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C. Sundararaja Pillai Vs. Sakthi Talkies (Dindigul) Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtChennai High Court
Decided On
Case NumberAppeal No. 3 of 1960
Judge
Reported inAIR1967Mad127; [1967]37CompCas463(Mad)
ActsTransfer of Property Act - Sections 55 and 55(4); Indian Companies Act - Sections 90 and 91-B; Evidence Act - Sections 92
AppellantC. Sundararaja Pillai
RespondentSakthi Talkies (Dindigul) Ltd. and anr.
Cases ReferredVide Narayana Shreeram Somani v. Sangli Bank Ltd.
Excerpt:
.....and we reverse the decree of the learned subordinate judge, and give judgment accordingly, with costs..........managing agent(plaintiff and second defendant) had played a fraud upon the company, and that the suit promissory note was not enforceable for that reason. the proper remedy of the plaintiff was to file a suit for rendition of accounts. (2) the plaintiff cannot claim a charge under section 55 of the transfer of property act, because his claim is really of the character of a book-debt and not one for unpaid purchase money. (3) the promissory note has not been executed with the seal of the company affixed, and the directors were not duly authorised by the company to enter into the agreement; hence, it is within the mischief of section 90 of the indian companies act. (4) in any event, the plaintiff was one of the directors, and he could not have been a valid party to the resolutions which.....
Judgment:

M. Anantanarayanan, Offg. C.J.

(1) The appellant is the plaintiff in a suit for recovery of an amount of Rs. 24,865,59 from the first defendant, Sakthi Talkies Ltd. Dindigul, alleged to be due on a promissory note executed by the eight directors of the first defendant company in favour of the plaintiff in 1953. The simple facts of the action, as stated in the plaint, were that the properties of the plaint schedule belonged to the plaintiff and the second defendant, and that the plaintiff sold the land to the first defendant firm for the construction of a cinema theatre, for an amount of Rs. 37,500. Out of this amount, an amount of Rs. 20,093-0-6 was due, and the eight directors of the first defendant firm jointly executed the suit negotiable instrument in favour of the plaintiff for that sum.

(2) The action could be viewed as a suit simpliciter upon a promissory note, and also as one to enforce the vendor's lien in respect of the unpaid purchase money; for the plaintiff specifically prayed for a charge on the property, and for the sale of the site in realisation of the claim, under Section 55(4) of the Transfer of Property Act. The second defendant was impleaded as a party entitled, along with the plaintiff, to a moiety of the amount.

(3) We are now concerned with the defences on which this claim was resisted by the first defendant firm, particularly in the additional written statement of that firm. These defences could be tersely set forth as follows. The plaintiff and second defendant were partners of a firm of managing agents of the first defendant company and the plaintiff was also one of the directors of the firm. There was mismanagement by the Managing Agents, and the plaintiff was in the advantageous position of the possession of the account books, without a proper audit having been accomplished. It is conceded that the directors were anxious to purchase the site, for the construction of the theatre, and there are resolutions both of the General Body and the Board of directors, approving that proposal.

It was then found that, according to the plaintiff, he had taken a sum of Rs. 17406-15-6 from the funds; it is alleged that several directors felt that much larger sums might have been taken by the plaintiff, and might be due from him. But this sum of Rs. 17406 odd was tentatively accepted, as the amount due from the plaintiff, and the promissory note for the balance was executed as alleged in the plaint, in the wake of the sale deed. The defence is that the consideration of Rs. 20,093-0-6 on the promissory note was not a figure arrived at, on a proper settlement of accounts between the parties, and that, unless such a settlement is made, the plaintiff cannot enforce the claim. There are also certain other technical defences, which we shall note a little later.

(4) The learned Subordinate Judge, after referring to the evidence at some length, has dismissed the suit with costs of the first defendant. His reasons are (1) that the Managing Agent(plaintiff and second defendant) had played a fraud upon the company, and that the suit promissory note was not enforceable for that reason. The proper remedy of the plaintiff was to file a suit for rendition of accounts. (2) The plaintiff cannot claim a charge under Section 55 of the Transfer of Property Act, because his claim is really of the character of a book-debt and not one for unpaid purchase money. (3) The promissory note has not been executed with the seal of the company affixed, and the directors were not duly authorised by the company to enter into the agreement; hence, it is within the mischief of Section 90 of the Indian Companies Act. (4) In any event, the plaintiff was one of the directors, and he could not have been a valid party to the resolutions which led to the purchase, under Section 91-B of the Companies Act.

