Deputy Custodian, Evacuee Property, New Delhi and others v. Official Receiver of the Estate of Daulat Ram Surana

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 489 of 1962

Decision Date: 3 September 1964

Coram: N. Rajagopala Ayyangar, P. B. Gajendragadkar, J. C. Shah

In the matter titled Deputy Custodian, Evacuee Property, New Delhi and others versus Official Receiver of the Estate of Daulat Ram Surana, the appellate proceedings were decided on 3 September 1964 by the Supreme Court of India. The opinion was authored by Justice N. Rajagopala Ayyangar, and the bench was composed of Justices N. Rajagopala Ayyangar, P. B. Gajendragadkar, who acted as Chief Justice, and J. C. Shah. The judgment is reported in the 1965 volume of the All India Reporter at page 951 and also appears in the 1965 Supreme Court Reports (1) at page 220. The case is cited in later authorities as R 1987 SC 1010 (11) and RF 1989 SC 1534 (11). The statutory provisions central to the dispute were Section 7(1) of the Administration of Evacuee Property Act (Thirty‑one of 1950) and Sections 27 and 28(7) of the Provincial Insolvency Act (Five of 1920). The factual issue revolved around an Indian citizen who emigrated to Pakistan, was subsequently declared insolvent, and later claimed his assets as evacuee property; the question was whether such property could be declared evacuee property under the Act.

The factual record disclosed that the emigrant left for Pakistan in February 1950. In the following month, his creditors filed a petition seeking his adjudication as an insolvent, and the court ordered such adjudication. In 1951 the Assistant Custodian of Evacuee Property issued a notice under Section 7(1) of the Administration of Evacuee Property Act, inviting all interested parties to show cause why the emigrant’s assets should not be deemed evacuee property. Despite objections raised by the Official Receiver, the declaration that the assets were evacuee property was made in 1954 and subsequently confirmed by both the Deputy Custodian and the Custodian General. Dissatisfied, the Official Receiver approached the High Court under Article 226 of the Constitution. The High Court held that, at the moment of declaration, the property must be demonstrably evacuee property, and because the insolvent had lost title to the assets, which had vested in the Official Receiver, the property could not be declared evacuee property. The Deputy Custodian then appealed to the Supreme Court.

The Supreme Court allowed the appeal. It observed that the interpretation of Section 7(1) could not be confined to a strict grammatical construction; rather, a liberal construction was required, taking into account the purpose and language of the provision as read in conjunction with the remaining sections of the Act and the statute’s overarching objective. Accordingly, the Court explained that the section merely obliges the competent authority to determine whether the property for which a declaration is sought qualifies as evacuee property under Section 2(f) of the Administration of Evacuee Property Act. The fact that title to the property had earlier vested in the Official Receiver did not, in the Court’s view, alter the character of the property for the purposes of the declaration. The judgment cited the earlier decision of Ebrahim Aboobakar and another v. Tek Chand Dolwani, reported in the 1953 Supreme Court Reports at page 691, to support its interpretation. The judgment was issued in Civil Appeal No. 489 of 1962, which arose from an order dated 18 April 1960 of the Punjab High Court (Circuit Bench) at Delhi.

In the civil writ numbered 200‑D of 1955, counsel for the appellants, identified as R. Ganpathy Iyer and B. R. G. K. Achar, represented the petitioners, while counsel for the respondent, identified as G. S. Pathak and B. C. Misra, represented the opposing party. The judgment in this matter was delivered by Chief Justice Gajendragadkar. The central issue presented for resolution concerned the specific date that must be used to determine the character of property when a notification of evacuee property is issued under section 7(1) of the Administration of Evacuee Property Act, 1950 (No. 31 of 1950), hereinafter referred to as the Act. This question formed the concise point of controversy in the appeal. The Court observed that the answer to this point lay within a very limited scope, because it required a reasonable construction of the essential words employed in section 7(1) itself. Nevertheless, interpreting the scope and effect of those words presented a somewhat difficult problem of construction, one that needed to be resolved by reading the provision in the context of other relevant circumstances.

The factual background involved an Indian citizen named Daulat Ram Surana, who was engaged in the jewellery trade in Delhi under the name Sardar Singh Daulat Ram. He maintained a relationship with a Muslim mistress, and, according to the record, because of his affection for her, he migrated to Pakistan during the first week of February 1950. At that time he owned extensive movable and immovable property, but he was also experiencing financial difficulties. Consequently, before leaving for Pakistan, he transferred his one‑share interest in his ancestral house located on Baidwara Street, Delhi, for a consideration of Rs 26,000. On 14 March 1950, a person identified as Nanak Chand together with several other individuals who claimed to be his creditors filed an insolvency petition against the firm of Daulat Ram and against Daulat Ram himself. On 17 June 1950 both the firm and Daulat Ram were adjudicated insolvent, and the Official Receiver was appointed as the receiver of the insolvent estate.

