1 to 13 ** **
14. Mr.Shah has tried to raise a new contention before us which did not form the subject-matter of pleadings by the defendants and which was not the subject-matter of issue before the learned trial Judge.
15. Mr. Shah has argued that agreement Ex. 175 was concluded between defendant 1 - trust on one hand and the non-existent plaintiff-Society on the other hand. He has further submitted that there is dispute about these facts Now Ex. 175 itself states that the plaintiff-Society was a proposed Society not until then registered. Recitals contained in agreement to lease Ex. 175 also make it clear that Nanubhai J. Desai, the chief promoter of the plaintiff-Society had entered into the transaction evidenced by Ex. 175, for the benefit of the society which was yet to be born.
16. The question, which was raised on these facts, was whether there could be any such agreement valid and enforceable at law. Mr. Vyas has objected to this contention being raised principally on the ground that it was not pleaded by the defendants in the written statement nor was it a subject matter of issue before the trial Court. If this contention were required to be decided after a fresh enquiry into facts, we would have certainly disallowed it. However, in order to make good this contention, reliance has been placed only upon the recitals contained in the agreement Ex. 175. If this contention can be decided on the recitals contained in Ex. 175, we see no difficulty in permitting Mr. Shah to raise it. If the agreement itself shows that it was void or a nullity as Mr. Shah has tried to argue, in our opinion, it should be allowed to be raised. However, if the decision on the contention raised before us depends upon the ascertainment of new facts, it cannot be allowed at the appellate stage. This contention was not raised in the memorandum of appeal filed in the present case. Obviously Mr. Vyas was, therefore, taken by surprise. We, therefore, gave him time to work out his case in that behalf and then to argue it. In order to make good this contention. Mr. Shah has invited our attention to six decisions of English Courts.
17. The first decision is In re Northumberland Avenue Hotel Co. (1885) 33 Ch. D. 16. In that case, one Wallis bad negotiated with the Metropolitan Board of Works for the grant to him of a lease of certain plots of ground for a term of eighty years at a particular rent. An agreement in writing was entered into in that behalf. In the meantime an agreement had also been entered into between two persons who styled themselves as trustees for and on behalf of an intended company to be called the Northumberland Avenue Hotel company Limited. One of them was styled as an agent for and on behalf of Wallis and he agreed to grant to the proposed company an under lease of the said plots of ground on certain terms and conditions. Under the agreement the proposed company agreed to become an under lessee for a term of eighty years, less one day, of the plots of ground at a particular rent. The agreements contained stipulations of a character similar to those which were usually inserted in building agreements. They were to be performed by the proposed company. Under the agreement the proposed company was entitled to take possession on payment of a certain deposit. The proposed company was incorporated on the next day of the agreement. The agreement entered Into was not mentioned in its memorandum but the articles of association of the Company purported to adopt that agreement and provided that the company should carry it into effect subject to the modification which might be agreed upon between the parties. The company after incorporation did not enter into any further agreement in writing with Wallis but acted upon the agreement, took possession of the ground and spent upon it a large sum of money. There was no note or memorandum of any contract with Wallis signed or sealed on behalf of the company after its incorporation. Thereafter Wallis instituted an action against the company for specific performance of clause 23 of the agreement which related to the grant of additional pieces of ground on lease. That action was compromised. The company made payments to Wallis on several occasions and several resolutions were passed by the directors, with the assent of Wallis, purporting to modify certain terms of the agreement, but none of those terms was carried into effect by those documents. All those proceedings went on the footing that the original agreement was one by which the company was bound, the company did not succeed in obtaining sufficient capital in order to enable it to continue its works. Therefore, Wallis in course of time served upon the Company a notice to re-enter under a clause in the agreement for non-completion of the works, and on 13th of May, a notice was given by the Metropolitan Board of Works determining the agreement of the 2nd of October 1882. Shortly after this the Board of Works resumed possession. Thereafter the company passed a resolution for voluntary winding-up and an order was made for carrying on the winding-up under the supervision of the Court. Wallis became bankrupt. His trustee took out a summons asking that, he might be admitted as creditor for damages sustained by Wallis in respect of the breach by the company of that agreement. The question which arose before the Court of Appeal in England was whether the agreement which was entered into before the company was brought into existence was capable of confirmation and whether such an agreement was agreement at all. It was held by the Court of Appeal that since the agreement had been entered into before the company came in existence it was incapable of confirmation and that the acts of the company, having evidently been done under the erroneous belief that the agreement was binding upon the company, were not evidence of a fresh agreement having been entered Into between the parties. It was further held that under the circumstances there was no agreement between Wallis and the company. Summons was therefore dismissed.
