judgement:
ivil Appeal No. 2318 of 1985 From the Judgment and Order dated 1.8.83 of the Gauhati High Court in S.A. No. 19 of 1978.
Appellant in person D.N. Mukherjee for the Respondents.
By a quirk of fate the appel lant who was holding a permanent post of Auditor in the Office of the Accountant General, Assam resigned his job and took up appointment as a Lecturer in an aided college in Meghalya only to find his appointment terminated in five months ' time for want of approval for the appointment by the Director 575 of Public Instruction.
The backdrop of events for this appeal are as narrated below.
The appellant who was a confirmed Auditor in the Office of the Accountant General, Assam responded to an advertise ment in the Assam Tribune dated 21.2.75 and offered himself as a candidate for appointment as a Lecturer in English in Lady Keane Girls College, Shillong.
Respondents 2 and 3 are respectively the Principal and the President of the Govern ing Body of the said College.
After being interviewed along with other candidates on 27.3.75 the appellant was selected for the post and was issued an order of appointment on 7.4.75.
The order of appointment, however, stated that the appointment was subject to the approval of the Director of Public Instruction, Meghalya, the first respondent herein.
On the appellant seeking clarification from the Principal about this condition he was assured that the sanction of approval was a formality and there was no jeopardy to his appointment.
Acting on this assurance the appellant resigned his post in the Accountant General 's Office and joined the College on 2.5.75.
To his shock he received a communication from the Principal on 11.9.75 enclosing a copy of letter of the first respondent dated 28.8.75 informing him that his services would be terminated with effect from 17.9.75.
By reason of the appellant 's representations the matter was kept in abeyance till 1.12.75 when he received a further communication stating that his services were being terminat ed with immediate effect for want of prior approval of the first respondent.
The appellant filed a suit in the Court of the Assist ant District Judge, Shillong to challenge the order of termination and sought the reliefs of declaration and perma nent injunction.
The trial court granted ad interim injunc tion and later made it absolute and in terms thereof the appellant continued to be in service till 20.4.77 on which date the trial court dismissed the suit and vacated the injunction.
The Assistant District Judge held that the appointment of the appellant without prior approval of the Director of Public Instruction was irregular and furthermore the ap pointment contravened the Government 's Resolution regarding the reservation of posts for backward sections of the people of the State and that the policy applied to all Government institutions as well as private institutions aided by the Government.
The trial court further held that in any event the appellant will not be entitled to a relief of declara tion regarding his continuance in service and that the remedy for the appellant under law, if any, is to file a suit for damages for wrongful dismissal and seek reliefs.
576 The appellant preferred an appeal to the District Judge, Shillong.
The learned Appellate Judge held that except the oral testimony of the Deputy Director of Public Instruction regarding the Government 's reservation policy there was no material on record to show the formation of any such policy and much less that the policy of the Government had been published or even communicated to the aided colleges prior to the appellant being appointed.
The learned Judge also held that in the absence of any notification or circular by the Government (of Meghalya) showing that the Assam Aided Colleges Management Rules, 1965, had been adopted it was not possible to hold that the Government had actually adopted the said rules.
The Appellate Judge, therefore, held that the Director of Public Instruction had acted wrongly in refusing to give approval to the appellant 's appointment and as such the order of termination of service of the appellant was manifestly wrong.
In accordance with such findings the Appellate Judge allowed the appeal and decreed the suit and declared the appellant 's continuance in service as a Lectur er in English in the second respondent 's college.
The judgment and decree of the Appellate Judge was challenged in Second Appeal before the Gauhati High Court by the first respondent.
A learned Single Judge of the High Court concurred with the findings of the Appellate Judge and held that the State of Meghalya had not adopted the Assam College Management Rules, 1960 at the time of the appel lant 's appointment and as such the termination of the serv ices of the appellant was unlawful.
However, on the question of relief that can be granted to the appellant the learned Judge differed from the view of the Appellate Judge and held that reinstatement of the appellant in service was not possible as the appellant did not belong to one of those categories for which alone reinstatement can be ordered viz. (1) Government servants, (2) industrial workmen and (3) employees of statutory bodies.
The learned Judge, therefore, held that the appellant would only be entitled to damages for wrongful termination of service.
Even then after taking into consideration the unnviable position of the appellant and his continuance in service for about one and half years during the pendency of the suit, the learned Judge awarded one year 's salary and allowances as damages and disposed of the appeal with the abovesaid modification.
It is against this judgment of the High Court the appellant has preferred this appeal.
The appellant appeared in person and argued the appeal before us.
He contended that neither in the advertisement made by the college authorities nor at the time of the interview, nor in the order of 577 appointment was there anything to show that the Government of Meghalya had adopted the Assam Aided College Management Rules, 1965 and the Assam Aided College Employees Rules, 1960 and as such he had reason to believe that when once the Selection Committee found him suitable for the appointment he would be confirmed in the post of Lecturer after his successful completion of probation.
He further stated that he verified from ,he Principal as to whether his appointment would be disapproved by the first respondent for any reason and he was assured by the Principal that the sanction of approval was only a formality and, therefore, his appoint ment would not be in jeopardy in any manner.
Having regard to all these factors he resigned his permanent post in the office of the Accountant General, Assam and had devoted himself fully to his task as a Lecturer in the college.
Therefore, it was a rude shock to him when he was issued an order of termination of service on the ground that the first respondent had not approved the appointment.
It was also urged by him that he had established in the trial of the suit that his was the first case where approval was not given and that there had been no previous instance of denial of approval of appointments made in any of the aided col leges in the State of Meghalya.
The appellant laid stress on the fact that the Appellate Court as well as High Court have both sustained his contentions and held that his appointment had not been made in contravention of any of the rules framed by the Government and as such the refusal of the first respondent to approve his appointment was wrong and the termination of his service was illegal.
The further submission of the appellant was that since the Appellate Court and the High Court have found the termination of his service to be wrong and illegal, he should have been granted the relief sought for in the suit viz. a declaration that he continued to be in service all along and that he was enti tled to reinstatement with full back pay and allowances.
The appellant also contended that though the Lady Keane Girls College is a private institution it was being provided aid by the Government and Government had full supervisory con trol over it and as such the college is for all practical purposes a Government institution and in such circumstances he is entitled to parity of treatment with a Government servant wrongly removed from service.
The prayer of the appellant, therefore, was that he should be granted a decla ration regarding his continuance in service so as to entitle him to all the benefits ensuing from such a declaration viz. reinstatement in service together with back pay, allowance 'and other benefits.
Opposing the arguments of the appellant the learned counsel for the first respondent argued that the Lady Keane Girls College is a 578 private institution and not a Government institution, that merely because it receives aid from the Government and the appointments made by the Management are subject to the approval of the first respondent, the college would not become a Government institution nor can the appellant claim parity of treatment with Government servants.
The learned counsel also stated that in spite of the findings of the Appellate Court and the High Court that the termination of service of the appellant was wrongful, the only remedy for the appellant is to file a suit and not to seek a declara tion of continuance in service because it would amount to seeking specific performance of a contract of service.
We have bestowed our anxious consideration to the argu ments advanced by the appellant because of the misfortune that has overtaken him partly due to his own hasty action in resigning his permanent post and partly on account of the first respondent disapproving the appellant 's appointment on the basis of rules which had not been formulated and commu nicated to the aided colleges.
On an examination we find that in spite of the sad plight of the appellant it will not be possible to grant him a relief of declaration as sought for by him.
The reasons for our view may now be set out.
The legal status of an employee in a privately managed college and whether a contract for personal service can be specifically enforced came up for consideration before this Court in Vaish College vs Lakshmi Narain, [1976] 2 S.C.R. 1006.
The facts in that case were as follows.
Vaish Degree College which was registered under the Registration of Cooperative Societies Act was initial affiliated to the Agra University and later to the Meerut University.
A Principal of the college who was appointed after obtaining formal approval of the Vice Chancellor was terminated from service about two years later.
The Principal challenged the order of termination in a suit filed by him on various grounds and he sought for a declaration regarding his continuous in serv ice.
The trial court dismissed the suit but the Appellate Court decreed the same.
In the second appeal there was a reference to a Full Bench regarding the jurisdiction of the civil court to entertain the suit and eventually the second appeal filed by the management was dismissed and the manage ment came up in appeal to this Court by special leave.
This Court held that the Executive Committee of the college was not a statutory body because it had not been created by or under the statute and did not owe its existence to a stat ute.
But on the contrary it was a body which came into existence on its own and was only governed by certain statu tory provisions for the proper mainte 579 nance and administration of the institution.
The Court summed up the law in the following words: "It is, therefore, clear that there is a well marked distinction between a body which is created by the statute and a body which after having come into existence is governed in accordance with the provisions of the statute.
In other words the position seems to be that the institution concerned must owe its very existence to a statute which would be the fountain head of its powers.
The question in such cases to be asked is, if there is no statute would the institution have any legal existence.
If the answer is in the negative, then undoubtedly it is a statutory body, but if the institution has a separate existence of its own without any reference to the statute concerned but is merely governed by the statu tory provisions it cannot be said to be a statutory body.
The High Court, in our opin ion, was in error in holding that merely because the Executive Committee followed certain statutory provisions of the University Act or the statutes made thereunder it must be deemed to be a statutory body.
" The Court then proceeded to consider the next question regarding a contract of personal service being specifically enforceable.
After referring to the decisions in S.R. Tewari vs District Board, Agra & Anr., ; , 59, Execu tive Committee of U.P. State Warehousing Corporation Ltd. vs Chandra Kiran Tyagi; , , 265; Bank of Baroda vs Jewan Lal Mehrotra, , 55 and Sirsi Municipality vs Kom Francis, ; , the Court held as follows: "On a consideration of the authorities men tioned above, it is, therefore, clear that a contract of personal service cannot ordinarily be specifically enforced and a Court normally would not give a declaration that the contract subsists and the employee, even after having been removed from service can be deemed to be in service against the will and consent of the employer.
