9911796707
TMI Blog1943 (2) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... The Sugar and General Investment Trust" in 1936. There was in Travancore a company known as "Travancore Sugars Limited" which operated a sugar factory at Thackalay in Travancore State. This company was in fact controlled by the Travancore Government, which owned shares to the value of Rs. 2,50,000 out of a total share capital of Rs. 4,50,000 and had advanced a loan of Rs. 1,50,000 to the company on certain conditions. The company was not a success, and in 1933 for a few months a Mr. Crowther worked the factory on a contract basis. It was at this juncture that accused 2, N.S.T. Chari came on the scene. He purchased Mr. Crowther's interest and entered into an agreement with the company under which he was granted a lease of the factory, or what might perhaps be better described as a licence to work it as a contractor, for a period of 15 years. Under the terms of the agreement he was himself to find working capital up to a maximum of Rs. 2 lakus and was to receive a salary of Rs. 1,000 a month and a percentage of profits, if any. The agreement contained two provisions which are of great importance in this case. Under the first provision accused 2 was prohibited from sub-letting or assi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctory had sustained losses in each of the years 1933, 1934 and 1935. It was to acquire the rights and interests of the accused in the Travancore Sugars Ltd., and the other three concerns that the Sugar and General Investment Trust was formed. This company was incorporated on 23rd December 1935 and the prospectus was issued on 6th March 1936. The declaration of commencement of business was made on the same date. On 9th November 1936 a petition for winding up the company was presented, and on 23rd July 1937 an order directing that the company be wound up was passed. The first charge may now be considered. In substance it is that the accused conspired to cheat the public by the issue of the prospectus, Ex. D. In extensor, the charge is: "That you, M.K. Srnnvasan and N.S.T. Chari were at Madras between November 1935 and October 1936, parties to a criminal conspiracy with the object of committing certain illegal acts, viz., cheating the public by making representations which you knew or had reason to believe to be false and by suppressing material facts in the promotion of the company and called the sugar and General Investment Trust and thereby inducing the public to subscribe snar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... administration reports and speeches of the Financial Secretary relating to Travancore Sugars Ltd.; and then a review is made of the prospects of profits to be earned from the acquisition of the interests of the accused in the four concerns, Travancore Sugars Ltd., the factory at Eramalikara, the Lakshmi Sugar Mills and the South Indian Match Factory. An estimate is made of the profits that can be expected from each of the concerns on the basis of raw materials available, output, prices and working expenses, and it is stated that in the case of Travancore Sugars Ltd., a profit of Rs. 94,653-5-4 per annum can be anticipated, in the cases of Eramahkara Factory a profit of Rs. 55,000, in the case of the Lakshmi Sugar Mills a profit of Rs. 56,60 and in the case of the South Indian Match Factory a profit of about Rs. 40,000. Nothing is said about the past history of these concerns or their financial position at the date of the incorporation of the company or the issue of the prospectus. Next, under the head "Contracts" a summary is given of the agreements winch would be entered into by the company as provided by Art. 3 of the Articles of Association. These agreements are: "(1) An agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract entered into with the Travancore Sugars Ltd., would be cancelled by the sub-letting or assignment of their interests without the consent of that company, and (3) failure to indicate that the contractors the accused were in arrears to the Travancore Government in respect of the annual instalments and interest payable by them so that for this reason also the contract could be cancelled. It will be convenient here to consider the law relating to the charge of conspiracy. Mr. Braddel contends that the Chief Presidency Magistrate has entirely misdirected himself, but he has not been able to show in what the misdirection consists. In para. 8 of his judgment the Chief Presidency Magistrate sets out the relevant provisions of the Penal Code and then considers some well-known English authorities. At the end of the paragraph he deduces certain principles. They are, (1) that in order to make a prospectus fraudulent it is not necessary that there should be false representation in it; even if every word is true, the suppression of material facts will render it fraudulent. To judge its effect, it should be read as a whole; (2) it is not enough if the prospectus refers to the contracts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons agree to issue a document and by the concealment of facts to deceive the public and fraudulently or dishonestly induce them to deliver property, the offence of conspiracy to do or cause to be done an illegal act, namely, cheating, is completed. The essential ingredients are deception and an intention to defraud, and these must either be proved directly or inferred from the document itself and the surrounding circumstances. Where, as in this case and in most cases, the necessary intention has to be inferred from the nature of the document itself and the