9911796707
TMI Blog1958 (5) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... bruary, 1930 but also certain facts which came into existence after that date, on the basis of which the petitioners wanted to add new grounds for seeking the winding up order. The amendment application was allowed only to the extent that it related to incidents before the 22nd of February, 1950; the rest of the amendment application for adding grounds which had come into existence after that date was rejected. In pursuance of this rejection, the petitioners moved the second petition on the 23rd of February, 1951 and based their request for winding up order on the ground which had come into existence subsequent to the 22nd of February, 1950. Since the two petitions were filed by the same petitioners and were directed against the same company, the learned Company Judge recorded evidence in only one proceeding and decided both the petitions on the basis of that evidence by one single judgment. In the circumstances it is convenient for us also to deal both the appeals in this one single judgment. 2. The company, which the petitioners desired should be wound up, is known as the Grain Chamber Limited Muzaifarnagar. The company was formed in the year 1931 with its share capital of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... independent contracts, viz., a contract of sale by A to the company and another contract of sale by the company to B. There remains no longer a privity of contract between A and B. On the other hand, the company deals with A as principal to principal and similarly with B .as principal to principal. The Company buys from A and sells to B. From both of them the company receives a deposit of rupee one per maund as Sai and further deposit of annas eight per maund as chook. The price at which delivery shall be received and given is fixed. If there is a rise in the price, the company will call upon A to deposit further Chook so as to cover the difference in price. If A makes the deposit, the contrnct continues to stand. B will be entitled to withdraw from the company the profits which he is thus managing consequent on the rise in price. If A fails to make the deposit, the company has a right to enter into a reverse transaction by finding a purchaser according to the current rate of the day and thus to square up A's transaction of sale. But the company's liability to B to pay the profits consequent on the rise in price still remains. If A becomes insolvent or, for any other reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to remain as the member of the company who is found not to be doing any transaction or business through the company at Muzaffarnagar for continually six months. In such circumstances the company will give him a week's registered notice in writing asking thereby, why his name should not be struck off from the membership of the company and his share be put to sale. Rule 46(a) provides:-- Every member of the company who is owner of at least ten shares of the company in his own name or in the name of the firm of whom he is a proprietor or partner can be elected as a director of the company. Rule 47 Clause (b) runs as follows:-- Subject to as herein otherwise provided or to the terms of any subsisting agreement, the office of the Directors shall be vacated (a) ..... (b) if he is adjudged an insolvent or makes any agreement or composition with his creditors. If the cover money for transactions due from him is not paid in the office of the Company within the fixed time. It was under these conditions laid down in the Articles of Association that the company continued to function from 1931 onwards and even after the Companies Act had been amended in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the largest quantity of Gur was sold. In default of delivery, the buyer was also entitled to a penalty of four annas per maund. When fixing the rate for settlement, the committee had to keep in mind the act of any party responsible for illegal meddling in the rates. The rules also laid down that the Chamber was entitled to six annas per bijak which consisted of four annas for brokerage, one anna commission, one pice for Gaoshala, one pice for Vedic Purti Pathshala and two pice for Grain Chamber School, In addition an amount of annas four per bijak was to be charged as sales tax. Then there were detailed rules prescribing the manner in which weighment was to be carried out in case of delivery. In these petitions, it has been the admitted case of both the parties that the scheme laid down by this resolution or other schemes similar to this scheme, which had been worked under other resolutions, all contemplated actual delivery and that the transactions in future, which were to be entered into with the company, were not of wagering nature. After this resolution had been passed, members of the company started entering into transactions in future under it. 6. Seth Mohan Lal was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsi Dass, Niadar Mal Kirpa Ram and Hardwari Lal Amba Prasad. He based his case in the appeals solely on the bijaks which were in the name of Mohan Lal and Co. and those which had been held by the learned Company Judge to belong to Mohan Lal and Co. while they stood in the books in the name of Ram Swarup Shadi Ram. On behalf of the respondents, the finding of the learned Company Judge that the transactions in respect of 1,041 bijaks standing in the name of Ram Swarup Shadi Ram actually belonged to the petitioners was challenged during the course of hearing of the appeals. 7. In January, 1950, it appears that there were very marked fluctuations in the price of Gur and the price continued to rise very high. There arose a feeling in the market that it was necessary to take some steps to stabilize the price which could only be done by fixing highest limit of loss which the seller would suffer, in case the price kept on rising. With this end in view, the Directors in a meeting held on the 7th of January, 1950, passed a resolution fixing ₹ 17/8/ as the ceiling price beyond which the company would not accept settlements of any of the transactions in futures. The resolution runs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation No. SV-101 (II)/49 amending the Sugar (Futures and Options) Prohibition Order, 1949 by adding Gur to that order and making certain other amendments. It is the common case of the parties that the result of the amendment of the Sugar (Futures and Options) Prohibition Order, 1949 by adding Gur in that order was that all future transactions in futures or options in Gur were prohibited so that after that date no transactions either in futures or in options in Gur could be entered into by anyone. There is, however, a dispute as to whether this Notification also rendered void all outstanding transactions in futures in Gur which had not yet matured and which were yet to be settled after that date. The contention on behalf of the petitioners is that the result of the amendment of the Sugar (Futures and Options) Prohibition Order 1940 by the Notification of 15th February, 1950 mentioned above introducing Gur in that order, was that even the outstanding transactions in futures in Gur all-became void; whereas the case taken up on behalf of the company is that this Notification did not, in any way, affect the outstanding transactions which had been entered into earlier and which could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding contracts at the rate prevailing on 14-2-1950. It was also alleged that, immediately after the decision of the Central Government came to the knowledge of the management of the company, the company suspended all business and the Chamber remained closed for three days. Some of the Directors of the company hurriedly assembled on 15-2-1950, and with a view to defraud the company and its members of large amounts lying in trust with them and with the fraudulent object of misappropriating such amounts for their own benefit or for the benefit of their firms, relatives, friends and associates, issued a large number of cheques. It was 'also pleaded that when Mohan Lal proceeded to Muzaffarnagar on the morning of 15th February, 1950, he immediately rushed to the office of the company and found the manager and a number of Directors assembled there. He warned them that the Notification which was already known to them made ail future contracts in Gur void and that his firm was entitled to the refund of all amounts deposited as Sai and Chook. The precise time or occasion Mohan Lal went and had this talk was not indicated in the petition, but in the course of his evidence Mohan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argovind Lal. When they met Mohan Lal petitioner, Mohan Lal informed them of all the events which had occurred on the 15th of Feb., 1950, whereupon Banarsi Das and Har Govind Lal went to the office of the Chamber. There they found Trilok Chand in the office. Banarsi Das enquired from Trilok Chand why he was distributing the money when he was informed that the Directors had passed a resolution and he was distributing the money in pursuance of it. According to Banarsi Das and Har Govind Lal, the register containing the resolution was shown to them by the manager Trilok Chand. The contents of the resolution which were recorded in the minute book, have been the subject of great controversy between the parties. On behalf of the petitioners a case has been set up that tue resolution, as it found place in the minute book when it was subsequently seized by the provisional liquidator appointed by this Court in connection with the petition dated 22nd of February, 1950, was different in three respect from the resolution as it was found recorded when Banarsi Das and Har Govind Lal saw it on the 16th of February, 1950. The controversy has arisen principally because the case taken up on be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the brokers to them. Further, in their books of account the company showed settlement of transactions relating to Phagun Sudi 15 Sambat 2,006 including the transactions entered into by the petitioners and the transactions outstanding in the name of the firm Ram Swarup Shadi Rao as well as the other four firms, whose names have been mentioned above. These entries were made sometime between 15th and 18th February, 1950, Thereafter, the petitioners came to this Court and presented their first petition for winding up of the company on 22nd of February, 1950. In the second petition filed on 23rd of February 1951, the allegation is that by sending the tele gram dated the 16th of February, 1950 and by making entries of settlement of transactions in their books of account, the company had indicated its refusal to perform the contracts which had been entered into between the company and the petitioners and further by paying out large sums of money amounting to ₹ 30,00,000/-, the company had disabled itself from performing those contracts. Consequently, after filing the first petition on the 22nd of February, 1950, a letter was sent on, behalf of Mohan Lal and Co. on 23r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfidence in the directors and the management; (x) the directors have materially altered the resolution which was passed on 15-2-1950 and have substituted a new resolution (which was never passed) in place of the one actually passed. 