Holding

The Supreme Court held that the Act applies to the land and transaction, the sale deeds are void as prohibited loan transactions, the Sub‑Divisional Officer complied with statutory requirements, and no order for payment of market value is justified.

Summary

The appellant Namdeo purchased land from the son of a moneylender who had obtained a loan from the original owner, Rama Krishna, by oral mortgage in 1964. The Sub‑Divisional Officer held that the transaction was a prohibited loan, not a genuine sale, because the original owner remained in possession, and declared the 1964 and 1974 sale deeds void under the Madhya Pradesh Samaj Ke Kamjor Vargon Ke Krishi Bhumidharakon Ka Udhar Dene Walon Ke Bhumi Hadapane Sambandhi Kuchakron Se Paritran Tatha Mukti Adhiniyam, 1977. The appellant argued that the Act did not apply because the land exceeded the prescribed size, the transaction pre‑dated the Act, and procedural requirements under Section 6 were not fulfilled. The Supreme Court held that the land fell within the 4‑hectare irrigated limit, that the Act applies to the transaction despite its pre‑1971 date because the deed was intended as a mortgage, and that the Sub‑Divisional Officer had substantially complied with Section 6(4). Consequently, the sale deeds remained void, no direction to pay market value was warranted, and the appeal was dismissed.

Issues considered

The applicability of the 1977 Act to the land in question based on its size.
Whether the Act applies retrospectively to transactions entered into before its commencement.
Whether the agreement of sale dated 1969 and deed executed in 1974 fall within the prohibited period.
Whether the Sub‑Divisional Officer complied with the conditions enumerated in Section 6(4) and if any non‑compliance caused a failure of justice.
Whether Section 7(2) requires the authority to direct the moneylender to pay the market value of the land.

Legislation cited

Madhya Pradesh Samaj Ke Kamjor Vargon Ke Krishi Bhumidharakon Ka Udhar Dene Walon Ke Bhumi Hadapane Sambandhi Kuchakron Se Paritran Tatha Mukti Adhiniyam, 1977s. 2(a), s. 2(c), s. 4, s. 6(4), s. 7(1)(a), s. 7(2)

Subjects

agricultural landprohibited loan transactionvoid saleretrospective applicationland reform ActMadhya Pradeshmoney lendermortgagepossessionSection 7

Judgment

NAMDEO A
v.
COLLECTOR, EAST NEEMAR, KHANDWA AND ORS.

AUGUST 22, 1995

(K. RAMASWAMY AND B.L. HANSARIA, JJ.} B

M.P. Samaj Ke Kamjor Wa1gon ke Krishi Bhumidharankon Ka Udhar
Dene Walon Ke Bhumi Hadapane Sambandhi Kuchakron Se Paritran Tatha
Mukti Adhiniyam, 1977: Sections 2(a), (c), 4, 6(4) and 7.

"Holder of Agricultural Land'!._..Weaker .Section-Obtaining of
c
loan-Sale of land for-Prohibited transaction-On facts held transaction was
prohibited and thus void-Extent of land covered by prohibition-Power of
authorities to declare prohibited transaction as void-Compliance with
statutory requirement.
D
Retrospective operation of Ac~Agreement to sell before coming into
force of the Act-Documents purporting to be sale deed not intended to be a
conveyance-Act held applicable to such a transaction.

R, owner of certain lands obtained loan from L, a money lender, by
oral mortgage of his land in 1964. L got the sale-deed executed in favour E
of his son D who later sold the land in question to the appellant. On the
application of the original owner the Sub-Divisional Officer found tha~ it
was not a transaction of real sale but of prohibited loan because even after
several years of the transaction the original owner was in possession of the
disputed land. Consequently, an order was passed declaring that the initial F
sale as well as subsequent sale-deed by D in favour of the appellant was
void under the provisions of the 1977 Adhiniyam and accordingly directed
the appellant to deliver possession of the land to the original owner. This
order was confirmed in appeal by the Tribunal and upheld by the High
Court. In appeal to this Court it was contended for the appellant that (i) G
the Act has no application because (a) the land covered by the 1964 sale
deed is not covered within the specified extent of land declared in the Act;
-'. (b) the transaction took place in 1964 while the Act came into force in 1971;
(c) the transaction dates back to the date of agreement to sell which was
effected in 1969; (ii) failure to record a finding by Sub-Division Officer as
required under section 6 relating to conditions enumerated in sub-section H
869
870 SUPREME COURT REPORTS [1995] SUPP. 2S.C.R.

