Maintainability of Review Petition When Special Leave Petition Dismissed : The Law

Justice P. Sathasivam
Supreme Court of India

The Supreme Court in Bakshi Dev Raj Vs. Sudhir Kumar has examined the law relating to maintainability of a Review Petition in cases where a party has preferred an Special Leave Petition, at the first instance and the same was subsequently dismissed. Under the Code of Civil Procedure, a review is not maintainable when the party prefers an appeal against an order of the Court. The question raised in the present case was whether a review petition would lie, before the concerned Court, once a Special Leave Petition has been dismissed as withdrawn before the Supreme Court. The relevant extracts of the judgment are reproduced hereinbelow;

Maintainability of Review Petition 

16. Now, let us consider the maintainability of the review petition filed before the High Court after dismissal of SLP (C) No. 10939 of 2008 before this Court. It is not in dispute that the High Court, by order dated 18.03.2008, based on the statement of both counsel disposed of Second Appeal No. 19 of 2005 by modifying the decree as stated therein. Against the said order of the High Court, the appellants preferred the above said SLP before this Court. By order dated 14.05.2008, this Court after hearing the counsel for the appellants passed the following order: "Learned counsel for the petitioner prays to withdraw the petition. Prayer made is accepted. The special leave petition is dismissed as withdrawn" A reading of the above order makes it clear that based on the request of the counsel, the SLP came to be dismissed as withdrawn. It is also clear that there is no permission or reservation or liberty for taking further action. However, dismissal of SLP is not a bar for filing review before the same Court. This aspect was considered by a three-Judge Bench of this Court in Kunhayammed and Others vs. State of Kerala and Another, (2000) 6 SCC 359. The above aspect was dealt with elaborately in paras 38, 40 and 44. 

"38. The review can be filed even after SLP is dismissed is clear from the language of Order 47 Rule 1(a). Thus the words "no appeal" has been preferred in Order 47 Rule 1(a) would also mean a situation where special leave is not granted. Till then there is no appeal in the eye of law before the superior court. Therefore, the review can be preferred in the High Court before special leave is granted, but not after it is granted. The reason is obvious. Once special leave is granted the jurisdiction to consider the validity of the High Court's order vests in the Supreme Court and the High Court cannot entertain a review thereafter, unless such a review application was preferred in the High Court before special leave was granted. 

40. A petition seeking grant of special leave to appeal may be rejected for several reasons. For example, it may be rejected (i) as barred by time, or (ii) being a defective presentation, (iii) the petitioner having no locus standi to file the petition, (iv) the conduct of the petitioner disentitling him to any indulgence by the court, (iv) the question raised by the petitioner for consideration by this Court being not fit for consideration or deserving being dealt with by the Apex Court of the country and so on. The expression often employed by this Court while disposing of such petitions are -- "heard and dismissed", "dismissed", "dismissed as barred by time" and so on. May be that at the admission stage itself the opposite party appears on caveat or on notice and offers contest to the maintainability of the petition. The Court may apply its mind to the meritworthiness of the petitioner's prayer seeking leave to file an appeal and having formed an opinion may say "dismissed on merits". Such an order may be passed even ex parte, that is, in the absence of the opposite party. In any case, the dismissal would remain a dismissal by a non-speaking order where no reasons have been assigned and no law has been declared by the Supreme Court. The dismissal is not of the appeal but of the special leave petition. Even if the merits have been gone into, they are the merits of the special leave petition only. In our opinion neither doctrine of merger nor Article 141 of the Constitution is attracted to such an order. Grounds entitling exercise of review jurisdiction conferred by Order 47 Rule 1 CPC or any other statutory provision or allowing review of an order passed in exercise of writ or supervisory jurisdiction of the High Court (where also the principles underlying or emerging from Order 47 Rule 1 CPC act as guidelines) are not necessarily the same on which this Court exercises discretion to grant or not to grant special leave to appeal while disposing of a petition for the purpose. Mere rejection of a special leave petition does not take away the jurisdiction of the court, tribunal or forum whose order forms the subject-matter of petition for special leave to review its own order if grounds for exercise of review jurisdiction are shown to exist. Where the order rejecting an SLP is a speaking order, that is, where reasons have been assigned by this Court for rejecting the petition for special leave and are stated in the order still the order remains the one rejecting prayer for the grant of leave to appeal. The petitioner has been turned away at the threshold without having been allowed to enter in the appellate jurisdiction of this Court. Here also the doctrine of merger would not apply. But the law stated or declared by this Court in its order shall attract applicability of Article 141 of the Constitution. The reasons assigned by this Court in its order expressing its adjudication (expressly or by necessary implication) on point of fact or law shall take away the jurisdiction of any other court, tribunal or authority to express any opinion in conflict with or in departure from the view taken by this Court because permitting to do so would be subversive of judicial discipline and an affront to the order of this Court. However this would be so not by reference to the doctrine of merger. 

44. To sum up, our conclusions are: 

(i) Where an appeal or revision is provided against an order passed by a court, tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law. 

(ii) The jurisdiction conferred by Article 136 of the Constitution is divisible into two stages. The first stage is upto the disposal of prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and the special leave petition is converted into an appeal. 

(iii) The doctrine of merger is not a doctrine of universal or unlimited application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. Under Article 136 of the Constitution the Supreme Court may reverse, modify or affirm the judgment-decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of petition for special leave to appeal. The doctrine of merger can therefore be applied to the former and not to the latter. 

(iv) An order refusing special leave to appeal may be a non- speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed. 

(v) If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the court, tribunal or authority below has stood merged in the order of the Supreme Court rejecting the special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties. 

(vi) Once leave to appeal has been granted and appellate jurisdiction of Supreme Court has been invoked the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely affirmation. 

