Case: Escorts Farms Ltd Vs. Commissioner, Kumanon Division

2. The lands, which were subjected to imposition of ceiling of Villages Dohrivakil, Kharmasa, Pachwala, Ramnagar of Tehsil Kashipur, District Nainital in Uttar Pradesh, now form part of new State of Uttaranchal.3. The lands in the aforesaid villages were owned by the Ruler of erstwhile estate of Kashipur. Sometime before the year 1950, the lands were acquired by the Government of Uttar Pradesh from the Ruler of Kashipur. On a representation subsequently made by the Ruler of Kashipur, the Government of U.P. decided to release the land to the ruler on lease under the Govt. Grants Act 1895 as amended in its application to the State of UP by Govt. Grants (UP Amendment) Act 1960 (Shortly referred to as the Govt. Grants Act).4. The lands were released to the ruler for its development and for making it cultivable within the prescribed period. The terms of the govt. grant are contained in letter dated 26.1.1950 of the Deputy Secretary to the Govt. of UP addressed to the Director of Colonization, U.P. Lucknow. Consequent to the release of the lands in favour of the ruler, no formal lease containing the terms and conditions of the govt. grant came to be executed between the erstwhile ruler and the government of UP but it is not in dispute that the possession of the lands under thetaken on the basis of the proposal of the government, contained in the letter dated 29.8.1950. The rights and liabilities of the parties are governed by the terms of the said Govt. Grant.5. As the contesting parties before us are at issue on the legal effect of the Grants for application of the provisions of the Ceiling Act, the contents of the letter containing the terms and conditions of the Grants are required to be reproduced inA 26.1.1950FromShri H.W.H.W. Warde JonesDy. Secretary.No. C. 4599(1) XIIA.Copy forwarded to Shri Hari Chand Raj Singh Raja of Kashipur, Kashipur House, Nainital for information with reference to his representation dated June, 24 and 26,added by underlining)6. As is stipulated in the terms of the Govt. Grants, the ruler and the company in which he was a shareholder namely M/s. Ramgarh Farms and Industries Ltd. (formerly the Co.) had to develop and make the lands cultivable within a period of one year of the commencement of the next agricultural operations from the date of release of the land. As the aforementioned company described in the grant was unable to develop the land within the permissible period, they entered into an agreement with M/s. Escorts (Agricultural Machines) Ltd. The two aforementioned companies agreed to form a third company in the name of M/s. Escort Farms (Ramgarh) Ltd. (who is the main appellant in the leading appeals before us and shall hereinafter be referred to as the Farms).7. The Farm was incorporated on 30.11.1951 and took possession of the lands. In revenue papers of Fasli 1361 (corresponding to 1.7.1953 to 30.6.1954) the Farm was recorded as hereditary tenant, in respect of 1386.08 acres of land. The Ceiling Act was enforced in the State on 3.1.1961 with ceiling limit of 40 acres in respect of a holder of a holding defined in the Ceiling Act. By order passed on 28.12.1961the prescribed authority declared 1163.42 acres of land as surplus with the holder of the lands.8. On appeal the District Judge by order dated 15.11.1965 remanded the case to the prescribed authority. On remand the prescribed authority passed a fresh order on 11.8.1967 determining 98.83 acres of land as surplus and the holder of lands was allowed to retain 1208.64 acres of land which included 250 acres of land claimed to have been used for running Farm Mechanization School and treated as belonging to the said school as a separate entity. The said 250 acres of land was held as not liable to be included in the extent of holding of the company.9. It is not in dispute that on 11.8.1967 when the prescribed authority granted exemption to 250 acres of land allegedly in use by the holder company for running a school of mechanized farming, such exemption was available. Record of proceedings, however, does not show that the said land was ever claimed by the Company to have been held by the school as a separate legal entity. Treating the land to have been held by the school as a separate legal entity, therefore, seems to be an inadvertent mistake committed by the prescribed officer in his order dated 11.8.1967.10. The order of the prescribed authority was varied in appeal by order dated 18.3.1968 of the appellate authority and instead of 93.98 acres 153.03 acres was declared surplus.11. According to the case of thein October 1969 it granted 18.75 acres of land to 50 persons on oral leases for period ending 30.6.1970. Since the leases, as alleged, were oral, there is no proof of the same on record.12. U.P. Zamindari Abolition and Land Reforms Act, 1950 (shortly referred to as the Land Reforms