NAEEM FINANCE LTD. AND ANOTHER., DR. MUHAMMAD SHARIF MUTTAQI., Ch.

1. WAHIDUDDIN AHMAD, J.--This judgment will dispose of Civil Appeals Nos, 11, 41, 42 and 43 of 1966 which have arisen out of the judgment of the West Pakistan High Court, Lahore in Civil Original No, 35 of 1961 dated the 21st July 1962. These have arisen in the following circumstances :- Dr. Muhammad Sharif Muttaqi, appellant in Civil Appeal No, 41 of 1966, is associated with Muslim Insurance Company Limited, Lahore, since its very inception. The above insurance Company was incorporated in 1934 with meagre resources though it had on its Board of Directors eminent personalities like Dr. Sir Muhammad Iqbal, Mian Abdul Hayee and Begum Jehan Ara Shah Nawaz. In the beginning, M/s. Muttaqi & Co., were the Managing Agents of the above company and Dr. Muhammad Sharif Muttaqi, was the ex-officio Director of the company. He was in management and control of the affairs of the Insurance Company. Till the partition of the subcontinent, the business of the Company was not very large but after Partition, with the exodus of non-Muslim Companies from Pakistan. the Muslim Insurance Company had wide field to expand and was successful in having good business which gradually mounted to several crores of rupees. The total income from life business premium between 1946 and 1960 was about Rs, 2,22,59,265. The result was that Dr. Muhammad Sharif Muttaqi received large amounts as emoluments and commission on the gross income of the premium.

2. After the Managing Agency system was abolished in Pakistan, Dr. Muhammad Sharif Muttaqi became the Managing Director of the Muslim Insurance Company and continued to hold this position till the proceedings under consideration were started against him. Taking advantage of his position, he manipulated its funds. Large sums of money were diverted from the funds of the Company into his personal account from 1st of January, 1948 to 31st December, 1960. Amounts not less than Rs, 30,95,592-3-7 were drawn by him in his personal account. This fact was suppressed in the annual statement of account firstly by transferring various amounts from the Revenue Accounts to the General Reserve and writing off substantial sums during the course of the financial year. In this way no trace was left of these withdrawals in the succeeding balance-sheets. The other device adopted by him was to withdraw substantial amounts from the Company's account in the Banks or to retain in his hands the income of the Company received directly and adjust it in the cash-in-hand and in the current account with the bankers. He further showed certain amounts as loans on mortgages though he had not mortgaged any property in favour of the insurance company. He also advanced loans to his friends and associates without any authority or obtaining any security from them. It is further in evidence that he got actuarial reports prepared on the basis of false data. He also failed to observe various provisions of the Insurance Act in which checks and balances were provided for preventing the mischief of the Insurance Company's officers. The manner in which the management of Muslim Insurance Company was carried on showed that Dr. Muhammad Sharif Muttaqi was treating it as his private property and he was dealing with its fund as if it belonged to him. In this way, he squandered away large amount of the Muslim Insurance Company. These misdeeds came to the notice of the Controller of Insurance, who in 1960, got a special audit of the Company made. The report was very startling.

3. Consequently Mr. B. A. R fiqui was appointed Administrator of the Company, who moved an application on the 12th May 1961, under section 106 of the Insurance Act, 1938, against the appellant Dr. Muhammad Sharif Muttaqi, his three sons, his wife and his four daughters. The application was also made against a number of other persons including Ch. Muhammad Shafi, Mr. M. E. Naeem and Mrs. Z. A. Amin. In this petition, a sum of Rs, 16,61,532-1-1 was claimed against Dr. Muttaqi on the allegation that he had committed misfeasance and misappropriated the money of the Company to its detriment. The Directors of the Company were also impleaded as parties and the above amount was also claimed from them on the ground that they failed to discharge the it duties properly and being negligent were liable to re-imburse the Company for the loss suffered by it.

4. Large amounts were also claimed from Syed Saghir Ahmad Shah. Ch. Abdul Karim, Ch. Fateh Muhammad, Ch. Muhammad Sharif, Mr. M. E. Naeem and Mrs. Z. A. Amin.

5. The main petition was resisted by Dr. Muhammad Sharif Muttaqi and other respondents. In their written statements the claim of the respondent No, 1 was repudiated. After the filing of the written statements most of the respondents were examined by a learned Single Judge of the West Pakistan High Court. By judgment dated the 21st July 1962, a sum of Rs, 15,62,074-124 was found due from appellant Dr. Muhammad Sharif Muttaqi on which interest on all the sums other than the Government of India promissory notes of the value of Rs, 2,16,000 have been allowed at the rate of 7 per cent. per annum with half-yearly rests. Mr. M. E. Naeem, respondent No, 14, has been found liable to pay to the Company a sum of Rs, 30,000 out of which Rs, 7,500 shall bear interest at the rate of 7 per cent. per annum with half-yearly rests. The balance of Rs, 22,500 is to be realised by the sale of 1400 shares and the short-fall, if any, will be recovered from his other property. A sum of Rs, 21,000 was found due from Syed Saghir Ahmad Shah respondent No, 10 and he was directed to pay this amount with interest at the rate of 7 per cent. per annum with half-yearly rests from the date on which he received this excess payment. A sum of Rs, 92,749 was found due from Ch. Muhammad Shafi. He was further held liable to pay the price of land which shall be worked out by the Commissioner to be appointed by the Court and was directed to pay interest on the total amount at the rate of 7 per cent. per annum with half-yearly rests. He was also directed to give possession of the 16 kanals of land sold by him to the company. Mrs. Z. A. Amin was also found liable to pay a sum of R s. 72,729-12. She was directed to pay this amount with interest at the rate of 7 per cent. per annum with half-yearly rests till the 31st March, 1961. Mian Mushtaq Ahmad, Raja Muhammad Abaidullah and Rizwanullah, the Directors of the Company were directed to refund to the Company the total amount received by them as fees, travelling allowances, daily allowances or any other remuneration for attending the Directors' meetings or serving in connection with the affairs of the Company. No claim was found to have been established against Ch. Abdul Karim, Ch. Fateh Muhammad and Ch. Nasrullah Khan and the petition against them was dismissed.

6. Being aggrieved by this judgment, Naeem Finance Limited and Mr. M. E. Naeem have filed Civil Appeal No 11 of 1966. Dr Muhammad Sharif Muttaqi has filed Civil Appeal No, 41 of 1966. Ch. Muhammad Shafi has filed Civil Appeal No, 42 of 1966. Mrs. Z. A. Amin has filed Civil Appeal No, 43 of 1966. No other appeal has been filed.

7. A preliminary objection was raised by Mr. Ghias Muhammad, counsel for respondent No, 1 that the above appeals should be returned to the High Court for decision in its Letters Patent Jurisdiction.

8. The learned counsel contended that the appeals were presented to this Court under Ordinance No, 50 of 1962 but under section 3 of Act IV of 1963, all pending appeals in the Supreme Court have to go back to the High Court for disposal in accordance with law. The objection raised has no force.

9. Firstly this point was not taken in the concise statement submitted on behalf of respondent No, 1.

10. Secondly, in all the above appeals leave was granted to the appellants and all the appeals were admitted for hearing. Such appeals are save under section 3, sub-clause (2) of Act IV of 1963.

11. Section 3 of the said Act is reproduced below :-- "S. 3(1)

(2) Nothing in subsection (1) shall be construed as applying to any appeal made and pending as aforesaid, which has, at any time before the commencement of this Act, been admitted by the Supreme Court, and every such appeal shall be continued, and shall be heard and disposed of by that Court as if this Act had not been passed."

12. It will be noticed that under the said subsection, subsection (1) has no application to any appeal made or pending which has at any time before the commencement of the enactment been admitted by this Court for hearing. Every such appeal is to continue, has to be heard and disposed of by this Court as if the above Act had not been passed. In the present case all the above appeals were admitted for hearing before the commencement of the said enactment and, therefore, under the aforesaid section 3(2), they shall be continued and heard and disposed of by this Court. This objection is therefore, overruled.

13. Before coming to the merits of the case, it will be convenient to dispose of some common questions of law which have been raised in the above mentioned appeals. Dr. Javaid Iqbal, learned counsel for the appellant Dr. Muhammad Sharif Muttaqi, has contended that the procedure adopted in the present case was contrary to the provisions of section 106 of the Insurance Act, that the High Court should have framed issues in order to determine the dispute between the parties and should not have based its decision in respect of claims which have not been made in the application moved against the appellant.

14. The grievance of Mr. S. M. Zafar, learned counsel for Ch. Muhammad Shaft is that the Court below has entertained a claim which the Administrator has not made against his client and this is not permissible in law. He also complained that the appellant should not have been subjected to public examination which was in the nature of a roving Commission and has caused prejudice to his case. According to the learned Counsel, the High Court, after having the appellant examined, should have issued a show-cause notice and in the absence of such a notice the proceedings suffer from violation of the principle of natural justice. He further contended that the learned court below has picked up evidence and has not considered the entire evidence in the case. According to him, the findings of the Courts below are not based on complete evidence.

15. In order to appreciate the contention of the learned counsel for the appellant, it is necessary to consider the provisions of section 106 of the Insurance Act. The relevant provisions of section 106 are reproduced below :- "106 (1). If, on the application of the Controller or an Administrator appointed under section 52-A or an insurer or any policy-holder or any member of an insurance company or the liquidator of an insurance company (in the event of the insurance company being in liquidation), the Court is satisfied."

16. (a)that any insurer (including in any case where the insurer is an insurance company any person who has taken part in the promotion or formation of the in surace company or any part or present director, managing agent, manager, secretary or liquidator) or any officer, employee or agent of the insurer,--

(1) has misapplied or retained or become liable or become accountable for any money or property of the insurer; or

(ii) has been guilty of any misfeasance or breach of trust in relation to the insurer; or that any person, whether he is or has been in any way connected with the affairs of the insurer or not, is in wrongful possession of any money or property of the insurer or having any money or property in his possession wrongfully withholds it or has converted it to any use other than that of the insurer, or

(c) that by reason of any contravention of the provisions of this Act, the amount of the life insurance fund has been diminished ; the Court may examine any such insurer, director managing agent, manager, secretary or liquidator or any such officer, employee or agent of the insurer such other person, as the case may be, and may compel him to contribute such sums to the assets of the insurer by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the Court thinks fit, or to pay such sum as may be found due from him in respect of any money or property of the insurer for which he is liable or accountable or to restore any money or property of the insurer or any part thereof, as the case may be; and where the amount of the life insurance fund has been diminished by reason of any contravention of the provisions of this Act, the Court shall have power to assess the sum by which the amount of the fund has been diminished and to order the person guilty of such contravention to contribute to the fund the whole or any part of that sum by way of compensation ; and in any of the aforesaid cases the Court shall have power to order interest to be paid at such rate and from such time as the Court may deem fit.

17. (2)Without prejudice to the provision contained in sub-section (1) or subsection (3), where it is proved that any money or property of an insurer has disappeared or has been lost, the Court shall presume that every person in charge of, or having a disposing power over, such money or property at the relevant time (whether a director, manager, principal officer or any other officer) has become accountable for such money or property within the meaning of sub-clause (1) of clause

(a) of subsection (1), and the provisions of that subsection shall apply accordingly, unless such person proves that the money or property has been utilized or disposed of in the ordinary course of the business of insurer and for the purpose of that business or that he took all reasonable steps to prevent the disappearance or loss of such money or property or otherwise satisfactorily accounts for such disappearance or loss.

