judgement:
Appeals Nos. 52, 53 and 54 of 1950.
Appeals from the Judgment and Decree dated the 7th March, 1949, of the High Court of Judicature at Bombay in Appeals Nos. 55 and 54 of 1948, arising out of Decree dated the 29th July, 1948, of the said High Court in its Ordinary Original Civil Jurisdiction in Suits No. 336 of 1945 and No. 786 of 1948.
G.S. Pathak (H. J. Umrigar and P. N. Mehta, with him) for the appellant in Civil Appeals Nos. 52 and 54 and respondent in Civil Appeal No. 53, 119 M. C. Setalvad, Attorney General for India (J. B.Dadachanji, with him) for the respondent in Civil Appeals Nos. 52 and 54 and appellant in Civil Appeal No. 53. 1953.
May 19.
The Judgment of the Court was delivered by MAHAJAN J.
These appeals, though they arise out of two different suits, 336 of 1945 and 786 of 1948, can be disposed of by a common judgment, as both these suits were instituted in effect to obtain the same relief.
In July, 1944, a struggle commenced between the group of Sir Padampat Singhania and the group of Shri Maneklal Prem Chand for control of the management of the Bombay Life Assurance Co. Ltd. and there was a race for the acquisition of the shares of the company between the two groups.
Sir Padampat, the appellant in Civil Appeal No. 54 of 1950, and respondent in the cross appeal No. 53 of 1950, on the 25th July, 1944, purchased through Shri P. N. Gupta, his Bombay agent, 667 shares of the company, 484 out of which belonged to Mr. Reddy, the appellant in C.A. No. 53 of 1950 and respondent in Civil Appeal No. 54 of 1950.
This deal was made on his behalf by a firm of share and stock brokers, Bhaidas Gulabdas.
The shares were sold at the rate of Rs. 300 per share.
On the 29th July, Gupta executed a receipt in favour of Bhaidas Gulabdas acknowledging the receipt of these shares, while Bhaidas Gulabdas as constituted attorneys of Mr. Reddy executed five blank transfer forms in respect of the 484 shares sold by them four for 100 shares each, and one for 84 shares.
It is alleged that these transfer forms were ultimately filled in the name of Sir Padampat Sin ghania.
Sir Padampat, however, made no application to the company for registration of his name in the register of shareholders till the 11th April, 1945.
On an application being made, the company declined to register the shares in his name and intimated to him their refusal to do so on the 8th May, 1945.
120 On the 8th January, 1945, the company, in order to combat the move of Sir Padampat to acquire control of its management, made an application under rule 94 A of the Defence of India Rules for sanction for the issue of further capital.
The sanction was granted and the company was authorised within a time limit of six months to increase its capital by a sum of Rs. 4,59,600 by issuing 4,596 shares; otherwise the sanction was to lapse.
On the 21st February, 1945, the directors of the company passed a resolution increasing the capital of the company by issuing these 4,596 shares of Rs. 100 each at a premium of Rs. 75 per share.
On the existing shares only Rs. 25 per share had been called up.
The company therefore decided that the new shares should be offered to the existing shareholders, in the proportion of four shares to every five shares held by the shareholders.
Reddy as a shareholder of 534 shares (including 484 shares sold by him on 25th July, but yet not registered in the transferee 's name) thus became entitled to 427 new shares and one fractional certificate.
Out of the 427 new shares offered to him he was entitled to 40 shares in his own right which appertained to 50 unsold shares which he still held in the company.
The other 384 shares appertained to the shares that he had sold.
The company issued a circular letter to every shareholder giving the details of the offer made and along with it sent two forms, A and B. Form A being the application form for allotment of new shares, the shareholder had to subscribe his name to it and return it to the company for allotment of the shares offered accompanied with a cheque for the amount that had to be paid for obtaining the shares.
Form B was a renunciation form.
In case a shareholder did not want all or any of the shares offered to be allotted to him, he was allowed to renounce his right in favour of some other person.
On the 21st February, 1945, Reddy returned to the company form A duly filled in, requesting, the company for allotment of 40 shares out of the new issue, 121 which appertained to the 50 shares he still held in the company.
In respect of the balance of 384 shares offered to him and which appertained to the 484 shares sold by him he said nothing.
The renunciation form was retained by him.
On the 23rd February, 1945, Messrs. J. L. Mehta and N. K. Bhartiya purporting to act on behalf of the purchasers of 484 shares wrote to Reddy asking him to forward to them the, company 's circular letter along with forms A and B as and when received by him, after appending to them his signatures, to enable them to apply for these shares either in Mr. Reddy 's name or in the name of, the transferees.
He was told that he was to hold the shares offered when acquired as a trustee for them.
On the 28th February, 1945, Messrs. Craigie, Blunt & Caroe, a firm of solicitors, also acting on behalf of the purchasers, wrote to Mr. Reddy a letter to a similar effect.
This was prefaced with the remark that the offer of fresh shares by the company was illegal.
Without prejudice to that contention, Mr. Reddy was called upon to apply for the newly offered shares and obtain them on their behalf or to send them the application form (A) and the renuniciation form (B) and the fractional certificate to enable them to obtain the new shares offered which appertained to the 484 shares sold by him.
The relevant part of this letter reads thus: "We are instructed by our clients, the parties to whom you, sold these shares,Mr. J. L. Mehta, Sir Padampat Singhania, Lala Kailashpat Singhania, Mr. N. K. Bhartiya and others to call upon you to apply for the additional shares and fractional certificates now issued to which you have become entitled, and to let us know when you have done so.
When allotted to you, you will hold these shares on their behalf and please then hand them to the Hindustan Commercial Bank Ltd., Apollo Street, Fort, Bombay, who will pay you the sum of Rs. 100 for every share allotted to you, which should be accompanied by blank transfer form signed by you as the transferor and the form of renunciation unsigned.
They will also pay you the, 122 Proportionate sum on any fractional certificate to which you are entitled on handing over the same to the bank in blank unsigned on or before the 7th March, 1945.
If you prefer to do so, please send the form of application 'A ' duly signed by you as well as the renunciation form 'B ' as also the fractional certificate and the relevant application attached thereto unsigned in blank to our client, Mr. N. K. Bhartiya at Second Floor, Rahimtoola House, Homji Street, Fort, Bombay, so as to reach him before the 7th March, 1945, and he will then forward the application to the company on your behalf along with the necessary remittance.
Our clients agree to indemnify you against any and every liability which you will incur by applying for the partly paid shares.
We are instructed to point out that you are a trustee for our clients by virtue of the fact that you have sold your shares in this company to them pending our clients ' name being entered on the register in respect of the shares which you have sold to them and that you are bound to comply with our clients ' request.
" The Hindustan Commercial Bank Ltd. also wrote a letter to Mr. Reddy on the 1st of March, 1945, which reads thus : "With reference to a circular dated the 28th February, 1945, issued by Messrs. Craigie, Blunt and Caroe on behalf of their clients Mr. J. L. Mehta, Sir Padampat Singhania, Lala Kailashpat Singhania, Mr. N. K. Bhartiya and others, we have instructions to pay you in respect of all shares of the abovenamed company in the new issue that you deliver to us at Rs. 100 per share, when such shares are allotted to you in exchange for the allotment letters or share scrips with a duly signed transfer deed.
We have also instructions to pay you at Rs. 20 per fractional certificate delivered to us on or before the 7th March, 1945.
Please note that we shall do the same if the shares and/or fractional certificates are delivered to us in terms of the circular mentioned above.
You may send these to us through any 123 bank and the exchange commission will also be paid by us.
" These letters indicate that the persons named therein with some undisclosed persons were the purchasers of the shares sold by Reddy and they were the equitable owners of the shares, in spite of the original bargain having been made by Sir Padampat.
It was not disclosed in these letters that the persons named therein were mere nominees or benamidars of Sir Padampat.
One fact however is beyond dispute that the names of these persons were not entered in the blank transfer forms in the column of transferee, and eventually it was the name of Sir Padampat alone that was entered therein.
Mr. Reddy replied to all these communications received by him on the 3rd March, 1945, in the following terms: "With reference to all these communications, I have to state that nearly eight months have elapsed since I sold the shares and the shares are not as yet transferred to the names of the purchasers.
I have no objection to give the renunciation forms, duly signed in favour of the real and true purchasers.
As regards the requisition made by you in paras.
4 and 5 of the circular letter of 28th February, 1945, 1 fail to understand as to how I am under an obligation to comply with it.
I am ready and willing to sign renunciation form in favour of the true purchasers, on my being satisfied that those who are described as the purchasers of my shares are the real and true purchasers of those shares by their producing the transfer forms given by me duly executed by them along with the share certificates.
" Whatever else may be said about the attitude of Reddy, he was certainly entitled to know the name of person or persons who were the real purchasers of the shares sold, because he could only respect and comply with the requisition made by those persons and those persons alone and by none else.
