Turner Morrison And Co., Ltd. Vs.
Hungerford Investment Trust Ltd.  INSC 70 (9 March 1972)
MATHEW, KUTTYIL KURIEN
CITATION: 1972 AIR 1311 1972 SCR (3) 711 1972
SCC (1) 857
RF 1979 SC 621 (26,29) RF 1980 SC1285 (36,38)
of--Applicability of doctrine.
Companies--Residence of--Ultra Vires--Company authorised by resolution to
discharge tax liability of holding company to which dividends due not distributed--If
ultra vires the company's powers.
Limitation Act, 1963--Section
15(5)--Applicability to incorporated companies--Company--When can be said to be
residing in India and consequently no "absent" from the country.
The rule of estopple has gained new
dimensions in recent years and a new class of estoppel, viz., promissory
estoppel has come to be recognised by Courts. Where parties enter into an
agreement which is intended to create local relations between them and in
pursuance of such arrangement on a party makes a promise to the other which he
knows will be acted on and which is in fact acted on by the promise, the Court
will treat the promise at finding on the promiser to the extent that it will
not allow him to act inconsistently with it even although the promise may not
be supported by consideration in the strict sense. [721D, 723C] Hungerford
Investment Co. owned hundred per cent shares in Turner Morrison & Co.
During the assessment years 1939-1940 to 1955-1956 the latter did not distribute
dividends and the undistributed dividends were utilised by it as working
capital. In all those years, the income-tax authorities took proceedings under
s. 23-A of the Income Tax Act, 1922, and the deemed dividends were assessed in
the bands of Hungerford. But. year after year, from 1939 to 1954, the Directors
of Turner Morrison passed a resolution to the effect that it would be
in-equitable to ask Hungerford to pay the tax levied and that Turner Morrison
itself should discharge that liability. The resolutions were implemented by
Turner Morrison by playing all the, taxes due from Hungerford. If the dividends
had been declared Hungerford would have got more than two and a half times the
tax paid on its behalf. The payments were not debited to the account of
Hungerford; nor were they shown as debts due from Hungerford in the balance
sheets. At no time Turner Morrison made any demand on Hungerford to reimburse
the money paid. In 1955 the control of Turner Morrison changed hands and,
thereafter, by agreement, Turner Morrison undertook to discharge the tax
liability of Hungerford to the extent of Rs. 46 lakhs. In 1965 Turner Morrison
filed a suit against Hungerford for recovery of the tax paid. The suit was
dismissed. In the appeal to this Court Hungerford raised the plea of promissory
estoppel. Turner Morrison urged that its resolutions were mere promises to do
something in future; they were not representations of any and as those promises
were not supported by any consideration, they afforded no legal basis to resist
the claim. Hungerford argued that the promises made under those resolutions
were supported by consideration 712 in as much as Hungerford, in response to
those promises, refrained from enforcing the right to have the profits
distributed as dividends.
Held, that by acting on the basis of. the
representation made by Turner Morrison Hungerford placed itself in a
disadvantageous position, and therefore, the pleas of promissory estoppel had
to be sustained. [122B-C] Union of India v. Indo Afghan Agencies Ltd.,  2
366, Central London Property Trust Ltd. v.
High Trees House Ltd.,  1 K.B. 130, Combe v. Combe,  2 K.B. 215,
Tool Metal Manufacturing Co. Ltd. v. Electric Co. Ltd.,  2 All E.R. 657
and Roberton V. Minister of Pensions  1 K.B. 227, referred to.
It was urged on behalf of Turner Morrison
that the authority given to it to discharge the tax liabilities of Hungerford
were ultra vires its powers and, therefore, provided no legal basis to resist
the plain, claim, Held, that Turner Morrison had not acted ultra vires its
powers. The nondistribution of the dividends had augmented the working capital
of the company thus affording it facility to earn more profits. Any step taken
to augment the working capital of the company was undoubtedly incidental to the
business of the company and, further, the same was not for the attainment of
the objects mentioned in the memorandum. When Turner Morrison paid the tax due
from Hungerford, in substance, though not in form, it was distributing a
portion of its assets to the 100 per cent share holder of the company, but
without reducing its capital. [726H] Even on the assumption that the suit claim
was otherwise good, Hungerford urged, it was barred by limitation. It was
contended on behalf of Turner Morrison that in view of s. 15(5) of the
limitation Act,, 1963, the claim made, leaving aside the claim made in respect
of the assessment for the assessment years 1955-1956, was not barred, because,
Hungerford was a non resident company never present in India, and therefore,
under the section the time during which "the defendant has been absent
from India" had to be excluded for the purpose of computing the period of
limitation. Held, that the suit was barred by limitation :
(a) Turner Morrison had waived the lien it
might have had over the shares. held by Hungerford. Hence the only claim that
Turner Morrison could have made against Hungerford was a money claim. (b) The
suit was governed by the Limitation Act 1963, which fixed a period of three
years for money payable. The amounts claimed, except those in respect of the
assessment for the assessment year 1955-1956, were all paid before November 15,
1962. Therefore, they were barred by limitation. So far as the payment made in
respect of the assessment year 1955-56 was concerned, Turner Morrison had no
claim against Hungerford, because, under the amended s.
23A of the Income Tax Act, 1922, that
liability was of the Turner Morrison itself. (c) Section 15(5) of the share
holders of Turner Morrison. Under these circumstances, it that the 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 be present in all those places' Factually a company
cannot either be DM-sent in India or absent from India. But it may have a
domicile or residence in India. The Board of Directors of Hungerford used to
meet in India now and then. It was, through its representatives, attending the
general meeting of the share holders of Turner Morrison. Under these
circumstances, it must be held to have been residing in' this country and
consequently not absent from this country. Hence s. 15(5) cannot afford any
assistance to Hurner Morrison to save the bar of limitation.
