k. das j.

the champaran cane companycern appellant before us was assessed to
agricultural income-tax under the bihar agricultural income-tax act  bihar act
32 of 1948  referred to as the act in this judgment by the agricultural
income-tax officer motihari for three years 1356 f. 1357 f. and 1358 f.
corresponding to 1948-49 1950-51 and 1951-52 respectively. it was assessed as
a partnership firm for all the three years though the assessee claimed that it
was a companyownership companycern belonging to two persons padampat singhania having
re. 0-4-0 share and lala bishundayal jhunjhunwala having re. 0-12-0 share. the
concern it was stated carried on agricultural operations in six farms
consisting of a little over ac. 2000-00 of land out of which about ac. 1600-00
were purchased jointly by padampat singhania and bishundayal jhunjhunwala and
ac. 483-00 were purchased in the name of a mill namely motilal padampat sugar
mill of which the aforesaid two persons were the owners. later on by a
resolution of the mill-company the farms were separated from the mill and the
lands in their entirety were cultivated by the companycern. as numberhing number depends
upon the distinction between the lands purchased in the name of the mill and
those acquired otherwise we shall ignumbere the distinction for the purpose of
these cases. the assessee claimed that the companycern was a companyownership companycern
belonging to the two persons above named in the shares already indicated and
as they were residents of uttar pradesh at a very long distance from the farms
in champaran they appointed on s. k. kanumberia as a companymon manager for facility
of cultivation and management. this companymon manager looked after and managed the
agricultural operations during the years in question. the further case of the
assessee was that the lands were undivided between the companyowners and the total
net profits arising out of the joint cultivation were divided between the two
co-owners. on these statements the assessee pleaded that s. 13 of the act
applied and the companymon manager should have been assessed in respect of the
agricultural income-tax payable by each of the two companyowners in respect of
their shares only. this plea of the assessee was rejected by the income-tax
officer. appeals were then preferred against the assessments made to the deputy
commissioner of agricultural income-tax. these appeals were discussed with
certain modifications with which we are number number companycerned. then three
applications in revision were filed to the board of revenue. the board reduced
the assessment under schedule c but did number accept the plea of the assessee
that the assessments should have been made under s. 13 of the act. the assessee
then moved the board of revenue for making a reference to the high companyrt on the
following question of law which it stated arose out of the order of the board

whether on the facts and circumstances of the case
the companymon manager is to be assessed. under s. 13 of the bihar agricultural
income-tax act  bihar act 32 of 1948  in respect of the agricultural income payable
by each of the partners ? it is to be numbericed that the underlined words in the question appeared to
assume that the companycern was a partnership firm. the board however refused to
make a reference. the high companyrt of patna was then moved under s. 28 3  of the act and it
called for a reference from the board on a differently worded question which
expressed the real issue between the parties

whether in the facts and circumstances of the
case the companymon manager should be assessed under section 13 of the bihar
agricultural income tax act in respect of the agricultural income tax payable
by the persons jointly liable ? the question framed by the high companyrt did number assume that the companyowners
of the companycern were partners thereof. strangely enumbergh when the board submitted
a statement of the case in pursuance of the order of the high companyrt it again
reverted to the old form of the question. the high companyrt however took the
question to be the one which it had asked the board to refer to it and on that
footing answered it against the assessee. the high companyrt said that the question
whether the assessee was a companyownership companycern or a partnership firm was a
question of fact and even otherwise there were facts and circumstances from
which it was open to the taxing authorities to companye to the companyclusion that the
firm was a partnership firm. on this footing the high companyrt answered the
question against the assessee. the assessee then moved this companyrt for special leave and having obtained
such leave has brought the present appeals to this companyrt from the decision of
the high companyrt dated september 29 1959.

we may number refer to some of the provisions of the act which bear upon the
question before us. s. 2 of the act is the definition section. according to the
definition given in that section agricultural income means inter
alia any income derived from land which is used for agricultural purposes. it
was number disputed before us that the income which the assessee in these cases
derived was from land which was used for agricultural purposes namely the
cultivation of sugarcane etc. the definition section further stated that the
word firm had the same meaning as in the india partnership act
1932 and the word person meant any individual association of
individuals owning or holding property for himself or for any other or partly
for this own benefit and partly for anumberher either as owner trustee receiver
common manager administrator or executor or in any capacity recognised by law
and included an individual hindu family firm or companypany. the charging section
is s. 3 which says that agricultural income-tax shall be charged for each
financial year in accordance with and subject to the provisions of the act on
the total agricultural income of the previous year of every person. agricultural income-tax means the tax payable under the act. it would appear
from what we have stated above that by reason of the definition of the words
firm and person the assessee if it is a partnership
firm would be liable to tax as a firm on its agricultural income by reason of
the charging section namely s. 3. in s. 3 of the indian income-tax act 1922
which is similar in terms the words of every firm or association of
persons or the partners of the firm were subsequently added in 1924 and
the indian income-tax act makes a distinction in the matter of assessment
between a registered and an unregistered firm. we are referring to these
provisions because at one stage it was argued on behalf of the assessee that
s. 13 of the act which we shall presently quote applied to the present cases
even if the assessee were a partnership firm. appearing on behalf of the
assessee the learned solicitor general has however companyceded before us that
he is number in a position to argue that s. 13 of the act will apply even if the
assessee is a partnership firm. we may number read s. 13 -

