Holding

A pre-emption right accrues only to a claimant with a superior right when the vendee also has a pre-emption right, and BP's superior right prevails, leading to dismissal of the appeal.

Summary

The appeal concerned a dispute over a courtyard shared by two brothers, Beni Prasad (BP) and Kirorilal, who were joint owners of the amenity. Kirorilal sold his share to Devicharan (DC), who also claimed a right of pre-emption under the Rajasthan Pre-emption Act, 1966. The central issue was whether BP's pre-emption right, as a brother of the seller, was superior to DC's right arising from a common amenity under Section 6(1)(ii). The Supreme Court examined the wording of Section 5(1)(c) and held that the right of pre-emption accrues only to a person with a superior right when the vendee also possesses a pre-emption right. Applying Section 6(3), the Court found BP's right to be superior to DC's, rendering DC's claim inferior. Consequently, the Court affirmed the lower courts' interpretation and dismissed the appeal. No costs were awarded.

Issues considered

When does the right of pre-emption accrue under the Rajasthan Pre-emption Act, 1966?
Does Section 5(1)(c) bar the accrual of a pre-emption right when the vendee also holds a pre-emption right?
How should the comma in Section 5(1)(c) be interpreted – conjunctively or disjunctively?
Whether Beni Prasad possesses a superior right of pre-emption over Devicharan under Section 6(3).

Legislation cited

Code of Civil Procedure, 1908s. 100
Rajasthan Pre-emption Act, 1966s. 4, s. 5(1)(c), s. 6(1)(ii), s. 6(3)

Subjects

right of pre-emptionRajasthan Pre-emption Actsuperior rightinferior rightstatutory interpretationproperty lawjoint ownership

Judgment

[2020] 3 S.C.R. 891 891

SURESH CHAND AND ANR. A
v.
SURESH CHANDER (D) THR LRS. AND ORS.
(Civil Appeal No. 482 of 2020)
FEBRUARY 19, 2020 B
[DR. DHANANJAYA Y. CHANDRACHUD AND
AJAY RASTOGI, JJ. ]
Rajasthan Pre-emption Act 1966: ss. 6, 5 – Right of pre-
emption – When accrues – Held: Right of pre-emption is a
C
preferential right to acquire the property by substituting the original
vendee – Transfer or sale of an immovable property is a condition
precedent to the enforceability of the right – Right of pre-emption is
attached to the property and only on that footing it can be enforced
against the vendee – Though the right is recognised by law, yet it
can be rendered imperfect by the vendor when he transfers the D
property to another person who also has a superior right to
pre-emptor – On facts, plaintiff and second defendant were brothers
in joint possession of courtyard having half share each and second
defendant sold house alongwith courtyard to first defendant – As
regards plaintiff ’s claim for right of pre-emption, plaintiff had a
E
superior right of pre-emption by virtue of s. 6(3) since he was the
brother of the second defendant and first defendant has an inferior
right of pre-emption as compared to plaintiff, hence his claim cannot
prevail over the superior right of pre-emption of plaintiff – Courts
below rightly proceeded on a correct interpretation of the provisions.
F
Dismissing the appeal, the Court
HELD: 1.1 Section 5 of the Rajasthan Pre-emption Act,
1966 provides for cases in which the right of pre-emption does
not accrue. As a result of Section 5(1)(c), the right of pre-emption
does not accrue on a transfer of the property to any of the persons
mentioned in Section 6, to any person who has an equal or inferior G
right of pre-emption. In a case, where a transfer is to a person
mentioned in Section 6, the right of pre-emption does not accrue
to any person who has an equal or inferior right of pre-emption.
In other words, in a case where the vendee also has a right of
H
891
892 SUPREME COURT REPORTS [2020] 3 S.C.R.

A pre-emption u/s. 6, the right of pre-emption will accrue only to a
person with a superior right of pre-emption. [Para 11][898 A-C]
1.2 Section 6(1) specifies the persons to whom the right of
pre-emption accrues. Under Section 6(1)(ii), a right of
pre-emption accrues in respect of an immovable property to
B owners of other immovable property with a stair-case, entrance
or other right or amenity common to such property and the
property that is transferred. Where a right of pre-emption enures
to the benefit of a person under the provisions of s. 6(1)(ii), a
consequence emanates in terms of s. 5(1)(c). The effect of s. 5(1)(c)
is that a right of pre-emption does not accrue, on a transfer to
C any person mentioned in s. 6, to any person who has an equal or
inferior right of pre-emption. Where a transfer is to any of the
persons mentioned u/s. 6, the right of pre-emption to the claimant
accrues only if the claimant has a superior right. The right of
pre-emption, as Section 4 indicates, is subject to the provisions
D of Section 5. Consequently, where any of the provisions of Section
5 come into operation, the right of pre-emption would not be
available. [Paras 12, 13][898-C, G-H; 899 A-C]
1.3 The right of pre-emption is a preferential right to acquire
the property by substituting the original vendee. The transfer or
E sale of an immovable property is a condition precedent to the
enforceability of the right. The right of pre-emption is attached
to the property and only on that footing can it be enforced against
the vendee. Though the right is recognised by law, yet it can be
rendered imperfect by the vendor when he transfers the property
to another person who also has a superior right to the pre-emptor.
F [Para 15]
1.4 In the instant case, it has come on the record before
the trial court that DC, the predecessor of the appellants, had a
pre-existing right in respect of the amenity of the common
courtyard or sahan. This was admitted in the written statement
G filed by BP in the Suit. PW 1 during his cross-examination was
confronted with the above written statement. What emerges from
the above admission is that DC had a right in common in respect
of the amenity of the courtyard. During the course of proceedings
before this Court, it was admitted that the courtyard was shared
H between BP and DC. Therefore, both their rights would fall within
SURESH CHAND AND ANR. v. SURESH CHANDER (D) THR. 893
LRS. AND ORS.