This rule, however, is subject to three well recognised exceptions (i) where a public servant is sought to be removed from service in contravention of the provisions of article 3 11 of the Constitution of India; (ii) where a worker is sought to be reinstated on being dismissed under the Industrial Law; and (iii) where a 580 statutory body acts in breach of violation of the mandatory provisions of the statute.
" The matter again came to be considered in the case of J. Tewari vs Jwala Devi Vidya Mandir & Others, In that case the appellant, Smt.
J. Tewari was appointed as the Headmistress of the Jwala Devi Vidya Mandir, Kanpur which was a Society registered under the Societies Registra tion Act, 1860.
J. Tewari who later became the Princi pal of the institution challenged her order of suspension in an earlier suit and her order of termination from service in a later suit.
The second suit was partly decreed by the trial judge and he upheld that the termination of service of Mrs. J. Tewari was not legal and awarded her a sum of Rs. 15,250 as arrears of pay for a period of 3 years together with interest and provident fund contribution.
The High Court confirmed the decree but held that the sum awarded to her should be by way of damages and not towards arrears of salary since Smt.
J. Tewari will not be entitled to a decla ration that she continued to be in the service of the insti tution and to a consequent order of reinstatement.
In fur ther appeal to this Court by certificate it was contended that the institution was a statutory body and that Smt.
J. Tewari was entitled to a declaration regarding her continu ance in service.
This Court repelled the contention and held that the Vidya Mandir, in spite of being governed by the University regulations and the provisions of the Education Code framed by the State Government and also being aided by educational grants, still constituted only a private insti tution and as such Smt.
J. Tewari would only be entitled to a decree for damages, if her dismissal was wrongful and not to an order of reinstatement or a declaration that notwith standing the termination of her services she continued to be in service.
The law enunciated in these decisions stand fully at tracted to this case also.
Even though the Lady Keane Girls College may be governed by the statutes of the University and the Education Code framed by the Government of Meghalya and even though the college may be receiving financial aid from the Government it would not be a statutory body because it has not been created by any statute and its existence is not dependent upon any statutory provision.
The appellant, however, placed reliance on another decision of this Court in I.R. Gupta vs Inter College, Thora, ; In that case Shri I.P. Gupta who was appointed as Principal of the college on probation for one year was placed on further probation for one more year.
During the period of the extended probation his services 581 were terminated.
Although the order of termination was innocuous in its terms it was accompanied by an enclosure containing the resolution of the Managing Committee with a reference therein to an adverse report given by the Manager against the Principal.
It was, therefore, contended that the order of termination cast a stigma on the Principal and hence his services ought not to have been terminated without due notice and enquiry.
It was this contention which was the principal issue in that case.
Dealing with that contention this Court found that the college was an institution recog nised under the Intermediate Education Act and was governed by the provisions of the Act and the regulations made there under and that Regulations 35 to 38 prescribed the procedure to be followed before the services of an employee can be terminated by way of punishment.
The management, however, did not follow the procedure prescribed by the regulations which were virtually the same as provided by Article 311(2) of the Constitution.
This Court, therefore, held that the principles which should govern the case should be the same as those underlying Article 311(2).
It was in that view of the matter this Court allowed the appeal and restored the judgment of the Single Judge of the High Court declaring that the appellant contained to be in the service of the college and that he was entitled to all the benefits flowing from the declaration including the salary and allowances as if there was no break in his service.
The facts of the abovesaid case are clearly distinguishable because the case pertained to termination of service by way of disciplinary action.
In the instant case there is no such violation of the provisions of any Act or any Regulations made thereun der.
This is a case where the first respondent had proceeded on the erroneous assumption that the Assam Aided College Employees Rules, 1960 and the Assam Aided College Management Rules, 1965 had been adopted by the State of Meghalya and therefore, the appellant 's appointment was in contravention of the rules and consequently he should decline to approve the appointment of the appellant.
No doubt his action has been held to be wrongful but even so it is not in contraven tion of any statutory provisions or regulations or procedur al rules.
We are, therefore, unable to accept the appel lant 's contention that he should be granted a declaration that he continues to be in the service of the college and that he is entitled to all the benefits flowing from the declaration.
Notwithstanding this conclusion we feel that the pecul iar facts of the case which are indeed distressing, call for some relief being given to the appellant instead of a brusque dismissal of the appeal on account of the legal impediments for granting the relief of declaration of his continuance in service.
We have already set out the tragic situa 582 tion that has resulted on account of the appellant 's serv ices being terminated after he had closed his options to revert back to his service in the Accountant General 's Office.
The trial court which dismissed the suit and the High Court which has modified the decree of the Appellate Court have also noticed this position and expressed their compassion for the appellant.
It was on account of that the High Court has granted monetary compensation of one year 's salary to the appellant as damages.
We think that in the fact and circumstances of the case and in exercise of our powers under Article 136 of the Constitution we should enlarge the relief granted to the appellant by the High Court by directing the State of Meghalya represented by the first respondent to grant 3 years ' salary and allowances to the appellant at the rates prevalent when his services were terminated on 1.12.75.
Though the appellant had remained in service till 20.4.77 in spite of the termination order, the salary payable for that period is towards the services actually rendered by him in the college.
Hence no portion of that amount can be treated as damages.
If the appellant has not been paid the salary and allowances for any portion of the period between 1.12.75 to 20.4.77, the first respondent is further directed to release such sums of money as would be required to make good the unpaid salary and allowances.
We give this direction because we find a letter in the paper book written by the second respondent stating that they are unable to pay the salary and allowances due to the appellant on account of non release of funds by the first respondent.
The first respondent will make the payments indicated above on or before 30th June, 1987.
The grant of this relief will be in consonance with the reliefs granted by this Court to the affected parties in Vaish College case (supra) and Smt.
J. Tewari 's case (supra).
In the former case the Principal whose services were terminated was allowed to retain a total sum of Rs.21,100 deposited by the Educational Institution under orders of court during the pendency of the proceed ings.
In the latter case Smt.
J. Tewari had been granted 3 years ' salary by way of damages.
In addition to the payment of the abovesaid sums we also direct that in the event of there being a vacancy in the Lady Keane Girls College for the post of Lecturer in English and in the event of the Management willing to appoint the appellant as a Lecturer once again the Management should be permitted to do so by the first respondent by granting relaxation of rules and regulations currently in force governing the filling up of posts of Lecturers in aided colleges in the State of Megha lya.
To the extent, additional reliefs are given to the appellant the appeal will stand allowed.
The appellant will be entitled to costs in the appeal payable by the first respondent.
P.S.S. Appeal allowed.

summary/full:
The appellant, who was holding a permanent post in a Central Government department, was selected for the post of Lecturer in a private aided college in Meghalya.
The order of appointment stated that it was subject to the approval of the first respondent.
On his seeking clarification from the Principal he was assured that the approval was a mere for mality.
Acting on the said assurance the appellant resigned his permanent post in the Government department and joined the college.
However, he found his services terminated just within five months for want of prior approval of the first respondent.
A suit filed by the appellant challenging the order of termination and for a declaration and permanent injunction was dismissed by the trial court.
The first Appellate Court found that the Assam Aided Colleges Management Rules, 1965 had not been adopted by the State Government at the time of the appellant 's appointment and that the Director of Public Instruction had acted wrongly in refusing to give approval to the appellant 's appointment, and as such the order of termination of service of the appellant was manifestly wrong.
It, therefore, declared appellant 's continuance in service.
The High Court while concurring with the view of the first Appellate Court that the termination of services of the appellant was unlawful, awarded one year 's salary and allowances as damages since the 573 appellant did not belong to the category of either Govern ment servants, industrial workmen or employees of statutory bodies, for which alone reinstatement could be ordered.
In this appeal by special leave it was contended for the appellant that the Appellate Court and the High Court having found the termination of service to be wrong and illegal, he should have been granted the relief sought for in the suit, that is, a declaration of continuance in service and rein statement with full back wages and allowances.
It was fur ther submitted that since the college was a private institu tion provided and by the Government and Government had full supervisory control over it, it was for all practical pur poses a Government institution.
As such, he was entitled to parity of treatment with a Government servant wrongly re moved from service.
For the respondent it was contended that the only remedy for the appellant was to file a suit for damages and not to seek a declaration of continuance in service, because it would amount to seeking specific per formance of a contract of service.
Allowing the Appeal in part, the Court, HELD: The appellant was not entitled to a declaration that he continued to be in the service of the college and that he was entitled to all the benefits flowing from the declaration.
[581G] Even though the College in question may be governed by the statutes of the University and the Education Code framed by the Government of Meghalaya and even though the college may be receiving financial aid from the Government, it would not be a statutory body because it haS not been created by any statute and its existence is not dependent upon any statutory provision.
[580F G] Vaish College vs Lakshmi Narain, ; and J. Tewari vs Jwala Devi Vidya Mandir & Others, , referred to.
There was no violation of the provisions of any Act or any Regulations made thereunder in the instant case.
The first respondent in declining to approve the appointment of the appellant had proceeded on the erroneous assumption that the Assam Aided College Employees Rules, 1960 and the Assam Aided College Management Rules, 1965 had been adopted by the State of Meghalya.
No doubt such action has been held to be wrongful but even so it was not in contravention of any 574 statutory provisions or regulations or procedural rules.
[581E G] I.P. Gupta vs Inter College, Thora, ; , distinguished.
The misfortune that has overtaken the appellant was partly due to his own hasty action in resigning his perma nent post and partly on account of the first respondent disapproving the appellant 's appointment on the basis of rules which had not been formulated and communicated to the aided colleges.
