judgement:
Appeal No. 10 of 1960.
Appeal from the judgment and decree dated February 24, 1959, of the Bombay High Court in First Appeal No. 540 of 1958.
M. C. Setalvad, Attorney General for India, A. P. Bhatt, Rameshwar Nath, section N. Andley, P. L. Vohra and J. B. Dadachanji, for the appellants.
The respondent did not appear.
December 16.
The Judgment of the Court was delivered by SARKAR, J.
Dadoba Tukaram Thakoor carried on a business under the name and style of Oriental Metal Pressing Works.
On May 26,1955, a private company was incorporated under the name of Oriental Metal Pressing Works Ltd., hereafter called the Company, 331 to take over the aforesaid business.
On July 7, 1955, Dadoba transferred his business to the Company.
On the same date, an agreement was made between him and the Company by which he was appointed the managing director of the Company for life and was given the power "by deed inter vivos or by will or codicil to appoint any person to be a managing director in his place and stead".
Regulation 109 of the articles of the Company reproduced these provisions.
The shareholders of the Company were Dadoba, his brother, the respondent Bhaskar, and his two sons, the appellant Govind and the respondent Harish, of whom the first three were the directors, Dadoba being the managing director.
This constitution of the Company continued till Dadoba 's death on January 14, 1957.
Dadoba had died leaving a will whereby he purported to appoint the appellant Govind the managing director of the Company in his place from the date of his death.
Shortly after Dadoba 's death, disputes arose between the appellant Govind and the respondent Bhaskar.
The appellant Govind was contending that the respondent Bhaskar had ceased to be a director on account of his failure to attend the directors ' meetings.
He also purported to co opt the appellant Bhal chandra as a director.
The respondent Bhaskar contended that be had not ceased to be a director and challenged the legality of the appointment of the appellant Bhalchandra as a director.
He further contended that the appointment of the appellant Govind as the managing director of the Company by the will of Dadoba, was void.
On November 22, 1957, the respondent Bhaskar filed a suit in the City Civil Court of Bombay against the Company, the appellants Govind and Bhalchandra and the respondent Harish for the following declarations and for reliefs incidental thereto: (a). the appointment of the appellant Govind as the managing director was void; (b). the appointment of the appellant Bhalchandra as director was illegal and inoperative; and (c). he (the respondent Bhaskar) was and continued to be a director.
332 The learned Judge of the City Civil Court accepted all the contentions of the respondent Bhaskar and made the declarations claimed.
The Company and the appellants Govind and Bhalchandra appealed from this decision to the High Court at Bombay.
The appeal came up for hearing before a bench of two learned Judges of that Court.
These learned Judges having taken different views, the matter was referred to another learned Judge of the same High Court.
In the eventual result according to the opinion of the majority of the learned Judges, the appeal was dismissed and the decree of the City Civil Court was confirmed.
The High Court however granted a certificate under article 133(1)(c) of the Constitution and the present appeal has been filed by the Company, Govind and Balchandra pursuant thereto.
The respondents to this appeal are Bhaskar and Harish.
It appears that while the appeal was pending in this Court, the respondent Bhaskar sold his holding in the Company to the appellant Govind and has now no interest in the Company or the appeal.
No one has consequently appeared to contest the appeal in this Court, the respondent Harish apparently not being interested in doing so.
In these circumstances, the questions whether the respondent Bhaskar continues to be a director and whether the appellant Bhalchandra was legally co opted as a director are no longer live issues and have not been canvassed in this appeal.
On those questions therefore we express no opinion.
Another result, rather unfortunate, has been that we have not had the advantage of arguments against the appeal.
The Courts below held that the appointment of the appellant Govind as managing director by the will of Dadoba was void in view of the provisions of section 312 of the .
That section reads thus: section .312. "Any assignment of his office made after the commencement of this Act by any director of a company shall be void.
" The Act came into force on April 1, 1956 and Dadoba had both made his will and died, after that date.
The appointment of the appellant Govind as managing 333 director was, therefore, made after the commencement of the Act.
Now, section 312 makes the assignment of his office by a director void.
It does not on the face of it, say that an appointment by a director of another person as the director in his place, would be void.
The High Court, however, took the view that the word "assignment" in the section included "appointment", and so, such an appointment would also be void under the section.
What we have to decide is whether the High Court was right in this view.
Before we proceed to examine this question, we have to point out one thing.
It appears that the High Court thought that the appellants had conceded that an appointment by a director of another in his place by act inter vivous be an assignment of the office of a director within section 312, and had only contended that such an appointment by will, which is what had been done by Dadoba, would not be an assignment and would not therefore be rendered void by the section.
The learned Attorney General, appearing for the appellants, said that in this the High Court was in error and no such concession had been made.
He further expressly withdrew that concession.
This he was clearly entitled to do.
It, therefore, becomes unnecessary for us to deal with the seasonings of the High Court in support of the view accepted by it, which were based on the concession.
We have given the views of the High Court a most respectful and anxious consideration but we do not find ourselves able to agree with them.
We will presently state our reasons for this conclusion, but now we wish to point out that in the view that we have taken of the matter it will not be necessary for us to deal with the argument advanced in the High Court that the section only forbade a director from appointing his successor, assuming assignment included appointment, but it did not prevent a managing director from assigning his office, or appointing his successor which was what Dadoba had done.
If the section did not prevent a director from appointing his successor, which we do not think it did, then, clearly, there is nothing 334 in it which can justify the view that a managing director cannot appoint his successor.
The section says that a director shall not be able to assign his office.
It may be, as the High Court pointed out, that apart from "transfer" another meaning of the word "assignment" is, "appointment".
But on a plain reading of the language used in the section, it does not seem to us possible to hold that the word "assignment" in it, can mean "appointment".
First, the section talks of "assignment of his office" by a director.
The word "his" would indicate that the office contemplated was one held by the director at the time of assignment.
An appointment to an office can be made only if the office is vacant.
