BAI MANGU Vs. BHARATKHAND COTTON MILLS COMPANY LTD

JUDGEMENT

(1.) This is an appeal from a decree of the High Court of Judicature at Bombay reversing a decree of the Subordinate Judge of Ahmedabad and dismissing with costs a suit brought by the appellants against the respondent company. There has been much litigation between the parties and others which is relevant to the issues that arise in these suits. The course of the litigation has been carefully and adequately set forth in the judgment appealed from of the present Chief Justice of Bombay, who has appended to his judgment a valuable table of the relevant dates and decrees. The facts have also been fully set out in the judgments below. In the view taken by their Lordships it becomes unnecessary to discuss many of the matters that were in contest in the Courts below and before the Board, and their Lordships will proceed to state only so much of the facts as is essential to explain the reason for their decision. The respondent company, the Bharatkhand Cotton Mills Company, Limited, was formed in 1896. The appellant Kevaldas had from the beginning a substantial interest in it. He was chairman and manager, and his firm, who for this purpose may be treated as synonymous with himself, was at all material times until the end of 1911 secretary, treasurer and agent of the company. In that capacity a running account existed between Kevaldas and the company, running into large figures, in which Kevaldas appears at some times debtor, at others creditor of the company. In the year 1905 Kevaldas started on his own behalf a weaving factory on land which he took on lease. The weaving factory was run in close co-operation with the spinning mills, which were the business of the company, and no doubt might legitimately serve the company's interests. In January, 1909, however, one of the shareholders, suing for himself and the other shareholders, commenced a suit against Kevaldas for a declaration that the weaving factory was built out of the company's money and was the property of the company, and for an account of the profits made by Kevaldas out of the company's money used by him. The claim to the factory was not persisted in, but on January 2(3 1910, a preliminary decree was made declaring that Kevaldas was liable for profits made by the use of the company's money and directing the necessary accounts and inquiries. In April 1914) the Subordinate Judge, on consideration of the report of the Commissioner who took the account, dismissed the suit, but in August 1916, the company's appeal was allowed by the High Court, and a decree made in favour of the company for Rs. 1,46,453, with interest at nine per cent, as from May 15, 1910. This money decree was executed against Kevaldas's property between 1916 and 1920, and a sum of Rs. 47,677 was realised. In June, 1923, this Board dismissed an appeal by Kevaldas against the decree.

(2.) Meantime the circumstances had arisen, out of which the present claim by Kevaldas arises. In May, 1910, the company confirmed a special resolution for the purchase of the weaving factory from Kevaldas for a net sum of Rs. 3,51,000, to brought to account in his name," and took over the factory as from May 15, 1910. The validity of this sale was challenged in subsequent litigation between Kevaldas and the company, but without success, and the debt so created for the purchase price must be taken to be established. The result of bringing it into account with Kevaldas, together with a further sum of Rs. 87,975, which was credited as the price of stores, etc., taken over, was to convert a debit of nearly a lac and a half into a credit to Kevaldas of nearly three lacs. This sum was reduced by drawings until in September, 1911, it stood at something over a lac, On September 1, Kevaldas issued a deposit receipt in the name of the company to himself, which later he endorsed to his wife, and for which a few days later he substituted a deposit receipt in the name of his wife. The account, however, was still running, and on October 81, 1911, he cancelled the existing deposit receipt and issued three deposit receipts in varying amounts to his wife and his daughter-in-law and himself amounting in all to Rs. 1,37,417, which was the balance then standing to his credit. It is not disputed that the wife and daughter-in-law were nominees for Kevaldas, and that the rights of the parties must be determined as though Kevaldas alone had held the receipts. In August, 1911, the Mills had been destroyed by fire, and later in the year Kevaldas decided to retire from the position of secretary and agent, a position which he ceased to hold on December 31, 1911,

(3.) The point of time is now reached at which the alleged cause of action in this suit arose. The company, being in some financial difficulty, determined to reduce its capital and to make an issue of preference shares. Of the preference shares some were to be allotted to creditors in satisfaction of their debts; the balance was to be available for the purpose of raising further working capital. Kevaldas alleged that he agreed with the Company to have preference shares allotted to him to the nominal value of the debt owing by the company to him and his nominees, represented by the amount of the deposit receipts, with accrued interest and some addition to the current account, which was incurred between October 31, 1911, and the actual date of his resignation. In the present suit he claims specific performance of the agreement or, alternatively, damages for non-delivery. As the company attained considerable prosperity during the war years and after, the preference shares, with arrears of dividend, represent a value much greater than the original debt. The company deny that there ever was a concluded agreement to allot shares to Kevaldas; but if there were, they say that the result of the shareholders action brought in 1909 was to show that there never was in fact any balance due in 1911, and therefore the deposit receipts must be taken to be given without consideration; or, in the alternative, they say that the shares were only to be given for the ultimate nett indebtedness of the company on all accounts; and as against the debt due on the deposit receipts there must be set off the balance of the amount of Rs. 1,46,453-0-2 and interest due on the decree of August, 1916. The Subordinate Judge found in favour of Kevaldas that there was a binding agreement to allot preference shares in satisfaction of the debt substantially represented by the deposit receipts, and decreed specific performance accordingly.