Companies Act Case Law LADLI PRASAD JAISWAL Vs KARNAL DISTILLERY CO., LTD., & ORS.

PETITIONER:
LADLI PRASAD JAISWAL

Vs.

RESPONDENT:
KARNAL DISTILLERY CO., LTD., & ORS.

DATE OF JUDGMENT:
17/12/1962

BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
SINHA, BHUVNESHWAR P.(CJ)
GAJENDRAGADKAR, P.B.
WANCHOO, K.N.
GUPTA, K.C. DAS

CITATION:
1963 AIR 1279 1964 SCR (1) 270
CITATOR INFO :
F 1963 SC1322 (3)
R 1965 SC1442 (18)
R 1967 SC 878 (9)
R 1971 SC 658 (6)
RF 1974 SC1178 (8)
R 1974 SC2048 (2)
RF 1976 SC 163 (19)
ACT:
Company-Managing Director appointed on certain terms-
Resolution removing Managing Director and appointing
another-General Meeting -Subsequent resolution passed
cancelling previous resolution-Suit by the Director-Fraud
and undue influence on the part of the appellant alleged-
Whether first appellate, court went far beyond pleadings-
Letters Patent Appeal-Certificate under Art. 133 (1) (a) of
the Constitution Whether competent-“Court immediately
below”-Courts subordinate-Constitution of India, Art. 133
(1) (a) and (b)Companies Act, 1956(I of 1956) s. 155 – Code
of Civil Procedure, 1908 (Act V of 1908), ss. 100,110,0.6,
r. 4-Indian Contract Act, 1872 (9 of 1872) s. 16.

 

HEADNOTE:
The appellant filed a suit in the Court of the Subordinate
judge for a declaration that certain resolutions of the
directors and the shareholders in a private limited company
passed on March 3 and 28, 1946, and at the meetings of the
Directors held thereafter were illegal and void and for a
declaration that the resolutions of October 16, 1945, were
operative and in force. The respondents resisted the suit
contesting that respondents 2 to 5 were coerced by the
appellant who took advantage of his dominating position,
into passing the resolutions on October 16, 1945, and those
resolutions were not binding on the company.
The Subordinate judge, held that the written statements did
not contain sufficient particulars of the plea of coercion
and undue influence’ and that the respondents having failed
to give evidence in support of the plea of coercion and
undue influence, the burden of proving which lay upon them
the appellant’s suit must be decreed. In appeal the
District Court held that the appellant was in a position to
dominate the will of respondents 2 to 5 and he took
advantage of that position and on that account the
resolutions relied upon by the appellant dated October 16,
1945, were vitiated by coercion and undue influence, and the
appellant could not get a decree relying upon those
resolutions. The appellant appealed to the High Court. A
single Judge of the High Court found that the District judge
271
had ‘travelled far beyond the pleadings’ and therefore his
findings on issue of coercion and fraud could not be upheld,
In an appeal under cl. 10 of the Letters Patent a Division
Bench of the High Court found that the appellant was in a
position to dominate and had obtained unconscionable
advantage and it was for him to prove that the resolutions
of October 16,1945, were not vitiated by coercion and fraud
which burden he had failed to discharge. They further held
that later resolutions of the company were not binding on
the appellant because no notice was issued to him of the
meeting of the company; but no decree could be granted to
him since ‘equity declines to lend its aid to a person whose
conduct has been inequitable’. A certificate of fitness was
however granted to appeal to this Court under Art. 133 (1)
(a) of the Constitution.
Before this Court, it was urged that the appeal did not
involve any substantial quesion of law and the High Court
was not competent to grant the certificate under Art. 133
(1) (a) and (b). It was submitted that the expression
‘Court Immediately below’ in Art. 133 meant a court
subordinate to the High Court and a single judge not being
subordinate to a Division Bench of the High Court the ‘Court
Immediately below’ was the District Court.
Held, that there is nothing in the phraseology used or the
context which justified the view that the expression ‘Court
immediately below’ in Art. 133 (1) of the Constitution is
used in two different senses according as the High Court is
trying an appeal in a proceeding instituted in the High
Court in exercise of the Original Jurisdiction, and a
proceeding instituted in exercise of its appellate
jurisdiction. The test for determining whether an aggrieved
party has no right to appeal, other condition being
fulfilled is not whether the judgment is of a court
subordinate, but whether the judgment is of a court
immediately below. The two expressions being different the
same considerations do not apply in their interpretation.
The certificate granted by the High Court under Art. 133 (1)
(a) and (b) was 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.
Toolsey Prasad Bhuckt v.Benayek Misser,(1896)L.R.23 I.A.
102, referred to.
Wahid-ud-din v. Makhan Lal (1944) I. L. R. 26 Lah. 242, and
Debendra Nath Das v. Bibudhendra Mansingh, (1915) I. L. R.
43 Cal. 90, disapproved.
272
Minna Heatherly v. B. C. Sen, A. 1. R. 1927 Lah. 537 and
Gopal Lal v. Balkissan, (1931) 1. L. R. 13 Lah. 338,
approved.
Kishanlal Nandlal v. Vithal Nagayya, I. L. R. 1955 Nag. 821,
disapproved.
Held, that a finding that a particular transaction is
vitiated on the ground of undue influence is primarily a
finding on a question of fact.
Satgur Prasad v. Har Narain Das, (1932) L. R. 59 I. A.
147 followed.
The High Court has no jurisdiction to entertain a second
appeal “on the ground of an erroneous finding of fact
however gross or inexcusable the error may seem to be.”
Mussammat Durga Choudhrain v. Jawahir Singh Chowdhri, (1890)
L. R. 17 I. A. 122, followed.
But a decision of the first appellate court reached after
placing the onus wrongly resulting in a substantial error or
defect in the decision of the case on the merits or based on
no evidence is not conclusive and a second appeal lies to
the High Court against the decision.
