judgement:
Civil Appeal No. 225 of 1960.
Appeal from the judgment and decree dated April 19, 1957, of the Madhya Pradesh High court (Indore Bench) at Indore in Civil Reference No. 1 of 1952.
B. Sen, B.K.B. Naidu and I.N. Shroff, for the appellant.
A. V. Viswanatha Sastri, K. A. Chitale, J. B. Dadachanji, section N. Andley, Rameshwar Nath and P. L. Vohra, for the respondents.
1961, December, 20 The Judgment of the Court was delivered by AYYANGAR, J.
This appeal comes before us by virtue of a certificate of fitness granted by the High Court of Madhya Pradesh under section 47(2) of the 245 Gwalior War Profits ordinance, Samvat 2001 (hereafter called the Ordinance) on the ground that the appeal involves a substantial question of law.
The question of law which arises in the appeal relates to the proper construction of r. 3(1) of the Schedule of the ordinance.
The respondent M/s.
Binodiram Balchand is the name under which a Hindu undivided family which wag resident in the State of Gwalior carried on various businesses in that State.
Profits derived from business carried in the State were charged to War Profits Tax under the ordinance.
Among the businesses carried on by the respondent was its employment as the Secretary Treasurer and Managing agent of a textile mill which was a limited company bearing the name of Binod Mills Company Limited, Ujjain.
The appeal is concerned with the computation of the profits of the respondent to War Profits Tax under the ordinance, which it might be stated at the outset, was on lines very similar to the Indian Excess Profits Tax Act, 1940.
The chargeable accounting period with which the appeal is concerned, is the period commencing from July 1, 1944, to.
October 16, 1944.
The respondent assessee submitted its return and thereafter the War Profits Tax officer by his assessment order dated July 9, 1951, determined the taxable income of the assessee for this chargeable accounting period at Rs. 12,16,145/ and assessed it to tax in the sum of Rs. 2,02,691/ .
Several points were raised in relation to this assessment order by the respondent, and one of them related to the inclusion in its assessable profits of a sum of Rs. 11,09,332/ which was received by the respondent on July 5, 1944, being the dividend declared and paid by the Binod Mills Ltd" for 1943 on the shares held by the respondent.
It was the contention of the respondent that this sum was its income from an investment pure and simple and was not 246 "profits" from business, and so could not be included in its taxable profits on a proper construction of the relevant provisions of the ordinance.
From the assessment order the respondent filed an appeal to the appellate authority which however was unsuccessful.
A revision to the Commissioner of War Profits Tax met with the same fate and thereafter the respondent prayed for a reference to the High Court under section 46(1) of the ordinance which ran thus: `46(1) If, in the course of any assessment under this ordinance or any proceeding in connection therewith, a question of law arises, The Commissioner, may; either on his own motion or on reference from any War Profits Tax authority subordinate to him, draw up statement of the case and refer it with his own opinion thereon to the High Court.
" The Commissioner acceded to this request and referred for the opinion of the High Court three questions:, "(1) Whether the dividend income of Rs. 11,09,332/ received from the Binod Mills was chargeable under the War Profits Tax ordinance ? (2) Whether certain bad debts written off by the assessees could be allowed as deductions in computing profits for war tax purpose? (3) Whether the expenses of assessees ' branch at Gwalior which was defunct, could be allowed as admissible expenses ?" The High Court answered questions 2 and 3 in favour of the department, but the first question was answered in the negative and in favour of the assessee.
There is now no dispute as regards questions 2 & 3 and the appeal is confined to the correctness of the answer to the first question.
247 Before setting out the grounds upon which the High court decided the reference in favour of the respondent it is necessary to read a few of the provisions of the relevant law which bear upon the point arising for consideration.
The preamble to the ordinance recites that it was enacted to impose a tax on "excess profits arising out of certain businesses" and this intention is carried out by section 4(1) which is the charging section which enacts: "4(1) Subject to the provisions of this ordinance, there shall, in respect of any business to which this ordinance applies, be charged, levied and paid on the amount by which the profits during any chargeable period exceed the standard profits, an excess profit tax (in this ordinance referred to as the War Profits Tax ') which shall be equal to 60 per cent.
of the aforesaid amount.
" The expression `business ', the profits derived from which are thus brought to charge is defined by section 2(5) in these terms: "2(5) `business ' includes any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacturer or any profession or vocation, but does not include a profession carried on by an individual or by individuals in partnership, if the profits of the profession depend wholly or mainly on his or their personal qualifications, unless such profession consists wholly or mainly in the making of contracts on behalf of other persons or the giving to other persons of advice of a commercial nature in connection with the making of contracts: Provided that where the functions of a company or of a society incorporated by or under any enactment consist wholly or mainly in the holding of investments or other property or both, the holding thereof shall be 248 deemed for the purpose of this definition to be a business carried on by such company or society; Provided further that all businesses to which this ordinance applies carried on by the same person shall be treated as one business for the purposes of this ordinance;" There are two further definitions which are of some relevance to the arguments addressed to us and might therefore be set out at this stage.
Section 2(14) defines the expression `prescribed ' as meaning "prescribed by Rules made under the ordinance;" section 50 being the provision empowering the Government make rules and this section ran: "50(1) Subject to the provisions of this ordinance, Government may make rules for carrying out the purposes of this ordinance.
(2) Rules made under this section shall be published in the official Gazette and shall thereupon have effect as if enacted in this ordinance.
" The other relevant definition is of the expression profits ' which is defined in section 2 (16) as: "profits as determined in accordance with the provisions of this Ordinance and its first schedule;" There is a First Schedule which follows the ordinance and which is headed 'Rules for the computation of profits for the purposes of War Profits Tax ', and of these the one pertinent to the matter in controversy in the appeal is r. 3 of which sub rs.
(1) and (2) have been relied on in the course of arguments.
They run: "3(1)Income received from investments shall be included in the profits of a business liable to the War Profits Tax, unless it is proved to satisfaction of the War Profits 249 Tax Officer that the investments have no connection whatever with the business.
(2) In the case of a business which consists wholly or mainly in the dealing in or holding of investments, income received from investments shall be deemed to be profits of that business, and in the case of a business, a specific part only of which consists in dealing in investments, the income received from investments held for the purpose of that part of the business shall be deemed to be profits of that part of the business.
Explanation: 'The income from investments to be included in the profits of the business under the provisions of this rule shall be computed exclusive of all income received by way of dividends or distribution of profits from a company carrying on a business, to the whole of which the Section of the Ordinance imposing the War Profits Tax applies".
Pausing here, it is necessary to mention that in relation to the first question regarding the inclusion of the dividend income in the taxable profits of the assessee three contentions were raised on behalf of the respondent which are thus set out in the judgment under appeal: "(1) The assessees did not deal in shares and their holdings in the Binod Mills Limited, were purely in the nature of investments, having no connections with their business as defined in Section 2(5) read with Rule 1 of Sch.
I of the Gwalior War Profits Tax Ordinance.
The business of the Secretaries, Treasurers and Agents of the Binod Mills Limited, which was carried on by them did not require any holding of the shares of the company and 250 was not dependent on their investment in the said company.
(2) The dividend income accrued or arose from the profits of the Binod Mills Limited, and as the Ordinance applied to the business carried on by this company, the dividends were excluded under the explanation to Rule 3(1) of Schedule I. (3) The dividend income should be considered as income of the full accounting period, i.e. from Diwali of 1943 to Diwali of 1944 and should be apportioned on that basis.
" The learned Judges of the High Court dealt only with the first of the above contentions, and having accepted it, considered it unnecessary to express any opinion on the other two.
We may now proceed to state the grounds upon which the learned Judges of the High Court answered this contention in favour of the respondent.
It was urged before them by the respondent that though the provisions headed 'Rules for the computation of business ' purported to be part of the Ordinance itself as forming the Schedule to the Ordinance, they were in reality rules made by government under the rule making power conferred on it by section 50 of the Ordinance, This argument was accepted apparently being aided by the fact that immediately after the title "Schedule I" occur the words "See Section 2(14)".
Proceeding on this basis the reasoning of the learned Judges was on these lines.
The charge under section 4(1) was on the profits of a business and unless an activity which resulted in any income derived was one in the nature of trade, the mere fact that income was derived therefrom would not make it assessable to tax under the ordinance.
This they deduced from an interpretation of the words used in the charging section read in conjunction with the definition of "profits" in section 2(16).
The next question was whether 251 the dividend which the respondent obtained from the shares held by it in the Binod Mills Ltd., of which it was the Secretary, Treasurer and Managing agent were profits derived by any business activity.
Unless the acquisition of the shares was an adventure in the nature of trade or the respondent was a dealer in shares, such that the shares held by it were part of its stock in trade, the income derived therefrom by way of dividends could not be characterised as profits from business.
If this was the result on a proper construction of the Act the question the learned Judges addressed themselves to next was, whether r. 3(1), which according to them was a piece of subordinate legislation, could validly bring to charge an item of income which was not within the scope of the Ordinance itself, and this had necessarily to be answered in the negative.
They consequently held that r. 3(1) of the 1st Schedule was beyond the power of the rule making authority under section 50 of the Ordinance and answered the first question referred to them in favour of the assesssee.
Mr. Sen, learned Counsel for the appellant has however placed before us material to show that Sch.
