judgement:
N: Criminal Appeal No. 300 of 1975.
Appeal by Special Leave from the Judgment and Order dated the 17th March, 1975 of the Calcutta High Court in Govt.
Appeal No. 9 of 1974 and Criminal Revision Nos.
438 and 524 of 1974.
D. Mookherjee and D. N. Mukherjee, for the Appellants.
A. K. Sen and D. N. Gupta, for Respondent No. 2.
The Judgment of the Court was delivered by KRISHNA IYER, J.
Not for dramatic effect but to sting social conscience, we set out the tragic story of this case which is typical of the spreading disease of immoral traffic, to remedy which the Suppression of Immoral Traffic in Women And Girls Act, 1956 (for short, the Act) was enacted by Parliament in a mood of high morality but with such drafting inefficiency that it has pathetically failed to produce any decline in the malady.
The scene is the Isias Bar, 15, Free School Street, Calcutta.
A hall of enchantment extends nocturnal invitation to have a nice time with svelte sylphs.
The entrance fee is but a paltry Rs. 15/ per man and inside is served animating liquor.
Scantily clad female flesh of sweet seventeen or thereabouts flit about or sit on laps, to the heady tune of band music.
They solicit carnal custom, and the willing male victims pay Rs. 30/ , choose whom they fancy, drink together and, taking leave of decencies, indulge in promiscuous sex exercise legally described as operation prostitution.
The stage is busy with many men and girls moving into rooms, lavatories and chambers.
The curtain rises and a raiding party of police and excise officers surprise this arotic company drowned in drink and damsels.
This lacherous drama need not detain us further.
The Act went into action, a prosecution was launched against many under section 7 resulting in conviction and sentence of two persons, the proprietor and the manager of the Isias Bar.
Often times, a bar or restaurant is a euphemism for a brothel and the socialites, unsuspectedly and without smirch, satisfy their sex in these respectably labellel houses patronised by even prestigious dignitaries and opulent businessmen.
An appeal to the High Court substantially failed and the appeal by the State on some counts, partly succeeded.
In this Court, leave was refused regarding the challenge against the guilt and so the findings sustaining the conviction stand; but it is necessary to clarify that ultimately the High Court modified the conviction to an extent and we have to proceed on the footing that the accused, have been found guilty of offenses under section 7(2) (a), section 3(1) but acquitted under section 7(2)(b).
What is most pertinent to the present appeal is that an order was made under section 18(1) read with sec.
18(2) directing "the occupiers of portion of premises Nos. 15 and 15/A, Free School Street commonly known as 'Isias Bar ' to be evicted therefrom within a period of seven days from the 302 date of this order and restore possession thereof to the owner landlord or his agent and we further direct that this premises or any portion thereof shall not be leased out, or otherwise given possession of, to or for the benefit of the person or persons, who were connected with the improper user thereof.
" We had granted special leave limited to the attack on this order for eviction under section 18(2) read with section 18(1).
The area of discussion in these arguments is thus confined to the power to throw out the occupier of the guilty premises on conviction for offences under sections 3(1) and 7(2)(a) on top of the sentence imposed.
An appreciation of the legal tangle can be facilitated by a brief but necessary sketch of the indubitable foundational facts and the basic legal provisions bearing on the orders under section 18.
The court, as earlier mentioned, passed an order, following on the sentence, that since a conviction under sections 3 and 7 had been rendered, there would be a direction evicting the appellants occupiers from the theatre of prostitutional operation, viz., the Isiah Bar.
The Bar is beyond the offending distance of 200 yards of any 'public place ' referred to in sub section
(1) of section 7.
The said sub section itemises premises such as places of public religious worship, educational institutions, hostels, hospitals, nursing homes and such other public places as may be notified by the authority designated.
At the same time it is a proven fact that the appellants have been keeping or managing a brothel within the meaning of section 3(1), and are keepers of a public place knowingly permitting prostitutes for the purposes of their trade to resort to or remain in such public place viz., the Isiah Bar.
Section 18, sub sections
(1) to (4) may be reproduced in extenso before analysing the submissions made by counsel on either side: "18(1).
A magistrate may, on receipt of information from the police or otherwise, that any house, room, place or any portion thereof within a distance of two hundred yards of any public place referred to in sub section (1) of section 7, is being run or used as a brothel by any person, or is being used by prostitutes for carrying on their trade, issue notice on the owner, lessor or landlord of such house, room, place or portion or the agent of the owner, lessor or landlord or on the tenant, lessee, occupier of, or any other person in charge of such house, room, place, or portion, to show cause within seven days of the receipt of the notice why the same should not be attached for improper user thereof; and if, after hearing the person concerned, the magistrate is satisfied that the house, room, place, or portion is being used as a brothel or for carrying on prostitution, then the magistrate may pass orders (a) directing eviction of the occupier within seven days of the passing of the order from the house, room, place, or portion; 303 (b) directing that before letting it out during the period of one year immediately after the passing of the order, the owner, lessor or landlord or the agent of the owner, lessor or landlord shall obtain the previous approval of the magistrate: Provided that, if the magistrate finds that the owner, lessor or landlord as well as the agent of the owner, lessor or landlord, was innocent of the improper user of the house, room, place or portion, he may cause the same to be restored to the owner, lessor or landlord, or the agent of the owner, lessor or landlord, with a direction that the house, room, place or portion shall not be leased out, or otherwise given possession of, to or for the benefit of the person who was allowing the improper user therein.
(2) A court convicting a person of any offence under section 3 or section 7 may pass orders under sub section (1), without further notice to such person or show cause as required in that sub section.
(3) Orders passed by the magistrate or court under sub section (1) or sub section (2) shall not be subject to appeal and shall not be stayed or set aside by the order of any court, civil or criminal, and the said orders shall cease to have validity after the expiry of one year: Provided that where a conviction under section 3 or section 7 is set aside on appeal on the ground that such house, room, place or any portion thereof is not being run or used as a brothel or is not being used by prostitutes for carrying on their trade, any order passed by the trial court under sub section (1) shall also be set aside.
(4) Notwithstanding anything contained in any other law for the time being in force, when a magistrate passes an order under sub section (1), or a court passes an order under sub section (2), any lease or agreement under which the house, room, place or portion is occupied at the time shall become void and inoperative.
" The project of the statute, to the extent we are concerned, may now be set out.
When a magistrate receives information that any brothel is being run within a distance of 200 yards of any public place such as has been mentioned earlier [in sub section
(1) of section 7] he may issue notice to the owner, tenant, occupier or other person in charge of or connected with the brothel to show cause why it should not be attached for improper user.
After a hearing being conducted, the magistrate, if satisfied, may order eviction of the occupier and further direct that the owner or landlord shall not let out the premises for a period of one year after the passing of the order, without his previous approval.
304 In short, the house of ill fame where Mrs. Warren 's Profession is carried on is virtually sealed off by attachment by the magistrate.
However, if the owner satisfies the magistrate of his innocence, it may be restored to him with a direction that it shall not be leased out to the person who had been improperly using it for immoral purposes.
Section 18(1) proprio vigore applies only to brothels within the vicious distance of 200 yards of specified types of public institutions.
No criminal prosecution or conviction is necessary for taking action under section 18(1).
Strictly speaking, this is not a punitive provision but a preventive one.
This power vested in the magistrate is calculated to ensure moral hygiene in the locality which is particularly sensitive.
If one may say so, it is a moral scavenging operation, or a fumigation process whereby the dangerous visitations may be totally inhibited by a legally enforced closure.
So far as we are concerned, the Isiah Bar is not shown to be within the offending distance and section 18(1) cannot therefore apply.
Indeed the Magistrate and the High Court have proceeded to exercise powers under section 18(2) and the entire controversy before us is as to the real import of that provision.
By way of aside, we may say that plausible submissions were urged by Shri D. Mukherjee, supported by the language of section 18(2).
Had the drafting been more careful, and lucid, the argument would have been obviated.
This Court has, more than once, pointed out that lack of legislative simplicity has led to interpretative complexity.
The home truth that legislation is for the people and must, therefore, be plain enough has hardly been realised by our law makers.
Judges, looking at statutes, are forced to play a linguistic game guessing at the general legislative purpose and straining at semantics.
In the present case we have had to reach the conclusion against the appellants by broadening the dimensions of Heyden 's case(1), importing a 'context purpose ' teleological approach.
There are many canons of statutory construction, but the golden rule is that there are no golden rules if we may use Shavian language.
We must emphasize once more that legislative draftsmen and legislators must not confuse each other but start talking to their real audience the people, by writing law in unmistakable and simple language.
Back to section 18(2).
Once a court convicts a person under section 3 or section 7 as in this case, it may pass orders under sub section (1) of section 18 without further notice to such person to show cause as required in that sub section.
Shri Mukherjee 's submission is that this power of eviction is conditioned by the limitations of section 18(1).
Orders under sub section
(1) of section 18 can, admittedly, be passed only if the brothel is within 200 yards ' distance.
