TaxTMI 
TaxTMI 
TaxTMI 
1962 (12) TMI 80
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....5, 1940 the joint Hindu Family of three branches was disrupted and the business of Kishori Lal & Sons was thereafter conducted as a partnership concern each branch having a third share therein. On March 23, 1941 a private limited company called the Karnal Distillery Company Ltd. was incorporated under the Indian Companies Act, 1913, and the business of Kishori Lal & Sons was taken over by that Company. Under the final allotment of shares made by the Company on August 1, 1941- 1005 shares were allotted to the branch of Durga Prasad, 1503 shares to Ladli Prasad and 1003 to Shanti Prasad. By the Articles of Association the maximum number of Directors was five and the maximum number was two. Ladli Prasad, SHanti Prasad and Suraj Mukhi were appointed as the first Directors of the Campany. Every year one-third of the Directors except the Managing Directors were to retire by rotation. Ladli Prasad was appointed Managing Director for ten years with the right to continue for another ten years unless a notice of fifteen days within eight years was given by a two-third majority at a special general meeting held for the purpose of terminating his appointment as Managing Director, and that two ....
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....2) Resolution dated February 20, 1945 pur- porting to remove Ladli Prasad from the Managing Directorship was cancelled. (3) Resignation of Ladli Prasad of his post as Managing Director was accepted, and he was appointed permanent Director and Chairman, and Madan Lal son of Durga Prasad was appointed Director in place of Suraj Mukhi who submitted her resignation. Shanti Prasad continued to be a Director of the Company. (4) The maximum number of Directors was fixed at three and the quorum of the Directors' meeting was also fixed at three. (5) Every decision submitted to a meeting of the Directors or members was to be deemed to be passed only if the decision thereon. be unanimous, and the proceedings recorded being signed by the Chairman of the Company and all the Directors or the members, as the case maybe, present at the meeting. (6) Shanti Prasad was appointed Manager for five years under the control of the Board of Directors. (7) Article 47 which gave power to a two- third majority to expel a member of the Company was deleted. (8) Each Director was to be paid ₹ 900/per month as remuneration and ₹ 25/- for each meeting of the Board of Directors attended.....
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....ssociation of the year 1941 (including Art. 47 which authorised the Company by a 2/3rd majority to expel any member) do stand restored. It was also resolved that Ladli Prasad be removed from the dire- ctorate and Chairmanship of the Company, and in his place Suraj Mukhi be appointed Director of the Company at a remuneration of ₹ 900/- per month; that Shanti Prasad be appointed Managing Director for ten years, such appointment not being liable to termination earlier by the members; and that Shanti Prasad do receive in addition to his remuneration as Director ₹ 1000/- per month as Managing Director, a travelling allowance of ₹ 30/- per day and a motor-car allowance of ₹ 200/- per month. Coming to know about these amendments, Ladli Prasad called upon Shanti Prasad and the other members of the Company to rescind the resolutions, and failing to induce them to comply with the requisition, he filed a petition on May 1, 1946 in the High Court of judicature at Lahore for an order for winding up the Company. An order for winding up the Company was passed by a single judge, but was set aside in appeal by the High Court of Lahore by its order dated January 19, 1956. O....
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....nts and were never attempted to be avoided by resort to a competent court, and even the allegation that they were improperly procured was made for the first time in the written statement in the suit before him, the plea of undue influence and coercion was not substantiated; and that the resolutions dated October 16, 1945, were not invalid. He further held that the resolutions passed at the Directors' meeting dated March 3, 1946, and at the extra-ordinary general meeting on March 28, 1946, were unauthorised and invalid; that by holding the meeting on March 28, 1946, in breach of the Articles of Association and the resolutions dated October 16, 1945, it was intended to play a fraud on Ladli Prasad by committing a clear breach of the contract; and that the matter agitated by the plaint did not relate to the internal management of the Company. The learned judge accordingly granted the relief claimed by the plaintiff for declaration and injunction. In appeal by the defendants, the District judge, Karnal held that Ladli Prasad was in a position to dominate, the will of defendants to 5 "who were in a helpless position, being hard hit by the lack of" adequate financial resou....
