Login
  • Bookmark
  • PDF
  • Share
  • CaseIQ

Kailash Nath v. Tulshi Ram

Allahabad High Court
Nov 1, 1945
Important Paras
Please sign up to view Important Paras.
Smart Summary (Beta)

Structured Summary of the Opinion (Sinha, J.)

Factual and Procedural Background

This appeal arises from a suit by the plaintiff seeking a declaration that the decree in Suit No. 49 of 1939 is null and void as against him. The subject matter is a house in the city of Cawnpore. The plaintiff is the son of Ram Narain, who was the son of Maiku Lal. Maiku Lal had purchased the house for Rs. 40,000 in 1925.

On 8 December 1938 Ram Narain entered into an agreement to sell the house to Ajudhiya Prasad for Rs. 30,000. A suit for specific performance of that agreement was instituted and decreed by the Civil Judge. The decree was executed and formal delivery of possession was made on 17 September 1941. Before actual delivery of possession could take place, the plaintiff instituted the present suit on 17 September 1941 seeking the declaration that the earlier decree was null and void as against him. The learned Civil Judge dismissed the plaintiff's suit, holding that the value of the house on the date of the agreement was Rs. 30,000 and that the agreement was valid. The plaintiff appealed.

Legal Issues Presented

  1. Whether, in a challenge to a sale/decree brought before delivery of possession, the person asserting the sale must be put to proof of legal necessity by the alienee (purchaser) or whether the challenger need prove only illegality or immorality of the debts that formed the consideration.
  2. Whether the agreement of sale (entered into by Ram Narain) was an improvident transaction — i.e., whether the consideration was inadequate relative to the market value of the property such that the sale could be set aside and would not bind the sons.

Arguments of the Parties

Plaintiff's Arguments

  • The house was worth about Rs. 40,000 and the sale for Rs. 30,000 was made by Ram Narain without legal necessity or justification.
  • The plaintiff charged his father with immorality in entering into the transaction; however, that point was not pressed by the plaintiff's counsel and the court did not consider it further.

Defendants' Arguments

  • The learned Civil Judge (and by implication the defendants) contended that the market value of the house on the date of agreement (8 December 1938) was Rs. 30,000 and that the agreement was a valid agreement of sale.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Jagdish Prasad v. Hoshyar Singh The opinion of the Judicial Committee that, if a suit is brought before the sale, it is for the alienee to prove legal necessity. (Text notes ambiguity whether "sale" meant auction sale or other forms.) The court noted the rule but observed ambiguity about the meaning of "sale" in that decision. The court did not rest its decision solely on this authority and proceeded to decide the matter on other grounds.
Muddun Thakoor v. Kantoolal Distinction drawn by the Judicial Committee between purchasers who are strangers to a suit/decree and purchasers who are parties. The court relied on the distinction to observe that a purchaser who is a party (or sale pursuant to decree) differs from a stranger purchaser; the present sale was pursuant to a decree and therefore not a case of a stranger to the suit.
Suraj Bansi Koer v. Sheo Proshad Same general distinction between purchasers who are strangers to the suit and those who are parties. Used alongside Muddun Thakoor to underpin the court's view that the present transaction (a sale under decree) cannot be treated as a mere execution sale by a stranger purchaser.
Ram Charan Lonia v. Bhagwan Das Maheshri Principle that, in cases of sale to meet debts, adequacy of the price is a critical factor: the consideration must both be calculated to relieve necessity and must not be inadequate (both conditions must co-exist). The court relied on this case to hold that even when consideration is applied to pay debts, a sale may be set aside if it is improvident (sacrifices family property for an inadequate price). The court applied this to assess market value and adequacy of consideration in the present case and found the sale improvident.
Mulla, Hindu Law, section 294B (9th ed.) Statement: "Purchasers at an execution sale, being strangers to the suit, if they have no notice that the debts contracted for an immoral purpose were so, are not bound to make inquiry beyond what appears on the face of the proceedings." The court quoted this passage to explain the rule applicable to strangers at execution sales and then observed that the present sale was not of that character (it was pursuant to a decree and involved parties), so the protection for strangers did not apply here.

