THAKUR DAS Vs. RAM GULAM SINGH

JUDGEMENT

(1.) These two appeals are by defendant 2 against the preliminary and final decrees, respectively, granted by the Subordinate Judge in a suit to enforce a simple mortgage. A company named the Vishvakarna Mills Ltd., on 7 March 1925 borrowed from the Government under the Bihar and Orissa State Aid to Industries Act 1923, a sum of Rs. 75,000. Under the contract of loan the Secretary of State for India guaranteed a cash credit overdraft in favour of the borrower at the Imperial Bank of India, Patna Branch, and the borrower was to repay annually Rs. 5,000 in March of each succeeding year. The Company, in consideration of the loan, also executed a deed of mortgage of all its assets in favour of the Government. For some reason the Government neglected to register this mortgage and the Directors of the Company similarly omitted to take any steps in the matter. The instalments for March 1926 a March, 1927 were duly paid by the Company, and on 5 March 1928 the third instalment fell due. Before this date, however, Government had become aware of the non-registration of the mortgage, and on 20 January 1928 had caused the Company to execute a promissory note for Rs. 60,000 being the balance of the principal, after deducting the instalments which had been paid up to that time. The Company seems to have been throughout in financial difficulties, and the loan by the Government does not seem to have been a very judicious investment.

(2.) In the mon April, 1926, the Company borrowed Rs. 10,000 from the Bank of Bihar Ltd. On 26 January 1928 the Bank were demanding repayment of this loan with interest, and on 16 May the Bank brought a money suit in the Patna civil Court for the recovery of this loan. The plaintiff, Ramgulam Singh, was a share holder and a Director of the Company. There were two classes of Directors, Honorary and Permanent and by the Articles of Association the former had merely an advisory function whereas the latter were to conduct the business of the Company. There is no doubt that the plaintiff was a permanent Director although his services, from the point of view of any right to Directors fees, may have been honorary. The plaintiff was a guarantor of the loan by the Bihar Bank and in the subsequent litigation he was sued in that capacity. The Company fully availed itself of the overdraft guaranteed by the Government and had withdrawn nearly Rs. 60,000. In these circum stances the finances of the Company were in a very parlous condition.

(3.) On 4 March 1928 there was a meeting of the Directors of the Company at which five persons are recorded as having been present, one of whom was the Managing Director, Deodhari Singh, one was Saiyid Sultan Husain, a Director, who from his evidence, would appear to have had little comprehension of the business to be transacted. Mithila Saran Singh and Permeshwar Prasad Varma, two other Directors, were present. Babu Ramgulam Singh was also present, but there is recorded this note: "N.B. Babu Ram Gulam Singh is present but takes no active part." Babu Permeshwar Prasad Varma, M.A., B.L., was elected President of the meeting and the Managing Director was authorized to execute an agreement with Babu Ramgulam Singh according to which Ramgulam Singh & Sons were to pay the next instalment of Rs. 5,000 to the Imperial Bank which would fall due on 7th March and further would pay off the loan due to the Bank of Bihar, and that the Company through the Managing Director, would execute a mortgage in his favour of the profits and assets of the Company. It appears that it had earlier been contemplated that Babu Ramgulam Singh would take a lease of the whole of the Company's assets, but this proposal was abandoned in favour of a mortgage. On 9 March there was a further Directors meeting at which the same persons were present, with the exception of Babu Permeshawar Prasad Varma, and Babu Mithila Saran Singh was appointed to the chair. A memorandum of agreement was read, of which we have not seen a copy, but there is a note that "the second party Babu Ramgulam Singh wants five days time to consult his legal adviser on the point," and 15 March was accordingly appointed for reconsideration, with the further sentence that "it would be executed and registered immediately."