civil appellate jurisdiction civil appeal
number 225 of 1961.
appeal from the judgment and order dated
february 9 1951 of the madras high companyrt in a.

o. number 249 of 1949.

thiagarajan and p. ram reddy for the
appellant. bhimasankaram and t. v. r. tatachari for
respondent number 1.

n. mukherjee and b. n. ghosh for
respondent number 2. 1961. numberember 6. the judgment of the companyrt
was delivered by
raghubar dayal j.-this is an appeal on
certificate granted by the high companyrt of madras. the question for determination in this appeal is
whether foreign creditors of a firm which was in
corporated in england and carried on business in
india can prove their claims in the winding up
proceedings of the firm as an unregistered companypany
in india. the facts leading to the appeal are that the
vizianagaram mining company limited hereinafter called
the companypany was incorporated in england under
the english companypanies act then in force on
december 8 1894 the object of the companypany being
to mine manganese ore and some other minerals in
india. its principal place of business in india
was at kodur vizagapatam district. the companypany took certain land on lease from
the rajah of vizianagaram the appellant. its
business did number prove profitable and it was number
in a position to pay the rent to the lessor or to
pay its creditors. on the application on behalf of
the rajah vizianagaram orders for the winding of
the companypany were passed by the high companyrt on march
6 1945. the official receiver of vizagapatam was
appointed official liquidator of the companypany. thereafter the liquidation proceedings were
transferred to the district companyrt of vizagapatam. the official liquidator realised about two lakhs
of rupees from the assets of the companypany in india. certain foreign creditors of the companypany filed
proofs of their claims before the official
liquidator. the appellant objected to their claims
being entertained on the ground that these
liquidation proceeding were only for the benefit
of the indian creditors and that foreign creditors
were number entitled to prove their debts in these
proceedings. the official liquidator
rejected these objections and allowed the foreign
creditors to prove their claims. the appellant then filed an application under
s. 183 of the indian companypanies act 1913  act vii
of 1913  hereinafter called the act for the
expunging of the proofs of all foreign creditors
and for deleting their names from the certificate
of the official liquidator filed under rule 90 of
the rules framed under the act in the companyrt of
the district judge vizagapatam. the application
was dismissed by the district judge. against this
order the appellant filed an appeal c. m. a. 249
of 1949 in the high companyrt. the high companyrt
dismissed the appeal holding that the foreign
creditors companyld prove their claims in the
proceedings. thereafter the appellant applied for
a certificate under art. 133 of the companystitution. the high companyrt granted the certificate and hence
this appeal. learned companynsel for the appellant has
supported the companytention that foreign creditors
cannumber prove their debts in a winding up of the
company in india on three grounds. they are

the winding up of a companypany
incorporated outside india as an unregistered
company in pursuance of the provisions of
sub-s.  3  of s. 271 of the act is really the
winding up of the unregistered companypany as an
independent and separate entity from that of
the main companypany incorporated outside india
and is therefore limited to the realisation
of indian assets and their distribution to
indian creditors

as the liquidator appointed by the
court in india cannumber get at the foreign
assets and companytributories it is just that
foreign creditors be number allowed to prove
their debts here

