judgement:
Appeal No. 306 of 1961.
198 Appeal by special leave from the Judgment and order dated May 16.
, 1959, of the Industrial Court Bombay, in Appeal (I.C.) No. 90 of 1959.
J.P. Mehta and I.N. Shroff, for the appellant.
N.M. Barot, Secretary, Labour Association, for the respondent No. 3. 1962.
February 15.
The Judgment of the Court was delivered by GAJENDRAGADKAR, J.
The appellant, the Fine Knitting Co. Ltd., was incorporated in 1908 and its principal activity then Was to Manufacture hosiery.
In 1924, when the appellant shifted its factory from.
Barejadi to Ahmedabad, it installed spinning machinery with 9000 spindles with a view to ensure suitable and even supply of yarn for its hosiery manufacture.
On May 30, 1939, the Government of Bombay issued a notification under the Bombay Industrial Disputes Act, 1938 (No. XXV of 1938), whereby hosiery concerns were included in the definition of 'Cotton Textile Industry '.
Subsequently on July 17, 1945, another notification was issued as a result of which the hosiery manufacture was excluded from the Cotton Textile Industry and it was covered by a separate notification issued under the said Act.
This latter notification which was made applicable to the Hosiery Industry specified that the said notification inter alia, to all concerns using power and employing twenty or more persons which are engaged in the manufacture of hosiery or other knitted articles made of cotton and all processes incidental or supplementary thereto.
After this notification was issued, the appellant ceased to be covered by the extended and inclusive definition of the 'Cotton Textile Industry ' and was recognised as a Hosiery concern being engaged in the Manu facture of hosiery.
Later, in 1946, the Bombay Industrial Relations Act, 1946 (No. XI of 1947) (hereinafter called the Act.), was applied to the 199 industries to which the Bombay Industrial Disputes Act bad been applied, as a result of s.2(3) of the former Act.
In consequence, for the purposes of the Act, the appellant concern was recognised as an undertaking of the Hosiery Industry under section 11 This was the result of notification No. 10 of 1948, issued by the Registrar under the Act.
This position was recognised by the Industrial Tribunal in indus trial adjudications concerning disputes between the appellant and its workmen.
Even so, respondent No. 3, the Textile Labour Association, Ahmedabad, sought to reopen the issue by applying by to the Registrar on October 16 1953, that the appellant 's factory should be recognised as an undertaking both in the Cotton Textile Industry and the Hosiery Industry.
The Registrar who is the second respondent in the present appeal hold an enquiry and ultimately came to the conclusion that there was no justification for splitting up the concern into two units and recognising them as suggested by the third respondent.
The third respondent did not prefer an appeal against the said decision of the second respondent; but respondent No. 4 who are the five elected representatives of the employees of the appellant sought to challenge the said decision of the second respondent by preferring an appeal to the Industrial Court, respondent No. 1.
The appellant contended that respondent No. 4 were not entitled to prefer an appeal because they were not parties to the proceedings in the original application before the second respondent.
This preliminary objection was upheld and the appeal preferred by respondent No. 4 was dismissed.
The result was that the order passed by the Registrar rejecting the application made by respondent No. 3 concluded the dispute.
Even while the said appeal was pending before the first respondent, respondents Nos. 3 and 4 200 initiated the present proceedings by means of two applications made before the second respondent in which the same relief was claimed that the appellant concern should be recognised as an undertaking both in the Cotton Textile Industry and in the Hosiery Industry.
The second respondent, however, rejected these applications on the ground that since he gave his earlier decision, there had been no change of circumstances and so there was no justi fication for reconsidering the matter over again.
The third and the fourth respondents then went in appeal before the first respondent and their appeals were allowed by the first respondent and a direction was issued that the appellant company should be recognised as two undertakings one in the Cotton Textile Industry and the other in the Hosiery Industry.
The appellant then moved the High Court of Bombay under Articles 226 and 227 of the Constitution and challenged the validity of the order passed by the first respondent.
, In the High Court the parties took an order by consent on August 20, 1958.
As a result of this consent order, the direction issued by the first respondent was set aside and the matter was remanded to the second respondent to enable him to hold a fresh enquiry and to dispose of the dispute between the parties in accordance with law.
On February 14, 1959, the second respondent pronounced his decision.
He came to the conclusion that in the circumstances disclosed on evidence, the best courts would be to recognise the spinning and hosiery sections of the appellant company as two separate undertaking and treat them as two separate enterprises.
That is why under section 11(1) he decided to recognise the Fine Knitting Co. Ltd. (Hosiery Section) and the Fine Knitting Co. Ltd. (excluding Hosiery Section) as undertakings in the Hosiery Industry and the Cotton Textile Industry respectively The appellant was aggrieved by this order and so is preferred appeals before the first 201 respondent.
The respondents Nos. 3 and 4 also challenged the decision of the second respondent and contended that the entire concern of the appellant should be treated as Cotton Textile Undertaking.
All the three appeals failed and the first respondent confirmed the order passed by the ,second respondent.
The result is that the appellant concern is recognised as consisting of two undertakings, the Hosiery Section and the rest excluding the Hosiery Section.
It is against this order of the first respondent that the appellant has come to this Court by special leave.
The first point which Mr. Mehta has strenuously urged before us on behalf of the appellant is that on a proper application of the tests laid down by this Court, it should be held that the spinning and the Hosiery Sections in the appellant 's establishment are one concern and in support of this argument he has referred us to the decisions in the Associated Cement Companies Ltd. vs Their Workmen(1), Pratap Press vs Their Workmen (2) and Pakshiraja Studios V.
Its Workmen (3).
This question has been recently considered by this Court in the case of the Honorary Secretary, The South India Millowners ' Association vs ' The Secretary,Coimbatore District Textile Workers ' Union, Coimbatore (1).
in which judgment has been pronounced on February 1, 1962.
In the last mentioned case, this Court has examined the relevant earlier decisions and has come to the conclusion that though the question about the unity of two industrial establishments has to be considered in the light of the relevant tests laid down from time to time, it would be unreasonable to treat any one of the said tests as decisive.
As has been observed in that case, in dealing with the problem, several factors are relevant, but it must be remem bered that the significance of the several factors (1) [1960) I S.C.R. 703.
(3) [19611 (2) [1960] I. L.L,J. 497.
(4) [1962] Supp. 2 S.C R. 925 202 would not be the same in each case nor their importance.
It is in the light of these decisions that the point raised by Mr. Mehta has to be considered .
Mr. Mehta contends that in the present case there is unity of ownership and as a necessary corollary, there is unity of management , supervision and control; there is unity of purpose and design and he argues that there is complete functional integration.
According to him , as no hosiery could be maufactured without yarn, there is such a functional unter dependence between the cannot exist without the former.
There is also unity of finance and in consequence, there is one capital and depreciation fund account, of expenditure and income, one balance sheet and one profit and loss account .
There is also unity of employment and the two concerns functions under the same roof; so there is unity of habitiation .
It is on these grounds that Mr.
Mehta contends that the first and the second respondents were in error in splitting up the appellant 's establishment into two sections and recoginsing them separately as such.
In dealing with the significance and the effect of the factors on which Mr.
Mehta has righlty relied it is necessary to bear in mind certain other relevant factors on which the decision under appeal is substantially based.
It is true that in 1924, the spinning section of the establishment may have begun as a subsidiary to the hosiery section and in order to serve as its feeder.
But the evidence on the record clearly shows that the position is now reversed and that the spinning section has now assumed major importance and hosiery takes a minor place in the industrial activities of the app minor place in the industrial activities of the appellant.
The inspection notes made by the second respondent show that it was admitted by the 203 management that the spinning, section has now developed to such an extent that it is like aspinning mill by itself; it can no longer be regarded as a minor, section attached to the hosiery works.
It was conceded before the second respondent that only about 20% of the yarn manufactured in the spinning section is consumed for hosiery purposes while the rest is available to be sold in the market.
The production.
figures in the spinning section and the consumption of the yarn produced in that section unmistakably point to the fact that the spinning section is no longer a minor department run by the appellant solely for the purpose of its hosiery section.
ID 1955 in the months of November and December, the production in the Spinning department was worth Rs. 1,17,742 whereas whatever was consumed in the knitting department was only Rs. 23,817 leaving a balance which was sold for Rs. 93,925.
The corresponding figures for the year, 1956 are Rs. 6,70,854, Rs. 1,40,105 and Rs.5 30,749.
Similar figures for 1957 are Rs.8, 17, 153, Rs. 1,31,725 and Rs. 7,04,018 and for 1958 are Rs. 6,68,095, Rs. 1,26,252 and Rs. 5,40,873.
The balance sheet for the year 1954 shows that the total hosiery sale was worth Rs. 2,37,232 6 0 whereas the total yarn sale was worth Rs. 14,82,705 5 0.
Similarly, for the year.
1955, the, hosiery sale was kW. 2 56,986 and the yarn :sale was Rs. 14,44,929.
strength of the employees engaged in the two respective sectors tells the same story.
The table prepared by the second respondent from the information supplied by the management shows that for the year 1955, spinning employees were 174, hosiery employees 56 and the common workmen 35.
For the year 1956, the figures were 217, 54 and 38; for 1957, the figures were 194, 65 and 38; and for 1958 the figures were 178, 60 and 32.
Mr. Mehta quarrels with some of these figure but does not dispute the broad conclusion which is drawn from the figures that the number of employees engaged in the spinning section is far more 204 than that employed in the hosiery section.
