decree which had been fully executed and satisfied before the Amending Act came into force in January 1949 was not affected by that Act; however, every decree that remained incomplete or unexecuted, whether wholly or partly, fell within the scope of the Amending Act. Nevertheless, the holder of such a decree was not obligated to return any sum that he might have already received or realized. No distinction was drawn between decrees issued after a contested suit and those issued after a compromise; both categories were subject to the provisions of section 19(2) of the 1938 Act and section 16(ii) of the 1948 Amending Act. Consequently, the matter was governed by section 16(iii) rather than by section 16(ii). The Court also noted that, although the respondents’ failure to press for a reduction of the claim on the first occasion was relevant, this omission did not give rise to res judicata, whether statutory or constructive. The compromise decree, the Court observed, did not constitute a judicial decision; it merely reflected the Court’s acceptance of an agreement reached between the parties and bore the Court’s seal without the Court actually deciding any issue. Only a decision rendered by the Court can give rise to res judicata, either under section 2 of the Code of Civil Procedure or as a matter of public policy. The earlier order could not be said to have been “heard and finally decided.” While the decree might have created an estoppel by conduct, such an estoppel had never been pleaded or tried. Moreover, the Court affirmed that the 1938 Act, as amended in 1948, granted petty agriculturists the right to have their debts scaled down so as to protect them from oppressive, usurious loans, referring to the authorities Arunachala Mudaliar v. C. A. Muruganatha Mudaliar, [1954] S.C.R. 243 and Venakataratnam v. Seshamma, 1 L.R. (1952) Mad. 492. The judgment proceeded as a civil appeal under appellate jurisdiction, Civil Appeal No. 17 of 1959, challenging the April 6, 1955 decision of the High Court of Andhra Pradesh at Guntur in C.R.P. No. 656 of 1950, with counsel representing both parties, and the judgment was delivered by Justice Hidayatullah on 13 March 1963.

The Court determined that the respondents were agriculturists within the meaning of the Madras Agriculturists Relief Act, 1938, hereinafter called the Act, and consequently they were entitled to a reduction of the decree issued in O. S. No. 52 of 1941 dated 27 August 1945. The decree‑holders in that proceeding were the appellants before this Court. The Court then set out the facts that were relevant to the present appeal. The respondents belonged to an undivided Hindu family, and a simple genealogical chart helped to trace the relationships. The senior member of the family was Valluri Jagannadha Rao I, whose son was Srivatsankara Rao. Srivatsankara Rao’s son was Narasimha Rao, who in turn had two sons: Jagannadha Rao II and Satyanarayanamurthi, who were the first and second respondents respectively. Srivatsankara Rao also had a son named Narasimha Rao, whose two sons were Subba Rao and another Narasimha Rao, who were the third and fourth respondents respectively. Narasimha Rao had borrowed money from the ancestors of the present appellants by executing promissory notes, and in 1941 a suit was filed against the family for a sum of a little over Rs 50,000. That suit was identified as O. S. No. 52 of 1941. Within that suit the respondents filed an application asserting that they were agriculturists and therefore sought a scaling down of the liability. The plaintiffs contested the respondents’ claim of agricultural status. Nevertheless, the suit concluded with a compromise decree granting the respondents a reduced amount of Rs 37,000 on 23 August 1945, instead of the original claim of Rs 50,964‑1‑9, and some payments were subsequently made towards that decretal figure. On 21 February 1949 the judgment‑debtors filed another application, identified as Interim Application No. 279 of 1949, requesting a further reduction of the decretal amount on the ground that they were agriculturists entitled to the benefits conferred by the Act as amended in 1948. The decree‑holders raised three separate defenses: firstly, that the Amending Act did not apply because Section 16(ii) of that Act rendered the compromise decree final; secondly, that the earlier compromise decree operated as res judicata; and thirdly, that the judgment‑debtors were not agriculturists because they constituted a joint Hindu family owning an estate for which a peshkash exceeding Rs 500 was payable. The Subordinate Judge at Narsapur, before whom the application was presented, formulated two issues for determination: (1) whether the petitioners were agriculturists eligible for the benefits under the Act, and (2) whether the present petition was barred by Section 16(ii) of the Madras Agriculturists Relief (Amendment) Act (No. XXIII), 1948. The learned Subordinate Judge first addressed the second issue, a question of law, and by his order dated 15 March 1950 held that the decree was amenable to scaling down in accordance with the provisions of the Amending Act. He then set aside the first issue for trial, ordering that evidence be taken to decide whether the judgment‑debtors qualified as agriculturists. While this matter proceeded, the decree‑holders filed an application for revision identified as C. R. P. No. 656 of 1950 on 28 April 1950. The High Court considered that revision application on 20 August 1952 and directed that a finding be obtained from the Subordinate Judge on the question of the judgment‑debtors’ agricultural status, issuing a preliminary order to that effect.

