vil Appeal No 5 186 of 1989
From the Judgment and Order dated 3181989 of the Delhi High Court in Company Appeal No 35 of 1988
FS Nariman Ashok K Mahajan and Subhash Sharma for the Appellants
Anil B Devan and Vinoo Bhagat for the Respondents
The Judgment of the Court was delivered by SABYASACHI MUKHARJI CJ
Leave granted
This is an appeal from the judgment and order of the Division Bench of the High Court of Delhi dated 31st Au gust 1989
The appellant No 1 Ms World Wide Agencies P Ltd is a private limited company incorporated under the provisions of the Indian hereinafter referred to as the Act  to which Table A  of Schedule 1 to the Act applies as stipulated under the Articles of Association of the company
As per the memorandum of associ ation the appellant company was carrying on the business of travel agents at G 40 Connaught Circus New Delhi
The authorised Share capital of the company was to the tune of Rs5 lakhs divided into 5000 equity shares of Rs 100 each
The paid up capital as per the last annual return filed by the company with the Registrar of Companies was Rs201000
The company had at all relevant times 7 share holders and the total number of shares subscribed and paid up was 2010 shares
The appellant No 2 Mrs Amrit Kaur Singh at all rele vant times was a shareholder holding 545 fully paid up shares in the share capital of the company and was also the whole time working Director of the company holding the office from 1974 onwards
Late Mr SK Desor was a British national
He held 600 shares in the said company acquired by him from the Ex Managing Director Mr Amrik Singh Saluja and his family
The respondents Nos 2  3 to this appeal are children of late Mr SK Desor who died on 5th March 1985
As per the certified copy of the annual return made up to 15th February 1984 548 the shareholders of appellant No 1 company were as fol lows Mr SK Desor 600 shares Mrs Amrit Kaur Singh 545 shares Mr Yash Pal Malhotra 250 shares Mrs Amrit Gupta 200 shares Mrs Savitri Devi Kohli 5 shares Mr AS Saluja 5 shares Mr Balwant Singh 405 shares 2010 shares A petition under sections 397  398 of the Act and in the alternative for winding up of the company was filed by the respondents on 25th March 1985 wherein it was alleged that on 12th March 1985 respondent No 1 being the widow of late Mr SK Desor applied as a legal heir of late SK Desor to the Board of Directors of the appellantcompany for transmission of 850 shares held by her late husband
It is stated that the shares of Yash Pal Malhotra had been ac quired by late Mr SK Desor and that respondent No 1 filed an affidavit of her daughter Ms Kim Paul relinquish ing her claim to the shares of her late father
The Board of Directors resolved that they had no objection to transmis sion of the shares held by Mr SK Desor but the actual transmission would take place on respondent No 1 s obtain ing Reserve Bank of India s permission and the succession certificate
The respondent No 1 s application for allot ment of 5 shares as per her letter of the same date was allowed by the Board of Directors and it was resolved that in view of allotment of these shares her interest in the shares of her late husband she be appointed as a Director of the company subject to Reserve Bank of India s permis sion
It is stated in the judgment under appeal that at the said meeting of the Board of Directors they recorded their deep appreciation for the services rendered by late Mr SK Desor as Managing Directorcum Chairman of the company and
mourned his passing away
The quorum of the said meeting was two Mrs
Amrit Gupta and Mrs Savitri Devi Kohli
It is recorded in the judgment under appeal that on 23rd March 1985 the Board of Directors held another meeting
The minutes of the meeting of 12th March 1985 were confirmed by the two above mentioned Directors
The third Director Mrs Amrit K Singh however objected as she stated that she had not been informed of the last meeting
Various averments had been made in the petition with 549 regard to oppression and removal of certain valuables of Mrs Amrit K Singh and illegal operation of the bank ac count etc
It was also asserted that Mrs Singh was holding 545 shares benami and these in fact belonged to Mr SK Desor
A preliminary objection was raised on behalf of Mrs Amrit K Singh regarding the maintainability of the petition on the ground that the appellants were not members of the company as their names had not been recorded in the register of members
A further objection was taken that a composite petition under sections 397  398 of the Act with an alternative prayer for winding up of the company was not maintainable
The learned single Judge of the High Court sitting as a Company Judge dealt with the application and held that the appellants who were the wife and children of late Mr SK Desor and had obtained letters of administration
us 290 of the Indian Succession Act read with section 273 of the Act as also the permission of the Reserve Bank of India should be treated as members for the purpose of maintaining a petition sections 397  398 of the Act