Act) was brought into force in the concerned villages of Kashipur on 26.1.1970. The case of the holders of land on alleged oral leases is that under Section 131 of the Land Reforms Act they acquired status of Sirdar of the land. On 28.3.1970 registered sale / lease agreements were executed in favour of 50 persons for period up to 30.6.1974 comprising 80.75 acres, on consideration of Rs. 3,000/per acre. The 50 transferees among themselves constituted four partnership firms and claimed to have obtained possession of the land.13. Before the reduction of ceiling limit by UP Imposition of Holdings (Amendment) Act No. 18 of 1973,covering 12.50 acres of land were executed in favour of 70 persons between 25.9.1971. Thesetransactions admittedly were after the cut off date 24.1.1971 as fixed in(6) of section 5 of the Ceiling Act by U.P. (Amendment) Act No. 18 of 1973. Under(6) of section 5, transfers of land effected after 24.1.1971 are liable to be ignored in determining the ceiling area of the holder of land, unless, in accordance with proviso (b) of the saidthe holder of the land discharges the burden of satisfying the prescribed authority that the transfers, after the appointed date, were effected on good faith and for adequate consideration and were not benami. On the basis of the aforementionedexecuted in favour of 74 persons, the earlier three partnership firms formed by the lessees were dissolved and four new partnership firms were formed by the purchasers of the land. Shri PN Mehta was the managing partner of one of the firms.14. On 8.6.1973, by UP Amendment Act No. 18 of 1973 introduced in Ceiling Act, the ceiling limit was reduced from 40 acres to 18.75 acres. Under the amended Ceiling Act 18 of 1973 fresh ceiling proceedings were initiated proposing to declare 1123.40 acres of land in different villages under the Govt. Grants as surplus. The 74 transferees of the land mentioned above filed their objections before the prescribed authority. The prescribed authority by its order dated 29.6.1991 declared 867.67 acres of land as surplus with the holder company. The land to the extent of 250 acres exempted under the earlier order of the ceiling authority dated 11.8.1967 was left undisturbed. In the other of the prescribed authority passed on 29.6.1991 under the amended Ceiling Act 18 of 1973, challenge to the validity of exemption, even though erroneously granted in respect of 250 acres of land for the school, was held to be barred by principle of res judicata.15. Against the order of the prescribed authority dated 29.6.1991 the State did not prefer any appeal but the aggrieved transferees and the Farm who represented the holder company, preferred appeals to the Commissioner, Kumaon Division being the appellate authority. By order dated 14.1.1992 the appellate authority held that exemption in favour of the school of 250 acres of land was wrongly granted and plea of Res judicata cannot be raised under the provisions of the Ceiling Act. The appellate authority also held that the grantee under the Govt. Grants Act was not competent to transfer the land and all transfers were, therefore, invalid. Taking into consideration the background and circumstances in which transfers were made, they were all held to be sham and lacking in good faith. The appellate authority, therefore, directed that the surplus land inclusive of 250 acres of land wrongly exempted in favour of the school vested in the State under the Ceiling Act. The Commissioner dismissed the appeal filed by the holder company. Appeals of the transferees and their subsequent transferees were also dismissed. The Commissioner, in reversing the judgment of the prescribed authority regarding 250 acres of land exempted in favour of the school of Farm Mechanization held that principle of res judicata cannot be applied on the basis of the original order of the prescribed authority passed in proceedings prior to the amendment of Ceiling Act in view of bar on plea of res judicata imposed by Section 32B of the Ceiling Act and the other provisions of the Amendment No. 18 of 1973. The Commissioner also held that the transfers made by the Farm out of 250 acres of land of the school were not bona fide being made to favoured parties and with clear intention to evade the ceiling law.16. Aggrieved by the order of the Commissioner passed in appeals, the Firm, all its transferees and subsequent transferees filed Writ Petitions in the High Court. The High Court considered their cases by grouping them in three categories. The Writ Petitionerholder company and the Farm were described as Group No.1 74 transferees from the Farm were described as Group No.2 and 18 transferees from the company in respect of 250 acres of land of school were described as Group No.3.17. Applications for intervention made by some parties who are subsequent transferees of parcels of land involved in this case, have been