Turner Morrison and Co., Ltd. v. Hungerford Investment Trust Ltd.

Judgment

CIVIL APPELLATE JURISDICTION : C,A. No. 1223 of 1970. " Appeal from the judgment and decree dated June 23rd/24th, 1969 of the Calcutta High Court jR Appeal from Original Decree No. 203 of 1968. A. K. Sen, Shankar Ghosh, D. N. Gupta, N. Khaitan, Krishna Sen and .B. P. Singh, for the appellant S. V. Gupte, S. B. Mukherjee, B. N. Garg, K. K. Jain, D. N. Sinha, Lina Seth; M. M. N. Pombra and H. K. Puri, for the respondent. The Judgment of the Court was delivered by HEDGE J. This appeal by certificate is by the plaintiffappellant, Turner, Morrison Co. Ltd. (to be hereinafter referred to as Turner Morrison) from. the decision of a Division Bench of the Calcutta High Court. The Division Bench affirmed the deci- ~on of the trial cou"rt dismissing the plaintiff's . suit. In the· sult Turner Morrison claimed a decree for a sum of Rs. 1,27,67,052/16 P. The claim was made on the ground that the plaintiff had paid either as an agent or on behalf of the defen-. dant Hungerford Investment Trust Ltd. (in voluntary liquidation)

(to be hereinafter refeqed to as the HungerfOrd) a sum of Rs. 79,70,802/- as super-tax which it was entitled t~ be reimbursed. To that sum a sum of Rs. 47,96,250/16 P. was added· as interest in the shape of "damages. In respect of that claim the appellant claimed a paramount lien on the 2295 shares owned by Hungerford in the.plaintiff-company. The defendant resisted the ' swt on variops grounds. It denied that the plaintiff had paid the amounts shown in the plaint-schedule or it was liable to be reimbursed the payments made, if any. It also de.nied its liability . to pay 'interest on the amounts that might have been paid. Further it pleaded that the suit was barred by estoppel, waiver and acquiescence. It also pleaded the bar of limitation. In addition it pleaded that the !ien claimed had been waived and that the suit was not properly instituted. According to the defendant, the suit was not a bona fide one. It was one of the manipulations of Haridas Mundhra to get at the ·defendants'

2295. shares the plaintiff-company without paying for them. The trial. court dismissed the plaintiff's suit holding that the claim in question was barred by "estoppel, waiver or acquie- .scence". It held that it was also barred by.limitation. It opmeid SUPREME COURT REPORT£ [l972J 3 S.C,:~R. that the liability to pay tl;le tax in question was the joint liability of Turner· Morrison as well as Hungerford and the same having 1:.1een discharged by the fonner, it had no claim on Hungerford. It opined that the suit was a dishonest attempt on the part of Haridas Mundhra to absolve his liability: for paying for the 2295 shares in respect of which he had obtained a decree for specific perfonnance. The appellate court affinned some of the findings of the trial court. In order to appreciate the various contentions advanced before this Court, it is necessary briefly to refer to the history of the case. Hungerford was the owner of 100 per cent shares of Turner. Morrison.

John Geoffrey Turner and Nigel Frederic Turner C (both since deceased) were the owners of the 100 per cent shares of Hungerford. As can be seen from the records, Turner Morrison was a prosperous company. Though that company was making enormous profits every year, it did not distribute any portion of those profits as dividends during the assessment years 1939·1940 to 1955-56. The profits that should have been a~aib. o able for distributing as dividends were kept back by the .company and used as working capital. In all those years the income-tax authorities took proceedings under s. 23-A of the Indian Incometax- Act, 1922. Thereafter the "deemed dividends" were assessed in the hands of Hungerford. But year after year the Directors of Turner Morrison passed a resolution to the effect that it would be inequitable to ask Hungerford to pay the tax levied. and .that E Turner Morrison itself should discharge that liability.

Those resolutions were duly implemented by Turner Morrison by paying aH-the taxes due from Hun~erford. In about the middle cf 1955. · Haridas Mundhra entered mto negoti~tion with Nigel Tur.ner for purchasing all the shares of Turner Morrison. By exchange . of letters in November and December of 1955, Hungerford agreed to sell and Mundhra agreed to purchase 49 pe;r cent shares of Turner Morrison. The agreement also prQvided for an option to Mundhra to purchase from Hungerford the balance of 51 per cent shares of Turner Morrison within five years for the price agreed upon. A formal agreement in that regard was entered between Hungerford, John Geoffrey Turner, Nigel Turner, British G India Corporation (a nominee of Mundhra) and Mundhra on October 30, 1_956. In pursuance of that agreement Mu!ldhra purchased 49 per cent shares of Hungerford. Thereafter as con· templated in that agreement Hungerford went into voluntary liquidation. On October 3 L 1957 two documents came to be executed.

One is a deed of guarantee and indemnity. That was a 'tripartite agreement. The first party to that deed was Turner 8 : Morrison. The second party was John Geoffrey Turner and Nigel Frederick Turner and the third party was Hungerford. In ••• l. 8 TURNER MORRISON V. HUNGERFORD (Hegde; J.) that deed after setting uut thl! agreement between Hungerford and Mundhra, it was stated: "~OW TijlS DEED WITNESSETH that in consideration of the liquidators having at the request of the · Company (Turner Morrison).;the said John Geoffrey Turner and Nigel Frederick Turner agreed (as is testified by their being parties to and executing these presents) to distribute the assets of Hungerford in specie among~t the ·contributories of Hungerford (such contributories being the said John Geoffrey Turner and Nigel Frederick Turner) and in consideration of the premises.

