U.P. Zamindari Abolition and Land Reforms Act, 1950 — Section 123 — Regularisation of occupation by members of SC/ST — Deeming fiction — Effect on private title. (Paras 2, 4.4–4.6, 8–10) The dispute concerned Plot No. 2362, Shamli, Muzaffarnagar. The appellants purchased the land in 1984 and obtained a declaration under Section 143 converting its use from agricultural to abadi. The private respondents, members of Scheduled Caste/Scheduled Tribe community, were in occupation since 1976–1977 and had constructed houses prior to 30.06.1985. The Sub-Divisional Officer, acting under Section 123, directed recording of the occupants’ names. The High Court upheld the order, holding that Section 123(2) creates a statutory deeming fiction whereby land is deemed settled with eligible house-owners in possession as on 30.06.1985. Consent or lack thereof of the tenure-holder is immaterial. The Supreme Court affirmed that the purchase by the appellants was subject to the statutory rights available to occupants under Section 123. Ratio Decidendi: Where eligible persons belonging to SC/ST categories had constructed houses on land prior to 30.06.1985, Section 123 creates a statutory deeming settlement in their favour, and subsequent purchasers cannot defeat such statutory regularisation.

U.P. Zamindari Abolition and Land Reforms Act, 1950 — Section 123 — Regularisation of occupation by members of SC/ST — Deeming fiction — Effect on private title. (Paras 2, 4.4–4.6, 8–10)

The dispute concerned Plot No. 2362, Shamli, Muzaffarnagar. The appellants purchased the land in 1984 and obtained a declaration under Section 143 converting its use from agricultural to abadi. The private respondents, members of Scheduled Caste/Scheduled Tribe community, were in occupation since 1976–1977 and had constructed houses prior to 30.06.1985.

The Sub-Divisional Officer, acting under Section 123, directed recording of the occupants’ names. The High Court upheld the order, holding that Section 123(2) creates a statutory deeming fiction whereby land is deemed settled with eligible house-owners in possession as on 30.06.1985. Consent or lack thereof of the tenure-holder is immaterial.

The Supreme Court affirmed that the purchase by the appellants was subject to the statutory rights available to occupants under Section 123.

Ratio Decidendi: Where eligible persons belonging to SC/ST categories had constructed houses on land prior to 30.06.1985, Section 123 creates a statutory deeming settlement in their favour, and subsequent purchasers cannot defeat such statutory regularisation.

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Section 143, U.P. Z.A. & L.R. Act — Conversion to non-agricultural use — Scope and limitation. (Paras 3, 4.3, 8–9)

The appellants relied on Section 143 declaration (conversion of land use) to contend that proceedings under Section 123 were inapplicable.

The Court noted that a declaration under Section 143 excludes application of Chapter VIII but does not oust Chapter VII containing Section 123. Further, the private respondents were not parties to Section 143 proceedings and were not bound thereby.

Ratio Decidendi: A declaration under Section 143 does not bar operation of Section 123, nor does it extinguish statutory regularisation rights of eligible occupants.

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Nature of Possession — Consent immaterial — Legislative intent. (Paras 4.4–4.5)

The appellants admitted in pleadings that respondents were in possession and had constructed houses since 1976–1977.

The Court held that the legislative object of Section 123 is socio-economic protection. The deeming fiction operates irrespective of whether possession was permissive, forceful, or unauthorised.

Ratio Decidendi: For purposes of Section 123, the character of initial possession (authorised or unauthorised) is irrelevant once statutory conditions are satisfied before the cut-off date.

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Jurisdiction of Civil Court — Effect of statutory regularisation — Pending suits. (Paras 4.6, 8–9)

The High Court, exercising jurisdiction under Article 227, quashed pending civil suits seeking eviction after holding that statutory settlement had already taken effect.

The Supreme Court declined interference, observing that the purchase was subject to statutory remedy available to occupants and that the appellants’ claim could not override statutory fiction.