The learned single Judge also held that a composite petition was maintainable
The appellant Mrs Amrit K Singh filed an appeal for herself and as she alleged as Working Director from the judgment and order dated 21st September 1988 of the learned single Judge
It appears that the appellants aggrieved thereby had also moved this Court under article 136 of the Constitution
This Court by its order dated 18th January 1989 stayed the further proceedings before the learned single Judge and directed expeditious disposal of the appeal pending before the division bench or the High Court from the said order of 21st September 1988 which had been admit ted on 13th October 1988 for consideration by the Division Bench of the High Court of the application for
directions
By a judgment and order delivered on 31st August 1989 the Division Bench dismissed the said appeal and held that the petition section 397  398 was maintainable by the respondents in the facts and circumstances of the case and that a composite petition sections 397398  433f of the Act was maintainable
Aggrieved thereby the appellants preferred this appeal to this Court
We are concerned with two questions of law namely whether the legal heirs of a deceased shareholder can be treated as members of the company for the purpose of main taining a petition sections 397  398 of the Act and whether a composite petition under sections 397 398  550 433f of the Act is maintainable
We had the advantage of hearing Mr FS Nariman counsel for the appellants and Mr Anil Diwan for the respondents
It may be mentioned that during the pendency of the appeal before the High Court without prejudice to the rights and contentions of the parties an emergent meeting of the Board of Directors was directed by the High Court to be held on 28th January 1989 to consider the question of registration of 450 shares belonging to the deceased Mr SK Desor in the name of Mrs Margarat T Desor and her son Sameer K Desor being re spondents Nos 1  3 respectively
It further appears that as per the directions of the Division Bench dated 27th January 1989 the court had appointed Chairman Mr CK Mahajan and Mrs Margarat T Desor were not permitted to vote at the said meeting
At a meeting held subsequent thereto by a majority it was resolved not to register the respondents Nos 1  3 as members
It must however be noted that the Division Bench vide its order dated 27th January 1989 had directed that no effect would be given to the said Resolution
The question therefore which is material to be consid ered is whether the legal heirs of a deceased shareholder whose names are not entered in the register of members are entitled to maintain petition sections 397  398 of the Act
It was contended on behalf of the appellants that sections 397  398 of the Act must be strictly construed
Section 397 of the Act which is in chapter VI of the Act under the heading Prevention of Oppression and Mismanage ment provides as follows Application to Court for relief in cases of oppression1 Any member of a company who complains that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members including any one or more of themselves may apply to the Court for an order under this section provided such members have a right so to apply in virtue of section 399
2 If on any application under sub section 1 the Court is of the opinion a that the company s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members and 551 b that to wind up the company would unfairly prejudice such member or members but that otherwise the fact would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up the Court may with a view to bringing to an end the matters complained of make such order as it thinks fit
 On behalf of the appellants it was contended that the right which is a specific statutory right is given only to a member of the company and until and unless one is a member of the company there is no right to maintain application us 397 of the Act
Mr Nariman contended that there was no automatic transmission of shares in the case of death of a shareholder to his legal heir and representatives and the Board has a discretion and can refuse to register the shares
Hence the legal representatives had no locus standi to maintain an application sections 387  398 of the Act
Mr Nariman submitted that the rights under sections 397  398 of the Act are statutory rights and must be strictly construed in the terms of the Statute
The right it was submitted was given to any member of a company and it should not be enlarged to include any one who may be entitled to become a member
In order to decide the question involved it would be necessary to examine certain provisions of the Act
Section 227 of the Act states that member in relation to company does not include a bearer of a share warrant of the company issued in pursuance of section 114 of the Act
