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TMI Blog1944 (2) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ficial Liquidator were well founded and consequently only allowed the firm to rank as a. creditor for the admitted sum of Rs 6 310-7-0. This appeal is from the judgment of the learned Judge. It will be convenient hereafter to refer to the V.K.R.S.T Firm as "the firm" and the Oriental Investment Trust, Limited as "the Company". The members of the joint, family were Kasi Viswanathan, his son Manikkam, his brother Narayanan, and Narayanan's son Somasundara. Narayanan died on the 16th January, 1939, Kasi Viswanathan died after the trial and the appeal has been preferred by his son as the manager of the family. The company was incorporated on the 9th September 1936, with an authorized capital of Rs. 25,00 000 divided into 25.000 shares of Rs. 100 each. The shares actually issued numbered 6068, and at the date of the winding up order only Rs. 25 per share had been paid by the subscribers. The principal promoters of the company were Kasi Viswanathan and P.L. A.V.A. Ramanathan Chetty who was then a local director of the Reserve bank of India. Kasi Viswanathan and ramanathan were appointed the managing directors, but from the inception of the company the management of its business was l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... os, 44, 47 and 52 of 1942 (these appeals are dealt with in a separate judgment) has it been denied that the business done was otherwise than that of a gambling nature. The only excuse put forward is that the directors considered chat they were entitled to do such business. At a meeting of the board of directors held on the 10th Aprils 1937, the following resolutions were passed: "(1)Resolved that Managing Director Mr. PL, V.A. Ramanathan Chettiar be and is hereby authorised to invest the moneys of the company in shares and securities and sell them when deemed necessary provided that shares and securities beyond the value of Rs. 1,00,000 (rupees one lakh) shall not be bought or sold except with the permission of any other Director present in Madras. (2)Resolved that the Managing Director Mr. PL. V.A. Ramanathan Chettiar is authorised to borrow money from Messrs. V.K.R.S.T. Firm as and when it is necessary and the amount borrowed by him till date is approved." The statutory report, made up to the 3rd April, 1937, was passed at this meeting and disclosed that heavy gambling had already been indulged in, It stated that Rs. 11,904-14 8 had been received as profits made in deali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he was to hand over the securities. They arrived if Bombay on the 22nd June, 1939, and then Ramanathan absconded, Although criminal proceedings were instituted against him he has so far evaded arrest. The short ground or which Boll, J., dismissed the firm's claim was that it was suing for moneys lent mind that it had not been proved that the company had received the moneys. He regarded the firm's books as well as the company's books as being altogether unreliable, because they had been written up under the direction of Ramanathan. In his judgment he refers to both sets of accounts as being "admittedly faked". The learned Judge must here have been under a misapprehension, at any rate so far as the firm's books were concerned. The relied on its own books and has relied on them here. The entries made in them were made on the instructions of Ramanathan, but this does not mean that the moneys were not taken by Ramanathan as loans to the company under the authority given to him by the company to borrow from the firm. It has not been disputed in this Court that with interest his borrowings amounted at the date of the liquidation to Rs. 1.36.274-1-2, the amount of the appellant's claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 39,500 in cash. Two days later he repaid to the firm Rs. 4,500 leaving a balance in his hands of Rs. 35,000. Admittedly Rs. 20,000 of this sum was used for the company. The Rs. 15,000 remaining was lent to one A.T.V. Subramaniarn Chettiar, who had an account with the company. The lender was the company, not Ramanathan. The directors had authorised Ramanathan to lend money to A.T.V. Subramaniam. The loan was made on the 9th November, 1937, and A.T.V. Subramanyam's account with the company was immediately debited with the amount. As Ramanathan, in lending the money was acting within the scope of his authority there is no escaping from the conclusion that the money was lent by the company. We hold that, the firm is, in any event, entitled to rank as a creditor in the sum of Rs 46 310-7 0, the total of the three sums of Rs 8,310-7-0, Rs. 25,000 and Rs 15,000. This brings us to the discussion of the question whether the firm is entitled to recover the whole of the Rs. 1,36,274-1-2. As we have already indicated, the directors were not aware of Ramanathan's misappropriation until the month of March, 1939. The learned Judge was under the impression that Kasi Viswanathan knew more tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the thing of which knowledge is predicated was a thing within the ordinary domain of the secretary's duties. But what if the knowledge of the director is the knowledge of a director who is himself Particeps criminis, that is, if the knowledge of an infringement of the right of the company is only brought home to the man who himself was the artificer of such infringement? Common sense suggests the answer, but authority is not wanting". Lord Dunedin then proceeded to quote from the judgment of Vaughan Williams, L.J., in In re Hampshire Land Co. [1896] 2 Ch. 743 , where Vaughan Williams, L.J. said : "If Wills had been guilty of a fraud, the personal knowledge of Wills of the fraud that he had committed upon the company would not have been knowledge of the society of the facts constituting that fraud; because common sense at once leads one to the conclusion that it would be impossible to infer that the duty, either of giving or receiving notice, will be fulfilled where the common agent is himself guilty of fraud. It seems to me that if you assume here that Wills was guilty of irregularity a breach of duty in respect of these transactions the same inference is to be drawn as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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