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TMI Blog1972 (3) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant claimed a paramount lien on the 2,295 shares owned by the Hungerford in the plaintiff-company. The defendant resisted the suit on various grounds. It denied that the plaintiff had paid the amounts shown in the plaint-schedule or it was liable to be reimbursed the payments made, if any. It also denied its liability to pay interest on the amounts that might have been paid. Further, it pleaded that the suit was barred by estoppel, waiver and acquiescence. It also pleaded the bar of limitation. In addition it pleaded that the lien claimed had been waived and that the suit was not properly instituted. According to the defendant, the suit was not a bona fide one. It was one of the manipulations of Haridas Mundhra to get at the defendants' 2,295 shares in the plaintiff-company without paying for them. The trial court dismissed the plaintiff's suit holding that the claim in question was barred by "estoppel, waiver or acquiescence". It held that it was also barred by limitation. It opined that the liability to pay the tax in question was the joint liability of Turner Morrison as well as Hugerford and the same having been discharged by the former, it had no claim on Hungerford. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... One is a deed of guarantee and indemnity. That was a tripartite agreement. The first party to that deed was Turner Morrison. The second party was John Geoffrey Turner and Nigel Frederick Turner and the third party was Hungerford. In that deed, after setting out the agreement between Hungerford and Mundhra, it was stated : "NOW THIS DEED WITNESSETH that in consideration of the liquidators having at the request of the Company (Turner Morrison) the said John Geoffrey Turner and Nigel Frederick Turner agreed (as is testified by their being parties to and executing these presents) to distribute the assets of Hungerford in specie amongst the contributories of Hungerford (such contributories being the said John Geoffrey Turner and Nigel Frederick Turner) and in consideration of the premises. 1. The company and the said John Geoffrey Turner and Nigel Frederick Turner hereby jointly and severally undertake to pay and/or satisfy all claims for or in respect of income-tax and super-tax which is or are not payable or recoverable or may at any time be payable or recoverable under the Indian Income-tax Act by or from Hungerford and which payments are in fact legally enforced and made. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that prayer and issued the injunction asked for. This led to serious consequences, some of which we have dealt with in our judgment in Civil Appeal No. 488 of 1971 which we have just now pronounced. This case appears to be an off shoot of that unfortunate injunction. In the suit for specific performance, though Turner Morrison was a party it did not plead that it had any lien over the shares with which we are concerned in this case. By agreement between Mundhra and Turner Morrison, the latter was removed from the array of defendants and the suit proceeded against the remaining defendants. After obtaining the decree for specific performance and the injunction mentioned above, Mundhra appears to have not been interested in purchasing the 51 per cent. shares by paying for the same evidently because he was in a position to have an absolute control over Turner Morrison as a result of the injunction issued. Though Hungerford filed an appeal against the dercee in that suit, that appeal was withdrawn for reasons which are not clear. After the withdrawal of the appeal, by a Master's summons dated August 30, 1965, Hungerford moved the trial court for fixing a time within which Mundhra sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shareholders of a company as a result of an order under section 23A, the company's liability to pay that tax is primary or secondary. It was contended on behalf of Hungerford that that liability is a joint liability of both the company's as well as that of the shareholders. But, according to the appellant, that liability is primarily that of the shareholders and if the company is compelled to discharge that liability, it is entitled to be reimbursed by its shareholders. Both the trial judge as well as the appellate Bench have upheld the contention of Hungerford and have come to the conclusion that when Turner Morrison paid the tax due from Hungerford, it was discharging its own liability under law and that being so, it was not entitled to seek reimbursement from Hungerford. Section 23A empowers the Income-tax Officer to order in writing if the conditions prescribed in that section are satisfied that the undistributed portion of the assessable income of a company earned in the previous year as computed for income-tax purposes and reduced by the amount of income-tax and super-tax payable by the company in respect thereof, shall be deemed to have been distributed as dividends a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d when the company paid tax in respect of the same, it must be held to have paid the same out of the dividends of the shareholders that remained in its hands. On the other hand, it was contended on behalf of Turner Morrison that any assessment made in pursuance of an order under section 23A is an assessment on the