Not satisfied with this reply and in view of the fact that the last date for making the application for the issue of additional shares 124 was to expire on the 10th March, Sir Padampat instituted suit No. 336 of 1945 on the 8th March, 1945, on the Original Side of the Bombay High Court, inter alia, for the following reliefs against Mr. Reddy as the sole defendant.
The company was not impleaded in this suit.
That the defendant may be ordered to send and deliver to the plaintiff the application form A annexed to the circular letter for the number of additional shares allotable to him, as also the fractional certificates and the application relating thereto (unsigned and in blank) upon the plaintiff paying to him such sum as this honourable court may direct and/or upon the plaintiff giving such indemnity as this hon 'ble court may deem proper; 2.
That the defendant may be ordered upon receiving the certificates of the new shares to hand over the same as also the fractional certificates to the plaintiff together with transfer forms in blank duly signed by him." On the 7th December, 1945, the plaint was amended and an alternative relief for a decree for Rs. 7,29,600 by way of damages was included therein.
It was averred in the plaint that upon the sale by defendant of 484 shares the plaintiff became the beneficial owner of those shares and the defendant became a trustee for him of all rights and benefits whatsoever appertaining or accruing to the said shares, that one of such rights was the right and opportunity to apply for shares forming part of the new issue, that the defendant was bound to do all lawful acts in relation to and for the purpose of securing the said benefits for the plaintiff and which the plaintiff might call upon him to do, on terms of the plaintiff indemnifying him against all the consequences thereof, and that the plaintiff was ready and willing to do the same.
It was further alleged that unless the plaintiff 's rights were safeguarded by the 10th March, 1945, which was the last day for making application for the shares, he will be irretriev ably prejudiced.
Ail application was made for the appointment of a receiver of the application form and 125 letterof renunciation and of the rights of Reddy in the new issue of shares.
On the same day Bhagwati J. made an order under Order XL, rule 1, of the Civil Procedure Code, appointing the court receiver, interim receiver of the application form and letter of renunciation and of the rights, if any, of the defendant in the 384 shares of the Bombay Life Assurance Co. Ltd. The receiver was given power to exercise all the rights of the defendant in respect of the said shares on the plaintiff giving the usual undertakings.
On the 10th March, 1945, the receiver made a request to the company for the allotment to him of 384 shares of the new issue appertaining to the 484 shares standing in Reddy 's name in the company register and sold by him on the 25th July, 1944.
This application was accompanied by a remittance of Rs. 38,400 payable on these shares according to the resolution of the board.
The company was requested to register the name of the receiver in the register of members in respect of these shares.
On the 30th April, 1945, the company intimated to the receiver that his application for allotment of shares was considered by the board of directors in a meeting held on the 21st April, 1945, and it was resolved to reject the same because Reddy had accepted the company 's offer only to the extent of 40 shares and the offer regarding the balance had lapsed.
The result was that the company refused to register the name of the receiver in respect of the new shares on the 30th April, 1945, and it also refused Sir Padampat 's application for registering his name as transferee in respect of the 484 shares of Reddy purchased by him which might have entitled him to retain the new shares in his own name.
Sir Padampat having thus failed in getting the newly issued shares regis tered in the name of the receiver had no alternative left but to fight out the suit already instituted against Reddy.
He also had another suit instituted to obtain practically the same reliefs which were claimed in his own suit, by the receiver against the company with the leave of the court, namely, suit No, 786 of 1948.
18 126 This suit was filed on the 8th March, 1948, after the lapse of about three years of the company 's rejection of the receiver 's application.
It was explained in paragraph 14 of the plaint that the suit had not been filed earlier as the validity of the issue of the new shares 'was being challenged in suit No. 347 of 1945.
The prayer in this suit was that the defendant company be ordered to allot to the plaintiff 384 shares mentioned in the application and to put his name on the share register of the company for the said shares.
Both the suits were heard by Bhagwati J., who delivered one judgment in both of them and substantially granted the reliefs claimed in both the suits.
It was held by the learned judge that the 484 shares which Reddy had sold through Bhaidas Gulabdas had been purchased by Sir Padampat, that as trustee of these shares he as vendor was also a trustee of all.
property rights annexed to the shares and that it was the duty of Reddy, when called upon to do so by Sir Padampat on proper safeguard and indemnity for payment, to transfer to Sir Padampat all the benefits which he derived by the issue of the new shares by virtue of his being their legal owner.
It was further held that a proper requisition had been made by the beneficial owner on the trustee to obtain for him these shares and that the trustee defaulted in his duty in not complying with that requisition and that the company was also in error in refusing the application of the court receiver for registration of his name as a shareholder in respect of the new shares on the ground that Reddy having applied for 40 shares, his right to obtain the remaining shares had lapsed.
It was argued on behalf of the company that the sanction given by the examiner of capital issues having lapsed, no relief could be given against the company and it could not be ordered to allot shares to the plaintiff as there was no available capital which could be issued.
Bhagwati J. however took the view that the plaintiff could not be deprived of his rights by reason of this circumstance.
In the result he ordered the company to comply with the order and allot within three 127 months 384 shares to the plaintiff after obtaining a fresh sanction for the same from the authority concerned.
Before concluding the learned judge said that issues 10 and 11 had not been argued before him and the contentions raised therein seemed to have been abandoned and that even otherwise there was no merit in them.
Against this common judgment in both the suits, Reddy and the company preferred separate appeals.
The appeal Bench of the High Court allowed the company 's appeal and dismissed the receiver 's suit on the finding that the court receiver was not entitled to the allotment of the new shares in his own name as such.
Civil Appeal No. 52 of 1950 has been preferred against this decision.
In suit No. 366 of 1945 Reddy 's appeal was allowed to the extent that the plaintiff was held disentitled by the reason of lapse of the sanction to reliefs (A) and (B) granted to him by Bhagwati J.
It was however held that he was a trustee of Sir Padampat in respect of the shares of the new issue and he having failed to apply for the new shares was liable to him in damages and the fact that he made an application in respect of 40 shares did not disentitle him to make another application in respect of the 384 shares.
It was also held that a proper requisition had been made by the beneficiary upon the trustee to carry out the trust and he had defaulted in complying with the requisition.
The suit was accordingly remanded to the trial judge for assessing damages.
The principal questions involved in the appeals are: (a)Whether on the facts and circumstances of this ease Reddy was under a legal obligation as a trustee to apply for and obtain on behalf of Sir Padampat 384 new shares which appertained to the shares sold by Reddy to Singhania; (b)whether the requisition made on Reddy by Messrs. Craigie, Blunt & Caroe by their letter dated 3rd March, 1945, was sufficient in law to call upon him to apply for shares of the new issue and whether Reddy committed default as a trustee in not complying with this requisition; 128 (c)whether the conduct of Sir Padampat in not lodging 484 shares for transfer to his name till April, 1945, disentitled him to the reliefs claimed by him; (d)whether the receiver was not entitled to make the requisition and was not the proper person to apply for the new shares in his own name, and whether the company was under no obligation to allot to him the shares; (e)whether the plaintiff was entitled to reliefs (A) and (B) of the plaint in the altered situation of the company.
It has been held in the courts below that Sir Padampat became on the 29th July, 1944, the sole beneficial owner of 484 shares sold by Reddy, the legal title to which was vested in him.
That having been found, the relation of trustee and cestui que trust was thereby established between them.
All that is necessary to establish such a relationship is to prove that the legal title was in the plaintiff and the equitable title in the defendant.
The fact that such a relationship qua the 484 shares sold by Reddy existed between the parties to the suit was not disputed by the learned AttorneyGeneral appearing for Reddy, but he contested the view of the High Court that the cestui que trust could not on any principle of equity or law call upon the trustee to bear his burdens and ask him to obtain on his behalf new shares of the company or make further investments in its capital which would involve in its train new obligations and fresh burdens.
As observed by Lord Lindley in Hardoon vs Belilios(1) the plainest principles of justice require that cestui que trust who gets all the benefit of the property should bear its burden unless be can show some good reason why his trustee should bear them himself.
Mr. Pathak did not contest the proposition that Singhania had any right as a beneficial owner of 484 shares to throw on Reddy any of the burdens incidental to the ownership of those shares.
He conceded that Reddy as a trustee had a right to be indemnified by his cestui que trust against calls.
The proposition is well recognised and (1) ; 129 the liability is enforced on the principles applicable to the equitable ownership of property.
Once it is held established that Reddy was a trustee of the 484 shares sold by him, he as holder of those shares must also be held to be a trustee of all the property rights annexed to the shares.
It was conceded that he was not only the trustee of the corpus but also the trustee of the income and of the dividends that he may receive and that he was bound to pay them over to the beneficiary.
In E.D. Sassoon & Co. Ltd. vs Patch(1) Pratt J. held that under section 94 of the Indian Trusts Act a transferor holds the shares for the benefit of the transferee to the extent necessary to satisfy its demands and that as the transferee holds the whole beneficial interest and transferor has none, the transferor must comply with all reasonable directions that the transferee may give and that in this situation if he becomes a trustee of dividends he is also a trustee of the right to vote because the right to vote is a right to property annexed to the shares and as such the beneficiary has a right to control the exercise by the trustee of the right to vote.