Thus, there can be no doubt that the spinning activity of the, appellant which may have begun as subsidiary to the hosiery activity has now grown in importance and has taken a place of pride in the industrial activity of the appellant considered as a whole; it can no longer be regarded as subsidiary to hosiery.
It is common ground that by the notification issued under the Cotton Textile (Control) Order, 1948, the appellant is called upon to supply to the Government the prescribed quantity of yarn produced by the spinning department.
It is unnecessary to refer to the details of the order or to the extent of the yarn required to be supplied by the appellant under it.
What is significant is the fact that by the application of the order issued in that behalf, the Government has treated the appellant as a producer who has a spinning plant and in that sense, the existence of the spinning activity of the appellant has been treated as an independent activity liable to be controlled by the notification issued under the Cotton Textile (Control) Order, 1948.
Then as to the argument that the spinning and the hosiery are functionally integrated, it is clear that hosiery can exist without spinning, provided the industry engaged in hosiery purchases yarn required for the purpose of hosiery.
That is one aspect of the matter.
But the more important aspect on which reliance has been placed against the appellant is that the appellant 's spinning department produces yarn of all counts some of which would admittedly not be useful for hosiery work.
When the appellant was asked whether the allegation made by respondents Nos. 3 and 4 in that behalf was true or not, the management of the app ellant hesitatingly denied the said allegation.
But an advertisement published in the local daily "Sandesh" was produced by respondents Nos.
3 205 and 4 and it clearly showed that yarn of all counts was offered by the appellant for sale in the general market.
Therefore, it would be idle to contend that the spinning work carried on in the spinning department is meant exclusively or solely for the hosiery department.
If the spinning department produces yarn which is not useful or necessary for, and which cannot be used by, the hosiery sections the only inference is that the spinning department is working on its own and is producing yarn to be sold in the market.
That being so, the argument of functional inter dependence or integrality cannot be treated as valid.
Besides, it is not disputed that when the knitting department was closed in 1948, the spinning department was not.
If the two departments are functionally inter dependent, the closure of the one without the closure of the other may need an explanation.
The explanation which has appealed to the first and the second respondents apparently is that though the spinning work carried on by the appellant may, to some extent, be useful for the hosiery work, the major part of its work is carried on independently with an eye on the market and so the closure of the hosiery cannot and did not affect the continuance of the spinning department.
There is yet another circumstance on which considerable reliance has been placed by the first and second respondents in rejecting the appellant 's contention that the two departments constitute one unit.
This circumstance refers to the conduct of the appellant itself in dealing with the employees engaged in spinning and in knitting departments.
It is admitted that the minimum wages paid to the employees in knitting differed from the minimum wages paid to the employees in spinning and so does the amount of dearness allowance paid to the respective employees differ.
It is difficult to understand how an employer can make a distinction ui 206 the payment of minimum wages between one class of employees and another if both the classes of employees are engaged in different departments Of the same establishment or concern.
If there is unity of employment and unity of purpose and design as suggested by Mr. Mehta, it is inconceivable that the employees engaged in two departments integrally connected with each other and constituting one unit would be paid different minimum wages.
What is true about the minimum wages and the dearness allowance is also true about the bonus.
It appears that even in years in which the appellant made profits and actually paid bonus to the work men employed in the spinning department, no bonus was paid to the employees engaged in the knitting department.
That again can be explained and justified only on the basis that the appellant treated the two departments as distinct and separate and so the employees in the one got bonus and not the employees in the other.
It was suggested by Mr. Metha that the genesis of the present dispute lies in the anxiety of the third respondent to take within its jurisdiction the employees engaged by the appellant in its spinning depart ment.
On the other hand, Mr. Barot for respondents Nos. 3 and 4 contends that the present trouble arose because the appellant began to deny to its employees in the spinning department the benefits of all relevant conditions of service which were applicable to the employees in the Textile Industry in Ahmedabad.
Whatever may be the background of the dispute and its genesis, it is clear beyond doubt that the way in which the appellant has treated its employees in spinning is distinguished from its employees in knitting leads very strongly to the inference that the, appellant treated the two departments not as one unit but as separate units each one functioning on its own and independently of the other.
It is in the light of these circumstances that 207 the first and the second respondents were not impressed by the relevant factors on which the appellant relied in support of its plea of the unity of the two activities and came to the conclusion that the two activities were separate and as such, as must be separately recognised under, section 11.
We do not see how the appellant can successfully challenge the correctness of this conclusion.
There is one more point which yet remains to be considered.
Mr. Metha argues that the impugned order recognising two different undertakings under section 11(1) is not justified by the provisions of the statute.
Section II provides that the Registrar may, after making such inquiry as he deems fit, recognise for the purposes of the Act (1) any concern in an industry to be an undertaking ; (2) any section of an undertaking to be an occupation.
The argument is that section II (1) does not authorise the splitting up of a concern into two undertakings.
A concern, says Mr. Metha, is the whole of the concern or establishment run by the appellant and as such it has to be recognised as one undertaking in so far as the order under appeal treats the appellant 's concern as two undertakings, it is contrary to section 11(1).
We are not impress,, (I by this argument.
The appellant is undoubtedly engaged in the hosiery industry and that part of its business cannot be recognised as Cotton Textile Industry because it is a concern engaged in spinning only which can be recognised under that category.
If that is so, industrial activity of the appellant in relation to hosiery industry must be recognised separately from the textile undertaking.
If one concern or company carries on several businesses or undertakes different types of industrial works, these businesses or works would amount to separate enterprises or undertakings and would have to be 208 recognised as such.
In fact, if the appellant itself has been treating the two kinds of work separately and has thus split up its whole business into two independent sections, it is not easy to understand why the Registrar cannot recognise the existence of two undertakings carried on by the appellant and treat the said undertakings as such.
We see no justification for the assumption made by Mr. Metha that section II (1) does not permit the recognition, of several undertakings carried on by the same company separately.
It all depends on whether the undertakings are separate, distinct and independent of each other or are functionally integral or inter dependent.
In the former case, the Registrar would be, justified in treating the several undertakings separately while in the latter case, he may recognise all of them as one undertaking.
There is one minor point to which reference may incidentally be made.
It appears that before the first respondent, it was urged by the appellant that the present applications made by respondents Nos. 3 and 4 were barred by res judicata.
The argument was that since the second respondent had on an earlier occassion considered the merits of the case and refused to grant the request made by the third respondent for recognising the two undertakings separately, the same question could not be re agitated again before the same authority.
In our opinion, there is no substance in this argument.
As we have already pointed out, when the second respondent passed his earlier order, an appeal was preferred against the said order by the fourth respondent before the first respondent.
That appeal was, however, dismissed on the ground that the fourth respondent was not party to the proceedings before the second respondent and, therefore, he could not prefer an appeal.
If the fourth respondent had no right to make an appeal because he was not a party.
to the said.
proceedings, it is difficult to see, how he can 209 be precluded from making the present application on the ground of res judicata.
At the highest, a plea of res judicata pay perhaps be raised against the third respondent but that would not be effective in view of the fact that in the present case, an application has been made by the fourth respondent as well.
That is why Mr. Mehta did not seriously press the point of res judicata before us.
In the result, fails the appeal and is dismissed with costs.
Appeal dismissed.

summary/full:
The appellant Company was incorporated in 1908 and its principal activity then was to manufacture hosiery.
In 1924 when the appellant shifted its factor to Ahmedabad it installed spinning machinery with a view to ensure suitable and even supply of yarn for its hosiery manufacture.
Originally, a notification had been issued on May 30, 1939, under the Bombay Industrial Dispute Act, 1938, whereby hosiery concerns were included in the definition of "Cotton Textile Industry",, but subsequently on,July 17, 1945, another notification was issued as a result of which the Hosiery manufacture was excluded from the Cotton Textile Industry and it was covered by a separate notification.
For the purposes of the Bombay Industrial Relations Act, 1946, the appellant concern was recognised as an undertaking of the hosiery industry by the Registrar under section II of that Act.
Subsequently as a result of certain proceedings taken by the Textile Lobour Association of Ahmedabad, the Registrar decided 197 to recognise the appellant concern as consisting of two undertakings, the hosiery section and the rest excluding the hosiery section and this decision was confirmed by the Industrial Court.
The appellant challenged the order of the Industrial Court on the grounds (1) that the spinning and the hosiery sections in its establishment were one concern because (a) there was unity of ownership, management, supervision, con trol and employment, (b) there was complete functional integration, and (c) the two sections were functioning under the same roof, and (2) that, in any case, section 11 of the Act did not authorise the splitting up of a concern into two undertakings.
The evidence showed that though in 1924 the spinning section had begun as a subsidiary to the hosiery section in order to serve as its feeder, later on the spinning section developed to such an extent that it became a spinning mill by itself and could no longer be regarded as a minor section attached to the hosiery works, that only 20% of the yarn manufactured by the spinning section was con sumed for hosiery purposes while the rest was sold in the market, that the spinning department produced yarn of all counts, some of which could not be used for hosiery work, that when the knitting department was closed in '1948, the spinning department was not.
It was also found that the amount paid to the employees in each of the two departments by way of minimum wages and dearness allowance was different.