(vii) On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before the Supreme Court the jurisdiction of High Court to entertain a review petition is lost thereafter as provided by sub- rule (1) of Rule 1 of Order 47 CPC." 

17. In view of the principle laid down above by this Court, even after dismissal of SLP, the aggrieved parties are entitled to move the court concerned by way of review. In the case on hand, though the appellants moved an SLP in this Court against the order of the High Court in Second Appeal, admittedly, the SLP was dismissed as withdrawn without the leave of the Court. 

18. Similar question was considered by this Court in Sarguja Transport Service vs. State Transport Appellate Tribunal, M.P., Gwalior, and Others, (1987) 1 SCC 5. In this decision it was held that where a petitioner withdraws a petition filed by him in the High Court under Article 226/227 without permission to institute a fresh petition, remedy under Article 226/227 should be deemed to have been abandoned by the petitioner in respect of the cause of action relied on in the writ petition and it would not be open to him to file a fresh petition in the High Court under the same article though other remedies like suit or writ petition before the this Court under Article 32 would remain open to him. It was further held that the principle underlying Rule 1 of Order XXIII of CPC should be extended in the interests of administration of justice to cases of withdrawal of writ petition also. The main contention urged by the learned counsel for the petitioner in that case was that the High Court was in error in rejecting the writ petition on the ground that the petitioner had withdrawn the earlier writ petition in which he had questioned the order passed by the Tribunal on 04.10.1985 without the permission of the High Court to file a fresh petition. It was urged by the learned counsel that since the High Court had not decided the earlier petition on merits but only had permitted the petitioner to withdraw the petition, the withdrawal of the said earlier petition could not have been treated as a bar to the subsequent writ petition. While considering the said question, this Court considered sub-rule 3 of Rule 1 of Order 23 CPC and its applicability to writ petitions filed under Article 226/227 and held as under: 

"9. The point for consideration is whether a petitioner after withdrawing a writ petition filed by him in the High Court under Article 226 of the Constitution of India without the permission to institute a fresh petition can file a fresh writ petition in the High Court under that article. On this point the decision in Daryao case is of no assistance. But we are of the view that the principle underlying Rule 1 of Order XXIII of the Code should be extended in the interests of administration of justice to cases of withdrawal of writ petition also, not on the ground of res judicata but on the ground of public policy as explained above. It would also discourage the litigant from indulging in bench-hunting tactics. In any event there is no justifiable reason in such a case to permit a petitioner to invoke the extraordinary jurisdiction of the High Court under Article 226 of the Constitution once again. While the withdrawal of a writ petition filed in a High Court without permission to file a fresh writ petition may not bar other remedies like a suit or a petition under Article 32 of the Constitution of India since such withdrawal does not amount to res judicata, the remedy under Article 226 of the Constitution of India should be deemed to have been abandoned by the petitioner in respect of the cause of action relied on in the writ petition when he withdraws it without such permission. In the instant case the High Court was right in holding that a fresh writ petition was not maintainable before it in respect of the same subject-matter since the earlier writ petition had been withdrawn without permission to file a fresh petition. We, however, make it clear that whatever we have stated in this order may not be considered as being applicable to a writ petition involving the personal liberty of an individual in which the petitioner prays for the issue of a writ in the nature of habeas corpus or seeks to enforce the fundamental rignt guaranteed under Article 21 of the Constitution since such a case stands on a different footing altogether. We, however leave this question open." 

19. In the light of the discussion in the earlier paragraphs even after dismissal of an SLP with or without reasons, the aggrieved party is entitled to file a review. In view of the language used in Order XLVII Rule 1(a) of CPC which relates to "Review", the present Review Petition (C) No. D-5/2008) cannot be dismissed on the ground of maintainability.

Related Post(s):

"Doctrine of Merger : Supreme Court Explains"

The Bench comprising Justice Thomas, Justice Mohapatra and Justice R.C. Lahoti have explained the Doctrine of Merger. The Bench speaking through Justice Lahoti has examined the various judicial pronouncements on the doctrine and has formulated the various principles  regarding the same. The Bench has also examined the effect of the dismissal of an SLP, in limine, and whether the same precludes the rights of a party to agitate an issue in subsequent proceedings.

Click here to read entire Post.

Compromise between Parties & the Role of Counsels : Supreme Court Explains

Justice P. Sathasivam
Supreme Court of India

The Supreme Court in Bakshi Dev Raj Vs. Sudhir Kumar has examined the Role of Counsels and their power to make concessions in Court to withdraw or compromise claims / proceedings on behalf of their respective Clients. The Court, in the present judgment, has also examined the provisions of Order XXIII of the Code of Civil Procedure with regard to compromise of suit, and discussed the power of advocates / pleaders to act on behalf of their clients in such situations. The relevant paragraphs from the judgment are reproduced hereunder;

Compromise of Suit

8. Order XXIII of CPC deals with "Withdrawal and Adjustment of Suits". Rule 3 of Order XXIII speaks about "compromise of suit" which reads as under: 

"3. Compromise of suit.- Where it is proved to the satisfaction of the Court that a suit has been adjusted wholly or in part by any lawful agreement or compromise in writing and signed by the parties, or where the defendant satisfies the plaintiff in respect of the whole or any part of the subject matter of the suit, the Court shall order such agreement, compromise or satisfaction to be recorded, and shall pass a decree in accordance therewith so far as it relates to the parties to the suit, whether or not the subject matter of the agreement, compromise or satisfaction is the same as the subject matter of the suit: Provided that where it is alleged by one party and denied by the other that an adjustment or satisfaction has been arrived at, the Court shall decide the question; but no adjournment shall be granted for the purpose of deciding the question, unless the Court, for reasons to be recorded, thinks fit to grant such adjournment. Explanation--An agreement or compromise which is void or voidable under the Indian Contract Act, 1872 (9 of 1872), shall not be deemed to be lawful within the meaning of this rule." 

