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Kishangarh Electric Supply Co. Ltd. Vs. United State of Rajasthan - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtRajasthan High Court
Decided On
Case NumberFirst Appeal No. 13 of 1953
Judge
Reported inAIR1960Raj49
ActsConstitution of India - Article 300; Companies Act, 1913 - Sections 103
AppellantKishangarh Electric Supply Co. Ltd.
RespondentUnited State of Rajasthan
Appellant Advocate J.S. Chordia, Adv.
Respondent Advocate C.B. Bhargava, Deputy Govt. Adv.
DispositionAppeal dismissed
Cases ReferredDalmia Dadri Cement Co. Ltd. v. Commr. of Income
Excerpt:
- - 8. it appears from a perusal of the plaint that the plaintiff has failed to disclose how it lays its claim against the rajasthan state for the acts done by the former kishangarh state. any inhabitant of the territory can only make good in the municipal courts established by the new sovereign such rights as that sovereign has, through his officers, recognised. 4000/- (four thousand rupees) within two weeks from the date hereof to show that they are in aposition fully and efficiently to discharge the duties and obligation imposed upon them. the licensees shall have power to carry over head mains, cable wire or pipes with, through, across under or over any land or street or state or private buildings or on the side of any private buildings and shall also have power to fix lamps to the.....k.l. bapna, j.1. this is a first appeal by the plaintiff in a suit for recovery of damages.2. the plaintiff is the kishangarh electric supply co. ltd., and the suit was instituted for recovery of damages to the tune of rs. 1,99,600/-against the united state of rajasthan in the court of district judge, kishangarh, on 25-11-1949, on the allegations that on 22-12-1942, the then kishangarli state granted a licence to lohawala and co. of ajmer for the supply of electricity to kishangarh and madan ganj on certain conditions mentioned in the licence. it was alleged that the kishangarh state handed over the charge of the building of the power house, its lands, plants and machines etc. which were of the value of rs. 50,000/- to lohawala and co.it was alleged that the said lohawala and co......
Judgment:

K.L. Bapna, J.

1. This is a first appeal by the plaintiff in a suit for recovery of damages.

2. The plaintiff is the Kishangarh Electric Supply Co. Ltd., and the suit was instituted for recovery of damages to the tune of Rs. 1,99,600/-against the United State of Rajasthan in the Court of District Judge, Kishangarh, on 25-11-1949, on the allegations that on 22-12-1942, the then Kishangarli State granted a licence to Lohawala and Co. of Ajmer for the supply of electricity to Kishangarh and Madan Ganj on certain conditions mentioned in the licence. It was alleged that the Kishangarh State handed over the charge of the building of the Power House, its lands, plants and machines etc. which were of the value of Rs. 50,000/- to Lohawala and Co.

It was alleged that the said Lohawala and Co. transferred all its rights in favour of the plaintiff on 7-4-1946, according to the terms and conditions of the licence, and handed over possession of all the lands, buildings and material to the plaintiff. It was alleged that the plaintiff company carried on work as a licence, and supplied electricity to all the area. It was then alleged that on 25-9-1946, the then. Kishangarh State forcibly and unlawfully took possession of the building of the Power House, plants and machinery, and other materials along with the account books end registers etc. of the plaintiff company.

It was alleged that the plaintiff made several representations in this respect to the then Kishangarh State, and after the formation of Rajasthan, to the Rajasthan Government, and claimed back all the properties, account books and documents, and to compensate for the loss which had occurred to theplaintiff company clue to the high-handed and unlawful action of the then Kishangarh State, but no satisfactory reply had been received. It was then alleged that after taking unlawful possession of the property of the plaintiff as aforesaid, the then Kishangarh State ran the Power House for about ten months, and then gave charge of it to Shri Sumer Electric Supply Co, Ltd., Kishangarh. The plaintiff claimed Rs. 1,99,600/- as damages for the highhanded and unlawful action of the then Kishangarh State, inasmuch as the plaintiff was dispossessed of the Power House, building, lands, plants and machinery etc. together with the accounts books and registers, according to the following detail:

(a)Damages in respect of the Power House building, lands, plant, and machinery, and the cost of the material and accessories.

Rs. 1,10,0100/-(b)Loss of outstanding amount for the supply of electricity to the then Kishangarh State, which the plaintiff could not recover due to the forcible dispossession of Its account books.

Rs. 35,000/-(c)Loss incurred due to the amount, which was outstanding against the people for the supply of electricity and material and which could not be realised as the account books were in the possession of the defendant.

Rs. 5,000/-(d)Damages on account of remuneration paid by the plaintiff company to its Managing Agents for 3 years from 25-9-46 to 34-9-49.

