Skip to content


Haji Abdul Gafur Haji Hussenbhai Vs. the Ahmedabad Municipal Corporation - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtGujarat High Court
Decided On
Judge
Reported in(1967)8GLR65
AppellantHaji Abdul Gafur Haji Hussenbhai
RespondentThe Ahmedabad Municipal Corporation
Cases ReferredAgra Bank Ltd. v. Barry
Excerpt:
- - 1. this appeal with leave under clause 15 of the letters patent raises a very interesting question, namely, how far the doctrine of constructive notice affects an auction purchaser who purchases at a sale held by the court in execution of a decree, property which is subject to a charge in favour of the municipal corporation for arrears of municipal taxes. the third answer which the municipal corporation made was that in any event the plaintiff had constructive notice of the charge and was, therefore, not entitled to take advantage of the provision enacted in the second paragraph of section 100. now if any of these answers is a valid answer, it is apparent that the plaintiff must fail for in that event he would not be entitled to place reliance on the second paragraph of section.....p.n. bhagwati, j.1. this appeal with leave under clause 15 of the letters patent raises a very interesting question, namely, how far the doctrine of constructive notice affects an auction purchaser who purchases at a sale held by the court in execution of a decree, property which is subject to a charge in favour of the municipal corporation for arrears of municipal taxes. the property which forms the subject matter of dispute in the present appeal and to which, for the sake of convenience we will refer as the suit property, originally belonged to one haji nurmahmad haji abdulmian. sometime towards the end of february 1949, haji nurmahmad haji abdulmian ran into financial difficulties and on 7th march 1949 a petition was presented for adjudicating him as an insolvent. on the petition.....
Judgment:

P.N. Bhagwati, J.

1. This appeal with leave under Clause 15 of the Letters Patent raises a very interesting question, namely, how far the doctrine of constructive notice affects an auction purchaser who purchases at a sale held by the Court in execution of a decree, property which is subject to a charge in favour of the Municipal Corporation for arrears of municipal taxes. The property which forms the subject matter of dispute in the present appeal and to which, for the sake of convenience we will refer as the suit property, originally belonged to one Haji Nurmahmad Haji Abdulmian. Sometime towards the end of February 1949, Haji Nurmahmad Haji Abdulmian ran into financial difficulties and on 7th March 1949 a petition was presented for adjudicating him as an insolvent. On the petition interim Receivers were appointed to take charge of the estate of Haji Nurmahmad Haji Abdulmian and by an order dated 14th October 1950 he was adjudicated an insolvent. The Receivers appointed under the order of adjudication took charge of the estate of Haji Nurmahmad Haji Abdulmian and the suit property along with other properties belonging to Haji Nurmahmad Haji Abdulmian vested in the Receivers. Now it appears that the suit property was mortgaged in favour of a firm called Messrs. Hargovind Laxmichand and this firm obtained a mortgage decree for realisation of the mortgage and brought the suit property to sale in execution of the mortgage decree. At the auction sale the plaintiff was the highest bidder, his bid being for Rs. 22, 300/-and he was accordingly declared purchaser of the suit property on 28th November 1954. At the date when the plaintiff purchased the suit property there were municipal taxes in respect of the suit property in arrears for the years 1949-50 to 1953-54. The suit property was, therefore, attached by the Municipal Corporation by an attachment notice dated 20th July 1955 for the arrears of municipal taxes which amounted to Rs. 543-79 np. Since the Municipal Corporation threatened to sell the suit property in pursuance of the attachment levied by it, the plaintiff filed a suit for a declaration that he was the owner of the suit property and that the arrears of municipal taxes due from Haji Nurmahmad Haji Abdulmian were not recoverable by attachment of the suit property and that the warrant of attachment of the suit property issued by the Municipal Corporation was illegal and ultra vires-The plaintiff also sought a permanent injunction restraining the Municipal Corporation from taking the suit property in attachment for arrears of municipal taxes. The trial Court rejected the claim of the plaintiff for a declaration that the suit property was not liable to be attached for recovery of arrears of municipal taxes but held that the warrant of attachment actually issued by the Municipal Corporation was illegal and void and accordingly issued an injunction restraining the Municipal Corporation from enforcing that warrant of attachment against the plaintiff in respect of the suit property. The plaintiff was aggrieved by this decree passed by the trial Court and he, therefore, preferred Appeal No. 118 of 1959 in the District Court, Ahmedabad. The Municipal Corporation was also dissatisfied with this decree and Appeal No. 116 of 1959 was accordingly preferred by the Municipal Corporation. Both the appeals came up for hearing before the Extra Assistant Judge, Ahmedabad. The learned Assistant Judge held that by virtue of Section 141 of the Bombay Provincial Municipal Corporations Act, 1949, the suit property was subject to a first charge in favour of the Municipal Corporation for arrears of municipal taxes and that the Municipal Corporation was, therefore, entitled to recover arrears of municipal taxes by realising such charge. It was contended on behalf of the plaintiff before the learned Assistant Judge that even if the suit property was subject to a first charge in favour of the Municipal Corporation under Section 141, the plaintiff must be held to have received the suit property free from the charge inasmuch as the plaintiff had no notice of the charge at the date when he purchased the suit property. This contention was negatived by the learned Assistant Judge by observing that though it was true that the plaintiff had no actual notice of the charge at the date when he purchased the suit property, the plaintiff had certainly constructive notice of the charge and he could not, therefore, be said to have received the suit property free from the charge. The learned Assistant Judge accordingly took the view that the suit property was liable for the payment of arrears of municipal taxes and that the plaintiff was not entitled to a declaration that the municipal taxes were not recoverable from the suit property. So far as the question of legality of the warrant of attachment was concerned, the learned Assistant Judge held that the warrant of attachment was not legal and valid inasmuch as it was issued in the name of Haji Nurmahmad Haji Abdulmian. According to the learned Assistant Judge it was the plaintiff who was liable to pay the arrears of municipal taxes and the proceedings were, therefore, required to be taken against him and the warrant of attachment should also, therefore, have been issued in the name of the plaintiff. The Assistant Judge in the result held that the warrant of attachment issued by the Municipal Corporation was illegal and void and that the Municipal Corporation was lightly restrained from enforcing that warrant of attachment against the plaintiff in respect of the suit property. The learned Assistant Judge In accordance with this view, dismissed both the appeals. The plaintiff thereupon preferred a Second Appeal in this Court but the appeal was summarily rejected by Raju J. The learned Judge, however, granted leave under Clause 15 of the Letters Patent and that is how the present appeal comes before us.

