# CUSTODIAN OF EVACUEE PROPERTY v. SMT. iRABIA BAI August 19. 1976

- **Citation:** [1977] 1 S.C.R. 255
- **Court:** Supreme Court of India
- **Decided:** 1977
- **Case number:** Civil Appeal No. 882 of 1975
- **Bench:** Y. V. Chandrachud, R. S. Sarkaria, P. N. Shinghal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/custodian-of-evacuee-property-v-smt-irabia-bai-august-19-1976-6911
- **Pages:** 14

## Headnote

Administratio11 of Evacuee Property Act, 1'950-S, 40(4) (a) and. rule 22Scqpe of-S. 10(2)(n) "out of the funds in his possession" meaning of.
Rehabilitation Act, 1954-S. 14(1 )(b)-"Such
cash
balances"--Meaning
of.
Words a11d phrases--."aut of the fund~ i11 his possesslvn" and "such cash
balanoes"-Meaning of.
A
B
Section 40(1) of Administration of Evacuee Property Act, 1950 provides
C
!hat no transfer of aby prOpCil'ty belonging to an evacuee, which may subsequently be declared to be evacuee property, shall be effective unless the transfer
was confirmed by the Custod'an. Sub-section ( 4 )(a) provides that where an
application had been made to the Custodian for confirmation, he may reject the
application if he is of opinioh that the transaction had not been entered into
in good faith or for valuable consideration.
In 1949 the respondent purchased house property from an evacuee and
pan the consideration.
She made an application under s. 40 to the Assistant
D
Custodia'n for confirmation of the sale. The application was rejected by him
on the QlfOUnd of want of good faith on the part of the vendor in entering
into the transaction.
Her appeal to the Custodian and revi9ion to the Custodian General were dismissed. In the meantime, under r. 22, of the Administration of Evacuee Property (Central Rules) 1950, the respondent registered her
claim for the return of the sale consideration to her. Thereafter r. 22 was
deleted. She was informed by the Deputy Custodian that no third pany claim
against immov»ble property was payable since r. 22 was deleted.
In 1966
the G-OVernmeht transferred to Compensation Pool the 'surplus balance' of the
E
evacuee pool lying in the personal deposit account of the Custodian. The respondent later made a petition to the Custodian, which was rejected mainly on
the ground that the sale proceeds had been credited to the compensation
pool, that there was ho amount in the hands of the Custodian fr0m which her
claim could be paid and that the words "out of funds in his possession" occurring ih s. 10(2)(n) of the Act showed that the clause would be attracted only
where funds were lying with the Custodian.
The High Court held that payment made bv' the respondent to the evacuee
F
in pursuance of the infructuous sale, was not vitiated in any manner as the
sale was refused confirmation, not because of want of bo11a fides in the transferree, but on account of want of bona fides in the transferor, and as such the
Custodiah was under a statutory obligation to refund the sale price paid by
her an.l tha• the Custodian was competent to transfer only ~urphts fund Jen with
hfo1. in excess of what was 1required by him for meeting the outstanding claims
registered under r. 22.
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In appeal to this Court it was contended that (i) the order of the Assist·
G
ant custodian registering the claim was a nullity becanse since the sale was not
confirmed under s. 40(4)(a) it could not be deemed to be a boM fide transaction for the purposes of registration of claim under r. 22; (V) reQ!istration
was an administrative act required to be done for statistical purposes; and (iii)
as a result of the1 delk:tion of r. 22 the Custodiah was no longer under an obligation to meet the claim and no part of the- ,compensation pool was available to
satisfy the claims of third parties who were neither displaced persons nor
evacuees·.
H
Dismissing the appeal,
HELD : (I) The High Court was right in directing the Custodian is refund
the sale price t•J the respondent in payment of her claim and in further direc~ng
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256
SUPREME COURT REPORTS
[1977) 1 S.C.R.
the Oentral Government to place at the disopsal of the Custodian the !>itid
sum for the purpose of refund. [268 A-BJ
. (l)(a) Under r. 22, before a claim for refund of money paid as consideration fol' the u·ansfer by an evacuee of any property is registered by the Custodian, he should be satisfied : (i) that such transfer has not been confirmed
under s. 40 of (J1e Act, (ii) that such transfer is

## Text

_Characters 0–39,145 of 41,789. This is a partial read: ask again with offset=39145 for what follows._

CUSTODIAN OF EVACUEE PROPERTY
v.
SMT. iRABIA BAI
August 19. 1976
255
[Y. V. CHANDRACHUD, R. S. SARKARIA AND P. N. SHINGHAL, JJ.J
Administratio11 of Evacuee Property Act, 1'950-S, 40(4) (a) and. rule 22Scqpe of-S. 10(2)(n) "out of the funds in his possession" meaning of.
Rehabilitation Act, 1954-S. 14(1 )(b)-"Such
cash
balances"--Meaning
of.
Words a11d phrases--."aut of the fund~ i11 his possesslvn" and "such cash
balanoes"-Meaning of.