Rs. 12,600/-(e)Expenditure Incurred by the plaintiff in paying its legal advisers and making representations to the State from time to time.

Rs. 10,000/-(f)Interest on items (a), (b) and (c) at 6% per annum from 25-9-46 to 24-9-49,Rs. 27,000/-

TotalRs. 1,99,600/-

It was mentioned that as the account books and registers of the plaintiff were in the possession of the defendant, permission may be granted later on to revise the claims in (a), (b), (c) and (f), if necessity arises. The cause of action was stated to have arisen on 25-9-46 when the plaintiff was unlawfully and forcibly dispossessed. It was mentioned that notice under Section 80, C. P. C. had been served on the Chief Secretary to the Government of Rajasthan on 20-9-49, but without any result.

3. On behalf of the State of Rajasthan a reply was filed on 27-9-1950, in which it was said that the licence was granted to Kanhaiya Lal Lohawala, and he worked under the supervision of the State, but no complete charge was given of the machinery, lands etc. It was pleaded that although at the time of grant of licence, it was settled that a limited company would be floated, in which the Government would have more than half share, and a company did come into existence, but Mr. Lohawala acted in several measures contrary to the terms and conditions agreed to by him, and the shares, which were allotted to the State, were not accepted by the State.

When the Company applied for certificate of commencement of business, objection was filed, and the Registrar rejected the application of the plaintiff company for grant of certificate of commencement of business. It was alleged that the plaintiff company never came into possession of the Power House and property, nor could it continue the work, and later on the licence granted to Kanhaiyalal Lohawala was cancelled (by the then Kishangarh State) on 23-9-46, and Orders were passed for taking possession of the Power House etc., and the plaintiff was informed of it. It was pleaded that after the cancellation of the licence, Mr. Lohawala did not hand over possession, and therefore, the possession was taken on 23-9-46 by the order of the Chief Member of Council, Kishangarh.

It was alleged that the Power House was run by the (Kishangarh) State for some time, and thereafter licence was granted to Messrs. Sumer Electric Supply Co., and since 1-3-50 the property is again in the possession of the State. The valuation of the property was denied, and it was again stated that the plaintiff company never commenced business, and no loss could have occurred to the said company. It was denied that any account books, registers etc. of the plaintiff were taken possession of by the (Kishangarh) State. It was stated that no cause of action arose for the suit. The fact of the receipt of the notice, and its validity were also denied. Certain other pleas were also taken, which are not of any importance now.

4. The trial Court framed 8 issues as follows:

1. (a) Did Lohawala and Co. transfer his licencce right in favour of the plaintiff's concern on 7th April, 1945?

(b) Whether this transfer was legal and valid?

2. Was the act of the state in taking over the management and possession of the Power House and the allied machinery, building, land ect. in order?

3. Whether the plaintiff had no right to sue in the absence of a certificate to commence business?

4. Was the notice to the Government invalid?

5. Whether this court had no jurisdiction to entertain the suit?

6. Whether the suit was premature?

7. Is the suit time barred?

8. Whether the plaintiff has been put to a loss of Rs. 1, 99, 600/- in consequence of the action of the Government and he is entitled to be compensated to that extent?'

5. Issues Nos. 1, 2, 3, 4, and 7 were found for the plaintiff. Issues Nos. 5 and 6 were not pressed by the defendant. In respect of issue No. 8, the finding was that the amount of damages had not been proved. The suit was accordingly dismissed. The plaintiff has come in appeal.

6. It was contended by learned counsel for the plaintiff that issues Nos. 1 to 4 and 7 having been decided in favour of the plaintiff the machinery, plant and building must be said to have some value, and further the valuation approximately made by the plaintiff and its witnesses should have been accepted, even if the plaintiff was unable to prove accurately such value in the absence of account books.

7. On behalf of the State it is urged that the findings on the various issues were entirely erroneous, and the plaintiff had not shown how it came to fix the liability upon the Rajasthan State in respect of the acts alleged to have been committed by the former Kishangarh State.

8. It appears from a perusal of the plaint that the plaintiff has failed to disclose how it lays its claim against the Rajasthan State for the acts done by the former Kishangarh State. The cause of action, according to the plaint, was high-handed and unlawful action of the then Kishangarh State. The plaintiff admits that it made certain representations to the then Kishangarh State, and after the forma-tion of Rajasthan to the Government of Rajasthan, but no satisfactory reply was received. The case is, therefore, one where a certain independent State had unlawfully dispossessed the plaintiff, and the damages were sought to be recovered from another State which had come into existence by merger of the former State and certain others into a new political unit. It has been held in Vajesinghji Joravar Singhji v. Secy. of State, AIR 1924 PC 216 that

'When a territory is acquired by a sovereign state for the first time that is an act of State. It matters not hew the acquisition has been brought about. It may be by conquest, it may be by cession following on treaty, it may be by occupation of territory hitherto unoccupied by a recognised ruler. In all cases the result is the same. Any inhabitant of the territory can only make good in the municipal courts established by the new sovereign such rights as that sovereign has, through his officers, recognised. Such rights as he had under the rule of predecessors avail him nothing.'