Since, in this case, the place is beyond that distance, Shri Mukherjee argues that sub section
(2) cannot apply.
The words 'pass orders under sub section ' creates ambiguity which we have sought to dispel by trying to advance the remedy and suppress the evil through the interpretative methodology.
305 Shri A. K. Sen has explained and we think rightly that section 3 punishes persons who keep brothels.
Sub section
(3) of section 3 lays down that notwithstanding any other law 'any lease . under which such premises . are held or occupied at the time of the commission of the offence, shall become void and inoperative with effect from the date of the said conviction '.
It is plain therefore that the consequence of a conviction under section 3 is the invalidation of the lease of the premises where the brothel is run.
The logical consequence must be that the occupier must be thrown out of the prostitutional premises.
This is achieved by exercise of the power under section 18(2).
Section 7(1) punishes prostitution in premises within a distance of 200 yards of specified sensitive places set out therein.
Section 7(2) works out a dichotomy: sub section
(2)(a) punishes the keeper of any public place who knowingly permits prostitutes to resort to such place (that is, any public place).
No question of distance arises here but sub section 2(b) specifically mentions, as an ingredient of the offence, that the premises must be such as are referred to in sub section
(1) (that is, within 200 yards distance).
A person convicted either under sub section
(1) or under sub section
(2) (a) or (b) section 7 will be covered by section 18(2) because the latter provision empowers the court to pass orders under section 18(1) if there is a conviction under section 7, regardless of whether it falls under sub section
(2) (a) or (b) of that section.
Moreover, if we have regard to the wholesome purpose of cleansing houses of ill fame, it can be achieved only by a broader construction of section 18(2).
This Court in Sub Div.
Magistrate vs Ram Kali(1) held that section 18(1) deals with one class and section 18(2) relates to another class.
Section 18(1) is a summary procedure for closing down obnoxious places of prostitution, without going through the detailed process of a criminal prosecution.
It is a quick acting defensive mechanism, calculated to extinguish the brothel and promote immediate moral sanitation, having regard to the social susceptibility of places like shrines, schools, hostels, hospitals and the like, Section 18(2) on the other hand, operates only where persons have been convicted of offences under section 3 or section 7.
Thus the place is found to be put to prostitutional use, in a criminal trial.
It stands to reason that if the purpose of extirpating the commercial vice from that venue were to be successful, the occupier must be expelled therefrom.
This is precisely what has been done in the present case.
Section 18(2) operates not merely on places within the offending distance of 200 yards but in all places where the activity of prostitution has been conducted.
A close reading of section 18(2) indicates that the orders under sub section
(1), referred to therein, do not, wholesale, import the substantive paragraph of section 18(1), but only the evicting orders contained in section 18(2), clauses (a) and (b).
What is, by a process of abbreviation, imported into section 18(2) is the decretal part of section 18(1) to the extent it is written into section 18(1), (a) and (b).
There is some clumsiness 306 about the drafting, as we have already stated.
Even so, if the purpose is carried to the meaning that we assign, the section fulfils the social cause.
We are in the International Women 's Year a circumstance meaningful socially, but not relevant legally.
Even so, it is time to tighten up this statute and we may permit ourselves a few concluding observations, hopefully.
Maybe, there are other provisions of the Act which have contributed to its dismal failure in the field and the legislature must, in the International Year of Women, protect the virtue of the weaker sex from the purchasing power of the takers of virginity who sip every flower and change every hour.
No nation, with all its boasts, and all its hopes, can ever morally be clean till all its women are really free free to live without sale of their young flesh to lascivious wealth or commerciailsing their luscious figures.
India, to redeem this 'gender justice ' and to prescribe prostitution whereby rich men buy poor women through houses of vice, has salved its social conscience by enacting the Act.
But the law is so ill drafted and lacunose that few who follow "the most ancient Profession in the World" have been frightened into virtue and the customers of wine cum women are catered to respectably in bars, hotels and night clubs in sophisticated and subtle ways, especially in our cities.
We dismiss the appeal, upholding the power of the magistrate to order eviction when there is a conviction under section 3 or section 7 confident that public power vested in a public functionary for public benefit shall be used whenever conditions necessary for the exercise are present, so that a comprehensive social purpose of moral clean up of public places is accomplished.
V.P.S. Appeal dismissed.

dataset_name: IN-Abs

summary/full:
The appellants were keepers of a public place namely, a bar.
They were convicted under section 3(1) of the Suppression of Immoral Traffia in Women and Girls Act.
1956, for keeping or managing a brothel in the bar, and under section 7(2)(a) for knowingly permitting prostitutes for the purpose of their trade to resort to or remain in the bar.
There was also a direction under section 18(1) read with section 18(2) of the Act evicting, the appellants from the bar.
It was contended that the order of eviction was bad, because the bar was not within 200 yds.
of any public institution of the type referred to in section 18(1).
^ HELD : The Magistrate has power to order eviction when there is a conviction either under section 3 or section 7.
[306 E] Under section 18(1), when a Magistrate receives information that a brothel is being run within a distance of 200 yds.
from certain specified types of public institutions, he may order the eviction of the occupier after hearing him.
Under section 18(2).
once a court convicts a person under section 3 or section 7, it may pass orders under section 18(1) without further notice to such person to show cause as required in that sub section.
A close reading of section 18(2), however indicates that the orders under sub section (1) referred to therein do not wholesale import the substantive paragraph of section 18(1) but only the eviction orders contained therein.
F H] (a) The consequence of a conviction under section 3 is the invalidation of any lease of the premises where the brothel is run.
The logical consquence must be that the occupier must be thrown out of such premises.
This is achieved by the exercise of the power under section 18(2).
[305 B] (b) Section 7(1) punishes prostitution in premises within a distance of 200 yds.
of specified places.
Section 7(2)(b) punishes the person who permits the use of premises in his occupation for prostitution, and it is an ingredient of the offence that the premises must be within 200 yards distance of the specified places; but section 7(2)(a) punishes the keeper of any public place who knwingly permits prostitutes to resort to such place for their trade.
No question of distance arises with respect to such a conviction.
But section 18(2) empowers the court to pass orders under section 18(1) if there is a conviction under section 7 regardless of whether it falls under section 7(2)(a) or (b).
[305 C E] Therefore, section 18(2) operates not merely on places within the offendin distance of 200 yds.
but in all places where the activity of prostitution had been conducted.
[305 G] (c) To dispel the ambiguity in section 18(2) it must be interpreted in such a way as to advance the remedy and suppress the evil.
If the purpose of extirpating the commercial vice from a place were to be successful the occupier must be expelled from there.
[304 H] Sub Div.
Magistrate vs Ram Kali, [1968] 1 S.C.R. 205 and Heyden 's ; , case referred to. 301


judgement:
N: Criminal Appeal No. 172 of 1971.
Appeal by Special Leave from the Judgment and Order dated the 7 5 70 of the Calcutta High Court in Criminal Revision No. 370 of 1970.
M. M. Kshatriaya and G. section Chatterjee for the Appellant.
A. K. Sen, Mrs. Leila Seth, Mrs. Anjana Sen and O. P. Khaitan for respondent.
The Judgment of the Court was delivered by KHANNA, J.
This appeal by special leave is by the State of West Bengal against the judgment of the Calcutta High Court whereby the High Court in a revision petition under section 439 of the Code of Criminal Procedure quashed the charges framed by the Presidency Magistrate against Raj Kumar Agarwalla respondent.
The prosecution case is that on November 8, 1967 Shankerlal representing himself to be a broker of foreign machinery parts went to Ram Avtar Prasad complainant and told him that he (Shanker Lal) could arrange for a transaction of sale of foreign goods which would result in good profit to the complainant.
The complainant agreed to the proposal and wanted to see the seller of the foreign goods in question.
On the following day Shanker Lal came with another man named Pandey and told Ram Avtar complainant that Pandey was an agent of Shri Hanuman Agency and would supply the foreign goods known as washer plates.
Pandey showed Ram Avtar the samples of those washer plates.
One of those samples was kept by Ram Avtar.
A day after that Shanker Lal brought one Saheb Jaman Khan alongwith him to Ram Avtar and introduced Saheb Jaman Khan as agent of M/s. Ashoke Trading Corporation of Indore.
Ram Avtar then agreed to purchase 200 pieces of the washer plates at the rate of Rs. 38/ per piece.
Formal order, it was then agreed, would be sent through Shanker Lal.
279 On November 15, 1967 Shanker Lal handed over the said formal order to Ram Avtar and stated that the goods would be supplied on the following day.
Ram Avtar was also told that this transaction would fetch him a profit of Rs. 3200/ .
On November 16, 1967 Ram Avtar lodged a report with the police against Shanker Lal after his suspicion had been aroused.
Later on that day Shanker Lal and Raj Kumar Agarwalla came to the shop of Ram Avtar with washer plates in a taxi.
Price of the said goods was then demanded from Ram Avtar.
Shanker Lal and Raj Kumar Agarwalla were thereupon arrested by the police.