It is legitimate, therefore, to infer that by using the word "his" the Legislature indicated that an appointment by a director to the office which he previously held but did not hold at the date of the appointment, was not to be included within the word "assignment".
Again, there can be no doubt that the section was intended to render void a transfer of his office by a director for, if the section had intended only to avoid an appointment by a director of his successor, it would have clearly said so and would not have used the word "assignment".
Therefore, even if it is possible for the word "assignment" to have the meaning of "appointment", then it would have to be given both the meanings of "transfer" and "appointment" in the section.
This is what the High Court did.
That would produce a curious result.
Transfer and appointment are clearly entirely different things.
Even apart from considerations arising from the law of conveyance, which the High Court was unable to entertain in connection with the transfer of an office, a transfer from its very nature inevitably imports the passing of a thing from one to another; a transfer without the passing of the thing transferred, even when that thing is an office, cannot be conceived.
An "appointment", on the other band, has nothing to do with anything passing from one to another; it connotes the putting in of someone in a vacancy.
The acts constituting a transfer and an appointment are 335 therefore wholly dissimilar.
It would be an unusual statute which by the use of a single word intended to prohibit at the same time, two wholly different acts.
We do not think that a construction leading to such a result is permissible.
Secondly, section 255 of the Act permits one third of the total number of directors of a public company and all the directors of a private company to be appointed otherwise than by the company at a general meeting, if the articles make provision in this regard.
The Act therefore expressly permits directors to be appointed otherwise than by the company.
It follows that within the limit as to the number prescribed by the section, a power of appointment of directors can be legitimately conferred by the articles on any person including one who holds the office of a director.
The Act expressly permits such power being conferred.
In order, however, that a director may exercise this power of appointment, there must be a vacant office of a director.
He may himself bring about that vacancy by resignation of his office.
The vacancy would again be caused by his death or by the expiry of the term of his office.
It would follow that the Act contemplates an appointment by a director of another person as director to take his office, when made vacant by his resignation or death or the expiry of the term of his office.
There will be nothing illegal, if the power is exercised in the case of the death of the director, by an appointment made by his will.
It will not be right so to interpret section 312, when its language does not compel it, as to bring in conflict with the provisions of section 255.
This would happen, if the word " assignment"in section 312 was interpreted as including "appointment" and thereby making it prevent a director from appointing his successor when section 255 permits him to do that.
Therefore again we think that in section 312 the word "assignment" does not mean "appointment".
The High Court was of the view that unless "assignment" included "appointment", the object of ,the Act would be defeated.
It was said that the intention and the object of the section was to restrain and 336 prevent a director from putting some one in his place and stead by any act on his part.
This point was further expressed more clearly in the following words: "It is now well understood that the new , aims at eradicating many serious mischief which the principle of perpetual management of companies had caused in the past".
The High Court felt that it would be defeating that aim by reading section 312 as if the words "assignment of his office" only meant a "transfer of office" and did not include the appointment of his successor by a director.
Apparently the High Court thought that by making it possible for a director to choose his successor, the management of the company would be permitted to remain all along in one hand and this the Act wanted to prevent.
It does not seem to us that the Act wanted to prevent this.
The act by enacting section 255 shows that it does not disapprove of a person having power to appoint a succession of directors and in the case of a private company, a succession even of all the directors.
Such a person would have what has been described as "per petual management".
It would follow that the Act did not consider this as an evil which required prevention.
If perpetual ma nagement by an outsider is not an evil, nor would such management by one who is a director of the company be so.
This aspect is very clearly illustrated by the case in hand.
Dadoba had this "perpetual management".
But the whole of the Company 's undertaking was really a largess from him.
In fact he held nearly 43% of the shares of the Company.
It is inconceivable that perpetual manage ment by him would have worked to the detriment of the Company.
We are therefore unable to agree that it was the object of the Act or of section 312 to prevent a director from appointing his successor.
In view of the clear provisions of section 255 we do not think that it can be said, as was done in the High Court, that sections 254 and 317 of the Act, impliedly indicate that there should be no perpetual management.
Section 254 says that a corporation or an association of persons shall not be eligible as a director.
But this is not because, otherwise, there would be perpetual 337 management.
The persons comprising the corporation or the association must change from time to time and so, even if they were appointed directors, there would be no perpetual management.
We rather think that the idea behind section 254 is that as the office of a director is to some extent an office of trust, there should be somebody readily available who can be held responsible for the failure to carry out the trust and it might be difficult to fix that responsibility if the director was a corporation or an association of persons.
Turning to section 317, we find that it provides that a managing director cannot be appointed for a term exceeding five years at a time.
Section 315 however makes section 317 inapplicable to a private company.
Therefore, section 317 is not available to support an argument that the Act does not want a private company and we are concerned with that type of a company to be under perpetual management.
But indeed section 317 does not support that argument in the case of a public company either.
It forbids an appointment of a managing director for more than five years "at a time".
It permits the managing director to be reappointed after a term is over.
If he is so reappointed, then there would be "perpetual management" by him.
The Act does not, therefore, intend by section 317, to prevent that.
Lastly, section 317 is not concerned with the directors, which section 312 is.
Another argument that has to be dealt with is that if section 312 does not prohibit an appointment by a director of his successor, that section can easily be rendered infructuous by a director adopting the simple device of appointing a person as his successor in office instead of transferring the office to him.
It seems to us that the question does not really arise.
A director can legally and effectively appoint his successor only to the extent the articles permit this subject, of course, to the limit prescribed in section 255 in the case of a public company.
An appointment so legally made does not result in an evasion of section 312 for, as we have earlier said, the section could not have intended to prevent what another section in the same 43 338 Act made legal.
An appointment made outside the powers legally conferred by the articles is wholly ineffective ' and therefore is not an appointment at all and hence again, does not result in an evasion of section 312.
We have now to consider an argument based on the first proviso to section 86B of the of 1913.
The main part of section 86B contained a provision analogous to that of section 312 of the new Act.
