Case: Ladli Prasad Jaiswal Vs. Karnal Distillery Co., Ltd., &amp; Ors

One Kishori Lal Jaiswal started a "distillery business in the name of Kishori Lal & Sons and set up a factory at Kamal in the Punjab for manufacturingLal died in 1528 leaving him surviving three sons, Durga Prasad, Ladli Prasad and Shanti Prasad. Durga Prasad who was the eldest surviving member became karta of the Joint Hindu family, and continued the family business. On the death of Durga Prasad in 1934 leaving him surviving two sons Sajjan Lal and Madan Lal and his wife Suraj Mukhi, Ladli Prasad became the karta of the family and continued the business. By mutual arrangement on November 5, 1940 the joint Hindu Family of three branches was disrupted and the business of Kishori Lal & Sons was thereafter conducted as a partnership concern each branch having a third share therein. On March 23, 1941 a private limited company called the Karnal Distillery Company Ltd. was incorporated under the Indian Companies Act, 1913, and the business of Kishori Lal & Sons was taken over by that Company. Under the final allotment of shares made by the Company on August 1, 1941- 1005 shares were allotted to the branch of Durga Prasad, 1503 shares to Ladli Prasad and 1003 to Shanti Prasad. By the Articles of Association the maximum number of Directors was five and the maximum number was two. Ladli Prasad, SHanti Prasad and Suraj Mukhi were appointed as the first Directors of the Campany. Every year one-third of the Directors except the Managing Directors were to retire by rotation. Ladli Prasad was appointed Managing Director for ten years with the right to continue for another ten years unless a notice of fifteen days within eight years was given by a two-third majority at a special general meeting held for the purpose of terminating his appointment as Managing Director, and that two third of the total number of members could expel a member of the Company. Ladli Prasad as Manag- ing Director of the Company drew an allowance of Rs. 1, 800/- per month, a commission of 7 1/2 per cent on net profits of the Company, a motor-car allowance of Rs. 350/- per month with a right to be provided a new motor-car every three years for personal use and Rs. 30/- per day as travelling allowance. The other Directors of the Company were paid remuneration at the rate of Rs. 250/- per month, and each Director who attend the meeting of the Board of Directors was allowed in addition Rs. 25/-per day.Manifestly there was great disparity between the remuneration received by Ladli Prasad and the other Directors, and this gave rise to quarrels between the members of the family. At an extraordinary general meeting of the Company held on February 20, 1945 at which Shanti Prasad, Sajjan Lal, Madan Lal and Suraj Mukhi were present, it was resolved that Ladli Prasad be removed from his office of Managing Director and that Shanti Prasad be appointed Managing Director instead. But Ladli Prasad declined to hand over charge of the Managing Directors office to Shanti Prasad. A suit was thereupon filed by Shanti Prasad in the Court of the Subordinate Judge, Karnal, on behalf of the Company against Ladli Prasad on April 10, 1945 for a declaration that he was lawfully appointed Managing Director of the Company and for enforcing the resolution dated February 20, 1945. Ladli Prasad in his turn filed a suit for a declaration that Shanti Prasad had ceased to be a Director of the Company. In the suit filed by Shanti Prasad on behalf of the Company, , the trial Court appointed Suraj Mukhi and Madan Lal as joint receivers to manage the affairs of the Company for the duration of the suit. Against that order Ladli Prasad appealed to the High Court of judicature at Lahore and obtained an order staying the operation of the order appointing receivers.On October 16, 1945 at an extraordinary general meeting of the Company held at the residence of Ladli Prasad at which all the members of the family were present certain special resolutions were passed. The effect of the resolutions was that:- (1) That each branch of the family should own 1170 shares and for this purpose Ladli Prasad should transfer 167 shares to Shanti Prasad and 166 to the branch of Durga Prasad. (2) Resolution dated February 20, 1945 pur- porting to remove Ladli Prasad from the Managing Directorship was cancelled. (3) Resignation of Ladli Prasad of his post as Managing Director was accepted, and he was appointed permanent Director and Chairman, and Madan Lal son of Durga Prasad was appointed Director in place of Suraj Mukhi who submitted her resignation. Shanti Prasad continued to be a Director of the Company. (4) The maximum number of Directors was fixed at three and the quorum of the Directors meeting was also fixed at three. (5) Every decision submitted to a meeting of the Directors or members was to be