1The Company and the said John Geoffrey Tur-· ner and Nigel Frederick Turner hereby jointly and severally undertake to pay and/or satisfy all claims for or in respect of Income-tax and Super-tax which is or are not payable or recoverable or may at any time be payable 0r recoverable under the Indian Income-tax. Act by or from Hungerford and which payments are in fact'legally enforced and made.

2The Company and the said John Geoffrey Turner and. Nigel Frederick Turner hereby jointly and .. severally -covenant with the Liquidators and each· of. them that the company and the said John :·Geofftey Turner and ~e said Nigel Frederick Turner will iointly and severally at all times hereinafter keep indemnified _. the Liquidators and each of them .from all actions, proceedings, claims or demands in respect of or in connec-· tion with any liability of Hungerford to Income-tax or Super-tax under the Indian Income-tax. Act and also against all costs, damage or. expenses which the Liquadators or any of them may pay, incur or sustain in con· nection therewith or arisirig therefrom or otherwise in relation to the premises." The second document was a deed of indemnity between the Turner brothers and Turner Morrison.

That deed provided that in the event of Turner Morrison "paying in tenns of the deed of· guarantees and indemnity any suin in excess of 46 lakhs in satisfaction of the income-tax and super-tax. which. may at any . time ·be payable or recoverable,· payment of which are in fact legally ·enforced and made under the Indian Income-tax. Act by or from II Hungerford the Guarantors and each of them in consideration of the premises· undertake to pay to· the company (Turner Morrison) the amount of such excess as af6resaid" .· SUP:RBMB COURT REPORTS At·this stage, it may be mentioned that in accordance with the .agreement entered into between Mundhra and Hungerford Turner Mofrlson was to discharge the tax liability of Hungerford to the extent of Rupees 46 lakhs. After the sale of the 49 per cent shares referred to earlier, some dispute appears to have arisen between Mundhra. and Hungerford in regard to· his option to pur- .chase the remaining 51 per cent shares of thelater.

Consequently Mundhra filed a suit in the Calcutta High CoUrt on its original side for the specific pe,rformance of the agreement entered into between him and the Hungerford. Tlie suit was resisted by Hungerford.. But;it was decreed., It. appears·· that when the leame.d trial judge was about to conclude his judgment, in that case the Coun.Sel for Mundhra requested the ·court to issue .an injunction requiring Hungedord to exercise its voting rights in respect'of the 51 per cent shares which was the subject matter of 1he suit in accordance with the directions of 'Mund.hra until the impleme~tation of the .decree for specific performance. . The learned trial judge accepted th~t prayer and issued the injunction asked for. This led to serious consequences, some of which we have dealt with in our judgment in Civil Appeal No. 488 of 1971 which we have just now pronounced. This case appears to be an off-shoot of that unfortunate injunction.

In the suit for :specific performance, though Turner Morrison was a party, it did not plead that it ~ any lien over the shares with whiCh We are .concerned ill this case. By agreement between Mundhra and Turner Morrison, the lat~r was removed frOm. the array of defen- <iants aid the suit proceeded against the remaining defendants. After obtaining the decree for specific performance and the injunction mentioned above, Mundhra appears to have not been interested in purchasing the 51 per cent shares by paying for the same evidently ~use he was in a position to have an absolute , F control 6\rer Turner Morrison as a result of the injunction issued. Though Hungerford.filed an appeal.against.the dec~ in that suit, that appeal ~as withdrawn for ~ which are not clear .. After 1he withdrawal'of the appeal, by a Master's s~ons dated August 30, 1965 Hungerford moved the trial court for :fixing a time within which Mundhra shpu1d purchase the 51 per cent -shareS by paying for the same.

That application was rejected -on September 1965 on the ground .that the application being on~ for execution; it must be in a tabular form and "that any·impositiO!D of time limit would be to engraft something on the decree which. does. not .exist in the decree".. The appeal against . that· crder was-·also unsuccessful. After the sUit for :st*ific performan6e ·was decreed, Mundhra by himself or through Turner·· MOrrison appears to have made · TURNER MORRISON \', HUNGERFORD (Hegde, J.) various attempts to see that Hungerford is placed in such a position as not to be able to implement its part of the agreement. We have had to deal with some of those aspects in Civil Appeal 488 of 1971. Suffice it to say that according to Hungerford, the suit from which this appeal arises is one of the attempts of Mundhra in that direction.

One other circumstance that is necessary to be mentioned before proceeding to conside~ the points in controversy is that despite the various resolutions passed by the Board of Directors of Turner Morrison as well as by the shareholders of that company at the general meeting, ihe present suit was filed by the Secretary of Turner Morrison even without obtaining the sanction of the Board of Directors. The Board of Directors' sanction was sought only after the defendants' objected to the maintainability of the suit. From the proceedings of the Board of Directors, ~ it is clear that they were not even aware of the company against whom the suit was filed. From the two resolutions passed by the Board of Directors ratifying the action taken by the Secretary, it is obvious that either they were callous or they were mere tools in the hands of Mundhra.

