TaxTMI 
TaxTMI 
1967 (11) TMI 52
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.... company. By article 51, until otherwise fixed, the quorum in the meetings of directors was to be four. In the years 1949 and 1950 the company was carrying on business principally in "futures" in gur. The method of carrying on business in "futures" was explained as follows, by the parties to the dispute in an agreed statement submitted before the Company Judge: The transactions for sale and purchase of gur have to be in the units called 'Bijaks' of 100 maunds. The buyer and the seller who are members of the company negotiate transactions of sale and purchase in gur through their respective brokers and then approach the company. The company enters into two independent contracts whereby the company is the puchaser from one and is the seller to the other at rates agreed upon between the seller and the buyer. The seller has therefore to sell to the company a specified quantity and the buyer agrees to purchase the same quantity from the company under an independent contract. For the due performance of their contracts, the buyer and the seller deposit with the company rupee one per maund as Sai and annas eight per maund as Chook-"margin". If there is a rise in the price, the c....
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....otalling Rs. 7 lakhs odd in respect of their benami transactions. In exercise of the powers conferred by section 3 of the Essential Supplies (Temporary Powers) Act, 1946 (24 of 1946), the Government of India issued a notification on February 15, 1950, amending the Sugar (Futures & Options) Prohibition Order, 1949, and made it applicable to "futures" and options in gur. By that Order entry into transactions in "futures" after the appointed day was prohibited. On the same day the board of directors of the company held a meeting and resolved that the rates of gur which prevailed at the close of the market on February 14, 1950, viz., Rs. 17-6-0 per maund, be fixed for settlement of the contracts of Phagun delivery. It was recited in the resolution that five persons including Lala Mohan Lal, partner of the appellants, were present at the meeting on special invitation. In clause 2 of the resolution it was recited that as the Government had banned all forward contracts in gur it was resolved to take the prevailing market rate on the closing day of February 14, 1950, which was Rs. 17-6-0 per maund for Phagun delivery, and to have all outstanding transactions of Phagun delivery settled a....
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...."futures" in gur did not become void; that in fixing the rate of settlement by resolution dated February 15, 1950, and settling the transactions with the other contracting parties at that rate the directors acted prudently and in the interests of the company and of the shareholders, and in making payments to the parties on the basis of a settlement at that rate the directors did not commit any fraudulent act or misapply the funds of the company; that the case of the appellants that apart from the transactions entered into by them in their firm name, they had entered into other transactions benami in the names of other firms, and that the company had mala fide settled those transactions with those other firms was not proved; and that the board of directors was and remained properly constituted at all material times and no provision of the Companies Act was violated by the directors trading with the company. Counsel for the appellants contended (a) that by virtue of the notification issued by the Central Government on February 15, 1950, all outstanding "futures" in gur became void ; (b) that the resolution dated March 14, 1949, was void because there was no quorum at the meeting o....
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....gur ; 4. Any option in sugar or gur entered into before the appointed day and remaining to be performed whether wholly or in part shall be void within the meaning of the Indian Contract Act, 1872, and shall not be enforceable by law". By clause 3(a) all persons are prohibited, save with the permission of the Central Government in that behalf from entering into futures in sugar or gur : the clause also prohibits receipt or payment of, or agreement to pay or receive any margin in connection with any such futures. The clause in terms operates prospectively. Clause 3(b) prohibits options in gur and sugar, and clause 4 expressly invalidates options in sugar and gur entered into before the appointed day and remaining to be performed whether wholly or in part. The contrast between the provisions relating to "futures" and "options" is striking. While imposing a prohibition on options, the Central Government has also expressly provided that all outstanding options shall be void. No such provision is made in respect of outstanding "futures". Counsel for the appellants however contended that when the Central Government imposed a prohibition against payment or receipt, or agreement to pa....
