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The New Fleming Spinning and Weaving Company Limited Vs. Kessowji Naik and ors. - Court Judgment

LegalCrystal Citation
Decided On
Reported in(1885)ILR9Bom373
AppellantThe New Fleming Spinning and Weaving Company Limited
RespondentKessowji Naik and ors.
company - negligence of directors--liability of directors for negligence in management--employmentof agent by director--acquiescence of share holders--liability of estate of deceased director--banker, who is a--limitation act (xv of 1877), section 10--practice written statement filed after time allowed. - maharashtra scheduled castes, scheduled tribes, de-notified tribes (vimukta jatis), nomadic tribes, other backward classes and special backward category (regulation of issuance and verification of) caste certificate act (23 of 2001), sections 6 & 10: [s.b. mhase, a.p. deshpande & p.b. varale, jj] caste certificate petitioner seeking appointment against the post reserved for member of schedule tribe his caste certificate was invalidated subsequently held, his appointment would not be.....scott, j.1. this case is of great importance, not only to the parties oil account of the magnitude of the sums claimed (eleven lakhs), but also to the whole community on account of the question to be decided -to wit, the extent of the liability of directors of limited companies for the result of negligent performance of their duties. the plaintiffs are the liquidators of the new fleming spinning and weaving company, which commenced its existence on the 31st of july 1878, and stopped payment on the 26th december in the same year. the defendants are kessowji naik and gellabhoy puddumsey, directors of the company; mr. turner, the official assignee of nufsey kessowji, an insolvent director; and the sons of sakerchand nagendas, a deceased director, mr. k. n. cama was also made a defendant.....

Scott, J.

1. This case is of great importance, not only to the parties oil account of the magnitude of the sums claimed (eleven lakhs), but also to the whole community on account of the question to be decided -to wit, the extent of the liability of directors of limited companies for the result of negligent performance of their duties. The plaintiffs are the liquidators of the New Fleming Spinning and Weaving Company, which commenced its existence on the 31st of July 1878, and stopped payment on the 26th December in the same year. The defendants are Kessowji Naik and Gellabhoy Puddumsey, directors of the company; Mr. Turner, the official assignee of Nufsey Kessowji, an insolvent director; and the sons of Sakerchand Nagendas, a deceased director, Mr. K. N. Cama was also made a defendant director; but on his death, in the course of the case, the Court, at the request of the plaintiffs, under Section 302 of the Civil Procedure Code caused an entry of the death to be made on the record, and the suit proceeded against the other defendants,

2. The failure of the plaintiffs' company,, as well as that of three other well-known mill companies, was due to the losses caused by their bankers, Nursey Kessowji & Co.; and the plaintiffs'' seek to make the defendants liable for those losses. The losses may be divided under three heads:

(a). The sum of Rs. 1,23,887-4-4, moneys in the hands of the bankers when the company started.

(b). The difference between the above sum and the sum of Rs. 8,80,250-14-1, to which amount the money due from the bankers at the time of the failure was raised by reason of borrowings which the plaintiffs allege to have been illegal.

(c). The sum of Rs. 2,48,(70-14-0 raised by the banters by the mortgage of 787 unallotted shares, which sum was applied by the bankers to their own uses. This claim, however, was reduced by the plaintiffs, in the course of the case, to Rs. 2,14,000, which is the sum finally claimed under this head.

3. The plaintiffs seek to make the defendants liable for the above losses, on the following grounds:

(1). That the appointment of Nursey Kessowji & Co. as, bankers of the plaintiffs company was ultra vires on the part of the directors, and contrary to the provisions of the memotan-dum and articles of association, of the company.

(2). That the appointment was made by them, not in the interests of the company, but for the purpose of placing money in the hands of the firm of Nursey Kessowji & Co., to enable it to carry on a speculative business.

(3). That they raised money beyond the need of the concern, and deposited it all in the hands of Nursey Kessowji & Co., well knowing, or having good cause to know, the firm to be in in-solvent circumstances.

(4). That, although by the articles of association they were bound to manage the affairs of the company, they never saw to the proper application of the money by Nursey Kessowji & Co., who were thus enabled to appropriate the sums to their own purposes.

(5). That they acted improperly in handing to the firm the 787 unallotted shares, and in neglecting to see to the proper application of the money raised upon them.

4. Thus the charge against the defendants is a two-fold one, including misconduct as well as negligence : misconduct in acting ultra vires and with bad faith : negligence in not exercising ordinary prudence in the discharge of the duties they had undertaken as directors

5. The defendants replied to these charges by [separate [written statements, which, for the most part, raised common grounds of defence. They said that the firm of Nurseyj[Kessowji &. Co. had been the bankers of the Old Fleming Company, out of which the plaintiffs' company was formed, for several years, and that the firm enjoyed, at the time of their re-appointment by the defendant directors, a high reputation and first-class credit as ,bankers as well as merchants in Bombay. The defendants repudiated all knowledge of the firm's speculative business and of the firm real financial position. The defendants maintained their -legal right to make appointments according to of the company, and further said that the appointment was well known and acquiesced in by the shareholders of the company They also repudiated any negligence as regards the un-alloted shares, and maintained their right to deal with them as they did. Kessowji Naik in particular denied that he had been closely connected with Nursey Kessowji in his business, and that the other directors were either his or Nursey Kessowji's relatives or debtors. He also showed, as a proof of his bond fides, that he had guaranteed the payment by Nursey Kessowji & Co to the Bank of Bombay, and that he had paid on that account more than four lakhs of rupees. He pleads a set-off in respect of these payments, and. Sakerchand does the same as regards similar payments. The representatives of Sakerchand and Gellabhoy Puddumsey deny that they in any way acted under the influence of Kessowji Naik. Thus the defendants repudiate the charts both of misconduct and negligence.

6. Before I consider what is the law with regard to the liability of directors, and how that law is applicable to the oases as proved by the evidence, I will, for the sake of clearness, give a short history of the plaintiffs' company, the New Fleming Spinning and Weaving Company.

