Nemi Chand and Another vs The Edward Mills Co. Ltd. and Another
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: Supreme Court of India
Case Number: Civil Appeal No. 105 of 1950
Decision Date: 10 November 1952
Coram: Mehr Chand Mahajan, Vivian Bose, Ghulam Hasan
In the matter of Nemi Chand and another versus The Edward Mills Co. Ltd. and another, the Supreme Court of India delivered its judgment on 10 November 1952. The case was reported in 1953 AIR 28 and 1953 SCR 197. The bench comprised Justice Mehr Chand Mahajan, Justice Vivian Bose and Justice Ghulam Hasan. The petitioners were Nemi Chand and another, while the respondents were The Edward Mills Co. Ltd. and another. The principal statutes attracted were the Court-Fees Act of 1870, section 12, and the Civil Procedure Code of 1908, section 2(ii) and Order VII, rule 11. The suit presented two distinct reliefs: first, a declaration that the appointment of Defendant No. 2 as chairman of the board of directors of the company was illegal, invalid and ultra vires, thereby denying him the right to act as chairman or managing director; second, a prayer for the appointment of a receiver to take over the management of the company. The plaint carried a court-fee stamp of only Rs 10, but the defendants objected and argued that an ad valorem fee of Rs 51,000, reflecting the valuation of the suit, should be paid. The trial court dismissed the suit. The petitioners then filed an appeal in which they abandoned the second relief concerning the receiver and paid only Rs 10 as court-fee. The appellate court, however, ordered the payment of the ad valorem court-fee and rejected the memorandum of appeal on the ground of non-compliance with the stamping requirement. On further appeal, the Supreme Court held that it was permissible for the appellant to abandon the second relief and that, because the subject-matter of the appeal was purely declaratory, the memorandum of appeal was properly stamped. The Court further observed that the first relief was purely declaratory and did not involve any consequential relief. Moreover, the Court ruled that section 12 of the Court-Fees Act did not forbid the Court from examining the correctness of the lower appellate court’s order rejecting the appeal on the basis of alleged improper stamping. The finality created by section 12 applies only to decisions relating to the valuation of the court-fee and not to determinations of the category under which a suit or appeal falls for fee purposes. Accordingly, a decision under section 12 is merely an interlocutory, non-appealable order concerning court-fee, and it may be revisited if the court assumes jurisdiction it does not possess or fails to observe the prescribed formalities.
The Court observed that when a decision is rendered under section 12 of the Court-Fees Act without the court possessing the requisite jurisdiction or without observing the prescribed formalities, such a decision is not insulated from scrutiny. In that circumstance the order is plainly subject to revision by the High Court exercising its revisional powers. In a similar vein, the Court explained that if a party believes a decision made under section 12 is manifestly erroneous, that party may—at the risk of having his plaint rejected or his suit dismissed—file an appeal against the order that rejects the plaint or against the decree that dismisses the suit, even though the appeal does not expressly address the question of court-fee. The party is thereby entitled to challenge the interlocutory order, and also to contest the question of court-fee that arises in the suit or appeal. The term “finality,” when construed in the narrow sense that statutes often employ, merely indicates that no appeal lies from an order of that character as such; it does not confer any broader immunity from review.
The judgment concerned Civil Appeal No. 105 of 1950, which arose from the judgment and order dated 22 March 1945 of the Court of the Judicial Commissioner, Ajmer-Merwara, in Civil First Appeal No. 16 of 1944. That appeal had itself stemmed from the judgment and decree dated 13 March 1944 of the Judge, Small Causes, Ajmer, and the Additional District Judge, Ajmer, in Civil Suit No. 28 of 1942. The appellant was represented by counsel, while the respondents were represented by counsel for the Attorney-General of India. The appeal was heard on 10 November 1952, and the judgment was delivered by Justice Mahajan. The appeal was granted special leave by the Privy Council and was confined to the question of court-fee, specifically whether the memorandum of appeal presented to the High Court attracted a fee payable under section 7(iv)(e) of the Court-Fees Act or under Article 17 of Schedule II of the same Act. The factual background involved the Edward-Mills Co. Ltd., a joint-stock company based in Beawar, Ajmer-Merwara. Under the company’s articles, Seth Gadh Mal Lodha and Rai Sahib Moti Lal held the positions of chairman and managing director respectively from 1916. On 1 July 1938, the Bombay High Court adjudicated that Rai Sahib Moti Lal and his firm were insolvent, requiring him to vacate the managing-director office and rendering his firm’s members ineligible for the post. Consequently, by a board resolution dated 18 July 1938, Gadh Mal Lodha was appointed to replace Moti Lal as managing director. Following Gadh Mal Lodha’s death on 11 January 1942, the board installed Seth Sobhagmal Lodha as both chairman and managing director pending a permanent appointment. An extraordinary meeting of the company was convened for 8 February 1945 to elect a chairman, during which a conflict arose between the two factions represented by Sobhagmal Lodha and Moti Lal. The chairman dissolved the meeting, but Moti Lal’s supporters continued, passing a resolution that appointed him sole agent and chairman for twenty years with remuneration equal to ten per cent of the company’s profits. This resolution of 8 February 1942 became the subject of the present dispute, prompting Seth Sobhagmal Lodha to approach the District Judge of Ajmer for an order that a general meeting be held under court supervision. The court granted the request on 11 February 1942 and directed that the meeting take place on 12 February 1942 under Sobhagmal Lodha’s chairmanship. Aggrieved, respondent No. 2 filed an application in revision before the Judicial Commissioner, who upheld the revision and directed that the 8 February 1942 resolution be implemented. Having failed to obtain relief in the summary proceedings, the parties proceeded to the present appeal concerning the liability of court-fee.
