PETITIONER:
PIERCE LESLIE & CO. LTD.
Vs.
RESPONDENT:
VIOLET OUCHTERLONY WAPSHAREAND OTHERS VICE VERSA
DATE OF JUDGMENT:
20/12/1968
BENCH:
BACHAWAT, R.S.
BENCH:
BACHAWAT, R.S.
SIKRI, S.M.
HEGDE, K.S.
CITATION:
1969 AIR 843 1969 SCR (3) 203
CITATOR INFO :
F 1980 SC 575 (7)
F 1990 SC 10 (5)
ACT:
Trust-Company acting as secretary of another company-if
brings about fiduciary relationship between them-Secretary
company buying assets of the main company and flouting a new
Company-If fraudulent transaction-old company dissolved-Suit
by shareholders of old company to set aside transaction-
Limitation-Suit it maintainable by share holders Escheat-If
properties vest in Government by escheat.
HEADNOTE:
One W owned several tea, coffee and other. plantations. In
1927, he formed a limited company and conveyed his estates
to the company. All the shares of the company were held by
him and the members of his family. The company borrowed Rs.
10 1/2 lakhs from the Imperial Bank of India ‘against the
issue of debentures secured by an English mortgage. The
loan was repayable on March 15, 1937. In default of payment
within November 15, 1937 the trustee under the debenture
trust deed was authorised to enter into possession of the
estates and sell them. The appellant-company was appointed
as the secretary of the company.
Since 1931, the family was keen on selling the estates, but
none of the offers materialised. In 1936, there was a slump
in tea and coffee prices and there was a possibility of a
further slump. The Bank was pressing for the payment of its
dues and the company was not in a position to liquidate the
debt without selling the estates. The family ‘tried
unsuccessfully to raise loans. In the beginning of November
1937, the family had a firm offer from A.L. & Co. for the
purchase of all the estates for Rs. 14 lakhs, but the family
wag anxious to retain one of them. The appellant-company
offered Rs. 10 lakhs for all the estates excluding the
estate which the family wanted to retain. The family knew
that this estate, if sold separately, would not fetch more,
than Rs. 2 lakhs and yet they chose to retain it and to
accept the appellant’s offer. At a meeting all the
shareholders (members of the family) unanimously accepted
the, proposal. There all sui juris and had business acumen.
They knew the value of he properties and accepted Rs. 10
lakhs as a just and fair price. The offer enabled them to
retain the estate which they wanted to retain and at the
same time enabled them to liquidate the Bank’s dues. They
had legal advice and the documents were in proper legal
form. The meeting was also attended by the chairman of the
company and the director nominated by the Imperial Bank.
After the transfer, the company went into voluntary
liquidation and it stood dissolved on March 1, 1940, under
s. 209 H of the Companies Act, 1913. The appellant took
possession of the properties on January 10, 1938 and
promoted a new company to which the properties were
transferred by conveyances dated January 14, 1939 and May
15, 1939 50 % of the shares of the new company were held by
the appellant-company which managed and controlled the new
company. The members of the family made no complaint about
‘the transaction for 12 years, but, on December 21, 1950,
they instituted a suit against the appellant and others
alleging that the old company had not been wound up in
accordance with law and was still in existence, that the old
company was the real owner of the properties and the new
company held them in trust for the old
204
company, that the appellant took advantage of its fiduciary
capacity and gained pecuniary advantage and that the various
sales and conveyances were vitiated by fraud, and prayed for
‘a decree vesting or retransferring the properties to the
old company or the family.
The trial court dismissed the suit, but the appeal to the
High Court was allowed in part.
In appeal to this Court, on the, questions : (1) (a) Whether
there was a fiduciary relationship between the appellant and
the old company, and (b) Whether the appellant gained a
pecuniary advantage by availing itself of the fiduciary
character; (2) Whether the suit was barred by limitation;
and (3) Whether the members of the family as shareholders of
the old company were entitled to maintain the suit,
HELD : (1) (a) The appellant company was the secretary of
the old company, was in charge of its correspondence and
accounts and was actively engaged in assisting it and its
share-holders in selling the estates. In the course of such
employment it acquired intimate knowledge of the income,
prospects and market value of the properties. Therefore,
the appellant stood in a fiduciary relationship towards the
old company and was bound to protect its interests. Having
regard to its fiduciary character, the appellant should have
avoided entering into the transaction. [209 B-D; 211 D]
(b) But, there is no rule, which incapacitates a trustee
from dealing with a cestui que trust, provided there was no
fraud and no advantage was taken by the trustee of any
information acquired by him in the character of a trustee.
