1969 (9) TMI 128 - SC - Indian Laws

Summary

Issues Involved:
1. Rights of lessees after the notification of an estate under Section 3 of the Act.
2. Rate at which compensation for termination of lease-hold rights should be computed.
3. Validity of Rule 1(ii) in relation to Section 20(2) of the Act.
4. Deduction of cesses in determining compensation.
5. Entitlement to interest on unpaid rents collected by the Government.

Issue-Wise Detailed Analysis:

1. Rights of Lessees After Notification of an Estate:
The appellants contended that once the estate was notified under Section 3 of the Act and the Government took possession of the lease-hold lands, the lessees ceased to have any rights and were reduced to the position of landholders with rights preserved under Section 20 of the Act. The Supreme Court held that this contention was not raised before the High Court and thus could not be agitated for the first time before the Supreme Court. The Court noted that the appellants were entitled to the amount collected by the Government under Act XXX of 1947, as the provisions of that Act, including Section 3(4) relating to reduction of rents, continued to apply even after the notification of the estate.

2. Rate at Which Compensation for Termination of Lease-Hold Rights Should Be Computed:
The appellants argued that the compensation should be computed based on the settlement rate under Section 22 of the Act, rather than the reduced rent under Act XXX of 1947. The Supreme Court upheld the High Court's view that the rent payable under Act XXX of 1947 should be considered, as the settlement rates represented the revenue payable to the Government, not the rents due to the appellants from their tenants. The Court found no basis to equate the rents payable by tenants to the appellants with the land revenue payable to the Government.

3. Validity of Rule 1(ii) in Relation to Section 20(2) of the Act:
The appellants challenged Rule 1(ii), arguing that compensation should be based on the unexpired portion of the lease, which was nearly 26 years. The Supreme Court held that Section 20(2) did not restrict the rule-making authority from framing Rule 1(ii) as it did. The rule provided that compensation for a specified number of years should be limited to either twenty times the net annual income or the net income multiplied by the unexpired portion of the lease, whichever was less. The Court found no repugnancy between Rule 1(ii) and Section 20(2) of the Act.

4. Deduction of Cesses in Determining Compensation:
The appellants contended that after the estate vested in the Government, there was no landholder to whom cesses were payable, and thus they were not liable to pay cesses. The Supreme Court upheld the High Court's decision that cesses had to be deducted from the annual gross income to arrive at the net annual income for compensation purposes. The Court noted that the term "rent" included cesses and taxes, and under Rule 2, the average net income had to be considered, which necessitated the deduction of cesses.

5. Entitlement to Interest on Unpaid Rents Collected by the Government:
The appellants argued that they were entitled to interest on the amounts of unpaid rents collected by the Government from 1950 to 1961. The Supreme Court agreed, citing Section 55(1) of the Act, which obligated the manager to collect rent and any interest payable thereon and to pay the same to the landholder. The Court referenced the principle that interest should be awarded when possession of immovable property is lost, and awarded interest at the rate of 6% per annum on the amounts collected by the manager.

Conclusion:
The appeal was allowed to the extent that the appellants were declared entitled to interest at the rate of 6% per annum on the amounts of rents collected by the manager on behalf of the Government. The final figure of compensation was to be determined after accounting for the accrued interest. No order as to costs was made.