deemed to be passed only if the decision thereon. be unanimous, and the proceedings recorded being signed by the Chairman of the Company and all the Directors or the members, as the case maybe, present at the meeting. (6) Shanti Prasad was appointed Manager for five years under the control of the Board of Directors. (7) Article 47 which gave power to a two- third majority to expel a member of the Company was deleted. (8) Each Director was to be paid Rs. 900/per month as remuneration and Rs. 25/- for each meeting of the Board of Directors attended. No extra remuneration to be paid to Shanti Prasad as Manager or to Ladli Prasad as Chairman. (9) Ladli Prasad gave up the remuneration which had been provided for him under the Articles of Association as originally framed and he was discharged in respect of all previous accounts which were ratified and confirmed. (10) All contracts executed, business done, benefits derived by Ladli Prasad under the facilities granted to him by resolution dated April 30, 1941 of the Board of Directors were confirmed and ratified and all transactions recorded in the accounts of the Company for the period April 1, 1941 till the date of the resolution were ratified and it was resolved that the accounts of each of the four years ending March 31, 1942, 1943, 1944 and 1945 be confirmed. (11) Dividend at the rate of 65 per cent of the face value of the share free of income-tax was declared. (12) While ratifying and confirming the con- tracts executed, business done, benefits derived in the name, or from the Company (SCR at page 278) by any Director or the Managing Director of the Company in the past, it was resolved that in future no Director of the Company will contract in the name of the Company for his personal benefit. (13) A large number of Articles of Association of the Company were amended in order to make them consistent with the special resolutions. Effect was given to these resolutions. Shanti Prasad assumed the office of Manager of the Company and took charge of the Companys properties, assets and business. Re- adjustment in share-holding of the members was also effected, Ladli Prasad having transferred the shares according to the terms of the resolution. But disputes started afresh. In a meeting of the Board of Directors held on March 3, 1946, at which Shanti Prasad and Madan Lai were present, it was resolved to call an extraordinary general meeting of the share-holders of the Company on March 28, 1946 to consider a requisition received from Suraj Mukhi and Madan Lal for cancelling some of the special resolutions passed at the meeting held on October 16, 1945. No notice of this meeting was given to Ladli Prasad. At the meeting held on March 28, 1946-in the absence of Ladli Prasad- several resolutions were passed to the effect that, all amendments made in the Articles of Association by the resolutions dated October 16, 1945 do stand cancelled and the original Articles of Association of the year 1941 (including Art. 47 which authorised the Company by a 2/3rd majority to expel any member) do stand restored. It was also resolved that Ladli Prasad be removed from the dire- ctorate and Chairmanship of the Company, and in his place Suraj Mukhi be appointed Director of the Company at a remuneration of Rs. 900/- per month; that Shanti Prasad be appointed Managing Director for ten years, such appointment not being liable to termination earlier by the members; and that Shanti Prasad do receive in addition to his remuneration as Director Rs. 1000/- per month as Managing Director, a travelling allowance of Rs. 30/- per day and a motor-car allowance of Rs. 200/- per month.Coming to know about these amendments, Ladli Prasad called upon Shanti Prasad and the other members of the Company to rescind the resolutions, and failing to induce them to comply with the requisition, he filed a petition on May 1, 1946 in the High Court of judicature at Lahore for an order for winding up the Company. An order for winding up the Company was passed by a single judge, but was set aside in appeal by the High Court of Lahore by its order dated January 19,November 26, 1946, Ladli Prasad filed a suit in the Court of the Senior Subordinate judge, Karnal for a declaration that the meeting and proceedings of the Board of Directors dated March 3, 1946, and the extraordinary general meeting dated March 28, 1946, and all meetings of the Directors held after March 28, 1946 were illegal, ultra vires, ineffective and operated as a fraud on the Company and the interests of minority members of the Company and that the unanimous resolutions of the extraordinary general meeting dated October 16, 1945, continued to remain in force and were still operative, and a permanent injunction restraining the Company, Shanti Prasad, Suraj Mukhi, Sajjan Lal and Madan Lal (who were impleaded respectively