7. It arose out of the Old Fleming Spinning and Weaving Company, which in 1874 had sprung out of the Royal Spinning and Weaving Company. The Old Fleming Company had a capital of eighteen and a half lakhs. In 1877 it largely increased its number of spindles by an addition of 13,300 new ones, and incurred other expenses, which altogether involved an expenditure of over three lakhs. To meet this new charge the directors of the old company who, with the exception of Sakerchand, were the same as the directors of the new company (the defendants to this suit),-decided to transfer the mill and all its interests and liabilities to a new company, with an increase of capital up to twenty two and a half lakhs. They called a meeting of shareholders of the old company, and made a report, in which they stated the object of transfer to be 'an increase of the available capital of the company.' This increase was to be attained by the issue of 787 shares of Rs. 500 each. The rest of the shares of the.; new company were distributed amongst the holders of the old as the price of the transfer. The resolutions regarding the transfer were unanimously carried, and on the 31st of July 1878 the new company was registered. Although it was in name a new company, the new concern was in reality only the old company reconstituted. The memorandum of association and the articles of association remained the same. With the memorandum there was also incorporated the agreement, which had been in force with the old company, setting out the terms on which Nursey Kessowji held the post of secretary, treasurer and agent, and he was continued in that office on the some terms. His firm of Nursey Kessowji & Co. had been bankers of the old company and of its predecessor the Royal. They- held in their hands at the time of the transfer the sum of Rs. 1,23,000, which passed under the arrangement to the new company. They continued at the transfer without any interruption, to act as the bankers of the company, paying and receiving money, and on the 6th August they were formally appointed as bankers by the board. By the balance-sheet of the old company (exhibit A 22) there appears to have been due at the time of the transfer-

Rs.Fur old loans falling due at different dates ... ... 9,81,624Debts due to cotton merchants ... ... ... 9,003Debts due for unclaimed dividends ... ... ... 21,930Debts due on security of yarn and cloth ... ... 2,36,974Suspense account ... ... ... ... 43,819Adjusting account ... ... ... ... 41,654On the assets side of the account we find-Cost of buildings and machinery ... ... ... 22,17,86Stock of cotton stores and goods ... ... ... 5,29,528Cash in banks and good debts (50,000 in Banks ofBombay) ... ... ... ... ... 62,174Consignments to Calcutta ... ... ... ... 19,477Consignments to China ... ... ... ... 1,94,754In hands of Nursey Kessowji & Co. as bankers ... ... 1,23,887 Profit and loss ... ... ... ... ... 76,941

From this statement of the affairs of the company at the time of the transfer it is evident that money would have to be raised to meet, not only the old loans amounting to nearly ton lakhs as they fell due month by. month, but also the other debts, the most, important of which were the debts due op the security of yarn and cloth, which were over two and a quarter lakhs in amount. In addition to these existing liabilities there would be, of course, the necessary monthly disbursements for the purchase of cotton and yarn and for the general working of the mill. The sum necessary on this head was, in round figures, Rs. 1 ,50,000 per month.

8. The primary source, from which these liabilities could be met, was the cotton cloths and yarn in stock, of which I have already stated the value, and those which wore in course of production which varied from one and a half to two lakhs of rupees worth every month. Unfortunately the country had recently suffered from famine, the usual Mofussil market was almost closed, and the sales that were actually made during the whole existence of this company resulted in no appreciable profit. The next course to adopt was to obtain advances on this stock, for the moment unsaleable. Money had already been raised on it, but the balance-sheet shows the advances to be two lakhs short of the full value. Then there were the consignments to Calcutta and China, on which security money might also be raised. Finally, there was the course of raising new loans to meet the old ones. As a matter of fact, Nursey Kessowji & Co. adopted all the three latter courses. But the directors say that they were only informed of the new loans, and knew nothing of the rest. The course of business pursued by the agent, in his capacity as the working partner of the concern, and by the directors in their capacity as supervisors of the business in the interests of the shareholders, was as follows. The directors held a meeting of the board about once a month. Nursey Kessowji attended the meetings as agent and ex-officio director. At these meetings, I find by the minute book (exhibit N), the agent produced 'a tabular statement showing the purchase and consumption of, cotton, coals, stone, &c;, and the production of yarn and cloth with the rates of the sales thereof per pound and the general expenditure for the month.' The agent also 'informed the board that the following, loans had been taken,' and that 'the following loans had been paid.'

9. Now it is a fact of cardinal importance in the present inquiry that whilst this was all the information given to the directors concerning the business of the company, they never sought to obtain any other for themselves. The two directors, who give evidence, admitted that they made no other inquiry. Kessowji Naik says 'that a memorandum of the loans to become due and for money required for the working of the mill was placed before them.' He goes on to say. 'We believed it to be correct. We did not investigate it. No director did. Nursey also reported what loans had been taken, and what paid. I never compared what he reported as paid with what he had previously stated as payable.' Then again, he says: 'Against the yarn shipped to China and Calcutta, hundis may have been drawn. That was the practice. I did not inquire how much was received on that account.' Further on he admits that, by the agreement with the cloth agent, the agent was bound to advance a sum approximate to the value when he removed the cloth from the mill, and he admits that the agent may have held a large stock of cloth on which advances had been made. He then says: 'I never looked at the books of the company in all may experience. I never asked a question of the servants of the company. I never inquired what money was in the hands of Nursey Kessowji & Co.' Gellabhoy Puddumsey, the other director who gave evidence, made in substance the same admissions. He says as to the information with which the directors were satisfied: ''All we know was the loans to be paid off, and the money due to cotton merchants. And tabular statements were also laid before us. Nursey used to tell us what loans he had paid; but I never checked the accuracy of this with his previous statement of what loans had to be paid. We used to ask Nursey if the loans had been paid off, and he said, yes. We had confidence in him, and did not examine the books.'

10. On October 6th, 1878, an event occurred which must have materially affected the fortunes of the company. The house of Nicol & Co., for whom they acted as mukadams, was brought down by the failure of the Glasgow Bank. A very important source of income to the firm, amounting on an average to over Rs. 30,000 a year, was thus suddenly cut off. In the course of the same month another important event occurred. At a meeting of the Board, on the 13th of October the question of the 787 unallotted shares were brought forward. It was then for the first time brought to the collective notice of the directors that they had failed to place those shares upon the market, and thus the principal object of the reconstitution of the company, 'to enable the business of the company to be carried on with an increased capital,' had failed. Whatever the defendants now say it is certain that the concern had reached a crisis in its fortunes. Trade was bad and their cloth and yarn had no sale in Bombay. The fall of a colossal house had cut off a large and steady source of income to the company, whilst it had shaken the credit of almost every firm in Bombay. The anticipated increase in capital by the sale of the 787 shares, for which the new company had been formed, had not been obtained. These facts confirm the evidence of Mr. Premchund Roychund, who was their broker, and Mr. Fraser, who was their banker-both men most competent to speak on such a 'subject, and who both said that the credit of the company was failing from the time of its foundation, and gradually worsened down to its failure. It is impossible, also, not to suppose that the defendant directors, all of them men of business and all of them not only directors, but otherwise interested in cotton goods and mill property, were ignorant of the real state of things.

11. Now to resume my narrative. It was resolved, not at this meeting, but subsequently on the 31st of October, to raise money on these shares by way of mortgage, and they were placed in the name of Nursey Kessowji, in order that he might effectuate that object. As a matter of fact, Nursey in the course of the following month did raise large sums on the shares, which he used for his own purpose. But the directors say they never became aware of the pledges or of the misappropriation until after the failure of the firm, and they admit that they made no inquiries. In December the Bank of Bombay asked for a statement of the company's affairs, and on the 12th of December the directors, including Nursey, presented a statement with the following note annexed and signed by them all:' We have examined this account, and we find that it contains a true and exact statement of the position of the company.' The two defendant directors who gave evidence now tell us that they made no investigation at all, but took the statement blindfold from Nursey. It represents as part of the capital of the company the sum of Rs. 8,40,000 whilst as a matter of fact that sum, which had been raised by the company to meet its obligations, had been applied by Nursey Kessowji & Co. to their own purposes. Kessowji Naik tall us that, in the days following the 12th of December, he learnt from the mill manager, Bapuji, that the statement was incorrect, and that he informed the bank of its incorrectness. Consequently on the 23rd the bank demanded another statement, and one was given them on the 25th, which represented the Rs. 8,40,000 no longer as part of the available capital of the company, but as a mere debt due from Nursey Kessowji & Co. The stoppage of the New Fleming Company's mill and the failure of its managers, Nursey Kessowji & Co., followed immediately. And subsequent investigation proved that Nursey Kessowji & Co. had increased their debt to the mill from Rs. 1,23,000, the sum duo on the 31st of July at the time of the transfer to Rs. 8,80,000 and had also misappropriated at least Rs. 2,14,000 which they had raised on the 787 unallotted shares.

