Holding

An agreement to sell is not a transfer prohibited by Section 7 of the U.P. Encumbered Estates Act, and because the house had been exempted under Section 24 and the mortgage rights extinguished, a decree for specific performance could be granted.

Summary

The appellant, Gaya Prasad, sued for specific performance of a 1958 agreement to sell a house that had been exempted from sale under Section 24 of the U.P. Encumbered Estates Act, 1934. The respondent‑landlord had earlier obtained an exemption for the house and a mortgage on the property had been extinguished by a money decree of the Special Judge under Section 14(7) read with Section 18. The High Court set aside the trial court’s decree, holding that Section 7 of the Act barred the sale agreement and that Section 23 of the Contract Act rendered it void. The Supreme Court examined whether an agreement to sell falls within the transfer prohibitions of Section 7, whether the exemption under Section 24 removed all mortgage encumbrances, and whether any mortgagee rights survived the decree. It held that an agreement to sell is not a transfer prohibited by Section 7, that the exemption freed the house from mortgage, and that with no pending proceedings a decree for specific performance could be granted. The appeal was allowed, restoring the trial court’s decree and awarding modest compensation to the respondent.

Issues considered

Whether an agreement to sell is prohibited by Section 7 of the U.P. Encumbered Estates Act, 1934 during pendency of proceedings.
Whether the exemption of the house under Section 24 removes all mortgage encumbrances and extinguishes the mortgagee’s rights.
Whether rights of a mortgagee revive after a money decree under Section 14(7) and Section 18.
Whether a decree for specific performance can be granted when proceedings under the Act are pending or have ceased.
Whether Section 23 of the Contract Act renders the sale contract void due to the restriction under Section 7.

Legislation cited

Indian Contract Acts. 23
Specific Relief Acts. 23
U.P. Encumbered Estates Act, 1934s. 14, s. 18, s. 20, s. 24, s. 4, s. 43, s. 44, s. 6, s. 7
U.P. Zamindars' Debt Reduction Act, 1952s. 3, s. 8

Subjects

U.P. Encumbered Estates ActSpecific Relief Actcontract lawmortgageagreement to sellspecific performanceproperty lawencumbrancesection 7 restriction

Judgment

GAYA PRASAD
A
v.
SURENDRA BAHADUR SINGH, (DEAD) BY L.RS. & ORS.

MARCH 5, 1987

B [KHALID AND G.L. OZA, JJ.]

U.P. Encumbered Estates Act, 1934--Sections 7, 14(7), 18, 20,
24, 43 and 44-Restrictions imposed by the Act-Agreement of sale-
Whether such restriction-Agreement to sell-Not a transfer of right in ,.
immovable property-Mortgage of the property-Rights of mortgage
C whether extinguish!!d by its merger into a decree-Rights of mortgagee , ....,.__
when revived. ' -

The respondent entered into an agreement to sell the house in
dispute to the appellant on May 5, 1958. Earlier he had made an appli-
cation to the Collector under Section 4 of the U.P. Encumbered Estates
D Act (U .P. Act No. XXB of 1934), which had been transmitted .to the
Special Judge under Section 6 of the Act and pursuant to bis application
under Section 24 of the Act, the house in dispute had been exempted
from sale in the proceedings under the Act on March 26, 1943. Subse-
quent to the agreement, be made an application for including this house
also in the property to be sold under the proceedings of the Act. The
E appellant objected to it. By bis order dated 23rd June, 1961, the Col-
lector rejected this request on the ground that since the house in dispute
had already been exempted by the order dated March 26, 1943, that
order could not be re-opened.

There was a mortgage of this property by the predecessors of the
.F respondent, which was also considered as a claim under Section 14 of >+-
the Act and a decree in favour of the mortgagee was passed by the
Special Judge under clause (7) of Section 14 of the Act. In view of .:;c
Section 18 the decree remained only as a money decree and the rights of
the mortgagee came to an end.

G The appellant filed a snit against the respondent for specific
performance of the contract of sale of the house in dispute. The trial
court decreed the snit and on appeal, the first appellate court also
maintained the decree but on second appeal, the High Court held that f
as permission to sell was refused under Section 7, the contract of sale
would be hit by Section 23 of the Contract Act and set aside the decree
H passed in favour of the appellant.

