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D.R. Patel Vs. A.S. Dimellow - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMadhya Pradesh High Court
Decided On
Case NumberFirst Appeal No. 7 of 1955
Judge
Reported inAIR1961MP4
ActsCompanies Act, 1956 - Sections 62
AppellantD.R. Patel
RespondentA.S. Dimellow
Appellant AdvocateShahasrabuddhe, Adv.
Respondent AdvocateA.M. Arora, Adv.
DispositionAppeal allowed
Excerpt:
.....much clearly emerges from the relevant portions of the judgment, specially paragraph no. 1 is not personally liable, his learned counsel has repeatedly tried to show that the plaintiff is not entitled to any payment because of bad work, over payment and the like. the word promoter has not been defined in the indian companies act, 1956, or as for that matter in the act of 1919 (1913?) or the gwalior companies act samvat 1963, which like the indian act 1913 was generally based on the english companies act of 1908. the word, however, occurs in section 62 of the present (1956) act, and accordingly the case law regarding promoters is noted under that section. 6 deals with the promoter and enunciates principles which are applicable to the promoter under our act as well. a person who as..........into one against him personally, on the ground, that he was the promoter and continued to be personally liable as his liability for the plaintiff's claim was not taken over by the company after it was constituted, and has also a prayer in regard to costs, as it was, the plaintiff claimed rs. 45,000/- but actually got a decree for rs. 22,614/-. the court ordered costs and pleader's fee for each party in proportion to its success; as each won about half, the costs nearly, but not quite, cancelled mutually. the plaintiff-appellant cannot therefore make any grievance on this ground.2. there is no prayer by the plaintiff in respect of the disallowed portion of his claim, nor is there any cross appeal or cross objection by the defendant-respondent in regard to the portion of the claim.....
Judgment:

H.R. Krishnan, J.

1. This is an appeal by the plaintiff whose suit is allowed in part. Plaintiff's prayer is that the decree now passed against defendant No. 1 in the capacity of Managing Director should be converted into one against him personally, on the ground, that he was the promoter and continued to be personally liable as his liability for the plaintiff's claim was not taken over by the company after it was constituted, and has also a prayer in regard to costs, aS it was, the plaintiff claimed Rs. 45,000/- but actually got a decree for Rs. 22,614/-. The Court ordered costs and pleader's fee for each party in proportion to its success; as each won about half, the costs nearly, but not quite, cancelled mutually. The plaintiff-appellant cannot therefore make any grievance on this ground.

2. There is no prayer by the plaintiff in respect of the disallowed portion of his claim, nor is there any cross appeal or cross objection by the defendant-respondent in regard to the portion of the claim that has been actually allowed. This is now impossible for him to challenge the merits of the trial Court's decision. The controversy has narrowed down to whether a promoter is personally liable for the price of the building work found to have been ordered by him before, but actually executed by the building contractor after the company wag constituted and registered.

3. The relevant facts are that the defendant-respondent No. 1 came to Gwalior in 1944 and began promoting the two companies impleaded as defendants Nos. 2 and 3. The actual registration was on 26-10-1944 but earlier in July, August 1944 the defendant No. 1 as promoter had ordered verbally the plaintiff to put up certain buildings for the company. On the strength of these orders the buildings were put up after November 1944, and part of the price paid in March and May 1945. The company had not been functioning, nor had it by any resolution taken over the liability created by the order given by the promoter in July and August 1944 before the company came into existence. However, the payments were made in the name of the Secretary of the company.

4. The defence was that the work was not ordered by the defendant No. 1, he was only an absentee director; and further the work was poor, and the contractor had already been over-paid.

5. Most of the defence contentions were rejected. As for that matter the plaintiff's own claim was allowed only in part. As neither party has questioned the findings of fact it will be convenient to summarise them as the basis for the examination of the only question before us. The trial court has found that the work was ordered verbally in July and August 1944. The defendant No. 1 had ordered it and at the relevant places he has been described as the 'promoter' elsewhere he has been described as ''the promoter and Managing Director' but at the time of his entering into this contract, the finding is that he was the promoter; in fact, at that time there was no company or so no Managing Director of that company.

