# [1969] 3 S.C.R. 203

- **Citation:** [1969] 3 S.C.R. 203
- **Court:** Supreme Court of India
- **Decided:** 1968-12-20
- **Case number:** Civil Appeals Nos. 1174 of 1965
- **Bench:** S. M. Sikri, R. S. BACl!AWAT, K._S. Hegde
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1969-3-s-c-r-203-4857
- **Pages:** 14

## Headnote

Trust-Conzpany acting as secretary of .another con1pany-Jf brings
about -ruiuciary relationship between rhem-Secretal){ co1npany buying
assets of the main c'ompany and flouting a new Company-If fraudulent
transaction-Old company dissolved-Suit by shareholders of old company
to je/ as/de transaction-Limitation-Suit if maintainable by shareholders- -
Escheat-Jf properties vest in Government by escheat.
.
.
One \V owned sevefi:i.1 tea, coffee· and other plantations. In 1927,
he_ formed a limited company and conveyed his estates to the company.
All the shares of the c<Jmpany were held by him and the members of his
family. The· company borrowed Rs. !Ot lakhs from the Imperial Bank of
India against the issue of debentures secured by an English mortgage.
The loan was repayable on March 15, 1937. ·In default of payment within November 15, 1937, the trustee under the debenture trust deed v.'::i.S
authorised to enter into possession of the estates and sell them.
The
appellant-company was appointed as the secretary of the company.
Since 1931, the family \Vas keen on selling.the estates, but none of
the offers materialised. In 1936, there was a slump in tea and coffee
p:ices and there was a possibility of a further slump. The Bank was
pressing for the payment of its dues and the company \Vas not in
a
position to liquidate the
debt \Vithout· selling the estates. The family
tried unsuccessfully to raise loans. In the beginning of November 1937,
the family had a firm offer from A.L. & Co. for the purchase of all the
estates for Rs. 14 lakhs, but the family was anxiOus to retain one of
them.
The appellant-company offered Rs. 10 lakhs for all the estates
excluding the estate vihich the family wanted to retain. The family knew
that this estate, if sold separately, "vould not fetch more than Rs. 2 Jakhs
and yet they chose to retain it and to accept the appellant's offer. At a
meeting all the shareholders (members of the family) unanimously acccptcLl the proposal. Thev were all sui" juris and had business acumen.
They knew the value of the properties and accepted Rs. 10 !akhs as a
just and fair price. The offer enabled them to retain the estate 'vhich
they wanted to retain and at the same time enabled them to liquidate
the Bank's dues. They had legal advice· and the document$ \Vere iri
proper legal form.
The meeting was also attended by the chairman of
the company and the director nominateLl by the Imperial Bank.
After
the transfer, the company went into voluntary liquidation and it stood
dissolved on March I, 1940, under s. 209 H of the Companks Act. 1913.
The appellant· took possession of the properti~s on January 10, 1938 and
promoted a new co111pany to
which the properties \Vere tra:isferred by
convcvances. dated January 14. 1939 and !\-lay 15, 1939 50% of the
shareS cf the new company were hcl<l b'y the appcHant-cornpany \vhich
managed and controlled the ne\V company. The memb.ers of the farn:Iy
made no complaint about the transaction for 12 years, but, on December
21, 1950, they instituted a suit against the appellant and others alleging
that the cld company had not· been wound up in accordance with Jaw
and \Vas still in existence, that the old company wa~ the real owner of
the properties and the ne\v compa~y held them in trust _for the old
204
SUPREME COURT REPORTS
[1969] 3 S.C.R.
company, that the appellallt took advantage of .its fiduciarv capacity and
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gained -pecuniary advantage and that the various sales and conveyances
were vitiated by fraud, and prayed for a decree vesting or retransferring
the properties to the old company or the family.
The trial court dismissed the suit, but the appeal to the High Court
was allo\ved in part.
In appeal to this Court, on the q-tions : ( 1 )(a) Whether tb<re was
a fiduciary relationship between the appellant and the old company, and
(b) Whether the appellant gained a pecuniary advantage by
availing
itself of the fiduciary character; (2) Whether the suit was barred by
limitation, and (3) Whether th

## Text

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PIERCE LESLIE & CO. LTD.
. v.
VIOLET OUCHTERLONY WAPSHARE·
AND OTHERS VICE VERSA
December 20, 1968
[S. M. SIKRI, R. S. BACl!AWAT AND K._S. HEGDE, JJ.]
Trust-Conzpany acting as secretary of .another con1pany-Jf brings
about -ruiuciary relationship between rhem-Secretal){ co1npany buying
assets of the main c'ompany and flouting a new Company-If fraudulent
transaction-Old company dissolved-Suit by shareholders of old company
to je/ as/de transaction-Limitation-Suit if maintainable by shareholders- -
Escheat-Jf properties vest in Government by escheat.
.
.
One \V owned sevefi:i.1 tea, coffee· and other plantations. In 1927,
he_ formed a limited company and conveyed his estates to the company.
All the shares of the c<Jmpany were held by him and the members of his
family. The· company borrowed Rs. !Ot lakhs from the Imperial Bank of
India against the issue of debentures secured by an English mortgage.
