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TMI Blog1955 (11) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circumstances. One Sadagopal Naidu, the second defendant in both the suits, and his brother, Srinivasaga Naidu, the third defendant in O.S.No. 101 of 1951 and not a defendant in the other suit, were running some buses even early in 1945, having contracted loans from Subbiah Aiyar and purchased five buses. The loans thus contracted by the brothers with interest amounted to Rs. 65,240-10-4 on 17th August, 1945, as shown in Exhibit A. 1, the pass book relating to the debit and credit transactions opened by Subbiah Aiyar himself. On 17th August, 1945, both of them agreed to pay Subbiah Aiyar the said sum of Rs. 65,240-10-4, with interest thereon at 1 per cent. per month from that day. There was no stipulation for compound interest in that document, and it was only shown in the vaddi chittais, sent first to the brothers, and then to the company and defendant 2, where compound interest was added not only with yearly rests but at odd and irregular intervals whenever Subbiah Aiyar calculated the balance due. These brothers were also carrying on a forest coupe contract business, a toddy business, and a trade in groceries. On 14th December, 1945, the two brothers formed a private l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aga Naidu had gone out of the company, of which he was a director and a shareholder, Sadagopal took in his wife, Sitha-lakshmi Ammal, as director and shareholder in his place. He continued his transactions with Subbiah Aiyar. On 28th April, 1950, Subbiah Aiyar died, leaving behind his widow, Vengu Ammal, and seven daughters. On 18th June, 1950, the second defendant, the managing director of the first defendant company, signed in a settlement of accounts in the passbook, Exhibit A-7, acknowledging the balance of Rs. 1,76,989-14-11 as the principal amount due from him on that date. That has been treated in O.S. No. 131 of 1950 as a promissory note executed by him on behalf of the company and on behalf of himself. He also executed an agreement, Exhibit A-8, to Vengu Ammal, undertaking personal liability for the amount. According to him, this agreement was executed in favour of the estate of Subbiah Aiyar, though in the name of Vengu Ammal. He had also pledged his life insurance policy of Rs. 75,000 to Subbiah Aiyar as collateral security for the debt due to him. He undertook to pay Vengu Ammal Rs. 100 per day from the net income of the bus services till 1st March, 1951, towards the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show in his accounts enormous sums paid by the company to him towards the loans contracted by it, and praying for directing Parameswara Aiyar to render a true and correct account of the dealings between the plaintiff and Subbiah Aiyar and his estate from 14th December, 1945, to the date of suit, and to appoint a commissioner to scrutinise the accounts and to pass a decree for such amount as might be found payable to the plaintiff-company by Subbiah Aiyar's estate in the hands of the first defendant and for costs. It was alleged that, according to the accounts of the company, which were not produced, a sum of Rs. 2,41,190 was due to the company from Subbiah Aiyar, but that the plaintiff could not be sure about the exact amount and so was valuing the suit for purposes of jurisdiction and court fee at Rs. 5,250, adding that it was willing to pay any further court fee due on the amount actually found due to it on taking of accounts. There was an allegation that daily remittances aggregating to Rs. 1,60,125 had not been credited in Subbiah Aiyar's accounts towards the debts due by the company, and that interest amounting to Rs. 30,578-8-7 on the loans advanced to Sadagopal and Srinivas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubbiah Aiyar "accountable" in law to the plaintiff company, and if so, in what capacity? 3.Are the statements of account signed by the second defendant, not binding on the plaintiff company for all or any of the reasons mentioned in the plaint? 4.Is the suit liable to be stayed under section 10 of the Code of Civil Procedure? 5.What reliefs, if any, is the plaintiff entitled to? The evidence was recorded in common in O.S. No. 131 of 1950. After discussing the entire evidence, the learned Subordinate Judge found, on issue 1 in O.S. No. 131 of 1950, that the second defendant was personally Habile for the suit debt, as he had expressly put in his personal liability also, in addition to the company's liability, when signing in the pass books in token of the balance as found on settlement of accounts and had also executed the agreement, Ex. A. 8, wherein he had specifically undertaken personal liability, and had admitted that that agreement was executed in respect of debts due to Subbiah Aiyar's estate and not in favour of Vengu Ammal, his widow. On issue 2, he found that the plaintiff, Parameswara Aiyar, was entitled to sue even to enforce the terms of Ex. A. 8, because it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of plaint, as against the second defendant, Sadagopal, and directed him also to pay Rs. 6,439-7-3 the proportionate costs to the plaintiff. He ordered the first defendant company to pay the plaintiff, out of the aforesaid sum of Rs. 1,94,407-5-11, Rs. 1,76,708-5-11 with interest thereon at six per cent. per annum from 19th December, 1950, the date of plaint, till realisation, and also to pay the plaintiff Rs. 5,865-4-0 as proportionate costs out of the total proportionate costs of Rs. 6,439-7-3. He directed all the defendants to bear their own costs. The first defendant company has filed A. S. No. 340 of 1952, contesting the decree against it as unjustified and incorrect and praying to set it aside and to dismiss the suit as against the company. The second defendant, Sadagopal, has filed A. S. No. 357 of 1952, contending that the lower court went wrong in finding that he was personally liable for the debts he had contracted on behalf of the first defendant company, and contending further that even the amount of the decree against the company was not correct, and that, in any event, the interest charged by Subbiah Aiyar was usurious and unconscionable and that the lower court