The onus, however, is upon the trustee to establish
affirmatively that the transaction was righteous and that he
did not gain any pecuniary advantage by availing himself of
his fiduciary character. in the present case, the appellant
had discharged this difficult onus. The transaction was
just and fair and the appellant did not gain any pecuniary advan
tage by availing itself of its fiduciary character,
nor was there any conflict between its own interests and
those of the old company. , No advantage was taken by the
appellant of any information acquired by it in its character
as secretary and, the circumstances ,how that there was no
fraud, no concealment and no undue influence. The long
acquiescence of the members of the family in the sale is
also evidence that the transaction was fair in all respects.
[208 F. 209 E; 211 E-D]
Coles v. Trecothick, 9 Ves. Jun. 234, 247; 32 E.R., 592,
597 and Parks v. White, 11 Ves. Jun. 209, 226; 32 E.R.,
1068, 1074, applied
(2) The suit was barred by limitation. [212 D]
A suit by a beneficiary, claiming recovery of possession
from the trustee is governed by Art. 120 of the Limitation
Act, 1908. The plaintiffs had not established fraud and
consequently Art. 95 of the Limitation Act has no
application. Section 10 of the Act also does not apply,
because, the properties were not vested in the new company
for the specific purpose of making them over to the old
company or to the plaintiffs. In the plaint there was no
prayer for recovery of possession. The old company could
not ask for recovery of the properties until they obtained
a reconveyance from the new company. The suit is not there-
fore governed by Art. 144 of the Limitation Act and since
the’ period under Art. 120 is 6 years from the date of cause
of action and the cause of action in the present case arose
in 1939 when the conveyances were executed, the suit was
barred. [211 F-H]
205
Rani Chhatra Kumari Devi v. Prince Mohan Bikram Shah, L.R.
58 I.A. 279, applied.
(3) The plaintiffs were not entitled to maintain the suit.
[216 C]
As the plaintiffs failed to establish any fraud affecting
the dissolution of the company, the dissolution has put an,
end to its existence. On the dissolution of the company,
its properties, if any, Vested in the Government The right
of the Government to take by escheat for want of an heir or
successor or as bona vacantia for want of a rightful owner
has been recognised in our country. The various Government
of India Acts and the Constitution show that the Government
takes by escheat immovable as well as movable property for
want of an heir or successor. It is an incident of
sovereignty and rests on the principle of ultimate ownership
by the State of all property within its jurisdiction.
Unlike the law in the United States, winding up ‘under the
Indian Law precedes dissolution and there is no statutory
provision vesting the properties of a dissolved company in a
trustee or having the effect of abrogating the law of
escheat. The shareholders or creditors of a dissolved
company cannot be regarded as its heirs or successors.
Therefore, the Government took by escheat or as bona
vacantia all properties of a company dissolved under the,
Indian Companies Act,. 1913, except in so far as its right
was cut down by that Act. Accordingly, the shareholders or
creditors of the dissolved company cannot maintain arty
action for recovery of its assets As the company was not a
party and the assets could not be restored to its coffers,
no effective relief could be given in such an action. [212
F; 213 D-E; 214 C-D, F; 215 B-C; 216 A-B]
Collector of Masulipatam v. C. Vencata Narainapah, 8 M.I.A.
500, 525, in re. Wells 1933 1 Ch.D. 29, 49, Coxon v.Gorst,
[1891] 2 Ch. 73 and In re. Lewis and Smart Ltd. (1954) 1
W.L.R. 755, applied.
Bombay Deying and Manufacturing Co. v. State of Bombay,
[1958] S.C.R. 1122, 1146 and Legal Remembrancer v.
Corporation of Calcutta, [1967] 2 S.C.R. 170, 204, followed.
In re. U. N. Mandal’s Estate, A.I.R. 1959 Cal. 493, 498,
approved.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1174 of
1965 and 1935 of 1966.
Appeals from the judgment and decree dated October .14, 1959
of the Madras High Court in Appeal No. 471 of 1955.
H. R. Gokhale, P. S. Padmanaban and D. N. Gupta, for the
appellant (in C.A. No. 1174 of 1965) and respondent No. 1
(in C.A. No. 1935 of 1966).