A plea of undue influence must be precise and all necessary
particulars in support of that plea must be embodied in the
pleading; if the particulars stated in the pleading are not
sufficient and specific the court should, before proceeding
with the trial of the suit insist upon the particulars.
Bharat Dharma Syndicate v. Harish L. R. 64 I. A. 143 and
Biqhandas Narain v. Jagannath [1951] S. C . R. 548,
followed.

 

JUDGMENT:
CIVIL APPELLATE JURISDICTION :No. 535 of 1960.
Appeal from the judgment and decree dated October 18, 1957
of the Punjab High Court in Letters Patent Appeal No. 100 of
1954.
B. R. Tuli, S. K. Kapur and K. K. Jain, for the appellent.
273
M. C. Setalvad, Attorney-General for India,A. N. Khanna
and Harbans Singh, for the respondents.
1962. December 17. The judgment of the Court was delivered
by
SHAH, J.-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 manufacturing liquor.
Kishori Lal 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
274
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 Director’s 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
275
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.
276
(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
277
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 Company’s 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
278
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, 1956.
On 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, 1946.
The defendants by separate written statements resisted the
suit contending inter alia that the defen-
279
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 other defendants.
The Subordinate 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
280
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 to
him.
In appeal 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
281
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
282
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-
283
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
284
of Ladli Prasad was granted, it would result in a deadlock
and the Company’s 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 the Code
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
285
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.
The High Court has not certified the case under sub-clause
(c) of Art. 133(1). There is also no dispute that the
judgment of the High Court involves directly some claim or
question respecting property of the value exceeding twenty
thousand rupees. The Attorney-General, however, contended
that the judgment of the High Court against which this
appeal is preferred affirms the decision of the court
immediately below and the appeal does not involve any
substantial question of law and therefore the High Court was
not competent to grant the certificate under Art.133(1)(a) &
(b). It is urged that an appeal against the judgment of a
single judge to a Division Bench under cl. 10 of the Letters
Patent is a ‘domestic appeal’ within the High Court and in
deciding whether the decree of a Division Bench in an appeal
under the Letters Patent from a decision of a single judge
exercising appellate jurisdiction affirms the decision of
the Court immediately below, regard must be had to the
decree of the Court subordinate to the High Court, against
the decision of which appeal was preferred to the High
Court. In other words, it is contended that in this case
the decision of the Court immediately below the Division
Bench was the deci-
286
sion of the District judge and not of Bishan Narain, J.,
this it is contended is so, because the expression ‘court
immediately below’ used in the Constitution means ‘court
subordinate. and a single judge of the High Court not being
a court subordinate to the Division Bench qua the Division
Bench the District Court was the court immediately below.
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-
287
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
288
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 High Court.
In Wahid-ud-din v. Makhan Lal (1) a full Bench of the Lahore
High Court (Blacker, J., dissenting), held that for the
purposes of s. 110 of the Code of Civil Procedure 1908
(which is in material terms identical with Art. 133 of the
Constitution) a judge of a High Court sitting to hear not an
original proceeding, but as a court of appeal cannot be
considered a ‘court immediately below’ the Bench hearing the
Letters Patent appeal from his judgment,
(1) [1944] I.L.R. 26 Lah. 24.
289
Din Mohammad, J., delivering the principal judgment of the
Court observed at p. 247 :
“Wherever any provision is made for an appeal
to the High Court, it is the High Court as
such that is contemplated and not the Court of
any individual judge or a combination of
different judges. It is only for the sake of
convenience facility of disposal that some
cases are required to be heard by one judge
and some by more judges than one. The Court
accordingly continues to be the same even if
by any domestic arrangement an appeal from one
Judge lies to a Bench of two judges and must
be taken to be the High Court in either case.
x x x x x X. It is obvious that the
authorities dealing with Judge of the High
Court in the exercise of his original juris-
diction can render no assistance in the
disposal of this matter and it was for this
reason that this distinction was emphasized
when the question was formulated. A judge
sitting on the original side is merely
discharging the functions of a trial Court and
to all intents and purposes, therefore, be is
a Court of first instance and when an appeal
is lodged against his order, as a Court he is
immediately below the Court which hears the
appeal. Such an appeal is provided for even
in the Code of Civil Procedure itself as an
appeal from an original decree. This,
however, is not the case when the same Judge
sits on the appellate side and- for the
purposes of that appeal is the High Court in
himself. Neither the Code of Civil Procedure
nor the Punjab Courts Act contemplates an
appeal to another Court from an order made in
the High Court whether by one judge or more
than one and consequently the same analogy
cannot apply.”
290
The learned judge further observed:
“I cannot reconcile myself to the position
that a judge sitting alone can be
characterised as a tribunal inferior to the
Letters Patent Bench, merely because the Bench
has power to modify or reverse his judgment.
It is not with an idea of implying any
Subordination of the Court of the Single judge
to the Letters Patent Bench that such an
appeal is provided for by Letters Patent, it
is merely with a view to provide a further
safeguard in the interests of the litigant
that the domestic rules framed by the High
Court permit a case to be heard by a judge
sitting alone.”
Abdur Rahman, J., agreeing with Din Mohammad,
J., observed
“x x when a suit or proceeding is decided on
the original side, it cannot but be held to
have been disposed of by the Court of first
instance and should be of the value of ten
thousand rupees or upwards before an appeal
can be taken to the Privy Council under the
first paragraph of section 110. It is this
Court of first instance which would usually be
covered by the expression “the
Court
immediately below” used in the latter part of
that section. x x x x Different considerations
might prevail in construing the expressions
“the Court of first instance” and “the Court
immediately below” when “the Court immediately
below” does not happen to be the Court of the
first instance but as long as they are the
same the decision of the Court of first
instance whether it is by a Subordinate judge,
a District judge. or a judge of the High Court
on its original side, where such a side
291
exists, must be held to have been given by a
Court immediately below the Court which
affirms or upsets that decision on appeal.