In spite of the sad plight of the appellant, therefore, it will not be possible to grant the relief of declaration as sought for by him.[578C D] [In the facts and circumstances of the case and in exercise of its powers under Article 136 of the Constitu tion, the Court enlarged the relief grunted to the appellant by the High Court by directing the State of Meghalaya to grant three years salary and allowances to the appellant at the rates prevalent when his services were terminated.
It further directed that in the event of there being a vacancy in the College in question for the post of Lecturer in English, and in the event of the Management willing to appoint him as Lecturer once again, the Management should be permitted to do so by granting relaxation of rules and regulations. ]


judgement:
ivil Appeal No. 1375 of 1974 605 From the Judgment and Order dated 21.2.
1971 of the Allahabad High Court in Excise Profit Tax Reference No. 55 of 1968.
Dr. V. Gauri Shankar and Miss A. Subhashini for the Appellant.
S.T. Desai, Harish Salve, Mrs. A.K. Verma and D.N. Mishra for the Respondent.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
This appeal is directed against the judgment and order of the High Court of Allahabad dated 21st February 1971.
It relates to the assessment under the Excess Profits Tax Act, 1940 (hereinafter called the 'Act ').
The assessee was an unregistered firm carrying on business of manufacture and sale of katechu.
The chargeable account ing period was 1 4 1943 to 31.3.
There were two partners of the assessee firm, namely, L. Phoolchand and M/s Biharilal Balkishan each having profits in proportion of 11 annas and 5 annas respectively.
The work in connection with the extraction of Katechu was carried on in Nepal by 1.
Phoolchand and the sale of Katechu were effected by M/s Biharilal Balkishan at their shops in Kanpur.
The assessee firm did not maintain any books of account and the entire record of the business transaction was maintained in the books of M/s Biharilal Balkishan in the account styled "Kalyanmal Phoolchand".
The assessee firm had taken a jungle on lease for this purpose and had extracted Katechu from October, 1940 to September, 1941.
The sales of katechu extracted were effect ed from 30th May, 1941 to 29th September, 1941.
Thereafter another jungle was taken on lease in November, 1942 and Katechu were extracted from 23rd November, 1942 to 6th November, 1944.
The sales in this case were effected between 26th July, 1943 to 4th April, 1944.
The High Court divided the entire period of manufacture and sale as follows: 1. October 28, 1940 to March 31, 1941, failing in the financial year ending March 31,1941.
Katechu was manufac tured but there was no sale.
April 1, 1941 to September 29, 1941, failing in the financial year ending March 31, 1942.
Sales took place from May 30, 1941 to September 29, 1941.
606 3.
November 23, 1942 to March 31, 1943, falling in the financial year ending March 31, 1943.
Katechu was manufac tured but there was no sale.
April 1, 1943 to March 31, 1944, falling in the finan cial year ending March 31, 1944, sales took place from July 26, 1943 to March 31, 1944.
April 1, 1944 to April 4, 1944, falling in the finan cial year ending March 31.
1945, sales were effected from April 1, 1944 to April 4, 1944, when the business was dis continued.
Therefore, while there was manufacturing activity there was no sale during the financial years ending 31st March, 1941 and 31st March, 1943.
The dispute in this case is with regard to the set off of deficiency of profit relating to the periods 20th October, 1940 to 17th October, 1941 and 23rd November, 1942 to 31st March, 1943.
The Excess Profit Tax Officer did not set off the said deficiency of profits that accrued in respect of the period 1940 41 out of the profits for the chargeable accounting period from 1.4.1943 to 31.3.
The submission of the assessee was that the business carried on during the charge able accounting period under consideration was not separate to and distinct from the business carried on in 1940 41.
The Excess Profit Tax Officer held that business carried on during October, 1940 to October, 2941 was completely differ ent from the business carried on during the chargeable accounting period under consideration.
The Appellate Assistant Commissioner on appeal found that the constitution of the firm during the chargeable accounting period was the same as in 1940 41 and the ac counts were maintained in the same fashion; and that the same business of manufacturing Katechu in Nepal and selling the finished products at kanpur was carried on.
The Appel late Assistant Commissioner, therefore, held that the asses see was entitled to set off in respect of the deficiency of profits accruing in the year 1940 41.
The Appellate Assist ant Commissioner further found that the assessee had effect ed sales only during 30th May, 1941 to 29th September, 1941.
As such there were no sales either during or until 30th May, 1941 land subsequent to 29th September, 1941.
As such he held that there was no profit arising during the accounting period ending on 31st March, 1941.
He, therefore, confirmed that there were no profits and losses during the chargeable accounting 607 period ending on 31st March, 1941 and as such there could be no deficiency of profits.
In the premises, according to the Appellate Assistant Commissioner, the assessee was entitled to a set off of the deficiency only for the chargeable accounting period ending on 31st March, 1942 which consisted of the period 1st April, 1941 to 29th September.
He allowed such deficiency of Rs.5,600 only.
So far as the deficiency pertaining to the period November, 1942 to 3 Ist March, 1943 was concerned, the facts were that the manufac turing operations started in Nepal on or about 23rd Novem ber, 1942 and the sales of Katechu started at Kanpur on 26th July, 1943 Katechu produced in Nepal from 23rd November, 1942 to 31st March, 1943 remained in stock till the last date of the chargeable accounting period namely 31st March, 1943 and no part of it was sold.
As the assessee did not maintain any books of account, the provisions of section 13 of the Income Tax Act, 1922 as applied to the Act vide section 21 of the Act were applicable.
The revenue, there fore, valued the stock in trade at cost and held that there could be no profit or loss during the chargeable accounting period.
In appeal, the assessee had urged that deficiency in profits pertaining to the chargeable accounting periods from October, 1940 to 31st March, 1941 and 23rd November, 1942 to 31st March, 1943 should be allowed a set off in computing the excess profits for the year under consideration.
It was submitted that there was no profits pertaining to the said chargeable accounting period, and therefore, the standard profits as provided in the Act became the deficiency of the said two chargeable accounting periods which should have been allowed set off.
It was further urged on behalf of the assessee that the manufacturing operations were carried on during the said periods and as such it could not be said that the assessee did not carry on any business.
The Tribunal, however, held that no profits accrued unless sale was effected and, therefore, there was no merit in the submission made on behalf of the assessee that during the said two chargeable accounting periods, although there were no sales effected, yet profits accrued to the assessee.
It was urged on behalf of the revenue that as provided in the Act, the provisions of the Act would apply to every business of which any part of profits was made during the chargeable accounting period, is chargeable to income tax.
It was further urged that no part of profits, if any, which accrued during the said two chargeable accounting periods could be charged and were in fact not so charged, to income tax, as no sales were effected and, therefore, the Act itself did not apply to the said two chargeable account ing periods.
The Tribunal accepted this contention on behalf of the revenue and as 608 such confirmed the order of the Appellate Assistant Commis sioner.
On the said facts, the following question of law was referred to the High Court at the instance of the assessee: "Whether, on the facts and in the circum stances of the case, the assessee was entitled to a set off of deficiency of profits relating to the period 28.10.1940 to 31.3.1941 and 23.11.
1942 to 31.3.1943 from the profits of the chargeable accounting period 1.4.1943 to 31.3.1944 in accordance with the provisions of the E.P.T. Act, 1940?" The High Court held that it was not disputed before them that the assessee was carrying on the same business from 28th October, 1940 to 4th April, 1944 for the purpose of the Act.
The only question was whether the assessee could be said to have suffered any deficiency of profits during the period 28th October, 1940 to 31st March, 1941 and 23rd November, 1942 to 31st March, 1943 and was whether entitled to be given the benefit of such deficiency.
of profit.
The High Court referred to certain definitions and recognised and in our opinion rightly that there were sever al stages in business activities before profits could be realised.
The High Court observed that profits realised were not of the sale alone.
The profits were attributable to the manufacturing operations as well.
The High Court referred to certain decisions to which our attention was also drawn where under the Act as to the place where the profits arose, the courts had enquired into the place where the manufactur ing took place and where the sales took place.
This conten tion is no longer relevant for the controversy before us.
It was accepted before us that a manufacturing process may begin in one year and result in sale in another year and also that manufacturing process may take at one place and sale at another place.
For the purpose of computing the profit of certain operation, it is true as the High Court noted, that manufacture and sale might take place in two different years.
The High Court held that though chargeable levy was an annual charge and generally for the purpose of the levy of the annual charge the profits of the year preceding the year of charge are taken into consideration if the manufacturing activity leading to the production of finished article which was subsequently sold contributed to the profits realised, according to the High Court, it mattered little whether or not the manufacturing activity of the sale related to the same period of 609 twelve months.
Some part of the profits realised would be attributable to the manufacturing activities and, therefore, could be said to arise during the period when manufacturing was carried on even though sales were effected in the next year.
The High Court, therefore, was of the view that it was necessary to ,determine what part of the profits realised upon the sales from 30th May, 1941 to 29th September, 1941 could be attributed to the manufacturing activity between 28th OCtober, 1940 to March, 1941 and then to compute the deficiency of profits for the chargeable accounting period ending 31st March, 1941.
That might require, according to the High Court, a fresh determination of the profits earned during the period 1st April, 1941 to 29th September, 1941 and, consequently, of the deficiency of profits during the chargeable accounting period ending 31st March, 1942.
The High Court was of the view that the deficiency of profits for the chargeable accounting periods ending 31st March, 1941 and 31st March, 1942 would have to be set off when computing the excess profits for the relevant chargeable accounting period ending 31st March, 1944.
The High Court expressed the view that under section 2(5) of the Act the job of the assessee in the extraction and sale of Katechu under the two jungle leases must be considered as a single business for the purpose of the Act.
