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Judgment
G.R. Majithia, J.—This judgment disposes of Company Appeals Nos. 5 to 13 of 1992.
Claim petitions under Sections 446: 447 and 453 read with Section 458 of the Companies Act, 1956 (for short, "the Act"), i.e., C. P. Nos. 36 to 39 of 1984 and 51 to 55 of 1985 were disposed of by the learned company judge by a common judgment dated February 7, 1992. The learned company judge decreed the claim petitions and the judgments have been challenged in these company appeals filed u/s 483 of the Act.
Facts first :
Roopnagar Credit and Investment Pvt. Ltd., Roopnagar, was ordered to be wound up by the judgment of this court rendered in Company Petition No. 235 of 1980, decided on October 19, 1982, and Bachan Motor Financiers Pvt. Ltd. and Bala Financiers Pvt. Ltd. were ordered to he wound up, vide judgment of this court rendered in Company Petition No. 243 of 1960, decided on October 19, 1982. These were sister concerns. Gursharan Singh Bala and Bhupinder Singh Bala had been the managing directors of these companies. Gursharan Singh Bala''s son, Harminder Singh Bala, had been the managing director of the Ambala Bus Syndicate Pvt, . Ltd., Ropar (hereinafter "the appellant") from the year 1972, till April 11, 1980, and thereafter Birender Singh Bala, son of Bachan Singh Bala, took over charge as managing director.
Roopixagar Credit and Investment Pvt. Ltd., Ropar, Bachan Motor Financiers Pvt. Ltd., Ropar, and Bala Financiers Pvt. Ltd., Ropar, entered into hire-purchase agreements with the appellant. These hire-purchase agreements stated that the finance companies were the full owners of the motor vehicles along with their fittings, tools, accessories, which were given on hire to the appellant through its directors, namely, Gurdial Singh Longia and Amar Singh. Swaran Singh, son of Joginder Singh, Village and Post Office, Chaklan, Tehsil and District Ropar stood surety in the case of hire-purchase agreements entered into by Roopnagar Credit and Investment Pvt. Ltd. and Bachan Motor Financiers Pvt. Ltd. and Amar Singh, son of Ishar Singh, Village and Post Office, Singh Bhagwantpur, Tehsil and District Ropar, stood as guarantor in the case of hire-purchase agreement entered into by Bala Financiers Pvt. Ltd. with the appellant. The agreement contained schedule "A" indicating payments by instalments. Schedule "B" to the hire-purchase agreement contained details of the vehicles hired, engine number, chassis number, registration number, type of the body of the vehicle, its make and model and whether new or old.
Some of the instalments were allegedly paid by the appellant. When these finance companies were ordered to be wound up by the judgment of this court dated October 19, 1982, rendered in C. P. Nos. 235 and 243 of 1980, the official liquidator, on the basis of the records, found that certain amounts were due from the appellant, which necessitated the filing of the claim petitions by the finance companies which were described as owners of the vehicles. The averments made in these company petitions are almost in identical terms. However, for the purpose of appreciating the contentions raised in these appeals, a reference has been made to the pleadings of Company Petition No. 36 of 1984. In paragraphs 4, 5, 6 and 7, mention has been made of the clauses in the hire-purchase agreement. In para 9, it is stated that as per ledger account, a sum of Rs. 71,796.15 shown due towards the petitioner-company in C. P. No. 36 of 1984 from the appellant on July 14, 1980. To this amount, incidental charges and interest from July 14, 1980, to July 14, 1983, at 12 per cent. per annum was added and thus a demand notice for Rs. 97,795.76 was made in the petition.
A written statement was filed on hehalf of the appellant through its managing director, Shri Ujagar Singh. Preliminary objections were taken that the hire-purchase agreement was void being without consideration, the claim petition was barred by time and the hire-purchase agreement was allegedly entered into on November 15, 1978, when Shri Harminder Singh Bala was the managing director of the appellant. The petitioning companies created false liability against the appellant through sham transactions by making transfer entries in the books of account. In fact, the petitioning companies did not advance any amount to the appellant, nor were they the owners of any of the motor vehicles. The appellant did not pay even a single instalment allegedly payable under the hire-purchase agreements to the petitioning companies. After Shri Harminder Singh Bala was removed from the managing directorship of the appellant-company by a unanimous resolution of the board of directors, he created liabilities against the appellant-company in favour of the petitioning companies in which his brother, father, his wife and children are the shareholders.