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....ransactions of "futures" in gur in the manner in which the company was carrying on its business entailed disqualification of the directors and as the directors were disqualified there was no quorum and no proper resolution and therefore all transactions entered into and any payments made pursuant to that resolution were invalid and the company was bound to refund the amounts paid by the appellants from time to time. The company had 11 directors : out of these 9 directors were carrying on business with the company. It appears that at the meeting dated March 14, 1949, all the directors present were those who carried on business in "futures" in gur with the company, and did after March 14, 1949, carry on that business. Under the Indian Companies Act, 1913, as originally enacted, there was no prohibition against a director entering into transactions with the company, and on that footing the scheme of the company's business was devised. Under the articles of association no person could remain a member of the company who was found not to be doing any transaction or business through the company continuously for six months, and a person could be elected a director if he held 10 shares ....
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....ls with the company. On behalf of the company it was urged that by the resolution dated March 14, 1949, the directors resolved generally to sanction all transactions of the directors for the sale and purchase in commodities in which the company carried on business, and on that account, notwithstanding the prohibition contained in section 86F, the directors did not vacate their office. Counsel for the appellants urged that the consent of the directors contemplated by section 86F is consent in respect of each specific contract to be entered into and no general consent can be given by the directors authorising a director or directors of the company to sell, purchase or supply goods and materials to the company. Such a general resolution without considering the merits of each individual contract would, it was urged, amount to repealing the provisions of section 86F. Strong reliance was placed upon the judgment of the Bombay High Court in Walchandnagar Industries Ltd. v. Ratanchand Khimchand Motishaw [1953] 23 Comp. Cas. 343 ; ILR [1953] Bom. 623. It is not necessary for the purpose of this case to decide whether in any given set of circumstances a general consent may be given by the....
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....ere was some defect in the appointment of any such directors or persons acting as aforesaid or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a director". There is no evidence that the directors were aware of the disqualification which would be incurred by entering into contracts of sale or purchase or supply of goods with the company without the express sanction of the directors. By the subsequent discovery that they had incurred disqualification, because they had entered into contract with the company for sale or purchase or supply of goods, the resolution passed by them is not rendered invalid. It is, in the view we have taken, unnecessary to decide whether section 86 of the Indian Companies Act, 1913, also grants protection to the acts done by directors who are subsequently discovered to be disqualified. Section 91B imposes a prohibition against a director voting on any contract or arrangement in which he is either directly or indirectly concerned or interested. But the directors of the company are not shown to have voted on any existing contract or arrangement. At the meeting dated March 14,....
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....ent of all the outstanding transactions. The resolution, however, did not put an end to the outstanding contracts as on February 15, 1950 : the resolution merely fixed the rate at which the transactions were to be settled on the due date, the possibility of any fresh transactions in futures so long as the Order remained in force being completely ruled out. It may be noticed that the appellants' representative was present at the meeting, and he was apparently heard. Whether or not he agreed to the passing of the resolution is immaterial. But we are unable to hold that the resolution was passed with a view to benefit the directors: it appears that the resolution was passed with a view to protect the interests of the company and its members. But it was urged that simultaneously large amounts were intended to be paid to the members who had purchased contracts outstanding, and for that purpose it was resolved to borrow money from the Allahabad Bank and the Central Bank of India Ltd. This, it was urged, disclosed anxiety on the part of the directors to appropriate to themselves the liquid funds and to deprive the appellants of the benefit of any fall in the prices after February 1....
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....elivery of goods according to the outstanding contracts on Phagun Sudi 15, Samwat 2006, in terms of the rules and bye-laws of the company. The appellants denied having received this letter. But we are unable to accept that denial. On March 1, 1950, the appellants wrote a letter stating that because of the notification issued by the Central Government the performance of the contracts had become impossible, and that the company was liable to refund all the amounts deposited with interest thereon, and that the illegal settlement dated February 15, 1950, amounted to repudiation of the contracts by the company and those contracts stood rescinded. The appellants apparently insisted that the transactions became impossible of performance in view of the prohibition contained in the notification published by the Central Government, and contended that the resolution amounted to repudiation of the contracts by the company. But by the resolution, in our judgment, there was no repudiation of the contracts by the company. The contracts, if they were to be settled by payment of differences, could be settled on the due date at the rates fixed : it was however open to the appellants to deliver goods....