Kanhaiyalal vs Dr. D. R. Banaji and Others

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 128 of 1954

Decision Date: 31 March 1958

Coram: Bhuvneshwar P. Sinha, Syed Jaffer Imam

The case titled Kanhaiyalal versus Dr D R Banaji and Others was decided by the Supreme Court of India on 31 March 1958, the judgment being authored by Justice Bhuvneshwar P Sinha with Justice Syed Jaffer Imam sitting on the bench. The petitioner was Kanhaiyalal and the respondents were Dr D R Banaji and other parties. The citation for the decision is reported as 1958 AIR 725 and 1959 SCR 333. The matter involved a revenue sale of property under the Berar Land Revenue Code, 1928, and raised the questions of whether the sale was illegal for being conducted without a court order and without notice to the Receiver, and whether a suit filed to set aside the sale was barred by sections 155, 156, 157 or 192 of the Code. The Court recorded that the appellant had become the auction-purchaser of the property at a revenue sale held pursuant to the provisions of the Berar Land Revenue Code, 1928, for the recovery of land revenue due. At the time of the attachment and sale, the property was in the possession of a Receiver who had been appointed by the Bombay High Court under Order 40, Rule I of the Code of Civil Procedure. No notice of the attachment and sale was given to the Receiver, and no leave of the Court was obtained before the sale was effected. The Receiver consequently instituted a suit seeking a declaration that the sale was a nullity or, at the very least, illegal and therefore liable to be set aside. The auction-purchaser argued that a sale carried out without notice to or impleading the Receiver was not void but merely voidable, and that, irrespective of that point, the suit was barred by sections 157 and 192 of the Berar Land Revenue Code, 1928. The Court held that the sale was illegal because it had been conducted without the required leave of the Court and without the necessary notice to the Receiver. The Court further held that the suit was not barred by any provision of the Code. Regarding section 157, the Court explained that sub-section (1) of that section bars the institution of a suit to set aside a sale only on the ground of irregularity or mistake in publishing or conducting the sale as referred to in section 56, and that suits based on other grounds, including those referred to in sub-section (2) of section 157, fall outside the prohibition of sub-section (1). The Court also held that section 192 of the Code was not applicable because the suit was not a simple action to set aside the revenue sale; rather, it was a suit for a declaration and consequential relief on grounds taken by the Receiver that are not covered by the specific provisions of the Code for setting aside the sale, and therefore did not fall within the meaning of section 192(I). The judgment recorded that the appeal was filed under civil appellate jurisdiction as Civil Appeal No. 128 of 1954, arising from the judgment and decree dated 25 January 1951 of the Nagpur High Court in L P Appeal No. 10 of 1945.

The appeal arose from a judgment and decree dated 29 March 1945 issued by the High Court in Second Appeal No. 453 of 1941. That judgment was rendered against an earlier judgment and decree dated 5 April 1941 of the Additional District Judge, Yeotmal, in Civil Appeal No. 47-A of 1940. The Civil Appeal No. 47-A itself had been filed on the basis of a judgment and decree dated 14 September 1940 of the Additional Sub-Judge, First Class, Yeotmal, in Civil Suit No. 72-A of 1940. The appellant was represented by counsel named Radhey Lal, while the first respondent was represented by a team consisting of P. N. Bhagwati, J. B. Dadachanji, S. N. Andley and Rameshwar Nath. Counsel for the second respondent was R. H. Dhebar. The judgment of the appellate court was delivered on 31 March 1958 by Justice Sinha. The principal issue before the Court was whether, on the basis of a certificate of fitness granted by the High Court of Judicature at Nagpur as it existed then, the provisions of the Berar Land Revenue Code of 1928 (referred to in the judgment as “the Code”) prohibited the suit that formed the subject of the present appeal. To understand the controversy, the Court set out the material facts that gave rise to the dispute.

