Mesne profits under the Code of Civil Procedure, 1908

Introduction

The underlying principle based on which the Code of Civil Procedure, 1908 functions is ubi jus ibi remedium that signifies where there is a right, there is a remedy. The concept of mesne profits has been developed from this principle because it is the law of nature to provide the right to compensation where there has been an infringement or breach of a legal right. Before delving into the concept of mesne profit, it is necessary to discuss the meaning of the terms “ownership” and “possession”. While the former is an exclusive collective right of a man to possess, enjoy, transmit, destroy a property owned by him, the latter acts a prima facie evidence of the former. The right to possess property is protected in the eyes of law until and unless another individual claim to have a better title on that property. When this claim arises, the law acts as a shield to protect the original owner of the property thereby ensuring compensation from the illegal or unlawful possessor. Mesne profits is a mode of such compensation facilitating remedy to the aggrieved party refraining the wrongful possessor from enjoying profits derived from such property. This article aims to explain the concept of mesne profits governed by the Code of Civil Procedure, 1908. 

Mesne profits under the Code of Civil Procedure, 1908

Section 2(12) of the Code of Civil Procedure, 1908 defines the term “mesne profits”. The Delhi High Court in the notable case of Phiraya Lal Alias Piara Lal vs Jia Rani And Anr (1973) interpreted the meaning of the term “mesne profit” by observing that when a party claims damages to recover the loss resulted from wrongful occupation of immovable property by a trespasser that originally belonged to the party then such damages will be known as mesne profits. The definition provided by Section 2(12) includes the exception of mesne profits which is the profits obtained from the improvements made by the wrongful possessor in the property will not fall under the ambit of mesne profits. The three significant takeaways from Section 2(12) of the Code have been laid down hereunder;

  1. It is to note that the definition has attached importance to due diligence for obtaining mesne profits. 
  2. Mesne profits can only be awarded if the property in concern was unlawfully occupied thereby depriving the original owner of his rights. 
  3. Interest is a fundamental part of mesne profits under Section 2(12). 

Order XX Rule 12 of the Code of Civil Procedure, 1908 lays down the provision for the passing of the decree by a competent civil court where there exists a suit for recovery of immovable property possession, rent, or mesne profits. Put simply, a civil court while presenting the rights of the parties involved in a suit concerning mesne profits, will rely on Rule 12 of Order XX. 

Calculation of mesne profit: all one needs to know 

After gaining an idea about mesne profits, it is now relevant to know as to how mesne profits are calculated. The answer to this will be different from case to case basis and as interpreted by the courts of law. If one goes by the provision, it gets clear that there exists no fixed rule for assessing mesne profits. Therefore, the scope for assessment of mesne profits has been left in the hands of the courts. It is thus ideal to discuss this section of mesne profits by means of case laws. 

M/S. Hindustan Motors Ltd. v. M/S. Seven Seas Leasing Ltd (2018)

In this case, the appellate being a tenant of the concerned property which commenced in 1986 and was terminated in 1998 had handed over the concerned premise during the pendency of the suit for the same and mesne profits in 1999. Taking into concern the facts of the case, the Delhi High Court decided to calculate the mesne profits from the date of filing of the suit for the premise (May 1998) to the date on which the concerned possession was returned (August 1999). 

Square Four Assets Management & Reconstruction Co. P. Ltd. v. Orient Beverages Ltd. & Ors. (2017)

The Calcutta High Court in this case while deciding the legislative intent behind Order XX Rule 12 of the Code of 1908 observed that where the defendant, who was the tenant to a plaintiff’s premise, had sub-leased the premise to a third person who did not leave the premise even after the expiry of the term, the mesne profit will be calculated taking into account the last date on which the premise was vacated. Although the defendant had handed the premise on the date of expiry (30th September 2015), the person whom it was sub-leased vacated the premise on 25th May 2017. Therefore, mesne profit was to be calculated from the date of institution of the suit (17th May 2016) till the last date of vacating the premise (25th May 2017). The Court in this case had ordered an inquiry into mesne profits from 17th May 2016 to 25th May 2017 as well. 

Laljee Shahay Singh And Others Decree-Holders, v. F.C Walker And Others (1902)

In this case, an appeal was brought before the Calcutta High Court against a District Court’s order which ascertained mesne profits in accordance to the fair rent that was supposed to be paid for the concerned land and not in accordance with the value of the production from the land. Taking into account that the land, in this case, was a raiyati, it was held that in such cases both the original owner and the trespasser are rent receivers and therefore the calculation of mesne profits should be done on the basis of fair rent only. 

The New India Assurance Co. Ltd. v. M/s. M. Gulab Singh & Sons P. Ltd (2018)

The Delhi High Court while deciding on this appeal case took into account the trial court’s assessment on determining the value of mesne profits. The trial court had come up with different rates of mesne profits for different periods taking into concern the lease deeds proved by the respondent and the period for determining mesne profits which were from 1.1.1999 to 30.6.2010. The Hon’ble High Court made the following observations in light of this case:

  1. The lease deeds that were exhibited by the respondent were relevant as they were not only prepared on the basis of the premise but also in alignment to 50% of the period determined for calculating mesne profits (that is from the year 2005 to 2010).
  2. If mesne profits have been evaluated in accordance with the rate of the rent payable by taking into account the rate of rent of the property in question or any other premise located in the same area, then such evaluation will be declared as an honest assessment of mesne profits. 

The Delhi High Court, therefore, upheld the decision made by the trial court in determining the value of the mesne profits payable by the appellant. 

Dr. JK Bhakthavasala Rao v. Industrial Engineers, Nellore (2005)

The Andhra Pradesh High Court in this notable case laid down two important assessment criteria for mesne profits when only the question of facts are involved in fixing certain damages for the purpose of occupation and usage of the building in issue as there lie no such evaluating parameters for determining the mesne profits. The criteria are:

  1. Assessing the location, nature, and surrounding features of the suit.
  2. Looking into premises with similar traits in the surrounding area. 

