Allahabad High Court
Life Insurance Corporation Of India vs Hari Das Mundhra And Ors. on 14 February, 1962
Author: S.N. Dwivedi
Bench: S.N. Dwivedi
JUDGMENT Oak, J.
1. I have read the judgment prepared by my learned brother, Dwivedi J. I agree with him that the former board of directors of the British India Corporation Limited (hereafter referred to as the Corporation) was guilty of mismanagement between 1956 and 1958, but directors other than Sri Hari Das Mundhra cannot be ordered to pay compensation to the Corporation. Considering that certain important questions of law have arisen in this case, I wish to add a few words.
2. The Life Insurance Corporation of India (hereafter referred to as the appellant) has established that the affairs of the Corporation were being conducted in a manner prejudicial to the interests of the Corporation. That brings the case under Clause (a) of Sub-section (1) of Section 398 of the Companies Act, 1956 (hereafter referred to as the Act). Sri Hari Das Mundhra was elected chairman of the board of directors of the Corporation in April, 1956. At the same time his brother, Sri Tulsi Das Mundhra, was elected a director of the Corporation. That was the starting point of mismanagement. In view of his conviction, Sri Hari Das Mundhra is not capable of being appointed a director of a company (section 274 of the Act). But Sri Tulsi Das Mundhra does not suffer from any such disqualification. If Sri Tulsi Das Mundhra is permitted to function as a director, he is likely to be under the influence of his brother, Sri Hari Das Mundhra. There is good reason for believing that the affairs of the Corporation would be conducted in a manner prejudicial to the interests of the Corporation, unless the court takes suitable action to prevent mismanagement. The situation attracts Clause (b) of Sub-section (1) of Section 398 of the Act. The appellant having succeeded in establishing a case under Sub-section (1) of Section 398 of the Act, the learned company judge was justified in taking action under Sub-section (2) of Section 398.
3. It has been pressed for the appellant that the court should order the past directors to pay compensation under Section 543 of the Act. The learned company judge thought that, for various reasons, it was not possible to take action under Section 543 of the Act. None of the reasons given by the learned judge is convincing. Section 406 of the Act makes it clear that Section 543, as modified by Schedule XI of the Act, is applicable in proceedings under Section 398 of the Act.
4. It has been pointed out on behalf of the past directors that the petition moved by the appellant in May, 1958, was under Sections 397 and 398 of the Act. There was no reference to Section 543 in that petition. Nor did the appellant move an application under Section 543 at some subsequent stage. The question, therefore, arises whether it is possible for the court to take action under Section 543 under such circumstances. Strictly speaking, there should have been an application under Section 543 read with Schedule XI in the course of proceedings on the application under sections 397 and 398 of the Act. But that is merely a matter of form, and not of substance. Relief (e) claimed in the petition dated May 16, 1958, ran thus :
" That the respondents, or one or more of them as may become liable, be ordered to contribute such sum or sums of money to the assets of the respondent-company by way of compensation in respect of misapplication, misfeasance, breach of trust or other acts prejudicial to the interests of the company, as might be found to have been committed by them of any of them."
5. The learned company judge framed as many as 24 issues. Issue No. 6 was :
"Did the British India Corporation suffer any damage or loss by reason of the winding up petition filed against it as alleged ? If so, was the respondent No. 1 (Sri Hari Das Mundhra) responsible or liable therefor ?"
6. The form of the application under Sections 397 and 398 and the issues framed by the court made it clear to the directors that the court was holding an inquiry as regards their liability to contribute to the Corporation various sums of money by way of compensation. The directors were not prejudiced due to the fact that the appellant did not move a separate application under Section 543 during the inquiry under Sections 397 and 398 of the Act. It is open to this court to order a director to pay compensation to the Corporation under Section 543 read with Schedule XI of the Act, although there was no separate application by the appellant under Section 543 of the Act.
7. At the appellant's instance, an inquiry has been made into the affairs of the Corporation and into the affairs of Messrs. Begg Sutherland and Company (Private) Limited (hereafter referred to as the company). The question arises whether it was permissible to make an investigation into the affairs of the company in dealing with an application as regards management of the Corporation. It has been pointed out on behalf of the appellant that the company was a subsidiary of the Corporation. The question, therefore, arises whether in dealing with the affairs of a company under Sections 397 and 398 of the Act, it is permissible to investigate the affairs of a subsidiary.
8. A holding company and a subsidiary company are separate legal entities. Broadly speaking, their affairs are separate. But the very expressions " holding company " and " subsidiary company " denote close connection between the affairs of two such companies. For certain purposes, affairs of a subsidiary have been treated as affairs of the corresponding holding company (see Section 214(2), Section 318(3)(e) and Section 338 of the Act). It is not necessary to decide the larger question whether in every case brought under Sections 397 and 398 of the Act, the court is entitled to make an inquiry into the affairs of the subsidiary company. It will be sufficient to consider whether such a course is permissible in the present case.
9. We must bear in mind that the British India Corporation Limited holds 100% shares in Messrs. Begg Sutherland and Company (Private) Limited. There is evidence to the effect that the Corporation used to consider and sanction transactions relating to the purchase and sale of shares of the company. Whenever the company found itself in financial difficulty, it approached the Corporation for funds. So, for most practical purposes, the company was a branch or a department of the Corporation. Affairs of the company became affairs of the Corporation. In order to bring a case under Clause (b) of Section 543 read with Schedule XI, it has to be shown that a director " has been guilty of any misfeasance or breach of trust in relation to the company ". In the present case, misfeasance or breach of trust in relation to the subsidiary company was misfeasance or breach of trust in relation to the holding company. So the affairs of the subsidiary company were relevant under Section 398 of the Act and also under Section 543 read with Schedule XI of the Act.
10. In March, 1957, there was an agreement between the company and certain persons (Jamunadas Kayan, Hari Das Mundhra and others) about purchase of Samastipur shares. The agreement was in the form of a letter, dated March 2, 1957, written by Jamunadas Kayan to the company. The offer was accepted on behalf of the company. There was an enforceable contract between the company and the prospective purchasers for the purchase of Samastipur shares. On March 4, 1957, Sri Hari Das Mundhra wrote a letter to the company authorising it to debit a sum of Rs. 23,00,000 in his account towards the price of shares. But subsequently the deal was abandoned. As a director and as chairman of the board of directors, it was his duty to protect the interests of the company. But Sri Hari Das Mundhra was mainly responsible for abandoning the deal. Instead of taking steps to enforce specific performance of the contract of March 2, 1957, Sri Hari-Das Mundhra used his position as chairman of the board of directors of the Corporation to abandon the deal. The deal of March, 1957, having been thrown away, the shares held by the Corporation and the company had to be sold later at a low price. It is true that the letter (exhibit D-154) written by Jamuna Das Kayan on Mach 2, 1957, was addressed to the company. But that letter covered the shares held by the Corporation also. It was, therefore, possible to enforce that deal as regards Samastipur shares held by the Corporation and by the company. It was due to the misconduct of Sri Hari Das Mundhra that the Corporation and the company incurred loss in the sale of Samastipur shares.
11. In In re Central Calcutta Bank Ltd. [1959] 29 Comp. Cas. 437; A.I.R. 1959 Cal. 625 it was pointed out on page 633 that wilful misconduct may amount to misfeasance. In Palmer's Company Law, 20th edition, it is stated on page 564 that any fraud or underhand dealing by a director will render him liable to the company for any loss suffered by the company as a result. In the present case, Sri Hari Das Mundhra as chairman of the board of directors of the Corporation put up a show of safeguarding the interests of the Corporation and the company. But what he actually did was to safeguard the interests of the group of purchasers. He held 50% interest in the group of purchasers. He is guilty of wilful misconduct. As a consequence of the underhand dealing by him, the Corporation and the company had to sell Samastipur shares at a low price. He should, therefore, be ordered to pay compensation to the Corporation under Section 543 read with Schedule XI of the Act. The difference between the price offered in March, 1957, and the price actually recovered should be the proper measure of the compensation. The total difference in the two prices comes to Rs. 6,65,592. Sri Hari Das Mundhra is liable to pay the corporation this amount as compensation.
12. As already pointed out, the learned company judge was justified in removing the old board of directors, and in making an interim arrangement for management. The appellant had requested for the appointment of a special officer. The learned judge appointed an interim board of management. Considering that the Corporation carries on business on a very large scale, the learned judge was probably justified in appointing a board of management rather than a single special officer. The board appointed by the court is really a committee of management. But it is sometimes convenient to refer to the committee of management as the board of directors.
13. There was some criticism as regards the merits of some of the members of the committee appointed by the learned judge. I do not see much force in the criticism except as regards Mr. Narendrajit Singh. Mr. H. S. Chaturvedi retired as a judge of this court. He has been looking after the business of the Corporation since 1958. It is desirable to continue his association with the Corporation until an elected board of directors assumes charge of the management. Sri S.N.M. Tripathi was in the Indian Administrative Service. He was a member of the U.P. Public Service Commission for some years. It may be that he had no business experience before 1961. But his general experience in administration can be of much use to the Corporation. Mr. Wilcox, Mr, Galloway and Mr. Javeri are three paid officials of the Corporation. The learned Attorney-General contended that appointment of employees of the Corporation as directors is wrong in principle. There are no hard and fast rules as regards appointment of employees of a company as directors. I understand that it has been the practice of the Corporation to have some experienced employees of the company on the board of directors. I see no good reason for departing from this practice.
14. Mr. Narendrajit Singh was a director on the old board. The old board was negligent in managing the affairs of the Corporation between 1956 and 1958. It is true that we are not ordering him to pay any compensation to the Corporation under Section 543 of the Act. But the fact remains that Mr. Narendrajit Singh was negligent in the conduct of the affairs of the Corporation between 1956 and 1958. It was not, therefore, proper to appoint him on the interim committee of management. Mr. Kanhaiya Lal Misra, Advocate-General, stated before us that he was not prepared to serve on the committee of management. He cannot be compelled to serve as a member, I understand that Dr. S.K. Rau is away in Japan, and is not likely to return to India for at least another year. It is no use keeping him on the committee of management. Mr. K.L. Misra and Dr. S.K. Rau may be discharged.
15. It is desirable to have some experienced lawyer on the committee of management. The name of Mr. Jagdish Swarup, advocate, was suggested during the course of arguments before us. None of the parties raised any objection against the suggestion. Mr. Jagdish Swarup is also agreeable. He may, therefore, be appointed a member of the committee of management.
16. The learned judge directed that the committee of management should remain in office till the end of April, 1965. I see no justification for keeping the interim committee in office for such a long period, The normal method of management of a company is by the board of directors elected by the company. The normal position should be restored as soon as practicable. The shareholders should be able in a few months to make up their minds as regards selection of new directors. It will be sufficient to keep the interim board in office till the end of January, 1963. In the meanwhile, the shareholders should elect a new board of directors.
17. As regards conditions of employment of Mr. H. S. Chaturvedi and Mr. S. N. M. Tripathi, the learned judge gave the following direction :
" If, for any reason, except for insolvency or conviction for an offence involving moral turpitude, their services are terminated before the 30th April, 1965, they will be entitled to claim from the British India Corporation Limited their salaries for the remaining unexpired period."
18. I see no justification for giving them a guarantee in such unusual terms.
19. Special -Appeal No. 299 of 1961 has succeeded as regards Sri Hari Das Mundhra. He may, therefore, be ordered to pay one-half of the costs of the appellant. Special Appeal No. 296 of 1961 brought by Sri Hari Das Mundhra and Sri Tulsi Das Mundhra has substantially failed. They may be asked to pay costs of the principal respondent (respondent No. 1.) Dwivedi, J.
20. These are two cross-appeals against the order of learned company judge, dated May 12, 1961, in a proceeding under Sections 397, 398 and 543 of the Companies Act, 1956 (hereinbelow called the Act), with respect to the affairs of the British India Corporation Ltd., having its registered office at Kanpur. Appeal No. 299 has been filed by the Life Insurance Corporation of India (hereinbelow called the appellant); Appeal No. 296 has been filed by Haridas Mundhra and his brother, Tulsidas Mundhra. The appellant had initiated the proceeding under Sections 397, 398 and 543 by a petition dated May 16, 1958. The appellant is a member of the British India Corporation Ltd. (hereinbelow called the Corporation), holding 7,50,633 fully paid-up ordinary shares of Rs. 5 each and 15,285 preference shares of Rs. 100 each. It had been authorised by the Central Government under Section 399(4) of the Act to petition the court under Sections 397 and 398. By the petition it asked for these principal reliefs:
(a) Removal of Directors, Haridas Mundhra, Tulsidas Mundhra, Narendrajit Singh, Rai Bahadur Ram Narain, K.B. Daga, Hyder Hussain and H. Hill, respondents Nos. 1 to 7 in the petition, from the Corporation's board of directors ;
(b) An interim injunction restraining the said respondents from acting as directors during the pendency of the petition ;
(c) Taking of steps to call a meeting of the shareholders of the Corporation for the purpose of appointing another board of directors; or
(d) Appointment of a special officer;
(e) Investigation of the affairs of the Corporation and the doings of the said respondents for the purpose of finding out losses caused by them to the Corporation;
(f) Consequent upon such investigation and tracing out of losses an order to the said directors to contribute to the assets of the Corporation as compensation for losses caused by their acts of misfeasance ; and
(g) Any other necessary order.