5. Whether the business of forward contracts in silver was ultra vires the company? If so, does that furnish a just and equitable ground to wind up the company? 6. Whether the directors settled contracts of Phagun 2006 on 15-2-1950 otherwise than at the request of the parties concerned? If so, did their act furnish a just and equitable ground for winding up the company? 7. Was there a valid transfer of the rights of Messrs. Rain Swarup Shadi Ram in favour of the petitioners? If so, did the company act fraudulently in settling the claim with Messrs. Ram Swarup Shadi Ram instead of with the petitioner. Does that amount to a just and equitable ground for winding up the company? 8. Whether some or all of the directors had, in the eye of law, vacated office before 15-2-1950? ,If so, what was its effect? 9. Whether the petitioners arc, in their capacity as contributories, estopped from raising the preceding issue? 8. Besides the points o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion dated 15-2-1950, the company had passed a resolution for settlement of all outstanding transaction in futures and, in pursuance of that resolution, had actually settled transactions with almost all the buyers in Sugar, who hod entered into transactions in futures for Phagun Sudi 15 Sambat 2006. As a result of this settlement, very large sums of money were paid out by the company to those buyers. As has been mentioned earlier, the case of the petitioners was that the amount paid was somewhere in the region of rupees thirty lacs. On behalf of the petitioners it was admitted that the payments, which were made, were, in the region of rupees thirteen lacs. The company had a paid up capital of below rupees one lac. Near about the date 15-2-1950, the assets in the hands of the company consisted of some immovable property, deposits in banks and cash, and these included very large sums which had been received as Sai and Chook from the various members of the company, who had entered into contracts with the company. The sum received as Sai and Chook deposits with the company, amounted to at least more than rupees twelve lacs. If the result of the Notification of 15-2-1950, was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter the case went back to the learned single Judge, who was dealing with company cases, and then further proceedings were taken on the petition for winding up order. Naturally, when the petition came up for hearing before the learned single Judge subsequently the learned single Judge did not enter into this question again and accepted the findings given by the Division Bench. 9. In these appeals it has been contended on behalf of the appellants that the decision of that Division Bench was incorrect and should be set aside by us. On behalf of the respondents a preliminary objection was taken that, the decision on the point being by a Division Bench, it has to be treated as a decision of two learned Judges of this Court from which an appeal cannot be entertained by any other Bench of this Court so that we are not competent to go into this question in these appeals. It was urged that our jurisdiction in appeal was confined to consideration of only those questions which had been decided by a single Judge of this Court. On behalf of the appellants the reply was that, even though this particular point may have been decided by a Division Bench, that decision is open to challen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Courts. This principle is quite separate and distinct from the principle that, if the court does not lose seisin of the case and merely makes an order of remand under Order 41, Rule 25, of the Code of Civil Procedure, the Court retains competence to re-examine the points decided by it in the order by which an issue or issues may have been remitted for findings under Order 41, Rule 25 of the Code of Civil Procedure. In the latter case, even though the case goes on remand to the lower Courts for a finding on certain issues, the High Court never loses seisin of the case and the original appeal pending before the High Court continues to remain pending. When the finding from the lower Courts is received, the jurisdiction, which the High Court exercises, is in continuation of the previous jurisdiction which became vested in the High Court, as a result of the appeal having originally been filed in tha High Court. In the case of a remand under Order 41, Rule 23, Civil Procedure Code, on the other hand, once the order of remand is made by the High Court, the appeal before the High Court is finally concluded so far as the High Court is concerned and, when the case comes up again, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the single Judge by which the winding up petition was finally disposed of. The preliminary objection raised by learned counsel for the respondents does not thus find support from the decision reported in the case of 19 All LJ 139: (AIR 1921 All 276) cited above. We have, however, considered it unnecessary in this case to give a final decision on this preliminary objection raised by learned counsel because, in our view, whether we hold that we have jurisdiction to rehear this question or not to rehear it, the result is the same. If the decision of the Division Bench be held to have become final and to be a decision which we, in these appeals, are not competent to re-examine, then for purposes of these appeals that decision must be accepted and the appeals decided on the basis that that decision is correct. On the other hand, even if we are competent to re-examine the decision given by that Bench on the basis that it is a part of the decision of the winding up petition by the single Judge, we consider that on merits there is no reason at all to differ from the view taken by the Division Bench. We may say, with respect, that we entirely agree with the view which was taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered into before the appointee day or remaining to be performed wholly or in part void. What was contended by learned counsel was that the effect of the language used in Sub-clause (a) of clause (3) was to make all such outstanding transactions in futures in gur void. The direction laid down by the Sub-clause is divisible into two parts. There is first the direction which has the effect of prohibiting all persons from entering into any futures in sugar or gur after the appointed day save with the permission of the Central Government or of an officer authorised by the Central Government in this behalf. The second part of the direction prohibits any payment or receipt of or any agreement to pay or receive any margins in connection with any such futures . The controversy has arisen because of the use of the word 'such' before the word 'future' in the second part of the directive contained in the Sub-clause. The contention of the learned counsel for the appellants was that the expression 'such futures' means futures in gur or sugar referred to in the first part of the directive and if this contention be accepted, it was urged, that the result of the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring Co. v. Marrable, 1931-2 KB 297, Borridge J. had to ascertain the meaning of the word unfinished used in Sub-section (3) of Section 9 of the Finance Act 1928 when defining the expression 'buttons.' In interpreting this word the learned Judge was of the opinion that he ought to look at the object of the section which was intended to protect the Englisa button trade. He was of the view that the statute was directed against those who imported goods which were not quite buttons, but upon which the bulk of the work had been done abroad, very little remaining to be done by the manufacturers in England. Having arrived that this interpretation of the word 'unfinished' by a reference to the intention of the legislature, the learned Judge proceeded further to hold that the articles in question in the case before him, were unfinished buttons. The principle thus accepted by the learned Judge was that if a word is used which has to be interpreted and cannot be said to have a very precise meaning, the proper course to discover the scope of the word is to look at the intention of the legislature as indicated by the statute in which the word has been used- 12. Another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of an Act. Lastly on this point learned counsel for the appellants brought to our notice the relevant principles relating to interpretation of Statutes given by Craiew in his book of Statute Law. 5th Edition at pages 65, 67 and 68. The principles are: Even if a Court is satisfied that the Legislature did not contemplate the consequences of an enactment, a court is bound to give effect to its clear language. A statute, even more than a contract, must be construed, ut res magis yaleat quam pereat so that the intentions of the Legislature may not be treated as vain or left to operate in the air. The intention of the Legislature, however obvious it may be, mast no doubt in the construction of statutes be defeated where the language it has chosen compels to that result, but only where it compels it. We cannot aid the Legislature's defective phrasing of an Act, we cannot add and mend and, by construction, make up deficiencies which are left mere. In other words, the language of Acts of Parliament, and more especially of modern Acts, must neither be extended beyond its natural and proper limits in order to supply omissions or defects, nor strained to meet the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion sought to be put on behalf of the respondents. 