rejected by this Court by order made on 16.1.2004. We, however, granted hearing to the counsel appearing for subsequent transferees and allottees of land who claim to be in actual cultivating possession of some portions of land involved.18. The High Court by the impugned judgment passed in common in batch of writ petitions, filed by parties representing the three groups mentioned above, dismissed all the Writ Petitions by a very elaborate order containing all facts and discussion of legal contentions advanced by the contesting parties. The order of the Commissioner passed in appeal was maintained by the High Court. The High Court also imposed cost of Rupees ten lacs on the Farm as estimated for illegal use and occupation of the land made by them for long more than 30 years by resorting to various unfair tactics to evade ceiling law.19. We would not like to burden the record by reproducing the various findings recorded on issues of fact and law in the impugned judgment of the High Court as the same contentions have be reiterated somewhat differently before us by the learned counsel appearing on either side. We, therefore, propose to deal with the legal and factual contentions under the following heads:

Court's reasoning:
The tenure holder of the land, therefore, within the meaning of the Ceiling Act was the Company i.e. the Govt. grantee and all proceedings initiated by notice to the Farm, submission of statement and declaration by the Farm culminating in the orders passed by the prescribed authority and the appellate authority were void and infructuous because the Govt. Grantee, as holder of the land, was not at all a party before the ceiling authority.The aforesaid contention is misleading and misconceived. We have already stated all the relevant facts above. The Govt. Grantee i.e. the Ruler was allowed to keep certain portion of the land as herediary tenant and the other portion in the name of the company in which he had share holding. The Ruler through the company was unable to develop and make the land cultivable within the stipulated period in the terms of the grant and, therefore, they handed over possession of the land of development to the Farm. The Farm came in possession of the land through the company and the Ruler. The possession, of Farm was, therefore, for and on behalf of the holder company and the ruler. The Farm was, therefore, only an ostensible holder of the land and the company of which the Ruler was a share holder continued to be the real holder. The notices issued by the ceiling authority were respondent by submitting statements and returns before the ceiling authority by the Farm. The Company and the Ruler submitted to those proceedings through the Farm. The Company and the Ruler never objected to the proceedings before the prescribed authority nor did they prefer any appeals to challenge those orders either in appellate forum or in writ proceedings. The proceedings therefore initiated, conducted and culminated against the Farm have to be treated in reality to be proceedings against the company and the Ruler as the holders of the land.The limited purpose of(4) of Section 5, as is clear from the language employed, is to treat the land as being held in proportion to the respective shares of the shareholders in the case of firm,society or other society and association of persons. Exclusion of public company from(4) of Section 5 is with intention to keep out public companies from the application of the saidin the matter of distribution of land holdings amongst shareholders. The exclusion of public company from(4) in the matter of distribution of shareholding of the land is not an indication that public company is not deemed to be a holder of land or legal person as defined in Clauses (9) and (17) of Section 3 of the Ceiling Act read with Clause (33) of Section 4 of the U.P. General Clauses Act. The contention, therefore, advanced that the ceiling proceedings could not have been initiated and concluded against the company through the Farm and they were all invalid and non est, has to be rejected.One of the most important issues, which arose in writ petition before the High Court was regarding findings of the appellate Authority on the validity of the transfers of land made by company in favour of the Farm and through the Farm in favour of the different partnership firms and individuals. We have already reproduced above the terms and conditions of the Govt. Grant contained in the letter dated 26.1.1950 of the Government of Uttar Pradesh whereunder erstwhile Ruler of Kashipur was allowed to lease the lands to the company for development. The terms of the grant show that 597 acres of land was allowed to be held by thewith hereditary rights and 2091 acres were allowed to be leased to the company of which the Ruler was the main shareholder. In condition No. 4 it is clearly stipulated that the land held under the lease