as defendants I to 5) from acting upon or carrying into effect the resolutions passed in the meetings dated March 3, 1946 and March 28, 1946 and all meetings held after March 28,defendants by separate written statements resisted the suit contending inter alia that the defen- dants 2 to 5 were coerced by Ladli Prasad taking advantage of his position, into passing the resolutions in the extraordinary general meeting dated October 16, 1945, and that the resolutions were not binding upon the Company and the otherSubordinate judge raised a large number of issues the first of which related to the challenge to the validity of the resolution dated October 16, 1945, raised by the defendants on the ground that it was procured by coercion and undue influence. Even though the burden of proving the first issue which was substantially the central issue in the suit was laid upon the defendants, they did not attend the Court for examination as witnesses. By his judgment dated May 25, 1953, the Subordinate judge observed that the written statement did not contain any substantial particulars of the plea of coercion or undue influence, and that the defendants having failed to submit themselves to give evidence in support of their plea of coercion or undue influence despite several opportunities given in that connection, a strong presumption arose against the defendants; that viewed in the context of the resolution dated February 20, 1945, passed by the defendants, and the subsequent litigation which ensured between the parties, and the fact that the resolutions dated October 16, 1945 were acquiesced in by the defendants and were never attempted to be avoided by resort to a competent court, and even the allegation that they were improperly procured was made for the first time in the written statement in the suit before him, the plea of undue influence and coercion was not substantiated; and that the resolutions dated October 16, 1945, were not invalid. He further held that the resolutions passed at the Directors meeting dated March 3, 1946, and at the extra-ordinary general meeting on March 28, 1946, were unauthorised and invalid; that by holding the meeting on March 28, 1946, in breach of the Articles of Association and the resolutions dated October 16, 1945, it was intended to play a fraud on Ladli Prasad by committing a clear breach of the contract; and that the matter agitated by the plaint did not relate to the internal management of the Company. The learned judge accordingly granted the relief claimed by the plaintiff for declaration and injunction.In appeal by the defendants, the District judge, Karnal held that Ladli Prasad was in a position to dominate, the will of defendants to 5 "who were in a helpless position, being hard hit by the lack of" adequate financial resources. that they were under pressure exercised by the plaintiff induced to give their consent to the resolutions in the meeting held on October 16, 1945, and on that account the resolutions were ineffective. He observed that Ladli Prasad took undue advantage of his dominating position qua the affairs of the Company and compelled the defendants 2 to 5 to pass the resolutions and thereby obtained an unfair advantage in that he was absolved from all liability incurred by him in the course of his management prior to the meeting held on October 16, 1945, and that he obtained -a power of veto over the affairs and smooth running of the business of the Company. The District judge agreed with the trial Court that no proper notice was served upon Ladli Prasad of the meetings held on March 3, 1946, and March 28, 1946, and therefore the resolutions at those meetings were not binding upon Ladli Prasad and that in any event the resolutions of those dates were a fraud on the minority rights and were illegal and ultra vires, but as the plaintiff Ladli Prasad had filed his suit relying on the resolution dated October 16, 1945, which was invalid, no relief could be awarded toappeal against the decree of the District judge dismissing the suit filed by Ladli Prasad, Bishan Narain, J., of the High Court of Punjab observed that the findings of the District judge "travelled (SCR at page 282) for beyond the pleadings", and only two facts which were pleaded were proved by the evidence viz. that the High Court of Lahore had stayed the order of the Subordinate judge appointing Receivers of the affairs of the Company and that Ladli Prasad was the eldest male member. The learned judge on a review of the evidence found that Ladli Prasad was not in a position to dominate the will of defendants 2 to 5 when the resolutions dated October 16, 1945, were passed and they were the result of a compromise unanimously accepted, and were binding on the parties. He confirmed the view of the trial Court and the District judge that the resolutions dated March 3, 