Viewed thus a judge of a High Court sitting on
the original side will be the Court imme-
diately below the Court hearing an appeal from
his decision. But the same cannot be said of
a Single judge sitting on the appellate side
who is never “a Court of first instance” and
cannot therefore be correctly described to
have been presiding over the Court immediately
below the Court hearing an appeal from his
judgment under the Letters Patent.”
We are unable to agree, for reasons already set out, with
the view expressed by the learned judges of the Lahore High
Court. There is nothing in the phraseology used or the
context which justifies the view -that the expression “the
Court immediately below’ is used in s. 110 of Code of Civil
Procedure or in Art. 133 (1) of the Constitution in two
dfferent senses, according as the court is trying a procee-
ding in exercise of its original jurisdiction and in
exercise of its appellate jurisdiction.
There is a decision of the Calcutta High Court in Debendra
Nath Das v. Bibudhendra Mansingh (1), decided by Jenkins, C.
J., and N. R. Chatterjee, J., which has expressed a similar
view. The learned Chief justice in delivering the judgment
of the Court observed at p. 93:
“It only remains to be seen whether as regards
nature the requirements of section I I 0 are
fulfilled. The Court of first instance as well
as the lower Appellate Court decided adversely
to the present applicant. On appeal to the
High Court, a Single judge reversed the decree
of the lower
(1) (1915) I.L.R, 43 Cal. 90.
292
Appellate Court. From this judgment of a
Single judge there was an appeal to the High
Court under clause 15 of the Charter with the
result that the judgment of the Single judge
was reversed by a Bench of two Judges. It
will thus be seen that the first judgment of
the High Court reversed the decree of the
Court immediately below, but that this
reversal was afterwards in effect cancelled
with the result that the only effective
judgment of the High Court affirmed. the
decision of the Court immediately below
(section 110, Civil Procedure Code).”
The view appears prima facie to support the contention that
in considering whether within the meaning of Art. 133 (1) of
the Constitution judgment of the Court immediately below the
High Court is affirmed, the judgment of the judge of the
High Court trying the proceeding as a court of appellate
jurisdiction must be ignored. Any expression of opinion by
the eminent Chief Justice would always be considered with
the great deference and respect. It must, however, be
stated that the observations of the learned Chief justice
were in the nature of obiter dicta, because in the view of
the Court, the test of pecuniary valuation was satisfied and
in the appeal a substantial question of law was involved,
and on that account the Court was bound to certify the case.
It was therefore strictly not necessary to consider whether
the judgment affirmed the decision of the court immediately
below. It must also be observed that the learned Chief
justice equated the expression “Court immediately below”
with the expression “Court subordinate” used in s. 115 of
the Code of Civil Procedure. That is clear from the obs-
ervations made by him “that a judge sitting alone is not a
Court subordinate to the High Court, but performs a function
directed to be performed by the High Court (clause 36,
Letters Patent). And thus no decision of a Single judge can
be revised
293
under section 115 of the Code.” But as we have already
pointed out the test for determining the right to appeal is
not whether the judgment is of a Court subordinate,but
whether the judgment is of a Court immediately below. The
two expressions being different, the same considerations do
not apply in their interpretation. A similar view was also
expressed in a very recent judgment by the Andhra Pradesh
High Court decided on August 18, 1961: Vadiapatla Marayya v.
Vallabhaneni Buchiramayya (which has not yet been officially
reported).
There are however two earlier judgments of the Lahore High
Court which have expressed a contrary view. Minna Heatherly
v. B. C. Sen (1) and Gopal Lal v. Balkissan (2). In these
two cases it was held that a Single judge of the High Court
hearing an appeal is within the meaning of s. 110 of the
Code of Civil Procedure 1908 a court immediately below the
Division Bench of the High Court hearing an appeal under the
Letters Patent. The High Court of Nagpur in Kishanlal
Nandlal v. Vithal Nagayya, (3), has preferred the earlier
view of the Lahore High Court.
In our 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;
(1) A.I.R. (1927) Lah. 537. (2) (1931) I.L.R.
13 Lah. 318.
(3) I.L.R. (1955) Nag. 821.
294
(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 of
fact. In Satgur Prasad v. Har Narain Das (1), the Privy
Council held that in a suit to set aside a deed on the
ground that it was procured by undue influence and fraud,
the finding that it was so procured is a finding of fact and
is not liable to be re-opened if fairly tried. Under the
Civil Procedure Code, a second appeal does not lie to the
High Court, except on the grounds- specified in the relevant
provision of the Code, prescribing the right to prefer a
second appeal,and the High Court has no jurisdiction to
entertain a second appeal “on the ground of an erroneous
finding of fact however gross or inexcusable the error may
seem to be” (Mussummant Durga Choudhrain v. Jawahir Singh
Choudhri (2)) . But the challenge before Bishan Narain, J.,
to the decision of the District.Judge was founded not on the
plea that appreciation of evidence was erroneous, but that
there were no adequate particulars of the plea of undue
influence, that the particulars of facts on which undue
influence was held established by the District judge were
never set up, that there was no evidence in support of the
finding of the District judge and that burden of proof on a
misconception of the real nature of the dispute was wrongly
placed on the plaintiff. A decision of the first appellate
Court reached after placing the onus wrongly or based on no
evidence, or where there has been substantial error or
defect in the procedure, producing
(1) (1932) L.R. 59 I.A. 147.
(2) (1890) L.R. 17 I.A. 122.
