whether the document dated 22.2.1969 is a document of conditional sale or a mortgage? suit for redemption of the mortgage property-“conditional sale deed”dt. 22.2.1969 as a security for the loan amount.- On 25.2.1989, defendant No. 1 transferred the suit land in favour of his brother (defendant No. 2).The plaintiff filed a suit against the defendants on 5.4.1989 under the Transfer of Property Act, 18822 for redemption of mortgaged-whether the document dated 22.2.1969 is a document of conditional sale or a mortgage? - Therefore, a reading of the document would show that the document was executed for the reason that the plaintiff has borrowed a sum of Rs.3,000/- for his household expenses and the defendant is bound to retransfer the land if the amount is paid within one year.The advance of loan and return thereof are part of the same document which creates a relationship of debtor and creditor. Thus, itwould be covered by proviso in Section 58(c) of the Act. Now,some of the later judgments of this Court interpreting the proviso in Section 58(c) of the Act need to be considered.- suit for redemption was filed after twenty years of the document being executed and, in the meantime, defendants have made improvements over the land. Thus, the plaintiff would not be entitled to seek redemption. Section 63 of the Act contemplates that any accession by the mortgagee, during the continuance of the mortgage, the mortgagor shall on redemption be entitled to such accession in the absence of a contract to the contrary. Under Section 63(a) of the Act, the liability of mortgagor to pay for improvement will arise if the mortgagee had to incur the costs to preserve the property from destruction or deterioration or was necessary to prevent the security from becoming insufficient or being made in compliance with the lawful order of any public servant or public authority. suit for redemption after 20 years of execution of the document is not tenable as the suit for redemption can be filed within 30 years from the date fixed for redemption. The period of 30 years would commence on 22.2.1969 and the suit was filed in the year 1989, which is within the period of limitation.

whether the document dated 22.2.1969 is a document of conditional sale or a mortgage?

suit for redemption of the mortgage property-“conditional sale deed”dt. 22.2.1969 as a security for the loan amount.- On 25.2.1989, defendant No. 1 transferred the suit land in favour of his brother (defendant No. 2).The plaintiff filed a suit against the defendants on 5.4.1989 under the Transfer of Property Act, 18822 for redemption of mortgaged-whether the document dated 22.2.1969 is a document of conditional sale or a mortgage? - Therefore, a reading of the document would show that the document was executed for the reason that the plaintiff has borrowed a sum of Rs.3,000/- for his household expenses and the defendant is bound to retransfer the land if the amount is paid within one year.The advance of loan and return thereof are part of the same document which creates a relationship of debtor and creditor. Thus, itwould be covered by proviso in Section 58(c) of the Act. Now,some of the later judgments of this Court interpreting the proviso in Section 58(c) of the Act need to be considered.-  suit for redemption was filed after twenty years of the document being executed and, in the meantime, defendants have made improvements over the land. Thus, the plaintiff would not be entitled to seek redemption. Section 63 of the Act contemplates that any accession by the mortgagee, during the continuance of the mortgage, the mortgagor shall on redemption be entitled to such accession in the absence of a contract to the contrary.

Under Section 63(a) of the Act, the liability of mortgagor to pay for improvement will arise if the mortgagee had to incur the costs to preserve the property from destruction or deterioration or was necessary to prevent the security from becoming insufficient or being made in compliance with the lawful order of any public servant or public authority. suit for redemption after 20 years of execution of the document is not tenable as the suit for redemption can be filed within 30 years from the date fixed for redemption. The period of 30 years would commence on 22.2.1969 and the suit was filed in the year 1989, which is within the period of limitation.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 10197 OF 2010

BHIMRAO RAMCHANDRA KHALATE

(DECEASED) THROUGH LRS. .....APPELLANT(S)

VERSUS

NANA DINKAR YADAV (TANPURA) & ANR. .....RESPONDENT(S)

J U D G M E N T

HEMANT GUPTA, J.

1. The plaintiff is in appeal before this Court aggrieved against the

judgment passed by the High Court on 11.8.2006 in second appeal

whereby the order passed by the First Appellate Court on

14.1.2000 was affirmed, while dismissing the suit for redemption

of the mortgage property.

2. Brief facts leading rise to the present appeal are that the plaintiff

was the owner of 20 gunthas of agricultural land1

situated inVillage Khunte. The plaintiff was in need of money so he borrowed

Rs.3,000/- from defendant No. 1 on 22.2.1969 by executing a

1

For short, the ‘suit land’

1

document titled “conditional sale deed” as a security for the loan

amount. The plaintiff requested defendant No. 1 to reconvey the

suit land by accepting the loan amount of Rs.3,000/- but

defendant No. 1 refused to do so. On 25.2.1989, defendant No. 1

transferred the suit land in favour of his brother (defendant No. 2).

The plaintiff filed a suit against the defendants on 5.4.1989 under

the Transfer of Property Act, 18822 for redemption of mortgaged

property and possession. The claim of the plaintiff is that the

transaction dated 22.2.1969 was in the nature of mortgage even

though it was titled as the conditional sale.

3. The entire dispute revolves around whether the document dated

22.2.1969 is a document of conditional sale or a mortgage?

4. Before we advert to the nature and terms of the document, certain

principles of law need to be stated. Section 58(c) of the Act was

amended in the year 1929 when a proviso was inserted that

“provided that no such transaction shall be deemed to be a

mortgage, unless the condition is embodied in the document

which effects or purports to effect the sale”.

5. In Pandit Chunchun Jha v. Sheikh Ebadat Ali & Anr.3, the plaintiff’s suit for redemption was dismissed by the High Court but appeal allowed by this court reading the deed as mortgage. The question examined was whether a given transaction is a mortgage

2For short, the ‘Act’

3 AIR 1954 SC 345

2 

by conditional sale or a sale outright with a condition of

repurchase. It was held that two documents are seldom expressed

in identical terms and when it is necessary to consider the

attendant circumstances the imponderable variables which that

brings in its train make it impossible to compare one case with

another. Each must be decided on its own facts. But certain broad

principles were stated. The Court found that the document had no

clause for retransfer and instead says (clause 6) that if the

executants pay the money within two years, the property shall

come in exclusive possession and occupation with the transferors.

The document had no clause for retransfer. In these

circumstances, this Court held as under:

“12. The next step is to see whether the document is

covered by Section 58(c) of the Transfer of Property Act, for,

if it is not, then it cannot be a mortgage by conditional sale.

The first point there is to see whether there is an

“ostensible sale”. That means a transaction which takes the

outward form of a sale, for the essence of a mortgage by

conditional sale is that though in substance it is a mortgage

it is couched in the form of a sale with certain conditions

attached. The executants clearly purported to sell the

property in clause (5) because they say so, therefore, if the

transaction is not in substance a mortgage, it is

unquestionably a sale: an actual sale and not merely an

ostensible one. But if it is a mortgage, then the condition

about an “ostensible sale” is fulfilled.

13. We next turn to the Conditions. The ones relevant to

the present purpose are contained in clauses (6) and (7).

Both are ambiguous, but we have already said that on a fair

construction clause (6) means that if the money is paid

within the two years then the possession will revert to the

executants with the result that the title which is already in

3

them will continue to reside there. The necessary

consequence of that is that the ostensible sale becomes

void. Similarly, clause (7), though clumsily worded, can only

mean that if the money is not paid, then the sale shall

become absolute. Those are not the actual words used but,

in our opinion, that is a fair construction of their meaning

when the document is read as a whole. If that is what they

mean, as we hold they do, then the matter falls squarely

within the ambit of Section 58(c).

20. ………….It is true this can also be read the other way

but considering these very drastic provisions as also the

threat of a criminal prosecution in sub-clause (a), we think

the transferee was out to exact more than his pound of

flesh from the unfortunate rustices with whom he was

dealing and that he would not have agreed to account for

the profits : indeed that is his own case, for he says that

this was a sale out and out. In these circumstances, there

would be no need to keep a reasonable margin between the

debt and the value of the property as it ordinarily done in

the case of a mortgage. Taking everything into

consideration, we are of opinion that the deed is a

mortgage by conditional sale under Section 58 (c) of the

Transfer of Property Act..”

6. In a judgment reported as Shri Bhaskar Waman Joshi v. Shri

Narayan Rambilas Agarwal

4

, a Bench of this Court has upheld

the right of redemption. The argument raised by the transferor

was that the property transferred was intended to be mortgage

under a deed of conditional sale. The transferees contended that

the deed was absolute sale and that the conveyance was subject

to a condition of repurchase. It was, inter alia, held that a transaction shall not be deemed to be a mortgage unless the condition referred to in the clause is embodied in the document which affects

4 AIR 1960 SC 301

4

or purports to affect the sale. It was held that the mortgage by

conditional sale postulates the creation by the transfer of a relation of mortgagor and mortgagee, the price being charged on the

property conveyed. The Court held as under:

“7. …………….. The question whether by the incorporation

of such a condition a transaction ostensibly of sale may be

regarded as a mortgage is one of intention of the parties to

be gathered from the language of the deed interpreted in

the light of the surrounding circumstances. The

circumstance that the condition is incorporated in the sale

deed must undoubtedly be taken into account, but the

value to be attached thereto must vary with the degree of

formality attending upon the transaction. The definition of a

mortgage by conditional sale postulates the creation by the

transfer of a relation of mortgagor and mortgagee, the price

being charged on the property conveyed. In a sale coupled

with an agreement to reconvey there is no relation of

debtor and creditor nor is the price charged upon the

property conveyed, but the sale is subject to an obligation

to retransfer the property within the period specified. What

distinguishes the two transactions is the relationship of

debtor and creditor and the transfer being a security for the

debt. The form in which the deed is clothed is not decisive.

The definition of a mortgage by conditional sale itself

contemplates an ostensible sale of the property.

…………………… The question in each case is one of

determination of the real character of the transaction to be

ascertained from the provisions of the deed viewed in the

light of surrounding circumstances. If the words are plain

and unambiguous they must in the light of the evidence of

surrounding circumstances be given their true legal effect.

It there is ambiguity in the language employed, the

intention may be ascertained from the contents of the deed

with such extrinsic evidence as may by law be permitted to

be adduced to show in what manner the language of the

deed was related to existing facts. Oral evidence of

intention is not admissible in interpreting the covenants of

the deed but evidence to explain or even to contradict the

recitals as distinguished from the terms of the documents

may of course be given. Evidence of contemporaneous

5

conduct is always admissible as a surrounding

circumstance; but evidence as to subsequent conduct of the

parties is inadmissible.

xx xx xx

13. Counsel for the transferees sought to rely upon the

evidence of subsequent conduct of the transferors as

indicative of the character of the transaction as a sale, but

as already observed, that evidence is inadmissible.”