12. I have now described, in order of date, the transactions out of which this suit has arisen. I will next lay down the law which is applicable to the case. '

13. The first legal point to be settled as regards the directors is, whether they are trustees or mere agents. All the authorities beginning with Lord Hardwicke a hundred years ago (2 Atkins, 400), who says that the directors in accepting their trust are within the case of common trustees, down to Bacon, V.C. a few months ago (London Financial Association v. Kelk 26 Ch. Div. at p. 143, who says 'they are not improperly called trustees,' agree in assigning them the former position. The question was fully discussed in Flitcroft's case 21 Ch. Div., 519. Bacon, V.C. there says: 'They have interests of their own, but they are trustees of the money which may be collected by subscriptions and of all the property that may be acquired.' Jessel, M. R., says in the same case on appeal 'they are quasi trustees for the company,'' Cotton, L. J., says: 'The directors are in the position of trustees.' In another case Jessel, MR. calls them 'commercial trustees,'-Smith v. Anderon 1 Ch. Div. at p. 26. Lord Romilly says L.R. Eq, 11:' Directors are responsible as trustees for the employment of funds. In Section 88 of the Indian Trusts Act, No. II of 1877, directors are placed in a list of persons bound in a fiduciary character to protect the interests of others. And the Specific Relief Act, I of 188 ', in its interpretation Clause (section 3), says: 'Trustee includes every person holding expressly, by implication, or constructively, a fiduciary character.'' My conclusion is that, (a) although the directors are not trustees in every sense of the term, they stand in a fiduciary relation towards their shareholders with respect to the funds and the business placed in their charge, (b) It follows that they are liable to be sued for a breach of trust, in case they have not dealt with the property and watched over the business as carefully as a man of ordinary prudence would deal with such property and watch over such business if they were his own.

14. The question of liability, therefore, in this case may be put in this way. Did the defendant directors as commercial men, managing a trade company, in conjunction with the agent, for the benefit of themselves and all the other shareholders in it, use fair and reasonable diligence in the management of the company's affairs? In deciding such a question the Court has to hold the balance fairly, in order to avoid alternative dangers. On the one hand the interests of shareholders and of creditors must be safeguarded against negligence and misconduct. On the other hand, the duties of directors must not be made so onerous as to cause every honest and prudent man shrink from accepting such a post. If directors were to be made pecuniarily liable for every slip and error, all prudent men would refuse to act, and companies would be at the mercy of fools or rogues. In laying down any general rule for India as to the duties which ought properly to be imposed on the directors of joint-stock companies, which are an institution of purely English origin, we should, I think, be guided by a consideration of English commercial rules and by the current of English decisions so far as they can be suitably applied to. a people whose trade is of comparatively recent growth, But the importance of association in commercial matters is now fully realized by the natives of India, and the advantages of a limited liability are not less recognized. I find from the 'Times of India Calendar' that in the island of Bombay there are eleven joint-stock hanks, forty, null companies, and over fifty other large trading concerns of all kinds conducted on the limited liability principle, with directors, instead of partners, to supervise the management. In the interests of the public, therefore, whether shareholders or creditors, it is necessary to lay down rules to ensure as equitable a management of a company's concerns, from those who are entrusted with its direction, as can now be obtained from the members of an ordinary partnership.

15. It was argued that the pecuniary liability of directors ought not to extend to mere consequences of negligence where they have not themselves benefited improperly. I cannot accept this contention so broadly stated. A man of course is not force 1 to place himself in a fiduciary position. But if he does undertake the affairs of others he must exercise ordinary prudence and vigilance. No doubt the directors were not, in the present case, bound to transact personally the daily affairs of the company. By the statutes of the concern there was a special agent on whom devolved that duty; but his existence did not relieve them from all responsibility. They were not mere ministerial officers placed there to confirm the agent's acts. It is an established rule that trustees cannot delegate their office, and, if they do thus divest themselves of their trust, they are held liable for any breach of trust committed by the person to whom the office has been entrusted. 'Trustees,' says Lord Langdale (Turner v. Corney 5 Beav. 517, 'who take on themselves the management of property for the benefit of others, have no right to shift their duties on other persons, and, if they employ an agent, they remain subject to responsibility towards their 'cestui que trust' for whom they have undertaken the duty.' There are, of course, exceptions to this general rule, as, for instance, when the employment of an intermediary party, such as a shareholder, is absolutely necessary (Ex park Belchin Amb., 212; Speight v. Gaunt 9 App. Cas. 1. But that exception does not apply in the present case, where the directors had a distinct duty imposed upon them to watch over the business of the company in conjunction with the agent. The articles of association say 'the business of the company shall be managed by the board (of directors) with the assistance of the agent.'

16. Marzetti's Case 28 W.R. 641 is on all fours with the present case. There, a director of a company was present, and voted at a meeting of directors, where a payment was sanctioned for preliminary expenses. He made no inquiry as to what the payment was for. It was, in fact, for expenses incurred by fraudulently rasing the price of company's shares in the market. The director was held liable to repay the amount so paid as, although a director's liability is not governed by the strict rules applied in the case of trustees, he must show reasonable diligence. The Lords Justices in this case confirmed Sir George Jessel, and held that a director, even though, he be acquitted of any thing like dishonesty, stil he must be held liable, if he fails to show reasonable diligence in calling for accounts and explanation. Brown's Case L.R. 8 Eq., 381 was cited with approval where similar doctrine was laid down by James, L. J.

17. If, instead of performing their duty and showing reasonable diligence, the 'defendants delegated all the control to the agent, and so enabled him to misapply the company's money, they must, on the authority of the rule laid down by Lord Langdale, be held liable for that misapplication. I have now dealt with the law on this point.

