Motive is not the same thing as consideration.

Consideration means something of

value in the eye of law moving from the plaintiff.

[Case Brief] Dehra Dun Mussoorie Electric Tramway Co. Ltd.

Hansraj Gupta and Ors. V/S Official Liquidators

Case name: Dehra Dun Mussoorie Electric Tramway Co. Ltd. Hansraj
Gupta and Ors. V/S Official Liquidators

Case number: 126Ind.Cas.819

Court: THE HIGH COURT OF ALLAHABAD

Bench: Hon'ble Justice Sir Lal Gopal Mukerji

Hon'ble Justice Sir John Douglas Young

Decided on: November 20, 1929

Relevant Section 105 Companies Act

Act/Sections: Section 23 Contract Act

 BRIEF FACTS AND PROCEDURAL HISTORY:

1. Lala Raghu Mal subscribed a number of shares. He was induced to subscribe a large
number of shares on August 12 1922 the subscription was of 10,000 ordinary shares at
Rs. 10 each and 250 preference shares at Rs. 100 each.
2. On the very same day Lala Raghu Mal made applications for shares and therefore the
Managing agent of the company handed him a draft letter which the company was to
send.
3. Later on in confirmation of the arrangement Lala Raghu Mal subscribed additional
shares. On September 13 1923 the company confirmed the arrangement by three letters
4. The procedural history is :
 a. Representative of Lala Raghu Mal claimed a large sum of money on the ground
that company had committed breaches of contracts and these make them liable
for a payment of damages.
b. It was noted that the agreements were void being in contravention of Section 105
of the Companies Act and therefore the applicants said that if the agreements on
the basis of which they have claimed are invalid then such must be the case with
the purchase of the shares and therefore asked that their names should be removed
from the list of contributors.
c. Two points were raised on behalf of the official liquidators the first one is that the
application is barred by the time and the second one is that on the merits
applicants are not entitled to succeed.

 ISSUE BEFORE THE COURT:

1. Whether the application is within time ?
2. Whether the allotment of shares was illegal, being based on a void contract and whether
therefore the names of the applicants should be removed from the list of contributories ?
3. Whether the Court has got power to rectify the list of contributories at any time and
whether a party has the right to move to the Court to rectify an alleged error ?
4. Whether the applicants should have had a second notice under Rule 57 ?

 RATIO OF THE COURT:

1. Counsel for official liquidators argued that the applicants names for order was brought on
the list of the contributories till late July 1927. So that they could not come up to the
Court for removal of their names after expiry of 20 days under Rule 28 of the rules
framed by the Court under the Companies Act.
2. Applicants counsel argued that no notices were ever issued to his clients as required by
Rule 57 of the rules framed by the court and therefore limitations had not even begun to
 run against his clients and further it was also argued that it was always open to the Court
to rectify errors in the list of contributories and the same is contemplated by Rule 57.
3. The Court stated that it has got the power to rectify the list of contributories and also
stated in terms of the parties right to move to the court to rectify an alleged error and if it
has been allowed under the rules 54 to 58 of the company rules framed by the code
however these are not very clear as it has been mainly taken from the English rules and
the modification in the English rules created a certain amount of difficulty.
4. The Court observed that Rule 57 States that when the list has been settled the official
liquidator is to give a new and fresh notice to every person who has been finally placed
on the list of the contributor is telling them that if they wanted to have their names
removed from the list they must apply within 30 days of the delivery of the notice to
them. Rule 58 states that no application shall be heard if it is beyond 30 days unless the
court finds reason to extend the time .
5. The Court noted the statement of the applicants counsel that the second notice required
by rule 57 was never issued to his clients and therefore his clients application is within
time.
6. It was observed by the court that the applicants appeared on January 7 1927 and at the
time they didn't object to their names being entered in the list of contributories and only
asked that the entry in the list of the names should be postponed and several other players
were also there in the application and finally decided on July 19 1927 and the prayer for
the postponement was refused and later entered their name in the list of contributories.
7. Applicants counsel argued that Lala Raghu Mal had given application for shares on
August 12 1922 because he was expecting to make some profits against the contracts
issued to him and in terms of this argument the court held that the agreement on the part
of the company to give Lala Raghu Mal this contracts and some benefits amounted to an
illegal agreement as contravening the spirit of Section 105 of the Companies Act and
could not be enforceable.
8. Court observed that the contract of Lala Raghu Mal to purchase and sell the share was a
perfectly valid contract because he signed the applications and the same was accepted by
the company and the shares were allotted to him and he was eligibility to receive
dividends.
 9. The Court is of the opinion that whatever the motive of Lala Raghu Mal in subscribing
the shares it was a matter entirely for him and had nothing to do with the legal aspects of
the contract. And it was also stated by the Court from one of the judgements that
motivation not the same thing as consideration means something of value in the eyes of
law moving from the plaintiff.
10. Court held that the contract by which Lala Raghu Mal became a shareholder was not the
agreement constituted by three letters on September 13 1922 but by his applications on
August 12 1922 which was accepted by the company and on receipt of which the shares
were allotted to him and the same is the contract which is enforced against Lala Raghu
Mal.

 DECISION HELD BY COURT:

1. The applicants prayer was rejected ; and
2. The applicants were liable to pay the Official Liquidator's costs which was to be assessed
as if the present application were a miscellaneous application under the ordinary
jurisdiction of the High Court and the valuation being of Rs. 1,25,000 and interest at 9%
p.a.

-Author : Aditya Das.