9. The very same rule was considered by this Court in Gurpreet Singh vs. Chatur Bhuj Goel, (1988) 1 SCC 270. In that case, the respondent therein Chatur Bhuj Goel, a practising advocate at Chandigarh first lodged a criminal complaint against Colonel Sukhdev Singh, father of the appellant, under Section 420 of the Indian Penal Code 1860 (hereinafter referred to as "the IPC"), after he had served the respondent with a notice dated 11.07.1979 forfeiting the amount of Rs.40,000/- paid by him by way of earnest money, alleging that he was in breach of the contract dated 04.06.1979 entered into between Colonel Sukhdev Singh, acting as guardian of the appellant, then a minor, and the respondent, for the sale of residential house No. 1577, Sector-18- D, Chandigarh for a consideration of Rs,2,85,000/-. In terms of the agreement, the respondent was to pay a further sum of Rs.1,35,000/- to the appellant's father - Colonel Sukhdev Singh by 10.07.1979 when the said agreement of sale was to be registered and vacant possession of the house delivered to him, and the balance amount of Rs.1,10,000/- on or before 31.01.1980 when the deed of conveyance was to be executed. The dispute between the parties was that according to Colonel Sukhdev Singh, there was failure on the part of the respondent to pay the amount of Rs.1,35,000/- and get the agreement registered, while the respondent alleged that he had already purchased a bank draft in the name of the appellant for Rs.1,35,000/- on 07.07.1979 but the appellant's father did not turn up to receive the same. Although the Additional Chief Judicial Magistrate by order dated 31.10.1979 dismissed the complaint holding that the dispute was of a civil nature and no process could issue on the complaint, the learned Single Judge, by his order dated 11.02.1980 set aside the order of the learned Additional Chief Judicial Magistrate holding that the facts brought out clearly warranted an inference of dishonest intention on the part of Colonel Sukhdev Singh and accordingly directed him to proceed with the trial according to law. Aggrieved Colonel Sukhdev Singh came up in appeal to this Court by way of special leave. While construing Order XXIII Rule 3 of CPC, this Court concluded thus: 

"10. Under Rule 3 as it now stands, when a claim in suit has been adjusted wholly or in part by any lawful agreement or compromise, the compromise must be in writing and signed by the parties and there must be a completed agreement between them. To constitute an adjustment, the agreement or compromise must itself be capable of being embodied in a decree. When the parties enter into a compromise during the hearing of a suit or appeal, there is no reason why the requirement that the compromise should be reduced in writing in the form of an instrument signed by the parties should be dispensed with. The court must therefore insist upon the parties to reduce the terms into writing." 

It is clear from this decision that during the course of hearing, namely, suit or appeal, when the parties enter into a compromise, the same should be reduced in writing in the form of an instrument and signed by the parties. The substance of the said decision is that the Court must insist upon the parties to reduce the terms into writing. 

10. In Pushpa Devi Bhagat (dead) through LR. Sadhna Rai (Smt.) vs. Rajinder Singh and Others, (2006) 5 SCC 566, the term `instrument' used in above-referred Gurpreet Singh's case (supra) refers to a writing a formal nature, this Court explained that when the hearing of letters patent appeal commenced before the High Court, the parties took time to explore the possibility of settlement and when the hearing was resumed, the appellant's father made an offer for settlement which was endorsed by the counsel for the appellant also. The respondent was also present there and made a statement accepting the offer. The said offer and acceptance were not treated as final as the appeal was not disposed of by recording those terms. On the other hand, the said proposals were recorded and the matter was adjourned for payment in terms of the offer. When the matter was taken up on the next date of hearing, the respondent stated that he is not agreeable. The High Court directed that the appeal would now be heard on merits as the respondent was not prepared to abide by the proposed compromise. The said order was challenged before this Court by the appellant by contending that the matter was settled by a lawful compromise by recording the statement by appellant's counsel and the respondent's counsel and the respondent could not resile from such compromise and, therefore, the High Court ought to have disposed of the appeal in terms of the compromise. It is in this factual background, the question was considered with reference to Gurpreet Singh's case (supra). This was explained in Pushpadevi's case (supra) that the distinguishing feature in that case was that though the submissions made were recorded but that were not signed by the parties or their counsel, nor did the Court treat the submissions as a compromise. In Pushpadevi's case (supra), the Court not only recorded the terms of settlement but thereafter directed that the statements of the counsel be recorded. The statement of the counsel were also recorded on oath read over and accepted by the counsel to be correct and then signed by both counsel. In view of the same, in Pushpadevi's case (supra), it was concluded that there was a valid compromise in writing signed by the parties (represented counsel). 

11. In the earlier part of our order, we have already recorded that during the course of hearing of second appeal, both counsel agreed that without addressing the questions of law so formulated, the matter can be settled by modifying the decree impugned in appeal by incorporating the area of land under Survey No. 110/65 with the boundary between the lands thereunder and Survey No.109/65 belonging to the other side being the Sheesham and Shreen trees currently existing on the spot. 