295
error or defect -in the decision of the case on the merits,
is not conclusive and a second appeal lies to the High Court
against that decision.
o. 6 r. 4 of the Code of Civil Procedure provides that in
all cases in which the party pleading relies on any
misrepresentation, fraud, breach of trust, wilful default,
or undue influence, and in all other cases in which
particulars may be necessary beyond such as are exemplified
in the forms in the Appendix, particulars (with dates and
items if necessary) shall be stated in the pleading. The
reason of the rule is obvious. A plea that a transaction is
vitiated because of undue influence of the other party
thereto, gives notice merely that one or more of a variety
of insidious forms of influence were brought to bear upon
the party pleading undue influence, and by exercising such
influence, an unfair advantage was obtained over him by the
other. But the object of a pleading is to bring the parties
to a trial by concentrating their attention on the matter in
dispute, so as to narrow the controversy to precise issues,
and to give notice to the parties of the nature of testimony
required on either side in support of their respective
cases. A vague or general plea can never serve this
purpose; the party pleading must therefore be required to
plead the precise nature of the influence exercised, the
manner of use of the influence, and the unfair advantage
obtained by the other. This rule has been evolved with a
view to narrow the issue and protect the party charged with
improper conduct from being taken by surprise. A plea of
undue influence must, to serve that dual purpose, be precise
and all necessary particulars in support of the plea must be
embodied in the pleading : if the particulars stated in the
pleading are not sufficient and specific the Court should,
before proceeding with the trial of the suit, insist upon
the particular, which give adequate notice -to the other
side of the case intended to be set up.
296
In Bharat Dharma Syndicate v. Harish Chandra (1), the Privy
Council emphasized the necessity of particulars in the
following terms :
Their Lordships desire to call attention to
the great difficulty which is occasioned both
to persons charged with fraud or other
improper conduct, and to the tribunal which
are called upon to ‘decide such issues, if the
litigant who prefers the charges is not
compelled to place on record precise and
specific details of those charges. In the
present’ case, the petitioner ought not to
have been allowed to proceed with his petition
and seek to prove fraud, unless and until he
had, upon such terms as the Court thought fit
to impose, amended his petition -by including
therein full particulars of the allegations
which he intended to prove, Such cases as the
present will be much simplified if this
practice is strictly observed and insisted
upon by the Court, even if, as in the present
case, no objection is taken on behalf of the
parties who are interested in disproving the
accusations.”
Similarly this Court in Bishnudeo Narain v.
Seogeni Rai and Jagernath (2), in dealing with
the practice to be followed in a case where a
plea of undue influence and coercion is
raised, observed at p. 656 :
“‘It is also to be observed that no proper
particulars have’ been furnished. Now if
there is one rule which is better established
than any other, it is that in cases of fraud,
undue influence and coercion, the parties
pleading it must set forth full particulars
and the case can only be decided on the
particulars as laid. There can be no
departure from them. in evidence. General
allegations are insufficient even to amount to
an averment of fraud of which any court ought
to take notice however strong the
(1) (1917) 64 I.A. 146.
(2) [1951] S.C.R. 548.
297
language in which they are couched may be, and
the same applies to undue influence and i
coercion.”
The plea of undue influence and coercion by
the Company and defendants 2 to’ 5 was raised
in terms-which were identical. The plea
analysed in its component parts may be stated
as follows:-
(1) Because of the resolution dated October
16, 1945 the plaintiff “‘succeeded in getting
dictatorial powers over the Company,
practically usurping all the powers of the
General body of the shareholders and thereby
purporting to deprive them to exercise even
those rights which they” were “”legally
entitled to exercise under the law”;
(2) “These resolutions which gave the plain-
tiff a complete veto over the affairs of the
Company (which is not permissible under any
valid constitution) were obtained by the
plaintiff at the point of a dagger”
(3) “That the plaintiff was refusing to hand
over charge of the moneys, books and the
entire assets of the Company and using the
funds of the Company for ruinous litigation
against the defendants who on the other hand
were having to prosecute their cases out of
their meagre funds which too were dwindling
fast” :
(4) “‘Taking full advantage of his position
and knowing fully well the resources of the
defendants, the plaintiff succeeded in
coercing the defendants in submitting to his
dictations and virtually compelled
298
them to pass these unconstitutional resolu-
tions.”
It may be observed that though issue No. 1 raised a plea
both of coercion and undue influence as vitiating the
resolutions, no attempt was made to rest the right to relief
on a case of coercion in the Courts below and in this Court.
The first part of the case of the, defendants amounts to a
plea that by the resolutions dated October 16, 1945that
plaintiff acquired a position of domination over the
affairs of the Company and over the defendants. What the
second part means it is difficult to appreciate. The
language used is somewhat extravagant : it is not the case
of the defendants that they were compelled to agree to the
resolutions by threats of physical violence. By the third
part it is affirmed that the plaintiff unlawfully refused to
part with the moneys, books and the assets of the Company
and commenced litigation with the aid of the funds of the
Company whereas the defendants had to rely upon their own
resources which were limited. Presumably this has reference
to the refusal of the plaintiff to comply with the
resolution of February 20, 1945 and to litigation which
ensued between the parties after the resolution was passed.
It is difficult to regard this as a plea precisely
expressing that the plaintiff was in a position to dominate
the will of the defendants. The last part of the plea is
that taking advantage of his Position and knowing that the
position of the defendants was precarious he succeeded in
compelling the defendants to submit to his dictation and
compelled them to pass the resolutions.
The pleading which was regarded as one of undue influence
also suffers from a lack of particulars. How the plaintiff
took advantage of his position as a person in possession of
the assets of the Company and by what device he compelled
the
299
defendants to submit to his will has not been stated.
Section 16 of the Indian Contract Act, which incorporates
the law relating to undue influence in its application to
contracts is but a particularisation of a larger principle.
All transactions procured in the manner set out therein, are
regarded as procured by the exercise of undue influence.
Section 16 of the Contract Act provides:
“(1) A contract is said to be induced by
‘undue influence’ where the relations
subsisting between the parties are such that
one of the parties is in a position to
dominate the will of the other and uses that
position to obtain an unfair advantage over
the other.
(2)In particular and without prejudice to the
generality of the foregoing principle, a
person is deemed to be in a position to
dominate the will of another-
(a) Where he holds a real or apparent
authority over the other, or where he stands
in a fiduciary relation to the other;or
(b) where he makes a contract with a person
whose mental capacity is temporarily or
permanently affected by reason of age,
illness, or mental or bodily distress.