542
GAYA PRASAD v. S.B. SINGH 543

In the appeals, it was submitted by the appellant that although
A
permission for sale of the house under Section 7 was rejected on June
14, 1945, the prohibition under Section 7 will not apply to an agreement
for sale, that as the proceedings before Special Judge had come to an
end, the objection pertaining to Section 7 for passing of a decree under
Specific Relief Act for specific performance will not be available, that if
the debts remained to be satisfied still the sale proceeds could be kept in B
deposit for being distributed to' the creditors, and, therefore, it could
not be said that a decree for specific performance could not be passed,
that the agreement to sell is not covered by anyone of the restrictions
_ ~· ~specified in sub-clauses (2) and (3) of Section 7 and, therefore, the
agreement which was entered into in 1958 could not be said to be bad in
law.
c
On behalf of the respondent it was contended that as the order
dated May 7, 1976 of the Collector was after the judgment of the High
Court, it could not be said that no proceedings were pending under the
Act, as the last order passed was on July, 7, 1975, that the language of
Section 7 sub-clause (4) was wide enough and even an agreement to sell D
would be affected by the provisions of Section 7, and a transfer under
decree could also be void if it was in contravention of this Section, that
the rights of a mortgagee survived inspite of an order passed under
Section 24 or inspite of an order under clause (7) of Section 14 having
been passed, and that though the rights of the mortgagee may be exting-
uished but so long as the proceedings were pending they were not comp- E
letely extinguished.

Allowing the appeals, this Court,

HELD: [PER OZA, J] F

1. U.P. Encumbered Estates Act, 1934 was brought in to give
relief to a class of debtors , particularly land holders and the Act
provides for settlement of debts without tiling of an insolvency petition.
Once an application under Section 4 is made, the proceedings are said G
to have commenced under the provisions of the Act. [550E]

In the instant case, on the day when the agreement was entered
into, an application under Section 4 hall been made, the order under
Section 6 had been passed and the provisions of Section 7 were attracted
and the limitations put on the power of the landlord under Section 7 H
544 SUPREME COURT REPORTS [1987] 2 S.C.R.

A became applicable to the respondent-landlord. [552C-D]

A plain reading of the provisions contained in sub-clauses (2) and
(3) clearly shows that an agreement to sell has not been included in the
restrictions which have ·been imposed on the right of debtor. The terms
used clearly show that the prohibition pertains to the transfer (where
B rights in immovable property are transferred.) An agreement to sell is
not a transfer of any rights is immovable property and, therefore, it
could not be held to be bad in law. [552F-H]

2.1 Once an order exempting property under Section 24 is passed
by the Collector, the house and furniture about which such an order is
made is free from any mortgage or charge and the mortgage which was
c in existence before the proceedings under the Act commenced ceased to
be effective. [SS4F-G]

2.2 Once the claim of a creditor even if he is secured is deter-
mined by the Special Judge under Section 14 sub-clause (7) and a money
D decree passed, the rights of the creditors, even if it was under mortgage,
come to an end. [S56D I

2.3 So long as the rights of the mortgagee are not revived, they
came to an end and in view of Section 24, sub-clause (7) of Section 14 ;...·
read with Section 18, the house in dispute, at the time when the suit was
E filed for specific performance of the contract, was free from the
encumbrances and there was no mortgage or charge against the
property. [556E-F]

3. The language of Section 7 is clear enough that it is effective +
only during the pendency of the proceedings under the Act. The Order
F dated 7.5.1976 filed in this Court clearly goes to show that no proceed- ~
ings were pending and the case had been consigned to the record. There
is nothing to indicate that any proceedings are pending nor any claim of
any creditor still remains to be settled. In the absence of any proceed-
ings pending the effect of clause (4) of Section 7 will be of no avail, and
therefore, a decree for specific performance could be passed. [557F-H)
G
[PER KHALID, J,]

It comes with little grace from the respondent to contend that the
agreement to sell, even granting that it would come within the mischief
of Section 7, canot be accepted. Since the mortgage had been exting-
H uished by its merger into a decree, the charge under it has disappeared
..
GAYA PRASAD v. S.B. SINGH [KHALID, J.] 545

and in the proceeding under the Act only a simple decree can be passed. A
A perusal of the order produced in this Court shows that no proceedings
are pending under the Act at present. In view of the finality of the matter,
it is not necessary to go into the question of law regarding public policy
Section 7 contemplates and the authorities bearing on it. [5468-D)

The respondent has to be comper•ated in some measure by way of B
equity. The appellant is, therefore, directed to pay a sum of Rs.20,000
to the respondent. [546E]

Mrs. Chandnee Widya Wati Madden v. Dr. C.L. Katia/ and
- ,,.. .., Others, [1964] 2 SCR 495; Behram Khurshed Pesikaka v. The State of
Bombay, [1955] 1 SCR 613; Basheshar Nath v. The Commissioner of
Income Tax, Delhi & Rajasthan & Another, [1959] Supp. 1 SCR 528; C
Murlidhar Aggarwal and Another v. State of Uttar Pradesh and
Another, [1974] 2 SCR 472; Lachoo Mal v. Radhey Shyam, [1971] 3
SCR 693 and Raj Narian Jain v. Firm Sukha Nand Ram Narain and
others, [1980] AIR Allahabad 78, referred to.
D
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1331
And 1382 of 1976.

