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TMI Blog1960 (4) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... company was in a very flourishing and prosperous condition and that it had immense promise for the future. In the beginning of October, 1948, they sent out their agent, defendant No. 11, to Jabalpur, armed with the booklet aforesaid to sell to the public the shares of the company. On or about October 2, 1948, the said agent, defendant No. 11, at Jabalpur, made to the plaintiff No. I the following representations: ( i )that the company was a very flourishing concern and that it had from its very inception declared very high dividends; ( ii )that the company had declared dividends on deferred shares at 100% in 1946, and at 60% in 1947, and had paid dividends at 7 % on preference shares every year up to date ; ( iii )that the shares of the company were ordinarily not available in the market owing to their high demand but that the company had purchased back a large number of deferred shares, at Rs. 3-8-0 per share, the face value of which was Re. I, from persons who had migrated to Pakistan and that defendant No. 2, the chairman, had instructed that these should be offered to medical men in the upcountry so that the sale of the company's products may be pushed up; and ( iv )th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to refund to them the original amount of Rs. 12,502 obtained by them from plaintiff No. 1 by fraud and that they were further liable to pay to the plaintiffs interest by way of damages at Re. 1% per mensem from May 15, 1950, to the date of suit amounting to Rs. 4,625 and a further sum of Rs. 30 being the costs of a notice served by the plaintiffs on them. They thus claimed from the defendants Nos. I to II jointly and severally Rs. 17,157. The defendants Nos. 2 to 11 did not contest the suit and remained ex parte . The defendant No. 1 alone contested the suit and filed his written statement denying the claim of the plaintiffs alleging, inter alia , that all the adverse allegations of the plaint were false except that the company had mortgaged its assets for Rs. 15,000. He further contended that the company was a necessary party to the suit; that the company had gone into liquidation with defendant No. 14 as its liquidator and hence the suit was barred under section 171 of the Indian Companies Act, 1913. He also alleged that the suit was barred by limitation. The trial court decreed the suit, inter alia , holding ( a )that the financial condition of the company in the beg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false, has obviously no such honest belief. Thirdly, if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made." The principle, thus stated, applied to "actual" fraud as opposed to constructive fraud, and, in the instant case, we are concerned with actual fraud, a conscious misrepresentation, as understood in Derry s case ( supra ) , as we shall presently show. The evidence of Bhave (P. W. 1) is that the defendant No. 11, Chakravarti, came to him and was introduced to him as the chief organiser and the agent of the National Nutriments Ltd., that the said Chakravarti gave him a very flourishing account of the company, that, amongst other things, he represented to him that in 1946, the company had given d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k on behalf of any shareholder for the sale of his shares on commission basis. There is also ample evidence to show that the financial condition of the company had been progressively deteriorating and that it was in a far from flourishing condition in 1948 when representations were made to the plaintiffs at Jabalpur regarding the prosperous condition of the company. In answer to interrogatories, the mukhtyar's affidavit discloses that the company declared and paid the following dividends in 1943, 1944 and 1945: Ordinary shares Pref. shares Deferred shares ( a ) Period ending March, 1943 ... 20% 7 % 100% ( b )Period ending March, 1944 ... 10% 7 % 25% ( c )Period ending March, 1945 ... 6% 7 % nil. Preference shares had fixed dividend of 7 % every year. For the period thereafter, Banerjee (D. W. 1) in paragraph 12 of his deposition states: "The financial condition of our company had already become bad from the month of March, 1945, and it had stopped giving dividends from the same time. After that the company's condition began ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have disclosed that the dividends on shares other than preference which carried a fixed rate of interest at 7 % per annum had been progressively becoming less and less since 1943 and that no dividend had been paid since 1945 and if it was intended to use that document (exhibit P. 1) for 1948, the person using it was bound to further disclose the fact that the assets of the company had been mortgaged in the beginning of 1948 for Rs. 15,000. In our opinion, the instant case was thus a case of suppressio veri suggestio falsi. A particular statement verbally accurate may be a false statement in effect as if the fact had been mis-stated altogether ( Peek v. Gurney) [1873] LR HL 377. As observed by Lord Halsbury L.C. in Aaron s Reefs v. Twiss [1896] AC 273,281 , if by a number of statements you intentionally give a false impression and induce a person to act upon it, it is not the less false although if one takes each statement by itself there may be a difficulty in showing that any specific statement is untrue. Equally, a misrepresentation may be implied from a party's conduct; if one conducts himself in a particular way with the object of fraudulently inducing another to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or did not believe to be true. Said Lord Cairns in Reese River Silver Mining Co, v. Smith [1869] LR 4 HL 64, 79: " ..I apprehend it to be the rule of law, that if persons take upon themselves to make assertions as to which they are ignorant whether they are true or