7. In another judgment reported as P.L. Bapuswami v. N. Pattay

Gounder

5

, this Court decreed the suit for redemption though the

same was dismissed by the High Court. The High Court held that

the transaction was an outright sale and not a mortgage by conditional sale. The alternative plea based on the covenant for re-conveyance, the High Court considered that there was no proof that

the plaintiff had tendered the amount within the period stipulated

in the document. In appeal, this court held that the distinction between the conditional sale and mortgage is the relationship of

debtor and creditor and the transfer being a security for the debt.

The Court held as under:

“5. …The definition of a mortgage by conditional sale postulates the creation by the transfer of a relation of mortgagor and mortgagee, the price being charged on the property conveyed. In a sale coupled with an agreement to reconvey there is no relation of debtor and creditor nor is the

price charged upon the property conveyed, but the sale is

subject to an obligation to retransfer property within the period specified. The distinction between the two transactions

is the relationship of debtor and creditor and the transfer

being a security for the debt. The form in which the deed is

5 AIR 1966 SC 902

6

clothed is not decisive. The question in each case is one of

determination of the real character of the transaction to be

ascertained from the provisions of the of document viewed,

in the light of surrounding circumstances. If the language is

plain and unambiguous it must in the light of the evidence

of surrounding circumstances be given its true legal effect.

If there is ambiguity in the language employed, the intention may be ascertained from the contents of the deed with

such extrinsic evidence as may by law be permitted to be

adduced to show in what manner the language of the deed

was related to existing facts…”

8. In view of the Judgments referred to above, now we examine the

facts of present case. The deed in question is Ex. 68. The document reads as under:

“I, above Executant, given in writing that I am executing

this conditional sale deed in your favour in front of Sub-Registrar, Phaltan as I am taking Rs.3,000/- (three thousand) in

cash from you for my household expenses in respect of land

which is in my possession owned by me and enjoyed by me

absolutely on this date. The description of the land located

within limits of town Khunte, Division Satara, Tq. Phaltan, irrigated by Government Canal. Its boundaries and other

particulars are –

xx xx xx

The above land owned and enjoyed by me along with all

materials standing on it including trees, stones, mud etc. is

being handed over to you by me for your possession on the

condition that you are giving back its possession to me anytime within one year from t he date of this sale deed when I

repay the above amount to you while re-transferring the

above land to my name. In case non-payment by me of the

said amount within the stipulated period, this sale deed will

be taken as a permanent one and you will enjoy the possession of the land as your own. Any future disputes in respect

of the said land will be dealt by me if they arise.

I sign this sale deed today on 22nd February, 1969.”

7

9. A perusal of the aforesaid document would show that:

(i) The plaintiff has borrowed a sum of Rs.3,000/- from the defendant for his household expenses in respect of the land

which was in his possession.

(ii) The possession of land was handed over to the defendant on

the condition that the possession will be given back to him

within one year from the date of conditional sale deed.

(iii) The defendant is bound to retransfer the land to the plaintiff

when he repays the amount of Rs.3,000/-.

(iv) If the amount is not paid within the stipulated period, the

conditional sale deed may be taken as a permanent one.

10. A complete reading of the document would show that a sum of

Rs.3,000/- was taken as a loan from the defendant for household

expenses. The same was to be returned and the defendant was

bound to retransfer the land. The condition that if the plaintiff is

not able to pay the loan amount within one year, the document

will be taken as a permanent sale deed is the contentious clause

between the parties.

11. In view of the judgments mentioned above, the intention of the

parties has to be seen when the document is executed. It is not in

dispute that the condition of retransfer is a part of the same document (Ex. 68). Such is the condition inserted by an amendment in

the year 1929 expressed by the proviso of Section 58(c) of the Act.

As held in Pandit Chunchun Jha, a transaction which takes the

8

outward form of a sale but in essence the documents are of a

mortgage, though it is couched in the form of a sale. This Court

held that it is impossible to compare one case with another. Each

case must be decided on its own facts and circumstances. The

document has to read as a whole and if any word is ambiguous,

then to find out the intention of the parties when such document

was executed.

12. Therefore, a reading of the document would show that the document was executed for the reason that the plaintiff has borrowed a

sum of Rs.3,000/- for his household expenses and the defendant is

bound to retransfer the land if the amount is paid within one year.

The advance of loan and return thereof are part of the same document which creates a relationship of debtor and creditor. Thus, it

would be covered by proviso in Section 58(c) of the Act. Now,

some of the later judgments of this Court interpreting the proviso

in Section 58(c) of the Act need to be considered.

13. This Court in Umabai & Anr. v. Nilkanth Dhondiba Chavan

(Dead) by LRs & Anr.

6 was examining contemporaneous documents executed on 30.12.1970 whereby the plaintiff had agreed to

sell the property for consideration of Rs.45,000/-. A sale deed was

executed as well. Another agreement to sale was executed between the parties on the same date where the defendants agreed

to reconvey the property on receipt of Rs.45,000/-. It was, thus,

6

(2005) 6 SCC 243

9

held that the benefit of Section 58(c) of the Act would not be applicable to the plaintiff as the document of reconveying the property

was not part of the same document. This Court held as under:

“21. There exists a distinction between mortgage by conditional sale and a sale with a condition of repurchase. In a

mortgage, the debt subsists and a right to redeem remains with the debtor; but a sale with a condition of repurchase is not a lending and borrowing arrangement. There

does not exist any debt and no right to redeem is reserved

thereby. An agreement to sell confers merely a personal

right which can be enforced strictly according to the terms

of the deed and at the time agreed upon. Proviso appended to Section 58(c), however, states that if the condition for retransfer is not embodied in the document which

effects or purports to effect a sale, the transaction will not

be regarded as a mortgage. ………………”

14. In Tulsi & Ors. v. Chandrika Prasad & Ors.

7

, this Court held

that a distinction exists between a mortgage by way of conditional

sale and a sale with condition to repurchase. In the former the

debt subsists and a right to redeem remains with the debtor but in

case of the latter, the transaction does not evidence an arrangement of lending and borrowing, thus, right to redeem is not reserved. The circumstances which weighed with the High Court

holding are that the transaction in question was mortgaged by

way of sale, it reads thus:

“9. The following circumstances weighed with the learned

trial court as well as the High Court in arriving at the

finding that the transaction in question was a mortgage by

way of a conditional sale:

7

(2006) 8 SCC 322

10

(i) The husband of Appellant 1 was a tenant in respect of

the property and he continued to occupy the same in the

same capacity.

(ii) The appellants bore the costs of stamp duty which is

not the normal practice in a case of absolute sale.

(iii) The transaction essentially was a Baibulwafa viz.

mortgage by conditional sale.

(iv) The land was required to be kept in the existing

condition.

(v) The transferor had an option to repay the entire

consideration in one instalment whereupon a deed of

reconveyance was to be executed by the transferor in her

favour. For the said purpose a specific date was fixed viz.

30-12-1971 and on obtaining such amount the transferee

was to restore possession of the land to the plaintiff and

only in the event of default on her part to repay the same

was the sale to become absolute and perfect.

(vi) In the margin of the deed, the transferor categorically

stated that he had executed a deed of Baibulwafa in

respect of two parts of the shop.

(vii) The amount has been received by the transferor in

the presence of the husband of the transferee.”

In view of the factors mentioned in para 9, the defendants

appeal was dismissed and, the decree for redemption was maintained.

15. In Vithal Tukaram Kadam & Anr. v. Vamanrao Sawalaram

Bhosale & Ors.

8

, the suit for redemption was decreed by setting

aside the judgment of the High Court. It was held as under:

8

(2018) 11 SCC 172

11

“14. The essentials of an agreement to qualify as a

mortgage by conditional sale can succinctly be

broadly summarised. An ostensible sale with transfer

of possession and ownership, but containing a clause

for reconveyance in accordance with Section 58(c) of

the Act, will clothe the agreement as a mortgage by

conditional sale. The execution of a separate agreement for reconveyance, either contemporaneously or

subsequently, shall militate against the agreement

being mortgage by conditional sale. There must exist

a debtor and creditor relationship. The valuation of

the property and the transaction value along with the

duration of time for reconveyance are important considerations to decide the nature of the agreement.

There will have to be a cumulative consideration of

these factors along with the recitals in the agreement, intention of the parties, coupled with other attendant circumstances, considered in a holistic manner.”

16. In another judgment reported as Ganpati Babji Alamwar

(Dead) by LRs Ramlu & Ors. v. Digambarrao Venkatrao

Bhadke & Ors.

9

, the decree in a suit for redemption was maintained by the High Court. The Court held as under:

“10. Whether an agreement is a mortgage by conditional

sale or sale with an option for repurchase is a vexed question

to be considered in the facts of each case. The essentials of

an agreement, to qualify as a mortgage by conditional sale,

can succinctly be summarised. An ostensible sale with transfer of possession and ownership, but containing a clause for

reconveyance in accordance with Section 58(c) of the Act,

will clothe the agreement as a mortgage by conditional sale.

The execution of a separate agreement for reconveyance, either contemporaneously or subsequently, shall militate

against the agreement being mortgage by conditional sale.

There must exist a debtor and creditor relationship. The valu9

(2019) 8 SCC 651

12

ation of the property, and the transaction value, along with

the duration of time for reconveyance, are important considerations to decide the nature of the agreement. There will

have to be a cumulative consideration of these factors, along

with the recitals in the agreement, intention of the parties,

coupled with other attendant circumstances, considered in a

holistic manner. The language used in the agreement may

not always be conclusive.”

17. On the other hand, learned counsel for the defendants relied upon

Vanchalabai Raghunath Ithape (Dead) by LR v. Shankarrao

Baburao Bhilare (Dead) by LRs & Ors.

10. It was a case where

the suit for redemption filed by plaintiff-appellant was maintained.

However, the judgment of this Court reported in Umabai and

Tulsi were not brought to the notice of this Court. In the absence

of consideration of such judgments, we find that the judgment of

this Court in Vanchalabai Raghunath Ithape will not lay down a

binding precedent.

18. In Dharmaji Shankar Shinde & Ors. v. Rajaram Shripad Joshi

(Dead) through LRs & Ors.

11, the defendants appeal was allowed by this court and the suit for redemption was dismissed. It

was, inter alia, held that if the sale and agreement to repurchase

are embodied in the separate documents then the transaction cannot be a “mortgage by conditional sale” irrespective of whether

the documents are contemporaneously executed; but the converse does not hold good. This Court held as under:

10 (2013) 7 SCC 173

11 (2019) 8 SCC 401

13

“22. ………………. Considering the contemporaneous conduct

of the parties, it is clear that Shankar Shinde and thereafter

the appellants were dealing with the suit property as if they

were the owners of the land. The clause in Ext. P-73 that if

the amount is not paid within a period of five years, the

transaction will become a permanent sale deed and thereafter, the transferee will have the absolute right over the

property are consistent with the express intention of parties

making the transaction a conditional sale with option to repurchase.”