Role of the counsel 

12. Now, we have to consider the role of the counsel reporting to the Court about the settlement arrived at. We have already noted that in terms of Order XXIII Rule 3 of CPC, agreement or compromise is to be in writing and signed by the parties. The impact of the above provision and the role of the counsel has been elaborately dealt with by this Court in Byram Pestonji Gariwala vs. Union Bank of India and Others, (1992) 1 SCC 31 and observed that courts in India have consistently recognized the traditional role of lawyers and the extent and nature of implied authority to act on behalf of their clients. Mr. Ranjit Kumar, has drawn our attention to the copy of Vakalatnama (Annexure-R3) and the contents therein. The terms appended in Vakalatnama enable the counsel to perform several acts on behalf of his client including withdraw or compromise suit or matter pending before the Court. The various clauses in the Vakalatnama undoubtedly gives power to the counsel to act with utmost interest which includes to enter into a compromise or settlement. The following observations and conclusions in paras 37, 38 and 39 are relevant: 

"37. We may, however, hasten to add that it will be prudent for counsel not to act on implied authority except when warranted by the exigency of circumstances demanding immediate adjustment of suit by agreement or compromise and the signature of the party cannot be obtained without undue delay. In these days of easier and quicker communication, such contingency may seldom arise. A wise and careful counsel will no doubt arm himself in advance with the necessary authority expressed in writing to meet all such contingencies in order that neither his authority nor integrity is ever doubted. This essential precaution will safeguard the personal reputation of counsel as well as uphold the prestige and dignity of the legal profession. 

38. Considering the traditionally recognised role of counsel in the common law system, and the evil sought to be remedied by Parliament by the C.P.C. (Amendment) Act, 1976, namely, attainment of certainty and expeditious disposal of cases by reducing the terms of compromise to writing signed by the parties, and allowing the compromise decree to comprehend even matters falling outside the subject matter of the suit, but relating to the parties, the legislature cannot, in the absence of express words to such effect, be presumed to have disallowed the parties to enter into a compromise by counsel in their cause or by their duly authorised agents. Any such presumption would be inconsistent with the legislative object of attaining quick reduction of arrears in court by elimination of uncertainties and enlargement of the scope of compromise. 

39. To insist upon the party himself personally signing the agreement or compromise would often cause undue delay, loss and inconvenience, especially in the case of non- resident persons. It has always been universally understood that a party can always act by his duly authorised representative. If a power-of-attorney holder can enter into an agreement or compromise on behalf of his principal, so can counsel, possessed of the requisite authorisation by vakalatnama, act on behalf of his client. Not to recognise such capacity is not only to cause much inconvenience and loss to the parties personally, but also to delay the progress of proceedings in court. If the legislature had intended to make such a fundamental change, even at the risk of delay, inconvenience and needless expenditure, it would have expressly so stated." 

13. In Jineshwardas (D) by LRs and Others vs. Jagrani (Smt) and Another, (2003) 11 SCC 372, this Court, by approving the decision taken in Byram Pestonji's case (supra), held that a judgment or decree passed as a result of consensus arrived at before Court, cannot always be said to be one passed on compromise or settlement and adjustment. It may, at times, be also a judgment on admission. 

14. In Jagtar Singh vs. Pargat Singh and Others, (1996) 11 SCC 586, it was held that counsel for the appellant has power to make a statement on instructions from the party to withdraw the appeal. In that case, respondent No.1 therein, elder brother of the petitioner filed a suit for declaration against the petitioner and three brothers that the decree dated 04.05.1990 was null and void which was decreed by subordinate Judge, Hoshiarpur on 29.09.1993. The petitioner therein filed an appeal in the Court of Additional Distruct Judge, Hoshiarpur. The counsel made a statement on 15.09.1995 that the petitioner did not intend to proceed with the appeal. On the basis thereof, the appeal was dismissed as withdrawn. The petitioner challenged the order of the appellate court in the revision. The High Court confirmed the same which necessitated filing of SLP before this Court. Learned counsel for the petitioner contended that the petitioner had not authorized the counsel to withdraw the appeal. It was further contended that the court after admitting the appeal has no power to dismiss the same as withdrawn except to decide the matter on merits considering the legality of the reasoning of the trial Court and the conclusions either agreeing or disagreeing with it. Rejecting the said contention, the Court held as under: 

"3. The learned counsel for the petitioner has contended that the petitioner had not authorised the counsel to withdraw the appeal. The Court after admitting the appeal has no power to dismiss the same as withdrawn except to decide the matter on merits considering the legality of the reasoning of the trial court and the conclusions either agreeing or disagreeing with it. We find no force in the contention. Order III Rule 4 CPC empowers the counsel to continue on record until the proceedings in the suit are duly terminated. The counsel, therefore, has power to make a statement on instructions from the party to withdraw the appeal. The question then is whether the court is required to pass a reasoned order on merits against the decree appealed from the decision of the Court of the Subordinate Judge? Order 23 Rules 1(1) and (4) give power to the party to abandon the claim filed in the suit wholly or in part. By operation of Section 107(2) of the CPC, it equally applies to the appeal and the appellate court has co-extensive power to permit the appellant to give up his appeal against the respondent either as a whole or part of the relief. As a consequence, though the appeal was admitted under Order 41 Rule 9, necessarily the Court has the power to dismiss the appeal as withdrawn without going into the merits of the matter and deciding it under Rule 11 thereof. 

4. Accordingly, we hold that the action taken by the counsel is consistent with the power he had under Order III Rule 4 CPC. If really the counsel has not acted in the interest of the party or against the instructions of the party, the necessary remedy is elsewhere and the procedure adopted by the court below is consistent with the provisions of CPC. We do not find any illegality in the order passed by the Additional District Judge as confirmed by the High Court in the revision." 

