Case: Turner Morrison And Co., Ltd Vs. Hungerford Investment Trust Ltd

1. This appeal by certificate is by the plaintiff-appellant, 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 decision of the trial court dismissing the plaintiffs suit.      2. In the Suit Turner Morrison claimed a decree for a sum of Rupees 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 defendant Hungerford Investment Trust Ltd. (in voluntary liquidation) (to be hereinafter referred to as the Hungerford) a sum of Rs. 79,70,802/- as super tax which it was entitled to be reimbursed. To that sum a sum of Rupees 47,96,250/16 P.was added as interest in the shape of damages. In respect of the claim the appellant claimed a paramount lien on the 2295 shares owned by the Hungerford in the plaintiff-company. The defendant resisted the suit on various 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 denied 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 lien 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 in the plaintiff-company without paying for them.      3. The trial court dismissed the plaintiffs suit holding that the claim in question was barred by "estoppel, waiver or acquiescence". It held that it was also barred by limitation. It opined that the liability to pay the tax in question was the joint liability of Turner Morrison as well as Hunger-ford and the same having been discharged by the former, it had no claim on Hungerford. It opened 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 performance. The appellate court affirmed some of the findings of the trial court.      4. 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 (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 and portion of those profits as dividends during the assessment years 1939-1940 to 1955-56. The profits that should have been available 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 Income-tax Act, 1922. Thereafter the deemed dividends were assessed in the hands of Hungerford. But year after year the Directors of Turner Morrison passes a resolution to the effect that it would be inequitable to ask Hungerford to pay the tax levied and that Turner Morrison itself should discharge that liability. These resolutions were duly implemented by Turner Morrison by paying all the taxes due from Hungerford. In about the middle of 1955. Haridas Mundhra entered into negotiation with Nigel Turner for purchasing all the shares of Turner Morrison. By exchange of letters in November and December of 1955, Hungerford agreed to steel and Mundhra agreed to purchase 49 per cent shares of Turner Morrison. The agreement also provided 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 India Corporation (a nominee of Mundhra) and Mundhra on October 30, 1956. In pursuance of that agreement Mundhra purchased 49 per cent shares of Hungerford. Thereafter as contemplated in that agreement Hungerford went into voluntary liquidation. On October 31, 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 Morrison. The second party was John Geoffrey Turner and Nigel Frederick Turner and the third party was Hungerford. In that deed after setting out the agreement between Hungerford and Mundhra, it was stated:"Now this 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 amongst the contributories of Hungerford (such contributories being the said John Geoffrey Turner and Nigel Frederick Turner) and in consideration of the premises.      1. The Company and the said John Geoffrey Turner 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 or recoverable under the Indian Income-tax Act by or from Hungerford and which payments are in fact legally enforced and made.      2. The 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 Geoffrey Turner and the said Negel Frederick Turner will jointly 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 connection 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 Liquidators or any of them may pay, incur or sustain in connection therewith or arising therefrom or otherwise in relation to the premises."6. At this stage, it may be mentioned that in accordance with the agreement entered into between Mundhra and Hungerford Turner Morrison 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 purchase the remaining 51 per cent shares of the latter. Consequently Mundhra filed a suit in the Calcutta High Court on its original side for the specific performance of the agreement entered into between him and the Hungerford. The suit was resisted by Hungerford. But it was decreed. It appears that when the learned trial judge was about to conclude his judgment in that case the Counsel for Mundhra requested the Court to issue an injunction requiring Hungerford to exercise its voting rights in respect of the 51 per cent shares which was the subject matter of the suit in accordance with the directions of Mundhra until the implementation of the decree for specific performance. The learned trial judge accepted that 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 had any lien over the shares with which we are concerned in this case. By agreement between Mundhra and Turner Morrison, the latter was removed from the array of defendants and the suit proceeded against the remaining defendants.      7. 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 because he was in a position to have an absolute control over Turner Morrison as a result of the injunction issued. Though Hungerford file an appeal against the decree in that suit, that appeal was withdrawn for reasons which are not clear. After the withdrawal of the appeal, by a Masters summons dated August 30, 1965 Hungerford moved the trial court for fixing a time within which Mundhra should 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 one for execution, it must be in a tabular form and "that any imposition of time limit would be to engraft something on the decree which does not exist in the decree". The appeal against that order was also unsuccessful.      8. After the suit for specific performance was decreed, Mundhra by himself or through Turner Morrison appears to have made 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 Mundra in that direction.      9. One other circumstance that is necessary to be mentioned before proceeding to consider 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, the 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.      10. It is not denied 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. Hungerfords 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.      11. A great deal of controversy centers round the question whether when an assessment is made on the shareholders of a company as a result of an order under Section 23-A. the companys 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 companies 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 shareholders. 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.