14. The second principle that, if the language is either ambiguous or capable of more than one meaning the Courts must seek aid from the other provisions of the Statute itself in order to arrive at the proper meaning of the word used in that Statute and that that interpretation should be accepted which would result in the properly carrying out the intention of the legislature in enacting that Statute, also in the present ca e supports the contention or the respondents rather than the interpretations-sought to be put on behalf of the appellants. The Sugar and Gur Futures and Options Prohibition Order 1949 as amended by the Notification of the 15th February, 1950, was intended to check the abnormal rise in the price of Sugar and Gur and it appears that for that purpose, the Government considered it necessary to prohibit or regulate futures in sugar or gur as well as options in sugar or gur. Sub-clause (a) of Clause 3. which we have so far considered, deals with futures in sugar or gur and Sub-clause (b) of Clause (3) deals with options in sugar or gar. Sub-clause (b) of Clause (3) lays down an absolute prohibition against en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated in a way different from options in that behalf. Having thus dealt with all futures in sugar or gur, as well as, options in sugar or gur which could be entered into after the appointed day, this order proceeds in Clause (4) to deal with the outstanding 'options in sugar or gur' which were declared under that clause to be void and unenforceable by law. Since it was not intended that outstanding 'futures in sugar or gur' should also become void and unenforceable by law, no mention of the outstanding futures in sugar or gur was made in Clause (4) nor was any other separate clause included in the order for that purpose. The omission of a specific clause in respect of outstanding futures in sugar or gur similar to Clause (4) dealing with outstanding options in sugar or gur, in our opinion, must lead to the conclusion that the Government could not have intended to render outstanding futures in sugar or gur void by implication on the interpretation of Sub-clause (a) of Clause (3) which is sought to be put on it on behalf of the appellants. The specific mention of outstanding options in sugar or gur in Clause (4) points to the fact that the Government, when pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receive margin in connection with the futures. The Government, therefore, seems to have considered it advisable that, even if entry in sugar or gur after the appointed day be permitted, the further steps taken by the businessmen in respect of them of paying or receiving margins should also be under the constant control and supervision of the Government. The question of redundancy thus does not arise. Further, there is the aspect of enforcement of these laws by application of penal consequences. Even if it be accepted that without a specific prohibition for payment or receipt of margins in Clause (3)(a) of this order no such margins could be paid or received in respect of the futures which were already prohibited, any such payments or receipts would amount to entry into void transactions which could be avoided through civil courts, but the per- , sons paying or receiving margins would not be liable to punishment for such action under any law. On the other hand, the result of introducing this prohibition against payments or receipts or margins in connection with such futures in Sub-clause (a) of Clause (3) of this order was that a breach of this prohibition became a crimina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very outset issues 4(vi), 8 and 9. 17. These three issues relate to the proper constitution cf the Board of Directors and consequently, affect the validity of all the transactions entered into by the respondents company. It is to be noticed that issue no. 4(vi) as framed challenges the proper constitution of the Board of Directors at the time when the winding up petition was presented in court. Issue No. 8 dealt with the proper constitution of the Board of Directors immediately before 15th of February, 1950, which was the day on which the Notification prohibiting entry into futures in sugar or gur came into force. Issue No. 9 covers a preliminary objection raised on behalf of the respondents that the petitioners were estopped from raising issue No. 8. There was no specific issue on the question whether the directors had, in the eye of law, vacated the office even before the 14th of March, 1949 when the Board passed the resolution bringing into effect the scheme for entry into transactions in futures for Phagun Sudi 15 Sambat 2006. During the course of arguments before us, however, learned Counsel for the appellants has argued the question o the vacation of office by a num ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Indian Companies Act restraining the directors of a company from entering into contracts with the company. It was for the first time by amendment in the year 1936 that Sections 86-F and 86-I were introduced dealing with this point. Section 86-F was as follows : 86-F. Sanction of directors necessary for certain contracts--Except with the consent of the directors, a director of the company or the firm of which he is a partner or any partner of such firm, or the private company of which he is a member or director, shall not enter into any contracts for the sale, purchase or supply of goods and materials with the company, provided that nothing herein contained shall affect any such contract or agreement for such sale, purchase or supply entered into before the commencement of the Indian Companies (Amendment) Act, 1936 (XXII of 1936). Section 86-1 is as follows : 86-1 Vacation of office of director --(1) The office of a director shall be vacated if- (a) he fails to obtain within the time specified in Sub-section (1) of Section 85 or at any time thereafter ceases to hold, the share qualification, if any necessary for his appointment, or (b) he is found to be of unsoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not vote thereon nor could their vote be counted for the purpose of forming a quorum. This part of the pleading, amounted to challenging the validity of the resolution of 15th February, 1950 not only on the ground that most of the directors had vacated their office but also on the ground that they were not entitled to participate In the meeting of the 15th of February, 1950 as they were directly concerned or interested in the arrangement arrived at in the resolution of 15th of February 1950 under the prohibition laid down in Section 91B of the Indian Companies' Act of 1936. When the appeal was argued belore us this legal aspect was urged by learned counsel again not with reference to the resolution of 15-2-1950, but with reference to the resolution of 14-3-1949, when the Board of Directors sanctioned the scheme for transactions in futures for Phagun Sudi 15, Sambat 2006. It was urged that, if the directors, who were interested in that arrangement be excluded, the number of directors whose votes under Section 91-B could be taken into account, fell below the prescribed quorum for the meeting of the Board of Directors so that the resolution of 14th of March, 1949 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... content of the, directors. In the present case, it was admitted on behalf of the respondents that there was no specific resolution at any meeting of the Board of Directors conveying consent of the directors to the entry into contracts by other directors with the company in accordance with Section 86-F of the Indian Companies Act. But it was urged that this particular company, by its very constitution, envisaged that directors must carry on business with the company and consequently it must be held that there was implied consent of all the directors to the entry of contracts by other directors with the company. For this purpose, reliance was placed on Rules 5, 46(a) and 47 (b) of the Articles of Association which have already been quoted earlier. Under Rule 5, no person or firm was entitled to remain as a member of the company who was found not to be doing any transaction or business through the company at Mazaffarnagar for continually six months. In such circumstances, the company was to give him a week's registered notice asking him thereby why. his name should not be struck off from the, membership of the company and his share be put to sale. Under Rule 46 (a) every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Board of Directors properly constituted and having proper quoram. On behalf of the respondents it has been urged that Section 80-F should not be so interpreted as to require a resolution of the Board of Directors recording their content at a meeting but should be held to cover even Implied consent of the directors. The implied consent, according to the respondents, must be presumed from the fact that all the directors office as such being fully aware of the requirements of the rules mentioned above and in thus accepting office of a director, each director impliedly gave his consent to directors carrying on such transactions and business with the company. Implied consent is also sought to be inferred from the actual conduct of the directors, who went on entering into contracts with the knowledge of one another and who never objected to the entry into such contracts by the directors during the whole period that the company has been carrying on its business. This contention of the respondents about the existence of implied consent of all the directors to the carrying on business with the company by the directors, in our opinion, has great force and must be accepted. Initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there was implied consent of all directors permitting all directors to carry on business with the company. The removal from membership of the company on failure to carry on business with the company, was discretionary and it may be that Deep Chand and Qabul Singh were considered to be persons whose continuance as directors was in the interest of the company, so that in spite of their failure to carry on business with the company, they were not removed from the membership of the company. The fact, however, that such an exception was made in the case of these two persons does not indicate that the directors were unaware of the requirements of Section 86-F of the Indian Companies Act, or that they had not consented to the directors carrying on business with the company. In this case, therefore, we are in entire agreement with the learned single Judge that all the directors, who carried on business with the company, did so with the implied consent of all directors. 