A
B
Section 40(1) of Administration of Evacuee Property Act, 1950 provides
C
!hat no transfer of aby prOpCil'ty belonging to an evacuee, which may subsequently be declared to be evacuee property, shall be effective unless the transfer
was confirmed by the Custod'an. Sub-section ( 4 )(a) provides that where an
application had been made to the Custodian for confirmation, he may reject the
application if he is of opinioh that the transaction had not been entered into
in good faith or for valuable consideration.
In 1949 the respondent purchased house property from an evacuee and
pan the consideration.
She made an application under s. 40 to the Assistant
D
Custodia'n for confirmation of the sale. The application was rejected by him
on the QlfOUnd of want of good faith on the part of the vendor in entering
into the transaction.
Her appeal to the Custodian and revi9ion to the Custodian General were dismissed. In the meantime, under r. 22, of the Administration of Evacuee Property (Central Rules) 1950, the respondent registered her
claim for the return of the sale consideration to her. Thereafter r. 22 was
deleted. She was informed by the Deputy Custodian that no third pany claim
against immov»ble property was payable since r. 22 was deleted.
In 1966
the G-OVernmeht transferred to Compensation Pool the 'surplus balance' of the
E
evacuee pool lying in the personal deposit account of the Custodian. The respondent later made a petition to the Custodian, which was rejected mainly on
the ground that the sale proceeds had been credited to the compensation
pool, that there was ho amount in the hands of the Custodian fr0m which her
claim could be paid and that the words "out of funds in his possession" occurring ih s. 10(2)(n) of the Act showed that the clause would be attracted only
where funds were lying with the Custodian.
The High Court held that payment made bv' the respondent to the evacuee
F
in pursuance of the infructuous sale, was not vitiated in any manner as the
sale was refused confirmation, not because of want of bo11a fides in the transferree, but on account of want of bona fides in the transferor, and as such the
Custodiah was under a statutory obligation to refund the sale price paid by
her an.l tha• the Custodian was competent to transfer only ~urphts fund Jen with
hfo1. in excess of what was 1required by him for meeting the outstanding claims
registered under r. 22.
-
In appeal to this Court it was contended that (i) the order of the Assist·
G
ant custodian registering the claim was a nullity becanse since the sale was not
confirmed under s. 40(4)(a) it could not be deemed to be a boM fide transaction for the purposes of registration of claim under r. 22; (V) reQ!istration
was an administrative act required to be done for statistical purposes; and (iii)
as a result of the1 delk:tion of r. 22 the Custodiah was no longer under an obligation to meet the claim and no part of the- ,compensation pool was available to
satisfy the claims of third parties who were neither displaced persons nor
evacuees·.
H
Dismissing the appeal,
HELD : (I) The High Court was right in directing the Custodian is refund
the sale price t•J the respondent in payment of her claim and in further direc~ng
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256
SUPREME COURT REPORTS
[1977) 1 S.C.R.
the Oentral Government to place at the disopsal of the Custodian the !>itid
sum for the purpose of refund. [268 A-BJ
. (l)(a) Under r. 22, before a claim for refund of money paid as consideration fol' the u·ansfer by an evacuee of any property is registered by the Custodian, he should be satisfied : (i) that such transfer has not been confirmed
under s. 40 of (J1e Act, (ii) that such transfer is a bona fide transaction;
(iii)
that the amount for which the claim is being registered is proved to have been
pa:d as oonsideration for the tra·nsfer of the property. [262 G]
In the instant case, the vaMity of the, Assistant Custodiah's order reg'stering
the respondent's claim is unassailable because all the three conditions aforeSai.d
to give authenticity to the registration of her claim were satii.fied.
The sale
was not confirmed by ~he Custodian but he found that the whole of the price
had actually been paid by the claimant. [263 A)
(b} In order to qualify for confirmation under s. 40(4)(a) on the ground
of good· failh, a sale ha~ to pass a mucb more stringent test than the one required to bold it "a bona fide transaction" for the purposes of r. 22. While under
s. 40(4) (a}, lack of good faith either in the trahsferor or the transferee wou~
be sufficient to disqualify the u·ansfer for cvnfirmation, the posit" on
under
r. 22 is different.
Under r. 22 it is the character of the conduct of the claimant which primarily determines the cbarncter of the transaction.
Therefore,
if the vendee-claimant ih purchas'ng the pr0perty acted in good faith, fur the
purpo~s of r. 22, the sale would be a bona fide transaction, notwithstanding
the fact that there w~ Jack of good faith on the part of the vendor. Again,
the test of the vendee's bona fides under this Rule would be, whet.her he ha<l
purchased the property for adequate valuable oonsideration.
[264 A-Bl
Rabia Bai v. Custodian General of Evacuee Property [1961] 3, SCR 448
followed.
In the instant case, the Assistant Custoctian found that this test wa9 amply
sat'sfied.
