Citation Codes

Equivalent Citations

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Case Number

W. Ps. Nos. 107 and 216 of 1958.

Advocates

Mr. R.M Seshadri for Petr.
The Govt. Pleader for Respt.

Judges

Balakrishna Aiyar, J.

Acts

Rule 12 of the Import Trade Control Policy Rules

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Smart Summary

Structured Summary of the Legal Opinion

Factual and Procedural Background

M.S. Sha Bhagajee Sonmull, Madras, was a firm of established importers under Rule 12 of the Import Trade Control Policy Rules. In 1956 the firm resolved to dissolve and, by an agreement dated 26 November 1956, the firm's quota rights for importing various articles were divided equally among the four ex-partners. The Import Control Rules required notice of any change in firm constitution or dissolution to be given to the Chief Controller of Imports, New Delhi; a letter dated 30 November 1956 informed the Chief Controller of the dissolution.

By an order dated 9 April 1957 the Chief Controller approved the transfer/division of the quota rights to the former partners but stated the order would take effect only "in future." As a result, the petitioner received quota only for January–June 1957, and the petitioner's application for quota for July–December 1956 was rejected.

The petitioner filed Writ Petition No. 107 of 1958 seeking a writ of mandamus or other direction to the Joint Chief Controller of Imports and Exports, Madras, to issue import licences to the petitioner with effect from the date of the dissolution (the petition mistakenly stated 21 November 1956 but this was corrected in argument to 26 November 1956). Separately, Writ Petition No. 216 of 1958 sought a writ for quota in respect of "coffee machines" which had been refused on the ground that the item was "currently banned."

The Joint Chief Controller filed a joint affidavit in both petitions explaining that licences are personal, and when granted to a firm none of the partners on dissolution can automatically claim to be established importers in their own right until the Chief Controller examines the transfer agreement, considers objections, and issues quota shares; only then do separating partners become eligible for licences.

Legal Issues Presented

Whether, upon dissolution of a firm and division of the firm's quota rights among former partners by agreement, an individual former partner is entitled to quota rights from the date the division/transfer took effect under the agreement (the date of dissolution/transfer) or only from the date the Chief Controller of Imports and Exports recognises the transfer.
Whether the petitioner is entitled to a quota for the article "coffee machines" given the departmental statement that the item was "currently banned" (relating to W.P. No. 216 of 1958).

Arguments of the Parties

Petitioner's Arguments

The petitioner contended he was entitled to the quota with effect from the date on which the transfer/division was effected (i.e., the date of the dissolution/agreement), not merely from the date of departmental recognition by the Chief Controller.

Respondent's / Government's Arguments

The Joint Chief Controller (through the Government Pleader) argued that licences are personal; when a licence has been granted to a firm, none of the partners on dissolution becomes an established importer in his own right until the Chief Controller recognises the transfer and issues quota certificates.
The Government Pleader relied on wording in the Import Trade Control Policy Book (the Rule quoted on p.20) — in particular the provision that a "reconstituted firm will not be entitled to the quotas of the original firm until the transfer ... has been approved" — to submit that rights of individual partners take effect only upon recognition by the Chief Controller.
In relation to coffee machines, the Joint Chief Controller explained that the item was "currently banned"; the counter stated that this fact was brought to the petitioner's notice and was not the ground for the initial rejection (there is some variation in the account), but ultimately it was explained in Court that coffee machines were prohibited and W.P. No. 216 was dismissed on that basis.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Desai Goundar & Co. v. Dy. Controller of Imports (1955) 2 M.L.J. 564	Addressed whether an income-tax verification certificate requirement for an import licence was an unreasonable restriction on the fundamental right to carry on business; the decision held it was not unreasonable because there is no fundamental right to obtain a quota under a licence.	The court held this precedent had no application to the present facts because it dealt with a stage where a quota had not yet been granted; it did not assist the respondent's position here.
Srinivas v. Director of Controlled Commodities (1952) 2 M.L.J. 113	Related to a situation where a previously held quota had lapsed and the person applied for the grant of a fresh quota (i.e., a stage prior to a quota having been obtained).	The court found this decision inapplicable because it concerned a stage prior to the grant of a quota and therefore did not govern the present dispute over post-dissolution entitlement under an agreement.
Writ Petition No. 569 of 1955 (Rajagopalan, J.) — facts concerning Janardhan Rao / Rao and Company and Venkataramiah Chetty	The transferee (who purchased a going concern at a sale) was held entitled to the quota rights of the original concern with effect from the date on which the rights of the original concern devolved on him, not merely from the date of departmental recognition.	The court regarded this decision as most in point and applied its principle: it supported the petitioner's claim that entitlement can arise from the date of transfer/devolution under the relevant agreement or transaction.

