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The Weavers Mills Ltd., Rajapalayam Vs. Balkis Ammal and ors. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies
CourtChennai High Court
Decided On
Case NumberAppeal Nos. 28 and 178 of 1962
Judge
Reported inAIR1969Mad462; (1969)2MLJ509
ActsCode of Civil Procedure (CPC) , 1908 - Sections 9 and 11 - Order 20, Rule 9; Trusts Act, 1882 - Sections 3, 88, 92 and 94; Contract Act, 1872 - Sections 182; Specific Relief Act, 1877 - Sections 3; Companies Act, 1956 - Sections 12 and 46; Transfer of Property Act, 1882 - Sections 5, 9 and 54; Registration Act, 1908 - Sections 17(1)
AppellantThe Weavers Mills Ltd., Rajapalayam
RespondentBalkis Ammal and ors.
Appellant AdvocateR. Gopalaswami Iyengar and ;M. Srinivasan, Advs.
Respondent AdvocateT.R. Mani, Adv.
Cases ReferredSarandaya Pillai v. Sankarlinga Pillai
Excerpt:
fraud--suit to set aside prior judgment alleging fraud--when fraud can be ground for vacating judgment--must be such fraud that is extrinsic or collateral to every thing that has been adjudicated upon, but not one that has been or must be deemed to have been dealt with by court--suppression of evidence and even negligent conduct in prior litigation not proper grounds for setting aside earlier judgment.; immovable properties purchased by promoters of company--whether company after incorporation gets title to same without conveyance in favour of company by promotes after its incorporation-- transfer of property act (iv of 1882), section 9--if transaction amounts to transfer of property and no express provision of law requiring it to be in writing, section 9 will enable it to be made.....1. these appeals arise out of the same judgment of the subordinate judge. ramanathapuram, at madurai, in a suit instituted by the appellant in a. s. 28 of 1962 for declaration of its title to the suit properties and for an injunction restraining the first defendant from executing the decree obtained by her (the first defendant who is the appellant in the other appeal a. s. 178 of 1962) in o. s. 16 of 1949 or in the alternative to set aside the judgment and decree in o. s. 3 of 1958, both on the file of the same subordinate judge. the appellant in a. s, 28 of 1962 is a limited liability company incorporated under the provisions of the indian companies act, on 12-7-48, with its registered office at raja-palayam. two of its promoters, one of them the 2nd defendant in the suit and the other.....
Judgment:
1. These appeals arise out of the same judgment of the Subordinate Judge. Ramanathapuram, at Madurai, in a suit instituted by the appellant in A. S. 28 of 1962 for declaration of its title to the suit properties and for an injunction restraining the first defendant from executing the decree obtained by her (the first defendant who is the appellant in the other appeal A. S. 178 of 1962) in O. S. 16 of 1949 or in the alternative to set aside the judgment and decree in O. S. 3 of 1958, both on the file of the same Subordinate Judge. The appellant in A. S, 28 of 1962 is a limited liability company incorporated under the provisions of the Indian Companies Act, on 12-7-48, with its registered office at Raja-palayam. Two of Its promoters, one of them the 2nd defendant in the suit and the other by name Ayyadurai alias Madeswamy Moopanar, purchased the suit lands under two registered sale deeds dated June 17th and June 18th of 1945, for a total consideration of Rs. 11000 from one Ramaswami Raja and Rangammal. In O. S. 16 of 1949, the 1st defendant obtained a decree against defendants 2 and 3 for a sum of Rs. 10000 due under a promissory note that had been executed by them. Admittedly, the loan was obtained by the promisors for their personal purposes. In execution of the decree, the first defendant attached the suit properties and brought them to sale in E, P. 60 of 1955. An application of the second defendant representing the company in E. A. 301 of 1956 under O. 21. R. 58, Civil P. C., was dismissed on 29-10-1957 and thereafter he instituted, in his capacity as Managing director of Jayam and Co, the Managing Agents of the company, O. S. No. 3 of 1958 to set aside the order in E. A. 301 of 1956, but without success. No appeal was filed from the decree in O. S. 3 of 1958.

