Pre-emption rights in light of Jagmohan and Others v. Badri Nath and Others

The case at hand deals with pre-emption rights.

Before delving into the judgment of the case, and its’ implications, it is pertinent to understand what the right to pre-emption is, why it exists, in what jurisdictions and under what statutes

is it applicable, when it’s applicable,

how is it applied and criticisms of the same?

Understanding these ideas would help us further our understanding of the concept in light of the case.

What exactly are pre-emption rights?

To understand the basics of pre-emption rights, we need to have an understanding of the literal meaning of the term “pre-emption” and the context in which it has been used in the following discussion. The word pre-emption is derived from the Latin words ‘pre’ and ‘emptum’ literally meaning ‘first’ and ‘buy’ or ‘purchase’. These rights simply mean a preferential right to acquire property[1]. The Supreme Court, in its judgment in Bishan Singh v. Khazan Singh[2], stated, “The right of pre-emption is not a right to the thing sold but a right to the offer of a thing about to be sold.”

How did these rights originate?

This right, though seems part of modern jurisprudence in reality finds its place in the historical evolution of law as well. Pre-emission appears to have originated in India under the rule of the Mughals. It was from this practice that over time, Indian village communities also adopted customs of pre-emption[3]. Sometimes, the customs adopted the Mohammedan law of pre-emption, while in other situations, villages had their peculiar provisions and incidents regarding pre-emption.

Why do these rights exist?

Rights of pre-emption have been created either through Acts of the Indian Legislature or by contract between the sharers in a village. The object is, as far as is possible, to prevent strangers to a village from becoming sharers in the village.

In which sectors and under what jurisdictions are these laws applicable?

Pre-emption has a variety of applications ranging from International laws[4] (of course, in a different context) to Company Law[5] to Property law (which will be elaborated further in course of this article) having similar implementation of enabling the pre-emptor the right of first refusal.

Speaking specifically about pre-emption laws for property, these can be broadly categorised into 3 kinds. Firstly, by religion. The right of pre-emption can be claimed under Muslim law when the vendor and the vendee are Muslims[6]. Secondly, the right can be claimed under custom[7], if there is the absence of a statutory law of pre-emption. U.P, Bihar, Maharashtra, and Gujarat are among some states where certain areas witness the customary right of pre-emption. However, this can be exercised only when the party establishing pre-emption is able to discharge its’ burden of proof regarding the same. Thirdly, the right can be claimed by way of statutes. Different statutes are applicable in different local jurisdictions. They include Punjab Pre-Emption Act, 1913[8] (which will be elaborated upon subsequently), Rajasthan Pre-Emption Act[9], Agra Pre-Emption Act[10] among others.  Finally, pre-emption rights can be exercised even by way of contract between the sharers. For instance, contracts of pre-emption were founded by in the wajib-ul-arz of various villages[11]. Contracts of pre-emption have an over-riding effect even if its’ provisions do not align with the Muslim law of pre-emption.

To what extent can these rights be exercised?

The ambit of these rights has been greatly summarised in the Bishan Singh v. Khazan case:

• The right to pre-emption is to acquire the whole of the property sold and not a share of the property sold.

• A pre-emptor has two rights: (1) inherent or primary right i.e. a right for the offer of a thing about to be sold and (2) secondary or remedial right to follow the thing sold[12].

• Therefore, the right is only that of substitution, not re-purchase, so the pre-emptor takes the entire bargain and steps into the shoes of the original vendee. This has been accepted in several verdicts[13].

• Given that preference is essential for the right, the plaintiff should have a superior right to that of the vendee or the person substituted in his place. However, the strength of the same isn’t that much. The right can be offset by legitimate methods, like the vendee the claimant of a superior or equal right being substituted in his place.

Criticisms of the Right to Pre-Emption:

One of the biggest criticisms of pre-emption is that society at the time of introduction of the right to pre-emption was highly archaic. The idea of a politically, economically, and socially independent village community has ceased to exist[14]. In fact, it is the notion of freedom of contract that has replaced this. The pre-emption statute infringed upon the hitherto fundamental right to possess and dispose of property, protected by Article 19(1)(f) and Article 31 of the Constitution. In fact, in Bhau Ram v. Baij Nath[15], the Supreme Court declared pre-emption based on vicinage illegal. However, post the 44th Constitutional Amendment, the right to property ceased to be a fundamental right and was relegated to a Constitutional Right. This was how eventually, this right to pre-emption became Constitutional, and in Raghunath. ‘s (D) v. Radha Mohan[16], the court held that this right can only be availed of when the need arises. This is where the right of pre-emption currently stands.

