judgement:
Civil Appeals Nos. 2208, 2209 of 1968.
From the Judgment and Decree dated the 10th/llth August.
1965 of the Bombay High Court (Nagpur Bench) in First Appeal Nos. 120 and 123 of 1965.
S.T. Desai, D.N. Mishra and B.N. Mohta, for the appellant M.N. Phadke, .4.
G. Ratnaparkhi, for respondent.
The Judgment of the Court was delivered by KRISHNA IYER, J.
The two appeals, measured by their legal merits or factual dimensions, may.
not justify their longevity from June 23, 1949 to February 1977 the former being the date of birth of the suit and the later the termi nation, at long last, of the cases in this Court.
The subject matter is a relatively small money claim which, perhaps, is less than the amount each side has spent on the forensic scrimmage.
Before, we narrate the facts and discuss the law, we permit ourselves a pensive reflection about our processual justice.
If we (law makers and law yers) tarry any longer to forge a speedy and radical juris prudence of remedies in action, the long quest for the fruits of rights may tempt suitors into the traditional quagmire of processual legalistics where from extrication may prove an expensive futility.
The story which hopefully comes to.
a close with this judgment, among many others like this, bears testimony to the crying need for serious reform not oblique by pass of the court system by an aware legislature, lest the considerable social cost of pursuing judicial remedies stultify and disenchant seekers of legal justice.
The facts, when unfolded, will validate this obiter intended to alert the law maker.
The High Court, thanks to the then rule of valuation under Art, 133 (1)(a) of the Constitution, granted a certif icate of fitness.
The appellant plaintiff, as kartha of a joint Hindu family, Was running a business in the name and style of Jasraj Inder Singh with two shops, 975 one in Khamgaon and the other in Bombay.
(The trade name for the Bombay Shop was slightly different.) The respondent defendant had been having dealings with the plaintiff at both places between October 1947 and May 1948.
The accounts between the parties fluctuated from time to time, since deposits, advances, withdrawals and entrustment of silver, castor, cotton and the like for sale as agents and crediting the prices in the accounts were a running feature of the mutual dealings.
The plaintiff isolated the transactions which took place in Khamgaon and brought a suit claiming a sum of Rs. 11,401 7 9 which represented the net balance due on the Khamgaon khata to him from the defendant on May 12, 1948.
Interest was also demanded on an alleged agreed rate.
It is noteworthy that the plaintiff 's initial folly as Shri Desai, for the appellant frankly admitted, was in excluding from the suit claim the amounts due one way or the other from the Bombay branch of the business.
The contracting parties were identical, the dealings were simi lar and on any fair basis either could get from the other the net amount legally due from both the shops together.
But legal sense and commonsense were abandoned by the plaintiff out of the oblique motive of claiming a larger sum than would be due in case a joint balance was struck.
This dubious device, as will be seen presently, has backlashed on the plaintiff whose disaster in the High Court has been largely courted by this motivated cleverness.
To revert to the litigative narrative, the defendant urged in defence that the demand was untenable since he bad deposited six bars of silver with the Khamgaon shop of the plaintiff to be sold through his Bombay branch and if the sale proceeds thereof were taken into account in the Khamgaon khata a larger sum would be due to him.
(We bypass, for the time being, the fight over this claim being a set off under order VIII, rule 6 C.P.C., or a counter claim in the nature of a substantive relief for the balance).
This counter claim was met by the plaintiff in an additional pleading wherein he urged that the sale of silver bars was a matter for the Bombay shop and should not be mixed up with the Khamgaon dealings which were the basis of the action.
What falls for regrettable comment is that even at this stage the plaintiff did not invoke the obvious argument that the Khamgaon and the Bombay shops both belonged to the same owner and since the transactions were between the same parties (in differ ent places though) when a suit for (or on) final accounts were filed, all the items in the twin places should figure in the resultant decree.
If this straight forward plea were taken the facts tend to show the plaintiff would still have got a decree, may be for a lesser sum.
Oftentimes, obdurate legal obscruantism of litigants, leads to protraction of proceedings, projection of intricate procedural punctilios and the phyrric processual victory forensically won being a potent source of perverting truth, draining resources and undoing justice.
This sombre scenario of the case we are deciding proves how on account of the correct curial ap proach being blinded by the cantankerousness of the plain tiff, conveniently concurred in by the other side, revision and appeal, remand and appeal, and attendant decades of delay and disproportionate litigative spending by both and two friendly businessmen, thanks to this feud, turning into foes, followed at once a disaster to both and detriment to the business community.
And some pre trial conciliation activism by the court at an 976 early stage might well have sorted out the dispute, bettered their relations and pre empted this cock fight.
Doing justice is a noble behest which blesses all; deciding the lis within a judicative pyramid, provocative of appeals and revisions, bleeds both and unwittingly incites the.
bitter persistence in the struggle to win (and lose 1).
We are courts of justice guided by law and the signature tune of the indicature is Fiat Justitia.
We gently suggested, in this spirit, whether the parties would be disposed to com pose their quarrel.
Counsel as often happens, constructive ly helped, but the purchase of peace at this late stage was difficult and we gave up.
Of course, adjudication on the .law and the facts cannot and shall not be influenced by this extra curial excursion.
We pick up the story of the suit where we left it.
In the dog fight that followed, a question of court fee was raised and decided.
That was taken up to the High Court and returned.
A preliminary decree for accounts of the Bombay khata was passed and that too leapt to the High Court re sulting in a remand, fresh issues and so on.
Then a decree was passed and both sides challenged it in appeal and crossobjections and the last lap of the tiring race is this court where the vanquished plaintiff is the appellant.
We proceed to decode the justice and the law of the cause.
We may state that the plaintiff 's obstinate attitude in treating the Bombay shop and Khamgaon shop as two different persons each being entitled to sue the defendant without reference to the amounts due to the latter from the former in inter connected business dealings is a legal fallacy and cute perversity.
However we may repeat that the defendant also proceeded on that 'shop autonomy ' theory but only urged that the silver bars were wrongfully omitted from the Khamgaon khata.
Shops are not persons although suits may be filed in trade names.
The trial court took a commonsense view in commingling the business account of the same par ties.
This was good law.
A plurality of shops owned by the same person does not proliferate into many shop persons.
At an intermediate stage of the many involved interlocutory skirmishes, the plaintiff did allege: "The alleged silver bars were sold by the defendant Suwalal through the said Bombay shop and naturally the sale proceeds of that quantity of silver are credited in the defend ant 's Khata in the Bombay shop.
The plain tiff, therefore in reply to the defendant 's claim of Rs. 17000/ has to file the extracts of accounts of the Bombay shop to put the full picture of transactions before the court.
As the Bombay shop shows the balance of Rs. 4535 12 0 as due to the defendants, the said fact has been so mentioned by the plaintiff in his statement.
" In passing, we may mention that the counter claim led to a demand for court fee and the High Court affirmed this order but reduced the sum on which such fee was payable.
Later, issues were framed by the trial Court which reflected the integrated nature of the dealings between the two par ties in the shops at Khamgaon and Bombay.
The 977 learned District Judge, not obsessed by the wrong headed pleadings, took the view that the shops, though located at different places, were owned by the same family and the claims were so inter connected that, in equity and law, set off was permissible and the net sum due to the plaintiff less than what he had sued for should be de creed.
We may mention the relevant issues framed at the first round even here since we may have to refer to them later when dealing with a supportive submission of Shri Phadke for the defendant.
Issues 5 and 7 may be reproduced here: "5.
Whether the Bombay & Khamgaon shops owned by plaintiff 's partners are so connect ed with each other that a composite account of the entries in the two shops can be made by the Defendants ? * * * * 7.
Whether on making an account of the two shops of the Plaintiff of Bombay and Khamgaon, the Defendants are entitled to a set off thereafter to a sum of : (a) Rs. 17,000/ as claimed by the Defendants or to a set off.
(b) Rs. 4,535 12 0 as stated by the Plaintiff ?" Later, amended pleadings led to amended issues of which issues 4 to 6 are meaningful and are set out below with the findings thereon; "4.
Whether the Bombay and Khamgaon shops owned by plaintiff 's partners are so connected with each other that a composite account of the entries in two shops can be made by the defendants ? Yes 5.
(a) Whether a sum of Rs. 44,697/10 is debited to the defendants in the account of the Bombay shop ? Yes .
(b) Are these entries proper and correct ? Yes.
