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Allahabad High Court
The Upper India Rice Mills Ltd. vs The Jaunpur Sugar Factory Ltd. on 24 January, 1927
Equivalent citations: AIR 1927 All 161, 101 Ind Cas 224
Author: Mukerji


Walsh, Ag. C.J. and Bannerji, J.

1. This is an appeal from a decision of the Judge in companies (winding up). The claim is one made by the Jaunpur Sugar Factory, Ltd. (in liquidation) against the Upper India Rice Mills, Ltd. (in liquidation) for the sum of Rs. 8,514-10, and has been admitted by the learned Judge. The view that he took was that the money which belonged to the former company was taken from their coffers by their managing agents, Behari and Co., and applied for the benefit of the latter company, whose managing agents were also the same firm, under such circumstances as not to amount to a loan, and that it was not recoverable except upon demand, and that no demand having been made until after the liquidation, namely, the 24th of January 1925, there was no debt until that date, and that therefore limitation could not begin to run before that date. It was thought desirable that in the special circumstances the learned Judge himself should be a member of the Bench hearing the appeal. Certain additional facts were brought to our notice which alter the complexion of the transaction. The series of transactions which actually took place clearly do not amount to an express loan. It was no part of the Jaunpur Sugar Factory’s ordinary business to lend money. No formal application was ever made to them for a loan. The managing agents, who, in this and other company transactions, have been shown by other proceedings to have been thoroughly dishonest and untrustworthy did as they liked with the funds of all the companies managed by them, and the firm itself and the said companies were under the complete control of one Bose, the moving spirit in all of them, and a director of the Jaunpur Sugar Factory, Ltd. The moneys were taken from time to time in the form of cash, whenever, it suited Bose to do so, and were entered as cash in the account of the Upper India Rice Mills, Ltd., in the ledger. The fact that the agent was common to both principals would not, as the learned Judge has pointed out, exempt the principal, which took the benefit of money belonging to the other principal, from liability to return it. The real question is when did that liability arise. The dates between which the moneys were taken were the 19th of April 1920 to the 26th September 1921. In their report and revenue account for 1922, signed by Bose himself as director, these moneys were described as advances or loans. It may, therefore, be said that Behari and Co. as the agents representing both the creditor and the debtor, intended them to be so regarded. No doubt the true facts of the transactions had been deliberately kept from the directors of both principals, but in such a case the law will always presume or imply a promise to repay. The Upper India Rice Mills Co., if they had been sued for the total amount due at the end of 1921, would have found themselves in this dilemma. Either they had received the money, and applied it to their own purposes, rightfully, in which case a promise to repay it must be implied against them, or they had received it wrongfully by the secret and deceitful misapplication by their own agent of the Sugar Factory’s money, in which latter case the money would be recoverable from them as “money had and received” to the use of the true owner. In our view they would have had no defence to Jan alternative claim, if it had been so made, at the end of 1921. In either case the period of limitation would be three years from the date of each actual payment. The rule is that the liquidator of a company which is in liquidation being a trustee for the creditors, time does not run after an order, or resolution, for winding-up. The date for testing the liability is the commencement of the winding-up. But in this case three years had already run when the Upper India Rice Mills, Ltd., went into liquidation, namely in October 1924. The result, therefore, is that the whole claim is barred and must be rejected. Under the circumstances each liquidator must pay his own costs out of the assets of the company with which he is concerned.

Mukerji, J.

2. This is a Letters Patent appeal and the question for decision is one of pure law.

3. The facts are given in the judgment under appeal and have to be reiterated for the purpose of considering the point of law involved. A few years back, several limited companies were started under the auspices of a firm known as Behari & Co. They were managing directors of these companies. We are concerned here with two companies: one, the appellant here, is the Upper India Rice Mills Ltd., and the other is the Jaunpur Sugar Factory, Ltd. Both were managed by Behari & Co. The business for which these two companies were floated is indicated by their names and it was no part of the business of any of these two companies to lend money or to act as bankers. For some reasons which need not be detailed here, there was more money in the Jaunpur Sugar Factory than in any of the other companies. In order to continue the business of the Rice Mills, Behari & Co., found it expedient to employ the money which came into their hands as agents of the Sugar Factory, in the business of the Rice Mills. The result was, that from time to time, money which was the property of the Jaunpur Sugar Factory, was used for the business of the Upper India Rice Mills, Ltd. The directors of these companies were ignorant of these transactions. Money was so used for the appellant company between the dates April 1920 and September 1921. Some entries signifying these transactions were made in the books or either companies. Both the companies went into liquidation. The Rice Mills went into voluntary liquidation in October 1924 and the Sugar Factory was ordered to be compulsorily wound up on the 28th of March 1924. The liquidators of the Sugar Factory found that some money had been utilized by the Rice Mills and they therefore asked the voluntary liquidator of the Rice Mills to pay up the sum. This was in January 1925. The claim was repudiated on the ground that it was time-barred. There can be no doubt that, if the three years’ rule of limitation be applied from each of the dates on which money was employed for the purposes of the Rice Mills, the claim would be time-barred. The voluntary liquidator having repudiated the claim of the Sugar Factory, the matter was referred to me, as the company Judge, and I held that the claim was not time-barred. In appeal, it is contended that this decision was erroneous.

4. It may be conceded that one and the same man, acting as an agent for two principals, may, by his act alone, bind his principals, in certain circumstances. For example a commission agent, acting as the seller and purchaser of goods, may purchase for one party goods brought to him for sale by another party. But in this case, as already stated, it was no part of the business of the Sugar Factory to lend money, and it is common ground that in lending the money-I am using the expression ‘lending’ in its general and non-legal sense-the agents exceeded their power. The Rice Mills, through their agents must be taken to have known that such was the case. In the circumstances I am still of opinion that there was, initially, no loan advanced by the Sugar Factory to the Rice Mills.

5. The act of the agent in so lending oat the money, was unauthorized. That being so the Sugar Factory could sue to recover the money from the Rice Mills only by, adopting the transaction and by ratifying it. If the Sugar Factory repudiate the transaction, as it could do, they cannot sue the Rice Mills to refund. For then there is no privity of contract, between them and the Rice Mills. If the original transaction be ratified it would become a good loan, and then all the consequences of a loan would follow and the claim would be time-barred.

6. If a claim be laid on the ground that, in using the money belonging to the Sugar Factory, the Rice Mills laid themselves liable to restore the benefit, on the principle involved in Section 70 of the Contract Act, the Sugar Factory have to admit that what was done by their agent was done ‘lawfully’, and Article 62 of the Limitation Act would apply. In any view of the case the present claim cannot be maintained by the Sugar Factory without an admission on their part that the act of the agent was good enough for being accepted and ratified.

7. It was no doubt open to the Sugar Factory to tell the agents that they had misapplied the money and they must make it good. The liquidators can do the same. But in such a case there would be cast no liability on the Rice Mills to pay. The Rice Mills may be liable to the agents of the Sugar Factory, but that is another matter.

8. On further consideration I agree in thinking with my learned colleagues that my judgment on the question of limitation was wrong. But the reason is to be found in the fact that the source of the liability of the Rice Mills was not investigated while I sat alone. It was not investigated even on appeal. Indeed, the point was not even touched. The liability was admitted, throughout, except on the ground of limitation. The sole point argued in appeal, as in the original Court, was that the same agent could make a valid contract binding the principals a proposition which I could not accept before and which I cannot accept even now. In the circumstances of the present case, I agree in the order proposed.

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