The High Court, there fore, came to the conclusion that upon the principle of apportionment of profits to which it had adverted to, the profits earned upon sales effected during the chargeable accounting period ending 31st March, 1944 must similarly be apportioned between the manufacturing activity during the chargeable accounting period ending 31st March, 1943 and the sales during the chargeable accounting period ending 31st March, 1944 and the deficiency of profits worked out on that basis in respect of the chargeable accounting period ending 3 Ist March, 1943 must be set off in computing the excess profits for the chargeable accounting period ending 31st March, 1944.
The High Court, therefore, did not accept the opinion of the Tribunal that because the chargeable account ing periods ending 31st March, 1941 and 31st March, 1943 were occupied with manufacturing activity alone and there were no sales, therefore, no part of the profits realised upon the sales could be apportioned to those chargeable accounting periods and consequently that it could not be said that there was any deficiency of profits during those periods.
The question referred to the High Court was an swered in affirmative.
In order to appreciate the real controversy in this matter, it is appropriate to refer to the observations of Kania, J., as the Chief Justice then was, in the decision in the case of Commissioner of Income 610 Tax, Bombay vs Raipur Manufacturing Co., Ltd.; at 733.
It was observed as follows: "The Excess Profits Tax Act as shown by the preamble itself is a legislation to impose tax on excess profits arising out of certain business.
The Income tax Act is the principal legislation which imposes a tax on the income of a person.
Section 6 divides the income under five heads which are chargeable to tax.
The fourth head is profits and gains of busi ness, profession or vocation.
Out of that a certain portion is carved out by the Legisla ture for the purpose of imposing the excess profits tax.
I am unable to accept the conten tion of the Commissioner that the Excess Profits Tax Act is an entirety independent legislation, which is connected with the Income tax.
Act only to the extent it is expressly so stated in the Excess Profits Tax ' Act.
The scheme that the Excess Profits Tax Act is a legislation intended to tax the profits of certain business in excess of a certain limit as provided in that Act.
It is therefore complementary to the Income tax Act by its very nature." As the Statement of Objects of the Act stated that the outbreak of war, while it has necessitated greatly increased expenditure by the Government on defence and other services, has simultaneously created opportunities for the earning by companies and persons engaged in business of abnormally large profits.
The object of the Bill (which later became the Act was to secure for the Government a considerable portion of the additional business profits which accrued as a result of the conditions prevailing during the war.
To begin with the right to impose a tax of 50% of the excess of the profit made in any accounting period after the 1st day of April, 1939 was given.
It had subsequently been increased to 66 2/3 %.
Section 2(1) of the Act defines the 'accounting period '.
Section 2(6) defines 'chargeable accounting period as (a) any accounting period falling wholly within the term begin ning on the 1st day of September, 1939, and ending on the 31st day of March, 1946 and (b) where any accounting period falls partly within and partly without the said term, such part of that accounting period as fails within the said term.
The 'standard profits ' is defined under section 2(2) which was required to be computed in accordance with the provisions of section 6 of the Act.
It is not necessary in view of the controversy before us to refer to other defini tions except that section 2(3) deals with 'average 611 amount of capital ' which is relevant for computation of the excess profits.
Section 6 defines the 'standard profits ' and how it is to be computed.
As there was no controversy on this aspect before us, it is not necessary to deal with it.
Section 2(9) defines 'deficiency of profits ' as follows: (9) "deficiency of profits" means "(i) where profits have been made in any chargeable accounting period, the amount by which such profits fall short of the stand ard profits; (ii) where a loss has been made in any charge able accounting period, the amount of the loss added to the amount of the standard profits;" Section 4 defines 'charge of tax ' as follows: "Charge of tax" ( 1 ) Subject to the provi sions of this Act, there shall in respect of any business to which this Act applies, be charged, levied and paid on the amount by which the profits during any chargeable ac counting period exceed the standard profits a tax (in this Act referred to as "excess prof its tax") which shall, in respect of any chargeable accounting period ending on or before the 31st day of March, 1941, be equal to fifty per cent, of that excess and shall, in respect of any chargeable accounting period beginning after that date, be equal to such percentage of that excess as may be fixed by the annual Finance Act; Provided that any profits which are, under the provisions of sub section (3) of section 4 of the Indian Incometax Act, 1922, exempt from income tax, and all profits from any business of life insurance shall be total ly exempt from excess profits tax under this Act.
Provided further that in the. case of any business which includes the mining of any mineral, any bonus paid by or through the Central Government in.
respect of increased out put of the mineral shall be totally exempt from excess profits tax under this Act.
(2)Where a chargeable accounting period falls partly 612 before and partly after the end of March, 1941, the foregoing provisions of this section shall apply as if so much of that chargeable accounting period as falls before, and so much of that chargeable accounting period as falls after, the said end of March were each a separate chargeable accounting period, and as if the excess of profits of that separate chargeable accounting period were an appor tioned part of the excess of profits arising in the whole period determined in accordance with the provisions of section 7A." Section 7 deals with the relief on occurrence of defi ciency of profits and provides in substance that where a deficiency of profits occurs in any chargeable accounting period in any business, the profits of the business charge able with excess profits tax shall be deemed to be reduced and relief shall be granted according to the provisions laid down therein.
The main question in this case is to keep the distinc tion between 'accounting period ' and 'chargeable accounting period '.
The accounting period, it has to be borne in mind, is the twelve months ' proceeding just on the basis of the income tax year and the assessment must be made on the same basis.
The 'chargeable accounting period ' is the period beginning from 1st September, 1939 ending after amendment on 31st March, 1946.
So if there is any deficiency of profits in any of the accounting period which has not been absolved in the assessment for that year may be carried forward but the assessment must be made on the basis of the accounting period.
This has to be emphasised and it must be borne in mind that though it is wholly immaterial whether the manu facture and sale took place in the same year or in two different years, the division of time into periods for its assessment must be made in a real sense as in the income tax one, and then make appropriate adjustments.
Therefore the profits and losses of each year must be computed on yearly basis in terms of the definition of 'accounting period ' under section 2(1) of the Act.
But if any deficiency of profits remains unabsolved, it may be carried forward against any excess profits made and set off during the next accounting period.
The chargeable accounting period is the period from 1st September, 1939 to 31st March, 1946.
But each year 's excess profit & loss must be computed in the manner contemplated in section 2(1) of the Act.
So if there was any deficiency of profits in any particular period, it must be determined on that basis.
In order to work out the scheme of the Act, there must be proper devetailing of the concept of "accounting period", 613 "chargeable accounting period" and basic scheme of the Income Tax Act bearing in mind that excess profits are excess of profits which were intended to be mopped up during the war period intended to be taxed separately and differ ently.
This view finds support in the decision of the Alla habad High Court.
In the case of Haji Rahmat Ullah and Co. vs Commissioner of Income tax, U.P., the High Court of Allahabad held that a payment received in any year subsequently to a chargeable accounting period is not liable to be treated as the profits of that period, merely because the work which occasioned that payment was done during that period.
The "profits during the chargeable accounting peri od" are those profits respecting which a right to receive had accrued or arisen during that period.
If the right to receive those profits had accrued or arisen subsequently, then even though they had accrued or arisen by reason of work done during the chargeable accounting period, these were not liable to be treated as the profits of that charge able accounting period.
The High Court observed that it would seem ex facie that if the profits earned during a certain period are taxable under the Income tax Act, it is a part of those very profits which is liable to excess profits tax.
Whether the profits in the one case could be identified with the profits in the other would be determined by refer ence to the period in which those accrued or arose.
It was emphasised that the profits during the chargeable accounting period must be computed under the Excess Profits Tax on the same basis as are profits for an income tax assessment.
It is clear that excess profits tax is attracted in respect of a business to which the Act applied when the profits during the chargeable accounting period exceed the standard profit.
It has to be clearly borne in mind that the Act is not an entirely different Act in the sense that it proceeds upon the concept completely different from the notions of Income tax and has its source in an entirely different tax concept.
More profits which were likely to have been earned during those years, these were made subject to excess profits.
It appears to us that the period of assessment in the Act is an "accounting period" in the same way as the 'previ ous year ' is the period of assessment for the purpose of Income Tax.
Though profit in a composite transaction could be apportioned as between manufacture and sale in the same accounting year, such an apportionment is not permissible when one part of the transaction, i.e. manufacture, fails in one chargeable accounting period and falls in another part of the accounting period i.e. the trading operations, i.e. falls in another accounting period, then set off of defi ciency in profits under section 7 of the Act is permitted but a necessary precondition was that profit 614 must be made in the accounting period to which the deficien cy relates.
The profits attributed on apportionment was outside the scope of section 7 of the Act.
It must be remem bered that the 'excess profit ' under the Act is profit determined under the Income Tax Act subject to prescribed adjustments.
If the income tax assessment discloses nil profits, no separate profit can be determined independently under the Act.
The position of the Excess Profits Tax Act was explained by Lord President Clyde in Edward Collins & Sons.
Ltd. vs The Commissioner of Inland Revenue, at 780 where the Lord President emphasised that subject to certain modi fication those profits had to be determined in the same way and on the same principle as a trader 's profits and gains have to be computed for the purposes of the Incometax Act.
It is a general principle, in the computation of the annual profits of a trade or business under the Income Tax Acts, that those elements of profit or gain, and those only, enter into the computation which are earned or ascertained in the year to which the enquiry refers; and in like manner, only those elements of loss or expense enter into the computation which are suffered or incurred during that year.
The same principle, in our opinion, would be applicable to the facts of this case.
