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1975 SCC OnLine Ori 67 : AIR 1976 Ori 4

Orissa High Court

(BEFORE G.K. MISRA, C.J. AND N.K. DAS, J.)

Bikram Kishore Parida and others … Appellants;

Versus
Benudhar Jena … Respondent.
A.H.O. Nos. 25 of 1974 and 28 of 1974
Decided on February 28, 1975
The Judgement of the Court was delivered by
DAS, J.:— Plaintiff's case may be stated in short. Plaintiffs and
defendant No. 1 were well acquainted with one another since a long
time and they proposed to start a foundry business under the Pilot
Project Scheme of the Government of Orissa. In pursuance of that they
agreed to start a company under the name and style of ‘Utkal Foundry
and Engineering Co.” The Government insisted that there would be
difficulty in having a number of partners from private entrepreneurs.
Accordingly, an agreement was entered into by the plaintiff and the
defendant No. 1. The essential terms were that the name of the
defendant No. 1 would be shown as the private entrepreneur, but the
money for the shares was to be advanced by the plaintiffs; defendant
No. 1 shall transfer 26, 250 shares out of 35,000 shares ostensibly held
in his name; each of the plaintiffs and defendant No. 1 would have ¼th
interest in the shares standing in the name of defendant No. 1.
Plaintiffs would invest according to their ability and the excess
investment by any of the plaintiffs over and above Rs. 8750/- would
carry interest at the rate of 61/2 p. c. p. a. till such excess investment
is repaid in cash or by adjustment; the money due from defendant No.
1 as his share would be repaid by him to the plaintiffs out of the
amount to which he may be entitled along with interest thereon at the
rate of 61/2 p. c. p. a. In pursuance of the agreement the plaintiffs
allowed the name of defendant No. 1 to be shown ostensibly as the
private entrepreneur so that the work would be carried out smoothly at
the Government level. This was done as defendant No. 1 had influence
with the political party then in power. The company was registered and
the plaintiffs paid the entire money. The plaintiffs have fully paid the
money for the 35,000 shares allotted in the name of defendant No. 1
and after subscribing the money, the plaintiffs carried on the work of
the business of the company and continued to manage the work jointly
as agreed upon by them. Defendant No. 1 became the Managing
Director of the Board of Directors and got a resolution passed for
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transfer of 7000 shares in name of plaintiff No. 1 and 7000 share in the
name of plaintiff No. 2 and 3000 shares in the name of plaintiff No. 3
and the same was sent for sanction of the Government. Defendant No.
1 assured that further shares would be transferred to the plaintiffs. On
a resolution of the meeting of the Board of Directors after approval of
the Government for transfer of 17000 shares, the defendant No. 1 did
not transfer the same.
2. Defendant No. 1 in his written statement has denied the
agreement said to have been executed by him and averred that the
agreement is false and fabricated and he never put his signature to
such a document. At one time he thought of promoting the business
along with plaintiffs and others and this was not practicable. The
plaintiffs filed application for transfer of some shares in their favour
which was approved by the

Page: 5

Board of Directors. But subsequently, the Board of Directors withdrew

that resolution on the ground that it will not be beneficial to the
interest of the company. Defendant No. 1 further stated in the written
statement that he had great trust in plaintiff No. 1 and the other two
plaintiffs are associates of plaintiff No. 1. On the suggestion of plaintiff
No. 1 he had thought of promoting a company with all the plaintiffs,
and some other persons as members but the same could not
materialize. Subsequently he allowed the plaintiffs 1 and 2 as partners
in the Pilot Project Scheme and he described himself as partner in all
correspondence. But the attempts were not preceded or succeeded by
any agreement oral or written. The plaintiff No. 1 was assisting him in
the affairs of the company. Plaintiff No. 1 was expecting that the
defendant No. 1 would persuade the Board of Directors to take him as
share-holder in the company. He had full confidence in plaintiff No. 1
and very often left papers of the company and other papers with him.