By resolutions dated 27-7-1959, the second defendant was removed from the Managing directorship of Jayam and Co., and of the plaintiff-company and one A. M. Chinna Guruswami Moopanar was appointed in his place. The present suit put of which the appeals arise has been instituted by the company through its managing agency Jayam and Co. Ltd. represented by its Managing director Chinna Guruswami Moopanar. The plaintiff's case is that the suit properties were purchased by the second defendant and Ayyadurai alias Madasami Moopanar as representatives and on behalf of Raiapalayam Weavers Mills which was to be incorporated later and that on its incorporation the Municipal registry of the properties stood in the name of the company and it has been paying the Municipal tax therefore. According to the plaintiff, nevertheless, defendants 2 and 3 colluded with the first defendant and allowed the application under Order 21, Rule 58, Civil P. C. and O. S. 3 of 1958, to be dismissed and thus fraudulently allowed the properties to be attached and brought to sale in discharge of their own personal debts. On those averments, the plaintiff company sought the reliefs mentioned by us at the outset. It claimed that the suit properties belonged to the company, that this position had been accepted on all hands and building for the purpose of the company has since been erected before the attachment and that though the company was economies a party to the claim application and the suit, as the interests of the company were not properly placed and represented before the Court on account of the collusion between the defendants and their fraudulent conduct, the decree in O. S. 3 of 1958 was null and void and was not binding on the plaintiff.

2. The first two defendants filed separate written statements while the third defendant remained ex parte._ The first defendant denied any collusion or fraudulent conduct on her part and asserted that the properties belonged to the second defendant and that ever since their purchase, they had been in the possession and enjoyment of the second defendant himself. The first defendant also pleaded that both the application under Order 21 Rule 58, C. P. C. and the claim suit were hotly fought out by the second defendant and that, therefore, the present suit was barred by res judicata by reason of the judgment and decree in O. S. 3 of 1958. The Second defendant also denied the plaint allegations of fraud and collusion on his part and maintained that all the directors of the company knew full well the decree in O. S. 3 of 1958 and its execution. He did not accept that he mismanaged the affairs of the company and stated that he could not be removed from directorship until the expiry of 20 years from the date of the incorporation of the plaintiff-company. On that ground he urged that the suit itself as framed was not maintainable. At the trial, the second defendant remained absent and his counsel reported no instructions.

3. The Court below framed appropriate issues and found that the suit properties belonged to the plaintiff company, that the judgment and decree in O. S. 3 of 1958 on account of fraud and collusion on the part of defendants 2 and 3 were not binding on the plaintiff and that the plaint prayers should be granted. It also found that removal of the second defendant from the managing directorship was true, valid and binding on him and the suit was maintainable. This last finding is no longer in dispute before us. While granting a decree to the plaintiff as prayed for, the Court below directed it to deposit a sum of Rs. 23,301, for which the properties were purchased by the first defendant in execution of her decree within a specified period, as a condition to recover possession. The company aggrieved by the direction has appealed to this Court and likewise the first defendant against the decree declaring the title of the plaintiff-company to the suit properties and for possession.

4. On the view the Court below took on the plaintiff's claim to title and possession, we cannot but express our surprise at the Court below having directed the company to deposit a sum of money as a condition to recover possession. We fail to see how in view of the findings arrived at by the Court below, it could properly direct the plaintiff to do that. If the plaintiff was entitled to the properties and also to recover possession, it is certainly not under an obligation to deposit any sum of money as a condition for recovery of possession. In fact, the Court below has given no justification in its judgment for making such a direction. Since we have come to the conclusion for the reasons which would presently appear, to allow the appeal of the first defendant and dismiss the suit, it should follow that App. No. 28 of 1962 should be dismissed.