18. (3)Where the insurer in an insurance company and any of the acts referred to in clause (a), (b) and (c) of subsection (1) has been committed by any person, every person who was at the relevant time a director, managing agent, manager, liquidator, secretary or other officer of the insurance company shall, for the purposes of that subsection be deemed to be liable for that act in the same manner and to the same extent as the person who has committed an act, unless he proves that act was committed without his consent or connivance and was not facilitated by any neglect or omission on his part.

19. It will be noticed that under the above provision of law wide powers have been conferred on the High Court to order restoration of property of any insurance company or for payment of compensation or such money as may be found due from a delinquent party. The delinquent party includes both officers of the insurance company and any person whether connected or unconnected with the affairs of the insurer who is in wrongful possession of the property. For this purpose Controller of Insurance, or Administrator appointed under the jurisdiction of the High Court can be invoked by the section 52-A of the Insurance Act, or by an Insurer, or any policy-holder, or any member of an insurance company or the liquidator of an insurance company on the allegation that any person who has taken part in the promotion or formation of the insurance company or any past or present director, managing agent, manager, secretary or liquidator or any officer, employee or any agent of the insurer has misapplied or retained or become liable or become accountable for any money or property of the insurer or has been guilty of any misfeasance or breach of trust in relation to the insurer. It can also be invoked against any person whether connected or unconnected with the affairs of the insurer who is alleged to be in wrongful possession of its money or property. The jurisdiction of the High Court is discretionary. In case the High Court is satisfied that such ground exists, it may examine the conduct of the above- mentioned persons and compel them to contribute such sum to the assets of the insurer by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as it may think fit or to pay such sum as may be found due from him in respect of any money or property of the insurer for which be is found accountable or to restore any money or property of the insurer.

20. Under sub-clause (2) of this section where it is proved that any money or property of an insurer has disappeared or has been lost, the Court shall presume that every person in charge of, at the relevant time, has become accountable for such money or property within the meaning of item (i) of sub-clause (a) of subsection (1), and the provisions of that subsection shall apply unless such person proves that the money has been used or utilised in the ordinary course of the business of the insurer and for the purpose of that business. Under subsection (3), if any person has committed the acts referred to in sub-clauses (a), (b) and (c) of subsection (I), every person who at the relevant time was a director, managing agent, manager liquidator or secretary or other officer of the insurance company shall be deemed to be liable for that act in the same manner and to the same extent as the person who has committed the act, unless he proves that the act was committed without his consent or connivance and was not facilitated by any neglect or omission on his part. Thus the proceedings contemplated under this provision of law are in the nature of misfeasance summons and the idea behind it is to bring to book in summary proceedings all the persons who have been mishandling the property of an insurance company. So far as the officers of the Insurance Company are concerned it will be for them to prove their innocence. It will be further noticed that under section 107 of the Insurance Act, except where proceedings are instituted by the Controller of Insurance, the previous sanction of the Advocate-General for institution of proceedings is necessary. Under subsection (14) of section 106, the High Court has been empowered to make rules providing for the manner in which enquiries and proceedings may be held under this section and for any other matter for which provision has to be made for enabling the High Court to effectively exercise its jurisdiction under this section.

21. Unfortunately, the High Court of West Pakistan has not made any rules providing for the manner in which enquiries and proceedings may be held under section 106. A perusal of section 106 of the Insurance Act, however, clearly shows that the enquiries and proceedings to be held under it subject to certain conditions, are judicial proceedings and of civil nature. In the absence of any rules made by the High Court, section 141 of the Civil Procedure Code will be applicable and enquiries and other proceedings contemplated under it will be held as far as possible according to the provisions of the Civil Procedure Code. In this connection, Sh. Ghias Muhammad, learned counsel for the respondents, has referred to a decision of the Lahore High Court in the case of Lala Mulk Raj Bhalla v. Official Liquidator of the Peoples Bank of Northern India Ltd., Lahore. In this decision which is a case under section 235 of the Companies Act, 1913, which also contemplates the examination of the conduct of a delinquent director, promotor etc., of the company, it was held that an application under section 235 of the Companies Act is in the nature of a plaint and the pro- ceedings under section 235 are judicial proceedings. In that case it was held as under : - "An application under section 235 of the Companies Act is in the nature of a plaint and the proceedings under section 235 are judicial proceedings ; but the provisions of the Code of Civil Procedure are in applicable to a petition under section 235, because express provisions for its con- tents and the formalities connected with it are provided for by the Companies Act and the rules made thereunder." The record of the High Court shows that in the present case the learned Single Judge of the High Court, who dealt with the misfeasance application, allowed the appellants who were respondents before him to file their written statements in respect of the allegations made against them.

22. Replication was also filed on behalf of the respondents who were applicants before him. Time was also granted for framing of issues but for reasons not known no issues were framed in the cases.

23. The absence of the framing of the issues has, however, not caused any prejudice to them. The appellants knew the allegations against them and were given sufficient opportunity to meet those allegations. The principles of natural justice were fully observed and it was after giving full opportunity to the appellants that decision was given against them by the High Court. In these circumstances, the absence of issues has not caused any prejudice to the appellants.

24. The grievance of the appellants that their examination in the present case by the learned Single Judge of the High Court was in the nature of inquisitorial proceedings which has caused prejudice to them, is also not well-founded. In this connection, reference was made to the private examina- tion and public examination under the English and Pakistan Companies Act. The provisions of sections 195 and 196 of the Companies Act to which specific reference was made have different scope. Section 195 is intended to be used for promoting liquidation proceedings while section 196, after an allegation of fraud is made, is intended to investigate the work of those who have been charged with the affairs of the company. These provisions are no guidance to the proceedings under section 106 of the Insurance Act. Pro-ceedings under this provision of law are both in the nature of inquiry and determination of the dispute between the parties. Subsection (14) of section 106 clearly shows that both inquiries and proceedings under section 106 are of inquisitorial nature.

25. Even the public examination, under the English Companies Act, of Directors and third parties is of an inquisitorial nature. In re : North Australian Territory Co. Bowan, J. while interpreting section 115 of the Companies Act 1867 at p. 93 of the report, observed as under :- "In the first place it must be observed that it is an extraordinary section. It is a power of inquisitorial kind which enables the Court to direct to be examined not merely before itself, but before the examiner appointed by the Court some third person who is no party to litigation. That is an inquisitorial power, which may work with great severity against third persons and it seems to me to be obvious that such a section ought to be used with greatest care, so as not unnecessarily to put in motion the machinery of justice when it is not wanted, or to put it in motion at a stage when it is not clear that it is wanted, and certainly not to put it in motion if unnecessary mischief is going to be done or hardship inflicted upon the third person who is called upon to appear and given information." In my opinion, the provisions of section 106 of the Insurance Act are also of extraordinary nature and the above observation can be applied to cases arising under it against a delinquent party, of course, the Court while exercising power under it should see that the party examined is not harassed and not unnecessary hardship is caused to him.1 2 Examination of the proceedings before the High Court shows that the examination of the appellants was not in the nature of harassment. They were examined with the help and in the presence of their counsel and only relevant questions were put and they were given full opportunity to explain the questions put to them and to defend themselves. In these circumstances, it is not possible to hold that any prejudice was caused to them. The appellants' objection that certain claims have been admitted which were not mentioned in the petitions moved against them has received my anxious consideration. In my opinion, on the language used in section 106 of the Insurance Act, this was quite permissible. The purpose of examination of the conduct of the appellants was to extract evidence, so that it may be used against them. It is not disputed that during the examination of, some of the appellants, some more items were found due from them. These appellants had knowledge of these claims and were given full opportunity to meet them But they did not lead any evidence to rebut these claims. It is not possible, therefore, to hold that any prejudice was caused to the appellants or the proceedings before the High Court suffered from any violation of the principle of natural justice. Similarly, the objection of the appellants that after their examination a show-cause notice should have been issued to them is not well-founded. In the first place, this is not provided in the section itself. Secondly, specific allegations were made against the appellants in the petition moved against them. They had, therefore, full notice of the claims against them and were given full opportunity to meet them. Even in respect of the items which were discovered during the examination of the appellants full opportunity was given to them to defend themselves. It is, therefore, quite clear that the principles of natural justice were fully observed in the case.

26. The grievance of the appellants that findings of the High Court are not based on complete evidence has also no force. A perusal of the judgment of the High Court showed that the evidence against the appellants has been discussed at full length and it cannot be said that the High Court has, in any way, departed from any recognised principle in this behalf. These contentions are, therefore, repelled.

27. The next point raised on behalf of the appellants is that the claim against them is barred by time and, therefore, the High Court should have rejected the claims against Dr. Muttaqi and Ch. Muhammad Shan. On the other hand, the contention of Sh. Ghias Muhammad, learned counsel for the respondents, is that no period of limitation is prescribed for the proceeding under section 106 of the Insurance Act and even if the claim was time-barred, the High Court was within its jurisdiction to call upon the respondents to pay the amount found due against them.

28. Both Dr. Javaid Iqbal and Mr. S. M Zafar, learned counsel for the appellants, have contended that section 106 of the Insurance Act does not create new liabilities or confer new rights but merely creates a summary procedure for enforcing existing liabilities. According to the learned counsel, a time-barred claim could not been forced by summary order under section 106 of the Insurance Act. In support of their contentions, the learned counsel have referred to certain decisions of the High Courts and the Privy Council dealing with cases arising under sections 186 and 235 of the Pakistan Companies Act. They have further relied on the enunciation of law of similar provisions of the English Companies Law. In Halsbury's Laws of England Third Edition, Volume 6, at p. 622, the learned author, while discussing the nature of misfeasance proceedings, has observed as under :- "The foregoing provision does not create any new liability or new right, it only provides a summary mode of enforcing rights (including rights created by the winding up) which must otherwise have been enforced by the ordinary jurisdiction of the Court. Its operation is not limited to plain cases in which no difficult question of fact or law is involved. But it is not applicable to all cases in which the company has right of action against an officer as where the claim is for a simple contract debt or is an ordinary claim for unliquidated damages.

29. The jurisdiction of the Court under the statutory provision is discretionary, and it will exercise its discretion in refusing the relief claimed or limiting its extend in a proper case, notwithstanding that it would have had no such power had the relief been claimed by way of action."

30. The learned counsel also cited the decisions of the Indian High Courts in Bank of Multan Ltd. v.

31. Hukam Chand , Sri Narain v. Liquidator, Union Bank of India and Hansraj Gupta and others v.

32. Dehra Dan-Mussoorie Electric Tramway Co., Ltd. . The burden of these decisions is that proceedings in the nature of section 235 and section 186 of the Companies Act, give no new right but simply provide summary mode of enforcing right which must otherwise has been enforced by suit. Considering section 106 of the Insurance Act in the light of the above discussion, it appears to me that this provision of law if does not create any new rights or liabilities. It provides a summary procedure for enforcing existing legal liabilities.

33. It is, therefore, for consideration whether any period of limitation is prescribed for enforcement of the liabilities arising under the said provisions of law ? It will be noticed that under section 106 of the Insurance Act, no suit is instituted but only an application is moved. Therefore, the period provided in Schedule I of the Limitation Act in respect of suits cannot be applied to proceedings arising under the above provision. The only Article which applies to applications is Article 181 of the Limitation Act, but there is consensus of opinion that this Article only applies to applications under the Code of Civil Procedure. Thus under Schedule I of the Limitation Act no period of limitation has been provided for an application moved under the above provision of law. This situation also arose in Hansraj Gupta and others v. Dehra Dun-Mussoorie Electric Tramway Co., Ltd., before the Privy Council in a case arising under section 186 of the Companies Act. While interpreting this section, the Judicial Committee observed at p. 64 of the Report :- "The application of the liquidators must therefore be treated as an application made" under section 3 ; and the next inquiry must be whether any period of limitation is "prescribed therefor by Sch. I, Limitation Act. It is common ground that the only Article in that Schedule which could apply to such an application is Art. 181 : but a series of authorities commencing with Bai Manekbai v.

