Hiralal and others vs Bapu Shiv Prasad and another

Shiv Dayal, J.

This is a Letters Patent Appeal from the judgment of a learned single Judge, arising from execution proceedings. It involves the question of interpretation of section 33 of the M. P. Abolition of Proprietary Rights Act, 1950 (No. 1 of 1951, hereinafter called the Abolition of Proprietary Rights Act). A Division Bench had heard this appeal and referred the case to a Full Bench. This matter was then heard by us.

A mortgage decree was passed on September 16, 1938, in favour of the respondents (hereinafter called the decree-holders) against the appellants in civil Suit No. 10-A of 1934 in the Court of the Additional District Judge, Sagar. The decree was for the recovery of Rs. 11,984. The mortgaged property consisted of the entire 16 annas share in village Meerkhedi and 9 annas share in village Barkheda. Earlier on April 20, 1934, the respondents had also obtained a money decree for Rs. 3,793 in civil Suit No. 16-B of 1934.

The appellants (hereinafter called the judgment-debtors) applied u/s b (a) of the Relief of Indebtedness Act to the Debt Relief Court, Sagar, for scaling down their debts. The Debt Relief Court scaled down both the debts to Rs. 12,700 and made them payable in 20 annual instalments of Rs. 635 each, commencing on June i5, 1941. On the decree-holders'' revision, the Additional District Judge, by his order dated February 26, 1941, modified the order of instalments and fixed them at Rs. 850 per year and also allowed interest at 6 per cent on defaulted instalments.

When the Abolition of Proprietary Rights Act came into force, the decree-holders made an application u/s i9 of the Abolition of Proprietary Rights Act. On November 24, 1951, the Claims Officer made an order u/s 24(6) of the Abolition of Proprietary Rights Act. He determined the amount due as follows:-

Debt as settled by the Debt Relief Court. Rs. 12,700 Balance unpaid after adjustment of the payment made. Rs. 4,837.8-0 The Claims Officer then found that the amount of compensation was riot sufficient to satisfy the decree-holders'' claim determined u/s 24 as the amount of compensation came to :-

Rs. 1,306/2/4 Compensation payable to Phoolchand, Motilal, Hiralal and Champalal. Rs. 3,054/8/6 Compensation amount payable to Champalal only.

Total Rs. 4,360-10-10

The judgment-debtors agreed that the amount of compensation be paid to decree-holders. He thus held that Rs. 476-13-2 and interest, which may be found due as per terms of the contract between the parties and settled by the Debt Relief Court, remained unpaid. Regarding this, he observed as follows "The creditors may seek independent remedy in civil Court u/s 27 of the Abolition of Proprietary Rights (E. M. A. L.) Act of 1950.

It appears that the decree-holders made successive applications for execution. The present application for execution is dated October 10, 1961. It is for the recovery of Rs. 6,603-2 by attachment and sale of immovable properties of the appellants. This amount included the sum of Rs. 4,360-10-10 which was the amount of compensation and was payable to the decree-holders. The judgment-debtors contended that the execution was not maintainable inasmuch as the only remedy available to the decree-holders was u/s 28 of the Abolition of Proprietary Rights Act and that the aforesaid decree in civil Suits Nos. 10-B of 1934 and 16-B of 1934 were wiped out and further that since the decree-holders had not obtained a preliminary decree as required by section 28 of the Abolition of Proprietary Rights Act, there could be no execution against their other property. These objections were rejected by the Executing Court (Additional District Judge). It was held that the judgment debt was a secured debt on November 24, 1951, the date of the order of the Claims Officer; that the Claims Officer had no jurisdiction to settle the debt again, it having been already settled by the Debt Relief Court; that the decree-holders could not avail themselves of the provisions of section 28 of the Abolition of Proprietary Rights Act; and that the jurisdiction of the civil Court was not barred. It further held that since the judgment-debtors did not raise any objection when the Deputy Commissioner granted a certificate for the recovery of the balance from the judgment-debtors, the latter were debarred from taking an objection against the settlement of the claim by the Debt Relief Court. This last question has not been canvassed before us.