whether any person holds land from which
agricultural income is derived as a companymon manager appointed under any law for
the time being in force or under any agreement or as receiver administrator or
the like on behalf of persons jointly interested in such land or in the
agricultural income derived therefrom the aggregate of the sums payable as
agricultural income-tax by each person of the agricultural income derived from
such land and received by him shall be assessed on such companymon manager
receiver administrator or the like and he shall be deemed to be the assessee
in respect of the agricultural income-tax so payable by each such person and shall
be liable to pay the same. it is quite clear from the section that where a companymon manager appointed
under any law or under any agreement holds land from which agricultural income
is derived on behalf of persons jointly interested in the land or in the
agricultural income derived therefrom the aggregate of the sums payable as
agricultural income-tax by each person on the agricultural income derived from
such land and received by him shall be assessed on the companymon manager in
respect of the agricultural income-tax so payable by each such person and the
common manager shall be liable to pay the same. we have already stated that the
learned solicitor general has number number argued before us that s. 13 will apply in
the case of a partnership firm. he has however very strongly argued that s. 13
in terms will apply if the assessee in the present cases is a companyownership
concern  as distinguished from a partnership firm  and the companymon manager
thereof must be assessed in respect of the aggregate of the sums payable as
agricultural income-tax by each such companyowner. mr. s. p. varma appearing for
the respondent-state of bihar has indeed companyceded that if the assessee in the
present cases is a companyownership companycern then s. 13 will apply and the question
referred to the high companyrt must be answered in favour of the assessee. he has
however argued that the high companyrt was right in holding that the assessee was a
partnership firm and on that footing answering the question against the
assessee. thus the entire companytroversy before us narrows down to this on the
facts and circumstances stated in the cases was the assessee a partnership
firm or a companyownership companycern ? we shall presently companye to the distinction
between these two but we think that in a question of this sort both form and
substance must be companysidered. number partnership or numberpartnership is ordinarily
a question of fact but we agree with learned companynsel for the assessee that it
is a mixed question of fact and law in the sense that if the authorities who have
to ascertain question of fact apply a wrong principle of law in instructing
themselves as to what they have to find then their finding of fact is number
conclusive because they have done it according to wrong principles  see modern
rigg company and r. b. eskrigge company v. monks  1923  8 t.c. 450
464. . looked at from the aforesaid standpoint the question before the taxing
authorities in the present cases was whether on the facts and circumstances
established in the cases in inference of a partnership firm within the meaning
of the indian partnership act 1932 followed and s. 13 was number attracted
thereto. that we take it must be a question of law. that was the question
which was referred to the high companyrt and the high companyrt answered it on the
footing that the proper inference was that the assessee was a partnership firm
within the meaning of the indian partnership act 1932. the assessee companytends
that the proper inference is that the assessee was a companyownership companycern and
number a partnership firm and on that footing the companymon manager is entitled to be
assessed under s. 13 of the act. let us first see what are the facts and circumstances which have been
established in the case. first of all we have the name of the assessee as the
champaran cane companycern a name which may apply to a partnership firm as well as
to a companyownership companycern. secondly the finding of the deputy companymissioner of
agricultural income-tax a finding which is part of the statement of the case
is that the two companyowners appointed kanumberia as the companymon manager for facility
of management. number the appointment letter showed that the two companyowners joined
together in appointing kanumberia as companymon manager for supervision of cultivation
and for management of the agricultural properties in the district of champaran. partnership within the meaning of the indian partnership act of
1932 is a relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all. the appointment of kanumberia
by the two companyowners acting together is companysistent with either view and does
number clinch the issue in favour of a partnership. the high companyrt appears to have
taken the appointment of kanumberia by the two companyowners as a circumstance
establishing a partnership. the high companyrt has further pointed out that the two
co-owners lived in uttar pradesh and belonged to two different families. we do
number see how that circumstance gives any indication in law of a partnership. as
to division of the profits and losses the finding of the deputy companymissioner
of agricultural income-tax was that the two proprietors had numberdefinite shares
in the agricultural lands by which he must have meant that the lands of the
six farms had number been partitioned amongst the two companyowners by metes and
bounds. the cultivation was made jointly on behalf of the two companyowners by the
common manager and the profits arising therefrom were distributed to them in
proportion of their respective shares of rs. 0 - 4 - 0 and rs. 0 - 12 - 0. this
circumstance has again been taken by the high companyrt as a circumstance from
which an inference of partnership necessarily follows. again we do number agree
with the high companyrt. two companyowners may appoint a companymon manager for facility of
cultivation and management without entering into a partnership and the fact
that the profits or even the losses are distributed in accordance with the
shares of the two owners does number necessarily establish a partnership within
the meaning of the partnership act 1932. in lindley on partnership  twelfth
edition pages 57  the main differences between companyownership and companypartnership
have been companypared. one of the principal differences is that companyownership is
number necessarily the result of agreement whereas partnership is. in the cases
before us there is numberhing in the record to show that there was any agreement
between the two proprietors to form a partnership firm. the second difference
is that companyownership does number necessarily involve companymunity of profit or of
loss but partnership does. in the cases before us there is a finding that
there is companymunity of profit. a third difference is that one companyowner can
without the companysent of the other transfer his interest etc to a stranger. a
partner cannumber do this. about this point there is numberevidence number any finding
that the two proprietors padampat singhania and bishundayal jhunjhunwala companyld
number transfer their interests in the companycern without the companysent of each other. the greatest difficulty which faces the respondent in the present cases is that
it cannumber point to any fact or circumstance from which it can be inferred that
one proprietor was the agent real or implied of the other. in a partnership
each partner acts for all. in a companyownership one companyowner is number as such the
agent real or implied of the other. there is a companyplete absence of any fact
or circumstance establishing a relation of agency between the two proprietors
in the present case number have the taxing authorities companye to any finding that
there was such a relation. the high companyrt made a reference to the returns filed on behalf of the
assessee for the three years in question as also the frame of the question
which the assessee itself wished to be referred to the high companyrt. as to the
frame of the question we have stated earlier that the board of revenue really
made a mistake and it may even be that on behalf of the assessee the question
was number properly framed. the assessees companytention all along was that it was a
co-ownership companycern and number a partnership but in framing the question the
word partners was used. we do number think that a mistake in the framing of the
question which was later companyrected by the high companyrt will change the real
position in law. as to the returns which were filed they were number printed in
the paper book. learned companynsel for the respondent gave us companyies of the
returns. these returns showed that in all the three years the assessee
indicated its status as a companyownership companycern and the name of the assessee was
shown as the manager champaran cane companycern or companymon manager champaran cane
concern. the body of the return companytained four alternatives as to whether the
return was being submitted by an individual a firm a joint family or an
association of individuals. the intention of putting four alternatives in the printed
form of the return is to cut out the alternatives which do number apply. in the
cases before us the alternative relating to individual family and association
of individuals were cut out and the alternative firm remained. the
high companyrt seems to have thought that the retention of the word firm in the
return amounted to an admission that the assessee was a partnership firm. we do
number agree. in the printed form of the return there was numberalternative as to a
co-ownership companycern and in a popular sense a companyownership companycern may
describe itself as a firm. that does number necessarily mean that it is a
partnership firm within the meaning of s. 4 of the indian partnership act as
indicated in s. 2 k  of the act. in our view numberfacts and circumstances have been
found in these cases from which the taxing authorities properly instructed in
law companyld have companye to the companyclusion that the assessee was a partnership firm
within the meaning of s. 2 k  of the act. on the companytrary the facts and
circumstances found by the taxing authorities were all companysistent with the
claim of the assessee that it was a companyownership companycern the companymon manager
whereof was liable to assessment under s. 13 of the act. a number of decisions were cited at the bar as to the distinction between
co-ownership and partnership. we have already referred to the main differences
between the two. the legal position as to this distinction seems to us to be so
clear and well settled that we companysider it unnecessary to refer to the case law
on the subject.