Court's Reasoning and Analysis

The court began by noting that the Export and Import Control Act itself provided no direct guidance on the precise point in issue; therefore the court examined the relevant passages on page 20 of the Import Trade Control Policy Book for July–December 1956 that governed changes in firm constitution and transfer/division of quota rights.

The court quoted and analysed four relevant passages from those Rules:

A general passage stating that a reconstituted firm will not be entitled to the quotas of the original firm until the transfer has been approved by the Chief Controller — the court observed this provision applies to reconstituted or successor firms and not to the dissolution-and-division scenario in the present case.
A passage stating that where the business is transferred as a going concern (with all assets, liabilities and goodwill) to another firm which thereby becomes its successor, the transferee shall get the quota rights.
A passage stating that where a firm is dissolved, wound up, or ceases business without making provision for transfer of its business/assets/liabilities/goodwill, no one will be entitled to the firm's quota rights.
A passage (governing division of quota rights) stating that where a firm is dissolved and the partners agree to divide its business/assets/liabilities, and its goodwill is taken over by one partner or none is allowed to use it, the partners shall get their respective shares in the quota rights according to the provisions of the agreement.

The court analysed the Government Pleader's arguments and rejected them for the following principal reasons (each drawn from the opinion's text):

The first quoted passage about reconstituted firms was inapplicable: it speaks to a reconstituted successor firm taking the place of the old firm and being entitled to quotas only after approval; it does not address the situation of a dissolution where quota rights are divided among ex-partners.
The Government Pleader's attempt to read the third passage (no entitlement where firm is dissolved/wound up/ceases to carry on business "without making provision for transfer...") as meaning that dissolution itself bars entitlement unless the Chief Controller recognises the transfer was rejected. The court held that the qualifying phrase "without making provision for transfer..." applies to all three contingencies in that sentence (dissolution, winding up, cessation without provision), and therefore does not support postponing rights where there is an agreement providing for division.
The court emphasised the specific provision in the fourth passage for division of quota rights on dissolution: if the partners have agreed to divide the business/assets/liabilities and goodwill is taken over by one partner or none may use it, and if the agreement contains provisions relating to quota, then the partners shall get their respective shares according to the agreement. Thus the rules explicitly contemplate entitlement arising from the agreement when the conditions are satisfied.
The court distilled the conditions (as set out in the opinion) that are sufficient to satisfy the fourth passage:
1. The firm must be dissolved.
2. The partners must agree to divide its business, assets and liabilities.
3. Its goodwill must be taken over by one partner, or none of them should be allowed to use it.
4. The agreement must contain some provision relating to the quota.
Given those conditions, the court found there was no justification for holding that the partners' rights are postponed until the Chief Controller recognises the transfer; where the parties intend the transfer to take effect only on recognition, express provision is made in the rules (for reconstituted firms), and the absence of such express provision in the dissolution/division context indicates rights under an agreement vest according to the agreement.
The court also relied on the prior decision in Writ Petition No. 569 of 1955 (Rajagopalan, J.) as directly in point: that decision held that a purchaser of a going concern who succeeded to the concern's assets was entitled to quotas from the date of devolution of rights, not merely from the date of departmental recognition—supporting the petitioner's contention here.