The loan was repayable on March 15, 1937. ·In default of payment within November 15, 1937, the trustee under the debenture trust deed v.'::i.S
authorised to enter into possession of the estates and sell them.
The
appellant-company was appointed as the secretary of the company.
Since 1931, the family \Vas keen on selling.the estates, but none of
the offers materialised. In 1936, there was a slump in tea and coffee
p:ices and there was a possibility of a further slump. The Bank was
pressing for the payment of its dues and the company \Vas not in
a
position to liquidate the
debt \Vithout· selling the estates. The family
tried unsuccessfully to raise loans. In the beginning of November 1937,
the family had a firm offer from A.L. & Co. for the purchase of all the
estates for Rs. 14 lakhs, but the family was anxiOus to retain one of
them.
The appellant-company offered Rs. 10 lakhs for all the estates
excluding the estate vihich the family wanted to retain. The family knew
that this estate, if sold separately, "vould not fetch more than Rs. 2 Jakhs
and yet they chose to retain it and to accept the appellant's offer. At a
meeting all the shareholders (members of the family) unanimously acccptcLl the proposal. Thev were all sui" juris and had business acumen.
They knew the value of the properties and accepted Rs. 10 !akhs as a
just and fair price. The offer enabled them to retain the estate 'vhich
they wanted to retain and at the same time enabled them to liquidate
the Bank's dues. They had legal advice· and the document$ \Vere iri
proper legal form.
The meeting was also attended by the chairman of
the company and the director nominateLl by the Imperial Bank.
After
the transfer, the company went into voluntary liquidation and it stood
dissolved on March I, 1940, under s. 209 H of the Companks Act. 1913.
The appellant· took possession of the properti~s on January 10, 1938 and
promoted a new co111pany to
which the properties \Vere tra:isferred by
convcvances. dated January 14. 1939 and !\-lay 15, 1939 50% of the
shareS cf the new company were hcl<l b'y the appcHant-cornpany \vhich
managed and controlled the ne\V company. The memb.ers of the farn:Iy
made no complaint about the transaction for 12 years, but, on December
21, 1950, they instituted a suit against the appellant and others alleging
that the cld company had not· been wound up in accordance with Jaw
and \Vas still in existence, that the old company wa~ the real owner of
the properties and the ne\v compa~y held them in trust _for the old
204
SUPREME COURT REPORTS
[1969] 3 S.C.R.
company, that the appellallt took advantage of .its fiduciarv capacity and
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gained -pecuniary advantage and that the various sales and conveyances
were vitiated by fraud, and prayed for a decree vesting or retransferring
the properties to the old company or the family.
The trial court dismissed the suit, but the appeal to the High Court
was allo\ved in part.
In appeal to this Court, on the q-tions : ( 1 )(a) Whether tb<re was
a fiduciary relationship between the appellant and the old company, and
(b) Whether the appellant gained a pecuniary advantage by
availing
itself of the fiduciary character; (2) Whether the suit was barred by
limitation, and (3) Whether the members of the family as shareholders
of the old company were entitled to maintain the suit,
HELD: (l)(a) The appellant company was the. secrelllry of tbe old
company, was in charge of its
correspondence and accounts and was
actively engaged in assisting it and its share-holders in selling the estates.
In the course of such employment it acquired intimate knowledge of the
income, prospects and market value of the properties.
Therefore, the
appellant stood in a fiduciary relationship towards the old company and
was bound to protect its interests. Having regard to its fiduc:iarv charac·
ter, the appellant should have avoided entering into the
transaction.
[209 B-D; 211 DJ
(b) But, there is no rule which incapacitates a trustee from dealing
with a cestui que trust, provided there was no fraud and no advantage
wa• talten by the trustee of any information acquired by him in
the
character of a trustee. The onus, however, is upon the trustee to establish
affinnatively that the transaction was righteous and that he did not gain
any pecuniary advantage by availing himself of his fiduciary character.
In the present case, the appellant had discharged this difficult onus. The
transaction was just and fair and the· appellant did not gain any pecuniary
adTI!ntage by availing itself of its fiduciary character. nor was there any
conflict between its own interests and those of the old C(lmpany.
No
advantage was taken by the appellant of any information acquired by
it in its character as secretary and, the circumstances shO\V that there
was no fraud, no concealment and no undue influence. The long acquies·
cence of the members of the family in the sale is also evidence that the
transaction was fair in all respects. [208 F; 209 E; 211 E-D]
Coles v. Trecothick, 9 Ves. Jun. 234, 247; 32 E.R., 592, 597
and
Park! v. White, 11 Ves. Jun. 20~, 226; 32 E.R., 1068, 1074, applied.
(2) The suit was barred by limitation. (212 DJ
A suit by a beneficiary claiming recovery o.f possession from the trusB
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tee is governed by Art. 120 of the Limitation Act, 1908. The plaintiffs
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had not established fraud and consequently Art. 95 of the Limitation Act
,,h'as no application.