18. The next decision to which reference has been made by Mr. Shah is Bagot Pneumatic Tyre Company v. Clipper Pneumatic Tyre Company. (1901) 1 CIL D. 196. In that case, the plaintiff company agreed to grant Phelps an exclusive licence to use a patent in consideration of an annual payment to be made to the plaintiff-company by a company which was in the course of formation by Phelps. The licence was granted to Phelps and was expressed to be in consideration of the agreement and the payment therein agreed upon. The defendant-company acted in the belief that it was bound to the plaintiff-company to perform the obligations of the said agreement. In an action by the plaintiff-company against the defendant-company to restrain an alleged breach of that agreement, it was held that the plaintiff-company had no right of action against the defendant-company which was not m existence when agreement was entered into with Phelps. It came into existence later. This very decision was challenged in appeal before the Court of Appeal. The decision of the Court of Appeal is reported in Bagot Pneumatic Tyre Company v. Clipper Pneumatic Tyre Company, (1902) 1 Ch. D. 146. Confirming the decision of the Court below, the Court of Appeal held that there was no privity of contract between the plaintiff-Company on one hand and the defendant on the other hand and that therefore, no legal right of action had accrued to the former against the latter.
19. The next decision to which reference has been made by Mr. Shah is in Natal Land and Colonization Co. Ltd. v. Pauline Colliery and Development Syndicate, Ltd, (1904) A. C. 120. It is a decision rendered by the Privy Council on appeal from the Supreme Court of Natal. In that case, agreement which was sought to be enforced was contained in correspondence between the appellants' agent and one Mrs. de Carrey The respondents claimed the benefit of the contract under a cession to a trustee for them, as about to be incorporated, by Mrs. de Carrey of her rights there under by a deed and a letter by the appellants to the Solicitor of the Syndicate agreeing to the substitution of the Syndicate for Mrs. de Carrey. It was contended by the appellants that Inasmuch as the respondents were not registered at the date of the transaction there was no privity of contract between the parties. The Supreme Court of Natal passed decree for specific performance of the agreement. In appeal Privy Council took the view that the Company cannot by adoption or ratification obtain the benefit of a contract purporting to have been made on its behalf before the company came into existence. In order to do so a new contract ought to have been made with it after its incorporation on the terms of the old one.
20. Next, reference has been made to the decision of the Court of Appeal In re Empress Engineering Co. (1880) 16 Ch. D. 125. In that case, A and B on one hand agreed with C, on behalf of a company intended to be formed, that A and B should sell and the company should buy a certain business. One of the terms of the agreement was that sixty guineas should be paid to the Solicitors for their expenses and charges in registering the Company. The memorandum of association adopted the agreement and the Directors subsequently ratified it. Thereafter an order for winding up of the company was made and the Solicitors wanted to prove their claim for sixty guineas. The Court of Appeal disallowed the claim on the ground that the contract between A and B on one hand and C on the other hand, having been entered into before the company came into existence, could not by mere ratification be made binding on the company, and that a contract between A and B on one hand and the company on the other hand to which the Solicitors were in no way parties, that the company shall pay monies to the Solicitors, would not entitle the Solicitors to proceed against the company.
