LADLI PRASAD JAISWAL v. KARNAL DISTILLERY CO., LTD., & ORS.

Citation: [1964] 1 S.C.R. 270; 1962 INSC 387

Court: Supreme Court of India

Bench: BHUVNESHWAR PRASAD SINHA , P.B. GAJENDRAGADKAR, K.N. WANCHOO, K.C. DAS GUPTA, J.C. SHAH

Judgment date: 1962-12-17

Case summary

1962 INSC 387. Supreme Court of India judgment dated 1962-12-17. LADLI PRASAD JAISWAL v. KARNAL DISTILLERY CO., LTD., & ORS. Read the judgment and case...

Judgment text

1962 D1ambtr, 11, 270 SUPREME COURT REPORTS[l964]VOL. LADLI PRASAD JAISWAL v. KARNAL DISTILLERY CO. , LTD. , & ORS. (B. P. SmHA, C. J. , P. B. GAJENDRAGADXAR, K. N. WANCHOn, K. C. DAS GUPTA ·and j. C. SHAH, JJ. ) Company-Managing Direclor appoinWl an ,. ,. ,. uiin Unn&- Ruo/utian remooing Managing Direclor and appointing anoth n. 1titutian- Whether r. ompelent-"Courl immediately below"-Court• aubordinate-Conatitution of India, Art. 133 (1) (a) and (b)- Companies Act, 1956(1of1956) s. 155-Code o/Cioil Procedure, 1908 (Acl V of J. 908), 88. 100,110,0. 6, r. 4-Indian Contrad Acl, 1872 (9 of 1872) •· 16. The appellant filed a suit in the Court of the Subordinate Judge for a declaration that certain resolution. of the directors and the shareholders in a private limited company passed on March 3 and 28, 1946, and at the meetings of the Directors held thereafter were illegal and void and for a declaration that the reiolutions of October 16, 1945, were operative and in force.

' The respondents resisted the suit contesting that respondents 2 to 5 were coerced by the appellant who took advantage of his dominating position, into passing the resolutions on October 16, 1945, and those resolution. were not binding on the company. The Subordinate. Judge, held that the written statements did not contain 'sufficient particulars of the pica of coercion and undue influence' and that the respondents having failed to give evidence in support of the plea of coercion and undue influence, the burden of proving which lay upon them the appellant's suit must be docrecd. In appeal the District Court held that the appellant was in a position to dominate the will of respondentlo 2 to 5 and he took advantage of that position and on that account the resolutions relied upon by the appellant dated October 16, 1945, were vitiated by coercion and undue influence, and the appellant could not get a decree relying upon those resolutions. The appellant appealed to the High Court.

A single Judge of the High Court found that the District Judge 1 S. C. R. SUPREME COURT REPORTS 271 had 'travelled far beyond the pleadings' and therefore his find· ing• on issue of coercion and fraud could not be upheld. In an appeal under cl. 10 of the Letters Pat the·, Company held ori February 20, 1945 at which Shanti Prasad, Sajjan Lal, Madan Lal and Suraj · Mukhi were present, : it was resolved that Ladli Prasad'. be removed from his office of Managing. Director and that Shanti Prasad ' · . be appointed Managing Director instead: . But Ladli Prasad declined to -hand over charge of the Manag· ing Director's office to Shanti 'Prasad. A suit was thereupon filed by . Shanti Prasad· in the Court of the SubordinateJudge;Karnal,·on :behalf of the Com· pany against Ladli Prasad. on- April 10, 1945 for a declaration that he was ]awfully appointed Manag- . ing Director of the Company and for enforcing the· resolution dated February 20, 19! 5. Ladli Prasad in his turn filed a.

suit for a declaration that· Shanti Prasad had ceased to be a· Director of the Company~ . . ____ In the suit filed by Shanti Prasad on behalf. of the · Company, the trial Court appointed Suraj Mukhi and · Madan Lal as joint : rec:eivers. to manage the affairs, - - • l S. C. R. SUPREME COURT REPORTS 275 of the Company for the duration of the suit. Against that order Ladli Prasad appealed to the High Court of Judicature at Lahore and obtained an order stay- ing the operation of the order appointing receivers. On October 16, 1945 at an extraordinary general meeting of the Company held at the residence of Ladli Prasad at which all the members of the family were present certain special resolutions were passed. The effect of the resolutions was that :- (1) That each branch of the family should own 1170 shares and for this purpose Ladli Prasad should transfer 167 shares to Shanti Prasad and 1 f)6 to the branch of Durga Prasad.