The judgment-debtor appealed to this Court. The learned single Judge came to the conclusion that the amount due to the decree-holders was an "excluded claim" within the meaning of the Abolition of Proprietary Rights Act; that the Claims Officer had no jurisdiction to scale down that debt; that "it would be a formality for excluded creditor to apply to the civil Court for passing of a preliminary decree for sale of the encumbered property" and since that objection was not taken by the judgment-debtors, they were precluded from raising an objection in the present execution. The learned Judge observed that if that objection had been raised earlier, the decree-holders could have requested the executing Court to treat their execution as an application u/s 28 of the Abolition of Proprietary Rights Act. The learned Judge further found that there was some conflict between section 24(6) and section 28 of the Abolition of Proprietary Rights Act. In the opinion of the learned Judge, the objections did not go to the root of the matter, "as they are more a matter of formality rather than the jurisdiction of the civil Court to proceed with the execution case. The Court contemplated u/s 28 of the Act and the Executing Court being the same, the objection is more or less a hyper technical one; and even if it were to be assumed that the respondents ought to have made an application u/s 28 of the Act, their execution petition could as well have been treated as an application under the said section". In the result, the appeal was dismissed.

Aggrieved by the order of the learned single Judge, the judgment-debtors preferred this appeal.

The question before us is, as it was before the executing Court, whether the decree-holders could make an application to the civil Court for the recovery of the amount due as determined by the Claims Officer u/s 24(6) of the Act. We are clearly of the opinion that this question must be answered in the negative. Section 33 of the Abolition of Proprietary Rights Act completely excludes the jurisdiction of the civil Court in respect of the recovery of any secured debt or claim determined u/s 24, except in the manner provided for in section 28 [vide sub-section (c)].

We shall now advert to the relevant sections of the Abolition of Proprietary Rights Act. By virtue of section 3 all proprietary rights in an Estate Mahal, alienated village or alienated land vesting in a proprietor or any person having such interest in proprietary right through the proprietor, shall pass from such proprietor or such other person to and vest in the State for the purposes of the State free of all encumbrances. Section 4 enacts the consequence of vesting. In section 17, the expressions "secured debt", "secured claim'''' and "excluded debt" are defined as follows:-

In this Chapter-

(a) ''secured debt'' or ''secured claim'' means a debt or claim subsisting on the date of vesting, whether due or not due, and secured by the mortgage of or a charge on the proprietary rights divested u/s 3 but shall not include land revenue or anything recoverable as land revenue or any money for the recovery of which a suit is barred by limitation.

(b) x x x x

(c) ''excluded debt'' refers to secured claim due in respect of- ( i ) x x x x

( ii) x x x x

(iii) x x x x

(iv) any debt in respect of which an agreement has been registered u/s 12 of the Central Provinces Debt Conciliation Act, 1933, or in respect of which a scheme for repayment has been framed u/s 11 of the Central Provinces and Berar Relief of Indebtedness Act, 1939;

( v) x x x x

(vi) x x x x

(vii) x x x x"

Section 19 then reads as follows:-

(1) Every proprietor who is divested of proprietary rights u/s 3 shall within such period as may be prescribed file an application before the Claims Officer having jurisdiction specifying the amounts and particulars of all secured debts and claims against him together with the names and residence of his creditors.

(2) Any creditor of a proprietor divested of proprietary rights u/s 3 may, within the period prescribed under sub-section (1), file an application to the Claims Officer having jurisdiction specifying therein the amount and particulars of his secured debt or claim against such proprietor,

(3) An application under sub-section (1) or (2) shall contain such further particulars as may be prescribed and shall be signed and verified in accordance with the manner prescribed by the Code of Civil Procedure, 1908, for signing and verifying plaints."

Section 20 provides for stay of proceedings. Sections 21 and 22 deal with the procedure for hearing. Section 23 confers power on the Claims Officer to require proof of the validity and the subsisting character of debts, in these words:-

(1) On the date fixed for the hearing of the case, or on any subsequent day to which the hearing may be adjourned, the Claims Officer shall require proof of the validity and subsisting character of the secured debt or claim.

(2) Where the debtor objects to the claim preferred by any creditor on the ground that the debt was not incurred or that it is not binding on the debtor, the Claims Officer shall not determine the amount due on any such claim and nothing contained in sections 24 to 27 shall apply to any such claim.

