PETITIONER: CONCORD OF INDIA INSURANCE CO LTD. Vs. RESPONDENT: NIRMALA DEVI AND ORS. DATE OF JUDGMENT16/04/1979 BENCH: KRISHNAIYER, V.R. BENCH: KRISHNAIYER, V.R. PATHAK, R.S. CITATION: 1979 AIR 1666 1979 SCR (3) 694 1979 SCC (4) 365 CITATOR INFO : R 1988 SC 898 (7) RF 1992 SC1261 (8) ACT: Negligence of Counsel which misleads a litigant into delayed pursuit of his remedy-Propriety and reasonableness of companies and other persons relying upon legal opinion in the matter of computation of limitation- Limitation Act , 1963 (Act XXXVI) Section 5 . Need for no fault tortious liability by <ORG>-Legal rights, literacy in the case of automobile, accidents and the processual modalities which secure redressal of grievances, explained. HEADNOTE: A doctor and his brother riding a motor cycle were hit by a jeep driver and both were killed in November 1971, but <ORG> delivered judgment on 5- 9-1976 five years later awarding sums of Rs. 80,000/- and Rs. 73,500/- to the two sets of claimants. The appeal in this case had to be filed on or before 19-1-77 but was actually filed 30 days later with an application for condonation under S. 5 of the Limitation Act on the ground of Counsel's mistake in the calculation of the period of limitation. <ORG> dismissed the appeal and the application. Dismissing the special leave petitions, the <ORG> ^ HELD: A company relies on its Legal Adviser and the Manager's expertise is in company management and not in law. There is no particular reason why when a company or other person retains a lawyer to advise it or him on legal affairs reliance should not be placed on such counsel. Of course, if there is gross delay too patent even for layman or if there is in comprehensible indifference the shield of legal opinion may still be vulnerable. If legal Adviser's opinions are to be subjected by company managers to further legal scrutiny of their own, an impossible situation may arise. Indeed Government, a large litigant in this country, may find itself in difficulty. [697E-F, 698 F-G] This does not automatically secure a visa for the petitioner into this <ORG> under Art. 136. There must be manifest injustice or gross misappreciation or perversity in factual findings. [698H] <CITATION> , A.I.R 1971 Kerala 211; approved. <CITATION> , AIR 1972 SC 749; referred to. Observations 1. The jurisprudence of compensation for motor accidents must develop in the direction of no-fault liability and the determination of the quantum must be liberal, not niggardly since the law values life and limb in a free 695 country in generous scales. Social justice, the command of the Constitution is being violated by the <ORG> itself by neglecting road repairs, ignoring deadly over-loads and contesting liability after nationalising the bulk of bus transport and the whole of general insurance business. [696C-D] 2. Medieval roads with treacherous dangers and total disrepair, explosive increase of heavy vehicles often terribly overloaded and without cautionary signals, reckless drivers crazy with speed and tipsy with spirituous potions, non-enforcement of traffic regulations designed for safety but offering opportunities for systematised corruption and little else and, as a cumulative effect, mounting highway accidents, demand a new dimension to the law of torts through no fault liability and processual celerity and simplicity in compensation claims cases. [696B-C] 3. If only no-fault liability, automatic reporting by the police who investigate the accident in a statutory proforma signed by the claimants and forwarded to the tribunal as in Tamil Nadu and decentralised empowerment of such tribunals in every district coupled with informal procedures and liberation from court-fees and the sophisticated rules of evidence and burden of proof were introduced-easy and inexpensive, if the <ORG> has the will to help the poor who mostly die in such accidents-law's delays in this compassionate jurisdiction can be banished. Social justice in action is the measure of the <ORG>'s constitutional sensitivity. [696F-G] JUDGMENT:

CIVIL APPELLATE JURISDICTION: Special Leave Petition (Civil) Nos. 5228 and 5286 of 1977.

From the Judgment and order dated 8-8-1977 of <ORG> in F.A.O. No. 81 and 82 of 1977.

<NAME> and <NAME> for the Petitioner. <NAME> for the Respondent.

The order of the <ORG> was delivered by <NAME>, J. An explosive escalation of automobile accidents, accounting for more deaths than the most deadly diseases, has become a lethal phenomenon on Indian Roads everywhere. The jural impact of this tragic development on our legislatures, courts and law enforcing agencies is insufficient, with the result that the poor, who are, by and large, the casualty in most of these cases, suffer losses of life or limb and are deprived of expeditious legal remedies in the shape of reasonably quantified compensation promptly paid-and this, even after compulsory motor insurance and nationalisation of insurance business. The facts of this special leave petitions, which we dismiss by this order, raise two serious issues which constrain us to make a speaking order. The first deals with legal rights, literacy in the case of automobile accidents and the processual modalities which secure redressal of grievances. The second relates to the consequences of negligence of counsel which misleads a litigant into delayed pursuit of his remedy.

Medieval roads with treacherous dangers and total disrepair, explosive increase of heavy vehicles often terribly overloaded and without cautionary signals, reckless drivers crazy with speed and tipsy with spirituous potions, non-enforcement of traffic regulations designed for safety but offering opportunities for systematised corruption and little else and, as a cumulative effect, mounting highway accidents demand a new dimension to the law of torts through no fault liability and processual celerity and simplicity in compensation claims cases. Social justice, the command of the Constitution is being violated by the State itself by neglecting road repairs, ignoring deadly overloads and contesting liability after nationalising the bulk of bus transport and the whole of general insurance business. The jurisprudence of compensation for motor accidents must develop in the direction of no-fault liability and the determination of the quantum must be liberal, not niggardly since the law values life and limb in a free country in generous scales. In the present case, a doctor and his brother riding a motor cycle were hit, by a jeep driver and both were killed. The fatal event occurred in November 1971 but <ORG> delivered judgment five years later awarding sums of Rs. 80,000/- and Rs. 73,500/- to the two sets of claimants.

The delay of five years in such cases is a terrible commentary on the judicial process. If only no-fault liability, automatic reporting by the police who investigate the accident in a statutory proforma signed by the claimants and forward to the tribunal as in Tamil Nadu and decentralised empowerment of such tribunals in every district coupled with informal procedures and liberation from court-fees and the sophisticated rules of evidence and burden of proof were introduced-easy and inexpensive if the State has the will to help the poor who mostly die in such accidents-law's delays in this compassionate jurisdiction can be banished. Social justice in action is the measure of the State's constitutional sensitivity. Anyway, we have made these observation hopefully to help focus the attention of the <ORG> and the States.

The nationalised insurance company appealed to <ORG> against the award. We have no doubt that the finding on both the culpability and the quantum as rendered by the trial court are correct. But <ORG> dismissed the appeal on the ground of delay, dismissing the application of the petitioner for condonation under S. 5 of the Limitation Act.

<ORG> pronounced its award on September, 15, 1976, after making the necessary computations and deductions. The appeal had to be filed on or before January 19, 1977 but was actually filed 30 days later. Counsel for the petitioner is stated to have made the mistake in the calculation of the period of limitation. He had intimated the parties accordingly with the result that the petitioner was misled into instituting appeal late. <ORG> took the view that the lawyer's ignorance about the law was no ground for condonation of delay. Reliance was placed on some decisions of <ORG> and there was reference also to a ruling of <ORG> in AIR 1972 SC 749(1). The conclusion was couched in these words:

"The Assistant Divisional Manager of the Company appellant is not an illiterate or so ignorant person who could not calculate the period of limitation. Such like appeals are filed by such companies daily. The facts of this case clearly show, as observed earlier, that the mistake is not bonafide and the appellant has failed to show sufficient cause to condone the delay."

We are not able to agree with this reasoning. A company relies on its Legal Adviser and the Manager's expertise is in company management and not in law. There is no particular reason why when a company or other person retains a lawyer to advise it or him on legal affairs reliance should not be placed on such counsel. Of course, if there is gross delay too patent even for layman or if there is incomprehensible indifference the shield of legal opinion may still be vulnerable. The correct legal position has been explained with reference to the <ORG> decision in a judgment of one of us in AIR 1971 Ker. 211:

"The law is settled that mistake of counsel may in certain circumstances be taken into account in condoning delay although there is no general proposition that mistake of counsel by itself is always a sufficient ground. It is always a question whether the mistake was bonafide or was merely a device to cover an ulterior purpose such as laches on the part of the litigant or an attempt to save limitation in an underhand way. <ORG> unfortunately never considered the matter from this angle. If it had, it would have seen quite clearly that there was no attempt to avoid the Limitation Act but rather to follow it albeit on a wrong reading of the situation."

