1972 (3) TMI 27 - SC - Income Tax

Appellate court upholds dismissal of Turner Morrison's suit citing promissory estoppel.

The appellate court upheld the trial court's decision to dismiss Turner Morrison's suit, citing estoppel based on promissory estoppel grounds. The court ... Whether the facts established in this case support the plea of estoppel put forward by Hungerford? Whether there was any waiver or abandonment as pleaded by Hungerford? Held that:- Section 15(5) of the Limitation Act, 1963, can be viewed in one of the two ways, i.e., that that provision does not apply to incorporated companies at all or alternatively that the incorporated companies must be held to reside in places where they carry on their activities and thus being present in all those places. Hungerford is an investment company. It had invested large sums of monies in Turner Morrison. Its board of directors used to meet in India now and then. It was (through its representatives) attending the general meeting of the shareholders of Turner Morrison. Under these circumstances, it must be held to have been residing in this country and consequently was not absent from this country. Hence, section 15(5) cannot afford any assistance to Turner Morrison to save the bar of limitation. For the reasons mentioned above, this appeal fails and it is dismissed Issues Involved:1. Estoppel, waiver, and acquiescence.2. Ultra vires actions.3. Limitation period for filing the suit.4. Proper institution of the suit.5. Lien over shares.Issue-wise Detailed Analysis:1. Estoppel, Waiver, and Acquiescence:The trial court dismissed Turner Morrison's suit, holding that the claim was barred by 'estoppel, waiver or acquiescence.' The appellate court upheld this finding. Turner Morrison had passed resolutions from 1941 to 1954 to discharge Hungerford's tax liability, which was within Hungerford's knowledge. The resolutions were acted upon, benefiting both parties. Hungerford refrained from enforcing its right to dividends based on these representations. The court held that Hungerford acted on these representations to its disadvantage, establishing a case of promissory estoppel. Turner Morrison was estopped from claiming reimbursement as the payments were considered made from Hungerford's monies.2. Ultra Vires Actions:Turner Morrison argued that the authority to discharge Hungerford's tax liabilities and the agreements entered into were ultra vires its powers. However, the court found that the actions were within the scope of Turner Morrison's memorandum of association. The non-distribution of dividends augmented the company's working capital, furthering its business interests. Clause 3(b) and sub-clauses (q), (x), and (z) of the memorandum supported the company's actions. The court concluded that Turner Morrison's actions were not ultra vires.3. Limitation Period for Filing the Suit:The suit was filed on November 15, 1965, and was governed by the Limitation Act, 1963. Article 23 of the Act prescribes a three-year period for suits 'for money payable to the plaintiff for money paid for the defendant.' The amounts claimed, except those for the assessment year 1955-56, were paid before November 15, 1962, and were thus barred by limitation. The claim for the assessment year 1955-56 was not valid as the liability was that of Turner Morrison itself. Section 15(5) of the Limitation Act, 1963, regarding the exclusion of time during which the defendant was absent from India, did not apply as Hungerford was considered to reside in India through its business activities.4. Proper Institution of the Suit:Hungerford contended that the suit was not properly instituted as it was inspired by Mundhra and the secretary of Turner Morrison, Hormasji, without the board of directors' sanction. However, the court found that the secretary held a general power of attorney from the directors, and the action was later approved by the board. Thus, the suit was maintainable.5. Lien Over Shares:Turner Morrison claimed a paramount lien on the 2,295 shares owned by Hungerford. The court found that Turner Morrison had waived its lien over the shares. Article 22 of the articles of association allowed for the waiver of the lien. Turner Morrison had registered the transfer of shares to Mundhra without objection and had not considered the tax payments as debts due from Hungerford until the suit was filed. The court concluded that Turner Morrison had waived its lien, and the only claim it could make was a money claim, which was barred by limitation.Conclusion:The appeal was dismissed. The court found no justification for the suit, which was engineered by Mundhra for ulterior purposes. The costs of both parties in the Supreme Court were directed to be borne by Hormasji, the secretary of Turner Morrison. The High Court's order regarding costs was upheld.