(3) where a person who is in a position to
dominate the will of another, enters into a
contract with him, and the transaction
appears, on the face of it or on the
evidence adduced, to be unconscionable, the
burden of proving that such contract was
not induced by undue influence shall lie upon
the person in a position to dominate the will
of the other.
300
Nothing in this sub-section shall affect the provisions of
section III of the Indian Evidence Act, 1872.”
The’ doctrine of undue influence under the common law was
evolved by the Courts in England for granting protection
against transactions procured by the exercise of insidious
forms of influence spiritual and temporal. The doctrine
applies to acts of bounty as well as to other transactions
in which one party exercising his position of dominance
obtains an unfair advantage over another. The Indian enact-
ment is founded substantially on the rules of English common
law. The first sub-section of s. 16 lays down the principle
in general terms. By subsection (2) a presumption arises
that a person shall be deemed to be in a position to
dominate the will of another if the conditions set out
therein are fulfilled.’ Sub-section (3) lays down the
conditions for raising a rebuttable presumption that a
transaction is procured by the exercise of undue influence.
The reason for the rule in the third sub-section is that a
person who has obtained an advantage over another by
dominating his will, may also remain in a position to
suppress the requisite evidence in support of the plea of
undue influence.
A transaction may be vitiated on account of undue influence
where the relations between the parties are such that one of
them is in a position to dominate the will of the other and
he uses his position to obtain an unfair advantage over the
other.It is manifest that both the conditions have
ordinarily to be established by the person seeking to avoid
the transaction : he has to prove that the other party to a
transaction was in a position to dominate his will and that
the other party had obtained an unfair advantage by using
that position. Clause (2) lays down a special presumption
that a person is deemed to be in a position to dominate the
will of another
301
where he holds a real or apparent authority over the other,
or where he stands in a fiduciary relation to the other or
where he enters into a transaction with a person whose
mental capacity is temporarily or permanently affected by
reason of age, illness or mental or bodily distress. Where
it is proved that a person is in a position to dominate the
will of another (such proof being furnished either by
evidence or by the presumption arising under sub-section (2)
and he enters into a transaction with that other person,
which on the face of it or on the evidence adduced, appears
to be unconscionable the burden of proving that the
transaction was not induced by undue influence lies upon the
person in a position to dominate the will of the other. But
sub-section (3) has manifestly a limited application : the
presumption will only arise if it is established by evidence
that the party who had obtained the benefit of a transaction
was in a position to dominate the will of the other and that
the transaction is shown to be unconscionable. If either of
these two conditions is not fulfilled the presumption of
undue influence will not arise and burden will not shift.
Assuming that in this case a plea of undue influence was
attempted to be raised by paragraph 4 of the Company’s
written statement and paragraph 6 of the written statement
of the other defendants, defendants 2 to 5 have not
submitted themselves for examination before the Court. The
burden of proving undue influence primarily lay upon the
defendants who were setting up the plea. The manner in
which the case on behalf of the defendants was conducted
reflects little credit upon those in charge of the case.
The primary issue on which the defendants sought to defend
the suit raised the plea of undue influence and coercion in
relation to the resolution dated October 16, 1945, and we
should have expected the defendants to open the case and
lead evidence in support of their plea. But
302
on December 11, 1950 after the second defendant Shanti
Prasad produced a number of documents which he was summoned
to produce, the plaintiff for some reason not apparent on
the record opened the case. Counsel for the plaintiff
stated that the plaintiff was at that stage to be examined
only on the issue of which the onus lay upon the plaintiff
and that the plaintiff would be examined in rebuttal after
the defendants closed their case and that he will examine
the remaining witnesses mentioned in his list in rebuttal.
Manifestly at that stage the evidence of the plaintiff led
expressly on issues other than the first issue of undue
influence could not be ‘directed to rebutting any
presumption of undue influence, for there was before the
Court no evidence proving the facts on the proof of which
alone the presumption under sub-s. (3) of s. 16 may arise
and the burden of proof shift. After the plaintiff I
concluded his evidence on the issues on which the plaintiff
offered to lead evidence, on behalf of the dependents two
witnesses Mohan Singh and Raghu Nandan were examined. Mohan
Singh said nothing which might have a bearing on the plea of
undue influence. Raghu Nandan made certain equivocal
statements about examination of accounts ‘at the meeting of
October 16, 1945 and further stated that the compromise
pursuant to which the resolutions were passed was arrived at
about midnight of October 15, at the residence of the
plaintiff Ladli Prasad, and that to his knowledge the
defendants had no other source of income except the
director’s remuneration. Beyond this he appears to have
said nothing which directly supported the defendant’s case
of undue influence. Thereafter followed a baffling series
of applications made with a view to protract the proceeding
in the suit, presumably to procure a situation in which the
principal defendant Shanti Prasad may avoid going into the
witness box. By diverse applications the proceeding was
protracted till May 1953, but neither
303
Shanti Prasad nor the other members of the family appeared
before the Court for examination as witnesses in support of
the defendants’ case of undue influence. An application
submitted on April 27, 1953 after the case was set down for
judgment for the examination of Shanti Prasad was rightly
rejected by the Subordinate Judge. A bare perusal of the
statements and the course which the proceedings have taken
leads to the only conclusion that the defendants did not
desire to give evidence in support of their plea of undue
influence and to subject themselves to cross-examination.
There may arise cases in which even though the burden lies
on the defendants to prove their case of undue influence
they may establish it from admissions made by the plaintiff
or his witnesses or from other evidence, and without giving
their own testimony, but this, in our judgment, is not such
a case.