The meeting was represented by Sobhagmal Lodha and by Moti Lal. The chairman therefore dissolved the meeting, but the supporters of Moti Lal continued to sit and passed a resolution appointing him as the sole agent and chairman for a period of twenty years, with a remuneration fixed at ten per cent of the company’s profits. It is this resolution of 8 February 1942 that gave rise to the dispute now before the Court. In the circumstances that arose, Seth Sobhagmal lodged an application before the District Judge of Ajmer, praying that a general meeting of the company be held under the supervision of the Court. The application was granted on 11 February 1942, and the Court ordered that a meeting be convened on 12 February 1942, to be chaired by Seth Sobhagmal. Respondent No. 2, aggrieved by that order, filed a revision application in the Court of the Judicial Commissioner, challenging the order. The learned Judicial Commissioner allowed the revision and directed that the resolution of 8 February 1942 should be given effect. After failing to obtain relief in the summary proceedings, the appellant instituted the suit from which the present appeal arises, seeking to have the 8 February 1942 resolution set aside. The plaint pleaded two specific reliefs: first, a declaration that the appointment of defendant No. 2 was illegal, invalid and ultra vires, and that he therefore had no authority to act as chairman, managing director or in any other capacity of defendant No. 1; second, the appointment of a receiver to take over the management of the company until a properly qualified chairman and managing director, as required by the memorandum and articles of association, could be duly appointed. The plaint was filed with a court-fee stamp of only Rs 10; the respondents objected that a fee was payable in respect of relief No. 2. The appellants consequently paid an ad valorem fee of Rs 51,000, which represented the valuation of the suit for jurisdictional purposes. The Additional District Judge dismissed the suit on the preliminary ground that it was not maintainable because it concerned the internal management of the company and because the appellants had no right to sue without impleading the directors who were necessary parties. Dissatisfied with that decision, the appellants appealed to the Court of the Judicial Commissioner, Ajmer-Merwara, at Ajmer. The memorandum of appeal was stamped with a court-fee stamp of Rs 10, and it expressly stated that relief No. 2 of the plaint was withdrawn. An objection was raised regarding the amount of court-fee paid on the memorandum of appeal. The Judicial Commissioner ordered that proper court-fees be paid within one month, without providing reasons for the order. The additional fee was not paid, and the Judicial Commissioner dismissed the appeal with costs on 22 March 1945. An application for leave to appeal to the Privy Council against that dismissal was made, but the request was refused.