The decision of this Court in Commissioner of Income tax, Bombay vs Ahmedbhai Umarbhai & Co., Bombay, 18 I.T.R. 472 related entirely to a different context where certain part of the activities occurred at Raichur and the sales took place in Bombay, the question was whether the activity which the assessee carried on at Raichur was part of their business within the meaning of the third proviso to section 5 of the Act, that the profits of a part of the business, the manufacturing of oil in their mills at Raichur, accused or arose at Raichur and that such profits were not assessa ble to excess profits tax under the third proviso to Section 5 of the Act.
That is not the controversy here.controversy is not so much where the profits arose nor is the controver sy whether the profits arose during the chargeable account ing period but where the profits arose during the 'account ing period ' and as such whether the deficiency of the prof its not arising during 'counting period ' but during the 'chargeable accounting period ' could be set off without computation.
The method of computation under section 7 of the Act must be on the basis of 'accounting period ' and after that the deficiency in profits for that period should be computed on that basis and after set off carried forward to be set off during the chargeable accounting period.
It is thus an harmonious construction of 615 the different provisions of the Act is possible and the true excess profits, if any, as contemplated by the Act be deter mined.
The concept of 'accounting period ' in the background of the 'chargeable accounting period ' can thus be harmo nised.
The accounting period was 1st April, 1943 to 31st March, 1944.
In the facts of the case we are of the opinion that the question must be answered in the negative and in favour of the revenue.
The appeal is allowed and the judg ment and order of the High Court are set aside.
In the facts and circumstances of the case, parties will pay and bear their own costs.
A.P.J. Appeal allowed.

dataset_name: IN-Abs

summary/full:
The assessee was an unregistered firm carrying on busi ness of manufacture and sale of Katechu.
The firm carried on the work of extraction of Katechu in Nepal and sales were affected in Kanpur.
It had first taken a jungle on lease and Katechu were extracted from October 1940 to September, 1941.
Sales were effected from 30th May, 1941 to 29th September, 1941.
Thereafter, another jungle was taken on lease and Katechu were extracted from 23rd November, 1942 to 6th November, 1944.
The sales were effected between 26th July, 1943 to 4th April, 1944.
The assessee claimed set off of deficiency of profit for the periods 20th October, 1940 to 17th October, 1941 and 23rd November, 1942 to 31st March, 1943 on the ground that the business carried on during the chargeable accounting period 1 4 1943 to 31 3 1944 was not separate to and dis tinct from the business carried on in 1940 41.
The Excess Profit Tax Officer did not set off the defi ciency of profits that accrued in respect of the period 1940 41 out of the profits for the chargeable accounting period from 1 4 1943 to 31 3 1944, and held that the busi ness carried on during October, 1940 to October, 1941 was completely different from the business carried on during the aforesaid chargeable accounting period.
So far as the deficiency pertaining to the period Novem ber, 1942 to 31st March, 1943 was concerned, the manufactur ing operations started on or about 23rd November, 1942 and the sales started on 26th July, 1943.
Katechu produced from 23rd November, 1942 to 31st March, 1943 remained in stock till the last date of the chargeable accounting period.
namely, 31st March, 1943.
As the assessee did not, maintain any books of account, the provisions of section 13 of the Income Tax were applicable.
The Revenue, therefore, valued the stock intrade at cost and held that there could be no profit or loss during the chargeable accounting period.
In appeal, the assessee urge that deficiency in profits pertaining to the chargeable accounting periods from Octo ber, 1940 to 31st March, 1941, and 23rd November, 1942 to 31st March, 1943 should be allowed a set off in computing the excess profits and as there were no profits during the said chargeable accounting period, the standard profits became the deficiency of the said two years which should have been allowed set off and that as manufacturing opera tions were carried on during the said periods, it could not be said that the assessee did not carry on any business.
The Appellate Assistant Commissioner found that the constitution of the firm during the chargeable accounting period was the same as in 1940 41, that the accounts were maintained in the same fashion and the same business was carried on, that the assessee had effected sales only during 30th May, 1941 to 29th September, 1941 and held that the assessee was entitled to set off in respect of the deficien cy of profits.
He, therefore, confirmed that there were no profits and losses during the chargeable accounting period ending on 31st March, 1941 and as such there could be no deficiency of profits.
The assessee was, therefore, held to be entitled to a set off of the deficiency only for the chargeable accounting period ending on 31st March, 1942 which consisted of the period 1st April.
1941 to 29th Sep tember.
The Tribunal, however, held that no profits accrued unless sale was effected and accepting the contention of the Revenue that no part of profits, which accrued during the said two chargeable accounting periods could be charged and were in fact not so charged to income tax, as no sales were effected, the Act itself did not apply and confirmed the order of the Appellate Assistant Commissioner.
The High Court divided the entire period of manufacture and sales to determine the question whether there was manu facturing activity and sale; (1) October 28, 1940 to March 31, 1941, failing in the financial year ending March 31, 1941, Katechu was manufactured but there was no sale; (2) April 1, 1941 to September 29, 1941, failing in the finan cial year ending March 31, 1942; sales took place from May 30, 1941 to September 29, 1941; (3) November 23, 1942 to March 31, 1943 failing in the financial year ending March 31, 1943; Katechu was manufactured but there was no sale; (4) April 1, 1943 to March 31, 603 1944, failing in the financial year ending March 31,.
1944; sale took place from July 26, 1943 to March 31, 1944; (5) April 1, 1944 to April 4, 1944, failing in the financial year ending March 31, 1945; sales were effected from April 1, 1944 to April 4, 1944 when the business was discontinued.
It held that while there was manufacturing activity there was no sale during the financial years ending March 31, 1941 to March 31, 1943, that the profits earned upon sales ef fected during the chargeable accounting period ending 31st March, 1944 must be apportioned between the manufacturing activity during the chargeable accounting period ending 31st March, 1943 and the sales during the chargeable accounting period ending 31st March, 1944 and that the deficiency of profits must be set off in computing the excess profits for the chargeable accounting period ending 31st March, 1944.
The High Court, therefore, did not accept the opinion of the Tribunal and held that the assessee was entitled to a set off of deficiency of profits relating to the periods 28 10 1940 to 31 3 1941 and 23 11 1942 to 31 3 1943 from the profits of the chargeable accounting period 1 4 1943 to 31 3 1944.
Allowing the Appeal, HELD: 1.
The scheme contained in the Excess Profits Tax Act is a legislation intended to tax the profits of certain business in excess of a certain limit as provided in that Act.
It is, therefore, complementary to the Income Tax Act by its very nature.
[610D] Commissioner of Income Tax, Bombay vs Raipur Manufactur ing Co., Ltd., at 733, followed.
In order to work out the scheme of the Act, there must be proper dovetailing of the concept of 'accounting period '. 'chargeable accounting period ' and basic scheme of the Income Tax Act bearing in mind that excess profits are excess of profits which were intended to be mopped up during the war period, to be taxed separately and differently.
[612H; 613A B] 3.
If the right to receive those profits had accrued or arisen subsequently then even though they had accrued or arisen by reason of work done during the chargeable account ing period, these were not liable to be treated as the profits of that chargeable accounting period.
[613C] 4.Whether the profits in the one case could be identi fied with the profits in the other would be determined by reference to the period in which those accrued or arose.
The profits during the chargeable 604 accounting period must be computed under the Excess Profits Tax on the same basis as are profits for an income tax assessment.
[613D E] Haji Rahmat Ullah and Co. vs Commissioner of Income tax, U.P., , relied upon.
It has to be clearly borne in mind that the Act is not an entirely different Act in the sense that it proceeds upon the concept completely different from the notions of Income Tax and has its source in an entirely different tax concept.
More profits which were likely to have been earned due to profits, these were made subject to excess profits.
[613E F] 6.
Though profit in a composite transaction could be apportioned as between manufacture and sale in the same accounting year, such an apportionment is not permissible when one part of the transaction, i.e. manufacture, falls in one chargeable accounting period and falls in another part of the accounting period i.e. the trading operations i.e. falls in another accounting period, then set off deficiency in profits under section 7 of the Act is permitted but a necessary precondition was that profit must be made in the accounting period to which the deficiency relates.
[613G H; 614A] 7.
The excess profit under the Act is profit determined under the Income Tax Act subject to prescribed adjustments.
If the income tax assessment discloses nil profits, no separate profit can be determined independently under the Act.
[614A B] 8.
It is a general principle, in the computation of the manual profits of a trade or business under the Income Tax Acts, that those elements of profits or gain, and those only, enter into the computation which are earned or ascer tained in the year to which the enquiry refers; and in like manner, only those elements of loss or expense enter into the computation which are suffered or incurred during that year.
[614C D] Edward Collins & Sons Ltd. vs The Commissioners of Inland Revenue, at 780, followed and Commission er of Incometax, Bombay vs Ahmedbhai Umarbhai & Co., Bombay, 18 I.T.R. 472, distinguished.


judgement:
vil Appeal No. 1331 And 1382 of 1976.
From the Judgment and Order dated 13.4.1976 and 29.4.1976 of the Allahabad High Court in Civil Second Appeal No. 49 of 1971 and 362 of 1969.
S.N. Kacker, and C.P. Lal, for the Appellant.
T.S. Krishnamurthy Iyer, and R. Bana, for the Respondents.
The Judgment were delivered by, KHALID, J.
I agree with my learned brother that the appeal has to be allowed.
The Act involved in this appeal is an anachronism today because it was enacted to benefit the land holders and zamindars.
On a consideration of the facts and circumstances, I feel that equity is in favour of the appellant more than the respondents.
The respondents made an application to the Collector, under Section 4 of the Act which was transmitted to the Special Judge, under Section 6 of the Act.
He exercised his option under Section 24 and prayed for exemption of the house which is the subject matter of this appeal.
This application was allowed as early as 26.3.43.