18. The next question of law is whether any, and, if any what, errors of directors can be excused by the acquiescence of the shareholders. I do not think, this point so important as the last in the special circumstances of the present case. But the question is discussed at great length in Ashbury Carriage Company v. Riche 7 H.L. 653 A distinction was drawn between acts ultra vires, not only of the directors of the company, but of the company itself, and acts which are extra vires the directors, but intra vires the company. The first cannot be ratified, because they are beyond the powers given by law, either as being against public policy, or prohibited by statute, or because their admission would be unjust to the outside public', or because they are inconsistent with, or foreign to, the objects expressed in the memorandum of association. The second class applies to cases where the directors have gone beyond the powers entrusted to them; but still the acts are not beyond the objects of the memorandum of association, and may be validated by the sanction of the company. This second class is capable of ratification, and I think the nomination of Nursey Kessowji & Co. as bankers would come under that head. But there must be distinct proof of ratification in accordance with the formalities laid down by the statutes of the company, and a mere presumption of the assent of each shareholder will not be sufficient. Now in the present case the defendants have not even established a presumption. The shareholders of the new company never once met during its existence. It cannot be truly said that the new company was virtually the old company under a new name. Not only were the existing shares changed into shares of a small amount, but 787 new ' shares were created. The acquiescence of the old company cannot, therefore, be taken to extend to its successor. No doubt at the commencement, the shareholders were the same. But the list was subject to daily change by the sale of shares. There is, therefore, no proof of acquiescence, and this defence may be at once rejected.

19. I next come to the question of law as to the survivorship to his sons of the liabilities of Sakerchand Nagerdas, a direct or who is now deceased.

20. The rule of common law on this point was laid down by Lord Mansfield (Cowp., 376): 'Where property is acquired which benefits the testator, then an action for the property shall survive against the executor.' But the Courts of Equity have extended this liability to the representatives of a person who stood in a fiduciary position, even where the estate has not been benefited by the breach of trust-Wahham v. Staunton D.J. & S. 678. It was urged on behalf of Sakerchand Nagerdas that his liability, if any, did not survive his death as a charge on his assets, because it was, at the most, a mere personal default productive of no benefit to his estate. Two well-known oases 'were cited in support of this contention-Overend, Gurney & Co. v. Gurney L.R. 4 Ch. 701and Peek v. Gurney 6 H.L. 393. But neither of those cases are on all fours with the present case. In the first case Lord Hather-ley, C , in his judgment, says that he would have decided differently if the charge had been one of a breach of trust in the disposal of money actually entrusted to the care of the defendants. In the second case Lord Chelmsford, in his judgment, expressly stated that the case before him was not one of breach of trust, but of inducing people to subscribe by deceit and misrepresentation. The present case is one distinctly of breach of trust; and the English law is clear on that point. It is laid down by Sir W. Grant in Mont ford v. Cadogan 17 Ves. 489 where he says: 'A question was raised by Cadogan's executors, whether, as this was a mere personal default productive of no benefit to his estate, his assets are liable to make compensation;' but in Scurfield v. Homes Bro. C.C. 90 the trustee's estate had derived no benefit from the breach of trust, and in Adam v. Shaw 1 S& L. 243 Lord Redesdale says: 'It has been the constant habit of Courts of Equity to charge persons in the character of trustees with the consequence of a breach of trust, and to charge their representatives also, whether they derive benefit from the breach of trust or not.' I have already said that misfeasance of a director constitutes a breach of trust. It is 'more than mere negligence, which consists in the omission to' do something which a reasonable man would do, or the doing something which a reasonable man would not do. Negligence depends upon the public duty which is incumbent upon every one to exercise due care in his daily life; but a breach of trust depends upon the neglect of some special duty undertaken in regard to some specified person or body of persons. In the former case the liability dies with the person; in the latter it follows his estate after his death.

21. Then comes the further question, whether, although the liability survives, the term of liability is not governed by rules laid down for the limitation of suits. The English rule as regards the liability of trustees is now laid down by the Judicature Act, 1873, Section 25, Sub-section 2: 'No-claims of a cestui que trust against his trustee for any property hold on an express trust, or in respect of any breach of such trust, shall be held to be barred by any statute of limitation.' But the law of limitation in India is placed on a special statutory footing, and suits are governed solely by Act XV of 1877. 'Unless the present suit falls within the exemption of Section 10, it is liable to become barred by some one or other of the articles of the second schedule of the Act. To claim the benefit of Section 10, which deals with suits against a trustee or his representatives, the trustee must be 'a person in whom property has become vested in trust for a specific purpose,' and the suit must be for the purpose 'of following the trust property in his hands.' In the present case no specific property, save the unallotted shares, came into the hands of the directors. No , doubt they were entrusted with the general supervision of the affairs of the company, but the actual moneys never came into their hands at all. By the articles of association all moneys over Rs. 5,000 were to be paid to the company's bankers, and money below that amount was to be in the hands of the agent. The case, beyond the unallotted shares, is one of gross negligence in the performance of fiduciary duties, not one of misapplication of particular sums. It does not, therefore, come under Section 10.

22. As regards the unallotted shares, if the directors committed a breach of their trust by entrusting them to the agent,-that is to say, if he had been an unlawful recipient of them,-I think the case might, perhaps, come under Section 10. But a careful consideration of the statutes of the company has led me to the opinion already arrived at in a former suit by Bayley, J. to wit, hat the directors had the power to entrust the shares to the agent Purmanundass Jivandass v. E.R. Conmack I.L.R. 6 Bom. 326. The liability arises solely from the directors' want of vigilance in not seeing to the agent's fulfilment of his duty in regard to the shares. That, again, is a charge of negligence, and not one of the misapplication of special funds. These shares cannot, therefore, any more than the other sums lost to the company, be held to be trust property which can be followed as being in the hands of the trustees in the sense of Section 10 of the Limitation Act.

23. We must, therefore, leave Section 10 of the Act, and consider article 98 of the second schedule. That article says, that the general estate of the trustee is liable for three years from his death to make good any loss occasioned by a breach of trust. It was' argued that this section would cover any loss occasioned by a trustee. I cannot yield to that argument. It raises a contradiction between this section and the section in the body of the Act, which must be considered the best interpreter of the intention of the Legislature. I think the two sections must be read together. When so read it is evident that the word 'loss' in Section 98 must be read as referring to loss of the 'specific property' mentioned in Section 10; and the meaning of Section 98 is that, in case the specific property is irrecoverable, then the value can be recovered out of the 'general estate' for the period of three years after the death of the trustee,. This view of the Indian law of limitation, viz., that it only makes special provision for trusts of specific property, is supported by a reference to the previous Act (1859), where all the trustee provisions are placed in one section, instead of being separated, as they are in the present Act, into Section 10 of the Act and Section 98 of the schedule; and it is, consequently, more obvious that the latter is intended to be subordinated to the former. 'No suit against a trustee in his lifetime, and no suits against his representatives for the purpose of following in their hands the specific property which, is the subject of the trust, shall be barred by any length of time; but no suit to make good the loss, occasioned by a breach of trust, out of the general estate of a deceased trustee shall be maintained in any of the said Courts, unless the same is instituted within the proper period of limitation, according to the last preceding section (i.e., three years), to be computed from the decease of such trustee : provided, that nothing herein contained shall present a co-trustee from enforcing against toe estate of a deceased trustee any claim for contribution, if he shall institute a suit for that purpose within six years after such right of contribution has arisen.'

