Section 383A
SECRETARY
[1944] 14 COMP. CAS. 10 (MAD.)
v.
The Indo Union Assurance Co., Ltd.
SIR LIONEL LEACH, C.J., AND LAKSHMANA RAO, J.
JULY 22, 1943
V.K.
Thiruvenkatachari, for the Appellant.
T.V. Muthukrishna Iyer for
V. Ramaswami Iyer, for the Respondent.
(Judgment of the Court was
delivered by the Honourable the Chief Justice).
The appellant company
appeals against the decree passed in a suit tried on the Original Side of this
Court awarding damages to the respondent for wrongful dismissal. On the 17th
November 1939 the appellant appointed the respondent the Secretary of the
Company and on the 5th April 1940 the terms of his employment were reduced to
writing. On the 23rd July 1941 the company appointed one K.S. Ramamurthi to be
its general manager. The respondent resented this and on the 29th of that month
he absented himself from the office. He subsequently applied for leave, but
this was refused. He did not return to his duties and on the 20th October 1941
he filed this suit claiming a decree for Rs. 17,735 as damages for wrongful
dismissal. The learned Judge (Chandrasekhara Ayyar, J.) held that he had been
wrongfully dismissed and awarded him the sum of Rs. 6,830.
The respondent agreed to
serve the appellant as the secretary of its business at Madras for a period of
five years from the 17th November 1939. Clause 3 states that during the
continuance of his employment under the agreement the respondent shall devote
his whole time to his duties "as such secretary" and do all in his
power "as such secretary" to extend and increase the business of the
company. Clause 5 defines what his duties were to be. It reads as follows:—
"the secretary shall
at all times keep or cause to be kept in proper books full and correct accounts
of all receipts, payments, transactions and dealings of and in relation to the
business of the company".
Clause 7 provides that the
secretary shall in the discharge of his duties be subject to the control of the
directors and of the managing agents and obey all directions or orders from
time to time given to him. The managing agents of the company are the firm of
Murugappa & Sons.
Article 135 of the Articles
of Association states that the business shall be carried on by the managing
agents, subject to the supervision of the directors. There can be no doubt that
the managing agents were in charge of the management of the company at all
times material to the suit. Article 139 (11) empowers the company to appoint and
in their discretion remove or suspend managers, secretaries, officers, clerks,
agents and servants of the company.
The plaintiff's case is
that, subject to the control of the managing agents, he was the principal
administrative officer of the company in Madras and that the directors had in
the circumstances no right to appoint a general manager. This contention cannot
be accepted in view of the terms of his employment which are set out in the
agreement of the 5th April 1940, The plaintiff was appointed merely as
secretary. His duties were defined and he was subject to such directions as the
directors or managing agents might give him. In Burnett V. South London
Tramways Co.,
Lord Esher, M.R., said:
"A secretary is a mere
servant; his position is that he is to do what he is told, and no person can
assume that he has any authority to represent anything at all."
This dictum was approved by
the House of Lords in George White-church Limited v. Cavanagh.
As we have indicated the
general duties of the secretary were set out in paragraph 5 of the agreement
and he had as a servant of the company to carry out any further duties which
were assigned to him. The agreement certainly cannot be read as precluding the
appellant from appointing a general manager. The plaintiff left his employment
without reason and was not entitled to bring this suit. The appeal will be
allowed and the suit dismissed with costs here and below.
The plaintiff has filed a
memorandum of cross objection, but in view of our decision the objection does
not arise and must be dismissed.
[1983] 53 COMP. CAS. 36 (CAL)
v.
Universal Wires Ltd.
SALIL K. ROY C HOWDHURY J.
COMPANY APPLICATION NO. 367 OF 1976, CONNECTED WITH
COMPANY PETITION NO. 507 OF 1976.
OCTOBER 30, 1979
R.C.
Nag for the Petitioners.
S.B.
Mukherjee for the Respondents.
Salil
K. Roy Chowdhury J.—This
is an application under ss. 397, 398, etc., of the Companies Act, 1956, inter
alia, for the appointment of a special officer and/or administrator, injunction
restraining respondents Nos. 2-5 to act as directors and for a declaration that
the meetings dated May 14, 1976, and December 11, 1976, are illegal, null and
void and of no effect and for other reliefs.
This
application is really one in the series of applications which are the outcome
of family disputes of the Mittals who are controlling a large number of
companies and the respondent-company being the Universal Wires Ltd. is one of
them. Petitioner No. 1, Mohan Lal Mittal, is the eldest brother. He along with
his son, wife and other stooges and henchmen, who are holding a block of shares
in those companies, has constituted one group and the other is constituted by
the other brothers led by Inderson Mittal, Ratan Kumar Mittal, their relatives,
henchmen and stooges. In the respondent-company, the shareholdings of the
petitioners and their group are set out in para 6 of the petition in which it
is alleged that a block of 5,000 equity shares in the capital of the
respondent-company is held by Southern Steel Ltd., another company of the
Mittal group which is supporting the present petition and thereby the qualification
shareholding under s. 399 of the Companies Act, 1956, to make this application
is acquired. In other words, if the said consent of the Southern Steel Ltd. to
this application is not valid or legal the present application must be held to
be not maintainable as the petitioner cannot acquire the necessary
qualification share under s. 399 of the Companies Act, 1956. This position is
admitted by both the parties and one of the main questions argued as a
preliminary issue in this application is that it is not maintainable, as the
alleged secretary of Southern Steel Ltd. who has signed the letter of consent
which is annexed to the petition was not the secretary of the company and also
he had not the authority to give such consent of the company, i.e., the said
Southern Steel Ltd., by a resolution of the board but alleged to be directed by
petitioner No. 1, Mohan Lal Mittal, who signed such consent. Elaborate
arguments were advanced as to the power of the secretary and a director of the
company and also the procedure for taking the preliminary point of
non-maintainability of the application under s. 399 of the Companies Act, 1956.
The
facts relevant for the purpose of this application are that the
respondent-company, Universal Wires Ltd., was incorporated on or about November
10, 1971, having its registered office at No. 2, Brabourne Road, Calcutta. The
authorised capital being Rs. 2 crores divided into 7,50,000 equity shares of
Rs. 10 each and 25,000 preference shares of Rs. 100 each. The issued and subscribed
capital of the company is Rs. 24,00,000, paid up and/or credited as paid up share capital is Rs. 23,58,250 out of which
Rs. 18,58,250 as equity capital of 1,85,250, equity shares of Rs. 10 fully paid
up and of Rs. 5,00,000 preference capital of 5,000 equity shares of Rs. 100
each fully paid up. The company's object is to manufacture and deal in wires
and wire ropes of every kind and description including steel wires, metal
wires, etc.
Since its incorporation the
company carried on and still carries on its trade and business in terms of the
objects clause of the respondent-company. At present petitioner No. 1, Mohan
Lal Mittal, and respondent No. 2, P.S. Guruva Reddy and respondent No. 8, K.S.
Dutt, are also directors of the company along with the other directors being
respondent No. 3, Chagan Lal Mittal, respondent No. 4, Ratan Kumar Mittal,
respondent No. 5, Damodar Lal Mittal and respondent No. 7, Hira Khusiram
Nathani. It is alleged that until May, 1976, the company was managed by the
board of directors and had its registered office at No. 2, Brabourne Road,
Calcutta. It is further alleged that all the meetings of the board were held at
its registered office at No. 2, Brabourne Road, Calcutta, since January, 1972,
and all the statutory books and minutes books, etc., were being kept and
maintained at the said registered office of the company. It is alleged by the
petitioner that on May 5, 1976, a notice dated May 3, 1976, was received by
petitioner No. 1, Mohan Lal Mittal, from respondent No. 4, Ratan Kumar Mittal
signed on behalf of the respondent-company calling a board meeting on May 14,
1976, at Hyderabad. It is alleged that petitioner No. 1, Mohan Lal Mittal, as a
director issued a notice dated May 5, 1976, to all the directors that the said
meeting scheduled to be held on May 14, 1976, had been postponed due to
unavoidable circumstances. It is now alleged that in spite of such postponement
respondents Nos. 2-5 held the meeting on the May 14, 1976, illegally and
wrongfully. It is further alleged that one Mr. K.M. Gupta, alleged to be the
secretary of the respondent-company, requested respondent No. 4, Ratan Kumar
Mittal, for the particulars of the proceeding of the meeting and a copy of the
said minute of the meeting for keeping the same at the registered office of the
company and had various correspondence dated June 2, 1976, June 3, 1976, copies
of which are annexed to the petition. It is further alleged that respondent No.
4, Ratan Kumar Mittal, and/or Hyderabad office of the respondent-company did not
send any copy of the minute or proceeding of the alleged meeting claimed to
have been held on May 14, 1976. It is further alleged that by a notice dated
June 2, 1976, the alleged secretary of the company, Mr. K.M. Gupta, duly called
a meeting of the board of directors of the company on June 10, 1976, at the
registered office of the company at No. 2, Brabourne Road, Calcutta, at 2 P.M. with an agenda,
one of which being to confirm and sign the minutes of the previous meeting. It
is alleged that respondent No. 2, P.S. Guruva Reddy, intimated that he could
not attend the said meeting for shortness of time.
It
is further alleged that on June 10, 1976, the board meeting was held in terms
of the notice dated June 4, 1976, and petitioner No. I, Mohan Lal Mittal, respondent
No. 6, Narendra Nath Kampany, respondent No. 7, Hira Khusiram Nathani and
respondent No. 4, Ratan Kumar Mittal, attended the meeting. It is alleged that
various transactions were carried out in the said meeting dated June 10, 1976,
as would appear from the minutes of the meeting which is annexed to the
petition. It is alleged that in the said meeting dated June 10, 1976, the last
previous meeting was confirmed as held on February 11,1976, and the copies of
the minutes of the said meeting were duly circulated to all the directors of
the company and there was no complaint or objection in respect of the same. It
is alleged that by a notice dated November 25, 1976, issued by the alleged
secretary, Mr. K.M. Gupta, another meeting of the board of directors was called
to be held on December 11, 1976, at the registered office of the company for
the transaction of various businesses as set out in the agenda. It is alleged
that in the course of the said meeting on December 11, 1976, respondents Nos.
2-5 forcibly snatched and took away the minutes books, attendance register and
other documents of the company and ran away from the registered office in spite
of the request made by petitioner No. 1 and respondents Nos. 6 and 7 and it is
alleged that thereafter, the said meeting stood abandoned and no business was
transacted. It is alleged that the respondent-company through its alleged
secretary complained before the Police Commissioner, Lalbazar.
It
is alleged that disputes arose on the insistence of respondents Xos. 2-5 to
approve the minutes of the meeting alleged to have been held on May 14, 1976,
before approving the minutes of the meeting held on June 10, 1976. It was
alleged that the meeting dated the May 14, 1976, was illegally held and it
should be ignored. It is further alleged by the petitioner that the full facts
and circumstances of the alleged wrongful and illegal acts of respondents Nos.
2-5 carried out at the meeting held on December 11, 1976, would appear from the
letters dated December 13, 1976, and December 18, 1976, from respondents Nos. 6
and 7, respectively, addressed to the board of directors of the
respondent-company which are annexed to the petition. It is further alleged
that by a letter dated December 13, 1976, addressed to Mr. K.M. Gupta alleged
to be the secretary of the company by respondent No. 4 it was alleged that the
said Mr. Gupta had ceased to be the secretary of the company and called upon
him to hand over all books, papers and documents of the company to one Mr. K.
Gopal Rao, the alleged new secretary of the company, apart from the minutes of
the board meeting which was already handed over at the meeting dated December
11, 1976. The said letter is also annexed to the petition. It is alleged that
petitioner No. 1 received a letter dated December 17, 1976, from the said Mr.
Gopal Rao alleged to be the secretary of the respondent-company enclosing a
copy of the minutes of the meeting dated December 11, 1976. It is alleged that
the said minutes are false and allegations contained therein are not correct.
It is further alleged by the petitioner that the meeting alleged to have been
held on May 14, 1976, was never taken up for consideration in the said meeting
dated December 11, 1976, and all statements contained in the alleged minutes of
the meeting dated December 11, 1976, are untrue, false and incorrect and the
said minutes have never been signed by any one. The petitioner also disputes
the contents of the minutes of the meeting dated December 11, 1976. It is
further alleged that a notice dated December 14, 1976, which was received on
December 18, 1976, by the first petitioner, Mohan Lal Mittal, of an alleged
meeting of the board of directors to be held on the December 31, 1976, at
Hyderabad purported to be issued by respondent No. 4 is wrongful, illegal and
in violation of the provisions of the Companies Act, 1956, as it was alleged to
be the adjourned meeting which was held on December 11, 1976. Petitioner No. 1
lleges that he received various other letters regarding the holding of the meeting
of December 31, 1976, for the appointment of additional directors. There are
various other allegations of deadlock and mismanagement as the directors are
fighting amongst themselves and the respondent-company is alleged to be
maintaining two sets of books by two groups of directors. Therefore, it is
submitted that the affairs of the company is grossly mismanaged and the assets
are in jeopardy and being wasted away. It is further alleged that the company
is a public limited company and about 4,000 shareholders are all members of the
general public and, therefore, public interest is prejudicially affected if the
company is mismanaged in this fashion and the usual averments in ss. 397-398
application have been made as to oppression, mismanagement and acts prejudicial
to the interests of the public and also to the company and its shareholders.
The
main charges made out by Mr. R.C. Nag, appearing for the petitioners, are that
the meeting dated May 14, 1976, was never held and the minutes of the same are
false and fabricated. The secretary of the company has been wrongfully removed.
The registered office of the company has been illegally and wrongfully shifted
and the meeting dated December 11, 1976, has been illegally conducted and false
and incorrect minutes have been prepared and all these constitute oppression,
mismanagement and acts prejudicial to the public interests as well as to the
company and its shareholders.
The
respondents apart from disputing and denying all the allegations took up a
preliminary objection as to the maintainability of the application as the
alleged consent of Southern Steel Ltd., which is another company of the Mittal
group, as the secretary who is alleged to have granted the consent was not the
secretary of the company and was not authorised by the board of the said
Southern Steel Ltd., to grant such consent, and, therefore, the said consent
was invalid and if the said consent is invalid, then the petitioner has not the
requisite qualification under s. 399 of the Companies Act, 1956, and the
petition is not maintainable.
Mr.
Nag in support of his contention that the consent is valid relied on the
Companies Act, 1956, particularly the position of the secretary under the
Companies Act, 1956, and his authority as denned under s. 234 and also powers
of the director under s. 292 of the Companies Act, 1956. He also relied on the
Supreme Court decision in Lakshmiratan Cotton Mills Co. Ltd. v. Aluminium
Corporation of India Ltd., AIR 1971 SC 1482, and English decisions in State of
Wyoming Syndicate, In re [1901] 2 Ch 431 (Ch D) and Haycraft Gold Reduction and
Mining Co., In re [1900] 2 Ch 230, 23 J (Ch D). Mr. Nag also relied on the
Rajasthan High Court decision in Jaipur Udyog Ltd. v. Union of India, AIR 1972
Raj 129, wherein it was held that under the provisions of the CPC, Order 29, r.