It was long thereafter, on 4.5.58, that he entered into an agreement to sell the house to the appellant herein.
546 Subsequently he made an application to include this house also in the properties to be sold in the proceedings under the Act.
The appellant on being informed of this, objected to the request.
The Collector rejected this request by his order dated 23rd June, 1961.
From this order it is seen that there was an earlier order dated 14.6.45, by which permis sion to sell the house was rejected by the Deputy Commis sioner.
There was a mortgage on the property, but before the agreement a decree on the strength of the mortgage had been passed.
Under these circumstances, it comes with little grace from the respondents to contend that the agreement to sell, even granting that it would come within the mischief of Section 7, cannot be accepted.
Since the mortgage had been extinguished by its merger into a decree, the charge under it was disappeared and in the proceeding, under the Act only a simple decree can be passed.
What is more, an order produced before us, dated 7.5.76 shows that no pro ceedings are pending under the Act at present.
In view of the finality of the matter, we do not propose to go into the questions of law regarding public policy, Section 7 contem plates and the authorities bearing on it.
Under these circumstances, the Judgment of the High Court, in my opinion, is more in accord with fair play and justice.
The appeal has to be allowed as indicated by my learned brother.
However, I am of the view that the respondent has to be compensated in some measure by way of equity.
I direct the appellant to pay a sum of Rs.20,000 to the respondent, taking into account the fact that the property would have escalated in price many times by now.
Since we are allowing the main appeal, no orders ate necessary in the other appeal.
OZA, J.
These appeals have been filed after obtaining leave of this Court against the judgment passed by the High Court of Allahabad, Lucknow Bench in Civil Second Appeal No. 49 of 1971 decided on 13th April, 1976.
The facts necessary for the disposal of this appeal are that the appellant filed a suit for specific performance of the contract of sale of the house in dispute situated in Pratapgarh (Uttar Pradesh).
The agreement was made by the respondent in favour of the appellant on 4th May, 1958 for sale of the house in dispute for the consideration of Rs.6,000 within 5 years.
Rs. 1500 were paid as the earnest money by the appellant to the respondent on the date of agreement.
Further a 547 sum of Rs.2510 was paid on 7.7.58 and on 6.12.59 a further sum of Rs. 10 was paid.
It appears that this house was earlier mortgaged in favour of Thakur Aditya Prasad Singh by the predecessors of the respondent.
The respondent Surendra Bahadur Singh filed an application under Sec.4 of the U.P.
Encumbered Estates Act (U.P. Act No. XXV of 1934) ( 'Act ' for short) to the Collector and Collector had transmitted the same to the Special Judge under Sec.6 of the Act.
Subse quently the respondent debtor had submitted an application to the Collector that the disputed house may not be sold in the proceedings under the Act and may be exempted as provid ed in Sec.24 of the Act.
On 26.3.43 the Collector in exer cise of powers under Sec.24 exempted this house from sale in the proceedings under the Act and it is thereafter that the agreement was entered into.
It appears that subsequently the debtor respondent again wanted this house to be included in the property for sale in the proceedings under the Act to which the present appellant objected and this objection was disposed of by the Collector by his order dated 23rd June 1961 reiterating the position that by order dated 26.3.43 this house has been exempted from the proceedings under this Act and therefore that order can not be re opened.
This order dated June 23, 1961 also refers to an order dated 14.6.45 wherein permission to sell this house which was sought by the respondent under Sec.7 of the Act was rejected by the Deputy Commissioner.
It appears that the mortgage which was executed by predecessors of the respondents in favour of Aditya Prasad Singh was also considered as a claim under Sec. 1 of the Act and ultimately a decree was passed in favour of Aditya Prasad Singh by the Special Judge under the Act.
As this decree was passed under clause 7 of Sec.
14 in view of Sec. 18 of the Act it only remained a money decree and the rights of mortgagee came to an end.
The present appellant therefore pressed the respondent for execution of the sale deed in pursuance of the contract and ultimately filed a suit for specific performance of the contract for sale dated 2nd May 1958.
Trial Court decreed the suit and on appeal the first Appellate court also main tained the decree but on second appeal the High Court on the basis of the provisions contained in the Act came to the conclusion that as permission to sell was refused under Sec.7 and in view of the prohibition under Sec.7 of the Act the contract of sale would be hit by Sec.23 of the Contract Act and in this view of the matter the High Court interfered is second appeal and set aside the decree passed in favour of the appellant.
Aggrieved by this the present appeal has been filed.
Learned counsel for the appellant contended that the scheme of the Act indicates that in order to protect land holders of their in 548 debtedness and consequent insolvency this Act was enacted and it was provided that whenever the land holder made an application under Sec.4 the Collector will pass an order under Sec.6 and send the matter to the Special Judge.
Under the scheme of the Act the Special Judge will consider var ious claims and determine the liability of the debtor.
But if these liabilities are determined they all will be money decree and the earlier fights of creditors will come to an end.
It appears thereafter the properties will be put to sale and the debtors may be paid on the basis of priorities i.e. public debts first, then those which were secured debts and thereafter other debts.
It was contended that in the scheme of this Act Sec.24 provided that the landholder may keep one residential house with furniture and belongings free from all encumbrances which will not be sold in order to discharge the debts and it was competent for the Collec tor when an application has been made under Sec.4, to exempt such a house under Sec.24 of the Act.
It was contended that such an application was made by the respondents under Sec.24 on the basis of which by orders dated 26.3.43 the Collector exempted the house in dispute from sale during the proceedings under this Act and this order was reiterated on 23.6.61.
It was further contended that although permission was rejected for sale of the house under Sec.7 on 14.6.45 but it was contended that the prohibition under Sec.7 will not apply to an agreement for sale.
It was also contended that as the proceedings before the Special Judge have come to an end the objection pertaining to Sec.7 for passing of a decree under Specific Relief Act for specific performance will not be available.
Learned counsel placed reliance on an order dated 7.5.76 which was filed in this Court which clearly stated that on this date i.e. 7.5.76 no proceedings are pending and they are over under Sec.44 of the Act and on this basis it was contended that to a decree for specific performance objection under Sec.7 will not be available to the respondents.
Learned counsel for the respondents on the other hand contended that this document which is an order from the court of Collector, Allahabad dated 7.5.76 on which reliance has been placed by the learned counsel for the appellant has been filed in this Court for the first time and this order itself shows that this was after the judgment of the High Court as the High Court judgment is dated 13.4.76 whereas this order has been obtained which is dated 7.5.76 and on this basis it was contended that it could not be said that no proceedings are 549 pending under the Act and the last order passed was dated 7.7.75.
It was also contended that although under Sec.24 it is possible for a debtor to obtain an order from the Collector exempting one house from the proceedings under the Act but it was contended that this exemption was nothing but exemp tion from attachment and sale which otherwise would follow under the scheme of the Act after the claims are determined under Sec.
Learned counsel after examining the scheme of the Act contended that in fact what is contemplated under Sec.24 is to allow a debtor landholder to have a house and furniture for his residence and use so that he may live in a respectable manner.
This, as is not disputed.
was in fact the purpose of the Act as indicated by the Objects and Reasons and it is with that view that Sec.24 was enacted.
It was contended that if a house was exempted under Sec.24 it would not be consistent with the scheme of the Act to permit the debtor landholder to seek an exemption under Sec.24 and then sell away the house and pocket the money to defeat the creditors.
It was therefore contended that is why Sec.7 provides that no property could be sold except with permis sion under Sec.7.
It was contended that the language of Sec.7 sub clause (4) is wide enough and even an agreement to sell which creates rights in immovable property will be affected by the provisions of Sec.7.
Learned counsel by reference to the various provisions and especially to the provisions contained in Sections 43 and 44 contended that even when the proceedings under this Act are quashed or an application is dismissed the rights of the creditors are revived.
According to the learned counsel, it could not be said that the proceedings have come to an end and in this view of the matter it was contended that the High Court was right in allowing the appeal and setting aside the decree passed.
Learned counsel appearing for the appellant further contended that although the order from the Collector has been filed in this Court but is was filed long ago and if the respondents wanted to challenge they could have filed any other order from the Collector.
As regards the argument that under Sec.24 a house can be exempted for use of the debtor landholder and it could not be just a device to obtain exemption, sell the property and pocket the amount to the detriment of the creditors but it was contended that under these circumstances if the debts remain to be satis fied still the sale proceeds can be kept in deposit for being distributed to the creditors.
On this basis it could not be said that a decree for specific performance can not be passed.
550 Learned counsel alternatively contended that even if it is in dispute as to whether the proceedings under the Act are still pending when the provisions contained in Sec.7 are attracted the decree for specific performance could be passed subject to a permission under Sec.7.
Learned counsel for the appellant placed reliance on the decision of this Court in Mrs. Chandnee Widya Wati Madden vs Dr. C.L. Katial and Others.
, ; Learned counsel for the respondents however placed reliance on the decisions of this Court in Behram Khurshed Pesikaka vs The State of Bombay, ; Bhasheshar Nath vs The Commissioner of Income Tax, Delhi & Rajasthan & Another, [1959] Supp. 1 SCR 528; Murlidhar Aggarwal and Another vs State of Uttar Pra desh and Another; , , Lochoo Mal vs Radhey Shyam, ; and also on Ral Nation Jain vs Firm Sukha Nand Ram Norgin and others.
, Facts are not in dispute.
It is also not disputed that U.P. Encumbered Estates Act 1934 was brought in to give relief to a class of debtors particularly landholders and the Act provide for a scheme for settlement of debts without filing of an insolvency petition.
The authorities referred to by learned counsel do not throw any light on the questions involved.
Sec.4 of this Act provides for making of an application to attract the provisions of this Act and once an applica tion under this Section is made, the proceedings are said to have commenced under the provisions of this Act.