21. The last decision to which reference has been made is Newborne v. Sensolid (Great Britain) LD., (1954) 1 Q. B. D. 45. The facts of that case show that a contract which purported to have been entered into for the sale of certain goods by Leopold Newborne (London) Ltd. was signed "Leopold Newborne (London) Ltd., and underneath was the name Leopold Newborne. On the back of the document were set out the names of Leopold Newborne and M. Newborne as directors of the company. Thereafter the market fell and when the goods, were tendered to the buyers they refused to take delivery. A writ was issued in the name of Leopold Newborne (London) Ld. against the buyers claiming damages for breach of contract which consisted of failure to accept the goods. Whilst the case was in progress it was discovered that at the time when the contract was signed the company, Leopold Newborne (London) Ld., was not registered. Therefore, steps were taken to substitute for the name of company, as plaintiff, the name of Leopold Newborne. It was held by the Court of Appeal that Leopold Newborne never purported to contract to sell nor sold the goods either as principal or agent. The contract purported to be made by the company, on whose behalf it was signed by a future director, and inasmuch as the company was non-existent at the material time, the contract was a nullity.
22. These decisions to which Mr. Shah has invited our attention lay down the principle that a contract between a non-existent company on whose behalf someone purports to act is a nullity and gives rise to no cause-of-action. In order to make good his contention that such a contract is valid and enforceable at law, Mr. Vyas has invited our attention to some provisions of the Gujarat Cooperative Societies Act, 1961. S. 2(13) defines "member" as a person joining in an application for the registration of a co-operative society which is subsequently registered, or a person duly admitted to membership of a society after registration and includes a nominal, associate or sympathiser member. S. 2(19) defines "society" which means a co-operative society registered or deemed to be registered, under this Act. A reference to a society "deemed to be registered " appears to be in the context of sub-see. (2) of S. 169. Sub-section (2) of S. 169 provides as follows:-
"All societies registered or deemed to be registered under the said Act the registration of which was in force immediately before the commencement of this Act, shall on such commencement be deemed to be registered under this Act; and all proceedings pending immediately before such commencement before any Registrar, Arbitrator, liquidator or tribunal or other officer, authority or person under the provisions of the said Act shall stand transferred where necessary, to the Registrar, arbitrator, liquidator or tribunal or other corresponding officer, authority or person under this Act, and if no such officer, authority or person exists or if there be a doubt as to the corresponding officer, authority or person to such officer, authority or person as the State Govt. may designate and shall be continued and disposed of by such officer, authority or person in accordance with the provisions of this Act."
These three provisions to which Mr. Vyas has invited our attention do not warrant the conclusion that the society before it is registered and comes into existence can act through its promoter. Sec. 37 throws light on this aspect. It reads as follows:-
"A society on its registration shall be a body corporate by the name under which it is registered, -w1th perpetual succession and a common seal, and with power to acquire, hold and dispose of property, to enter into contracts, to institute and defend suits and other legal proceedings and to do all such things as are necessary for the purpose for which it is constituted."
It is clear, therefore, that a co-operative society becomes a legal person after it is registered and it is after its registration that it acquires the capacity to enter into contracts. No provision in the Act has been pointed out to us under which the promoters of a society can act on behalf of the society before it has been registered and has come into existence.
23. Mr. Vyas has invited our attention to Rule 3 of the Gujarat Co-operative Societies Rules, 1965 and Form A appended to the Rules. R. 3 inter alia reads as follows:-
" 3. Application for registration -Every application for registration of a society under sub-section (1) of S. 8 shall be in Form A and shall be accompanied by-
(a) a certificate, from the bank or banks stating the credit balance in favour of the proposed society therein,
(b) a list of persons who have contributed to the share capital together with the amount contributed by each of them, and the entrance fee paid by them and
(c) the scheme showing the details explaining how the working of the society will be economically sound and, where the scheme envisages the holding of immovable property by the society the description of immovable property proposed to be purchased, acquired or transferred to the society.
