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TMI Blog1967 (9) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... d the other by name Ayyadurai alias Madeswamy Moopanar, purchased the suit lands under two registered sale deeds dated June 17th and June 18th of 1945, for a total consideration of ₹ 11000 from one Ramaswami Raja and Rangammal. In O. S. 16 of 1949, the 1st defendant obtained a decree against defendants 2 and 3 for a sum of ₹ 10000 due under a promissory note that had been executed by them. Admittedly, the loan was obtained by the promisors for their personal purposes. In execution of the decree, the first defendant attached the suit properties and brought them to sale in E, P. 60 of 1955. An application of the second defendant representing the company in E. A. 301 of 1956 under O. 21. R. 58, Civil P. C., was dismissed on 29-10-1957 and thereafter he instituted, in his capacity as Managing director of Jayam and Co. the Managing Agents of the company, O. S. No. 3 of 1958 to set aside the order in E. A. 301 of 1956, but without success. No appeal was filed from the decree in O. S. 3 of 1958. By resolutions dated 27-7-1959, the second defendant was removed from the Managing directorship of Jayam and Co., and of the plaintiff-company and one A. M. Chinna Guruswami Moopana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d its execution. He did not accept that he mismanaged the affairs of the company and stated that he could not be removed from directorship until the expiry of 20 years from the date of the incorporation of the plaintiff-company. On that ground he urged that the suit itself as framed was not maintainable. At the trial, the second defendant remained absent and his counsel reported no instructions. 3. The Court below framed appropriate issues and found that the suit properties belonged to the plaintiff company, that the judgment and decree in O. S. 3 of 1958 on account of fraud and collusion on the part of defendants 2 and 3 were not binding on the plaintiff and that the plaint prayers should be granted. It also found that removal of the second defendant from the managing directorship was true, valid and binding on him and the suit was maintainable. This last finding is no longer in dispute before us. While granting a decree to the plaintiff as prayed for, the Court below directed it to deposit a sum of ₹ 23,301, for which the properties were purchased by the first defendant in execution of her decree within a specified period, as a condition to recover possession. The compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to the properties, that they had been purchased by two of its promoters for purposes of the Company, that after its incorporation it adopted the transactions and got into possession of the properties and that pucca mill buildings were constructed on the land though they remained incomplete. The present first defendant also figured as the first defendant in that suit and curiously the second defendant, who, in his capacity as Managing director of the company, instituted the suit figured as the second defendant but in his personal capacity. The second issue in that suit was whether the suit properties belonged to the plaintiff the Weavers Mills Ltd. at Rajapalayam and it was decided against the plaintiff with the result that the suit was dismissed. Though the issue was framed in that manner, the court posed the question for its decision as to whether the title to the properties had passed to the plaintiff-company. In answering the question against the plaintiff, the court relied on the fact that the prospectus which ought to mention the properties was not produced, nor was any resolution adopting the purchase of the properties proved. The Court also noticed that patta stood i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f fraud and collusion between the first defendant and himself. The circumstances referred to in the second ground were stated by the Court below to be that in O. S. 3 of 1958 the second defendant did not produce the prospectus of the company and that was the main reason why that suit was dismissed and further he did not produce the resolution of the Board of Directors of the company though there was one which had ratified the purchase of the suit properties. The Court below observed that its conclusion was substantially supported by the fact that the second defendant did not properly conduct O. S. 3 of 1958 and by the further conduct of the second defendant in the present suit by remaining ex parte at the trial stage, though he had earlier filed a written statement in which he supported the claim of the company as to its title to the suit properties. 8. Before us, the argument for the appellant in A. S. 178 of 1962 is that not only there is no evidence to support the finding of collusion between defendants 1 and 2 and fraud on their part but there was no fraud or collusion extrinsic to the trial in O. S. 3 of 1958 to vitiate the judgment and decree in that suit and render them n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings or in the proceedings in O. S. 3 of 1958 to show that defendants 1 and 2 colluded or employed fraud jointly or each by herself or himself on the company to defeat its rights in those proceedings. On the other hand, what appears is that the second defendant had been contesting the execution of the decree in O. S. 16 of 1949 against the suit properties and has all along been asserting and trying to establish its title to the properties by means of the claim petition and also of the subsequent suit. It is true that the second defendant did not file an appeal against the decree in O. S. 3 of 1958 but his plea was want of funds and proper support from the fellow directors in this regard. So far as the first defendant is concerned, there is nothing in the record including the oral evidence in the suit as to justify the finding that she colluded with the second defendant or was guilty of any fraud of any kind as against the company's interests. As we said, the first defendant had no easy task of executing the decree both personally against the second defendant and against the suit properties. 