PUNJAB DISTILLING INDUSTRIES LID.

COMMISSIONER OF INCOME-TAX, PUNJAB

February 9, 1965

[K. SUBBA RAO, F..AGHUBAR DAYAL, J. R. MUDHOLKAR,

R. S. BACHAWAT AND V. RAMASWAMI, JJ.]

India;, Incomet"x Act, 1022 (11 0£ 1922), s. 2(A) (d)--Distribut:on on reduction of company's cap'tal to the extent oJ accnmulated profits treated as 'dividend'-Si:cli dividend whether 'income' under C Entry 54, List I, Government of India Act, 1935-Section whether ultra vires.

'Distribution'-Meaning of-Whether synonymous with 'paid' or 'credited' in s. 16(2) Gf the Income-tax Act-Notional distribution whether takes place on issue of certificate under s. 61 ( 4) of the Indian Companies Act, 1913. '

The appellant company reduced its capital and the reduction """ confirmed by the High Court. On November ~. 1954, i.e. during the course of the appellant's accounting year eneling November 30, 1954, the Registcar of Companies issued the requisite certificate under s. 61 ( 4) of the Indian Companies Act. The srplus share capital cansequent on reduction was, however, not refunded to the shatilholders during the said accounting year. It was refunded by actual payment or by credit entries in the next accounting year which ended on November 30, 1955. The Income-tax Officer held that the said distribution to the extent of accumulated profits was 'dividend' under s. 2(6A) (d) of the Indian Income-tax Act, 1922. He further held that the distribution took place in the accounting year ending Novemter 30, 1955, relevant for the assessment year 1956-57. On these findings he calculated the rebate on super-tax in the terms of

cl. (i)(b) of the second proviso to paragraph D of Part II of the first schedule to the Finance Act, 1956. The findings of the Income-tax Officer were upheld by the Appellate Assistant Commissioner and the Appellate Tribunal, and also, in reference, by the High Court. The appellant came to the Suprernen Court by certificate.

It was contended on l:ehalf of the appellant: (1) In defining 'dividend' to include capital receipts resulting from distribution of capital on reduction, the legislature went beyond the ambit of entry 54, List I, Seventh Schedule, Government of India Act, 1935, and s. 2(6A)(d) of the Indil!n Income-tax Act, 1922 v;'lls therefore, ultra vires. (2) The certificate of the Registrar under s. 61 ( 4) of the Indian Companies Act was issued on November 4, 1954 and therefore the 'distribution' under s. 2(6A)(d) took place in the previous year relevant to the assessment year 1955-56.

HELD: The expression 'income' in entry 54 List I of the Seventh Schedule to the Government of India Act, 1935, and the corresponding entry 82 of List I of the Seventh Schedule to the Constitution of India must be widely and liberally construed so as to enable the Legislature to provide by law for the prevention of evasion of Income-tax, [5H; 6A l

United Provinces v. Atiqa Begum, P9401 F.C.R. 110, Sardar Baldev Singk v. Commissioner ot Income-tax, Delhi and Aimer, [1961] 1 S. C.R. 482, Ba!aji v. Income-tax Officer Special Investigation Circle, [1962] 2 S.C.R. 983 and Navnitlal C. Javeri v. K. K.. Sen, Appellate Assistant Commissioner of Income-tax 'D' Ranae, Bombay,

[196.5] 1 S.C.R. 909, referred to.

A company may on the pretext of reducing its capital, utilise its accumulated profits to pay eack to the shareholders the whole or part of the paid up amounts on the shares. This is a division of profits under the guise of division of capital. If this were permitted there would be evasion of super-tax. Section 2(6A)(d) embodies a law to prevent such evasion and hence it ialls within the ken of entry 54 of List I of Schedule Seven to the Government ot India Act, 1935. r6H; 7A, Gl

There is no inconsistency between a receipt being a capital one under the company law and by fiction being treated as taxable under the Income-tax Act. r7F-Gl Per Subba Rao. Mudholkar and Ramaswami, JJ. The expression 'distribution' connotes so1nething actual and not notional.

Like 'paid' or 'credited' in s. 16(2), distribution' signifies 'the discharge of the company's liability and making the dividnd available to the members entitled thereto. raD, F, G]

Distribution can 1:e physical, it can be constructive.

One may distribute assets between diffecent shareholders either by crediting the amount due to each one of them in their respective accounts, or by actually paying to each one of them the omount due to him. raD]

Distribution in the above manner may take place partly in one

year and partly in another. But the amount of accumulated profits '-" is fixed by the resolution of the company reducing its capital, and 'l! the figure does not change with the date of payment or credit. r9D, El

In the pcesent case the payments and credits were actually given during the accounting year ending November 30, 1955. The dividend under s. 2(6A)(d) must be deemed to hav.e been distributed in the said year. The relevant assessment year therefore was 1956-57. [lOFl

Per Raghubar Dayal and Bachawat, JJ.

The word 'distributed', in s. 2(6A)(d) does not mean 'paid' or 'credited'. Cases under s. 16(2) are not relevant to the issue. r14G-H]

The 'distribution' contemplated by s. 2(6A)(d) is distribution at the time of reduction of capital, that is to sav, when the resolution of the company reducing the c'apital takes effect. It means allotment or app01iionment of the surplus among the shareholders; this allotment takes place and each shareholder gets a vested right to hi• port10n of the surplus as soon as the capital stands reduced. [12F-H]

While the distritution as above takes place on a single date i.e. the date . of the reduction of capital, the payments to the shareholders either actual or by credit entries in books of account may be made subsequer, itly. and on different dates. The successive payments cannot be 'd1stnbut10n' contemplated bys. 2(6A) (d). ri3A-Cl

Pl"NJAB DISTILLERIES v. c. I. T. (Subba Rao, J.) 3

In the instant case the resolution for the reduction of the capital of the company and the consequential refund of the surplus capital to the shareholder took effect on November 4, 1954. Consequently the distribution of the 'dividend' as defined by s. 2(6A)(d) took place on that date i.e. during the previous year corresponding to th• assessment year 1955-56. [15Bl

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 414 of 1965.

Appeal from the judgment and order dated February 21, 1962, of the Punjab High Court in I.T. Reference No. 9 of 1959.

N. C. Chatterjee and R. V. Pillai, for the appellant.

C C. K. Daphtary, Attorney-General, R. Ganapathy Iyer, R. N.

Sachthcy for R. Ii. Dhebar, for the respondent.

The Judgment of SUBBA RAo, MUDHOLKAR and RM!ASWAMI JJ. was delivered by SuBBA RAO, J. The dissenting Opinion of

DAYAL and BACHAWAT JJ. was delivered by BACIIA\VAT J.

Subba Rao, J.

This appeal by certificate rabs the main question whether s. 2(6A)(d) of the Indian Income-tax Acl, 1922, hereinafter called the Act, is ultra vire! the Central Legislature.

The ass;; ssee, a public limited company, was incorporated on May 23, 1945, under the Indian Companies Act, 1913, with a share capital of Rs. 50 lakhs. On December 15. 1947, at the instance of the appellant the High Court sanctioned the reduction o( the capital of the company from Rs. 50 lakhs !cJ Rs. 25 iakhs. On December 16, 1953, the High Court sanctioned a further reduction of the share capital from Rs. 25 lakhs to Rs. 15 Jakhs. 0;1 November 4, 1954, the Registrar of Companies granted the requisite certificate under s. 61(4) of the Indian Companies Act.

On November ), 1954, the appellant issued notices to the shareholders inviting applications for the refund of share capital so reduced.

On the receipt of the applications, appropriate debit entries were made in the accounts of the shareholders and the amounts were actually paid to' them during the previous year, i.e., December I, 1954, to November 30, 1955. Under s. 2(6A)(d) of a the Act, "dividend" includes any distribution by a company on the reduction of its capital to the extent to which the company possesses accumulated profits, whether such accumulated profits have been capitalised or not. In assessing the income of the appellant-company for the assessment year 1956-57, the Income-tax Officer held that the said dividends were distributed during the H accounting year and on that finding he calculated the rebate on super-tax in terms of cl. (i)(b) of the second proviso to paragraph D of Part II of the first schedule to the Finance Act, 1956. ff the dividends were distributed during the accounting year. i.e., December !, 1953, to November 30, 1954, the appellant would be entitled to a higher rate of rebate on super-tax under cl. (ii) of the first proviso to paragraph D of Part TI of the first schedule to the Finance Act, 1956. The Income-tax Officer further helcl that the

. ·!.

assessee's accumulated profits at the time of the reduction of the A. capital from °]{s. 25 lakhs to Rs. 15 lakhs were Rs. 8,42,337. On appeal the Appellate Assistant Commissioner accepted the said figure arrived at the Income-tax Officer. On further appeal, the Income-tax Appellate Tribunal, for the reasons recorded by it in its order, reduced the figure under the said head by a sum of Rs. 3.61,40S.

It was Contended on behalf of the assessee that in as much as the certifieate from the Registrar for the reduction of the capital from Rs. 25 !akhs to Rs. 15 lakhs was obtained on Novrmber 4.

1954, the distribution of the dividends should be deemed to have taken place duing the year 1953-54 and, therefore, the said div1- C dends were notexigible to tax for the assessment year. The Incomctax Oflier. the Appellate Assistant Commissioner and the Tribunal concurrently rejecie::I that plea and held that, as the vctual paymerrt to the shareholders of the refund of the capit1 l and th~ debit in 'ti1e accounts of the shareholders were effected in the accounting year, the said dividends must be held to have been D distributed in the accounting year.

There is another sum of Rs. 11,687-3-0 received by the appellant as security deposit on account of empty bottles. A quesfr:n was raised whether the said amount could be considered as capita! gains and, therefore, should be excluded from the accumukted proflts.

The Appellate Tribunal held in favour of the assessee The assesse.; and the Commissioner of Income-tax filed two applications before the Tribunal for, referring. ques'.ions of !aw arising out ef the Tribunal's order to the High Court. The Tribunal referred the fallowing questions of law to the High Court for its opinion.

(!) Whether the provisions of s. 2(6A)(d) of the Indian Income-tax Act are ultra vires of the Central Legislature:.

(2) Whether the accumulated profits amounting to Rs. 4,69,244-13-0 could be deemed to have been distributed on the reduction of the capital from Rs. 25 lakhs to Rs. IS lakhs within the meaning of Section 2(6A)(d) of the Indian Income-tax Act.

(3) Whether the amount of Rs. 11,687-3-0 received by the assessee as security deposit on account of empty bottles could be considered as Capital Gains.

(4) Whether the accumulated profits could be considered as dividend deemed to have been distributed in the assessment year 1955-56 in view of the certificate granted by the Registrar of Companies under Section 61 (4) of the Indian Companies Act, 1913, or could be considered as dividend deemed to have been distributed in the assessment year 1956-57 because the debits of refunds were actually made in the accounts of the shareholders during the accounting period of the assessment year 1956-57.