Held, that the decision of the Registrar recognising the hosiery and spinning departments of the appellant concern as separate undertakings under s.11 of the Bombay Industrial Relations Act, 1946, was correct, Held, further, that the question whether the several undertakings carried on by the same company are separate or not depends on whether they arc distinct and independent of each other or are functionally integral or inter department and that the Registrar was within his powers under section II of the Act to come to a decision on this question on the basis of the circumstances disclosed on evidence.
Associated Cement Companies Ltd. vs Their Workmen, (1960) 1 S.C.R.703, Pratap Press vs Their Workmen, (1960) 1 L. L. J. 497 Pakshiraja Studios vs Its Workmen.
and Honorary Secretary, The Soath India Millowrers 'Asso ciation vs The Secretary Coimbatore District Textile Workers ' Union, Coimbotore (1962) Supp. 2, S.C.R. 926 relied on.


judgement:
Appeal No. 131 of 1961.
Appeal from the judgment and decree dated September 30, 1957, of the Kerala High Court in Appeal suit No. 19 of 1956 (T).
T. N. Subramania lyer, R. Mahalingier and M.R. Krishna Pillai, for the appellant.
V. A. Seyid Muhammed for the respondent.
September 14.
The judgment of the Court was delivered by KAPUR, J.
It is not necessary for me to give the facts of this case as they are set out in detail in the 65 judgments of my learned brethern Sarkar & Hidayatullah, JJ.
In my opinion this appeal should be dismissed and my reasons are these On the findings of the High Court it appears that the Bank had agreed to allow an overdraft to defendant No. 1 for Rs. 20,000/ , that the appellant gave a surety bond for the repayment of Rs. 25,000/ and when that was pointed out to defendant No. 1, the principal debtor, lie (the latter) made the alteration in the document by reducing the figure of Rs. 25,000/ to Rs. 20,000/ The case of the appellant was not that he never stood surety for defendant No. 1 but that he stood surety for Rs. 25,000/ which was subsequently altered to Rs. 20,000/ and that any change of figure was a material alteration resulting in the avoidance of the contract, even though the alteration might have been advantageous to him, the obliger.
It was argued that howsoever innocent the obligee might be or howsoever innocent the alteration might have been made so far as it is material the non accepting obliger the appel lant in this case cannot be held liable on the obligation in the altered form because he never made be consented to such an obligation and he can not be held liable on the obligation in the original form because the obligation was never assented to by the creditor respondent Bank.
Now an unauthorised material alteration avoids a contract so that if a promisee after a written contract has been executed materially alters it without the consent of the promisor whether by adding anything to the contract or striking out any part of it or otherwise the contract is avoided as against the person who was otherwise liable upon it (Halsbury 's laws of England, 3rd Edn., Vol. 8, para 301, p. 176).
It may also be taken to be the law that even if the alteration is made by a stranger without the knowledge of the promisee the other party is discharged if the contract is in possession of the promisee or his agent.
But if the contract is altered 66 by a stranger when the contract was not in the custody of the promisee the promisor is not discharged.
(Halsbury 's Laws of England, 3rd Edn., Vol. 8, para 301, p. '176).
There is also a further qualification and that is that if a guarantor entrusts a, letter of guarantee to the principal borrower and the principal borrower makes an alteration without the assent of the appellant then the Guarantor is liable because it is due to the act of the guarantor that the letter of guarantee remains with the principal debtor, in this case defendant No. 1, and what the principal debtor did will estop the guarantor from pleading want of authority (Williston on Contract, Vol.
para 1914, P.5354).
Thus the position in the present case comes to this.
The appellant agreed to stand surety for an overdraft allowed by the respondent Bank to the principal debtor, Shankaran.
The Bank required a guarantee in the form which was handed over to the principal debtor, Shankaran.
Shankaran got it filled by the appellant for a sum of Rs. 25,000/ .
The Bank did not accept the guarantee up to that limit but wanted the figure to be corrected i.e. by insertion of Rs. 20 000/ .
The document was there upon handed back to the principal debtor who, it is stated, altered the document.
At that stage the principal debtor was acting for and on behalf of the appellant because it was at his instance that the appellant was standing surety and the appellant handed over the deed of guarantee to the principal debtor for the pur poses of being given to the balik, the respondent.
In these circumstances the avoidance of contract by material alteration is in applicable because the document was not altered while in possession of the promisee or its agent but was altered by the principal debtor who was at the time acting as the agent of the guarantor, the appellant.
In these circumstances the plea of material alternation is of no avail to the appellant and the 67 appeal must therefore fail and is dismissed but no order as to costs.
SARKAR, J.
This appeal arises out of a suit filed by the respondent Bank against the appellant as the guarantor and one Sankaran as the principal debtor, to recover moneys advanced to the latter on an overdraft account.
The suit was decreed against Sankaran by the trial Court and he never, appealed from that decree.
We will, therefore, be concerned in this appeal only with the claim against the appellant.
The suit against the appellant was based on a letter of guarantee dated May 24, 1947.
It was stated in the plaint that by this letter of guarantee the appellant had undertaken to repay to the Bank the balance due on the overdraft account opened in favour of Sankaran, up to a maximum of Rs. 20,0001/ which was also the maximum amount for which the overdraft had been arranged.
The appellant 's defence to the suit was that he had agreed to guarantee the liability of Sankaran on the overdraft up to Rs. 5,000/ and had signed the letter guaranteeing thereby repayment up to that sum but the letter had been altered .without his consent by substituting Rs. 20,000/ for Rs. 5,000/ .
The appellant contended in the courts below that as this was a material alteration of the instrument of ' guarantee.
he was absolved of ill liability on it.
The trial court found, that the amount guaranteed had originally been mentioned in the letter as Rs. 25,000/ and this had been altered without the consent of the appellant to Rs. 20,000/ .
It observed that as it was not disputed that the alteration was material, the suit against the appellant had to be dismissed and passed a decree accordingly, obviously in the view that the alteration had avoided the instrument.
The respondent Bank then appealed to the High Court of Kerala, the High Court agreed with the trip 68 court that the letter of guarantee originally mentioned Rs. 25,000/ and this figure was later altered to Rs.20,000/ without the consent of the appellant.
It .added that probably the alteration had been made by the principal debtor, Sankaran.
It however held that the appellant had mentioned Rs. 25,000/ in the place of Rs. 20,000/ in the letter probably by a mistake and that the alteration had been made in order to carry out the common intention of Sankaran, the appellant and the Bank that for the overdraft accommodation of Rs. 20,000/ allowed to Sankaran the appellant would give a letter of guarantee to the Bank.
In this view of the matter the High Court, relying on the principle contained in section 87 of the , passed a decree against the appellant.
The appellant has come up to this Court in appeal against the judgment of the High Court.
Unfortunately, the Bank, for reasons unknown to us, has not appeared in this appeal.
Dr. Seiyid Muhammed argued the case for the Bank at our request and has rendered us great assistance.
Now, the provision of the on which the High Court relied in terms applies to a negotiable instrument which a letter of guarantee is not.
The principle of that provision may however be of wider application.
That principle has been formulated in Halsbury 's Laws of England, 3rd edn., vol.
11, p. 370, in the following words : "An alteration made in a deed, after its execution, in some particular which is not material does not in any way affect the validity of the deed;. . .
It appears that an alteration is not material . . . 'Which carries out the intention of the parties already apparent on the face of the deed.
It is now well settled that, this principle applies to instruments under hand also : see ibid 69 p. 380, f. n. (c) and Master vs Miller, (1791) 4.
Term Rep. 320.
The question then is, was the alteration in the letter of guarantee of the kind contemplated by this principle.
The learned judges of the High Court thought it was and so held that the letter of guarantee as altered could be enforced.
I am unable to accede to that view.
It seems to me that the intention to carry out which an alteration is permissible under the rule on which the High Court has relied, is the intention with which the instrument was executed.
That is why in formulating the rule it has been stated in Halsbury 's Laws of England that the intention has to be "already apparent on the face of the deed".
I need only refer to the observation of Le Blanc, J., in Knill vs Williams(1) in support of this proposition, "If I had thought that there was any evidence on which the jury might have found that the words afterwards added had been originally intended to have have been inserted, and were omitted by mistake, I 'Should certainly have left it to them so to find; the case of Kershaw vs Cox(2) being then fresh in my mind; but.
according to my recollection of the evidence, it was impossible for them to draw that conclusion from it.
The opinion which I delivered in Karshaw vs Cox can only be supported on the ground that the alteration there made in the bill the day after it was negotiated was merely the correction of a mistake made by the drawer of it, in having omitted the words, 'or order ', which it was intended at the time should be inserted.
" The two cases on which the learned judges of the High Court relied are also cases where the mistake was in writing the instrument.
In Lachmi Rai vs Srideo Rai(3) it was found that "the omission regarding the payment of interest was accidental" and in Ananda Mohan Saha vs Ananda Chandra Naha(4) where (1) ; (1809) 10 East. 931; (2) 3 Esp.
N. Cas. 246.
(3) A. I. R. 1939 All.
(4) (1916) 1.
L. R. 70 the instrument originally provided for interest on 'a loan of Rs. 200/ at Rs. 1/ per mensem and had been altered by the addition of the words "per cent", ' it was said "that it was the intention of the parties, as ' it seems to me to be obvious upon reading the document, that interest was to be paid at the rate of 'one rupee per cent.
per mensem".
It seems to me that if it were not so and the intention contemplated in the rule could be gathered from a pre existing agreement alone without caring to find out the intention with which the instrument was executed, then there would be no justification for the rule.
