JUDGMENT <NAME> "Till death doth us part" - the oath uttered at the time of solemnization of marriage may have to be altered into "till the I.T. authorities doth us part" by the medicos who marry and intend to carry on their professional activities in partnership. That cannot be helped if the interpretation placed by <ORG> in respect of the provision popularly known as the "clubbing provision" embodied in s. 64(1)(i) of the I.T. Act of 1961 is untenable as is canvassed by the revenue. The said provision speaks as under :

"64. (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly -

(i) to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such individual is a partner."

In essence it provides that when the husband and the wife are members of the very same partnership firm carrying on a business, the income of the two is to be clubbed together. In so far as the income arising directly or indirectly from the business of the partnership is concerned, such clubbing together would naturally result in a higher rate of tax being attracted having regard to the fact that income-tax at a higher rate is levied in regard to the slab of income which is in a higher bracket. The assessee is, therefore, interested in escaping the clutches of this provision. The revenue on the other hand would be anxious to call into aid this provision in case any question of interpretation arises which would result in an assessee being in a position to successfully contend that the provision would not be attracted in his case. Such a question has arisen in the context of a partnership firm between two spouses who happen to be professionals. Each of them is a qualified medical practitioner (doctor). The husband and the wife team of doctors have formed a partnership and are carrying on their professional activities in partnership. The activities, inter alia, consist of the running of a nursing home where the patients under the treatment of the team of doctors are admitted as indoor partients and the income from the nursing home also forms a part of the professional income of the partnership firm. The assessees contended that the clubbing provision contained in s. 64(1)(i) would be attracted provided and only provided the basic pre-condition envisioned by the provision, namely that the two spouses must be members of a partnership firm carrying on a business is satisfied. The expression "carrying on a business" has been placed under spotlight and it has been contended that when a doctor-husband and a doctor-wife carry on their "profession" in partnership, it cannot be said that they are "carrying on a business". If the contention is right, the assessees must succeed. Otherwise the revenue would be justified in clubbing together their income. It appears that a similar question on similar facts has arisen in the cases of a number of doctor-couples carrying on their profession in partnership. In the case of a couple from Godhra the question arose in three successive years, viz., 1972-72, 1973-74 and 1974-75. <ORG> upheld the contention of the assessee-couple that the provision in question was not attracted because they were partners in a firm carrying on "profession" and not partners in a firm "carrying on business". Thereupon three allied references have been made at the instance of the revenue. In I.T.R. Nos. 193/78 and 113/79 we are concerned with the case of the doctor husband who has succeeded in respect of assessments for the aforesaid three years. In I.T.R. No. 154/78 we are concerned with the doctor wife who has also succeeded before the <ORG>. All these three references will be disposed of by this common judgment. We will also dispose of two income-tax applications (I.T.A. Nos. 158/81 & 159/81) pertaining to another doctor-couple from Ahmedabed in respect of two successive years 1974-75 and 1975-76. These applications have been made by the Commissioner with a view to invoke the jurisdiction of this court under s. 256(2) in order to require the Appellate <ORG> to state the case and refer the question to us. A reference is sought by the Commissioner in the case of a doctor-couple from <NAME> (I.T.A. No. 167/81). If we negative the plea of the revenue that the Income-tax <ORG> was wrong in holding that the provisions concerned would not be attracted in the case of a husband and wife couple carrying on a "Profession" in partnership, these three applications must of necessity fail. That is why these three applications have been tagged on and being disposed of along with the aforesaid three references. These three Income-tax Applications will also be disposed of by this common judgment.

For the purposes of the present judgment it will be sufficient to advert to the facts giving rise to Income-tax Reference No. 193/78 which may be treated as typical for the entire group. The facts pertaining to the each of these matters need not, therefore, be unnecessarily stated. In the allied references and the I.T. applications an indentical question of law arises on similar facts.

The following facts are not in dispute :

(1) The assessee, Dr. <NAME>, is a qualified Gynaecologist. His wife, Dr. Mrs. <NAME> is also a qualified Gynaecologist.

(2) Both of them are carrying on their profession as Gynaecologists in partnership with ecah other under the name and style of <ORG>.

(3) They are also running a nursing home for purposes of carrying on their profession.

(4) Patients are admitted to this nursing home and are treated by the doctor-couple.

(5) It is not the case of the revenue that any patient other than the patients treated by the one or the other of the partners is admitted as a patient.

(6) Nor is it the case of the revenue that any other activity not wholly connected with the activity pertaining to the medical practice of the two doctor is carried on in partnership. For instance, it is not the case of the revenue that <ORG> also runs a chemists shop as a partnership activity where drugs are sold to patients.

The last mentioned factor requires to be highlighted because in such an event the profits attributable to that branch of the activity would require to be accorded a different treatment. No such question arises in the present reference, or in the allied references, wherein the doctor-couples are carrying on their profession which consists of treating their patients, acting as consultants, performing operations, and treating them as indoor patients in the nursing home which is run exclusively for the purpose of treatment of the patients under the treatment of the doctor-couple.