It appears that the police did not submit any charge sheet on the basis of the report which had been lodged by Ram Avtar and the accused were discharged.
Subsequently, the proceedings were set in motion against Raj Kumar Agarwalla, Shanker Lal and Saheb Jaman Khan.
Charge under sections 420, 468 and 471 Indian Penal Code read with section 120B Indian Penal Code was framed against all the three accused.
Another charge under section 420 read with section 511 Indian Penal Code was framed against Raj Kumar Agarwalla and Shanker Lal.
Raj Kumar Agarwalla thereafter filed a revision petition in the High Court for quashing the charge against him.
The revision petition was allowed by the High Court on the ground that so far as Raj Kumar Agawalla was concerned, no case had been made out against him.
Charges framed against him were consequently quashed.
We have heard Mr. Kshatriya on behalf of the appellant State, and are of the view that there is no cogent ground for interference with the judgment of the High Court.
The report which was lodged by Ram Avtar in the very nature of things made no mention of the name of Raj Kumar Agarwalla respondent because it is the case of the prosecution itself that Raj Kumar appeared on the scene only subsequent to the lodging of the report.
The part which is attributed to Raj Kumar is that he was present along with Shanker Lal, when the latter brought washer plates in a taxi and demanded the price of the washer plates from Ram Avtar.
That circumstance, as pointed out by the High Court, would hardly warrant an inference that Raj Kumar respondent too was a party to any conspiracy to defraud or cheat Ram Avtar.
We find no infirmity in the judgment of the High Court as might induce us to interfere.
The appeal fails and is dismissed.
V.P.S. Appeal dismissed.

summary/full:
The complainant lodged a complaint to the police of a conspiracy to cheat and defraud him.
That report did not mention the respondent 's name, because, it was the case of the prosecution itself that the respondent appeared on the scene only subsequent to the lodging of the report.
The part attributed to him was that he was present along with the person complained against when the latter came to the complainant to demand money.
That circumstance alone would not warrant the inference that the respondent was also a party to any conspiracy to defraud or cheat the complainant.
The High Court was, therefore, right in quashing the charges framed against the respondent.
[279E F] ^


judgement:
Civil Appeal No. 1562 of 1970.
Appeal by special leave from the Judgment and Order dated the 29th July, 1970 of the Rajasthan High Court in D.B. Civil Special Appeal No. 172 of 1970.
D. V. Patel, section M. Jain, for the appellant.
Miss Maya Rao for the respondent.
The Judgment of the Court was delivered by GOSWAMI, J.
This appeal by special leave is against the judgment of the Division Bench of the Rajasthan High Court by which an appeal against the judgment of a single Bench was summarily rejected.
In answer to a notification of March 29, 1950, issued by the State of Rajasthan inviting tenders for mining rights for mica on certain terms and conditions, the appellant submitted its tender which was accepted on December 30, 1950 and a notification in that behalf was made by the State Government on February 6, 1951, granting the mining lease for mica for block No. 6 (except sidries mine) in Bhilwara District on payment of the tendered amount of Rs. 1,55,000.
223 The lease was for a period of 20 years with an option of renewal of the lease for another 20 years as per conditions prescribed in the Mineral Concession Rules, 1949 (briefly the Rules).
A premium of Rs. 1,55,000 was deposited by the appellant and possession was also handed over to it on March 15, 1951.
The area originally was 6021 acres but later on a dam, by the name of Meza Dam, was constructed over some parts of the original area and the appellant was left to work on 2924 acres.
It is stated that the appellant spent Rs. 5,65,000 between 1951 and 1955.
It is also common case that no lease was executed within six months of the acceptance of the tender as required.
On June 19, 1955, the Director of Mines and Geology, Rajasthan, sent a notice to the appellant intimating that the orders sanctioning the lease stood revoked with effect from June 6, 1955.
The appellant was asked by this notice to show cause why further action to take immediate possession of the area should not be taken.
It may be noted that in this notice exception was taken for the appellant not executing the lease within the requisite period of six months which, it was mentioned, expired on August 27, 1953.
The appellant submitted a review application against the order of the State Government cancelling the mine lease on February 23, 1957.
It appears, meanwhile, the State Government proposed to grant a lease to the appellant and the latter did not press the review application.
Thereafter some correspondence took place between the appellant and the State Government regarding execution of the lease, its terms and conditions and the like.
A reference was also made by the appellant to the Central Government on March 12, 1963, to direct the State Government to sanction the lease.
On May 15, 1965, the Mining Engineer, Rajasthan, sent a notice to the appellant to deposit the dead rent amounting to Rs. 1,27,616.36 for the period 1 4 1960 to 14 9 1965 on pain of legal action.
The appellant preferred a revision application to the Government of India against this order.
The Government of India by its order of March 19, 1966, set aside the order of May 15, 1965, demanding Rs. 1,27,616.36 as dead rent for block No. 6.
This order is significant in more than one way.
It is clearly stated in the order that the conditions under the Mineral Concession Rules 1949 under which mining or prospecting operation is allowed to be undertaken do not provide for payment of premium by the lessee except with the prior approval of the Central Government.
It was also pointed out in the order that no such approval was secured by the State Government before accepting the premium of Rs. 1,55,000 from the appellant.
It was, therefore, pointed out that the acceptance of the premium was illegal.
It was further held that the State Government was entitled to charge only royalty in the present case and it could charge dead rent or royalty, whichever was higher, only after execution of a formal lease.
Then came the State Government 's impugned order of November 9, 1967, addressed to the appellant.
There was reference in the above order to the fact that the appellant "approached the Central Government in revision.
The Central Government have held that the permissive permission 224 of this block to you is not even as a licensee under the Mineral Concession Rules 1949.
Government, therefore, do not want that the possession of this area should remain with you any longer.
Government is, therefore, pleased to order that you should vacate the aforesaid block No. 6 with in a month from the date of the receipt of this note, failing which such action shall be taken as may be deemed proper".
It may be mentioned that the Central Government in the order referred to above in the extract also observed "this licence was not within the meaning of Mineral Concession Rules 1949 but was governed by the General law, e.g. the Easement Act".
(See Central Government letter dated March 19, 1966.) The appellant after receipt of the order of November 9, 1967, instituted an application under article 226 of the Constitution in the High Court of Rajasthan (being Writ Petition No. 691 of 1967) praying for a writ of certiorari to quash the aforesaid order, to restrain the State from revoking the licence and dispossessing the appellant from the mining area absolutely or in the alternative, till compensation along with refund of the premium of Rs. 1,55,000 and the dead rent realised in excess of royalty were paid by the State.
As a last alternative it prayed for a direction to the State to grant the lease of the balance area of 3628 acres or such other area to which the appellant was entitled in law.
The learned single Judge of the High Court dismissed the writ application as infructuous in view of the offer made by the State in its application of April 20, 1970, repeated through the learned Advocate General.
The learned Advocate General submitted before the High Court that the State Government "was still prepared to pay them compensation in order to revoke the licence granted in favour of the petitioner".
In the aforesaid application of April 20, 1970, the State Government was prepared to pay compensation to the appellant at the rate of Rs. 7750 per annum for the unexpired period of 20 years ending on March 14, 1971.
The learned single Judge while dismissing the application observed that if the petitioner thought that the compensation was inadequate he could agitate the matter in court.
The appellant 's appeal thereafter to the Division Bench was summarily dismissed and leave to appeal to this Court was also rejected.
Hence this appeal by special leave.
We have heard the learned counsel for both the parties.
In view of the fact that the period of the purported lease already expired on March 14, 1971, there is no question of a writ for granting the lease.
Since a proper lease had not been executed, for whatever reasons, there was no question also of exercise of an option of renewal 225 of lease.
The only question that survives is whether the State Government could realise premium in a lawful manner under the Mineral Concession Rules.
We do not find any provision in the Rules authorising realisation of premium as done in this case.
Rule 41 of the Rules of 1949 applicable at the relevant time provides for conditions of the lease.
These conditions specifically mention royalty, dead rent and surface rent, but not premium.
Again proviso to rule 41(1)(iii) states that the lessee shall be liable to pay the dead rent or royalty in respect of each mineral whichever be higher in amount, but not both.
Under subsection (3) of section 41, a mining lease may contain any other special conditions, subject to the prior approval of the Central Government.
The Central Government, is, therefore, right in holding that the realisation of the premium of Rs. 1,55,000 was illegal, particularly because there was no prior approval under sub section (3) of rule 41 of the Rules.
When in this case grant of the mining lease was envisaged under definite statutory rules made in exercise of power, conferred under section 5 of the Mines & Minerals (Regulation and Development) Act, 1948, the State Government was under legal obligation to act in accordance with these rules.
It could not exercise a power in the matter of grant of mining lease unknown to these Rules.
The State Government could not impose terms and conditions according to its own whims ignoring or disregarding the statutory rules which are binding on it.