V. P. Raman, Shyamala Pappu, Vineet Kumar, P.S. khera
and R. Nagaratnam, for the appellants (in C.A. No.1935
of 1966) and respondents Nos. 1 to 4 (in C.A. No. 1174of
1965).
C.B. Agarwala and R. Gopalakrishnan, for respondent No.
12 (in C.A. No. 1935 of 1966).
206
The Judgment of the Court was delivered by
Bachawat, J. One James Henry Wapshare owned several estates
including Naduvattam in the Nilgiris known as the
Ouchterlony Valley Estates, having tea, coffee, cardamom and
cinchona plantations. He lived in Naduvattam and Ootacamund
with his wife Nellie, daughters Violet and Dorothy and sons
James and Edward. In 1927 he formed a limited company known
as the Ouchterlony Valley Estates limited,having a share
capital of Rs. 15 lakhs and conveyed the estates to the
company. All the shares of this company, sometimes referred
to as the “old company” were held by him and the members of
his family. The company borrowed Rs. 10 1/2 lakhs from the
Imperial Bank of India against the issue of debentures. The
loan was secured by a mortgage of the estates under a
debenture trust deed dated May 13, 1927 and was repayable on
May 15, 1937. In default of payment within November 15, 1937
the trustee under the debenture trust deed was authorised to
enter into possession of the estates and sell them. By an
agreement dated August 16, 1936 Peirce Leslie & Co. Ltd.,
referred to as the appellant company, was appointed as the
secretary of the old company. On April 15, 1937 the old
company was served with a notice. that in default of payment
of the loan within November 15, 1937 the trustee for the
debenture holders would take possession of the estates and
sell them. On May 18, 1937 James Henry Wapshare died
leaving behind him his widow and his sons and daughters. In
November 1937 after prolonged negotiations between the
Wapshares and the appellant company it was settled that the
company would purchase all the estates except Naduvattam for
Rs. 10 lakhs. On December 29, 1937 formal agreements were
executed providing that the old company would convey to the
appellant company all the estates except Naduvattam for Rs.
10 1/2 lakhs and the appellant company would convey
Naduvattam to Mrs. Nellie Wapshare for Rs. 50,000 and would
at the same time advance Rs. 50,000 on the hypothecation of
Naduvattam crops. By January 10, 1938 the appellant company
paid the entire purchase price and took possession of the
estates and the entire dues of the Imperial Bank of India
were liquidated. On March 30, 1938 the old company passed a
special resolution for its voluntary winding up and
appointed Capt. F. Murcutt as its liquidator. The
appellant company promoted a new company known as
Ouchterlony Valley Estates Ltd., for the purpose of
acquiring the’ estates. The new company was incorporated on
September 5, 1938. Fifty per cent of its shares were held,
by the appellant company. Formal conveyances of the
Naduvattam estate in favour of Mrs. Nellie Wapshare and of
the other estates in favour of the new company were executed
by the old company between January and May 1939. On the
execution of the con-
207
veyances the new company entered into possession of the
estates conveyed to them., As soon as the affairs of the old
company were wound. up the liquidator made ,up the final
accounts of tile winding up and called the final meetings of
the company and its creditors. On or about November 29,
1939 a copy ‘of the final accounts and the return of the
holding of the meetings were filed with the registrar of
joint stock companies and were registered under’s. 209H of
the Indian Companies Act, 1913. In view of S. 209H(4), the
old company stood dissolved with effect from March 1, 1940.
On December 21, 1950 Mrs. Nellie, Violet, Dorothy, James and
Edward Wapshares instituted the present suit against the
appellant company, impleading the appellant company as
defendant No. 1, 12 persons said to be its directors and
officials as defendants 2 to 13, Capt. F.A. Murcutt as
defendant No. 14, the new company as defendant No. 15 and
the old company as defendant No. 16. The plaintiffs prayed
for a decree declaring that the old company had not been
wound up in accordance with law and was still in existence
as a corporate personality, a declaration that the old
company was the real owner of the aforesaid properties and
the new company held them in trust for the old company, a
decree vesting or re-transferring the properties to the old
company and alternatively to the plaintiffs and accounts.