19. A perusal of the above judgment shows that the plaintiff has borrowed a sum of Rs.7000/- for the marriage of his daughter eight

days prior to execution of the document. While executing document on 28.7.1967, the plaintiff borrowed an additional amount

and a document titled as “mortgage by conditional sale” was executed for a consideration of Rs.2500/-, but the plaintiff received

Rs.1800/- only. This Court held that the intention of the parties in

putting an end to the debtor creditor relationship with respect to

the sum of Rs.700/- is clear from the recitals of the document. It

was held that clauses in the document are consistent with the intention of the parties making the transaction of a conditional sale

with an option to repurchase. The Court held that there are no

recitals in the document to establish creditor debtor relationship,

nor does it contain the right of foreclosure, payment of interest

etc. which are essential requirements in a mortgage deed. The

Court held that undetermined mortgage amount for which the interest in the immovable property was created as security, indi14

cates that the parties have never intended to create a mortgage

deed.

20. The said judgment does not help the argument raised by the defendants, as the document in the present case clearly stipulates

the amount of Rs.3000/- was borrowed by the plaintiff and on return of such amount, a mandate to defendant No. 1 to execute reconveyance of suit land was asked for which was refused by defendant no.1.

21. Another judgment referred to by the learned counsel for the defendants is Sopan (Dead) through his LR v. Syed Nabi

12 but that

was a case where the registered sale deed was executed on

10.12.1968 and on the same date, a separate agreement was executed whereby the plaintiff has agreed to repay the amount and

secure reconveyance of the property. Since the two separate documents were executed, this Court has rightly found that it is not a

document of mortgage but of conditional sale which is not covered

by the proviso to Section 58(c) of the Act.

22. Learned counsel for the defendants has also referred to the fact

that the suit for redemption was filed after twenty years of the

document being executed and, in the meantime, defendants have

made improvements over the land. Thus, the plaintiff would not

be entitled to seek redemption. Section 63 of the Act contem12 (2019) 7 SCC 635

15

plates that any accession by the mortgagee, during the continuance of the mortgage, the mortgagor shall on redemption be entitled to such accession in the absence of a contract to the contrary.

Under Section 63(a) of the Act, the liability of mortgagor to pay for

improvement will arise if the mortgagee had to incur the costs to

preserve the property from destruction or deterioration or was

necessary to prevent the security from becoming insufficient or

being made in compliance with the lawful order of any public servant or public authority. None of the eventualities arose in the

present case compelling the mortgagor to pay for the improvements if any carried out by the mortgagee. A mortgagee spends

such money as is necessary for the preservation of the mortgaged

property for destruction, forfeiture or sale; for supporting the mortgagor’s title to the property; for making his own title thereto good

against the mortgagor; and when the mortgaged property is a renewable lease-hold, for the renewal of the lease, such expenditure

incurred by the mortgagee can be added to the cost of improvements in the principal amount due. However, in the absence of

any positive evidence of any improvement and the cost incurred,

the defendants are not entitled to recover anything more than the

mortgage amount. Since the possession was given to the mortgagee, he has enjoyed usufruct from the mortgage property which

compensates not only of the user of the land but also improve16

ments made by him. The improvements were to enjoy the

usufruct of the property mortgaged.

23. The argument that plaintiff has filed suit for redemption after 20

years of execution of the document is not tenable as the suit for

redemption can be filed within 30 years from the date fixed for redemption. The period of 30 years would commence on 22.2.1969

and the suit was filed in the year 1989, which is within the period

of limitation.

24. In view thereof, we find the order of the First Appellate Court accepting the appeal of the defendants and dismissing the suit for

redemption is not sustainable in law, so as the order passed by the

High Court. Consequently, the judgment and decree passed by

the First Appellate Court and that of the High Court are set aside

and the suit is decreed. The plaintiff may pay or deposit the mortgage amount within three months of the receipt of copy of the order. The appeal is allowed with no order as to costs.

.............................................J.

(HEMANT GUPTA)

.............................................J.

(A.S. BOPANNA)

NEW DELHI;

AUGUST 13, 2021.

17

whether interest can be said to have been actually paid by the mode of issuing debentures. -Explanation 3C was squarely attracted in that outstanding interest had not actually been paid - but instead a new credit entry of loan now appeared, bringing the case within the express language of Explanation 3C.

 The question raised in these appeals is with particular reference to Section 43B Explanation 3C of the Income Tax Act, 1961 [the “Act”]. 

The brief facts necessary to appreciate the controversy raised in these appeals are as follows. 

On 28th November, 1996, the Appellant filed a return of income declaring a loss of Rs.1,03,18,572/- for the assessment year 1996-1997. In the return filed by it, the Appellant claimed a deduction of Rs.2,84,71,384/- under Section 43B based on the issue of debentures  in lieu of interest accrued and payable to financial institutions. 

By an order dated 29th October, 1998, the Assessing Officer rejected the Appellant’s contention by holding that the issuance of debentures was not as per the original terms and conditions on which the loans were granted, and that interest was payable, holding that a subsequent change in the terms of the agreement, as they then stood, would be contrary to Section 43B(d), and would render such amount ineligible for deduction. 

 Claim of deduction against conversion of interest into a fresh loan is a case of misuse of the provisions of section 43B. A new Explanation 3C has, therefore, been inserted to clarify that if any sum payable by the assessee as interest on any loan or borrowing, referred to in clause (d) of section 43B, is converted into a loan or borrowing, the interest so converted, shall not be deemed to be actual payment.  This amendment takes effect retrospectively from 1st April, 1989 i.e. the date from which clause (d) was inserted in section 43B and applies in relation to the assessment year 1989-90 and subsequent years.” The object of Section 43B, as originally enacted, is to allow certain deductions only on actual payment. This is made clear by the nonobstante clause contained in the beginning of the provision, coupled with the deduction being allowed irrespective of the previous years in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by it. 

In short, a mercantile system of accounting cannot be looked at when a deduction is claimed under this Section, making it clear that incurring of liability cannot allow for a deduction, but only “actual payment”, as contrasted with incurring of a liability, can allow for a deduction. 

Interestingly, the ‘sum payable’ referred to in Section 43B(d), with which we are concerned, does not refer to the mode of payment, unlike Proviso 2 to the said Section, which was omitted by the Finance Act, 2003 w.e.f. 1st April, 2004. The said Proviso reads as follows: "Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date." 15 20. This being the case, it is important to advert to the facts found in the present case. Both the CIT and the ITAT found, as a matter of fact, that as per a rehabilitation plan agreed to between the lender and the borrower, debentures were accepted by the financial institution in discharge of the debt on account of outstanding interest. This is also clear from the expression “in lieu of” used in the judgment of the learned CIT. That this is so is clear not only from the accounts produced by the assessee, but equally clear from the fact that in the assessment of ICICI Bank, for the assessment year in question, the accounts of the bank reflect the amount received by way of debentures as its business income. This being the fact-situation in the present case, it is clear that interest was “actually paid” by means of issuance of debentures, which extinguished the liability to pay interest. 21. Explanation 3C, which was introduced for the “removal of doubts”, only made it clear that interest that remained unpaid and has been converted into a loan or borrowing shall not be deemed to have been actually paid. As has been seen by us hereinabove, particularly with regard to the Circular explaining Explanation 3C, at the heart of the introduction of Explanation 3C is misuse of the provisions of Section 43B by not actually  paying interest, but converting such interest into a fresh loan. On the facts found in the present case, the issue of debentures by the assessee was, under a rehabilitation plan, to extinguish the liability of interest altogether. No misuse of the provision of Section 43B was found as a matter of fact by either the CIT or the ITAT. Explanation 3C, which was meant to plug a loophole, cannot therefore be brought to the aid of Revenue on the facts of this case. Indeed, if there be any ambiguity in the retrospectively added Explanation 3C, at least three well established canons of interpretation come to the rescue of the assessee in this case. First, since Explanation 3C was added in 2006 with the object of plugging a loophole – i.e. misusing Section 43B by not actually paying interest but converting interest into a fresh loan, bona fide transactions of actual payments are not meant to be affected.

whether interest can be said to have been actually paid by the mode of issuing debentures. 

 

Ultimately, this Court concluded: 

In the impugned judgment [CIT v. Gujarat Cypromet Ltd., 2006 SCC OnLine Guj 560], the Gujarat High Court has relied upon CIT v. Bhagwati Autocast Ltd., 2002 SCC OnLine Guj 381 which was not a case covered by Section 43-B(d) rather was a case of Section 43-B(a). The provision of Section 43- B covers a host of different situations. The statutory Explanation 3-C inserted by the Finance Act, 2006 is squarely applicable in the facts of the present case. It appears that the attention of the High Court was not invited to Explanation 3- C, we are, thus, of the view that the assessing officer has rightly disallowed the deduction as claimed by the assessee. The appellate authority, ITAT and the High Court erred in reversing the said disallowance. On the facts of that case, this Court found that Explanation 3C was squarely attracted in that outstanding interest had not actually been paid, but instead a new credit entry of loan now appeared, bringing the case within the express language of Explanation 3C. This is far removed from the facts of the present case, which were not adverted to at all in this judgment. Consequently, this judgment is also distinguishable and would not apply to govern the facts of the present case. 

Consequently, the impugned judgments of the High Court are set aside and the judgment and order of the ITAT is restored. These appeals are allowed in the aforesaid terms.

1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.4742-4743 OF 2021

(Arising out of SLP (Civil) Nos. 35883-35884 of 2016)

M.M. Aqua Technologies Ltd. … Appellant

Versus

Commissioner of Income Tax, Delhi-III … Respondent

J U D G M E N T

R.F. Nariman, J

1. Leave granted.

2. The question raised in these appeals is with particular reference to

Section 43B Explanation 3C of the Income Tax Act, 1961 [the “Act”].

The brief facts necessary to appreciate the controversy raised in these

appeals are as follows.

3. On 28th November, 1996, the Appellant filed a return of income

declaring a loss of Rs.1,03,18,572/- for the assessment year 1996-1997.