This finding of fact was not challenged before the High Court. It
is therefore too late in the day to urge that the respondent's claim was not
duly registered in accordahce with r. 22. [264 CJ
(2) Registration of claim of a vendee under r. 22 amounts to a preliminary·
adjudication as to the genuineness of the claim and its eligibility for discharge
under the relevant substantive provisions of the Act.
While mere registration of
a claim under this rule does not ipso factd oonfer a right to payment, it j9
not correct to say that the only purpose served by such registration is sta'istical
and nothing else.
Before registering a claim the Custodian is required
to
determine objectively that the transaction i~ bona fide the claimant
having
entered into it in good faith on payment of adequate valuable oomideration.
The determination of this preliminary fact, which is an essential pre-requisite
of registral"on, is a judicial function enjoined on the CustOdian by the statutory
provision. [264 E-Fl
•
(3}(a) The words "out of the funds in his possessioh" in s. 10(2}(n) have
reference only to the funds relatable to the particular evacuee against whom
or against whose property, the claim for refund was made by a claimant.
The use of the expression 'in the opinion of the Custodian' in s. 10(2)(m)
was not i.htended to invest the Cu~odian with arbitrary authority.
In forming
his opinion, he wasi bound to act judicially. [266 A-BJ
Raja Bhanupratap Singh v. Custodian [1966] 1, SCR 304 followed.
In the instant case, the Custodian bad formed an opinion about the respondent's claim beihg genuine.
In the exercise of that power the only thing that
remained to be done by the Custodian was to ascerta'n whether there were
adequate 'funds in his possession' to meet the respondent'9 claim.
The property was" sold by the Government for a consideration which had been far in
excess of her claim, ahd the sale proceeds were credited to the compensation
pool. It could hot be said that at the mate'l".'al time the Custodian was not in
possession or s·ufficient funds to meet the respondent's claim. [266 BJ
(b} The. expression 'such cash balances' used in s. 14(1 }(b) of the Rehabilitation Act canno.~ be interpreted to cover total cash deposits with the Custodian.
'
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CUSTODIAN OF EVACUEE PROPERTY v. SMT. RABIA BAI (Sarkaria, J.) 25 7
The expression hag to be construed as the excess of credits over debits. The
wmd 'balances' had been advisedly used in preft>rence to 'deposits' 1i<>caus
0 'he
intention was that only that much amount in deposit with the Custodiah should
be transferred to the Compensation Pool which would be in excess of ~e
amount9 required for meeting the due claims against the evacuees or their
prope1ties. . What can be directed to be transferred to the CompensatiO:n Pool
by the Government under s. 14(1) (b) is the 'cash balances' and not the total
cash deposits with the Custodian [267 A-Bl
( c) The Custodian had neither the power nor the authority to transfer the
entirety of funds to th~ Compehsation Pool. The word 'surplu9' used in !he
Government order puts· the matter bevond doubt that only those balauc-~ wh1chl
were surplus or in excess over what Wa.s required to meet the liabnities of the
evacuees, were to be transferred to the Compensation Pool. It was the clutv of
the Custodian, therefore. to keen back with him so much of the funds in his
deposit as were necessary to meet the verified cla'ms against evacuees or their
properties. Such a course would have been perfectly legal and also• in cnn'or•
mity with the final directions issued for transfer of 'sumlus balances' by the
Central Government. Onlv the 'cash balances' which were validly transferred
could legally form part of the Compensation Pool. [267 E-G]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 882 of 1975.
(Ap0eal by Special Leave from the Judwent and ·order dated
13-12-1974 of the Madras High Court in Writ Appeal No. 101/73).
Gobind Das, and Girish Chandra, for the Appellant.
V. M. Tarkunde, K. Rajendra Chaudhury, Mrs. Veena Khanna,
S. L. Selia & Miss Manek Tarkunde, for the Respondent.
The Judgment of the Court was '.delivered by
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SARKARIA, J. This aopcal by soecial leave.
directed
against
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judgment dated December 13, 1974; of the High Court of Madras,
arises out of these facts :
Respondent Rabia Bai, is a citizen of India. She has her residence
at Grange Yercund. Salem District. She C'ame to k1aow in 1949 that
premises No. 20, Godown Street. G. T. Madras
(known as
Gani
Market) was for sale. Consequently, by a sale-deed, dated April 29,
1949, she purchased this property from one Abdul Gani Jan Mohd.
F
who had left for Pakistan in 194 7, soon after the partition of the
Indian sub-continent. Abdul Gani came to Madras in Anril 1949 and
executed the sale-deed in her favour for a
consideration of Rs.
2,40,000/- out of which Rs. 1,50.000/- was paid immediately in the
form of bank drafts. Thereafter, the sale-deed was duly en!!fosr.;ed and
sent to Karachi for execution by the vendor. who dulv executed it and
sent it back. It was presented at the Collector's Office, Madras and
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was duly stamped on June 27, 1949. After obtaini<ng the clearance
certificate from the Income-tax Department. the Registrar re!!istered
it on Au11Ust l L l 94Q. Rs. 30.0001-. the balance of the conslrleration
was paid before the Registering Officer to Mr. M. H. Gani who held
a power of attorney from the vendor.