(c) And in time ? Yes.
Whether on making an account of the two shops of the plaintiff of Bombay and Khamgaon the defendants are entitled to a set off and thereafter to a sum of (a) Rs. 17,000/ as claimed by the defendants or to a set off No.
(b) Rs. 4,535/12/ as stated by the plaintiff ? Yes.
The plain fact emerges that the two parties were having dealings with each other, that the dealings in Khamgaon and Bombay were inter related and not totally different transac tions, dissociated in nature and divorced in period.
The trial judge treated the totality of transactions as a com posie account and the suit as one on accounts.
He ' granted a decree on these terms 978 "The Plaintiff shall render an account of the Bombay shop to the defendant, who shall be entitled to falsify and surcharge.
A preliminary decree for accounts under order 20, rule 16 CPC shall be drawn up.
After making an account and the necessary adjust ment, the eventual liability inter se shall be determined.
Costs shall abide the result.
" The plaintiff appealed and the defendant filed cross objec tions.
After a 'study of O.8, r. 6 CPC, the High Court felt that the Bombay accounts should not have been gone into and the defendant 's claim by way of set off alone was available for adjudication.
Since it had been held that the silver bars were an item in the Khamgaon shop accounts, the direc tion for rendition of the Bombay account was illegal.
The Court observed: "The learned lower Court was thus in error in converting the claim of set off into a claim for rendering accounts by the plain tiff to the defendants in respect of the deal ings made in the Bombay shop.
The lower Court was bound in terms of Order 8 Rule 6, to treat this claim of set off as a money claim in respect of the ascertained amount and to find whether such amount was due to the defendants from plaintiff.
If such amount was found due to the defendants from the plaintiff, then the defendants would be entitled to set off that amount as against the claim of the plaintiff.
The decree as passed by the learned lower Court will, therefore, have to be set aside.
It is necessary for the trial Court to decide as to, what amount was due to the defendants from the plaintiff.
The issue was framed and parties have led evidence.
The tower Court shall decide the issues left undecided for final decree.
The learned lower Court will decide whether it is proved on the facts that the defendants have to recover Rs. 17,000/ from the plaintiff, and if so found, will adjust the eventual liability inter se, and if it is found that any of the parties has to recover any amount from the other, a decree should be accordingly passed.
The case is, therefore, sent back to the trial Court who will decide as to what amount is due to the defendants from the plaintiff.
Thereafter whatever amount is found due to the defendants shall be adjusted towards the proved claim of the plaintiff in respect of the deposits in the Khamgaon shop.
The Court shall pass a decree in favour of the party in whose favour the.
balance will be found due.
" It is true that the High Court 's observations inhibited the Bombay accounts being generally reopened but when the case was remanded for fresh decision, the trial Court, apparently pressed by the injustice of amputating the composite deal ings, went on to hold that while the plaintiff was right in his demand vis a vis the Khamgaon Khata, the defendant was entitled to a sum of Rs. 4,535/12/ from the Bombay accounts and awarded to the plaintiff a decree for the net balance of 979 Rs. 7,464/4/ .
This he did in purported compliance with the High Court 's direction.
He was bound by it and to act contrary to a higher court 's order is to be subversive of the discipline that the rule of law enjoys in our hierarchi cal justice system.
The trial Judge, in recording findings on all the issues, did a comprehensive investigation of the Bombay accounts since the silver bars, although entrusted to the Khamgaon shop,. were sold in Bombay and rightly credited in the Bombay Khata.
To pick out a single true item which had been inextrica bly got enmeshed in the skein of entries and cross entries was to tear up the fabric of the whole truth.
In a finer sense, harmony is the beautiful totality of a whole sequence of notes and the concord of sweet sounds is illtuned into disjointed discord if a note Or two is unmusically cut and played.
Truth, ' like song, is whole and half truth can be noise: Justice is truth, is beauty and the strategy of healing injustice is discovery of the whole truth and harmo nising human relations.
Law 's finest hour is not in medi tating on abstractions but in being the delivery agent of full fairness.
This divagation is justified by the need to remind ourselves that the grammar of justice according to law is not little litigative solution of isolated problems but resolving the conflict in its wider bearings.
Let us pick up the threads of the litigation.
Even the interrogatories served and the answers elicited made it clear that while there were two shops in two different venues, the dealings between the plaintiff and the defendant were closely connected rather, integrated.
That furnished the justification for the trial Judge to examine the Bombay accounts between the parties and he came to the factual conclusion: 'I see absolutely no reason to doubt the cor rectness of any of the entries in these extracts of plain tiffs account book (exht.
P 23).
I answer issues 5 (a) and (b) in the affirmative.
exhibit P. 23 contains on the credit side the sale proceeds of defendant 's silver which was sold in Bombay.
A plea had been feebly raised by the defendants that some of the items in the Bombay account were barred by limitation and the plaintiff could not claim credit for them.
This plea was also examined by the trial Court and negatived with the observation: 'I hold that in view of the credit and debit entries in exhibit P. 23 all the debit entries were within time at the material period.
I answer issue 5(c) in the affirmative '.
Thus there was no denial of fairness in the trial be cause the Bombay accounts in their entirety were put in issue, and focused on by both sides in the evidence followed by appropriate findings.
The upshot of this process was, in the language of the trial Court: 'Thus all things consid ered plaintiff is entitled to Rs. 12,000/ minus Rs. 4,535/12/ i.e., Rs. 7,464/4/ from the defendants '.
The court denied costs to both since neither came with clean hands.
Both sides were guilty of not playing cricket and, in this game of over reaching each other, the Court 's penal ty is denial of costs.
This rule was adopted by the trial Court.
980 When the case went up in appeal, the High Court harked back to the order of the Nagpur Bench in the same case in a revision filed against the order of payment of court fee for the counter claim.
It is true the High Court had then held that only a specific sum relating to the sale of silver bars was the basis of the counter claim and the entire accounts of the Bombay shop was not at large before the Court.
The High Court referred again to the decree first passed by the trial Court to render an account of the Bombay shop to the defendant on the footing that the accounts in Bombay and Khamgaon were so interconnected as to warrant a composite understanding of the entries in the two shops.
This ap proach of the trial Court in passing a preliminary decree for rendition of accounts was set aside by the High Court in appeal at the first round on the score that the plea the defendant was confined to one of set off under O.8, r. 6 Therefore, argued the High Court, "A mere liability to account cannot be an answer by way of set off to the claim of the plaintiff.
In fact, the defendants in their written statement, claimed by way of set off such ascertained sum of money which, according to, them, was Rs. 17,000/ .
It is because such ascertained sum was claimed by way of set off that the claim was entertained for investigation by the lower Court.
Therefore, the only question that was before the learned lower Court was to find out what amount was due to the plaintiff from the defendants in respect of the deposits of amounts made in the Khamgaon shop and also to find out what amount was due to the defendants from the plaintiff in respect of the silver transactions made in the Bombay shop.
The question of rendering accounts by the plain tiff to the defendants could not arise on the facts of the case.
" The remand order was undoubtedly binding on the lower Court and had directed a limited enquiry and passing of a decree 'in favour of the party in whose favour the balance will be found due '.
The High Court held that after the remand the learned trial Judge had no jurisdiction to look into the Bombay accounts as a whole and on account of the misapprehension of the observations of the remand order an illegal decree had been passed in favour of the plaintiff.
What was the misapprehension about? While directing a remand, the High Court ordered that issue 6 should be decid ed by the trial Court and this issue has been set out earli er by us.
Naturally, the trial Court took the view that the High Court, having ordered an adjudication of issue No. 6, vested it with the jurisdiction to enquire into the Bombay accounts in taro and pass the decree that woe have already indicated, viz., a deduction of the surplus due to the defendant from the Bombay accounts from the amount due to the plaintiff from the defendant according to the Khamgaon accounts.
The arithmetic is not in dispute and, indeed, while both the counsel have taken us through the evidence in the case we are satisfied that if both the Khamgaon and the Bombay accounts had to be gone into, 981 the decree passed was correct both regarding the quantum and on the issue of limitation.
This we affirm because Shri Phadke had feebly pressed before us that in any case his client should be given a fresh opportunity to make out his case regarding the various entries in the Bombay Khatha.
We are not satisfied that the defendant has not had a full say and we are therefore disinclined to accede to this request.
