1. This is a plaintiff's appeal in a suit for recovery of Rs. 1,03,988 being Rupees 79,519-12-9 principal and Rs. 24,463-4-0 interest on a deposit which the plaintiff made with the defendant.
2. The defendant is a Ginning and Pressing Factory. According to the plaintiff the company was obliged to finance cotton traders who sent their cotton to the factory for ginning and pressing, otherwise it was not possible to get their custom. In order to do this the company had to borrow money. This money was borrowed from the plaintiff, among others, and the plaintiff sues for the amount which he says is due to him. The plaintiff asserts that the company had the authority to borrow for the purpose aforesaid. The borrowing was made under the following circumstances. The plaintiff acted as the company's banker and lent the company money from time to time. The money so lent was placed by the company in a current account and later transferred to a fixed deposit account. These deposits were cashed in or renewed from time to time. The latest, on which the suit is based, was for the sum set out above and was made on 15-1-1940. It is evidenced by a fixed deposit receipt Ex. P-1.
3. We find this difficult to follow. If the plaintiff was the company's banker then either the plaintiff would lend money to the company as and when desired or, he would keep the company's money with him in his bank for the convenience of the company. If it was a case of the company keeping its money with the plaintiff then the deposit would be by the company and not the plaintiff, and the person entitled to sue for its return would be the company. If the deposit was made with money borrowed by the company from the plaintiff then the plaintiff's right would be to recover his loan. On the other hand, if the plaintiff were depositing money with the company normally the company would be in the position of banker and not the plaintiff. It is not easy to see how the plaintiff was placing money with the company in fixed deposit in his capacity as a banker. The plaintiff might be described as the defendant's financier but hardly as its banker.
4. It is evident from P.W 1, Thombre that the moneys lent by the plaintiff from time to time actually passed hands and were kept with the defendant and not with the plaintiff. He says he sometimes accompanied the secretary of the company when he went to the plaintiff for taking the money borrowed by him and tells us:
“The secretary used to agree with the plaintiff when borrowing money from him to pay back the amount on demand. The amounts borrowed from the plaintiff used to be credited either into the current accounts or in the deposit account…. With respect to the amounts deposited in the ‘deposit accounts’ the plaintiff had to make a demand after the general meeting and then if the funds were available he used to be paid off and if they were not available a fresh deposit receipt used to be passed to him by the company.”
5. The plaintiff also admits as P.W 3 that “all the loans given by me to the company were advanced in cash by me.”
6. In the circumstances we find it difficult to see where the relation of banker and customer comes in if the plaintiff was the banker, as he says he was in his plaint. We feel the plaintiff has taken up this position to try to bring his case within Article 60, Limitation Act. However, even if the plaintiff was not a banker that would not necessarily preclude him from being a depositee within the meaning of Article 60, Limitation Act, if the transaction was really of that nature.
7. Exhibit P-1 purports to be a deposit receipt and if the parties deliberately chose to consider their transaction a deposit and not a loan then we would find it difficult to hold that it was not intended to be a deposit. It is true that “the mere use of the term deposit cannot alter the substance of the transaction”, (U.N Mitra's Law of Limitation and Prescription, 6th Edn., vol. II, p. 1202), but as the dividing line between a deposit and a loan is so fine, and as the difference must to a large extent depend upon the intention of the parties, the fact that they agree to regard their act as a deposit is of importance. However, that in itself would not necessarily attract Article 60.
8. The main ground of attack is that the borrowing was ultra vires. The defendant company admits that the plaintiff and others did make certain advances to the company but it says that these have all been repaid. But that apart, the defendant contends that the borrowing was ultra vires. To determine this it will be necessary to look to the Memorandum and Articles of Association.
9. The objects of the company are there set out to be to gin and press cotton. In order to achieve those objects the company is given power either to purchase ginned or unginned cotton (cl. 3(e)) or
“to give money for the purchase of goods…. or other articles required for all or any of the above works of the company or to give money as advance for the said goods.” (Clause 3(1)).
10. And in order to be able to give the money for this purpose the company is authorised
“to borrow money… receipts passed for or by opening a current account in the creditors' shop…. or in any other way.” (Clause 3(h)).
11. We hold on this that the company was authorised to borrow money for the purpose of advancing it to traders.
12. The next question is whether it could borrow from one of its own directors. It is admitted that the plaintiff was the managing director at the date of the deposit in suit. The law as to this is set out in Ghosh's Indian Company Law (7th Edn.), pp. 223 and 221. The main rule is that
“a director is precluded from dealing on behalf of the company with himself and from entering into engagements in which he has a personal interest conflicting or which may possibly conflict with the interest of those whom he is hound by fiduciary duty to protect:” (p. 267 ibid).
