Pierce Leslie & Co. Ltd. Vs.
Violet Ouchterlony Wapshare & Ors [1968] INSC 323 (20 December 1968)
20/12/1968 BACHAWAT, R.S.
BACHAWAT, R.S.
SIKRI, S.M.
HEGDE, K.S.
CITATION: 1969 AIR 843 1969 SCR (3) 203
CITATOR INFO :
F 1980 SC 575 (7) F 1990 SC 10 (5)
ACT:
Trust-Company acting as secretary of another
company-if brings about fiduciary relationship between them-Secretary company
buying assets of the main company and flouting a new Company-If fraudulent
transaction-old company dissolved-Suit by shareholders of old company to set
aside transactionLimitation-Suit it maintainable by share holders Escheat-If
properties vest in Government by escheat.
HEADNOTE:
One W owned several tea, coffee and other.
plantations. In 1927, he formed a limited company and conveyed his estates to
the company. All the shares of the company were held by him and the members of
his family. The company borrowed Rs. 10 1/2 lakhs from the Imperial Bank of
India 'against the issue of debentures secured by an English mortgage. The loan
was repayable on March 15, 1937. In default of payment within November 15, 1937
the trustee under the debenture trust deed was authorised to enter into
possession of the estates and sell them. The appellant-company was appointed as
the secretary of the company.
Since 1931, the family was keen on selling
the estates, but none of the offers materialised. In 1936, there was a slump in
tea and coffee prices and there was a possibility of a further slump. The Bank
was pressing for the payment of its dues and the company was not in a position
to liquidate the debt without selling the estates. The family 'tried
unsuccessfully to raise loans. In the beginning of November 1937, the family
had a firm offer from A.L. & Co. for the purchase of all the estates for
Rs. 14 lakhs, but the family was anxious to retain one of them. The
appellant-company offered Rs. 10 lakhs for all the estates excluding the estate
which the family wanted to retain. The family knew that this estate, if sold
separately, would not fetch more, than Rs. 2 lakhs and yet they chose to retain
it and to accept the appellant's offer. At a meeting all the shareholders
(members of the family) unanimously accepted the, proposal. There all sui juris
and had business acumen.
They knew the value of he properties and
accepted Rs. 10 lakhs as a just and fair price. The offer enabled them to
retain the estate which they wanted to retain and at the same time enabled them
to liquidate the Bank's dues. They had legal advice and the documents were in
proper legal form. The meeting was also attended by the chairman of the company
and the director nominated by the Imperial Bank.
After the transfer, the company went into
voluntary liquidation and it stood dissolved on March 1, 1940, under s. 209 H
of the Companies Act, 1913. The appellant took possession of the properties on
January 10, 1938 and promoted a new company to which the properties were
transferred by conveyances dated January 14, 1939 and May 15, 1939 50 % of the
shares of the new company were held by the appellant-company which managed and
controlled the new company. The members of the family made no complaint about
'the transaction for 12 years, but, on December 21, 1950, they instituted a
suit against the appellant and others alleging that the old company had not
been wound up in accordance with law and was still in existence, that the old
company was the real owner of the properties and the new company held them in
trust for the old 204 company, that the appellant took advantage of its
fiduciary capacity and gained pecuniary advantage and that the various sales
and conveyances were vitiated by fraud, and prayed for 'a decree vesting or
retransferring the properties to the old company or the family.
The trial court dismissed the suit, but the
appeal to the High Court was allowed in part.
In appeal to this Court, on the, questions :
(1) (a) Whether there was a fiduciary relationship between the appellant and
the old company, and (b) Whether the appellant gained a pecuniary advantage by
availing itself of the fiduciary character; (2) Whether the suit was barred by
limitation;
and (3) Whether the members of the family as
shareholders of the old company were entitled to maintain the suit,
HELD : (1) (a) The appellant company was the
secretary of the old company, was in charge of its correspondence and accounts
and was actively engaged in assisting it and its share-holders in selling the
estates. In the course of such employment it acquired intimate knowledge of the
income, prospects and market value of the properties. Therefore, the appellant
stood in a fiduciary relationship towards the old company and was bound to
protect its interests. Having regard to its fiduciary character, the appellant
should have avoided entering into the transaction. [209 B-D; 211 D] (b) But,
there is no rule, which incapacitates a trustee from dealing with a cestuique
trust, provided there was no fraud and no advantage was taken by the trustee of
any information acquired by him in the character of a trustee.