shareholders and not on the company. The dividends deemed to have been distributed under section 23A is considered to be the income of the shareholders and not that of the company. It is added on to the other income of the shareholde r for the purpose of assessment. It is recoverable from the shareholder. It is recoverable from the company only if it cannot be recovered from the shareholders and the company is deemed to be an assessee in respect of such sum for the purposes of Chapter VI only and not for all purposes. Further, the deemed distribution of dividends as a result of an order under section 23A is in no sense a real distribution of dividends which can be done only by the shareholders at the general meeting of the company. We do not propose to pronounce on this controversy, firstly, because this appeal can be decided on other grounds, and, secondly, for the reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rner Morrison as the agent of Hungerford. That averment has not been specifically. denied. In that view, we are not called upon to go into the various submissions noted above. Before going into the other contentions, we may briefly deal with the contention that the suit was not properly instituted. There appears to be basis for Hungerford's contention that this suit was inspired by Mundhra and Ardeshir Jivanji Hormasji, the secretary of Turner Morrison, who signed the plaint on behalf of Turner Morrison, was a mere tool in his hands. There is also reason to believe that when the directors of Turner Morrison ratified the action taken by Hormasji, they behaved in an irresponsible manner as seen earlier. But all the same it cannot be said, the suit is not maintainable. It is true that under the articles of association of Turner Morrison, a suit on behalf of that company has to be filed with the consent of the directors. But, the secretary of the company held a general power of attorney from the directors and the action taken by him was approved by the directors. Hence, there can be no valid objection to the maintainability of the suit. Three important questions remain to be consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a separate legal entity. It may be that Turner Morrison did not declare dividends so that Hungerford may avoid paying tax at a high rate. But, at the same time Hungerford would not have agreed for not distributing dividends unless Turner Morrison took over the responsibility of paying the tax on the dividends deemed to have been distributed. It is established that if dividends had been declared Hungerford would have got more than two and half times the tax paid on its behalf. The undistributed dividends were available to Turner Morrison to be utilised as working capital and thereby earn more profits. The arrangement regarding the non-distribution of dividends as well as the payment for the tax due from Hungerford by Turner Morrison must have been with the consent of Hungerford as well as of Turner brothers. Those arrangements had clearly benefited all the parties. Till Mundhra entered into the scene, there could not have been any conflict of interest between Hungerford and Turner Morrison. When Turner, Morrison paid the tax due from Hungerford, legal fiction apart, it was really paying from the monies belonging to Hungerford. If, for any reason, Turner Morrison had not underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral meeting. Those balance-sheets were approved by the general meeting. It was plainly admitted by the witnesses examined on behalf of Turner Morrison that the amounts paid on behalf of Hungerford were not considered as debts due from that company till about the time of filing the suit. In the general meeting of Turner Morrison held on March 29, 1956. the recommendation of the board of directors to transfer rupees 46 lakhs from the general reserve to a special reserve for the purpose mentioned earlier was approved. Thereafter Turner Morrison paid the tax due from Hungerford for the assessment year 1952-53 and debited the same to that special reserve. While Turner Morrison was keeping Hungerford informed of the assessments made on it and the refunds ordered, at no time it made any demand on Hungerford to reimburse the moneys paid. On several occasions Turner Morrison entered into agreements with the President of India undertaking to discharge the tax liabilities of Hungerford up to an agreed maximum. Turner Morrison was representing Hungerford in all the assessment proceedings. It used to file appeals on behalf of Hungerford against the orders of the Income-tax Officers. It had r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsuance of such arrangement one party makes a promise to the other which he knows will be acted on and which is in fact acted on by the promisee, the court will treat the promise as binding on the promisor to the extent that it will not allow him to act inconsistently with it even although the promise may not be supported by consideration in the strict sense. Therein the court divided the claim made in the suit into two categories one for the period prior to the end of 1945, and the other for the period thereafter. It disallowed the claim of the lessor in respect of the former and allowed the claim relating to the later period . The rule laid down in High Trees' case, again came up for consideration before the King's Bench in Combe. Therein, the