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TMI Blog1956 (2) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... tems (a )(2) to (a)(4) were, in the course of the hearing before me, abandoned by learned counsel appearing for the applicant. So also was abandoned the first part of the claim in item (a )(5). As to the latter part of that item learned counsel for the applicant did not at the hearing advance any argument in support of it and in fact did not press the same. The result is that the claim that is finally pressed before me on behalf of the applicant is "for a declaration that the respondent has been guilty of misfeasance and breach of trust in relation to the company in respect of Rs. 3,99,000 or such other sum as this honourable court may determine and in respect of Rs. 2,67,982-4-3 or such other sum as this court may determine as mentioned in paragraph 3 of the affidavit of the applicant sworn on 28th February, 1955." Prior to 1940 one Bhogilal Patel, the father-in-law of the respondent had, by purchase, become the owner of the business and assets of a cigarette manufacturing factory. On 20th October, 1940, the Masters Tobacco Co. (India) Ltd., was registered as a private limited company by Bhogilal Patel, his son-in-law the respondent, M.M. Finegold, his son Martin Finegold and Wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-5-11. Stock on hand at the end of the year 1944 was nil. Tobacco of the value of Rs. 4,39,627-8-3 lying at Bombay and at Guntur was sold by the company to Godfrey Phillips (India) Ltd. One of the charges made by the applicant against the respondent is that there has been misappropriation by the respondent and Finegold of a sum of Rs. 2,67,982-4-3 by showing in the accounts of the company bogus purchases of tobacco during the year 1944. I shall point out later on in my judgment why the charge relating to tobacco must fail. The charge strenuously pressed on behalf of the applicant against the respondent, however, relates to the alleged bogus purchase and bogus consumption of stores during the year 1944. The balance sheet for the year 1944 and the books of the company read together show that the opening stock of stores on 1st January, 1944, was Rs. 47,013-7-10. Purchases of stores during the year shown in the books (but not in the balance sheet) were of the value of Rs. 5,66,517-15-6. Stock on hand at the end of the year ending 31st January, 1944, was Rs. 30,924-11-5 as valued at cost and as certified by the management. The total value of stores consumed in 1944 therefore was Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Government it was necessary that costing certificates should be sent to the Government. These certificates show that the quantity of tobacco salvaged from the rejected cigarettes was 50,000 pounds and this tobacco was also used in the course of operations in 1944. In all, therefore, according to the applicant, at the maximum 1,82,345 and 50,000 pounds of tobacco was consumed during the three months of 1944. It is common ground that the maximum number of cigarettes that can be manufactured from one pound of tobacco is 360. This puts the total maximum number of cigarettes that could possibly have been manufactured (out of 2,32,345 pounds of tobacco) during the period to 8,36,00,000. Apart from the Government the company had sold during this period cigarettes to other customers. About five and half crores of cigarettes could have been delivered to the Government and the rest to the other parties. These calculations were on the footing that the maximum quantity of cigarettes that could possibly have been manufactured during 1944 may be taken into consideration for the purpose of ascertaining the maximum value of stores that could possibly have been used during these three mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the applicant there is clear proof of the fact that the price of tobacco lying in Bombay and amounting to Rs. 2,80,212 could not possibly have been received by the company before these four dates. The credit entries in the cash book of the company for the year 1944 however show that these four amounts were received by the company not by cheques but by cash from Godfrey Phillips (India) Ltd., as follows: Rs. 1,00,000 received in cash on 25th February, 1944 ; Rs. 50,000 received in cash on 25th March, 1944; Rs. 75,000 received in cash on 5th April, 1944 ; and Rs. 55,212 received in cash on 20th April, 1944. The cash book of the company for the year 1944 also contains a number of items of expenditure relating to the purchase of stores which according to the applicant are fictitious purchases. Particulars of this allegation were given by the applicant and as I have already stated there was an amendment of the particulars. The first three items in the particulars as originally furnished by the applicant related to purchases alleged to be bogus and shown to have been made on dates prior to 29th March, 1944. Now the case of the official liquidator in his affi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se charges. He denied that the cash book of the company has been at all fabricated. He also denies that any fictitious purchases have been shown in the cash book of the company for 1944, as alleged by the applicant. Although he has stated in his public examination that he was one of the persons in active management of the company from 1941 to 1944 and had deposed as of personal knowledge to a number of matters relating to the actual administration and the business of the company it is now his case that he was only attending to the blending operations and manufacture of cigarettes and knew nothing about the business side of the company or accounts of the company or the purchase of tobacco and stores or the sale of cigarettes. He also relies on the fact that charges levelled against him relate to misappropriation alleged to have been made in 1944 and this misfeasance summons was taken out after the company was taken into liquidation in 1952. Succinctly stated his case is that stores of the value of Rs. 5,82,606-11-11 were in fact consumed during the three months of 1944. According to him not seven to eight crore cigarettes, as made out by the applicant, but a much larger number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttorney-General for Canada v. Standard Trust of New York [1911] AC 498 a syndicate of four persons procured a Quebec Act incorporating a railway company which they had promoted and subscribed for $ 300,000 of the company's shares (being all that were issued), and were with others whom they had qualified elected directors. They then purchased a railway themselves, and the incorporated company, being empowered so to do by their Act, purchased the said railway from them for $ 648,000, paying for it by taking credit for the said subscription and acknowledging indebtedness to those four persons of the balance of $ 348,000 in equal shares. On the insolvency of the incorporated company and of another company with which it had been amalgamated their railways were sold, and the respondent company, to whom the syndicate's claim had been assigned, claimed to rank as creditors against the proceeds of sale. It was held that the claim must be allowed. It was held that even if the price was excessive everyone interested in the capital of the company concurred in the purchase with full knowledge of all the circumstances. At page 504 of the report. Lord Haldane observed : "It, therefore, does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e." It is significant to note that Lord Haldane in explicit terms excludes the case of fraud from the operation of the principle recognised by the courts. It is not necessary to examine some other decisions of the courts in England on this point cited by learned counsel for the respondent. Mr. Mathalone, learned counsel for the applicant, referred to certain observations of Lindley L.J. in a decision of the Court of Appeal in England, In re George Newman & Co. [1895] 1 Ch. 674 at 685 The learned Lord Justice observes : "But in this case the presents made by the directors to Mr. Newman, their chairman, were made out of money borrowed by the company for the purposes of its business ; and this money the directors had no right to apply in making presents to one of themselves. The transaction was a breach of trust by the whole of them ; and even if all the shareholders could have sanctioned it, they never did so in such a way as to bind the company. It is true that this company was a small one, and is what is called a private company ; but its corporate capacity cannot be ignored. Those who form such companies obtain great advantages, but accompanied by some disadvantages. A registere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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