34. Manakji Kavasji (1883) 7 Born. 213 has taken the view that Art. 181 only relates to applications under the Code of Civil Procedure, in which case, no period of limitation has been prescribed for the application. But even if Art. 181 does apply to it, the period of limitation prescribed by that Article is three years from the time when the right to apply accrued, which time would be no earlier than the date of the winding up order, 26th March 1926. The application of the Liquidator was made on 26th March 1928, well within the three years. The result is that from either point of view the application by liquidators, if otherwise properly made under and within the provisions of section 186, Companies Act, is not one which must be dismissed by reason of section 3, Limitation Act. It is either an application made within time, or it is an application made for which no period of limitation is prescribed. The case may be a casus omissus. If it be so, then it is for other than their Lordships to remedy the defect."

35. Their Lordships further held that even if there is a casus omissus, the amount claimed under section 186 of the Companies Act could not be recovered unless it could be recovered in a suit properly filed. This view was based on the interpretation of the words "money due" in section 186. In this connection they observed as under :- "There is however another aspect of the case in which the last mentioned Act plays a most important part, and that is in considering whether the three sums which the liquidators seek by their application to recover from the appellants were at the date of that application "money due" within the meaning of section 186. If they were not, then the section had no application and the Court would have had no power to make the order which it made."

36. Their Lordships further observed :- "Now, in considering the meaning and effect of section 186 it is impossible to overlook the fact that3 4 5 it is verbatim identical with the corresponding section in the legislation of this country, a section which dates back some 70 years to 1862, and which has appeared in our company legislation ever since. It is therefore a section with an ancestral history. Three features of the section call for notice:

(1) It is concerned only with moneys due from a contributory other than money payable by virtue of a call in pursuance of the Act. A debtor who is not a contributory is untouched by it. Moneys due from him are recoverable only by suit in the Company's name ; (2) it is a section which creates a special procedure for obtaining payment of money ; it is not a section which purports to create a foundation upon which to base a claim for payment. It creates no new rights ; (3) the power of Court to order payment is discretionary. It may refuse to act under the section, leaving the liquidator to sue in the name of the company, and it will readily take that course in any case in which it is made apparent that the respondent under this procedure, if continued, would be deprived of some defence or answer open to him in a suit for the same moneys."

37. In conclusion their Lordships observed :-- "In this country it is difficult to conceive a case in which, so far as limitation is concerned, the section should so operate as to deprive a man of a defence to a claim made by the liquidator which would have been effective against the same claim if brought against him by an action in the company's name. Whether, in view of the particular terms of the Limitation Act already referred to, such a case could happen in India depends upon the meaning to be attributed to the words in the section "any money due from him or from the estate of the person whom he represents to the Company". And their Lordships are satisfied that the position in this respect is, in India, the same as in this country, for the reason that in view of the place and context in which these words are found, they must be confined in their Lordships' judgment to money due and recoverable in a suit by the company, and they do not include any moneys which at the date of the application under the section could not have been so recovered."

38. In my opinion, the principles enunciated by Judicial Committee in the above case are also applicable to the facts of the present case. Although no period of limitation is provided in the Limitation Act for proceedings under section 106 of the Insurance Act or in the section itself, it will have to be seen whether the claims against the appellants are enforceable in law or are recoverable.

39. In section 106 of the Insurance Act, the Legislature has used significant words "or to pay such moneys as may be found due from him in respect or any money or property of the insurer for which he is liable or accountable or to restore any money or property of the insurer or any part thereof, as the case may be". In view of this language of the section before allowing any claim, it will have to be seen whether the money claimed is legally due from the delinquent persons. Sh.

40. Ghias Muhammad, learned counsel for the respondents, has contended that the connotation of the word "due" in equitable Jurisdiction is that it must be justly and honestly due. In support of his contention, the learned counsel has referred to Halsbury's Laws of England, Volume 24 at p. 205.

41. The learned author in paragraph 369 has stated as under :- "Except in the cases previously mentioned, the Limitation Act, 1939, only takes away the remedies by action or by set-off; it leaves the right otherwise and untouched, and, if a creditor whose debt is statute-barred has any means of enforcing his claim other than by action or set-off, the Act does not prevent him from recovering by those means."

42. He has also referred to Stroud's Judicial Dictionary, Volume I, at p. 889, in which the learned author has interpreted the words "due", as under :-- "A debt is still "due" notwithstanding that the Statute of Limitations may have run against it for that statute only bars the remedies and does not extinguish the debt and an account asked for by the debtor, he can avail himself of the statute."

43. He further referred to a decision of the Indian Jurisdiction in the case of Rullia Ram Hakim Rai v.

44. Singh S. Sham Sher Singh in which it was held that "the word "due" has not one meaning and has various shades of meaning and that under section 1'(2)(i) of the East Punjab Urban Rent Restriction Act, 1949, a tena t in order to avoid eviction must tender all arrears of rent including those barred by limitation". The contention of the learned counsel is contrary to the view of this Court in the case of Ashfaq-ur-Rahman v. Choudhry Muhammad Afzal . In that case, this Court, while interpreting the words `all the rent due" in subsection (6) of section 13 of Ordinance No, 71 of 1959, held that it does not include rent which has become barred by time. In this connection this Court observed as under :-- "On our evaluation of section 13(6) of the Ordinance in the context of the general law, we are of the view that a Rent Controller, acting under section 13(6) of the Ordinance, cannot direct the tenant to deposit rent in respect of which the legal remedy to recover has become barred under the statute of limitation. The principles enunciated in this case is also applicable to the present case."

45. I would, therefore, hold that before a claim is allowed under section 106 of the Insurance Act, it will be necessary for the K claimants to establish that it is legally recoverable from the delinquent persons.

46. On behalf of the respondents, it was urged that so far as Dr. Muttaqi's case is concerned, he will not be entitled to plead the statute of limitation in view of the provisions of section 10 and section 18 of the Limitation Act. Sh. Ghias Muhammad, learned counsel for the respondents, contended that Dr. Muttaqi, being the managing director of Muslim Insurance Company, is a trustee and, therefore, section 10 of the Limitation Act applies to his case. He further contended that Dr. Muttaqi had committed fraud on the Muslim Insurance Company, and, therefore, under section 18 of the Limitation Act he is not entitled to plead statute of limitation. So far as section of the Limitation Act is concerned, it cannot be applied to the facts of the present case because the respondents, in the application moved under section 106 of the Insurance Act against Dr. Muttaqi, have not alleged fraud or given particulars of the fraud. They are, therefore, not entitled to raise this point at the stage of appeal. The question of fraud is a mixed-question of fact and law, if the respondents wanted to take advantage of section 18 of the Limitation Act, they should have laid some foundation for it. In the absence of any pleading to that effect the respondents cannot be allowed to raise this point for the first time in the appeal. Even in the judgment, the learned Single Judge of the High Court has not based his decision on the ground of fraud. It may, however, be stated that the facts of this case show that Dr. Muttaqi had indulged in fraudulent transactions and this allegation could be easily made against him, but respondents have choosen not to do so, In view of this the respondents are not entitled to plead section 18 of the Limitation Act against Dr. Muttaqi.

47. The question whether Dr. Muttaqi is a trustee within the meaning of section 10 of the Limitation Act is not free from difficulty. Being the Managing Director. of Muslim Insurance Company, he may be a trustee in the general sense but cannot be considered to be a trustee under section 10 of the Limitation Act. Section 10 of the Limitation Act reads as under :-- "10. Suits against trustees and their representatives.--Notwithstanding anything contained in the foregoing provisions of this Act, no suit against a person in whom property has become vested in trust for any specific purpose, or against his legal representatives or assigns (not being assigns for valuable consideration), for the purpose of following in his or their hands such property, or the proceeds thereof, or for an account of such property or proceeds, shall be barred by any length of time.

48. Explanation.--For the purposes of the section any property comprised in a Hindu, Muslim or Buldhist religious or charitable endowment shall be deemed to be property vested in trust for a specific purpose and the manager of the property shall be deemed to be trustee thereof." This provision of law is applicable only against a person in whom property has vested in trust for any specific purpose. The property cannot be said to be vested in the trustee unless he is6 7 constituted as the owner of the property entrusted to him. Under the English Law there can be both legal and equitable estates. Section 10 of the Limitation Act only applies to legal estates, in my opinion, the property cannot be said to be vested in a trustee unless the ownership of the property is also vested in him. The question whether a director is a trustee within section 10 of the Limitation Act has been considered in a number of Indian decisions and the consensus of opinion is that he is not a trustee within the meaning of section 10 of the Limitation Act. A reference in this connection may be made to the cases of Kathiawar Trading Co. Ltd. v. Virchand Dipchand Bank of Multan Ltd. v. Hukam Chanel , Daulat Ram v. Bharat National Bank Ltd. and others and V. Narasimha Iyengar v. Official Assignee of Madras and others . In these decisions, the view of the English Court was also considered and they were held to be in applicable to cases arising under section 10 of the Limitation Act. This point was fully discussed in the case of Kathiawar Trading Company Ltd. v.

49. Virchand Dipchand. In this connection a Division Bench of the Bombay High Court observed as under :- "The more difficult question in the case remains for consideration, namely whether the right to recover the moneys by the liquidator is barred by the Act of Limitation or by the staleness of the demand on the principles laid down by the Privy Council in Lindsay Petroleum Co. v. Hurd L R 5 PC 221 and Lord Blackburn in Erlanger v. New Somberero Phosphate Co. 3 Ap. Cas. 1218. Apart from the operation of section 10 of the Act of Limitation on which the plaintiffs rely, such a claim would be barred, we apprehend, in six years under Article 120 of the Act, which period has long expired, and it has been contended for the defendant that the language of the above section is not applicable to the present case. Now that directors are quasi-trustees in respect of the capital of the company, and it is said that, in the event of their applying the funds of the company in a manner which is ultra vires the memorandum of association, the relief which the Court will give against them is not barred by the Statute of Limitations. It is treated as settled law by Kay, J.--In Re : Oxford Benefit Building and Invest rent Society 35 Ch. D. 509, and was so regarded by the Court of appeal In re: Sharpe L R (1892) 1 Ch. D 165.

50. It is, however, to be remarked that directors of a company are precluded, in England, from pleading the bar of the Statute by virtue, either of a general rule of the Court of Equity applicable to all trustees or quasi-trustees, or else by the Judicature Act of 1873, which is applicable to all persons "holding" property upon trust, but that the question, whether they are precluded in this country, depends exclusively upon whether they can, in the language of section 10 of the Statute of Limitations, be regarded as persons in whom the property of the company is vested in trust for a specific purpose. It is certainly not vested in them, as the case with trustees of a settlement or will.

51. Lord Justice James Remarks on this distinction in Smith v. Anderson 15 Ch. D. 275. He says : "The same individual may fill the office of director and also be trustee having property, but that is a rare, exceptional and casual circumstance."

52. Mr. Justice Kay in In re : Faure Electric Accumulator Co. 40 Ch. D 150 alluding to the same distinction says: "One obvious distinction, (i,e,, between directors and trustees of a settlement or will) is that the property of the company is not legally vested in them, but at the same time they have large powers of management and control vested in them over the property of the company". It is doubtless by reason of such management and control that they are held liable for the misappropriation of the trust funds, as explained by Sir G. Jessel in In re : Forest of Dean Coal Mining Company 10 Ch. D 451, but it is certainly contrary to the ordinary accepted meaning of the term "vesting" to say that property is vested in persons by reasons merely of their having control over it.

