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WEAVERS MILLS V. BALKIS ANIMAL

Weavers Mills v. Balkis Animal AIR 1969 Mad 462

ISSUE:

  • Can the company’s title over the property be set aside even in the absence of conveyance of property by the promoter in favour of the company after its incorporation?

RULE:

  • The logic which was followed was that the promoter is a quasi-trustee and can be obliged to transfer the property. Specific Relief Act which was passed in 1963 provided some relief to the Promoters. Section 15(h) of this act says that if a public company has made a contract with the promoters before incorporation, they can impose it. It says that the contracts entered by the promoters are for the benefit of the company. The company should accept the terms of the contract. Not only the companies can enforce pre incorporation contracts, but other parties can also enforce it on behalf of the company.

FACTS:

  • The promoters entered an oral contract with the company- Weavers Mills to buy properties on behalf of the company before its incorporation. The second defendant was the managing director of the Weavers Mills.
  • The first respondent issued a money decree against the second respondent and attached the suit property in execution of the decree.
  • The second defendant claimed that the property belonged to Weavers Mills, and he did not have the right to attach the property, but this claim got rejected.
  • After incorporation, the company took over the possession of the properties and started constructing building on it. Conveyance of properties was not held by the promoters. Despite this, the court held that company’s title over the properties cannot be set aside.
  • There was no conveyance. There was no written agreement about the purchase of properties by the promoters. There was also a collusion between the two respondents and the plaintiff argued that they tried to conduct a fraud. He also said that the promoters did not tell the directors of the company about the situation and kept them in dark.

HELD:

  • It was held that even in the absence of conveyance of property by the promoter in favour of the company after its incorporation, the company’s title over the property could not be set aside.