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TMI Blog1925 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... Labanti, Engineer; 9. Babu Manohar Lal Gupta; (10). Mr. Jang Bahadur Sinha, merchant; (11). Kunwar Sarup Narain, zamindar. 2. To this were added Mr. C. S. Oehme and Pandit Ram Nath Dave under the order of the Court, dated the 14th April 1925. 3. The Company was incorporated on the 25th October 1920 and the Bank was floated some time in February 1921. The last-mentioned respondent, Pandit Ram nath Dave, was appointed Manager of the Bank by a resolution passed at a meeting of the Board of Directors held on the 6th November 1920. He occupied that position till the date of liquidation. The other respondents were the Directors of the Bank and the respondents Lala Jagmohon lal and Babu Jang Bahadur Sinha were also Managing Directors. The following table will show at a glance the date on which each of the respondents joined the board of directors and also the date on which he ceased to be a Director. 4. Lala Jagmohan Lal held the office of the Managing Director from the 19th December 1921 and continued to held it till the date of liquidation. Babu Jang Bahadur Sinha was the Managing Director from the 19th February 1921 till the 12th August 1921. The respondent, Raja Hukum Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon. 6. The respondents have generally denied that they are guilty of any act of misfeasance or breach of trust, of fraud or gross and wilful negligence. They have also pleaded ignorance of the transactions which form the subject-matter of the charges stated in the liquidator's application and good faith. One of the respondents, Thakur Nawab Ali Khan, has also put forward bar of limitation to the applicant's claim. Some of the respondents have entered the witness-box and given evidence in relation to the subject-matter of the charges. They are Thakur Nawab Ali Khan, Lala Jagmohan Lal, Babu Bhola Nath Mehrotra, Mr. E. A. Labanti, Babu Manohar Lal Gupta, Babu Jang Bahadur Sinha and Pandit Ramnath Dave. 7. No material facts are in dispute in these proceedings. The controversy relates to the inferences and the legal consequences which may flow from the admitted or proved facts. It is proved by the books of the Bank in the possession of the liquidator and shown to the respondents at the trial that the over-drafts, as stated in the liquidator's application, were as a matter of fact, made, and no argument was addressed to me by or on behalf of any one of the responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the contract mentioned above was not ultra vires of the Directors. It is quite clear that if Mr. Labanti had executed the mortgage, which he had offered to do, the present application could never have been filed. 9. The foregoing conclusions and observations naturally lead to the consideration of the law applicable to the subject in hand. It appears to me to be settled law that: Facts which show imprudence in the exercise of powers conferred upon Directors will not subject them to personal responsibility; the imprudence must be so great and manifest as to amount to crassa negligentia as for example, if they were cognizant of circumstances of such a character, so plain, so manifest, and so simple in operation, that no men with any ordinary degree of prudence, acting on their own behalf, would have entered into such a transaction as they entered into. But if they are authorized to do an act in itself imprudent they are not to be held responsible for the consequences of doing it. Nor are they liable for mere, errors of judgment. This is a quotation from Law of Banking by Heber Hart. Reference is made therein to Overend and Gurney Co. v. Gibb [892] 5 Eng and Ir. A. C. 480; In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case arising out of the charge in relation to the over-drafts mentioned above which requires special consideration. We have seen that amongst the creditors of Mr. Labanti who accepted fixed deposit receipts from the Bank in lieu of their claims against him was Mr. Jang Bahadur Sinha. It is admitted that on the dates on which he accepted those receipts he was one of the directors of the Company. It is also admitted that he cashed three of those receipts out of the funds of the Bank. The aggregate amount of the money which he thus received was the sum of ₹ 7,844-5-3. Obviously he cannot be allowed to retain this money to the detriment of the share-holders and the creditors of the Company. In Alerander v. Automatic Telescope Company [1900] 2 Ch. D. 56=69 L. J. Ch. 428=82 L. T. 400=48 W. R. 546=16 T.L.R. 339, Lindley, M. R., said. The Court of Chancery has always exacted from directors the observance of good faith towards their shareholders and towards those who take shares from the Company and become co-adventurers with themselves and others who may join them. The maxim 'caveat emptor' has no application to such cases, and directors who so used their powers as to obt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to my finding, Lala Jagmohan Lal is joint in business, was one of the directors of the Upper India Investment. Lala Jagmohan Lal allowed, in my opinion, this over-draft to be made to the Upper India Investment for the reason that his brother was a director of that Company and dishonestly concealed the transaction from the directors of the Bank. I entirely reject his evidence the he had no knowledge of the transactional. I therefore hold that Lala Jagmohan Lal is liable to compensate the Bank for the loss which the Bank has suffered in consequence of this over-draft. The plea of limitation was raised by Thakur Nawab Ali Khan. The liquidator's application as against Thakur Nawab Ali Khan has been rejected by me on merits. It is therefore not necessary to decide the plea of limitation. The result is that on the agreement of the parties I order that Mr. E. A. Labanti shall pay the sum of ₹ 76,593-15-4 with interest at 6 per cent per annum from this date till the date of payment to the liquidator, I also order Mr. Jang Bahadur Sinha to pay to the liquidator the sum of ₹ 7,844-5-3 with interest at 6 per cent per annum from this date till the date of payment and also p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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