the ambit of the provisions of Section 6(1)(ii). In terms of the A
provisions of s. 5(1)(c), the right of pre-emption would not accrue
to any person with an equal or inferior right of pre-emption. KL
executed a sale deed in favour of DC who within the meaning of
s. 6(1)(ii) had a right of pre-emption. But the right of pre-emption
of DC was inferior to the right which was claimed by BP as the
B
brother of KL, DC right u/s. 6(ii) was subject to a superior right
of BP by virtue of s. 6(3). Section 6(3) states that even among
persons of the same class, the nearer in relationship to the person
whose property is transferred excludes the more remote. [Para
16][900 D-H; 901 A-C]
1.5 It was submitted that the comma appearing in s. 5(1)(c) C
should be read as “or” and the Section must be interpreted
disjunctive; that s. 5(1)(c) should be read as “the right of pre-
emption shall not accrue... on a transfer to any of the persons
mentioned in s. 6” or “the right of pre-emption shall not accrue...
to any person who has an equal or inferior right of pre-emption”; D
that the plaintiff-BP would not be covered by the first part as the
first defendant-DC would be covered by s. 6(1)(ii) and the second
part would not apply to the plaintiff as he only has an inferior
right of pre-emption against the defendant; that the plaintiff cannot
claim any right of pre-emption where a transfer is affected by a
person who is covered by any of the clauses of Section 6. However, E
the disjunctive interpretation of Section 5(1)(c) as suggested
cannot be countenanced in view of the plain text of the provision.
Reading the provision in a manner as suggested would amount
to an exercise of legislative re-drafting. This is impermissible.
[Para 17][901 B-F] F
1.6 The two segments of s.5(1)(c) are that the first segment
contains the words “on a transfer to any of the persons mentioned
in s. 6; and the second segment comprises of the words “to any
person who has an equal or inferior right of pre-emption”. Both
segments are separated by a comma and refer to two separate G
sets of persons. In the first segment the expression “any of the
persons” refers to the vendee. In the second segment, the
expression “any person” refers to the claimant. In the instant
case, the plaintiff-BP had a superior right of pre-emption by virtue
of the provisions of Section 6(3) since he was the brother of the
H
894 SUPREME COURT REPORTS [2020] 3 S.C.R.

A second defendant. DC has an inferior right of pre-emption as
compared to BP. Hence his claim cannot prevail over the superior
right of pre-emption of BP. The concurrent findings of the trial
judge, first appellate court and in second appeal, have proceeded
on a correct interpretation of the provisions. [Paras 18, 19]
[901 F-H; 902 A-C]
B
Bishan Singh v. Khazan Singh AIR 1958 SC 838;
Radhakisan Laxminarayan Toshniwal v. Shridhar
Ramchandra Alshi AIR 1960 SC 1368 – referred to.
Case Law Reference
C AIR 1958 SC 838 referred to Para 14
AIR 1960 SC 1368 referred to Para 14
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 482 of
2020.
D From the Judgment and Order dated 26.11.2010 of the High Court
of Judicature for Rajasthan, Jaipur Bench in S.B. Civil Second Appeal
No. 395 of 2008.
Puneet Jain, Ms. Christi Jain, Abhinav Deshwal, Harshit Khanduja,
Harsh Jain, Ms. Pratibha Jain, Advs. for the Appellants.
E S.K. Sinha, Ms. Seema Kashyap, Advs. for the Respondents.
The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
1. Leave granted.
F
2. This appeal arises from a judgment and order of the High Court
of Judicature of Rajasthan at Jaipur in a second appeal under Section
100 of the Code of Civil Procedure 1908.
3. The issue in the present appeal is whether a right of pre-emption
was available to Beni Prasad who is alleged to be a joint owner in
G
possession of the disputed courtyard. This has arisen in the context of
the Rajasthan Pre-emption Act 19661. Briefly stated, the facts which
have given rise to the present appeal are thus: A suit2 for pre-emption
was instituted by Beni Prasad in the Court of the Civil Judge, Senior
Division, Badi, District Dholpur in Rajasthan. Beni Prasad died during
H 1
“the Act”
2
Civil Suit Case No 71 of 1993
SURESH CHAND AND ANR. v. SURESH CHANDER (D) THR. 895
LRS. AND ORS. [DR. DHANANJAYA Y CHANDRACHUD, J.]

