I. MR. GANESH GAITONDE, M.D.

IS LIABLE FOR FRAUD , NEGLIGENCE AND CIVIL

CONSPIRACY

Mr.ganesh gaitonde while actng as the M.D. of Bombay Sapphire acted in a mala fide
manner and misued his position to gain personal benefits and breached the fiduciary
relationship between him and the company and caused damages to the company while
committing the tort of fraud , negligence and conspiracy against the company

1. M.D. Ganesh Gaitonde committed the tort of fraud against the company.

The essentials of tort of deceit were stated by Supreme Court in Ramachandra Bhagat
v. State of Jharkhand1 which are as follow-

 The defendant should make a false statement or representation which he himself believes
to be false.
 The defendant should have made the statement intentionally.
 The plaintiff should have acted upon the statement and suffered damage.

In the present all the essentials were fulfilledand are as follow-

A. M.D.Ganesh Gaitonde made a false representation which he knew to be false

M.D. knew that the bills of increased amount were false 2 as he was told by the representative of
Yagmister and even after knowing the fact that the bills were false he made a false representation
to the company by signing them3 and without taking the approval of board of directors. In
Edington v. Fitzmaurice4 directors of a company raised loan by issuing debentures. The purpose
mentioned for issuing debentures was completion of building and expansion of business but was
used in clearing pressing liabilities of the company and hence directors were liable for the tort of
fraud.

In Derry v.Peek5 the directors of a company made a false statement in their prospectus but were
still absolved from their liability because the statement was made in good faith and unknowing
that the facts were false . This case directly lays stress on the importance of the knowledge of
1
(2013) 1 SCC 562
2
¶2 Moot proposition
3
¶2 Moot proposition
4
(1885) 29 Ch D 459
5
(1889) 14 A.C. 337
falsity of the facts stated which in the present case was there to the defendant M.D. Ganesh
Gaitonde.

B. Mr. Ganesh Gaitonde made the false representation intentionally.

It is evident that the representation made by the Mr. Gaitonde were as he not only signed
despite kowing the fact that they were false but also disregarded the the said procedure 6 that was
laid down in the contract between the two companies. In S. Chatterjee v. Dr. K.L. Bhave And
Ors7 it was held by the court that the false representation need not be made actively instead it can
be made passively through actions but should be mde intentionally as was made in this case by
Mr.Gaitonde. similarly in the case of Peek v. Gurney8 the focus was laid on intention of
defendant. In this case the directors of a company put some false information in the prospectus of
the company and relying on which the plaintiff buys some shares of the compay and then brings
an action against the directors of the company .It was later established by the directors that the
information was meant for the exsisting shareholders so the directors didn’t want to deceive them
hence were not held liable.

C. Bombay Sapphire acted on the representation made by the M.D. and suffered
damages.

Since a company is an artificial person it has to act through its agents who while acting as agents
represents the company. M.D. Ganesh Gaitonde was also one of the agents of the company . The
duty he owes towards the company was more that an agent owes because there exsists a fiduciary
relationship between him and the company. In Central Railways of Venezuela v. Kisch 9 the
defendants were directors of a company who issued false information in prospectus and a share
holder who bought shares of that company relying on such information sued the directors of the
company . The directors of the company were held liable as the plaintiff acted on such
representation and suffered damages.

M.D. Ganesh Gaitonde not only breached his fiduciary relationship but also caused loss to the
company by sanctioning the extra amount10. In Naughton v.O’Calleghan11 the defendant made
6
¶3 Moot proposition
7
AIR 1960 MP 3230
8
(1873) LR 6 HL 377
9
(1867) LR 2 HL 99
10
1 ¶3 Moot proposition
11
(1990) 1 All ER 991.
false statement to make platiff buy a property at a higher price. In this case it was held by the
court the plaintiff must suffer some damage by the false statement or representation of defendant
in order to constitute the tort of fraud. The same has happened in the case loss has been caused to
Bomby Sapphire as it has to pay extra because of the fraudulent acts of Mr. Ganesh Gaitonde
while acting as the M.D. of Bombay Sapphire.

It can clearly concluded that all the essentials of fraud are fulfilled in this case and M.D. Ganesh
Gaitonde misused his position to cause loss to the company for his personal intrest.

1. M.D. Ganesh Gaitonde has committed the tort of negligence against the company

In Blyth v. Prafulla Kumar Rout v. State of Orissa. 12 negligence is defined as a breach of a duty
caused by the omission to do something which a reasonable man, guided by those consideration
which regulate the conduct of human affairs would do, or doing something which a prudent and
reasonable man would not do . Essentials of negligence were state by supreme court in Jacob
Mathew v. State of Punjab13 and the same were earlier stated in Poonam Verma v. Ashwin
Patel14 as well which are as follow-

 Legal duty to exercise due care.

 Breach of the said duty.
 Consequential damage.

In the present case all the condition of tort of negligence are fulfilled which are as follow-

A. M.D. Ganesh Gaitonde owed duty of care towards Bombay Sapphire.

Mr. Ganesh Gaitonde being the managing director of the company owed the utmost duty of care
as he is having one of the topmost positions in the company . More than that there exsists a
fiduciary relationship between the M.D. and the company. In Re City Equitable Fire Insurance

12
1995 Cri. LJ 1277
13
AIR 2005 SC 3180
14
(1996) 4 SCC 332
Co15 case the duties of directors as to what is standard or due care and diligence expected from
him was explained by Justice Romer. According to him director is required to act honestly and
diligently applying his mind and discharging his duties as a man of prudence of his ability and
knowledge would do.