15. The analysis of the above decisions make it clear that the counsel who was duly authorized by a party to appear by executing Vakalatnama and in terms of Order III Rule 4, empowers the counsel to continue on record until the proceedings in the suit are duly terminated. The counsel, therefore, has power to make a statement on instructions from the party to withdraw the appeal. In such circumstance, the counsel making a statement on instructions either for withdrawal of appeal or for modification of the decree is well within his competence and if really the counsel has not acted in the interest of the party or against the instructions of the party, the necessary remedy is elsewhere. Though learned counsel for the appellant vehemently submitted that the statement of the counsel before the High Court during the course of hearing of Second Appeal No. 19 of 2005 was not based on any instructions, there is no such material to substantiate the same. No doubt, Mr. Garg has placed reliance on the fact that the first appellant was bedridden and hospitalized, hence, he could not send any instruction. According to him, the statement made before the Court that too giving of certain rights cannot be sustained and beyond the power of the counsel. It is true that at the relevant time, namely, when the counsel made a statement during the course of hearing of second appeal one of the parties was ill and hospitalized. However, it is not in dispute that his son who was also a party before the High Court was very much available. Even otherwise, it is not in dispute that till filing of the review petition, the appellants did not question the conduct of their counsel in making such statement in the course of hearing of second appeal by writing a letter or by sending notice disputing the stand taken by their counsel. In the absence of such recourse or material in the light of the provisions of the CPC as discussed and interpreted by this Court, it cannot be construed that the counsel is debarred from making any statement on behalf of the parties. No doubt, as pointed out in Byram Pestonji (supra), in order to safeguard the present reputation of the counsel and to uphold the prestige and dignity of legal profession, it is always desirable to get instructions in writing.

Sub-Letting - Concept, Scope & Ingredients : The Law

Justice Tarun Chatterjee
Supreme Court of India

The Supreme Court Celina Coelho Pereira Vs. Ulhas Mahabaleshwar Kholkar has carefully examined the meaning, scope and ingredients of 'Sub-Letting' under various rent control legislations in India. Justice Tarun Chatterjee has succinctly summarized the broad principles / guidelines to be followed in cases involving sub-letting of the premises by the tenant. The relevant extracts from this judgment are reproduced hereinbelow;

18. In the case of Associated Hotels of India Ltd., Delhi v. S.B. Sardar Ranjit Singh AIR 1968 SC 933, this Court held that when eviction is sought on the ground of subletting, the onus to prove subletting is on the landlord. It was further held that if the landlord prima facie shows that the third party is in exclusive possession of the premises let out for valuable consideration, it would then be for the tenant to rebut the evidence. 

19. The aforesaid legal position was also noticed by this Court in the case of Smt. Krishnawati v. Hans Raj (1974) 1 SCC 280. 

20. In Helper Girdharbhai v. Saiyed Mohmad Mirasaheb Kadri & Others (1987) 3 SCC 538, this Court held that in a case where a tenant becomes a partner of a partnership firm and allows the firm to carry on business in the demised premises while he himself retains legal possession thereof, the act of the landlord does not amount to subletting. It was held that whether there is genuine partnership or not must be judged in the facts of each case in the light of the principles applicable to partnership. 

21. While dealing with the mischief contemplated under Section 14(1)(b) of the Delhi Rent Control Act, 1958 providing for eviction on the ground of subletting, this Court in the case of Jagan Nath (Deceased) through LRs. vs. Chander Bhan And Ors. (1988) 3 SCC 57 held: 

"The question for consideration is whether the mischief contemplated under Section 14(1)(b) of the Act has been committed as the tenant had sublet, assigned, or otherwise parted with the possession of the whole or part of the premises without obtaining the consent in writing of the landlord. There is no dispute that there was no consent in writing of the landlord in this case. There is also no evidence that there has been any subletting or assignment. The only ground perhaps upon which the landlord was seeking eviction was parting with possession. It is well settled that parting with possession meant giving possession to persons other than those to whom possession had been given by the lease and the parting with possession must have been by the tenant; user by other person is not parting with possession so long as the tenant retains the legal possession himself, or in other words there must be vesting of possession by the tenant in another person by divesting himself not only of physical possession but also of the right to possession. So long as the tenant retains the right to possession there is no parting with possession in terms of clause (b) of Section 14(1) of the Act. Even though the father had retired from the business and the sons had been looking after the business, in the facts of this case, it cannot be said that the father had divested himself of the legal right to be in possession. If the father has a right to displace the possession of the occupants, i.e., his sons, it cannot be said that the tenant had parted with possession" 

22. The question whether the tenant has assigned, sublet or otherwise parted with the possession of the whole or any part of the premises without the permission of the landlord within the meaning of Section 13(1)(e) of the Rajasthan Premises (Control of Rent and Eviction) Act, 1950, fell for consideration in Gopal Saran vs. Satyanarayana (1989) 3 SCC 56. This Court held: 

"Sub-letting means transfer of an exclusive right to enjoy the property in favour of the third party. In this connection, reference may be made to the decision of this Court in Shalimar Tar Products Ltd. v. H.C. Sharma [(1988) 1 SCC 70] where it was held that to constitute a sub-letting, there must be a parting of legal possession, i.e., possession with the right to include and also right to exclude others and whether in a particular case there was sub-letting was substantially a question of fact. In that case, a reference was made at page 77 of the report to the Treatise of Foa on Landlord and Tenant, 6th edn., at page 323, for the proposition that the mere act of letting other persons into possession by the tenant, and permitting them to use the premises for their own purposes, is not, so long as he retains the legal possession himself, a breach of covenant. In paragraph 17 of the report, it was observed that parting of the legal possession means possession with the right to include and also right to exclude others. In the last mentioned case, the observations of the Madras High Court in Gundalapalli Rangamannar Chetty v. Desu Rangiah (AIR 1954 Mad 182) were approved by this Court in which the legal position in Jackson v. Simons [(1923) 1 Ch 373) were relied upon. The Madras High Court had also relied on a judgment of Scrutton L.J. in Chaplin v. Smith [(1926) 1 KB 198] at page 211 of the report where it was said : He did not assign, nor did he underlet. He was constantly on the premises himself and kept the key of them. He did business of his own as well as business of the company. In my view he allowed the company to use the premises while he himself remained in possession of them. This position was also accepted in Vishwa Nath v. Chaman Lal (AIR 1975 Del. 117) wherein it was observed that parting with possession is understood as parting with legal possession by one in favour of the other by giving him an exclusive possession to the ouster of the grantor. If the grantor had retained legal possession with him it was not a case of parting with possession." 