A (4) resulted in failure of justice; (iii) the order passed by the authorities 1
was in violation of section 7(2) of the Act; and (iv) the appellant is ready
to pay the market value of land, therefore, an order to that effect be passed.

Dismissing the appeal, this Court
B
HELD :1. A reading of section 2(c) indicates that a holder of an
agricultural land not exceeding 8 hectares of unirrigated land or 4 hectares
of irrigated land within the State as a Bhoomiswami or occupancy tenant
or a Government lessee either in any one or all of the capacities together
C is a holder of agricultural land. The Sub-Division Officer had recorded a
finding that what remained in possession of L, money lender and his son
D was 8 acres 20 gunthas and, therefore, it is within the specification of 4
hectares of irrigated land. The Act thereby clearly becomes applicable to
be lands in this case. [873-A-B]

D 2. The Sub-Divisional officer found that though sales were effected
only in 1974 but the document which purported to have been a sale deed of
1964 was not really intended to be a conveyance. The Tribunal found that R
never intended to sell the land; and L, being a money lender, made the
document as if a sale deed, which was intended to be a mortgage deed. This.
fact gets corroboration from the finding and revenue entries that the owner
E
remained in possession of the lands. Therefore, even if the sales were
effected in 1974, the Act becomes applicable to such transactions. [873-D-E]

3. An agreement of sale does not convey any right, title or interest.
It would create only an enforceable right in a court of law and parties could
·F act thereon. The right, title and interest in the land of D stood extinguished
only on execution and registration of the sale deed in 1974. Therefore, the
sale deeds are within the prohibited period. [873-F]

4. The High Court had agreed with the finding by the statutory
G authorities that the Sub-Divisional Officer had substantially complied with
the provisions in sub-section (4) of section 6 of the Act. So, the non-con-
sideration of the enumerated circumstances did not cause any failure of
, justice. [874-E]
.-
)

5. Sub-section (2) of Section 7 comes into operation only when no
H positive finding under section 7(1) is recorded. 0Dly the authorities are
.. ~
NAMDEO v. COLLECTOR [K RAMASWAMY, J.] 871

required to go into the questions envisaged in sub-section (2) and other A
follow-up action mentioned in that behalf in sub-section (4) of section 6 of
the Act. Since the finding of the authorities was that there was no adequate
consideration and the sale was within the prohibited period, the findings
recorded are under section 7(1)(a) of the Act; consequently, the need to
make enquiry as is necessary under clause (b) of section 7(1)(ii) read with
B
sub-section (4) of section 6, does not arise. [875-C-D]

6. In view of the finding that the transaction is vitiated, because of
which it was set aside exercising power under section 7(1)(a) of the Act,
there is no justification to interfere with that order and given a direction
to pay the market value. [875-E] c
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7458 of
1995.

From the Judgment and Order dated 4.3.91 of the Madhya Pradesh
High Court in Misc. P. No. 1276 of 1983. D
.... P.P. Rao, Vivek Gambhir and S.K. Gambhir for the Appellants .

-- S.S. Khanduja, Ms. Suchitra Chitale for S.K. Agnihotri for the
Respondents.
E
The Judgment of the Court was delivered by

K. RAMASWAMY, J.: Leave granted.

The appellant is a subsequent purchaser from Devi Prakash son of
r Laxman Prasad. The case of Rama Krishna, the original owner, is that he F
had obtained loan from Laxman Prasad, admittedly a money- lender, by an
oral mortgage of 12 acres and 20 gunthas of land. Laxman Prasad had
delivered 4 acres and odd and got the sale deed executed for 8 acres 30
gunthas of th~ land in the name of his minor son Devi Prakash. Therefore,
he comes within the provisions of M.P. Samaj Ke Kamjor Wargon Ke
G
Krishi Bhumidharakon Ka Udhar Dene Walon Ke Bhumi Hadapane Sam-
bandhi Kuchakron Se Paritran Tatha Mukti Adhiniyam (for short, 'the
Act'). The Sub-Divisional Officer by his order dated August 27, 1982
recorded a finding that:

"Applicant's witness No. 2 Ram Krishna Matharam and applicant's H
872 SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.