3. The trial court decreed the plaintiffs' suit and ordered that each of
plaintiffs is entitled to hold 8750 shares out of 35000 held by defendant
No. 1 and directed defendant No. 1 to execute an instrument of transfer
in respect of 17,000 shares the title of which had already passed at the
rate of 7000, 7000 and 3000 in favour of the plaintiffs nos. 1, 2 and 3
respectively. Defendant No. 1 came tip in appeal. The learned Single
Judge came to conclusion that the agreement (Ex. 5) is not genuine,
but the plaintiffs have paid Rupees 35,000/- to defendant No. 1 as per
Exs. 3, 4, 6, 8, 9 and 30 which has been invested by the defendant No.
1 in the company towards shares worth Rs. 35000/- and that there has
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been an agreement between the parties for transfer of 17,000 shares

by the defendant No. 1 in favour of the plaintiffs and the plaintiffs are
entitled to transfer 17000 shares in their favour. As against the decision
of the learned Single Judge the plaintiffs have filed A.H.O. No. 25/74
challenging the finding that agreement (Ex. 5) is not genuine and the
defendant No. 1 has filed A.H.O. No. 28/74 challenging the decision of
the learned Single Judge directing transfer of 17000 shares in favour of
the plaintiffs and also against the finding that the plaintiffs have
contributed Rs. 35000/- towards share money. Both the appeals have
been heard analogously.
4. The contention on behalf of defendant No. 1 in this court is that
the agreement (Ex. 5) and receipts. Exs. 3, 4, 6, 8, 9 and 30 are not
genuine and the payment of Rs. 15,000/- to defendant No. 1 by the
plaintiffs was not towards share money but towards loan and besides
this amount plaintiffs have not paid anything more.
5. The disputed agreement (Ex. 5) was typed by P.W. 5 an employee
of the National Foundry and Rolling Mills since 1948 who was also
working as the Typist in the company that was formed for the Pilot
Project. He has stated that he typed out the agreement on 23-3-1959
out of the draft supplied by defendant No. 1 and defendant No. 1
signed it in his presence. He is an independent witness and nothing has
been brought out on record to discredit his statement. He supports the
version of P. Ws. 8, 12 and 13 who were plaintiffs in this suit.
Defendant No. 1 had not the courage to deny the signatures in his
statement in court. We accept the statement of P.W. 5 in this regard.
6. Mr. Patnaik contended that the signature of defendant No. 1 on
this document does not tally with his signature in the two cheques
(Exs. 1 and 2) which were encashed by him in bank and he has drawn
our attention to some difference in the signature. We have compared
the signature of defendant No. 1 on this document with a large number
of undisputed signatures on documents which consist of resolutions of
the Board of Directors in Ex. A series, notices issued by defendant No. 1
for holding meeting and correspondences by defendant No. 1 with the
Government such as Exs. 32, 42, 46/c-1, X-11/a, X-13, X-14, X-15/a,
X-17, X-18, X-19, X-20, X-25, X-26 X-27, Z-6/a, Z-8, Z-9, Z-5 and Z-
1. We are of opinion that the signature of defendant No. 1 in ex. 5
tallies with his signatures on those admitted documents. The signature
on the cheques relating to bank transaction may be of different type
from the signatures relating to other transactions. We, therefore, hold
that signatures of defendant No. 1 on Exts. 5, 6, 8, 9, 3, 4 and 30 are
genuine.
7. Mr. Patnaik also contends that the letter head used for Ex. 5 was
not in existence at the time of execution of Ex. 5. He has drawn our
attention to Ex. V and contends that this was the letter head which was
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in use then. P.W. 5 asserted that the letter head on which Ex. 5 was
engrossed was in existence at the time of its execution. Excepting
denial by defendant No. 1 there is no other evidence available from the
defence side to support defendant No. 1. P.W. 5 asserted that on this
particular letter head he typed the contents of Ex. 5 on 23-3-1959. He
supports the statement of the plaintiffs in this respect. Admittedly
defendant No. 1 is in possession of the accounts which will throw light
about payments relating to printing of letter heads. He could have
produced the accounts to show when different letter pads were printed.
He issued notice in his name as the Managing Director for production of
the registers and account books. In his statement in court he states
that he telephoned to the Accountant and came to know that those
documents are not traced out. Accountant has not been examined. The
evidence of non-production of those documents is not satisfactory. We
accept the statement of P.W. 5 which supports the evidence of the
plaintiffs and we hold that the letter head was in existence in March,
1950.