21. It may be stated here that before the moving of the petition in court, the State Bank of India, Kanpur, had instituted a suit against the Corporation for recovery of its debts in a civil court at Kanpur and on December 20, 1957, that court had appointed one H.L. Khanna as a receiver over the properties of the Corporation. On May 16, 1958, on an application of the appellant under Section 403 of the Act, the learned company judge issued an injunction restraining the said directors from acting as such until further orders. On May 23, 1958, the learned judge appointed Sri H. S. Chaturvedi, an ex-judge of the court, as chairman of the board of directors in place of H.D. Mundhra. On November 26, 1958, the learned judge replaced the elected board of directors by an interim board for the pendency of the petition. The interim board of directors consisted of ten directors. Seven of them, who were appointed eo nominee by the learned judge, were:
Sri H.S. Chaturvedi, Chairman and Managing Director, H.L. Khanna, Deputy Managing Director, R.L. Powell, Deputy Managing Director, Rai Bahadur Ram Narain, Narendrajit Singh, a respondent in the petition, H.T. Thadani, and Padampat Singhania;
the remaining three were to be nominated one each by the Ministry of Commerce and Industry, Government of India, by the Reserve Bank and by the Chairman of the appellant.
22. The petition of the appellant was supported by an affidavit. Haridas Mundhra, Tulsidas Mundhra and Narendrajit Singh opposed the petition and each of them filed a counter-affidavit. Rai Bahadur Ram Narain also opposed the petition and filed a written statement. The remaining three directors, K.B. Daga, Hyder Hussain and H. Hill did not file any written statement or counter-affidavit, nor did they appear in the course of the proceeding. Rai Bahadur Ram Narain passed away, and K.B. Daga was adjudicated insolvent, during the pendency of the petition. The Central Government filed a representation supported by an affidavit under Section 402 of the Act.
23. In the proceeding the contesting parties produced a large volume of documentary evidence in support of their respective cases. Some oral evidence was also produced by them. Before grappling with this big mass of evidence, it would be proper briefly to state the findings of the learned company judge. His findings were :
(a) The affairs of the Corporation were conducted in a manner prejudicial to the best interests of the Corporation and its shareholders. Having regard to all the facts and circumstances it was necessary that the court should settle a scheme for its management under Section 398 of the Act.
(b) No relief could be granted under Section 543 of the Act for :
(i) the appellant did not file a separate application for taking action under Section 543,
(ii) the evidence on record was not sufficient to prove misfeasance of the directors and to enable the court to assess damages, if any, sustained by the Corporation,
(iii) the appellant had failed to implead Christie and Powell, the managing director and the deputy managing director, as respondents to its petition,
(iv) the directors could not be fastened with any liability for losses, if any, caused to the Corporation's subsidiary, Messrs. Begg Sutherland & Company (P.) Ltd., Kanpur, and
(v) there were at the time pending in various civil courts several suits by the Corporation against various respondents-directors in respect of the transactions involved in the proceeding.
24. While the appellant feels aggrieved by the second finding, the appellants in the other appeal feel equally aggrieved by the first finding. Hence, both of them have come up in appeal as already stated.
25. Before us, as before the learned company judge, Hyder Hussain and H. Hill have appeared neither in person nor through a counsel. Learned Attorney-General, who opened the case for the appellant before us, stated at the outset that he would press the claim under Section 543 against Haridas Mundhra, Tulsidas Mundhra, Narendrajit Singh and Hyder Hussain only. He also stated that he would not press the case under Section 397 of the Act.
26. The case of the appellant was only partly argued by learned Attorney-General and was then taken over by learned Solicitor-General, who also appeared for the Central Government. Although the petition of the appellant charged the respondent-directors with acts of misconduct in respect of several matters, learned Solicitor-General stated that he would confine the case of the appellant only to three matters relating to, (1) Samastipur Central Sugar Co. Ltd., (2) Balrampur Sugar Co. Ltd., and (3) Cawnpore Cotton Mills.
27. Our judgment would, therefore, be restricted to those three matters only and to the determination of liability, if any, of the directors Haridas Mundhra, Tulsidas Mundhra, Narendrajit Singh and Hyder Hussain in respect thereof.
28. At this stage I propose to deal with the points of law arising in these appeals. Learned company judge has denied relief under Section 543 (Schedule XI), inter alia, for want of a separate application under that provision.
29. Section 543 (Schedule XI) reads :
" (1) If, in the course of the proceedings on an application made to the Court under Section 397 or 398, it appears that any person who has taken part in the1 promotion or formation of the company, or any past or present director, managing agent, secretaries and treasurers, manager or officer of the company-
(a) has misapplied or retained or become liable or accountable for any money or property of the company, or
(b) has been guilty of any misfeasance or breach of trust in relation to the company :
the court may, on the application of any creditor or member, examine into the conduct of such person, director, managing agent, secretaries and treasurers, manager or officer aforesaid, and compel him to repay or restore the money or property or any part thereof respectively with interest at such rate as the court thinks just or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the court thinks just.
(2) This section shall apply notwithstanding that the matter is one for which the person concerned may be criminally liable."
30. With respect to the learned judge I have not been able to discern anything in the section, in particular in the phrase " On the application of any creditor or member ", as enacting a ban against the combining of reliefs under Sections 397 and 398 with reliefs under Section 543 in an application of the members of a company under Sections 397 and 398, as has been done by the appellant in its petition. The section is designed to bestow an additional important right on a single member or members to seek certain reliefs for the benefit of the company, and it would be scarcely fair and proper to read in it an unrelenting ritualistic prescription of the mode and hour of prayer to the court. If members can make a prayer during the proceedings, they may also make a prayer at the inception of proceedings especially when, as here, no prejudice to any party results.
31. I do not think that Christie and Powell, managing director and deputy managing director, are necessary parties to the petition and that in their absence no director may be asked to pay damages, for the liability of directors is generally joint and several for their misfeasance.
32. It is now agreed that none of the suits pending in subordinate civil courts cover the three transactions in dispute before us.
33. Having cleared the minor hurdles we now reach the citadel of controversy whether the court should in considering the complaint of a member of the Corporation about mismanagement of the affairs of the Corporation by, and misfeasance of, its directors, confine the probe strictly to the affairs of the Corporation or may also scrutinise the interfused affairs of the Corporation and the company, a subsidiary of it. Learned counsel for H.D. Mundhra and T.D. Mundhra, intrenching in the traditional notion of separate corporate personality, has stoutly supported the first view ; but learned counsel for the appellant and the Central Government, taking their stand on business reality, have vigorously pressed for the second view.
34. Sections 398 and 543 (Schedule XI) are innovations in the law of companies in India, and we have not been referred to any case-law precisely on the point. There is obviously a breach between dogma and reality in the realm of inter-corporate relations of a holding company and its subsidiary. How far the new Act has repaired the breach is a matter for comprehensive enquiry. But here I must, I think, put a word of caution. Where its decision is likely to affect a big sector of economic life, the court would hesitate in enouncing a saltatory new rule. It would rather break the maiden tract in measure with each case and let a new principle sprout up slowly as precedent is added to precedent. I, therefore, prefer to do no more than examine the legal issue in its factual background here. We shall first have a look at the size and scope of the business of the Corporation. Its subscribed share capital consists of 65,00,000 ordinary shares of the face value of Rs. 5 each and 81,000 preference shares of the face value of Rs. 100 each. The total subscribed capital thus would be Rs. 4,06,00,000. Its reserves mounted from Rs. 35,00,000 in 1949 to Rs. 1,27,72,883 in 1957. It was earning profits till 1953. In that year its profits were Rs. 65,57,621. There was a loss of Rs. 4,79,711 in 1954, of Rs. 30,23,938 in 1955 and of Rs. 13,22,181 in 1957. The net value of its fixed capital rose from Rs. 41,04,564 in 1950 to Rs. 1,08,37,894 in 1957.
35. During the material period, namely, September, 1955, to April, 1958, the Corporation owned and operated (1) The Cawnpore Woollen Mills, Kanpur (popularly known as Lal Imli), (2) The Cawnpore Cotton Mills (known as Kakomi), (3) North-West Tannery, Kanpur (popularly known as Flex), (4) Cooper Alien, Kanpur, and (5) The New Egerton Woollen Mills, Dhariwal, in the Punjab (popularly known as the Dhariwal).
36. The Corporation owns 100 per cent, share capital of Begg Sutherland Co. (P.) Ltd., Kanpur (hereinbelow referred to as the company). Its issued share capital is Rs. 30,00,000. The net value of its fixed capital rose from Rs. 87,800 in 1950 to Rs. 1,11,060 in 1957. In the same period its reserves rose from Rs. 1,00,000 to Rs. 2,00,000.
37. Until 1957 the Corporation controlled, through the managing agency of the company, the following companies :
(1) Cawnpore Sugar Works Ltd., (2) Champaran Sugar Co. Ltd., (3) Purtabpore Co. Ltd., (4) Saran Engineering Co. Ltd., (5) Brushware Limited. (6) The Elgin Mills Co. Ltd., (7) The Cawnpore Textiles Ltd., (8) The Samastipur Central Sugar Co., Ltd. and (9) The Balrampur Sugar Co. Ltd.
38. During the material time the Corporation also held large shareholdings in several companies in the country. Various balance-sheets would show that the Corporation commanded control over the aggregate subscribed capital of Rs. 6,50,00, 000 consisting of its own capital and the capital of its pyramided subsidiaries. The Corporation is thus a big horizontal combine controlling vast share capital, fixed assets and reserves as well as diverse business.
39. I shall now give a sketch of the inter-corporate relations of the Corporation and the company. As already stated the Corporation owns 100 per cent, share capital of the company which did nothing but rendering managing agent's calling. During the material period, of the five directors of the company, three belonged to the board of directors of the Corporation ; the remaining two must also have held office by the grace of the Corporation for it was the beneficial owner of the entire share capital of the company. Messrs. Price, Waterhouse, Peat & Co. were their common auditors. It also appears from exhibits 202 and 203 that some of the directors of the Corporation who were not the directors of the company were acting as directors of the latter's subsidiaries. The Corporation used to finance the company from time to time ; it also shaped its policies, and exercised complete control over its investments. Although in law they were supposed to be self-reliant, the company directors seldom evinced independence and initiative. They complaisantly received ready-made decisions from the directors of the Corporation and obeyed them unquestioningly. It is no exaggerated truth to say that the directors of the Corporation were treating the company as a mere department of the Corporation and its directors as managers of that department. The appellant and Haridas Mundhra describe it as an "asset" of the Corporation in their petition and written statement.
40. By and large the two bodies were fused together so that the adversity of the one inevitably created a crisis in the other. Let me illustrate this briefly by one instance only. The accounts of the company closed in October annually. In October, 1954, the cash with it was Rs. 60,475, the debts were perhaps nil and the investments were for Rs. 1,81,501; in October, 1955, the cash was Rs. 59,597, the debts and investments rose abruptly to Rs. 57,20,637 and Rs. 43,26,282 ; in October, 1956, the cash was Rs. 1,18,250, while debts and investments again rose to Rs. 89,32,512 and Rs. 85,20,855 ; in October, 1957, debts and investments receded to Rs. 60,35,551 and Rs. 74,51,001. The company obviously could not go in for heavy investments on its own resources ; the Corporation was galvanised into action by an assurance of H. D. Mundhra, given presumably in September or October, 1955, to finance the staggering investment scheme. In the beginning he did feed the company with considerable loans, and in October, 1956, the company was indebted to him to the tune of Rs. 70,48,170-7-0. But then started heavy withdrawings by him so that on March 1, 1957, his loan was reduced to Rs. 24,74,132-9-6. On May 21, 1957 it fell down to a tiny figure of Rs. 2,53,382.60 nP., and on October 31, 1957, it tapered off to Rs. 2,42,111.89 nP. (see exhibit 3). This financial haemoptysis made exigent commensurable transfusion, of finance by the Corporation to the company. From Rs. 19,49,000 on March 9, 1956 (exhibit 250), the Corporation loan to the company went on registering successive ascent to Rs. 44,74,236 on February 6, 1957 (exhibit 253), to Rs. 47,72,222 on April 2, 1957, (exhibit 254), to Rs. 52,15,000 on July 2, 1957 (exhibit 255). The Corporation was thus bled out awfully in sustaining the company and was on the verge of financial breakdown at a time when it needed money pressingly for rejuvenating its main business.
