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1994 Supreme(AP) 399
Andhra Pradesh High Court
Judges : I.VENKATANARAYANA
M.M.HUSSAIN - Appellant
Versus
LAMINATED PACKAGE (P) LTD., MADRAS - Respondent
Decided On : 09-07-94
Consideration need not be by way of investment of money. Surrender of all rights and goodwill in favor of the 1st defendant constitutes consideration.
Headnote:
COMPANY LAW - CONTRACT - CONSIDERATION - Whether Ex. A-33 is supported by consideration - Whether the plaintiffs are entitled to claim the amounts with a charge on it and personally from the Directors of the 1st defendant.
Fact of the Case:
The plaintiffs, who were instrumental in starting an industry in the industrial estate at Visakhapatnam, entered into an agreement (Ex. A-6) with the defendants, who were the Directors of the 1st defendant-company, to allot 25% of the subscribed capital of Rs. 3 lakhs as fully paid-up shares to the plaintiffs and to pay them a sum of Rs. 1,500/- per month as remuneration for the services already rendered by them. However, no shares were allotted to the plaintiffs and the payment of Rs. 1,500/- per month was stopped in 1974. Subsequently, a compromise agreement (Ex. A-33) was entered into between the parties, under which the plaintiffs relinquished all their rights in the 1st defendant-company in favor of the defendants in consideration of a monthly payment of Rs. 3,500/- to the 1st plaintiff and Rs. 1,500/- to the 2nd plaintiff. The defendants paid the amounts for some time but later stopped the payments. The plaintiffs filed a suit seeking a declaration that they are entitled to the amounts as agreed to by the defendants under Ex. A-33.
Finding of the Court:
The court held that Ex. A-33 was supported by consideration, as the plaintiffs had surrendered all their rights and goodwill in favor of the 1st defendant-company. The court also held that the plaintiffs were not seeking to enforce a contract of personal service, but were seeking a declaration that they are entitled to the amounts as agreed to by the defendants under Ex. A-33. The court further held that the defendants were bound by Exs. A-6 and A-33, even though they had taken over the assets and liabilities of the 1st defendant-company from 1978. The court also held that Ex. A-33 did not require registration under Section 125 of the Companies Act for the purpose of creating a charge over the company.
Issues: 1. Whether Ex. A-33 is supported by consideration? 2. Whether the plaintiffs are entitled to claim the amounts with a charge on it and personally from the Directors of the 1st defendant?
Ratio Decidendi: 1. Consideration need not be by way of investment of money. In the present case, the plaintiffs, who were instrumental in starting the industry in the industrial estate at Visakhapatnam, have surrendered all their rights and good will in favor of the 1st defendant and that itself constitutes the consideration. 2. The plaintiffs are not seeking to enforce a contract of personal service, but are seeking a declaration that they are entitled to the amounts as agreed to by the defendants under Ex. A-33. 3. The defendants are bound by Exs. A-6 and A-33, even though they had taken over the assets and liabilities of the 1st defendant-company from 1978. 4. Ex. A-33 does not require registration under Section 125 of the Companies Act for the purpose of creating a charge over the company.
Final Decision: The court set aside the judgment and decree of the trial Court and decreed the suit of the plaintiffs with costs as prayed for. The appeal was accordingly allowed with costs throughout.
( 1 ) THE plaintiffs are the appellants. O. S. No. 188 of 1978 on the file of the principal Subordinate Judge, Visakhapatnam has been filed by the plaintiffs for a declaration that the plaintiffs are entitled to a sum of Rs. 5,000/- per month under an agreement with a charge on the 1st defendant-company and personal liability of the Directors of the 1st defendant-company and to direct the defendants to pay the 1st plaintiff a sum of Rs. 14,000/- with a charge on the 1st defendant-company and also to direct the defendants to pay rs. 3,500/- to the 1st plaintiff with a charge on the 1st defendant-company and to direct the defendants to pay a sum of Rs. 1,500/- to the 2nd plaintiff every month with a charge on the 1st defendant-company and make the directors personally liable.
( 2 ) FOR the sake of convenience the parties to this appeal will be referredto in accordance with their ranking in the suit.
( 3 ) THE averments in the plaint in brief, are as follows:- The 1st plaintiff was running Kamal Steel Industries . In 1967 there was a proposal to start corbmandel Fertilisers Company at Visakhapatnam and the 1st plaintiff conceived the idea of manufacturing laminated jute bags as an ancillary business to supply to the Coromandal Fertilisers Company. In pursuance of his idea, the 1st plaintiff applied to the National Small Scale Industries corporation, New Delhi, through the Industries Department, Hyderabad for import of machinery from West Germany. After spending a lot of amount for the formalities, he finally obtained the import license on 14-2-1968- When he wanted to install the machinery and run the business, he felt short of funds and hence the 1st plaintiff wanted to approach some financiers to promote a private limited company and hence he entered into a preliminary agreement with M/s. General Credit Corporation, Calcutta and at that juncture the 2nd defendant, who happened to be the friend of the 1st plaintiff, met the 1st plaintiff and talked about business and hence the preliminary agreement with general Cred it Corporation was cancelled and an agreement was entered into between the 2nd defendant and the 1st plaintiff. They agreed to incorporate the conditions of the agreement in the memorandum and articles of association of the Private Limited Company. Under this agreement it was agreed that 25% of the subscribed capital of Rs. 3 lakhs should be given as fully paid up shares to the 1st plaintiff and the 1st plaintiff shall be a permanent Director and he shall also receive a sum of Rs. 1,500/- per month for the services already rendered by him. After the agreement the Private Limited Company with the name of the 1st defendant was promoted by the 1st plaintiff and incorporated under the Companies Act. The 2nd defendant became the Managing Director and defendants 3 to 5 were the Directors and defendants 2 to 5 were paying rs. 1,500/- per month to the 1st plaintiff till 1974 and the 1st plaintiff was acting as an occupier-cum-Resident Director of the 1st defendant-company till 1974. Subsequently the Directors were gradually neglecting the 1st plaintiff and were not keeping him informed about the affairs of the company and they were not even showing the balance sheet and other details. They entertained an evil design and the 2nd defendant wrote a letter on behalf of the 1st defendant on 12-4-1969 to the 1st plaintiff stating that the interest of the 1st plaintiff is only Rs. 86,972-00 but not any share holdings in the company and that the above said amount represents the value of the money deposited for purchasing the machinery towards 10% of its value and that the remaining 15% of its value was given by bank security. The 1st plaintiff on inquiry from the Registrar of Companies learnt that all the shareholders are family members of the 2nd defendant and that no share holdings were allotted to the 1st plaintiff and hence the 1st plaintiff was constrained to raise a dispute with the 2nd defendant and other