"<ORG> took the view that Mr. <NAME> being an Advocate of 34 years' standing could not possibly make the mistake in view of the clear provisions on the subject of appeals existing under Section 39(1) of the Punjab Courts Act and therefore, his advice to file the appeal before <ORG> would not come to the rescue of the appellant under Section 5 of the Limitation Act. <ORG> upset this approach."

"I am of the view that legal advice given by the members of the legal profession may sometimes be wrong even as pronouncement on questions of law by courts are some times wrong. An amount of latitude is expected in such cases for, to err is human and lay men, as litigants are, may legitimately lean on expert counsel in legal as in other departments, without probing the professional competence of the advice. The court must of course, see whether in such cases there is any taint of mala fides or element of recklessness or ruse. If neither is present, legal advice honestly sought and actually given, must be treated as sufficient cause when an application under Section 5 of the Limitation Act is being considered. The State has not acted improperly in relying on its legal advisers."

We have clarified the legal position regarding the propriety and reasonableness of companies and other persons relying upon legal opinion in the matter of computation of limitation since it is a problem which may arise frequently. If <ORG> opinions are to be subjected by company managers to further legal scrutiny of their own, an impossible situation may arise. Indeed <ORG>, a large litigant in this country, may find itself in difficulty. That is the reason why we have chosen to explain at this length the application of S. 5 vis-a-vis counsel's mistake.

This does not automatically secure a visa for the petitioner into this <ORG> under Article 136. There must be manifest injustice or gross misappreciation or perversity in factual findings. We have examined the merits of the matter to the extent available on the record and have heard counsel for the petitioner. He has hardly convinced us that the merits of the case call for any intervention at all. In this view we are constrained to dismiss the Special Leave Petitions now that we have expressed ourselves or both the points dealt with above. S.R. Petitions dismissed.


PETITIONER: <NAME> Vs. RESPONDENT: COMMISSIONER OF INCOME TAX, CALCUTTA DATE OF JUDGMENT: 31/03/1965 BENCH: <NAME>, J.C. BENCH: <NAME>, J.C. SUBBARAO, K. SIKRI, S.M. CITATION: 1965 AIR 1898 1965 SCR (3) 604 CITATOR INFO : RF 1966 SC1256 (4) R 1969 SC1241 (7) R 1975 SC2106 (14) D 1976 SC2105 (3,12) RF 1986 SC1695 (31) ACT: Indian Income-tax Act , 1922 , s. 10- -Purchase of a different business--Sale-Profit--If taxable. HEADNOTE: The assessee who was dealing in iron scrap and hardware had purchased a jute press and sold it at a profit. The Income- tax Officer brought to tax in the hands of the assessee, the profit arising out of this sale. <ORG> modified the order and reduced the total income. At the instance of assessee the <ORG> referred to <ORG>, the question, whether the surplus received by the assessee as a result of the sale of the jute press arose out of an adventure in the nature of trade and was, therefore, liable to tax. <ORG> answered the question in affirmative. In appeal; HELD: The question must be answered in the negative. Granting that the assessee made a profitable bargain when he purchased the property and granting further that the assessee had, when he purchased it, a desire to sell the property, if a favourable offer was forthcoming, these could not without other circumstances, justify an inference that the assessee intended by purchasing the property to start a venture in the nature of trade. [609H-610A] A profit motive in entering a transact on is no decisive, for, an accretion to capital does not become taxable income, merely because an asset was acquired in the expectation that it may be sold at a profit. [608F] Purchase of the property by the assessee was an isolated transaction not related to the business of the assessee. [608G] Case law referred to. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 308 of 1964.

Appeal by special leave from the judgment and order dated September 10, 1962 of <ORG> in Income-tax Reference No. 115 of 1957.

<NAME>, <NAME> and <NAME>, for the appellant.

<NAME> and <NAME>, for the respondent. The Judgment of the Court was delivered by <NAME>, J. The appellant is a Hindu undivided family and carries on business as a dealer in "iron scrap and hardware". Messrs <NAME> and <ORG> called 'the <ORG>' --were owners of a jute pressing factory installed on a piece of land belonging to the <ORG>. Adjacent to that land were two pieces of land: one was leasehold, and the other held by the <ORG> as a licensee from <ORG>. On January 21, 1941 the <ORG> leased out to one <NAME> the jute pressing factory together with the machinery standing on the land owned by the <ORG> for ten months commencing from January 10, 1941. <NAME> failed to vacate and deliver up possession of the premises demised to him, after the expiry of the period of the lease, and the <ORG> instituted a suit in ejectment against him. By an agreement dated October 31, 1942 the appellant agreed to purchase all the rights of the <ORG> in the factory and the appurtenant premises for Rs. 2,45,000. On November 14, 1942 the <ORG> delivered to the appellant possession of the property agreed to be sold, save and except the factory demised under the lease to <NAME> and the machinery included in the lease. On February 26, 1943 the <ORG> executed a conveyance in favour of the appellant conveying the factory and the appurtenant premises.

On June 12, 1943 the appellant agreed to sell to one <NAME> the property purchased from the <ORG> for Rs. 4,73,364/3/6 free from all encumbrances. On August 10. 1943 the appellant was substituted as a plaintiff in the suit filed by the <ORG> against <NAME>, and obtained possession of the factory premises. By a deed of conveyance dated September 30, 1943 the appellant conveyed to <NAME> the factory and the appurtenant premises and delivered possession thereof. In the deed of conveyance the property sold was described in three separate Schedules. Schedule I, Press House, office, residential buildings and three warehouses on land owned by the <ORG>: Schedule 11 ; leasehold land together with a warehouse known as Kalibari godown: Schedule II1; two warehouses on land held as licensee by the <ORG> from <ORG>. The Income-tax Officer. District Ii(1), CAlcutta. brought to tax in the hands of the appellant Rs. 2,24,864 bring the profit arising out of the sale of the property to <NAME>. <ORG> partially modified the order and reduced the total income by Rs. 7,000. The <ORG> then drew up a statement of case and referred the following question to <ORG> at Calcutta:

"Whether on the facts and in the circumstances of the case, the <ORG> was right in holding that the surplus of Rs. 2,35,211 received by the assessee as a result of the sale of the jute press referred to in the Appellate order arose out of an adventure in the nature of trade and was therefore rightly assessed to tax?"

<ORG> answered the question in the affirmative. With special leave granted by this <ORG>, the appellant has appealed to this <ORG>.

L/P(N)4SCI-12 At the material time, capital gains were not taxable, and the only question failing to be determined is whether profit made by the appellant by sale of the property to <NAME> was taxabIe under s. 10 of the Indian Income-tax Act. The <ORG> found the following facts proved:

The appellant was carrying on business in iron scrap and hardware and never carried on any business in jute or in pressing jute. At the material time when the purchase of <ORG> was made, the appellant had, because of abnormal conditions prevailing in the town of Calcutta, closed its business in iron scrap and hardware. The appellant purchased the jute press and the premises appurtenant thereto subject to litigation pending in <ORG>, effected certain repairs and kept the factory in running condition, but made no attempt to start or organise the business of pressing jute, and his plea that he was not able to secure labour for working the press was not true. Soon after he bought the factory, the appellant received an offer from <NAME> to buy the factory and he immediately accepted the offer to sell it to him.

These facts in the view of the <ORG> indicated that the appellant purchased the jute press, subject to litigation, with the sole object of reselling at profit at the earliest opportunity, and therefore the transaction was in the nature of a trading venture. <ORG> substantially agreed with this view.

Section 10 of the Indian Income-tax Act, 1922 makes profits and gains of business, profession or vocation carried on by an assessee taxable. The expression "business" is defined in s. 2(4) as inclusive of "any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture". It is common ground that the transaction of purchase and sale of the factory and appurtenant premises was an isolated venture. To reiterate the sequence of material events: the appellant agreed to purchase <ORG> from the <ORG> on October 31, 1942 subject to litigation pending in <ORG>: possession of the property except the premises in the occupation of the tenant was obtained on November 14, 1942 and the sale deed was obtained on February 26, 1943: on June 12, 1943 the appellant agreed to sell the press to <NAME>: on August 10, 1943 the appellant was substituted as plaintiff in the suit flied by the <ORG> against <NAME>, and after obtaining possession of the demised premises the appellant executed on September 30, 1943 a sale deed conveying the property and delivered possession to <NAME>. Do these facts make out the case that the transaction was an adventure in the nature of trade?