The surviving question before us is whether it was in order for the trial Court to have investigated the accounts in the two shops together as if they were transactions between the same two persons or whether the remand order of the High Court at the first round had lettered the trial Court 's hands in doing justice in this comprehensive way.
The suit is for a sum due on accounts.
The parties are the same.
There are two shops belonging to the same owner.
The return of the income from the two shops, for income tax pur poses, is a consolidated one.
In short, there was only one person who owned two shops and it is wrong to construe the situation as if there were two juristic entities or person al.
Secondly, the defendant, who dealt with the plaintiff in the two shops, was the same person.
He had no dual charac ters to play.
The dealings were either in one or in the other shop.
They were business dealings between two busi nessmen, during the same period, and even inter related, to such an extent that sometimes advances were made from one shop and realisations were made in the other shop.
In short an artificial dissection of these transactions could not square up with the reality of the situation.
Shri Phadke urged that one contract was one transaction and a set of contracts need not be necessarily brought up in the same action between the same parties.
We consider that the true nature of the action here is a suit on accounts for the sum due on striking a balance.
That itself is the cause of action.
Such a suit is not unfamiliar and such a cause of action may be made up of various minor transactions.
Viewed at the micro level each may be a single contract.
But viewed at the macro level as a suit on accounts, it is a single cause of action.
If the present action is one on accounts and if the various entries in the two shops at Khamgaon and Bombay involve transfusion of funds and goods, there is no reason why we should not accept as sound the approach made by the trial Court that the entirety of accounts in the two shops should be viewed as a composite one.
It reduces litigation; it promotes the final financial settlement as between the parties it has the stamp of reali ty.
Otherwise it would be an odd distortion to grant a decree for the plaintiff for, say Rs, 10,000/ on the strength of the Khamgaon accounts while he owes.the defend ants Rs. 50,000/ according to the Bombay accounts.
Order 8, rule 6, CPC deals with a specific situation and does not prevent the Court, Where the facts call for wider relief, from looking into the accounts in both places to do ultimate justice between the parties.
Procedure is the.
handmaid and not the mistress of justice and, in this spirit, the trial Court 's adjudication cannot be faulted.
Be that as it may, in an appeal against the High Court 's finding, the Supreme Court is not bound by what the High Court might have 982 held in its remand order.
It is true that a subordinate court is bound by the direction of the High Court.
It is equally true that the High Court, hearing the matter on a second occasion or any other court of co ordinate authority hearing the matter cannot discard the earlier holding, but a finding in a remand order cannot bind a higher Court when it comes up in appeal before it.
This is the correct view of the law, although Shri Phadke controverted it, without reliance on any authority.
Nor did Shri S T Desai, who asserted this proposition, which we regard as correct, cite any precedent of this Court in support.
However, it tran spires that in Lonankutty vs Thomman(1) this proposition has been affirmed.
Viewed simplistically, the remand order by the High COurt is a finding in an intermediate stage of the same litigation.
When it came to the trial court and esca lated to the High Court, it remained the same litigation.
The appeal before the Supreme Court is from the suit as a whole and, therefore, the entire subject matter is available for adjudication before us.
If, on any other principle of finality statutorily conferred or on account of res judicata attracted by a decision in an allied litigation the matter is concluded, we too are bound in the Supreme Court.
Other wise, the whole lis for the first time comes to this Court and the High Court 's finding at an intermediate stage does not prevent examination of the position of law by this Court.
Intermediate stages of the litigation and orders passed at those stages have a provisional finality.
After discussing various aspects of the matter, Chandrachud J., speaking for the Court in Lonankutty (supra) observed: "The circumstance that the remanding judgment of the High Court was not appealed against, assuming that an appeal lay therefrom, cannot preclude the appellant from challenging the correctness of the view taken by the High Court in that judgment." The contention barred before the High .Court is still available to be canvassed before this Court when it seeks to pronounce finally on the entirely of the suit.
Shri Desai cited before us the decision of the Bombay High Court, in Ratanlal(2), as Fart of his argument.
There in it is laid down that a remand order will not operate as res judicata and preclude the remanding court from reopening it at the subsequent stage of the same continuing proceeding when the law underlying the remand order is differently interpreted by a larger Bench or by the Supreme COurt.
Such an order or finding recorded at the stage of remand happens to be interlocutory and cannot terminate the cause finally so that when the litigation comes up before the remanding court, the previous remand order would ordinarily be conclu sive and binding like any other interlocutory order.
But exceptions there are where a re consideration of such an order is necessitated either by discovery of fresh matter or of unforeseen development subsequent to the order or change of law having retrospective effect.
We do not make any comments on this argument of Shri Desai and leave it at that.
(1) ; (2) 983 The trial Court 's judgment has therefore to be restored.
It accords with justice and with law.
There will thus be a decree in favour of the plaintiff in a sum of Rs. 7,464/4/ .
Even truthful cases urged through unveracious forensic processes must be visited with the punitive curial displeas ure of denial of costs and discretionary interest.
Here the plaintiff sued for a sum of Rs. 12,000/ and gets a decree for less than Rs. 8,000/ .
We deny him costs for the amount decreed in his favour but allow costs for the defendant to the extent he has succeeded (viz., for Rs. 4,535/12/ ).
The equities of the situation are such, especially having regard to the long lapse of time and.
the dubious attitude of the plaintiff and litigative prolixity, that we do not award interest on the amount decreed at all.
P.B.R. Appeal al lowed.

summary:
The appellant (Plaintiff) had two shops, one in his village and the other in a city.
The respondent (defendant) had dealings of various kinds with the appellant at both the places.
The plaintiff filed a suit claiming a certain sum representing the net balance due to him from the respondent (defendant) on the village account.
The defendant on the other hand claimed that, had the city account been taken into account, it was he who would be entitled to a larger sum from the plaintiff.
The plaintiff claimed that the accounts of the village and city should not be mixed up.
The trial Court held that, though the shops were located at different places, they were owned by the same person and in equity and law, set off was Permissible and it accordingly granted a decree.
On the plaintiff 's appeal, the High Court held that rendition of city accounts was illegal and remanded the case to the trial Court.
On remand, the trial Court held that while the plaintiff was right in his demand vis a vis the village shop the defendant was entitled to a certain sum from the city account and awarded a decree to the plaintiff m respect of the net balance.
In appeal, the High Court held that after remand the trial Court had no jurisdiction to look into the city accounts as a whole and on account of a misapprehension of the observations of the remand order, an illegal decree had been passed in favour of the plaintiff.
Restoring the trial Court 's order, HELD: The true nature of the action in this case was a suit on account to: the sum due on striking a balance.
That itself was the cause of action.
[981E] 1.
The trial Court 's view that the entirety of account in the two shops could be viewed as a composite one, was sound.
The parties are the same.
There was only one person who owned the two shops and it is wrong to construe the situation as if there were two juristic entities.
The defendant who dealt with the plaintiff in the two shops was the same person.
The dealings were either in one or the other shop.
The artificial dissection of the transactions could not square up with the reality of the situation.
[981C D] In the instant case there was no misapprehension on the part of the trial Court of the observations made by the High Court in its remand order.
While directing remand, the High Court ordered that issue No. 6, namely, whether on making an account of the two shops of the plaintiff the defendants were entitled a set off and thereafter to certain sums, should be decided by the trial Court.
The trial Court natu rally took the view that the High Court having ordered an adjudication of the issue, vested it with jurisdiction to enquire into the city accounts in toto and pass a decree.
If the village and city accounts had to be gone into, the decree passed was correct.
[980G H] 2.
Order 8, rule 6 CPC deals with a specific situation and does not prevent the Court.
where the facts call for wider relief, from looking into the accounts in both places to do ultimate justice between the parties.
[981 H] 974 3.
(a) After remand by the High Court, the subordinate Court is bound by the direction of the High Court, the same High Court hearing the matter on a second occasion or any other Court of co ordinate authority hearing the matter, cannot discard the earlier holding.
Both a finding in a remand order cannot bind a higher Court when it comes in appeal before it. [982A B] (b) The remand order by the High Court is a finding at an interreed are stage of the same litigation.
When it came to the trial Court and escalated to the High Court, it remained the same litigation.
The appeal before the Supreme Court is from the suit as a whole and, therefore, the entire subject matter is available for adjudication before the Supreme Court.
[982C D] (c) The circumstance that the remanding judgment of the High Court was not appealed against, assuming that an appeal lay therefrom, cannot preclude the appellant from challeng ing the correctness of the view taken by the High Court in that judgment.