On June 13, 1949. Ordinance XII of 1949 was promulgated. The
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Ordlna!ace was extended to Madras on Au11Ust 23, Ordinance XII of
1940 was repealed by Ordinance 27 of 1949, which in turn was replaced by the Administration of the Evacuee Property Act,
1950
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SUPREME COURT REPORTS
(1977] l S.C.R.
(Central Act 31 of 1950) (hereinafter referred to as the Act). The
Act had retrospective operation with effect from August 14, 1947.
Seetion 40 of the Act [corresponding to s. 25(2) of Ord. 12], provided that no transfer made after the 14th day of August, 1947 but before
the 7th day of May, 1954 by any person of any property beloaging to
him which may subs~uently be declared to be evacuee property, would
be valid unless the transfer was confirmed by the Custodian-General
of Evacuee Property.
On December 19, 1949, the vendee Rabia Bai, applied for confirmation of the sale transaction in her favour. The application was re-
\..
sisted by some ternmts on several grounds. On January 11, 1951, the
Assistant Custodian Evacuee Property, Madras City,
declared
the
property in question as evacuee property under s. 7(1) of the Act.
The Assistant Custodian considered Rabia Bai's application for
confirmation of the sale in the light of the declaration already made
by him, that the vendor being an evacuee, the property was evacuee
property. He referred to the relevant features of the tra:asaction and
came to the conclusion tha:t he would not be justified in confirming it.
In reaching this conclusion, he relied on the provisions of s. 40(4) (c)
of the Act. In his opinion, the feverish hurry disclosed that in making
the sale, the vendor was not motivated by good faith.
Accordingly
on July 31, 1951, he made an order refusing to confirm the transaction.
Rabia Bai went in appeal against the order of the Assistant Custodi•ain
to the Custodian. The Custodian found that the sale transaction was
supported by valuable consideration.
Even so,
he proceeded
to
e:mmine the question as to whether it could be said to have been entered into in good faith.
Rely~ag on a letter written by the vendor to
one Mohideen on July 4; 1949 wherein he had stated that "if the
matter is delayed there would be many sort of new difficulties as you
know the government are passing new rules every day", the Custodian
took the view that the vendor's intention was to dispose of aJnd convert
his properties in India into C'ash and to take them away to Pakistan
as quickly as possible so as to evade the restrictions of the evacuee law
which he apprehended could be extended to Madras any day. On this
reasoning, the Custodian came to the conclusida that the tranS'action
had been entered into otherwise than in good faith, and so it could not
be confirmed under s. 40 ( 4 )(a) of the Act. This appellate order was
pronounced by the Custodian on February 4, 1953.
Rabia B•ai then moved the Custodiaa-General in revision, who dismissed the same. Against that order of the Custodian-General, Rabia
Bai came in appeal by special leave to this Court.
While that appeal w•as pending, Rabia Bai on August 27, 19541
made an application under Rule 22 of the Administration of Evacuee
Property (Central Rules) 1950 (for short the Rules) for registration
of her claim for the return of the sale consideration of Rs. 2,40,000r
The claim was registered by the Assistalnt Custodian on October 1,
1954.
Thereafter, the Act was amended by Act 91 of 1956. By a notification, dated February 20, 1957, the aforesaid Rule 22 was deleted.
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CUSTODIAN OF EVACUEE PROPERTY v. SMT. RABIA BAI (Sarkaria, !.) 259
Rabia Bai's aforesaid appeal (Civil Appeal No. 22. 'of 1956). was
dismissed by this Court on January 12, 1961. That Judgment ts reported 'as Rabia Bai v. Custodian General of Evacuee Property(').
Rabia Bai repeatedly petitioned for the return of the sale consideration of Rs. 2,40,000/- to her but without success. She petitioned to
the Prime Minister on May 16, 1966. Thereupon, she was informed
by a letter, dated August 1, 1966, by the Deputy Custodian, Evacuee
Property, Bombay, that 'no third party claim against the immove'able
property is payable by his office as Rule 22 of the Administration of
Evacuee Property (Central) Rules has since been deleted as a result
of the amendment of s. lO(m) by Act 91 of 1956.
A
B
By an order, dated August 18, 1966, Government of India directed
that all the 'surplus balance' of the evacuee pool lying in the personal
C
deposit account of the Custodian be transferred to the Dy. Accountant
General, New Delhi to form prut of the compensation pool under s.
14 ( 1) (b) of the Displaced Persons Compensation and Rehabilitati9n
Act of 1954.
In 1968, Rabia Bai filed a writ petition in the High Court for return
of the sale consideration. The writ petition was withdrawn on July 11,
1968. Thereafter on August 3, 1968, she made a petition under s.
10(2) (m) and (n) of the Act read with Rule 22 before the Custodian .
This petition was rejected by the Custodian under an order, dated
November 2, 1968, mainly on the ground that the properties· of the
evacuee were acquired by the Central Government under s. 12 of the
Displaced Persons (C. & R.) Act, 1954 and the sale proceeds of the
said properties have been credited to the comLJensation pool. There is
at present, no amount in the hands of the Custodian from which the
petitioner's claims would be paid".