PUNJAD DISTILLERIES v. o. I. T. (Subba Rao, J.) I>

The High Court answered all the questions against the assessee. Hence the appeal.

Mr. N. C. Chatterjee, learned counsel for the assessee, did not contest the correctness of the answer given by the High Court in regard to the third question and, therefore, nothing further need be said about it.

The first question is whether s. 2(6A)(d) of the Act is ultra vires the Central Legislature.

Sub-section (6A) was inserted in s. 2 of the Act by s. 2 of the Indian Income-tax (Amendment) Act, 1939 (Act VII of 1939). Section 2(6A)(d) of the Act reads:

" 'Dividend' includes any distribution by a company on the reduction of its capital to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the !st day of April, 1933, whether such accumulated profits have been capitalised or not." The said Act VII of 1939 was passed by the Central Legislature in exercise of its powers conferred under s. 100 of the Government of India Act, 1935, read with entry 54 of List I of the Seventh Schedule thereof. Entry 54 reads : \'Tax on income other than agricultural income." Mr. Chatterjee contends that while the said entry 54 enables E the appropriate Legislature to impose a tax on "income'', the L:-

gislature by enlarging the definition of dividend so as to include the amount received by a shareholder towards the share cpital c8ntributed by him, which capnot possibly be income, seeks t:i tax a capital receipt, and, therefore, the said clause is ultra vires the F Central Legislature.

Mr. R. Ganapathy Iyer, learned counsel for the Revenue, contends that a legislative entry must receive the widest connotation and should not be interpreted in any narrow or restricted sense, and if so construed the said entry enables the Lligislature to make a law to prevent evasion of tax on income by devious o methods and that the Legislature in the instant case seeks to prevent the growing evil of tax evasion by companies distributing profits under the guise of reduction of capital.

It 'is well settled rule of construction that entries in the legislative lists cannot be read in a narrow or restricted sense: they should be construed most liberally and in their widest amplitude.

R In the words of Gwyer, C. J., in The United Provinces v. Atiqa Begum(') "each general word should be held to extend to all ancillary or subsidiary matters v:h!; h c:an fairly. and reasonably b.e said to be comprehended by 1t. This Court m a number of decisions held that the expression "income" in entry 54 of List I of the Seventh Schedule to the Government of India Act, 1935, and the

(') [1940) F.C.R. l!C.

corresponding entry 82 of List 1 of the Seventh Schedule to the A Constitution o~ India, shall be widely and liberally construed so as to cmible a Legislature to provide by law for the prevention of evas10n of rncome-tax. In Sardar Baldev Singh v. Commissioner of Income-tax, Delhi and Ajmer (') this Court maintained the constitutional validity of s. 23A(1) of the Income-tax Act, which empowered the Income-tax Officer to impose super-tax in a case B where a private limited company distributed less than sixty per cent. of the total income of the company as dividends on the ground that the object of the sectic, m was to prevent avoidance of super-tax by shareholders of a company in which the public were not substantially interested. In Balaji v.

Income-tax Officer, , , Special Investigation Circle (') this Cort ruled that s. 16(3)(a)(i) c and (ii) of the Income-tax Act, which enabled the Income-tax Officer in computing :he total income of a person to include the share of the income cf his wife and minor sons therein, was constitutionally valid for the reason that it was intended to prevent eva- 5ion of tax by persons putting the properties in the names of their wives or minor children, as the case may be. This Court again in D Navnitial C. Javeri v. K. K. Sen, Appellate Assistant Commissioner of Income-tax, "D" Range, Boinbay (") sustained the validity of s. 2(6A)(e) of the Indian Income-tax Act, 1922, which included in the definition of "dividend", inter alia, payment made by the company by way of advance or loan to a shareholder to the extent to which the company possessed accumulated profits on the E groun:l that it was a measure to prevent private controlled companies adopting the device of making advances or giving loans to their shareholders with the object of evading payment of tax.

The question in the instant case, therefore, is whether the constitutional validity of s. 2(6A)(d) of the Act can be supported F on the ground that it was enacted to prevent evasion of income-tax.

While an entry delineating a legislative field must be wiqely and liberally construed, there must be a reasonable nexus between the item taxed and the field so delineated. The said clause deals with the distribution by a company on the reduction of its. 'capital to the extent to which the company possesses accumulated profits.

G Accumulated profits of a company may be utilised in the following 3 ways: (]) for increasing the capital stocks; (2) for distributing the same among the shareholders by way of dividends; and (3) for reducing the capital. Ordinarily a company reduces the capital when there is loss or depreciation of assets; in that event there is no question of distribution of profits to the shareholders but H the shares are only devaluated. But a company may,. on the pretext of reducing its capital, utilise its accumulated profits to pay back to the shareholders the whole or part of the paid up amounts on the shares. A shareholder though in for.m gets back the whole

(1) [1961] 1 R.C.Jl. 4S2.

('2} [I \JG2] 2 .S.C.R. 98'\.

e) fl tH~5] I S.C. R. PO fl.

Pl'KJAB DISTILLERIES v. c. r. T. (Subba RaJ, J.) 7

A or a part of the capital contributed by him, in effect he gets a share of the accumulated profits, which, if a straightforward course was followed, he should have received as dividend. This is a division of profits under the guise of division of capital; a distribution of profits under the colour of reduction of capital. If this was permitted, there would be evasion of super-tax, the extent of the B evasion depending upon the prevalence of the evil. The Legislature, presumably in the interest of the exchequer, enlarged the .definition of "dividend" to catch the said payments within the net of taxation. By doing so, it is really taxing the profits in the hands of the shareholders, though they are receiving the said profits under c the cloak bf capital.

Learned counsel for the appellant contends that under the Companies Act a company can lawfull~ reduce the share capital with the sanction of the Court, that there is ."no prohibition thereunder against such a reduction being made D by way of distribution of accumulated profits to the shareholders, that the amounts so paid to them would be in law capital receipts and that, therefore, there could not be in law or in fact any evasion of tax on income. Reliance is placed upon ss. 100 to 103 of the Companies Act. This argument mixes up two aspects-the legal and fiscal.

Under Company Law the question of reducing capital is a domestic one for the decision of the majority of shareholders.

The Court comes into the picture only to see that the reduction E is fair and equitable and that the interests of the minority and the creditors do not suffer. It may not also be concerned with the motive of the general body in resolving to reduce the capital; but the Income-tax Jaw is concerned with tax evasion. Tax can be evaded by breaking the Jaw, or avoided in terms of the law. When F there is a factual avoidance bf ta)I: in tenns of law, the Legislature steps in to amend the Income-tax law so that it can catch such an income within the net of taxation. There is, therefore, no inconsistency between a receipt being a capital one under the Company law, and by fiction being treated as taxable income under the Income-tax Act.

6 Therefore, as s. 2(6A)(d) of the Act embodies a law to prevent evasion of tax, it falls within the ken of entry 54 of List I of Schedule Seven to Government of India Act, 1935.

The next question is whether the said dividends were distributed in the year 1953-54, as the appellant contends, or in the 1i accounting year 1954-55, as the respondent argues. The relevant sections of the Act in this context are s. 2(6A)(d) and s. 16(2).

Section 2(6A)(d) has been already extracted. The relevant part of

s. 16(2) reads:

"For the purposes of inclusion in the total income of an assessee any dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed ................................................... ".

"Dividend'', ith which we are now concerned, is not that which A we. ordinarily understand by that expression, but dividend by defimt10n. Under s. 2(6AJ(tl) of the Act it is one of the ingredients of the denition that it .shall have been distributed by a company on reduct10n of the capital to the extent to which the company possesses accumulated profits. .Under s. 16(2) of the Act such a dividend shall be deemed to be an income of the previous year in B which it is paid, credited or distributed. Unless such a distribution as is mentioned in cl. (d) of s. 2(6A) of the Act had taken place, it would not be. a dividend. If it was not so distributed, s. 16(2) of the Act wculd not be attracted. To put it in other words, if the accunrnlsted profit1 were distributed, it would satisfy not only the defir, ition of "dividend" in cl. (d) but also would fix the yc1r in wh'ch it would be deeme.d to be income.

What then is the rnaning of the expression "d!stributon"? The_ dict; onary meaning o( the e:-:pressio:1 "distribution" is "to give each a sbne, to give to several pers:ms". The expression "distribution" connotes something actual and not notional. It can be physical;

it can also be constructive.

One may distribute amounts between D different shareholders either by crediting the amount due to each one of them in their respective accounts or by actually paying to

ech 0ne of them the amount due to him.

This Court had to ccnstrne the scope of the word "paid" in s. 16(2) of the Act in J. Da!mia v. Commissioner of l.T., Delhi(').

Shah, J., speaking for the Court observed:

"The expression "paid" in s. 16(2), it is true, does not contemplate actual receipt of the dividend by the member.

In general, dividend may be said to be paid within the meaning of section 16(2) when the company discharges its liability and makes the amount of dividend unconditionally available to the member entitled thereto."

F This Court again reaffirmed the said principle in Mrs. P. R.

Saraiya v. Commissioner of Income-tax, Bombay City I, Bombay(')

and held that where dividend was not credited to any S(!parate account of the assessee so that he could, if he wished, draw it, it was not "credited or paid" within the meaning of s. 16(2) of the Act.

The same meaning must be given to the word "distribution".

G The only differe:ice between the expression "paid" and the expression "distribution" is that the latter necessarily involves the idea of division between several persons which is the same as payment to several persons. At this stage the anomaly that is alleged to flow from our B view may conveniently be noticed. It is said that there will be different points of time for ascertaining the extent of the accumulated profits, with the result s. 2(6A)(d). of the Act becomes unworkable in practice or at any rate leads to unnecessary complications.

We do ~10t see any justificatiqn for this comment.

(') [19<14] 53 I.1'.R. 8'.l, 90.

(1) [1965] I S.C.R. ~07.

PUNJAB DISTILLERIES v. c. I. T. (Subba Rao, J.) 9

A Distribut!on is a culmination of a process. Firstly, there will be a resolut10n by the General Body of a company for reduction of capital by distribution of the accumulated. profits amongst the shareholders; secondly, the company will file an application in the Court. f?r an order onrming the reduction of capital; thirdly, after 1t is confirmed, It will be registered by the Registrar of Joint B tock Copames; fourthly, after the registration the company issues no!ices to the shareholders inviting applications for refund of the share capital; and fifthly, on receiving the applications the company will distribute the said profits either by crediting the proportionate share capital to each of the shareholders in their respect:ve accounts or by paying the said amounts in cash. Out of 0 the said 5 steps, the first 4 are only necessary preliminary steps which entitle the company to distribute the accumulated profits.