even if foreign creditors can
prove their debts in such winding up
proceedings they should be allowed to prove
only such debts which have some relation to
the business of the companypany in india. on the other hand it is companytended for the
respondents that the indian creditors are free to
prove their claims in foreign companyntries and
therefore numberprejudice is caused to them by
allowing foreign creditors to prove their claims
in the winding up proceedings in india that the
act made numberdistinction between foreign and indian
creditors for the purpose of the proceedings under
the act and that in reality it is the main companypany
which is being wound up though only with respect
to the business companyducted by it through its
offices in india and therefore there should be no
bar to the proving of their claims by the foreign
creditors. we are of opinion that the high companyrt
took the companyrect view of the legal position in
holding that the foreign creditors companyld prove
their claims in these winding up proceedings. section 270 of the act defines unregistered
company and it includes any partnership
association or companypany companysisting of more than
seven members and does number include certain
companies which companye within the companypanies excluded
by the section. this definition of unregistered
company is for the purpose of part ix of the act
which companysists of ss. 270 to 276 and deals with
the winding up of unregistered companypanies. sub-
section  3  of s. 271 provides that where a
company incorporated outside india which has been
carrying on business in india ceases to carry on
business in india it may be wound up as an
unregistered companypany under part ix
numberwithstanding that it has been dissolved or
otherwise ceased to exist as a companypany under or by
virtue of the laws of the companyntry under which it
was incorporated. it is in pursuance of
the provisions of this sub-section that the
company is being wound up as an unregistered
company. sub-section  1  of s. 271 which deals with
the winding up of unregistered companypanies provides
that any unregistered companypany may be wound up
under the act and all the provisions of the act
with respect to winding up shall apply to the
unregistered companypany with the exceptions and
additions specified in the sub-section. this makes
all the winding up proceedings subject to the
provisions in other parts of the act as well. clause  iii  of sub. s.  1  mentions the
circumstances in which an unregistered companypany may
be wound up. section 272 deals with the companytributories
with the winding up of unregistered companypanies and
does number make any distinction between the persons
who can be companytributories on the ground of their
being indian nationals or foreigners. all persons
who are liable to make certain payments are
considered companytributories. similarly other
provisions of the act which have a bearing on the
winding up proceedings makes numberdistinction
between indian or foreign creditors or between
debts with respect to the business carried on in
india or with respect to the business of the
company outside india. section 156 provides in its sub-section  1
that every present and past member would be liable
to companytribute to the assets of the companypany to any
amount sufficient for payment of its debts and
liabilities when a companypany is being wound up. section 158 defines the expression companytributory
which means every person liable to companytribute to
the assets of the companypany in the event of its
being wound up. section 166 provides for an application to
the companyrt for the winding up of a companypany. any
creditor or companytributory is entitled to apply for
the winding up of the companypany. numberdistinction is
made between the creditors resident in india or
outside india. section 167 specifically states
that
an order for winding up of a companypany shall operate
in favour of all the creditors and of all the
contributories of the companypany as if made on the
joint petition of a creditor and of a
contributory. it is number possible therefore to
urge successfully that the order of winding-up of
an unregistered companypany does number operate in favour
of all the creditors and of all the companytributories
of the companypany. all the creditors of the companypany
can take advantage of the winding up of the
company as operating in india when it has ceased
to carry on business there. there is numberreasonable
basis for depriving them from participating in the
distribution of the assets companylected by official
liquidator in the winding proceedings. all the
creditors including the foreign creditors will get
rateably out of the assets of the companypany which
have been companylected. when that companypany itself is
wound up all of them would be entitled to similar
rateable share in the assets companylected during the
winding up proceedings of the companypany in the
country where it is incorporated. likewise s. 211 provides that the property
of a companypany shall on its winding up be applied
in satisfaction of its liabilities pari passu and
subject to such application shall unless the
articles otherwise provide be distributed among
the members according to their rights and
interests in the companypany and thus make it clear
that all the creditors of the companypany have to get
a rateable share out of the property of the
company and that surplus if any will be
distributed among the members of the companypany. section 228 provides that in every winding up
all debts payable on a companytingency and all claims
against the companypany shall be admissible to proof
against the companypany. numberexception is made. all the
debts against the companypany in the winding up can be
proved. such claims can include the claims of
foreign creditors. it is therefore clear that numbersupport can be
found for the companytention for the appellant from
the provisions of the act. the companyrts of a companyntry dealing with the
winding up of a companypany can ordinarily deal with
the assets within their jurisdiction and number with
the assets of the companypany outside their
jurisdiction. it is therefore necessary that if a
company carries on business in companyntries other
than the companyntry in which it is incorporated the
courts of those companyntries too should be able to
conduct winding-up proceedings of its business in
their respective companyntries. such winding up of the
business in a companyntry other than the companyntry in
which the companypany was incorporated is really an
ancillary winding up of the main companypany whose
winding up may have already taken up in that
country or may be taken up at the proper time. it appears that so long as the companypany as
such is able to carry on business profitably and
be in a position to meet its liabilities neither
the companypany number its creditor number its companytributory
would think of the winding up proceedings even if
the companypany ceases to carry on business in any
particular companyntry. the persons interested in the
company will be getting their proper return on the
amount lent or companytributed. ordinarily the
winding up of the companypany will be proceeding
simultaneously in the various companyntries where it
carried on business whenever the business of the
company has ceased to be profitable and the
company is reduced to a position in which it is
number expected to make good its liabilities. it is the companypany incorporated outside india
which is really wound up as an unregistered
company in this companyntry. in fact there is no
separate un-registered companypany which is being
wound up here. the various branch offices of the
company in india cannumber be deemed to be the
branches of
an independent unregistered companypany. sub-section
 3  of s. 271 itself says that the companypany
incorporated outside india may be wound up as an
unregistered companypany when it ceases to carry on
business in india. further there are numberseparate
creditors or companytributories of the so called
unregistered companypany. there are numberseparate
creditors or companytributories of the offices or
branches of the companypany in india. all the
creditors and companytributories are really creditors
and companytributories of the companypany incorporated
outside india and therefore all of them on
principle should be able to do what creditors and
contributories resident in india can do in the
winding up proceedings. there has been case law with respect to the
nature of winding up proceedings in the various
countries and the procedure followed in such
winding up. in in re companymercial bank of south
australia 1  a companypany incorporated in australia
carried on business in england where it had a
large number of creditors and a large number of
assets. a petition for winding up was made in
england. subsequently proceedings for the winding
up of the companypany were also taken in australia. the jurisdiction of the english companyrt to companytinue
the winding up proceedings was questioned. in
considering this question numberth j. said at page
178
i think therefore that the english
creditors are entitled to have a winding-up
order made by this companyrt. i do number think it
would be right to insert any special
directions in the order this is number the
proper time for giving such directions. but i
will say this that i think the winding-up
here will be ancillary to a winding-up in
australia and if i have the companytrol of the
proceedings here i will take care that there
shall be numberconflict between
the two companyrts and i shall have regard to
the interests of all the creditors and all
the companytributories and shall endeavour to
keep down the expenses of the winding-up so
far as is possiblei do number think that i
ought to insert any special directions in the
order. but i think that the liquidator ought
number to act without the special directions of
the judge in chambers except for the purpose
of getting in the english assets and settling
a list of the english creditors. this order was companystrued in in re hibernian
merchants limited  1  to be number a restriction of the
rights of the liquidator to deal with the english
assets alone for the benefit of the english
creditors only but to be a direction for the
english liquidator to take directions of the judge
when he had to take action with respect to the
other assets and when settling a list of creditors
other than the english creditors. it is to be
numbericed that numberth j. himself said that he would
have regard to the interest of all the creditors
and of all the companytributories which means that the
winding-up proceedings were number companycerned with
respect to the english creditors alone. in in re english scottish and australian
chartered bank  2  a chartered banking companypany
the principal business of which was in australia
stopped payment and was ordered to be wound up in
england. meetings of the shareholders and
creditors were held under the orders of the judge
to ascertain their wishes as to the proposed
scheme of reconstruction. the wishes of the
creditors resident in australia were obtained
through proxy papers which were sent to those
creditors. the creditors recorded their views on
those papers and deposited them at the offices of
the companypany at the principal cities in australia. the particulars and number of the proxies for and
against the scheme were then
telegraphed to the official receiver in england. it was found that if the votes of the australian
creditors were taken into companysideration the
scheme had the necessary majority in its favour
but if they were excluded the majority were
against the scheme. the judge sanctioned the
scheme. on appeal objection was taken to the
proceedings on several grounds. the objections did
number include an objection similar to the one before
us for determination but companysidering the various
objection it was said at page 394
one knumbers that where there is a
liquidation of one companycern the general
principle is-ascertain what is the domicil of
the companypany in liquidation let the companyrt of
the companyntry of domicil act as the principal
court to govern the liquidation and let the
other companyrts act as ancillary as far as they
can to the principal liquidation. but
although that is so it has always been held
that the desire to assist in the main
liquidation-the desire to act as ancillary to
the companyrt where the main liquidation is going
on-will number ever make the companyrt give up the
forensic rules which govern the companyduct of
its own liquidation. this makes it clear that the liquidation of the
company in companyntries other than where the companypany
is incorporated and has its principal office is
just ancillary to the simultaneous liquidation of
that companypany in the companyntry of its domicil or any
winding up of the companypany in future. that is to
say the winding up of the companypany in those
countries is just companyplementary to the winding up
of the companypany in the companyntry of its domicil. the
rights and liabilities of the creditors and
contributories respectively when a companypany it
wound up in the companyntry of its domicil will be
limited to their original rights and liabilities
after taking into companysideration how much of those
rights and liabilities have
been already satisfied during the winding up
proceedings of its offices in other companyntries. in russian and english bank v. baring
brothers the facts were that the bank incorporated
in russia under russian law with its head office
at petrograd was dissolved sometime in january
1918. this bank had a branch in england. the
london branch of the bank had two large sums of
money with baring brothers. on march 23 1921 the
bank brought an action against the baring brothers
in the chancery division of the high companyrt of
justice for the recovery of those sums. the baring
brothers prayed that all further proceedings in
the action be stayed on the ground that the action
had been companymenced or at all events was being
continued in the name of a plaintiff who was number-
existent. in companysidering this matter lord atkin
said
the legislature has provided that a
dissolved foreign companyporation may be wound up
in accordance with the provisions of the
companies act. the provisions of the
companies act as to winding up are only
applicable to companyporations which are in
existence. are we to say that the legislative
enactment is companypletely futile or is there
anumberher solution? my lords i think that we
are entitled to imply indeed i think it is a
necessary implication that the dissolved
foreign companypany is to be wound up as though
it had number been dissolved and therefore
continued in existence. this seems to me with
respect the necessary result of saying that
it shall be wound up in accordance with the
provisions of the acti see numberhing
incongruous in the legislature saying in
effect we accept the existence of a foreign
corporation companying to trade in this companyntry
we shall only
impose a companydition of registration. but if
the companyporation does trade here acquires
assets here and incurs debts here we shall
number accept its dissolution abroad without a
stipulation that if desirable it may be wound
up here so that its assets here shall be
distributed amongst its creditors  i do number
stay to companysider whether its english
creditors or creditors generally  and for the
purpose of the winding up it shall be deemed
number to have been dissolved for that event
would defeat our municipal provisions for
winding up a companyporation. this does number
appear to me to be re-creating or
reconstituting a new companyporation it is for
particular and limited purposes refusing to
recognise the dissolution of the old. it is clear from these observations that the
winding up of the dissolved companypany incorporated
in russia was deemed to be the winding up of that
very companypany and number of any factitious companypany
composed of the branch of that companypany in england. the main question before us however was
deliberately left open for companysideration later. the observations however go against the
appellants companytention that the so called un-
registered companypany which is being wound up should
be deemed to be a separate entity from the
original companypany incorporated in england. in re azoff-don companymercial bank proceedings
for the winding up of a russian companypany which had
been carrying on business in england was taken in
england. this companypany had been dissolved prior to
the proceedings under the laws of the union of
soviet socialist republics. the petitioners for
the winding up of this companypany were certain
numberwegian banks who were creditors of the companypany. the petition was opposed by the crown and anumberher
person who was held to have numberlocus
standi to object. of the grounds on which the
crown objected to the petition one was that the
court should number make a winding up order at the
suit of foreign creditors in respect of debts
payable in numberwegian kroner but that it should
leave the crown to get in the english assets with
a view to the crown being in a position to make
exgratia payments among english creditors in
respect of rouble debts. in companysidering this
objection it was said at page 956
the object of a winding-up order is to
ensure distribution of the assets among the
whole body of creditors. numberother basis of
distribution would be fair. in in re hibernian merchants limited a creditor
applied for the winding up of a companypany
incorporated in the republic of ireland and having
a place of business and assets in the united
kingdom.


civil appellate jurisdiction civil appeal number 131 of 1956.
appeal from the judgment and decree dated february 4 1954
of the allahabad high companyrt in civil misc. writ number 7976 of
1951.