It is not de.nied on behalf .of Hungerford that the tax due from that company for the assessment years 1939-40 to 1955-56 had been discharged by Turner Morrison. Hungerford's liability to pay tax arose because of the dividends it was deemed to have received from Turner .Morrison as a result of s. 23-A proceedings. But there is dispute between the parties as to the exact amount paid by Turner Morrison. We have not thought it necessary to go into that controversy as we have, agreeing with the High Court, come to the conclusion that the suit is not maintainable for the reasons to be presently stated. A great deal of controversy centres round the question whether when an assessment is made on the shareholders of a company as a result of an order under s. 23-A, lhe company's liability to pay that tax is primary or secondary. It was contended on behalf of Hungerford that that liability is a joint liability of both the company's as well as that of the shareholders.

But according to the appellant that liability is primarily that of the shareholders and if the company is compelled to discharge that liability, it is entitled to be reimbursed by its sharehol~rs. Both the trial judge as well as the appellate bench have upheld the contention of Hungerford and have come to the conclusion that when Turner Morrison paid the tax due from Hungerford, it was discharging its own liability under law and that being so, it was not entitled to seek reimbursement from Hungerford. SUPREME COURT REPOR1'S [ 1972] 3 S.C.lt.

Section 23-A empowers the Income-tax Officer to order iir A writing if the conditions prescribed in that section are satisfied that the undistrubuted portion of the assessable income of a com-· pany earned ip. the previous year as computed for income-tax purposes and reduced by the amount of income-tax and super-tax· payable by the company in respect thereof, shall be deemed to have been distributed as dividends amongst the shareholders as on B the date of the concerned general meeting. That deemed income has to be assessed in the hands of the shareholders either under s. 23 or under s. 34 -of the Indian Income-tax Act, 1922. The two provisos to s. 23-A that are important for our present punx>se are.found in cls. (ii) and (lii) of sub-s. (2) of s. 23-A. Clause (ii) says:

"Where the proportionate share of any member of a company in the undistributed profits and .gains of the company has been included in his total income under the provisions of sub-section ( 1 ) the tax payable in respect thereof shall be recoverable from the company, if it cannot be recovered from such member.'' Clause (iii) reads : "Where tax is recoverable from a company under this sub-section, a notice of demand shall be served upon it in the prescribed form showing the sum so payable, and such compa~ shall be deemed to be the assessee in respect of such sum, for the purposes of Chapter VI." It was urged on behalf of Hungerford that the income that can be brought to tax as a result of an order under s. 23-A is not a real income; it is only a deemed income; that income came to·· F be taxed because of the failure of the company to declare dividends.

It is only for the purpose of convenience that income is taxed1 in the hands of the shareholders; hence the liability to pay that tax in equity must be that of the company and it is for that reason s. 23-A has provided for the realisation of the tax due from the shareholders from the company. The fact that before passing an order under s. 23-A the shareholders are. not even required to be heard was emphasised. In this connection our attention was invited to the amendment of s. 23-A in 1955 as a result of whicp. now the tax liable to be paid as a result of an order under s. 23-A is payable exclusively by the company. In this connection reliance was also placed on the language of s.

42 which empowers the Revenue to assess the income of a nonresident assessee in the hands of his agent, but at the same time· that section empowers that agent to retain in his hands a sum TURNER MORRISON V, HUNGERFORD (Hegde, J.) equal to his estimated liability under that section from out of the.: non-resident's monies in his hands. It was lastly urged that if dividends were deemed to have -been declared, those deemed dividends remained in .. the handS of the company and when the company paid tax in respect of the same, it must be held to have paid the same out of the dividends of the shareholders that remained in its hands. On the other hand, it was contended on behalf of Turner· Morrison that any assessment made in pursuance of an order· under s. 23-A is an assessment on the shareholders and not on the company. ~Thedividends deemed to have been distributed under· ~- 23-A is considered to be the income of the shareholders and nof that of the company.

It is added on to the other income of · the shareholder for the purpose of assessment. It is recoverable· from the shareholder.· It is recove~able from the company only if it cannot be recovered from the shareholders and the company is deemed to be an assessee in ~espect of such' sum for the purposes of Chapter VI only and not for all purposes. . Further the· deemed distribution of dividends as a result of an order under s. 23-A is in no sense a real distribution of dividends which can. be Jone only by the shareholders at the· general meeting of the· company. We, do not propose to pronounce on this controversy firstly because this appeal can be decided on other grounds and secondly for the reason that that controversy has now become more or less academic in view of the amendment of's. 23-A in 1955. For the assessment years 1940-41 to 1952-53, Trime~Moni-· son was assessed as the agent of Hungerford as could be seen from the assessment orders.

For that reason it was contended on beha1f of Turner Morrison that it is entitled to be reimbursed in respect of the tax paid by it. Hungerford denies that Turner Morrison was its agent. According to Hungerford, the. payments in question were made by Turner Morrison voluntarily and therefore· it is not entitled to claim any reimbursement. Section 43 of the- Indian Income-tax Act, 1922 prescribes as to who could be assessed as an <1gent under s. 42. That section says :- "Any person employed by or on behalf of a person residing out of the taxable territories or having any business connection with such person, .or through whom such person is in the receipt of any income, profits or !!ains uoon whom the Income-tax Officer has caused a notice: to b~ ::-~erved of hi'\ intention of tteating hinl as the agent of the non-resident person shall for all the purposes of this Act, be deemed to be such agent."

