1960 (5) TMI 36 - HC - Companies Law

Summary

Issues Involved:
1. Competency of S. P. Jaiswal to institute the suit.
2. Alleged fraudulent actions by L. P. Jaiswal as Managing Director.
3. Breach of fiduciary duty by L. P. Jaiswal.
4. Estoppel of the plaintiff-Company from bringing the suit.
5. Validity of resolutions allowing L. P. Jaiswal to carry on separate business.
6. Approval and confirmation of the disputed transactions by the plaintiff-Company.
7. Applicability of the limitation period.

Detailed Analysis:

1. Competency of S. P. Jaiswal to Institute the Suit:
The trial court held that S. P. Jaiswal could not be considered to have been validly appointed as Managing Director of the plaintiff-Company due to the decision in an earlier suit operating as res judicata. The appellate court concurred, noting that the decision of the Letters Patent Bench in the earlier case invalidated the meetings of 3rd and 28th March 1946, thus affecting the validity of S. P. Jaiswal's appointment. However, the court recognized that under Section 86 of the Indian Companies Act, 1913, the acts of a director are valid notwithstanding any defect in their appointment. This provision was deemed applicable, validating the resolution authorizing S. P. Jaiswal to file the suit.

2. Alleged Fraudulent Actions by L. P. Jaiswal:
The plaintiff-Company alleged that L. P. Jaiswal, while acting as Managing Director, fraudulently supplied methylated spirit to his own firm at a price lower than the market rate, causing a loss to the company. The trial court found no evidence of fraud, noting that the supply was made under the Government of India's order at the prescribed rate. The appellate court upheld this finding, emphasizing the lack of reliable evidence to prove the alleged market rate of Rs. 2-8-0 per gallon.

3. Breach of Fiduciary Duty by L. P. Jaiswal:
The appellate court acknowledged that L. P. Jaiswal held a fiduciary capacity as Managing Director. However, it found no breach of fiduciary duty, as there was no evidence of loss to the plaintiff-Company from the transactions. The court emphasized that the plaintiff-Company failed to prove the market rate of methylated spirit or any loss incurred due to the transactions.

4. Estoppel of the Plaintiff-Company from Bringing the Suit:
The trial court held that the plaintiff-Company was estopped from bringing the suit due to a complete discharge given to the defendants on 16th October 1945. The appellate court, however, noted that the resolutions passed on that date were tainted with undue influence and were thus ineffective.

5. Validity of Resolutions Allowing L. P. Jaiswal to Carry on Separate Business:
The trial court found that the plaintiff-Company had allowed L. P. Jaiswal to carry on the business of buying methylated spirit as his personal business without objection. The appellate court upheld this finding, noting that the resolutions permitting such transactions were valid.

6. Approval and Confirmation of the Disputed Transactions by the Plaintiff-Company:
The trial court held that the plaintiff-Company had approved and confirmed the purchase of spirit by L. P. Jaiswal, thus justifying the transactions. The appellate court agreed, noting that the plaintiff-Company had failed to prove any undue influence or coercion in obtaining the resolutions.

7. Applicability of the Limitation Period:
The trial court held the suit to be within the limitation period under Article 120 of the Indian Limitation Act, rejecting the contention that it should be governed by a three-year period. The appellate court concurred, noting that the suit was based on a contractual liability and thus fell under the six-year limitation period.

Conclusion:
The appellate court dismissed the appeal, affirming the trial court's findings that the plaintiff-Company failed to prove any loss due to the transactions and that S. P. Jaiswal was authorized to file the suit. The court left the parties to bear their own costs throughout.