20. On this finding of fact, the contention on behalf of the appellants, however, has been that the consent of the directors contemplated by Section 86-F of the Indian Companies Act, must be express and must have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that: The directors may meet together for the despatch of business, adjourn and otherwise, regulate their meetings, as they think fit. Questions arising at any meeting shall be decided by a majority of votes. In case of an equality of votes, the chairman shall have a second or casting vote. A director may, and the secretary on the requisition of a director shall, at any time, summon a meeting of directors. The quorum of the meeting is not laid down in Table A itself, but, in the case of the present company, the articles of association laid down the quorum at the figure four. This provision thus enables a decision being taken by directors in cases where it may not be possible to act unani-mouvsly. In such a case, a meeting can be held, which must have the necessary quorum. Then a decision can be arrived at by a majority of votes. The effect of this provision is that that decision taken by a majority of votes at the meeting becomes a decision of the 'directors.' This provision, in our opinion, cannot be read as a mandatory provision laying down the only means of arriving at a decision, which has to be taken by the directors. This is, in fact an enabling provision, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors. These are the provisions which clearly contemplate that a meeting of the board of directors must be held before the action to be taken by the directors can be held to be valid action complying with the requirements of law. It appears to us that there was no difficulty at all for the legislature to use similar language in Section 86F also, if the intention had been that the consent of the directors should be given at a meeting. The language of the exception which is worded at present as except with the consent of the directors could easily be except with the consent of the board of directors or except with the consent granted by a resolution of the directors, or ''except with the consent of the directors at a meeting of the board. The fact, that the legislature chose to use the present language and did not like to introduce any of these alternative expressions mentioned above, clearly signifies the intention of the legislature that in the case of Section 86-F there should be no requirement of holding a meeting of the directors or a meeting of the board of directors, and that the consent can be given by the directors in any such manner that in law it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer being exercised in that manner. In fact, it seems to us that a decision, which has been concurred in by each and every single director, is likely to be considered a more effective one rather than decision arrived at at a meeting of the directors by a mere majority of votes. When learned counsel was drawing our attention to these provisions of Table A certain other provisions in this Table also came to our notice. There is, for example, the provision in Rule 26 empowering forfeiture of shares in respect of which notice has been served under Rules 24 and 25 has not been complied with. Rule 26 requires forfeiture by a resolution of the directors and the use of the word resolution in this rule indicates that whenever action is so sought to be taken under this rule, it must be after a meeting of the directors is held and a resolution is passed at that meeting. Similarly, Rule 94 has been specifically incorporated dealing with acts done at any meeting of the directors. The fact that the legislature in the Act and the Table, has used various expressions, sometimes the mere word directors and on other occasions resolution of the directors or board of directors or meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that arose in that case was as to the validity of the appointment of one Mr. Barber as a director. The company was formed with seven members, who became the first directors under the articles of association. After the repeal of the articles of association they continued to act as directors and were willing to do so until the first general meeting. Then there was a general meeting at which Mr. Barber consented to be a director and elected unanimously. That meeting was attended by six share-holders, being six out of seven share holders and also six out of seven directors. Then Mr. Barber changed his mind and wrote to say that he would not be a director and would not take any shares. Notwithstanding that, the directors put him on the list of share-holders, and they sent him the allotment. The requirement under the Companies Act was that a share-holder, not being recommended by the board for election as a director, shall not be qualified for the office of director unless at the time of his election and also during two consecutive months next before his election he be the registered holder of at least twenty shares. Mr. Barbar did not possess the second qualification and had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision taken at the meeting as a decision by the board. The views expressed by him thus, instead of going contrary to our direction, contain an indication that, even in that case, it was likely that, if the seventh director had been present, the unanimous decision by all the directors meeting even in a different capacity, could have been treated as a decision of the board. If it could be treated as a decision of the board , there can be no doubt that it would certainly have been a decision of the directors . 22. The next case relied upon by the learned counsel for the appellants is D'Arcy v. Tamar Kit Hill and Callington Rly. Co., (1867) 2 Ex. 158. In that case, the question to be considered was, how far a company was bound by a bond, which had been sealed by the secretary, who was the proper person to affix the seal provided he was duly authorised. The secretary stated that he was authorised by three directors to affix the seal, but, on cross-examination, admitted that the assent of two out of the three had been obtained at a private interview at the house of one of them, where the two signed a letter authorising the issue of the bond, and that, on meeting the third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors, or a meeting of directors, the power could be exercised by the directors only by holding a meeting with the prescribed quorum, where all questions had to be determined by the majority of votes of the directors present. It was in these circumstances that the learned Judges hold that the bond was invalid. The provisions of the Indian Companies Act, which we are called upon to interpret, are not similar. There is no mandatory provision in the Indian Companies Act requiring that, where a power is granted to the directors, they must exercise it by holding a meeting of the board of directors with the prescribed quorum and that decision had to be taken by a majority of votes. Even in that case, notice was of the fact that there were more than three directors, when only three of them had purported to grant the authority to the secretary, so that the authority had not been given unanimously by all the directors. It was in view of this circumstance that Bramwell J. remarked : But it is here shown affirmatively that the seal was not properly affixed; for this could not be done, except by the authority of such a number of directors as had power to act for the company acting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority granted by a meeting of the board of directors to issue notices for the meeting. The secretary had, however, spoken on the telephone to one director and had a conversation with the chairman, in whose office he was a clerk and had written letters to the other directors. Some of the replies, which were produced in Court, indicated that the secretary had been left to fix his own day. There was, however, nothing to show that any single director had been asked to approve of the resolution as proposed, which involved the appointment of Mr. Gordon as liquidator. Cozens Hardy J. held that: In the present case I cannot regard the omission to convene a board meeting to consider matters of such vital moment as a winding-up of the company and the appointment of a liquidator as a mere irregularity. I believe that one or more of the directors, with the deliberate purpose of screening themselves from the investigation suggested by the report of the committee, ingeniously devised and carried out a scheme by which the chairman's clerk should be appointed liquidator and the company should be dissolved and the books destroyed at the earliest possible moment. Cozens-Hardy J. re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andstill as Canon Barren refused to attend any board meeting with Mr. Potter. On 9-2-1914, Canon Barren sent out a notice convening an extraordinary general meeting for February, 1924, at the registered office of the company, for the purpose of passing a resolution terminating the appointment of Mr. Potter as managing director of the company, and proposing that one Charles Berry be appointed an additional director. On February 21, Mr. Potter sent through the post to Canon Barren a notice requesting him to attend a board meeting at the company's office on February 24 at 2-40 P. M. This notice, however, was not in fact received by Canon Barren until a later date after his return from London. Canon Barron arrived by train at Paddington Station on February 28, and, on his arrival, was met on tha platform by Mr. Potter, who, there seeing Canon Barron alight, walked by his side along the platform and said to him, I want to see you, please. Canon Barron replied, I have nothing to say; to you, Mr. Potter then said, I formally propose that we add the Revered Charles Herbert, Mr. William George Walter Barnard, arid Mr. John Tolehurst Musgrave as additional directors to the boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that there was no board meeting, but that Canon Barron came with the deliberate intention of not attending a board meeting. If he had received the notice sent to him by Mr. Potter summoning him to a board meeting, different considerations might have arisen, but he had not received it and came with the fixed intention of not attending any such meeting. There was therefore no board meeting at which Canon Barron was present. Mr. Potter was alone present, so that there was no quorum, and I must hold that the three additional directors named by him were not validly appointed. It is, no doubt, true that under the