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....any, unless thereby the rights of the plaintiff Ladli Prasad, and the Company were adversely affected. Against this judgment an appeal was preferred by the defendants with leave under cl. 10 of the Letters Patent. In appeal the Division Bench of the High Court reversed the decree passed by Bishan Narain, J., and dismissed the suit filed by Ladli Prasad. In the view of the High Court Ladli Prasad as the elder brother of Shanti Prasad and uncle of Sajjan Lal and Madan Lal was in a position to dominate their will and availing himself of that position he obtained an unfair advantage over them and that the failure of Shanti Prasad to submit himself to examination before the Court in support of his case though improper could not be considered as fatal to a decision in favour of the defendants. They observed : "I feel convinced that Ladli Prasad was throughout in a position of commanding influence over his brother and younger nephews, and in consequence thereof, he benefited himself very substantially. This superiority and position of vantage that he occupied continued up to and even after the 16th October, 1945. Under the circumstances, it was for him to rebut the presumption that....
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....ions in the meetings dated March 3, 1946 and March 28, 1946 were not binding upon Ladli Prasad, but the claim made by Ladli Prasad for a permanent injunction could not be entertained because "equity declines to lend its aid to a person whose conduct has been inequitable in relation to the subject matter of the suit and that if the prayer of Ladli Prasad was granted, it would result in a deadlock and the Company's working and affairs would come to a stand still necessitating the winding up of the Company." They suggested that it was open to Ladli Prasad to seek relief available to him under s. 155 of the Indian Companies Act, 1956 and it was open to Ladli Prasad to invoke the powers of the Court or of the Central Government under the Indian Companies Act, if so advised, but the High Court would not, having regard to the apprehension of an immediate deadlock, be justified in issuing a permanent injunction claimed by him in the suit. With certificate of fitness granted by the High Court under Art. 133 (1) (a) of the Constitution this appeal is preferred. Two questions arise at the threshold in this appeal :- (1) Whether it was competent to the High Court to grant a ce....
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....hat in this case the decision of the Court immediately below the Division Bench was the decision of the District judge and not of Bishan Narain, J., this it is contended is so, because the expression 'court immediately below' used in the Constitution means 'court subordinate. and a single judge of the High Court not being a court subordinate to the Division Bench qua the Division Bench the District Court was the court immediately below. But the two expressions have not the same meaning. A court subordinate to the High Court is a court subject to the superintendence of the High Court. whereas a court immediately below is the court from whose decision the appeal has been filed. If the two expressions are equated, the right of appeal against the decree of the High Court sitting in appeal over the decision of a single judge exercising original jurisdiction would be severely restricted for in such an appeal whether the judgment is of affirmance or reversal -the High Court can certify a case under Art. 133 (1) cls. (a) & (b) only if the appeal involves a substantial question of law. The Attorney- General, however, concedes and in our judgment properly that there has been a lo....
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.... of appeal to the High Court from the judgment of a single judge exercising original civil jurisdiction. Similarly there is a right of appeal from a judgment of a single judge hearing a civil appeal where the judgment is not in an appeal from an appellate decree. But against the judgment of a single judge exercising powers in appeal from an appellate decree, an appeal under the Letters Patent only lies if the judge declares that the case is a fit one for appeal, and not otherwise. There is no warrant for making a distinction between an appeal filed against the judgment of a single judge exercising original jurisdiction and a judgment in exercise of appellate jurisdiction. There is nothing in the context to support the plea that the expression court immediately below' includes a judge of the High Court trying a proceeding in exercise of original jurisdiction, i. e. sitting as a court of first instance, but not a judge exercising appellate jurisdiction. The Constitution in cl. (1) (a) of Art. 133 has expressly referred to a 'court of first instance' in prescribing the condition relating to the value of the subject- matter and if it was intended that for the purpose of dec....