Mr. Ganesh Gaitonde being the managing director of the company owed the utmost duty of care
as he is having one of the topmost positions in the company .The fact that in the contract
between Bombay Sapphire and Yagmister it was hereby specified that the M.D. has the power to
increase bills for Yagmister16 highlights the magnitude of duty of care to be exercised by the
M.D. Ganesh Gaitonde. More than that there exsists a fiduciary relationship between the M.D.
and the company. In Catchpole v. Ambergate Railway Co17. it was held that Directors of a
company ought to show more than ordinary care towards the shareholders, for they are persons
holding themselves out as capable of directing complicated affairs and inviting persons to trust
their money to the company which they profess to direct they are unlike trustees, who undertake
irksome duties for no pay or advantage, for they are always either paid or deriving some benefit
from their position . They must show diligence which good men of business are accustomed to
show. In Re Duomatic Ltd18 case it was held that A director has to act in the way in which a man
of affairs dealing with his own affairs with reasonable care, and circumspection could reasonably
be expected to act. Therefore, Directors would decidedly be liable for omitting to do what they
could have done in the circumstances.

B. M.D. breached the duty of care he owed to the company.

Mr. Ganesh Gaitonde breached the duty of care he owed to the company, instead of inspecting
the bills properly he signed the bills despite knowing the fact the bills were fraudulently
increased he signed them and even before signing the bills no approval of board of directors of
the company was taken which was a necessity as per the contract between the two companies. In
Overend Gurney & Co. v. Gibb19 where a company was formed to take over a private bank.
Without investigating the value of the bank’s assets and the extent of its liabilities and with
knowledge that the bank was in a state of insolvency, the directors paid ₤50,000 for goodwill.
15
[1925] Ch 407
16
¶2 Moot proposition
17
(1852) 1 El. & Bl. 111.
18
[1969] 1 All ER 161
19
(1872) LR 5 HL 480
Accordingly the directors were held guilty of negligence when they participated in a transaction
without trying to know whether the transaction was really for the purposes of the company or
they were authorized by the Board in that respect because all that the law expects from them is
that if they know they must use the knowledge for the benefit of the company. In Fine Industrial
Commodities Ltd v. Powling20 the demand for the company’s product had fallen. The director of
the company knew of an alternative product for which there was demand and he also knew of the
modification of the company’s plant and machinery which was necessary for that purpose. But,
instead of doing that, he created a new company and obtained a patent of the new product in the
name of his new company. He was held accountable for the profits. His knowledge of the
product in demand and of the fact that the company’s plant and machinery could be modified for
that purpose was considered by the court to be company’s knowledge. The same has happened
in the present case where the M.D. has breached his utmost duty of care instead of acting in good
faith for the company he acted with mal fide intention to favour yagmister for his personal gains.

C. Breach of duty on part of M.D. resulted in damage to company.

Negligent acts of Mr. Ganesh Gaitonde while serving as the M.D. of Bombay Sapphire caused
damage to the company as he sanctioned the bills of increased amount even after knowing the
fact the bills were increased by Yagmister fraudulently , as a result of the company has to bear
more cost for the same services . In Tubemakers of Australia Ltd v. Fernandez 21 it was held by
the court that for a defendant to be held liable, it must be shown that the particular acts or
omissions were the cause of the loss or damage sustained. In the present case it is clearly visible
that damage has been caused to the company.

It can be concluded that all the essentials necessary to prove the commission of tort of negligence
has been fulfilled and it is hereby evident that M.D. Ganesh Gaitonde has committed the tort of
negligence against Bombay Sapphire.

2. M.D. Ganesh Gaitonde has committed the tort of civil conspiracy against the
company Bombay Sapphire.

First of all, it is important to distinguish the tort of conspiracy from the crime. The crime
of conspiracy is defined in Section 120-A of the Penal Code, 1860 as an agreement between two
20
(1954) 71 RPC 253
21
(1976) 10 ALR 303
or more persons to do, or cause to be done, an illegal act, or an act which is not illegal by illegal
means.The distinction between this and the tort of conspiracy was drawn by Viscount Simon,
L.C. in Crofter Hand Woven Harris Tweed Co. Ltd. v. Veitch22

In B. kangaiya v. D.P. Gangadharan 23 the high court of Mysore relied on the English decision in
24
Allen v. Flood and reiterated that a combination of person with the purpose of causing loss or
damage to the plaintiff will not be actionable as a tort of conspiracy unless some damage is
caused to the plaintiff . however ‘damage’is not an essential ingredient of conspiracy as a crime.

In UPL Europe Ltd & Ors v Agchemaccess Ltd & Ors 25 the necessary elements of the tort of
unlawful means conspiracywre laid down which are as follow-

 A combination of actions or agreement.

 The use of unlawful means.
 The intention to injure a plaintiff.
 The plaintiff suffering loss as a result.

In the present case all the essentials were fulfilled which are as follow-

22
(1942) 1 All ER 142
23
AIR 1961 Mysore 178 (181)
24
(1898) AC 1
25
[2016] EWHC 2889 (ch)