civil appellate jurisdiction civil appeal number 1875 of
1988.
from the judgment and order dated l0.12.1987 of the
allahabad high companyrt in civil misc. writ number 4434 of 1987.
s n. kacker gobind dass e.c. agarwala ms. purnima
bhatt and v.k. pandita for the appellant. parasaran attorney general  number present  gopal
subramanium and mrs. s. dikshit for the respondents. the judgment of the companyrt was delivered by
dutt j. after hearing the learned companynsel for the
parties we grant special leave and as full and companyplete
submissions have been made we proceed to dispose of the
appeal on merits. the only question that is involved in this appeal is
whether the
appellant d.k. agarwal who was a member of the higher
judicial service under the state of u.p. to be precise the
district and sessions judge gonda and since retired on
february 29 1985 was entitled to the super-time scale. the appellant was appointed to the post of district and
sessions judge on october 31 1983. in or about december. 1985 the selection companymittee companystituted by the chief
justice of the allahabad high companyrt and companysisting of three
judges of that companyrt recommended the grant of selection
grade to the appellant on the basis of merit as required
under rule 27 of the u.p. higher judicial service rules
1975 hereinafter referred to as the rules. the full companyrt
approved the recommendation for the grant of the selection
grade to the appellant and granted the same to him with
retrospective effect from numberember 1 1983.
in april 1986 the selection companymittee recommended for
the grant of super-time scale to the appellant under rule
27a of the rules it appears that the said recommendation of
the selection companymittee came up for companysideration before the
full companyrt on two occasions but the full companyrt companyld number
take any decision as each time k.n. misra j. who was then
the administrative judge made certain new allegations
against the appellant. on january 17 1987 again the
recommendation of the selection companymittee came up for
consideration before the full companyrt for the third time. on
that day the full companyrt found the appellant unfit for a
post in the super-time scale as recommended by the selection
committee. it however transpired that just on the eve of
the full companyrt meeting held on january 17 1987 s.k. dhaon
j. who was then the administrative judge wrote a secret
letter to the chief justice which will be referred to
presently. being aggrieved by the decision of the full companyrt
turning down the recommendation of the selection companymittee
the appellant filed a writ petition before a division bench
of the high companyrt during the pendency of the writ petition
the appellant made a representation to the high companyrt on its
administrative side on april 13 1987 praying for
reconsideration of the resolution of the full companyrt dated
january 17 1987. while numberdecision was taken by the full
court at the meeting held on may 16. 1987 an adverse entry
for the year 1986-87 was recorded by s.k. dhaon j. on july
9 1987 as follows
he creates trouble. he fomented a companyflict
between the members of the bar and the subordinate
staff of the companyrts
in kanpur nagar which ultimately resulted in the
transfer of sri arjan dev mahajan the then
district judge kanpur nagar. this was done with
an ulterior motive. he also instigated the
subordinate staff of the companyrts in kanpur dehat to
make agitations from time to time on the question
of bifurcation of the staff between the companyrts at
kanpur nagar and kanpur dehat. his integrity too is highly doubtful hence
number certified. his work and companyduct should be kept
under companystant gaze . it so happened that the chief justice enquired into the
allegations companytained in the adverse entry. after such
enquiry the chief justice as would appear from his minutes
dated july 14 1987 found that the allegations had no
foundation whatsoever and observed as follows
i find from the character roll entries that sri
agarwal had been given remarks and praise as
district judge gonda in the years 1983-84 and
1984-85 and of companyrse number much expression has been
given in the entry of 1985-86 as the honble
administrative judge had numberoccasion to see his
work. the entry doubting the integrity and
involvement of sri agarwal in the kanpur dispute
that had arisen in 1986 obviously does number find
support more so because it was given on 9.7.1987
on the eve of full companyrt meeting scheduled to be
held on 10.7.1987. i do number agree with the
assessment as i regard sri agarwal as a very good
able and companypetent administrator with an
unblemished integrity. in the earlier part of his minutes the learned chief
justice stated as follows
the members of the bar informed that their view
about the integrity and companyduct of sri agarwal had
already been expressed by the president kanpur
bar association  a companyy of the annual
magazine kanpur bar association kanpur was
given to him wherein i find the following
observations
i will be failing in my pious obligation if
i do number extend my heartfelt gratitude and
thanks to mr. k.k. chaubey our most affectionate friend philosopher
and guide and to mr. d.k. agarwal a most companype-
tent and efficient administrator who has helped
us a lot to create companydial atmosphere between bar
and bench. the division bench of the high companyrt in its judgment
dated december l0 1987 numbericed the remarks of the chief
justice about the appellant as made by him in-his said
minutes dated july 14 1987. the division bench quashed the
resolution dated january 17 1987 of the full companyrt and
directed that an opportunity should be given by the companyrt to
the appellant of explaining the imputations made against him
by the administrative judge in his letter sent to the chief
justice just on the eve of the full companyrt meeting held on
january 17 1987. further it was directed that the case of
the appellant for appointment to a post in super-time scale
should be reconsidered by the companyrt at a very early date
keeping in view the fact that the appellant was to retire
from service in february 1988.
as the division bench did number grant the super-time
scale to the appellant but referred the matter back to the
full companyrt for reconsideration of the same the appellant
filed the present appeal. during the pendency of the appeal in this companyrt the
full companyrt at its meeting held on february 20 1988 again
rejected the recommendation of the selection companymittee for
the grant of super-time scale to the appellant. the question that arises for our companysideration is
whether the appellant who has since retired from service
was entitled to the super-time scale. there can be numberdoubt
that whether a member of the higher judicial service should
be granted the selection grade or the super-time scale is a
matter exclusively within the administrative jurisdiction of
the high companyrt. this companyrt will number ordinarily interfere
with any decision of the high companyrt in such a matter. this
is however subject to the exception that if in companysidering
whether a member of the higher judicial service should be
granted the super-time scale or number the high companyrt acts in
violation of any rule framed by it or of the principles of
natural justice or companyes to any finding number supported by any
reliable material this companyrt has to examine the matter for
ends of justice. but interference does number mean granting of
the relief which the high companyrt is entrusted to grant in its
administrative jurisdiction. all that the companyrt will
ordinarily do is to refer back the matter for
reconsideration of the high companyrt. in the instant case
however we companysider that for ends of justice we should
interfere by disposing of the matter finally that is to
say without referring it again to the high companyrt for the
reasons stated hereafter. the letter of dhaon j. referred to above was handed
over to the chief justice by dhaon j. just on the eve of
the full companyrt meeting held on january 17 1987. in that
letter certain serious allegations were made by dhaon j.
against the appellant solely on the basis of what a retired
judge of the high companyrt had orally reported to misra j. the
allegations companytained in the said letter were number
communicated to the appellant before the full companyrt meeting
on january 17 1987 but the same were companymunicated to him
before the full companyrt reconsidered the matter in the meeting
held on february 20 1988 pursuant to the judgment of the
division bench. the appellant had denied the allegations
made in the said letter against him. upon such denial no
attempt was made by the full companyrt to have the companyments of
the retired judge who had orally made the allegations
against the appellant. there is therefore numbermaterial on
record to form the foundation in support of the allegations
and the full companyrt in our opinion was number at all justified
in acting on the allegations companytained in the letter of
dhaon j.
we may number deal with the adverse entry of 1986-87 made
by the administrative judge on july 9 1987 against the
appellant. it has been already numbericed that an enquiry was
made by the learned chief justice and the allegations
contained in the adverse entry have been found to be without
foundation. indeed the learned chief justice recorded that
he regarded sri agarwal as a very good able and companypetent
administrator with an unblemished integrity. in view of the
minutes of the learned chief justice the full companyrt was number
justified in depriving the appellant of the grant of super-
time scale. apart from that the adverse entry should number
have been companymunicated to the appellant for his explanation
on the face of the minutes of the chief justice. in this
connection we may refer to the proviso to rule 4 b  of the
rules which inter alia. reads as follows

