G THIRUVENKATACHARIAR, OFFICIAL LIQUIDATOR OF THE NATIONAL LIVE STOCK REGISTRTION BANK LTD (IN LIQUIDATION) Vs. ATVELU MUDALIAR

JUDGEMENT

(1.) This appeal arises out of a misfeasance summons taken out by the official liquidator of the National Live Stock Registration Bank, Ltd., against the respondents, who were the brokers of the company. The company was registered on the 2nd July, 1927, with a nominal capital of Rs. 5,00,000 divided into 50,000 shares of Rs. 10 each, of which 40,500 were preferred and 9,500 ordinary shares. The certificate permitting the company to carry on the business was issued by the Registrar of Joint Stock Companies on the 1 August, 1927. The company was unsuccessful in its operations and went into voluntary liquidation on the 11 December, 1930. The voluntary liquidation was turned into a compulsory liquidation by an order of this Court, dated 13 October, 1932. The official liquidator sought to make the respondents liable to repay a sum of Rs. 8,865-11-3, which they had received as share-brokers of the company. The respondents are partners of a firm of provision dealers carrying on business under the name of A.T. Velu Mudaliar and Company. They had no previous experience as share-brokers and it is obvious that they owed their appointment to their relationship to V.K. Lakshmana Mudaliar, one of the promoters of the company, who is the son of the second respondent and the brother-in-law of the first respondent. A draft of the agreement under which the respondents were to act as brokers of the company was drawn up in the month of May, 1927, and, although the company had not then been registered, it was signed on the 31 May, 1927. Under it the respondents were to receive a very high commission, Rs. 1-8-0, for every share of the company sold through them, and eight annas in respect of every share sold through other agencies. Art. 9 of the Articles of Association which came into force at a later date stated that the respondents firm should be the sole selling brokers of the company, and under it they were to receive a commission of five percent, on the amount subscribed, but the document of the 31 May, 1927, purported to fix the commission at fifteen per cent. After the formation of the company the matter was discussed by the directors and on the 22nd October, 1927, they passed a resolution agreeing to ratify the arrangement, subject to an alteration which amounted to very little. The respondents accepted the modification and were paid on the basis of the modified agreement, notwithstanding that the directors had exceeded their powers in ratifying it. The appeal is not, however, concerned with the liability of the directors in this respect.

(2.) The amount paid to the respondents was, as I have already indicated, the sum of Rs. 8,865-11-3 which the official liquidator desired to recover from them on the ground that the agreement was ultra vires. Accordingly he took out a summons under Section 235 of the Indian Companies Act, 1913, and the matter in due course came before Stone, J., who referred the question of what was due under the agreement to the Official Referee. After holding an inquiry the Official Referee reported that the respondents were not entitled to retain the Rs. 8,865-11-3. The Official Referee's report came before Gentle, J., when it was contended on behalf of the respondents that all remedy against the respondents had become time barred. It was said that the article which applied to the case was Art. 36 of the Indian Limitation Act, which allows only a period of two years. The official liquidator urged that the article which applied was Art. 120, which allows a period of six years. The learned Judge found that Art. 36 applied and this appeal has been filed to challenge the finding. The Court is, however, not called upon to decide the question, as it is manifest that for other reasons the official liquidator is not entitled to ask for an order against the respondents under Section 235 of the Indian Companies Act, 1913. That section only applies to a person who has taken part in the formation or promotion of the company, to a past or present director, manager or liquidator or to an officer of the company. Neither respondent was ever a director, manager or liquidator of the company, and for reasons which I shall indicate I do not think that either can be deemed to be a promoter or officer. As a matter of fact so far as the second respondent is concerned, the Court is not asked to hold that he was a promoter.

(3.) I will first discuss the question whether the first respondent can be deemed to be a promoter. In Twycross V/s. Grant (1877) 2 C.P.D. 469 Cockburn, C.J., defined the word promoter as being one who undertakes to form a company with reference to a given project, and to set it going, and to take the necessary steps to accomplish that purpose. Other definitions have been given by learned Judges from time to time, but it is impossible to define accurately what is meant by the word "promoter". The difficulty is discussed at length by the learned author of Palmer's Company Precedents at pages 103 to 109. After referring to a number of the more prominent cases the learned author observes at page 106: It is obvious, therefore, that a person who originates the scheme for the formation of the company, has the memorandum and articles prepared, executed and registered, and finds the first directors, settles the terms (if any), and makes arrangements for advertising and circulating the prospectus and placing the capital, is emphatically a promoter in the fullest sense. He controls the formation and future of the company, and it is this control which lies at the root of the fiduciary relation of the promoter to the company. Nor is he the less a promoter if all or most of these activities are performed nominally by a company which he controls. But a person who has done much less than this--takes a much less prominent part- -may bring himself within the meaning of the term and may be held liable as a promoter.