(2) Resolution dated February 20, 1945 pur· porting to remove Ladli Prasad from the Managing Directorship was cancelled. (3) Resignation of Ladli Prasad of his post as Managing Director was accepted, and he was appointed permanent Director and Chairman, and Madan Lal son of Durga Prasad was appointed Director in place of Suraj Mukhi who submitted her resig. nation. Shanti Prasad continued to be a Director of the Company. (4) The maximum number of Directors was fixed at three and the quorum of the Directors' me~ting was also fixed at three. (5) Every decision submitted to a meeting of the Directors or members was to be deemed to be passed only if the decision thereon be unanimous, and the proceedings recorded being signed by the Chairman of the Company and all the Directors or the mem hers, as the case may be, present at the meeting. 1961 Ladli Prasad Jaiswal v. Kamal Distillery Co. , ltd. Shah, J. 276 1962 Lodli Prasod I aiswal •• Karnol Dist;u,,_, c.. ,w. >ltoh, I.

SUPREME COURT REPORTS[l964] VOL. (6) Shanti Prasad was arpointed Manager for five years under the control of the Board of Directors . (7) Article 47 which gave power to a two· third majority to expel a member of the Company was deleted. (8) Each Director was to be paid Rs. 900/- per month as remuneration and Rs. 25/- for each meeting of the Board of Directors attended. No extra remuneration to be paid to Shanti Prasad as Manager or to Ladli Prasad as Chairman. (9) Ladli Prasad gave up the remuneration which had been provided for him under the Articles of Association as originally framed and he was discharged in respect of all previous accounts which were ratified and confirmed.

(10) (ll) (12) All contracts executec, business done, benefits derived by Ladli Prasad under the facilities granted to him by resolution dated April 30, 1941 of the Board of Direc- tors were confirmed and ratified and all transactions recorded in the accounts of the Company for the period April l, 1941 till the date of the resolution were ratified and it was resolved that the accounts of each of the four years ending March 31, 1942, 1943, 1944 and 1945 be confirmed. Dividend at the rate of 65 per cent of the face value of the share free of income-tax was declared. While ratifying and confirming the con- tracts executed, business done, benefits derived in the name, or from the Company 1 S. C. R. SUPREME COURT REPORTS 277 (13) by any Director or the Managing Director of the Company in the past, it was resolv- ed that in future no Director of the Com- pany will contract in the name of the Company for his personal benefit. A large number of Articles of Association of.

the Company were amended in order to make them consistent with the special resolutions. Effect was given to these resolutions. Shanti Prasad assumed the office of Manager of the Company and took charge of the Company's properties, assets and business. Re-adjustment in share-holding of the members was also effected, Ladli Prasad having transferred the shares according to the terms of the resolution. But disputes started afresh. In a meet- ing of the Board of Directors held on March 3, 1946, at which Shanti Prasad and Madan Lal were present, it was resolved to call an extraordinary general meeting of the share-holders of the Company on March 28, 1946 to consider a requisition received from Suraj Mukhi and Madan Lal for cancelling some of the special resolutions passed at the meeting held on October 16, 1945. No notice of this meeting was given to Ladli Prasad.

At the meeting held on March 28, 1946-in the absence of Ladli Prasad- several resolutions were passed to the effect that, all amendments made in the Articles of Association by the resolutions dated October 16, 1945 do stand cancelled and the original Articles of Association of the year 1941 (including Art. 47 which authorised the Company by a 2/3rd majority to expel any member) do stand restored. It was also resolved that Ladli Prasad be removed from the dire- ctorate and Chairmanship of the Company, and in his place Suraj Mukhi be appointed Director of the Company at a ~emuneration of Rs. 900/- per month; that Shanti Prasad be appointed Managing Director 1962 Ladli Prasad Jai~wal v. K arnol Distillery Co,Ltd. Shah, J. 1962 lAdJi 1-rOJad Jaiswal v. Kamal Distil/tr,, Co. , Lid. Shnli, J. 278 SUPREME COURT REPORTS (1964) VOL. for ten years, such appointment not being liable to term. i..

nation earlier by the members; and that Shanti Prasad do receive in addition to his remuneration as Director Rs. 1000/- per month as Managing Direct any and compelled the defendants :! to 5 to pass the resolutions and there- by obtained an unfair advantage in that he was ab- solved from all liability incurred by him in the course of his management prior to the meeting held on October 16, 10-15, and that he obtained 'a power of veto over the affairs and smooth running of the busi- ness of the Company'.