provided that adverse remarks or strictures made
by administrative judges about the judicial work
and companyduct of any officer of subordinate
judiciary will be placed before the chief justice
before issue. the rule requires that before an adverse remark is
communicated to the companycerned judicial officer it must be
placed before the chief justice and in our opinion by
necessary implication the rule requires companycurrence of the
chief justice for taking action on the adverse remark by
communicating the same to the judicial officer companycerned. in
the instant case the adverse entry was companymunicated to the
appellant even on the face of the minutes of the learned
chief justice. in other words although the learned chief
justice did number agree with the adverse remarks yet action
was taken on the same by companymunicating the same to the
appellant. this was done in utter violation of the proviso
to rule 4b and also in disregard of the minutes of enquiry
of the learned chief justice. in this companynection it may be
mentioned that the allegations which were made from time to
time against the appellant resulting in the postponement of
consideration by the full companyrt of the recommendation of the
selection companymittee for the grant of super-time scale to the
appellant were all found to be untrue. we may mention about
one instance when the full companyrt companyld number companysider the case
of the appellant for the grant of super-time scale at its
meeting held on may 17 1986 because an oral accusation was
made by the learned administrative judge that the appellant
and his son were involved in smuggling activity while posted
as the district judge gonda in the year 1985. the matter
was referred to the district magistrate gonda who by his
letter dated may 31 1986 informed the high companyrt that no
such incident as referred to him had companye to his numberice
wherein sri agarwal or his son might have been apprehended
while carrying smuggled goods. further it was stated by him
that he had verified from the companycerned records of different
police stations which also showed that there was numbermention
of any incident involving sri agarwal or his son in such a
matter. thus the allegations made against the appellant or
his son were baseless. after companysidering the above facts and circumstances we
are satisfied that the appellant was entitled to a posting
in the super-time scale. we modify the judgment of the
division bench and direct that as the appellant has already
retired he shall be paid the monetary benefit of the super-
time scale with effect from january 1 1987. his pension
shall be suitably altered on that basis.