41. It may be observed that in the ultimate sense the investments of the company were made from the pocket of the Corporation.
42. Two more instances of their oneness. It is not the company but the Corporation's board of directors who took the decision of relinquishing without compensation the managing agency of the company in the Samastipur Central Sugar Co. Ltd. and Balrampur Sugar Co. Ltd. to the purchaser of their united shareholdings in the said companies. Jamunadas Kayan sent his written offer to the company to buy those shares and the offer was accepted by R.L. Powell, a common director. When Jamunadas Kayan failed to perform his part of the bargain, it is the board of directors of the Corporation who first resolved to treat the agreement with him as cancelled. Such was their identification that even a third person was contracting with them on the footing that they were one, not two.
43. The practical absorption of the company in the Corporation is well explained by the history of the rise and growth of holding companies. The main cause for the rise of the holding company is to be traced to the desire of a small group of finance and business entrepreneurs to acquire control over concentrated capital and industrial resources by the device of relatively insignificant investments by them in existing companies. It is not necessary to hold their entire share capital; control of the voting power in the existing companies is enough to place them at the head of the multitiered pyramid of industrial enterprises. The device of the holding company gives rise to vertical and horizontal combines. It is obvious that these combines cannot be profitably exploited without a head, that is, the holding company. It exercises unified control over the pyramided subsidiaries through the contrivance of inter-corporate accountancy and management (see Private Corporations and Their Control by A.B. Levy, 1950 edition, vol. 2, pages' 812-816).
44. Adverting now to Section 398, it reads ;
"(1) Any members of a company who complain-
(a) that the affairs of the company are being conducted in a manner prejudicial to the interests of the company ; or
(b) that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its board of directors or of its managing agent or secretaries and treasurers, or manager, or in the constitution or control of the firm or body corporate acting as its managing agent or secretaries and treasurers, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to the interests of the company ;
may apply to the court for an order under this section, provided such members have a right so to apply in virtue of Section 399.
(2) If, on an application under Sub-section (1), the court is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. "
45. The true import of the provisions may be comprehended only by an examination of its purpose and context. The purpose itself cannot be understood without a full awareness of the dangers inherent in the system of holding companies. Firstly, the pyramided corporate structure may at some stage tend to become dangerously complicated and poiseless. Secondly, subsidiaries may acquire shares in the holding company and involved financial transactions may take place between the members of the interlinked companies. Thirdly, the involved inter-corporate finance may tempt ambitious directors to improper or dishonest manipulation of accounts at the expense of a prosperous member of the group to the prejudice of the minority shareholders. Lastly, the balance-sheet and the profit and loss account of the holding company may give little information to the shareholder, who is not an insider, to enable him to detect abuses and misfeasance. The danger is obvious.
" There might be cases in which one or several of the subsidiaries operated with active profits, others with losses. The parent company had the formal right to account the dividends in its profit and loss account and to make use of them in fixing its own dividend, whereas it was under no obligation to disclose the losses suffered by other subsidiaries. If those losses were substantial and continuous, so that they could not be made good in subsequent years, the parent company's own position would necessarily be weakened. The distribution of dividends in such a case, regardless of the losses suffered by other subsidiaries, might lead even to disaster. " (see Ibid* pages 816-820).
46. Parliament sensed those dangers and in 1953 it introduced some amendments in the Companies Act of 1913 to avert them. Later experience presumably revealed that more drastic steps were called for to meet the evils ; and in the Act, Parliament seems to me to have gone farther than ever before in the matter of disclosure and control of corporate affairs. Section 398 is, I think, designed to accomplish these twin purposes.
47. Let us now examine the context. Section 4 of the Act defines a subsidiary and a holding company. Section 77(1) provides that no company limited by shares shall purchase its own shares. Section 42(1) prohibits a subsidiary from becoming a member of the holding company, and any allotment or transfer of shares in the latter to the former is made void. This provision is apparently designed to prevent trafficking by the holding company in its own shares in the cloak of its subsidiary. It shows, I think, that Parliament, piercing the corporate fiction, has seen through the reality of a unique group-unity of the parent and subsidiary company. Sub-sections (1) and (2) of Section 295 point to a similar inference. While Sub-section (1) prohibits loan by a company to another company whose directors or managing agents, etc., are accustomed to act in accordance with the directions or instructions of its own directors, Sub-section (2) excludes from the purview of that provision loans by the holding company to its subsidiary and vice versa. Next we pass on to a group of provisions dealing with what has been called the " brain " of the company. Section 307(4) requires the maintenance of a register of shareholdings of directors of a company in that company as well as in its subsidiary. Section 309(6) provides that a director of a company who is receiving commission from it and is in its whole-time employment or is a managing director shall not be entitled to receive any commission or other remuneration from any subsidiary of that company. Section 314(1) provides that no director of a company shall ordinarily hold any office or place of profit except that of managing director, etc. under its subsidiary unless the remuneration received from such subsidiary in respect of such office or place of profit is paid over to the company or its holding company. The underlying object seems to be to prevent improper maximisation of earnings by directors at the cost of the shareholders of a company and for that purpose a subsidiary is counted as a part of the company. Section 375(1) generally prohibits the managing agent of a company from engaging in any business which is of the same nature as, and from directly competing with, the business carried on by that company or by its subsidiary. This again shows that Parliament is treating a subsidiary as a part of the holding company.
48. We then come to two sections which, to my mind, almost clinch the matter in favour of the realistic argument. Sub-section (1) of Section 318 provides for payment by a company to a managing director or director-manager or a director under whole-time employment of compensation for loss of office or for retirement from office. But Sub-section (3)(e) forbids such payment " where the director is guilty of fraud or breach of trust in relation to, or of gross negligence in or gross mismanagement of, the conduct of the affairs of the company or any subsidiary or holding company thereof." Similarly, Section 338 provides that "a company may... remove its managing agent from office for gross negligence in, or for gross mismanagement of, the affairs of the company or of any subsidiary thereof."
49. Then there are certain provisions, such as Sections 294 and 369, which also show, though indirectly, that Parliament is treating the holding company and its subsidiary as a unity.
50. Now we pass on to those provisions which ensure disclosure of the affairs of a company and its subsidiary to and their control by its shareholders and the general public. Section 210 provides that at every annual general meeting of a company the board of directors of the company shall lay before the company a balance-sheet and a profit and loss account for the year ending. Sub-section (1) of Section 211 prescribes that a balance-sheet shall give " a true and fair view of the state of affairs of the company ". Sub-section (2) similarly prescribes that a profit and loss account shall also give " a true and fair view of the profit and loss of the company. "
In this very section and in some other sections Parliament has attempted to illustrate the general content of " a true and fair view of the affairs of the company". The documents are required by Section 211 to specify certain particulars. With that very end in view, Section 212(1) lays down that there shall be annexed to the balance-sheet of a holding company a copy of the balance-sheet of its subsidiary, a copy of its profit and loss account, a copy of the report of its board of directors and a copy of the report of its auditors and a statement of the interest of the holding company in the subsidiary. Sub-section (3) thereof provides that the statement of the holding company's interest shall specify also the net aggregate profit or loss of the subsidiary not dealt with and dealt with in the company's accounts. Sub-section (5) provides that if the financial year of a subsidiary does not coincide with the financial year of the holding company, a statement shall be attached to the balance-sheet of the latter informing of any change in the latter's interest in the subsidiary and of the details of any material changes in respect of the fixed assets of the subsidiary, its investments, its lendings and borrowings. Section 217(1) lays down that there shall be attached to a balance-sheet a report of the board of directors with respect to the state of the company's affairs, the amounts earmarked as reserves or payable as dividends and any material changes and commitments. Sub-section (2) provides that the report shall, if possible, deal with any changes that may have taken place in the nature of the business of the company or of its subsidiary. These matters are required to be mentioned in the report for proper " appreciation of the state of the company's affairs by its members ". It is significant to observe that Parliament has appreciated the bearing of the subsidiary's affairs on the affairs of the holding company and has considered that information of certain matters of the subsidiary must be given to the shareholders of the holding company to enable them to obtain a " true and fair view " of the affairs of the holding company. Sub-section (1) of Section 214 provides for a right of inspection to the shareholders of a holding company of the books of account kept by its subsidiary. Sub-section (2) thereof read with Section 235 bestows a right on the members of a holding company to ask the Central Government to institute an investigation into the affairs of a subsidiary. In view of its unique sigificance, I am tempted to quote the sub-section :
" (2) The rights conferred by Section 235 upon members of a company may be exercised, in respect of any subsidiary, by members of the holding company as if they alone were members of the subsidiary. "
51. It may be observed that this provision makes a member of the holding company a member of the subsidiary for one purpose.
52. Section 237 enables the Central Government to direct suo motu an investigation of the affairs of a company by inspectors. Section 239 provides that the inspectors may investigate the affairs of a subsidiary if it appears to them to be necessary in the course of investigating the affairs of the holding company.
53. These are perhaps all the salient provisions shedding light on the meaning of Section 398. They show that the Act treats the holding company and its subsidiary as a unified group rather than as separate personified institutions for purposes of ownership of capital, control of the subsidiary by the parent's directors and managing agents, their inter-corporate finance and accountancy and disclosure of the subsidiary's affairs to members of the holding company. Further, at least for one purpose it looks upon the members of the holding company as members of the subsidiary.
54. Learned counsel for H.D. Mundhra and T.D. Mundhra has pressed in service of his arguments certain cases which are not applicable to the law and facts of the case before us (see Gramophone and Typewriter Limited v. Stanley, [1908] 2 K.B. 89, William Cory and Son Limited v. Dorman Long and Company Limited, [1936] 2 All E.R. 386, Odhams Press Ltd. v. Cook, [1938] 4 All E.R. 545 and Odhams Press Ltd. v. Cook, [1940] 3 All E.R. 15).
55. Three of them were in relation to tax law, and one was a case of tort. Considerations in the sphere of taxation and tort may not necessarily be germane in the sphere of company law. In the construction of a statute regulating the affairs of companies, the court would be justified " in looking at the business realities" and it should not confine itself to " a narrow legalistic view" (see Scottish Co-operative Wholesale Society Ltd. - v. Meyer, [1958] 3 All E.R. 56, 71 ; [1959] 39 Comp Cas 1; [1958] 3 W.L.R. 404, 409, 427 (H.L.)). That was a converse case. There a society was found to have been oppressing the minority members of a company, which was its subsidiary, from without as well as from within through its nominee directors of the subsidiary. Section 210 of the Companies Act, 1948, which corresponds to Section 397 of our Act, fell for construction. At page 84 of the report,. Lord Keith said :
" In law, the society and the company were, it is true, separate legal entities. But they were in the relation of parent and subsidiary companies, ..."
56. On the interpretation of Section 210, Lord Keith adopted this statement of Lord Cooper (1954 S.C. 381 at page 391) :
" The truth is that, whenever a subsidiary is formed as in this case ... the parent company must, if it is engaged in the same class of business, accept as a result of having formed such a subsidiary an obligation so to conduct what are in a sense its own affairs as to deal fairly with its subsidiary. "
57. In Harold Holds-worth & Co. v. Caddies, [1955] 25 Comp. Cas. 205, 221 ; [1955] I W.L.R. 352 damages were claimed by a person for breach of an agreement by which he was appointed for five years managing director of the holding company and as such to exercise such powers as may be assigned to him by the board of directors in regard to the business of the company and its subsidiaries, because a later resolution of the board directed him to confine his attention to one of the subsidiaries. Concurring with the majority view for dismissing the action, Lord Reid also disposed of a side argument based on the separate personality of the subsidiary. At page 367, he said :
" My Lords, in my judgment this is too technical an argument. This is an agreement in re mercatoria and it must be construed in light of the facts and realities of the situation. The appellant-company owned the whole share capital of British Textile Manufacturing Co. Ltd, and under the agreement of 1947 the directors of this company were to be the nominees of the appellant. So, in fact, the appellants could control the internal management of their subsidiary companies, and, in the unlikely event of there being any difficulty, it was only necessary to go through formal procedure in order to make the decision of the appellants' board fully effective. "
58. In re Darby : Ex parte Brougham, [1911] K.B. 95 a company floated by two persons for fraudulent self-aggrandisement was held to be " merely an alias " for them.