2. This being a Letters Patent Appeal preferred from a decision given by a single Judge of this Court in Second Appeal, it is elementary that the findings of fact arrived at by the first appellate Court must be accepted as valid and binding and the only questions which can be debated before us are questions of law arising on those findings of fact. Having regard to the findings of fact reached by the first appellate Court it is clear that municipal taxes in respect of the suit property were in arrears for the years 1949-50 to 1953-54 at the date when the suit property was purchased by the plaintiff. Now Section 141 of the Bombay Provincial Municipal Corporations Act, 1949, provides that the 'property-taxes due under the Act in respect of any building or land shall, subject to the prior payment of the land revenue, if any, due to the State Government thereupon, be a first charge, in the case of any building or land held immediately from the Government, upon the interest in such building or land of the person liable for such taxes and upon the movable property, if any, found within or upon such building or land and belonging to such person; and, in the case of any other building or land, upon the said building or land and upon the movable property, if any, found within or upon such building or land belonging to the person liable for such taxes'. The arrears of municipal taxes in respect of the suit property were, therefore, a first charge on the suit property by reason of Section 141 at the date when the suit property was sold by the Court by public auction. This position was not seriously disputed by Mr. Arun H. Mehta, learned advocate appearing on behalf of the plaintiff, but he contended that the plaintiff had no notice of the Charge at the date when he purchased the suit property and that the suit charge was, therefore, not enforceable against the suit property in the hands of the plaintiff. This contention was based on the second paragraph of Section 100 of the Transfer of Property Act which provides that 'save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge'. The argument was that the plaintiff was a person to whom the suit property was transferred for consideration and since he had no notice of the charge, the charge was not enforceable against the suit property in his hands. The answer given by Mr. S.B. Vakil on behalf of the Municipal Corporation to this contention was a threefold one. The first answer was that since the plaintiff purchased the suit property at an auction sale held by the Court in execution of the mortgage decree, the plaintiff could not be said to be a person to whom the suit property was transferred for consideration within the meaning of the second paragraph of Section 100. The second answer given on behalf of the Municipal Corporation was that Section 141 expressly provided that the charge created under that section shall be enforceable against all transferees including transferees for value without notice of the charge and the applicability of the equitable rule contained in the second paragraph of Section 100 was, therefore, excluded by reason of the saving clause 'save as otherwise expressly provided by any law for the time being in force' which qualified that Rule. The third answer which the Municipal Corporation made was that in any event the plaintiff had constructive notice of the charge and was, therefore, not entitled to take advantage of the provision enacted in the second paragraph of Section 100. Now if any of these answers is a valid answer, it is apparent that the plaintiff must fail for in that event he would not be entitled to place reliance on the second paragraph of Section 100. Section 100 as originally enacted was in the following terms:

100. Where immovable 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 a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained as to a mortgagor shall, so far as may be, apply to the owner of such property, and the provisions of Sections 81 and 82 shall, so far as may be, apply to the person having such charge.

Nothing in this section applies to the charge of a trustee on the trust-property for expenses properly incurred in the execution of the trust.

By Amending Act 20 of 1929, Section 100 was amended and after the amendment it read as follows:

100. Where immovable 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 a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge.

Nothing in this section applies to the charge of a trustee on the trust-property for expenses properly incurred in the execution of his trust, and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge.

It was by the amendment that the provision on which reliance is placed on behalf of the plaintiff was introduced in the second paragraph of Section 100. Prior to the introduction of this provision, there was a conflict of decisions in India as to whether a charge was enforceable against a property in the hands of a transferee for consideration without notice of the charge. The law on the point in England was clear and this is how it is stated in Halsbury's Laws of England, Third Edition, Vol. 14 Paragraph 1008:

Ordinarily, an assignee takes subject to all equities to which the assignor was subject; and this is the case where the assignee is a volunteer, and also where he is a purchaser for value if he has notice of the circumstances which raise the equity. But if he is a purchaser for value without notice, the equity cannot be asserted against him.