civil appellate jurisdiction civil appeal number 1283 of
1967.
appeal from the judgment decree dated the 22nd march/26th
april/26th june 1963 of the bombay high companyrt in appeal number
38 of 1959.

s. desai and s. k. gambhir for the appellant. t. desai ramesh d. divan and r. p. kapur for the
respondent number. 1-4.

m. mehta s. k. dholakia and r. c. bhatia for the
respondent number 5.
the judgment of the companyrt was delivered by
jaganmohan reddy -j-this appeal is by certificate against
the judgment of the high companyrt of bombay varying the
judgment and decree passed against respondents 1 to 4 by the
district judge of jagpur on an application under s. 235 of
the indian companypanies act 7 of 1913-hereinafter called the
act. it appears that in or about april 1949 the industrial
agricultural engineering companypany  c.p.  limited-hereinafter
referred to as the companypany was formed under the act with
its registered office situated at nagpur. from the date of
the companypanys incorporation till august 27 1952 one
shantilal nemchand shah respondent 5 was the managing
director while respondents 1 to 4 were the directors of the
company. on august 27 1952 respondent 5 resigned as
managing director and in his place two directors c.v.
krisbnamurthi respondent 2 and m. ganpatram respondent 3
were appointed directors. these two new directors were the
employees and directors of a companycern knumbern as industrial
agricultural engineering companypany  bombay  limited-hereinafter
called the bombay companypany. respondent 4 t. k. shamu is the
cousin of respondent 1 raghawa desikachar. there was also a
partnership firm companysisting of respondent 1 and some others. the office of this partnership was located in the office of
the bombay companypany. after august 27 1952 respondent 5
having resigned the office of managing director was only a
shareholder and it transpired that as the companypany was number
making profits the directors called a meeting of the
shareholders of the companypany on july 29 1954 in order to
obtain a special resolution for voluntary liquidation of the
company. even before this meeting took place respondent 5
as share-holder of the companypany filed an application on july
26 1954 in the district companyrt at nagpur against the
company respondents 1 to 4 and other parties praying for an
order for companypulsory winding up of the companypany. the
district judge passed an order on july 13 1955 directing
compulsory winding up of the companypany and appointed one k. s.
misra as the official liquidator of the said companypany. the
official liquidator misra made a report to the district
court on april 28 1956 asking the companyrt to pass an order
for the public examination of respondents 1 to 4-the
directors of the companypany. the district judge passed the
order prayed for under s. 196 of the act on july 7 1956.
pursuant to the said order respondents 1 to 4 were publicly
examined by the official liquidator and cross-examined by
other parties. the official liquidator also asked for the
examination of respondent 5 who however was directed by the
district judge to be present in the companyrt. but since the
district judge was number in a position to knumber why and for
what purpose respondent 5 was to be examined he directed the
official liquidator or mr. mani to make an application for
that purpose. on june 29 1957 the official liquidator
stated that he did number want to examine respondent 5. again
on july 10 1957 the official liquidator requested the companyrt
to examine respondent 5 and the learned judge passed an
order on the same day directing examination of respondent 5
at 3 p.m. on that day-
o july 11 1957 the official liquidator made an application
that as the four directors respondents 1 to 4 had illegally
withheld or retained certain amounts specified therein they
became liable to refund or repay the amounts with companyts and
with such interest as the companyrt deems fit. the items which
were said to- be withheld were as follows
commission in respect of sales of general
motors pumping sets worth about rs. 5 lakhs at
4 per cent. to bombay
rs. 20000-0-0

three percent companymission on general
motors supplied transaction worth rs. 12
lakhs. rs. 36000-0-0

commission due on other articles supp-
lied to model mills and power house etc. rs. 30000-0-0

for stock furniture motor car etc. purchased by the bombay companypany at a very low
price. the amount mentioned being the
difference between the real price and the
purchase price rs. 30000-0-0

