Skip to content


Prem Behari Lal Vs. S.B. Billimoria and Co. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAllahabad
Decided On
Reported inAIR1926All524; 95Ind.Cas.570
AppellantPrem Behari Lal
RespondentS.B. Billimoria and Co.
Excerpt:
.....can be no doubt that these are the three thousand shares referred to in the prospectus for which prem behari bad signed the memorandum of association agreeing to take three thousand shares. 'if any items are found short the managing directors shall make good the same,'so far from that being a cancellation, it appears to us to be a confirmation of the previous agreement with the suggestion that the company had possession of the stock, machinery and so forth, and were taking steps to found a claim, if it turned to be that they had one, for any shortage in the goods transferred to them by prem behari. there were serious disputes and eventually pram behari was prosecuted and convicted for having committed some breach of trust in connexion with the property or assets of the company, and a..........limited, cawnpore, at the instance of the liquidators, messrs. billimoria & co., holding one prem behari lal, who is really shandell brothers, and the original vendor to the company, liable for the sum of rs. 30,000. the matter does not appear to have been satisfactorily argued before the learned judge, whose attention was not called to the existing state of the law upon the main question which arises, and it will be simpler to treat the matter in our judgment as though the application was made to us, in other words, in the nature of a re-hearing.2. the application made by the liquidators in writing, dated the 20th of december 1924, is not a satisfactory method of stating the real nature of the question which the court was asked to decide. shortly stated, without reference to other.....
Judgment:

Walsh, J.

1. This is an appeal from an order made by the District Judge, in the exercise of his original jurisdiction, under Section 215 of the Companies Act of 1914, in the voluntary liquidation of Shandell Brothers & Company, Limited, Cawnpore, at the instance of the liquidators, Messrs. Billimoria & Co., holding one Prem Behari Lal, who is really Shandell Brothers, and the original vendor to the Company, liable for the sum of Rs. 30,000. The matter does not appear to have been satisfactorily argued before the learned Judge, whose attention was not called to the existing state of the law upon the main question which arises, and it will be simpler to treat the matter in our judgment as though the application was made to us, in other words, in the nature of a re-hearing.

2. The application made by the liquidators in writing, dated the 20th of December 1924, is not a satisfactory method of stating the real nature of the question which the Court was asked to decide. Shortly stated, without reference to other somewhat unusual points which were argued before us, it is that the appellant, Prem Behari Lal, having been a signatory to the Memorandum of Association to the extent of three thousand shares of the face value of Rs. 10 each, was liable as a contributory in the sum of Rs. 30,000, the said shares being unpaid, with the further allegation that it would be just and also beneficial to the interests of the creditors (a statement which of course, cannot be denied) that Prem Behari Lal should be made to pay the amount.

3. One of the objections raised by Prem Behari Lal was that the voluntary liquidation was invalid and that the liquidators had no title. The learned Judge decided that point against Prem Behari Lal. We are told that the question is raised in other appeals which are pending before this Court. The matter has not been argued before us and we express no opinion about it, assuming for the purpose of this case that the liquidators were properly appointed.

4. The further point taken by Prem Behari Lal in the Court below was that he signed the Memorandum in a representative capacity and that not he, but Shandell Bros., or N.B. Shandell Brothers, as they are variously described, were his principals and the persons really responsible. There is nothing in this point. In order to make the matter clear we directed that Prem Behari Lal should come into the box before us and give additional evidence. It appears from his evidence that N.B. Shandell Brothers, the vendors to the Company, were really a joint Hindu family, consisting of Prem Behari Lal himself and his three sons. The name of the firm was arrived at in this way: that his elder son's name is Narayan Behari Lal and he has a kind of familiar or pet name 'Shandell,' and so the firm was called alter him, N.B. Shandell Bros. So far as the legal interest is concerned, there is no difference between Prem Behari Lal and the other members of his family. They are a joint family and he is the father and karta, or manager, and therefore this point was a perfectly idle one and waste of time.

