# SURESH CHAND AND ANR v. SURESH CHANDER (D) THR LRS. AND ORS

- **Citation:** [2020] 3 S.C.R. 891
- **Court:** Supreme Court of India
- **Decided:** 2020-02-19
- **Case number:** Civil Appeal No. 482 of 2020
- **Bench:** Dr. Dhananjaya Y. Chandrachud, Ajay Rastogi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/suresh-chand-and-anr-v-suresh-chander-d-thr-lrs-and-ors-34391
- **Pages:** 22

## Headnote

Rajasthan Pre-emption Act 1966: ss. 6, 5 - Right of preemption - When accrues - Held: Right of pre-emption is a
preferential right to acquire the property by substituting the original
vendee - Transfer or sale of an immovable property is a condition
precedent to the enforceability of the right - Right of pre-emption is
attached to the property and only on that footing it can be enforced
against the vendee - Though the right is recognised by law, yet it
can be rendered imperfect by the vendor when he transfers the
property to another person who also has a superior right to
pre-emptor - On facts, plaintiff and second defendant were brothers
in joint possession of courtyard having half share each and second
defendant sold house alongwith courtyard to first defendant - As
regards plaintiff's claim for right of pre-emption, plaintiff had a
superior right of pre-emption by virtue of s. 6(3) since he was the
brother of the second defendant and first defendant has an inferior
right of pre-emption as compared to plaintiff, hence his claim cannot
prevail over the superior right of pre-emption of plaintiff - Courts
below rightly proceeded on a correct interpretation of the provisions.
Dismissing the appeal, the Court
HELD: 1.1 Section 5 of the Rajasthan Pre-emption Act,
1966 provides for cases in which the right of pre-emption does
not accrue. As a result of Section 5(1)(c), the right of pre-emption
does not accrue on a transfer of the property to any of the persons
mentioned in Section 6, to any person who has an equal or inferior
right of pre-emption. In a case, where a transfer is to a person
mentioned in Section 6, the right of pre-emption does not accrue
to any person who has an equal or inferior right of pre-emption.
In other words, in a case where the vendee also has a right of
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pre-emption u/s. 6, the right of pre-emption will accrue only to a
person with a superior right of pre-emption. [Para 11][898 A-C]
1.2 Section 6(1) specifies the persons to whom the right of
pre-emption accrues. Under Section 6(1)(ii), a right of
pre-emption accrues in respect of an immovable property to
owners of other immovable property with a stair-case, entrance
or other right or amenity common to such property and the
property that is transferred. Where a right of pre-emption enures
to the benefit of a person under the provisions of s. 6(1)(ii), a
consequence emanates in terms of s. 5(1)(c). The effect of s. 5(1)(c)
is that a right of pre-emption does not accrue, on a transfer to
any person mentioned in s. 6, to any person who has an equal or
inferior right of pre-emption. Where a transfer is to any of the
persons mentioned u/s. 6, the right of pre-emption to the claimant
accrues only if the claimant has a superior right. The right of
pre-emption, as Section 4 indicates, is subject to the provisions
of Section 5. Consequently, where any of the provisions of Section
5 come into operation, the right of pre-emption would not be
available. [Paras 12, 13][898-C, G-H; 899 A-C]
1.3 The right of pre-emption is a preferential right to acquire
the property by substituting the original vendee. The transfer or
sale of an immovable property is a condition precedent to the
enforceability of the right. The right of pre-emption is attached
to the property and only on that footing can it be enforced against
the vendee. Though the right is recognised by law, yet it can be
rendered imperfect by the vendor when he transfers the property
to another person who also has a superior right to the pre-emptor.
[Para 15]
1.4 In the instant case, it has come on the record before
the trial court that DC, the predecessor of the appellants, had a
pre-existing right in respect of the amenity of the common
courtyard or sahan. This was admitted in the written statement
filed by BP in the Suit. PW 1 during his cross-examination was
confronted with the above written statement. What emerges from
the above adm

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SURESH CHAND AND ANR.
v.
SURESH CHANDER (D) THR LRS. AND ORS.
(Civil Appeal No. 482 of 2020)
FEBRUARY 19, 2020
[DR. DHANANJAYA Y. CHANDRACHUD AND
AJAY RASTOGI, JJ. ]
Rajasthan Pre-emption Act 1966: ss. 6, 5 - Right of preemption - When accrues - Held: Right of pre-emption is a
preferential right to acquire the property by substituting the original
vendee - Transfer or sale of an immovable property is a condition
precedent to the enforceability of the right - Right of pre-emption is
attached to the property and only on that footing it can be enforced
against the vendee - Though the right is recognised by law, yet it
can be rendered imperfect by the vendor when he transfers the
property to another person who also has a superior right to
pre-emptor - On facts, plaintiff and second defendant were brothers
in joint possession of courtyard having half share each and second
defendant sold house alongwith courtyard to first defendant - As
regards plaintiff's claim for right of pre-emption, plaintiff had a
superior right of pre-emption by virtue of s. 6(3) since he was the
brother of the second defendant and first defendant has an inferior
right of pre-emption as compared to plaintiff, hence his claim cannot
prevail over the superior right of pre-emption of plaintiff - Courts
below rightly proceeded on a correct interpretation of the provisions.