1946, and March 28, 1946, were invalid because no notice was given to Ladli Prasad of the proceedings, and in the light of his findings granted a decree for declaration and injunction as prayed but subject to the proviso that the decree shall not affect the rights and liabilities of third parties who were not members of the Company, unless thereby the rights of the plaintiff Ladli Prasad, and the Company were adversely affected.Against this judgment an appeal was preferred by the defendants with leave under cl. 10 of the Letters Patent. In appeal the Division Bench of the High Court reversed the decree passed by Bishan Narain, J., and dismissed the suit filed by Ladli Prasad. In the view of the High Court Ladli Prasad as the elder brother of Shanti Prasad and uncle of Sajjan Lal and Madan Lal was in a position to dominate their will and availing himself of that position he obtained an unfair advantage over them and that the failure of Shanti Prasad to submit himself to examination before the Court in support of his case though improper could not be considered as fatal to a decision in favour of the defendants. They observed : "I feel convinced that Ladli Prasad was throughout in a position of commanding influence over his brother and younger nephews, and in consequence thereof, he benefited himself very substantially. This superiority and position of vantage that he occupied continued up to and even after the 16th October, 1945. Under the circumstances, it was for him to rebut the presumption that the benefits which he had thus obtained did not stem from his undue influence, but had been given by the defendants freely and without any pressure, or coercion." They also observed that Ladli Prasad was in the position to dominate the will of defendants 2 to 5 and had obtained unconscionable advantage over them, and it was for Ladli Prasad to establish that the resolution dated October 16, 1915 was not vitiated on account of undue influence and this Ladli Prasad has failed to establish. They summarised their conclusions on the issue of undue influence as follows :- "To sum up, the conclusion of the District ..Judge on the first issue to the effect that the resolutions mentioned in para 6 of the plaint and passed at the Extraordinary General Meeting. dated the 16th October., 1945 were ineffective as having been passed under undue influence, was a finding of fact; and this conclusion had been arrived at after a review of the evidence placed on the record and after having surveyed the facts and circumstances of the case. This finding was not based either on misconception of evidence or by adopting a procedure contrary to law. Such evidence as there is on the record, the history of the business from its very inception till the final disputes between the parties, their relationship inter se, and the manner in which the plaintiff derived benefit for himself, and the circum- stances of the case go to show : (a) that the plaintiff was in a position to dominate the will of the defendants and used that position to obtain unfair advantage for himself over the other ; (b) that he held an authority over them which was real and apparent by dint of his being formerly a karta and later on an elder brother in loco parents. He stood in a fiduciary relation to the other standing in a position of active confidence ; (c) that the plaintiff in consequence of the resolutions passed on the 16th of October 1945 obtained for himself unfair advantage to their serious detriment by virtue of his position to dominance and the transactions entered into on 16th October 1945 appear to be unconscionable ; and (d) that the burden of proof that the transactions were not induced by undue influence was upon the plaintiff, he being in a position to dominate the will of others which he failed to discharge." On the other issues they held that the proceedings of the resolutions in the meetings dated March 3, 1946 and March 28, 1946 were not binding upon Ladli Prasad, but the claim made by Ladli Prasad for a permanent injunction could not be entertained because "equity declines to lend its aid to a person whose conduct has been inequitable in relation to the subject matter of the suit and that if the prayer of Ladli Prasad was granted, it would result in a deadlock and the Companys working and affairs would come to a stand still necessitating the winding up of the Company." They suggested that it was open to Ladli Prasad to seek relief available to him under s. 155 of the Indian Companies Act, 1956 and it was open to Ladli Prasad to invoke the powers of the Court or of the Central Government under the Indian Companies Act, if so advised, but the High Court would not, having regard to the apprehension of an immediate deadlock, be justified in issuing a permanent injunction claimed by him in the suit.With certificate of