From the Judgment and Order dated 13.4.1976 and 29.4.1976 of
the Allahabad High Court in Civil Second Appeal No. 49 of 1971 and
~~~- E
S.N. Kacker, and C.P. Lal, for the Appellant.

T.S. Krishnamurthy Iyer, and R. Bana, for the Respondents.

+ The Judgment were delivered by, F

KHALID, J. I agree with my learned brother that the appeal has
to be allowed. The Act involved in this appeal is an anachronism today
because it was enacted to benefit the land-holders and zamindars. On a
consideration of the facts and circumstances, I feel that equity is in
favour of the appellant more than the respondents. The respondents G
made an application to the Collector, under Section 4 of the Act which
was transmitted to the Special Judge, under Section 6 of the Act. He
exercised his option under Section 24 and prayed for exemption of the
house which is the subject matter of this appeal. .This application was
allowed as early as 26.3.43. It was long thereafter, on 4.5.58, that he
entered into an agreement to sell the house to the appellant herein. H
546 SUPREME COURT REPORTS [1987] 2 S.C.R.

A Subsequently he made an application to include this house also in the
properties to be sold in the proceedings under the Act. The appellant
on being informed of this, objected to the request. The Collector
rejected this request by his order dated 23rd June, 1961. From this
order it is seen that there was an earlier order dated 14.6.45, by which
permission to sell the house was rejected by the Deputy Commis-
B sioner. There was a mortgage on the property, but before the agree-
ment a decree on the strenght of the mortgage had been passed. Under
these circumstances, it comes with little grace from the respondents to
contend that the agreement to sell, even granting that it would come
within the mischief of Section 7, cannot be accepted. Since the mort-
gage had been extinguished by its merger into a decree, the charge
under it was disappeared and in the proceeding, under the Act only a
c simple decree can be passed. What is more, an order produced before
us, dated 7 .5. 76 shows that no proceedings are pending under the Act
at present. In view of the finality of the matter, we do not propose to
go into the questions of law regarding public policy, Section 7 contemp-
lates and the authorities bearing on it.
D
Under these circumstances, the Judgment of the High Court, in
my opinion, is more in accord with fair play and justice. The appeal
has to be allowed as indicated by my learned brother.

However, I am of the view that the respondent has to be com-
E pensated in some measure by way of equity. I direct the appellant to.
pay a sum of Rs.20,000 to the respondent, taking into account the fact
that the property would have escalated in price many times by now.

Since we are allowing the main appeal, no orders are necessary
in the other appeal.
F
OZA, J. These appeals have been filed after obtaining leave of
this Court against the judgment passed by the High Court of Allaha-
bad, Lucknow Bench in Civil Second Appeal No. 49 of 1971 decided
on 13th April, 1976.

G The facts necessary for the disposal of this appeal are that the
appellant filed a suit for specific performance of the contract of sale of 1'
the house in dispute situated in Pratapgarh (Uttar Pradesh). The
agreement was made by the respondent in favour of the appellant on
4th May, 1958 for sale of the house in dispute for the consideration of
Rs.6,000 within 5 years. Rs.1500 were paid as the earnest money by '··
H the appellant to the respondent on the date of agreement. Further a
GAYA PRASAD v. S.B. SINGH [OZA, J.] 547

sum of Rs.2510 was paid on 7.7.58 and on 6.12.59 a further sum of
A
Rs.10 was paid. It appears that this house was earlier mortgaged in
favour of Thakur Aditya Prasad Singh by the predecessors of the
respondent. The respondent Surendra Bahadur Singh filed an applica-
tion under Sec.4 of the U.P. Encumbered Estates Act (U.P. Act No.
XXV of 1934) ('Act' for short) to the Collector and Collector had trans-
mitted the same to the Special Judge under Sec.6 of the Act. Subse- B
quently the respondent-debtor had submitted an application to the
Collector that the disputed house may not be sold in the proceedings
under the Act and may be exempted as provided in Sec.24 of the Act.
On 26.3.43 the Collector in exercise of powers under Sec.24 exempted
this house from sale in the proceedings under the Act and it is there-
after that the agreement was entered into. It appears that subsequently
the debtor-respondent again wanted this house to be included in the
c
property for sale in the proceedings under the Act to which the present
appellant objected and this objection was disposed of by the Collector
by his order dated 23rd June 1961 reiterating the.position that by order
dated 26.3.43 this house has been exempted from the proceedings
under this Act and therefore that·order can not be re-opened. This D
order dated June 23, 1961 also refers to an order dated 14.6.45 wherein
permission to sell this house which was sought by the respondent under
Sec.7 of the Act was rejected by the Deputy Commissioner. It appears
that the mortgage which was executed by predecessors of the respon-
dents in favour of Aditya Prasad Singh was also considered as a claim