The plaintiffs alleged that the appellant company as the
secretary and manager of the old company was bound in a
fiduciary character to protect its interest and by availing
itself of this character gained pecuniary advantage by
purchase of the properties from the old company in 1939,
that the agreement for sale and conveyances in respect
thereof were induced by fraud, fraudulent concealment,
misrepresentation, undue influence an improper means, that
the new company was controlled by the appellants that all
the defendants were privy to the fraud, that the winding up
of the old company was procured by the defendants
fraudulently,, that the plaintiffs discovered the fraud in
September 1949, and the-plaintiffs were the only
shareholders of the old company and as such were entitled to
maintain the suit. Defendants 4, 11 and 14 died during the
pendency of the suit. The defunct old company impleaded as
defendant No. 16 did not appear but the other defendants
contested the suit. The Subordinate Judge, the Nilgiris,
Ootacamund, dismissed the suit., He held that (1) there was
no fiduciary relationship between the appellant and the old
company; (2) the impugned agreements and conveyances were
not induced by fraud, fraudulent concealment, undue
influence or improper means and were valid and binding on
the old company and the plaintiffs; (3) the suit was barred
by limitation; (4) the old company was dissolved in
,accordance with law and was not in existence and (5) the
plaintiffs had no locus standi to maintain the suit . The
plaintiffs filed an appeal from the decree. The Madras High
Court allowed
208
the appeal in part and passed a decree asking the appellant
to pay to the plaintiffs Rs 1,50,000. The High Court held
that (1) there was a fiduciary relationship between the
appellant and the old company, (2) the appellant by availing
itself of its fiduciary character gained a pecuniary
advantage of Rs. 1,50,000 and to the extent of this unjust
‘enrichment was bound to reimburse the plaintiffs; (3) the
suit was not barred by limitation and (4). in spite of the
dissolution of the old company the plaintiffs were entitled
to maintain the suit. Aggrieved by this decree the
appellant company filed C.A. No. 1174 of 1965 and the Wap-
shares have filed the cross-appeal C.A. No. 1935 of 1966 on
the strength of certificates granted by the High Court under
Act. 133(1)(c) of the Constitution.
The following three questions arise in these appeals
(1) was there a fiduciary relationship between the
appellant and the old company and if so, did the appellant
company by availing themselves of this fiduciary character
gain a pecuniary advantage of Rs. 1,50,000.
(2) is the suit barred by limitation; and
(3) are the plaintiffs as shareholders of the old company
entitled to maintain the suit.
It is a settled rule of equity that any person bound in a
fiduciary character to protect the interests of another
person should not put himself in a position where his
interest and duty conflict. If by availing himself of his
fiduciary character or by entering into any dealings under
circumstances in which his interests are ,or may be adverse
to those of such other person he gains for himself a
pecuniary advantage, he must hold for the benefit of such
other person the advantage so gained, see Trusts Act,s.88.
But there is no rule which incapacitates a trustee from
dealing with a cestui que trust. In Coles v. Trecothick(1)
Lord Eldon said :-”a trustee may buy from the cestui que
trust, provided ‘there is ‘a distinct and clear contract,
ascertained to be such after a jealous and scrupulous
examination of all the circumstances, proving, that the
cestui que trust intended, the trustee should buy; and there
is no fraud, no concealment, no advantage taken, by ’the
trustee of information acquired by him in the character of
‘trustee. I admit, it is a difficult case to make out,
wherever it is contended that the exception prevails.” As
stated in Kerr on ,Fraud and Mistake, 6th Ed. page 192
“Thus a trustee for sale may purchase the
trust estate, if the cestui que trust fully
and clearly understands with whom he is
dealing and makes no objection to the
transaction, and the trustee fairly and
honestly
(1) 9 Ves.June.234,247;32E.R.592,597.
209
discloses all that he knows respecting the
property and gives a just and fair price, and
does not seek to secure surreptitiously any
advantage for himself. The onus however,
rests upon the trustee, and he is bound to
produce clear affirmative proof that the
parties were at arms’ length, that the cestui
que trust had the fullest information upon all
material facts, and that having this
information he agreed to and adopted what was
done.”
The appellant company was the secretary of the old company,
was in charge of its correspondence and accounts and was
actively engaged in assisting it and its shareholders in
selling the estates. In course of its employment the
appellant acquired intimate knowledge of the income,
prospects and the market value of the properties. We agree
with the High Court that the appellant stood in a fiduciary
relationship towards the old company and was bound to
protect its interests. The appellant entered into an
agreement with the old company for the purchase of the
properties. It promoted the new company to which the
properties were subsequently conveyed. Fifty per cent of
the shares of the new company were held by the appellant
company and the new company was managed and controlled by
it. The onus is upon the appellant company to establish
affirmatively that the transaction was righteous and that it
did not gain any pecuniary advantage by availing itself of
its fiduciary character. We are inclined to think that the
appellant company has discharged this difficult burden of
proof.
