Report on Mesne Profits under Indian law

A Brief Overview on Mesne Profits and matters relating thereto

By KAPIL SHARMA of Government Law College, Mumbai For ONGC Legal Section (Mumbai) On July 10, 2012

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Contents

Sr. No. 1

TITLE
Introduction to the Topic A. Ownership and Possession B. Origin of the concept of mesne profits C. Nature of mesne profits D. Scope of mesne profits Legal provisions relating to mesne profits A. Interests in Mesne profits B. Improvements in the property by

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unlawful possessor C. Mesne profits against several

trespassers D. Assessment of the Mesne profits E. Burden of proof Conclusion

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CHAPTER 1

Introduction to the Topic

The dictionary meaning of the term mesne profits is the profits of an estate received by a tenant in wrongful possession and recoverable by the landlord. It is further explained as the profits which have accrued while there was a dispute over land ownership. And if it is determined that the party using the land did not have legal ownership, the true owner can sue for some or all of the profits made in the interim by the illegal tenant, which are thus called mesne profits. Considering the legal sanction of the term, mesne profits of property has been defined under section 2(12) of the Civil Procedure Code, 1908 as those profits which the person in wrongful possession of such property actually received or might with ordinary diligence have received therefrom, together with interest on such profits, but shall not include profits due to improvements made by the person in wrongful possession. The measure of mesne profits is the profits which the person in wrongful possession actually received or might with ordinary diligence have received from the property, together with interest on such profits, and not what the original claimant loses by his exclusion from the property.1 Mesne profits include those profits which the person in wrongful possession of such property actually received or might with ordinary diligence have received therefrom.2 Wrongful possession of the defendant is the very essence of a claim for mesne profits and the very foundation of the defendants liability therefor. Liability to pay mesne profits goes with actual possession of the land. Generally, the person in wrongful possession and enjoyment of the immovable property is liable for mesne profits.3 A person is said to be in wrongful possession when he enjoys such possession despite, another person is entitled to it under law.4
1 2 3 4

P. L. Kapur v. Jia Ram, 1973 Delhi 186. Smt. Mohadei v. Kaliji Birajman, 1969 All. L.J. 896. Lucy Kochuvareed v. P. Maliappa Gounder, 1979 S.C. 1214 at p. 1219. T. N. Shetti v. V. Appalaraju, 1975 A.P. 208 at p. 210.

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Before comprehending the concept and relevant provision of mesne profits in the Code of Civil Procedure, 1908 and other laws, it would be appropriate to discuss & understand the concept in detail. A. Ownership & Possession As defined by Austin, ownership means a right which avails against everyone who is subject to the law conferring right to put thing to user of infinite nature. Ownership consists of an innumerable claims, liberties, powers & immunities with regard to the things owned. The idea of ownership developed slowly with the growth of civilization. The transition from a pastoral to an agricultural economy made the idea of ownership as developmental phenomena. The concept of ownership is easy to understand but difficult to define with exactitude. In Blacks Law Dictionary, ownership has been defined as collection of rights of rights to use & enjoy property, including the right to transmit it to others. Possession is prima facie evidence of ownership and law always protect right to possession. Savigny regards protection of possession as an extension of the protection of the person. He further stated that possession is not protected because it is so intimately connected to the ownership, but in the interest of public order and safety. According to Windschids, protection to possession stands on the same ground as protection against injuria i.e. violation of private legal right. In the property law, Possession is considered as a sufficient proof of ownership. Every person may keep what he possesses but contrary to this, if the possession is illegal then the person who has legal possession over the property may claim damages including the profits which the illegal possessor may have accrued from the property. Those profits are termed as mesne profits. B. Origin of the Concept of Mesne profits The concept of mesne profits has its origin in the medieval Europe used as the concept of feudalism. Under the feudal system, the owner of the land (at that time King used to be the sole owner of all the land) would let out a part
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of these lands to others on the condition that they will provide their service and labour to the owner. The word mesne is derived from the root word demesne. This concept is common in countries which follow English Legal System including many former British colonies. The person to whom the rent is paid became known as the mesne landlord, which meant intermediate in old French. The phrase was originally mesne rents and profits meaning all the rent or profit from the land that could be extracted by the intermediate landlord. In the modern time the term mesne profits means the claim that a lawful owner of the property has against the unlawful possessor of the property.
C. Nature of Mesne Profits