In August 1951 the Official Receiver sought to sell certain items belonging to the insolvent estate, and the sale was scheduled for 18 August 1951. Two days before the planned sale, the Assistant Custodian of Evacuee Property issued a notice under section 7(1) of the Act to Daulat Ram and other interested parties, requiring them to show cause why the property should not be declared evacuee property pursuant to section 2(d)(i) of the Act. Upon learning of these proceedings, the respondent appeared before the Assistant Custodian and raised objections to the proposed declaration of the property as evacuee property. The Assistant Custodian overruled those objections, and on 15 February 1954 the property of Daulat Ram was formally declared evacuee property.

The respondent challenged this declaration by filing an appeal before the Authorized Deputy Custodian; that appeal was dismissed. Subsequently, the respondent approached the Custodian General in his revisional jurisdiction, but the revision application was also dismissed. Finally, the respondent instituted a writ petition before the Punjab High Court, contesting the validity of the orders passed by the various authorities under the Act that had declared Daulat Ram’s property to be evacuee property.

The petition challenged the validity of the orders issued by the various authorities under the Act that declared Daulat Ram’s property to be evacuee property. In response, the Deputy Custodian of Evacuee Property, the Authorized Deputy Custodian, and the Assistant Custodian were impleaded as respondents, and they constitute the appellants before this Court. When the matter was initially presented before Justice Bishan Narain of the Punjab High Court, he observed that the issue raised was of considerable importance and therefore warranted consideration by a larger bench. Accordingly, the writ petition was referred to and heard by a Division Bench of the Punjab High Court. The Division Bench affirmed the respondent’s contention and directed that the Custodian Department’s orders vesting the entire property of Daulat Ram in the Custodian be declared illegal and be set aside by a writ of certiorari. The appellants have now approached this Court, seeking to overturn that order, and have obtained a certificate of appeal from the High Court. The present dispute centres on the competing claims that arise from the retrospective effect of two distinct orders. The appellants argue that a notification issued under section 7(1) of the Act causes the vesting of the evacuee property in the Custodian to take effect from the date on which the evacuee left for Pakistan. According to the appellants, Daulat Ram left his residence in India and migrated to Pakistan on either 7 February or 8 February 1950. The declaration that his property was evacuee property was issued on 15 February 1954, but the appellants contend that the vesting should be treated as having occurred on the earlier migration date. The appellants also acknowledge that the adjudication order entered on 17 June 1950, under section 28(7) of the Provincial Insolvency Act, relates back to the date the creditors presented their petition, which was 14 March 1950. Consequently, one argument raised before the High Court and now before this Court is that both the declaration under section 7(1) and the insolvency adjudication operate retrospectively. However, the appellants submit that the retrospective operation of the declaration occurs earlier than that of the adjudication, and therefore the declaration should take precedence over the insolvency order. If that position is accepted, the vesting of the property in the Official Receiver under section 28 of the Provincial Insolvency Act would become irrelevant. The earlier declaration would cause the property to be deemed vested in the Custodian, thereby granting the Custodian a superior title. The appellants therefore submit that, on a prima facie basis, their argument should be given effect and the Custodian’s title should be upheld.

In this case, the Court observed that the argument advanced by the appellants, although initially appealing, was based on a misunderstanding of how sections 7 and 8 of the Act operate together. Section 8(1)(a) states that any property that is declared to be evacuee property pursuant to section 7 shall be treated as having vested in the Custodian for the State when the property belongs to an evacuee as defined in sub‑clause (i) of clause (d) of section 2, and that vesting is deemed to occur from the date on which the evacuee leaves or has left any place in a State for a place outside the territories now forming part of India. The authorities have established that Daulat Ram satisfied the definition of an evacuee under section 2(d)(i). Consequently, once a declaration under section 7(1) was made concerning his property, the law deems the vesting in the Custodian to have taken effect on the date of his migration. However, this factual position does not aid the appellants in interpreting section 7(1); the resolution of the issue raised by the appellants ultimately depends on the proper construction of that provision. The Court noted that if the High Court’s view were correct—that a declaration under section 7(1) can be issued only after it is shown that the property involved is evacuee property at the date of the declaration—then a property that is not evacuee property at that time could not be declared under section 7(1). In that scenario, no retrospective vesting of the property in the Custodian under section 8(1) could occur, because section 8(1) becomes operative only after a valid and properly made notification under section 7(1). In other words, section 8(1) provides the statutory consequence of a valid declaration under section 7(1) and therefore cannot be used to interpret section 7(1) itself. The Court further identified another argument that needed to be addressed before turning to the interpretation of section 7(1). That argument relied on section 4(1) of the Act, which provides that the provisions of this Act and the rules and orders made thereunder shall have effect notwithstanding any inconsistency with any other law in force or any instrument deriving its effect from such law. The suggestion advanced was that the substantive provisions of sections 27 and 28 of the Provincial Insolvency Act, which form the basis of the respondent’s claim that the insolvent’s property retrospectively vests in the Official Receiver, are inconsistent with section 4(1) of the Act, and therefore section 4(1) should render the Insolvency Act provisions inoperative.

