CASES OF COMPANY ACT:

CASE 1: SALOMON vs SALOMON & Co. Ltd.

Mr Aron Salomon was a leather boot and shoe manufacturer. His firm was in
Whitechapel High Street, with warehouses and a large establishment. He had had it for 30
years and "he might fairly have counted upon retiring with at least £10,000 in his
pocket." He had a wife, a daughter and five sons. Four of the sons worked with him. The
sons wanted to be partners, so he turned the business into a limited company. The wife
and five eldest children became subscribers and two eldest sons also directors. Mr
Salomon took 20,001 of the company's 20,007 shares.

The price fixed by the contract was £39,000, which was "extravagent" and not "anything
that can be called a business like or reasonable estimate of value." Transfer of the
business happened on June 1, 1892. Purchase money for the business was paid, totalling
£20,000, to Mr Salomon. £10,000 was paid in debentures to Mr Salomon as well (ie,
Salomon gave the company a loan, secured by a charge over the assets of the company).
The balance paid went to extinguish the business’ debts (£1000 of which was cash to
Salomon).

But soon after Mr Salomon incorporated his business, there was economic trouble. A
series of strikes in the shoe industry led the government, Salomon's main customer, to
split its contracts between more firms (the Government wanted to diversify its supply
base to avoid the risk of its few suppliers being crippled by strikes). His warehouse was
full of unsold stock. He and his wife lent the company money. He cancelled his
debentures. But the company needed more money, and they sought £5000 from a Mr
Edmund Broderip. They gave him a debenture, the loan with 10% interest and secured by
a floating charge. But the business still failed, and they could not keep up with the
interest payments. In October 1893 Mr Broderip sued to enforce his security. That was
the end. The company was put into liquidation. Mr Broderip was paid but other
unsecured creditors were not.
The liquidator met Broderip’s claim with a counter claim, joining Salomon as a
defendant, which the debentures were invalid for being issued as fraud. The liquidator
claimed all the money back that was transferred when the company was started:
rescission of the agreement for the business transfer itself, cancellation of the debentures
and repayment of the balance of the purchase money.

CASE 2: -LEE vs LEE AIR FARMING Ltd

Mr Lee was a pilot who operated a crop dusting business. Mr Lee formed the corporation,
Lee's Air Farming Ltd. Its main business was aerial spraying. He was the director and
owned most of the shares(he held 2999 of the company's 3000 shares). As director of the
corporation, he hired himself as an employee of the corporation. As one of the
administrative tasks in setting up the company, he acted as its agent in setting up
insurance, including workers' compensation insurance. The corporation's plane crashed
while Mr Lee was flying it as part of his work, and he was killed on the job.
His widow, the plaintiff, attempted to collect what was rightfully due to a widow of a
man killed on the job. The actual defendant was the insurance company.
The main question in the case was whether a person could be both a director and major
shareholder of a corporation, on the one hand, and also an employee of the corporation,
on the other.
Previous cases, beginning with the Salomon case, had confirmed that a corporation has
an existence separate and apart from its shareholders and directors. The exceptions to that
principle are gathered under the rubric, 'Piercing the Corporate Veil.' Where a corporation
is a mere sham, the law can cut through the veil of corporate legitimacy, and reach into it
for the shareholders and directors.
The Lee's Air Farming case confirmed the Salomon principle. Lee's Air Farming Ltd. was
not a mere sham. It was a legitimate corporation, established for legitimate purposes, and
had carried on a legitimate business. His employment by the corporation was well-
documented, through government records of tax deductions, workmens' compensation
contributions, etc., and was not something his widow had attempted to piece together
after the fact of his death. There was no reason in law why a person could not perform
corporate functions and employee functions within the same corporation. it was held that
'L' was a separate person distinct from tha company hence compensation was due to the
widow

CASE 3: ASHBURY RAILWAY CARRIAGE & IRON COMPANY LTD. VS

RICHE

The Ashbury Carriage and Iron Company Limited, was a manufacturer of railway
rolling stock founded by John Ashbury in 1837 at Knott Mill in Manchester, England,
near the original terminus of the Sheffield, Ashton-Under-Lyne and Manchester Railway.
It moved to Openshaw in 1841 and became a limited company in 1862 as The Ashbury
Railway Carriage and Iron Company Ltd

In 1902 the business was transferred to Saltley in Birmingham when it merged with
Ashbury, Brown and Marshalls. This was absorbed into the Metropolitan Amalgamated
Railway Carriage and Wagon Company Ltd which later became the Metropolitan-
Cammell Carriage and Wagon Co Ltd.

CASE 4: ROYAL BRITISH BANK V/S TURQUAND

Mr Turquand was the official manager (liquidator) of the insolvent ‘Cameron’s

Coalbrook Steam, Coal, and Swansea and London Railway Company’. It was
incorporated under the Joint Stock Companies Act 1844. The company had given a bond
for £2000 to the Royal British Bank, which secured the company’s drawings on its
current account. The bond was under the company’s seal, signed by two directors and the
secretary. When the company was sued, it alleged that under its registered deed of
settlement (the articles of association), directors only had power to borrow what had been
authorised by a company resolution. A resolution had been passed but not specifying how
much the directors could borrow.