59. In Gil/ord Motor Co. Ltd. v. Home, [1933] Ch. 935, 956 disregarding the mask of corporate personality of a company formed and fully controlled by Home for the fraudulent purpose of circumventing an agreement, Lord Hanworth M. R. said :
" I am quite satisfied that this company was formed as a device, a stratagem, in order to mask the effective carrying on of a business of Mr. E. B. Home. The purpose of it was to try to enable him, under what is a cloak or a sham, to engage in business which . . . was abusiness in respect of which he had a fear that the plaintiffs might intervene and object."
60. Smith Stone and Knight Ltd. v. Lord Mayor Aldermen and Citizens of the City of Birmingham, [1939] 4 All E.R. 116 is a rather significant case. The factory, land and cottages where a subsidiary was operating were compulsorily acquired by the Corporation of Birmingham. Smith, Stone and Knight Ltd., the holding company, claimed compensation for the acquired property on the allegation that the subsidiary worked as one of its departments. The Corporation of Birmingham asserted that the holding company had no standing and the subsidiary alone could claim compensation. Atkinson J. repelled the assertion and held that the holding company could claim compensation, because the subsidiary was its agent in view of six circumstances : one, the profits of the subsidiary were treated as the profits of the parent; two, persons conducting the business of the subsidiary were appointed by the parent; three, the parent was the head and brain of the trading venture ; four, the parent governed the venture, decided what should be done and what capital should be embarked on the venture; five, the parent made profits by its skill and direction; six, the parent was in effectual and constant control. It seems to me that the six circumstances are capable of being subsumed in two generic categories of control and finance-cum-accountancy. Summing up at page 121, Atkinson J. said:
" Indeed, if ever one company can be said to be the agent or employee, or tool or simulacrum of another, I think the waste company was in this case a legal entity, because that is all it was. "
61. The case of Merchandise Transport Ltd. v. British Transport Commission, [1961] 3 All E.R. 495, 512 i goes a long way in support of my line of approach. There a company, who manufactured furniture and owned vans for transport of new furniture on C-licence, transferred the vans to its wholly owned subsidiary, who applied to use the vans on A-licence for transport of furniture of the parent company, and on return goods of others. On C-licence vans had to return empty. The licensing authority refused A-licence for it thought that the parent company was manipulating to gain illegitimate economic advantage for itself through the guise of its subsidiary. The appellate tribunal granted licence on the view that the two companies were different persons. Reversing the order of the tribunal, Devlin J. said:
" The fact that two persons are separate in law does not mean that one may not be under the control of the other to such an extent that together they constitute one commercial unit. It may be a case of parent and subsidiary ; or it may be a case in which one man, though nominally independent, is in truth the instrument of another; or it may be a case in which a man has simpJy put his vehicles in the name of his wife. Whenever a licensing authority is satisfied that that sort of relationship exists and that the dominant party is using it to obtain contrary to the intent of the Act an advantage which he would not otherwise get, he is entitled if not bound, to exercise his discretion so as to ensure that the scheme of the Act is complied with in the spirit as well as in the letter. "
62. Of similar nature is Chicago, Milwaukee & St. Paul Railway Company v. Minneapolis Civic & Commerce Association, 62 L. Ed. 1229. There, as the holding company controlled the composition and will of the directors of the subsidiary and its accounts and made the latter financially dependent on it, it was said :
" In such a case the courts will not permit themselves to be blinded or deceived by mere forms of law, but regardless of fictions, will deal with the substance of the transaction involved as if the corporate agency did not exist and as the justice of the case may require. "
63. In United States of America v. Reading Company, Philadelphia, 64 L. Ed. 760 it was said that " where ownership of stock is resorted to for the purpose of making it a mere agent, or instrumentality, or department of another company, the court will look through the forms to the realities of the relation between the companies as if the corporate agency did not exist, and will deal with them as the ju.stice of the case may require."
64. In John M. Taylor v. Standard Gas and Electric Company, 83 L. Ed. 669 it was said that " the doctrine of corporate entity ... will not be regarded when so to do would work fraud or injustice. "
65. An analysis of these cases and others shows that courts are willing to lift the corporate veil where it is used to defeat public convenience, to justify wrong, to protect fraud, or to defend crime (Ballantine on Corporations, 1946 edition, page 294 ; Stevens' Law of Corporations, 1949 edition, page 95; L. C. B. Gower, Modern Company Law, 2nd edition, pages 207-209). Furthermore, they are prone to cast aside the corporate mask and give recognition to the economic entity of a group of companies (L. C. B. Gower, Ibid page 208; Oleck, Modern Corporation Law, 1958 edition, vol. I, page 845).
66. Oleck has summed up the whole thing in these words :
" We may conclude that in an apparently growing number of situations the courts, in effect, mould the corporate situation to the economic fact; that the economic fact is the actual business enterprise as carried on by the component individuals, active in it; and that the entity, with its attendant consequences of a particular body of assets and operations, is then given legal attributes which would have been given to it had it been a body corporate duly and properly enfranchised by the States. "
67. In absence of legislative guidance, courts have not been able to crystallise the determinative test of one company becoming an agent or instrumentality or department of another company.
68. Having regard to the history of the holding company, its inherent dangers, precedents, text-books and the enterprise-unit context of section 398. I am led to think that the court may investigate on the application of the appellant the affairs of the company which, as already discussed, had become a mere department of the Corporation. The object of the section is to liquidate mismanagement in the " affairs " of a company. The " affairs " of the Corporation would include also the affairs of its departments or branches. If Section 398 is construed as suggested on behalf of H. D. Mundhra, then fraud, ultra vires actions and misfeasance of the board of directors of a holding company in the management of its wholly owned subsidiary would pass unexposed and uncensured, for enjoying sightless support of the majority shareholders of the holding company, they would hardly allow the holding company or the subsidiary to resort to court to hasten their doom. It is for this reason that several jurisdictions in the United States of America permit, even without a statute, shareholders of a holding company to maintain a " double derivative " suit to enforce a cause of action in favour of a subsidiary company, if the directors of both the companies have refused to institute an action in the name of either company. (Ballantine, ibid., page 350).
69. Incidentally it looks somewhat cynical that directors of the Corporation should seek to insulate their wrongs behind the company's corporate bracket which they themselves had rubbed out beyond recognition.
70. Before dealing with the facts I have to dispose of a technical argument as to the admissibility of counter-affidavits filed by H. D. Mundhra and Narendrajit Singh. According to Clauses (13) and (19) of Sub-rule (a) of Rule 11 of "The Companies (Court) Rules, 1959," an application under Sections 397, 398 and 543 (Schedule XI) shall be made by petition. Rule 21 requires every petition to be verified by an affidavit made by the petitioner or by one of the petitioners where there are more than one. Those rules were not in force at the time of the filing of the petition in this case, but the petition was supported by an affidavit. It appears from rule 34 that any person, who desires to oppose the petition, may file either the grounds of his opposition or an affidavit. He is required to give a copy of his grounds or affidavit to the petitioner. The Rules had come in force by the time of the filing of counter-affidavits. In view of rule 34, I am inclined to hold that H. D. Mundhra and Narendrajit Singh could file counter-affidavits. The counter-affidavit of Narendrajit Singh may, therefore, be treated as part of evidence. The counter-affidavit of H.D. Mundhra, however, cannot be treated as evidence of the facts stated therein ; it may be treated as a sort of written statement only. The reason is this. On April 30, 1960 the appellant moved an application in court for a direction to him to make a discovery on oath of documents relating to transactions impeached in the petition. On August 12, I960, Sri Jagdish Swarup, learned counsel for H.D. Mundhra, made a statement to the court that H.D. Mundhra had no such documents in his possession and that he was accordingly unable to make discovery on oath of such documents. On that statement the learned judge rejected the appellant's application. On December 8, 1960, the appellant applied for serving certain interrogatories on H.D. Mundhra. That application was also opposed by learned counsel for H.D. Mundhra and was eventually rejected by the court on December 14, 1960. On the same date then the appellant moved an application for being permitted to cross-examine H.D. Mundhra. On January 31, 1961, the learned judge issued a direction that H.D. Mundhra should offer himself for cross-examination and that if he failed to do so, his counter-affidavit would not be admissible in evidence. On the next date fixed for hearing of the case Sri Jagdish Swarup, learned counsel for H.D. Mundhra, made a statement to the court that H.D. Mundhra was serving a sentence of imprisonment in jail. It seems to us that this was a tenuous excuse for scrimshanking cross-examination. However that be, in view of the court's order, dated January 31, 1961, the counter-affidavit of H.D. Mundhra cannot be treated as evidence and, as I have already said, it may be treated only as a sort of written statement in the case.
71. Some time in September, 1955, Haridas Mundhra acquired 48 per cent. shareholding in the Corporation. At that time Sir Robert Menzies and W. H. J. Christie were chairman and deputy managing director of the Corporation. Amongst others, Narendrajit Singh, Hyder Husain, R. L. Powell and Rai Bahadur Ram Narain, deceased, were then directors. It appears from the report of the directors of the Corporation to the shareholders (exhibits 201 and 202) that an application had been made at least before March 13, 1956--the date on which the report was signed by the Chairman--to the Central Government for sanction to the proposal to increase the maximum number of directors of the Corporation from 10 to 12 for the purpose of electing H.D. Mundhra and T.D. Mundhra as directors of the Corporation and that that application was not pressed later when Sir Robert Menzies retired in April, 1956 ; and on April 28, 1956, H.D. Mundhra was elected a director and chairman in his place (see exhibit C-51). On July 20, 1956, his brother, T.D. Mundhra, also was elected a director (see exhibit C-53).
72. I shall now proceed to ascertain whether the appellant has made out a case for the court's interposition under Section 398. I shall first take up the transaction of purchase and subsequent sale of shares of the Samastipur Central Sugar Co. Ltd. (hereinbelow referred to as Samastipur) and of the Balrampur Sugar Co. Ltd. (hereinbelow called as Balrampur). The matter would have to be examined in three stages, namely, (1) purchase of shares, (2) agreement of sale with Jamunadas Kayan and others, and (3) sale of shares to H.D. Mundhra, Sohanlal Pachisia and Company, and Ram Narain Kayan and Company.
73. The share capital of Samastipur consists of 1,19,000 shares of the face value of Rs. 10 each. In September, 1955, the Corporation held 20,048 shares at a book value of Rs. 2,47,571 ; during the same month the company held 10,000 shares at a book value of Rs. 1,27,923. The combined shareholding of the Corporation and the company was thus just over 25 per cent, of the sham capital of Samastipur. The issued share capital of Balrampur consists of 2,80,000 fully paid-up ordinary shares of the face value of Rs. 5 each. In September, 1955, the Corporation held 38,604 shares at the book value of Rs. 3,92,528. The company was then the managing agent of Samastipur and Balrampur. It is alleged that H.D. Mundhra, with a view to make " wrongful gain " for himself at the cost of the Corporation, suggested that it should acquire controlling shareholding in Samastipur and Balrampur. At that time the Corporation and the company had no spare liquid funds in their hands to make the proposed acquisition of shares, and he gave a promise to arrange for adequate finance. He deposited Rs. 20,00,000 in an account opened in his name with the company. He purchased 54,825 Samastipur shares and passed on their share scrips to the company for being credited in his account. Then he sent to the company a bill for the price of 51,000 Samastipur shares calculated at the rate of Rs. 36 per share, although during the material time the market price of the shares was Rs. 15'75 nP. It is alleged that he had thus made a profit of Rs. 10.33 lakhs. The purchases were made between October and December, 1955. It is alleged that the shares were purchased ostensibly to secure to the company and the Corporation a 50 per cent, voting power in Samastipur, although only 30,000 shares were sufficient for that purpose. Between October and December, 1955, the company purchased through H.D. Mundhra and on his insistence 1,03,418 shares of Balrampur at an average price of Rs. 14.40 nP. per share when the market price of the share was round about Rs. 11.50 nP. per share, and it is complained that he had made wrongful gain of about Rs. 3,00,000 at the cost of the company. It is further alleged that he also made a wrongful gain when Balrampur shares were sold through him.