6. The judgment of the trial court is obscure at certain places but this much clearly emerges from the relevant portions of the judgment, specially paragraph No. 28, in which the defendant's version of the contract has been disbelieved.

7. It is clear that as the Managing Director of the company the defendant No. 1 is not personally liable. The plaintiff appellant also accepted the position. However, he contends as the promoter of the company the defendant No. 1 is personally liable. While trying to prove the defendant No. 1 is not personally liable, his learned counsel has repeatedly tried to show that the plaintiff is not entitled to any payment because of bad work, over payment and the like. It is, however, difficult to allow this, because having filed no cross-appeal or objection, the defendant No. 1 cannot now question the findings of fact. He can only try to show that the promoter as promoter is not personally liable.

8. In investigating the question of law we have to see English cases, Indian Case law being silent in this regard. The word promoter has not been defined in the Indian Companies Act, 1956, or as for that matter in the Act of 1919 (1913?) or the Gwalior Companies Act Samvat 1963, which like the Indian Act 1913 was generally based on the English Companies Act of 1908. The word, however, occurs in Section 62 of the present (1956) Act, and accordingly the case law regarding promoters is noted under that section. Halsbury's Laws of England, Vol. 6 deals with the promoter and enunciates principles which are applicable to the promoter under our Act as well. The term 'promoter' is defined as under:

'The term 'promoter' is not a term of law, but of business. It is a short and convenient way of designating those who set in motion the machinery by which the Companies Act, 1948, enables them to create an incorporated company. It involves the idea of exertion for the purpose of getting up and starting a company, or what is called 'floating' it, and also the idea of some duty towards the company imposed by, or arising from, the position which the so-called promoter assumes towards it.

The question whether a person is Or is not a promoter is a question o fact depending upon what the so-called promoter really did, and a judge in summing up to a jury is not bound to define the term.

A person who as principal procures or aids in procuring the incorporation of a company is generally a promoter thereof, and he does not escape from liability by acting through agents But persons who act professionally only, such as counsel, solicitors, accountants, printers of prospectuses, and the like, are not promoters.'

On the facts found by the trial Court and not challenged in the appropriate manner, the defendant No. 1 was the promoter. The personal liability of the promoter has been clearly mentioned in paragraph 207:

'A promoter, even although he expressly purports to act as agent or trustee, is personally liable upon all contracts made on behalf of the intended company, until the contract has beer performed or rescinded by either party under some power in the contract Or by consent of al parties, or until the company has, with the consent of the other contracting party, undertaker the liability of the promoter under the contract But where there is a contract to pay out of a specific fund, the personal liability only exists to the extent of the fund, if any.'

9. Indian annotators like D.M. Ghosh have mentioned the same English cases to the effect that promoter is personally liable to third parties, until with their consent, the company takes over this liability. The mere fact that it has beer constituted and registered, does not discharge the promoter unless all persons concerned have agreed that the company should take over the liability. That of course is not the position here, This principle of the promoter's personal liability is only a fair one. Otherwise, a third party who does something at the instance of a promoter will be obliged to run after the company with which he has no nexus and can have no nexus, until with his consent it takes over the promoter's liability. The defendant respondent No. 1 seems to have been very sure of his personal immunity and has not filed any appeal or cross-objection, This is unfortunate because the trial Court's judgment does appear difficult and obscure at places, and the defendant could possibly have tried to reverse the findings on fact; but that became impossible now.

10. The result is that on the finding the defendant No. 1 ordered the building work as the promoter and the amount decreed is still payable to the plaintiff on that account, as I hold that the promoter is personally liable. In these circumstances the appeal is to be allowed and the decree passed by the trial court against defendant No. 1 altered to one with personal liability of defendant No. 1. Costs and pleader's fee in the present appeal be calculated according to the rules payable by defendant respondent No. 1 to the plaintiff appellant.

Khan, J.

11. I agree.


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