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F.B. Powell Vs. Dr. S. Sen and ors. - Court Judgment

LegalCrystal Citation
CourtAllahabad
Decided On
Judge
Reported inAIR1918All121; 43Ind.Cas.134
AppellantF.B. Powell
RespondentDr. S. Sen and ors.
Excerpt:
.....the sole person who did any business for the company at this time, at any rate he was made by the board of directors, in express terms in one resolution and impliedly from all the facts of the case, their agent for obtaining any further capital in pursuance of the resolution of the 2nd of february 1913. he was expressly authorised to make such terms as he could for the extension of the credit of the company, and it is quite clear that his position was such that the company seeking to avail itself of any contract made in its interest by mr. kapitr, who had done his best for the company and in the interests of the company; we are satisfied that the conduct of both parties in this case, the board of directors and mr. it is perfectly true that if a man binds himself by an unconditional..........the sole person who did any business for the company at this time, at any rate he was made by the board of directors, in express terms in one resolution and impliedly from all the facts of the case, their agent for obtaining any further capital in pursuance of the resolution of the 2nd of february 1913. he was expressly authorised to make such terms as he could for the extension of the credit of the company, and it is quite clear that his position was such that the company seeking to avail itself of any contract made in its interest by mr. kapar would be bound by the terms of such contract, so long as it was not ultra vires the memorandum and articles of association. he seems to have carried out his duties with industry. he secured a large number of new share-holders though for very.....
Judgment:

1. We think this is a clear case and that this appeal must be allowed. Mr. Powell is entitled to have his name removed from the list of contributories. The circumstances of the case are as follows:Sometime in 1912 a company of the name of the Bharat Ice Association, Limited, began to carry on business in Meerut, where it may be supposed that under proper management it had a reasonable prospect of success. It appears to have been starved from the outset, and although it did a considerable amount of business in the way of obtaining share-holders and its books were kept with scrupulous care, it made no ice. Provisions were contained in the Articles of Association for the appointment of Directors. One only is important, namely, that with regard to what wefts called Terminal Directors, in other words Directors appointed for A specific period; and by Article 177(e) it was provided that the qualification for holding the post of a Terminal Director should be the holding of two hundred shares in the said Company. Mr. F.R. Powell, a zemindar of Saharanpur, against whom this application was made, had originally become a shareholder in the month of December 1012 to the extent of fifty shares. The Company was never in possession of sufficient working capital and in fact was never able to take delivery of the necessary machinery to carry on the business because it had not sufficient funds to pay, and it was indebted for a fairly substantial loan from the Standard Bank. Under these circumstances it was clearly necessary for the Company, if it was in future to carry on business, to raise further capital, and a resolution on the 2nd of February 1913 was passed by the Board for the purpose of increasing the capital. These circumstances are important, if not vital, to a consideration of the question on which the question in this application really turns, because they throw considerable light on the probabilities of the conduct of both the main actors to this transaction. The Managing Director was one Mr. Kapar, and we are satisfied, and the evidence is really conclusive on the point, that if he was not the sole person who did any business for the Company at this time, at any rate he was made by the Board of Directors, in express terms in one resolution and impliedly from all the facts of the case, their agent for obtaining any further capital in pursuance of the resolution of the 2nd of February 1913. He was expressly authorised to make such terms as he could for the extension of the credit of the Company, and it is quite clear that his position was such that the Company seeking to avail itself of any contract made in its interest by Mr. Kapar would be bound by the terms of such contract, so long as it was not ultra vires the memorandum and Articles of Association. He seems to have carried out his duties with industry. He secured a large number of new share-holders though for very small amounts, and Substantially it may be said that the results of his efforts were of no real benefit to the Company in securing them sufficient funds to transact any serious business. It was), therefore, essential from the point of view of Mr. Kapitr, who had done his best for the Company and in the interests of the Company; to secure, if he could, a substantial share-holder, and under these circumstances he selected Mr. F.B. Powell for the purpose and eventually, as the Judge has found and as the evidence of Mr. Kapur testifies, Mr. Powell agreed to take 150 additional shares on the under standing given by Mr. Kapur that this works of the Company would be removed to Saharanpur and that Mr. Powell should become a Terminal Director. There felly can be no doubt as to the existence of this condition. Two features of the transaction have been pointed out in argument. In the first place, when Mr. Powell applied for 150 shares, he did not send the application money. That conduct at any rate was consistent with the transaction being incomplete. He was already a shareholder to the extent of fifty shares and his application was for 150 shades more, which was exactly the qualification under Article 177(e) necessary for the appointment of a Terminal Director. It is uncertain when he paid his application' money, or whether he ever paid it in full; but he did pay Rs. 62 towards the Rs. 75 payable on his application of the 17th of March. His application was dealt with at a meeting of the Board and it was decided to allot him 150 shares, the numbers of which were given. On the 17th of March 'a resolution was passed, which is remarkable in its tetras, viz., that as a special case 150 shares which were specified by numbers should be allotted to Mr. Powell, if his application money is received in Rs. 75 only.' An allotment letter was sent to him calling upon him to pay a further sum of Rs. 75 on allotment, that is to say, in addition to Rs. 75 payable on application without which an allotment could never have been made at all, such amount due on allotment being payable under the altered Articles of the Company, and he was given ten days to pay the allotment money. One other fact may be stated, namely, that in the case of other shareholders who had applied unconditionally for small amounts which they wanted to take in the Company, their names had been entered in the resolution allotting particular numbers to them without any condition at all. Nowhere was that done in the case of Mr. Powell's 150 shares. Mr. Powell never paid his allotment money. On the same day, namely, on the 17th of March the Directors at the Board Meeting resolved to call an extraordinary General Meeting for the election of Mr. Powell as Terminal Director of the Company, a circumstance which further corroborates the view which the Judge below and we ourselves take of the transaction. No further Board Meeting was ever held. The resolutions of the 17th of March were never confirmed. Mr. Powell was not appointed a Director. He did not pay his allotment money, and for all practical purposed the business of the Company came to a stop at or about this date. At any rate shortly afterwards, viz. in the month of May, Mr. Kapur himself applied for the liquidation of the Company, its substratum having practically gone. We are satisfied that the conduct of both parties in this case, the Board of Directors and Mr. Kapur representing them on the one hand and Mr. Powell on the other, are conclusive and inconsistent with any other view than that the terms on which Mr. Powell became a share-holder for these 150 shares were that the business of the Company should be transferred to Saharanpur, as it was in fact transferred from the 1st of April, and that he should become a Terminal Director. That is the finding at which the learned Judge arrived and we agree with it. It is equally clear that the condition has not been fulfilled. Whether it was impossible of performance or whether it was not fulfilled from some neglect on the part of Mr. Powell, of which we see no evidence, is immaterial. The only question is whether the condition is binding upon the Company or not. If it is binding, the Company not having fulfilled it, Mr. Powell is under no obligation. Several points have been argued. It is suggested that it was ultra vires. There is no evidence that it is ultra virus. It is suggested that it was not communicated to the Board. That is immaterial. If the Board chose to give authority on such matters to their Managing Director, they are bound by the contract which their Managing Director made, so long as it is not ultra vires.