24. The claim, therefore, against the directors not being a claim for any specific property still in. the hands of them or their representatives, is not covered by Section 10 and Section 98 of the Limitation Act. And I think, it is liable to be barred by the ordinary period of limitation, of three years.

25. This introduces a further question, which applies not only to Sakerchand's sons, but equally to all the defendants. The main claim against the defendants is certainly not barred. But the demand for the unallotted shares was only made by an amendment to the plaint on the 25th of April 1883, whilst the original claim was made on the 29th of April 1879. The former date would admit the plea of limitation if the unallotted shares had been made the subject of a separate suit. The question to be considered, therefore, is, from what time the limitation should count? The general rule is to be found in Section 4 of the Limitation Act, XV of 1877, which fixes, as the time from which the limitation should count, the date of the institution of the suit. The section also lays down the rule that a suit is instituted when the plaint is presented to the proper officer. The only express restriction placed upon this general rule is under Section 22, which says that when a new party is added, or substituted, the time of limitation, so far as he is concerned, should date from the time of his introduction. The question here is, whether the date of the claim for the unallotted shares relates back to the institution of the suit or not? No doubt some of the amendments, which are introduced under the present wide powers of amendment, may be tantamount to fresh causes of action. In the case of such proposed amendments, when the new cause of action is barred by lapse of time, it must be remembered that the Court, in its discretion, can refuse to allow an amendment; and 1 think that bar would be a fair ground of agreement against the admission of the amendment. Staples v. Holdsworth 6 Scott. 606 shows that under the old rules in England if this objection is raised at the time the amendment is asked for, and the amendment is shown to constitute a new cause of action, which as an independent suit would be barred, the amendment would be refused. Bat if the amendment is once admitted, I think it follows, from a fair interpretation of the Indian Act, that limitation must only count from the institution of the suit. Moreover, in the present case, the negligence, in respect of the unallotted shares, is too much in part materia with the rest of the claim to be considered a distinct cause of action, such as was the subject of the amendment in the case cited by Mr. Lang, where a claim in an amendment for certain shares was held to be barred in a suit for the administration of a trust. It may be there is an omission in. the Act; but that is a matter for the Legislature, and not for this Court. My present interpretation of the law is supported by a direct decision of a Division Court at Allahabad, Ram Lal v. Harrison I.L.R. 2 All. 832 and by the following dictum of the present Chief Justice:' When a party is added to the record, no doubt the suit, so far as he is concerned, is deemed to have been instituted at the time when he is so added. But though, if this plaint were amended, there might nominally be a new suit, yet virtually it would be the same. It would still be, in fact, the suit of the plaintiff. I should be of opinion that no new plaintiff had been introduced within the meaning of the Limitation Act'-Ganpat Pandurang v. Adarji Dadabhai I.L.R. 3 Bom.320. I think this interpretation receives indirect sanction from the Privy Council in Mohummed Zahoer Alikhan v. Mussamut Thakooranee 11 M I.A. 468 where they' allowed the plaintiff to amend his suit so as to renew his claim as against one of his defendants alone, the amendment being expressly allowed on the ground that a new suit would be barred. My decision on this point also follows the rule laid down by the late Chief Justice, that 'an Act of Limitation, being restrictive of the ordinary right to take legal proceedings, must where its language is ambiguous, be construed strictly i.e., in favour of the right to proceed.' Umiashankar Lakhmiram v. Chotalal Vajeram I.L.R. 1 Bom. 19 I am of opinion, therefore, that the whole claim _ survives as against the sons of Sakerchand, and is not barred as against any of the defendants.

26. Two of the defendants-Kessowji Naik and the representatives of Sakerchand-also raised the defence of set off.

27. The two defendants had both become guarantors of the debts of the four mills, either by backing bills or by signing general guarantees. In consequence of these engagements Kessowji Naik's property had been seized by the Bank of Bombay to the amount of five and a half lakhs of rupees, and he has also been condemned to pay other sums to other persons. Sakerchand has paid to the same bank over two lakhs of rupees in the same way Thus they both are in the position of sureties who have paid money for their principals, and they have, subject to the statute of limitation, a right of action against the principals accordingly. Each, if they are not barred by time, will he able to claim, as creditors of the company, the amount they have been obliged to pay as its sureties. But, as regards Sakerehand, he paid over his money in 1880, and the set-off was not claimed by him until 1885. If it has always been a liquidated claim, in the sense required for a set-off, it would be barred. But as regards both claims it is doubtful whether they are liquidated claims. The guarantees were given partly by bills backed by them for the mill, partly by securities for moneys advanced to Nursey Kessowji & Co. to all four mills. There has, as yet, bee 1 no allocation, in Kessowji Naik's case, of the aggregate sums to the various mills. In Sakerchand's case, Rs. 78,000 (odd) have been taken from the plaintiffs' mill, but no evidence was given of the date it was so appropriated. All the evidence as to time is that the whole sum paid by Sakerchand was surrendered in 1880. I think, therefore, that in neither case are the amounts sought to be set-off sufficiently 'ascertained sums of money legally recoverable by the defendants from the plaintiffs' to come within the definition of a set-off in Section 111 of our Code. But there is another and equally grave objection. The present suit is on the joint and several liability of the defendants as directors. But the money which will be found due from the company to Kessowji Naik on these sums now claimed to be set-off will be due to him alone, and that due to Sakerchand will be due to him alone. Now, it is a well-settled rule of law, that a separate debt cannot be set off against a joint and several claim. 'The general rule in equity as well as in law is, that joint and separate debts cannot be set off against each other'' (Story's Eq. Jurisp,, See. 1437 (a).) This rule is adopted by the Indian law in Section 111, Sub-section (g) of the Code of Civil Procedure, and is illustrated by the following hypothetical case :' A sues B and C for 1,000 rupees. 0 cannot set off a debt due to him by A alone.' The question has been more than once decided in company oases, and the, two following rules have been laid down :(a) A shareholder cannot set off debt due to him from the company against calls in a voluntary or compulsory winding up: see In re W & Co. 9 Ch. D., 695; Grisell's Case L.R. 1 Ch. Div., 628; and (b) that the directors cannot set off any money due from the company to them against the amounts which they were ordered to replace-Flitcrotf's Case L.R. 21 Ch. Div. 619.

28. I have now disposed of the legal questions, and will deal with the Evidence on the main question, the liability of the directors. That liability depends on a chain of facts which must be carefully examined.