5. The facts relating to the Company, which are material to the question we have to decide, are as follows: The Company was formed for the purpose of developing and conducting leather business and installing an up-to-date factory for boots and shoes in Cawnpore, and to take over the business of Shandell Bros., which had, no doubt, like all leather businesses in Cawnpore and other parts of India, been carrying on satisfactory trade and making large profits during the war. The Company was registered on the 10th of January 1921, and a prospectus and a Memorandum of Association prepared and printed in one document consisting of two separate parts and dated the 10th of January 1921, was issued to the public. At the foot of the Memorandum of Association Prem Behari Lal, describing himself as the representative of N.B. Shandell Bros., Cawnpore, agreed to take three thousand shares set opposite his name, in, the capital of the Company. In the description of the nominal capital of the Company, contained at the head of the prospectus, it was announced that three thousand ordinary shares of a nominal value of Rs. 30,000 would be allotted as fully paid to the vendor. There cannot be the slightest doubt that the three thousand shares, for which Prem Behari Lal signed the Memorandum of Association, are the same three thousand shares which had been agreed should be allotted to him as fully paid, and as part of the consideration for the transfer of the property and goodwill of Shandell Brothers to the new Company. It is not suggested that the statement of the transfer by Shandell Brothers to the Company in the flotation of the new Company is incorrectly set out in the prospectus, and it appears that it had been agreed, prior to the formation of the Company, that for various considerations, which are described in language which resembles rather an attempt at literary composition than the ordinary language of a business document,

the spirit of sacrifice involved in surrendering their going concern and in view of the services rendered by them prior to the formation of the Company.

6. This is a novel and somewhat hyperbolic, but not an accurate, statement of the sale of a goodwill of a going concern, for which the sum of Rs. 60,000 was to be paid in cash, while the further payment of three thousand ordinary shares fully paid was to be made for the machinery, tools, plant, furniture, as recorded in the schedule attached to the agreement of purchase. We have not had the advantage of seeing the sale-deed. The original is alleged to have been lost, but a copy or a draft has been filed in the lower Court in connexion with one or other of the various cases which have arisen out of this matter. It is dated the 19th of June 1922, and it is common ground that the statement which we have quoted from the prospectus accurately represents the operative part of it. On the 22nd of August 1922, a meeting of the Board of Directors was held and the following resolution was passed. It should be noted that on the 6th of May 1921, a resolution had been, passed agreeing to allot to Shandell Bros, three thousand fully paid shares and asking Shandell Bros. to execute the sale-deed.

Resolution 5: Read the sales-deed of Messrs. N.B. Shandell and Bros. dated the 19th of June 1922, together with schedule of tools, plants, furniture, machinery, etc.

(a) Resolved that shares of the nominal value of Rs. 30,000 be allotted to them as fully paid up after allotting to other purchasers as detailed in the schedule attached.

(b) Resolved further that Mr. I.B. Chatterji and Khan Bahadur Hafiz Muhammad Halim Saheb be deputed to verify the articles mentioned in the schedule with the stock book.

7. There can be no doubt that these are the three thousand shares referred to in the prospectus for which Prem Behari bad signed the Memorandum of Association agreeing to take three thousand shares. No other block of three thousand shares has been suggested with which the three thousand shares for which the Memorandum of Association was signed can be identified. Shandell Bros. were at some date, which is not now ascertainable, entered in the register of shareholders as having been allotted three thousand shares, Nos. 6553 to 9552. It is quite clear that these three thousand shares were allotted to Shandell Bros. in pursuance of the agreement and sale-deed. It is quite certain that they were allotted as fully paid and that no money has been paid in respect of them. The learned Judge held that there had been no allotment;. We are unable to agree with him. His view is that there was an agreement to take the shares which had never been performed, and that on this footing the liquidator was entitled to enforce the performance in the course of the liquidation.

8. A curious argument was addressed to us that this allotment had been cancelled, and reliance was placed upon a resolution of the 30th of August 1922. During the proceedings of the Board of Directors on the 30th a resolution was passed adding to part (b) of the resolution we have just quoted, the following words: 'if any items are found short the Managing Directors shall make good the same,' So far from that being a cancellation, it appears to us to be a confirmation of the previous agreement with the suggestion that the Company had possession of the stock, machinery and so forth, and were taking steps to found a claim, if it turned to be that they had one, for any shortage in the goods transferred to them by Prem Behari. Somehow or other, about which we have no materials to form an opinion, a quarrel arose. There were serious disputes and eventually Pram Behari was prosecuted and convicted for having committed some breach of trust in connexion with the property or assets of the Company, and a good deal of the argument before us was based upon the continual assertion that his conduct was vitiated by fraud. We are unable to see how this has any hearing upon the question we have to determine, which is a question of law.