In the return filed by it, the Appellant claimed a deduction of

Rs.2,84,71,384/- under Section 43B based on the issue of debentures 

2

in lieu of interest accrued and payable to financial institutions. By an

order dated 29th October, 1998, the Assessing Officer rejected the

Appellant’s contention by holding that the issuance of debentures was

not as per the original terms and conditions on which the loans were

granted, and that interest was payable, holding that a subsequent

change in the terms of the agreement, as they then stood, would be

contrary to Section 43B(d), and would render such amount ineligible for

deduction. The Commissioner of Income Tax (Appeals) [“CIT”] allowed

the appeal and held, on facts, as follows:

“3.2. …. It was clarified by the Ld. Counsel that the original

agreements with the financial institutions provided for

conversion of 20% of the amount in default into equity capital

of the appellant at the option of the lenders. The agreements

also provided for the repayment of the principal and the

interest, in default as per the revised terms and conditions

stipulated by the lendor at the time of default. As the appellant

was not in position to pay the interest and liquidated

damages. It approached the lead Financial Institutions which

on behalf of all the institutions approved the Rehabilitation

Plan According to the Rehabilitation Plan, the appellant

issued 300149 convertible debentures of 100 each

amounting to Rs. 3,00,14,900/ in lieu of outstanding interest

and other charges. As a result of these debentures in favour

of the Financial institutions, interest of Rs. 2,84,71,384/- was

effectively paid. It was argued by the Ld. Counsel that

liquidation of the outstanding interest by issue of debentures

was tantamount to actual payment of interest as envisaged

u/s 43B of the I.T. Act. It was emphasized by the Ld. Counsel

that section 43B of the I.T. Act, cash or cheque is the 

3

prescribed mode of payment of P.F. and ESI while there is no

prescribed mode of payment of interest. The mode of

payment of interest can therefore be other than cash or

cheque/draft. The issue of debentures in lieu of interest

therefore amounted to payment which had been

acknowledged by the lead institutions. Since the lendor had

admitted receipt of interest, there was no dispute about the

payment.

….

However, the original terms and conditions of the borrowings

not only provided for conversion of 20% of the amount in

default into appellant's equity but also revision of terms and

conditions of payment at the time of each default. The partial

conversion into equity was at the option of the lendor which

the lendor did not exercise. On the appellant's request, the

lead institution acting as trustee of all the lenders agreed to

the Rehabilitation Plan and accepted 300149 debentures of

Rs. 100 each aggregating to Rs. 3,00,14,900/- in discharge

of the outstanding interest. The discharge of the liability of

interest through issue of debentures as mutually agreed

between the appellant and the lenders was therefore in

accordance with the terms and conditions governing the

borrowings.”

4. On these facts, the conclusion drawn by the learned CIT was:

“3.6. It would not be correct to say that a debenture is a piece

of paper and the issue of debentures in lieu of interest merely

postponed the payment of liability. A debenture is a valuable

security which is freely negotiable and openly quoted in the

stock market. As the Financial institutions had accepted the

debentures in effective discharge of the liability for the

outstanding interest which was no longer payable by the

appellant, it was tantamount to actual payment for the intent

of section 43B of the I.T. Act. As interest had been actually

paid during the year and the payment was in accordance with 

4

the terms and conditions of the borrowings, interest of Rs.

2,84,71,384/- is directed to be allowed u/s 43B of the I.T. Act.”

5. This order was upheld in appeal by the Income Tax Appellate Tribunal

[“ITAT”]. The ITAT held:

“9. … The Section was introduced to curb the mischief of

withholding tax payment by the assessee, while at the same

time claiming deduction thereof in the income-tax

assessments. But when both the parties creditor and debtor

agree that the conversion of the outstanding interest liability

into fully paid debentures would be accepted by them as

discharge of the liability then to hold that notwithstanding the

contract between the two, it is open to the income tax

authorities to say that the interest liability has not been

discharged would not only be opposed to the contextual

perspective of section 43B, but would also do violence to the

language used. In Subhra Motel Pvt. Ltd. (supra), the Delhi

Bench of the Tribunal referred to the fact that the expression

“actually paid" appearing in Section 43B is not qualified by

words to the effect that the payment should be by cash or by

cheque or draft or by any other mode as has been prescribed

in the Second Proviso, with reference to clause (b) of the

section which refers to the sum payable by the assessee as

contribution to provident fund, superannuation fund, gratuity

fund etc.”

6. It then arrived at the important finding based on facts as follows:

“11. … At page 197, the copy of the statement of taxable

income of the assessee for the AY 2001-02 has been filed,

which shows that in the year in which the debentures were

redeemed, the assessee did not claim any deduction for the

interest. It has thus been proved in the present case that the

payment of interest by conversion of the outstanding liability

into convertible debentures, is a real substantial and effective

payment, meeting the requirement of the word “actual” and is 

5

not a fictional or illusory payment. The parties have

understood it as an effective discharge by the assessee of

the interest liability. The treatment given in the accounts as

well as in their income tax assessments is in accord with the

factual position.

xxx xxx xxx

12. … In the present case, the parties have agreed between

themselves that the interest would be funded and convertible

debentures would be issued in an amount identical to the

funded interest and that this arrangement would be accepted

by both of them as actual discharge of the liability to pay

interest. In our opinion, nobody has the right to intervene and

rewrite the arrangement for the parties and say that the

parties cannot agree between themselves that this will be

taken as actual discharge of the liability to pay interest. The

apprehension expressed by the legislature while introducing

the provisions of section 43B was that the assessee were not

discharging their income tax liabilities by paying them and in

fact, some of them were even obtaining a stay from the

Courts and at the same time claiming such liability as

deductions in their income tax assessments. This

apprehension, which was the rationale behind Section 43B

when it was introduced in 1984, appears to us to be

misplaced in the present case. As already pointed out, herein

we are not concerned with a statutory liability. The assessee

is not claiming a deduction in the income tax assessment

without actually clearing the statutory liability as had

happened in the case of CIT vs: Udaipur. Distillery Co. Ltd.

(No. 1) (268 ITR 305) before the Rajasthan High Court in that

case there was a statutory liability to pay the duty to the Govt.,

and it was held that a bank guarantee would not meet the

requirements of the section, and money has to actually flow

into the illegible. In the case before us, it is a contractual

liability where both the parties agree that the outstanding

interest liability would be discharged by the assessee in a

particular mode and that mode is followed. The assessee has 

6

not claimed the interest as a deduction again in the year in

which the debentures were redeemed and evidence to this

effect has already been adverted to. The interest which is

now allowed as a deduction in the assessee's assessment is

reflected in the assessment of ICICI as its business income.

Nobody is put to any loss. To invoke the provisions of section

43B, on the imaginary ground that there is no actual payment

of the interest, would be wholly misplaced and would amount

to a strained interpretation of the section.”

7. Against the aforesaid judgment of the ITAT, the Revenue filed an appeal

before the High Court, in which the question raised before the High Court

for determination was set out as follows:

“Whether the funding of the interest amount by way of a term

loan amounts to actual payment as contemplated by Section

43B of the Income-tax Act, 1961?”

8. After correctly recording the facts that “the assessee was unable to

discharge this interest liability due to its financial hardship. On

30/03/1994, the ICICI, by a letter waived a part of the compound interest

together with the commitment charges and agreed to accept 3,00,149

convertible debentures of ‘100 each, amounting to 3,00,14,900/- in lieu

of the outstanding amount”, the Delhi High Court set out the reasoning

of the ITAT in some detail and then the arguments of counsel for the

Appellant and Respondent. In para 8, the judgment then set out Section

43B with Explanation 3C, which was inserted by the Finance Act, 2006 

7

retrospectively w.e.f. 1.4.1989. The High Court concluded, based on

Explanation 3C, as follows:

“10. Now, Explanation 3C, having retrospective effect with

effect from 01.04.1989, would be applicable to the present

case, as it relates to AY1996-97. Explanation 3C squarely

covers the issue raised in this appeal, as it negates the

assessee’s contention that interest which has been converted

into loan is deemed to be “actually paid”. In light of the

insertion of this explanation, which, as mentioned earlier, was

not present at the time the impugned order was passed, the

assessee cannot claim deduction under Section 43B of the

Act.”

9. It then concluded, after referring to the judgments of the High Court of

Madhya Pradesh and the High Court of Telangana and Andhra Pradesh,

as follows:

“12. In light of the introduction of Explanation 3C, this Court

does not consider it necessary to discuss the precedents

relied upon by the assesse delivered prior to the enactment

of Finance Act, 2006. As regards the decision in Shakti

Spring Industries [(2013) 219 Taxman 124], the interest due

in that case was offset against a subsidy which the assessee

was entitled to, and it did not involve an instance where was

"converted into a loan or borrowing” within the meaning

Explanation 3C. It is perhaps for this reason that Explanation

3 was not discussed.”

10. On 22nd July, 2016, the High Court dismissed the Review Petition filed

by the assessee stating as follows:

“8. … The clear purport of the statute i.e. Section 43-B (d) is

that any amount payable towards interest liability would 

8

qualify for deduction; however Explanation 3C acts to insist

on a rider:

“Explanation 3C for the removal of doubts, it is hereby

declared that a deduction of any sum, being interest

payable under clause(d) of this section, shall be allowed

if such interest has been actually paid and any interest

referred to in that clause which has been converted into

a loan or borrowing shall not be deemed to have been

actually paid.”

Quite possibly the assessee's arguments would have been

convincing and the court might have been persuaded that

actual payment of amounts is inessential and a composition

of the kind involved in this case, would have sufficed - but for

Explanation 3C. Now, this provision was inserted with

retrospective effect and clearly operated for the period in

question. The assessee does not dispute that. Furthermore,

this court's judgment cited the rulings of other courts- Andhra

Pradesh & Telangana and the Madhya Pradesh High Courtswhich held that actual payment is the sine qua non for

applicability of Section 43-B. In the circumstances, the

decisions in Standard Chartered [2006 (6) SCC 94] and

Sunrise Associates [2006 (5) SCC 603], which declared the

nature and character of debentures, are of little avail.”

11. Shri Biswajit Bhattacharya, learned Senior Advocate appearing on

behalf of the Appellant, first drew this Court’s attention to an order dated

20th April, 2005 by which the question of law framed for consideration

in the appeal before the High Court was as follows:

"Whether the funding of the interest amount by way of a term

'debenture' amounts to actual payment as contemplated by

Section 43B of the Income Tax Act, 1961?"

9

12. This question was then wrongly recorded as follows:

“Whether the funding of the interest amount by way of a term

loan amounts to actual payment as contemplated by Section

43B of the Income-tax Act, 1961?”

13. Since the High Court asked itself the wrong question, it reached the

wrong conclusion as the key word “debenture” was missing in the

question framed in the impugned judgment dated 18th May, 2015. He

then took us through the facts that were found by the CIT and the ITAT

and argued that, on facts, a finding was rendered in his favour that the

debentures that were issued were not towards any future payment of

liability, but towards actual payment of interest that was due and owed

to the financial institution in question. He was at pains to point out that

Explanation 3C, which was introduced with retrospective effect after

these judgments, would have no application in the facts of this case as

interest had not been converted into any loan or borrowing. Thus, both

High Court judgments based exclusively on Explanation 3C are

erroneous as they have ignored the vital facts found by the authorities

below, which authorities are final on facts. To buttress his arguments,

he also relied upon judgments showing that debentures are actionable

claims and can be sold in the market as such.

10

14. Shri Bhattacharya also relied upon Cape Brandy Syndicate v. Inland

Revenue Commissioner [1921 (1) KB 64] to submit that fiscal and tax

statutes have to be strictly construed and that since the word

“debenture” is not specified in Explanation 3C, it cannot be read into it.