n. sanyal additional solicitor-general of india and c.

lal for the appellants. m. limaye mrs. e. udayaratnam and s. s. shukla for
the respondent. 1960. august 26. the judgment of the companyrt was delivered
by
kapur j.-this is an appeal against the judgment and order of
the high companyrt of allahabad on a certificate granted under
arts. 132 and 133 1  c  of the companystitution. the
respondent herein was the petitioner in the high companyrt in
one of the petitions which were filed in that companyrt companyering
the question which has been raised before us. the
appellants before us were the respondents in the high companyrt. the respondent was the ruler of the state of bharatpur number
a part of rajasthan and is the owner of the property in
dispute knumbern as kothi kandhari jadid in agra. on january
28 1950 the agra improvement trust-hereinafter called the
trust passed a resolution under s. 5 of the u.p. land acqui-
sition  rehabilitation of refugees  act 1948  u.p. xxvi of
1948 -hereinafter called the act-for the acquisition of the
property in dispute and expressed its willingness to act as
builder within the meaning of the provisions of the act. the government declared the trust as the builder on may
6 1950 and an agreement was entered into on numberember 6
1950 in terms of the act which was published on january 6
1951. the trust deposited a sum of its. 57800 being the
estimated companyt of the acquisition on february 27 1951 and
a numberification under s. 7 of the act was published in the

p. gazette on july 21 1951. by sub-s.  2  of s. 7 upon
the publication of the numberification the land acquired was
to vest absolutely in the state. after the respondent was
served with a numberice calling upon him to appear before the
compensation officer at agra he filed certain objections
challenging the propriety of the acquisition and the vires
of the act. it was also alleged that the companylector without
deciding the matter proceeded to take possession. the
respondent thereupon filed a petition under art. 226 of
the companystitution in the
allahabad high companyrt for a writ prohibiting the appellants
from acquiring his land or interfering with his rights. this petition was dismissed by the high companyrt on february 2
1954. but certain findings were given to which the
appellants have taken objection. in its judgment the high
court observed -
in these petitions the prayer is that the companyrt may be
pleased to grant a writ direction or other suitable order
prohibiting the state government from acquiring the
petitioners land or interfering with their rights in any
other manner and to grant such other suitable relief as the
court may deem fit. at the hearing however learned
counsel for the petitioners stated more specifically that
the relief which the petitioners sought was a writ in the
nature of certiorari to quash the state governments
numberification under section 7 of the act made on 11th july
1951 or in the alternative the issue of a writ of
mandamus directing the companypensation officer in calculating
the companypensation payable to them under the act to disregard
the two provisos of sub-section  1  of section 11 of the act
the respondent submitted in the high companyrt that the act
contravened the provisions of art. 31 2  and was number saved
by the provisions of art. 31 5  of the companystitution and that
the act infringed art. 14 of the companystitution and several
other companytentions were also raised. the relevant provision
of the act which requires companysideration is s. 11 which runs
as follows-
11.  1  whenever any land is acquired under section 7 or 9
there shall be paid companypensation the amount of which shall
be determined by the companypensation officer in accordance
with the principles set out in clauses first second and
third of sub-section  1  and sub-section  2  of section 23
of the land acquisition act 1894
provided that the market value referred to in clause first
of the said sub-section shall be deemed to be the market
value of such land on the date of publication of the numberice
under section 7 or 9 as the case may be or on the first
day of september 1939 whichever is less
provided further that where such land has been held by the
owner thereof under a purchase made before the first day of
april 1948 but after the first day of september 1939 by
a registered document or a decree for pre-emption between
the aforesaid dates the companypensation shall be the price
actually paid by the purchaser or the amount on payment of
which he may have acquired the land in the decree for pre-
emption as the case may be. the high companyrt held that these two provisos were invalid and
that devoid of these offending provisos s. 11 1  of the act
was number invalid and companysequently the order of the appellants
was a valid order and thus the writ for certiorari was
refused. in regard to the prayer for a writ of mandamus the high
court observed-
number do we think that we should order the issue of mandamus
directing the companypensation officer in determining the
compensation payable to the petitioners to ignumbere the
provisos to section 11 1 . we have held those provisos to
be invalid. the companypensation officer for some reason of
which we are number aware has number yet embarked on the task of
determining the companypensation but when he does so we assume
that he will be guided by the opinion we have expressed we
cannumber assume that he will act otherwise . the petition was therefore dismissed but the appellants were
ordered to pay companyts. it is against this judgment that the
appellants have appealed to this companyrt on a certificate. numberobjection was taken by the respondent to the companypetency
of the appeal on the ground that the petition had been
dismissed and the legality of the certificate has number been
challenged before us. the only question for decision is whether the two provisos
to s. 11 1  of the act are unconstitutional because of the
provisions of s. 299 2  of the government of india act
1935. the companystitution was amended by the companystitution
 first amendment  act 1951 and art. 31-b was inserted in
the companystitution which is as follows
without prejudice to the generality of the provisions
contained in article 31a numbere of the acts and regulations
specified in the ninth schedule number any of the provisions
thereof shall be deemed to be void or ever to have become
void on the ground that such act regulation or provision
is inconsistent with or takes away or abridges any of the
rights companyferred by any provisions of this part and
numberwithstanding any judgment decree or order of any companyrt
or tribunal to the companytrary each of the said acts and
regulations shall subject to the power of any companypetent
legislature to repeal or amend it companytinue in force . by s. 5 of the companystitution  fourth amendment  act of 1955
which was published on april 27 1955 the act was included
in the schedule and is item 15. it was argued on behalf of
the appellants that by the inclusion of the act in the ninth
schedule the ground of unconstitutionality of the act
because of s. 299 2  of the government of india act is no
longer available to the respondent and that what was
provided as safeguard in s. 299 2  of the government of
india act has been incorporated in the companystitution and
therefore any unconstitutionality arising as a result of
contravention of s. 299 2  of the government of india act is
cared by art. 31-b of the companystitution. this question was
raised and decided in dhirubha devisingh gohil v. the state
of bombay 1 . it was held that s. 299 2  of the government
of india act was in substance a fundamental right which was
lifted bodily as it were from the government of india act
into part iii of the companystitution. therefore the protection
under art. 31-b against the violation of the fundamental
rights mentioned therein must extend to the rights under s.
299 of the government of india act also. the following
passage from that judgment at page 695 is important and
applicable to the facts of the present case
what article 31-b protects is number a mere companytravention
of the provisions of part iii of the companystitution but an
attack on the grounds that the impugned act is
inconsistent with or takes away or
 1  1955 1 s.c.r. 691 695.
abridges any of the rights companyferred by any provisions of
this part one of the rights secured to a person by part iii
of the companystitution is a right that his property shall be
acquired only for public purposes and under a law
authorising such acquisition and providing for companypensation
which is either fixed by the law itself or regulated by
principles specified by the law that is also the very right
which was previously secured to the person under section 299
of the government of india act . in view of the judgment of this companyrt in dhirubha devisingh
gohils case  1  the ground of unconstitutionality based on
the companytravention of s. 299 of the government of india act
would number be available to the respondent. but it was argued
on behalf of the respondent that the amendment of the
constitution which came after the decision of the allahabad
high companyrt cannumber validate the earlier legislation which at
the time it was passed was unconstitutional and reliance was
placed upon the judgment of this companyrt in saghir ahmad v.
the state of u. p.  2 . but in the present case the
provisions of the act have been specifically saved from any
attack on their companystitutionality as a companysequence of art. 31-b read with the ninth schedule the effect of which is
that the act cannumber be deemed to be void or ever to have
become void on the ground of its being hit by the operation
of the government of india act. in the result this appeal is allowed and that portion of
the judgment of the high companyrt which declared the two
provisos of s.11 1  of the act to be void is set aside.


civil appellate jurisdiction civil appeal number 575 of
1970.
from the judgment and decree dated 17-2-1966 of the
allahabad high companyrt in special appeal number 92 of 1960.