All the legal system, which governs the civilized nations of the world agree upon the basic principal of natural justice to obtain reparation for wrongs or infringement of legal rights.[6] In other words, the law of nature gives primary right to a compensation for injuries. Mesne profit is one such right to compensation granted against injuria i.e. breach of legal right. Mesne profit is a positive right available against infringement of private legal right. The main object of awarding mesne profit is to compensate the actual owner of the property for all the loss he has suffered. In other words the object of awarding a decree of mesne profits is to compensate the person who has been kept out of possession and deprived of enjoyment of his property even though he was entitled to possession of property, and the word compensation would embrace in its purview any actual loss suffered by a lawful owner. The idea of granting mesne profits as compensation normally connotes reparation for some past wrongful act i.e. unlawful possession. The burden of proof would depend on the nature of the claim made by the plaintiff. If the plaintiff limits his claim to the actual profits which the defendant is said to have received, obviously, in such a case, as the defendant is the person who had special knowledge of the actual receipt of the profits received by him, the burden would lie on him to prove the actual receipts made by him. If, on the other hand, the plaintiff wants to make the
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defendant liable for the profits which the defendant ought to have received by the use of ordinary diligence in event, it cannot be said that the matter is within the special knowledge of the defendant and the burden of proof would rest on the plaintiff to prove the probable receipts in respect of the disputed property.5
D. Scope of Mesne profits

The scope of mesne profits is very wide in its own circle. Until now it is clear that mesne profits are granted on property but are restricted only to those profits which are derived by a person in wrongful possession of property belonging to another. They have no application to profits accountable by a person not in wrongful possession of the property such as by a co-sharer, before partition.6 The possession of a co-sharer can never be wrongful as he has right and interest in every inch of the undivided property.7 Where there is a severance in the status of a joint Hindu family and the coparceners thereupon become merely tenants-in-common, in a suit for partition filed by one of them against the others the only right he has is the right to claim accounts of the past and future mesne profits until the date of actual partition by metes and bounds after making all just allowances in favour of the collecting tenant-in-common. The tenant-in-common who is in possession cannot be said to be in wrongful possession though he may be liable to render accounts relating to his share, such a claim for accounts is not a claim for mesne profits.8 The word mesne profits used in Section 2 (12) have same connotation as in Section 144.9 Mesne profits can be claimed regarding immovable property and not with regard to movable property.10

5 6

Shaik Salma v. Mohd. Abdul Kadar, 1961 A.P. 428 ; Kally Nath v. Shew Bux, 1950 Cal. 87. Shambhu Dayal Khetan & Ors. V. Motilal Murarka & Ors. AIR 1980 Pat. 106. 7 Ibid. 8 Ganesh v. Radha Krishnan, 1969 Mad. 416. 9 Sree Devi Amma v. Rugmini, 1966 Ker. L.J. 844. 10 K. B. Singh v. M. D. U., 1957 Manipur 9 (claim for mesne profits in respect of motor lorry was disallowed).