13. But despite this, if the contract is for the benefit of the company it would be upheld. But most of that is beside the point because, as Ghosh says at p. 268,
“Modern articles usually authorise directors to make contracts in which they are personally interested, on disclosing their interest to their fellow-directors…. but the terms must be strictly complied with.”
14. We think such a provision is unnecessary in India because Section 91-A(1) of the Companies Act contemplates a position in which directors are interested in contracts made with the company, and all that is required is that there should be a full and frank disclosure of the nature of their interest. We hold, therefore, that a company is entitled to borrow money from one of its own directors. But that is subject to the fundamental position that the director, even though disclosing his interest, does not take undue advantage of his position because, fundamentally, the position of a director is very like that of a trustee. He occupies a fiduciary position and so the transaction must be fair and proper.
15. We come next to the question of limitation. As we said at the beginning of this judgment, the fact that the parties choose to call the transaction a deposit and not a loan has importance. But before Article 60 can apply not only must the transaction be a deposit but there must be in addition, “an agreement that it shall be payable on demand.” Exhibit P-1 negatives such an agreement for it is not payable on demand. It is payable on a fixed date 12 months hence. The whole point of the deposit, according to the plaintiff, was to save the company the inconvenience of having to pay out large sums of money on demand. That being so, Article 60 cannot apply for, as U.N Mitra tells us in his Law of Limitation and Prescription (Edn. 6), Vol. II, p. 1201, on the authority of Bank of Upper India Ltd. v. Arif Hussain, A.I.R (18) 1931 ALL. 59 at p. 62 : (128 I.C 772):
“Fixed deposits in Banks, not being payable on demand, are not governed by this article. Article 115 may apply to such deposits where on expiry of the term the amount would become payable as money lent.”
16. We hold, therefore, that the limitation was three years commencing from 31-7-1940. As the suit was filed on 16-6-1944 it is prima facie barred by time.
17. The plaint relies on the following matters for saving limitation: (1) an acknowledgment contained in Ex. P-42, a resolution of the Board of Directors dated 20-5-1941; (2) the Company's balance sheets for 1940/1941 and 1941/1942 and 1942/1943; (3) an application by the plaintiff for liquidation made under Section 162 of the Companies Act. The plaintiff contends that Section 14 of the Limitation Act is called into play and saves limitation. The fourth ground sot out in the plaint was abandoned before us.
18. Considering Ex. P-42 first. That does not save limitation for two reasons. The first is that it is not an acknowledgment of liability. One Pandurang Hadole informed the Board of Directors that a sum of Rs. 67,939 was due to the plaintiff in July 1936 and that the directors had offered to settle the debt for Rs. 65,000. The plaintiff was again told to make a choice so that the matter could he placed before the general body of share-holders. This is not an acknowledgment of liability. It merely asks the plaintiff to determine his attitude so that the matter can be placed before another body which would decide the question.
19. In the second place, even if it is an acknowledgment, it refers to the debt of Rs. 67,939 due in July 1936. As Ex. P-42 is dated 1941 it is beyond time because, before an acknowledgment can operate to save limitation it must be made before the limitation expires.
20. Turning next to the balance sheets. The mere signing of a balance sheet by a director does not operate to save limitation because the director in drawing up a balance sheet does not do so with the intention of acknowledging liability but under a duty where he is bound to set out, among other things, the claims made on the company. It is then for the directors, and later for the company, to pass on these claims and either accept them or reject them, (See Ghosh's Company Law, Edn. 7, p. 392; See also Kandasami Reddi v. Suppammal, 45 Mad. 443 at p. 477 : (A.I.R (9) 1922 Mad. 104).
21. Actually no balance sheets were filed till 1945 though they were expressly relied on in the plaint. Then on 28-4-1945 the plaintiff applied to file the balance sheet of 1940–1941. He expressly stated that he did not want to adduce any oral evidence to prove it. In view of that he was allowed to file it. But it transpired later that a balance sheet does not prove itself, therefore, the plaintiff made another application on 11-7-1945 for permission to file a copy from the Registrar and contended that this proved itself. This document was rejected as filed too late. Both have been re-filed here.
22. Section 13(3) of the Companies Act requires a copy of the balance sheet to be sent to every member at least 14 days before the meeting and S. 134(1) requires another copy to be sent to the Registrar after the general meeting of the share-holders. It is evident from the Act itself that these are copies and not originals and there is nothing in the Act which makes these copies admissible in evidence. On the contrary S. 131(2) enacts that the original shall be open to inspection by any member of the company. Therefore we are relegated to the ordinary law of evidence.