5. In the other appeal, substantial contentions for the appellant are (1) that the declaration of the Court below of the plaintiff's title to the suit properties is erroneous and (2) that in any case the judgment and decree in O. S. 3 of 1958 bar the present suit by res judicata. The first contention is not quite free from difficulty but we have reached the conclusion that the finding of the Court below on this question does not call for interference. But the second contention, in our opinion, has force and we accept it.

6. In O. S. 3 of 1958 the issue directly arose for decision as to whether the suit properties belonged to the company. The suit was instituted by the company through its Managing agents Jayam and Co. Ltd., represented by the Managing director the second defendant in the present litigation. The prayer was to set aside an order of the executing Court in E. A. 301 of 1956, rejecting the claim of the company that it was entitled to and was in possession of the properties. The company was the applicant represented by its Managing director the second defendant. The Court found that there was nothing to show that after 1957 the company was in possession of the properties or in February 1956. In O. S. 3 of 1958 the company sought to set aside the order in its claim petition on the ground that it was entitled to the properties, that they had been purchased by two of its promoters for purposes of the Company, that after its incorporation it adopted the transactions and got into possession of the properties and that pucca mill buildings were constructed on the land though they remained incomplete. The present first defendant also figured as the first defendant in that suit and curiously the second defendant, who, in his capacity as Managing director of the company, instituted the suit figured as the second defendant but in his personal capacity. The second issue in that suit was whether the suit properties belonged to the plaintiff the Weavers Mills Ltd. at Rajapalayam and it was decided against the plaintiff with the resuit that the suit was dismissed. Though the issue was framed in that manner, the court posed the question for its decision as to whether the title to the properties had passed to the plaintiff-company. In answering the question against the plaintiff, the court relied on the fact that the prospectus which ought to mention the properties was not produced, nor was any resolution adopting the purchase of the properties proved. The Court also noticed that patta stood in the sole name of the second defendant, that the purchase of the properties was with the funds contributed by the second defendant, and Ayyadurai and that subscriptions from other shareholders came in only subsequent to the purchase. The decree in O. S, 3 of 1958 was therefore, a clear decision on the question of title as between the very parties before us, except of course the third defendant who did not figure in the earlier suit, and would operate as res judicata.

7. But the company in the instant suit urged that the decree in O. S. 3 of 1958 was invalid and not binding on it because defendants 1 to 3 colluded together to have the debt owed by the second defendant to the first defendant discharged from out of the properties of the company and that in implementation of the scheme defendants 2 and 3 in collusion with the first defendant, allowed O. S. 3 of 1958 to be dismissed and wilfully failed to file an appeal against that decree. The company also urged that the other directors of the company were kept in the dark and the second defendant in collusion with the first fraudulently suppressed from them the fact of the claim suit being dismissed. The company would also have it that in order to give a colour of reality, the second defendant filed a claim petition to raise the attachment effected on the suit properties in execution of the decree in O. S. 16 of 1949 and that in truth the several execution proceedings were designed by defendants 1 and 2 in collusion to defeat its rights to the suit properties,

As we said, the Court below was prepared to accept the attack on the validity of the decree in O. S. 3 of 1958 and declared it to be null and void and not binding on the plaintiff. The main grounds for coming to that conclusion are (1) the second defendant himself did not at any time_ claim title in himself to the suit properties and in a sense his interest in O. S, 3 of 1958 was adverse to that of the company which he purported to represent as its Managing director; (2) the circumstances appearing in the case would show that both defendants 1 and 2 colluded together and fraudulently brought about the dismissal of O. S. 3 of 1958 thereby depriving the company of the suit properties and (3) the second defendant's conduct in the present suit in not producing certain documents though the plaintiff called upon him by notice to do so was suggestive of fraud and collusion between the first defendant and himself. The circumstances referred to in the second ground were stated by the Court below to be that in O. S. 3 of 1958 the second defendant did not produce the prospectus of the company and that was the main reason why that suit was dismissed and further he did not produce the resolution of the Board of Directors of the company though there was one which had ratified the purchase of the suit properties. The Court below observed that its conclusion was substantially supported by the fact that the second defendant did not properly conduct O. S. 3 of 1958 and by the further conduct of the second defendant in the present suit by remaining ex parte at the trial stage, though he had earlier filed a written statement in which he supported the claim of the company as to its title to the suit properties.

