V.N.Vasudeva vs Seth Kirorimal Luhariwala

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 1041 of 1963

Decision Date: 9 January 1964

Coram: M. Hidayatullah, J.C. Shah

In this matter, the Supreme Court recorded that the appeal was titled V.N. Vasudeva versus Seth Kirorimal Luhariwala and was decided on 9 January 1964. The opinion was authored by Justice M. Hidayatullah, joined by Justice J. C. Shah. The petitioner was identified as V.N. Vasudeva and the respondent as Seth Kirorimal Luhariwala. The case citation appears as 1965 AIR 440 and 1964 SCR (6) 181. The legal issues involved the Delhi Rent Control Act of 1958, specifically section 15(1), which deals with the order for deposit of rent at an interlocutory stage, and the Indian Income‑Tax Act of 1922, specifically section 46(5A). The headnote summarised that the respondent had filed an application against the petitioner under section 14 of the Delhi Rent Control Act. In response, the petitioner argued that the respondent could not recover rent because an income‑tax notice under section 46(5A) had been issued, that the respondent lacked locus standi because the property was under court custody with a receiver appointed, and that the petitioner’s professional fees had been agreed to be adjusted against the rent due. The Rent Controller recorded the petitioner’s statement, heard arguments, and directed the petitioner, under section 15(1) of the Delhi Rent Control Act, to deposit back rents at a rate of three hundred rupees per month. The petitioner appealed this decision, but the Rent Controller’s order was affirmed, and a further appeal to the High Court was also unsuccessful. The petitioner contended that an order under section 15(1) for deposit of rent could be made only at the conclusion of the case and not at an interlocutory stage.

The Court held that the order issued under subsection (1) of section 15 is not a final decree but a preliminary measure intended to protect the landlord’s interest while the trial is pending, and it may be made even when rent has not yet been paid. The Court explained that for an interim order it is unnecessary for a full trial to have been conducted, and that this requirement is evident from the latter part of subsection (1) because the provision obliges the tenant not only to deposit arrears but also to deposit rent as it becomes due, month by month, by the fifteenth day of each succeeding month. The Court distinguished the earlier decision in Nalinakhya Bysack and Anr. v. Shyam Sunder Halder, A.I.R. 1952 Cal. 198, on the basis that the circumstances were different. Regarding the income‑tax notice, the Court observed that the notice issued under section 46(5A) of the Income‑Tax Act did not constitute a garnishee order. Consequently, the petitioner could pay the amount to the Rent Controller without assuming personal liability, since the Rent Controller’s order expressly stated that the sum would not be released to any party until a clearance certificate was obtained from the Income‑Tax Department. The judgment was rendered under civil appellate jurisdiction as Civil Appeal No. 1041 of 1963, filed by special leave from the Punjab High Court’s order dated 2 September 1963 in L.P.A. No. 119‑D of 1963. The appeal was advocated by counsel for the petitioner and by the Solicitor‑General of India and another counsel for the respondent.