Section 41 of the Act provides as follows 1 The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company and on its registration shall be entered as members in its register of members
2 Every other person who agreed in writing to become a member of a company and whose name is entered in its register of members shall be a member of the company
 Section 26 of the English Companies Act 1948 in sub stantially the same
Section 109 of the Act states as follows A transfer of the share or other interest in a company of a 552 deceased member thereof made by his legal representative shall although the legal representative is not himself a member be as valid as if he had been a member at the time of the execution of the instrument of trans fer
 In this connection it would be relevant to refer to Articles 25 to 28 of Table A of the Act which deal with the transmission of shares and which are in the following terms 251 On the death of a member the survivor where the member was a joint holder and his legal representatives where he was a sole holder shall be the only persons recognised by the company as having any title to his interest in the shares
2 Nothing in clause 1 shall release the estate of a deceased joint holder from any liability in respect of any share which had been jointly held by him with other persons
261 Any person becoming entitled to a share in consequence of the death or insolvency of a member may upon such evidence being produced as may from time to time properly be required by the Board and subject as hereinafter pro vided elect either a to be registered himself as holder of the share or b to make such transfer of the share as the deceased or insolvent member could have made
2 The Board shall in either case have the same right to decline or suspend registration as it would have had if the deceased or insolvent member had transferred the share before his death of insolvency
1 If the person so becoming entitled shall elect to be registered as holder of the share himself he shall deliver or send to the company a notice in writing signed by him stating that he so elects
2 If the person aforesaid shall elect to transfer the share he shall testify his election by executing a transfer of the share
553 3 All the limitations restrictions and provisions of these regulations resulting to the right to transfer and the registration of transfers of shares shall be applicable to any such notice or transfer as aforesaid as if the death or insolvency of the member had not occurred and the notice or transfer were a transfer signed by that member
A person becoming entitled to a share by reason of the death or insolvency of the holder shall be entitled to the same dividends or other advantages to which he would be entitled if he were the registered holder of the share except that he shall not become being registered as a member in respect of the share be entitled in respect of it to exer cise any right conferred by membership in relation to meetings of the company Provided that the Board may at any time give notice requiring any such person to elect either to be registered himself or to transfer the share and if the notice is not complied with within ninety days the Board may thereafter withhold payment of all divi dends bonuses or other moneys payable in respect of the share until the requirements of the notice have been complied with
 Article 28 is more or less in para materia to articles 32 of Table A to the English Companies Act
It may also be mentioned as it  has been mentioned by the High Court that section 210 of the English Companies Act before its amendment in 1990 was substantially the same as section 397 of the Act
As mentioned hereinbefore it is the admitted case of the parties that the regulation for management of the compa ny as contained in Table A to the Act apply to appellant No 1 and the said relevant provision in the articles of associ ation of the company regarding transfer of shares is Article 17 which is as follows No share shall be transferred to any person other than a shareholder of the company so long as any member of the company is willing to purchase the same at fair value
This clause shall not apply to the executor of administrator of a deceased shareholder if there is will or to the heir or lineal decend ents where no letter of administration has been taken 554 Mr Nariman submits that in view of the specific provi sions of section 397 of the Act only a member is entitled to move a petition under sections 397 and 398 of the Act and that member is one whose name is in the register of members in view of section 41 of the Act as mentioned hereinbefore
In this connec tion it is was emphasised that not only must the applicant be a member but in terms of section 399 of the Act he has to fulfil the conditions laid down under clauses a and b of section 399 of the Act
These should be construed so as to mean what the words say
According to Mr Nariman a member is not in view of the scheme of the Act the representative of a deceased member