A witness No. 3 Kadulal have supported this statement. Alongwith
this, non-applicant Eknath (one of the subsequent purchasers) has
admitted that upon execution of the instrument of the transaction
. possession continued and remained with Ram Krishna. It is thus
clear from the testimony of these witnesses that for several years
after the transaction effected in 1964, Ram Krishna was in posses-
B sion of the disputed land. It is noticeable that in Khasra 1969-70
also, his partial possession has been shown. Thus from these facts
it appears prima facie that the transaction in question was a
prohibited transaction of loan because, if it was a transa~tion of
real sale, then Laxman Prasad and Devi Prakash must have taken
c the land in their possession soon after the execution of the instru-
ment of transaction."

Thus, it was declared that the initial sale dated March, 17, 1964 and
the subsequent sale deed executed by Devi Prakash in favour of the
appellant and another sale deed in favour of Eknath on May 23, 1974 are
D void and directed the appellant and Eknath to deliver possession of the
lands to Ram Krishna. On appeal it was confirmed. When the appellant
and another challenged under Article 226 in Misc. Petition No. 1276/83
and another, the Division Bench of M.P. High Court by order dated March
4, 1991 upheld that the orders of the tribunals. Thus this appeal by special
E leave.

Shri P .P. Rao, the Learned Senior counsel has contended that the
Act has no application for the reason that the land covered by 1964 sale
deed relates to 12 acres 20 gunthas while the Act would become applicable
when sale transactions are covered within a specified extent of land
F declared in the Act. We find no force in the contention.

Section 2(c) of the Act states that :

(c) " holder of agricultural land" in the weaker sections of the
people means a holder of land used for purposes of agriculture
G
not exceeding eight hectares of unirrigated land or four hectares
of irrigated land within the State whether as a Bhumiswami or an
occupancy tenant or a Government lessee either in any one or all
of the capacities together within the meaning of the Code." r -

H A reading thereof indicates that a holder of an agricultural land not
NAMDEO v. COLLECTOR [K. RAMASWAMY, J.) 873
~

" exceeding 8 hectares of unirrigated land or 4 hectares of irrigated land A
within the State as a Bhoomiswami or occupancy tenant or a Government
lessee either in any one or all of the capacities together is a holder of
agricultural land. It is seen that the Sub-Division Officer had recorded a
finding that what remained in possession of Lakshman Prasad and his son
Devi Prasad was 8 acres 20 gunthas and, therefore, it is within the specifica-
B
tion of 4 hectares of irrigated land. The Act thereby clearly becomes
applicable to the lands in this case.

It is next contended that the Act applies only to sale transactions
effected from the appointed date, namely, January 1, 1971 as specified in
Section 2(a). Since the original transaction had taken place in 1964 the Act c
cannot be applied retrospectively. It is seen that the Sub-Divisional officer
recorded that though sales were effected only in 1974 but the document
which purported to have been a sale deed of 1964 was not really intended
to be conveyance. The finding recorded by the Tribunals below was that
Ram Krishna never intended to sell the land; and Laxman Prasad, being a
D
money lender, made the document as if a sale deed, which was intended

.. ~ to be a mortgage deed. This fact gets corroboration from the finding and
revenue entiries that the owner remained in possession of the lands .
Therefore, even if the sales w,ere effected in 1974, the Act becomes
applicable to such transactions.
E
The further contention is that there was an agreement of sale by Devi
Prasad with the appellant in the year 1969 and that deed was executed in
1974, it dates back to the date of agreement and, therefore, the Act is
inapplicable. We find no force in the contention. An agreement of sale
does .not convey any right, title or interest. It would create only an enfor- F
ceable right in a court law and parties could act thereon. The right, title
and interest in the land of Devi Prasad stood extinguished only on execu-
tion and registration of the sale deed and admittedly it is done in 1974.
Therefore, the·sale deeds are within the prohibited period.

