P L D 1962 Supreme Court 134 (PLP)

B. Z. KAIKAUS J.

This appeal, by special leave, arises out of a suit for rent filed by Sheikh Md. Shafi respondent against Abdur Razzak Howladar appellant to recover a sum of Rs. 16,000, Rs. 15,000 being claimed as rent of the premises which were let out to appellant by the predecessor-in-interest of the respondent and Rs. 1,000 as compensation for failure of the appellant to pay the rent in spite of repeated demands. Allegations in the plaint were that the premises in dispute belonged to one Hira Lal Paul, who let out the premises to the defendant-appellant on the 12th day of December 1950, at Rs. 6,000 per year and received a sum of Rs. 6,000 as advance rent for a year; that on the 1st of April 1951, Hira Lal Paul transferred all his right, title and interest in the property in dispute to the plaintiff respondent by means of a registered deed of transfer ; and that the defendant-appellant had failed to pay rent of the premises for two and a half years. The defendant admitted that the property had been leased out to him by Hira Lal Paul on the 12th December 1950 at an annual rent of Rs. 6,000 and that the plaintiff was transferee of the rights of Hira Lal Paul, but he alleged that the lease had been created by a written agreement and was for a period of five years, and that no rent was due from him for he had, on the day on which he took the premises on lease from Hira Lal Paul, that is, on the 12th day of December 1950, paid a further sum of Rs. 12,000 to Hira Lal Paul as a loan to be utilized for the purpose of constructing godowns on the premises in dispute which sum was according to the agreement of the parties as embodied in the lease deed to be adjusted towards rent payable for the second and third years of the lease. The defendant contended that the plaintiff had purchased the premises subject to the conditions of the lease in his favour and therefore he was entitled to the adjustment provided for In the lease deed. The defendant produced in evidence the unregistered lease deed the genuineness of which is no longer in dispute. By this lease deed which is dated the 12th December 1950, Hira Lal Paul granted to the defendant lease of the premises in dispute for a period of five years at an annual rent of Rs. 6,

000. Clause 11 of this agreement on which is based the plea of the defendant runs as follows :- "That the lessee advances to the lessor a sum of Rs. 6,000 (Rupees six thousand) only on account of the rent of the first year of the lease and for the purpose of construction of the godowns referred to before further gives to the lessor an accommodation loan of Rs. 12,000 (Rupees twelve thousand) only without any interest therein : such sum of Rs. 12,000 will be satisfied by the rents that would be due for the second and third years of the lease only." The learned Subordinate Judge who tried the suit was of the opinion that the loan of Rs 12,000 amounted to an advance payment of rent; that the plaintiff had constructive notice of this payment for the plaintiff ought to have made enquiries from the defendant who was in possession and if he had made such enquiries he would have come to know of the payment: and that the plaintiff' being a transferee from Hira Lal Paul was bound by all the equities that existed against his transferor. On these findings the trial Court gave the defendant the benefit of payment of Rs. 12,

000. It accepted however the claim of the plaintiff to a sum of Rs. 2,137-8-0 as rent because to this sum the plaintiff was entitled even if the defendant was given the benefit of Rs. 12,

000. Adding Rs. 267-3-0 as compensation for withholding payment the trial Court passed a decree for Rs. 2,404-11-0 with proportionate costs. Both parties appealed to the High Court. The learned Judges of the High Court came to the conclusion that the plaintiff had no notice of the agreement about adjustment of loan. They rejected the plea of adjustment and allowing the appeal of the plaintiff and decreed the suit for a further sum of Rs. 11,732-13-0 with proportionate costs. In this appeal by the defendant the first contention of learned counsel for the appellant is that what was termed a loan was really an advance payment of rent for the second and third years of the lease and that the liability to pay the rent for these years stood discharged on the day the lease was created. This contention appears to us to be entirely without force. If the intention of the parties was that the total sum of Rs. 18,000 was being paid as advance rent no need existed for splitting it into two portions and describing Rs. 6,000 as advance rent and Rs. 12,000 as loan. In that case clause 11 would have simply stated that Rs. 18,000 had been paid as advance rent for three years. It has been urged before us by learned counsel for the appellant that the sum of Rs. 12,000 was expressed to be a loan because Hira Lal Paul wanted to evade payment of income-tax, but whatever the reason for the wording of clause 11 if the parties deliberately chose to give the transaction a particular'' form they must take the consequences. The defendant does not advance his case by pleading that the intention was to commit a fraud on the law relating to income-tax. A party to a fraud is not except in circumstances with which we are not here concerned allowed to plead his own fraud. The second contention on behalf of the appellant is that the sum of Rs. 12,000 did not merely represent a personal debt payable by Hira Lal Paul to the defendant but became a charge on the rents and profits of the premises in dispute and as the plaintiff had constructive notice of the charge it could be enforced against him. A charge comes into existence when property of one person is by act of parties or operation of law made security for the payment of money to another and the transaction does not amount to mortgage. By means of clause 11 rent for the second and third years of the lease was made security for the payment of the debt of Rs. 12,(

