judgement:
Appeals Nos. 130 and 131 of 1951.
Appeals from.
the Judgment and Decrees, dated the 12th August, 1948, of the High Court of Judicature at Calcutta in Appeals from Original Decrees Nos.
214 of 1942 and 231 of 1943 arising from the Decrees, dated the 16th June, 1942, of the Court of the Subordinate Judge, Burdwan, in Money Suit No. 261 of 1932/ Miscellaneous Case No. 132 of 1941 and Money Suit No. 262 of 1932/Miscellaneous Case No. 131 of 1941.
N. C. Chatterjee (A. K. Dutt and Sukumar Ghose, with him) for the appellant.
Manmohan.
Mukherjee and P. K. Chatterjee for respondent No. 1. 989 1954.
March 12.
The Judgment of the Court was delivered by MUKHERJEA J.
These two analogous appeals, which are between the same parties and involve the same points in dispute, are directed against a common judgment of a Division Bench of the Calcutta High Court dated the 12th of August, 1948, by which the learned Judges affirmed, in appeal, the decision of the Subordinate Judge of Burdwan passed in two analogous proceedings under section 36 of the Bengal MoneyLenders Act.
The facts material for our present purpose lie within a narrow compass and may be stated as follows: The principal respondents are certain idols, represented by their managing Shebait Ram Govinda Roy.
The idols are the family deities of the Roys of Bonpash in the district of Burdwan, and the number of Shebaits being very large, there is a recognised usage in this family that the seniormost member amongst the descendants of the founder acts as the managing Shebait and it is he who manages the endowed properties and looks after the due performance of the worship of the idols.
It is not disputed by the parties that it is within the competence of the managing Shebait to borrow money to meet the necessities of the idols and to execute such documents as may be necessary for that purpose.
Admittedly Adwaita Charan Roy was the managing Shebait of the deities from 1926 to 1930 and as Shebait, he executed a Hatchita in favour of one Nanitosh Chakraborty some time in April, 1928, on the basis of which he received advances of money from time to time from the latter.
The last entry in the Hatchita was made in March, 1929, and the total amount borrowed up to that date came up to Rs. 3,801.
Adwaita died in March, 1930, and after his death, Satish Chandra Roy became the managing Shebait and continued to act as such till his death in 1940.
There was an adjustment of accounts between Nanitosh, the creditor,in whose favour the Hatchita was executed, and Satish Chandra, the managing Shebait some time in October, 1931, and a sum of Rs. 5,068, having been found due to the 128 990 creditor, Satish Chandra gave him a renewed Hatchita for that amount.
It appears that while Adwaita was still the managing Shebait, a suit was instituted by some of his co Shebaits to remove him from his office and pending the hearing of the suit, Ramjanaki Roy, another co Shebait, was appointed a Receiver of the debutter property by the court.
With the permission of the court, Ramjanaki borrowed from the same Nanitosh Chakraborty three sums of money on three different promissory notes executed respectively on the 27th September, 1929, 1st October, 1929, and 14th January, 1930.
The suit was eventually dismissed for non prosecution after Adwaita 's death.
Nanitosh died in 193 1, and in 1932) his two sons Aditya and Dhirendra, who figure as respondents 14 and 15 in these appeals, instituted two money suits against Satish Chnandra, the managing Shebait, in the Court of the Subordinate Judge, Burdwan, being Money Suits Nos. 261 and 262 of 1932, for recovery of the moneys due in respect of the Hatchita and the promissory notes mentioned aforesaid.
Both the suits were decreed on the basis of a compromise dated the 23rd July, 1933, and two consent decrees were passed, one for a sum of Rs. 5,800, and the other for Rs. 2,200, both payable in sixteen yearly instalments with a further stipulation that in default of payment of any one of the instalments, the whole or balance of the decretal amount would become due and payable in each.
The instalments not having been paid in either of the cases both the decrees were put into execution.
In Execution Cases Nos. 76 and 77 of 1936, arising out of Money Suits Nos. 261 and 262 of 1932, the properties mentioned in Schedule Ka in each case were put up to sale and they were purchased ostensibly by the two decreeholders Aditya and Dhiren.
Three years later, Execution Cases Nos. 17 and 18 of 1939 were started again in connection with the said decrees and this time the properties specified in Schedule Kha were attached and put up to sale and they were also purchased by the Chakraborty decreeholders.
Finally, in Execution Cases Nos. 163 of 1939 and 5 of 1940, the properties described in Schedule GA were sold and 991 they were, knocked down to Srimati Oramba Sundari Dasi, who figures as the appellant in the appeals before us and who, it may be noted, is the wife of Aghore Nath Roy, a son of Adwaita, the former managing Shebait of the debutter estate.
Subsequently, the decreeholders, who purchased Ka and Kha Schedule properties sold them by a registered Kobala to the said Oramba Sundari Dasi on the 26th of July, 1940.
The result, therefore, was that the properties described in the three Schedules came to vest in Oramba Sundari, the wife of Aghore Nath Roy.
On the 28th August, 1941, the deities represented by some of the Shebaits filed two applications under section 36 (6) (a) (ii) of the Bengal Money Lenders Act praying for the reopening of the two compromise decrees mentioned aforesaid and the passing of.
new installment decrees in accordance with the provisions of the Act.
There were prayers also for restoration.
to the deities of all the properties mentioned in Schedules, Ka, Kha and Ga which were purchased in execution of the decrees.
The principal opposite parties to these proceedings were the Chakraborty decreeholders, Oramba Sundari, the ostensible purchaser, and Aghore Nath Roy, her husband.
The allegations in the applications, in substance, were that the Chakrabortys were mere benamidars for Aghore Nath Roy, who was the real lender and the real decreeholder in both these suits.
It was alleged that Aghore Nath Roy purchased these properties in the benami of the decreeholders in two out of the three execution proceedings and in the benami of his wife Oramba Sundari in the third.
The subsequent Kobala executed by the Chakrabortys in favour of Oramba .
Sundari was also asserted to be a fictitious conveyance made in favour of Aghore Nath Roy in the name of his wife.
In these circumstances, the judgment debtors prayed that they were entitled to have the two compromise decrees reopened and on the passing of new instalment decrees to have the properties, which were in possession of the real decreeholder, restored to the deities in terms of section 36(2)(c) of the Bengal Money Lenders Act.
The trial judge decided 992 in favour of the judgment debtors and granted their prayers in both the applications.
Orders were made for reopening of the decrees and making of fresh decrees in their places in accordance with the provisions of the Bengal Money Lenders Act.
Direction was also given for restoration of the properties mentioned in Schedules Ka, Kha and Ga to the deities under the provision of section 36(2)(c).
Against this decision, Oramba Sundari took two appeals to the High Court of Calcutta and the learned Judges, who heard the appeals, affirmed the decision of the court below and dismissed both the appeals.
Oramba Sundari has now come up in appeal to this court on the strength of a certificate given by the High Court under sections 109 (a) and 110 of the Civil Procedure Code.
Mr. Chatterjee who appeared in support of the appeals, has not challenged before us the findings of fact concurrently arrived at by the courts below, viz.
,that the appellant Oramba Sundari was a mere benamidar for her husband Aghore in respect of the purchase of Ga Schedule properties in court sale, and also that the Kobala executed by the Chakrabortys in her favour on July 26, 1940, was a fictitious transaction.
The point, which he has pressed for our consideration, is that in a proceeding under section 36 of the Bengal Money Lenders Act, it is not open to the court to go behind the decree and launch an enquiry as to whether the decreeholders on record were in fact benamidars for another person.
In other words, the contention is that, even if Aghore was proved to have advanced the money upon which the Chakrabortys obtained the decrees, in reopening the decrees and in working out the rights of the parties in accordance with the provisions of the Bengal Money Lenders Act the court could treat the Chakrabortys alone as the decreeholders.
For a proper determination of this point, it is necessary to examine the scope of section 36 of the Bengal Money Lenders Act and the reliefs which the Court is competent to grant in terms of that section.
Section, 36 of the Bengal Money Lenders Act sets out the various powers which the court can exercise, 993 if it has reason to believe that the exercise of one or more of the powers will give relief to the borrower as contemplated by the Act; and one of the powers, which is mentioned in clause (a) of sub section (1) of the section is to reopen any transaction and take an account between the parties.
The drafting of section 36 is indeed obscure and somewhat clumsy, but it is clear, as the Privy Council (1) has pointed out, that the power of reopening a transaction, as contemplated by the section, extends to reopening of decrees as well.
Sub section (2) of section 36 contains detailed provisions as to what the court may or may not do when a decree is reopened.
It cannot be disputed that the court reopens a decree under section 36(2) only for the purpose and so far as it is necessary to give relief to the borrower in the manner provided for in the Act, namely, to release him from all liability for interest in excess of the limits prescribed by section 30 of the Act.
A new decree is passed only for the purpose of substituting the method of accounting sanctioned by the Act for the calculations upon which the original decree was passed and to give an opportunity to the judgment debtor to pay the decretal dues thus ascertained by instalments.
But save and except for these, the old decree as well as the adjudications made thereunder are not wiped out and the parties are not relegated to their rights and liabilities under the original cause of action (2).
How the rights of the parties are to be adjusted and worked out when a decree hat; been reopened has been dealt with exhaustively in the several clauses of section 36 (2) of the Bengal Money Lenders Act, and an examination of these clauses makes it clear to our minds that an enquiry as to whether the decree holder was in fact a benamidar for another person in respect of the decree, does not come within the purview of these provisions.