(5) Learned counsel for the appellant(Sr. Thyagarajan) has stressed before us the simple argument that, upon none of the grounds adverted to by the learned Subordinate Judge, could the claim possibly have been dismissed. Learned counsel points out, and rightly, in our view, that such a claim viewed as an action to enforce the unpaid purchase money with a charge on the property, cannot be resisted on the mere ground that there were other transactions inter se which might necessarily involve a proceeding for rendition of accounts, for further final elucidation. Even a suit on a negotiable instrument, viewing this action as such, cannot be resisted on any of these grounds. It is not as if the first defendant came forward with a counter claim, in this very suit, or denied either the execution of the promissory note, or the consideration as shown thereunder. Learned counsel for the first defendant(Sri Desikan) is conscious that the reasoning of the learned Judge on this aspect of the matter may not be sustainable. He has therefore sought to argue that the pleadings and the evidence ought to be interpreted in a different way, viz, as affording a basis for bringing the defence within the third proviso to S. 92 of the Indian Evidence Act. In other words, we must spell out some antecedent agreement between the parties, not directly repugnant to the terms of the sale deed or of the promissory note, to the effect that the claim for the unpaid purchase money, or the claim in the promissory note in which it is embodied, will not be enforceable until accounts are finally rendered between the parties.

(6) Unfortunately for the first defendant, we are quite unable to find any basis for such a point of view, either in the pleadings, or in the evidence of D.W. 1, the director, who has given evidence on behalf of the first defendant company. All that the evidence of D.W. 1 amounts to, at the highest, is that accounts were not finally looked into, when the suit transaction occurred and that there was some understanding that accounts should be ultimately settled between the parties. There was also a general impression, apparently in the minds of the other Directors excluding plaintiff, that the Managing Agents(plaintiff and second defendant) had mismanaged the affairs, and that some acts of misfeasance could be attributable to the plaintiff. All this is very wide off the mark, when we are considering the existence of any specific evidence based on the third proviso to Section 92. As learned counsel for the appellant points out, the mere execution of a promissory note by a purchaser does not extinguish the statutory vendor's lien available to a seller, and does not estop him from an action on such lien. The relevant authorities were noticed by Kailasam J. in Dhanikachala Pillai v. Raghava Reddiar : AIR1962Mad423 and the learned Judge has cited and followed the earlier decisions of this court to the same effect in Krishnaswami Mudaliar v. Vijayaraghava Pillai, AIR 1939 Mad 590. Somu Achari v. Singara Achari : AIR1945Mad407 as well as in Kampiah Pillai v. Harirao : (1911)21MLJ849 .

(7) The technical arguments based upon certain sections of the Companies Act VII of 1913, appear to be totally without foundation. Actually, the learned Judge appears to have misconceived the scope of Section 90 of that Act, which has nothing to do with the execution of a promissory note by the directors of a company for any sum representing unpaid purchase money upon a transaction of sale in favour of the company. The relevant provision would be Section 89 of the same Act, and it is indisputable that all the other directors except the plaintiff were parties to the document. The seal of the company was not required, and that does not invalidate the transaction. Again, S. 91-B has no application to the present facts. Even if the plaintiff, as a director, had voted in the passing of the resolution, which is denied, the only legal consequence of that would be that his vote has to be excluded from consideration. Vide Narayana Shreeram Somani v. Sangli Bank Ltd. : [1965]3SCR777 . Under Section 91-B (2) he may be liable to penal action for infringement of the company law, but that has nothing whatever to do with the validity of the resolutions themselves. We must add that there is absolutely nothing, either in the promissory note or in the sale deed, to show that ex facie the amount for which the promissory note was executed was not due to plaintiff as unpaid purchase money. Actually, even as such a plea in defence would be in direct contradiction of the principle of S. 92 of the Indian Evidence Act.

(8) For these reasons, we are of the view that the dismissal of the suit by the learned Subordinate Judge was quite unjustified and that, on the merits, the suit has to be decreed in favour of the plaintiff(appellant). But, in consideration of the back-ground of facts, as appearing in evidence and accepted by the learned Judge we think that, in equity, a direction should issue that our present decree on the suit claim will not be enforceable in execution for a period of three months from this date. It is open to the first defendant company to resort to any appropriate legal action as deemed fit, subject to the law of limitation to enforce the liability of plaintiff, as claimed in the additional written statements, to render proper accounts, in respect of a much large sum said to be due from the plaintiff. If such proceedings are instituted, the first defendant company may certainly seek all such interlocutory reliefs therein as advised. But, subject to this direction, the appeal has clearly to be allowed, and the suit to be decreed, and we reverse the decree of the learned Subordinate Judge, and give judgment accordingly, with costs throughout.

(9) Appeal allowed.


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