CASE 5: DERRY VS PEEK

A tram company's prospectus stated that the company had permission to use steam trams,
rather than horse powered ones. In fact, it did not because the right to use steam power
was subject to the Board of Trade's consent. The company had applied, and honestly
believed that they would get it because permission was a mere formality. In fact, after the
prospectus was issued, they did not get permission. Shareholders who had purchased their
stakes in the company on the faith of the statement's truth sued when the company's
business went down and ended up in liquidation.

The shareholders' action failed, because it was not proved that the director lacked honest
belief in what they had said.[1] Lord Herschell however did point out that though
unreasonableness of the grounds of belief is not deceitful, it is evidence from which
deceit may be inferred.

The tort of deceit would have been established only if the misstatements had been
fraudulently made. Derry v Peek thus validated the perspective of the majority judges in
the Court of Appeal in Heaven v Pender. That is, for there to be deceit or fraud (which is
the same) it must be shown that a defendant knows a statement is untrue, or has no belief
in its truth, or is reckless as to whether it is true or false.

Derry v Peek also outlined that no duty would be required in relationship to negligent
misrepresentation, without the presence of a contract, fiduciary relationship, fraud or
deceit.
CASES OF CONSUMER PROTECTION ACT

CASE 1: UMEDILAL AGARWAL V. UNITED INDIA ASSURANCE CO. LTD

In Umedilal Agarwal v. United India Assurance Co. Ltd., Citation (1989)3 Comp LJ 143
(NCDRC) the complainant got the goods in his shop insured against fire. Later, the shop
was gutted in fire (caused by short-circuit), and the goods in the shop were also burnt.
When the insured claimed damages, the insurance company denied the claim leading to a
breach of contract. The sufferer filed a lawsuit against the company. The National
Commission observed that the insured was a consumer under the provision of section
2(1) (d) (ii) of the Consumer Protection Act, 1986 and held the insurance company liable
for paying the compensation to the insured.

CASE 2 : INDIAN MEDICAL ASSOCIATION V. V.P. SHANTHA & OTHERS,

The ambiguity pertaining to the recognition of a non paying patient, as a consumer was
discussed in a landmark case, Indian Medical Association v. V.P. Shantha & Others,
Citation (1995) III CPR 412 (SC) at 430.
In this case, the Supreme Court held that in a government or non-government
hospital/health centre/dispensary/nursing home, where the patients in position to pay, are
charged and patients who cannot afford to pay, are rendered free services, this falls under
the purview of the Section 2(1)(o) of the Act.
Also, the Court held that free service would also be considered as ‘service’ and the
receiver as ‘consumer’, under the Act. Further, it is not governed by the fact that whether
the service provided was free or charged. Also, the Court held that to rule otherwise,
would mean that the Act is applicable to only those who can afford to pay the charges.
Patients, who cannot afford to pay, would be deprived of the protection, under the Act. It
further, said that such patients need the protection of consumer laws even more.

CASE 3: DR. JAGANNATH MONDAL V. SMT. SOMA ROJI

In a landmark case Dr. Jagannath Mondal v. Smt. Soma Roji, (1996) II CPR 129
(Cal.HC) the petitioner filed a case stating that under section 21, of the Consumer
Protection Act, 1986, an appeal cannot be made with the National Commission against an
order passed by the State Commission, but can be made only against judgment passed by
the State Commission.

However, the Calcutta High Court ruled that section 21(a)(ii) of the Act, provides that the
National Commission is authorized to settle appeals made against the order of the State
Commission. It also held that it is incorrect to submit that an appeal is available only
against a judgment and not against an order passed by the State Commission.

CASE 4: THE DIRECTOR GENERAL (I&R) V. RAVI FOUNDATION

In the case of the Director General (I&R) v. Ravi Foundation, Citation, Bombay UTPE
93 of 1986, the accused claimed the diet treatment offered by them can help a women to
give birth to a child of her chosen gender. The claim was found false after medical tests.
This is viewed as unfair trade practice.

CASE 5: UNION OF INDIA V. MANOJ H. PATHAK

In the context of the Consumer Protection Act, there are several interesting cases relating
to the failure of the Indian railways to prevent unauthorized travel. Let’s take a look at
one, to begin with.

In Union of India v. Manoj H. Pathak, (1996) II CPR 132 (NDRC), the complainant and
his parents took their reserved seats in compartment of Gujrat Express train. According to
the complainant, about 10 to15 people entered their compartment at Dadar and they were
traveling without tickets.