The court also reiterated that to prove sub-tenancy, two ingredients have to be established, firstly, the tenant must have exclusive right of possession or interests in the premises or part of the premises in question and secondly, the right must be in lieu of payment of some compensation or rent. 

23. In the case of G.K. Bhatnagar (Dead) By LRs. v. Abdul Alim (2002) 9 SCC 516, this Court held as follows: 

"A conjoint reading of these provisions shows that on and after 9-6-1952, sub-letting, assigning or otherwise parting with the possession of the whole or any part of the tenancy premises, without obtaining the consent in writing of the landlord, is not permitted and if done, the same provides a ground for eviction of the tenant by the landlord. However, inducting a partner in his business or profession by the tenant is permitted so long as such partnership is genuine. If the purpose of such partnership may ostensibly be to carry on the business or profession in partnership, but the real purpose be sub-letting of the premises to such other person who is inducted ostensibly as a partner, then the same shall be deemed to be an act of sub-letting attracting the applicability of clause (b) of sub- section (1) of Section 14 of the Act." 

24. A three-Judge Bench of this Court in Parvinder Singh v. Renu Gautam and Others (2004) 4 SCC 794 commented upon the device adopted by tenants many a time in creating partnership as a camouflage to circumvent the provisions of the Rent Control Act. The following observations are worth noticing: 

"The rent control legislations which extend many a protection to the tenant, also provide for grounds of eviction. One such ground, most common in all the legislations, is sub- letting or parting with possession of the tenancy premises by the tenant. Rent control laws usually protect the tenant so long as he may himself use the premises but not his transferee inducted into possession of the premises, in breach of the contract or the law, which act is often done with the object of illegitimate profiteering or rack-renting. To defeat the provisions of law, a device is at times adopted by unscrupulous tenants and sub-tenants of bringing into existence a deed of partnership which gives the relationship of tenant and sub-tenant an outward appearance of partnership while in effect what has come into existence is a sub-tenancy or parting with possession camouflaged under the cloak of partnership. Merely because a tenant has entered into a partnership he cannot necessarily be held to have sub-let the premises or parted with possession thereof in favour of his partners. If the tenant is actively associated with the partnership business and retains the use and control over the tenancy premises with him, maybe along with the partners, the tenant may not be said to have parted with possession. However, if the user and control of the tenancy premises has been parted with and deed of partnership has been drawn up as an indirect method of collecting the consideration for creation of sub- tenancy or for providing a cloak or cover to conceal a transaction not permitted by law, the court is not estopped from tearing the veil of partnership and finding out the real nature of transaction entered into between the tenant and the alleged sub-tenant. A person having secured a lease of premises for the purpose of his business may be in need of capital or finance or someone to assist him in his business and to achieve such like purpose he may enter into partnership with strangers. Quite often partnership is entered into between the members of any family as a part of tax planning. There is no stranger brought on the premises. So long as the premises remain in occupation of the tenant or in his control, a mere entering into partnership may not provide a ground for eviction by running into conflict with prohibition against sub-letting or parting with possession. This is a general statement of law which ought to be read in the light of the lease agreement and the law governing the tenancy. There are cases wherein the tenant sub-lets the premises or parts with possession in defiance of the terms of lease or the rent control legislation and in order to save himself from the peril of eviction brings into existence, a deed of partnership between him and his sub-lessee to act as a cloak on the reality of the transaction. The existence of deed of partnership between the tenant and the alleged sub- tenant would not preclude the landlord from bringing on record material and circumstances, by adducing evidence or by means of cross-examination, making out a case of sub- letting or parting with possession or interest in tenancy premises by the tenant in favour of a third person. The rule as to exclusion of oral by documentary evidence governs the parties to the deed in writing. A stranger to the document is not bound by the terms of the document and is, therefore, not excluded from demonstrating the untrue or collusive nature of the document or the fraudulent or illegal purpose for which it was brought into being. An enquiry into reality of transaction is not excluded merely by availability of writing reciting the transaction........." 

25. In yet another decision, a three-Judge Bench of this Court in Mahendra Saree Emporium (II) v. G.V. Srinivasa Murthy (2005) 1 SCC 481 considered earlier decisions, few of which have been referred above, while dealing with a matter relating to subletting of the premises within the meaning of Section 21(1)(f) of Karnataka Rent Control Act, 1961 and observed as follows : 

"The term "sub-let" is not defined in the Act - new or old. However, the definition of "lease" can be adopted mutatis mutandis for defining "sub-lease". What is "lease" between the owner of the property and his tenant becomes a sub-lease when entered into between the tenant and tenant of the tenant, the latter being sub-tenant qua the owner- landlord. A lease of immovable property as defined in Section 105 of the Transfer of Property Act, 1882 is a transfer of a right to enjoy such property made for a certain time for consideration of a price paid or promised. A transfer of a right to enjoy such property to the exclusion of all others during the term of the lease is sine qua non of a lease. A sub-lease would imply parting with by the tenant of the right to enjoy such property in favour of his sub-tenant. Different types of phraseology are employed by different State Legislatures making provision for eviction on the ground of sub-letting. Under Section 21(1)(f) of the old Act, the phraseology employed is quite wide. It embraces within its scope sub-letting of the whole or part of the premises as also assignment or transfer in any other manner of the lessee's interest in the tenancy premises. The exact nature of transaction entered into or arrangement or understanding arrived at between the tenant and alleged sub-tenant may not be in the knowledge of the landlord and such a transaction being unlawful would obviously be entered into in secrecy depriving the owner-landlord of the means of ascertaining the facts about the same. However still, the rent control legislation being protective for the tenant and eviction being not permissible except on the availability of ground therefor having been made out to the satisfaction of the court or the Controller, the burden of proving the availability of the ground is cast on the landlord i.e. the one who seeks eviction. In Krishnawati v. Hans Raj [(1974) 1 SCC 289] reiterating the view taken in Associated Hotels of India Ltd. v. S.B. Sardar Ranjit Singh [(1968) 2 SCR 548] this Court so noted the settled law: (SCC p. 293, para 6) 

"[T]he onus to prove sub-letting is on the landlord. If the landlord prima facie shows that the occupant who was in exclusive possession of the premises let out for valuable consideration, it would then be for the tenant to rebut the evidence." 