Section 10 of the Act also does not apply, because,
·the prope.rties were not vested in the
new company for
the specific
purpose of making them over to the old company or to the plaintiffs.
In
the plaint there was no prayer for
recovery of possession. The old
company could not ask for recove.ry of
the properties until they
obtained a reconveyance from the new company. The suit is not
there~
fore governed by Art. 144 of the Limitation Act and since the period
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under Art. 120 is 6 years from the date of cause of action and the
cause of action in the present case arose in 1939 when the conveyances
were executed, the suit was barred. (211 F-HJ
PIERCE LESLIE V. VIOLET OUCHTERLONY
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Rani Chhatra Kun1ari Devi v. Prince Mohan Bikram Shah, L.R. 58
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I.A. 279, applied.
(3) The plaintiffs were not entitled to maintain the suit. [216 CJ
As the plaintiffs failed to establish any fraud affecting the dissolution
of the company, the dissolution bas put an end to its existence. On
the dissolution of the company, its pro~rties, if any, vested in. the Government. The right of the Government to take by escjieat for want of
an heir or successor or as bona vacantia for want of a rightful owner has
been recognised in our country. The various Government of India Acts
and the Constitution show that the Government takes by escheat immovable as well as movable property for Want of an heir or successor.
It" is an incident of sovereignty and rests on the principle of ultimate
ownership by the State of all property within its jurisdiction.
Unlike
the law in the United States, winding up under the Indian Law precedes·
dissolution and there is no statut'Ory provision vesting the properties of
a dissolved company in a trustee or having the effect of abrogating the
law of escheat. The shareholders or creditors of a dissolved company
cannot be regarded as its heirs or successors.
Therefore, the GoVefnment took by escheat or as bona vacantia ·all properties of a company
dissolved under the Indian Companies Act, 1913, except in so far as its
right was cut down by that Act. Accordingly, the share.holders
or
creditors of the dissolved company cannot maintain any action for recovery
of its assets. As the company was not a party and the assets could not be
restored to its coffers. no effective relief could be given in such an action.
[212 F; 213 D-E; 214 C-D, F; 215 B-C; 216 A-BJ
Collector of Masulipatam v. C. Vencata Narainapah, 8 M.I.A. 500,
525, in re. Wells [1933] 1 Ch.D. 29, 49, Coxon v.Gorst, [1891] 2 Ch. 73
and Ill re. Lewis •nd Smart Ltd. (1954) I W.L.R. 755, applied.
Bo111ba,v Deying and Manufr.cturing Co. v. State of Bo1nbay, [1958]
S.C.R. 1122, 1146 and Legal Remembrancer v. Corporation of Calcutra,
[1967] 2 S.C.R. 170, 204, followed.
In re. U. N. Mandal's Estate, A.LR. 1959 Cal. 493, 498, approved.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1174
of 1965 and 1935 of 1966.
Appeals from the iudgment and decree dated October 14,
1959 of the Madras High Court in Appeal No. 471 of 1955.
H. R. Gokha/e, P. S. Padmanaban and D. N. Gupta, for the
appellant (in C.A. No. 1174 ot 1965) and respondent No. l (in
C.A. No. 1935 of 1966).
V. P. Raman, Shyamala Pappu, Vineet Kumar, P. S. Khera
and R. Nagaratnam, for the appellants (in C.A. No.
1935 of
1966) and respondents Nos. 1 to 4 (in C.A. No. 1174 of 1965).
C. B. Agarwala and R. Gopalakrishnan, for respondent No.
12 (in C.A. No. 1935 ol 1966).
206
SUPREME COURT REPORTS
[1969] 3 S.C.R.
The Judgment of the Court was delivered by
Bacbawat,
J.
One
James
Henry
Wapshare
owned
several estates including Naduvattam in the Nilgiris known as
the Ouchterlony Valley Estates, having tea, coffee, cardamom
and cinchona plantations.
He lived in Naduvattam and Ootacamund with his wife Nellie, daughters Violet and Dorothy and
sons James and Edward. In 1927 he formed a limited company
known as the Ouchterlony Valley Estates limited, having a share
capital of Rs. 15 lakhs and conveyed the estates to the company.
All the shares of this company, sometimes referred to as the
"old company" were held by him and the members of his family.
The company borrowed Rs. 10! lakhs from the Imperial Bank
of India against the issue of debentures. The loan was secured
by a mortgage of the estates under a debenture trust deed dated
May 13, 1927 and was repayable on May 15, 1937. In default
of payment within November 15, 1937 the trustee under the
debenture trust deed was authorised to enter into possession of
the estates and sell them.
By an agreement dated August 16,
1936 Peirce Leslie & Co. Ltd., referred to as the appellant company, was appointed as the secretary of .the old company. On
April 15, 1937 the old company was served with a notice that
in default of payment of the Joan within November 15, 1937
the trustee for the debenture holders would take possession of
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the estates and sell them.
On May 18, 1937
James Henry
Wapshare died leaving behind him his widow and his sons and
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daughters.
