Professional Documents
Culture Documents
Bell Houses LTD
Bell Houses LTD
upon another and new technique of evasion. The decision, however, promotes
substantial justice. The facts may be noted first.
The plaintiff company's principal business was the acquisition of vacant sites and the
erection thereon of housing estates. In the course of transacting the business, the
chairman acquired knowledge of sources of finance for property development. The
company introduced financer to the defendant company and claimed the agreed fee of
20,000 for the same.
The trial Judge held that contract was ultra vires, because it was not covered by any
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Co.v. Riche, that anultra vires contract is wholly null and void, the court dismissed
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the company's claim. The learned judge pointed out that to hold the defendants liable
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The company relied upon a clause in its objects which authorised it "to carry on any
other trade or business whatsoever which can, in the opinion of the board of directors,
be advantageously carried on by the company in connection with or as ancillary to any
of the above business". The company claimed that their contract came within this
clause. But the memorandum did not contain a declaration excluding the "main
objects" rule of construction. Accordingly Macotta, J. applied the rule and held that
the clause was meaningless as it would add nothing to the company's business except
the power to carry on the incidental objects and that would not enable a company for
developing sites to become a money-broker.
But on appeal the decision of Macotta, J. was reversed. The Court of appeals held the
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above clause to be valid and fully operative to enable the directors to undertake any
new business which in their honest opinion could be advantageously taken up. The
agreement was thus intra vires and the company could enforce it.
The result has been welcome. Any other rule would have deprived the company of a
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valuable asset only because of technical doctrine which came into existence as a
proctor of corporate interests.
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But the reasoning on which the court proceeded may become a precedent for total
evasion of ultra vires not merely in reference to outsiders but also as between the
company and its members. If the objects of a company are allowed to depend upon the
directors' bona fide opinion as to what is in the interests of the company, the future
memoranda need only state that the objects of the company shall depend upon
the bona fide opinion of directors. The Registrar shall be bound to register the
memorandum as a sufficient compliance with the Act.
The doctrine has been affirmed by the Supreme Court in its decisions in A. Lakshmanaswami Mudaliar v.
Life Insurance Corporation of India 6 . The directors of a company were authorized to make payments
towards any charitable or any benevolent object or for any general public, general or useful object. In
accordance with a shareholders resolution the directors paid two lakh rupees to a trust formed for the
purpose of promoting technical and business knowledge. The payment was held to be ultra vires. The
court said that the directors could not spend the companys money on any charitable or general object
which they might choose. They could spend for the promotion of only such charitable objects as would
be useful for the attainment of the companys own objects. The companys business having been taken
over by the Life Insurance Corporation, it had no business left to promote
ts[edit]
Mr Freeman and Mr Lockyer sued Buckhurst Park Ltd and its director, Shiv Kumar Kapoor, for
unpaid fees for their architecture work on developing the Buckhurst Park Estate
inSunninghill, Berkshire. The companys articles said that all four directors of the company
(another Mr Hoon, who was never there, and two nominees) were needed to constitute a quorum.
Originally the company planned to simply buy and resell the land, but that fell through. Kapoor
had acted alone (as if he were a managing director) in engaging the architects, without proper
authority. The company argued it was not bound by the agreement.
Judge Herbert at Westminster County Court held the company was bound, and the company
appealed.
Judgment[edit]
Diplock LJ held the judge was right and the company was bound to pay Freeman and Lockyer
for their architecture work.[1] He noted that if actual authority is conferred by the board without a
formal resolution, this renders the board liable for a fine.[2] If a person has no actual authority to
act on a company's behalf, then a contract can still be enforced if an agent had authority to enter
contracts of a different but similar kind, the person granting that authority itself had authority,
the contracting party was induced by these representations to enter the agreement and the
company had the capacity to act.[3] All those conditions were fulfilled on the facts, because (1)
the board knew about Kapoors general activities and permitted him to engage in these kinds of
activities; such conduct represented his authority to contract for these kinds of things (2) the
articles conferred full power to the board (3) Freeman and Lockyer were induced to contract by
these representations and (4) the company had capacity.
"In construing ..... any ..... memorandum of association in which there are general words,
care must be taken to construe those general words so as not to make them a trap for
unwary people. General words ..... must be taken in connection with what are shown by
the context to be the dominant or main objects (of the company). It will not do under
general words to turn a company for manufacturing one thing into a company for
importing something else, however general the words are."