I containing the rules for the computation of profits were not rules made by the Government under section 50 of the Ordinance but was really part of the Ordinance itself.
In the first place, it has to be noted that section 2(16) speaks of Sch.
I to the Ordinance, and admittedly besides the one now produced before us there was no other Schedule attached to the Ordinance.
It is impossible to hold that with section 2(16) in the form in which we now find it, the rules for the computation of the business did not form part of the Ordinance having been enacted simultaneously as part and parcel thereof.
In this connection it might be pointed out that the Excess Profits Tax Act, 1940, which formed the basis or model upon which the Ordinance was fashioned has 252 a similar Schedule headed "Rules" for the computation of profits" and the Schedule formed part of that Act.
The only ground for even a suspicion that Sch.
I was not a part of the Ordinance itself is the reference to section 2 (14) in the heading of these rules just below the words Schedule I, but very little assistance can be sought from this reference, because section 2(14) in not itself the source of power for making rules which is section 50 of the Ordinance and, in fact, rules have been made under the power conferred by section 50 of the Ordinance; vide War Profits Tax Rules Samvat 2001, No. 65 dated December 26, 1944, which carries the recital in the following terms: "In exercise of the powers conferred by section 50 of the War Profits Tax Ordinance the Government of Gwalior are pleased to make the following rules. " It is obvious therefore "section 2(14) in Sch.
I is a mistake or a misprint for "section 2(16)" and it might be noted that in the corresponding Schedule to the Indian Excess Profits Tax Act, 1940, immediately after the title "Schedule I" occur the words "See section 2(19)" which in that enactment corresponds to section 2(16) of the Ordinance.
There are other circumstances to which Mr. Sen has drawn our attention which also point to the Schedule being part of the Ordinance and not rules made under section 50.
The Schedule was the subject of amendments more than once and each time this was done it is significant that this was done not by virtue of the exercise of the rule making power under section 50 of the Ordinance but by further ordinances showing clearly that the Schedule was part of the Ordinance itself.
To give just a few example, the Explanation to r. 3(2) which we have extracted earlier was not in the Schedule as originally enacted but was introduced as 253 an amendment by Ordinance No. 42 dated February 28, 1946.
The short title of this Ordinance runs: "This Ordinance might be called the Gwalior War Profits Tax (Amendment) Act, Samvat 2002".
Further it would be noticed that in the Explanation there is a comma after the words "carrying on a business".
That comma was not there when the schedule was amended by the Amending ordinance of February 28.
1946, but was introduced by Ordinance 5 of Samvat 2004 and the short title of this second Ordinance reads: "This Ordinance might be called the Gwalior War Profits Tax (Amendment) Ordinance Samvat 2004".
We do not consider it necessary to dilate on the point as we are clearly of the opinion that the Schedule was part of the Ordinance and has therefore to be read not as subordinate legislation under r. 50 but as part and parcel of the Ordinance itself.
The whole basis therefore of the reasoning upon which the learned Judges of the High Court proceeded falls to the ground and the only question is whether accepting the respondent 's case that the shares held by it in the Binod Mills Ltd. were really part of its investments, these investments have "any connection" with its business.
It is common ground that the respondent was the Secretary, Treasurer and Managing agent of the Binod Mills and what we are now concerned with are the shares held by it in that company.
In the case of every assessee who carries on a business activity and is in receipt of profits from that business, on the terms of r. 3(1) income from every investment held by him is liable to be included in the profits assessable to tax unless such person was able to satisfy the 254 revenue authorities that the investments had "no connection whatever" with his business.
Mr. Viswanatha Sastri, learned Counsel for the respondent sought to overcome this position by submitting that the "connection" contemplated by the rule was a direct "connection" and not a remote or fanciful one and that in the present case there was really no connection between the respondents ownership of these shares and the office of managing agent which it held.
His contention was that except the fact that the recipient of the profits from the "business" of managing agency and of the dividend income was the same, there was no other connection between the one and the other.
In further elaboration of his point, he invited us to hold that the "connections would be direct only where the investment was related to a business activity as cause and effect or as a sine qua non.
Thus if it was a requirement either of the Articles of Association of the company or of the Managing Agency Agreement, that the managing agent should be a shareholder, or the holder of specified number of shares, then alone, learned Counsel contended, the managing agent being dependent on the shareholding, there would be that connection which would bring the dividend income with in the expanded definition of profits from business under r. 3(1).
In all other cases where shares were held, without the assessee being obliged to hold them for the purpose of his business activity, no distinction, Counsel submitted, could be drawn between the investment in the shares of a company with which he had nothing to do, and a company which he managed under an agreement.
Learned Counsel further stressed that the case of the respondent was stronger because the Managing Agency Agreement with the respondent was to last so long as the respondent firm existed and carried on business in that name and could not be terminated by the company "save and except when the agent being 255 found guilty of fraud in the Management or in the discharge of their duties." and having regard to this security of tenure which the respondent enjoyed, the holding of these shares had no connection whatever with the business of managing agency.
We find ourselves unable to accept this interpretation of r. 3(1).
The relevant words in the rule being "any connection whatever" it would not be giving proper effect to the meaning of the words "any" and "whatever" to restrict it to cases of "direct connection" in the sense suggested on behalf of the respondent.
But this apart, by the number of shares which the respondent owned in the mills it is admitted that it obtained a controlling interest it held the majority of the shares in the company.
The respondent was therefore enabled by reason of this investment to control the action of the company which was the other party under the Managing agency Agreement.
This control was capable of being used to further the interests of the Managing agent in its relations with the company and whether or not this was used for obtaining advantages, it would certainly be available for avoiding any disadvantages arising from misunderstandings with the company.
It could not be denied that the control would certainly be useful to keep the relations between the company and the Managing agent smooth so as to enable the Managing agent to earn his commission etc.
without differences or disputes.
Even if therefore the word "connection" in r. 3(1) meant a "direct" connection a construction which we do not adopt it appears to us that the present case satisfied even that test.
In any event the "connection" is not anything remote, fanciful or imaginary, but on the other hand real and capable of being turned to good account.
It certainly cannot be equated with the holding of shares by the respondent in a company with which he had no connection other than as a shareholder.
256 We are therefore of the opinion that the dividend received by the respondent from the Binod Mills Ltd., was properly included by the assessing authorities in the computation of the taxable profit of there respondent under the Ordinance and that the High Court erred in answering the reference in favour of the assessee.
We have already pointed out that the High Court did not deal with or express any opinion on the two subsidiary contentions urged by the respondent with reference to the first question.
Those points were also naturally not argued before us and we do not express any opinion on them.
It is obvious that the reference cannot be disposed of without deciding these contentions and the case would have to be remanded to the High Court for dealing with these subsidiary points.
The appeal will accordingly be allowed, the judgment of the High Court set aside and the first contention in relation to question No. 1 answered against the assessee and in favour of the appellant and the case remanded to the High Court for the consideration of the other contentions with reference to that question.
The appellant will be entitled to his costs here.
The costs in the High Court will be provided in its final order.
Appeal allowed.

summary/full:
Rule 3 (1) of such.
I of the Gwalior War Profits Tax ordinance, Samvat 2001 provided: "Income received from investments shall be included in the profits of a business liable to the war Profits Tax, unless it is proved to satisfaction of the War Profits Tax officer that the investments have no connection whatever with the business." The respondent, a Hindu undivided family, was carrying on various businesses in the erstwhile State of Gwalior, and one of them was its employment as the Secretary, Treasurer and Managing Agent of, a limited company.
The respondent held a majority of the issued shares in the company.
For the accounting period July 1, 1944, to October 16, 1944, the War Profits Tax officer by his assessment order dated July 9, 1951, included in its assessable profits the sum received by the respondent on July s, 1944, as the dividend declare and paid by the company on its shares.
The respondent claimed that the said sum could not be included in its taxable profits on the ground that it did not deal in shares and that its holdings in the company were purely in the nature of investments having no connection with its business as defined section 2(5) of the ordinance Gwalior War Profits ordinance and that the business of the Secretaries, Treasurers and Managing Agent of the company which was carried on by it did not require any holding of the shares of the company and was not dependent on its investment in the said company.
The High Court of Madhya Pradesh took the view (1) that on a proper construction of the provisions of the ordinance, unless the acquisition of the shares was an adventure in the nature of trade or the respondent was a dealer in shares such that the shares held by it were part of its stock in trade, the income derived therefrom by way of dividends could not be characterised as profits from business, and (2) that Sch.
I of the Ordinance which 244 was headed "Rules for the computation of business", though it purported to be part of the Ordinance, in reality comprised rules made by Government under the rule making power conferred on it by section 50 of the ordinance and that r. 3 (I) of the Schedule, being subordinate legislation could not validly bring to charge an item of income which was not within the scope of the ordinance itself. ^ Held that : Schedule I of the Gwalior War Profits Tax Ordinance was part and parcel of the ordinance itself and, therefore, could not be considered to be subordinate legislation as rules framed under section 50 of the ordinance (2) the word "connection" in r. 3 (1) of Sch.
I of the Ordinance was not restricted to cases of "direct connection", in view of the expression "no connection whatever" in that rule; and (3) the respondent as the holder of the majority of the shares in the company, was enabled by reason of this investment to control the action of the company which was true other party under the Managing Agency Agreement, and therefore, the investment was connected with the business carried on by it within the meaning of r. 3(1) of Sch.
