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TMI Blog1968 (12) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... he Imperial Bank of India against the issue of debentures. The loan was secured by a mortgage of the estates under a debenture trust deed dated May 13, 1927, and was repayable on May 15, 1937. In default of payment within November 15, 1937, the trustee under the debenture trust deed was authorised to enter into possession of the estates and sell them. By an agreement dated August 16, 1936, Peirce Leslie and Co. Ltd., referred to as "the appellant company", was appointed as the secretary of the old company. On April 15, 1937, the old company was served with a notice that in default of payment of the loan within November 15, 1937, the trustee for the debenture holders would take possession of the estates and sell them. On May 18, 1937, James Henry Wapshare died leaving behind him his widow and his sons and daughters. In November, 1937, after prolonged negotiations between the Wapshares and the appellant-company it was settled that the company would purchase all the estates except Naduvattam for Rs. 10 lakhs. On December 29, 1937, formal agreements were executed providing that the old company would convey to the appellant-company all the estates except Naduvattam for Rs. 10 1/2 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant-company as the secretary and manager of the old company was bound in a fiduciary character to protect its interests and by availing itself of this character gained pecuniary advantage by purchase of the properties from the old company in 1939, that the agreement for sale and conveyances in respect thereof were induced by fraud, fraudulent concealment, misrepresentation, undue influence and improper means, that the new company was controlled by the appellants, that all the defendants were privy to the fraud, that the winding up of the old company was procured by the defendants fraudulently, that the plaintiffs discovered the fraud in September, 1949, and the plaintiffs were the only shareholders of the old company and as such were entitled to maintain the suit. Defendants Nos. 4, 11 and 14 died during the pendency of the suit. The defunct old company, impleaded as defendant No. 16, did not appear but the other defendants contested the suit. The subordinate judge, the Nilgiris, Ootacamund, dismissed the suit. He held that (1) there was no fiduciary relationship between the appellant and the old company; (2) the impugned agreements and conveyances were not induced by fraud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned to be such after a jealous and scrupulous examination of all the circumstances, proving, that the cestui que trust intended, the trustee should buy; and there is no fraud, no concealment, no advantage taken by the trustee of information acquired by him in the character of trustee. I admit, it is a difficult case to make out, whenever it is contended that the exception prevails". As stated in Kerr on Fraud and Mistake, 6th edition, page 192 . "Thus a trustee for sale may purchase the trust estate, if the cestui que trust fully and clearly understands with whom he is dealing and makes no objection to the transaction, and the trustee fairly and honestly discloses all that he knows respecting the property and gives a just and fair price, and does not seek to secure surreptitiously any advantage for himself. The onus, however, rests upon the trustee, and he is bound to produce clear affirmative proof that the parties were at arm's length, that the cestui que trust had the fullest information upon all material facts, and that having this information he agreed to and adopted what was done". The appellant-company was the secretary of the old company, was in charge of its corresponde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sell Naduvattam. The bungalow at Naduvattam was the home of the Wapshare family. Naduvattam was the highest altitudinal estate, grew the best tea in the area and had a very good name in the London tea market. The appellant had previously offered to buy all the estates for Rs. 11 1/2 lakhs only. The Wapshares wanted the appellant to make an offer which would enable them to retain Naduvattam and at the same time to liquidate the bank's dues. At the insistence of the Wapshares, interviews were arranged at Calicut on November 4, and November 6, 1937, between Dorothy and Robert representing the Wapshares and Mr. Thorne representing the appellant. Mr. Thorne could not offer more than Rs. 10 lakhs for all the estates excluding Naduvattam. He told the Wapshares that they should accept the offer of Arbuthnot Lathem and Co. as they would get Rs. 14 lakhs by selling all the estates. The Wapshares were anxious to retain Naduvattam and were inclined to accept the appellant's offer. They took some time for consideration and at the same time asked the Arbuthnots for time till November 10 for consideration of their offer. On November 10, Dorothy sent a telegram to the appellant-company informing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and especially having regard to the long acquiescence, we hold that the transaction was just and fair and that the appellant did not gain any pecuniary advantage by availing themselves of their fiduciary character or under circumstances in which their interests were in conflict with those of the old company. In saying so we must not be understood to say that we encourage transactions of this type. Having regard to their fiduciary character the appellant-company might well have avoided entering into the transaction. The next question is with regard to limitation. The conveyances in favour of the new company were executed on January 14, 1939, and May 15, 1939. Simultaneously with the execution of the conveyances the new company entered into possession of the properties. Even before that date by January 10, 1938, the appellant-company had taken possession of the properties The suit was filed on December 21, 1950, when the Indian Limitation Act, 1908, was in force. The plaintiffs cannot claim relief on the ground of fraud and, consequently, article 95 has no application. Section 10 does not apply as the properties are not vested in the new company for the specific purpose of making t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issolution might possibly be set aside in a suit on the ground of fraud, but the plaintiffs failed to establish any fraud affecting the dissolution. The dissolution has put an end to the existence of the company. In these circumstances, the appellant contends that all the properties and the rights of the old company, if any, have vested in the Government by escheat or as bona vacantia and the plaintiffs cannot sue for the recovery of its properties. The plaintiffs dispute the right of the Government to take the properties by escheat or as bona vacantia, and they contend that on the dissolution of the old company, its assets have now vested in its shareholders. The common law of England recognises the right of the Crown to take property by escheat or as bona vacantia. Escheat proper was the lord's right of re-entry on real property held by a tenant dying intestate without lawful heirs. it was an incident of feudal tenure and was based on the want of a tenant to perform the feudal services : see Halsbury's Laws of England, volume 16, article 830. On the tenant dying intestate without leaving any lawful heirs his estate came to an end and the lord was in by his own right and not by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rightful owner". Section 174 of the Government of India Act, 1935, provided : "Subject as hereinafter provided, any property in India accruing to His Majesty by escheat or lapse, or as bona vacantia for want of a rightful owner, shall, if it is property situate in a Province, vest in His Majesty for the purposes of the Government of that Province, and shall in any other case vest in His Majesty for the purpose of the Government of the Federation". Article 296 of the Constitution now provides : "Subject as hereinafter provided, any property in the territory of India which, if this Constitution had not come into operation, would have accrued to His Majesty or, as the case may be, to the Ruler of an Indian State by escheat or lapse, or as bona vacantia for want of a rightful owner, shall, if it is property situate in a State, vest in such State, and shall, in any other case, vest in the Union". These enactments show that in this country the Government takes by escheat immovable as well as movable property for want of an heir or successor. In this country escheat is not based on artificial rules of common law and is not an incident of feudal tenure. It is an incident of sovereignt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is not a party and the assets cannot be restored to its coffers. On this ground in Coxon v. Gorst [1891] 2 Ch. 73, 78 an action by creditors for recovery of moneys due to the dissolved company was dismissed, and in In re Lewis & Smart Ltd. (supra) it was held that a pending misfeasance summons abated on the dissolution of the company. The plaintiff's contention that the properties of a dissolved company passed to its shareholders is based upon American law, which is stated in American Jurisprudence, 2d, Corporations, article 1659, thus : "Apart from statutory provisions which frequently embody the following rule also, the general equitable rule now followed in this country is that upon the dissolution of a corporation, the property and assets of the corporation constitute a trust fund for the benefit of its creditors and stockholders. This rule necessarily displaces and makes obsolete the early common law rule as to the reverter of real estate and the escheat of the personal estate of corporations in such a case, and practically makes obsolete the doctrine as to the extinguishment of the debts owing by and to the corporation in such cases. Stated in another way, the rule ..... X X X X Extracts X X X X X X X X Extracts X X X X
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