In India, however, the question was one of some doubt and the law was not uniformly settled. The equitable rule that a charge cannot be enforced against a purchaser for value without notice of the charge was followed by the Calcutta High Court in Akhoy Kumar Bannerjee v. Corporation of Calcutta 42 Calcutta 625. Sir Asutosh Mookerjee delivering the judgment of the Court pointed out that the broad distinction between a mortgage and a charge is that whereas a mortgage is in essence a transfer of an interest in specific immovable property, the charge only gives right to payment out of a particular fund or particular property without transferring that fund or property and consequently while a mortgagee can follow the mortgaged property in the hands of a transferee from the mortgagor, a charge can be enforced against a transferee only if he has taken with notice of the charge. This was also the view taken by the Allahabad High Court in a number of decisions. However, so far as the Bombay High Court was concerned, it was clearly decided by that High Court as far back as 1913 in Bhoje v. Gangabai 15 Bom. L.R. 809 that even a transferee for consideration without notice of the charge takes the property subject to the charge. The equitable rule which prevailed in England was not applied by the Bombay High Court in a case where a property, subject to a charge, was transfered to a transferee for consideration, who took it without notice of the charge. A similar view was also taken by the Madras High Court in Srinivasa Raghava Aiyangar v. K.R. Raganath Aiyangar : (1919)36MLJ618 and by the Chief Court of Oudh in Razia Begam v. Ishrat Ali A.I.R. 1929 Oudh 316. It was presumably to bring the law in India in line with the English rule of equity that the Legislature enacted the second paragraph of Section 100 by providing that unless otherwise expressly provided by any law for the time being in force, no charge shall be enforceable against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge. But for the introduction of this provision, according to the law as declared by the Bombay High Court, the charge would be binding on the transferee of the property even though the transfer might be for consideration and the transferee might have no notice of the charge. It is, therefore, clear that unless the plaintiff can bring his case within this newly added provision introduced in the second paragraph of Section 100, the charge must be held to be enforceable against the suit property in the hands of the plaintiff.

3. Turning now to the three contentions urged by Mr. S.B. Vakil on behalf of the Municipal Corporation in answer to the claim of the plaintiff to come within the second paragraph of Section 100, the first contention was that the plaintiff could not be said to be a person to whom the suit property was transferred for consideration within the meaning of the second paragraph to Section 100 since he was a purchaser at an auction sale held by the Court in the execution of a decree. So far as this contention is concerned, there was at one time a conflict of decisions in the various High Courts in India as to whether an auction sale in execution of a decree could be regarded as a transfer within the meaning of the second paragraph of Section 100, but this conflict has now been laid at rest by the decision of the Supreme Court in Laxmi Devi v. Mukand Kanwar : [1965]1SCR726 , where the Supreme Court has taken the view that the second paragraph of Section 100 must be deemed to include auction sales and that a purchaser at an auction sale held in execution of a decree would, therefore, be a transferee within the meaning of the second paragraph of Section 100. This decision of the Supreme Court provides the most complete refutation of the first contention urged on behalf of the Municipal Corporation.

4. We must then proceed to consider the second contention of the Municipal Corporation, namely, that Section 141 expressly provided that a charge created under that section shall be enforceable against all transferees whether with notice or without notice of the charge and that the applicability of the second paragraph of Section 100 was, therefore, clearly excluded by the words 'save as otherwise expressly provided by any law for the time being in force' occurring in that paragraph. The argument was that under Section 141 the amount of tax as it falls due and remains unpaid becomes a first charge on the property and the fact that the section makes the amount of the tax as a first charge on the property subject only to the payment of land revenue to the Government shows that any other interest which might arise in the property by act of parties or by operation of law or by succession or by transfer must be subject to the prior charge in regard to the tax and on the plain language of the statute this prior charge can be recovered from the property irrespective of the fact whether the property is in the hands of the original owner or in the hands of an heir, successor or transferee. Greatest emphasis was laid on the words 'first charge' occurring in the section and it was urged that in order to give effect to the intention of the section that the tax should be treated as a first charge on the property after the payment of land revenue, it is necessary that prior and subsequent interests which might arise in the property by act of parties or by operation of law should yield to the charge and the equitable doctrine that a charge cannot be enforced against a transferee for consideration without notice has, therefore, no application in the case of a charge of this nature. This contention was sought to be supported by reference to the decision of the Full Bench of the Allahabad High Court in Nawal Kishore v. Agra Municipality : AIR1943All115 . Now there is no doubt that while dealing with a similar section in the U P. Municipalities Act, 2 of 1916, namely, Section 177, the Full Bench of the Allahabad High Court held in this decision that a statutory charge like the municipal tax which is made a first charge by Section 177 comes within the saving clause of paragraph 2 of Section 100 and is, therefore, not affected by the equitable rule set out in that paragraph. But with greatest respect to the learned Judges of the Full Bench of the Allahabad High Court, we find ourselves unable to agree with the view taken by them. Our reasons are as follows,