Thus, in the case of sub-letting, the onus lying on the landlord would stand discharged by adducing prima facie proof of the fact that the alleged sub-tenant was in exclusive possession of the premises or, to borrow the language of Section 105 of the Transfer of Property Act, was holding right to enjoy such property. A presumption of sub-letting may then be raised and would amount to proof unless rebutted. In the context of the premises having been sub-let or possession parted with by the tenant by adopting the device of entering into partnership, it would suffice for us to notice three decisions of this Court. Murlidhar v. Chuni Lal (1970 Ren CJ 922) is a case where a shop was let out to a firm of the name of Chuni Lal Gherulal. The firm consisted of three partners, namely, Chuni Lal, Gherulal and Meghraj. This partnership closed and a new firm by the name of Meghraj Bansidhar commenced its business with partners Meghraj and Bansidhar. The tenant firm was sought to be evicted on the ground that the old firm and the new firm being two different legal entities, the occupation of the shop by the new firm amounted to sub-letting. This Court discarded the contention as "entirely without substance" and held that a partnership firm is not a legal entity; the firm name is only a compendious way of describing the partners of the firm. Therefore, occupation by a firm is only occupation by its partners. The two firms, old and new, had a common partner, namely, Meghraj, who continued to be in possession and it was fallacious to contend that earlier he was in possession in the capacity of partner of the old firm and later as a partner of the new firm. The landlord, in order to succeed, has to prove it as a fact that there was a sub- letting by his tenant to another firm. As the premises continued to be in possession of one of the original tenants, Meghraj, then by a mere change in the constitution of the firm of which Meghraj continued to be a partner, an inference as to sub-letting could not be drawn in the absence of further evidence having been adduced to establish sub-letting. In Helper Girdharbhai v. Saiyed Mohd. Mirasaheb Kadri [(1987) 3 SCC 538] the tenant had entered into a partnership and the firm was carrying on business in the tenancy premises. This Court held that if there was a partnership firm of which the appellant was a partner as a tenant, the same would not amount to sub-letting leading to forfeiture of the tenancy; for there cannot be a sub-letting unless the lessee parted with the legal possession. The mere fact that another person is allowed to use the premises while the lessee retains the legal possession is not enough to create a sub-lease. Thus, the thrust is, as laid down by this Court, on finding out who is in legal possession of the premises. So long as the legal possession remains with the tenant the mere factum of the tenant having entered into partnership for the purpose of carrying on the business in the tenancy premises would not amount to sub-letting. In Parvinder Singh v. Renu Gautam [(2004) 4 SCC 794] a three-Judge Bench of this Court devised the test in these terms: (SCC p. 799, para 8) "If the tenant is actively associated with the partnership business and retains the use and control over the tenancy premises with him, maybe along with the partners, the tenant may not be said to have parted with possession. However, if the user and control of the tenancy premises has been parted with and deed of partnership has been drawn up as an indirect method of collecting the consideration for creation of sub-tenancy or for providing a cloak or cover to conceal a transaction not permitted by law, the court is not estopped from tearing the veil of partnership and finding out the real nature of transaction entered into between the tenant and the alleged sub- tenant"." 

26. In Vaishakhi Ram and Others v. Sanjeev Kumar Bhatiani (2008) 14 SCC 356, one of us (Tarun Chatterjee, J.), in a case of subletting under Section 14(1)(b) of Delhi Rent Control Act, held: 

"A plain reading of this provision would show that if a tenant has sub-let or assigned or otherwise parted with the possession of the whole or any part of the premises without obtaining the consent in writing of the landlord, he would be liable to be evicted from the said premises. That is to say, the following ingredients must be satisfied before an order of eviction can be passed on the ground of sub-letting: 

(1) the tenant has sub-let or assigned or parted with the possession of the whole or any part of the premises; 

(2) such sub-letting or assigning or parting with the possession has been done without obtaining the consent in writing of the landlord." .............."It is well settled that the burden of proving sub- letting is on the landlord but if the landlord proves that the sub- tenant is in exclusive possession of the suit premises, then the onus is shifted to the tenant to prove that it was not a case of sub-letting." 

27. In Nirmal Kanta (Dead) Through LRs. v. Ashok Kumar and Another (2008) 7 SCC 722 , this Court held thus : 

"What constitutes sub-letting has repeatedly fallen for the consideration of this Court in various cases and it is now well-established that a sub-tenancy or a sub-letting comes into existence when the tenant inducts a third party stranger to the landlord into the tenanted accommodation and parts with possession thereof wholly or in part in favour of such third party and puts him in exclusive possession thereof. The lessor and/or a landlord seeking eviction of a lessee or tenant alleging creation of a sub-tenancy has to prove such allegation by producing proper evidence to that effect. Once it is proved that the lessee and/or tenant has parted with exclusive possession of the demised premises for a monetary consideration, the creation of a sub-tenancy and/or the allegation of sub-letting stands established." 