Credits or payments are related to the said declaration; that is to say, distribution is from and out of the accumulated profits resolved to be distributed by the company. In this view, the accumulated profits to be distributea are fixed by the resolution and the figure D does not change with the date of payment or credit. Indeed, a similar process is to be followed in the case of declaration of ordinary dividends; firstly, there will be a resolution by the General Body of the company declaring the dividends; secondly, thereafter the amounts payable to each of the shareholders are distributed by appropriate credits or payments. Dividends may be paid or E credited to different shareholders during different accounting years; and the shareholders may be assessed in respect of the said payments in different years. Even so, the payments are referable only to the declaration of the dividends out of the profits of a particular year.

This Court, as we have noticed earlier, in the decisions cited supra held that the year of credit or payment to a F shareholder was crucial for the purpose of assessment and not the date of declaration.

Let us see whether this view introduces any complication in the matter of reduction of rebate on super-tax payable by the company. The appellant-Company set up a claim for a rebate El on super-tax under cl. (ii) of the first proviso to paragraph D of Part II of the first schedule to the Finance Act, 1956. The Company based its claim on the contention that he distribution. of dividends on reductibn of capital took place durmg the year endmg November 30, 1954, and not during the year ending November 30,

1955, and, therefore, cl. (i)(b) of the second proviso to paragraph H D of Part II of the first schedule to the Finance Act, 1956, read with Explanation (ii) to paragraph D, which provides for reduction of rebate allowable under cl. (ii) of the first proviso by an amount computed at certain slab rates on the amount of dividends distributed to the shareholders during the previous year, • could not be invoked. To put it in other words, the assessee claimed that as the dividends were not distributed in the accounting year, there could not be any reduction of the rebates under

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cl. (i)(b) of the said proviso.

If; as we have held, the distribution A was made during the year ending November 30, 1955, i.e., the accounting year when the amounts were paid, the Revenue would be entitled to reduce the rebate by the amount computed at the prescribed rates on the amount of dividends. Some complication may arise only if we accept the argument that the date of payment fixes the date for ascertaining the quantum of accumulated profits.

But we have rejected that contention. In this view, the claim of reduction cf rebate on super-tax provided by the first schedule to the Finance Act, 1956, can be worked out without any confusion

or complication. We, therefore, hold that the dividends must be deemed to have been paid or distributed in the year when it was actually, whether physically or constructively, paid to the different c shareholders, that is to say when the amount was credited to the separate accounts of the shareholders or paid to them.

What are the facts in the present case? The High Court, on August 6, 1954, sanctioned the reduction of the capital from Rs. 25 lakhs to Rs. 15 lakhs. On November 4, 1954, the Registrar of Companies issued the certificate under s. 61(4) of the Companies Act. On November 5, 1954, the Company issued notices to the shareholders inviting applications for refunds.

In the notice sent to the shareholders they were informed that the share transfer register of the Company would remain closed from November 16,

to November 30, 1954 (both days inclusive) and refund would be made to those shareholders whose names stood on November 15, E 1954, in the books of the Company.

After the applications were received,· the amounts payable to the shareholders were debited in the accounts and refunds were actually granted during the accounting year, i.e., between December 1, 1954, and November 30, 1955. It is clear from the said facts that the amounts were distributed only during the accounting year, when the amounts were F both debited and paid. We, therefore, agree with the High Court that the dividends were distributed to the shareholders during the accounting year, i.e., 1954-55.

In the result, the appeal fails and is dismissed with costs.

Bachawat J. For the reasons given by brother Subba Rao J, we agree that s. 2(6A)(d) of the Indian Income-tax Act, 1922 is not ultra vires the Central Legislature, but we are unable to agree with bis conclusion with regard to the fourth question of law referred for the opinion of the High Court. The fourth question arose because of the claim of the appellant company to a rebate

of super-tax under cl. (ii) of the first proviso to paragraph D of part ll of"the first schedule to the Finance Act, 1956 and its con- H te!1tion that the distribution of dividends on reduction of capital contemplated by s. 2(6A)(d) of the Indian Income-tax Act, 1922 took plncc during the year ending November 30, 1954, and not during the year ending November 30, 1955, and! consequently there could be no reduction of the rebate under cl. (i)(b) of the second proviso to paragraph D of part II of the first schedule to the Finance Act, 19,56 read with explanation (ii) to paragraph D.

• A.

PUNJAll DISTILi.DRIES v. c. I. T. (Bachawil, J.) J1

Now, cl. (i)(b) of the second proviso to paragraph D of part II of the first schedule to the Finance Act, 1956 provides for reduction of the rebate allowable under cl. (ii) of the preceding proviso by an amount computed at certain slab rates on the amount of . dividends "in the case of a company referred to in cl. (ii) of the preceding proviso which has distributed to its shareholders during B the previous year dividends in excess of 6 per cent of its paid-up capital not being dividends payable at a fixed rate", and the explanation (ii) to paragraph D provides that for purpose of paragraph D "the expression 'dividend' shall be deemed to include any distribution included in the expression 'dividend' as defined in cl. (6A) of section 2 of the Indian Income-tax Act". Section 2(6A)(d) of C the Indian Income-tax Act, 1922 provides that "dividend" "includes

"any distribution by a company on the reduction of its capital to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the !st day of April, 1933, whether such accumuiated profits have

been capitalised or not."

Obviously, s. 2(6A)(d) contemplates a distribution on reduction of capital under s" 55(l)(c) of the Indian Companies Act, 1913, under which subject to confirmation by the Court, a limited company, if so authorised by its articles, may by special resoluh, n

reduce the share capital in any way, and in particular may "either with or without extinguishing or reducing liability on any of its shares, pay off any paid-up capital which is in excess of the wants of the company", and may, if and so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its shares accordingly. Section 56 of the Act enables the company to apply to the Court for an order confirming the reduction, and under s. 60 of the Act, the Court may make an order confirmin;!

F the reduction on such terms and conditions as it thinks fit.

Upon compliance with certain formalities, the Registrar of Joint Stock Companies is required under s. 61 of the Act to register the order and a minute approved by the Court, and on such registration, and not before, the resolution for reducing share capital as G confirmed by the order so registered shall take effect. Under s. 62, the minute when registered shall be deemed to be substituted for the corresponding part of the memorandum of the company.

In the instant case, the issued, subscribed and paid-up capital of the company was Rs. 25 lakhs, consisting of 5 lakhs shares of Rs. 5 each. On December 16, 1953, the company passed a special B resolution for reducing its share capital Jrom Rs" 25 lakhs to Rs. 15 lakhs and for payment of Rs. 2 per share to the existing share"holders under s. 55(1)(c) of the Indian Companies Act, 1913" On May I 0, 1954, the company applied to the Cour.t for an order confirming the reduction.

On August 6, 1954, the High Court made an order confirming the reduction. On November 4, 1954, tre or'ler and the minute approved by the Court were duly registerd with the Registrar, and on the same date, the Registrar

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REPORTS [1965] 3 s.c.n.

issued a certificate of registration.

On November 5, 1954, the A notice of registration was duly published. On the same day, the company issued a circular notice to its sharehold.ers stating that the refund of Rs. 2 per share will be made on receiving confirmation oi the registration and rnquesting the shareholders to send their share certificates to the company at an early date for necessary endorsement and refund of share capital and stating that the refund B would be made to the shareholders, whose names stood on November 15, 1954 in the books of the company, the share transfer register would remain closed from November 16 to November 30, 1954, and the refunds would be made to the shareholders whose names stood on November 15, 1954 in the books of the company. The balance sheet for the year ending November 30, 1954 did not show C the reduction, and the capital of the company in this balance sheet was shown to be Rs. 25 lakhs. The necessary book entries and the payments of dividends to the shareholders were not made during the year ending November 30, 1954. The book entries with regard to the reduction and refund were made, and the refunds were given to the shareholders during the year ending November n 30, 1955 and the reduction was shown in the balance sheet for the year ending November 30, 1955.

The point in issue is when does the distribution contemplated by s. 2(6AHdi of the Income-tax Act, 1922 take place? Section 2(6A)(d) speaks of dividend in the shape of any distribution by a company amongst its shareholders on reduction on its capital to E the extent of accumulated profits possessed by it.

We reject the contention that this distribution takes place when the dividend is paid or credited to the shareholders. The distribution contemplated s. 2(6A)(d) is a distribution by a company "on the reduction of its capital". The word "on" has no fixed meaning, but in the context .of the sub-section, it must be given. the meaning "at the F time of", as "on entering", "on the !st of the month". The distribution contemplated by the sub-section -is therefore, distribution at the time of the reduction of its capital, that is to say, when the resolution for reduction of its capital under s. 55(!)(c) of the Indian Companies Act, 1913 takes effect. As soon as the resolution for reduction of capital and consequential refund of the surplus capi- G ta! to the shareholders takes effect, the capital stands reduced, the surplus ceases to be capital and stands allotted to the shareholders, each shareholder obtains a vested right to the refund of his share of the surplus, and a liability arises on the part of the company to make the refund.

This liability arises as soon as the reduction of capital takes effect, and it matters not that the company has not K made the necessary book entries showing the reduction of capital and the transfer of the surplus to the account of the shareholders.

The word "distribution" has several dictionary meanings. In the context of s. 2(6A)(d), it means allotment or apportionment of the suru\us amongst the shareholders; this allotment takes place and each shareholder gets a vested right to his portion of the surplus as soon as the capital stands reduced.

PUNJAB DISTILLERIES v. c. I. T. (Bachawat, J.) 13

A A close scrutiny of s. 2(6A)(d) reveals that (a) the distribution takes place on a single date and (b) the expression "accumulated

profits" means profits accumulated up to the date of the distribution. These two basic ideas which are implicit in s. 2(6A)(d) are forcibly brought out in the explanation to the corresponding s. 2(22) of the Income-tax Act, 1961. We thus find firstly that the B entire distribution of the surplus amongst the shareholders takes place on a single date.

Now if the distribution is to have a certain date, that date can only be the date when the reduction of capital becomes effective. The payments to the shareholders either actual or notional by credit entries in the books of account are made subsequently. The payments need not be made on one C date; they may be and often are made on several dates. The successive payments cannot be the distribution contemplated by s. 2(6A)(d). We find secondly that the accumulated profits are to be ascertained on the date of the distribution. But we find independently for reasons mentioned hereafter that the accumulated profits must be ascertained on the date of the reduction of capital.

D Thus the two events, namely, the distribution and the reduction of capital must . synchronise, and the accumulated profits must also be ascertained at the same point of time. The synchronisation is also obvious on a plain reading of the abridged text "any distribution on the reduction of c<.pital to the extent of accumulated profits".