Clause (a) of section 36(2) empowers the court to pass a new decree in accordance with the provisions of the Act.
Obviously, this new decree is to be passed in favour of the original decreeholder and only the calculations upon which the old (1) Vide Renula vs Manmatha, 72 I.A. 156.
(2) Vide Bank of Commerce Ltd. vs Amulya Krishna Babu Roy Chowdhury 994 decree was based would be changed by substituting the statutory method of accounting in place of what rested upon the contract between the parties.
Clauses (b) and (C) contemplate cases where properties have been sold in execution of the original decree.
If the purchaser is the decreeholder, himself and he is in possession of the property when the decree is reopened, it is incumbent upon the court to order restoration of these properties to the judgment debtor under clause (c).
If, on the other hand, the properties had been acquired by strangers either by purchase at the execution sale or from the decreeholder purchaser, their interests would be protected if they have acquired these rights bona fide as contemplated by clause (b).
Under clause (d), the court has to order the payment of the decretal amount in such instalments as it thinks proper, and clause (e) further imposes a duty on the court to give a direction in such cases that if there is default in the payment of any one of the instalments, the properties restored to the judgment debtor under clause (e) would be put back into the possession of the decreeholder.
It is quite true that the object of restoring possession of the properties sold in execution of the decree to the judgment debtor is to enable the latter to pay off the decretal dues, but it is to be remembered that the sale itself is not annulled, and in case of default in payment of any of the instalments, the properties are returned to the decreeholder purchaser.
We agree that if the purchaser is a mere benamidar for the decreeholder, clause (b), subsection (2) of the section would not afford protection to him in any way.
He could not be regarded as a person other than the decreeholder acquiring rights bona fide as contemplated by that clause.
For the purpose of giving effect to clauses (b) and (c), therefore, the court has not only the right but is under a duty to make an enquiry as to whether the ostensible purchaser at the execution sale, or the person who purports to have acquired an interest therein under a subsequent transfer from the decreeholder purchaser, has bonafide acquired such rights within the meaning of clause (b).
But we do not agree with the learned 995 Judges of the High Court that in making a new decree under clause (a) of section 36(2) and giving the judgment debtor consequential relief under clause (c) of the sub section, the court can at all enter into the question as to whether the decreeholder on record is himself a benamidar for another person in respect of the decree.
Such enquiry, it seems to us, is altogether outside the purview of the different clauses of section 36(2) of the Bengal Money Lenders Act.
These provisions do not recognise any other decreeholder than the one in whose favour the original decree was passed.
It is between him and the judgment debtor that the rights are to be adjusted in accordance with the provisions of the Act; to him would the instalments have to be paid under the new decree, and he alone would be compelled to restore the properties which he had purchased in execution proceedings.
None but the decreeholder on record can give a valid discharge or record satisfaction of the decree.
This being the position, it is altogether immaterial, in our opinion, that it was Aghore, the husband of the appellant, who, really advanced the money upon which the decrees were obtained.
We must treat the Chakrabortys and the Chakrabortys alone as the decreeholders and see to what extent the provisions of the Act could be applied against them in the circumstances of the present case.
So far as the properties described in Schedules Ka and Kha are concerned, it is not disputed that they were purchased by the decreeholders themselves.
No price was actually paid by the decreeholders, but the sale proceeds were set off against the decretal dues.
The decreeholders, therefore, must be deemed to be the purchasers of these properties within the meaning of clause (c) of section 36(2); and as the subsequent conveyance of these properties in favour of Oramba Sundari, the appellant, has been held by both the courts below to be a fictitious transaction, we must hold that Oramba Sundari did not bona fide acquire any right which could be protected under clause (b) of section 36(2).
With regard to these properties, therefore, the order for restoration of possession made by both the courts below should stand.
As regards Ga 996 Schedule properties, however, Oramba Sundari was the purchaser at the execution sale and whether or not the money for such purchase was paid by her husband becomes immaterial.
This was not the property purchased by the decreeholders and there is no proof of the decreeholders being in possession of the same either by themselves or through Oramba Sundari.
In these circumstances, clause (e) of section 36(2) cannot be attracted in favour of judgment debtors so far as this property is concerned and the possession of it must remain with the appellant.
We, therefore, allow the appeal in part and set aside the order for restoration of possession made by the courts below in respect to the Ga Schedule property.
The rest of the decision of the High Court will stand.
We make no order as to costs of these appeals.
Appeal partly allowed.

dataset_name: IN-Abs

summary:
Held, that in a proceeding under section 36 of the Bengal Money Lenders Act, 1940, it is not competent to the court to go behind the decree and embark on an enquiry as to whether the decree holders on record were in fact benamidars for another person.
Scope of section 36 of the Act discussed.
Renula vs Manmatha (72 I.A. 156) and Bank of Commerce Ltd. vs Amulya Krishna Basu Boy Chowdhury ([1944] F.C.R. 126) referred to.


judgement:
Appeal No. 1323 of 1966.
Appeal by special leave from the judgment and order dated September 10, 1965 of the Allahabad High Court in Civil Miscellaneous Writ No. 3567 of 1965.
Niren De, Addl.
Solicitor General and N. H. Hingorani, for the appellant.
R.K. Garg, D. K. Agarwala and M. V. Goswami, for respon dent No. 1.
The appellant will be so entitled, if it is held to be 'a railway ', as contended, on behalf of the appellant.
The High Court of Allahabad, in its order and judgment, under appeal, has held that the appellant is not a railway, but only a tramway and, as such, not eligible for exemption, from the tax, in question.
The short facts, leading to this appeal, may now be briefly set out.
The appellant is a limited liability company; and it runs a railway, between Shahdara, in Delhi, and Saharanpur, in the State of Uttar Pradesh a distance of about 95 miles or 148.865 kilo meters.
The appellant company also operates within the municipal area of Saharanpur.
The company was, originally, registered as a tramway, under the (Act XI of 1886) (hereinafter called the Tramways Act), on November 20, 1905.
By Notification, No. 5752, dated July 5, 1907, the Governor General in Council extended to the appellant company, the whole of the Indian Railways Act, 1890 (Act I of 245 1890) (hereinafter called the Railways Act), excepting the provisions of Section 135.
The Municipal Board of Saharanpur, the first respondent herein, imposes a terminal tax, under the provisions of section 128(1)(xiii) of the United Provinces Municipalities Act, 1916, as amended by Act I of 1918.
Under the said Act, the first respondent has prohibited the importation of goods, within the local limits of the Saharanpur Municipality, by rail, until the tax leviable thereon, or in respect thereof, has been paid, in accordance with the provisions of the Act and the Rules.
The Board has also framed rules for the assessment and collection of Terminal Tax, as authorized by the Government Notification No. 856/XI D.T. 3, dated May 1, 1919.
The rules have been amended, as per another notification, No. 5965/XI D.T. 3, dated September 21, 1939.
Item 2, of Schedule B, of, these rules, provides for a list of articles being exempted from payment of Terminal Tax.
The said item is as follows : "Railway stores and materials, which are required for use on Railways, whether in construction, maintaining or working the same and which are not removed outside the Railway land boundaries but not stores imported into Municipal limits for purchase and consumption by Railway employees nor stores with which Railway Cooperative Stores are stocked for sale to Member.
" It is the claim of the appellant that, till 1961, the first respondent has never imposed any terminal tax, on 'railway stores and materials ' required for use on the railway of the appellant company, for the purposes mentioned in item 2 of Schedule B.
But, for the first time, in January 1962, according to the appellant, the first respondent imposed tax on such stores and attempted to make the appellant liable.
The appellant company protested against this levy, on the ground that, it being a railway, was entitled to the exemption provided in respect of 'railway stores and materials, which are required for use on railway '.
But, the first respondent, by its order, dated October 11, 1962, over ruled the appellant 's objections in this regard.
An appeal, taken by the appellant company, to the Additional District Magistrate, Saharanpur, under section 160 of the Municipalities Act, read with the relevant Rules, did not meet with success, as the said Magistrate rejected the appeal, by his order dated May 25, 1965.
The appellant company filed Civil Miscellaneous Writ No. 3567 of 1965, in the High Court of Allahabad, challenging the levy of terminal tax and claimed exemption, under item 2, of Schedule B, referred to earlier.
The learned Judges of the Allahabad High Court, by their judgment, dated September 10, 1965, dismissed 246 the writ petition.
They were of the view that the appellant company was not 'a railway ', but 'a tramway ' constructed tinder the Tramways Act.
In this connection, the learned Judges adverted to the Railways Act, which defines both the terms 'tramway ' and ' railway '.
It is their view that when a tramway and a railway, are both separately defined in an Act, a tramway cannot also be a railway.
The learned Judges, of the High Court, then referred to the fact that so far as the appellant company was concerned, the Central Government had not applied section 135 of the Railways Act, though all the other provisions of that Act had been applied.
They further held that a mere application of the Railways Act, in whole or in part, to a tramway, will not convert the tramway into a railway and that, in order to be a railway, it has to be opened, in accordance with the provisions contained in Chapter IV, of the Railways Act.
So, they concluded that, inasmuch as the appellant railway was not opened, in accordance with the provisions of the Railways Act, it had been, from its inception, and it continued to be, not a railway, but only a tramway.
