Section 46
FORMS
OF CONTRACT
[1954] 24 COMP CAS
159 (CA)
IN THE COURT OF APPEAL
v.
Sensolid (
LORD GODDARD C.J.,
MORRIS AND ROMER L. JJ.
FEBRUARY 19, 1953
Kenneth Diplok Q.C. and Mark Littman for the plaintiff.
Leonard Pearl for the defendants.
Lord Goddard C.J.—Mr. Diplock, who has argued the case of the plaintiff, bringing to our attention every point which could possibly be taken, has contended that it is governed by the well, known series of cases of which Kelner v. Baxter is one of the earliest and perhaps the best known. That was a case in which one Kelner sold wine intending to sell it to a company which was to be formed. The contract showed that it was agreed to be sold to certain men who were the proposed directors of a company which was coming into existence. They agreed to buy. The potential directors intended to by the wine on behalf of the company, but the company was not in existence at the time the contract was made or at the time when the goods were delivered. They took delivery of the goods and, therefore, it was held that as they had contracted on behalf of a principal who did not exist they must, having received the wine, pay for it. That decision seems to me to stop far short of holding that every time an alleged company purports to contract—when there is no company in existence—everybody who is signing for the company is making himself personally liable.
Mr. Diplock has also relied strongly on Schmaltz v. A very, which lays down a principle, which has been acted on in other cases, notably in Harper & Co. v. Vigers Brothers, that where a person purports to contract as agent he may nevertheless disclose himself as being in truth a principal. If he entered into a contract as agent he can bring an action in his own name and show that he was in fact the principal. All those cases are well established and we are not departing in any way from those decisions any more than did Parker J. What we cannot find in this case is that Mr. Newborne ever purported to contract to sell as agent or as principal. The contract was one which he was making for the company, and although Mr. Diplock has argued that in signing as he did Mr. Newborne must have signed as agent, since the company could only contract through agents, that was not really the true position.
The company
makes the contract. No doubt the company must do its physical acts, and so
forth, through the directors, but it is not the ordinary case of principal and
agent. It is a case in which the company is contracting and the company's
contract is authenticated by the signature of one of the directors. This
contract purports to be a contract by the company; it does not purport to be a
contract by Mr. Newborne. He does not purport to be selling his goods but to be
selling the company's goods. The only person who had any contract here was the
company, and Mr. Newborn's signature merely confirmed the company's signature.
The document is signed "Yours faithfully, Leopold Newborne (
In my opinion, unfortunate though it may be, as the company was not in existence when the contract was signed there never was a contract, and Mr. Newborne cannot come forward and say: "Well, it was my contract." The fact is, he made a contract for a company which did not exist. It seems to me, therefore, that the defendants can avail themselves of the defence which they pleaded and the appeal must be dismissed.
Morris L.J. I agree, and I find myself in full agreement with the judgment delivered in this case by Parker J. Mr. Diplock has emphasized that the judge found that it did not matter to the defendants whether they were contracting with Mr. Newborne personally or with the company. Of course, that is so, but that does not mean that the defendants are not entitled, if they so choose, to take the point that they never contracted with Mr. Newborne who was suing them. Mr. Diplock has strongly relied on the language of section 32(1)(b) of the Companies Act, 1948[1]1. That section, as I read it, is merely dealing with the way in which a company makes contracts, and I do not find that this present contract was one made with Mr. Newborne as agent for the company. This was a contract which purported to be a contract with the company, and I find myself in full agreement with the way in which this matter was expressed by the trial judge when he said: "This company was not in existence and.............the signature on that document, and, indeed, the document itself.............is a complete nullity." I agree, therefore, that the appeal fails.
Romer L.J. I agree with the judgment of Parker J., and also with my Lord's judgment, and there is nothing that I can usefully add.
[1972] 42 COMP. CAS. 1 (RAJ.)
HIGH COURT OF RAJASTHAN
v.
Edward Mills Co. Ltd., Beawar
L.N. CHHANGANI AND L.S. MEHTA, JJ.
D.B. CIVIL REGULAR FIRST APPEAL NO. 49 OF 1956 IN CIVIL SUIT NO. 3 OF 1945
DECEMBER 19, 1969
Thanchand
Mehta with Narain Chand Mehta for the Appellants.
M.B.L.
Bhargava with S.N. Bhargava and Doonghar Singh for the Respondent.
L.S.
Mehta, J.—On
July 6, 1906, Seth Guman Mal Lodha, one of the proprietors and a nominee of the
firm, Kamal Nayan Hamir Singh of
“It was executed for
the purpose of establishing a cloth mill at Beawar. The concern was to be
started in the name of the Edward Mills Company Ltd., Beawar. The two parties would
invest the bulk of the money and the management would also remain in their
hands. They would keep their shares separate, which would not be of the value
of less than rupees one lakh. The rights of both the parties would be equal and
both the parties would have jointly and severally the rights of becoming
manager, chairman, secretary, treasurer, etc. These rights would be exercised
half and half by both the parties and they would be entitled to get the income
in equal shares in respect of all the commissions, salary or any other kind of
income. According to the terms of the memorandum and articles of association
the rights of the chairman and managing director would jointly be exercised by
Seth Guman Mal, proprietor of the firm Kamal Nayan Hamir Singh, and Kunwar Ram
Swarup. After the registration of the memorandum and the articles of
association in the first general meeting, Guman Mal, proprietor of the firm
Kamal Nayan Hamir Singh, would discharge the duties of the chairman and would
continue to do so for the full term of three years. During this period, Ram
Swarup would continue to act as managing director. Thereafter, Seth Guman Mal
would hold the office of the managing director and Ram Swarup would act as
chairman and that procedure would be followed in future. The work and the
rights of the secretary, treasurer and agent would be joint and would be
carried on in the joint names of the parties. All the rights which the
executants of the agreement acquired would not only be enjoyed by them till
their lifetime, but they would also devolve upon their heirs, successors and
administrators or upon those persons who might be their legal heirs and legal
representatives.”
In
pursuance of the above agreement the Edward Mills Co. Ltd. was incorporated on August
9, 1906. The substance of the agreement found place in clause VI of the
memorandum of association. It runs as follows :
“VI. Seth Guman Mal,
son of Seth Raj Mal Lodha, proprietor of the firm of Kamal Nayan Hamir Singh of
Ajmer, and Kunwar Ram Swarup, son of Rai Bahadur Seth Champalal of Beawar, or
their heirs, executors, administrators, successors, representatives or their
duly authorised agents or such other person or persons as may from time to time
be appointed by them, shall be agents, secretaries, treasurers, the chairman
and the managing director of the company, and shall not be required to vacate
the said offices until they resign of their own accord, and as a remuneration
for their services a fixed amount of Rs. 250 per month shall from the date of
commencement of the business up to the date the machinery may begin to work, be
given to them; and afterwards the said Seth Guman Mal, proprietor of the firm
of Kamal Nayan Hamir Singh of Ajmer, and Kunwar Ram Swarup, son of Rai Bahadur
Seth Champal of Beawar, shall be allowed 16 per cent. only on the net profits
of the earnings of the company as their commission. As to the way in which the
respective duties of the chairman and the managing director shall be
discharged, Seth Guman Mal and Kunwar Ram Swarup will from time to time settle
between themselves and inform the office of the company of the same.”
Articles
60 and 75 of the articles of association substantially convey the same terms
and conditions. Under article 60 of the articles of association, Seth Guman Mal
and Ram Swarup were to be appointed ex-officio directors as also the chairman
and managing directors of the company, respectively. It also provided that
their heirs, executors, etc., as appointed by them, would be able to act as
such. As to the way in which their respective duties would be discharged Seth
Guman Mal and Ram Swarup would, from time to time, decide and settle between
themselves and inform the company’s office of the same. Article 75 lays down
that Seth Guman Mal and Ram Swarup or their heirs, executors, etc., would be
the chairman and managing director of the company and would not be required to
vacate the office until they resigned of their own accord. They would get Rs.
250 per month from the date of the commencement of the business till the date
the machinery started working. Thereafter, they would get 16% on the net
profits of the company as their commission.
The
defendant No. 1 company’s business was carried on in the manner as set out
above and both Seth Guman Mal and Ram Swarup obtained commission at the rate of
16% on the net profits of the company. The commission was credited in the name
of the firm, Kamal Nayan Hamir Singh and Champalal Ram Swarup.
Seth
Guman Mal died on November 11, 1914. Thereafter, the members of the firm Kamal
Nayan Hamir Singh nominated Seth Gadh Mal Lodha as their representative and by
their letter, dated May 4, 1915, they informed the directors of the company
accordingly. The company by its extraordinary general meeting held on July 23,
1915, passed a special resolution which was confirmed in the next meeting, held
on August 16, 1916, appointing Seth Gadh Mal in place of Seth Guman Mal.
Ram
Swarup died on January 5, 1916. His younger brother, Motilal, defendant No. 2,
was appointed in his place by a special resolution of the company, which was
confirmed at the extraordinary general meting held on June 8, 1916.
Till
the end of June, 1938, Gadh Mal and Motilal acted, respectively, as chairman
and managing director of the company. The firm, Champalal Ram Swarup, defendant
No. 2, and other members of his family were adjudicated insolvent by the Bombay
High Court on July 1, 1938. Thereupon defendant No. 2, Motilal, vacated the
office of the managing director and Seth Gadh Mal Lodha remained the sole chairman
and the managing director. The adjudication was subsequently annulled by the
above court.
Gadh
Mal died on January 11, 1942. The board of directors of the company appointed
Seth Sobhag Mal Lodha on January 17, 1942, in place of Seth Gadh Mal, deceased,
as chairman and managing director of the company. This appointment was
temporary and was subject to the confirmation of the company. An extraordinary
general meeting of the company for making the appointment was convened on
February 8, 1942. The meeting was held in the office of the company and Seth
Sobhag Mal Lodha first occupied the chair. Before the meeting could transact
the business, it was dissolved by Seth Sobhag Mal and his supporters left the
meeting. The rest of the shareholders continued the meeting under the
chairmanship of K.K. Bhargava, advocate, and passed a resolution appointing
defendent No. 2, Motilal, as the agent, secretary, treasurer, chairman, and
managing director of the company for a period of 20 years. It was further
resolved in the meeting that he would be entitled to get remuneration at the
rate of 10% on the net profits of the company every year and that he would also
act as an ex-officio director till he held the above-named offices.
On
an application submitted by Sobhag Mal on February 11, 1942, under section
79(3) of the Indian Companies Act, the District Judge,
Seth
Kanmal, one of the proprietors of the firm, Kamal Nayan Hamir Singh and father
of the plaintiffs Nos. 8 and 9, filed Suit No. 867A/1934 for partition of the
joint family property in the Calcutta High Court. By an order dated April 1,
1935, Seth Gadh Mal was appointed a receiver of the estate and joint properties
including the joint business with power to carry on the existing joint
business. On his death Seth Sobhag Mal, plaintiff No. 1, was appointed in his
place by an order, dated January 16, 1942. Thereafter, Seth Sobhag Mal Lodha
filed the present suit with the leave of the Calcutta High Court. The
plaintiffs Nos. 2 to 9 and the defendants Nos. 4 to 6 are the other proprietors
of the firm, Kamal Nayan Hamir Singh.
The
case set up in the plaint is as follows :
The
families of the plaintiffs and the defendants Nos. 3 to 6 carried on business
under the name and style of M/s. Kamal Nayan Hamir Singh. The joint family of
the defendant No. 2 also carried on the business under the name and style of
M/s. Champalal Ram Swarup of Beawar. It was decided by the two families that in
the matter of holding offices of the managing director, managing agent, etc.,
they should act through their nominees and pursuant to that decision Seth Guman
Mal of the plaintiffs’ family firm and Ram Swarup of the defendant No. 2’s
family firm were, respectively, appointed nominees and representatives of the
said firm for the purpose of managing the business of the company as chairman
and managing director. On the death of Guman Mal, Gadh Mal was nominated by the
proprietors of the firm, Kamal Nayan Hamir Singh, in his place. Similarly, on
the death of Ram Swarup, defendant No. 2, Motilal, was nominated by the firm,
Champalal Ram Swarup. At the commencement of the extraordinary general meeting
held on February 8, 1942, Seth Sobhag Mal Lodha, as chairman, directed the
secretary of the company to record the names of the shareholders who were
present. Thereupon, some of the shareholders in collusion with and at the
instigation of Motilal, defendant No. 2, and the members of his family created
pandemonium and obstructed the secretary from discharging his duties. They also
wanted to remove Seth Sobhag Mal Lodha forcibly from the chair. Thereupon Mr.
Lodha dissolved the meeting and he and his supporters left the place. The rest
of the shareholders insisted upon conducting an extraordinary general meeting
under the chairmanship of Mr. K.K. Bhargava, advocate, and passed a resolution
appointing Motilal, defendant No. 2, as the managing director and chairman.
According to the plaintiffs, this resolution being not valid is not binding
upon the company or the plaintiffs or the defendants Nos. 3 to 6 as the same
was not passed in a properly convened meeting and as no proper notice for the
purpose had been given to the shareholders. The meeting of February 8, 1942,
was not convened for altering the memorandum or the articles of association
regarding change in the commission rate. The plaintiffs further averred that
the orders passed by the Judicial Commissioner on May 15, 1942, and June 3,
1942, were without jurisdiction, null and void and were not binding upon the
plaintiffs and the defendants Nos. 3 to 6.
On
April 1, 1942, the adult members of the firm, Kamal Nayan Hamir Singh, sent a
letter to the directors of the company, informing them that they had nominated
Seth Sobhag Mal as their representative in place of Seth Gadh Mal with the same
rights and privileges. The board of directors in a meeting held on April 18,
1942, passed a resolution appointing Seth Sobhag Mal Lodha as secretary,
treasurer, agent, managing director, etc., of the Edward Mills Company Ltd.,
Beawar. Despite the above resolution, defendant No. 2, Motilal, was wrongfully
in the sole management and possession of the said company, and was not
permitting the plaintiff’s representatives to participate in the management of
the company.
The
firm, Kamal Nayan Hamir Singh, received payment of half the commission from
defendant No. 1 up to December 13, 1939, and the plaintiffs and the defendants
Nos. 3 to 6 were entitled to Rs. 23,061, as their share in the commission for
the years 1940 and 1941. They are further entitled to commission from January
1, 1941, up to the date of the suit. Further, the plaintiffs are entitled to a
moiety of the commission from January 1, 1942, up to the date of the suit @ 16%
which amounts to Rs. 3,00,000.
The
firm, M/s. Kamal Nayan Hamir Singh, is a family firm having business at
(a) That, it may be declared that on the
death of R.B. Seth Gadh Mal Lodha, the plaintiffs’ family firm, Kamal Nayan
Hamir Singh, having appointed Seth Sobhag Mal Lodha as the nominee to act for
them and the board of directors of the defendant-company having accepted the
nomination, Seth Sobhag Mal Lodha was entitled to be in management and control
of the affairs of the defendant-company jointly with defendant No. 2.
(b) That it may be declared that the
resolution purporting to have been passed on the 8th February, 1942, at the
extraordinary general meeting of the company held by the partisans of the 2nd
defendant, who broke up the meeting, being ultra vires and invalid is not binding
on the plaintiffs and the defendant-company.
(c) That it may be declared that the
orders, exhibit F, passed by the Judicial Commissioner of Ajmer-Merwara in
respect of the resolution purport ed to have been passed by the said meeting of
the shareholders held on the 8th February, 1942, are without jurisdiction, null
and void and not binding on the parties hereto.
(d) That the defendants Nos. 1 and 2 may
be ordered to hand over the management and charge of the affairs of the 1st
defendant-company to Seth Sobhag Mal Lodha on behalf of the plaintiffs’ said
family firm in accordance with the memorandum and articles of association of
the defendant-company.
(e) That the defendants or such of them
as may be held liable may be ordered to pay to the plaintiffs and defendants
Nos. 3 and 4 Rs. 3,73,061, the commission on net profits up to the date of the
suit.
(f) That in the alternative the
defendant-company may be ordered to pay to the plaintiffs on behalf of the
plaintiffs’ said family firm damages to the tune of Rs. 5 lakhs for wrongful
dismissal and exclusion of the plaintiffs’ nominee from the management and
control of the 1st defendant.
(g) That the defendants Nos. 1 and 2 or
one or more of them may be ordered to pay the plaintiffs costs of the suit.
(h) That such further and other reliefs
as the circumstances of the case may require may be granted to such of the
plaintiffs and in such capacity as may be found to be entitled thereto against
such of the defendants as may be held liable.
The
defendants Nos. 1 to 3 contested the suit. Defence of the defendants Nos. 1 and
2 are substantially the same. According to them, Seth Guman Mal and Ram Swarup
were the promoters of the company in their individual and personal capacity.
They were agents, secretary, chairman, managing director, etc., in their
individual and personal capacity and not as the nominees or representatives of
their respective firms. The company was the sole and the final authority to
make the appointment and the right never vested in any other person or family.
The appointments of Seth Gadh Mal Lodha and Seth Motilal were not virtually by
nominations made by the respective firms, but because of the fact that the
company chose them by resolutions adopted in its extraordinary general
meetings. They did not hold the position identical to those occupied by Seth
Guman Mal and Ram Swarup. No disorder or confusion prevailed at the meeting of
February 8, 1942. There was no apprehension of breach of the peace at that
time, nor was any attempt made to remove Seth Sobhag Mal Lodha forcibly from
the chair. The shareholders made proposals for electing the chairman of the
meeting. Sobhag Mal Lodha, however, illegally insisted on occupying the chair
and, finding the majority against him, he left the meeting along with his
supporters. The meeting could not have been dissolved by Seth Sobhag Mal Lodha
under any circumstances. The shareholders were within their rights to elect the
chairman for the meeting and to proceed with the business. After Seth Sobhag
Mal Lodha had walked out, the resolution, dated February 8, 1942, was perfectly
valid and did not violate the memorandum of association or the articles of
association. The resolution of the board of directors of April 18, 1942,
appointing Seth Sobhag Mal Lodha was without jurisdiction and inconsistent with
the company’s resolution of February 8, 1942. R.S. Motilal was the only person
legally entitled to be in the sole management
and charge of the defendant-company. The defendants further pleaded that the
plaintiffs were not entitled to any damage or commission whatever. The suit
related to the appointment and dismissal by a company of its managing agent,
etc., and that matter pertained to the internal affairs of the company and as
such they were outside the purview of the court. The suit was barred by section
11, Civil Procedure Code, on account of the decision of the Judicial
Commissioner,
Defendant No. 3 contested
the suit on the ground that he had been wrongly impleaded and the plaintiffs
are not entitled to get any relief.
The District Judge,
The trial court gave the
following finding :
1. That the family firm of Seth Guman Mal and that of Ram Swarup were
the promoters of the company, defendant No. 1, and the agreement, dated July 6, 1906, was executed
by Seth Guman Mal Lodha and Ram Swarup on behalf of their respective families.
2. That no partnership came into existence between
the two families and the partnership created by the agreement of July 6, 1906,
was between Seth Guman Mal and Kunwar Ram Swarup only, carrying with it the
necessary incidence and the resolution on the demises of the partners, if it
could be deemed to have continued after their deaths, stood dissolved under
section 42 of the Indian Partnership Act on defendant No. 2’s adjudication as
insolvent
3. That the provisions in the memorandum of
association and the articles of association of the company relating to the
management are merely details of the management for the purpose of carrying on
business of the company and that the company was entitled to regulate details
in such manner as it liked. Therefore, clause VI of the memorandum of
association and articles 60 and 75 of the articles of association could not be
specifically enforced and they did not give any cause of action to the
plaintiffs.
4. That the company recognised the rights of the
firm, Kamal Nayan Hamir Singh, to the extent that its nomination of Seth Gadh
Mal as its representative in place of Seth Guman Mal was accepted by the resolution,
dated July 3, 1915, and July 23, 1915. Though half the commission was credited
to the firm, Kamal Nayan Hamir Singh, it would not amount to any implied
agreement entitling the firm to take part in the management of the company.
5. That there was no rowdyism or disorder in the
general meeting of the company, held on February 8, 1942, so as to result in a
breach of the peace and that the shareholders were entitled to elect the
chairman. Seth Sobhag Mal was not justified in asserting his right to preside
over the meeting as he himself was a candidate for the office of the chairman,
etc. The meeting of the shareholders, dated February 8, 1942, therefore, was
proper and justified, appointing defendant No. 2 as chairman and managing
director.
6. That
the plaintiffs are not entitled to be associated with defendant No. 2 as
agents, etc.
7. That with the institution of the suit for
partition in the Calcutta High Court by Seth Kan Mal the status of the joint
family, even if it was joint, was changed and thereafter as the business was
carried on jointly, the firm became an ordinary partnership concern subject to
the Indian Partner ship Act. As the firm was not registered, section 69 of the
Partnership Act stood in the way of filing the suit without the registration of
the firm.
8. That in the balance-sheet a sum of Rs.
2,015-6-6, as a moiety of the commission from January 11, 1942, is credited to
Seth Gadh Mal and the same amount to Seth Motilal. Similarly from January 17,
1942, to February 8, 1942, during which time Sobhag Mal remained chairman,
etc., half the amount of commission of Rs. 3,706-2-6 was credited to Seth
Sobhag Mal. These amounts can be recovered by the heirs of Seth Sobhag Mal or
by the firm, Kamal Nayan Hamir Singh.
Aggrieved
against the above judgment, the present appeal has been filed on behalf of the
plaintiffs.
Before
the main points raised on behalf of the appellants in the course of the
arguments are set out, it may be stated that Seth Sobhag Mal died in the course
of the pendency of the appeal. In paragraph 49 (a) of the plaint it is
mentioned that it may be declared that on the death of Seth Gadh Mal Lodha the
plaintiffs’ family firm having appointed Seth Sobhag Mal to act as nominee for
them, Seth Sobhag Mal Lodha was entitled to be in the management and control of
the affairs of the company, jointly with defendant No. 2. In the case of
personal action, i.e., in an action where the relief sought is personal to the
deceased, the right to sue will not survive to or against his representative. A
right intimately connected with the individuality of the deceased will not
survive on the basis of the well known maxim actio personalis moritur cum
persona (a personal right of action died with the person). However, if
emoluments are attached to the office, the right to sue will survive and the
suit will not abate. As has been conceded by learned counsel for the appellants
no useful purpose is likely to be served by declaring at this stage that the
deceased, Seth Sobhag Mal Lodha, was entitled to be in the management and
control of the affairs of the company jointly with Seth Motilal, defendant No.
2. We are, therefore, not required to give any finding on this aspect of the
matter.
Learned
counsel for the appellants raised the following Main points in the course of
his arguments :
(1) That the resolution of the company,
dated February 8, 1942, appointing Motilal was not valid, as the general
meeting of the shareholders which had stood dissolved, was not to continue and
approve of the appointment of defendant No. 2.
(2) That section 69 of the Partnership
Act, 1932, does not apply to the case and that even if it is applicable, the
plaintiffs’ case fell within the exception provided by sub-section (3).
(3) That there was an implied agreement
between the plaintiff and the defendant-company, as the latter ratified or
acted upon the terms of the agreement, dated July 6, 1906, arrived at between
the nominees of the two firms, Kamal Nayan Hamir Singh of Ajmer and Champalal
Ram Swarup of Beawar.
(4) That the plaintiffs-appellants and
the defendants Nos. 3 to 6 are entitled for the years 1940 and 1941 to the
moiety of commission of a sum of Rs. 23,061 having not been contested by the
defendants Nos. 1 and 2 and having been wrongly rejected by the trial court.
We
may now take up the first point pressed on behalf of the appellants. Learned
counsel for the appellants has argued that by virtue of the agreement of July 6,
1906, Seth Guman Mal was appointed as chairman. After his death on November 11,
1914, Gadh Mal was appointed to the office on July 23, 1915, and that
appointment was duly confirmed by the company in its extraordinary general
meeting, held on August 16, 1915 : vide annexure “A”. On the death of Gadh Mal
occurring on January 11, 1942, the board of directors passed a resolution on
January 17, 1942, appointing Seth Sobhag Mal in his place till the appointment
was duly made by the extraordinary general meeting of the company. Thereafter,
notice, exhibit 5, dated January 22, 1942, was issued in connection with that
appointment. In pursuance of the notice a meeting of the shareholders was
convened on February 8, 1942. Owing to the pandemonium in the meeting, Seth
Sobhag Mal was constrained to dissolve it. After its dismissal Sobhag Mal and
his supporters left the place. Thereafter the remaining shareholders continued
the meeting and passed a resolution appointing defendant No. 2, Motilal, as
chairman, etc. Such a meeting conducted after its dissolution, according to the
learned counsel, was illegal, as it could not have been presided over by a
person other than Sobhag Mal and as no prior notice had been issued for the
purpose, the shareholders had also no authority to reduce the amount of the
commission to 10% from 16% payable to the chairman and managing director,
according to the terms of the memorandum and articles of association without
issuing a specific notice in respect thereto.
The
agreement, dated July 6, 1906, is the basis of the suit. That indenture was
entered into between Guman Mal, respresenting the firm, Kamal Nayan Hamir
Singh, and Ram Swarup, nominee of the firm Champalal Ram Swarup of Beawar.
According to this covenant certain arrangements had been arrived at in respect
of the management of the company which was still in embryo or rudimentary
stage, and which was incorporated subseqently, i.e., on August 9, 1906. Under
the agreement each one of the promoters was to purchase a certain number of shares
and was to pay at least a sum of Rs. 1 lakh. Both the parties, the agreement
provided, were entitled jointly or severally to the rights of membership,
chairmanship, etc., as also to equal remuneration. Whatever rights accrued to
the parties by virtue of the agreement or partnership was not limited to their
lifetime. But they devolved upon their legal representatives, heirs, executors
and administrators. Clause VI of the memorandum of association and articles 60
and 75 of the articles of association are also to this effect. It was that a
fixed amount of Rs. 250 per month was payable to the parties as remuneration
for their services from the date of commencement of the business up to the date
of the actual starting of the work. Thereafter they were to get 16% of the net
profits of the earnings of the company as their commission. This commission was
divisible between the two parties half and half. Guman Mal and Ram Swarup took
over the management after the company began to function. Guman Mal died on
November 11, 1914 (vide paragraph 9 of the plaint). After his death, a letter
was written on May 4, 1915, by the family members of the firm, Kamal Nayan
Hamir Singh of Ajmer, nominating Gadh Mal in place of the deceased. This
communication was put up before the meeting of the company. The company made
the appointment of Gadh Mal on July 23, 1915. That appointment was confirmed by
the company at its extraordinary general meeting held on August 16, 1915 (vide
paragraph 11 of the plaint). Thus, after the death of Guman Mal, Gadh Mal
stepped into the shoes of the original promoter and the company clothed him
with all the rights and the powers as contained in clause VI of the memorandum
of association and articles 60 and 75 of the articles of association. Ram
Swarup died on June 5, 1916, whereupon Seth Motilal was nominated by the
members of the joint family firm, Champalal Ram Swarup, as successor of Ram
Swarup and the defendant-company passed a special resolution which was
confirmed at the extraordinary meeting of the company held on June 8, 1916 (see
special resolution forming part of annexure “A”). As a result of these
proceedings, the defendant No. 2, representing his family firm, occupied the
same position as Ram Swarup as contemplated by the memorandum or articles of
association of the company : vide paragraph 12.
The
above was the position in so far as Gadh Mal and Motilal were concerned. On the
death of Gadh Mal on January 11, 1942, trouble ensued. Certain important events
took place in the firm of Champalal Ram Swarup in the year 1938. The joint
family of the defendant No. 2, Motilal, became heavily indebted. By its order,
dated July 1, 1938, the High Court of Bombay, in its insolvency jurisdiction,
adjudicated the firm, M/s. Champalal Ram Swarup, as, insolvent. On its
insolvency its property vested in the official assignee of the High Court. The
office of the managing, director of the defendant-company occupied by defendant
No. 2 on behalf of the joint family firm was vacated by virtue of article 68 of
the articles of association and section 87 of the Indian Companies Act (see
paragraph 15 of the plaint). In this context the legal position, as emerged (1)
on account of the death of Gadh Mal, and (2) by the adjudication of the
insolvency, was that the two parties lost their original characteristics.
On
January 17, 1942, a meeting of the directors was convened by Sobhag Mal. The
board of directors appointed Sobhag Mal as chairman, etc., till such time as
the appointment was duly made. A notice was issued to the shareholders of the
Edward Mills Co. Ltd., Beawar, that an extraordinary general meeting of the
company would be held on February 8, 1942, at 1 P.M. for making the appointment
of Sobhag Mal: vide exhibit 5, annexure “D”. The notice suggests three things,
namely:
1. That
Seth Sobhag Mal was the representative of the firm, Kamal Nayan Hamir Singh of
Ajmer.
2. That
the appointment of Sobhag Mal was ad hoc till such time as it was duly made.
3. That
for the sake of appointment, an extraordinary general meeting of the company
was necessary.
Article
72 of the articles of association provides that the permanently appointed
chairman of the company was also to be the chairman in the meetings of the
board of directors and in his absence the managing director would preside. In
the absence of both of them, the directors present would elect a chairman from
amongst themselves for the said meeting. Article 49 provides that the chairman
would preside over every general meeting and in his absence the managing
director would preside. In the absence of both of them one of the directors
present would be elected as the chairman for the time being and in the absence
of the directors or if the director present declined to preside over the
meeting, the shareholders present would choose one of their own members as the
chairman of the meeting. According to these provisions the only person who had
a right to preside was the permanent chairman and in his absence the managing
director.
From
a perusal of the notice referred to above, it is clear that Sobhag Mal was not
the permanent chairman. He had, therefore, no right to preside over the
meeting. The right to appoint the chairman vested in the shareholders. Sobhag
Mal Lodha, by virtue of his temporary appointment, insisted that he had the sole
right to preside over the meeting. Since he had not been appointed as permanent
chairman, it was within the right of the general body of the company to choose
first a director to function as chairman and in his absence any one of the
shareholders could have been taken as chairman. Sobhag Mal could not have
insisted that it was he alone who could preside over the meeting and when he
was not permitted to exercise that right he unauthorisedly declared the meeting
dissolved. Sobhag Mal had no legal right to insist upon presiding over the
meeting, specially when the issue of his own appointment was under hot
discussion. The shareholders, however, went ahead with the meeting under the
chairmanship of K.K. Bhargava, advocate. The company resolved that Motilal should
be appointed chairman, secretary,: managing agent, etc., of the company for a
period of 20 years with effect from the date of the resolution and that he was
to be paid only 10% of the net profits of the company every year instead of 16%
as previously drawn by the persons concerned. It may be mentioned here that by
this time the order of adjudication had been annulled by the Bombay High Court
on April 15, 1941.
It
is settled law that when once a meeting is called, no chairman can arbitrarily
dispose of it. Its continuance or dispersion rests entirely on the will of the
shareholders. It is mentioned in the Law and Practice of Meetings by Frank
Shackleton, 3rd edition, page 69, that a chairman cannot adjourn a meeting at
his own will and pleasure without the consent of the members unless the
business for which it was convened has been concluded. That means that a
chairman has no power to adjourn the meeting at his own choice. The power of
adjournment vests in the majority of those present at the meeting. If a chairman
should vacate the chair or adjourn the meeting regardless of the views of the
majority, those remaining, even if a minority, can appoint a chairman and
conduct the business left unfinished by the former chairman: see Cates by v.
Burnett.This
point was also considered by a Division Bench of this court in Deodutt Sharma
v. Zahoor Ahmed Zaid and it was
held that:
“Once a meeting had
been properly called and it meets, the chairman of the meeting can only adjourn
it with the consent of the majority of the members....... if the chairman
adjourns a meeting contrary to the wishes of the members present and thereby
interrupts or leaves unfinished the business for which the meeting was
summoned, the remaining members can lawfully continue the business; and in the
absence of their proper chairman it is open to them to elect another chairman
to act as his substitute and continue the business and any business which was
duly notified in the notice for the meeting could be transacted to completion,
and if it is so transacted it would be valid.”
Similar
views were expressed in Stoughton v. Reynolds, in Nation
Dwelling Society v. Sykes and in
Catesby v. Burnett quoted supra. In the last case there was much opposition in
the meeting. There was considerable uproar when the chairman declared the
auditors elected and he declared the business to be closed and left the chair
and the hall. The remaining members continued the business and elected Catesby
to the chair and some new directors were also elected. The question arose,
whether the proceedings after the chairman had vacated the chair and dissolved
the meeting were valid. It was held that the proceedings were regular and that
the appointment of the new directors was valid.
The
above cases clearly established the principle that where a meeting is
unlawfully adjourned by the chairman thinking that he is not likely to succeed
in his object, the remaining members do possess the right to continue the
meeting and conduct the business left untransacted by the chairman.
Contention
of learned counsel for the appellants is that owing to the utter confusion and
disorderliness the chairman was constrained to dissolve the meeting. The
plaintiffs have given evidence to prove that there was disorderliness and
uproar in the meetting. To make out this fact the plaintiff, Seth Sobhag Mal,
who was obviously the best person to prove the circumstances in which the
meeting was dissolved, did not come forward to give evidence on the point.
Under illustration (g) to section 114, Evidence Act, the court may presume that
the evidence which could be and is not produced, would, if produced, be
unfavourable to the person who withholds it. The Judicial Committee of the
Privy Council has, in several cases, strongly condemned the practice of parties
to a suit withholding from the court the evidence which may throw light on the
point for determination: vide Murugesam Pillai v. Gnanasambandha Pandara
Sannadhi
and Ram Prakash Das v. Anand Das. Similar are
the views of their Lordships of the Supreme Court in Hiralal v. Badkulal. It appears
from the evidence of Seth Kaluram, P.W. 1, that disorder was created in the
meeting and that the shareholders were protesting against Seth Sobhag Mal being
on the chair. This disorder continued till 3 or 4 P.M. It is not clear from the
statement of this witness that there was such a disorder as to give rise to the
apprehension of breach of the peace. The witness also appeared as a witness
against Motilal in a criminal case on behalf of the prosecution. The other
witness is P.W. 3, Mithan Lal, advocate, who has stated that an objection was
raised about the election of the chairman. When the situation grew tense, the
Lodha party decided to dissolve the meeting. The witness appeared as a counsel
for Sobhag Mal in the revision petition before the Judicial Commissioner. He
does not remember the names of the shareholders who were present in the
meeting. He also does not recollect the agenda of the meeting held on February
8, 1942. He cannot recall the names of those who were participating in the
discussion on behalf of the Beawar firm. The other witness on the point is
Narain Das Mohta, P.W. 5. He says that the supporters of Motilal began to say
in the meeting that Seth Sobhag Mal should not occupy the chair and that the
meeting should elect its own chairman. He further says that it was not possible
to continue the meeting. In the cross-examination he admits that Sobhag Mal’s
sister’s daughter was married to his son. The witness in the cross-examination
admits that he was sitting at a distance of 5 or 6 feet from Seth Sobhag Mal
and that the members appeared to be gentlemen. He then says that he inferred
that there might be violence. He also admits that he did not sit in the meeting
continuously and that he came out of the meeting after 5 or 7 minutes.
From
the nature of the above evidence, given by the plaintiff’s witnesses, it is not
made out satisfactorily that the meeting was rough and that the rowdy elements continuously interrupted it.
Defendant’s witness, Shirdhar Lal, says that no shareholder obstructed the
recording of the proceedings. Similarly the witness, Kaushal Kishore, deposes
that there was no pandemonium or apprehension of breach of peace. Another
defendant’s witness, Mahesh Dutt Bhargava, advocate, testifies that there was no
danger of any breach of the peace. To the same effect is the testimony of Chand
Mal Bajaj, who says that there was no rowdyism in the meeting.
From this evidence it is
apparent that no uncontrollable rowdyism was created in the meeting and that
Seth Sobhag Mal could not have dissolved it without the consent of the
shareholders present on the spot. In this view of the matter, the trial court
rightly held that it was the privilege and the right of the shareholders
assembled at the meeting to decide that they should continue its business.
Learned counsel for the
appellants has further urged that no proper notice in regard to the appointment
of Motilal had been issued and, therefore, the meeting could not have taken up
that question for consideration. In support of his argument he relied upon
Narayanlal Bansilal v. Maneckji Petit Mfg. Co. In that
case a company was incorporated in 1876, and its articles of association, which
was then registered, having become out of date, the directors desired to
substitute for them a new set of up to date articles. At the same time the
managing agents of the company, who had acted as such for 50 years, desired to
have an agreement with the company fixing the duration of the agency and
defining their powers. The directors convened an extraordinary general meeting
of the shareholders to pass the necessary resolution for carrying out the said
purpose. The notice convening the meeting set out necessary resolutions and was
accompanied by circular, but sufficient particulars regarding important changes
to be effected were not set out. The resolutions were passed and confirmed. In
a suit by a shareholder suing on behalf of himself and other shareholders for
declaring that the resolutions were inoperative on the ground of insufficiency
of the notice and for injunction restraining the directors from acting upon
them, it was held that the notice should have given sufficiently full and frank
disclosure of the facts and the effect of the resolutions and the agreement and
consequently the resolutions were inoperative and not binding upon the company.
In the present case the notice, annexure “D”, dated January 22, 1942, contained
that the directors appointed Seth Sobhag Mal Lodha in place of late Rai Bahadur
Seth Gadh Mal Lodha till such time the appointment was duly made. It further
incorporated that an extraordinary general meeting would be held at the
registered office of the company at Beawar, on February 8, 1942, for making the
above appointment. The notice suggested that the meeting was called for the
appointment of the chairman, managing director, etc. The directors could not
have bound the company to appoint only the person nominated by the directors
and fettered its discretion. It was within the discretion of the shareholders
to make appointment of a person of their choice for the above post. In
substance, the notice was for the appointment of chairman, managing director,
etc., and the shareholders considered the suggestion of the directors and made
an appointment of defendant No. 2, Moti Lal. Under the circumstances, it cannot
be said that the shareholders travelled beyond the agenda fixed for holding the
meeting. There was nothing wrong if the shareholders reduced the emoluments of
the managing directors, etc., while making his appointment. The Bombay
authority, under the special circumstances of this case, does not come to the
aid of the appellants. Be that as it may, it cannot be said that the resolution
passed by the company, appointing the defendant No. 2, Motilal, on February 8,
1942, was ultra vires or illegal for want of proper notice. Notice is simply an
intimation to all concerned that a particular body is going to meet at a
particular place, time and date for transacting a partilar business. Here, the
particular subject according to the notice was the appointment of a chairman,
etc. Simply because the shareholders appointed another person for the post does
not mean that the meeting went beyond the notice.
We may now switch over to
the second point raised on behalf of the appellants. It pertains to the
applicability of section 69 of the Indian Partnership Act, 1932. Learned
counsel for the appellants has argued that the agreement of 1906 was not
between the two joint family firms. The partnership agreement properly
described was between the two members of the two families and that it is
inappropriate to describe such a partnership as one between the two Hindu
undivided families. The partnership in fact was created between Seth Guman Mal
and Ram Swarup only for carrying on the business of managing agency, etc. On
the death of Seth Guman Mal and Ram Swarup, the partnership was dissolved. Even
if the partnership continued after their death, it stood dissolved under section
42 of the Indian Partnership Act on the adjudication of the defendant No. 2,
Motilal, as insolvent. Learned counsel further urged that as the original
agreement was between 2 individuals, section 69 of the Indian Partnership Act,
1932, would not apply to this case. According to him even if it is held that
there existed a partnership, the exception incorporated in sub-section (3) to
section 69 of the Act would apply to this case and under this sub-section the
plaintiffs are entitled to realise the property of the dissolved firm. Another
suit had been brought by Sobhag Mal and others as partners and proprietors of
Kamal Nayan Hamir Singh of Ajmer. Paragraph 33 of the plaint mentions that the
firm of M/s. Kamal Nayan Hamir Singh is a family firm doing business at Ajmer and at other
places in India. The plaintiff No. 1 along with the other plaintiffs or
defendants Nos. 3 and 4 are the members of the said firm. Paragraph 34 of the
plaint provides that Seth Sobhag Mal is competent to file the suit on behalf of
the firm, Kamal Nayan Hamir Singh, and that with a view to avoid all future
disputes and complications all the members of the firm have been impleaded as
parties to the suit. It is also stated in paragraph 33 of the plaint that Kan
Mal Lodha, father of the plaintiffs Nos. 8 and 9, filed a suit No. 867A of 1934
for partition in the Calcutta High Court and the late Seth Gadh Mal Lodha was
appointed receiver of the assets and business of the said firm by an order
dated February 20, 1935. On his death, the plaintiff, Sobhag Mal, was appointed
receiver in his place by the High Court, vide its order dated January 13, 1942,
a copy of which is marked exhibit 1. The agreement, dated July 6, 1906,
incorporates that Seth Guman Mal, proprietor of the firm, Kamal Nayan Hamir
Singh, Ajmer, and Ram Swarup of the firm Rai Bahadur Seth Champalal Ram Swarup
of Beawar, representing the two firms, agreed to start a mill at Beawar. Clause
VI of the memorandum of association provides that Seth Guman Mal, proprietor of
the firm, Kamal Nayan Hamir Singh of Ajmer, and Ram Swarup, son of Rai Bahadur
Seth Champalal of Beawar, would be allowed 16% of the net profits of the
earnings of the company as their commission. It further lays down that Seth
Guman Mal and Ram Swarup, their heirs, executors, administrators, successors,
representatives or the duly authorised agents or such other person or persons,
as may, from time to time, be appointed by them, would be the chairman, etc. On
the death of Guman Mal the members of the Lodha family nominated Gadh Mal, on
May 4, 1915: vide exhibit 6. In annexure “C” it is mentioned that the deceased,
Guman Mal, was a coparcener in the joint and undivided family and was one of
the proprietors of the said family firm. He represented the said firm of Kamal
Nayan Hamir Singh as a trustee thereof and in that capacity he enjoyed powers
and privileges including the right to act as chairman, managing director, etc.
Similar was the position in regard to Ram Swarup. Ram Swarup died on June 5,
1916, and Motilal was appointed in his place. It is also in evidence from the
record that the commission earned by Gadh Mal and Ram Swarup were credited to
their respective firms. That shows that Gadh Mal and Motilal represented the
two family firms and that other members of the firm were equally interested in
the share of the commission. The suit has been filed on behalf of the firm,
Kamal Nayan Hamir Singh. A partition suit was also filed in the High Court of
Calcutta and Seth Gadh Mal was appointed receiver of the said business and on
his death Sobhag Mal was appointed receiver in his place (see paragraph 33 of
the plaint).
The
above documents suggest that the suit has been filed on behalf of the firm. On
the filing of the partition suit No. 867 A of 1934 in the High Court of
Calcutta by the deceased, Kan Mal Lodha, father of the plaintiffs Nos. 8 and 9,
the joint family firm continued carrying on business and a receiver was
appointed to manage the estate and its business. With the filing of the
partition suit, the status of the joint family underwent a change and the
business became a partnership business. Under section 69 of the Indian
Partnership Act, 1932, no suit could have been instituted unless the
partnership was registered. Section 69 of the Indian Partnership Act, 1932,
runs as follows :
“(1) No suit to enforce a right arising from a
contract or conferred by this Act shall be instituted in any court by or on
behalf of any person suing as a partner in a firm against the firm or any
person alleged to be or to have been a partner in the firm unless the firm is
registered and the person suing is or has been shown in the register of firms
as a partner in the firm.
(2) No suit to enforce a right arising from a contract
shall be instituted in any court by or on behalf of a firm against any third
party unless the firm is registered and the persons suing are or have been
shown in the register of firms as partners in the firm.
(3) The provisions of sub-sections (1) and (2)
shall apply also to a claim of set-off or other proceeding to enforce a right
arising from a con tract, but shall not affect,—
(a) the enforcement of any right to sue for
the dissolution of a firm or for accounts of a dissolved firm, or any right or
power to realise the pro perty of a dissolved firm, or
(b) the powers of an official assignee,
receiver or court under the Presidency Towns Insolvency Act, 1909, or the
Provincial Insolvency Act, 1920, to realise the property of an insolvent
partner.
(4) This
section shall not apply—
(a) to firms or to partners in firms which
have no place of business in the (State) or whose places of business in (the
State) are situated in areas to which, by notification under section 56, this
chapter does not apply, or
(b) to any suit or claim of set-off not
exceeding one hundred rupees in value which, in the presidency towns, is not of
a kind specified in section 19 of the Presidency Small Cause Courts Act, 1882,
or outside the presidency towns, is not of a kind specified in the Second
Schedule to the Provincial Small Cause Courts Act, 1887, or to any proceeding
in execution or other proceeding incidental to or arising from any such suit or
claim”.
This
section, speaking generally, bars certain suits and proceedings as a
consequence of the non-registration of the firms. Sub-section (1) prohibits the
institution of a suit between partners inter se or between partners and the
firm for the purpose of enforcing a right arising from a contract or conferred
by the partnership Act, unless the firm is registered and the person suing has
been shown in the register of firms as a partner in the firm. Sub-section (2)
similarly prohibits a suit by or on behalf of the firm against a third party
for the purpose of enforcing rights arising from a contract unless the firm is
registered and the person suing is or has been shown in the register of firms
as a partner in the firm. Under the third sub-section a claim of set-off which
is in the nature of a counter-claim is also similarly barred. Then that
sub-section bars other proceedings. The sub-section, however, does not affect
power to realise the property of a dissolved firm. Here, according to the
plaint, the suit in substance was filed on behalf of the firm. There was,
therefore, no question of realising the property of a dissolved firm. After the
partition suit the firm began to be governed by the Indian Partnership Act. In
this view of the matter, subsection (3) of section 69 will not apply to this
case to enable the plaintiffs to file a suit without the registration of the
firm.
In
support of the above proposition a reference is made to Mst. Jatti v. Banwari
Lal. In
that case it has been held by Lord Dunedin that where a separation is effected
between brothers and the business is carried on by the brothers the business
becomes an ordinary partnership subject to the Partnership Act. In
Girijanandini Devi v. Bijendra Narain Choudhary, his
Lordship, Shah J., speaking for the court, observed that partition may
ordinarily be effected by institution of a suit, by submitting the dispute as
to the division of the properties to arbitrators, by a demand for a share in
the properties or by conduct which evidences an intention to sever the joint
family ; it may also be effected by agreement to divide the property. His
Lordship has further pointed out that merely because one member of the family
severs his relation, there is no presumption that there is severance between
the other members. In Baij Nath Prasad v. Ram Gopal Lachhmi Narayan, a Division
Bench of the Calcutta High Court comprising Costello, Actg. C.J. and McNair J.,
considered the point in issue and observed that the institution of a suit for
partition by a member of the joint family is an unequivocal intimation of his
intention to separate and that there is consequently a severance of his joint
status from the date when the suit is instituted. A decree may be necessary for
working out the results of the severance and for allotting definite shares, but
the status of the plaintiff as separate in estate is brought about by assertion
of his right to separate, whether he obtains a consequential decree or not. It
has further been laid down in that case that a joint Hindu trading family
governed by Mitakshara law carried on business in different groups at various
places in India. Subsequently, a member of the family instituted a suit for
partition and if the business of the family was still being carried on as
before without any change until final partition decree was passed, there was in
fact a contractual partnership based upon an agreement to be implied from the
conduct of the case. There is also an instructive judgment on the point in
Kesrimal v. Dalichand. In that
case Modi J. observed that before a partner of the firm can Maintain a suit to
enforce a right arising from a contract against any third party, two conditions
must be fulfilled. Firstly, that the firm should be registered, and where a
partner thereof happens to have died, a fresh or de novo registration of the
firm need not be insisted upon as a matter of law and the firm can still be
considered to be a registered one. Secondly, that the person or the persons on
whose behalf the suit is or has been brought must have been shown as a partner
in the register of firms at the time of the institution of the suit. If both
these conditions are not fulfilled, such a suit must be held to be bad and
unmaintainable and would have to be dismissed. To the same effect is the decision
of a Division Bench of the Bombay High Court in Shriram Sardarmal Didwani v.
Gourishankar alias Rameshwar Joharmal, wherein it
has been pointed out that a suit instituted on behalf of an unregistered
partnership must be immediately dismissed. In Govindmal v. Kunj Beharilal, Tendolkar
J., while dealing with section 69 of the Partnership Act, 1932, illustrated
that the provisions of section 69 are mandatory and unlike their counterpart in
England there is no power to grant to the defaulting partnership any relief
against the disability imposed by the section. The section debars an
unregistered firm from filing a suit. Its effect is that a suit by an
unregistered firm is at its inception bad, and the moment the court is
satisfied that the plaintiffs are an unregistered firm, it must treat the suit
as not having been filed and dismiss it.
There
is a recent decision of a Division Bench of the Gujarat High Court in Bharat
Sarvodaya Mills Co. Ltd. v. Mohatta Bros, wherein it
has been held that section 69 bars a suit against a third party if it is for
enforcing a right arising from a contract. Two mandatory requirements must be
fulfilled before such a suit can be instituted to enforce contractual rights of
the firm or on behalf of the firm. They are: (1) that the firm must be a
registered firm, and (2) that the persons suing are or have been shown in the
register of firms as partners of the firm. The requisite conditions will have
to be treated as mandatory conditions. Unless these two conditions are
fulfilled, there would be a fatal bar to the entire suit and it would be wholly
incompetent in a court of law.
From
the above authorities it is clear that where, as here, severance of the joint
family took place by the filing of a partition suit and when the family business continued to be conducted as before, a
contractual partnership based upon an implied agreement came into existence and
when such a partnership was formed, section 69 of the Indian Partnership Act,
1932, would govern the case and no suit could have been instituted by or on
behalf of the firm without registration.
Learned counsel for the
appellants cited Daitari Mohapatra v. Brundaban Matia . In that
case the plaintiff alleged that there was a partnership between him and the
defendant for the purpose of doing repair work to Khera Bridge in 1944, and
that the work was completed in due course on June 5, 1944. The execution of the
repair work was entrusted to the defendant and the plaintiff’s function as a
partner was to contribute certain sums of money and also to Maintain accounts.
The plaintiff further alleged that, though the work was completed on June 5,
1954, the defendant evaded paying the net sum due to him on some pretext or
other. He, therefore, brought the suit claiming a sum of Rs. 689-9-6. The
defendant pleaded that the suit was barred under section 69(3)(a) of the
Partnership Act, 1932. The High Court held that the suit was in essence a suit
for the recovery of some money due to the plaintiff on final settlement of
accounts of the partnership business between him and the defendant. Therefore,
the non-registration of the firm under the Partnership Act would not operate as
a bar to the Maintainability of the suit in view of clause (a) of sub-section
(3) of section 69 of the Act. The facts of that case are obviously
distinguishable from those of the present one, inasmuch as in the Orissa case the partnership had already been dissolved after
the completion of the work. Therefore, that case does not in any manner help
the appellants.
We may now deal with the
third point raised on behalf of the appellants regarding the liability of the
company in terms of the agreement of 1906, which was in existence prior to its
incorporation. Learned counsel for the appellants has submitted that the
agreement of 1906 was the basis of the suit. This very agreement was
subsequently ratified by the company and was acted upon by it and, therefore,
the company is liable for the suit amount. In this connection it may be pointed
out that ratification can only be by a person ascertained at the time of the
act done, i.e., by a person in existence either actually or in contemplation of
law : vide Kelner v. Baxter A contract entered into on behalf of a
company before its incorporation is not binding upon the company. After the
company comes into existence the company cannot ratify the contract entered
into prior to its incorporation. It can, of course, enter into a new contract
upon the same terms. In this connection a reference is made to In re
Northumberland Avenue Hotel Company. In that
case an agreement was entered into between W on the one part and D on the other for
an intended company to be incorporated. The company was registered on the
following day. The memorandum of association provided that the company should
carry the agreement into effect. No fresh agreement with W was signed or sealed
with the company. The company took possession of the land, expended money on
the building and acted on the agreement, which they considered to be binding on
them. The company failed to complete the building. W took out a summons to be
allowed to prove for damages against the company for the breach of the
agreement. It was held that the agreement having been entered into before the
company was in existence, was incapable of confirmation and that the acts of
the company, having evidently been done under the erroneous belief that the
agreement between W and D was binding on the company, was not evidence of a
fresh agreement having been entered into between W and the company and there was,
therefore, no agreement between W and the company and that the summons must be
dismissed. Another important case on the point in issue is in Ram Kumar v.
Sholapur Spg. and Wvg. Co. In that
case Beaumont C.J. pointed out that a company cannot be bound by a contract
entered into on its behalf before it was formed, and it is not competent to
bring a company into existence bound to enter into a contract with a third
party, the terms of which have been arranged before the company is formed. It
is for the company to consider after its formation whether it will enter into
the contract or not. A condition in a memorandum of association which is
nothing more than a detail of management for the purpose of carrying on the
business of the company, cannot be considered to be a vital condition. Learned
counsel for the appellants has submitted that there was an agreement entered
into between Guman Mal and Ram Swarup in the year 1906 when the company was not
in existence. Soon after the company was incorporated, it incorporated the
terms of the agreement in the memorandum of association and the articles of
association and the company also acted accordingly by appointing chairman and
the managing directors in accordance with the terms of the contract and it also
paid commission from time to time. It should, therefore, be assumed, the
counsel adds, that there was an implied agreement. The court does not interfere
with the internal management of the affairs of the company. The memorandum of
association does not constitute a contract between a company and a third party
who may be named therein. It is for the company to enter into a new contract
upon its formation. That being the legal position, the third contention of
learned counsel for the appellants lacks substance and is hereby repelled.
Coming
now to the last point in regard to the decree for a sum of Rs. 23,061, learned
counsel has submitted that specific issue No. 12 was framed by the trial court.
The finding on that issue runs as follows :
“The claim of the plaintiffs and the defendants
Nos. 3 to 7 for a sum of Rs. 23,061 is not denied by the defendants Nos. 1 and
2. In fact a cheque for the amount was given but it was not encashed.”
Despite this finding, the
trial court, the counsel submits, did not pass any decree on account of this
amount. Learned counsel for the side opposite contended that this amount was
not admitted by the defendants in their written statement, and as the
plaintiffs-firm is not registered, they are not entitled to obtain a decree for
the item in question. Paragraph 31 of the plaint runs as follows:
“31. That the firm of Kamal Nayan Hamir Singh
has received payment of the one-half of the commission from defendant No. 1 up
to December 31, 1939. The plaintiffs and defendants Nos. 3 and 4 are now
entitled to Rs. 23,061 on account of their moiety of the commission for the
years 1940 and 1941.”
Paragraph 21 of the written
statement filed by the defendant No. 1, Edward Mills Co. Ltd., Beawar, is in
the terms set out below :
“21. That
paragraph 31 of the plaint is not admitted. The claim advanced is vague
particularly as to how the plaintiffs and defendants Nos. 3 and 4 claimed to be
entitled to any amount that may be payable to the deceased, R.B. Seth Gadh Mal
Lodha. The plaintiffs have not stated as to how Rs. 23,061 claimed are made
up.”
Paragraph 22 of the written
statement filed by Motilal is as under :
“22. That paragraph 31 of the plaint is not admitted.
The claim advanced is vague particularly as to how the plaintiffs and
defendants Nos. 3 and 4 claim to be entitled to any amount that may be payable
to the deceased, R.B. Seth Gadh Mal Lodha. The plaintiffs have not stated as
how Rs. 23,061 claimed are made up.”
From the above pleadings it
is not clear that the defendants admitted the claim of Rs. 23,061. Order 12,
rule 6, Civil Procedure Code, provides :
“Judgment on admissions:—Any party may, at any
stage of a suit, where admissions of fact have been made, either on the
pleadings or other wise, apply to the court for such judgment or order as upon
such admissions he may be entitled to, without waiting for the determination of
any other question between the parties; and the court may upon such application
make such order, or give such judgment, as the court may think just.”
The use of the words “or
otherwise” without the words “in writing” which are used in rule 1 of Order 12
shows that a judgment may be given even on a verbal admission. (See In re Beeny
: Ffrench v. Sproston and Premsuk
Das v. Udairam).
Rule 6 of Order 12 is wide enough to afford relief not only in cases of
admissions made in the pleadings but also in cases of other admissions. The
object of Order 12, rule 6, Civil Procedure Code, is to enable a party to
obtain speedy judgment at least to the extent of the relief which, according to
the admission of the defendant, the plaintiff is entitled to and the rule has
been made wide enough to afford relief not only in cases of admissions made in
the pleadings but also on admission de hors the pleadings. To limit the rule to
cases where the plaintiffs accept the admission of the defendant as a whole
would be to deprive the rule of its utility : vide Tahilram v. Vassumal. Keeping in
view the finding of the trial court while dealing with issue No. 12, it is
clear that the defendants did not deny the claim of the plaintiffs for Rs.
23,061, in the course of their arguments before it. On the basis of such an
admission the trial court could have passed a decree for the said amount irrespective
of the implications of other issues framed, specially when the claim is
severable and the defendants admitted their liability in respect of the
fragment of the claim. A court has jurisdiction under Order 12, rule 6, Civil
Procedure Code, to enter a judgment for the plaintiffs to pass a decree on the
admitted claim with liberty to the plaintiffs to proceed with the suit in the
ordinary way as to the remainder of the claim.
In the result, we partly accept this appeal and pass a decree for an additional sum of Rs. 23,061, on account of the commission for the year 1940-41 in favour of the plaintiffs and the defendants Nos. 3 and 4 against defendant No. 1, the company. In other respects, the appeal is dismissed. In the special circumstances of the case, the parties are left to bear their own costs.
[1934] 4 COMP. CAS. 481 (BOM.)
HIGH COURT OF
v.
Sholapur
Spg. & Wvg. Co. Ltd.
BEAUMONT, C.J.
AND RANGNEKAR, J.
MARCH 22, 1934
V.F. Taraporewala and M.C.
Setalvad, for the Appellant.
Chimanlal Setalvad, M.L.
Manekshaw, K.M. Munshi and D.D. Sabnis, for the Respondents.
Beaumont, C. J.—In this case the plaintiff sues
on behalf of himself and the other shareholders of the Sholapur Spinning and
Weaving Co., Ltd. and he asks first, for a declaration that certain resolutions
passed by the directors, which resolutions were for the dismissal of the
company's agents, are in contravention of the memorandum and articles of
association of the company and are not binding on the members of the defendant
company, and secondly, for an injunction to restrain the defendants from acting
upon the resolutions. Defendant No. 1 is the Sholapur Spinning and Weaving Co.,
Ltd. and the other defendants are the directors. It is a well-settled principle
in company law that the Court does not generally interfere with the internal
management of the affairs of a company, and, if the majority of the
shareholders consider that a particular contract of employment should be
terminated, the Court would not as a rule consider the matter at the instance
of a minority of shareholders. To get over that difficulty, it is contended by
the plaintiff that the dismissal of these agents is an act ultra vires the
company, and, no doubt the case of acts ultra vires the company does constitute
an exception to the general rule that the Court will not interfere in the
management of a company. But it is, on the face of it, startling to find it
suggested that the dismissal of persons in the employment of the company, or
under contractual relations with the company, is an act ultra vires the
company. To get over that difficulty the plaintiff alleges that the rights of
the agents arise under the memorandum of association of the company, and,
therefore, cannot, be altered. But at that point another difficulty arises, i.
e., that the memorandum of association, as it has been held many times, does
not constitute a contract between the company and a third party who may be
named therein. So that, ultimately the argument assumes some such form as this,
that it is a vital part of the constitution of the company, that the company
should employ the agents that the company should do its business through the
services of the agents, that that obligation arises apart from any contract
with the agents, and that it is an obligation imposed upon the company as part
of its charter which cannot be altered, having regard to the terms of Section
10, Companies Act. In my opinion, the argument is quite untenable and the
plaintiff's action is wholly misconceived. With whatever skill the real object
of the plaintiff is concealed, it is quite plain that the order which he asks
for would have the effect of restraining the
company from dismissing the agents, and it is, well settled that the Court will
not make an order the effect of which is to enforce specifically any contract
of personal service. But I think the case may be based on another ground,
because I am not perpared to accept the argument of the plaintiff that the
material clause in the memorandum is really a vital part of the constitution of
the company or a condition of the memorandum within the meaning of Section 10,
Companies Act. The clause in question which is Clause 6, is not incorporated
amongst the objects of the company, but is an independent clause, and it is in
these terms :
"That the firm of the Morarjee Goculdass & Co., of
Bombay, merchants, or whatever member or members that firm may for the time
consist of, shall be the agents of the company, so long as the said firm shall
carry on business in Bombay or until they shall resign, and they shall receive
a commission of ¼ anna per lb., on all the yarns and other material
manufactured and sold by the company; should however the company during any one
year be unable to declare a dividend of 4 per cent, owing to their own profits
being less than that amount, the agents shall only be paid one-third of the
above commission."
The clause does not purport in terms to impose any
obligation of service upon the agents. It merely provides what remuneration the
agents shall receive. Now, properly construed it seems to me that what that
clause really does is to provide that the company shall enter into a contract
of agency, on the terms indicated, with the firm of Morarjee Goculdas &
Co., that it confers a power upon the company and might more properly have been
included amongst the objects of the company. Mr. Taraporewala for the plaintiff
objects to. that view of the matter, and says that there is no question of any
contract between the company and the agents, but directly the company after its
incorporation, employs the agents, which it can only do with the agents'
consent contractual relations must arise, and the clause must in effect impose
on the company an obligation to enter into a contract with a third party. It
has been held many times that a company cannot be bound by a contract entered
into on its behalf before the company was formed, and, in my opinion, it is not competent to
bring a company into existence bound to enter into a contract with a third
party, the terms of which have been arranged before the company was formed. It
is for the company to consider after its formation whether it will enter into
the contract or not.
There is a further objection to
the plaintiff's case in that, in my opinion, Clause 6 of the memorandum of
association, even if construed as the appellant desires, merely imposes on the
company an obligation as to management and is not a vital part of the
constitution of the company. In support of the view that a clause of this
nature is a condition of the constitution of the company, Mr. Taraporewala
relies on the case of Venkatramana v. Coimbalore Mercantile Bank. That was an
application to the Court on a petition under Section 12, Companies Act, asking
the Court to confirm a special resolution for the alteration of a memorandum of
association by striking out a clause somewhat in the terms of Clause 6 in the
present memorandum. The Court refused to strike out the clause, but in giving
judgment Sir Walter Schwabe, the Chief Justice, did no doubt say that a clause
of this nature is a condition of the memorandum but he based his view expressly
on the ground that the clause in the memorandum constituted a vital contract
between the company and the person to be emplo3red as agent, and, I think, it
cannot have been present to the mind of the learned Chief Justice, first, that
a company cannot be bound by a contract made before it comes into existence,
and, secondly that the memorandum of association does not operate as a contract
between the company and persons who are not members of the company. I think
therefore that the views of the learned Chief Justice as to the nature of a
clause of this character cannot be supported. It is, to my mind, almost
impossible to conceive of a case in which the Court would, at the instance of a
minority of shareholders compel a company to enter into, or carry out, a
business contract which the majority of the shareholders and the directors
considered to be detrimental to the interests of the company, the terms of
which contract had actually been arranged before the company was brought into
existence.
There is an alternative ground
which, I think, is equally fatal to the plaintiff's case, and that is, that
even assuming that Clause 6 of the memorandum has the effect for which the
appellant contends, the present members of the
firm of Morarjee Goculdas & Co., do not come within the terms of that
clause. The clause provides, as I have said, that the "firm of Morarjee
Gsculdas & Co." or "whatever member or members that firm may for
the time consist of" shall be the agents etc. Strictly speaking, as soon
as new members are introduced into the firm, a new firm is constituted. The
plaintiff relies on the words, "whatever member or members that firm may
for the time consist of," but the facts are that at the date of the
incorporation of the company the firm consisted of two individuals, one of whom
died in 1880, and the other of whom died in 1908, and none of the present members
of the agency firm were ever partners with either of those two individuals.
Whatever meaning may be given to the words, "whatever member or members
that firm may for the time consist of," it seems to me quite impossible to
say that the present members of the firm of Morarjee Goculdas & Co., who
were never members of the firm at a time when either of the persons who
constituted the firm at the date of the incorporation of the company were
alive, can be said to be members of the firm named in the memorandum. The
argument of the appellant really seeks to endow this firm with the attributes
of a corporation having perpetual succession so far as concerns its relations
with the company. It is further suggested by Sir Chimanlal Setalvad that if the
clause has the extended meaning contended for by the appellant, it would be
void in law, but it is not necessary, in my opinion, to consider that argument.
There is another point taken against the appellant, namely,
that, again giving to Clause 6 the effect for which he contends, at the most it
only outlines the nature of the contract into which the company was to enter
with the agents. It is contended, I think rightly, that the company, when
entering into an actual Contract with the agents, would be entitled to incorporate
proper provisions including power to terminate the agency for sufficient
reason. For all these reasons, I think the learned Judge was quite right in
dismissing the action with costs, and that the appeal must be dismissed with
costs,
Rangnekar, J.—I agree. In my opinion there is
more than one fatal answer to the claim of the plaintiff in the suit. Apart
from the fact that the clause in question is one-sided in that it does not
impose any obligation on the firm of Morarjee Goculdas, it is nothing more in
my opinion than a preliminary contract such as promoters make before
incorporation of the company, and means nothing more than that the company
should enter into a contract of agency with the firm of Morarjee Goculdas. In
fact that seems to be the plaintiff's case, and that is clear from para. 6 of
the plaint. Then, one answer to the plaintiff's claim would be that a company
cannot before its incorporation enter into a contract, for it is non-existent
and another that, except by any Act of the legislature, it is not possible to
bring a company into existence under the Indian Companies Act bound by a
contract previously made, for such a contract cannot be ratified after
incorporation. In order to get over this difficulty, the plaintiff contends
that this is not a contract of employment but it is really a vital conditon on
which the company was constituted. Now the authorities show that a memorandum
of association may contain conditions essential as well as conditions
non-essential, and the question is, whether this is an essential condition.
Undoubtedly it is not mentioned in the objects where perhaps, properly
speaking, it might have been mentioned, and it stands by itself. What are
conditions essential is indicated by the frame of the Indian Companies Act, and
the scheme contained therein and it would be very unreasonable to hold that a
condition of this nature which is after all, what ever way you look at it,
nothing more than a detail of management for the purpose of carrying on the
business of the company, can be considered to be a vital condition and cannot
be altered, when the Act provides that conditions which are vital to the very
existence of the company, such as for instance, the name of the company, the
objects of the company, and so on, can be altered undoubtedly in a limited way
in accordance with the provisions of the Indian Companies Act. The learned
counsel for the appellant says that the rights of the agents are created by the
memorandum of association, but the answer to that is that the memorandum of
association does not constitute a contract between the company and a third
party, though named therein.
Then there is another point, and
it is that the condition, on the face of it, is unreasonable, and it is no use
saying that the shareholders subscribed on the faith of it. There is no
obligation imposed on the agents either to act as agent or go on acting as
agent. Supposing, for instance, the agents refuse to work as agents, I do not
think it can be contended that the company, or the shareholders or
majority of the shareholders interested in the continuance of the company, have
no power to appoint other agents in their place. Similarly if the agents are
found guilty of fraud, or are not properly managing the business, it cannot be
contended that the company cannot appoint other agents in their place. Then it
is said that it is open to the shareholders to dissolve the company. But
supposing, for instance, that the majority of the shareholders are of opinion
that the company is in a flourishing condition, and that there was no necessity
to have it wound up, what then? Can it be contended that the substratum of the
company is gone or it is just and equitable that the company should be wound up
because A.B.C, who were agents refuse to Act and refuse to resign ? In my
opinion the clause in question does not constitute a vital condition.
Then assuming however it is a
vital condition, I have no doubt that the plaintiff must fail on a true and
proper construction of the clause in question. It was conceded that unless that
clause was construed to mean that the agents of the company should be "the
firm of Morarjee Goculdas & Co., its successors or assigns," the
plaintiff must fail. There is nothing in that clause which would justify such a
construction. In my opinion the clause really means this, that Morarjee
Goculdas & Co., or those who, as the facts show, were then about to carry
on business in the name of Morarjee Goculdas & Co., were to be appointed
agents of the company. But the utmost length to which one can go is that under
this clause the agents were to be the then firm of Morarjee Goculdas or his
surviving partners. The original surviving partner having died in 1908, the
firm came to an end and although for reasons in which it is not necessary to enter,
the heirs of Morarjee Goculdas were admitted into partnership and the company
went on employing them and utilised their services, it is difficult to see how
in 1930 the present members of the firm, who admittedly have no connection with Morarjee Goculdas, or any of his surviving partners
could be said to be members of the firm within the meaning of Clause 6 of the
memorandum. Assuming however, that the construction which the plaintiff seeks
to put upon the clause is correct, even then, I think the Court would be
justified in refusing an injunction. No Court will grant an injunction in a
case the effect of which will be to compel specific performance of a contract
of personal service. The plaintiff relies upon Venkatramana v. Coimbatore
Mercantile Bank With all respect to the learned Judges of the Madras High
Court, I am unable to agree with their decision for the reasons given in the
judgment of my Lord the Chief Justice. The appeal fails and must be dismissed
with costs.
(1) Companies Act, 1948, s. 32 (1): "Contracts on behalf of a
company may be made as follows:...(b)
a contract which if made between private persons would be by law required to be
in writing, signed by the parties to be charged therewith, may be made on
behalf of the company in writing signed by any person acting under its
authority, express or implied."