53. "Vesting" as explained by Brett and Cottch, JJ., in Coverdale v. Charlton 42 Q B D 120 when applied to the subject-matter of property according to its ordinary legal acceptation gives the property in it and not merely the control over it. Again, in Dickenson v. Teasdale 1 Deg J. & S. 52, Lord Westbury construing "vesting" in 3 and 4 will, 4, section 25 which is substantially the same as section 10 of the8 9 10 11 Limitation Act of 1877, c. 25, held that "vesting" implied property in the subject-matter that a person who bad merely power to charge the land did not, therefore, come under the section. On the whole, although directors of a company are quasi-trustees, we think it would be unduly straining the language of section 10 to say that they are persons in whom the property of the company is vested as contemplated by that section. It may perhaps be subject of regret that such should be the conclusion on the language of the section. If so, it will be for the Legislature to amend the section."

54. The view the section 10 of the Limitation Act is applicable only against a persok in whom property has become vested in trust for any specific porose and the ownership of the property must also vest in him finds 'import in the decisions of the Indian High Courts in the cases of V. Narasimha Iyengar v. Official Assignee of Madras and others and Official Receiver of South Arcot v. V. R. M. K. M.

55. N. Kulandaivelan Chettier and others . The Privy Council also in the cases of Khaw Sim Tek and others v. Chuah Hovi Gnch Nach and Annamalai Chettiar and others v. A. M. K. C. T.

56. Muthukaruppan Chettiar and others , has enunciated the following principles :- "A specific purpose within the meaning of section 10 of the Straits Settlement Ordinance No, VI of 1896, corresponding to this section of the Indian Limitation Act must be a purpose that is either actually and specifically defined in the terms of the will or settlement itself, or a purpose which, from the specified terms, can be certainly affirmed."

57. In the case of Vidva Varuthi Tiriha Swamigal v. Baluswami Ayyer and others , the Judicial Committee observed as under :- "The language of section 10 gives the clue to the meaning and applicability of Article 134. It clearly shows that the Article refers to cases of specific trust and relates to property "conveyed in trust".

58. Neither under the Hindu Law nor in the Mohammadan system is any property conveyed" to a Shebait or a mutawalli in the case of a dedication. Nor is any property vested in him. Whatever property he holds for the idol or the institution he holds as manager with certain beneficial interests regulated by custom and usage. Under the Mohammadan Law the moment wakf is created all rights of property pass out of the wakf and vest in God Almighty. The curator whether called mutawalli or sajjada-nasheen or by any other name, is merely a manager. He is certainly not a trustee as understood in the English System."

59. Thus the question is whether the property of the Muslim Insurance Company can be said to have vested in Dr. Muttaqi in trust for a specific purpose. The allegation against Dr. Muttaqi is that he has committed breach of trust in respect of the property of the said company and has further converted the money belonging to the said company to his own use. It may be that he was in control of the property of the company as the managing director but it is not possible to hold that he was holding that property as a trustee within the meaning of section 10 of the Limitation Act. The transfer of the ownership to the trustee is one of the most important ingredients under section 10 of the Limitation Act. As it is lacking in the present case, it cannot be said that the property has been conveyed to Dr. Muttaqi in trust for a specific purpose. That the transfer of ownership is one of the most important ingredients in such cases has also been found to be necessary by this Court. In the case of S. M. Hanif (Dacca) Limited v. The Central Bank of India Ltd. this Court approved the proposition that the words "conveyed in trust" in section 10 of the Limitation Act is to be interpreted in the light of the definition of Trust in the Trusts Act of 1882. In this connection this Court observed as under :- "The second point urged for our consideration by Mr. Pal on behalf of the Bank is that of limitation.

60. The learned counsel suggests that the plaintiff's suit was barred by time as the claim was covered by Art. 62 of the Second Schedule to the Limitation Act. The High Court held that the disputed amount having been placed in a suspense account by agreement of the patties, a trust was created in favour of the plaintiff and there was no question of the suit being barred by time. Section 10 of the Trusts Act, 1882, was referred to in this connection. Mr. Pal contests the correctness of this12 13 14 15 16 finding. He argues that there was no vesting of ownership right in the Bank, which was necessary for the creation of a trust for a specific purpose, within the meaning of section 10 of the Trusts Act.

61. According to him, the property had to be conveyed in trust to the Bank, before section 10 could be applied. It seems to us that this argument cannot be allowed to prevail. If the money was transferred to the Bank with the obligation annexed that it would refund any excess amount found due as a result of the settlement of the exchange issue later, there would be a sufficient "conveyance in trust", as by definition a "trust" is an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner", vide section 3 of Trusts Act, 1832. In the alternative, if the ownership of the money did not pass to the Bank but remained with the plaintiff, then it was a case of a deposit by the plaintiff with the Bank, subject to the express condition that a part of it would be paid back to him and a part appropriated by the Bank, when the disputed question of the rate of exchange was resolved. In these circumstances too the bar of limitation could not be successfully pleaded against the claim. On either view, therefore, the Bank's plea must fail."

62. Sh. Ghias Muhammad, learned counsel for the respondents has contended that according to the English view, a director is an express trustee and, therefore, section 10 of the Limitation Act should be made applicable to him. In support of his contention, the learned counsel referred to Halsbury's Laws of England, Third Edition, Volume 6. At p. 299 in paragraph 604, the learned author stated that "directors are trustees of the property of the company in their hands or under their control, but they are not trustees for individual share-holders or the creditors of the company, nor are they in the same position as trustees of a will or settlement". He further referred to Palmer's Company Law at p.

63. 524, in which the learned author stated as under :- "Directors are not only agents but they are in some sense and to some extent trustees or in the position of trustees but their position differs considerably from that of ordinary trustees, and the strict rules applicable to such trustees do not apply in all respect to directors."

64. The learned author further stated at p. 526 as under :- "Since directors are not trustees in the legal sense, the provisions of the Trusts Act 1925 and, in particular, the relief provision of section 61 do not apply to them and the Companies Act, 1948 has provided a similarly worded relief Provision in section 448."

65. The learned counsel further referred to the cases In re : Lands Allotment Company Ltd. , Masonic and General Life Assurance Company v. Sharpe and In re : Tintin Exploration Syndicate Ltd. v.

66. Sandys and others . In the last mentioned case, a learned Single Judge of the Chancery Division followed the following principle enunciated in Soar v. Ashwell , in respect of a claim against a solicitor : "The cases seem to me to decide that where a person has assumed either with or without consent to act as a trustee of money or other property i,e,, to act in fiduciary relation with regard to it and has in consequence been in possession of or has exercised in command or control over such property a Court of equity will impose upon him all the liabilities of an express trustee, and will class him with and will call him an express trustee of an express trust. The principle liability of such trustee is that he must discharge himself by accounting to his cestui que trusts for all such money or property without regard to lapse of time." and held that a Director is an Express Trustee.

67. The view in the English Courts about the position of directors is not very firm. In some decisions they have been described as commercial man, managing a trading concern for the benefit of themselves and all other share-holders in it. The position of the directors was also considered by the House of Lords in the case of Regal (Hastings) Ltd. v. Guliver and others , Lord Russel at p. 387, on this point, observed as under :-17 18 19 20 21 "Directors of a limited company are the creatures of statute and occupy a position peculiar to themselves. In some respects they resemble trustees, in others they do not. In some respects they resemble agents, in others they do not. In some respects they resemble managing directors, in others they do not."

68. The learned Judge approved the following passage in the judgment of Bowen L. J., in Imperial Hydro Pathic Co. v. Hamson ;-- "I should wish to begin by remarking this that when persons who are directors of a company are from time to time spoken of by Judges as agents, trustees, or managing partners of the company, it is essential to recollect that such expressions are not used as exhaustive of the powers and responsibility of these persons, but only as indicating useful points of view from which they may for the moment and for the particular purpose be considered. Points of view at which they for the moment seem to be cutting the circle, or falling within the category of suggested kind. It is not meant that they belong to the category, but that it is useful for the purpose of the moment to observe that they fall pro tan to within the principles which govern that particular class."

69. Similarly, Kay, J. in the case of Re: Faure Electric Accumulator Co. Ltd. described the position of directors as under:- "They certainly are not trustees in the sense of those words as used with reference to an instrument of trust such as a marriage settlement or will. One obvious distinction is that the property of the company is not legally vested in them."

70. In the light of the above observations of the English Courts, it is clear that in England, the directors are treated as trustees on equitable principles and not entitled to plead statute of limitation. A Court of equity from the conduct of a party raises a trust and imposes an obligation in Cite nature of trust. In my opinion, the principles, folio Ned in the English Courts, cannot be applied to cases arising under section 10 of the Limitation Act. As already pointed out, under this provision of law, the word "trust" in section 10 of the Limitation Act is used in the same sense as in the Trust Act, 1882 and the expression "vested in trust" implies that the ownership in the property had been conveyed to the persons referred to in the section. So far as directors are concerned, the property of the company does not become vested in them by reasons of such property being under their control. I am further of the view that the entrustment of the company's money to the directors is not entrustment for the specific purpose within the section. It may be for the general purposes of carrying on business of the company. They may be quasi-trustees. They may even be trustees in the general sense. They may be in fiduciary relationship to the company but they are not trustees of an express trust within the meaning of section 10 of the Limitation Act. I am, therefore, of the view that section 10 is not a bar and Dr. Muttaqi and other appellants can plead statute of limitation in their defence.

71. The upshot of the above discussion is that before any claim found due against the appellants is upheld, it must be shown that it is legally recoverable from them, that is to say, if a suit had been filed against them, it would not be time-barred.

72. The next question for consideration is which article of the Limitation Act is applicable to the case of Dr. Muttaqi. Article 36 of the Limitation Act is not applicable to him, because it refers to malfeasance, misfeasance or non-feasance independent of contract. This Article, being a residuary one, governs suits for compensation for tortious acts to which no special Article is applicable. Tile allegation of malfeasance, misfeasance or nonfeasance against Dr. Muttaqi is not independent of contract. The relation between him as managing director of the company and the insurance company in part is governed by numerous article in the articles of Association. These Articles, therefore, constitute a part of contract between the company and the directors.

73. This view is supported by a decision of the English Court in the case of Molineaux v. Lonlon Birmingham Manchester Insurance Company . In this connection Cozena-Hardy, L. J. observed as22 23 24 under :-- "On principles, and apart from authority, it seems to us that a person, who accepts an appointment as director, knowing that the holding of a certain number of shares is a necessary qualification, and acts as director, must be held to have contracted with the company that he will, within a reasonable time, obtain the requisite shares either by transfer from existing shareholders or directly from the company."

74. He further observed at p. 596:-- "The articles though not themselves a contract between the company and the director, must be regarded as showing the terms upon which on the other hand he agrees to act as director,and on the other hand the company agrees to pay him remuneration for his service."

75. The appointment of Dr. Muttaqi was under the Article of Association. His duties are also defined in those Articles and, therefore, it cannot be said that his activities were independent of contract. He was also holding a general power of Attorney from the company. In these circumstances, Article 36 of the Limitation Act has no application to his case. The only Article that is applicable to him is Article 90 of the Limitation Act Being the managing director and an Attorney he was an agent of the company and, therefore, will be liable for his neglect and misconduct in the discharge of his duties under the said Article. Article 90 has been applied to cases of misfeasance against Directors in a number of cases namely, Bhagat Ram v. Bharat National Bank , Peoples Bank of Northern India v. Das Haj and Peoples Bank of Northern India v. Margopal and others . The case of Dr. Muttaqi, therefore, falls under Article 90 of Schedule 1 of the Limitation Act, which provides that in other suits by Principals against Agents for neglect or misconduct, the period of limitation is three years from the date when the neglect or misconduct became known to the plaintiff.