On this line of reasoning, the High Court further held that in the rules framed by the Municipal Board, the expression 'railway ' must be intended to refer only to 'railways ' coming under the Railways Act, and could not include a 'tramway ', like the appellant, opened under the Tramways Act.
In consequence, the claim of the appellant, for exemption, was, according to the High Court, rightly rejected by the authorities.
The result was the dismissal of the appellant 's writ petition, by the High Court.
We shall now refer to the main features of the appellant company.
The appellant railway is worked by steam, or other mechanical power, and is not wholly within a Municipal area.
The railway line comprises narrow gauge track of 2 6" gauge, and consists of main line, transportation sidings and commercial sidings. 'Me line passes through four districts viz. Saharanpur, Muzaffarnagar, Meerut and Delhi, within the provinces of Uttar Pradesh and Delhi.
The system has about 155 level crossings, comprising of Special Class, A class, B class and C class.
Some of the level crossings are provided with signalling and interlocking arrangements and the system takes in 406 bridges, and 26 railway stations ' in all.
The bridges and culverts are maintained, in accordance with the instructions contained in 'Way and Works Manual ' of the Indian Railways, and the railway stations are fitted with Morse speakers and instruments, for working trains, as per general rules applicable to all railways.
There is annual inspection of the railway line, by the Additional Commissioner of Railways Safety, appointed by the Government, to inspect Indian Railways.
There are arrangements for through booking of goods and passengers.
From 247 what is stated above, it will be seen that the appellant company is a 'railway ', as commonly understood, and described in ordinary parlance.
The Tramways Act was an Act passed to facilitate the con struction and to regulate the working of Tramways.
Section 3(5) defines 'tramway ' as follows : " 'tramway ' means a tramway having one, two or more rails, and includes (a)any part of a tramway, or any siding, turnout, connection, line or track belonging to a tramway; (b) any electrical equipment of a tramway; and (c) any electric supply line transmitting power from a generating station or sub station to a tramway or from a generating station to a sub station from which power is transmitted to a tramway.
" The expression 'order ', under section 3(6), means an order authorizing the construction of a tramway under the Act, and includes a further Order substituted for, or amending, extending or varying, that order.
There are various other provisions in this Act relating to the construction and maintenance of tramways, orders authorizing the construction of tramways, and other incidental matters.
The Railways Act was an Act to consolidate, amend and add to the law relating to Railways in India.
Section 3(1) defines 'tramway ' as meaning a tramway constructed under the Tramways Act.
or any special Act relating to tramways.
Section 3(4) defines 'railways ' and is as follows " railway ' means a railway, or any portion of a railway, for the public carriage of passengers, animals or goods, and includes (a)all land within the fences or other boundary marks indicating the limits of the land appurtenant to a railway; (b)all lines of rails, sidings or branches worked over for thepurposes of, or in connection with, a railway; (c)all stations, offices, warehouses, wharves, work shops,manufactories, fixed plant and machinery and other works constructed for the purposes of, or in connection with, a railway; and (d) all ferries, ships, boats and rafts which are used on inland waters for the purposes of the traffic of a railway and belong to or are hired or worked by the autho rity administering the railway.
" 248 This Act also contains various provisions relating to the opening of railways, inspection of railways, construction and maintenance of works, working of railways and several other incidental matters.
Section 135, occurring in Chapter X, containing supplemental provisions, relates to taxation of railways by local authorities.
That section reads : " 135.
Notwithstanding anything to the contrary in any enactment, or in any agreement or award based on any enactment, the following rules shall regulate the levy of taxes in respect of railways and from railway adminis trations in aid of the funds of local authorities, namely : (1)A railway administration shall not be liable to pay any tax in aid of the funds of any local authority unless the Central Government has, by notification in the Official Gazette, declared the railway administration to be liable to pay the tax.
(2)While a notification of the Central Government under clause (1) of this section is in force, the railway administration shall be liable to pay to the local authority either the tax mentioned in the notification or, in lieu thereof, such sum, if any, as an officer appointed in this behalf by the Central Government may, having regard to all the circumstances of the case, from time to time determine to be fair and reasonable.
(3)The Central Government may at any time re voke or vary a notification under clause (1) of this section.
(4)Nothing in this section is to be construed as debarring any railway administration from entering into a contract with any local authority for the supply of water or light, or for the scavenging of railway premises, or for any other service which the local authority may be rendering or be prepared to render within any part of the local area under its control.
(5) 'Local authority ' in this section means a local authority as defined in the General Clauses Act, 1887, and includes any authority legally entitled to or entrusted with the control or management of any fund for the maintenance of watchmen or for the conservancy of a river.
" The point to be noted, in this provision, is that unless a notification has been issued by the Central Government, under sub section
(1) of section 135, declaring a railway administration to be liable to pay a tax, a railway administration shall not be liable to pay any tax in 249 aid of the funds of any local authority.
Section 146, giving power to the Government to extend the Railways Act to certain tramways, is as follows: "146.
(1) This Act or any portion thereof may be extended by notification in the Official Gazette (a) to any tramway which is wholly within a municipal area or which is declared not to be a railway under clause (20) of article 366 of the Constitution, by the State Government; and (b) to any other tramway, by the Central Government.
(2) This section does not apply to any tramway not worked by steam or other mechanical power.
" We have already pointed out that all the provisions of the Railways Act, except section 135, have been extended to the appellant company.
The next enactment to be referred to is the (Act X of 1895), which provided for the payment, by railway companies, registered under the Indian Companies Act, 1 882, of interest out of capital during construction.
Section 2(1) defines 'railway ' as meaning a railway as defined in section 3, cl.
(4) of the Railways Act.
Section 3 provided for a railway company paying interest on its paid up share capital, out of capital, for the period, and subject to the conditions and restrictions contained in that section.
There are other consequential provisions, in this Act.
The (Act IV of 1902) was one to apply the provisions of the , to certain tramway companies.
The preamble to this Act IV of 1902, stated that it was expedient to apply the provisions of the , to companies formed for the construction of tramways 'not differing in structure and working from light railways '.
This preamble will clearly show that, even as early as 1902, the Legislature considered that though certain systems were called 'tramways, substantially they did not differ, in structure and working, from light railways.
The expression 'railway ' is defined, in section 311(2) of the Government of India Act, 1935, as follows : " railway ' includes a tramway not wholly within a municipal area.
" It is to be noted that if a system, though a tramway, is wholly not within a municipal area, that system will be a 'railway '.
Entry 250 58, of List 1 (Federal List) of the Seventh Schedule to the 1935 Act, was : "Terminal taxes on goods or passengers carried by railway or air; taxes on railway fares and freights.
" It is, again, to be noted, that under this Entry, in respect of a tramway, which is not wholly within a municipal area and which will, therefore, be a 'railway ', under section 311(2), the levy of terminal tax on goods or passengers carried by such a system, will be within the competence of the Federal Legislature.
Under article 366(20) of the Constitution, the expression 'rai lway ' is dealt with, as follows : " railway ' does not include (a) a tramway wholly within a municipal area, or (b) any other line of communication wholly situate in one State and declared by Parliament by law not to be a railway.
" It may be noted here that the appellant 's system does not come within the exclusions mentioned in cls.
(a) or (b) of this definition.
Entry 89 of List 1 (Union List), of the Seventh Schedule to the Constitution, is as follows : "Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freights." ' It may be noted that the competent legislative body to levy terminal taxes on goods or passengers, carried by the appellant 's system, which will be a 'railway ', under article 366(20), is the Parliament.
The only other Act to be referred to is the (Act XXV of 194 1 ), which was an Act to regulate the extent to which railway property shall be liable to taxation imposed by an authority.
Section 3(1) of that Act provided that a railway administration shall be liable to pay any tax in aid of the funds of any local authority, if the Central Government, by notification in the Official Gazette, declared it to be so liable.
Section 4 provided for the Central Government, by notification in the Official Gazette, revoking or varying any notification issued under section 135(1) of the Railways Act.
The learned Additional Solicitor General, appearing for the appellant, pointed out that the expression 'railway ' had not been defined in the United Provinces Municipalities Act, or in the Terminal Tax Rules.
In the absence of any special definition contained in the provisions, granting the exemption, in question, the expression 'railway ', occurring in item 2, of Schedule B, of the Terminal Tax Rules, must bear the commonly understood meaning of 'a carriage of passenger and goods, on iron rails '.
By virtue of the definition, in section 311(2) of the 1935 Act, and the provision, 251 corresponding to it, in the Constitution, viz., article 366(20), the appellant 's system, though registered under the Tramways Act, was a railway.
The mere fact that section 135, of the Railways Act, had not been applied to the appellant 's system, is not a decisive factor against the appellant, as had been assumed by the High Court.
In view of the various features of the appellant 's system, and pointed out by us earlier, it is argued that the appellant 's system is a 'railway ', both in law and in fact.
It satisfies all the ingredients of a railway and, if that is so, the appellants are entitled to the exemption provided for, under item 2 of Schedule B, of the Terminal Tax Rules.
On the other hand, Mr. Garg, learned counsel appearing for the respondent Board, pressed before us for acceptance the various reasons, given by the High Court, for holding that the appellant is not entitled to claim be exemption.
In particular, counsel pointed out that there were two different enactments, one dealing with 'tramways ' and the other with 'railways ', being the Tramways Act and the Railways Act, respectively.
Therefore, there were two diff erent systems, under two different names, namely 'tramways ' and 'railways ', which was clearly known to the authorities concerned at the time when the Terminal Tax Rules were framed, and so when the expression 'railway ' was used in the exemption clause, it must have been the intention of the framers of the Rules to bring, within its ambit, only the 'railways ' constructed under the Railways Act.