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....ivil Procedure itself as an appeal from an original decree. This, however, is not the case when the same Judge sits on the appellate side and- for the purposes of that appeal is the High Court in himself. Neither the Code of Civil Procedure nor the Punjab Courts Act contemplates an appeal to another Court from an order made in the High Court whether by one judge or more than one and consequently the same analogy cannot apply." The learned judge further observed: "I cannot reconcile myself to the position that a judge sitting alone can be characterised as a tribunal inferior to the Letters Patent Bench, merely because the Bench has power to modify or reverse his judgment. It is not with an idea of implying any Subordination of the Court of the Single judge to the Letters Patent Bench that such an appeal is provided for by Letters Patent, it is merely with a view to provide a further safeguard in the interests of the litigant that the domestic rules framed by the High Court permit a case to be heard by a judge sitting alone." Abdur Rahman, J., agreeing with Din Mohammad, J., observed "x x when a suit or proceeding is decided on the original side, it cannot but....
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....ly to the present applicant. On appeal to the High Court, a Single judge reversed the decree of the lower (1) (1915) I.L.R, 43 Cal. 90. Appellate Court. From this judgment of a Single judge there was an appeal to the High Court under clause 15 of the Charter with the result that the judgment of the Single judge was reversed by a Bench of two Judges. It will thus be seen that the first judgment of the High Court reversed the decree of the Court immediately below, but that this reversal was afterwards in effect cancelled with the result that the only effective judgment of the High Court affirmed. the decision of the Court immediately below (section 110, Civil Procedure Code)." The view appears prima facie to support the contention that in considering whether within the meaning of Art. 133 (1) of the Constitution judgment of the Court immediately below the High Court is affirmed, the judgment of the judge of the High Court trying the proceeding as a court of appellate jurisdiction must be ignored. Any expression of opinion by the eminent Chief Justice would always be considered with the great deference and respect. It must, however, be stated that the observations of the learn....
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....levant clause of the Letters Patent. Bishan Narain J., was, it is true, hearing an appeal from an appellate decree and his powers were restricted, for a second appeal lies to the High Court only on the following grounds, namely:- (a) the decision being contrary to law or to some usage having the force of law; (b) the decision having failed to determine some material issue of law or usage, having the force of law; (c) a substantial error or defect in the procedure provided by this Code or by any other law for the time being in force, which may possibly have produced error or defect in the decision of the case upon the merits. Whether a particular transaction was vitiated on the ground of undue influence is primarily a decision on a question of fact. In Satgur Prasad v. Har Narain Das (1932) L.R. 59 I.A. 147, the Privy Council held that in a suit to set aside a deed on the ground that it was procured by undue influence and fraud, the finding that it was so procured is a finding of fact and is not liable to be re-opened if fairly tried. Under the Civil Procedure Code, a second appeal does not lie to the High Court, except on the grounds- specified in the relevant provision of t....
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....er of use of the influence, and the unfair advantage obtained by the other. This rule has been evolved with a view to narrow the issue and protect the party charged with improper conduct from being taken by surprise. A plea of undue influence must, to serve that dual purpose, be precise and all necessary particulars in support of the plea must be embodied in the pleading : if the particulars stated in the pleading are not sufficient and specific the Court should, before proceeding with the trial of the suit, insist upon the particular, which give adequate notice -to the other side of the case intended to be set up. In Bharat Dharma Syndicate v. Harish Chandra (1917) 64 I.A. 146, the Privy Council emphasized the necessity of particulars in the following terms : Their Lordships desire to call attention to the great difficulty which is occasioned both to persons charged with fraud or other improper conduct, and to the tribunal which are called upon to 'decide such issues, if the litigant who prefers the charges is not compelled to place on record precise and specific details of those charges. In the present' case, the petitioner ought not to have been allowed to proceed wit....
