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Report No. 70

45.10. Good faith-Proper construction of the expression.-

Having, regard to the importance of the requirement of good faith, it is obvious that its scope and meaning ought not to be subject to serious obscurity. It is well known that Indian statutory law contains two parallel definitions of the expression "good faith"-the one in the General Clauses Act, section 3(22), and the other in section 52 of the Indian Penal Code. According to the General Clauses Act, an act is said to be done in good faith if it is done honestly, whether or not it is done negligently.

According to the Penal Code, nothing is said to be done in good faith unless it is done with due care and attention. Thus, the General Clauses Act does not require due care and attention. Of course, want of due care and attention may be evidence in some cases of want of bona fides. But, as a matter of theory, the definition in the Penal Code is more stringent than the definition in the General Clauses Act. In this position, two questions arise for consideration, namely,

(a) which definition is applicable to section 50, and (b) if the definition in the General Clauses Act is the one applicable, which definition ought to be favoured as a matter of legislative policy? On the first question, the answer would appear to be simple. The definition in the Penal Code is meant only for the purposes of that Code, having been enacted in stringent terms by reason of the fact that the sections in which the definition occurs exempt a person from criminal liability or reduce the gravity of the offence.

It would, however, appear that there have been judicial decisions1, which regard the tenant's failure to make an inquiry as a grossly negligent act and as one taking away the protection of section 50 on the ground of want of good faith. We are not, with respect, convinced that this is a correct approach. Whatever may be the aspect of evidence, the concept of honesty of purpose and the concept of due care and caution are two different concepts. In the absence of express statutory provision, we do not think that it would be a proper construction to read due care and attention as an ingredient of good faith.

1. Butto Kristo Roy v. Govindram, AIR 1939 Pat 540 (544) (Harries, C.J. and Chatterji, J.).

45.11. The Patna judgment1 expressly holds that by reason of want of proper enquiry, the payment falls outside section 50, 6/en though the person paying honestly believed that the person receiving was entitled to receive the rent. With this construction, we do not find ourselves able to agree.

1. Butto Kristo Roy v. Govindram, AIR 1939 Pat 540.

45.12. This, however, disposes of only part (a) of the query raised above. It still remains to consider query (b), namely, what ought to be the law? This is a difficult question to decide, since the monetary rights of the real owner are involved. At the same time, it should not be overlooked that the real owner is not entirely without remedy, because he can recover the rents and profits from the person who received them from the innocent payer. On the whole, therefore, it would appear that it would not be unjust to provide that good faith need not require due care and attention.

45.13. The second aspect of good faith relates to good faith as holding the property "of another person". The section raises the question of good faith on the part of the payer twice; good faith has to be proved not only with regard to the payment, but also with regard to the title of the person from whom the property is held. Here again, good faith should be so defined as to exclude need for due care and caution. We recommend that the section should be suitably amended.

45.14. Rent payable in advance.-

Some obscurity exists on the point of rent payable in advance. One comes across judicial decisions taking the view that the rent must not be paid in advance, as rent paid in advance would become a mere loan1, as was held in Rajasthan. However, it is obvious2 that where it is a part of the contract, that the lessee should pay the rent in advance, he does so in fulfilment of an obligation under the contract and section 50 ought to apply.

1. Katha Bhatt v. Chokylal, AIR 1960 Raj 19 (20), para. 6.

2. Mani Ram v. Satpal, AIR 1972 J&K 37.

45.15. The Rajasthan case1 was one of loan. Rent paid in advance before the rent became due was treated as substantially a loan. It was held that if rents and profits are paid to the former landlord before they became due, it is a simple loan and cannot be taken as a discharge for the rent becoming due after notice of transfer to the tenant.

It is not vary clear from the facts as given in the judgment whether there was a specific obligation to pay the rent in advance. But there is a review of the case law. To avoid, doubts in the matter, it is, in our view, desirable to provide that the section applies to rents or profits payable in advance of the period to which they relate, where the person paying them is under a legal obligation to do so. The definition of "lease" is wide enough to cover a lease accompanied with payment of advance rent2.

1. AIR 1960 Raj 19, para. 45.14, supra.

2. Lachman Das v. Zumburmal, (1972) 75 Born LR 678 (680) (Vaidya, J.).

45.16. Recommendation.-

In the light of the above discussion, we recommend the insertion of the following Explanations at the end of section 50:-

"Explanation 1.-A thing is said to be done in good faith if it is in fact done honestly, whether or not it is done negligence.1

Explanation 2.-This section applies also be rents or profits paid or delivered by a person in advance of the period to which such payment or delivery relates, if such payment or delivery is made or done in good faith in the discharge of an obligation to make payment or delivery as the case may be, in advance2."

1. See para. 45.11 and para. 45.13, supra.

2. See para. 45.15, supra.

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