It has been observed in Dalmia Dadri Cement Co. Ltd. v. Commr. of Income-tax, AIR 1958 SC 816, that

'On principle, it makes no difference as to the nature of the act, whether it is acquisition of new territory by an existing State or as in the present case, formation of a new State out of territories belonging to quondam States. In either case, there is establishment of new sovereignty over the territory in question, and that is an act of State.'

9. The present case is a case of damages against a new political State for acts done by another political State. The case being one under tort, no law has been shown how the State of Rajasthan could become, liable for the tortious act of a former State which has ceased to exist. On this ground alone the suit is liable to be dismissed.

10. The plaintiff has no case on merits either. Ex, 4, the licence granted by the Kishangarh State is as follows:

'License for the supply of energy granted by the Kishangarh State under Political Agent's endcrse-ment No. 1246/86/42 minority dated the 22nd December 1942.

Whereas Messrs. Lohawala and Company of Ajmer have agreed to float a public joint stock Company with limited liability to supply electrical energy in the area specified below, this license is hereby granted to them with the powers and upon the terms and conditions herein laid down:

Title:

1. This license may be cited as 'The Kishangarh Electric License 1943'. Interpretation :

2. The several words, terms and expressions used in this license shall have the same meanings as are assigned to them in Indian Electricity Act of 1910 (amended up-to-date) and the rules made thereunder; provided that in this license:

(1) the expression 'the licensee' shall mean and include the said Messrs. Lohawala and Co. of Ajmer and their permitted assigns;

(2) the expression 'deposited map' shall mean the plan of the area of supply hereinafter specified which has been deposited with the State and which has been signed for the purpose of idcntiliealion by the Chief Member of Council Kishangarh and by the Licensees under the name of Messrs. Lohawala and Co. of Ajmer.

Security:

3. The licensees shall furnish security of Rs. 4000/- (four thousand rupees) within two weeks from the date hereof to show that they are in aposition fully and efficiently to discharge the duties and obligation imposed upon them. Floating a Public Limited Company.

4. The licensees shall float and establish a joint stock company with liability limited by shares and registered in the Kishangarh State within two months from the date of this license, such company to be named and styled 'the Kishangarh Electric Supply Company Limited' with the licensees acting as its Managing Agents. Company's Capital:

5. The Company shall start work with an authorised capital of Rs. 5, 00, 000/- (Five lacs) out of which capital to the extent of Rs. 1,00, 000/-(one Lac) will he issued in the shares of 10,000 ordinary shares of the nominal value of Rs. 10/-(ten) each. The capital to be subscribed and paid up immediately shall be Rs. 1, 00, 000/ (one lac) 40 per cent of which the licensees have undertaken and agreed to underwrite, while the State will contribute the remaining 60%. State's Shares:

6. The company shall issue five thousand fully paid up shares of the nominal value of Rs. 10/- (ten) each in the name of the Kishangarh Darbar in consideration of the assets of the Power house valued at fifty thousand rupees having been handed over to the licensee:

Note:-- A list of the whole concern including structural, existing of the Power House and the telephone system, existing plants with transmission lines, fittings existing lines and switchboards and other equipments and telephones in stock including all machines and tools within the walls of the State Power House (including Abu Machinery) which have been valued at Rs. 50, 000/- and which have been handed over to the licensees for the use of the proposed company is attached hereto.

Increase of Share Capital:

7. In the event of an increase in the share capital of the Company, the State will have the option of increasing its holding upto the maximum of 60% of the capital so increased.

8. The interest of the State will be looked after by three directors nominated by the State in the Board of Directors of the Company which shall consist of seven directors in all.

Area of Supply:

9. The area of the supply referred to above within which the supply of energy is authorised by this license is the whole area within the limits of Kishangarh City and Madanganj except the area included in the compound of the Maharaja Kishangarh Mills Ltd., including the area within the limits of Majhela and any extension beyond these limits as may be permitted by the Darbar from time to time. Purpose of Supply:

10. Subject to the provisions of this license, the licensees shall be entitled during the continuance of this license to supply electrical energy for all purposes within the area of supply.