The learned AttorneyGeneral did not combat the view expressed by Pratt J., but he objected to any further extension of the rule therein laid down.
The question that needs our decision is bare of authority.
The English law can furnish no guidance for its solution as there is no provision corresponding to section 105 (C) in the English Companies Act.
In India this is the first known occasion when a situation like this has arisen between a transferor and transferee of shares on a stock exchange transaction.
The proposition therefore that has been canvassed in this case has to be decided on first impressions and on general principles of equity.
Section ' 105(C), the enactment of which has conferred certain rights and privileges on a shareholder which he did not possess before its enactment is in these terms: " Where the directors decide to increase the capital of the company by the issue of further shares such shares shall be offered to the members in proportion to (1) 130 the existing shares held by each member and such offer shall, be made by notice specifying the number of shares to which the member is entitled and limiting a time within which the offer, if not accepted, will be deemed to be declined ; and after the expiration of such time, or on receipt of an intimation from the member to whom such notice is given that he declines to accept the shares offered, the directors may dispose of the same in such manner as they think most beneficial to the company.
" This section limits the powers of the directors to dispose of the further issue of capital in any manner that they may think most beneficial to the company.
They are under a mandate to offer these shares in the first instance to the members in proportion to the existing shares held by them.
In other words, a member becomes entitled under the provisions of this section by reason of his being the holder of a certain number of shares in the company, to obtain shares in the further issue of capital as of right.
This is not a fruit of stock ownership, in the nature of a profit, nor does it amount to a division of any part of the assets of the company.
It is not an organic product of the original stock like the young of animals or the fruit of trees, but, as described by the Supreme Court of America in Miles vs Safe Deposit Trust Co.(1) this right to subscribe to new stock is but a right to participate in preference to strangers and on equal terms with other existing shareholders in the privilege of contributing new capital called for by the corporation an equity that inheres in stock ownership under such circumstances as a quality inseparable from the capital interest represented by the old stock.
The exercise of the privilege depends on the option of the shareholder.
If he likes, he can invest further money and purchase a proportionate share, of the new issue of capital.
He is of course not obliged to do so.
He has also the right to assign the offer made to him in favour of any other person but in that event the directors have the option to allot or not to allot the (1) 66 Law.
Edition 903 at 026.
131 shares to the person in whose favour the share holder renounces the shares offered to him.
The offer, of course, creates fresh rights but it also brings in its train liabilities and obligations.
It confers the right on a shareholder to purchase shares in the new issue of capital in proportion to his existing shareholding, but in order to obtain that right he has to fulfil certain obligations and he has to incur certain liabilities.
In the first instance, if he decides to invest his money in the further capital issued, he has to make an application to the company for the allotment of shares so offered and with his application he has to remit to the company the amount of the application money.
That having been done, if the shares offered are only partly paid up, as they were in this case, he incurs on allotment the further liability of meeting any future calls on these shares.
Can it be said in this situation that a transferor of a certain number of shares who being the legal owner of those shares and the beneficial interest of which vests in the cestui que trust, is liable for all the payments and obligations attaching to the new issue of shares and is bound to act in both respects for the benefit of the cestui que trust; in other words, whether he is under a duty, when so instructed by his beneficiary, to make an application for the new issue of shares offered under the provisions of section 105 C and obtain them in his name by making the necessary payment and by incurring the consequential obligations.
Plainly put, the question may be posed thus: whether the obligation of a transferor of a certain number of shares as a trustee extends also in respect of the right to acquire further shares issued by the company on behalf of his cestui que trust by putting himself on the register of shareholders in respect of the new shares regarding which.
he may have to incur fresh liabilities and obligations which were not existing at the time when he made the transfer.
Mr. Pathak contended that as the right to obtain new shares was inseparable from the ownership of the old stock, the transferor of the old stock held the option to buy new stock in like manner as he held the 132 original stock, and if qua the old stock he was a trustee for the beneficial owner, in the like manner he was a trustee also of the right or the option to buy new shares and was bound to exercise it for the benefit of the cestui que trust and according to his directions, and was bound to obtain new shares in his own name for the cestui que trust.
Reliance was placed for this proposition on certain observations of Buckley J. in Biss vs Biss(1).
In that case, a lessor granted a lease for seven years of a house in which the lessee carried on a profitable business.
On expiration of the term of the lease, the lessor refused to renew the lease, but allowed the lessee to remain as a tenant from year to year on increased rent.
During the tenure of the lease, the lessee died leaving a widow and 3 children, one being an infant.
The widow and a son each applied to the lessor for a new lease for the benefit of the estate, which the lessor refused to grant.
Having determined the yearly tenancy by notices the lessor granted to the son personally a new lease for 3 years.
In an action already instituted by the children against the administratrix, namely, the widow, she applied to have the new lease treated as being taken by the son for the benefit of the estate.
Buckley J. held that the son was a trustee of the new lease for the benefit of the estate.
The Court of Appeal reversed this decision and held that the right of renewal had been determined by the lessor long before the son intervened, and that the new lease could not be regarded as an accretion to the estate and the son was entitled to retain the lease and that he had not abused his position in any way.
This case therefore is no authority for the proposition before us, and the Court of Appeal did not say anything on the point.
Buckley J. however in the course of his judgment observed as follows: "It is, of course, very familiar law that if a trustee obtains a renewal of a lease of property vested in him as trustee, whether by virtue of a right of renewal or not, he must hold the new lease for the benefit of his cestui que trust.
The leading authority upon that is (1) [1903] 2 Ch .
133 Keech vs Sanford (1).
The principle is that the trustee owes it to his cestui que trust to obtain a renewal, if he can do so, on beneficial terms, and that the court will not allow him to obtain a renewal upon beneficial terms for himself when his duty is to get it for his cestui que trust.
" Reliance was also placed on certain observations of Neville J. in Jones vs Evans(2).
That was a case where the capital of a company was divided into 10,000 shares of pound 10 each, of which 3,728 only had been issued and were fully paid up.
The company was very prosperous and the market value of the shares was pound 30 each.
The reserve fund of the company exceeded pound, 50,000.
The directors proposed a scheme for distribution of the reserve fund representing accumulated undivided profits amongst the shareholders, so that every shareholder was to get a bonus of one new fully paid up share of pound 10 for every existing share held by him.
Accordingly resolutions were passed by the company empowering the directors to declare a bonus dividend out of the reserve fund and sanctioning the distribution of a bonus dividend of pound 10 per share out of the reserve fund and authorising the further issue of 3,728 shares of pound 10 each out of the unissued capital of the company to be allotted pro rata amongst the existing shareholders and directing that such new shares be paid up in full forthwith.
The directors sent a circular letter to every shareholder with a warrant for the bonus divident on his shares, informing him of an allotment to him of his proportion of the new shares and giving him an option to accept or refuse the allotment, and stating that if he accepted the allotment he was to indorse and return the dividend warrant to the company to be applied in payment of the new shares.
Trustees of a testator 's will held 200 shares of the company, and on receipt of the circular letter accepted their allotment of 200 new shares, indorsed and returned their bonus dividend warrant for pound 2,000, and afterwards sold the new shares (1) (1726) Sel.
(2) 134 at a profit.
The question then arose whether, as between the tenants for life and remainderman under the will, the bonus dividend was capital or income.
It was held, on the evidence, that the company intended to capitalize the reserve fund and not to distribute it as a bonus dividend, and therefore the whole of the bonus dividend was capital of the testator 's estate.
In the concluding portion of his judgment, Neville J. said as follows: ". . when I say that the option vested in each shareholder, either to take the dividend and keep it, or to return it and get the greater benefit which the company offered if be did, I do not think that is true in the case of trustees; because it seems to me that, if by taking pound 10 in cash, when they were offered by the company a share worth E 20 if they would return it, it would be a wilful default on their part if they refused and took less, and consequently their cestui que trust would be entitled to insist upon the trustees taking the greatest benefit which the company offered.
Therefore, in the case of trustees it seems to me that, although as between the company and them there may be a right to elect, between them and their cestui que trust there is no such right, and they must take the dividend in what I will call the capitalized form.
" On the basis of these authorities, Mr. Pathak contended that his client as a beneficiary was entitled to the fullest benefit conferred on the old shares by reason of the new offer and that he was entitled to compel the trustee to act in a manner which would enable him to obtain the benefit.
In our opinion the observations made in these cases cited above must be limited to the facts of those cases.
We are here dealing with a trustee with peculiar duties and peculiar liabilities, and it is a fallacy to suppose that every trustee has the same duties and liabilities.
In none of the cases cited by Mr. Pathak was there any question of the trustees incurring any personal pecuniary liability.
In the case of Biss vs Biss(1), the question was obtaining the benefit of renewal of a (1) 135 lease, and the trustee had to incur no fresh liability for obtaining it.