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CHAPTER 2

Legal provision related to Mesne Profits

Mesne profits may be defined as the profits or other pecuniary benefits, which one who disposes the true owner receives between disseizing and the restoration of possession. Therefore mesne profits corresponds to the profits which the person in wrongful possession is receiving or might receive with due diligence for the wrongful occupation of property. Mesne profits are defined under Section 2(12) if Code of Civil Procedure. Section 2 (12) of the Code of Civil Procedure provides that: Mesne profits of property means those profits which the person in wrongful possession of such property actually received or might with the ordinary diligence have received therefrom, together with interest on such profits but shall not include profits due to improvement made by the person in wrongful possession. From the analysis of the above stated definition one can conclude that Mesne profits are the profits, which the person in unlawful possession actually earned or might have earned with the ordinary diligence. According to Section 2(12) a person becomes entitled to mesne profits only when he has right to obtain possession but another person whose occupation is unauthorized keeps him deprived of that possession. The first and foremost

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condition for awarding mesne profits is unlawful possession of the occupant of the property. In Phiraya Lal alias Piara lal v. Jia Rani11, Honble High Court while defining the term mesne profits observed that, when damages are claimed in respect of wrongful occupation of immovable property on the basis of the loss caused by the wrongful possession of the trespasser to the person entitled to the possession of the immovable property, these damages are called mesne profits. The section further provides that Mesne profits also include interest on such profits. However it explicitly excludes any profit earned due to improvement in the property made by the person in unlawful possession of such property. In Nataraja Achari v. Balambal Ammal12, taking into consideration the definition of mesne profits provided under Section 2 (12), Honble High Court observed that there are three different types of cases in which question of rights of profits arise: 1. Suit for ejectment or recovery of possession of immovable property from a person in possession without title, together with a claim for past or past and future mesne profits. 2. A suit for partition by one or more tenants in common against others with a claim for account of past or past and future profits. 3. Suits for partition by a member of joint Hindu family with a claim for an account from the manager. The Court observed, In the first case, the possession of the defendant not being lawful, the plaintiff is entitled to recover mesne profits such profits being really in the nature of damages. In second case the possession and receipt of profits by the defendant not being wrongful the plaintiffs remedy is to have an account of such profits making all just allowance in the favour of the collecting tenant in common. In the third case the plaintiff must take the joint family property as it exists at the date of the demand for partition and is not entitled to open up past account or claim relief on the ground of past inequality of enjoyment of the profit, except where the manager has
11 12

AIR 1973 Del 186 AIR 1980 Mad 222

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been guilty of fraudulent conduct or misappropriation. The plaintiff would however, be in the position of the tenant in common from the date of severance in status and his right would have to be worked out on that basis. The second legal provision relating to mesne profits is provided in Order XX Rule 12 of Civil Procedure Code. It provides for the provisions of decree for possession and mesne profits as
(1) Where a suit is for the recovery of possession of immovable

property and for rent or mesne profits, the Court may pass a decree(a) For the possession of the property;
(b) For the rents which have accrued on the property during the

period prior to the institution of the suit or directing an inquiry as to such rent; (b-a) for mesne profits or directing an inquiry as to such mesne profits; (c) Directing an inquiry as to rent or mesne profits from the institution of the suit until(i) (ii) The delivery of possession to the decree holder, The relinquishment of possession by the judgmentdebtor with notice to the decree-holder through the Court or, (iii) The expiration of three years from the date of the decree, whichever event first occurs.
(2) Where an inquiry is directed under Cl. (b) or Cl. (c), a final decree