On 9 January 1964 Judge Hidayatullah delivered the judgment in an appeal by special leave against an order of the Punjab High Court dated 14 August 1963. The High Court order had confirmed a direction issued by the Rent Controller under section 15 (1) of the Delhi Rent Control Act, 1958, which required the appellant to deposit back rent at a rate of three hundred rupees per month commencing on 1 July 1957. Because the original time for compliance had already elapsed, the High Court granted the appellant an additional month from the date of its own order to make the required payments. The appellant was an advocate practising in Delhi and was occupying the premises known as number 43 Prithvi Raj Road, New Delhi, as a tenant. His landlord, Seth Kirori Mal Luhariwala, was the respondent in this appeal. The tenancy began on 28 July 1957, and a memorandum of tenancy dated 1 July 1957, which was produced as evidence, recorded that the premises were let on a monthly rent of three hundred rupees. The memorandum contained other clauses, but those clauses were not material to the issues before the court and therefore were not discussed further. It appeared from the record that the landlord was in arrears of his income‑tax liabilities, with a sum of thirty‑nine lakh rupees outstanding. On 31 October 1957 the Income‑tax Officer of the Central Circle, New Delhi, to whom all of the landlord’s tax matters had been transferred, issued a notice to the appellant under section 46 (5A) of the Indian Income‑tax Act directing him to deposit with the tax officer all sums due as rent as well as any future rent. The appellant did not respond to that notice. However, on 29 September 1957 the appellant had written a letter to the landlord, and the landlord’s reply, dated 15 October 1957, was admitted into evidence. The brief reply stated that the landlord requested the appellant to adjust six months’ rent, amounting to one thousand eight hundred rupees for the period from 1 October 1957 to 31 March 1958, against the appellant’s professional fees as part payment, and that the balance of the fees would be paid later at the time of final settlement. The landlord also sent a receipt dated 16 October 1957 acknowledging the amount, which was filed as item 23 in the record. In addition to these rent matters, the landlord was involved in litigation in Calcutta, where he had instituted a suit against four defendants claiming the present property as his absolute and exclusive self‑acquired property. That suit remained pending before the High Court, and on 1 May 1958 an order appointed a certain Chakravarti as receiver of the properties, including number 43 Prithvi Raj Road. The receiver sent a notice on 8 July 1958 to the appellant demanding the rent that was already due and any rent that became due thereafter. In response, the appellant replied on 19 July 1958, referring to the earlier letter concerning the adjustment of rent towards fees for the period from 1 October 1957 to 31 March 1958, which formed the subject of the landlord’s brief reply. He stated that regarding rent payable after 1 April 1958 he had no objection to remit the amount to the receiver or any other claimant, but that he was unable to do so because of the notice served on him by the Income‑tax Officer. He requested the receiver to obtain the withdrawal of that notice and expressed his willingness to pay the rent once the notice was withdrawn. He also raised the issue of certain other expenses that he had incurred in connection with the house, which he claimed he was entitled to deduct from the rent, and he informed the receiver that a few repairs were required in the house. Subsequently, a second letter was sent by the official receiver on 5 September 1959 making another demand. In his reply dated 14 September 1959 the appellant raised the question that a sum of twenty‑three thousand five hundred rupees was… He referred to the

The appellant explained that he had proposed to pay the rent for the period from 1 October 1957 to 31 March 1958 by adjusting it against the professional fees claimed from Seth Kirori Mal, as referred to in the earlier letter. He further declared that for the rent falling due after 1 April 1958 he had no objection to remit the amount to the Receiver or any other claimant; however, he could not make such payment because a notice had been served on him by the Income‑tax Officer. Consequently, he requested that the Receiver obtain a withdrawal of that notice and expressed his willingness to forward the rent once the notice was withdrawn. The appellant also raised the issue of certain other expenses he had incurred in connection with the house, asserting that he was entitled to deduct those from the rent, and he informed that a few repairs were required in the house. A second letter dated 5 September 1959 was sent by the Official Receiver demanding rent again. In response, on 14 September 1959, the appellant asserted that a sum of Rs 23,500 was payable to him for professional services rendered to Seth Kirori Mal. He stated that he was entitled to adjust the rent payable against the fees due to him and that the amount due would absorb the rent for a little over six years. He further noted that previously Seth Kirori Mal had paid him Rs 1,800 as an adjustment of rent toward his professional fees and therefore requested that the rent payable be adjusted against the professional fee still due. With that reply, he enclosed a copy of a statement of fees amounting to Rs 23,500, which he had submitted to his client on 4 February 1959. The Official Receiver then informed the appellant that the party concerned had denied the claim for fees as absolutely false, observed that the professional fees should be dealt with in a separate proceeding, and directed that the rent be paid without delay. The Receiver also inquired whether the rent had been paid to the Income‑tax Department in response to the notice. In a subsequent reply dated 5 July 1960, the appellant for the first time declared that there existed an agreement between him and Seth Kirori Mal to adjust the rent against his professional fees until such fees were fully paid. He offered to reduce the fees if Seth Kirori Mal objected, but maintained that until the professional fees were recovered, no rent could be considered due from him. On 25 November 1960, Seth Kirori Mal applied to the Calcutta High Court for directions to the Official Receiver to initiate appropriate proceedings to realise the arrears of rent from the appellant. The High Court, on 19 December 1960, appointed Seth Kirori Mal as the receiver in the case, and he subsequently served a notice on 23 December 1960.