Sec.6 provides for passing of an order and transmission of the application to the Special Judge who has been conferred jurisdiction under this Act to proceed with the proceedings.
Sec.7 of this Act provides: "When the Collector has passed an order under Section 6 the following consequence shall ensue: (a) all proceedings pending at the date of the said order in any civil or revenue court in Uttar Pradesh in respect of any public or private debt to which the landlord is subject, or with which his immovable property is encum bered, except an appeal, review or revision against a decree or order, shall be stayed, all attachments and other execution processes issued by any such court and then in force in respect of any such debt shall become null and void, and no fresh process in execution shall, except as hereinafter provided, be issued; 551 (b) no fresh suit or other proceedings other than an appeal, review or revision against a decree of order, or a process for ejectment for arrears of rent shall, except as hereinaf ter provided, be instituted in any civil or revenue court in Uttar Pradesh in respect of any debts incurred before the passing of the said order but if for any reason whatsoever such a suit or proceeding has been instituted, it shall be deemed to be a proceeding pending at the date of the said order within the meaning of clause (a).
Provided that when a landlord has executed a usufructuary mortgage in respect of any of his land and is in possession of that land as a thekadar of the mortgagee, no fresh process shall issue for his ejectment from that land for arrears of the theka rent.
(2) After the passing of the said order and until the application is dismissed by the Special Judge under subsection (3) of Section 8 proceedings under this Act are quashed under Section 20 or until the Collector has liqui dated the debt under Chapter V, no decree obtained on the basis of any private debt incurred by the landlord after the passing of the order under Section 6 shall be executed against any of his property, other than pro prietary rights in land, which has been men tioned in the notice under Section 11 and the landlord shall not be competent without the sanction of the Collector to make an exchange, or gift or, or to sell, mortgage or lease, any of that property.
(3) After the passing of the order under Section 6 and until the Collector has declared in accordance with Section 44 that the land lord has ceased to be subject to the disa bilities of this sub section or until the passing of the order by the Special Judge, referred to in sub section (2) of Section 44, no decree obtained on the basis of any private debt incurred after the passing of the order under Section 6 shall be executed against any of the landlord 's proprietary rights in the land mentioned in the notice published under Section 11 and the landlord shall not be competent, without the sanction of the Collec tor, to make any exchange or gift or, or to sell, mortgage or lease those proprietary fights, or any portion of them.
552 (4) Any transfer made in contravention of the provisions of this section shall be void.
" Much of the controversy in the present matter pertains to the effect of Sec.7.
Sub clause (1) of this Section indi cates the consequences that will follow when an order under Sec.6 has been passed by the Collector.
sub clause (2) speaks of restrictions on the landlord about exchange, gift, sale, mortgage or lease of any of the properties without the sanction of the Collector.
It is not in dispute that after an application under Sec.4 was filed by the respondent debtor when an application under Sec.24 was filed for exemp tion in respect of the house in dispute and the order was passed on 26.3.1943.
It is therefore plain that on the day i.e. 4.5.58 when the agreement was entered into an applica tion under Sec.4 had been made and the order had been made under Sec.6 and it is not disputed that on the day on which the agreement was made the provisions of Sec.7 were attract ed and the limitations put on the power of the landlord under Sec.7 were applicable to the respondent landlord in this case.
Sub clauses 2 and 3 of the Sec.7 provided for restrictions put on the power of the landlord and the re striction is in respect of exchange, gift, sale, mortgage or lease.
It is clear that the restrictions pertain to ex change, gift, sale, mortgage and lease and it was contended by learned counsel for the appellant that agreement to sell is not covered by any one of these restrictions and there fore the agreement which was entered into in 1958 could not be said to be bad in law as the High Court appears to have held whereas an attempt was made by learned counsel for the respondents to contend that as the agreement to sell creates some rights in immovable property it will be covered within the language of sub clauses (2) and (3).
It is not disputed that at the time when this agreement was entered into the proceedings under this Act were pending and the provisions of Sec.7 are attracted.
A plain reading of the provisions contained in sub clauses 2 and 3 clearly go to show that agreement to sell has not been included in the restrictions which have been imposed on the right of debtor.
The terms used clearly go to show that the prohibi tion is pertaining to the transfer (where fights in immova ble property are transferred).
Admittedly an agreement to sell is not a transfer of any rights in immovable property and therefore the agreement could not be held to be bad in law.
Sec.24 of this Act provides: "The Collector shall then realise the value of such of the 553 debtor 's property, other than proprietary fights in land, but including proprietary rights in land in the areas which on the 7th day of July, 1949, were included in a Municipality or a Notified Area under the provisions of the U.P. Municipalities Act, 1916, or a cantonment under the provisions of the Cantonment Act, 1924, or a Town Area under the provisions of the U.P. Town Area Act, 1914, as shall have been reported by the Special Judge under the provisions of sub section (2) of Section 19 to be liable to at tachment or sale: Provided that the Collector before passing orders under this section of the sale of any property shall hear any objection which the debtor may have to make to the sale of that property.
Provided also notwithstanding anything in any other section of this Act, the Collector may, if he considers fit, sell, along with any building disposed of under this Section, the proprietary rights of the applicant in any land occupied by such building or appurtenant there to: Provided further that the Collector shall leave the debtor at least one residential house and necessary furniture thereof if (a) the debtor owns such house and furniture and desires to retain it, and (b) such house and furniture is free from any mortgage or charge.
(2) The amount so realized shall be expended by the Collector in discharging the debts in order of priority.
(3) For the purpose of execution against proper ty outside the (Uttar Pradesh) the decrees passed by the Special Judge shall be deemed to be decrees in favour of the Collector.
(4) For realising the value of the debtor 's property under this section the Collector may excercise all the powers of a civil court for the execution of a decree." 554 The proviso to this Section with sub clauses (a) and (b) clearly indicates that Collector has the authority to exempt one residential house and necessary furniture and the exemp tion for such a house and furniture once granted will be free from any mortgage or charge.
Much emphasis was laid on the terms of the order passed by the Collector on June 23, 1961 wherein it was observed that "house in question should remain exempted from attach ment and sale" and it was contended by the learned counsel for the respondents that this exemption only pertains to its exemption from attachment and sale.
The original order dated 26th March 1943 only talks of the house and personal effects to be excluded.
We have no hesitation in saying that it is not the language of the order which is material but the language of the provision under which the order was made as it is not disputed that an order under Sec.24 exempting the house in dispute was passed on 26th March 1943 which was only reiterated in the order dated 23rd June 1961.
It is therefore clear that once this order is passed the house in question was free from any mortgage or charge.
It was contended by the learned counsel for the respond ents that the scheme of the Act dearly show that what was provided in sec.24 was only with a purpose to allow the debtor to have a residential house with necessary furniture to permit him to have a respectable living but it did not mean that the debtor was at liberty to sell away this property and pocket the money to defeat the creditors and on this basis an attempt was made to contend that during the pendency of the proceedings the fights of a mortgagee sur vived in spite of an order passed under Sec.24 or inspite of an order under clause 7 of Sec.
14 having been passed.
So far as Sec.24 is concerned and the effect of the order under this Section is concerned it is clear that once an order exempting the property under this provision is passed by Collector the house and furniture about which such an order is made is free from any mortgage or charge and therefore it leaves no doubt that after the order under Sec.24 having been passed in the present case i.e. on 26.3.43 the mortgage which was in existence before the proceedings under this Act commenced ceased to be effective and this property was free from any .
mortgage or charge.
14 clause 7 provides for determination of debts: It reads as under: 555 "(7) If the Special Judge finds that (a) no amount is due, he may pass a decree for cost in favour of the landlord; (b) an amount is due to the claimant he shall (i) pass a simple money decree, having regard also to the provisions of Section 3 of the U.P. Zamindars ' Debt Reduction Act, 1952, for such amount together with any costs which he may allow in respect of the proceedings in his court and of proceedings in any court stayed under the provisions of the Act together with pendente lite and further interest at a rate not higher than 4 1/4 per cent per annum; and (ii) also certify the amount, if any, of such decree which, in accordance with the provi sions of Section 8 of the U.P. Zamindars ' Debt Reduction Act, 1952, is not legally recovera ble otherwise than out of the compensation and rehabilitation grant payable to the landlord: Provided that no pendente lite interest shall be allowed in the case of any debt where the creditor was in possession of any portion of the debtor 's property in lieu of interest payable on such debt for the period he was so in possession.
" Sub clause (b) of this clause 7 clearly provides that the amount which is found to be due to the claimant, a money decree shall be passed and what will be the effect of this money decree having been passed under sub clause 7 of Sec. 14 has been provided in Sec. reads: "Subject to the fight of appeal or revision conferred in Chapter VI, the effect of a decree of the Special Judge under sub section (7) of Section 14 shall be to extinguish the previously existing fights, if any, of the claimant, together with all rights, if any, of mortgage or lien by which the same are secured and, where any decree is given by the Special Judge to substitute for those fights a fight to recover the amount of the decree in the manner and to the extent hereinafter pre scribed: 556 Provided that secured debts, which, in accordance with the provisions of Section 8 of the U.P. Zamindars ' Debts Reduction Act, 1952, are not legally recoverable otherwise than out of the compensation and rehabilita tion grant payable to the landlord shall be recoverable from the compensation and rehabil itation grant aforesaid as though the security had not been extinguished." Sub clause 7 of Sec.
14 uses the phrase "pass a simple money decree" and in our opinion this terminology "simple money decree" has been used with some significance and if any doubt is left it has further been cleared by providing Sec. 18.
This provision clearly indicates that once a decree has been passed by the Special Judge under sub Sec. 7 of Sec.
14 the effect of it will be to extinguish the previous ly existing fights in any of the claims or mortgage and the decree passed by the Special Judge will substitute all those fights.