15. In the above case the memorandum of association of the company stated that it was
formed for working a German patent which had been or would be granted for
manufacturing coffeefrom dates, and also for obtaining other patents for improvements
and extensions of the said inventions or any modifications thereof or incidental thereto,
and to acquire or purchase any other inventions for similar purposes, and to import and
export all descriptions of produce for the purpose of food, and to acquire or lease buildings
either in connection with the abovementioned purposes or otherwise, for the purposes of
the company. The intended German patent was never granted, but the company
purchased a Swedish patent, and also established works in Hamburg, where they made
and sold coffee made from dates without a patent. Many of the shareholders withdrew
from the company on ascertaining that the German patent could not be obtained, but
the large majority of those who remained desired to continue the company which was in
solvent circumstances. It was held that the substratum of the company had failed and it
was impossible to carry out the objects for which it was formed and therefore that it was
just and equitable that the company should be wound up although the petition was
presented within a year of its incorporation.
In Aluminium Corporation of India v. Lakshmi Ratan Cotton Mills Co, Ltd., [1970] 40 Comp Cas 259; AIR
1970 All 452 (All) which arose on a creditors petition to wind-up the respondent-company, it was held:
The fact that the company is unable to pay its debts, does not necessarily entitle the court to order winding-up
of the company as the discretion to pass such an order, even in the case of the inability of a company to pay its
debts, is by Section 433 vested in the court.
But the discretion has to be exercised judicially. This means that it is only where the balance of equities is
shown by a petitioner to tilt appreciably in favour of a winding-up order that it will be made ex debito justitiae.
It is in this special sense that a petitioner relying on grounds contained in Section 433 can get a winding-up
order as a matter of right. It is issued as a matter of right when the proved contents of the right produce a
compelling effect. It is not granted mechanically as a matter of course on proof of certain facts. In other words,
equitable considerations have a decisive effect even when the power to wind-up a company is invoked under a
clause of Section 433 other than the general just and equitable Clause (f). The provisions of Section 434(1)
determine when the requirements of Section 433(e) will be deemed to be fulfilled, but they do not lay down
when a winding-up order must necessarily be passed. It is true that a creditor is not bound to wait and give
time to the company beyond the time prescribed after the statutory notice, before filing his petition. But the
court may, if there are sufficient counter-balancing equitable grounds, deny an immediate winding-up order,
or, in appropriate cases, even refuse it altogether in spite of the proved inability of a company to pay its debts.
Exercise of such discretionary power must necessarily be governed by justice and equity
Facts[edit]
Yenidje Tobacco Company Limited had two shareholders with equal shares and each were
directors. They could not agree how the company could be managed. There was no provision for
breaking the deadlock.
Judgment[edit]
The Court of Appeal held the company could be wound up as just and equitable under
theCompanies (Consolidation) Act 1908 section 129 (now IA 1986 s 122(1)(g)) as the only way to
break the deadlock. Lord Cozens-Hardy MR said the following.[1]
Is it possible to say that it is not just and equitable that that state of things should not be
allowed to continue, and that the Court should not, intervene and say this is not what the
parties contemplated by the arrangement into which they entered? They assumed, and it is
the foundation of the whole of the agreement that was made, that the two would act as
reasonable men with reasonable courtesy and reasonable conduct in every way towards
each other, and arbitration was only to be resorted to with regard to some particular dispute
between the directors which could not be determined in any other way. Certainly, having
regard to the fact that the only two directors will not speak to each other, and no business
which deserves the name of business in the affairs of the company call be carried on, I
think the company should not be allowed to continue. I have treated it as a partnership, and
under the Partnership Act of course the application for a dissolution would take the form of
an action; but this is not a partnership strictly, it is not a case in which it can be dissolved by
action. But ought not precisely the same principles to apply to a case like this where in
substance it is a partnership in the form or the guise of a private company? It is a private
company, and there is no way to put an end to the state of things which now exists except
by means of a compulsory order. It has been urged upon us that, although it is admitted
that the just and equitable clause is not to be limited to cases ejusdem generis, it has
nevertheless been held, according to the authorities, not to apply except where the
substratum of the company has gone or where there is a complete deadlock. Those are the
two instances which are given, but I should be very sorry, so far as my individual opinion
goes, to hold that they are strictly the limits of the just and equitable clause as found in
the Companies Act. I think that in a case like this we are bound to say that circumstances
which would justify the winding up of a partnership between these two by action are
circumstances which should induce the Court to exercise its jurisdiction under the just and
equitable clause and to wind up the company.