In his view the words "out of funds in his possession" in s. 10(2) (n)
of the Act show that it would be attracted only where funds are lying
with the Custodian.
To impugn this order, dated November 2, 1968, of the Custodian,
Rabia Bai filed writ petition No. 1259 of 1971 in the High Court. The
petition came up for hearing before a lear11ed single Judge (Ramaprasada Rao J.) who took the view .that having regard to the
scheme of the Rehabilitation Act and the policy reflected therein and
the transfer of the cash balances with the Custodian to the compensation pool, it was not open to the writ-petitioner to assail transfer of
funds or any orders P'assed ilt1 that behalf and therefore she was not
entitled to a writ of certiorari sought for, much less a writ of mandamus. On this ground, he dismissed the writ petition. With regard to
the petitoner's claim for return of the sale price, it was held that she
still continues to be entitled to get the motley from and out of the
funds that may subsequently come into the hands of the Custodian. It
was added that "the petitioner as at present, should only be satisfied
with her entitlement to claim and await the collection of funds or accumulation of funds with the Custodian in future".
(1) [1961] 3 S.C.R. 448.
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260
SUPREME COURT REPORTS
[1977] 1 S.C.R.
Aggrieved by that order, Rabia Bai appealed under Cl. 15 of the
Letters Patent to a Bei,1ch of the High Court. The Bench held that
since it was not denied or refuted by the respondents (Custodian,
Evacuee Property, Bombay, Regonal Settlement Commissioner and
Union of India) that payment of Rs. 2,40,000/- was made by Rabia
Bai to the evacuee in pursuance of the infructuous sale, "the payment
is also not vitiated in -any manner as the sale was refused confirmation,
not because of want of bona fides in the transferee, but on account of
want of bona fides in the transferor.
The respondents are, therefore
under a statutory obligation to refund to the appellant the sale price
paid by her".
With regard to the argument that she could not be paid because the
fund with the Custodian had been transferred in compliance with the
orders of the Government of India to the compensation pool for.med
llitder s. 14 (1) (b) of the Rehabilitation Act, it was held that the
Custodian was competent to transfer only surplus fund left with him,
in excess of what was required by him for meeting the outstanding
claims registered under r. 22. The Appellate Bench spelled out this
conclusion from a construction of the words
"such cash balances"
occurritug in s. 14 ( 1) (b), and the expression "surplus fund" used in
the Central Government order asking the Custodian to transfer funds
to the account of the Deputy Accountant General as p•art of the compensation pool. In this view, the Bench allowed. the appeal and by a
writ of certiorari quashed the impugned orders and notifications. It
was further directed that a writ of mandamus shall issue requiring the
1st respondent (Resp. Custodian) to refund the sum of Rs. 2,40,000/-
to Rabia Bai.
The third Respondent, Union of India was further
directed to place at the disposal of the Custodian the said sum for the
purpose of the refund. It was specified that the direction regarding tlle
refund •aJad payment shall be complied with within three months.
Hence this appeal by the Custodian and the other respondents
t
before the High Court.
Let us now have a look at the relevant statutory provisions. The
material part of s. 10, as it stood before the amendment effected by
Act 91 of 1956, read as follows :
"10(1) Subject to the provisions of any rules that moay be
made in this behalf, the Custodian may take such
measures as he considers necessary or expedient for
the purposes of securing, administering, preserving
and managing any evacuee property and generally for
the purpose of enabling him satisfactorily to discharge any of the duties imposed on him by or under
this Act and may, for any such purpose as aforesaid,
do all acts and incur all expenses necessary or incideiatal thereto.
( 2) Without prejudice to the generality of the pr{>vision
contained in sub-section (1), the Custodian may, for
•any of the purposes aforesaid,
(a) to (1)
.-
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CUSTODIAN OF EVACUEE PROPERTY v. SMT. RABIA BAI (Sarkaria, !.) 261
(m) incur any expenditure, including the payment of taxes,
duties, cesses, and rates to Government or to any
local authority (or of any amount due to an employee
of the evacuee or of any debt by the evacuee to any
person).
(n) pay to the evacuee or to any member of his family or
to any other person as in the opinion of the Custodian is entitled thereto, any sums of money out of the
funds in his possession ... "
That part of clause (m), which is shown withiln the brackets was
deleted by Act 91 of 1956 with effect from October 22, 1956.
Section 40 reads as under :
"40. (1) No transfer made after the 14th of August,
1947, but before the 7th day of May, 1954, by or on
behalf of any person in any manner whatsoever
of any
property belonging to him shall be effective so as to confer any rights or remedies in respect of the transfer on
the parties thereto or any person claiming under them or
either of them, if, at any time after the transfer, the transferor becomes an evacuee within the meaning of section 2
or the property of the transferor is declared or notified
to be evacuee property within the meaning of this Act, unless the transfer is confirmed by the Custodian in accordance with the provisions of this Act.