15. Shri Balbir Singh, learned Additional Solicitor General, argued that

Section 43B makes a departure from other Sections in the Act, as

indicated by its non-obstante clause. The Section was introduced so that

no deductions could be claimed based on a mercantile system of

accounting as actual payment would have to be made. He also relied

upon a judgment of this Court as to the correct meaning of “debentures”

and then referred to and relied upon CIT v. Gujarat Cypromet Ltd.,

(2020) 15 SCC 460, which referred to the impugned judgment in the

present case with approval. He also argued that it being clear that a

debenture is nothing but a loan, interest had, in fact, been converted into

a loan on the facts of this case and squarely attracted the latter part of

Explanation 3C.

16. At this juncture, it is important to set out Section 43B. The relevant

provisions of the said Section read as follows:

11

43B. Certain deductions to be only on actual payment –

Notwithstanding anything contained in any other provision of

this Act, a deduction otherwise allowable under this Act in

respect of—

xxx xxx xxx

(d) any sum payable by the assessee as interest on any loan

or borrowing from any public financial institution or a State

financial corporation or a State industrial investment

corporation, in accordance with the terms and conditions of

the agreement governing such loan or borrowing, or

xxx xxx xxx

shall be allowed (irrespective of the previous year in which

the liability to pay such sum was incurred by the assessee

according to the method of accounting regularly employed by

him) only in computing the income referred to in section 28 of

that previous year in which such sum is actually paid by him:

Provided that nothing contained in this section shall apply in

relation to any sum which is actually paid by the assessee on

or before the due date applicable in his case for furnishing the

return of income under sub-section (1) of section 139 in

respect of the previous year in which the liability to pay such

sum was incurred as aforesaid and the evidence of such

payment is furnished by the assessee along with such return.

xxx xxx xxx

Explanation 3C.—For the removal of doubts, it is hereby

declared that a deduction of any sum, being interest payable

under clause (d) of this section, shall be allowed if such

interest has been actually paid and any interest referred to in

that clause which has been converted into a loan or

borrowing shall not be deemed to have been actually paid.

12

17. Section 43B was originally inserted by the Finance Act, 1983 w.e.f. 1st

April, 1984. The scope and effect of the newly inserted provision, at that

point, was explained by the Central Board of Direct Taxes [“Board”] in

Circular No.372/1983 dated 8th December, 1983 as follows:

“35.2 Several cases have come to notice where taxpayers do

not discharge their statutory liability such as in respect of

excise duty, employer's contribution to provident fund,

Employees State Insurance Scheme, etc., for long periods of

time, extending sometimes to several years. For the

purposes of their income-tax assessments, they claim the

liability as deduction on the ground that they maintain

accounts on mercantile or accrual basis. On the other hand,

they dispute the liability and do not discharge the same. For

some reasons or the other, undisputed liabilities also are not

paid.

35.3 To curb this practice, the Finance Act has inserted a new

section 43B to provide that deduction for any sum payable by

the assessee by way of tax or duty under any law for the time

being in force or any sum payable by the assessee as an

employer by way of contribution to any provident fund or

superannuation fund or gratuity fund or any other fund for the

welfare of employees shall irrespective of the previous year

in which the liability to pay such sum was incurred, be allowed

only in computing the income of that previous year in which

such sum is actually paid by the assessee.

35.4 The section also contains an Explanation for the removal

of doubts. The Explanation provides that where a deduction

in respect of any sum aforesaid is allowed in computing the

income of any previous year, being a previous year relevant

to the assessment year 1983-84, or any earlier assessment

year, in which the liability to pay such sum was incurred by

the assessee, the assessee shall not be entitled to any 

13

deduction under section 43B in respect of such sum on the

ground that the sum has been actually paid by him in that

year. In other words, an assessee who has already been

allowed deduction of a liability on account of the tax or duty

or in respect of any sum payable as contribution to any fund

for the assessment year 1983-84, or any earlier year in which

the liability to pay was incurred, cannot, in respect of that

liability, be allowed a deduction in the assessment year 1984-

85, or any subsequent year on the ground that he has actually

made a payment towards such liability in that year.”

18. As has been pointed out hereinabove, the Finance Act, 2006 inserted

Explanation 3C w.e.f. 1st April, 1989. The scope and effect of this

provision was explained by the Board in Circular No.14/2006 dated 23rd

December, 2006, as follows:

“16.2 It has come to notice that certain assessees were

claiming deduction under section 43B on account of

conversion of interest payable on an existing loan into a fresh

loan on the ground that such conversion was a constructive

discharge of interest liability and, therefore, amounted to

actual payment. Claim of deduction against conversion of

interest into a fresh loan is a case of misuse of the provisions

of section 43B. A new Explanation 3C has, therefore, been

inserted to clarify that if any sum payable by the assessee as

interest on any loan or borrowing, referred to in clause (d) of

section 43B, is converted into a loan or borrowing, the interest

so converted, shall not be deemed to be actual payment.

16.3 This amendment takes effect retrospectively from 1st

April, 1989 i.e. the date from which clause (d) was inserted in

section 43B and applies in relation to the assessment year

1989-90 and subsequent years.”

14

19. The object of Section 43B, as originally enacted, is to allow certain

deductions only on actual payment. This is made clear by the nonobstante clause contained in the beginning of the provision, coupled with

the deduction being allowed irrespective of the previous years in which

the liability to pay such sum was incurred by the assessee according to

the method of accounting regularly employed by it. In short, a mercantile

system of accounting cannot be looked at when a deduction is claimed

under this Section, making it clear that incurring of liability cannot allow

for a deduction, but only “actual payment”, as contrasted with incurring

of a liability, can allow for a deduction. Interestingly, the ‘sum payable’

referred to in Section 43B(d), with which we are concerned, does not

refer to the mode of payment, unlike Proviso 2 to the said Section, which

was omitted by the Finance Act, 2003 w.e.f. 1st April, 2004. The said

Proviso reads as follows:

"Provided further that no deduction shall, in respect of any

sum referred to in clause (b), be allowed unless such sum

has actually been paid in cash or by issue of a cheque or draft

or by any other mode on or before the due date as defined in

the Explanation below clause (va) of sub-section (1) of

section 36, and where such payment has been made

otherwise than in cash, the sum has been realised within

fifteen days from the due date."

15

20. This being the case, it is important to advert to the facts found in the

present case. Both the CIT and the ITAT found, as a matter of fact, that

as per a rehabilitation plan agreed to between the lender and the

borrower, debentures were accepted by the financial institution in

discharge of the debt on account of outstanding interest. This is also

clear from the expression “in lieu of” used in the judgment of the learned

CIT. That this is so is clear not only from the accounts produced by the

assessee, but equally clear from the fact that in the assessment of ICICI

Bank, for the assessment year in question, the accounts of the bank

reflect the amount received by way of debentures as its business

income. This being the fact-situation in the present case, it is clear that

interest was “actually paid” by means of issuance of debentures, which

extinguished the liability to pay interest.

21. Explanation 3C, which was introduced for the “removal of doubts”, only

made it clear that interest that remained unpaid and has been converted

into a loan or borrowing shall not be deemed to have been actually paid.

As has been seen by us hereinabove, particularly with regard to the

Circular explaining Explanation 3C, at the heart of the introduction of

Explanation 3C is misuse of the provisions of Section 43B by not actually 

16

paying interest, but converting such interest into a fresh loan. On the

facts found in the present case, the issue of debentures by the assessee

was, under a rehabilitation plan, to extinguish the liability of interest

altogether. No misuse of the provision of Section 43B was found as a

matter of fact by either the CIT or the ITAT. Explanation 3C, which was

meant to plug a loophole, cannot therefore be brought to the aid of

Revenue on the facts of this case. Indeed, if there be any ambiguity in

the retrospectively added Explanation 3C, at least three well established

canons of interpretation come to the rescue of the assessee in this case.

First, since Explanation 3C was added in 2006 with the object of

plugging a loophole – i.e. misusing Section 43B by not actually paying

interest but converting interest into a fresh loan, bona fide transactions

of actual payments are not meant to be affected. In similar

circumstances, in K.P. Varghese v. ITO, (1981) 4 SCC 173, this Court

construed Section 52 of the Income Tax Act as applying only to cases

where ‘understatement’ is be found – an ‘understatement’ is not to be

found in the literal language of Section 52, but was introduced by this

Court to streamline the provision in the light of the object sought to be

achieved by the said provision. This Court, therefore, held:

17

13. Thus it is not enough to attract the applicability of subsection (2) that the fair market value of the capital asset

transferred by the assessee as on the date of the transfer

exceeds the full value of the consideration declared in respect

of the transfer by not less than 15 per cent of the value so

declared, but it is furthermore necessary that the full value of

the consideration in respect of the transfer is understated or

in other words, shown at a lesser figure than that actually

received by the assessee. Sub-section (2) has no application

in case of an honest and bona fide transaction where the

consideration in respect of the transfer has been correctly

declared or disclosed by the assessee, even if the condition

of 15 per cent difference between the fair market value of the

capital asset as on the date of the transfer and the full value

of the consideration declared by the assessee is satisfied. ….

xxx xxx xxx

15. It is therefore clear that sub-section (2) cannot be invoked

by the Revenue unless there is understatement of the

consideration in respect of the transfer and the burden of

showing that there is such understatement is on the

Revenue. Once it is established by the Revenue that the

consideration for the transfer has been understated or, to put

it differently, the consideration actually received by the

assessee is more than what is declared or disclosed by him,

sub-section (2) is immediately attracted, subject of course to

the fulfilment of the condition of 15 per cent or more

difference, and the Revenue is then not required to show

what is the precise extent of the understatement or in other

words, what is the consideration actually received by the

assessee. That would in most cases be difficult, if not

impossible, to show and hence sub-section (2) relieves the

Revenue of all burden of proof regarding the extent of

understatement or concealment and provides a statutory

measure of the consideration received in respect of the

transfer. It does not create any fictional receipt. It does not

deem as receipt something which is not in fact received. It 

18

merely provides a statutory best judgment assessment of the

consideration actually received by the assessee and brings

to tax capital gains on the footing that the fair market value of

the capital asset represents the actual consideration received

by the assessee as against the consideration untruly

declared or disclosed by him. This approach in construction

of sub-section (2) falls in line with the scheme of the

provisions relating to tax on capital gains. It may be noted that

Section 52 is not a charging section but is a computation

section. It has to be read along with Section 48 which

provides the mode of computation and under which the

starting point of computation is “the full value of the

consideration received or accruing”. What in fact never

accrued or was never received cannot be computed as

capital gains under Section 48. Therefore sub-section (2)

cannot be construed as bringing within the computation of

capital gains an amount which, by no stretch of imagination,

can be said to have accrued to the assessee or been received

by him and it must be confined to cases where the actual

consideration received for the transfer is understated and

since in such cases it is very difficult, if not impossible, to

determine and prove the exact quantum of the suppressed

consideration, sub-section (2) provides the statutory measure

for determining the consideration actually received by the

assessee and permits the Revenue to take the fair market

value of the capital asset as the full value of the consideration

received in respect of the transfer.

