1969 (2) TMI 188 - HC - Indian Laws

State appeal dismissed, judgment upheld on shares issued for monopoly rights; State entitled to dividends till 31-3-1951.

State of Rajasthan Versus Bundi Electric Supply Co. Ltd.

State of Rajasthan Versus Bundi Electric Supply Co. Ltd. - AIR 1970 Raj 36 Issues Involved:1. Consideration for the issuance of 30,000 shares.2. Entitlement of the State to dividends and benefits on the shares.3. Application of Sections 56 and 65 of the Indian Contract Act.4. Nature of the instrument granting monopoly rights.5. Estoppel against the Company from denying dividends.Detailed Analysis:1. Consideration for the Issuance of 30,000 Shares:The primary issue was whether the 30,000 fully paid-up shares worth Rs. 3,00,000 were issued as consideration for the grant of monopoly rights or as the price of the goodwill of the Bundi Petrol and Automobile Supply Agency. The Court concluded that the shares were issued in consideration of the monopoly rights granted by the former State of Bundi. The Court examined the language of the license (Ex. 7) and other documents, including Council Resolution (Ex. 5), and found that the term 'goodwill' was used in a peculiar sense to denote monopoly rights. The Court also noted that the State did not plead or provide evidence that Rs. 3,00,000 was the price of the goodwill. The Court held that the consideration for issuing the shares was the monopoly rights and not the goodwill of the agency.2. Entitlement of the State to Dividends and Benefits on the Shares:The Court addressed whether the State was entitled to dividends on the 30,000 shares after the monopoly rights had ceased. It was held that the State was entitled to dividends and benefits on 30,000 shares only up to 31-3-1951, when the monopoly rights came to an end with the enforcement of the Motor Vehicles Act, 1939. The Court rejected the State's argument that the Company could not question the consideration for issuing the shares and was bound to pay dividends, citing a lack of legal provision preventing the Company from showing that the consideration had failed or become illusory.3. Application of Sections 56 and 65 of the Indian Contract Act:The Court discussed the applicability of Sections 56 and 65 of the Indian Contract Act. It was held that with the coming into force of the Motor Vehicles Act, 1939 in Rajasthan on 1-4-1951, the performance of the contract regarding the enjoyment of monopoly rights became impossible. Consequently, the State was bound to restore the advantage received under the contract. The Court cited the Supreme Court's interpretation that the word 'impossible' in Section 56 includes impracticability and uselessness from the point of view of the contract's purpose.4. Nature of the Instrument Granting Monopoly Rights:The Court examined whether the instrument (Ex. 7) granting monopoly rights was a law or a contract. It was concluded that the instrument was a contract and not a law, as it was based on the consensus of the parties and not a dictate of the Ruler. The Court referred to Supreme Court judgments distinguishing between agreements and laws, emphasizing that the agreement was intended to bind consensually and not by sovereign dictate.5. Estoppel Against the Company from Denying Dividends:The Court addressed the State's argument that the Company was estopped from denying dividends on the 30,000 shares. It was held that the principle of estoppel did not apply as the State was not a transferee or holder of shares without notice. The Court found no legal provision or rule of law that prevented the Company from showing that the consideration for issuing the shares had failed or become illusory.Conclusion:The appeal by the State was dismissed, and the judgment of the Senior Civil Judge was upheld. The Court affirmed that the 30,000 shares were issued in consideration of monopoly rights, and the State was entitled to dividends only up to 31-3-1951. The Court also held that the State was bound to restore the advantage received under the contract once the monopoly rights became void.