Page: 6

8. Mr. Patnaik has contended that the recitals in Ex. 5 show that this
document was not in existence in March, 1950. He contends that the
recital in Ex. 5 that shares worth Rs. 35000/- were “held by him now”
shows that it was a subsequent concoction inasmuch as by that time
defendant No. 1 had not held any shares. Ext. H dated 17/18-3-1959
would show that the Government had already intimated that shares
worth Rs. 35,000/- had been allotted to defendant No. 1. It is
contended by Mr. Das that the expression ‘held by him’ refers to the
letter Ex. H in which it has been mentioned that the shares were
allotted to defendant No. 1. It is contended by Mr. Patnaik that in Ex. 5
it is mentioned that the remuneration which “was” fixed for the
Managing Director would show that this document was not in existence
at that date inasmuch as the Board of Directors fixed the remuneration
of the Managing Director by its resolution dated 23-4-1962 as per Ex.
A/4. The contention of the plaintiffs in this regard is that the word
“was” has been wrongly mentioned and relates to the memorandum of
association (Ex. M), a sample copy of which had already been sent to
defendant No. 1 prior to that date containing an article to the effect
that the Board of Directors are to fix the remuneration of Managing
Director. According to plaintiffs the fact of remuneration of the
Managing Director in Ex. 5 relates to the remuneration that would be as
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per Ex. M. We have already held that Ex. 5 was typed out and was
signed on 23-3-1959. We, accept the explanation of the plaintiffs to the
effect that the expression ‘held’ refers to the allotment of share in Ex. H
and the fixing of remuneration of the Managing directors refers to the
provisions in the memorandum of association (Ex. M).
9. Mr. Patnaik further contends that Ex. 5 has not been mentioned in
the receipts (Exs. 6, 8 and 9) that followed Ex. 5 and also it has not
been mentioned in the notices sent by the plaintiffs to defendant No. 1
prior to the institution of the suit. The receipts relate to
acknowledgment of payment of money and the notices are to the effect
that the money had been advanced by the plaintiffs for transfer of
shares and the defendant No. 1 did not transfer the shares which
resulted in blocking of money for a long time. It is not necessary that
the agreement should be referred to in these documents.
10. For the reasons stated above, we hold that Ex. 5 is a genuine
document. For the very same reasons also we hold Exs. 6, 8 and 9 are
genuine documents.
11. The second contention of defendant No. 1 is that the payment of
Rs. 15,000/- by the plaintiffs is not share money but it is by way of
loan. The payment of Rs. 15,000/- by the plaintiffs is admitted. Even
though defendant No. 1 had filed an additional written statement,
nowhere it has been asserted in the written statement that this
advance of Rs. 15,000/- was by way of loan. It is an admitted fact that
since March, 1958 the plaintiffs, defendant No. 1 and some others
decided to start a company under the Pilot Project Scheme. In all
correspondence to the Government defendant No. 1 was mentioning
“we” which shows that he was all along writing letters on behalf of the
plaintiffs and others and the defendant No. 1 was describing himself as
a partner in those letters. In the beginning defendant No. 1 had written
to the Government the names of 8 persons as share holders including
his name as well as the names of 3 plaintiffs mentioning different
shares to be held by each of the plaintiffs. He had also sent an
application to this effect to the Senior Research Officer, Ministry of
Commerce and Industries, Department of Company Law Administration
Research and Statistics Division, New Delhi. But the Government did
not want to have so many persons in a firm of Pilot Project and selected
defendant No. 1 as the entrepreneur and expressed its intention that
defendant No. 1 would be appointed as the Managing Director. It was
also intimated by the Government that in case there are a number of
entrepreneurs in one scheme each having some shares in the company
they will naturally have the right to say as to who will be the Managing
Director from among them, and it may so happen that though
defendant No. 1 has been selected on his merit due to his technical
abilities to manage the proposed company, the other share holders
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whose total shares would be much higher than that of defendant No. 1
may not choose defendant No. 1 to be the Managing director and the
person whom they will choose may not be up to the expectation of the
committee, and accordingly advised that defendant No. 1 would try to
contribute the entire share allotted to the entrepreneur and in case he
is not able to do so, he should try to take a major portion of it and
taken in one or two more partners whose shares put together may be
less than that of defendant No. 1. In response to the above letter
defendant No. 1 intimated that he would take plaintiff No. 1 having a
share of worth Rs. 10,000/- and plaintiff No. 2 Rs. 5000/- and he would
contribute towards share of Rs. 20,000/-. After sanction of the scheme
defendant No. 1 describing himself as a partner wrote to the Director of
Industries stating;
“We have to inform you that we are willing to invest Rs. 15000/-
in the proposed company towards the contribution of entrepreneur
immediately and the balance of Rupees 20,000/- within six months
from the formation of the company. We would, therefore, request
you to kindly approve the above and oblige.”
12. Thereafter, defendant No. 1 was informed that shares worth Rs.
35,000/- had been allotted to him and the terms stated above had
been accepted. Defendant No. 1 was directed to get the memorandum
and articles of association printed as per the sample copy enclosed