A rejoin''der to the written statement was filed on behalf of the petitioning companies, wherein the material averments made in the written statement were not controverted.
Nine claim petitions were filed, which were placed in three groups by the learned company judge for the purpose of recording evidence. The evidence led in all these cases was practically in identical terms.
From the pleadings of the parties, the learned company judge framed issues which are almost in identical terms. But, for facility of reference, issues framed in C. P. Nos. 36 to 39 of 1984 are reproduced :
Whether the petitioner is entitled to the recovery of Rs. 97,775.76, inclusive of interest from the respondent ? OPP
Whether the claim is within limitation ? OPP
Whether the hire-purchase agreement dated November 15, 1978, is illegal for the reasons given in paras 3 and 4 of the written statement ? OPR
Whether the hire-purchase agreement is without consideration ? OPR
Whether the entries in the account books of the petitioner company were fabricated at the instance of Shri Harminder Singh Bala ? OPR
Relief."
The learned company judge held issue No. 1 in favour of the petitioning companies. Issue No. 2 was stated to have been given up by counsel for. the appellant. Issues Nos. 3, 4 and 5 were answered against the appellant on the ground that it had failed to discharge the onus.
The petitioning companies and the appellant-company were incorporated under the Companies Act. The powers of the company are to be exercised by its board of directors provided there is no contrary provision anywhere else. The memorandum or articles of the company may restrict the rights and powers of the board of directors. The board of directors may exercise all powers of the company and can do all such acts and things that the company can do, A director as an individual has no power to act on behalf of the company except where the board has delegated its powers to him. The company must have the benefit of collective wisdom of the directors acting as a board. But the exercise of such powers of the board shall be in conformity with the provisions of the Companies Act, or any other Act or memorandum, articles, regulations and resolutions of the company. (See in this connection, a judgment of the Andhra Pradesh High Court reported as East Coast Transport and Shipping Co. (Pvt.) Ltd. (In Liquidation) v. Official Liquidator [1962] 32 Comp Cas 197 . The board may by resolution delegate to a committee of directors, the managing director, the manager or any other principal officer, the power to borrow money otherwise than on debentures, to invest funds of the company or to make loans. However, such resolution shall specify the total amount that may be borrowed by the delegate, the total amount up to which the funds may be invested and the nature of the investment which may be made, the total amount up to which loans may be made, the purpose for which the loans may be made and the maximum amount of loans which may be made for each such purpose in individual cases. In case of dispute, the burden is on the company to prove the delegation. (See in this connection, Sri Kishan Rathi Vs. Mondal Bros. and Co. (P) Ltd. and Another, and Official Liquidator, Manasuba and Co. (Private) Ltd. v. Commissioner of Police, Madras [1968] 38 Comp Cas 884 (Mad).
In the instant case, it was imperative for the petitioning companies to establish by positive evidence that the appellant company or its board of directors had by a resolution authorised Shri Gurdial Singh Longia and Shri Amar Singh, the directors of the appellant company, to enter into hire-purchase agreements with the petitioning companies. No such authorisation by the appellant-company has been proved. Shri Bhupinder Singh Bala appeared in the witness box and stated that he did not recollect any authorisation was made by the appellant-company in favour of Shri Gurdial Singh Longia and Shri Amar Singh to enter into hire-purchase agreements with the petitioning companies. In the absence of any authorisation by the appellant company or by its board of directors, Sharvshri Gurdial Singh Longia and Amar Singh could not enter into any hire-purchase agreement with the petitioning companies. The hire-purchase agreements were per se invalid and unenforceable. It is unfortunate that a fact which is patent on record and uncontrovertible was not pressed before the learned company judge. No liability can be fastened on the appellant-company on the basis of the hire-purchase agreements.