Ratio Decidendi: Once statutory settlement under Section 123 operates, continuation of civil suits for eviction against statutorily recognised occupants is untenable.

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Disposition

Civil Appeal dismissed. High Court judgment affirmed.

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Special Leave Petition (C) Nos. 3822–3823 of 2023

Tagged with the Civil Appeal. In view of dismissal of the Civil Appeal and affirmation of statutory regularisation under Section 123, no ground for interference under Article 136 of the Constitution was made out.

SLPs dismissed.

Insolvency and Bankruptcy Code, 2016 — Section 60(5) — Jurisdiction of NCLT — Challenge to attachment under Prohibition of Benami Property Transactions Act, 1988 — Maintainability. (Paras 16, 20–20.8, 26) The question was whether provisional attachment and confirmation orders passed under the Prohibition of Benami Property Transactions Act, 1988 (“Benami Act”) could be assailed before the NCLT/NCLAT by invoking Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (“IBC”). The Court held that the Benami Act is a complete and self-contained code with its own adjudicatory and appellate hierarchy. The NCLT, being a creature of statute under IBC, cannot sit in appeal over attachment or confiscation proceedings undertaken under a distinct public law enactment. Section 60(5) does not extend to reviewing sovereign actions undertaken under penal statutes. Permitting such adjudication would amount to elevating NCLT into a judicial review forum over statutory authorities under the Benami Act, which is impermissible. Ratio Decidendi: Orders of attachment and confiscation under the Benami Act cannot be challenged before NCLT/NCLAT under IBC; the exclusive remedy lies within the statutory framework of the Benami Act.

Insolvency and Bankruptcy Code, 2016 — Section 60(5) — Jurisdiction of NCLT — Challenge to attachment under Prohibition of Benami Property Transactions Act, 1988 — Maintainability. (Paras 16, 20–20.8, 26)

The question was whether provisional attachment and confirmation orders passed under the Prohibition of Benami Property Transactions Act, 1988 (“Benami Act”) could be assailed before the NCLT/NCLAT by invoking Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (“IBC”).

The Court held that the Benami Act is a complete and self-contained code with its own adjudicatory and appellate hierarchy. The NCLT, being a creature of statute under IBC, cannot sit in appeal over attachment or confiscation proceedings undertaken under a distinct public law enactment.

Section 60(5) does not extend to reviewing sovereign actions undertaken under penal statutes. Permitting such adjudication would amount to elevating NCLT into a judicial review forum over statutory authorities under the Benami Act, which is impermissible.

Ratio Decidendi: Orders of attachment and confiscation under the Benami Act cannot be challenged before NCLT/NCLAT under IBC; the exclusive remedy lies within the statutory framework of the Benami Act.

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Benami Act — Nature of proceedings — Sovereign, in rem, penal character — Vesting under Section 27. (Paras 17–17.6, 20.6–20.8)

The Benami Act, especially post-amendment, provides a structured mechanism: notice (Section 24), adjudication (Section 26), confiscation and vesting (Section 27), and appellate remedies (Sections 46–49).

Confiscation results in vesting of property in the Central Government free from encumbrances. Proceedings are in rem and operate in the public law domain, distinct from inter se civil disputes or debt recovery.

Ratio Decidendi: Attachment and confiscation under the Benami Act are sovereign statutory actions in rem, and once property vests under Section 27, it stands outside the insolvency estate and beyond IBC jurisdiction.

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IBC — Section 36 — Liquidation estate — Beneficial ownership — Exclusion of benami property. (Paras 21–22)

Under Section 36, only assets beneficially owned by the corporate debtor form part of the liquidation estate. Property held benami is held in a fiduciary or representative capacity; beneficial ownership lies with the real owner.

Section 36(4)(a)(i) excludes assets held in trust for third parties. Once the Benami Adjudicating Authority determines that the corporate debtor is a benamidar, beneficial ownership is negated.

