2004 (2) TMI 683 - SC - Indian Laws

Court Validates Ceiling Act Proceedings Against Farm; Upholds Govt. Grant's Priority. Transfers Post Cut-Off Date Lack Good Faith.

ESCORTS FARMS LTD., PREVIOUSLY KNOWN AS M/s. ESCORTS FARMS (RAM GARH) LTD. Versus THE COMMISSIONER, KUMAON DIVISION, NAINITAL, U.P. AND ORS.

The Court upheld the validity of proceedings against a Farm under the Ceiling Act, considering the Farm as an ostensible holder for the real owner, a ... Whether as in determining the ceiling limit of firms, co-operative societies and Associations of persons, whether incorporated or not, a 'public company, is excluded, the company cannot be held to be a holder of land to impose ceiling? Issues Involved:1. Applicability of the Ceiling Act to the lands in question and validity of the proceedings against the Farm.2. Legal effect of the provisions of Govt. Grants Act, 1895 as amended by Govt. Grants (U.P.) Act, 1960.3. Bona fides of the transfers in favor of transferees comprised in Groups I & II.4. Land to the extent of 250 acres held for running a mechanized farming school.5. Denial of opportunity of hearing to the transferees of land/breach of principles of natural justice.6. Costs imposed as damages.Issue-wise Detailed Analysis:1. Applicability of the Ceiling Act to the lands in question and validity of the proceedings against the Farm:The contention that the proceedings were void because the Govt. Grantee was not a party was rejected. The Farm was treated as an ostensible holder of the land, and the real holder was the company in which the Ruler had a shareholding. The proceedings initiated against the Farm were valid as the Farm acted on behalf of the company and the Ruler. The Court relied on Explanation 1 and Explanation II below Section 5 of the Ceiling Act, which presume that land held by an ostensible holder is held by the real owner.2. Legal effect of the provisions of Govt. Grants Act, 1895 as amended by Govt. Grants (U.P.) Act, 1960:The terms of the Govt. Grant prohibited the transfer of land without the state's permission. The lessees and sub-lessees could not claim independent tenancy rights contrary to the terms of the Grant. Section 2 of the Govt. Grants Act, as amended by the U.P. Amendment Act, 1960, provided that the rights and obligations between the government and its grantee would not be affected by sub-leases granted under the U.P. Tenancy Act. The Court held that the entries in revenue records and recognition of any tenancy rights under the U.P. Tenancy Act could not affect the Govt. Grant's overriding effect.3. Bona fides of the transfers in favor of transferees comprised in Groups I & II:The Court found that the transfers made after the cut-off date of 24.1.1971 were not in good faith and were intended to evade the ceiling law. The High Court had found that the sale-deeds were executed in anticipation of the Amendment Act of 1973 and were mostly in favor of persons closely connected with Shri PN Mehta and Shri HP Handa. The consideration received was not duly accounted for in the company's balance sheet. The concurrent findings of lack of good faith were upheld.4. Land to the extent of 250 acres held for running a mechanized farming school:The plea of res judicata was rejected. The Court found that the land was held by the company and not by the school, which had no separate legal existence. The transfers of the land used for the school were made with the intent to evade the ceiling law. The finding in the original proceedings that the land belonged to the school as a separate legal entity was a mistake. The land was subject to the ceiling limit under the Amendment Act of 1973.5. Denial of opportunity of hearing to the transferees of land/breach of principles of natural justice:The Court acknowledged that the transferees were necessary parties and should have been heard. However, since the High Court had already given them a detailed hearing, the Court declined to remand the case. The High Court had critically examined all relevant evidence and found the transfers lacked good faith. The Court refrained from making a remand order as it would not likely change the decision on merits.6. Costs imposed as damages:The High Court had imposed heavy costs of rupees ten lacs on the Farm for unauthorized use and occupation of surplus land. The Court found that the High Court, in effect, awarded lump sum damages as costs. The quantification of damages for use and occupation of surplus land should be done by the Ceiling authorities under Section 16 of the Ceiling Act. The Court set aside the costs imposed by the High Court but maintained the rest of the High Court's order.Conclusion:All appeals were dismissed, and the High Court's order, except for the imposition of costs, was maintained. The costs imposed by the High Court were set aside, and each party was left to bear their own costs and expenses.