11. The licensees shall, within a period of five months after the commencement of the license, execute to the satisfaction of the Darbar all such works as are specified in the deposited map mentioned above for the supply of electrical energy throughout all the streets or parts of the streets. In the first place the length of the existing streets lines shall be maintained and later on the length of the streets may be extended provided the return is shown to be reasonable on the whole outlay.

System of Supply:

12. The system which may be adopted for the supply of electrical energy under this license willbe such as the Darbar may from time to time allow. Limits of price to be charged for supply of energy;

13, The prices to be charged by the licensees for energy supplied to the public and meter rent shall not exceed the following maxima namely;

(a) Domestic supply for lights and fans Rs. -/6/-unit with a monthly minimum of Rs. 2/- per meter.

(b) Heaters and refrigerators at Rs. -/2/- (two annas) per unit with a monthly minimum charge for eight units.

(c) Industrial purposes Rs. -/2/- (two annas) per unit for restricted hours and -/1/- (one Anna) per unit foe unrestricted hours with a monthly minimum of Rs. 3/- pec B. H. P. with the right to increase-/-/3 (three pies) per unit, if necessary.

(d) Meter cent for domestic lights and fans will be charged at Rs. -/8/- per month.

(e) Meter rent for other purposes will be charged at Re. 1/-/- per month.

(f) The fates of supply of electric energy to State buildings shall be Rs. -/4/6 (four annas and six pies) per unit (reduced rate as State is a larger consumer).

(g) Supply of electric energy to municipalities for street lights, will be charged at Rs. 2/4/- per month per light of 40 watts each with a minimum of 250 lights to be controlled according to moon light system sanctioned by the Darbar. This will include petty repairs. The Company will provide new connections of lights within a radius of 50 feet from the nearest distribution mains and for distances more than fifty, the capital cost of the connections will be borne by the State or by the private consumers, as the case may be. The total number of burning hours will not exceed 2500 hours in year. Proportionate charges will be for longer hours.

(h) For petty repairs, maintenance and supervision of the electric installations in the State buildings the State will pay Rs. 1500/- per year in monthly instalments of Rs. 125/- and new points or alterations Will be done at State expenses.

(i) All Stale telephones will be charged at Rs. 60/- per main connection and Rs. 10/- per Sub-switch per year and from the public telephone rent will be charged according to the Government scheduled rates prevailing in Ajmer.

(j) Small shop services for one lamp of 25 watts for 4 hours use will be charged at Re. 1/- per month.

(k) All bills will be payable within a month ofthe date of their presentation, an extra sum of 6 pies per unit will be charged on over due bills.

(l) The above rates may be increased in consultation with the State Council according to the prices of basic material used in the production of electric energy.

Land to be given on lease by the State:

14. The State will acquire and grant such lands as may be required for staff quarters, store houses etc., in the neighbourhood of the Power house and shall lease out the land to the Company at a nominal rate of Rs. 5/- per bigha per annum. Monopoly of Company:

15. The monopoly for supplying electric power under this license is given for a period of twenty five years and thereafter the monopoly may be renewed at the option of the Darbar on such terms and conditions as may be considered reasonable. Provided that if at any time after ten years the State wants to take over the concern in its own hands and ran it directly under State management, in that case on payment of the then value of the assets brought in or added by the licensees, the concern shall be acquired by the State after giving six months clear notice.

Provided further that the matter of valuation be referred to a single arbitrator agreed to by boththe parties and his decision shall be final. In case the matter cannot be referred to a single arbitrator, then it may be referred to a Board of three arbitrators of whom one shall be appointed by the State and the other by the Company while the Chairman shall be appointed by the Chief member from among the panel of arbitrators previously agreed to by both the parties.

Customs duty not to be charged:

16. The State shall not charge any customs duty or any other tax on the materials imported for the bona fide use and maintenance of the electric supply company. Penalty when Power fails:

17. The licensees shall be bound to ensure a constant and uninterrupted supply of electric energy and for all interruptions other than those caused by an act of God or military action, the licensee shall be liable to pay a penalty of Rs. 50/- per hour. Repairs, alterations etc. to be made by licensees:

18. The licensees shall, soon after taking over the charge of the Power House, make necessary alterations and repairs in the machinery immediately so as to ensure satisfactory working and 450 volts D. C. 3 wire system shall be provided within five months. The alternative current system shall be introduced as soon as the situation permits after the war.

19. The licensees shall pay an annual royalty of Rs. 500/- (five hundred rupees) to the State.

20. The licensees shall supply free labour for re-installation of State buildings (once only).

Breaking of streets crossing waterways:

21. The licensees shall have power with the permission of the Darbar to open and break up the soil of streets situated within the area of supply and to cross all waterways. The licensees shall have power to carry over head mains, cable wire or pipes with, through, across under or over any land or street or State Or private buildings or on the side of any private buildings and shall also have power to fix lamps to the outside of any buildings situated within the area subject to the sanction of the Darbar, All damages done in the erection of these lines, lights and wires shall be made good by the licensees.