fitness granted by the High Court under Art. 133 (1) (a) of the Constitution this appeal is preferred. Two questions arise at the threshold in this appeal :- (1) Whether it was competent to the High Court to grant a certificate under Art. 133 (1) (a) or (b) of the Constitution; and (2) Whether in reversing the decree of the District judge, Bishan Narain, J., trans- gressed the restrictions imposed upon the powers of the High Court by s. 100 of theCode of Civil Procedure. Article 133 (1), in so far as it is material, provides that an appeal shall lie to the Supreme Court from any judgment, decree or final order in a civil proceeding of a High Court in the territory of India if the High Court certifies- (a) that the amount or value of the subject- matter of the dispute in the court of first instance and still in dispute on appeal was and is not less than twenty thousand rupees or such other sum as may be specified in that behalf by Parliament by law ; or (b) that the judgment, decree or final order involves directly or indirectly some claim or question respecting property of the like amount or value ; or (c) that the case is a fit one for appeal to the Supreme Court; and, where the judgment, decree or final order appealed from affirms the decision of the Court immediately below in any case other than a case referred to in sub-clause (c), if the High Court further certified that the appeal involves some substantial question of law.

Court's reasoning:
But the two expressions have not the same meaning. A court subordinate to the High Court is a court subject to the superintendence of the High Court. whereas a court immediately below is the court from whose decision the appeal has been filed. If the two expressions are equated, the right of appeal against the decree of the High Court sitting in appeal over the decision of a single judge exercising original jurisdiction would be severely restricted for in such an appeal whether the judgment is of affirmance or reversal -the High Court can certify a case under Art. 133 (1) cls. (a) & (b) only if the appeal involves a substantial question of law. The Attorney- General, however, concedes and in our judgment properly that there has been a long standing practice which has the approval of the Privy Council (see Tulsi Prasad v. Benayak : L. R. 23 I. A. 102) that if the decree or order of the Division Bench reverses the judgment of a single , Judge trying a suit or proceeding in exercise of original jurisdiction of the High Court and the condition as to valuation is satisfied, an appeal lies as a matter of course, i.e. without satisfying the condition that it involves a substantial question of law. This view can be justified only if a single Judge of a High Court trying a suit or proceeding in exercise of the original jurisdiction is a court immediately below the Division Bench of the High Court which decides an appeal from his decision. The right to appeal against the judgment of a single judge whether exercising original jurisdiction or exercising appellate jurisdiction to a Division Bench is governed by the same clause of the Letters Patent. If for certifying a case for appeal to this Court in a pro- ceeding tried in exercise of the original jurisdiction the judgment of a single judge is to be regarded as the decision of the court immediately below a Division Bench to which an appeal is filed under the Letters Patent, it is difficult to discover any logical ground for holding that the judgment of a single judge in exercise of appellate jurisdiction is not such a decision. Clause 10 of the Letters Patent of the Lahore High Court (which continues to apply to the Punjab High Court) provides, in so far as it is material:- "And we do further ordain that an appeal shall lie to the said High Court of judicature x x x x x x from thejudgment (not being a judgment passed in the exercise of appellate jurisdiction in respect of a decree or order made in the exercise of appellate jurisdiction by a Court subject to the superintendence of the said High Court x x x x x) of one judge of the said High Court x x x x x and that notwithstanding anything hereinbefore provided an appeal shall lie to the said High Court from a judgment of one judge of the said High Court x x x x x in the exercise of appellate jurisdiction in respect of a decree or order made in the exercise of appellate jurisdiction by a Court subject to the superintendence of the said High Court, where the judge who passed the judgment declares that the case is a fit one for appeal; x x x X. Manifestly the clause confers an unqualified right of appeal to the High Court from the judgment of a single judge exercising original civil jurisdiction. Similarly there is a right of appeal from a judgment of a single judge hearing a civil appeal where the judgment is not in an appeal from an appellate