under Sec.1 of the Act and ultimately a decree was passed in favour of E
Aditya Prasad Singh by the Special Judge under the Act. As this
decree was passed under clause 7 of Sec.14 in view of Sec.18 of the Act
it only remained a money decree and the rights of mortgagee came to
an end. The present appellant therefore pressed the respondent for
execution of the sale deed in pursuance of the contract and ultimately
filed a suit for specific performance of the contract for sale dated 2nd F
May 1958. Trial Court decreed the suit and on appeal the first Appel-
late court also maintained the decree but on second appeal the High
Court on the basis of the provisions contained in the Act came to the
conclusion that as permission to sell was refused under Sec. 7 and in
view of the prohibition under Sec. 7 of the Act the contract of sale
would be hit by Sec.23 of the Contract Act and in this view of the G
matter the High Court interfered is second appeal and set aside, the
decree passed in favour of the appellant. Aggrieved by this the present
appeal has been filed.

Learned counsel for the appellant contended that the scheme of
the Act indicates that in order to protect land holders of their in- H
548 SUPREME COURT REPORTS [1987] 2 S.C.R.

A debtedness and consequent insolvency this Act was enacted and it was
provided that whenever the land holder made an application under
Sec.4 the Collector will pass an order under Sec.6 and send the matter
to the Special Judge. Under the scheme of the Act the Special Judge
will consider various claims and determine the liability of the debtor.
But if these liabilities are determined they all will be money decree and
B the earlier rights of creditors will come to an end. It appears thereafter
the properties will be put to sale and the debtors may be paid on the
basis of priorties i.e. public debts first, then those which were secured
debts and thereafter other debts. It was contended that in the scheme
of this Act Sec.24 provided that the landholder may keep one residen- ~-....., ,
tial house with furniture and belongings free from all encumbrances '
C which will not be sold in order to discharge the debts and it was
competent for the Collector when an application has been made under
Sec.4, to exempt such a house under Sec.24of the Act. )-

It was contended that such an application was made by the
respondents under Sec.24 on the basis of which by orders dated
D 26.3.43 the Collector exempted the house in dispute from sale during
the proceedings under this Act and this order was reiterated on
23.6.61.

It was further contended that although permission was rejected +
for sale of the house under Sec.7 on 14.6.45 but it was contended that
E the prohibition under Sec. 7 will not apply to an agreement for sale. It
was also contended that as the proceedings before the Special Judge
have come to an end the objection pertaining to Sec. 7 for passing of a
decree under Specific Relief Act for specific performance _will not be
available. Learned counsel placed reliance on an order dated 7.5.76
which was filed in this Court which clearly stated that on this date i.e.
F 7 .5. 76 no proceedings are pending and they are over under Sec.44 of
the Act and on this basis it was contended that to a decree for specific
performance objection under Sec.7 will not be available to the
respondents.

Learned counsel for the respondents on the other hand con-
G tended that this document which is an order from the court of Col-
lector, Allahabad dated 7.5.76 on which reliance has been placed' by
the learned counsel for the appellant has been filed in this Court for
the first time and this order itself shows that this was after the judg-
ment of the High Court as the High Court judgment is dated 13.4. 76
..!
whereas this order has been obtained which is dated 7.5.76 and on this
H basis it was contended that it could not be said that no proceedings are
GAY4 PRASAD v. S.B. SINGH [OZA, J.) 549

pending under the Act and the last order passed was dated 7.7.75.
A
It was also contended that although under Sec.24 it is possible for
a debtor to obtain an order from the Collector exempting one house
from the proceedings under the Act but it was contended that this
exemption was nothing but exemption from attachment and sale which
otherwise would follow under the scheme of the Act after the claims B
are determined under Sec.14. Learned counsel after examining the

- ,... -
~ ' scheme of the Act contended that in fact what is contemplated under
Sec.24 is to allow a debtor landholder to have a house and furniture for
his residence and use so that he may live in a respectable manner. This,
as is not disputed, was in fact the purpose of the Act as indicated by
the Objects and Reasons and it is with that view that Sec.24 was
enacted. It was contended that if a house was exempted under Sec.24 it
c
-{ would not be consistent with the scheme of the Act to permit th.e
debtor landholder to seek an exemption under Sec.24 and then sell
away the house and pocket the money to defeat the creditors. It was
therefore contended that that is why Sec. 7 provides that no property
could be sold except with permission under Sec. 7. It was contended D
that the language of Sec.7 sub-clause (4) is wide enough and even an