29. In the first place it is stated that the firm of Nursey Kessowji & Co. were insolvent at the time of their appointment as bankers of the new company, and it is further alleged that they had been in this state of insolvency for some years previously. In proof of this the evidence was given of an accountant, Framji, who had examined their books with great care, and had prepared a synopsis of their contents with balance-sheets for each year. This evidence was admissible under Section 65, Sub-section (g), of the Evidence Act, which admits evidence of the general result of numerous accounts or documents by any person who has examined them and who is skilled in the examination of such documents. This witness was cross-examined, but no material inaccuracy in his statements was proved. Another specially qualified witness was called on the other side, but he established no good contradictory case, and certainly had not gone into the matter with the same exhaustive care. I think I am bound to give credence to Framji's evidence upon the contents of the books of Nursey Kessowji & Co., and I also feel bound to rely upon the second accountant, Pestonji, called by plaintiffs, who had examined the plaintiff's company's books with equally elaborate care. Now let us see the result of this testimony. In the first place, balance-sheets (exhibit G) of the firm of Nursey Kessowji & Co. were produced for the years 1927-1934,, (inclusive), which put beyond all doubt their long-continued insolvent condition. Their indebtedness beyond their assets varied in the different years from two and a half to nine lakhs, but in all the seven years they had never once a credit balance. Their final indebtedness was over fifty lakhs, and up to this date they have only paid one dividend of one per cent. I hold the fact, therefore, to be proved that the firm of Nursey Kessowji & Co, had long been in an insolvent condition at the time they were named bankers of the company.

30. This is the first link in the chain. The next is to be found in the statement of the same accountant Framji, that this state of insolvency could have been easily ascertained, and in a very short time, by any one who took the trouble to examine the profit and loss account of the firm. This statement was contested by the defendant's witness, the chief mehta, but it was not disproved to my satisfaction. He said that the books of the firm had not been made up; that it would take some time to prepare a balance-sheet for any single year; and that it could not be made up at all until all the account sales had been returned. That is all perfectly true; but although an accurate balance-sheet would have been a long and difficult business, I cannot think it was very difficult to learn approximately the solvent or insolvent condition of a firm whose books were admittedly well kept and in perfect order. The mehta was not asked the special question, 'how long would it take to ascertain whether the firm was in a sound financial condition?' The plaintiffs' accountant should answer this question, and I believe his answer was the true one. This established the second link in the chain, which is that the directors might have ascertained the real state of things if they had made reasonable inquiry.

31. The next matter to examine is, whether the defendants, directors, or any of them, did actually know the real state of Nursey Kessowji & Co.'s affairs. It is necessary here to separate Mr. Kessowji Naik from his colleagues, and to ascertain his real connection with his son since his own retirement from the firm in 1865. He had been so often engaged in litigation about these mills, and he has been so frequently interrogated upon this particular matter, than the plaintiffs only cross-examined him very generally on this occasion as to his relations with his son, and relied upon his evidence on two former occasions as admissions made under oath and tested by cross-examination. The result of all these examinations, in my opinion, decides beyond the shadow of a doubt that Mr. Kessowji Naik was fully acquainted with the details of his soft's business. That business was transferred from the father to the son in 1865. There were some other partners, but the son was the only responsible person; the evidence of one of them shows that he and the rest were really servants paid by a share in the profits without any real authority or responsibility. The whole capital of the firm came from Kessowji Naik. On his retirement he gave Nursey more than five lakhs whilst he left all the rest of his property-ten lakhs in cash and twenty lakhs in immoveables-standing to his credit in the firm. The firm did a colossal business in cotton and opium, and latterly in shares. They had two offices: one In the Fort and the other at Mandvi Bandar. Kessowji Naik sat in the office at the Fort for a couple of hours every afternoon, and admitted that he gave advice concerning the transactions of the firm. He also admitted that the firm did a large business in opium, that he advised them in that business, and that he also assisted them in sutta share transactions. The munim of one opium house said that he always looked upon Kessowji Naik as the real head of the firm, and gave that as the reason why he trusted the firm up to the moment of their failure. He 'occasionally saw Nursey,' he said, 'but always Kessowji' in their transactions, which amounted one year to fifty and sixty lakhs of rupees. All the partners used to dine with Kessowji on Malabar Hill every Sunday. He drew what he liked from the firm and his carriage expenses were defrayed by it. The China firm corresponded with Kessowji about the business, and in the seven years previous to the failure out 02 forty-four lakhs (of dollars) worth of bills, thirty-nine lakhs were drawn in favour of Kessowji Naik and endorsed by Mm. In the same period other bills were drawn, and negotiated to the extent of sixty lakhs of rupees, of which thirty-two lakhs were drawn by Kessowji Naik and endorsed by him. He also corresponded on business matters with the Calcutta branch, and admitted that he had sent them numerous telegrams. In 1871 he gave a guarantee to the Bank of Bombay of three lakhs on behalf of the firm, and the document recites that Kessowji Naik had of ten asked the Bank to advance to, and incur liabilities for, the firm. He signed similar guarantees in subsequent years, and for the last three years gave a general guarantee to the bank for the fulfilment by the firm of all contracts and engagements.

32. These facts are sufficient in themselves to establish such intimate relations between Kessowji Naik and the firm as to lead to the irresistible inference of his knowledge of the real state of their affairs. It is impossible to suppose that so astute a man of business would have left the whole of an enormous fortune in the hands of the first without availing himself of every opportunity he had of ascertaining its true financial position. His own admissions in the Insolvency Court before Kemball, J., in April 1879, carry the case against him still farther. He says as regards the Alexandra and Royal Mills (the Royal afterwards became the Fleming Mill): 'Nursey Kessowji was secretary of both those mills. It was in this year (1928) that these mills came into our hands. I mean my mills. The accounts were kept by Nursey Kessowji for me. At first he credited it to me, and then I got it credited to Nursey Kessowji himself afterwards, The commission did not belong to Nursey Kessowji himself; it was by my favour that I gave over the commission. I was the master, and did all the business and used his name. Really I was the secretary, and the commission belonged to me. Nursey Kessowji's mane was only used.' In another part of the same examination, he said, as regards his large opium dealings in partnership with Dhurrumsey Punjabhoy, which were entered as the transactions of Nursey Kessowji & Co. in the firm's books, Nursey Kessowji & Co. had no interest in the 'partnership; it was mine and Dhurrumsey' Punjabhoy's. They got 410 commission or reward for keeping the accounts of the partnership in the books. They used to do my business, and I used to do their business.' He denies that he had any interest in the profit or loss of his son's firm, yet he admits that when Dossa Kirpal in 1933 charged his as a partner he settled the case by a payment of Rs. 15,000.. At the time of Nicol's failure (October 6th, 1878) seven and a quarter lakhs were due from him to the firm; but at the Divali (31st October 1878, the native settling day for the year) by means of transfer entries that heavy debit was transformed into a credit, so that Rs. 26,000 were due to him when the firm suspended payment. He sail he made these transfers because he was sick, and could not attend to business, but he could not point out any such transfers or adjustments in previous years. The present Chief Justice has in a previous case refused to admit some of these transfers as genuine. Mr. Lang argued that Kessowji Naik's bond, fide belief in the solvency of Nursey Kessowji & Co. must be inferred from the steady pecuniary support he gave them up to the last, and from his offer to surrender all his property to the creditors if they would relinquish all their claims. This conduct, however, is open to another obvious interpretation, namely, that the son and the firm were merely dummies, and that the fall of the house meant the fall of Kessowji Naik himself. It is not necessary for me, however, in the present case to say whether kessowji Naik was or was not the real head of his son's firm. It is sufficient for my purpose that there is overwhelming evidence to show that he was well acquainted with the real state of affairs. I hold, therefore, as regards Kessowji Naik, that he knew the firm, named as bankers to the new company, to be in an insolvent condition at the time of their appointment. The nomination, therefore, ,as far as he was concerned, was an improper one; the trust reposed in them was quite unjustifiable, and he must be held liable for its consequences.