It is therefore clear that once the claim of a creditor even if he is secured is determined by the Special Judge under Sec.
14 sub clause 7 and a money decree is passed the 'rights of the creditors even if it was under mortgage come to an end although the scheme of the Act indicates that such debts which are secured may get priority over the debts which were not secured and on the basis of these provisions and the provisions contained in Sec.44 an attempt was made by learned counsel for the respondents to contend that although the rights of the mortgagee may be extinguished but so long as the proceedings are pendings they are not completely extinguished as in the event of quashing of the proceedings the scheme of the Act indicates a revival of such rights.
But it could not be doubted that so long as they are not revived they come to an end and we have no hesitation in view of Sec.24, sub clause 7 of Sec.
14 read with Sec. 18 that this house in dispute at the time when the suit was filed for specific performance of the contract was free from all encumbrances and there was no mortgage or charge against this property.
It is therefore clear that what learned counsel for the respondents contended on the basis of provisions contained in Sections 43 and 44 only is that in cases where proceed ings are quashed under Sec.20 the rights of the creditors if they were of a mortgagee may revive and the time spent in these proceedings may be exempted but it is nobody 's case that the proceedings have been quashed under Sec.20 and admittedly the respondent during these proceedings at no time has not raised a plea that the proceedings have been quashed under Sec.20.
On the contrary the order that has been put on record by the learned counsel for the appellant clearly goes to show that the pro 557 ceedings have been concluded and therefore question of revival does not arise.
Learned counsel for the respondents vehemently contended that the scheme of the Act does not mean that when the house which has been exempted only for the purposes of living of the debtor, could not be sold away and money pocketed de feating the claims of the creditors.
Even if this argument is accepted it does not carry the matter further except that if any claim is still remaining to be settled the sale proceeds which the respondent debtor will get out of the decree for specific performance could be kept apart for distribution to the creditors.
It was also contended that sub clause 4 of Sec.7 quoted above clearly provides that any transfer in contravention of provisions of this Section will be void and therefore even a transfer under a decree would be void if it is in contraven tion of the provisions of Sec.7 whereas learned counsel for the appellant frankly conceded that although as the order dated 7.5.76 discloses that the proceedings are over under this Act and therefore effect of Sec.7 has come to an end and a decree for specific performance for sale could be passed without any objection under Sec.7 but even if the proceedings are pending, the decree could be subject to a permission from the Collector under Sec.7.
Although it was vehemently contend by the counsel for the appellant that if the respondent wanted to challenge the order dated 7.5.76 which was filed by the appellant in this Court clearly indicating that the proceedings are over under Sec.44 of the Act and it was open to them to file any further order indi cating that the proceedings are still pending and as no such order has been filed it has to be accepted that the proceed ings are over and the limitation put on transfer by Sec.7 has ceased to be effective.
The language of Sec.7 as quoted above is clear enough that this is effective only during the pendency of the proceedings under this Act and the order dated 7.5.76 filed by the appellant in this Court clearly goes to show that no proceedings are pending and the case has been consigned to the record.
There is nothing to indicate that any proceed ings are pending nor anything to indicate that any claim of any creditor still remains to be satisfied.
In the absence of any proceedings pending the effect of clause 4 of Sec.7 will be of no avail.
In our opinion therefore a decree for specific performance could be passed.
The High Court there fore was in error in allowing the appeal and setting aside the judgment and decree passed by the learned courts below.
It is no 558 doubt open to the respondent to approach the executing court to retain the sale proceeds if they are in a position to satisfy the court that any part of the claim still remain to be satisfied.
The appeal is therefore allowed, the judgment and decree.
passed by the High Court is set aside.
Instead the decree passed by the trial court and maintained by the Appellate court is restored.
In the circumstances of the case, parties are directed to bear their own costs.
N.P.V. Appeal allowed.

summary/full:
The respondent entered into an agreement to sell the house in dispute to the appellant on May 5, 1958.
Earlier he had made an application to the Collector under Section 4 of the U.P.
Encumbered Estates Act (U.P. Act No. XXB of 1934), which had been transmitted to the Special Judge under Sec tion 6 of the Act and pursuant to his application under Section 24 of the Act, the house in dispute had been exempt ed from sale in the proceedings under the Act on March 26, 1943.
Subsequent to the agreement, he made an application for including this house also in the property to be sold under the proceedings of the Act.
The appellant objected to it.
By his order dated 23rd June, 1961, the Collector re jected this request on the ground that since the house in dispute had already been exempted by the order dated March 26, 1943, that order could not be re opened.
There was a mortgage of this property by the predeces sors of the respondent, which was also considered as a claim under Section 14 of the Act and a decree in favour of the mortgagee was passed by the Special Judge under clause (7) of Section 14 of the Act.
In view of Section 18 the decree remained only as a money decree and the rights of the mort gagee came to an end.
The appellant filed a suit against the respondent for specific performance of the contract of sale of the house in dispute.
The trial court decreed the suit and on appeal, the first appellate court also maintained the decree but on second appeal, the High Court held that as permission to sell was refused under Section 7, the contract of sale would be hit by Section 23 of the Contract Act and set aside the decree passed in favour of the appellant.
543 In the appeals, it was submitted by the appellant that although permission for sale of the house under Section 7 was rejected on June 14, 1945, the prohibition under Section 7 will not apply to an agreement for sale, that as the proceedings before Special Judge had come to an end, the objection pertaining to Section 7 for passing of a decree under Specific Relief Act for specific performance will not be available, that if the debts remained to be satisfied still the sale proceeds could be kept in deposit for being distributed to the creditors, and, therefore, it could not be said that a decree for specific performance could not be passed, that the agreement to sell is not covered by anyone of the restrictions specified in sub clauses (2) and (3) of Section 7 and, therefore, the agreement which was entered into in 1958 could not be said to be bad in law.
On behalf of the respondent it was contended that as the order dated May 7, 1976 of the Collector was after the judgment of the High Court, it could not be said that no proceedings were pending under the Act, as the last order passed was on July, 7, 1975, that the language of Section 7 sub clause (4) was wide enough and even an agreement to sell would be affected by the provisions of Section 7, and a transfer under decree could also be void if it was in con travention of this Section, that the rights of a mortgagee survived inspire of an order passed under Section 24 or inspire of an order under clause (7) of Section 14 having been passed, and that though the rights of the mortgagee may be extinguished but so long as the proceedings were pending they were not completely extinguished.
Allowing the appeals, this Court, HELD: [PER OZA, J] 1.
U.P. Encumbered Estates Act, 1934 was brought in to give relief to a class of debtors , particularly land hold ers and the Act provides for settlement of debts without filing of an insolvency petition.
Once an application under Section 4 is made, the proceedings are said to have com menced under the provisions of the Act.
[550E] In the instant case, on the day when the agreement was entered into, an application under Section 4 had been made, the order under Section 6 had been passed and the provisions of Section 7 were attracted and the limitations put on the power of the landlord under Section 7 544 became applicable to the respondent landlord.
[552C D] A plain reading of the provisions contained in sub clauses (2) and (3) clearly shows that an agreement to sell has not been included in the restrictions which have been imposed on the right of debtor.
The terms used clearly show that the prohibition pertains to the transfer (where rights in immovable property are transferred.) An agreement to sell is not a transfer of any rights is immovable property and, therefore, it could not be held to be bad in law.
[552F H] 2.1 Once an order exempting property under Section 24 is passed by the Collector, the house and furniture about which such an order is made is free from any mortgage or charge and the mortgage which was in existence before the proceed ings under the Act commenced ceased to be effective.
[554F G] 2.2 Once the claim of a creditor even if he is secured is determined by the Special Judge under Section 14 sub clause (7) and a money decree passed, the rights of the creditors, even if it was under mortgage, come to an end.
[556D] 2.3 So long as the rights of the mortgagee are not revived, they came to an end and in view of Section 24, sub clause (7) of Section 14 read with Section 18, the house in dispute, at the time when the suit was filed for specific performance of the contract, was free from the encumbrances and there was no mortgage or charge against the property.
[556E F] 3.
The language of Section 7 is clear enough that it is effective only during the pendency of the proceedings under the Act.
The Order dated 7.5.1976 filed in this Court clear ly goes to show that no proceedings were pending and the case had been consigned to the record.
There is nothing to indicate that any proceedings are pending nor any claim of any creditor still remains to be settled.
In the absence of any proceedings pending the effect of clause (4) of Section 7 will be of no avail, and therefore, a decree for specific performance could be passed.
[557F H] [PER KHALID, J.] It comes with little grace from the respondent to con tend that the agreement to sell, even granting that it would come within the mischief of Section 7, cannot be accepted.
Since the mortgage had been extinguished by its merger into a decree, the charge under it has disappeared 545 and in the proceeding under the Act only a simple decree can be passed.
A perusal of the order produced in this Court shows that no proceedings are pending under the Act at present.
In view of the finality of the matter, it is not necessary to go into the question of law regarding public policy Section 7 contemplates and the authorities bearing on it.
[546B D] The respondent has to be compensated in some measure by way of equity.
The appellant is, therefore, directed to pay a sum of Rs.20,000 to the respondent.
[546E] Mrs. Chandnee Widya Wati Madden vs Dr. C.L. Katial and Others, ; ; Behram Khurshed Pesikaka vs The State of Bombay, ; Basheshar Nath vs The Commissioner of Income Tax, Delhi & Rajasthan & Another, [1959] Supp.
1 SCR 528; Murlidhar Aggarwal and Another vs State of Uttar Pradesh and Another, ; Lachoo Mal vs Radhey Shyam, ; and Raj Narian Jain vs Finn Sukha Nand Ram Narain and others, , referred to.