(2) *
*
*
*
(3) An application under sub-section (1) for the confirmation of any transfer may be made by the transferor or
the transferee or any person claiming under or lawfully
authorised by either of them to the Custodian within two
months from the date of the transfer or within two months
from the date of the declaration or notification referred to
in sub-section (1) whichever is later, and the provisions of
of section 5 of the Indian Limitation Act, 1908 shall apply
to any such application.
( 4) Where an application under sub-section ( 1) has
been made to the Custodian for confirmation, he shall hold
an inquiry in respect thereof in the prescribed manner and
may reject the application if he is of opinion that-
( a) the transaction has :not been entered into in good
faith or for valuable consideration; or.
(b) the transaction is prohibited under any law for the
time being in force; or
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( c) the transaction ought not to be confirmed for any
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other reason.
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SUPREME COURT REPORTS
[1977] 1 S.C.R.
In this connection, Rule 22 may also be seen. The material part
of this rule ran as under :
"Claim by third parties :-
( 1) Any person claiming the right to receive any payment from any evacuee or from
the property of such
evacuee, whether in repayment of any loan advanced or
otherwise may present a petition to the Custodian for registration of his claim ..... .
Explanation.-An application under this sub-rule shall
be in respect of a claim for refund of money paid as consideration for the transfer by an evacuee of any property,
where such transfer is not confirmed by the
Custodian
under s. 10 of the Act.
(2)
(a)
(i) to (iv)
:j:
(b) Where such claim is of the nature referred to in the
Explanation to sub-rule (1) and the Custodian holds that
the transfer of the property in respect of which the claim
is made was a bona fide transaction, the Custodian may
register the claim or such part thereof as has
not been
satisfied :
Provided that in the case of a claim of the nature
referred to in the Explanation to sub-rule ( 1), the claim
shall be registered only for that amount of money which is
proved to have been paid as consideration for the transfer
of the property.
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( 3) The mere registration of a claim shall not entitle
the claimant to payment and the Custodian may for reasons
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It may be noted that Rabia Bai had made an application under
this rule for the registration of her claim to the refund of the sale
consideration. Indeed, it was under this rule that her claim for
Rs. 2,40,000/- was registered.
From a plain reading of Rule 22, it is clear that before a claim
for refund of money paid as consideration for the transfer by an
evacuee of any property is registered by the Custodian, he should be
satisfied : (a) that such transfer has not been confirmed under s. 40
of the Act; (b) that such transfer is a bona fide transaction; ( c) that
the amount for which the claim is being registered is proved to have
been paid as consideration for the transfer of the property.
In the instant case, the validity of the Assistant Custodian's order
dated October 1, 1954, registering the claim of Rabia Bai appears
to be unassailable because all the three conditions aforesaid to give
CUSTODIAN OF EVACUEE PROPERTY v. SMT. RABIA BAI (Sarkaria, J.) 263
authenticity to the registration of her claim were satisfied.
The sale
was not confirmed by the Custodian, but he found that the whole of
the price had actually been paid by the claimant as under :
"That by 29.4.1949, Rabia Bai had paid a sum of Rs. 1,50,000/-
to the evacuee, and by 30.5.1949, she had paid Rs. 2,10,000/-
to
the evacuee, and a further sum of Rs. 30,000/- was paid to
the
evacuee's agent on the date of registration of the document
i.e.
11.8.1949 before the Sub-Registrar." He further found that so far
as the vendee was concerned, she had purchased the property in good
faith for very valuable consideration and there was no ma/a fides on
her part. It was on these findings that he registered her claim under
Rule 22 for Rs. 2,40,000/- against "Gani Market" No. 20. Godown
Street, G. T. Madras."
Mr. S. N. Prasad, appearing for the appellants contends that the
order of the Assistant Custodian registering Rabia Bai's claim for
Rs. 2,40,000/- was a nullity because the transaction was not a bona
fide one there being lack of good faith both on the part of the vendor
and the vendee.
In any case, proceeds the argument, a sale which
is not confirmed under s. 40(4) (a) owing to the absence of good faith
either in the vendor or the vendee, cannot be deemed to be a bona fide
transaction for the purpose of registration of a claim made by the
vendee, under Rule 22.
Reference in this connection has been made
to the observations of this Court, in the judgment in the earlier appeal
of Rabia Bai arising out of the Custodian's order refusing to confirm
the sale under s. 40(4) (a) of the Act to the effect, that the vendor
had not entered into the transaction in "good faith".
The contention is misconceived and cannot be accepted. Under
s. 40 ( 4 )(a) of the Act, one of the grounds on which the Custodian
is bound to reject an application for confirmation of a transfer, is
that if in his opinion, the transaction has not been entered into in
good faith.
This clause came up for interpretation before this Court
in the earlier appeal, Rabai Bai v. Custodian General (supra). It
was held that the expression "good faith" ins. 40(4) (a) when construed in the context of s. 40 ( 1) means "that if a transaction is affected by absence of good faith either in the vendor or the vendee its
confirmation may properly be rejected under s. 40(4) (a); in other
words, good faith is required both in the vendor and vendee".
