GAYA PRASAD versus SURENDRA BAHADUR SINGH, (DEAD) BY L.RS. & ORS.

Citation: [1987] 2 S.C.R. 542 · Decided: 05-03-1987 · Supreme Court of India · Bench: V. KHALID · Disposal: Appeal(s) allowed

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Judgment (excerpt)

A 
B 
GAYA PRASAD 
v. 
SURENDRA BAHADUR SINGH, (DEAD) BY L.RS. & ORS. 
MARCH 5, 1987 
[KHALID AND G.L. OZA, JJ.] 
U.P. Encumbered Estates Act, 1934--Sections 7, 14(7), 18, 20, 
24, 43 and 44-Restrictions imposed by the Act-Agreement of sale-
Whether such restriction-Agreement to sell-Not a transfer of right in 
,. 
immovable property-Mortgage of the property-Rights of mortgage 
C 
whether extinguish!!d by its merger into a decree-Rights of mortgagee , .. ..,.__ 
when revived. 
' -
The respondent entered into an agreement to sell the house in 
dispute to the appellant on May 5, 1958. Earlier he had made an appli-
cation to the Collector under Section 4 of the U .P. Encumbered Estates 
D Act (U .P. Act No. XXB of 1934), which had been transmitted .to the 
Special Judge under Section 6 of the Act and pursuant to bis application 
under Section 24 of the Act, the house in dispute had been exempted 
from sale in the proceedings under the Act on March 26, 1943. Subse-
quent to the agreement, be made an application for including this house 
also in the property to be sold under the proceedings of the Act. The 
E appellant objected to it. By bis order dated 23rd June, 1961, the Col-
lector rejected this request on the ground that since the house in dispute 
had already been exempted by the order dated March 26, 1943, that 
order could not be re-opened. 
There was a mortgage of this property by the predecessors of the 
. F respondent, which was also considered as a claim under Section 14 of 
>+-
the Act and a decree in favour of the mortgagee was passed by the 
Special Judge under clause (7) of Section 14 of the Act. In view of .:;c 
Section 18 the decree remained only as a money decree and the rights of 
the mortgagee came to an end. 
G 
The appellant filed a snit against the respondent for specific 
performance of the contract of sale of the house in dispute. The trial 
court decreed the snit and on appeal, the first appellate court also 
maintained the decree but on second appeal, the High Court held that 
f 
as permission to sell was refused under Section 7, the contract of sale 
would be hit by Section 23 of the Contract Act and set aside the decree 
H passed in favour of the appellant. 
542 
GAYA PRASAD v. S.B. SINGH 
543 
In the appeals, it was submitted by the appellant that although 
permission for sale of the house under Section 7 was rejected on June 
14, 1945, the prohibition under Section 7 will not apply to an agreement 
for sale, that as the proceedings before Special Judge had come to an 
end, the objection pertaining to Section 7 for passing of a decree under 
Specific Relief Act for specific performance will not be available, that if 
the debts remained to be satisfied still the sale proceeds could be kept in 
deposit for being distributed to' the creditors, and, therefore, it could 
not be said that a decree for specific performance could not be passed, 
that the agreement to sell is not covered by anyone of the restrictions 
_ 
~· ~specified in sub-clauses (2) and (3) of Section 7 and, therefore, the 
agreement which was entered into in 1958 could not be said to be bad in 
law. 
On behalf of the respondent it was contended that as the order 
dated May 7, 1976 of the Collector was after the judgment of the High 
Court, it could not be said that no proceedings were pending under the 
Act, as the last order passed was on July, 7, 1975, that the language of 
Section 7 sub-clause (4) was wide enough and even an agreement to sell 
would be affected by the provisions of Section 7, and a transfer under 
decree could also be void if it was in contravention of this Section, that 
the rights of a mortgagee survived inspite of an order passed under 
Section 24 or inspite of an order under clause (7) of Section 14 having 
been passed, and that though the rights of the mortgagee may be exting-
uished but so long as the proceedings were pending they were not comp-
letely extinguished. 
Allowing the appeals, this Court, 
HELD: [PER OZA, J] 
A 
B 
c 
D 
E 
F 
1. U.P. Encumbered Estates Act, 1934 was brought in to give 
relief to a class of debtors , particularly land holders and the Act 
provides for settlement of debts without tiling of an insolvency petition. 
Once an application under Section 4 is made, the proceedings are said G 
to have commenced under the provisions of the Act. [550E] 
In the instant case, on the day when the agreement was entered 
into, an application under Section 4 hall been made, the order under 

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