The onus, however, is upon the trustee to
establish affirmatively that the transaction was righteous and that he did not
gain any pecuniary advantage by availing himself of his fiduciary character. in
the present case, the appellant had discharged this difficult onus. The transaction
was just and fair and the appellant did not gain any pecuniary advantage by
availing itself of its fiduciary character, nor was there any conflict between
its own interests and those of the old company. , No advantage was taken by the
appellant of any information acquired by it in its character as secretary and,
the circumstances ,how that there was no fraud, no concealment and no undue
influence. The long acquiescence of the members of the family in the sale is
also evidence that the transaction was fair in all respects.
[208 F. 209 E; 211 E-D] Coles v. Trecothick,
9 Ves. Jun. 234, 247; 32 E.R., 592, 597 and Parks v. White, 11 Ves. Jun. 209,
226; 32 E.R., 1068, 1074, applied (2) The suit was barred by limitation. [212
D] A suit by a beneficiary, claiming recovery of possession from the trustee is
governed by Art. 120 of the Limitation Act, 1908. The plaintiffs had not
established fraud and consequently Art. 95 of the Limitation Act has no
application. Section 10 of the Act also does not apply, because, the properties
were not vested in the new company for the specific purpose of making them over
to the old company or to the plaintiffs. In the plaint there was no prayer for
recovery of possession. The old company could not ask for recovery of the properties
until they obtained a reconveyance from the new company. The suit is not therefore
governed by Art. 144 of the Limitation Act and since the' period under Art. 120
is 6 years from the date of cause of action and the cause of action in the
present case arose in 1939 when the conveyances were executed, the suit was
barred. [211 F-H] 205 Rani Chhatra Kumari Devi v. Prince Mohan Bikram Shah,
L.R.
58 I.A. 279, applied.
(3) The plaintiffs were not entitled to
maintain the suit.
[216 C] As the plaintiffs failed to establish
any fraud affecting the dissolution of the company, the dissolution has put an,
end to its existence. On the dissolution of the company, its properties, if
any, Vested in the Government The right of the Government to take by escheat
for want of an heir or successor or as bona vacantia for want of a rightful
owner has been recognised in our country. The various Government of India Acts
and the Constitution show that the Government takes by escheat immovable as
well as movable property for want of an heir or successor. It is an incident of
sovereignty and rests on the principle of ultimate ownership by the State of
all property within its jurisdiction.
Unlike the law in the United States, winding
up 'under the Indian Law precedes dissolution and there is no statutory
provision vesting the properties of a dissolved company in a trustee or having
the effect of abrogating the law of escheat. The shareholders or creditors of a
dissolved company cannot be regarded as its heirs or successors.
Therefore, the Government took by escheat or
as bona vacantia all properties of a company dissolved under the, Indian
Companies Act,. 1913, except in so far as its right was cut down by that Act.
Accordingly, the shareholders or creditors of the dissolved company cannot
maintain arty action for recovery of its assets As the company was not a party
and the assets could not be restored to its coffers, no effective relief could
be given in such an action. [212 F; 213 D-E; 214 C-D, F; 215 B-C; 216 A-B] Collector
of Masulipatam v. C. Vencata Narainapah, 8 M.I.A.
500, 525, in re. Wells 1933 1 Ch.D. 29, 49,
Coxon v.Gorst, [1891] 2 Ch. 73 and In re. Lewis and Smart Ltd. (1954) 1 W.L.R.
755, applied.
Bombay Deying and Manufacturing Co. v. State
of Bombay, [1958] S.C.R. 1122, 1146 and Legal Remembrancer v.
Corporation of Calcutta, [1967] 2 S.C.R. 170,
204, followed.
In re. U. N. Mandal's Estate, A.I.R. 1959
Cal. 493, 498, approved.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 1174 of 1965 and 1935 of 1966.
Appeals from the judgment and decree dated
October .14, 1959 of the Madras High Court in Appeal No. 471 of 1955.
H. R. Gokhale, P. S. Padmanaban and D. N.
Gupta, for the appellant (in C.A. No. 1174 of 1965) and respondent No. 1 (in
C.A. No. 1935 of 1966).