33. I now pass to the question of the liability of the other directors, which stands on a different footing. Both Gellabhoy Puddumsey and Sakerchand Nagardas had, however, been in intimate relations with Nursey Kessowji & Co. for many years. Gellabhoy was a member of the firm of Kushall Hurridas & Co. which had large dealings in cotton with the four mills. Saker-chand was a partner in the firm of Vadilal Sakerchand, who were the agents for the sale of cotton cloths to the mills.. Thus they were both interested in the prosperity of Nursey Kessowji & Co. as the controlling power of the mills, and although not to the same extent as Kessowji, they did, to some degree, by their appointment of Nursey Kessowji & Co. as the bankers, place themselves in a position where their interest and their duty might be in conflict, and they would be tempted to overlook misconduct. There is also no doubt that the firm of Vadilal Sakerehand were allowed to break the conditions of their agreement, which obliged them to pay the approximate value of the cloth before they removed it from the mill. There is also no doubt that they were a party to transfer entries by means of which Nursey Kessowji was enabled to conceal from the old company the real amount of his firm's indebtedness to them-as, for instance, in their balance-sheet for 1877.

34. Still the evidence does not prove on their part the same knowledge as Kessowji. Naik had of the firm's affairs, nor has the allegation in the plaint been proved that they were so much under the influence of Kessowji Naik as to have done all that they did, not as free agents, but as his creatures. I must, therefore, consider the question of their liability separately from that of Kessowji Naik. Their defence may be described as follows.

35. Nursey Kessowji & Co. had been the bankers and agents of the mill to the knowledge and tacit acquiescence of the shareholders since the present company's predecessor had come into existence. At the date of the transfer of the business to the present company the commercial reputation of Nursey Kessowji & Co. was so high that it never occurred to the defendants to withdraw the confidence that had been reposed in them. They left the whole manage-ment in their hands, because that had been the course of business for many years. Nothing came to their knowledge which made it their duty to change the system in favour of an efficient supervision. That is their case.

36. I have already shown that the directors might have ascertained by reasonable inquiry the financial condition of Nursey Kessowji & Co. I will now consider what they did do.

37. It must be remembered, in the first place, that they all attended every meeting of the board. Whatever was dons by the board was done by each and all, There is no question here of any individual director who, from inclination or from circumstances, took no active part and attended no meetings.

38. Now, almost their first official act, as a board of directors, was the appointment of Nursey Kessowji & Co. as the bankere of their company. Was that a right and proper proceeding, even if they believed the firm to be solvent? Although the new company, by its memorandum of association, continued and confirmed Nursey Kessowji as agent, it did not continue him or his firm as its banker. We must, therefore, look to the statutes of the company,-that is to say, the memorandum, articles and agreement combined,-and consider how the banker of the company was to be chosen. This is to be found in article 16 of the agreement, read with article 17 of the articles of association. It is difficult to reconcile the two provisions; but it must be borne in mind that as the agreement is incorporated with, and made a part of, the memorandum of association it is of greater importance than the articles of association. Article 16 of the agreement says that Nursey Kessowji, the agent, 'shall deposit with such bank or banker as the directors, for the time being, of the said company may appoint,' all moneys due from the agent to the company over the sum of Rs. 5,000; and it goes on to say that such deposits are to be dealt with 'as the directors shall appoint.' Section 117 of the articles gives the agent power, 'for the purposes of the transaction and management of the affairs and business of the company,' to appoint 'such managers, bankers,' &c;, as he shall think proper. The directors evidently did not think this applied to the appointment of the permanent bankers of the company, as they made that appointment themselves, and did not leave it to the agent. I think they were right, under article 17 of the agreement, in assuming this right to appoint.

39. The next question is, were they right in the particular appointment made? No doubt, it was in the contemplation of the original framers of these statutes that the banking business of the company should be confided to bond fide backers. 'The moneys were to be deposited with such bank or banks,' is the phrase used in one place, and in the other place the agent is to appoint 'such bank or bankers as he thinks proper.' Now it is pretty clear that Nursey Kessowji & Co. were not bankers in the strict sense of the term. The Imperial Dictisnary defines a banker to be 'one who traffics in money, receives and remits money, negotiates bills of exchange;' and a bank is defined as 'an establishment which trades in money, an establishment for the deposit, custody, and issue of money, as also for granting loans, discounting bills, and facilitating the transmission of remittances from one place to another.' What constitutes a banker has also been the subject of judicial decision. For instance, 'a stock-broker and notary public who largely engaged in trade, who received money from some of his customers, and paid it out again upon their drafts, and occasionally discounted bills, but neither held himself out to the public as a banker, nor appeared to be considered by the public as such, and the entries in this books of banking transactions were mixed up with those appertaining to his other callings, was held not to be a banker in the strictly legal sense of the term-Stafford v. Henry. 12 In. Eq. Rep. 400' Now Nursey Kessowji & Co. did not buy and sell bills as native shroffs do. They only dealt in the bills of their own branch firms. They did not receive money on deposit to any great extent. They did not advance money on security. They did not, in short, traffic in money as their principal business. They were a large mercantile house 'which had been carrying on, for years before the time of appointment, a very speculative business in cotto'n and opium where great risk was involved, and whose speculations the two previous years had extended to large sutta operations [in the share market. Although they did do a very small amount of banking business, I do not think they could be properly chosen as bakers in the sense required by the statutes of the company; and the appointment was the more improper, as the head of then firm was the son of the principal director of the company. This point was incidentally dealt with by Mr. Justice Bayley in a very carefully considered judgment reported in Purmanundass Jivandass v. H.R. Cormack I.L.R. 6 Bom. 343 where he says: 'This appointment, in August 187,8, of Nursey Kessowji & Co. as bankers of the company, Nursey Kessowji & Co., being a trading firm, carrying on very large and hazardous speculations as was shown by their 'schedule filed in the Insolvency Court on the 8th of February' 1879, and not a firm of bankers in the ordinary sense of the word-seems to have been a very questionable act on the part of the directors, and looks much like a violation of Clause 16 of the agreement incorporated in the memo-randum Clause 117 of the articles of association, giving power to Nursey Kessowji to appoint bankers to the company, would not, I think, authorize the appointment of his own firm to act as bankers.' Even if their error, though improper and prabably ultra vires, was not sufficient alone to throw upon the directors any pencuniary liability, it certainly cast upon them a special duty to be vigilant in their supervision.