8. Before us, the argument for the appellant in A. S. 178 of 1962 is that not only there is no evidence to support the finding of collusion between defendants 1 and 2 and fraud on their part but there was no fraud or collusion extrinsic to the trial in O. S. 3 of 1958 to vitiate the judgment and decree in that suit and render them not binding as between the parties thereto.

9. The plaint in the present suit proceeds on the footing that defendants 2 and 3 borrowed from the first defendant for their personal use and executed a promissory note for a sum of Rs. 10000 and that the amount was not repaid by them. There is, therefore, no challenge against the decree in O. S. 16 of 1949 as one obtained with any ulterior purpose. The decree in that suit was dated 27-4-1951. The present second defendant, who was the first defendant in that suit, preferred an appeal against the decree in A. S. 342 of 1952, which was dismissed. The first defendant decree holder, as is evident from the proceedings in execution of the decree, had a tough job and had to file as many as six execution petitions. The first of them was E. P. 61 of 1951 filed on 20-8-1951 for attachment and sale of the suit properties as belonging to the second defendant and it was dismissed in October 1952 on the ground that no attachment could be properly effected for want of proper description of the suit properties. It appears that the properties were described as vacant lands but it turned out that there were incomplete buildings thereon. E. P. 33 of 1952, 52 of 1953 and 3 of 1954 were for arrest but each of them had to be dismissed as the second defendant was reported to be absconding. There were two other unnumbered execution petitions in 1953 and 1955 both for attachment and sale. Finally, the execution petition E. P. 60 of 1955 resulted in attachment of the properties on 11-2-1955. The second defendant appeared and filed a counter statement in which he claimed relief under Act 1 of 1953.

In October 1956 he filed E. A. 301 of 1956 in his capacity as the Managing director of the Mills to raise the attachment on the ground that the properties belonged to the company (Mills). This petition having been dismissed in October 1957, the company represented by the second defendant as its Managing director instituted O. S. 3 of 1958 to set aside the claim order. In that suit, the second defendant himself gave evidence and produced certain documents in support of the company's title to the properties. But the dismissal of the suit was mainly rested on the ground that "the suppression of the prospectus would give rise to presumption that if produced it would go against the plaintiff's case". There is nothing in the execution proceedings or in the proceedings in O. S. 3 of 1958 to show that defendants 1 and 2 colluded or employed fraud jointly or each by herself or himself on the company to defeat its rights in those proceedings. On the other hand, what appears is that the second defendant had been contesting the execution of the decree in O. S. 16 of 1949 against the suit properties and has all along been asserting and trying to establish its title to the properties by means of the claim petition and also of the subsequent suit. It is true that the second defendant did not file an appeal against the decree in O. S. 3 of 1958 but his plea was want of funds and proper support from the fellow directors in this regard. So far as the first defendant is concerned, there is nothing in the record including the oral evidence in the suit as to justify the finding that she colluded with the second defendant or was guilty of any fraud of any kind as against the company's interests. As we said, the first defendant had no easy task of executing the decree both personally against the second defendant and against the suit properties.