These rights were discussed in details in the case at hand. The Supreme Court of India took up a case involving the sale of a property in Light Railway Bazar, Jagadhri, in the matter of Jagmohan and Others v. Badri Nath and Others. The 719 square yard property was the centre of dispute when the respondents filed a pre-emption complaint on January 25, 1984, claiming possession and claimed that they had been tenants since 1949. The basis for this lawsuit was section 16, which states that the tenant who occupies the property—whether it is sold or not—under the vendor’s tenancy would have the right of preemption with regard to urban immovable property. The Trial Court granted the action, conditional on the vendee receiving ₹50,238/-after subtracting one-fifth of he pre-emption amount deposited in the Court at the time of filing of the suit which was subsequently upheld by the High Court.The appellants’ challenge to the verdict, which mainly relied on a notification the State government sent out on October 8, 1985, was the central argument of the case. This alert, based on the Punjab Pre-emption Act, 1913, specifically stated in Section 8(2) that the pre-emption privilege would not apply to sales of land within Haryana’s municipal limits. The contested property was located inside Jagadhri’s municipal boundaries.Interpreting essential phrases like “land” and “immovable property” as defined by pertinent statutes was at the centre of the legal discussion. The court emphasised that Section 16 of the 1913 Act, which grants tenants of urban immovable property this right, formed the foundation for the Respondent’s pre-emption claim. In line with Section 3(3) of the Act, “urban”“immovable property” was defined as immovable property within the limits of a town,excluding agricultural land (any agricultural land to mean land as defined in PunjabAlienation of Land Act of 1900.)

“immovable property” was defined as immovable property within the limits of a town,excluding agricultural land (any agricultural land to mean land as defined in PunjabAlienation of Land Act of 1900.)The appellants argued that the property sale should be considered a land sale, making it subject to the October 8, 1985 notification. They further contended that the complaint was time-barred and that the increased municipal territory was not subject to the pre-emption custom. They claimed that the complaint was filed after the one-year statute of limitations, on January 25, 1984.Judge Bindal looked at the definitions offered by the 1913 Act and other relevant laws.It’s important to note that the Punjab Alienation of Land Act, 1900’s Section 2(3) defined “land.” This definition highlighted that immovable property included more than simply the underlying land by excluding locations with structures in cities or villages. The court noted that the contested property, given the existence of a rolling mill, qualified as urban immovable property.“immovable property” was defined as immovable property within the limits of a town,excluding agricultural land (any agricultural land to mean land as defined in PunjabAlienation of Land Act of 1900.)immovable property.Regarding the notification dated October 8, 1985, Justice Bindal made it clear that transactions involving immovable property were expressly excluded, and that its application was limited to the sale of land inside municipal areas. Understanding the difference between land and immovable property becomes essential to understanding the notification’s narrow scope.Regarding the limitation question, the court dismissed the appellants’ contention, pointing out that they had not brought it up in the subordinate courts. The lawsuit was considered timely since it was filed within the 1963 Act’s one-year statute of limitations.

Conclusion

The landmark case defined the basis for the understanding of pre-emption rights and how the definitional understanding of the act affected the implementation of the law in practicality. The case discussed the detailed understanding of the definition of “land” and “immovable property”. The case also delved into the understanding of pre-emption rights and to understand the basis of these rights. Further, the case highlighted the harmonious construction of laws and a detailed interpretation of the terms that could be conflicting in nature. This article therefore has attempted to provide a detailed understanding of the origin and normative jurisprudence in the development of these rights along with the understanding of the interpretation of terms being used in these acts etc.

Citations

[1] Hindu Succession Act 1929, s 29.

[2] Bishan Singh Vs. Khazan Singh, AIR 1958 SC 838

[3] Kunwar Digambar Singh v. Kunwar Ahmad Sayeed Khan, 1914 SCC OnLine PC 78

[4] Sofaer, A. D. (2003). On the Necessity of Pre‐emption. European Journal of International Law, 14(2), 209-226.

[5] Ritika, K. (2023). Pre-emptive Rights of Shareholders: An Indian Perspective. Business Law Review, 44(1).

[6] Kunwar Digambar Singh v. Kunwar Ahmad Sayeed Khan, 1914 SCC OnLine PC 78

[7] Prachi Bhardwaj, ‘Is right to pre-emption a recurring right or exercisable only the first time? SC answers’ (SCC OnLine, 13 October 2020) < Is right to pre-emption a recurring right or exercisable only the first time? SC answers | SCC Times (scconline.com) > accessed 5 March 2024.

[8] Punjab Pre-emption Act 1913

[9] Rajasthan Pre-emption Act 1966

[10] Agra Pre-emption Act 1922

[11] Janki v. Girjadat, 1885 SCC OnLine All 73

[12] Bishan Singh Vs. Khazan Singh, 1959 SCR 878

[13] Bishan Singh Vs. Khazan Singh, AIR 1958 SC 838

[14] Babu Lal v. Goverdhan Das, A.I.R. 1956 M.B. 16.

[15] Bhau Ram v. Baij Nath Singh, AIR 1962 SC 1476

[16] Raghunath v. Radha Mohan, (2021) 12 SCC 501