It would then warrant the alteration of an instrument intentionally written in variance with the pre existing agreement which a person was in law free to do, by the other party to it.
That would amount to making a new contract out of a written instrument by unilateral action and in disregard of the intention of the writer.
For such a position our laws make no provision.
It may be that a person who writes a document in terms which deliberately depart from the agreement pursuant to which it is written, may be liable on that agreement but he cannot be made liable on the document as altered by the other party to the agreement alone even though such alteration makes the document consonant with the agreement.
Now there is absolutely no evidence in this case that in writing the letter of guarantee the appellant had intended to mention the maximum amount of guarantee as Rs. 20,400/ and had by mistake written Rs. 25,000/ instead.
In holding that there was such a mistake, the High Court proceeded purely on the basis of conjecture which is evident from the language used by it.
It said, "probably defendent 2" (the appellant) "made a mistake in Ext.
C" (the letter of guarantee).
There was not the slightest warranty for; this conjecture.
In fact the evidence indicates that Rs. 25,000/ had been mentioned intentionally in the letter of guarantee.
That evidence was given by the 71 Banks agents too.
, He said that the overdraft arrangement commenced on February 24, 1947, when Sankaran executed a promissory note for Rs. 20,O00/ in favour of the Bank.
At that time the appellant was not available to sign the letter of guarantee.
The letter was typed by the Bank with blank spaces left for entries to be made by the guarantor regarding the maximum limit of the account, the rate of interest, and the date.
Sankaran brought this letter back to the Bank in May 1947.
At that time the space for the amount of the limit was filled up with the figure Rs.25,000/ .
Sankaran said that he required Rs.25,000/ and would renew the promissory note for that amount.
The Bank was not prepared to advance to him more than Rs. 20,000/ and so the letter of guarantee was returned to Sankaran who then took it away and brought it back some time later with the amount of the maximum limit corrected to Rs. 20,000/ .
This is all the evidence on the question.
I think it right to point out here that the Bank 's agent did not speak to any oral agreement with the appellant, nor indeed to any interview with him concerning the overdraft arrangement or the guarantee.
The appellant in his written statement no doubt admitted that he had agreed to guarantee the due repayment of the overdraft up to Rs. 5,000/ .
He did not however say that the agreement was verbal but mentioned the letter of guarantee.
The appellant 's admission can of course be taken against him but it must be taken as made and not a part of it only.
Again, no verbal agreement concerning the guarantee had been pleaded anywhere by the Bank, not even in the application that it filed in answer to the.
written statement of the appellant alleging that the letter of guarantee, having been materially altered no suit lay on it.
, Lastly, I have to observe that the trial court did not find,that any such oral agreement had been made.
If there ' had been any agreement, the letter of guarantee as typed.
out would have contained no blanks.
72 In these circumstances it is impossible to hold that there was any prior agreement about the guarantee or its limit, between the appellant and the Bank, and if there was not, the High Court 's view that in the letter of guarantee Rs. 25,000/ had been mentioned by mistake, would lose its foundation.
But even assuming a preexisting verbal agreement and in this case the agreement, if any, could only be verbal the fact that Sankaran made a request that the amount of the overdraft should be increased to Rs. 25,000/ would rather indicate that the letter of guarantee had intentionally stated Rs. 25,000/ as the amount of guarantee and this figure had not been written by any mistake.
It would be impossible to hold on this evidence that there had been any mistake in writing the letter of guarantee.
The evidence does not prove any pre existing agreement and tends to prove that there ha been no mistake in writing the letter of guarantee even if there was an agreement.
Therefore it seems to me that the High Court was in error in thinking that the alteration in this case had been made to carry out the intention of the parties.
The principle underlying section 87 of the has no application to the facts of this case.
Dr. Seiyid Muhammed, however, put the matter from another point of veiw.
He said that in order that an alteration in an instrument made without a party 's knowledge might be avoided against him that alteration had to be material and in support of it he referred us to a passage in Halsbury 's Laws of England 3rd Ed., vol.
11, p. 380.
He then said that no alteration could be material unless it was to the prejudice of a party.
He pointed out that the alteration in the present case had reduced the limit of the appellant 's liability from Rs. 25,000/ to Rs. 20,000/ and it was not therefore a material alteration.
Hence he contended that the letter of guarantee had not been avoided by the alteration.
I do not think that this contention assists the Bank at all.
I will assume that an alteration in an 73 instrument which is not to the prejudice of a party to it is not a material alteration and does not release him from his liability under the instrument.
This rule however does not make the instrument as altered binding on that party.
If it did, that would amount to changing by unilateral action the terms of a contract made by common consent or to changing the terms of an offer made by one without his consent.
As I have earlier said, none of these things can be done under our law.
I may add that I have not been able to find any authority laying down that in such a case the altered instrument would be binding.
All that we would get in this case if Dr. Seiyid Muhammed is right, is that the alteration might be ignored and, the instrument in its original form might be considered as existing unaffected by the alteration.
In the present case, therefore, we would have a letter of guarantee written by the appellant undertaking to repay the balance due by Sankaran on the overdraft account up to a limit of Rs. 25,000/ .
What then ? The suit is not on a contract to guarantee up to Rs. 25,000/ .
Indeed according to the Bank 's pleading and evidence there never was any agreement for such a guarantee between it and the appellant.
The letter, therefore cannot be considered as evidence of such a contract.
Further the evidence to which I have already referred proves that as an offer, the letter was not accepted by the Bank.
In fact the letter in its original form is of no assistance to the Bank at all in this case, it neither proves a guarantee for Rs. 25,000/ nor for Rs. 20,000/ .
But it is said that the letter contained an enforceable contract as it was supported by consideration which had already moved from the Bank, namely, the advance made to Sankaran before the date of the letter and the promise to make further advances.
Then it is said that inadequacy of consideration does not avoid a contract as stated in Explanation 2 of section 25 of the Contract Act, 1872, and therefore the Bank 's undertaking 74 to advance upto Rs. 20,000/ could support the appellant 's promise to guarantee up to Rs. 25,000/ .
But it is not the Bank 's case that there was such a contract of guarantee.
Its case was that the contract of guarantee was for Rs. 20,000/ .
That contract is not supported by the letter on which alone the suit is based.
If there was no contract as stated in the letter then.
no question of consideration to support it can possibly arise.
Therefore, it seems to me that the.
contention that the alteration was immaterial and did not affect the instrument so far as the appellant is concerned is to no purpose in the present case.
The position may then be thus stated.
We have, a suit against the appellant based on a written contract to guarantee repayment of Sankaran 's dues to the Bank up to Rs. 20,060/ .
There is no evidence of, any verbal contract of guarantee.
The appellant ' wrote a letter guaranteeing repayment of those dues up to Rs. 251000/ .
Sankaran also signed this letter but that signature is of no consequence to the question of guarantee which alone arises in this appeal for Sankaran could not guarantee his own debit and his signature would therefore only be evidence of his liability for the amount advanced to him by way of overdraft.
Such liability, however, he had already undertaken by executing a promissory note for Rs. 20,000/ in favour of the Bank.
His signature on the letter of guarantee therefore made no difference in the legal relations that have to be considered in this appeal.
Returning now to the letter of guarantee Written by the appellant, the Bank refused to accept that letter and, therefore, on the Bank 's own case no contract on its terms was ever made.
That letter was altered without the consent of the appellant probably by Sankaran by substituting Rs. 20,000/ for Rs. 25,600/ .
If the alteration was without the appellant 's consent, it could not have been authorised by him; if it had been, consent would be implied.
There is further neither evidence, nor pleading nor 75 finding of any such authority.
The altered document is not binding on tile appellant, for the alteration had not been made to carry out the intention of the: parties in the alteration is ignored, then the document creates no liability in the appellant, for the Bank refused to accept a guarantee on the terms Contained in the document before it was altered.
Further, the contract sued upon is different from the contract which might, have been made by the document as it stood before the alteration.
The unaltered document cannot establish the contract sued upon.
The conclusion to which I arrive then is that the suit against the appellant as framed must fail.
I would, therefore, allow the appeal with costs here and below and dismiss the suit against the appellant.
HIDAYATULLAH,J. I have had the advantage of ' reading the judgment prepared by my brother Sarkar.
In my opinion, and I say it with great respect, this appeal must fail.
I shall give my reasons briefly.
The facts of the case are simple.
The suit, out of which this appeal arises, was filed by the Thomco 's Bank Ltd, Trivandrum, (to be called in this judgment the 'Bank ') against V. Sankaran (the principal Debtor) and N. section Anirudhan (the surety and appellant before us).
The suit was based against V. Sankaran on a promissory note executed by him in favour of the Bank on February 24, 1947, (Exhibit B) and against the present appellant on a letter of guarantee dated May 24, 1947.
In so far as Sankaran has not appealed against the decree passed against him we need not mention the facts leading up to the promissory note which was prior in time.
Anirudhan in defending himself stated that the letter of guarantee was for Rs. 5,000 and that it had been altered without his knowledge and consent in a sum of Rs. 20,000/ .
The letter of guarantee is Exhibit C and the original does show two corrections in the figures as well as the written words mentioning the amount.
Figure "5" in the amount of Rs. 25,000/ in figures appears to have been 76 altered to "O"; and in the words "Rupees twenty five thousand" the word "five" has been struck out.
The appellant 's case that 5,000 in figures was altered to 20,000/ by the addition of the figure "2" and the alteration of the figure "5" into "O" and the corresponding change in the words by the addition of the words "twenty" and the scoring out of word "five" has not been believed.