76. Civil Appeal No, 41 of 1966 Coming to the merits of the case, I will first take up Civil Appeal No, 41 of 1966. This is an appeal filed by Dr. Muhammad Sharif Muttaqi. It will be noticed that in the misfeasance application moved against him, the High Court has found the following claims as due from him.

77. Item No, 1 ... 6,90,583-10-10 Item No, 2 ... 1,14,500-0-0 Item Nos, 3, 4 & 5 5,970-0-0 10,133-0-0 12,592-12-0 Item No, 6 Item No, 7 Paid Item No, 8 10,000-0-0 Item No, 9 1,181-4-0 Item No, 10 17,297-13-0 8,470-0-0 Item No, 11 70,000-0-0 Item No, 12 90,000-0-0 Item No, 13 40,000-0-0 Item No, 14 49,412-0-0 Items Nos, 15 & 16 no findings.

78. Item No, 17 2,76,000-0-0 Extra Item 20,000-0-025 26 27 14,16,141-7-10 Out of these items appellant has only challenged findings on Items Nos, 1, 3, 4, 5, 8, 9, 10, 17 and the extra item of Rs, 20,000. I will, therefore, discuss only those items in respect of which objection was raised at the time of argument of the appeal.

79. The dispute between the parties in respect of item No, 1 relates to a sum of Rs, 6,90,583-10-10. This amount was due from him on the 31st December, 1958. He disposed of this amount in subsequent balance-sheets by transferring Rs, 1,50,000 to a newly created account "cash in hand with the managing director". The balance of Rs, 5,40,583-10-10 was transferred to the lands and buildings account, under the head "Costs of the building under Construction". In 1959, out of the amount of Rs, 5,40,583-10-10, he transferred Rs, 3,38,949-6-3 from the Life Insurance Reserve account to the General Reserve, and on the 31st December, 1959, he wrote off this amount with the remarks "amount of interest not realised adjusted". The balance amount of Rs, 2,01,634-4-7 was divided into two items: Rs, 1,30,430 were shown as spent on "alterations and repairs of buildings" in the lands and building account and Rs, 70,204-9-7 as due from him in the lands and buildings account. The findings of the High Court in respect of these two items is that these amounts are due from Dr. Muttaqi, and he had fabricated forged receipts to support the item of "alteration and repairs". Dr. Javaid Iqbal, learned counsel for the appellant, has not challenged the finding of the High Court in this respect.

80. The learned counsel has only raised objections to the item of Rs, 3,38,949-6-3. This item is shown as amount of earned interest, but not realized from 1952-57 as detailed below :- Rs, 1952 32,004-13-0 1953 40,045-6-8 1954 47,255-3-3 1955 82,279-3-3 1956 78,847-2-1 1957 58,517-10-0 Total3,38,949-6-3 The explanation of the appellant that these amounts have erroneously been shown against him by mistake of the Accountant, who had been advised by the Actuary to show them in the balance- sheet, has not been accepted by the High Court. Dr. Javaid Iqbal, learned counsel for the appellant, has contended that these amounts were written off with the approval of the Directors in the balance-sheet for 1959. He further argued that the appellant cannot be held liable for the wrong advice given by the Actuary or the Auditors of the Company. He also contended that these amounts were not due from the appellant as he has not contracted any loans from the respondent-company. According to him, had there been any such transactions of advances the principal amounts would have been shown in the accounts of the company outstanding against the appellant. The explanation of the appellant that the said amount was wrongly charged as interest in his personal account and when it came to his notice in 1959, he had written it off was rightly rejected by the High Court. The evidence on the record shows that from 1947 to 1960, the company had earned premium amounting to over rupees two crores. In spite of this, it, did not have sufficient funds to purchase Government securities as required by the provisions of the Insurance Act. In order to meet this requirement, the company borrowed large amounts from time to time in overdraft account from the Chartered Bank and Habib Bank Limited, Lahore. These amounts were borrowed from time to time at 5% interest, with monthly rests on the overdraft accounts. The appellant instead of using these amounts for the benefit of the company withdrew from the funds of the company over rupees thirty lacs and invested them in his private business from which he earned large profits. In his examination, he admitted after consulting the accounts books of the company that in 1952, a sum of Rs, 2,70,521-4-0 was due from him on which he was charged interest amounting to Rs, 32,004-13-0. In 1953, Rs 4,57,296-12-8 were shown as due from him on which Rs, 40,045-6-8 were charged as interest. In 1954, Rs, 4,08,248-3-9 were shown as due from him on which he was charged interest amounting to Rs, 47,255. In 1955, the amount due from him was shown to be Rs, 5,62,086-8-6 and the interest charged was Rs, 82,279-3-3. In 1956, the amount shown as due from him was Rs, 7,39,519-8-7 and the interest charged was Rs, 78,847-2-1. In 1957, the amount due from him was Rs, 8,22,292-5-1 and the interest charged was Rs, 58,517-10-0. It was in this way that the total amount of interest for the above-mentioned years came to Rs, 3,38,949-6-3.

81. The grievance of the appellant that no interest should have been charged from him has no legs to stand. He has unauthorisedly withdrawn huge amounts from the funds of the company and utilized them for his personal business. The company, as already stated, had taken these loans at 5% interest with monthly rests in the overdraft account. In these circumstances, the respondent- company was fully justified in charging interest from him.

82. Dr. Javaid Iqbal, the learned counsel for the appellant, further contended that interest should not have been charged at 15 % per annum. This contention has also no force because the accounts were maintained under the supervision of the appellant and it was on his instructions that interest was charged at this rate from him. There is, however, full justification to charge interest at this rate because the appellant had been making much more profits by investing these amounts in his personal business. He has admitted in his evidence that he purchased shares of the Crescent Textile Mills, Lyallpur of the value of Rs 6,00,000. In this connection he withdrew from the company a sum of Rs, 1,80,000 and, later on, sold these shares and made a profit of Rs, 18,000 to Rs, 19100, and out of it paid to the company only Rs, 5,000. He also invested Rs, 25,000 out of the funds of the company in the name of his wife in the Casino Restaurant, the Mall, Lahore. He invested a further sum of Rs, 80,000 in the Nanda Match Factory, Baghbanpura, Lahore, Rs, 35,000 in the Pakistan Ghee Factory and Rs, 15,000 in the purchase of shares of the West Punjab Textile Mills and in the purchase of more than one lot of shares in the BECO and other companies. He also invested large amount of money in partnership with Ch. Muhammad Shafi in brick-kiln business. He admitted in his evidence that he was earning Rs, 2,000 p.m. from the investment in the Casino Restaurant and Rs, 4,000 p.m. by investing in the Nanda Match Factory. In the face of this evidence, the High Court was perfectly justified in observing that the sum of Rs, 3,38,949-6-3 charged from him as interest was a moderate figure in view of the profits made by him from the investment of the funds of the company. The amount withdrawn from the company was without the permission of the Board of Directors. He was all-in-all in the company and therefore, he must re-imburse the company for the loss of profit suffered by it. I would, therefore, hold that the High Court was perfectly justified in finding that the amount of Rs, 3,38,949-6-3 is due from him and he has wrongly written it off with a view to defraud the company. The objection of the appellant, therefore, in this behalf is repelled.

83. Items Nos, 3, 4 and 5 relate to three amounts of Rs, 5,970, Rs, 10,133 and Rs, 12,592-12-0. These amounts were spent on the education of the appellant's son Syed Zahid Hussain Muttaqi in England. He went to England in September, 1957, and returned from there in 1959. During this period he was working with M/s. Mercantile and General Re-Insurance Company, Ltd., London, with whom the respondent-company had dealings. A sum of Rs, 5,970 was due from them as commission. The appellant opened a personal account with the London Branch of the National Bank of Pakistan and got that amount transferred to it by the Mercantile and General Re-Insurance Company, London. It was subsequently utilized by Syed Zahid Hussain Muttaqi during his stay in London. A further sum of Rs, 10,133 was also paid by M/s. Mercantile and General Re-Insurance Company to Syed Zahid Hussain Muttaqi vide Exh. P.

5. The third amount of Rs, 12,592-12-0 was remitted by the respondent- company from time to time in monthly instalments under the orders of the appellant Dr. Muttaqi.

84. The case of the appellant is that in 1952 a decision was taken by the Board of Directors to replace him as principal officer of the company and an advertisement was made in the papers for the said post but there was no response. In another meeting of the Board of Directors, he proposed that Syed Zahid Hussain Muttaqi should be relied upon and taken for the post after getting proper training in England as he had passed his Senior Cambridge from the Aitchison College, Lahore. This proposal was accepted. He worked in the various sections of the respondent-company's office for sometime and was sent to England in July 1957, at the company's expenses to get practical training from the Re-Insurer Mercantile and General Insurance Company. It was in this context that the above-mentioned three amounts were sent to England. According to the appellant this was under the authority of the company and cannot be questioned on the mere ground that the amount had been spent on respondent No, 2, who happens to be his son. It is further contended that the respondent-company has taken advantage of the services of Syed Zahid Hussain Muttaqi and, therefore, cannot question the payment of these amounts. It was contended that these amounts were shown in the balance-sheet of the company in later years and, therefore, they have been ratified.

85. None of the contentions raised on behalf of the appellant has any force. The appellant has not produced any authority of the company under which Syed Zahid Hussain Muttaqi was sent to England. No resolution of the Board of Directors or any documentary evidence has been produced to support it. It is, therefore, quite clear that the appellant himself sent his son to England for training. He was, therefore, not entitled to spend the money of the company on the education of his son. In fact, from the evidence on the record, it appears that at one time the appellant wanted to pay this amount to the company. On the 25th of August 1960, the Accountant of the company prepared a statement which mentioned that the First amount of Rs, 5,970 was advanced to the appellant as loan against his Policy No, 19638. In the same way, the second amount of Rs, 10,133 was paid as loan against his policy No, 3442. This statement was brought to the notice of the appellant and Syed Zahid Hussain Muttaqi. The appellant has noted down on that as under:-- "Go through the details and see what amount is actually due from me."

86. Thereupon, the Accountant prepared another statement according to which a sum of Rs, 14,974-5- 0 was due. This was initialled by Mr. Zahid Hussain Muttaqi and the appellant on the 14th and 15th September 1960. In view of this, the plea of the appellant is an afterthought. The contention of the appellant that the items of expenditure mentioned in the balance-sheet must be deemed to have been, ex post facto, ratified by the directors is also without any force. The question was never brought specifically before the meetings of the directors and, therefore, it cannot be said that the Board of Directors had ratified this expenditure. Similarly, the plea of the appellant that it was in the interest of the company that the amount in question was spent on the education of his son has also no force. He was not the Judge of deciding what was in the interest of the company or not. The matter should have been brought before the meeting of the Board of Directors and unless it was approved by them it cannot be said that the expenditure was incurred in the interest of the company. The impression of the learned Single Judge about Mr. Zahid Hussain Muttaqi is very poor and in these circumstances, the appellant was rightly burdened to pay this amount to respondent- company.

87. Item No, 8 relates to a sum of Rs, 10,000, which the appellant on the 6th April 1960, paid by cheque from the funds of the company to himself. The appellant's case is that he has given this amount as earnest money to Messrs Muhammad Siddique and Muhammad Rafiq on behalf of the company for the purchase of their factory for Rs, 90,000. According to him, the bargain had failed and, therefore, it was the duty of the respondent-company to recover this amount as the Administrator had taken over on the 16th January 1961. The plea of the appellant is false because the agreement, Exh. P. 29, and the Receipt, Exh. P. 30, are in the name of the appellant. His subequent conduct also shows that the agreement in question was not entered into for the benefit of the company. Exh. P.

88. 30 to Exh. P. 34, letters written by Haji Shamsuddin, who was a private employee of the appellant, show that the finalization of the sale of the premises was to be made in the name of the appellant.