In November 1937 after prolonged negotiations between the Wapshares and the appellant company it was settled
that the company would purchase all the estates except Naduvattam for Rs. 10 lakhs. On December 29, 1937 formal agreements were executed providing that the old
company would
convey to the appellant company all the estates except Naduvattam
for Rs. l O~ lakhs and the appellant company would
convey
Naduvattam to Mrs. Nellie Wapshare for Rs. 50,000 and would
at the same time advance Rs. 50,000 on the hypothecation of
Naduvattam crops. By January 10, 1938 the appellant company
paid the entire purchase price and took possession of the estates
and the entire dues of the Imperial Bank of India were liquidated.
On March 30, 1938 the old company passed a special resolution
for its voluntary winding up and appointed Capt. F. Murcutt as
its liquidator. The appellant company promoted a new company
known as Ouchterlony Valley Estates Ltd., for the purpose of
acquiring the estates.
The new company was incorporated on
September 5, 1938.
Fifty per cent of its shares were held by
the appellant company. Fonua! conveyances of the Naduvattam
estate in favour of Mrs. Nellie Wapshare and of the other estates
in favour of the new company were executed by the old company
between January and May 1939. On the execution of the conG
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PIERCE LESLIF: v. VIOLET OUCHTERLONY (Bachawat, J.)
207
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veyances the new company entered into possession of the estates
conveyed to them.
As soon as the affairs of the old compajny
were wound up the liquidator made up the final accounts of the
winding up and called the final meetings of the company and
its creditors.
On or about November 29, 1939 a copy of the
final accounts and the return of the holding of the meetings were
B · filed with the registrar of joint stock companies and were registered lllllder s. 209H of the Indian Companies Act, 1913.
In
view of s. 209H ( 4), the old company stood dissolved with effect
from March 1, 1940. On December 21, 1950 Mrs. Nellie, Violet,
Dorothy, James and Edward Wapshares instituted the present suit
against the appellant company,. impleading the appellant comc
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pany as defendant .No. 1, 12 persons said to be its directors and
officials as defendants 2 to 13, Capt. F.A. Murcutt as defendant
No. 14, the new company as
defendant No. 15 and the old
company as defendant No. 16.
The plaintiffs
prayed for a
decree declaring that the old company had not been wound up
in accordance with law and was still in existence as a corporate
personality, a declaration that the old company was the real owner
of the aforesaid properties and the new company held them in
trust for the old company, a decree vesting or re-transferring the
properties to the old company and alternatively to the plaintiffs
and accounts. The plaintiffs alleged that the appellant company
as the secretary and manager of the old company was bound in
a fiduciary character to protect its interest and by availing itself
of this character gained pecuniary advantage by purchase of the
properties from the old company in 1939, that the agreement for
sale and conveyances in respect thereof were induced by fraud,
fraudulent concealment, misrepresentation, undue influence and
improper means, that the new company was controlled by the
appellants, that all the defendants were privy to the fra11d, that
the winding up of the old company was procured by the d.efendants fraudulently, that the plaintiffs discovered the fraud
in
September 1949, and the plaintiffs were the only shareholders of
the old company and as such were entitled to maintain the suit.
Defendants 4, 11 and 14 died during the pendency of the suit.
The defunct old company impleaded as defendant No. 16 did
not appear but the other defendants contested the suit.
The
Subordinate Judge, the Nilgiris, Ootacamund, dismissed the suit.
He held that ( 1) there was no fiduciary relationship between the
appellant and the old company; (2) the impugned agreements
and conveyances were not induced by fraud, fraudulent concealment, undue influence or improper means and were valid and
binding on the old company and the plaintiffs; (3) the suit was
barred by limitation; ( 4) the old company was dissolved
in
accordance with law and was not in existence and ( 5) the
plaintiffs had no locus standi to maintain the snit. The plaintiffs
filed an appeal from the decree. The Madras High Court allowed
208
SUPREME COURT REPORTS
[!969] 3 S.C.R.
the appeal in part and: passed a decree asking the appellant to
pay to the plaintiffs Rs. 1,50,000. The High Court held that
( 1) there was a fiduciary relationship between the appellant and
the old company; (2) the appellant by availing itself of its fiduciary character gained a pecuniary advantage of Rs. 1,50,000
and to the extent of this unjust enrichment was bound to reimburse the plaintiffs; (3) the suit was not barred by limitation and
( 4) in spite of the dissolution of the old company the plaintiffs
were entitled to maintain the suit. Aggrieved by this decree the
appellant company filed C.A. No. 1174 of 1965 and tb.e Wapshares have filed the cross-appeal C.A. No. 1935 of 1966 on the
strength of certificates granted by the High Court under Art.
133 ( 1 )( c) of the Constitution.
The following three questiQDS arise in these appeals :-
( 1) was there a fiduciary relationship between the appellant
and the old company, and if so, did the appellant company by
availing themselves of this fiduciary character gain a pecuniary
advantage of Rs. 1,50,000;
(2) is the suit barred by limitation; and
( 3) are the plaintiffs as shareholders of the old company
entitled to maintain the suit.
It is a settled rule of equity that any person bound in a fiduciary character to protect the interests of another person should
not put himself in a position where his interest and duty confilct.