I of the ordinance.
Accordingly, the dividend received by the respondent from the company was properly included by the assessing authorities in the computation of its taxable profits under the ordinance.


judgement:
minal Appeal No . 67 of 1952.
Appeal by special leave from the Judgment and Order dated the 14th September, 1951, of the High Court of Judicature for the State of Punjab at Simla (Bhandari and Soni JJ.) in Criminal Appeal No. 361 of 1950, arising out of Judgment and Order dated the 13th May, 1960, of the Court of the Sessions Judge, Ferozepore, in Trial No. 28 of 1950 and Case No. 5 of 1950.
P. section Safeer for the appellant.
Gopal Singh for the respondent.
December 10.
The Judgment of the Court was delivered by MAHAJAN J.
Ajmer Singh, a young man of about 22 years of age was tried for the murder of Bagher Singh, his first cousin, and was acquitted by the Sessions Judge of Ferozepore by his judgment dated 13th May, 1950.
On appeal by the State Government, the order of acquittal was set aside by the High Court and the appellant was convicted under section 304, Indian Penal Code, and sentenced to ten years ' rigorous imprisonment.
This is an appeal by special leave against that decision.
One Nikka Singh had three sons, Bhagwan Singh, Lal Singh and Sunder Singh.
Bhagwan Singh died issueless some years ago and disputes arose between Lal Singh and his brother Sundar Singh in regard to the division of the property of Bhagwan Singh.
Sunder Singh was in possession of some of his landed 420 properties and Lal Singh obtained a number of decrees against him but Sunder Singh declined to restore possession of the properties to his brother Lal Singh.
In view of this litigation the relations between Lal Singh and Sunder Singh were considerably strained and it is said that for some time they were not even on speaking terms.
Lal Singh is married to Mst.
Dhan Kaur and from her he had two sons.
One of them Bagher Singh was murdered and the other, Arjan Singh, is P. W. 5.
Accused Ajmer Singh is the son of Sunder Singh and Banta Singh is his real brother.
Ajmer Singh is married to Jagir Kaur and Banta Singh to Kartar Kaur.
It is alleged by the prosecution that on the evening of the 27th January, 1948, Jagir Kaur complained to her fatherin law that her husband had pawned her ear rings in order to pay off his gambling debts.
On the morning of the 28th Banta Singh inquired from Ajmer Singh about this matter and he replied that he had pawned the ear rings to one Banta Singh Mazhbi.
Soon after this Ajmer Singh, Banta Singh and one Teja Singh went to Banta Singh Mazhbi and asked him to return the ear rings but the latter replied that no ornaments had been pawned with him and added that he would give a sum of Rs. 30 to them if Ajmer Singh took an oath that the ornaments had in fact been left with him.
It is said that Lal Singh was also present when this conversation took place and took up cudgels on behalf of Banta Singh Mazhbi and this led to an exchange of hot words between Lal Singh and the party of Sunder Singh 's two sons and their companion Teja Singh.
The parties, however, dispersed after exchanging hot words but without coming to blows.
At about sunset the same day Lal Singh and his brother Sunder Singh started abusing each other from their respective houses which open out into a common.courtyard.
This wordy warfare between the two brothers attracted the attention of Arjan Singh, Bagher Singh and one Ujagar Singh Mazhbi who on bearing the noise came to the house of Lal Singh.
421 Lal Singh finding himself supported by three others threw out a challenge to Sunder Singh and told him to come out in the open.
It is said that Sunder Singh, his two, sons Banta Singh and Ajmer Singh, and Teja Singh, a cousin of theirs, accepted the challenge and rushed out of the house.
Teja Singh and Banta Singh were armed with spears and they made an attack on Lal Singh and Dhan Kaur and inflicted on their persons a number of injuries.
Ajmer Singh, it is said, was armed with a spear and he plunged his weapon into the chest of Bagher Singh who collapsed and died almost instantaneously.
Arjan Singh soon after reported this incident at the police station after travelling a distance of about seven miles at 11 45 p. m.
He gave to the police substantially the same version as has now been deposed to by him in the witness box.
In this report it was stated by Arjan Singh that it was Ajmer Singh who dealt Bagher Singh a barchha blow on his chest and that Bagher Singh fell down at this blow.
The police arrested Sunder Singh, Teja Singh and Banta Singh but the appellant could not be found.
Sunder Singh, Teja Singh and Banta Singh were prosecuted under section 302/34 but were convicted under section 324, Indian Penal Code, Banta Singh and Teja Singh were sentenced to two years ' rigorous imprisonment each and Sunder Singh to six months ' rigorous imprisonment.
On appeal, Sunder Singh was acquitted and the sentences imposed on Banta Singh and Teja Singh were reduced.
A lenient view ' of the affair seems to have been taken because the fight between these near collaterals took place suddenly and ended promptly.
Bagher Singh died as a result of one blow and injuries on the person of Lal Singh and Dhan Kaur were not very serious Ajmer Singh was apprehended on 4th December, 1948, and as above stated, was tried by the learned Sessions Judge of Ferozepore and acquitted, but was convicted by the High Court on appeal by the State Government.
422 Lal Singh, P. W. 3, father of the deceased, Dhan Kuar, his mother, and Arjan Singh,his real brother, have given direct evidence about the occurrence.
Ujagar Singh Mazhbi whose name is mentioned in the first information report was tendered for cross examination but no question was put to him about the actual fight, and the manner in which it took place or the part that was taken in it by the accused.
One Bishandas, whose shop adjoins the shop of Banta Singh Mazhbi, was tendered for cross examination as P.W.7.
He deposed that Banta Singh Mazhbi and Lal Singh were the only persons when the quarrel about ear rings took place near his shop.
In reexamination he stated that Banta Singh, brother of the accused, and Teja Singh had come on one side and Lal Singh on the other when the quarrel about the ear rings took place.
No direct question was put to the witness about the presence of, Ajmer Singh on that occasion.
The learned Sessions Judge considered him a wholly independent witness and accepted his evidence about the incident that took place at Banta Singh Mazhbi 's shop on the morning of the 28th.
He held that Ajmer Singh was not present at Banta Singh Mazhbi 's shop and that Lal Singh and Arjan Singh had falsely implicated him in the quarrel over the ear rings, and that if the witnesses could falsely involve him in regard to one part of the occurrence, the possibility of his being implicated for the murder of Bagher Singh merely as a matter of vindictiveness could not be outruled.
After examining the evidence of the three eye witnesses in detail, the learned Sessions Judge reached the conclusion that they had suppressed the facts in order to absolve themselves of all liability for the happenings of the 28th, and had uttered untruths and that no confidence could be reposed in their statements about the part that they had assigned to Ajmer Singh.
In the concluding part of the judgment he observed that " the parties were at logger heads on several issues and in the absence of independent evidence it is difficult to place reliance on the prosecution story 423 in regard to Ajmer Singh.
" The High Court on appeal minutely reviewed the evidence of these three eye witnesses and considered that the variations in the statements of witnesses made at , the two trials and which had weighed on the mind of the Sessions Judge were of a minor and trifling character and were quite natural as the Statements at this trial had been made 27 months after the occurrence and that the narration of events by Arjan Singh was substantially the same as had been given by him at the earlier trial and in the first information report.
As regards Lal Singh, who had resiled from his earlier statement and bad denied that he was armed with a phaura or that Arjan Singh wag armed with a lathi, it was said that this omission on his part was due to mere lapse of memory and forgetfulness rather than to a deliberate design to improve upon the prosecution story.
It was argued by Mr. Pritam Singh Safeer that in this case there were no compelling reasons for setting aside the order of acquittal and that due proper weight had not been given by the High Court to the opinion of the trial judge as regards the credibility of witnesses seen and examined by him.
The learned counsel submitted that the High Court was in error in the view that "when a strong prima facie case is made out against an accused person it is his duty to explain the circumstances appearing in evidence against him and` he cannot take shelter behind ' the presumption of innocence and cannot state that the law entitles him to keep his lips sealed.
" We think this criticism is well founded.
After an order of acquittal has been made the presumption of inno cence is further reinforced by that order, and that being so, the trial court 's decision can be reversed not on the ground that the accused had failed to explain the circumstances appearing against him but only for ,very substantial and compelling reasons.
As the courts below expressed divergent opinions on the credibility of the prosecution witnesses, we 35 424 had to read the evidence adduced in the case with great care and after doing so, we are on the whole inclined to agree with the view expressed by the High Court.
It is difficult to believe that without there being any truth in the fact that the appellant struck Bagher Singh with a barchha, Arjan Singh selected the appellant and ascribed to him that part soon after the occurrence.
There are no material discrepancies in the statements made by Arjan Singh on different occasions and in our view the reasons given by the learned Sessions Judge for rejecting his testimony are not convincing.
We agree with the High Court that there are no sufficient reasons for distrusting his evidence.
The number of persons who took part in the quarrel was not more than seven or eight and the blows inflicted were few, and in these circumstances Arjan Singh could have made no mistake as to the identity of the person who struck Bagher Singh fatally.
This part of his statement is corroborated by the evidence of Lal Singh and Dhan Kaur.
No cross examination was directed, against this part of their statements.
It seems that the learned Sessions Judge took too exaggerated a view of the minor discrepancies in these statements and read them with a rather hypercritical mind.
