9911796707
TMI Blog1956 (12) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... namely, Sri Ram Prasad Gupta and Sri Gulab Chand Jain both of whom are the directors of the defendant company. The plaintiff's case was that the plaintiff company had advanced a loan of Rs. 1,50,000 to the defendant company on the understanding that the loan advanced would carry interest 1 per cent. higher than the current bank rate and would be repaid together with interest within six months. Sri Gulab Chand Jain, one of the directors of the defendant company, sent a letter on 24th December, 1951, to Sir Padampat Singhania, the governing director of the plaintiff company, to advance the said loan. Sri Gulab Chand Jain also sent an advance receipt to the plaintiff along with the above-noted letter. Thereupon the plaintiff advanced a sum of Rs. 1,50,000 as a loan to the defendant on 25th December, 1951, through cheque No. 444821, dated 25th December, 1951, drawn on the Hindustan Commercial Bank Limited in favour of the defendant. A covering letter of the same date was also sent by the plaintiff to the defendant along with the above-noted cheque stating that the said loan was repayable within six months with interest which was to be 1 per cent. higher than the current bank rate. Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he merits of the plaintff's case as initially set up might have been, the area of controversy has, in the present case, been considerably narrowed down as a result of certain statements made on behalf of the defendant at the preliminary stage of the case in the trial court. In order to appreciate this aspect of the case, it is necessary to refer briefly to the pleadings of the parties, and to the aforesaid statements of the counsel of the defendant. The plaintiff's case as set out by the plaint was based on the following three allegations: 1.That the transaction in question was a loan advanced by the plaintiff to the defendant; 2.That the loan was negotiated on behalf of the defendant; 3.That the loan was binding in law. In reply, the defendant controverted all the aforesaid three points and pleaded that: 1.The transaction was not a loan but an adjustable accommodation; 2.It was not negotiated on behalf of the defendant; 3.It was not binding as no resolution sanctioning the said loan was passed by the board of directors. In view of the above pleadings, the court framed issue No. 2 on the question whether the alleged transaction was an adjustable accommodation as set out in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board of directors lay on the defendant. They have not produced their minute book, nor has Sri Gulab Chand Jain come in the witness-box to state that no such resolution was actually passed by the board of directors. The defendant having failed to produce any evidence in support of the only plea that had survived, the plea must be taken to have failed for want of evidence. Even if, however, the matter is approached from the legal stand point, we are of opinion that the defendant's plea in this regard cannot be sustained, as the plaintiff would be protected by the legal doctrine of internal management. In order, however, to appreciate the legal aspect of this matter, certain admitted or proved facts must be borne in mind. It is admitted on behalf of the defendant that Sri Gulab Chand Jain was a director of the defendant company. It is also admitted by the defendant company that article 148A of the memorandum of association lays down that Messrs. B.R. Sons Limited would be the managing agents of the defendant company for a term of 20 years with effect from 15th July, 1947. It is also admitted that Sri Gulab Chand Jain was a director of B.R. Sons Limited, the managing agents. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the memorandum of association or the articles of association prohibiting either the directors or the managing agents to enter into a transaction of loan on behalf of the company. On the other hand, according to paragraph 3(n) of the memorandum of association the directors could borrow money on such terms as they considered desirable. Further, there is no provision in the memorandum of association or the articles of association prohibiting the delegation of the power to borrow by the directors of the company to one of their own body or by the managing agents to one of their own directors. On the other hand, the articles of association point to the contrary. In article 1 of the articles of association it is stated that directors are the directors for the time being of the company or such number of them as have authority to act for the company. The definition of the managing agents as given in clause (1) of the articles of association is that "managing agents" include the person or persons authorised by the managing agents of the company to perform the duties of such managing agents. Articles 72 and 73 of the articles of association authorise the directors to borrow money within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors or by the board of managing agents, the claim of the plaintiff who was a creditor cannot be affected. A creditor dealing with a trading company is required by law to be conversant with the terms of its memorandum and articles of association and no more. If it is found that the transaction of loan into which the creditor is entering is not barred by the charter of the company or its articles of association, and could be entered into on behalf of the company by the person negotiating it, then he is entitled to presume that all the formalities required in connection therewith have been complied