74. The case of H.D. Mundhra is that he did not induce the board of directors of the Corporation to purchase the shares. The board of directors itself decided to purchase the shares for securing a controlling interest in Samastipur and Balrampur and agreed to pay a fancy price for that reason. It is alleged that in or about October, 1955, Sir Robert Menzies, chairman, and W. H. J. Christie, managing director, had both asked him to assist them in securing controlling interest in the two companies. He denies that he had given any promise to finance the company but alleges that he did advance a loan of Rs. 80,00,000 to the company for making share-purchases. Shares were purchased and sold bona fide and after due consideration.
75. The case of T.D. Mundhra is one of general denial. He has also alleged that he was not a director of the Corporation at the time of the purchase of the shares.
76. According to Narendrajit Singh the purchase of shares was made by the board of directors of the company and was then reported to the board of directors of the Corporation, who gave their approval. It is also alleged that he had no reason to distrust the judgment of the board of directors of the company and the Corporation. It is also said that it was never disclosed to the board of directors of the Corporation that H.D. Mundhra had opened a personal account with the company. It is claimed that the price of the block of shares, which gives controlling interest to the purchaser, is always high and above the market price.
77. We have not been referred to any contemporaneous evidence to show that, about the time of the purchase of shares, H.D. Mundhra had made any commitment to the Corporation or the company for a loan to purchase the shares or for any other purpose. There is, however, some post-purchase evidence. In the meeting of the Corporation's board of directors on November 26, 1955, Sir Robert Menzies informed the board that in discussions with the management H.D. Mundhra had stated that he would be in a position to provide finances required for rehabilitation of capital equipment of the Corporation's branches (see exhibit 121, a minute of that meeting). A meeting of the board of directors of the company was held on December 27, 1955. It is recorded in the minute of that meeting that H.D. Mundhra had agreed to provide finances to the company as and when required (see exhibit 162). A meeting of the Corporation's board of directors was held on January 7, 1956. In that meeting Narendrajit Singh was present, and H.D. Mundhra was present on invitation. The minute of that meeting shows that H.D. Mundhra told the board that he had examined in detail the financial position and trading prospects of the Corporation and its subsidiaries and had formed the view after careful thought that the only way to restore the trading position of the Corporation was to increase production and to modernise the plant and machinery of the manufacturing units. According to him, the initial programme would cost Rs. 1.25 crores. He then stated that he would undertake to provide necessary finance. The board of directors resolved to accept in principle his proposals and his offer of a loan of Rs. 80,000,00 at 4 per cent, per annum interest in order to cover the cost of initial investment on the assurance that he would not demand payment of the loan until the Corporation had ample liquid resources (see exhibit 123).
78. Exhibit 173 is a note, dated October 18, 1955, from the treasurer of the Corporation to H.D. Mundhra regarding purchases of shares made by him. It appears from that note that diverse shares were purchased by H.D. Mundhra to the extent of Rs. 39,00,000. The note further shows that a sum of Rs. 15,33,000 was paid on his behalf to the Corporation for the said purchases. It further appears from the note that on October 6, 1955, share scrips of the value of Rs. 25,04,282.50 were transferred by him to the company. Those share scrips included Samastipur shares, 51,000 at the rate of Rs. 36 per share and 1,650 at the rate of Rs. 16 per share. The note alSo shows that he had purchased a block of 1,00,000 Balrampur shares at Rs. 14-8-0 per share from R.S. Gupta, 1,000 Balrampur shares at Rs. 11-12-0 per share from Sohan Lal Pachisia and Co., and that he transferred share scrips of 1,170 Balrampur shares at 11-12-0 per share to the company on October 6, 1955, There is a note of the treasurer at the bottom that though H.D. Mundhra had told that he would inform of the purchase rates, he had given no information till then. The note also shows that a sum of Rs. 20,00,000 was deposited on October 7, 1955, by H.D. Mundhra, in a personal account opened by him with the company. Two bills, dated October 18, 1955 (exhibits 5 and 6), were sent on behalf of H.D. Mundhra to the company ; the first bill claimed from the company payment of Rs. 6,68,282.50 as the price of 1,650 Samastipur shares at the rate of Rs. 16 each and some other shares, and the second bill claimed payment of Rs. 18,36,000 as the price of 51,000 Samastipur shares at the rate of Rs. 36 each. The total amount thus claimed was Rs. 25,04,282.50 from the company. Exhibit 4 is the company voucher, dated October 21, 1955, and signed by the assistant treasurer of the company, crediting a sum of Rs. 25,04,282.50 in the personal account of H.D. Mundhra in payment of the purchase price of Samastipur shares and other shares. Then on October 22, 1955, a meeting of the Corporation's boardof directors was held at Kanpur. In that meeting both Narendrajit Singh and Hyder Hussain were present and Hari Das Mundhra and T.D. Mundhra were present on invitation. Sir Robert Menzies, Chairman, informed the board that " since Mr. Hari Das Mundhra had acquired a controlling interest in the Corporation, he had arranged to purchase shares in the following companies so as to ensure a 50 per cent, voting control ". Samastipur and Balrampur are mentioned in the list of purchases. On receiving that information, the board " recorded its satisfaction at the prompt action taken by Mr. Mundhra in this regard" (see exhibit 119, acopy of the minute of the meeting). The board of directors of the company held their meeting on December 27, 1955. In that meeting the board sanctioned the purchase of Samastipur shares by H.D. Mundhra. It was recorded that it had been necessary to offer Rs. 36 per share for the large block of Samastipur shares. The minute also shows that the board sanctioned purchase of 200 Balrampur shares at Rs. 10 each, 3,015 Balrampur shares at Rs. 11-12-0 each and 1,00,003 Balrampur shares at Rs. 14-8-0 each.
79. It appears from a letter of Place Siddons and Gough Ltd., share-brokers in the Calcutta Stock Exchange, dated November 24, 1959 (exhibits 1 and 2), that between October 13 and 27, 1955, market rates of Samastipur shares gyrated round about Rs. 16, the minimum rate being Rs. 15.75. We have not been referred to any evidence about the market rate of Samastipur shares on or about October 6, 1955, but it may fairly be assumed that on or about that date the market price would have been similar. We are, therefore, inclined to take the view that the company had to pay a rather high price for the block of 51,000 Samastipur shares. It is to be remembered that H.D. Mundhra had purchased those shares for the company and naturally he alone had special knowledge about the exact price paid and the person from whom they were purchased. It was not possible for the Corporation and the company to discover the seller and the exact price of the shares without assistance from H.D. Mundhra. It is, therefore, rather surprising that H.D. Mundhra has made no effort to prove either by the seller's evidence or by documentary evidence the exact price paid for the shares. He has not had even the courage to submit himself to cross-examination by the appellant's counsel. He refused to make a discovery on oath of the material documents relating to the price of Samastipur shares. In these circumstances it would not be improper to assume that he had purchased Samastipur shares at a much lower rate and has made considerable unfair gain.
80. It may be observed that the shares had been purchased by H.D. Mundhra when he was only a shareholder of the Corporation, without any sanction from the board of directors either of the Corporation or of the company. The transaction of purchase was, in effect, ratified by the board of directors of the Corporation in their meeting on October 22, 1955, and by the board of directors of the company in their meeting on December 27, 1955. In neither meeting any director made any enquiry about the price of the shares and the advisability of making large purchases. It now appears that a purchase of 30,000 shares only would have sufficed to ensure a 50 per cent, voting control in Samastipur, and it was thus not necessary to purchase 51,000 shares. No evidence has been adduced to show that investments for the Corporation or the company were ever in the past made by a shareholder, but this rather extraordinary circumtance did not attract the attention of the directors in the board's meeting on October 22, and December 27, 1955.
81. For a proper appreciation of circumstances leading to the sale of Samastipur and Balrampur shares, I would at this stage set out a picture of the financial position of the Corporation and the company and their intercorporate financial dealings between October, 1955, and November, 1957. Exhibit 3 is a copy of the personal account of H.D. Mundhra with the company. It shows that on October 7, 1955, he had deposited with the company a sum of Rs. 20,00,000. Again on October 20, 1955, he had deposited with the company a sum of Rs. 2,06,488-12-0. On October 21, there is a credit entry of Rs. 25,04,282-8-0 by cost of shares. On October 22, there is a cash deposit of Rs. 10,00,000. The total credit balance in favour of H.D. Mundhra in the books of the company on October 31, 1955, was Rs. 57,02,636-14-0. It appears from exhibit 8 that on February 6, 1956, the Corporation issued cheque No. 08995 for Rs. 25,00,000 on the State Bank of India, Kanpur, for credit to the account of the company. On the same date that amount was credited by the company to the personal account of H.D. Mundhra. Exhibit 9 shows that on the same date the company issued a cheque voucher on the National Bank of India Ltd., Kanpur, for payment of Rs. 25,00,000 to the account of H.D. Mundhra with the National Bank of India Ltd., Calcutta. Exhibit 10 shows that H.D. Mundhra paid back the said sum to the company by cheque No. 7,79,051 dated February 14, 1956, on the Eastern Bank Ltd., Calcutta. Exhibit 11 shows that the company paid back the said amount to the Corporation by a cheque voucher dated March 1, 1956.
81. Coming back to exhibit 3, it appears that on October 31, 1956, the credit balunce of H.D. Mundhra with the company was Rs. 70,48,170-7-0. This was the biggest credit amount, and thereafter H.D. Mundhra started withdrawing heavy amounts. Consequently, on March 1, 1957, his credit balance with the company was reduced to Rs. 24,74,132-9-6. On May 21, 1957, it was reduced to a tiny figure of Rs. 2,53,382-60 nP. On October 31, 1957, it tapered off to Rs. 2,42,111-89 nP.
82. These figures suggest two inferences. Firstly, H.D. Mundhra had utilised Rs. 25,00,000 of the Corporation for a short term for his personal benefit without paying any interest therefor to the Corporation. He had thus clearly acted to the prejudice of the interests of the Corporation. Secondly, although it appears that he had given an understanding to the Corporation and the company that he would give them necessary financial assistance for their rehabilitation and investments, we find that he advanced loans in the beginning but later successively withdrew heavy amounts and reduced his credit balance to a small figure of about Rs. 2.50 lakhs. The result was that the Corporation and the company, who had made heavy investments in shares in the end of 1955 on the faith of his assurance, found themselves tripped in financial crisis. The crisis was, as we have shown, tided over by the funds of the Corporation which involved the Corporation in acute financial stringency. It appears from exhibit 250 that on March 9, 1956, the company owed to the Corporation Rs. 19,49,000 and to H.D. Mundhra Rs. 68,26,145-12-6. Exhibit 253 would show that about eleven months thereafter on February 6, 1957, the Corporation loan to the company swelled to Rs. 44,74,236 and the loan of H.D. Mundhra subsided to Rs. 35,79,653. Two months thereafter on April 2, 1957, the Corporation loan registered a further rise to Rs. 47,72,222 and the loan of H.D. Mundhra further fell down to Rs. 20,00,775 (see exhibit 254). On July 2, 1957, the Corporation loan further rose to Rs. 52,15,000 and the loan of H.D. Mundhra shrunk to a paltry sura of Rs. 1,05,407 (see exhibit 255). On August 27, 1957, the Corporation loan stood at Rs. 39,11,524 and that of H.D. Mundhra further fell down to Rs. 99,566 (see exhibit 256).
83. On August 9, 1955, the debit balance of the Corporation stood at Rs. 3,86,94,245 with the State Bank of India, Kanpur; on September 20, 1955, it rose to Rs. 4,11,92,296 (see exhibit C-50). On March 24, 1956, it was Rs. 4,34,03,000 ; on April 20, 1956, it stood at Rs. 4,33,48,000 (see exhibit 127). The rise in debit balance was brought to the notice of the board of directors by the managing director on April 28, 1956. He reported that " the financial position of the Corporation continued to be very difficult. The position had been held practically unchanged since the last meeting, only by arranging for the postponement of certain payments." (see exhibit C-52). On February 4, 1957, the debit balance fell down to Rs. 374-98 lakhs but on March 20, it again rose to 436.74 lakhs.
84. The above figures would show that the drain of the Corporation's liquid funds to the company and its overdrafts from the State Bank of India were rising in inverse proportion to the shrinking of H.D. Mundhra's loans to the company. It is indeed surprising that the attention of the directors of the Corporation was never pointedly drawn to this tragic situation by the management of the Corporation. We are constrained to hold that the troubles of the Corporation were aggravated by H.D. Mundhra's failure to fulfil his mellifluous assurance of financing the company.