Section 24 runs thus:-

(1) The Claims Officer shall, notwithstanding anything contained in any other enactment for the time being in force, reopen all transactions made twelve years before the last transaction or before the 1st January 1932, whichever is earlier and, as far as may be, ascertain in respect of each loan the date on which it was originally advanced. He shall notwithstanding the provisions of any agreement or law to the contrary, calculate the interest due at six per centum per annum or such lower rate of interest as may have been agreed upon between the parties. He shall also determine the amount of principal, if any, of each loan which would have remained unpaid if the calculation of interest had been made as herein provided.

(2) If the Claims Officer finds that the loan was originally advanced prior to the 1st January, 1932, then he shall reduce the principal determined under sub-section (1) by twenty per centum.

(3) Notwithstanding anything contained in any law for the time being in force, no Claims Officer shall, in respect of any secured debt or Claim to which this Chapter applies, award on account of arrears of interest a sum greater than the principal of the loan as determined under sub-section (1).

(4) If the Claims Officer finds that nothing is due to the creditor, he shall pass an order discharging the secured debt or claim.

(5) The amounts determined due shall not carry any interest after the date of determination.

(6) Nothing in sub-sections (1) to (5) shall apply to excluded debts. The amount due for such debts shall be determined in accordance with the terms of the contract between the parties or any law for the time being in force.

Section 25 empowers the Claims Officer to fix priority amongst secured creditors. The material sections 26, 27, 28 and 33 must now be reproduced.

The compensation payable to the proprietor under Chapter III shall be distributed between the secured creditors in the order of their priority and if there are more than one such creditors holding the same order of priority, it shall be distributed rateably between them in proportion to the amounts determined due.

If the Claims Officer finds that the amount of compensation is not sufficient to satisfy the claims determined u/s 24, he shall record an order specifying-

(a) the amount remaining unpaid in respect of each claim;

(b) the name of the creditor to whom it is due ; and

(c) the particulars of the property remaining encumbered in respect of each claim.

Any creditor in whose favour an order u/s 27 has been passed may within one year apply to the civil Court for passing a preliminary decree for sale of the encumbered property and the civil Court shall accordingly pass a preliminary decree for sale fixing such time for payment as it may deem fit.

The jurisdiction of the civil Courts shall, except as otherwise provided in this Act, be barred in respect of-

(a) any matter pending before a Claims Officer;

(b) the claim for any secured debt or claim which has been discharged or deemed to have been discharged u/s 22 ;

(c) the recovery of any secured debt or claim determined u/s 24 except in the manner provided for in section 28.

These provisions only mean that where any secured debt or claim is determined u/s 24, there can be no proceeding in any civil Court in respect of the recovery of such debt or claim, except by obtaining a preliminary decree for sale of the encumbered property specified u/s 28 of the Act. The expression "the encumbered property" in section 28 clearly refers to clause (c) of section 27, under which the Claims Officer must specify the "particulars of the property remaining encumbered in respect of each claim." Thus, it will clearly be seen that where the amount of compensation is not sufficient to satisfy the claim determined u/s 24, the amount remaining unpaid is to be specified u/s 27 and such amount can be recovered only by taking recourse to the provisions of section 28, that is, after obtaining a preliminary decree for sale of property remaining encumbered in respect of such claim, the particulars of which have to be specified u/s 27. To put it differently, if any property remains encumbered in respect of the claim, then only that claim u/s 28 will lie. But if there remains no property encumbered in respect of the claim, no preliminary decree can be passed u/s 28; nor any particulars can be specified u/s 27. As soon as section 28 goes out of the picture, the exception contained in clause (c) of section 33 becomes in-applicable and the jurisdiction of the civil Court becomes completely excluded. In other words, no action for the realisation of the amount can be taken in the civil Court, except after obtaining a preliminary decree u/s 28 and a preliminary decree u/s 28 can be obtained only when there is any property remaining encumbered in respect of the claim. The scheme of Act is that all secured debts and claims as defined in section 17(1) in respect of proprietary rights divested u/s 3 are wiped out along with those rights which vest in the State, as such rights vest in the State free of all encumbrances. However, this special statute, which takes away the security of the proprietary rights which vest in the State, confers a new right on the creditor to be paid the amount of compensation payable to the proprietor and also preserves the creditor''s right to recover from the property remaining encumbered in respect of the claim. But these rights can be enforced only in the manner provided in the Act and the ordinary remedy of a civil suit or other proceeding under the general law is lost having been expressly taken away u/s 31 of the Act.