10. The Court below was perhaps right in its view that the present second defendant's interests in O. S. 3 of 1958 were adverse to those of the Company, but it is only in a theoretical sense, for we find that at no time did he set up in himself the title to the properties and all the time on the other hand, he had been asserting that the properties belonged to the company ever since its incorporation. The failure on the part of the second defendant to produce the prospectus of the company in that suit is certainly not suggestive of fraud on his part or collusion between him and the first defendant. We are wholly unconvinced on the record that defendants 1 and 2 colluded together and fraudulently brought about the dismissal of O. S. 3 of 1958. The facts and circumstances emerging from the evidence do not lead us to that conclusion; nor can we infer from the conduct of the second defendant in the present suit any indication of any such fraud or collusion. We are unable to believe the oral evidence for the plaintiff company that its directors were either kept in dark by the second defendant as to the proceedings in the Court relating to the suit properties in both the earlier suits or that they did not know about them contemporaneously. It is not possible to predicate from the materials before us that the Other Directors could have better conducted O. S. 3 of 1958, than the second defendant in the present suit. We accordingly disagree with the finding of the Court below and hold that the plaintiff has failed to prove that the decree in O. S. 3 of 1958 was vitiated by fraud and collusion on the part of or as between defendants 1 and 2 against the company.

11. In any case, as is rightly contended for the appellant in A. S. 178 of 1962, the judgment and decree in O. S. 3 of 1958 do not suffer from any extrinsic fraud so as to set them at large and permit the parties to raise the same issue which has been finally and conclusively adjudicated as between them in that suit. It is suggested, and the Court below has accepted that view, that suppression of the prospectus in O. S. 3 of 1958 by the second defendant, as it was put by the Court in that suit, amounted to a fraud on Court which misled it into dismissing that suit. As we already indicated, when the Court in that suit used the phraseology "suppression" all that it meant was that the second defendant as representing the plaintiff-company failed to produce the prospectus. Even assuming that it was a deliberate suppression on the part of the second defendant while he represented the plaintiff-company that in itself would not render the judgment and decree in that suit null and void leaving the issues as to title open for a fresh trial as between the parties.

12. On that matter, though there was difference of opinion in this Court earlier, Kadirvelu Nainar v. Kuppuswami Naicker ILR 41 Mad 743 = (AIR 1919 Mad 1044) settled it by overruling Venkatappa Naick V. Subba Naick, (1906) ILR 29 Mad 179 and accepting the principle in Chinnayya v. Ramanna. ILR 38 Mad 203 = (AIR 1916 Mad 364). ILR 41 Mad 743 = (AIR 1919 Mad 1044) held that a suit did not lie to set aside a judgment in a previous suit on the ground that it was obtained by perjured evidence. ILR 38 Mad 203 = (AIR 1916 Mad 364) also was a case to set aside an earlier judgment on a similar ground. Sundara Aiyar J. who spoke for the Division Bench consisting of himself and Benson, J., elaborately discussed the question and held:--

"In order that fraud may be a ground for vacating a judgment, it must be a fraud that is extrinsic or collateral to everything that has been adjudicated upon but not one that has been or must be deemed to have been dealt with by the Court."

The learned Judges were not prepared to accept the view of Boddam and Moore, JJ. in (1906) ILR 29 Mad 179 that deliberate perjury was a ground to set aside an earlier judgment. ILR 38 Mad 203 at 208 = (AIR 1916 Mad 364 at p. 366) explained by illustration what it meant by extrinsic fraud in the context:

"If, for instance, a party be prevented by his opponent from conducting his case properly by tricks or misrepresentation, that would amount to fraud. There may also be fraud upon the Court if, in a proceeding in which a party is entitled to get an order without notice to the other side, he procures it by suppressing facts which the law makes it his duty to disclose to the Court. But where two parties fight at arm's length, it is the duty of each to question the allegations made by the other and to adduce all available evidence regarding the truth or falsehood of it. Neither of them can neglect his duty and afterwards claim to show that the allegation of his opponent was false."