agreement to sell which creates rights in immovable property will be
affected by the provisions of Sec. 7.
_._
Learned counsel by reference to the various provisions and espe-
dally to the provisions contained in Sections 43 and 44 contended that E
even when the proceedings under this Act are quashed or an applica-
tion is dismissed the rights of the creditors are revived. According to
._.,. the learned counsel, it could not be said that the proceedings have
come to an end and in this view of the matter it was contended that the
High Court was right in allowing the appeal and setting aside the
4 decree passed. F

Learned counsel appearing for the appellant further contended
that although the order from the Collector has been filed in this Court
but is was filed long ago and if the respondents wanted to challenge
they could have filed any other order from the Collector. As regards
the argument that under Sec.24 a house can be exempted for use of the G
~ debtor landholder and it could not be just a device to obtain exemp-
tion, sell the property and pocket the amount to the detriment of the
creditors but it was contended that under these circumstances if the
debts remain to be satisfied still the sale proceeds can be kept in
deposit for being distributed to the creditors. On this basis it could not
be said that a decree for specific performance can not be passed. H
550 SUPREME COURT REPORTS [1987] 2 S.C.R.

A Learned counsel alternatively contended that even if it is in dispute as
to whether the proceedings under the Act are still pending when the
provisions contained in Sec. 7 are attracted the decree for specific
performance could be passed subject to a permission under Sec.7.
Learned counsel for the appellant placed reliance on the decision of
this Court in Mrs. Chandnee Widya Wati Madden v. Dr. C.L. Katia/
B and Others., [1964] 2 SCR 495. Learned counsel for the respondents
however placed reliance on the decisions of this Court in Behram
Khurshed Pesikaka v. The State of Bomaby, [1955] 1 SCR 613;
Bhasheshar Nath v. The Commissioner of Income Tax, Delhi &
Rajasthan & Another, [1959] Supp. 1 SCR 528; Murlidhar Aggarwal
and Another v. State of Uttar Pradesh and Another, [1974] 2 SCC 472,
Lachoo Mal v. Radhey Shyam, 11971] 3 SCR 693 and also on Raj
c Narian Jain v. Firm Sukha Nand Ram Narain and others., [1980] AIR
Allahabad 78. Facts are not in dispute. It is also not disputed that U.P.
Encumbered Estates Act 1934 was brought in to give relief to a class of
debtors particularly landholders and the Act provide for a scheme for
settlement of debts without filing of an insolvency petition. The
D authorities referred to by learned counsel do not throw any light on the
questions involved.

Sec.4 of this Act provides for making of an application to attract
the provisions of this Act and once an application under this Section is
made, the proceedings are said to have commenced under the provi-
E sions of this Act. Sec.6 provides for passing of an order and transmis-
sion of the application to the Special Judge who has been conferred
jurisdiction under this Act to proceed with the proceedings. Sec.7 of
this Act provides:

"When the Collector has passed an order under Section 6
F the following consequence shall ensue: ~

(a) all proceedings pending at the date of the said order in
any civil or revenue court in Uttar Pradesh in respect of any
public or private debt to which the landlord is subject, or
with which his immovable property is encumbered, except
G an appeal, review or revision against a decree or order,
shall be stayed, all attachments and other execution proces-
ses issued by any such court and then in force in respect of
any such debt shall become null and void, and no fresh
process in execution shall, except as hereinafter provided,
be issued;
H
GAYA PRASAD v. S.B. SINGH [OZA, J.] 551

(b) no fresh suit or other .proceedings other than an
A
'-1, appeal, review or revision against a decree of order, or a
process for ejectment for arrears of rent shall, except as
hereinafter provided, be instituted in any civil or revenue
court in Uttar Pradesh in respect of any debts incurred
before the passing of the said order but if for any reason
whatsoever such a suit or proceeding has been instituted, it B
shall be deemed to be a proceeding pending at the date of

=- Jj,, ' the said order within the meaning of clause (a).

Provided that when a landlord has executed a
usufructuary mortgage in respect of any of his land and is in
possession of that land as a thekadar of the mortgagee, no
fresh process shall issue for his ejectment from that land for
c
arrears of the theka rent.

(2) After the passing of the said order and until the
application is dismissed by the Special Judge under sub-
section (3) of Section 8 proceedings under this Act are D
quashed under Section 20 or until the Collector has liqui-
dated the debt under Chapter V, no decree obtained on the
basis of any private debt incurred by the landlord after the
+ passing of the order under Section 6 shall be executed
against any of his property, other than proprietary rights in

- land, which has been mentioned in the notice under Sec· E
tion 11 and the landlord shall not be competent without the
sanction of the Collector to make an exchange, or gift or,