The appellant is, therefore, entitled to a refund of Rs. 1,21,930.71 which is due to the appellant out of the illegally realised premium of Rs. 1,55,000 allowing the sum of Rs. 33,069.29 already received by the appellant from the Government on account of compensation.
The appellant 's counsel made a statement in court that since the appellant had already vacated the area it will not of its own make any further claim for compensation or under any other heads but reserves its right to raise all possible defences against any action that may be instituted by the State against the appellant in the matter of the grant of mining for mica in the area.
Subject to the reservation of the above right, the appeal is partly allowed to the extent that the State Government is directed to refund Rs. 1,21,930.71 as mentioned above.
The appellant is entitled to its costs in this Court.
V.P.S. Appeal allowed in part.

summary/full:
The appellant 's tender for mining rights for mica was accepted in 1951.
The appellant deposited the premium demanded and took possession of the land.
The lease was for a period of twenty years but no lease was executed.
In 1967, the State Government directed that the appellant should vacate the land within a month from the date of the receipt of their order.
The appellant challenged the order under article 226.
but the High Court dismissed the petition.
Allowing the appeal to this Court, ^ HELD: (1) In view of the facts, that the period of the purported lease had already expired, and no proper lease had been executed, there was no question of issuing a writ for granting the lease, or the appellant exercising an option to renew the lease.
[224H] (2) The appellant, however, was entitled to a refund of the illegally realised premium deducting the sum received on account of compensation for the unexpired period.
The State Government was under a legal obligation to act in accordance with the statutory rules applicable, namely, the Mineral Concession Rules, 1949, made in exercise of the power conferred under section 5 of the Mines and Minerals (Regulation and Development) Act, 1948 when granting a lease.
It could not impose terms and conditions according to its own whims ignoring or disregarding statutory rules which are binding on it, and could not exercise a power unknown to the rules.
There is no provision in the rules authorising the realisation of premium.
Rule 41, providing for conditions of the lease, specifically mentions royalty, dead rent and surface rent but not premium.
Under r. 41(3) a mining lease may contain any other special conditions subject to the prior approval of the Central Government; but no such prior approval was given in the present case, for the realisation of the premium.
[225A F]


judgement:
Civil Appeal No. 1785 of 1970.
From the Judgment and Order dated 25 9 69 of the Calcutta High Court in Appeal No.146 of 1967.
section V. Gupte, section B. Mukherjee, P. C. Bhartari, J. B. Dadachanji and Dilip Sinha for the Appellant.
A. K. Sen, R. C. Nag, O. P. Khaitan, B. P. Maheshwari, Suresh Sethi and R. section Agarwal for Respondents.
The Judgment of the Court was delivered by GOSWAMI, J.
This appeal by certificate is against the common judgment of the Calcutta High Court in respect of respondents ' application for winding up and appellant 's stay application relating to the Hind Overseas Private Limited, a private limited company (briefly the company).
The question that is raised in this appeal relates to the scope of section 433(f) of the (briefly the Act) and in particular whether the principles applicable in the case of dissolution of partnership could be involved in the case of the company.
The allegations in the winding up petition before the High Court are as follows: The company was incorporated under the Act in August 1956.
The nominal capital of the company is Rs. 5,00,000/ divided into 2,500 Equity shares of Rs. 100/ each and 2,500 unclassified shares of Rs. 100/ each, the entire nominal capital has been issued and fully paid up.
The petitioners (respondents herein), Raghunath Prasad Jhunjhunwalla and his son, Phoolchand Jhunjhunwalla (hereinafter to be described as R.P.J. and P.C.J. respectively), and the members of their family hold 1875 shares in the company and the remaining 3125 shares are held by one V. D. Jhunjhunwalla and the members of his family.
In or about the month May, 1956, R.P.J. and V. D. Jhunjhunwalla (briefly V.D.J.) who was then carrying on business under the name and style of 'Chimanram Motilal ' with his cousin, one Mahabir Prasad Jhunjhunwalla (for brevity M.P.J.) agreed to start a new business of iron and steel in co partnership and for that purpose an account was 230 opened in the name of 'Raghunath Prasad Jhunjhunwalla Ke Sir Khata ' in the books of 'Chimanram Motilal '.
It was further agreed between the parties that R.P.J. would have six annas share and V.D.J. along with M.P.J. ten annas share in the said proposed partnership business.
Before the said proposed business could be started, V.D.J., however, changed his mind and some time in the month of June 1956, he suggested to R.P.J. that a limited company be formed, inter alia, to carry on the business in iron and steel and the shares in the company would be held by R.P.J., V.D.J. and M.P.J. and the members of their respective families in the same proportion as mentioned above.
V.D.J. further agreed to provide for and arrange along with M.P.J. the entire finance that may be necessary for the purpose of the business of the company and R.P.J. and his group would generally look after the day to day business of the company under the general control and supervision of V.D.J. It is stated in the petition that R.P.J. in view of the relationship between the parties and having trust and confidence in V.D.J. agreed to the said suggestions and accordingly the company was formed on or about August 9, 1956, under the provisions of the Act.
One Anil Chandra Dutta, an employee and nominee of V.D.J. along with R.P.J. became the subscribers to the Memorandum of Association of the company and also became its first directors.
After its incorporation, the company carried on for some time the business of controlled stockists of iron and steel and since the end o the year 1958 the company carried on the business of the manufacture and supply of railway sleepers in execution of Government contracts.
On or about August 23, 1956, V.D.J. and M.P.J. were co opted as directors of the company.
On or about November 23, 1957, Anil Chandra Dutta resigned from the Board of Directors and P.C.J. was co opted as a Director in this place.
R.P.J. was appointed as Director in charge of the company on November 23, 1957 at a monthly remuneration of Rs. 1000/ .
This remuneration was subsequently increased to Rs. 1250/ per month with effect from October 1, 1961 and he was also granted further allowance of Rs. 250.00 per month on account of maintenance of guest house.
His monthly remuneration was again increased to Rs. 2000.00 with effect from September, 1964.
The monthly remuneration of P.C.J. was initially fixed at Rs. 750.00 per month with effect from October 1, 1961 and was subsequently increased to Rs. 1500.00 from September 1, 1964.
Following a family partition between V.D.J. and M.P.J. about the year 1958, the shares of the latter were transferred in the name of the wife of V.D.J. M.P.J. also resigned from the Board of Directors on or about January 31, 1959.
Since that date and until October 1965, the Board of Directors of the company consisted of R.P.J., P.C.J. and V.D.J. In or about the month of October, 1965, V.D.J. got his son, Vinode Kumar Jhunjhunwalla, appointed as the Technical Director of the company.
Since the year 1958 and until February 26, 1965, the entire business of the company has been the manufacture and supply of 231 railway sleepers in execution of Government contracts.
The business of the company during this period had been always managed by R.P.J., P.C.J. under the general supervision and guidance of V.D.J. and the business policy was always dictated by V.D.J. The Cashier, Manager cum Engineer, Munim, and Cash Peon and other important Officers and employees were always appointed by V.D.J. of his own choice and on his terms.
R.P.J. has been acting as the Director in charge throughout since his appointment at a Board meeting held on November 23, 1957.
V.D.J. asked for and received daily reports of the working of the factory and of the business of the company from R.P.J. and gave detailed instructions even relating to the daily administration.
From 1959 onwards the factory commenced its regular production of railway sleepers and made substantial profits between 1960 and 1965 except in the year 1961 when there was some loss.
It is alleged that after trying to take wrongfully and illegally full control and management of the affairs of the company in order to oust R.P.J. group, V.D.J. ultimately succeeded in getting hold of Directors ' Minute Books and the Minute Books of the General Meetings of the company.
V.D.J. with the help of the members of his group, wrongfully and illegally took away the keys and the other statutory books and documents of the company from the registered office and refused R.P.J. group any access to them, R.P.J. was also assaulted by an employee of the company at the instance of V.D.J. and there were some criminal proceedings against R.P.J. and P.C.J. V.D.J. as a Director called a meeting of the Board on May 27, 1966, by Notice dated May 24, 1966.
R.P.J. 's solicitors on May 27, 1966, sent a notice to the company and V.D.J. calling upon them to desist from holding the meeting which was called with a view to oust the R.P.J. group completely from the control and management of the affairs of the company.
V.D.J. group did not pay any heed to the Solicitors ' letter and passed various resolutions in the Board 's meeting held on May 27, 1966, whereby the previous resolutions of the Board were countermanded and cancelled and R.P.J. was deprived of his all lawful authority and powers as a Director including the right to operate the banking account of the company.
R.P.J. was purported to be removed from the office of the Director in charge of the company.
V.D.J. group caused an advertisement to be published in the Vishwamitra on or about May 20, 1966, intimating the cancellation of powers in favour of R.P.J. V.D.J. taking advantage of the majority holding of shares by himself and the members of group, caused to be issued through certain shareholders belonging, to his group a requisition dated May 28, 1966, for calling an Extra ordinary general meeting with a view to remove R.P.J. and P.C.J. as directors of the company and to appoint other persons belonging to their group in their places instead.