5. The general rule enacted in the second paragraph of Section 100 is that a charge shall not be enforceable against a transferee for value without notice of the charge. But this rule is displaced if it is otherwise expressly provided by any law for the time being in force. The important words are 'otherwise' and 'expressly'. The law to be within the saving clause must expressly provide 'otherwise', that is, that the charge shall be enforceable against a transferee for value even without notice of the charge. Now there can be no dispute that to come within the saving clause the law need not expressly state in so many words that the charge shall be enforceable against a transferee for consideration without notice of the charge. It would be sufficient if the law contains an express provision the effect of which is to declare that the charge shall be enforceable against such a transferee. No particular form of words is necessary for the purpose: any words may be used by the Legislature, but the provision made must be an express provision to the effect that the charge shall be enforceable against a transferee for value without notice of the charge. The question which we must, therefore, ask ourselves is: does Section 141 enact such a provision? Does Section 141 expressly provide that the charge created under it shall be enforceable against a transferee for consideration without notice of the charge Now the only words of Section 141 on which reliance was placed on behalf of the Municipal Corporation for the purpose of making out such express provision were the words 'first charge' occurring in that section. But we do not see how these words can assist the Municipal Corporation. All that Section 141 provides is that the amount of municipal tax as it falls due and remains unpaid shall be a charge on the property and such charge shall be a first charge subject only to the payment of land revenue on the property. Section 141 creates a charge and gives it a priority over other charges or mortgages irrespective of the point of time at which it comes into existence. Now ordinarily when a charge is created, it would rank after any charge or mortgages created prior in point of time. But this ordinary ranking according to the order in which the charges or mortgages are created is displaced by the rule enacted in Section 141 and that section declares that the charge created under it shall be a first charge so that it will have priority even over charges and mortgages created earlier in point of time. So much only is the function of Section 141. But what is to happen if the property over which the charge is created is transferred Is the charge in such a case enforceable against the property in the hands of the transferee That is a question dealt with in the second paragraph of Section 100. The second paragraph of Section 100 applies whatever be the priority of the charge amongst the charges and mortgages. The applicability of the second paragraph of Section 100 does not depend upon the ranking of the charge. Whether the charge is a first charge or a second charge or an nth charge makes no difference so far as the rule as to enforceability of the charge enacted in the second paragraph of Section 100 is concerned and such charge whatever be its ranking cannot be enforced against a transferee for value without notice. The scope and object of Section 141 and the second paragraph of Section 100 are fundamentally different: the fanner provides for the creation and ranking of the charge while the latter provides for the enforceability of the charge against the property in the hands of a transferee. It is, therefore, not possible to conclude merely from the fact that Section 141 creates a first charge on the property that it provides expressly or even impliedly that the charge shall be enforceable even against a transferee for value without notice of the charge so as to exclude the applicability of the equitable rule contained in the second paragraph of Section 100. A test which may be safely applied for the purpose of determining whether Section 141 enacts an express provision that the charge shall be enforceable also against a transferee for value without notice is to put Section 141 and the second paragraph of Section 100 side by side and to see whether there is any conflict or repugnancy between them or whether they can be read harmoniously and together. It is axiomatic that if Section 141 is a law expressly providing 'otherwise', it must conflict with the equitable rule set out in the second paragraph of Section 100. But as pointed out above, we do not find any conflict or repugnancy between the two provisions. Each provision has a distinct object and purpose and operates in a distinct field of its own and in the field in which it operates, there is no interference by the other provision. Both the provisions can be read harmoniously and can be given full effect. It is, therefore, in our opinion quite impossible to reach the conclusion that Section 141 is a law which expressly provides 'otherwise' so as to exclude the applicability of the equitable rule enunciated in the second paragraph of Section 100.

6. The learned Judges of the Allahabad High Court have undoubtedly taken a different view in Nawal Kisore v. Agra Municipality (supra) but with the greatest respect to them, we find that their conclusion does not take into account the reasoning which we have discussed above and which has impelled us to reach a contrary conclusion. They appear to have taken the view that when the Legislature declares that the amount of tax shall be a first charge on the property, the charge must have precedence over all prior and subsequent interests and if the charge is not to prevail against any subsequent interests, it would to that extent cease to be a first charge. But there is a fallacy underlying this argument and it is this, namely, that the fact whether the charge is a first charge or a second charge or an nth charge in the matter of ranking of charges and mortgages has no relevance at all on the question of enforceability of such charge against a transferee of the property. If the property is transferred to a transferee for consideration without notice of the charge, the charge cannot be enforced against such transferee and the fact that it is a first charge would not make any difference. The fact that enforceability is a distinct concept from creation and ranking of the charge becomes apparent if we notice that, should the property come back into the hands of the original owner, the charge would once again become enforceable as a first charge. This view which we are taking, though contrary to that taken by the Full Bench of the Allahabad High Court in Nawal Kishore v. Agra Municipality (supra) is supported by two decisions of the Calcutta High Court, one in Akhoy Kumar Bannerjee v. Corporation of Calcutta (supra) and the other in Chanduram v. Municipal Commissioners : AIR1951Cal398 . In both these cases a charge was claimed by the Municipality for recovery of arrears of rates and the section of the relevant Municipal Act which created the charge declared it to be a first charge on the property, but even so, the Calcutta High Court took the view that the charge would not bind a transferee of the property if the transferee took the property without notice of the charge. The second contention urged on behalf of the Municipal Corporation must, therefore, be rejected.