On the specific point about coffee machines, the Government Pleader ultimately informed the court that the import of coffee machines was prohibited; the court treated that information as dispositive of W.P. No. 216 of 1958 and dismissed that petition accordingly.

Holding and Implications

Holding:

The rule nisi is made absolute.

Direct effect on the parties (as stated in the opinion):

The petitioner (in W.P. No. 107 of 1958) is entitled to succeed on the point that, in the circumstances described and on the language of the applicable rules, the petitioner is entitled to quota rights in accordance with the terms of the dividing agreement and is therefore entitled to the quota with effect from the date on which the rights devolved under that agreement (i.e., the date of the dissolution/transfer as pleaded).
The petitioner will be awarded costs in W.P. No. 107 of 1958; no costs are awarded in W.P. No. 216 of 1958. Advocate's fee assessed at Rs. 250.
W.P. No. 216 of 1958 (coffee machines) is dismissed because the import of coffee machines was stated to be prohibited.

Implications beyond the parties: The opinion applies the existing rules and a previously reported decision (Writ Petition No. 569 of 1955) to resolve entitlement under a dissolution-and-division scenario. The opinion does not state that it is laying down a new general precedent beyond applying the rules and the earlier decision to the facts before the court.

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H.V Jain v. The Joint Chief Controller Of Imports And Exports, Madras-1.

1. M.S. Sha Bhagajee Sonmull, Madras, was a firm of "established importers" within the meaning of Rule 12 of the Import Trade Control Policy Rules issued by the Union Government. The firm had four partners. In 1956 the members of the firm resolved to dissolve the partnership and by an agreement executed on 26th November, 1956, the quota rights which the firm had for importing various articles were divided in equal shares among all the four ex-partners. The Import Control Rules require that information relating to any change in the constitution of a firm or its dissolution should be reported to the Chief Controller of Imports, New Delhi. Immediately after the dissolution of the firm intimation of the fact was given to the Chief Controller of Imports by a letter, dated 30th November, 1956. By an order, dated 9th April, 1957, the Chief Controller approved the transfer of the quota rights which the firm had held to its quondam partners. But he made it clear that the order would take effect only "in future". The result of it was that the petitioner was given a quota only for January to June, 1957, and his application for quota for July to December, 1956, for various articles was rejected.

2. The case of the petitioner is that he is entitled to a quota with effect from the date on which the transfer was effected and not merely with effect from the date on which the transfer was recognised by the Chief Controller of Imports.

3. W.P. No. 107 of 1958 has been filed for the issue of a writ of mandamus or other appropriate direction to the Joint Chief Controller of Imports and Exports, Madras, to issue import licences to the petitioner with effect from the date of the dissolution of the partnership. In the petition this date is given as 21st November, 1956, but, during the arguments I was told that it is an error for 26th November, I956

4. In respect of one article, viz., coffee machines, quota was refused on the further ground "that the item is currently banned."

5. Writ Petition No. 216 of 1958 has been filed for issue of writ of mandamus or other appropriate direction to the Joint Chief Controller of Imports and Exports, Madras, to grant quota for this article to the petitioner.

6. The Joint Chief Controller of Imports and Exports filed a joint affidavit in both these writ petitions. Therein he stated that a licence is necessarily personal and that when it is granted to a firm of partners, none of the partners can on dissolution of the partnership claim that he is an established importer in his own right. When an application is received for recognition of the transfer the Chief Controller examines the agreements and hears the objections, if any, received in response to advertisements issued and then he divides the quota rights of the firm and sanctions appropriate shares to such persons as appear to be entitled on the material before him. It is only then that the separating partner becomes eligible for licences and an established importer in his own right.

Thus on the dissolution of a firm, none of the quondam partners was eligible for a licence in his own right as an established importer unless and until the Chief Controller of Imports and. Exports was satisfied that he should be made eligible by issuing a quota certificate to him.

As regards the coffee machines which were referred to as an item currently banned, the counter explained, The fact that the item in question in W.P. No. 216 of 1958, namely, "coffee machines" was banned was merely brought to the notice of the petitioner and was not the ground for rejection of the application.