It is for the revenue to establish that the profit earned in a transaction is within the taxing provision and is on that account liable to be taxed as income. The nature of the transaction must be determined on a consideration of all the facts and circumstances which are brought on the record of the income-tax authorities. It has consistently been held by this Court that the question whether profit in a transaction has arisen out of an adventure in the nature of trade is a mixed question of law and fact: see <CITATION> (1) in which case this Court held that the expression "adventure in the nature of trade" in sub-s. (4) of s. 2 of the Act postulates the existence of certain elements in the adventure which in law would invest it with the character of trade or business and that a tribunal while considering a question whether a transaction is or is not an adventure in the nature of trade, before arriving at its final conclusion on facts, has to address itself to the legal requirements associated with the concept of trade or business. Such a question is one of mixed law and fact and the decision of the tribunal thereon is open to consideration under s. 66(1) of the Act. See also <CITATION> (2).

A large number of cases were cited at the <ORG> in support of the respective contentions of the Commissioner and the assessee. Passages from judgments in the same case were often cited claiming support for the respective contentions. No useful purpose would be served by entering upon a detailed analysis and review of the observations made in the light of the relevant facts, for no single fact has decisive significance, and the question whether a transaction is an adventure in the nature of trade must depend upon the collective effect of all the relevant materials brought on the record. But general criteria indicating that certain facts have dominant significance in the context of other facts have been adopted in the decided cases. If, for instance, a transaction is related to the business which is normally carried on by the assessee, though not directly part of it, an intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is purchased and sub-divided, altered, treated or repaired and sold, or is converted into a different commodity and then sold. Magnitude of the transaction of purchase, the nature of the commodity, subsequent dealings and the manner of disposal may be such that the transaction may be stamped with the character of a trading venture: for instance, a man who purchases a large quantity of aeroplane linen and sells it in different lots, and for the purpose of selling starts an advertising campaign, rents offices, engages an advertising manager, a linen expert and a staff of clerks, maintains account books normally used by a trader, and passes receipts and payments in connection with the linen through a separate banking account: <NAME> v. Lowry(3): a person who carries on a money-lending business purchases very cheaply a (2) [1959] Supp. 1 S.C.R. 640.

(2) 37 I.T.R. 242.

(3) 11 T.C. 297.

vast quantity of toilet paper and within a short time thereafter sells the whole consignment at a considerable profit: <NAME> v. The Commissioner of Inland Revenue(1); a person even though he has no special knowledge of the trade in wines and spirits, purchases a large quantity of whisky sells it without taking delivery of it at a considerable profit: Commissioners of Inland Revenue v. Fraser(2), may be presumed having regard to the nature of the commodity and extent of the transaction coupled with the other circumstances, to be carrying on an adventure in the nature of trade. These are cases of commercial commodities. But a transaction of purchase of land cannot be assumed without more to' be a venture in the nature of trade. A director of a company carrying on the business of ware houseman purchasing a number of houses with a view to resale, and selling them at a profit some years after the purchase: Commissioners of Inland Revenue v. <NAME>): a person carrying on business in various lines, including <ORG>, purchasing land which was under requisition by the Government, negotiating sale thereof before the land was derequisitioned, and selling it after the land was released: <CITATION> (4); and a syndicate formed to acquire, an option over a rubber estate with a view to earn profit, and finding the estate acquired too small acquiring another estate and selling the two estates at a profit: <NAME> v. Jones(3) may not be regarded as commencing a venture in the nature of trade. These are cases in which the commodity purchased and sold is not Ordinarily commercial, and the manner of dealing with the commodity does not stamp the transaction as a trading venture.

It may be emphasized from an analysis of these cases that a profit motive in entering a transaction is not decisive, for, an accretion to capital does not become taxable income, merely because an asset was acquired in the expectation that it may be sold at profit.

Purchase of the property by the appellant was an isolated transaction not related to the business of the appellant. The <ORG> and <ORG> were, in our judgment, in error in holding that the right of the <ORG> was not sold to the appellant in the lands in Sch. II and Sch. III properties. The land in Sch. II was leasehold, and on it was constructed a warehouse and the land in Sch. III was held as a licensee and two warehouses were standing thereon. The conveyance by the <ORG> to the appellant is not on the record, but the recitals in the deed dated September 30, 1943 definitely indicate that the rights of the <ORG> without any reservation were purchased by the appellant, and the appellant sold its entire rights in the properties in Schs. I, (1) 14 T.C. 490.

(2) 24 T.C. 498.

(3) 34 T.C. 389.

(4) 11 T.C.297.

(5) 15 T.C.333.

II and III without any reservation. It is true that the appellant had put the factory in a working condition, but had not organized a jute pressing business, had not obtained a licence for working the factory, had not attempted to secure orders for pressing jute, and had not employed labourers, The appellant's claim that it was not s9 done because the appellant could not secure labourers has not been accepted. But that is not a decisive circumstance. The factory was in the occupation of the lessee <NAME> and possession was obtained after August 10, 1943. But before the 10th of August an agreement of sale was executed by the appellant in favour of <NAME>. In the light of the sequence of events, the inference that the appellant had no intention to commence doing jute pressing business does not necessarily follow. Even if that inference be regarded as binding upon the Court it cannot be presumed that the sole intention of the appellant was to start a venture in the nature of trade. Barring the expectation of profit and realization of profit by sale of the property, there is no evidence bearing on the intention with which the property was purchased.

In the deed of conveyance dated September 30, 1943 there is a reference to delivery of "joists, girders, fabricated steel, C.I. roofs, bolts, nuts, hooks and ceiling planks, being portions of the materials of the godowns and structures" standing on the land described in the third schedule. It was submitted that after purchasing the factory and the appurtenant premises the appellant demolished "certain godowns" in Sch. III land and sold the material as scrap. This, it was claimed, was--if not part of the business-=-a venture similar to the normal business of the appellant. But there is no evidence on the record as to how many warehouses stood originally on Sch. III land. The sale deed dated September 30, 1943 clearly states that there were two warehouses on steel-frames on the land held as licensee by the <ORG> and possession of these was given to the purchaser <NAME>. Beside these warehouses there were three warehouses on the land described in Sch. I and one warehouse on the land described in Sch. II. It is not claimed that these warehouses were insufficient for carrying on the business of jute pressing: nor is there any evidence that the warehouse or warehouses which were demolished were in a serviceable condition. The only fact which may be taken to be established is that a warehouse or warehouses were demolished by the appellant and the materials were sold as part of the property sold under the deed dated September 30. 2943. From this circumstance, an inference that the entire property was purchased with intent to demolish and dispose of as scrap cannot be raised.

Granting that the appellant made a profitable bargain when he purchased the property. and granting further that the appellant had when he purchased it a desire to sell the property if a favourable offer was forthcoming. these could not without other circumstances justify an inference that the appellant intended by purchasing the property to start a venture in the nature of trade. Absence of advertisement inviting offers for purchasing the property, and absence of brokers in the negotiations for sale between the appellant and <NAME>, are circurmtances which lead to no positive inference. There is nothing to show that the appellant desired to convert the property to some other use. No brokers were employed for entering into a transaction of sale. It appears that <NAME> on coming to learn that the factory was for sale approached the <ORG> after the sale deed was executed in favour of the appellant and he was informed that it had already been sold to the appellant. Thereafter <NAME> contacted the appellant and agreed to purchase the property. The property purchased was not sudh that an inference that a venture in the nature of trade must have been intended by the appellant in respect thereof may be raised. A person purchasing a jute press may intend to start his own business even if he is not already in that business, or he may let it out on favourable terms. The property purchased by the appellant was capable of being let out and it had in fact been let out by the <ORG> before the date of sale in favour of the appellant. It was capable of fetching annual income, and there is no evidence that at the material time it could not be reasonably let out. We therefore discharge the answer given by <ORG> in respect of the question submitted by the <ORG> and record a negative answer. The appeal is allowed. The Commissioner to pay the costs in this <ORG> and <ORG>. Appeal allowed.


