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TMI Blog1960 (5) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... g behind a widow and three sons, Durga Parshad, being the eldest son, continued the joint family business with himself as the karta of the joint family. After the death of Durga Parshad, Ladli Parshad, being the eldest male member of the family at that time, continued the business till 1940, when the joint family appears to have disrupted with the result that his business was converted into a contractual partnership. It seems that soon thereafter the business was taken over by a private limited Company Ltd., incorporated sometime in 1941. These facts are clear from another litigation which culminated in a judgment by a Division Bench of this Court in Karnal Distillery Co. Ltd. v. Ladli Parshad, L. P. A. No. 100 of 1954, D/- 18-10-1957 and reported as and are not controverted. This judgment is now the subject matter of an appeal to the Supreme Court. It was, however, agreed at the Bar that the decision in this judgment operates as res judicata and it is for this reason that I have reproduced this earlier history of the Karnal Distillery Co. Ltd., in the present case. It may also, at this stage, be mentioned that, according to the respondents, the suit, out of which the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being. (2) According to this compromise L. P. Jaiswal was given a sort of a clearance certificate absolving him of all responsibilities of his dealings as Managing Director; for future L. P. Jaiswal ceased to be Managing Director but became instead a permanent Chairman, and S. P. Jaiswal became the Manager of the Company. This compromise, however, appears to have been short-lived and trouble again started in less than a year. On 28-3-1946 L. P. Jaiswal was removed from directorship of the company and some changes were effected in the Articles of Association. This is really the culminating point of the struggle between the two brothers to take control of the concern. L. P. Jaiswal thereupon instituted a suit challenging various proceedings including those of 28-3-1946. This suit is, as stated above, now the subject matter of an appeal to the Supreme Court from the decision of a Division Bench of this Court. (3) The present suit was instituted by the Karnal Distillery Co., Ltd., through S. P. Jaiswal as the Managing Director against L. P. Jaiswal and M/s. L. P. Jaiswal and Co., through L. P. Jaiswal its sole Proprietor, for the recovery of ₹ 44,070/- 13/- The basis of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf of the Company. On the merits it was contended that L. P. Jaiswal was a Managing Director of the Company up to 16th of October 1945 and continues to be the Chairman of the Company even thereafter. Para 3 of the plaint was denied and it was emphatically controverted that L. P. Jaiswal as Managing Director fraudulently did any act to derive personal benefit at the cost and to detriment of the Company. The selling price of methylated spirit during the period between the 31st of March and 3rd of July, 1944, at ₹ 2-8-0 per bulk gallon was also not admitted. It was of course denied that the plaintiff-Company supplied to the defendant during the above period 25,146 bulk gallons of methylated spirit. Allegations in para 4 of the plaint were similarly not admitted and existence of fiduciary position of the defendant as well as any alleged breach of trust were also disputed. It was pleaded that no fiduciary position had been abused, nor had any gain or personal profit to the extent of ₹ 36,147-8-3 been made as a result of such abuse. Loss to the plaintiff-Company was also not admitted, thought it was accepted that L. P. Jaiswal had been carrying on business in the name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was reiterated that L. O. Jaiswal had taken undue advantage of his fiduciary position as the then Managing Director of the Company and had thus cleverly manipulated certain proceedings and resolutions with a view to benefit himself at the cost of the Company and to cover up his otherwise fraudulent dealings. Those resolutions and receipt, the correctness and validity of which was denied, were alleged to be fraudulent acts in breach of trust and in utter abuse of the fiduciary position held by L. P. Jaiswal in relation to the plaintiff-Company; the plea of estoppel was to course denied. (6) On 31st of August 1948 one of the preliminary objections relating to the applicability of S. 10 of the C.P.C., was decided in favour of the defendants and the suit, as already noticed, was stayed till the decision of the other suit. Mr. Ladli Parshad Jaiswal v. The Karnal Distillery Company Ltd. . (7) The present suit was revived sometime in 1950 and in the statement before issues S. P. Jaiswal asserted that the defendant L. P. Jaiswal as a Managing Director of the plaintiff-Company had sold to himself as sole proprietor of M/s. L. P. Jaiswal and Co., 25,146.1 bulk gallons of methylate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... triment of the plaintiff-Company supplied 25.146.1 bulk gallons of the methylated spirit to defendant No. 2 of which he was the sole proprietor? 5. Whether at the time of the purchase the selling price of the spirit was ₹ 2-8-0 per bulk gallon? 6. Whether defendant No. 1 in entering into this purchase transaction committed a breach of trust of the fiduciary position existing between him and the plaintiff-Company? If so, what is its effect? 7. Whether the plaintiff is estopped from bringing this suit by his acts, conduct and admission? 8. Whether defendant No. 1 was by the resolutions or Articles of the Association barred form carrying on a separate business? If so, what is its effect? 9. Whether by resolutions mentioned in para No. 10 of the written statement defendant No. 1 was permitted by the plaintiff-Company to carry on separate business to buy the spirit in suit from the plaintiff-Company as his personal and private business without any objection? 10. Whether the plaintiff-Company approved and confirmed the purchase of spirit in suit by defendant No. 1 from the plaintiff? If so, what is its effect? 