Since 1931 the Wapshares were keen on selling the estates.
From time to time there were offers from intending buyers
but none of them materialized. In 1936 there was a ‘slump
in tea and coffee prices. There was a possibility that the
tea restriction scheme would be abolished and there would be
a further slump in tea prices. The old company was indebted
to the Imperial Bank of India for Rs. 10 1/2 lakhs- against
the issue of debentures secured by an English mortgage over
all the estates. The Bank was pressing for the payment of
its dues. There was every likelihood that in default of
payment by November 15, 1937 the trustee for the debenture
holders would enter into possession of the estates and sell
hem without intervention of court. The old company was not
in a position to liquidate the debt without selling the
estates, In April 1937 M/s. Kuruvilla Bros. agreed to
purchase the properties. On May 18, 1937 James Henry
Wapshare died. In July 1937 the deal with Kuruvilla Bros.
fell through. The Wapshares and the old company tried their
best to raise loans and for that purpose issued
advertisements and contacted several banks and insurance
companies but they were unable to raise any loan. In the
beginning of November 1937,
210
the Wapshares had before I them a firm offer from Arbuthnot
Lathem & Co. for purchase of the estates for Rs. 14 lakhs.
But the Wapshares were not willing to sell Naduvattam. The
bungalow at Naduvattam was the home of the Wapshare family.
Naduvattam was the highest altitudinal estate, grew the best
tea in the area and had a very good name in the London tea
market. The appellant had previously offered to buy all the
estates, for Rs. 111/2 lakhs only. The Wapshares wanted
the appellant to make an offer which would enable them to
retain Naduvattam and at the same time to liquidate the
Bank’s dues. At the insistence of the Wapshares interviews
were arranged at Calicut on November 4, and November 6, 1937
between Dorothy and Robert representing the Wapshares and
Mr. Thorne representing the appellant. Mr. Thome could not
offer more than Rs. 10 lakhs for all the estates excluding
Naduvattam. He told the Wapshares that they should accept
the, offer of Arbuthnot Lathem & Co. as they would get Rs.
14 lakhs by selling all the estates. The Wapshares were
anxious to retain Naduvattam and were inclined to accept the
appellant’s offer. They took some time for consideration
and at the same time asked the Arbuthnots for time till,
November 10, for consideration of their offer. On November
10, Dorothy sent a telegram to the appellant company
informing them that the family was agreeable to their new
proposal. The draft agreement was sent by the appellant on
November II. In the beginning of November Mrs. Wapshare was
ill and was in a hospital in Bangalore. But on November 10,
she was well enough to discuss the appellant’s proposal. On
November 12, she came to Ootacamund and on November 13 she
went to her lawyer Gonsalves, discussed the matter, with him
and gave her consent. Gonsalves was approached to put the
bargain in a legal form. He took exception to the draft
agreement, but found the formal agreements to be free from
blemish. At a meeting held on November 18, 1937 the
shareholders of the company unanimously accepted the
proposal. Mrs. Wapshare, Dorothy, Robert and Edward were
present at the meeting. The meeting was also attended by
E.W. Simcock, chairman of the company, H. M. Small, the
director, nominated by the Imperial Bank of India and C. K.
Pittock. All the Wapshare’s were sui juris’ Dorothy was a
shrewd young lady and the best business brain in the family.
The Wapshares knew the value of the properties intimately.
They knew that Naduvattam if sold separately would not fetch
more than Rs. 2 lakhs. Yet they chose to retain Naduvattam
and sell their estates for Rs. 10 lakhs instead of selling
all the estates for Rs. 14 lakhs. The reason was that there
was no other, buyer willing to pay more than Rs. 10 lakhs
for the other estates. They had decided not to sell
Naduvattam and they were satisfied that ft. 10 lakhs was a
just and fair price for the other estates sold separately
from Naduvattam. The appellant’s offer enabled them
211
to keep Naduvattam and at the same time to liquidate the
Bank’s dues. The deal was satisfactory to- them in every
way. They obtained all necessary legal advice. The
documents were in proper legal form. There was no fraud, no
concealment and no undue influence. No advantage was taken
by the_ appellant of any information acquired by them in
their character as secretary. The Wapshares clearly
understood that they were, dealing with the appellant
company, had the fullest information about all material,
facts and that having this information they agreed to sell.
