Shah, J. - (1.) The Grain Chamber Ltd., Muzaffarnagar, a Company registered under the Indian Companies Act, 1913 with a share capital of Rs. 1,00,000 divided into 1000 shares of Rs. 100 each, was formed for the purpose of carrying on business of an exchange in grains, Cotton, sugar, gur, pulses and other commodities. By Article 5 of its Articles of Association no person or firm could remain a member of the Company who was found not to be doing any transaction or business through the Company for a continuous period of six months By Article, 46 it was provided that a member of the Company who owned 10 shares of the Company in his own name or in the name of the firm of which he was a proprietor or partner may be elected a director of the Company. By Article 51, until otherwise fixed, the quorum in the meetings of directors was to be four.
(2.) In the years 1949 and 1950 the Company was carrying on business principally in "futures" in gur. The method of carrying on business in "futures" was explained as follows, by the parties to the dispute in an agreed statement submitted before the Company Judge:The transactions for sale and purchase of gur have to be in the units called 'Bijaks' of 100 maunds. The buyer and the seller who are members of the Company negotiate transactions of sale and Purchase in gur through their respective brokers and then approach the Company. The Company enters into two independent contracts whereby the Company is the purchaser from one and is the seller to the other at rates agreed upon between the seller and the buyer. The seller has therefore to sell to the Company a specified quantity and the buyer agrees to purchase the same quantity from the Company under an independent contract. For the due performance of their contracts, the buyer and the seller deposit with the Company rupee one per maund as Sai and annas eight per maund as Chook -'margin'. If there is a rise in the price the Company calls upon the seller to pay the difference, and if he fails to deposit the difference demanded, the Company enters into a reverse transaction with a purchaser at the current rate of the day and squares up the transaction of sale. The purchaser is also enticed to withdraw from the Company the profits he has made consequent on the rise in price. If the seller is adjudged an insolvent or for any other reason is incapable of performing his obligations, the buyer remains unaffected. Even if the Company is unable to recover anything from the seller, it has still to pay to the buyer the profits earned by him Similarly if there is a fall in the price, the buyer has to make good the difference. If on the day fixed for delivery of goods the parties intend to settle the transaction by paying and receiving the difference, the Company fixes the rate at which the transaction is to be settled and the transaction is settled at the rate fixed by the Company. Both the buyer and the seller send bills known as "Dailies" setting out the amounts paid and received according to the rates fixed.
(3.) On March 14, 1949, the Board of Directors of the Company passed a resolution sanctioning transaction of business in "futures" in gur for Phagun Sudi 15 Samvat 2006 (March 4, 1950) settlement. On August 9, 1949, Seth Mohan Lal and Company purchased one share of the Company and qualified for membership. They commenced dealing with the Company in "futures" in gur. By December 1949 Seth Mohan Lal and Company - who will hereinafter be called 'the appellants'-had entered into transactions with the Company which aggregated to 1136 Bijaks of sate of gur for the Paush Sudi 15, 2006 delivery. The appellants also claimed that they had entered into sale transactions in 2137 Bijaks in the benami names of five other members. In January 1950 there were large fluctuations in the prices of gur, and in order to stabilise the prices, the directors of the Company passed a resolution in a meeting held on January 7, 1950, declaring that the Company will not accept any settlement of transaction in excess of Rs. 17-8-0 per maund. The sellers were required to deposit margin money between the prices prevailing on that date and the maximum rate fixed by the Company. The appellants deposited in respect of their transactions Rs. 5,26,996-14-0 as margin money. They claimed also to have deposited amount totalling Rs. 7 lakhs odd in respect of their benami transactions.;