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Rajasthan High Court
L.S. Mehta & C.M. Lodha, JJ.
State of Rajasthan - Appellant
Versus
Bundi Electric Supply Co. Ltd., Bundi - Respondents
D.B. Civil Regular First Appeal No. 42 of 1960
Decided On : February 14, 1969
In its legal sense the word goodwill means every affirmative advantage as contracted with negative advantage that has been acquired in carrying on the business, whether connected with the premises, or its name and style or carrying with it, the benefit of the business. It includes the whole advantage of the reputation, and connection of the firm or the owner, which may have been built up by years of hard work, or gained by lavish expenditure, beyond the mere value of the capital stock and property embarked in the business, in consequence of the general public patronage and encouragement, which is received from habitual or constant customers. It is that species of connection in trade, which induces customers to deal with a particular firm or concern It differs in its composition in different trades, and different businesses in the same trade. It has no meaning, except in connection with a continuing business. It is treated as part of the assets of the firm. In other words good will represents business reputation. The sale of a good will implies the probability that the old customers will resort to the old place, that is, to the established business, wherever it may be situated.
We then find it difficult to accept that if the term goodwill was used in the sense in which it is used in the commercial world, or in its legal sense there would arise any question of paying the balance of the good will by the State of Bundi to the Company in case of compulsory acquisition the stock in trade of the Company. The fact that the word good will was used in clause(6) of the licence not in its ordinary sense but in a peculiar sense becomes clear from the Council Resolution dated 6-1 1944 which preceded the grant of the licence Ex. 1-7-1944. Para (e) of this Council Resolution (Ex. 5) reads as below— "(e) Each year a sum equal to l/30th of the purchase price, excluding the value of the stock in hand, must be set aside or written of the good will." This paragraph shows that the Company was to writ write off Rs. 10,000/-every year as expenditure in the account of the goodwill money. It passes our comprehension how could a goodwill account be opened and where would be the question of setting aside a sum of Rs. 10,000/- every year for writing off the goodwill if by the word "good-wil was meant business reputation ? (Paras 15 and 16)
2. There was a commercial concern owned by the former State of Bundi called the Bundi Petrol Automobile Supply Agency (hereinafter referred to as "the Agency") which used to carry on business of running buses and trucks and also dealt in petrol and spare motor parts etc, It is alleged in the plaint filed by the State that the Company was registered under the Bundi Companies Act, 1936. It wanted to obtain a licence for monopoly of motor service within the territory of the former Bundi State and therefore it approached the then Ruler of Bundi for the said purpose and a licence was granted to the Company by the Ruler on 31-7-1944, a copy of which has been placed on the record and marked Exhibit 7. According to the State, one of the conditions contained in the licence was that the defendant Company would "take over the Bundi Petrol and Automobile Supply Agency (a commercial undertaking of the Bundi State) lock, stock and barrel and in lieu thereof pay a sum of Rs. 4,00,000/- to the Bundi State. The case of the State is that the Company paid Rs. 1,00,000/- in cash and agreed to issue 30,000 fully paid up ordinary shares of the face value of Rs. 10/- each (total value of the shares being Rs. 3,00,000/-) in lieu of the balance of the price money i. e. Rs. 3,00,000/-. The Bundi State agreed to this proposal and the Company allotted 30,000 ordinary fully paid up shares Besides the above mentioned 30,000 shares, Bundi State further acquired 11,600 ordinary fully paid up shares of Rs. 10/- each of the Company. With the merger of the Bundi State into the State of Rajasthan, the State became the owner of these shares by virtue of the provisions of Art. 295(2) of the Constitution of India. It is agreed by the State that the Company had been declaring and paying dividends on all the aforesaid shares upto the year 1950 but thereafter it stopped doing so. For the year 1950-51 the Company paid Rs. 16 407/- as dividend and allotted 1640 bonus shares together with a sum of Rs. 7/- in cash but it did not issue share certificates of these 1640 shares. The State has alleged that the Company had declared dividends and other benefits on its ordinary shares for the years 1950-51 to 1955-56 but it has malafide not paid any dividends to the State for this period. The State therefore claims the following relief in its plaint :
(i) The company be directed to pay a sum of Rs. 1,41,587.50 paisa as the amount of dividend along with interest thereon at 6% per annum 27,740.79 paisa.
(ii) It may be declared that the State is entitled to receive dividends and benefits on all the shares held by it as and when the Company declares the dividends on the shares.
(iii) The Company may be directed to allot and issue 2520 ordinary fully paid up shares of the value of Rs. 10/- each in lieu of bonus shares to be allotted for the year 1950-51 and also to issue share certificates for 1640 Bonus shares already allotted in 1950-51.
3. The defendant company denied the States claim, in the written statement filed by it on 10-10-1958. It admitted that the Company was desirous of obtaining monopoly rights with respect to plying of motor stage-carriages and other vehicles within the former Bundi State and had in pursuance thereof offered certain shares to the Ruler of Bundi, who accepted them subject to certain modifications contained in the order dated 6-1-1944, a copy of which has bee
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