The explanatory statement to that Notice alleged that there was a loss of about Rs. 8 lakhs in the year 1965.
It is further alleged that V.D.J. with the help of goondas and armed guard took possession of the company 's factory and ousted R.P.J. and P.C.J. therefrom.
It is also alleged that the liabilities of the company would exceed its assets and the same was not commercially 232 solvent.
That serious disputes and differences had arisen among the shareholders of the company and there was a complete deadlock in the management of its affairs.
There was also complete loss of confidence of one group in the other.
Lastly it is averred that the company was in substance a partnership and it could not carry on its business any more and the circumstances would justify the dissolution of the company had it been a partnership.
The above are the allegations in the winding up petition which came up for admission before the learned Company Judge.
There was a counter affidavit filed by V.D.J. in opposing the prayers.
We may only note paragraph 14 of his counter affidavit "The respondent, Raghunath Prasad Jhunjhunwalla was an employee of the firm of Messrs Kamlapati Motilal of Kanpur of which I am the Managing Partner.
Having gained confidence as such employee the said Raghunath Prasad Jhunjhunwalla was taken in as a Director of the Company and entrusted with the powers of management of the Company.
The respondents had no money to subscribe for the shares of the Company and moneys were procured by me to enable them to subscribe for the share of the Company.
The applicants on their own admission were in charge of the management of the affairs of the Company.
While in such management they have mismanaged the affairs of the Company and misappropriated the funds and assets of the company as would appear from the statements made in my affidavit affirmed on June 16, 1966. " The only point which appears to have been canvassed before the learned Company Judge and later before the appellate court was that the company was formed as a result of mutual trust and confidence and the company was in substance a partnership and, therefore, the principles of partnership would be attracted.
The same arguments are pressed into service by the respondents before us.
If it were a partnership, says Mr. Sen on behalf of the respondents, on the facts and circumstances disclosed in the petition dissolution would have been ordered by the court under section 44(g) of the Partnership Act.
A case for winding up has been, therefore, prima facie, made out by the respondents on these allegations.
It is submitted that the learned Company Judge committed an error of law in dismissing the winding up petition without admitting it and in allowing the stay petition of the company (appellant herein) and that the Division Bench in the Letters Patent Appeal was right in setting aside the order of the Company Judge.
According to the learned Company Judge the principle of dissolution of partnership applies to companies either on the ground of complete deadlock or on the ground of domestic or family companies.
A complete deadlock, according to the learned Judge, is where the Board has two real members or the ratio of shareholding is equal.
In the domestic or family companies, says the learned Judge, courts have 233 applied the dissolution of partnership principle where shareholdings are more or less equal and there is ousting not only from management but from benefits as shareholders.
Lack of probity has to result in prejudice to company 's business, affecting rights of complaining parties as shareholders and not as directors.
The learned Judge relied on an English case [In re Cuthbert Cooper & Sons Limited(1)] which illustrates that if a deadlock can be resolved by the articles there is no deadlock to bring in winding up and if there are alternative remedies the company should not be wound up.
The learned Judge was also unable to hold that the substratum of the company was gone.
The learned Judge concluded as follows: "As I have indicated these charges and counter charges raise disputed questions of fact between two contesting parties for power.
The petitioners desire that they should be in power and the respondents would go on financing.
This was said to be the heart of the matter by counsel for the respondents.
This comment is not without foundation.
I am unable to hold that there is any mismanagement or misapplication either as regards shareholders or as regards directors.
Directors ' disputes are not grounds for winding up on the facts and circumstances of the present case".
According to the learned Judge the case of In re Yenidje Tobacco Company Limited (2) and the cases following it have established that in applying the principles of dissolution of partnership to companies the following factors were important: (1) Equal share holding.
(2) Complete deadlock in the administration of the company.
(3) Lack of probity and mismanagement in the conduct of affairs of the company.
The learned Company Judge held that the principle in Yenidje 's case (supra) was not attracted in this case.
On the other hand, according to the appellate court the principles in Yenidje 's case were to the effect that "if a private company could be fairly called a partnership in the guise of a private company then the things which might be a ground for dissolution of a partnership will apply also in the case of a private company" and that "in this connection deadlock is not material".
The appellate court then described the circumstances which according to Lindley justify the dissolution of the partnership: (1) if the partnership agreement is wilfully or persistently violated; 234 (2) if one partner so behaves in matters relating to the partnership business that the other partners find it impossible to carry on business in partnership with him; (3) if some partners are in effect excluded from the concern; (4) if the misconduct of one or more partners is such that the mutual confidence which must subsist in a partnership is destroyed; (5) if there is a state of animosity which precludes all reasonable hope of reconciliation and friendly cooperation; (6) if it is impossible for the partners to place that confidence in each other which each has a right to expect, provided that the impossibility has not been caused by the persons seeking to take advantage of if Having noted the above, the appellate court held that conditions (2), (3) and (4) were unquestionably fulfilled in this case and, therefore, allowed the application and rejected the stay application.
Before we proceed further we may refer to a recent decision of the House of Lords in Ebrahimi and Westbourne Galleries Ltd. and Others (1) (briefly Ebrahimi 's case) wherein after reviewing all the earlier cases it was held as follows: "The foundation of it all lies in the words 'just and equitable ' and, if there is any respect in which some of the cases may be open to criticism, it is that the Courts may sometimes have been too timorous in giving them full force.
The words are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own; that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligation inter se which are not necessarily submerged in the company structure.
That structure is defined by the and by the articles of association by which shareholders agree to be bound.
In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small.
The 'just and equitable provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it.
It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations: considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, 235 to insist on legal rights, or to exercise them in a particular way. "The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence this element will often be found where a pre existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be 'sleeping ' members), of the shareholders shall participate in the conduct of the business; (iii)restriction upon the transfer of the members ' interest in the company so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.
" The respondents have laid great emphasis on the ratio of the above decision.
It is true that section 222(f) of the English Companies Act, 1948 which the House of Lords was considering corresponds to section 433(f) of the Act.
In the above decision the House of Lords had to deal with a private limited company consisting of three members, the petitioner therein, being one of the three.
Lord Wilberforce delivering his reasoned speech has himself noted that "It is a fact of cardinal importance that since about 1945 the business had been carried on by the appellant and Mr. Nazar as partners, equally sharing the management and the profits".
It was also noticed that "the company made good profits, all of which were distributed as directors ' remuneration.
No dividends have ever been paid, before or after the petition was presented." In Ebrahimi 's case (supra) the company which was first formed by the two erstwhile partners, Ebrahimi and Nazar, was joined by Nazar 's son, George Nazar, as the third director and each of the two original shareholders transferred to him 100 shares so that at all material times Ebrahimi held 400 shares, Nazar 400 shares and George Nazar 200 shares.
The Nazars, father and son, thus had a majority of the votes in general meeting.
Until the dispute all the three remained directors.
Later on an ordinary resolution was passed by the company in general meeting by the votes of Nazar and George Nazar removing Ebrahimi from the office of director.
That led to the petition for winding up before the court.
The following features are found in Ebrahimi 's case: (1) There was a prior partnership between the only two members who later on formed the company.
236 (2) Both the shareholders were directors sharing the profits equally as remuneration and no dividends were declared.
(3) One of the shareholders ' son acquired shares from his father and from the second shareholder, Ebrahimi, and joined the company as the third shareholder director with two hundred shares (one hundred from each).
(4) After that, there was a complete ouster of Ebrahimi from the management by the votes of the other two directors, father and son.
(5) Although Ebrahimi was a partner, Nazar had made it perfectly clear that he did not regard Ebrahimi as a partner but regarded him as an employee in repudiation of Ebrahimi 's status as well as of the relationship.
(6) Ebrahimi through ceasing to be a director lost his right to share in the profits through directors ' remuneration retaining only the chance of receiving dividends as a minority shareholder.
Bearing in mind the above features in the case, the House of Lords allowed the petition for winding up by reversing the judgment of the court of appeal and restoring the order of Plowman, J. None of the parties questions the principles as such adumbrated by the House of Lords in Ebrahimi 's case (supra) or even those in the earlier Yenidje 's case (supra) and indeed these are sound principles depending upon the nature, composition and character of the company, The principles, good as they are, their application in a given case or in all cases, generally, creates problems and difficulties.
The respondents ' counsel is well cognizant of this difficult aspect and, therefore, rests his argument on the footing that the company is in substance a partnership and necessarily, therefore, according to him, the principles of partnership should be attracted.
Before we come to the facts of the present case, we have to deal with the principles of the Yenidje 's case (supra) which were the cornerstone of the arguments on behalf of both the parties before the Company Judge as well as the appellate court.
Ebrahimi 's case (supra) was not available to the parties at that stage.
Yenidje 's case (supra) has acquired celebrity and in application of the ratio of that case varying shades and colour have been sought to be given from time to time in England and appropriate to occasions and to facts and circumstances of cases coming before the courts.