[727H-728C-730C] 713 Dicey's Conflict of
Laws, New York Life Insurance Company v. Public Trustee,  2 Ch. 201,
Carron Iron Co. V.Maclaren, 5 H.L.C. 416 and Sayaji Rao Gaikwar of Baroda v. Madhavrao
Raghunathrao, A.I.R. 1929 Bom. 14, referred to.
CIVIL APPELLATE JURISDICTION : C.A. No. 1223
Appeal from the judgment and decree dated
June 23rd/24th, 1969 of the Calcutta High Court in Appeal from Original Decree,
No. 203 of 1968.
A. K. Sen, Shankar Ghosh, D. N. Gupta, N.
Khaitan, Krishna Sen and B. P. Singh, for the appellant.
S. V. Gupte, S. B. Mukherjee, B. N. Garg, K.
K. Jain, D. N.
Sinha, Lina Seth, M. M. N. Pombra and H. K.
Puri, for the respondent.
The Judgment of the Court was delivered by
HEDGE J. This appeal by certificate is by the plaintiffappellant, Turner
Morrison Co. Ltd. (to be hereinafter referred to as Turner Morrison) from the
decision of a Division Bench of the Calcutta High Court. The Division Bench
affirmed the decision of the trial court dismissing the plaintiff's suit.
In the suit Turner Morrison claimed a decree
for a sum of Rs. 1,27,67,052/16 P. The claim was made on the ground that the
plaintiff had paid either as an agent or on behalf of the defendant Hungerford
Investment Trust Ltd. (in voluntary liquidation) (to be hereinafter referred to
as the Hungerford) a sum of Rs. 79,70,802/as super-tax which it was entitled to
be reimbursed. To that sum a sum of Rs.47,96,250/16 P. was added as interest in
the shape of damages. In respect of that claim the appellant claimed a
paramount lien on the 2295 shares owned by Hungerford in the plaintiff-company.
The defendant resisted the suit on Various grounds. It denied that the
plaintiff had paid the amounts shown in the plaint-schedule or it was liable to
be reimbursed the payments made, if any. It also denied its liability to pay
interest on the amounts that might have been paid. Further' it pleaded that the
suit was barred by estoppel, waiver and acquiescence. It also pleaded the bar
of limitation. In addition it pleaded that the lien claimed had been waived and
that the suit was not properly instituted. According to the defendant, the
.suit was not a bona fide one. It was one of the manipulations of Haridas
Mundhra to get at the defendants' 2295 shares the plaintiffcompany without
paying for them.
The trial court dismissed the plaintiff's
suit holding that the claim in question was barred by estoppel, waiver or
acquiescence". It held that it was also barred by limitation. It opined
714 that the liability to pay the tax in question was the joint liability of
Turner Morrison as well as Hungerford and the same having been discharged by
the former, it had no claim on Hungerford. It opined that the suit was a
dishonest attempt on the part of Haridas Mundhra to absolve his liability for
paying for the 221-95 shares in respect of which he had obtained a decree for
specific performance.' The appellate court affirmed some of the findings of the
In order to appreciate the various
contentions advanced before this Court, it is necessary briefly to refer to the
history of the case. Hungerford was the owner of 100 per cent shares of Turner
Morrison. John Geoffrey Turner and Nigel Frederic turner (both since deceased)
were the owners of the 100 per cent shares of Hungerford. As can be seen from
the records, Turner Morrison was a prosperous company.
Though that company was making enormous
profits every year, it did not distribute any portion of those profits as
dividends during the assessment years 1939-1940 to 1955-56.
The profits that should have been available
for distributing as dividends were kept back by the company and used as working
capital. In all those years the, income-tax authorities took proceedings under
s. 23-A of the Indian Income-taxAct, 1922. Thereafter the "deemed
dividends" were assessed in the hands of Hungerford. But year after year
the Directors of Turner Morrison passed a resolution to the effect that it
would be inequitable to ask Hungerford to pay the tax levied and that Turner
Morrison itself should discharge that liability. Those resolutions were duly
implemented by Turner Morrison by paying all the taxes due from Hungerford. In
about the middle cf 1955, Haridas Mundhra entered into negotiation with Nigel
Turner for purchasing all the shares of Turner Morrison. By exchange of letters
in November and December of 1955, Hungerford agreed to sell and Mundhra agreed
to purchase 49 per cent shares of Turner Morrison. The agreement also provided
for an option to Mundhra to purchase from Hungerford the balance of 51 per cent
shares of Turner Morrison within five years for the price agreed upon. A formal
agreement in that regard was entered between Hungerford, John Geoffrey Turner,
Nigel Turner, British, India Corporation (a nominee of Mundhra) and Mundhra on
October 30, 1956. In pursuance of that agreement Majndhra. purchased 49 per
cent shares of Hungerford. Thereafter ascontemplated in that agreement
Hungerford went into voluntary liqui-dation. On October 31, 1957 two documents
came to be executed. One is a deed of guarantee and indemnity. That was a
The, first party to, that deed was Turner Morrison.
The second party was John Geoffrey Turner and Nigel Frederick Turner and the
third party was Hungerford. In 715 that deed after setting out the agreement
between Hungerford and Mundhra, it was stated :
"NOW THIS DEED WITNESSETH that in consideration
of the liquidator$ having at the request of the Company (Turner Morrison) the
said John Geoffrey Turner and Nigel Frederick 'Turner agreed (as is testified
by their being parties to and executing these presents) to distribute the
assets of Hungerford in specie amongst the contributories of Hungerford (such
contributories being the said John Geoffrev Turner and Nigel Frederick Turner)
and in consideration of , the premises.