It is true that it must be a member and section 41 of the Act provides that a member of a company is a person who has applied in writing and whose name is entered in the regis ter of members is entitled to move the petition
It appears in this case that names of respondent Nos 2 and 3 had not then been entered in the register of members at the relevant time when the application was made
But the name of Late Shri SK Desor was still on the register of members and the requisite shareholding for moving a petition under sections 397 and 398 of the Act was held by him
This question though res integra so far as this country is concerned has been considered in England where Pennycuick J had occasion to consider this in Re Jermyn Street Turkish Baths Ltd The Company there was incorporated in 1946 and represented a joint venture by L and section In 1952 S transferred his shareholding to Mrs P who became a director of the company
L died in 1953 and thereafter Mrs P was mainly responsible for the company s affairs
The petition ers therein were appointed administrators in L s estate in 1960 and in 1961 at their request the names of the peti tioners therein were entered in the register of members of the company against the name of L as administrators of L
On the questions whether the entry constituted merely a note of the grant of administration or the registration of the petitioners as members and whether the petitioners were members of the company for the purposes of presenting a petition under section 210 of the English Companies Act at p 65 of the report Pennycuick J noted that it was contended before him that the petitioners therein were not members of the company and hence had no locus standi to present the petition bearing in mind that petition under section 210 of the English Companies Act could only be presented by a member of the company
In the facts of that case Pennycuick J held that the petitioners were duly registered as members of the company but he proceeded to hold that even if it were so the personal representatives of a deceased member must be regarded as members of the company for the purposes of 555 section 210 Of the English Companies Act
In this connection reference was made to the decision of Buckley J in Re Bayswater Trading Co Ltd  where at p 609 of the report it was held that member  would in clude representative of a deceased member for the purpose of section 353 of the English Companies Act
This judgment of Penny cuick J went up in appeal to the Court of Appeal and it was reversed
See Re Jermyn Street Turkish Baths Ltd But on the point whether the repre sentative of a deceased member can maintain an action under section 210 of the English Companies Act the views of Penny cuick J were not reversed or modified
Mr Nariman submit ted that the observations of Pennycuick J were obiter for the decision of the case
We are unable to agree
Indeed this was a point specifically referred to by Pennycuick J as being raised and specifically decided
But we need not detain ourselves with this controversy because the decision of the English Courts are not binding in the courts of India
But the observations or the reasoning are of persua sive value
We are clearly of the opinion that having regard to the scheme and the purpose of sections 397 and 398 of the Act the reasoning on a para materia provision of the English Act would be a valuable guide
The said construction appears to us to further the purpose intended to be fulfilled by petitions under sections 397 and 398 of the Act
It facilitates solution of problems in case of oppression of the minorities when the member is dead and his heirs or legal representa tives are yet to be substituted
This is an equitable and just construction
This construction as suggested by Penny cuick J does not militate against either equity or justice of the such situation
We would therefore adhere to that construction
In this connection it may be mentioned that in the 1972 Edition of Gore Browne on Companies it has been stated as follows It has recently been settled that the person al representatives of a deceased member even though they are not registered as members are entitled to present a petition under section 210
In Re Jermyn Street Turkish Baths Ltd Pennycuick J held that on its true construc tion section 210 required that the word member  should include the personal represen tatives of a deceased member on whom title of his shares devolved by operation of law
 In 1st Supplement January 1978 of Gore Browne on Compa nies at para 16 it is stated that while the shares remain in the name of the deceased holder his estate is prima facie entitled to any subsequent benefits deriving from the shares
At p 491 of Buckley on Companies  the decision of Re Jermyn Street Turkish Baths Ltd s case supra has also been referred to and it was observed that for the purpose of the petition under section 210 of the English Companies Act member  includes the personal representatives of a deceased member