It is not necessary for us to go over the labyrinth of cases wherein the Yenidje 's principle was applied and it will be sufficient to gather the ratio from the words of Lord Cozens Hardy M.R. expressed in the decision itself.
The learned Master of Rolls posed the question thus in that case: "I think it right to consider what is the precise position of a private company such as this and in what respects it can be fairly called a partnership in the guise of a private company.
" 237 This was a company of the two shareholders and two directors who had earlier traded separately but amalgamated their businesses and formed a private limited company.
The constitution of the company was such that under its articles of association for any case of difference or dispute between the directors there was a provision for arbitration.
In fact in one of such disputes a reference was made to arbitration which resulted in an award to which one of the two shareholders declined to give effect.
It was proved in that case that the two directors were not on speaking terms, that the so called meetings of the board of directors had been almost a farce or comedy, the directors would not speak to each other on the board, and some third person had to convey communications between them which ought to go directly from one to the other.
Under the above situation it was observed by the learned Master of Rolls as follows: "Is it possible to say that it is not just and equitable that that state of things should not be allowed to continue, and that the Court should not intervene and say this is not what the parties contemplated by the arrangement into which they entered ?" * * * * * "Certainly, having regard to the fact that the only two directors will not speak to each other, and no business which deserves the name of business in the affairs of the company can be carried on, I think the company should not be allowed to continue.
I have treated it as a partnership, and under the Partnership Act of course the application for a dissolution would take the form of an action; but this is not a partnership strictly, it is not a case in which it can be dissolved by action.
But ought not precisely the same principles to apply to a case like this where in substance it is a partnership in the form or the guise of a private company ? It is a private company, and there is no way to put an end to the state of things which now exists except by means of a compulsory order.
It has been urged upon us that the just and equitable clause has. been held. not to apply except where the substratum of the company has gone or where there is a complete deadlock.
Those are the two instances which are given, but I should be very sorry, so far as my individual opinion goes, to hold that they are strictly the limits of the 'just and equitable ' clause as found in the Companies Act".
* * * * * "If ever there was a case of deadlock I think it exists here; but, whether it exists or not, I think the circumstances are such that we ought to apply, if necessary, the analogy of the partnership law and to say that this company is now in a state which could not have been contemplated by the parties when the company formed and which ought to be terminated as soon as possible".
238 It is clear that although Yenidje 's case (supra) was a case of a complete deadlock, that was not stated to be the sole basis for a conclusion to wind up the company.
The House of Lords in Ebrahmi 's case (supra) approved the decision in Yenidje 's case (supra).
We may also point out that the House of Lords did not approve of the undue emphasis put on the contractual rights arising from the articles over the equitable principles, derived from partnership law in re Cuthbert Cooper & Sons Limited (supra).
We may also refer to the Privy Council decision in Loch and Another and John Blackwood Limited(1), wherein section 127 of the Companies Act, 1910, of Barbados, identical with section 433(f) of the Act was considered.
Lord Shaw of Dunfermline quoted in the judgment a passage from the case of Baird vs Lees(2), which is as follows : "I have no intention of attempting a definition of the circumstances which amount to a `just and equitable ' cause.
But I think I may say this.
A shareholder puts his money into a company on certain conditions.
The first of them is that the business in which he invests shall be limited to certain definite objects.
The second is that it shall be carried on by certain persons elected in a specified way.
And the third is that the business shall be conducted in accordance with certain principles of commercial administration defined in the statute, which provide some guarantee of commercial probity and efficiency.
If shareholders find that these conditions or some of them are deliberately and consistently violated and set aside by the action of a member and official of the company who wields an overwhelming voting power, and if the result of that is that, for the extrication of their rights as shareholders they are deprived of the ordinary facilities which compliance with the Companies Acts would provide them with, then there does arise, in my opinion, a situation in which it may be just and equitable for the Court to wind up the company".
We may also refer to another decision of the Privy Council in D. Davis & Co. Ltd. vs Brunswick (Australia), Ltd. and others(3) which was from the decision of the Full Court of the Supreme Court of New South Wales.
Section 84(e) of the New South Wales Companies Act (1899) also provides for winding up, inter alia, on just and equitable ground.
In dealing with that clause, the Privy Council observed as follows : "The position of the Court in determining whether it is just and equitable to wind up the company requires a fair consideration of all the circumstances connected with the formation and the carrying on of the Company during the short period which had elapsed since 12th May, 1930; and the 239 common misfortune which had befallen the two shareholders in the Company does not, in their Lordships view, involve the consequence that the ultimate desires and hopes of the ordinary, shareholders should be disregarded merely because there is a strong interest in favour of liquidation naturally felt by the holders of the preference shares".
* * * * * "Nor on the other hand can any general rule be laid down as to the nature of the circumstances which have to be borne in mind in considering whether the case comes within the phrase".
This Court had to deal with the `just and equitable ' clause under section 162(vi) of the Indian Companies Act, 1913, in Rajahmundry Electric supply Corporation Ltd. vs A Nageswara Rao and others(1) and the Court quoted with approved the following passage in Loch 's case (supra) : "It is undoubtedly true that at the foundation of applications for winding up, on the `just and equitable ' rule, there must lie a justifiable lack of confidence in the conduct and management of the company 's affairs.
But this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company 's business.
Furthermore the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company.
On the other hand, wherever the lack of confidence is rested on a lack of probity in the conduct of the company 's affairs, then the former is justified by the latter, and it is under the statute just and equitable that the company is wound up".
Again in Mohan Lal & Anr.
vs Grain Chamber Ltd. Muzaffarnagar & Ors.,(2) this Court had held that "Primarily the circumstances existing at the date of the petition must be taken into consideration for determining whether a case is made out for holding that it is just and equitable that the company should be wound up" (See also Rajahmundry Electric Supply Corporation 's case (supra) and section P. Jain vs Kalinga Tubes Ltd.(3).
Keeping the ratio of Ebrahimi 's case in the forefront of his argument Mr. Sen submits that in the present case also there was a definite understanding and agreement between the two family groups for equal status and equal participation in management and, therefore, exclusion of the respondents from the directorship is burial of mutual trust and denial of that relationship on which alone the company was formed and hence there is a prima facie case for admitting the petition.
240 Although the Indian Companies Act is modelled on the English Companies Act, the Indian law is developing on its own lines.
Our law is also making significant progress of its own as and when necessary.
Where the words used in both the Acts are identical, the English decisions may throw good light and reasons may be persuasive.
But as the Privy Council observed long ago in Ramanandi Kuer vs Kalawati Kuer(1) "It has often been pointed out by this Board that where there is a positive enactment of the Indian legislature, the proper course is to examine the language of that statute and to ascertain its proper meaning uninfluenced by any considerations derived from the previous state of the law or of the English law upon which it may have been founded.
" If it was true in the twenties it is more apposite now that the background, conditions and circumstances of the Indian society, the needs and requirements of our country call for a somewhat different treatment.
We will have to adjust and adapt, limit or extend, the principles derived from English decisions, entitled as they are to great respect, suiting the conditions of our society and the country in general always, however, with one primary consideration in view that the general interests of the shareholders may not be readily sacrificed at the altar of squabbles of directors of powerful groups for power to manage the company.
When more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation of members who are sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked.
Besides, it is only when share holding is more or less equal and there is a case of complete deadlock in the company on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern, there may arise a case for winding up on the just and equitable ground.
In a given case the principles of dissolution of partnership may apply squarely if the apparent structure of the company is not the real structure and on piercing the veil it is found that in reality it is a partnership.
On the allegations and submissions in the present case, we are not prepared to extend these principles to the present company.
The principle of `just and equitable ' clause baffles a precise definition.
It must rest with the judicial discretion of the court depending upon the facts and circumstances of each case.
These are necessarily equitable considerations and may, in a given case be superimposed on law.
Whether it would be so done in a particular case cannot be put in the strait jacket of an inflexible formula.
In an application of this type allegations in the petition are of primary importance.
A prima facie case has to be made out before the court can take any action in the matter.
Even admission of a petition which will lead to advertisement of the winding up proceedings 241 is likely to cause immense injury to the company if ultimately the application has to be dismissed.
The interest of the applicant alone is not of predominant consideration.
The interests of the shareholders of the company as a whole apart from those of other interests have to be kept in mind at the time of consideration as to whether the application should be admitted on the allegations mentioned in the petition.
The question that is raised in this appeal is as to what is the scope of section 433(f) of the Act.
Section 483 provides for the circumstances in which a company may be wound up by the court.
There are six recipes in this section and we are concerned with the sixth, namely, that a company may be wound up by the court if the court is of the opinion that it is just and equitable that the company should be wound up.
Section 222(f) of the English Companies Act, 1948 is in terms identical with the Indian counter part, section 433 (f).
It is now well established that the sixth clause namely, 'just and equitable ' is not to be read as being ejusdem generis with the preceding five clauses.
