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Lakshmi Ratan Cotton Mills Co. Ltd. Vs. Aluminium Corporation of India Ltd. - Court Judgment

LegalCrystal Citation
SubjectLimitation;Company
CourtAllahabad High Court
Decided On
Case NumberFirst Appeal Nos. 441 and 442 of 1950 and 198 of 1952
Judge
Reported inAIR1967All391; [1967]37CompCas586(All)
ActsCode of Civil Procedure (CPC) - Order 29, Rules 1 and 2
AppellantLakshmi Ratan Cotton Mills Co. Ltd.
RespondentAluminium Corporation of India Ltd.
Appellant AdvocateM.N. Shukla, ;S.N. Kakkar and ;B.N. Misra, Advs.
Respondent AdvocateBirj Lal, ;J. Sarup and ;C.S.P. Singh, Advs.
Excerpt:
.....- secretary not authorized to bound company in financial matters unless specially authorized - authority of secretary under order 29, rule 1 to sign pleadings and under rule 2 to receive notice not conclusive proof that he had power to borrow loans or bind corporation by acknowledging liabilities - acknowledgement by secretary insufficient to extend limitation. - cantonments act[c.a. no. 41/2006]. section 346 & cantonment fund (servants rules, 1937, rules 13, 14 & 15: [h.l. gokhale, ag. cj, p.v. hardas, naresh h. patil, r.m. borde & r.m. savant, jj] jurisdiction of school tribunal constituted under maharashtra employees of private schools (conditions of service) regulations act, (3 of 1978) held, school run by the cantonment board is a primary school and it is not a school..........the two officers. being unable to come to a common agreement, correspondence stopped and the company filed suit no. 63 of 1949, for recovery of a sum of rs. 3,56,207-9-6 with pendente lite and future interest. apart from stating the history of the dealings between the parties, the plaint went on to say that an open and current account was being maintained by the plaintiff with regard to dealings with the defendant and that on demand of the balance of the amount due, the defendant paid on the 16th of november, 1944, a sum of rs. 8,00,000, leaving a balance of rs. 2,96,110-11-6, particulars of which are shown in schedule a to the plaint. a further sum as interest was also claimed and a sum of rs. 7,709-2-6 was also credited to this account. it was alleged that the cause of action.....
Judgment:

B. Dayal, J.

1. These three appeals arise out of two suits between the parties. Two of the appeals have been filed by the common defendant while the third is by one of the plaintiffs, Lakshmi Ratan Cotton Mills Co. Ltd. These appeals have been pending in this court since 1952, mainly because the parties insisted upon bringing lawyers from outside but were unable to decide upon a common date on which lawyers for both the sides were able to attend the court. After all, with great difficulty, the appeals were started on the 6th of December, 1965, and were partly heard on the 7th of December, 1965, also, on which date learned counsel appearing for the defendant-appellants had finished their arguments. The learned counsel for the plaintiff-respondent started his case and argued for some time but the cases had to be postponed. Since then, several dates were fixed, but the plaintiffs were unable to bring any counsel to complete the arguments on their behalf. The cases were ultimately fixed for the 9th of May, 1966, and the learned junior counsel who were appearing for the plaintiff-respondents were definitely informed that the date would not be altered. However, an application was again filed for postponement of the cases from the 9th of May, 1966, and at the very clear promise on behalf of the learned junior counsel that any date after the 9th of May, 1966, would be adhered to and some senior counsel, who may be able to argue on the new date would be engaged, the cases were postponed to the 12th of May, 1966, by our order dated the 25th of April, 1966, on an application of the same date. However, no one appeared to argue the cases even on the 12th of May, 1966, and in view of the fact that the court was about to close for summer vacations, we refused to postpone the cases any further. The. result, therefore, is that we have to dispose of these appeals without hearing the arguments on behalf of the plaintiffs in the two suits.