On the other hand, a prosperous business was being conducted in those premises and the renewal of the lease was obviously for the benefit of the lessee and carried with it no new or onerous obligations.
In Jones vs Evans (1), the trustee had incur no liability of any kind whatsoever.
That only question there was whether he should exercise the option of receiving the dividend or of converting the bonus into the shape of capital.
It is part of the general law of trust that a trustee must act in a manner most beneficial to the cestui que trust and he can retain no benefit to himself from the corpus of the trust estate or from anything that accrue to that estate subsequently.
None of these cases death with a situation like the one that has arisen in the present case.
If the newly offered shares were fully paid up and no liability was attached to them, there is no question that the trustee would have been bound to obtain them for the benefit of the cestui quo trust.
The cases referred to therefore go only so far and no further.
We see no principle of equity or on general law which obliges a trustee to buy new shares in his own name for the benefit of the cestui que trust, when in so doing he has to bear a heavier pecuniary burden than he undertook to bear as constructive trustee by reason of the sale of his shares in favour of the cestui que trust and which relationship was contemplated to last only till the time when the shares sold could not be registered in the name of the transferee.
Of course, if the trustee of his own volition chose to obtain the new shares which appertain to the shares already sold by him, on principles of equity it could not be denied that the cestui que trust would have been entitled to call upon the trustee to hand over those shares to him on receipt of the amount spent by the trustee; but if the trustee of his own volition is not prepared to obtain those shares in his own name, it is difficult to see on what principle of law or equity he can be forced to make an application for obtaining those shares in his own name, and then pass (1) 136 them over to the cestui que trust after obtaining the amount spent by him or after being otherwise fully indemnified in respect of the payments made or to be made, or liabilities incurred or to be incurred in future.
It is difficult to conceive any principle of equity which obliges a person in the position of a constructive trustee in respect of X number of shares to also become a constructive trustee in respect of in additional, say, Y number of shares and thus become a trustee of X plus Y shares.
Such a burden is not a necessary consequence or an incident of the original transaction of purchase and sale of shares or of the legal relationship of trustee and cestui que trust thus created.
That relationship arises by reason of the circumstance that till the name of the transferee is brought on the register of shareholders in order to bring about a fair dealing between the transferor and the transferee equity clothes the transferor with the status of a constructive trustee and his obliges him to transfer all the benefits of property rights annexed to the sold shares of the cestui que trust.
That principle of equity cannot be extended to cases where the transferee has not taken active steps to get his name registered as a member on the register of the company with due diligence and in the meantime certain other privileges or opportunities arise for purchase of new shares in consequence of the ownership of the shares already acquired.
The trustee can very well say to any request made by the cestui que trust for the acquisition of new shares that he is not prepared to put his name on the register of members for any Additional shares, particularly when the acquisition of those shares involves him in further liabilities.
In our judgment therefore neither on principle nor on authority can it be held that Mr. Reddy could be forced to acquire in his own name 384 shares which appertain to the 484 shares sold by him to Sir Padampat.
All that Sir Padampat could call upon Reddy to do was to sign he renunciation form in his favour of the shares offered put of the new issue appertaining to the old shares and after having obtained the renunciation form, to make an application in his own name for the purchase of those shares.
This view can be sustained on the intelligible principle that the transferor as a constructive trustee in respect of the shares sold by him cannot retain any benefit himself of the new issue which is annexed to the shares sold by him and if any benefit arises out of that offer made under section 105 C, that benefit must go to the beneficiary, but more than that the beneficiary is not entitled to call upon the trustee to do.
Mr. Pathak reiterated the argument that had been accepted by the High Court that if the only duty of Reddy was to transfer the offer made to him under section 105 C to Sir Padampat after signing the renunciation, then in that case Sir Padampat could not get the full advantage of that offer because in that event the directors were not bound to allot the shares to the person in whose favour they have been renounced by the shareholder, while on an application made by the shareholder they were bound to allot him the shares offered.
That disadvantage is certainly there but it has to be borne in mind that the relationship of constructive trustee and cestui que trust created on principles of equity cannot be extended ad infinitum in respect of all future acquisitions of rights annexed to the shares sold which acquisitions may involve not only rights but liabilities and obligations which the constructive trustee may not be prepared to undertake, and in this situation the cestui que trust may not be able to get all the benefits of the fresh incidents annexed to the ownership of the shares that he had purchased.
He himself may be blamable for the loss that be may have thus to suffer by his not having made an application in time for getting himself registered on the register of members and for not having taken proper steps in law for getting his transfer recognised by the company if the request made by him has already been refused by the company.
The equitable principle on the basis of which the legal relationship between the transferor and the transferee arises cannot be worked in a manner so as to prejudice the 138 position of the constructive trustee and make him an accounting party in respect of all privileges or fresh offers that may be annexed to the shares sold for all time to come.
Mr. Pathak urged that his client was prepared not only to pay the application money and the allotment money to the trustee but was further prepared to indemnify him against any future calls on those shares.
It has to be remembered that even the original 484 shares sold by Reddy to Sir Padampat were partly paid up shares and Reddy was liable to pay the amount of any call made on those shares, subject to being indemnified when the time arose by Sir Padampat for the amount paid on those shares.
If Mr. Pathak 's contention is accepted, then Reddy will also become further liable for future calls on the new 384 shares.
He would be entitled only to claim indemnity when an occasion arose.
It is well settled that a trustee is not entitled to claim indemnity till he suffers an injury for which he has to be indemnified.
But the fact remains that the liability to pay calls is for the time being his liability and not that of the cestui que trust.
Once his name is entered on the register of shareholders, a mere right to claim indemnity may, in a case like the present, when the time to claim it arises, prove to be merely illusory.
The shares may go down in value, the company may go in liquidation, or the financial position of the equitable owner of the shares may deteriorate.
In all these situations, the right of the trustee to be indemnified in respect of fresh liabilities accruing on the shares would be, as already stated, merely chimerical, and the trustee would have to incur in those situations personal pecuniary liability on account of the shares.
Therefore, the contention that the trustee is bound to buy the new shares in his own name for the benefit of the cestui que trust is not well founded, because it involves in its train pecuniary liabilities which the trustee may have to incur personally and which he is not bound to undertake under any system of law for the benefit of the cestui que trust.
We thus hold that Sir Padampat was not 139 entitled to call upon Reddy to make an application in his own name for the acquisition of the newly issued shares by investing his own money in the first instance and then recovering it from Sir Padampat or by signing the application form and sending it to Sir Padampat for acquiring the shares in his name.
All that he was entitled to was to call upon him to send him the renunciation form.
This Reddy was prepared to do and offered to do so provided the names of all the persons in whose favour renunciation had to be made were disclosed to him.
Admittedly this was never done and Sir Padampat could not gain his object by merely having the renunciation form, because the directors of the company in the circumstances of this case would never have granted his application, if made in his own name on the basis of the renunciation form signed by Reddy.
Sir Padampat 's or the receiver 's suit therefore in this view of the case could not have been decreed.
On the view expressed above, both the suits must fail.
If Sir Padampat had no right to call upon the trustee to buy the newly offered shares in his own name for his benefit, a fortiori, the receiver appointed by the court had also no such right, and on this short ground the claim put forward in both the suits has to be negatived.
We are further of the opinion that even if it was held that Reddy was under a duty to sign the application form and the renunciation form and send them over to Sir Padampat to enable the latter to obtain the newly offered shares in Reddy 's name, the requisition that was made on his behalf directing the trustee to purchase these shares and to exercise the option was ineffective and inadequate.
On the basis of that requisition, it was not possible for the trustee to carry out the mandate of the cestui que trust, and, that being so, on this ground also, the plaintiff was disentitled to relief in the two suits.
The first requisition made by Messrs. J. L. Mehta and N. K. Bhartiya on the 23rd February, 1945, was made on their own behalf only and not on 140 behalf of Sir Padampat.
It called upon Mr. Reddy to forward the circular letter with his signatures on the forms annexed to the letter, to enable them to apply for the newly offered shares either in his name or in their or such other names as might be decided upon by them.
This requisition was not considered adequate by the High Court and was left out of consideration.
Mr. Pathak also did not place much reliance upon it.
Both the courts below and Mr. Pathak however placed reliance on the requisition made on the 28th February, 1945, in the letter of Messrs. Craigie, Blunt & Caroe cited in the earlier part of this judgment.
In that letter, it was stated as follows "We are instructed by our clients, the parties to whom you sold these shares, Mr. J. L. Mehta, Sir Padampat Singhania, Lala Kailashpat Singhania, Mr. N. K. Bhartiya and others to call upon you to apply for the additional shares and fractional certificates now issued. . " This requisition therefore purports to have been made on behalf of 4 disclosed beneficiaries and some other undisclosed cestuis que trust.
It was not asserted in this letter that the real purchaser of the shares was Sir Padampat Singhania and the other persons mentioned therein were merely his agents or benamidars.