By force, they occupied the reserved seats that belonged to the complainant and his
parents. The complainant tried to contact the conductor, police and the ticket checker but
the group of hooligans attacked him. This resulted in fracture of the complainant’s
vertebral column, thereby leading to permanent disability.
The railway administration’s defense was that law and order maintenance was the duty of
Ministry of Home Affairs. The National Commission held that this amounted to
carelessness on the part of the Railway administration. It was held that it is every
consumer’s right to be unharmed during a train journey. Any person(s) traveling in an
unauthorized way must be subjected to legal trial. In this case, the Railway administration
was held accountable for negligence in their services.

CASES OF IT ACT

CASE 1: PUNE CITIBANK MPHASIS CALL CENTER FRAUD

US $ 3,50,000 from accounts of four US customers were dishonestly transferred to bogus

accounts. This will give a lot of ammunition to those lobbying against outsourcing in US.
Such cases happen all over the world but when it happens in India it is a serious matter
and we can not ignore it. It is a case of sourcing engineering. Some employees gained the
confidence of the customer and obtained their PIN numbers to commit fraud. They got
these under the guise of helping the customers out of difficult situations. Highest security
prevails in the call centers in India as they know that they will lose their business. There
was not as much of breach of security but of sourcing engineering. The call center
employees are checked when they go in and out so they can not copy down
numbers and therefore they could not have noted these down. They must have
remembered these numbers, gone out immediately to a cyber café and accessed the
Citibank accounts of the customers.

All accounts were opened in Pune and the customers complained that the money from
their accounts was transferred to Pune accounts and that’s how the criminals were traced.
Police has been able to prove the honesty of the call center and has frozen the accounts
where the money was transferred. There is need for a strict background check of the call
center executives. However, best of
background checks can not eliminate the bad elements from coming in and breaching
security. We must still ensure such checks when a person is hired. There is need for a
national ID and a national data base where a name can be referred to. In this case
preliminary investigations do not reveal that the criminals had any crime history.
Customer education is very important so customers do not get taken for a ride. Most
banks are guilt of not doing this.

CASE 2: BAZEE.COM CASE

CEO of Bazee.com was arrested in December 2004 because a CD with objectionable

material was being sold on the website. The CD was also being sold in the markets in
Delhi. The Mumbai city police and the Delhi Police got into action. The CEO was later
released on bail. This opened up the question as to what kind of distinction do we draw
between Internet Service Provider and Content Provider. The burden rests on the accused
that he was the Service Provider and not the Content Provider. It also raises a lot of issues
regarding how
the police should handle the cyber crime cases and a lot of education is required.

CASE 3: PARLIAMENT ATTACK CASE

Bureau of Police Research and Development at Hyderabad had handled some of the top
cyber cases, including analysing and retrieving information from the laptop recovered
from terrorist, who attacked Parliament. The laptop which was seized from the two
terrorists, who were gunned down when Parliament was under siege on December 13
2001, was sent to Computer Forensics Division of BPRD after computer experts at Delhi
failed to trace much out of its contents.
The laptop contained several evidences that confirmed of the two terrorists’ motives,
namely the sticker of the Ministry of Home that they had made on the laptop and pasted
on their ambassador car to gain entry into Parliament House and the the fake ID card that
one of the two terrorists was carrying with a Government of India emblem and seal. The
emblems (of the three lions) were carefully scanned and the seal was also craftly made
along with residential address of Jammu and Kashmir. But careful detection proved that it
was all forged and made on the laptop.

CASE 4: INFINITY E-SEARCH BPO CASE

The Gurgaon BPO fraud has created an embarrassing situation for Infinity e-Search, the
company in which Mr Karan Bahree was employed. A British newspaper had reported
that one of its undercover reporters had purchased
personal information of 1,000 British customers from an Indian call-center employee.
However, the employee of Infinity eSearch, a New Delhi-based web designing company,
also said that it had nothing to who was reportedly involved in the case has denied any
wrongdoing. The company has do with the incident. In the instant case the journalist used
an intermediary, offered a job, requested for a presentation on a CD and later claimed that
the CD contained some confidential data. The fact that the CD contained such data is
itself not substantiated by the journalist. In this sort of a situation we can only say that the
journalist has used "Bribery" to induce an "Out of normal behavior" of an employee. This
is not observation of a fact but creating a factual incident by intervention. Investigation is
still on in this matter.

CASE :5 ANDHRA PRADESH TAX CASE

Dubious tactics of a prominent businessman from Andhra Pradesh was exposed after
officials of the department got hold of computers used by the accused person. The owner
of a plastics firm was arrested and Rs 22 crore cash was recovered from his house by
sleuths of the Vigilance Department. They sought an explanation from him regarding the
unaccounted cash within 10 days.
The accused person submitted 6,000 vouchers to prove the legitimacy of trade and
thought his offence would go undetected but after careful scrutiny of vouchers and
contents of his computers it revealed that all of them were made after the raids were
conducted. It later revealed that the accused was running five businesses under the guise
of one company and used fake and computerised vouchers to show sales records and save
tax.