Bishandas, whose statement considerably impressed him, was only tendered for cross examination and never made a full statement about the happenings of the 28th morning.
The statement made by him is somewhat cryptic and from this it cannot be definitely concluded that Ajmer Singh was not present on the morning of the 28th at the shop of Banta Singh Mazhbi.
The learned Sessions Judge was not right in rejecting the whole of the prosecution evidence as unreliable merely on the basis of this cryptic statement.
Ujagar Singh, the other so called independent witness, was tendered for cross examination but the defence did not ask him a single question about the happenings of the 28th.
The argument therefore that the prosecution withheld from court independent witnesses who had witnessed the occurrence is without any substance.
The learned Sessions Judge 425 was apparently labouring under some misapprehension when he said that the prosecution had withheld from the court independent witnesses of the occurrence.
Apart from Ujagar Singh Mazhbi, no one else appears to have been present when the attack was made on Bagher Singh, Lal Singh and Mst.
Dhan Kaur by the party of the accused.
All that appears in evidence is that after the fight was over a number of persons arrived on the scene but as they did not witness the attack on Bagher Singh they could give no evidence on this point and their non production as witnesses cannot have any consequence on the case.
It is significant that the defence also led no evidence to prove that the fight took place in a manner different from the one described by the prosecution witnesses, or that Ajmer Singh was not present on the occasion.
In an appeal under section 417 of the Code of Criminal Procedure the High Court had full power to review the evidence upon which the order of acquittal was founded and we are satisfied that it did not in any way exercise it wrongly The injuries on the person of Kartar Kaur and under Singh were not proved to have been inflicted at the time of the occurrence and were of no consequence.
The prosecution was under no obligation to explain how they came about.
It was next argued that the trial held by the Sessions Judge was vitiated as the examination of the appellant was not in accordance with the provisions of section 342, Criminal Procedure Code.
There is considerable force in the point that the examination of the appellant by the Sessions Judge was detective.
All that the Sessions Judge did was, that he read out the examination of the accused in the committal court to him and then recorded the following questions and answers: " Q: Did you make before the Committing Magistrate the statement that has just now been read out to you ? A: Yes.
426 Q:Now that you have heard the entire evidence against yourself and the charge has been explained to you, do you wish to say anything else ? A: I am innocent.
Q: Do you wish to produce any evidence indefence ? A: No." In the committal court the 'questions put to the accused and his answers were these : " Q: Did you pawn the, ear ring of your wife with Banta Mazhbi and squander the proceeds on or about 28th January, 1948 ? A: No. Q : Did Lal Singh interfere when you were demanding the ear rings from said Banta Singh on 28th January, 1948, at Nathuwala and remark that the sweeper, i.e., Banta, was speaking truth when he denied the transaction ? A: No. Q: Did you on 28th January , 1948, at Nathuwala along with your father Sunder Singh, Banta Singh, and Teja Singh, you Banta Singh and Teja Singh being armed with spears, attack Lal Singh, his 'son Bagher Singh and Dhan Kaur at their house and in furtherance of the common intention of you all, Banta and Teja caused simple injuries to Lal Singh with spears and you caused fatal injuries with a spear to Bagher Singh deceased? A No. Q Why this case against you ? A Due to enmity.
Q Anything else to say? A No." The Sessions Judge did not even take care to ask the accused the routine question whether the statement made by him in the committal court was correct.
As if bard pressed for time, be simply asked him whether he had made that statement read out to him in the committal court, and was satisfied with an 427 answer, in the affirmative.
The, second question asked, is of a general character and. ' does not satisfy the requirements of section 342, Criminal Procedure Code.
We are of the opinion that when the Sessions Judge is required by that section to make the examination of the .accused, his duty is not discharged by merely reading over the questions and answers to the accused put in the committing magistrates court and by asking him whether he has to say anything about them.
It is not, sufficient compliance with the section to generally ask the accused that having heard the prosecution evidence, what he has to say about it.
The accused must be, questioned separately about each material circumstance which is intended to be used against him.
It was pointed out by this Court in Tara Singh vs The State(1) that the whole object of the section, is to afford the accused a fair and proper opportunity of explaining circumstances which appear against him and that the questions must be fair and must be couched in a form which an ignorant or illiterate person will be able to appreciate and understand.
In this particular case at one stage of the argument we were inclined to order a retrial of the accused in view of the defective examination of the accused by the Sessions Judge but on further thought we have reached the conclusion that the 'High Court was right in the view that the defective procedure followed by the Sessions Judge in this respect has not occasioned any prejudice to the accused.
The facts of the case are free from any complication and the point in issue was a simple one and it cannot be said that the per functory examination of the appellant did any damage.
The only point appearing in the evidence against the accused was that he gave a barchha blow to Bagher Singh.
The witnesses had stated that fact in his face and had been cross examined on the point by his counsel.
He was fully apprised of the part ascribed to him in the quarrel.
His answer to this specific question in the committal court was that he was innocent and that he was being implicated owing to (1) ; 428 enmity.
He stuck to that reply in the Court of Session after fully understanding what he was asked.
It is well settled that every error or omission not in compliance with the provisions of section 342 does not necessarily vitiate a trial.
Errors of this type fall within the category of curable irregularities, and, as held in Tara Singh 's case(1), the question, whether the trial is vitiated, in each case depends upon the degree of the error and upon whether prejudice has been or is likely to have been caused to the accused.
We are of the opinion that the disregard of the provisions of section 342 in this case is not so gross as would justify our quashing the conviction and ordering a retrial.
The result is that we uphold the judgment of the High Court and dismiss the appeal.
Appeal dismissed.

dataset_name: IN-Abs

summary/full:
After an order of acquittal has been made the presumption of innocence is further reinforced by that order, and that being so, the trial court 's decision cannot be reversed merely on the ground that the accused had failed to explain the circumstances appearing against him but only for very substantial and compelling reasons.
In an appeal under section 487, Criminal Procedure Code, the High Court has full power to review the evidence upon which the order of acquittal was founded.
The duty of a Sessions Judge under section 342, Criminal Pro cedure Code, to examine the accused is not discharged by merely reading over the questions put to the accused in the Magistrate 's Court and his answers, and by asking him whether he has to say anything about them.
It is also not a sufficient compliance with the section to generally ask the accused t hat, having heard the prosecution evidence what he has to say about it.
He must be questioned separately about each material circumstance which is intended to be used against him.
The, whole object of the section 419 is to afford the accused a fair and proper opportunity of explaining circumstances which appear against him and the questions must be fair and must be couched in a form which an ignorant or illiterate person may be able to appreciate and understand.
It is, however, well settled that every error or omission complying with section 342 does not necessarily vitiate the trial.
Errors of this type fall within the category of curable irregularities and the question whether the trial has been vitiated depends in each case upon the degree of error and upon whether prejudice has been or is likely to have been caused to the accused.
Tara Singh vs The State ([1951] S.C.,R. 729) referred to.


judgement:
Civil Appeal No. 300 of 58.
A. N. Sinha, N. H. Hingorani and P. K. Mukherjee, for the appellants.
C. K. Daphtary, Solicitor General of India, R. Ganpathy Iyer and R. H. Dhebar, for respondent No. 1.
C. K. Daphtary, Solicitor General of India and K. L. Hathi, for respondent No. 3.
1961 December 13.
The Judgment of the Court was delivered by SARKAR, J.
This appeal raises certain questions as to the validity of an order made under section 36 of the , sanctioning the transfer of its life insurance business by one insurance company to another.
The appellants had challenged that order by a petition field under article 226 of the Constitution in the High Court of Punjab.
The High Court having dismissed the petition they have come to this Court in appeal.
There are three appellants, one of whom is a shareholder of the transferor company, another a policy holder in it and the third, one of its agents who claims to have become entitled under the to receive from it commission on renewal premiums paid on life insurance business 132 introduced by him.
They complain that their respective rights have been adversely and illegally affected by the sanction.
The transferor company is the India Equitable Insurance Company Ltd. and the transferee company, the Area Insurance Company Ltd. Under the transfer all the life insurance business including liabilities issued and all the life fund of the transferor company were taken over by the transferee company.
It is said and perhaps that is the correct position that as a result of the transfer all the transferor company would vest in the transferee company and the transferor company would really become defunct.
The first point argued by Mr. Sinha for the appellants is that the transfer offends sections 10 and 12 of the Companies Act.
The Companies Act with which we are concerned, is the Companies Act of 1913 as it stood in 1954.
Section 10 of the Companies Act provides that a company shall not alter the conditions contained in its memorandum except as provided in that Act.
Section 12 states that a company may by special resolution alter the provisions of its memorandum with respect to its objects but that the alteration shall not take effect until it is confirmed by court on petition.
The contention of the learned Advocate is that the arrangement of transfer really amounts to abandonment of the business of the transferor company and therefore to an alteration of its memorandum without following the procedure laid down in section 12 and this cannot be done.
The obvious answer to this contention is that the transfer does not effect any alteration in the memorandum of the transferor company.
Clause 3(27) of the memorandum of the transferor company gives it the power to sell its undertaking.
The transfer in this case is an exercise of this power and hence within the objects of the company.
An exercise by a company of a 133 power given by its memorandum cannot amount to an alteration of the memorandum at all.
It is then said that clause only authorised a sale and that a sale is a transfer for a consideration.
