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Factual and Procedural Background

This appeal arises from a suit for pre-emption in respect of shares sold in two mahals. The plaintiff was an admitted co-sharer in the mahals; the defendant was a company and the vendee, described as a stranger. The plaintiff alleged a custom of pre-emption and a statutory right under the Pre-emption Act, and challenged the ostensible sale consideration of Rs. 24,000, contending that only Rs. 19,333-5-3 was actually paid.

The defendant's original written statement denied the custom of pre-emption, asserted that the consideration stated in the sale deed was the true consideration, and alleged that the deed had been executed with the plaintiff's knowledge, consent and after the plaintiff's refusal. The defendant later amended its written statement to add a plea that the share had been purchased for sowing sugarcane for the defendant's factory — a manufacturing industry — and that, consequently, the plaintiff could not pre-empt the purchase.

The Subordinate Judge found for the plaintiff: that the plaintiff had a right of pre-emption under the Act; that the defendant could not claim protection under the manufacturing-industry exception because there was no recital of that purpose in the sale deed; that there was no refusal by the plaintiff (so no estoppel); and that the full stated consideration of Rs. 24,000 had passed. The defendant appealed and the plaintiff filed a cross-appeal. The High Court (Sulaiman, J. and Pullan, J.) heard the matter and ultimately dismissed both appeals with costs, affirming the lower court's findings.

Legal Issues Presented

  1. Whether the purchase of land (a fractional zamindari share) for sowing sugarcane to supply a sugar factory falls within "purposes of a manufacturing industry" under section 8, sub-clause (c) of the Agra Pre-emption Act.
  2. Whether the absence of an express recital of the manufacturing purpose in the sale deed prevents a purchaser from availing the protection of section 8(c).
  3. Whether the plaintiff had refused the sale (estoppel) such that he could not exercise pre-emption.
  4. Whether the ostensible consideration of Rs. 24,000 stated in the sale deed was in fact the full consideration paid.

Arguments of the Parties

Plaintiff's Arguments

  • The plaintiff asserted a customary right of pre-emption and relied on provisions of the Pre-emption Act to claim the right to pre-empt the sold shares.
  • The plaintiff contested the ostensible sale price of Rs. 24,000 and alleged that the true amount paid was Rs. 19,333-5-3.

Defendant's Arguments

  • Initially, the defendant denied that any custom of pre-emption existed and contended that the consideration recited in the sale deed (Rs. 24,000) was the true consideration.
  • The defendant alleged the deed was executed with the plaintiff's knowledge and consent and after the plaintiff's refusal (an estoppel plea).
  • On amendment, the defendant additionally pleaded that the purchased share was acquired for the cultivation of sugarcane for its factory — a manufacturing industry — and so the purchase was excepted from pre-emption under section 8, sub-clause (c) of the Act.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The opinion contains reasoned judgments by Sulaiman, J. (senior reasoning) and brief supplementary observations by Pullan, J. Their legal analysis is set out below in the sequence and terms used in the opinion.

Sulaiman, J. — Reasoning (step-by-step)