Court's Reasoning and Analysis

The court proceeded in a series of analytical steps:

  1. Framed the initial question whether the plaintiff could require the defendants (alienees) to prove legal necessity, or whether the plaintiff needed only to establish illegality or immorality of the debts forming the consideration. The court noted the authority in Jagdish Prasad v. Hoshyar Singh but observed ambiguity about the meaning of "sale" in that decision and accordingly did not decide the case solely on that basis.
  2. Examined the distinction drawn by the Judicial Committee in earlier cases (Muddun Thakoor and Suraj Bansi Koer) between purchasers who are strangers to a suit/decree and purchasers who are parties to it. Quoting Mulla, the court recorded that stranger purchasers at execution sales are not bound to inquire beyond the face of proceedings, but stressed that the present sale was not by a stranger — it was made pursuant to a decree.
  3. Considered the Privy Council decision in Ram Charan Lonia v. Bhagwan Das Maheshri to extract the principle that adequacy of price is an essential factor: where property is disposed of to meet debts, it may be justifiable only if (a) the consideration relieves the necessity and (b) the property is not sacrificed for an inadequate price. Both conditions must co-exist.
  4. Applied that principle to the facts: the court examined evidence on market value at the date of the agreement (8 December 1938). The defendants' witnesses valued the property at Rs. 28,000–30,000 and noted existing tenancy and rents totaling Rs. 175. The plaintiff's witnesses gave higher estimates: several said Rs. 50,000, and one witness put it at Rs. 40,000 about two to three years before his examination (December 1941). The house had been purchased in 1925 for Rs. 40,000 and two plaintiff witnesses in 1941 were prepared to buy it for Rs. 50,000.
  5. Weighing these conflicting valuations and allowing for market fluctuations, the court found it impossible to accept that the value in December 1938 was as low as Rs. 30,000. On that basis the court concluded the transaction was improvident — the property had been sacrificed for an inadequate consideration — and therefore Ram Narain had no right to enter into such a transaction binding on his sons.
  6. On that legal basis (improvident transaction/inadequate consideration), the court held that the earlier decree founded on the agreement of sale could not bind the present plaintiff and so the appeal had to be allowed.
  7. Finally, the court determined the consequential orders: the sum of Rs. 27,500 deposited by Ajudhiya Prasad in the court of the Civil Judge would be available to the defendants for withdrawal; if that sum was not available, it would constitute the first charge on the house. The defendants were also entitled to a further Rs. 2,500, which the plaintiff's counsel agreed would be paid within three months. The court ordered that each party should bear their own costs.

Holding and Implications

Holding: The court allowed the appeal, set aside the decree of the court below, and decreed the plaintiff's suit.

Direct consequences and practical implications for the parties:

  • The earlier decree based on the agreement to sell is declared not binding on the plaintiff (son) because the transaction was found to be improvident and involved an inadequate price.
  • The sum of Rs. 27,500 deposited by Ajudhiya Prasad in the Civil Judge's court will be available to the defendants for withdrawal; if the sum is not available, it will constitute the first charge on the house in dispute.
  • The defendants are entitled to an additional Rs. 2,500, which the plaintiff's counsel agreed to pay within three months from the date of this judgment.
  • The parties were ordered to bear their own costs throughout.

Broader legal effect: The court applied and relied on existing authorities (including Privy Council decisions) to reaffirm that sales made to meet debts may be set aside where the property is sacrificed for an inadequate price. The opinion does not purport to create a new rule of law; it applies established principles to the facts before the court.

Show all summary ...

Sinha, J.:— This is an appeal by the plaintiff whose suit for a declaration that the decree in suit No. 49 of 1939 is null and void as against him, was dismissed by the learned Civil Judge of Cawnpore. The property in dispute is a house in the city of Cawnpore. The plaintiff is the son of one Ram Narain, who is the son of Maiku Lal. Maiku Lal had admittedly purchased the house for Rs. 40,000 in the year 1925. On the 8th of December, 1938, Ram Narain entered into an agreement of sale with Ajodhiya Prasad for a sum of Rs. 30,000. A suit for the specific performance of this agreement was brought and decreed by the learned Civil Judge. The decree was put in execution and the formal delivery of possession was made on the 17th of September, 1941. Before however, actual delivery of possession could take place, the present suit was instituted on that very day, i.e the 17th of September, 1941, with the relief mentioned above.

