TaxTMI 
TaxTMI 
1969 (2) TMI 188
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....int filed by the State that the Company was registered under the Bundi Companies Act, 1936. It wanted to obtain a licence for monopoly of motor service within the territory of the former Bundi State and therefore it approached the then Ruler of Bundi for the said purpose and a licence was granted to the Company by the Ruler on 31-7-1944, a copy of which has been placed on the record and marked Exhibit 7. According to the State, one of the conditions contained in the licence was that the defendant Company would "take over the Bundi Petrol and Automobile Supply Agency (a commercial undertaking of the Bundi State) lock, stock and barrel and in lieu thereof pay a sum of Rs. 4,00,000 to the Bundi State". The case of the State is that the Company paid Rs. 1,00,000 in cash and agreed to issue 30,000 fully paid up ordinary shares of the face value of Bs. 10 each (total value of the shares being Bupees 3,00,000) in lieu of the balance of the price money i. e. Rs. 3,00,000. The Bundi State agreed to this proposal and the Company allotted 30,000 ordinary fully paid up shares. Besides the above mentioned 30,000 shares, Bundi State further acquired 11,600 ordinary fully paid up shares of Rs. 10....
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....e agency were worth about a lakh of rupees at that time, and therefore, Rs. 1,00,000 were paid as price of the agency and the rest of the amount i. e. Rs. 3,00,000 were to be paid in lieu of grant of monopoly rights to ply buses and lorries within the territory of the former Bundi State for a period of 30 years. It was stated by the Company "that these rights have been denominated as "goodwill rights" and the shares have been called as "goodwill shares" or money by the Bundi Government in their Order dated 10-1-1944 and in Clause No. 6 of the license Ex. 7. It was thus pleaded that out of Rs. 4,00,000 agreed to be paid by the Company to the former Bundi State Rs. 3,00,000 were paid by issue of 30,000 shares of Rs. 10 each in consideration of the aforesaid monopoly rights granted to the Company. It was, however, admitted by the Company that the dividends declared up till year 1950 only were paid to the State and the dividends claimed by the State in its suit have not been paid. With respect to these 30,000 shares, it was further pleaded that the price of these shares was agreed to be paid and adjusted by writing off Rs. 10,000 each year during the period 30 years for which monopoly ....
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....o witness was examined by the State. The learned Civil Judge disposed of both the suits by a common judgment dated 21-12-1959. Suit No. 9 of 1958 filed by the Company was dismissed in entirety while suit No. 7 of 1958 filed by the State has been decreed in part and the Company has been directed to pay Rs. 13,575 to the State as the balance or the dividends still unpaid, and Rs. 1399.13 as interest as also penclente lite and future interest on the principal amount at 3%. It has been declared that the State is entitled to receive in future dividends and all other benefits on 11,600 shares mentioned in Part B of the Schedule 1 attached to the plaint. It has also been declared that the State is entitled to dividend etc. on 7,223 shares only issued in lieu of monopoly, and it has further been directed that the Company shall allot 242 Bonus shares not so far allotted by it. A direction has also been issued to the Company to issue share certificates in respect of 1,882 Bonus Shares. The rest of the claim of the State has been dismissed. 6. The State alone has come in appeal to this Court and consequently we are no more concerned with the claim made by the Company in suit No. 9 of 1958 ....
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....ce of the Motor Vehicles Act, 1939, the State is not entitled to get any dividends or benefits on account of the said 30,000 shares? On a consideration of the various documents produced by the parties and the statement of Brijnarain, the learned Senior Civil Judge has come to the conclusion that out of the amount of Rs. 4,00,000 paid by the Company Rs. 1,00,000 was for the stock or the assets held by the Bundi Petrol and Automobile Supply Agency and the 30,000 fully paid up shares worth Rs. 3,00,000 were issued by the Company in favour of the fonner State of Bundi as a consideration for the grant of monopoly rights and not as a price for sale of good-will of the agency. The learned Senior Civil Judge also came to the conclusion that the State of Rajasthan which is the successor to the former State of Bundi was entitled to dividends, bonus and other benefits on account of 30,000 shares of the value of Rs. 3,00,000 at the rate of Rs. 10,000 per year commencing from 11-1-1944 to 31-3-1951 and not thereafter, when the monopoly rights granted to the Company came to an end, and the Company was not bound to declare or pay any dividend on those shares after 31-3-1951. 10. We shall, ther....