Moreover, it did not disclose the names of all the beneficiaries.
Legitimately, therefore, in his letter of the 3rd March, 1945, Mr. Reddy said that he was ready and willing to sign the renunciation form in favour of the true purchasers, on his being satisfied that those who are described as the purchasers of his shares are the real and true purchasers by perusing the transfer forms duly executed by them along with the share certificates.
It is difficult to understand how a requisition made on the trustee by some disclosed and other undisclosed beneficiaries could be regarded as a proper direction to him, which he could be called upon to obey.
This requisition was therefore faulty in this respect, and the trustee could not be said to have defaulted in his duty in not carrying out 141 such a requisition.
Again, the indemnity offered in the requisition is merely illusory, because in the letter the extent of the liability of each beneficiary, whether known or unknown, is not mentioned, and the trustee could not ascertain from its contents the name of each and every person liable for his claim for indemnity as and when the occasion for it arose, or its extent.
A mere bald statement in the following words "Our clients agree to indemnify you against each and every liability that you incur by applying for these partly paid up shares" was in our opinion wholly inadequate.
The matter may have been different if along with this requisition a bank guarantee safeguarding the trustee in regard to his future liabilities had been sent to him as well as a cheque for the money required to be paid at the time of making the application.
We are also of the opinion that in view of the allegations made in the plaint and in view of the fact that all the share transfer forms were subsequently signed by Sir Padampat Singhania alone, this requisition cannot be said to have been made on behalf of the plaintiff and on the basis of it he cannot be heard to say that he made a proper requisition on the trustee which the latter failed to carry out and was therefore liable to him in damages for not carrying out his directions.
It is significant that no mention is made in the plaint as to how the names of the persons contained in the letter of the 28th February came to be mentioned therein, and how the requisition was made on their behalf when they had never signed the blank transfer forms.
It may also be observed that it was left to the option of the trustee to pay from his own pocket the application money, and then recover it from the bank.
Such a demand could not be made on a trustee and he could not be asked to invest his own money for the benefit of the cestui que trust.
The trustee was under no obligation to find a heavy sum of money and to invest it on the purchase of new shares for the benefit of the cestui que trust, and to recover the amount after having invested it in them.
What the letter of the solicitors in fact intended to 20 142 convey to Reddy was: "Pay yourself and obtain the shares, or else, sign a blank cheque and send it to us and then we will see to what extent we are going to make you liable by putting your name on the register of shareholders.
" The conclusion of the High Court on this point has been stated in these terms: "Sir Jamshedji relies on the attitude taken up by his client and has contended that he took up the right attitude by enquiring as to who the real beneficiary was and to be satisfied by the production of the relative transfer forms.
Now, if this had been the only attitude of Reddy much might have been said in his favour.
But unfortunately in this very letter Reddy clearly declined any liability or obliga tion upon him to apply for these shares on behalf of his beneficiary.
Whether he knew that his purchaser was Sir Padampat or not, as the learned Judge has held, or whether there is force in Sir Jamshedji 's contention that Messrs. Craigie, Blunt and Caroe referred to the purchasers as Sir Padampat and others, the fact remains that Reddy did not accept his liability as a trustee and then agreed to discharge that liability provided he was satisfied as to who his purchaser was.
He only wanted to be satisfied about his purchaser in order to send to him the letter of renunciation.
That was the only question on which he wanted to be satisfied. 'In view of the attitude taken up by Reddy the plaintiff had no other course open to him except to file the suit, and, therefore, in our opinion the learned judge was right when he came to the conclusion that the plaintiff was entitled to the relief he had claimed.
" We have not been able to appreciate this line of thought.
The attitude adopted by Reddy could not cure the defects in the requisition alleged to have been made on behalf of the plaintiff.
If the directions given to the trustee were of an inconclusive nature, and were in law ineffective, then the trustee could not be mulcted in damages for not obeying them, even if his attitude was not what it should have been.
The plaintiff is not entitled to damages unless and until lie 143 proves that he made a proper and effective demand on the trustee and this the trustee failed to carry out.
On this ground also, both the suits are bound to fail.
Mr. Pathak argued that the plaintiff was entitled to reliefs A and B, both in his suit as well as in the receiver 's suit and that the receiver 's suit was wrongly dismissed by the High Court.
We are unable to agree.
In our opinion, the High Court rightly held that the receiver appointed in the suit of Sir Padampat could not acquire the newly issued shares in his name.
That privilege was conferred by section 105 C only on a person whose name was on the register of members.
The receiver 's name admittedly was not in the register and the company was not bound to entertain that application.
Mr. Pathak argued that that may be so but the receiver was not making an application in his individual right but he had been armed by the court with power to apply in the right of the defendant Reddy.
The fact however is that the receiver made the application in his own name.
Even if Mr. Pathak 's contention is right the company was no party to the suit filed by Sir Padampat against Reddy and that being so, no order could be issued to the company in that suit to recognize the receiver as a shareholder in place of Reddy.
The matter might have been different if the company was a party to the suit and was ordered by the court to register the receiver 's name in place of Reddy for the 484 shares purchased by Sir Padampat and was also ordered to issue new shares in the name of the receiver.
It is not necessary for us to offer any final opinion on the question if the court would have been within its right to direct his name to be included in the register, even if the company was impleaded in the suit filed by Sir Padampat against Reddy.
We are however quite clear that the company not having been impleaded in that suit, it was not bound to issue the now shares in the name of a person whose name was not already in the register of members even if he represented a person whose name was already in the register.
The High Court was thus right in dismissing the receiver 's suit.
We are also of the opinion that the appellate bench of 144 the High Court was also right when it declined to grant reliefs A and B of the plaint to Sir Padampat.
The sanction given to the company to issue new capital had lapsed long before Bhagwati J. granted reliefs A and B to the plaintiff.
It was an extraordinary procedure in a civil suit to direct a company which was no party to the original suit to obtain fresh sanction for the issue of new shares and then allot them to the plaintiff It seems to have been overlooked that if sanction to issue new capital was somehow obtained, that capital would also have to be distributed as directed by section 105 C and could not be allotted by the directors in favour of any particular shareholder.
In the altered situation that arose after the institution of the suit, if the plaintiff succeeded, the only relief that could be granted to him was the relief of damages.
We are however unable to grant the relief to the plaintiff in view of our finding that Reddy could not be compelled as constructive trustee to buy new shares in his own name for the cestui que trust and further in view of our finding that even if he could be compelled to acquire those shares in his own name for the cestui que trust he could not be said to have defaulted in his duty in carrying out the directions of the cestui que trust as in this case no proper and valid requisition was made by the cestui que trust on the trustee for the acquisition of those shares.
The plaintiffs in the two suits are therefore not entitled to any relief For the reasons given above, we allow Reddy 's appeal No. 53 of 1950 and dismiss the cross appeal of Sir Padampat as well as the receiver 's appeal No. 52 of 1950 and dismiss both the suits, but in the circumstances of this case we will make no order as to costs in both the suits throughout.
Appeal No. 53 allowed.
Appeals Nos. 52 and 54 dismissed.
Agent for the appellants in Appeals Nos. 52 and 54 and the respondent in Appeal No. 53: section P. Varma.
Agent for the respondents in Appeals Nos. 52 and 54 and the appellant in Appeal No. 53: Rajinder Narain.

summary:
A, who held a certain number of shares in a company, sold some of these shares to B on the 29th July, 1944, and executed blank transfer forms in respect of the shares.
B made an application to the company for registration of his name, only on the 11th April, 1945, and his application was rejected.
Meanwhile, in February, 1945, the company resolved to issue new shares and offered to A the number of shares to which he was entitled under the provisions of section 105 C of the Indian Companies Act in respect of the shares which stood in the register in his name.
A did not apply for the now shares pertaining to the shares sold to B. A firm of solicitors sent a requisition to A on behalf of B, C, D, E and others who claimed to be the purchasers of the shares sold by A, calling upon A to apply for the additional shares, and to hold them, when allotted, on behalf of B, C, D and E and others, and offering to indemnify A against all liabilities he may incur thereby.
A declined to apply but offered to sign the renunciation form in favour of the true purchasers.
As the time fixed for making an application for the new shares was about to expire, B filed a suit against A praying that A may be ordered to deliver to B the application form for the now shares, and to hand over the new share certificates when received, with transfer forms in blank duly signed by him, and for damages in the alternative.
A receiver 17 118 was appointed and he applied to the company in his own name for allotment of the new shares and for registering his name in respect thereof but the company declined to do so.
The receiver filed a suit against the company for allotment of the new shares to him.
The High Court of Bombay held that, as A was a trustee of B in respect of the new issue, and he had failed to apply for the new shares, he was liable in damages to B.
On appeal : Held, (i) that if A ",as not of his own volition, prepared to obtain the now shares in his name, there was no principle of law or equity by which he could be compelled to acquire those shares by spending his own money or by undertaking financial liabilities and pass them over to B on receiving the amount spent by him from the purchaser or being otherwise fully indemnified by him in respect of the liabilities incurred or to be incurred.