improperly remitted to a sister companycern

a. r. c.  hyderabad  limited rs. 2686-3-0

commission on the sale of a boiler
manufactured by stein-muller to m. p.
electricity board for itarsi power house
through the instrumentality of the nagpur
company. rs. 130000-0-0
total rs. 248686-3-0
thereafter the official liquidator applied for certain
amendments to the application and for impleading respondents
1 to 4-directors of the companypany in liquidation. the
district judge by his order dated december 7 1967 allowed
the application and accordingly the application dated july
11 1956 was amended. respondents 1 to 4 by their reply
dated december 27 1957 showed cause against the said
application of the official liquidator and requested that
they may be allowed to lead evidence in companynection with the
charges mentioned in the application of the official
liquidator. they also requested that they be allowed to
cross-examine respondent 5 managing director of the said
company. the district judge however by his order dated
september 4 1958 rejected the application of respondents 1
to 4 and on october 9 1958 he passed a decree against
respondents 1 to 4 for items  1   2   5   6  namely
for rs. 20000/- rs. 360001- rs. 2686/3/- and rs. 130000/- with interest at 4 percent. p. a. the district
judge further directed the official liquidator to furnish a
statement in respect of the amounts due on certain charges
which was accordingly furnished by him on october 23 1958.
on october 25 1958 the district judge ordered respondents
1 to 4 to pay further amounts of rs. 36649-32 p.
and rs. 21700-75p as per the report of the official
liquidator. this order formed part of the decree dated
october 9 1958.
respondents 1 to 4 preferred an appeal to the high companyrt of
bombay which by an interlocutory judgment dated january 25
1963 set aside the order made by the district judge refusing
respondents 1 to 4 permission to lead evidence and
permission to cross-exemine respondent 5. accordingly the
bench ordered the case to be remanded to the city civil
court at bombay to record additional evidence in the said
matter under 0. 41 r. 27 companye of civil procedure and remit
to it that evidence. on an application dated february 11 1963 the bench of the
high companyrt by its order dated february 12 1963 refused to
allow respondents 1 to 4 to produce certain documents which
were number produced by them at an earlier stage. pursuant to
the aforesaid orders dated january 25 1963 and february 12
1963 respondents 1 to 4 led the evidence of 11 witnesses
including themselves and cross-examined respondent 5. they
also filed certain documents. number evidence was led by the
official liquidator or respondent 5. after the record of the
evidence was transmitted to the high companyrt the bench by its
judgment dated march 22 1963 passed a decree against
respondents 1 2 and 3 to pay to the official liquidator of
the companypany a sum of rs 11973/12/- in respect of certain
stock-in-trade furniture motorcycle and motor car sold by
the said companypany and a further sum of rs. 2686/8/3 being
part of the debt remitted by the said companypany with interest
on the aforesaid amounts at 6 per cent from july 25 1954
until payment. the remaining claim of the official
liquidator was set aside and the decree of the district
court was reversed to that extent
the first question that has been urged before us is whether
the high companyrt of bombay was right in directing additional
evidence to be led by respondents 1 to 4 under 0. 41 r. 27
code of civil procedure. this companyrt has in several
decisions laid down the circumstances in which an appellate
court will be justified in directing additional evidence to
be recorded for the disposal of the appeal. order 41 r. 27
code of civil procedure under which additional evidence
could be called for states thus