articles of association, power to appoint an additional director had been given to the directors without specifying that the decision of the directors must be taken at a meeting of the board of directors. But what Mr. Potter wanted to be declared valid, was not a unanimous decision of all the directors but a decision, which according to him, was valid because it had been arrived at by a majority of votes at a meeting of the board of directors. Wurrington J. rejected the plea that there had been a meeting of the board of directors. The question whether, if Mr. Potter an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would be necessary to hold a meeting of the directors in the absence of such a rule. The effect of this rule is that, even where a meeting of the directors is necessary, this requirement is dispensed with, provided the resolution is recorded in writing and is signed by all the directors for the time being. It does not touch those cases where power is granted to the directors without laying down any requirement of a resolution being passed at a meeting of the directors. This rule does not, therefore, have any bearing at all on the question of the validity of consent or implied consent of directors, as required under Section 86F of the Indian Companies Act. It was also urged by the learned counsel that the scheme of the Indian Companies Act was that the share-holders should be entitled to the benefit of the collective wisdom of the directors and, consequently, wherever the law or the rules require an action to be taken by the directors, it must be taken after holding a formal meeting of the board of directors, where the directors can exchange views with one another. To us, it appears that, if a unanimous decision is given by all the directors, there can be no doubt at all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract that the director wants to enter into and also the case of the particular director who wants to enter into that contract before the consent is given. It is only on a consideration of both these factors, viz. the nature of the contract and the qualifications of the director, that a proper consent within the meaning of Section 86-F can be given for entering into a contract. If Mr. Mody's contention were to be accepted, the board of directors, without considering what the nature of the contract was, without considering the value, without considering the particular material in respect of which the contract was to be entered into, in application and generally can agree to a director or directors entering into contracts with the company. In other words, power is given according to Mr. Mody under Section 86-F to remove the personal disability which the Legislature has imposed upon the directors, by Section 86-F. In our opinion, the Legislature having imposed a personal disability upon the directors under Section 86-F, the only power that is given to the board of directors is not to remove that personal disability generally, but to remove the personal disability with regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racts, were members, who registered their transactions with the company. Such being the nature of the contracts which the company was registering, it does not appear to us that any question could arise of consent of the directors being obtained on every single occasion when, any director desired to register with the company his contract entered into with another member or another director. Implied consent of the directors, in such circumstance, would, in our opinion, fully satisfy the requirements of the law. In the case before the Bombay High Court, the position was quite different. In that case a director had entered into a contract with the company for supply of certain goods, so that the two principal contracting parties were the director and the company. By obtaining terms favourable to himself, the director could have taken, advantage of his position to the detriment of the company and it may be, as held by that Court, that a general consent given to a director or to all directors to enter; into contracts of that nature with the company, might go against the principle, which the legislature intended to lay down, when enacting Section 86-F of the Indian Companies Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 91B of the Indian Companies Act. We may first take notice of the fact that this point was not raised anywhere in any of the two winding up petitions, which were tried by the learned single Judge, and even before the learned single Judge, this contention was riot put forward in this form. What was contended before the learned single Judge, was that the directors had contravened the provisions of Section 91B of the Indian Companies Act in voting on the resolution dated the 15th of February, 1950. Before us, learned counsel for the appellants changed his ground and challenged, on the basis of contravention of Section 91B of the Indian Companies Act, the validity of the resolution of 14th March, 1949. and not the validity of the resolution of 15th February, 1950. The fact that this point was not raised in the pleadings, at any stage, on behalf of the appellants and that further it was not raised before the learned single Judge at all would itself disentitle the appellants from raising this new ground for the first time in these appeals. Since, however, we did hear arguments of learned counsel on this point in detail, we consider It advisable to deal with this point also in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 91-B of ihe Indian Companies Act, in our opinion, would not cover a general scheme of this type under which at the time when the scheme is approved by the board of directors, no rights or liabilities accrue or are incurred by the members of the company, the directors or the company itself. The word 'arrangement' as used in Section 91-B of the Indian Companies Act, is intended to cover such transactions in which a director at once becomes interested, so that he either acquires some rights as a result of it or incurs some liabilities as a result of it. All that the scheme of 14th March, 1949, did was to enable members subsequently to have their transactions in futures registered with the company, and it was not till such registration took place that any member became interested in the scheme approved by that resolution. Under the scheme, it was open to all the members of the company, in their capacity as members of the company, to register their contracts. It was not a scheme under which any one, in his individual capacity or any director in his capacity as such acquired any particular interest. Consequently, we have to hold firstly that the resolution of 14th Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verdraft. The effect of the resolution issuing debentures was to discharge the liability of the directors and to substitute for it debentures issued in favour of the bank giving a right to the bank to claim an interest in the assets of the company on liquidation. There was thus, in that case a conflict between the personal interest of the directors and their duties towards the company inasmuch as by the resolution they escaped their own personal liability and substituted for it the liability of the company. No such question could possibly arise when a general scheme of the type brought into existence by the resolution of 14th March, 1949 was approved under which all members of the company were on the same footing and were merely given a right to enter into contracts without accruing any rights or liability by that time. 30. The next English case is In re North Eastern Insurance Co. Ltd., 1919-1 Ch. 198. In that case also the articles of association of the company debarred directors from voting in respect of any contracts in which the directors were interested. There was further a provision that the directors might determine the quorum necessary for the transaction of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at case also, therefore, is not at all applicable to the facts of the case before us. 31. The earliest case relied upon by the learned counsel is In re Greymouth Point Elizabeth Rly. and Coal Co. Ltd; Yuill v. Uraymouth Point Elizabeth Rly. Coal Co. Ltd. 1904-1 Ch. 32. In that case the articles of the company had a similar provision that no directors should vote on any matters relating to a contract or business 'with the company in which he was interested and that two directors should be a quorum for the transaction of business. It was held that a quorum of directors meant a quorum competent to transact and vote on the business before the board; and, therefore, that a resolution parsed at a meeting of three directors, two of whom were interested in the subject-matter of the resolution, was invalid. That was also a case where two directors had made advances to the company and the resolution which came up for examination before the board as to its validity, was for the issue of debentures to those directors. Clearly, that was a case where the resolution related to a contract or arrangement and the two directors were interested in that arrangement. The resolution impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the argument relating to the contravention of Section 91-B of the Indian Companies Act, that at least the resolution of 7th January, 1950, was void and ineffective. In our opinion, it is not necessary for us to pronounce finally on this point. As long as we hold that the resolution of 14th March, 1949, was valid, the subsequent contracts entered into with the company by all the members of the company, would be valid contracts and they would have to be settled in accordance with the scheme laid down in that resolution of 14th March, 1949, unless, of course, some subsequent law made it necessary to settle these transactions in some different manner. The point relied upon by the learned counsel that all the transactions were void and winding up of the company would be justified on the ground that the company had continued to act in pursuance of that resolution fails as a result of our view that resolution was a valid resolution. 32. The result of the findings, given so far, is that the position on the 15th February. 1950 was that, under the scheme approved by the valid resolution of 14th March, 1949, various members of the company including some of the directors had entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he month of February. 