Note: The licensees shall not fix wiring at such places as may be a source of danger to human life.

Exclusive permit of generation:

22. The licensees shall have exclusive right of generation and supply of energy within the area of supply and the State will not establish any plant itself for supply of energy to its own buildings or permit any other persons to supply or sell energy to any section of the public. This privilege shall not affect the Maharaja K. S. Mills Ltd., including Its boundary walls where energy is generated and supplied for its own purposes or any other big industrial concern of a similar dimension that may generate power for its own needs with the express permission of the Kishangarh Darbar. This will not prevent any private person from setting up a plant for his personal use, but it shall not be extended to any type of industrial or other similar concern.

23. Soon after the incorporation of the Kishangarh Electric Supply Company the licensees shall assign this license and transfer the whole of the undertaking in respect of which this license is granted (including all lands, buildings, works, material and plant of the licensees) to the said Kishangarh Electric Supply Company Ltd., and on such assignments and transfer all rights, powers, obligations and liabilities of the licensees shall be exercisable by and shall attach to the Company formed as aforesaid.

24. If the licensees or their agents or servants contravene any of the terms or conditions of thislicense it will be open to the Darbar to revoke this license.

25. If at any time any dispute arises between the State and the licensees, decision of the highest authority of the State shall be final and binding upon both parties'.

11. It is a composite document which may be separated into several parts. Clauses 1, 2, 3, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18. 19, 20, 21, 22, 24 and 25 relate to the grant of licence to Lohawala and Co. for supplying electricity on the various terms and conditions mentioned in these clauses. Clauses 4, 5, 6, 7, 8, and 23 contemplate the formation of a joint stock company with limited liability to which the licensee Lohawala and Co. was expected to transfer all its rights and liabilities under the other clauses of the licence.

It is important to note that none of the clauses of this licence purported to transfer ownership of the Power House, lands, existing plant, transmission lines, machinery, tools etc. belonging to the State to Messrs. Lohawala and Co., but they were handed over to it as licensee to be made over later to a joint stock company which may be floated. This company, according to the terms mentioned in the licence was to be formed with an issued capital of one lakh divided into 10.000 ordinary shares of the nominal value of Rs. 10/- each.

Of this capital, 40% was to be under-written by the licensees Lohawala and Co., and the State was to contribute the remaining 60%. The agreement of the Kishangarh State with Lohawala and Co. was that the said company when formed shall issue 5000 shares of the nominal value of Rs. 10/- each in the name of Kishangarh Darbar (H. H. the Maharaja of Kishangarh), and in consideration of the issue of those shares the Power House and the machinery were to be transferred to the company, and the interests of the Kishangarh Darbar (State) were to be looked after by the directors nominated bv the State in the Board of Directors of the company when formed.

12. The Memorandum and Articles of Association of the Kishangarh Electric Supply Co. do not make any mention of any agreement to purchase the plant and machinery from the State of Kishangarh, but the relevant portion of the objects in the Memorandum of Association is as follows:

'3. The objects for which the company is established are: (a) To acquire from Messrs. Lohawala and Co. of Ajmer the licence granted be them by the Government of Kishangarh for the supply of Electricity within the State territory and to purchase the Kishangarh Power House with all its fittings structures, constructions, buildings including the Telephone exchange with all its fittings etc., from the aforesaid Messrs. Lohawala and Co., and with a view thereto to enter into the agreement referred to in Clause (3) of the company's Article of Association and to carry the same into effect with or withoutmodifications. *****'

13. The clause relating to the business of the company in the Articles of Association relevant to the case is No. 3, and is as follows;

'The business of the company shall include the several objects expressed in the memorandum of Association or any of them. And in particular the Company shall forthwith enter into an agreement with Messrs. Lohawala and Co. of Ajmer in the terms of the draft a copy whereof has for the purpose of identification been subscribed by and the directors shall carry the said agreement into effect with full power nevertheless subject to the provisions of Section 99 of the Indian Companies Act, 1913 & similarsections of the Kishangarh State Companies Act from time to time to agree Bo any modification of the terms of such agreement either before or after theexecution thereof.