The hire-purchase agreements postulate that the petitioning companies are full owners of the vehicles mentioned in schedule "B" thereto and the petitioning companies gave the vehicles on hire to the appellant-company. Shri Bhupinder Singh Bala in his statement on oath categorically stated that the petitioning companies were neither the owners nor in possession of the vehicles mentioned in schedule "B" to the hire-purchase agreements. He further stated that it was recorded in the hire-purchase agreements that the petitioning companies were the owners of the vehicles only to disable the hirer from transferring the vehicles. He further stated that the buses bearing registration No. PUR 3304, PUR 3305, PUR 3306 and PUR 3059, which were mentioned in the hire-purchase agreements were in fact the property of the appellant-company. In the light of this statement, it is not possible to hold that the hire-purchase agreements were valid documents. A hire-purchase agreement has been defined in Section 2(c) of the Hire-Purchase Act, 1972, as under ;
" ''hire-purchase agreement'' means an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement under which-
(i) possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical instalments, and
(ii) the property in the goods is to pass to such person on the payment of the last of such instalments, and
(iii) such person has a right to terminate the agreement at any time before the property so passes."
Shri Bhupinder Singh Bala in unequivocal terms admitted that the petitioning companies were neither the owners of the vehicles nor delivery of any of those vehicles was made to the appellant-company. He admitted in his statement that the amount claimed through the claim petitions had been paid to the appellant-company in cash and that the money was paid to Gurdial Singh Longia and Amar Singh, the directors, who had entered into the hire-purchase agreements on behalf of the appellant-company with the petitioning companies. The petitioning companies did not adduce evidence vouchsafing the assertion of Shri Bhupinder Singh Bala that the amount claimed in the claim petitions was paid in cash to the appellant-company through its directors, Gurdial Singh Longia and Amar Singh. After stating so, Shri Bhupinder Singh Bala subsequently stated that the money claimed through the claim petitions is reflected as per the entries in the ledger and these entries were made by way of transfer entries from the books of account. His statement in unequivocal terms suggests as under :
(i) There was no authorisation to enter into hire-purchase agreements by the appellant-company with the petitioning companies ;
(ii) The petitioning companies were not the owners of the vehicles allegedly given on hire to the appellant-company ;
(iii) The money which is sought to be enforced through the claim petitions is only as a result of the book entries as are reflected in the ledger ; and
(iv) The amount claimed in the claim petitions by the petitioning companies was paid in cash to the directors of the appellant-company, who entered into hire-purchase agreements.
This statement nullifies the hire-purchase agreements. The learned single judge, with respect, was in error in observing that issues Nos. 3, 4 and 5 framed in C. P. No. 36 of 1984 had to be answered against the appellant-company for want of proof led by it. The evidence led by the petitioning companies fully proves the assertion made by the appellant-company and there is no escape from the conclusion that the hire-purchase agreements are invalid for the reason that the same were entered into on behalf of the appellant-company by persons who were not authorised to do so. No consideration has passed under the alleged hire-purchase agreements since the petitioning companies were not the owners of the.vehicles allegedly given on hire to the appellant-company. The hire-purchase agreements are without consideration for the reason that the essential ingredients of the hire-purchase agreement have not been established. If the petitioning companies were not the owners of the vehicles nor were they in possession thereof, they could not give them on hire to the appellant-company. Transference of possession for consideration is the essential ingredient of a valid hire-purchase agreement. Since the basic condition is non-existent, there is no escape from the conclusion that the hire-purchase agreements were invalid and without consideration.
The ledger account on which reliance is placed to fasten the liability on the appellant is not supported by corroborative evidence, viz., cash vouchers or the entries of the ledger account debited to the account books of the appellant-company. The petitioning companies have failed to establish that any amount is due to them from the appellant-company.
For the reasons stated above, the appeals succeed, the judgments and decrees under challenge are set aside and the claim petitions filed by the petitioning companies are dismissed with costs.