Drawing an inference from the above case laws, it can be said that there exists no uniform determining criteria that can be applied to assess the value of mesne profits. Each case has a different outlook on mesne profits. Applying the law of equity which demands mesne profits to be net profits that have been derived after deduction of necessary expenditures involved in gaining such kind of profits, the mesne profit was assessed. Although rent used to be one of determining factors of the value of mesne profits, with the passage of time this factor has been rejected and struck down by the Indian courts. Thus the one ground that has remained intact for the courts to take account of while assessing mesne profits is that the profits must have been acquired by the wrongful possessor with due diligence.

Circumstances when mesne profit not granted 

So far we have taken into account situations in which mesne profits have been granted to the original owner because of wrongful possession of the former’s property. It is equally important to know about the other side of the coin which is the circumstances or scenarios in which mesne profit has been disallowed by courts of law. They have been listed down hereunder.

Joint family property and parties that are in joint possession of the same

The Telangana High Court in the case of Smt. Subashini vs S. Sankaramma (2018) opined that if the immovable property in concern is a joint family property and both the appellate and the respondent are joint owners of such property then in such circumstance the appellate cannot claim mesne profits as the respondent is an owner himself and therefore not in wrongful possession of the said property. 

No Order or Decree by any court of law to the effect of the mesne profits

The Income Tax Appellate Tribunal observed in the case of Krishna N Bhojwani, Vs.  Assessee (2021) that Order or Decree by any civil court is the foremost condition to give effect to mesne profits. In this particular case, the grant of mesne profit has been disallowed on grounds that there exists no Order or Decree by any civil court which can give effect to mesne profit. Therefore, the appellate became prohibited from the same. 

Circumstances in which provisions of Section 144 of the Code of 1908 are not attracted

In the case of Murti Bhawani Mata Mandir REP. Through Pujari Ganeshi Lal (D) Through LR vs. Rajesh & Ors (2019) where the appellant had filed an application under Section 144 of the Code of Civil Procedure, 1908 for restoration of his possession on the disputed property and for awarding mesne profits, the Supreme Court of India observed that the provision of Section 144 will not be applicable in this case as there was no Decree or Order by the trial court which would vest the possession to the appellate, nor did any such Order or Decree mandated the respondent to hand over the disputed possession to the original owner. 

Lack of sufficient evidence

In cases of mesne profits, the burden of proof rests solely on the claimant of wrongful possession of his or her property, it is the responsibility of the claimant to provide sufficient evidence before the court of law against the illegal possessor before claiming mesne profits. 

Initial possession not wrongful but later assumed wrongful character

The Supreme Court of India made a notable observation in the case of Union of India (UOI) and Ors v. Banwari Lal and Sons (2004) regarding granting of mesne profits. The Court held that if a person possesses a property that was not wrongful initially but assumed a wrongful character in the future, then in such case the owner of the property will not be granted mesne profits, instead only the fair rent of that property will be provided. 

Although these circumstances are not exhaustive in nature, they are the interpretation of judgments delivered by Indian courts. 

Landmark judgments 

The ratio-decidendi of a few judgments have been listed down below to provide an overview of mesne profits and its associated elements. 

Smt.Subashini vs S.Sankaramma Died (2018)

While deciding on this case, the Telangana High Court highlighted the objective behind awarding mesne profits. It observed that mesne profits play the role of compensating the original owner of a property who has suffered loss and damages because of unauthorized possession of the same property by some other person. The term compensation is used to emphasize the fact that a person has been deprived of the right to the enjoyment of his property and the loss suffered by a lawful owner. The idea behind granting of mesne profit is to rectify a wrong that has taken place. 

M/s Skyland Builders P. Ltd v. Income Tax Officer (2020)

The Delhi High Court, in the case, of M/s Skyland Builders P. Ltd v. Income Tax Officer (2020) made a remarkable decision on mesne profits by holding that mesne profits received by the lawful owner on account of illegal possession of his immovable property will be considered as a revenue receipt and therefore will be a taxable subject-matter under Section 21 (1) of the Income Tax Act. 

Nazir Mohamed vs. J.Kamala and Ors (2020)

The Supreme Court of India, in this case, observed that a decree of possession of immovable property does in no way follow a decree of declaration of ownership automatically. The burden of justifying the allegation of wrongful possession exists solely on the plaintiff. If he fails to prove his allegations on the defendant, the Court shall presume the possession to be adverse by its nature. 

Conclusion 

If Section 2(12) of the Code is assessed, it can be made clear that there exist a lot of fundamental questions that the provisions fail to address. While the provision specifies mesne profits for wrongful possession of a property that originally belongs to someone else, it does not lay down the parameters on the basis of which mesne profit is supposed to be allowed by the courts. Not only this, the provision remains silent when it comes to the rate of interest that is supposed to be imposed along with mesne profit, leaving the entire responsibility on the courts. We see a variety of methods adopted by the courts to calculate mesne profits. Although uniform criteria cannot be laid down as the provision has presumed, one cannot ignore that specificity is the essence of any legislation. Thus there arises a need to address these questions and provide logical solutions for better implementation. 

References 

  1. https://thefactfactor.com/facts/law/civil_law/civil-procedure-code/mesne-profits/14645/
  2. https://www.taxathand.com/article/15768/India/2020/High-Court-rules-mesne-profits-from-unauthorized-occupation-of-property-are-revenue.
  3. http://www.legalservicesindia.com/article/397/Mesne-Profit.html#:~:text=Section%202%20(12)%20of%20the,shall%20not%20include%20profits%20due.

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