1. The Company and the said John Geoffrey Turner
and Nigel Frederick Turner hereby jointly and severally undertake to pay and/or
satisfy all claims for or in respect of Income-tax and Super-tax which is or
are not payable or recoverable or may at any time be payable or recoverable
under the Indian Income-tax Act by or from Hungerford and which payments are in
fact legally enforced and made.
2. The Company and the said John Geoffrey
Turner and Nigel Frederick Turner hereby jointly and severally covenant with
the Liquidators and' 'each of them that the company and the said John Geoffrey
Turner and the said Nigel Frederick Turner will jointly and severally at all
times hereinafter keep indemnified the Liquidators and each of them from all
actions, proceedings, claims or demands in respect of or in connection with any
liability of Hungerford to Income-tax or Super-tax under the Indian Income-tax
Act and also against all costs, damage or expenses which the Liquadators or any
of them may pay, incur or sustain in connection therewith or arising therefrom
or otherwise in relation to the premises." The second document was a deed
of indemnity between the Turner brothers and Turner Morrison. That deed
provided that in the event of Turner Morrison "Paying in terms of the deed
of guarantees and indemnity any sum in excess of 46 lakhs in satisfaction of
the income-tax and super-tax which may at any time be payable or recoverable,
payment of which are in fact legally enforced and made under the Indian
Income-tax Act by or from Hungerford the Guarantors and each of them in
consideration of the premises undertake to pay to the company (,Turner
Morrison) the amount of such excess as aforesaid".
716 At this stage, it may be mentioned that
in accordance with the agreement entered into between Mundhra and Hungerford
Turner Morrison was to discharge the tax liability of Hungerford to the extent
of Rupees 46 lakhs. After the sale of the 49 per cent shares referred to
earlier, some dispute appears to have arisen between Mundhra and Hungerford in
regard to his option to purchase the remaining 51 per cent shares of the later.
Consequently Mundhra filed a suit in the Calcutta High Court on its original
side for the specific performance of the agreement entered into between him and
the Hungerford. The suit was resisted by Hungerford. But it was decreed. It
appears that when the learned trial judge was about to conclude his judgment,
in that case the Counsel for Mundhra requested the court to issue an injunction
requiring Hungerford to exercise its voting rights in respect of the 51 per
cent shares which was the subject matter of the suit in accordance with the
directions of Mundhra until the implementation of the decree for specific
performance. The learned trial judge accepted that prayer and issued the
injunction asked for. This led to serious consequences, some of which we have
dealt with in our judgment in Civil Appeal No. 488 of 1971 which we have just
now pronounced. This case appears to be an off-shoot of that unfortunate
injunction. In the suit for specific performance, though Turner Morrison was a
party, it did not plead that it had any lien over the shares with which we are
concerned in this case. By agreement between Mundhra and Turner Morrison, the
later was removed from the array of defendants and the suit, proceeded against
the remaining defendants.
After obtaining the decree for specific
performance and the ,injunction mentioned above, Mundhra appears to have not
been interested in purchasing the 51 per cent shares by paying for the same
evidently because he was in a position to have an absolute control over Turner
Morrison as a result of the injunction issued. Though Hungerford filed an
appeal against the decree in that suit, that appeal was withdrawn for reasons
which are not clear. After the withdrawal of the appeal, by a Master's summons
dated August 30, 1965 Hungerford moved the trial court for fixing a time within
which Mundhra should purchase the 51 per cent shares by paying for the same.
That application was rejected ,on September 1965 on the ground that the
application being one for execution, it must be in a tabular form and
"that any imposition of time limit would be to engraft something on the
decree which does not exist in the decree". The appeal against that ,order
was also unsuccessful.
After the suit for specific performance was,
decreed, Mundhra by himself or through Turner Morrison appears to have made 717
various attempts to see that Hungerford is placed in such a position as not to
be able to implement its part of the agreement. We have had to deal with some
of those aspects in Civil Appeal 488 of 1971. Suffice it to say that according
to Hungerford, the suit from which this appeal arises is one of the attempts of
Mundhra in that direction.
One other circumstance that is necessary to
be mentioned before proceeding to consider the points in controversy is that
despite the various resolutions passed by the Board of Directors of Turner
Morrison as well as by the shareholders of that company at the general meeting,
the present suit was filed by the Secretary of Turner Morrison even without
obtaining the sanction of the Board of Directors. The Board of Directors'
sanction was sought only after the defendants' objected to the maintainability
of the suit. From the Proceedings of the Board of Directors, it is clear that
they were not even aware of the company against whom the suit was filed. From
the two resolutions passed by the Board of Directors ratifying the action taken
by the Secretary, it is obvious that either they were callous or they were mere
tools in the hands of Mundhra.
It is not denied on behalf of Hungerford that
the tax due from that company for the assessment years 1939-40 to 195556 had
been discharged by Turner Morrison. Hungerford's liability to pay tax arose
because of the' dividends it was deemed to have received from Turner Morrison
as a result of s. 23-A proceedings. But there is dispute between the parties as
to the exact amount paid by Turner Morrison. We have not thought it necessary
to go into that controversy as we have, agreeing with the High Court, come to
the conclusion that the suit is not maintainable for the reasons to be
A great deal of controversy centers round the
question whether when an assessment is made on the shareholders of a company as
a result of an order under s. 23-A, the company's liability to pay that tax is
primary or secondary. It was contended on behalf of Hungerford that liability
is a joint liability of both the company's as well as that of the shareholders.