1, the secretary can file a suit by signing and verifying the plaint without
any resolution authorising him to do so. Relying on those provisions and
principles Mr. Nag submitted that the secretary has the requisite authority to
sign the consent letter supporting the present petition on behalf of the
Southern Steel Ltd. Mr. Nag also relied on the Supreme Court decision in
Hunger-ford's case [1972] 42 Comp Cas 512, 529; 85 ITR 607; AIR 1972 SC 1311,
para. 31 and Palmers' Company Law, art. 64.01 as to the secretary's power which
is derived from the directors and Gorebrown, art. 5/17 and Order 29, r. 1, the
CPC, and submitted that the secretary had the requisite authority and the said
consent letter is valid and the application is maintainable. Mr. Nag also
submitted that this is a preliminary point which should have been taken by way
of demurrer as laid down in Murarka Paints & Varnish Ltd.'s case [1961] 31
Comp Cas 301; [1961] 65 CWN 32 (Cal) and also in In re Bengal Luxmi Cotton
Mills Ltd. [1965] 35 Comp Cas 187; [1965] 69 CWN 137 (Cal). He also referred to
the decision in Ramshankar Prosad v. Sindri Iron Foundry (P.) Ltd. [1966] 70
CWN 520, 553 (Cal) and Rajah-mundry's case [1956] 26 Comp Cas 91; AIR 1956 SC
213, in support of his proposition that the application which was maintainable
when it was presented cannot become not maintainable due to subsequent
withdrawal of consent or infirmity. Therefore, he submitted that the
application is maintainable and a case has been made out both under ss. 397-398
of the Companies Act, 1956, for oppression and mismanagement and wrongful acts
which are burdensome, harsh, unfair and prejudicial to the interests of the
public. Therefore, relief should be granted as prayed for.
Mr.
S.B. Mukherjee, appearing for the respondent-company, submitted that, in this
case, the application is not maintainable as the alleged consent letter on
behalf of the Southern Steel Ltd. signed by the alleged secretary is not valid,
legal or of no effect. He submitted that assuming the said Mr. K.M. Gupta as
the secretary at the time of signing of the alleged consent letter he had no
authority without resolution of the board authorising him to do so and without
any affidavit of competency. He referred to the provisions of ss. 2(45), 291,
292 and 399(3) of the Companies Act, 1956, read with the Companies (Court)
Rules, 1959, rr. 19, 21 and 88 which make it clear that without the proper
resolution and affidavit of competency a secretary has no power to sign the
consent letter for making an application under ss. 397-398 of the Companies
Act, 1956, to be a valid consent within s. 399. He also referred to Forms Nos.
3, 43 and 44 of the Companies Act, 1956, in support of his said proposition.
Thereafter, Mr. Mukherjee referred to the articles of association of the
company, definitions of secretary and director in cl. (2) and arts. 155 and 161
thereof. Mr. Mukherjee referred to a decision in Haycrajt Gold Reduction and
Mining Co., In re [1900] 2 Ch 230 at p. 236 (Ch D). He submitted that giving
consent under s. 399 of the Companies Act, 1956, is not a statutory function of
the secretary neither it is an administrative nor ministerial function.
Therefore, he submitted that such consent must be backed by the authority of
the board by a resolution or ratification. He referred to the decisions in
Slate Wyoming Syndicate, hire [1901] 2 Ch 431 (Ch D) and George Whitechurch
Ltd. v. Cavanagh [1902] AC 117 (HL) at pp. 124-125 and 139-140. Mr. Mukherjee
referred to various decisions in Daimler Co. Ltd. v. Continental Tyre and
Rubber Co. (Great Britain) Ltd. [1916] 2 AC 307, 326; [1917] 2 All ER 16 at pp.
18-19 and Lakshmiratan Cotton Mills Co. Ltd. v. Aluminium Corproation of India
Ltd., AIR 1971 SC 1482, at p. 1490, para. 22; Mr. Mukherjee also referred to
Halsbury's Laws of England, 4th Edn., Vol. 7, paras. 546-547. In the said two
paragraphs of the article the nature of employment of the secretary and the
statutory duties of the secretary of a company have been summarised with
reference to the various sections of the English Act and decisions.
Mr.
Mukherjee referred to the affidavit-in-opposition of Mr. R.K. Mittal affirmed
on the 13th January, 1977, para. 3 and submitted that it is an admitted
position that the Southern Steel Ltd. is the owner and registered holder of
5,000 equity shares in the capital of the respondent-company, Universal Wires
Ltd., and now the said consent alleged to have been given by the secretary of
the Southern Steel Ltd. is invalid and void, then the present application would
not be maintainable and the petitioner cannot be said to be entitled to any
relief whatsoever as the court has no jurisdiction to grant relief in an
application which is not maintainable. He referred to the various decisions in
In re Bengal Luxmi Cotton Mills Ltd. [1965] 35 Comp Cas 187; 69 CWN 137, at p.
150 (Cal), Inder Kumar Jain v. Osra Bottling Co. (P.) Ltd. [1977] 47 Comp Cas
194, at pp. 197-98 (Delhi). Turner Morrison and Co. Ltd. v. Hunger ford Investment Trust Ltd.
[1972] 42 Comp Cas
512,.519, 522; 85 ITR 607,613, 616; AIR 1972 SC 1311, paras. 9 and 17, at pp.
1316 & 1318, and submitted that there is no question of any ratification of
the secretary's action by the company and its board at any stage in this case.
Therefore, Mr. Mukherjee submitted that the present application is not
maintainable as the consent of the Southern Steel Ltd. is not valid in fact or
in law and, therefore, the requirement of s. 399 of the Companies Act, 1 956,
is not satisfied and the application under ss. 397 and 398 of the Companies
Act, 1956, is not maintainable and should be dismissed.
Mr.
Mukherjee next submitted that the petitioner is making a complaint qua director
and, therefore, the petitioner is not entitled to any relief under ss. 397 and
398 of the Companies Act, 1956. He submitted that there is no material or any
allegation that he has suffered as a shareholder of the respondent-company.
Further, Mr. Mukherjee submitted that the interim order passed in this
application from time to time has removed all the alleged acts complained of
and regularised the irregularities, if any. Therefore, he submitted that there
is nothing left of the present application save and except certain academic
questions which are sought to be raised from the Bar.
Admittedly,
since the present application was moved on December 21, 1976, various orders
were made by this court from time to time appointing a special officer to
supervise any board meeting to be held by the orders of the court empowering
him to see that the meetings are conducted in a peaceful and proper manner and
he was also given power to convene meetings by serving notice for a specified
period which were to be held at an independent place to be selected by him. The
said order dated January 4, 1977 and variation thereof dated January 12, 1977,
are set out here-under:
"The
Court: The special officer to take possession of all books, papers, books of
account and documents including the statutory books which are lying at Calcutta
in any of the alleged two registered offices or with whomsoever it may be lying
and keep the same in his custody until further orders of this court. The
special officer will forthwith go to Hyderabad and initial the current books
including the statutory books, if any, lying at the factory of the
respondent-company at Hyderabad. The petitioner at the first instance will bear
all costs, charges and expenses of the special officer including air passage
and 1st class hotel charges. The special officer who has been appointed to
supervise any board meeting to be held by the company by the order dated
December 29, 1976, would be empowered only to see that the meeting is properly
conducted and in a fair manner and he will also convene the said meeting by
serving 10 days' notice and the meeting is to be held at a place to be selected
by him but not at the alleged two registered offices of-the company. The
petitioner, at the first instance, will bear the costs and expenses of such
meeting to be held.
It
is made clear that the special officer's function is only to supervise the
meeting so that it is held according to the Companies Act and properly without
any interference or hindrance put forward by any of the parties. If he finds
that any of the parties is behaving in a manner not congenial to create an
atmosphere in holding a board meeting, he will have the power to remove the
person concerned or cancel the said meeting forthwith as he may think fit under
the circumstances.
It
is recorded that if any effect is given to the resolution passed in the meeting
dated May 14, 1976, that will be subject to the result of the interim
application or the main application.
Appearance
on behalf of the company is subject to objection.
Affidavit-in-opposition
by 10-1-1977, affidavit-in-reply by 17-1-1977 and adjourned till 18-1-1977.
Save and except what is modified by this order all other interim orders will
continue.
Special
officer and all parties to act on a signed copy of the minutes on the
petitioner's solicitor undertaking to complete and file this order".
"The
Court: The order dated January 4, 1977, is varied to this extent that the
provisions for bearing the cost at the first instance by the petitioner should
be deleted and it is ordered that the cost to be paid out of the funds of the
company at the first instance and the said order is further modified that the
special officer appointed in the other companies under the control and
management of Mittal group to fix the venue of such meeting of the board at a
time convenient to the directors attending the same, i.e., the date, place and
time should be so arranged as to make it convenient for them to attend at the
same time during their visit at Calcutta. Save as modified aforesaid, the order
dated January 4, 1977, will continue. The special officer and all parties to
act on a signed copy of the minutes".
It
now appears that pursuant to the orders of this court there was a board meeting
of the respondent-company held on February 12, 1977. The special officer was
also directed to submit a report of the board meeting and pursuant to the same
he duly filed the report being dated March 18, 1977. It appears that the
petitioner made every attempt to frustrate the said
meeting and took all sorts of objections solely with a view to frustrate the
said meeting and raised all sorts of technical and legal objections to prolong
the litigation between the parties, if possible. Further, it appears that at
one stage the petitioners' group agreed to sell their shares to be purchased by
the respondent, Ratan Kumar Mittal, at a valuation of Rs. 8 per share although
the market price of the said shares were Rs. 6 per share at that time and the
court fixed the said price. The said order was made by Ajoy K. Basu J. on
August 10, 1977, and the said order is set out hereunder:
"The Court : Therefore,
I order that the shares mentioned in the petition of Mohan Lal Mittal, Promode
Kumar Mittal and Vinod Kumar Mittal may be purchased by Ratan Kumar Mittal at a
valuation of Rs. 8 per share but as the parties are agreeable at the said
price, I am fixing the price at Rs. 8 per share of Mohan Lal Mittal, Promode
Kumar Mittal and Vinod Kumar Mittal. The said transaction should be completed
within a fortnight from date and the price of the shares by cheque to be sent
by Ratan Kumar Mittal to the petitioner's solicitors, M.G. Poddar, within that
time. In case, Ratan Kumar Mittal is not in a position to buy the shares of
Mohan Lal Mittal, Promod Kumar Mittal and Vinod Kumar Mittal within fortnight
then the petitioner Mohan Lal Mittal will purchase the shares of Ratan Kumar
Mittal, Chhagan Lal Mittal and Damodar Lal Mittal at the said valuation, that
is, at the rate of Rs. 8 per share.
I am told that after filing
of this application, at the meeting held in February, 1977, under the
supervision of the special officer, Mr. P.S. Gurva Reddy, Chhagan Lal Mittal,
Ratan Kumar Mittal, Damodar Lal Mittal, Kancharlal Subanarya Dutt, S.N.
Mukherjee and S. B.Jain have been elected as directors and it is better that
these respondents buy the shares of the petitioners as mentioned in the
petition.
After I delivered the
judgment, Mr. A.N. Bose, tells me that his client, Mohan Lal Mittal, has come
to the court and further submits that his client is prepared to buy the shares of
all these respondents that is of Ratan Kumar Mittal, Chhagan Lal Mittal and
Damodar Lal Mittal and also their group at Rs. 12 per share.
After the sale is
completed, the special officer will hand over all the documents lying with him
to the person concerned, whoever buys the shares of the other.
Purchase price of the
shares to be sent to the respective solicitors within a fortnight. There will
be no further order on this application.
This order can be
executable as a decree of court and should not be construed as violation of the
order of court.
Mr. Bose asked for stay of
operation of this order for one week, which is refused.
Further remuneration of 100
Cms. be paid to the special officer by the company.
All parties to act on a
signed copy of the minutes".
The said order seems to
have been modified on August 30, 1977, to the effect that the order dated on
August 10, 1977, was not a consent order. The said order dated on August 30,
1977, is set out hereunder :
"The Court: The order
dated on August 10, 1977, passed by me was not a consent order. The only thing
which was agreed to by and between the parties that the market price was Rs. 6
per share and that the court should fix the price. It is further recorded that
after the judgment was delivered Mr. Bose, appearing for the petitioners,
suggested for an open bidding, which I declined. Let this order be incorporated
in the order dated August 10, 1977.
All parties to act on a
signed copy of the minutes".
Therefore, from the subsequent
events which the court is bound to take notice of in granting relief it appears
that the act complained of has been regularised assuming for a moment there
were any illegality or irregularity in the holding of the said meeting as
alleged by the petitioner. Therefore, in the present application, I am really
dealing with academic questions for the satisfaction of the parties and their
counsel with no practical result. It is certainly illuminating and interesting
to hear Mr. Nag strenuously arguing to establish the secretary as a person all
in all in modern company jurisprudence and also his proposition that the
director of a company is all powerful to do what he thinks necessary in the
interests of the company and his submission that in cases of necessity and
emergency the director can authorise the secretary to do any act which in his
opinion is in the interest of the company, be it for his self-interest or
satisfaction of his own personal vendetta or gain. It cannot be ignored that in
the background of the family dispute when the petitioner, Mohan Lal Mittal, the
eldest brother who felt that the position of a karta in the Hindu Mitakshara
joint family which is fast dwindling into oblivion leaving only some legal
vestiges or remnants in some ceremonial, religious or social function has
practically lost its ancient character. Now the junior members of the family
can seldom tolerate the dictatorial, autocratic and despotic attitude of the
karta and also the karta is not the karta of the past but now they are
interested in personal gain and establishing their own children, friends,
nominees and stooges to be put in position and power. Here also Mr. Mohan Lal
Mittal, the eldest brother, possibly the karta in other fields is making an
attempt to get control of all the Mittal group of companies through his sons,
friends and stooges and, consequently, the family is divided into two groups
and all the companies under the Mittal group are involved in litigations one
after the other. In this back-ground, the disputes in respect of this respondent-company has
also cropped up and with a view to enable himself to maintain the present
application, Mohan Lal Mittal authorised the alleged secretary to sign the
consent letter on behalf of the Southern Steel Ltd. without whose consent the
present application under ss. 397 and 398 of the Companies Act, 1956, is not
maintainable as the requisite qualification under s. 399 of the Companies Act,
1956, could not be fulfilled which is an admitted position. Mr. Nag's main
contention that by the amendment of the provisions of the Companies Act, in the
definition of secretary and the various powers, the secretary is now given
under the Companies Act, and also by various judicial decisions it must be
taken as a proposition that a secretary can sign the consent letter for
supporting an application under ss. 397 and 398 of the Companies Act, 1956,
without any resolution of the board or the company authorising him to do so. In
my view, if that proposition is to be accepted there will be disastrous result
and the conception of company management would be completely demolished and the
secretary would become the company in no time.
According
to Mr. Nag, the definition of secretary in s. 2(45) of the Companies Act, 1956,
which runs as follows .
"
'Secretary' means any individual possessing the prescribed qualifications
appointed to perform the duties which may be performed by a secretary under
this Act and any other ministerial or administrative duties".
The
words "any individual possessing the prescribed qualifications" and
ministerial or administrative duties have been substituted by the Companies
(Amendment) Act, 1974.
