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TMI Blog1936 (11) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of the manufacture of locomotive engines, The Company was started in pursuance of a policy of the Government of India at that time, for encouraging the manufacture of locomotives in India. However, after it became manifest that the business of the nature for which the Company was incorporated was not forthcoming, the Company engaged for a time in the manufacture of railway wagons, and it is said that a profit of two or three lakhs of rupees was made during the short time this wagon business lasted. Ultimately Government purchased the works of the Company for twenty lakhs of rupees. This was on 14th July 1927, and on 21st May 1928, by a resolution of the Board a sum of six lakhs of the capital was returned to the shareholders by payment of Rs. 20 per share. The authorized capital, it should have been stated, was 60 lakhs of rupees, and the issued capital 28 lakhs rupees in shares of Rs. 100 each. Of the 28 lakhs of rupees Messrs. Kerr Stuart & Co., Ltd., the Managing Agents, held Rs. 11,50,000, Mr. Langham Reed, the Chairman of the Board, Rupees 8,52,200, Sir George Buchanan of the directors Rs. 15,000, Mr. T. Gordon, director, Rs. 22,500, Mr. F.E. Dinshaw Rs. 5,00,000 on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectors appears to have taken place in Bombay on 15th July 1927; the minute of that meeting is annexed to the liquidator's affidavit and marked Ex. H. There were present Sir Fazulbhoy Currimbhoy, Sir Purshotamdas Thakurdas, Mr. F.E. Dinshaw and Mr. Manu Subedar, the respondent. It is convenient to state here that at times material to this application the directors were Mr. Langham Reed, Sir George Buchanan, Mr. Charles T. Gordon and Mr. Manu Subedar of whom Mr. Subedar alone was living in India (Bombay). It was agreed that a cable should be sent to the chairman in London to this effect: Calmoni Engineering Company Mr. F.E. Dinshaw says no time to consult Gwalior Darbar. If Gwalior Darbar does not support Gwalior Darbar will have to be returned money proportionately. Subject to this directors agree to purchase Calmoni Engineering Company. Mr. Langham Reed cabled to Manu Subedar (the respondent) on 21st July to the effect that they had agreed to purchase the Calmoni Engineering Works and paid 10 per cent. deposit for an option to complete in ten weeks. It is by no means certain what happened in the meantime. But on 21st May 1928 Mr. Subedar cabled to Mr. Reed: Calmoni Engineering W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eply that owing to the unsettled conditions he would much prefer to make a further payment to extend the option to purchase the Calmoni Works. It was on 10th January that a petition was filed in the Bombay High Court and notices were served on the company on the 21st of that month. Mr. Reed informed Mr. Subedar that they had extended the option to purchase Calmoni Works to 20th June at the same price, but GBP10,000 remaining on six per cent. debentures. The Chairman of Low & Co. wrote to Kerr, Stuart & Co., the Managing Agents of the Peninsular Locomotive Company, on 20th January 1930. This letter stated the terms of the option granted to the Peninsular Locomotive Company. He acknowledged the receipt of GBP1500 giving the company the option to be exercised within five months to purchase all the works, buildings, plant, machinery, tools etc., for GBP14,625. On the exercise of the option a further payment was to be made of GBP4625 and it is this GBP4625 which is the major portion of GBP6000 claimed in this application. I revert for a moment to the payments of GBP500 and GBP2125 in June and July of 1927. It is a little difficult to understand exactly what those payments were. The res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had is in my opinion too clear to be discussed. We now come to an important point. On 18th June 1930 there was a cable from Mr. Langham Reed which I propose to set out in full: Board Penloco Thursday next to complete purchase Calmoni and lay down future programme. Please instruct P & O Bank to credit by cable Penloco London GBP6000. All outstanding matters will be immediately dealt with. The position was this. There was a banking account in London and there was also a banking account in Bombay, and I do not think it is disputed that whereas the London banking account was not in funds the Bombay banking account was, and it was for this reason that a cable was sent by Mr. Langham Reed asking Mr. Subedar to transfer money from the Bombay account to the London account. We have in Ex. G. to the liquidator's affidavit, a minute dated 19th June 1930 of a Board meeting held at 5 Board Street Place, London. Of the directors there were present Mr. Langham Reed, Sir George Buchanan and Mr. C.T. Gordon. The Secretary was there, the balance sheet of the year 1925 was submitted for the approval of the Board; it was approved and signed by the directors and he was instructed to post it to Mr. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing business should a favourable opportunity occur." I refer to this suggestion made by the English Board in order to show exactly what the position was at this date. There was further correspondence with which we are not cencerned. A letter written by the Solicitors representing the Company to the Official Liquidator on 20th March 1921 sets out briefly the details of negotiations regarding the purchase of the Calmoni Engineering Works. It was on those facts that the liquidator made application to this Court for a summons under section 235 of the Act. When this matter came before me on the application for the issue of a misfeasance summons, the question of the jurisdiction of this Court arose, and it was held that although this Court had jurisdiction over the directors in India it had no jurisdiction to issue process in England and therefore on the London directors. In answer to the case made by the liquidators Mr. Manu Subedar contended in his affidavit that this Court had no jurisdiction over him as he was not a resident within the Province, but this point has not been pressed before me at the hearing; indeed Sir Sultan Ahmed appearing on behalf of Mr. Manu Subedar does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his views as regards the policy of the Company. What would have been the position had Mr. Subedar protested and declined to agree to the payment, but at the same time transferred the sum of money to the London account, it is difficult to say. In my judgment it is impossible to look upon Mr. Subedar other than as being responsible equally with the other directors for the payment of this sum. On the rather limited question of Mr. Subedar's attitude in this matter, reference might be made to the decision in Joint Stock Discount Co. v. Brown. There a payment had been made by the Company with