MOHAN LAL & ANR. versus GRAIN CHAMBER. LTD., MUZAFFARNAGAR & ORS.

Citation: [1968] 2 S.C.R. 252 · Decided: 15-11-1967 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed
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Judgment (excerpt)

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MOHAN LAL & ANR. · 
v. 
GRAIN CHAl\IBER. LT~., MUZAFFARNAGAR & ORS. 
November 15;.1967-
[J. c. sHA.u AND s. M. S1KRI, n.j · 
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Sugar (Futu;es .& - Optiorll) \ Pro.hibition Order, 1949-Notification · - B 
making order applicable to gur-Compan:y settling outstanding contracts ... 
in '•Juture.r• in gur at rate prevailing on •the day previous to notification~ 
Validity-Fnistratio,._contract Act, s. 56. 
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1rui1an·comp,;,ies Act, 19iJ; ss. 18, 86F, 861, 91B, ·Regulation. 9,i 
Table A-Directors doing transactions tt'ith conzpany-Subsequent dis-
covery of disqua!ification--Applicability of Regulation-Winding up-
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Substratum when can be said to have disappeared. 
The respondent-company, registered under . the Indian Compafl.ies Act 
1913, was formed for the purpose of carrying on the business of .an ex-
change in various commodities including gur and started its business in 
· 1931. Th-o Articles of Association of the Ccmpany . provided that . no 
person could remain a member 0f ·the company who was found not to be 
doing any transaction or business. through the company. The Board of 
·Directors of the company on ~.farch 14, 1949, passed a. resolution sane-
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tioning transactions in 'futures' in gur. 
Aii the directors present at ·the 
meeting V.'ere those v.·ho carried on business in 'futures' in gur \Vith the 
company and did after March 14, 1949 carry on that business. The 
· company's business was devised on the basis of the Companies Act, 19'!3, · 
·as originally enacted, when there was no prohibition against a director 
entering into transactions with the company. Even after the Amendments 
to the Company's Act by Act 22 of 1936 which imposed disqualification· · E 1 
· on directors entering: into transactions with their companies, the modus ~ 
operandi of· the business of the company continued _to remain the same 
as it was previous1y. 
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The appeii~t-eompany qualified for membership of the respondent-
company and eiitered into dealing \Vith it in •futures' in gur and deposited 
large amounts with the respondent in respect of their transactions. 
On 
li'ebruary -15,. 1950 the Government of India issued a notification amend· 
ing the Sugar (Futures & Options) Prohibition Order and made it appli- . 
cable to •futures' and Options in Gur. ·By that order no person could, 
after th~ appointed day, enter into 'futul-e' in gur or. "pay or receive or 
agree to pay or receive any margin in connection v.ith any such futures." 
The Board of Directors of the respondent on February 15, 1950 resolve~ : 
to settle outstanding: transactions at the prevailing rate on the closing 
day of February' 14. 1950. The appellants then filed a petition for wind-
ing up of the Company. The High Court dismissed the petition. 
Jn appeal to this Court it was contended that : (i) by virtue of the 
notification dated_ February 15, , 1950, all outstanding ·transactions 
in 
'futures' in gur became void (ii) the resolution dated March 14, 1949, 
which permitted the company to enter into transactions in •futures' in 
gur was invalid since the directors who took part in the me~ting were dis-
qualified under ss. 86J(l)(h) an& 91-B of the Indian Companies Act, · 
· . 1913, as amended by Act 22 of 1936 and the company had not incorpe>- . 
. ' . rated in its Articles Regulation 94 of Table A. which validated acts done . 
by directors when disqualifications attaching to them were subsequently 
discovered; (iii) the resolution dated February 15, 1950 was not pas.sod 
in the interests of the ~'!mpany and the resolution amounted to repudiation -
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M~HAN LAL v. G~IN CHAMBER LTD. (Shah, J.) 
253 
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of the contracts by.the company; and (h•) by reason of-the-notification 
. by the Government. the substratum of the company was destroyed and no 
business could bo carried on by the company thereafter. 
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HELD : No case was made out for winding up of the company; · 
(i) Tho notification prohibiting transactions iri 'futures' in gur ope· . 
· rates only prospectively. 
The prohibition . imposed a&ainst payment or 
B · receipt or agreement to pay or receive margin is made in connection 
with 'such futures" and the expression 'such futures" . mum !nnsaetions · 
in futuies to be entered into on .or after the date if the notification. No 
express provision bas been made to invalidate outstanding traruactions in 
'futures" and there are clear indications in the terms of th
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