circumstances, the facts and circumstances must be such as to exclude any reasonable hypothesis of good faith. Mr. Braddel has referred me to a number of English authorities which are concerned mainly with the conditions that must be fulfilled in order that an action for misrepresentation may be maintained: Cases such as Kent v. Freehold Land Brickmaking Co [1867] 4 E.Q. 588 and New Somberero Phosphate Co. v. Erlanger [1877] 5Ch. D. 73 where it was held that shareholders were put on enquiry by a reference to the contracts and an invitation to inspect them, in my opinion, afford little guidance and must be regarded a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to in the prospectus) and would have seen that it provided that: "No assignment or sub-letting if anv by the contractor of his rights under this agreement shall be binding on the company unless the name be made with the previous consent in writing of the company, and it is distinctly agreed that the company shall be entitled in its absolute and sole discetion to refuse such consent without any reasons whatever being assigned for such refusal. In case any assignment or sub-letting is made by the contractor without the permission of the company as required above, this agreement shall ibso facto be void." If he went on then to ascertain how, in view of this clause, the agreement between the accused and the company had been drawn, he would have been still more startled to find that the agreement in the did not assign or transfer the rights and interests of the accused to the company at all. He would have found that under clauses (3) and (4) there was to be no assignment of the rights and interests of the accused under the agreement with Travancore Sugars Ltd., unless the Travancore Sua its Ltd, consented to the assignment; that the accused had not and apparently did not intend to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust does not amount to a transfer or assignment of the accused's rights and interests so that the agreement between the accused and Sugars Ltd., was notcancelled by virtue of this agreement. This I think, is true, but it does not help the accused. Either there was an assignment of the accused's rights and interests, and that is the impression which, in my opinion, the prospectus gives, in which case the agreement with Sugars Ltd., became ipso facto cancelled or, there was no assignment, which is the effect of the agreement (Ex. C-1) but not of the prospectus, in which case the Investment Trust has not been given that which was the principal object of the formation of the company. It is argued further that the prospectus does make a sufficient disclosure of the position with regard to the assignment of the rights and interests of the accused under the agreement between them and the Travancore Sugars Ltd., and their position vis-a-vis the Sugars Ltd., in view of the use of the words "such interests as are capable of being; lawfully aligned," the specific reference to clause ( v ) of the principal agreement of 1st June 1933, and the invitation to inspect. But why should reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alikara Factory was worked in connection with the Thackalay Factory and was intended to feed it; and in the case of the other two companies, the Investment Trust Company had only acquired options to acquire the interests of the accused. It may, however, be mentioned that in so far as a prospective investor was influenced to anv degree to invest his money in the Trust by the fact that the company had acquired an option to takeover the accused's interests in the South Indian Match Factory, he was misled. The accused had no interests in the South Indian Match Factory to transfer. They were merely in negotiation with the directors of the factory. That the failure to disclose in the prospectus the provision relating to the cancellation of the contract in the event of failure to pay the instalments and interest, and that the accused were in arrears with there payments were not purely academic questions would seem to be proved by the fact that three months after the company commenced business, the agreement was cancelled by the Travancore Sugars Ltd., on the ground that default had been made in the payments. The argument advanced on behalf of the accused is that there was no necessity f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sful enterprises with which they had been connected in Travancore since 1933. In my opinion, both accused have been rightly convicted of an offence under Section 120B, Penal Code, and accused 1 has been rightly convicted of the offence under Section 409 of the Code. The sentences cannot be said to be unduly severe. Accused 2 was separately represented and it was argued for him that he was merely an industrial chemist, that accused 1 attended to the business side of the enterprise, and that in his case no intention to deceive and defraud by the issue of the prospectus was proved or can be presumed. The prospectus, however, was fraudulent and accused 2 was a party to it. It was he who first executed the agreement with the Travancore Sugars Ltd., and it was on his initiative that a first draft of the clause relating to the prohibition against assignment was modified. He has been connected with business enterprise all his life, and there is no evidence that he was a scientist pure and simple, who left all business matters to accused 1. I am not therefore able to accept the contention advanced on his behalf. The learned Chief Presidency Magistrate has written a careful and exhaustive ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