10A. Whether on 16th October, 1945, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t did not feel satisfied on the evidence produced in the case that the selling price of the spirit at the time of purchase by the defendant was ₹ 2-8-0 per gallon. The Court came to this conclusion on the ground that evidence with respect to private sale, given by some of the plaintiff's witnesses could not afford a safe criterion for the price fixed for the contractors of the Government of India and that the best evidence on this point had not been brought on the record. Decision on issue No. 6, following the discussion on issue No. 4, similarly went against the plaintiff. On issue No. 7 the plaintiff having been held to have given a complete discharge on 16th of October 1945, was found to be estopped from bringing the present suit. As a result of the decision on issues Nos. 4 and 7 the conclusions on issues Nos. 8 to 10 also went against the plaintiff, the finding being that the plaintiff had actually approved the transaction in dispute to be fully justified. Under issues Nos. 10A and 11 also, as a result of the decision in the earlier suit negativing the allegations of undue influence and coercion, the plaintiff-Company before us, having given complete discharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parshad Jaiswal over his younger brother S. P. Jaiswal and nephews, was a finding of fact and, therefore, not open to question on further appeal in the High Court. This finding was held not to be vitiated in any manner so as to justify interference by this Court on second appeal. As a result the conclusion of the District Judge to the effect that the resolutions mentioned in para 6 of the plaint in the earlier suit and passed at the extraordinary general meeting, dated 16th of October 1945, were ineffective as having been passed under undue influence was upheld. The allegation of coercion by L. P. Jaiswal, however, did not find favour with the Division Bench. What has been stated above clearly establishes that the compromise, which was given effect to in the form of several resolutions passed at the extraordinary general meeting of the plaintiff-Company held on 16th of October 1945, was held to be bad and ineffective on account of undue influence exercised by L. P. Jaiswal. The following items inter alia were thus held to be tainted with undue influence and, therefore, of no binding effect: (i) The resolution accepting and ratifying all acts done by L. P. Jaiswal and the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither of the meetings held on 3rd of March 1946 and 28th of March 1946 were valid or binding on L. P. Jaiswal. That this decision does operate as res judicata was conceded by Mr. Bali, and indeed the tried to build his case on the assumption that these meetings are of no avail to him. The appellant has contended that S. P. Jaiswal is competent to file the present suit by virtue of Art. 132 of the Articles of Association of the Company. Mr. Tuli has, on the other hand, argued that the resolution by which this Article was passed, has been held to be invalid, or, at least, it must be considered to be invalid on the merits. Mr. Bali has submitted in the alternative that even if S. P. Jaiswal be not considered to be the Managing Director, he is in any case competent to file the present suit as the Managing or Director or principal officer of the Company. He has also contended, in addition, that if the resolution of 16th of October 1945 is cancelled, then this would result in revival of the resolution of 20th February, 1945, according to which S. P. Jaiswal had been appointed a Managing Director. This resolution, according to Mr. Bali, also gives to the Managing Director specific powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that filing of suits is an integral part of the functions of managing a limited liability Company by the Directors. In this connection our attention has also been drawn to Art. 71 in Table 'A' of the Indian Companies Act (Act VII of 1913) which defines the powers and duties of Directors. This Article undoubtedly lays down inter alia that: The business of the company shall be managed by the directors, who may pay all expenses incurred in getting up and registering the company, and may exercise all such powers of the company as are not, by the Indian Companies Act, 1913, or any statutory modification thereof for the time being in force, or by these Articles, required to be exercised by the company in general meeting. The counsel has in this connection also relied on H. M. Ebrahim Sait v. South India Industries Ltd . AIR 1938 Mad 962, for the proposition that managing the business of the company includes the institution of suits on its behalf, when it becomes necessary in the course of management to recover moneys due to the company. In the alternative, reliance has been placed on Ex. P-3, which is a resolution passed on 2nd of March 1947 authorising S. P. Jaiswal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him. The counsel has relied on Kanssen v. Rialto (West End) Ltd. (1944) 1 All ER 751 and Punjab Zamindars Bank Ltd. Lyallpur v. Madan Mohan Singh AIR 1936 Lah 321, in support of his contention that no notice having been sent to Ladli Parshad, the Board meetings must be considered to be invalid. In addition he has emphasised that Shrimati Suraj Mukhi having been illegally appointed a Director in place of L. P. Jaiswal, the Board was invalidity constituted, and on this ground also the meeting of 2nd of March 1947 is invalid. (17) After giving my best consideration to the points raised, in my view S. 86 of the Indian Companies Act (VII of 1913) would clearly cover this case, and it is difficult for me to hold that the power given to S. P. Jaiswal to file the present suit was so clearly and patently invalid as to justify its dismissal. It is precisely to save cases of the present nature that the Legislature has, in its wisdom, enacted S. 86. Merely because the earlier suit had been filed by L. P. Jaiswal making all sorts of sweeping allegations, which may or may not ultimately be found or shown to be correct or even justified, does not bring the case within the purview of the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an