or to sell, mortgage or lease, any of that property.
+
(3) After the passing of the order under Section 6
.f and until the Collector has declared in accordance with F
Section 44 that the landlord has ceased to be subject to the
disabilities of this sub-section or until the passing of the
order by the Special Judge, referred to in sub-section (2) of
Section 44, no decree obtained on the basis of any private
debt incurred after the passing of the order under Section 6
shall be executed against any of the landlord's proprietary G
'r rights in the land mentioned in the notice published under
Section 11 and the landlord shall not be competent, with·
out the sanction of the Collector, to make any exchange or
gift or, or to sell, mortgage or lease those proprietary
rights, or any portion of them.
H
'
552 SUPREME COURT REPORTS [1987] 2 S.C.R.

(4) Any transfer made in contravention of the provi-
A
sions of this section shall be void."

Much of the controversy in the present matter pertains to the effect of
Sec.7. Sub-clause (1) of this Section indicates the consequences that
will follow when an order under Sec.6 has been passed by the Col-
B lector. sub-clause (2) speaks of restrictions on the landlord about ex-
change, gift, sale, mortgage or lease of any of the properties without
the sanction of the Collector. It is not in dispute that after an applica-
tion under Sec.4 was filed by the respondent-debtor when an applica-
tion under Sec.24 was filed for exemption in respect of the house in - '""'-c
dispute and the order was passed on 26.3.1943. It is therefore plain
that on the day i.e. 4.5.58 when the agreement was entered into an
--
c application under Sec.4 had been made and the order had been made
under Sec.6 and it is not disputed that on the day on which the agree-
ment was made the provisions of Sec. 7 were attracted and the limita-
tions put on the power of the landlord under Sec. 7 were applicable to
the respondent-landlord in this case. Sub-clauses 2 and 3 of the Sec. 7
D provided for restrictions put on the power of the landlord and the
restriction is in respect of exchange, gift, sale, mortgage or lease. It is
clear that the restrictions pertain to exchange, gift, sale, mortgage and
lease and it was contended by learned counsel for the appellant that
agreement to sell is not covered by any one of these restrictions and
therefore the agreement which was entered into in 1958 could not be
said to be bad in law as the High Court appears to have held whereas
E
an attempt was made by learned counsel for the respondents to con-
tend that as the agreement to sell creates some rights in immovable
-
property it will be covered within the language of sub-clauses (2) and
(3).

F It is not disputed that at the time when this agreement was );.
entered into the proceedings under this Act were pending and the
provisions of Sec.7 are attracted. A plain reading of the provisions
contained in sub-clauses 2 and 3 clearly go to show that agreement to
sell has not been included in .the restrictions which have been imposed
on the right of debtor. The terms used clearly go to show that the
G prohibition is pertaining to the transfer (where rights in immovable
property are transferred). Admittedly an agreement to sell is not a i
transfer of any rights in immovable property and therefore the agree-
ment could not be held to be bad in law.

Sec.24 of this Act provides:
H
"The Collector shall then realise the value of such of the
GAYA PRASAD v. S.B. SINGH (OZA, J.] 553

debtor's property, other than proprietary rights in land, but
including proprietary rights in land in the areas which on A
the 7th day of July, 1949, were included in a Municipality or
a Notified Area under the provisions of the U.P. Munici-
pa!ities Act, 1916, or a cantonment under the provisions of
the Cantonment Act, 1924, or a Town Area under the pro-
visions of the U.P. Town Area Act, 1914, as shall have· B
been reported by the Special Judge under the provisions of
~' sub-section (2) of Section 19 to be liable to attachment or
sale:

- ~·
Provided that the Collector before passing orders
under this section of the sale of any property shall hear any
objection which the debtor may have to make to the sale of c
that property.

Provided also notwithstanding anything in any other
section of this Act, the Collector may, if he considers fit,
sell, along with any building disposed of under this Section, D
the proprietary rights of the applicant in any land occu-
pied by such building or appurtenant thereto:

Provided further that the Collector shall leave the
+ debtor at least one residential house and necessary furni-
ture thereof if- E

(a) the debtor owns such house and furniture and desires
to retain it, and
.l,
(b) such house and furniture is free from any mortgage or
-'!- charge. F

(2) The amount so realized shall be expended by the Col-
lector in discharging the debts in order of priority.

(3) For the purpose of execution against property outside
the (Uttar Pradesh) the decrees passed by the Special G
)- Judge shall be deemed to be decrees in favour of the
Collector.

(4) For realising the value of the debtor's property under
this section the Collector may expercise all the powers of a
civil court for the execution of a decree." H
