Prof. CA.

Soujanya G K The Companies Act - Cases

2nd Sem, IBS Bangalore LEOB

Cases for discussion on the Topic - The Companies Act.

Case No.1.

G & Co. Ltd was incorporated in July 1985 to take over the long-established banking
business. The prospectus issued by the company to the public concealed the fact that
the business was at a loss for some years. Within a year after the incorporation of
the company, it stopped payment and went into liquidation. In order to meet the claims
of its creditors, large calls were made to the shareholders. Many of them combined
to form an association wherein Mr. ‘O’ was an (an original allottee of shares) and Mr.
‘P’ (who bought shares in the market). Appellant claimed that his name should be
taken off from the list of contributories on the ground that their contracts had been
induced by fraud and subsequently claimed damages against the directors and other
persons responsible for the prospectus. Will Appellant be successful?

Case No.2

Mr. ‘A’ was a textile manufacturer. His business was in sound condition and there
was a substantial surplus of assets over liabilities. He incorporated a company
named, A & Co. Ltd, for the purpose of taking over and carrying on his business.
The seven subscribers to the memorandum were Mr. A, his wife, his daughter and
four sons and they remained the only members of the company. Mr. A and two of his
sons, constituted the board of directors of the company. The business was transferred
to the company for Rs. 40,000. In payment, Mr. A took Rs. 20,000 shares of Re. 1
each and debentures worth Rs.10,000. These debentures certified that the company
owed Mr. A Rs. 10,000 and created a charge on the company's assets. One share was
given to each remaining member of his family. The company went into liquidation
within a year. On winding up, the state of affairs was broadly something like this:
Assets Rs. 6,000; Liabilities Rs.17,000. (Mr. A as debenture-holder; Rs.10,000 and
unsecured creditors Rs. 7,000) Thus after paying off the debenture-holder nothing
would be left for the unsecured creditors. So Mr. A appealed for his right. Is he
justified?

Case No.3

T. R. P. (Bombay) Ltd was incorporated in the year 1919 with a capital of rupees
five lacs divided into preference and ordinary shares. The Memorandum of
Association contained that the directors' power to borrow money was limited. M.
T. Ltd was incorporated in the year 1920 who were the managing agents of T. R. P.
(Bombay) Ltd and the principal object of the company was to finance T. R. P.
(Bombay) Ltd as the T. R. P. (Bombay) Ltds' capital was insufficient to carry on the
business. On 1st July 1926, a sum of Rs.9,00,000 had been advanced by Mr. S to M.
T. Ltd. Out of the said amount, Rs.4,50,000 were admitted to be advanced by M. T.

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Prof. CA. Soujanya G K The Companies Act - Cases
2nd Sem, IBS Bangalore LEOB

Ltd to T. R. P. (Bombay) Ltd. Mr. S wanted to get a mortgage upon all the properties
of M.T's and T. R. P. (Bombay) Ltd’s as the security for the amount advanced. On
23rd February 1928, a mortgage deed was executed. The deed was made between
M.T (thereinafter called the mortgagor of the first part), T. R. P. (Bombay) Ltd
(thereinafter called the surety of the second part) and Mr. S (thereinafter called the
mortgagee of the third part). T. R. P. (Bombay) Ltd argued that the mortgage deed
was not properly executed and it was beyond the powers of the company.
Accordingly Mr. S had filed a case before the trial court and it was held that the deed
executed was valid and Mr. S have a right to recover the amount mentioned in the
deed as secured creditors. Aggrieved by the said order T. R. P. (Bombay) Ltd
appealed before the Bombay High Court that the agent had no authority to borrow
beyond the limit of the issued capital. Will the appellant win?

Case No.4

The directors of a company borrowed a sum of money from the plaintiff. The
company's Articles provided that the directors might borrow on bonds such sums as
may from time to time be authorized by a resolution passed at a general meeting of
the company. No such required resolution was passed by the company. The company
was however held bound by the loan. The shareholder claimed that there was no
such resolution authorizing the loan and, therefore, it was taken without their
authority. Whether the shareholder could recover the amount of the bond from the
Company?

Case No.5

A company was formed by two tobacco manufacturers, R and W carrying on same

business separately adopting the process of amalgamation. These manufacturers
were the only shareholders with equal voting rights and also the directors of the
company. In the course of business R had brought an action against W alleging
fraud. Similarly, they had also spent over Rs. 1000 in a litigation that arose
concerning the dismissal of an employee, terms of employment of a traveler etc. The
shareholders became so hostile to each other that communication between them was
made through the Secretary of the company. Despite several differences and
squabbles between them the company was making good profits. W filed a petition
for winding up. The Court held that there is a deadlock in the management therefore
it is just and equitable to wound up the company and granted a winding up order.
Whether the court is justified in doing so?