V. P. Raman, Shyamala Pappu, Vineet Kumar,
P.S. khera and R. Nagaratnam, for the appellants (in C.A. No.1935 of 1966) and
respondents Nos. 1 to 4 (in C.A. No. 1174of 1965).
C.B. Agarwala and R. Gopalakrishnan, for
respondent No.
12 (in C.A. No. 1935 of 1966).
206 The Judgment of the Court was delivered
by Bachawat, J. One James Henry Wapshare owned several estates including
Naduvattam in the Nilgiris known as the Ouchterlony Valley Estates, having tea,
coffee, cardamom and cinchona plantations. He lived in Naduvattam and
Ootacamund with his wife Nellie, daughters Violet and Dorothy and sons James
and Edward. In 1927 he formed a limited company known as the Ouchterlony Valley
Estates limited,having a share capital of Rs. 15 lakhs and conveyed the estates
to the company. All the shares of this company, sometimes referred to as the
"old company" were held by him and the members of his family. The
company borrowed Rs. 10 1/2 lakhs from the Imperial Bank of India against the
issue of debentures. The loan was secured by a mortgage of the estates under a
debenture trust deed dated May 13, 1927 and was repayable on May 15, 1937. In
default of payment within November 15, 1937 the trustee under the debenture
trust deed was authorised to enter into possession of the estates and sell
them. By an agreement dated August 16, 1936 Peirce Leslie & Co. Ltd.,
referred to as the appellant company, was appointed as the secretary of the old
company. On April 15, 1937 the old company was served with a notice. that in
default of payment of the loan within November 15, 1937 the trustee for the
debenture holders would take possession of the estates and sell them. On May
18, 1937 James Henry Wapshare died leaving behind him his widow and his sons
and daughters. In November 1937 after prolonged negotiations between the
Wapshares and the appellant company it was settled that the company would
purchase all the estates except Naduvattam for Rs. 10 lakhs. On December 29,
1937 formal agreements were executed providing that the old company would
convey to the appellant company all the estates except Naduvattam for Rs.
10 1/2 lakhs and the appellant company would
convey Naduvattam to Mrs. Nellie Wapshare for Rs. 50,000 and would at the same
time advance Rs. 50,000 on the hypothecation of Naduvattam crops. By January
10, 1938 the appellant company paid the entire purchase price and took
possession of the estates and the entire dues of the Imperial Bank of India
were liquidated. On March 30, 1938 the old company passed a special resolution
for its voluntary winding up and appointed Capt. F. Murcutt as its liquidator.
The appellant company promoted a new company known as Ouchterlony Valley
Estates Ltd., for the purpose of acquiring the' estates. The new company was
incorporated on September 5, 1938. Fifty per cent of its shares were held, by
the appellant company. Formal conveyances of the Naduvattam estate in favour of
Mrs. Nellie Wapshare and of the other estates in favour of the new company were
executed by the old company between January and May 1939. On the execution of
the con207 veyances the new company entered into possession of the estates
conveyed to them., As soon as the affairs of the old company were wound. up the
liquidator made ,up the final accounts of tile winding up and called the final
meetings of the company and its creditors. On or about November 29, 1939 a copy
'of the final accounts and the return of the holding of the meetings were filed
with the registrar of joint stock companies and were registered under's. 209H
of the Indian Companies Act, 1913. In view of S. 209H(4), the old company stood
dissolved with effect from March 1, 1940.
On December 21, 1950 Mrs. Nellie, Violet,
Dorothy, James and Edward Wapshares instituted the present suit against the
appellant company, impleading the appellant company as defendant No. 1, 12
persons said to be its directors and officials as defendants 2 to 13, Capt.
F.A. Murcutt as defendant No. 14, the new company as defendant No. 15 and the
old company as defendant No. 16. The plaintiffs prayed for a decree declaring
that the old company had not been wound up in accordance with law and was still
in existence as a corporate personality, a declaration that the old company was
the real owner of the aforesaid properties and the new company held them in
trust for the old company, a decree vesting or re-transferring the properties
to the old company and alternatively to the plaintiffs and accounts.