Page: 7

and to take further instructions of the company. He was directed to

comply with all the above requirements by 30-3-1959. These
correspondences would show that defendant No. 1 has all along
admitted himself to be a partner along with plaintiffs and all letters he
was writing on behalf of the firm and not for himself only. Further
undisputed documentary evidence is that the Board of Directors passed
resolution for transfer of 17000 shares in favour of plaintiffs and
defendant No. 1 also repeatedly stressed on the Government to approve
such transfer. The documentary evidence in this case also reveals that
after 15-4-1959 the date on which the amount was deposited, plaintiffs
were all along working as partners in the firm. They also show that not
only all the plaintiffs were working in the management of the company
but also plaintiff No. 1 was running the business as if he was the
Managing Director and he was signing letters on behalf of the Managing
Director. In view of these undisputed circumstances and in absence of
any pleading as to loan we hold that the amount of Rupees 15000/-
was advanced towards share money.
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13. In this connection it is argued by Mr. Patnaik that plaintiff No. 2

paid Rs. 8000/- but the receipt Ext. 9 is for Rs. 7000/-. The explanation
on behalf of the plaintiffs is that for purchase of shares plaintiff No. 2 is
to contribute Rs. 7000/- and receipt was made accordingly. The excess
of Rs. 1000/- was to be returned subsequently because as it was meant
for completing the amount of Rs. 15000/-. It also appears to be
reasonably probable from the fact that subsequently while plaintiff No.
2 paid Rs. 8000/- only, a receipt of Rs. 9000/- was given by defendant
No. 1-vide Ex. 1-vide Ex. 4. We hold that the receipt Ex. 9 has been
sufficiently explained by the plaintiffs.
14. The next contention of Mr. Patnaik is that the balance amount of
Rs. 20,000/- was not advanced by the plaintiffs. This amount of Rs.
20,000/- was paid in two instalments. The first instalment of Rupees
10,000/-, according to plaintiffs, has been paid by them under receipts
Exts. 3 and 4. P.W. 2, the Accounts Clerk of the company who is an
independent witness has typed out those receipts and he also says that
defendant No. 1 has signed these receipts. He corroborated the
statement of the plaintiffs to this effect. Moreover, defendant No. 1
himself has also admitted in Ex. Z-1 dated 29-11-60, the letter written
by him to the Chairman of the Board of Directors that the amount of
Rupees 10,000/- deposited on that day was towards the Share amount
from private share-holders. We have already held that under Ex. 4
though plaintiff No. 2 paid Rs. 8000/-, receipt has been granted for Rs.
9000/- which is the excess amount while Ex. 9 was granted.
15. Mr. Patnaik further contends that plaintiff No. 1 has stated that
he had paid the amount at Sambalpur and in that connection he has
drawn our attention to a letter said to have been signed by plaintiff No.
1 on 29-11-1960 and also photographic copies of some entries in the
account books said to have been made by plaintiff No. 1 on that date
and also that there was no bank account at Sambalpur on that date.
The Accounts book had not been produced and we have already held
that there is no satisfactory evidence for non-production of the accounts
book by defendant No. 1. As such reliance cannot be placed on these
photographic copies. In view of the admission of defendant No. 1 in Ex.
Z-1 that the amount has been advanced by the private share holders
the question whether the amount was paid at Sambalpur or at Cuttack
is not of much importance. So also whether there was any bank account
at that time at Sambalpur or not, loses importance.
16. The second instalment of Rs. 10,000/- according to plaintiffs was
advanced by plaintiff No. 1 on 3 occasions which is supported by the
receipt Ex. 30.
17. To appreciate the statement of witnesses for the plaintiffs
regarding the genuineness of signatures on Exts. 3, 4 and 30 we hold,
for the reason we have already given for Exts. 5, 6, 8 and 9, that the
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signatures of defendant No. 1 on these documents are also genuine

signatures, we have also compared the undisputed signatures in order
to appreciate the statement of the witnesses.
18. Ex. 36 series, correspondences between plaintiff No. 1 and
defendant No. 1, clearly establish that defendant No. 1 was all along
depending on plaintiff No. 1 for management and progress of affairs of
the company, so much so, that on various occasions defendant No. 1
had intimated plaintiff No. 1 from Sambalpur to go with money
otherwise defendant No. 1 would be placed at a very difficult situation
for want of funds. The evidence of defendant No. 1 (D.W. 1) also
reveals that his financial condition was not at all good at that time. He
has not shown as to wherefrom he got the amount of Rupees 10,000/-
which he deposited. His evidence also shows that he had no capacity at
that time to be ready with Rs. 10,000/-. Ex. 40, a letter dated 6-3-
1962 shows that defendant No. 1 had written to the plaintiffs to come
with Rs. 3,000/- as there was nothing in the bank and defendant No. 1
was in a difficult position about financial affairs. The conduct of
defendant No. 1 during that period that he was insisting on the
Government to approve transfer of shares in favour of plaintiffs and
Government was insisting on him for full payment of the balance
money and the fact that the defendant No. 1 was not in a sound
financial position to deposit the money and plaintiffs were taking active
part in the management without any remuneration clearly establish
that the amount of Rs. 10,000/- was also advanced by the plaintiffs.
19. On the above findings we hold that receipt Exts. 3, 4 and 30 are
genuine documents and the amount of Rs. 20,000/-

Page: 8

was contributed by plaintiffs towards share money.

