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1959 Supreme(MP) 130

High Court Of Madhya Pradesh
A. H. Khan and H. R. Krishnan, JJ.
D.R.PATEL - Appellant
Versus
A.S.DIMELLOW - Respondents
First Appeal 7 Of 1955
Decided On : 04/24/1959

Advocates Appeared:
A.M.Arora, Shahasrabuddhe

A promoter is personally liable for contracts made on behalf of the intended company until the company takes over the liability with the consent of the other contracting party.

Headnote:

COMPANY LAW - PROMOTER'S PERSONAL LIABILITY - SECTION 62 OF THE COMPANIES ACT, 1956 - PROMOTER IS PERSONALLY LIABLE FOR CONTRACTS MADE ON BEHALF OF THE INTENDED COMPANY UNTIL THE COMPANY TAKES OVER THE LIABILITY WITH THE CONSENT OF THE OTHER CONTRACTING PARTY.

Fact of the Case:

Plaintiff sued the defendant, a promoter of two companies, for the price of building work ordered by the defendant before the companies were constituted and registered. The trial court found that the defendant had ordered the work verbally in July and August 1944, and that the plaintiff had executed the work after November 1944. The trial court allowed the plaintiff's claim in part, holding that the defendant was personally liable as the promoter of the companies.

Finding of the Court:

The court held that the defendant was personally liable for the price of the building work as he was the promoter of the companies at the time the work was ordered. The court noted that the promoter is personally liable for contracts made on behalf of the intended company until the company takes over the liability with the consent of the other contracting party.

Issues: Whether the promoter is personally liable for the price of the building work ordered by him before the companies were constituted and registered.

Ratio Decidendi: The court relied on the principle that a promoter is personally liable for contracts made on behalf of the intended company until the company takes over the liability with the consent of the other contracting party. The court noted that the defendant had ordered the work verbally in July and August 1944, and that the plaintiff had executed the work after November 1944. The court also noted that the companies had not taken over the liability created by the order given by the promoter before the companies came into existence.

Final Decision: The court allowed the plaintiff's appeal and altered the decree passed by the trial court against the defendant to one with personal liability of the defendant.

H. R. KRISHNAN, J.

( 1 ) THIS is an appeal by the plaintiff whose suit is allowed in part. Plaintiff's prayer is that the decree now passed against defendant No. 1 in the capacity of Managing Director should be converted into one against him personally, on the ground, that he was the promoter and continued to be personally liable as his liability for the plaintiff's claim was not taken over by the company after it was constituted, and has also a prayer in regard to costs, as it was, the plaintiff claimed Rs. 45,000/- but actually got a decree for Rs. 22,614/ -. The Court ordered costs and pleader's fee for each party in proportion to its success; as each won about half, the costs nearly, but not quite, cancelled mutually. The plaintiff-appellant cannot therefore make any grievance on this ground.

( 2 ) THERE is no prayer by the plaintiff in respect of the disallowed portion of his claim, nor is there any cross appeal or cross objection by the defendant-respondent in regard to the portion of the claim that has been actually allowed. This is now impossible for him to challenge the merits of the trial Court's decision. The controversy has narrowed down to whether a promoter is personally liable for the price of the building work found to have been ordered by him before, but actually executed by the building contractor after the company wag constituted and registered.

( 3 ) THE relevant facts are that the defendant-respondent No. 1 came to Gwalior in 1944 and began promoting the two companies impleaded as defendants Nos. 2 and 3. The actual registration was on 26-10-1944 but earlier in July, August 1944 the defendant No. 1 as promoter had ordered verbally the plaintiff to put up certain buildings for the company. On the strength of these orders the buildings were put up after November 1944, and part of the price paid in March and May 1945. The company had not been functioning, nor had it by any resolution taken over the liability created by the order given by the promoter in July and August 1944 before the company came into existence. However, the payments were made in the name of the Secretary of the company.

( 4 ) THE defence was that the work was not ordered by the defendant No. 1, he was only an absentee director; and further the work was poor, and the contractor had already been over-paid.

( 5 ) MOST of the defence contentions were rejected. As for that matter the plaintiff's own claim was allowed only in part. As neither party has questioned the findings of fact it will be convenient to summarise them as the basis for the examination of the only question before us. The trial court has found that the work was ordered verbally in July and August 1944. The defendant No. 1 had ordered it and at the relevant places he has been described as the "promoter" elsewhere he has been described as ''the promoter and Managing Director" but at the time of his entering into this contract, the finding is that he was the promoter; in fact, at that time there was no company or so no Managing Director of that company.

( 6 ) THE judgment of the trial court is obscure at certain places but this much clearly emerges from the relevant portions of the judgment, specially paragraph No. 28, in which the defendant's version of the contract has been disbelieved.

( 7 ) IT is clear that as the Managing Director of the company the defendant No. 1 is not personally liable. The plaintiff appellant also accepted the position. However, he contends as the promoter of the company the defendant No. 1 is personally liable. While trying to prove the defendant No. 1 is not personally liable, his learned counsel has repeatedly tried to show that the plaintiff is not entitled to any payment because of bad work, over payment and the like. It is, however, difficult to allow this, because having filed no cross-appeal or objection, the defendant No. 1 cannot now question the findings of fact. He can only try to show that the promoter as promoter is not personally liable.

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