[982E] Lonankutty vs Thomman ; , followed.


judgement:
Appeal No. 580 of 1972.
(From the Judgment and Order dated 8 9 1970 of the Gujarat High Court in Income tax Reference No. 9/68).
B.B. Ahuja and R.N. Sachthey, for the Appellants.
K.L. Hathi and P.C. Kapoor, for the respondent.
The Judgment of the Court was delivered by GOSWAMI, J.
This appeal by certificate is from the judgment of the Gujarat High Court in an Income tax Refer ence under section 66(1) of the Indian Income tax Act, 1922 (briefly the Act).
The two questions which were earlier referred by the Tribunal to the High Court at the instance of the Commis sioner of Income tax, Gujarat III.
are as follows : "(2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to set off hedging.
loss of Rs. 31745/ against other profits of the previous year ? (2) Whether on the facts and in the circum stances of the case, the assessee was entitled to carry forward the speculation loss of Rs. 41603/ to the next year ?" The following facts appear from the statement of case and the order of the Tribunal: The assessment year in question is 1957 58 and the corresponding previous year is the Samvat year 2012.
The assessee is carrying on business by running an oil mill, and also doing business in sales and purchase of groundnuts, groundnut seeds and oil: speculation business in groundnuts, groundnut oil and groundnut seeds; and speculation business in cotton, errands, etc.
His total income for the year in question was determined by the Income tax Officer as Rs. 1,71,632/ .
This was after allowing set off of loss brought forward from the year 1955 56 amounting to Rs. 2,11,431/ .
In arriving at the figure of the total income, the Income tax Officer disallowed loss amounting to 28 Rs. 73,348/ in forward contracts in groundnut oil, ground nuts and groundnut seeds.
He disallowed this loss on the ground that it arose out of illegal contracts on account of the same being banned Under section 15(4) of the Forward Contracts (Regulation) Act, 1952.
It will appear that the break up of losses in the busi ness of illegal forward contracts is as follows : ( 1 ) Groundnut oil Account Rs. 49,664/ (2) Groundnut Account Rs. 22,522/ (3) Singdana (Groundnut seeds Account) at Veraval Rs. 1,162/ Total Rs. 73,348/ The above third item of loss is arrived at by the Income tax Officer after adjusting the profit of the forward business in groundnut seeds at Rajkot.
On appeal by the assessee the Appellate Assistant Com missioner affirmed the order of the Income tax Officer.
The Appellate Assistant Commissioner.
however, bifurcated the loss into two categories as follows : (1 ) Loss incurred in hedging transactions in the banned items Rs.331,745/ (2) Loss incurred in speculative tran sactions (other than hedging transac tions) in the banned items.
Rs. 41,603:/ Total: Rs. 73,348/ The Appellate Assistant Commissioner held that the assessee was not entitled to the set off of the loss against the assessee 's other business under section 24(1 ) of the Act and also that such loss could not be carried forward to the following year under section 24(2) of the Act On a second appeal by the assessee before the Appellate Tribunal, the Tribunal held that notwithstanding the ille gality of the transactions the loss could be set off and carried forward in accordance with the provisions of section 24(1) and 24(2) respectively of the Act.
The Tribunal accordingly directed that the loss in hedging transactions of forward business in the banned contracts amounting to Rs. 31,745/ be set off against the other profits of the asses see for the relevant accounting year under section 24(1) and that the balance loss of Rs. 41,603/ relating to the specu lative transactions in the banned contracts be carried forward to the following year under section 24(2) of the Act to be set off against profits of the following year from speculative business.
As stated earlier, at the instance of the Commissioner of Incometax, the two questions set out above Were referred to the High ,Court under section 66(1) of the Act.
The High Court relying upon its 29 earlier judgment in the Commissioner of Income tax vs S.C. Kothari(1) answered both the questions in the affirma tive in favour of the assessee.
That decision was, however, partly reversed by this Court in the Commissioner of Income tax Gujarat vs S.C. Kothari(2) (hereinafter to be referred to as Kothari decision).
This Court held in the Kothari decision as follows: " .
the taint of illegality of the business cannot detract from the tosses being taken into account for computation of the amount which can be subjected to tax as 'profits ' under section 10( 1 ) of the Act of 1922.
The tax collector cannot be heard to say that he will bring the gross receipts to tax.
He can only tax profits of a trade or business.
That cannot be done without deducting the losses and the legitimate expenses of the business".
This Court, however, held that the High Court was in error in considering that any set off could be allowed in that case under the first proviso to section 24(1).
This Court ob served: "The contract contemplated by Explanation 2 to the first proviso to section 24( 1 ) of the Income tax Act, 1922, has to be an en forceable contract and not an unenforceable one by reason of any taint of illegality resulting in its invalidity.
Set off cannot be allowed under the first proviso to section 24(1), read with Explanation 2 thereto, of losses in contracts which are illegal and unenforceable on account of contravention of Section 15(4) of the Forward Contracts (Regu lation) Act, 1952".
This Court held the contracts in that case in respect of which the loss was incurred by the assessee as illeged contracts.
It also held that the assessee was not entitled to a set off under the first proviso to.
section 24( 1 ) of the Act of the loss against its profit in speculative trans actions.
It, however, held that if the business in which the loss was sustained in that case was the same as the business in which the profit was derived then the loss had to be taken into account while computing the profits of the business under section 10(2) of the Act.
In the view it took this Court remitted the matter to the High Court to.
decide: the point which was not clear on the findings wheth er the profits and losses were incurred in the same busi ness even though that business involved the entering into of contracts some of which were illegal.
In the present case there is no dispute that the losses were incurred in connection with forward contracts which were banned under section 15(4) of the Forward Contracts (Regulation) Act.
It is also clear that the Income tax Officer adjusted the profit against the loss with regard to the illegal business in groundnut seeds which was carried on in two places, Veraval and Rajkot.
This set off is permis sible under section 10(2) of the Act because it is only by (1) (2) 30 setting off of the loss of the particular business in groundnut seeds that true profit with regard to that par ticular business can be computed under section 10(2).
There is, therefore, no reason to remit this case as the.course earnestly suggested by Mr. Hathi for the respondent.
In Kothari decision (supra) it was observed by this Court while remitting the case that "enough attention was not devoted to the business which the assessee was doing and in which the profit of Rs. 2,19,046/ was made and the loss of Rs. 3,40,443/ was sustained".
Such an uncertainty, however, is not present in the instant case.
The submission of Mr. Hathi, therefore, cannot be accepted.
The present case rests upon section 24 of the Act.
That section so far as material for our purpose reads as follows : "24(1) Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year: Provided that in computing the profits and gains chargeable under the head 'Profits and gains of business, profession or vocation, any loss sustained in speculative transactions which are in the nature of a business shall not be taken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions: (2) Where any assessee sustains a loss of profits or gains in any year, being a previ ous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, in any business, profession or vocation, and the loss cannot be wholly set off under sub section (1), so.
much of the loss as is not so set off or the whole loss where the assessee had no other head of income shall be carried forward to the fol lowing year, and (i) where the loss was sustained by him in a business consisting of speculative transactions, it shall be set off only against the profits and gains, if any, of any business in speculative transactions carried on by him in that year; (ii) whether loss was sustained by him in any other business, profession or vocation, it shall be set off against the profits and gains, if any, or any business, profession or vocation carried on by him in that year, provided that the business, profession of vocation in which the.
loss was originally sustained continued to be 'carried On= by him in that year; and 31 (iii) if the loss in either case cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the fol lowing year and so on but no loss shall be so carried forward for more than eight years".
X X X X X In the instant case there is no dispute about the fol lowing findings of facts: The assessee sustained losses in the relevant accounting year amounting to Rs. 73,348/ .
This figure was arrived at on a legitimate computation under section 10(2) of the Act.
No further question survives for a recomputation of the income under Section 10(2) of the Act in this case.
The only question remains is as to whether the loss of Rs. 31,745/ can be set off against other profits in the previ ous year.
This is the first question in the reference.
This question has to be answered in the.
negative in view of Kothari decision (supra).
The hedging loss being in respect of a banned contract under section 15(4) of the Forward Contracts (Regulation) Act, 1952, cannot be set off against the profits of other business of the previous year.
The second question is with regard to the assessee 's claim for entitlement to carry forward the speculation loss of Rs. 41,603/ to the next year.