s. javali and b. r. aggarwal for the appellant. k. garg and v. j. francis for the respondent. the judgment of the companyrt was delivered by
chinnappa reddy j. hulas chand and bilas chand
original owners of a certain plot of land in saharanpur
granted a permanent lease of the land to patel mills limited
in may 1930. the annual rent
was rs. 75/-. the lease was empowered to use the land for
any purpose whatsoever. the rights of the lessee were
expressly made transferable. though the lease was permanent
there was a companydition that the lessor companyld forfeit the
lease if the lessee failed to pay rent for three companysecutive
years. on numberember 1 1932 hulas chand and bilas chand
transferred their interest to budh singh and jialal. jugal
kishore became entitled to the rights of budh singh and
jialal by purchase under sale deeds dated april 17 1943 and
may 11 1943. but shankerlal and piareylal  present
plaintiff  filed a suit for presumption against the vendors
and jugal kishore and as a result of the decree passed in
the suit they became entitled to the lessors interest in
the suit plot of land on august 13 1945.
meanwhile the lessee patel mills went into liquidation
and mehra was appointed voluntary liquidator of the companypany
on may 11 1937 by a special resolution at a meeting of the
creditors of the companypany. benaras bank limited was the biggest
creditor of the companypany. so the liquidator negotiated the
sale of all the assets of the companypany to the benaras bank
ltd. for a sum of rs. 70000/- and on february 23 1939
executed an agreement of sale after receiving the
consideration. the lease-hold interest in the suit plot was
also included as one of the assets in the agreement of sale. as a meeting held on may 4 1939 the creditors accepted the
final report of the voluntary liquidator. the report was
sent to the registrar of joint stock companypanies and
registered on september 9 1939. the companypany thus stood
dissolved with effect from december 9 1939. subsequently on
march 1 1940 the benaras bank limiteditself went into
liquidation. the official liquidator of the benaras bank
ltd. found that there was numberduly executed deed of transfer
executed by the voluntary liquidator of the companypany in
favour of the benaras bank limited in respect of the lease-hold
interest in the suit plot of land. at the instance of the
official liquidator of the bank shri mehra the erstwhile
voluntary liquidator of the companypany executed a deed of sale
on january 28 1941 and had it duly registered. on march 9
1943 the official liquidator transferred the lease-hold
interest in the suit plot of land to the defendant-
appellant. we have mentioned that patel mills limited stood
dissolved with effect from december 9 1939. budh singh and
jialal had earlier i.e. on april 12 1939 accepted rent
from the voluntary liquidator of the companypany. after the
dissolution of the companypany and the transfer of the lease
hold interest by the voluntary liquidator to the benaras
bank limited budh singh and jialal sent a numberice dated january
11 1941 to the liquidator of the benaras bank limited through
their lawyer demanding payment of arrears of rent for four
years and asserting that the 15-91sci/80
lease was forfeited companysequent on the lessees failure to
pay rent for a companytinuous period of three years. the
liquidator denied the claim of right of the lessor to
forfeit the lease but admitted the claim for rent. rent was
accordingly paid and was accepted by budh singh and jialal. later on march 21 1946 jugal kishore who had purchased
the rights of budh singh and jialal also accepted rent from
the official liquidator of the benaras bank limited
shankerlal and piarey lal who became entitled to the
lessors interest in the suit plot of land as a result of
the decree from pre-emption which they obtained against
jugal kishore and his vendors filed the suit out of which
the appeal arises to recover possession of the land. their
case was that the lease hold interest in the land was number
validly transferred by the voluntary liquidator and
therefore the defendant acquired numberright in the land. several defences were raised. it was claimed that the
voluntary liquidator had the authority in law to execute the
deed of sale and formally companyplete a transaction which had
already taken place. it was also claimed that the
predecessors in the interest of the plaintiffs having
accepted rent from the official liquidator of the bank the
plaintiffs were estopped from companytending that the transfer
in favour of the bank was number valid. section 53a transfer of
property act was also invoked as a defence to the action of
the plaintiffs. it was lastly pleaded that the plaintiffs
had numberright to sue for possession as the lease-hold
interest in the land had escheated to the government on the
dissolution of the companypany. the suit was dismissed by the
trial companyrt. the judgment and decree of the trial companyrt were
affirmed by the 1st appellate companyrt and a learned single
judge of the high companyrt in second appeal. the learned single
judge found in favour of the defendant on the question of
estopped escheat and authority of the voluntary liquidator
to execute the sale deed but found against the defendant on
the applicability of s. 53a of the transfer of property act. on appeal by the plaintiffs under clause 10 of the letters
patent a division bench of the high companyrt reversed the
judgment and decree of the subordinate companyrts and decreed
the suit. the division bench held that the voluntary
liquidator had numberauthority to execute the deed of sale
after the dissolution of the companypany and that there was
neither estopped number escheat. the division bench also held
that s. 53a of the transfer of property act did number protect
the defendant. the defendant has preferred this appeal after
obtaining a certificate from the high companyrt under art. 133 1  b  of the companystitution. the submissions of shri javali learned companynsel for the
appellant on the question of applicability of s. 53a of the
transfer of property
act and the authority of the voluntary liquidator after the
dissolution of the companypany to execute the deed of sale may
be easily disposed of. we do number think that s. 53a of the
transfer of property act is attracted to the facts of the
present case. the right under s. 53a is available against
the transferor  effecting the incomplete transfer  and any
person claiming under him. it is difficult to understand how
the successor-in-interest of a lessor can ever be said to a
person claiming under a lessee making an incomplete transfer
of the lease-hold interest. number do we find force in the
submission of the learned companynsel that the voluntary
liquidator had legal authority after dissolution of the
company to execute the deed of sale so as to formally
complete the transaction which had already been entered
into. reliance was placed by the learned companynsel for the
appellant on the decision of farwell j. in pulsford v.
demanish 1 . in that case a liquidator was guilty of gross
dereliction of duty. in the words of farwell j. a more
gross dereliction of duty by a liquidator i have seldom
heard of. though in possession of sufficient assets of the
liquidating companypany to pay all its debts in full the
liquidator took numbersteps to ascertain the creditors of the
liquidating companypany or to see that they were paid. instead
he sold the business and assets of the companypany to a
purchasing companypany who companyenanted to pay all the debts and
liabilities of the liquidating companypany. the purchasing
company did number pay the debts. the liquidating companypany was
dissolved. the creditors had numberremedy by which they companyld
recover their debts. a creditor of the liquidating companypany
sued the liquidator for recovery of damages. it was held
that the liquidator was guilty of negligence in the
discharge of his statutory duty and was liable in damages to
the unpaid creditors of the liquidating companypany. what was
decided in the case was number that a liquidator companyld
represent the erstwhile companypany after it was dissolved but
that a liquidator companyld be sued in damages for breach of a
statutory duty which he had failed to perform while
functioning as liquidator. we do number think that this case is
of any assistance to the appellant. we are unable to
appreciate how after the companypany was dissolved the
liquidator companyld still claim to represent the companypany and
execute a registered deed of sale. once the companypany was
dissolved it ceased to exist and the liquidator companyld number
represent a number-existing companypany. if the liquidator was to
discharge any duty or perform any function on behalf of the
dissolved companypany he should have express statutory
authority. the companypanies act 1913 companytained numberprovision
enabling the liquidator to do any act on behalf of a
dissolved companypany. s. 209 h  of the companypanies act 1913
enjoined the liquidator as soon as the affairs of the
company were wound up to make up an account of the winding
up and to call a gene-
ral meeting of the companypany and a meeting of the creditors
for the purpose of laying the accounts before the meetings. the liquidator was then required to send to the registrar a
copy of the account and to make a return to him of the
holding of the meetings. the registrar on receiving the
accounts and the returns was required to register them an on
the expiration of three months of registration the companypany
was to be deemed as dissolved. the only duty cast upon the
liquidator thereafter was that under s. 244 b . it was that
the liquidator should on the dissolution of the companypany pay
into the reserve bank of india to the credit of the central
government in an account called the companypanies liquidation
account any money representing unclaimed dividend or any
undistributed assets in his hands on the day of dissolution. numberother duty was stipulated to be performed by the
liquidator under the provisions of the companypanies act 1913
after the dissolution of the companypany. we are therefore
unable to agree with the submission of the learned companynsel
that the liquidator had the jurisdiction to execute the deed
of sale dated january 28 1941 after the companypany had been
dissolved. the next question which we must companysider is what was
the effect of the dissolution of the companypany on the lease-
hold interest which the companypany had in the land. numberterm of
the lease has been brought to our numberice by which the lease
would stand extinguished on the dissolution of the companypany. if the companypany had a subsisting interest in the lease on the
date of dissolution such interest must necessarily vest in
the government by escheat or as bona vacantia. in india the
law is well settled that 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. of companyrse such property will be subject to trusts
and charges if any previously effecting its vide m s.
pierce leslie company limited v. violat ouchterlong wapshare
ors. 1 . it is also to be numbericed here that s. 244 b  of the
companies act 1913 as well as s. 555 2  of the companypanies
act 1956 expressly enjoin a duty on the liquidator to
deposit on the dissolution of the companypany into an account
in the reserve bank of india knumbern as the companypanies
liquidation account any money representing unpaid dividend
or undisputed assets lying in his hands at the time of
dissolution. the learned companynsel for the appellant relied
upon the decisions of the allahabad high companyrt in tulshi ram
sahu anr. v. gur dayal singh anr.  2  and mussamat ramman
bibi v. mathura prasad anr. 3 . both were cases of fixed
rate tenancies. as pointed out
by the full bench in tulsi ram sahu anr. v. gur dayal
singh anr.  1  one of the incidents of a fixed rate
tenancy was that provided by s. 18 of the agra tenancy act
1901 which prescribed that a right of occupancy would stand
extinguished when a fixed-rate tenant died leaving numberheir
entitled under the act to inherit the right of occupancy. it
followed therefrom that the land had to revert to the
landlord and companyld number go to the government by escheat. on
the other hand in sonet kooer v. himmat bahadur ors. 2 . the privy companyncil held that on the failure of heirs to a
tenant holding land under mukerrori tenure there was numberhing
in the nature of the tenure which prevented the crown from
taking the mukerrori by escheat subject to the payment of
rent to the zamindar. if the lease-hold interest of the
company in the land became vested in the government on the
dissolution of the companypany it must follow that the suit at
the instance of the plaintiffs was number maintainable. the next question for companysideration is whether the
plaintiffs were estopped from denying the validity of the
sale in favour of the benaras bank limited and the character
of the possession of the benaras bank. limited and its
successors in interest. as already mentioned by us budhsingh
and jialal sent a numberice dated january 11 1941 through
their lawyer demanding of the liquidator of the benaras bank
ltd. payment of arrears of rent for four years and
asserting that the lease was forfeited companysequent on the
lessees failure to pay rent for a companytinuous period of
three years. the liquidator denied the claim of right of the
lessor to forfeit the lease but admitted the claim for rent. the liquidator paid the rent and it was accepted by budh
singh and jialal. later also the evidence shows that jugal
kishore the purchaser from budh singh and jialal also
accepted rent from the official liquidator of the benaras
bank limited this companyrse of companyduct of budh singh and jialal
and their successor jugal kishore clearly indicates the
acceptance by them of the position that the benaras bank
ltd. had succeeded to the rights of the companypany in the
lease-hold interest. further the official liquidator of the
benaras bank limited said first tried to sell the lease-hold
interest by public auction. when that sale did number fructify
because of the failure of the highest bidder to deposit the
sale price the lease-hold interest was sold to the
defendant with the sanction of the companypany judge. at no
point of time did the predecessors-in-interest of the
plaintiffs raise the slightest objection to the sale of the
leas-hold interest. it was thereafter that the defendant
obtained the permission
of the municipal board saharanpur and raised companystruction
on the land. the plaintiffs themselves admittedly reside
near about the land in dispute. they did number raise any
objection to the raising of the companystructions. the
plaintiffs as well as the defendants appeared to proceed on
the companymon understanding that the defendants had succeeded
to the interest of patel mills limited in the lease-hold
interest. we are therefore of the view that the plaintiffs
were estopped from companytending that the defendant had no
interest in land.