It is contended that in the present case there was no consideration moving from the transferee company and, therefore, the transfer was not by way of a sale.
This, it is contended, was, therefore, a transfer without any power in that regard in the memorandum and hence in substance amounts to unauthorised alteration of it.
We were referred to various balance sheets and other figures in support of this contention.
This point as to want of consideration was not taken in the petition and the High Court did not permit it to be raised.
We have, therefore, to proceed on the basis that the transfer was a sale.
We wish however to make it clear that we are not deciding what is enough consideration for a sale, nor whether a transfer not authorised by the memorandum would amount to an alteration of the memorandum.
What we have said furnishes enough answer to the contention raised.
Mr. Sinha then contends that the result of the transfer was a virtual winding up and that it was not one of the corporate objects of a company to wind it up.
The contention was that the winding up could be effected only under the provisions of the Companies Act.
We were referred to Bisgood vs Henderson 's Transvaal Estates Ltd(1) as authority for this proposition.
We think, this contention is misconceived.
What was done in this case was done under the provisions of the and not by way of carrying out a corporate object of the transferor company.
Now, section 117 of the provides that nothing in that Act would affect the liability of an insurance company to comply with the provisions of the Indian Companies Act, in matters not otherwise specifically provided for by it.
Section 36, of the , which has for the present purpose to be read with section 35 of that 134 Act, makes certain specific provisions which, as we shall presently show, override the provisions of the Companies Act.
The objection based on Bisgood 's case(1) is ill founded.
There a company was sought virtually to be wound up and its assets distributed in purported exercise of a power to sell the undertaking and other cognate powers contained in its memorandum of association, and this the Court said could not be done as it would make the provisions for winding up in the Companies Act ineffective.
In the present case the thing has been done under express statutory power.
No question here arises of a corporate power in the sense it arose in Bisgood 's case (1).
Further there is not here, as there was in Bisgood 's case (1), a distribution of the assets of the transferor company after its undertaking had been transferred.
Hence we have here no winding up really.
The next contention of Mr. Sinha is that the arrangement for the transfer had been made by the directors and the directors had no power in view of section 86H of the Companies Act, to transfer the undertaking of the company.
That section gave the directors power to transfer the undertaking with the consent of the company in a general meeting.
In the present case, what had happened was that an agreement between the two companies for the purpose of the transfer had been made by the directors and it was subsequently approved by the shareholders of the transferor company at a general meeting by about 82 per cent, majority.
It was after such approval that the transfer had been sanctioned under section 36 of the , and may be, though we do not have this on the record, the transfer was effected by proper documents executed between the companies.
An agreement only to transfer the undertaking by the directors clearly does not violate section 86H for it is merely 135 tentative subject to final approval by the Company in general meeting.
This we think is by itself sufficient answer to Mr. Sinha 's present contention.
Mr. Sinha however says that the approval by the Company at its general meeting was of no use because the defect in the original agreement, namely, that the directors had no power to transfer in view of section 86H, was not pointed out at that meeting to the shareholders.
It is somewhat difficult to appreciate this point.
There was no defect in the directors ' making the agreement to transfer; such agreement did not effect the transfer.
Even assuming that the agreement was beyond the power of the directors, it cannot be said that the approval of it by the shareholders had been without any knowledge of the defect.
The defect was of the want of the directors ' power to transfer in view of the provisions of section 86H of which the shareholders cannot be heard to deny knowledge.
The case of Permila Devi vs Peoples Bank of Northern India Ltd.(1) on which Mr. Sinha relied for the present purpose is of no assistance to him.
There certain shares had been illegally forfeited but it was contended that the shareholders had ratified the forfeiture.
It was held that the ratification, if any, was of no use because it had not been shown that the attention of the shareholders and creditors had been drawn to the illegality which depended on facts of which no knowledge by the shareholders could be presumed.
In the present case, the defect, if any, arose from a statutory provision itself of which the shareholders must be deemed to have had knowledge.
Mr. Sinha then says that the transfer was bad as it involved a reduction of share capital of the transferor company.
His point is that as all the assets were gone there was necessarily a reduction of its share capital.
He says that a reduction of share capital can be effected only as provided in section 55 and the succeeding sections of the Companies Act.
This contention is, in our view, wholly 136 misconceived.
Reduction of share capital under these sections, is not brought about by loss of assets.
A bare perusal of the sections, we think, is enough to establish that.
The disappearance of the assets of the Company, for whatever reason, does not cause a reduction of the share capital.
Another point raised by Mr. Sinha is that the transfer was bad it offended section 44 of the .
Under that section certain insurance agents have been given certain rights against their employer companies to receive commission in respect of renewal premiums paid.
We will assume for the present purpose that the petitioner who is an agent, had acquire such a right against the transferor company under section 44.
We do not however see that such rights are in any way affected by the transfer.
The right of the petitioner agent against the Company remains.
It may be that he cannot realise the amount due, by enforcing that right because the transferor company has no assets left after the transfer out of which to pay the commission.
But section 44 does not say that an insurance company shall not be entitled lawfully to deal with its assets where the effect of such dealing might be that nothing is left out of which the agents can be paid their commission.
Further, more it has to be remembered that what has been done in this case has been done under the same Act.
Section 36 of the does not say that a transfer shall not be sanctioned if the effect of it is to leave no assets with the transferor company.
Reading the two sections together, as we must do, it is not possible to take the view that transfer cannot be sanctioned under section 36 if the result of that is to denude the transfer or company of all its assets out of which an agent can be paid his commission.
A further point is based on article 14 of the Constitution.
It is said that there were other insurance companies in the same insolvent position 137 as the transferor company and that the policy holders of the latter company alone were being made to suffer.
It may be stated here that the transfer involved a condition affecting slightly adversely the rights of the policy holders.
It does not seem to us however that any question of discrimination arises in the present case.
The transfer was sanctioned with the assent of the shareholders of the two companies concerned.
The sanction was given after the policy holders of the transferor company were heard.
Again, section 36 of the applies to the insurance companies where the companies in general meeting agree to a transfer.
No action under section 36 can be taken except on the initiative of the companies concerned.
It is done in the best interests of the policy holders.
Then it is argued that the terms of sections 35 and 36 had not been complied with.
It is necessary now to be set out the relevant portions of the sections and some of the facts of this case.
section 35.
(1) No life insurance business of an insurer specified in sub clause (a)(ii) or sub clause (b) of clause (9) of section 2 shall be transferred to any person or transferred to or amalgamated with the life insurance business of any other insurer except in accordance with a scheme prepared under this section and sanctioned by the Controller.
(2) Any scheme prepared under this section shall set out the agreement under which the transfer or amalgamation is proposed to be effected, and shall contain such further provisions may be necessary for giving effect to the scheme.
(3) Before an application is made to the Controller to sanction any such scheme, notice of the intention to make the application together with a statement of the nature of 138 the amalgamation or transfer, as the case may be, and of the reason therefor shall, at least two months before the application is made, be sent to the Controller and certified copies, four in number, of each of the following documents shall be furnished to the Controller, and other such copies shall during the two months aforesaid be kept open for the inspection of the members and policy holders at the principal and branch offices and chief agencies of the insurers concerned, namely.
[Here certain documents are specified.
] section 36.
(1) When any application such as is referred to in sub section (3) of section 35 is made to the Controller, the controller shall if for special reasons he so directs, notice cause, of the application to be sent to every person resident in India who is the holder of a policy of any insurer concerned and shall cause statement of the nature and terms of the amalgamation or transfer, as the case may be, to be published in such manner and for such period as he may direct and after, hearing the directors and such policy holders as apply to be heard any other persons whom he considers entitled to be heard, may sanction the arrangement, if he is satisfied that no sufficient objection to the arrangement has been established and shall make such consequential orders as are necessary to give effect to the arrangement, including orders as to the disposal of any deposit made under section 7 or section 98: It would appear from the terms of section 35 (3) that it contemplates the following steps: (a) A notice of the intention to make an application to the Controller of Insurance for sanction of the transfer has to be given to him.
139 (b) Thereafter, together with the notice, certain specified documents have to be kept open for the inspection of the shareholders for two months.
(c) After the expiry of the period of two months, an application has to be made to the controller of insurance for sanction of the transfer.
Now, what had happened in this case was that the notice contemplated by section 35 (3) was given on July 27, 1951, and the necessary documents were kept open for inspection.
Before the application to the Controller was made, the directors of the companies were in touch with the Controller in regard to the proposed transfer and the latter suggested various modifications in the proposed scheme which was one of the documents which had to be kept open for the inspection of the shareholders.
On October 30, 1951, an application to sanction the transfer was made under section 35 (3) of Subsequently, also further modifications were suggested by the Controller.
On July 28, 1952, the transferor company in its general meeting considered the suggestions of the Controller and approved of the scheme with certain modifications, to the details of which it is not necessary to refer.
The scheme so modified contained the following clause: CL. 16.
That this arrangement is conditional upon the sanction on a subsequent date either with or without any modification of the terms hereof imposed or approved by the Controller and accepted by the parties here to and subject as aforesaid, the provisions as mentioned herein shall be operative on and from the thirty first of December 1950.