23. Section 65 of the Evidence Act sets out the cases in which secondary evidence is admissible. It was argued that this falls under cl. (e) “when the original is a public document within the meaning of S. 74” because S. 74 states that the following are public documents, namely, “(2) public records kept in British India of private documents”. The argument is not well founded. Section 65 applies S. 74 only when the original is a public document. It would, for example, be absurd to contend that a private sale-deed or mortgage can be proved by the production of a certified copy obtained from the Sub-Registrar's office and nothing more.
24. We suspect these copies were produced at a late stage of the case on purpose and consider that the objection to the admissibility of these copies is not a mere technicality.
25. It will be recollected that a directors' meeting was called for 27-4-1941 (Ex. D-88) and that all that was done on that day was to accept the plaintiff's resignation as Chairman and appoint another in his place. Thereupon, a second meeting was called for 17-5-1941 (Ex. 89) and had to be adjourned for want of a quorum. The adjourned meeting was held on 20-5-1941 (Ex. P. 42) but no balance sheet was passed. Thereupon a general meeting of the shareholders was called for 16-11-1941 to pass the balance sheet. This also had to be adjourned to the following day for want of a quorum (Ex. P-90). At the adjourned meeting the shareholders then present refused to pass the accounts (Ex. P-91). It was not till some 5 weeks later, namely on 30-12-1941, that the rival faction met and passed the accounts (Ex. P-63). But this meeting, as has already been pointed out, purports to be a continuation of the meeting of 16-11-1941 which had to be adjourned for want of a quorum. It does not purport to be a fresh, meeting freshly convened after due notice, etc.
26. Now under Article 58 of the Articles of Association a meeting which is adjourned for want of a quorum has to meet on the following day. It cannot meet on any other date. The reason, for this is simple. If there is no quorum there can be no valid meeting, therefore the persons, present cannot transact any business and cannot even adjourn their own meeting. Unless their Articles provide otherwise the only way in which they can validly meet again is by convening a fresh meeting after due issue of a fresh set of notices. Therefore, if the Articles provide, that the adjourned meeting shall be held on the following day it must be the following day or nothing. As Ex. P-63 purports to be a record of the adjourned meeting it is prima facie valueless because the meeting was held five weeks later and not on the following day. We cannot presume that the meeting was validly called afresh because on the face of it the document describes the meeting as the adjourned meeting. In the circumstances the impugned balance-sheets were rightly rejected. They do not prove themselves, and, so far as the record goes, it would appear that they were validly rejected by the shareholders on 17-11-1941 (Ex. P-91) and have never been validly passed since. For these, reasons we hold that these balance sheets do not operate as acknowledgments within the meaning of Section 19 of the Limitation Act. The other balance sheets of 1941/1942 and 1942/1943 have not been filed. We hold, therefore, that the claim is barred by limitation.
27. A point of estoppel was argued. But there can be no estoppel here because the plaintiff knew all the facts and himself brought about most of the transactions by being present at the meetings, and in many cases acting as Chairman.
28. As regards the question of limitation we omitted by a slip to give a decision on the arguments advanced regarding Section 14 of the Limitation Act. The contention was that the plaintiff made an application to the Court under the Indian Companies Act for liquidation on 16-6-1941. This was dismissed on 16-6-1944. He contends that proceeding was founded upon the same cause of action. With that we do not agree.
29. In the first place the liquidation proceedings have not been filed. We have neither the application nor the order before us. All we have is an admission of the defendants when called upon to admit facts that an application for liquidation was made on 16-6-1944 and that the defendants in the liquidation proceedings as well as here are the same. There is no admission that the cause of action is the same. They were called upon to admit that fact but did not do so. It was, therefore, incumbent on the plaintiff to prove it if he wished to rely on that for bringing his claim within limitation.
30. The grounds on which a company can be wound up are set out in Section 162 of the Companies Act. There are a number of them. Even if it be assumed that the application was under S. 162(v), namely, that the company was unable to pay its debts, S. 163(1) shows that the expression “unable to pay its debts” embraces three distinct concepts. There is nothing to show that the application was confined to this particular debt. But even if it was, the cause of action in winding up proceedings under S. 163(1) is the inability of the company to pay its debts and not as here, as the recovery of the debt. The question of recovery does not arise until the winding up order has been made and a liquidator appointed. It is at that stage that the claims against the company are enquired into and decided. Therefore the cause of action in those proceedings and the cause of action here were not the same. It follows that S. 14 is not attracted. The appeal fails and is dismissed with costs. The cross-objection was not pressed and is also dismissed with costs.
31. Appeal dismissed.