The appellant 's system, though called a 'railway ' and though it might have ill the features of i railway, it is pointed out, nevertheless, that inasmuch is it has been constructed under a different enactment, viz., the Tramways Act, it cannot be treated as a 'railway ' for the purposes of the exemption.
Counsel also stressed that section 135 of the Railways Act had not been applied to the appellant.
We are not impressed with the approach made by the learned Judges of the High Court, for negativing the claim for exemption, made by the appellant.
It must be borne in mind that the expression 'railway has not been defined either in the concerned Municipalities Act, orthe Rules; if such is the case.
, the definition must hold the field.
Going by the definition of the expression ' railway ', containedin section 311(2) of the Government of India Act, 1935, and the corresponding provision in article 366(20) of the Constitution, the appellant 's system is a 'railway '.
All the provisions of the Railways Act have been extended to the appellant, excepting section 135.
In our opinion, if the appellant is a 'railway ', otherwise, the mere fact that the provisions of section 135, of the Railways Act, have not been applied, is of no consequence.
We have already referred to the fact, which is not in dispute, that the appellant 's railway passes through four districts in U.P. and 252 Delhi, and that it has got all the features of a railway, as ordinarily understood.
In this connection, we may refer to certain English decisions, where the claim, made on behalf of a system, for being taxed at a concessional rate, had come up for consideration.
In Blackpool and Fleetwood Tramroad Company vs Thornton Urban Council(1), the Court of Appeal had to consider as to how far the Blackpool & Fleetwood Tramroad Company, the appellant before them, was entitled to the assessment, at a lower rate under section 211 (1) (b), of the Public Health Act, 1875 (38 & 39 Viet.
c. 55).
The material portion of that section was : "the occupier of any land .
used only as a canal .
or as a railway, constructed under the powers of any Act of Parliament, for public conveyance, shall be assessed in respect of the same in the proportion of one fourth part only of the net annual value thereof.
" The question was as to whether the appellant, in that case, was a 'railway ', to whom the said provision would apply.
The appellant company had constructed and maintained a tramroad connecting two systems of tramways, under the local Acts of 1896 and 1898.
Various provisions of the Railways Clauses Consolidation Act, 1845, had been applied to the tramroad.
The tramroad, in that case, was on rails laid on sleepers, fenced off from adjoining land, excepting at the level crossings of roads.
The Divisional Court had rejected the claim of the appellant; but the Court of Appeal held that the tramroad was land 'used only as a railway constructed under the power of an Act of Parliament for public conveyance, within the meaning of section 21 1 (1)(b) of the Public Health Act, 1875, and that the company was, consequently, entitled to be assessed, in respect of the said 'railway ', at onefourth of its net annual value.
The appellants contended that the tramroad was and could only be worked as a railway and was, in fact and in law, used as a railway, and, in consequence, they urged that the tramroad, maintained by them, is 'land ' used only as a railway.
The Court of Appeal noted that the rails were raised and laid on sleepers, just as a railway is laid, and that was the main distinction between the appellant 's system, and a tramway, which ran along public streets and in grooved rails.
No doubt, it was pointed out for the Urban Council, that the appellant company had been incorporated under the Tramways Act and the very fact that certain provisions of the Railway Clauses Consolidation Act were applied to the appellant 's system showed that the appellant was not a railway.
The Court of Appeal held that it was impossible to distinguish the piece of tramroad, owned by the (1) L. R. [190711 K.B.D. 568.
253 appellants, from a railway and that the exemption provided for in the Public Health Act applied to the tramroad of the appellants as it would, to any ordinary railroad passing through parts where it was not deriving the full benefit from the district rates in those parts.
The Court of Appeal also rejected the contention of the Urban Council that the tramroad, owned by the appellants could be treated as a 'railway ' only for particular purposes, and not for the purpose of claiming the exemption under the Public Health Act; because, according to the Court of Appeal, a reading of section 211 (1) (b) of the Public Health Act, showed that it applied to land used as a railway, i.e., constructed as a railway in fact.
This decision was taken up in further appeal, before the House of Lords, whose decision is reported as Thornton Urban Council vs Blackpool and Fleetwood Tramroad Company(1), and the decision of the Court of Appeal was confirmed.
In the course of the judgment, after referring to section 211 of the Public Health Act, Lord Macnaghten observed, at p. 267 : "Now it cannot be denied that the rails on which the tramcars run, with the embankment or foundation on which they rest, and everything that supports them, do form a road or way, and that that road or way was constructed under parliamentary powers for public conveyance.
Is it 'a railway '? There is nothing in the Public Health Act, 1875, or in the earlier Acts, in which the same provision is found, to confine the word ' railway ' as used in those Acts to a particular kind of railway, or to limit the generality of the expression in any way.
" His Lordship, further observed at p. 268 : "It seems to me that if it is a railway in fact, not differing from other railways in any material particular, it is nonetheless a railways because the promoters in their special Act chose to call it a 'tramroad ' a very convenient term to use for the title of their Act and the name under which they sought incorporation.
Nor is it the less a railway because some only of the sections of the Railways Clauses Consolidation Act are incorporated in the special Act, or because, if one did not know what the thing really was, the language used for the purpose of applying the sections which are incorporated might seem to import that it was not, properly speaking, a railway at all.
You must look at the special Act to see that it confers the appropriate powers of construction.
Every thing else in the Act is, I think, beside the question which this House has now to determine." (1) 254 In our opinion, the observations of the House of Lords, ex tracted above, are apposite, to the case on hand.
We have already pointed out that neither the Municipal Act, nor the Terminal Tax Rules give any special definition of the expression 'railway ', and, so far as we could see, there is nothing in the said Act or the Rules to indicate that the word 'railway ', in item 2 of Schedule B, is used only to refer to a 'railway ' registered under the Railways Act or to limit the generality of the expression 'railway ' in any way.
Under those circumstances, if the appellant is a 'railway ' in fact, as commonly understood there does not appear to be any serious controversy on that point it will be a 'rail way ', notwithstanding the fact that it is registered as a 'tramway ', under the Tramways Act.
The legislature itself has applied the various provisions of the Railways Act to the appellant, and the appellant also satisfies the definition of a 'railway ' under the Government of India Act, 1935, and the Constitution.
The provisions of the , have also been applied to the tramways constructed, under the Tramways Act, by the Indian Tramway Act of 1902.
The second preamble to the last mentioned Act, clearly shows that the tramways, to which the Indian Railway Companies, Act was made applicable, '#,lo not differ in structure and working from railways '.
The object underlying the exemption under item 2, of Sche dule B, to the Terminal Tax Rules, is also not far to seek.
The railways pass through areas where it is not deriving the full benefit of all the amenities provided by the Municipal Boards.
Therefore, in our opinion, the appellant satisfies the definition of a 'railway ', so to be entitled to the exemption provided under item 2 of Schedule B.
Before we close the discussion, we ",ill also refer to the decision of th House of Lords in Tottenham Urban Council vs Metropolitan Electric Tramways, Ltd.(1).
The same question regarding the eligibility of a 'tramway ' for exemption, under section 21 1(1)(b) of the Public Health Act, 1 875, came up for consideration in that case.
From the judgment, it will be seen that the company were working, as a connected system, a tramway and a light railway, which were constructed in and along certain public streets and roads, in the district of the urban Council.
The 'tramway ' was constructed under the Tramway Acts and Orders and the 'railway, ' under the Light Railways Act, 1896.
Both were identical as to the mode of construction and materials used.
The claim of the company in respect of the 'railway ', as such, for assessment at a lower rate.
was accepted; but, so far as the 'tramway ' ",as concerned, the House of Lords held that it is not a 'railway ', within the meaning of section 21 1(1)(b), of the Public Health Act, 1875.
The (1) L. R. [1913]1 A. C. 702.
255 reason given by the House of Lords, for not accepting the claim of the tramway, was that in the great bulk of public legislation, relating to railways, the legislation has universally been understood and interpreted by Courts as applying only to that which is popularly known as a 'railway ', and not to that which is Popularly known as a 'tramway '.
And special emphasis is laid by the House of Lords that the legislature has used the word 'railways ' and not 'railways and tramways ', in section 211 of the Public Health Act, 1875.
We are only adverting to this decision to show that, on the basis of an interpretation placed by the Courts, the House of Lords held that the word 'railways ', in the Public Health Act, 1875, will not take in 'tramways '.
But, no such circumstances, as pointed out by the House of Lords, in the said decision, exist in the present case before us.
On the other hand, the position is exactly the opposite, as will be seen from the Government of India Act, 1935, and the Constitution.
Even applying the popular test, adopted by the House of Lords, in this case, the appellant is undoubtedly a .railway '.
In our opinion, the principles laid down by the House of Lords in Thornton Urban Council vs Blackpool and Fleetwood Tramroad Company(1), apply to the particular matter on hand and, we hold that the appellant, being a 'railway ', is entitled to the exemption under item 2, of Schedule B, to the Terminal Tax Rules, in question.
We, accordingly, allow the appeal and set aside the judgment of the High Court, and further direct that a writ will issue, as prayed for by the appellant.
The appellant will be entitled to its costs, from the first respondent, both in this Court and in the High Court.
G. C. Appeal allowed.

summary:
The appellant company ran a narrow gauge railway between Shahdara and Saharanpur.