It was this scheme which was approved by the Company in its general meeting by the following resolution: "Read, considered and thoroughly discussed the proposed scheme of transfer. and resolved 140 that the proposed transfer. having been found to be arranged by the directors of the Company in the best interests of the Policy holders, the same be and are hereby approved and confirmed, and resolved further that the directors be and are hereby authorised to make and accept further modifications and alterations in the scheme if any suggested by the Controller of Insurance.
" It appears that certain further modifications in the scheme were thereafter made.
The Controller directed notice to be issued to all policy holders giving them full information of the scheme and fixed a date for hearing.
All policy holders desiring to be heard, were heard.
Before however the Controller passed his order sanctioning the scheme, the petition, out of which this appeal arises was filed on February 13, 1954.
Apparently, on this date further hearing of the matter by the Controller was pending.
On March 8, 1954, the controller gave his sanction to the scheme as modified.
Thereafter, the petitioners on May 14, 1954, filed a supplementary petition asking for writ quashing the order, the first petition having only for asked a writ to quash the proceeding then pending before the Controller.
Mr. Sinha points out and in this he is right that after notice under section 35 (3) had been issued, the scheme of transfer had been modified and it was such modified scheme that was sanctioned by the Controller.
Mr. Sinha 's point is that under section 36 the Controller could only sanction the scheme of which notice had been given under section 35.
He, therefore, contends that the sanction granted by the Controller in this case was not in terms of the section and hence a nullity.
The learned Solicitor General appearing to oppose the appeal contends that on a proper construction of the sections the Controller had power to sanction a scheme modified after notice under section 35 (3) had been issued.
It is however unnecessary in this case to decide the question so raised.
141 We will resume for the present purpose that under section 36 (1) only the scheme of transfer in respect of which notice under section 35 (3) had been given could be sanctioned and not a modified version of it.
The scheme and the resolution of the shareholders of the transferor company approving it, however both provided for its modification later at the suggestion of the Controller and gave power to the directors to accept the modifications on behalf of the Company.
The modifications were pursuant to the terms of the scheme as approved by the share holders of the transferor Company.
Therefore, in substance, it was the scheme of which notice had been given under section 35 (3) which was sanctioned.
A similar view was taken in England in regard to sections 153 and 154 of the English Companies Act, 1929.
Those sections dealt with compromises with creditors and for reconstruction and amalgamation of companies.
These could be effected by an order of court after the relative scheme had been approved by the companies or creditors concerned.
It was generally felt that the court could either sanction the scheme approved by the shareholders or reject it but had no power to modify it.
The contention of Mr. Sinha in the present case it will be remembered, is substantially the same.
To remove the doubt as to the power to modify the scheme after it had been approved by the share holders of the companies concerned, the author of Palmer 's Company Precedents appears to have recommended the device of inserting in the scheme a clause giving power to the court to modify the scheme and the directors to accept the modification.
In the 16th Edition of this well known book the following passage appears at p. 844, "It is more than doubtful whether, if a particular scheme is agreed to at a general meeting of creditors, the court can sanction 142 that scheme with modifications, unless there is some provision in the scheme providing for possible modifications.
In cases whether has no such provision, and some modification has been thought expedient, the court has required the calling of a second meeting to consider the scheme as modified; but to avoid this inconvenience it has for some time past been usual to insert in schemes a clause (originated by the author) expressly empowering the liquidator to assent to any modifications or conditions approved or imposed by the court, and this provision was approved by Chitty J. in Dominion of Canada, etc.
Co., and has frequently been acted on.
This practice seems to have obtained approval in our country to : see Mihirendrakishore Datta vs Brahmanbaria Loan Company Ltd., (1) turning on section 153 of the Companies Act, 1913, which corresponded to the sections of the English Act earlier mentioned.
Mr. Sinha contends that the authorities on the Companies Act earlier referred to had no application to the present case.
He says that the sections of the Companies Acts on which these authorities turned were not pari materia with sections 35 and 36 of the .
His contention is that the object of these sections of the was to protect the shareholders and policy holders of the Company and that they would be deprived of that protection if a scheme modified subsequently to the issue of the notice under section 35 (3) could be sanctioned.
We do not think that this contention is well founded.
So far as the policy holders are concerned, they have nothing to do with the approval of the scheme.
The scheme of transfer was agreed to between the shareholders of the companies concerned in the deal.
Assume, as Mr. Sinha says, that under the , as it is under the 143 the Companies Act, it is the shareholders who must agree to the scheme.
In the cases falling under the Companies Act, it is for protecting the shareholders that it has been held that the court cannot modify the scheme unless the scheme itself gives the court the power to do so.
On the assumption made we think it perfectly clear that the position under the is the same.
If Mr. Sinha is wrong and under the it is not for the shareholders to sanction the scheme, then there would be less reason for saying that what could be done under the Companies Act, cannot be done under the .
The intention of sections 35 and 36 of the would on the basis of Mr. Sinha 's contention, be to protect the shareholders from having to accept a scheme to which they have not agreed.
Such protection however may be given up by shareholders by inserting in the scheme approved by them, a clause empowering the directors to modify it.
So far as the policy holders are concerned, their protection is left in the hands of the controller.
That is the policy of the and, hence, the Controller hears them.
In the present case, he actually heard policy holders.
Therefore it does not seem to us that it can be contended with substance that sections 35 and 36 of the are not pari materia with the sections of the Companies Act to which we have earlier referred.
The last point of Mr. Sinha must also fail.
The result is that this appeal must be dismissed with costs and we order accordingly.
There will be one set of hearing costs.

summary/full:
In an application under article 226 of the Constitution, to challenge the validity of the transfer of a life insurance company 's business to another company under section 36 of the : ^ Held, the transfer though it brought about an abandonment of the business of the company was not bad as resulting in an alteration of the memorandum of the company without recourse to section 12 of the Indian Companies Act, 1913.
The Company 's memorandum of association contained a power to sell its undertaking and an exercise of that power does not amount to alteration of the memorandum.
The transfer was not a winding up of the company without following the procedure laid down in the Companies Act and hence invalid.
It was effected under the provisions of the .
Bisgood vs Hendersons Transval Estate, , distinguished.
An agreement by the directors of a company to transfer its undertaking subject to confirmation by the company in general meeting did not offend section 86H of the Companies Act.
Section 55 and the connected sections of the Companies Act do not contemplate reduction of share capital brought about by loss of assets and loss of assets does not amount to reduction of share capital.
Section 44 of the does not prevent an insurance company from dealing with its assets though as a result thereof no asset was left out of which the agents of the company might be paid commission to which they are entitled under the . 131 Section 36 of the does not offend article 14 of the Constitution.
That section applies to all insurance companies which in general meeting agree to a transfer.
Even if it is assumed that under section 36 (1) of the only that scheme of transfer of which notice under section 35 (3) of the Act had been given could be sanctioned and not a modified version of it, there would be power to sanction a modified version where the scheme itself or the resolution of the company approving of it, gave power to the directors to accept modifications of that scheme on behalf of the company suggested by the controller of Insurance before final sanction by him.
Mihirendrakishore Datta vs Brahmanbaria Loan Co., Cal. 913, referred to.


judgement:
Civil Appeal No. 398 of 1960.
Appeal by special leave from the judgment and decree dated June 23, 1959, of the Calcutta High Court in Appeal from Original Decree No. 50 of 1955.
Veda Vyasa, section K. Kapur and B.P. Maheshwari, for the appellant.
K. L. Gosain and K. L. Mehta, for the respondent.
December 20.
The Judgment of the Court was delivered by 219 SHAH, J.
Mr.
Justice Bachawat of the High Court of Judicature at Calcutta decreed Suit No. 1039 of 1948 filed by one Pearey Lal hereinafter called the plaintiff for a decree for Rs. 1,35,000/ with interest against the New Bank of India Ltd. The appeal of the Bank against the decree was dismissed by a Division Bench of the High Court.
With special leave the Bank has appealed to this Court.
The Bank had its registered office, originally at Lahore but after the partition of India the office was transferred to Amritsar.
The plaintiff who was a resident of Lahore had accounts with several banks including the New Bank of India Ltd. In view of the impending partition, the plaintiff was anxious to transfer his moveable property outside the territory it was apprehended would be included in Pakistan, and he gave instructions for transferring his accounts with the Bank to its other branches in India.
He also paid an amount of Rs. 1,25,000/ on July 18, 1947, into the Bank at Lahore with instructions to transmit the same the to Bank branch at Calcutta which it then proposed to open in the near future.
An amount of Rs. 10,000/ was also paid into the Bank at Lahore on July 19, 1947, with similar instructions.
In respect of these two transactions the Bank executed receipts which are set out below: "Received the sum of Rs. 1,25,000/ (Rs. One Lac & twenty five thousand) only from Mr. Pearey Lal on account of amount to be remitted to Calcutta branch for preparing various F.D. Receipts subject to his instructions on or after the opening date when he would call upon them personally.
Lahore for the New Bank of India Ltd. The 18th day of Sd.
Illegible July, 1947.
Manager.
" 220 . . . . . . . . . . . . . . . . . "Received the sum of Rs. 10,000/ (Rupees ten thousand) only through Mr. Pearey Lal for transmission to our Calcutta Office for making up various F. D. Receipts at his instance when he calls upon them personally on or after the opening date of the Branch.
Lahore for the New Bank of India Ltd. 19 7 47.
Illegible Manager.
" The two amounts were transmitted by the Bank to Calcutta.