Ratio Decidendi: Property determined to be held benami does not form part of the liquidation estate under Section 36 of the IBC and cannot be distributed among creditors.

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IBC — Section 14 (Moratorium) — Scope — Applicability to sovereign proceedings. (Paras 13.2, 24)

The moratorium under Section 14 protects the corporate debtor from creditor enforcement actions. It does not bar sovereign proceedings undertaken in public interest for confiscation of tainted property under penal statutes.

Benami proceedings are not debt recovery proceedings but statutory forfeiture actions.

Ratio Decidendi: Section 14 moratorium does not interdict attachment or confiscation proceedings initiated under the Benami Act.

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IBC — Section 32A — Limited immunity — Event-based operation. (Para 23)

Section 32A operates only upon approval of a resolution plan or completion of liquidation sale to an unconnected third party. It does not cure defective title or legitimise benami property.

Ratio Decidendi: Section 32A does not prevent attachment or confiscation of benami property unless statutory conditions are fulfilled; it does not override independent findings under the Benami Act.

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Conflict between Special Statutes — Harmonious construction — Dominant purpose test. (Paras 19–20.5)

Both the IBC and the Benami Act are special enactments. The Court applied principles governing conflicts between special statutes, emphasising harmonious construction and dominant purpose.

IBC governs insolvency resolution of lawfully owned assets. The Benami Act governs identification and confiscation of illegally held property. Each statute operates in its own field.

Ratio Decidendi: Where property is subject to sovereign confiscatory proceedings under the Benami Act, the IBC cannot be invoked to override or bypass the statutory mechanism; both statutes must operate within their respective spheres.

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Disposition

1. Appeals dismissed.

2. Costs of ₹5 lakhs imposed in each appeal.

3. Amount to be deposited with the Supreme Court Advocates on Record Association within four weeks

Contract of Guarantee — Sections 133 and 139 — Indian Contract Act, 1872 — Overdrawing beyond sanctioned limit without surety’s consent — Extent of discharge. (Paras 3–4.4, 7–7.4) The principal debtor was sanctioned a cash-credit facility of ₹4,00,000/-. The sureties executed guarantees limited to this amount. Subsequently, the bank permitted withdrawals far exceeding the sanctioned limit without the sureties’ consent. The High Court held that the sureties must either be liable for the entire outstanding amount or not liable at all. The Supreme Court reversed this view. Under Section 133, any variance in the terms of the contract between the creditor and the principal debtor, made without the surety’s consent, discharges the surety only in respect of transactions subsequent to the variance. The discharge is not absolute. Ratio Decidendi: Where a creditor permits overdrawing beyond the sanctioned limit without the surety’s consent, the surety stands discharged only qua the excess amount constituting variance; liability continues to the extent originally guaranteed.

Contract of Guarantee — Sections 133 and 139 — Indian Contract Act, 1872 — Overdrawing beyond sanctioned limit without surety’s consent — Extent of discharge. (Paras 3–4.4, 7–7.4)

The principal debtor was sanctioned a cash-credit facility of ₹4,00,000/-. The sureties executed guarantees limited to this amount. Subsequently, the bank permitted withdrawals far exceeding the sanctioned limit without the sureties’ consent.

The High Court held that the sureties must either be liable for the entire outstanding amount or not liable at all. The Supreme Court reversed this view.

Under Section 133, any variance in the terms of the contract between the creditor and the principal debtor, made without the surety’s consent, discharges the surety only in respect of transactions subsequent to the variance. The discharge is not absolute.

Ratio Decidendi: Where a creditor permits overdrawing beyond the sanctioned limit without the surety’s consent, the surety stands discharged only qua the excess amount constituting variance; liability continues to the extent originally guaranteed.

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Section 139 — Discharge by impairment of surety’s eventual remedy — Inapplicability in absence of prejudice to subrogation rights. (Paras 4.8–4.10, 6.1, 7.1)

Section 139 requires (i) an act inconsistent with the surety’s rights or omission of duty by the creditor, and (ii) impairment of the surety’s eventual remedy against the principal debtor.