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.... which too were dwindling fast" (4) "'Taking full advantage of his position and knowing fully well the resources of the defendants, the plaintiff succeeded in coercing the defendants in submitting to his dictations and virtually compelled them to pass these unconstitutional resolutions." It may be observed that though issue No. 1 raised a plea both of coercion and undue influence as vitiating the resolutions, no attempt was made to rest the right to relief on a case of coercion in the Courts below and in this Court. The first part of the case of the, defendants amounts to a plea that by the resolutions dated October 16, 1945that plaintiff acquired a position of domination over the affairs of the Company and over the defendants. What the second part means it is difficult to appreciate. The language used is somewhat extravagant : it is not the case of the defendants that they were compelled to agree to the resolutions by threats of physical violence. By the third part it is affirmed that the plaintiff unlawfully refused to part with the moneys, books and the assets of the Company and commenced litigation with the aid of the funds of the Company whereas the defen....
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....ovisions of section III of the Indian Evidence Act, 1872." The' doctrine of undue influence under the common law was evolved by the Courts in England for granting protection against transactions procured by the exercise of insidious forms of influence spiritual and temporal. The doctrine applies to acts of bounty as well as to other transactions in which one party exercising his position of dominance obtains an unfair advantage over another. The Indian enactment is founded substantially on the rules of English common law. The first sub-section of s. 16 lays down the principle in general terms. By subsection (2) a presumption arises that a person shall be deemed to be in a position to dominate the will of another if the conditions set out therein are fulfilled.' Sub-section (3) lays down the conditions for raising a rebuttable presumption that a transaction is procured by the exercise of undue influence. The reason for the rule in the third sub-section is that a person who has obtained an advantage over another by dominating his will, may also remain in a position to suppress the requisite evidence in support of the plea of undue influence. A transaction may be vitiate....
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.... plea of undue influence and coercion in relation to the resolution dated October 16, 1945, and we should have expected the defendants to open the case and lead evidence in support of their plea. But on December 11, 1950 after the second defendant Shanti Prasad produced a number of documents which he was summoned to produce, the plaintiff for some reason not apparent on the record opened the case. Counsel for the plaintiff stated that the plaintiff was at that stage to be examined only on the issue of which the onus lay upon the plaintiff and that the plaintiff would be examined in rebuttal after the defendants closed their case and that he will examine the remaining witnesses mentioned in his list in rebuttal. Manifestly at that stage the evidence of the plaintiff led expressly on issues other than the first issue of undue influence could not be 'directed to rebutting any presumption of undue influence, for there was before the Court no evidence proving the facts on the proof of which alone the presumption under sub-s. (3) of s. 16 may arise and the burden of proof shift. After the plaintiff I concluded his evidence on the issues on which the plaintiff offered to lead evidence....
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.... of ₹ 1800/- per mensem, a commission of 7 1/2% on the net profits of the Company and the car allowance of ₹ 350/- per mensem and an allowance of ₹ 30/- per day during tours together with a new car every third year for use, whereas the other directors were getting only ₹ 25O./- per mensem, and ₹ 25/- for every meeting of directors attended. Defendants 2 to 5 revolted against this disparity in the scale of, remuneration and by resolution dated February 20, 1945 removed Ladli Prasad from the -Managing Director-ship of' the Company. This step of the defendants led to litigation. Shanti Prasad claimed to enforce his rights under the resolution, and Ladli Prasad sought to retain possession asserting that the resolution was invalid. There were thereafter negotiations for settlement of the disputes, at which several near relations and employees of the Company were present, and certain terms of compromise were agreed upon pursuant to which in the meeting dated October 16, 1915 held at the residence of Ladli Prasad resolutions were passed, which had the effect of equalising the share holding of the three branches, and the remuneration drawn by them. Ladli P....
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....ointing Receiver passed by the Subordinate judge, Karnal was stayed by the High Court of Lahore, defendants 2 to 5 were not in a position to defend their rights because of lack of financial resources and the plaintiff took advantage of their helplessness and dictated terms' which were not fair; and that the plaintiff was interested in creating a deadlock and thereby to make large profits from his separate concerns-the jagatjit Distilling and Allied Industries. The District Judge inferred from these findings that the plaintiff Ladli Prasad was in a position to dominate the will of defendant-, 2 to 5, that he could exert undue influence upon them because "they were in a very wretched position being hard pressed by the lack money"; that the near relations of the family were present at the meeting to protect the interests of the family and they could not be expected to safeguard the interest of defendants 2 to 5; and that there was no evidence that defendants 2 to 5 received advice from any one else, or that they gave their consent to the compromise with free exercise of their volition. He held that the plaintiff got himself absolved from all liability to account for his ....