As it operated partly within the Municipal area of Saharanpur the Municipal Board of that place sought to subject railway stores and materials brought within the municipal area to terminal tax as provided by the Rules framed under the United Provinces Municipalities Act, 1916, as amended by Act 1 of 1918.
The exemption from terminal tax given to railway stores and materials by item 2 to Schedule B of the said rules was denied to the appellant company on the ground that it was a 'tramway ' and not a 'railway '.
The company had been originally registered in 1905 under the , (Act 11 of 1886); in 1907 the whole of the Indian Railways Act, 1890, (Act 1 of 1890) with the exception of section 135 had been extended to the company by the Governor General in Council.
The Company 's claim that it was a 'railway ' entitled to the exemption under item 2 of Schedule B aforesaid, was rejected by the Municipal authorities as well as in appeal, by the Additional District Magistrate.
The company therefore filed a writ petition before the High Court which was rejected.
By special leave appeal was filed to this Court.
It was contended on behalf of the appellant that : (i) in the absence of any special definition contained in the provisions granting the exemption in question, the expression 'railway ' occurring in item 2 of Schedule B of the Terminal Tax Rules must bear the commonly understood meaning of a "carriage of passenger send goods, on iron rails"; (ii) by virtue of the definition in section 311(2) of the Government of India Act, 1935, and the provision corresponding to it in the Constitution viz., article 366(20) the appellant 's system though registered under the Tramway.% Act, was a railway, (iii) the mere fact that section 135 of the Railways Act had not been applied to the appellant 's system was not a decisive factor against the appellant as assumed by the High Court.
It was not in dispute that appellant 's system had all the features of a railway.
HELD:Neither the Municipal Act nor the Terminal Tax Rules give any special definition of the expression 'railway ' and there is nothing in the said Act or Rules to indicate that the word 'railway ' in item 2 of Schedule B is used only to refer to a 'railway ' registered under the Rail ways Act or to limit the generality of the expression 'railway ' in any way.
Under those circumstances, if the appellant was a 'railway ' in fact.
, as commonly understood there did not appear to be any controversy on the point it would be a railway notwithstanding the fact that it was rep.
C.I./67 3 244 gistered as a 'tramway ' under the Tramways Act.
The legislature itself had applied the provisions of the Railway Act to the appellant, and the 'appellant also satisfied the definition of a 'railway ' under the Government of India Act, 1935 and the Constitution.
[254B D] If the appellant was a 'railway ' otherwise, the mere fact that the provisions of section 135 of the Railways Act had not been applied to it, was of no consequence.
[251H] Blackpool and Fleetwood Tramroad Company vs Thornton Urban Council, L.R. [1907] 1 K.B.D. 568, Thornton Urban Council vs Blackpool and Fleetwood Tramroad Company, L.R. [1909] AC. 264 and Tottenham Urban Council vs Metropolitan Electric Tramways, Ltd., , referred to.


judgement:
Appeal No. 1230 of 1966.
Appeal by special leave from the judgment and order dated August 27, 1962 of the Bombay High Court in Income tax Re ference No. 18 of 1961.
section T. Desai, M. N. Shroff for 1.
N. Shroff, for the appellant.
R. M. Hazarnavis, Gopal Singh, section P. Nayyar for R. N. Sachthey, for the respondent.
239 The Judgment of the Court was delivered by Ramaswami J.
This appeal is brought, by special leave, from the judgment of the High Court of Bombay dated August 27, 1962 in Income Tax Reference No. 18 of 1961.
The appellant is an individual having income from House Property, Government Securities, Cinema Exhibition and financing film producers and distributors.
During the period from March 3, 1952 to November 5, 1952 the appellant advanced a sum of Rs. 40,000/ to a firm of film distributors known as Tarachand Pictures.
The appellant thereafter entered into an agreement dated January 5, 1953 with Tarachand Pictures under which the appellant advanced a further sum of Rs. 60,000/ in respect of the distribution, exploitation and exhibition of a picture called "Shabab".
According to cl. 2 of the agreement the distributors were to pay a lumpsum of Rs. 1,750/ by way of interest on the initial advance of Rs. 40,000/ .
Clause 3 of the agreement read as follows : "No interest will run henceforth on this sum of Rs. 40,000/ as also on the advances to be made as provided hereinabove but in lieu of interest it is agreed that the Distributors will share with the Financier profit and loss of the Distribution, Exploitation and Exhibition of the picture SHABAB in the Bombay Circuit, two third going to the Financier and one third to the Distributors.
" Clauses 4 and 5 were to the following effect "4.
The Distributors shall on or before the 15th of every month submit to the Financier a Statement of Account of the business done during the previous month in respect of the picture 'SHABAB ' in the territories of Bombay Circuit.
The Distributors shall keep the proper accounts of the business of the picture 'SHABAB ' and the same as well as all documents, reports and contracts will be available to the Financier or his agent for inspection.
" Clause 7 read as follows: "In case the picture is not released in Bombay within 15 months from the date hereof the Distributors shall be bound to immediately return all the moneys so far advanced to the Distributors by the Financier.
In that event the Distributors shall be bound to return all the moneys together with interest thereon @ 9% per annum.
" Clause 8 stated: "In case of any breach being committed by the Dis 240 tributors of any of the terms herein provided this agreement shall at once terminate and the moneys paid by the Financier shall be at once repaid by the Distributors to the Financier with interest @ 9% per annum." It appears that the distributors were not in a position to exhibit the film in Bombay within the stipulated time.
When the film was ultimately released for exhibition it proved to be unsuccessful.
The matter was taken to the City Civil Court and ultimately a consent decree was obtained in Suit No. 2061 of 1954 in the Bombay City Civil Court.
In the end the appellant found that there was a balance of Rs. 80,759/ which was irrecoverable and he accordingly wrote it off as a bad debt on December 31, 1955 in the ledger account.
For the assessment year 1956 57, the corresponding previous year being the calendar year 1955, the appellant claimed a loss of Rs. 80,759/ which he had written off as bad debt, under section 10(2)(xi) of the Income tax Act.
By his assessment order dated July 31, 1957, the Income tax Officer disallowed the claim on the ground that the moneys advanced by the appellant under the agreement could not be regarded as a dealing in the course of his financing business, but the true nature of the transaction, as evidenced by the agreement, was a venture in the nature of a trade.
The Income tax Officer accordingly held that the loss was a capital loss and it could not be allowed as a bad debt under section 10(2)(xi) of the Income tax Act.
The appellant took the matter in appeal to the Appellate Assistant Commissioner of Income tax who dismissed the appeal.
The appellant preferred a second appeal before the Income tax Appellate Tribunal which by its order dated February 19, 1960 rejected the appeal, holding that the loss of Rs. 80,759/ was a capital loss and not a loss of stock in trade.
The Tribunal took the view that the transaction was not a joint venture with the distributors or any partnership business and that it was also not a mere financing deal or a part of the money lending activities of the appellant.
According to the Appellate Tribunal, the true nature of the transaction was an investment of the capital for a return in the shape of share of profits, and the loss suffered by the appellant was therefore a capital loss and not a revenue loss.
As required by the appellant, the Tribunal stated a case to the High Court under section 66(1) of the Income tax Act on the following question of law: "Whether the aforesaid loss of Rs. 80,759/ is deductible under any of the provisions of the Act ?" By its judgment dated August 27, 1962, the High Court answered the Reference in the negative and against the appellant.
On behalf of the respondent it was submitted that the High Court was right in taking the view that the appellant had advanced 241 a sum of Rs. 1,00,000/ not with a view to earn interest thereon but with a view to making an investment in the business of Tarachand Pictures and get a return on the said investment by way of a share of profits in the said business.
It was contended that the money was not lent for any definite term and no rate of .interest had been fixed under cl. 3.
The argument was also, stressed that cl. 3 of the agreement stipulated that the appellant was to share with the distributors not only the profit but also the loss of the business, and in the case of no money lending transaction is there a covenant between the parties that the money lender will share the loss of the business for which the money is lent.
In other words, it was argued that no money lending transaction can have the attribute of the money lender sharing the risk of the loss of the business for which the money is lent, nor could it be a feature of any purely financial deal.
We are unable to accept the argument of the respondent that the transaction between the parties under the agreement dated January 5, 1953 was not a money lending transaction or a transaction in the nature of a financial deal in the course of the appellant 's business.
If cl. 3 of the agreement is taken in isolation there may be some force in the contention of the respondent that the term under which the appellant undertook to share the loss took the transaction out of the category of a money lending transaction and the loss suffered by the appellant was therefore a capital loss.
In the present case, however, cl. 3 of the agreement dated January 5, 1953 cannot be read in isolation but it must be construed in the context of cl. 7 which provides that in case the picture was not released in Bombay within 5 months from the date of the agreement, the distributors will return all the moneys so far advanced to them by the appellant together with interest thereon at 9% per annum.
It is the admitted position in the present case that the picture was not released by ,the distributors till the stipulated date, namely, April 4, 1954 but it was released on May 28, 1954 and cl. 7 of the agreement there fore came into operation.
The result therefore is that on and from April 4, 1954 there was a contract of loan between the parties in terms of cl. 7 of the agreement and the principal amount became repayable from that date to the appellant with interest thereon at 9% per annum.
It follows therefore that the appellant is entitled to claim the amount of Rs. 80,759/ as a bad debt under section 10(2) (xi) of the Income tax Act and the loss suffered by the appellant was not a loss of capital bat a revenue loss.