Relying upon this rule it has been argued by Mr. Vyas that a proposed society which has not been registered can open a Bank account and can enter into transactions with regard to immoveable property in order to show what immoveable property it holds or proposes to hold. He has then invited our attention to Form A appended to the Rule. In particular he has relied upon columns (10) and (11) thereof. Col. (10) in the Form provides that the amount of preliminary expenditure incurred by the promoters till the date of the application and the estimate of expenditure likely to be incurred by them there after with a view to get the society registered shall be stated. Col. (11) provides that the name of the chief promoter and his address where the correspondence is to be directed shall be stated. The requirements of these two columns in Form A do not warrant the conclusion that -society before its registration becomes legal person capable of entering into contract. Cols. (10) and (11) appear to be intended to facilitate the registration of the society. They are intended to give necessary information to the Registrar of Co-operative Societies in order to enable him to register the society. They also lay down a requirement showing the channel of communication between the promoters of the society and the Registrar. Therefore, the aforesaid two requirements specified in Form A do not permit us to hold that the society before its registration becomes a legal person capable of entering into contracts, So far as R. 3 is concerned, indeed it appears that before a society is registered, certain things can be done. Language of S. 37 is clear enough to show that it is after registration of the society that it can enter into contracts. The language used in rule 3 cannot be interpreted so as to enlarge the scope of S. 37. Rule 3 does not expressly state that a proposed society can enter into a contract. No such indirect inference from that rule can be drawn for the purpose of enlarging the scope of the principle embodied in S. 37.
Nothing else in the Gujarat Co-operative Societies Act, 1961 and the Rules made there under has been pointed out to us which will have the effect of varying or modifying the principle laid down in several English decisions to which we have referred.
24. Mr. Vyas has tried to point out to us that even If Ex. 175 cannot be enforced on account of this reason, decree for specific performance can be granted in terms of Ex. 167, the draft lease. Ex. 176 to which we have already referred in the earlier parts of this judgment is not a fresh contract. At the most, it appears to be a ratification of the original agreement Ex. 175. Therefore, if Ex. 175 falls on account of this reason, no decree for specific performance in terms of Ex. 176 can be passed.
25. Mr. Vyas has further relied upon Ex. 90 to which we have already referred. It also does not represent a fresh agreement between the society on one hand and defendant 1-trust on the other hand. It is in the nature of ratification of what was evidenced by Ex. 175. Ex. 176 in terms refers to the agreement Ex. 175. Ex. 90 is a letter from defendant 1-trust to Nanubhai J. Desai, the promoter of plaintiff-society. They do not incorporate a fresh contract between the plaintiff-society and the defendant 1-trust independently of what was done by Ex. 175.
26. It has also been argued by Mr. Vyas that the plaintiff has been unduly prejudiced by the defendants raising this contention at this stage because if this contention was raised in the trial Court the plaintiff could have pleaded estoppel or could have amended the plaint and set right his cause of action. If this two-fold plea which Mr.Vyas has raised had any substance we would have disallowed Mr. Shah from raising this contention. The principle of estoppel cannot operate against a person who was non-existent at the date when the transaction took place. So far as the amendment of the plaint is concerned, at the most, what could have been done was to join Manubhai J. Desai as the plaintiff in place of the plaintiff-society. That would not help the plaintiff because agreement Ex. 175 clearly shows that it was executed by Nanubhai J. Desai not for his personal benefit or in his personal capacity but on behalf of the proposed society, now the plaintiff-society. We are therefore, not impressed by the argument which Mr. Vyas has raised in this behalf.
27. In our opinion, the argreement of lease Ex. 175 was entered into between defendant 1-trust on one hand and a non-existent co-operative society on the other hand - now the plaintiff-society. It was, therefore, a nullity and gave no rise to cause of action for the plaintiff-society. It, therefore, cannot be specifically enforced against the defendants.