Buckley also notes that this decision referred herein was reversed without affecting this point by the Court of Appeal
In Halsbury s Laws of England 4th Edition Vol 7 para 1010 at p 604 same view has been expressed
The division bench of the Delhi High Court also noticed that the view expressed in Re Jermyn Street Turkish Baths supra also finds indirect support from various other decisions of the English Courts
Reference was made to the decision in James vs Buena Venture Nitrate Grounds Syndicate Ltd 1896 1 Chancery Division 456 Re Dlewellyn vs Kasintoe Rubber Estate Ltd and New Zealand Gold Extraction Company Newbe ryyautin Proces Ltd vs Peacock These decisions do indicate that the right of members in similar though not identical situations should be construed as being belonging to the legal representative or heirs of deceased members
Our attention however was drawn to the decision of Supreme Court of Victoria in Re Meyer Dougals Pty Ltd  by Gowans J Article 22 of Table A to the Victorian Companies Act 1938 4602 provides as follows that 22
A person becoming entitled to a share by reason of the death bankruptcy or insolvency of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share except that he shall not before being registered as a member in respect of the share be entitled in respect of it to exercise any right conferred by membership in relation to meeting of the company
 Gowans J in that case found that there was a careful distinction between members and persons entitled to share by reason of the death of a member but who are not registered appear to deny the status of a member to a legal personal representative who is not a member
On an analysis of various decisions Gowans J was of the view that a de ceased s estate and its representative may in a particular context have to be treated as not a member and in view of the provisions of section 1861 of the Victorian Companies Act 1961 which provides any member of a company who complains that the affairs of the company are being conducted in manner oppressive to one or more of 557 the members including himself may  apply to the court for an order under that section Gowans J came to the conclusion that there was no reason for treating the word members in that section as not applying to a legal repre sentative who is not entitled to be accorded the right which registration would give him to vote in regulating the con duct of the company s affairs
The object of the section which is in para materia to section 399 of the Act was to pro vide a remedy for the case where notwithstanding the fact that a person possesses the right of a member enabling him to participate in the conduct of the affairs of the company he can claim that he as a member or as one of a number of members is or are being oppressed by those who conduct the affairs of the company
According to Gowans J it should not be treated as applying to someone who is not so entitled and cannot so claim
With respect we are unable to accept this view
Having regard to the purpose of the section as we conceive it it would not be just construction to deny the legal representatives of the deceased member the right of maintain a petition under sections 397 and 398
We would prefer to accept the view of Pennycuick J in Re Jermyn Street Turkish Baths Ltd s case supra
It appears to us that this will be in consonance with the equity of the sections
In Gower s Principles of Modern Company Law at p 68 reference has been made to Re Jermyn Street Turkish Baths Ltd s case supra and also to Re Meyer Douglas Pry Ltd s case supra which according to the learned author seems to be more convincing
Mr Nariman also referred us to the comments in Hahlo s Casebook on Company Law 2nd Edi tion p 35 1 where in footnote reference was made to Re Jermyn Street Turkish Baths Ltd s case supra which have been followed in some decisions
It was noted as fol lows It appears doubtful whether personal repre sentatives of deceased shareholders who themselves are not or cannot become registered as shareholders can be regarded as members for the purposes of section 210 of the 1948 Act Re Cuthburt Cooper  Sons Ltd 1937 Ch
392 and Re Meyer Douglas Ltd at 655
 We do not agree for the reason mentioned before
It further appears to us the Australian judgment does not reconcile to logic in accepting that legal representative can petition for winding up which is called the sledge hammer remedy but would refuse the lesser and alternative remedy of seeking relief against oppression and mismanage ment though the latter remedy requires establishment of winding up on just and equitable grounds as a precondition for its 558 invocation
It would be rather incongruous to hold that the case for winding up on just and equitable grounds can be made out by the legal representatives under section 4394b of the Act but not the other
This does not appear to be logi cal
