NARAYANDAS SHREERAM SOMANI versus THE SANGLI BANK LTD.

Citation: [1965] 3 S.C.R. 777 · Decided: 15-03-1965 · Supreme Court of India · Bench: A.K. SARKAR · Disposal: Dismissed
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Judgment (excerpt)

A 
B 
NARAYANDAS SHREERAM SOMANI 
v. 
THE SANGLI BANK LTD. 
(With connected appeal) 
March 15, 1965 
[A. K. SARKAR, J. R. MUDHOLKAR AND R. S. BACHAWAT, JJ.] 
C 
Indian Companies Act (Act 7 of 1931), s. 91B(l)-Director interes-
ted in a!l-Otmeret of share~ Taking part in meeting-Effect. 
Indian Contract Act (9 of 1872), s. 50, I!!us. (a)-Advance of 
!oan-Tf could be by entries in accounts. 
The respondent-Bank was unatle to carry on business ilfter it 
was promoted, in view of s. 277 (1) of the Companies Act, 1•13, be-
D 
cause its ;mbscribed capital was less than half the authorised capi-
tal. In order to comply with .the requiremeIJ\s of the section, the 
directors decided that they or their nominee~ would subsc~ibe for 
a large number of shares. The first appellant was a director of the 
Bank and the se.cond appellant was the firm of the first appellant 
and his brother. The first appellant, decided to subscribe for 2000 
shares in the names of 3 ladies of his family, and the allotments of 
shares were made at a meeting of directors at which the first ap-
E 
pellant also voted. At that meeting and subsequently various loans 
were advanced to the second appellant. A sum of Rs. 100,000 which 
was shown as a loan to the brother was later on adjusted by credit-
ing his account with that item and debiting the account of the first 
appellant with that amount. The first appellant executed a promis-
sory note and a letter of pledge for the amount, andi the brother paid 
F 
off the balance due from him after giving effect to the credit entry, 
and that loan account was closed. Suits were filed by the respon-
dent e.gainst the appellants for realization of the sums due from 
them. The trial Court dismissed the suits but the High Court dec-
reed them. 
In their appeals to this Court the appellants contended inter a!ia 
that: (i) if the vote of the first appellant be not counted as required 
G 
by s. 91B(l) of the Act because of his interestedness in the allotment, 
there would be no quorum for tI:>e meeting and therefore the allot-
ment of shares to the nominees of the first appellant would be in-
valid, and as the consideration for the shares was paid out of the 
loans, the appellants would not be liable to repay those loans; (ii) 
since no cash amount was paid and no loan advanced by the respon-
dent to the first appellant the suit to recover the sum of Rs. 100,000 
H 
as a loan was not maintainable. 
HELD: (i) The allotment of the shares at the meeting, to the no-
minees of the first appellant was not void. In ·view of the fact that the 
first appellant was not entitled to vote on the allotment and after 
the exclusion of his vote there was no quorum, the allotment was 
icregular and the respondent was entitled to avoid it But. instead 
of avoiding the allotment the respondent has chosen to affirm it and 
so the allotment is valid and binding on the allottees. [783 E] 
777 
7711 
IUPRRKE 
COYRT 
RiPoKTS 
(1965) 3 8.C.R. 
Moreover, the first appellant was a party to the .resolution allot-
A 
ting shares and dealt with the shares on the footing that the allot-
tees were the holders with a clear knowledge of all circumstances, 
and therefore, was estopped from contending that the allotment was 
invalid. (783 F-G] 
(ii) To support a plea of payment, it is not necessary to show that 
cash passed. Illustration (a) to s. 50 of the Indian Contract Act, 1872. 
B 
show~ that payment may be made by means of transfer entries in 
books of account. [784 E] 
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 801 and 
802 of 1962. 
Appeals from the judgment and decree dated August 11,1960 C 
of the Bombay High Court in first Appeals Nos. 819, 8?0 of 1955. 
Purshottam Trikamdas, V. !. Jhaveri and S. N. And/ey for the 
appellants (in both the appeals). 
· 
K . .H. Bhabha, Iqbal Chagla and !. B. Dadachanji, for the D 
respondent (in both the appeals). 
The Judgment of the Court was delivered by 
Bachawat, J. The Bank of Poona Ltd., (hereinafter referred 
to as the Company) now amalgamated with the Sangli Bank, Ltd. E 
was incorporated in 1945. The Company was promoted by N. G. 
Parulekar and Murlidhar Chaturbhuj Loya. The authorised capi-
tal of the Company was Rupees fifty lakhs divided into 50,000 
ordinary shares of Rs. 100/· each. By the end of April, 1946, the 
Company was able to find subscribers for 4,860 shares only. In 
view of s. 277(1) of the Indian Companies Act, 1913, the Com-
F 
pany was unable to carry on business unless the subs
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