Before we deal with this question in the context of s. 64(1)(i) of the I.T. Act, 1961, it is necessary to trace the history of the relevant provision as it existed prior to the enactment of the said Act, i.e., in the context of the Indian I.T. Act of 1922 (hereinafter referred to as the "old Act") which was replaced by the I.T. Act of 1961 (hereinafter referred to as the "new Act"). The corresponding provision in the old Act was contained in s. 16(3) . These provisions require to be reproduced in juxtaposition.

Old Act Old Act New Act New Act

16. (3) In computing the total income of any individual for the purpose of assessment, there shall be included -

(a) so much of the income of a wife or minor child of such individual as arises or indirectly -

(i) to the spouse of such from the membership individual of the spouse in a firm carrying on a business in which such individual is a partner.

(i) from the membership of the wife in a firm her husband is a partner.

It is necessary to stress the circumstance that s. 16(3)(a)(i) of the old Act has undergone a metamorphosis in the corresponding provision contained in s. 64(1)(i) of the new Act. An analytical study of these provisions would reveal the following features :

(1) Section 16(3)(a)(i) of the old Act provides for the clubbing together of the income of the wife with the income of the husband when the income of the wife is derived directly or indirectly (what follows is of great significance) "in a firm of which her husband is a partner". In other words, the mere membership in the firm on the part of a wife would attract the clubbing with the income arising to the wife from the firm would be clubbed with the income of her husband.

(2) As against this, under the corresponding provision in s. 64(1)(i) of the new Act (the clubbing provision), has introduced the concept of income arising to a spouse in a firm carrying on a business. The expression "membership of the spouse in a firm carrying on a business" requires to be underscored with red ink.

(3) Under the old Act the mere membership of the wife in a firm was sufficient to attract the clubbing provision. Under the new Act the <ORG> has made the applicability of the clubbing provision dependent on the spouse deriving income not in "any firm" but in a "firm carrying on business". The expression "membership... in a firm" has been replaced by the expression "membership.... in a firm carrying on business". Is this change a mere incidental change or is it a change which is introduced with some deliberate design or purpose - is a relevant question to ask. It is pertinent to pose this question because the expression "a firm carrying on business" is not inter-changeable with the expression "a firm". The rider added in the corresponding provision in the new Act pertains to the carrying on of "business". Is it merely an amplification of the earlier provision, a mere elaboration of the earlier provision, or is it a purposeful change introduced by the <ORG> ? To this question we must now address ourselves. The expression "business" has been employed by the <ORG> in order to emphasise the distinction between a business and a profession. The <ORG> in enacting the Indian I.T. Act of 1922 as also the I.T. Act of 1961 has shown great awareness about the distinction between the concept of a "business" and that of a "profession" and has accorded different treatment depending on whether the activity falls within the description of "business" or "profession." This distinction between the two concepts has been projected in some of the provisions of the Act as we shall presently point out.

1961 Act (new Act) 1922 Act (old Act) Business is defined by s. 2(13) as under :

Business is defined by s. 2(4) as under :

"Business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.

"Business includes any trade, commerce, or manufacture or any adventure or concern in the" nature of trade, commerce or manufacture."

The expression "profession" has been defined by section 2(36) as under :

The expression "profession" has not been defined.

"`profession includes vocation."

It takes within its sweep the expression "vocation".

Section 28 which is the charging section treats professional income as of a different category from that of business income as is evident from the opening words.

Section 10(1) refers to business, profession or vocation.

"The following income shall be chargeable to income-tax under the head Profits and gains of business or profession

(i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year;...

(iii) income derived by a trade, professional or similar association from specific services performed for its members;

(iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession."

Explanation 1 refers to profits of business only in the context of profits of managing agency.

Explanation 2 refers to business only in regard to speculative transaction.

NoteThe expression "vocation" employed by s. 10(1) of the old Act "vocation" is included in the dictionary of the new Act (see s.2(36)).

(NoteIn the new Act the expression "vocation" is omitted and is brought within the ambit of the expression "profession which is defined for the first time by section 2(36) Section 29 refers to the method of computation of profits from business or profession.