Thus the case made out by Anirudhan has not been accepted.
The correction.
however, is patent and the question that has arisen in this case is whether by the alteration of the letter of guarantee the surety is discharged.
The finding of the High Court is that there was no prior oral agreement between the Bank and Anirudhan.
This letter, as is obvious from the dates, was give after the loan had already been made.
The contention of the Bank was that when Sankaran brought this letter and asked for additional loan of Rs. 5,000 the Bank refused to advance any further amount and declined to accept this letter of guarantee for Rs. 25,000 lest the Bank might be compelled to loan a further sum of Rs. 5,000.
Sankaran then took back the letter and after some time brought it back with the figure "5" changed into "O" and the word "five" scored out.
These corrections were not initialled either by Sankaran or by Anirudhan.
The Bank, however, accepted this letter and kept it and sued Anirudhan upon it.
The question is whether Anirudhan 's liability is discharged by the alteration in the document which alteration is not proved to have been made either by him or with his knowledge or consent.
It is conceded and indeed it is the law that only a material alteration makes a document void.
It is also the law that if the custodian of the document makes or allows an alteration to be made while the document is in his custody he cannot sue upon it because it is his duty to preserve the document in the state in which he got it.
In the present case, the 77 document was not altered by, Bank nor with the Bank 's consent or connivance while the document was in.
its custody.
The document was apparently altered either by Anirudhan or by Sankaran or by both.
If it was altered by Anirudhan, or by him and Sankaran together, the document still remains the document of Anirudhan and the suit of the Bank based upon it is competent against him.
If it was altered by Sankaran the question is whether the alteration was a material alteration to make it void against Anirudhan.
The High Court is of the opinion that it was not material.
I am inclined to accept the conclusion of the High Court.
Anirudhan by the letter to the Bank wished to guarantee an overdraft of Sankaran not exceeding Rs. 25,000/ .
His case that it was Rs. 5,000/ and not Rs. 25,000 has been disbelieved.
The document was originally written for an amount of Rs. 25,000/ which was reduced to Rs. 20,000/ 1 will assume, by Sankaran and the letter of guarantee was accepted by the Bank.
The question is whether by the reduction of the amount of the guarantee Anirudhan can say that the document executed by him has been materially altered and his liability is at an end.
In my judgment, in the present case it cannot be said.
The document still continues to represent what was intended by Anirudhan.
That intention was to guarantee a loan up to Rs. 25,000/ which includes the sum for Rs. 20,000/ for which the guarantee now stands.
The question is whether Anirudhan can say that this guarantee is at an end.
There are really two defences open to Anirudhan the surety.
The first is that he had offered to stand surety on certain terms and as those conditions have been altered he is discharged from any liability.
The second also depends on the alteration and it is that a document executed by him has been materially altered and is therefore void.
This is a plea of non est factum.
Both the arguments rest upon the alteration of the contract into which Anirudhan wished to enter.
A surety is considered a "favoured debtor" and his 78 liability is strictissimi juris.
Lord Westbury, L.C., in Blest vs Brown (1) stated this liability in the following words: "It must always be recollected in what manner a surety is bound.
You bind him to the letter of his engagement.
Beyond the proper inter pretation of that engagement you have no hold upon him.
He receives no benefit and no consideration.
He is bound, therefore, merely according to the proper meaning and effect of the written engagement that he has entered into.
If that written engagement is altered in a single line, no matter whether the alteration be innocently made, he has a right to say, " 'The contract is no longer that for which I engaged to be surety; you have put an end to the contract that I guaranteed, and my obligation, therefore, is at ail end.
" It is not necessary to go into the fact of that case where the surety guaranteed fulfilment of a contract for the supply of, flour to a banker who in his turn had undertaken to supply bread to Government.
The case turned upon stipulations by the Government and their breach and the decision cannot be regarded a ,direct authority, apart from the general observation, in the present case.
The statement of the law in Blest vs Brown (1) Was considered by the Court of Appeal in Holme vs Brunskill (2) in an appeal from a judgment of Denman, J. (later Lord Denman).
Cotton, L.J., stated the law in these words: "The true rule in my opinion is, that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and that, if he has not consented to the alteration, although in cases where it is without inquiry evident that the alteration is unsubstantial, or that it cannot be otherwise than beneficial to the surety, the surety may not be discharged; ), Yet, that if it is not self evident that (1) ; (1862) 4 De G. F. & J. 365 ; (2) 79 the alteration is unsubstantial, or one which cannot be prejudicial to the surety, the Court will not, in an action against the suerty, go into an inquiry as to the effect of the alteration. . " To this statement of the law, must be added the 'dissent of Brett, L.J., who stated that the surety in that case was not raleased observing that the doctrine of release of sureties was carried far enough and that lie would not carry it any further.
There is noticeable a difference between the strict rule stated by Lord Westbury and that stated by Cotton L. J., and the law now accepts that unsubstantial alteration which are to the benefit of the surety do not discharge the surety from the liability.
Of course, if the alteration is to the disadvantage of the surety, or its unsubstantial character is not self evident the surety can claim to be discharged.
The Court will not then inquire whether it in fact harmed the surety.
That dictum of Cotton L. J., was quoted with approval by the Judicial Committee in ward vs The National Bank of Neu Zealand.
Limited (1).
Other cases in which a similar liberal view is taken are mentioned in these two decisions.
Before I examine the position of Anirudhan with regard to the law applicable to sureties, I wish to refer to the law relating to the alteration of documents.
These two matters really go together in this case.
Here, again, the strict rule at one time was that the slightest alteration makes the document void.
The leading case for a long time was Pigot 's case (2) where Lord Coke stated the doctrine as follows: "These points were resolved: 1.
When a lawful deed is raised, whereby it becomes void, the obligor may plead non, est factum, and give the matter in evidence, because at the time of the plea pleaded, it is not his deed." "Secondly, it was resolved, that when any deed is altered in a point material, by the plaintiff himself, or by any stranger, without the privity (1) , (2) 11 Co.Rep.26 b;77E.R.177. 80 of the obligee, be it by interlineation, addition, raising, or by drawing of a pen through a line, or through the midst of any material word, that the deed thereby becomes void . so if the obligee himself alters the deed by any of the said ways, although it is in words not material, yet the deed ,is void: but if a stranger, without his privity, alters the deed by any of the said ways in any point material, it shall not avoid the deed.
" The passage is also to be found in an article "Discharge of Contracts by Alteration" by Williston in 18 Harvard Law Review, p. 105.
The strictness of this rule was tempered in subsequent cases and was departed from in Aldous vs Cornwell (1) where Lush, J. (speaking for Cockburn, C. J., Blackburn, J., and himself), after referring to numerous authorities,observed "This being the state of the authorities, we think we are not bound by the doctrine of Pigot 's case or the authority cited for it; and not being bound.
We are certainly not disposed to lay it down as a rule of law that the addition of words which cannot possible prejudice any one, destroys the validity of the note.
It seems to us repugnant to justice and common sense to hold that the maker of a promissory note is discharged from his obligation to pay it because the holder has put in writing on the note what the law would have supplied if the words had not been written.
" What is said here about an addition or alteration of a promissory note was prior to the enactment of the rule in Bills of Exchange Act in England which has altered the law with regard to negotiable instruments but the observations apply forcefully to a document of the type we have where there were.
two executants (one being the debtor and the other his surety and the debtor has not increased but reduced the amount of his own liability as well as that of his (1) 81 surety.
That immaterial alterations do not matter is borne out by the observation of Swinfen Eady, J., in Bishop of Creditor vs Bishop of Exeter (1) where Pigot 's case(2) and the earlier statement of the law in Sheppard 's Touchstone, 7th ed.
(Preston 's), p. 55.
, were not accepted.
During the course of the argument Swinfen Eady, J., referred to cases in which corrections in the testimonium of documents to accord them with existing facts were held not to be material alterations.
The question before me is whether a document jointly executed by two persons creating a liability equal for both is to be regarded as materially altered if the liability is reduced equally for both but the alteration is made only by one of them.
In my opinion, such an alteration must be regarded as unsubstantial and not otherwise than beneficial to the surety and it cannot attract the strict rule stated by Lord Coke or that stated by Lord Westbury in the cited cases.
me give an example: If A places an order with a trader for supply on credit of ten bags of wheat and B endorsed the order by writing, "I guarantee payment up to ten bags", can it be said that 'the guarantee by B is dissolved when A takes the note and finding that the tradesman has only six bags of wheat in stock, corrects his order as well as the endorsement by altering "ten ' into 'six '? In my opinion, to such a correction neither the one rule nor the other can apply.
The strict rule of law which was brought to our notice from the well known Suffell 's Case(3), where a Bank of England note was mutilated and its number destroyed, depended upon its special facts.
The number of the Bank of England note was considered its vital part and the alteration a material alteration.
Suffell 's Cage(3) was not followed by the Privy Council in a case where a bank note issued by bank which was only a contract and not currency, as in the other case, was destroyed because the owner had forgotten that the note was in the pocket of a garment and the garment had been washed.
The (1) (2) ; ; (3) 82 note was reconstructed and showed the contract but not the number.
The Privy Council held the bank liable even though the contract had been Altered by eraser (see Hong Kong and Shanghai Banking Corporation vs Lo Lee Khi(1).