It
appears that under the Act itself certain ministerial or administrative
functions are to be discharged by the secretary as will appear from s. 161 for
filing the annual return. It is required to be signed both by director and the
secretary where there is one. Sections 291 and 292 of the Companies Act, 1956,
make it clear as to what are the powers of the board of directors and also of
the directors individually. Rules 21, 70 and 88 of the Companies (Court) Rules,
1959, read with Forms Nos. 3, 43 and 44 make it quite clear that in case a
secretary verifies any petition or files a proxy or any petition under ss. 397
and 398 of the Companies Act, 1956, it must be accompanied by an affidavit
verifying the petition along with statement that he has been duly authorised by
the company. Requirement of an affidavit of competency in company petitions
under the rules and practice of the original side of this court is so well
established that without the same applications are not maintainable. In the
present case, in the articles of association of the company the definitions of
secretary and director are in cl. (2) and arts. 155 and 161. In my view,
consent under s. 399 of the Companies Act, 1956, to present a petition under
ss. 397 and 398 of the Companies Act, 1956, is
not a function of the secretary. It can neither be said to be a ministerial nor
an administrative function in respect of a company. Such consent must be backed
by the authority of the board by a resolution or by subsequent ratification by
a board meeting : State of Wyoming Syndicate's case [1901] 2 Ch 431 (ChD) and
George Whitechurch Ltd. v. Cavanagh [1902] AC 117 at pp. 124-125, 139-140 (HL).
The position of a secretary, his power and function has been neatly summarised
in Halsbury's Laws of England, 4th Edn., Vol. VII, paras. 546 and 547 and it
will be useful to set. out the said two paras, as the English Companies Act and
the Indian Companies Act, so far as the powers, position and functions of the
secretary are concerned in the modern company are more or less the same. These
two paras, are set out hereunder.
"546.
Nature of employment of secretary.—The Secretary, being an agent only, is in the same position as any other agent of a
company. If his dealings are such that his company is not bound by them, he may
himself be liable, either as principal or on the ground of breach of warranty
of authority. Whereas it has formerly been held that he had no authority by
virtue of his position to make representations to induce persons to contract
with the company, his functions being ministerial only, his status has now
greatly increased. He regularly makes representations on behalf of the company
and enters into contracts on its behalf which come within the day-to-day
running of the company's business, he signs contracts connected with the
administrative side of a company's affairs; and all these matters are now
within his ostensible authority. But he is not, whilst merely performing the
duties appropriate to his office, a party to the carrying on of the business of
the company, so as to make him responsible without more for fraudulent trading.
He has no power, without
the resolution of the directors, to call a meeting of the company or to
commence proceedings on behalf of the company, nor can he alter the register of
members; but any such act may be ratified by the directors.
A secretary may not make a
secret profit in connection with the affairs of the company.
A secretary may be a clerk
or employee so as to be entitled to preferential payment in a winding-up.
547. Statutory duties of
secretary.—Among the statutory duties which must be, or usually are, discharged
by a secretary are signing the annual return and certifying the documents
annexed to it; delivering for registration returns of allotments, and contracts
for the allotment of shares paid up otherwise than in cash; making the
statutory declaration required before the commencement of business; giving
notice to any proposed director that his liability is to be unlimited; issuing
certificates of shares, debentures and debenture stock; delivering particulars
of mortgages or charges for registration, when these duties have not already been
performed by some other officer; allowing inspection of the debenture register
to debenture holders; giving notice to the Registrar of an increase of share
capital; allowing inspection of and sending copies of the register of members;
allowing inspection of the register of directors and secretaries; and, in the
case of winding-up by the court, assisting in making out the statement of the
affairs of the company".
From the above summary, it
is quite clear that the secretary cannot usurp the functions and powers of the
board or the company but due to the enormous growth of company activities he
has been empowered to discharge various ministerial and administrative duties
on behalf of the company which generally can be performed by an authorised
agent. In due course of the company's business, the secretary has been given
certain statutory powers like signing the annual return, etc. But under no
circumstance he can discharge the functions of the board or act on behalf of
the company in matters of policy or substantive steps which is not
administrative or ministerial in nature. Otherwise, it is the board of the
company which is empowered by the shareholders under the Companies Act and the
articles of association of the company to discharge the functions of the company
in carrying on its business and managing the affairs of the same. The Supreme
Court decision in Lakshmiratan Cotton Mills Co. Ltd. v. Aluminium Corporation
of India Ltd., AIR 1971 SC 1482, which has been cited by both the parties
before me on the question as to the authority of the secretary of a company to
act on behalf of the company does not really deal with the question which has
arisen before me as to whether the secretary has the power to give consent
under s. 399 of the Companies Act, 1956, for moving a petition under ss. 397
and 398 of the Companies Act, 1956, on behalf of the company which holds shares
in the capital of the company in respect of which the application under ss. 397
and 398 of the Companies Act, 1956, is made by the petitioner. In the Supreme
Court decision, the question arose whether a letter written by the secretary on
behalf of the company can constitute an acknowledgment within the meaning of s.
19 of the Limitation Act, 1908, as acknowledgment for saving the bar against limitation.
In the facts of the case, it was found that the person who had written the
letter in question was a secretary-cum-accountant and holder of a
power-of-attorney of the Corporation, and the statement of accounts enclosed
therewith was an admission of the jural relationship of debtor and creditor and
of the liability to pay the amount due at the foot of the account on
finalisation of accounts. Therefore, it was held that the writer of the said
letter had the implied authority to make the acknowledgment and he wrote the
letter with the intention of doing so. In the said decision, at para. 22, at p.
1490 of AIR 1971 SC, Shelat J. observed as follows :
"Ordinarily, the
functions of Subramanyam as the secretary of the Corporation would be
ministerial and administrative. As a secretary only, he would have no authority
to bind the Corporation by entering into contracts, or other commitments on its
behalf".
It is true that the said
decision is before the 1974 amendment in the definition of
"secretary" under s. 2(45) of the Companies Act, wherein the words
"any individual possessing the prescribed qualification "and"
any other ministerial or administrative duties" has been incorporated in
the definition. But, in my view, that has not altered the fundamental position
of the secretary in a company to discharge certain statutory duties as laid
down in the said Act and the Rules made thereunder and the prescribed forms
under the Companies (Court) Rules, 1959, and empowered the secretary to usurp
the function of the directors. In my view, signing the consent letter for an
application under ss. 397 and 398 by no stretch of imagination could be a
ministerial or administrative duty of a secretary of a company within the
meaning of the Companies Act.
Mr. Nag very strongly relied
on a single Bench decision of the Rajas-than High Court in Jaipur Udyog Ltd. v.
Union of India, AIR 1972 Raj 129, where a writ petition was made on behalf of
the company which was signed and verified on behalf of the company by the
secretary and it was held that the same was not defective merely because there
was no resolution of the company empowering the secretary to present the
petition. The learned judge observed in para. 22, at p. 133, of AIR 1972 Raj as
follows :
"Regarding the
preliminary objection of the respondents that the first two petitions are not
maintainable as they have not been filed by the authorised persons, I may
mention that r. 1 of 0.29, Civil P.C. would be applicable for the presentation
of the petitions by or on behalf of the Corporations. Rule 1 lays down that in
suits by or against a Corporation, any pleading may be signed and verified on
behalf of the Corporation by the secretary or by any director or other
principal officer of the Corporation who is able to depose to the facts of the
case. The requirement of this rule is not that the principal officer must be
empowered by a specific resolution to present the suit in a court of law. The
only requirement of this rule is that the principal officer must be in a
position to depose to the facts of the case. In the case of Jaipur Udyog Ltd.,
the petition has been signed by one Sri G.P. Gogla who has in his affidavit
deposed that he is the senior executive officer (quarry) of the Jaipur Udyog
Ltd. and that he was fully conversant with the facts of the case and was
competent to swear to the affidavit. In petition No. 11 of 1971 of M/s.
Hindusthan Sugar Mills Ltd., Bombay, the affidavit has been sworn by one Shri
Rangnath Kabra who has described himself as the administrative manager of the
petitioner-company and has stated that he was fully conversant with the facts
of the case. These averments of the aforementioned two officers clearly show
that the petitions were signed and verified on behalf of the companies by their
principal officers who were able to depose to the facts of the cases and as
such, they were entitled to sign the petitions and present them in the court.
The preliminary objection has, therefore, no force and it is rejected".
But, in my view, the said decision
does not lay down the proposition that the secretary can himself decide to
institute the writ petition in question but it relates to the verification and
signing of the petition on behalf of the company by the secretary. From the
said decision, it does not appear that the writ petition was filed by the
secretary himself on his own decision without any resolution of the board to
institute the same, as signing and verifying a pleading is quite different from
the decision to file the writ petition which in that case might have been by a
resolution of the board prior to the filing of the petition which was signed
and verified by the secretary on behalf of the company.
There is nothing wrong or
irregular or illegal in signing and verifying a petition on behalf of the
company by a secretary if the said writ petition is filed pursuant to a
resolution of the board as no further resolution is necessary empowering the
secretary to sign and verify the writ petition. The said act of signing and
verifying is merely a ministerial act pursuant to the resolution of the board
to institute such writ petition: Therefore, the said decision, in my view, has
not been correctly interpreted by Mr. Nag as having laid down the proposition
that the secretary is all in all in a company and he can institute proceeding
himself without any resolution of the board of the company on behalf of the
company. There is a clear distinction between an institution of a proceeding
and verifying and signing a pleading in such proceeding. If it is held that the
said decision has laid down the proposition which Mr. Nag has submitted, then
with great respect I disagree with the same as that would completely upset the
administration of the company under the Companies Act, and in effect the
secretary would supersede the board in all matters apart from ministerial or
administrative functions as provided under the Companies Act, by the amendment
of 1974. In my view, the definition of "secretary" under s. 2(45) of
the Companies Act, and the statutory functions to be discharged by him under
the said Act has been clearly laid down and it cannot be said that he can
override the board of directors of the company whose powers are defined under
ss. 291-293 of the Companies Act, read with the articles of association of the
company.
Further, r. 21 of the
Companies (Court) Rules, read with Form No. 3 thereof makes it clear that any
petition or pleading filed on behalf of the company must make an averment that
the person verifying the petition must state that he has been duly authorised
by the petitioner-company to make the said affidavit on behalf of the company
and that appears to be the affidavit of competency as it is known in the
original side practice of this court. It is true that in the note to Form No. 3
such a statement is necessary when the petition is verified by an affidavit
sworn to by any person other than a director, agent or secretary or other
officer of the company. But invariably in all petitions filed by the company an
affidavit of competency is required to be filed by the person verifying the
said petition. Then again in r. 70 of the Companies (Court) Rules, 1959,
dealing with the proxy for voting at the meeting of a company where the
shareholder is the member or creditor, it has been specifically provided that a
copy of the resolution of the board of directors of the corporate authorities
authorising such person to file the proxy shall be lodged with the company at
its registered office within a specified time before the meeting. Further, in
r. 88 of the Companies (Court) Rules, which prescribed the procedure for the
presentation of a petition under ss. 397 and 398 of the Companies Act, requires
the letter of consent signed by the member, authorising the petitioner or
petitioners to present the petition, must be annexed to the petition. The said
letter of consent constitutes the required qualification under s. 399 of the
Companies Act, 1956, and is of a substantive right of a petitioner who is a
member of the company in respect of whose affairs the petition under ss. 397
and 398 of the Companies Act, was presented. Therefore, such a letter of
consent to present the petition under ss. 397 and 398 of the Companies Act, can
never be said to be a matter of administrative or ministerial character like verifying
and signing a pleading. The decision must be taken by a resolution of the board
of the company on whose behalf the letter of consent is to be issued. It cannot
be done by an individual director or the secretary of the company unless he is
so authorised by a board's resolution to issue such letter of consent for the
presentation of a petition under ss. 397 and 398 of the Companies Act, 1956, by
the petitioner. It is an admitted position that there is no such resolution of
the Southern Steel Ltd., which is alleged to have issued a letter of consent
signed by the secretary at the instruction of one of the directors, Mohan Lal
Mittal, petitioner No. 1, in this case. Further, there is no question of any
ratification of the said letter of consent by the Southern Steel Ltd., which is
a member of respondent No. 1, Universal Wires Ltd., and without the said letter
of consent the requisite qualification under s. 399 of the Companies Act, 1956,
is not satisfied. This is an admitted position and, therefore, in my view, the
present application under ss. 397 and 398 of the Companies Act, 1956, is not
maintainable as it has failed to comply with the provisions of s. 399 of the Companies Act, 1956, and the
petitioner has not the requisite qualification and as such, this court has no
jurisdiction to entertain the said application.
In
that view of the matter as I have already held that the application is not
maintainable, the same is liable to be dismissed with costs. Further, I have
discussed the merits of the application and I am also of the view that no case
has been made out by the petitioner against the respondents either on
oppression or mismanagement either under s. 397 or s. 398 of the Companies Act
and the present application is absolutely mala fide vexatious and harassing.
In
that view of the matter, the application is dismissed with costs and the
special officer will stand discharged. It appears that the special officer has
already been paid 130 G. ms. and a further amount of 100 G. ms. is to be paid
to him by the company out of the funds of the company and the special officer
will stand discharged.
The
special officer and all parties to act on a signed copy of the minutes.
[1967]
37 COMP. CAS. 586 (ALL)
Lakshmi Ratan Cotton Mills Co Ltd.
V.
Aluminium Corpn.of
India Ltd.
B.DAYAL
AND S D KHARE, JJ.
FIRST
APPEAL NOS. 441 AND 442 OF 1950, 198 OF 1952
MAY
19, 1966
JUDGMENT
B. DAYAL,
J.- These three appeals
arise out of two suits between the parties. Two of the appeals have been filed
by the common defendant while the third is by one of the plaintiffs, Lakshmi
Ratan Cotton Mills Co. Ltd. These appeals have been pending in this court since
1952, mainly because the parties insisted upon bringing lawyers from outside
but were unable to decide upon a common date on which lawyers for both the
sides were able to attend the court. After all, with great difficulty, the
appeals were started on the 6th of December, 1965, and were partly heard on the
7th of December, 1965, also, on which date learned counsel appearing for the
defendant appellants had finished their arguments. The learned counsel for the
plaintiff-respondents started his case and argued for some time but the cases
had to be postponed. Since then, several dates were fixed, but the plaintiffs
were unable to bring any counsel to complete the arguments on their behalf. the
cases were ultimately fixed for the 9th of May, 1966, and the learned junior
counsel who were appearing for the plaintiff-respondent were definitely
informed that the date would not be altered. However, an application was again
filed for postponement of the cases from the 9th of May, 1966, and at the very
clear promise on behalf of the learned junior counsel that any date after the
9th May, 1966, would be adhered to and some senior counsel who may be able to
argue on the new date would be engaged, the cases were postponed to the 12th of
May, 1966, by our order dated the 25th of April, 1966, on an application of the
same date. However, no one appeared to argue the cases even on the 12th of May,
1966, and in view of the fact that the court was about to close for summer
vacations, we refused to postpone the cases any further. The result, therefore,
is that we have to dispose of these appeals without hearing the arguments on
behalf of the plaintiffs in the two suits.
One Suit No.
63 of 1949 was filed by Laxmi Ratan Cotton Mills Co. Ltd. against the Aluminium
Corporation of India Ltd. while the other Suit No. 65 of 1949 was filed by
Messrs. Behari Lal Ram Charan against the Aluminium Corporation of India Ltd.