They made no complaint about it for 12 years. Their long
acquiescence ‘in the sale is evidence that the transaction
was fair in all respects, see Parks v. White(1).
On the whole and especially having regard to the long
acquiescence we hold that the transaction was just and fair
and that the appellant did not gain any pecuniary advantage
by availing themselves of their fiduciary character or under
‘circumstances in which their interests were in conflict
with those of the old company. In saying so we must not be
understood to say that we encourage transactions of this
type. Having regard to their fiduciary character the
appellant company might well have avoided entering into the
transaction.
The next question is with regard to limitation. The convey-
ances in favour of the new company were executed on January
14, 1939 and May 15, 1939. Simultaneously with the
execution of the conveyances the new company entered into
possession of the properties. Even before that date by
January 10, 1938 the appellant company had taken possession
of the properties. The suit was filed on December 21, 1950
when the Indian Limitation Act, 1908 was in force. The
plaintiffs cannot claim relief on the ground of fraud and
consequently Art. 95, has no application. Section 10 does
not apply as the properties are not vested in the new
company for the specific purpose of making them over to the
old company or to the plaintiffs. Article 144 does not
apply for several reasons. In the plaint there is no prayer
for recovery of possession. The plaintiffs claim
declaratory reliefs, a decree vesting or re-transferring the
properties to the old company or to the plaintiffs and
accounts. Such a suit is governed by Art. 120. The High
Court passed a decree for money and not for recovery of
immovable properties. A suit for such a relief would be
governed by Art. 1 20. Even if the suit is treated as one
for recovery of possession of the properties it would be
governed by Art. 120 and not by Art. 144. The old company
could not ask for recovery of the properties until they
obtained a reconveyance from the new company’. The cause of
action for this relief arose in 1939 when the properties
were
11 Ves. June.. 209,226;32 E.R. 1068,1074.
212
conveyed to the new company. A suit for this relief was
barred under Art. 120 on the expiry of six years. After the
expiry this period the old company could not file a suit for
recovery of possession. In Rani Chhatra Kumari Devi V.
Prince Mohan Bikram Shah(1) the Privy Council held that in a
case where the property was not held by the trustee for the
specific purpose of making it over to the beneficiary ’and
the trust did not fall within S. 10, a suit by the
beneficiary claiming recovery of possesSion from the trustee
was governed by Art 120. Sir George Lowndes said.-
“The trustee is, in their Lordships’ opinion,
the owner of the trust property, the right of
the beneficiary being in a proper case to call
upon the trustee to convey to him. The
enforcement of this right would, their
Lordships think, be barred after six years
under art. 120 of. the Limitation Act, and if the
beneficiary has allowed this period to
expire without suing, he cannot afterwards
file a possessory suit, as until conveyance he
is not the owner.”
It follows that the suit is barred by limitation.
The third question relates to the maintainability of the
suit. The plaintiffs sued to recover properties belonging
to the old company. The company went into voluntary
liquidation and was wound up. As already stated the company
stood dissolved on March 1, 1940 under S. 209H of the Indian
Companies Act, 1913. No application was made within 2 years
to declare the dissolution to be void under S. 243. Apart
from s.243 the dissolution might possibly be set aside in a
suit on the ground of fraud, but the plaintiffs failed to
establish any fraud affecting the dissolution. The
dissolution has put an end to the existence of the company.
In these circumstances, the appellant contends that all the
properties and the rights of the old company. if any, have
vested in the Government by escheat or as bona vacantia and
the plaintiffs cannot sue for the recovery of its
properties. The plaintiffs dispute the right of the
Government to take the properties by escheat or as bona
vacantia, and they contend that on the dissolution of the
old company, its assets have now vested in its shareholders.
The common law of England recognises the right of the Crown
to take property by escheat or as bona vacantia. Escheat
proper was the lord’s right of re-entry on real property
held by a tenant dying intestate without lawful heirs. It
was an incident ,of feudal tenure and was based on the want
of a tenant to perform the feudal services, see Halsbury’s
Laws of England, vol. 16,
(1) L.R. 58 I.A. 279.