But according to the appellant that liability is primarily that of the shareholders
and if the company is compelled to discharge that liability, it is entitled to
be reimbursed by its shareholders. Both the trial judge as well as the
appellate bench have upheld the contention of Hungerford and have come to the
conclusion that When Turner Morrison paid the tax due from Hungerford, it was
discharging its own liability under law and that being so, it was not entitled
to seek reimbursement from Hungerford.
718 Section 23-A empowers the Income-tax
Officer to order in writing if the conditions prescribed in that section are
satisfied that the undistributed portion of the assessable income of a company
earned 'in the previous year as computed for income-tax purposes and reduced by
the amount of incometax and super-tax payable by the company in respect
thereof, shall be deemed to have been distributed as dividends amongst the
shareholders as on the date of the concerned general meeting. That deemed
income has to be assessed in the hands of the, shareholders either under s.23
or under s.34 of the Indian Income-tax Act, 1922.
The two provisos to s. 23-A that are
important for our present purpose are found in cls. (ii) and (iii) of sub-s.
(2) of s. 23-A. Clause (ii) says :
"Where the proportionate share of any
member of a company in the undistributed,profits and gains of the, company has
been included in his total income under the provisions of subsection (1) the
tax payable in respect thereof shall be recoverable from the company, if it
cannot be recovered from such member." Clause (iii) reads :
" Where tax is recoverable from a
company under this sub-section, a notice of demand shall be served upon it in
the prescribed form showing the sum so, payable, and such company shall be
deemed to be the assessee in respect of such sum, for the purposes of Chapter
VI." It was urged on behalf of Hungerford that the income that can be
brought to tax as a result of an 'order under s. 23-A is not a real income; it
is only a deemed income; that income came to be taxed because of the failure of
the company to declare dividends., It is only for the purpose of convenience
that income is taxed in the hands of the shareholders; hence the liability to
pay that tax in equity must be that of the company and it is for that reason s.
23A has provided for the realisation of the tax due from the shareholders from
the company. The fact that before passing an order under s. 23-A the
shareholders are not even required to be heard was emphasised. In this
connection our attention was invited to the amendment of s. 23-A in 1955 as a
result of which now the tax liable to be paid as a result of an order under s.
23-A is payable exclusively by the company. In this connection reliance was
also placed on the language of s. 42 which empowers the Revenue to assess the
income of a nonresident assessee in the hands of his agent, but at the same
time that section empowers that agent to retain in his hands a sum 719 equal to
his estimated liability under that section from out of the. Non residentís
monies in his hands. It was lastly urged that if dividends were deemed to have
been declared, those deemed dividends remained in the hands of the company and
when the company paid tax in respect of the same, it must be held to have paid
the same out of the dividends of the shareholders that remained in its hands.
On the other hand, it was contended on behalf of Turner Morrison that any
assessment made in pursuance of an order under s. 23-A is an assessment on the
shareholders and not on the company; The dividends deemed to have been
distributed under s. 23-A is considered to be the income of the shareholders
and not that of the company. It is added on to the other income of the
shareholder for the purpose of assessment. It is recoverable from the
shareholder. It is recoverable from the _company only if it cannot be recovered
from the shareholders and the company is deemed to be an assessee in respect of
such sum for the purposes of Chapter VT only and not for all purposes. Further
the deemed distribution of dividends as a result of an order under s. 23-A is
in no sense a real distribution of dividends which can be done only by the
shareholders at the general meeting of the company. We do not propose to
pronounce on this controversy firstly because this appeal can be decided on
other grounds and secondly for the reason that that controversy has now become
more or less academic in view of the amendment of S. 23-A in 1955.
For the assessment years 1940-41 to 1952-53,
Turner Morrison was assessed as the, agent of Hungerford as could be seen from
the assessment orders. For that reason it was contended on behalf of Turner
Morrison that it is entitled to be reimbursed in respect of the tax paid by it.
Hungerford denies that Turner Morrison was
According to Hungerford, the payments in
question were made by Turner Morrison voluntarily and therefore it is not
entitled to claim any reimbursement. Section 43 of the Indian Income-tax Act,
1922 prescribes as to who could be assessed as an agent under s. 42. That
section says "Any person employed by or on behalf of a person residing out
of the taxable territories or having any business connection with such person,
or through whom such person is in the receipt of any income, profits or gains
upon whom the Income-tax Officer has caused a notice to be, served of his
intention treating him as the agent of the non-resident person shall for all
the purposes of this Act, be deemed to be such agent." It was contended on
behalf of Hungerford that it was not, residing out of the taxable, territories;
it is a private, limited company hence it must be held to be residing in all
places where it720 eams or deemed to earn any income. It was further urged that
Turner Morrison was not a person employed by or on behalf of Hungerford nor did
Hungerford have any business connections with Turner Morrison. It was also the
contention of Hungerford that it did not receive any income, profits or gains
through Turner Morrison. Lastly it was urged that the Income-tax Officer had
not caused any notice to be served upon Turner Morrison intending to treat that
company as the agent of Hungerford. On the other hand it was Turner Morrison
which had volunteered to be assessed on behalf of Hungerford. For all these
reasons it was said that Turner Morrison cannot be held to have been taxed as
the agent of Hungerford. All these contentions were taken for the first time in
this Court. They do not appear to have been taken either before the trial court
or before the appellate court. The contentions raised involve determination of
questions of fact. In the plaint, it was specifically averred that the payments
in question were made by Turner Morrison as the agent of Hungerford. That
averment has not been specifically denied. In that view, we are not called upon
to go into the various submissions noted above.