  1. Preliminary factual assessment: The learned Subordinate Judge had found that the property was purchased to sow improved sugarcane for the factory and to obtain cheap labour. Sulaiman, J. expressed personal doubt whether the defence alleging a manufacturing purpose was an afterthought, noting:
    • Only a fractional share (about ten annas in the rupee) was acquired, making the purchaser a mere co-sharer rather than an owner capable of converting the land into extensive khudkasht cultivation.
    • No recital of the manufacturing purpose appeared in the original agreement, the sale deed, or the first written statement; only later was the plea raised.
    • Only about 50 bighas were sir and khudkasht land, with a small area already cultivated; the remainder was not automatically subject to direct cultivation by the vendee through the sale.
  2. Legal question on scope of section 8(c): Even assuming the purchase purpose was to sow sugarcane for the factory, Sulaiman, J. considered whether that falls within the statutory phrase "purposes of a manufacturing industry." He reasoned:
    • The legislative object in exempting purchases for manufacturing purposes was to encourage manufacturing industries, not agriculture.
    • Sugar plantation and sugarcane cultivation are agricultural pursuits, year-to-year crops, and the production of such raw material is not itself a purpose of a manufacturing industry.
    • Although the section should not be interpreted so narrowly as to apply only to acquisitions directly assisting the manufacturing process, it should not be extended to include large-scale production of raw material by cultivation intended for supply to the manufacturer.
    • Therefore, purchase of land for large-scale cultivation of raw material (sugarcane) does not fall within the meaning of the clause.
  3. On the meaning of "land" in section 8(c): Sulaiman, J. observed that the statute uses varying words in different sections ("land", "interest in the land", "property") and that this might suggest protection was intended for acquisitions of plots of land rather than fractional zamindari shares. However, because the word "land" is used loosely elsewhere (e.g., section 14), he refrained from expressing a definite opinion that "land" excludes shares in a zamindari.
  4. On whether a recital in the sale deed is necessary: He disagreed with the Subordinate Judge's view that an express recital of purpose in the sale deed is required. His reasoning:
    • A literal requirement would create practical difficulties: some transfers (per section 54 of the Transfer of Property Act) can occur without instrument, and a purpose recital may therefore be impossible in some lawful transfers.
    • It is the court's duty to interpret the section as it stands; it would be inappropriate to interpolate words such as "as mentioned in the sale deed" into the statute.
    • Consequently, the omission of a recital in the sale deed is not a fatal defect to the purchaser's ability to rely on the statutory exception; the section can apply even where no document exists.
  5. Findings affirmed: On the question of the plaintiff's refusal (estoppel), Sulaiman, J. affirmed the lower court's finding that there was no refusal. On the consideration, he accepted the lower court's finding that the full sum of Rs. 24,000 passed.
  6. Conclusion: He would hold that the purchase for large-scale sugarcane cultivation does not come within section 8(c) and would dismiss the appeal and cross-objection by affirming the court below on the contested points.

Pullan, J. — Reasoning (concise observations)

  1. Meaning of "purposes of a manufacturing industry": Pullan, J. agreed materially with Sulaiman, J., stating that sugarcane growing is an ancillary, agricultural industry conducted by agriculturists, not manufacturers. He compared it to a cotton miller not being required to grow cotton or a flour miller to grow grain — the production of raw materials is not part of the manufacturer's business purpose.
  2. Meaning of "ostensibly": He agreed that it is not necessary for the purchaser's intention to be written into the sale deed, but observed that the word "ostensibly" implies the purchaser should, in some way, make known the purpose of purchase if he intends to rely on section 8(c), because otherwise the pre-emptor cannot readily judge whether the purchase is for a manufacturing purpose. He stated he would not go further than that general requirement of disclosure.
  3. Practical note: In the present case, he acknowledged it could reasonably be said that an absentee firm buying land close to the factory probably did so for some purpose connected with the factory — but he did not disturb the conclusions reached by the court below.

Holding and Implications

Holding: Both the appeal and the cross-objection are dismissed; the findings of the court below are affirmed and costs are awarded against the appellants.

Direct consequences for the parties (as stated in the opinion):

  • The plaintiff's right of pre-emption was upheld and the plaintiff prevailed on that claim.
  • The defendant company was not entitled to the protection of section 8, sub-clause (c) on the ground that the purchase was for sugarcane cultivation aimed at supplying the factory; the Court held that cultivation of raw material by agricultural production does not fall within the statutory phrase "purposes of a manufacturing industry" for the purposes of that exception.
  • The court also affirmed that there was no estoppel by refusal by the plaintiff, and accepted the lower court's finding on the amount of consideration (the full Rs. 24,000 having passed).

Broader legal implications: The judges interpreted section 8(c) to exclude large-scale agricultural production of raw materials (here, sugarcane cultivation) from the phrase "purposes of a manufacturing industry," and they clarified that an express recital of purpose in the sale deed is not an indispensable prerequisite to invoke section 8(c). The opinion does not state that it establishes any new binding precedent beyond the resolution of the parties' rights in this case.