These cases establish that both the limbs of the argument which Anirudhan can raise are not vali in the circumstances of this case.
In my judgment, the particular document in this, case cannot be said to have been materially altered, because.
it has not been altered in such a manner as to change its nature.
The alteration does not save the surety from liability arising under it.
The alteration was made by a co executant who reduced not only his own liability but that of the surety also.
indeed, the surety himself under stood the law to be this because he set up the case that the document originally guaranteed an overdraft of Rs. 5,000/ but was altered to guarantee an overdraft of Rs. 20,000/ .
This case has been proved false and he never set up the case that the document was void because the amount was reduced from Rs. 25,000/ to Rs. 20,000/ .
It does not lie in the mouth of Anirudhan.
to say the he meant.
to guarantee 25,000/ but.
not Rs. 20,000/ because he never went to the Bank and made this a condition of the agreement.
Now he cannot say that the document has; become void against him or that the contract which had emerged by the Bank 's acceptance of the document as altered does not bind him.
There is no need, in my opinion, to consider whether there was a prior oral agreement or not.
I agree there is no proof of such an agreement.
The letter of Anirudhan to the Bank was based on a consideration which had already moved to Sankaran and which Anirudhan wished to guarantee.
Even if treated as an offer by Anirudhan to the Bank, the Batik accepted the amended offer and Sankaran must be deemed to have had the authority to reduce the amount, (1) ; 83 though not to increase it.
The document was altered while in the possession of the very person who, as the agent of Anirudhan, brought it to the Bank on both the occasions.
Anirudhan must be deemed to have held out Sarikaran as his agent for this purpose and this creates an estoppel against Anirudhan, because the Bank believed that Sankaran had the authority.
The offer thus remains in its amended form an offer of Anirudhan to the Bank and the Bank by accepting it turned it into a contract of guarantee which was backed by the past consideration on which the offer of Anirudhan was originally based.
In my opinion, the appeal must fail.
I would, therefore, dismiss it.
By COURT : In accordance with the opinion of the majority, the appeal is dismissed.
There would be no order as to costs.
Appeal dismissed.

dataset_name: IN-Abs

summary/full:
The appellant agreed to stand surety for an overdraft allowed by the respondent Bank to section A blank form of guarantee was given by the Bank to S, who then had it filled up by the appellant stating the maximum amount which he guaranteed as Rs. 25000/ .
When S brought the letter of guarantee duly signed by the appellant and himself to the Bank the latter refused to accept the guarantee up to that limit as it was not prepared to give S accommodation for a larger sum than Rs. 20000/ and wanted it to be limited to Rs. 20000/ .
S then made alterations in the letter with the amount of the maximum limit corrected to Rs. 20000/ and gave it to the Bank.
In a suit instituted by the Bank against the principal debtor, S, and the appellant on the basis of the contract of guarantee for Rs. 20000/ , the appellant pleaded that as the document was altered without his knowledge or consent, he was discharged from his liability.
Held, (per Kapur and Hidayatullah, JJ., Sarkar, J., dissenting), that the appellant was not discharged from his liability under the contract of guarantee.
64 per Kapur, J. S was acting for and on behalf of the appellant since it was at his instance that the appellant was standing surety and the appellant handed over the deed of guarantee to S for the purpose of being given to the Bank.
The plea of avoidance of contract by material alteration was of no avail to the appellant because the document was not altered while in possession of the promisee but was altered by S who was at the time acting as the agent of the appellant.
per Sarkar, J. The suit against the appellant as framed must fail.
The altered document was not binding on the appellant, for the alteration had not been made to carry out the intention of the parties.
If the alteration, is ignored as immaterial, then the document creates no liability in the appellant, for the Bank refused to accept a guarantee on the terms contained in it before it was altered and therefore there was no contract made between the parties by the document.
Further, the contract sued upon is different from the contract which might have been made by acceptance of the document as it stood before the alteration.
The unaltered document cannot establish the contract sued on.
per Hidayatullah, J. The document in this case could not be said to have been materially altered because it was not al tered in such a manner as to change its nature.
The alteration was made by a co executant who reduced not only his own liability but that of the surety also.
The document was altered while in the possession of S, the very person who, as the agent of the surety, brought it to the Bank.
The surety must be deemed to have held out S as his agent for this purpose and this created an estoppel against the surety because the Bank believed that S had the authority.
Accordingly, the alteration of the document did not save the surety from liability under it.


judgement:
iminal Appeal No. 58 of 1961.
231 Appeal by special leave from the judgment and order dated October 17, 1960, of the Bombay s High Court in Criminal Appeal No. 1235 of 1960.
R. H. Dhebar, for the appellant.
The respondent did not appear.
February 16.
The Judgment of the Court was delivered by Kapur J.
This appeal by Special Leave against the decision of the High Court of Bombay dismissing the State 's appeal against the acquittal of the respondent arises out of proceedings under section 66(1)(b) of the Bombay Prohibition Act, 1949 (Act25 of 1949), as amended, hereinafter called the Act '.
The respondent was arrested by Police Constable Laxman Sabaji on August 8, 1959, at 8 15 p.m. on the ground that he was smelling of liquor and bad therefore contravened the provisions of the Act.
The respondent was taken to the hospital where he was examined by Dr. Dadlani Prabhu Rochiram P. W., who has deposed that the respondent was Smelling of liquor but his speech, behaviour, gait, coordination and memory were normal.
From this he concluded that the respondent had consumed some alcoholic substance but was not under the influence of liquor.
In cross examination he stated that Tincture Neem would produce blood concentration of 0.146% M/V of ethyl alcohol.
The respondent in his examination under section 342 stated: Question: "What do you wish to say with reference to the evidence given and recorded against you? Answer :I have not consumed prohibited alcohol.
I had taken 6 ounces of Neem as I am used to it".
232 On this evidence the Presidency Magistrate Mr. Lokur acquitted the respondent.
He observed: "Neem is a medicinal preparation containing about 40% of alcohol and is readily available in the market.
I do not see why I should not accept the explanation given by the accused that he had taken Neem in order to satiate his craving for alcohol.
It has been held by Bavdekar and Chainani, JJ., in Criminal Appeal No. 1611 of 1954 dated 25 2 1954 that taking an excess dose of medicinal preparation does not amount to consumption of prohibited liquor.
In Criminal Appeal No. 1562 of 1959 State vs Domnic Robert D 'Sliva where a similar defence was taken up it was held that consumption of 6 ounces of essence of Neem did not constitute an offence.
Following these judgments I hold that the accused has not committed any offence.
I therefore acquit the accused".
Against this order an appeal was taken to the High Court and one of the grounds taken in the memorandum of Appeal was that the mere statement of the respondent that he had consumed 8 ounces of Tincture of Neem was not sufficient to rebut the presumption arising out of sub section
(2) of section 66 of the Act.
But the High Court dismissed the appeal in limine.
It is against that order that the State has come by Special Leave to this Court.
The main question raised on behalf of the State is that by the introduction of section 66(2) in the Act as a result of the Bombay Prohibition (Extension and amendment) Act, 1959, (Act 12 of 1959), the onus is on the accused person and that that onus had not been discharged in the present case.
Section 66(2) is as follows : section 66(2) ",Subject to the provisions of subsection 233 (3) wherein in any trial of an offence under clause (b) of sub section(1) for the consump tion of an intoxicant it is alleged that the accused person consumed liquor, and it is proved that the concentration of alcohol in the blood of the accused person is not less than 0.05 per cent.
weight in volume, then the burden of proving that the liquor consumed was a medicinal or toilet preparation, or an antiseptic preparation or solution, or a flavouring extract, essence or syrup, containing alcohol, the consumption of which is not in contravention of the Act or any rules, regulation or orders made thereunder, shall be upon the accused person,and the Court shall in the absence of such proof presume the contrary".
The argument was put in this way that if the prosecution proves that the concentration of alcohol in the blood of an accused person is more than 0.05% then under section 66(2) of the Act the burden was on him to show that the liquor which he had consumed was a medicinal or toilet preparation the consumption of which is not in contravention of the Act or any Rules made thereunder.
It was further submitted that in order to discharge the onus mere statement of the accused is not sufficient.
Our attention was drawn to the scheme and some of the provisions of the Act.
The prosecution, in the present case, has proved that the respondent 's breath was smelling of liquor and that on examination of his blood it was found to contain 0.146% bat the respondent gave an explanation showing that he had taken 6 ounces of Tincture of Neem and Dr. Dadlani Prabhu Rochiram has deposed that the consumption of 6 to 8 ounces of that substance will produce that amount of concentration of blood.
This was 234 accepted by the learned Presidency Magistrate and by the High Court.
Therefore on this finding it must be held that the explanation given by the respondent of the cause of his smelling of liquor and of the blood concentration was accepted by the High Court as being sufficient to discharge the onus placed on him.
But Mr. Dhebar for the State submits that mere statement of an accused person is not sufficient for the discharge of such onus and relies on a judgment of this Court in C. S.D. swamy vs The State (1), where Sinha, J. (as he then was), observed: "In this case, no acceptable evidence, beyond the bare statements of the accused, has been adduced to show that the contrary of what has been proved by the prosecution, has been established, because the requirement of the section is that the accused person shall be presumed to be guilty of criminal misconduct in the discharge of his official duties " unless the contrary is proved".
The words of the statute are peremptory, and the burden must lie all the time on the accused to prove the contrary".