It was contended on behalf of Hungerford that it was not residing out of the taxable territories; it is a private limited company: hence it must be held to be residing in all places where it. earns or deemed to earn any income. It was further urged thal Turner Morrison was not a person employed by or on behalf of Hunge~ord nor did Hungerford have any business ·connections with Turner Morrison. It was also the contention of Hungerford that it did not r~ive any income, profits or gains through Turner Morrison. Lastly it was urged that the lnoome-tax Officer had not caused any notice to be served upon Turner Morrison intending to treat that company as the agent of Hungerford. On the other hand it was Turner Morrison which had volunteered to be assessed on behalf of Hungerford. For all tqese reasons it was said that Turner Morrison cannot be held to have been taxed as the agent of Hungerford. All these contentions were taken for the first time in this Court.

They do not c appear to have been taken either bef<;>re the trial court or before the appellate court. The ~ontentio,PS raised involve determination of questions of fact. In the'plaint, it was specifically averred that the payments in question were made by .Turner Morrison as the agent of H.JJ.ngerford. That averment has not been specifically denied. In that view, we are not·caUed upon to go into the various submissions noted above. Befor~ going into the other contentions, we may briefi.y deal with the co~tention that the suit was not properly instituted. There appears to be basis for Hungerford's contention that this suit was inspired by Mundhra and Ardeshir Jivanji Honnasji, the Secretary of Turner Morrison, who· signed the plaint on behalf of E Turner Morrison was a mere tool in his hands. There is also reason to believe that when the Directors of Turner-Morrison ratified the action taken by Hormasji, they behaved in an irresponsible manner as seen earlier.

But all the same it cannot be said, the suit is not maintainable. It is true that under the. Article~ of Association of Turner Morrison, a suit o~ behalf of that company has to be filed with the c.onsent of the Directors. But F the Secretary of the company held a general power of attorney from the Directors and the action taken by him was approved by the Directors. Hence there can be. no valid objection· to the maintainability of the suit. Three important questions remain to be coru;idered. They are: 1. Whether the claim made bv Turner Morrison is barred by the rule of estoppel. or waiver or abandonment? 2. Whether the decision of Turner Morrison to take over the liability of Hungerford either \\'ith or witho~t any guarantee from Turner brotbyrs was ultra vires its powers and TURNER MORRISON v. HUNGERPOllD· (Hegde, /~)

3Whether the claim made in the ,suit or any portion thereof is barred by limitation ? 1)e judgments of the trial cciurt and the appellate court havenot made any distinction between estoppel, waiver and abandonment. The distinction between those three concepts is fine but B real. In this case, there was no plea of any release under s. 63 of $e Contract Act. Hence the argument of Mr. A. K. Sen, learned Counsel for Turner Morrison on the scope of that section is irrelevant and we shall not go into the same. The essential qties~. tion to be considered· is whether the facts established in this case· support the plea of estoppel put forward by Hungerford. If the· oosw~ to ~lutt question is in the affirmative then. there is no need to examiae whether there was. any waiver or abandonment as pleaded by Hungerford. 'Estoppel' is a rule of equity.. That rule has gained new dimensions in recent years.

A new class of estoppel i.e. prO-· missory estoppel has come to be recognised by the courts in thiS'· o country as well as in England. The full implication of 'promissory estoppel', is yet to be speHed· out. . We shall presently refer to decisions bearing on that topic but before dOing so, let us ~ whether Turner Morrison made any representation to Hungerford, if so, what is that representation. Further, whether: Hun3Prfonl' acted on the basis of that representation to its disadvantage. It is not denied tba:t year after year from 1941 to 1954 · Turner Morrison paSsed resolutions undertaking to discharge the tax lia-. bility of Hungerford. In pursuance of those resolutions taxa due from Hungerford were p&Jd. There can be no doubt that tht step$ taken by Turner· Morrison were within the knowledge ' or Hungerford as it held 100 per cent ~ of Turner Morrison. Tile Directors ~ 'l'Ui'ner: Morrison must have been its' nominees.

The profit and· loss accoun.b of Turner Morrison must have b!=en approved by Hungerf~ )'eat after. year. at the ge,neral meetihg of that company.. In reality the Turner· brothers were the own~ of Hungerford as well 'as 'J;utner MorriSon thoqgli each of those companies was a separate legal entity. It may be that Turner· Monison did not declare· dividends so t:Jiat Hungerford may avoid paying tax at a high rate. But at the same tiine Hungerford W®ld not have agrud for not distn"butfug dividendS unless 'Turner. Moirison took over the responsibi,lity 'of paying th6 tax . on the dividends deemed to have been distributed. It is ~blished that ·1f dividends had been declared .. HWlgerford would .h~ve got more· than two and ba1f times the tax paid on its behalf~ The un~- tributed diyidends Mre available to Turner MorriSon. to lle utilis· G4·11 workin& capi~l and-th~ earn more proiits. .