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.... by the defendants that as the eldest male member of the family, the plaintiff was in position to dominate the will of the defendants; nor was there evidence to show that he held any real or apparent authority over the defendants on that account. Admittedly on February 20, 1945 the defendants had by a resolution of the Company removed the plaintiff from the post of Managing Director. It is true that the plaintiff refused 'to accept the validity of that resolution, and declined to hand over management of the affairs of the Company to Shanti Prasad; but that does not establish that he was in a position to dominate the will of the defendants. Again the transaction cannot be called unconscionable. The Plaintiff Ladli Prasad was under the original appointment drawing an allowance exceeding ₹ 300/- per, month and held the largest single block of shares and Occupied the office of Managing Director. By the resolution his remuneration was reduced to ₹ 900/-, he was deprived of his office of Managing Director and his share holding was also reduced and made equal to that of the other branches of the family. It is true that he became Chairman of the Board of Directors, but on t....
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....ice of Manager of the Company, and it is common ground that the books of account were in his possession since that,date. The books were originally under the control of the plaintiff : since the resolutions they were with the defendants and the defendants have not led any evidence to show that in respect of his dealings for the period he was in management the plaintiff Ladli Prasad was liable to the Company. It cannot- in the circumstances be held that the High Court was bound by the findings recorded by the District judge. For reasons already mentioned the conclusion on the issue of undue influence. was based on allegations which were never pleaded and proved. Bishan Narain,J., was therefore right in holding that the findings of the District Judge travelled beyond the pleadings of the defendants, and "that besides the facts that the plaintiff is the eldest surviving brother and the High Court stayed the operation of the order appointing the Receivers, there is no evidence in support of the findings of the District Judge." On a review of the evidence, which Bishan Narain, J., was entitled in the circumstances to embark upon, he came to the conclusion that the defendants....
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....e disputes between Ladli Prasad on the one hand, and the other members had come to a head, and by the resolution dated February 20, 1945 Ladli Prasad was removed from his office of -Managing Director. This was an "open revolt" against whatever authority Ladli Prasad may have once possessed. Shanti Prasad filed a suit against Ladli Prasad to secure custody of the assets of the Company as Managing Director, and obtained an order for appointment of a Receiver of the assets. It would be a complete perversion of the true situation to hold in this case in the light of the circumstances that merely because Ladli Prasad was the eldest male member, lie was in 'loco parentis' qua defendants 2 to 5. It may be notice, that this ground that Ladli Prasad stood in the relation similar to that of a parent qua defendants 2, 4 and 5 was never pleaded by the defendants. The defendants were represented by their lawyers in the two suits which were filed since February 20, 1945 and it is difficult to accept that though litigating in Court in assertion of the rights claimed by them, they were so much under the influence of Ladli Prasad (who at the material time was only about 27 years o....
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....ted October 16, 1945 there is the evidence of Devi Prasad which may be briefly referred to: He has deposed that he was present at the meeting and that the compromise was arrived at by the free consent of the parties and no undue influence was exercised 'by any party on the other. The compromise talks had begun a week earlier, and the account books of the Karnal Distillery Company were produced at the time of the compromise, and the books were examined by defendants 2 to 5 and some objections raised during the talks of compromise were settled after seeing the books of account. The witness also produced a copy of the minutes of the meeting which had taken place at 10-30 A.M. on October 16, 1945 stating that the same were typed by him. There was substantially no cross-examination of this witness on the evidence given by him that the account books were examined during the negotiations for compromise. The finding of the High Court that the books of account were never examined and the plaintiff pursuaded the defendants to give him a complete discharge in respect of the liabilities incurred by him for his transactions was never pleaded in the written statement, though it was an import....