the pendency of the proceedings and is represented by respondents 1 to A
13. Beni Prasad and Kirorilal were brothers. Beni Prasad filed the suit
for pre-emption, against Devicharan who was impleaded as the first
defendant and Kirorilal who was impleaded as the second defendant.The
appellants in the present appeal are the sons of Devicharan. A sale deed
was executed on 6 January 1990 by Kirorilal in favour of Devicharan by
B
which Kirorilal sold his house along with the disputed courtyard to
Devicharan. The basis of the suit was that Beni Prasad and Kirorilal, as
brothers were joint owners in possession of the disputed courtyard having
a half share each. It was argued that the plaintiff in his capacity as the
brother of the second defendant, had a right of pre-emption which would
prevail against the first defendant, in regard to the purchase of the house C
and the courtyardfrom the second defendant. The suit was contested by
the defendants who filed their written statements. The defence was that
the original owners of the property Pyare Lal and Baboo Lal had sold
the disputed house to Prabhu Lal, who was the father of the original
plaintiff and the second defendant. In the written statement, a plea was
D
taken that on 17 January 1956, a partition had been effected between
the members of the family as a consequence of which, the second
defendant was allotted the disputed house and the courtyard and the
original plaintiff was allotted another property.
4. The Trial Court framed several issues of which specifically
issues (iii), (iv) and (vi) have a bearing on the subject matter of the E
present appeal. Issues (iii), (iv) and (vi) read as follows:
“iii) Whether, the plaintiff has the right of pre-emption in the sale
deed dated 6th of January, 1990.
iv) Whether, there is common entrance to the ancestral house of F
the defendant no.1 and house purchased by the defendant no.1
from the defendant no. 2. If yes, then what is its effect on the
suit.
vi) Whether, the defendant no.1 is also a sharer in the disputed
courtyard and he was vested with the right of pre-emption/prior G
purchase right in respect of the disputed house.”
5. Before the Trial Court, the submission which was urged on
behalf of the defendants was that the first defendant, Devicharan himself
had a share in the disputed property and was vested with a right of
pre-emption. In support of the claim of Devicharan to the use of the
H
896 SUPREME COURT REPORTS [2020] 3 S.C.R.

A common amenity as a courtyard, reliance was placed on a written
statement (Exhibit A2) filed on 15 February 1982 and 17 February 1982
by Beni Prasad in another suit instituted against him by his brother
Kirorilal. In the course of his written statement, Beni Prasad stated that
Devicharan was also the owner of the disputed courtyard. During the
course of the cross-examination in the suit out of which these proceedings
B
arise, PW 1, who deposed in evidence, was confronted with the above-
mentioned written statement. The Trial Judge, in the course of the
judgment, recorded that PW 1 had stated that whatever had been set
out in the written statement filed by his father would have been correct.
On the basis of the admission contained in the written statement in the
C suit of 1980, it was urged on behalf of the appellants that Devicharan
had an interest in the courtyard which was a common amenity. The
legal consequence of this would be that Devicharan also had a right of
pre-emption. Hence, the submission was that a right of pre-emption would
not be available to Beni Prasad against another holder of the right of
pre-emption, equal or inferior. This submission was rejected by the learned
D
Trial Judge as below:
“If by way of an argument it may be assumed that Devicharan
was vested with the right of transmigration through the said
courtyard, even then as compared to the plaintiff, his right of pre-
emption is at lesser level. In this way both of these issues are
E decided in favour of the plaintiffs and against the defendants.”
6. The suit was decreed by the Trial Court. The above finding
was affirmed in first appeal. The first appellate court adverted to the
written statement (Exhibit A2), which was filed by Beni Prasad in the
earlier suit of 1980.However, the appellate court held that notwithstanding
F the fact that Devicharan had a right of passage through the disputed
courtyard, the plaintiff, who was the brother of Kirorilal, had a better or
a higher right as compared to Devicharan since Kirorilal and Beni Prasad
were brothers. The first appeal was dismissed.
7. The High Court has dismissed the second appeal in limine
G holding that no substantial question of law arose for its consideration.
8. Assailing the judgment of the High Court, Mr Puneet Jain,
learned counsel appearing on behalf of the appellants, submitted that:
(i) The provisions of Sections 4, 5(1)(c) and 6(1)(ii) of the Act
indicate that a right of pre-emption is not available when the
H
SURESH CHAND AND ANR. v. SURESH CHANDER (D) THR. 897
LRS. AND ORS. [DR. DHANANJAYA Y CHANDRACHUD, J.]

person to whom the property has been sold by the vendor is A
an individual who has a right of pre-emption whether equal
or inferior; and
(ii) Pre-emption is a weak form of a right and the legislature, in
the present case, has indicated that the right would not be
available where the property is sold to a person who is seized B
of such a right. In other words, it was urged that whether the
right of pre-emption available to Devicharan is equal or inferior
would be a matter of no relevance having regard to the
provisions of Section 5(1)(c).
9. On the other hand, it was urged on behalf of the respondents C
by Mr S K Sinha, learned counsel, that both the Trial Court and the
appellate court came to the conclusion that Beni Prasad and Kirorilal
were brothers. Consequently, the assertion by Beni Prasad of a right of
pre-emption, when Kirorilal purported to sell the property on 6 January
1990 to Devicharan, has to be valid. Learned counsel submitted that in
the event that the claim of the appellants is accepted in terms of the sale D
deed, a situation may occur by which the respondents are deprived of
the use of the common amenity of the disputed courtyard.
10. In assessing the rival submissions, it is necessary to analyse
the provisions of the Act. Section 4 is in the following terms:
E
“4 Cases in which right of pre-emption accrues. Subject to
the provisions contained in section 5, the right of pre-emption
shall, upon the transfer of any immovable property, accrue
to the persons mentioned in section 6.”
The right of pre-emption accrues on the transfer of any immovable F
property to the classes of persons mentioned in Section 6. But the opening
words of Section 4 indicate that the right of pre-emption which accrues
under Section 6 is subject to Section 5.
11. Section 5 provides for cases in which the right of pre-emption
does not accrue. For the purposes of the present appeal, clause (c) of
G
sub-section (1) of Section 5, which is relevant, provides as follows:
“5. Case in which right of pre-emption does not accrue – (1) The
right of pre-emption shall not accrue -
(a) ***
(b) *** H
898 SUPREME COURT REPORTS [2020] 3 S.C.R.