With
reference to the facts of the case, it was further observed : "Therefore the fact that the appellant paid valuable consideration for the
transaction and is not shown to have acted otherwise than in good
faith in entering into the transaction would not justify her claim for
confirmation of the said transaction if it is shown that the vendor had
not acted in good faith in entering into the said transaction. The
fact that consideration was paid by the appellant and that she was acting
in good faith may perhaps be relevant in determining the character
of her conduct in regard to the transaction, but it would not
be
relevant or material in determining the character or the conduct of
the vendor in relation to the transfer.
This position is not seriously
disputed before us."
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SUPREME COURT REPORTS
(1977) 1 S.C.R.
lt is clear that in oroer to qualify for confirmation under s. 40(4)
(a) on tne ground of good faith, a sale has to pass a much more
stnngent test than the one reqwred to hold it "a bona fide transaction"
for tne purposes of Rule 22te) (b). Wnile unuer s. 4U(4) la) mck
of good raJ.tn either in the transteror or the transferee would be sufficient
to cilsquahly the transter for confimation, the position under Rule 22
is dJ.tterent.
Under Rule 22, it is the character of the conduct of the
claimant which primarily determines the character of the transaction.
Therefore, if the vendee claimant in purchasmg the property acted in
good faith, for the purposes of Rule 22, the sale would be a bona fide
transaction, notwithstanding the fact that there was lack of good faith
on the part of the vendor.
Again, the acid test of the vendor's bona
fides under this Rule would be, whether he had purchased the property
for adequate valuable consideration ?
In the instant case, the Assistant Custodian found that this test was
amply satisfied.
This finding of fact was not-and indeed could not
be-challenged before the High Court. It is therefore too late in the
day to urge that Rabia Bai's claim was not duly registered in accordance with Rule 22.
Further question that falls to be considered is : What was the
consequence of this registration ?
According to Mr. Prasad, the registration was an administrative
act required to be done merely for a statistical purpose. Our attention has been invited to sub-rule (3) of the Rule, which provided that
"merely registration of a claim shall not entitle the claimant to
payment .... "
While it is true that mere registration of a claim under this Rule
does not ipso facto confer a right to payment, it is not correct to say
that the only purpose served by such registration is statistical
and
nothing else.
As has been discussed already, before registering a
claim the Custodian is required to determine objectively that
the
transaction is bona fide, the claimant having entered into it in good
faith on payment of adequate valuable consideration.
The determination of this preliminary fact which is an essential pre-requisite of
registration is a judicial function enjoined on the Custodian by the
statutory provision.
Registration of claim of a vendee under this
Rule, therefore, amounts to a preliminary adjudication as to the
genuineness of the claim and its eligibility for discharge under the
relevant substantive provisions of the Act.
The next question to be considered is the effect of the deletion of
r. 22 by notification dated February 20, 1957, and the omission by Act
91 of 1956 of the words "or of any amounts due to any employee of
the evacuee or of any debt due by the evacuee to any person" from s.
10(2) (m) of the Act.
It is contended by Mr. Prasad that since
registration under the deleted Rule 22 did not confer a vested right on
the claimant, the claim does not survive for consideration under s. 10
(2) of the Act.
Clause (m) of s. 10(2), according to Counsel,
would not cover the case because of deletion caused by the amending
Act 91 of 1956.
Clause (n) of s.10(2), it is maintained,
also
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CUSTODIAN OF EVACUEE PROPERTY v. SMT. RABIA BAI (Sarkaria, !.) 2 65
will be of no avail because firstly, as a result of the deletion of r. 22, the
Custodian is no longer under any legal obligation to meet the claim,
and secondly, the Custodian has no funds with him for payment of
the claim as those funds have since been transferred to the Compensation Pool formed under s. 14 of the Displaced Persons Compensation
and Rehabilitation Act 1954 (for short, the Rehabilitation Act). It
\ is contended that every penny in the Custodian's account once transferred to the Compensaition Pool, can be utilised only (a) to compensate displaced persons and (b) to compensate the evacuee according
to Indo-Pak Agreement (s.15), and that no part of the Compensation
Pool . is available to satisfy the claims 'of third parties who are neither
displaced persons, nor evacuees.
So far as the first contention relating to the effect of deletion of
r. 22 and the amendment of s.10(2) is concerned, the same is no
longer res integra.
In Raja Bhanupratap Singh v. Custodian,( 1)
a
similar argument was advanced. Shah J. (as he then was) speaking
for the Court, negatived the argument, thus :
"We are, however, unable to agree that because of the
amendment made in s.10(2) (m) and the deletion of Rule
22 the power which is vested in the Custodian under s.10(2)
(n) must be held restricted.
Sub-section (1) of s. 10 sets
out the powers of the Custodian generally, and the diverse
clauses in sub-s. (2) illustrate the specifio purposes for which
the powers may be exercised, and there is no reason
to
think that the clauses in sub-s. (2) are mutually exclusive.