    Punjab Sugar Mills Co. v. Lachhman Prasad

    Sulaiman, J.:— This is a defendant's appeal arising out of a suit for pre-emption of shares sold in two mahals. The plaintiff is admittedly a co-sharer in the mahals and the defendant company which is the vendee 4 is a stranger. The plaintiff alleged the existence of a custom of pre-emption and a right under the Pre-emption Act and also asserted that the ostensible consideration of Rs. 24,000 was not the true consideration but only Rs. 19,333-5-3 were paid. The defendant originally contested the claim on the ground that there was no custom of pre-emption, that the consideration mentioned in the sale deed was the true consideration and that the deed had been executed with the knowledge and consent and after the refusal of the plaintiff. Some days later, the written statement was amended and a further, plea was added that the share in question had been purchased for the cultivation of sugarcane for the factory which was a manufacturing industry, and the plaintiff was therefore not entitled to pre-empt the same.

    The learned Subordinate Judge has found that the plaintiff has the right of pre-emption under the Act and that the defendant is not entitled to protection on account of the purchase having been made for their factory. His view is that the acquisition of land for the purpose of sowing sugarcane crops is for the purpose of a manufacturing industry within the meaning of section sub-clause (c), of the Act, but he has held that inasmuch as there was no recital of the alleged purpose in the sale deed the defendant cannot take advantage of it. As regards the plea of estoppel his finding is that there was no refusal by the plaintiff. On the question of consideration he has found in favour of the defendant and has held that the entire sum of Rs. 24,000 passed.

    The defendant has appealed and the plaintiff has filed a cross-appeal. There can be no doubt that the manufacture of sugar, whether it be the extraction of sugar juice from sugarcane or the refinement of sugar, is a manufacturing industry, but the question is whether the defendant is entitled to the protection given to him by the section.

    On the question of fact the learned Subordinate-Judge has found that the property in question was really purchased for sowing improved sugarcane for the factory and also for obtaining cheap labour for the factory. Speaking personally for myself, I have some doubt as to whether the actual form in which the defence was raised was not an after-thought. The property acquired was not a complete village consisting of only khudkasht lands. Only a fractional share of about ten annas in the rupee was acquired, so that the defendant became a mere co-sharer in the mahals. That will not entitle the company to turn out all the tenants and convert the entire land into khudkasht land so as to enable it to carry on sugarcane plantation on a large scale. Nor was it legally possible for the company to turn out occupancy tenants against their will or to compel them to sow sugarcane crops or for the matter of that to sell their crops to the company and to nobody else. On the other hand, the purchase of a big zamindari share in a neighbouring Village would undoubtedly facilitate the work of the company and increase their influence in procuring raw materials and labour easily. I therefore have some doubt as to whether the actual purpose for which the fractional share in the village was acquired was really cultivation by the company of the sugarcane crops. It may be noted that no such purpose is recited either in the original agreement which was executed several months earlier or in the sale deed. Nor was it mentioned when the written statement was first filed. Its admitted that only about 50 bighas of land are sir and khudhasht lands appertaining to the share, out of which a small area has already been brought under cultivation. The rest of the land is neither sir nor khudhasht and has not automatically come under the direct cultivation of the vendee by virtue of the sale deed.

    Assuming, however, that the purpose of the acquisition was to sow sugarcane crops in order that sugarcane may be used as raw material for the consumption of the factory, it still remains to consider whether such a purpose comes within the scope of section 8, sub-clause (c). There is no doubt that the object of the legislature in excepting sales for purposes of manufacturing industry from pre-emption claims was the encouragement of manufacturing industries, not necessarily the encouragement of agriculture. It seems to me that sugar plantation or the cultivation of the sugarcane crops is an agricultural pursuit quite separate and independent from the industry of manufacturing sugar. Sugarcane crops are year to year crops sown during one season, of the year and sugarcane can be has in the open, market. No doubt it is raw material which is required by a sugar factory, but the production of such raw material is not a purpose of a manufacturing industry, though undoubtedly it is of help. Although the section cannot be construed in a narrow sense so as to apply exclusively to acquisitions of land for the purpose of assisting the actual process of manufacture, it seems to me that it cannot apply to a case where raw material is to be produced by cultivation on a large scale in order that it may be utilised by the company. I would therefore hold that the purchase of land for such purposes does not come within the meaning of the section.