89. The High Court was perfectly justified in observing that "if this deal was, in fact, intended to be on behalf of the company, the voucher showing the payment of Rs, 10,000 as advance sale price to M/s. Muhammad Siddique and Muhammad Rafiq would have been prepared and adjusted in the lands and buildings account. Similarly, the letters, Exhs. P. 32 to P. 34 would have been written by the General Manager or the secretary of the company and not by Haji Shamsuddin". In these circumstances, if the vendor has failed to pay the amount of Rs, 10,000, the appellant must bear the loss and the respondent-company cannot be burdened for it because it could not claim this amount from the vendor. The appellant, therefore, was rightly held liable to pay this amount to respondent-company.

90. Item No, 9 represents a sum of Rs, 1,181-4.0 which was spent on the purchase of shares of Himalayan Corporation Limited. This amount was spent for the purchase of these shares from the company's fund but the share certificates were taken in the name of the appellant personally. The High Court has burdened the appellant because he had purchased the shares in his own name and not that of the respondent-company. It was urged on behalf of the appellant that he should not have been burdened with this amount for the same reason as in respect of the sum of Rs, 3,700 which was spent on the purchase of the shares of Triumph Limited, Lahore. The contention of the appellant has no force because the scrips of the Triumphs Limited, were taken in the name of the company. The Himalayan Corporation is no more in existence and the money has been lost. The appellant was, therefore, rightly burdened to pay this amount.

91. Item No, 10 represents two sums: Rs, 17,297-13 and Rs, 8,470. The first item relates to electric consumption charges at the residence of the appellant from 1st September 1947 to 30th December 1958. The second item relates to electric consumption charges from 13th January 1959 to 22nd December 1960. The case of the appellant is that as he was the managing director of the company, the respondent-company was under an obligation to provide him electricity at his residence which was also used as office. In support of it he relied on an item of Rs, 105-3-0 which was allowed by a special resolution of the Board of Directors before Partition towards the consumption of electricity at his residence. Dr. Javaid Iqbal, learned counsel for the appellant, contended that there was an office of the company at the residence of the appellant and the respondent-company should have been burdened for the electricity charges In the High Court, the plea of the appellant was that this amount was adjusted under the authority of a resolution of the Board of Directors. The contention of the appellant has no force. No resolution of the Board of Directors has been produced on the record. Simply because the appellant happened to be managing director of the respondent- company, he was not entitled to claim the electric consumption bill for the above period from the respondent-company. It is in evidence that since 1947 his residence has, never been used as an office of the company. Up to 1955 the office was at 55-Mozang Road, Lahore, and his residence was at 57-Mozang Road. Thereafter the office shifted to Bank Square. If he wanted to burden the company for this amount he should have placed the matter before the Board of Directors and claimed it after obtaining the sanction from it. In the absence of any such resolution the appellant has been rightly held to be liable to pay the amount of Rs, 25,767-13-0 to the respondent-company.

92. Item No, 17 relates to investment of Rs 2,16,000 of Life Fund in the Government of India promissory notes. The balance-sheet of the company showed that G. P. Notes of this amount were lying in safe custody of the First National Bank, Limited. In the annual balance-sheet of the company up to 1960, the promissory notes in question were shown as assets of the company, even the interest accrued on them was added to the company's income. After the Administrator was appointed, the appellant made a statement to him that he had endorsed these notes in favour of the First National Bank, Limited, for realization of the interest and as the said Bank has gone into liquidation he was not liable to re-imburse the company for their loss. This position was also adopted before the High Court.

93. The examination of the appellant, however, showed that the appellant had an overdraft account with the First National Bank, Limited, both in his personal name and in the name of his private concern, the Scientific and Surgical Industries Ltd. His evidence further showed that he owed Rs, 56,800 to the First National Bank, Limited, which he had taken as loan for financing the Scientific and Surgical Industries. Soon after Partition, the appellant himself applied for the winding up of the First National Bank, Limited. The Bank, in the written statement, pleaded as under:-- "To the best of the recollection of the manager, the position regarding the bulk of its securities described in para. 7 of the petition was substantially different. Dr. M. S. Muttaqi handed over to the Bank certain Government securities from time to time as collateral securities for various Cash Credit Accounts is his personal name and in the name of his concerns. These securities were duly endorsed in favour of the respondent-Bank. The securities handed over in the manner described above were not held by the Bank as agents and trustees for the j petitioner-company."

94. Thus it is quite clear that the appellant had pledged the Government of India promissory notes in dispute with the First National Bank, Limited. He had also endorsed them in favour of the Bank. In this way, the Bank was able to encash them and appropriated the proceeds to the overdraft account of the appellant. The appellant concealed this fact from the company. Instead he showed the promissory notes as assets and the interest due on it as income of the company. The loss to the company, therefore, is solely caused on account of the misconduct of the appellant and, therefore, he has been rightly burdened with the sum of Rs, 2,16,000 as the value of the said promissory notes and Rs, 60,000 as interest accrued on them.

95. Dr. Javaid Iqbal, learned counsel for the appellant, contended that the interest of Rs, 60,000 should not have been added to the amount of Rs, 2,16,000 and the appellant should not have been burdened with it. The contention of the learned counsel has no force. If the promissory notes in question had not been lost to the company, the company would have earned interest of Rs, 60,000.

96. The appellant, therefore, is bound to compensate the company for the loss suffered by it on this account. I am, therefore, satisfied that the appellant has been rightly burdened with the sum of Rs, 2,76,000.

97. There now remains an item of Rs, 20,000 which, according to the appellant, was not claimed by the Administrator in the petition under section 106 of the Insurance Act. The appellant has been made liable for this amount because he obtained from Cu. Fateh Muhammad, on the 29th December 1938, promissory note, Exh. P. 15, in the sum of Rs, 20,000 towards the part payment of the amount due from him. Instead of adjusting this amount in his account, he got a credit for it in his personal account vide item of Rs, 93,750 dated the 31st December 1958, and its details as they appear in the day-book of the said date. Ch. Fateh Muhammad, in 1954, owed a sum of Rs, 1,00,000 to the respondent-company. Out of it he paid back Rs, 85,000 by sate of lands to the company leaving a balance of Rs, 15,000. In addition, he owed to the company Rs, 35,000 as interest on this transaction.

98. In part payment of this amount he gave a promissory note of Rs, 20,000 to the appellant. The appellant, therefore, was rightly held liable to pay this amount to the company. His contention that this claim was not made in the petition and, therefore, it could not be claimed from him has no force. The provisions of section 106 of the Insurance Act are very wide and under it the High Court has full power to direct an officer of the company to pay the amount found due from him. In the present case, this amount was discovered during the examination of the appellant and he was burdened with it. The respondent-company examined their Accountant to establish this fact. It was open to the appellant to show that this amount was not due from him. No such argument was advanced even in this Court. In these circumstances, the contention of the appellant that this amount could not be claimed from him has no substance. I would, therefore, hold that the appellant has been rightly held liable to pay this amount.

99. Dr. Javaid Iqbal, learned counsel for the appellant, has contended that the High Court should not have made the appellant liable to pay the amount of Rs, 15,62,074-124. He contended that items Nos, 1, 2, 3, 4, 5, 9 and 10 had been ratified by the Board of Directors by the adoption of the balance- sheet. He further contended that the total sum due from the appellant is Rs, 14,16,141-7-10 plus an amount of Rs, 15,100, consisting of two items of Rs, 13,000 and Rs, 2, 100, which have been debited against the appellant in the case of Mrs. Amin. According to him, as the appellant has already paid Rs, 40,000, he is only liable to pay Rs, 13,91,241-7-10. So far as his first contention is concerned it has no force. At no time the items referred to above were specifically brought before the Board of Directors for the purposes of ratification. In law, ratification can only be made by a conscious act of a party. This cannot be said to have been done in the present case. Moreover, there can be no ratification of illegal acts.It is quite clear that the appellant cannot claim any advantage on this basis. The claim of the appellant that he is only liable to pay Rs, 13,91,241-7-10 appears to be well founded. I would, therefore, make him liable only to this extent.

100. I have already discussed the question of limitation. in my opinion, Article 90 of the Limitation Act applies to the facts of the present case. If the various items claimed against the appellant are examined in the light of the above Article, it is quite clear that the claim against the appellant is within limitation. The negligence or misconduct alleged against the appellant came to light in 1960 when the Controller of Insurance got the accounts of the respondent-company specially audited.

101. Petition under section 106 was filed against him on the 12th May 1961. The claim against the appellant is, therefore, well within time.

102. The next contention of the appellant is that interest should not have been allowed at 7 % per annum with half-yearly rests as the respondent-company has only claimed 6% per annum with half-yearly rests. The grievance of the appellant in this respect appears to be well founded. It is quite true that under section 106 of the Insurance Act the High Court has unfettered discretion to allow interest at any rate it deems fit. At the same time the High Court is bound to take into consideration the rate, at which interest has been claimed by the aggrieved party. The aggrieved party, in the present case, has estimated its loss at 6 per annum with half-yearly rests. I would, therefore, reduce the rate of interest from 7 % per annum with half-yearly rests to 6% per annum with half-yearly rests. This rate of interest will be charged in other cases also. In the result, subject to the above modification, the appeal is dismissed with proportionate costs.

103. Civil Appeal No, 42 of 1966. I will next take up Civil Appeal No, 42 of 1966. This is an appeal by Ch. Muhammad Shafi, who was respondent No, 16 in the High Court. In 1955, the respondent-company employed the appellant as Contractor for constructing some flats of the company and supplying bricks. From February 1955 to 31st December 1958, the appellant received, according to statement, Exh. R. 21, a total sum of Rs, 1,14,749-5-0 from the company through its managing director, Dr. Muhammad Sharif Muttaqi, for the construction work and supply of bricks. He also admitted to have received Rs, 20,000 on the 4th of January 1955, vide voucher, Exh. P. 105, which bears his signature. He, however, alleged that this amount was refunded to him in lieu of two sums of money of Rs, 10,000 each paid by him by crossed cheques to Dr. M. S. Muttaqi on the 4th December 1954, and 27th December 1954. The High Court did not accept this plea.

104. The case of the appellant is that whatever amount was received by him from the respondent- company was either duly spent or returned to Dr. M. S. Muttaqi, respondent No,

2. He claimed that he had constructed two flats of the value of Rs, 36,000 and he has further paid a sum of Rs, 6,000 by cheque. The High Court has allowed him a credit of Rs, 42,000 and has held that he is liable to render account for Rs, 92,749-5-0. It is urged on his behalf that he has paid a sum of Rs, 62,767 during the period from 1954 to 1st October 1958 by cheques and, therefore, he is not liable to pay any amount. The High Court has held that the appellant had a partnership business of brick-kiln with Dr. Muhammad Sharif Muttaqi and, therefore, whatever amount he paid to him was in connection with that partnership business. The finding of the High Court in this behalf is challenged in this appeal. Mr. S. M. Zafar, learned counsel for the appellant, has contended that the claim of the respondent-company in respect of this amount is barred by limitation. According to the learned counsel, Article 49 of the Limitation Act applies to the facts of the present case. In my opinion Article 49 of the Limitation Act has no application to the facts of the present case. From the dealings of the parties, it appears that the amount advanced to the appellant was partly towards the construction of the flats of the respondent-company and partly as loan. It is in evidence that the flats of the company were constructed in 1955, thereafter no work was done by the appellant for the company in this connection. His agency, therefore, for constructing the flats came to an end in the year 1955, and, therefore, any amount paid to him till that period will be governed by Article 89 of the Limitation Act. If the period of limitation under this Article is counted as three years from the time of the termination of the agency, the claim against him is clearly barred by time. The rest of the amount advanced to him is a loan which would be governed by Article 57 of the Limitation Act. The period of limitation under this Article commences from the time when the loan is advanced. Civil Miscellaneous No, 3678/61 in C. 0. No, 35/61 was filed against the appellant on the 24th October 1961. All the items in Exh. R-21 beginning from 9th January 1956 till 4th March 1954, are of more than three years and, therefore, they are barred by time. There is an item of Rs, 15,000 dated the 31st December 1958, but this amount is alleged to have been paid by Dr. Muttaqi on the 14th October 1957. This is also, therefore, barred by time. It is, therefore, quite clear that the claim of the respondent-company against the appellant found due to the extent of Rs, 92,749-5.0 is barred by time.