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....of the face value of Rs. 10 each share total value Rs. 3,00,000 towards the satisfaction of the balance of the above said claim. The Bundi State agreed to this proposal and the defendant company allotted 30,000 ordinary fully paid-up shares and issued the share certificates for the same. The relative share certificates bear the numbers, as shown in Part A of the Schedule I appended herewith," In reply to Para. No. 2 the Company in its written statement has pleaded inter alia as follows : "It is, however, not admitted that the purchase price of Rs. 4,00,000, as mentioned in this paragraph, was for the stocks alone held by the Bundi Darbar at that time, which were hardly worth about a lac of rupees at the relevant date. The rest of the purchase money i. e. Rs. 3,00,000 were for the grant of monopoly rights within the Bundi State territory to be enjoyed for a period of 30 years. These rights nave been denominated as goodwill rights and the shares have been called the goodwill shares, or money by the Bundi Government in their Order dated 10-1-1944 or in term No. 6 of the licence granted to the defendant company. The method of payment of these 3 lacs of rupees is clearly embodied ....
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....id was one and whole and indivisible. The consideration of Rs. 4 lacs was paid for the entire business lock, stock and barrel of the Bundi State concern, viz. 'Bundi Petrol and Automobile Supply Agency....." Issue No. 3 which is the only relevant issue on the point has been framed as below: "(3) Was the purchase price of Rs. 4,00,000 made up of Rs. 1,00,000 for the assets of the Bundi Petrol and Automobile Agency and Rs. 3 lacs for the amount of the monopoly rights or goodwill to be enjoyed for 30 years or was it for the assets alone?" While framing the issues the lower Court has observed that: "Issues have been framed with the consent of the parties. Issue No. 2 has been framed by me of my own accord. No other issue bas been suggested by any of them." 12. Learned counsel for the Company has urged that the only contention in this respect raised by the State was that the whole purchase price of Rs. 4,00,000 was for the assets alone and nothing was paid by the Company as consideration for the grant of monopoly rights to it. The use of the word 'goodwill' in issue No. 3, it is contended by Mr. Bhargava, was in the sense that the monopoly rights were denomina....
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.... provided that in the case of such termination the Bundi Darbar shall pay to the Company the value of all the then existing assets of the Company including the balance of the goodwill money then outstanding as shown in its books together with an additional sum calculated at 10% of such valuation as compensation for compulsory acquisition." 16. The Indian Contract Act does not define the word 'goodwill' but in its legal sense the word 'goodwill' means every affirmative advantage as contrasted with negative advantage that has been acquired in carrying on the business, whether connected with tie premises, or its name or style and everything connected with it. or carrying with it, the benefit of the business. It includes the whole advantage of the reputation, and connection of the firm or the owner, which may have been built up by years of hard work, or gained by lavish expenditure, beyond the mere value of the capital stock and property embarked in the business, in consequence of the general public patronage and encouragement, which is received from habitual or constant customers. It is that species of connection in trade, which induces customers to deal with a part....
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....9; separately. On the other hand the frame of Issue No. 3 shows that the case of the State was that the whole of the price of Rs. 4,00,000 was in lieu of the assets of the agency and nothing was paid for the grant of monopoly rights to the Company. We are, therefore, of opinion that there is no substance in the contention raised by the Advocate General that 30,000 fully paid up shares of the value of Rs. 3,00,000 had been issued by the Company in favour of the State as price of the goodwill' of the agency. We are firmly of the view that no separate price was fixed for the 'goodwill' of Bundi Petrol and Automobile Supply Agency to be charged from the Company even assuming that it possessed 'goodwill'. 19. The only question, therefore, which we have to determine is whether the whole of the purchase price of Rs. 4,00,000 was for the assets of the agency including the 'goodwill' if it had any, or the 30,000 fully paid up shares of the value of Rs. 3,00,000 were issued by the Company in favour of the former State of Bundi as consideration for the grant of monopoly rights to the Company by the then State of Bundi. 20. The learned Advocate General has arg....