7. That takes us to the last contention of the Municipal Corporation, namely, whether the suit property was purchased by the plaintiff without notice of the charge in favour of the Municipal Corporation. Section 3 of the Transfer of Property Act contains a statutory definition as to when a person can be said to have notice of a fact and it provides that 'a person is said to have notice' of a fact when he actually knows that fact, or when, but for wilful abstention from an inquiry or search which he ought to have made, or gross negligence, he would have known it. The first part of this definition refers to actual notice while the second part refers to what is known as constructive notice. Now it was not the contention of the Municipal Corporation that the plaintiff had actual notice of the charge and in fact that could not be the contention, for the finding of fact arrived at by the first appellate Court was that the plaintiff had no actual notice of the charge and this finding of fact was binding on the Municipal Corporation in this Letters Patent Appeal. The Municipal Corporation relied on the second part of the definition and contended that the plaintiff had constructive notice of the charge since the plaintiff would have known of the charge but for wilful abstention from an inquiry which he ought to have made, or gross negligence. This contention requires a proper appreciation of the true import of the second part of the definition and in order to arrive at it, it is necessary to know what is constructive notice in English law and when it arises, for our definition in comprehensive and yet admirably precise language codifies the English law on the subject. Constructive notice is the equity which treats a person who ought to have known a fact as if he actually does know it. It arises from an irrebuttable presumption of notice. As observed by Eyre C.B. in Plumb v. Fluitt (1791) 2 Anst. 432 'Constructive notice, I take to be in its nature no more than evidence of notice, the presumptions of which are so violent that the Court will not allow even of its being controverted'. Such a presumption is held to arise commonly in relation to dealings with land. In his celebrated judgment in Jones v. Smith (1841) 1 Hare 43, Vice-Chancellor Wigram, described two cases in which constructive notice might be established. He said in a passage which has now become a locus classicus:

It is, indeed, scarcely possible to declare a priori what shall be deemed constructive notice, because, unquestionably, that which would not affect one man may be abundantly sufficient to affect another. But I believe, I may, with sufficient accuracy for my present purpose and without danger assert that the cases in which constructive notice has been established resolve themselves into two classes; first, cases in which the party charged has had actual notice that the property in dispute was in fact charged, incumbered or in some way affected, and the Court has there upon bound him with constructive notice of facts and instruments, to a knowledge of which he would have been led by an inquiry after the charge, incumbrance or other circumstance affecting the property of which he had actual notice; and secondly, cases in which the Court has been satisfied from the evidence before it that the party charged had designedly abstained from inquiry for the very purpose of avoiding notice....The proposition of law, upon which the former class of cases proceeds, is not that the party charged had notice of a fact or instrument, which in truth related to the subject in dispute without his knowledge that such was the case but that he had actual notice that it did so relate. The proposition of law, which the second class of cases proceeds, is not that the party charged had incautiously neglected to make inquiries, but that he had designedly abstained from such inquires for the purpose of avoiding knowledge-a purpose, which if proved, would clearly shew that he had a suspicion of the truth and a fraudulent determination not to learn it. If, in short, there is not actual notice that the property is in some way affected, and no fraudulent turning away from a knowledge of facts which the res gestae would suggest to a prudent mind; if mere want of caution as distinguished from fraudulent and wilful blindness is all that can be imputed to the purchaser-there the doctrine of constructive notice will not apply;..

The doctrine confined originally to cases of fraudulent turning away was subsequently extended to cases of gross negligence and in West v. Reid (1843) 2 Hare 249, the same learned Vice-Chancellor stated that there might be a degree of negligence so gross (crassa negligentia) that a Court of Justice might treat it as evidence of fraud though in fact as pointed out by Romilly M.R. in Jones v. Williams (1857) 24 Beav. 47, no fraudulent intent may be present. Lord Cranworth expressed the rule thus in Ware v. Lord Egmont (1854) 4 De G. M. & G. 460 at page 473:

Where a person has actual notice of any matter of fact, there can be no danger of doing injustice if he is held to be bound by all the consequences of that which he knows to exist. But where he has not actual notice, he ought not to be treated as if he had notice, unless the circumstances are such as enable the Court to say, not only that he might have acquired, but also, that he ought to have acquired, the notice with which it is sought to affect him-that he would have acquired it but for his gross negligence in the conduct of the business in question. The question, when it is sought to affect a purchaser with constructive notice, is not whether he had the means of obtaining, and might by prudent caution have obtained, the knowledge in question, but whether the not obtaining it was an act of gross or culpable negligence. It is obvious that no definite rule as to what will amount to gross or culpable negligence, so as to meet every case, can possibly be laid down.

Though no definite rule defining what would constitute gross negligence could by its very nature be laid down, the Courts of Equity held that if a purchaser of property omits to make proper and usual inquiries into his vendor's title, such omission, in the absence of reasonable explanation, would amount to gross negligence and the purchaser must, therefore, be fixed with constructive notice of facts which he would have known if he had made such inquiries. This proposition was also in some cases rested on the original theory of fraudulent turning away by saying that such omission on the part of the purchaser, if not explained, may be evidence 'of a design inconsistent with bona fide dealing to avoid knowledge of the true state of the title'. But whatever be the legal theory on which the proposition may be supported, the principle underlying the proposition was that a purchaser of property, as an ordinary prudent man, is expected, for the protection of his own interest, to make proper and usual inquiries into his vendor's title before he purchases the property and if he omits to do so, without any reasonable explanation, an inference can legitimately be drawn that either he has wilfully abstained from making inquiries for the purpose of avoiding notice of facts which he would have known had he made the inquiries or he is guilty of gross negligence. This principle was explained by Lord Selborne, in Agra Bank v. Barry (1874) L.R. 7 H.L. 135, where with reference to the duty of a purchaser to investigate title the learned Law Lord said:

It has been said in argument that investigation of title and inquiry after deeds is 'the duty' of a purchaser or a mortgagee; and, no doubt, there are authorities which do use that language. But this, if it can properly be called a duty, is not a duty owing to the possible holder of a latent title or security. It is merely the course which a man dealing bona fide in the proper and usual manner for his own interest, ought, by himself or his solicitor, to follow, with a view to his own title and his own security. If he does not follow that course, the omission of it may be a thing requiring to be accounted for or explained. It may be evidence if it is not explained, of a design inconsistent with bona fide dealing, to avoid knowledge of the true state of the title. What is a sufficient explanation, must always be a question to be decided with reference to the nature and circumstances of each particular case

Lord Lindley also said much to the same effect when after referring to the passage from the judgment of Lord Cranworth in Ware v. Lord Egmont (supra), he observed in Bailey v. Barnes (1894) 1 Ch. 25 at page 35:

Gross or culpable negligence' in this passage does not import any breach of a legal duty, for a purchaser of property is under no legal obligation to investigate his vendor's title. But in dealing with real property, as in other matters of business, regard is had to the usual course of business; and a purchaser who wilfully departs from it in order to avoid acquiring a knowledge of his vendor's title is not allowed to derive any advantage from his wilful ignorance of defects which would have come to his knowledge if he had transacted his business in the ordinary way Can we say that Mr. Lilley or his solicitors 'ought reasonably' to have made inquiries into the validity of the sale by Barnes? 'Ought' here does not import a duty or obligation; for a purchaser need make no inquiry. The expression 'ought reasonably' must mean ought as a matter of prudence, having regard to what is usually done by men of business under similar circumstances.

These observations show that the test to be applied is what is the course which on the facts and circumstances of the case an ordinarily prudent purchaser dealing bona fide in the proper and usual manner for the protection of his own interest would have followed 'with a view to his own title'; what inquiry he would have made If the purchaser omits to follow such course or to make such inquiry he must be held to be guilty of wilful abstention from making inquiry with the intention of avoiding knowledge of facts which such inquiry would reveal or of gross negligence and in such a case he must be fixed with constructive notice of facts which he would have known if he had made such inquiry. The proposition involved in this test is essentially a proposition of fact and not of law and it must depend on the facts and circumstances of each case whether the purchaser has omitted to follow a course or to make an inquiry which as an ordinarily prudent man dealing in the usual course of business he would have followed or made for the protection of his own interest with a view to his own title. It may be that in a given case having regard to the facts and circumstances an ordinarily prudent purchaser may not be expected to make a particular inquiry or to follow a particular course and in such an event omission to follow such course or make such inquiry would not be visited with constructive notice of facts which might have come to the knowledge of the purchaser if he had not so omitted. We must, therefore, examine the facts and circumstances of each case with reference to the standard of care and caution which should be expected from an ordinarily prudent man acting bona fide in the proper and usual manner for the protection of his own interest in the matter of purchase of property.

8. The standard of care of the reasonable man is, in one sense, an impersonal test. It eliminates the personal equation and is independent of the idiosyncrasies of the particular person whose conduct is in question. Some persons are by nature unduly suspicious and distrust every statement made by the person with whom they are dealing. Others more trusting rely implicitly on the good sense of the person with whom they are transacting business and fail to take even the elementary precautions of safeguarding their interests. The reasonable man is presumed to be free from both these infirmities. He is neither over-suspicious nor over-trusting but there is a sense in which the standard of care of the reasonable man involves in its application a subjective element. It is still left to the Judge to decide what in the circumstances of a particular case the reason able man would have done. Here there is room for diversity of view. What to one Judge may seem a reasonable inquiry to make may seem to another un-necessary and unjustified. But so far as the present case is concerned, we have no doubt that on the facts and circumstances of the case, it could not be said that as a reasonable man, as an ordinary prudent man, the plaintiff ought to have made any inquiry with the Municipal Corporation for the purpose of ascertaining whether any arrears of municipal tax were due and there was a charge in favour of the Municipal Corporation for such arrears of municipal tax.