105. The High Court has further held the appellant liable for the payment of the price of the area of land appropriated by him out of 37 kanals, 15 marlas of land, which is to be determined by a Commissioner to be appointed by the High Court. 40 kanals of land situated village Mauza Pak ki Thathi, inside Lahore Corporation, was purchased in the name of Dr. M. S. Muttaqi, from Umar Din Chanan Din etc., for a sum of Rs, 43,000. although the consideration of the sale was shown as Rs, 50,000 Dr. Muttaqi gave a cheque for Rs, 43,000, dated the 12th April 1953 of the company to the vendor and kept Rs, 7,000 as amanat with him. On the 10th April 1954, he also entered into an agreement, Exh. P. 25, by which he admitted that half of the price of the said land has been paid by Ch. Muhammad Shad and he is the owner of one half in the said land.

106. In pursuance of this agreement, three sale deeds were executed by Dr. M. S. Muttaqi for 5 kanals each. One was a sale deed dated the 10th November 1954 Exh. R. 34 for Rs, 5,000 in favour of Ch. Muhammad Shad and the second one was sale deed dated the 3rd December 1954, Exh. R. 25, fur Rs, 3,000 in his favour and the third one was dated the 10th November 1954, Exh. R. 57, in favour of Ohulam Muhammad, father-in-law of appellant's son. In this way, 15 kanals of land was transferred to Ch. Muhammad Shafi or his relatives. Two further sale deeds were also executed in favour of Mst.

107. Mumtaz Begum and Bashir Ahmad on the 4th December 1954, vide Exh. R. 56 and Exh. R. 58, for Rs 5,000 each. Mst. Mumtaz Begun is the sister-in-law of Ch. Muhammad Shafi and Bashir Ahmad is the brother of Ch. Muhammad Shad. In spite of these sales, the High Court has made the appellant liable for payment of the price of the area appropriated by the appellant and his relatives out of 37 kanals and 15 marlas of land after giving margin for the land used for roads and streets laid down by the Improvement Trust. In this connection, the High Court observed as under:-- "Apart from the oral word of Ch. Muhammad Shafi there is no evidence of the sale of any plots of land by Dr. M. S. Muttaqi out of the 40 kanals of land purchased by him from Umar Din and others.

108. Respondent No, 13 is, therefore, liable to account for the remaining 37 kanals and 15 marlas of land but as some portion of the same has been included in the and streets laid down by the Improvement Trust, a Commissioner will be appointed to ascertain the exact area appropriated by Ch. Muhammad Shall and other members of his family and their price recovered from him at the current rate."

109. It will, however, be noticed that the land in dispute was transferred to the appellant and his other relatives in 1954, and the claim for its price even if recoverable from the appellant cannot be said to be within limitation. No Article of the Limitation Act applies to this type of claim. The only article applicable will be the residuary Article 120 of the Limitation Act. The right to sue under that Article accrued when the land in dispute was transferred to the appellant and his relatives, that is to say from 10th November 1954 to 4th December 1954. The claim against the appellant was filed on the 24th October 1961. If the time is counted from November and December 1954, the period of six years expired much before the date on which the application under section 106 of the Limitation Act, was made against the appellant. This claim, therefore, is barred by time.

110. It will be further noticed that on the 26th August 1956, the appellant sold 16 kanals of land for a sum of Rs, 18,000 to the respondent-company. This amount was admitted by the appellant to have been received before the Sub-Registrar though nothing was paid in his presence. The accounts of the company show that a sum of Rs, 18,000 was paid to Dr. M. S. Muttaqi for payment to the appellant. The appellant's contention is that no amount was paid to him and, therefore, he did not part possession of the said land and kept it with him. In my opinion, the High Court was perfectly justified in holding that whether the appellant received the sale price from Dr. Muttaqi or not, the land belongs to the respondent-company and be is bound to give its possession to it. If the amount of Rs, 18,(00 was not paid to him by Dr. Muttaqi, he can claim it from him.

111. Mr. S. M. Zafar, learned counsel for the appellant was unable to satisfy us that this part of the order of the High Court is open to any criticism. I would, therefore, maintain the finding of the High Court in this respect. In the result, the order of the High Court in respect of Rs, 92,749-5-0 plus the price of the land which was to be worked out by the Commissioner is set aside and the appeal against these two items are allowed. The appeal is dismissed in respect of the delivery or possession of the 16 kanals of land sold by the appellant to the company for Rs, 18,000 vide sale deed dated the 26th August 1956. As the success is partial, the parties are directed to bear their own costs.

112. Civil Appeal No, 11 of 1966 The next appeal is of Naeem Finance Limited, being Civil Appeal No, 11 of 1966. In this appeal, there are two appellants, namely, M/s. Naeem Finance Limited, and Mr. M. E. Naeem, one of its directors.

113. Respondent-company moved an application against them on the allegation that Dr. Muhammad Sharif Muttaqi, respondent No, 2, towards the end of 1959 and beginning of 1960, paid a sum of Rs, 30,000 to Mr. M. E. Naeem and the above-mentioned company out of the funds of the respondent- company. Before the Administrator, Dr. M. S. Muttaqi stated that he had paid this amount to Mr. M. E.

114. Naeem as loan. When Mr. Naeem was contacted, he informed the Administrator that the above sum was paid to Naeem Finance Limited for the purchase of the shares of the Muslim Insurance Company in the name of Dr. M. S. Muttaqi. He produced letters, Exhs. R. 36 to R. 38, and R. 41 to R. 44, which supported his case and falsified the statement of Dr. M. S. Muttaqi. The account books of the appellant No, 1 company, show that 3,300 shares of the value of Rs, 22,497-12.0 were purchased in the name of Dr. M. S. Muttaqi which were duly received by him.

115. In his written statement, Mr. Naeem pleaded that he was no liable for any amount as the dealing was between appellant No, 1 and Dr. M. S. Muttaqi. It was further pleaded on behalf of the appellants that they had purchased shares of the value of more than Rs, 40,000 and as Dr. M. S. Muttaqi has failed to take delivery of the remaining shares, the company was not liable to render any account of the amount given to it, The High Court has not accepted this plea but has come to the conclusion that only shares of Rs, 22,497-12-0 were purchased by the appellants and Rs, 7,502- 4 is still lying to the credit of Dr. M. S. Muttaqi in the accounts book of M/s. Naeem Finance Limited. It was further found that out of 3,300 shares delivered to Dr. M. S. Muttaqi, he had pledged 1900 shares with the Chartered Bank Limited in his overdraft account and the balance of 1400 shares were lying in the private custody of Mr. Akhtar Zaman Ghauri, Accountant of the company, which were produced in the Court towards the end of the proceedings. In spite of this, the High Court has burdened the appellants for 1900 shares which have been pledged by Dr. M. S. Muttaqi with Chartered Bank Limited. En this connection, the High Court has observed as under.

116. "Corning back to the liability of Mr. M. E. Naeem or the Naeem Finance Limited for the sum of Rs, 30,000 it has further to be borne in mind that Mr. M. E. Naeem is an Accountant and Income-tax practitioner and had cordial relations with Dr. Muhammad Sharif Muttaqi who advanced him a loan of Rs, 4,000 out of the funds of the company. He has represented the company in some of its income-tax cases and also audited its accounts between 1934 and 1936 as an assistant of S. Rasul & Company. Mr. M. E. Naeem can, therefore, be credited with the knowledge that the amount of Rs, 30,000 entrusted by Dr. Muhammad Sharif Muttaqi to him belonged to the company and had, therefore, no authority to purchase shares of the company with it in his personal name. He should also have been aware of the provisions of section 29 of the Insurance Act and of the Articles of Association of the company which prohibit the advancing of any loan to the Directors or other office-bearers of the company. In spite of this Naeem Finance Limited or M. E. Naeem had purchased shares of the company for and on behalf of Dr. Muhammad Sharif Muttaqi with the sum of Rs, 30,000 drawn from the company's overdraft account they are in law liable to re-imburse the company for it.".

117. The High Court has further held that there is no difference between appellant No, 1 company and Mr. M. E. Naeem. Both of them are liable to re-imburse the respondent company. This order is being challenged in this appeal.

118. In support of the appeal Mr. Gul Muhammad, learned counsel for the appellants, has contended that appellant No, 1 had purchased shares of more than Rs, 40,000 and therefore, it is not liable to pay any amount to the respondent-company. The contention of the learned counsel is not supported by any reliable evidence on the record. As pointed out by the High Court, the letters on which Mr. M. E. Naeem wanted to rely, may have been fabricated during the time when the proceedings were pending before it. The learned counsel for the appellants has not referred before us to any such document and it is, therefore, not possible to hold that the appellants have purchased shares of the value of more than Rs, 40,000 for the benefit of Dr. M. S. Muttaqi.

119. There is, however, much force in the contention of the learned counsel for the appellants that the appellants should not have been burdened for 1900 shares which have been pledged by Dr. M. S. Muttaqi with the Chartered Bank Limited. In my opinion, appellant No, 1 or Mr. M. E. Naeem, cannot be held liable for the price of these shares because they cannot be held to be in the know of the internal working of the respondent-company. Dr. M. S. Muttaqi was the managing director and all- in-all. It is in evidence that at the material time when the shares of Muslim Insurance Company were purchased, the market rate of the shares was about Rs,

6. The possibility, therefore, that by purchasing the shares of the Muslim Insurance Company, Dr. M. S. Muttaqi wanted to boost up the market value of the shares of the respondent-company cannot be ruled out. The evidence on the record shows that after purchase of the shares in question, the market rate of the shares went up to Rs, 7-4-0. If the appellants had purchased shares with this object it cannot be said that they had acted illegally. In any case, the appellants have not benefited themselves out of the said shares. In these circumstances, Dr. M. S. Muttaqi should have been burdened for the value of 1900 shares.

120. Unfortunately, the High Court has not made him liable in this connection. I would, therefore, allow the appeal of the appellants in respect of 1900 shares. In view of this, I set aside the order of the High Court in respect of 3,300 shares and only maintain its order with regard to Rs, 7,500 which is lying with the appellant-company. Both the appellants are liable to pay this amount at 6% interest per annum with half-yearly rests.

121. As the success is partial, the parties are directed to bear their own costs.

122. Civil Appeal No, 43 of 1966 The last appeal that remains for consideration is Civil Appeal No, 43 of 1966 of Messrs Z. A. Amin.

123. The respondent-company moved an application against Mrs. Z. A. Amin alleging that a sum of Rs, 1,09,878-9-0 is due from her according to the accounts books of the company. Out of this a sum of Rs, 88,437-12-0 was the principal sum and the balance was interest from the 21st December 1955 to the 31st December 1961.

124. The allegation of the respondent-company was that a large amount was due from the appellant and the above amount was due from her after adjusting a sum of Rs, 11,500, the price of bungalow No, 19-A Gulberg, Lahore, which was purchased from her on the 29th September 1958.