It is also urged that the Sub-Divisional Officer has to consider and G
record a finding, as enjoined under s.6 of the Act relating the conditions
...-
enumerated in sub-s.(4) thereof. The authorities have not considered, more
particularly, with reference to the urgency of the loan, availability of other
sources; also the market value of the land at the time of the transaction
and the adequacy of the consideration passed under the documents. It is H
874 SUPREME COURT REPORTS (1995] SUPP. 2 S.C.R.
1'
....
A true that the enumerated circumstances are required to be considered in
juxtaposition with the power under s.4 of the Act, which reads :

"4. All prohibited transactions of loan to be subject to protection
and relief under this Act -

B It is hereby declared that all claims in relation to a prohibited
transaction of loan subsisting on the appointed day or entered into
thereafter but on or before the date of publication of this Act in '-'(

the Gazette shall, notwithstanding anything contained in the Code
or any other enactment for the time being in force or any decree
or order, if any of any court or authority, be subject to protection
c and relief in accordance with the provisions of this Act."

On recording a finding by the authority that the transaction in
question was a prohibited transaction of loan, it would be entitled to
declare, under s.7 that the sale is a void sale or unenforceable. The
D authorities have recorded the findings that Rama Krishna never intended
to sell the land, he had obtained loan of a sum of Rs. 2000 and odd, and
he repaid the amount with interest. These consideration obviously weighed ,..J.
with the authorities and the High Court had agreed with the finding by the
statutory authorities that the Sub-Divisional Officer had substantially com-
....
plied with the provisions in sub-s.(4) of s.6 of the Act. So, the non-con-
E sideration of the above-mentioned circumstances did not cause any failure
of justice. Of course, it would have been better to record findings qua these
also.

It is brought to our notice that under sub-s.(2) s.7 an attempt has to
F be made by the authority to find out what was the actual consideration that
1
had passed and what was the prevailing price of the lands at the date of
sale. The authorities are then entitled to direct the moneylender to pay the
difference to the holder of the agricultural land. The object of the Act is
to see that the debtor gets adequate consideration for his land. No such
attempt was made by the authorities, and so, the order passed is illegal.
G We find no force in the contention. It is seen that sub-s.(1) of s.7 mandates
that when the Sub-Divisional Officer is satisfied that the transaction of loan
is not a prohibited transaction of loan, he shall dismiss the application or
close the proceedings. But if he records a finding that the transaction is of "'
I

loan "in substance" and is a prohibited transaction of loan, he should
H declare such transaction to be void, should pass an order, setting aside the
~ NAMDEO v. COLLECTOR [K. RAMASWAMY, J.] 875
.,.,
transfer of the land to the creditor or money-lender's nominee or sub- A
sequent seller and he should restore possession of the land to the debtor,
i.e., holder of the agricultural land. Sub-s.(2) comes into operation only
when no positive finding under s.7(1) is recorded. Clause (b) of Section
7(1)(ii) states that :

"(b) where in his opinion it is not feasible to restore the possession B
of land, pass order directing the lender of money to pay the
difference of price under sub-s.(2)."

In the aforesaid situation only the authorities are required to go into the
questions envisaged in sub-s.(2) and other follow-up action mentioned in
that behalf in sub-section (4) of s.6 of the Act. Since the finding of the
c
authorities was that there was no adequate consideration and the sale was
within the prohibited period, the findings recorded are under s.7(1)(a) of
the Act; consequently, the need to make enquiry as is necessary under
clause (b) of s.7 (1) (ii) read with sub-s.(4) s.6, does not arise.
D
The final submission is that since 1974 the appellant has been in
possession of the lands and he has improved the land, he is prepared to
pay the prevailing market value as on dati;: and a direction in this behalf
may be given. Learned counsel for the contesting respondents has stated
that his client is interested to get back possession of the land, and not
money. In view of the finding that the transaction is vitiated, because of E
which it was set aside exercising power under s.7(a) of the Act, we do not
think that we will be justified to interfere with that order and give a
direction to pay the market value.

r .
The appeal is accordingly dismissed. No costs.
F
T.N.A. Appeal dismissed.

r