It appears to us that to hold that the legal represen tatives of a deceased shareholder could not be given the same right of a member under sections 397 and 398 of the Act would be taking a hyper technical view which does not ad vance the cause of equity or justice
The High Court in its judgment under appeal proceeded on the basis that legal representatives of a deceased member represent the estate of that member whose name is on the register of members
When the member dies his estate is entrusted in the legal repre sentatives
When therefore these vestings are illegally or wrongfully affected the estate through the legal represen tatives must be enabled to petition in respect of oppression and mismanagement and it is as if the estate stands in the shoes of the deceased member
We are of the opinion that this view is a correct view
It may be mentioned in this connection that succession is not kept in abeyance and the property of the deceased member vests in the legal represen tatives on the death of the deceased and they should be permitted to act for the deceased member for the purpose of transfer of shares under section 109 of the Act
In some situations and contingencies the member may be different from a holder
A member may be a holder of shares but a holder may not be a member
In that view of the matter it is not necessary for the present purpose to examine this question from the angle in which the learned Single Judge of the Calcutta High Court analysed the posi tion in the case of Kedar Nath Agarwal vs Jay Engineering Works Ltd and Ors  to which our attention was drawn
Admittedly in the present case the legal representa tives have been more than anxious to get theft names put on the register of members in place of deceased member who was the Managing Director and Chairman of the company and had the controlling interest
It would therefore be wrong to insist their names must be first put on the register before they can move an application under sections 397 and 398 of the Act
This would frustrate the very purpose of the necessity of action
It was contended on behalf of the appellant before the High Court that if legal representatives who were only potential members or persons likely to come on the register of members are permitted to file an application under sections 397 and 398 of the Act it would create havoc as then persons having blank transfer forms 559 signed by members and as such having a financial interest could also claim to move an application under sections 397 and 398 of the Act
The High Court held that this is a fallacy that in the case of persons having blank transfer forms signed by members it is the members themselves who are shown on the register of members and they are different from the persons with the blank transfer forms whereas in the case of legal representatives it is the deceased member who is shown on the register and the legal representatives are in effect exercising his right
A right has devolved on them though the death of the member whose name is still on the register
In our opinion therefore the High Court was pre eminently right in holding that the legal representa tives of deceased member whose name is still on the register of members are entitled to petition under sections 397 and 398 of the Act
In the view we have taken it is not necessary to consider the contention whether as on the date of petition they were not members
In that view of the matter it is not necessary for us to consider the decision of this Court in Rajahmundry Electric Supply Corpn
Ltd vs A Mageshwara Rao  Ors 13
In view of the observations of this Court in Life Insurance Corporation of India vs Escorts Limited  Ors  at p 1412 it is not necessary in our opinion to consider the contention as made on behalf of the appellant before the High Court that the permission of the Reserve Bank of India had been errone ously obtained and consequently amounts to no permission
In the present context we are of the opinion that the High Court was right in the view it took on the first aspect of the matter
The second question was whether a combined petition under sections 397 398 and 433f of the Act was maintainable
In view of the observations of this Court in Shanti Prasad Jain vs Kalinga Tubes and the reasoning of the Bombay High Court in Bilasrai Joharmal  Ors
vs Akola Electric Supply Co Pvt Ltd  we are of the opinion that the averments which a petitioner would have to make to invoke the jurisdiction under sections 397 and 398 are not destructive of the averments which are required to be made in a case for winding up under section 433f of the Act on the just and equitable ground though they may appear to be contradictory
As Halsbury s Laws of England 4th Edition Volume 7 at p 604 605 discusses that the prayer must be made stating that the affairs are such which fulfil the requirement of winding up but to wind up the company would unfairly prejudice that part of the members but otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up the Court may with a view to bringing to an end the 560 matters complained of make such order as it thinks fit whether for regulating the conduct of the company s affairs in future or otherwise