decree. But against the judgment of a single judge exercising powers in appeal from an appellate decree, an appeal under the Letters Patent only lies if the judge declares that the case is a fit one for appeal, and not otherwise. There is no warrant for making a distinction between an appeal filed against the judgment of a single judge exercising original jurisdiction and a judgment in exercise of appellate jurisdiction. There is nothing in the context to support the plea that the expression court immediately below includes a judge of the High Court trying a proceeding in exercise of original jurisdiction, i. e. sitting as a court of first instance, but not a judge exercising appellate jurisdiction. The Constitution in cl. (1) (a) of Art. 133 has expressly referred to a court of first instance in prescribing the condition relating to the value of the subject- matter and if it was intended that for the purpose of deciding whether the judgment of the High Court sought to be appealed against affirmed the decision of the Court immediately below, the decision of a single judge was to be ignored, if it was a judgment in exercise of appellate powers, but not when he was exercising original jurisdiction, an appropriate provision that behalf would have been enacted. In the absence of any such enactment, the expression "court immediately below in Act. 133 (1) must mean the court from the decision of which an appeal has been filed to the High Court, whether such court is a single judge of the High Court or a Court subject to the superintendence of the Highour judgment the appeal with certificate granted by the High Court under Art. 133 (1) (a) and (b) is competent, because a Single Judge of the High Court hearing either a proceeding as a Court of original jurisdiction or in exercise of appellate jurisdiction is a Court immediately below the Division Bench which hears an appeal against his judgment under the relevant clause of the Letters Patent.Bishan Narain J., was, it is true, hearing an appeal from an appellate decree and his powers were restricted, for a second appeal lies to the High Court only on the following grounds, namely:- (a) the decision being contrary to law or to some usage having the force of law; (b) the decision having failed to determine some material issue of law or usage, having the force of law; (c) a substantial error or defect in the procedure provided by this Code or by any other law for the time being in force, which may possibly have produced error or defect in the decision of the case upon the merits. Whether a particular transaction was vitiated on the ground of undue influence is primarily a decision on a question ofmust add that the decisions of the District Court and Division, Bench of the High Court, suffered from Serious infirmities in that they wrongly placed the onus of proof upon the plaintiff, and reached a conclusion that the plaintiff failed to prove that the resolutions were not obtained by the exercise of unduethe plaintiff has unauthorisedly been deprived of his rights by the arbitrary conduct of the defendants. All the Courts below have held that the resolutions dated March 28, 1946 are invalid. The High Court declined to grant relief to the plaintiff, for in their view the plaintiff had disentitled himself to equitable relief because of his previous conduct in exercising undue influence, and thereby securing an unfair advantage to which he was not lawfully entitled. It is unnecessary to enter upon a discussion of the question whether in the circumstances it was a sufficient ground for depriving the plaintiff of relief, for we are of opinion that subject to the reservations made by Bishan Narain, J., which fully protect third parties, relief should be awarded. Before the learned judge, counsel for the plaintiff gave an undertaking that he will not question the dealings of the defendants qua third parties, and requested expressly that the prayer for declaration that all acts of the Company and the defendants which affected him personally qua the members of the Company may alone be declared invalid. That, in our judgment, should be sufficient to meet any objection which may be raised by the defendants on the score of delay.It was also submitted that the plaintiff has lost his right to the shares since the suit was instituted because the Company had enforced its lien and had sold the shares of the plaintiff in enforcement of the lien. The validity of that action of the Company has been challenged in a separate proceeding, and we need express no opinion on that question. All the Courts have come to the conclusion that the reso- lutions dated March 3, 1.946 and March 28, 1946 were invalid and not binding on the plaintiff. Therefore, any action taken by the defendants pursuant to those resolutions may prima facie be regarded as ineffective.