The plaintiff's case, in brief, was that the house was worth about Rs. 40,000 and his father had entered into this transaction without any legal necessity or justification. He charged his father with immorality, but, as the learned counsel for the appellant has not pressed this point, we might dismiss it from our consideration. The learned Civil Judge has held that the value of the house, on the date of the agreement to sell, was Rs. 30,000 and that the agreement was a good agreement. In this view of the case he dismissed the suit.

The plaintiff has come before us in appeal. The first question is whether he can put the defendants to proof of legal necessity or he can succeed only if he proves illegality or immorality of the debts which formed the consideration of the agreement to sell. It was held in Jagdish Prasad v. Hoshyar Singh(1) that, if a suit is brought before the sale, it is for the alienee to prove legal necessity. It is, however, not clear whether by sale their Lordships intended an auction-sale or a sale by private treaty or a sale of the character of the sale in the present case. The learned counsel for the appellant contends that “sale” must mean an auction sale. The learned counsel for the respondents, however, contends that it might mean any sale—a sale at an auction or one by private treaty or a sale in pursuance of a decree in a suit for specific performance of the contract. The point is not free from difficulty, but the case can be decided on another basis. Even in the case of an auction sale, their Lordships of the Judicial Committee have drawn a distinction between the purchaser, who is a stranger to the suit or the decree, and the purchaser who is a party. In Muddun Thakoor v. Kantoolal(2) and Suraj Bansi Koer v. Sheo Proshad(3) their Lordships have drawn a clear distinction between the two classes of cases. The broad proposition has been put in these terms by Mulla in his Hindu Law (9th edition), section 294B, at page 348:

“Purchasers at an execution sale, being strangers to the suit, if they have no notice that the debts contracted for an immoral purpose were so, are not bound to make inquiry beyond what appears on the face of the proceedings.”

The present is not a case of a stranger to the suit or a decree. Indeed, the sale has been made in pursuance of a decree.

A somewhat similar question arose before their Lordships of the Privy Council in Ram Charan Lonia v. Bhagwan Das Maheshri(4). The facts briefly were these:

One Gopal Das and four of his sons made a mortgage in favour of one Manik Chand for a sum of Rs. 10,500. On the 16th of July, 1912. Gopal Das entered into an agreement of sale with Mst. Muhammad-un-nisa with respect to a sixteen anna share of one of the villages mortgaged. This sale was to be completed in a month and Rs. 502 were paid to Gopaldas by way of deposit. The contract remained inoperative up to July 1915, when it was brought to an end by an order made at the instance of the purchaser for return of her deposit and interest. On the 3rd of September, 1912, Gopal Das and four of his sons entered into an agreement of sale with Ram Charan Lonia. This agreement related to the entire mortgage property and the purchaser were to retain the money due on the mortgage of the 10th of July, 1909, and were to account to the vendor for the balance of the purchase price. The sale deed was to be executed in thirty days and Rs. 500 were paid in advance. Neither of the two agreements materialized. On the 31st of August, 1915, Ram Charan brought a suit for the specific performance of his contract of sale. It was decreed by the Subordinate Judge on the 10th of February, 1917, and his decree was affirmed by the High Court on the 6th of March, 1919. Pending the appeal in the High Court possession was delivered to Ram Charan under an order of the Subordinate Judge, dated the 12th of May, 1917, and a formal sale deed was executed by the Judge on the 1st of November, 1917. According to the terms of the deed a sum of Rs. 21,818-14 was due on the 1st of November, 1917, on the mortgage of the 10th July 1909, and after deducting this amount and Rs. 500, paid to Gopaldas in advance, Rs. 189-12-10 alone remained for payment to Gopaldas. Ram Charan, however, did not pay off the mortgage of the 10th of July, 1909 until the 4th of September, 1919, when he deposited in court a sum of Rs. 23,200 due on that mortgage and it was paid off. On the 7th of September, 1916, the sons of Gopaldas, who had not joined the sale, brought a suit for a declaration that the agreement to sell was not binding upon them. The Subordinate Judge dismissed the suit. The High Court, on appeal, decreed it subject to certain conditions, as it was of opinion that the agreement to sell was not justified by legal necessity. Their Lordships of the Privy Council affirmed the decision of the High Court through for different reason, even though they found that—

