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Mt. Suraj Bahu and After Her Death Mt. Mangal Bahu and ors. Vs. Jaitly and Co. Through Kesari NaraIn and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAllahabad
Decided On
Reported inAIR1946All372
AppellantMt. Suraj Bahu and After Her Death Mt. Mangal Bahu and ors.
RespondentJaitly and Co. Through Kesari NaraIn and ors.
Excerpt:
- - jaitly had failed to pay rs. he held it clearly established that the major portion of the amount borrowed wag deposited by p. but as it is clearly averred that the money was borrowed for the company and that the company benefited we are not disposed to take a very rigid view about this. it was held that persons contracting with a company and dealing in good faith may assume that acts within the powers of the company have been properly and duly performed and are not bound to inquire whether acts of internal management are regular. it was held that under section 70, contract act, the plaintiff having lawfully supplied the food and not having intended to do so gratuitously, and the latter having enjoyed the benefit thereof was entitled to compensation. 14. in answer to the contention.....bennett, j.1. this appeal, preferred in 1940, has arisen out of a suit filed by one joshi parahotamji of benares on 22nd july 1937, to recover from a number of defendants the sum of rs. 38,474-71 it was also prayed that certain shares which had been pledged with the plaintiff as security for the debt might be sold in pro tanto satisfaction of the decree for this sum. joshi parshotamji died on 25th november 1938, and his widow, mt. suraj bahu, was substituted for him. she preferred the appeal, but died during its pendency, and substitution of the present appellants for her was made on 25th november 1911. there were originally nine defendants. of these eight were members of a joint hindu family which has for many years done business under the name of p.l. jaitly and co. the business was.....
Judgment:

Bennett, J.

1. This appeal, preferred in 1940, has arisen out of a suit filed by one Joshi Parahotamji of Benares on 22nd July 1937, to recover from a number of defendants the sum of Rs. 38,474-71 It was also prayed that certain shares which had been pledged with the plaintiff as security for the debt might be sold in pro tanto satisfaction of the decree for this sum. Joshi Parshotamji died on 25th November 1938, and his widow, Mt. Suraj Bahu, was substituted for him. She preferred the appeal, but died during its pendency, and substitution of the present appellants for her was made on 25th November 1911. There were originally nine defendants. Of these eight were members of a joint Hindu family which has for many years done business under the name of P.L. Jaitly and Co. The business was started by one Murlidhar, who died in the year 1934. He had three sons, Parshotam Lai, Narotam Lai and Keaari Narain. Though Murlidhar was the formal head of the family the business from 1929-30 was managed by the eldest son, P.L. Jaitly. Of the eight defendants mentioned the first is P.L. Jaitly and Co. and the second and third are P.L. Jaitly's brothers. The next three are sons of P.L. Jaitly and the following two are sons of Kesri Narain. As P.L. Jaitly was an insolvent he was not sued personally and in his place we find as defendant 9 the Official Assignee of Calcutta.

2. Before proceeding further, we may mention that P.L. Jaitly and Co. were Managing Agents of the Lower Ganges Jumna Electric Distributing Co., Ltd. which is in liquidation. We shall refer to it hereafter as the L.G.J.E.D. Co. In circumstances to be described later P.L. Jaitly took a loan of Rs. 35,000 from Joshi Parshotamji on 22nd July 1934, and it is not disputed that the money was paid into Court on behalf of the L.G.J.E.D. Co. In the original plaint it was stated that a claim against the L.G.J.E.D. Co. would be made before the Liquidator, but permission was obtained from the Court on 28-1-38, to sue the company and the company (through the Liquidators) was accordingly added as defendant 10, and there was thereafter some consequential amendment of the plaint. The question for consideration is whether all or any of the defendants are liable on account of this loan of Rs. 35,000. The Additional Civil Judge of Benares decreed the suit on 24th July 1940, against the two brothers of P.L. Jaitly and the two sons of Kesri Narain, limiting their liability to the joint family property in their hands and directing that the shares which had been pledged as security should first be sold in satisfaction of the decree. He also said that the defendants (meaning the defendants against whom the suit was decreed) would get credit for the sums, if any, which the plaintiff, as a creditor of P.L. Jaitly, might receive from the Official Assignee. The suit was dismissed against the other defendants.