Before directing our attention to the findings of the
District Judge from which undue influence was inferred, it
is necessary to reiterate certain undisputed facts. Ladli
Prasad was the eldest male member in the family but the
family had severed its joint status in 1940 and the business
of the family was taken over by a private limited company,
in which the three branches held shares. Under the Articles
of Association as originally framed in 1941, Ladli Prasad
was drawing from the Company an allowance of Rs. 1800/- per
mensem, a commission of 7 1/2% on the net profits of the
Company and the car allowance of Rs. 350/- per mensem and an
allowance of Rs. 30/- per day during tours together with a
new car every third year for use, whereas the other
directors were getting only Rs. 25O./- per mensem, and Rs.
25/- for every meeting of directors attended. Defendants 2
to 5 revolted against this disparity in the scale of ,
remuneration and by resolution dated February 20, 1945
removed Ladli Prasad from the -Managing Director-ship of’
304
the Company. This step of the defendants led to litigation.
Shanti Prasad claimed to enforce his rights under the
resolution, and Ladli Prasad sought to retain possession
asserting that the resolution was invalid. There were
thereafter negotiations for settlement of the disputes, at
which several near relations and employees of the Company
were present, and certain terms of compromise were agreed
upon pursuant to which in the meeting dated October 16, 1915
held at the residence of Ladli Prasad resolutions were
passed,, which had the effect of equalising the share
holding of the three branches, and the remuneration drawn by
them. Ladli Prasad was also given complete discharge from
liability for his previous dealings, resolutions of February
20, 1945 were cancelled, and amendments were made in the
Articles of Association requiring that all decisions of the
Board of Directors shall be unanimous. Thereafter by the
special resolution passed in the extraordinary General
Meeting dated March 28, 1946, the resolutions dated October
16, 1945 were cancelled, the plaintiff-Ladli Prasad-was
removed from his post of Chairman, and also of Director, and
Shanti Prasad was appointed Managing Director. The
resolutions dated October 16, 1945 were acted upon,
equalisation of share holding was effected by transfer of
shares, and Shanti Prasad assumed the office of Manager of
the Company, and presumably dividend declared at the meeting
and remuneration settled were accepted. The defendants did
not institute any proceeding to have the resolutions
declared null and void on the ground that they had been
secured by undue influence, and the plea that they were
invalid was set up for the first time in the suit instituted
by the plaintiff.
In support of his conclusion that undue influence was
exercised by the plaintiff upon defendants 2, 4 and 5, the
District judge recorded the findings that the plaintiff was
the eldest male member of the
305
family, and there was no one to look after the interests of
defendants 2 to 5; that the plaintiff had taken into his
possession all the jewellery belonging to defendants 2 to 5
and this jewellery was restored to them after the compromise
of October 16, 1945; that after the joint family was
dissolved and the business of Kishori Lal & Sons was taken
over by the Company, plaintiff received as much as Rs.3000/-
per month as salary, daily allowance, motor-car allowance
and under other miscellaneous heads, whereas the other
Directors received only an allowance of Rs. 250/- per month
and a fee of Rs 25/per day for attending the meetings of the
Board of Directors; that the plaintiff had started another
Company in the name of Jagatjit Distilling and Allied
Industries, Hamira from- which he made large profits and had
“become a business magnate” that at the time of the
compromise the financial position of the defendants was
“helpless and miserable” and they were not doing any other
business and had no other source of income. After the
operation of the order appointing Receiver passed by the
Subordinate judge, Karnal was stayed by the High Court of
Lahore, defendants 2 to 5 were not in a position to defend
their rights because of lack of financial resources and the
plaintiff took advantage of their helplessness and dictated
terms’ which were not fair; and that the plaintiff was
interested in creating a deadlock and thereby to make large
profits from his separate concerns-the jagatjit Distilling
and Allied Industries. The District Judge inferred from
these findings that the plaintiff Ladli Prasad was in a
position to dominate the will of defendant-, 2 to 5, that he
could exert undue influence upon them because “they were in
a very wretched position being hard pressed by the lack
money”; that the near relations of the family were present
at the meeting to protect the interests of the family and
they could not be expected to safeguard the interest of
defendants 2 to 5; and that
306
there was no evidence that defendants 2 to 5 received advice
from any one else, or that they gave their consent to the
compromise with free exercise of their volition. He held
that the plaintiff got himself absolved from all liability
to account for his dealing with the assets of the company
since he commenced management as a Managing Director, and
that he ‘obtained by the resolution a power of veto’ and
managed to get himself appointed a permanent Director. The
learned judge, therefore, concluded relying upon the ‘-
presumption of undue influence on account of the above-
mentioned facts” that the defendants 2 to 5 were induced by
the exercise of undue influence and coercion to give their
consent to the minutes of the meeting held on October 16,
1945 and the plaintiff had failed to adduce any satisfactory
evidence to rebut the presumption.