regard to a transaction which was ultra vires, and Brown, one of the directors, was said to have protested; nevertheless he was held responsible. There is nothing in this case to suggest that Mr. Subedar had in any way disagreed with his fellow directors and, even if the transmission of the money from Bombay to London is looked upon as a mere ministerial act, I find it impossible to excuse Mr. Subedar on that account. As regards the legal position it is impossible to contend that this transaction was in any way valid. My brother Faiz Ali has already held in an application by the liquidator for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re that the directors were aware that they were making, an unauthorized payment, they were disposing of the property of the Company wrongfully and therefore guilty of a breach of trust. There is another aspect of the case. From the letter to which I have referred (if from no other fact) it is seen that from 1927 at least the Company was doing no business, the substratum of the Company had gone, as was held by this Court in deciding the application to wind up the Company; there was no hope of their ever doing the business for which they were incorporated. That the Company was incorporated for the purpose of building railway locomotives we have seen. Clause 3 of the Memorandum is wide it its terms and I suppose, had the intention of the promoters been to carry on any one of the many businesses therein described, other than locomotive building, and had any of these trades been carried on from the incorporation of the Company, it would have been difficult if not impossible to say that the Company was acting beyond its powers. But here locomotive building was the purpose of the Company as I have said, and that can be gathered from the name of the Company and the Memorandum must be const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case differs to a very considerable degree from the present and relates to the liabilities of the directors on their failure to get in sums 4ue to the company. It is not disputed incidentally that directors are jointly and severally liable for breach of trust: In re Carnage Co-operative Supply Association. It was strongly urged by Sir Sultan Ahmed that as the respondent was not acting dishonestly he was not liable. I am pleased to be able to observe that the liquidator has withdrawn the allegations of dishonesty and fraud, indeed the only course open to him, as there was no evidence whatever of anything of the kind. But the absence of dishonesty and fraud does not assist the respondent as will be seen from the decision in Masonic General Life Assurance Co. v. Sharpe. There was at one time thought to be something in the nature of a conflict between the decision to which I have just referred and the decisions of VAUGHAN WILLIAMS, J., (as he then was) in two cases, In re New Mashonaland Exploration Co., and In re Kingston Cotton Mill Co. But in the former case it was held that the payment of money (the granting of a loan) was intra vires of the Company and that the directors ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he powers of the company, as the case before him (as Lord Justice Buckley observes in his book) was a case of an application right in law if the state of facts which he honestly believed to exist did in fact exist, but which turned out to be wrong. There is no question in this case of any misapprehension or lack of a correct appreciation of the true position on the part of the director or directors. Indeed the directors were in full possession of all the facts and it must be assumed that they knew the law. The position therefore in my Judgment is that the director is liable to repay the sum of GBP4625 or a part thereof as compensation for loss sustained by the company. Had the other directors been before me I should have been in a position to determine the question of the liability as regards the balance of GBP6000, expended for the purposes to which I have already referred in the earlier part of judgment. To what extent they were entitled to pay the directors fees and sums for the remuneration of the Secretary, etc., is a matter with which I am hardly able to deal on the evidence before me. It is true that in requesting to transfer GBP6300 it was clearly indicated by the London Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Sultan Ahmed agreed that this clause does not apply to the facts of this case. There are two other matters, one of limitation and the other the question whether relief should be granted to Mr. Subedar under section 281 of the Act. As regards the question of limitation Sultan Ahmed contended that Article 36 and not Article 120, Limitation Act, applied. This argument was not developed although in the course of the argument by the learned advocate on behalf of the liquidator it was contended that neither Articles 36, 115 nor 116 applied. The authorities were not analysed by the advocates, and there is a difference of opinion in India with regard to the matter. This question appears to be one of very considerable importance and it was for that reason primarily that I took time to consider my decision in the case as a whole In Govind Narayan v. Rangnath Gopal, the Court held that Article 120 applied. In 47 All. 669 (In the matter of Union Bank, Allahabad, Ltd.) it was also held that Article 120 applied. I prefer to follow the resoning in these cases than that adopted by the Lahore High Court in AIR 1923 Lah 58 (Bank of Multan Ltd. v. Hukum Chand) which was mentioned by Sir Sultan Ahm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion referable to the Registration Act or otherwise. In 54 Bom. 226 Sir AMBERSON MARTEN, C.J., took the view that "registered" within the meaning of Articles 115 and 116 was not confined to documents registered under the Registration Act, preferring the view expresed by SIR JOHN WALLIS in 42 Mad. 33 (Ripon Press and Sugar Mill Co., Bellary, Ltd. v. Venkatarama Chetty) to the view of the Full Bench of the same Court in 49 Mad. 468 (Venkata Gurumadha Ram Seshayya v. Tripura Sundari Cotton Press, Bezwada.) However, it is unnecessary for me in this case to decide whether the word "registered" is confined to registration under the Indian Registration Act, as I have already held in conformity with English decisions that the contract by which the directors are governed is a contract partly in writing and partly not in writing. Articles 115 and 116 deal with contracts exclusively in writing or not in writing. These articles therefore in my judgment did not apply. We are thrown back to the provisions of Article 120, Limitation Act, which gives a period of six years and in this case brings the application of the Liquidator well within time and obviates the necessity of a discussion of the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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