The arrangement regarding the 00114istrl.bUtion. ¢ dividendi as well. as, the payment for the· t&X due from HuniJil{~ bf ~mer Momson [1972] 3 S,C.R must have been with the consent of Hungerford as well as Turner ,brothers. Those arrangements had clearly benefited all the parties. Till Mundhra entered the scene, there could not have been any conflict of interest between Hungerford and Turner Morrison. When Turner Morrison paid the tax due from Hungerford, legal fiction apart, it was really paying from the monies belonging to Hungerford. If for any reason, Turner Morrison had not undern taken the responsibility to discharge the tax liability of Hungerford, the latter could have taken steps to compel the former to declare dividends or even compel it to go into voluntary liquidation. Hence there can be no doubt that by acting on'.the basis of the representation made by Turner Morrison, Hungerford had placed itself in a disadvantageous position.

But it was urged c on behalf of Turner Morrison that the resolutions in question were mere promises to do something in the future : They were not representations of any fact and as those promises were not supported by any consideration, they afford no legal basis to resist the claim made in the plaint. Hungerford's answers to these contentio.ns are, that firstly those resolutions -~!lord a good basis for raising a plea of promissory estoppel; secondly those D representations became representation of fact as soon as the . tax liability of Hungerford was discharged by Turner Morrison in pursuance of its resolutions and lastly the promises made under those resolutions were supported by consideration inasmuch as Hungerford in response to those promises refrained from enforcingits right to have the profits distributed as dividends.

Now coming to the payme:!U:s made after 1955, it is seen that a9cording to the agreement between Turner Morrison, Hungenord and Mundhra, Turner Morrison was required to set apart a sum of Rupees 46 lakhs to discharge the tax. liability of HuQgerford. Accordingly Turner Morrison transferred Rupees 46 lakhs from its general reserve to a special reserve. Further by the agreements dated October 31, 1957 set out earlier Turner Morrison took over the entire tax liability of Hungerford and the Turner brothers agreed to reimburse Turner Morrison any payment . made on behalf of Hungerford in· excess of Rupees 46-lakhs. All these arrangements clearly enured to the benefit of Turner Morrison inasmuch as it allowed that company to refrain from declaring dividends and utilise that money for business purposes. - There G can be no doubt that it was done in UJ.e best ipter~st of that company and with a view to further its business interests.

It is necessary to note that despite Turner Morrison paying the tax due from Hungerford from 1941 uptill 1953, those pay~ ments were not debited to the account of Hungerford; nor were H they shown as debts due from Hungerford in the balance sheets placed before the general meeting. Those balance sheets were approved by the general meeting. It was plainly· admitted by t~e TURNER MORRISON \1, HUNGERFORD (Hegde, }.) witn~s examined on behalf of Turner Morrison that the amounts paid on bt:half of Hungerford were not ·considered as debts due from that l:Ompany till about the time of filing the suit. Jn the general meeting of Turner Morrison held on March 29, 1956, tne recornmenoation of the Board of Directors to transfer Rupees 46 lakhs from t)le genera! reserve to a special reserve for the purpose mentioned earlier was approved. Thereafter Turner Morrison paid .the tax due from Hungerford for the assessment year 1952-53_ and. debited the sarue to that special reserve.

While Turner Morrison was keeping HungerfQrd infonned of the ~­ ments made Qn it and the refunds ordered, at no time it made any demand' on Hungerford to reimburse the moneys paid. On several occasions Turner Morrison entered into agreements with the • President of India undertaking to discharge the tax liabilities of Hungerford upto an agreed maximuru. Turner Morrison was representing Hungerford in all the assessment proceedings.

It aised to file appeals on behalf of Hungerford against the orders of the Income-t~ Officers. :It had received all the amounts ordered to be .refunded. lt was keeping Hungerford infonned of the various orders passed by the· Income-tax authoritieS: but yet_ without making any demand for the payment of tax paid by it The docii.ments produced in the case and the admissions made by the witnesses examined on·'behalf of Turner Morrison make it abundantly clear that the idea of claiming back the tax paid on -behal~ ()f Hungerford caine to be entertained by Turner Morrison only after Mundhra came to control that ~ompany. With this background let us now. consider whether Turner Morrison is estopped ·from making the claim in question. In suppart of its case Hungerford relies primarily on the doctrine of Promissory Estoppel. · This doctrine ha:s assumed importance in recent years· though it was dimly noticed in some of the earlier cases.

The leading case on'the subject is Central London Property Trust Ltd. v. High Trees House Ltd. (1). The facts of that c~se are as follows· : ,Central London Prqperty Trust Ltd. let .to the High Trees House Ltd.~ a subsidiary of the former a block of flats for a term of 99 years from September 29, 1937 at a ground rent of £ 2500 a year. In the early part of 1940, owing to war conditions then prevailing only a few of the flats in the block were let to tenants and it became apparent that the High T~s House Ltd. would be unable to pay the rent reserved by the lease out of the rent of the. flats. Discussions took 'place between the Directors of the two companies and as a result on January 3, 1940r a letter was sent by the lessor to the lessee confinning that the ground rent. of the (1) [1947] 1 K.B. 130. [ 1972] 3 S.C.R. pr~mises would be reduced from £ 2500 to £ 1250 ~from the beginning of the tenn.