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....llow the sub-paras (a) to (h). In sub-para (c) it is mentioned "that in consideration for and in lieu of the foregoing the Company shall pay to the Bundi State a lump sum of Rs. 4,00,000" i. e. the consideration for the payment of Rs. 4,00,000 is all that has preceded. The word "foregoing" is used in the sense 'what is previously mentioned' and therefore in the present case it would include the grant of monopoly rights to the Company which is mentioned in the main para (2) as well as sub-paras (a) and (b) also. The word 'foregoing' cannot be restricted to only what has been described in sub-para (c) and must be taken to refer not only to what is contained in the sub-para (c), but also to all that has preceded this sub-paragraph. We are, therefore, of opinion that the consideration of Rs. 4,00,000 was not only the price for taking over the Bundi Petrol and Automobile Supply Agency together with all its assets as mentioned in sub-para (c) but also the grant of monopoly rights by the former State of Bundi to the Company. In this connection it may be useful to make reference to Clause (6) of the agreement also. At one stage the learned Advocate General argued that Cl....
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....other disposition of property, have been reduced into the form of a document, no evidence can be given in terms of such contract, grant or other disposition of the property except the document itself. He has further submitted that Section 92 of the Evidence Act excludes evidence of any oral agreement between the parties to such document for the purpose of contradicting, varying, adding to, or subtracting from its terms. On the other hand the learned Counsel for the Company has relied upon proviso 6 to Section 92 which says that any fact may be proved which shows in what manner the language of a document is related to existing facts. He has also referred to Section 98 of the Evidence Act, according to which evidence may be given to show the meaning of illegible or not commonly intelligible characters, of foreign, obsolete, technical, local and provincial expressions, of abbreviations and of words used in a peculiar sense. He has argued that where the terms of the deed are ambiguous, the subsequent conduct of tha parties is admissible for the purpose of interpreting the deed. He submits that the word 'goodwill' used in Clause (6) of the agreement has been used in a peculia....
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....y rights and the expression "goodwill money' means nothing else but money paid for grant of monopoly rights. 28. Our conclusion in this respect is further fortified by the correspondence which passed between the Company and the State. In its letter dated 7-5-1953 a copy of which has been placed on the record and marked Ex. 12 the Company has written to the Government of Rajasthan that apart from 11,600 shares the Company had issued without any payment shares of Rs. 3,00,000 in consideration for the grant of transport monopoly for a period of 30 years. It is further mentioned in this letter that such amount of Rs. 3,00,000 was to be adjusted in 30 equal annual instalments so that at the end of monopoly period the Government may have owned shares of Rs. 3,00,000 as cash paid. In reply to this letter the Government vide its letter dated 3-6-1953 (Ex. 14) informed the Company "that the question or claim for compensation arising out of the abolition of the monopoly rights has to be treated separately from the dividend that has become due." It is remarkable that the State has not denied the assertion made by the Company in its letter Ex. 12 that shares of Rs. 3,00,000 were in cons....
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....mpany in lieu of the price of goodwill of the agency sold to the Company by the State. 30. In this connection we may also refer to Ex. A. 7 the 14th Annual Report of the Directors of the Company, along with profit and loss account and the balance sheet for the year ending 31st July, 1951. Among the Directors were, Major His Highness Mahara-wal of Bundi. who was the Chairman, and Shri Kesari Singh Mehta, Collector, Bundi, nominee of the State, and also Shri Mehtab Chand, Officer on Special Duty, Finance Department, Jaipur, nominee of the State. The report of the Chairman is in Hindi, and the third paragraph of the report when translated into English reads as under:-- "As you all know shares of the Company of the value of Rs. 3,00,000 were goodwill shares issued to the Government in lieu of monopoly rights. The monopoly rights have come to an end on 1-4-1951 and the Motor Vehicles Act has been applied to Rajasthan. In these circumstances in the opinion of your Directors goodwill shares stand cancelled and this matter is also under the consideration of the Rajasthan State. The Board of Directors of the Company have, therefore, resolved in its meeting on 28-2-1952 that no dividen....