9. Now the plaintiff was a purchaser at an auction sale held by the Court in execution of a mortgage decree. Order 21 of the Code of Civil Procedure prescribes the procedure to be followed in execution proceedings and Rule 66 Sub-rule (1) requires that where any property is ordered to be sold by public auction in execution of a decree, the Court shall cause a proclamation of the intended sale to be made in the language of the Court. Rule 66 Sub-rule (2) sets out the requirements of the proclamation of sale and says that such proclamation shall be drawn up after notice to the decree-holder and judgment-debtor and shall state the time and place of sale and specify as fairly and accurately as possible inter alia any encumbrances to which the property is liable. Every application for an order for sale under Rule 66 is required by Sub-rule (3) to be accompanied by a statement duly signed and verified and setting out inter alia the encumbrances to which the property is liable so far as they are known to or can be ascertained by the person making the verification. The Court is also empowered by Sub-rule (4) of Rule 66 to summon any person whom it thinks necessary to summon and to examine him and to require him to produce any document in his possession or power for the purpose of ascertaining the encumbrances on the property to be specified in the proclamation. Pursuant to these provisions a proclamation of sale was drawn up in the present case and in the column headed 'Details of any encumbrances to which the property is liable' no encumbrance was shown. Now if there were any arrears of tax due to the Municipal Corporation and the Municipal Corporation was consequently entitled to a first charge on the property, such charge would have been required to be shown in the proclamation of sale under Order 21 Rule 66. (Vide Shushamabala Dasee v. Pooranchandra De 63 Calcutta 621 at 624). But no such charge was shown in the proclamation of sale and the plaintiff as an ordinarily prudent man was, therefore, entitled to assume that no arrears of tax were due to the Municipal Corporation and the Municipal Corporation was accordingly not entitled to any charge on the suit property. The plaintiff was quite justified in telling himself: 'Here is a proclamation of sale drawn up after notice to the decree-holder and judgment-debtor under Order 21 Rule 66 Sub-rule (2); it is supported by a duly signed and verified statement made by the decree-holder under Order 21 Rule 66 Sub-rule (3) which requires the decree-holder to set out in the statement the encumbrances on the property so far as they are known to or can be ascertained by him and it has been subjected to the scrutiny of the Court under Order 21 Rule 66 Sub-rule (4) and moreover it has been published in the manner prescribed by Order 21 Rule 54 Sub-rule (2) for a period of at least thirty days so that if the Municipal Corporation was entitled to a first charge on the property, it could have applied to the executing Court for amendment of the proclamation of sale and yet no such charge is shown in the proclamation of sale and, therefore, there must not be any such charge in favour of the Municipal Corporation'. It is difficult to say in these circumstances that the plaintiff as an ordinarily prudent man dealing bona fide in the proper and usual manner for protection of his own interests should have made an inquiry from the Municipal Corporation as to whether there were any arrears of tax due to the Municipal Corporation and the Municipal Corporation was entitled to a first charge on the property for such arrears of tax. The argument of Mr. S.B. Vakil on behalf of the Municipal Corporation was that the plaintiff should not have relied on the non-specification of the charge in the proclamation of sale but should have instead made an enquiry of the Municipal Corporation, for it was quite possible that the decree holder and the judgment-debtor might not have specified the charge in the proclamation of sale with a view to realising a higher price for the property and this duty on the part of the plaintiff was particularly greater since he was buying at an auction sale where there was no warranty of title. Now it must be remembered that the test to be applied in such case is the test of what a reasonable man would do and a reasonable man would be free from the fault of being over suspicious as equally he would be free from the fault of being over-trusting. If a statement is made in the proclamation of sale that there is no charge on the property, a reasonable man, or to say the same thing in other words, an ordinarily prudent man, would accept the statement in the proclamation of sale and act on it unless there is some circumstance which gives him reason to believe that the statement may not be true, in which event he would be expected to make farther inquiry for the purpose of satisfying himself that the statement is true. But in the absence of anything to suggest that the statement in the proclamation of sale may not be true, there is no reason why he should not accept it and proceed on the basis that it represents the truth particularly when the proclamation of sale is drawn up in the presence of the decreeholder and the judgment-debtor, it is supported by the statement of the decreeholder made under a provision of law which requires him to set out the encumbrances so far as they are known to him or can be ascertained by him, it is scrutinized by the executing Court which has power to summon witnesses, to examine them and to require them to produce documents for the purpose of ascertaining the encumbrances on the property and it is advertised for a period of thirty days in the prescribed manner and yet the Municipal Corporation has not come forward to say that the statement in the proclamation of sale is not correct and that the charge in favour of the Municipal Corporation should be shown in the proclamation of sale. The purchaser is supposed to have the wisdom only of an ordinarily prudent man and not, as pointed out by Sir Percy Winfield, the wisdom of Ulysses nor, we may add, is he expected to have the wisdom of a cynic who has no faith in the honesty and goodness of human nature and who distrusts every statement made by another. It is undoubtedly true that an inquiry could have been made with the Municipal Corporation but merely because such inquiry was not made, it does not mean that the plaintiff was guilty of gross negligence.