The plaintiffs alleged that the appellant
company as the secretary and manager of the old company was bound in a
fiduciary character to protect its interest and by availing itself of this
character gained pecuniary advantage by purchase of the properties from the old
company in 1939, that the agreement for sale and conveyances in respect thereof
were induced by fraud, fraudulent concealment, misrepresentation, undue
influence an improper means, that the new company was controlled by the
appellants that all the defendants were privy to the fraud, that the winding up
of the old company was procured by the defendants fraudulently,, that the
plaintiffs discovered the fraud in September 1949, and the-plaintiffs were the
only shareholders of the old company and as such were entitled to maintain the
suit. Defendants 4, 11 and 14 died during the pendency of the suit. The defunct
old company impleaded as defendant No. 16 did not appear but the other
defendants contested the suit. The Subordinate Judge, the Nilgiris, Ootacamund,
dismissed the suit., He held that (1) there was no fiduciary relationship
between the appellant and the old company; (2) the impugned agreements and
conveyances were not induced by fraud, fraudulent concealment, undue influence
or improper means and were valid and binding on the old company and the
plaintiffs; (3) the suit was barred by limitation; (4) the old company was
dissolved in ,accordance with law and was not in existence and (5) the
plaintiffs had no locus standi to maintain the suit . The plaintiffs filed an
appeal from the decree. The Madras High Court allowed 208 the appeal in part and
passed a decree asking the appellant to pay to the plaintiffs Rs 1,50,000. The
High Court held that (1) there was a fiduciary relationship between the
appellant and the old company, (2) the appellant by availing itself of its
fiduciary character gained a pecuniary advantage of Rs. 1,50,000 and to the
extent of this unjust 'enrichment was bound to reimburse the plaintiffs; (3)
the suit was not barred by limitation and (4). in spite of the dissolution of
the old company the plaintiffs were entitled to maintain the suit. Aggrieved by
this decree the appellant company filed C.A. No. 1174 of 1965 and the Wapshares
have filed the cross-appeal C.A. No. 1935 of 1966 on the strength of
certificates granted by the High Court under Act. 133(1)(c) of the Constitution.
The following three questions arise in these
appeals (1) was there a fiduciary relationship between the appellant and the
old company and if so, did the appellant company by availing themselves of this
fiduciary character gain a pecuniary advantage of Rs. 1,50,000.
(2) is the suit barred by limitation; and (3)
are the plaintiffs as shareholders of the old company entitled to maintain the
suit.
It is a settled rule of equity that any
person bound in a fiduciary character to protect the interests of another
person should not put himself in a position where his interest and duty
conflict. If by availing himself of his fiduciary character or by entering into
any dealings under circumstances in which his interests are ,or may be adverse
to those of such other person he gains for himself a pecuniary advantage, he
must hold for the benefit of such other person the advantage so gained, see
Trusts Act,s.88.
But there is no rule which incapacitates a
trustee from dealing with a cestui que trust. In Coles v. Trecothick(1) Lord
Eldon said :-"a trustee may buy from the cestui que trust, provided 'there
is 'a distinct and clear contract, ascertained to be such after a jealous and
scrupulous examination of all the circumstances, proving, that the cestui que
trust intended, the trustee should buy; and there is no fraud, no concealment,
no advantage taken, by 'the trustee of information acquired by him in the
character of 'trustee. I admit, it is a difficult case to make out, wherever it
is contended that the exception prevails." As stated in Kerr on ,Fraud and
Mistake, 6th Ed. page 192 "Thus a trustee for sale may purchase the trust
estate, if the cestui que trust fully and clearly understands with whom he is
dealing and makes no objection to the transaction, and the trustee fairly and
honestly (1) 9 Ves.June.234,247;32E.R.592,597.
209 discloses all that he knows respecting
the property and gives a just and fair price, and does not seek to secure
surreptitiously any advantage for himself. The onus however, rests upon the
trustee, and he is bound to produce clear affirmative proof that the parties
were at arms' length, that the cestui que trust had the fullest information
upon all material facts, and that having this information he agreed to and
adopted what was done." The appellant company was the secretary of the old
company, was in charge of its correspondence and accounts and was actively
engaged in assisting it and its shareholders in selling the estates. In course
of its employment the appellant acquired intimate knowledge of the income,
prospects and the market value of the properties. We agree with the High Court
that the appellant stood in a fiduciary relationship towards the old company
and was bound to protect its interests. The appellant entered into an agreement
with the old company for the purchase of the properties. It promoted the new
company to which the properties were subsequently conveyed. Fifty per cent of
the shares of the new company were held by the appellant company and the new
company was managed and controlled by it. The onus is upon the appellant
company to establish affirmatively that the transaction was righteous and that
it did not gain any pecuniary advantage by availing itself of its fiduciary
character. We are inclined to think that the appellant company has discharged
this difficult burden of proof.