The High Court ordered the Subordinate Judge to take evidence on the issue of whether the judgment‑debtors were agriculturists and to submit his finding on that point, with a provision that the parties would be allowed to object to the finding after it was received. After recording the evidence, the Subordinate Judge delivered his finding on 17 December 1952. He concluded that the judgment‑debtors formed a joint Hindu family that owned an estate for which a peshkash of more than Rs 500 was payable, and therefore they could not be classified as agriculturists. When this finding was placed before the High Court, the revision application was considered. The High Court held that the provisions of the Madras Agriculturists Relief (Amendment) Act were applicable and that the Subordinate Judge’s finding could not be regarded as final for the purpose of clause (ii) of section 16 of the Amending Act; consequently, the principle of res judicata was held not to apply. The High Court accepted the Subordinate Judge’s view that the judgment‑debtors were legally entitled to have the decree reduced, provided they were agriculturists. However, on examining the second question, the High Court differed from the Subordinate Judge and concluded that the judgment‑debtors were indeed agriculturists and therefore were entitled to a reduction of the decree. The decree‑holders appealed this decision. Before addressing the substantive questions, the Court set out additional facts relevant to determining whether the judgment‑debtors could be regarded as agriculturists. The family, it was admitted, owned two villages—Kalagampudi and Pedamamidipalli—which constituted an estate as defined under the Madras Estates Land Act. These villages originally belonged to Valluri Jagannadha Rao I, the initial owner, and were his self‑acquired properties. On 20 March 1902, Jagannadha Rao I executed a will (exhibit A‑17) devising a life‑estate in the two villages to his two sons, Valluri Srivatsankara Rao and Valluri Narasimha Rao, with an absolute estate to descend to any surviving sons of the two at the termination of each life‑estate. The will further stipulated that if any son died without male issue, the sons of the other son would become absolutely entitled to the property at the end of the life‑estate, and that, should the two sons wish to partition the property, the elder son Srivatsankara Rao would receive Kalagampudi and the younger son the other village. The sons executed a partition of the life‑estates on 14 June 1911 (exhibit B‑I), with Srivatsankara Rao taking Kalagampudi and Narasimha Rao taking Pedamamidipalli. Srivatsankara Rao died on 15 December 1936 without a male heir, resulting in Jagannadha Rao II and Satyanarayanamurthi, the two sons of Narasimha Rao, becoming absolute owners of Kalagampudi in equal shares. On 18 February 1941, Narasimha Rao executed a sale‑deed (exhibit A‑57) conveying a two‑fifth share in Pedamamidipalli village to his daughter Subhadradevi.

In the present case, Narasimha Rao died on May 17, 1943. As a result of his death, jagannadha Rao II and Satyanarayanamurthi each acquired a half share in the three‑fifth share that pertained to Pedamamidipalli village, and they also each acquired a half share in Kalagampudi. The parties identified as judgment‑debtors asserted that a partition of the two sons of Narasimha Rao had been effected in 1946. The peshkash, which was the revenue payable on the two villages when the title was vested in jagannadha Rao I, amounted to Rs. 979‑3‑0, as shown in exhibit I.A dated 6 October 1879. Following the death of Shrivatsankara Rao in 1936, the two villages were separately registered; Pedamamidipalli was entered in the name of Narasimha Rao and Kalagampudi was entered in the names of his sons. Consequently the peshkash was apportioned between the villages, fixing Rs. 483‑12‑10 as the peshkash for Pedamamidipalli and Rs. 495‑6‑2 as the peshkash for Kalagampudi. This apportionment is recorded in the proceedings of the Collector, West Godavari, exhibit A‑4 dated 24 April 1940. To determine whether the view expressed by the Subordinate Judge or that expressed by the High Court is correct, it becomes necessary to examine certain provisions of the relevant Act. Section 3(ii) of the Act defines the term “agriculturist,” and the pertinent portion of that definition reads as follows: “(ii) ‘agriculturist’ means a person who— (a) has a saleable interest in any agricultural or horticultural land in the State of Madras, not being land situated within a municipality or cantonment, which is assessed by the State Government to land revenue (which shall be deemed to include peshkash and quit‑rent), or which is held free of tax under a grant made, confirmed or recognized by Government; or (b) holds an interest in such land under a landholder under the Madras Estates Land Act, 1908, as tenant, ryot or under‑tenure holder; … Provided that a person shall not be deemed to be an ‘agriculturist’ if he— (D) is a landholder of an estate under the Madras Estates Land Act, 1908, or of a share or portion thereof, whether separately registered or not, in respect of which any sum exceeding five hundred rupees is payable as peshkash, or any sum exceeding one hundred rupees is payable under one or more of the following heads, namely, quitrent, jodi, kattubadi, poruppu or other due of a like nature, or is a janmi under the Malabar Tenancy Act, 1929, who is liable as such janmi to pay to the State Government any sum exceeding five hundred rupees as land revenue.” Clause (i) of section 3 further defines the word “person” to include an undivided Hindu family. The judgment‑debtors contended that two distinct persons were the legatees under the will, that they had taken the villages not as ancestral lands but as self‑acquired properties, and that, consequently, the peshkash payable on the two villages must be divided between them before the proviso to section 3(ii) can be applied.