A (c) on a transfer to any of the persons mentioned in section 6, to
any person who has an equal or inferior right of pre-emption;”
As a result of Section 5(1)(c), the right of pre-emption does not
accrue on a transfer of the property to any of the persons mentioned in
Section 6, to any person who has an equal or inferior right of pre-emption.
B In a case, where a transfer is to a person mentioned in Section 6, the
right of pre-emption does not accrue to any person who has an equal or
inferior right of pre-emption. In other words, in a case where the vendee
also has a right of pre-emption under Section 6, the right of pre-emption
will accrue only to a person with a superior right of pre-emption.
C 12. Section 6(1) specifies the persons to whom the right of pre-
emption accrues. Section 6(1)(ii) is in the following terms:
“6. Persons to whom right of pre-emption accrues – (1) Subject
to the other provisions of this Act, the right of pre-emption in
respect of any immovable property transferred shall accrue to,
D and vest in, the following classes of persons, namely:
…
(ii) owners of other immovable property with a stair-case or an
entrance or other right or amenity common to such other property
and the property transferred,”
E
Sub-sections (2) and (3) of Section 6 are as follows:
“(2) Among the different classes of persons mentioned in
sub-section (1), persons of the first class will exclude those of the
other classes, persons of the second class will exclude those of
the third class.
F
(3) Among persons of the same class claiming the right of
pre-emption, he person nearer in relationship to the person whose
property is transferred will exclude the more remote.”
13. Under Section 6(1)(ii), a right of pre-emption accrues in respect
G of an immovable property to owners of other immovable property with a
stair-case, entrance or other right or amenity common to such property
and the property that is transferred. Where a right of pre-emption enures
to the benefit of a person under the provisions of Section 6(1)(ii), a
consequence emanates in terms of Section 5(1)(c).The effect of Section
5(1)(c) is that a right of pre-emption does not accrue, on a transfer to
H
SURESH CHAND AND ANR. v. SURESH CHANDER (D) THR. 899
LRS. AND ORS. [DR. DHANANJAYA Y CHANDRACHUD, J.]

any person mentioned in Section 6, to any person who has an equal or A
inferior right of pre-emption. In other words, where a transfer is to any
of the persons mentioned under Section 6, the right of pre-emption to the
claimant accrues only if the claimant has a superior right. The right of
pre-emption, as Section 4 indicates, is subject to the provisions of Section
5. Consequently, where any of the provisions of Section 5 come into
B
operation, the right of pre-emption would not be available.
14. In a fourjudge Bench decision of this Court in Bishan
Singh v Khazan Singh3, Justice Subba Rao (as the learned Chief Justice
then was), while dealing with the provisions of the Punjab Pre-Emption
Act 1913, summarised the law on pre-emption as follows:
C
“11. The plaintiff is bound to show not only that his right is as
good as that of the vendee but that it is superior to that of the
vendee. Decided cases have recognized that this superior
right must subsist at the time the pre-emptor exercises
his right and that that right is lost if by that time another
person with equal or superior right has been substituted in D
place of the original vendee. Courts have not looked upon
this right with great favour, presumably, for the reason that
it operates as a clog on the right of the owner to alienate
his property. The vendor and the vendee are, therefore,
permitted to avoid accrual of the right of pre-emption by all E
lawful means.The vendee may defeat the right by selling
the property to a rival pre-emptor with preferential or equal
right. To summarize: (1) The right of pre-emption is not a right to
the thing sold but a right to the offer of a thing about to be sold.
This right is called the primary or inherent right. (2) The
pre-emptor has a secondary right or a remedial right to follow the F
thing sold. (3) It is a right of substitution but not of re-purchase
i.e., the pre-emptor takes the entire bargain and steps into the
shoes of the original vendee. (4) It is a right to acquire the whole
of the property sold and not a share of the property sold. (5)
Preference being the essence of the right, the plaintiff must G
have a superior right to that of the vendee or the person
substituted in his place. (6) The right being a very weak
right, it can be defeated by all legitimate methods, such as

3
AIR 1958 SC 838 H
900 SUPREME COURT REPORTS [2020] 3 S.C.R.

A the vendee allowing the claimant of a superior or equal right
being substituted in his place.”
(Emphasis supplied)
In a Constitution Bench decision of this Court in Radhakisan
Laxminarayan Toshniwal v Shridhar Ramchandra Alshi4, this Court
B dealt with the question whether a suit for pre-emption could be filed
prior to execution of the sale deed. Justice J L Kapur, speaking for this
Court held thus:
“13. ...The right to pre-empt the sale is not exercisable till a pre-
emptible transfer has been effected and the right of pre-emption
C is not one which is looked upon with great favour by the
courts presumably for the reason that it is in derogation of
the right of the owner to alienate his property. It is neither
illegal nor fraudulent for parties to a transfer to avoid and
defeat a claim for pre-emption by all legitimate means...”
D (Emphasis supplied)
15. The right of pre-emption is a preferential right to acquire the
property by substituting the original vendee. The transfer or sale of an
immovable property is a condition precedent to the enforceability of the
right. The right of pre-emption is attached to the property and only on
E that footing can it be enforced against the vendee. Though the right is
recognised by law, yet it can be rendered imperfect by the vendor when
he transfers the property to another person who also has a superior right
to the plaintiff pre-emptor.
16. In the present case, it has come on the record before the Trial
F Court that Devicharan, the predecessor of the appellants, had a
pre-existing right in respect of the amenity of the common courtyard or
sahan. This was admitted in the written statement filed by Beni Prasad
in Suit 43 of 1980. PW 1 during his cross-examination was confronted
with the above written statement.What emerges from the above
admission is that Devicharan had a right in common in respect of the
G
amenity of the courtyard. During the course of proceedings before this
Court, it was admitted that the courtyard was shared between Beni
Prasad and Devicharan. Therefore, both their rights would fall within
the ambit of the provisions of Section 6(1)(ii). In terms of the provisions