554 SUPREME COURT REPORTS (1987] 2 S.C.R.

The proviso to this Section with sub-clauses (a) and (b) clearly indi-
A cates that Collector has the authority to exempt one residential house
and necessary furniture and the exemption for such a house and furni-
ture once granted will be free from any mortgage or charge.

B Much emphasis was laid on the terms of the order passed by the
Collector on June 23, 1961 wherein it was observed that "house in
question should remain exempted from attachment and sale" and it t
was contended by the learned counsel for the respondents that this
exemption only pertains to its exemption from attachment and sale.
The original order dated 26th March 1943 only talks of the house and
personal effects to be excluded. We have no hesitation in saying that it
..._,__
-
c is not the language of the order which is material but the language of
the provision under which the order was made as it is not disputed that ).
an order under Sec.24 exempting the house in dispute was passed on
26th March 1943 which was only reiterated in the order dated 23rd
June 1961. It is therefore clear that once this order is passed the house
D in question was free from any mortgage or charge.

It was contended by the learned counsel for the respondents that
the scheme of the Act clearly show that what was provided in r ec.24
was only with a purpose to allow the debtor to have a residential house
with necessary furniture to permit him to have a respectable living but +
E it did not mean that the debtor was at liberty to sell away this property
and pocket the money to defeat the creditors and on this basis an
attempt was made to contend that during the pendency of the proceed-
-
ings the rights of a mortgagee servived in spite of an order passed
~
under Sec.24 or inspite of an order under clause 7 of Sec.14 having
been passed. _,.
F
So far as Sec.24 is concerned and the effect of the order under
this Section is concerned it is clear that once an order exempting the
property under this provision is passed by Collector the house and
furniture about which such an order is made is free from any mortgage
or charge and therefore it leaves no doubt that after the order under
G Sec.24 having been passed in the present case i.e. on 26.3.43 the mart-
gage which was in existence before the proceedings under this Act
commenced ceased to be effective and this property was free from any
1
mortgage or charge.

Sec.14 clause 7 provides for determination of debts: It reads as
H under:
GAYA PRASAD v. S.B. SINGH [OZA, J.l 555

"{7) If the Special Judge finds that-
A
1 (a) no amount is due, he may pass a decree for cost in
favour of the landlord;

{b) an amount is due to the claimant he shall-
B
(i) pass a simple money decree, having regard also to
the provisions of Section 3 of the U .P. Zamindars'
Debt Reduction Act, 1952, for such amount together
with any costs which he may allow in respect of the
proceedings in his court and of proceedings in any
court stayed under the provisions of the Act together
with pendente lite and further interest at a rate not c
higher than 4-1/4 per cent per annum; and

(ii) also certify the amount, if any, of such decree
which, in accordance with the provisions of Section 8 of
the U .P. Zamindars' Debt Reduction Act, 1952, is not D
legally recoverable otherwise than out of the compen-
sation and rehabilitation grant payable to the landlord:

Provided that no pendente lite interest shall be
allowed in the case of any debt where the creditor was

- in possession of any portion of the debtor's property in
lieu of interest payable on such debt for the period he
was so in possession."
E

...... Sub-clause {b) of this clause 7 clearly provides that the amount which
is found to be due to the claimant, a money decree shall be passed and
what will be the effect of this money decree having been passed under F
sub-clause 7 of Sec.14 has been provided in Sec.18. Sec.18 reads:

"Subject to the right of appeal or revision conferred in
Chapter VI, the effect of a decree of the Special Judge
under sub-section (7) of Section 14 shall be to extinguish
the previously existing rights, if any, of the claimant, to- G
gether with all rights, if any, of mortgage or lien by which
the same are secured and, where any decree is given by the
Special Judge to substitute for those rights a right to re-
cover the amount of the decree in the manner and to the
extent hereinafter prescribed:
H
556 SUPREME COURT REPORTS [1987] 2 S.C.R.

Provided that secured debts, which, in accordance
A with the provisions of Section 8 of the U.P. Zamindars'
Debts Reduction Act, 1952, are not legally recoverable
otherwise than out of the compensation and rehabilitation
grant payable to the landlord shall be recoverable from the
compensation and rehabilitation grant aforesaid as though
B the security had not been extinguished."

Sub-clause 7 of Sec.14 uses the phrase "pass a simple money ~
decree" and in our opinion this terminology "simple money decree"
has been used with some significance and if any doubt is left it has , . .........._
"-
further been cleared by providing Sec.18. This provision clearly indi- '
cates that once a decree has been passed by the Special Judge under
c sub-Sec. 7 of Sec. 14 the effect of it will be to extinguish the previously
