COMPANY LAW CASES

1. Floating Services Ltd. vs Mv 'San Fransceco Dipalola

Facts of the Case
There are two major parties in the dispute. The plaintiff is a limited company who purchased a
vessel from AVD (Defendant No. 1). They further signed a Memorandum of Agreement to sell
this vessel to Defendant No. 2. The defendant made only 10% of the payment and therefore the
delivery was not made from Plaintiff's side. The plaintiff alleges that defendant No. 2
clandestinely removed the vessel from the closed basin and sailed it out of the Oostende Port
without paying the balance.
However, in the meantime, the company's name was struck off from the Companies House
Register, on initiation of Company itself. This meant mandatory dissolution of the company. Post
this dissolution, the company filed the said plaint.

Plaintiff's Side
Arguments:
The plaintiff company was dissolved on the date of the suit presentation. However, the sole
shareholder, who was the only Director, was unaware of the company's name being struck off.
The plaintiff took steps to restore the company to the Register by moving an application on 8-3-
2004.
The plaintiff's contention was that the plaintiff had already moved an application for restoration,
and once an order to restore the company to the Register was made, all actions, including the
plaintiff's suit, would be legal and valid. The dissolution of the company was a result of the
company's name being struck off from the register, and the dissolution did not succeed as an
order of winding up.

The plaintiff seeks the following:

- declaration that they are the owner of the vessel
- declaration that defendant 2 does not have any right over the vehicle
- direction to hand over the possession of the vessel to the plaintiff.
- order of arrest of the vessel from the defendant before they make a further sale.

Defendant's Side
Arguments:
- The defendants argued that the power of restoration was discretionary and the plaintiff's case
was not warranted.
- They argued that the plaintiff had no locus standi to present the suit, leading to fraud and
suppression of material facts.
- The defendants also argued that the plaint was bad in law and should not be entered into as the
plaintiff failed to identify himself and showed the authority on the basis of the suit.

The defendant seeks the following:

- order of arrest to be set aside or vacated.
- damages for wrongful arrest and detention of the vessel

Questions before the Court

1. Whether the company enjoys a seperate legal personality different from the sole
shareholder/director? [Only Relevant Question]

Other questions that the case dealt with;

2. Whether the company can file a suit post its dissolution and striking off the register?
3. Whether restoration, as if the company had never be dissolved can be allowed in such a case?
4. Whether the order of arrest is to be vacated?

Discussion of the Court:

1. Seperate Legal Personality Argument
The incorporation process ensures that the subscribers of the memorandum and other members
become a body corporate, capable of exercising all the functions of an incorporated company. A
company is an incorporated body of persons, distinct from its members and having special rights
and privileges. Incorporation brings into existence a legal person that develops into its own
separate existence as a business or enterprise.
A company is a separate legal entity, allowing the director representing the company to enter into
a contract of employment in his individual capacity. Companies incorporated under the Act are
capable of suing and being sued in their corporate names, with the rights of the company and its
shareholders not co-extensive.
The shareholder's interest is only a right to participate in the company's profits. A shareholder has
a limited, restricted right only after an order of winding up is made, liabilities are discharged, and
any surplus of assets is left. The plaintiff, Mrs. Luany Rodriguez Salas, is the sole shareholder
and director of the plaintiff company, and therefore, she cannot claim the company's property
without showing all liabilities have been discharged.

2. On Filing the Suit

Limited companies are separate legal entities from their shareholders, and the principle of agency
must be understood in light of the company's Act, Memorandum, and Articles of Association.
Section 291 of the Act grants a Board of Directors general powers, but does not include power to
institute legal proceedings. The Board must be subject to the Act, any other law, and the
company's memorandum or articles. A director cannot institute a suit on behalf of the company
unless specifically conferred. Individual directors have only the powers available to them under
the company's memorandum or articles. A company cannot orally authorize another person to
sign a plaint on its behalf. Pleadings must be signed by an authorized Director, Secretary, or
Principal Officer.
In the present case, the pleading was not signed by any of the authorized officers mentioned in
CPC. Therefore, the plaint has been signed by a person who is not the company's representative.
This procedural regularity must be seen with the nature of the company- which is limited.
Additionally, the company had suppressed the fact of dissolution and striking off from the court,
which amounts to fraud and misrepresentation. All these things, taken togehter emphasize that
the plaintiff should come to the court with clean hands, which cannot be seen in this case.
Applying the aforesaid principles it is clear that :
(i) there is absence of full and frank disclosure;
(ii) there is a misstatement of a material fact or suppression of material fact; and, there is
withholding of a vital fact by the plaintiff.
This amounts to commission of fraud and deception on the Court.