Bhagchand Jairamdas occupied a plot of land situated in the town of Yeotmal, within the Province of Central Provinces and Berar as it was known at the time. The plot measured 1,91,664 square feet and carried a ginning factory together with its ancillary buildings. Bhagchand had executed a mortgage bond in favour of a person named Abubakar. In order to enforce that mortgage, the mortgagee instituted a suit before the original side of the Bombay High Court, identified as Civil Suit No. 1543 of 1934. During the pendency of that mortgage suit, a Receiver was appointed on 20 October 1936 to manage the mortgaged property, which included the aforementioned plot. The courts below later valued the land, the factory and the associated buildings at approximately Rs. 70,000. The land revenue payable on the plot, assessed at Rs. 129 per annum, remained unpaid for two consecutive years, namely the fiscal years 1936-37 and 1937-38. Acting in the capacity of Deputy Commissioner under the Code, the Sub-Divisional Officer of Yeotmal conducted an auction of the plot on 17 December 1937, selling it free of all encumbrances and without serving notice on or involving the Receiver who was then in charge of Bhagchand’s estate. At that auction the appellant, Kanhaiyalal, purchased the property for a sum of Rs. 270. The sale in favour of Kanhaiyalal was formally confirmed on 26 January 1938. However, it later emerged that the Receiver had, on 19 January 1938, forwarded a cheque for Rs. 275 to the Sub-Divisional Officer to settle the outstanding land-revenue arrears and thereby obtain a setting aside of the sale. Because of administrative mishandling, the Sub-Divisional Officer did not become aware of this application until after the confirmation of the sale, and the cheque reached the officer only two days after the sale had been confirmed.

After the Sub-Divisional Officer finally became aware of the Receiver’s application, the Receiver filed a request for review of the order that had confirmed the sale. The Sub-Divisional Officer permitted this review and consequently set aside the confirmation of the sale. Both the Deputy Commissioner of Yeotmal and the Commissioner of Berar subsequently affirmed the Sub-Divisional Officer’s order that nullified the sale. Thereupon, the purchaser at the auction, Kanhaiyalal, filed a revision petition before the Financial Commissioner, who at that time was the highest revenue authority under the Code, challenging the order of the Commissioner and the earlier setting aside of the sale. The Financial Commissioner ultimately vacated the order that had set aside the sale on the reasoning that no application had been made under section 155 or section 156 of the Code. Having been unable to prevent the revenue authorities from setting aside the sale of the valuable property, the Receiver instituted the suit that gave rise to the present appeal. In that suit the Receiver impleaded three defendants: the Provincial Government of the Central Provinces and Berar as the first defendant, Kanhaiyalal, the auction purchaser, as the second defendant, and Dulichand Bhagchand as the third defendant. The Receiver prayed for a declaration that the auction sale held on 17 December 1937 was void. The grounds relied upon for this relief included the claim that no notice of demand had been served on the Receiver who was in charge of the property, that the attachment and the proclamation of sale had not been carried out in accordance with law, and that, although the revenue authorities were aware that the Bombay High Court had appointed a Receiver for the property, they had failed to implead the Court-appointed Receiver in the proceedings. The suit was contested on the preliminary ground that it was barred by sections 157 and 192 of the Code. The matter proceeded before the trial court and the National District Judge of Yeotmal, and then before the High Court of Judicature at Nagpur, where a single judge, Nivogi J., heard the case and allowed the appeal by judgment dated 29 March 1945. An appeal by way of Letters Patent was thereafter filed by the auction-purchaser Kanhaiyalal and was heard by a Division Bench composed of Justices Mangalmurti and Deo. That Bench affirmed the decision of the single judge and held that the suit was not barred, leading to the present appeal.

The appellant, who is the auction-purchaser and was the second defendant in the original suit, argued that the sale, although conducted without notice to the Receiver and without impleading him, was not void but merely irregular, and further asserted that, irrespective of the alleged irregularity, the suit was barred under sections 157 and 192 of the Code. The first defendant, the State Government, through its counsel, prayed that no order for costs should be made either in its favour or against it. The plaintiff-respondent contended that property held by a Receiver is “custodia legis” and is exempt from all judicial processes unless the court that appointed the Receiver grants permission either to the Receiver or to a third party to institute proceedings concerning the property. These contentions formed the basis of the arguments presented before the court in this appeal.

The respondent argued that the sale of the property was not a mere irregularity but an illegality because the Bombay High Court, which had appointed the Receiver, had not given its permission for the sale. The respondent contended that the lack of such permission rendered the sale a nullity. It was further submitted that, even assuming the sale was not a nullity, it was nevertheless an illegal act that could be set aside by an appropriate suit. The respondent also maintained that there was no valid attachment of the property made with notice to the Receiver; consequently, the attachment itself was illegal and, on that basis, the sale should be considered void. Finally, the respondent asserted that the suit challenging the sale was not barred by the provisions of the Code of Civil Procedure, as the High Court had previously held.

According to the record, the material facts were not disputed. While the proceedings that ultimately led to the sale were pending before the Revenue Courts, the Receiver appointed by the Bombay High Court exercised effective control and management over the property. The revenue authorities were fully aware that the Receiver was in charge of the land. Initially, the revenue officials attempted to approach the Collector of Bombay to recover the arrears of land revenue due on the plot in question. However, they failed to seek the approval of the Bombay High Court or to make a demand of the Receiver for payment of the government’s dues. The law placed a clear duty on the Receiver to ensure that all public demands concerning the properties under his charge were satisfied promptly. In the present case, arrears for the fiscal year 1937-38, which became due in August 1938, accrued during the Receiver’s tenure, and it is likely that arrears for the preceding year 1936-37 also remained unpaid. Had the Receiver been more vigilant, or had the revenue officials directed their demand for the arrears to the Receiver, the dues might have been settled without the necessity of putting the property up for sale.

The Court noted that Indian jurisprudence is settled that a sale conducted without a prior attachment of the property, or without complying with the statutory provisions governing attachment, is not void ab initio but only voidable. Rule 52 of O. 21 of the Code of Civil Procedure requires that where a property is in the custody of any court or public officer, an attachment must be effected by giving notice to that court or officer. The absence of such notice, however, does not render the sale void from the outset, because the jurisdiction of the court or authority ordering the sale does not depend on the issuance of a notice of attachment. It is also settled law that proceedings instituted against a property that is in the possession and management of a Receiver appointed under O. 40, r. I of the Code of Civil Procedure, without obtaining the leave of the appointing court, are illegal and may attract contempt of court, but they do not disturb the interest of the Receiver who holds the property for the benefit of the ultimate entitled party.

The Court explained that any party who initiated proceedings against property that was under the control of a Receiver without first obtaining the permission of the Court that had appointed the Receiver acted illegally, and such a party could be committed to contempt of that Court. The Court further clarified that those illegal proceedings did not affect the interest of the Receiver, who held the property for the benefit of the person who might ultimately be adjudged by the Court to be entitled to it. The counsel for the respondent was unable to point to any Indian decision that declared a sale made without notice to the Receiver or without the permission of the Court that appointed the Receiver to be void from the outset. Consequently, the Court said it was not necessary to examine the argument raised by the respondent’s counsel that a sale of property held by the Court through its Receiver, where the sale was effected without the Court’s permission, should be treated as a nullity. The Court noted that some American decisions treated such a sale as void, but indicated that the relevant High Court in this matter had held that the sale was merely voidable and could be declared illegal through appropriate legal action or a suit. On that basis, the Court adopted the assumption, for the purpose of deciding this case, that a sale conducted without the Court’s permission and without notice to the Receiver was only voidable, not void ab initio. Operating under that assumption, the Court observed that the suit had been filed to obtain a declaration that the sale carried out by the revenue courts was illegal. The plaintiff’s petition was later amended to include a claim for recovery of possession, because in the interval between the original filing and the amendment, the purchaser at auction had been granted delivery of possession of the property by the revenue authorities, an event that occurred in 1940. The Court then restated the general principle that property held in the custody of the law through a duly appointed Receiver is generally exempt from further judicial process unless the Court that appointed the Receiver has granted permission for such process. This principle rests on a strong public-policy consideration that different courts should not conflict with each other in exercising jurisdiction. When a court appoints a Receiver for a particular piece of property, it does so with the purpose of preserving that property for the benefit of the rightful owner as determined by the court. If other courts or tribunals of equal or exclusive jurisdiction were to allow independent proceedings concerning the same property without reference to the court that placed it under the Receiver’s custody, there would be a risk of confusion in the administration of justice and a possible clash of jurisdictional authority. The Court emphasized that the courts, as the embodiment of the rule of law, would not take actions that would weaken that rule or permit proceedings that might undermine the orderly protection of the property held in custody.

In this case, the Court explained that a party who initiates legal proceedings without authority could be held in contempt of court. The Court said that this danger of contempt formed the basis of the rule protecting property that was placed in custodia legis. The Court further observed that if a Court which already possessed the property, either through a Receiver or by some other means, received an application for permission to commence additional proceedings concerning that property, the Court would normally grant such permission when the interests of justice required it. The Court stressed that the judiciary would not interfere with the established rule, but at the same time it would be vigilant to prevent the property in custodia legis from being subjected to unregulated attacks. At the same time, the Court affirmed that the courts must safeguard the rights of every person who might have a claim to the property. After setting out these general principles, the Court proceeded to examine the relevant provisions of the Code in order to determine the extent to which the general rule of law was affected by the statutory scheme.

The Court then turned to the Berar Land Revenue Code. It noted that section 131 provided that land revenue assessed on any land constituted a first charge on that land and on the crops, rents and profits thereof. Section 132 made the occupant of the land primarily liable for payment of the land revenue, while section 133 stipulated that if the person primarily liable failed to pay, the land revenue, including arrears, could be recovered from any person in possession of the land. Accordingly, the revenue authorities could legally call upon the Receiver to pay the arrears, and the Receiver would be duty-bound to do so. Under section 135 the Receiver would be deemed a defaulter for purposes of the land revenue. Section 140 declared that a statement of account certified by the Deputy Commissioner or the Tahsildar was conclusive evidence of the existence of the arrears and of the person shown as the defaulter, for the purposes of Chapter XII, “Realization of Land Revenue”. One of the methods prescribed in section 141(e) for recovering arrears was the attachment and sale of the holding on which the arrear was due. When a sale was effected under section 141(c), section 149(2) provided that such a sale would transfer the holding free of all encumbrances imposed on it. The Court therefore concluded that if the sale in favour of the appellant was valid, the appellant acquired the property, said to be worth Rs 70,000, free of the mortgage money and other encumbrances, even though he had paid only Rs 270 for it. The principal question for determination on appeal was therefore whether the appellant’s title, obtained through the statutory sale, was valid notwithstanding the pending suit in the Bombay High Court.

The Court first considered whether, given the special provisions of the Land Revenue Code, the present suit could be pursued in a civil court. It was held that the Code establishes a distinct machinery for the recovery of government revenue, which it characterises as a paramount charge on the property. The Code provides a summary procedure for the realisation of public revenue, and every issue that falls within the scope of the Code must be decided according to the procedure prescribed by that Code. Consequently, wherever the Code has prescribed specific procedural rules, those rules alone, and no other, must govern the determination of any controversy that arises strictly within the terms of the statute. The Court observed that the Code is silent on any special rules concerning a party who has been placed in custodia legis. The Code envisions the regular payment of government revenue by the owner, possessor or occupant of the property liable for such revenue. It also recognises the devolution of interest by transfer or succession, but it does not contemplate the appointment of a Receiver in relation to the property whose revenue is payable. This point became crucial because the sole question for determination in the appeal was whether the auction-sale conducted under the Code, without obtaining the Court’s permission or giving notice to the Receiver appointed by the Court, could affect the interest that the Bombay High Court, by pointing to the Receiver, had sought to protect. The Court noted that if the sale in favour of the appellant were upheld, the mortgagee’s security for the repayment of the mortgage debt would be adversely impacted without the mortgagee having been heard. The Court further observed that, had there been no Receiver, the mortgagee might have been more vigilant and might have taken timely steps to pay the government demand on the property in order to preserve it for satisfaction of his own mortgage claim. The appellant’s counsel argued strenuously that the present suit could not be maintained because of certain provisions of the Code, particularly sections 157 and 192, which the Court then examined. Section 157 provides that if no application under section 156 is made within the prescribed time, all claims based on irregularity or mistake are barred, but it expressly states that nothing in sub-section (1) shall prevent a civil suit from being instituted to set aside a sale on the ground of fraud or on the ground that the arrear for which the property was sold was not due. The Court explained that section 157 refers to proceedings under the earlier section 156, which allows an application for setting aside a sale on the basis of a material irregularity or mistake in publishing or conducting the sale, at the instance of a person whose interests are affected by the sale.

Assuming that the Receiver in the present case is a person whose interest was affected by the sale, the only ground on which he could have approached the Revenue authorities to set aside the sale was a material irregularity or mistake in publishing or conducting the sale. This provision operates on the premise that all necessary parties have been informed of the proceedings that relate to the collection of government revenue. It further presumes that the proceedings were otherwise properly conducted, although a material irregularity or mistake might have occurred later in the process, specifically in the publication or conduct of the sale. The present suit is based on a ground that does not fall within the limited wording that permits reliance on section 156, namely the terms “publishing” and “conducting” the sale. “Publishing” the sale refers to the stage involving the proclamation of the sale, while “conducting” the sale refers to the acts or omissions of an officer or public authority who is entrusted with managing the sale at a later stage. Consequently, the provisions of section 156 are inapplicable to the plaintiff in this suit, and the same conclusion applies to the provisions of section 155, which deal with an application to set aside a sale on the basis of arrears within thirty days of the sale date.

An application under section 155 may be made only by a person who either owns the property or holds an interest in it by virtue of a title acquired before the sale. A Receiver appointed under Order 40 of the Code of Civil Procedure, unlike a Receiver appointed under the Insolvency Act, does not own the property nor hold any interest in it by virtue of a title. The Receiver functions merely as the court’s agent for the safe custody and management of the property while the court retains jurisdiction over the litigation concerning that property. Section 157(1) of the Code, which expressly bars a suit, is confined to “all claims on the ground of irregularity or mistake.” It does not extend to other grounds, such as alleging that the owner was dead at the time of the sale, that fraud attended the sale proceedings, that the plaintiff was deprived of his remedy under the Code by a fraudulent act, or that no arrears were actually due on the property sold. Suits based on such alternative grounds would not fall within the prohibition of section 157(1). Although section 157(2) saves certain suits of the kind mentioned therein, this saving does not automatically bring within its scope suits that do not directly meet the terms of subsection (2) of section 157.

It was observed that the prohibition expressed in section 157(1) of the Code constituted a positive bar, and that there might exist an intermediate category of matters lying between the grounds described in section 157(1) and those contemplated in section 157(2). The Court noted that the suit presently before it did not fall within the ambit of either section 157(1) or section 157(2). Consequently, the controversy that had arisen was not covered by the explicit provisions of section 157. Nevertheless, the appellant argued that, notwithstanding the inapplicability of section 157, the suit was barred by section 192(1) of the Code. Section 192(1) was quoted in full: “Except as otherwise provided in this Law, or in any other enactment for the time being in force, no civil court shall entertain any suit instituted or application made to obtain a decision or order on any matter which, the Provincial Government or any Revenue Officer, is, by this Law, empowered to determine, decide or dispose of; and in particular and without prejudice to the generality of this provision, no civil court shall exercise jurisdiction over any of the following matters:-” The Court held that it was unnecessary to enumerate the clauses (a) to (p) listed under subsection (1) of section 192, because none of those clauses had been explicitly pleaded as covering the present suit. Counsel for the appellant maintained that the setting aside of a sale was a matter specifically provided for by the Code, and that various authorities created by the Code had the power to determine, decide, or dispose of such matters within the meaning of the section. While the Court agreed that the Code indeed contained provisions for setting aside a sale through payment of arrears under section 155 and on the particular grounds enumerated in section 156, it reiterated that the present suit did not invoke any of those statutory grounds. In effect, the suit sought a declaration that the sale conducted by the revenue courts did not affect the interests that were in the custody of the Court through its Receiver, and it also sought recovery of possession against the auction-purchaser who was alleged to be in wrongful possession of the property that, according to the directions of the Bombay High Court, should have remained in the Receiver’s possession. Thus, the suit was not a straightforward action to set aside the revenue-court sale; rather, it was a suit for a declaration and the consequential relief of possession. The Court emphasized that a suit of this nature, based on the grounds asserted by the Receiver and seeking possession, was not a matter that the various authorities created by the Code were empowered to determine, decide, or dispose of. Nonetheless, counsel for the appellant further argued that section 192, in its sweep, encompassed all relevant provisions of the Code that pertained to the Receiver’s right to have a sale set aside.

The Court acknowledged that, although the statutory provisions were available, the Receiver was unable to frame the present dispute within the scope of any single provision. Counsel also referred to sections 32, 38 and 159 of the Code in an attempt to support the Receiver’s position. The Court found that none of these sections were relevant to the matter presently before it, because they dealt with different procedural aspects. Section 32, as the Code defines, governs the hierarchy of officers and authorities authorized to entertain appeals. Section 38 prescribes the powers and jurisdiction of authorities responsible for revisional proceedings, which are distinct from the issues raised by the Receiver. Section 159 preserves the authority of the Deputy Commissioner to issue suo moto orders, meaning orders may be made without any application under sections 155 or 156. Such suo moto power can be exercised even after the prescribed thirty-day period for filing applications under those sections has expired. Consequently, if the Bombay High Court had granted leave to commence proceedings under the Code for the recovery of government revenue, the Receiver would have been bound to obey that direction. Similarly, had the Receiver been served with a formal notice of demand, his legal duty would have required him to settle the outstanding land-revenue arrears. He would also have been required to continue paying all government demands on the property that remained in his charge. If the Receiver, despite having received such notice, had nevertheless permitted the auction sale to proceed on the ground of non-payment of government dues, the sale would have been deemed valid. The validity of that sale would then have been limited to the procedural remedies available under sections 155 and 156 of the Code. In that hypothetical scenario, no conflict of jurisdiction would arise, and consequently no principle of the Code would be infringed.

However, in the present case, the Bombay High Court did not grant the necessary leave, nor was the Receiver served with any statutory notice of demand. The absence of both the Court’s permission and the required notice fundamentally distinguishes the actual sale from the hypothetical valid sale discussed earlier. Because the procedural prerequisites were missing, the auction sale was characterised as illegal by the High Court. The High Court further invoked the well-known rule of natural justice, audi alteram partem, emphasizing that the Receiver was denied an opportunity to be heard. The Court noted that it was unnecessary to resolve the broader doctrinal question of how far the principle of natural justice can supplant explicit statutory provisions. For the reasons articulated, the Court concurred with the High Court’s finding that the auction sale in dispute was illegal. The Court also held that the suit seeking relief was not barred by any provision of the Code. Accordingly, the appeal was dismissed, and costs were awarded against the Receiver, who was the sole party contesting the appeal. The dismissal of the appeal, together with the award of costs to the Respondent, marked the final resolution of the proceedings.