That is why it is of considerable importance to find out whether the intendment and purpose of the <ORG> in introducing the new concept of a firm carrying on a "business" in the new Act in order to replace the existing concept of a mere firm in the corresponding provision of the old Act assumes importance. It assumes importance because the provision is a provision pertaining to the clubbing of the income of two partners by reason of the "relationship" between them. Ordinarily, the incomes of the partners in a firm would be assessed independently. There would be no question of clubbing (them) together. The provision for clubbing together was introduced in the old Act presumably in order to prevent evasion of tax. It is not difficult to visualise a husband forming a partnership with a wife so that the income would be distributed and both of them may escape the tax net altogether in the event of their incomes falling below the exempt line or at any rate would attract tax at a much lower rate having regard to the fact that the scheme of taxation is such that a higher rate of tax is applicable to income falling within a higher slab in the case of an assessee. An individual can form a partnership with his wife regardless of the fact that the wife may have no capacity to make any contribution in running the business. She may be an altogether illiterate wife, who does no more than engage herself in the domestic chores. And by and large such would be the case in the case of a large number of assessees in India having regard to the structure of the society as it has existed for a number of years. She would be only a nominal or a notional partner who has been made a partner only for the sake of escaping the rigour of tax liability. It must be realised that when an individual forms a partnership with a stranger, even if the stranger agrees to be a nominal partner, the person who enters into such arrangement runs a risk because the stranger may assert his right and may not agree to make over the amount falling to his hare to the real partner. There would be no such risk when a wife is introduced as a partner. That is conceivably the reason why s. 16(3)(a)(i) has introduced the clubbing provision. The situation, however, would be altogether different when a professional couple, say a doctor-couple, enters into a partnership. Each of the two can carry on his or her profession in his or her individual capacity. Each of them can also enter into a partnership with other members of the same profession. In that event, their professional income would be assessed separately and no question of clubbibg would arise. It must also be realised that a doctor-husaband cannot form a partnership with a wife who is not a doctor in order to carry on his profession. The rules of professional ethics would not permit this. It would be unethical to do so and he would run the risk of being debarred from practice. It would not also be recognised by law. But when both of them are qualified doctors and they join in partnership there is practically no risk of the partnership coming into existence being a nominal one. As mentioned earlier, in a business partnership, the husband may be an astute businessman and the wife may be no more than an illiterate housewife or a housewife who is not capable of carrying on an economic activity on her own. On her own, the wife may not be able to earn any income or make any contribution. Even so she can be introduced as a partner in a partnership firm in a business. It is here that the aspect regarding the difference in the situation in the context of a doctor-husband and a doctor-wife would require to be emphasized. A doctor-wife is capable of carrying on her own profession, say as a Gynaecologist and earn her own income. It would be unreasonable to make her pay tax at a higher rate merely because she carries on an activity in partnership with her doctor-husband. Again, so far as the businessmans wife is concerned, nobody would ever accept her as a partner and give her a share in the profits if she is herself not capable of carrying on a business and making any worthwhile contribution in the business activity. As against this, the doctor-wife of a doctor-husband can enter into partnership with any other doctor and carry on the professional activity. There would be no reluctance on the part of another doctor to take her in as a partner because she would be fully qualified and can share the work and contribute her talent in the profession in order to secure income for the firm. Thus, the raison detre for clubbing together the incomes of non-professionals does not exist in the case of professionals. It is this aspect which was presumably realised and that is why in the new Act a change was introduced by providing that the provision would be attracted only in the case of spouses carrying on business in partnership and not in the case of spouses who do not carry on business (but carry on profession) in partnership. And it is now worthwhile to reproduce an extract from the speech of the Finance Minister made on the floor of the <ORG> at the time of introducing the I.T. Bill of 1961. We will refer to that part of the speech which pertains to the clubbing provision under the old Act and the change sought to be introduced in this sphere by the new Act. The speech has been reproduced on page 33 of the Treatise on the Income-tax Act , 1961, by <NAME>, <NAME> & <NAME> in Volume I of the 1st Edn. of 1962. The relevant extract from p. 37 may be quoted :

"A provision which will be of interest to persons engaged in the professions is that in clause 64. Under the existing law if a husband and wife are partners in the same firm, the share income of the wife is clubbed with that of the husband, who has to pay tax on the income so aggregated <ORG> has expressed itself agains this provision as applied to partnerships between husband and wife engaged in professions as doctors, lawyers, etc. The <ORG> has recommended that such cases should be exempt from the operation of the provision. The Government has accepted this suggestion and the provision has been suitably modified.".

Two salient features required to be highlighted are : (1) that <ORG> had expressed the opinion that the clubbing provision should not be applied to the husband and wife partnerships engaged in professions such as doctors, lawyers, etc., and (2) that the Government had accepted this suggestion and had suitably modified the clubbing provision. Thus, it is evident that the change reflected in the clubbing provision in the new Act is not a mere casual change of phraseology or an incidental or a purposeless change in phraseology without any design or purpose. It is a change introduced with open eyes and with full awareness of the need to exempt professional couples carrying on their profession in a partnership firm from the clutches of the clubbing provision. There was a deliberate design and purpose in introducing the new concept of a spouse carrying on a "business" in place of the old concept of a membership of a spouse in partnership regardless of the nature of the activity carried on. The intendment and the purpose of the legislation and the drift of the legislative mind is manifest. It was intended to exclude spouses carrying on professional activity from the purview of the clubbing provision. Incidentally we may advert to the content of the expression "professional activity" as interpreted by <ORG> in Dr. <NAME> case [1969] 34 FJR 376 ; AIR 1969 SC 63. Says <ORG> :

"There is a fundamental distinction therefore between a professional activity and an activity of a commercial character" (p. 68) : "... a "profession"... involves the idea of an occupation requiring either purely intellectual skill, or of manual skill controlled, as in painting and sculpture, of surgery, by the intellectual skill of the operator, as distinguished from an occupation which is substantially the production or sale or arrangements for the production or sale of commodities" (p.67) "... a professional activity must be an activity carried on by an individual by his personal skill and intelligence...... and unless the profession carried on by (a person) also partakes of the character of a commercial nature" (pp. 67/68) the professional activity cannot be said to be an activity of a commercial character.