125. The appellant pleaded that the dealings between the parties started when the respondent No, 2, representing his company, decided to purchase house No, 19-A, Gulberg, Lahore, from the appellant and all loans were advanced towards the implementation of that plan. According to the appellant, her husband was persuaded by the agent of the company to take out a life policy in the sum of Rs, 1,00,000 on the assurance that thereby he would be able to get an advance loan of Rs, 75,000 for the construction of a house. On this assurance, she paid Rs, 4,200 as the first premium on the life policy of her husband. Thereafter, she approached Dr. M. S. Muttaqi to obtain the promised loan but she was told that the agent of the company had cheated her and that no such loan could be advanced to her. Dr. M. S. Muttaqi, however, promised to help her in some other manner. It was in this background that the dealings between the appellant and respondent- company started. The defence of the appellant is that only a sum of Rs, 11,729 is due to the respondent-company which she is prepared to pay. She pleaded that as the respondent- company has already filed two suits in the civil Court, Lahore, about the account in question, it is not competent to file an application under section 106 of the Insurance Act against her. She further disputed the payments of the following items by the respondent-company :--

(i) 21st December 195530,000

(ii) 5th July 1957 5,000 (iii)22nd August 1957 1,000 (iv)5th June 1958 1,500

(v) 22nd September 195820,000 (vi)31st December 195813,000 (vii)13th January 1959 5,000 During the hearing of the case, she also repudiated an item of Rs, 2,710 dated the 2nd January 1959, because this item though received by her was intended to meet the cost of repair of 19-A Gulberg, Lahore belonging to the company which has been leased out to her as a tenant. The High Court, out of this amount. has only allowed a sum of Rs, 15,710 and has held the appellant lid be to pay a sum of Rs, 72,729-12-0. This order is being challenged in this appeal.

126. The appellant, in the appeal, has only challenged the finding of the High Court with regard to the following items :-- Rs.

(i) 21st December 195530,000

(ii) 5th July 1957 5,000 (iii)22nd August 1957 1,000 (iv)22nd September 195820,000

(v) 13th January 1959 5,000 I will deal with these items separately. The allegation of the appellant is that Dr. M. S. Muttaqi had obtained the sole selling agency of Pakistan Glue Factory Limited. In this connection he had deposited a sum of Rs, 30,000 as security. Dr. Muttaqi persuaded the appellant to purchase this sole agency which she agreed to do. For this purpose, he obtained a pro-note for Rs, 30,000 from her and addressed a letter to Pakistan Glue Factory Limited, that the selling agency of the same may be transferred in the name of Mrs. Z. A. Amin. The company did not agree to it and the transaction fell through. The appellant, therefore, demanded several times from Dr. Muttaqi for the return of the promissory note but he put her off on one pretext or the other. The contention of the appellant is that this promissory note was without consideration and, therefore, she was not liable to pay its amount to the respondent-company. This plea was rejected by the High Court with the following observation :- "The promissory note was claimed to be without consideration but by executing it Mrs. Amin enabled Dr. Muhammad Shard Muttaqi to adjust the proceeds thereof in his personal account with the company. Thus so far as the company is concerned, Mrs. Amin obtained full consideration for the promissory note from it, although she allowed that amount to remain in the hands of Dr. M. S. Muttaqi as consideration for a different transaction. As the latter transaction did not come through, there was certainly failure of consideration on the part of Dr. M. S. Muttaqi, but none on the part of the company. Mrs. Amin can sue him for the refund of the amount, but their mutual rights and obligations do not affect her liability towards the company. Lastly, as will be seen presently, this sum of Rs, 30,000 was admitted to have been received by Mrs. Amin from Dr. M. S. Muttaqi on a subsequent date."

127. On the above finding, it is quite clear that so far as the promissory note of Rs, 30,000 is concerned, it remained without consideration because the sole selling agency of Pakistan Glue Factory Limited, in respect of which this promissory note was taken, was not transferred to the appellant. In my opinion, the appellant cannot be burdened for this promissory note because it remained without consideration. The mere fact that Dr. M. S. Muttaqi has got this amount adjusted in his personal account cannot make the pronote in question as for consideration so far as the appellant is concerned. The observation of the High Court that, later on, the appellant had received this amount of Rs, 30,000 from Dr. M. S. Muttaqi has also no effect so far as the validity of this pronote is concerned. The appellant did receive a sum of Rs, 37,000 on the 4th November 1958, but this amount has been separately charged from her. She cannot, therefore, be burdened twice for the same amount. In view of this discussion, the High Court was not justified in awarding a sum of Rs, 30,000 against the appellant. I would, therefore, allow this claim of the appellant.

128. I will next take up item of Rs, 20,000 dated the 22nd September 1958, which has also been disputed by the appellant. This item was advanced to her on the basis of the promissory note, Exh. P. 155, dated the 22nd September 1958. The case of the appellant is that she took a loan of Rs, 20,000 from the respondent-company to buy a new Zephyr car from Ali Automobiles. After the execution of the pro-note, Dr. M. S. Muttaqi suggested to her that she should verify the exact price of the said car from Ali Automobiles. It is alleged that on his suggestion she approached Ali Automobiles and was informed that the price of the car is Rs, 22,000. She informed Dr. Muttaqi about it. He asked her to execute another promissory note for the sum of Rs, 22,000 and paid her the amount but did not return the first promissory note on the pretext that it had been sent to the office and it will be handed back to her later on.

129. In support of the case of the appellant, Mr. Rizvi, learned counsel for the appellant, has contended that in respect of Exh. P. 153, a voucher was signed but in respect of Exh. P. 155, no voucher was executed in favour of the respondent-company. On this basis he urged that the case of respondent company that Dr. M. S. Muttaqi had paid a sum of Rs, 20,000 to the appellant himself cannot be supported on this evidence. In my opinion, the contention of the learned counsel has no force. Mrs. Amin is not an illiterate or pardanashin lady so that it may be said about her that she was suffering from any disability or some undue advantage was taken on that account from her by Dr. Muttaqi. Even if the story of the appellant is accepted to be true in the ordinary course, she would have demanded the return of the pronote from Dr. Muttaqi if not immediately after it was executed, after some time. But right from 1958 till 1962, the appellant did not make any such demand from Dr. Muttaqi. She could have given a notice for the return of the said promissory note.

130. The story of the appellant appears to be concocted one. I am, therefore, satisfied that the High Court was perfectly justified in disallowing her claim in respect of this item.

131. The next item is the sum of Rs, 5,000 which is alleged to have been advanced to her on the 5th July 1957, under the promissory note, Exh. P.

135. The appellant has denied its execution and has also repudiated the claim of respondent-company. The case of the respondent-company is that Mr. Amin, husband of the appellant, took this amount from the company on behalf of the appellant.

132. This case has not been established on the record. The mere fact that the pronote was signed by Mr. Amin cannot make the appellant liable for the payment of this amount. It is in evidence that Mr. Amin has a separate account with the respondent-company. In these circumstances, the company should have claimed this amount from Mr. Amin and not from Mrs. Amin. In law, the wife is not liable to pay the debts of the husband, and, therefore, the appellant was wrongly made liable for the payment of this amount.

133. The position in respect of the sum of Rs, 1,000 covered by promissory note, Exh. 105, and supported by a voucher, Exh. P. 142, is almost the same. This amount was also claimed from the appellant on the allegation that on the 22nd August 1957, the appellant had taken this loan from the respondent-company through her husband, Mr. Amin. This note is also purported to have been signed by Mr. Amin. In the absence of any positive evidence on the record that Mr. Amin had obtained this loan on behalf of the appellant, the appellant could not be held liable to pay this amount merely on the ground that the promissory note or the voucher was signed by Mr. Amin. I would, therefore, hold that the appellant has wrongly been made liable for the payment of this amount.

134. The last item of Rs, 5,000 which is alleged to have been advanced to the appellant on the 31st January 1959, under a promissory note, was also signed by Mr. Amin on behalf of his wife. In respect of this item the High Court has observed as under ;- "As regards the fourth item of Rs, 5,000 Mr. Amin has, during the course of these proceedings, acknowledged that this amount was due from him to the company and executed a promissory note in its favour."

135. Thus on the observation of the High Court itself, it is quite clear that this amount was taken by Mr. Amin from the respondent-company and he has executed a promissory note for this amount in favour of the company. In these circumstances, it is difficult for me to burden the appellant with this amount. There is no evidence that the appellant had authorized her husband to borrow the money on her behalf from the respondent-company. Any payment, therefore made to Mr. Amin will have to be recovered from him. I, therefore, hold that the appellant cannot be held liable for this item.

136. In the light of the above discussion, it will appear that the appellant is entitled to the deduction of four items, i,e,, (i) Rs, 30,000, (ii) Rs, 5,000, (iii) Rs, 1,000 and (iv) Rs, 5,000. In this way, she is entitled to get credit of total sum of Rs, 41,000 out of the claim of Rs, 72,729-12-0 found due against her. After deducting the said amount, the claim against the appellant is reduced to Rs, 31,729-12-0.

137. In the result, the appellant's claim is allowed to the extent of Rs, 41,000. She will now be liable to pay Rs, 31,729-12 at 6% interest per annum with half-yearly rests from the 31st December 1961. As the success is evenly divided, the parties will bear their own costs.

138. Before parting with this case, it may be mentioned that Mr. Zain-ul-Abidin, learned counsel for respondent No, 2 in appeal No, 41 of 1966, sought permission to address this Court to show that the High Court has not passed the order against Raja Muhammad Abaidullah on proper appreciation of his conduct in the discharge of his duties as Director of the respondent-company. The learned counsel contended that no sanction was obtained against respondent No, 2 from the Advocate- General for filing a misfeasance application under section 106 of the Insurance Act. This contention has no force. It is quite clear from the record that before filing an application against respondent No, 2 sanction was obtained from Advocate-General on the 12th January 1962, and petition under section 106 of the Insurance Act was filed against him on the 13th January 1962.

139. The learned counsel further urged that respondent No, 2 was not negligent and had not committed any misfeasance in the nature of breach of trust so as to bring his case within section 106, sub- clause (3) of the Insurance Act. These contentions cannot be considered by this Court because there is no proper appeal on behalf of respondent No,

2. His Civil Petition for Special Leave to Appeal No, 384 of 1967 was dismissed as barred by time on the 26th October 1967. He cannot, therefore, be permitted to challenge any order of the High Court against him. In this connection learned counsel relied on Order XLIX, rule 5 of the Supreme Court rules and Order XLI, rule 33, Civil Procedure Code. In my opinion, these provisions are of no help to respondent No,

2. Once his petition has been dismissed he is not entitled to invoke these provisions of law. In these circumstances, respondent No, 2 cannot be allowed to challenge the order of the High Court against him.

140. HAMOODUR RAHMAN, C. J.-1 agree. M. R. KHAN, J.--I agree. K. B. A. AIR 1938 Lah. 658 1890 (45) Ch. D 87 AIR 1923 Lah. 58 AIR 1924 Lah. 53 AIR 1933 P C 63 AIR 1962 Pb. 256 PLD 1968 SC 210 I L R 18 Born. 119 AIR 1923 Lah. 58 AIR 1924 Lah. 435 AIR 1931 Mad. 58 AIR 1946 Mad. 519 AIR 1922 P C 212 AIR 1931 P C 9 AIR 1922 P C 123 at p. 1281 2 3 4 5 6 7 8 9 10 11 12 13 14 15 PLD 1962 SC 376 (1894) 1 Ch. D 616 (1892) 1 Ch. D 154 177 L T 412 (1893) 2 Q B 390 (1942) 1 A E R 378 (1882) 23 Ch. D 1 (1889) 40 Ch. D 141 (1902) 2 K B 589 I L R 5 Lah. 27 AIR 1935 Lah. 705 AIR 1936 Lah. 268