It is also admitted that the contract for speculation in the commodity in question is banned under the Forward Contracts (Regulation) Act, 1952.
It also appears that the said loss could not be set off in the previous year against profit in the same business in that year.
The assessee contends that this loss should be allowed to be carried forward under section 24(2) of the Act.
To allow such a claim is to permit a benefit of ad justment of loss from an illegal business to spill over and continue in the following year even in a lawful speculative business.
A speculative business which is carried on in the following year must be a business of lawful speculation pertaining to lawful and enforceable contracts.
The asses see carrying on a lawful speculative business in the follow ing year cannot derive benefit by carrying forward and setting off a loss from an illegal speculative business of the earlier year.
Law will assume an illegal business to die out of existence with all its losses to the assessee in the year of loss itself.
The assessee can derive no benefit on account of the unlawful business in the following year.
The matter will be different if a lawful speculative busi ness after incurring loss is discontinued and loss therefrom is carried forward for set off against any other lawful speculative business in the following year.
This is the true legal effect of section 24(2)(i) of the Act in this case.
It iS inconceivable that law can permit an illegal activity to be carried on from which a benefit could be obtained.
The concept of carry forward is not the same thing as the setting off of loss in a particular illegal business against profit of that illegal business in a particular year.
The two concepts have to be kept distinct ly separate 32 even in a taxing statute.
There is no express warrant for the submission either under section 20(2) or under any other provision of the Act, far less on general principles.
It is true that by earning income from illegal trading activity the income does not get tainted so far as exigibil ity to tax is concerned.
While computing income from illegal activity in a particular year all losses incurred in earning that particular income are also taken into account for computation of real profits even in the illegal business.
That does not mean that fines imposed on the illegal activi ties detected, prosecuted and punished or otherwise pena lised, will be taken into account for ascertainment of real profits.
There is, therefore, a marked distinction between computation of a particular year s profit from illegal trading activity and carry forward of a loss to set it off against income in subsequent years even assuming that such illegal activity is continued against the provisions of law.
No illegal activity can be perpetuated under any provisions of law nor benefit out of it.
Law will miss its paramount object if it is not consistent with morality and any inter pretation by courts cannot read to a result where continua tion of illegal activity or benefit attached to it is given recognition.
The second question, therefore, must be answered in the negative and against the assessee.
In the result the judgment of the High Court is set aside and the two questions set out above are answered in the negative and in favour of the Department.
The appeal is allowed with costs.
P.H.P. Appeal allowed.

dataset_name: IN-Abs

summary:
The assessee carries on business of running Oil Mill and dealing in groundnuts, groundnut seeds and oil, speculative business in groundnuts, groundnut oil and groundnut seeds, and speculation business in cotton errands etc.
The I.T.O. disallowed loss in forward contracts and groundnut oil, groundnuts and groundnut seeds on the ground that it arose out of illegal contracts on account of the same being banned under section 15(4) of the Forward Contracts (Regulation) Act, 1952.
The Appellate Assistant Commissioner on appeal confirmed the decision of the l.
T.O. but bifurcated the loss into two headings, namely, loss incurred in hedging transac tions m the banned items and loss incurred in speculative transactions.
On second appeal, the Tribunal held that notwithstanding the illegality of the transactions the loss could be set off and carried forward in accordance with the provisions of section 24(1) and 24(2) of the Income Tax Act, 1922.
The Tribunal accordingly directed that the loss in hedging transactions of forward business in the banned contracts be set off against the other profits of the asses see for the relevant accounting year under section 24(1) and that balance of loss relating to the speculative transac tions in the banned contracts be carried forward to the following year under section 24(2) of the Act to be set off against profit of the following year from speculative busi ness.
On reference to the High Court, the High Court an swered both the questions in favour of the assessee and upheld the judgment of the Tribunal.
The High Court relied on its earlier judgment in the case of C.I.T. vs S.C. Ko thari.
Allowing the appeal by certificate HELD: (1) The loss incurred ,in the hedging transactions cannot be set off against other profits in the previous year in view of the decision of this Court partly reversing the judgment of the High Court in the case of S.C. Kothari.
[31C D] Commissioner of Income tax vs S.C. Kothari, , ap plied.
(2) It is admitted that the contract for speculation in the commodity in question is banned under the Forward Con tracts (Regulation) Act 1952.
To allow such a loss to be carried forward is to permit a benefit of adjustment of loss from an illegal business to spill over and continue in the following year even in a lawful speculative business.
The speculative business which is carried on in the following year must be a business of lawful speculation pertaining to the lawful and enforceable contracts.
An assessee carrying on a lawful speculative business in the following year cannot derive benefit by carrying forward and setting off a loss from illegal speculative business of the earlier year.
Law will assume an illegal business to die out of existence with all its losses to the assessee in the year of loss itself.
The assessee can derive no benefit on account of the unlawful business in the following year.
The matter will be different if a lawful speculative business after incurring loss is 27 discontinued and loss thereupon is carried forward for set off against any other lawful speculative business in the following year.
It is inconceivable that law can permit an illegal activity to be carried on from which a benefit could be obtained.
The concept of carry forward is not the same thing as the setting off of loss in a particular illegal business against profit of that illegal business in a par ticular year.
The two concepts have to be kept distinctly separate even in a taxing statute.
It is true that by earning income from illegal trading activity the business does not get tainted so far as exigibility to tax is con cerned.
While computing income from illegal activity in a particular year all losses incurred in earning that particu lar income are also taken into account for computation of real profits even in the illegal business.
There is a marked distinction between the computation of a particular year 's profit from illegal trading activity and carry for ward of a loss to set it off against income in the subse quent years even assuming that such illegal activity is continued against the provisions of law.
No illegal activi ty can be perpetuated under any provisions of law nor bene fit out of it.
Law will miss its paramount object if it is not consistent with morality and any interpretation by courts cannot lead to a result where continuation of illegal activity or benefit attached to it is given recognition.
[31D H, 32A D]


judgement:
Appeal No. 2070/68.
Appeal by Special Leave from the Judgment and Order dated 16 2 1968 of the Punjab & Haryana High Court in Civil Revi sion Case No. 107/66 and Civil Appeal No. 1784/69.
Appeal by Special Leave from the.
Judgment and Order dated 25 11 2968 of the Punjab & Haryana High Court in Civil Revision No. 2.39 of 1967.
G.L. Sanghi and K. J. John for the Appellants.
S.N. Anand and R.N. Sachthey for the Respondents.
39 The Judgment of the Court was delivered by KAILASAM, J.
Civil Appeal No. 2070 of 1963 is by spe cial leave by the appellants against the judgment of the Punjab and Haryana High Court dismissing the appellant 's petition for revising an order passed by the Subordinate Judge, Ambala City, allowing an application by the State, respondent, and appointing the Arbitration Committee.
The appellants entered into an agreement with the '.
Public Works Department, Punjab State, for execution of certain construc tion works in August, 1952.
They entered into an agreement, exhibit A I.
The agreement provided an arbitration clause in the following terms : "In the matter of dispute, the case shall be referred to the Settlement Committee consist ing of a Superintending Engineer, an officer of the.
Finance Department of the rank of at least Deputy Secretary and an Accounts Offi cer, all to be nominated by the Government for arbitration whose decision will be final.
" Disputes arose between the parties and the State of Punjab appointed a Settlement Committee by notification dated 31st January, 1958.
The Settlement Committee, entered upon the arbitration but before the Arbitration Committee concluded its work the State Government unilaterally abolished the Committee by an order dated 27th March, 1962.
Subsequent ly by a notification dated 18th May, 1962, the State Gov ernment constituted a Committee giving the names of three officers with headquarters at Nangal.
The new Committee took up the dispute as well as a claim made by the Govern ment and issued notice to the parties.
The new Settlement Committee passed an award on 25th July, 1962.
The appel lants challenged the validity of the award in the Civil Court.
The Civil Court set aside the second Settlement Committee 's award on the ground that it was made by the Committee even before the expiry of the time given by it to the appellants.
There after, the second Settlement Commit tee also ceased to function.
The State Government gave notice to the appellant under section 8(1) of the Arbitration Act to.
concur in the, appointment of a fresh Settlement Committee to arbitrate the matter between the parties.
The appellants did not respond to the notice.
The State Government made an application to the trial court for appointment of an arbitrator under section 3(2) of the Arbitration Act.