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....goodwill of the agency, without there being anything on the record was considered to be worth thrice its visible assets, For this reason also, we are not prepared to accede to the submission of the learned Advocate General that the price of the goodwill of the agency was settled as Rs. 3,00,000. 32. Before we take leave of this topic we would also refer to the balance sheets of the Company which have been placed on the record from the year 1944 i.e. for the year ending on 31st July, 1945 upto the year ending on 31-3-1951. In the balance sheets of all the years upto the year ending on 31-7-1950 an amount of Rs. 10721/-/1 has been shown to have been written off as the goodwill amount in each year. However, from the year ending 31-7-1951, nothing is shown to have been written off in the goodwill account and Rs. 2,51,930 has been shown as assets and property under the head goodwill. This shows that upto the period the monopoly rights were enjoyed by the Company i.e. upto the date of coming into force of the Motor Vehicles Act, 1939 on 1-4-1951, the goodwill amount was being written off as envisaged by Clause (e) of the Council Resolution (Ex. 5), and thereafter nothing was written o....
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....ns cannot be treated as law irrespective of the nature or character of the order passed. In the words of their Lordships: "From this point of view there is a valid distinction between a particular agreement between two or more parties even if one of the parties is the Sovereign Ruler, and the law relating generally to agreements. The former rests on consensus of mind, and the latter expresses the will of the Sovereign. If one bears in mind this distinction, it seems clear enough that the agreement of April 17, 1941 even though sanctioned by the Ruler and purporting to be on his behalf, rests really on consent. This view was further affirmed by their Lordships of the Supreme Court in a subsequent case Bengal Nagpur Cotton Mills Ltd. v. Board of Revenue M. P., AIR 1964 SC 888. 35. In the case in hand, it is plain that an agreement of the Ruler of the former State of Bundi was expressed in the shape of a contract which was signed by Shri Brij-narain on behalf of the Bundi Electric Supply Company and by the then Ruler of the Bundi Stale, Ishwari Singhji, G. C. I. E. Maharao Raja of Bundi and was attested by one Shri Kedarmal Accountant General, Bundi State. It is plain that su....
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....bility to point out any such provision in the Company Law. But in support of his argument he placed reliance on paras 517 and 518 at pages 246 and 247 in Halsbury's Laws of England, Third Edition, Volume 6. Under the head 'Effect of share certificate', it has been observed by the author that a certificate under the common seal of the Company specifying any shares held by any member is prima facie evidence of the title of the Member to the shares. The certificate is the only documentary evidence of title in the possession of a snare-holder. It is not a negotiable instrument or a warranty of title by the Company issuing it. It declares to all the world that the person who is named in it is the registered holder of certain shares in the Company. Further on in para 518 under the Head 'Estoppel' it is mentioned that the Company is estopped from disputing the truth of any statement in a share certificate as against any person not knowing that the statement is untrue, who has acted or refrained from acting on the faith of and has thereby suffered loss. The ratio decidendi or all the cases cited by Lord Hals-bury under the head of 'Estoppel' is that a Company is....
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....cede to the contention of the learned Advocate General that the nominal or face value of the shares is conclusive, and that the Company cannot under any circumstances show that the consideration for the issue of shares had failed or that the transaction of particular shares had become illusory or inoperative. 42. This brings us to the last contention raised on behalf of the State that even though the monopoly rights granted to the Company came to an end on 1-4-1951 the State is not liable to restore any benefits or advantage to the Company under Section 56 or 65 of the Indian Contract Act or under any other provision of law. 43. The learned Advocate Geneial has argued that neither Section 56 or Section 65 of the Indian Contract Act would apply in the present case inasmuch as the act of the former Bundi State for granting monopoly rights to the Company was not impossible in itself nor it became impossible after the contract had been made and therefore Section 56 has no application, and consequently Section 65 also cannot apply as the agreement was neither discovered to be void nor became void. The contention raised by the learned Advocate General stands fully answered by their....