10. The Court below was perhaps right in its view that the present second defe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that it was a deliberate suppression on the part of the second defendant while he represented the plaintiff-company that in itself would not render the judgment and decree in that suit null and void leaving the issues as to title open for a fresh trial as between the parties. 12. On that matter, though there was difference of opinion in this Court earlier, Kadirvelu Nainar v. Kuppuswami Naicker ILR 41 Mad 743 AIR 1919 Mad 1044 settled it by overruling Venkatappa Naick V. Subba Naick, ILR(1906) Mad 179 and accepting the principle in Chinnayya v. Ramanna. ILR 38 Mad 203 AIR 1916 Mad 364. ILR 41 Mad 743 AIR 1919 Mad 1044 held that a suit did not lie to set aside a judgment in a previous suit on the ground that it was obtained by perjured evidence. ILR 38 Mad 203 AIR 1916 Mad 364 also was a case to set aside an earlier judgment on a similar ground. Sundara Aiyar J. who spoke for the Division Bench consisting of himself and Benson, J., elaborately discussed the question and held:-- In order that fraud may be a ground for vacating a judgment, it must be a fraud that is extrinsic or collateral to everything that has been adjudicated upon but not one that has been or must be deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly in A. S. No. 347 of 1962 (Mad), Jagannath v. Perumal Naidu. In fact this judgment relieves us from the necessity of an extensive consideration of the question. The learned Judges held:-- We therefore, hold that even if the plaintiff was guilty of suppression of the release deed Ex. B-15, executed by him the preliminary decree cannot be said to be vitiated by extrinsic fraud......... L. V. Apte v. E. G. N. Price, AIR 1962 Andh is even more directly in point for our present purposes where it was held that suppression of evidence and even negligent conduct in the prior litigation would not be proper grounds for setting aside an earlier order. 13. In the case before us, there is no question of any extrinsic fraud alleged or suppression on the part of the first defendant or the second defendant or both together. We hold, therefore, that the judgment and decree in O. S. 3 of 1953 are binding as between the plaintiff on the one hand and the first defendant as well as the second on the other and conclude the question of title against the plaintiff and it is not open to the plaintiff to reagitate it in the present litigation as it is barred by res judicata. That will suffice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act which admits of no doubt is that the second defendant never claimed that the funds for the purchase of the properties ever came from him or the one who joined with him, personally. It is in the setting of these circumstances we have to consider whether the company became the owner of the properties. 16. There is very little guidance in the Companies Act, 1913 and the new Act to decide the question before us. One of us in W. P. Nos. 475, 555 and 1249 of 1960 (Mad), Nandi Transport (P.) Ltd. v. S. T. A. T., had occasion to consider in a different context the legal implications in relationship of a promoter and the company under incorporation. There was there an elaborate consideration of that matter with reference to authorities, A Division Bench in appeal W. A. Nos. 85 and 86 of 1963 (Mad), Palaniswami v. Nandi Transports (P.) Ltd., and etc, arising out of those petitions also covered the question in some detail. But, for our present purpose, we think it is not necessary to cover the entire ground. A pro-motor according to Cockburn C. J. in Twycross v. Grant. (1877) 2 C. P. D. 469 is one who undertakes to form a company with reference to a given project and to set it going an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as correct in every respect by the House of Lords after 1856. In Kelner v. Baxter, 1866-2 CP 174, it was held that a contract entered into by a promoter could not be ratified by a company after its incorporation. Willes, J. one of the learned Judges who decided that case observed at page 184-- I apprehend the company could only become liable, upon a new contract. It would require the assent of the plaintiff to discharge the defendants. Could the company become liable by a mere ratification? Clearly not. Ratification can only be by a person ascertained at the time of the act done---by a person in existence either actually or in contemplation of law. Lord Davey in Natal Land and Colonisation Co. Ltd. v. Pauline Colliery Syndicate. 1904 AC 120, speaking for the Judicial Committee stated that a company could not by adoption or ratification obtain the benefit of a contract purporting to have been made on its behalf before the company came into existence and that in order to do so a new contract must be made with it after its incorporation on the terms of the old one. Sections 21 (f), 23 (h) and 27 (e) of the Specific Relief Act, 1877, were perhaps based on the doctrine of Lor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law requiring it to be in writing. Section 9 will enable it to be made without writing. If on the other hand, the transaction is not a 'transfer of property' and there is no express provision of law requiring it to be in writing, the general principle referred to above will enable it to be validly made without writing. The learned Judge, if we may say so with respect, rightly pointed out that Section 9 underlines the general principle that everything is to be taken permissible unless there is a prohibition against it and has been inserted in the statute ex abundanti cautela. While we accept the position that a promoter is neither an agent nor a trustee of the company under incorporation, we are inclined to think that in respect of transactions on behalf of it, he stands in a fiduciary position. For the plaintiff- company Sections 92 and 94 of the Indian Trusts Act, 1882, were relied upon. It seems to us that neither of these sections is of assistance to it. These sections, as we think, contemplate transactions as between persons in existence. In any case, it seems to us that no trust as defined by Section 3 of the Act is brought about by the purchases made by the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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