The DistrictJudge agre(d with the trial Court that no proper notice was served upon Ladli Prasad of the meetings held on March 3, 1946, and March 28, 1946, and therefore the resolutions at those meetings were not binding upon Ladli Prasad and that in any event the resolu- tions of those dates were 'a fraud on the minority rights' and were illegal and ultra vire8, but as the plaintiff Ladli Prasad had filed his suit relying on the rci:olution dated October 16, l 945;which was invalid, no relief could be awarded to him. In appeal against the decree of the District Judge dismissing the suit filed by Ladli Prasad, Bishan Narain, J. , of the High Court of Punjab obser- ved that the findings of the District Judge ''travellej 1 S. C. R. SUPREME COURT REPORTS 281 for beyond the pleadings", and only two facts which were pleaded were proved by the evidence viz.

that the High Court of Lahore had stayed the order of the Sub- ordinate Judge appointing Receivers of the affairs of the Company and that. Ladli Prasad was the eldest male member. The· learned Judge on a review of the evidence found that Ladli Prasad was not in a position to dominate the will of defendants 2 to 5 when the resolutions dated October 16, 1945, were passed and they were the result of a compromise unanimously accepted, and were binding on the parties. He c_ cedure Code). " The view appears prima facie to support the contention that in considering whether within the meaning of Art. l 33 (I) of the Constitution judgment of the Court immediately below the High Court is affirmed, the judgment of the Judge of the High Court trying the procP. eding as a court of appellate jurisdic- tion must be ignored. Any expression of opinion by the eminent Chief Jmtice wculd always be consi- dered with the great deference and respect.

It must, however, be stated that the observations of the learned Chief Justice were in the nature of obiter dicta, because in the view of the Court, the test of pecuniary valuation was satisfied and in the appeal a substantial question of law was involved, and on that account the Court was bound to certify the case. It was therefore strictly not necessary to consider whether the judgment affirmed the decision of the court immediately below. It must also be observed that the learned Chief Justice equated the expression "Court immediately below" with the ex- pression "Court subordinate" used in s. ll 5 of the Code of Civil Procedure. That is clear from the obs- ervations made by him "that a Judge sitting alone is not a Court subordinate tn the High Court, but performs a function directed to be performed by the High Court (clause 36, Letters Patent). And thus no decision of a Single Judge can be revised l S. C. R. SUPR~ME COURT REPORTS 293 under section 115 of the Code.

" But as we have already pointed out the test for determining the right to appeal is not whether the judgment is of a. Oaurf subordinate, but whether the judgment is of a Oourf immediately below. The two expressions being diffe. rent, the same considerations do not apply in their interpretation. A similar view was also expressed in a •very recent juqgment by the Andhra Pradesh High Court decided on August 18, 1961: Vadiapatla Marayya v. Vallabhaneni Buchiramayya (which has not yet been officially reported). · There are however two earlier judgments of the Lahore High Court which have expressed a contrary view. Minna Heatherly v. B. 0. Sen (') and Gopal Lal v. Balkissan ('). In these two cases it was hdd that a Single Judge of the High Court hearing an appeal is within the meaning of s. 110 of the Code of Civil Procedure 1908 a court immediately below the Division Bench of the High. Court hearing an appeal under the Letters Patent. The High Court of Nagpur in Kishanlal Nandlal v.

Vithal Nagayya, ('), has preferred the earlier view of the Lahore High Court. In our judgment the appeal with certificate granted by the High Court under Art. 133 (1) (a) and (b) is competent, because a Single Judge of the High Court hearing either a proceeding as a Court of original jurisdiction or in exercise of appellate jurisdiction is a Court immediately below the Divi- sion Bench which hears an appeal against his judg- ment under the relevant clause of the Letters Patent. Bishan Narain. J. , was, it is true, hearing an appeal from an appellate decree and his powers were restricted, for a second appeal lies to the High Court only on the following grounds, namely :- (a) the decision being contrary to law or to some usage having the force of law; (I) A. l. R. (19271Lah. 537. (21 (1931) 1. L. R. IS Lah. 3~8. (3) 1. L. R. (1955) Nag. 821. 1962 Ladli p;;;;;;;JJaiswal v. Karn! ll Distillery Co. , Ltd. , 1962 L4dJi I- rOSdd JaiswaJ v. Ktml4/ l! i•lillrry Co. , LUI. Shah, J.