JUDGMENT <NAME>, J.

1. This is an application in revision against the order of the Chief Judge of <ORG>, Bombay, dismissing the plaintiff's suit in pursuance of an award under by-law 38A of <ORG>.

2. The applicant filed a suit in <ORG> at Bombay to recover a sum of Rs. 1,023-8-0, consisting of Rs. 1,000, the amount paid as deposit, together with Rs. 11 as interest, and Rs. 12 8-0 on account of profits in the transactions of sale and purchase of one hundred bales of cotton done by the defendants as the plaintiff's brokers, on December 10, 1926, and December 14, 1926. The defendants admitted the amount of the deposit and interest, and also the two contracts sued upon ; but contended that there were other contracts and several payments by them on account of the transactions which resulted in a loss to the plaintiff, and the amount of Rs. 100-10-0 was payable by the plaintiff to the defendants, and that the whole matter had been referred by the defendants to the arbitrators of <ORG>, and, therefore, the Court had no jurisdiction to try the suit.

3. The learned Chief Judge of <ORG> stayed the petitioner's suit pending the arbitration. On an application in revision, No. 148 of 1927, <ORG> refused to interfere with the order of stay, and directed that all the objections to the award might be taken before the learned Chief Judge. The learned Chief Judge appreciated the force of the argument on behalf of the plaintiff that the award was null and void, as it embraced matters not recognised by law, and that the contracts on which the plaintiff sued were in sanctioned forms whereas the arbitrators in arriving at their conclusion considered other contracts which were made in contravention of the by-laws, but held that under by-law 38A, all unpaid claims, whether admitted or not, were required to be referred to the arbitration of two disinterested persons, and therefore the reference to arbitration was valid, and that if the arbitrators in investigating the dispute referred to other contracts and took into consideration the liabilities under non-sanctioned contracts, it did not amount to any judicial misconduct, and the award was binding as an adjustment of the suit according to the ruling in <CITATION> (1920) I.L.R. 45 Bom. 245, s. o. 22 Bom. L.R. 1048, and, therefore, dismissed the plaintiff's suit, as the arbitrators had held that instead of the amount of Rs. 1,023-8-0 being due to the plaintiff, the amount of Rs. 100-10-0 was due by the plaintiff to the defendants.

4. <ORG> was incorporated under the Bombay Cotton Contracts Act, XIV of 1922. The order of <ORG> staying the suit was not interfered with by <ORG>. <ORG> has power to stay the suit in order to enable the parties to it to refer to arbitration under para, 18 of Schedule II of the Civil Procedure Code, 1908, which has been made applicable to <ORG> by the rules under Section 9 of the Presidency Small Cause Courts Acts, or under Section 19 of the Indian Arbitration Act, IX of 1899 according to the decision in <CITATION> .

5. The next question is, whether <ORG> had jurisdiction to accept the award which was, as alleged by the applicant, illegal and void. It is urged on behalf of the applicant that, so far as the deposit of Rs. 1,000 was concerned, the arbitrators had no power to decide the question relating thereto, and that the arbitrators could only give an award in respect of the two contracts which were in the sanctioned form, and the award was illegal so far as it proceeded to take into consideration all other contracts alleged by the defendants which were not in the sanctioned form. We are unable to accept the argument on behalf of the applicant that the deposit of Rs. 1,000 was unconnected with the contracts on which the suit was based. The receipt for the deposit of Rs. 1,000 recites that the deposit was taken from the plaintiff for doing business in cotton. It represents the earnest or margin money required to be deposited for any loss that would have resulted from the contracts made by the plaintiff with the defendants brokers. The sanctioned contract form at page 68 of the rules refers to a margin to be paid and maintained by the broker until the completion of the contract. It would, therefore, follow that the amount of Rs. 1,000 deposited is closely connected with the contracts entered into by the plaintiff with the defendants which were in the sanctioned form. By-law 38 A framed under the Act provides as follows:-

All unpaid claims whether admitted or not and all disputes (other than those relating to quality) arising out of, or in relation to, (a) contracts (whether forward or 'ready' and whether between members or between a member and a non-member) made subject to these by-laws, or (b) the rights and/or responsibilities of commission agents, muccadums and brokers not parties to such contracts, shall be referred to the arbitration of two disinterested persons one to be chosen by each disputant...

6. By-law 81 runs as follows:-

Contracts between agents and their constituents, e.g., between a member and a non-member or between a member acting as an agent and a member acting as his constituent shall be subject to the by-laws and shall be in writing in the form given in the Appendix (pages 67, 68, 69 and 70), provided that to such contracts by-laws 130 to 166 inclusive shall not apply.

A member whose constituent has agreed in writing to sign the prescribed form of contract and fails or refuses to do so after terms have been arranged shall be treated in all respects as if he had done so and both parties shall have the rights and remedies accorded by these by-laws.

7. It is, therefore, necessary that the contracts must be in writing and signed in the sanctioned form, or in the absence of any contract in the sanctioned form there must be a written undertaking by the constituent to sign. A mere oral undertaking would be insufficient according to the decision in <NAME> v. <NAME> (1927) 30 Bom. L.R. 122. The contracts which are not in the sanctioned form are void under Section 5 of the Bombay Cotton Contracts Act, XIV of 1922. It would, therefore, follow that the applicant could bring a suit in <ORG> on the two contracts which were in the sanctioned form to recover the deposit and also the profit accruing thereunder, and it would be open to the defendants to apply under the Indian Arbitration Act to stay the action, but it is not open to the defendants to say that the action would not lie. <CITATION> . referred to by-law 38 of the East India Cotton Association and observed as follows (p. 1328):-

I can see nothing in that clause to make arbitration a condition precedent to the right to bring an action. It seems to mo to be an ordinary provision for referring disputes to arbitration, and such a provision does not in any way oust the jurisdiction of the <ORG>. If an action is brought in respect of a matter covered by the arbitration clause, the defendant can apply under the Indian Arbitration Act to stay the action, but it is not open to him to say that the action does not lie.

8. With regard to by-law 81, it was held that a suit could not be maintained on a contract which was not in compliance with the statutory form, unless there was an agreement in writing to sign the prescribed form of contract.

9. In the present case it is alleged on behalf of the applicant that there were only two contracts in writing in the sanctioned form on which the suit is based, and that the arbitrators took into consideration other contracts which were not in the sanctioned form, nor was there any agreement in writing to sign those contracts. It is urged, on the other hand, that the award (SIC) not disclose the fact that the arbitrators took into consideration contracts which were not in the sanctioned form. It is conceded on behalf of the opponents, and it is also clear from the authorities, that if a suit had been brought by the defendants on any contracts which were not in the sanctioned form in the absence of any agreement in writing to sign those contracts, it would not have been maintainable. It is, therefore, contended on behalf of the applicant that the arbitrators took into consideration contracts which were not in the sanctioned form, and that the whole award is illegal and void, as the award which is legal so far as it is based on the contracts in sanctioned forms cannot be separated from the other portion of the award which is based on contracts which were illegal and void. The remarks in the judgment of the learned Chief Judge lend support to the contention on behalf of the applicant that the arbitrators took into consideration other contracts between the parties which were not in the sanctioned form, though there is no specific and clear finding on that point. The award, if it has proceeded on contracts which were not in the sanctioned form, would be illegal and void, and if the portion of the award which is illegal and void cannot be separated from the portion of the award which is valid, the whole award would be invalid. <CITATION> . (1920) 34 C.L.J. 253 it was held that if in the event of an award made by arbitrators on grounds some of which did, while the others did not, justify the exercise of their jurisdiction, the Court cannot hold with certainty that the arbitrators acted exclusively on grounds within their jurisdiction, and the award is null and void on the principle that if the bad is not separable from the good, the whole is bad. See also <CITATION> (1915) 22 C.L.J. 237, 240.