Although permitting excess withdrawals may affect the surety’s contractual exposure, there was no impairment of the surety’s eventual remedy against the principal debtor. The surety retained full rights of recovery upon payment.

Ratio Decidendi: Mere variance in contractual exposure does not attract Section 139 unless the creditor’s act or omission impairs the surety’s eventual remedy against the principal debtor; absence of such impairment excludes discharge under Section 139.

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Liability of Surety — Co-extensive nature — Subject to contractual limit. (Paras 4.1, 5.2, 5.3)

The liability of a surety is co-extensive with that of the principal debtor unless otherwise provided in the contract (Section 128). However, co-extensiveness operates within the limits of the guarantee.

The surety cannot be made liable beyond the scope of the guarantee. The creditor is not required to first exhaust remedies against the principal debtor before proceeding against the surety.

Ratio Decidendi: Co-extensive liability does not enlarge the quantum of guarantee; it operates only within the contractual limits to which the surety consented.

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Material Variation — Consent of Surety — Necessity. (Paras 4.4–4.6)

A surety cannot be bound to altered obligations without consent. Material variation of the principal contract without consent discharges the surety to the extent of the variation. Consent must be proved by the creditor seeking enforcement.

Ratio Decidendi: Any material variation in the underlying contract, without the surety’s consent, releases the surety from liability for transactions subsequent to such variation.

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Error of High Court — “All or Nothing” Approach Rejected. (Paras 7, 7.3)

The High Court erred in holding that the surety must be liable either for the entire outstanding sum or not at all. Section 133 expressly contemplates partial discharge limited to subsequent transactions after variance.

Ratio Decidendi: The statute mandates bifurcation of liability where variance occurs; an “all or nothing” approach is contrary to Section 133.

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Operative Conclusion

1. Appeal allowed.

2. Judgment of the High Court of Gujarat dated 25.06.2008 set aside.

3. Sureties (Respondent Nos. 1 and 2) held liable only to the extent of ₹4,00,000/- with applicable interest — being the originally sanctioned amount guaranteed.

4. Sureties not liable for excess amounts withdrawn beyond the sanctioned limit.

5. Parties to bear their respective costs.

Motor Vehicles Act, 1988 — Section 173 — Compensation — Deduction of financial assistance under Haryana Compassionate Assistance to Dependents of Deceased Government Employees Rules, 2006 — Overlapping pecuniary benefit — Double recovery impermissible. (Paras 5–6.3, 8) The issue was whether amounts received by the claimants under the 2006 Rules are deductible from compensation awarded under the Motor Vehicles Act, 1988. Relying upon Reliance General Insurance v. Shashi Sharma, the Court held that financial assistance under the 2006 Rules, to the extent it corresponds to “pay and allowances” substituting loss of income, must be deducted to prevent double recovery. However, benefits not overlapping with loss of income (e.g., pension, provident fund, insurance) are not deductible. The subsequent decision in National Insurance Company Ltd. v. Birender does not dilute this principle; it clarifies only the procedural stage and evidentiary requirement for deduction, namely that actual receipt or eligibility must be established before adjustment. Ratio Decidendi: Amounts received or receivable under the 2006 Rules, insofar as they represent compensation equivalent to pay and allowances lost due to death, are liable to deduction from motor accident compensation to avoid double recovery; however, deduction must be based on proof of receipt or entitlement.

Motor Vehicles Act, 1988 — Section 173 — Compensation — Deduction of financial assistance under Haryana Compassionate Assistance to Dependents of Deceased Government Employees Rules, 2006 — Overlapping pecuniary benefit — Double recovery impermissible. (Paras 5–6.3, 8)

The issue was whether amounts received by the claimants under the 2006 Rules are deductible from compensation awarded under the Motor Vehicles Act, 1988.