00. The question would be whether rents and profits which are to accrue in future are `property'. According to section 3 (25) of the General Clauses Act and section 2 (6) of the Registration Act benefits to arise out of immovable property are immovable property. Future rents and profits are benefits to arise out of land and therefore immovable property. This conclusion receives support from the judgment of the Judicial Committee of the Privy Council In M. E. Moolla Son Ltd. tin Liquidation) v. Official Assignee of the High Court of Judicature at Rangoon and others (63 I A 340) wherein the proposition appearing in an Indian case to the effect that future rents in respect of land are benefits to arise out of the land was fully endorsed and a distinction was made between rent already accrued and rent to accrue in future. Rent already accrued it was held would not be immovable property, for it was not a benefit "to arise out of land", but rent still to accrue was immovable property. It is necessary to explain here, however, that future rent payable by a lessee to whom the property has already been leased has two aspects and it is only in one of its aspects that it is to be regarded as immovable property. In one aspect, it is a benefit which arises out of the use of land. In the other aspect, however, it is, merely a consideration for the transfer of rights in land. In a lease the lessor transfers an interest in immovable property to the lessee and the rent is consideration for this transfer. A right to receive the consideration for a lease is not immovable property any more than a right to receive the consideration in the case of at mortgage or sale of immovable property is immovable property. When property is given in mortgage against a sum of money there is a transfer of an interest in immovable property for a consideration as there is in the case of a lease but the amount received has never been regarded as a benefit arising out of land. Similar observations would apply to a case where the property is sold outright. Although rent too is consideration for the transfer of an interest in land it is regarded as a benefit to arise out of the land because it has another aspect. It is something which the owner receives on account of the use of the land. It will appear, therefore, that the defendant is on good ground when he says that the effect of clause 11 would be to create a charge on the amount of rent payable for the second and third years of the lease. The difficulty, however, 1n the way of the appellant is that a document creating a charge for more than Rs. 100 requires registration. The lease deed in which this clause occurs admittedly requires registration on account of section 107 of the Transfer of Property Act as well as section 17 of the Registration Act, but that is not the point just now under consideration. Clause 11 in so far as it creates a charge itself requires registration. According to section 17 (1) (b) of the Registration Act every non-testamentary instrument which purports to create any right of the value of Rs. 1C0 or upwards to or in any immovable property must be registered. A charge on future rent does not create any right in immovable property but it does create a right to immovable property, for future rents and profits are immovable property and this clause creates a right to E adjust those rents towards payment of a debt. The intention of section 17 (1) (b) was to make registration compulsory not only in cases where an instrument created rights in property but even where it created such rights as though not in the property itself have such a relation to it that ultimately they affect rights in it. On behalf of the respondent it has been argued before us that according to section 100 of the Transfer of Property Act pro visions relating to a simple mortgage apply "so far as may be" to a charge and as a simple mortgage for a hundred rupees or more can be effected only by a registered instrument a charge for a hundred rupees or more can also be effected only by a registered instrument. It is not necessary to determine the scope of the words "so far as may be" occurring in section 100, because of our opinion that section 17 (1) (b) of the Registration Act requires the instruments creating a charge to be registered. Face with the difficulty that the instrument of charge was not registered learned counsel for the appellant relied upon section 53-A of the Transfer of Property Act, 1882, read with section 49 of the Registration Act. It would be convenient to reproduce here section 53-A of the Transfer of Property Act. It runs:-- "Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract takes possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there 1s an instrument of transfer, that the transfer has not been completed In the manner prescribed therefore by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract, Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof." It will be observed that this section is applicable only to cases where a person contracts to transfer immovable property or executes an instrument of transfer which is not registered. AI charge admittedly does not transfer any interest and therefore this section cannot be invoked in respect of a charge. While section 53-A is of no help to the defendant in so far as he relies upon clause 11 as creating a charge it does come to his assistance if the agreement contained in this clause was one of the conditions of the lease granted to the defendant, A lease is a transfer of immovable property and to a lease deed which requires registration section 53-A will be applicable if its conditions are satisfied. According to section 53-A the transferor or any person claiming under him cannot claim any right in respect of the property of which possession has been taken by the transferee except a right reserved by the terms of the contract. In the present case the lease was created for a period of five years. It could not, in view of the provisions of section 107 of the Transfer of Property Act, and section 17 of the Registration Act be created by an unregistered document. However the lessee entered into possession and paid money to the lessor in accordance with the terms of the lease deed and therefore the protection of section 53-A became available to the lessee. This section prohibits the enforcement by the transferor or any person claiming under him of "any right in respect of the property of which the transferee has taken possession", as long as the transferee is willing to perform his part of the contract. The only obligation on the transferee in accordance with this section is that he Is to perform his part of the contract and if he does so he gets the full benefit of section 53-A and he can successfully resist enforcement of any right in respect of the property of which possession has been taken. A right to receive consideration for the transfer is a right in respect of the property of which possession has been taken. The effect of section 53-A is that the transferor can recover consideration only in accordance with the terms of the contract and the transferee can in lieu of such consideration successfully defend his possession of the property transferred. Clause I 1 was a part of the conditions of the deed. It is not a case of an independent transaction if loan which may have been agreed to be satisfied out of the rents and profits of property. The parties had agreed beforehand that the sum of Rs. 12,000 would be advanced as loan, for with this loan the lessor was to build godowns and the lease was to commence on the day on which after completing the godowns the lessor gave possession to the lessee. The lessee, therefore, in order to get the benefit of section 53-A has only to pay the consideration, that is, the lease money, in accordance with clause