We are, therefore, of the opinion that when professional couples such as a doctor-husband and a doctor-wife or a lawyer-husband and a lawyer-wife or an architect-husband and a architect-wife form a partnership for the purpose of carrying on a professional activity which would fall within the scope of the interpretation in Dr. <NAME> case, AIR 1969 SC 63, their income is not liable to be clubbed together under s. 64(1)(i) . We would, however, add the following riders :

(1) If a doctor-husband and a doctor-wife are also carrying on the activity of a nursing home in the context of their professional activity for the purpose of treating their own patients, the income from the nursing home can be treated as the professional income of the professional couple and no question of clubbing together can arise.

(2) If any business activity is carried on by a firm constituted by the doctor-husband or doctor-wife such as of running a drug store for selling drugs to the patients or to others, the income from such activity can be clubbed together. Such income will not be exempt from being clubbed together merely because it is an activity which is adjunct to the main professional activity. Similarly, when a doctor-couple carries on the nursing home activity by admitting patients of other doctors and charging fees such as room fees or fees for services rendered to them, it may amount to a business activity carried on by the firm and that part of the income can be clubbed together.

(3) Merely because a part of the activity is professional activity, the assessee cannot escape the clutches of the clubbing provision even in respect of its income which can be said to be an income arising in the context of his business activities as distinguished from professional activities. Accordingly, we decide the group of references and the group of income-tax applications in the following manner :

I.T.R. No. 193/78, I.T.R No. 154/78 & I.T.R. No. 113/79.

Question Answer Nos. 1 & 2 The income of the spouses from the professinoal activities of the firm cannot be clubbed together but it the spouses are also engaged in any distinct business activity such as running a chemists shop their income come to that extent can be clubbed together. Income from a nursing home run by the doctors who them-selves treat their own patients as an intergral part of professional must be treated as professional income. If the nursing home is one where patients of doctors other than the partners are admitted and treated, it may be considered a business as discussed in the main judgment provided the tests indicated in the course of the discussion are satisfied.

Income-tax Applications Nos. 158/81, 159/81 & 167/81.

These three applications are rejected having regard to the fact that the activity carried on is absolutely professional activity and the view taken by the <ORG> is unexceptionable and in accordance with the view taken by us in the course of the discussion hereinbefore.

In the result, the three references are answered in the aforesaid manner. The three Income-tax Applications are rejected. There will be no order regarding costs in all the six matters.


JUDGMENT <NAME>, C.J.

1. This appeal arises out of a suit to enforce payment of a sum of Rs. 10,000, principal and interest alleged to be due on foot of a mortgage, dated the 16th of July 1690, by sale of the mortgaged property. The mortgage-deed provided that the mortgagors should pay the principal amount secured in ton years by instalments of Rs. 625 yearly and that the interest should be paid monthly. There was this, further Clause: "If we fail to pay the interest aforesaid in any month or the principal by the stipulated period, as specified above, or no payment is made in a year, the mortgagee shall, under all these circumstances, be at liberty to realize the entire amount with the interest aforesaid in a lump sum through <ORG> by means of a suit from the mortgaged and other moveable and immoveable property and the person of us, the executants." Later on the deed has a provision which has been translated as follows: "If the mortgagee in order to get interest does not bring a suit in default of any instalment and we are unable to pay the money, the interest should continue up to the stipulated period of ten years and also after it up to the date, of realization." This last Clause seems to me simply to mean that the mortgaged property should remain and be security for the interest even if no suit was brought to enforce the monthly payment. No payment was ever made upon foot of either principal or interest up to the date of the institution of the present suit on the 12th of June 1912.

2. The <ORG> below has dismissed the plaintiff's suit, holding that the claim is barred by limitation. The plaintiffs appeal.

