1930 (2) TMI 13 - HC - Companies Law

Summary

Issues:
1. Interpretation of section 86 of the Companies Act regarding the validity of acts by a director.
2. Whether the trial judge was correct in cutting short the cross-examination of a witness regarding his qualifications as a director.

Analysis:

Interpretation of Section 86 of the Companies Act:
The appeal raised a preliminary point of law concerning the interpretation of section 86 of the Companies Act. Section 86 states that the acts of a director shall be valid despite any later discovered defects in appointment or qualification, except if the appointment is proven to be invalid. The judge relied on this section and previous rulings to conclude that a de facto director's bona fide acts are valid. However, the appellate judge expressed doubts about the correctness of this interpretation, emphasizing that the Indian Act includes a proviso not found in the English Companies Act, which restricts the validity of acts done after an invalid appointment is revealed. The judge highlighted the importance of allowing full cross-examination to ascertain the validity of the director's appointment and potential prejudice caused by restricting evidence presentation.

Cross-examination of Witness:
The trial judge had cut short the cross-examination of a witness named Sukhdial Behal, who signed and verified the plaint, based on the provisions of section 86 of the Companies Act. The appellate judge expressed reservations about this decision, noting that the defendants were entitled to cross-examine Behal regarding his directorship qualifications. The judge emphasized the need for a comprehensive examination of all facts related to Behal's appointment to determine if section 86 applied. The appellate court directed the case to be returned to the District Court for further cross-examination of Behal and the presentation of additional evidence on his appointment. The court stressed the importance of allowing both parties to present all relevant evidence before reaching a conclusion on the applicability of section 86 to the case.