The appellants raised two objections, namely that section 8 was not ap plicable to the case and that by abolition of the first Settlement Committee the State Government had put an end to the arbitration clause agreed to between the parties by the agreement at exhibit A 1.
The learned JUdge rejected both the grounds and held that after the State Government withdrew the personnel of the first Settlement Committee they became incapable of acting and therefore the court Was entitled to act under section 8(1)(b) of the Act.
On the second point it held that the terms of the arbitration clause in the agreement exhibit A 1 did not justify reading into it the condi tion that the intention of the parties was that the vacan cies in the Settlement Committee for arbitration were not to be filled.
4 240SCI/77 40 In the Revision Application before the High Court the appellants in effect raised the same contentions though in a slightly different form.
The High Court agreed with the view of the trial Judge that when once the Government abol ished the first Settlement Committee it became incapable of acting and section 8(1)(b) became applicable.
It also agreed with the trial court and found that there was nothing in the terms of the arbitration clause in exhibit A 1 to justify the contention that when once a Settlement Committee was ap pointed the power under the clause is exhausted.
The High Court held that the trial court was justified in proceeding under sub section (1) of section 8 in .asking the appellant to give the names for consideration of the court for the reconstitution of the Committee and as the appel lants did not give the names the trial court was Justified in accepting the names given by the State Government.
In the appeal before us the same conten tions were raised.
It was submitted that when one of the parties to the arbitration agreement unilaterally disabled the Settlement Committee from functioning the court will not assist that party by holding that the Commit tee became incapable of acting.
It was contended that the provisions of section 8 of the Arbitration Act will not be applicable when one of the parties could appoint a Set tlement Committee by itself without reference to the other party.
The learned counsel for the appellant also contended that when the first Settlement Committee ceased to exist by the government unilaterally putting an end to it, the arbitration clause worked itself out and no other committee could be appointed The relevant clause in the agreement though given earlier is again "In the matter of dispute, the case shall be referred to the Settlement Committee consist ing of a Superintending Engineer, an officer of the Finance Department of the rank of at least Deputy Secretary and an Accounts offi cer, all to be nominated by the Government for arbitration whose decision will be final.
" The clause is an amendment to the original condition No. 5.
The clause further provided that the agreement is supplemen tal to the original agreement and save as varied as herein before provided the said agreement and all the terms and conditions thereof shall continue to be binding and in full force and effect.
The submission of the learned counsel for the appellant is that the clause referred only to the matter already in dispute and to a settlement committee which had been already appointed.
Reliance was placed on the words underlined in the clause "In the matter of dis pute", and "referred to the Settlement Committee".
This plea cannot be accepted for in the later part of the condi tion it is made clear by the words "all to be nominated by the Government for arbitration whose decision will b final." "To be nominated" contemplates a future appointment.
But we do not think that this makes any difference for there could be no doubt mat the condition enables the Government to appoint three persons holding the ranks specified in the condition as the Settlement 41 Committee.
There is no indication at all that when once the Committee was dissolved no new committee could be ap pointed.
In fact it has to be noted that after the first Settlement Committee was dissolved by the unilateral act of the Government a second Committee came into existence and gave an award which was set aside by the Civil Court.
After the award was set aside the second Committee also ceased to function.
There is no material on record to show that the appellants objected to the constitution of the second Committee on the ground that the condition did not provide for the appointment of a second Settlement Committee.
There is no reason alleged as to why the second Settlement Com mittee ceased to function.
If the second Committee was also not terminated by the action of the Government the contention of the appellants that a unilateral act would put the case outside the purview of section 8 of the Arbitration Act would not be available.
On a careful reading of the condition relating to arbi tration, we agree with the High Court as well as the trial court that there is no bar to the Government appointing a fresh Committee for going into the dispute consisting of three officers as stipulated in the condition.
As the appellant would not reply to the letter of the Government seeking to nominate a Settlement Committee the Government moved the court for appointment of the Committee.
The trial court gave an option to the appellant to furnish names but as he did not furnish the names trial court ac cepted the names suggested by the Government.
On our finding that the Government was entitled to appoint a Com mittee under the new agreement the Government could have very well appointed a committee by itself without coming to court.
But may be by way of abundant caution the Government came to court and the court has appointed a committee as suggested by the State.
We are equally clear that under section 8, the Court is entitled to act and appoint a com mittee.
As already found by us when the second Settlement Committee ceased to function the Committee became "incapa ble of acting" and therefore it was within the competency of the court to proceed to appoint a new committee.
Equally untenable is the contention that section 8 is not applicable to cases where the condition stipulates the appointment of a Settlement Committee by one of the parties.
This submis sion was made relying on the wording of the section that any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appoint ment or appointments or in supplying the vacancy.
This part of the section no doubt contemplates two parties but the section cannot be read as not being applicable where the agreement provides for the nomination of the committee by one of the parties for the section itself says that the party may serve the other parties "May serve the other parties" will include not serving other parties in cases in which the service on the other party is not contemplated.
In the circumstances we are satisfied that the order of the High Court is proper and cannot be interfered with.
The appeal is dismissed.
The parties will bear their own costs.
42 Civil Appeal No. 1734 of 1969 This appeal is similar to the one which we have just now disposed of i.e.C.A.No. 2070 of 1968.
The High Court also dismissed the petition under appeal on the ground that the facts of the case are similar to the one in Civil Revision Petition No. 107 of 1966 out of which C.A. No. 2070 of 1968 arose and dismissed the petition on the same grounds.
In this appeal before, us the learned counsel for the appellant adopted the arguments advanced by the counsel in C.A. No. 2070 of 1968 and did not wish to add anything further.
For the reasons stated in C.A.No. 2070 of 1968 we dismiss this appeal also.
No order as to costs.
P.H.P. Appeals dismissed.

summary:
The parties entered into an agreement for the execution of some construction work.
An arbitration clause in the agreement stipulated that if disputes arose, the matter would be referred to a Settlement Committee to be appointed by the State Government.
A dispute arose, and a Settlement Committee was duly constituted, but was unilaterally abol ished by the respondent before it concluded its work, Subsequently the respondent appointed another Settlement Committee whose award was set aside by the Civil Court on the ground that it was made even before the expiry of the time given by the Committee to the appellant.
The Commit tee thereafter ceased to exist, and the respondent applied to the trial court for appointing an arbitrator section 8(2) of the Arbitration Act.
The appellant opposed the same on two grounds.
Firstly that by unilaterally abolishing the first Settlement Committee, the State Government had put an end to the arbitration clause, and no other committee could be appointed and secondly, that section 8 was not applicable.
The appellants ' objections were rejected by the trial court, and later by the High Court in revision.
In appeal before this Court, the respondent also argued that s.8 would not apply when one party could appoint a Settlement Committee without reference to the other party.
Dismissing the appeal, the Court, HELD: (1) The wording of section 8, that any party may serve the other parties with a written notice to concur in the appointment or appointments, or in supplying the vacancy, will include not serving other parties in cases in which the service on the other party is not contemplated.
The section cannot be read as not being applicable where the agreement provides or the nomination of the Committee by one of the parties, for the section itself says that the party may serve the other parties.
[41F G] (2) The Government could have appointed a Committee by itself without coming to court.
There is no indication in the clause that when once the Committee was unilaterally dissolved no new Committee could be formed.
When the second Committee ceased to function, it became "incapable of act ing" and, therefore, ' it was within the competency of the Court to proceed to appoint a new Committee.
[41E, F]


judgement:
: Civil Appeal No. 2006 of 1968.
(From the Judgment and Decree dated 26 11 1961 of the Punjab High Court Circuit Bench at Delhi in Execution Second Appeal No. 158 D of 1964).
Bishan Narain and D.N. Mishra, for the appellant.
V.S. Desai, B.P. Singh and A.K. Srivastava, for the respond ent.
The JUdgment of .the Court was delivered by BHAGWATI, J.
This appeal by certificate raises a short but interesting question of law relating to the interpreta tion and effect of the proviso to section 3 of the Delhi Rent Control Act, 1958.
The dispute in this appeal relates to a shop situate on the ground floor of a building bearing Municipal No. 624 36 (Old) 530 35 (New) situate in Sadar Bazar, Delhi.
The building was an evacuee property and it was acquired by the Central Government under section 12 ,of the and formed part of the compensation pool.
It was sold by public auction and the appellant being the highest bidder was accepted as the auction purchaser by the managing officer on 5th September, 1955.