10. The learned Chief Judge, however, held that the award not having been set aside, he was bound to dismiss the plaintiff's suit on the authority of <CITATION> (1920) I.L.R. 45 Bom. 245, s.c. 22 Bom. L.R. 1048, on the ground that the award was an adjustment of the suit. Where the parties to a suit refer their disputes to arbitration without the intervention of the <ORG> and an award is made, an application to pass a decree in terms of the award is an application to record a compromise within the meaning of Order XXIII, Rule 3. It was observed by <NAME> (p. 260):-

But when parties have been negotiating for a settlement, and one party con" aiders a settlement has been arrived at, which the other party denies, or where there has been a settlement which one party seeks to avoid on any of the grounds on which an agreement can be avoitied, recourse is had to Order XXIII, Rule 3, so that the <ORG> may determine whether an adjustment has actually been ,made or whether an adjustment made is one which can be recorded.

11. <NAME>, however, at page 270, held that Order XXIII, Rule 3, of the Civil Procedure Code, contains provisions corresponding to the plea of "accord and satisfaction after writ," and that an agreement to refer to arbitration after suit together with the award thereon is on the same footing as a direct settlement between the parties, but the award to be effective for such a plea must be a valid one according to the general rules of law governing the validity of awards in arbitration proceedings.

12. It would, therefore, follow that if the award is invalid or illegal, it cannot be recorded as an adjustment of the suit. If the defendants had proceeded under the Indian Arbitration Act and got a decree on the award in <ORG>, or if the plaintiff had got the award set aside under the Indian Arbitration Act , the matter would have been conclusive. But where, as in the present case, the award is sought to be recorded as an adjustment of the suit, the <ORG> has jurisdiction to consider whether the award is legal and enforceable. The view in <CITATION> has been confirmed by the full bench decision in <NAME> v. <NAME> (1927) I.L.R. 51 Bom. 908, s.c. 29 Bom. L.R. 1254, F.B., where it was held that where in a suit parties have referred their differences to arbitration without an order of the <ORG> and an award is made, a decree in terms of the award cap be passed by the <ORG> under Order XXIII, Rule 3, of the Civil Procedure Code, but not otherwise. At page 948 <NAME> observed:-

I would only add that in my judgment the word 'lawful' in Order XXIII Rule 3, refers to the nature of the compromise arrived at, not to the procedure which the parties may have followed in bringing it about. But it is of course the duty of the <ORG> to be satisfied that there has in fact been an adjustment by compromise.

13. Under by-law 38 A. only disputes arising out of or in relation to contracts made subject to the by-laws shall be referred to arbitration. Under by-law 81 such contracts must be in writing in the form given in the appendix. It would, therefore, follow that the arbitrators had no jurisdiction to decide disputes arising out of contracts not in the sanctioned form. In cases where an arbitrator enters upon a consideration of matters which are not referred to him or which he has no jurisdiction to try by arbitration clause or submission between the parties, the appearance of the party after objection taken and protest made, does neither give the arbitrator authority to make an award nor estop him from urging that the arbitrator has exceeded his authority. See <NAME> v. <NAME> (1864) 33 L.J.C.P. 337 and <CITATION> (1927) 29 Born. L.R. 1087, 1092. The attendance of the applicant before the arbitrators after protest would not amount to a waiver of his right to object to the jurisdiction of the arbitrators.

14. It is urged on behalf of the applicant that he was never prepared to refer the dispute between the parties on contracts which were not in the sanctioned form to arbitration, and the award on such contracts as were not in the sanctioned form would be illegal and void. It would, therefore, appear that if the contention of the applicant, which the arbitrators entered upon a consideration of matters when they had no jurisdiction to do so, is correct, it cannot be said that the suit has been adjusted by a lawful compromise. The view of <ORG> in <CITATION> (1921) I.L.R. 49 Cal. 608 that where in a pending suit the parties go to private arbitration without the consent of the <ORG>, the award cannot be enforced either under Order XXIII, Rule 3, or under the provisions of the Indian Arbitration Act , has not been accepted by the full bench decision in <NAME> v. <NAME> (1927) I.L.R. 51 Bom. 908, s.c. 29 Bom. L.R. 1254, F.B.

15. It would, therefore, be necessary to send the case back to the lower <ORG> to decide on taking fresh evidence, if necessary, whether the arbitrators took into consideration the contracts which were not in the sanctioned form, and which were illegal and void under Section of the Bombay Cotton Contracts Act, XIV of 1922. If the <ORG> comes to the conclusion that the arbitrators took into consideration contracts which were not in the sanctioned form, the award would be illegal and void and the legal part of the award would not be capable of being separated from the illegal part. The <ORG> would then be entitled to disregard the award and decide the suit on the merits.

16. The lower <ORG>, in my opinion, failed to exercise the jurisdiction vested in it by law in omitting to consider the question whether the award was a lawful compromise under Order XXIII, Rule 3.

17. We would, therefore, reverse the decree of the lower Court dismissing the suit, and send the case back for disposal of the suit in the light of the remarks made in this judgment.

18. Costs of this application will be casts in the suit.

Broomfield, J.

19. I agree.

20. As this is a matter of importance and we are differing from the learned Chief Judge of <ORG> after the full <ORG> has declined to issue a rule, I think it desirable to state my reasons.

21. The plaintiff filed his suit on February 12, 1927. The plaint was as follows:-

The plaintiff above named states the following:-

(1) That on December 6, 1926, the plaintiff engaged the defendants as his brokers to effect transactions in cotton on his behalf, and as required by the defendants deposited a sum of Rs. 1,000 with them the same day. The defendants agreed to pay interest at six per cent, per annum on that amount.

(2) That on December 10, 1926, on instructions from plaintiff the defendants effected a sale on behalf of plaintiff of one hundred bales of <ORG> cotton of April-May 1927 delivery at Rs. 242 per Candy.

(3) That on December 14, 1926, on instructions from plaintiff, to cover the above sale, the defendants effected a purchase on behalf of plaintiff of one hundred bales of <ORG> cotton of April-May 1927 delivery at Rs. 240-12-0 per Candy.

(4) That in respect of these transactions a sum of Rs. 12-80 became due by the defendants to the plaintiff after giving credit for brokerage to the defendants, as per memo of account hereto annexed and marked 'A.' (5) That the plaintiff several times verbally and finally by his <NAME>'s letter of February 3, 1927, called upon the defendants to pay up the said sum of Rs. 1,000 and interest due thereon as mentioned in para 1 of this plaint and the sum of Rs. 12-8-0 as per para 4 hereof but the defendants have failed to pay the same or any part thereof.

(6) That the total amount due by the defendants to the plaintiff comes to Rs. 1,023-8-0 inclusive of interest up to date.

(7) The plaintiff therefore prays for judgment for Rs. 1,023-8-0 and interest thereon at six per cent till judgment and further interest on judgment at six per cent. per annum till realisation and such further and other relief as to the <ORG> may seem fit.

22. On March 14, 1927, the defendants filed the following written statement:-

1. Deny plaintiff's right to sue.

2. Deny that plaintiff engaged the defendants as brokers.

3. Say it was one <NAME> who was doing business in the name of <NAME> by whom all the transactions mentioned in the plaint were done and all orders for the transactions given to the defendants.

4. Without prejudice say that plaintiff has not filed the suit on the whole account between the parties and say that the real account between the parties is given in the annexed particulars marked 'A' and on the whole account a sum of Rs. 100-10 will be found due by the said <NAME>.

5. Without prejudice claim credit for Rs. 300 paid as under: -

Rs, 50 on January 10, 1927.

Rs. 100 on January 18, 1927.

Rs. 150 on January 31, 1927.

6. Say that disputes having arisen between the (SIC) all matters have been referred by the defendants to <ORG> for their arbitration and the said Association have already appointed arbitrators and the matter is pending before the said arbitrators."7. Say that the suit should be stayed.

23. The suit was stayed sine die pending the result of arbitration on the defendants' reference.

24. On April 12, 1927, an award was made in the following terms:-

We were nominated arbitrators in a dispute between the above parties by the Deputy Chairman of <ORG>. We notified both the parties to be present at a meeting convened on March 28, 1927, when Mr. <NAME> representing the plaintiffs and Mr. <NAME> representing the defendant with his pleader wore present. The meeting was adjourned to April 2, 1927, when also both the parties were present.

After hearing them fully and carefully looking into the accounts, correspondence and papers in respect of the above matter, we find that the plaintiffs' claim of Rs. 100-10-0 is fully corroborated by their books of accounts, <ORG> etc., that were placed before us and by the oral evidence of independent witnesses. We therefore award the plaintiffs' claim of Rs. 100-10-0 together with interest at six per cent till the date of payment, plus Rs, 70 for cost of this arbitration against the defendant.