3. In my opinion the decision of the <ORG> below is correct. It is admitted that the Article of the Limitation Act which applies is Article 132. See the decision of their Lordships of the Privy Council in <CITATION> 30 M. 426 : 17 M.L.J. 444 : 4 A.L.J. 625 : 9 Bom. L.R. 1104 : 6 C.L.J. 379 : 11 C.W.N. 1005 : 34 I.A. 187 (P.C.) : 2 M.L.T. 333. This Article deals with "suits to enforce payment of money charged upon immoveable property." The period of limitation prescribed is 12 years and time begins to run from the date when the money sued for becomes due. No doubt if the mortgagors had fulfilled their contract, the mortgagees would not have been entitled to sue until the expiration of ten years from the date of the mortgage, and in that case the present suit would have been within time. The provision, however, in the deed admittedly entitled the mortgagge to bring a suit to recover principal and interest after the first default, and if it can be said that the money then "became due" the suit is barred by limitation. It is contended on behalf of the appellant that the mortgagees were entitled to sue, or not to sue and that accordingly on the true construction of the mortgage-deed the money did not "become due" until the expiration of ten years from the date of the mortgage. I cannot agree with this contention. It seems to me that money is "due" when it can he legally demanded, and it is admitted in the present case that the money secured by this mortgage could have been legally demanded and recovered after the first default, and had a suit been brought for its recovery by sale of the mortgaged property the defendants could not have pleaded that such a suit was premature. For this there is the high authority of the English <ORG> of Appeal in the case of <NAME> v. <NAME> (1891) 2 Q.B.D. 509 : 65 L.T. 329 : 39 W.R. 629 : 60 L.J.Q.B. 619. In that case the plaintiff lent money to the defendant under a written agreement for a fixed period of five years "subject to the power to call in the same at an earlier period in the events hereinafter mentioned," The defendant agreed to pay interest quarterly and the plaintiff agreed not to call in the money for five years if the defendant should regularly pay interest. It was further provided that if the defendant should make default in payment of any quarterly payment of interest for 21 days, the plaintiff might call in the principal. No interest was ever paid. The plaintiff commenced his action within six years from the end of the period of five years. It was held that time began to run against the plaintiff from the earliest time at which the action could have been brought, that is to say, 21 days after the first instalment of interest became due. Lindley, L.J., said: "I am of opinion that we cannot differ from the judgment below without altering the law. The agreement is one reasonably easy to be understood. It provides for a loan for five years, subject to a provision that if default is made in punctual payment of interest, the principal shall be recoverable at once. Now, the Statute of Limitations (21 Jac.1, Clause. 16) enacts that such actions as are therein mentioned, including "all actions of debt grounded upon any lending or contract without specialty," shall be brought 'within six years next after the cause of such action or suit, and not after.' This expression, 'cause of action,' has been repeatedly the subject of decision, and it has been held, particularly in <NAME> v. <NAME> 4 Q.B. 519 : 12 L.J.Q.B. 134 : 7 Jur. 302 : 3 G. & D. 402 : 114 E.R. 994 : 62 R.R. 422 decided in 1843, that the cause of action arises at the time when the debt could first have been recovered by action. The light to being an action may arise on various events; but it has always been held that the Statute runs from the earliest time at which an action could be brought."

4. <NAME>, L.J. said: "We have not to determine whether the defence here set up is handsome or conscientious, but whether it is good at law--and I am of opinion that it is. The agreement contains a stipulation that the lender shall not call in the principal sum for a period of five years, if the borrower should so long live, and should duly and regularly pay the interest. This implies a contract by the borrower that, the principal debt should be paid at once on the death of the borrower, or on default in payment of interest. The subsequent provisoes imply a contract by the lender not to enforce payment after the death of the borrower until the expiration of a six months' notice, and a contract not to enforce payment of the capital for default in payment of interest until 21 days after such default, thus giving the borrower further time. Subject to these stipulations, the implied contract to pay the principal remained in force. The principal, therefore, became payable 21 days after the first quarterly instalment of interest became due, and from that time the Statute of Limitations began to run. if authority is wanted, <NAME> v. <NAME> 4 Q.B. 519 : 12 L.J.Q.B. 134 : 7 Jur. 302 : 3 G. & D. 402 : 114 E.R. 994 : 62 R.R. 422 is in point." <NAME>, L.J., said: "The defendant alleges that the cause of action arose more than six years before the action was commenced, and that the action is barred by the Statute of Limitations, Now, when first had the plaintiff a cause of action? When default was made for 21 days in payment of an instalment of interest. <NAME> v. <NAME> 4 Q.B. 519 : 12 L.J.Q.B. 134 : 7 Jur. 302 : 3 G. & D. 402 : 114 E.R. 994 : 62 R.R. 422 is in point. It is said that this case is not good law, and that it has not been referred to for many years. I think that it has not been referred to because it has been acquiesced in, and it does not appear that it has ever been questioned." It seems to me that this case is the clearest authority (if authority were needed) that money "becomes due" as soon as it is legally recoverable, quite irrespective of when the suit was instituted.

5. This view was taken in the case of <CITATION> 24 C. 281 : 1 C.W.N. 229 and in the case of <CITATION> 20 M. 245 : 7 M.L.J. 222.

6. A somewhat contrary view was taken in the case of <CITATION> 22 M. 20 : 8 M.L.J. 167. In this last case, however, the Clause in the mortgage-deed was as follows: "In default of paying on the above dates, I shall pay the said sum with interest at Rs. 15 per cent, per annum, from the date of the bond, irrespective of the above due date, whenever you make the demand." The Court seems to have thought that the money did not become due on default unless a demand was made. It is unnecessary to express any opinion as to whether or not the learned Judges were correct in their construction of the deed in question, because there are no similar words in the deed in the present suit.

7. A. number of cases have been cited on behalf of the appellant, including the cases of the <CITATION> 29 A. 431 : A.W.N. (1907) 139 : 4 A.L.J. 336; <NAME> v. Jalpa Prasad 16 A. 371 : A.W.N. (1894) 115. and <NAME> v. <NAME> 30 A. 123 : A.W.N. (1908) 36 : 5 A.L.J. 72. All these cases dealt with the construction of Article 75 of the Limitation Act which contains no reference to the money becoming due," and in my opinion these cases have no bearing on the question which we have to consider in the present appeal see also <NAME> v. Baij Nath 20 Ind. Cas. 933 : 35 A. 455 : 11 A.L.J. 664 Article 75 is the Article applicable to quite a different suit from the present. The learned Advocate for the appellants also referred to a dictum of their Lordships of <ORG> in the case of <CITATION> 1 C. 163 : 25 W.R. 84 : 3 I.A. 1 : 3 Sar. P.C.J. 58 : 3 Suth. P.C.J. 222. The facts of that case were quite different and their Lordships expressly state that it was unnecessary to decide the question to which the dictum refers. Their Lordships have, moreover, in the recent case to which I have referred decided that Article 132 is the Article which applies to a suit on a simple mortgage to enforce payment of money charged on immoveable property. I am clearly of opinion that in the present case the money "became due" within the meaning of that expression in the Article of limitation when the first default was made and that accordingly the suit is barred by limitation, I would dismiss the appeal.