It made an assignment of his office by a director to another person, under an agreement with the company, void, unless such assignment was approved by a special resolution of the company.
Under the new Act the assignment has been made altogether void and would not become valid even if approved by a special resolution of the company.
Now, the proviso laid down that the exercise by a director of a power to appoint an alternate director to act for him during an absence of not less than three months from the district in which meetings of the directors are ordinarily held, if done with the approval of the board of directors, would not be deemed to be an assignment of office within the meaning of this section.
The High Court took the view that this proviso showed that in certain circumstances an appointment by a director of another in his place might be deemed to bean assignment of his office and that since the new Act is a consolidating Act, it must be deemed to have continued the policy of the earlier Act and, therefore, for the purpose of section 312, an "assignment" must include an "appointment".
The learned Attorney General pointed out that in the new Act there is no proviso, and therefore the rule of construction applied by the High Court, which enables by raising a presumption, something to be included in the main part of a section by reason of a provision in a proviso to it, has no application to the new Act for, here the provision in the proviso has been enacted in the form of an independent section, namely, section 313.
According to him, this departure from the old arrangement of the provisions, in the new Act shows that it was not intended to continue the policy 339 of the old Act.
He also said that the proviso in substance stated that the appointment by a director of an alternate director might in certain circumstances be deemed to be an assignment.
He pointed out that by using the word "deemed" the proviso made it clear that the appointment of an ' alternate director was not a real assignment of office but was only to be fictionally taken as one.
His contention was that such fiction could arise in a case coming strictly within the proviso but could not by extension be made to arise in any other case.
These seem to us to be arguments of weight.
Further in section 313 of the new Act, which has taken the place of the first proviso to section 86B of the old Act, the power to appoint an alternate director hag been given to the board and not to the director who intends to absent himself No scope for any deeming provision as in the Act of 1913 remains.
Therefore again an argument based on the proviso to section 86B would not be available for the purpose of the present Act.
It further seems to us that the proviso to section 86B does not indicate that it was intended that the word "assignment" in the main part of the section would include "appointment".
The rule of construction on which the High Court relied in arriving at the view that it did, was put in these words: "It is a well established principle of construction that when one finds a proviso to a section, the presumption is that but for the proviso the enacting part of the section would have included the subject matter of the proviso." This rule would enable the court to hold in regard to section 86B at the most that an appointment of an alternate director by a director intending to absent himself would have been an assignment of his office but for the proviso.
It would be an unwarranted extension of this principle to hold that all appointments of their successors by directors would be assignments within the main part of the section.
In any case, in our view, as in section 312 of the new Act, so under the main part of section 86B of the old Act, an appointment of a successor to his office by a director, was not an assignment of his office by him for, the old Act contained in section 83B, 340 provisions substantially similar to those contained in section 255 of the new Act.
, and the reasons which have inclined us to the view that in section 312 the word "assignment" does not include "appointment" would equally lead to the same conclusion in regard to section 86B.
If the enacting part did not prohibit the appointment of his successor by a director, such prohibition cannot be read into it, in reliance upon a proviso.
We may read here the observations of Lord Watson in The Guardians of the Poor of the West Derby Union vs The Metropolitan Life Assurance Society (1) "I am perfectly clear that if the language of the enacting part of the statute does not contain the provisions which are said to occur in it, you cannot derive these provisions by implication from a proviso.
" It may be that the proviso was enacted ex abundanti cautela or it may be again, to prevent a possible argument that by the appointment of alternate directors an evasion of the main part of section 86B was being attempted.
In view of the fact that the power to appoint alternate directors was not given by the old Act, but had to be given by the articles, such an argument might not have been unlikely.
Therefore, it seems to us that the proviso to section 86B of the old Act does not assist the argument that in section 312 of the new Act, the word "assignment" would include "appointment".
We think we ought to say something about what strikes us to be the policy behind section 312 of the new Act.
We have earlier said that under section 255 of that Act a certain Dumber of directors in a public company has to be appointed by the company in a general meeting.
In the case of a private company likewise, the directors have to be appointed similarly except to the extent the articles otherwise provide.
It would therefore appear to be the policy of the Act that to a certain extent the appointments of the directors have to be made by the shareholders.
It is intended that a certain number of directors would be the chosen representatives of the shareholders.
If a director appointed (1) , 652.
341 by the company was permitted to assign his office, then the new incumbent would not be the chosen representative of the shareholders, and the intention of the Act would be defeated.
It seems to us that it is to prevent this result that the Act forbids a director by section 312 from assigning his office.
Where however a director has been appointed otherwise than by the company in a general meeting, the shareholders have nothing to do with his appointment.
Such a director is not the chosen representative of the shareholders and the shareholders cannot claim to have a say in the appointment of his successor.
We can discern no policy in the Act which can.
be said to be liable to be defeated by the appointment of the successor of such a director by him.
Therefore section 312 was not concerned with such an appointment.
In the present case Dadoba had power under the articles to appoint a person to be the managing.
director in succession to him, and in exercise of that power he bad appointed the appellant Govind as the managing director to hold the office after his death.
Such power was clearly recognised by, and legal under, section 255 of the new Act.
For the reasons earlier stated, the exercise of such power does not offend section 312.
It follows that the appellant Govind had been lawfully and validly appointed the managing director of the Company.
We, therefore, declare that the appellant Govind had been validly appointed the managing director of the Company, and set aside the decisions of the Courts below that he had not been so appointed.
We have not been asked to interfere with the rest of the judgment under appeal and we do not do so.
We also make no order for costs as no costs have been asked.
Appeal allowed.

summary/full:
By section 312 of the , "Any assignment of his office made after the commencement of this Act by any direc tor of a company shall be void.
" 42 330 The managing director of a private company, empowered by the terms of the agreement between him and the company and the articles thereof to appoint, by deed or by will, any person to be the managing director in his place and stead, died leaving a will whereby he appointed one of the appellants the managing director in his place from the date of his death.
The High Court took the view that the word 'assignment ' in the section included 'appointment ' and as such the appointment in question was void.