In the appeal to this Court, the memorandum of appeal was again stamped with a ten-rupee stamp, which prompted an objection from the respondents. The plaintiffs had previously admitted that the relief of receivership they sought was merely consequential to the declaratory relief, and they were therefore ordered to pay the same stamp duty that had been paid in the trial court. The plaintiffs objected to this order on the basis that they had removed from their memorandum of appeal the request that the court appoint a receiver, and consequently they claimed they should not be liable for the same amount of stamp duty. A notice was issued and counsel were heard on the matter. The Court observed that Section 42 of the Specific Relief Act explicitly provides that a court shall not grant a declaration if the plaintiff, who is capable of seeking a further relief beyond a simple declaration of title, fails to do so. Accordingly, the appellants were directed to pay, as earlier ordered, the same stamp duty that had ultimately been paid in the plaint. The Court noted that the appellants had earlier sought consequential relief, and therefore it could not hold that the plaintiffs were unable to seek any further relief, especially since they had pursued such relief in the lower court and it had been refused to them. Because the required stamp fee was not paid, the appeal was dismissed with costs. The reasons for demanding the additional court-fee, although not mentioned in the original order, were set out in this order. The issue before the Court was whether the Judicial Commissioner’s order demanding additional court-fee could be sustained in law. Under article 1 of Schedule I of the Court-Fees Act, a memorandum of appeal must be stamped according to the value of the subject-matter in dispute, meaning that the relief claimed determines the fee. The only relief claimed in the memorandum of appeal was the first relief mentioned in the plaint, which was purely declaratory; consequently, the memorandum was properly stamped under article 17 of Schedule II. It is always permissible for an appellant to abandon part of a claim and limit the appeal, provided the relief is not of a nature that cannot be divided. Numerous authorities support this position, including Brahanandam v. Secretary of State for India, Ram Prasad v. Bhiman, Karam Chand v. Jullundur Bank Ltd, Neelachalam v. Nara-singha Das, Sah Bamehand v. Pannalal, and Chuni Lal v. Sheo Charan Lal. The plaintiffs expressly relinquished the second relief in their memorandum of appeal. In determining whether the memorandum was correctly stamped according to the subject-matter, it was not within the Judicial Commissioner’s jurisdiction to examine whether the suit, with the second prayer removed, fell within the proviso to Section 42 of the Specific Relief Act, as that issue related to the merits of the appeal and not to its proper institution.
In this case the Court observed that the issue of whether a suit, after the removal of its second prayer, fell within the scope of the proviso to section 42 of the Specific Relief Act was a question of the merits of the appeal. Such a question did not pertain to the proper institution of the appeal, and consequently the Judicial Commissioner did not have the authority to require the plaintiffs to pay an additional court-fee. Accordingly, the order demanding an extra fee was beyond the Commissioner’s jurisdiction, and the appeal could not be dismissed on that ground. The Court therefore concluded that the order instructing the plaintiffs to pay additional fees was erroneous. It held that the memorandum of appeal, as it stood without the second prayer, had been correctly stamped because the subject-matter of the appeal was purely declaratory. The Court affirmed that the memorandum of appeal was properly stamped and that no further fee was payable.
The respondents’ counsel argued that the first relief claimed in the plaint, which formed the subject-matter of the appeal, also encompassed consequential relief and therefore was not purely declaratory. Counsel suggested that the wording that the second defendant “had no right to act as chairman and managing director” amounted to a claim for consequential relief, justifying the Commissioner’s demand for additional fee based on its value. The Court was unable to agree with this submission. It explained that the first relief sought a declaration that the second defendant’s appointment was illegal, invalid, and ultra vires, and that consequently he had no right to act as chairman or managing director. This declaration was framed in negative terms and did not contain any request for consequential relief. The repetitive phrasing of “that defendant 2 has no right to act as chairman …” merely restated the opening statement of the paragraph and did not create a claim for further relief. Consequently, the contention of the respondents’ counsel could not be upheld. The Court also addressed the argument that, under section 12 of the Court-Fees Act, the Commissioner’s decision was final and could not be challenged on appeal. Section 12 provides that any question concerning the amount of fee payable in a plaint or memorandum of appeal shall be decided by the court where the pleading is filed and that such decision shall be final between the parties. The Court noted that this provision must be read in harmony with the Code of Civil Procedure. Order VII, Rule 11 of the Code provides that a plaint may be rejected when the relief claimed is undervalued, among other grounds, and such rejection is an appealable decree. The Court recognised a possible tension between the finality clause of the Court-Fees Act and the procedural provisions of the Code, noting that judicial opinions have differed on how to reconcile them.