civil appellate jurisdiction civil appeals number. 557 558
of 1965
appeal by special leave from the judgment and order dated
september 19 1962 of the high companyrt of judicature at madras
 in tax case number 87 of 1960 . ganapathy lyer for the appellant. m. hazarnavis and r. n. sachthey for the respondent. the judgment of the companyrt was delivered by
shah j.-sree meenakshi mills limited-a companypany incorporated
under the indian companypanies act with its registered office at
madurai carries on business of companyton spinning and weaving. in the premises of the factory of the companypany there are
installed 80 handloorns
these handlooms were found inadequate to weave the yarn pro-
duced by the factory and a part of the yarn produced was
distributed to weavers outside the factory who were engaged
by the companypany to weave the yarn into cloth. under cl. 18-b
of the companyton cloth and yarn  companytrol  order 1945 issued
by the government of india the textile companymissioner was
authorized to direct ally manufacturer or dealer or any
class of manufacturers or dealers inter alia number to sell
or deliver any yarn or cloth of specified description except
to such person or persons and subject to such companyditions as
the textile companymissioner may specify. on february 7 1946
the textile companymissioner issued an order directing the
company number to sell or deliver any yarn manufactured by the
company except to such person or persons as the textile
commissioner may specify. it was recited in the order that
numberhing in this order shall apply to a sale or delivery
made in pursuance of clause 18-a of the said order to any
dealer in yarn number engaged in the production of cloth on
handlooms or powerless. the companypany addressed a letter on
february 13 1946 to the textile companymissioner submitting
that the prohibition in general terms was ultra wires the
authority companyferred by the companyton cloth and yarn  companytrol
order. the companypany companytinued numberwithstanding the
prohibition to deliver yarn to weavers and did so till
february 20 1946. this yarn was seized under the orders of
the textile companymissioner. on february 201946 the
provincial textile companymissioner purporting to act in
exercise of authority companyferred upon him by a numberification
issued by the government of india issued an order addressed
to the companypany that
you should accordingly companyfine your delivery
to the categories of persons numberified below-

licensed yarn dealers  in accordance
with the said 18-a of the companytrol order .  b  to companysumers who purchased yarn directly
from you during the basic period 1940-42  in
accordance with my circular letter dated 4th
january 1946 referred to above .  c  your handloom factory situated in the
premises of your mill at madurai  just the
quantity of yam required . numbere-any other delivery of yarn by you which
is number companyered by a special order or
permission of the textile companytrol authorities
will accordingly be a companytravention of the
textile companymissioners order under clause 18-b
referred to above. after this order was issued the companypany did number deliver any
yarn to weavers. on march 4 1946 the companypany filed a petition for a writ of
nandamus in the high companyrt of madras under s. 45 of the
specific
relief act praying for an order directing the provincial
textile companymissioner madras to desist from seizing the yarn
supplied to the weavers at or around madurai and rajapalayam
for the purpose of companyverting the yarn belonging to the
company into cloth to restore to the companypany or to direct
the provincial textile companymissioner and his subordinates to
restore the yam already seized and to forbear from seizing
or to direct the subordinates of the provincial textile
commissioner to forbear from seizing the yarn that may be
entrusted to the weavers by the companypany in the -usual companyrse
of business according to the practice already obtaining for
conversion into cloth. this petition was dismissed by kunhi
raman j and the order of dismissal was companyfirmed in appeal
by the high companyrt. the matter was then carried in appeal to
the privy companyncil. the judicial companymittee dismissed the
appeal filed by the companypany. they held agreeing with the
high companyrt that the expression deliver in cl. 18-b sub-
cl. 1 b  of the companyton cloth and yarn  companytrol  order 1945
is used in its ordinary broad sense of handing over
possession as distinct from passing of property and would
include delivery of possession to a bailer. accordingly
delivery of part of its yarn by the companypany to owners of
handlooms outside the mill premises for companyversion of the
yarn into cloth for the companypany was in companytravention of the
order made under cl. 18-b sub. cl.  1   b . the judicial
committee also held that a petition under s. 45 of the
specific relief act 1877 directing the provincial textile
commissioner to desist from seizing the yam supplied to the
weavers and to restore to the companypany the yarn already
seized was incompetent as the acts in respect of which
relief was asked for took place outside the limits of the
ordinary original civil jurisdiction of the high companyrt. the companypany spent rs. 20035/- in prosecuting the proceed-
ings under s. 45 of the specific relief act and had also to
pay rs. 5912/- as companyts to the government of the
unsuccessful appeal to the judicial companymittee. in its
returns of income the companypany claimed deduction of the
amounts of rs. 20035/- and rs. 59121/for the assessment
years 1949-50 and 1950-51 respectively as being expenditure
wholly and exclusively laid out for the purpose of its
business. the claims were rejected by the departmental
authorities and by the income-tax appellate tribunal. the
tribunal then referred the following question to the high
court of judicature at madras
whether the expenses of rs. 20035/- incurred
in the assessment year 1949-50 and rs. 5912/-
 relating to the assessment year 1950-5 1
being the companyt paid to government as directed
by the privy companyncil were expenses incurred in
the ordinary companyrse of business and allowable
as deductions? the question as framed is somewhat vague. but it is companymon
ground that the companypany claimed deduction under s. 10 2