213
art 830 On the tenant dying intestate without leaving any
lawfull heirs his estate came to an end and the lord was in
by his own right and not by way of succession or inheritance
from the tenant, see: Attorney-General of Ontario v. Andrew
F. Mercer(1). In most cases, the land escheated to the
Crown as the lord paramount, in view of the gradual
elimination of intermediate or mesne lords since 1290 The
Crown takes as bona vacantia goods in which no one else can
claim a property. In Dyke v. Walford(2 ) it was said that
“it is the right of the Crown to bona vacantia, to property
which has no other owner.” The right of the Crown to take as
bona vacantia extends to personal property of every kind,
see: In re. Wells, Swinburne-Hanham v. Howard(3). Escheat
of real property of an intestate dying without heirs was
abolished in 1925 and the Crown now takes all his properties
as ,bona vacantia. On the dissolution of a company the
Crown took its real property by escheat and its personal
property as bona) vacantia. Technical escheat of the
property of a dissolved company was abolished in 1929 and
now under s. 354 of the- English Companies Act, 1948 all the
property and rights of a dissolved company is deemed to be
bona vacantia and accordingly belongs to the Crown.
The right of the Government to take by escheat ‘ for want of
an heir or successor or as bona vacantia for want of a
rightful owner has been recognised in our country for a long
time. Statute 16 & 17 Victoriae, C. 95, s. 27, an Act to
provide for the government of India asserted that “all real
and personal estate within the said territories escheating
or lapsing for want of an heir or successor, and all
property within the said territories devolving as bona
vacantia for want of a rightful owner, shall (as part of the
revenues of India) belong to the East India Company in
trust for Her Majesty for the service of the government of
India.” By s. 54 of the Government of India Act, 1858 the
existing provision was continued in force and was construed
as referring to the Secretary of State in Council in place
of the company. Section 20(3) (iii) of the Government of
India Act, 1915 provided that the revenues of India received
for His Majesty would include “all movable or immovable
property\ in British India escheating or lapsing for want
of an heir or successor, and all property in British India
devolving as’ bona vacantia for want of a rightful owner.”
Section 174 of the Government of India Act, 1935
provided :
“Subject as hereinafter provided, any property
‘in India accruing to His Majesty by escheat
or lapse or as bona vacantia for want of a
rightful owner, shall, if it is
(1) 8 A.C. 767, 772.(2) 5 Moore P.C.434,496;13E.R.557,580.
(3) [1933] 1 Ch.29,49.
214
property situate in a Province, vest in His
Majesty for the purposes of the government of
that Province, and shall in any other case
vest in His Majesty for the purpose of the,
government of the Federation.”
Article 296 of the Constitution now provides
“Subject as hereinafter provided, any
property in the territory of India which, if
this Constitution had not come into
operation,, would have accrued to His Majesty
or, as the case may be, to the Ruler of an
Indian State by escheat or lapse, or as bona
vacantia for want of a rightful owner, shall
if it is property situate in a State, vest in
such State, and shall, in any other case, vest
in the Union.”
These enactments show that in this country the Government
takes by escheat immovable as well as movable property for
want of an heir or successor. In this country escheat is
not based on artificial rules of common law and is not an
incident of feudal tenure. It is an incident of sovereignty
and rests on the principle ,,of ultimate ownership by the
State of all property within its jurisdiction. “Private
ownership not existing, the State must be owner as ultimate
lord”, see: Collector of Masulipatam v. C. Vencata
Narainapah(1). The rules of English feudal law relating to
mesne lords are not applicable, and consequently the
zamindar could not take by escheat the land of a tenant
dying without heirs. The right of escheat belongs to the
Government only, see Ranee Sonet Kowar v. Mirza Himmut
Bahadoor(2). The Government has the right to take all
property within its jurisdiction by escheat for want of an
heir or successor and as bona vacantia for want a a rightful
owner, see : Bombay Dyeing & Manufacturing Co. V. State of
Bombay(“), Legal Remembrancer v.Corporation of Calcutta
(4),. Consequently the property of an intestate dying
without leaving lawful heirs, and the property of a
dissolved corporation passes to the Government by escheat or
as bona vacantia. The property taken by escheat or as bona
vacantia belongs to the Government, subject to trusts and
charges, if any, previously affecting it.
As already stated, technical escheat of the real property of
a dissolved company was abolished in England in 1929 and s.
354 of the Companies Act 1948 now provides that all property
and rights of a dissolved company shall be deemed to be bona
vacantia and shall accordingly belong to the Crown. There
was no statutory provision like S. 354 before 1929. In the
absence of such a provision, the Crown took the real
property of a company dissolved before 1929 by escheat ’and
its personal property
(1) 8 M. I. A. 500, 525.
