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1928 Supreme(Mad) 59
IN THE HIGH COURT OF MADRAS
Wallace, S Ayyangar
Rao Bahadur Pydah ...
Versus
The Guntur Cotton, Jute And Paper ...
Decided On : 3 February, 1928
Headnote:
The case involves a series of appeals arising from a suit filed by the Guntur Cotton, Jute and Paper Mills Company, Limited, against its former secretaries and treasurers, for a declaration that they ceased to hold office from 31st March, 1918, for an injunction restraining them from interfering with the management of the Company, for correct accounts and damages for the loss sustained by the Company by reason of their several acts of fraud and misappropriation. The court analyzed the facts of the case, the findings of the court, the issues, and the ratio decidendi to arrive at its final decision.
Fact of the Case:
The Company had filed a suit against its former secretaries and treasurers, alleging fraud, misappropriation, and seeking damages for losses incurred. The defendants appealed the preliminary and final decrees passed by the lower court.
Finding of the Court:
The court found that the mortgage taken by the wife of the 2nd defendant was not fraudulent and that the 2nd defendant was not liable to the Company for any civil liability in this suit. The court also found that the 2nd defendant had an interest in the first lease which he was bound to disclose but failed to do so, making him liable to the Company for the profits he gained from the lease. The court further found that the defendants were not liable for any damages claimed by the plaintiffs in relation to other leases and that the defendants were entitled to their commission for the years 1915, 1916, and 1917.
Issues: 1. Whether the mortgage taken by the wife of the 2nd defendant was fraudulent and whether the 2nd defendant was liable to the Company for any civil liability in this suit? 2. Whether the 2nd defendant had an interest in the first lease which he was bound to disclose but failed to do so? 3. Whether the defendants were liable for any damages claimed by the plaintiffs in relation to other leases? 4. Whether the defendants were entitled to their commission for the years 1915, 1916, and 1917?
Ratio Decidendi: 1. The court held that the mortgage was not fraudulent as it was taken in continuation of a series of previous loans, the Company was in great difficulties in getting the share-holders to meet calls for further capital, and the Directors had come to the conclusion that money could not be provided without security on property. The court also found that the 2nd defendant had no interest in the mortgage which he was bound to disclose. 2. The court held that the 2nd defendant had an interest in the first lease which he was bound to disclose but failed to do so, making him liable to the Company for the profits he gained from the lease. 3. The court held that the defendants were not liable for any damages claimed by the plaintiffs in relation to other leases as the plaintiffs had not proved their case and the lower court had gone outside the plaint in making its findings. 4. The court held that the defendants were entitled to their commission for the years 1915, 1916, and 1917 as the plaintiffs had not made a claim for the return of the commission earned in the years prior to 31st March, 1918, in their plaint.
Final Decision: The court modified the decrees of the lower court by reducing the amount of Rs. 18,000 to Rs. 12,370-8-0 in the matter of the lease of 1914-15, omitting the clause relating to the item of Rs. 41,011-10-0, and substituting the sum of items No. 24, 79 and 143 in the Commissioner's list of irrecoverable items, plus Rs. 37-10-0, for the figure Rs. 4,430-a-0 in Clause (4) of the final decree. The court also ordered each party to pay their own costs in the preliminary and final decrees of the lower court. As regards the appeals, A.S. Nos. 215 and 457 were dismissed with the plaintiffs paying the defendants' costs, while the 2nd defendant's appeals were modified as noted above with the plaintiffs-respondents paying half taxed costs to the appellant in both appeals.
Wallace, J.
1. This is a connected series of four appeals arising out of a suit by the Guntur Cotton, Jute and Paper Mills Company, Limited, against the two defendants, their former secretaries and treasurers, for a declaration that these defendants ceased to hold office from 31st March, 1918, for an injunction restraining them from interfering with the management of the Company, for correct accounts and damages for the loss sustained by the Company by reason of their several acts of fraud and misappropriation. A preliminary judgment in the case was passed on 24th April, 1922, and the final judgment on 4th April, 1924 Defendant No. 1 has not appealed but he was heard in his own case on the appeals by plaintiffs. Defendant No. 2 has preferred Appeal No. 75 of 1923 against the preliminary decree and Appeal No. 237 of 1924 against the final decree. The Company has preferred Appeal No. 215 of 1923 against the preliminary decree and Appeal No. 457 of 1924 against the final decree.
2. Various matters fall to be dealt with in these appeals, the decision in which, as in the original trial, has not been assisted, but considerably hampered by the action of the plaintiffs in not clearly realising before they came into Court and not clearly setting out in their pleadings what their causes of action were and what remedies at law were open to them on these causes of action. It will be convenient to follow the order taken by the lower Court in dealing with the several matters in issue in this litigation and has deal with both appeals against the preliminary decree at the same time.
3. The first and most important matter relates to a mortgage of Rs. 1,23,354 over the mill property in favour of the wife of the 2nd defendant. This was taken on 2nd January, 1918, in continuation of, and by way of security for, various loans taken at various times by the Company from her. The lower Court has held on this matter that, though the 2nd defendant had an interest in this mortgage which conflicted with his duty to the Company and, therefore, an interest which he should have disclosed, and though he was liable, therefore as agent for the profits he had gained and as a trustee for any loss which the Company may have suffered, yet since no profits were gained and no loss incurred, 2nd defendant is free of any civil liability in this suit. This decision is the main ground of attack in the plaintiffs appeal.
4. As stated the mortgage was taken in continuation of a series of previous loans. As to these loans the only statement in the plaint is in para. 10(c), that "defendants suspended transactions with Banks and allege that large debts were borrowed at a high rate of interest from their wives. The share holders disputed the genuineness and good faith of those transactions and passed a special resolution on 2nd December, 1917, curtailing the borrowing powers of the defendants which was confirmed on 30th December, 1917. These transactions are collusive and fraudulent and were intended to benefit the defendants at the costs of the plaintiff Company and are, therefore, void." The District Judge has considered the mortgage at length, but nowhere discusses the loans except to come to certain conclusions thereon favourable to the defendants. Thus he points out in para. 24 that the money for these; loans was received from the lenders and paid for value, and he has no doubt that the amounts alleged had been received from the 2nd defendants wife and had been spent for the legitimate purpose of the mill. He finds also that early in the history of the Company, on 2nd August, 1913, the Bank of Madras refused to advance more money beyond Rs. 30,000 borrowed on 7th November, 1911, at 7 per cent. and that it was then that the defendants and their wives began to advance money to the Company. There is no attempt by the plaintiffs to prove that the Company could have got money on easier terms in the open market or that uncalled capital was available. It is clear that the C