Section 4(1) of the Act provides that when a conflict arises between the provisions of this Act and any other law, the provisions of this Act will prevail. The Court observed that the argument seeking to invoke this clause in order to override the provisions of the Provincial Insolvency Act is mistaken. The relevant sections of the Provincial Insolvency Act, namely sections 27 and 28(7), do not contain any language that is inconsistent with the corresponding provisions of the present Act. Consequently, there is no basis for invoking section 4(1) to claim that the present Act automatically supersedes the Insolvency Act. Section 28(7), read together with section 27 of the Insolvency Act, merely stipulates that upon the making of an adjudication order under section 27, the insolvent’s property vests in the Official Receiver from the date the petition against the debtor is presented. Neither section 7(1) nor section 8 of the present Act conflicts with these provisions. For this reason, the Court concluded that no valid argument can be founded upon section 4(1) to defeat the claim raised by the respondent in these proceedings. Having rejected that line of reasoning, the Court proceeded to consider the proper construction of section 7(1).

Section 7(1), which was in effect at the relevant time, states: “Where the Custodian is of opinion that any property is evacuee property within the meaning of this Act, he may, after causing notice thereof to be given in such manner as may be prescribed to the persons interested, and after holding such inquiry into the matter as the circumstances of the case permit, pass an order declaring any such Property to be evacuee property.” In essence, the High Court has held that a declaration regarding a property must be supported by a showing at the moment of declaration that the property falls within the definition of “evacuee property” contained in section 2(f). Section 2(f) defines evacuee property as any property belonging to an evacuee, whether the evacuee holds it as owner, trustee, beneficiary, tenant, or in any other capacity, and it also includes any property acquired from an evacuee after 14 August 1947 by any mode of transfer that is not rendered ineffective by the provisions of section 40. Although section 2(f) excludes certain categories of property, those excluded categories are not relevant to the present case. The respondent contended that at the time the declaration under section 7(1) was made, an adjudication order against Daulat Ram had already been issued and his property had vested in the Official Receiver. The inevitable result of that vesting, under the statutory scheme of sections 27 and 28(7) of the Provincial Insolvency Act, was that the insolvent lost his title to

The Court observed that once the property and its title had vested in the Official Receiver, it could no longer be said that the property qualified as evacuee property at the moment when the declaration under section 7(l) was made. Counsel for the respondent, identified as Mr Pathak, emphasized that section 7(l) requires the Custodian to hold the opinion that any particular property is evacuee property. In other words, the Custodian must form that opinion only when the property actually possesses the character of evacuee property; if, as alleged, the property had already vested in the Official Receiver, then at the relevant time it was not evacuee property, rendering the declaration void and ineffective under the law. The Court noted that this line of argument possessed considerable persuasive force. It acknowledged that a plain grammatical reading of the provision might suggest that the property must be evacuee property at the instant the Custodian forms the opinion. However, counsel for the appellants, referred to as Mr Ganapathy Iyer, vigorously argued that the construction of section 7(1) should not depend solely on a mechanical application of grammatical rules. He warned that the interpretation favoured by the respondent—and previously accepted by the High Court—would produce anomalous results. Accordingly, he submitted that the Court should consider the evident purpose and object of the statutory provision when interpreting its language. If a literal reading would frustrate the statute’s purpose, the Court may explore an alternative construction that more effectively achieves the Act’s aim. Counsel for the appellants further contended that section 7(1) merely requires the property to be evacuee property, and that the authority’s task is limited to determining whether the property about which a declaration is to be made belonged to an evacuee. Since evacuee property is defined by the Act, the definition itself requires an inquiry into whether the property is that of an evacuee. He pointed out that Daulat Rain was undeniably an evacuee and that, at the time of his migration, the property in question was his. Consequently, when the Custodian declared the property to be evacuee property, he was justified because the property originated from an evacuee. Rejecting this construction, counsel warned, would lead to unacceptable and anomalous consequences. The Court also reiterated that the inclusive portion of the definition in section 2(f) brings within its scope properties transferred by an Indian citizen before migrating to Pakistan. The scheme of section 40 is explicit, and the provisions of section 40(1) read together with the other relevant clauses of that section leave no doubt about the legislative intent.