“Manik Chand had not so far begun to press for payment either of principal or interest, but the amount charged upon the property was automatically increasing at a great rate. No funds were available to stay the no longer remote possibility of all value in the equity of redemption being extinguished; money also was needed for payment of other trade debts that had accrued, as well as for the development of the family cloth business then recently initiated. In these circumstances, a transaction even involving the disposal by Gopaldas of this entire immoveable family property might well be justifiable and be binding on the whole family, provided the property was not sacrificed for an inadequate price and provided the consideration was calculated to relieve the necessity, the existence of which called for the disposition.” (The italics are ours).

It is, therefore, obvious that the adequacy of the price was a factor emphasised by their Lordships and that it was not merely enough that the consideration was calculated to relieve the necessity. Both conditions were to co-exist.

Even though the consideration was devoted to the payment of the just debts of Maiku Lal and Ram Narain, it was not open to the latter to sacrifice the family property for an inadequate consideration. In the case before their Lordships the vendees had under a sale deed executed under the orders of the court, been placed in possession. This did not prevent their Lordships from setting aside the transaction on the ground that it was an improvident transaction.

It is, therefore, open to us to take into consideration the market value of the property and to see whether Ram Narain agreed to sell it for its proper value or sacrificed it for an inadequate consideration. As for the market value of the property on the date of the agreement to sell, i.e on the 8th of December, 1938, a number of witnesses were examined by both parties. The defendants examined two witnesses, Gauri Shankar and Ram Charan. Gauri Shankar said that the property was, on the date of the agreement, worth Rs. 28,000 or Rs. 30,000. Ram Charan said that it was worth Rs. 30,000. He, however had to concede that it was in the occupation of Tatas and some other tenants. The former paid Rs. 150 and the latter Rs. 25. The total rent fetched by this house was, therefore, Rs. 175.

The plaintiff, on the other hand, examined a number of witnesses. Sumer Ram said that the house was worth about Rs. 50,000 and that he was prepared to purchase it for that amount. Kirpa Shankar also gives the same as the value of the house, i.e Rs. 50,000. Bindeshri is yet another witness who also says that its value is Rs. 50,000 and that there has been no increase in the rent of houses between the date of the agreement and the date of his examination, i.e the 1st of December, 1941. Gokal Chand has definitely stated that Rs. 40,000 was the value, of the house two and a half or three years before the date of the examination, i.e the 2nd of December, 1941, which means that this was the value about the time of the agreement itself. The truth must, therefore, the somewhere between the two estimates—the plaintiff's and the defendant's. What, however, is important is that Maiku Lal had purchased it for Rs. 40,000 in the year 1925 and on the 1st or 2nd of December, 1941, two of the witnesses examined by the plaintiff were prepared to purchase it for Rs. 50,000. Bearing these offers in mind and making every allowance for the fluctuations in the market it is impossible to say that the value of the property in December, 1938, was only Rs. 30,000. It is, therefore, obvious that the transaction was an improvident transaction and could not bind the sons. Ram Narain, therefore, had no right to enter into such a transaction and any decree passed on the basis of the agreement of sale is not binding upon the present plaintiff.

We, therefore, allow the appeal, set aside the decree of the court below and decree the plaintiff's suit.

It now remains to consider the precise form of the decree which should be passed by us. As their Lordships of the Privy Council remarked in the case noted above at page 628. “the court, being seized of the whole matter, should make such an order as may terminate the controversy and do justice between the parties”. As a result of this decree the sum deposited by Ajudhiya Prasad in the court of the Civil Judge Cawnpore, viz. Rs. 27,500, will be available to the defendants and they can take the necessary steps for its withdrawal. If that sum is not available to the defendants, this amount will constitute the first charge upon the house in dispute. They are entitled to a further sum of Rs. 2,500. Mr. Sri Narain Sahai, the learned counsel for the plaintiff-appellant, agrees that he shall pay this sum of Rs. 2,500 to the defendants within three months from this date.

In the circumstances of the case, we think that this is a fit case in which the parties should bear their own costs throughout.