Court's reasoning:
We have to seewhether the company in fact had waived the lien it had in respect of the suit claim, 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 the that company that the idea of suing Hungerford for recovering the tax paid was conceived for the first time after Mundhra obtained the decree for specific performance. Under these circumstances, it is clear that Turner Morrison had waived the lien that it might have had over the shares held by Hungerford. Hence the only claim that Turner Morrison could have made against Hungerford was a money claim. The present suit was filed on November 15, 1965. Hence it is governed by the provisions ofthe Limitation 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 Article 63 of the Limitation Act, 1908. The amounts claimed in the present suit except those in respect of the assessment for 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 1955 -56 is concerned, Turner Morrison can have no claim against Hungerford because under the amended. Section 23-A of the Income-tax Act, 1922, that liability was that of Turner Morrison itself. But it was urged on behalf of Turner Morrison that in view of Section 15 (5) ofthe Limitation Act, 1963, the claim made leaving aside the claim made in respect of the assessment for the assessment year 1955-56 is not barred. Section 15 (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 the administration of the Central Government shall be excluded"32. It was urged on behalf of Turner Morrison that Hungerford is a non-resident company. Therefore it cannot be said that at any time it was present in India. Hence the suit is not barred. If this argument is correct then there can be no period of limitation for filing a suit against a non-resident company a proposition which is prima facie startling. Can we hold that Section 15 (5) applies to a suit of the type with which we are concerned? That provision contemplates the case 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 person who was never in India cannot be considered as having been absent from India. Factually a company cannot either be present in India or absent from India. But it may have a domicile or residence in India. Sometimes questions have arisen as to what is the place of residence of an incorporated company. Dicey in his Conflict of Laws (4th Edn. P. 152 rule 19) pointing out the difference between the domicile of a natural person and that of a corporation, says:33. 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, 1924-2 Ch. 101. Therein Pollock M. R. quoted with approval the following passage from the judgment of Lord St. Leonards in Carron Iron Co. v. Maclaren, (1955) 5 HLC 416"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 business is necessarily carried on by agents and I do not know why its domicile should be considered to be confined to the place where the goods are manufactured.........There 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 business, one is just as much a domicile of the corporation as the other."34. The same view was expressed in that case by Warrington, L. J. and Atkin L. J35. A Division Bench of the Bombay High Court in Sayaji Rao Gaikwar of Baroda v. Madhavrao Raghunathrao, AIR 1929 Bom 14   dealing with the scope of Section 13 of the Limitation Act 1908 which is identical with the present Section 15 (5) held that Section 13 must be read so as to avoid the obvious absurdity that arises if such corporate bodies 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 them 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 British India36. Section 15 (5) ofthe Limitation Act, 1963 can be viewed in one of the two ways i.e. that that provision does not apply to incorporated companies at all or alternatively that the incorporated companies 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 meet in India now and then. It was (through its representatives) attending the general meeting of the share-holders 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 Section 15 (5) cannot afford any assistance to Turner Morrison to save the bar of limitation.