Dismissing the appeal, the Court
HELD: 1.1 Section 5 of the Rajasthan Pre-emption Act,
1966 provides for cases in which the right of pre-emption does
not accrue. As a result of Section 5(1)(c), the right of pre-emption
does not accrue on a transfer of the property to any of the persons
mentioned in Section 6, to any person who has an equal or inferior
right of pre-emption. In a case, where a transfer is to a person
mentioned in Section 6, the right of pre-emption does not accrue
to any person who has an equal or inferior right of pre-emption.
In other words, in a case where the vendee also has a right of
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pre-emption u/s. 6, the right of pre-emption will accrue only to a
person with a superior right of pre-emption. [Para 11][898 A-C]
1.2 Section 6(1) specifies the persons to whom the right of
pre-emption accrues. Under Section 6(1)(ii), a right of
pre-emption accrues in respect of an immovable property to
owners of other immovable property with a stair-case, entrance
or other right or amenity common to such property and the
property that is transferred. Where a right of pre-emption enures
to the benefit of a person under the provisions of s. 6(1)(ii), a
consequence emanates in terms of s. 5(1)(c). The effect of s. 5(1)(c)
is that a right of pre-emption does not accrue, on a transfer to
any person mentioned in s. 6, to any person who has an equal or
inferior right of pre-emption. Where a transfer is to any of the
persons mentioned u/s. 6, the right of pre-emption to the claimant
accrues only if the claimant has a superior right. The right of
pre-emption, as Section 4 indicates, is subject to the provisions
of Section 5. Consequently, where any of the provisions of Section
5 come into operation, the right of pre-emption would not be
available. [Paras 12, 13][898-C, G-H; 899 A-C]
1.3 The right of pre-emption is a preferential right to acquire
the property by substituting the original vendee. The transfer or
sale of an immovable property is a condition precedent to the
enforceability of the right. The right of pre-emption is attached
to the property and only on that footing can it be enforced against
the vendee. Though the right is recognised by law, yet it can be
rendered imperfect by the vendor when he transfers the property
to another person who also has a superior right to the pre-emptor.
[Para 15]
1.4 In the instant case, it has come on the record before
the trial court that DC, the predecessor of the appellants, had a
pre-existing right in respect of the amenity of the common
courtyard or sahan. This was admitted in the written statement
filed by BP in the Suit. PW 1 during his cross-examination was
confronted with the above written statement. What emerges from
the above admission is that DC had a right in common in respect
of the amenity of the courtyard. During the course of proceedings
before this Court, it was admitted that the courtyard was shared
between BP and DC. Therefore, both their rights would fall within
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the ambit of the provisions of Section 6(1)(ii). In terms of the
provisions of s. 5(1)(c), the right of pre-emption would not accrue
to any person with an equal or inferior right of pre-emption. KL
executed a sale deed in favour of DC who within the meaning of
s. 6(1)(ii) had a right of pre-emption. But the right of pre-emption
of DC was inferior to the right which was claimed by BP as the
brother of KL, DC right u/s. 6(ii) was subject to a superior right
of BP by virtue of s. 6(3). Section 6(3) states that even among
persons of the same class, the nearer in relationship to the person
whose property is transferred excludes the more remote. [Para
16][900 D-H; 901 A-C]
1.5 It was submitted that the comma appearing in s. 5(1)(c)
should be read as "or" and the Section must be interpreted
disjunctive; that s. 5(1)(c) should be read as "the right of preemption shall not accrue... on a transfer to any of the persons
mentioned in s. 6" or "the right of pre-emption shall not accrue...
to any person who has an equal or inferior right of pre-emption";
that the plaintiff-BP would not be covered by the first part as the
first defendant-DC would be covered by s. 6(1)(ii) and the second
part would not apply to the plaintiff as he only has an inferior
right of pre-emption against the defendant; that the plaintiff cannot
claim any right of pre-emption where a transfer is affected by a
person who is covered by any of the clauses of Section 6. However,
the disjunctive interpretation of Section 5(1)(c) as suggested
cannot be countenanced in view of the plain text of the provision.
Reading the provision in a manner as suggested would amount
to an exercise of legislative re-drafting. This is impermissible.
[Para 17][901 B-F]
1.6 The two segments of s.5(1)(c) are that the first segment
contains the words "on a transfer to any of the persons mentioned
in s. 6; and the second segment comprises of the words "to any
person who has an equal or inferior right of pre-emption". Both
segments are separated by a comma and refer to two separate
sets of persons. In the first segment the expression "any of the
persons" refers to the vendee. In the second segment, the
expression "any person" refers to the claimant. In the instant
case, the plaintiff-BP had a superior right of pre-emption by virtue
of the provisions of Section 6(3) since he was the brother of the
SURESH CHAND AND ANR. v. SURESH CHANDER (D) THR.