If by availing himself of his fiduciary character or by entering
into any dealings under circumstances in which his interests are
or may be adverse to those of such. other person he gains for
himself a pecuniary advantage, he must hold for the benefit of
such other person the advantage so gained, see Trusts Act, s.S8.
But there is no rule which incapacitates a trustee from dealing
with a cestui que trust.
In Coles v . . Trecothick(') Lord Eldon
said :-"a trustee may buy from the cestui que trust, provided
there is a distinct and clear contract, ascertained to be such after
a jealous and scrupulous examination of all .the circumstances,
proving, that the cestui que trust intended, the trustee should buy;
and there is no fraud, no concealment, no advantage taken, by
the trustee of information acquired by him in the character of
trustee.
I admit, it is a difficult case to make out, wherever it
is contended that the exception prevails." As stated in Kerr on
Fraud and Mistake, 6th Ed. page 192 :-
"Thus a trustee for sale may purchase the trust
estate, if the cestui que trust fully and clearly understands with whom he is dealing and makes no objection
to the transaction, 3illd the trustee fairly and honestly
---
(1) 9 Ve1. fon,. 234, 247; 32E.R. S92, 597.
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PIERCE LESLIE V, VIOLET OUCHTERLON.Y (Bachawat, ]. )
209
discloses all that he knows respecting the p{opbtty .and
gives a just and fair price, and does not seek 'tO secure
surreptitiously any advantage for himself.
The onus
however, rests upon the trustee, and he is bound to
produce clear affirmative proof that the parties were at
arms' length, that the cestui que trust had the fullest
information upon all material facts, and that· having
this information he agreed to and adopted what was
done."
The appellant company was the secretary of the old company,
was in charge of its correspondence and accounts and was actively
engaged in assisting it and its shareholders in selling the estates.
In course of its employment the appellant acquired intimate knowledge of the income, prospects and the market value of the properties. We agree with the High Court that the appellant stood
in a fiduciary relationship towards the old company and was bound
to protect its interests. The appellant entered into an agreement
with the old company for the purchase of the properties. It promoted the new company to which the properties were subsequently c9nveyed.
Fifty per cent of the shares of the new company
were held by the appellant company and the new company was
managed and controlled by it.
The onus is upon the appellant , '
company to establish affirmatively that the transaction was ·
righteous and that it did not gain any pecuniary advantage by
availing itself of its fiduciary character.
We are inclined
to
think that the appellant company has discharged this
difficult
burden of proof.
Since 1931 the Wapshares were keen on selling the estates
From time to time there were offers from intending buyers but
none of them materialized.
In 1936 there was a slump in tea
and coffee prices. There was a possibility that the tea restriction
scheme would be abolished and there would be a further slump
in tea prices.
The old company was indebted to the Imperial
Bank of India for Rs. I Ot lakhs against the issue of debentures
secured by an English mortgage over all the estates. The Bank
was pressing for the payment of its dues. There was every likelihood that in default of payment by November 15, 1937 the
trustee for the debenture holders would enter into possession of
the estates and sell them without intervention of court. The old
company was not in a positfon to liquidate the debt wi.thout selling
the estates.
In April 193'/
M/s. Kuruvilla Bros.
agreed to
purchase the
properties.
On May 18, 1937
James
Henry
Wapshare died. In July 1937 the deal with KuruVilla Bros. fell
through.
The Wapshares anli the old company tried their best
to raise loans and for that purpose issued advertisements and
contacted several banks and insurance companies but they were
unable to raise any loan. In the beginning of November 1937,
210
SUPREME COURT REPORTS
[1969] 3 S.C.R.
·the Wapshares had before them a firm offer from
Arbuthnot
Lathem & Co. for purchase of the estates for Rs. 14 lakhs. But
the Wapshares were not willing to sell Naduvattam. The bungalow
. at Naduvattam was the home of the Wapshare family.
Naduvattam was the highest altitudinal estate, grew the best tea in the
area and had a very good name in the London tea market. The
appellant h~d previously offered to buy all the estates for Rs. 11 t
lakhs only.
The Wapshares wanted the appellant to make an
· offer which would enable them to retain Naduvattam and at the
same time to liquidate the Bank's dues. At the insistence of the
Wapshares interviews were 11rranged at Calicut on November 4,
and November 6, 1937 between Dorothy and Robert representing the Wapshares and Mr. Thorne representing the appellant.
Mr. Thorne could not offer more than Rs. 10 lakhs for all the
estates excluding Naduvattam.
He told the Wapshares that
they should accept the offer of Arbuthnot Lathem & Co. as they
would get Rs. 14 lakhs by selling all the estates. The Wapsharcs
were anxious to retain Naduvattam and were inclined to accept
the appellant's offer. They took some time for consideration and
at the same time asked the Arbuthnots for time till November 10,
for consideration of their offer. On November 10, Dorothy· sent
a telegram to the appellant company informing them that the
family was agreeable to their new proposal. The draft agreement
was sent b'y the appellant on November 11. In the beginning of
November Mrs.
Wapshare was ill and was in a hospital in
Bangalore. But on November 10, she was well enough to dis-
, cuss the appellant's proposal.