85. I shall now deal with the agreement of sale in respect of Samastipur and Balrampur shares with Jamunadas Kayan and others and subsequent breach of that agreement by them. The case of the appellant is: On March 2, 1957, the board of directors of the Corporation, at the instance of H.D. Mundhra, accepted the offer for sale of 70,000 ordinary shares of Samastipur at Rs. 26 per share and of 14,837 ordinary shares of Samastipur at Rs. 15 per share and of Balrampur share to a group of purchasers consisting of Jamunadas Kayan, Hari Das Mundhra and certain other persons. Hari Das Mundhra had 50 per cent, interest therein. It is alleged that that offer was accepted in preference to a better offer from one Jhnnjhunwala. H.D. Mundhra, by his letter dated March 4, 1957, to the company, authorised it to debit in his account a sum of Rs. 23,00,000 in part-payment of the total price of shares. Later H.D. Mundhra and the members of his group backed out and did not perform their part of the bargain. They did not pay the price and take delivery of the shares but the board of directors of the Corporation took no steps to enforce the contract or to claim damages for breach of contract.
86. The case of H.D. Mundhra is : It is denied that the offer was accepted at his instance. It is alleged that Jhunjhunwala's offer was not a cash offer and the company needed cash at that time. He admits in his letter, dated March 4, 1957, and alleges that neither the Corporation nor the company took any steps to secure the implementation of the agreement.
87. The case of Narendrajit Singh is: the offer of Jhunjhunwala was rejected in good faith and in the interest of the Corporation. He admits that H.D. Mundhra had by his letter, dated March 4, 1957, to the company authorised the debiting of Rs. 23,00,000 to his account as part payment of the purchase price but alleges that no steps to enforce the contract or claim damages for breach of contract were taken by the board of directors, for the managing directors thought that they would be able to secure better price.
88. In the meeting of the Corporation's board of directors on November 24, 1956, in which Narendrajit Singh and Hyder Hussain were present, the board resolved to sell immediately 20,048 ordinary shares of Samastipur and 38,604 Balrampur shares " in order immediately to relieve the Corporation's extremely difficult liquid position" (see exhibit 128). In the next meeting of the board of directors on February 9, 1957, in which H.D. Mundhra, Narendrajit Singh and Hyder Hussain were present, the board resolved to sell shares " in order to release the finance required for the operation of the four branches ". It authorised H.D. Mundhra and the management to negotiate sale of 64,825 Samastipur shares of the company and 28,048 Samastipur shares of the Corporation (see exhibit 129). Another meeting of the board of directors was held on February 16, 1957. Narendrajit Singh was present in this meeting. Sri Christie, managing director, informed the board that H.D. Mundhra had been negotiating for the sale of Samastipur shares. He also told the directors that one condition of sale would be the relinquishment of managing agency without compensation to the prospective purchaser. The board took no exception to this condition and resolved that 70,000 or more Samastipur shares should be sold at Rs. 30 per share subject to the purchaser paying to the company Rs. 13,00,000, which were due to it by Samastipur. The board also authorised negotiations for sale of 1,43,000 Balrampur shares at Rs, 10 each (see exhibit 130). On February 28, 1957, the board of directors of the company met and approved the negotiations for sale on the following conditions:
(1) Sale of 64,825 Samastipur shares of the company at Rs. 30 per share.
(2) Payment by the purchaser to the company of its short loan of Rs. 10,00,000 due by Samastipur along with the price of shares sold.
(3) Relinquishment by the company of managing agency of Samastipur without compensation to the purchaser (see exhibit 164). The company also authorised sale of 1,03,418 Balrampur shares at Rs. 12-8-0.
89. A meeting of the board of directors of the Corporation was then held On March 2, 1957. H.D. Mundhra and Narendrajit Singh were present in that meeting. The former informed the board that a group of buyers was ready and willing to purchase 70,000 Samastipur shares and 1,43,000 Balrampur shares at Rs. 26 and Rs. 15 per share respectively. He disclosed that the group of buyers consisted of Jumnadas Kayan of M/s. Ram Narain Kayan & Co., Matadin, Khetan of Hind Sugar Co., Sheo Chand Dabriwala of Hind Sugar Co. and H.D. Mundhra. He said that he had 50 per cent, interest in the group and as such he should be deemed to be interested in the transaction. He then disclosed the terms of the group's offer. Sri Christie informed the board that Jhunjhunwala was willing to buy 1,53,000 Balrampur shares at Rs. 15 per share but was not willing to purchase Samastipur shares. The Board resolved that Balrampur and Samastipur shares should be sold together in view of the urgent need for cash. It appears that while the board was meeting, Jhunjhunwala made an alternative offer of purchasing 1,43,000 Balrampur shares at Rs, 20 each or of purchasing 1,43,000 Balrampur shares at Rs. 18 each and 60,000 Samastipur shares at Rs. 35 each, the aggregate price being payable in three years. This offer was not accepted on the ground that there was immediate need for cash. The board resolved to accept the offer of the group on the following terms :
(1) Purchase by the group of 1,43,000 Balrampur shares at Rs. 15 each and 70,000 Samastipur shares at Rs. 26 each.
(2) Payment of sale consideration to be received in cash on presentation of share scrips and completed transfer deeds in the first week of March, 1957.
(3) Purchase by the group of 14,873 Samastipur shares at Rs. 15 each, price to be paid at the time of relinquishment of the managing agency by the company to the purchaser.
(4) Payment by the purchaser of short loans advanced by the company to Balrampur and Samastipur companies, amounting then to Rs. 6,00,000 and Rs. 8,00,000 respectively, at the time of handing over of the share scrips.
90. H.D. Mundhra accepted those terms on behalf of the group, and the board resolved that the managing director should negotiate and accept the group's offer for and on behalf of the Corporation (see exhibit 131). A meeting of the board of directors of the company also was held on March 2, 1957. The board adopted a resolution on the lines of the Corporation's resolution on the same date (see exhibit 165). On the same date the company received an epistolary offer from Jumnadas Kayan to buy Balram-pur and Samastipur shares on the aforesaid terms (see exhibit 190). On the letter there is an endorsement of acceptance of the offer by Sri Powell. Thus on March 2, 1957, there was a concluded contract between the Corporation and the group. On March 4, 1957, H.D. Mundhra sent a letter to the company authorising it to debit his account by Rs. 23,00,000 as part payment of the price payable by the group in terms of the agreement dated March 2, 1957 (see exhibit 191). In its meeting on March 23, 1957, the Corporation's board of directors--H.D. Mundhra, Narendrajit Singh and Hyder Hussain being present--discussed "the present very serious financial position " of the Corporation. H.D. Mundhra then informed the board that Jumnadas Kayan could not take up shares within the stipulated time and that he hoped that the transaction would be completed by the end of March (see exhibit 132). The board again met on April 27, 1957. H.D. Mundhra, T.D. Mundhra, Narendrajit Singh and Hyder Hussain were present in the meeting. H.D. Mundhra informed the board that he had given a notice to the group that if they did not take up Balrampur and Samastipur shares within fifteen days the Corporation would not be bound to sell those shares to them (see exhibit 143). Again the board met on May 18, 1957, H.D. Mundhra, T.D. Mundhra and Narendrajit Singh were present in that meeting. H.D. Mundhra reported that he had received no reply to his notice from the group and that the Corporation was free to dispose of its shares to anyone else. The board felt that it was " imperative to sell and realise cash for those investments before June 22, 1957" in view of urgent necessity to realise sufficient finance to meet the immediate requirements of the Corporation and in addition to pay about Rs. 19,00,000 as dividends which were likely to be declared in the annual general meeting of the Corporation's shareholders on June 22, 1957 (see exhibit 134). It resolved that the management be authorised immediately to take steps to find a buyer for those shares. The board of directors then met on June 5, 1957. T.D. Mundhra and Narendrajit Singh were present. It was recorded that Jumnadas Kayan had sent a letter "confirming his approval to the cancellation of the sale agreement " dated March 2, 1957. Sri Powell then informed that the management were trying to find another buyer (see exhibit 135). On July 26, 1957, the company's board of directors assembled and were informed of the letter of Jumnadas Kayan cancelling the agreement of sale of shares dated March 2, 1957.
91. The first thing that strikes the readers of the aforesaid documents is that the Corporation was constrained to sell its shareholding in Balrampur and Samastipur Companies on account of acute financial scarcity. The Corporation could not retain the shares, which were purchased a year ago with the avowed object of acquiring controlling interest in the two companies, on account of financial scarcity artificially created by H.D. Mundhra. Notwithstanding that the company had received a letter from H.D. Mundhra on March 4, 1957, for debiting his account with a sum of Rs. 23,00,000 in part-payment of the purchase price payable by the group, the company's executive did not debit that amount in his account. The letter was never placed before the board of directors of either the Corporation or the company. H.D. Mundhra, as a member of the group, was jointly and severally liable for breach of contract. Outside the board he was collectively destroying the contract; inside the board he was putting up a pretence of enforcing the contract. He could not serve both himself and the Corporation. There was clear conflict between two adversary loyalties --loyalty to his self and loyalty to the Corporation. Instead of retreating with honour from discussions inside the board, he was there casuistically making his peace with the warring loyalties.
92. We now pass on to the eventual sale of Samastipur and Balrampur shares. The case of the appellant is : A block of Samastipur shares was sold to H.D. Mundhra himself at Rs. 9 per share and another block of shares was sold to Ram Narain Kayan & Co. at Rs. 19 per share. It is alleged that on the basis of the book value of the shares there was a loss of about Rs. 10,26,559. The case of H.D. Mundhra is : He admits sale of a block of shares to himself, but he alleges that he had no interest in Ram Narain Kayan & Co. It is also alleged that shares, which were sold to him, were taken back by the Corporation without paying interest on the purchase price as agreed. It is asserted that the Corporation did not suffer any loss from the sale. The case of Narendrajit Singh is : Shares were sold bona fide at the best available price after due consideration. The Corporation made a profit on the transaction. The company no doubt suffered loss in the sale of Samastipur shares but made profit in the sale of Balrampur shares. It is alleged that the market price of Samastipur shares was Rs. 9.75 when they were sold for Rs. 19.
93. On July 12, 1957, a meeting of the Corporation's board of directors was held. Sri Christie, managing director, reported that in the opinion of the Corporation broker, Balrampur shares could be sold roundabout Rs. 21 per share. H.D. Mundhra tried to make out a case against sale of the shares. In his opinion there was no necessity to make a " forced sale " of the shares (see exhibit 138).
94. It appears from exhibit 166, a copy of the minutes of the meeting of the company's board of directors held on July 26, 1957, that the board under the chairmanship of Sri Christie "confirmed and approved the sale of 24,000 Samastipur shares and 2,000 Balrampur shares owned by it at Rs. 9 and Rs. 5 per share respectively under arrangement made by H. D, Mundhra". Sri Christie said that H.D. Mundhra had agreed to sign an undertaking that the company could purchase the said shares from him within two years at Rs. 9 and Rs. 5 per share on payment of interest on the purchase price paid by him at 5 per cent, per annum. Although the board, as already stated, had resolved to sell 24,000 Samastipur shares to H.D. Mundhra, it appears from exhibit 47 that on July 31, 1957, 18;000 Samastipur shares were sold eo nomine to Ram Narain Kayan & Co. at Rs. 9 per share and 1,500 Balrampur shares were sold to H, D. Mundhra at Rs. 5 per share. It may be observed that this document seems to be apparently inconsistent with the admission of H.D. Mundhra in his pleading that a block of Samastipur shares were sold to him. It appears from documents, exhibits C-71 and C-73, that during October and November, 1957, the question of sale of Samastipur and Balrampur shares was being considered by an assets committee of the directors of the Corporation. It appears from -exhibit C-73, a copy of the minutes of the meeting of the assets committee on November 21, 1957 (Narendrajit Singh was not present in the meeting), that the committee considered the offer of Ram Narain Kayan & Co. to purchase 60,000 Samastipur shares at Rs. 19 per share provided the company agreed to relinquish without compensation its managing agency of the Samastipur company. The committee felt, it seems, that the price offered was not satisfactory but decided to sell 60,000 Samastipur shares at Rs. 19 per share and 6,873 Samastipur shares at Rs. 11 per share along with relinquishment of the managing agency of the company on account of " urgent need for realisation of Corporation's investments ". A meeting of the Corporation's board of directors was then held on November 30, 1957. H.D. Mundhra, Narendrajit Singh and Hyder Hussain were present. The board confirmed the aforesaid decision of the assets committee (see exhibit 144). Then on December 3, 1957, there was a meeting of the board of directors of the company. It appears that before December 3, 1957, 20,048 Samastipur shares of the Corporation had been sold at Rs. 19 per share and the company's holding of 39,952 and 6,873 Samastipur shares had been sold at Rs. 19 and Rs. 11 per share respectively, along with the promise to relinquish managing agency without compensation. The company's board of directors in its meeting on December 3, 1957, therefore, confirmed the sale of Samastipur shares in favour of Ram Narain Kayan & Co. It appears that on February 1, 1958, the company relinquished its managing agency of the Samastipur shares in favour of Ram Narain Kayan & Co. (see exhibit 168).