It does not appear from the record as to when the appellant paid the full purchase price to the managing officer but presumably he did so before 23rd September, 1955 when the sale was confirmed in his favour by the managing officer.
The sale certificate was not issued in favour of the appellant for a considerable time and we are told that even until now it has not been issued, but possession of the building was handed over to.
the appellant on 30th August, 1956 and a letter dated 3rd September, 1956 was addressed by the managing officer to the respondent intimating to him that since possession of the building had been handed over to the appellant, the respondent should pay rent to the appellant and otherwise deal directly with him with effect from 30th August.
This letter was addressed to the respondent, because at that time the respondent was in possession of one other shop in the same building as a tenant and pursuant to this letter, he attorned tenancy in respect of that shop to the appellant.
On 1st September, 1956, the appellant let out the shop in dispute thereinafter referred to as the prem ises) to the respondent and the latter continued in posses sion of the premises as a monthly tenant.
However, on 10th August, 1959 the appellant gave a notice to quit terminating the tenancy of the respondent and calling upon him to hand over vacant possession of the premises by the mid night of 31st August, 1959.
The respondent declined to comply with the requisition contained in the notice and hence the appel lant filed a suit in the Court of the Senior Subordinate Judge, Delhi on 15th September, 1959 for recovery of posses sion of the premises from the respondent.
There was also a claim made in the suit for recovery of arrears of rent but this claim is no longer material and we need not dwell on it.
The respondent resisted the claim for eviction inter alia on the ground that the certificate of sale not having been issued in favour of the 62 appellant, he was not the owner of the premises and hence he was not legally competent to let out the premises to the respondent nor was he entitled to recover possession of the premises, from the respondent.
The respondent also disputed the jurisdiction of the court on the ground that the.
Delhi Rent Control Act, 1958 which had come into force on 9th February, 1959 was applicable to the tenancy of the premises and by reason of section 50 of that Act, the civil court had no jurisdiction to entertain the suit.
The Trial Court took the view, on a reading of the decision of this Court in M/s Bombay Salt and Chemical Industries vs L.J. Johnson, (1) that since the certificate of sale was not issued in favour of the appellant, he had not become the owner of the premises and the premises continued to belong to the Government and by reason of section 3 which provided that "Nothing in this Act shall apply to any premises be longing to the Government", the Delhi Rent Control Act, 1958 was not applicable to the tenancy in respect of the premises and the civil court had jurisdiction to entertain the suit.
The Trial Court ' also.
held that since the full purchase price had been paid by the appellant and posses sion of the premises had been handed over by the managing officer to the appellant on 30th August, 1956, the appellant was legally competent to let out the premises to the re spondent and the premises having been lawfully let out by the appellant to the respondent, there was relationship of landlord and tenant between the parties and since the 'tenancy was validly terminated by the appellant by giving notice to.
quit in accordance with the provisions of section 106 of the Transfer of Property Act, the appellant was entitled to recover possession of the premises from the respondent.
A decree for eviction was accordingly passed by the Trial Court in favour of the appellant.
The respondent preferred an appeal but the appeal was dismissed ' by the Additional District Judge, Delhi on substantially the same view as that taken by the Trial Court.
This was followed by a second appeal to the High Court but that appeal also met with the same fate and the decree for eviction became final between the parties.
Now, before the decree for eviction could be executed, an amendment was made in section 3 of the Delhi Rent Control Act, 1958 which is very material.
We shall immediately refer to, this amendment, but before we do so, it would be convenient to advert too, few relevant provisions,of the Delhi Rent Control Act, 1958.
This Act came into force with effect from 9th February, 1959 and it was intended to provide inter alia for control of rents and evictions.
Section 14, sub section (1) granted protection to the tenant against eviction by providing that notwithstanding anything contained in any other law or contract, no order or decree for recovery of possession of any premises shall be made by any court or Controller in favour of the landlord against a tenant, but the proviso.
to this sub section laid down certain grounds on which the Controller could, on an appli cation made to him in the prescribed manner, make an order for recovery of possession of the premises.
Since the jurisdiction to make (1) A.I.R. 1958 S.C. 289.
63 an order for recovery of possession of premises o.n one or more of the specified grounds was given to the Controller under section 14, subsection (1), section 50 ousted the jurisdiction of the civil court by declaring that, save as otherwise expressly provided in the Act, no civil court shall entertain any suit or proceeding in so far as it relates inter alia to eviction of any tenant from any prem ises to which the Act applies or to any other matter which the Controller is empowered by or under the Act to decide.
If, therefore, the premises in the present case were prem ises to which the Act applied, the civil court would have no jurisdiction to entertain the suit filed by the appellant for recovery of possession of the premises from the respond ent.
But section 3, as it stood prior to its amendment, by Act 4 of 1963, provided that nothing in the Act shall apply to any premises belonging to the Government.
The view taken by the Trial Court and affirmed by the Additional District Judge and the High Court was that since the certificate of sale was not issued in favour of the appellant, the premises continued 'to belong to the Government and on this view, the Act clearly did not apply tO the premises and neither sec tion 14, sub section (1) nor section 50 being applicable, the civil court continued to have jurisdiction to entertain the suit.
This was the reason why the decree for eviction was passed by the Trial Court against the respondent and it was affirmed by the Additional District Judge and the High Court.
But by the time the decree for eviction came to be executed, the following proviso was added in section 3 by Act 4 of 1963 with retrospective effect: "Provided that where any premises be longing to Government have been or are lawful ly let by any person by virtue of an agreement with the Government or otherwise, then, not withstanding any judgment, decree or order of any court or other authority, the provisions of this Act shall apply to such tenancy.
" The effect of the addition of the proviso with retro spective effect was as if the proviso had always been there right from the time when the Act was enacted.
Therefore, when an application was flied by the appellant for execution of the decree for eviction against the respondent on 31st August, 1963, an objection was raised on behalf of the respondent that by reason of the retrospective introduction of the proviso in section 3, the decree for eviction was rendered null and void as a decree passed by a court without jurisdiction and hence it was not executable against the respondent.
This objection was negatived by the executing court on the ground that that was not an .objection which could be entertained in execution and the executing court must proceed to execute the decree which had become final between the parties.
The respondent preferred an appeal but the first appellate court took the view that, on the facts of the case, the proviso to section 3 was not attracted and hence the decree for eviction .could not be said to be one passed by a court without jurisdiction and on this view, it upheld the order of the executing court and rejected the appeal.
This led to the filing of a further appeal and in this appeal the High Court held 'that since the certificate of sale was hot issued in favour of the appellant, the building continued to belong 64 to the Government but the appellant having paid the full purchase price of the building and the sale of the building in favour of the appellant having been confirmed and posses sion having been handed over to him in pursuance of the sale, the appellant was legally competent to let out the premises to the respondent and the letting of the the prem ises by the appellant in favour of the respondent on 1st September, 1956 was lawful and hence the condition for the applicability of the proviso to section 3 was satisfied, and since the proviso was introduced in section 3 with retro spective effect, it must be held that the Act was applicable to the premises at the date of the institution of the suit and consequently the civil court had no jurisdiction to entertain the suit and in that view, the decree for eviction was a nullity.
The High Court accordingly allowed the appeal and held that the decree for eviction being null and void could not be executed against the respondent.
This view taken by the.
High Court is challenged in the present appeal preferred by special leave obtained from this Court.
Now, the law is well settled that an executing court cannot go behind the decree nor can it question its legali ty or correctness.
But there is one exception to this gener al rule and that is that where the decree sought to be executed is a nullity for lack of inherent jurisdiction in the court passing it, its invalidity can be set up in an execution proceeding.
Where there is lack of inherent jurisdiction, it goes to the root of the competence of the court to try the case and a decree which is a nullity is void and can be declared to be void by any court in which it is presented.
Its nullity can be set up whenever and whenever it is sought to be enforced or relied upon and even at the stage of execution or even in collateral proceedings.
The executing court can, therefore, entertain an objection that the decree is a nullity and can refuse to execute the decree.
By doing so, the executing court would not incur the reproach that it is going behind the decree, because the the decree being null and void, there would really be no decree at all.
Vide Kiran Singh vs Chaman Paswan(1) and Seth Hiralal Patni vs Sri Kali Nath.(2) It is, therefore, obvious that in the present case, it was competent to the executing court to examine whether the decree for eviction was a nullity on the ground that the civil court had no inherent jurisdiction to entertain the suit in which the decree for eviction was passed.