All that the learned Judge there meant to Ray was that the evidence of the statement of the accused in the circumstances of that case was not sufficient to discharge the onus but that does not mean that in no case can the statement of an accused person be taken to be sufficient for the purpose of discharging the onus if a statute places the onus on him.
Under section 342 of the Criminal Procedure Code the Court has the power to examine the accused so as to en able him to explain any circumstance appearing in evidence against him.
Under sub section 3) of that section the answers given by an accused person may be taken into consideration in such enquiry or trial.
The object of examination under section 342 therefore is to give the, accused an opportunity to (1) ; , 471. 235 explain the case made against him and that statement can be taken into consideration in judging the innocence or guilt of the person so accused.
Therefore if the courts below have accepted this explanation it must be held that the respondent has discharged the onus which was placed on him by section 65(2) of the Act.
The appeal is therefore dismissed.
Appeal dismissed.

summary/full:
Respondent was arrested by a police constable on the ground that he was smelling of liquor.
The doctor who examined him gave evidence at the trial that though the respondent had consumed alcoholic substance he was not under the influence of liquor.
In cross examination the doctor stated that consumption of Neem would produce a blood concentration of 0. 146%.
The respondent in examination under section 342 of the Code of Criminal Procedure stated that he had not consumed prohibited alcohol but that he had consumed six ounces of Neem.
He was acquitted by the Magistrate.
The appellant appealed to the High Court.
The main ground of appeal was that the mere statement of the respondent that he had consumed 6 ozs.
of Neem was not sufficient to rebut the presumption under sub section
(2) of section 66 of the Bombay prohibition Act, 1949, as amended by the Bombay Prohibition (Extension and amendment) Act, 1959.
The High Court dismissed the appeal in limine.
Thereupon the appellant appealed to the Supreme Court by way of Special Leave on the same ground as was raised before the High Court.
Held, that the statement of the accused recorded under section 342 of the Code of Criminal Procedure can be taken into consideration in judging the innocence or guilt of a person.
If the explanation given by the accused in his statement is acceptable to the court it must be held that the accused has discharged the burden under section 66 (2) of the Bombay Prohibi tion Act.
O. section D. Swamy vs State, 1, distinguished.


judgement:
Appeals Nos. 149 and 150 of 1961.
Appeals from the judgment and order dated September 23, 1968, of the Bombay High Court in I.T.R. No. 86 of the 1957.
R.J. Kolah, J. B. Dadachanji, O. C. Mathur and Ravinder Narain, for the appellants.
K.N. Rajagopala Sastri and D. Gupta, for the respondent.
312 1962, February 19.
S.K. DAS, J. These are two appeals on a certificate of fitness granted by the High Court of Judicature at Bombay under,%.
66A(2) of the Indian Income tax Act, 1922.
The relevant facts which have given rise to them are shortly stated below.
The Indore Malwa United Mills, a limited liability company, is the appellant before us and will be referred to in this judgment as the assessee company.
The respondent is the Commissioner of Income tax(Central), Bombay.
The assessee company carried on a business of manufacture and sale of textile goods.
The manufacture was made at its mills in Indore which was Indian State before integration and had its own law as to income tax known as the Indore Industrial Tax Rules, 1927.
The sales of textile goods were made at various places, some inside and some outside the taxable territories of British India.
For and upto the assessment year 1949 50 the assessee company was treated as a non resident within the meaning of s.4A of the Indian Income tax Act, 1922.
For the assessment years 19 50 51, and 1951 52 which are two assessment years under consideration, the account years were the calendar years 1946 and 1950 respec tively.
Indore became a part of the taxable territories within the meaning of the Indian Income.
tax Act is the two assessment years and the assessee company was held to be "resident and ordinarily resident" with the meaning of that Act.
Upto the assessment year 1949 50 that part of its profits which was received in British India was subjected to tax together with its other income which accrued in British India, namely, interest on securities and interest on bank accounts.
In the assessments made for the assessment years 1948 49 and 1919 50 the 313 position of the assessee company was stated to be as follows: 1948 49 Income tinder the head 'Interest on securities ' .
Rs. 1,032 Income under the head 'Other sources ' interest from banks .
Rs. 231 Rs 1,263 Business loss Rs. 1,992/ .
Balance of lossRs.
729/ carried forward.
1949 50 Interest on securities .
Rs. 1,023 Bank interest .
Rs. 2 13 Rs.1,236 Less : loss of 1948 49 set off .
Rs. 729 Total income .
Rs. 507 In making the calculation of business profits or loss received or arising in the taxable territories, a proportion was struck between the total turn over of the assessee company and its sales the proceeds whereof were received in the taxable territories.
The following table, which is part of the order of assessment of 1950 51, shows clearly how the calculation was made.
314 1 2 3 4 5 Rs. Rs. Rs. Rs. Net profit Deprecia Busi Total of the as per ness turnover Assess company the Indian income of the ment befor al Income of the company year lowance Tax Act com of depre pany ciation (Col.2 minus col.3) 6 7 8 9 Rs. Rs. Rs. Rs. Sales for Business profit other Total in which considered as income come for proceeds having been accruing the prupose were received in the in the of assess received taxable terri taxable ment under in the tories(by appor terri the Indian taxable tioning the tories Icome Tax territories amount in Act.(Col.8) col. 4 in the proportion of col 5: col.6) 315 Daring the course of the assessment proceedings for 1950 51 the assessee company claimed that it was entitled to a set off of the entire losses of the assessment year 1948 49 which it was common ground before the Tribunal, came to Rs. 5,19,590/ , and not merely the proportionate loss.
The assessee company also claimed that the depreciation allowances of the two years 1948 49 and 1949 50 to which effect could not be given in those years and which had, therefore, to be carried forward should be added to the depreciation allowance of 1950 51 and be set off against the profits and gains of the assessee company liable to assessment in the assessment years in question.
It is to be noted that the assessment of the assessee company for the assessment years 1948 49 and 1949 50 was made both under the Indian Income tax Act and under the Indore Industrial Tax Rules, 1927.
Now the assessee company made two claims in the course of the assessment proceedings for 1950 51.
One was with regard to the loss of Rs. 5,19,590/ and the assessee company 's contention was that it was entitled to set off this loss against the profits made in its business in that year and it also contended that it was entitled to carry forward the unabsorbed depreciation into that year.
The first contention of the assessee company was rejected by the Tribunal but the second was allowed.
Two questions were then raised, one at the instance of the assessee company and the other at the instance of the Commissioner, dealing with the aforesaid two claims of the asseessee company.
These two questions were : " 1.
Whether the loss of Rs. 5,19,590/ of the year 1948 49 is liable to be set off against the assessee 's business income for the assess ment years 1950 51 and 1951 52 ? 2.
Whether the unabsorbed depreciation of the years 1948 49 and 1949 50 is liable to 316 be set off against the income of the assessee for the eassessment years 1950 51 and 1951 52.
" On being satisfied that aforesaid two questions arose out of its order, the income tax Appellate Tribunal, Bombay Bench A, referred them to the High Court of Bombay under s, 66(1) of the Indian Income tax Act.
The High Court answered the first question against the assessee company and the second question in its favour by its judgment and order dated September 23, '1958.
The assessee company then moved the High Court for a certificate under section 66A(2) of the Indian Income tax Act with regard to the answer given by the High Court to the first question and having obtained a certificate of fitness has preferred the two appeals to this Court.
We are concerned in these two appeals with the correctness or otherwise of the answer given by the High Court to the first question; the second question does not fall for our consideration.
On behalf of the assessee company section 24(2) of the Indian Income tax Act has been relied on in support of the claim that the assessee company is entitled to carry forward and set off the entire loss of Rs. 5,19,590/ incurred in the year 1948 49 against the assessee company 's business income for the assessment years 1950 51 and 1951 52.
Mr. Kolah appearing on behalf of the assessee company has put his argument in the following way.
First of all, he has submitted that the Income tax Officer wrongly proceeded on the footing as though the assessee company was carrying on two separate businesses, one within the taxable territories and the other outside them.
Mr. Kolah has contended that the business was one business within the meaning of section 10 of the Indian Income tax Act and in the two assessment years in question Indore having become a part of the taxable terri tories provisions in sub section
(2) of section 24 came into operation; therefore, the losses which the assessee 317 company sustained in 1948 49, being a previous year not earlier than the previous year mentioned in the sub section and the losses not having been set off under sub s.(1) of section 24, the assessee company was entitled to carry forward the losses and set them off against the profits and gains of the assessee company from the same business under any other head, as the time limit of six years had not expired.
As against this argument, the contention on behalf Of the respondent has been that s 24 has no application in the facts of the present case inasmuch as in the year 1948 49 in which year the losses had occurred, the assessee company was treated as a nonresident.
On behalf of the respondent it has been submitted that the provisions of section 24 are applicable only to profits and agains which are assessable under the Indian Income tax Act and in the case of non residents who were assessees in British India or in the taxable territories.
The claim to set off is only allowable in respect of loss of profits or gains incurred by the nonresidents under any of the heads mentioned in section 6, and section 24 is applicable only to such loss of profits arid gains which if they had been profits and gains would have been assessable in British India or the taxable territories.
It is contended that in the case of nonresidents, income accruing or arising without British India or without taxable territories is not liable to be assessed and the loss of such profits and gains is not contemplated to be set off within the provisions of sub sections
(1) and (2) of section 24 of the Indian Incometax Act,.