Before going into the other contentions, we
may briefly deal with the contention that the suit was not properly instituted.
There appears to be basis for Hungerford's contention that this suit was
inspired by Mundhra and Ardeshir Jivanji Hormasji, the Secretary of Turner
Morrison, who signed the plaint on behalf of Turner Morrison was a mere tool in
his hands. There is also reason to believe that when the Directors of
Tumer-Morrison ratified the action taken by Hormasji, they behaved in an irresponsible
manner as seen earlier. But all the same it cannot be said, the suit is not
maintainable. It is true that under the Articles of Association of Turner
Morrison, a suit on.
behalf of that company has to be filed with
the consent of the Directors. But the Secretary of the company held a general
power of attorney from the Directors and the action taken by him was approved
by the Directors. Hence there can be no valid objection to the maintainability
of the suit.
Three important questions remain to be considered.
1. Whether the claim made by Turner Morrison
is barredby the rule of estoppel, or waiver or abandonment ?
2. Whether the decision of Turner Morrison to
take (over the liability of Hungerford either with or without any guarantee
from Turner brothers was ultra vires its powers and 721 .lm15
3. Whether the claim made in the, suit or any
portion thereof is barred by limitation ? The judgments of the trial court. and
the appellate court have not made any distinction between estoppel, waiver and
abandonment. The distinction between those three concepts is fine but real. In
this case, there was no plea of any release under s. 63 of the Contract Act.
Hence the argument of Mr. A. K. Sen, learned Counsel for Turner Morrison on the
scope of that section is irrelevant and we shall not go into the same. The
essential question to be considered is whether the facts established in this
case support the plea of estoppel put forward by Hungerford. If the answer to
that question is in the affirmative then there is no need to examine whether
there was any waiver or abandonment as pleaded by Hungerford.
'Estoppel' is a rule of equity. That rule has
gained new dimensions in recent years. A new class of estoppel i.e. promissory
estoppel has come to be recognised by the courts in this country as well as in
England. The full implication of 'promissory estoppel' is yet to be spelled
out. We shall presently refer to decisions bearing on that topic but before
doing so, let us examine whether Turner Morrison made any representation to
Hungerford, if so, what is that representation. Further, whether Hungerford
acted on the basis of that representation to its disadvantage. It is not denied
that year after year from 1941 to 1954 Turner Morrison passed resolutions undertaking
to discharge the tax liability of Hungerford. In pursuance of those resolutions
taxes due from Hungerford were paid. There can be no doubt that the steps taken
by Turner Morrison were within the knowledge of Hungerford as it held 100 percent
shares of Turner Morrison. The Directors of Turner Morrison must have been its
nominees. The profit and loss accounts of Turner Morrison must have been
approved by Hungerford year after year at the general meeting of that company.
In reality the Turner brothers were the owners of Hungerford as well as Turner
Morrison though each of those companies was a separate legal entity. It may be
that Turner Morrison did not declare dividends so that Hungerford may avoid
paying tax at a high rate. But at the same time Hungerford would not have
agreed for not distributing dividends unless Turner Morrison took over the
responsibility of paying the tax on the dividends deemed to have been
distributed. It is established that if dividends had been declared Hungerford
would have got more than two and half times the tax paid on its behalf. The
undistributed dividends were available to Turner Morrison to be utilised as
working capital and thereby earn more profits. The arrangement regarding the
non distribution of dividends as well as the payment for the tax due from
Hungerford by Turner Morrison 722 must have been with the consent of Hungerford
as well as Turner ,brothers. Those arrangements had clearly benefited all the
parties. Till Mundhra entered the scene, there could not have been ,any
conflict of interest between Hungerford and Turner Morrison. When Turner
Morrison paid the tax due from Hungerford, legal fiction apart, it was really
paying from the monies belonging to Hungerford. If for any reason, Turner
Morrison had not undertaken the responsibility to discharge the tax liability
of Hungerford, the latter could have taken steps to compel the former to
declare dividends or even compel it to go into voluntary liquidation. Hence
there can be no doubt that by acting on the basis of the representation made by
Turner Morrison, Hungerford had placed itself in a disadvantageous position.
But it was urged on behalf of Turner Morrison
that the resolutions in question were mere promises to do something in the
future : They were not representations of any fact and as those promises were
not supported by any consideration, they afford no legal basis to resist the
claim made in the plaint. Hungerford's answers to these contentions are, that
firstly those resolutions afford a good basis for raising a plea of promissory
secondly those representations became
representation of fact as soon as the tax liability of Hungerford was
discharged by Turner Morrison in pursuance of its resolutions and lastly the
promises made under those resolutions were supported by consideration inasmuch
as Hungerford in response to those promises refrained from enforcing its right
to have the profits distributed as dividends. Now coming to the payments made
after 1955, it is seen that according to the agreement between Turner Morrison,
Hungerford and Mundhra, Turner Morrison was required to set apart a sum of
Rupees 46 lakhs to discharge the tax liability of Hungerford.