Banerji, J.

8. The only question in this appeal is whether the plaintiffs' claim, which is one to enforce payment of the amount due on a simple mortgage by sale of the mortgaged property, is barred by limitation. The mortgage bond is dated the 16th of July 1899 and the time fixed for re-payment is ten years. Except for another provision in the bond, to which I shall presently refer, the amount secured by it was re-payable on 16th July 1900 and as the present suit was instituted on the 12th of June 1912, it would be within time under Article l32 of Schedule I of the Limitation Act, which has been held by their Lordships of <ORG> to be applicable to a suit of this kind. The defendants, however, rely on the following provision of the bond and urge that the amount of the mortgage became due when default was made in the payment of the first instalment and as more than 12 years have elapsed since the date of default, the claim is time-barred. The provision is this: "We shall pay Rs.625 yearly and we shall pay the interest on the said amount monthly at the rate of 8 annas per month. If we fail to pay the interest aforesaid in any month or the principal by the end of the stipulated period as specified above, or no payment is made in a year, the mortgagee shall, under all these circumstances, be at liberty to realize the entire amount with the interest aforesaid in a lump sum through <ORG> by means of a suit from the mortgaged and other moveable and immoveable property and the persons of us, the executants." Had this Clause stood alone, it might perhaps be said, on the authority of the English and other cases cited on behalf of the respondents, that the plaintiffs were bound to sue when default was first made in the payment of the instalment fixed in the bond. The document, however, goes on to provide that if the mortgagees in order to get interest do not bring a suit in default of payment of any instalment and we be unable to pay the money, the interest should continue up to the stipulated period of ten years and also after it up to date of realization." This Clause, in my opinion, means that the mortgagee is competent to wait for the full period of ten years stipulated in the bond and it is not obligatory on him to call in the money on the occurrence of a default in the payment of the instalment. The bond, in its earlier provisions, made the mortgaged property security both for principal and interest, and this Clause would be wholly unnecessary and redundant if the meaning of it was only to make the property security for interest or to provide for payment of interest. It says nothing about the security audit in my opinion, clearly intends that the mortgagee might, if he so chose, wait for the full term of ten years and if lie did so, interest would run till date of actual payment. This provision in the bond gives full power to the mortgagee not to enfoce his right to claim the entire amount of the mortgage on the happening of a default but to wait till the expiry of the stipulated period of ten years. It is true that under Article 132 time begins to run from the date when the money becomes due, but that date depends upon the terms of each document and a true construction of those terms. In my judgment, in view of the Clause in the bond in suit to which I have referred, the money secured by the bond did not become due until the expiration of ten years from the date of the bond. Where under the terms of the document the creditor is authorize to wait for the full period stipulated for re-payment, the money cannot be held to have become due within the meaning of Article 132 until the expiry of that period. The first Clause as to payment of the whole amount on the occurrence of a default was clearly inserted in the document for the benefit of the creditor and as he was expressly authorized not to take advantage of the Clause I am unable to hold that he was bound to sue when default was made. Any other view would, as observed in <CITATION> 29 A. 431 : A.W.N. (1907) 139 : 4 A.L.J. 336 be "very unfortunate" "It would be to punish a creditor for forbearance shown to his debtor, and compel him to press his demands at the earliest opportunity and insist upon speedy and full satisfaction of his claim." The question in that case was of the applicability of Article 75 , which, of course, does not govern this case, but the principle of the ruling applies. A similar view was held by <NAME>, C.J., and <NAME>, J. in <NAME> 16 A. 371 : A.W.N. (1894) 115 which was a case of execution of a decree. The decree in that case provided that the amount of it should be paid by eight instalments and that in case of default and non-payment of any instalment, the plaintiff had power to realize in one lamp sum the entire decretal money payable up to that time by executing the decree. It was held upon a construction of the decree that the "decree-holder on the happening of any default might, if he wished, execute the decree for all the decretal money then unpaid, but that it was not the intention that on the happening of a default the decree-holder should be bound to execute the decree once and for all". <CITATION> 1 C. 163 : 25 W.R. 84 : 3 I.A. 1 : 3 Sar. P.C.J. their Lordships of <ORG> expressed a similar opinion. That was a suit to recover the amount of a hypothecation bond in which the borrower engaged to re-pay the amount with interest on a day named, with a condition that in the event of the hypothecated lands being sold in execution of a decree before the day fixed for re-payment the lender should be at liberty at once to sue for the recovery of the debt. It was contended that the plaintiffs' cause of action arose on the 18th of May 1865, when the lands pledged were sold in execution and that the suit having been brought after six years from that date was time-barred. With reference to this contention their Lordships observed: "Their Lordships must not be supposed, in coming to this decision, to give any countenance to the argument of Mr. <NAME> that this would have been barred if the limitation of six years under Clause 10 had been applicable to it. They think upon the construction of this bond there would be good reason for holding that the cause of action arose within six years of the commencement of the suit." Their Lordships thus held that limitation would begin to run from the date fixed for payment and that the cause of action arose, that is to say, the money became due on that date and not on the date on which the hypothecated property was sold in execution. It true that their Lordhsips aid that it was not necessary to decide the point in the view which they took of the period of limitation applicable to the case before them, but an expression of opinion by their Lordships is entitled to the greatest weight and ought to guide the <ORG>s in this country. Considerable reliance was placed on behalf of the respondents on the cases of <CITATION> 24 C. 281 : 1 C.W.N. 229 and <CITATION> 20 M. 245 : 7 M.L.J. 222. In neither of those cases was there a Clause in the bond similar to the one in this case which expressly empowered the creditor to wait for the full term of the mortgage. Those cases, therefore, are, in my opinion, no authority on the question before us. The decision of that question depends upon the true construction of the terms of the bond and the intention of the parties as gathered from the bond. I am of opinion that upon a true construction of the bond in this case the money secured by it became due on the expiration of ten years from the date of the bond and that the claim is not barred by limitation. I would allow the appeal, set aside the decree of the <ORG> below and remand the case to that <ORG> for trial on the merits.

