George Rankin, J. -
(1.)IN this case two appeals have been consolidated. They arise out of proceedings taken in the winding-up of a company called T. R. Pratt (Bombay), Limited, (herein called " Pratts "), which was registered in 1919 under the INdian Companies Act, 1913. . On June 22, 1932, it was ordered by the High Court of Bombay to be wound up. The order appealed from is dated September 18, 1935, and was made by a division bench on appeal from Kania J. It dealt with two separate but inter-related claims against Pratts -one preferred by E. D. Sassoon & Company, Limited, and the other by M. T. Limited (in voluntary liquidation). The claim of the former (herein called "the Sassoon company") was to be a secured creditor of Pratts for Rs. 4,91,284 by virtue of an equitable mortgage evidenced by an indenture dated February 28, 1928, and confirmed by another indenture dated August 11, 1931. The claim of M. T. Limited was intended as an alternative to the claim of the Sassoon company : it was that if the latter failed to establish its claim, M. T. Limited should be admitted to rank as unsecured creditors in respect of the said sum of Rs. 4,91,284. Kanja J., by order dated July 11, 1934, allowed the claim of the Sassoon company and held that the claim of M. T. Limited was valid in the alternative. The division bench [Beaumont C.J. and B. J. Wadia J.(1935) 37 Bom. L. R. 978] disallowed the claim of the Sassoon company and accepted the claim of M. T. Limited. The appellants before the Board are the Sassoon company which appeals from the rejection of its claim and the Official Liquidator of Pratts, who disputes both claims.
(2.)FROM 1920 until the liquidation in 1932, Pratts was financed by loans from M. T. Limited who in turn were financed by loans from the Sassoon company. The course of dealing between M. T. Limited and Pratts, as disclosed by their books, was for interest to be charged at six per cent. per annum on the half-yearly balances : on that basis the amount for which M. T. Limited claim to prove is correctly calculated. The Official Liquidator resists the claim of M. T. Limited on the ground that from 1920 to 1928 the sums advanced were in excess of the borrowing powers of the directors of Pratts under Article 73 of Table A being more than the amount of Pratts' issued share capital which was five lacs of rupees. The consequences of this breach of Article 73 need not, however, be considered until the claim of the Sassoon company has first been examined.
There is no dispute as to the execution of the indentures of 1928 and 1931 to both of which all three companies-Pratts, M. T. Limited, and the Sassoon company-were parties. The main though not the sole objection taken to the Sassoon company's claim under these instruments is that the directors of Pratts were disqualified under Section 91B of the Indian Companies Act from entering into them on behalf of Pratts since they were all directors and shareholders of M. T. Limited. On this question it is important to enquire whether the Sassoon company is shown by the evidence to have had notice both in 1928 and in 1931 of the fact that all the directors of Pratts were interested in M. T. Limited. If not, it will be necessary to construe the indenture of February 28, 1928, to determine whether it was intra vires of Pratts and to ascertain the amount due thereunder in the events which have since happened. If, however, notice must be imputed to the Sassoon company of the fact that in 1928 and 1931 Pratts' directors were shareholders and directors of M. T. Limited, then the claim of the Sassoon company fails, and the claim of M. T. Limited must be examined.
Pratts was incorporated in 1919, and by Clause 6 of its memorandum a firm called H. M. Mehta & Co. were appointed its managing agents for thirty years in consideration of their services as promoters. A written agreement dated July 5, 1924, shows the partners of the firm to be H. M. Mehta, Mani H. M. Mehta and F. H. Mehta. Though it was intended to adopt certain draft articles of association, no articles of association were adopted or filed and Table A accordingly applied. The authorised capital consisted of 2,000 preference and 3,000 ordinary shares of Rs. 100 each, making five lacs in all. The 2,000 preference shares were held by nominees of H. H. the Maharaja of Gwalior. By 1921, 2,990 ordinary shares came to be held by M. T. Limited, and ten by directors of Pratts, who from 1924 onwards also held some 400 shares, as nominees of M. T. Limited. The objects of the company were to deal in motor cars and other vehicles and appliances used therewith but power was taken to hold immoveable property to erect buildings and to borrow money.
(3.)M. T. Limited was registered in 1920. Among the original subscribers to the memorandum appear the names of H. M. Mehta, F. H. Mehta, M. G, Parekh, C. G. Parekh, Sir Victor Sassoon and A. J. Raymond. The promoters were F. H. Mehta and Company, Limited, in which all these gentlemen were shareholders. F. H. Mehta and Co., Ltd., were by the memorandum of M. T. Limited, made their permanent managing agents. By Clause 3 D of the memorandum one of the objects of M. T. Limited was to purchase the ordinary shares of Pratts. The authorised capital was twenty lacs of rupees divided into 15,000 ordinary and 5,000 preference shares of Rs. 100 each.
The Sassoon company is a private company limited by shares. The evidence of its head accountant is that the firm of E. D. Sassoon and Co. became a limited company in 1921. Its first directors were Sir Victor Sassoon, R. E. Sassoon, Albert Raymond and another gentleman of the name of Sassoon. In 1921 Mr. A. J. Raymond was added to the board. From 1924-28 the board consisted of Sir Victor Sassoon, Mr. R. E. Sassoon, Mr. A. J. Raymond and Mr. Albert Raymond. In 1928 Captain Derek Fitzgerald was added. According to a return dated November 13, 1931, Sir Victor Sassoon had ceased to be a director and a Mr. Fred Stones had joined the board. At the end of 1920 the Sassoon company was debited in the ledger of M. T. Limited with the cost of 5,000 shares in the latter company. On November 3, 1921, the board of the Sassoon company resolved that Mr. A. J. Raymond as managing director be authorised to exercise all the powers that the directors themselves are empowered to exercise as a board. On April 24, 1924, Mr. A. J. Raymond joined the board of Pratts. On April 3, 1928, the minute book of the Sassoon company records that Mr. A. J. Raymond resigned the office of managing director and also that Mr. Albert Raymond was appointed a managing director and invested with all powers that the directors were empowered to exercise as a board. On September 26, 1928, the minute book of Pratts records that Mr. A. J. Raymond was given leave of absence for six months and that Mr. Albert Raymond joined the board of Pratts.