9911796707
TMI Blog1937 (8) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... rranged that he should be appointed legal adviser to the company and the "advisory director". A prospectus was prepared, but fortunately there was no general application made to the public to subscribe shares. There were eight other directors, who were respondents 1 to 8. Two of them, respondents 3 and 5, (B. Gulabchand Sowcar and M.L. Ranganayakulu) were not served and they took no part in the proceedings. The fourth respondent A. Madhava Rao, who was the chairman of the company, and Nair absconded before the proceedings commenced. The Official Liquidators sought to make all the respondents, except respondents 3 and 5, liable under S. 235 of the Indian Companies Act, 1913, for ( i ) a sum of Rs. 4,988-7-2, which has been misappropriated by Nair, and ( ii ) a sum of Rs. 6,331-9-3, representing liabilities incurred by the company from the date it started business until the date it closed its doors. The certificate permitting business to be started was issued on the 4th September, 1933, and business was actually commenced on the 7th of that month. The bank's doors were closed on the 16th February, 1934; a petition for winding up was presented on the 5th March of that year and on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inserted by Nair in the local press on the 21st June and 15th July, 1933, calling for applications for posts on the staff of the company. It was intimated that the successful candidates would be required to deposit security for the proper performance of their duties. Applications were received in the course of July and August and a number of appointments was made, the persons appointed furnishing security in the aggregate sum of Rs. 10,720.. I should mention that article 63 of the articles of association provided that the chairman should have the power of appointing, promoting, reducing, suspending and removing all officers of the bank, subject to the approval of the board of directors, and should have the power to fix all remunerations, salaries, and wages to be paid by the company. Subscriptions were received for only sixty-five shares. The subscriptions by the respondents were as follows: Respondent No. No. of shares. 1 5 2 5 3 20 4 10 5 5 6 5 7 5 8 5 Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it has this effect. The duties of directors and what is meant by wilful negligence were dealt with at length by Romer, J., in the case of City Equitable Fire Insurance Co. Ltd. The learned judge who discussed the authorities there pointed out that in order to ascertain the duties that a person appointed to the board of an established company undertakes to perform, it is necessary to consider not only the nature of the company's business, but also the manner in which the work of the company is in fact distributed between the directors and the other officials of the, company, provided always that this distribution is a reasonable one in the circumstances, and is not inconsistent with any express provisions of the articles of association. In discharging the duties of his position thus ascertained a director must, of course, act honestly; and he must also exercise some degree of both skill and diligence. The learned Judge however pointed out that (1) a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience; (2) he is not bound to give continuous attention to the affairs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h what was said by Sir George Jessel in Hallmark's Case, and by Chitty, J., in In re Denham Co. that directors are not bound to examine entries in the company's books. It was the duty of the general manager and (possibly) of the chairman to go carefully through the returns from the branches, and to bring before the board any matter requiring their consideration ; but the respondent was not, in my opinion, guilty of negligence in not examining them for himself, notwithstanding that they were laid on the table of the board for reference." Now what is the position here ? As I have pointed out, the matter of the appointment of the staff was in the hands of the chairman. It is not suggested that respondents 1 and 2 had any reason whatsoever to suspect the integrity of the chairman. It is also not suggested, apart from his insolvency, that they had any reason to suspect the integrity of Nair. It is true that Nair was an undischarged insolvent, but insolvency does not necessarily mean that a man is a dishonest man. There is here an entire absence of anything which would point the finger of suspicion to either the chairman or to Nair in the matter of these appointments. There was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed form, that these conditions have been complied with. In this case the minimum subscription had been subscribed, but the amounts due on them by the directors had not all been paid and the certificate permitting the company to commence business had been obtained as the result of a false declaration made by Nair. The learned Judge found that all the respondents knew of the obtaining of this certificate and that they were fully aware that the company had started business on the 7th September, 1933. They therefore all wilfully permitted the company to carry on business on the strength of a certificate obtained by a false declaration. We have no doubt that the respondents 2, 6 and 7 had knowledge of the obtaining of the certificate and of the fact that business commenced on the 7th September, 1933. With regard to the first respondent it is said that he was actually in Madras only on the 26th, 27th and 28th of July and between the 13th and 18th of August. But it is clear on his own evidence that he returned to Madras on the 28th September. We have no doubt that he was fully aware by that date, if not before, that the certificate, had been obtained and that business was being carried ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