When a plaintiff is ordered by the court to correct the valuation of the claim within a period fixed by the court and the plaintiff does not comply, the court may reject the plaint; similarly, if the relief claimed is properly valued but the plaint is drafted on paper that lacks sufficient stamp duty, and the plaintiff is directed to provide the appropriate stamped paper within a time fixed by the court but fails to do so, the court is also empowered to reject the plaint. An order that rejects a plaint is characterised as a decree within the meaning of section 2, sub-section (ii), of the relevant statute, and such a decree is appealable as a decree. A difficulty arises because the Code of Civil Procedure contains provisions that appear to conflict with section 12 of the Court-Fees Act, which declares that an order dealing with valuation is final between the parties, and attempts to reconcile these two sources of law have produced divergent judicial opinions on the proper construction of the section. In several decisions the Calcutta High Court adopted the position that the finality created by section 12 of the Court-Fees Act is displaced by the provisions of the Code, because an order rejecting a plaint is appealable as a decree regardless of whether the dispute concerns the fee category applicable to the suit or merely the question of valuation, as illustrated in In re Omrao Mirza v. Mary Jones and Tara Prasanna Chongdar v. Nrisingha Moorari Pal. Later judgments rejected this extreme view and held that the finality under section 12 is confined to the issue of valuation pure and simple and does not extend to the determination of the fee category into which a suit falls, as explained in Tariman Khatun v. Secretary of State for India in Council. The Allahabad High Court initially embraced the earlier extreme approach, as seen in Muhammad Sadik v. Muhammad Jan, but subsequently modified its stance, concluding that section 12 confers finality only on matters of appraisal. The High Court of Lahore arrived at a comparable interpretation, holding that the term “valuation” in section 12 relates solely to decisions concerning valuation itself and does not attach finality to determinations of the category of the case under the various sections and schedules of the Court-Fees Act, as indicated in Mahna Singh v. Bahadur Singh and Mst. Parmeshri v. PannaLal. This interpretation has been consistently upheld in that jurisdiction. The Madras High Court likewise applied the narrow construction, as reflected in Lakshmi Amma v. Janamajayam Nambiar, Annamalai Chetty v. Cloete, and Narasimhalu Chetty v. Bamayya Naidu. Counsel for the petitioner referred to a recent Full Bench decision of the same court in Madana Mohana Naiko v. Krupasindhu Naiko, but that decision concerned the second part of section 12 and did not directly address the construction of the first part, although it contained certain observations relevant to the issue.
The judges observed that they found no justification for a narrow interpretation of the term “valuation” in section 12. According to the judges, the finality declared by section 12 was not limited only to pure valuation matters; it also extended to decisions concerning the category under which a suit or an appeal fell for the purpose of court-fee. Nevertheless, these obiter observations could not be said to overrule the earlier Full Beach decision of that court in Lakshmi Amma v. Janamajayam Nambiar (5).
The record then listed several earlier authorities: (1) I.I.R. (1940) 2 Cal. 166; (2) (1889) I.L.R. II All. 91; (3) 1919 Punjab Record 16; (4) A.I.R. 1931 Lah. 378; (5) (1894) 4 M.L.J. 183; (6) (1882) I.L.R. 4 Mad. 204; (7) A.I.R. 1942 Mad. 502; and (8) A.I.R. 1937 Mad. 81. A later decision in Narasimhalu Chetty v. Bamayya Naidu (1) reiterated that the Full Bench decision was not in any way an overruling of the decision in Lakshmi Amma v. Janamajayam Nambiar (2). All recent decisions of the Bombay High Court have adopted the same view, as shown in Dada v. Nagesh (3) and Krishnaji Bari Dhandhere v. Gopal Narain Dhandhere (4).
Counsel drew the Court’s attention to an earlier Bombay High Court case, Vithal Krishna v. Balakrishna Janardan (5). In that case the court unequivocally held that no appeal lay and that the finality declared by section 12 was comprehensive enough to include every question, whether it related to the category of the suit or to valuation pure and simple. The court also held, however, that the High Court possessed the power to correct an erroneous decision when exercising its revisional jurisdiction. Consequently, the finality given by section 12 was effectively destroyed when powers of appeal were exercised under the guise of revisional jurisdiction.
The courts of Patna and Oudh have taken the same view as the Lahore courts, as evident in Chandramoni Koer v. Basdeo Narain Singh (6) and Gumani v. Banwari (7). It therefore appears that the prevailing judicial consensus opposes the construction suggested by counsel. The Court is of the opinion that the construction afforded to the language of section 12 in the cited decisions is correct, and it sets out its reasons.