in respect of the rent or mesne profits shall be passed in accordance with the result of such inquiry. Order XX, R. 12 provides for the passing of a decree in a suit for the recovery of possession of immovable property and for rent or mesne profits.
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Order XX, R. 12 makes an exception to the general rule that a plaintiff can only sue on such cause of action as has arisen on the date of instituting his suit; the object is to avoid multiplicity of litigation, as it would be clearly inconvenient and unfair that the person unlawfully kept out of possession of his lands should be obliged to file suits every three years for mesne profits accruing after the institution of his suit in ejectment.13 The rule is not mandatory but merely directory. The Court has discretion to direct an inquiry into future mesne profits; it is under no obligation to do so. 14 Direction as to future mesne profits is within the discretion of the Court. Irrespective of whether the plaintiff has prayed for them or not, if the court thinks fit to give direction as to future mesne profits it can give direction as to future mesne profits under O. XX, rule 12. The court has only to see whether the case of the plaintiff is governed by Order XX Rule 12 of CPC. In case, if it is applicable, the court is fully empowered to grant future mesne profit also.15 A. Interest on Mesne profits The definition of the term Mesne profit provided under section 2(12) of the Code of civil Procedure, 1908 explicitly provides that interest is an integral part of mesne profits. From the expression together with interest on such profits in Section 2(12) it is apparent that mesne profit includes within its fold an interest component. And the rate of interest to be allowed in regard to mesne profits varies depending upon the facts and circumstances of each case. Since the statute does not fix any rate of interest it is left at the discretion of the court to determine the rate of interest but the same should not exceed six per cent per annum. In N. Dasjee v. Tirupathi Devasthanam16, the Honble Supreme Court observed that, Under Section 2 (12) of the Civil Procedure Code which contains the definition of mesne profits, interest is an integral part of mesne
13 14

Raghu Mahton v. Bulak Mahton, AIR 1953 Pat. 289 at p. 291. Gopalakrishna Pillai v. Meenakshi Ayal, AIR 1967 SC 155; Motibhai v. Ramchandra, 1974 Guj. 95 at p. 103. 15 M/s Banwarilal Association Pvt. Ltd. v. M/s Basanti Devi Family Trust, Ghaziabad & Ors., 2009 (5) ALJ 328. 16 1965 SC 1231

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profits and has, therefore, to be allowed in the computation of mesne profits itself. That proceeds on the theory that the person in wrongful possession appropriating income from the property himself gets the benefit of the interest on such income17. In Tarquino Raul Henriques v. Damodar Mangalji and Co. Pvt. Ltd. 18, the question directly came up for the consideration before the Honble Bombay High Court. In this case appellate filed review application against the order of the Honble Court. The impugned order granted mesne profits but it was silent as far as interest on such profits was concerned. It was, therefore, urged by the appellate that the interest being an integral part of the mesne profits it was implicit in the order. On the other hand defendants contended that grant of interest is discretionary and once the impugned order is silent on the point of interest it is safe to assume that the interest was negative. The issue was whether the grant of interest is implicit when an order for mesne profits is directed under the Code of Civil Procedure. Having considered the observations of the Supreme Court in N. Dasjee v. Tirupathi Devasthanam and the definition of the term Mesne profits under Section 2(12), the court held that the expression "together with interest on such profit" clearly indicates that the mesne profits would not only include the actual damage suffered as a result of wrongful possession, but also the interest accrued thereon and in that sense the mesne profits would always comprise both the damage and the interest and therefore the grant of interest is implicit in the mesne profits. B. Improvements in the property by unlawful possessor Latter part of Section 2(12) expressly provides that mesne profits do not include profits due to improvement made in the property by the person in wrongful possession. In The Hindustan Petroleum Corporation Ltd., Chairman and Managing Director v. Khwaja Asadullah Baig and Ors19, while assessing the quantum of mesne profits Honble Andhra Pradesh High Court held that,
17 18 19

Anusuyabai v. Jagdish Prasad, 1977 MPLJ 7. AIR 1989 Bom 309 1996(2) ALT 198

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taking into consideration concept of mesne profits under Section 2(12), the courts have to exclude the profit attributable to the improvements made on the property. However a person in wrongful possession of the property is not entitled to claim expenses incurred on improvements in such property. In other words, plaintiff in not bound to pay the defendant compensation for improvements as a condition precedent to obtaining possession. The defendant being in the rank of trespasser is not entitled to such compensation. C. Mesne profits against several trespassers. Where the plaintiffs dispossession, or his being kept out of possession can be regarded as a joint or concerted act of several persons, each of them who participates in the commission of that act would be liable for mesne profits even though he was not in actual possession and the profits were received not by him but by some of his confederates. In such a case where the claim for mesne profits is against several trespassers who combined to keep the plaintiff out of possession, it is open to the Court to adopt either of the two courses: It may by its decree hold such trespassers jointly and severally liable for mesne profits, leaving them to have their respective rights adjusted in a separate suit for contribution; or, it may, if there is proper material before it, ascertain and apportion the liability of each of them on proper application made by the defendant during the same proceedings.20
D. Assessment of the Mesne profits.