9. Under the old law, both in England and in India, expressed in India by Section 28 of the Companies Act of 1882, these three thousand shares would undoubtedly be held by Prem Behari, subject to the payment of the whole amount thereof in cash and it is apparently upon the supposition that is now the law, that this application was made and has been persisted in before us. This is borne out by the reference in the learned Judge's judgment to cases decided in England when Section 25 of the English Companies Act of 1867 was the law. Section 25 of the English Act and Section 28 of the Indian Companies Act of 1882 have been repealed, and there is no similar provision in the Indian Companies Act of 1913. In fact, in this case, no agreement with reference to the issue of these fully paid shares, was filed in accordance with the provisions of Section 104, and the learned Judge has, on that account, treated the issue of fully paid shares as invalid. But the only consequence of a failure to file the agreement is the penalty provided by Sub-section 3 of Section 104, and it is no longer the law that the allottee, in the absence of a due filing of the contract, is responsible, as a contributory, for calls as though the shares were unpaid shares. This is fatal to the application which has been based from the first, and decided by the learned Judge, on a misapprehension of the law. The learned Judge took great trouble over the case and was obviously impressed with the equity in favour of Prem Behari, and he set off against the liability of Rs. 30,000, which he decided had been established against Prem Behari, an admission of the value of the goods received by the Company from Prem Behari under the sale deed, namely an amount of Rs. 7,000. It is not necessary to go into that matter. The view pressed upon us on behalf of the liquidator, So far as we could understand it about this, was that Prem Behari's conduct had been vitiated by fraud; the Company had never had a quid pro quo for the purchase of the material valued at Rs. 30,000; that they had cancelled the transaction entirely; and that Prem Behari was not entitled to any set-off or equity except the remains of the assets originally transferred, which happen still to exist in the premises of the Company after the expiration of four years after certain sales which have been made either by the Company or by the liquidator. We find it difficult to deal with this point, which, in our view, does not arise. But in any case Section 64 of the Indian Contract Act, if the matter is to be treated as one of contract, appears to afford a complete answer to it.

10. The result is that the appeal succeeds and the application must be dismissed. The appellant is entitled to costs; but having regard, to the idle contention raised by him, that Prem Behari Lal was a different person from Shandell Bros. we deprive him of one-third costs and direct the liquidator to pay two-thirds of the costs of this appeal and of the proceedings in the Court below.

Dalal, J.

11. I agree with the order proposed, Prem Behari Lal (who really means Shandell Bros, in his own person) never had any intention of purchasing three thousand shares on payment in cash. Along with the Memorandum of Association was prepared and filed with the Registrar of Joint Stock Companies a prospectus of the Company, now in liquidation in which it was definitely stated that three thousand ordinary shares of the nominal value of Rs. 30,000 will be allotted as fully paid to the vendor Prem Behari Lal. He signed the Memorandum of Association on this understanding.

12. If the allotment was made, it must have been of fully paid shares. If no allotment was made, or at first made and subsequently cancelled, Prem Behari Lal could not be held bound by his signature on the Memorandum of Association, when he, by the consent of the other Directors and to the public knowledge, signed it on the understanding that he had to pay nothing for the shares: see In re Macdonald Sons & Co. (1894) 1 Ch Div 89. Such an arrangement could possibly have been barred by a provision like that of Section 28 of the Companies Act of 1882 as the agreement between Prem Behari Lal and the Company was not filed with the Registrar. As the present Act of 1913 contains no such provision, the operation of such an agreement is not barred.

13. Even under Section 28 of the Indian Companies Act of 1882, I do not think that the present claim would have prevailed. In reality there was payment in cash Instead of receiving cash for machinery tool, plaint and furniture, and then making it over to the Company for the three thousand shares, he received three thousand fully paid shares. They were cross money payments presently nforcible: see In re Barrowness-Furness and Investment Company (1880) 14 Ch Div 400. There are no means of discovering in this case what the value of Prem Behari Lal's property, consisting of machinery, etc., was. The liquidators have not sued for balance of account. Their case is that the contract of sale was wholly independent of the purchase of the shares. In my opinion this is a totally wrong view of facts. When there is no evidence of inadequate consideration I hold, for the purposes of this case, that the shares were fully paid up.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //