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:
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.