Held, that section 312 of the , cannot be interpreted in such a way as to bring it into conflict with section 255 of the Act since its language does not compel such an interpretation.
The word 'assignment ' in that section does not mean appointment and the section is intended to render a transfer of his office by a director void and not an appointment by him of his successor.
Section 255 of the Act, which expressly permits directors to be appointed otherwise than by the company, shows that, sub ject to the limit as to numbers prescribed by it, a director, authorised by the articles of the company, can appoint another to take his office when rendered vacant by his resignation or death or on expiry of his term of office.
The proviso to section 86B of the old Act cannot lend any support to the argument that the word 'assignment ' in section 312 of the new Act includes 'appointment '.
The Guardians of the Poor of the West Derby Union vs The Metropolitan Life Assurance Society, , referred to.


judgement:
Appeal No. 22 of 1956.
Appeal by special leave from the judgment and order dated July 4, 1954, of the Custodian General, Evacuee Property, in Revenue Case No. 427/R/ Judl.
A. V. Viswanatha Sastri and R. Ganapathy Iyer, for the appellant.
H.N. Sanyal,Additional Solicitor General of India, N. S.Bindra and D. Gupta, for the respondent.
January 12.
The Judgment of the Court was delivered by GAJENDRAGADKAR, J.
This appeal by special leave is directed against the order passed by the respondent, the Custodian General of Evacuee Property, New Delhi, in a revision petition confirming the orders of the subordinate authorities whereby the application made by the appellant for confirmation of the sale transaction in question has been rejected under section 40 (4) (a) of the Administration of Evacuee Property Act, XXXI of 1950.
The appellant, Rabia Bai, who is a citizen of India having her residence at Grange, Yercaud, in the Salem District, came to know in 1949 that premises No. 20, Godown Street, G.T., Madras, was for sale.
Since the appellant desired to acquire some immoveable property she arranged for 57 450 the purchase of the said premises through her husband.
The said premises belonged to one Mohamad Gani Jan Mohamad who had left for Pakistan in 1947 and had settled there.
The said Mohamad Gani Jan Mohamad had executed a power of attorney in favour of his nephew, Ahmed Abdul Gani.
The said Gani came to Madras in April, 1949, and arranged for the sale, and as a result of negotiations between him and the appellant 's husband the latter entered into a written agreement with the former on April 29, 1949, to purchase the said property for Rs. 2,40,000/ .
A substantial part of the consideration to the extent of Rs. 1,50,000 / was paid immediately in the form of cash and bank drafts.
Thereafter the sale deed was duly engrossed and sent to Karachi for execution by the vendor.
After it was received back duly executed it was presented at the Collector 's Office, Madras, and was duly stamped on June 27, 1949.
Income tax clearance certificate had, however, to be obtained before the said document could be registered, and soon after the said certificate was obtained the document was presented for registration and was duly registered on August 11, 1949.
The balance of the consideration of Rs. 30,000/ was paid before the registering officer to Mr. M. H. Ganni who also held a power of attorney from the vendor.
That is how the appellant obtained title to the property in suit.
As we will point out the appellant applied for confirmation of this sale deed and her application has been rejected.
Before we refer to the relevant facts in connection with the said proceedings it is material to set out very briefly the history of the application of the evacuee laws to the State of Madras.
Within a fortnight after the registration of the sale deed in favour of the appellant Ordinance No. XII of 1949 which had been promulgated on June 13,1949, was extended to Madras on August 23, 1949.
Section 25(1) of the Ordinance imposed restrictions on transfers by evacuees.
In substance this sub section provided that transfers made by or on behalf of evacuees of any right or interest in their property after such date as may be specified in that behalf with reference to any 451 Province by the Central Government by notification in the official gazette shall not be effective unless they are confirmed by the Custodian.
Section 25(2) provided that an application for confirmation of such transfer may be made by the transferor or the transferor or any person claiming under, or lawfully authorised by, either of them to the Custodian within two months from the date of registration of the deed of transfer or within two months from the commence ment of the Ordinance whichever is later.
The proviso to the said sub section empowered the Custodian to admit an application even if it was made after the period of limitation prescribed therefor if he was satisfied that there were sufficient reasons for doing so, and it imposed on the Custodian an obligation to record such reasons.
Sub section (3) required the Custodian to hold a summary enquiry into the application in the prescribed manner, and authorised him to reject the application for confirmation if he was of opinion that (a) the transaction had not been entered into in good faith or for valuable consideration, or (b) the transaction was prohibited under any law for the time being in force, or (c) the transaction ought not to be confirmed for any other reason.
Sub section
(4) provides that if the application is not rejected under sub section
(3) the Custodian may confirm the transfer either unconditionally or subject to such terms and conditions as he thinks fit to impose.
Ordinance No. XII of 1949 was, however, repealed by Ordinance No. XXVII of 1949 which came into force on October 18, 1949.
Section 38 of this latter Ordinance corresponds to section 25 of the earlier Ordinance except in one material particular.
It provides that no transfer of any right or interest in the property made in any manner whatsoever after the 14th day of August, 1947, by or on behalf of an evacuee as therein specified shall be effective unless it is con firmed by the Custodian., In other words, whereas section 25 of the earlier Ordinance left it to the Central Government to specify the relevant date in reference to any Province by notification in the official gazette, section 38(1) has prescribed the date for all the Provinces 452 where the Ordinance applied.
The rest of the relevant provisions of section 38 are the same as those of section 25 of the earlier Ordinance.
On April 17, 1950, this Ordinance was in turn ,repealed by Act XXXI of 1950 by section 58.
Section 40(1) and (4) are similar to the relevant provisions of sections 25 and 38 of the earlier Ordinances.
One of the changes made is in regard to the relevant dates prescribed by section 40(1).