While the five earlier clauses prescribe definite conditions to be fulfilled for the one or the other to be attracted in a given case, the just and equitable clause leaves the entire matter to the wide and wise judicial discretion of the court.
The only limitations are the force and content of the words themselves, 'just and equitable '.
Since, however, the matter cannot be left so uncertain and indefinite, the courts in England for long have developed a rule derived from the history and extent of the equity jurisdiction itself and also born out of recognition of equitable considerations generally.
This is particularly so as section 35(6) of the English Partnership Act, 1890 also contains, inter alia, an analogous provision for the dissolution of partnership by the court.
Section 44(g) of the Indian Partnership Act also contains the words 'just and equitable '.
Section 433(f) under which this application has been made has to be read with section 443(2) of the Act.
Under the latter provision where the petition is presented on the ground that it is just and equitable that the company should be wound up, the court may refuse to make an order of winding up if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company would up instead of pursuing that other remedy.
Again under sections 397 and 398 of the Act there are preventive provisions in the Act as a safeguard against oppression in management.
These provisions also indicate that relief under section 433(f) based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the company.
Coming to the present case we find that the company was formed first with R.P.J. and Anil Chandra Dutta.
Anil Chandra Dutta was admittedly an employee of V.D.J. and it is also claimed that even R.P.J. was an employee of a company in which V.D.J. was a managing partner.
Although the entire finance was to be arranged by V.D.J., it appears the company was started by the above two persons 242 with V.D.J. remaining in the background.
Anil Chandra Dutta soon resigned and other people came in and in 1965 66 there were 19 shareholders, nine headed by R.P.J. and ten headed by V.D.J., clearly showing two family groups R.P.J. group had 1875 shares and V.D.J. group had 3125 shares.
V.D.J. stood guarantee for bank overdraft to the tune of Rs. 47 lakhs and as the learned Company Judge has noted the stake of the appellant in the company was about Rs. 63 lakhs as opposed to the stake of the respondents amounting to Rs. 1.87 lakhs.
It is, therefore, clear that R.P.J. group 's interest in the company was not of the same magnitude as that of the appellants.
The learned Company Judge put the picture as follows: "The entire affidavit evidence brings in the forefront two broad features.
First, that there are disputes between the petitioners and the respondents regarding appointment of Vinode Kumar Jhunjhunwalla and Hariram Modi.
It is said on behalf of the petitioners that these appointments in breach of articles and in breach of the provisions of the Companies Act are adequate grounds for winding up.
It is, on the other hand said by the respondents that the allegations of breach of articles and provisions of the Act are denied and these are the subject matter of remedy by suit and are not the subject matter of winding up.
The other feature is that the respondents charge the petitioners with misappropriation.
The petitioners also charge the respondents with having utilised the funds of the company.
" Is this company, in substance a partnership or in the image of a partnership as claimed ? We may now address to this aspect strenuously emphasised by Mr. Sen. It as in Ebrahimi 's case (supra) there had been an earlier partnership and the partners later on formed into a company, the matter would have stood on a different footing.
In the present case, however, we do not find any special features which would unquestionably lead to the conclusion that the company is in substance a partnership.
On the other hand the following aspects are noteworthy: Assuming partnership had been contemplated, the idea was deliberately abandoned.
The company was started with one Anil Chandra Dutta who was no relation of the two families but was an employee of V.D.J. This would negative the idea of partnership which connotes equal status amongst the partners.
While it is true that a director may work in the company on remuneration, R.P.J., however, served like an employee on monthly salary not on his own initiative enjoying an equal partner 's freedom and prestige but directly under the supervision and control of V.D.J. acknowledging a status definitely of a subordinate character.
The voluntary financial involvement of a large stake by V.D.J. carefully sought to be protected against erosion of his interests by constant vigil on the day to day working does not fit in with the concept of a partnership.
All the above features do not enable us to accept the submission of the respondents that the company in this case is in substance a partnership.
243 In the present case there is yet another important feature against the respondents.
Serious trouble apparently arose on or about May 23, 1966, when a Board meeting was notified.
Prior to that even though something might, perhaps, be brewing inside, but nothing came to the surface although the respondents alleged that V.D.J 's son, Vinode Kumar Jhunjhunwalla, had been sent to the States at company 's expense and was later on, after completion of education, appointed as Technical Director and that all these were illegal actions.
It is significant that R.P.J. group was present in the meeting when these resolutions were passed and they made no grievance at the time about the same.
The petition for winding up was filled on June 7, 1966 and the foundation for it was laid in the solicitors ' letter to the appellants on May 27, 1966.
That may be said to be nucleus of the dispute so far as the records show.
It is not a proper principle to encourage hasty petitions of this nature without first attempting to sort out the dispute and controversy between the members in the domestic forum in conformity with the articles of association.
There must be materials to show when 'just and equitable ' clause is invoked, that it is just and equitable not only to the persons applying for winding up but also to the company and to all its shareholders.
The company court will have to keep in mind the position of the company as a whole and the interests of the shareholders and see that they do not suffer in a fight for power that ensues between two groups.
The cases of small companies stand on a different footing from a company like the present with nineteen shareholders, although apparently arrayed in two groups.
It is not, prima facie, established on the allegations that the company cannot run smoothly in the best interest of the general shareholders, including the R.P.J. group, after exit of the quondam directors.
The conclusion of the Division Bench that the company is in substance a partnership venture was based on the following principal reasons: (1) The original idea was to start a partnership venture and that idea was given ultimately the shape of a private company (2) The Sir Khata account shows that the starting on a partnership venture the parties set up a private company.
(3) The shareholding shows division amongst two family groups.
(4) There was no denial by the appellants of a specific averment of the respondents that the company was in substance a partnership.
(5) The respondents were all along functioning as working partners and the respondent, V.D.J. was the financial partner.
We will examine each of these reasons.
244 With regard to the first reason, the solicitors ' letter of May 27, 1966, which is the nucleus of the subsequent winding up petition filed in court is of great significance and the improvement in the version later in the petition will lose its importance.
It was stated in the solicitors ' letter that "some time in May 1956 it was agreed between our client Shri R. P. Jhunjhunwalla and Shri V. D. Jhunjhunwalla and Shri Mahabir Prasad Jhunjhunwalla to do some type of business in partnership, Shri V. D. Jhunjhunwalla suggested that a limited company should be formed in which our client could hold shares to the extent of /6/ annas and Shri V. D. Jhunjhunwalla and Shri Mahabir Prasad Jhunjhunwalla to the extent of annas /10/ and that our client would manage the business of such company as and when it was formed and that the requisite finance for the working of the company would be made by Shri V. D. Jhunjhunwalla and Shri Mahabir Prasad Jhunjhunwalla.
" There is nothing in the above paragraph which is the corner stone of the plea of partnership in substance that there was any active contemplation about forming of a partnership.
Reference to 'some type of business of partnership ' is very casual in the above extract.
On the other hand, it is more reasonable to conclude that although there might have been discussion about the advantages and disadvantages of partnership vis a vis a private limited company, no time was lost in deciding to form a company.
If this is the only basis of agreement between the parties to sustain the claim, we are unable to accept the same.
Regarding the second reason, the Sir Khata account which has been heavily relied upon to found an agreement or understanding is wholly misconceived.
It merely shows that a joint account was, for the time being opened for the purpose of the formation of the company and the account was closed on such formation.
It does not indicate any understanding as to the right of management of the company by any group of shareholders.
Thirdly, because the shareholding is between two family groups, it cannot be said that the company thereby takes the image of partnership.
On the other hand, the fact that after discussion, the parties deliberately abandoned the idea of forming a partnership would go to show that there was no intention to carry on business as partners.
Fourthly, after going through the correspondence it is not possible to say that there was no denial of the averment by the respondents that the company was in substance a partnership.
Apart from anything else it is enough to point out that in the letter of V.D.J. dated June 3, 1963, the allegations have been clearly denied.
It is, therefore, a very weak reason to reckon.
With regard to the last reason, it appears that the respondents themselves took the position in their petition that R.P.J. was managing the affairs of the company under daily supervision and control of V.D.J. Whether this position is accepted by the appellants or not, their statement in that respect gives no indication of their right to manage the business as a working partner as claimed.
Besides, working on remuneration by a director is not an unknown feature even in company business and we have already adverted to the status in 245 which he worked.
Nothing, therefore, turns on this feature.
All the above reasons, therefore, fail to convince us that the conclusion of the Division Bench that the company is in substance a partnership, is correct.
We should observe, that nothing observed by us in this appeal may be taken as expression of any opinion on the merits of the allegations and counter allegations of the parties.
In the result the appeal is allowed with costs.
The judgment of the Division Bench is set aside.
The winding up petition stands dismissed and the stay petition of the appellant is allowed.
S.R. Appeal allowed.

summary/full:
Under section 433(f) of the , a company may be wound up by the Court, if the Court is of opinion that it is just and equitable that the company should be wound up.
Section 44(g) of the Partnership Act also speaks of the "just and equitable clause".