To find out whether an expenditure is on the capital account or on revenue account, one must consider the expenditure in relation to the business.
Since all payments reduce capital in the ultimate analysis, one is apt to consider a loss as amounting to a loss of capital.
But it is not true of all losses, because losses in the running of the business cannot be said to be of capital.
The distinc 242 tion is brought out for example, in Reid 's Brewery Co. Ltd. vs Male(1).
In that case, the brewery company carried on, in addition to the business of a brewery, a business of bankers and moneylenders making loans and advances to their customers.
This helped the customers in pushing sales of the product of the brewery company.
Certain sums bad to be written off and the amount was held to be deductible.
In the course of his judgment Pollock B. said : "Of course, if it be capital invested, then it comes within the express provision of the Income tax Act, that no deduction is to be made on that account." but held that : business can doubt that this is not capital invested.
What it is is this.
It is capital used by the Appellants but used only in the sense that all money which is laid out by persons who are traders, whether it be in the purchase of goods be they traders alone, whether it be in the purchase of raw material be they manufacturers, or in the case of money lenders, be they pawnbrokers or money lenders, whether it be money lent in the course of their trade, it is used and it comes out of capital, but it is not an investment in the ordinary sense of the word.
" In the present case, the conditions for the grant of the allowance under section 10(2)(xi) of the Income tax Act are satisfied.
In the first place, the debt is in respect of the business which is carried on by the appellant in the relevant accounting year and accounts of the business are admittedly kept on mercantile basis.
In the second place, the debt is in respect of and incidental to the business ,of the appellant.
It has also been found that the debt had become irrecoverable in the relevant accounting year and the amount had been actually written off as irrecoverable in the books of the appellant.
For these reasons, we hold that the judgment of the Bombay High Court dated August 27, 1962 should be set aside and the question referred to the High Court must be answered in the affirmative and in favour of the appellant.
We accordingly allow this appeal with costs here and in the High Court.
V.P.S. Appeal allowed.

summary:
The appellant, who was carrying on the business of financing film producers and distributors, had advanced a sum of Rs. 1,00,000 to a firm of film distributors.
Clause 3 of the agreement between the parties provided that the appellant was not entitled to any interest but that he was to share with the distributors their profit and loss; and cl. 7 provided that in case the picture was not released within the stipulated time, the distributors would return to the appellant all the moneys advanced by him together with interest at 9% per annum.
There was delay in releasing the picture and a dispute arose between the appellant and the distributors, which was settled.
The appellant found that a sum of Rs. 80,759 was irrecoverable.
He accordingly wrote it off as a bad debt and claimed it as a revenue loss which should be deducted under section 10(2)(xi) of the Income tax Act, 1922.
The department, the Appellate Tribunal, and the High Court on reference, held against the appellant, on the basis of cl. 3 of the agreement, that the loss suffered by the appellant was a capital loss.
In appeal to this Court, HELD : Since all payments reduce capital one is apt to consider a loss as a capital loss.
But losses in the running of a business cannot be said to be of capital.
To find out whether an expenditure is on the capital account or on revenue account, one must consider the expenditure in relation to the business.
In the present case, the debt was in respect of and incidental to the business of the appellant in the relevant accounting year, and the accounts of his business were kept on mercantile basis.
If cls.
3 and 7 of the agreement are read together, the transaction would be a money lending transaction or a transaction in the nature of a financial deal in the course of the appellant 's business, resulting in a loan repayable with interest.
Therefore, the loss suffered was a revenue loss and the appellant was entitled to claim the deduction of the amount as a bad debt under section 10(2) (xi) of the Act.
[241H; 242E F] Reid 's Brewery Co. Ltd. vs Male, , applied.


judgement:
Appeal No. 1420 of 1966.
129 Appeal by special leave from the judgment and order dated October 21, 1965 of the Mysore High Court in Writ Petition No. 2173 of 1964.
section T. Desai, B. R. L. Iyenger and B. R. G. K. Achar, for the appellant.
R. B. Datar, Anil Kumar Sablok and B. P. Singh, for the respondent.
The Judgment of the Court was delivered by Shelat, J.
This appeal by special leave is against the Judg ment and Order of the High Court of Mysore quashing the memorandum dated July 4, 1963 whereby the State Government terminated the service of the respondent.
The only question arising in this appeal is one of interpretation of the Government Order No. GAD 46 SRR, dated September 22, 1961.
The respondent entered government service as an officiating computor in the Government Press on March 11, 1958 and con tinued in that post until September 1, 1958.
He was thereafter appointed from time to time in officiating capacity in different posts though in the same department until December 3, 1959 when he was appointed as a proof examiner.
He continued in that post until February 28, 1961.
According to the appellants there was break in his service on March 1, 1961 as his service was terminated on February 28, 1961 and he was once again appointed on March 2, 1961 as a second division clerk (industrial.).
He continued in that post until July 4, 1963 when the impugned order terminating his service was passed.
The first of March 1961 on which it was said there was break in his service was a holiday.
There is no dispute that the respondent was throughout work ing in officiating capacity and was a "local candidate" like several other such employees appointed by direct recruitment by Government instead of regular recruitment by the Public Service Commission of the State as required by the rules of Recruitment.
Rule 8(27A) of the Mysore, Civil Service Rules, 1958 defines a "local candidate" as meaning a temporary Government servant not appointed regularly in accordance with the Rules of Recruitment to that service.
Rule I(A) of the Mysore Government Servants ' (Seniority) Rules, 1957 provides that those rules do not apply to a person appointed as a local candidate so long as he is treated as such.
It further provides that where his appointment is treated as regularised from any date, his seniority in the service shall be determined in accordance with these rules as if he had been appointed regularly in accordance with the Rules of 130 Recruitment to the post held by him on that day.
Since the appointment of local candidates as in the case of the respondent was not made by or through the Public Service Commission as required by the Rules, the State Government with a view to regularise such appointments passed the said order dated September 22, 1961.
The material portion of the said order runs as follows 2.
(i) All appointments to Class III Direct Recruitment Posts made by the local appointing authorities, both in the old Mysore area (including Bellary District) and in the other integrating areas up to 31st December 1959 (inclusive) may be regularised subject to the condition that the candidates were within the prescribed age limits and had the requisite qualifications at the time of their initial appointments; (ii) The services of local candidates shall be regularised with effect from the date of their appointment, from which their service is continuous provided they were in service on 1st January 1960 and continue to be in service at the time their services are regularised.
(iii) The local service will count for purposes of leave, pension and increments. . but not for purposes of seniority; only the service from the date of regularisation of their appointments in the particular department will count for seniority; (iv) Breaks in service will not be condoned even if such breaks are only for short periods.
In the Writ Petition filed by the respondent against the im pugned order dated July 4, 1963 terminating his service the respondent raised two points : (1) that though he was a local candidate appointed from time to time to the aforesaid posts he was entitled to have his service regularised under the said order and (ii) that as he was entitled to be so regularised he was also entitled to the protection of Article 311(2) of the Constitution.
Consequently, his service could not be terminated in the manner it was done by the impugned order.
The contention of the State Government on the other hand was that the order of regularisation did not apply to the respondent as his service was not continuous as required by the said order and therefore there was no question of Article 311 being applicable to his case and the State Government was entitled therefore to terminate his service by the said order of July 4, 1963.
131 The High Court on an interpretation of the Order dated September 22, 1961 repelled the Government 's contentions and held that the respondent was entitled to have his service regularised with effect from the date his service was continuous prior to December 31, 1959 and that being so, the order terminating his service on the erroneous basis that he was a temporary government servant not entitled to the benefit of the aforesaid regularisation order was violative of Article 311.
This interpretation meant that the appointment and service of the respondent were not only to be regularised but as a result of such regularisation the respondent had to be treated as a permanent servant being entitled to the protection of Article 311(2).
The High Court arrived at this result on the interpretation it gave to the portion of the said Order which we have set out above.
The High Court observed that sub clause (2) of clause 2 of the said Order provided for the fixation of the date with effect from which the appointment was deemed to have been made permanent and that the second part of that sub clause laid down the conditions which if satisfied entitled the respondent for regularisation.
According to the High Court the necessary conditions for such regularisa tion were : (a) that the local candidate should be in service on January 1, 1960 and (b) that he should continue to be in service at the time his service was to be regularised.
The High Court further observed that what sub clause (2) required was "not continuity of service but that the services be continued at the time of the regularisation" and that the intention of the Government was not to lay down the condition of continuous service between December 31, 1959 and the date of the said Government order.
It then observed "When the Government order by a fiction of the law provided for regularisation of services with effect from a date anterior to 31 12 1959, the local candidates who satisfy the qualifications and conditions prescribed by sub paras (i) and (ii) are deemed to have been permanently appointed with effect from a date anterior to 31 12 1959.
Where the local candidate possesses the qualifications prescribed in sub para (i) of para 2, if his initial appointment was made before 31 12 1959, he is entitled to have his appointment regularised provided he was in service on 1st January 1960 and is continued in service at the time of the G.O., notwithstanding any break in service between 31 12 1959 and 22 9 1961.
" The High Court also held that sub clause (iv) on which reliance was placed by the Government had reference to break in service before December 31, 1959 and not during the period subsequent to that date.
Thus, according to the High Court if a local candidate 132 was initially appointed prior to December 31, 1959 and was in service on January 1, 1960 and also on September 22, 1961 he was entitled to the benefit of the regularisation order.