action having been brought by the plaintiff for a declaration that the and 'C' were the only Directors, it was held by the Court of Appeal that 'M' having been put an enquiry, he should have inquired into the question whether or not 's' was in fact a Director and that having failed to do so, he could not rely on S. 143 of the Companies Act of 1929. Support is sought form this decision for the proposition that if a person is put on enquiry--as S. P. Jaiswal and other de facto Directors are said to have been put on inquiry by L. P. Jaiswal--then he cannot rely on S. 86. (19) This section, as its language shows, refers to 'discovery of defects' and not discovery of facts. It is the subsequent discovery of defect in the appointment or qualification of a Director which this section seeks to cure for certain purposes, and not the subsequent discovery of complete absence of factual appointment of Director. The case in hand is not a case of no appointment of Directors as was the position in Kanssen's case 1944 1 All ER 751, but is only a case of a defect in the appointment of a Director, and this is so even according to the defendant contention. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, the institution of the suit being obviously for the benefit and in the interest of the plaintiff-Company. I am, however, not expressing any considered opinion on this point. (23) The next point canvassed before us is with respect to the fiduciary capacity of L. P. Jaiswal. Mr. Bali has referred us to Art. 110 of the Articles of Association in which the Directors including the Managing Director are held not to be disqualified by their office from contracting with the Company, provided the nature of the interest of the Director concerned is disclosed by him at the meeting of the Directors at which the contract or agreement is determined and that the consent of the Directors is previously obtained in case of any contract or arrangement for the sale or purchase or supply of goods and materials with the Company by a Director, etc.; it is further provided in this Articles that no director or Managing Director shall vote in respect of any contract or arrangement in which he is so interested and, if he does so, his vote shall be counted. Section 86-F of the Indian Companies Act of 1913, to which also the counsel has referred, makes a similar provision, and so far as is relevant for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Martin (1875) 1 Ch D 580, is the next decision on which Mr. Bali placed reliance in support of his contention fixing liability on L. P. Jaiswal. The counsel also read out certain passages from Palmer's Company Law (Twentieth Edn.) at pp. 554 and 564. At p.554 it is stated that, unless the Articles a confer on a Director express powers of contracting with the company, a Director's powers of so contracting are extremely limited. The company is entitled to the collective wisdom of its Directors, and if any Director is interested in a contract, his interest may conflict with his duty, and the law always strives to prevent such a conflict from arising; not even if it can be shown that the contract in question is a fair one is the Director allowed to enter into it, for the Courts will not, in such cases, look into the merits, but adhere strictly to the rule that the possible conflict of interest and duty must not be allowed to arise. The following words of Lord Cairns L. C. from the decision Parker v. McKenna (1874) 10 Ch App 96, are then quoted: No man can in this Court, acting as an agent, be allowed to put himself in a position in which his interest and duty will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te.* * * (33) The evidence of Banarasi Das, P.W. 1, Murari Lal P.W. 2 and Tara Chand P.W. 4 on the question of rate of methylated spirit is not only vague and general in character, but it also suffers from the infirmity of being inconclusive and uninspiring. I am wholly unable to place reliance on their testimony, which is also unhelpful because obviously the commodity in question could not be sold by the plaintiff in the open market. (34) But then the appellant has contended that L. P. Jaiswal is liable to reimburse the plaintiff-Company and pay the entire profits made by him by supplying the solidified spirit to the Government; it is urged that L. P. Jaiswal having failed to produce his accounts relating to this deal with the Government, a presumption should be raised against him. This contention is, in my opinion, wholly misconceived. In the plaint as laid, the plaintiff has not claimed the profits made by L. P. Jaiswal on account of the supply of solidified spirit to the Government. The only question arising out of the pleadings in the plaint centres round the extent of advantage obtained from or through the contract of purchase of methylated spirit by L. P. Jaiswal fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e barred by time. I do not see how this position helps the learned counsel. Article 36 expressly excludes the liability on the basis of a contract, and in the present case, the controversy has really been fought out on the ground that the contract said to have been entered into by Mr. L. P. Jaiswal with the plaintiff-Company was brought about as a result of undue pressure and abuse of fiduciary position. (38) The defendants have raised, in defence, all sorts of pleas--consistent and inconsistent--including even the plea that they had disclosed their interest in the contracts and had secured the consent of the Company through the Directors. The suit in these circumstances seems to me to be covered by the residuary Article 120. The Madras authority cited above would thus seem to be more to the point and, as held therein, the period of limitation for the present suit would be six years; nothing convincing has been urged to the contrary by the respondents. (39) It has often been observed that the provision of the Limitation Act, which take away the right to sue, have to be strictly construed. If the language is clear, express, precise and unambiguous, it must be enforced, but whe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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