7. If the case of the respondent had been for instance that for some reason or other the situation of the Government in relation to foreign exchange was such that they could not possibly issue the quota for the period, July to December, 1956, the matter would have stood on an entirely different footing. Similarly also if the case of the respondent had been that import of the articles had been prohibited. The Respondent, however, does not rest his case on either of these grounds or any other similar ground. His case is that the petitioner would become entitled to his quota only after the transfer or division has been recognised by the Chief Controller of Imports.. I have now to consider how far this contention is right.

8. The Export and Import Control Act gives no guidance on the point. The rules that apply to a case like the present are found on page 20 of the Import Trade Control Policy Book issued by the Government of India for July-December, 1956.. I quote the relevant passages:

I."When a change occurs in the constitution or the name of a firm if the business changes hands, the reconstituted firm will not be entitled to the quotas of the original firm until the transfer of the quota rights in their favour has been approved by the Chief Controller of Imports and Exports or other licensing authority in cases covered by Clause (c) below. The following are the general principles followed in regard to such cases:

II. (a) Transfer of quota rights.-(i) Where the business of a firm is transferred together with all its assets, liabilities and goodwill to another firm so as to constitute it its successor in all respects, the transferee firm shall get the quota rights of the transferred firm.

III. (ii) Where a firm is dissolved or wound up or ceases to carry on business without making provision for transfer of its business, assets, liabilities and goodwill, no one will be entitled to the quota rights admissible to that firm.

IV. (b) Division of quota rights.-Where a firm is dossolved, and the partners agree to divide its business, assets and liabilities and its goodwill is taken over by one of the partners or none of them is allowed to use it, the partners shall get their respective share in the quota rights according to the provision of the agreement.

9. The learned Government Pleader seemed very strongly to think that the first of the four passages I have quoted above is authority for the position that where a firm has been dissolved and the quota rights of the firm divided among the quondam partners the rights of the individual partners would take effect only from the date on which the transfer is recognised by the Chief Controller of Imports and Exports. But, if one reads the passage carefully it will be noticed that it has no application to a case like the present. What it says is that that re-constituted firm will not be entitled to the quotas of the original firm until the transfer of the quota rights in their favour has been approved.

10. This makes it clear that this rule applies only when a new or reconstituted firm takes the place of the old one and that it has no application where a firm is dissolved. In order that this rule may apply one of three conditions must be first satisfied. There must be a change in the constitution of the firm, or there must be a change in the name of the firm or the business must have changed hands. It may properly be said that the third condition has been satisfied in the present case. But that alone is not sufficient. The rule further requires that there should be a reconstituted firm. That condition has not been satisfied in the present case.

11. The learned Government Pleader then contended that when a firm is dissolved and the quota rights of the firm are divided among the partners, the quondam partners are not as of right entitled to a quota. He sought support for this argument in the third of the passages I have quoted above. This is how he invited me to construe the passage. Where a firm is dissolved no one will be entitled to the quota rights admissible to that firm; when a firm is wound up no one will be entitled to the quota rights admissible to that firm ; when a firm ceases to carry on business without making provision for transfer of its business, assets, liabilities and goodwill, no one will be entitled to the quota rights admissible to that firm. In other words, he invited me to t read the passage as though the stipulation contained in the expression "without making provision for transfer of its business, assets, liabilities and goodwill" applied only to "ceases to carry on business." I do not think that is the correct way of reading the passage. The stipulation applies to all the three contingencies mentioned earlier in that passage, viz., the dissolution of the firm, the winding up of the firm and the cessation of business by the firm. When we read the fourth passage I have quoted above it will be appreciated that there is no room at all for any argument of the kind advanced by the learned Government Pleader, because it makes specific provision for the division of quota rights when a firm is dissolved.

12. In order to satisfy the requirements of the fourth passage it is enough if the following conditions are satisfied:

(1) The firm must be dissolved.

(2) The partners must be agreed to divide its business, assets and liabilities.