LRS. AND ORS.
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second defendant. DC has an inferior right of pre-emption as
compared to BP. Hence his claim cannot prevail over the superior
right of pre-emption of BP. The concurrent findings of the trial
judge, first appellate court and in second appeal, have proceeded
on a correct interpretation of the provisions. [Paras 18, 19]
[901 F-H; 902 A-C]
Bishan Singh v. Khazan Singh AIR 1958 SC 838;
Radhakisan Laxminarayan Toshniwal v. Shridhar
Ramchandra Alshi AIR 1960 SC 1368 - referred to.
Case Law Reference
AIR 1958 SC 838
referred to
Para 14
AIR 1960 SC 1368
referred to
Para 14
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 482 of
2020.
From the Judgment and Order dated 26.11.2010 of the High Court
of Judicature for Rajasthan, Jaipur Bench in S.B. Civil Second Appeal
No. 395 of 2008.
Puneet Jain, Ms. Christi Jain, Abhinav Deshwal, Harshit Khanduja,
Harsh Jain, Ms. Pratibha Jain, Advs. for the Appellants.
S.K. Sinha, Ms. Seema Kashyap, Advs. for the Respondents.
The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
1. Leave granted.
2. This appeal arises from a judgment and order of the High Court
of Judicature of Rajasthan at Jaipur in a second appeal under Section
100 of the Code of Civil Procedure 1908.
3. The issue in the present appeal is whether a right of pre-emption
was available to Beni Prasad who is alleged to be a joint owner in
possession of the disputed courtyard. This has arisen in the context of
the Rajasthan Pre-emption Act 19661. Briefly stated, the facts which
have given rise to the present appeal are thus: A suit2 for pre-emption
was instituted by Beni Prasad in the Court of the Civil Judge, Senior
Division, Badi, District Dholpur in Rajasthan. Beni Prasad died during
1 "the Act"
2 Civil Suit Case No 71 of 1993
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the pendency of the proceedings and is represented by respondents 1 to
13. Beni Prasad and Kirorilal were brothers. Beni Prasad filed the suit
for pre-emption, against Devicharan who was impleaded as the first
defendant and Kirorilal who was impleaded as the second defendant.The
appellants in the present appeal are the sons of Devicharan. A sale deed
was executed on 6 January 1990 by Kirorilal in favour of Devicharan by
which Kirorilal sold his house along with the disputed courtyard to
Devicharan. The basis of the suit was that Beni Prasad and Kirorilal, as
brothers were joint owners in possession of the disputed courtyard having
a half share each. It was argued that the plaintiff in his capacity as the
brother of the second defendant, had a right of pre-emption which would
prevail against the first defendant, in regard to the purchase of the house
and the courtyardfrom the second defendant. The suit was contested by
the defendants who filed their written statements. The defence was that
the original owners of the property Pyare Lal and Baboo Lal had sold
the disputed house to Prabhu Lal, who was the father of the original
plaintiff and the second defendant. In the written statement, a plea was
taken that on 17 January 1956, a partition had been effected between
the members of the family as a consequence of which, the second
defendant was allotted the disputed house and the courtyard and the
original plaintiff was allotted another property.
4. The Trial Court framed several issues of which specifically
issues (iii), (iv) and (vi) have a bearing on the subject matter of the
present appeal. Issues (iii), (iv) and (vi) read as follows:
"iii) Whether, the plaintiff has the right of pre-emption in the sale
deed dated 6th of January, 1990.
iv) Whether, there is common entrance to the ancestral house of
the defendant no.1 and house purchased by the defendant no.1
from the defendant no. 2. If yes, then what is its effect on the
suit.
vi) Whether, the defendant no.1 is also a sharer in the disputed
courtyard and he was vested with the right of pre-emption/prior
purchase right in respect of the disputed house."
5. Before the Trial Court, the submission which was urged on
behalf of the defendants was that the first defendant, Devicharan himself
had a share in the disputed property and was vested with a right of
pre-emption. In support of the claim of Devicharan to the use of the
SURESH CHAND AND ANR. v. SURESH CHANDER (D) THR.
LRS. AND ORS. [DR. DHANANJAYA Y CHANDRACHUD, J.]
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common amenity as a courtyard, reliance was placed on a written
statement (Exhibit A2) filed on 15 February 1982 and 17 February 1982
by Beni Prasad in another suit instituted against him by his brother
Kirorilal. In the course of his written statement, Beni Prasad stated that
Devicharan was also the owner of the disputed courtyard. During the
course of the cross-examination in the suit out of which these proceedings
arise, PW 1, who deposed in evidence, was confronted with the abovementioned written statement. The Trial Judge, in the course of the
judgment, recorded that PW 1 had stated that whatever had been set
out in the written statement filed by his father would have been correct.