4
H AIR 1960 SC 1368
SURESH CHAND AND ANR. v. SURESH CHANDER (D) THR. 901
LRS. AND ORS. [DR. DHANANJAYA Y CHANDRACHUD, J.]

of Section 5(1)(c), the right of pre-emption would not accrue to any A
person with an equal or inferior right of pre-emption. Kirorilal executed
a sale deed on 6 January 1990 in favour of Devicharan who within the
meaning of Section 6(1)(ii) had a right of pre-emption. But the right of
pre-emption of Devicharan was inferior to the right which was claimed
by Beni Prasad as the brother of Kirorilal. Devicharan’s right under
B
Section 6(ii) was subject to a superior right of Beni Prasad by virtue of
Section 6(3). Section 6(3) states that even among persons of the same
class,the nearer in relationship to the person whose property is transferred
excludes the more remote.
17. During the course of the arguments, Mr Puneet Jain, learned
counsel for the appellants has raised an argument that the comma C
appearing in Section 5(1)(c) should be read as “or” and the Section must
be interpreted disjunctively. It is argued that Section 5(1)(c) should be
read as “the right of pre-emption shall not accrue... on a transfer to any
of the persons mentioned in Section 6” or “the right of pre-emption shall
not accrue... to any person who has an equal or inferior right of D
pre-emption”. It is urged that the plaintiff (Beni Prasad) would not be
covered by the first part as the first defendant (Devicharan) would be
covered by Section 6(1)(ii) and the second part would not apply to the
plaintiff as he only has an inferior right of pre-emption against the
defendant. It is submitted that the plaintiff cannot claim any right of pre-
emption where a transfer is affected by a person who is covered by any E
of the clauses of Section 6. However, the disjunctive interpretation of
Section 5(1)(c) as suggested by the counsel of the appellants cannot be
countenanced in view of the plain text of the provision. Reading the
provision in a manner as suggested would amount to an exercise of
legislative re-drafting. This is impermissible. F
18. The two segments of Section 5(1)(c) are as follows:
(i) The first segment contains the words “on a transfer to any of
the persons mentioned in Section 6; and
(ii) The second segment comprises of the words “to any person G
who has an equal or inferior right of pre-emption”.
Both segments are separated by a comma and refer to two
separate sets of persons. In the first segment the expression “any of the
persons” refers to the vendee. In the second segment, the expression
“any person” refers to the claimant. In the present case, the plaintiff
H
902 SUPREME COURT REPORTS [2020] 3 S.C.R.

A (Beni Prasad) had a superior right of pre-emption by virtue of the
provisions of Section 6(3) since he was the brother of the second
defendant. Devicharan has an inferior right of pre-emption as compared
to Beni Prasad. Hence his claim cannot prevail over the superior right of
pre-emption of Beni Prasad.
B 19. For the above reasons, we are of the view that the concurrent
findings of the Trial Judge, the first appellate court and in second appeal,
have proceeded on a correct interpretation of the provisions noticed
above.
20. We accordingly dismiss the appeal. However, there shall be
C no order as to costs.

Nidhi Jain Appeal dismissed.

D

E

F

G

H
[2020] 3 S.C.R. 903 903

OSIANS CONNOISSEURS OF ART PVT. LTD. A
v.
SECURITIES AND EXCHANGE BOARD OF INDIA & ANR.
(Civil Appeal No. 54 of 2016)
FEBRUARY 12, 2020 B
[R. F. NARIMAN, S. RAVINDRA BHAT AND
V. RAMASUBRAMANIAN, JJ ]
Securities and Exchange Board of India Act, 1992: ss. 11AA,
12(1B) – SEBI (Collective Investment Scheme) Regulations, 1999 –
C
Regn 3, Regn 2(h) – Collective Investment Scheme (CIS) – Creation
of trust fund by the appellant-trustees – Appellants told by SEBI
that these Funds being CIS, they should apply for certificates of
registration for these Funds, to which the appellants denied since
they were not registered in the form of a company – Thereafter,
issuance of notice by SEBI – Order by SEBI that the trust funds D
shall abstain from collecting any money from the investors or carry
out any CIS and refund the entire monies collected by it under its
scheme to all the investors – Matter disposed of by the Appellate
Tribunal – On appeal held: Statutory scheme under the CIS
Regulations is that, if a CIS, as defined u/Regn 2(h), is to be floated
E
by a person, it could only be done in the form of a collective
investment management company and in no other form – Collective
investment scheme being carried on by the appellants in the form of
a private Trust would be in the teeth of the Statute read with CIS
Regulations and thus, illegal – In view of the long pendency,
issuance of direction to appellant to pay back the principal amount F
with interest to each investor within the stipulated period.
Disposing of the appeals, the Court
HELD: 1. It would not be possible to state that the Schemes
in the instant case would not be Collective Investment Schemes.
It is difficult, therefore, to interfere with the concurrent findings G
made in this behalf by both SEBI and the Appellate Tribunal. In
1995, Section 12(1B) of the SEBI Act was introduced, by which it
became clear that no person can sponsor or cause to be
sponsored or carry on or cause to be carried on any collective
investment scheme unless he obtains a certificate of registration H
903
904 SUPREME COURT REPORTS [2020] 3 S.C.R.