Under section 40(1) the transfers which are affected by its provisions are those which are made after the 14th day of August, 1947, but before the 7th day of May, 1954; and in respect of them the said section provides, inter alia, that they shall not confer any rights on the parties thereto, if at any time after the transfer the transferor becomes an evacuee within the meaning of section 2 or the property of the transferor is declared or notified to be evacuee property within the meaning of this Act unless the transfer is confirmed by the Custodian in accordance with the provisions of this Act.
Section 40(4) deals with an application made under sub section
(1) for the confirmation of the transfer.
This sub section and its three clauses (a), (b) and (c) correspond to sections 25(3) (a), (b) and (c) and 38(4)(a), (b) and (c) of the two earlier Ordinances.
Thus it is clear that the relevant provisions, which conferred power on the Custodian to hold an enquiry on the application made for the confirmation of the transfer and to reject confirmation in certain cases, continued to be the same.
The position, therefore, is that Ordinance No. XII of 1949 which was extended to Madras on August 23, 1949, was in operation only until October 18, 1949.
Thereafter Ordinance No. XXVII of 1949 took its place, and in turn this Ordinance was repealed by Act XXXI of 1950 on April 17, 1950.
The application made by the appellant for confirmation of her purchase has been dealt with under the relevant provisions of the Act, and we would therefore refer to the said provisions hereafter.
On December 19, 1949, the appellant applied for confirmation of the sale transaction in her favour.
This application was resisted by the tenants who urged several grounds in support of their plea that the 453 transfer should not be confirmed.
It appears that on January 11, 1951, the Assistant Custodian of Evacuee Property, Madras City, had declared the property of the vendor to be evacuee property since he was of the opinion that the vendor 's case fell within the four corners of the definition of " an evacuee " under section 2(d)(ii) of the Act.
The declaration that the vendor 's property was evacuee property was made under section 7(1) of the Act.
The Assistant Custodian considered the appellant 's application for confirmation of the transfer in the light of the declaration already made by him that the vendor was an evacuee and that his property was evacuee property.
He referred to the relevant features of the transaction and came to the conclusion that he would not be justified in confirming it.
It appears that in reaching this conclusion he relied on the provisions of section 40(4)(c) of the Act.
In his opinion the feverish hurry disclosed by the conduct of the vendor attracted the provisions of section 40(4)(c).
The order refusing to confirm the transaction was passed on July 31, 1951.
The appellant challenged the correctness of this conclusion by preferring an appeal before the Custodian.
The Custodian found in favour of the appellant that the sale transaction in question was supported by valuable consideration; even so he proceeded to examine the question as to whether it could be said to have been entered into in good faith.
In dealing with this question the appellate authority considered the fact that the vendor had left for Pakistan in June, 1947, evidently on account of civil disturbances or in fear of such disturbances and that it was obvious that he was permanently settled in Pakistan.
According to the appellate authority the vendor was desirous of disposing of his properties in India in order to convert them into cash and take them away to Pakistan.
In this connection reliance was placed on a letter written by the vendor to Mohideen on July 4, 1949.
In this letter the vendor had stated that " if the matter is delayed there would be many sort of new difficulties as you know that the Government are passing new rules every day ".
He took the view that this letter 454 clearly disclosed that the vendor 's intention was to dispose of his properties as quickly as possible so as to evade the restrictions of the evacuee laws which he apprehended would be extended to Madras any day.
this finding the appellate authority came to the conclusion that the transaction had been entered into otherwise than in good faith, and so it could not be confirmed under section 40(4)(a).
The appellate judgment shows that according to the appellate authority the request for confirmation could be rejected also under section 40(4)(c) of the Act.
This order was pronounced on February 4,1953.
The appellant then moved the respondent, the Custodian General in his revisional jurisdiction.
The respondent considered the matter afresh, and agreed with the finding of 'the appellate authority that though the transaction was supported by valuable consideration it could not be said to have been entered into in good faith.
In support of this conclusion he relied on the conduct of the vendor, the haste with which the transaction was attempted to be completed and the anxiety disclosed by him in his letter to Mohideen.
In substance the respondent came to the conclusion that the vendor wanted to evade the restrictions of the evacuee law which he knew would soon be extended to Madras, and that showed that he was not acting in good faith.
It is on this view that the revisional application preferred before him by the appellant was dismissed by him on July 4, 1954.
In his opinion the appellant 's case fell under section 40(4)(a) of the Act.
He did not, therefore, consider the question about the applicability of section 40(4)(c).
It is clear that if a transaction is affected by absence of good faith either in the vendor or the vendee its confirmation may properly be rejected under section 40(4)(a); in other words, good faith is required both in the vendor and the vendee.
In that sense the provisions of section 40(4)(a) are more rigorous and stringent than those of section 53(1) of the Transfer of Property Act.
Under the latter section which deals with fraudulent transfers the rights of a transferee in good faith and for consideration are expressly protected; that, 455 however, is not the position under section 40(4)(a).
Therefore the fact that the appellant paid valuable consideration for the transaction and is not shown to have acted otherwise than in good faith in entering into the transaction would not justify her claim for confirmation of the said transaction if it is shown that the vendor had not acted in good faith in entering into the said transaction.
The fact that consideration was paid by the appellant and that she was acting in good faith may perhaps be relevant in determining the character of her conduct in regard to the transaction; but it would not be relevant or material in determining the character of the conduct of the vendor in relation to the transfer.
This position is not seriously disputed before us.
Mr. Sastri, however, contends that in considering the good faith of the vendor it would be necessary to bear in mind that at the relevant time when negotiations were going on between the parties in respect of the transaction in question evacuee law had not been applied to Madras, and so evacuees like the appellant 's vendor were absolutely free to deal with their properties as they liked.
He also attempted to argue that even where the evacuee law applied, the policy adopted by the Government of India was to confirm transfers made by Mohammedan evacuees in favour of Indian nationals unless a certificate signed by the prescribed income tax authority certifying that the transferor had paid all taxes due from him to the income tax department in respect of his property, business or undertaking, or has made satisfactory arrangements for the payment thereof, had not been produced, and unless he had failed to pay any other dues outstanding against him in the Custodian 's register in respect of his own property and third party claims recognised exparte by the Custodian.