Relying upon Reliance General Insurance v. Shashi Sharma, the Court held that financial assistance under the 2006 Rules, to the extent it corresponds to “pay and allowances” substituting loss of income, must be deducted to prevent double recovery. However, benefits not overlapping with loss of income (e.g., pension, provident fund, insurance) are not deductible.

The subsequent decision in National Insurance Company Ltd. v. Birender does not dilute this principle; it clarifies only the procedural stage and evidentiary requirement for deduction, namely that actual receipt or eligibility must be established before adjustment.

Ratio Decidendi: Amounts received or receivable under the 2006 Rules, insofar as they represent compensation equivalent to pay and allowances lost due to death, are liable to deduction from motor accident compensation to avoid double recovery; however, deduction must be based on proof of receipt or entitlement.

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Sub silentio / Per incuriam — Allegation rejected — Harmonious reading of precedents. (Para 6.3)

The contention that Birender was sub silentio or per incuriam to Shashi Sharma was rejected. The Court held both judgments operate in distinct but complementary spheres:

Shashi Sharma defines the nature and scope of deductible benefits;
Birender prescribes procedural safeguards for effecting such deduction.

Ratio Decidendi: A later judgment clarifying procedural safeguards does not overrule or conflict with an earlier judgment laying down substantive principles; both must be harmoniously construed.

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High Court — Clarification Application — Scope under Sections 151 and 152 CPC — Substantive modification impermissible. (Paras 7–7.3)

An appellate judgment under Section 173 of the Motor Vehicles Act cannot be substantively altered through a “clarification” application.

Section 152 CPC permits correction only of clerical or arithmetical errors or accidental slips, as held in Jayalakshmi Coelho v. Oswald Joseph Coelho and State of Punjab v. Darshan Singh.

Section 151 CPC cannot be invoked to modify substantive rights or alter the operative portion of the decree, as clarified in Padam Sen v. State of Uttar Pradesh and My Palace Mutually Aided Coop. Society v. B. Mahesh.

The High Court, by reversing its earlier deduction through a clarification order, effectively modified substantive rights without satisfying review jurisdiction requirements under Order XLVII CPC.

Ratio Decidendi: A clarification application cannot be used to alter substantive findings or modify quantum of compensation; any such change amounts to review and must satisfy statutory requirements.

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Procedural Safeguard — Affidavit mechanism for adjustment. (Para 8)

The claimants are required to file an affidavit before the Tribunal disclosing amounts received under the 2006 Rules. Deduction, if any, shall be made accordingly. If no such amount is received or receivable, the entire enhanced compensation shall be payable.

Ratio Decidendi: Deduction must be founded on factual disclosure and proof; speculative or assumed adjustment is impermissible.

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Operative Conclusion

1. Appeals allowed.

2. Clarification Order set aside.

3. Main Order restored.

4. Amount received under the 2006 Rules to be deducted from compensation awarded under the Main Order, subject to affidavit verification.

5. Interest rate as awarded by the Tribunal maintained.

Pending applications stood closed. No order as to costs.

Insolvency and Bankruptcy Code, 2016 — Section 7 — Scope of adjudication — Financial debt and default — Pre-existing dispute irrelevant. (Paras 12, 18, 22–23) For admission of an application under Section 7, the Adjudicating Authority is required only to satisfy itself that a financial debt exists and that default has occurred. The concept of “pre-existing dispute”, relevant under Section 9 in proceedings by an operational creditor, has no application to proceedings under Section 7. The NCLT and NCLAT erred in proceeding on considerations extraneous to the limited jurisdiction under Section 7, including alleged restructuring discussions and equitable considerations. Ratio Decidendi: In proceedings under Section 7 of the Code, once existence of financial debt and default is established, admission must follow; pre-existing disputes or restructuring negotiations do not defeat a financial creditor’s statutory right unless the debt is not due in law.