In this case, the appellant received a notice directing him to pay the arrears of rent. He responded with a detailed reply that essentially formed the basis of his defence in the proceedings before the Rent Controller, from which the present appeal originated. On 4 January 1961, Seth Kirori Mal filed an application under section 14 of the Delhi Rent Control Act before the Rent Controller in Delhi. In the appellant’s written statement in response to that application, he asserted that Seth Kirori Mal had no authority to recover rent because a notice under section 46(5A) of the Indian Income‑Tax Act had been issued by the Income‑Tax Officer, Central Circle V, New Delhi. He further pleaded that the property was already in the custody of the Court and, since a receiver had been appointed, Kirori Mal lacked locus standi to maintain the petition, although he admitted that Kirori Mal had informed him of the receiver’s appointment. The appellant additionally contended that, under the Rent Control Act, a receiver could not act on behalf of the landlord. He referred to an alleged agreement whereby his professional fees were to be recovered from the rent as it became due, highlighting that an earlier sum of Rs 1,800 had been allowed to be adjusted against those fees. The appellant mentioned other pleas but noted that they were not raised before the Court and therefore were unnecessary for consideration. The notice to quit, which the appellant claimed he never received, was filed in the Court of the Controller on 17 May 1961, and the appellant was ordered to inspect it and be prepared to state whether the notice was correct. At the subsequent hearing, the appellant’s statement was recorded; he denied both the existence of the notice and its receipt. The matter was then set down for argument, and after hearing the parties, the Rent Controller rendered his order on 22 July 1961. The Controller held that the record contained no proof that the respondent possessed any right to adjust the rent against the appellant’s professional dues and that rent had not been paid after 31 March 1958. Concerning the appellant’s plea that a section 46(5A) notice of the Income‑Tax Act had been issued, the Controller observed that any amount deposited in his office would not be released to Kirori Mal unless Kirori Mal produced a clearance certificate from the Income‑Tax Department. The Controller further stated that, should the tenant subsequently prove that the fees were to be recouped from the rent, the amount would still not be payable to Kirori Mal. Dissatisfied with this decision, the appellant appealed to the Rent Control Tribunal. The Tribunal affirmed the Controller’s order, remarking that the appellant’s argument that his professional fees were to be deducted from rent was an after‑thought and that no evidence existed of any such agreement between the parties; on all other points the Tribunal concurred with the findings of the Rent Controller.

In the proceedings before the Rent Control Tribunal, the Tribunal observed that the allegation that the professional fees were to be deducted from the rent was a later invention and that no documentary or testimonial evidence established the existence of any agreement between the parties to that effect. Apart from this point, the Tribunal affirmed its concurrence with the findings of the Rent Controller on all remaining issues. The appellant subsequently filed an appeal before the High Court of Punjab. The High Court affirmed the orders that had been passed by the lower authorities and noted that, in a letter dated 19 July 1958 addressed to the Receiver, the appellant had failed to mention any such agreement concerning the set‑off of rent against professional fees. The High Court further held that the order issued under section 15(1) of the Delhi Rent Control Act was proper, because it was an admitted fact that no rent had been paid by any party since 1 April 1958. The Court also endorsed the view expressed by the Tribunal that the notice issued by the Income‑Tax Officer did not prevent the deposit of the rent with the Rent Controller, since the sum could not be released to any claimant until the Controller determined the proper recipient. Accordingly, the High Court dismissed the appellant’s appeal.

When the matter came before this Court, particular attention was directed to a letter dated 15 October 1957 written by Kirori Mal, in which an adjustment of Rs 1800 towards professional fees was mentioned. The appellant argued that an oral agreement existed whereby the rent would be applied against the professional fees. However, the letter itself did not reflect such an agreement; on the contrary, it stated that “The balance of your fees will be paid later at the time of final settlement.” This wording indicated that the appellant was not entitled to retain the rent, and it supported the conclusion of the lower tribunals that the claim of an agreement was a post‑hoc justification, especially since the appellant had not raised the issue in any correspondence up to 14 September 1959. The Court was also persuaded that the allegation of an agreement was a device employed by the appellant to retain the money and to avoid the payment of rent. It was noted that there were four distinct claimants – the Income‑Tax Officer, the Receiver, Kirori Mal in his personal capacity, and Kirori Mal in his capacity as Receiver – and that the appellant repeatedly evaded each claimant by invoking the others, thereby continuing to occupy the premises without paying any rent.