Accordingly Turner Morrison transferred
Rupees 46 lakh from its general reserve to a special reserve. Further by the
agreements dated October 31, 1957 set out earlier Turner Morrison took over the
entire tax liability of Hungerford and t he Turner brothers agreed to reimburse
Turner Morrison any payment made on behalf of Hungerford in excess of Rupees 46
lakhs. All these arrangements clearly enured to the benefit of Turner Morrison
inasmuch as it allowed that company to refrain from declaring dividends and
utilise that money for business purposes. There can be no doubt that it was
done in the best interest of that company and with a view to further its
It is necessary to note that despite Turner
Morrison paying the tax due from Hungerford from 1941 uptill 1953, those
payments were not debited to the account of Hungerford; nor were they shown as
debts due from Hungerford in the balance sheets placed before the general
meeting. Those, balance sheets were approved by the general meeting. It was
plainly admitted by the 723 witnesses examined/ on behalf of Turner Morrison
that the ,amounts paid on behalf of Hungerford were not considered as debts due
from that company till about the time of filing the suit. ,In the general
meeting of Turner Morrison held on March 29, 1956, the recommendation of the
Board of Directors to transfer Rupees 46 lakhs from the general reserve to a
special reserve for The purpose mentioned earlier was approved. Thereafter
Turner Morrison paid the tax due from Hungerford for the assessment year
1952-53 and debited the same to that special reserve. While Turner Morrison was
keeping Hungerford informed of the assessments made on it and the refunds
ordered, at no time it made any ,demand on Hungerford to reimburse the moneys
paid. On several occasions Turner Morrison entered into agreements with the
.President of India undertaking to discharge the tax liabilities of Hungerford
upto an agreed maximum.
Turner Morrison was representing Hungerford
in all the assessment proceedings It used to file appeals on behalf of
Hungerford against the orders of the Income-tax Officers.
It had received all the amounts ordered to be
refunded. It was keeping Hungerford informed of the various orders passed by
the Income-tax authorities, but yet without making any demand for the payment
of tax paid by it. The documents produced in the case and the admissions made
by the witnesses examined on behalf of Turner Morrison make it abundantly clear
that the idea of claiming back the tax paid on behalf of Hungerford came to be
entertained by Turner Morrison only after Mundhra came to control that company.
With this background let us now consider
whether Turner Morrison is estopped from making the claim in question.
In support of its case Hungerford relies
primarily on the doctrine of Promissory Estoppel. This doctrine has assumed
importance in recent years though it was dimly noticed in some of the earlier
cases. The leading case on the subject is Central London Property Trust Ltd. v.
High Trees House Ltd.(1). The facts of that case are as follows :
Central London Property Trust Ltd. let to the
High Trees House Ltd., a subsidiary of the former a block of flats for a term
of 99 years from September 29, 1937 at a ground rent of pound 2500 a year. In
the early part of 1940, owing to war conditions then prevailing only a few of
the flats in the block were let to tenants and it became apparent that the High
Trees House Ltd. would be unable to pay the rent reserved by the lease out of
the rent of the flats.
Discussions took place between the 'Directors
of the two companies and as a result on January 3, 1940, a letter was sent by
the lessor to the lessee confirming that the ground rent of the (1)  1
724 premises would be reduced from X2500 to X1250
as from the beginning of the term. The lessee thereafter paid the reduced rent.
By the beginning of 1945, all flats were let but the lessee continued to pay
only the reduced rent. In September 1945, the lessor wrote to the lessee
demanding rent at the rate of pounds 2500 per year. It also claimed at that
rate for the quarters ending September 29 and December 25, 1945. The lessee
repudiated that claim. The question for decision was whether the lessor was
bound by the concession that it had agreed to show as the same was not
supported by any consideration. Answering that question Denning J. (as he then
was) held that where parties enter into an agreement which is intended to
create legal relations between them and in pursuance of such arrangement one
party makes a promise to the other which he knows will be acted on and which is
in fact acted on by the promise, the court will treat the promise as binding on
the promiser to the extent that it will not allow him to act inconsistently
with it even although the promise may not be supported by consideration in the
strict sense. Therein the court divided the claim made in the suit into two
categories one for the period prior to the end of 1945 and the other for the
period thereafter. It disallowed the claim of the lessor in respect of the
former and allowed the claim relating to the later period.
The rule laid down in High Trees case(1)
again came up for consideration before the King's Bench in Combe v. Combe(2).
Therein the court ruled that the principle.
stated in High Trees' case(1) is that, where one party has,, by his words or
conduct, made to the other a promise or assurance which was intended to affect
the legal relations between them and to be acted on accordingly, then, once the
other party has taken him at his word and acted on it, the party who gave the
promise or assurance cannot afterwards be allowed to revert to the previous
legal relationship as if no such promise or assurance had been made by him, but
he must accept their legal relations subject to the qualification which he
himself has so introduced, even though it is not supported in point of law by
any consideration, but only by his word. But that principle does not create any
cause of action which did not exist before; so that, where a promise is made
which is not supported by any consideration, the promises cannot bring an
action on the basis of that promise The principle enunciated in the High Trees'
case(1) was also recognised by the House of Lords in Tool Metal Manufacturing
Co. Ltd. v. Tungsten Electric Co.
Ltd.(3). That principle was adopted by this
Court in Union of India v. Indo Afghan Agencies Ltd(4). The facts of that case,
in brief, are as follows (2)  2 K.B. 215.
(1)  1 K.B.130 (3)  2 All E.R.657
(4)  2. S.C.R. 366.
725 In exercise of its powers under S. 3 of
the Imports and Exports (Control) Act, 1947, Central Government issued the
Imports (Control) Order, 1955 and other orders setting out the policy
,governing the grant of import and export licences. The Central Government also
evolved an Import Trade Policy, to facilitate the mechanism of the Act and the orders
issued there under, and it was modified from time to time by issuing fresh
Schemes in respect of new commodities.