The learned Judge noticed the classical observations of Lord Justice James in Flower v. Llyod, 1879-10 Ch D 327 at p. 333 which are well worth reproduction:--

"Assuming all the alleged falsehood and fraud to have been substantiated is such a suit as the present sustainable? That question would require very grave consideration indeed, before it is answered in the affirmative. Where is litigation to end if a judgment obtained in an action fought out adversely between two litigants sui juris and at arm's length could be set aside by a fresh action on the ground that perjury had been committed in the first action, or that false answers had been given to interrogatories or a misleading production of documents or of a machine or of a process had been given?......... Perjuries, falsehoods, frauds, when detected, must be punished and punished severely, but in their desire to prevent parties litigant from obtaining any benefit from such foul means, the Courts must not forget the evils which may arise from opening such new sources of litigation, amongst such evils not the least being that it would be certain to multiply indefinitely the mass of those very perjuries, falsehoods and frauds."

That extrinsic fraud alone can be a ground for setting aside an earlier judgment has been at length considered and affirmed by our learned brothers Ramamurti and Alagriswami, JJ. recently in A. S. No. 347 of 1962 (Mad), Jagannath v. Perumal Naidu. In fact this judgment relieves us from the necessity of an extensive consideration of the question. The learned Judges held:--

"We therefore, hold that even if the plaintiff was guilty of suppression of the release deed Ex. B-15, executed by him the preliminary decree cannot be said to be vitiated by extrinsic fraud........."

L. V. Apte v. E. G. N. Price, AIR 1962 Andh Pra 274 is even more directly in point for our present purposes where it was held that suppression of evidence and even negligent conduct in the prior litigation would not be proper grounds for setting aside an earlier order.

13. In the case before us, there is no question of any extrinsic fraud alleged or suppression on the part of the first defendant or the second defendant or both together. We hold, therefore, that the judgment and decree in O. S. 3 of 1953 are binding as between the plaintiff on the one hand and the first defendant as well as the second on the other and conclude the question of title against the plaintiff and it is not open to the plaintiff to reagitate it in the present litigation as it is barred by res judicata. That will suffice to allow appeal No. 179 of 1962.

14. We shall, however, proceed to consider the first ground relating to the plaintiffs' title to the suit properties on the merits. It is said that though they were purchased in June 1945, by the 2nd defendant and another, they did so as representatives of the Weavers Mills Ltd, Rajapalayam, that the purchasers as promoters stood in a fiduciary position to the company to be incorporated and that on its incorporation in July 1948, the properties automatically vested in it as the true owner. The contention is reinforced by stating that the prospectus set out the properties as those belonging to the company, that there was a resolution of the General body adopting the purchases of the properties by the second defendant for the company and that subsequently after the incorporation, the plaintiff-company assumed possession and constructed pucca buildings thereon. It is pressed upon us that when property was purchased by promoters, they held the same in trust which on incorporation vested in the company and that such a transfer was a valid one not required to be in writing. On this process of reasoning, it is maintained for the company that at the time of the attachment of the properties, they belonged to it by adoption and recognition. The argument for the decree-holder purchaser is that short of a conveyance by the promoters, who purchased the properties, to the company after its incorporation, the company could not claim title thereto. Inasmuch as there was in fact no transfer of the properties to the company by a registered conveyance, the mere fact of its having assumed possession and put up buildings thereon or even the fact that the properties were shown in the prospectus as belonging to the company will not invest It with the ownership of the properties.

15. The question thus raised is of general importance. On facts, there is no doubt on record before us that the company after its incorporation had assumed possession of the lands purchased by the second defendant and another and built on them, though the constructions were left unfinished and the company never started its business. The prospectus has not been filed in this case, nor the resolution of the General Body, and it is not, therefore, possible to say whether the properties were treated as belonging to the company by adoption and recognition. One other fact which admits of no doubt is that the second defendant never claimed that the funds for the purchase of the properties ever came from him or the one who joined with him, personally. It is in the setting of these circumstances we have to consider whether the company became the owner of the properties.