shall be heritable but the succession will be regulated according to law governing impartibleThe above claim of the lessees and transferees of having acquired status of Sirdars and Bhumidhars cannot be accepted. The possession of the land was given to the company admittedly under the terms and conditions of the Govt. Grant which did not permit transfer of land without permission of the Government. The position of a government grantee is of a lessee as contained in definition clause (9) of section 3 of the Ceiling Act. The conditions of the Grant allowof the land but contrary to the terms of the Grant, thecan claim no independent tenancy right so as to frustrate the terms and tenure of the Grant. Irrespective of the provisions creating rights in favour of tenants under UP Tenancy Act 1939, the terms and conditions of the Grant have been given an overriding effect by provisions contained in Section 2, as inserted by UP Amendment Act of 1960 to the Govt. Grants Act with retrospective effect. Section 2 as introduced to the Govt. Grants Act in its application to the State UP clearly provides that the rights and obligations inter se between Government as granter of the land and its grantee would in no way be affected by thegranted by the Govt. grantee in accordance with the provisions of the UP Tenancy Act.The recording of the names of the company or the Farm in the revenue papers on 5.3.1954 as hereditary tenant and deposit of ten times the land revenue by thefor acquiring Bhumidhari rights were ineffectual in view of the provisions of Section 2 of the Govt. Grants (UP Amendment) Act, 1960 which give an overriding effect to terms of the Grant. The High Court, therefore, rightly negatived the claim set up by theof the land from the company through the Farm, to the status of Sirdars or Bhumidhars.32. No action of the revenue authorities can therefore estop the ceiling authorities from ignoring the claims of tenancy rights on the land set up by the lessess/The rights between the government and the grantee are strictly to be regulated by the terms of the grant and in accordance with the Govt. Grants (UP Amendment) Act 1960. The entries in revenue records and recognition of any tenancy rights of the lessee and / oras heredity tenant, Sirdars or Bhumidhars under UP Tenancy Act can have no adverse legal effect on the Govt. Grant which has an overriding effect under the Govt. Grants Act. No estoppel can operates against the overriding statute so as to bind the ceiling authorities to accept the tenancy rights of the lessees/as indefeasible in application of Ceiling Act to the lands in question.33. The Statement of Objects and Reasons for amending Section 2 of the Govt. Grants Act 1895 by UP Amendment Act of 1960 makes it clear that the State Legislature intended to apply only the provisions of Land Reforms Act and Ceiling Act to the lands held by persons under the Govt. Grants Act. The statements of objects and reasons read thus: Provisions of Section 2 of the Government Grants (UP Amendment) Act, 1959, have the effect of saving a grant of an agricultural lease by or on behalf of the Government from the operation not only on the Acts mentioned therein, but also of any other law, including the law for imposition of ceiling on land holdings, that might be made in future. There is also an apprehension that the result of the wordings of section 2 may be to undo the vesting of estates of government grantees under section 4 of the UP Zamindari Abolition and Land Reforms Act, 1950. With a view, therefore, to remove any such apprehension and to put the UP Imposition of Ceiling on Land Holdings Bill, 1959, when enacted, beyond the purview of the Government Grants Act, this Bill is being introduced. Vide UP Gazette Extraordinary, dated February, 3,s admittedly have been executed after the cut off date fixed in(6) of Section 5. Prior to the sales, on the basis of alleged oral leases three partnership firms were said to have been formed and later on increased to four, which it is alleged, have taken possession of the lands transferred toHigh Court also found the consideration received was not duly accounted for in the balance sheet of the company. It is on these facts that the High Court confirmed the conclusion of the appellate authority that all transfers were made to related parties and only to evade the effect of impending amendment to ceiling law. The concurrent findings in the judgment of appellate authority and of the High Court of lack of good faith on the part of the Company and the Firm in executing theafter the cut off date 24.1.1971 are not vitiated by consideration of any irrelevant circumstances and being essentially a finding of fact is not liable to be interfered with, in these appeals under Article 136 of the Constitution.From the above part of the order of the prescribed authority, it becomes clear that 250 acres of land was found to