E The artificial dividend under s. 2(6A)(d) must be fixed by reference to the accumulated profits on the date of the reduction of capital and not by reference to the accumulated profits on the successive dates of the payments. If the amount of the dividend were to be fixed by reference to the accumulated profits on the several dates of the payments, the result might well be that some F payments would be dividends to their full extent, some would be dividends to a limited extent and some would 1\0t

be dividends at all.

Take a case where the accounting year of the company ends on November 30, a resolution for the reduction of its capital to the extent of Rs.

JO lakhs and for refund of Rs. 2 for each share of Rs. 5 takes effect on June 30, G 1954 and payments of rupees one, six and three lakhs are made respectively on October 30, 1954, October 30, 1955 and October

30, 1956; and assume that the extent of the accumulated profits is rupees ten lakhs on June 30, 1954 and on October 30, 1954, rupees two Jakhs on October 30, 1955 and rupees two Jakhs OJI October 30, 1956. If the amount of the dividend were.to be fixed B by reference to the accumulated profits on the dates of the -payments, the result would be that the payment of rupees one Jakh would be dividend to the full extent, the payment of rupees six lakhs would be dividend to the extent of one third and the payment of rupees three Jakhs would not be dividend at all. It is reasonable to think that the legislature did not contemplate such a result.

The character of the distribution is determined by the extent of the accumulated profits on the date when the reduction

L/B(D)2SCI-3

of capital becomes effective and is not altered. by any subsequent

.A. increase or decrease of the accumulated profits, and all subsequent payment of the capital so distributed share alike the original character of the distribution.

It is argued that in the case of a normal dividend, a comparable distribution "takes place, a declaration of dividend out of the profits of a particular year is made, and is followed by payment of B the dividend, and decided cases under s. 16(2) show that the distribution takes place on payment and not on ..the declaration of a dividend. We think this comparison of the normal dividend with the artificial dividend in s. 2(6A)(d) in the shape of distribution to the extent of the accumulated profits is misleading, and the assumptions on which this comparison is made are not correct. 0 The declaration of a normal dividend may be made out of accumulated profits, and need not necessarily be made out of the profits of any particular year. Section 2(6A)(d) does not contain any definition of a normal dividend. In the case of a normal dividend, the question of ascertaining the accumulated profits to the extent of which the distribution amounts to dividend does not D arise. This problem would have arisen, had s. 2(6A) defined normal dividend as "any distribution by a company on the declaration of dividend to the extent to which the company possesses accumulated profits". On such a definition, the only possible interpretation would have been thatthe accumulated profits are ascertained and the distribution takes place on the date of the declaration of E the dividend.

The argument based upon the decided cases under s. 16(2) is misconceived. . Section 16(2) dealt with the question when the dividend shall be deemed to be the income of the shareholders.

By s. 16(2) the dividend was deemed to be the income of the F shareholders when it was paid, credited or distributed. An artificial dividend under s. 2(6A)(d) is either distributed or paid,· whereas the normal dividend is either paid or credited, and in the case of /. Da/mia v.. Commissioner of Income-tax(') and Padmavati R. Suraiya v. Commissioner of Income-tax(') it was field that the normal dividend is neither paid nor credited by reason of the fact G that the dividend is declared. In this case, we are not concerned with the problem of construction of s. 16(2) or the interpretation of the word "paid" or "credited". The word "distributed" is not synonymous with the word ''paid" or "credited". The three words are used in the Act in different senses. Moreover, the policy of the legislature on the question of the taxability of the dividend in :e: the hands of the shareholders has varied from time to timi. Subsection (2) of s. 16 was repealeq and in "its place, sub-s. ffA) of s. 12 was introduced by the Finance Act, 1959 with effect from April I, 1960, and the corresponding provision is to be found in s. 8 of the Income-tax Act, 1961. Under s. 12(1A) of the Income- . tax Act, 1922 and s. 8 of the Income-tax Act the declaration of

(') (1964] 53 I.T.R. 83, 90.

PUNJAB DISTILLERIES V. C. I. T. (Bachawat, J.) 15

A dividend is crucial even for purposes of assessment of the shareholders. The legislature thus recognises now that the distribution of the normal dividend takes place on the declaration of the dividend.

In the instant case, the resolution for the reduction of the B capital of the company and the consequential refund of the surplus capital to its shareholders took effect on November 4, 1954. Consequently, 'the distribution of the dividend as defined by s. 2(6A)(d) took place on November 4, 1954, i.e. during the previous year corresponding to the assessment year 1955-56. It is true that during the accounting year ending November 30, 1954, the come pany did not pay any dividends, nor make any book entries with regard to reduction of capital or with regard to refund or payment of surplus capital. But the company incurred on November 4, 1954 the legal liability to make the refunds and the distribution must be deemed to have taken place on November 4, 1954, though no book entries were made and no payments were made on that D date. In view of the fact that the distribution took effeCt on November 4, 1954, the company was 'bound to make necessary entries in their books on November 4, 1954 showing the reduction of capital, and was also bound to show the reduction in its balance sheet for the year ending November 30, 1_954.

Irrespective of its method of book-keeping, the company incurred on November 4, E 1954, the legal liability to make the refunds. The method of bookkeeping is not relevant, but, were it so, it is pertinent to remember that the accounts of the company were kept on the mercantile basis. That system of accounting brings into debit an expenditure the amount for which a legal liability has been incurred before it is actually disbursed. See Keshav Mills Ltd. v. Commissioner of F Income-tax, Bombay(').

In conclusion, we must point out that the revenue authorities should have, but in fact have not fixed the amoupt of the dividend by reference to the accumulated profits on No:vember 4, 1954, when the resolution for reduction of capital became effective, or G by reference to the accumulated profits brought forward on December 1, 1953 at the commencement of the accounting year during which the reduction of capital took effect. Instead, the revenue authorities took into account the accumulated profits on December 1, 1954, that is to say. the date of the commencement of the subsequent accounting year during which the dividends were paid. The H amount of the accumulated profits as on December 1, 1954 waa fixed by the Income-tax Officer at Rs. 8,42.337, and was subsequently reduced by the Tribunal to Rs: 4,?9,244-13-0 .. The reven:ie authorities rightly assumed that the d1stnbut1on and the ascertamment of the accumulated profits to the extent of which the distribution is deemed to be dividend under s. 2(6A)(d) took place

during the same accounting year, but they erred in holding that the accounting year commencing on December 1, 1954 is the relevant year.

In our opinion, the High Court was in error in holding that dividends under s. 2(6A)(d) were distributed during the previous year corresponding to the assessment year, 1956-57. We think that the dividends, if any, under s. 2(6A)(d) were distributed in the previous year corresponding to the assessment year 1955-56, and the fourth question should be answered accordingly. The appeal is allowed in part to this extent. In view of the divided success, we direct that the parties will. pay and bear their own costs -in this Court and in the Court below.

ORDER BY COURT In accordance with the majority Judgment, the appeal fails and is dismissed with costs.

!, •

PUNJAB DISTILLING INDUSTRIES LID

COMMISSIONER OF INCOME-TAX, PUNJAB

February 9, 1965

K. SUBBA RAO

F..AGHUBAR DAYAL, J.

R. MUDHOLKAR

R. S. BACHAWAT

V. RAMASWAMI, JJ.

s. 2(A)

Government of India Act, 1935

s. 16(2)

Gf the Income-tax Act

s. 61

Indian Companies Act, 1913

s. 61

Companies Act

November 30, 1955

s. 2(6A)

Indian Income-tax Act, 1922

Novemter 30, 1955

Suprernen Court

Seventh Schedule

Government of India Act, 1935

s. 2(6A)(d)

Income-tax Act, 1922

s. 61

Companies Act

November 4, 1954

s. 2(6A)(d)

Seventh Schedule

Constitution of India

[1961] 1 S. C.R. 482

[1962] 2 S.C.R. 983

Section 2(6A)(d)

Income-tax Act

Subba Rao

Mudholkar

Ramaswami

s. 16(2)

s. 2(6A)(d)

Raghubar Dayal

Bachawat

s. 2(6A)(d)

s. 16(2)

s. 2(6A)(d)

s. 2(6A)(d)

N. C. Chatterjee

R. V. Pillai

C C. K. Daphtary

R. Ganapathy Iyer

R. N.

Sachthcy

R. Ii. Dhebar

SUBBA RAo

MUDHOLKAR

RM!ASWAMI

SuBBA RAO

DAYAL

BACHAWAT

BACIIA\VAT

s. 2(6A)(d)

May 23, 1945

Indian Companies Act, 1913

December 15. 1947

December 16, 1953

s. 61(4)

Companies Act

s. 2(6A)(d)

November 30, 1954

s. 25

Income-tax Appellate Tribunal

Novrmber 4.

1954

s. 2(6A)(d)

Income-tax Act

Section 2(6A)(d)

Income-tax Act

Section 61

Indian Companies Act, 1913

N. C. Chatterjee

s. 2(6A)(d)

s. 2

s. 2

Section 2(6A)(d)

s. 100

Government of India Act, 1935

Seventh Schedule

Chatterjee

R. Ganapathy Iyer

Gwyer

Seventh Schedule

s. 23A(1)

Income-tax Act

s. 16(3)(a)(i)

Income-tax Act

s. 2(6A)(e)

Indian Income-tax Act, 1922

s. 2(6A)(d)

ss. 100 to 103

Companies Act

Income-tax Act

s. 2(6A)(d)

s. 2(6A)(d)

s. 16(2)

Section 2(6A)(d)

s. 16(2)

s. 2(6AJ(tl)

s. 16(2)

s. 2(6A)

s. 16(2)

s. 16(2)

Shah

s. 16(2)

section 16(2)

s. 16(2)

s. 2(6A)(d)

November 30,

1955

Finance Act, 1956

August 6, 1954

s. 61(4)

Companies Act

November 5, 1954

November 16,

November 15, E 1954

December 1, 1954

s. 2(6A)(d)

Indian Income-tax Act, 1922

Finance Act, 1956

s. 2(6A)(d)

Indian Income-tax Act, 1922

section 2

Income-tax Act

Section 2(6A)(d)

Indian Income-tax Act, 1922

s. 2(6A)(d)

Indian Companies Act, 1913

Section 56

s. 60

s. 61

s. 62

s. 55(1)(c)

Indian Companies Act, 1913

May I 0, 1954

November 15, 1954

November 16 to November 30, 1954

November n 30, 1955

Income-tax Act

s. 2(6A)(d)

s. 55(!)(c)

Indian Companies Act, 1913

s. 2(6A)(d)

s. 2(6A)(d)

s. 2(6A)(d)

s. 2(22)

Income-tax Act, 1961

s. 2(6A)(d)

s. 2(6A)(d)

June 30, G 1954

October 30, 1956

s. 16(2)

s. 2(6A)(d)

Section 2(6A)(d)

s. 2(6A)

s. 16(2)

Section 16(2)

s. 16(2)

s. 2(6A)(d)

s. 16(2)

s. 16

s. 12

Finance Act, 1959

s. 8

Income-tax Act, 1961

s. 12(1A)

s. 8

Income-tax Act

s. 2(6A)(d)

November 30, 1_954.