Before these suits were filed, the defendant, the Aluminium Corporation of
India Ltd. ( hereinafter called the corporation ), as well as the two
plaintiffs, Lakshmi Ratan Cotton Mills Co. Ltd. (hereinafter called the
company) and M/s Bihari Lal Ram Charan (hereinafter called firm), were being
looked after by the Gupta group and the Singhania group jointly with the result
that the accounts of all the three were being mixed with each other and mutual
open and current accounts were maintained in the corporation, the company and
the firm showing debit and credit balances in favour of each other. But by
means of an award the two groups separated their interests so that the
corporation became the exclusive concern of the Singhania group and the company
as well as the firm because the exclusive concerns of the Gupta group and it
became necessary thereafter to settle the mutual accounts. In order to do so,
both the groups appointed one officer each to look into the accounts and to
negotiate on matters of different. On behalf of the corporation one Shri N.L.
V. Subramaniyam was directed to go into the accounts and to iron out
differences while on behalf of the Gupta group another officer was similarly
appointed and correspondence started between the two officers. Being unable to
come to a common agreement, correspondence stopped and the company files Suit
No. 63 of 1949, for recovery of a sum of Rs. 3,56,207-9-6 with pendente lite
and future interest. Apart from stating the history of the dealings between the
parties, the plaint went on to say that an open and current account was being
maintained by the plaintiff with regard to dealings with the defendant and that
on demand of the balance of the amount due, the defendant paid on the 16th of
November, 1944, a sum of Rs. 8,00,000, leaving a balance of Rs. 2,96,110-11-6,
particulars of which are shown in schedule A to the plaint. A further sum as
interest was also claimed and a sum of Rs. 7,709-2-6 was also credited to this
account. It was alleged that the cause of action arose in respect of each debit
entry on the date when it was made and then in November, 1944, when after
adjustment of payments, a sum of Rs. 2,96,110-11-6 was found due to the
plaintiff, and then in June, 1946, and June, 1947, when after making adjustment
of sums due to the defendant, details of which are given in schedule B attached
to the plaint, the balance now sued for still remained due. The suit having
been filed on the 13th of April, 1949, was claimed to be within limitation on account
of letters acknowledging liability, one of which dated the 16th of April, 1946,
has been filed and is the main bone of contention in the two suits.
Several
defences were taken including that the suit was barred by time and that the letter
dated the 16th of April, 1946, did not amount to an acknowledgment both because
it was not written by a person who had an authority to do so on behalf of the
corporation and also on account of the fact that the letter itself did not
amount to an acknowledgement was also alleged that, in any case, the amount
acknowledged in the letter could only be decreed and the letter cannot be
treated as an acknowledgment of any larger sum which may be found due on taking
accounts.
The other Suit
No. 65 of 1949 was filed by the company on similar allegations and also
claiming limitation from the same letter dated the 16th of April, 1946,
treating it as an acknowledgement of liability and prayed for a decree of Rs.
72,595-4-6. Similar defences were taken in this case also. The court below
after considering the evidence came to the conclusion that the letter amounted
to an acknowledgement and after going into accounts decreed Suit No. 63 of 1949
for a sum of Rs. 2,82,734-11-3 with proportionate costs and pendente lite and
future interest at 3 per cent. per annum. The court also decreed Suit No. 65 of
1949, for a sum of Rs. 47,660-1-3 with 6 per cent. simple interest per annum,
the total amounting to Rs. 50,005-2-9 with pendente lite and future interest at
3 per cent. per annum. Against these decrees, the corporation has filed two
Appeals Nos. 441 of 1950 against Suit No. 63 of 1949, filed by the company and
Appeal No. 442 of 1950 against Suit No. 65 of 1949, filed by the firm,
challenging the decrees passed against the defendant corporation. The third
Appeal No. 198 of 1952 has been filed by the company against the dismissal of a
part of its suit.
The common
question, which arises in all these three appeals, is whether the letter (
exhibit 1 dated the 16th of April, 1946) amounted to an acknowledgment of
liability and extended the limitation for the two suits. It is not disputed
that if this letter did not save limitation, both the suits were barred by
time. This letter dated the 16th of April, 1946, has been written by Shri
N.L.V. Subramaniyam, the secretary of the corporation at that time. This letter
had been written in reply to a letter dated the 25th of February, 1946, written
by the counterpart of the Gupta group. By this letter dated the 25th of
February, 1946 (exhibit 37), the gentlemen on behalf of the Gupta group was
answering an earlier letter by the Shri N.L.V. Subramaniyam dated the 21st of
December, 1945, and was replying to specific items in dispute between the
parties which must have been raised in the earlier letter. Referring to that
earlier letter, he gives details regarding item No. 3 which must have been
asked for. Regarding item No. 4 it is stated that he could not uphold any
liability and the difference in the bills should be credited to their account
(Gupta group's). With regard to Item No. 6 also, he claimed that it should be
credited. With regard to item No. 8, he admitted the claim made by Shri N.L.V.
Subramaniyam and he stated, "We are adjusting the amount" and so on
the letter went on replying item wise to the queries or objections made, and
ultimately ended the letter by saying, "Please note that unless all the
particular are received by us, we cannot adjust the items." In reply to
his letter, Shri Subramaniyam in his letter in question again replied to the
queries item-wise. He starts the letter by saying:
"We are
in receipt of your letter No. 666 dated the 22th February, 1946, and we give
below our observations":
Thereafter,
the proceeds item-wise either raising objections against specific items
accepting some part of these items. After dealing with several items at the end
of the letter he goes on to say:
" We are
enclosing herewith details of entries not responded by you. After all the above
adjustments, the position will be as per statement attached. Interest has been
provided on some balances and on others it has not been provided. We request
you to confirm this balance of Rs. 1,07,447-13-11, so that we may proceed with
the calculation of interest and settle your claim once and for all immediately.
Kindly acknowledge this letter and favour us with an immediate reply. Copy to
Lala Purshottam Das Ji Singhania for information."
From the very
nature of these letters exchanged it is quite clear that these letters were
merely exploratory and were not meant to bind any of the parties in respect of
the statements made therein. The more important point in respect of this letter
(exhibit 1) sent by Shri Subramaniyam is whether this gentlemen had the
authority on behalf of the corporation to acknowledge a liability so that even
if this letter may be stretched to mean that some kind of acknowledgment of
liability on settlement of accounts can be inferred from the letter, whether
the writer of the letter had the authority to bind the corporation.
It is well
settled that a person, in order to acknowledge the liability of another must
have an authority to do so. The second proviso to section 19, Limitation Act,
as it then stood, makes it quite clear. What amounts to an authority to sign an
acknowledgment has also been considered in a series of cases and it cannot be
doubted that a person in order to be deemed to have an authority of
acknowledging a liability must be the one who had the authority either to take
loans on behalf of the principal or to discharge the liability of the
principal, if there is no direct authority to acknowledge a particular
liability.
In the present
case, the only evidence on record which reflects upon this aspect of the matter
whether Shri Subramaniyam had any authority, is the statement of the writer
himself. No other witness has touched upon this point and we have, therefore,
to look to the statement of the witness wherever he speaks of this matter.
Before dealing with the statement of this witness, it is important to note that
before award and distribution of interest of the two groups. Shri Ramaratan
Gupta was the managing director of the managing agents of the corporation and
in the sole charge of the affairs of the corporation. He must, therefore, have
been well aware of the powers of this secretary in this corporation and if
there was anything either in the memorandum of the corporation or in any
resolution or order conferring powers upon the secretary, which would help him
in this matter, such evidence would certainly have come on the record. The very
fact that no attempt has been made to prove anything to show that the secretary
of the corporation had power either to borrow money on behalf of the
corporation or to discharge liabilities on behalf of the corporation, gives an idea
that there was no such power vested in the secretary. In his statement, Shri
Subramaniyam states:
" I never
acknowledge debts. Exhibit I was just correspondence to clarify the position
and if it had been confirmed, as it was not, I would have put it before the
directors for orders...................I carried out routine correspondence for
Aluminium Corporation........ On the 9th of February, 1945, the board directed
that L. Ramratan Gupta be asked to explain the condition of the accounts and
the shortages in stores at the time of handing over the management of the
corporation. Exhibit 54 was written in pursuance of this
resolution.............I sued as secretary (sic) as well as orders were issued
that I was accountant secretary of Aluminium Corporation of India when I
joined...............As soon as exhibit 2 was written I was ordered to forward
the correspondence directly to P.D. Singhania without reference to him, i.e.,
Lakshmipat. I was asked to send copies of the correspondence only, and not
correspondence. I was not to receive instructions from P.D. Singhania but to
keep him informed only.....................P.D. Singhania is a director of J.K.
Jute Mills (not of the corporation). I do not know why I asked to keep him
informed. At the time exhibit I was written the accounts between Aluminimum
Corporation of India and Lakshmi Ratan Cotton Mills were unsettled. They
remained unsettled till August, 1948...............Mr. Lakshmipat knew that I
was dealing with these account for our firm with Arora representing the Lakshmi
Ratan Cotton Mills. I was to find out the difference between the two. As a
result many point were resolved. I confirmed by subsequent letters that some of
the points in dispute were resolved. My directors knew that settlement of
certain points had been reached but they neither ratified it nor repudiated it.
I never asked the directors to ratify my action. In accordance with these
settled matters no entries were made in the books....."
From the above
statement of this witness, it is quite clear to our mind that he was merely
asked to enter into correspondence in order to explore and clarify the state of
accounts. The ultimate decision was to be taken by the directors. The fact that
after writing the letter exhibit 2 he was asked to send copies of his
correspondence to one Shri P.D. Singhania goes to show that the directors did
not have full faith in him and they wanted to keep a watch over him. In such a
situation, it is not possible to believe that this witness had such an
authority on behalf of the possible to believe that this witness had such an
authority on behalf of the corporation that he could acknowledge the
liabilities and bind the corporation. The fact is also noteworthy that even
though certain items were admitted by this witness as correct, no entries were
made in the account books in respect of those items as liabilities. The whole
matter had to be reviewed by the directors who had the authority to bind the
corporation. This case is clearly covered by the principles laid down by this
court in Uma Shankar v. Govind Narain A.I.R. 1924 All 855. In this case during
correspondence the munib of a firm acknowledged some liability and it was held
that the munib who was merely authorised to write letters of a routine type
could not bind the principal by any acknowledgment. This was also a Division
Bench case and we are bound by it. The attempt on behalf of the court below to
distinguish this case is, to our mind, futile. The learned judge has tried to
show that the circumstances under which the letter in question was written are
different from the circumstances in which the letter in question was written
are different from the circumstances in which the letter written by the munib
in the reported case appears to have been written. This aspect of the matter,
to our mind, was wholly irrelevant. The circumstances in which a letter is
written, may reflect upon the value of the letter as an acknowledgment but it
cannot increase the authority of the person who has written the letter.
It was further
argued that the secretary of a corporation under the Indian law is a
responsible officer and as such, must be deemed to have inherent powers to bind
the corporation without proof of any special authority to do so. No authority
had been cited for that proposition and we are unable to accept it on general
principles. Although under the Indian Companies Act, 1913, a secretary is an
officer of the company merely being an officer of the company does not
authorise him to bind the company in financial matters unless he is authorised
to do so. The Indian Companies Act has been modelled on the English company
law. Halsbury's Laws of England, 3rd edition, 6th volume at page 324 (paragraph
638) also states that the secretary is an officer of the company and yet at page
326 (paragraph 644) the position of the secretary has been summarised and it is
stated:
" He has
not by virtue of his position any authority to make representations to induce
persons to contract with the company, the functions being ministerial only; the
company is not bound by his unauthorised representations."
Principles of
Company Law by Pennington, 1959 edition at page 94 summaries the position of a
secretary of the corporation and also reiterates:
" But he
has no power to make decisions on the company's behalf himself, and so he is
acting outside his authority if he negotiates contracts or borrows money in the
company's name, and the company is not bound thereby."
Palmer's
Companies Law, 20th edition at page 500 onwards deals with the powers of the
secretary as such. It is stated:
" Apart
from certain statutory duties which will be considered later, duties of the
secretary are not fixed by law; they are those which are assigned to him either
by the company under its article, or under his contract of service with the
company, or, as it normally the case, by the directors."
In the present
case, nothing has been proved to show that this corporation gave any such power
to the secretary to bind the corporation into any liability by his acts.
Lastly, it was
contended that in India the secretary is authorised to sign th pleadings under
Order 29, rule 1, Civil Procedure Code, and to receive notice under rule 2
thereof. It was, therefore, contended that the position of a secretary in India
is that of a responsible officer and he can bind the corporation. We are unable
to agree with this contention. From the fact that special provision had to be
made in the Code of Civil Procedure authorising the secretary to sign the
pleadings indicates that otherwise he would not have been so authorised and
such an authority given under the special law cannot lead to the conclusion
that the secretary has also an authority either to borrow loans or to bind the
corporation by acknowledging liabilities.
We are,
therefore, fully satisfied that in this case the letter (exhibit 1) dated the
16th April, 1946, did not amount to acknowledgment and was not sufficient to
extend the limitation. Both the suits must, therefore, be dismissed on this
ground.
We need not
consider any other aspect of the matter as it is sufficient to dispose of all
the three appeals.
The result,
therefore, is that Appeal Nos. 441 and 442 of 1950 filed by the corporation are
allowed while Appeal No. 198 of 1952 filed by the company is dismissed. The
corporation will get costs in both the suits and in both the courts.
[1939] 9 COMP CAS 134 (CA)
GREENE, M.R., SCOTT, L.J., CLAUSON, L.J.
OCT. 13, 14, 17. NOV. 25, 1938
JUDGMENT
Greene, M.R. —The appellant was at all material times one of the two only directors of Cleadon Trust, Ltd., which I will refer to as "the company". The company owned shares in and all the debentures of two subsidiary companies, namely, Carlisle (Builders), Ltd. (incorporated in 1926), and the Property and Building Corporation, Ltd. (incorporated on October 24, 1930), which I will refer to as "Carlisles" and "P.B.C." respectively. The boards of all three companies were the same, and a Mr. Antrobus was in each case the secretary. Previously to August 6, 1931, a Mr. Jackson was the other director and managing director of all three companies. After that date his place as director was taken by a Mr. Kelly, but there was no managing director of any of the three companies.
For some time before the events which give rise to the present claim the appellant had been in the habit of advancing large sums to the company at the request of Mr. Jackson, its managing director. On one occasion at least, namely, on October 27, 1929, at the like request a sum was paid by the appellant to Carlisles, upon the footing that the company should be liable to repay the amount to the appellant. All sums so provided by the appellant were entered in a ledger account in the appellant's name in the company's books. After Mr. Jackson left the company the appellant continued to make advances to the company. He also provided certain sums of money for the subsidiaries in the circumstances hereinafter stated. In the case of the advances made and the sums provided while Mr. Jackson was managing director, there may have been a binding obligation on the company to repay since the transactions may have been within the scope of a managing director's authority. I refer to this point later. But in the case of the advances made and the sums provided after Mr. Jackson's departure no binding contract could be made for reasons which will appear. No question arises on this appeal as to the right of the appellant to prove in respect of sums actually received by the company. The appeal relates solely to sums provided for the subsidiaries in the circumstances which I will now explain.