On November 12, she came to
Ootacamund and on November 13 she went to her lawyer
Gonsalves, discussed the matter with him and gave her consent.
Gonsalves was apJ?roached to put the bargain in a legal form.
1 He took exception to the draft agreement, but found the formal
agreements to be free from
blemish.
At a meeting held
on
November 18, 1937 the shareholders of the company unanimously accepted the proposal. Mrs. Wapshare, Dorothy, Robert and
Edward were present at the meeting.
The meeting
was also
attended by E. W. Simcock, chairman of the company, H. M .
. Small, the director, nominated by the Imperial Bank of India and
C. K. Pittock.
All the Wapshar~s were sui ;uris.
Dorothy was
a shrewd young lady and the best business brain in the family.
The Wapshares knew the value of the properties intimately. They
knew that Naduvattam if sold separately would not fetch more
than Rs. 2 lakhs. Yet they chose to retain Naduvattam and sell
their estates for Rs. 10 lakhs instead of selling 11!1 the estates for
Rs. 14 lakhs. The reason was that there was no other buyer
willing to pay more than Rs. 10 lakhs for the other estates. They
had decided not to sell Naduvattam and they were satisfied that
RB. 10 lakhs was a jnst and fair price for the other estates sold
separately from Naduvattam. The appellant's offer enabled them
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PIERCE LESLIE v. VIOLET OUCHTERLONY (Baclwwat, J.)
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to keep Naduvattam and at the same time to liquidate the Bank's
dues.
The deal was satisfactory to them in every way.
They
obtained all necessary legal advice. The documents were in proper legal form.
There was no fraud. no concealment and no
undue influence.
No advantage was taken by the appellant of
any information acquired by them in their character as secretary.
The Wapshares clearly understood that they were dealing with
the appellant company, had the fullest information
about all
material facts and that having this _information they agreed to
sell. They made no complaint about it for 12 years. Their long
acquiescence in the sale is evidence that the transaction was fair
in all respects, see Parks v. White(').
On the whole and especially having regard to the long acquiescence we hold that the transaction was just and fair and that the
appellant did not gain any pecuniary advantage by availing themselves of their fiduciary character or under circumstances
in
which their interests were in conflict with those of the old company. In saying so we must ,not be understood to say that we
encourage transactions of this type.
Having regard to
their
fiduciary
character the appellant
company might well have
avoided entering into the transaction.
The next question .is with regard to limitation. The conveyances in favour of the new company were executed on January
14, 1939 and May 15, 1939. Simultaneously with the execution
of the conveyances the new company entered into possession of
the properties.
Even before that date by January 10, 1938 the
appellant
company
had taken
possession o.f the properties.
The suit
was
filed
on December 21,
1950 when
the
Indian Limitation Act,
1908 was
in force.
The plaintiffs
cannot claim relief on the ground of fraud and consequently Art.
95, has no application.
Section 10 does not apply as the properties are not vested in the new company for the specific purpose
of making them over to the old company or to the
plaintiffs.
Article 144 does not apply for several reasons.
In the plaint
there is no prayer for recovery of possession. The plaintiffs claim
declaratory reliefs, a decree vesting or re-transferring the properties to the old company or to the plaintiffs and accounts. Such
a suit is governed by Art. 120. The High Court passed a decree
for money and not for recovery of immovable properties. A suit
for such a relief would be governed by Art. 120.
Even if the
suit is treated as one for recovery of possession of the properties
it would be governed by Art. 120 and not by Art. 144. The old
company could not ask for recovery of the properties until they
obtained a reconveyance from the new company. The cause of
action for this relief arose in 1939 when the properties were
11 Yes. June. 209, 226 ;32 E.R. 106~, 1074.
212
SUPREME COURT REPORTS
(1969] 3 S.C.R.
conveyed to the new company. A suit for this relief was barred
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under Art. 120 on the expiry of six years.
After t.he expiry of
this period the old company could not file a suit for recovery of
possession.
In Rani Chhatra Kumari Devi v.
Prince Mohan'
Bikram Shah(') the Privy Council held that in a case where
the property was not held by the trustee for the specific purpose
of making it over to the beneficiary and the trust did not fall
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within s. 10, a suit by the beneficiary claiming recovery of possession from the trustee was governed by Art. 120.
Sir George
Lowndes said.-
"The trustee is, in their Lordships'
opinion, the
owner of the trust property, the right of the
beneficiary being in a proper case to call upon the trustee
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to convey to him. The enforcement of this right would,
their Lordships think, be barred after six years under
art. 120 of the Limitation Act, and if the beneficiary
has allowed this period to
expire without suing, he
cannot afterwards file a possessory suit, as until conveyance he is not the owner."
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It follows that the suit is barred by limitation.
The third question relates to the maintainability of the suit.
The plaintiffs sued to recover properties belonging to the
old
company.
The company went into voluntary
liquidation and
was wound up.
As already stated the company stood dissolved
on March 1, 1940 under s. 209H of the Indian Companies Act,
1913. No application was made within 2 years to declare the
dissolution to be void under s. 243. Apart from s. 243 the dissolution might possibly be set aside in a suit on the ground of
fraud, but the plaintiffs failed to establish any fraud affec;ting
the dissolution.
