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Leading Cases on Company Law

As the trend of asking questions have been changed by ICAI, I thought this might
be useful. I compiled these decided case laws from various sources like RTP,
study module, compilation of suggested answers. I am laying down only those
which I feel important from examination point of view. These caselaws make the
concept even clearer because example is a better teacher.

Cases on separate legal entity

Kandoli tea company Ltd(1886)
Facts Certain persons transferred their properties in the name of company on
which tax was payable.
Petition Petitioners claimed exemption from such tax on the ground that the
transfer was from them individually to themselves in another name.
Judgment Company is separate from its shareholders and this should be
treated as transfer.

Saloman Vs. Saloman & Co. Ltd. (1895 - 99)

Facts - Saloman sold his business to a company named Saloman & Company
Ltd., which he formed. Saloman took 20,000 shares. The price paid
by the company to Saloman was 30,000, but instead of paying him, cash, the
company gave him 20,000 fully paid shares of 1 each & 10,000
in debentures. The company wound up & the assets of the company amounted
to 6,000 only. Debts amounted to 10,000 due to Saloman &
Secured by debentures and a further 7,000 due to unsecured creditors. The
unsecured creditors claimed that as Saloman & Co. Ltd., was really the
same person as Saloman, he could not owe money to himself and that they
should be paid their 7,000 first.
Judgment-
1. A Company is a "legal person" or "legal entity" separate from and capable of
surviving beyond the lives of, its members.
2. The company is not in law the agent of the subscribers or Trustee for them.
3. Saloman was entitled to 6,000 as the company was an entirely separate
person from Saloman.
4. The unsecured creditors got nothing.

Lee Vs. Lee's Farming Co. Ltd. (1960)

Facts - Lee incorporated a company of which he was the managing director. In
that capacity he appointed himself as a pilot of the company. While
on the business of the company he was lost in a flying accident. His widow
claimed compensation for personal injuries to her husband while in the
course of his employment. It was argued that no compensation was due because
L & lee's Air Farming Ltd. were the same person.
Judgment-

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1. L was separate person from the company he formed and compensation was
payable.
2. His widow recovered compensation under the Workmen's Compensation Act
3. A member of a company can contract with a company of which he is a
shareholder.
4. The directors are not precluded from being an employee of the company for
the purpose of workmen's compensation
legislation.

MacauraVs. Northern Assurance Co. Ltd. (1925)

Facts - M was the holder of nearly all the shares except one of a timber
company. He was also a substantial creditor of the
company. He insured the company's timber in his own name. The timber was
destroyed by fire & M claimed the loss from Insurance
Company.
Judgment-
1. The Insurance Company was not held liable to him.
2. A shareholder cannot insure the company's property in his own name even if
he is the owner of all or most of the company's
shares.

Lifting of corporate veil

Gol ford Motor Co. Vs. Home (1933)
Facts - Home was appointed as a managing director of the plaintiff company on
the condition that "he shall not at any time while he shall hold the office
of a managing director or afterwards, solicit or entice away the customers of the
company." His employment was determined under an agreement.
Shortly afterwards he opened a business in the name of a company which
solicited the plaintiffs customers.
Judgment-It was held that the company was a mere cloack or shaw for the
purpose of enabling the defendant to commit a breach of his covenant
against solicitation. The court will refuse to uphold the separate existence of the
company where it is formed for a fraudulent purpose or to avoid
legal obligations.

Daimler Co. Ltd. Vs. Continental Tyre & Rubber Co. Ltd. (1916)
Facts - In a company incorporated in England for the purpose of selling tyres
manufactured in Germany by a German Company, all
the shares except one was held by the German subjects residing in Germany.
The remaining one was held by a British. Thus the
real control of English Company was in German hands. Question arose whether
the company had become an enemy company due to
war & should be barred from maintaining the action.
Judgment-

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1. A Company incorporated in United Kingdom is a legal entity, a creation of law

with the status & capacity which the law confers.
2. It is not a natural person with mind or conscience. It can neither be loyal nor
disloyal. It can be neither friend nor enemy. But it can
assume enemy character when persons in defacto control of its affairs are
residents in any enemy country or whenever resident, are
acting under the control of enemies.
3. Held that company was an enemy company for the purpose of trading and
therefore it was, barred from maintaining the action.

Workmen employed in associated rubber industries

Facts A subsidiary company was formed wholly by the holding company with
no assets of its own except those transferred to it by the holding company, with
no business or income of its own except receiving dividend from shares
transferred to it by the holding company.
Judgment Court held that the new company was formed as a devide to reduce
the profitsof the holding company and thereby reduce the bonus to workmen.

F.G.Films Ltd., case

Facts An American company produced a film in India actually in the name of
British company wherein 90% of the share capital was held by the chairman of
the American company which financed the production of the film.
Judgement The contention of the sensor board of films refusing to register the
film on the ground that British company has acted merely as an agent of British
company was correct.