The two subsidiary companies were interested in a block of flats called Tufton Court. In the years 1930 and 1931 these flats were being constructed by a building company called Hammond & Barr, Ltd., which I will refer to as "the builders". In the first instance Carlisles had entered into a contract with a Mr. Warwick Brookes, who at that time was the building lessee, to provide him with moneys which he required in order to pay the builders their instalments under the building contract which he had made with them. The performance of this contract by Carlisles was guaranteed by the company by a document of October 3, 1930, addressed to Mr. Warwick Brookes, which I will refer to as "the first guarantee". Subsequently the interest of Mr. Warwick Brookes was taken over by P.B.C. who became liable to pay the builders, and their liability was guaranteed by the company by a document of April 9, 1931, addressed to the builders, which I will call "the second guarantee". The flats were completed and a lease of them was taken by P.B.C. During the construction of the flats, sums of money became due to the builders which fell to be found by Carlisles during the currency of the first guarantee and by P.B.C. during the currency of the second guarantee. Neither the subsidiary companies nor the company had the necessary funds and the appellant from time to time provided money for the purpose. He did so in the first two cases at the request of Mr. Jackson, and in the remaining cases at the request of Mr. Antrobus with the knowledge and approval of Mr. Kelley. The sums so provided for payment of the builders were eight in number. The first was a sum of £ 2,000 provided while Mr. Jackson was managing director on January 2, 1931, that is, during the currency of the first guarantee when the money for payment of the builders fell to be found by Carlisles. The other seven amounting in all to £13,875 were provided during the last six months of 1931, that is, during the currency of the second guarantee when the money for payment of the builders fell to be found by P.B.C. The earliest of these seven payments, namely, £ 2,500 on July 29, 1931, was made while Mr. Jackson was managing director; the remaining six were made after he had left. In view of the inability of the two subsidiary companies to find the sums which fell to be found by them respectively the company would have been liable to find them under the guarantees, but it had no money available for the purpose. When the appellant provided these sums it was understood and arranged between himself and Mr. Jackson (in the case of the two earliest payments) and between himself and Mr. Antrobus (in the case of the other six payments) that they were to be treated as advanced by the appellant to the company. The amounts were accordingly entered in his ledger account and were debited to the subsidiaries respectively in the company's books. In the case of the last six payments Mr. Kelly knew of and assented to the arrangement. Interest on the sums in question was from time to time paid to the appellant by the company or credited to him in account. The amounts were provided in each case by cheque drawn by the appellant on his bankers. The cheque for £2,000 was drawn in favour of the company; it was apparently endorsed by some person purporting to act on behalf of the company whose identity was not ascertained by the evidence—for the cheque was not produced—and paid into the banking account of Carlisles who used it towards paying to the builders a sum of £2,125 then due to them under the architect's certificate. The remaining seven sums were provided by cheques drawn in favour of the builders and sent to them through P.B.C. presumably by Mr. Antrobus, who was, as I have already stated, the secretary of that company also. The statement in Bennett, J.'s judgment that these seven sums were paid to P.B.C. by cheques drawn in favour of that company is due to a misapprehension on his part. These eight payments amounting together to £ 15,875 form the greater part of a sum of £ 17,353 7s. 11d. for which the appellant claims to be entitled to prove in the voluntary winding up of the company. The liquidator rejected the claim for this amount and his decision was upheld by Bennett, J. The rest of the sum of £ 17,353 7s. 11d. I will deal with later.
The company and its two subsidiaries are in liquidation. Such assets as the subsidiaries may have are insufficient to discharge the amounts owing on their debentures and accordingly any claim which the appellant might have had against them is worthless. The result of the payments made by the appellant was in each case to extinguish a debt for which in the first case Carlisles and in the other seven cases P.B.C. were liable, and the extinction of those debts operated to relieve the company of the corresponding liability under its guarantee. If the appellant's claim fails, the shareholders of the company will benefit by the payments which he made, for if the money had been found by the subsidiaries themselves (assuming that to have been possible) the assets of those companies would have been depleted and there would have been less to come from them to the company as the holder of all their debentures; if, on the other hand, the company had found the money as guarantor its own assets would have been diminished, since claims by the company against the subsidiaries as principal debtors for recoupment would, on the facts, have been valueless.
The fact that the first two payments were made upon the request of Mr. Jackson, who was then still managing director, was not relied upon before us, all the eight payments being treated upon the same footing so far as regards the existence of any person capable of binding the company. Upon the view which I take it is not necessary to consider whether or not in those two cases the company became contractually bound and I will deal with them without reference to Mr. Jackson's possible authority as managing director.
If the company had had an independent board of directors and that board had requested the appellant to provide these sums, or had known of and acquiesced in their provision, the appellant's claim in the circumstances stated would have been a good one. But there was no such board, since of the only two directors one, the appellant, was interested, and by article 124 of the company's articles of association two directors were necessary to form a quorum. An attempt was made to avoid this difficulty by means of article 116, coupled with what purported to be a resolution of the board of directors of the company passed on December 5, 1932. Under that article the common prohibition against voting by an interested director is declared not to apply to "any arrangement for giving a director security for advances or by way of indemnity". The resolution purported to "confirm" the "advances" to P.B.C. by the appellant, which were said to have been made "at the request of the Cleadon Trust, Ltd." It was said in the first place that the arrangement by which the appellant was to be treated as having advanced the sums in question to the company was "an arrangement for giving a director security for advances" and that the approval of his co-director was sufficient to give it validity. It was said in the second place that it was an arrangement by way of indemnity". I cannot accept either of these arguments. With regard to the former, it is sufficient to point out that there was never any "advance", since in order that there might be an advance a resolution of an independent board was required. With regard to the latter, the words on their true construction mean, in my opinion, not "arrangement by way of indemnity", but "an arrangement for giving a director security by way of indemnity" and the facts of the present case cannnot be brought within that expression.
This brings me to the substantial question in the case. It was argued that the facts of the present case brought it within a principle which for present purposes I can take as stated with sufficient accuracy in Smith's Leading Cases (13th ed.), Vol. 1, at p. 156. It is there said that "if a person knows that the consideration is being rendered for his benefit with an expectation that he will pay for it, then if he acquiesces in its being done, taking the benefit of it when done, he will be taken impliedly to have requested its being done: and that will import a promise to pay for it". In my opinion, the facts of the present case are not sufficient to bring this principle into play. Two things at least are essential for its application, namely, knowledge and acquiescence on the part of the person sought to be charged with liability. The knowledge required must, I think, be knowledge which will lead to the possibility of effective action by refusing to accept liability. In the present case the company had no such knowledge, for of its three officers who knew the facts one, the appellant, was disqualified from taking part in any decision on the matter, another, his co-director, could not alone come to any decision, while the secretary had no power at all in the matter. It was suggested that the other director could have taken action by calling a meeting of the company and submitting the question to it. This argument is, in my opinion, unsound. But apart from the question of knowledge, there was not and could not have been any acquiescence by the company in the absence of an independent board.
But this does not dispose of the matter, since the appellant relies upon a principle of equity under which a person who has advanced money to pay the debts of another may, in certain circumstances, be entitled to claim repayment against that other notwithstanding that no liability to repay exists at law. This aspect of the case is not dealt with in the judgment of Bennett, J. I proceed to examine the nature and scope of this principle and the authorities in which it has been discussed and applied. Three lines of authority were referred to of which to have, in my opinion, no immediate relevance to the present question. Of these two, one is concerned with corporations which, having exhausted their borrowing powers, borrow money from a lender and apply it in payment of existing debts lawfully incurred. In such cases the lender can recover from the company the amount so applied. An example is to be found in Cork and Youghall Railway, In re. The principle underlying these cases has not yet been finally ascertained—It may be that the borrowing ought not to be treated as ultra vires the company at all, or it may be that the lender is subrogated to the rights of the creditors who have been paid off (per Lord Parker in Sinclair v. Brougham (83 L. J. Ch., at p. 488; [1914] A.C., at p. 441). Whichever view be the right one, I do dot find any assistance in these decisions.
The other line of cases is that of which Sinclair v. Brougham is itself the leading example. That was a case in which persons had deposited money with a building society in the course of a banking business which it was carrying on ultra vires. In the winding up of the society the question arose whether the depositors were entitled to make claims upon the assets in the hands of the liquidator. The argument that the depositors were entitled at law to recover the amounts of their deposits as money had and received having failed, the question arose what rights, if any, they had against the surplus assets remaining after the creditors had been paid. While it was recognised that a person who had handed over money or property to a corporation lacking the necessary powers to enter into the transaction under which it was received was at law entitled to follow the money or property so long as it retained its identity, the difficulty arose that the money paid in by the depositors had upon the facts lost its identity as specific property, with the result that the depositors could not point to any specific asset the property in which lay in them. Accordingly there existed no remedy at law. But the difficulty was overcome by applying the principle of equity under which trust moneys can be traced into an account in which they have been mingled with other moneys, the owner of the trust moneys being treated as having a charge on the blended fund. The principle was applied by treating the society and its agents who received the deposits as trustees for the depositors from the moment of receipt. I have endeavoured to summarise the reasoning of Lord Haldane, L.C., and Lord Parker in that case, and it does not appear to me that the principles enunciated in that case are sufficient to solve the present problem. Those principles belong, it may be said, to the same family as those laid down in the third line of cases to which I will presently turn. They both illustrate the method by which equity in certain circumstances will assist a person who has no right at law, but is able to show that money belonging to himself has gone to swell the assets of the person to or for whose benefit he had paid it. It is, of course, important to see that the operation of these principles is kept within proper limits, having regard to the general rule that "where money is expended for the benefit of another person under such circumstances that he cannot help accepting the benefit ... he has no opportunity of exercising any option and he will be under no liability" (peg Brett, M.R., in Leigh v, Dickeson (54 L.J.Q.B., at p. 20; 15 Q.B.D., at p. 65).
The third line of cases is illustrated by Bannatyne v. Maclver, Reversion Fund and Insurance Co. v. Maison Cosway, Ltd., and Liggett (Liverpool), Ltd. v. Barclays Bank, Ltd. I take the principle applied in those cases from the judgment of Romer, L.J., in Bannatyne v. Maclver, omitting certain words which were held by this Court in the Maison Cosway Case to be unnecessary to the decision. The learned Lord Justice says (75 L.J.K.B., at p. 128; [1906] 1 K.B., at p. 109): "Where money is borrowed on behalf of a principal by an agent . . . though it turns out that his act has not been authorised, or ratified, or adopted by the principal, then, although the principal cannot be sued at law, yet in equity, to the extent to which the money borrowed has in fact been applied in paying legal debts and obligations of the principal, the lender is entitled to stand in the same position as if the money had originally been borrowed by the principal."
This rule is not based upon the absence of borrowing powers in the principal, for it is applicable where the principal has power to borrow but the agent borrows in excess of his authority. Its application in the case of partners is discussed in Lindley on Partnership (10th ed.), at p. 251.
The real question in the present case, in my opinion, is whether or not its facts bring it within this rule. If the company had itself been indebted to the builders as sole or principal debtors, and the secretary had borrowed money from the appellant having no authority to do so, and if the money so borrowed had been applied in payment of what was due to the builders, the case would have fallen within the language of Romer, L.J., and the appellant would have been entitled to stand in the same position as if the money had been borrowed by the company. But the facts were not as supposed, and it is necessary to consider whether in spite of the points of difference, the principle still applies. The first point of difference is that the money was not, strictly speaking, borrowed at all in the sense that it went into the coffers of the company. Except in the case of the first cheque, the request was for payment direct to the builders. Nevertheless, this difference is not, in my opinion, one of substance. I cannot see that it makes any difference whether the agent obtains the money himself from the lender or requests the lender to make the payment direct to the principal's creditor. In each case, if the agent had in fact had authority, the principal would have become liable to the lender, and if the lender is entitled to recover in the one case in spite of the absence of authority I can see no logical reason why he should not be similarly entitled in the other. I should say here that the facts appear to me to show that the secretary (or in the case of the first two advances, Mr. Jackson) in asking the appellant to provide the money and the appellant in so providing it were both acting upon the footing that the money was being provided for the company itself in order to enable it to discharge or forestall the incidence of its liability as guarantor, and not for the subsidiary company concerned. It is true that in the case of the first cheque for £2,000 the money was in fact received by Carlisles and used by them to pay the builders, but this in my view is, on the facts, a matter of form and not of substance.
My view that the rule in question applies to cases where the lender pays the creditor direct is, I think, supported by the decision of Wright, J. (as he then was), in Liggett (Liverpool), Ltd. v. Barclays Bank, Ltd. That was a case where a bank honoured cheques drawn upon a company's account by one director alone, the signature of two directors being required by the regulations of the company. The cheques were used in payment of debts of the company and the bank claimed to be entitled to debit the company's account, notwithstanding that the cheques were, to its knowledge, irregular. Upon the assumption that the company's account was in debit, each cheque would have been a request for a loan and the case would have fallen exactly within the principle as enunciated by Romer, L.J. But upon the assumption that the account was, at the time when any particular cheque was honoured, in credit, the position was different. I am not sure, if I may respectfully say so, that T agree with all the observations made by the learned Judge in the part of his judgment which deals with the case on this assumption, but, I entirely agree with the result. I should have thought that when the bank paid the company's creditor on a cheque drawn when the account was in credit it was doing nothing more than using its own money to pay the creditor at the request of an agent of the company who had no authority in that behalf. Ex hypothesi the cheque qua cheque did not justify the bank in debiting the company's account with the amount paid and what Wright, J., (97 L.J.K.B., at p. 9; [1928] 1 K.B., at p. 63) describes as a "misapplication of credits" was, so far as the cheque was concerned, completely unjustified. The debit entry appears to me to have been justified because the bank made the payment to the creditor of the company at the request of a person purporting to act on behalf of the company in spite of the fact that to the knowledge of the bank he had no authority.
But there is a more important point of difference between the facts of the present case and those of the case assumed above. The debts which were discharged by the use of the appellant's money were not the company's debts at all; they were the debts of the subsidiaries, and the company's only liability with regard to them was that which existed under the guarantees. But the discharge of the debts operated to extinguish that liability pro tanto, and it is rot disputed upon the facts that, as I have stated earlier in this judgment, the company's assets would have been so much the less if the payments had not been made. It appears to me therefore that this is a case where the appellant's money has been used to get rid of a liability of the company with a consequential and corresponding benefit to the company whose assets would otherwise have been depleted.
For these reasons I am of opinion that the appellant is entitled to succeed on this branch of the case. The position would, I think, have been different if at the time of the payments the subsidiaries had themselves been in a position to find the money. Had this been so, no benefit would have resulted to the company from the payments since its liability under the guarantees would never have come into effective operation. The payments would no doubt have extinguished that liability, but the benefit resulting to the company from such extinction would have been purely nominal.