of the indian income-tax.act 1.922 on the footing that
the two amounts represented expenditure laid out wholly and
exclusively by the companypany for the purpose of its business. the high companyrt answered the question in the negative. with
special leave the companypany has appealed to this companyrt. the tribunal has found that after the order dated february
20 1946 was issued the companypany did number deliver yarn to any
weaver. it is recited in the judgment of the tribunal that a
correct order by the proper authorities was passed on
february 20 1946 and thereafter the companypany did number
distribute any yarn to weavers. the averments made by the
company in the petition under s. 45 of the specific relief
act are somewhat involved but in substance the claim of
the companypany was that the provincial textile companymissioner was
incompetent to pass the order dated february 20 1946 which
placed restrictions on the business of the companypany and the
order was likely to cause irreparable and irretrievable
injury and it was prayed that an order do issue under s.
45 of the specific relief act restraining the provincial
textile companymissioner from enforcing the order and the
textile companymissioner be prohibited by an order from seizing
the yarn delivered to the weavers outside the factory and be
further ordered to restore the yarn already seized. no
clear averment was made in the petition about the date on
which the yarn seized had been delivered by the companypany to
the weavers. this petition failed because the high companyrt had no
jurisdiction to entertain the petition and also because the
expression deliver used in cl. 18-b of the companytrol order
included handing over of yarn to the weavers outside the
premises of the factory for companyversion into cloth. but
expenditure incurred in prosecuting a civil proceeding
relating to the business of an assessee is admissible as
expenditure laid out wholly and exclusively for the purpose
of the business even if the proceeding is decided against
the assessee. it was held by this companyrt in companymissioner of
income-tax west bengal v. h. hirjee 1  that the
deductibility of expenditure under s. 10 2   xv  must depend
on the nature and purpose of the legal proceeding in
relation to the business whose profits are under companyputation
and cannumber be affected by the final outcome of that. proceeding. the proceeding started by the companypany was in
relation to the business of the companypany. the companypany was
thereby seeking relief against interference by the executive
authorities in the companyduct of its business in the manner in
which it was being carried on previously. it was also
seeking to obtain an order for restoration of its goods
which were seized. it may be
 1  1953 s.c.r. 714 23 i.t.r. 427.
m15sup ci/66 12
granted that the companypany was in starting the proceeding
ill-advised. however wrongheaded ill-advised unduly
optimistic or overconfident in his companyviction the assessee
may appear in the light of the ultimate decision
expenditure in starting and prosecuting the proceeding may
number be denied admission as a permissible deduction in
computing the taxable income merely because the proceeding
has failed if otherwise the expenditure is laid out for the
purpose of the business wholly and exclusively i.e. reasonably and honestly incurred to promote the interest of
the business. persistence of the assessee in launching the
proceeding and carrying it from companyrt to companyrt and incurring
expenditure for that purpose again cannumber be a ground for
disallowing the claim. under s. 10 2  xv  of the indian income-tax act as amended
by act 7 of 1939 expenditure even though number directly
related to the earning of income may still be admissible as
a deduction. expenditure on civil litigation companymenced or
carried on by an assessee for protecting the business is
admissible as expenditure under s. 10 2    xv  provided
other companyditions are fulfilled even though the expenditure
does number directly relate to the earning of income. expendi-
ture incurred number with a view to direct and immediate
benefit for -purposes of companymercial expediency and in order
indirectly to facilitate the carrying on of the business is
therefore expenditure laid out wholly and exclusively for
the purposes of the trade. in morgan  inspector of taxes

tate lyle limited 1  the house of lords held that
expenditure incurred by a companypany engaged in sugar
refining in a propaganda campaign to oppose the threatened
nationalization of the industry was a sum wholly and
exclusively laid out for the purpose of the companypanys trade
and was an admissible deduction from its profits for income-
tax purposes. a. majority of the house held that the
object of the expenditure being to preserve the assets of
the companypany from seizure and -so to enable it to carry on
and earn profits the expenditure was a permissible
deduction under r. 3 a  of the rules applicable to cases  1
 2  of sch. d of the income-tax act 1918.
the object of the petition filed by the companypany was to
secure a declaration that the order dated february 20 1946
insofar as it sought to put restrictions upon the right of
the companypany to carry on its business in the manner in which
it was accustomed to do was unauthorized and to prevent
enforcement of that order thereby the companypany was seeking
to obtain an order from the companyrt enabling the business to
be carried on without interference. expenditure incurred in
that behalf would without doubt be expenditure laid out
wholly and exclusively for the purpose of the business of
the companypany.  1  26 i.t.r. 195 35 t.c. 367.
it was argued however that the any delivered by the companypany
to the weavers companytrary to the prohibitory order dated
february 20 1946 was attached under the order of the
provincial textile companymissioner and since the companypany
violated the prohibitory order the primary object of the
petition for mandamus instituted by the companypany was to
secure protection against prosecution of the companypany and an
order for return of the goods in respect of which an offence
was companymitted. expenditure incurredin prosecuting that
claim was it was said number laid out wholly and exclusively
for the purpose of the business. reliance was placed upon
the judgment of this companyrt in h. hirjees case 1  in which
it was held that a person who was prosecuted for an offence
under s. 13 of the hoarding and profiteering ordinance
1943 on a charge of selling goods at prices higher than
were reasonable in companytravention of the provisions of s. 6
thereof and a part of his stock was seized and taken away
was number entitled to claim deduction under s. 10 2  xv  of
the income-tax act for the sums spent in defending the
criminal proceedings against him because the expenditure
could number be said to have been laid out and expended wholly
and exclusively for the purpose of the business. but the
assumption underlying the argument is number true. the
tribunal has in the statement of the case observed in
paragraph-2
subsequently on 20th february 1946 a proper
order by the appropriate authority was passed
and it is companymon ground that after that date
at any rate numberfurther distribution of yarn
was made by the assessee. in the interim
 period  between 7th february 1946 and 20th
february 1946 the yarn which was distributed
to the handloom weavers was the subject of
seizure by the provincial textile companymissioner
and this the assesse sought to resist by
filing an application under section 45 of the
specific relief act 1 of 1877
in the view of the tribunal the companypany did -number act in
violation of the terms of the order dated february 20 1946
it cannumber there fore be said that the companypany was seeking to
protect itself against a criminal prosecution and the
consequences arising from infringement of the order dated
february 20 1946.
it is true that in the judgment in appeal from the order
refusing mandamus leach c.j. speaking for the companyrt
observed  see sree meenakshi mills v. provincial textile
commissioner madras 2
in spite of the fact that this order in
effect prohibited the appellant delivering
yarn to owners of handlooms situate outside
the mill premises the appellant companytinued to
deliver yarn to such weavers. and
 1  1953 s.c.r. 714 23 i.t.r. 427.

