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. The Judgment of the Court was
delivered by BHAGWATI J. The changed circumstances, it is said, make the performance of the contract impossible and the parties are absolved from the further performance of it as they did not promise to perform an impossibility The parties shall be excused, as Lord Loreburn says(1), "if substantially the whole contract becomes impossible of performance or in other words impracticable by some cause for which neither was responsible,.
It is therefore necessary to examine those decisions in order to see whether the reasons given therein are sound or erroneous. The nature of the amount which was nothing more than the undistributed profits of the company, remained unaltered. " What is the true nature and character of the disputed sum, must be determined with reference to the substance of the matter and when this is borne in mind, it follows that on the 1st of April, 1946, which is the crucial date, the sum of Rs.
It remained on the 1st of April as a mass of undistributed profits which were available for distribution and not ear-marked as "reserve". Therefore, it satisfied all the requirements of rule 2. Far from showing NRI Legal Services
that the directors had made the amount in question a reserve, it shows that they had decided to ear-mark it for distribution as dividend. -This is an appeal from the judgment and order of the High Court of Judicature at Calcutta on a reference made by the Income-tax Appellate Tribunal under Section 66(1) of the Indian Incometax Act (XI of 1922).
By the resolution of the shareholders on the 3rd April, 1946, the amount was shortly afterwards distributed as dividend. A reserve in the sense in which it is used in rule 2 can only mean profit earned by a company and not distributed as dividend to the shareholders but kept back by the directors for any purpose to which it may be put in future. (2), Viscount Maugham obseryed that the "doctrine of frustration is only a special case of the discharge of contract by an impossibility of performance arising after the contract was made.
Therefore, giving to the 'reserves' its plain natural meaning, it is clear that the sum of Rs. The reserve may be a general reserve or a specific reserve, but there must be a clear indication to show whether it was a reserve either of the one or the other kind. Therefore, by keeping back this amount they constituted it a reserve. He concludes "The talk, on the plaintiff's behalf, about payment of the earnest money conducted through Chattar Sen, broker, was wholly based on fraud and deception and so it is not binding.
We are fully conscious of the fact that the view that we have expressed above is not in conformity with a NRI Legal Services
number of decisions of the Oudh Chief Court and the Allahabad High Court. Thus the profits lying unutilized and not 210 specially set a part for any purpose on the crucial date did not constitute reserves within the meaning of' Schedule II, rule 2 (1). 5,08,637 could not be called a "reserve", for nobody possessed of the requisite authority had indicated on that date the manner of its disposal or destination.
On the 1st April, 1946, which is the commencement of the chargeable accounting period, there was merely a recommendation, by the directors that the amount in question should be distributed as dividend. The recommendation was accepted and the dividend was actually distributed. The fact that it constituted a mass of undistributed profits on the 1st January, 1946, cannot automatically make it a reserve.On the other hand, on the 28th
February, 1946, the directors clearly ear-marked it for distribution as dividend and did not choose to make it a reserve. Imperial Smelting Corporation Ltd. " Lord Porter agreed with this view and rested the doctrine on the same basis. On the 1st of January, 1946, the amount was simply brought from 209 the profit and loss account to the next year and nobody with any authority on that date made or declared a reserve. " The directors had no power to distribute the sum as dividend.
5,08,637 was kept in reserve by the company and not distributed as profits and subjected to taxation. The employees contested these propositions and contended that it was competent for the Government to constitute one or more Industrial Tribunals under section 7 and it was open to it to prescribe that these tribunals should function for a limited period; that the notification dated the 27th June, 1952, was valid both under sections 7 and 8 of the Act and the second tribunal was properly constituted and NRI Legal Services
had jurisdiction over the disputes referred to it under section 10 (1) (c) of the Act and that there was no need for a de novo trial in law.
There is implicit in this plea of fraud and misrepresentation an averment that the contract was valid and binding till set aside at the option of the Nawab who was the defrauded party. The High Court appear to have been under a misapprehension as to the real position, for they observed :-"It was open to the directors to distribute the sum of Rs. 5,08,537 as dividends. They did not choose to do so and have kept back this amount.
Nor did the company in its meeting on the 3rd April, 1946, decide that it was a reserve. They could only recommend, as indeed they did, and it was up to the shareholders of the company to accept that recommendation in which case alone the distribution could take place. It is, therefore, not correct to say that the amount was kept back. " In Joseph Constantine Steamship Line Limited v.