Case Note & Summary
The Supreme Court heard two appeals by special leave filed by Fazal Bhai Dhala challenging orders of the Custodian-General of Evacuee Property and Deputy Custodian-General declining to interfere with orders of the Custodian of Evacuee Property, Orissa and Madras. The dispute concerned certain immovable properties claimed by the appellant as his own. Fazal Bhai Dhala and his brother Abdulla Bhai Dhala were partners in a business of hides and skins under the firm name Fazalbhoy Dhala & Co., with a partnership deed executed on January 1, 1941. On August 10, 1949, Abdulla executed a sale deed in favour of Fazal in respect of immovable properties at Jharsuguda, Orissa and Madras for a stated consideration of Rs. 85,000, of which Rs. 50,000 was for Madras properties and Rs. 35,000 for Orissa properties; the amount was paid before the Registrar on August 11, 1949. On August 12, 1949, a deed of dissolution was executed stating that the partnership stood dissolved as from November 2, 1948, and that the business would belong solely to Fazal, who would pay Abdulla Rs. 40,000 in full settlement of his share. After receiving information that Abdulla had migrated to Pakistan after transferring properties to his brother, the Assistant Custodian of Evacuee Property, Sambalpur, issued a notice under Section 7(1) of Ordinance XXVII of 1949 on December 30, 1949, covering the transferred properties, the business, and other assets of the firm. Fazal claimed sole ownership and contended that Abdulla was not an evacuee and had no interest after dissolution. The Assistant Custodian held that the sale deed transfer was for adequate consideration but was not bona fide, and therefore the properties covered by the sale deed were evacuee property; however, he held that Abdulla had no interest in the business or other properties because the partnership had been dissolved. Fazal appealed to the Custodian, who agreed that the sale deed properties were rightly declared evacuee and went further to hold that the same mala fides applied to the remaining properties, thus including the entire 8 annas share of Abdulla in all scheduled properties as evacuee property. The Custodian directed separation of shares under the Evacuee Interest Separation Act. The Custodian-General and Deputy Custodian-General refused to interfere. Four contentions were raised before the Supreme Court: first, that the Custodian acted without jurisdiction in interfering with the Assistant Custodian's order releasing the business and certain properties; second, that no appeal was filed by the Department against that order and that if the Custodian acted in revisional jurisdiction, no notice was given to Fazal before the prejudicial order; third, that once the partnership was dissolved, there could be no evacuee property left in view of Section 43 of the Indian Partnership Act; and fourth, that the sale and dissolution deeds were mere steps in winding up and should not be treated as mala fide transfers. The Court held that the Custodian's order on matters not before him in appeal must be treated as an exercise of revisional jurisdiction under Section 27 of the Administration of Evacuee Property Act, 1950, even though not expressly stated. It further held that while exercising revisional jurisdiction, the Custodian must give the affected party a reasonable opportunity of being heard; if such opportunity cannot be given without service of notice, a notice must be served, and omission would be fatal unless the party was present and heard. In the present case, the appellant had been heard, so the absence of formal notice did not vitiate the order. On the partnership dissolution argument, the Court held that once the fact of dissolution is accepted, the declaration of the business as evacuee property must be construed as a declaration that the property remaining with the evacuee after dissolution vested in the Custodian. It further held that where a deed of transfer by an evacuee is without good faith, Section 40 of the Administration of Evacuee Property Act, 1950 makes the transfer of no effect, and in the case of a firm its property on dissolution becomes evacuee property from the date of the dissolution deed and vests in the Custodian with all rights under the Partnership Act. The Court concluded that the Custodian neither acted without jurisdiction nor irregularly exercised jurisdiction. The appeals were dismissed.
Headnote
A) Evacuee Property - Malafide Transfer - Section 40 of Administration of Evacuee Property Act, 1950 - Transfer by an evacuee without good faith is of no effect and property vests in Custodian - The Assistant Custodian found sale deed of immovable properties was for adequate consideration but not bona fide; Custodian and Custodian-General affirmed, and the Court held such transfer invalid and property vests in Custodian. Held that Custodian did not act without jurisdiction (Paras 1-10). B) Revisional Jurisdiction - Notice Requirement - Sections 26 and 27 of Administration of Evacuee Property Act, 1950 - Custodian must give reasonable opportunity of being heard before passing prejudicial order in revision - Custodian interfered with Assistant Custodian's order releasing certain properties not appealed by Department; Court held this was an exercise of revisional jurisdiction, and although Section 26 does not specifically require notice, failure to serve formal notice is fatal unless party was present and heard. Held that in present case appellant had opportunity to be heard, so order not vitiated (Paras 1-10). C) Partnership Dissolution - Vesting of Assets - Section 43 of Indian Partnership Act, 1932 - Dissolution of partnership does not automatically defeat Custodian's claim to evacuee partner's share - Appellant argued that once partnership dissolved, no evacuee property could be declared; Court held that declaration of business as evacuee property meant remaining property of evacuee partner vested in Custodian. Held that transfer by evacuee in furtherance of winding up without good faith is ineffective (Paras 1-10). D) Appellate vs Revisional Jurisdiction - Custodian's Powers - Section 27 of Administration of Evacuee Property Act, 1950 - Custodian's order on matters not in appeal is treated as revisional - Department did not file appeal against Assistant Custodian's order releasing certain properties; Custodian suo motu included them as evacuee properties. Court held such order is within revisional jurisdiction, and absence of formal notice not fatal if party was heard. Held that order was valid (Paras 1-10).
Issue of Consideration
Whether Custodian acted without jurisdiction in interfering with Assistant Custodian's order not appealed; whether notice was required before exercising revisional jurisdiction; effect of partnership dissolution on evacuee property under Section 43 of Indian Partnership Act, 1932; whether sale and dissolution deeds were valid winding-up transactions or mala fide transfers
Final Decision
Appeals dismissed. Custodian's order upheld. Transfers by evacuee without good faith are invalid under Section 40 of Administration of Evacuee Property Act, 1950; partnership assets vest in Custodian upon dissolution.
Law Points
- Mala fide transfer by evacuee is of no effect under Section 40 of Administration of Evacuee Property Act
- 1950
- Custodian exercising revisional jurisdiction must give reasonable opportunity of being heard
- but formal notice not essential if party present and heard
- dissolution of partnership does not automatically extinguish evacuee interest
- declaration of business as evacuee property vests remaining property of evacuee partner in Custodian
- Section 43 of Indian Partnership Act
- 1932 interpreted
- Section 7(1) of Ordinance XXVII of 1949 notice requirements
- Sections 2(f)
- 26
- 27
- 40 of Administration of Evacuee Property Act