With all respect to those who think otherwise, I do not take the view that the principle which I have been discussing applies only in cases where the creditor has been in fact paid by the hand of a person having a general authority to pay the principal's debts. There are, no doubt, weighty reasons which support this view. But I am unable to find that this has ever been considered to be a requirement in cases where the principle has been discussed, although there may be other cases on the subject which I have not examined. Were such a requirement essential it would, of course, greatly limit the application of the principle. For instance, if a director, having no authority to borrow on behalf of his company, borrowed money from a third person and himself applied it in payment of the company's debts, having no general authority to pay debts—and a director as such has not that authority—the third person could not recover. If, on the other hand, the director, having obtained the money, handed it to the company's cashier, he being a person with general authority to pay the company's debts, and the cashier used the money to pay the debts, the company would be liable. This result appears to me to be an anomalous one. Moreover, I cannot myself see how the decision in Liggett (Liverpool), Ltd. v. Barclays Bank, Ltd., could be supported, for the company's debts in that Case were not paid by any agent of the company having authority to pay debts but by the bank out of its own money. The sending of the Cheques to the company's creditors by the director who signed them was not a payment of the company's debt at all, because the cheques, as cheques, were irregular and it was the bank's duty to refuse to honour them. On the other hand, the cheques, although bad cheques, were treated as requests by the director to the bank to discharge the company's debts and the director had no authority to make any such request. The principle is an old one. As was pointed out by Romer, L.J., in Bannatyne v. Maclver (75 L.J. K.B., at p. 123; [1906] 1 K.B., at p. 110) examples of its application are to be found in cases where a third person provides money for the purpose of paying for necessaries for a married woman. In such a case the husband was not liable at law, but he was liable in equity. An example of this is to be found in Jenner v. Morris. There Lord Campbell, L.C., said (30 L.J. Ch., at p. 362; 3 De G.F. & J., at p. 51): "Courts of law will not recognise any privity between the husband and a person who has supplied his wife with money to purchase necessaries or pays the tradespeople who have furnished them. Nevertheless, it has been laid down from ancient times that a Court of Equity will allow the party who has advanced the money which is proved to have been actually employed in paying for necessaries furnised to the deserted wife to stand in the shoes of the tradespeople who furnished the necessaries, and to have a remedy for the amount against the husband. I do not find any technical reason given for this; but it may possibly be the equity considers that the tradespeople have for valuable consideration assigned to the party who advanced the money the legal debt which would be due to them from the husband on furnishing the necessaries, and that, although a chose in action cannot be assigned at law, a Court of Equity recognises the right of the assignee". It is to be noticed that Lord Campbell here in stating the principle refers not only to the case where the money is actually supplied to the wife, but also to the case where the person providing the money pays the tradespeople direct. The wife had no authority to require such payment and, although she had authority to provide herself with necessaries and to pay for them, in the second case mentioned by Lord Campbell it was not she that made the payment at all. It is, I think, fair to observe that the precise ground upon which the equity is based has not been finally stated. It may be that it is a mere anomaly. Such anomalies are to be found at law in some cases of quasi contract. The fact is that our law did advance in certain respects some way towards recognising a doctrine of unjust enrichment, but the process was stopped short, leaving certain anomalies based on ancient authority embedded in the law. It may be that this principle of equity is to be explained on the same ground. The principle, as I understand it, appears to me a beneficient one and I should be sorry to see its application cut down in the manner suggested.
The remaining items in the claim fall into two classes. One class can be dealt with shortly. It consists of (a) a sum of £62 3s. 7d. provided by the appellant for paying a debt due from P.B.C. to the electricity company supplying Tufton Court; (b) an item of £216 4s. 4d. provided by the appellant for paying a debt due from Carlisles to a firm of solicitors. In neither case was there any liability of the company itself, and the fact that the company indirectly obtained a benefit through the help thus given to its subsidiaries is not sufficient to give the appellant any claim against it.
The other class consists of three sums amounting together to £1,200 paid by the appellant to Carlisles in July, August and November, 1932. The evidence with regard to these sums is incomplete, but they were treated before us as having been provided by the appellant upon the request of Mr. Antrobus in the same way as the sums dealt with in the earlier part of this judgment. Entries with regard to them appear in the appellant's ledger account. These sums were paid into Carlisles' banking account which, as counsel on behalf of the liquidator admitted, was in debit throughout the material time. The balance sheet of the company for the year ending March, 31, 1932, contains a statement that the company had given an unlimited guarantee of the overdraft of Carlisles and counsel admitted that this guarantee had in fact been given and was subsisting when the payments in question were made. These facts, in my opinion, bring these payments under the same principle as that which I have already held to be applicable to the payments first discussed.
There is also a claim to prove for interest, but this was not pressed, and there is, in my opinion, no ground upon which it can be supported.
In the result I would allow the appeal to the extent of £17,075. But as the majority of the members of the Court have come to a different conclusion on the main question the appeal is dismissed with costs.
Scott, L.J.—I have had the privilege of reading the written judgments of my colleagues, both that which the Master of the Rolls has just read and that which Clauson, L.J., is about to read. They differ. The Master of the Rolls would allow the appeal. Clauson, L.J., would dismiss it. With some diffidence, but no doubt, I agree with Clauson, L.J. The question for determination is whether the appellant had at the date of the winding-up of the Cleadon Trust, Ltd. (to which I also will refer as "the company"), good causes of action against the company at common law or, alternatively, in equity, for reimbursement of thirteen sums of money which he had provided out of his own pocket for the purpose of paying current debts of two subsidiary companies wholly owned by the company. The Master of the Rolls has stated the facts and, subject to one question in regard to items 1 and 2, I concur in his view that in ultimate analysis of the evidence all thirteen items appear to be legally similar in circumstances. In each case the appellant provided the money by cheque upon his bank. In the first case the appellant's cheque was cashed by the subsidiary, who a little later paid to the creditor a slightly larger amount. In each of the other twelve cases the cheque came to the hands of a creditor of one of the subsidiaries for that precise amount; the creditor cashed it, credited the subsidiary with the proceeds, and treated the debt as paid. The salient fact upon which the judgment of the Master of the Rolls has turned is that each debt so paid was covered by one or other of three guarantees of payment given by the company to the subsidiary's creditor, so that had the creditor not received payment the company could and would have been liable on its guarantee; and as the company not only owned all the shares of each subsidiary, but also had debentures covering all its assets and to an amount exceeding their value, the company's right of recourse against the subsidiary as principal debtor was worth nothing. Whilst I agree with the Master of the Rolls in these conclusions of fact, I regard as equally important the evidence relating to the constitution and position of the company and the conduct of the appellant at the material times. The company's articles of association provide (1) that the business of the company shall be managed by the directors, (2) that a quorum of two is necessary "until otherwise determined"— no such determination was proved; (3) that the directors may appoint a managing director. There was one till August 6, 1931, but I agree with the Master of the Rolls that he does not really come into the picture, except possibly on items 1 and 2 on which I will speak presently. I agree, too, with the Master of the Rolls' reasons for deciding that article 116 does not cure the appellant's disqualification for interest. The result is that, so far as every one of the appellant's claims is concerned, the company had only one effective director and was thus deprived of the possibility of a quorum; from which flows the legal corollary that in any matter in which action by the company, that is by the juridical persons, was necessary, it could not act at all. It was still the outer shell of a Persona, but it was paralysed and could neither request nor agree nor instruct nor authorise—in short, could not do anything within the sphere of management of the company's business; it was the negation of a real person except, I suppose, in regard to ownership of its property and routine action by servants, and, of course, transactions outside the vitiating reach of the appellant's disqualification. In so far as it is material, the same commentary presumably applies to each of the two subsidiaries.
The three companies all had the same office and Mr. Antrobus was secretary of all three. There was no evidence of his being given any managerial powers; he remained a mere secretary so far as his authority and duties were concerned. He therefore had no power to do any of the following things: (a) to make any request on behalf of the company for a loan to itself or an advance to a third party; (b) to make any such agreement for the company; (c) to record the transactions in the company's books as loans to the company; (d) to indorse the company's name on the cheque in the case of item No. 1 drawn in favour of the company; (e) to send on that cheque or any of the appellant's other cheques, however drawn, to a subsidiary company or to that company's creditor. It is further to be observed that when Mr. Antrobus did any of the things he did in connection with the advances, there is nothing in the evidence to show that he was either intending or professing to act for the holding company rather than the subsidiary; and, in the absence of such evidence, I think the burden of proof resting on the appellant that Mr. Antrobus even purported to act for the company rather than the subsidiary, for example, in sending on the cheques, remains undischarged. If such proof was a material element in the appellant's cause of action, the learned Judge was necessarily right in dismissing his claim.
The appellant held the controlling interest in the company and, in my view, it is apparent from the transcript of evidence that he exercised a dominant control in the administration of the affairs of the company and also of its two subsidiaries, practically to the extent of treating the business of the company and its two subsidiaries as one business belonging to himself. I think it is a proper inference from the evidence that the various advances (other than, the first two which were arranged with Mr. Jackson) were arranged exclusively between himself and Mr. Antrobus, the secretary of all three companies. Mr. Kelly, his co-director, is said to have had knowledge of some or all of the transactions; but the effect of the evidence on my mind is that the appellant looked to Antrobus to tell him what money was needed for the subsidiaries; that he then obtained such further information as he thought fit from Antrobus; and upon that decided what advances he considered it desirable to make and directed Antrobus to deal with the cheques accordingly and to record the advance as loans by himself to the company in the company's ledger.
In at least one aspect it is relevant also to draw attention to the legal irregularity of the course of conduct followed by the appellant himself in relation both to the Cleadon Trust, Ltd., and presumably also to the subsidiaries. It is obvious that he was throughout the whole thirteen transactions flagrantly disregarding the provision of the Companies Act and of the articles of association which entrusted the whole management of the company's business to the directors, acting through a quorum of two; he was also guilty of interfering improperly and without authority with the secretary and giving him orders which he had no right to give. The privilege of limited liability which Parliament has given to members of companies registered under the Companies Act is given upon the footing of conditions the observance of which by directors is of general importance to the public, especially these "one man" or "two men" small private companies, where the absence of publicity makes due compliance with the law all the more important. It is his counsel's common law submission which makes the appellant's conduct relevant. That submission is that the appellant is entitled to succeed, because repayment was in "fairness" and "justice" due to him, that being the principle, counsel contends, which is embodied in the class of common law causes of action known as "contracts implied by law", on which he relies. If that principle, or anything like it, could be established as law to-day, the conduct of the appellant would be germane to the inquiry, in that it might well be regarded as neither "fair nor just" for the Court to reward such misconduct by extending its help. But apart from these considerations, both of the appellant's grounds of claim, common law and equity, are affected by two fundamental conclusions of fact to be drawn from the evidence: (1) that the company as a judicial person took no action whatsoever, it could take none and was therefore wholly impassive; and (2) that the appellant's advances, so far as the company was concerned, were purely voluntary and gratuitous.
In spite of the fact that all three members of this Court are in agreement that the claim at law is bad, I think that counsel is entitled to some statement of our reasons, so I will give mine shortly. In his argument upon the common law aspect he did not distinguish between the two senses of the legal phrase "implied contracts", namely, (a) a real consensual contract inferred as a conclusion of fact from the conduct of the parties and other circumstances of the case, though not expressed in words written or spoken, and (b) the so-called "contract implied in law" where there is no agreement in fact, but none the less a right of action, evolved by the common law Courts on so-called "equitable" principles at a time when they had no equitable jurisdiction—the "implied contracts" which Leake explained so clearly in the first edition of his book on Contracts published in 1867, and in the third edition of Bullen and Leake, published in 1868. In these latter causes of action there was no consensual element whatever, although the indebitatus count for "money paid at request" which lay where a real request could be inferred, was also used in the permitted types of claim for money paid where there was no possibility of any request in fact. Whether counsel intended to keep (a) and (b) separate or not I am not sure, but it is obviously impossible, for the reasons already stated by the Master of the Rolls, that a consensual contract within class (a) should be inferred by the Court from the facts of the present case. Neither "request" nor "acquiescence" can be found as a fact on the part of the company. Having no quorum of directors, it could have neither will, nor intention, nor choice, and it could not acquiesce any more than it could dissent or protest. It follows that class (a) of implied contracts, the consensual kind, is ruled out.
Counsel relied for authority on a passage in Smith's Leading Cases (13th ed.), p. 156, which is as follows: "But if a person knows that the consideration is being rendered for his benefit with an expectation that he will pay for it, then, if he acquiesces in its being done, taking the benefit of it when done, he will be taken impliedly to have requested its being done." This passage must, I think, be regarded as relating solely to contracts implied in fact,) and not as touching contracts implied in law. The distinction was emphasised by Bayley, B., in the case of Paynter v. Williams (2 L.J.M.C, at p. 108; 1 C. & M., at p. 820), the second of the two authorities cited in Smith's Leading Cases in support of the text. The other case cited is Falcke v. Scottish Imperial Insurance Co., where the Court refused to draw the inference of any actual contract. Bowen, L. J., pointed out (56 L.J. Ch., at p. 714; 34 Ch. D., at pp. 249, 250) that knowledge was not of itself enough, and explained the limits of such an inference. But I do not think that counsel was seriously contending for a contract implied in fact. I understood him to rely really on the semi-equitable doctrine of the contract implied in law; for it is to this class of action alone that the passage from Leake on Contracts (8th ed.), p. 44, which he read to us relates. It includes the following sentences: "The transactions which give rise to contracts of this kind (contracts implied in law) may be described generally as importing that some undue pecuniary inequality exists in the one party relatively to the other, which the law recognises as requiring compensation upon equitable principles, and the law not only imposes a debt, but further implies a promise to pay the debt....... The promise here implied is, however, a fiction of law, and therefore requires to be distinguished from the implied promises already mentioned, in which the promise is an implication or inference of fact." This language is almost identical with that of the first edition, published in 1867, at p. 74, which is the locus classicus of exposition upon that interesting though small branch of our common law, and is undoubtedly good law as applied to the cases there cited. Counsel boldly submitted that the appellant's case fell exactly within it, and that accordingly he was entitled to his action at law "upon equitable principles". It is plain that the appellant's case does not fall directly within any one of the various types into which common law action for money paid, as illustrated by the decided cases, were divided in Leake's first edition, pp. 40 to 46, a classification repeated in subsequent editions. Nevertheless counsel contended, with at least sufficient insistence to keep the argument open in the House of Lords, that the present is a case covered by the principle of fairness and justice indicated in Leake's statement as the basis of the common law action—something akin to, though not identical with, the continental doctrine of unjust enrichment. I therefore feel that the appellant is entitled to a reasoned decision upon it, however shortly explained.
As the law stands to-day, it is no doubt difficult to formulate any one principle which will unify all the recognised types of common law actions upon contracts implied in law, or even upon the action for money paid. It may even be the right view, as Lord Sumner rather suggested in Sinclair v. Brougham (83 L. J. Ch., at p. 494; [1914] A. C, at p. 452), that all these old common law causes of actions are to be regarded as just curious survivals of past legal history, stereotyped within the rigid boundaries of the particular facts of the decided cases, but resting on no general principle capable of wider application. There has, however, been a good deal of discussion recently on the subject by jurists, for example, Professor Winfield's The Province of the Law of Tort [1931], pp. 167 to 176, and his Law of Tort [1937], pp. 697 to 700; Mr. Jackson on The History of Quasi-Contract [1936]; and in the pages of The Law Quarterly Review, Vol. 53, p. 525, Vol. 54, p. 201, and I for one should be sorry to think that the common law is condemned out of hand to no further growth in this field. The fact that little development has occured since the sixties of last century may well be an indirect result of the amalgamation of common law and equity under the Judicature Acts. As the common law Judges have so often spoken of "equitable principles" in cases of "contracts implied in law", it was only natural that when they became entitled to apply equity they should resort to it for the solution of new cases not directly covered by existing decisions at law. But, whatever the explanation, it is clearly impossible today to accept counsel's submission that the common law recognises any rule of justice and fairness pritna facie applicable to the present case.
In any event there are two further answers to his common law claim. The facts of the case bring it exactly within the excluding rule about voluntary payments on p. 46 of Leake: "A payment made voluntarily and without any legal liability or compulsion, in discharge of the debt or liability of another, raises no implied contract for repayment." The leading authority quoted on that page of the first edition was Exalt v. Partridge per Lord Kenyon, C.J., (8 Term Rep., at p. 310), the same authority as was cited for the same purpose by Wright, J., in Liggett (Liverpool), Ltd. v. Barclays Bank, Ltd. (97 L. J. K B., at p. 6; [1928] 1 K. B., at p. 60). The second is the same answer as Clauson, L.J., and I make to the claim in equity: namely, that in the ces of the present case the company never had anything to do with any of the transactions; it was a mere semblance of a company which neither could nor did take any action.