25. Against the order of stay Revision Application No. 148 of 1927 was made to this Court. The Court refused to interfere on the ground that it was an interlocutory order, and directed that the objections to the award might be taken before the Chief Judge. The suit was then again taken up in <ORG> at the stage at which it was left, except that in the meantime the award had been made.

26. The plaintiff objected that the award was null and void because the arbitrators had taken into consideration certain transactions which were not in the prescribed contract forms as required by by-law 81 of <ORG>. The terms of bylaw 81 have been set out in the judgment of my learned brother. Section 5 of Act XIV of 1922 provides that contracts in contravention of any by-law shall be void. The learned Judge said that he appreciated the force of the argument, but he held that there was a valid reference to arbitration under by-law 38A and that the award was binding on the parties as an adjustment of the suit. He cited and apparently professed to follow <CITATION> (1920) I.L.R. 45 Bom. 245, s.c. 22 Bom. L.R. 1048. The plaintiff's suit was dismissed and he has come to this <ORG> in revision.

27. At the outset it should be stated that the plaintiff has all along denied that he had any dealings with the defendants other than the transactions mentioned in the plaint, and, at any rate so far as the proceedings in <ORG> are con cerned, the other transactions alleged by the defendants have not been proved. On the other hand, it has not been proved that the other transactions referred to were not in the standard forms, though the plaintiff has asserted that they were not and the defendants do not appear to have ever asserted that they were. Again, it cannot be said to be apparent from the record that the arbitrators in making their award took account of any transactions not in the standard forms, although it is probable that they did so since they have awarded the defendants the exact sum claimed in their written statement. These questions, in the view we take of the case, it will be necessary for the trial <ORG> to clear up.

28. But it appears from the judgment of the learned Chief Judge that he dealt with the case on the basis that there were some other transactions between the parties which contravened the provisions of by-law 81, and that the award covered these transactions also. For the purposes of this application we must take it that the facts are so, and consider whether on that basis the suit has been rightly dismissed.

29. As I have found some difficulty in analysing the learned Judge's reasoning, I quote the relevant passage from his judgment in full:-

The arbitration was, however, set up under by-law 38A, of the bylaws framed under the Act. It runs as follows:-' All unpaid claims, whether admitted or not, and all disputes arising out of, or in relation to, (a) contracts made subject to these by-laws, or (b) the rights and responsibilities of brokers, shall be referred to the arbitration of two disinterested persons.' The facts here are that the defendant did not admit the claim of the plaintiff. The existence of that fact is enough to give jurisdiction to the arbitrators. Plaintiff contends that the claim to the margin money and Rs. 12-8-0, for profit, was an admitted claim. Defendant disputes and denies it. But; granting that it was so, still it was an unpaid claim, and all unpaid claims are referable to arbitration, whether admitted or not. The arbitrators had therefore to determine whether the claim to Rs. 1,012-8-0 was an admitted claim or not, They had jurisdiction, even if it was admitted,-which it was not,-because it was unpaid. I think power is taken in oases of admitted but unpaid claims, deliberately by the <ORG>, in respect of brokers and others, so that where they find that there are unjustifiable instances of any broker admitting claims, but not paying them, action can be taken against him, In investigating the dispute, they had, therefore, to refer to the whole account and in doing so, if they took into consideration liabilities under non-sanctioned contracts, it would not vitiate or invalidiate their award, as it would not amount to any judicial misconduct on their part. Ab initio, I find, that the reference was a valid one, as conditions calling for it under by-law 38 did exist in this case. Taking plaintiff's case at its best, there was an unpaid claim, arising under sanctioned contracts, and if there was an unpaid claim, a reference was called for, as a reference has to be made in case of ' all unpaid claims.' Really speeking, he should have referred the matter to arbitration, as defendant was not paying him his admitted claim.

Even if under the Limitation Act , the remedy of the parties to have the award enforced as an order of the <ORG> or otherwise, is barred, it cannot be said that they have no other rights in respect of it. I need not discuss what they are.

I find that there was a valid reference and that there is an award published under it. It is therefore binding on parties as an adjustment of the suit, <CITATION> . Whether the plaintiff appeared before the arbitrators under protest or not, does not affect the submission and the award, as under the by-law there was a valid reference.

30. The findings appear to be: (1) There was a valid reference to arbitration under by-law 38A, and (2) as there was a valid reference and an award published under it, and as the award is not invalidated by judicial misconduct on the part of the arbitrators the fact that the arbitrators took into consideration liabilities under void contracts not being in the learned Judge's view judicial misconduct,-therefore, the award is binding as an adjustment of the suit.

31. As regards the reference to arbitration it is to be noted, first of all, that there has been no submission to arbitration in the ordinary sense by both parties to the dispute. I do not say that it would necessarily have made any difference if the plaintiff and the defendants had agreed that the whole series of transactions including the void contracts should be referred to the arbitrators, but it is important to bear in mind that there was no such agreement. The defendants placed before the arbitrators what they considered to be the subject-matter of the arbitration. The plaintiff appeared in the proceedings under protest, and he is only bound by them in so far as they can be held valid under by-law 38A: see <CITATION> (1027) 29 Bom. L.R. 1087.

32. The learned Judge says that the plaintiff had an unpaid claim, namely, for Rs. 1,023-8-0, arising out of, or relating to, the two contracts made subject to the by-laws, that really speaking he ought to have referred the matter to arbitration himself, and that as he did not, the arbitrators had jurisdiction to consider the claim on the defendants' reference. So far I have DO difficulty in following him. But the real question which it seems to me the learned Judge has hardly faced is this: When there is an unpaid claim or a dispute arising out of, or relating to, a series of transactions consisting partly of contracts made subject to the by-laws and partly of contracts not so made, does bylaw 38A empower one party to refer the whole matter to arbitration without the consent of the other, and if a reference is so made, have the arbitrators authority to deal with the whole series of transactions? Now, there was no agreement between the parties, as I have said, and the arbitration proceedings depend for their validity on the provisions of by-law 38A. These have been set out in my learned brother's judgment. So far as Clause (a) is concerned, it is clear that arbitration is not contemplated or made compulsory in the case of contracts not made subject to the by-laws. In Clause (b) "such contracts" mean contracts made subject to the by-laws, and the meaning of the clause seems to be that when commission agents or brokers are concerned in such contracts, and there is a dispute as to their rights or liabilities, the dispute shall be referred to arbitration although they were not actually parties to the contracts. It would be putting a very unnatural interpretation on the by-law as a whole, if we were to take the words "not parties to such contracts," i.e., not parties to contracts subject to the by-laws, as though they meant " parties to contracts not subject to the bylaws," and I may say that no such construction appears to have been put upon the words either by the learned Judge or by the learned advocate for the opponents. There is nothing in the by-law then which gives power to one of the two disputing parties to refer any matters to arbitration which do not arise out of valid contracts, and the learned Judge's finding that there was a valid reference in this case appears to me to be clearly wrong. As to the award, it is not altogether clear to me whether the learned Judge held it to be valid or not. What he says is:-

In investigating the dispute, they had, therefore, to refer to the whole account and in doing so, if they took into consideration liabilities under non-sanctioned contracts, it would not vitiate or invalidate their award, as it would not amount to any judicial misconduct on their part.

33. It seems that this might mean either that the arbitrators were justified in looking at the whole account, or that they; were not justified in doing so, but the <ORG> could not interfere and must accept the award because there is nothing amounting to judicial misconduct. If, as I hold, the submission to arbitration as regards the whole series of transactions is invalid, it follows that the award based on a consideration of the whole series of transactions must also be invalid. The authority of the arbitrators is limited to the matters lawfully submitted to them. Several authorities were cited on this point. I need only refer to <CITATION> (1884) I.L.R. 9 Bom. 82, noting that the present is not a case in which the part of the award which is beyond the submission can be separated from that which is within it. As I have suggested it is by no mears clear that the award would have been valid if it had been entirely within the terms of the submission, for if the arbitrators were at liberty to take account of the contracts not in the prescribed form, they would be giving effect to contracts which the law has declared to be void, and that would apparently be contrary to public policy. In that connection I may refer to the cases cited in <NAME>'s Commentary on Order XXIII, Rule 3, under the heading "Lawful agreement or compromise", 9th Edition, page 822; but I need not go into the cases in detail, because, in the view I take, the point does not actually arise in this case.