Since 1931 the Wapshares were keen on selling
the estates.
From time to time there were offers from
intending buyers but none of them materialized. In 1936 there was a 'slump in
tea and coffee prices. There was a possibility that the tea restriction scheme
would be abolished and there would be a further slump in tea prices. The old
company was indebted to the Imperial Bank of India for Rs. 10 1/2 lakhsagainst
the issue of debentures secured by an English mortgage over all the estates.
The Bank was pressing for the payment of its dues. There was every likelihood
that in default of payment by November 15, 1937 the trustee for the debenture
holders would enter into possession of the estates and sell hem without
intervention of court. The old company was not in a position to liquidate the
debt without selling the estates, In April 1937 M/s. Kuruvilla Bros. agreed to
purchase the properties. On May 18, 1937 James Henry Wapshare died. In July
1937 the deal with Kuruvilla Bros.
fell through. The Wapshares and the old
company tried their best to raise loans and for that purpose issued
advertisements and contacted several banks and insurance companies but they
were unable to raise any loan. In the beginning of November 1937, 210 the
Wapshares had before I them a firm offer from Arbuthnot Lathem & Co. for
purchase of the estates for Rs. 14 lakhs.
But the Wapshares were not willing to sell
Naduvattam. The bungalow at Naduvattam was the home of the Wapshare family.
Naduvattam was the highest altitudinal
estate, grew the best tea in the area and had a very good name in the London
tea market. The appellant had previously offered to buy all the estates, for
Rs. 111/2 lakhs only. The Wapshares wanted the appellant to make an offer which
would enable them to retain Naduvattam and at the same time to liquidate the
Bank's dues. At the insistence of the Wapshares interviews were arranged at
Calicut on November 4, and November 6, 1937 between Dorothy and Robert representing
the Wapshares and Mr. Thorne representing the appellant. Mr. Thome could not
offer more than Rs. 10 lakhs for all the estates excluding Naduvattam. He told
the Wapshares that they should accept the, offer of Arbuthnot Lathem & Co.
as they would get Rs.
14 lakhs by selling all the estates. The
Wapshares were anxious to retain Naduvattam and were inclined to accept the
appellant's offer. They took some time for consideration and at the same time
asked the Arbuthnots for time till, November 10, for consideration of their
offer. On November 10, Dorothy sent a telegram to the appellant company
informing them that the family was agreeable to their new proposal. The draft
agreement was sent by the appellant on November II. In the beginning of
November Mrs. Wapshare was ill and was in a hospital in Bangalore. But on
November 10, she was well enough to discuss the appellant's proposal. On
November 12, she came to Ootacamund and on November 13 she went to her lawyer
Gonsalves, discussed the matter, with him and gave her consent. Gonsalves was
approached to put the bargain in a legal form. He took exception to the draft
agreement, but found the formal agreements to be free from blemish. At a
meeting held on November 18, 1937 the shareholders of the company unanimously
accepted the proposal. Mrs. Wapshare, Dorothy, Robert and Edward were present
at the meeting. The meeting was also attended by E.W. Simcock, chairman of the
company, H. M. Small, the director, nominated by the Imperial Bank of India and
C. K.
Pittock. All the Wapshare's were sui juris'
Dorothy was a shrewd young lady and the best business brain in the family.
The Wapshares knew the value of the
properties intimately.
They knew that Naduvattam if sold separately
would not fetch more than Rs. 2 lakhs. Yet they chose to retain Naduvattam and
sell their estates for Rs. 10 lakhs instead of selling all the estates for Rs.
14 lakhs. The reason was that there was no other, buyer willing to pay more
than Rs. 10 lakhs for the other estates. They had decided not to sell
Naduvattam and they were satisfied that ft. 10 lakhs was a just and fair price
for the other estates sold separately from Naduvattam. The appellant's offer
enabled them 211 to keep Naduvattam and at the same time to liquidate the
Bank's dues. The deal was satisfactory tothem in every way. They obtained all
necessary legal advice. The documents were in proper legal form. There was no
fraud, no concealment and no undue influence. No advantage was taken by the_
appellant of any information acquired by them in their character as secretary.