On the basis of the admission contained in the written statement in the
suit of 1980, it was urged on behalf of the appellants that Devicharan
had an interest in the courtyard which was a common amenity. The
legal consequence of this would be that Devicharan also had a right of
pre-emption. Hence, the submission was that a right of pre-emption would
not be available to Beni Prasad against another holder of the right of
pre-emption, equal or inferior. This submission was rejected by the learned
Trial Judge as below:
"If by way of an argument it may be assumed that Devicharan
was vested with the right of transmigration through the said
courtyard, even then as compared to the plaintiff, his right of preemption is at lesser level. In this way both of these issues are
decided in favour of the plaintiffs and against the defendants."
6. The suit was decreed by the Trial Court. The above finding
was affirmed in first appeal. The first appellate court adverted to the
written statement (Exhibit A2), which was filed by Beni Prasad in the
earlier suit of 1980.However, the appellate court held that notwithstanding
the fact that Devicharan had a right of passage through the disputed
courtyard, the plaintiff, who was the brother of Kirorilal, had a better or
a higher right as compared to Devicharan since Kirorilal and Beni Prasad
were brothers. The first appeal was dismissed.
7. The High Court has dismissed the second appeal in limine
holding that no substantial question of law arose for its consideration.
8. Assailing the judgment of the High Court, Mr Puneet Jain,
learned counsel appearing on behalf of the appellants, submitted that:
(i)
The provisions of Sections 4, 5(1)(c) and 6(1)(ii) of the Act
indicate that a right of pre-emption is not available when the
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person to whom the property has been sold by the vendor is
an individual who has a right of pre-emption whether equal
or inferior; and
(ii) Pre-emption is a weak form of a right and the legislature, in
the present case, has indicated that the right would not be
available where the property is sold to a person who is seized
of such a right. In other words, it was urged that whether the
right of pre-emption available to Devicharan is equal or inferior
would be a matter of no relevance having regard to the
provisions of Section 5(1)(c).
9. On the other hand, it was urged on behalf of the respondents
by Mr S K Sinha, learned counsel, that both the Trial Court and the
appellate court came to the conclusion that Beni Prasad and Kirorilal
were brothers. Consequently, the assertion by Beni Prasad of a right of
pre-emption, when Kirorilal purported to sell the property on 6 January
1990 to Devicharan, has to be valid. Learned counsel submitted that in
the event that the claim of the appellants is accepted in terms of the sale
deed, a situation may occur by which the respondents are deprived of
the use of the common amenity of the disputed courtyard.
10. In assessing the rival submissions, it is necessary to analyse
the provisions of the Act. Section 4 is in the following terms:
"4 Cases in which right of pre-emption accrues. Subject to
the provisions contained in section 5, the right of pre-emption
shall, upon the transfer of any immovable property, accrue
to the persons mentioned in section 6."
The right of pre-emption accrues on the transfer of any immovable
property to the classes of persons mentioned in Section 6. But the opening
words of Section 4 indicate that the right of pre-emption which accrues
under Section 6 is subject to Section 5.
11. Section 5 provides for cases in which the right of pre-emption
does not accrue. For the purposes of the present appeal, clause (c) of
sub-section (1) of Section 5, which is relevant, provides as follows:
"5. Case in which right of pre-emption does not accrue - (1) The
right of pre-emption shall not accrue -
(a) ***
(b) ***
SURESH CHAND AND ANR. v. SURESH CHANDER (D) THR.
LRS. AND ORS. [DR. DHANANJAYA Y CHANDRACHUD, J.]
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(c) on a transfer to any of the persons mentioned in section 6, to
any person who has an equal or inferior right of pre-emption;"
As a result of Section 5(1)(c), the right of pre-emption does not
accrue on a transfer of the property to any of the persons mentioned in
Section 6, to any person who has an equal or inferior right of pre-emption.
In a case, where a transfer is to a person mentioned in Section 6, the
right of pre-emption does not accrue to any person who has an equal or
inferior right of pre-emption. In other words, in a case where the vendee
also has a right of pre-emption under Section 6, the right of pre-emption
will accrue only to a person with a superior right of pre-emption.
12. Section 6(1) specifies the persons to whom the right of preemption accrues. Section 6(1)(ii) is in the following terms:
"6. Persons to whom right of pre-emption accrues - (1) Subject
to the other provisions of this Act, the right of pre-emption in
respect of any immovable property transferred shall accrue to,
and vest in, the following classes of persons, namely:
...
(ii) owners of other immovable property with a stair-case or an
entrance or other right or amenity common to such other property
and the property transferred,"
Sub-sections (2) and (3) of Section 6 are as follows:
"(2) Among the different classes of persons mentioned in
sub-section (1), persons of the first class will exclude those of the
other classes, persons of the second class will exclude those of
the third class.