If the decree for eviction was a nullity, the executing court could declare it to be such and decline to execute it against the respondent.
The position which obtained when the suit for eviction was instituted by the appellant against the respondent was that section 3, as it stood prior to.its amendment by Act 4 of 1963, was in force and that excluded the applicability of the Delhi Rent Control Act.
1958 to premises belonging to the Government.
The premises in the present case, were vested in the Government under section 12 of the Displaced Persons (Compensation & Rehabilitation) Act, 1954 and they were sold by public auction to the appellant and though full purchase price (1) ; (2) ; 65 was paid by the appellant and the sale was confirmed in his favor and possession was also handed over to him, the cer tificate of sale was, for some inexplicable reason, not issued in his favour.
The Trial Court, therefore, took the view, and this view was affirmed by the Additional District Judge as well as the High Court, that the appellant did not become the owner of the premises and they continued to belong to the Government and for this reason, it was held that the Delhi Rent Control Act, 1958 did not apply to the premises and the civil court had jurisdiction to entertain the suit for eviction.
The Trial Court also found, and this finding too was accepted by the Additional District Judge as well as the High Court, that though the certificate of sale was not issued in his favour, the appellant was competent to let out the premises and the letting of the premises by him in favour of the respondent on 1st Septem ber, 1956 was lawful and since the tenancy of the respond ent was validly terminated by the appellant by giving notice to quit, the appellant was entitled to a decree for eviction against the respondent.
But, as pointed out above, section 3 was amended with retrospective effect by the introduction of the proviso and the question is whether the introduction of the proviso with retrospective effect had the effect of rendering the decree for eviction null and void.
Since the proviso was introduced with retrospective effect, it must be deemed to be part of section 3 since the time that the Delhi Rent Control Act, 1958 was enacted.
It was pointed out by Lord Asquith of Bishopstone in East End Dwellings Co. Ltd. vs Finsbury Borough Council(1) in a passage which has become classical by reason of its felicity of language that "if you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompa nied it.
One of those in this case is emancipation from the 1939 level of rents.
The statute Says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of.
affairs".
The proviso must, therefore, for all legal pur poses, be deemed to have been included in section 3 as from the date of enactment of the Delhi Rent.
Control Act, 1958.
If that be the true position, then obviously it must be held that the provisions of the Delhi Rent Control Act, 1958 were applicable to the tenancy of the respondent, for the premises though belonging to the Government, were law fully let out by the appellant to the respondent and the condition of the proviso was satisfied.
That was the posi tion which, by reason of the legal fiction brought about by the retrospective introduction of the proviso in section, 3, must be held to have prevailed at the date.
of the institu tion of the suit and the provisions of the Delhi Rent Con trol Act, 1958 being applicable, it must be concluded that the civil court had no inherent jurisdiction to entertain the suit (vide section 50) and the decree for eviction was a nullity.
Prima facie, it may appear somewhat strange that a decree for eviction which was good and valid when it was made should be treated as null and void by "(1) [1952] A. C. 132.
66 virtue of the retrospective introduction of the proviso in section 3.
But such a result is necessarily involved in the legal fiction created by the retrospective operation of the proviso.
If, as a result of the said fiction, we must read the proviso as forming part of section 3 as from the date of enactment of the Delhi Rent Control Act, 1958, the conclu sion is inescapable that the civil court had no inherent jurisdiction to entertain the suit and the Trial Court as well as the Additional District Judge and the High Court were in error in exercising jurisdiction in relation to the suit when their Jurisdiction was clearly excluded by section 50.
The appellant, however, urged that the introduction of the proviso in section 3 should not be given greater retro spective operation than necessary and it should not be so construed as to affect decrees for eviction which had al ready become final between the parties.
Now, it is true, and that is a settled principle of construction, that the court ought not to give a larger retrospective operation to a statutory provision than what can plainly be seen to have been meant by the legislature.
This rule of interpretation is hallowed by time and sanctified by decisions, though we are not at all sure whether it should have validity in the context of changed social norms and values.
But even so, we do not see how the retrospective introduction of the proviso in section 3 can be construed so as to leave unimpaired a decree for eviction already passed, when the question arises in execution whether it is a nullity.
The logical and inevitable consequence of the introduction of the proviso in section 3 with retrospective effect would be to read the proviso a.s if it were part or the section at the date when the Delhi Rent Control Act, 1958 was enacted and the legal fiction created by the retrospective operation must be carried to its logical extent and all the consequences and incidents must be worked out as if the proviso formed part of the section right from the beginning.
This would clearly render the decree for eviction a nullity and since in execu tion proceeding, an objection as to nullity of a decree can always be raised and the executing court can examine whether the decree iS a nullity, the principle of finality of the decree cannot be invoked by the appellant to avoid the consequences and incidents flowing from the retrospective introduction of the proviso in section 3.
Moreover the words notwithstanding any Judgment, decree or order of any court or or other authority in the proviso make it clear and leave no doubt that the legislature intended that the finality of "judgment, decree or order of any court or other authority" should not stand in the way of giving full effect to the retrospective introduction of the proviso in section 3 and applying the provisions of the Delhi Rent Control Act, 1958 in cases falling m the proviso.
We are therefore, of the view that the High Court was right in taking the view that by reason of the introduction of the proviso in section 3 with retrospective effect the decree for eviction was a nullity and the executing court was justified in declining to execute it against the re spondent.
67 We accordingly dismiss the appeal with costs throughout but order and direct the respondent to pay to the appellant all the arrears of rent in respect of the premises which remain to be paid by him to the appellant in the following installments: Rs. 2,000/ on or before 30th April, 1977; and out of the balance a further sum of Rs. 2,000 within three months thereafter and the balance, if any, by 31st October, 1977.
The respondent through his counsel under takes to make payment of the arrears in the manner afore said.
P.H.P. Appeal dismissed.

summary:
The appellant purchased in a public auction a building which was evacuee property.
Before the sale certificate was made out in favour of the appellant, the possession of the building was handed over to him.
He in turn let out a shop in the said building to the respondent.
The appellant filed a suit for eviction in the Civil Court against the respond ent.
The Civil Court passed a decree for eviction and negatived the contention of the respondent that the Delhi Rent Control Act, 1958 was applicable and, therefore, the jurisdiction of the Civil Court was barred.
The Court relied on section 3 of the Delhi Rent Control Act which provides that nothing in the Act shall apply to any premises belonging to the Government.
The decree for eviction was confirmed by the Appellate Court and then by the High Court in Second Appeal.
Before the decree could be executed section 3 was amended by adding a proviso with retrospective effect, which provided that where any premises belonging to Government have been lawfully let out by any person, then notwithstanding any judgment, decree or order of any court the provisions of the Act would apply to the tenancy.
The Executing Court held that it was not competent to it .to go into the question whether the decree was rendered d nullity on the ground that the jurisdiction of the Civil Court was ousted by the introduction of :the proviso in section 3 with retrospective effect since the decree had become final between the parties.
The Appellate Court upheld the said decision.
The High Court in Second Appeal reversed the decision of the two courts below and held that the decree was a nullity and could not be executed.
Dismissing the appeal this Court, HELD :(1) An executing court cannot go behind the.
decree nor can it question its legality or correctness but where a decree sought to be executed is a nullity for lack of inherent jurisdiction in the court passing it, its inva lidity can be set up in an execution proceeding.
[64C D] Vide Kiran Singh vs Chaman Paswan and Seth Hiralal Patni vs Sri Kali Nath, ; , followed.
(2) Since the proviso was introduced with retrospective effect it must be deemed to be part of section 3Since.
the time the Delhi Rent Control Act was enacted.
[65 D] East End Dwellings Co. Ltd. vs Finsbury Borough Council [1952] A.C. 132, approved.
As a result of the fiction the proviso must be deemed to be part of section 3 from the date of enactment of the Act.
The logical and inevitable Consequence of the introduction of the proviso.
in section 3 with retrospective effect would be to read the proviso as if it were part of the section at the date when the Act was 'enacted, and the legal fiction created by the retrospective operation must be carried to its logical extent and all the consequences and incidents must be worked out as if the proviso forms part of the section right from the beginning.
The phrase "notwithstand ing any judgment; decree or order of any court" in the proviso makes it clear that the legislature intended" that the finality of the judgment,decree etc., should not stand in the way of giving full effect to the= retrospective operation of the proviso in section 3.
[66C G] 61