This argument is based upon a copy of the press note alleged to have been issued by the Government of India in the Ministry of Rehabilitation on May 13, 1949.
On the other hand, the learned Additional Solicitor General has relied on a copy of a circular issued by the Government of India on March 9, 1950, where it has been stated that the instructions 456 issued by the Government of India are subject to other requirements of section 38(4) of the Central Ordinance No. XXVII of 1949 ; in other words, whatever may be the nature of the circulars and directions issued by the Government of India, the appropriate authorities administering the provisions of the evacuee law had to deal with the matters brought before them under the relevant provisions of the said law.
We do not think we can attach much importance to the argument that even where the evacuee law applied confirmation of sale transactions was intended to be automatic subject to the satisfaction of the two conditions specified in the press note.
We are bound to assume that the question about confirming sale transactions was required to be, and was in fact, dealt with by the appropriate authorities under the relevant statutory provisions which were in force at the material time.
It is, however, true that no evacuee law had been extended to Madras at the time when the impugned transaction was completed, and that naturally raises the question as to whether if a transaction had been entered into deliberately and consciously with the object of evading the application of evacuee law which it was apprehended would soon be extended to Madras, does that fact attract the provisions of section 40(4)(a) of the Act? As we have already indicated the respondent has answered this question in the affirmative, and Mr. Sastri contends that this conclusion is erroneous in law.
Mr. Sastri 's argument is that the expression " good faith " in section 40(4)(a) should be construed in the sense attributed to the said expression by section 3, sub section
(22) of the General Clauses Act, X of 1897.
The said provision lays down that a thing shall be deemed to be done in good faith where it is in fact done honestly whether it is done negligently or not.
The argument is that the vendor could not be said to have acted dishonestly when no evacuee law applied to Madras, and an intention to avoid a law which may be applied to Madras in future cannot be said to introduce an element of dishonesty in his conduct.
In our opinion this argument cannot be accepted.
In this connection it is necessary to bear in mind that section 3 of the General 457 Clauses Act itself provides that the definitions prescribed by the said section are applicable " unless there is anything repugnant in the subject or context ", and so it would not be unreasonable to hold that the content of the expression " good: faith " would depend,, substantially on the context of the statute which uses it.
In determining the denotation of the said expression in section 40(4)(a) it would be essential to take into account the scope and effect of the main provisions of section 40(1).
As we have already noticed, this section provides, inter alia, that no transfer made after the 14th day of August, 1947, shall be effective so as to confer any rights in respect of the said transfer on the parties thereto if, at any time after the transfer, the transferor becomes an evacuee within the meaning of section 2, or the property of the transferor is declared or notified to be An evacuee property within the meaning of the Act, unless the transfer is confirmed by the Custodian in accordance with the provisions of this Act.
It would thus be clear that all transfers made after the 14th day of August, 1947, but before the 7th day of May, 1954, are hit by this section, and that obviously would bring within the mischief of the section a large number of transfers effected at a time when no evacuee law was in force in respect of them.
Reading section 40(1) and (4) together it appears that the transfers hit by the former provision would be valid only if they are confirmed under the latter provision.
It is possible that a transfer made during the prohibited period may have been entered into in good faith or was for valuable consideration and did not attract any of the provisions contained in cls.
(a), (b) and (c) of a. 40(4).
In such a case merely because it was affected within the prohibited period it would not become void and the Custodian may have to confirm it; but where such a transfer attracts the provisions of section 40(4)(a) for instance, it would not be affirmed and it would remain inoperative.
This shows that the main object of the Act was to preserve the property of persons who had migrated to Pakistan till the Government of India could come to some understanding with the Pakistan Government in regard to adjustment of claims of Indian 58 458 evacuees in respect of the properties left by them in Pakistan.
The idea then presumably was that the two Governments should agree on the valuation of the evacuee properties left by evacuees in the two respective countries and the difference in the said valuation should be amicably adjusted between them.
After such adjustment was made it was intended to compensate the evacuees in regard to the loss incurred by them in respect of the properties left by them in the two respective countries.
That this intention did not succeed is an other matter.
There can, however, be no doubt about the policy and object of the Act, and in determining the content of the expression " good faith " in the context of the main provision of section 40(1) this object and policy of the Act must be borne in mind.
Section 40(4) refers to three kinds of cases where the transfer may not be confirmed; cl.
(a) deals with transactions which are not entered into in good faith or for valuable consideration; cl.
(b) deals with transactions which are prohibited under any law for the time being in force; and cl.
(c) deals with cases of transactions which are not confirmed for any other reason.
It would thus be seen that the scope of the three clauses is very wide.
It is not only transactions prohibited under any law that fall within the mischief of section 40(4); but transactions which are not entered into in good faith or for valuable consideration also fall within its mischief Now, if the test prescribed by section 3(22) of the General Clauses Act as interpreted by Mr. Sastri is held to be relevant a large number of transactions may have to be confirmed even though they are shown to have been deliberately entered into with the object of evading the provisions of section 40(1).
In our opinion, the fact that the evacuee law had not been extended at the relevant time to Madras would not be decisive in the matter.
It was well known that the said law was being extended from Province to Province as it was deemed necessary, and indeed the letter written by the vendor to Mohideen clearly shows that the vendor knew as much.
The history of the evacuee laws passed in several States and by the 459 Central Government and Legislature from time to time shows that the Legislatures were attempting to meet with an unprecedented problem, and the laws passed by them in India and Pakistan at the material time made it perfectly clear to the evacuees from both the countries that the two countries were adopting appropriate legislative measures to protect the evacuee properties and prevent their transfers.
Therefore, if a vendor sold his property not for any necessity or for any other legitimate purpose but solely with the object of converting it into cash and removing it to Pakistan, that clearly was intended to defeat the provisions of the Act which he knew would soon be extended to Madras, and so it would be difficult to hold that he was acting honestly within the meaning of section 40(4)(a) of the Act.