Insolvency and Bankruptcy Code, 2016 — Section 7 — Scope of adjudication — Financial debt and default — Pre-existing dispute irrelevant. (Paras 12, 18, 22–23)

For admission of an application under Section 7, the Adjudicating Authority is required only to satisfy itself that a financial debt exists and that default has occurred. The concept of “pre-existing dispute”, relevant under Section 9 in proceedings by an operational creditor, has no application to proceedings under Section 7.

The NCLT and NCLAT erred in proceeding on considerations extraneous to the limited jurisdiction under Section 7, including alleged restructuring discussions and equitable considerations.

Ratio Decidendi: In proceedings under Section 7 of the Code, once existence of financial debt and default is established, admission must follow; pre-existing disputes or restructuring negotiations do not defeat a financial creditor’s statutory right unless the debt is not due in law.

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Debenture Trust Deed — Modification and novation — Mandatory compliance with contractual procedure — No implied waiver or oral restructuring. (Paras 14–18)

Clause 33 of the Debenture Trust Deed required prior written consent of debenture holders through “approved instructions” passed by Special Resolution in a duly convened meeting. Clause 33.4 mandated that amendments must be in writing and signed by all parties. Clause 37 barred implied waiver and required written waiver.

Admittedly, no such procedure was followed. Correspondence between the corporate debtor and a single debenture holder (ECLF) did not amount to modification or novation under Section 62 of the Contract Act, 1872.

Ratio Decidendi: Where a debenture trust deed prescribes a specific written procedure for amendment or waiver, no restructuring or moratorium can be inferred in absence of compliance; unilateral exchanges or informal negotiations cannot effect novation.

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Authority of a single debenture holder — Absence of express authorization — No binding effect on other holders. (Para 13)

Restructuring discussions were held only with one debenture holder. No express authorization was shown empowering it to bind other debenture holders. Separate legal entities holding debentures independently cannot be presumed to have acted through one entity absent written authorization.

Ratio Decidendi: In absence of express authorization, negotiations by one debenture holder cannot bind other holders; collective consent must conform strictly to contractual governance mechanism.

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Release of secured assets — Contractual entitlement distinct from restructuring. (Para 17)

Release of the Bandra property was referable to Clause 28.3 of the Debenture Trust Deed, permitting release upon specified payment. It could not be construed as evidence of acceptance of restructuring proposal.

Ratio Decidendi: Exercise of contractual rights for release of security in terms of the deed cannot be equated with acceptance of a restructuring proposal unless expressly linked thereto in accordance with contractual procedure.

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Legitimate expectation — Inapplicability against clear contractual stipulations. (Para 19)

The inference drawn by the NCLAT that the corporate debtor had a legitimate expectation of moratorium was unsustainable. The Debenture Trust Deed contained a detailed modification mechanism; unilateral expectations cannot override express contractual terms.

Ratio Decidendi: Doctrine of legitimate expectation cannot override express contractual stipulations governing amendment or waiver; commercial contracts must be enforced as written.

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Role and duty of Debenture Trustee — Protection of debenture holders — No obligation to protect corporate debtor. (Para 20)

The debenture trustee’s duty under the Debenture Trust Deed was to safeguard the interests of debenture holders. The NCLAT erred in holding that the trustee was obliged to act in fairness towards the corporate debtor or that it colluded to engineer default.

Ratio Decidendi: A debenture trustee’s fiduciary duty is owed to debenture holders in accordance with the trust deed; it cannot be faulted for enforcing contractual rights upon occurrence of default.

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Perversity of concurrent findings — Scope of interference under Section 62 of the Code. (Para 22)

Though ordinarily this Court does not interfere with concurrent findings of NCLT and NCLAT, interference is warranted where such findings are perverse and contrary to record.

Ratio Decidendi: The Supreme Court may interfere under Section 62 where concurrent findings of NCLT and NCLAT are manifestly perverse or ignore binding contractual terms.