The lessee thereafter paid the reduced rent By the beginning of 1945, all fiats were let but the lessee continued to pay only the reduced rent. In September 1945, the lessor wrote to the lessee demanding rent at the rate of ·£ 2500 per year. It also claimed at that rate for the quarters ending September 29 and December 25, 1945. The lessee repudiated B that claim. The question for decision was whether tho lessor was bound by the concession that it had agreed ·to show as the same ~as not Sl;lPPorted by any consideration. Answering that ques. tlon Denmng J. (as he then was) held that where parties enter into an agreement which is intended to create legal relations between tll.em apd .in pursuance of such arrangement one party c makes a promise to the other which he kt.1ows will be acted on and which is in fact acted on by the promise, the court will treat the promise as binding on the promisor to the extent that it will not atlow him to act inconsistently ·with it even allhough the promise may :aot be supported ~y consideratiol'l in the strict sense.

Therein the court divided the claim made in the suit into two categories one for the period prior to the end of 1945 and the other for the D period thereafter. It disallowed the claim of the lessor in respect of the former and allowed the claim relating to the later period. The rule laid down in_High Trees case(!) again came up for consideration before the King's Ben.ch in Combe v. Combe(2). · E- Therein the court ruled that the principle stated in High Trees' case( 1) is that, where one party has,, by his words or con· · duct, made to the other a promise or assurance which was intended to affect tho legal relations between them and to be acted on accordingly, then, once-the other party has taken him at his word and acted on it, the party who gave the prom.ise or assurance cannot afterwards be allowed to revert to the previous legal relation· ship as if no seuch:promise or assurance had been made by.him. but he must accept their legal relations sub;ec( to the qualification which he himself has so introduced, even though it is not sup· ported in point of law by any consideration, but only by his word . .

But that principle does not creat~ any ~~ of action. ~ch did not exis~ before; so that, where a pronnse IS made which IS not -G supported by any consideration, the promises ·cannot bring an action on the basis of that promise. The principle enunciated in the High Trees' case( 1) was also recognised by the House. of Lords in Tool Metal Manufacturing Co. Ltd. v. Tungsten Electric co. Ltd.(1). That principle was adopted br this Court in UniQn of India v. Indo Afghtm Agencies Ltd( ) . 'The facts of B that case, in brief, are as follows : (1) [1947)1 K.B: 130. (2) [19~1] 2!K.B. 215. (3) [195512 All B.R.. 657; (4) [1968]2. S.C.R. 366. TURNER MORRISON V, HUNGERFORD (Hegde, }.) In exercise of its powers under s. 3 of the Imports and Exports (Control) Act, 1947, Central Government issued the. Imports (Control) Order, 1955 and other orders setting out the policy governing the grant of import and export licences.

The Central Government also evolved an Import Trade Policy, to faeilitate the mech~ism of the Act and the orciers issued thereunder, and it was modified from time to time by issuing fresh Schemes in respect of new commodities. In 1962, the Central Govemm.ent promulgated the Export Promotion Scheme providing incentives to exporters of woollen textiles and goods. It provided for the grant to an exporter certificates to import raw materials of a total amount equal to 100% of the F.O.B. value of his exports. Clause 10 of the scheme provided that the Textile Commissioner could grant an import certificate for a lesser amount if he is satisfied, after holding an enquiry, that the declared value of the goods exported is higher than' the real value of the goods. The Scheme was extended to exports of woollen textiles and goods to Afghanistan. M/s. Indo-Afghan Agencies Ltd. exported woollen goods to Afghanistan and were issued an Export Entitlement Certificate by the Textile Commissioner not for the full F.O.B. value of the goods exported but for a reduced amount on the basis of some private enquiry supposed to have been ·held by him hllt not after holding an enquiry as contemplated by the Schenio._~· _The representation made by the Indo-Afghan Agencies in that ·· connection to the Central Gover~ent was rejected.

Thereafter M/s. Indo~Afghan Agencies Ltd. moved-the High Court ·to set aside the order of the Textile Commissioner and the government and to issue a direction to them to grant licences f<;>r an amount equal to 100% of the F.O.B. value of their exports. That prayer was resisted by the government on various ~rounds, inter alia, f1tat the Export Promotion Scheme was admimstr'!tive in .. character, that it contained mere executive instructions issued by the government to the Textile Commissioner, and created no. enf~rce· able rights in the exporters ·who exported their goods in pursuance · · of the scheme and it imposed no obligation on the government to issue import certificates. The High Court and later this Court in appeal reject~d that contention. This Court held that the government is not exempt from liability to carry out . the represent_ation made by it as to its future conduct.

In arriving at that conclusion ·this Court -placed reliance on the decision of Denning J. in .Robertson v. Minister of Pensions(1). Therein (Denning J.) · was dealing with a case of serving army oftieer who wrote to the War Office regarding a disability and received a reply that his disability had been accepted as attributable to "military service". Relying on that assurance he forebore to obtain .an independent medical opinion. The Minister of Pension~ later decided that his . (1) t1949)1 K.B. 227. disability could not be attributed to Wax Service. Therein the court held that as between the subjects such an assurance would be enforceable because it was intended to be binding, intended to be acted upon and was in fact acted upon, and the aSsurance was also binding on the ground because no tenn could be implied that the Crown was at liberty to revoke. The rule laid down in these decisions undoubtedly advance the cause of justice . and hence we have no hesitation in accepting ·it.