In this matter the decree‑holders argued that the two villages taken by the sons of Narasimha Rao under the will were held by an undivided Hindu family and therefore qualified as ancestral property. They contended that, because of this characterization, the peshkash payable on the two villages should be aggregated for the purpose of applying proviso (D) of the relevant statute, which refers to a sum exceeding five hundred rupees. The High Court, however, examined the language of the will and found no indication that the property was intended to pass as ancestral; consequently it held that the villages were the separate properties of the two sons. The Court further considered the respondents’ conduct in partitioning the villages and concluded that the property was held not jointly but in distinct shares. On that basis the High Court ruled that the peshkash due on the two villages could not be combined. Accordingly, the Court divided the peshkash relating to Kalagampudi and the three‑fifth share of Pegamamidipalli into two equal halves. It held that each son of Narasimha Rao was liable only for his own share, and that the amount of peshkash paid by each individually did not exceed the Rs 500 limit specified in proviso (D). As a result, the judgment‑debtors were deemed agriculturists. This portion of the judgment was not contested before the Supreme Court by the Advocate‑General of Andhra Pradesh. The High Court’s decision was supported by the precedent set in C.N. Arunachala v. C. A. Muruganatha Mudaliar, (1954) S.C.R. 243, which affirmed the character of the inherited property and left the conclusion that the judgment‑debtors were agriculturists unchallenged. Before addressing the respondents’ claim that the decree should be scaled down, the Court considered another argument that the High Court had erred by interfering with the finding that the respondents were not agriculturists in a revision application under section 115 of the Civil Procedure Code. The Supreme Court held that this contention mischaracterized the High Court’s action. The High Court had merely called for a finding, subject to objections from the parties, and could have taken evidence and rendered its own finding. By re‑examining the evidence to determine correctly whether the judgment‑debtors qualified as agriculturists, the High Court was not improperly substituting a factual finding on revision but was drawing a proper inference from evidence it had ordered to be recorded before applying the relevant law. The Court found no merit in the objection. The next argument presented was that the respondents could not invoke the benefit of the Act because the compromise decree had become a final decree, invoking the second clause of section 16 of the Amending Act rather than the third, and that, in any event, the respondents had been concluded by the …

In order to assess the contention that the compromise decree operated as res judicata, the Court found it necessary to examine the wording of section 19 of the original Act together with section 16 of the Amending Act. Section 19 had been altered in 1948 by the insertion of sub‑section (2). The amended provision, as it stood, read: “19 (1) Where before the commencement of this Act a court has passed a decree for the repayment of a debt, it shall, on the application of any judgment‑debtor who is an agriculturist or, in respect of a Hindu joint‑family debt, on the application of any member of the family whether or not he is the judgment‑debtor, or on the application of the decree‑holder, apply the provisions of this Act to such decree and shall, notwithstanding anything contained in the Code of Civil Procedure 1908, amend the decree accordingly or enter satisfaction, as the case may be: Provided that all payments made or amounts recovered, whether before or after the commencement of this Act, in respect of any such decree shall first be applied in payment of all costs as originally decreed to the creditor. (2) The provisions of sub‑section (1) shall also apply to cases where, after the commencement of this Act, a Court has passed a decree for the repayment of a debt payable at such commencement.” The Amending Act, in turn, contained section 16, which provided: “16. The amendments made by this Act shall apply to the following suits and proceedings, namely (i) all suits and proceedings instituted after the commencement of this Act; (ii) all suits and proceedings instituted before the commencement of this Act, in which no decree or order has been passed, or in which the decree or order passed has not become final, before such commencement; (iii) all suits and proceedings in which the decree or order passed has not been executed or satisfied in full before the commencement of this Act: Provided that no creditor shall be required to refund any sum which has been paid to or realised by him, before the commencement of this Act.” The appellants argued that a compromise decree, by virtue of finally determining the parties’ rights, fell within clause (ii) of section 16 and therefore should not be subject to the provisions of clause (iii), a view advanced by the respondents. The High Court had at one stage entertained differing interpretations of this section, but the prevailing judicial opinion held that the section applied only to decrees that could be characterised as final, as opposed to those that were merely interlocutory or preliminary. Moreover, the High Court had long maintained that clause (iii) governed every money decree that had not been executed or fully satisfied before the commencement of the Amending Act, a principle illustrated in Venkataratnam v. Seshamma (1). In other words, any decree that had been wholly executed and satisfied prior to the Act’s commencement was excluded from its operation, whereas any decree that remained unexecuted, whether arising from litigation after contest or from compromise, remained subject to the provisions of section 19 (2) and clause (iii) of section 16.