If power to pay the debts was derived both under els. (m)
and (n) as it appears it was, deletion of the provision which
authorised the Custodian to pay debts due by the evacuee
to any person from cl. (m) and Rule 22 setting up the
machinery for registration of debts did not, in our judgment,
affect the power which is conferred by cl.(n) by sub-s.(2)
and also by s.10 (1 ) .
In our judgment, the power to administer is not merely a power to manage on 'behalf of the
evacuee so as to authorise the Custodian merely to recover
and collect the assets of the evacuee but to discharge his
obligations as well."
. Froll? the above enunciation, it _is clear that the substantive provis10n which empowers the Custodian to recover and preserve the
assets of the evacuee and to discharge his obligations as well is in
s. 10(1). The diverse clauses of subs s. (2) are not mutually exclusive,
and illustrate the various purposes which are included in the general
power. to administer the properties of the evacuee conferred on the
Custo~ian by sub-s.(~) of s.10.
Clause (n) of s.10(2) specifically
authonses the .cus!odrnn. to pay to "any other person as inJ the opinion
of the Custodian 1s entitled thereto any sums of money. out of the
f1,mds_in his possession." As was explained in.Bhanupratap Singh's.case
(supra), the use of the expression "in the opinion of the Custodian"
was not intended to invest the Custodian with arbitrary authority.
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~1) [1966] 1 S.C.RJ 304.
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266
SUPREME COURT REPORTS
[1977] 1 S.C.R.
In forming his opinion, he was bound to act judicially.
In
the
instant case, the Custodian had, in accordance with the machinery
provided in r. 22 for effectuating the exercise of the power conferred
by s. 10(2) (n), formed an opinion about Rabia Bai's claim being
genuine. In the exercise of that power the only thing that remained
to be done by the Custodian was to ascertain whether there were adequate "funds in his possession" to meet Rabia Bai's claim which was
a genuine liability of the evacuee.
The words "out of the funds in
his possession" in cl. (n) of s. 10(2) have reference only to the funds
relatable to the particular evacuee against whom or against
whose
property, the claim for refund is made by a claimant.
In the case
before us, it is pointed out, the property in question was fetching huge
rental income. The property was acquired under s. 12 of the Rehabilitation Act by the Government on February 24,
1961.
It was
thereafter sold by the Government on January 18, 1962 for Rs.
3,10,100/-, that is, for a consideration substantially 1 in excess
of
Rabia Bai's claim.
The sale proceeds were credited to the Compensation .Pool.
At the material time, therefore, it could not be said
that the Custodian was not possessed of sufficient funds to meet the
claim of Rabia Bai.
Section 14 of the Rehabilitation Act, which came into force on
October 9, 1954 conceives the constitution of a Compensation Pool.
It provides that such Pool shall consist of :
(a) all evacuee property acquired under s.12, including
the sale proceeds of any such property and all profits and income accruing from such property;
(b) such cash balances lying with the Custodian as may,
by order of the Central Government, be transferred
to the compensation pool;
( c) such contributions, in any form whatsoever, as may
be made to the compensation pool by the Central
Government or any State Government;
(d) such other assets as may be prescribed.
Sub-s. (2) further provides that the Compensation Pool shall vest
in the Central Government free from an encumbrances and shall be
utilised in accordance with the provisions of the Act and the rules
made thereunder.
The controversy is about the true import of the expression "cash
balances lying with the Custodian" used in cl. (b) of sub-s. ( 1) of
s. 14.
According to Mr. Prasad "such cash balances" will cover all funds
in their entirety lying in the deposit account of the Custodian which
may be transferred by an order of the Central Government to the
Compensation Pool.
In our opinion, the expression "such cash barlances"
used in
s. 14(1)(b) cannot be interpreted so as to cover total cash depooi:ts.
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CUSTODIAN OF EVACUEE PROPERTY v. SMT. RABIA BAI (Sarkaria, J 2 6 7
with the Custodian.
The use of the word "balances" is significant.
The connotation of the term "balances" is well known.
According
to Websters' Dictionary, it means "the difference, if any, between the
debit and credit side of an account."
It is the result of a comparative
reckoning.
The expression "cash balances" in clause (b) therefore,
has to be construed as the excess of credits over debits.
The word
"balances" appears to ha,vie been advisedly used in preferellce to
"deposits" because the intention was that ionly that much amount
in deposit with the Custodian should be transferred to the Compensation
Pool which would be in excess of the amounts required for meeting
the due claims against the evacuees or their properties.
It is thus
clear that what can be directed to be transferred to the Compensation Pool by the Government under s. 14( 1) (b) is the "cash balances"
and not the total cash deposits with the Custodian.
The above being the legal position, it is to be seen as to what was
actually directed to be transferred to the Compensation Pool.
The
first order of such transfer made by the Central Government is dated
March 19, 1956.
It purports to have been issued under s.14(1)(b)
of the Rehabilitation Act.
Thereby the Government directed that
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