20. The question then arises as to whether plaintiffs will be entitled

to have 8750 shares to be transferred to each of them or they are
entitled to transfer of only 17000 shares in their favour as resolved by
Board of Directors and approved by Government. Admitted fact is that,
Board of Directors resolved that defendant No. 1 would transfer 17000
shares out of 35000 shares to plaintiffs. Defendant No. 1 also wrote to
the Chairman to move Government for sanction and chairman also
moved Government for such sanction and defendant No. 1 repeatedly
pressed on Government for sanction. It is contended on behalf of
defendant No. 1 that as there is no agreement for transfer of 17000
shares in favour of plaintiff, the relief to that extent cannot be granted.
The recitals in plaint would show that not only plaintiffs have claimed ¼
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th each out of 35000 shares but also they have narrated the
subsequent developments as per the conditions laid down by
Government and as per the provisions of the memorandum of
association (Ex. M) the Board of Directors have resolved for transfer of
17000 shares in favour of plaintiffs and Government have accorded
sanction to this, but in spite of that, defendant No. 1 was not
transferring the said shares. It will thus appear that plaintiffs' claim is
not based only on the claim of ¼th share each out of 35000 shares, but
also they claim transfer of 17000 shares as decided by the Board
Directors and sanction by Government. From the statement of
defendant No. 1 in Court it would appear that he and plaintiffs sat
together and decided that plaintiff No. 1 would have 7000 shares,
plaintiff No. 2 would have 7000 shares and plaintiff No. 3 would have
3000 shares and thereafter plaintiffs put application for shares at this
rate. This clearly shows that it was agreed upon between plaintiffs on
one hand and defendant No. 1 on the other, that plaintiffs Nos. 1 and 2
would get 7000 shares each and plaintiff No. 3 would get 3000 shares.
It has been stated in Anson's Law of Contract at page 29:—
“The intention of the parties is a matter of inference from their
conduct, and the inference is more or less easily drawn according to
the circumstances of the case.”
21. At page 32 it has also been stated that:—
“The test of an intention to effect legal relations is an objective
one. It may be that the promisor never anticipated that his promise
would give rise to any legal obligation, but if a reasonable man
would consider that he intended so to contract, then he will be
bound to make good his promise.”
22. In this case the conduct of the parties especially of defendant
No. 1 clearly establishes that there was a contract for transfer of 17000
shares. Therefore we hold that there was an agreement between the
parties that defendant No. 1 is liable to transfer 17000/- shares in
favour of plaintiffs.
23. In the prayer in plaint plaintiffs have asked for transfer of shares
as resolved by the Board of Directors and approved by Government and
they have also claimed transfer of shares to the extent of 8750 each
according to terms in Ex. 5. The transfer of shares is subject to the
decision of the Board of Directors and also subject to the terms of
memorandum of association. In the memorandum of association (Ex.
M) it has been provided that without the sanction of the Governor no
share can be transferred and Government can release its share only in
favour of the entrepreneur. The intention of Government all along is
that defendants would continue as the Managing Director and would
have a maximum number of shares.
24. In view of this position, it cannot be definitely said at this stage,
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whether Government will release any share in future and that will also
depend on several other contingencies. The position is thus indefinite
and declaration as prayed for by plaintiffs cannot be given under such
circumstances in a suit for specific performance of contract. The relief to
be granted in such a suit is discretionary and is based on principles of
equity and thus prayer for declaration of future transfer of shares
cannot be granted. The plaintiffs are, therefore, entitled to have a
transfer of 17000 shares by defendant No. 1.
25. Accordingly, it is held that plaintiffs are entitled to have 17000
shares transferred in their favour by defendant No. 1. The suit be
decreed accordingly, with proportionate costs.
26. A.H.O. No. 25/74 is allowed in part with proportionate costs and
A.H.O. No. 28/74 is dismissed with costs.
27. G.K. MISRA, C.J.:— I agree.
28. Order accordingly.
———
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