be held by the school as a separate legal entity. Exemption clause (ix) of section 6 as it stood in original section 6 was deleted byof new section 6 by Amendment Act No. 18 of 1973 with effect from 08.6.1973. By insertion of new section 6, the exemption earlier available to land held by education institution has been done away with effect from 8.6.1973.46. It is true that the above order of the prescribed authority dated 11.8.1967 excluding 250 acres of land as belonging to the school was not questioned by the State in appeal. The finding that the land was held by the school as a separate legal entity is obviously a mistake because in all subsequent proceedings before the ceiling authorities, the High Court and in this Court the land is stated to be held by the Company or Farm for running the school as one of its activities. The land was in use for the purposes of educational institution run by the Company or the Farm. It qualified for exemption under clause (ix) of section 6, as it stood then. It is to be noted that when the ceiling limit was reduced by Amendment Act of 1973, which was brought into force with effect from 5th June, 1973, the land measuring 250 acres, although excluded from ceiling limit of the holder, in law and in reality continued to be held and recorded in the name of the Farm which was its agent. Under the Amendment Act of 1973, the exemption of land held by an educational institution was taken away by substitution of new section 6 to the Act. Under section 5, ceiling limit was reduced and under6 of section 5, as inserted by Amendment Act of 1973, thedate fixed was 24.1.1971. It was provided that all transfers made by the holder of a land after the above date would be ignored unless, as provided in clause (b) of the6 of section 5 read with the explanation thereunder, the holder discharges his burden of proving to the satisfaction of the Prescribed Authority, that the transfers made after 24.1.1971 were in good faith, for adequate consideration and were not benamiis evident from the fact that all transfers orhaving been executed in favour of 75 transferees, after thedate 24.1.1971 by the Company to which the provisions of6 of Section 5, as introduced by the Amendment Act of 1973, where clearly attracted. A finding of fact has been recorded by the Commissioner and confirmed by the High Court in the Writ Petition that transfers of the land used for school have been made with full knowledge of the impending legislation proposing reduction of ceiling limit and intent to evade the effect of ceiling law. In our considered opinion, on the above admitted legal and factual premise, the bar of res judicata is not available to the holder Company or the Farm. Their own subsequent conduct of effecting transfers of school land estops them from raising a plea of res judicata on an apparently erroneous finding recorded in the order of Prescribed Authority in the course of proceedings under the original unamended Act.In view of our above discussion on the issue of applicability of the doctrine of res judicata, it is not necessary for us to deal and discuss cases cited by a counsel for the parties on the power of the Appellate Authority, by invoking provisions of Order 41 Rule 33 of the Code of Civil Procedure, to hold the land of school as includible for determination of ceiling area, in the appeals instituted against the order of the Prescribed Authority by the holder of the land and the transferees and without any appeal by the State.Reading the provision of(6) of Section 5 with proviso (b) Explanation (II) there under, it is difficult to accept the contention advanced on behalf of the State that the transferees were merely proper parties and were not entitled to be arrayed, noticed and heard in the proceedings under the Ceiling Act. The transfer made after the cut off date could have been saved only on proof of good faith and payment of adequate consideration for the transfers. This burden of proof can be discharged jointly or singly either by the transferor or transferee. The transferee is the party likely to be adversely affected by the order nullifying the transfer if found to be lacking in good faith. The transferee is clearly covered by the expression "the party claiming its benefit" as used in Explanation (II)(6) of Section 5." The burden of proof in respect of bona fides of transfers is also on the person or party claiming its benefit. It was therefore necessary to make transferees as parties in the appeal and grant them opportunity of hearing by the appellate authority. To that extent the order of the appellate authority can be said to have been vitiated for not following the required procedure.60. For a different reason, however, we decline to set aside the appellate order of the Commissioner which has been confirmed by the High Court.of transferees as parties and denial of opportunity of hearing to them, in