294 SUPREME COURT REPORTS[l964]VOL. (b) the decision having failed to determine some material issue of law or usage having the force of law; (c) a substantial error or defect in the proce- dure provided by this Code or by any other law for the time being in force, which may possibly have produced error or defect in the decision of the case upon the merits. Whether a particular transaction was vitiated on the ground of undue influence is primarily a decision on a question of fact. In Salgur Prasad v. Har Narain Das ('),the Privy Council held that in a suit to set aside a deed on the ground that it was pro- cured by undue influence and fraud, the finding that it was so procured is a finding of fact and is not lia- ble to be re-opened if fairly tried.

Under the Civil Procedure Code, a second appeal does not lie to the High Court, except on the grounds specified in the relevant provision of the Code, prescribing the right to prefer a second appeal, and the High Court has no jurisdiction to entertain a second appeal "on the grou- nd of an erroneous finding of fact however gross or inexcusable the error may seem to be" ( Mussu- mmant Durga Chou. dhrain v. Jawahir Singh Chou- dhri (')). 'But the challenge before Bishan Narain, J. , to the decision of the District Judge was founded not on the plea that appreciation of evidence was erro- neous, but that there were no adequate particulan of the pica of undue influence, that the particulars of facts on which undue influence was held established by the District Judge were never set np, that there was no evidence in support of the finding of the District Judge and that burden of proof on a miscon- ception of the real nature of the dispute was wrongly placed on the plaintiff.

A decision of the first appe- llate Court reached after placing the onus wrongly or based on no evidence, or where there has been substantial error or defect in the procedure, producing (I) (1932) L. R. 59 I. A. 147. (2) (1890) L. R. 171. A. 122. 1 S. C. R. SUPREME COURT REPORTS 295 error or defect in the decision of the case on the merits, is not conclusive and a second appeal lies to the High Court against that decision. 0. 6 r. 4 of the Code of Civil Procedure pro- vides that in all cases in which the party pleading relies on any misrepresentation, fraud, breach of trust, wilful default, or undue influence, and in all other cases in which particulars 'may be necessary beyond such as are exemplified in the forms in the Appendix, particulars (with dates and items if nece- ssary) shall be stated in the pleading. The reason of the rule is obvious.

A plea that a transaction is vitiated because of undue influence of the other party thereto, gives notice merely that one or more of a variety of insidious forms of influence were brought to bear upon the party pleading undue influence, and by exercising such influence, an unfair advantage was obtained over him by the other. But the object of a pleading is to bring the parties to a trial by concentrating their attention on the matter in dispute, so as to narrow the controversy to precise issues, and to give notice to the parties of the nature of testimony required on either side in support . of their respective cases. A vague or general plea can never serve this purpose; the party pleading must therefore be required to plead the precise nature of the influence exercised, the manner of use of the influence, and the unfair advantage obtained by the other.

This rule has been evolved with a view to narrow the issue and protect the party charged with improper conduct from being taken by surprise. A plea of undue influence must, to serve that dual purpose, be precise and all necessary particulars in su{lport of the plea must be embodied in the pleading : if the parti- culars stated in the pleading are not sufficient and specific the Court should, before proceeding with the trial of the suit, insist upon the particulars, which give adequate notice to the other side of the case in tended to be set up. 1962 Ladli Prasad Jaiswol y, KatnJJI Distill,,. Co. , Ltd . . Shah, J. 1962 lAdli Prasad Jois1D1JI •• K. ,naJ Disti/lny Co. , lid. Skah, J. 296 SUPREME COURT REPORTS [1964] VOL. In Bluirat Dharma Syndicate v.

Hari8h Chandra ('), the Privy Council emphasized the nece· ssity of particulars in the following terms : "Their Lordships desire to call attention to the great difficulty which is occasioned both to persons charged with fraud or other improper conduct, and to the tribunal which are called upon to decide such issues, if the litigant who prefers the charges is not compelled to place on record precise and specific details of those charges. In the present case, the petitioner ought not to have been allowed to proct'ed with his petition and seek to prove fraud, unless and until he had, upon such terms as the Court thought fit to impose, amended his petition by including therein full particulars of the allega- tions which he intended to prove: Such cases as the present will be much simplified if this practice is strictly observed and insisted tipon by the Court, even if, as in the present case, no objection is taken on behalf of the parties who are interested in disproving the accusations.