A from the Board in accordance with the regulations. It is important
to notice that the expression “person” is used by Section 12(1B).
However, in 1999, by amendment, Section 11AA was introduced
which defines Collective Investment Scheme. [Para 13]
[900 D-H]
B 2. The statutory scheme under the CIS Regulations is that,
if a Collective Investment Scheme, as defined under Regulation
2(h), is to be floated by a person, it could only be done in the form
of a collective investment management company and in no other
form. This is the reason why Section 11AA uses the expression
“company” in sub-Section (2) and not the word “person” (as the
C CIS Regulations of 1999 had come into force on 15.10.1999;
Section 11AA came into force on 22.02.2000). Once the statutory
scheme becomes clear, it is clear that the Collective Investment
Scheme that was being carried on by the appellants in the form of
a private Trust would be in the teeth of the Statute read with the
D CIS Regulations and would thus be illegal. Thus, it is difficult to
upset any part of SEBI’s order that remains after the penultimate
part of the order was set aside by the Appellate Tribunal. However,
this litigation is going on for a long period of time and instead of
remanding the matter to SEBI to decide the refund issue afresh,
the principal amount repayable to each investor of both the
E Schemes shall be paid back with 10 per cent interest within the
stipulated period. [Paras 15, 16, 17, 18][911 A-E]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 54 of
2016.

F From the Judgment and Order dated 13.10.2015 of the Securities
Appellate Tribunal, Mumbai in Appeal No. 62 of 2013.
With
C. A. No. 19936/2017 and 77/2018.
A.N.S. Nadkarni, ASG, Nakul Dewan, Sr. Adv., Moazzam Khan,
G
Ms. Shweta Sahu, Brijesh Ujjainwal, Akshat Goel, M/s. Lex-peritia and
Co., Ms. Shirin Khajuria, Shekhar Vyas and Kunal Chatterji, Advs. for
the Appellant.
Chander Uday Singh, Sr. Adv., Siddharth Dias, Devansh Gandhi,
Puneet Sharma, Pratap Venugopal, Ms. Surekha Raman, Ms. Viddusshi,
H
OSIANS CONNOISSEURS OF ART PVT. LTD. v .SECURITIES AND 905
EXCHANGE BOARD OF INDIA & ANR.

Ms. Ayushi Gaur, Akhil Abraham Roy, Vijay Valsan and M/s. K J John A
and Co., Advs. for the Respondents.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
CIVIL APPEAL NO. 54 OF 2016 B
1. Learned senior counsel appearing for the appellant seeks
permission of the Court to withdraw the civil appeal.
2. The civil appeal is allowed to be withdrawn.
CIVIL APPEAL NO. 19936 OF 2017
C
3. The brief facts leading to the filing of the present civil
appeal are as follows:
4. Two trusts named Yatra Art Fund Trust (Fund I) and Yatra Art
Fund II (Fund II) were created under the Indian Trusts Act, 1882, through
execution of Indentures of Trust dated 15.06.2005 and 01.12.2006. D
5. A perusal of the trust deed shows that both these trust Funds
were created for an initial period of 4-4½ years, the first Fund ending,
after extension of one year, on 15.09.2011. Insofar as the second Trust
Fund is concerned, this Trust Fund was also extended and ended on
31.01.2012. It may also be mentioned that these Trusts Funds were E
established so that investors could invest in works of art. In the
Confidential Information Memorandum, it was made clear to the investors
that these were investments which were fraught with grave risks and
that the investors invest in these Trust Funds with open eyes knowing of
the aforesaid risks.
F
6. So far as the first Fund was concerned, a total corpus amounting
to Rs.10.95 crores was collected from the investors. We are informed
that 50 such investors invested in this Fund. So far as the second Fund is
concerned, the total corpus was Rs.21.92 crores, with 132 persons having
so invested.
G
7. On 18.06.2007, the Securities and Exchange Board of India
(hereinafter referred to as ‘SEBI’) first apprised the appellants, who
are the trustees of these two Trusts Funds stating that, as these Funds
were Collective Investment Schemes, they should apply for certificates
of registration insofar as these Funds were concerned. This was
H
906 SUPREME COURT REPORTS [2020] 3 S.C.R.