(3) Its goodwill must be taken over by one of the partners, or none of them should be allowed to use it.

(4) The agreement must contain some provision relating to the quota. When that happens the passage says, the partners shall get their respective share in the quota rights according to the provisions of the agreement.

The word 'agreement' occurring in this passage can relate only to the word "agree" referred to earlier in that passage. This means that in a case like the present, if the agreement of division contains specific provision in that regard, the partners would be entitled to the quota rights in accordance with the terms of the agreement. I can see no justification whatever for the argument of the learned Government Pleader that in a case of this kind the right of the partners is postponed till such time as the Chief Controller of Imports and Exports recognises the transfer. In cases where it is intended that the transfer should take effect only when it is recognised by the Chief Controller, express provision has been made as where a new firm or reconstituted firm takes the place of the old. It seems to me that the absence of such a provision in relation to a situation arising out of the dissolution of a firm and the division of the quota rights of the firm is destructive of the argument of the learned Government Pleader.

13. The learned Government Pleader referred to the decisions in Desai Goundar & Co. v. Dy. Controller of Imports (1955) 2 M.L.J. 564, and Srinivas v. Director of Controlled Commodities (1952) 2 M.L.J. 113. Neither of them has any application to the facts of this case. All that was decided in the former case was, that the regulation that an applicant for a licence to import goods under the Import Trade Control Regulation should produce an income-tax verification certificate, is not an unreasonable restriction on a person's fundamental right to carry on business because no one has a fundamental right to obtain a quota under a licence. That decision, therefore, relates to a case where a quota had not yet been granted. The second decision relates to a case where a quota had lapsed and the person who previously held the quota applied for the grant of a fresh quota. In effect, therefore, that case too related to a stage prior to that in which a quota had been obtained'.

14. The decision most in point is that of Rajagopalan, J., in Writ Petition No. 569 of 1955. The facts there were as follows : One Janardhan Rao was the sole proprietor of a concern called Rao and Company. He was recognised as an "established shipper" entitled to quotas for export of groundnut oil. Janardhan Rao was adjudged an insolvent. Rao and Company, one of his assets, was' sold as a going concern by the Official Assignee, and one Venkataramiah Chetty purchased it at a sale held on 26th November, 1954. The Official Assignee executed a registered sale deed on 3rd December, 1954. Thereafter Venkataramiah Chetty became the sole proprietor of Rao and Company, and, therefore, entitled to the quota rights held by Rao and Company. The departmental authorities recognised the transfer in favour of Venkataramiah Chetty with effect from 4th February;, 1955, and, while agreeing to grant him a quota with effect from that date refused to give a quota with effect from the date on which he succeeded to the assets of Rao and Company. Venkataramiah Chetty then came to this Court with a writ petition and it was held that he was entitled to the quota with effect from the date on which the rights of Rao and Company devolved on him. The passage in the Rules governing the case in Writ Petition No. 569 of 1955 was, I was told, identical in terms with the second of the passages I have quoted above from page 20 of the Import Trade Control Policy Book.

15. Apart from the decision in Writ Petition No. 569 of 1955, on the language relating to the division of quota rights set out in the last of the four passages I have quoted earlier the petitioner is entitled to succeed. The Department was clearly making a mistake when it read the rules in the way it has done. The rule nisi is made absolute. The petitioner will be entitled to his costs in W.P. No. 107 of 1958. No costs in W.P. No. 216 of 1958. Advocate's fee Rs. 250.

16. This petition having been set down this day for being mentioned in the presence of the aforesaid Advocates the Court made the following Order:

17. Mentioned to-day. The learned Government Pleader explained that the import of coffee machines which form the subject-matter of W.P. No. 216 of 1958 is now prohibited. In view of that W.P. No. 216 of 1958 will stand dismissed. No costs in that.

H.V Jain v. The Joint Chief Controller Of Imports And Exports, Madras-1.

Structured Summary of the Legal Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

Respondent's / Government's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

H.V Jain v. The Joint Chief Controller Of Imports And Exports, Madras-1.

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