It was urged on behalf of Turner Morrison that the authority given to it to discharge the tax liabilities of Hungerford as well as the agreements entered into by it with Hungerford and the Turner brothel'S were ultra vires its powers, and .. consequently they provide no legal basis to resist the plaint claim. It is true that a Private Ltd. company cannot exceed the powers conferred on it under its Memorandum of Association. Therefore, for considering whether Turner Morrison was competent to undertake the liability it did, we have to look to the provisions in the Memorandum. Clause 3(b) of the Memorandum empowers the Turner Morrison to carry on business in India and elsewhere as merchants, general merchants, agents and traders etc. Sub-clause ( q) of tbat clause gives power to the company "to receive money on dep6sit at interest or otherwise and lend money to such persons, with or without security and on such terms as ~ay seem expedient and in particular to customers of and ·.other persons having dealing. with the company and to give any guarantee or indemnity as ·may seem expedient."

Sub-cl. (x) authorises the cC>mP,any: I "to distribute among the members of the company in specie any property of the Company, but no distribution amounting to a reduction of capital shall be made without the sanction, if any, for the time being required by law." Sub-cl. ( z) authorises the company to do all such other things as are incidental ()r conducive to the attainment of objects mentioned in Memorandum. As seen earlier the non-distribution of the. dividends had augmented the working capital. of· the company thus affording it facility to earn more profits. Any step taken ·to augment the working capital of the company is undoubtedly incidental to the business of the company and further the same was e9nducive to the .attainment of the objects mentioned in the Memorandum.

When Turner Morrison paid the tax due from H\mgerford in · substance, though not in fonn, it was distributing a portiou of its 11 ::I'UltNER'MORRISON V, HUNGERFORD (Htgde, J.) . assets to the 100 per cent shareholder of the company but withc.ut reducing its capital. Hence we are unable to see how it can be said that Turner Morriso11 had acted ultra vires its powers. Mr. A. K. Sen, learned Counsel for Turner Morrison invited our attention to several decisions wherein the courts had taken the view that the actions taken by the companies concemed were ultra vires their powers. Those decisions were rendered on the facts of those cases. Whether a transaction entered into by a compan~ can be said to be within its powers or not has 'to be decided on the basis of the tacts established and the provi5ions 'in its Memorandum a:nd not on the basis of any a}:>stract rule.

The only other question that remains to be considered is whether the suit claim is barred by limitation even on the assumption that claim is otherWise in order. For pronouncing on this ·question, it is first necessary to decide whether Tumer Morrison had waived its lien over the shares held by Hungerford. There can be no dotlbt that Turner Morrison has the power to waive the paramount lien it has upon all the shares registered in the name of each member, for his debts or liabilities to the company. That much is clear f~m art. 22 of the Articles of Association. That article provides that : "Unless otherwise agreed the registration of transfer of shares sMll operate as a waiver of the Company's lien (if any.) upon such shares." . In Buckley on Companies A,.cts (13th Edn. at p. 797) dealing with the question of lien, it IS observed : " ... For such a Drovisio.n is for the Drotection of the company, and is capable of being waived by the comp.any."

We have to see whether the company in fact had waived the lien it had in respect of the suit cl~, assuming that the said claim is otherwise good. As seen earlier .at all stages· Turner Morrison took over the responsibility of paying the tax due on behalf of Hungerford. There was no idea of recovering the amount paid as tax, from Hungerford. When Hungerford sold 49 per cent of its shares to Mundhra, the same was registered without any objection. It :was clearly admitted by the Secretary of Turner Morrison and other witnesses examined on behalf of that company that the idea of suing Hung~ord for recovering the tax paid was conceived for the· first time after Mundhra obtained the decree for specific pedonnance. Under these circumstances, it is clear that Turner Morrison had waived the lien that it might have bad over the shares held,.. by Hungerford .. H~nce the only claim that Turner Morrison could have made against Hungerford was a mobey 7..28 claim.

The present suit was tiled on November 15, .1965. Hence it is governed by the provisions of the Liriritation Act, 1963 · which came into force on April 1, 1964. Article 23 of that Act ·fixes a period of three years for instituting a suit "for . money payable to the plaintiff for money paid for the defendant" and the cause of' action for the same commences when the money· is paid. To the same effect was Art 63 of the Limitation Act, 1908. ·The amounts claimed in the present suit except thpse in respect of the assessment f()( the assessment year 1955-56 were all admittedly paid before November 15, 1962. Hence they are prima facie barred ,by limitation. ·So far as the payments made in respect of the assessment for the assessment year 195$-56 is conce1J1ed, Turner Morrison can have no c~aim a_gainst Hungerford because under the amended s. 23-A of the Income-tax Act, 1922, that · liabi).ity was that of Turner Morrison itself. But it was urged on behalf of Turner Morrison that iil view of s.