(ii)Assuming that A was under any such obligation, as the requisition made by the solicitors to A to purchase the shares was made on behalf of 4 disclosed and some undisclosed persons, it was ineffective and inadequate, and A was not guilty of any breach of duty as a trustee in not complying with the requisition.
(iii)As B had no right to call upon A to buy the new shares in his own name for his (B 's) benefit, a fortiori, the receiver had also no such right.
(iv) In any event, as the company was not a party to B 's suit, no order could be issued to the company in that suit to recognise the receiver as a shareholder in respect of shares sold to B and, as long as he was not on the register, the company was not bound to entertain an application from him for issue of the now share in his favour.
Hardoon vs Belilios ([1901] A. C. 118), E. D. Sassoon, & Co Ltd. vs Patch , Miles vs Safe Deposit Trust Co. (66 L.E. 903) referred to.
Biss vs Biss ([1903] 2 Ch. 40), Jones vs Evans ([1913] 1 Ch.
23) distinguished.


judgement:
Appeal No. 318 of 1962.
Appeal by special leave from the judgment and order dated November 27, 1959 of the Punjab High Court (Circuit Bench) at Delhi in Civil Writ Petition No. 545 D of 1959.
Purshottam Trikamdas, M. V. Goswami and B. C. Misra, for the appellant.
W.S. Barlingay and R. H. Dhebar, for the respondent.
March 6, 1964.
The Judgment of the Court was delivered by AYYANGAR, J.
There are no merits in this appeal by special leave and it deserves to be dismissed.
The appellant obtained, in November 1951, an import licence from the Joint Chief Controller of Imports at Calcutta, for importing "iron and steel bolts, nuts, set screws, machine screws and machine studs, excluding bolts, nuts and screws adapted for use on cycles".
In purported conformity with this licence the appellant imported from Japan through the Bedi port 221 cases of bolts and nuts during the period April 4, 1952 to July 14, 1952.
The cases were described in the Bills of Entry which he filed as "Stove Bolts and Nuts" and he produced the import licence of November 1951 as his authority to clear the goods.
One hundred and ninety two of these cases were cleared out of the port customs but before the rest of the 89 cases could be cleared, the Customs authorities got suspicious that the goods were mis described and though called "Stove Bolts and Nuts" in the invoices and relative documents they were really identifiable parts of bolts and nuts of the "Jackson Type single bolt oval platebelt fasteners" whose importation had been prohibited by a Notification of the Ministry of Trade issued in January 1952.
Their suspicions got confirmed after examination of the samples of the nuts and bolts imported and thereafter a notice was issued to the appellant to show cause why he should not be proceeded against (a) for mis describing the 64 goods as "stove bolts and nuts" and (2) for importing and attempting to import goods without a proper import licence this being an offence under section 167(8) of the Sea Customs Act.
The appellant showed cause and in the written pleas which he filed, he raised two defences; (1) that the description of the goods as "stove and nuts" was merely a description given by the manufacturers in their invoices and he himself not being acquainted with the technical details could not be held responsible for the description given in the invoices which was copied in the Bill of Entry not being precise or exact and (2) that even if the bolts and nuts which he imported were identifiable parts of the "single bolt belt fasteners" whose importation was banned, there had been, on a proper construction of the import licence, read in conjunction with the Import Trade Regulations under which it was issued, no contravention since the ban on importation by the notification was confined to a complete "Jackson type single bolt belt fastener" and did not extend to the importation of the component parts of such a belt fastener.
These two defences were examined by the Collector of Central Excise.
As regards the first he found from the cor repondence exchanged between the appellant and his foreign suppliers and produced by the appellant himself in his de fence at the hearing, that the name "stove bolts and nuts" had been decided upon by the appellant himself after samples of the nuts and bolts which he desired to import had been received and examined by him.
Practically therefore during the hearing before the Collector the appellant conceded that the name "stove bolts and nuts" was a misdescription of the articles which he actually imported.
The next question was whether the appellant was guilty of an offence of the nature described in section 167(8) of the Sea Customs Act.
The Collector recorded a finding that the appellant was guilty of a contravention of this provision which reads: "If any goods, the importation or exportation of which is for the time being prohibited or restricted by or under Chapter IV of this Act, be imported into or exported from India contrary to such prohibition or restriction , or if any attempt be made so to import or export any such goods;. . " in reaching this finding the Collector was satisfied from the samples which were forwarded to the appellant and which were approved by him before finalising the indent, that the appellant was really ordering and importing nuts and bolts which were identifiable components of "Single bolt belt fasteners" whose importation was prohibited.
He arrived 65 at this conclusion because (1) the bolts and screws imported by the appellant were those specially adapted by reason of their structure and details for use as "single bolt belt fasteners" and (2) these nuts and bolts could not be put to any use other than as components of a belt fastener of the type whose import was prohibited.
In further support of his conclusion that the appellant really intended to evade the prohibition imposed by the Notification of January 1952 by which the importation of" single bolt belt fasteners" was prohibited, the Collector referred to the fact that these single bolt belt fasteners were composed of three components (1) a bolt (2) a nut and (3) washers.
The washers to fit into the bolts and nuts imported by the appellant were found to have been separately imported by a firm called Nawanagar Industries Ltd. which was owned or controlled by close relations of the appellant.
Having thus received confirmation about the real intention of the appellant to evade the prohibition contained in the Notification and thus contravene the provisions of section 167(8) of the Sea Customs Act, the Collector imposed the penalty of confiscation of the goods and gave the owner under section 183 of the Sea Customs Act the option to pay a fine of Rs. 5 1,000 to redeem the confiscated goods.
He also imposed a personal penalty of Rs. 1,000 on the appellant under section 167(37)(c) of the Sea Customs Act for misdescribing the goods in the Bills of Entries which he had filed.
The appellant filed an appeal to the Central Board of Revenue which was dismissed.
The argument before the appellant authority again was that what was prohibited was an assembled "Jackson Type single belt oval plate belt fasteners" but that this notification could not be read as imposing a ban on the importation of the parts of such a belt fastener though these parts may be identifiable and the parts could have no use other than as components of the article whose importation was prohibited.
This submission was rejected, and appeal was dismissed.
Thereafter the appellant applied to the High Court of Punjab for the issue of a writ of certiorari under article 226 of the Constitution and this having been dismissed in limine, moved this Court for special leave which was granted.
That is how the appeal is before us.
Two points were urged by Mr. Purshottam on behalf of the appellant.
The first was that the appellant having been granted a licence to import "nuts and bolts" falling under item 22 of Part 1 of the Import Trade Control Hand book for the relevant year, the appellant was entitled to import iron and steel bolts and nuts, whatever be the purpose they 66 served.
The only limitation imposed upon the appellant by the import licence which was granted to him and which re produced the terms of Entry 22 in the Hand book was that he could not import bolts and nuts adapted for use on cycles.
The limitation thus imposed, it was urged, also indicated that if the nuts and bolts were adapted for use on articles other than on cycles they could still import them unless the importation not merely of the other article but its compo nents was also prohibited or restricted.
In this connection our attention was drawn to item 28 of Part II in the same Hand book reading 'Belting for machinery, all sorts, includ ing belt laces and belt fasteners '.
The Notification dated January 12, 1952 was a clarification issued in respect of licensing policy for January June, 1952.
Dealing with serial No. 28 of Part 11 which we have extracted just now, the notification stated: "Jackson type oval plate belt fasteners (other than single bolt).
General licences will be granted freely subject to the provisions of Public Notice No. 189 ITC(PN)/51, dated the 28th December, 1951.
Jackson type oval plate single bolt belt fasteners.
No imports will be granted from any source.
" It was not disputed that having regard to the terms of the import licence issued to the appellant the Notification as regards the prohibition against the importation of "Jackson Oval Plate Single Bolt belt fasteners" would apply to the appellant 's licence and these belt fasteners could not be imported after January 1952.
For the import licence specifically stated: "This licence is granted under Government of India, Ministry of Commerce, Notification No. 23 ITC/ 43, dated the 1 st July, 1943, and is without prejudice to the application of any other prohibition or regulation affecting the importation of the goods which may be in force at the time of their arrival." The point, however, sought to be made was that the components of such a belt fastener could still be imported because it was said that the scheme of the Import Trade Control Hand book was to specify wherever it was so intended "component parts" along with the articles of which they formed components, when a restriction or prohibition was intended to be imposed upon them also.
It is, no doubt, true that in some cases component parts are specifically in cluded in some of the items in the Hand book.
It might very well be that this feature might be explained on the ground 67 of the specification being by way of abundant caution, or possibly because in them the component parts might have an independent use other than as components of the articles specified.
It appears to us that it does not stand to reason that a component part which has no use other than as a component of an article whose importation is prohibited is not included in a ban or restriction as regards the importa tion of that article.