The Wapshares clearly understood that they were, dealing with the appellant
company, had the fullest information about all material, facts and that having
this information they agreed to sell.
They made no complaint about it for 12 years.
Their long acquiescence 'in the sale is evidence that the transaction was fair
in all respects, see Parks v. White(1).
On the whole and especially having regard to
the long acquiescence we hold that the transaction was just and fair and that
the appellant did not gain any pecuniary advantage by availing themselves of
their fiduciary character or under 'circumstances in which their interests were
in conflict with those of the old company. In saying so we must not be
understood to say that we encourage transactions of this type. Having regard to
their fiduciary character the appellant company might well have avoided
entering into the transaction.
The next question is with regard to
limitation. The conveyances in favour of the new company were executed on
January 14, 1939 and May 15, 1939. Simultaneously with the execution of the
conveyances the new company entered into possession of the properties. Even
before that date by January 10, 1938 the appellant company had taken possession
of the properties. The suit was filed on December 21, 1950 when the Indian
Limitation Act, 1908 was in force. The plaintiffs cannot claim relief on the
ground of fraud and consequently Art. 95, has no application. Section 10 does
not apply as the properties are not vested in the new company for the specific
purpose of making them over to the old company or to the plaintiffs. Article
144 does not apply for several reasons. In the plaint there is no prayer for
recovery of possession. The plaintiffs claim declaratory reliefs, a decree
vesting or re-transferring the properties to the old company or to the
plaintiffs and accounts. Such a suit is governed by Art. 120. The High Court
passed a decree for money and not for recovery of immovable properties. A suit
for such a relief would be governed by Art. 1 20. Even if the suit is treated
as one for recovery of possession of the properties it would be governed by
Art. 120 and not by Art. 144. The old company could not ask for recovery of the
properties until they obtained a reconveyance from the new company'. The cause
of action for this relief arose in 1939 when the properties were 11 Ves. June..
209,226;32 E.R. 1068,1074.
212 conveyed to the new company. A suit for
this relief was barred under Art. 120 on the expiry of six years. After the
expiry this period the old company could not file a suit for recovery of
possession. In Rani Chhatra Kumari Devi V. Prince Mohan Bikram Shah(1) the
Privy Council held that in a case where the property was not held by the trustee
for the specific purpose of making it over to the beneficiary 'and the trust
did not fall within S. 10, a suit by the beneficiary claiming recovery of
possession from the trustee was governed by Art 120. Sir George Lowndes said."The
trustee is, in their Lordships' opinion, the owner of the trust property, the
right of the beneficiary being in a proper case to call upon the trustee to
convey to him. The enforcement of this right would, their Lordships think, be
barred after six years under art. 120 of. the Limitation Act, and if the
beneficiary has allowed this period to expire without suing, he cannot
afterwards file a possessory suit, as until conveyance he is not the
owner." It follows that the suit is barred by limitation.
The third question relates to the
maintainability of the suit. The plaintiffs sued to recover properties
belonging to the old company. The company went into voluntary liquidation and
was wound up. As already stated the company stood dissolved on March 1, 1940
under S. 209H of the Indian Companies Act, 1913. No application was made within
2 years to declare the dissolution to be void under S. 243. Apart from s.243
the dissolution might possibly be set aside in a suit on the ground of fraud,
but the plaintiffs failed to establish any fraud affecting the dissolution. The
dissolution has put an end to the existence of the company.
In these circumstances, the appellant
contends that all the properties and the rights of the old company. if any,
have vested in the Government by escheat or as bona vacantia and the plaintiffs
cannot sue for the recovery of its properties. The plaintiffs dispute the right
of the Government to take the properties by escheat or as bona vacantia, and
they contend that on the dissolution of the old company, its assets have now
vested in its shareholders.
The common law of England recognises the
right of the Crown to take property by escheat or as bona vacantia. Escheat
proper was the lord's right of re-entry on real property held by a tenant dying
intestate without lawful heirs. It was an incident ,of feudal tenure and was
based on the want of a tenant to perform the feudal services, see Halsbury's
Laws of England, vol. 16, (1) L.R. 58 I.A. 279.