" Similarly this Court in Bishnudeo Narain v. Seogeni Rai and . Jagernath ('), in dealing with the practice to be followed in a case where a plea of undue influence and coercion is raised, observed at p. 656 : "It is also to be observed that no proper parti· culars have been furnished. Now if there is one rule which is better established than any other, it h that_in cases of fraud, undue influ- ence and coercion, the parties pleading it must set fonh full particulars and the ca! e can only be decided on the particulars as laid. There can be no departure from them in evidence. General allegations are insufficient even to amount to an averment of fraud of which any court ought to take notice however strong the (1) (1917) 64 l. A. U6. (2) [1951) s. c. R. ~·a. I S. C. R. SUPREME OOURT REPORTS 297 language in which they are couched may be, 96 2 and the same applies to 'undue influence and Ladli Prasad Jaiswal coercion.

" The plea of undue influence and coercion by the Company and defendants 2 to 5 was raised in terms which were identical. The plea analysed in its component parts may be stated as follows :- (1) Because of the resolution dated October 16, 1945 the plaintiff "succeeded in getting dictatorial powers over the Company, practically usurping all the p6wers of the General body of the shareholders .

and thereby purporting to deprive them to exercise even those rights which they" were "legally entitled to exercise under the law" ; (2) "These resolutions which gave the plain- tiff a complete veto over the affairs of the Company (which is not permissible under any valid constitution) were obtained by the plaintiff at the point of a dagger" ; (3) "That the plaintiff was refusing to hand over charge of the inoneys, books and the entire assets of the Company and using the funds of the Company for ruinous litiga- tion against the defendants who on the other hand were having to prosecute their c~es out of their meagre funds which too were dwindling fast" ; (4) "Taking foll advantage of his position . and knowing fully well the resources of the defendants, the plaintiff succeeded in coercing the defendants in submitting to his dictations and virtually compelled v. Kamal Distillny c •. , Ltd. Shah, J. 298 SUPREME COURT REPORTS [1964) VOL. 1962 LoJJi PTAJOJ J•isw.

l them to pass ,these unconstitutional resolu- tions. " •• K. ,,,. 1 Distil/ey CA. ,W. It may be observed that though issue No. 1 raised a plea both of coercion and undue influence as vitia- ting the ~resolutions, no attempt was made to rest the right to relief on a case of coercion in the Courts below and in this Court. Shali, J. The first part of the case of the defendants amounts to a plea that by the resolutinr:3 dated October 16, 1945 that plaintiff acquin:d a position of domination over the affairs of the Company and over the defendants. What the second part means it is difficult to appreciate. The language used is some- what extravagant : it is not the case of the defendants that they were compelled to agree to the resolutions by threats of physical violence.

By the third part it is affirmed that the plaintiff unlawfully refused to part with the moneys, books and the assets of the Com- pany and commenced litigation with the aid of the funds of the Company whereas the defendants had to rely upon their own resources which were limited. Presumably this has reference to the refusal of the plaintiff to comply with the resolution of February 20, 1945 and to litigation which ensued between the parties after the resolution was passed. It is difficult to regard this as a plea' precisely expressing thac the plaintiff was in a position to dominate the will of the defendants. The last part of the plea is that taking advantage of his position and knowing that the position of the defendants was precarious he succeed- ed in compelling the defendants to su. bmit to his dictation and compelled them to pass the resolutions. The pleading which was regarded as one of undue influence also suffers from a lack of parti- ' culars.

How the plaintiff took advantage of his position· as a person in possession of the assets of the Company and by what device he compelled the 1 s. c. R. SUPREME COURT REPORTS 299 defendants to submit to his will has not been stated. Section 16 of the Indian Contract Act, which incor- porates the law relating to undue influence in its application to contracts is but a particularisation of a larger principle. All transactions procured in the manner set out therein, are regarded as procured by the exercise of undue influence. Section 16 of the Contract Act provides : " (1) A contract is said to be induced by 'undue influence' where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and, uses that po~ition to obtain an unfair advantage over the other.