Tudball, J.

9. I concur with the learned Chief Justice that the present suit is barred by limitation. The matter to my mind is a simple one. Article 132 clearly applies and under that Article time began to run from the date on which the money became due. To find out the date on which the money became due one has to examine the conditions laid down in the bond. They are simple and run as follows: "It is covenanted that we shall pay the said amount of principal within ten years, that is, we shall pay Rs. 625 annually, and we shall pay the interest on the said amount monthly at the rate of 8 annas per month. If we fail to pay the interest aforesaid in any month or the principal in the stipulated period as specified above, or no payment is made in a year, the mortgagee shall under all these circumstances be at liberty to realise the entire amount with the interest aforesaid in a lump sum through <ORG> by means of a suit from the mortgaged and other moveable and immoveable property, and the persons of us, the executants. We or our heirs or representatives shall have no objection or excuse in any way." Then comes a Clause on which considerable stress has been laid on behalf of the appellants but which in my opinion is not of the slightest assistance to them. Correctly translated that Clause runs as follows: "If the mortgagee in his desire for interest does not bring a suit on any default of ours and we are unable to pay the money, the interest shall continue up to the stipulated period of 10 years and also after that up to the date of realization." It is an admitted fact that the mortgagors failed to make any payments of interest within the first year after the execution of the deed, and no instalment of principal or interest has ever been paid. Under the terms of the bond immediately on the first default occurring the mortgagor was clearly liable to pay the whole sum to the mortgagee. In other words, the money became due from the mortgagor to the mortgagee on the occasion of the first default. I fail to see how the last Clause, which I have mentioned above, helps the appellants in any way. It seems to me that this Clause was simply put into the document in order to make it quite clear that the interest should continue to run in spite of no suit being brought not only up to the expiry of the 10 years but also up to the date of realisation. It was simply put in to make it clear that interest would not cease to run after the expiry of 10 years. The mortgagee on the occurrence of the first default was fully entitled to demand his money and the mortgagor could not have met him with the plea that his demand was premature. There is no question of 'waiver,' for no waiver has been alleged, much less proved. Paragraph 3 of the plaint is practically a repudiation of any waiver. In my opinion under the clear terms of this bond the money "became due" in the year 1890 and the present suit was many years beyond time. I would, therefore, dismiss the appeal.

10. The order of the <ORG> is that the appeal be dismissed with costs, including in this <ORG> fees on the higher scale.


IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION TRANSFERRED CASE (CIVIL) NO. 150 OF 2006 <ORG> ... Petitioner Vs. <ORG> ... Respondent With TC No.116/2006, 117/2006, 118/2006 and WP No. 697/2007 ORDER

In all these petitions, the constitutional validity of the National Tax <ORG> Act , 2005 (`Act' for short) is challenged. In TC No.150/2006, additionally there is a challenge to section 46 of the Constitution (Forty- second Amendment) Act , 1976 and Article 323B of Constitution of India. It is contended that section 46 of the Constitution (Forty-second Amendment) Act, is ultra vires the basic structure of the Constitution as it enables proliferation of <ORG> system and makes serious inroads into the independence of the judiciary by providing a parallel system of administration of justice, in which the executive has retained extensive control over matters such as appointment, jurisdiction, procedure etc. It is contended that Article 323B violates the basic structure of the Constitution as it completely takes away the jurisdiction of <ORG> and vests them in the National Tax <ORG>, including trial of offences and adjudication of pure questions of law, which have always been in the exclusive domain of the judiciary.