213 art 830 On the tenant dying intestate
without leaving any lawfull heirs his estate came to an end and the lord was in
by his own right and not by way of succession or inheritance from the tenant,
see: Attorney-General of Ontario v. Andrew F. Mercer(1). In most cases, the
land escheated to the Crown as the lord paramount, in view of the gradual
elimination of intermediate or mesne lords since 1290 The Crown takes as bona
vacantia goods in which no one else can claim a property. In Dyke v. Walford(2
) it was said that "it is the right of the Crown to bona vacantia, to
property which has no other owner." The right of the Crown to take as bona
vacantia extends to personal property of every kind, see: In re. Wells,
Swinburne-Hanham v. Howard(3). Escheat of real property of an intestate dying
without heirs was abolished in 1925 and the Crown now takes all his properties
as ,bona vacantia. On the dissolution of a company the Crown took its real
property by escheat and its personal property as bona) vacantia. Technical
escheat of the property of a dissolved company was abolished in 1929 and now
under s. 354 of theEnglish Companies Act, 1948 all the property and rights of a
dissolved company is deemed to be bona vacantia and accordingly belongs to the
Crown.
The right of the Government to take by
escheat ' for want of an heir or successor or as bona vacantia for want of a
rightful owner has been recognised in our country for a long time. Statute 16
& 17 Victoriae, C. 95, s. 27, an Act to provide for the government of India
asserted that "all real and personal estate within the said territories
escheating or lapsing for want of an heir or successor, and all property within
the said territories devolving as bona vacantia for want of a rightful owner,
shall (as part of the revenues of India) belong to the East India Company in
trust for Her Majesty for the service of the government of India." By s.
54 of the Government of India Act, 1858 the existing provision was continued in
force and was construed as referring to the Secretary of State in Council in
place of the company. Section 20(3) (iii) of the Government of India Act, 1915
provided that the revenues of India received for His Majesty would include
"all movable or immovable property\ in British India escheating or lapsing
for want of an heir or successor, and all property in British India devolving
as' bona vacantia for want of a rightful owner." Section 174 of the
Government of India Act, 1935 provided :
"Subject as hereinafter provided, any
property 'in India accruing to His Majesty by escheat or lapse or as bona
vacantia for want of a rightful owner, shall, if it is (1) 8 A.C. 767, 772.(2)
5 Moore P.C.434,496;13E.R.557,580.
(3) [1933] 1 Ch.29,49.
214 property situate in a Province, vest in
His Majesty for the purposes of the government of that Province, and shall in
any other case vest in His Majesty for the purpose of the, government of the
Federation." Article 296 of the Constitution now provides "Subject as
hereinafter provided, any property in the territory of India which, if this
Constitution had not come into operation,, would have accrued to His Majesty
or, as the case may be, to the Ruler of an Indian State by escheat or lapse, or
as bona vacantia for want of a rightful owner, shall if it is property situate
in a State, vest in such State, and shall, in any other case, vest in the
Union." These enactments show that in this country the Government takes by
escheat immovable as well as movable property for want of an heir or successor.
In this country escheat is not based on artificial rules of common law and is
not an incident of feudal tenure. It is an incident of sovereignty and rests on
the principle ,,of ultimate ownership by the State of all property within its
jurisdiction. "Private ownership not existing, the State must be owner as
ultimate lord", see: Collector of Masulipatam v. C. Vencata Narainapah(1).
The rules of English feudal law relating to mesne lords are not applicable, and
consequently the zamindar could not take by escheat the land of a tenant dying
without heirs. The right of escheat belongs to the Government only, see Ranee
Sonet Kowar v. Mirza Himmut Bahadoor(2). The Government has the right to take
all property within its jurisdiction by escheat for want of an heir or
successor and as bona vacantia for want a a rightful owner, see : Bombay Dyeing
& Manufacturing Co. V. State of Bombay("), Legal Remembrancer
v.Corporation of Calcutta (4),. Consequently the property of an intestate dying
without leaving lawful heirs, and the property of a dissolved corporation
passes to the Government by escheat or as bona vacantia. The property taken by
escheat or as bona vacantia belongs to the Government, subject to trusts and
charges, if any, previously affecting it.
As already stated, technical escheat of the
real property of a dissolved company was abolished in England in 1929 and s.
354 of the Companies Act 1948 now provides
that all property and rights of a dissolved company shall be deemed to be bona
vacantia and shall accordingly belong to the Crown. There was no statutory
provision like S. 354 before 1929. In the absence of such a provision, the
Crown took the real property of a company dissolved before 1929 by escheat 'and
its personal property (1) 8 M. I. A. 500, 525.
