TMI Blog1938 (3) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... mortgage evidenced by an indenture dated 28th February 1928, and confirmed by another indenture dated 11th August 1931. The claim of M.T. Limited was intended as an alternative to the claim of the Sassoon Company : it was that if the latter failed to establish its claim, M.T. Limited should be admitted to rank as unsecured creditors in respect of the said sum of Rs. 4,91,284. Kania J., by order dated 11th July 1934, allowed the claim of the Sassoon Company and held that the claim of M.T. Limited was valid in the alternative. The Division Bench (Beaumont, C.J. and Wadia, J.) disallowed the claim of the Sassoon Company and accepted the claim of M.T. Limited. The appellants before the Board are the Sassoon Company which appeals from the rejection of its claim and the Official Liquidator of Pratts, who disputes both claims. From 1920 until the liquidation in 1932, Pratts was financed by loans from M.T. Limited who in turn were financed by loans from the Sassoon Company. The course of dealing between M.T. Limited and Pratts, as disclosed by their books, was for interest to be charged at 6 per cent. per annum on the half-yearly balances: on that basis the amount for which M.T. Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 1924 onwards also held some 400 shares as nominees of M.T. Limited. The objects of the company were to deal in motor-cars and other vehicles and appliances used therewith but power was taken to hold immovable property to erect buildings and to borrow money. M.T. Limited was registered in 1920. Among the original subscribers to the memorandum appear the names of H.M. Mehta. F.H. Mehta, M.G. Parekh, C.G. Parekh, Sir Victor Sassoon and A.J. Raymond. The promoters were F.H. Mehta Co., Limited, in which all these gentlemen were share-holders. F.H. Mehta Co., Limited, were by the memorandum of M.T. Limited, made their permanent managing agents. By clause 3-D of the memorandum one of the objects of M.T. Limited, was to purchase the ordinary shares of Pratts. The authorized capital was twenty lacs of rupees divided into 15,000 ordinary and 5,000 preference shares of Rs. 100 each. The Sassoon Company is a private company limited by shares. The evidence of its head accountant is that the firm of E.D. Sassoon Co., became a limited company in 1921. Its first directors were Sir Victor Sassoon, R.E. Sassoon, Albert Raymond and another gentleman of the name of Sassoon. In 1921 Mr. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,16,211 8,81,973 1928 ... ... 5,48,179 7,17,214 1929 ... 4,98,719 6,85,745 1930 ... ... 4,94,199 6,93,140 22nd June, 1932 ... 4,91,284* In 1926 the Sassoon Company was minded to obtain security from M.T. Limited which owed money to the Calcutta and Rangoon "branches" as well as to the Bombay house the total being over 13 lacs of rupees. Mr. Albert Raymond and Sir Victor Sassoon having given "very careful consideration" to the points raised by M.T. Limited, the Sassoon Company wrote to M.T. Limited insisting upon obtaining an equitable mortgage of "your Bombay properties" (8th March, 1926), a phrase which by 15th April of that year is found to include a property belonging to Pratts. On 28th April the directors of M.T. Limited not only resolved to grant a mortgage over a property known as Collings Buildings which belonged to M.T. Limited but passed a resolution that by way of security for the nine lacs borrowed from the Sassoon Company and advanced to Pratts an equitable mortgage be created in favour of the Sassoon Company of the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited as well as of the Sassoon Company. Mr. M.G. Parekh had died on 6th December, 1930. Mr. C.G. Parekh had been on the Board of Pratts and of M.T. Limited since 1921 he was a share-holder in M.T. Limited and of F.H. Mehta Co., Ltd. He does not appear to have been a member of either board (Pratts or M.T. Limited) in August 1931, though he was a member of both in the previous year and again in the following year. It may tend to clearness if the particulars as to the directorates of the three companies concerned are stated in tabular form: the figures of shares held are as at the time of the winding-up of Pratts in 1932. Since 1924 the Board of Pratts and of M.T. Limited had been constituted of the same persons as in February 1928 : PRATTS M.T. LTD. SASSOONS. Directors Shares held Directors Shares held Directors. February 1928 1932 February 1928 1932 February 1928 Mehta, H.M. 52 Mehta, H.M. 897 Sassoon, Sir V. Mani, H.M. 52 Mani, H.M. 335* R.E. F.H. 52 F.H. 334* ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icts with his duty to the company of which he is a director. It is immaterial whether this conflicting interest belongs to him beneficially or as a trustee for others. He is bound to do as well for his cestuique trust as he would do for himself. Again the validity or invalidity of a transaction cannot depend upon the extent of the adverse interest of the fiduciary agent any more than upon how far in any particular case the terms of a contract have been the best obtainable for the interest of the cestuique trust, upon which subject no enquiry is permitted." Subject to the question whether the Sassoon Company had notice of the facts as to the interest of the directors of Pratts, their Lordships think, therefore, that the indentures of 28th February, 1928, and nth August, 1931, are voidable by the Official Liquidator. They are not of opinion that Section 91-B would operate to deprive of the benefit of his contract with the company a third party who had no notice of the defect in the directors' authority. This would be contrary to principle : such a person would be entitled to assume that the internal management of the company had been properly conducted : Royal British Bank v. Tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board of Pratts since 1922 and Mr. A.J. Raymond since 1924. He had been on the Board of M.T. Limited since 1920 and Mr. A.J. Raymond since 1921. He went carefully into the question of security in 1926. It may safely be taken therefore that the Mehtas and the Parekhs and the interests they represented were as well known to the Sassoon directors as the Raymonds and Sassoons were to them. That M.T. Limited, which was putting forward Pratts' property as security, held all save ten of the ordinary shares in Pratts and that the directors of Pratts had for years been directors of M.T. Limited these are facts which it was the business of the Sassoon Company as financiers to know; and which as their Lordships think the directors came to know in the course of their business. There is no reason to suppose that Sir Victor Sassoon, Mr. Albert Raymond, Mr. A.J. Raymond or Mr. R. E. Sassoon (the directors of the Sassoon company in 1928) would have any difficulty in appreciating them ; or would fail to grasp the obvious facts that the directors of Pratts had no real interests in Pratts save through their interest in M.T. Limited, and that the Gwalior nominees were leaving the control of Pratts t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest on the sums borrowed in excess of the limit of five lacs is however another matter. Before their Lordships, as before the Division Bench of the High Court, it was contended for the Official Liquidator that the whole account since 1920 should be revised and reconstructed so as to eliminate all charges for interest upon advances in excess of five lacs. In the High Court Beaumont, C.J., and Wadia, J., refused to entertain this argument which had not been urged before Kania, J., and was not mentioned in the memorandum of appeal to the Division Bench. They considered that the Official Liquidator was in great difficulty upon this point by reason that his counsel at the trial had stated that he did not dispute the correctness of Pratts' account in the ledgers of M.T. Limited and had consented to this being marked as an exhibit without any proof. In their discretion, they refused to entertain in Liquidator's claim then for the first time put forward to have an account directed upon principles which would eliminate a portion of the interest which has been charged from 1921 onwards. Their Lordships desire to take every care than an admission should not be strained. Mr. Lionel Cohen's ..... X X X X Extracts X X X X X X X X Extracts X X X X
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