2. One other contention was raised, namely, that Mr. Powell accepted the letter of allotment without repudiating it. It is perfectly true that if a man binds himself by an unconditional contract to take shares and there is delay about the allotment, but it is eventually made, and he says nothing when it is made about the delay, he must be taken to have consented to it, and if liquidation supervenes, he cannot escape his liability by reason of the delay to Which he raised no objection. That has no bearing upon this case. The arrangement with Mr. Powell was that he should be made a Terminal Director. The Director had fixed a date for an extraordinary general meeting necessary for the purpose of his election. The allotment letter was merely one step which was necessary to complete the transaction. There is no reason to suppose that it was not the intention of both parties to carry out the bargain which they had made. A person is not called upon to reply to a letter of allotment or to repudiate it where no legal duty is imposed upon him to do so and we see no reason why Mr. Powell should have done so.

3. One further point was raised, namely, that it was necessary for Mr. Powell to qualify himself by becoming a holder of two hundred shares before he could be nominated a Director. There is nothing in the Articles requiring anything of the kind. It is suggested that under recent legislation the qualification must be acquired within two months of the appointment, and that this imports the view that he should under the then existing law have obtained his qualification before nomination. We think that the converse is really the case. It is a provision in favour of the Company intended to put some terminal point to the controversy as to whether a man, who has been de facto appointed Director and who bona fide intends to qualify himself, can be considered in the eyes of the law to be de jure Director. The contention really is an obvious fallacy, because if it was necessary for a man to qualify himself for his nomination by entering into a firm contract and becoming a share-holder, the result would be that the Company would find it difficult to persuade anybody to take a large number of shares on that understanding, inasmuch as if the undertaking was not carried out he would be bound to pay for his shares and would have a possibly inadequate remedy against the Limited Company for damages for breach of their undertaking, a proposition which from a business point of view would appeal to very few. We think there is no substance in the contention. It would be detrimental to the interests of the successful carrying on of a Company if that were in fact the law. The learned Judge finds the facts in favour of Mr. Powell, a finding with which we entirely agree. He appears to have failed to apply the right principle. He seems to have treated the case as a claim by Mr. Powell against the Company for not having carried out their undertaking, and he has found in so many words that Mr. Powell is really in default for not having interested himself in the Company more than he did. It is due to Mr. Powell to say that we see no ground for the view which the learned Judge has taken. Mr. Powell was under no duty, until he was appointed a Director, to take any steps in the business of the Company, nor indeed had he any title to do so. These cases are very often rather near the line and the learned Counsel for the liquidator has argued his case with great thoroughness and ability, pointing out that there are many authorities in which the decision has been the other way. We think, however, that this is really a clear case. There does happen to be one authority which is remarkably like it, namely, the case of London and Provincial Provident Association, In re, Magridge's case (1888) 57 L.J. Ch. 932 : 58 L.T. 801 That was a decision in favour of the contributory by Mr. Justice Stirling, a very experienced Judge in Company Law. There are two circumstances in that case which in our opinion make it a stronger case in favour of the liquidator than the present case namely, (1) that the whole of the transactions were carried out on behalf of the Company only by the Secretary, and (2) that it was quite clear that the proposed share-holder really wanted to get out of his bargain, because he had discovered that the Company was in low water and it was a mere accident that the Company sought to impose some additional terms on the original bargain. We think that the decision is a clear authority for this case according to English law and that in this respect the law in this country is not different.

4. The appeal must be allowed. Mr. Powell must have his costs in this Court and in the Court below, including fees in this Court on the higher scale, out of the estate So far as the application of the liquidator to put Mr. Powell on the list of contributories is concerned, Mr. Powell's name must be struck off the list. Mr. Powell through his Counsel has behaved very handsomely in withdrawing his claim with regard to Rs. 75, and, therefore, we have nothing to say about' that. Mr. Powell's costs are not to include any costs of serving, as respondents to this appeal, share-holders other than the liquidator of the Company, and the Standard Bank of India must pay its own costs. The liquidators of the Bharat Ice Association, Limited, and of the Standard Bank will pay their own costs out of the respective estates of the Companies they represent.


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