22. Second, a retrospective provision in a tax act which is “for the removal

of doubts” cannot be presumed to be retrospective, even where such

language is used, if it alters or changes the law as it earlier stood. This

was stated in Sedco Forex International Drill. Inc. v. CIT, (2005) 12

SCC 717 as follows:

19

17. As was affirmed by this Court in Goslino Mario [(2000) 10

SCC 165] a cardinal principle of the tax law is that the law to

be applied is that which is in force in the relevant assessment

year unless otherwise provided expressly or by necessary

implication. (See also Reliance Jute and Industries

Ltd. v. CIT [(1980) 1 SCC 139] .) An Explanation to a statutory

provision may fulfil the purpose of clearing up an ambiguity in

the main provision or an Explanation can add to and widen

the scope of the main section [See Sonia Bhatia v. State of

U.P., (1981) 2 SCC 585, 598] . If it is in its nature clarificatory

then the Explanation must be read into the main provision

with effect from the time that the main provision came into

force [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24

(para 44); Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC

352, 354; CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482,

506]. But if it changes the law it is not presumed to be

retrospective, irrespective of the fact that the phrases used

are “it is declared” or “for the removal of doubts”.

18. There was and is no ambiguity in the main provision of

Section 9(1)(ii). It includes salaries in the total income of an

assessee if the assessee has earned it in India. The word

“earned” had been judicially defined in S.G. Pgnatale [(1980)

124 ITR 391 (Guj)] by the High Court of Gujarat, in our view,

correctly, to mean as income “arising or accruing in India”.

The amendment to the section by way of an Explanation in

1983 effected a change in the scope of that judicial definition

so as to include with effect from 1979, “income payable for

service rendered in India”.

19. When the Explanation seeks to give an artificial meaning

to “earned in India” and brings about a change effectively in

the existing law and in addition is stated to come into force

with effect from a future date, there is no principle of

interpretation which would justify reading the Explanation as

operating retrospectively.

20

23. This being the case, Explanation 3C is clarificatory – it explains Section

43B(d) as it originally stood and does not purport to add a new condition

retrospectively, as has wrongly been held by the High Court.

24. Third, any ambiguity in the language of Explanation 3C shall be

resolved in favour of the assessee as per Cape Brandy Syndicate v.

Inland Revenue Commissioner (supra) as followed by judgments of

this Court – See Vodafone International Holdings BV v. Union of

India, (2012) 6 SCC 613 at paras 60 to 70 per Kapadia, C.J. and para

333, 334 per Radhakrishnan, J.

25. The High Court judgment dated 18th May, 2015, is clearly in error in

concluding that ‘interest’, on the facts of this case, has been converted

into a loan. There is no basis for this finding - as a matter of fact, it is

directly contrary to the finding on facts of the authorities below.

26. The learned ASG’s reliance on National Rayon Corpn. Ltd. v. CIT,

(1997) 7 SCC 56 is disingenuous. That was a decision which turned on

whether a sum of Rs.79 lakhs represents ‘Debenture Redemption

Reserve’ and was includible in computing the capital of the assessee

company for the purpose of the Companies (Profits) Surtax Act, 1964.

The High Court took the view that the amount set apart to redeem 

21

debentures had to be treated as a “provision” and not as a

“reserve”. While discussing this question, this Court held :

8. Mr Ramachandran advanced another argument that there

was no present liability to pay any amount to the debentureholders. That liability will arise only when the amount falls due

for payment. Therefore, there was no existing liability for

redeeming the debentures in the relevant year of account.

9. We are unable to uphold this argument. The liability to

repay arises the moment the money is borrowed. The amount

borrowed may be repayable immediately or in future. The

date of repayment of loan may be deferred by agreement but

the obligation or the liability to repay will not cease on that

account. The obligation is a present obligation; debitum in

praesenti, solvendum in futuro. This aspect of the matter was

explained in the judgment of this Court in Kesoram Industries

and Cotton Mills Ltd. v. CWT [AIR 1966 SC 1370 : (1966) 59

ITR 767] .

10. By issuing the debentures, the Company had taken a loan

against the security of its assets. This loan may not be

repayable in the year of account. But the obligation to pay the

loan is a present obligation. Any money set apart in the

accounts of the Company to redeem the debentures must be

treated as moneys set apart to meet a known liability. The

debentures will have to be shown in the Company's balance

sheet of the year as “liability”.

11. In the case of CIT v. Peico Electronics & Electricals

[(1987) 166 ITR 299 (Cal)] the Calcutta High Court held that

the Debenture Redemption Reserve will have to be treated

as a “reserve” and not “provision” because, none of the

debentures became redeemable during the accounting

period. The liability to redeem the debenture was a future

liability. The debentures had been separately shown in the

balance sheet as a liability. The reserve had been created by 

22

appropriation of profits and not by way of a charge on

revenue.

12. We are of the view that this approach is erroneous and

overlooks the definitions of “provision” and “reserve” given in

the Companies Act. The debentures were nothing but

secured loans. Merely because the debentures were not

redeemable during the accounting period, the liability to

redeem the debentures did not cease to exist. It was

redeemable or repayable at a future date. But it was a known

liability. In the form of balance sheet prescribed by the Act in

Schedule VI, the secured loans have to be shown under the

heading “liabilities”. Secured loans include (1) debentures, (2)

loans and advances from banks, (3) loans and advances from

subsidiaries and (4) other loans and advances. The secured

loans might not be immediately repayable, but the liability to

repay these loans was an existing liability and has to be

shown in the Company's balance sheet for the relevant year

of account as a liability. Amounts set apart to pay these loans

cannot be “reserve”. The interpretation clause of the balance

sheet in Schedule VI of the Companies Act specifically lays

down that reserves shall not include any amount written off

or retained by way of providing for a known liability.

27. The question decided in this case is far removed from the question to

be decided in the facts of the present case and has no application to

these facts whatsoever. The question in the present case does not

depend upon what can, in law, be stated to be a debenture and/or

whether it is convertible or non-convertible or payable immediately or in

the future. The question in the present case is only whether interest can

be said to have been actually paid by the mode of issuing debentures. 

23

To answer this question, this judgment has no relevance.

28. The learned ASG then relied upon a recent judgment of this Court in

CIT v. Gujarat Cypromet Ltd. (supra). In the said case, a Division

Bench of this Court, while dealing with Section 43B Explanation 3C,

noted the facts as found by the CIT as follows (para 5):

“2.2. I have perused the case laws cited and also the above

sanction letter from IDBI and also the auditor's note referred

by the assessing officer. I have perused Schedule 3 of the

balance sheet as on 31-3-2001 and find that the above loan

appears as on 31-3-2001 and is part of the total secured

loans of Rs 75,26,10,769. The fact that the entry pertaining

to the interest element outstanding to financial institutions

referred at page 2 of the order by the assessing officer has

been reversed after receipt of funds of Rs 8 crores from IDBI

substantiates the contention of the appellant company that

the entries relating to interest outstanding with reference the

above institutions have been squared up and its place a new

credit entry of loan of IDBI is now appearing in the balance

sheet as on 31-3-2001. The plea of the appellant's counsel

Shri Tanna that since no interest payment is outstanding now

and the amount is paid off, the expenditure of interest is

allowable under Section 43-B. It is further added that in case

the loan had been disbursed in 2 parts — one to meet the

interest outstanding and the balance for financial assistance

still the entries in the books of account would have remain the

same and the outstanding interest would have been NIL.

Having regard to the above facts and also the case laws cited

by the appellant's representative, I am inclined to hold that

the disallowance made by the assessing officer is contrary to

the substance of the transaction and the provisions of Section

43-B of the Income Tax Act and the same cannot be

sustained and therefore directed to be deleted.”

24

29. It is on these facts that Explanation 3C was pressed into service in favour

of Revenue and paras 11 and 12 of the impugned judgment in the present

case were referred to, in passing, in para 13. Ultimately, this Court

concluded:

16. In the impugned judgment [CIT v. Gujarat Cypromet Ltd.,

2006 SCC OnLine Guj 560], the Gujarat High Court has relied

upon CIT v. Bhagwati Autocast Ltd., 2002 SCC OnLine Guj

381 which was not a case covered by Section 43-B(d) rather

was a case of Section 43-B(a). The provision of Section 43-

B covers a host of different situations. The statutory

Explanation 3-C inserted by the Finance Act, 2006 is squarely

applicable in the facts of the present case. It appears that the

attention of the High Court was not invited to Explanation 3-

C, we are, thus, of the view that the assessing officer has

rightly disallowed the deduction as claimed by the assessee.

The appellate authority, ITAT and the High Court erred in

reversing the said disallowance.

30. On the facts of that case, this Court found that Explanation 3C was

squarely attracted in that outstanding interest had not actually been paid,

but instead a new credit entry of loan now appeared, bringing the case

within the express language of Explanation 3C. This is far removed from

the facts of the present case, which were not adverted to at all in this

judgment. Consequently, this judgment is also distinguishable and would

not apply to govern the facts of the present case.

25

31. Consequently, the impugned judgments of the High Court are set aside

and the judgment and order of the ITAT is restored. These appeals are

allowed in the aforesaid terms.

………………….......................J.

 [ ROHINTON FALI NARIMAN ]

………………….......................J.

 [ B.R. GAVAI ]

New Delhi;

August 11, 2021.

once satisfaction was recorded under the provisions of NCTE Act, rules and relevant Regulations, there can be no rational for NCTE or its Regional Committee to deny the recognition from the Academic Year 2021­-2022 and insist on recognition for Academic Session 2022­-2023.

once satisfaction was recorded under the provisions of NCTE Act, rules and relevant Regulations,  there   can   be   no   rational   for   NCTE   or   its   Regional Committee  to   deny  the  recognition  from  the  Academic  Year 2021­-2022   and   insist   on   recognition   for   Academic   Session 2022­-2023.   

It also mentions that the Committee was satisfied that the applicant(s) fulfillsthe requirement under the provisions of NCTE Act, rules and relevant Regulations, after considering the certificates issued from   the   affiliating   bodies.     

The   order   also   records   its satisfaction with regard to Norms and Standards for the teacher education   programme   such   as   instructional   facilities, infrastructural facilities, financial resources, etc. for running the programme.   

After arriving at such a satisfaction, we are of the view that   there   can   be   no   rational   for   NCTE   or   its   Regional Committee  to   deny  the  recognition  from  the  Academic  Year 2021­-2022   and   insist   on   recognition   for   Academic   Session 2022­-2023.     