A branch of the Bank was opened at Calcutta on September 24, 1947, but within a few days thereafter the Bank ceased making payments.
It appears that a moratorium for a limited period was declared under an Ordinance issued by the Governer General restraining the Bank from making payments to its depositors.
In December, 1947, after the expiry of the period of the moratorium the plaintiff applied to the Bank 's branch at Calcutta for facility to withdraw the whole amount but the Calcutta Branch raised certain technical objections against such a course.
On March 24, 1948 the plaintiff commenced an action against the Bank inter alia for a decree of Rs. 1,35,000/ in the Calcutta High Court on its original side.
During the pendency of the suit the High Court of East Punjab sanctioned a scheme for arrangement under sections 153 and 153A of the Indian Companies Act, 1913, for settlement of the liability of the Bank.
By the first clause of the scheme the expression "deposit" was to include "Fixed Deposits, Bank 's own Cash Certificates, Current Accounts, Deposits at Call, Savings Fund Accounts Amounts lying in Sundries or in any other kind of Credit Accounts, Bank Drafts, Cash Orders, and documents of the like nature and amounts due to Bankers over and above the value of Government Securities lying with them against 221 such depositors".
It was directed by the scheme, as it finally emerged, that the depositors were to be paid 701/2% of the deposits held by them and to he allotted shares of the face value of 5% of the deposits.
The plaintiff claimed by his suit that he had entrusted to the Bank at its registered office at Lahore Rs. 1,35,000/ on July 18 and 19, 1947, with instructions to transmit the same to the branch of the Bank which it proposed to open at Calcutta and to hold the amount subject to further instructions to be given by him when he would call personally at the branch at Calcutta on or after the opening date, that prior to the opening of the said Calcutta Branch the plaintiff countermanded his instructions on or about September 13, 1947 and demanded at Lahore that it be returned, but the Bank wrongfully claimed to have remitted the two sums to its Calcutta Branch and to have kept the same in a fixed deposit account in the name of the plaintiff, even though the plaintiff, had opened no such account at the Calcutta Branch and had given no instructions to put the same into any account by way of fixed deposit or otherwise.
The plaintiff, accordingly, claimed that the Bank was a trustee for transmission of the amount and in the absence of any instructions given by him for opening a fixed deposit account, in respect of the amount transmitted the Bank stood qua the plaintiff in a fiduciary relation and was liable to refund the full amount.
In substance, it was claimed by the plaintiff that the amount lying with the Bank at Calcutta was not a deposit within the meaning of the scheme and was not liable to any reduction.
The Bank submitted that the amount of Rs. 1,35,000/ was deposited by the plaintiff at its head office at Lahore for the purpose of opening a fixed deposit account in the name of the plaintiff upon the terms that the fixed deposit would carry 222 interest as on the respective dates of the deposits, that it was agreed that the plaintiff would be allowed to take loans upto 90% of the deposit at a rate of interest of half percent above the current fixed deposit rates and that the amount would be transmitted to the Calcutta Branch of the Bank for the purpose of crediting the same to the fixed deposit account of the plaintiff.
The Bank denied the alleged instructions in September, 1947, countermanding the original arrangement and contended that the plaintiff was bound by the scheme of arrangement sanctioned by the High Court of East Punjab.
The Bank offered to pay the amount due to the plaintiff under the scheme of arrangement and also to allot shares of the value of 5% in accordance with the scheme.
A decree on admission was passed against the Bank for Rs. 81,000/ and the suit was contested by the Bank for the balance of the claim.
The trial Court held that even though the plaintiff failed to prove the instructions in the month of September, 1947, set up by him countermanding transmission, it was established on the evidence, that the plaintiff had entrusted to the Bank Rs. 1,35,000/ for transmission and the plaintiff having given no further instructions, the Bank held the amount as trustee for the plaintiff and that the plaintiff 's claim was not liable to be reduced under the scheme sanctioned by the High Court of East Punjab.
The Court also negatived the plea of the Bank that the amount of Rs. 1,35,000/ was deposited with the Bank at Lahore for opening a fixed deposit account subject to the conditions which the Bank set up.
The finding of the trial Court were confirmed, in appeal, by a Division Bench of the High Court at Calcutta.
The facts found proved, according to the findings of the trial Court and confirmed by the 223 High Court are therefore that the plaintiff delivered an amount of Rs. 1,25,000/ on July 19, 1947, and Rs. 10,000/ on July 19, 1947, to the Bank at Lahore for transmission to Calcutta, with instructions to await the directions of the plaintiff regarding the opening of accounts for keeping the same in fixed deposit or otherwise in the Calcutta Branch of the Bank, and the plaintiff never gave instructions for opening any account, fixed deposit or otherwise, in regard to the amounts after they reached Calcutta.
Delivery of the amount for transmission to the Bank created ex facie a relationship of a fiduciary character.
But counsel for the Bank contends that when the amount was handed over at Lahore to the Bank by the plaintiff who was an old constituent of the Bank it must be presumed that a relationship of debtor and creditor arose and by the addition of instructions for transmissions of the amount to another branch the relationship of trustee and cestuique trust did not arise.
He submitted that the contention that the relation between the plaintiff and the Bank was of creditor and debtor was supported by three important circumstances: (1) that the Bank agreed to pay interest on the amount delivered by the plaintiff; (2) that the Bank charged no commission or remuneration for transmission of the amount and (3) that even on the plaintiff 's case the amount was to be utilized for opening fixed deposit accounts at Calcutta.
It is true that in the absence of other evidence a person paying money into a Bank, whether he is a constituent of the Bank or not, may be presumed to have paid the money to be held as bankers ordinarily hold the moneys of their constituents.
If no specific instructions are given at the time of payment or thereafter, and even if the money is held in a suspense account the bank does not thereby become a trustee for the amount paid.
In other words, when a person dealing with 224 a bank delivers money to the Bank an intention to create a relation of creditor and debtor between him and the Bank is presumed, it being the normal course of the business of the Bank to accept deposits from its customers.
But this presumption is one of fact arising from the nature of the business carried on by the Bank and is rebutted by proof of special instructions, or circumstances attending the transaction.
Where the money is paid to a bank with special instructions to retain the same pending further instructions (The Official Assignee, Madras vs Natesam Pillai (1)) or to pay over the same to another person who has no banking account with the bank and the bank accepts the instructions and holds the money pending instructions from that other person (Arbuthnot & Co. vs D. Rajam Ayyar (2)), or where instructions are given by a customer to his banker that a part of the amount lying in his account be forwarded to another bank to meet a bill to become due and payable by him and the amount is sent by the banker as directed (Farley vs Turner (3)), a trust results and the presumption which ordinarily arises by reason of payment of the money to the bank is rebutted.
It is not necessary in this appeal to consider whether because of an agreement to pay interest the relationship may be deemed to be of debtor and creditor, because it was held by both the courts below that no such agreement is proved, and according to the settled practice of this court the finding is regarded a binding.
The Bank charged no commission or remuneration for transmitting the amount to Calcutta, but that, in our judgment, is a circumstance which permits of no inference against the plaintiff.
Undoubtedly, when the amount was delivered to the Bank by the plaintiff it was his intention to open fixed deposit account in Calcutta with the 225 Bank 's branch but the fixed deposit accounts were to be opened after instructions were received.
The transaction, as evidenced by the two receipts, was primarily one of entrustment of the amount to the Bank for transmission to Calcutta.
After the purpose for which the moneys were entrusted was carried out, in the absence of further instructions the defendant did not cease to be a trustee.
So long as instructions were not given by the plaintiff for appropriation of the amounts the Bank continued to hold the amounts transmitted for and on behalf of the plaintiff and there is no evidence that the plaintiff gave instructions or acquiesced in the opening of a fixed deposit account after the same reached Calcutta.
It is immaterial that the Bank purported to open fixed deposit account in the name of the plaintiff with the amounts received at its head office at Lahore.
That course of action was adopted without the consent of the plaintiff and it could not bind the plaintiff.
The High Court was, therefore, right in holding that the amount delivered by the plaintiff to the Bank at Lahore remained in trust even after it reached Calcutta, and it was not held by the Bank, in deposit for the plaintiff within the meaning of the scheme sanctioned by the High Court of East Punjab.
In that view of the case the appeal fails and is dismissed with costs.
Appeal dismissed.

summary/full:
The respondent delivered certain sums of money to the appellant bank at Lahore for transmission to Calcutta, with instructions to await his directions regarding the opening of accounts for keeping the money in fixed deposit in the Calcutta Branch of the bank which was proposed to be opened in the near future.
The respondent did not however give any instruction for opening any account, fixed deposit or otherwise in regard to the amounts after they reached Calcutta.
Within a few days after the opening of the Calcutta branch of the bank it ceased making payments and a moratorium for a limited period was declared under an ordinance issued by the Governor General restraining the bank from making payments to its depositors.
After the expiry of the period of the moratorium the Calcutta branch of the bank raised objections to the respondent 's application for withdrawal of the amount 218 whereupon the respondent filed a suit in the Calcutta High Court for a decree for refund of the amount.
During the pendency of the suit the High Court of East Punjab sanctioned a scheme under sections 153 and 153A of the Indian Companies Act, 1913 for settlement of the liabilities of the Bank.
The courts below decreed the respondent 's suit.