November 4, E 1954

No:vember 4, 1954

December 1, 1953

s. 2(6A)(d)

s. 2(6A)(d)

s. 2(6A)(d)


NAWAB USMANALI KHAN

SAGARMAL

F abruary 26, 1965

[K. SUBBA RAO, J. C. SHAH AND R. S. BACHAWAT, JJ.]

Code of Civil Procedure (Act 5 of 1908), ss. 60(1)(g), 86(1) and 87B-Proceedings under ss. 14 and 17 of the Arbitration Act (10 of 1940)-If "suit"-Payments to Ruler of former Indian State on accoUJll of privy purse-If liable. to attachment.

The appellant. who was a Ruler of a former Indian State, had money dealings with the respondent. They referred their disputes to an arbitrator who made his award directing the appellant to pay. a certain sum of money, in instalments. The award also stated that the existing documents relating to debts on lands would remain as before and would remain as securities till the payment of debts.

The arbitrator filed the award into court and the court, after notice to the parties. passed a decree in terms of a compromise modifying the award. The respondent started execution proceedings and the court passed a prohibitory order under O.XXI, r. 46 of the Civil Procedure Code, 1908. in respect of the sums payable to the appellant by the Central Government on account of the privy purse; but on the application of the appellant, that order was vacated.

The appellant and respondent filed appeals in the High Court, against the various orders, and the High Court decided all the appeals against the appellant.

In the appeal to the Supreme Court, it was contended that, (i) M the award affected immovable property of the value of more than Rs. 100, and was not registered, a decree could not be passed in terms of the award, (ii) the proceedings under the Indian Arbitration Act, 1940, were incompetent in the absence of the consent of the Central Government under ss. 86(1) and 87B of the Code, and therefore the decree passed in those proceedings was without jurisdiction and void and (iii) the amount receivable by the appellant as his privy purse was a political pension within the meaning of s. 60(1)(g) of the Code, and not liable to attachment or sale in execution of a decree.

HELD: (i) The award did not create or of its own force declare any interest in any immovable property and since it did not come within the purview of s. 17 of the Registration Act, 1908, was not required to be registered. r (204 Hl

(ii) A proceeding under s. 14 read withs. 17 of the Arbitration Act, for the passing of a judgment and decree on an award, does not commence with a plaint or a petition in the nature of a plaint, and cannot be regarded as a suit and the parties to whom the notice of the filing of the award is given under s. 14(2) cannot be regarded as

"sued in any Court otherwise competent to try the suit" within the meaning of s. 86(1) read with s. 87B of the Code. Neither are those provisions of the Code attracted by reason of s. 41 (a) of the Arbitration Act or s. 141 of the Code. It follows that the G:ourt was competent to entertain the proceedings under s. 14 of the Arbitration Act and pass a decree in those proceedings though no consent to the institution of the proceedings had been given by the Central Government. [205 G-H; 206 B-D]

SUl'BEME COURT REPORTS [196~] 3 s.c .••

(iii) The amounts of the privy purse of the appellant were not .I. liable to attachment or sale in execution of the respondent's decree. f209 C-Dl The periodical payment of money by the Government to a Ruler of a former Indian State as privy purse on political considerations and under political sanctions and not under a right legally enforceable in any municipal court is strictly a political pension wi_thin the • meaning of s. 60(1) (g) of the Code. The privy purse satisfies all the essential characteristics of a political pension, and as such is protected from execution under s. 60(1) (g). f209 A-Cl CML APPELLNI'E JURISDICTION : Civil Appeals Nos. 568 and 767 of 1963.

Appeals from the judgment and order dated October IO, 1960. of the Madhya Pradesh High Court, Indore Bench, Indore, in C Civil Miscellaneous Appeals Nos. 33 of 1958 and 81 and 82 of 1957.

G. S. Pathak, B. Dutta, J. B. Dadachanii, 0. C. Mathur and Ravinder Narain, for the appellant.

D B. R. L. Iyengar, S. K. Mehta and K. L. Mehta, for the respondent.

The Judgment of the Court was delivered by

Bachawat, J. The appellant is the Ruler of the former Indian State of Jaora. He had money dealings with the respondent. By B an agreement dated February 23, 1957, the appellant and the respondent agreed to refer their disputes regarding those dealings to the arbitration of Lala Durgashankar. On the. same date, the arbitrator made an award. By this award, the arbitrator found that a sum of Rs. 1,60,000 was due to the respondent from the appellant, and directed that this sum would be payable in eight quarterr ly instalments, the first four instalments to be of Rs. 21,000 each and the next four instalments to be of R~. 19,000 each, the amount of interest would be payable in another quarterly instalment, the respondent would have a first charge on the sums receivable by the appellant from the Government of India as privy purse, and would be entitled to realise those sums under a letter of authority fl issued by the appellant, and if the Government would raise any objection to the payment, the respondent would have the right to realise the dues from the personal property of the appellant. Some

of the items of the loans in respect of which the award was made were secured on lands and ornaments. The award therefore proed: B "The documents relating to debts obtained on lands and ornaments shall remain as before till the payment of the debts and they shall also remain as securities till then, and the Nawab Sahab shall have no right to transfer the land."

The award was signed by the arbitrator and also by the appel fa nt and the respondent.

USMANALI KHAN t>. SAGARMAL (Barhawat," J.) io3

A On the same day, the arbitrator filed the award in the Court of the District Judge, Ratlam. Notice Clf filing of the award under s. 14 of the Indian Arbitration Act, 1940 was duly, served on the parties. On March 9, 1957, an agent of the appellant filed a written submission accepting the award and requesting the Court to ass a decree in terms of the award. But on the same day, an apphca- B tion was made by another agent of the appellant intimating that steps would be taken for setting aside the award. The Court fixed March 23, 1957 for filing the objectian. The time was subsequently extended up to April 2, 1957. On that day. an application was liled on behalf of the appellant praying for setting aside the award. But on April 5, 1957, an application was filed on behalf of the appellant withdrawing the objections and asking the Court to pass a decree in terms of the award, subject to the modification that the a

amount of the award would be payable in quarterly instalments of Rs. 13,000 each. This application was signed by the respondent in token of his consent to the modification of the amount of the instalments. On April 30, 1957, the arbitrator filed the relevant D papers. On the same day, an agent of the appellant filed an application praying for setting aside the compromise and the award.

The case was fixed for hearing an June 19. 1957. On that date. the Court received bv registered post an application from the appellant withdrawing the objections and praying for an order in accordance with the compromise application filed on April 5, 1957. In the circumstances, on June 19, 1957, the Court recorded the compromise and passed a decree in terms Clf the award as modified by fhe compromise. The apoellant filed in the Madhya Pradesh High Court A npeal No. 81 of 1957 under s. 3"9 of the T ndian Arbitration Act. 1940 against the order dated June 19, 1957 treating it as an

1 order refusing to set aside the award. The appellant also filed Appeal No. 82 of 1957 under 0.43(1)(m) of the Code of Civil Procedure against the order dated June 19. 1957 recording the compromise.

In the meantime, the respondent started Execution Case No. 5 1Jf 1957, and on September 9, 1957 obtained an ex parte order for transfer of the decree to the Court of the District Judge, Delhi. On G November 1, 1957. the Central Government gave a certificate under s 86{3) read with s. 87B of the Code of Civil Procedure, 1908 consenting to the execution of the decree against the properties of the appellant. On November 8, 1957, the District Judge. Delhi passed a prohibitory order under 0. 21, r. 46 of the Code of Civil Procedure in respect of sums payable to the appellant on ::iccount H of the privy purse. By letter dated December 26, 1957, the Central Government informed the appellant of the prohibitory order. On January 8, 1958, the appellant applied to the Court of the District Judge, Ratlam praying for vacating the order of transfer f'f the decree and for cancellation of the certificste issued under 0. 21. r. 6(b) of the Code of Civil Procedure. By order dated March 15, 1958, the Court recalled the decree and cancelled the certificate !IS prayed for, on the ground that the amount receivable by the appellam on account of his privy purse was not attachable. The respon- A dent preferred Appeal No. 33 of 1958 before the High Court against t.his order. By another order dated January 7, 1959, the District Judge, Ratlam dismissed certain objections of the appellant filed in Execution Case No. 2 of 1958. We are informed that the appellant filed before the High Court Appeal No. 13 of 1959 from this order.

Appeals Nos. 81 and 82 of 1957, 33 of 1958 and 13 of 1959, were heard and disposed of by the High Court by a common judgment on October IO, 1960. The High Court dismissed Appeals Nos.

SI and 82 of 1957 and 13 :if 1959 preferred by the appellant and allowed Appeal No. 33 of 1958 preferred by the respondent. The c appellant has referred to this Court Civil Appeal No. 568 of 1963 against the order of the- High Court passed in Appeal No. 33 of

1958. He has also preferred Civil Appeal No. 767 of 1963 from the order of the High Court passed in Appeals Nos. 81 and 82 of

1957. Civil Appeals Nos. 568 and 767 of 1963 were heard together, and are being disposed of by this common judgment.

On behalf of the appellant, Mr. Pathak raised three contentions only. He argued that: (!) the award affected immovable property of the value of more than Rs. 100, and as it was not registered, nil

decree could be passed in terms of the award; (2) the proceedings under s. 14 of the Indian Arbitration Act, 1940 were incompetent in E the absence of the consent of the Central Government under s. 86(1) read with s. 87, B, Code of Civil Procedure, and the decree passed in those proceedings is without jurisdiction and null and void: and

(3) the amount receivable by the appellant from the Central Government as his privy purse is a political pension within the meaning of s. 60(l)(g), Code of Civil Procedure, and is not liable to at- F tachment or sale in execution of the decree. These contentions are disputed by Mr. Iyengar on behalf of the respondent. The first two contentions of Mr. Pathak arise in Civil . Appeal No. 767 of 1963 and the third contention arises in Civil Appeal No. 568 of 1963.

The first contention raised by Mr. Pathak must be rejected.

The award stated that the existing documents relating. to debts G obtained on lands would remain as before, and they would remain as securities "till payment of the debts and the appellant would have no right to transfer the land. This portion of the award stated an existing fact. It did not create, or of its own force declare any interest in any immovable property .• Consequently, the document did not H come within the purview of s. 17 of the Indian Registration . Act,

1908, and was not required to be registered.

The second contention of Mr. Pathak raises questions of construction of ss. 86 and 87B of the Code of Civil Procedure. By reason of s. 86(1) read with s. 87B, no Ruler of any former Indian

State "may be sued in any Court otherwise competent to try the suit except with the consent of the Central Government." Section . .