16. There is very little guidance in the Companies Act, 1913 and the new Act to decide the question before us. One of us in W. P. Nos. 475, 555 and 1249 of 1960 (Mad), Nandi Transport (P.) Ltd. v. S. T. A. T., had occasion to consider in a different context the legal implications in relationship of a promoter and the company under incorporation. There was there an elaborate consideration of that matter with reference to authorities, A Division Bench in appeal W. A. Nos. 85 and 86 of 1963 (Mad), Palaniswami v. Nandi Transports (P.) Ltd., and etc, arising out of those petitions also covered the question in some detail. But, for our present purpose, we think it is not necessary to cover the entire ground. A pro-motor according to Cockburn C. J. in Twycross v. Grant. (1877) 2 C. P. D. 469 is one who undertakes to form a company with reference to a given project and to set it going and who takes the necessary steps to accomplish that purpose. 6 Halsbury's Laws of England, 3rd Edn, page 91 and Palmer's Company Law 19th Edn. 322, elaborate this idea. In the writ petitions, one of us after referring to these authorities summed up the position of a promoter :--

"A 'Promoter' therefore, is a compendious term given to a person who undertakes, does and goes through all the necessary and incidental preliminaries, keeping in view the objects, to bring into existence an incorporated company. This process leading to the genesis of a company may include a variety of things, not the least of them, I think, being some of the steps taken by a promoter to ensure commencement, within a reasonable time, of the business, for the carrying on of which the company is formed. He makes purchase of moveable and immoveable assets, enters into contracts involving rights and obligations and applies to authorities for a variety of things, all on behalf of the company to be formed,"

As to the exact legal status of promoters, the statutory provisions, both in England and in this country are silent in most part except for a couple of sections in the Specific Relief Act, both old and new ones. It appears that a promoter is neither an agent nor a trustee of the company under incorporation but certain fiduciary duties have been imposed on him both under the English Companies Act 1948 and the Indian Companies Act, 1956. He is not an agent because there is no principal and he is not a trustee as there is no cestui que trust in existence. There can be no agent for a non-existing principal, nor a trustee for a non-existing cestui que trust. It is on this ground that the doctrine of ratification by the company was regarded as inapplicable to the actual promoter vis-a-vis the company under incorporation. We do not refer to the earlier view held in 1821 in England which assumed that Corporation could on its incorporation ratify, or hold the promoter personally liable as it liked. The dictum of Lord Cottenham in Edwards v. Grand Junction Ry. Co., (1836) 1 My & Cr 650, at p. 672 that 'if the company and the projectors cannot be identified, still it is clear that the company have succeeded to, and aie now in possession of, all that the projectors had before; they are entitled to all the rights and subject to all their liabilities", does not appear to have been endorsed as correct in every respect by the House of Lords after 1856. In Kelner v. Baxter, 1866-2 CP 174, it was held that a contract entered into by a promoter could not be ratified by a company after its incorporation. Willes, J. one of the learned Judges who decided that case observed at page 184--

"I apprehend the company could only become liable, upon a new contract. It would require the assent of the plaintiff to discharge the defendants. Could the company become liable by a mere ratification? Clearly not. Ratification can only be by a person ascertained at the time of the act done---by a person in existence either actually or in contemplation of law."

Lord Davey in Natal Land and Colonisation Co. Ltd. v. Pauline Colliery Syndicate. 1904 AC 120, speaking for the Judicial Committee stated that a company could not by adoption or ratification obtain the benefit of a contract purporting to have been made on its behalf before the company came into existence and that in order to do so a new contract must be made with it after its incorporation on the terms of the old one. Sections 21 (f), 23 (h) and 27 (e) of the Specific Relief Act, 1877, were perhaps based on the doctrine of Lord Cottenham that a company after its incorporation was a successor to and took the place of the promoters in relation to contracts entered into by them for the purposes of the company and warranted by the terms of the incorporation. Though the first two sections do not seem to be rested on any theory of agency or trust, Section 27 (e) was possibly founded on some kind of quasi agency or of trust. To this extent, the Indian Legislature in enacting the Specific Relief Act, 1877, would appear to have departed from the English view in 1866-2 CP 174 and 1904 AC 120. These sections in the Specific Relief Act are concerned with executory contracts and cannot possibly be applied to conveyances of immoveable properties in favour of promoters of a company under incorporation.