existing rights in any of the claims or mortgage and the decree passed )·
by the Special Judge will substitute all those rights. It is therefore clear
that once the claim of a creditor even if he is secured is determined by
the Special Judge under Sec.14 sub-clause 7 and a money decree is
D passed the rights of the creditors even if it was under mortgage come to
an end although the scheme of the Act indicates that such debts which
are secured may get priority over the debts which were not secured and
on the basis of these provisions and the provisions contained in Sec.44
an attempt was made by learned counsel for the respondents to con-
tend that although the rights of the mortgagee may be extinguished but +
so long as the proceedings are pendings they are not completely extin-
E
guished as in the event of quashing of the proceedings the scheme of
the Act indicates a revival of such rights. But it could not be doubted
that so long as they are not revived they come to an end and we have
-
no hesitation in view of Sec.24, sub-clause 7 of Sec.14 read with Sec.18 ......
that this house in dispute at the time when the suit was filed for specific
F performance of the contract was free from all encumbrances and there ~
was no mortgage or charge against this property.

It is therefore clear that what learned counsel for the respon-
dents contended on the basis of provisions contained in Sections 43
and 44 only is that in cases where proceedings are quashed under
G Sec.20 the rights of the creditors if they were of a mortgagee may
revive and the time spent in these proceedings may be exempted but it
is nobody's case that the proceedings have been quashed under Sec.20 -<
and admittedly the respondent during these proceedings at no time has
not raised a plea that the proceedings have been quashed under
Sec.20. On the contrary the order that has been put on record by the
H learned counsel for the appellant clearly goes to show that the pro-
GAYA PRASAD v. S.B. SINGH [OZA, J.l 557

ceedings have been concluded and therefore question of revival does
A
not arise.

Learned counsel for the respondents vehemently contended that
the scheme of the Act does not mean that when the house which has
been exempted only for the purposes of living of the debtor, could not
be sold away and money pocketed defeating the claims of the ere- B
\ ditors. Even if this argument is accepted it does not carry the matter
further except that if any claim is still remaining to be settled the sale
proceeds which the respondent-debtor will get out of the decree for
- ,-r, specific performance could be kept apart for distribution to the
creditors.

It was also contended that sub-clause 4 of Sec.7 quoted above
c
clearly provides that any transfer in contravention of provisions of this
Section will be void and therefore even a transfer under a decree
would be void if it is in contravention of the provisions of Sec. 7
whereas learned counsel for the appellant frankly conceded that
although as the order dated 7.5.76 discloses that the proceedings are D
over under this Act and therefore effect of Sec. 7 has come to an end
and a decree for specific performance for sale could be passed without
any objection under Sec.7 but even if the proceedings are pending, the
+ decree could be subject to a permission from the Collector under
Sec. 7. Although it was vehemently contend by the counsel for the
appellant that if the respondent wanted to challenge the order dated E
7.5.76 which was filed by the appellant in this Court clearly indicating
that the proceedings are over under Sec.44 of the Act and it was open
to them to file any further order indicating that the proceedings are
still pending and as no such order has been filed it has to be accepted
that the proceedings are over and the limitation put on transfer by
Sec.7 has ceased to be effective. F

The language of Sec. 7 as qnoted above is clear enough that this is
effective only during the pendency of the proceedings under this Act
and the order dated 7.5.76 filed by the appellant in this Court clearly
goes to show that no proceedings are pending and the case has been
consigned to the record. There is nothing to indicate that any proceed- G
ings are pending nor anything to indicate that any claim of any creditor
still remains to be satisfied. In the absence of any proceedings pending
the effect of clause 4 of Sec. 7 will be of no avail. In our opinion
therefore a decree for specific performance could be passed. The High
Court therefore was in error in allowing the appeal and setting aside
the judgment and decree passed by the learned courts below. It is no H
558 SUPREME COURT REPORTS [1987] 2 S.C.R.

A doubt open to the respondent to approach the executing court to retain
the sale proceeds if they are in a position to satisfy the court that any
part of the claim still remain to be satisfied. The appeal is therefore
allowed, the judgment and decree passed by the High Court is set
aside. Instead the decree passed by the trial court and maintained by
the Appellate court is restored. In the circumstances of the case,
B parties are directed to bear their own costs.

N.P.V. Appeal allowed.

~-

>

+

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