95. Exhibit C-69 is a copy of the minutes of the meeting of the assets committee of the Corporation held on October 21, 1957. In that meeting H.D. Mundhra and Narendrajit Singh were present. H.D. Mundhra was authorised to accept the offer of Sohanlal Pachisia & Co. for purchase of Balrampur shares at Rs. 16 or better per share. In its meeting on Octobci 25, 1957, the Assets Committee confirmed the offer of Sohanlal Pachisia & Co. to purchase Balrampur shares at Rs. 16.25 nP. per share (see exhibit C-71). The Corporation's board of directors then met on October 26, 1957. Hari Das Mundhra, Tulsi Das Mundhra, Narendrajit Singh and Hyder Hussain were present in that meeting. Sri Christie, managing director, reported that Sohanlal Pachisia & Co. would purchase the entire shareholding of 1,40,522 Balrampur shares, belonging to the Corporation and the company at Rs. 16'25 nP. per share on condition of relinquishment of the managing agency of Balrampur. It appears that the Corporation and the company then held 38,604 and 1,01,918 shares respectively. The board of directors approved and confirmed the sale (see exhibit 141). It appears from exhibit 2 that the market rate of Balrampur shares varied between Rs. 5.37 nP. and Rs. 6.70 nP. per share between October 25 and 31, 1957.
96. It appears from the minutes of the meeting of the Corporation's board of directors, dated November 30, 1957 (exhibit 144) that the book value of the Corporation's Samastipur shares was Rs. 12-6-0 per share. On the sale of 20,048 shares at Rs. 19 each the Corporation thus made a profit of Rs. 1,33,341. From the same document it appears that the book value of the company's Samastipur shares was Rs. 39-12-0 per share. On the sale of its 46,825 Samastipur shares at the rate of Rs. 19 and Rs. 11 per share there was a loss of Rs. 10,26,559. It also lost for a song the managing agency of the Samastipur company.
97. It appears from exhibit 34, journal voucher of the company, that the company had paid Rs. 15,00,324'31 nP. and had received Rs. 16,56,167'50 nP. on 1,01,918 Balrampur shares. But it should be remembered that it had lost the managing agency of the Balrampur company. It appears from the balance-sheet of the Balrampur Co. for 1956, that the company received Rs. 31,885 as remuneration for the managing agency. Exhibit 258 is a chart of the investments of the Corporation. It shows that the Corporation purchased 38,604 shares for Rs. 3,92,527.81 nP.; it sold them for Rs. 6,27,315. There was thus a profit of Rs. 2,34,787-19 nP.
98. I would now take up the case of the Kanpur Cotton Mills. The appellant alleges that the mill had been operating at a loss for some time past, that Sri Christie and Sri Powell negotiated seme time in 1957 for its sale for Rs. 52,00,000 approximately to Roop Narain Ram Chandra (P.) Ltd. H.D. Mundhra persuaded the Corporation not to accept that offer for it was against its interest. Thus a certain buyer was lost and the Corporation suffered great loss in operating the mill. It is further alleged that no better offer could have been obtained and that although H.D. Mundhra was initially in favour of accepting the o0er, he subsequently persuaded the Corporation's board of directors to drop the idea of selling the mill by making wrong statements.
99. The case of H.D. Mundhra is that Roop Narain Ram Chandra (P.) Ltd. were indebted to the Corporation to the tune of Rs. 30,00,000 as selling agents of the Kanpur Cotton Mills, Kanpur Textiles Ltd. and Elgin Mills Co. Ltd., that their financial condition was not sound, and that their offer was, therefore, not accepted. It is further alleged that he did not induce the board of directors to drop the idea of sale by making any wrong statements or by drawing a glamorous picture of things. The case of Narendrajit Singh is that the offer of Roop Narain Ram Chandra (P.) Ltd. was rejected in good faith and after giving proper consideration to the pros and cons of the matter.
100. Exhibit 143 is a copy of the minutes of the meeting of the Corporation's board of directors held on April 27, 1957. It shows that Sri Powell informed the board of the loss of about Rs. 1,00,00,000 suffered by the Kanpur Cotton Mills during the preceding five years on account of surplus labour, old machinery and want of rationalisation. He also drew attention to the accumulation of huge unsold stocks of manufactured goods and characterised the mill as a " dead-weight " on the Corporation. H.D. Mundhra, Narendrajit Singh and Hyder Hussain were present in the meeting. H.D. Mundhra did not differ with the view of Sri Powell and expressed the belief that there was no alternative but to close down the mills. He told the board that efforts to salvage the mill had met with failure. Thereupon the board resolved that the management should issue a notice giving information to the employees of the mills that it would be closed from May 12, 1957. A meeting of the board of directors was then held on May 7, 1957. In the meeting H.D. Mundhra, Tulsi Das Mundhra and Hyder Hussain were present. It was reported that labour and Government were both opposed to the closure of the mill. The board was informed that there was apprehension that, if the mills were closed, the Government might appoint an authorised controller not only over the mills but also over the Corporation. Sri Powell and Sri Hill expressed the view that the mills could not be worked at profit. H.D. Mundhra agreed with their view.
The board then resolved that effort should be made to find out a buyer for the mills. The board also resolved that the date of the closure of the mills should be extended to June 16, 1957 (see exhibit 133). The board again met on May 18, 1957. H.D. Mundhra, T.D. Mundhra and Narendrajit Singh were present in the meeting. R. B. Ram Narain expressed himself in favour of selling the mills. H.D. Mundhra agreed with him but drew attention of the board to some bright features and the need of securing the goodwill and co-operation of the Central and the State Governments. Eventually he, however, expressed the view that" the best course would be to sell the branch forthwith if that proved possible ". The management then informed the board that the mills had sufficient stock of cotton to last for approximately six weeks. The board then resolved that no further purchase of cotton should be made for the present and that they should meet again some time in early June to reconsider the entire position (see exhibit 134). The board again met on June 5, 1957. T.D. Mundhra and Narendrajit Singh were present in the meeting. The board considered the offer of Roop Narain Ram Chandra (P.) Ltd. for buying the mills. It also considered the financial condition of the mills. It appears from discussion in the meeting that it was not feasible to close the mills and that, therefore, there were only two courses open to the board, either to operate the mills or to sell it. It appears further from the discussion that the mills could not be operated without considerable financial assistance which was then uncertain, though efforts were being made to obtain a loan from the National Industrial Development Corporation. The board, on a consideration of all the circumstances, authorised the management to negotiate with Roop Narain Ram Chandra (P.) Ltd. for sale of the mills (see exhibit 135). The board again met on June 12, 1957. Narendrajit Singh was present in the meeting. In this meeting a modified better offer by Roop Narain Ram Chandra (P.) Ltd. for purchase of the mills was considered by the board. Sri Christie informed that H, D. Mundhra had expressed interest in the offer and was of opinion that negotiations should go on for obtaining reasonable terms. The board did not take any firm decision and resolved to meet again on July 10, 1957. It was decided that closure notice should be extended to July 27, 1957 (see exhibit 136). The board again met on July 12, 1957. In this meeting H.D. Mundhra, Narendrajit Singh and Hyder Hussain were present. Sri Christie reported to the board terms of a draft agreement of sale between Roop Narain Ram Chandra (P.) Ltd. and the Corporation prepared by their legal advisers.
101. The essential terms were that the buyer would purchase the fixed assets of the mills for Rs. 35,00,000, that he would pay Rs. 10,00,000 as earnest money on execution of the agreement of sale, that the balance price of Rs. 25,00,000 would be paid in equal instalments in three years with interest at the rate of 6 per cent per annum, that the buyer would also pay Rs. 11.76 lakhs for the new machinery already purchased and paid for by the Corporation within two months of the date of the sale deed, that the buyer would also pay Rs. 5.42 lakhs for new machinery purchased and not paid for by the Corporation, that within one month of the execution of the agreement of sale the buyer would reduce the outstandings due by it as selling agents of the Mills, the Elgin Mills Co. Ltd., and the Kanpur Textiles Ltd., from approximately Rs. 29 lakhs to Rs. 7'50 lakhs, that thereafter a sale deed would be executed and simultaneously a mortgage deed mortgaging fixed assets of the mills in favour of the Corporation would be executed by the buyer, that on execution of the sale deed the buyer would pay in cash 75 per cent, of the value of the stocks of cloth, yarn and cotton held by the mills, that the balance of 25 per cent, value would be paid within two months of the date of the sale deed, and that thereupon the buyer would be entitled to get possession of the mills. H.D. Mundhra expressed the view that the buyer would obtain the mills " at too cheap a price ". He believed that he could without any difficulty make arrangements for another similar or even better offer from another party " almost immediately ". He drew attention of the board to the fact that Roop Narain Ram Chandra (P.) Ltd. had not reduced their outstandings. He also mentioned that in his high level discussions with the Government of India he had indicated that the Corporation would be able to continue to operate the mills if financial assistance were received. Sri Christie placed the other side of the picture. According to him, although the offer was not in all respects satisfactory, it was the only offer till then received. He said that, if the offer were accepted, it would benefit the Corporation which was then in difficult financial position. He reminded the board of the loss suffered by the mills for the last six years and said that cotton stocks of the mills were very low. If the mills were to continue to operate, cotton would have to be bought immediately at the prevailing uneconomic prices. It was estimated that if the mills continued to operate, the loss for 1957 would be near about Rs. 21'25 lakhs. In the view of Sri Christie, even after installation of new machinery, the mills would not be able to work at profit. He said that if the offer were accepted, the Corporation would immediately receive cash to the extent of Rs. 75,00,000 by sale of unsold stocks and reduction of debts due by the purchaser as selling agents. According to him the financial gain to the Corporation would thus be very great. It would enable the Corporation to allot more working capital to its other branches. There was then discussion in the meeting. R.B. Ram Narain and Sri Hill supported Sri Christie, whereas Hari Das Mundhra and Hyder Hussain expressed their views in favour of rejecting the offer, Ultimately, it was decided to defer final decision till July 20, 1957, as Hari Das Mundhra stated that he would have no difficulty in finding an equivalent offer from another party within that time (see exhibit 137).
102. The board then met on July 20, 1957. Narendrajit Singh and Hyder Hussain were present in the meeting. Sri Christie reported that Hari Das Mundhra had informed him that he had given an undertaking to Sri Morarji Desai, Minister of Commerce and Industries, Government of India, that the Corporation would operate the mills if it were promised financial assistance by the National Industrial Development Corporation. He reported that Hari Das Mundhra had strongly recommended that the mills should not be sold at that juncture. Sri Christie further reported that on July 14, 1957, he had further discussion with Hari Das Mundhra in the presence of Rai Bahadur Ram Narain and Narendrajit Singh. Hari Das Mundhra had then said that he would be able to make arrangement for sale of unsold stocks of cloth and yarn to the extent of Rs. 50 lakhs by the end of August, 1957. Sri Christie then disclosed that on the night of July 19 Hari Das Mundhra had informed him on telephone that telegrams by Mam'kchand Bagri and Dwarkadas Gokulchand Morarka had already been despatched to the Corporation for purchasing unsold stock of cloth and yarn of the mills to the extent of Rs. 25 lakhs each before the end of 1957.
103. Sri Hill then reported to the board the result of his discussion with the Loan Advisory Committee of the National Industrial Development Corporation in Bombay on July 18, 1957. He said that his impression was that if the board decided to continue to operate the mills, the committee might be able to give a loan of Rs, 65 to Rs. 75 lakhs.
104. The board then resolved to drop negotiations for the sale of the mills with Roop Narain Ram Chandra (P.) Limited (see exhibit 139).
105. The foregoing review shows that the management and the board of directors of the Corporation had reposed great trust in Hari Das Mundhra. Events have proved that that much trust was unwarranted. Hari Das Mundhra possessed a restive mind and a winsome voice ; he was clever and ambitious. His qualities confounded the directors and his foibles trapped the Corporation into a terrible depression. Through him it bought high and sold low its shareholdings. For him it starved its business by diverting enormous sums to the company to cushion up unwieldy investments. In the end, in panic it unloaded large shareholdings at forced prices and relinquished without compensation the managing agency of the company in Samastipur and Balrampur to tide over the deepening monetary crisis. Money was advanced to Hari Das Mundhra as a short-term loan presumably without interest although the company had to pay interest on his advances. Rs, 23 lakhs were not debited from his account in spite of his letter of authority. This resume is sufficient to show that the affairs of the Corporation were being conducted in a manner prejudicial to its interests. Removal of the directors is therefore just and proper.
