D R BANAJI Vs. MANILAL T PATEL

JUDGEMENT

(1.) THIS is a misfeasance summons taken out by the Official Liquidator of the Masters Tobacco Company (India) Ltd. (in Liquidation) (referred to by me as the Company) against Manilal T. Patel, a director of the Company on the ground that he was in management of the affairs of the Company, and as such has been guilty of misfeasance and breach of trust in respect of large sums of moneys belonging to the Company, which was a private limited concern. The company at the instance of a creditor was taken into liquidation by an order made by this Court on 16-7-1952. A number of allegations and claims were made by the applicant in the Summons and in the affidavit in support of the same. Certain amendments asked for by the applicant were allowed by me. Out of the five claims mentioned in the summons and described as (a) (1) to (a) (5) items (a) (2) to (a) (4) were, in the course of the hearing before me, abandoned by learned counsel appearing for the applicant. So also was abandoned the first part of the claim in item (a) (5 ). As to the latter part of that item learned counsel for the applicant did not at the hearing advance any argument in sup- port of it and in fact did not press the same. The result is that the claim that is finally pressed before me on behalf of the applicant is 'for a declaration that the respondent has been guilty of misfeasance and breach of trust in relation to the Company in respect of Rs. 3,99,000-0-0 or such other sum as this Honourable Court may determine and in respect of Rs. 2,67,982-4-3 or such other sum as this Court may determine as mentioned in Para 3 of the affidavit of the applicant sworn on 23-2-1955".

(2.) PRIOR to 1940 one Bhogilal Patel, the father-in-law of the respondent had, by purchase, become the owner of the business and assets of a cigarette manufacturing factory. On 20-10-1940 the Masters Tobacco Co. (India) Ltd. , was registered, as a private limited company by Bhogilal Patel, his son-in-law the respondent, M. M. Finegold, his son Martin Finegold and Wasudev Dave. The first Directors of the Company were these five persons. Bhogilal was to be a permanent director of the Company. The issued and paid-up share-capital was 300 ordinary shares of Rs. 100/- each paid up to the extent of Rs. 50/-and 100 preference shares of Rs. 100/- fully paid up. Out of the 300 partly paid-up ordinary shares Bhogilal held either in his own name or in the name of his nominees 155 shares. Finegold and his son held the remaining 145 shares. The 100 fully paid-up preference shares were taken up by Bhogilal Patel. From the inception the affairs and business of the Company, according to the applicant, were managed by the respondent and M. M. Finegold. After the Company was incorporated it hired from Bhogilal Patel the cigarette manufacturing factory and premises owned by him from 1940 to the end of March 1944 the Company manufactured and sold cigarettes in the premises and factory hired from Bhogilal. Bhogilal also financed the business of the Company. In February 1944 Bhogilal sold to Godfrey Phillips (India) Ltd. the factory and premises whree the business of the Company was carried on.

(3.) BRIEFLY stated the case of the applicant, as finally presented at the hearing, is that the factory taken on lease by the Company from Bhogilal Patel had been agreed to be sold by Bhogilal in February 1944. The possession of the factory and premises had to be handed over by the end of March 1944. Therefore, in 1944 the Company could carry on its business of manufacturing cigarettes only for three months i. e. between January and March. As admitted by the respondent himself in his public examination during these months the Company did business on a reduced scale in anticipation of the closing down of the factory. The balance sheet of the Company for the year 1944 and the books of the Company read together show that the opening stock of tobacco on 1-1-1944 was of Rs. 3,44,708-4-11. Tobacco of the value of Rs. 2,68,348-9-3 is shown in the books of account as purchased during the year 1944. Thus the total of the opening stock of tobacco at the beginning of the year and that purchased during the year came to Rs. 6,13,056-14-2. Tobacco consumed in operations between 1-1-1944 and 7-3-1944, which was the last date on which actual operations took place, as shown in the Blend Book o? the Company was of the value of Rs. 1,73,429-5-11. Stock on hand at the end of the year 1944 was nil. Tobacco of the value of Rs. 4,39,627-8-3 lying at Bombay and at Gunthur was sold by the Company to Godfrey Phillips (India) Ltd. One of the charges made by the applicant against the respondent is that there has been misappropriation by the respondent and Finegold o? a sum of Rs. 2,67,932-4-3 by showing in the accounts of the Company bogus purchases of tobacco during the year 1944. I shall point out later on in my judgment why the charge relating to tobacco must fail.