28. The legal position that emerges from the aforesaid decisions can be summarised thus: 

(i) In order to prove mischief of subletting as a ground for eviction under rent control laws, two ingredients have to be established, (one) parting with possession of tenancy or part of it by tenant in favour of a third party with exclusive right of possession and (two) that such parting with possession has been done without the consent of the landlord and in lieu of compensation or rent. 

(ii) Inducting a partner or partners in the business or profession by a tenant by itself does not amount to subletting. However, if the purpose of such partnership is ostensible and a deed of partnership is drawn to conceal the real transaction of sub-letting, the court may tear the veil of partnership to find out the real nature of transaction entered into by the tenant. 

(iii) The existence of deed of partnership between tenant and alleged sub-tenant or ostensible transaction in any other form would not preclude the landlord from bringing on record material and circumstances, by adducing evidence or by means of cross- examination, making out a case of sub-letting or parting with possession in tenancy premises by the tenant in favour of a third person. 

(iv) If tenant is actively associated with the partnership business and retains the control over the tenancy premises with him, may be along with partners, the tenant may not be said to have parted with possession. 

(v) Initial burden of proving subletting is on landlord but once he is able to establish that a third party is in exclusive possession of the premises and that tenant has no legal possession of the tenanted premises, the onus shifts to tenant to prove the nature of occupation of such third party and that he (tenant) continues to hold legal possession in tenancy premises. 

(vi) In other words, initial burden lying on landlord would stand discharged by adducing prima facie proof of the fact that a party other than tenant was in exclusive possession of the premises. A presumption of sub-letting may then be raised and would amount to proof unless rebutted.

Appeal under Section 18 of the SRFAESI Act & Condition of Pre-Deposit : The Law

Justice D.K. Jain
Supreme Court of India

The Supreme Court in a recent decision, in Narayan Chandra Ghosh Vs. UCO Bank, has held that an appeal under Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act cannot be entertained unless the mandatory requirements with regard to pre-deposit of the debt amount are met. The Supreme Court in this short judgment has laid down that the Appellate Authority cannot, under any circumstances, entertain an appeal unless the mandatory requirement of pre-dposit are fulfilled. The relevant extracts from the judgment are reproduced hereinbelow; 

6. Thus, the short question for consideration is whether the Appellate Tribunal has the jurisdiction to exempt the person, preferring an appeal under Section 18 of the Act from making any pre- deposit in terms of the said provision? 

7. Section 18, which provides for appeal to the Appellate Tribunal, reads as under: 

"18. Appeal to Appellate Tribunal.— 

(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal under section 17, may prefer an appeal along with such fee, as may be prescribed to an Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal. Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower: Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less: 

Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent of debt referred to in the second proviso. 

(2) ..... ..... ..... ..... ..... ..... ..... .... ..." 

8. Section 18(1) of the Act confers a statutory right on a person aggrieved by any order made by the Debts Recovery Tribunal under Section 17 of the Act to prefer an appeal to the Appellate Tribunal. However, the right conferred under Section 18(1) is subject to the condition laid down in the second proviso thereto. The second proviso postulates that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less. However, under the third proviso to the sub-section, the Appellate Tribunal has the power to reduce the amount, for the reasons to be recorded in writing, to not less than twenty- five per cent of the debt, referred to in the second proviso. Thus, there is an absolute bar to entertainment of an appeal under Section 18 of the Act unless the condition precedent, as stipulated, is fulfilled. Unless the borrower makes, with the Appellate Tribunal, a pre-deposit of fifty per cent of the debt due from him or determined, an appeal under the said provision cannot be entertained by the Appellate Tribunal. The language of the said proviso is clear and admits of no ambiguity. It is well-settled that when a Statute confers a right of appeal, while granting the right, the Legislature can impose conditions for the exercise of such right, so long as the conditions are not so onerous as to amount to unreasonable restrictions, rendering the right almost illusory. Bearing in mind the object of the Act, the conditions hedged in the said proviso cannot be said to be onerous. Thus, we hold that the requirement of pre-deposit under sub-section (1) of Section 18 of the Act is mandatory and there is no reason whatsoever for not giving full effect to the provisions contained in Section 18 of the Act. In that view of the matter, no court, much less the Appellate Tribunal, a creature of the Act itself, can refuse to give full effect to the provisions of the Statute. We have no hesitation in holding that deposit under the second proviso to Section 18(1) of the Act being a condition precedent for preferring an appeal under the said Section, the Appellate Tribunal had erred in law in entertaining the appeal without directing the appellant to comply with the said mandatory requirement. 

9. The argument of learned counsel for the appellant that as the amount of debt due had not been determined by the Debts Recovery Tribunal, appeal could be entertained by the Appellate Tribunal without insisting on pre-deposit, is equally fallacious. Under the second proviso to sub- section (1) of Section 18 of the Act the amount of fifty per cent, which is required to be deposited by the borrower, is computed either with reference to the debt due from him as claimed by the secured creditors or as determined by the Debts Recovery Tribunal, whichever is less. Obviously, where the amount of debt is yet to be determined by the Debts Recovery Tribunal, the borrower, while preferring appeal, would be liable to deposit fifty per cent of the debt due from him as claimed by the secured creditors. Therefore, the condition of pre-deposit being mandatory, a complete waiver of deposit by the appellant with the Appellate Tribunal, was beyond the provisions of the Act, as is evident from the second and third proviso to the said Section. At best, the Appellate Tribunal could have, after recording the reasons, reduced the amount of deposit of fifty per cent to an amount not less than twenty five per cent of the debt referred to in the second proviso. We are convinced that the order of the Appellate Tribunal, entertaining appellant's appeal without insisting on pre-deposit was clearly unsustainable and, therefore, the decision of the High Court in setting aside the same cannot be flawed.