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of <h1>Court rules in favor of applicant for fictitious purchases, orders respondent to pay Rs. 2,61,700 + interest.</h1> <h3>Dr. DR. Banaji Versus Manilal T. Patel</h3> The court found in favor of the applicant, establishing the charge of fictitious purchases and consumption of stores amounting to Rs. 2,61,700. The ... Winding up – Power of court to assess damages against delinquent, directors, etc. Issues Involved:1. Misfeasance and breach of trust by the director.2. Alleged fictitious purchases of tobacco and stores.3. Receipt and misappropriation of funds from Godfrey Phillips (India) Ltd.4. Legal contention regarding ratification of wrongful acts by directors/shareholders.5. Application of principles from cited legal precedents.Detailed Analysis:1. Misfeasance and Breach of Trust by the Director:The official liquidator of Masters Tobacco Company (India) Ltd. initiated a misfeasance summons against a director, alleging misfeasance and breach of trust concerning large sums of money belonging to the company. The company was taken into liquidation by court order on 16th July 1952. The claims were narrowed down to the alleged misappropriation of Rs. 3,99,000 and Rs. 2,67,982-4-3.2. Alleged Fictitious Purchases of Tobacco and Stores:The applicant accused the respondent of showing bogus purchases of tobacco and stores in 1944. The company's records indicated an opening stock of tobacco worth Rs. 3,44,708-4-11 and purchases worth Rs. 2,68,348-9-3, totaling Rs. 6,13,056-14-2. The tobacco consumed was valued at Rs. 1,73,429-5-11, with no stock remaining at year-end. The company sold Rs. 4,39,627-8-3 worth of tobacco to Godfrey Phillips (India) Ltd. The charge of misappropriation concerning tobacco purchases was dismissed.The more pressing charge involved the alleged fictitious purchase and consumption of stores. The opening stock of stores was Rs. 47,013-7-10, with purchases worth Rs. 5,66,517-15-6. The total consumption was Rs. 5,82,606-11-11, which the applicant argued was implausibly high for the three months of operation in 1944. Documentary evidence, including correspondence with the Comptroller of Foods Accounts, Delhi, indicated that the company supplied 15,80,00,000 cigarettes to the Government between August 1943 and March 1944, with 10,30,46,500 delivered by December 1943. The applicant calculated that the maximum number of cigarettes manufactured in 1944 could not exceed 7,74,00,000, requiring stores worth Rs. 2,38,942, far less than the Rs. 5,82,606-11-11 shown.3. Receipt and Misappropriation of Funds from Godfrey Phillips (India) Ltd.:The applicant alleged that the company received Rs. 2,80,212 for tobacco sold to Godfrey Phillips (India) Ltd., paid via four bearer cheques between 26th May and 3rd June 1944. However, the company's cash book falsely recorded these amounts as received in cash on earlier dates. The applicant argued that these false entries facilitated fictitious purchases of stores, enabling misappropriation of Rs. 2,80,212.4. Legal Contention Regarding Ratification of Wrongful Acts by Directors/Shareholders:The respondent argued that as the main shareholders and directors, he and M.M. Finegold effectively approved the accounts for 1944, thus ratifying any wrongful acts. This argument was based on a Privy Council decision in Attorney-General for Canada v. Standard Trust of New York [1911] AC 498, where all interested parties had concurred in the transaction. However, the court noted that this principle does not apply in cases of fraud.5. Application of Principles from Cited Legal Precedents:The court referred to the Privy Council's decision, emphasizing that the principle of ratification by shareholders does not apply when fraud is involved. The court also cited Lindley L.J. in In re George Newman & Co. [1895] 1 Ch. 674, stating that directors' misapplication of company assets constitutes a breach of trust, and such actions cannot be ratified simply because the directors are also the shareholders.Conclusion:The court found that the applicant successfully established the charge of fictitious purchases and consumption of stores amounting to Rs. 2,61,700. The respondent's arguments regarding ratification and the nature of the company as a private entity were dismissed. The respondent was directed to contribute Rs. 2,61,700 to the company's assets, with interest at 4% from 28th February 1955, and costs on a long cause scale.
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