1950, quotations for futures continued to be much higher than the average rate of ₹ 12/13/- mentioned above. On the 14th February, 1950, the market closed with the quotation of ₹ 17/6/- for such transactions in futures. Then on the 15th February, 1950, came the notification of the Government of India banning entry into transactions in futures after that notification was promulgated. 33. In view of this notification of 15th of February, 1950, the directors of the company had to decide what action should be taken in respect of all outstanding tran1sactions in futures in Gur, which had been registered with the company. There has been some controversy as to the actual information about the contents of this notification, which was available before the meeting or the directors of 15th February, 1950, was held and a resolution. was passed to settle the transactions at the rate prevailing on the previous day. According to the pleadings of the appellants in para 10 of the first petition tor winding up, the decision of the Central Government was announced on the 14th of February, 1950 by a Press Note broadcast throughout India through PTI and All India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case and alleged that it was on the morning of 15th February, 1950, that he came to know of this notification, whereupon he proceeded to Muzaffarnagar, where he was informed that in contravention of the provisions of the notification the management was intending to make payments to themselves and others on the pretext of settling all pending contracts at rates prevailing on 14th February, 1950. In his evidence on oath, Mohan Lal again changed his case and stated that it was on the night of 14-2-1950 that he heard an announcement on the radio about the Government Press note banning Gur transactions. He further stated that he then consulted his lawyers on 15-2-1950 and thereafter proceeded to Muzaffarnagar. This statement on oath that he heard the announcement on 14-2-1050 in the night, contradicts the earlier statement made by him in para 12 of his petition that he came to know of this notification on the morning of 15-2-1950. It does appear that some Press note was issued and there was also an announcement on the radio. Whether the announcement took place on the night of 14th February or the morning of 15th of February, 1950, does not seem to be very material. There is, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of that order were to be void. So far as options in Gur were concerned, the direction contained in the notification of 11-12-1942 declaring them void remained unaffected. Subsequently the U. P. Government issued the U. P. Food Grains (Futures and Options Prohibition) Order, 1943 and on this occasion all contracts in futures and options in food grains entered into before the commencement of that order and outstanding wholly or partly for settlement on the date of the order were directed to be settled at the rates prevailing at the close of the transactions on 2-1-1943. This order was issued on 3-1-1943. On 20-4-1943 there was issued, the U. P. Oil Seeds (Futures and Options Prohibition) Order, 1943 and under this Order, all contracts in futures or options in oil seeds entered into before the commencement of the Order and outstanding wholly or in part for settlement on the date of the order, were directed to be settled at the prevailing market rate applicable to such settlements at the close of transactions on 19-4-1943. On 22-1-1946, the Food Grains (Futures and Options Prohibition) Order 1946 was promulgated and in this case again only options in food grains entered into b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oves that at least during the months of January and February, 1950 that the rate for ready delivery was between ₹ 2/- to ₹ 6/- higher than the rate for transactions in futures. The directors must have felt that in case they did not decide that settlements should take place at the rate prevailing at the close of the transactions on 14-2-1950, difficulty might arise, as parties to the transactions might claim that settlements should be made at the rate prevailing for ready delivery. The rates for ready delivery were very high and continued to rise in January and during the first half of February, 1950. The evidence on the record shows that even subsequently, in spite of the issue of the notification dated 15-2-1950, the rates for ready delivery did not fall subsequently. In fact, on 14-2-1950, the quotations for transactions in futures stood at ₹ 17-6-0, whereas the quotation for ready delivery was between ₹ 22/- and ₹ 23/-. When the notification was issued on 15-2-1950, the quotation for ready delivery varied between ₹ 21/- and ₹ 22/-. By 23rd February, it again rose to a figure between ₹ 22/- and ₹ 23/-. On 27-2-1950, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of smooth carrying on ot business by all the members of the company. 34. The next conduct of the directors, which has to be examined, is that of actually settling with the buyers in pursuance of this resolution of 15-2-1950 and in making large payments to them in spite of the fact that some of the sellers did not settle with the company in accordance with the resolution of 15-2-1950. It has been admitted on behalf of the respondents that when the transactions were actually settled at the rate of ₹ 17-6-0, decided upon in the resolution of 15-2-1950, large sums of money became payable to the buyers and these large sums were disbursed principally out of the deposits with the company in respect of Chook and margin. It was strenuously contended on behalf of the appellants that this conduct of paying away such huge sums of money was an imprudent act on behalf of the directors, which seriously endangered the solvency and existence of the company. To us, it appears, however, that the action, which the directors took, was in fact very much in the interests of the company and that action could only result in benefit to the company. As we have said earlier, it was envisaged th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any would obtain larger amounts from the sellers than the amounts paid by the company to the buyers, and the difference between these amounts would be gain to the company. The action of the company in paying off the buyers was, therefore, a very prudent act because as a result of it the company did not stand to lose at all, whereas there was a possibility of its making gains. The further payments that were made by the company, were to the brokers, whose security deposits were refunded. These payments also seem to be fully justified because they were made on the demand of the brokers, who desired that their amounts should be refunded. If the company had not been able to meet this demand, there would only have been a loss of confidence in the solvency of the company. The company was holding these security moneys in a sort of trust and was bound to repay those moneys to- the persons on whose behalf these amounts were held. In refunding these amounts, therefore, the action taken by the company was quite proper. It is immaterial that as a result of these payments, the ready funds in deposit with the company were very substantially reduced or even that the company had to go to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing up petitions by a person claiming as a contributory. 37. Issues Nos. 4(ii), (iii), (iv) and (v) also depend for their decision very largely upon the facts found above. We have held that the payments which were made by the company to the holders of the bijaks were all bona fide and prima facie in accordance with the terms of the contract. The result, of course, has been that the company now has an outstanding claim against the appellants. Even in respect of this claim the entire amount of money due to the company is already in its hands. These facts clearly give an inference that so far as the capital of the company is concerned it is still intact and no part of that capital has been lost to the company. In the circumstances, it cannot be held that it has become impracticable for the company to carry on its objects, or that the objects have substantially failed. It is true that upto the time when the first winding up petition was presented, the company was confining its business mainly to transactions in Sugar but as the Articles of Association lay down that that was not the sole commodity in which the company could carry on business. We have already quoted above at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urity deposits of the brokers were paid back to them but this also is no indication that the company was intending to close down its business altogether, very likely those brokers were only interested in transactions in Gur. They demanded return o their deposits as they at least could no longer carry on their business. Refusal to return back the deposits to the brokers might have created a panic. In these circumstances the refund of those deposits is no indication that the company had no bona fide intention of further carrying on its business. There is also no evidence to indicate that there was no prospect of the company trading at profit thereafter. We have already indicated above that the nature of the business carried on by the company was such that at used to earn commission whereas the profits and losses incurred in the transactions were almost automatically adjusted between the buyers and the sellers. Transactions of that type in other commodities could certainly be carried on by the company even after the company had taken the step of making payments in pursuance of the resolution dated 15-2-1950. The nature of business of the company was such that it did not need a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both in Urdu and in English. The only other change in the minutes of the meeting of that date in which this resolution was recorded, which was pointed out by Har Govind Lal, was that, in the list of persons present, Mohan Lal's name did not exist and there were names of 1.1 directors who attended the meeting and not merely ten. Banarsi Das corroborated Har Govind Lal fully in respect of the alterations relating to the addition of the name of Mohan Lal and of the omission of the name of 11th director, who attended the meeting. The version which he gave about the alteration in the text of the resolution, is however different. According to him the words ^^dk;e dj fn;s tk;** now found in the resolution did not exist at all and in their place the words that existed were ^^settle djok;s tkus gSa** There is thus a difference between the two witnesses who are the only witnesses examined on behalf of the appellants even in respect of the alleged alterations in the text of the resolution. This itself is a circumstance which makes the evidence of these witnesses doubtful. On the other hand, the manager and most of the directors who were present at the meeting, have been examined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government, the company was not competent to fix rates for settling the transactions which, thereafter could have had no further quotations in the market because quotations in the market are only available when entry into fresh transactions is permitted. The resolution, as it now stands, or even as it stood according to the witnesses of the appellants, did not compulsorily settle the transactions themselves and the effect of fixing or settling rates was to give option to persons who had entered into contracts with the company to settle those transactions at those rates. No doubt, it appears that, soon after the resolution was passed, it was misinterpreted by the manager and other officials of the company inasmuch as, in some cases even without obtaining the consent of the contracting party, entries were made in the books of account of the company indicating that the transactions had been settled. The explanation that has been given on behalf of the respondents is that this step of making entries in the books of account was taken as it was envisaged that every contracting party would be willing to settle transactions at the rates, which had been fixed by this resolution. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose whatsoever. 39. So far as the other two alterations in the minutes of that meeting are concerned, they also appear to us to be immaterial. The omission or the name of one of the directors can only be accidental. The witnesses examined on behalf of the respondents, no doubt, admit that the minutes were read out, and, when they were read out, the names of the directors who had attended the meeting were recited. It was urged that, if this had been done, the omission of one name would certainly have been noticed. There is, however, the other aspect that minutes of a meeting are read after they have been recorded. The persons present do not always pay at tention at the meeting when the names of the persons present are being read. Possibly when the names which were recorded in the minute were being read out, nobody paid any attention so that the omission went undetected. On the other hand, if the resolution, as originally recorded, had contained names of eleven directors, it seems to be highly unlikely that subsequently an alteration would be made and the persons committing forgery would have been so careless as to omit the name of one of the directors, particularly one, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have failed to prove the sending of a letter before the telegram, which was, according to them, refused by the manager of the company. Several directors and the manager of the company have swor.n to the correctness of the resolution and slight discrepancies in their statements are not enough to discard their testimony. This being so, we are inclined to the view that Mohan Lal was actually present in the meeting and, though he did not take any part in the discussion, which he could not as he was not one of the directors, he only saw the resolution being passed and thereafter, sent the telegram indicating by implication that he was not present at the meeting and wrongly alleging the refusal of a letter which could be drafted thereafter containing such allegations as he might be advised to put in. We, therefore, hold that the resolution, as now contained in the minute book of the company, is the original resolution and all allegations to the effect that it was altered fradulently are not correct. 41. The argument that there is justifiable lack of confidence in the directors and the management on the ground of this alteration in the resolution, also fails on the view which we h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... option to the parties concerned to settle them, so that no question arises of their having settled the transactions otherwise than at the request of the parties concerned. In view of this finding on the first part of the issue, the second part of the issue does not arise at all. This issue is also, therefore, answered against the appellants. 43. Another issue that is connected with this matter is issue No. 7, which is as follows : Was there a valid transfer of the rights of Messrs. Ram Swamp Shadi Ram in favour of the petitioners? If so, did the company act fraudulently in settling the claim with Messrs. Ram Swarup Shadi Ram instead of with the petitioner. Does that amount to a just and equitable ground for winding up the company? The contention of the appellants was that transactions of 1041 bijaks of sale standing in the name of Messrs. Ram Swarup Shadi Ram were really transactions of the appellants and though this fact was known to the company, the company dishonestly settled these transactions with Messrs. Ram Swarup Shadi Ram after the resolution dated 15-2-1950. It is urged that this conduct of the company amounted to fraud on the appellants by the directors and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name of Messrs. Ram Swarup Shadi Ram. 44. To prove that the transactions of sale standing in the name of Messrs. Ham Swarup Shadi Ram were really transactions of the appellants, the appellants examined Mohan Lal, one of the appellants themselves, and another witness Ganeshi Lal. They stated that, on 7-1-1950, Trilok Ghand manager and Amba Prasad one of the directors were informed that Mohan Lal was to be treated as owner of the Bijaks standing in the name of Messrs. Ram Swarup Shadi Ram. When this was accepted, Mohan Lal paid the chook required on the transactions standing in that name. The documentary evidence, however, only shows that a letter was received by the company from Messrs. Ram Swarup Shadi Ram to the effect that thereafter Mohan Lal was to be treated as sole proprietor of these 1041 bijaks. It is also true that the chooks which had to be paid, was paid by Mbhan Lal in two instalments one payment being of ₹ 43,500/- in cash and the other of ₹ 50,000/-by two cheques of ₹ 25,000/- each. On behalf of the company it is not denied that these amounts were paid by Mohan Lal in respect of these transactions. The case put forward on behalf of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions would result in heavy losses. The losses were likely to increase and not to decrease. In fact, it was envisaged that the losses might be so heavy that the company thought it fit to pass the resolution that these transactions in futures would not be settled at a rate higher than ₹ 17/8/-. Even at that maximum rate laid down by that resolution, the holder of these transactions was to lose very large sums of money. The company, therefore, could not accept transference of the liability in respect of these transactions from Messrs. Ram Swarup Shadi Ram to the appellants merely on a letter sent by Messrs. Ram Swarup Shadi Ram, to whose interest it might have been to claim this transference in order to escape the losses. The more important party whose consent was needed, were the appellants because, if the transference was accepted by the company, they were to become liable to the losses on those transactions. While the appellants gave no writing admitting that they were owners of those transactions, the company was justified in continuing to treat those transactions as of Messrs. Ram Swarup Shadi Ram, even though they might have been aware that there was some arrangem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that these transactions were to be treated as belonging to the appellants the prudent course for the company would have been not to settle these transactions with the appellants without the concurrence of Messrs. Ram Swarup Shadi Ram. The receipt of the necessary documents from Messrs. Ram Swarup Shadi Ram for settlement of the transactions was, therefore, in any case necessary. The only omission with which the company can be charged is that they did not obtain similar documents for settlement from the appellants. This, in our opinion, was not at all necessary when the circumstances were such that the company was not bound to treat those transactions as belonging to the appellants. It is also to be noticed that, even though the company settled these transactions with Messrs. Ram Swarup Shadi Ram, they continued to be cautious inasmuch as, after the settlement, a few thousand rupees remained due out of the deposit in respect of chook and margin from the company to the holder of the bijaks and the company did not pay that amount to Messrs. Ram Swarup Shadi Ram. The chook and margin had been deposited at the rate of ₹ 17/8/- in January whereas in pursuance of the resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed dishonestly, a contributory could claim that a winding up order be made because that would justify lack ot confidence in the directors. For this proposition learned counsel referred us to a number of cases. The first case brought to our notice is In Re Bleriot Manufacturing Air Craft Go. Ltd. (1916), 32 TLR 253. One of the grounds given in that case for making up a winding up order is brought out in the following quotation: Here the company has considerable capital, and it is alleged that there is misconduct by the directors. It is truly said by Mr. Russell that the mere fact of misconduct is no ground for winding up. The words just and equitable are words of the widest significance, and do not limit the jurisdiction of the Court to any case. It is a question of fact, and each case must depend on its own circumstances. When I speak of the conduct of the board of directors I mean Lawson, because his was the controlling hand. I think the moneys of the company have been misapplied, and that the company is so constituted that it is deprived of its usual remedies. This is again sufficient for a winding up. It is to be noticed that this case instead of helping the appellants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 783. In that case, the conduct that came up for consideration was that the directors had omitted to hold general meetings, or to submit accounts, or recommend a dividend and that they had laid themselves open to. the suspicion that their object in so omitting was to keep the petitioners in ignorance or the companys' position and affairs and to acquire the petitioners' shares at an under-value. Another ground was that certain money were voted as salary to be paid to Mr. McLaren, who with others under