In 1962, the Central Government promulgated
the Export Promotion Scheme providing incentives to exporters of woolen
textiles and goods. It provided for the grant to an exporter certificates to
import raw materials of a total amount equal to 100% of the F.O.B. value of his
Clause 10 of the scheme provided that the
Textile Commissioner could grant an import certificate for a lesser amount if
he is satisfied, after holding an enquiry, that the-declared value of the goods
exported is higher than the real value of the goods. The Scheme was extended to
exports of woolen textiles and goods to Afghanistan. M/s. Indo Afghan Agencies
Ltd. exported woolen goods to Afghanistan and were issued an Export Entitlement
Certificate by the Textile Commissioner not for the full F.O.B. value of the
goods exported but for a reduced amount on the basis of some private enquiry
supposed to have been held by him but not after holding an enquiry as
contemplated by the Scheme. The representation made by the Indo-Afghan Agencies
in that connection to the Central Government was rejected. Thereafter M/s.
Indo-Afghan Agencies Ltd. moved the High Court to set aside the order of the
Textile Commissioner and the government and to issue a direction to them to
grant licences for an amount equal to 100% of the F.O.B. value of their
exports. That prayer was resisted by the government on various grounds, inter
alia, that the Export Promotion Scheme was administrative in character, that it
contained mere executive instructions issued by the Government to the Textile
Commissioner and created no enforceable rights in the exporters who exported
their goods in pursuance of the scheme and it imposed no obligation on the
government to issue import certificates. The High Court and later this Court in
appeal rejected that contention. This Court held that the government is not
exempt from liability to carry out the representation made by it as to its
In arriving at that conclusion this Court
placed reliance on the decision of Denning J. in Robertson v. Minister of
Pensions(1). Therein (Denning J.) was dealing with a case of, serving army
officer who wrote to the War Office regarding a disability and received a reply
disability had been accepted as attributable
to "military service". Relying on that assurance he forbore to obtain
an independent medical opinion. The Minister of Pensions later decided that his
(1)  1 K.B. 227.
726 disability could not be attributed to War
Service. Therein the court held that as between the subjects such an assurance
would be enforceable because it was intended to be binding, intended to be
acted upon and was in fact acted upon,. and the assurance was also binding on
the ground because no term could be implied that the Crown was at liberty to
revoke. The rule laid down in these decisions undoubtedly advance the cause of
justice and hence we have no hesitation in accepting it.
It was urged on behalf of Turner Morrison
that the authority given to it to discharge the tax liabilities of Hungerford
as well as the agreements entered into by it with Hungerford and the Turner
brothers were ultra vires its powers, and consequently they provide no legal
basis to resist the plaint claim. It is true that a Private Ltd. company cannot
exceed the powers conferred on it under its Memorandum of Association.
Therefore, for considering whether Turner Morrison was competent to undertake
the liability it did, we have to look to the provisions in the Memorandum.
Clause 3(b) of the Memorandum empowers the Turner Morrison to carry on business
in India and elsewhere as merchants, general merchants, agents and traders etc.
Sub-clause (q) of that clause gives power to , the company "to receive
money on deposit at interest or otherwise and lend money to such persons, with
or without security and on such terms as may seem expedient and in particular
to customers of and other persons having dealing with the company and to give
any guarantee or indemnity as may seem expedient." Sub-cl. (x) authorises
the company "to distribute among the members of the company in specie any
property of the Company, but no distribution amounting to a reduction of capital
shall be made without the sanction, if any, for the time being required by
law." Sub-cl. (z) authorises the company to do all such other things as
are incidental or conducive to the attainment of objects mentioned in
As seen earlier the non-distribution of the
dividends had augmented the working capital of the company thus affording it
facility to earn more profits. Any step taken to augment the working capital of
the company is undoubtedly incidental to the business of the company and
further the same was conducive to the attainment of the objects mentioned in
the Memorandum. When Turner Morrison paid the tax due from Hungerford in
substance, though not in form, it was distributing a portion of its 727 assets
to the 100 per cent shareholder of the company but without reducing its
capital. Hence we are unable to see how it can be said that Turner Morrison had
acted ultra vires its powers. Mr. A. K. Sen, learned Counsel for Turner
Morrison invited our attention to several decisions wherein the courts had
taken the view that the actions taken by the companies concerned were ultra
vires their powers. Those decisions were rendered on the facts of those cases.
Whether a transaction entered into by a
company can be said to be within its powers or not has to be decided on the
basis of the facts established and the provisions in its Memorandum and not on
the basis of any abstract rule.
The only other question that remains to be
considered is whether the suit claim is barred by limitation even on the
assumption that claim is otherwise in order. For pronouncing on this question,
it is first necessary to decide whether Turner Morrison had waived its lien
over the shares held by Hungerford. There can be no doubt that Turner Morrison
has the power to waive the paramount lien it has upon all the shares registered
in the name of each member, for his debts or liabilities to the company. That
much is clear from art. 22 of the Articles of Association.
That article provides that "Unless
otherwise agreed the registration of transfer of shares shall operate as a
waiver of the Company's lien (if any) upon such shares." In Buckley on
Companies Acts (13th Edn. at p. 797) dealing with the question of lien, it is
observed ".......For such a provision is for the prote ction of the company,
and is capable of being waived by the company. " We have to see whether
the company in fact had waived the lien it had in respect of the suit claim,
assuming that the said claim is otherwise good. As seen earlier at all stages
Turner Morrison took over the responsibility of paying the tax due on behalf of
Hungerford. There was no idea of recovering the amount paid as tax, from
Hungerford. When Hungerford sold 49 per cent of its shares to Mundhra, the same
was registered without any objection. It was clearly admitted by the Secretary
of Turner Morrison and other witnesses examined on behalf of that company that
the idea of suing Hungerford for recovering the tax paid was conceived for the
first time after Mundhra obtained the decree for specific performance. Under
these circumstances, it is clear that Turner Morrison had waived the lien that
it might have had over the shares held by Hungerford. Hence the only claim that
Turner Morrison could have made against Hungerford was a money 728 claim. The
present suit was filed on November 15, 1965.