(3) Among persons of the same class claiming the right of
pre-emption, he person nearer in relationship to the person whose
property is transferred will exclude the more remote."
13. Under Section 6(1)(ii), a right of pre-emption accrues in respect
of an immovable property to owners of other immovable property with a
stair-case, entrance or other right or amenity common to such property
and the property that is transferred. Where a right of pre-emption enures
to the benefit of a person under the provisions of Section 6(1)(ii), a
consequence emanates in terms of Section 5(1)(c).The effect of Section
5(1)(c) is that a right of pre-emption does not accrue, on a transfer to
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any person mentioned in Section 6, to any person who has an equal or
inferior right of pre-emption. In other words, where a transfer is to any
of the persons mentioned under Section 6, the right of pre-emption to the
claimant accrues only if the claimant has a superior right. The right of
pre-emption, as Section 4 indicates, is subject to the provisions of Section
5. Consequently, where any of the provisions of Section 5 come into
operation, the right of pre-emption would not be available.
14. In a fourjudge Bench decision of this Court in Bishan
Singh v Khazan Singh3, Justice Subba Rao (as the learned Chief Justice
then was), while dealing with the provisions of the Punjab Pre-Emption
Act 1913, summarised the law on pre-emption as follows:
"11. The plaintiff is bound to show not only that his right is as
good as that of the vendee but that it is superior to that of the
vendee. Decided cases have recognized that this superior
right must subsist at the time the pre-emptor exercises
his right and that that right is lost if by that time another
person with equal or superior right has been substituted in
place of the original vendee. Courts have not looked upon
this right with great favour, presumably, for the reason that
it operates as a clog on the right of the owner to alienate
his property. The vendor and the vendee are, therefore,
permitted to avoid accrual of the right of pre-emption by all
lawful means.The vendee may defeat the right by selling
the property to a rival pre-emptor with preferential or equal
right. To summarize: (1) The right of pre-emption is not a right to
the thing sold but a right to the offer of a thing about to be sold.
This right is called the primary or inherent right. (2) The
pre-emptor has a secondary right or a remedial right to follow the
thing sold. (3) It is a right of substitution but not of re-purchase
i.e., the pre-emptor takes the entire bargain and steps into the
shoes of the original vendee. (4) It is a right to acquire the whole
of the property sold and not a share of the property sold. (5)
Preference being the essence of the right, the plaintiff must
have a superior right to that of the vendee or the person
substituted in his place. (6) The right being a very weak
right, it can be defeated by all legitimate methods, such as
3 AIR 1958 SC 838
SURESH CHAND AND ANR. v. SURESH CHANDER (D) THR.
LRS. AND ORS. [DR. DHANANJAYA Y CHANDRACHUD, J.]
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the vendee allowing the claimant of a superior or equal right
being substituted in his place."
(Emphasis supplied)
In a Constitution Bench decision of this Court in Radhakisan
Laxminarayan Toshniwal v Shridhar Ramchandra Alshi4, this Court
dealt with the question whether a suit for pre-emption could be filed
prior to execution of the sale deed. Justice J L Kapur, speaking for this
Court held thus:
"13. ...The right to pre-empt the sale is not exercisable till a preemptible transfer has been effected and the right of pre-emption
is not one which is looked upon with great favour by the
courts presumably for the reason that it is in derogation of
the right of the owner to alienate his property. It is neither
illegal nor fraudulent for parties to a transfer to avoid and
defeat a claim for pre-emption by all legitimate means..."
(Emphasis supplied)
15. The right of pre-emption is a preferential right to acquire the
property by substituting the original vendee. The transfer or sale of an
immovable property is a condition precedent to the enforceability of the
right. The right of pre-emption is attached to the property and only on
that footing can it be enforced against the vendee. Though the right is
recognised by law, yet it can be rendered imperfect by the vendor when
he transfers the property to another person who also has a superior right
to the plaintiff pre-emptor.
16. In the present case, it has come on the record before the Trial
Court that Devicharan, the predecessor of the appellants, had a
pre-existing right in respect of the amenity of the common courtyard or
sahan. This was admitted in the written statement filed by Beni Prasad
in Suit 43 of 1980. PW 1 during his cross-examination was confronted
with the above written statement.What emerges from the above
admission is that Devicharan had a right in common in respect of the
amenity of the courtyard. During the course of proceedings before this
Court, it was admitted that the courtyard was shared between Beni
Prasad and Devicharan. Therefore, both their rights would fall within
the ambit of the provisions of Section 6(1)(ii). In terms of the provisions
4 AIR 1960 SC 1368
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of Section 5(1)(c), the right of pre-emption would not accrue to any
person with an equal or inferior right of pre-emption. Kirorilal executed
a sale deed on 6 January 1990 in favour of Devicharan who within the
meaning of Section 6(1)(ii) had a right of pre-emption. But the right of
pre-emption of Devicharan was inferior to the right which was claimed
by Beni Prasad as the brother of Kirorilal. Devicharan's right under
Section 6(ii) was subject to a superior right of Beni Prasad by virtue of
Section 6(3). Section 6(3) states that even among persons of the same
class,the nearer in relationship to the person whose property is transferred
excludes the more remote.
