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Madras High Court
VEERASWAMI,KRISHNASWAMI REDDY
Weavers Mills Ltd., Rajapalayam - Appellant
Versus
Balkis Ammal and others, Defendants - Respondent
Decided On : 09/01/1967
COMPANY - PROMOTER - PURCHASE OF PROPERTY - FIDUCIARY POSITION - TRANSFER OF PROPERTY ACT, 1882, SECTION 9 - SPECIFIC RELIEF ACT, 1877, SECTIONS 21(F), 23(H), 27(E) - TRANSFER OF PROPERTY ACT, 1882, SECTION 54 - REGISTRATION ACT, 1908, SECTION 17(1) - INDIAN TRUSTS ACT, 1882, SECTIONS 3, 92, 94 - COMPANIES ACT, 1913 - COMPANIES ACT, 1956.
Fact of the Case:
A company, through its managing agents, filed a suit for declaration of its title to certain properties and for an injunction restraining the first defendant from executing a decree obtained by her in a previous suit. The company claimed that the properties were purchased by two of its promoters as representatives of the company and that on its incorporation, the properties were adopted by the company and became its property. The first defendant denied any collusion or fraudulent conduct on her part and asserted that the properties belonged to the second defendant and that they had been in his possession and enjoyment since their purchase.
Finding of the Court:
The court found that the suit properties belonged to the plaintiff company, that the judgment and decree in the previous suit were not binding on the plaintiff due to fraud and collusion on the part of the defendants, and that the removal of the second defendant from the managing directorship was true, valid, and binding on him. The court also directed the plaintiff to deposit a sum of money as a condition to recover possession of the properties.
Issues: 1. Whether the suit properties belonged to the plaintiff company or to the second defendant? 2. Whether the judgment and decree in the previous suit were binding on the plaintiff? 3. Whether the removal of the second defendant from the managing directorship was valid and binding?
Ratio Decidendi: 1. The court held that the suit properties belonged to the plaintiff company based on the following findings: - The properties were purchased by two of the company's promoters as representatives of the company. - On incorporation, the company adopted the benefit of the purchase and assumed possession of the properties. - The company built upon the properties, though the constructions were left unfinished. - The second defendant never claimed that the funds for the purchase of the properties came from him or the other promoter personally. 2. The court held that the judgment and decree in the previous suit were not binding on the plaintiff due to fraud and collusion on the part of the defendants based on the following findings: - The second defendant did not produce the prospectus of the company in the previous suit, which was the main reason why the suit was dismissed. - The second defendant did not produce the resolution of the Board of Directors of the company, though there was one that had ratified the purchase of the suit properties. - The second defendant's conduct in the present suit in not producing certain documents, though the plaintiff called upon him to do so, was suggestive of fraud and collusion between the first defendant and himself. 3. The court held that the removal of the second defendant from the managing directorship was valid and binding on him based on the following findings: - The second defendant himself did not at any time claim title in himself to the suit properties. - The circumstances appearing in the case showed that both defendants 1 and 2 colluded together and fraudulently brought about the dismissal of the previous suit, thereby depriving the company of the suit properties.
Final Decision: The court allowed the appeal filed by the first defendant and dismissed the suit filed by the company. The court also dismissed the appeal filed by the company against the direction to deposit a sum of money as a condition to recover possession of the properties.
VEERASWAMI, J. :- 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 Rajapalayam. 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 therefor. According to the plaintiff, nevertheless, defendants 2 and 3 colluded with the first defendant and allowed the application under O. 21, R. 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 eo nomine 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.
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