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TMI Blog1938 (3) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... ure 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 claim to prove is correctly calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 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.J. Raymond was added to the Board. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney 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 known as 100-B, Hughes Road ("Pratts Building") the property of Pratts. In the end, by way of a fair division between the two properties of the total amount of M.T. Limited's indebtedness to the Sassoon Company, each building was charged for half, viz., 4½ lacs of rupees. On 14th October, 1926, the mortgage of Collings Building was completed. As the leasehold tit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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* Raymond, A.J. Parekh, M.G. 51 Parkeh, M.G. 524 Albert C.G. 51 C.G. 524 Sassoon, Sir V. 50 Sassoon, Sir V. 100 Raymond, A.J. 50 Raymond, A.J. 200 August 1931 1932 August 1931 1932 August 1931 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* Raymond, A.J. Raymond Albert 50 Raymond, Albert 100 Albert Fitzgerald, D. Section 91-B was inserted into the Companies Act (VII of 1913) by Act XI of 1914 and at the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. Turquand. But on the facts of the present case their Lordships think it impossible to regard the Sassoon Company as ignorant that in any question between Pratts and M.T. Limited the former had no independent Board and indeed no single director who was not interested on behalf of M.T. Limited. The fact that one of the directors taking part in the resolution of 23rd February, 1928, was their own managing director clothed with all the powers of their own Board, is both a striking and important fact but it is not by itself the determining feature of the case. At the meeting of 4th August, 1931, no director of the Sassoon company was present. A careful and able argument was addressed to their Lordships by Mr. Romer and Mr. Russell based upon In re Hampshire Land Co. Ltd.; Ex parte Port sea Island Buildin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to M.T. Limited, the holder of the ordinary share capital. These facts cannot be regarded as extraneous information beyond the cognizance of the Sassoon Company; they are facts which had a direct and important bearing on its dealings throughout. All the information which is material was really public property ascertainable without difficulty by anyone under Section 87 of the Act. In their Lordships' opinion the Sassoon Company cannot on the facts disclaim knowledge of the interest of the directors of Pratts in 1928 or 1931 and were not entitled to assume on either occasion that the provisions of Section 91-B had been complied with. No case of ratification by the preference shareholders of Pratts can be made out, and the result is that the Official Liquidator is entitled to avoid the equitable mortgage whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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