17. During the course of the arguments, Mr Puneet Jain, learned
counsel for the appellants has raised an argument that the comma
appearing in Section 5(1)(c) should be read as "or" and the Section must
be interpreted disjunctively. It is argued that Section 5(1)(c) should be
read as "the right of pre-emption shall not accrue... on a transfer to any
of the persons mentioned in Section 6" or "the right of pre-emption shall
not accrue... to any person who has an equal or inferior right of
pre-emption". It is urged that the plaintiff (Beni Prasad) would not be
covered by the first part as the first defendant (Devicharan) would be
covered by Section 6(1)(ii) and the second part would not apply to the
plaintiff as he only has an inferior right of pre-emption against the
defendant. It is submitted that the plaintiff cannot claim any right of preemption where a transfer is affected by a person who is covered by any
of the clauses of Section 6. However, the disjunctive interpretation of
Section 5(1)(c) as suggested by the counsel of the appellants cannot be
countenanced in view of the plain text of the provision. Reading the
provision in a manner as suggested would amount to an exercise of
legislative re-drafting. This is impermissible.
18. The two segments of Section 5(1)(c) are as follows:
(i) The first segment contains the words "on a transfer to any of
the persons mentioned in Section 6; and
(ii) The second segment comprises of the words "to any person
who has an equal or inferior right of pre-emption".
Both segments are separated by a comma and refer to two
separate sets of persons. In the first segment the expression "any of the
persons" refers to the vendee. In the second segment, the expression
"any person" refers to the claimant. In the present case, the plaintiff
SURESH CHAND AND ANR. v. SURESH CHANDER (D) THR.
LRS. AND ORS. [DR. DHANANJAYA Y CHANDRACHUD, J.]
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(Beni Prasad) had a superior right of pre-emption by virtue of the
provisions of Section 6(3) since he was the brother of the second
defendant. Devicharan has an inferior right of pre-emption as compared
to Beni Prasad. Hence his claim cannot prevail over the superior right of
pre-emption of Beni Prasad.
19. For the above reasons, we are of the view that the concurrent
findings of the Trial Judge, the first appellate court and in second appeal,
have proceeded on a correct interpretation of the provisions noticed
above.
20. We accordingly dismiss the appeal. However, there shall be
no order as to costs.
Nidhi Jain
Appeal dismissed.
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OSIANS CONNOISSEURS OF ART PVT. LTD.
v.
SECURITIES AND EXCHANGE BOARD OF INDIA & ANR.
(Civil Appeal No. 54 of 2016)
FEBRUARY 12, 2020
[R. F. NARIMAN, S. RAVINDRA BHAT AND
V. RAMASUBRAMANIAN, JJ ]
Securities and Exchange Board of India Act, 1992: ss. 11AA,
12(1B) - SEBI (Collective Investment Scheme) Regulations, 1999 -
Regn 3, Regn 2(h) - Collective Investment Scheme (CIS) - Creation
of trust fund by the appellant-trustees - Appellants told by SEBI
that these Funds being CIS, they should apply for certificates of
registration for these Funds, to which the appellants denied since
they were not registered in the form of a company - Thereafter,
issuance of notice by SEBI - Order by SEBI that the trust funds
shall abstain from collecting any money from the investors or carry
out any CIS and refund the entire monies collected by it under its
scheme to all the investors - Matter disposed of by the Appellate
Tribunal - On appeal held: Statutory scheme under the CIS
Regulations is that, if a CIS, as defined u/Regn 2(h), is to be floated
by a person, it could only be done in the form of a collective
investment management company and in no other form - Collective
investment scheme being carried on by the appellants in the form of
a private Trust would be in the teeth of the Statute read with CIS
Regulations and thus, illegal - In view of the long pendency,
issuance of direction to appellant to pay back the principal amount
with interest to each investor within the stipulated period.
Disposing of the appeals, the Court
HELD: 1. It would not be possible to state that the Schemes
in the instant case would not be Collective Investment Schemes.
It is difficult, therefore, to interfere with the concurrent findings
made in this behalf by both SEBI and the Appellate Tribunal. In
1995, Section 12(1B) of the SEBI Act was introduced, by which it
became clear that no person can sponsor or cause to be
sponsored or carry on or cause to be carried on any collective
investment scheme unless he obtains a certificate of registration
[2020] 3 S.C.R. 903
903
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from the Board in accordance with the regulations. It is important
to notice that the expression "person" is used by Section 12(1B).