It was further submitted, as a matter of law, that the appellant should have been afforded a proper opportunity to prove his claim by leading evidence before any order directing the deposit of rent could be made. Counsel for the appellant, Mr S T Desai, argued that section 15(1) of the Delhi Rent Control Act required that an order for the deposit of arrears of rent be issued only after the tenant had been heard, because if the tenant complied with a deposit order, the landlord would be entitled to retain that amount and the Controller could award costs to the landlord, thereby bringing the dispute to a conclusion. Conversely, if the tenant failed to make the required payment or deposit, the proceedings would continue. Desai contended that the order in the present case was made at an interlocutory stage, which was improper, as it would prevent any further hearing on the appellant’s alleged agreement and would leave the issue untried. The Court, however, did not accept this interpretation of the statutory provision.

By contrast, it was observed that the proceeding would continue if the tenant failed to make the required payment or deposit. The argument advanced was that an order under section 15(1) directing the deposit of rent should be issued only at the conclusion of the case and not at an interlocutory stage. Counsel for the appellant, Mr. Desai, maintained that the order presently made was interlocutory and therefore erroneous, because a tenant’s deposit of the money would terminate the hearing and prevent consideration of his claim that an agreement existed between the parties whereby rent, as and when it fell due, should be set off against professional fees. The court held that this interpretation was not permissible.

Section 15 (with portions unnecessary for the present purpose omitted) was then set out. Section 15 reads as follows: “(1) In every proceeding for the recovery of possession of any premises on the ground specified in clause (a) of the proviso to subsection (1) of section 14, the Controller shall, after giving the parties an opportunity of being heard, make an order directing the tenant to pay to the landlord or deposit with the Controller within one month of the date of the order an amount calculated at the rate of rent at which it was last paid for the period for which the arrears of rent were legally recoverable from the tenant, including the period thereafter up to the end of the month preceding the month in which payment or deposit is made, and to continue to pay or deposit month‑by‑month, by the fifteenth of each succeeding month, a sum equivalent to the rent at that rate. (3) If, in any proceeding referred to in subsection (1) or subsection (2), there is any dispute as to the amount of rent payable by the tenant, the Controller shall, within fifteen days of the date of the first hearing of the proceeding, fix an interim rent in relation to the premises to be paid or deposited in accordance with the provisions of subsection (1) or subsection (2), as the case may be, until the standard rent in relation thereto is fixed having regard to the provisions of this Act, and the amount of arrears, if any, calculated on the basis of the standard rent shall be paid or deposited by the tenant within the next month of the date on which the standard rent is fixed or such further time as the Controller may allow in this behalf. (6) If a tenant makes payment or deposit as required by sub‑section (1) or sub‑section (3), no order shall be made for the recovery of possession on the ground of default in the payment of rent by the tenant but the Controller may allow such costs as he may deem fit to the landlord. (7) If a tenant fails to make payment or deposit as required by”.

In this case the Court observed that the statutory provision allowed the Controller to cancel the tenant’s defence against eviction and to continue with the hearing of the application. The Court further noted that sub‑section (3) already anticipated a situation where the Controller could fix an interim rent that the tenant would have to pay before the whole dispute was finally resolved. Sub‑section (6) was interpreted as treating the matters covered by sub‑section (1) and sub‑section (3) alike, without drawing any distinction between them. The Court explained that it was possible to imagine circumstances in which a tenant might deposit the rent amount while protesting the claim and at the same time ask that his defence be examined at trial. The Court emphasized that even if the tenant deposited the arrears of rent under such circumstances, the litigation would not automatically terminate. The latter part of sub‑section (1) required not only the deposit of arrears but also the regular payment of rent as it became due, to be deposited each month by the fifteenth day of the following month. This requirement demonstrated that an order issued under sub‑section (1) was not a final judgment; rather, it was a provisional measure intended to preserve the status quo until the trial could determine whether rent had actually been unpaid. Accordingly, the Court held that a full trial was not a prerequisite for granting an interim order. The Rent Controller, having examined the affidavit filed by the appellant, was in a position to decide whether an interim order was appropriate in the circumstances. The Controller concluded that the rent had not been paid and that the appellant’s claim that the rent was being withheld under an agreement was a later fabrication and therefore false. Both the High Court and the Rent Control Tribunal accepted the Controller’s view, and the Court found that conclusion to be well founded. Once the Controller reached that conclusion, the Court observed that the order was necessarily issued after the appellant had been given an opportunity to be heard. The Court recognized that the appellant retained the right to present oral evidence concerning the alleged agreement, but that such a hearing would be scheduled for a later stage. At the present stage, the appellant was required to deposit the outstanding arrears of rent in the court, a demand that the Court regarded as legitimate and enforceable.