The basis on which the Company is established is that the Company shall require the property comprised in the said agreement on the terms therein set out subject to such modifications as aforesaid and that the firm of Messrs. Lohawala and Co. of Ajmer whose members are interested in the said agreement as promoters are to be the first Managing Agents of the Company and as such to have the right of appointing 1/3rd of the total number of Directors of file Company and as such it shall be no objection to the said agreement that the members of the said firm of Messrs. Lohawala and Co. or any of them as promoters, directors or Managing Agents stand in a fiduciary position towards the Company or that the Board of Directors and the Managing Agents are not in the circumstances independents the promoters, nor shall any promoter or Director be liable to account to the Company for any profit or benefit derived by him under the said agreement by reason of any directors or promoters or the Company or interested in the firm of the Managing Agents to the Company or by reason of purchase consideration having been fixed by the vendors without any independent valuation having been made, and every members of the Company present and future is to be deemed to join the Company on this basis, and to have notice of provisions of the said agreement and to have assented to all the terms thereof'.

14. Ex. 4 (the licence) speaks of the assets of the Power House and machinery, plant etc. being handed over to Lohawala and Co. for the use of the proposed joint stock company, and the sale was to be made, as may be gathered from Ex. 4 by the State to the Joint Stock Company in lieu of the issue of 5000 shares. This will be clear from the statement in lieu of prospectus, Ex. P. 7, issued by the Directors of the company, wherein it is mentioned that ordinary shares to the value of Rs. 50,000/-were to be issued fully paid up to H. H. the Darbar of Kishangarh State, as sale price of the Power House including engines, dynamos, switch boards, overhead lines, buildings, poles, telephones with their lines and switch boards etc. etc. as per terms of agreement dated 22-12-1942.

There is no allegation in the plaint that the plaintiff company at any time purchased the Power House, lands, buildings etc. from the Kishangarh State. What the plaint says in paragraph 2 is that the Lohawala and Co, transferred all its rights in favour of the plaintiff, and the plaintiff was given possession of all the lands, buildings etc. As stated earlier, Lohawala and Co. had only the right as a licensee to generate electricity and to distribute electricity on certain terms and conditions. The sale was contemplated under the agreement to the joint stock company itself. According to the allegations in the plaint, therefore, the plaintiff never acquired any proprietary rights in the lands, buildings, power house, etc., which were handed over to the plaintiff as assignee of the licensee.

15. It was contended by learned counsel for the plaintiff company that although the plaint may not have been properly drafted, the fact was that shares worth Rs. 50,000/- were allotted to H. H. Kishangarh, and it was in lieu of that allotment that the Power House etc. were acquired by the company. In support of the aforesaid plea, reliance is placed on the Minutes of the Proceedings of the Board of Directors dated 7-4-1946 (Ex. 15). According to paragraph 4 thereof, the directors whowere present in that meeting allotted 6000 shares to H. H. Kishangarh State (Darbar Kishangarh) as below -

5000 against acquired property, and

1000 fully paid up against cash.

It was mentioned that the value of 5000 shares had been received and credited to the share capital of the company in the shape of the building and machinery etc. according to license handed over to Messrs. Lohawala and Co., and the State was to be requested to kindly remit the value of the balance of 1000 shares viz., Rs. 10,000/- within a month failing which interest at the rate of 6% will be charged. It appears that even before 7-4-1946, certain disputes had arisen between the Directors nominated by the State, and they did not attend the meeting and raised certain objections. These objections, the directors said, would be considered in future meeting.

Leaving that matter apart, the position that emerges is that the agreement to take shares of the joint stock company to be formed in future was made between the Kishangarh State and the Lohawala and Co. But it has not been proved that there was any agreement after the formation of the company between the company and the Kishangarh State. The State seems to have declined to accept the allotment because when the company went to the Registrar to obtain the certificate of commencement of business, an objection was raised that the allotment made to the State had not been accepted by the State, and the Registrar declined to give certificate of commencement of business.

The argument advanced on behalf of the plaintiff is that the Company was entitled to commence business, but the certificate had been wrongly refused to the company by the Registrar, who was an employee of the Kishangarh State. One of the conditions when a company can commence business is that the shares held subject to the payment of the whole amount thereof in cash have been allotted to an amount not less in the whole than the minimum subscription, vide Section 103(1)(a) of the Indian Companies Act then, in force in Kishangarh. The minimum subscription, according to the statement in lieu of prospectus was Rs. 50,000/-, vide document Ex. P. 7. Now, the total amount of issued capital was Rs. 1,00,000/- of which Rs. 50,000/-, was to be counted in lieu of fully paid shares to H. H. the Darbar of Kishangarh State, and the remaining amount of 50,000/-, which was to be subscribed in cash was the minimum subscription fixed by the Directors, according to the Statement in lieu of Prospectus. Of this minimum subscription at least 1000 shares were such on which no amount had been paid to the company.