It was argued for the decree-holders that the remedy provided in section 28 read with the provisions contained in section 24(6) and section 27, was a special remedy which was made available to a secured creditor, but it was still open to the latter to enforce his rights by taking recourse to the ordinary remedy in the civil Court. According to the learned counsel for the respondents, section 33 bars jurisdiction only in respect of such rights as a secured creditor may like to enforce by taking advantage of the special Act, the Abolition of Proprietary Rights Act, but section 33 did not come in his way if he wanted to enforce his rights otherwise. The respondents relied on Sheodeen v. Jameked1. In that case, during the pendency of the suit for the recovery of damages for breach of a contract, a charge was created by the defendant on a village. Eventually a decree was passed in favour of the plaintiff. The defendant filed an application u/s 19(1) of the Abolition of Proprietary Rights Act. The debt was scaled down u/s 24 of the Act. Since the compensation awarded was not sufficient to satisfy the scaled down debt, an order was passed by the Claims Officer u/s 27 of the Act specifying the amount outstanding and also it was mentioned in the order that there was no encumbered property left. The decree-holder then applied for execution. It was held that "section 23 can only be used if the debt, whatever its nature, continues to be a secured debt or claim" and since in that case, after the village went out of the picture, there was nothing on which the balance was secured, it was held that the debt remained a plain money-decretal debt and could be recovered through the ordinary process of the Court by executing the decree scaled down, as it was.

But it is quite clear to us that the exclusion of jurisdiction of the civil Court u/s 33(c) is by reference to section 24 and not by reference to section 27. As soon as there is any secured debt or claim determined u/s 24, the jurisdiction of the civil Court is barred in respect of its recovery, the only exception being the manner provided for in section 28. If section 33 was not there, then the combined effect of sections 24, 27 and 28 would have been that the amount specified under clause (a) of section 27 as remaining unpaid, could be recovered, (1) by obtaining a preliminary decree u/s 28 for sale of the property remaining encumbered in respect of the claim, the particulars of which had to be specified u/s 27 (3), or (2) from any other property (not encumbered in respect of the claim) through the ordinary process of the Court, as in the case of a simple money-decretal debt. But section 33 excludes the second remedy. That is the force and impact of the words "except in the manner provided for in section 28" in clause (c) of section 33. That the original decree is not excitable was also held in Kishan 1957 MPLJ 808 chand v. Rani Baku 1962 MPLJ 973.

It has not been contended before us that section 33 of the Act is ultra vires the Constitution.

We are unable to agree with the learned single Judge that obtaining a preliminary decree u/s 28 is a mere formality. In fact it is a sine go non for any proceeding in the civil Court, once there has been determination of the amount due u/s 24.

From the scheme and provisions of the Act it is clearly seen that: (1) the proprietary rights vest in the State free of all encumbrances (vide section 3 of the Act). (2) In respect of the secured debt, the creditor has the following rights only : (a) The amount of compensation is directly payable in discharge of the amount due on the secured debt as determined u/s 24 of the Act, (b) If the amount so determined exceeds the amount of compensation payable to the proprietor, then the creditor can recover the balance out of the property, if any, encumbered in respect of the claim. (3) The proprietor is given the relief that as soon as his proprietary rights are taken away by force of the statute, the secured debts will exhaust themselves in the encumbered property and there will survive no personal liability of the proprietor in respect of such secured debts. (4) The power to determine the amount due (except in the case of an excluded debt), extends to the scaling down of the amount which may be found due according to the contract or according to a decree, if any, of a competent Court.

The principles and tests to find out when the jurisdiction of the civil Court is excluded are succinctly laid down by Hidayatullah, C. J., in Dhulabhai and Others Vs. The State of Madhya Pradesh and Another, .