In our view the conclusions of the District .Judge could not
be regarded as binding upon the High Court in second appeal,
for he raised the inference of undue influence from facts
which were never pleaded and proved, and he relied upon the
presumption under s. 16 (3) without the conditions
prescribed thereby being fulfilled. The only facts on which
the defendants relied in support of their plea in their
written statement were that the plaintiff was in possession
of the books, and assets of the Company ; that he used the
funds of the Company for litigation, and that taking full
advantage of his position the plaintiff succeeded in
coercing the defendants to submit to his dictation. The
first averment was admitted and the other two were denied by
the plaintiff. There is no plea and no evidence on the
record to prove that there was no one to look after the
interest of defendants 2 to 5 that all the jwellery of the
defendants was Prior t October 16, 1945 in the possession of
the plaintiff; that the plaintiff had made large profits
from jagatjit Distilling and Allied Industries; that the
plaintiff
307
was interested in creating a deadlock with a view to secure
benefit for his concern Jagatjit Distiller; that the
financial position of the defendants was “helpless and
miserable”; that the defendants were not in a position to
defend their rights because of lack of financial resources,
and the plaintiff on that account dictated terms of
compromise which were not fair. Again the presumption under
s. 16 (3) could not come to the aid of the “defendants. The
two conditions on the proof of which alone the presumption
arises are that the plaintiff was in a position to dominate
the will of the defendants, and the transaction was
unconscionable. It was not pleaded by the defendants that
as the eldest male member of the family, the plaintiff was
in position to dominate the will of the defendants; nor was
there evidence to show that he held any real or apparent
authority over the defendants on that account. Admittedly
on February 20, 1945 the defendants had by a resolution of
the Company removed the plaintiff from the post of Managing
Director. It is true that the plaintiff refused ‘to accept
the validity of that resolution, and declined to hand over
management of the affairs of the Company to Shanti Prasad;
but that does not establish that he was in a position to
dominate the will of the defendants. Again the transaction
cannot be called unconscionable. The Plaintiff Ladli Prasad
was under the original appointment drawing an allowance
exceeding Rs. 300/- per, month and held the largest single
block of shares and Occupied the office of Managing
Director. By the resolution his remuneration was reduced to
Rs. 900/-, he was deprived of his office of Managing
Director and his share holding was also reduced and made
equal to that of the other branches of the family. It is
true that he became Chairman of the Board of Directors, but
on that account lie acquired no superior rights. All
resolutions of the Board of Directors had under the amended
Articles to be unanimous and no member could be removed by
the others. These resolutions
308
operated as much to the benefit of the defendants 2 to 5 as
of the plaintiff. It is true that by the resolutions passed
at the meeting all previous dealings of the plaintiff were
validated and he was absolved from-liability in respect of
those transactions. The plaintiff has affirmed on oath that
this was so because accounts were ‘gone into’ before the
meeting, and the defendants have not entered the witness box
to depose to the contrary, though the burden of proving that
unfair advantage was obtained by the plaintiff lay upon the
defendants. Undoubtedly a resolution which absolved the
plaintiff from liability for all his past dealings, without
settling accounts, may appear prima facie unfair, but the
District judge did not hold that accounts were not
scrutinised before the resolutions of October 16, 1945 were
passed., In any event there is no evidence on the record
that accounts were not scrutinised and accepted by the
defendants 2 to 5 before the compromise which culminated in
the impugned resolutions. The only evidence on behalf of
the defendants was of Raghu Nandan-Works Manager of the
Karnal Distillery. He stated “the compromise was finalised
at about 12 and I A. M. at night. I stayed outside for some
time, but at the time of finalising of the compromise, I was
present at the place where the compromise had taken place.
The accounts were gone into at that time. So far as I know
accounts were never sent for during the talk of compromise.
x x x x S. P. Jaiswal insisted on seeing the accounts, but
abruptly he signed the compromise.” In crossexamination he
stated “I do not know if parties had been carrying on the
negotiations about the compromise some 5 or 6 days before
same was arrived at,but I know that they were there on the
15th s x x x I do not know when the compromise (talks)
started. The compromise was finalised between the night of
the 15th and 16th, and on the morning of the 16th, I was
told to take office records to Karnal.” The plaintiff Ladli
Prasad has
309
deposed that the accounts were scrutinised before the
resolutions. It has to be remembered that in pursuance of
the resolutions dated October 16, 1945 Shanti Prasad assumed
the office of Manager of the Company, and it is common
ground that the books of account were in his possession
since that,date. The books were originally under the
control of the plaintiff : since the resolutions they were
with the defendants and the defendants have not led any
evidence to show that in respect of his dealings for the
period he was in management the plaintiff Ladli Prasad was
liable to the Company.
It cannot- in the circumstances be held that the High Court
was bound by the findings recorded by the District judge.
For reasons already mentioned the conclusion on the issue of
undue influence. was based on allegations which were never
pleaded and proved. Bishan Narain,J., was therefore right
in holding that the findings of the District Judge travelled
beyond the pleadings of the defendants, and “that besides
the facts that the plaintiff is the eldest surviving brother
and the High Court stayed the operation of the order
appointing the Receivers, there is no evidence in support of
the findings of the District Judge.”
On a review of the evidence, which Bishan Narain, J., was
entitled in the circumstances to embark upon, he came to the
conclusion that the defendants had failed to establish the
plea of undue influence. The Division Bench of the High
Court in appeal under cl. 10 of the Letters Patent held on
an elaborate review of the evidence that the conclusion of
the District judge on the issue of undue influencc was
correct. We must examine the findings recorded by the
Division Bench, because the decision that the conclusions of
the District judge were not binding upon Bishan Narain, J.,
does not effectively dispose of the appeal. This Court must
decide whether on
310
the pleading of the defendants and the evidence on the
record, the conclusion of the High Court may independently
of the findings of the District Judge, be sustained. The
High Court observed that as the karta and elder brother, the
plaintiff Ladli Prasad was in a position to dominate the
will of the defendants and that he obtained an unfair
advantage over them. In coming to that conclusion the
learned judges relied upon “the Hindu Shastric injunctions
and highly cherished Hindu sentiments that an elder brother
in relation to his younger brothers or an uncle in relation
to his fatherless nephews is placed on a high pedestal next
after parents” and inferred that the plaintiff must be
deemed to be in loco Parent to the defendants and that he
not only held an authority which is both real and apparent
but lie stood. in a fiduciary relationship and taking
advantage of his position he could and did dominate the
will of the defendants, The learned judges recognised that
the case of the defendants suffered from the infirmity
that they did not offer to be witnesses in the case, but
they observed that “their omission in that behalf though
improper could not be considered fatal because having regard
to the circumstances, undue influence could be inferred, the
plaintiff Ladli Prasad having been in a position of
superiority and a position of vantage which he continued to
occupy till October 16, 1945.”