with. If the transaction in question could be authorised by the passing of a resolution, such an act is a mere formality. A bona fide creditor, in the absence of any suspicious circumstances, is entitled to presume its existence. A transaction entered into by the borrowing company under such circumstances cannot be defeated merely on the ground that no such resolution was in fact passed. The passing of such a resolution is a mere matter of indoor or internal management "and its absence, under such circumstances, cannot be used to defeat the just claim of a bona fide creditor. A creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not ultra vires the company, the company is liable to pay. Further it was held that "If it is shown that a particular act was ostensibly authorised by the statute and the memorandum or articles of association, persons dealing with the company are not concerned to see "that the company has put itself into a position to exercise its power properly. "The reason of this rule was stated to be" that it would be disastrous.... if contracts made with companies could be impeached on account of matters known to the company but not to the other contracting party." In Biggerstaff v. Rowatt's Wharf Ltd. [1896] 2 Ch. 93, it was held that: "Persons dealing bona fide with a managing director are entitled to assume that he has all such powers as he purports to exercise, if they are powers which according to the constitution of the company a managing director can have" Further, it was held in that case that if the director could have the power, or might have the power to do what he purported to do, then a creditor proceeding in a bona fide way could assume that he had the power to do what he actually did. To the same effect is the law laid down in Dey v. Pullinger Engineering Co. [1921] 1 KB 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was issued on behalf of the company and the word "director" might have reference to the defendant company. In any case, the manner in which Sri Gulab Chand Jain described himself in the receipt is quite immaterial, if, in fact, he was really acting on behalf of the company. We have already pointed out that he was acting on behalf of the company. This point, as already observed, stood conceded on behalf of the defendant as a result of the statements made by their counsel on 11th February, 1954. It is also supported by other circumstances. The plaintiff also appears to have taken the negotiation to be on behalf of the company. This is borne out by the fact that the cheque for the entire amount of loan was drawn in favour of the defendant company. The receipt of the said amount was also executed on the printed receipt book of the defendant company. The defendant company also admitted in paragraph 3 of its written statement that the cheque for Rs. 1,50,000 was received by the defendant company. On 11th February, 1954, the defendant's counsel further admitted that the cheque was credited in the books of the defendant. These facts were also admitted in evidence. Under the circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of English cases also in support of the contention of the respondent. In In re David Payne &Co. Ltd.: Young v. David Payne & Co. Ltd. [1904] a Ch. 608, it was laid down that where a company has a general power to borrow money for the purposes of its business, a lender is not bound to enquire into the purposes for which the money is intended to be applied. At page 613 Buckley J.'s view is given as follows: "The borrowing being effected, and the money passing to the company, the subsequent application of the money is a matter in which the directors may have acted wrongly; but that does not affect the principal act, which is the borrowing of the money." This view of Buckley J. was upheld in appeal. In Reid v. Rigby & Co. [1894] 2 Q.B. 40, it was held chat where it is shown that the money had come into the hands of the defendant and used for its benefit, the defendant would be liable even though the act of borrowing was unauthorised. In Halsbury's Laws of England (Third Edition), Vol. 6, page 299, para. 603, it is stated that: "Apart from ratification, the company will be answerable for any property which has come into its possession through the unauthorised acts of the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-fold reply to this objection. Firstly, these pleas are raised in reply to a new plea which is adduced on behalf of the appellant itself, namely, that the transaction was ultra vires of the company. Secondly, both these pleas are based on admitted facts. If facts admitted or established give rise to certain questions of law, the court is not debarred from giving effect to such pleas by any technicality of procedure. On behalf of the respondent reliance in this connection is placed on Srinivas Ram Kumar, Firm v. Mahabir Prasad [1951] SCR 277; AIR 195] SC 177 and Kedar Lall v. Hari Lall [1952] SCR 179; AIR 1952 SC 47, 52. In the latter case, Bose J. observed as follows: "I would be slow to throw out a claim on a mere technicality of pleading when the substance of the thing is there and no prejudice is caused to the other side, however clumsily or inartistically the plaint may be worded." In the present case, the defendant cannot complain of any surprise nor has any grievance on this score been made before us. In this situation we would uphold the contention raised on behalf of the plaintiff-respondent in this regard. We may, however, observe that the plaintiff is entitled to a dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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