2. One Suit No. 63 of 1949 was filed by Laxmi Ratan Cotton Mills Co. Ltd. against the Aluminium Corporation of India Ltd. while the other Suit No. 65 of 1949 was filed by Messrs. Behari Lal Ram Charan against, the Aluminium Corporation of India Ltd. Before these suits were filed, the defendant, the Aluminium Corporation of India Ltd. (hereinafter called the corporation), as well as the two plaintiffs, Lakshmi Ratan Cotton Mills Co. Ltd. (hereinafter called the company) and Messrs. Behari Lal Ram Charan (hereinafter called the firm), were being looked after by the Gupta group and the Singhania group jointly with the result that the accounts of all the three were being mixed with each other and mutual open and current accounts were maintained in the corporation, the company and the firm showing debit and credit balances in favour of each other. But by means of an award the two groups separated their interests so that thecorporation became the exclusive concern of the Singhania group and the company as well as the firm became the exclusive concerns of the Gupta group and it became necessary thereafter to settle the mutual accounts. In order to do so, both the groups appointed one officer each to look into the accounts and to negotiate on matters of difference. On behalf of the corporation one Shri N. L. V. Subramaniyam was directed to go into the accounts and to iron out differences while on behalf of the Gupta group another officer was similarly appointed and correspondence started between the two officers. Being unable to come to a common agreement, correspondence stopped and the company filed Suit No. 63 of 1949, for recovery of a sum of Rs. 3,56,207-9-6 with pendente lite and future interest. Apart from stating the history of the dealings between the parties, the plaint went on to say that an open and current account was being maintained by the plaintiff with regard to dealings with the defendant and that on demand of the balance of the amount due, the defendant paid on the 16th of November, 1944, a sum of Rs. 8,00,000, leaving a balance of Rs. 2,96,110-11-6, particulars of which are shown in schedule A to the plaint. A further sum as interest was also claimed and a sum of Rs. 7,709-2-6 was also credited to this account. It was alleged that the cause of action arose in respect of each debit entry on the date when it was made and then in November, 1944, when after adjustment of payments, a sum of Rs. 2,96,110-11-6 was found due to the plaintiff, and then in June, 1946, and June, 1947, when after making adjustment of sums due to the defendant, details of which are given in schedule B attached to the plaint, the balance now sued for still remained due. The suit having been filed on the 13th of April, 1949, was claimed to be within limitation on account of letters acknowledging liability, one of which dated the 16th of April, 1946, has been filed and is the main bone of contention in the two suits.

3. Several defences were taken including that the suit was barred by time and that the letter dated the 16th of April, 1946, did not amount to an acknowledgment both because it was not written by a person who had an authority to do so on behalf of the corporation and also on account of the fact that the letter itself did not amount to an acknowledgment. It was also alleged that, in any case, the amount acknowledged in the letter could only be decreed and the letter cannot be treated as an acknowledgment of any larger sum which may be found due on taking accounts.

4. The other Suit No. 65 of 1949 was filed by the company on similar allegations and also claiming limitation from the same letter dated the 16th of April, 1946, treating it as an acknowledgment of liability and prayed for a decree of Rs. 72,595-4-6. Similar defences were taken in this case also. The court below after considering the evidence came to the conclusion that the letter amounted to an acknowledgment and after going into accounts,decreed Suit No. 63 of 1949 for a sum of Rs. 2,82,734-11-3 with proportionate costs and pendente lite and future interest at 3 per cent. per annum. The court also decreed Suit No. 65 of 1949, for a sum of Rs. 47,660-1-3 with 6 per cent. simple interest per annum, the total amounting to Rs. 50,005-2-9 with pendente lite and future interest at 3 per cent. per annum. Against these decrees, the corporation has filed two Appeals Nos. 441 of 1950 against Suit No. 63 of 1949, filed by the company and Appeal No. 442 of 1950 against Suit No. 65 of 1949, filed by the firm, challenging the decrees passed against the defendant corporation. The third Appeal No. 198 of 1952 has been filed by the company against the dismissal of a part of its suit.

5. The common question, which arises in all these three appeals, iswhether the letter (exhibit 1 dated the 16th of April, 1946) amounted to anacknowledgment of liability and extended the limitation for the two suits.It is not disputed that if this letter did not save limitation, both the suitswere barred by time. This letter dated the 16th of April, 1946, has beenwritten by Shri N. L. V. Subramaniyam, the secretary of the corporationat that time. This letter had been written in reply to a letter dated the25th of February, 1946, written by the counterpart of the Gupta group.By this letter dated the 25th of February, 1946 (exhibit 37), the gentlemanon behalf of the Gupta group was answering an earlier letter by ShriN. L. V. Subramaniyam dated the 21st of December, 1945, and wasreplying to specific items in dispute between the parties which must havebeen raised in the earlier letter. Referring to that earlier letter, he givesdetails regarding item No. 3 which must have been asked for. Regardingitem No. 4 it is stated that he could not uphold any liability and thedifference in the bills should be credited to their account (Gupta group's).With regard to item No. 6 also, he claimed that it should be credited.With regard to item No. 8, he admitted the claim made by Shri N. L. V.Subramaniyam and he stated, ' We are adjusting the amount ' and so onthe letter went on replying item-wise to the queries or objections made, andultimately ended the letter by saying, ' Please note that unless all theparticulars are received by us, we cannot adjust the items.' In reply tohis letter, Shri Subramaniyam in his letter in question again replied to thequeries item-wise. He starts the letter by saying :

' We are in receipt of your letter No. 666 dated the 22th February, 1946, and we give below our observations ' :

6. Thereafter, he proceeds item-wise either raising objections against specific items accepting some part of these items. After dealing with several items at the end of the letter he goes on to say:

' We are enclosing herewith details of entries not responded by you, After all the above adjustments, the position will be as per statementattached. Interest has been provided on some balances and on others it has not been provided. We request you to confirm this balance of Rs. 1,07,447-13-11, so that we may proceed with the calculation of interest and settle your claim once and for all immediately. Kindly acknowledge this letter and favour us with an immediate reply. Copy to Lala Purshottam Das Ji Singhania for information.'

7. From the very nature of these letters exchanged it is quite clear that these letters were merely exploratory and were not meant to bind any of the parties in respect of the statements made therein. The more important point in respect of this letter (exhibit 1) sent by Shri Subramaniyam is whether this gentleman had the authority on behalf of the corporation to acknowledge a liability so that even if this letter may be stretched to mean that some kind of acknowledgment of liability on settlement of accounts can be inferred from the letter, whether the writer of the letter had the authority to bind the corporation.

8. It is well settled that a person, in order to acknowledge the liability of another must have an authority to do so. The second proviso to Section 19, Limitation Act, as it then stood, makes it quite clear. What amounts to an authority to sign an acknowledgment has also been considered in a series of cases and it cannot be doubted that a person in order to be deemed to have an authority of acknowledging a liability must be the one who had the authority either to take loans on behalf of the principal or to discharge the liability of the principal, if there is no direct authority to acknowledge a particular liability.

9. In the present case, the only evidence on record which reflects upon this aspect of the matter whether Shri Subramaniyam had any authority, is the statement of the writer himself. No other witness has touched upon this point and we have, therefore, to look to the statement of the witness wherever he speaks of this matter. Before dealing with the statement of this witness, it is important to note that before award and distribution of interest of the two groups, Shri Ramaratan Gupta was the managing director of the managing agents of the corporation and in sole charge of the affairs of the corporation. He must, therefore, have been well aware of the powers of this secretary in this corporation and if there was anything either in the memorandum of the corporation or in any resolution or order conferring powers upon the secretary, which would help him in this matter, such evidence would certainly have come on the record. The very fact that no attempt has been made to prove anything to show that the secretary of the corporation had power either to borrow money on behalf of the corporation or to discharge liabilities on behalf of the corporation, gives an idea that there was no such power vested in the secretary. In his statement, Shri Subramaniyam states ;

' I never acknowledge debts. Exhibit 1 was just correspondence to clarify the position and if it had been confirmed, as it was not, I would have put it before the directors for orders. ............ I carried out routinecorrespondence for Aluminium Corporation. ..... On the 9th of February,1945, the board directed that L. Ramratan Gupta be asked to explain the condition of the accounts and the shortages in stores at the time of handing over the management of the corporation. Exhibit 54 was written in pursuance of this resolution. ..... I1 sued as secretary (sic) as well as orderswere issued that I was accountant secretary of Aluminium Corporation of India when I joined. ...... .As soon as exhibit 2 was written I wasordered to forward the correspondence directly to P. D. Singhania without reference to him, i.e., Lakshmipat. I was asked to send copies of the correspondence only, and not correspondence. I was not to receive instructions from J?. D. Singhania but to keep him informed only. ........P. D. Singhania is a director of J. K. Jute Mills (not of the corporation). I do not know why I was asked to keep him informed. At the time exhibit 1 was written the accounts between Aluminimum Corporation of India and Lakshmi Ratan Cotton Mills were unsettled. They remained unsettled till August, 1948. ........ .Mr. Lakshmipat knew that I was dealing withthese accounts for our firm with Arora representing the Lakshmi Ratan Cotton Mills. I was to find out the difference between the two. As a result many points were resolved. I confirmed by subsequent letters that some of the points in dispute were resolved. My directors knew that settlement of certain points had been reached but they neither ratified it nor repudiated it. I never asked the directors to ratify my action. In accordance with these settled matters no entries were made in the books. . .'

10. From the above statement of this witness, it is quite clear to our mind that he was merely asked to enter into correspondence in order to explore and clarify the state of accounts. The ultimate decision was to be taken by the directors. The fact that after writing the letter exhibit 2 he was asked to send copies of his correspondence to one Shri P. D. Singhania goes to show that the directors did not have full faith in him and they wanted to keep a watch over him. In such a situation, it is not possible to believe that this witness had such an authority on behalf of the corporation that he could acknowledge the liabilities and bind the corporation. The fact is also noteworthy that even though certain items were admitted by this witness as correct, no entries were made in the account books in respect of those items as liabilities. The whole matter had to be reviewed by the directors who had the authority to bind the corporation. This case is clearly covered by the principles laid down by this court in Uma Shankar v. Govind Narain, A.I.R. 1924 All. 855. In this case during correspondence the munib of a firm acknowledged some liability and it was held that the munib who was merely authorised to write letters of a routine type, could not bind the principal by any acknowledgment. This was also a Division Bench case and we are bound by it. The attempt on behalf of the court below to distinguish this case is, to our mind, futile. The learned judge has tried to show that the circumstances under which the letter in question was written are different from the circumstances in which the letter written by the munib in the reported case appears to have been written. This aspect of the matter, to our mind, was wholly irrelevant. The circumstances in which a letter is written, may reflect upon the value of the letter as an acknowledgment but it cannot increase the authority of the person who has written the letter.

11. It was further argued that the secretary of a corporation under the Indian law is a responsible officer and as such, must be deemed to have inherent powers to bind the corporation without proof of any special authority to do so. No authority has been cited for that proposition and we are unable to accept it on general principles. Although under the Indian Companies Act, 1913, a secretary is an officer of the company merely being an officer of the company does not authorise him to bind the company in financial matters unless he is authorised to do so. The Indian Companies Act has been modelled on the English company law. Halsbury's Laws of England, 3rd edition, 6th volume at page 324 (paragraph 638) also states that the secretary is an officer of the company and yet at page 326 (paragraph 644) the position of the secretary has been summarised and it is stated:

' He has not by virtue of his position any authority to make representations to induce persons to contract with the company, the functions being ministerial only; the company is not bound by his unauthorised representations. '

12. Principles of Company Law by Pennington, 1959 edition at page 94 summarises the position of a secretary of the corporation and also reiterates :

' But he has no power to make decisions on the company's behalf himself, and so he is acting outside his authority if he negotiates contracts or borrows money in the company's name, and the company is not bound thereby. '

13. Palmer's Company Law, 20th edition at page 500 onwards deals with the powers of the secretary as such. It is stated :

' Apart from certain statutory duties which will be considered later, duties of the secretary are not fixed by law; they are those which are assigned to him either by the company under its articles, or under his contract of service with the company, or, as is normally the case, by the directors. '

14. In the present case, nothing has been proved to show that this corporation gave any such power to the secretary to bind the corporation into any liability by his acts.

15. Lastly, it was contended that in India the secretary is authorised to sign the pleadings under Order 29, Rule 1, Civil Procedure Code, and to receive notice under Rule 2 thereof. It was, therefore, contended that the position of a secretary in India is that of a responsible officer and he can bind the corporation. We are unable to agree with this contention. From the fact that special provision had to be made in the Code of Civil Procedure authorising the secretary to sign the pleadings indicates that otherwise he would not have been so authorised and such an authority given under the special law cannot lead to the conclusion that the secretary has also an authority either to borrow loans or to bind the corporation by acknowledging liabilities,

16. We are, therefore, fully satisfied that in this case the letter (exhibit 1) dated the 16th of April, 1946, did not amount to acknowledgment and was not sufficient to extend the limitation. Both the suits must, therefore, be dismissed on this ground.

17. We need not consider any other aspect of the matter as it is sufficient to dispose of all the three appeals.

18. The result, therefore, is that Appeals Nos. 441 and 442 of 1950 filed by the corporation are allowed while Appeal No. 198 of 1952 filed by the company is dismissed. The corporation will get costs in both the suits and in both the courts.


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