That fact is the reason why I find myself in respectful disagreement with the Master of the Rolls in regard to the appellant's claim in equity. It cannot, in my opinion, be said that the company used his money, when it did not (because it could not) take any action whatsoever in relation to the advances. Antrobus, the secretary of all three companies, no doubt received the cheques and sent them to the creditor concerned; but Cleadon Trust, Ltd,., itself did nothing at all. It never received the cheques, never handled them, never handed them to the subsidiaries, and never used the advances; in particular it never decided to forestall its liabilities as guarantor. It did not do these things, because in the state of legal paralysis in which it was it had no mind, and could not do any one of these things, the legal reason being that they were all matters appertaining to the management of the company and requiring a decision of the board. I wholly agree with Clauson, L.J., that it is this feature which distinguishes the present case from Bannatyne v. Maclver, Reversion Fund and Insurance Co. v. Maison Cosway, Ltd., and Liggett (Liverpool), Ltd. v. Barclays Bank, Ltd. In each of those cases the party held liable had taken action—whether personally or by an authorised agent does not matter—to use the money advanced. In Bannatyne's Case, the agent, Hudson, who borrowed the money without authority (because contrary to express instructions), was acting within his authority as manager in paying the firm's debts with it. This fact was cardinal, because it meant that the firm itself took action and used the plaintiff's money for its own purposes, conscious, because of the knowledge it had through its agent, that it was the plaintiff's money. It was for that reason that the Court there thought it unconscionable for the firm which had so used the money not to repay it, and to that extent held that the lender had an equitable right to recover.
The Master of the Rolls in the judgment just delivered relies particularly on the formulation of the equity by Romer, L.J., in Bannatyne's Case (75 L J.K.B., at p. 123; [1906] 1 K.B., at p. 109), in the third sentence of his judgment, which I will read again: "Where money is borrowed on behalf of a principal by an agent, the lender believing that the agent has authority through it turns out that his act has not been authorised, or ratified, or adopted by the principal, then, although the principal cannot be sued at law, yet in equity, to the extent to which the money borrowed has in fact been applied in paying legal debts and obligations of the principal, the lender is entitled to stand in the same position as if the money had originally been borrowed by the principal." In that sentence the learned Lord Justice was referring to the fact that Hudson, the manager, although forbidden to borrow, had general authority to pay the firm's debts, therefore he held that, to the extent that he so paid debts, the firm itself was using the advances obtained. That was a case of natural persons, not a company, and Romer, L.J., himself on the same page drew attention to the possible materiality in such questions of the difference between a natural person and a company, and, as an illustration of the difference, referred to the case of a wife, under the old regime of husband and wife, borrowing money to pay for necessaries, to which my Lord has referred. If the wife had money of her husband's in her hands, she was entitled as of right to use it to pay for her necessaries, whether still to be or already purchased by her, and there can be no doubt that, when she so used borrowed money, it was her own act in fact and nobody else's. But if it was her act in fact, it was in law her husband's act, for in her hands it was his money, and, in using it to pay for the necessaries upon which he was legally bound to spend his money, she was acting as his agent. And be it noted that in the case where Romer, L.J., was giving judgment, the payment of the firm's debts by the manager, Hudson, was a payment on behalf of the firm with the firm's full authority. In the present case it is just that complete absence of action by the company in regard to any utilisation of the appellant's advances that makes the analogy between it and Bannatyne's Case break down. It cannot be said that Cleadon Trust, Ltd., used the appellant's advances—for it was paralysed. The next case cited by the Master of the Rolls, Reversion Fund and Insurance Co. v. Maison Gosway, Ltd., was similar to Bannatyne v. Maclver. with one apparent and one real difference in the facts. The person from whom repayment was claimed was a company registered under the Companies Act, and not a natural person, but this was not a real difference because the company had a managing director with full authority to pay the firm's debts, who did use the plaintiff's money to pay the debts. That is what I call the apparent differences. The real difference is that the lender knew that the managing director to whom he lent the money had no authority from the company, but, having regard to the fact that the company itself used the lender's money, the Court held that the plaintiff's equity nevertheless attached.
I regard these two decisions as the most important for the purpose of understanding the equity in question and, therefore, have endeavoured to explain shortly just why I think them important. But the same feature was, I think, present in Liggett (Liverpool), Ltd. v. Barclays Bank, Ltd. The "discharge" of the company's debts to which Wright, L.J., as he then was, refers, must be taken to have been made under Liggett's authority to pay current debts when he had money of the firm's out of which to pay them. But we shall hear in a moment or two, from Clauson, L.J., a very careful, though concise, analysis of all the relevant cases, and I agree with it so entirely and with his comments and conclusions, that it is both unnecessary and undesirable for me to add any further reflections of my own.
The separate question in regard to items 1 and 2 which I reserved at the outset for subsequent mention is whether the fact that Mr. Jackson did not relinguish his post of managing director till August 6, 1931, that is, after the date of advance No. 2, makes any difference to those two items. I have considered the transcript of the appellant's evidence carefully, and cannot see that he gave any evidence which would justify any such conclusion. I may add that I agree with what Clauson, L.J., says in his judgment about this point. Accordingly I say no more except that I am glad to think that this Court is not extending its help to a director who seems tome to have used the company's business as if he owned it and to have disregarded very important statutory provisions for its proper management.
In the result I think that the judgment of Bennett, J., was right and should be affirmed and that the appeal should be dismissed with costs.
Clauson, L.J. —This is an appeal from an order of Bennett, J., refusing an application of Mr. Creighton for the reversal of a decision of the liquidator of the Cleadon Trust, Ltd., in so far as he rejected a claim by the applicant to be allowed to rank as a creditor for the sum of £18,254 7s. 3d. According to the facts as found by the learned Judge, the secretary of the company, wholly without authority, procured Creighton to provide this money and to pay it to persons who were entitled to the payment of the moneys from a subsidiary company: the company had given guarantees to the payees, and the effect of the provision of the money was that the debt so guaranteed was discharged, and in consequence at the date of the liquidation the guarantee had ceased to be operative.
It was argued for Mr. Creighton in the first place that the secretary's request must be treated in the circumstances as the request of the company, and that Mr. Creigton was accordingly entitled at the date of liquidation to rank as a creditor of the company for the sum in question as for money paid at the company's request. This argument was rejected by the learned Judge for reasons which he stated (107 L.J. Ch., at p. 221; [1938] Ch., at p. 666). I can see no flaw in his Lordship's reasoning and I am prepared on this point to adopt his judgment as my own.
It was argued of Mr. Creighton in the second place, and on the footing that there was no request by the company, that the law would imply a request, and therefore an obligation to repay, from the facts: first, that the payments made by Creighton were made by him in expectation of the repayment, secondly, the company in the circumstances knew of this fact and acquiesced in it, and, thirdly, the company derived substantial benefit from the payments. The learned Judge's reasons for rejecting this argument are given (107 L.J. Ch., at pp. 221, 222; [1938] Ch., at pp. 666, 667). Again I can find no flaw in his Lordship's reasoning, and I am prepared on this point, as on the preceding point, to adopt his judgment as my own.
It was next argued that (a) a resolution of the directors passed on December 5, 1932, and (b) the presentation of certain accounts to the shareholders had the effect of validating Mr. Creighton's claim. The learned Judge rejected this argument for reasons which he stated (107 L.J. Ch., at p. 222; [1938] Ch., at pp. 667, 668). I agree with the reasons he there states and I find it unnecessary to add anything to his judgment on this head. On this part of the case I would only add two observations. The first is this. It will be seen from the statement of facts (107 L.J. Ch., at p. 219; [1938] Ch., at p. 664) that the case was argued before Bennett, J., on the footing that no cash was received by the company in respect of the sums for which Mr. Crsighton sought to prove. In this Court it was suggested that one of the sums was provided by a cheque on Creighton's banking account in favour of the company, by, the secretary and handed on to a party, who drew the money from Creighton's bank and with it paid the ultimate creditor. It was suggested that on these facts the company ought to have been treated as having received the sum in question and passed it on to a party who cashed the cheque. It was not, however, shown that the secretary had any authority either to act for the company in taking the cheque or to act for the company in endorsing it. It appears to me that the sum in question cannot be treated as having reached the company by reason merely of the company's name appearing as payee on the cheque. The learned Judge was, in my view, right in treating the case as one in which no cash came to the company's hands in respect of the sums in question. The second observation is this. It appears that Mr. William Jackson was not only a director, but also, apparenty until August 6, 1931, managing director. The first two of the items in respect of which Mr. Creighton claimed to prove were paid by him at a date falling within the period during which Mr. Jackson was managing director. Had there been evidence that Mr. Jackson Was privy to the provision of these sums, or to their application, a different complexion might have been put upon the matter, in view of the authorities which recognise a prima facie power in a managing director to bind the company. It was, however, not suggested in argument before this Court, nor does there appear to be any evidence, that Jackson took any part either in procuring the provision of these sums by Mr. Creighton or in the application of them. Accordingly these items fall to be treated in precisely the same way as the items provided by Mr. Creighton at a period when there was no managing director.
There remains, however, a further point which, whether or not it was argued below, was put forward in this Court as a ground for reversing the judgment of the learned Judge. It was alleged that the payment of the money provided by Mr. Creighton, or at all events of the bulk of it, resulted either (a) in the company being relieved of a liability under their guarantee for a like amount, or (b) in an asset being preserved to the subsidiary company by means of the payment, with the result that certain debentures of the subsidiary company held by the company came to be of a value greater, either by the amount of the sum so paid or at all events by a very substantial sum, than the value which they would have borne had the sum in question not been paid. It was said to be contrary to the principles of equity as administered in this Court that the company should be allowed to retain any such benefit except on the terms of reimbursing to Mr. Creighton the sum paid by him which had resulted in the company obtaining the benefit.
It is to be borne in mind that upon the facts of this case there was no request by the company that the payment in question should be made, and that the payment was not made by any person who had authority from the company, either to make the particular payment or generally to make payments, in respect of the company's liabilities, on the company's behalf, nor was it made out of moneys in the company's possession or under the company's control. The equity to be enforced against the company must accordingly, as it would seem, arise from the fact that strangers, out of moneys which are not the company's moneys or treated by the company or any person having authority from the company as the company's moneys, have made payments which have benefited the company. The equity would accordingly appear to be founded on the mere fact that an unsought benefit has been conferred on the company. Since the decision in this Court in Falcke v. Scottish Imperial Insurance Co., it is, 1 conceive, not open to this Court to hold that a person who by paying money confers an unsought benefit on another thereby entitles himself to an equitable right of recoupment as against that other. As Bowen, L.J., said in that case (56 L.J. Ch., at p. 713; 34 Ch. D., at p. 48), "the general principle is beyond all question that work and labour done or money expended by one man to preserve or benefit the property of another do not, according to English law, create any lien upon the property saved or benefited, nor, even if standing alone, create any obligation to repay the expenditure. Liabilities are not to be forced upon people behind their backs, any more than you can confer a benefit upon a man against his will." Some earlier observations on this topic by Brett, MR., in Leigh v. Dickeson (54 L.J.Q.B., at p. 20; 15 Q.B.D., at p. 65) are entirely in accord with the statement of the law by Bowen, L. J. It was, however, argued that an equitable doctrine was to be deduced from certain reported cases to the effect, as I understood the argument, that a person who has in fact paid the debts of another without authority is entitled to recoupment as against that other. Such a doctrine would seem to be inconsistent with the decision of this Court in Falcke v. Scottish Imperial Insurance Co., and on that ground alone it would not seem open to this Court to accept it. But it may nevertheless be desirable to consider whether the cases in question recognise any such doctrine. The earliest cases cited in support of the doctrine were Cork and Youghal Railway, In re, Reid v. Rigby & Co., Bannatyne v. Maclver and Reversion Fund and Insurance Co. v. Maison Cosway, Ltd. From these decisions a clear equitable principle is to be deduced, which I will venture to state as follows. Let it be assumed that A request B to advance money to C, A being a person who has no authority from C to make the request (whether because C is a company whose powers are limited in such a way as to make it ultra vires on C's part to make such a request, or whether because A, though professing to act as C's authorised agent to make the request, has in fact no such authority): let it be further assumed that B, in response to the request, in fact places the money under the control of C or C's agents, and A, an agent authorised by C to pay off C's debts, uses the money or procures the money to be used in or towards discharge of C's debts. On these assumed facts a Court of Equity will treat B as entitled to be recouped by C a sum equal to the amount so used in or towards discharging C's debts.
In the case of Cork and Youghal Railway In re, the directors of the company occupied the position of A, the holders of the Lloyd's bonds occupied the position of B, the company occupied the position of C. The moneys advanced by the bondholders came under the control of the company C, and were applied by the directors in paying off the company's legitimate debts, it being within their authority as directors to pay off those debts. In Reid v. Rigby & Co. Allport occupied the position of A, Reid occupied the position of B, Rigby & Co. occupied the position of C. The money was paid into the banking account of Rigby & Co. (C), and was applied by Allport as manager for Rigby & Co. in paying off Rigby & Co 's debts, it being within his authority to pay off those debts. In Bannatyne v. Maclver Hudson occupied the position of A, Bannatyne occupied the position of B, the firm of Maclver occupied the position of C. The moneys advanced by Bannatyne were paid into Maclver's bank account, and were applied by Hudson in paying the legitimate debts of the branch of Maclver of which he was the manager, it being within his authority as such manager to pay off those debts. In Reversion Fund and Insurance Co. v. Maison Cosway, Ltd., Morhange occupied the position of A, Reversion Fund occupied the position of B, Maison Cosway occupied the position of C. The moneys advanced by Reversion Fund were paid to Morhange and applied by him in paying legitimate debts of Maison Cosway, which it would be within his authority as managing director of Maison Cosway to pay.
It is to be observed that the equity cannot operate against C (the company or the principal) merely because C has in fact receive ed a benefit from B's action in providing the money: that fact alone, as Falcke's Case has settled (so far as this Court is concerned). Would not set up an equity against C. The equity must, it would seem, arise from the fact that C, by himself or by a person authorised to act in the matter of payment of C's debts, for C, has used the money so as to obtain a benefit for C. The benefit has not been an unsought benefit conferred on C behind his back. It is a benefit which C has obtained for himself by using (either himself or by his agent) A's money as his own. It is his conduct in so using A's money which makes it unconscientious that he should retain the benefit while refusing recognition of A's just claim to recoupment. As Lord Sumner pointed out in Sinclair v. Brougham (83 L.J. Ch., at p. 496; [1914] A.C., at p. 486): "There is now no ground left for suggesting as a recognisable 'equity' the right to recover money in personam merely because it would be the right and fair thing that it should be refunded to the payer". But there is no difficulty in recognising and enforcing against a man who has, by himself or his agent, used another's money to pay his own debt, an equity to refund to that other a sum equal to the money of that other which he has treated as his own. In Bannatyne v. Maclver (75 L.J.K.B., at p. 123; [1906J 1 K.B., at p. 110) Romer, L.J., refers to the cases in which a husband has been held liable in equity to recoup to a quasi-lender money applied in payment of necessaries for the wife. In Jenner v. Morris, which no doubt is one of the cases which Romer L. J., had in mind, the decision on the facts of the case seems to come within the principle as I have endeavoured to state it, since, as appears from the answer as stated in the report (30 L.J. Ch., at p. 361 ; 3 De G.M. & J., at p. 45), the wife's brother had paid money to the wife for her maintenance and support which money had been actually laid out in the purchase of necessaries for her. The wife was of course the husband's agent to apply his money in payment for her necessaries. The enquiry which had been directed by Kindersley, V. C, and was upheld by Lord Campbell, L. C, was directed to ascertaining what moneys the claimant had paid to or on account of the wife for the purpose of providing her with necessaries. It is true, no doubt, that in these cases the Judges do not draw specific attention to the fact that in each case the money was expended in paying the quasi-borrower's debts by' or with the privity of a person who had authority to use the quasi-borrower's money in paying the quasi-borrower's debts; but, as the facts in each case stood, the limited principle which I have stated suffices to justify the decisions without infringing the principle recognised in Falcke v. Scottish Imperial Insurance Co. Since the facts did not necessitate the consideration by the Courts of any wider principle, it does not seem to me, I confess, to be open to this Court to deduce a wider principle from those decisions, if (as I venture to think) the wider principle would, if established, infringe the principle recognised in Falcke v. Scottish Imperial Insurance Co.
The next case cited in order of date is Underwood v. Bank of Liverpool and Martins. In that case Underwood (for all the purposes material to the matter now in question) occupied the position of A, the Bank occupied the position of B, the plaintiffs Underwood, Ltd., occupied the position of C. An inquiry into the facts was directed in order to ascertain whether money of Underwood, Ltd., which had found its way into the hands of the Bank (B) had been used to pay legitimate debts of Underwood, Ltd., (C): and it was authoritatively suggested, though not perhaps finally decided, that the cases of Bannatyne v. Maclver and Reid v. Rigby & Co., were authority for the view that the Bank were to be treated in regard to those moneys as in the same position as if they had provided the money upon a request made by an unauthorised person on behalf of Underwood, Ltd., and the money had been paid out in meeting legitimate debts of Underwood, Ltd. That would, in my view, have been perfectly correct, on the principle which I have formulated above, if the debts were paid out of the money, either by Underwood, Ltd., or by some person authorised by Underwood, Ltd., to pay them. As I read the report (93 L.J.K.B., at p. 697; [1924] 1 K.B., at p. 794) the enquiry was directed on the assumption that it could be establisbed that Underwood had authority, as between himself and the company, to pay those debts. If that be (as I venture to think it is) the right view of the decision, it would appear neither to contradict nor to go beyond the principle which I have formulated above as the principle to be deduced from the earlier cases. I venture to doubt whether Scrutton, L.J., when he referred (93 L.J.K.B., at p. 697; [1924] 1 K.B., at p. 794) to the "equitable doctrines under which a person who had in fact paid the debts of another without authority was allowed the advantage of his payments", intended to express his adoption of any principle beyond that which can be deduced from the cases which he cites, namely, Bannalyne v. Maclver and Reid v. Rigby & Co. If the view I have indicated above of those two cases be correct, the matter would have been quite correctly stated if his Lordship had used the phrase "equitable doctrines under which a person who had without authority provided money which in fact was used, by a person having authority so to do, to pay the debts of another was allowed the advantage of the payment". So stated the doctrines would have fully justified the form of enquiry ordered, which was directed to ascertaining the circumstances under which the debts were paid. It is not, I venture to think, a fair reading of the few relevant lines in his Lordship's judgment to treat them as intended to lay down any equitable principle which could not be deduced from the cases which he cites of Bannatyne v. Maclver and Reid v. Rigby & Co.
In the next case, Liggett (Liverpool), Ltd. v. Barclays Bank, Ltd., Liggett occupied the position of A and without authority from Liggett, Ltd., C, procured Barclays Bank, B, to provide money which was used by Liggett, who was carrying on the business and could not carry it on without paying the legitimate debts of Liggett, Ltd., in due course of business, to pay those legitimate debts. If the view of the previous authorities which I have indicated above be correct, it follows that the bank were entitled to debit Liggett, Ltd., with a sum equal to the amount of the legitimate debts of Liggett, Ltd., so paid out of the money provided by any bank provided only that it appeared that Liggett had authority as between himself and Liggett, Ltd., to pay the debts. I should have thought that there was, on the facts, strong ground for holding that Liggett, Ltd., though they could repudiate the cheques signed by Liggett, could not repudiate Liggett's authority to pay their legitimate debts since he was conducting the business and the company received the goods so paid for goods supplied for the purpose of the business, goods for the payment of which the company were held by the learned Judge to be liable (97 L.J.KB., at p. 7 ; [1928] 1 K.B., at p. 59). If then Liggett had authority to pay the company's debts the principle as 1 have stated it above amply justified the result of the case, namely, the establishment of the liability of Liggett, Ltd., to give the bank credit for sums paid on cheques drawn by Liggett for sums which in fact were used to pay the debts of Liggett, Ltd. The case was the mere case of an obtaining by Liggett on the company's behalf but without authority of moneys which he within his authority as conductor of the business used to pay the company's legitimate debts. It must, however, be admitted that the learned Judge seems to treat the case as one in which the difficulty was that Liggett had no authority to pay the company's debts whereas in my view the difficulty arose not from any absence of authority in Liggett to pay the company's debts, it being in my view (and I venture to think also in the learned Judge's view) his duty as conducting the business to pay them, but from the absence of authority in Liggett to procure the necessary funds on the company's behalf and so impose on the company direct liability as a debtor.
With the greatest respect for Scrutton, L,J., and for Wright, J, I cannot persuade myself that this Court would be justified by anything in the reports of the two last-mentioned cases in extending the principle as established in this Court in the earlier cases so as to cover not only a case where the money provided has been expended by the quasi-borrower or by an agent authorised by him to pay his legitimate debts, but also the case of the money being expended by an outsider with no authority direct or indirect to pay the quasi-borrower's debts. In Lloyds Bank, Ltd. v. Chartered Bank of India, Australia and China reference was made to Bannatyne v. Maclver, but on the facts (97 L.J.K.B., at pp. 615, 621, 623; [1929] 1 KB., at pp. 63, 75, 79) the question of the applicability of the principles recognised in that case did not arise and the content of the principle was not discussed. The case of Air dale Co-operative Worsted Manufacturing Society In re, was referred to; but it was a simple case of the application by the authorised officers of the quasi-borrowing society of the money borrowed in discharging the legitimate debts of the society and it throws no light on the point in question in the present case.
In
my judgment it results, from a survey of the cases upon which the appellants
sought to establish the equity on which they rely, that no principle can be
deduced from them which enables this Court to hold that the mere fact that Mr.
Creighton made payments which enured to the benefit of the company established
an equity in his favour against the company to have recoupment from their
funds. In my opinion the appeal should accordingly fail and be dismissed with
costs.
[1995]
83 COMP. CAS. 596 (PUNJ. & HAR.)
HIGH COURT OF PUNJAB AND HARYANA
v.
V
S AGGARWAL, J.
Criminal
Miscellaneous No. 3213-M of 1994
MARCH
10, 1995
JUDGMENT
V. S.
AGGARWAL, J. - The petitioner,
B. B. Nagpal, is the ex-company secretary of Montari Industries Ltd.
(hereinafter described as "the company"). The company is registered
under the Companies Act, 1956, and manufactures insecticides and pesticides.
Shri Brahm Singh Doohan, Insecticides Inspector, Kurukshetra, checked the
premises of Farm Chemicals on June 18, 1988. Farm Chemicals was holding a
licence issued by the Chief Agricultural Officer, Kurukshetra, for selling/
stocking and exhibiting for sale insecticides. A sample was taken of phorate 10
G of batch No. 210 alleged to have been manufactured by the company. One part
of the sample was got tested from the Quality Control Laboratory, Karnal. The
report was submitted by the senior analyst. The sample was found to be
misbranded. It did not conform to the ISI specifications in respect of its
percentage of active ingredients. A complaint was made before the Judicial
Magistrate.
As per the
petitioner, he was working as the secretary of the company and was responsible
for secretarial functions of the company. He was not involved in the process of
production. The petitioner seeks quashing of the complaint and the proceedings
taken thereto.
Notice of the
petition had been issued to the State of Haryana. Needless to say it contested
the said petition. Section 33 of the Insecticides Act, 1968, deals with the
eventualities where offences are committed by companies. The same runs as under
:
"(1) Whenever an offence
under this Act has been committed by a company, every person what the time the
offence was committee was in charge of, or was responsible to, the company for
the conduct of the business of the company, as well as the company, shall be
deemed to be guilty of the offence and shall be liable to be proceeded against
and punished accordingly :
Provided that
nothing contained in this sub-section shall render any such person liable to
any punishment under this Act if he proves that the offence was committed
without his knowledge or that he exercised all due diligence to prevent the commission
of such offence.
(2) Notwithstanding
anything contained in sub-section (1), where, an offence under this Act has
been committed by a company and it is proved that the offence has been
committed with the consent or connivance of, or is attributable to any neglect
on the part of, any director, manager, secretary or other officer of the
company, such director, manager, secretary or other officer of the company
shall also be deemed to be guilty of that offence and shall be liable to be
proceeded against and punished accordingly."
It is obvious
from the aforesaid that when an offence has been allegedly committed by a
company, then every person at the time the offence was committed, is
responsible and deemed to be guilty of the offence provided he was in charge of
or was responsible to the company for the conduct of the business of the
company as such. Exhibit P-1 has been appended as the copy of the complaint
filed and therein there is no allegation made that the petitioner was in charge
or was responsible to the company. It has simply been asserted that the
petitioner was the secretary of the company and is responsible for this
offence. It is a conspicuously vague assertion and consequently it becomes
difficult to attract sub-section (1) to section 33 of the Insecticides Act,
1968.
Learned
counsel appearing for the State of Haryana in that event, urged that the
petitioner is a responsible officer and under sub-section (2) of section 33 of
the Act, must be deemed to be guilty of the offence. However, on a closer
scrutiny the said argument must be held to be devoid of any merit. The reasons
are not far to fetch. Before sub-section (2) of section 33 of the Insecticide
Act comes into play, it has to be proved that the offence has been committed
with the consent or connivance or is attributed to any neglect on the part of
any such secretary. In the present case, there is no such assertion in the
complaint. One is constrained to observe that before the Court of Chief
Judicial Magistrate, Kurukshetra, an application was filed by the managing
director of the company and it was pointed out that the petitioner was in no
way, acting or responsible for the production and distribution and sale of the
products of the company. It was prayed that the name of Shri R. K. Mathur may
be substituted in the place of the petitioner. Reply was filed by the Quality
Control Inspector on November 28, 1989, and it was pointed out that at the time
of filing of the complaint, the name of responsible officer was not informed by
the company and therefore, the name of the petitioner who was secretary of the
company, had been included as an accused.
These facts
clearly show that the State is not aware and, therefore, is not ready to assert
that the offence was committed by the petitioner or with his consent or
connivance or can be attributed to the neglect on the part of the petitioner as
secretary of the company. He has simply been arrayed as an accused because he
happened to be the secretary of the company. In the absence of any material
connecting the petitioner with the provisions of sub-sections (1) and (2) of
section 33 of the Insecticides Act, 1968, it is clear that prosecution against
him would be an abuse of the process of the court. No useful purpose would be
served to allow the prosecution against the petitioner.
For the
reasons, I accept this petition and quash the complaint and proceedings qua the
petitioner B. B. Nagpal.
[1991] 71 COMP. CAS. 470
(GUJ.)
v.
Coromandal Investment Pvt. Ltd.
V.
H. BHAIRAVIA J.
CRIMINAL APPEAL NO. 912 OF 1981
MARCH
16, 1990
S.P. Dave, for the Appellant.
N.M.
Amin and M.G. Amin for the Respondent.
JUDGMENT
Bhairavia
J.—This appeal has
been filed by the State against the judgment and order dated June 12, 1981.,
passed by the learned Chief Metropolitan Magistrate, Ahmedabad, in Criminal
Case No. 69 of 1981 whereby the learned Metropolitan Magistrate acquitted the
respondents-accused of the offences punishable under section 621(1A) of the
Companies Act, 1956.
It
is the prosecution case that one Shri R.V. Patel was an employee of Sarabhai
and Co. (P.) Ltd. He was also acting as the secretary of the present respondent
No. 1-company. It is alleged that a company having a paid-up share capital of
more than Rs. 25 lakhs must have its own secretary as per the provisions of
section 383A of the Companies Act, 1956. Therefore, the Registrar of Companies
filed a complaint against the present respondent-accused No. 1 and its
directors respondent-accused Nos. 2 to 4 for violation of the provisions of
section 383A of the Companies Act which is punishable under section 621(1A) of
the Companies Act. The said complaint was registered as Criminal Case No. 69 of
1981. The learned Chief Metropolitan Magistrate, after appreciating the
evidence adduced by the parties, came to the conclusion that the
respondents-accused have committed no offence and, consequently, acquitted the
respondents of the offence with which they were charged. The State has filed
this appeal challenging the said judgment and order of acquittal.
In
order to appreciate the case of the prosecution that the respondents-accused
have committed a breach of section 383A of the Companies Act, it would be just
and proper first to refer to the relevant provisions of the Act. Section 383A
of the Companies Act, reads as under:
"S.
383A. Certain companies to have secretaries.—(1) Every company having a paid-up
share capital of rupees twenty-five lakhs or more shall have a whole-time
secretary, and where the board of directors of any such company comprises only
two directors, neither of them shall be the secretary of the company.
(2) Where,
at the commencement of the Companies (Amendment) Act, 1974,—
(a) any firm or body corporate is holding office
as the secretary of a company, such firm or body corporate shall, within six
months from such commencement, vacate office as secretary of such company.
(b) any individual is holding office as the
secretary of more than one company having a paid-up share capital of rupees
twenty-five lakhs or more, he shall, within a period of six months from such
commencement exercise his option as to the company of which he intends to
continue as the secretary and shall, on and from such date, vacate office as
secretary in relation to all other companies."
Section
383A(2)(b) of the Companies Act is very clear on the point in the case of an
individual holding post of company secretary in more than one company. The said
sub-section clearly lays down that if any individual is holding office as the
secretary of more than one company having a paid-up share capital of rupees
twenty-five lakhs or more, then in that case, he has to elect or exercise his
option in favour of one company only and has to vacate office as secretary in
other companies.
Now,
reverting back to the facts of the present case, it is the case of the
respondents-accused that it is not provided in section 383A of the Act that the
secretary of the company should be the employee of the said company. In the
instant case, it is an admitted fact that the said Shri R.V. Patel is not an
employee of the company. The view taken by the learned Metropolitan Magistrate
regarding the interpretation of section 383A of the Act is just, proper and
reasonable. Taking into consideration the facts and circumstances of the
instant case, in my opinion, the learned Metropolitan Magistrate has rightly
held that the respondents-accused have committed no offence. I see no reason to
interfere with the view taken by the learned Metropolitan Magistrate. Hence,
there is no substance in this appeal and it requires to be dismissed.
Appeal is dismissed. The judgment and order dated
June 12, 1981, passed by the learned Chief Metropolitan Magistrate, Ahmedabad,
in Criminal Case No. 69 of 1981 is hereby confirmed.