Expressed in other terms.
we cannot accede to the position that it is the intention of the rule that importers are permitted to do indirectly what they are forbidden to do directly, and that it permits the importation separately of components which have no use other than as components of an article whose importation is prohibited, and that an importer is thereby enabled to assemble them here as a complete article though if they were assembled beyond the Customs Frontiers the importation of the assembled article into India is prohibited.
Learned Counsel, however, relied upon an unreported judgment of the Bombay High Court delivered by Mr. Justice Mudholkar when a judge of that Court, in Appeal No. 4 of 1959 (D. P. Anand vs M/s. T. M. Thakore & Co.) in support of his submission that a ban on a completed article, having regard to the phraseology employed in the Hand book cannot be read as a restriction or prohibition of the separate importation of the component parts which when assembled result in the article whose import is prohibited.
We do not read the judgment in the manner suggested by learned Counsel.
The learned Judge in the judgment recorded an admission that the articles imported which were components of a motor bicycle, would not when assembled form a complete cycle which was the article whose importation was restricted, because of the lack of certain essential parts which were admittedly not available in India and could not be imported.
The next submission of the learned Counsel was that the decision of the Customs Collector was vitiated by a patent error, in that he misconstrued the scope of Entry 22 of Part 1 of the Import Trade Control Hand book.
In support of this submission the learned Counsel invited our attention to the decision of this Court in A. V. Venkateswaran Collector of Customs.
Bombay vs Ramchand Sobhraj Wadhwani and Anr.(1).
We see no force in this argument.
The decision of this Court referred to proceeded on the basis set out on page 757 of the Report where this Court said: "The learned Solicitor General appearing for the appellant argued the appeal on the basis that the view of the learned Judges of the Bombay ; L/P(D) 3(a) High Court that on any reasonable interpretation of the items in the Schedule to the Tariff Act the consignment imported by the respondent could have been liable only to a duty of 30 per cent under item 45(3) was correct." Learned Counsel cannot therefore derive any support from this decision.
Besides, what we have said earlier should suffice, to show that the conclusion reached by the authority that the offence under section 167(8) has been made out, is not incorrect.
This apart, we must emphasise that a court dealing with petition under article 226 is not sitting in appeal over the decision of the Customs authorities and therefore the correctness of the conclusion reached by those authorities on the appreciation of the several items in the Hand book or in the Indian Tariff Act which is referred to in these items, is not a matter which falls within the writ jurisdiction of the High Court.
There is, here, no complaint of any procedural irregularity of the kind which would invalidate the order, for the order of the Collector shows by its contents that there has been an elaborate investigation and personal hearing accorded before the order now impugned was passed.
Learned Counsel next submitted that the Collector of Customs had taken into consideration the importation of the washers by the Nawanagar Industries Ltd. in arriving at the conclusion that the appellant had violated section 167(8) of the Sea Customs Act and that as in the notice that was served upon him to show cause this was not adverted to, the order adjudging confiscation was illegal and void for the reason that there had been a violation of the principles of natural justice and procedural irregularity in the hearing.
We are not impressed by this argument.
This submission proceeds upon a total misapprehension of the significance of the separate import of the washers by the sister concern.
That import was not and could not be the subject of any charge against the appellants, and the appellants were not punished for that importation.
It was merely evidence to confirm the conclusion reached by the Collector that the nuts and bolts imported were in reality the actual components of the Jack son type belt fastener whose importation was prohibited.
The charge which the appellant was called on to answer did specify the nature of the offence which he was alleged to have contravened, and if evidence which the appellant could have rebutted was brought on record and considered in his presence and that evidence conclusively proved the real nature of the articles imported, there could certainly be no justifiable complaint of violation of the principles of natural justice.
The misdescription of the article imported in the Bill of Entry having practically been admitted and there being 69 not much dispute that the goods imported were really com ponents of the Jackson type single belt fasteners, nothing more was needed to establish a contravention of section 167(8).
The reference therefore to the Nawanagar Industries Ltd. which imported the washers merely confirmed the finding.
In these circumstances we do not consider that there is any substance in this objection.
The result is that this appeal fails and is dismissed with costs.
Appeal dismissed.

dataset_name: IN-Abs

summary:
The appellant who was granted a license to import "iron and steel bolts, nuts, set screws, machine screws and machine studs, excluding bolts, nuts and screws adopted for use on cycles", imported nuts and bolts which were the components of "Jackson Type Single bolt oval plate belts fasteners" which were described in the bill of Entry as "Stove Bolts and Nuts.
" The importation of "Jackson Type Single bolt oval plate belt fasteners" had been prohibited.
When the goods were attempted to be passed through the customs, the collector issued notice to the appellant to show cause why penalties should not be imposed on him(a) for misdescribing the goods and (b) for attempting to import goods without a proper import license.
After receiving his explanation, penalties were imposed on the appellant.
One of the facts which the Collector of Customs bad taken into consideration in arriving at the conclusion that the nuts and bolts imported were in reality the actual components of the prohibited articles was that washers, the third component of the prohibited articles were imported by a firm owned or controlled by close relations of the appellant.
An appeal to the Central Board of Revenue from the order of the Collector imposing the penalties was dismissed.
Thereafter, the appellant filed a writ petition under article 226 of the Constitution in the High Court which was dismissed in limine.
On appeal by special leave: Held: (i) A component part which has no use other than as a component of an article whose importation is prohibited is included in a ban or restriction as regards the importation,of that article.
D. P. Anand vs M/s. T. M. Thakore and Co., Appeal No. 4 of 1959 of Bombay High Court referred to.
(ii) There was no force in the contention that the decision of the Collector of Customs was vitiated by a patent error, in that he misconstrued the scope of Entry 22 of Part 1 of the Import Trade Control Hand book.
A court dealing with a petition under Article 226 is not sitting in appeal over the decision of the Customs Authorities and therefore the correctness of the conclusion reached by those authorities on the appreciation of the several items in the Hand book or in the Indian Tariff Act which is referred to in these items, is not a matter which falls within the writ jurisdiction of the High Court.
63 A. V. Venkateswaran, Collector of Customs, Bombay vs Ramchand Sobhraj Wadhiwani; , , referred to.
(iii)Taking into consideration the importation of washers by another firm was merely evidence to confirm the conclusion reached by the Collector that the nuts and bolts imported were in reality the components of the prohibited article.
The charge which the importer was called upon to answer did specify the nature of offence which he was alleged to have committed and if the evidence which the appellant could have rebutted was brought on record and considered in his presence and that evidence conclusively proved the real nature of the articles imported, there could be no justifiable complaint of violation of the principles of natural justice.


judgement:
ppeal No. 79 of 1962.
Appeal by special leave from the judgment and decree dated February 20, 1958 of the Madras High Court in Second Appeal Lo.
91 of 1955.
M. section K. Sastri and M. section Narasimhan, for the appellants.
K. N. Rajagopal Sastri and B. K. B. Naidu, for respondents Nos. 1 to 4.
March 6, 1964.
The Judgment of the Court was delivered by GAJENDRAGADKAR, C.J.
This appeal by Special leave raises a short question about the correctness, propriety and legality of the decree passed by the Madras High Court in second appeal No. 91.
of 1955.
The respondents had sued the appellants in the Court of the District Munsif of Thiruvaiyaru for a mandatory injunction directing the removal of certain masonry structure standing on the suit site which was marked as A B C D in the plan attached to the plaint and for a permanent injunction restraining the appellants from building upon or otherwise encroaching upon the suit property and from causing obstruction to the right of way of the residents of the village in which the suit property was situated.
According to the respondents, the plot on which encroachment had been caused by the construction of the masonry structure by the appellants was a street and the reliefs they claimed were on the basis that the said property formed part of a public street and the appellants had no right to encroach upon it.
This suit had been instituted by the respondents in a representative capacity on behalf of themselves and other residents in the locality.
The appellants disputed the main allegation of the res pondents that the masonry structure to which the respondents had objected, stood on any part of the public street.
According to them, the plot on which the masonry structure stood along with the adjoining property belonged to them as 51 absolute owners and as such, they were entitled to use it in any manner they pleased.
On these pleadings, appropriate issues were framed by the learned trial Judge and on considering the evidence, findings were recorded by him in favour of the respondents.
In the result, the respondents ' suit was decreed and injunction was issued against the appellants.
The appellants then took the dispute before the Subordi nate Judge at Kumbakonam.
On the substantive issues which arose between the parties, the learned Subordinate Judge made findings against the respondents and in consequence, the decree passed by the Trial Court was set aside.
The learned Subordinate Judge, however, made it clear that it might be open to the respondents to agitate "against any case of customary rights in the nature of an easement in their favour, if they can legally do so, without any bar, and if they are so advised.
" That question was left by him as undecided as it did not arise before him in the present suit.
This decree was challenged by the respondents by preferring a second appeal before the Madras High Court.
BasheerAhmed Sayeed J. who heard this appeal, passed a decree which is challenged before us by the appellants in the present appeal.