Mesne profits are in the nature of damages which the Court may mould according to the justice of the case, and each case must be dealt on merits. Mesne profits are something which a plaintiff cannot evaluate; it is solely for the court to determine on the evidence before it.21 The amount of mesne profits to which the rightful owner of the property is entitled is not fixed either by an agreement or some statute and depends on the result of the
20 21

Lucy Kochuvareed v. P. Mariappa Gounder, 1979 SC 1214 at p. 1219. K. C. Alexander v. Nair Service Society Ltd., 1966 Ker. 286 at p. 292 (D.B.)

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inquiry conducted by the Court with a view to ascertain the amount which the rightful owner of the property is entitled to get from the person in wrongful possession. Mesne profits are therefore, un-liquidated damages.22 The true test for assessment of mesne profits is clearly not what a person has lost by his exclusion, but what the trespasser has or might reasonably have made by his wrongful possession. In determining the mesne profits, the Court should aim at doing justice between the parties having regard to all the circumstances of the case, the object being to see that the person wrongfully kept out of the possession is put in the same position. In the case of agricultural land the true test in calculating mesne profits is what the ordinary prudent agriculturist would have grown on the land from which the plaintiff has been excluded.23 Earlier the rental value of the property formed the basis of assessment of mesne profits. The courts used to award mesne profits taking into consideration rental value of the property. This practice of assessing mesne profits on the basis of rent was inappropriate and later on the Courts rightly struck it down. Now the normal measure of mesne profits is the value of the user of the land to the person in wrongful possession. A person in wrongful possession of immovable property has to pay compensation computed on the basis of profits he actually received or with ordinary diligence might have received. In Dr. J K Bhakthavasala Rao v. Industrial Engineers, Nellore24, Honble Andhra Pradesh High Court observed that, fixing the damages for the use and occupation of the suit building by its very nature, involves adjudication of a pure question of fact and there exists hardly any uniform and standard pattern of assessment in this regard. The court should take into consideration comparative assessment of the nature, location etc of the suit premises vis--vis similar characteristics of premises in the surrounding area. It is, however, very difficult to find the premises of similar nature, size and quality of at the same location. Even if there exist any broad similarity in this aspect, the rent in respect of such premises would depend, mostly, upon the need of lessee and the circumstances
22 23 24

Champa Devi v. Asa Devi, 1938 All. 8 at p. 11 (D.B.) Jagannath Prasad v. Badiul Mulk Khan, 1954 Pat. 447 at p. 448 (D.B). AIR 2005 AP 438

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under which the leases are granted. Prevalence of amity or enmity, as the case may be, between the landlords and the tenants and the duration of lease are certain factors, which would have bearing of this. And therefore the mesne profits cannot be determined solely on the basis of rental value of the land. Moreover, the law of equity requires that mesne profits should be the net profits i.e. the profits derived after making deduction toward necessary expenditure for earning such profits. Therefore all such payment made by the person in wrongful possession, as the plaintiff would have been bound to make if he had been in possession, should be deducted from the gross earnings. These expenses include, expenses incurred for maintenance of property, cess paid on the property etc, depending upon the nature of the property. For instance in case of agricultural land cost of cultivation, seasonal fluctuation etc should be deducted. In case25 of tolerated trespasser who overstayed his welcome, the Court of Appeal ruled that a former tenant who wrongfully remained in possession of a property once their tenancy had come to an end would no longer be liable for mesne profits once they had given up possession. E. Burden of Proof It is settled principle of law that in case of mesne profits the burden of proof rests on the claimant i.e. the plaintiff. And mesne profits being in the form of compensation, the plaintiff have to establish before the Honble court that he was the lawful owner of the property and he was deprived of it by the unlawful possession of the defendant before claiming mesne profits. The plaintiff having proved the aforementioned facts becomes entitled to mesne profits. Further the onus of proving what profits he might have received with the ordinary diligence lies on the claimant. Where the land is capable of growing particular crop and the Court has not found reasonable diligence on the part of the defendant in possession of the land, the burden of proving want of due diligence lies on the plaintiff. In the case of Ramakka v. V.
25