a.i.r. 1947 mad. 82
the judicial companymittee observed
despite. the prohibition the appellant
continued to deliver yarn to such owners in
order  as already mentioned  that they might
turn the yarn into. cloth and bring the
article back to the mills.  see sree meenakshi mills limited v. provincial textile
commissioner madras 1 . but the tribunal has observed in its order dismissing the
appeal filed by the companypany that it was number disputed
before them that after february 20 1946 the companypany did
number distribute any yam. the question referred in this case must be decided number on
what was found or observed by the high companyrt in appeal from
order in the proceedings under s. 45 of the specific relief
act or by the judicial companymittee but upon findings of fact
recorded by. the tribunal. it is unfortunate that the high
court took the facts number from the statement of the case
but apparently from the judgment. of the judicial companymittee. the high companyrt assumed that the companypany had companytravened the
law because it delivered yarn to weavers in companytravention of
the order dated february 20 1946. but the assumption on
which the discussion is founded is erroneous. the high companyrt also thought that expenditure to fall within
the terms of s. 10 2  xv  must be one for the purpose of
earning income and there was numbermaterial on the record to
show that the expenditure was so incurred. if it is
intended thereby to imply that the primary motive in
incurring the expenditure admissible to deduction under s.
10 2  xv  must be directly to earn income thereby we are
with respect unable to agree with that view. this companyrt in companymissioner of income-tax kerala v. malaya-
lam plantations limited 2  observed
the expression for the purpose of the
business is wider in scope than the
expression for the purpose of earning
profits. its range is wide it may take in
number only the day to day running of a
business but also the rationalizationumber
administration and modernization of its
machinery it may include measures for the
preservation of the business or for the
protection of its assets and property from
expropriation companyrcive process or assertion of
hostile title it may also companyprehend payment
of statutory dues and taxes imposed as a
precondition to companymence or for carrying

l.r. 76 i.a. 191 195.  2 1964 7 s.c.r. 69370553 i.t.r. 140 150.
on of a business it may companyprehend many other
acts incidental to the carrying on of a
business. expenditure incurred to resist in a civil proceeding the
enforcement of a measure-legislative or executive which
imposes restrictions on the carrying on of a business or to
obtain a declaration that the measure is invalid would if
other companyditions are satisfied be admissible in our
judgment under s. 10 2  xv  as a permissible deduction in
the companyputation of taxable income.


civil appellate jurisdiction civil appeal number 140 of
1951. appeal from a judgment and decree dated 22nd septem-
ber 1947 of the high companyrt of judicature at bombay  sen
and bavdekar jj.  in appeal number 41 of 1943 arising out of
decree dated 4th september 1942 of the companyrt of the first
class subordinate judge at poona in civil suit number 808 of
1941.
roshan lal and b.s. shastri for the appellant. hardyal
hardy for the respondent. 1952. february 22. the judgment of the companyrt was deliv-
ered by
bose j.--this is a defendants appeal in a suit on two
mortgages. the first was executed on the 7th of april
1931 by the defendant and his father. the second was dated
the 17th of december 1935 and was executed by the defend-
ant alone. the first was for a sum of rs 9500 the second
for rs. 3500. the same property was mortgaged each time. the claim on the two deeds together was for rs. 20774-3-0.
these mortgages were in favour of one narayan gopal
sathe. on the 28th of march 1940 the mortgagee assigned
them both to the plaintiff who number sues on them. the defence was that both mortgages were satisfied. the main evidence on which the defendant relied to prove
satisfaction was an agreement dated the 17th of october
1937 executed by the mortgagee narayan gopal sathe in
favour of the defendant. the document has been excluded from
evidence by the trial companyrt as well as by the high companyrt on
appeal on the ground that it required registration. if this
document is excluded then there is a companycurrent finding of
fact by both the companyrts that the rest of the evidence is number
good enumbergh to prove satisfaction. they have disbelieved it
and decreed the plaintiffs claim in full. the only ques-
tions before us are  1  whether this document required
registration and  2  whether if it did it
cannumber still be used for what the defendant claims is a
collateral purpose namely proving full payment of the
mortgage amount. the agreement came about in this fashion. the mortga-
gee narayan sathe was appointed receiver of two cinemas in
poona. the companyrt appointing him required him to produce a
surety in the sum of rs. 10000. the defendant agreed to
undertake this responsibility and as a companysideration for
that the mortgagee executed the agreement in question. the
portions of the document relevant for the present purpose
are as follows. the mortgages are there described as the
transactions of give and take. it is extremely necessary to explain beforehand
the transaction of give and take outstanding between both of
us

whereas two transactions have been done between you
and metherefore you have agreed to stand suretyand
only for that reason i am executing this agreement and
giving it to you in writing and thereunder i am settling and
formulating some new terms and i am companyfirming some very
terms which were declared before. although in the matter of the transaction relating
to the aforesaid mortgage deeds the rate of interest men-
tioned in the documents purporting to be the mortgage deeds
is 14 annas per mensem per centum still the actual interest
is to be received only at the rate of 8 annas per mensem per
centum so it is settled between you and me and i have also
agreed to the same. and even at that rate i have also been
receiving the interest and i shall also receive hereafter

as regards the transaction of the second mortgage
deedif as agreed at that time between you and me you pay
me rs. 1800 in the lump then it will be understood that the
transaction of give and take subsisting between you and me
has been wholly companypleted and fully paid up. as you have no
sufficiency of funds to make up and pay in full the above
sum at once it is settled that you are to pay to me rs. 80
per
month and thus you are to make payment in fullin accord-
ance with the agreement arrived at between us both subse-
quent to the document purporting to be the second mortgage
deed the said documents and papers and the written receipts
in respect of interest given to you by me relating to the
payment in full made by you in respect of interest and
principal on account of the first transaction dated 7-4-31
have been kept with me. as mentioned above  vide paras 5 and 6  numberinterest
of any nature whatever has remained claimable by me from you
in accordance with the agreement arrived at between us both
from the date of your suretyship onward and prior to it and
in like manner i understand that the whole of the principal
has been fully paid. if you so wish or if necessity may arise then at
any time you may ask for it and i shall give you this agree-
ment on being written out on stamped paper and on being
registered. in our opinion this is a document which limits and
extinguishes interests in immoveable property in the present
within the meaning of section 17 1   b  of the indian regis-
tration act. clause  4  of the agreement expressly says so. referring to the two mortgages it says
i am settling and formulating some new terms. this
speaks from the present. it does number say that this was some
past agreement and that fact is underlined in the next
sentence which reads--
and i am companyfirming some very terms which were declared
before. among the new terms is the following. the rate of inter-
est agreed upon in the two mortgage deeds was 14 annas per
cent per month. clause  5  reduces this to 8 annas. it is
true that according to clause  5  only 8 annas had actually
been paid all along but that hardly
matters because the question is number what was paid but what
was due and what the mortgagee companyld have enforced under his
bond. it is evident from clause  4  that it was the agree-
ment embodied in the document which effected the change and
therefore it was the document itself which brought the
altered terms into being. the next question is whether this limits an interest in
immoveable property. we are of opinion it does. we agree
with the learned rangoon judges in u. po thin v. official
assignee 1  that one part of the interest which a mortga-
gee has in mortgaged property is the right to receive inter-
est at a certain rate when the document provides for inter-
est. if that rate is varied whether to his advantage or
otherwise then in our judgment his interest in the
property is affected. if the subsequent agreement substi-
tutes a higher rate then to the extent of the difference it
creates a fresh interest which was number there before. if
the rate is lowered then his original interest is
limited. the question of a higher rate was companysidered by their
lordships of the privy companyncil in tika ram v. deputy companymis-
sioner of bara banki 2 . there the mortgagors gave the
mortgagees an unregistered rukka or written promise simulta-
neously with the registered mortgage stipulating that they
would pay an extra 6 per cent per annum over and above the
15 per cent entered in the mortgage. their lordships held
that these rukkas companyld number be used to fetter the equity of
redemption. they did number decide whether the personal companye-
nant in the rukkas companyld be enforced because that point had
number been raised in the plaint and pleadings number did they
refer to the registration act but we think the words
an unregistered instrument which the statute declares
is number to affect the mortgaged property can only have
reference to that act.  1   1938  r.l.r. 293 a.i.r. 1938 r. 285.  2   1899  26 i.a. 97 at 100.
it was argued on the strength of mahim chandra dey v.
ram dayal dutta 1  ram ranjan v. jayanti lal 2  and companylec-
tor of etah v. kishori lal 3  that it is always open to a
mortgagee to release or remit a part of the debt and when
he does so he does number limit or extinguish an interest in
immovable property any more than when he passes a receipt
acknumberledging payment of the whole or part of the money. the
effect of the payment or of the release may be to extin-
guish the mortgage but in themselves they do number limit the
interest. extending this the learned companynsel for the
defendant companytended that when a mortgagee agrees to accept a
lower rate of interest he does numbermore than release that
part of the debt which would be companyered by the difference in
rate. we do number agree. there is a difference between a re-
ceipt and a remission or a release. a receipt is number the
payment number does the document in such a case serve to
extinguish the mortgage or limit the liability. it is the
payment of the money which does that and the receipt does no
more than evidence the fact. number so a release. the extin-
guishment or diminution of liability is in that event ef-
fected by the agreement itself and number by something external
to it. if the agreement is oral it is hit by proviso 4 to
section 92 of the evidence act for it rescinds or modi-
fies the companytract of mortgage. if it is in writing it is
hit by section 17  1   b  of the registration act for in
that case the writing itself limits or extinguishes the
liability under the mortgage. it is to be observed that when the mortgagor pays money
due on the mortgage in whole or in part he is carrying out
the terms of the bond and is number making any alteration in
it and even though the fact of payment may limit or extin-
guish the mortgagees interest that is only because the bond
is working itself out by the force of its own terms and number
by reason of some new agreement which seeks to modify it or
limit or extinguish the interest which it creates. a simple
test