The dissolution has put an end to the existence
of the company. In these circumstances, the appellant contends
that all the properties and the rights of the old company, if any.
have vested in the Government by escheat or as bona rncantia
and the plaintiffs cannot sue for the recovery of its properties.
The plaintiffs dispute the right of the Government to take the properties by escheat or as bona vacantia, and they contend that on
the dissolution of the old company. its assets have now vested in
its shareholders.
The common law of England recognises
the right of the
Crown to take property by escheat or as bona vacantia. Escheat
proper was the lord's right of re-entry on real property held by a
tenant dying intestate without lawful heirs. It was an incident
of feudal tenure and was based on the want of a tenant to perform the feudal services, see : Halsbury's Laws of England. vol. 16.
(I) L.R. 58 I.A. 279.
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PIERCE LESLIE V, VIOLET OUCHTERLONY (Bachawat, J.)
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art. 830.
On the tenant dying intestate without leaving any
lawful heirs his estate came to an end and the lord was in by his
own right and not by way of succession or inheritance from the
tenant, see: Attorney-Genera/ of Ontario v. Andrew F. Mercer(')
In most cases the land cscheated to the Crown as the lord paramount, in view of the gradual elimination of intermediate or mesne
lords since 1290.
The Crown takes as bona vacantia goods in
which no one else can claim a property. In Dyke v. Walford(')
it was said that "it ·is the right of the Crown to bona vacantia, to
property which has no other owner." The right of the Crown
to take as bona vacantia extends to personal property of every
I.ind, see:
In re. We/ls, Swinburne-Hanham
v.
Howard(').
Escheat of real property of an intestate dying without heirs was
abolished in 1925 and the Crown now takes all his properties as
bona vacantia. On the dissolution of a company the Crown took
its real property by escheat and its personal property as
bonal
vacantia. Technical escheat of the property of a dissolved company was abolished in 1929 and now under s. 354 of the English
Companies Act, 1948 all the property and rights of a oissolved
company is deemed to be bona vacantia and accordingly belongs
to the Crown.
The right of the Government to take by escheat for want of
an heir or successor or as bona vacantia for want of a rightful
owner has been recognised in our country for a long time. Statute
16 & 17 Victoriae, C. 95, s. 27, an Act to provide for the government of India asserted that "all real and personal estate within the
said territories escheating or lapsing for want of an heir or successor, and all property within the said territories devolving as bona
vacantia for want of a rightful owner, shall (as part of the revenues of India) belong to the East India Company in trust for
Her Majesty for the service of the government of India." By
s. 54 of the Government of India Act, 1858 the existing provision
was continued in force and was construed as
referring to the
Secretary of State in Council in place of the company.
Section
20(3)(iii) of the Government of Tndia Act, 1915 provided that
the revenues of India received for His Majesty would include "all
movable or immovable property in British India escheating or
lapsing for want of an heir or successor, and all property in
British India devolving as bona vacantia for want of a rightful
owner."
Section 174 of the Government of India Act, 1935
provided :
"Subject as hereinafter provided, any property in
India accruing to His Majesty by escheat or lapse or as
bona vacantia for want of a rightful owner, shall, if it is
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(I) 8 A.C 767, 772.
(2) 5 Moore P.C. 434. 496; 13 E.R. 557, 080.
(3) [19J:l] 1 Ch. 29, 49.
214
SUPREME COURT REPORTS
[1969] 3 S.C.R.
property situate in a Province, vest in His Majesty for
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the purposes of the government of that Province, and
shall in any other case vest in His Majesty for the purpose of the government of the Federatiqn."
Article 296 of the Constitution now provides :-
"Subject as hereinafter provided, any property in the
territory of India which, if this Constitution had not
come into operation, would have
accrued to His
Majesty or, as the case may be, to the Ruler of an
Indian State by escheat or lapse, or as bona vacantia
for want of a rightful owner, shall if it is property situate
in a State, vest in such State, and shall, in any other
case, vest in the Union."
These enactments show that in this country the Government
takes by escheat immovable as well as movable property for want
of an heir or successor. In· this country escheat is not based on
artificial rules of common law and is not an incident of feudal
tenure. It is an incident of sovereignty and rests on the principle
of ultimate ownership by the State of all property within its jurisdiction. "Private ownership not existi:ng, the State must be owner
as ultimate lord'', see: Collector of Masulipatam v. C. Vencqta
Narainapah(').
The rules of English feudal law relating to
mesne lords are not applicable, and consequently the zamindar
could not take by escheat the land of a tenant dying without heirs.
The right of escheat belongs to the Government only, see Ranee
Sonet Kowar v. Mirza Himmut Bahadoor(2). The Government
h~s the right to take all property within its jurisdiction by escheat
for want of an heir or successor and as bona vacantia for want
of a rightful owner, see : Bombay Dyeing & Manufacturing Co. v.
State of Bombay("), Legal Remembrancer v. Corporation of
Calcutta(').