10. The question is whether on the facts and circumstances of this case an ordinarily prudent man would have thought it necessary to make an inquiry of the Municipal Corporation. We think not. It would be unreasonable to expect the plaintiff as ordinarily prudent purchaser to be suspicious and to reject the statement contained in the proclamation of sale and to make inquiry of the Municipal Corporation for the purpose of verifying what was stated in the proclamation of sale. We may point out that as a matter of fact the plaintiff did make inquiries from the Receiver in insolvency whether there were any dues against the property. This was elicited by the learned advocate on behalf of the Municipal Corporation in the cross-examination of the plaintiff but significantly enough no further question was asked as to what was the answer given by the Receivers to the plaintiff. In view of the finding of the first appellate Court, which finding is binding on both the parties in this appeal, that the plaintiff had no actual notice of the charge, we must hold that the Receivers did not inform the plaintiff that there were arrears of tax due in respect of the property and there was consequently a charge of the Municipal Corporation on the property for arrears of tax. If despite the enquiry made by the plaintiff of the Receivers who are officers of the Court whether there were any dues against the property the plaintiff did not come to know that there were arrears of Municipal Tax and the Municipal Corporation was entitled to a first charge on the property for such arrears of tax, it is difficult to see how any blame can be laid at the door of the plaintiff and can be accused of being guilty or wilful abstention or gross negligence. We may point out in this connection that there is no obligation on the Municipality to give information as to arrears of tax on the application of an intending purchaser nor is there any provision of the Municipal Act or the Rules which requires the Municipal Corporation to maintain a register or record showing the arrears of tax due in respect of properties situate within Municipal limits so that an intending purchaser can go to the Municipal Office and take inspection of such register or record. It cannot, therefore, be said that if the plaintiff had made inquiry of the Municipal Corporation, he would have necessarily known of the arrears of tax and the consequent charge of the Municipal Corporation on the property and it is extremely doubtful whether in such a case the omission to make such inquiry can attract the applicability of the doctrine of constructive notice. We are, therefore, of the view on the facts and circumstances of the present case, that the plaintiff was not guilty of wilful abstention or gross negligence in not making inquiry of the Municipal Corporation for the purpose of ascertaining whether any arrears of tax were due to the Municipal Corporation and the Municipal Corporation was consequently entitled to a first charge on the property.

11. Before we part with this point we must refer to two decisions which were strongly relied on by Mr. S.B. Vakil on behalf of the Municipal Corporation and they were Lucknow Municipality v. Ramji Lal A.I.R. 1941 Oudh 395 and Nawal Kishore v. Agra Municipality (supra). These decisions laid down that an intending purchaser of property situate in a municipal area where the property is subject to municipal tax which is made a first charge on the property by statute, is not entitled to assume that the municipal tax has been paid, but knowing the possibility that some arrears of tax might be due and if they are due, the Municipal Corporation would have a first charge on the property, he is bound to inquire before purchasing the property as to whether any and if so what amount of tax is due and if he fails to make this inquiry, this failure amounts to wilful abstention or gross-negligence within the meaning of Section 3 of the Transfer of Property Act and he must be fixed with constructive notice of facts which he would have known if the necessary inquiry had been made by him. We cannot for reasons already stated by us accept this proposition as an absolute proposition of law. The question of constructive notice, as stated by the Full Bench of the Allahabad High Court itself, is a question of fact which falls to be determined on the evidence and the facts and circumstances of each case and it would not, therefore, be right to state as an absolute proposition of law that in every case an intending purchaser must inquire as to whether there are any arrears of tax due to the Municipal Corporation and if he omits to do so, constructive notice would be imputed to him. It would always be a question depending on the facts and circumstances of each case as to whether any inquiry is called for from the intending purchaser and the test to be applied for the purpose would be the test of what an ordinarily prudent purchaser would do in the proper and usual course of business for protecting his own interests. As observed by Lord Selborne in the passage from his judgment in Agra Bank Ltd. v. Barry, to which we have referred, the omission to make an inquiry may be accounted for and explained by the intending purchaser and if there is sufficient explanation for the omission, the doctrine of constructive notice would not apply. There may be an infinite variety of circumstances in which transactions of purchase may take place and if in the circumstances of a particular case an ordinarily prudent man dealing bona fide in the proper and usual manner for protecting his own interests would not make an inquiry, the omission to make such inquiry on the part of the intending purchaser cannot visit him with the consequences of constructive notice. The question in each case must necessarily be a question of fact to be determined on the facts and circumstances of the case and we cannot subscribe to any absolute proposition of law such as appears to have been laid down in these two decisions.

12. We, therefore, reach the conclusion that the plaintiff was a bona fide purchaser of the suit property for consideration without notice of the charge in favour of the Municipal Corporation and the charge was, there fore, not enforceable against the suit property in the hands of the plain tiff. There will accordingly be a decree for the plaintiff declaring that he is the owner of the suit property and that the charge of the Municipal Corporation for arrears of municipal taxes is not enforceable against the suit property in his hands and granting a permanent injunction restraining the Municipal Corporation from proceeding to realise the charge from the suit property. There will also be a decree declaring the warrant of attachment dated 20th July 1955 illegal and void and restraining the Municipal Corporation from enforcing it against the plaintiff in respect of the suit property. The Municipal Corporation will pay the costs of the plaintiff all throughout.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //