1959 (4) TMI 33 - HC - Companies Law

Summary

Issues:
1. Conversion of decree against Managing Director to personal liability of the promoter.
2. Promoter's personal liability for building work ordered before company's constitution.
3. Definition and application of the term "promoter" under Indian law.
4. Promoter's personal liability until company takes over the liability.
5. Applicability of English cases in absence of specific Indian case law.

Analysis:

1. The plaintiff appealed to convert the decree against the Managing Director to personal liability of the promoter, as he believed the Managing Director remained personally liable for the claim. The Court noted that the plaintiff's claim was partially allowed, and costs were awarded proportionally to each party's success, almost canceling each other out.

2. The main issue revolved around the promoter's personal liability for building work ordered before the company's registration. The Court found that the promoter verbally ordered the work before the company's existence, and the company did not take over the liability. The defense's claims of poor work quality and overpayment were rejected.

3. The term "promoter" was analyzed based on English law principles, as Indian law did not specifically define it. The Court referred to Halsbury's Laws of England, which explained that a promoter initiates the company's formation and assumes duties towards it. The Court concluded that the defendant was the promoter based on the facts found by the trial court.

4. The judgment highlighted the promoter's personal liability until the company assumes the liability with the third party's consent. The Court emphasized that the promoter remains personally liable unless all parties agree to transfer the liability to the company. The defendant's failure to challenge the findings of fact hindered his ability to contest the promoter's personal liability.

5. In the absence of specific Indian case law, the Court relied on English cases to establish the promoter's personal liability principle. The Court emphasized that the promoter's personal liability ensures fairness to third parties who may otherwise struggle to recover claims from the company. The defendant's lack of appeal or cross-objection limited his ability to challenge the trial court's judgment.

In conclusion, the Court allowed the appeal, converting the decree against the Managing Director to personal liability of the promoter based on his role in ordering the building work. The judgment reiterated the promoter's personal liability principle and highlighted the importance of consent for transferring liability to the company.