the facts and circumstances found here, cannot be said to be fatal to the entire ceilingHigh Court has in great detail critically examined all the relevant evidence produced by the transferees before arriving at an adverse conclusion against them. This Court would have been inclined and justified in making a remand of the case to the appellate authority to make all transferees as parties and give them opportunity of hearing in respect of the portions of land purchased by them from out of 250 acres of land held in the name of the school. Since, however, the High Court has already given full opportunity of hearing to the transferees on this aspect we refrain from making any order of remand just for the sake of completing a formality of granting them similar opportunity of hearing by the appellate authority with no likelihood of any conclusion different from the one reached by the High Court and this Court on merits of the case.Similarly in the instant case, it has been found that large scale transfers were effected to defeat Ceiling Law. We, therefore, decline to upset the concurrent findings of the appellate authority and the High Court in our discretionary powers under Article 136 of the Constitution. We have also come to the same conclusion that the transfers made after thedate were not in good faith hence liable to be ignored for determining the extent of surplus land with the holder. That apart we have also recorded a conclusion that the entire lands being held under a Govt. Grant were not transferable without permission of the government and they were invalid being in clear breach of the conditions of the Grant.64. Right of hearing to a necessary party is a valuable right. Denial or such right is serious breach of statutory procedure prescribed and violation of rules of natural justice. In these appeals preferred by the holder of lands and some other transferees, we have found that the terms of Govt. Grant did not permit transfers of land without permission of the State as grantor. Remand of cases of a group of transferees who were not heard, would, therefore, be of no legal consequence, more so, when on this legal question all affected parties have got full opportunity of hearing before High Court and in this appeal before this Court. Rules of natural justice are to be followed for doing substantial justice and not for completing a mere ritual of hearing without possibility of any change in the decision of the case on merits. In view of the legal position explained by us above, we, therefore, refrain from remanding these cases in exercise of our discretionary powers under Article 136 of the Constitution of India.We find that in the name of imposing cost, the High Court has, in effect, awarded lump sum damages for unauthorised use and occupation of surplus land. Section 16 of the Ceiling Act empowers levy of damages for use and occupation of surplusThe quantification of damages payable to the State for use and occupation of surplus land under Section 16 is required to be done in accordance with the principles laid down in rule 18A of the rules framed under the Ceiling Act. The provisions of Section 16 read with Sectionrequire separate proceedings to be undertaken for determination and quantification of amount of damages for use and occupation of the surplus land. The said exercise ought to have been left to the Ceiling authorities. The High Court, in our opinion, should not have awarded lump sum damages by imposing heavy costs. P.N. Mehta was found to have taken active part in formation of partnership firms and obtaining the transfers for favoured parties. He did it, not in his individual capacity but, as a managing partner of one of the partnership firms and on being invited by the holder Company in the meeting of the Board of Directors to help out the company from the effect of ceiling law. In the event of default of payment of costs by the company, the direction made by the High Court to Shri P,N, Mehta to pay the cost is not justified. This part of the order of the High Court imposing Rupees Ten Lacs as costs on the Farm and directing its payment by the Farm or by P.N. Mehta is liable to be set aside.68. Before parting with the case, only mention has to be made of the submissions made by the learned counsel appearing for subsequent transferees of the lands involved and by some of the interveners who claim to have been allotted some lands. In our opinion the subsequent transferees and such interveners deserve no indulgence in this appeal. The subsequent transferees have stepped into the shoes of the original transferees. They can claim no different or better rights than their transferors. The contentions raised on their behalf are, therefore, not entertained. No relief can be granted to them. The intervenors have to work out their independent rights and remedies, if any, and can claim no right of hearing in these appeals.