The Court explained that the legislature had deliberately barred transfers made by persons intending to evacuate, because such transfers were aimed at converting their assets into cash and removing it from India. The purpose of this severe measure was to protect the national economy, which would be endangered if evacuees could freely dispose of their property and leave the country with cash in hand. Consequently, when the definition of evacuee property was drafted, it expressly covered properties that had been transferred by intending evacuees before their migration from India after 14 August 1947, and the inclusive language of the definition encompassed every mode of transfer that would become ineffective under the provisions of section 40. Hence, property transferred prior to migration is deemed evacuee property for the purposes of section 7(l), and the persons who received such property must submit to the vesting of that property in the Custodian under section 8(1). In a similar vein, sections 7(1A) and 7(2) address other categories of transfer and render them ineffective for the purposes of section 7(l). Section 7(1A) provides that if, during the pendency of any proceedings under subsection (1), a person interested in the property dies, the proceedings shall, unless the Custodian directs otherwise, continue and be disposed of as if that person were alive. This provision was inserted by section 5 of Act 42 of 1954, with retrospective effect, to resolve the issue raised by the Court in Ebrahim Aboobaker and Anr. v. Tek Chand Dolwani (1). In that case, the Court held that when a Muslim against whom proceedings were initiated under the Act to declare him an evacuee and his property evacuee property died while the proceedings were pending, he could not be declared an evacuee post‑humously, and his property, which on his death passed to his heirs under Muslim law, could not be declared evacuee property. The decision rested largely on the requirement in section 7(1) that an inquiry be made into the character of the property before it can be declared evacuee property; the Court observed that if the person under inquiry dies, the inquiry becomes impossible and the proceedings must terminate. The death of the alleged evacuee triggers succession, and the successors cannot be forced to appear in the inquiry or to raise pleas that the deceased might have raised. As Justice Ghulam Hasan observed, “If the Custodian cannot take possession of the property of a living person before the declaration, by the same token he cannot take possession after the death of the alleged evacuee when the property had passed into the hands of the heirs.” The inquiry contemplated by section 7 was considered a condition precedent to the declaration under section 8, and because the Custodian’s right to exercise dominion over the property accrues only after the inquiry is concluded, the death of the alleged evacuee brings the entire proceeding under section 7 to an end. An argument was advanced that the Act seeks to fix the nature of the property from a specific date and that the proceedings are directed against the property rather than the person; the Court rejected this argument as untenable, noting that there can be no property, evacuee or otherwise, without a person who owns it.

In discussing the effect of the death of a person alleged to be an evacuee, the Court explained that once the property passed into the hands of the heirs, the enquiry contemplated by section 7 of the Act could no longer proceed. The Court observed that the enquiry under section 7 was intended to be a condition precedent to the declaration contemplated under section 8. Accordingly, the Custodian’s right to exercise dominion over the property could arise only after the enquiry was completed. Because the enquiry could not be completed after the alleged evacuee’s death, the death terminated the entire proceedings under section 7.

The Court noted that, in the earlier case, it had been strongly urged that the Act was designed to fix the character of the property from a specific date and that the proceedings were directed against the property rather than against the person. The Court characterised that argument as fallacious, reasoning that a property – whether classified as evacuee property or otherwise – cannot exist in the abstract without a person who owns it. Consequently, the Court held that the principal reason for concluding that the proceedings under section 7(1) ended automatically on the death of the alleged evacuee was that the property could not be notified as evacuee property until the person claiming an interest in it had received notice, as stated on page 704 of the judgment.

To address the difficulty of continuing proceedings against an alleged evacuee after his death, the legislature amended the Act by inserting section 7(1A) with retrospective effect. The Court explained that section 7(1A) would apply only in situations where the alleged evacuee died while the enquiry under section 7(1) was still pending. However, the amendment did not empower the Custodian to commence or institute a new enquiry under section 7(1) after the death of the alleged evacuee. In such circumstances, the Court reiterated that the principles laid down in the earlier decision of Ebrahim Aboobaker’s case [1953] S.C.R. 691 would continue to govern.