Before we consider these contentions it is necessary to set out the material provisions of the Indian Income tax Act as they stood at the relevant time.
(1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived 318 which (a) are received or deemed to be received in British India in such year by or on behalf of such person, or (b) x x x x (e) if such person is not resident in British India during such year, accrue or arise or are deemed to accrue or arise to him in British India during such year: x x x 14, (1) x xx (2) The tax shall not be payable by an assessee (a) x x x (b) x x x (c) in respect of any income, profits or gains accruing or arising to him within an Indian State, unless such income, profits or gains are received or deemed to be received in or are brought into British India in the pre vious year by or on behalf of the assessee, or are assessable under section 12B or section 42.
(1) Where any assessee sustains loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year : Provided that, where the lose sustained is a loss of profits or gains which would but for the loss have accrued or arisen within an Indian State and would, under the provisions of clause (c) of subsection (2) of section 14, have been exempted from tax, such loss shall not be set off except against profits or gains accruing or arising within an Indian 319 State and exempt from tax under the said provisions.
x x x (2) Where any assessee sustains a loss of profit or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, under the head "Profits and gains of business, profession or vocation", and the lose cannot be wholly set off under sub section (1) the portion not so set off shall be carried forward to the following year and set off against the profits and gains, if any, of the assessee from the same business, profession or vocation for that year; and if it cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the follow ing year, and so on; but no loss shall be so carried forward for more than six years: Provided that (a) Where the loss sustained is a loss of profits and gains of a business, profession or vocation to which the first proviso to sub section (1) is applicable and the profits and gains of that business, profession or vocation are, under the provisions of clause (c) of sub section (2) of section 14, exempt from tax, such loss shall not be set off except against profits and gains accruing or arising in an Indian State from the same business, profession or vocation and exempt from tax under the said provisions; (b) Where depreciation allowance is, under clause (b) of proviso to clause (vi) of sub section of section 10, also to be carried forward, effect shall be given to the provisions of this sub section; x x x It may perhaps be stated here that Mr. Kolah has placed no reliance on the provisions of the Taxation Laws (Part B States) (Removal of 320 Difficulties) Order, 1950.
Clause 3 of the said Order provides that losses suffered in Indian States can be carried forward and set off only if under the State law they could be so carried forward or set off.
Admittedly, Under the Indore Industrial Tax Rules, 1927 there was no provision for the carrying forward of losses; therefore, cl. 3 of the Taxation Laws (Part B States)(Removal of Difficulties) Order, 1950 was of no assistance to the assessee company.
This view of the High Court has not been contested before us and we need, therefore, make no further reference to this aspect of the case.
The answer to the question which we have to consider depends on the true scope and effect of section 24 of the Indian Income tax Act.
Under the Indian Income tax Act, 1922, assessees are divided into three categories (a) resident and ordinarily resident, (b) resident but not ordinarily resident, and (c) not resident.
We are concerned in the present ' case with, an assessee who in the year in which the loss which is sought to be carried forward occurred, was a nonresident.
Sub section (1) of s.4, the material portion of which we have quoted earlier, states that person Who are not resident in India ire liable to charge under cl.
(a) or cl.(c) of the said subsection.
They may be taxed under cl.
(a) on income received or deemed to be received in India even if it accrues elsewhere, or under on income which accrues or arises or is deemed to corue or arise in India even if it is received elsehere.
The liability to tax in respect of income received in India is common to both residents and non residents and is imposed by the general clause (a).
A non resident, unlike a resident, is not argeable in respect of income accruing or arising without India and not received in India.
Section 4(2) (c), which is now deleted, had great importance when British India was distinct from Indian states, because it exempted income which accrued 321 or was received in the Indian States but was not brought into British India.
The deletion of this clause became inevitable upon,the merger of the Indian States.
This clause which wan inserted in 1941 exempted income accruing or arising within the Indian States; but the exemption did not apply if the income was received or deemed to be received in or was brought into the taxable territories in the previous year by or on behalf of the assessee or if the income was assessable under section 128 or section 42.
The Position, therefore, was that losses made in British India could not be reduced by adjusting against them the profits in the Indian States which were exempted under the clause, but the income exempted from the clause had,, however, to be included in the assessee 's total income for the purpose of determining the rate applicable to his taxable income.
But so far as a non resident was concerned the clause had no application, because a nonresident was not chargeable in respect of ' income accruing or arising without India and not received in India.
Now, we come to section 24, sub ss.(1) and (2) with the provisos appended thereto which we have quoted earlier in this judgment.
It appears that prior to 1950 profits accruing in the Indian States, later called Part B States, were exempt from tax under section 14(2)(c), unless they were, received in or brought into the territories then referred to as British India or were assessable under section 128 or section 42.
The first proviso to sub s.(1) as it stood at the relevant time dealt with losses accruing in the qaondam Indian States and provided that losses incurred in the Indian States should be set off only against profits accruing in the Indian States.
This was a reasonable provision, because an assessee who was not liable to tax in respect of his profits arising in the Indian States could not be allowed to set off his losses incurred in the Indian States against his profits arising in British India.
that losses incurred in an Indian State could be Similarly cl.(a) of the provision to sub s.(2) enacted that losses incurred in an Indian State could be 322 carried forward and set off only against profits accruing in an Indian State from the same business in a Subsequent year.
The argument on behalf of the respondent is that so far as a non resident is concerned, he is not chargeable in respect of income accruing or arising without India and not received in India.
Therefore, in his case it is unnecessary to go to the provisos, but section 24 itself has no application because sub section
(1) of section 24 when it refers to loss of profits or gains, has reference to taxable profits or taxable gains and sub s.(2) of section 24 can only be applied in a case where the loss cannot be set off under sub s.(1) because of the absence or inadequacy of profits etc.
In other words, the argument is that section 24 is applicable only to such loss of profits and gains which if they had been profits and gains would have been assessable in British India or the taxable territories; but in the case of nonresidents, income accruing or arising without British India or without the taxable territories not being liable to be assessed, the loss of such profits and gains is not contemplated to be set off within the provisions of section .24, sub sections
(1) and (2).
Mr. Kolah has pointed out that sub s.(2) of section 24 as also sub s.(1) talk of "any assessee" and he has argued that there is no reason why the provisions of sub s.(2) of section 24 should not the applicable to a non resident assessee.
He has further argued that whatever might have been the effect of the provisos in 1948 49, in 1950 51 Indore became part of the taxable territories and the assessee company became entitled to carry forward the losses up to six years and there is nothing in section 24(2) to prevent ' him from making the claim.
We are unable to accept this argument as correct.
Reading the provisions in section 24 with the provisions in s.4(1)(a) and section 1.4(2)(c) it seems clear to us that section (24)(1) when it talks of profits or gains has reference to 323 taxable profits or taxable gains in other words, it has reference to such profits and gains as would have been assessable in British India or the taxable territories.
It has no reference to income accruing or arising without British India or without the taxable territories which were not liable to be assessed in the case of non residents.
We are further of the view that for determining the nature of the losses under consideration in the present appeals, the relevant year was 1948 49, the year in which the losses occurred and the High Court rightly took the view that for the application of sub section
(2) of section 24, the losses must be such losses as could have been set off under sub s.(1) of section 24.
We agree with the view expressed by the High Court that the loss &mounting to Rs. 5,19,590/ was not such a loss as could have been set off either under sub section
(1) or sub section
(2) of section 24.
We have, therefore, come to the conclusion that the High Court correctly answered the question which was referred to it.
Accordingly, the appeals fail and are dismissed with costs, one hearing fee.
Appeals dismissed.

summary/full:
The assessee company carried on a business of manufacture and sale of textile goods.
The manufacture was made at its mills in Indore which was an Indian State before integra tion and had its own law as to income tax known as the Indore Industrial Tax Rules, 1927.
The sales of textile goods so manufactured were made at various places, some inside and some outside the taxable territories of the then British India.
For and upto assessment year 1949 50 the assessee company was treated as a non resident.
Indore became a part of the taxable territories within the meaning of the Indian 311 Income tax Act, 1922 in the two assessment years 1950 51 and 1951 52 and the asscssee company was held to be "resident and ordinarily resident" within the meaning of that Act.
Upto the assessment year 1949 50 that part of its profits which was received by the assessee company in British India was subjected to tax together with it.
,; other income which accrued in British India.
In making the calculation of business profits or loss received or arising in the taxable territories, a proportion was struck between the total turnover and its sales the proceeds whereof were received in the taxable territories.
The assessee company raised two questions in the course of the assessment proceedings, one of which with regard to the entire loss of Rs. 5,19,590/ of the year 1948 49 which it claimed to set off against the profits made in its business in the two assessment years.
The assessee company contended that the business was one and under section 24 it was entitled to set off the losses which it had sustained in 1948 49.
The High Court decided this question against the assessee company, but gave a certificate under section 66A of the Act.
Held, on appeal, that the High Court correctly answered the questions the provisions of section 24 of the Act read with the provisions in section 4(1) (a) and (c) and section 14(2)(c) make it clear that sub s(1) of s: 24 when it talks of profits or gains has reference to taxable profits or taxable gains ; it has no reference to income accruing or arising without the taxable territories which were not liable to be assessed in the case of non residents.
In determining the nature of the losses under consideration in these appeals the relevant year was 1948 49, the year in which the losses occurred, and the High Court rightly took the view that for the application of sub s (2) of section 24, the losses must be such losses as could have been set off under sub s.(1) of section 24.