40. Let us now consider if in all subsequent dealings as directors their exercised proper prudence and vigilance.

41. We must first' consider the powers and functions of the directors as set forth in the statutes of the company. The articles say: 'The business of the company shall be managed by the board with the assistance of the agent.' It is then laid down that they are to meet for the despatch, of business, and they are enabled to delegate any of their powers to committees formed out of their own body. They have also express power to raise money on the property of the company, to buy the raw commodities required, to sell the manufactured goods produced, to invest the funds of the company as they think desirable, and generally to do every thing that is conducive to the attainment of the objects of the company (see articles 101, 103 and 101, and also memorandum of association). All this work was, of coarse, to be done with the assistance of the agent, who, in his turn, with the aid of his manager, was to conduct the daily business of the company. Such being the division of labour it is quite clear that the directors could not delegate the whole control to the agent. By the' articles of association there was to be no general meeting of shareholders till the 31st of October 1879. Thus for fifteen months these directors were to act for the general body before they rendered an account of their stewardship. They certainly were not appointed to be mere dummies during those fifteen months; nominally to watch over the interests of the shareholders, but in reality to supply, without inquiry, the wants of the agent, and sanction blindly all his acts. If they drifted into such a position through their confidence in him, I hold that they failed to perform their duty, and ran the risk of being held liable to any looses caused by the misconduct of the agent, which would not have accrued had they exercised the duties clearly imposed upon them by the articles I have cited. As a matter of fact they practically left every thing in the hands of the agent. Their cardinal duty, in the circumstances of the company, was to see to the application of the money they voted. Yet they never found oat for themselves how much money was required; they never considered what was the best form of raising it; and when it was raised they never ascertained whether it had been applied to the purposes to which it was appropriated by the board. If the sums had been small, it might have been argued that it would only hamper the agent to interfere with his discretion. But every one of these loans, which the directors vote so blindly, 'was in itself, if lost or misapplied sufficient to wreck a company, whose capital, though large, was all locked up, whose liabilities were heavy and pressing, whose increasing stock of goods was practically unsaleable, and whose credit was steadily falling. As a matter of fact, large sums were being misappropriated, whose misappropriation would have been impossible if the directors had properly performed the duties they had undertaken. Considering the critical state of the affairs of the company I think that they ought to have treated the information that was given them as quite insufficient; and they ought to have insisted upon a monthly statement of the exact financial position, giving the amount in hand, the total amount actually due, the amount falling due in the ensuing month, and the amount paid away during the past month. No such statement was made, and no efficient check placed on the financial management.

42. The evidence of the accountant Pestonji shows what would have been revealed if the directors had made these investigations. Exhibit H shows that the real transactions on behalf of the plaintiffs' company, carried on by Nursey Kessowji & Co., did not at all correspond with the statements made by them every month. Exhibit J shows' the sums left unpaid by Nursey Kessowji & Co., at 'the end of each month', whilst exhibits Q and R show how much they retained for their own uses of the amounts placed at their disposal for the mill. Large sums were raised on the security of cloth by bills on consignments, and by bills on goods in China, of which the directors knew nothing. The lakh and a quarter which was in the hands of Nursey Kessowji & Co. at the commencement was not only improperly retained, but it was increased to Rs. 8,80,000 by further fraudulent misappropriation. All this embezzlement was successfully practiced, because, as Gellabhoy Puddumsey said, 'the directors saw only what was laid before them;' and he added, 'the same practice exists in all companies in Bombay,' If he spoke the truth, if all directors are mere shams, and irremovable agents have the whole management of every mill company, it certainly is a very surprising system, and one which, in the present case, has led to terrible disasters. I think the chain of facts I have set forth leads to the irresistible conclusion that the directors have behaved with most culpable negligence in the performance of their trust. I am of opinion that, having regard to the general rule as to the liability of directors, and to the duties of these directors as set forth in the statutes of their company, the defendant directors are liable to the repayment of the money thus lost to the company.

43. There is equally strong reason for this liability as regards the 787 unallotted shares. The duty to sell these shares, or to raise money upon them, is vested absolutely in the directors collectively by article 6 of the articles. If they chose to delegate that duty to any one of their number, the rest wore bound to see to its due performance. This obligation seems to hare been present in the minds of the board when they added to the resolution of the 31st of October the instruction to Nursey Kessowji to report to the board as soon as he had succeeded in placing any of the shares. It is clearly proved that Nursey Kessowji did speedily mortgage a large portion of the shares without informing his brother directors, and the firm is now an admitted debtor of the company in the sum of Rs. 2,14,000 on that account. Although the transactions ' occurred in the month of November, it does not appear that Nursey made any report at all about them. When we consider that the raising of this particular money was the sole object of the creation of the new company, this neglect of the directors is totally inexcusable. In this case, as in the general control, they delegated their collective duty to Nursey, and never saw to his performance of it. They did not thus divest themselves of their trust and responsibility. If the agent proved unfaithful, the liability was theirs just as much as if they themselves had been unfaithful. The two directors, who pave evidence, did say that they asked Nursey once or twice about these shares in conversation. If they did so, which I doubt, it is quite insufficient under the circumstances. I think this money also was lost through their gross negligence

44. Now, to sum up the effect of my decision. The amount of loss caused by the gross negligence of the directors must, of course, be the measure of their liability. I do not include the amount of Rs. l,23,807, that was already in the hands of Nursey Kessowji & Co. when the company was founded. It would have been more prudent if the directors had watched over that sum with greater care. 'But it stands on a different footing to the sums the directors themselves entrusted to the agent without any proper knowledge whether it was needed, and without any subsequent investigation of a serious character into its disposal. I think the latter conduct amounts to gross negligence; and I hold the defendant directors, with the sons of Sakerchand Nagerdas, to be liable for the amount so lost, which, with the sum lost on the shares, comes to Rs. 9,70,443-9-9, with interest at six percent from the date of the failure of Nursey Kessowji & Co. There are gradations in the respective amount of culpability of the defendant directors; but I think all are equally responsible, as all attended the directors' meeting, and all gave the same blind sanction to every act and proposal of the agents.

45. I also hold that the estate of Sakerchand Nagerdas is liable, and that the set-off put forward is not admissible under Section 111, Sub-section g.

46. As regards costs, the Official Assignee, for Nursey Kessowji, sets up no defence.

47. As to the other defendants, they have already sacrificed very large sums to inset their guarantees; and as they have not been proved to have themselves benefited by their negligence, I think it will be sufficient if they pay their own costs. There will be no order, therefore, as to costs.

48. A decree, therefore, will issue, declaring that the loss of the sum of Rs. 9,70,443 was due to the gross negligence of the defendants Kessowji Naik and Grellabhoy Puddumsey, and the late defendant Sakerchand Nagerdas and the defendant Nursey Kessowji, now an insolvent, and that they became jointly and severally liable to make good the said loss by refunding to the plaintiffs' company the total amount of the aforesaid sums, with interest thereon, respectively, at the rate of six per cent, per annum from the date of the failure of Nursey Kessowji & Co., less such dividends as the plaintiffs' company may have received from the estate of the said Nursey Kessowji & Co. and as to the estate of the deceased (Sakerchand Nagerdas, the liability will only be in a fair course of administration; and as to the estate of the said Nursey Kessowji, only by way of proof under his bankruptcy order for payments of the said sums respectively.

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