COI is conclusive evidence that all the requirements have been

complied with
Moosa Goola Arif Vs Ibrahim Goola Arif
Facts Company registered on the basis of MOA&AOA signed by two persons
and a guardian on behalf of 5 minor members. Guardian signed separately for
each of 5 memebers. The ROC however registered the company and issued
under his hand a certificate of incorporation.
Petition Plaintiff contended that COI should be declared as void.
Judgment The court held the certificate to be conclusive for all purposes.

Jubilee Cotton Mills Ltd.,

Facts The ROC issued a COI on Jan 8th but dated it Jan 6th which was the date
he received application. On Jan 6th the company made an allotment of shares to
Lewis
Judgment Court held that certificate was conclusive evidence of incorporation
on Jan 6th and that the allotment was not void on the ground that it was made
before the company was incorporated.

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Decided case on objects clause of MOA

Crowns bank case

Facts A companys objects clause enabled it to act as a bank and further to
invest in securities and to underwrite issue of securities. The company
abandoned its banking business and confined itself to investment activities.
Judgment Court held that the company was not entitled to do.

Doctrine of ultravires

Ashbury railways carriage & Iron Co Ltd Vs Riche

Facts A railway company was formed with an object of selling railway wagons.
The directors entered into a contract with Richie to finance the construction of
railway line. The shareholders later rejected the contract as ultravires.
Judgment The court held that the contract was ultravires and therefore null and
void.

Doctrine of indoor management / Turquand rule

Royal British Bank Vs. Turquand (1856)

Facts - 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 authorised by a resolution passed
at a general meeting of the company. The shareholders claimed
that there had been no such resolution authorising the loan and, therefore, it was
taken without their authority. The company was however held bound
by the loan. Once it was found that the directors could borrow subject to a
resolution, the plaintiff had a right to infer that the necessary resolution
must have been passed.
Judgment-
1. Persons dealing with the company are bound to read the registered
documents and to see that the proposed dealing is not
inconsistent therewith.
2. Outsiders are bound to know the external position of the company, but are not
bound to know its indoor management.
3. Company may ratify the ultra vires borrowing by the directors if it is taken
bonafide for the benefit of the company.

Exception to Turquand rule

Ruben Vs. Great Fingall Consolidated (1906)

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Facts - The plaintiff was the transferee of a share certificate issued under the
seal of a defendant company. The certificate was issued
by the company's secretary, who had affixed the seal of the company & forged
the signatures of two directors.
Judgment-
1. It is quite true that persons dealing with limited liability companies are not
bound to enquire into their indoor management and will
not be affected by irregularities of which they have no notice. But the doctrine of
indoor management, which is well established,
applies to irregularities which otherwise might affect a genuine transaction. It
can't apply to a forgery.
2. Plaintiffs suit for damages did not succeeded because turquand's rule did not
apply where the document was forged.

Anand Biharilal Vs Dinshaw and Co.,

Facts The plaintiff accepted a transfer of the companys property from its
accountant.
Judgment The court held that since it is beyond the scope of an accountants
authority, it was held void.

The offer in prospectus should be made to public (atleast to 50

persons)

Nash Vs Lynde
Facts Some copies of documents marked strictly confidential and containing
particulars of a proposed issue of shares, were sent by the managing director to
his relatives and friends. Thus the document was passed on privately through a
small circle of friends of directors.
Judgment The court held that there was no issue to public, and it doesnot
amount to prospectus as it was not offered to public.

Who can sue on a false and misleading prospectus

Only primary market allotees
Peek Vs Gurney
Facts A fraudulent prospectus was issued by the directors. Peek received a
copy of it and did not took any shares. After several months Peek bought few
shares from the stock exchange.
Judgment His action against the directors for fraudulent prospectus was
rejected as he took the shares through the secondary market.

Misc. Case laws

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Needle Industries Ltd. Vs. Needle Industries Newly (India) Holding Ltd.
(1981)
Facts - The articles of a private company contained a clause that when the
directors decided to increase the capital of the company
by the issue of new shares the same should be offered to the shareholders, and
if they
failed to take, may be offered to others. The company was a wholly owned
subsidiary of an English Company. The Govt, of India adopted a policy of
diluting foreign holdings. The company accordingly issued new shares to its
employees and relatives reducing the foreign holding to 60%. The
company became a deemed public company because more than 28% of its
share capital was held by a body corporate.
Judgment-
1. A deemed public company is neither a private company nor a public company
but a company in a third category.
2. If the power of appointing additional directors is delegated to the Board by the
articles, the Board can appoint additional directors without
taking this item on the agenda of its meeting.

Gramophone Ltd. Vs. tanley (1908)

1. "Even a resolution of a numerical majority, at a general meeting cannot impose
its will upon the directors. When the articles have confided
to them the control of the company's affairs."
2. A company will be regarded as an Indian Company even if it is incorporated in
India by promoters of foreign nationality.