his control held the controlling shares. It was held that on such ground a winding up order was justified. Again in that case the facts which were held to justify a winding up order were to the prejudice of the shareholders and were such that the shareholder could not expect redress by the usual method of putting forward their views in the shareholders' meeting, 48. The third case, to which our attention was drawn by learned counsel was in Re The Newbridge Sanitary Steem Laundry Ltd., a case which arose in Ireland. The case, we are informed, is reported in (1917) 1 Ir. R. 67. The reports were not available to us but a typed copy of the judgment was produced before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners in preventing, if possible, Llewellyn being made amenable to justice; and that was a position of the company which fully justified the prayer of the petition. Notice was taken of the fact that for quashing of the winding up order nothing had been done by the company to compel Llewellyn to account for the moneys in respect of which the Court had already decided that he was bound to account. When the Court questioned the Solicitor-General whether, from the beginning to the end of the evidence, there was to be found a trace of disapproval of the conduct of Llewellyn and his co-directors or any suggestion that this fraudulent course of dealing would not be continued in the future, the Solicitor-General could point to none. The final finding recorded was that the facts of the case, which showed that a majority of the share-holders, consisting of practically two families, were endeavouring at the expense of the minority to shield a criminal who had stolen the moneys of the company, were stronger than those in any of those cases where an order for winding up had been made. 48-A. Clearly again this was a case where the dishonesty of the controlling directors was held to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. v. Gopal Chetti, AIR 1932 PC 1, where it was held: It is well settled that an ultra vires transaction on the part of the directors is of itself no ground for a winding up order. It follows that an ultra vires transaction which was to the benefit of the company and its shareholders would still less be sufficient justification for a winding up order. 50. Lastly we may take up the first three issues together as all these three issues arise because of the claim for winding up put forward by the appellants in their capacity as creditors. The first issue requires a finding whether the petitioners or any of them were or was creditors or creditor of the company when the two winding up petitions were presented. The second issue relates to the question whether the debt which is claimed by the petitioners is disputed in good faith by the company or not and, if it is disputed in good faith, whether the winding up petitions are maintainable. The third issue is whether the company is in a position to pay up its debts. We have, at some earlier stages of our judgment, already given an indication that in our opinion this is not a fit case where we should enter into an invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . One notification was issued on the 15th of February, 1950 and the other on the 1st of March, 1950. Both these notifications were thus prior to the date of settlement, which was the 4th of March, 1950. By the notification relating to movement of Gur issued on the 15th of February, 1950 the only ban was that no Gur could be transported by rail except with the permit of the Central Government or of an officer or authority empowered by the Central Government in that behalf. By the notification of 1st March, 1950 the ban on transport by railway was tightened inasmuch as it was laid down that no railway could Rccept for transport any Gur from any station in the State of Uttar Pradesh or from any station outside the State which was situated within a radius of thirty miles from the border of Uttar Pradesh. Transport by road bv means of a mechanically propelled vehicle of Gur was also prohibited from any place in the State of U.P. to any other place in the State which is situated within a radius of thirty miles from the border of that area to any place outside that State. This ban was also, however, qualified, as such movement of Sugar was permissible under a permit issued by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt showing that the contract had already been settled, even though the appellants had not signified their assent to such settlement at the rate fixed by the resolution of the 15th of February, 1950. The second ground was that the company by making payments of huge amounts to the buyers had put itself in such a position that it could no longer carry on the terms of the contract which had 'been entered into between the appellants and the company. These are again points on which, in our opinion, the company has a bona fide case. We have already taken notice earlier of the fact that the entries in the books of account were made by the manager and other members of the staff of the company by a misinterpretation of the resolution of the 15th of February, 1950. It does not appear that the entries which were made in the books of account were actually communicated to the appellants. Learned Counsel for the appellants relied upon a telegram which was sent by the manager to the appellants on the 16th of February, 1950 in reply to an earlier telegram, which had been sent by the appellants to the company. It was urged that in this telegram the language used indicated that the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of February, 1950. On behalf of the appellants it is contended that rescission of the contract was brought out by the appellants when they filed the first winding up petition in this Court on the 22nd of February, 1950. Reliance was also placed on behalf of the appellants on the subsequent correspondence on this point. At the same time, it has been urged on behalf of the respondents that, even if it be held that the respondents have refused to perform their part of the contract at some stage, that refusal was retracted subsequently and before there was any rescission of contract by the appellants. All these are contentions which need to be properly examined and decided and, in our opinion, disputes on these points are such that the conduct of the company in challenging the claim of the appellants must be held to be bona fide. In the circumstances, we confirm the finding of the learned single Judge on the second issue that the debt of the appellants was disputed bona fide by the company and this was a circumstance which had to be taken into account in dealing with the petition for winding up presented by the appellants based on their claim as creditors of the company. 53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uyers of amounts which have been disbursed to them so as to meet the claim of the appellants. The finding on issue No. 3 is thus entirely dependent on issue No. 1 and wo have decided to refrain from giving any finding on issue No. 1. We therefore hold that this issue also need not be finally decided by us and it is sufficient for the proper disposal of this winding up petition, to say that at present no such findings can be given that the company is unable to pay its debt while a suit is pending between the appellants and . the claim in the suit is being contested by the company in good faith. 56. In these circumstances, it was urged by learned counsel for the appellants that, in any case, we should not uphold the order of the learned single Judge dismissing these winding up petitions and should, on the other hand, hold them up awaiting the final decision in the civil suit. The principles applicable to such cases have been summarised in Palmer's Company Precedents, Sixteenth Edition, Part II at pp. 103 and 104, where it is said : The court will not, except in special circumstances, order a, petition to stand over for a long period. It wall either make! an order or dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim which the company was claiming against him. The suits were ripe for hearing and there was the fact that the application for stay of the winding up proceedings was made by the company itself, 59. The second case relied upon is Mohamad Amin Bros. Ltd. v. The Dominion of India, 54 Cal WN 514: (AIR 1952 Cal 323). In that case the company had been assessed to tax and the claim, of the Government was of a debt in the nature of revenue from the company. Against that assessment, the company had filed an appeal after the debt had been held to be due. The company itself then applied for staying the winding up proceedings awaiting decision of that appeal. 60. In both the cases the otter proceedings which were pending, were ripe for hearing. In one case both the suits were to come up for hearing very shortly. In the other, judgment had already been delivered and the matter was only in appeal. In both the cases, therefore, holding up of the winding up proceedings was decided on the basis, that it would be in the interest of the company. These cases, in our opinion, are totally inapplicable to the facts of the case before us. Here the winding up petitions were presented long ago. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possible, either make an order upon the petition for the winding up of the company, if it is a fit case, or if not dismiss the petition. There are many cases in which it cannot be done; but where it can be done I think that is the better course, and the more so because it is well known that if the petition is adjourned, it is adjourned with this consequence imminent over the company: if the wind ing-up order is made, the winding up would date back to the presentation of the petition and avoid therefore, Or imperil, anything that was done by the company in the meantime. I think that the better course is to dismiss this petition. 63. We may also take notice of the fact that, in our opinion, the holding up of proceedings in these two winding up petitions would not materially benefit the appellants while it will seriously prejudice the company. The prejudice to the company has already been indicated above. So far as the appellants are concerned, they have not succeeded in showing that, if the company is allowed to function in future, there is any likelihood that the assets of the company which are at present available for the satisfaction of the claim of the appellants if found t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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