So long as he was in service on the two termini his service would have to be regularised irrespective of whether his service during the interval was continuous or not.
The High Court also equated regularisation with permanence of service and therefore held that once a local candidate 's service was regularised he had to be treated as a permanent servant.
Before we proceed to consider the construction placed by the High Court on the provisions of the said order we may men tion that in the High Court both the parties appear to have proceeded on an assumption that regularisation meant permanence.
Consequently it was never contended before the High Court that the effect of the application of the said order would mean only regularising the appointment and no more and that regularisation would not mean that the appointment would have to be considered to be permanent as an appointment to be permanent Would still require confirmation.
It seams that on account of this assumption on the part of both the parties the High Court equated regularisation with permanence.
We are however not called upon in this appeal to decide and we do not decide that question as Mr. Desai on behalf of the State Government assured us that the Government bad come in appeal only in its anxiety to have the order interpreted by this Court as the construction placed by the High Court on the said order, if upheld, would have considerable repurcussions on the prospects of other State employees.
He also assured us on behalf of the State Government that since the break in the service of the respondent during the material time was only of one day, viz., March 1, 1961, assuming there was such a break, the government would not do anything to adversely affect his service and would not take away the benefit which he acquired as a result of the High Court 's judgment, even if we were to disagree with the interpretation placed by the High Court on the said Order.
Coming now to the Order, sub clause (i) of clause 2 provides that all appointments to Class III posts by direct recruitment made up to December 31, 1959 should be regularised provided the candidates satisfied the conditions as to age and qualifications at the time of their initial appointment.
The controversy arises ,on the construction of sub clause (ii).
That sub clause provides that the services of such candidates shall be regularised with effect from the date of their appointment from which their services are continuous provided they were in service on January 1, 1960 and continue to be in service at the time their services are regularised.
It is clear from the express words used in this sub clause that 133 continuity of service from January 1, 1960 until the date of the order is a condition prescribed for regularisation.
In other words, a candidate claiming the benefit of this order has to satisfy that he was initially appointed prior to December 31, 1959, that he was in service on January 1, 1960 and continued in that service, till the date of the order, i.e., September 22, 1961.
This construction finds support from sub clause (iii) which provides that local service prior to regularisation would be counted for the purposes of leave, pension and increments though not for seniority as seniority was to be fixed from the length of service calculated from the date of regularisation.
It is manifest that unless the local service was continuous such service could not be taken into account for the purposes, in particular of pension and increments.
How would increments, for example, be granted unless the service prior to such increments was continuous ? The same consideration would also apply in the case of pension.
It had therefore to be provided as has been done in sub clause (iv) that a break in service would not be condoned for a period howsoever short.
Continuity of service is thus a condition for both sub clauses 2 and 3.
The High Court was therefore in error when it said that sub clause (iv) did not relate to considerations under sub clause (ii) or that it had reference only to a break in service before December 31, 1959.
The High Court was also in error when it construed sub clause (ii) to mean that the only thing it required was, that the candidate had to be appointed initially prior to December 31, 1959 and that he had to be in service on the two dates,.
viz., January 1, 1960 and September 22, 1961 and that the service during the interval need not be continuous.
If that construction were to be upheld it would result in injustice, for local candidates.
not recruited regularly and not in continuous service provided they were in service on the two relevant dates, viz., January 1, 1960 and September 22, 1961, would get seniority over candidates.
regularly appointed after December 31, 1959 and whose service Is continuous.
Such a result would manifestly be both unjust and improper and could hardly have been contemplated.
Therefore the proper interpretation would be that in order that the regularisation order may apply to a particular case the local, candidate must be initially appointed prior to December 31, 1959, he must be in service on January 1, 1960 and continue to be in service without any break till the date of the said order.
If his service is regularised, his service from the date of such regularisation would be counted for seniority as against others who were recruited properly under the Rules of Recruitment.
Under subclause (iii) however if the service is continuous from January 1, 1960 to September 22, 1961, such service is to be taken into account for purposes of leave, pension and increments but not for purposes of seniority.
The construction which we are inclined to adopt thus harmonises all the provisions of the Order and besides.
134 results in fairness to all the local candidates appointed by direct recruitment whether regularly or otherwise.
For the reasons aforesaid the construction placed by the High Court cannot be sustained.
Though the construction which we are inclined to adopt is in support of the stand taken by the State Government, in view of the assurance given by counsel on behalf of the Government that this construction should not affect the regularisation of the respondent 's service and its having been considered by the High Court as permanent, it is not necessary to interfere with the order passed by the High Court.
The appeal consequently is dismissed.
There will however be no order as to costs.
G.C. Appeal dismissed.

summary:
The respondent joined Class III service of the Mysore Government in 1958 as a local candidate.
According to the Mysore Civil Service Rules, 1958 a local candidate meant a temporary Government servant not appointed regularly in accordance with the rules of recruitment to that service.
On September 22, 1961 the Mysore Government passed art order whereby under sub cl.
(i) of cl. 2 local candidates appointed before Dec. 31, 1959, were entitled to have their appointments regularised subject to certain conditions.
According to sub cl.
(ii) of cl. 2 of the Order the services of local candidates were to be regularised with effect from the date of their appointment ', from which their service was continuous provided they were in service on 1st January 1960 and continued to be in service at the time their services were regularised.
Sub clause (iii) said that local service would count for purposes of leave, pension and increments but not for purposes of seniority, and that only the service from the date of regularisation of the appointment in the particular department would count for seniority.
Sub clause (iv) laid down that breaks in service would not be condoned even if such breaks were only for short periods.
There was a break of one day in the respondent 's service on March 1, 1961.
The Mysore Government terminated his service on July 4, 1963.
The respondent filed a writ petition before the High Court claiming that he was entitled to have his appointment regularised under the aforesaid Government Order.
The High Court held that the requirements of the Order were that a local candidate was entitled to its benefit if he joined service before Dec. 31, 1959, and was in service on two dates, namely 1st January 1960 and 22nd September 1961.
On this view the High Court allowed the respondent 's petition whereupon the State appealed to this Court.
HELD : The High Court was wrong in its construction of sub cl.
(ii) of cl. 2 of the Order.
On a harmonious construction of sub cl.
(ii) with the other subclauses of cl. 2 its proper interpretation would be that in order that the regularisation order may apply to a particular case the local candidate must be initially appointed prior to December 31, 1959, he must be in service on January 1, 1960 and continue to be in service without any break till the date of the order.
Since the service of the respondent was not continuous during this period he was not entitled to regularisation of his appointment under the Order.
(133 G]


judgement:
Appeal No. 524 of 1966.
Appeal by special leave from the judgment and order dated December 2, 1964 of the Jammu and Kashmir High Court in Civil First Appeal No. 7 of 1964.
B. C. Misra, section K. Mehta and K. L. Mehta, for the appellant.
M. C. Setalvad and Mohan Behari Lal, for respondent No. 1.
The Judgment of the Court was delivered by Shelat J.
Respondent No. 1 Mod a suit in the Court of Addi tional District Judge, Jammu for possession of the house in dispute, owned by the second respondent and sold by her to the appellant.
The cause of action pleaded was that respondent No. 1 had a right of prior purchase under section 15 (fourthly) of the 274 Right of Prior Purchase Act, II of 1993 as her house and the house in question had a common outer entrance within the meaning of that clause.
The trial court and the High Court on evidence held that the two houses had a common outer entrance and decreed the suit on respondent No. 1 paying the sale price of Rs. 13,000/ .
Hence this appeal by special leave.
On behalf of the appellant, the vendee, Mr. Misra raised two questions (1) that on a proper construction of section 15 (fourthly) this was not a case of the two houses having a common outer entrance as that clause requires that such an entrance must be owned jointly by the owners of such two houses, and (2) that section 15 (fourthly) is ultra vires as it offends article 19(1)(f) and constitutes an Unreasonable restriction on the appellant 's right to property.
The evidence shows that the entire property consisting of these two, together with other houses in the vicinity were owned at one time by witness Mohinder Nath and one Uttam Chand.
Subsequently they sold some of them.
To give to these houses access to the public road, called the Secretariat Road, they retained to themselves the ownership of the lane but granted a right of way thereon to the said vendees.
The lane ends as a blind alley where the two houses are situate.
The plan produced during the trial shows that there is first a common outer entrance through which one enters into this lane from the Secretariat Road and at a distance of about IO yards there is another such entrance marked 'common entrance ' in the plan through which one enters into the alley and on which the doors of these and certain other houses open.
During the course of the trial, the trial Judge made local inspection and recorded his inspection note which was admitted by the parties as correct.
The inspection note is as follows : "On spot I find that there is a common outer entrance from the street to number of houses and then again about 1 0 yards from the common outer entrance there is another common outer entrance of six houses and there is a street which ends at the houses of the plaintiff and the suit house.
At the end of the street the outer door of the plaintiff and the suit house abut".
There is thus no room for dispute that the said passage leading to the said Secretariat Road has two common entrances, one where it opens on to the said Road and the other at a distance of about 10 yards therefrom.
Apart from the inspection note, the parties led oral and documentary evidence on a consideration of which the trial Judge recorded the following finding : "Both the parties agree with this note and they admit that there is a common outer entrance from the Municipal Street to the plaintiff 's house and the suit house.