(3) [1958] S.C.R. 1122,1146.
(2) L.R. 3 I.A. 92, 101.
(4) [1967] 2 S.C.R. 170.204.
215
as bona vacantia, except in so far as its right, was cut
down by statute, see : In re. Wells(1). Likewise in this
country, the Government, took by escheat or as bona vacantia
all the properties of a company dissolved under the Indian
Companies Act, 1913 except in so far as its right was cut
down by that Act. P. B. Mukherjee, J. expressed a similar
opinion In re U.N. Mandal’s Estate (2).
Accordingly the shareholders or creditors of the dissolved
company cannot maintain any action for recovery of its
assets. No effective relief can be given in such action, as
the company is’ not a party and the assets cannot be
restored to its coffers. On this ground in Coxon v.
Gorst(3) an action by creditors for recovery of moneys due
to the dissolved company was dismissed, and in. In re. Lewis
& Smart- Ltd. (4) it was held that a pending misfeasance
summons abated on the dissolution of the company.
The plaintiffs’ contention that the properties of a
dissolved company passed to its shareholders is based upon
American law, which is stated in American Jurisprudence, 2d,
Corporations, aft. 1659 thus : “Apart from statutory
provisions which frequently embody the following rule also,
the general equitable rule now followed in this country is
that upon the dissolution of a corporation, the property and
assets of the corporation constitute a trust fund ‘for the
benefit of its creditors and stockholders. This rule
necessarily displaces and makes obsolete the early common
law rules as to the reverter If real estate and the escheat
of the personal estate of corporation in such a case, and
practically makes obsolete the doctrine as to the
extinguishment of the debts owing by and to the corporation
in such cases. Stated in another way, the rule is that
after the dissolution of a corporation, its property passes
to its stockholders subject to the payment of the corporate
debts. The inherent jurisdiction of equity over trusts
embraces the power to administer the assets of a dissolved
coloration.” The subject of dissolution of corporations is
discussed in Arts. 1628 to 1696 of the book. The
corporation is dissolved by a judgment of court (art. 1645).
For the purpose of complete winding up of its affairs,
statutes provide that even after dissolution the corporation
shall continue to exist and may sue or be sued for a limited
period, see arts. 1662, 1668, 1669, 1671, 1673, Statutes
also provide for appointment of a trustee for the dissolved
corporation and their effect is to convert its properties
into ‘a trust fund and to abrogate the common law rule of
escheat, arts. 1676, 1677. The stockholders of the
dissolved corporation can accordingly maintain an action
against the trustee for distribution
(1) [1933] 1 Ch. 29,49.(3) [1891] 2 Ch. 73.
(2) A.T.R. 1959 Cal. 493, 498.(4) [1954] 1 W.L.R. 755.
216
of the surplus assets after payment of the debts. of the
corporation, see Bacon v. Robertson (1).
The law in our country is very different. Here the winding
up precedes the dissolution. There ‘is no statutory
provision vesting the properties of a dissolved company in a
trustee or having the effect of abrogating; the law of
escheat. The shareholders or creditors of a dissolved
company cannot be regarded as its heirs and successors. On
dissolution of a company, its properties, if any, vest in
the government. In Coxon v. Gorst(2) page 78 Chitty, J.
summarily rejected the contention that a chose in action
vested in a company passed on the dissolution to its
creditors. He said : “This supposed vesting in the
creditors of the company’s closes in action is a mere
fiction with nothing in the statute to support it, and is in
the teeth of the provisions of the statute. follows that the
plaintiffs are not entitled to maintain this suit.
A question may arise whether the Government takes the pro-
perty of a dissolved insolvent company subject to a trust
for payment of its debts, see in this connection, In the
matter of Chandbali S.S. Co.,(3) and In Re Wells(4 ) at
pages 38 and 50. But that question does not arise in the
present case and we express no opinion on it.
In the result, C.A. No. 1174 of 1965 is allowed, the decree
passed by the High Court is set aside and the decree passed
by the Trial Court is restored. C.A. No. 1935 of 1966 is
dismissed. There will be no order as to costs in this
Court and in the High Court.
C.A. No. 1174/65 allowed. v.p.s.
C.A. No. 1935/66 dismissed.
(1) 15 Law ed. 499. (2) [1891] 2 Ch. 73.
(3) 60 C.W.N. 278, 284-286. (4) [1933] 1 Ch. 29,
217