3. Restoration
The plaintiff cannot seek restoration on the ground that it was carrying on business or was in
operation at the time when its name was struck off, as the plaintiff had applied that its name be
struck off from the register as the company was not carrying on business or was not in operation

4. Order of Arrest of Vessel

The order of arrest is set aside and vacated, as a result of the above observations.
2. In Re: Dinshaw Maneckjee Petit ... vs Unknown
Facts of the Case
The assessee, Sir Dinshaw Manckjee Petit, was a wealthy man enjoying huge income from
dividends and interests. He formed four private companies and agreed with each to hold a block
of the investment as an agent for it.
The names of these 4 companies were:
- Petit Limited
- The Bombay Investment Company Limited
- The Miscellaneous Investment Limited &
- The Safe Securities Limited.

Each of these companies took over a particular block of investments belonging to the assessee.
Share Structure: The schedule showed that of these 498 shares, 254 stood in his name and 200 in
the name of his wife and the rest in the name of some 13 other nominees.The 498 shares remain
as they were in the safe hands of the assessee of his nominees. So does the income also.
He credited the income received by him in the accounts of the companies and took it back in the
form of a pretended loan.The whole idea was to split his income into four parts with a view to
evade taxes.

Questions before the Court

Whether the companies formed by Sir Dinshaw to be treated as a separate legal entity and
whether the dispute that newly formed companies by Dinshaw was a simulacrum is valid?

Decision of the Court

In this Case the Court stated that the company was acknowledged under the legislature so the
company could not be presumed a simulacrum just because it was a One Person Company.
The Bombay High court stated that the transaction made by Dinshaw and the family companies
were of the ‘Window Dressing’ (misleading representation) nature.
The court on further investigation found that there was neither the document of the company
which can show that there was a formal transaction, nor there was delivery of share certificates
and even the original documents didn’t bear the registration mark.
The court stated that just by giving or taking loan from family companies would result it to a
simulacrum company. So it was declared by the court that these company were founded only to
evade supertax on his taxable income and the company were nothing but Dinshaw himself and
the company cannot be regarded as a separate legal entity of Sir Dinshaw.

3. Kelner v Bexter
Facts of the Case
A group of promoters for a new hotel company, the “Gravesend Royal Alexandra Hotel
Company” (Gravesend) entered into a contract for wine.
This contract was purportedly on behalf of Gravesend, but Gravesend had not at that point been
registered. It was a “pre-incorporation contract”.
Gravesend was eventually registered, but by that stage the wine had been consumed before the
money had been paid. Gravesend soon went into liquidation.
The promoters, as Gravesend’s agents, were sued.
The promoters argued that, as Gravesend had been incorporated, the contract had subsequently
been ratified and the liability had passed to the company.

Issues
Were the agents liable for the pre-incorporation contract post ratification by Gravesend?

Court's Decision
The Court of Common Pleas held that because the company did not exist at the time of the
signing of the agreement it would be wholly inoperative unless it was binding on the promoters.
A stranger cannot, by subsequent ratification, relieve the promoters from that responsibility of
liability.
On the other hand, a promoter can avoid personal liability if the company, after incorporation,
and the third party substitutes the original pre-incorporation contract with a new contract on
similar terms. Novation, as this is called, may also be inferred by the conduct of the parties such
as where the terms of the original agreement are changed.
A promoter can also avoid personal liability on a contract where he signs the agreement merely
to confirm the signature of the company because in so doing he has not held himself out as either
agent or principal. The signature and the contractual document will be a complete nullity because
the company was not in existence