An intention to defeat the provisions of the Act cannot be said to be honest in the context.
If despite his intention to defeat the application of the Act a transaction is upheld as entered into in good faith many transactions may escape the application of section 40(1), and that clearly would defeat the purpose of the Act.
It is significant that though the provisions of section 40(1) are drastic they have been deliberately made retrospective, and that emphatically brings out the aim and object of the Act; and it would be unreasonable to ignore this aim and object of the Act in construing the expression " good faith " in section 40(4)(a).
We would, therefore, hold that having regard to the aim and object of the emergency legislation with which we are concerned in the present case the expression " good faith " used in section 40(4)(a) has been property construed by the respondent when he held that a deliberate intention to defeat the apprehended application of the evacuee law which was responsible for the transfer in question brings the transfer within the ' mischief of section 40(4)(a).
The result is the appeal fails and is dismissed with costs.
Appeal dismissed.

dataset_name: IN-Abs

summary/full:
M who had gone to Pakistan in 1947, sold his property in the State of Madras to the appellant on August II, 1949.
At that time there was no legislation with respect to evacuee property in Madras.
On August 23, 1949, the Administration of Evacuee Property (Chief Commissioners Provinces) Ordinance, 1949 (XII of 1949), was extended to Madras.
The appellant made an application for the confirmation of the sale.
Subsequently, M was declared an evacuee and the property as evacuee property.
It was found that M had entered into the transaction with the object of evading the evacuee law which it was apprehended, would be extended to Madras.
Consequently, confirmation of the sale was refused under section 40(4)(a) of the Administration of Evacuaee 449 Property Act, 950, on the ground that the transaction had not been entered into in good faith.
The appellant contended that there was no lack of good faith on the part of M as he could not be said to have acted dishonestly when at the time of the sale no evacuee law had been applied to Madras and that an intention to avoid a future law could not be said to be dishonest.
Held, that the vendor had not entered into the transaction in " good faith " and the confirmation of the sale was rightly refused under section 40(4)(a) of the Act.
Having regard to the aim and object of the emergency legislation a deliberate intention to defeat the apprehended evacuee law motivating a sale amounted to want of " good faith ".
If the vendor sold his property not for any necessity or any other legitimate purpose but solely with the object of converting it into cash and removing it to Pakistan, he intended to defeat the provisions of the evacuee law which he knew was to be extended to Madras soon and he acted dishonestly within the meaning of section 40(4)(a).


judgement:
Appeals Nos. 142 and 143 of 1960.
Appeals from the judgment and order dated July 21, 1955, of the Madras High Court in C.R. No. 32 of 1952.
G. section Pathak and Naunit Lal, for the appellants.
K. N. Rajagopal Sastri and D. Gupta for the respondent.
January 10.
The Judgment of the Court was delivered by HIDAYATULLAH J.
These are two appeals by the legal representatives of one A. R. Rangachari, who died during the pendency, in the High Court at Madras, of proceedings in a reference under section 66(1) of the Income tax Act made by the Income tax Appellate Tribunal, Madras Bench.
The following question was referred to the High Court for its decision: 382 " Whether the inclusion in the assessee 's total income of the profits settled by him on his wife and two daughters is justified in law ? " The High Court answered the question in the affirmative.
The appeals have been filed with a certificate granted by the High court.
Rangachari was one of five partners of a firm, Messrs. Chari and Ram, and held a six anna share in the profits and loss of the partnership.
On September 22, 1947, he executed three deeds of settlement, which are marked Exts.
A, A 1 and A 2, in favour of his wife,, a married adult daughter and a minor daughter.
To each of them, he assigned a fourth share of the profits of the firm payable to him (but not the losses), for a period of 8 years, vesting the right in them to receive the said share of profits absolutely and exclusively and declaring the settlements to be irrevocable during the above period.
It is not necessary to refer to the three documents, because the terms are the same.
A few clauses of the deed, exhibit A, may be quoted.
After recitals which included the following: " Whereas the Settlor has settled upon his minor daughter, Srimathi Meera Bai, one fourth of his share of profits payable to him from the firm for a period of eight years; And whereas out of natural love and affection, the Settlor is desirous of conferring upon the Beneficiary a similar portion of his share of profits from the firm ", the deed goes on to say " Now this Indenture witnesseth as follows: 1. .The
Settlor hereby assigns unto the Beneficiary all the rights of the Settlor in respect of one fourth of his share of profits in the firm (but not the losses) payable to him during a period of eight years commencing from the date hereof to be taken and enjoyed by the Beneficiary in absolute and exclusive right.
2. .The
Settlor shall not have any manner of right or interest in the said one fourth share hereby settled and the right to receive from the firm one fourth of 383 the Settlor 's share during the said period of eight years shall exclusively vest in the Beneficiary.
3. .The
Beneficiary shall be entitled directly to receive and collect from the firm the share of profits hereby transferred for the said period of eight years. . . . 8.
This settlement shall be irrevocable.
" For the assessment year 1947 48 corresponding to a previous year ending on April 13, 1947, the profits due to Rangachari amounted to Rs. 86,491 13 0.
This amount was credited to the account of Rangachari, and Rs. 21,622 15 3, being one fourth thereof, were transferred to the accounts of each of the three disponees.
In the same way, the profits of the previous year ending April 13, 1948, were disposed of.
The assessee claimed that these amounts could not be included in his total income for purposes of assessment, being excluded by reason of the third proviso to section 16(1)(c) of the Income tax Act.
He also contended that the amount payable to his wife and two daughters never became his income, being diverted by an overriding title, and that the case was governed by the rule laid down by the Privy Council in Bijoy Singh Dudhuria vs Commissioner of Income tax, Bengal (1).
The assessee 's contentions were not accepted by the Income tax Officer, and his appeals to the Appellate Assistant Commissioner and the Tribunal also failed.
In so far as the assessment year 1947 48 was concerned, the Income tax Officer held that the income had already accrued to the assessee, because the deeds were executed five months after the close of the account year.