17. Section 5 of the Transfer of Property Act defines 'transfer of property as an act by which a living person conveys property in present or in future to one or more other living persons. But a 'living person' by the statutory direction includes a company or association or body of individuals whether incorporated or not. Inasmuch as the purchases of the properties in this case were by promoters before incorporation of the plaintiff-company, it is said for the decree-holder-purchaser that in the absence of a conveyance by the promoters in favour of the company after its incorporation under a registered document, the company cannot claim title thereto. Section 54 of the Transfer of Property Act and Section 17(1) of the Registration Act are relied on in support of the contention. In our opinion, though this is a possible view, a better view to take is that the instant case is covered by Section 9 of the Transfer of Property Act.

18. That section says that a transfer of property may be made without writing in every case in which a writing is not expressly required by law. The Transfer of Property Act is not exhaustive of the kind of transfers. We are inclined to agree with the proposition of Ramaswami J., in Sarandaya Pillai v. Sankarlinga Pillai 1959-2 Mad LJ 502 at p. 503 namely, that "the test, therefore, in this country to determine whether a transaction (be it a transfer or not) can be made without writing is to see if it is expressly required by law to be in writing. If the transaction is a 'transfer of property' and there is no express provision of law requiring it to be in writing. Section 9 will enable it to be made without writing. If on the other hand, the transaction is not a 'transfer of property' and there is no express provision of law requiring it to be in writing, the general principle referred to above will enable it to be validly made without writing." The learned Judge, if we may say so with respect, rightly pointed out that Section 9 underlines the general principle that everything is to be taken permissible unless there is a prohibition against it and has been inserted in the statute ex abundanti cautela.

While we accept the position that a promoter is neither an agent nor a trustee of the company under incorporation, we are inclined to think that in respect of transactions on behalf of it, he stands in a fiduciary position. For the plaintiff- company Sections 92 and 94 of the Indian Trusts Act, 1882, were relied upon. It seems to us that neither of these sections is of assistance to it. These sections, as we think, contemplate transactions as between persons in existence. In any case, it seems to us that no trust as denned by Section 3 of the Act is brought about by the purchases made by the promoters. The legal position of a promoter in relation to his acts, particularly purchase of immoveable properties on behalf of the company under incorporation, is a peculiar one not capable of being brought not any established or recognised norms of the law as to its character as an agent or a trustee. But, at the same time, it is impossible, to our minds, to deny that he does stand in a certain fiduciary position in relation to the company under incorporation. When he does certain things for the benefit of it, as for instance, purchase of immoveable properties, he is not at liberty to deny that benefit to the company when incorporated, We are pre pared to hold that in such a case the bene fit of the purchase will pass on to the company when incorporated. 6 Halsbury's Laws of England, 3rd Edn. paragraph 194, says that a promoter stands in a fiduciary position with respect to the company which he promotes from the time when he first becomes until he ceases to be a promoter thereof. It is also pointed out that a promoter may acquire assets as a trustee for a company. Though the cases relied on for these propositions were of the year 1877 or thereabouts, we do not see why the principle of the dictum of Lord Cottenham should not, in justice and equity, be invoked to clothe the promoter with the mantle of fiduciary position with respect to the company under incorporation with the implication that when incorporated the company will succeed to the beneficial acts transacted on its behalf by the promoter.

19. As we already noted, the second defendant and another purchased these properties expressly stating that they did so as representatives of the company to be formed, that the funds therefore did not belong to them and that on incorporation the company assumed possession and built upon them. These facts clearly show that the company adopted the benefit of the purchase, if adoption is a requisite at all for passing of such benefits to the company on incorporation. On this view, it follows that the suit properties did belong to the plaintiff company.

20. App. No. 178 of 1962 is allowed with costs, App. No. 28 of 1962 is dismissed but with no costs.


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