1. The Plaintiff in O.S. No. 387 of 1953 on the file of the learned Munsiff at Davanagere is the appellant in this Court. He sued the Defendants on the basis of Exhibit P-1, a demand promissory note for a sum of Rs. 1000/-. The said promissory note had been executed by Defendants 1 to 3 in favour of a Company by name 'Universal and Engineering Co. Ltd.' Bangalore City.
That Company had a Branch at Davanagere. The 5th Defendant was the Manager of the Davanagere Branch. He endorsed the promissory note in question in favour of the plaintiff as per Exhibit P. 1(a). Both the Courts below have come to the conclusion that the pronote in question is genuine and supported by consideration.
They have opined that the assignment Exhibit P. 1(a) is a genuine one. The trial Court decreed the suit as prayed for. The first Appellate Court came to the conclusion that out of the consideration of Rs. 1000/- included in Exhibit P. 1, a sum of Rs. 400/- had been discharged by the first Defendant even prior to the assignment Exhibit P. 1(a) and that this fact was known to the plaintiff at the time of the assignment in question. This is a finding of fact and is conclusive.
2. The first Appellate Court dismissed the suit against Defendants 1 to 3 on the ground that the 5th Defendant had no authority to assign the Pronote in question. The Company in whose favour Exhibit P. 1 had been executed is a registered Company and its liability is limited. Its affairs are governed by its Articles of Association. The relevant Article so far as this case is concerned is Article 59. I shall quote the relevant portion of this Article 59:
'The managing Director shall subject to the supervision of the Directors have the following powers. .......
Clause (d) to draw, accept, endorse and negotiate all bills of exchange, promissory notes, hundis, cheques, drafts. Government promissory notes and other Government instruments from time to time.' Clause (f) is as follows:'to delegate all the above or any of the powers to managers, agents or other persons as he may deem fit.'
Admittedly the 5th Defendant is the Manager of the Davanagere Branch. He was in sole charge of that Branch; it was he who was taking promissory notes from the constituents. It is admitted that he took the pronote Exhibit P. 1 from Defendants 1 to 3.
The evidence in the case now establishes that no delegation had been made in his favour as required by Clause (f) of Article 59. But the point that is urged before me is that the Plaintiff was right in assuming that the 5th defendant had authority to negotiate Exhibit P. 1. Now we can turn our attention to Section 89 of the Indian Companies Act of 1913. It is as follows:
'Bills of Exchange, hundi or promissory note shall be deemed to have been made, drawn, accepted or endorsed on behalf of a company if made, drawn, accepted or endorsed in the name of or on behalf of or on account of the Company by any person acting under its authority, express or implied.'
The point for determination in this case is, was the 5th Defendant a person acting under the authority of the company express or implied. It is proved that there is no express authority. The only point that remains to be considered is whether he had implied authority.
3. In Hindustan Assurance and Mutual Benefit Society, Ltd. Gujranwala, v. Gurdit Singh, reported in AIR 1921 Lahore 462 a Bench of the Lahore High Court held that under Section 118 (Negotiable Instruments Act) there is a legal presumption that every negotiable instrument is made or drawn for consideration and that every transfer is also for consideration; further, that the holder of a negotiable instrument is a holder in due course.
The onus is upon the person challenging the rights of the transferee to prove the facts which would show that such transferee was not in fact a holder in due course. This is the true position of the law. In the instant case it is on Defendants 1 to 3 to establish that the 5th Defendant had no authority to endorse the pronote in question and that the Plaintiff is not a holder in due course. The contention advanced on behalf of the Plaintiff is that ho assumed that the 5th Defendant who was managing the affairs of the Davanagere Branch had authority to assign the pronote in question. The plaintiff proceeded on the footing that necessary delegation had been made to him under Article 59(f) of the Articles of Association. In Dey v. Pullinger Engineering Co., reported in 1921-1 K.B. 77, this point was considered.
The facts of that case were that the articles of association of a company empowered the Directors to authorise one of their body as managing-director to draw Bills of Exchange on behalf of the company. The managing director drew it bill on behalf of the company without having in fact received any authority from the directors to draw bills. In an action on the bill against the company on the drawers, their Lordships held as follows :
'that the managing director, in drawing the bill on behalf of the company, was a person acting tinder its authority within the meaning of Section 77 of the Companies (Consolidation) Act, 1908 and that the company was liable. As by the constitution of the Company the managing-director might have been authorised to draw the bill, a person taking the bill in due course was entitled to assume that he had authority in fact.'
Section 77 of the Companies (Consolidation) Act 1908 is in perimeter with Section 89 of the Indian Companies Act. This decision applies on all fours to the facts of the present ease.
4. Sri Gopivallabha Iyengar the learned Counsel for the contesting respondents tried to distinguish this ease on the ground that the negotiation is valid in an action by the company or in an action against the company. But the same is invalid in actions against third parties. I am unable to appreciate this distinction. Either the plaintiff is a holder in due course, or he is not a holder In due course. If he is a holder in due course, he is a holder in due course against the whole world.
The essential point for consideration is as to whether the assignment made by the 5th Defendant is a valid assignment. If it is valid as against the company whom he purports to represent, it must be more so as against the debtor of the company. There are no equities in favour of the debtor.
5. The next point urged by the learned Counsel for the Respondents 1 to 3 is that the company has not been made a party in the suit. It is possible that the company may proceed against them in a separate action. Hence there is a danger of their being made liable to pay over again the same debt. This objection had not been taken in the Courts below, if that objection had been taken in the trial Court, the company could have been impleaded as a party. All the same to protect the interests of defendants 1 to 3, I direct that the plaintiff, before drawing the amount decreed in the suit, shall execute an indemnity bond in favour of defendants 1 to 3 guaranteeing to indemnify them in the event of the Universal Commercial and Engineering Co. Ltd., obtaining any decree against them on the suit transaction. This should be sufficient to protect the legitimate interests of defendants 1 to 3.
6. In the result, the judgment and decree of the first Appellate Court is set aside and the decree of the trial Court is modified by granting a decree for Rs. 600/- and interest. The parties shall pay and receive costs according to their success in the case in all the Courts.
7. Appeal allowed.