Consequently the property of an intestate dying
without leaving lawful heirs, and the property of a dissolved corporation passes to the Government by escheat or as bona vacantia.
The property taken by escheat or as bona vacantia belongs to the
Government, subject to trusts and charges, if any,
previously
affecting it.
As already stated, technical escheat of the real property of
a dissolved company was abolished in England in 1929 and s.
354 of the Companies Act 1948 now provides that all property
and rights of a dissolved company shall be deemed to be bona
vacantia and shall accordingly belong to the Crown.
There was
no statutory provision like s. 354 before 1929. In the absence
of such a provision, the Crown took the real property of a company dissolved before 1929 by escheat and its personal property
(I) 8 M. I. A. 500, 525.
(2) L.R. 3 I.A. 92, 101.
()[19581 S.C.R. 1122, 1146.
(4) [1967] 2 S.C.R.170. 204.
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PIERCE LESLIE v. VIOLET OUCHTERLONY (Bachawar, J.)
215
as bona vacantia, except in so far as its right was cut down by
statute, see: In re. Wells('). Likewise in this cou.ntry, the Govern·
ment took by escheat or as bona vacantia all the properties of a
company dissolved under the Indian
Companies Act,
1913
except in so far as its right was cut down by that Act.
P. B.
Mukherjee, J. expressed a similar opinion In re U.N. Mandafs
Estate(').
Accordingly the shareholders or creditors of the dissolved company cannot maintain any action for recovery of its assets.
No
effective relief can be given in such action, as the company is
not a party and the assets cannot be restored to its coffers. On
this ground in Coxon v. Garst(") an action by creditors for recovery of moneys due to the dissolved company was dismissC(f, and
in In re. Lewis & Smart, Ltd.(') it was held that a pending misfeasance summons abated on the dissolution of the company.
The plaintiffs' contention that the properties of a dissolved
company passed to its shareholders is based upon American law,
which is stated in American Jurisprudence, 2d, Corporations, art.
1659 thus : "Apart from statutory provisions which frequently
embody the following rule also, the general equitable rule now
followed in this country is that upon the dissolution of a corporation, the property and assets of the corporation constitute a trust
fund for the benefit of its creditors and stockholders. This rule
necessarily displaces and makes obsolete the early common law
rules as to the reverter of real estate and the escheat of the personal
estate of corporation in such a case, and practically makes obsolete the doctrine as to the extinguishment of the debts owing by
and to the corporation in such cases. Stated in another way, the
rule is that after the .dissolution of a corporation, its property
passes to its stockholders subject to t)\e payment of the corporate
debts.
The inherent jurisdiction of equity over trusts embraces
the powc!r to administer the assets of a dissolved corporation."
The subject of dissolution of corporations is dicussed in Arts.
1628 to 1696 of the book. The corporation is dissolved by a
judgment of court (art. 1645).
For the purpose of complete
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winding up of its affairs, statutes provide that even after dissolu-
. tion the corporation shall continue to exist and may sue or be sued
for a limited period, see arts. 1662, 1668, 1669, 1671. 1673,
Statutes also provide for appointment of a trustee for the dissolved
corporation and their effect is to convert its
properties into a
trust fund and to abrogate the common law rule of escheat, arts.
1676, 1677. The stockholders of the dissolved corporation can
accordingly maintain an action against the trustee for distribution
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(!) [19331 I Ch. 29, 49.
(3) [1891] 2 Ch. 73.
(2) A.LR. 1959 Cal. 493, 498.
(4) [1954] .I W.LR. 755.
216
SUPREME COURT REPORTS
(1969] 3 S.C.R.
of the surplus assets after payment of the debts of the corporation,
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see Bacon v. Robertson (1).
The law in our country is very different. Here the winding
up precedes the dissolution. There is no statutory provision vest·
ing the properties of a dissolved company in a trustee or having
the effect of abrogating the law of escheat. The shareholders or
creditors of a dissolved company cannot be regarded as its heirs
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and successors.
On dissolution of a company, its properties, if
any, vest in the government.
In Coxon v. Garst(')· page 78
Chitty, J. summarily rejected the contention that a chose in action
vested in a company passed on the dissolution to its creditors. He
said : "This supposed vesting in the creditors of the company's
choses in action is a mere fiction with nothing in the statute to c
support it, and is in the teeth of the provisions of the statute." It
follows that the plaintiffs are not entitled to maintain this suit.
A questiQn may arise whether the Government takes the pro·
perty of a dissolved insolvent company subject to a trust for payment of its debts, see in this connection, In the matter of Chandbali
S.S. Co.,(') and In Re Wells(') at pages 38 and 50. But that
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question does not arise in the present case and we express no
opinion on it.
In the result, C.A. No. 1174 of. 1965 is allowed, the decree
passed by the High Court is set aside and the decree passed by
the Trial Court is restored. C.A. No. 1935 of 1966 is dismissed.
There will be no order as to costs in this Court and in the High
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Court.
V.P.S.
(I) 15 Law ed. 499.
(J) 60 C.W.N. 278, 284-286.
C.A. No. 1174/65 allowed.
C.A.