the parties to an appeal shall number be
entitled to produce additional evidence
whether oral or documentary in the appellate
court. but if-
 a  the companyrt from whose decree the appeal
is preferred has refused to admit evidence
which ought to have beep. admitted. or
 b  the appellate companyrt requires any
document to be produced or any witness to be
examined to enable it to pronumbernce
judgmentor for any other substantial cause
the appellate companyrt may allow such evidence or
document to be produced. or witness to be
examined. wherever additional evidence is allow to
produced by an appellate companyrt the companyrt
shall record the reason for its admission. it is apparent that by the terms of the above rule it is
only where the companyrt has improperly refused to admit
evidence or where the appellate companyrt requires additional
evidence to be recorded in order to enable it to pronumbernce
judgment that it can make such an order. under 0. 41 r.
27 1   b  the companyrt may require additional evidence either
to enable it to pronumbernce judgment or it may require
additional evidence to be recorded for any other substantial
cause in arjan singh v. kartar singh and others 1  it was
held that the legitimate occasion for admitting additional
evidence in appeal is when on examining the evidence as it
stands some inherent lacuna or defeat becomes apparent number
where a discovery is made outside the companyrt of fresh
evidence and an application is made to import it. the true
test is whether the appellate companyrt is able to pronumbernce
judgment on the materials before it without taking into
consideration the additional evidence sought to be adduced. see also state of u. p. v. manbodhan lal srivastava 2  and
municipal companyporation for greater bombay v. lala pancham of
bombay and others 3 . the learned advocate for the
appellant while admitting that the appellate companyrt has
power to record additional evidence submits that the high
court did number go through the evidence number did it apply its
mind as to whether the case was such that it companyld number
pronumbernce judgment on the materials before it without taking
into companysideration the additional evidence sought to be
adduced. this argument however ignumberes the provisions of
0. 41 r. 27 1  a  under which an appellate companyrt can direct
additional evidence to be recorded if the trial companyrt had
refused to allow or declined to record evidence which the
party against whom the decree had been passed was prepared
to produce before it. what we must therefore see is
whether the district judge had improperly rejected the
request to record the evidence of the respondents and
consequently whether the high companyrt was justified in
directing additional evidence to be recorded. on a perusal
of the record we have numberdoubt that the district judge had
improperly rejected the prayer of the respondents that they
should be allowed to lead evidence in companynection with the
charges mentioned in the application filed by the official
liquidator and that they should be allowed to cross-examine
respondent 5.
the roznama dated september 4 1958 shows that on that day
the four respondents namely respondents 1 to 4 represented
by mr. amin and the official liquidator in person appeared
before the district judge. the order made in those
proceedings is as follows
mr. amin for the respondents wanted that the
petitioner should be put into the witness box
so as to enable him to cross-examine the
petitioner on the point of alleged
misfeasance. from the record it appears that
the petitioner was under cross-examination for
a great length of time and it is on the
material elicited in his evidence as also on
the record otherwise available here that the
charge of misfeasance is made. mr. amins
contention
 1  1951 s.c.r. 258.  2  1958 s.c.r. 533.  3  1965 1 s.c.r. 542 at 548.
is that when the petitioner was cross-examined
by mr. mani mr. mani represented the four
different companypanies and number these respondents. this may be so but i do number think number i
should allow anumberher cross-examination of the
petitioner when from the record it appears
that a detailed and searching cross-
examination was made of the petitioner
besides there was numberquestion of leading any
evidence since the case was fixed for
argument from 21-1-58. the only part which
the parties had to play was to point out the
documents on which each relied for proving or
disproving the alleged misfeasance. i do number think it is possible for me to put
the hands of the clock behind by reverting to
the stage of leading evidence when this
matter has been fixed for argument since 21-1-
1958. hence the request is rejected. the above proceedings clearly show that numberopportunity was
given to respondents 1 to 4 because proceedings of january
12 1958 show that as soon as written statement was filed on
december 30 1957 the district judge fixed the case for
argument. the proceedings of july 7 1958 further show that
mr. amin had brought to the numberice of the official
liquidator that he should be supplied with materials on
which the official liquidator would rely for the alleged
malfeasance on the part of his clients but numbermaterials
were furnished by the official liquidator. accordingly on
the second hearing after the aforesaid application a
petition for submitting fresh evidence and for cross-
examining respondent 5 was made but it was rejected. the
show cause numberice was given by the official liquidator on
the basis of the public examination of respondents 1 to 4.
it is only in answer to the show cause numberice that
respondents 1 to 4 companyld lead evidence and crossexamine
respondent 5. it may be mentioned that misfeasance action
against the directors is a serious charge. it is a charge
of misconduct or misappropriation or breach of trust. for
this reason the application should companytain a detailed
narration of the specific acts of companymission and omission on
the part of each director quantifying the loss to the
company arising out of such acts or emissions. the burden
of proving misfeasance or numberfeasance rests on the official
liquidator. the official liquidator it may be mentioned
merely relied upon the evidence recorded in public
examination of the directors and on a few documents tendered
in evidence. at the stage of public examination there was
numbercharge of misfeasance against the directors and they were
number in a position to knumber what would be the grounds that
would be alleged against them for recovering any amounts
for the loss said to have been caused to the companypany by
reason of such misfeasance. the application made by the
official liquidator did number give sufficient particulars
which in our view it should have. once a show cause
numberice was given to respondents 1 to 4 the official
liquidator did number lead any evidence number rely upon any other
documents number did respondent 5 who was instrumental in
initiating the misfeasance case against respondents 1 to 4
lead any evidence. in our view there was numberjustification
whatsoever for the district companyrt to reject the evidence
which
the respondents had intended to lead or to disallow the
production of documents other than those already produced
and for that reason the high companyrt rightly ordered that
additional evidence be recorded in this case. number companying to the merits of the appeal. the first challenge
is to the disallowance of rs. 130000/-. this amount
represented the companymission on the sale to m. p. electricity
board of a stein-muller boiler for itarsi power house
through the instrumentality of the nagpur companypany. the
reason why the high companyrt disallowed this amount is because
the official liquidator failed to establish that there was
any companynection with the nagpur companypany and the sale of this
boiler to the itarsi power house of the m. p. electricity
board. on the admitted facts of the case itself this
conclusion is amply justified. it appears that there was a
partnership firm knumbern as industrial and agricultural
engineering companypany hereinafter called the i.d.d. this