106. It is now necessary to determine whether Hari Das Mundhra, T.D. Mundhra, Hyder Hussain and Narendrajit Singh are guilty of misfeasance or breach of trust and are liable to make good the resulting loss to the Corporation.
107. A director is in the position of an agent of the company, charged with the obligation of carrying on its business. The nature of his duties is determined partly by statute and partly by the law of agency. As agent he owes two duties to the company--the duty of loyalty and the duty of care. Breach of these duties, speaking generally, amounts to breach of trust and misfeasance.
108. Varying fact-situations elude exact standardisation of either duty. But it seems to be fairly certain that he must be loyal to the company in fact and in appearance. He should not feed his or third persons' interests at the expense of the company. There must never be a clash between his interests and the interests of the company. One application of these broad rules is to be found in the area of company-contracts. Section 299 obligates him to disclose his interest or concern in any contract with the company. Section 300 enjoins him from participating in the discussion of, or voting on, such contract. His presence in the directors' meeting is not counted for forming a quorum, and his vote is declared void. The section casts the injunctive net widely so as to drag in all phases of a contract, its formation, rescission and performance. Equity also would not permit him to jaundice the judgment of his co-directors with his self-interest if and when they are called upon to decide whether the company should conclude, rescind or enforce a contract in which he is interested or concerned. It is by working out the rule of loyalty in various spheres that the courts of equity " have raised the level of business honour, and kept awake a conscience that might otherwise have slumbered" (see Cordozo : Growth of the Law, page 96).
109. On the duty of care guide-lines are rougher still. Some cases require a lower degree of care ; others exact a higher standard. The test of a reasonable and prudent businessman affords a safer guide when applied to the circumstances of each particular case. One should however make due allowance for the knowledge and experience of a director. It may not be unpardonable for him occasionally to rely on the proven honesty, judgment and experience of his colleagues, for team-work postulates mutual trust and confidence. The somewhat speculative nature of all enterprise warrants due freedom to take risks and a bold discretion in a trying emergency. No business can be carried on with success by timid and overcautious businessmen. A director would therefore not be liable for mere errors of judgment or imprudent action.
110. A director would not be liable for the misconduct of another director unless he has joined with him in the perpetration of the wrong or has omitted to thwart the wrong due to his negligence.
111. The test of negligence is not the post-event detached mind but the mind of the reasonable businessman in the heat of the moment.
112. In the light of considerations already discussed, I shall now examine whether the four directors, H, D. Mundhra, T.D. Mundhra, Hyder Hussain and Narendrajit Singh, are guilty of misfeasance or breach of trust, and, if so, what relief should be granted against them.
113. It is said that they were grossly negligent in ratifying mechanically the purchases of shares by H.D. Mundhra at very high prices in the meeting of the board of directors, dated October 22, 1955. I have already held that H.D. Mundhra had made considerable gain for himself in the purchase of Samastipur shares. But he and his brother, T.D. Mundhra, would escape liability under Section 543, for then they were not directors. It may be that H.D. Mundhra may be liable to compensate in the capacity of a controlling shareholder or as an agent in an action as to which I express no opinion.
114. Hyder Hussain and Narendrajit Singh are not liable for the breach of trust committed by H.D. Mundhra. It is difficult to say that they were negligent. No doubt they made no enquiries about the nature and the rates of the purchased shares, but on those matters they could trust the judgment of their colleagues, especially of Sir Robert Menzies, chairman and managing director, and Sri Christie, deputy managing director. It is not proved that they and the managing director and the deputy managing director were in collusion with H.D. Mundhra, nor it is shown that the managing director and deputy managing director were not dependable persons. Further, at that stage suspicion could not also hover round H.D. Mundhra, and Hyder Hussain and Narendrajit Singh might have trusted him in view of his greater interest as a controlling shareholder in the Corporation's well-being.
115. The said directors are sought to be made liable in connection with the agreement of sale for Samastipur and Balrampur shares with Jamunadas Kayan and his associates.
116. It may be recalled that H. D, Mundhra was an associate of Jamunadas Kayan in the agreement to the extent of 50 per cent. They failed to purchase shares and committed breach of contract. H.D. Mundhra became jointly and severally liable to the Corporation for loss occasioned by their breach. He was, therefore, prima facie, interested in the question of performance of his obligations arising out of the contract. He could not accordingly take part in discussions of, and vote on, that question in the meetings of the board of directors nor should he have tackled that question even otherwise. Equity and good conscience dictated an attitude of complete aloofness and non-intervention. But his attitude was diametrically opposite. In the meeting of the board of directors on April 27, 1957, (exhibit 143) he acted as chairman and reported that "he had caused a notice to be issued to the proposed purchasers " to purchase the shares within fifteen days of the issue of the notice failing which any legal obligation of the Corporation to sell the shares to them would be extinguished. He suggested* that if shares were not purchased within the said period, " the Corporation would be free to dispose of the investments " to other parties. It may be observed that he did not cause to be written in the notice that Jamunadas Kayan and his associates would be liable for any loss arising to the Corporation on subsequent sale to others, nor did he suggest that idea to his colleagues, obviously because he was interested in the affair. In the next meeting on May 18, 1957 (exhibit 134) he again presided and reported that Jamunadas Kayan and his associates had not replied to the notice and suggested that " the Corporation was, therefore, free to dispose of the shares " to other parties. The minute then records that " the board resolved that the management be authorised immediately to take steps to find a buyer for those shares ". Once again he did not suggest to his colleagues the idea of claiming loss, if any, from subsequent sale. In the board meeting on June 5, 1957 (exhibit 135), he was not present. It was recorded that Jamunadas Kayan had sent a letter " confirming his approval to the cancellation of the sale agreements of 2nd March, 1957. " Sri Powell then informed that the management were trying to find out another buyer.
117. The conduct of Hari Das Mundhra in this affair is clearly in breach of his duty of loyalty to the Corporation. To safeguard his interest he persuaded the directors to rescind the contract. He has thus committed breach of trust and is liable to compensate the Corporation for the loss caused by his misconduct.
118. Jamunadas Kayan and his group had agreed to purchase Samastipur shares, 70,000 at Rs. 26 per share, and 14,873 at Rs. 15 per share. Eventually 18,000 shares were sold at Rs. 9 per share; 60,000 shares at Rs. 19 per share and 6,873 shares at Rs. 11 per share. The difference between the aggregate price payable by Jamunadas Kayan and his group and the price actually received on subsequent sales is Rs. 6,65,492. Hari Das Mundhra is liable to make up that loss.
119. I am not satisfied that the other directors are also liable. There is no evidence to prove that they were participants in the misconduct of Hari Das Mundhra. Suspicion may inevitably arise against Tulsidas Mundhra, his brother, but suspicion is not proof. Did they fail in the duty of care then ? Would a reasonable businessman act in a different manner ? There is little satisfactory evidence to answer these questions in the affirmative. They might have agreed to the proposal of finding a new buyer in the hope of securing a better or at least similar bargain. There is no evidence that during the material time the rates of Samastipur and Balrampur shares were lower than the rates settled with Jamunadas Kayan ; far less there is evidence to show that they were cognisant of the lower rates. If the possibility of striking a new fair bargain cannot be ruled out, then it' seems to me that a reasonable businessman would like to explore a new bargain rather than court litigation. Businessmen as a rule fight shy of exposing their internal affairs to the court's gaze. On May 18, 1957, the board finally resolved to find a new buyer, and on May 21, the balance in the account of Hari Das Mundhra with the company was a little less than Rs. 3 lakhs. The directors could not expect to be compensated from that account.
120. For the reasons already stated, I am not satisfied that the appellant has discharged the burden of showing that they were not as careful as a reasonable businessman would have been.
121. I would not, therefore, hold them guilty of breach of trust or misfeasance.
122. It may be recalled here that Sri Christie and Sri Powell, who behaved no better than they, are not pursued in the proceeding.
123. In the matter of the sale of Kanpur Cotton Mills, I am of opinion that none of the directors is liable for any loss. They were called upon to make a choice between sale and retention of the mills. Sale meant permanently cutting off a limb from the body of the Corporation ; retention meant loss. The choice was obviously of the nature of a dilemma. On the report of Hill that the National Industrial Development Corporation might give a loan of Rs. 65 lakhs to Rs. 75 lakhs if the mills were operated, they took the risk of retaining the mills. They may be accused of an error of judgment or imprudence, but that would not be misfeasance. At any rate I find it difficult to hold that a reasonable businessman in that situation would have taken a decision in favour of sale. Indeed the probability is that he might have opted for the retention of the mills.
124. As each case is to be decided on its own facts, I do not think it would be useful to discuss in any detail the cases cited at the bar (In the matter of Indo-Burma Industries Limited, [1957] 27 Comp. Cas. 390 ; A.I.R. 1956 Cal. 648, In re Central Calcutta Bank Limited, [1959] 29 Comp. Cas. 437, In the matter of the Union Bank, Allahabad, A.I.R. 1925 All. 519, Joint Stock Discount Company v. Brown, (1869) 8 Eq. 381 and In re City Equitable Fire Insurance Co. Ltd., [1925] 1 Ch. 407). They are mostly cases of banks where a stricter standard of care is generally applied to safeguard the interests of depositors. The case of Indo-Burma Industries Ltd. is really a case of lack of loyalty.
124. I would now deal with the arguments with respect to the board of directors appointed by the learned company judge. At the outset it would be worthwhile to remember that on appeal we may interfere with the exercise of his discretion only if he has gone clearly wrong. If two views are possible, we should not upset his order merely because we on our own are attracted by the other view.
125. On the arguments at the bar I am satisfied that a four-year term is not justified. The Corporation has been under the supervision of the court from 1958. Ordinarily a company should not be kept long under the tutelage of the court, and no special reasons appear on the record of the case to warrant a four-year term for the court-appointed directors. I am inclined to reduce the term to the end of January, 1963,
126. I am also satisfied that Narendrajit Singh should not be permitted to remain on the board. During his stewardship the Corporation had been mismanaged, and although we are exonerating him of misfeasance, I find it difficult to distinguish his case from that of T.D. Mundhra in order to retain the one and discard the other.
127. Sri K.L. Misra has not accepted his appointment to the board. In his place I would appoint Sri Jagdish Swarup, an eminent counsel of our court, and he has no objection.
128. With these three modifications and others to be stated in the order, I would retain the rest of the board especially because their term is now to last till January, 1963.
BY THE COURT. -- The two connected special appeals are partly allowed as indicated below.
129. The order of the learned company judge appointing an interim committee of management (or interim board of directors) is approved, subject to the following modifications :
(i) Mr. Narendrajit Singh shall not be a member of the interim committee of management. Mr. Kanhaiya Lal Misra and Dr. S.K. Rau are discharged.
(ii) We appoint Mr. Jagdish Swarup, advocate, as a member of the interim committee of management. He should take charge as soon as possible.
(iii) The interim committee of management shall remain in office up to January 31, 1963.
(iv) The direction " if for any reason, except for insolvency or conviction for an offence involving moral turpitude, their services are terminated before the 30th April, 1965, they will be entitled to claim from the British India Corporation Limited their salaries for the remaining unexpired period " is cancelled. In other respects, the directions given by the learned judge as regards duties and remuneration of the directors of the interim board will stand.
130. The interim committee of management shall call in January, 1963, a meeting of the company (British India Corporation Limited) for the purpose of electing a new board of directors in accordance with the Act. The interim committee of management should make arrangement for handing over charge to the elected board of directors on the 1st of February, 1963. If, for some reason, it is found impracticable to hand over charge to the elected board of directors on February 1, 1963, it will be open to the learned company judge to give suitable directions for the continuance of the interim committee of management.
131. We order Sri Hari Das Mundhra to pay a sum of Rs. 6,65,492 to British India Corporation Limited, Kanpur, as compensation.
132. The appellant in Special Appeal No. 299 of 1961 shall get half its costs in appeal and before the learned company judge from respondent No. 1 (Sri Hari Das Mundhra). Other parties shall bear their own costs.
133. In Special Appeal No. 296 of 1961, respondent No. 1 shall get its costs in appeal from the appellants. Other parties shall bear their own costs.