The Court observed that any decree that had been fully executed before the Amending Act commenced on January 12, 1949, remained unaffected by that Act, whereas every decree that was not final and that still required complete or partial execution became subject to its provisions; the proviso, however, stipulated that when such decrees were reduced, the holder of the decree would not be compelled to refund any sum that had already been paid or realised by him. The Court further noted that the statute made no distinction between decrees that were passed after a contested trial and those that were passed on a compromise, and that both categories fell within the ambit of sections 19(2) and 16(iii). Because no differentiation was drawn between contested and compromised decrees, the phrase “in which the decree or order passed has not become final” in clause (ii) of section 16 could not be interpreted to refer to a compromise decree; rather, it applied to decrees that were already final, such as final foreclosure decrees in mortgage suits. The Court considered the prevailing High Court interpretation of the section to be preferable, given the general wording employed in sections 19(2) and 16(iii), and stressed that it would be improper to disturb a legal view that had become long‑established. Accordingly, the case was to be governed by section 16(iii) read with section 19(2), and the respondents were therefore permitted to raise the issue of scaling down the decree once more. The appellants attempted to obtain the same result by invoking the principle of res judicata, contending that the earlier decision operated as res judicata and that the respondents should not be allowed to revisit an issue that, by implication, had been decided against them through the compromise judgment and decree. Alternatively, the appellants argued that the earlier compromise decree created an estoppel against the respondents because, at that time, the appellants had conceded to a reduced claim amount and a decree for a lesser sum had been passed; this was described as an estoppel by judgment. The Court rejected both contentions, holding that the amended Act conferred a protective right upon petty agriculturists against loans made at usurious interest rates. While acknowledging that the respondents’ failure to press for a reduction of the claim on the first occasion was relevant, the Court found that such conduct did not amount to statutory or constructive res judicata. The Court emphasized that a compromise decree was not a judicial decision but merely the Court’s acceptance of an agreement reached by the parties; it merely affixed the court’s seal to the parties’ settlement without deciding any substantive issue. Consequently, only a decision rendered by the court could give rise to res judicata, whether under a statutory provision or as a matter of public policy.

Section 11 of the Code of Civil Procedure provides for statutory res judicata, while constructive res judicata arises as a matter of public policy on which the whole doctrine depends. The respondents contend that they may revisit the matter because the Amending Act granted new rights, which they claim include the reopening of every decree that had not become final or had not been fully executed. Such respondents are entitled to rely upon the amendment of law unless the legislation itself expressly bars them or the earlier decision prevents them from doing so. The earlier decision, however, cannot be strictly characterized as having been ‘heard and finally decided’ within the meaning of res judicata. Although the decree might have generated an estoppel by conduct between the parties, the appellants failed to plead such estoppel at any stage of the proceedings. Instead, they asserted that the doctrine of res judicata governed the case or that an estoppel by judgment applied, a principle described in English law. There is some evidence showing that the respondents had made two payments under the consent decree, but that evidence cannot be considered without a specific plea of estoppel by conduct having been raised and tried. Nonetheless, the appellants are protected with respect to those payments by the proviso to clause (iii) of section 16 of the Amending Act. In the Court’s view, the appeal lacks any merit and therefore must be dismissed. Consequently, the appeal is dismissed without any order as to costs being made in this Court. The final order thus records that the appeal is dismissed.