Under Clause 8 of the Articles of Association, the amount payable on application 011 each of the shares so offered was not to be less than 25% of the nominal amount of the shares. In respect of the allotment of these 1000 shares, therefore, there must have been paid to the company Rs. 2500/- before allotment could be made. Under Section 101 of the Indian Companies Act, no allotment can be made unless the amount mentioned as minimum subscription has been applied for, and at least 5% thereof has been paid to or received in cash by the company. Admittedly in respect of 1000 shares 110 amount had been received by the company.

The provision as to minimum subscription having been applied for had not been fulfilled. The company, therefore, was rightly held by the Registrar not to be entitled to commence business, Section 103 of the Companies Act laid down that a company was not to commence business unless the allotment has been made of shares not less than the minimum subscription. In the present case, the allotment of requisite shares could not have been made as shown above and the company consequently was not entitled to commence any business. Now, the section does not say that it shall not commence its business.

It says that it shall not commence any business, which means that it cannot enter into any agreement for sale or purchase of any property also. As stated earlier, there was no sale of the property by the Kishangarh State to the company, and, therefore, if the State took back into its possession all that it handed over to Lohawala and Co., the Company had no cause of action against the former Kishangarh State.

16. AS stated above, para 2 of the plaint said that the Lohawala and Co. transferred all its rights in favour of the joint stock company. The rights that could be transferred were the licencee rights for the production and distribution of electrical energy. Even the transfer of this right was not admitted on behalf of the defendant. The plaintiff company did not produce any document which may show that this right had been transferred in favour of the company. The oral evidence in this regard is that of Mr. Kanhaiyalal Lohawala. He said that a deed of assignment was made, and it lay in the office of the company, but when the State took possession of the premises, this document was taken away.

No date is mentioned as to when this document was executed, where it was executed, what was the consideration of that assignment, what were the assets and liabilities at the time of the assignment. The scribe or the lawyer who had drafted the deed of assignment had not been produced. The copy of the proceedings of 7-4-1946, Ex. P. 15, shows that the directors on behalf of the company had accorded sanction for the acquisition of the licencee rights, but it was on the same day and in the same meeting that the Managing Agents were requested to apply for a certificate of commencement of business. Under Section 103, a company is not competent to commence business unless the required declaration under Sub-section (1) (c) was filed before the Registrar. Resolution No. 5 only directed the Managing Agents to file such declaration.

The company could not, therefore, sanction the acquisition of the licence from Lohawala and Co. In law, therefore, the licence could not be acquired by the company, and on facts also the evidence in respect of the assignment is too scanty for a finding in favour of the plaintiff.

17. Mr. K. L. Lohawala admitted in his statement that there was no account of the plaintiff company in any bank. Under Section 101(2-B) all moneys received from applicants for shares are to be deposited and kept in a scheduled bank until returned in accordance with the provision of Sub-section (4) or until the certficate to commence business is obtained under Section 103.

It cannot be said without compliance of this provision what amount was received from the various subscribers, and compliance was made of Section 103 or otherwise. The company's capital account no doubt showed a receipt of Rs. 1,00,000/-, but it was wholly unreliable in view of the fact that in the proceedings for allotment, there is clear mention that Rs. 10,000/- in respect of shares allotted to H. H. Kishangarh had not been received. This is clear from the fact that in Ex. P. 12 at page 12, Rs. 10,000/- were debited to Kishangarh Darbar, which means that they were recoverable from Kishangarh Darbar.

18. In the absence of the right to commence business the company had no right even to file a suit. Section 103, Sub-section (3), of the CompaniesAct further lays down that any contract made by a company before the date at which it is entitled to commence business shall be provisional only, and shall not be binding on the company until that date, and on that date it shall become binding.

19. One more point was urged by learned counsel for the State that the International Law does not recognise a suit being brought against a sovereign unless prevision is made in any law for that purpose. The Indian Code of Civil Procedure was adapted in Kishangarh and can only be said to have laid down the procedure to be followed before instituting a suit against the State, but the right to sue the State was not conferred by any law.

If, therefore, the plaintiff company, which was incorporated in Kishangarh, had no right to sue its sovereign before the merger, no right accrued to the plaintiff to sue the United State of Rajasthan. This argument was advanced apart from the other argument that the United State of Rajasthan was in no way responsible for the acts committed by the old Kishangarh State. It is not necessary to make a research as to the State of Law in Kisangarh on the point. There is authority for the proposition that the sovereign himself is not liable for damages, and so far as the succeeding State is concerned, there is no law which can make it liable for the torts committed by the ex-sovereign. Oppenheim in his learn-ed treatise on International Law, Volume 1, (Eighth Edition), observes at page 162 as follows:

'There is good authority for saying that a Stale does not become liable for unliquidated damages for the torts or delicts of the extinct State which it has observed. Where, however, the latter had acknowledged its liability and compensation had been agreed, a debt has arisen which, it is suggested, ought to survive the extinction of personality and be discharged by the absorbing State'.