A responded to by Fund I on 16.07.2007, denying that the activities would
amount to the activities of a Collective Investment Scheme. As a result
thereof, on 12.10.2007, SEBI issued a Show Cause Notice to show cause
as to why the Yatra Art Fund should not register itself with SEBI in the
prescribed corporate form, as otherwise the collective investment scheme
carried out by the Trust would be illegal. The show cause notice also
B
mentioned that all amounts collected should be refunded within a period
of 30 days from the said show cause notice. On 05.11.2007, the appellants
responded to the aforesaid show cause notice stating that there was no
violation of Section 12 (1B) of the Securities and Exchange Board of
India Act, 1992 (hereinafter referred to as ‘SEBI Act’) read with
C Regulation 3 of SEBI (Collective Investment Scheme) Regulations, 1999
(hereinafter referred to as ‘CIS Regulations’); and as the appellants
were not registered in the form of a company, the Regulations themselves
would not apply. Secondly, detailed arguments were made as to why the
schemes involved could not be said to be collective investment schemes.
One year later, on 03.11.2008, a joint representation to SEBI was made
D
stating that the aforesaid schemes floated by the appellants were not
collective investment schemes, reiterating that they were not made in
the corporate form.
8. It appears that, at this point of time, SEBI itself was unsure as
to whether such funds would amount to collective investment schemes.
E However, in 2013, the matter was resuscitated and after giving the
appellants a hearing, inasmuch as as many as nine investors complained
with regard to Trust Fund No.2, including an Investors’ Association, an
order was delivered by the whole-time member of SEBI on 06.11.2015
as follows:
F “29. In view of the foregoing, I, in exercise of the powers conferred
upon me under Section 19 of the Securities and Exchange Board
of India Act, 1992 read with Sections 11 and 11B thereof and
Regulation 65 of the SEBI (Collective Investment Scheme)
Regulation, 1999, hereby issue the following directions:
G a. Yatra Art fund shall abstain from collecting any money from
the investors or launch or carry out any Collective Investment
Schemes including the scheme which have been identified as a
Collective Investment Scheme in this Order.
b. Yatra Art Fund is directed to refund the entire monies collected
H by it under its scheme to all the investors along with the returns at
OSIANS CONNOISSEURS OF ART PVT. LTD. v .SECURITIES AND 907
EXCHANGE BOARD OF INDIA & ANR. [R. F. NARIMAN, J.]

the rate of 10% per annum, within a period of three months from A
the date of this Order and thereafter, within a period of fifteen
days, submit a winding up and repayment report to SEBI in
accordance with the SEBI (Collective Investment Schemes)
Regulations, 1999, including the trail of funds claimed to be
refunded, bank account statements indicating refund to the
B
investors and receipt from the investors acknowledging such
refunds.
c. Yatra Art Fund is restrained from accessing the securities market
and are prohibited from buying, selling or otherwise dealing in
securities market for a period of four (4) years.
C
d. Yatra Art Fund is also directed to immediately submit the
complete and detailed inventory of the assets owned by Yatra Art
Fund.
e. In the event of failure by Yatra Art Fund to comply with the
above directions, the following actions shall follow: D
- Yatra Art Fund shall remain restrained from accessing the
securities market and would furhter be prohibited from buying,
selling or otherwise dealing in securities, even after the period of
four (4) years of restraint imposed in Paragraph 29(c) above, till
all the monies mobilized through such schemes are refunded to its E
investors with interest, which are due to them.
- SEBI would make a reference to the State Government/Local
Police to register a civil/criminal case against Yatra Art Fund, its
promoters, directors and its managers/ persons in-charge of the
business and its schemes, for offences of fraud, cheating, criminal F
breach of trust and misappropriation of public funds; and
- SEBI shall also initiate attachment and recovery proceedings
under the SEBI Act and rules and regulations framed thereunder.”
9. An appeal was carried to the Securities Appellate Tribunal,
which was then disposed of on 21.08.2017, following the Appellate G
Tribunal’s judgment dated 13.10.2015 in Osian’s – Connoisseurs of
Art Private Limited v. Securities and Exchange Board of India &
Anr. It may be pointed out that the Appellate Tribunal set aside the
paragraphs of the SEBI’s order which required the State Government
to make a reference to register civil/criminal cases against the Fund and
H
908 SUPREME COURT REPORTS [2020] 3 S.C.R.

A initiate attachment and recovery proceedings under the SEBI Act
and Rules and Regulations. However, insofar as paragraph 29 (b) set
out hereinabove of SEBI’s order was concerned, the Appellate Tribunal
remanded the matter to SEBI, adopting the reasoning contained in the
earlier Tribunal judgment of 13.10.2015 as follows:
B “……………………………………………………………………………
………………………………………………………………………………
For the reasons stated in our order in Appeal No. 62 of 2013
decided on October 13, 2015 the present appeals are disposed of
in terms set out therein”
C
Having heard Shri K.V. Vishwanathan, learned senior counsel
appearing for the appellants and Shri C. U. Singh, learned senior counsel
appearing for the respondent-SEBI, for some time, it would not be possible
to state that the Schemes in the present case would not be Collective
Investment Schemes. It is difficult, therefore, to interfere with the
D concurrent findings made in this behalf by both SEBI and the Appellate
Tribunal.
10. Further, the arguments made by Shri Vishwanathan, learned
senior counsel, based upon the language of Section 11AA of the SEBI
Act does not commend itself to us. It may be mentioned that Section 11
E (2)(c) of the SEBI Act states as follows:
“11 (2) Without prejudice to the generality of the foregoing
provisions, the measures referred to therein may provide for-
……………………………………………………………………………………………….
F ……………………………………………………………………………………………….
(c) registering and regulating the working of venture capital funds
and collective investment schemes, including mutual funds;”
11. In 1995, Section 12(1B) was introduced, by which it became
clear that no person can sponsor or cause to be sponsored or carry on or
G cause to be carried on any collective investment scheme unless he obtains
a certificate of registration from the Board in accordance with the
regulations.
12. What is of importance is to notice that the expression “person”
is used by Section 12(1B). However, in 1999, by amendment, Section
H 11AA was introduced in which it was stated as follows:
OSIANS CONNOISSEURS OF ART PVT. LTD. v .SECURITIES AND 909
EXCHANGE BOARD OF INDIA & ANR. [R. F. NARIMAN, J.]