15(5) of the Limitation Act, ·1963, th~ claim made, leavittg aside the claimmade in i'espect of the assessmen.t:for the assessment year 1~55-56, is not barred. Section 1 S ( 5) prescribes : "In computing the period of limitation for any suit the time during which the defendant has . been absent from India and from the territories outside India under tbe administration of the Central Government shall be excluded ... It was urged on behalf of Tumtr Morrison that Hungerford is a lion-resident company. Therefore it caJ)lldt be said that at ,any time it was present in India. Hencel the suit is not bamd. If this argument IS correct then there can oe no. period of limitation for filing a suit against a non-resident company-a proposition which is prima facie startling. Can we hold that s. 15 (S) app)i~ to a suit of th~ type with which 'We are conceined ? That provision contompJates the ca8e of a defendant who . has been absent from India:

That article· presupposes that defendant was at one time present in: India and later he has been absent from India. A ~rson: who was never in India cannot l>e considered as having 'l:i"e!n absent. from India. F~ctually a company cannot either be present in India or absent from India. But it may have: a ,domicile or residence in lndia. . Sometime . questions have a.rlSen as to what is the place Of residenc'e of an incorporated oomp&.!ty~ Dicey hi hiS Conftict of Laws (4th Edn; p. 152 rule· 19) pointmR out the cMereilte between the domicil of a natural per- .son.attd that of a OOrpOiatiOn. says : ''The domicil. of· a human beiJl& is ·a fact w~ch on pOtilts, . ~ubj~.ts h~ to. ~e. ~aw .O..f a plrticulai .~frY; '~'¥·domicil of a COf'P.'Ol'::ttion 1S a fictiC?Jl.&bgpsted\y the tact that a corporation is, on cert~ points. 1I TURNER MORRISON v. HUNGERFORD (Hegde, J.) e.g., the jurisdiction of the Courts, subject to the law of ~particular country.

A man, that is to say, is in some respects subject to the law of England because he has in fact an English domicil; a corporation is by a fiction supposed to have an English rellidence or domicil because it is in cet1ain respects subject to the law of England. Hence a corporation may very well be considered domiciled or resident, in a country for one purpose and not fo.r another, and hence, too, the great uncertainty as to the facts which determine the domicil, or residence of a corporation. In each case the particular question is not, at bottom, whether_ a corporation has in reality a permanent residence in a particular country, but whether, for certain purposes (e.g. submission to the JUrisdiction of the Courts or liability to taxation), a corporation is to be considered as resident in· England or in some other country."

The question of residence of an insurance company registered and having its registered office in a foreign country came up for ·consideration before the Chancery Division in New York Life Insurance Company v. Public Trustee(l). Therein Pollock M.R. quoted with .approval the following passage from the judgment of Lord S_t. Leonards in Carron Iron Co. v. Maclaren( ). ''I think that this company may properly be deemed both Scotch and English. It may, for the purposes of jurisdiction, be deemed to have two domiciles. Its pusiness is necessarily carried on by agents, and I do not know why its domicile should be considered to be con· fined to the place where the goods are manufactured ... Tiiere may be two domiciles and two jurisdictions; and in this case there are, as I conceive, two domiciles and a double sort of jurisdiction, one in Scotland and one in England; and for the purpose of carrying on their busi· ness, one is just as much a domicile of the corporation as the other."

The same view was expressed in that case by Warrington L.J. and Atkin L.J. A division bench of the Bombay High Court in Sayaji Rao Gaikwar of Baroda v. Madhavraa Raghunathrao(3) dealing with 1hc scope of s. 13 of the Limitation Act 1908 which is identical with the present s. 15 ( 5) held that s. 13 must be read so as. to avoid t11e obvious absurdity that arises ii such corporate bodies (1) [1924] 2. Ch. 201. (2) 5, H.L.C. 416. (3) A.T.R. 1929 Born. p, 14. SUP:UME COUR'l' REPORTS [1972]' 3 S.C.R. are deemed to reside out of British India so that suits against them can never be barred at all. And this can be done by treating thein as defendants, who by reason of their special character, are not absent from British India within the meaning of the section, because they have not got the· same liberty as private individuals to reside personally in British India and attend to their affairs and they must do ·so through agents or representatives.

Under those circumstances, they can be held to reside in British India in so_ far as they actually carry on business through their representatives in B.titish India. Section 15(5) of the Limitation Act, 1963 can be viewed in cne of the two ways i.e. that that' provision does not apply to incorporated companies al all or alternatively that the incorporated compailies must be held to reside in places where they carry on their activities and thus being present in all. those places. Hungerford is an Investment company. It had invested large sums of monies in Turner Morrison. Its Board of Directors used . to J!lOOt in India now and then. It was, (through its representa~ tives) attending the general meeting of the shareholders of Turner Morrison. Under these circumstances, it must be held to have been residing in this country and consequently was . not absent from this country. .. Hence s. 15 ( 5) cannot afford any assistance to Turner Morrison to save the bar of limitation.

For the reasons mentioned above, this appeal fails and it is dismissed. Turning to the question of costs, from what we have said earlier, it is clear that there was no justification for bringing the suit. The suit was clearly engineered by Mundhra to attain certain ulterior· purposes of his. But unfortunately neither he nor his likely collaborators the Directors of Turner Morrison, are before us. The only accessory _of Mundhra who is before us is the Secretary of Turner Morrison, Hormasji. There is no j~stifi­ cation to make Turner Morrison in which Mundhra has only 49 per cent shares to bear the costs. In the circumstances, we think it proper to direct Hormasji to be~ the costs of both the parties in this Court. The order made by the High Coilrt ·as regards costs will stand. K.B.N. Appeal' dismissea~ I