In our judgment, there is no evidence to support the finding
that Ladli Prasad was qua the other members in loco
parentis. The three branches of the family had separated in
1940, and were living apart. It is true that Ladli Prasad
was drawing remuneration which was many times the
remuneration drawn by the other branches but the validity of
the resolutions under which he commenced drawing that remu-
neration has never been challenged. By February 1945 the
disputes between Ladli Prasad on the one hand, and the other
members had come to a head,
311
and by the resolution dated February 20, 1945 Ladli Prasad
was removed from his office of -Managing Director. This was
an “open revolt” against whatever authority Ladli Prasad may
have once possessed. Shanti Prasad filed a suit against
Ladli Prasad to secure custody of the assets of the Company
as Managing Director, and obtained an order for appointment
of a Receiver of the assets. It would be a complete
perversion of the true situation to hold in this case in the
light of the circumstances that merely because Ladli Prasad
was the eldest male member, lie was in ‘loco parentis’ qua
defendants 2 to 5. It may be notice, that this ground that
Ladli Prasad stood in the relation similar to that of a
parent qua defendants 2, 4 and 5 was never pleaded by the
defendants. The defendants were represented by their
lawyers in the two suits which were filed since February 20,
1945 and it is difficult to accept that though litigating
in Court in assertion of the rights claimed by them, they
were so much under the influence of Ladli Prasad (who at the
material time was only about 27 years of age) that they
could not secure independent advice. For reasons already
mentioned the resolutions were, unless it was established
that the plaintiff. Ladli Prasad was given a discharge
without scrutiny of accounts, not unconscionable.
Negotiations for a compromise were carried on for more than
five days and several relations of the parties who were
obviously interested in defendants 2 to 5 were present. If
the plaintiff had attempted to exercise his authority over
the defendants some reliable evidence should have been
forthcoming in that behalf. The circumstance that none of
the defendants gave evidence in support of their plea, even
after protracting the proceedings for more than two years
raises a strong presumption against them that they realised
the infirmity of their case and were not willing to submit
themselves to cross-examination.
Raghu Nandan who was practically the only witness examined
by the defendant to depose to what
312
transpired at the negotiations and the meeting which
culminated in the impugned resolutions has not said anything
which may even indirectly support their case. The case that
the plaintiff refused to part with the jewellery of the
defendants, and on that account was able to compel the
defendants, to agree to the resolutions was never pleaded
and no evidence was given by the defendants in that behalf.
Ladli Prasad deposed that he had some jewellery belonging to
the defendants 2 to 5, and that the defendants were in
possession of his own jewellery, and after the meeting of
October 16, 1645 the jewellery was exchanged. There is
again no evidence that the defendents were at the material
time in financial difficulties. Admittedly partition of
joint family assets had taken place, and the different
branches had obtained their shares in severalty except in
the business. Defendants have also led no evidence as to
what their financial resources in 1945 were, and the assump-
tion made by the High Court in that behalf are not
warranted. It is true that because of resolution No. 12
requiring every decision of the Board of Directors to be
unanimous, and deletion of Art. 47, if the Directors
quarrelled, creation of an impasse may be visualised, but by
the resolutions the plaintiff acquired no overriding
privilege. His rights were the same as of the other
branches of the family. On the question as to what
transpired at and before the meeting dated October 16, 1945
there is the evidence of Devi Prasad which may be briefly
referred to: He has deposed that he was present at the
meeting and that the compromise was arrived at by the free
consent of the parties and no undue influence was exercised
‘by any party on the other. The compromise talks had begun
a week earlier, and the account books of the Karnal
Distillery Company were produced at the time of the
compromise, and the books were examined by defendants 2 to 5
and some objections raised during the talks of compromise
were settled after seeing the books of account. The
313
witness also produced a copy of the minutes of the meeting
which had taken place at 10-30 A.M. on October 16, 1945
stating that the same were typed by him. There was
substantially no cross-examination of this witness on the
evidence given by him that the account books were examined
during the negotiations for compromise. The finding of the
High Court that the books of account were never examined and
the plaintiff pursuaded the defendants to give him a
complete discharge in respect of the liabilities incurred by
him for his transactions was never pleaded in the written
statement, though it was an important particular which if
true would have been pleaded. Even assuming that on the
general plea of undue influence it was open to the
defendants to lead evidence on this matter, the defendants
have not -chosen to lead any reliable evidence to show that
that books of account were not examined and entries were not
verified, and the equivocal evidence made by the witness
Raghu Nandan has no evidentiary value at all. It is true
that the plaintiff had started another Company in the name
of Jagatjit Distilling and Allied Industries but even if
that circumstance has any bearing on the issue of undue
influence there is again little evidence that he had made
large profits and had acquired influence and power thereby.
The appointment of receivers by the Court of Subordinate
Judge,Karnal was stayed by the High Court, but that single
circumstance will not justify an inference that the
defendants were effectively prevented from prosecuting their
claim. There is no evidence to show that the plaintiff was
interested in creating a deadlock so as to prevent the
smooth and successful business of the Company.
The only two facts viz. that the plaintiff was the eldest
member and that he was before the resolution dated February
20, 1945 receiving very much larger sums of money from the
Company as his remuneration in comparison with the
remuneration
314
received by the defendants, viewed in the light of the other
circumstances will not justify an inference that the
plaintiff was in a position to dominate the will of the
defendants. For reasons already stated the High Court was
in error in relying upon the presumption under sub-section
(3) of s. 16, because in our view the evidence does not
justify the conclusion that the plaintiff was in a position
to dominate the will of the defendants and that the
resolutions gave an unconscionable advantage to the
plaintiff. We must 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 undue influence.
It was urged that in any event, at this late stage-sixteen
years after the date on which the resolutions were passed by
the defendants at the meeting dated March 28, 1945-this
Court would not be justified in declaring the actions of the
defendants in pursuance of the resolutions, invalid, for
they would affect third parties who must have dealt with the
Company on the footing that the manangement of the Company
had authority to transact business. But the 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,
315
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.
On that view of the case, this appeal must be allowed and
the decree passed by Bishan Narain, J., must be restored
with costs in this Court and before the Division Bench.
Appeal allowed.
316

 

 

Leave a Comment