o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract loans on behalf of the company, as the memorandum and articles of association did not give them specifically the right to borrow moneys on behalf of the company. The argument is unsustainable. As Mr. Venkatasubramania Aiyar pointed out article 11 of the articles of association of the company gave the directors without prejudice to their general powers, the right to enter into, carry out, rescind or vary all financial arrangements with any banks, persons or corporations, for or in connection with the company's business or affairs, and pursuant to or in connection with such arrangements, deposit, pledge or hypothecate any property of the company or documents representing or relating to the same. Sub-clause ( b ) of article 12 gives the directors power, on behalf of the company to draw, accept, endorse and negotiate all such cheques, bills of exchange, promissory notes, hundies, drafts and Government and other securities as shall be necessary in or for carrying on the affairs of the company and to operate upon banks. Sub-clause ( c ) gives them power to invest and deal with the moneys of the company. Besides, article 1 says that the regulations in Table A of the First Schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders without a meeting." He cited Parker and Cooper Ltd. v. Reading [1926] 1 Ch, 975 where it has been held that a company is bound in a matter intra vires the company by the unanimous agreement of all its corporators, and that if all the individual corporators in fact assent to a transaction that is intra vires the company, though ultra vires the Board, it is not necessary that they should hold a meeting in one room or one place to express that assent, simultaneously. The earlier rulings in In re George Newman [1895] 1 Ch. 674 and In re Express Engineering Works [1920] 1 Ch. 466 relied on by Mr. Ramamurthi Aiyar were considered in the above ruling, and explained away. In other words, the ruling in Parker and Cooper Ltd. v. Reading [1926] 1 Ch. 975 is the law now in England and has been accepted by the High Courts in India also, the latest instance being the ruling of a Bench of this Court in The Transport Co. v. Tirunelveli Motor Bus Co. [1955] 2 M.L.J. 141. In the present case, the Balasaraswathi Company consisted only of two shareholders, viz., the two brothers, Sadagopal and Srinivasaga, at the time it borrowed the moneys from Subbiah Ai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans and so they must be presumed to have consulted together and agreed to that course of action and waived a formal meeting and a formal resolution would not apply and save the claim of the plaintiff for the excess over Rs. 99,000. We cannot agree. That will be going against the express ruling in Parker and Cooper s case ( supra ) which has been accepted as good law by courts in India and by the Privy Council and in acknowledged books of authority, like Halsbury's Laws of England and Palmer's Company Law. We fail to see any point in setting up the company as a metaphysical entity apart from all the shareholders. The object of article 73 in Table A of Schedule I of the Companies Act is to ensure the interest of shareholders, and not to ensure compliance with any such metaphysical requirements. Besides, as the lower court itself has pointed out, the excess over Rs. 99,000 will be binding on the company on two other principles, viz., that the loans were advanced by Subbiah Aiyar, a stranger to the company, who was entitled to assume that the internal management of the company was being done regularly by its directors and shareholders, and, secondly, because the amounts borr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as T.P.T.S.B.O.U. with five buses running in the town. These five buses were purchased by defendant 2 and then handed over to the company, Rs. 65,000 entered on 10th December, 1945, (a mistake for 17th August, 1945,) in Exhibit A-1 represented the price of these five cars....................As soon as the first defendant company was started it became the owner of the four buses already belonging to the two brothers, the T.P.T.S.B.O.U. buses, the diary farm buses and the Sivakasi Nadar buses. The value of all these buses is entered in the accounts of the first defendant company as the purchase price of the cars and credited Subbiah Aiyar with this amount." The Rs. 1,40,000, borrowed from Subbiah Aiyar on 14th December, 1945, represented the purchase price of the dairy farm buses. It is obvious that many companies take over the assets of some other existing business in order to begin operations at once, and the price of those assets, like buses, will naturally be shown in the company's accounts, and the company will be bound to pay the debts contracted for purchasing those buses etc . It was urged by Mr. Ramamurthi Aiyar that only Rs. 1,00,000 was paid for the dairy farm buses, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses, and that the balance decreed against Sadagopal was also admittedly borrowed by him, though it was proved that those two amounts, viz. , the toddy shop amount and the insurance amount, were not required for company purposes and so would not bind the company. It follows from the observations above that the lower court was right in dismissing O.S. No. 101 of 1951 filed by the company for accounts, as the evidence showed beyond all doubt that the company had no right to call upon Subbiah Aiyar to render accounts regarding his transactions with the company, and that the lower court's decree against the company did not comprise a pie more than what had been borrowed by Sadagopal on behalf of the company and what was proved to have been spent by him for company purposes and that Subbiah Aiyar, Vengu Ammal and Parameswara Aiyar had not failed to bring to account a pie of what had been paid towards the debts contracted. We, therefore, dismiss A.S. No. 341 of 1952 with the costs of Parameswara Aiyar. The other parties to this appeal will bear their own costs. The contention of Mr. Raghavarama Sastri was that the lower court went wrong in holding the second defendant Sadagopal pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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