USMANALI KHAN ~. SAGARMAL (Bwhaidaf., J.) 205

A 86(2) provides that the requisite consent may be give~ with rspect to a specified suit or with respect to several specified smts or with respect to all suits of any specified cass or lasses, Section 86 .plainly deals with a special class of smts, and this conclusion is reinforced by the heading of Part IV, "Suit in Particular Cases'', in which ss. 86 and 87B appear. Order 4, rule 1, B Code of Civil Procedure provides that every suit shall be instituted by presenting a plaint to the Court or such other officer as it appoints in this behalf. In the context of s. 176 of the Government of India Act, 1935, Mahajan and Mukherjea,

JJ, observed that the expressio_n "sue" means the "enforcement of a claim or civil right by means of legal proceedings", see Province of 0 Bombay v. K. S. Advani and others('). But in the context of the Indian Limitation Act, 1908, Lord Russell of Killowen observed in Hansraj Gupta v. Official Liquidator, Dehra Dun- Mussorrie ElectHc Tramway Co.('):

"The word 'suit' ordinarily means, and apart from some context must be taken to mean, a civil proceeding instituted by the presentation of a plaint." And construing s. 86 of.the Code of Civil Procedure, Shah, J. speaking on behalf of this Court observed in Bhagwat Singh v. State of Rajasthan('):

"The appellant is recognised under Art. 366(22) of the Constitution as a Ruler of an Indian State, but s. 86 in terms protects a Ruler from being 'sued' and not against the institution of any other proceeding which is not in the nature of a suit. A proceeding which does not commence with a plaint or petition in the nature of plaint, or where the claim is not in respect of dispute ordinarily triable in a Civil Court, would prima facie not be regarded as falling within s. 86, Code of Civil Procedure." Now, a proceeding under s. 14 read with s. 17 of the Indian Arbitration Act, 1940 for the passing of a judgment ancf decree on an award does not commence with a plaint or a petition in the G nature of a plaint, and cannot be regarded as a suit and the parties to whom the notice of the filing of the award is given under s. J 4(2) cannot be r.egardd as "sued in any Court otherwise competent to try the suir:. within the meaning of s. 86(1) read with s. 87B, Code of Civil Procedure. Accmdingly, the institution of this proceeding against the Ruler of a former Indian State is not barred by • s. 86(1) read with s. 87B. Section 141, Code of Civil Procedure does not attract the provisions of s. 86(1) read with s. 87B to the proceedings under s. 14 of the Indian Arbitration Act. Section 86(1) read with s. 87B confers upon the Rulers of former Indian States substantive rights of itni') [1950] S.C.R. 621, at pp. 661, 697.

(1) [1932] L.R. 60 I.A. rn, 19.

I') A.LR [1964] S.C. 444 at pp. 445, 446.

munity from suits. Section 141 makes applicable to. other proceed- A ings only those provisions of. the Code which deal with procedure and not those which deal with substantive rights. Nor does s. 4l(a) of the Indian Arbitration Act, 1940 carry the matter any further.

By .that section, the provisions of the Code of Civil Procedure, 1908 are made applicable to all proceedings before the Court under the Act. Now, by its own language s. 86(1) applies to suits only, and B s. 141, Code of Civil Procedure does not attract the provisions of s. 86(1) to proceedings other than suits. Accordingly, by the conjoint application of s. 41(a) of the Indian Arbitration Act and ss. 86(1) and 141 of the Code of Civil Procedure, the provisions of s. 86(1) are not attracted to a proceeding under s. 14 of the Indian Arbitration Act, 1940. It follows that the Court was competent to C

entertain tbe proceedings under s. 14 of the Indian Arbitration Act, 1940 and to pass a decree against the appellant in those proceedings, though no consent to the institution of those proceedi11gs had been given by the Central Government. A sovereign foreign State and a Ruler of such State' may enjoy a wider immunity from legal proceedings either than suits under the rules of International D Law recognised by our Courts, but the appellant is not now a Ruler of a sovereign State, and cannot claim immunity from proceedings other than suits. The second contention 'Of Mr. Pathak

must, therefore, be rejected.

The third contention of Mr. Pathak raises the question whether E an amount payable to a Ruler of a former Indian State as privy purse is a political pension within the meaning of s. 60(1)(g), Code of Civil Procedure. The word "pension" in s. 60(1)(g), Code of Civil Procedure implies periodical payments of money by the Government to the pensioner. See Nawab Bahadur of Murshidabad v.

Karnani Industrial Bank Ltd.(') And in.Bishambhar Nath v. Nawab F lmdad Ali Khan('), Lord Watson observed:

"A pension which the Government of India has given a guarantee that it will pay, by a treaty obligation contraded with another sovereign power, appears to their Lordships to be, in the strictest sense, a political pension. The G obligation to pay, as well as the actual payment of the pension, must, in such circumstances, be ascribed to reasons of State policy."

Now, the historv of the integration and the ultimate absorp. tion of the Indian States and of the guarantee for payment of B periodical sums as privv purse to the Rulers of the fol'll)er Indian

States are well-known. Formerly Indian States were semi-sovereign vassal States under the suzerainty of the British Crown. With the declaration of Independence, the paramountcy of the British Crown lapsed as from August 15, 1947, and the Rulers of Indian States

(1) (41 [ln'Il LR. 5~ LA. 215. 2!9•r.d22<1. !1) [l8PO] L.R. 17, I.A. 181, 18~.

USW.NALI KHAN I/, SAGABMAL (Bachawat, J.) i07

.l became politically independent sovereigns. The Indian States parted with their sovereignty in successive stages, firstly on accessio~ to the Dominion. of India, secondly on integration of the States mto sizeable adminiStrative units and on closer accession to the Dominion of India, and finally on adoption of the Constitution of India and extinction of the separate existence of the States and B Unions of States. During the second phase of this political absorption of the States, the Rulers of the Madhya Bharat States including the Ruler of Jaora State entered into a Covenant on April 22, 1948 for the formation of the United State of Gwalior, Indore and Malwa (Madhya Bharat). By Art. II of the Covenant, the Covenanting States agreed to unite and integrate their territories C into one State. Article VI provided that the Ruler of each Covenanting State shall not later than July l, 1948 make over the administration of the State to the Rajpramukh and thereupon all rights, authority and jurisdiction belonging to the Ruler and appertaining or incidental to the Government of the State would vest in the United \State of Madhya Bharat. Article .XI(!) provided D that "the Ruler of each Covenanting State shall be entitled to receive annually from the revenues of the United State for his privy purse the amount specified against that Covenanting State in Schedule I." In Sch. I. a sum of Rs. 1,75,000 V{as specified against the State of Jaora. Article Xl(2) provided that the amount of the privy purse was intended to cover all the expenses of the Ruler E and his family including expenses of the residence, marriage and other ceremonies and neither be increased nor reduced for any reason whatsoever. Article Xl(3) provided that the Rajpramukh would cause the amount io be paid to the Ruler in four equal instalments at the beginning of each quarter in advance. Article Xl(4) .provided that the amount would be free of all taxes whether 1 imposed by the Government of the United State or by the Government of India. Article XIII of the Covenant secured to the Ruler of each Covena'.lting State all personal privileges, digniaes and titles then enjoyed by them. Article XIV guaranteed the succession, according to law and custom, to the gaddi of each Covenanting G State and to the personal rights, privileges, dignities and titles of the Ruler. The Covenant was signed by all the Rulers of the

Covenating States. At the foot of the Covenant, it was stated that "The Government of India hereby concur in the above Covenant and guarantee all its provisions." In confirmation of this consent and guarantee, the Covenant was signed by a Secretacy to the B Government of India.

On the . coming into force of the Constitution of India, the territories of Madhya Bharat became an integral part of India.

Article 291 of the Constitution provided:

"Where under any covenant or agreement entered into by the Ruler of any Indian State before the commence ment of this Constitution, the payment of any 5Ums, free

of tax, has been guaranteed or assured by the Government of the Dominion of India to any Ruler of such State as privy purse: -

(a) such sums shall be charged on, and paid out of, the Consolidated Fund of India; and

(b) the sums so paid to any Ruler shall be exempt from all taxes on income." In view of the guarantee by the Government of the Dominion of India to the Ruler 9f Jaora State in the Covenant for the formation of the United State of Madhya Bharat, the payment of

the sums specified in the covenant as privy purse to the Ruler became charged on the Consolidated Fund of India, and became C payable to him free from all taxes on .income. Article 362 provides that in the exercise of the legislative and executive powers, due regard shall be had to the guarantee given in any such covenant as is referred to in Art. 291 with respect to the personal rights, privileges and dignities of the Ruler of an Indian State. Article 363(1) provides, that notwithstanding anything contained in the D Constitution, the Courts wculd have no jurisdiction in any dispute arising, out of any provision in any covenant entered into by any Ruler of an Indian State to which the Government of the Dominion of India was a party, pr in any dispute in respect of any right accruing under or any liability or obligation arising out of any of the provisions of the Constitution relating to any such E covenant. Article 366(22) provides that the expression "Ruler" in relation to an Indian State means a person by whom the covenant referred to in Art. 299(1) was entered into and who for the time being is recognised by the President as the Ruler of the State, and includes any person who for the time. being is. recognised by the President as the successor of such Ruler.

F Now, the Covenant entered. into by the Rulers of Madhya Bharat States was a treaty entered into by the Rulrs of independent States by which they gave up their sovereignty over their respective territories and vested it in the new United State of Madhya Bharat. The Covenant was an act of State, and any G violation of its terms cannot form the s_ubject of any action in any municipal courts. The guarantee given by the Government of India was in the nature of a treaty obligation contracted with the sovereign Rulers of Indian States and cannot be enforced by action in municipal courts. Its sanction is political and not legal.

On the coming into force of the Constitution of India, the guarantee H for the payment of periodical sums as privy purse is continued by Art. 291 of the Constitution, but its essential political character is preserved by Art. 363 of the Constitution, and the obligation under this guarantee cannot be enforced in any municipal court.

Moreover, if the President refuses to recognhie the person by whom the covenant was entered into as the Ruler of the State, he would not be entitled to the amount payable as privy purse under Art. 29 l.