Subsequently, counsel for the appellant argued that the notice issued under section 46(5A) operated as a garnishee order, which, in the appellant’s view, would expose him to personal liability if he made any payment while the notice remained effective. The Court rejected that contention, explaining that no personal liability arose because the Rent Controller’s order expressly stipulated that the amount could not be paid to any party until a clearance certificate was obtained from the Income‑Tax Department. The Rent Controller had already informed the income‑tax authorities of the situation, and therefore the appellant faced no risk in depositing the arrears of rent under those circumstances. The appellant’s argument further claimed that the notice under section 46(5A) amounted to an attachment of the rent in the appellant’s possession and relied on the provisions of section 46 sub‑section 5A paragraph 5. The Court pointed out that the appellant’s submission ignored the following paragraph of the statute, which provides: “Where a person to whom a”. The Court noted that the next paragraph was crucial to interpreting the effect of the notice, and that the appellant had not invoked the available defence that he did not hold any money for or on behalf of the assessee. Consequently, the Court found that the appellant’s objections were unavailing and that he could not avoid the requirement to deposit the arrears.

In this portion of the judgment, the Court recited the statutory provision that states when a notice under the subsection is sent to a person who objects on the ground that the sum demanded, or any part of it, is not due to the assessee or that the person does not hold any money for or on account of the assessee, then nothing contained in that section shall be deemed to require such person to pay any such sum or part thereof to the Income‑tax Officer. The Court observed that if an agreement existed between the parties and Kirori Mal was indebted for a large amount, the appellant could have raised the same objection, asserting that he did not hold any money for or on account of the assessee, and consequently would not have been obliged to make any payment to the Income‑tax Officer. Instead, the appellant merely denied any liability, paid nothing to the Income‑tax Officer, declined to deposit the arrears before the Rent Controller, and refused to recognise the demands made by the Receiver and the landlord. In effect, the appellant attempted to exploit the statutory provision, even though he could have informed the Income‑tax Officer of his position and paid the money to the Rent Controller subject to its subsequent transfer to the Income‑tax Department. The Court then referred to a decision of the Calcutta High Court reported in Nalinakhya Bysack and another v. Shyam Sunder Halder and others, AIR 1952 Cal 198, where Chief Justice Harries observed that before ordering the deposit of rent, a full enquiry must be conducted. In that case the tenant claimed an agreement with the landlord that any amount spent on repairs would be set off against rent, and Chief Justice Harries held that without ascertaining the truth of the plea that a large sum had been spent on repairs, an order for the deposit of the entire arrears of rent should not have been made.

The Court noted that the facts of the Calcutta decision were entirely different from the present matter. In the earlier case, payment by the landlord for repairs formed part of the tenancy agreement, and rent under that tenancy could not be calculated without reference to every term of the tenancy agreement. By contrast, the special agreement alleged in the present case lies outside the tenancy agreement and has been found to be an after‑thought and false. Accordingly, the Court concluded that the earlier ruling could not be applied to the present circumstances. The appeal was therefore held wholly devoid of merit and dismissed with costs. With the consent of the parties, the Court granted the appellant a period of two months from the date of the hearing, 20‑12‑1963, to deposit the arrears of rent accruing from 1 April 1958 in the Court of the Rent Controller. The appeal was dismissed.