He also held that the transfer to the minor daughter fell within section 16(3), as there was no adequate consideration for the transfer.
With regard to the wife and married daughter, he held that section 16(1)(c) was not applicable, because what had been transferred was income first accruing to the assessee, while section 16(1)(c) contemplated income which accrued to a person, to whom the transfer was made.
The same reasons (except the first) were given for rejecting the, (1) 384 assessee 's contentions in respect of the other assessment year.
It is not necessary to refer in detail to the decisions of the Appellate Assistant Commissioner, the Tribunal ,,,and the High Court.
The High Court in an elaborate judgment pointed out that section 16(1)(c) did not apply to these proceedings, and that the third proviso was, therefore, not attracted.
It also held that the income had accrued to the assessee in the first instance, and had then been applied for payments under the deeds.
This Court has recently decided three cases which have a direct bearing in this connection.
In Provat Kumar Mitter vs Commissioner of Income tax, West Bengal (1), the assessee had executed a deed of trust under which dividends from certain shares which continued to be his assets, were transferred to his wife.
It was held that the case did not fall within section 16(1)(c), and that the rule in Bijoy Singh Dudhuria 's case (2) also did not apply.
In Tulsidas Kilachand vs The Commissioner of Income tax, Bombay(1), the husband had created a trust of the shares, constituting himself as the trustee to pay to the wife dividends from those shares for a period of seven years.
It was held that the case was not governed by section 16(1)(c) but by section 16(3)(b).
In The Commissioner of Income tax, Bombay vs Sitaldas Tirathdas (4), the rule laid down by the Privy Council in Bijoy Singh Dudhuria 's case was considered along with the case of the Privy Council in P. C. Mullick vs Commissioner of Income tax, Bengal (5), and it was pointed out that the rule in Bijoy Singh Dudhuria 's case (2) applied only to those cases where it could be said that by an overriding title the income was diverted in such a way as never to become the income of the assessee.
These three cases, in our opinion, afford a complete answer to the contentions of the appellants.
An examination of the deeds of settlement shows that the disponer had stated that from the profits " payable to him " certain amounts in specified shares were to be paid to his wife and two daughters.
No (1) ; (3) ; (2) (4) ; , (5) 385 doubt, the assessee in those deeds created a right in favour of the disponees to get the amounts direct from the firm, of which he was a partner.
The tenor of the documents shows that the profits were first to accrue to him and were then applied for payments to the disponees.
Learned counsel for the appellants contended that what had been assigned was an actionable claim, to wit, the right to profits, and therefore the profits were diverted, before they accrued to the disponer.
This, in our opinion, is neither in accord ance with the law of partnership nor with the facts as we have found on the record.
Under the law of partnership, it is the partner and the partner alone who is entitled to the profits.
Astranger, even if he were an assignee, has not and cannot have a direct claim to the profits.
By the deeds in question, the assessee merely allowed a payment to his wife and daughters to constitute a valid discharge in favour of the firm; but what was paid was, in law, a portion of his profits, or, in other words, his income.
A glance at the account books of the firm, Messrs. Chari and Ram, clearly shows that the amounts were first credited in the Khata of Rangachari and then under his directions were transferred from his Khata to those of his wife and daughters.
The dispositions, therefore, were, in law and in fact, portions of the income of Rangachari, after the income had accrued to him, and tax was payable by him at the point of accrual.
In view of the decision of this Court in Sitaldas Pirathdas 's case (1), it cannot be said that the profits were diverted by an overriding title before they accrued to Rangachari; and the rule in Bijoy Singh Dudhuria 's case (2) cannot be called in aid.
For the above reasons, we are in entire agreement with the High Court in the answer given and dismiss these appeals with costs.
Appeals dismissed.

summary/full:
One Rangachari, a partner of a partnership firm, assigned by means of a deed of settlement a fourth share of the profits of the firm each to his wife, a married adult daughter and a minor daughter for 8 years with the right to receive the said share of profits absolutely and exclusively from the firm.
The question which arose before the High Court on a reference under section 66(1) of the Income tax Act was " Whether the inclusion in the assessee 's total income of the profits settled by him on his wife and two daughters is justified in law ?" The assessee Rangachari relying on the rule laid down by the Privy Council in Bijoy Singh Dudhuria 's case claimed that the amounts payable to his wife and two daughters never became his income, being diverted by an overriding title and that those amounts could not be included in his total income for the purposes of assessment being excluded by reason of the third proviso to section 16(1)(c) of the Income tax Act.
The High Court held that the third proviso was not attracted and that the income had accrued to the assessee in the first instance, and had then been applied for payments under the deeds.
On appeal with a certificate of the High Court: Held, that the answer given by the High Court was correct.
381 An examination of the deeds of settlement showed that the disponer had stated that from the profits " payable to him " certain amounts in specified shares were to be paid to his wife and two daughters.
No doubt, the assessee in those deeds created a right in favour of the disponees to get the amounts direct from the firm, of which he was a partner.
The tenor of the document In, showed that the profits were first to accrue to him and were then applied for payments to the disponees.
Under the law of partnership, it is the partner and the partner alone who is entitled to the profits.
A stranger, even if he were an assignee, has not and cannot have a direct claim to the profits.
By the deeds in question, the assessee merely allowed a payment to his wife and daughters to constitute a valid discharge in favour of the firm, but what was paid was, in law, a portion of his profits or, in other words, his income.
The rule in Bijoy Singh 's case was not applicable to this case, and in view of the decision of this court in Sitaldas Tirathdas 's case it cannot be said that the profits were diverted by an overriding title before they accrued to the assessee.
Provat Kumar Mitter vs Commissioner of Income tax, West Bengal ; Tulsidas Kilachand vs The Commissioner of Income tax ; The Commissioner of Income tax, Bombay vs Sitaldas Tirathdas ; , applied.
Bijoy Singh Dudhuria vs Commissioner of Income tax, Bengal , held inapplicable.