USMA.NALI KHAN v. SAGARMAL {Bachawat, J.) 209

A Now, the periodical payment of money by the Government to a Ruler of a former Indian State as privy purse on political considerations and under political sanctions and not under a right legaliy enforceable in any municipal court is strictly a political pension within the meaning of s. 60(!)(g) of the Code of Civil Procedure. The use of the expression "privy purse" instead of B the expression "pension" is due to historical reasons. The privy purse satisfies all the essential characteristics of a political pension, and as such, is protected from execution under s. 60(l)(g), Code of Civil Procedure. Moreover, an amount of the privy purse receivable from the Government cannot be said to be a debt or other property over which or the proceeds of 0 which he has disposing power within the main part of s. 600), Code of Civil Procedure. It follows that the third contention of Mr. Pathak must be accepted, and it must be held that the amounts of the privy purse are not liable to attachment or sale in execution of the respondent's decree: The third contention is raised in D Civil Appeal No. 568 of 1963 arising out of Appeal No. 33 of

1958. It follows that Civil Appeal No. 568 of 1963 must be ailowed .. All the contentions raised in Civil Appeal No. 767 of

11i63 arising from Appeals Nos. 81 and 82 of 1957 fail, and accordingly this appeal must be dismissed.

In the result, Civil Appeal No. 568 of 1963 is allowed, the E order of the High Court in Appeal No. 33 of 1958 is set aside and the order of the District Judge dated March 15, 1958 is restored with costs in this Court only. Civil Appeal No. 767 of 1963 is dismissed with costs.

Appeal 568 of 1963 allowed.

Appeal 767 of 1963 dismissed.

L/B(D)2SCl-2,500 -16-3-66-GIPS

NAWAB USMANALI KHAN

SAGARMAL

abruary 26, 1965

K. SUBBA RAO, J.

C. SHAH

R. S. BACHAWAT, JJ.

Code of Civil Procedure

ss. 60(1)(g), 86(1) and 87B

ss. 14 and 17

Civil Procedure Code, 1908

Central Government

Supreme Court

Indian Arbitration Act, 1940

ss. 86(1) and 87B

s. 60(1)(g)

s. 17

Registration Act, 1908

s. 14

s. 14(2)

s. 86(1)

s. 87B

s. 41

s. 141

s. 14

s. 60(1)

s. 60(1)

G. S. Pathak

B. Dutta

J. B. Dadachanii

. C. Mathur

Ravinder Narain

D B. R. L. Iyengar

S. K. Mehta

K. L. Mehta

Bachawat

Lala Durgashankar

Government of India

USMANALI KHAN

SAGARMAL (Barhawat

Court of the District Judge, Ratlam

s. 14

Indian Arbitration Act, 1940

March 9, 1957

March 23, 1957

April 2, 1957

April 5, 1957

April 30, 1957

June 19. 1957

Madhya Pradesh High Court

s. 3

the Code of Civil Procedure

September 9, 1957

Court of the District Judge, Delhi

G November 1, 1957

s 86

s. 87B

Code of Civil Procedure, 1908

November 8, 1957

District Judge. Delhi

the Code of Civil Procedure

January 8, 1958

the Code of Civil Procedure

March 15, 1958

January 7, 1959

District Judge, Ratlam

High Court Appeal No. 13 of 1959

Pathak

s. 14

Indian Arbitration Act, 1940

s. 86(1)

s. 87

Code of Civil Procedure

s. 60(l)(g)

Code of Civil Procedure

Iyengar

s. 17

ss. 86 and 87B

the Code of Civil Procedure

s. 86(1)

s. 87B

SAGARMAL

Bwhaidaf

Section 86

ss. 86 and 87B

Order 4, rule 1

Code of Civil Procedure

s. 176

Government of India Act, 1935

Mahajan

Mukherjea

Russell

s. 86

the Code of Civil Procedure

Shah

Art. 366(22)

s. 86

s. 86

Code of Civil Procedure

s. 14

s. 17

Indian Arbitration Act, 1940

s. 86(1)

s. 87B

Code of Civil Procedure

s. 86(1)

s. 87B

Section 141

Code of Civil Procedure

s. 86(1)

s. 87B

s. 14

Section 86(1)

s. 87B

Section 141

s. 4

Indian Arbitration Act, 1940

Code of Civil Procedure, 1908

s. 86(1)

s. 141

Code of Civil Procedure

s. 86(1)

s. 41(a)

ss. 86(1) and 141

the Code of Civil Procedure

s. 86(1)

s. 14

Indian Arbitration Act, 1940

s. 14

Indian Arbitration Act, 1940

s. 60(1)(g)

Code of Civil Procedure

s. 60(1)(g)

Code of Civil Procedure

Watson

August 15, 1947

USW.NALI KHAN

SAGABMAL

Dominion. of India

Dominion of India

Constitution of India

Madhya Bharat States

Jaora State

April 22, 1948

United State of Gwalior

Indore

Malwa

Article VI provided that the Rule

July l, 1948

Rajpramukh

Schedule I

Government of the United State

B Government of India

Constitution of India

Madhya Bharat

India

Article 291

Government of the Dominion of India

United State of Madhya Bharat

Article 362

Art. 291

Article 363(1)

Article 366(22)

Art. 299(1)

Madhya Bharat States

Constitution of India

Art. 291

Art. 363

Art. 29

s. 60(!)(g)

the Code of Civil Procedure

s. 60(l)(g)

Code of Civil Procedure

s. 600

Code of Civil Procedure


RANGUBAI KOM SHANKAR JAGTAP

SUNDERABAI BHRATAR SAKHARAM JEDHE AND ORS.

March 1, 1965

[K. SUBBA RAO, J. C. SHAH AND R

S. BACHAWAT, JJ.)

Legal representatives of deceased respondent-Brought on record in final decree proceedings-If enures for purposes of appeal previously filed-Appeal-When continuation of suit.

The respondents filed a suit against the petitioner in 1954 for the possession of certain property and for mesne profits and obtained a decree in their favour. The petitioner's appeal to the High Court was dismissed in April 1959 and a petition for special leave to appeal ta this Court was granted in June, 1959. Thereafter, the 7th respond;, nt died in November 1959. The petitioner filed the present applications in October 1964 for bringing on record the legal representatives of the 7th respondent and for condonation of delay on various grounds.

It was also contended on behalf of the petitioner that in view of the fact that after the preliminary .decree for mesne profits had been passed, the respondents/plaintiffs brought the heirs and legal representatives of the deceased 7th respondent on record in the final decree proceedings within the time prescribed, and as the legal representatives were brought on record at one stage of the suit, on the basis of the rule laid down by the Privy Council in Bri;

Inder Singh v. Kanshi Ram, 44 I.A. 218, no question of abatement would arise in respect of the appeal; that the final decree proceed ings are a stage in the suit and the appeal is another stage in the suit and, therefore, the bringing on record of the legal representatives in one stage of the suit will enuTe for all stages of the suit.

HELD : (i) On the facts of the case there were no sulfficient grounds for condoning the delay in bringing the legal representatives of the 7th respondent on the record.

(ii) The order bringing the legal representatives of the respon• dent on record in the final decree proceedings cannot enure for the! benefit of the appeal filed against the preliminary decree. The appeaD therefore abated so far as the 7th respondent was concerned. [217D)I

G An order bringing the legal representatives of a deceased party: on the record passed at the stage of an interlocutory application in a suit, or passed while an appeal is pending where the suit is subsequently remanded to the trial court, or if passed while an appea] is pending against an interlocutory order in a suit, would enure for the subsequent stages of the suit; in all these cases the order is made at one stage of the suit, be it the suit or in an appeal agains~ H the interlocut?ry oder or final .order in the suit, for heri: the appeal 1s only a contmua!Jon of the smt. But the same legal position cannot be invoked where an order is made in a suit subsequent to the filing of an appeal at an earlier stage. Such an order cannot be projected backwards into the appeal that has already been filed so as to become an order in that appeal. [216F-217D]

Brij Inder Singh v. Kanshi Ram, 44 I.A. 218 distinguished.

Shankarnaraina Saralaua v. Laxmi Hengsu, A.LR. 1931 Mad. 277. referred to.

LIB(N)3S.CJ.-i

C1v1L

APPELLATE JURISDICTION : Civil Miscellaneous Peti- A tion Nos. 2402 of 1964.

Applications for substitution for condonation of delay.

AND Civil Appeal No. 430 of 1963.

Appeal by special leave from the judgment and decree dated B April 8, 1959, of the Bombay High Court in First Appeal No. 6~6 of 1954.

S. G. Patwardhan and A. G. Ratnaparkhi, for' the appel!ant.

Naunit Lal, fer the respondents.

ORDER Sobba Rao, J. These are two applicatiom, one for the substitution of the legal representatives of respondent No. 7 in Civil Appeal No. 430 of 1963 on the file of this Court and the other for the condonation of delay in filing the first application.

The first question is whether there is sufficient ground fon excusing the delay in filing the application for bringing the legal representatives of the 7th respondent on record. The facts arc as follows : Sakharam Maruti Jedhe and others filed Special Suit

No. IO of 1964 in the Court of the Civil Judge, Senior Division.

Poona, against Rangubai Korn Shanker Jagtap for possession of the plaint-schedule property and for mesne profits and obtained a decree therein. Against the said decree defendant preferred an appeal to the High Court of Bombay. The High Court by its judgment dated April 8. 1959, dismissed the appeal. The defendant filed an application for special leave to prefer an appeal to this Court and the same was granted on June 16, 1959. The appeal was admitted on July 27, 1961. Between these two dates, on November 12, 1959, the 7th respondent, Keshavarao Marutirao Jedhe died. Thereafter. on March 7, 1964, the defendant filed Civil Application No. 11 !8 of 1964 in the High Court of Bombay for bringing on record the legal representatives of the 7th respondent and for necessary certificate to that effect. On August 11, 1964, a Division Bench of the High Court granted the certificate. On February 19, 1964, the defendant filed in this Court Civil Miscellaneous Petition No. 2401 of 1964 for bringing on record the legal representatives of the 7th respondent and on October 8. 1964, filed Civil Miscellaneous Petition No. 2402 of 1964 for condoning the delay of 4 years and 19 days in filing the aforesaid first petition. In the said petition the petitioner gave two reasons for condoning the delay. namely, (i) the petitioner is a poor widow living in Poona with her daughters and there is no male member in the family of the petitioner to look after the proceedings, and (ii) after the preliminary decree in the proceedings for the determination of the mesne profits, the plaintiffs brought the heirs and legal representatives of the deceased 7th respondent on record within the time prescribed and

as the legal representatives were brought on record at one Stage of the suit, no question of abatement would arise in respect of the appeal. The respondents filed a counter-affidavit pointing out that there were no grounds for excusing the inordinate delay, that the appellant had been conducting this long drawn litigation from the year 1946. that she had a son-in-law who was helping her, that the deceased was a prominent man of Poona whose death was published in all the newspapers and that the appellant was living in the same locality and she must have had knowledge of his death soon after it occurred. It was further pleaded that the fact that the legal representatives of the 7th respondent were brought on record in the final decree proceedings could not in law prevent the abatement of the appeal, if they were not brought on record in the appeal in time.