One RPJ agreed with VDJ and MPJ who are carrying on the business under the name and style of "Chimanram Motilal" to start a new business of iron and steel in co partnership and for that purpose, an account was opened in the name of "Raghunath Prasad Jhunjhunwalla Ka Sir Khata" in the books of "Chimanram Motilal".
It was agreed that RPJ should have 3/8th share and VDJ with MPJ should have 5/8th share of the proposed business.
Before the said proposed business could be started, at the suggestion of VDJ, actually a limited company was formed in August,.
1956 under the with the understanding that (i) VDJ with MPJ should finance the entire business.
(ii) the share in the company should be held by RPJ, VDJ and MPJ and the members of their respective families in the proportion of 3/8th and 5/8th as agreed to before and (iii) that RPJ and his group would generally look after the day to day business of the company under the general control and supervision of VDJ.
The nominal capital of the company was Rs. 5 lacs divided into 2500 equity shares of Rs. 100/ each.
RPJ and another ACD, an employee and nominee of VDJ, became the subscribers to the Memorandum of Association of the company and also became its first directors.
On 23 8 1956, VDJ and MPJ were appointed as directors of the company.
On 23 11 1957, ACD resigned and PCJ (son of RPJ) was opted in his place.
RPJ was appointed a director in charge of the company and both RPJ and PCJ were paid monthly remunerations.
Following a family partition between VDJ and MPJ in the year 1958, the shares of MPJ were transferred in the name of the wife of VDJ and MPJ resigned from the Board of Directors on 21 1 1959.
Since that date till October, 1965 the Board of Directors were RPJ.
PCJ and VDJ, when VDJ got his son VKJ appointed as Technical Director of the company.
Though the business of the company was managed by RPJ and PCJ, the business policy, the appointment of staff, general supervision of the work of the business etc., were in the hands of VDJ.
From 1959 onwards the factory commenced its regular production and substantial profits were made between 1960 and 1965 except in the year 1961 when there was some loss.
Finding that there has been a mismanagement of affairs of RPJ and PCJ to the tune of Rs. 8 lacs the VDJ group who were holding the major shares numbering, 3125, in order to safeguard their interest and the business, called the Board 's meeting on 27 5 1966 and the Board countermanded all the previous resolutions and thus took away all the powers of RPJ.
The extraordinary general meeting called on 28 5 1966 resolved to remove RPJ and PCJ as directors of the company and to appoint persons belonging to VDJ 's group as directors.
This led to the filing of an application for winding up under section 433(f) of the by RPJ before the company Judge of the Calcutta High Court contending that the company was in the nature of a 227 partnership and is liable to be wound up in view of the loss of confidence between the two groups/members and on the alleged ouster of RPJ group.
The Petition for winding up was dismissed by the company Judge inasmuch as (i) the substratum of the company was not gone; (ii) the deadlock could be resolved by the articles; (iii) there were alternative remedies open: and (iv) lack of probity did not result in prejudice to the company 's business affecting petitioner 's rights as share holder, but only affected his right as director.
The appellate Bench, however, allowed the appeal of the respondent RPJ and ordered the winding up of the company in the facts and circumstances of the case, viz., impossibility of carrying on business by RPJ as a partner, the exclusion of RPJ from the partnership concern and loss of mutual confidence between RPJ and VDJ group.
Dismissing the appeal by certificate, the Court, ^ HELD: (1) In an application under section 433, the company Court will have to keep in mind the position of the company as a whole and the interests of the shareholders and see that they do not suffer in a fight for power that ensues between the two groups.
The court should see that a prima facie case has been made out before it is admitted on the allegations in the petition.
Even admission of a petition which will lead to advertisement of the winding up proceedings us likely to cause immense injury to the company if ultimately the application has to be dismissed.
The interest of the applicant alone is not of predominant consideration.
It is not proper principle to encourage hasty petitions under section 433 without first attempting to sort out the dispute and controversy between the members in the domestic forum in conformity with the articles of association.
There must be materials to show when "just and equitable clause" is involved, that it is just and equitable not only to the persons applying for winding up but also to the company and to all its shareholders.
[243 C D, 240 H, 241 A] (2) Section 433 of the is modelled on the English .
The Indian law is developing on its own lines and making progress of its own circle.
The courts will have to adjust and adapt limit or extend the principles derived from English decisions entitled as they are to great respect, suiting the conditions of our society and the country in general, always, however, with one primary consideration in view that the general interests of the shareholders may not be readily sacrificed at the altar of squabbles of directors of powerful groups for powerful to manage the company.
[240A, C D] Ramanandi Kuer vs Kalawati Kuer, , applied.
(3) Section 433 of the , provides six recipes so that the company may be wound up by the court.
Under section 433(f) which is identical in terms with section 222(f) of the English Act of 1948, a company may be wound up by the court if the court is of opinion that it is just and equitable that the company should be wound up.
It is now well established that the sixth clause, viz., "just and equitable" is not to be read as being "ejusdem generis" with the preceding five clauses.
The just and equitable clause leaves the entire matter to the wide and wise judicial discretion of the court.
The only limitations are force and the content of the words themselves "just and equitable".
Section 44(g) of the Indian Partnership Act also contains the words "just and equitable".
[241 B E] Section 433(f) is to be read with section 443(2) of the Act, which provides that where the petition is presented on the ground that it is just and equitable that the company should be wound up, the court may refuse to make an order of winding up if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
Again under section 307 and 398 of the Act there are preventive provisions in the Act as a safeguard against oppression in management.
These provisions also indicate that relief under section 433(f) based on the "just and equitable" clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the company.
[241 E G] 228 Madan Lal and another vs Groin Chambers Ltd., Muzaffar Nagar and others; , and section P. Jain vs Kalinga Tubes Ltd. ; , followed.
(4) In applying the principles of dissolution of partnership to companies, the following factors must be present: Equal shareholding; complete deadlock in the administration of the company; lack of probity and mismanagement in the conduct of affairs of the company [In re Yenidje Tobacco Co. Ltd. The just and equitable clause cannot be invoked if a deadlock can be resolved by the articles and if there are alternate remedies.
(In re Cuthbert Cooper and Sons Ltd., 1937 Ch.
If there is no justifiable lack of confidence grounded on the conduct of the directors in the conduct of management of the companies affairs (Rajahmundry Electric Supply Corporation These are sound principles depending upon the nature, composition and character of the company.
The principles are good as they are their application in a given case or in all cases, generally creates problems and difficulties.
[233D E; 236 D] (5) The principle of "just and equitable" clause baffles a precise definition.
It must rest with the judicial discretion of the court depending upon the facts and circumstances of each case.
When more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation of members who are sought to be excluded from management the principles of dissolution of partnership cannot be liberally invoked.
Besides, it is only when shareholding is more or less equal and there is a case of complete deadlock in the company on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern, there may arise a case for winding up on the "just and equitable" ground.
In a given case the principles of dissolution of partnership may apply squarely if the apparent structure of the company is not the real structure and on piercing the veil it is found that in reality it is a partnership.
These are necessarily equitable considerations and may in a given case be superimposed on law.
Whether it would be so done in a particular case cannot be put in the strict jacket of an inflexible formula.
[247G, D F] In re Cathbert Cooper & Sons Limited, [1937] Ch. 392; and In re Yenidje Tobacco Company Limited, , discussed.
In re Ebrahimi and Westbourane Galleries Ltd. , discussed and considered.
Lackh and another vs John Blackwood Limited ; , quoted with approval.
Baird vs Lees.
and D. Davis & Co. Ltd. vs Brunswick (Australia) Ltd. and others A.I.R. 1938 PC 114, referred to.
Rajahmundry Electric Supply Corporation Ltd. vs A. Nageswara Rao and others[1955] 2 SCR [1066], Mohan Lal & Anr.
vs Grain Chamber Ltd., Muzaffarnagar and others.
; and S.P. Jain vs Kalinga Tubes Ltd., , followed.
(6) In the present case, assuming partnership had been contemplated the idea was deliberately abandoned; the company was started with one ACD who had no relation with MCJ group or the VDJ group but an employee of VDJ, which would negative the idea of partnership which connotes equal status among the partners; While it is true that a director may work in the company on remuneration.
RPJ however served like an employee on monthly salary not on his own initiative enjoying an equal partner 's freedom and prestige but directly under the supervision and control of VDJ acknowledging a status definitely of a subordinate character; The voluntary financial involvement of a large stake by VDJ carefully thought to be protected against erosion of his interests by constant vigil on the day to day working does not fit in with the 229 concept of a partnership; Even the account was being opened for the purpose of the formation of the company and the account was closed on such formation.
The shareholding is between the two family groups, it cannot be said that the company thereby takes the image of partnership.
On the other hand, the fact that after discussion, the parties deliberately abandoned the idea of farming a partnership would go to show that there was no intention to carry on business as partners.
[242E H] There are no special features which would unquestionably lead to the conclusion that the company is in substance a partnership and the principle of "just and equitable clause" cannot be therefore, extended.
[242 H, 245A]