(2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another- (a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or (b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress. (3) where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable,' the burden of proving that such contract was not induced by undue jufluence shall lie upon the person in a position to domi- nate the will of the other. , 196i - lAdli l'raSid J. Uw•l •• Kamal Distilllr. 1 Co,, Ltd. Sluih, J. 1962 lodli Prasdd JaisW1SI •. X at1141 Di1tilln, Co. , lid. Shah, J. 300 SU PRE. ME COURT REPORTS [1964) VOL.

Nothing in this sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872. " The doctrine of undue influence under the common law was evolved by the Courts in England for granting protection against transactions procured by the exercise of insidious forms of influence spiri- tual and temporal. The doctrine applies to acts of bounty as well as to other transactions in which one party exercising his position of dominance obtains an unfair advantage over another. The Indian enact- ment is founded substantially on the rules of English common law. The first sub-section of s. 16 lays down the principle in general terms. By sub· s~ction (2) a presumption arises that a person shall h~ deemed to be in a position to dominate the will of another if the cnnditions set out therein arc fulfilled. Sub·section (3) lays down the conditions for raising a rebuttablc presumption that a transaction is procured by the exercise of undue influence.

The reason for the rule in the third sub-section is that a person who has obtained an advantage over another by domi[)at· ing his will, may also remain in a position to suppress the requisite evidence in support of the plea of undue influence. A transaction may be vitiated on account of undue influence where the relations between the parties are such that one of them is in a position to dominate the will of the other and he uses his pmition to obtain an unfair advantage over the other. It is manifest that both the conditions have ordinarily to be established by the person seeking to avoid the transaction : he has to prove that the other party to a transaction was in a position to dominate his will and that the other party had obtained an unfair advantage by usin~ that position. Clause (2) lays down a sptcial presumption that a person is deemed to be in a position to dominate the will of another 1 S. C. R.

SUPREME COURT REPORTS 301 where he holds a real or apparent authority over the other .. or where he stands in a fiducfary relation to the other or where he enters into a transaction with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress. Where it is proved that a person is in a position to dominate the will of another (such proof being furnished either by evidence. or by the presumption arising under sub-section (2) and ·he enters into a transaction with that other person, which on the face of it or on the evidence adduced, appears to be unconscionable the burden of proving that the transaction was not induced by undue influence lies upon the person in a position to dominate the will of the other.

But sub-section· (3) has manifestly a limited application : the presumption will only arise if it is established by evidence that the party who had obtained the benefit of a transaction was in a position to dominate the will of the other and that the trans· action is shown ·to be unconscionable. If either of these two conditions is not fulfilled the presumption of undue influence will not arise and burden will not shift. . Assuming that in this case a plea of undue influence was attempted to be raised by para· graph 4 of the Company's written statement and paragraph 6 of the written statement of the other defendants, defendants 2 to 5 have not submitted themselves for examination before the Court. The burden of proving undue influence primarily lay upon the defendants who were setting up the plea. The. manner in which the case on behalf of the defendants was conducted reflects little credit upon those in charge of the case.

The primary issue on which the defendants sought to defend the suit raised the plea of undue influence and coercion in relation to the resolution dated October 16, 1945, and we should have expected the defendants to open the case and lead evidence in suppor. t of their plea. But 1962 Laili Prasad Jaiswal v. Emal Distillery Co. , ltd. Shah, J. na lM1l "-' Jl! bwl y, ll- Dillill"7 Co. , UL SW. J. 302 SUPREME COURT REPORTS [1964] VOL on December 11, 1950 after the second defendant Shanti Prasad produced a number of documents which he was summoned to produce, the plaintiff for some reason not apparent on the record opened the case. Counsel for the plaintiff stated that the plaintiff was at that stage to be examined only on the issue of which the onus lay upon the plaintiff and that the plaintiff would be examined in rebuttal after the defendants closed their case and that he will examine the remaining witnesses mentioned in his list in rebuttal.

Manifestly at that stage the evidence of the plaintiff led expressly on issues other than the first issue of undue influence could not be directed to rebutting any presumption of undue influence, for there was before the Court no evidence proving the facts on the proof of which alone the presumption under sub-s. (3) of s. 16 may arise and the burden of proof shift. After the plalliciff concluded his evidence on the issues on which the plaintiff offered to lead evidence, on behalf of the defendents two witnesses Mohan Singh and Raghu Nandan were examined. Mohan Singh said nothing which might have a bearing on the plea of undue influence.