Issues Nos. 1, 2, and 3 should, therefore, be decided against the plaintiff, and are decided accordingly.

20. As to the validity of the notice, the defendant has not produced the document which was served on it. The only point urged on behalf of the defendant was that the notice is alleged to have been served on 20-9-1949, on the United State of Rajasthan, but the enclosure (draft plaint) bore 24-9-1949, as the date thereof, and the argument is that if the draft plaint enclosed bore the date 24-9-1949, the notice could not be served on 20-9-1949. There may be some mistake in dating the draft plaint or copy thereof. As the notice was received, it was upto the defendant to produce it and show how it was not in order.

21. As regards the claim itemwise the first point against the plaintiff is that it was not entitled to sue. The plaintiff has given approximate amounts in respect of items (a), (b) and (c). The case of the plaintiff is that the account books were taken possession of by the State on 25-9-1946. The plaintiff company itself has produced Ex. P. 16, a receipt given by Eaiyaz Ali Khan on behalf of the Chief Member of Council, Kishangarh, for receiving 9 books of account for the years 1943, 1944 and. 1945, from Mr. K. L. Lolawala regarding the Kishangurh Electric Power House sent with a letter dated 17-12-1946.

It is obvious from this document that prior to 17-12-1946, the account books were with the plaintiff or Mr. K. L. Lohawala. This is also apparent from the fact that the Chief Member wrote to Mr. K. L. Lohawala from time to time to send to him the account books, vouchers ete. for examination. Ex. P. 20 is a memorandum dated 18-11-46 from the Chief Member of Council, Kishangarh, to Mr. K. L. Lohawaia, asking for accounts from the time Mr. K. L. Lohawaia began to operate the Kishangarh Power House. Ex. P. 18 is a letter from the Chief Member of Council, Kishangarh, to Messrs. K. L. Lehawala, in which the Chief Member agreed to show all the account books to Mr. K. L. Lohawala, but refused to send the account books at Ajmer.

This letter is after the receipt of the account books by the Chief Member from Mr. K. L. Lohawaia. Ex. P. 17 is another letter from the Chief Member to Mr. K. L. Lohawaia asking for bills, vouchers, cash memos etc. for verification of the entries in the books of the Power House submitted by Mr. K. L. Lohawaia. All this correspondence shows that the account books, vouchers and document of assignment etc. were with the plaintiff or Mr. K. L. Lohawaia on behalf of the plaintiff even after the Slate had taken possession of the Power House. The evidence of Mr. P. V. Shah, P. W. 3, who was Electrical Engineer and Manager in the plaintiff company, is relevant.

This gentleman was in the service of the company from March, 1943, to February, 1949. On 25-9-1946, when the State took possession of the Power House, he was appointed in charge of the Power House on the same pay, powers and conditions as in the time of Mr. K. L. Lohawaia. He became in this manner servant both of the plaintiff and the Kishangarh State. He said that when the State took possession of the Power House, Deendayal, the State Accountant and President of the Managing Committee had signed on those account books, and these account books were taken by the witness to his house, where, according to him, was his office.

He produced these documents in court at the request of Shri K. L. Lohawaia. It is clear from this statement that the State did not take possession of the account books or, at any rate, if symbolical possession was taken, they were left with Mr. Shah, who was a servant of the plaintiff, and Mr. Shah kept them with him not for the benefit of the State, but for the benefit of the plaintiff, or perhaps for the benefit of both. In any case, the account books were under the power of the plaintiff, and it could be easily found out from those account books what were the dues against the Kishangarh State itself or against the consumers of Kishangarh State.

The plaintiff was also in a position to institute a suit, if it was authorised to do so, for the recovery of these amounts, and the Kishangarh State was in no way responsible for the loss that has been occasioned to the plaintiff in this behalf. Mr. K. L. Lohawaia stated in cross-examination that 'the documents Exs. P. 12, 13 and 14 had come in court from the custody of Mr. Shah, and filed by him. Mr. Shah was summoned with all the papers, out of which only Exs. 12, 13 and 14 were filed'. He further stated that even after filing the suit, he did not find what documents Mr. Shah had.

As to item (e), there is no proof that the plaintiff paid Rs. 12,600/- to the Managing Agents. Even Mr. K. L. Lohawaia, P. W. 5, had not stated on oath that he received this amount from the company of which ho was the Managing Agent.

As to item (e), there is no proof that Rs. 10,000/-were paid to anybody for legal advice to the company.

Item (f) follows items (a), (b) and (c).

22. As a result, there is no force in this op-peal. It is Accordingly dismissed with costs.


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