However, in 1999, by amendment, Section 11AA was introduced
which defines Collective Investment Scheme. [Para 13]
[900 D-H]
2. The statutory scheme under the CIS Regulations is that,
if a Collective Investment Scheme, as defined under Regulation
2(h), is to be floated by a person, it could only be done in the form
of a collective investment management company and in no other
form. This is the reason why Section 11AA uses the expression
"company" in sub-Section (2) and not the word "person" (as the
CIS Regulations of 1999 had come into force on 15.10.1999;
Section 11AA came into force on 22.02.2000). Once the statutory
scheme becomes clear, it is clear that the Collective Investment
Scheme that was being carried on by the appellants in the form of
a private Trust would be in the teeth of the Statute read with the
CIS Regulations and would thus be illegal. Thus, it is difficult to
upset any part of SEBI's order that remains after the penultimate
part of the order was set aside by the Appellate Tribunal. However,
this litigation is going on for a long period of time and instead of
remanding the matter to SEBI to decide the refund issue afresh,
the principal amount repayable to each investor of both the
Schemes shall be paid back with 10 per cent interest within the
stipulated period. [Paras 15, 16, 17, 18][911 A-E]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 54 of
2016.
From the Judgment and Order dated 13.10.2015 of the Securities
Appellate Tribunal, Mumbai in Appeal No. 62 of 2013.
With
C. A. No. 19936/2017 and 77/2018.
A.N.S. Nadkarni, ASG, Nakul Dewan, Sr. Adv., Moazzam Khan,
Ms. Shweta Sahu, Brijesh Ujjainwal, Akshat Goel, M/s. Lex-peritia and
Co., Ms. Shirin Khajuria, Shekhar Vyas and Kunal Chatterji, Advs. for
the Appellant.
Chander Uday Singh, Sr. Adv., Siddharth Dias, Devansh Gandhi,
Puneet Sharma, Pratap Venugopal, Ms. Surekha Raman, Ms. Viddusshi,
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Ms. Ayushi Gaur, Akhil Abraham Roy, Vijay Valsan and M/s. K J John
and Co., Advs. for the Respondents.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
CIVIL APPEAL NO. 54 OF 2016
1. Learned senior counsel appearing for the appellant seeks
permission of the Court to withdraw the civil appeal.
2. The civil appeal is allowed to be withdrawn.
CIVIL APPEAL NO. 19936 OF 2017
3. The brief facts leading to the filing of the present civil
appeal are as follows:
4. Two trusts named Yatra Art Fund Trust (Fund I) and Yatra Art
Fund II (Fund II) were created under the Indian Trusts Act, 1882, through
execution of Indentures of Trust dated 15.06.2005 and 01.12.2006.
5. A perusal of the trust deed shows that both these trust Funds
were created for an initial period of 4-41⁄2 years, the first Fund ending,
after extension of one year, on 15.09.2011. Insofar as the second Trust
Fund is concerned, this Trust Fund was also extended and ended on
31.01.2012. It may also be mentioned that these Trusts Funds were
established so that investors could invest in works of art. In the
Confidential Information Memorandum, it was made clear to the investors
that these were investments which were fraught with grave risks and
that the investors invest in these Trust Funds with open eyes knowing of
the aforesaid risks.
6. So far as the first Fund was concerned, a total corpus amounting
to Rs.10.95 crores was collected from the investors. We are informed
that 50 such investors invested in this Fund. So far as the second Fund is
concerned, the total corpus was Rs.21.92 crores, with 132 persons having
so invested.
7. On 18.06.2007, the Securities and Exchange Board of India
(hereinafter referred to as 'SEBI') first apprised the appellants, who
are the trustees of these two Trusts Funds stating that, as these Funds
were Collective Investment Schemes, they should apply for certificates
of registration insofar as these Funds were concerned. This was
OSIANS CONNOISSEURS OF ART PVT. LTD. v .SECURITIES AND
EXCHANGE BOARD OF INDIA & ANR.
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responded to by Fund I on 16.07.2007, denying that the activities would
amount to the activities of a Collective Investment Scheme. As a result
thereof, on 12.10.2007, SEBI issued a Show Cause Notice to show cause
as to why the Yatra Art Fund should not register itself with SEBI in the
prescribed corporate form, as otherwise the collective investment scheme
carried out by the Trust would be illegal. The show cause notice also
mentioned that all amounts collected should be refunded within a period
of 30 days from the said show cause notice. On 05.11.2007, the appellants
responded to the aforesaid show cause notice stating that there was no
violation of Section 12 (1B) of the Securities and Exchange Board of
India Act, 1992 (hereinafter referred to as 'SEBI Act') read with
Regulation 3 of SEBI (Collective Investment Scheme) Regulations, 1999
(hereinafter referred to as 'CIS Regulations'); and as the appellants
were not registered in the form of a company, the Regulations themselves
would not apply. Secondly, detailed arguments were made as to why the
schemes involved could not be said to be collective investment schemes.