We have, therefore, reached the conclusions that, (1) as soon as there is determination u/s 24 of the Abolition of Proprietary Rights Act, the secured debt and all decrees for its enforcement are wiped out and superseded by the following rights and remedies: (a) The creditor has a right to recover the amount due from the amount of compensation payable to the proprietor debtor ; and (b) the creditor has a right to recover the amount remaining unpaid from any property remaining encumbered in respect of that claim. In order to enforce that right, the creditor must obtain an order u/s 27 of the Act, and then obtain from the civil Court a preliminary decree for sale of such remaining encumbered property and then to execute that decree. (2) As soon as there is determination u/s 24 of the Abolition of Proprietary Rights Act of the amount due on a secured debt, as defined in section 17 of the Act, the jurisdiction of the civil Court is barred in respect of recovery of such amount. The exclusion is complete but admits of the only exception provided in section 33(c), that is to say, "in the manner provided in section 23 of the Act." (3) After the determination u/s 24 of the Act, no personal liability of the debtor survives so that his person or other property (not encumbered in respect of the claim) cannot be sold for the recovery of the amount determined u/s 24.

As the whole case has been referred by the Division Bench to the Full Bench, we shall now proceed to decide this Letters Patent Appeal on the merits.

It is abundantly clear that the amount which was declared payable under the orders of the Debt Relief Court and modified in revision by the Additional District Judge, constituted an "excluded debt" within the meaning of the Act. It was also a "secured debt" within the meaning of the Act. It is equally clear that on the decree-holders'' application u/s (9(2), the Claims Officer, by his order dated November 24, 1951, determined the amount due under the second part of sub-section (6) of section 24. The provisions of sub-sections (1) to (5) were inapplicable to the present case, it being a case of excluded debt. The Claims Officer ordered the amount of compensation to be adjusted, as agreed to by the judgment-debtors, towards the amount determined as due u/s 24(6). He then specified that the amount of Rs. 478-13-2 and interest; which may be found due under the orders of the Debt Relief Court, remained, unpaid. This order was obviously under section. 27 of the Act. It is, however, remarkable that the Claims Officer did not specify the particulars of the property remaining encumbered in respect of the claim was required of him under clause (c) of section 27. If that had been so specified, the decree-holders could within one year apply to the civil Court for passing a preliminary decree for sale of the encumbered property and it was obligatory on the civil Court to pass a preliminary decree for sale fixing such time for payment as it deemed fit. This was not, and could not be done lathe application for execution, the decree-holders claimed recovery of Rs 6,603-2; which includes Rs. 4,837-8 as principal and the rest as interest.

Judged by the tests we have already stated, the application for execution was not maintainable.

Shri Pandit states that the amount of compensation has not been. paid to the decree-holders. Shri Dharmadhikari does not dispute this statement but concedes that the amount being still in deposit, the decree-holders can approach proper authority and receive the amount of compensation in payment of the amount determined u/s 24 of the Act. In our opinion1, it is open to the decree-holders to follow the course suggested by Shri Dharmadhikari, and, having regard to the concession, it is not necessary to direct attachment of the amount of compensation in the execution proceedings.

Shri Pandit strenuously argued that the decree-holders could not proceed u/s 28 of the Act because the order of the Claims Officer was not complete; he omitted to specify the property remaining encumbered in respect of the claim. This contention is right but it is clear that if the Claims Officer omitted to comply with the provisions of clause (c) of section 27, such omission does not confer a right on the creditor to proceed against the debtor in any manner other than u/s 28 of the Act. It is for the decree-holders to get the order of the Claims Officer dated November 24, 1951, completed and then to proceed u/s 28 of the Act. It is stated that there are home farm lands which still remain encumbered, having not vested in the State, see Piarelal v. Bhagwati Prasad, so that the Claims Officer ought to have specified them u/s 27(c), but that was not done. We have no doubt that if the competent authority had been approached for rectifying the error committed by the Claims Officer in his order dated November 24, 1951, Which was obviously a composite order under sections 24 and 27 of the Act; the order would have been corrected so as to satisfy the requirements of sec-don 27(c) also.

This Letters Patent Appeal is allowed. The judgments and orders passed by the learned single Judge, the learned Additional District Judge, and the executing Court are set aside. The decree-holders'' application for exertion dismissed. Parties shall bear their own costs as incurred throughout.