The Court also observed that the High Court had relied on the Ebrahim Aboobaker decision for guidance in construing the relevant statutory provision in the present appeal. After quoting the observations of Ghulam Hasan J. from that case, the High Court concluded that, because an order of adjudication was made on 17 June 1950, the property of the insolvent vested in the Official Receiver under the Provincial Insolvency Act, and therefore the Custodian could not issue a declaration under section 7(1) of the Evacuee Property Act. The Supreme Court, however, expressed dissent from that view. It stated that it could not see any relevance or materiality in the Ebrahim Aboobaker decision for the purpose of construing section 7(1) of the Act in the present dispute. Finally, the Court noted that the key test which had successfully challenged the validity of the proceedings against Ebrahim Aboobaker was the fact that the alleged evacuee had died, making it impossible to hold a proper and valid enquiry.

In the present dispute the Court explained that the test applied in Ebrahim Aboobaker’s case could not be used here because the alleged evacuee was still alive when the enquiry was held and there was no defect in the proceedings conducted against him. The High Court, having concluded that the earlier decision of this Court strongly supported the respondent’s position, chose not to examine the question of how section 7(1) should be interpreted in light of the additional considerations mentioned by the Court. Turning then to section 7(2), the Court observed that the provision states that when a notice under sub‑section (1) is issued concerning any property, that property remains, until the question of whether it is evacuee property is decided, unable to be transferred or charged in any manner except with the Custodian’s permission, and that no person may obtain any benefit from such a transfer or charge without that permission. The Court noted the remarkable fact that the legislature deliberately imposed a blanket prohibition on the transfer of all properties for which proceedings under section 7(1) have begun. This prohibition continues to operate even for properties that may later be determined not to be evacuee property, indicating that the legislative intention was clearly to keep every such property in its original condition at the time the proceedings under section 7(1) were initiated. Consequently, the Court held that transfers made by intended evacuees before they left India fall within the definition of evacuee property, and a declaration may be issued concerning those transferred properties under section 7(1). Transfers that occur while the enquiry is pending cannot defeat the purpose of the investigation under section 7(1), and a declaration may still be issued despite such interim transfers. Moreover, the death of an alleged evacuee does not halt the continuation of the proceedings, and a declaration may be made after death that the deceased’s properties were evacuee properties. The Court then questioned whether the legislature could have intended to allow transfers of evacuees’ properties between the date of migration and the commencement of proceedings under section 7(1). If the High Court’s view were correct, any property transferred by evacuees after migration but before the start of section 7(1) proceedings would fall outside the Act’s reach. The Court found it extremely difficult, if not impossible, to accept that such an intention existed, because the danger posed by transfers that evacuees were naturally inclined to make in order to preserve their wealth was so serious at the relevant time that the legislature deliberately incorporated safeguards to protect the national economy.

The Court observed that the consequence which inevitably follows from the construction advocated by Mr Pathak was patently inconsistent with the clear and unambiguous purpose of the Act, and therefore it would not be reasonable to accept that construction. In its view, the interpretation of section 7(1) presented a difficulty that could not be solved merely by applying a mechanical rule of construction based on grammatical analysis. Instead, a liberal construction was required, one that considered the meaning and effect of the words used in section 7(1) when read in conjunction with the other relevant provisions of the Act and the principal objective of the legislation.

Mr Pathak, the counsel for the petitioner, had attempted to argue that the omission of a certain category of transfers from the statute might have been deliberate. He pointed out that the legislature could have intended that properties of evacuees which were compulsorily acquired under the Land Acquisition Act, or which had vested in the Official Receivers under section 28(7) of the Provincial Insolvency Act, should be exempted from the proceedings under section 7(1). The Court was not persuaded by this argument. It noted that, had the legislature wished to preserve those categories of transactions in which the evacuees’ title was lost, it could have easily inserted a specific provision to that effect.

The Court held that there was no difficulty in concluding that the legislature could not have intended to permit private transfers of property by evacuees after they emigrated from India, when those transfers were completed before the commencement of proceedings under section 7(1). Consequently, the Court found that the view adopted by the High Court did not correctly represent the true scope and effect of the provisions contained in section 7(1) of the Act.

Accordingly, the Court allowed the appeal, set aside the order passed by the High Court, and dismissed the writ petition filed by the respondent. In the circumstances of the case, the Court ordered that there be no award of costs. The appeal was thus allowed.