34. If, on the other hand, the learned Judge's view was that the award was not a lawful one, but that he had no jurisdiction to go into that question, then on that point also, I think, he was clearly wrong. If the award had been made a decree of <ORG>, then, of course, no order could have been made in the plaintiff's suit inconsistent with such decree. But that course has not been followed, and it is well settled that the mere making of an award even on a valid submission does not, ipso facto, oust the jurisdiction of the <ORG>: see <CITATION>  3 K.B. 257, cited as an authority by <NAME> in <NAME> v. <NAME> (1929) 31 Bom. L.R. 1403, and also <CITATION> (1930)32 Bom. L.R. 1319, 1328. In the case of <CITATION> (1920) I.L.R. 45 Bom. 245, s.c. 22 Bom. L.R. 1048, which the learned Judge himself appears to have made the basis of his decision, it was held that an award could be regarded as an adjustment of the suit under Order XXIII, Rule 3, and the terms of that rule make it clear that the <ORG> must first be in a position to hold that the award amounted to a lawful agreement or compromise.

35. For these reasons I agree with the order proposed by my learned brother.


PETITIONER: <NAME>. Vs. RESPONDENT: THE COLLECTOR/DISTRICT MAGISTRATE AND ANR. ETC. DATE OF JUDGMENT24/07/1992 BENCH: VENKATACHALLIAH, M.N. (J) BENCH: VENKATACHALLIAH, M.N. (J) SAWANT, P.B. SINGH N.P. (J) CITATION: 1994 AIR 85 ACT: U.P. Kehhetra Samiti and <ORG>, 1961: Section 28(11)-President-No confidence motion-When carried out-`For' the time being'-Interpretation of-Means at the moment or existing position-Actual membership in existence on date of no confidence motion. HEADNOTE: The appellant was elected president of <ORG> on January 25, 1989. Two others were nominated as members of <ORG>. On the date of its constitution <ORG> had a total of 62 members. On August 17, 1990, 56 members of <ORG> moved a no confidence motion against the president under Section 28 of the U.P. Kehhetra Samiti and <ORG>, 1961. The meeting to consider the said motion was held on September 14, 1990. 34 members were present at the meeting. 33 members including the two nominated members voted in favour of the motion while one member voted against, and as such the motion of no confidence was carried out against the president. The appellant filed two writ petitions in <ORG> and challenged and proceedings of the meeting dated September 14, 1990 and also his removal from the office of the president. He further challenged the nomination of the two nominated members on the ground that on the date of their nomination both of them were in government service and as such were disqualified to be members of <ORG>, being holders of an office of profit. <ORG> by its judgment partly allowed the Writ Petitions and set aside the nominations of the two members holding the same to be illegal. It further held, that as they were not lawful members of the <ORG>, their names are to be ignored, that the total strength of the members of the <ORG> for the time being comes to 60, and if these two 643 names are also excluded from the number of members who voted for the action of no confidence, the number of such members who voted for the motion of confidence, comes to 31. Thus, 31 members voted for the action of no confidence out of the total strength of 60 members, and therefore the irresistible conclusion was that the motion of no confidence was carried out by more than half of the total number of members of <ORG> for the time being. The appellant filed appeals to this Court by Special Leave. It was contended on behalf of the appellant relying on an earlier judgment of <ORG> in <NAME> v. <NAME> 1970 <ORG>, that the words "for the time being" in Section 28(11) of the <ORG> means the total number of members in existence at the time of the constitution of <ORG> and not on the date when the motion of no confidence was considered. Dismissing the appeals, this Court, HELD : 1. "For the time being" in section 28(11) of the <ORG> means at the moment or existing position. These words indicate the actual membership in existence on the date of the motion of no confidence. [648A] 2. <ORG> in <NAME>'s case has not given natural meaning to the expressions contained in sub-sections 12 and 13 of section 87-A of the U.P. Municipalities Act, 1916. The only meaning which can be given to the expression "half of the total members of the <ORG>" is the members as existing on the date of its constitution. <ORG>'s interpretation is contrary to the plain language of the sub- section. Similarly, <ORG> fell into grave error by not appreciating the plain meaning of the words "for the time being" in sub-section 13 of section 87-A of the Act. On the basis of strained reasoning it has given an interpretation which does not flow from the simple language of sub-sections 12 and 13 of section 87-A of the Act. <ORG> Judgment does not therefore lay down the correct law. [647F-648B] <NAME> v. <NAME>, 1970 All. L.J. 36, over- ruled. In the instant case, where out of total number of 62 members, nomination of two having been held illegal, actual membership on the date of the motion was 60, and out of total 34 members present in the meeting, 644 33 voted for the motion and only 1 voted against, it has to be held that the motion was carried out against the President. [646 E-F] JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2652- 53 of 1992.

From the Judgment and Order dated 6.3.1991 of <ORG> in W.P. No.8460 of 1990 and C.M.W.P. No. 9514 of 1990.

<NAME> and Ms. <NAME> for the Appellant.

The Judgment of the Court was delivered by <NAME>, <NAME> Special leave granted. <NAME>N. Kaul was elected president of <ORG>, Lucknow on January 25, 1989. <NAME> and <NAME> were nominated as members of the zilla <ORG>. On the date of its constitution the <ORG> had total of 62 members. On August 17, 1990 56 members of the <ORG> moved a no confidence motion against the president under section 28 of U.P. Kehhetra Samiti and <ORG> Adhiniyam, 1961 (hereinafter called as the Adhiniyam). Section 28(11) of the Adhiniyam which is relevant is as under:-

"If the motion is carried with the support of more than half of the total number of members of <ORG> for the time being......"

The meeting to consider the motion of no confidence was held on September 14, 1990. 34 members were present at the meeting. 33 members including <NAME> and <NAME> voted in favour of the motion while one member voted against and as such the motion of no confidence was carried out against the president.

<NAME> filed two writ petitions before <ORG> which were heard together. In the writ petitions <NAME> challenged the proceedings of the meeting dated September 14, 1990 and also his removal from the office of the president. He further challenged the nomination of <NAME> and <NAME> on the ground that on the date of their nomination both of them were in government service and as such were disqualified to be members of <ORG>, being holders of an officer of profit. His challenge in the writ petition was based on the following grounds:-

(1) That the nomination of <NAME> and <NAME> as members of <ORG> was illegal as on the date of nomination they were government servants and were holding "office of profit".

(2) That the notice by the members intimating their intention to move the motion of no confidence was illegal as <NAME> and <NAME> who were disqualified to hold the office of member of <ORG>, had signed the said notice.

(3) That the meeting dated September 14, 1990 was in violation of mandatory provisions of the Adhiniyam as the reguisite clear notice of 15 days was not served upon the members nor the notice was published by affixng the same on the notice board of the <ORG>.

(4) That the participation of <NAME> and <NAME> in the deliberation of the meeting dated September 14, 1990 vitiates the entire proceedings of the meeting.

(5) That the required "more than half of the total number of members of <ORG> for the time being" did not vote in favour of the motion. <ORG> by a reasoned judgment partly allowed the petitions and set-aside the nominations of <NAME> and <NAME> holding the same to be illegal. All other contentions raised before it on behalf of <NAME> were rejected. This appeal via special leave petition is against the judgment of <ORG>.