Jones v. London Borough of Merton, June 2008.

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Nagesam26, Honble Madras High Court while considering the question of onus of proof in case of mesne profits held that onus of proving what profits might, with due diligence, have been received in any year lies upon the party claiming mesne profits. The court further observed that, Plaintiff may also adduce evidence to prove that the occupant was not diligent and might have got greater profits by proper diligence.

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AIR 1925 Mad. 145

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CHAPTER 3

Conclusion
Legal rights and remedies for the breach of legal rights are two sides of the same coin. Stated simply legal rights and remedies for the breach of these rights have always coexisted. It is provided in the famous maxim ubi jus ibi remedium, which literally means where there is right there is remedy. Accordingly unlawful interference with the immovable property of another person amounts to breach of a legal right; and there is remedy in the form of mesne profits for wrongful interference with the property. Section 2(12) of the Code of Civil Procedure provides for mesne profits. According to Section 2(12) the term mesne profits relates to the the damages or compensation recoverable from a person who has been in wrongful possession of immovable property. Then Order XX Rule 12 of the Code of Civil Procedure provides for the decree for possession and mesne profits. It states the provision for application of suit to be filed before the Court for possession of the property along with the mesne profits which aroused or may have been profited. The term mesne profits, under Section 2(12) of Code of Civil Procedure, also include within its ambit interest on such profits, but it does not include profits made due to improvement in the immovable property. Plethora of judgment signifies that the wrongful possession of the defendant is the very essence of the claim of mesne profits. And the moment the plaintiff is successful in establishing the wrongful possession of the other person he is entitled to claim mesne profits. Therefore our first assumption that the wrongful possession of the defendant forms the basis of the claim of mesne profits stands true. Mesne profits being in the nature of compensation, the enactment rightly does not lay down any uniform standard for the assessment of mesne profits. Order XX Rule 12 merely lays a broad principle for the assessment of mesne profits [i.e. Mesne profits =Profits made from the unlawful possession of the property + Interest on such profits Profits made due to improvement
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in the property]. And the assessment of the quantum of mesne profits is rightly left at the discretionary power of the court depending on the facts and circumstances of each case. The courts are required to into consideration various factor while determining the quantum of mesne profits and thereby use their power judiciously. Therefore our second hypothesis that the there is a uniform criterion for the assessment of mesne profits is inaccurate. Lastly, from the analysis of numerous judgment of Honble Supreme Court we can conclude that the third hypothesis that mesne profits can be granted even if they are not specifically claimed in the plaint under Order 20 Rule 12 of Code of Civil procedure does not stands true. Though, there has been difference of opinion with regard to this issue but in the most recent judgment on this issue Honble Supreme Court had held that in mesne profits cannot be awarded in such cases. With respect to taxability of mesne profits, judgment of the 5 member special bench of ITAT Mumbai is worth noting. The court in this case27 held that in view of the conflict of judicial opinion amongst the various High Courts on the taxability of mesne profits, the legal position that where two views are possible, the view favourable to the assessee should be followed applies. Accordingly, mesne profits are a capital receipt and are not chargeable to tax.

27

Narang Overseas v. ACIT

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