2. When these matters came up on 9.1.2007 before a three Judge Bench, the challenge to various sections of the Act was noticed. 2.1) The first challenge was to section 13 which permitted "any person" duly authorized to appear before <ORG>. <ORG> submitted that the appropriate amendment will be made in the Act to ensure that only lawyers, Chartered Accountants and parties in person will be permitted to appear before <ORG>. 2.2) The second challenge was to section 5(5) of the Act which provided that the Central Government may, in consultation with the Chairperson, transfers a Member from headquarters of one Bench in one State to the headquarters of another Bench in another State or to the headquarters of any other Bench within a State. <ORG> submitted that having regard to the nature of the functions to be performed by the <ORG> and the constitutional scheme of separation of powers and independence of judiciary, the expression "consultation with the Chairperson" occurring in section 5(5) of the Act should be read and construed as "concurrence of the Chairperson".

2.3) The third challenge was to Section 7 which provided for a Selection Committee comprising of the Chief Justice of India or a Judge of <ORG> nominated by him, (b) Secretary in <ORG>, and (c) Secretary in <ORG>. It was contended by the petitioners that two of the Members who are Secretaries to the Government forming the majority may override the opinion of the Chief Justice or his nominee which was improper. It was stated on behalf of <ORG> that there was no question of two Secretaries overriding the opinion of the Chief Justice of India or his nominee since primacy of the Chairperson was inbuilt in the system and this aspect will be duly clarified. 2.4) In regard to certain other defects in the Act, pointed out by the petitioners, it was submitted that <ORG> will examine them and wherever necessary suitable amendments will be made. In view of these submissions, on 9.1.2007, this Court made an order reserving liberty to <ORG> to mention the matter for listing after the appropriate amendments were made in the Act.

3. On 21.1.2009, when arguments in CA No. 3067 of 2004 and CA No. 3717/2005, which related to the challenge to Parts 1B and 1C of Companies Act, 1956 were in progress before <ORG>, it was submitted that these matters involved a similar issue and they could be tagged and disposed of in terms of the decision in those appeals. Therefore <ORG> directed these cases to be listed with those appeals, even though there is no order of reference in these matters.

4. CA No. 3067 of 2004 and CA No. 3717 of 2005 were subsequently heard at length and were reserved for judgment. These matters which were tagged were also reserved for judgment.

5. We have disposed of CA No.3067/2004 and CA No. 3717/2005 today by a separate order. In so far as these cases are concerned, we find that TC (Civil) No. 150/2006 involves the challenge to Article 323B of the Constitution. The said Article enables appropriate legislatures to provide by law, for adjudication or trial by tribunals or any disputes, complaints, or offences with respect to all or any of the matters specified in clause (2) thereof. Sub-clause (i) of Clause 2 of Article 323B enables such tribunals to try offences against laws with respect to any of the matters specified in clauses (a) to (h) of clause (2) of the said Article.

6. One of the contentions urged in support of the challenge to Article 323B relate to the fact that Tribunals do not follow the normal rules of evidence contained in Evidence Act . In criminal trials, an accused is presumed to be innocent till proved guilty beyond reasonable doubt, and Evidence Act plays an important role, as appreciation of evidence and consequential findings of facts are crucial. The trial would require experience and expertise in criminal law, which means that the Judge or the adjudicator to be legally trained. Tribunals which follow their own summary procedure, are not bound by the strict rules of evidence and the members will not be legally trained. Therefore it may lead to convictions of persons on evidence which is not sufficient in probative value or on the basis of inadmissible evidence. It is submitted that it would thus be a retrograde step for separation of executive from the judiciary.

7. Appeals on issues on law are traditionally heard by courts. Article 323B enable constitution of <ORG> which will be hearing appeals on pure questions of law which is the function of courts. <CITATION> , this court considered the validity of only Clause 3(d) of Article 323B but did not consider the validity of other provisions of Article 323B.

8. The appeals relating to constitutional validity of National Company Law Tribunals under the Companies Act , 1956 did not involve the consideration of Article 323B. The constitutional issues raised in TC (Civil) No. 150/2006 were not touched as the power to establish Company Tribunals was not traceable to Article 323B but to several entries of Lists I and III of Seventh Schedule and consequently there was no challenge to this Article.

9. The basis of attack in regard to Part 1B and 1C of Companies Act and the provisions of NTT Act are completely different. The challenge to Part IB & IC of Companies Act, 1956 seeks to derive support from Article 323B by contending that Article 323B is a bar for constitution of any <ORG> in respect of matters not enumerated therein. On the other hand the challenge to NTT Act is based on the challenge to Article 323B itself.

10. We therefore find that these petitions relating to the validity of the NTT Act and the challenge to Article 323B raises issues which did not arise in the two civil appeals. Therefore these cases can not be disposed of in terms of the decision in the civil appeals but requires to be heard separately. We accordingly direct that these matters be delinked and listed separately for hearing.

.............................CJI (K G Balakrishnan) .............................J.

(<NAME>) .............................J.

(D K Jain) ............................J.

(P Sathasivam) ............................J.

(<NAME>) New Delhi;

May 11, 2010