On appeal by the bank by special leave, the questions which arose for decision were whether the bank was a trustee for transmission of the amounts to Calcutta and whether in the absence of any instruction for opening a fixed deposit account the bank was liable to refund the full amount or a reduced amount according to the scheme sanctioned by the Punjab High Court.
^ Held, that when a person dealing with a bank delivers money to the bank an intention to create a relation of creditor and debtor between him and the bank is presumed, but the presumption may be rebutted by proof of special instructions.
When money is paid to a bank with special instructions to retain the same pending further instructions, a trust is created and the presumption which ordinarily arises by reason of payment of money to the bank is rebutted.
Held, further, that the money delivered by the Respondent remained in trust with the bank and was not held by it as a deposit subject to any scheme for the settlement of the liabilities of the bank sanctioned by the High Court under the Companies Act.
The Official Assignee, Madras vs Natesam Pillai, I.L.R. , Arbuthnot vs D. Rajan Ayyar, I.L.R. and Farley vs Turner, , applied.


judgement:
Civil Appeal No. 62 of 1961.
212 Appeal by special leave from the judgment and order dated December 20, 1956, of the Madras High Court in Case Referred No. 85 of 1953.
A. V. Viswanatha Sastri, R. Ganapathy Iyer and G. Gopalakrishnan for the appellant.
K. N. Rajagopala Sastri and P.D. Menon for the respondent.
December 20.
The Judgment of the Court was delivered by KAPUR, J.
This appeal by special leave is directed against the judgment and order of the High Court of Judicature at Madras.
The appellant is the assessee and the respondent is the Commissioner of Income tax and the question raised is as to applicability of section 10(2)(xv) of the Indian Income tax Act to a gratuity paid by the appellant to one of its officers on his retirement from service.
The appeal relates to the assessment year 1950 51.
M/s. Gordon Woodroffee & Co. (Madras) Ltd., was incorporated as a private limited company in 1922 and became the Managing Agent of a public limited company M/s. Gordon Woodroffee Leather Manufacturing Company Ltd., which is the assessee.
One J. H. Philips was employee in the Managing Agent Company from 1922 to 1935 and from 1935 he became an employee of the appellant company and became its Director from 1940.
On March 22, 1949, he wrote a letter to the appellant company expressing his intention to resign from the Board of the Company as from April 4, 1949 upon his retirement from the employment of the company and requested that his resignation be accepted.
On March 24, 1949, the Board of Directors of the appellant Company passed a resolution that his resignation be accepted and in appreciation of his long and valuable services to Company hebe paid a gratuity of Rs. 50,000/ out 213 of which the appellant Company was to pay Rs. 40,000/ and the Managing Agent Company the balance of Rs. 10,000/ April 4, 1949, this resolution of the Board of Directors was confirmed.
On the same date a resolution to the same effect was passed at an Extraordinary General Meeting of the Company and before the end of its accounting year i. e. October 31, 1949, this amount of Rs. 40,000/ was paid to Mr. J. H. Philips.
This amount was claimed as a deduction under section 10 (2)(xv) of the Income tax Act which reads : Section 10(2) "Such profits or gains shall be computed after making the following allowances, namely: . . . . . . . . . . . . . . . . . (xv) any expenditure (not being an allowance of the nature described in any of the claused (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assesee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation.
" The amount was disallowed by the Income tax Officer as well as by the Appellate Assistant Commissioner on the ground that the appellant Company had no pension scheme; the payment was voluntary and that the entry in the assessee 's books clearly indicated it to be a capital payment.
Against this order the appellant Company took an appeal to the Income tax Appellate Tribunal which upheld the order of the Appellate Assistant Commissioner.
It held that according to the resolution the gratuity was paid "for long and valuable services to the Company"; that there was nothing to indicate that Mr. J. H. Philips had accepted a lower salary in expectation of getting a gratuity at the end of his service; that there 214 was no such practice in the appellant Company and that during the course of his service he was being remunerated at a graduated scale of salary and a commission of 2 1/2% on the profits; that there was no "expectancy" that at the end of the service there would be a recompense for faithful and efficient service that he had been suitably rewarded by being given a commission on the profits in order to whip up his enthusiasm".
It was also mentioned that in the books of the appellant Company the amount had not been debited in the profit and loss account but was debited to the appropriation account thereby indicating that it was an extra payment or a payment made in the nature of a capital expense.
Taking all these circumstances into consideration the Tribunal came to the conclusion that it was difficult to hold that the expenditure was not in the nature of a capital expenditure or that it was expended wholly and exclusively for the purpose of the assessee 's business.
At the instance of the appellant Company the case was stated to the High Court under section 66(1) of the Income tax Act and the following question was referred : "Whether the sum of Rs. 40,000/ paid to Mr. J. H. Philips on his retirement from the service of the Company was not an admissible deduction under Section 10(2)(xv) of the Income tax Act, 1922.
" The High Court answered the question against the appellant Company.
It held that in order that section 10(2) (xv) be applicable it had to be proved that the amount was laid out or expended wholly and exclusively for purposes of the company 's business.
In this case the amount was paid on retirement and for valuable services rendered by Mr. J. H. Philips; there was no evidence that he expected to receive this amount or the Company contemplated its payment at any time before; the payment 215 was voluntary and there was no evidence to show that it was in the future interest of the business of the Company that the expenditure was incurred.
The High Court observed: "In the case of a payment of a gratuity to a retiring employee recognition of his past services, with nothing more cannot, in our opinion satisfy the requirements of Section 10(2)(xv), even if those requirements are judged from the view point of commercial expediency, as it always should be when a claim arises under Section 10(2)(xv).
Was the expenditure incurred in the future interest of the business of the assessee? Was there any connection between the purpose of the payment and the further conduct of the business of the assessee ? These are the tests to be satisfied before it could be said that in paying the gratuity money was laid out or expended wholly and exclusively for the purpose of the business of the Company.
These tests the assessee did not satisfy in this case.
" Against this judgment and order the appellant Company has brought this appeal by special leave.
It was argued on behalf of the appellant that the amount had been paid as a matter of commercial expediency and in the interest of the Company as an inducement to other employees that if they rendered service in a similar manner with efficiency and honesty they would be similarly rewarded.
Decisive test, it was submitted, was whether such payments of gratuity were likely in future also and was the payment made as an incentive to the employees to give their best to the employer and if it was so then the payment was a matter of commercial prudence, It was also submitted that the Company had acted not with any oblique motive and 216 its good faith was not in doubt and in support of the contention several cases were relied upon.
In our opinion on the findings as given the payment in dispute does not fall within the provisions of section 10(2)(xv).
The amount was paid not in pursuance of any scheme of payment of gratuities nor was it an amount which the recipient expected to be paid for long and faithful service but it was voluntary payment not with the object of facilitating the carrying on of the business of the appellant Company or as a matter of commercial expediency but in recognition of long and faithful service of Mr. J. H. Philips.
There was no practice in the appellant company to pay such amounts and it did not affect the quantum of salary of the recipient.
The two cases strongly relied upon by the appellant Company were J. P. Hancok vs General Reversionary & Investment Company Ltd.(1) and J. W. Smith vs The Incorporated Council of Law Reporting for England and Wales(2).
In the former case the assessee Company sought to charge as a trade expense a lump sum which it had paid for the purchase for the benefit of a former actuary, of an annuity equal in amount to the pension which the Company had resolved to pay him.
This was held to be an expense admissible in computing the Company 's profits assessable to income tax.
But in that case it was the practice of the assessee company to grant pensions to its servants after a considerable period of service and this practice was known to the employees and affected the rate of salary paid by the Company in that the employees were willing to serve the Company at lower rates than they otherwise would have by reason of the expectation of the pension at the end of their service, In the latter case there was a practice of granting gratuities and that was the ground for holding the amount to be a proper deduction.
217 In our opinion the proper test to apply in this case is, was the payment made as a matter of practice which affected the quantum of salary or was there an expectation by the employee of getting a gratuity or was the sum of money expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business.
But this has not been shown and therefore the amount claimed is not a deductible item under section 10(2)(xv) The appeal therefore fails and is dismissed with costs.
Appeal dismissed.

summary/full:
The company accepted the resignation of one of its directors and in appreciation of his long valuable services to the company, paid him a gratuity of Rs. 40,000/ .
This amount was claimed as a deduction under section 10(2) (xv) of the Income tax Act which was disallowed by the Income tax Officer, on the ground that the appellant company had no pension scheme; the payment was voluntary and that the entry in the assessee 's books clearly indicated it to be a capital payment.
^ Held, that the payment does not fall within the provisions of section 10(2)(xv) of the Act.
The amount was paid not in pursuance of any scheme of payment of gratuities nor was it an amount which the recipient expected to be paid for long and faithful service but it was for a voluntary payment not with the object of facilitating carrying on the business of the appellant company or as a matter of commercial expediency but in recognition of long and faithful service.
There Was no practice in the appellant company to pay such amounts to and did not affect the quantum of salary of the recipient.
To claim a deduction under section 10(2)(xv) of the Act the proper test to apply is, was that the payment made as a matter of practice which affected the quantum of salary or was there an expectation by the employee of getting a gratuity or was the sum of money expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business.
J. P. Hancok vs General Raversionary & Investment Co. Ltd. and J. W. Smith vs The Incorporated Council of Law Reporting for England and Wales, , REFERRED TO.