PENINSULAR LOCOMOTIVE CO LTD Vs. HLANGHAM REED

JUDGEMENT

(1.) This is an application by the Official Liquidator of the Peninsular Locomotive Co., Ltd., under Section 235, Companies Act, for compensation for damages suffered by the Company by the payment of the sum of 6000 during the winding up which payment was void under Section 227 of the Act and which was a misfeasance or breach of trust and a sum which the directors became "liable" to re-pay to the Company within the meaning of Section 235. The defence of the director against whom the summons has been taken out is that he was not guilty of any misfeasance or breach of trust nor liable to re-pay the sum and that in any event he having acted honestly and reasonably he ought fairly to be excused under Section 281. Further the application is barred by limitation.

(2.) The Peninsular Locomotive Company was incorporated in the year 1921 for the purpose of the manufacture of locomotive engines. The Company was started in pursuance of a policy of the Government of India at that time, for encouraging the manufacture of locomotives in India. However, after it became manifest that the business of the nature for which the Company was incorporated was not forth- coming, the Company engaged for a time in the manufacture of railway wagons, and it is said that a profit of two or three lakhs of rupees was made during the short time this wagon business lasted. Ultimately Government purchased the works of the Company for twenty lakhs of rupees. This was on 14 July 1927, and on 21 May 1928, by a resolution of the Board a sum of six lakhs of the capital was returned to the shareholders by payment of Rs. 20 per share. The authorized capital, it should have been stated, was 60 lakhs of rupees, and the issued capital 28 lakhs of rupees in shares of Rs. 100 each. Of the 28 lakhs of rupees Messrs. Kerr Stuart & Co. Ltd. the Managing Agents, held Rs. 11,50,000, Mr. Langham Reed, the Chairman of the Board, Rupees 8,52,200, Sir George Buchanan of the directors Rs. 15,000, Mr. T. Gordon, director, Rs. 22,500, Mr.F.E. Dinshaw Rs. 5,00,000 on behalf of himself but principally as nominee for the Maharaja of Gwalior, and the balance by persons in India and England who were either friends or employees of Messrs. Kerr Stuart &Co., Ltd. It was a private Company with 22 share holders in all. No application was made to me in this case to order pleadings nor to take evidence orally, which might have been done, but the facts do not seem to be seriously disputed and sufficiently appear from those letters and documents which have been exhibited in the case annexed to the various affidavits.

(3.) The registered office of the Company up till 6 December 1921 was in Bombay but after that date was transferred to Jamshedpur in the jurisdiction of this Court. On 10 January 1930 Mr. F.E. Dinshaw, who had resigned from the Board in 1927, filed a petition in the High Court at Bombay to wind up the Company. The registered office having been removed to this Province, the petition was withdrawn and on 5 June 1930, a petition was filed in this Court. On 30th June 1930 the winding up order was made and a liquidator was eventually appointed although the order for winding up bore date 3 July 1930. On 13th March 1931, the orders were set aside owing to irregularities as regards advertisement of the petition, but on 11 May 1931 after due advertisement a winding up order was made on the ground that the company had ceased to do business and the substratum of the company had gone. This sum of 6000 was paid on or about 20 June 1930 and it is not disputed that the payment was made after the commencement of the winding up and therefore was void under Sub- section 2 of Section 227, Companies Act. This Court declined to validate the disposition on l3 September 1932, an application having been made by the liquidator to the Court for certain directions in the winding up. The facts relating to the payment of 6000 are as follows: In 1927 it appears that the directors, the chairman of whom was Mr. Langham Reed, considered the advisability of purchasing the works of Calmoni Engineering Co., Ltd., and negotiations appear to have been commenced through Messrs. Kerr, Stuart & Co. Ltd., who were the Managing Agents of the Peninsular Locomotive Company, and a company known as Low & Co., Ltd., who represented the debenture holders of the Indian Company, the Calamoni Engineering Co., Ltd. (in liquidation). A meeting of the Board of Directors appears to have taken place in Bombay on 15 July 1927; the minute of that meeting is annexed to the liquidator's affidavit and marked Ex- H. There were present Sir Fazulbhoy Carrimbhoy, Sir Purshotamdas Thakurdas, Mr. F.E. Dinshaw and Mr. Manu Subedar, the respondent. It is convenient to state here that at times material to this application the directors were Mr. Langham Reed, Sir George Buchanan, Mr. Charles T. Gordon and Mr. Manu Subedar of whom Mr. Subedar alone was living in India (Bombay). It was agreed that a cable should be sent to the chairman in London to this effect: Calmoni Engineering Company Mr. F.E. Dinshaw says no time to consult Gwalior Darbar. If Gwalior Darbar does not support, Gwalior Darbar will have to be returned money proportionately. Subject to this directors agree to purchase Calmoni Engineering Company.