The difference between the plaintiff 's case and the defen 275 dant 's case as made out by the counsel for the defendant is that the plaintiff 's house and the defendant 's house both open into the blank alley (kucha sarbasta) and into the same alley opens some more houses.
The plaintiff has not shown that the alley was the private property of the owners of the houses which abut on that.
According to the statement of Pt.
Mohinder Nath that alley belongs to him and Pt.
Uttam Chand.
The owners of the houses which abut in that alley are entitled to right of way over it.
As they are not owners of the alley so according to the counsel for defendant No. 1 the plaintiff is not entitled to right of prior purchase on the basis of their having a common outer entrance .
The words used in the subclause are that the property sold and the property on the basis of which the right is exercised must have a common outer entrance.
It is not essential that the street which leads from outer entrance to the houses of the plaintiff and the defendant should be owned by them".
The High Court also came to a similar finding and held that once it had been shown that the owners of the four houses abutting on that alley had exclusive right of way over it, it was enough to vest in them the right of pre emption.
The High Court also held that it was not necessary to prove that the common outer entrance was jointly owned by the owners of the houses.
It is therefore clear that the question raised by the appellant was not that there was no common outer entrance to the two houses but that on a proper construction of section 15 (fourthly), such a common outer entrance would not give rise to a right of prior purchase unless the owner claiming such a right and the owner of the house in question jointly own the common outer passage.
The construction urged before the trial court and the High Court and rejected by both of them was once again urged before us by Mr. Misra.
The language of section 15(fourthly) is plain.
The section in unambiguous language provides that "the right of prior purchase. . . . shall vest Fourthly : Where the sale is of property having a common outer entrance with other properties in the owners of such properties".
The section clearly says that where the sale is of property having a common outer entrance with other properties, the right of prior purchase shall vest in the owners of such properties.
There is nothing in the section to warrant the construction that such a right would vest only if the common outer entrance is jointly owned by the owners of such houses.
What the section requires is the existence of a common outer entrance which need not be owned by the person claiming the right of pre emption.
Whether L5Sup.
Cl/67 5 276 there is such a common outer entrance which would attract the provisions of section 15(fourthly) would, therefore, depend upon the facts proved in each case.
In the present case, both the trial court as also the High Court came to the conclusion from the evidence led by the parties that there does exist a common outer entrance for both the houses.
Nothing has been shown by Mr. Misra from the evidence which would justify our disagreeing with that conclusion.
Let us now turn to the decisions relied upon by Mr. Misra.
In Naba and others vs Piara Mal and another(1), the High Court of Punjab held that the entrance to the alley in question was not 'a common entrance from the street ' of the pre emptor and the vendor within the meaning of section 13(1)(fifthly) of the Punjab Preemption Act, 1905.
The decision, however, turned on the facts and the situation of the alley which was said to be the common entrance to the houses in question.
The High Court found that the evidence led by the plaintiff was insufficient to prove that the said alley was the private property of the owners of the houses opening on to it or that none except the owners thereof had free access to or right of way over it.
Nor was it shown that the houses at one time constituted one building and were subsequently subdivided and that the privacy of those houses was ensured by the blind alley as it ordinarily would be by the existence of a common entrance.
In Nanak Chand vs Tek Chand and others(2), the right of pre emption was claimed on the ground that there was a step leading to a thara which formed part of the plaintiff 's house and the house in question.
The High Court held that the step could not be called either a 'staircase ' or a common entrance from the street within the meaning of section 13(1)(fifthly) of the Punjab Preemption Act, 1905.
In Asa Nand vs Mahmud(3), the dispute was between two parties claiming the right of pre emption and the High Court rejected the defendant 's claim on the ground that he had not even the right of way over the compound and his use of it was only permissive.
In Ram Chand vs Ram Jowaya (4 ), the Punjab Chief Court held that a public street leading from the main road to two houses cannot be considered a common entrance from the street and that to bring a case within section 1 3 (1) (fifthly) it would not be sufficient to prove that the street into which the house sold and the house of the person claiming pre emption opened was common to the two properties or that each had an entrance from that street.
There must be an entrance from the street which is common to both properties.
None of these decisions, in our view, can assist, for, each turned on its own facts which determined whether there was in fact a common entrance within the meaning of the Punjab Act.
(1) 912) 44 P. R 159.
(2) A.I.R. 1927 Lah.
(2) A.I.R. 192) Lah.
(4) 277 In the instant case, there is the admitted evidence that the alley, at the blind end of which the two houses are situate, has a common entrance which opens into a passage of about 10 yards where there is again another common entrance opening on to the public road.
It is also not in dispute that the entire passage is owned by the original owners of the houses opening into this passage and that at the time of the sales of some of these houses they had granted a right of way over this passage to them so that the said houses may have access from the public road.
The said passage, therefore, is the private property of the said Mohinder Nath and Uttam Chand and the right of way over it is enjoyed only by the owners of the houses opening on to it.
The appellant did not raise any dispute with regard to these facts.
Indeed, the only question raised by her was that in order to constitute a common outer entrance under section 15(fourthly) such an entrance must be owned jointly by the owner of the house in question and the owner claiming pre emption.
As aforesaid, both the courts negatived the suggested construction and we think that they were right for the plain words of the section do not justify such a construction.
The question next is whether section 15(fourthly) providing for the right of prior purchase amounts to an unreasonable restriction.
There can be no doubt that such a provision amounts to a restriction in the sense that a person purchasing such a property has to give way to the person claiming such a right.
The nature of the right is expressed in felicitous language by Mahmood J. in Govind Dayal vs Inayatullah(1).
The right of pre emption, he observed : "is simply a right of substitution, entitling the pre emptor, by means of a legal incident to which sale itself was subject, to stand in the shoes of the vendee in respect of all the rights and obligations arising from the sale, under which he derived his title.
It is, in effect, as if in a sale deed the vendee 's name were rubbed out and preemptor 's name inserted in its place".
This statement was approved by this Court in Bishan Singh vs Khazan Singh(2), and the Court summarising the incidents of the right observed : "That the right of pre emption is not a right to the thing sold but a right to the offer of a thing about to be sold.
This right is called the primary or inherent right.
The pre emptor has a secondary right or a remedial right to follow the thing sold.
It is a right of substitution but not of re purchase, i.e., the pre emptor takes the entire bargain and steps into the shoes of the original vendee".
That being the nature of the right, the next question is whether the restriction on the vendee 's right of property created by section 15 (fourthly) can be said to be an unreasonable restriction.
A similar (1) [1885]1.L.R.7 All.775,809.
(2) ; 278 question in regard to a similar provision in section 16 of the Punjab Pre emption Act, 1913 arose in Babu Ram vs Baijnath(1).
Section 16 of that Act provided for pre emption on six grounds, the first, third, fourth and sixth grounds being in favour of co sharers, owners of common staircases, owners of common entrance from a street and owners of contiguous property.
The Court held that the first, third and fourth grounds of pre emption did not offend Articles 19(1)(f) and 14 and were valid.
The Court observed that the law under the first ground providing for pre emption by co sharers imposed reasonable restriction in the interest of the general public on the right under article 19(1)(f).
If an outsider was introduced as a co sharer in a property it would make common management extremely difficult and destroy the benefits of ownership in common.
The advantage of excluding a stranger in the case of a residential house was all the greater as it would avoid all kinds of disputes.
The third ground which applied in a case where the property sold had a staircase common with other properties stood practically on the same footing as that of co sharers.
Regarding properties having a common entrance from the street with other properties, the Court held that that ground was similar to the first and the third grounds.
At page 741 dealing with the fourth ground, the Court observed that the buildings were in a common compound and perhaps were originally put up by members of one family or one group with a common private passage from the public street.
In such a case the owners of the buildings would stand more or less in the Position of co sharers, though actually there might be no co sharership in the house sold.
Such a case would approximate to cases of a common staircase and co sharers and, therefore, the right of preemption in such a case was sustainable.
The reasoning employed in upholding the validity of the fourth ground in section 16 of the Punjab Act would apply with equal force to the provisions of section 15(fourthly) before us.
Consequently, the contention that the impugned provision amounts to an unreasonable restriction cannot be sustained.
Both the contentions raised by Mr. Misra fail.
The appeal is dismissed with costs.
V.P.S. Appeal dismissed.
(1) [1962]3Supp.S.C.R.724.

summary:
The second respondent sold her house to the appellant.
The first respondent filed a suit for possession of the house on the ground that she had a right of prior purchase under section 15 (fourthly) of the Right of Prior Purchase Act 1993, because, her house and the house in question had a common outer entrance within the meaning of that clause The suit was decreed.
In appeal to this Court it was contended that: (1) On a proper construct ion of the clause such an entrance would not give rise to a right of pre emption unless the owner claiming the right and the owner of the house in question jointly owned the common outer entrance, and, (2) the clause as interpreted by the Courts below violated article 19(1)(f) of the Constitution and was therefore ultra vires.
HELD: (1) The clause provides that where the We is of property having a common outer entrance with other properties, the Tight of prior purchase shall vest in the owners of such properties.
There is nothing in the section to warrant the construction that such a right would vest only if the common outer entrance is jointly owned by the owners of such houses.
[275H] (2) In the case of properties having a common entrance, the owners of the buildings would stand more or less in the position of co sharers and the right of pre emption is sustainable as a reasonable restriction.
[278E] Bhau Ram vs Baijnath, [1962] Supp. 3 S.C.R. 724, followed.
Bishan Singh vs Khazan Singh, ; , referred to.