All that the learned Judge has done in his judgment is to state that "after a careful consideration of all the issues that arise for decision in this Second Appeal, 1 am of the opinion that the best form in which a decree could be given to the plaintiffs is in the following terms," and then the learned Judge has proceeded to set out the terms of his decree in clauses (1), (2) & (3), the 3rd clause being sub divided into clauses (a), (b) & (c).
As to the costs, the learned Judge directed that parties should bear their own costs throughout.
The appellants contend that the method adopted by the learned Judge in disposing of the second appeal before him clearly shows that the judgment delivered by him cannot be sustained.
Before dealing with this contention, however, it is neces sary to refer to a preliminary objection raised by Mr. Raja gopal Sastri on behalf of the respondents.
He contends that it was open to the appellants to apply for leave to file a Letters Patent appeal against the judgment of the learned Single Judge and since the appellants have not adopted that course, it is not open to them to come to this Court by special leave.
He has, therefore, argued that either the leave granted by this Court to the appellants should be revoked, or the appeal should be dismissed on the ground that this was not a matter in which this Court will interfere having regard to the fact that a remedy available to the appellant under the Letters Patent of the Madras High Court has not been availed of by them.
In resisting this preliminary objection, Mr. M. section K. Sastri for the appellants has relied on the decision of this Court in 52 Raruha Singh vs Achal Singh and Others(1).
In that case, this Court allowed an appeal preferred against a second appellate decision of the Madhya Pradesh High Court on the ground that the said impugned decision had interfered with a finding of fact contrary to the provisions of section 100 of the Civil Procedure Code.
It appears that a preliminary objection had been raised in that case by the respondents similar to the one which is raised in the present appeal, and in rejecting that preliminary objection, this Court observed that "since leave has been ranted, we do not think we can or should virtually revoke the leave by accepting the preliminary objection.
" It is because of this observation that this appeal has been referred to a larger Bench.
It is true that the statement on which Mr. M. section K. Sastri relies does seem to support his contention; but we are satisfied that the said statement should no, be interpreted as laying down a general proposition that if special leave is ranted in a given case, it can never be revoked.
On several occasions, this Court has revoked special leave when facts were brought to its notice to justify the adoption of that course, and so we do not think Mr. M. section K. Sastri is justified in contending that leave granted to the appellants under article 136.
as in the present case, can never be revoked.
The true position is that in a given case, if the respondent brings to the notice of this Court facts which would justify the Court in revoking the leave already granted, this Court would, in the interests of justice, not hesitate to adopt that course.
Therefore, the question which falls to be considered is whether the present appeal should be dismissed solely on the ground that the appellants did not apply for leave under the relevant clause of the Letters Patent of the Madras High Court.
There is no doubt that if a party wants to avail himself of the remedy provided by article 136 in cases where the decree of the High Court under appeal has been passed under section 100 C. P. C., it is necessary that the party must apply for leave under the Letters Patent, if the relevant clause of the Letters Patent provides for an appeal to a Division Bench against the ,decision of a single Judge.
Normally, an application for special leave against a second appellate decision would not be granted unless the remedy of a Letters Patent Appeal has been availed of.
In fact, no appeal against second appellate decisions appears to be contemplated by the Constitution as is evident from the fact that article 133(3) expressly provides that normally an appeal will not lie to this Court from the judgment, decree, or final order of one Judge of the High Court, It is only where an application for special leave against a second appellate judgment raises issues of law of general importance that the Court would grant the application and proceed to deal with the merits of the contentions raised by the appellant.
But even in such cases, it is necessary that the remedy 53 by way of a Letters Patent Appeal must be resorted to before a party comes to this Court.
Even so, we do not think it would be possible to lay down an unqualified rule that leave should not be granted if the party has not moved for leave under the Letters Patent and it cannot be so granted, nor is it possible to lay down an inflexible rule that if in such a case leave has been granted it must always and necessarily be revoked.
Having regard to the wide scope of the powers conferred on this Court under article 136, it is not possible and, indeed, it would not be expedient, to lay down any general rule which would govern all cases.
The question as to whether the jurisdiction of this Court under article 136 should be exercised or not, and if yes, on what terms and conditions, is a matter which this Court has to decide on the facts of each case.
In dealing with the respondents ' contention that the special leave granted to the appellant against a second appellate decision should be revoked on the ground that the appellant had not applied for leave under the relevant clause of the Letters Patent it is necessary to bear in mind one relevant fact.
If at the stage when special leave is granted, the respondent caveator appears and resists the grant of special leave on the ground that the appellant has not moved for Letters Patent Appeal, and it appers that the said ground is argued and rejected on the merits and consequently special leave is granted, then it would not be open to the respondent to raise the same point over again at the time of the final hearing of the appeal.
If, however, the caveator does not appear, or having appeared, does not raise this point, or even if he raises the point the Court does not decide it before granting special leave, the same point can be raised at the time of final hearing.
In such a case, there would be no technical bar of res judicata, and the de cision on the point will depend upon a proper consideration of all the relevant facts.
Reverting then to the main point raised by the appellants in this appeal, we do not think we would be justified in refus ing to deal with the merits of the appeal solely on the round that the appellants did not move the learned single Judge for leave to prefer an appeal before a Division Bench of the Madras High Court.
The infirmity in the judgment under appeal is so glaring that the ends of justice require that we should set aside the decree and send the matter back to the Madras High Court for disposal in accordance with law.
The limitations placed by section 100, C.P.C., on the jurisdiction and powers of the High Courts in dealing with second appeals are well known and the procedure which has to be followed by the High Courts in dealing with such appeals is also well established.
In the present case, the learned Judge has passed an order which reads more like an award made by an arbitrator who, 54 by terms of his reference, is not under an obligation to give reasons for his conclusions embodied in the award.
When such a course is adopted by the High Court in dealing with second appeals, it must obviously be corrected and the High Court must be asked to deal with the matter in a normal way in accordance with law.
That is why we think we cannot uphold the preliminary objection raised by Mr. Rajagopal Sastri, even though we disapprove of the conduct of the appellants in coming to this Court without attempting to obtain the leave of the learned single Judge to file a Letters Patent Appeal before a Division Bench of the Madras High Court.
Therefore, without expressing any opinion on the merits of the decree passed in second appeal, we set it aside on the ground that the judgment delivered by the learned judge does not satisfy the basic and legitimate requirements of a judgment under the Code of Civil Procedure.
The result is, the appeal is allowed, the decree passed by the High Court is set aside and second appeal No. 91 of 1955 is sent back to the Madras High Court with a direction that it should be dealt with in accordance with law.
The costs of this appeal would be costs in the second appeal.
Appeal allowed.

summary:
The respondents brought a suit for a mandatory injunction directing the removal of certain masonry structure on suit site and for a permanent injunction restraining the appellants from encroaching upon the suit property and from causing obstruction to the right of way of the residents of the village.
They claimed that the suit property formed part of a public street and the appellants had no right to encroach upon it.
The appellants claimed the suit property as absolute owners and as such, they were entitled to use it in any manner they pleased.
The trial.
Court decreed the suit.
On appeal, the learned Subordinate Judge set aside the decree.
On challenge of this decree by the respondents in second appeal before the High Court, the learned single Judge passed a decree in their favour.
All that the learned Judge stated in his judgment was that "after a careful consideration of all the issues that arise for decision in this second appeal, I am of the opinion that the best form in which a decree could be given to the plaintiffs is in the following terms" and then he proceeded to set out the terms of his decree.
On appeal by Special Leave the appellants contended that the method adopted by the learned Judge in disposing of the second appeal before him clearly shows that the judgment delivered by him cannot be sustained.
The respondents, raised a preliminary objection that since the appellants did not avail themselves of the remedy available to them under the Letters Patent of the High Court either the special Leave granted by this Court should be revoked, or the appeal should be dismissed.
Held: It would not be possible to lay down an unqualified rule that special leave should not be granted if the party has not moved for leave under the Letters Patent and it cannot be so granted, nor is it possible to lay down an inflexible rule that if in such a case special leave has been granted, it must always and necessarily be revoked.
Having regard to the wide scope of the powers conferred on this Court under article 136, it is not possible and, indeed, it would not be expedient, to lay down any general rule which would govern all cases.
The question as to whether the jurisdiction of this Court under article 136 should be exercised or not, and if yes, on what terms and conditions, is a matter which this Court has to decide on the facts of each case.
50 Raruha Singh vs Achal, A.I.R. 1961, S.C. 1097, referred to.
In the present case, the learned Judge passed an order which reads more like an award made by an arbitrator who, by terms of his reference, is not under an obligation to give reasons for his conclusions embodied in the award.
When such a course is adopted by the High Court in dealing with second appeals, it must obviously be corrected and the High Court must be asked to deal with the matter in a normal way in accordance with law.
Therefore, the decree passed in second appeal, must be set aside on the ground that the judgment delivered by the learned Judge did not satisfy the basic and legitimate requirements of a judgment under the Code of Civil Procedure.