The Court notes that the difference in wording between sections 5 and 12 of the Court-Fees Act indicates that the scope of section 12 is narrower than that of section 5. Section 5 declares that decisions on questions of court-fee, whenever they arise in the chartered High Courts, are final; this includes decisions as to whether a fee is payable and the amount of the fee. By contrast, section 12 declares that every question relating to valuation for the purpose of determining the amount of any fee payable under Chapter 3 of a plaint or memorandum of appeal is final. Had section 12 been drafted in the following alternative wording – “If any dispute arises as to the amount of any fee chargeable under this chapter a plaint or memorandum of appeal, it shall be decided by the court in which such plaint or memorandum is filed and such decision shall be final as between the parties” – then the construction advocated by counsel might have been sustainable. The cited authorities for this observation are A.I.R. 1942 Mad. 502 (5); (1886) I.L.R. lo Bom. 610 (6); (1894) 4 M.L.J. 183 (7); (1921) 4 P.L.J. 57 (8); (1899) I.L.R. 23 Bom. 486 (9); (1920) 54 I.C. 733 (10); and A.I.R. 1936 Bom. 166 (11).
In the court-fees provision, the language states that “any fee chargeable under this chapter a plaint or memorandum of appeal, it shall be decided by the court in which such plaint or memorandum is filed and such decision shall be final as between the parties.” The Court observed that had the provision been drafted in the alternative form suggested by Mr. Setalvad, the Court might have upheld his construction. However, the presence of two sections dealing with the same subject matter but expressed in different language leads to a reasonable inference that Parliament intended different effects. One section appears to confer finality on every decision taken by the taxing officer or the taxing judge, whereas the other seems intended to give finality only to factual questions decided by a court, leaving legal questions open to review. Determining whether a particular case falls under one section or the other is a pure question of law; it does not directly settle the valuation of the suit for the purpose of court-fee. The question of valuation or appraisal arises only after the class or category of the suit has been fixed.
Some authorities have argued that the category must be decided before any assessment of value can be made, and therefore the categorisation question is inevitably part of the valuation process. The Court found this argument, though apparently plausible, to be unsound. Valuation of a suit depends on arithmetic calculations or on an expert’s assessment of the evidence, whereas the decision as to the correct category is a legal determination that precedes – but is separate from – the valuation exercise. The ordinary meaning of “valuation” or “appraisement” does not necessarily encompass the legal question of category. A long line of decisions has established a construction of the section that harmonises the Court-Fees Act with the Code of Civil Procedure, avoiding the result that either statute would be rendered ineffective. It is therefore possible to reconcile the two statutes by interpreting the finality declared in section 12 to mean that the parties may not challenge the decision by filing a direct appeal, yet the decision is not immune from examination by a higher court. In other words, section 12 renders the court’s determination a non-appealable fee question, placing it on the same footing as other interlocutory orders that are not appealable under the Code, and does nothing more than that.
If a decision issued under section twelve is made on the basis that the court possesses jurisdiction which it actually lacks, or if the decision is rendered without complying with the formal procedures required for such a decision, the order is plainly subject to revision by the High Court exercising its revisional authority. In a similar vein, when a litigant believes that a decision made under section twelve is evidently erroneous, and consequently risks the rejection of his plaint or the dismissal of his suit, the litigant may choose to appeal against the order that rejected the plaint or dismissed the suit, but not against the decision concerning the court-fee. In such circumstances the litigant retains the right to contest the interlocutory order, including the question of court-fee that was raised in the suit or in the appeal. The term “finality,” when construed in the narrow sense in which it is frequently employed in statutes, merely indicates that no appeal lies from an order of this character as such; it does not convey any broader protection against judicial scrutiny. For the sake of argument, the Court acknowledges, without accepting, the position advanced by Mr Setalvad that section twelve is sufficiently comprehensive to encompass every question relating to court-fee, whether the question concerns the category of fee or the simple valuation thereof. In the present matter, however, the Judicial Commissioner resolved none of those questions, and consequently his decision cannot be said to fall within the scope of section twelve.
The Judicial Commissioner’s sole determination was that, because the suit could not be maintained without seeking relief numbered two, the same fee that was payable on the memorandum of appeal should also be payable on the plaint. In effect, the court addressed an issue concerning the maintainability of the appeal without first ascertaining whether the appeal had been properly instituted before that court. Such a determination does not attract the “finality” guaranteed by section twelve, since it does not resolve any question that lies within the ambit of the Court-Fees Act. Accordingly, the second objection raised by Mr Setalvad, namely that no appeal lies from the Judicial Commissioner’s order by special leave, lacks merit and is overruled. As a result, the appeal is allowed, the Judicial Commissioner’s dismissal of the appeal is set aside, and the matter is remanded to him for a decision consistent with law on the basis that the memorandum of appeal presented to him was properly stamped. The appellants’ costs of this appeal shall be treated as costs in the appeal before the Judicial Commissioner. The appeal is therefore allowed. Agent for the appellant: Rajinder Narain. Agent for the respondents: S P Varma.