It   is   not   in   dispute   that   the   counselling   for admission   is   yet   to   commence.     

Insofar   as   the   time­line prescribed in the judgment of this Court in the case of  Maa Vaishno  Devi  Mahila  Mahavidyalaya  (supra) is concerned, this   Court   itself   in   catena   of   orders   placed   on   record   has modified the time­line fixed therein.  whenthe delay is not attributable to the petitioners, but, on thecontrary to NCTE or its Regional Committees.   time line has to fixed.

We therefore allow the petitions in the following terms: 

(i) The   cut­off   date   fixed   by   this   Court   in  Maa Vaishno Devi Mahila Mahavidyalaya  (supra) is extended in the facts of these cases; 

(ii) It is held and declared that the petitioners would be   entitled   to   the   recognition   granted   by respective orders passed by NCTE or its Regional Committees   from   the   Academic   Session   2021­ 2022 instead of Academic Session 2022­-2023. 

(iii) The   Respondent   –   NCTE   and   its   Regional Committees   are   directed   to   issue   formal orders/notifications in that regard within a period of three days from today.  

(iv) The State and other Authorities would consider grant   of   affiliation   and/or   other   requisite permissions   within   a   period   of   15   days   from today; 

(v) The   petitioners   would   be   entitled   to   admit   the students for Academic Session 2021­-2022 as per the sanction granted by NCTE for the Academic Session 2022­-2023.  

(vi) The   name   of   the   petitioner­colleges/institutions shall be included in the counselling programme for admissions.   

The writ petitions are allowed and disposed of in the above   terms.    

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION 

WRIT PETITION (C) NO.518 OF 2021  

DEVENDRA PATHAK SARVODAYA 

COLLEGE OF EDUCATION  ...PETITIONER(S)

VERSUS

NATIONAL COUNCIL FOR TEACHER

EDUCATION AND ORS.        ...RESPONDENT(S)

WITH 

WRIT PETITION (CIVIL) NO.532 OF 2021

WRIT PETITION (CIVIL) NO.793 OF 2021

WRIT PETITION (CIVIL) NO.778 OF 2021

WRIT PETITION (CIVIL) NO.789 OF 2021

WRIT PETITION (CIVIL) NO.794 OF 2021

WRIT PETITION (CIVIL) NO.608 OF 2021

WRIT PETITION (CIVIL) NO.602 OF 2021

WRIT PETITION (CIVIL) NO.601 OF 2021

WRIT PETITION (CIVIL) NO.538 OF 2021

WRIT PETITION (CIVIL) NO.711 OF 2021

WRIT PETITION (CIVIL) NO.823 OF 2021

J U D G M E N T 

B.R. GAVAI, J.

1

1. The facts in all these bunch of petitions are almost

similar and as such, are decided by this common judgment.  

2. We will refer to the facts in the lead matter i.e. Writ

Petition (Civil) No.518 of 2021 in some detail and would refer to

the bare necessary facts in all other matters.  

Writ Petition (Civil) No.518 of 2021 

3. The   petitioner   college   was   established   as   unaided

training college to impart Bachelor in Teacher Education (B.Ed.)

and Diploma in Elementary Education (D.El.Ed.) courses in the

year 2011.  

4. The   petitioner   college   submitted   an   application   to

respondent   No.1   –   National   Council   for   Teacher   Education

(hereinafter referred to as ‘NCTE’) for grant of recognition under

Section 14(1) of the National Council for Teacher Education Act,

1993 (hereinafter referred to as ‘the said Act’) for conducting

B.Ed. course with an annual intake of 100 students. 

2

5. Vide order dated 25.2.2014, NCTE granted recognition

for B.Ed. course under one year programme for Academic Year

2014­2015 with an annual intake of 100 students.  

6. Respondent No. 2 – Magadh University, Bodh Gaya,

Bihar,   vide   letter   dated   2.8.2014   granted   affiliation   to   the

petitioner college to conduct admission with 100 seats of one

year   B.Ed.   course   from   Academic   Year   2014­2015   till

continuation of accreditation of NCTE. 

7. By   the   National   Council   for   Teacher   Education

(Recognition,   Norms   and   Procedure)   Regulations,   2014

(hereinafter   referred   to   as   ‘2014   Regulations’),   notified   on

28.11.2014, a two­year B.Ed. course was introduced instead of

one­year   B.Ed.   course   from   Academic   Session   2015­2016

onwards.

8. Petitioner­college by an affidavit agreed to come under

2014 Regulations and sought for two basic units (100 seats) in

B.Ed. course, which requires additional facilities.   Vide order

dated 23.5.2015, petitioner­college was granted recognition for

3

two­year B.Ed. course for Academic Session 2015­2016 with an

annual intake capacity of 100 seats.  Petitioner­college was also

granted   recognition   for   D.El.Ed.   course   vide   order   dated

2.5.2016   with   an   annual   intake   of   50   seats   for   two   years

duration from Academic Session 2016­2017 to 2017­2018.  

9. On 3.6.2016, after receiving NOC, the petitioner­college

submitted its online application to NCTE seeking recognition for

additional two units (100 seats) for D.El.Ed. and B.Ed. courses

along with relevant documents. 

10. Vide order dated 26.9.2017, respondent No.3 – Bihar

School Examination Board granted affiliation to the petitionercollege for conducting D.El.Ed. course with one unit (50 seats)

from Academic Session 2017­2019.  

11. In the 280th meeting of NCTE, held on 29.2.2020 and

1.3.2020, a visiting team was constituted under the provisions

of Section 15 of the said Act so as to inspect the infrastructure

and instructional facilities for additional intake in B.Ed. and

D.El.Ed. courses.  However, on account of Covid­19 pandemic,

4

inspection could not take place as scheduled.   Subsequently,

inspection in the petitioner­college came to be conducted on

8.3.2021 and a letter of intent was issued in favour of the

petitioner­college by NCTE for additional intake in B.Ed. and

D.El.Ed. courses as to the proposal submitted by the petitionercollege on 10.6.20216.  In the 290th meeting held on 3.3.2021,

NCTE found that the petitioner­college has adequate facility

required for conducting teachers’ courses.   Petitioner­college

was therefore asked to intimate its willingness on an affidavit

about the number of units sought for the purpose of granting of

the formal recognition.  Petitioner­college replied thereto stating

that the petitioner­college has the necessary infrastructure for

additional intake of two units for B.Ed. course and two units for

D.El.Ed. course.   Recognition was granted to the petitionercollege for additional intake of two units in B.Ed. course and

two units in D.El.Ed. course in the 291st meeting of NCTE, held

on 12.4.2021.  However, by the said resolution, the recognition

has been granted for Academic Year 2022­2023 and not for

Academic Year 2021­2022.  

5

12. In   this   background,   the   petitioner­college   has

approached this Court seeking a direction to the respondents to

grant recognition for Academic Year 2021­2022. 

WRIT PETITION (CIVIL) NO. 532 OF 2021

13.  In the present case, the petitioner­college had applied

in pursuance to the public notice issued by NCTE in the year

2015 thereby inviting applications for running D.El.Ed. course

from Academic Session 2016­2017.   Though the petitioner’s

application   was   pending   since   2015,   the   Eastern   Regional

Committee of NCTE (hereinafter referred to as ‘ERC’) in its 292nd

meeting, held on 20.4.2021, decided to grant recognition to the

petitioner­college   from   Academic   Session   2022­2023.     The

petitioner has, therefore, approached this Court seeking similar

relief for a direction to grant recognition from the Academic

Year 2021­2022.  

WRIT PETITION (CIVIL) NO. 793 OF 2021

14. In the present case also, the petitioner, in pursuance to

the public notice issued by the NCTE in the year 2015, made

6

an application for running B.Ed. and D.El.Ed. courses.   The

Department   of   School   Education   and   Literacy   Department

(Primary Education Secretariat), State of Jharkhand has also

granted ‘No Objection Certificate’ (NOC) for running D.El.Ed.

course on 26.2.2016.   The application of the petitioner was

rejected by ERC vide order dated 14.4.2016 insofar as D.El.Ed.

course is concerned.  The reason given was that the NOC had

not been received from the Directorate of Primary Education,

Government of Jharkhand.   ERC also rejected the application

of the petitioner for B.Ed. vide order dated 14.4.2016 on the

ground that the institution has not submitted the NOC for the

D.El.Ed. programme and as such, recognition for B.Ed. course

cannot be granted.  

15. There was a series of litigation between the petitioner

and the NCTE.   The Division Bench of the Jharkhand High

Court vide order dated 2.4.2019 allowed LPA no.148 of 2018

and directed ERC and NCTE to revive the application of the

7

petitioner and to process the same for Academic Session 2020­

2022.  

16. Thereafter, there were certain correspondences between

ERC   of   NCTE   and   the   petitioner   with   regard   to   certain

compliances.     Finally,   ERC   in   its   293rd  meeting,   held   on

9.6.2021,   decided   to   grant   recognition   to   the   petitioner   for

conducting D.El.Ed. and B.Ed. courses from Academic Session

2022­2023 with an annual intake of 100 seats (two units) in

each course.  

17. In this background, the petitioner has approached this

Court seeking a similar relief. 

WRIT PETITION (CIVIL) NO. 778 OF 2021

18. The   petitioner   applied   for   grant   of

permission/recognition to run D.El.Ed. course on 5.7.2016 for

two units of 50 students each.  NCTE granted permission to the

petitioner on 14.2.2018 to run one unit i.e. 50 students in

respect of D.El.Ed. course.  There were certain litigations with

regard to non­grant of second unit to the petitioner.  Finally, in

8

its 291st meeting, held on 12.4.2021, ERC decided to issue one

additional unit of intake to the petitioner for running D.El.Ed.

course   from   Academic   Session   2022­2023.     Petitioner   also

seeks similar relief as sought by the other petitioners. 

WRIT PETITION (CIVIL) NO. 789 OF 2021

19. The   petitioner   had   applied   on   20.10.2008   for

conducting   B.Ed.   course   with   intake   of   100   students   (two

units).   There were series of litigations between the petitioner

and the North Regional Committee of the NCTE (hereinafter

referred  to as  ‘NRC’).   On  13.1.2021, the  Western  Regional

Committee of the NCTE (hereinafter referred to as ‘WRC’), which

now has the jurisdiction to process the applications pertaining

to institutions in Rajasthan, issued letter of intent after finding

no deficiency in the petitioner­institution.     WRC in its 337th

meeting (virtual) held on 7th­9th  July, 2021, decided to grant

recognition to the petitioner­institution for conducting B.Ed.

with intake of two units (100 seats) from the Academic Session

9

2022­2023.   In this background, the petitioners approached

this Court seeking similar relief. 

