1937 (9) TMI 5 - HC - Companies Law

Officer, Prospectus Registration of and Winding up Power of court to assess damages against delinquent directors, etc.

Summary

Issues: Misfeasance summons against brokers for repayment, Ultra vires agreement, Liability of respondents as promoters or officers of the company, Application of Indian Limitation Act, Entitlement to recover under section 235 of Indian Companies Act.

In this case, the appeal arises from a misfeasance summons filed by the official liquidator against the respondents, who were brokers of a company that went into liquidation. The official liquidator sought to recover a sum of Rs. 8,865-11-3 from the respondents, alleging that the agreement between them was ultra vires. The respondents were partners of a provision dealers firm and had no prior experience as share brokers. The agreement signed by the respondents provided for a high commission, which was later ratified with a minor alteration by the directors. The official liquidator invoked section 235 of the Indian Companies Act, 1913, to seek repayment from the respondents. The matter was referred to the Official Referee, who opined that the respondents were not entitled to retain the sum. The issue of the applicable limitation period under the Indian Limitation Act was raised, with the court determining that Article 36 applied, limiting the period to two years for the claim. However, the court found that the official liquidator was not entitled to pursue the claim under section 235 as it only applies to specific individuals involved in the formation or promotion of the company.

Regarding the respondents' classification as promoters, the court analyzed the definition of a promoter as one who undertakes to form a company and set it in motion. The court examined the first respondent's role in the formation of the company, emphasizing that merely signing the memorandum and subscribing for shares does not automatically classify one as a promoter. The court concluded that the first respondent did not play a significant role in the formation or promotion of the company to be deemed a promoter. Additionally, the court deliberated on whether the respondents could be considered officers of the company. The court interpreted the definition of "officer" under the Act and opined that brokers, like bankers or auditors, who provide services to the company, do not become officers solely by virtue of their appointment. The court held that categorizing the respondents as officers for the purpose of section 235 would be stretching the interpretation too far, as brokers have no involvement in the company's management.

Ultimately, the court dismissed the appeal, ruling that the official liquidator was not entitled to pursue the claim against the respondents under section 235 of the Indian Companies Act. The court emphasized that the respondents were not liable as promoters or officers of the company based on the evidence presented. The costs of the appeal were ordered to be paid out of the company's assets, and the official liquidator was granted costs from the assets as well. Madhavan Nair, J., concurred with the decision, adding no further comments.