court ruled that the principle stated in High Trees' case is that, where one party has, by his words or conduct, made to the other a promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it, the party who gave the promise or assurance cannot afterwards be allowed to revert to the previous legal relationship as if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt to set aside the order of the Textile Commissioner and the Government and to issue a direction to them to grant licences for an amount equal to 100% of the f.o.b. value of their exports. That prayer was resisted by the Government on various grounds, inter alia, that the Export Promotion Scheme was administrative in character, that it contained mere executive instructions issued by the government to the Textile Commissioner and created no enforceable rights in the exporters who exported their goods in pursuance of the Scheme and it imposed no obligation on the Government to issue import certificates. The High Court and later this court in appeal rejected that contention. This court held that the Government is not exempt from liability to carry out the representation made by it as to its future conduct. In arriving at that conclusion this court placed reliance on the decision of Denning J. in Robertson v. Minister of Pensions. Therein Denning J. was dealing with a case of serving army officer who wrote to the war office regarding a disability and received a reply that his disability had been accepted as attributable to, "military service". Relying on that assurance he forbore to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive to the attainment of the objects mentioned in the memorandum. When Turner Morrison paid the tax due from Hungerford in substance, though not in form, it was distributing a portion of its assets to the 100 per cent. shareholder of the company but without reducing its capital. Hence, we are unable to see how it can be said that Turner Morrison had acted ultra vires its powers. Mr. A. K. Sen, learned counsel for Turner Morrison, invited our attention to several decisions wherein the courts had taken the view that the actions taken by the companies concerned were ultra vires their powers. Those decisions were rendered on the facts of those cases. Whether a transaction entered into by a company can be said to be within its powers or not has to be decided on the basis of the facts established and the provisions in its memorandum and not on the basis of any abstract rule. The only other question that remains to be considered is whether the suit claim is barred by limitation even on the assumption that the claim is otherwise in order. For pronouncing on this question, it is first necessary to decide whether Turner Morrison had waived its lien over the shares held by Hungerford. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no claim against Hungerford because under the amended section 23A of the Income-tax Act, 1922, that liability was that of Turner Morrison itself. But, it was urged on behalf of Turner Morrison that in view of section 15(5) of the Limitation Act, 1963, the claim made leaving aside the claim made in respect of the assessment for the assessment year 1955-56 is not barred. Section 15(5) prescribes : " In computing the period of limitation for any suit the time during which the defendant has been absent from India and from the territories outside India under the administration of the Central Government shall be excluded." It was urged on behalf of Turner Morrison that Hungerford is a non-resident company. Therefore, it cannot be said that at any time it was present in India. Hence, the suit is not barred. If this argument is correct then there can be no period of limitation for filing a suit against a non-resident company--a proposition which is prima facie startling. Can we hold that section 15(5) applies to a suit of the type with which we are concerned ? That provision contemplates the case of a defendant who has been absent from India. That article presupposes that defendant w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... domiciles and two jurisdictions ; and in this case there are, as I conceive, two domiciles and a double sort of jurisdiction, one in Scotland and one in England ; and for the purpose of carrying on their business, one is just as much a domicile of the corporation as the other." The same view was expressed in that case by Warrington L.J. and Atkin L.J. A Division Bench of the Bombay High Court in Sayaji Rao Gaikwar of Baroda v. Madhavrao Raghunathrao dealing with the scope of section 13 of the Limitation Act, 1908, which is identical with the present section 15(5) held that section 13 must be read so as to avoid the obvious absurdity that arises if such corporate bodies are deemed to reside out of British India so that suits against them can never be barred at all. And this can be done by treating them as defendants, who by reason of their special character, are not absent from British India within the meaning of the section, because they have not got the same liberty as private individuals to reside personally in British India and attend to their affairs and they must do so through agents or representatives, Under those circumstances, they can be held to reside in British Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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