Case Note & Summary
The dispute arose from proceedings initiated by the Custodian of Evacuee Property against Kathiawar Industries Limited, of which the appellant was chairman, under Section 10(2)(11) of the Administration of Evacuee Property Act, 1950. The Custodian claimed that the shares held by Bhawani Investment Company Limited, a shareholder in Kathiawar Industries, had become evacuee property because all shareholders of Bhawani Investment Company had become evacuees. Bhawani Investment Company held 12,100 shares in Kathiawar Industries, and the Custodian argued that these shares, together with shares already vested in him, constituted more than 51 per cent of the share capital of Kathiawar Industries, entitling him to take over management of the entire company. The issued share capital of Kathiawar Industries was Rs. 50 lakhs, with 1,21,961 shares subscribed, and Bhawani Investment Company had 10,000 shares, of which 9,998 were held by three shareholders and the remaining two by two shareholders holding one share each. The appellant challenged the Custodian's claim before the Gujarat High Court under Article 226 of the Constitution. The High Court initially allowed the writ petition, holding that an incorporated company has a personality distinct from its shareholders and that Bhawani Investment Company could not be an evacuee, so its shares could not be evacuee property. On appeal by the Union of India, the Supreme Court in Union of India v. Mohanlal Ishvardas Panchal, AIR 1971 SC 139, set aside the High Court's order and remitted the case, observing that if all or a substantial number of shareholders in Bhawani Investment Company became evacuees, the shares held by that company in Kathiawar Industries would be evacuee property. After remand, the High Court dismissed the writ petition without recording any finding on when the shareholders became evacuees. The present appeal was filed by the appellant against that dismissal. The legal issue was whether the shares held by Bhawani Investment Company became evacuee property under Section 2(f)(1A) of the Act, which was inserted by the Administration of Evacuee Property (Amendment) Act, 1951 with retrospective effect from April 17, 1950, and deleted by Act 11 of 1953. Section 2(f)(1A) defined evacuee property as including property belonging to a joint stock company of which not less than 51 per cent of shares are held by evacuees. The appellant contended that the three shareholders owning 9,998 shares were declared evacuees only in 1955, after Section 2(f)(1A) was deleted, and therefore the shares never became evacuee property. The Supreme Court held that the relevant point of time for the shareholders to be evacuees was when the 1951 Amendment Act came into force or any time while that Act was in operation. Since the High Court had not recorded a finding on whether the three shareholders were evacuees before or during that period, the Supreme Court could not determine whether the shares were evacuee property and consequently whether the Custodian could take over management under Section 10(2)(11). The Court therefore remitted the case to the High Court to enter a finding on that factual question.
Headnote
A) Administration of Evacuee Property - Definition of Evacuee Property - Section 2(f)(1A) of Administration of Evacuee Property Act, 1950 - Property belonging to a joint stock company of which not less than fifty-one per cent of shares are held by evacuees is evacuee property; the point of time at which shareholders should have been evacuees is when the Amendment Act of 1951 came into force or any time while that Act was in operation - The High Court did not determine when the three shareholders holding 9,998 shares became evacuees; absence of such a finding made it difficult to hold that shares were evacuee property, hence case remitted. Held that High Court should enter a finding on whether these three shareholders were evacuees before or during the period Section 2(f)(1A) was in operation. (Paras 3-5, 7-9) B) Administration of Evacuee Property - Custodian's Management Powers - Section 10(2)(11) of Administration of Evacuee Property Act, 1950 - Custodian may take charge of management of whole affairs of company only when evacuee property vested in him consists of fifty-one per cent or more of shares in the company - The claim was based on 12,100 shares held by Bhawani Investment Company in Kathiawar Industries becoming evacuee property because all shareholders of Bhawani Investment Company were evacuees; since evacuee status of majority shareholders was not established for the relevant period, remand was necessary. Held that no final determination on management takeover could be made without factual finding. (Paras 1-2, 6, 9)
Issue of Consideration
Whether shares held by Bhawani Investment Company in Kathiawar Industries became evacuee property under Section 2(f)(1A) of the Administration of Evacuee Property Act, 1950 when three majority shareholders of Bhawani Investment Company were declared evacuees only in 1955, after deletion of Section 2(f)(1A) by Act 11 of 1953; and the relevant point of time for shareholders to be evacuees for the Custodian to take over management under Section 10(2)(11).
Final Decision
Supreme Court held that the relevant point of time for shareholders to be evacuees is when the Amendment Act of 1951 came into force or any time while that Act was in operation. Because the High Court had not recorded a finding on when the three shareholders became evacuees, the Supreme Court remitted the case to the High Court to enter a finding on whether they were evacuees before or during the period Section 2(f)(1A) was in operation.
Law Points
- Evacuee property includes property belonging to a joint stock company where not less than 51% shares held by evacuees under Section 2(f)(1A) of Administration of Evacuee Property Act
- 1950 as inserted by 1951 Amendment with retrospective effect
- relevant time for shareholders to be evacuees is when 1951 Amendment came into force or during its operation
- mere declaration of shareholders as evacuees after deletion of Section 2(f)(1A) by Act 11 of 1953 does not make shares evacuee property
- Custodian's power under Section 10(2)(11) depends on evacuee property constituting 51% or more shares in company