Raghu Nandan made certain equivocal statements about examination of accounts at the meeting of October 16, 1945 and further stated that the compromise pursuant to which the resolutions were passed was arrived at about midnight of October 15, at the residence of the plaintiff Ladli Prasad, and that to his knowledge the defendants had no other source of income except the director's remuneration. Beyond this he appears to have said nothing which directly supported the defendant's case of undue influence. Thereafter followed a baffling series of applications made with a view to _protract the procecdmg in the suit, presumably to procure a situation in which the principal defendant Shr,11ti Prasad may avoid going mto the witness box. By diverse applications the proceeding was protracted till May 1953, but neither 1 $. C. R. SUPREME COURT R,EPORTS 303 Shanti Prasad nor the othel! memben of the family 1962 appeared before the· Court for e. xamination as' ~; Pruu l. U.

cl witnesses in support of the defendants' case of undue ir. ,,.. ~"'' inflμence. An· application submitted on April 27, c.. , Ll'- 1953 after the case was set down for judgment for sw, 1, the · examination of Shanti Prasad was rightly rejected by the Subordinate. Judge. · A bare perusal of the statements and the cour. se which the procee· dings have taken leads to the only conclusion that the defendants did not desire to give evidence. in support of their plea of undue influence and to subject themselves to cross-examination. There may arise cases in which even though the burden lies on the defendants to prove their case of undue influence they may establish it from admissions made by the plaintiff or his witnesses· or from 6ther evidence, and without giving their own testimony, but this, in our judgment, is not such a case. · Before directing our attention to the findings of the District Judge from which undue influence wu infeitred, it is.

necesllary to reiterate certain undisputed . facts. Ladli Prasad was the eldC9t male member in the family but the family had severed its joint status in 1940 and the business of the family was taken over by a private limited company, in which the three branches held'shares. Under the Articles of Association as originally framed in 1941, Ladli Prasad was dra\Ving from the Company an allowance of Rs. 1800/- per mensem, a commission of 7! % o~ the net profits of the Company and the car allowance of Rs. 350/· per mensem and an allowance of Rs. 30/· per day during tours together with a new car every third year for use, whereas the other directors were getting only Rs. 250/· per mensem, and Rs. 25/- for every meeting of directors attended. Defendants 2 to 5 revolted against this disparity in the scale of remuneration and by resolution dated February 20, 1945 removed Ladli Prasad from the Managing Directorship of 1962 Lldli Prasad JaisUJdl •. Kanwl Di.

rti/l uance of the resolutions, invalid, for they would affect third parti<lS who must have dealt with the Company on the footing that the manangement of the Company had authority to transact business. But the plaintiff has unauthorisedly been dcpri vcd of his rights by the arbitrary conduct of the defendants. All the Courts below have held that the resolutions dated . March 28, 1946 are invalid. The High Court declined to grant relief to the p' :iintiff, for in their view the plaintiff had disentitlcd himself to equitable relief because of his previous . com;luct in exercising undue influence, and thereby securing an unfair ad- vantage to which hew. as not lawfully entitled. It is unnecessary to enter upon a discussion of the question whether in the circumstances it was a sufficient gtound for depriving the plaintiff of relief, for we are of opinion that subject to the reservations made by Bishan Narain, J. , which fully protect third parties, I .. .. i s. c. R..

SUPREME COURT REPORTS 3i5 relief should be awarded. Before the learned Judge, counsel for the plaintiff gave an undertaking that he will not question the dealings of the defendants qiw third parties, and requested expressly that the prayer for declaration that all acts of the Company and the defendants which affected him personally qua the members of the Company may alone be declared invalid. That, in . our judgment, should be sufficient to meet any objection which may be raised by the defendants on the score of delay. It was also submitted that the plaintiff has lost his right to the shares since the suit was instituted because the Company had enforced its lien and had sold the shares of the plaintiff in enforcement of the lien. The validity of that action of the Company has been challenged in a separate proceeding, and we need express no opinion on that question. All the Courts have come to the conclusion that the reso· lutions dated March 3, 1946 and Ivfarch 28, l!

lt6 were invalid and not binding on the plaintiff. There- fore, any action taken by the defendants pursuant to those resolutions may prima facie be regarded as ineffective. · . On that view of the case, this appeal must be allowed and the decree passed by Bishan Narain, J. , must be restored with costs in this Court and before the Division Bench. · Appeal allowcrl . .. ' . '" . ,, 1962 Ladli Prasad Jai5wal v. Karnal J)islil/ery Co. , Ltd. Shah, J.

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