Case Note & Summary
The litigation arose from a suit filed by Turner Morrison and Co., Ltd. (plaintiff/appellant) against Hungerford Investment Trust Ltd. (in voluntary liquidation, defendant/respondent) for recovery of Rs. 1,27,67,052/16 P comprising Rs. 79,70,802/- principal super-tax paid and Rs. 47,96,250/16 P interest/damages, with a claim of paramount lien on 2295 shares of Hungerford in Turner Morrison. Hungerford owned 100% of Turner Morrison's shares. From assessment years 1939-40 to 1955-56, Turner Morrison did not distribute dividends and used undistributed profits as working capital. Income-tax authorities assessed deemed dividends under Section 23A Income Tax Act, 1922 in Hungerford's hands. From 1939 to 1954, Turner Morrison's directors annually resolved that Turner Morrison should discharge Hungerford's tax liability as inequitable to ask Hungerford to pay. The resolutions were implemented by paying taxes; amounts were not debited to Hungerford's account or shown as debt; no demand for reimbursement was made. In 1955, control of Turner Morrison changed, and by agreement Turner Morrison undertook to discharge Hungerford's tax liability up to Rs. 46 lakhs. In 1965, Turner Morrison filed suit for recovery. Trial court dismissed suit, holding claim barred by estoppel, waiver, acquiescence, limitation, and opined no claim on Hungerford. Division Bench of Calcutta High Court affirmed. Turner Morrison appealed to Supreme Court. The Court considered three main issues: promissory estoppel, ultra vires nature of resolutions, and limitation under Section 15(5) Limitation Act, 1963. Turner Morrison argued resolutions were mere future promises, not representations, unsupported by consideration, and ultra vires; also contended Hungerford was non-resident and absent from India, so Section 15(5) excluded period of absence. Hungerford argued promises were supported by consideration because it refrained from enforcing dividend rights, and promissory estoppel applied; and that company was resident in India. The Supreme Court held that promissory estoppel applied: Turner Morrison made promises knowing they would be acted upon and Hungerford acted to its detriment; thus Turner Morrison was estopped. The resolutions were not ultra vires because non-distribution of dividends augmented working capital, and paying tax was in substance a distribution of profits without reducing capital, incidental to business. On limitation, the Court held suit was barred: Turner Morrison waived its lien; payment claims except for 1955-56 were time-barred after three years; for 1955-56, liability was Turner Morrison's own under amended Section 23A. Section 15(5) Limitation Act did not apply to incorporated companies, or alternatively, Hungerford was resident in India because its board met in India and it attended general meetings through representatives, so not absent. Consequently, the Supreme Court dismissed the appeal, affirming the High Court's dismissal of the suit.
Headnote
A) Estoppel - Promissory Estoppel - Applicability without consideration - General Principles of Equity (Common Law) - The rule of estoppel includes promissory estoppel where a party makes a promise intending it to be acted upon and the promisee acts to his detriment; such promise binds the promisor even though not supported by consideration in strict sense. In this case, Turner Morrison passed resolutions from 1939 to 1954 to discharge Hungerford's tax liability, and Hungerford refrained from enforcing dividend distribution, relying on those resolutions. Held that Hungerford placed itself in disadvantageous position and promissory estoppel sustained to bar Turner Morrison's reimbursement claim (Paras Not mentioned). B) Company Law - Ultra Vires Acts of Company - Incidental powers and distribution of profits - Companies Act, 1956 (no specific section cited) - Turner Morrison's resolutions to pay Hungerford's super-tax were not ultra vires because non-distribution of dividends augmented working capital and enabled more profits; discharging tax liability was in substance a distribution of assets to 100% shareholder without reducing capital, incidental to business. Held that Turner Morrison had not acted ultra vires its powers (Paras Not mentioned). C) Limitation - Exclusion of Defendant's Absence from India - Section 15(5) Limitation Act, 1963 - Applicability to incorporated companies and residence - Incorporated company cannot be absent from India if it carries on activities and holds board or general meetings in India; Section 15(5) Limitation Act, 1963 does not assist a plaintiff suing a company which is resident in India. Here Hungerford's board of directors met in India and attended Turner Morrison's general meetings through representatives; held resident in India, not absent, and suit barred by limitation for all payments except 1955-56 assessment year, which liability was Turner Morrison's own under amended Section 23A Income Tax Act, 1922 (Paras Not mentioned).
Issue of Consideration
Whether the doctrine of promissory estoppel barred the plaintiff's claim; whether payment of holding company's super-tax by subsidiary was ultra vires; whether suit was barred by limitation and Section 15(5) Limitation Act, 1963 applied to incorporated companies.
Final Decision
Supreme Court dismissed the appeal, affirmed the Calcutta High Court's dismissal of the suit, holding that Turner Morrison's claim was barred by promissory estoppel, payments were not ultra vires, and the suit was barred by limitation. Section 15(5) Limitation Act, 1963 did not assist because Hungerford was resident in India; all claims for payments before November 15, 1962 were time-barred, and for assessment year 1955-56, liability was Turner Morrison's own under amended Section 23A Income Tax Act, 1922.
Law Points
- Promissory estoppel can bind promisor even without consideration if promisee acted to detriment
- payment of holding company's tax liability by subsidiary can be incidental to business and not ultra vires
- company incorporated outside India but carrying on activities and board meetings in India is resident in India and not absent under Section 15(5) Limitation Act
- 1963
- suit for reimbursement of money paid is barred by limitation after three years.