Hence it is governed by the provisions of the
'Limitation Act, 1963 which came into force on April 1, 1964. Article 23 of
that Act fixes a period of three years for instituting a suit "for money
payable to, the plaintiff for money paid for the defendant" and the cause
of action for the same commences when the money is paid. To the same effect was
Art. 63 of the Limitation Act, 1908. The amounts claimed in the present suit
except those in respect of the assessment for the assessment year 1955-56 were
all admittedly paid before November 15, 1962. Hence they are prima facie barred
by limitation. So far as the payments made in respect of the assessment for the
assessment year 1955-56 is concerned, Turner Morrison can have no, claim
against Hungerford because under the amended s. 23-A of the Income-tax Act,
1922, that liability was that of Turner Morrison itself.
But it was urged on behalf of Turner Morrison
that in view of s. 15 (5) of the Limitation Act, 1963, the claim made, leaving
aside the claim made in respect of the assessment for the assessment year
1955-56, is not barred. Section 15(5) prescribes :
"In computing the period of limitation
for any suit the time during which the defendant has been absent from India and
from the territories outside India under the administration of the Central
Government shall be excluded." It was urged on behalf of Turner Morrison
that Hungerford is a non-resident company. Therefore it cannot be said that at
any time it was present in India. Hence the suit is not barred. If this argument
is correct then there can be no period of limitation for filing a suit against
a nonresident company a proposition which is prima facie startling. Can we hold
'that s. 15(15) applies to a suit of the type with which we are concerned ?
That provision contemplates the case of a defendant who has been absent from
India. That article presupposes that defendant was at one time present in India
and later he has been absent from India. A person who was never in India cannot
be considered ,is having been absent from India. Factually a company cannot
either be present in India or absent from India. But it may have a domicile or
residence in India. Sometime questions have arisen as to what is the place of
residence of an incorporated company. Dicey in his Conflict of Laws (4th Edn.
p. 152 rule 19) pointing out the difference between the domicile of a natural
person and that of a corporation, says :
"The domicil of a human 'being is a fact
which on certain points,, subjects him to the law of a particular country. The
domicil of a corporation is a fiction suggested by the fact that a corporation
is, on certain points, 729 e.g., the jurisdiction of the Courts, subject to,
the law of a particular country. A man, that is to say, is in some respects
subject to the law of England because he has in fact an English domicil; a
corporation is by a fiction supposed to have an English residence or domicil
because it is in certain respects subject to the law of England. Hence a
corporation may very well be, considered domiciled or resident, in a country
for one purpose and not for another, and hence, too, the great uncertainty as
to the facts which determine the domicil, or residence of a corporation. In
each case the particular question is not, at bottom, whether a corporation has
in reality a permanent residence in a particular country, but whether, for
certain purposes (e.g. submission to the jurisdiction of the Courts or
liability to taxation), a corporation is to be c onsidered as resident in
England or in some other country." The question of residence of an
insurance company registered and having its registered office in a foreign
country came up for consideration before the Chancery Division in New York Life
Insurance Company v. Public Trustee(1). There in Pollock M.R. quoted with
approval the following passage from the judgment of Lord St. Leonards in Carron
Iron Co. v. Maclaren(2).
"I think that this company may properly
be deemed both Scotch and English. It may, for the purposes of jurisdiction, be
deemed to have two domiciles. Its business is necessarily carried on by agents,
and I do not know why its domicile should be considered to be confined to the
place where the goods are manufactured... There may be two domiciles and two
jurisdictions; and in this case there are, as I conceive, two domiciles and a
double sort of jurisdiction, one in Scotland and one in England; and for the
purpose of carrying on their business, one is just as much a domicile of the
corporation as the other." The same view was expressed in that case by
Warrington L.J. and Atkin L.J.
A division bench of the Bombay High Court in
Sayaji Rao Gaikwar of Baroda v. Madhavrao Raghunathrao(3) dealing with the
scope of s. 13 of the Limitation Act 1908 which is identical with the resent s.
15(5) held that s. 13 must be read so, as to avoid the obvious absurdity that
arises if such corporate bodies (1)  2. Ch. 201.
(3) A.I.R. 1929 Bom. p. 14.
(2) 5, H.L.C. 416.
730 are deemed to reside out of British India
so that suits against them can never be barred at all. And this can be done by
treating them as defendants, who by reason of their special character, are not
absent from British India within the meaning of the section, because they have
not got the same liberty as private individuals to reside personally in British
India and attend to their affairs and they must do so through agents or
representatives. Under those circumstances, they can be held to reside in
British India in so far as they actually carry on business through their
representatives in British India.
Section 15(5) of the Limitation Act, 1963 can
be viewed in one o f 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
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 s. 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. Turning to the question of costs, 'from what we have
said earlier, it is clear that there was no justification for bringing the
suit. The suit was clearly engineered by Mundhra to attain certain ulterior
purposes of his. But unfortunately neither he no his likely collaborators the
Directors, of Turner Morrison, are before us. The only accessory of Mundhra who
is before us is the Secretary of Turner Morrison, Hornasji. There is no
justification to make Turner Morrison in which Mundhra has only 49 per cent
shares to bear the costs. In the circumstances, we think it proper to direct
Hormasji to bear the costs of both the parties in this Court. The order made by
the High Court as regards costs will stand.