11. This brings us to the question of notice for the protection of section 53-A is not available against a transferee for considera tion without notice of the contract, and the case of the plaintiff has been that he is such transferee. The High Court had, after a consideration of the whole evidence, come to the conclusion that the plaintiff had no notice of what is contained in clause

11. Before us it has been contended by learned counsel for the appellant on the strength of some cases from pre-Partition India which are ultimately based on some English authorities that possession of the defendant over the premises in dispute at the time of transfer in favour of the plaintiff was sufficient to put the plaintiff on enquiry and that if he wilfully abstained from an inquiry which he ought to have made he should be deemed to have constructive notice of what he would have found had he made that enquiry. These cases relate to agreements to sell which were in the possession of tenants. The proposition put forward by learned counsel for the appellant was (and it did receive support from the cases cited) that if a tenant be in possession of land which is transferred it is the duty of the purchaser to make an enquiry from the tenant as to the nature and incidents of his title. With this broad proposition we find ourselves unable to agree. Immovable property in a town or an agricultural estate may have hundreds or even thousands of tenants on it. It cannot be the duty of a person who purchases large property to make an inquiry from every one of the tenants of the property as to any agreements relating to the property which be may possess. A duty to make enquiry would arise only if there be some circumstance which puts the purchaser on enquiry. That tenants are in possession of the property which Is purchased is not a fact which by itself will put the purchaser on enquiry, for this may be and will probably be the normal incident of the property purchased. Property may be in the possession of occupancy tenants, or it may consist of only the rent-receiving interest. Would the purchaser of such property be bound to make enquiry from all the tenants as to whether they have not in their possession an agreement for its purchase ? When a person purchases a property his vendor may tell him that all the persons who are on the property are tenants and he may at the same time produce registered leases or rent notes executed by the tenants. If there was nothing suspicious the need of any further enquiry would not arise at all. Possession which is prima facie lawful does not call for an enquiry. If, however, a person was in possession without any apparent title, or if the explanation given about the title of such person by the vendor was unsatisfactory, there would be good grounds for making further enquiry. The purchaser cannot be penalized unless he has somehow failed in his duty and his duty would not arise unless there is something in the circumstances which puts a person of ordinary prudence on enquiry. To hold that the purchaser has notice of any and every unregistered agreement which may be in the possession of a tenant amounts to giving to every unregis tered agreement in favour of a tenant the effect of a registered document. Also this would open the door to fraud. If tenants of property want to protect their interests in respect of agreements that they possess the proper course for them is to get the agreements registered. As will follow from the observations made above the question as to whether there were circumstances putting the trans feree on enquiry is a matter to be decided on the facts of a particular case. An examination of the facts of the present case reveals that the plaintiff knew the date of the lease, he knew the amount of annual rent which was fixed and he knew also that Rs. 6,000 had been paid as advance. His case is that the vendor supplied him with a list of the tenants along with the rents that were payable by each tenant. In the case of the defen dant the rent fixed was Rs. 6,000 a year and Rs. 6,000 had been paid fn advance. The transaction could legally come into existence only by means of a registered document, and one would naturally expect an enquiry on the part of the plaintiff as to the existence of a lease deed. The advance rent of Rs. 6,000 also would ordinarily be paid only as against a receipt. The cir cumstances are certainly such as would put a prudent man on enquiry. The plaintiff does not explain whether he made any enquiry from his vendor as to the existence of the lease deed or the receipt for Rs. 6,

000. He does not state as to how he became satisfied that the advance rent paid was only Rs. 6,

000. He does not say that he made any enquiry from the defendant. Had he made proper enquiries be would have come to know of the real facts and he should therefore be fixed with the knowledge of clause 11 of the agreement of lease. We have deliberately avoided deciding the question as to whether in a case under section 53-A the burden of proving notice or want of it lies on the person who claims the benefit of section 53-A or the opposite party and we should not be under stood as expressing any opinion on that point. We hold that the plaintiff is bound by the agreement con tained in clause

11. Accepting the appeal, we set aside the decree of the High Court and restore that of the trial Court but as success is divided parties will bear their own costs throughout. K.B.A./A.H. Appeal accepted.