WRIT PETITION (CIVIL) NO. 794 OF 2021

20. In   the   present   case   also,   the   petitioner­college   in

response to the public notice issued in the year 2015 by the

NCTE applied on 30.6.2015 for grant of recognition for B.Ed.

course from Academic Session 2016­2017.   Vide order dated

10.11.2016, the application of the petitioner­college came to be

rejected   by   the   WRC   in   its   262nd  meeting.   The   petitioner

preferred statutory appeal, which was allowed and WRC was

directed   to   reconsider   the   issue.     After   series   of

correspondences and some litigation, WRC in its 337th meeting

decided to grant recognition to the petitioner for conducting

B.Ed. course from the Academic Session 2022­2023.     The

petitioner has therefore approached this Court seeking similar

relief. 

WRIT PETITION (CIVIL) NO. 608 OF 2021

10

21. The petitioner in pursuance to the public notice issued

by NCTE in the year 2015 applied for grant of recognition for

conducting B.Ed. course from the Academic Session 2016­2017

with an annual intake of 100 students. The said application

was made on 2.6.2015.  After a long period of six years, ERC in

its   292nd  meeting,   held   on   20.4.2021,   decided   to   grant

recognition to the petitioner­institution for conducting B.Ed.

course of two years duration with an annual intake of 100

students (two basic units) from the Academic Session 2022­

2023.  As such, petitioner has approached this Court seeking

similar relief.

WRIT PETITION (CIVIL) NO. 602 OF 2021

22. In the present case also, the petitioner, in response to

the public notice issued by the NCTE, submitted its application

in the year 2016 for grant of recognition for conducting B.Ed.

and D.El.Ed. courses. The application of the petitioner­college

came to be rejected in the year 2018.   Being aggrieved thereby,

the petitioner had approached the Delhi High Court by filing

11

Writ Petition (Civil) No. 5888 of 2018.  The Delhi High Court by

order dated 28.5.2018 directed ERC to consider the application

of the petitioner de hors the requirement of NOC.  Accordingly,

ERC   in   its   291st  meeting,   held   on   12.4.2021,   granted

recognition to the petitioner for conducting B.Ed. and D.El.Ed.

courses for two units (100 students) from the Academic Session

2022­2023.   The  petitioner therefore approached  this Court

seeking similar relief. 

WRIT PETITION (CIVIL) NO. 601 OF 2021

23. In the present case also, the petitioner, in response to

the public notice issued in the year 2015 by the NCTE, sought

recognition   for   conducting   B.Ed.   course   from   the   Academic

Session 2016­2017 with an annual intake of 100 students vide

application dated 15.6.2015.  The said application was pending

for a period of six years and finally ERC in its 292nd  meeting

held   on   20.4.2021   granted   recognition   to   the   petitioner   for

conducting B.Ed. course of two­year duration with an annual

intake of 100 students (two basic units) from Academic Session

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2022­2023.  The petitioner thus approached this Court seeking

similar relief.  

WRIT PETITION (CIVIL) NO. 538 OF 2021

24. In the present case also, the petitioner, in response to

the public notice issued in the year 2015 by the NCTE, sought

recognition for conducting D.El.Ed. course from the Academic

Session 2016­2017 with an annual intake of 100 students vide

application dated 15.6.2015.  The said application was pending

for a period of six years and finally ERC in its 292nd  meeting

held   on   20.4.2021   granted   recognition   to   the   petitioner   for

conducting   D.El.Ed.   course   of   two­year   duration   with   an

annual intake of 100 students (two basic units) from Academic

Session 2022­2023.  The petitioner thus approached this Court

seeking similar relief.  

WRIT PETITION (CIVIL) NO. 711 OF 2021

25. In the present case, the petitioner had applied for grant

of recognition for conducting B.Ed. course with intake of 100

students (two units) on 24.12.2012.  The said application was

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returned on ban imposed by the Government of Haryana.  The

petitioner therefore approached the Delhi High Court by filing

Writ Petition (Civil) No.2383 of 2018.   The said petition was

allowed   on   14.3.2018   thereby   directing   the   respondents   to

reconsider   the   petitioner’s   application.     NRC   in   its   295th

meeting issued show cause notice to the petitioner to which

reply   was   submitted   by   the   petitioner   on   29.3.2019.     The

petitioner again approached the Delhi High Court by way of

filing Writ Petition (Civil) No.2835 of 2019 and the Delhi High

Court remanded the matter to NRC for reconsideration by order

dated 6.11.2019.  NRC, in its 335th (virtual) meeting, decided to

grant   recognition   to  the  petitioner­institution   for   conducting

B.Ed. course of two­year duration with an intake of 100 seats

(two basic units) from the Academic Session 2022­2023.  Thus,

the petitioner approached this Court seeking similar relief. 

WRIT PETITION (CIVIL) NO. 823 OF 2021

26. The petitioner had submitted its application in the year

2015 for conducting B.Ed. course.  A letter of intent also came

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to   be   issued   to   the   petitioner.     There   were   exchange   of

communications between NRC and the petitioner leading to no

result.  As such, the petitioner filed a writ petition being Writ

Petition (Civil) No.1522 of 2021 before the Delhi High Court.

The   said   petition   came   to   be   disposed   of   by   order   dated

5.2.2021 directing the respondents to consider the petitioner’s

application within 10 weeks. In term of the decision taken by

NRC in its 336th meeting, by order dated 28.6.2021, it granted

recognition to the petitioner for conducting B.Ed. course from

the   Academic   Session   2022­2023   with   annual   intake   of   50

students.  Hence, the petitioner approached this Court seeking

similar relief as sought by the other petitioners. 

27. We have heard Shri Amitesh Kumar, Shri Shreeyash

Uday Lalit and Shri Mayank Manish, learned counsel for the

petitioners, Ms. Manisha T. Karia, learned counsel for NCTE,

Dr. Manish Singhvi, learned Senior Counsel appearing for the

State of Rajasthan and Shri Kunal Chatterji, learned counsel

for West Bengal Board of Primary Education.  

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28. It is contended on behalf of the petitioners that though

NCTE or its Regional Committees after having satisfied granted

recognition   to   the   petitioners­colleges/institutions   for   the

Academic Year 2022­2023, for no reason, the recognition is not

granted for the Academic Year 2021­2022.  It is submitted that

the petitioners have fully complied with all the infrastructural

requirements of the NCTE and there is no reason as to why

recognition should not be granted for the Academic Year 2021­

2022.  

29. Ms. Manisha T. Karia, learned Advocate­on­Record for

the NCTE submitted that taking into consideration the time

frame   as   is   prescribed   by   this   Court   in   the   case   of  Maa

Vaishno   Devi   Mahila   Mahavidyalaya   v.   State   of   Uttar

Pradesh and others1

, the recognition has been granted only

from the Academic Year 2022­2023 and not from the Academic

Year 2021­2022.  Learned counsel for the respondent – States

also submit that the petitions deserve to be dismissed. 

1 (2013) 2 SCC 617

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30. As could be seen from the facts narrated herein above,

proposal   of   the   petitioners   for   grant   of   recognition   for

conducting either B.Ed. course or D.El.Ed. course or for both

have been pending for considerable periods.   In some cases,

they have been pending as long as for a period of six years.  In

some cases, there has been series of litigations.  

31. However, the factor that is common in all the matters is

that NCTE or its Regional Committees, after considering all the

necessary   requirements,   have   granted   recognition   for

conducting B.Ed./D.El.Ed. course for Academic Session 2022­

2023.  

32. It will be relevant to refer to paragraph 2 of the order

dated 19th April, 2021 passed by the NCTE in the lead matter

i.e. Writ Petition (Civil) No.518 of 2021, which read thus:

“2. AND   WHEREAS,   on   scrutiny   of   the

application submitted by the  institution,  the

documents   attached   therewith   the   affidavit

submitted and the report received from VT and

videography, and the certificates received from

the affiliating body, the Committee is satisfied

that   the   applicant   fulfils   the   requirements

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under the provisions of NCTE Act, Rules and

relevant Regulations including the Norms and

Standards   for   the   said   teacher   education

programme   such   as   instructional   facilities,

infrastructural   facilities,   financial   resources,

etc., for running the  programme.”

33. Perusal of the other petitions would reveal that either

identical  or   similar   reasons   have   been   given  while   granting

recognition.   It could thus be seen that recognition has been

granted by NCTE or its Regional Committees on scrutiny of the

applications   submitted   by   the   institutions,   the   documents

attached therewith, the affidavits submitted and the reports

received from Visiting Teams and videography.  It also mentions

that the Committee was satisfied that the applicant(s) fulfills

the requirement under the provisions of NCTE Act, rules and

relevant Regulations, after considering the certificates issued

from   the   affiliating   bodies.     The   order   also   records   its

satisfaction with regard to Norms and Standards for the teacher

education   programme   such   as   instructional   facilities,

infrastructural facilities, financial resources, etc. for running

the programme.

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34.  After arriving at such a satisfaction, we are of the view

that   there   can   be   no   rational   for   NCTE   or   its   Regional

Committee  to   deny  the  recognition  from  the  Academic  Year

2021­2022   and   insist   on   recognition   for   Academic   Session

2022­2023.     It   is   not   in   dispute   that   the   counselling   for

admission   is   yet   to   commence.     Insofar   as   the   time­line

prescribed in the judgment of this Court in the case of  Maa

Vaishno  Devi  Mahila  Mahavidyalaya  (supra) is concerned,

this   Court   itself   in   catena   of   orders   placed   on   record   has

modified the time­line fixed therein.  We find that same course

needs to be followed in the present matter, particularly, when

the delay is not attributable to the petitioners, but, on the

contrary to NCTE or its Regional Committees.  

35. We therefore allow the petitions in the following terms:

(i) The   cut­off   date   fixed   by   this   Court   in  Maa

Vaishno Devi Mahila Mahavidyalaya  (supra) is

extended in the facts of these cases;

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(ii) It is held and declared that the petitioners would

be   entitled   to   the   recognition   granted   by

respective orders passed by NCTE or its Regional

Committees   from   the   Academic   Session   2021­

2022 instead of Academic Session 2022­2023.

(iii) The   Respondent   –   NCTE   and   its   Regional

Committees   are   directed   to   issue   formal

orders/notifications in that regard within a period

of three days from today. 

(iv) The State and other Authorities would consider

grant   of   affiliation   and/or   other   requisite

permissions   within   a   period   of   15   days   from

today;

(v) The   petitioners   would   be   entitled   to   admit   the

students for Academic Session 2021­2022 as per

the sanction granted by NCTE for the Academic

Session 2022­2023. 

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(vi) The   name   of   the   petitioner­colleges/institutions

shall be included in the counselling programme

for admissions.  

36. The writ petitions are allowed and disposed of in the

above   terms.     Consequently,   all   pending   applications   shall

stand disposed of. 

…..….......................J.

[R.F. NARIMAN]

…….........................J.       

[B.R. GAVAI]

NEW DELHI;

AUGUST 11, 2021.

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