Under 0.XVI, r. 14, of the Supreme Court Rules, 1950, an application to bring on record the legal representatives of a deceased appellant or respondent shall be made within 90 days of the death of the said appellant or respondent. Under the proviso thereto. in computing the said period the time taken in obtaining a certificate from the High Court shall be excluded. Even if the said time is excluded, there will be a delay of about 3! years in filing the application to bring the legal representatives of the deceased 7th respondent on record. From the counter-affidavit filed by the respondents it is clear that the 7th respondent was a prominent citizen of Poona and the fact of his death was published in all newspapers; and the petitioner resides very near the place where the 7th respondent was living. She has been conducting this litigation from the year 1946 and was in contact with.her Advocates from time to time in connection with the appeal. She has also a son-in-law who i~ helping her in the litigation. She had also the knowledge of the fact that the legal representatives of the 7th respondent were brought on record in the final decree proceedings.

In the circumstances the fact that she is an illiterate woman cannot possibly be a ground for excusing this inordinate delay in bringing the legal representatives of the 7th respondent on record in the appeal. We, therefore, hold that there is no sufficient ground for excusing the delay in bringing the legal representatives of the 7th respondent on record.

The next question raised is an interesting one of law. From the aforesaid narration of facts it will be seen that the legal repre- H sentatives of the 7th respondent were brought on record within the prescribed time in the final decree proceedings. The question is whether it would enure for the benefit of the appeal; that is to say whether by reason of that fact there is no abatement of the appeal.

The relevant provisions of the Supreme Court Rules, 1950, reads thus : We have already given the gist of O.XVI, r. 14 of the said Rules. Rule 14-A thereof reads:

ll 14

SUPREME

CO(JRT

REPORTS (196/i] 3 B.G.R .

"The provisions of Order XXII of the Code relating to abatement and of Article 171 in the First Schedule to the Indian Limitation Act. 1908 (IX of 1908), shall, so far as may be applicable, apply to appeals and proceedings .under rule 12 and rule 13 in the High Court and in the Supreme Court." Rule 14-A by reference incorporates the rules of abatement in the Code of Civil Procedure and also Art. 171 in the First Schedule to the Indian Limitation Act in the Supreme Court Rules. Under O.XXII, rr. 3 and 4 of the Code of Civil Procedure, if the plaintiff or the defendant dies and the right to sue does not survive to the surviving plaintiff or against the surviving defendant, as the easel may be, his legal representatives shall be brought on record within the prescribed time; and where within the time limited by law no application is made the suit shall abate so far as the deceased plaintiff is concerned or against the deceased defendant, as the case may be. Under r. 11 thereof. "in the application of this Order to appeals, so far as may be, the, word "plaintiff" shall be held to include the appellant. the word "defendant" a respondent, and the word "suit" an "appeal". The result is that for the purpose of abatement a suit and an appeal are treated as different proceedings and the suit or the appeal, as the case may be, abates if the legal repre

sentatives of the deceased plaintiff or defendant are not brought on record within the time prescribed. Under Art. 171 of the First Schedule to the Limitation Act, an application to set aside an order of abatement shall be made within 60 days from the date of abatement. The result of these provisions is that if an application to bring on record the legal representatives of a respondent is not made within 90 days from the date of death of the said respondent, the appeal abates; but an application to set aside that abatement can be made within 60 days from the date of abatement.

But, if by reason of the fact that the legal representatives of the deceased 7th respondent were brought c>n record in the fina1 decree proceedings, there was no abatement, this Court no doubt will exercise its discretion liberally in condoning the delay in not formally getting the legal representatives of a deceased part}! recorded in appeal in time.

The main contention - therefore, is that by reason of the fact that they were brought on record in the final decree proceedings, there was no abi:tement of the appeal.

It is said that the final decree proceeding is a stage in the suit and the appeal is another stage in the suit and, therefore, the bringing on record of the legal representatives in one stag~ of the suit will enure for all stages of the suit including the appeal. This <:onclusion, the . argument proceeds, flows from the reasoning of the judgment of the Judicial Committee in Brij Inder Singh v.

Kanshi Ram('). The relevant facts of that case were these : Pending a suit an application was made for directing a party to produce

(') [1917] L.R. 44 l.A. 218, 228.

RA'!rGUBAI KOM v . . SUNDERABAI (Subba Rao, J.) 215

certain books and that was ordered by the District Judge. Thereafter an application was made to the Chief Court to revise the order of the District Judge. Pending the revision the plaintiff and the 2nd defendant died. Within the prescribed time their legal repri>- sentatives were brought on record in the revision.

Subsequently that revision was cjismissed as withdrawn. The legal representatives of the plaintiff and the 2nd defendant were not brought on record in the suit within the time prescribed. The question was whether the suit had abated. The Judicial Committee held that the suit did not abate and the following reasons were given for that view:

"The plaintiff as representative of the original plaintiff, and the defendant's representatives of Joti Lal, had been introduced in the Chief Court. No doubt that was only done in the course of an interlocutory application as to the production of books. But the introduction of a plaintiff or a defendant for one stage of a suit is an introouction for all stages, and the prayer, which seems to have been made ab majorem cautelam, by the plaintiff, in his application to the District Judge Prenter under s. 365, was superfluous and of no effect. Coates, the judgment debtor, was only formally called, and the nonpresence of his representatives would afford no ground for the abatement of the suit." This judgment is an authority for the position that if the legal representatives of a deceased plaintiff or defendant are brought on record in an appeal or revision from an order made in the suit. that would enure for al! subsequent stages of the suit. The same principle was sought to be extended in a Madras decision to a cross appeal: see Shankaranaraina Saralaya v, Laxmi Hengsu(').

There, two appeals were independently filed against the decree in a suit-one was filed by the plaintiff and the other by the defendant. The plaintiff-appellant died and in the appeal filed by him his legal representatives were brought on record in time, whereas it was not so done in the appeal filed by the defendant-respondent.

It was argued that by reason of the fact that the legal representatives of the plaintiff were brought on record in the appeal filed by him there was no abatement in the appeal filed by the defendant. The Court negatived the contention and when the aforesaid decision of the Privy Council was cited, it was distinguished on the following grounds:

"Their Lordships have held that the introduction of a plaintiff or a defendant for one stage of a suit is an introduction for all stages. When the subject-matter of the Interlocutory application was pending in the appellate Court it was deemed to be one stage of the suit and therefore there was no need to put in a fresh application at a furtlier stage of the suit when it came on for trial before the first Court. Can it be said in the present case that

(') A.J.R. 1931 J\!'Ml. 277, 278.

what was done in one appeal could enure for the benefit A of another appeal unless the latter appeal can be deemed to be a continuation or a further stage of> the appeal in which the legal representatives were brought on record?

I am constrained to say that it is difficult to extend the principle of the decision of the Privy Council to the facts of this case." ' B

This decision accepts the principle laid down by the Privy Council but distinguishes the case before it on the ground that the interlocutory appeal is not a continuation or a further stage of the appeal in which the legal representatives were brought on record. Many other decisions were cited at the Bar, but they only support the 0 position that in bringing the legal representatives of a deceased party on record in one appeal wilJ not enure for the benefit nf a cross appeal.

Let us now consider the question on principle. A combined reading of Order XXIL rr. 3, 4 and II, of the Code of Civil Procedure shows that the doctrine of abatement applies equally to a suit as well as to an appeal. In the application of the said rr. 3 and 4 to an appeal, instead of "plaintiff" and "defendant", "appellant" and "respondent" have to be read in those rules. Prima fade, therefore, if a respondent dies and his legal representatives are not brought on record within the prescribed time, the appeal abates as against the respondent under r.4, read with r.11. of 0.XXII of the Code of Civil Procedure. But there is another principle recognized by the Judicial Committee in the aforesaid decision which softens the rigour of this rule. The said principle is that if the legal representatives are brought on 'record within the prescribed time at one stage of the suit, it will enure for the benefit of all the subsequent stages of the suit. The application of this principle to different situations will help to answer the problem presented in the present case. (!) A filed a suit against B for the recovery of possession and mesne profits. After the issues were framed, B died. At the stage of an interlocutory application for production of documents, the legal representatives of B were brought on record within the time prescribed. The order bringing them on record would enure for the benefit of the entire suit. (2) The suit was decreed and an appeal was filed in the High Court and was pending therein.

The defendant died and his legal representatives were brought on record.. The suit was subsequently remanded to the trial Court.

The order bringing the legal representatives on record in the appeal would enure for the further stages of the suit. (3) An appeal was filed against an interlocutory order made in a suit Pending the appeal the defendant died and his legal representatives wero brought on record. The appeal was dismissed. The appeal being

a continuation or a stage of the suit, the orde~ bringing the legal representatives on record would enure for the subsequent stages of the suit. This would be so whether in the appeal the trial Court's

order was confirmed, modified or reversed. In the above 3 illustrations one fact is common. namely, the order bringing on record the legal representatives was made at one stage of the suit. be it m the suit or in an appeal against the interlocutory Drder or final order made in the suit, for an appeai is only a continuation of the suit. Whether the appellate order confirms that of the first Court, . modifies or reverses it, it replaces or substitutes the order appealed against. It takes its place in the suit and becomes a part of it. It is as it were the suit was brought to the appellate Court at one stage and the orders made therein were made in the suit itself.

Therefore, that order cnures for the subsequent stages of the suit.

But the same legal position cannot be invoked in the reverse or converse situation. A suit is not a continuation of an appeal. An order made in a suit subsequent to the filing of an appeal at an

earlier stage will move forward with the subsequent stages of the suit or appeals takeH therefrom; but it cannot be projected backwards into the appeal that has already been filed. It cannot possibly become an .order in the appeal. Therefore, the order bringing the legal representatives of the 7th respondent on record in the final decree proceedings cannot enure for the benefit of the appeal filed against the preliminary decree. We, therefore, hold that the appeal abated so far as the 7th respondent was concerned In the result, the petitions are dismissed.

Petitions dismi.'isel.

RANGUBAI KOM SHANKAR JAGTAP

March 1, 1965

K. SUBBA RAO, J.

C. SHAH

S. BACHAWAT, JJ.

S. G. Patwardhan

A. G. Ratnaparkhi

Naunit Lal

ORDER Sobba Rao

Sakharam Maruti Jedhe

Rangubai Korn Shanker Jagtap

High Court of Bombay

April 8. 1959

June 16, 1959

July 27, 1961

November 12, 1959

Keshavarao Marutirao Jedhe

March 7, 1964

August 11, 1964

February 19, 1964

October 8. 1964

Poona

Poona

Supreme Court Rules, 1950

Article 171

First Schedule

Limitation Act

Supreme Court

the Code of Civil Procedure

Art. 171

First Schedule

Limitation Act

the Code of Civil Procedure

Art. 171

First Schedule

Limitation Act

Joti Lal

Prenter

s. 365

Coates

Madras

the Code of Civil Procedure

the Code of Civil Procedure