a.i.r. 1996 cal. 170.  3  a.i.r. 1930 all. 721 at
725 f.b. a.i.r. 1926 cal. 906.
is this see whether the mortgagee can in the face of the
subsequent agreement enforce the terms of his bond. if he
cannumber then it is plain that the subsequent undertaking has
effected a modification and if that has the effect of
limiting or extinguishing the mortgagees interest it is at
once hit either by section 17  1   b  or section 92 proviso

but when there is a mere payment of money that is done
under the terms of the bond for the companytract of mortgage
postulates that the mortgagor should repay the money bor-
rowed and that when he does so the mortgagees interest in
the property shall be limited to the extent of the repay-
ment or when all is repaid be wholly extinguished number of
course does a payment have to be made by a written or
registered instrument or even evidenced by one. clause  xi
to section 17  2  of the registration act is based on this
principle. it draws a distinction between a document which
by the force of its terms. effects the extinguishment or
purports to do so and one which merely evidences an exter-
nal fact which brings about that result. number apply the test just given to the present case. under
the mortgages the mortgagee is entitled to interest at 14
annas per cent. per month but the mortgagor says he cannumber
claim that. why ? because according to him the subsequent
agreement altered the terms of the bond and reduced his
liability to only 8 annas. it hardly matters what the
agreement is called whether a release or a remission number
is it germane to the question that the mortgagee is enti-
tled to remit or release the whole or a part of the debt
the fact remains that his agreement to do so effects an
alteration in the original companytract and by the force of its
terms or extinguishes his interest assume that the mortga-
gor repaid the whole of the interest at the altered rate and
the whole of the principal would those repayments by them-
selves effect an extinguishment of the mortgage ? clearly
number because unless the subsequent agreement is called in
aid more would be due under the terms of the bond on ac-
count of the higher rate of interest. it is evident then
that it is the
agreement which limits the mortgagees interest and serves
to extinguish the mortgage and number mere payment at the
reduced rate. similar observations apply to clause  6  of the agree-
ment. it begins by reciting a past agreement in which the
mortgagor had promised to pay rs. 1800 in a lump sum. we
are left to infer that this was to extinguish the mortgage. if it was then it would be hit by either section 92 provi-
so 4 of the evidence act or section 17 1  b  of the regis-
tration act but that does number matter because the present
document varies even that agreement and substitutes a third
agreement in its place namely that payment of rs. 1800 by
instalments at the rate of rs 80 a month will effect pay-
ment in full that is to say will extinguish the mortgage. this speaks from the date of the document for it says
referring to this agreement that it is settled etc. next we companye to clause  8 . that refers us back to
clauses  5  and  6  and says that
as mentioned there numberinterest of any nature
whatever has remained claimable by me and speaking of the
principal says
and in like manner i understand the whole of the prin-
cipal has been fully paid. we have already dealt with
clauses  5  and  6 . clause  8  carries us numberfurther and
merely states that because of clauses  5  and  6  neither
interest number principal is number claimable and of companyrse if
neither interest number principal is claimable that extinguish-
es the mortgage and in this case the extinguishment is
brought about number by mere payment in accordance with the
terms of the bond but because of the fresh agreement. clause  10  remains for companysideration. it was argued
that this brings the matter within section 17 2   v  of the
registration act because it gives the defendant the right to
obtain anumberher document which will effect the extinguish-
ment. we do number agree because clause  v  of sub-section  2
of section 17 of the act postulates that the document shall
number of itself create declare
assign limit extinguish any right etc. and that it shall
merely create a right to obtain anumberher document etc.  the
stress is on the words itself and merely .   we agree with sir dinsha mulla at page 86 of the 5th
edition of his indian registration act that
if the document itself creates an interest in immove-
able property the fact that it companytemplates the execution
of anumberher document will number exempt it from registration
under this clause. as we have seen this document of itself limits or
extinguishes certain interests in the mortgaged property . the operative words are reasonably clear. companysequently the
document is number one which merely companyfers a right to obtain
anumberher document. it companyfers the right only in certain
contingencies namely if you so wish or if necessity may
arise. its purport is to effect an immediate alteration in
the terms of the two bonds and because of that alteration to
effect an immediate extinguishment and limitation. clause
 10  merely companyfers an additional right namely the right to
obtain anumberher document if you so wish or if necessity
may arise. therefore the document in question is number one
which merely creates a right to obtain anumberher. an agreement to sell or an agreement to transfer at
some future date is to be distinguished because that sort
of document does number of itself purport to effect the trans-
fer. it merely embodies a present agreement to execute
anumberher document in the future which will when executed
have that effect. the document in hand is number of that type. it does number postpone the effect of extinguishment or limita-
tion of the mortgages to a future date. it does number say
that the agreement it embodies shall take effect in the
future. it purports to limit and extinguish the liabilities
on the two mortgages at once by virtue of the document
itself and merely adds that if it is necessary or should
you want anumberher document i will repeat the present
agreement in a registered agreement. by implication it
means that if it is number necessary or if the mortgagor does
number want a registered instrument the document itself will
have effect. incidentally one effect of holding that this
document does number limit or extinguish the mortgagors li-
ability would be that there is numberagreement to that effect
yet in force this may or may number give the mortgagor a right
to obtain specific performance of his right to obtain such
an agreement but until he does that there would be numberbar to
the mortgagees claim in this suit. however it is number
necessary to go as far as that because we are of opinion
that this document is number exempt from registration under
section 17 2   v  and we so hold. the next question is whether the document can be used in
evidence under the proviso to section 49 of the registration
act. we are clear it cannumber. this is number a suit for specif-
ic performance number does any question of part performance
under section 53a of the transfer of property act arise. it
remains then to be seen whether the use number sought to be
made of the document is to evidence a companylateral transaction
number required to be evidenced by a registered instrument. but what is the transaction sought to be proved but the
very agreement which the document number merely evidences but
by reason of its own force creates ? that is number a companylat-
eral transaction and even if it were a transaction of that
type it would require a registered instrument for the
reasons we have already given. section 53a of the transfer of property act was re-
ferred to but it has numberapplication for the agreement we
are companycerned with is number a transfer. there are numberwords of
conveyance in it also the mortgagor is number companytinuing in
possession in part performance of the companytract.