untrue, they must, in a civil point of view, be held as responsible as if they had asserted that which they knew to be untrue." In R. v. Mawby [1796] 6 TR 619,637; 101 ER 736,745, Lawrence J. said: "Where a man swears to a particular fact without knowing at the time whether the fact be true or false, it is as much perjury as if he knew the fact to be false." At any rate, therefore, under the circumstances of the case, there can be no doubt that the agent, defendant No. 11, made the representation recklessly not caring whether it was true or false. We also note that he has not filed an appeal against the decree against him and consequently we need not pursue the matter further. As regards the directors, there is ample evidence of the fact that they were aware of the deteriorating financial position of the company. D. W. No. 1, Banerjee, in his evidence says: "One factory was being constructed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intended to be acted on by any persons who are likely to have dealings with the company, are sufficiently addressed to the persons so dealing, to entitle them to sue the persons issuing the reports if they are false. Thus, where directors of a bank made a false report to the shareholders as to the financial position of the bank and copies of the report could be bought by any persons who applied for them, whether shareholders or not, it was held that the directors were liable in damages to a member of the public who, having procured a copy of the report, upon the faith of it bought shares in the bank which shortly afterwards stopped payment": ( Clark Lindsell on Torts, nth edition, paragraph 1205). "Where false statements are incorporated in a document such as a deed, bill of lading or warehouse receipt, the person making such fraudulent misrepresentations is held to have intended such action by any person who, in the ordinary course of business, relies on the truth of such statements. The rule was well stated in a federal case: 'The true test is as to whether the defendants, with full knowledge of the facts, procured the bills of lading in question knowing the statements contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not unreasonable for the trial court to infer that this defendant No. I-appellant was primarily responsible for sending Chakravarti to Jabalpur so that he or his daughter may be able to dispose of the unyielding and unprofitable shares held by him or his daughter at as great a profit as possible before a-they became mere scraps of paper. The defendant No. I-appellant, therefore, can in no case escape liability for the damage suffered by the plaintiffs because of the fraud practised on them by the directors through the agent. The directors Nos. 1 to 10 would also be liable on the principal's vicarious liability for the tort of his agent. Where an agent makes a false statement in the course of his employment, the principal will be liable under the normal rules of vicarious responsibility for the torts of his agent (see Lloyd v. Grace Smith Co. [1912] AC 716,732-38 ). But here the representations were false both to the knowledge of the principal, viz ., the directors and the agent, viz ., defendant No. 11, Chakravarti, and were made in the course of his employment as agent and consequently, the directors and the agent all are liable as joint tortfeasors. In any case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application premium, admission fee and first call money) and Rs. 1,200 (for 2nd to 4th call moneys respectively). Exhibit P. 13 is their share certificate No. 565 dated November 13, 1948. The shares are numbered 60791 to 60890. Various remedies are available to a person who has been the victim of fraud, deceit or other unconscionable conduct. Rescission, restitution, damages or constructive trust are some of the usual remedies for fraudulent misrepresentation. A plaintiff may sue to rescind a contract to which his assent was procured by fraud or deceit in an action for breach of such contract or for specific performance (Ramaswamy Iyer, Law of Torts, fifth edition, page 353). But the plaintiff in all cases of rescission must do equity which means that he must return any consideration which he may have received in the transaction (Harper and James, volume I, page 603). If the suit were for rescission of the contract allotting shares to the plaintiffs, the company would be a necessary party, but the plaintiffs have purposely not made it (the company) a party defendant nor have they claimed a rescission in terms. What they claim is a relief in torts, e.g. , damages suffered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bonds at a date subsequent to the transaction when the bonds were practically worthless. In Twycross v. Grant [1877] LR 2 CPD 469,544, Cockburn C.J., discussing the principle on which damages can be awarded in an action for deceit, said: "If a man is induced by misrepresentation to buy an article and while it is still in his possession, it becomes destroyed or damaged, he can only recover the difference between the value as represented and the real value at the time he bought. He cannot add to it any further deterioration which has arisen from some other supervening cause. If a man buys a horse, as a racehorse, on the false representation that it has won some great race, while in reality it is a horse of very speed, and he pays ten or twenty times as much as the horse is worth, and after the buyer has got the animal home it dies of some latent disease inherent in its system at the time he bought it, he may claim the entire price he gave; the horse was by reason of the latent mischief worthless when he bought; but if it catches some disease and dies, the buyer cannot claim the entire value of the horse, which he is no longer in a condition to restore, but only the differe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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