We are of the opinion that averments which a petitioner would have to make to invoke the juris diction of sections 397 and 398 of the Act are not destructive of the averments which are required to be made in a case for winding up under section 433f on the just and equitable ground though they may appear to be rather conflicting if not contradictory
We are in agreement with the High Court that the petition must proceed upto certain stage which is common to both winding up and though there may be some difference in procedure to be adopted it is not such which is irrecon cilable and cannot simultaneously be gone into
Indeed these are made in the manner indicated before
It has to be borne in mind that a discretion is conferred on the court and it is only when the Court is satisfied that the facts justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up but if the Court is further of the opinion that it would be a remedy worse than the disease then the Court can examine whether the alternative relief by way of a direction under  section 397 can be granted
This is a well accepted remedy exercised by the Courts
We are therefore of the opinion that the High Courtwas right in the view that a composite petition under sections 397398 and 433f of the Act is main tainable
The appeal therefore must fail and is accordingly dismissed
We dismiss the appeal with costs which is as sessed at Rs5000
Y Lal Appeal dis missed


Summary:
The appellant company which was incorporated in 1938 in the erstwhile State of Jind obtained certain concessions from the Ruler of the State under an agreement dated April 1 1938 which inter alia provided that the State was to be allotted certain shares in the company without any payment and as regards income tax the company was to be assessed at concessional rates
On May 5 1948 the Ruler of jind along with the Rulers of seven other States entered into a Covenant for the merger of their territories into one State Article VI of the Covenant provided inter alia that the Ruler of the Covenanting State shall make over the administration of his State to the Rajpramukh of the new State and that all duties and obligations of the Ruler of the Covenanting State shall devolve on the New State and shall be discharged by it
In accordance with that Article the Rajpramukh took over the administration of jind on August 20 1948 and immediately after assumption of office promulgated Ordinance No  by section 3 of which all laws in force in the State of Patiala were made applicable mutatis mutandis to the territories of the New State and that all laws in force in the Covenanting States stood repealed
On November 24 1949 the Rajpramukh issued a proclamation accepting the Constitution of India and on April 13 1950 the New State became a taxable territory of the Union of India
730 The result of the constitutional changes was that the law relating to income tax applicable to the appellant for the period prior to August 20 1948 was that of Jind for the period August 20 1948 to April 13 1950 that of the Patiala Income tax Act and after April 13 1950 the Indian Income tax Act  but the appellant contended that the income tax should be levied on him as provided in the agreement entered into with the Ruler of jind dated April 1 1938 Held 1 that section 3 Of the Ordinance No on its true construction extinguished the right to tax concessions conferred on the appellant under the agreement dated April 1 1938 and that the appellant cannot rely on that agreement after August 20 1948
2The Covenant dated May 5 1948 entered into by the Rulers of the States is in whole and in parts an act of State and Article VI cannot be relied on by the appellant for the enforcement of the rights conferred on him under the agreement with the Ruler of jind as against the Rajpramukh of the new State Per section R Das C J Venkatarama Aiyar section K Das and Gajendragadkar JJ
When a treaty is entered into by sovereigns of independent States whereunder sovereignty in territories passes from one to the other clauses therein providing for the recognition by the new sovereign of the existing rights of the residents of those territories must be regarded as invested with the character of an act of State and no claim based thereon could be enforced in the municipal courts established by the new sovereign unless those rights have been recognised by him
Secretary of State for India vs Bai Ralbai 1915 L R 42 I A 229 Vajasingji Joravarsingji and others vs Secretary of State 1924 L R 51 1
A 357 Sccretary of State vs Sardar Rustam Khan 1941 L R 68 1
A 109 Cook vs Sprigg and Hoani Te Heuheu Tukino vs Aotea District Maori Land Board  relied on
Per Bose J International opinion is divided about the effect that a change of sovereignty has on rights to immoveable property and this decision must not be used as a precedent in a case in which rights to immoveable property are concerned