We have heard Mr. <NAME>, learned Senior Advocate on behalf of the appellant. We have been taken through the judgment of <ORG>. We do not find any infirmity in the same. We agree with the reasoning and the conclusions reached by <ORG>. Mr. <NAME>, taking support from <NAME> v. <NAME>, 1970 <ORG> 36 has assailed the finding of <ORG> on the point that the motion of no confidence was not supported by more than half of the total number of members of <ORG> for the time being. The relevant part of <ORG> judgment, under appeal, is as under:-

"We have the report of the Presiding Officer, <NAME>, as Annexure-3 to the counter affidavit of the Collector, Lucknow. The report is quite revealing. The report shows that in all 34 members of the <ORG> were present. After deliberations 32 members voted in favour of the motion of no-confidence and one member voted against the motion of no-confidence. The remaining vote of the 34th member was debated because the mark made by the voter was not made in the column meant for "yes". Initially the Presiding Officer was of the view that the vote was invalid but when the Assistant Election Officer informed the presiding Officer that it was not explained to the members as to at what place the mark was to be placed by the voter, the Presiding Officer was of the view that since the mark was above the column meant for "yes" the vote was valid and was cast in favour of the motion of no-confidence. Thus, a total of 33 members voted for the motion of no- confidence when the total strength at that time was

62. It was not disputed that both opposite parties nos.2 and 3 voted for the motion of no-confidence. We have already held that they were not lawful members of the <ORG> and, as such, their names are to be ignored. If we ignore these two members, then the total strength of the members of the <ORG> for the time being comes to 60 and if these two names are also excluded from the number of members, who voted for the action of no- confidence, the number of such members who voted for the motion of no-confidence, comes to 31. Thus, 31 members voted for the action of no- confidence out of total strength of 60 members. The conclusion was irresistible that the motion of no-confidence was carried out by more than half of the total number of members of the Zilla <ORG> for the time being."

Mr. <NAME> contended that "for the time being" in section 28(11) of the adhiniyam means the total number of members which were in existence at the time of the constitution of <ORG> and not on the date when the motion of no confidence was considered. According to him the total number of members which should have been taken into consideration was 62 and since the votes for the motion were 31 which means only 50% and not more than 50%, the motion failed. The argument has been advanced on the basis of the judgement of a Division Bench of <ORG> in <NAME> case (supra). In that case <ORG> was concerned with the provisions of U.P. Municipalities Act, 1916 (Act). The municipal Board Mugal Sarai consisted of 16 members including the president. A notice of the intention to move a motion of no-confidence against the president was given by the members. Sub-section (12) and (13) of section 87-A of the Act which came for consideration before <ORG> in <NAME> case (Supra) were as under:-

12. "The motion shall be deemed to have been carried only when it has been passed by a majority of more than half of the total number of members of the Board".

13. "If the motion........which shall not be less than one-half of the total number of members of the board for the time being, no notice of any subsequent motion of non-confidence in the same president shall be received until after the expiry of a period of twelve months from the date of the meeting."

<ORG> interpreted "for the time being" in sub-section (13) of section 87-a to mean the members of the board as they existed on the date of its constitution and not on the date when the motion of no confidence was considered. So far as sub-section (12) of section 87-A of the Act was concerned <ORG> interpreted the expression "total number of members of the <ORG>" to mean to total number of member who were functioning as such at the relevant time which means on the date of the meeting and did not include members or members who had been removed from office. We are of the view that <ORG> judgment in <NAME> case (supra) does not lay down correct law. The <ORG> has not given natural meaning to the expressions contained in sub-sections (12) and (13) of section 87-A of the Act. The only meaning which can be given to the expression "half of the total number of members of the <ORG>" is the members as existed on the date of its constitution. The total number of members on the date of the composition of the municipal board, <NAME> was 16 and as such not withstanding the removal of member/members the motion of no confidence could only be passed if the motion was supported by more than 8 votes. The <ORG>'s interpretation is no the fact of it contrary to the plain language of the sub-section. Similarly <ORG> fell into grave error by not appreciating the plain meaning of the words "for the time being" in sub-section (13) of section 87-A of the Act. "For the time being" means at the moment or existing position. These words indicate the actual membership in existence on the date of the motion of no confidence. The <ORG> on the basis of strained reasoning has given interpretation which does not flow from the simple language of sub-sections (12) and (13) of section 87-a of the Act. We, therefore, hold that <ORG> judgment in <NAME> case (<ORG>) does not lay down the correct law and we over-rule the same.

Apart from relying on the judgment of <ORG> in <NAME> case Mr. <NAME> did not advance any other argument before us.

We, therefore, dismiss the appeal with no orders as to cost.

N.V.K. Appeals dismissed.


JUDGMENT <NAME>, J.

1. This is an appeal from a judgment and decree of <ORG>, dated the 13th March 1905, modifying those of the Subordinate Judge of Negapatam, of the 17th February 1902.

2. The controversy arises out of a mortgage executed on the 22nd September 1883, by the first and third appellants in favour of <NAME>, to secure Rs. 8,000 and interest as stipulated. The mortgage was of the kind long known as a mortgage bond or hypothecation bond and now described in the Transfer of Property Act as a simple mortgage.

3. In the course of a partition suit, relating to the estate of the mortgagee, the first respondent was appointed receiver of that estate and as such he instituted the present suit, joining as defendants the two actual mortgagors and their respective sons which four persons are now the appellants. The object of the suit, so far as it need now be noticed, was to enforce payment of the amount due under the mortgage, by sale of the mortgaged property.

4. In carrying out the partition the claim now in question was allotted to the now second respondent, whereby he became the person really interested in the claim. Accordingly he was made a party to this appeal, by order of <ORG> and he is the contesting respondent.

5. The only issue in the case which need be noticed was whether the suit was barred by limitation and the principal question discussed on the argument of this appeal (the only one on which their Lordships propose to express an opinion) is whether the period of limitation applicable to such a case is sixty years, under Article 147 in the Second Schedule to the Indian Limitation Act (XV of 1877), as held by <ORG>, or twelve years, under Article 132 , as contended for by the appellants.

6. This question is one as to which there has been great diversity of opinion among the several <ORG> in India for many years past, almost from the time of the passing of the Act of 1877. If there had been a uniform current of decision in India upon such an Act and for such a period of time, their Lordships would have been very slow to interfere. But though the Act to be construed is one applicable to India generally and must bear the same meaning everywhere, different and conflicting views have so far prevailed in the different provinces of India. Their Lordships have therefore no alternative but to decide between the conflicting opinions.

7. The two articles in question run thus:- Article 132. Suit "to enforce payment of money charged upon immoveable property," " twelve years." Article 147. Suit " by a mortgagee for foreclosure or sale," "sixty years. "

8. Before balancing the two views which have been taken of the effect of these Articles, it may be well to see how the law stood when they were passed. The previous Act was Act IX of 1871, in which Aticle 132, referring to suits "for money charged upon immoveable property, " was practically the same as the present Article bearing that number. There was nothing corresponding to Article 147. Under that state of things it was perfectly settled law that suits of the present class were governed by Article 132 , whilst some uncertainty had been felt as to the rule of limitation applicable to another class of mortgage, the English mortgage.

9. The two views taken under the Act of 1877 are these: According to one view, Article 147 applies to every suit by a mortgagee, in which he ask3 either for foreclosure or for sale. According to the other view, Article 147 applies only to the class of mortgages (English mortgages) in which the suit may be and in fact always is, brought for " foreclosure or sale, " while Article 132 means what the corresponding Article meant before.

10. In support of the first of these constructions, reliance has mainly been placed upon the view that the terms of Article 147 require its acceptance and that the other construction is not a legitimate construction, as not giving fair effect to the language used. If this be so, it is of course conclusive. But their Lordships think it is not so. They are of opinion that the narrower construction of Article 147 , limiting its application to the one class of mortgages in which alone the suit can be and always is, brought for "foreclosure or sale," is a legitimate construction and gives reasonable effect to the language used.

11. That being so, their Lordships think that the reasons for adopting the narrower interpretation of Article 147 greatly outweigh those on the other side. The preponderating considerations, in their Lordships' opinion, are the following. The narrower construction escapes the necessity of attributing to the <ORG> a great and sudden change of policy. It also gives effect to the ordinary presumption, that the <ORG>, when it repeats in substance in a later Act an earliar enactment, that has obtained a settled meaning by judicial construction, intends the words to mean what they meant before. The other construction fails in both these particulars.

12. One argument urged for the respondent calls for notice. It was said that, whatever might have been the original operation of the Limitation Act of 1877, the effect of Article 147 might be extended by the subsequent passing of the Transfer of Property Act in 1882, so as to make the Article apply to everything which was declared to be a mortgage by the later Act. This contention appears to their Lordships to assume the very point in controversy, namely, that Article 147 purports to apply to every suit on a mortgage, in which there is claim for fore" closure or for sale.

13. Their Lordships will humbly advise His Majesty that it should be declared that Article 132 is the Article which provides the rule of limitation applicable to this case and that the case should be remitted to <ORG> to be disposed of in accordance with this declaration.

14. The second respondent will pay the costs of this appeal.