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Chhedi Lal and ors. Vs. Punnu Lal and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany;Civil
CourtAllahabad
Decided On
Reported inAIR1930All186; 122Ind.Cas.402
AppellantChhedi Lal and ors.
RespondentPunnu Lal and ors.
Excerpt:
- - 4. in this court, it has been argued, and with a good deal of force, that primary and original object of the association has to be looked into and no regard should be paid to the circumstances that developed later on. the argument went on that if a perfectly legal association be formed and, if later on, some of the members of the association should commit a breach of trust, that fact should not render the original association an illegal one......the section 4, companies' act, was enacted.6. the language of para. 2, section 4, is as follows:no company, association or partnership consisting of more than twenty persons shall be formed for the purposes of earring on any... business that has for its object the acquisition of gain by the company, association or partnership....7. the question is whether the words 'gain by the company' mean an ultimate pecuniary gain by the company or whether the fact that the business started brings in profits and therefore 'gain' would bring in the company within the purview of section 4. a company may be formed for several objects, and if one of the objects be the acquisition of gain, the mere fact that the members of the company either singly or jointly, propose to dispose of the gain on some.....
Judgment:

1. This appeal and the connected second appeal No. 1590 of 1926 arise out of the same suit. The suit was brought for accounts and recovery of some money as the share of the plaintiffs. There is a large number of defendants. Some of them, including Ram Narain, who support the plaintiffs' appeal, contended that the plaintiffs were entitled to succeed in the suit and these defendants also were entitled to a share of the profits after accounts had been taken. The suit was mainly contested by defendant 1 Punnu Lal.

2. The facts which were alleged in the plaint are briefly these: In the year 1912, an association of more than 20 persons was formed with the object that a business should be started and with the gain of that business education should be imparted to the children of the members of the caste to which the members of the association belonged. The money was also to be spent on other charitable purposes. If, after the charitable purposes had been met, there remained any surplus, it was to be distributed among the members of the association. The father of the defendant 1, Girdhari Lal, was the manager of the business, and on his death defendant 1 took up the management Later on the charitable portion of the objects of the association was not carried out, and a large sum of money accumulated in the hands of defendant 1 as the profits of the business. The plaintiffs wanted a share in the profits after settlement of accounts. The defence, which has prevailed before the Court below, namely the association was an illegal one, having been formed in contravention of Section 4, Companies' Act, and therefore the suit could not be maintained, was not taken in the written statement. The suit was decreed by the Court of first instance, and defendant 1 was called upon to furnish accounts. Defendant 1 thereupon filed an appeal to the District Judge. In the meanwhile the preliminary decree culminated in a final-decree, and a second appeal was filed in the Court of the District Judge by defendant 1. The learned District' Judge, after taking some evidence, came to the conclusion that in the circumstances, which were placed before him, the company should have been registered under Section 4, Companies Act and that not having been done the suit was not maintainable. The learned Judge accordingly dismissed the plaintiffs suit, with the result that both the appeals were allowed. In this Court two appeals have been filed by the plaintiffs against the two decrees made by the learned District Judge.

3. The only point which we have to determine is the construction of the language of Section 4, Companies Act. The learned Judge found that when the company was started and for some years after that the profits were devoted to the welfare of the community to which the members belonged, but, later on, after the breaking of the war, probably because large profits were made, the charitable object of the association was given up and profits were appropriated by the defendants. The learned Judge thought that, although in the beginning the object of the association was a charitable one, later on the object became a pecuniary one and therefore, it was not open to the parties to carry on the business without having registered the association. Being of this opinion, as we have said, the learned Judge dismissed the suit.

4. In this Court, it has been argued, and with a good deal of force, that primary and original object of the association has to be looked into and no regard should be paid to the circumstances that developed later on. The argument went on that if a perfectly legal association be formed and, if later on, some of the members of the association should commit a breach of trust, that fact should not render the original association an illegal one. We think that this argument is sound and although we are going to uphold the decrees of the Court below we are going to do so on an altogether different ground.

5. The whole question is whether people numbering more than twenty can form an association, without registering themselves, with the object of starting a business, the ultimate view being that the gain of the business should be devoted to charitable purposes. No authority has been quoted before us, and we think that the interpretation to be put is really a matter of first impression. The interpretation which we are going to put is also supported in our view by the object with which the Section 4, Companies' Act, was enacted.

6. The language of para. 2, Section 4, is as follows:

No company, association or partnership consisting of more than twenty persons shall be formed for the purposes of earring on any... business that has for its object the acquisition of gain by the company, association or partnership....

7. The question is whether the words 'gain by the company' mean an ultimate pecuniary gain by the company or whether the fact that the business started brings in profits and therefore 'gain' would bring in the company within the purview of Section 4. A company may be formed for several objects, and if one of the objects be the acquisition of gain, the mere fact that the members of the company either singly or jointly, propose to dispose of the gain on some charitable object, will not exclude the company from falling within the purview of Section 4. If we look to the objects of the framers of Section 4 we shall at once see that this is the correct interpretation. Where a large number of people combine to enter into a business, the legislature thought it fit to lay down certain rules for controlling that business. If that be the object of registration of a company it will be seen that whatever may be the use to which the gains of the company are to be put, so long as money is to be gained by business, the object of the legislature in intervening will remain. If the object of the legislature is as we think it to be that it should have some voice in the management and some check over the affairs, that object has to be carried out even if the members of the company be charitably disposed.

8. In the result, we think that the suit of the plaintiffs was rightly dismissed. The appeal fails and is hereby dismissed with costs. The costs will be recovered only by defendant 1 in the Court of first instance, namely, Punnu Lal.


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