One year later, on 03.11.2008, a joint representation to SEBI was made
stating that the aforesaid schemes floated by the appellants were not
collective investment schemes, reiterating that they were not made in
the corporate form.
8. It appears that, at this point of time, SEBI itself was unsure as
to whether such funds would amount to collective investment schemes.
However, in 2013, the matter was resuscitated and after giving the
appellants a hearing, inasmuch as as many as nine investors complained
with regard to Trust Fund No.2, including an Investors' Association, an
order was delivered by the whole-time member of SEBI on 06.11.2015
as follows:
"29. In view of the foregoing, I, in exercise of the powers conferred
upon me under Section 19 of the Securities and Exchange Board
of India Act, 1992 read with Sections 11 and 11B thereof and
Regulation 65 of the SEBI (Collective Investment Scheme)
Regulation, 1999, hereby issue the following directions:
a. Yatra Art fund shall abstain from collecting any money from
the investors or launch or carry out any Collective Investment
Schemes including the scheme which have been identified as a
Collective Investment Scheme in this Order.
b. Yatra Art Fund is directed to refund the entire monies collected
by it under its scheme to all the investors along with the returns at
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the rate of 10% per annum, within a period of three months from
the date of this Order and thereafter, within a period of fifteen
days, submit a winding up and repayment report to SEBI in
accordance with the SEBI (Collective Investment Schemes)
Regulations, 1999, including the trail of funds claimed to be
refunded, bank account statements indicating refund to the
investors and receipt from the investors acknowledging such
refunds.
c. Yatra Art Fund is restrained from accessing the securities market
and are prohibited from buying, selling or otherwise dealing in
securities market for a period of four (4) years.
d. Yatra Art Fund is also directed to immediately submit the
complete and detailed inventory of the assets owned by Yatra Art
Fund.
e. In the event of failure by Yatra Art Fund to comply with the
above directions, the following actions shall follow:
- Yatra Art Fund shall remain restrained from accessing the
securities market and would furhter be prohibited from buying,
selling or otherwise dealing in securities, even after the period of
four (4) years of restraint imposed in Paragraph 29(c) above, till
all the monies mobilized through such schemes are refunded to its
investors with interest, which are due to them.
- SEBI would make a reference to the State Government/Local
Police to register a civil/criminal case against Yatra Art Fund, its
promoters, directors and its managers/ persons in-charge of the
business and its schemes, for offences of fraud, cheating, criminal
breach of trust and misappropriation of public funds; and
- SEBI shall also initiate attachment and recovery proceedings
under the SEBI Act and rules and regulations framed thereunder."
9. An appeal was carried to the Securities Appellate Tribunal,
which was then disposed of on 21.08.2017, following the Appellate
Tribunal's judgment dated 13.10.2015 in Osian's - Connoisseurs of
Art Private Limited v. Securities and Exchange Board of India &
Anr. It may be pointed out that the Appellate Tribunal set aside the
paragraphs of the SEBI's order which required the State Government
to make a reference to register civil/criminal cases against the Fund and
OSIANS CONNOISSEURS OF ART PVT. LTD. v .SECURITIES AND
EXCHANGE BOARD OF INDIA & ANR. [R. F. NARIMAN, J.]
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initiate attachment and recovery proceedings under the SEBI Act
and Rules and Regulations. However, insofar as paragraph 29 (b) set
out hereinabove of SEBI's order was concerned, the Appellate Tribunal
remanded the matter to SEBI, adopting the reasoning contained in the
earlier Tribunal judgment of 13.10.2015 as follows:
".......................................................................................
..........................................................................................
For the reasons stated in our order in Appeal No. 62 of 2013
decided on October 13, 2015 the present appeals are disposed of
in terms set out therein"
Having heard Shri K.V. Vishwanathan, learned senior counsel
appearing for the appellants and Shri C. U. Singh, learned senior counsel
appearing for the respondent-SEBI, for some time, it would not be possible
to state that the Schemes in the present case would not be Collective
Investment Schemes. It is difficult, therefore, to interfere with the
concurrent findings made in this behalf by both SEBI and the Appellate
Tribunal.
10. Further, the arguments made by Shri Vishwanathan, learned
senior counsel, based upon the language of Section 11AA of the SEBI
Act does not commend itself to us. It may be mentioned that Section 11
(2)(c) of the SEBI Act states as follows:
"11 (2) Without prejudice to the generality of the foregoing
provisions, the measures referred to therein may provide for-
.............................................................................................................
.............................................................................................................
(c) registering and regulating the working of venture capital funds
and collective investment schemes, including mutual funds;"
11. In 1995, Section 12(1B) was introduced, by which it became
clear that no person can sponsor or cause to be sponsored or carry on or
cause to be carried on any collective investment scheme unless he obtains
a certificate of registration from the Board in accordance with the
regulations.
12. What is of importance is to notice that the expression "person"
is used by Section 12(1B). However, in 1999, by amendment, Section
11AA was introduced in which it was stated as follows:
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"11AA.