(3) [1958] S.C.R. 1122,1146.
(2) L.R. 3 I.A. 92, 101.
(4) [1967] 2 S.C.R. 170.204.
215 as bona vacantia, except in so far as its
right, was cut down by statute, see : In re. Wells(1). Likewise in this
country, the Government, took by escheat or as bona vacantia all the properties
of a company dissolved under the Indian Companies Act, 1913 except in so far as
its right was cut down by that Act. P. B. Mukherjee, J. expressed a similar
opinion In re U.N. Mandal's Estate (2).
Accordingly the shareholders or creditors of
the dissolved company cannot maintain any action for recovery of its assets. No
effective relief can be given in such action, as the company is' not a party
and the assets cannot be restored to its coffers. On this ground in Coxon v.
Gorst(3) an action by creditors for recovery
of moneys due to the dissolved company was dismissed, and in. In re. Lewis
& SmartLtd. (4) it was held that a pending misfeasance summons abated on
the dissolution of the company.
The plaintiffs' contention that the
properties of a dissolved company passed to its shareholders is based upon
American law, which is stated in American Jurisprudence, 2d, Corporations, aft.
1659 thus : "Apart from statutory provisions which frequently embody the
following rule also, the general equitable rule now followed in this country is
that upon the dissolution of a corporation, the property and assets of the
corporation constitute a trust fund 'for the benefit of its creditors and
stockholders. This rule necessarily displaces and makes obsolete the early
common law rules as to the reverter If real estate and the escheat of the personal
estate of corporation in such a case, and practically makes obsolete the
doctrine as to the extinguishment of the debts owing by and to the corporation
in such cases. Stated in another way, the rule is that after the dissolution of
a corporation, its property passes to its stockholders subject to the payment
of the corporate debts. The inherent jurisdiction of equity over trusts
embraces the power to administer the assets of a dissolved coloration."
The subject of dissolution of corporations is discussed in Arts. 1628 to 1696
of the book. The corporation is dissolved by a judgment of court (art. 1645).
For the purpose of complete winding up of its
affairs, statutes provide that even after dissolution the corporation shall
continue to exist and may sue or be sued for a limited period, see arts. 1662,
1668, 1669, 1671, 1673, Statutes also provide for appointment of a trustee for
the dissolved corporation and their effect is to convert its properties into 'a
trust fund and to abrogate the common law rule of escheat, arts. 1676, 1677.
The stockholders of the dissolved corporation can accordingly maintain an
action against the trustee for distribution (1) [1933] 1 Ch. 29,49.(3) [1891] 2
Ch. 73.
(2) A.T.R. 1959 Cal. 493, 498.(4) [1954] 1
W.L.R. 755.
216 of the surplus assets after payment of
the debts. of the corporation, see Bacon v. Robertson (1).
The law in our country is very different.
Here the winding up precedes the dissolution. There 'is no statutory provision
vesting the properties of a dissolved company in a trustee or having the effect
of abrogating; the law of escheat. The shareholders or creditors of a dissolved
company cannot be regarded as its heirs and successors. On dissolution of a
company, its properties, if any, vest in the government. In Coxon v. Gorst(2)
page 78 Chitty, J.
summarily rejected the contention that a
chose in action vested in a company passed on the dissolution to its creditors.
He said : "This supposed vesting in the creditors of the company's closes
in action is a mere fiction with nothing in the statute to support it, and is
in the teeth of the provisions of the statute. follows that the plaintiffs are
not entitled to maintain this suit.
A question may arise whether the Government
takes the property of a dissolved insolvent company subject to a trust for
payment of its debts, see in this connection, In the matter of Chandbali S.S.
Co.,(3) and In Re Wells(4 ) at pages 38 and 50. But that question does not
arise in the present case and we express no opinion on it.
In the result, C.A. No. 1174 of 1965 is
allowed, the decree passed by the High Court is set aside and the decree passed
by the Trial Court is restored. C.A. No. 1935 of 1966 is dismissed. There will
be no order as to costs in this Court and in the High Court.
C.A. No. 1174/65 allowed. v.p.s.
C.A. No. 1935/66 dismissed.
(1) 15 Law ed. 499. (2) [1891] 2 Ch. 73.
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