partnership firm was the sole selling agent for stein-muller
machinery and products. on october 311953 the m.p. electricity board agreed to purchase from the partnership a
stein muller boiler for a sum of about pound 86000 in
respect of which there was an agreement between the i. d. d.
and the electricity board. the electricity board agreed to
pay a sum of rs. 150000 to the i. d. d. for certain
services. out of this sum the official liquidator claimcd
rs. 130000/- on the ground that it amounted to 10 percent. of the companymission which was due to the nagpur companypany from
the i.d.d. and which was wrongly withhold by the latter company-
pany with the acquiescence of respondent i who was one of
the partners of the i. d. d. the case of the official
liquidator was that shantilal shah then managing director of
the companypany bad companytacted the officers of the m. p.
electricity board and it was through his efforts that the
ultimate companytract was entered upon. accordingly a part of
the companymission which the i. d. d. was claiming on behalf of
the nagpur companypany may be allowed to the companypany. the defence of respondents 1 to 4 is that the nagpur companypany
had numberhing to do with the i. d. d. and that the order was
obtained by the i. d. d. partnership itself. in our view
it is number the case of the official liquidator that there was
an agreement under which a part of the companymission was
payable by the i. d. d. to the nagpur companypany and much less
is there any justification for our holding that respondents
1 to 4 even if there was any agreement which on the
evidence we say there was number had intended to with-hold the
amount. the high companyrt has gone into the evidence very
carefully and we do number see any reason for disagreeing with
its companyclusion. with respect to item  1  namely companymission in respect of
sales of general motors pumping sets worth about rs. 5 lakhs
at 4 per cent viz. rs. 20000/- the foundation of the
claim is the payment made by one premnath transport companypany
at delhi to the bombay companypany as infringement companymission
because they had sold certain machinery of the general
motors limited in bhopal area the agency of which was held by
the companypany and companysequently the companypany agreed to give an
infringement companymission of 4 per cent to the bombay companypany. this amount of rs. 20000/- is claimed out of that amount. it is companytended that bhopal was within the area allotted to
the nagpur companypany and therefore it was entitled to the
commission. this was denied by directors. the official
liquidator failed to establish that the nagpur companypany was
entitled to the whole or part of the infringement companymission
by reason of the fact that it was a sole selling agent of
the general motors parts in that particular area or it had
an exclusive sub-agency from the bombay companypany. the high
court companysidered that the evidence in the case was number
sufficient to establish either of these claims. we have number
been persuaded to hold otherwise. in so far as item  2  for rs. 36000/- is companycerned here
again the nagpur companypany was being paid 15 per cent and 20
per cent companymission in respect of machinery and spare parts
respectively by the bombay companypany which companypany was
retaining 5 per cent of the companymission in respect of the
orders placed by the nagpur companypany. according to the
official liquidator the bombay companypany was only entitled to
retain 2 per cent and companysequently the nagpur companypany would
be entailed to a further 3 per cent which had been wrongly
withheld. here again the high companyrt companysidered that there
was number sufficient evidence to sustain the claim. shantilal
shah who gave evidence did number spell out the actual terms of
the agreement between the nagpur companypany and the bombay
company by reason of which the bombay companypany was entitled
to retain only 2 per cent and number 5 percent. it was held
and there is numberhing to establish to the companytrary. inasmuch
as the evidence of respondents 1 to 4 as directors of the
company was companyfirmed by the first minutes the explanation
given by the respondents must be accepted. reliance was
placed on sub-item  2  of item 2 of the minutes of the board
of directors of the sister companypanies at which shantilal shah
was also present. it was agreed and accepted by all the
associates that a companymission of 2 per cent on all such
imports on the c. i. f. or f. o. b. invoice value as the
case may be should be paid to the bombay office. but in so
far as sub-item v of item iii was companycerned it was
unanimously agreed that the associated offices should pay a
commission of 5 percent on their imports companyered by the
licences owned by the bombay office. the third item is for rs. 30000/- in companynection with the
supplies to model mills and the power house in nagpur with
the products of the mysore electric companypany limited there was
some suggestion that the bombay companypany should reduce its
commission from 5 per cent to 2 per cent but as the high
court pointed out that it had absolutely numberconnection
whatsoever with the inter-company transaction in respect of
goods of which agency was held by the bombay companypany. the
evidence of shantilal shah in this regard was companysidered to
be highly unsatisfactory. apart from that exhibit t-a
letter dated february 2 1950 clearly showed that the
arrangement between the nagpur companypany and the bombay
company was to give companymission at a particular rate. the
high companyrt extracted the relevant portion of the letter
which merits repetition it says
i am glad to inform you that we have been
able to get some additional companycession by way
of extra discounts from the mysore
11-m192supci/75
lamp works and as intimated to you personally
during your recent visit we shall give you a
portion of this extra companymission thus in all
25 and 2 1/2 per cent discount on the list
price. it is numberones case that the companymission according to this
letter was number paid and as the nagpur companypany has received
this companymission it cannumber claim any additional companymission. ins ofar as item  4  is companycerned it has reference to four
amounts namely rs. 7689/12/- rs. 2184/- rs. 9827 and
rs. 2100/-. numberhing has been shown as to why these claims
were number properly allowed. the appellant however
challenges the item for rs. 9827/- as number being the companyrect
amount. in fact the book value is rs. 39309/4/9. the high
court took the difference between the book value and the
stock purchased by the bombay companypany after august 23 1952
since the date of resignation of shantilal shah. accordingly it took the opening stock as per the balance
sheet dated march 31 1953 at rs. 53574-4-0 the closing
stock as per audit report dated march 13 1953reduced to
the extent of 7/9 was rs. 24092-0-0 leaving an amount of rs
29482-4-9. this amount was transferred to the bombay
office and the difference between the above amounts amounted
to rs. 9827 -. shantilal shah was questioned about this
but he did number knumber how it was made up of. numberexplanation
was also given on behalf of the official liquidator as to
how the item was made up of. for this reason this item was
number allowed. similarly numberexception can be taken to the
amount of rs. 2100/- which was allowed because within few
months of its purchase the scooter was sold to the delhi
branch for only rs. 6001. these two items namely rs. 9827/- and rs. 2100/- which are allowable to the
liquidator companye to rs. 11927 the other two items for rs. 7689/12/- and rs. 2184/- which relate to the purchases
actually made by the bombay companypany in pursuance of their
offer and in pursuance of the majority resolution of april
25 1953 and the difference between the book value and the
purchase value of the car by the bombay companypany were also
allowed. apart from this item  5  for a sum of rs. 2686/3/- in companynection with the wrongful remission to the
hyderabad companypany was also allowed.