    Having regard to the fact that section 8, sub-clause (c) uses the word “land”, whereas some sections like sections 9 and 11 use the words “interest in the land” and other sections like sections 22 and 24 use the word “property”, I would have been inclined to thin that the intention of the legislature was to give protection to manufacturing industries when plots of land as distinct from fractional shares in a zamindari are acquired. I find however that the word “land” is used loosely for an interest in land at least in another section, viz. section 14. On this ground I refrain from expressing any definite opinion that the word “land” is not applicable to shares in a zamindari.

    I further do not agree with the view expressed by the learned Subordinate Judge that in order that benefit may be taken of the section there ought to be a clear and express recital of the purpose in the sale deed. No doubt the difficulties pointed out by him when a contrary interpretation is put on the section are somewhat serious. If the purpose is not recited in the sale deed it is difficult to see how the pre-emptor can judge whether the land is being used for the purpose for which it was ostensibly purchased. It is also clear that if there is no such recital the vendee can, after the expiry of one year, turn the land to some other use. In spite of these difficulties it if our duty to interpret the section as it stands; and I see no ground for interpolating the words “as mentioned in the sale deed” into the section. That these words cannot be understood is also clear from the following circumstances. Under section 54 of the Transfer of Property Act immoveable property of less than Rs. 100 can be purchased without any instrument at all, the delivery of possession alone being sufficient. section 8, sub-clause (c) undoubtedly contemplates such a transfer and would apply where the land is not used for the purpose for which it was ostensibly purchased. As there might be no document in such a case the recital in a deed of sale cannot be an indispensable requisite. I therefore hold that the omission of the recital in the sale deed is not a fatal defect to the suit.

    On the question of the refusal of the plaintiff the finding of the court below must be affirmed.

    [The judgement then proceeded to discuss the evidence on this point.]

    The finding as regards the amount of consideration which is challenged in the cross-appeal must also be accepted.

    [After discussing the evidence the judgement concluded as follows.]

    I would therefore affirm the finding of ‘the court below on this point and dismiss both the appeal and the cross-objection.

    Pullan, J.:— As I am in general agreement with the judgement just pronounced, I only think it necessary, to add a few observations as to the interpretation of section 8, sub-clause (c) of the Agra Pre-emption Act. One of the questions which has to be decided in this appeal is, what is the meaning of the words “purposes of a manufacturing industry?” The lower court and the learned counsel for the appellant consider that the growing of sugarcane is one of the purposes of the industry of making sugar. In my opinion it is not Sugarcane growing is an ancillary industry of an entirely different nature carried on by agriculturists and not by manufacturers. The manufacturer of sugar is obliged in common with all other manufacturers to use raw material, but it is he part of his business as a manufacturer to grow that material, any more than it is the part of the cotton miller to grow cotton or the flour miller to grow grain. The purpose of a manufacturing industry is the object which the industry sets out to attain. It has no reference to the materials which may be used in some form or another for the accomplishment of that result. This is particularly so in a case such as this, where the raw materials are of an agricultural nature.

    A second question which arises is the meaning to be given to the word “ostensibly” in the last line of the clause. I agree with my learned brother in holding that it is not necessary that the intention with which land is purchased should be entered in the sale deed, but if the word “ostensibly” is to have any meaning it would appear to me that the purchaser is bound in some way to let it be known why he intends to purchase the land, if he intends to take advantage of section 8, sub-clause (c). If the purchaser has no means of knowing that the land is being purchased for the purposes of a manufacturing industry he is severely handicapped. Beyond this I am not prepared to go, as in the present case no doubt it may be reasonably said that where an absentee firm of sugar manufacturers buys land close to the factory, they have probably done so for some purpose connected with the factory.

    By the Court:— We dismiss both the appeals with costs.

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    Punjab Sugar Mills Co. v. Lachhman Prasad
    (Jun 28, 1929)