T.R. PRATT Ltd. Vs. Sasson & Co. Ltd. (1936)

Facts - There were three companies, namely, 'S\ 'MT' & 'P' Company. S
company had been financing P Company for a number of years and all
transactions of loans were entered into through the agency of MT Company
which held almost all the shares of P Company. The Directors of MT
Company were also the Directors of P Company and this fact was known to S
Company. An equitable mortgage was created on the property of 'P'
Company for a loan granted by S to MT Company. In the winding up of P
Company, it was held that the official liquidator was entitled to avoid the
equitable mortgage as S Company had the knowledge of the facts through its
directors.
Judgment-
1. Just as in case of agency, a notice to agent will amount to a notice to the
principal, in the same way a notice to director will be deemed as a
notice to the company.
2. Money having borrowed and used for the benefit of the principal, i.e. company
in either paying off debts or for its legitimate business, the company
could not repudiate its liability on the ground that the agents i.e., directors had no
authority from the company to borrow.

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3. "Under the law an incorporated company is a distinct entity, and although all
the shares may be practically controlled by one person, in law a
company is a distinct entity and it is not permissible or relevant to enquire
whether the directors belonged to the same family or whether it is compendiously
described as one man company.

Ewing Vs. Butter Cut Margarine Company Ltd. (1917)

Facts - The plaintiff was an incorporated firm carrying on substantial business
under the trade name of Butter Cap Dairy Company. The defendant
company was registered to trade in similar commodities and selected the name
bonafide believing that there was no other company in existence with
a similar name. The plaintiff alleged that the name of the new company would
lead to confusion and was detrimental to the plaintiffs business.
Judgment-Plaintiff was entitled to restrain the newly registered company from
carrying on business on the ground that the public might
reasonably think that the registered company was connected with his business.

Mackinnon Mackenzee & Co. Re, (1967)

Facts - A Company desired to shift its registered office from the State of West
Bengal to Bombay. The Company's petition was resisted by the state on
the grounds of loss of revenue.
Judgment- Held that there is no statutory right of the state, as a state, to
intervene in an application made u/s 17 for alteration of the place of the
registered office of a company. To hold that the possibility of the loss of revenue
is not only relevant, but of persuasive force in regard to the change is
to rob the company of the statutory power conferred on it by Sec. 17. The
question of loss of revenue to one state would have to be considered in the
total conspectus of revenue for the Republic of India and no parochial
consideration should be allowed to turn the scale in regard to change of
registered office from one state to another within India.

Scientific Poultry Breeder's Association, Re (1933)

Facts - Memorandum of the company prohibited payment of any remuneration to
the directors. When the business of the company increased it
was found that the directors could not pay sufficient attention unless some
remuneration was paid to them.
Judgment-Company was allowed amendment to enable it to pay remuneration to
its managers, which was formerly forbidden, being necessary for
efficient management.

Re Cyclists Touring Club. (1907)

Facts - The Company's business was to promote, assist & protect cyclists on the
public roads. The company by altering the object clause
desired to include among the persons to be assisted all tourists including
motorists.
Judgment-

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1. The club not allowed to undertake protection of motorists also, as cyclists had
to be protected against motorists.
2. It was impossible to combine the two business as one of the objects of the
company was to protect cyclists against motorists.

Peveril Gold Mines Ltd. Re (1898)

Facts - The articles provided that no winding up petition could be presented
without the consent of two directors or unless a resolution to wind up
was passed at a general meeting or the petitioner held one-fifth of the share
capital. None of these conditions was fulfilled.
Judgment-
1. Restriction was invalid & the petition could be presented.
2. Sec. 439 of the Companies Act, 1956 confers the right on a shareholder to
petition for winding up of the company in certain circumstances.
This right can't be excluded or limited by the articles.
3. Each member is entitled to say that there shall be no breach of the Articles
and he is entitled to an injunction to prevent breach.

Hulton Vs. Scarborough Cliff Hotel Co. (1865)

Facts - A resolution passed at a general meeting of a company altered the
articles by inserting the power to issue new shares with preferential
dividend. The memorandum contained no such power.
Judgment-
The alteration was inoperative.

Erlanger Vs. New Sombrero Phosphate Co. (1878)

Facts - Erlanger was the head of a syndicate who purchased an Island
containing mines of Phosphate for 55,000 pounds Then formed
a company to buy this Island. A contract was made between X a nominee of the
syndicate and the company for its purchase at
1,10,000 pounds. A prospectus was then issued. Many persons took shares. The
company failed & the liquidator sued the promoter
for the refund of the profit.
Judgment-
1. Promoters stand in a fiduciary position. They have in their hands the creation
& moulding of the company.
2. The promoters is in the situation a kin to that of a trustee of the company, & his
dealings with it must be open and fair.
3. Promoter is guilty of breach of trust if he sells property to the company without
informing the company that the property belongs
to him or he may commit a breach of trust by accepting a bonus or commission
from a person who sells property to the company.

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