“11AA. Collective investment scheme.- (1) Any scheme or A
arrangement which satisfies the conditions referred to in sub-
section (2) or sub-section (2A) shall be a collective investment
scheme:
Provided that any pooling of funds under any scheme
or arrangement, which is not registered with the Board or is not B
covered under sub-section (3), involving a corpus amount of one
hundred crore rupees or more shall be deemed to be a collective
investment scheme.
(2) Any scheme or arrangement made or offered by any company
under which,- C
(i) the contributions, or payment made by the investors, by
whatever name called, are pooled and utilized for the purposes
of the scheme or arrangement;
(ii) the contributions or payments are made to such scheme or
arrangement by the investors with a view to receive profits, D
income, produce or property, whether movable or immovable,
from such scheme or arrangement;
(iii) the property, contribution or investment forming part of
scheme or arrangement, whether identifiable or not, is managed
on behalf of the investors; E
(iv) the investors do not have day-to-day control over the
management and operation of the scheme or arrangement.
(2A) Any scheme or arrangement made or offered by any
person satisfying the conditions as may be specified in
F
accordance with the regulations made under this Act.
(3) Notwithstanding anything contained in sub-section (2) or
sub-section (2A), any scheme or arrangement—
(i) made or offered by a co-operative society registered under
the Co-operative Societies Act, 1912 (2 of 1912) or a society G
being a society registered or deemed to be registered under
any law relating to co-operative societies for the time being in
force in any State;
(ii) under which deposits are accepted by non-banking financial
companies as defined in clause (f) of section 45-I of the Reserve H
Bank of India Act, 1934;
910 SUPREME COURT REPORTS [2020] 3 S.C.R.

A (iii) being a contract of insurance to which the Insurance Act,
1938, applies;
(iv) providing for any Scheme, Pension Scheme or the Insurance
Scheme framed under the Employees Provident Fund and
Miscellaneous Provisions Act, 1952;
B (v) under which deposits are accepted under section 58A of
the Companies Act, 1956;
(vi) under which deposits are accepted by a company declared
as a Nidhi or a mutual benefit society under section 620A of
the Companies Act, 1956;
C
(vii) falling within the meaning of Chit business as defined in
clause (e) of section 2 of the Chit Fund Act, 1982;
(viii) under which contributions made are in the nature of
subscription to a mutual fund;
D (ix) such other scheme or arrangement which the Central
Government may, in consultation with the Board, notify, shall
not be a collective investment scheme.”
13. Based on the aforesaid, Shri Vishwanathan argued that it
would not be possible for him to fall foul of the law considering
E that Section 11AA uses the word “company” and not “person”, and
as his client carried on this business in the form of a Trust, the provisions
of SEBI Act would not be attracted at all.
14. This argument would fly in the face of both Section 12(1B)
and the CIS Regulations, in particular, Regulation 2(h), which defined a
F “Collective Investment Management Company” as follows:
“(h) “Collective Investment Management Company” means a
company incorporated under the Companies Act, 1956 and
registered with the Board under these regulations, whose object
is to organise, operate and manage a collective investment
G scheme;”
Regulation 3 of the CIS Regulations states:
“3. No person other than a Collective Investment Management
Company which has obtained a certificate under these regulations

H
OSIANS CONNOISSEURS OF ART PVT. LTD. v .SECURITIES AND 911
EXCHANGE BOARD OF INDIA & ANR. [R. F. NARIMAN, J.]

shall carry on or sponsor or launch a collective investment A
scheme.”
15. The statutory scheme, therefore, is that, if a collective
investment scheme, as defined, is to be floated by a person, it could only
be done in the form of a collective investment management company
and in no other form. This is the reason why Section 11AA uses the B
expression “company” in sub-Section (2) and not the word “person” (as
the CIS Regulations of 1999 had come into force on 15.10.1999; Section
11AA being enacted and coming into force on 22.02.2000).
16. Once the statutory scheme becomes clear, it is clear that the
collective investment scheme that was being carried on by the appellants C
in the form of a private Trust would be in the teeth of the Statute read
with the CIS Regulations and would thus be illegal.
17. This being the case, it is difficult to upset any part of SEBI’s
order that remains after the penultimate part of the order was set aside
by the Appellate Tribunal. D
18. However, we find that this litigation has been going on for an
extremely long period of time and instead of remanding the matter to
SEBI to decide the refund issue afresh, we order as follows:
19. The principal amount repayable to each investor of both the
Schemes shall be paid back within a period of six months from today in E
the following manner:
20. We are informed that so far as the first Fund is concerned,
81.32 per cent of the total principal sum of Rs. 10.95 crores has been
repaid.
F
21. Insofar as Fund No. 2 is concerned, we have been informed
that 50 per cent of the principal amount of Rs. 21.92 crores has been
repaid.
22. The balance owing to the 50 investors of Fund No. 1 and to
the 132 investors of Fund No. 2 be therefore, repaid within six months
from the date of this judgment. G

23. So far as the interest at the rate of 10 per cent is concerned,
this amount will be paid on the principal outstanding amount from the
date on which it becomes due to each such member, till the date on
which each Fund came to an end, i.e., insofar as Fund No. 1 is concerned
H
912 SUPREME COURT REPORTS [2020] 3 S.C.R.

A till 15.09.2011 and so far as Fund No. 2 is concerned till 31.01.2012. The
aforesaid interest shall be paid within nine months from the date of this
judgment.
24. Once the amounts are actually paid within the time period
specified, compliance report be filed with SEBI in this behalf.
B 25. The appeal stands disposed of.
CIVIL APPEAL NO. 77 OF 2018
26. In terms of our judgment in Civil Appeal No. 19936 of 2017,
this appeal stands disposed of.
C
Nidhi Jain Appeals disposed of.

D

E

F

G

H