3. The appeal contests the dismissal of the suit against two of P.L. Jaitly's sons and against the L.G.J.E.D. Co. We have been concerned in the appeal for the most part with the dismissal of the suit against the Company. For reasons which will appear later, it is of some importance to see how the plaint was drafted. The suit is based primarily on a promissory note for Rs. 85,000 executed on 22nd July 1934, by P.L. Jaitly. It is stated in the plaint that it was executed by him on behalf of P.L. Jaitly and Co., Managing Agents of the L.G.J.E.D. Co. It is then said that the money was borrowed for the purposes of this Company, 'but it was borrowed on the personal responsibility also of the Managing Agents, P.L. Jaitly and Co. through its Manager, P.L. Jaitly.' In the next paragraph it is stated that over and above this promissory note P.L. Jaitly in the same capacity, viz., as manager of P.L. Jaitly and Co., also pledged 6500 fully paid up shares held by the family in the name of P.L. Jaitly 'and gave a letter to that effect and further transferred in blank the shares to the plaintiffs.'

4. In the next three paragraphs it is claimed that the plaintiff is entitled to recover the amount due by sale of the shares, from the joint family business and estate, and also from the L.G.J.E.D. Co. The amount claimed, Rs. 38,471-7-4, it is explained, is the amount due after deducting a sum of Rupees 4708-15-8 paid by P.L. Jaitly and Co. It is further explained that no personal claim is made against P.L. Jaitly (apart from the shares which it is prayed may be sold) as he has been declared an insolvent and a claim as regards his personal liability will be laid in the insolvency proceedings. Written statements filed by the members of the family allege that the money was borrowed by P.L. Jaitly as agent of the L.G.J.B.D. Co., on behalf of and for the purposes of that Company and that the plaintiff was aware of this fact. It is contended therefore that that Company alone is liable. In a written statement filed by the L.G.J.E.D. Co. this is denied. It is said that the money was advanced to P.L. Jaitly in his personal capacity and that he alone is liable for payment. Reference is made to a letter dated 22nd July 1934, written by P.L. Jaitly to Joshi Parshotamji and it is alleged that it was written collusively long afterwards in order to shift the liability to the L.G.J.E.D. Co. The materiality of this will be explained shortly. Finally it is said that the money never came into the hands of the Company and the Company never benefited by it.

5. We may now explain the circumstances in which the loan was taken. An application had been made by the Secretary of State for India on 12th April 1934, for winding up the L.G.J.E.D. Co., based mainly on the allegation that a large sum was due from the Company and that the Company was unable to pay its debts. P.L. Jaitly as Managing Agent denied this and claimed that on the contrary a large sum was due from Government to him. On an application for the appointment of a provisional liquidator, P.L. Jaitly offered to pay Rs. 75,000 on or before 9th June 1934, and to pay the monthly bills (for electric energy supplied) regularly. Orders were passed by the Company Judge on 8th May and 18th July 1934. On the latter date the position was that P.L. Jaitly had failed to pay Rs. 25,000 out of the Rs. 75,000 which he had undertaken to pay. He represented that on account of the winding up application the Banks refused to allow the accounts of the Company to be operated upon and that on this account his credit was impaired. He offered to pay Rs. 25,ooo and the amount due on the bills by 23rd July, if the Court issued directions to the Banks to allow him to operate the accounts of the Company. The Company Judge agreed to this, provided the money was paid on 23rd July. It was to pay this amount that the loan under consideration was taken. The order of 23rd July shows that a sum of Rs. 82,000 odd was paid into Court on that date.

6. On 22nd July P.L. Jaitly executed the promissory note in favour of Joshi Parshotamji, receiving Rs. 10,000 in cash and Rs. 25,000 by cheque (which was cashed at Allahabad). On the same date two letters were written (or purported to be written) by P.L. Jaitly to Joshi Parshotamji, Exs. 15 and 16. In the first it is stated that he, P.L. Jaitly, had borrowed Rs. 85,000 from Joshi Parshotamji and had transferred in his name shares of the Gorakhpur Electric Supply Co., of the face value of Rs. 65,000, 'the value whereof according to the present market rate of Rs. 5 comes to Rs. 32,500.' The shares would remain pledged as security until the principal with interest was paid. Exhibit 16 is the letter which, the L.G.J.E.D. Co., alleges, was actually written some time later collusively with the object mentioned. It is a brief letter, written in English, not in Hindi, as Ex. 15 was. It states that he, P.L. Jaitly, had that day borrowed Rs. 35,000 from Joshi Parshotamji against his pronote 'for the requirement in connection with the Lower Ganges Jumna Electricity Distributing Co., Ltd.' It will be observed that there is no reference in Ex. 15 to the object of the loan and that there is nothing in Ex. 16 but the reference to its object. In both letters P.L. Jaitly states that he has borrowed the money and executed the pronote. It is not easy to understand why it should have been thought necessary on 22nd July 1934 to send Joshi Parshotamji this second letter. There were numerous issues, the most important of which is the second which reads:

2. Whether the money was borrowed by Mr. P.L. Jaitly in his personal capacity or on behalf of Messrs. P. L. Jaitly and Co. as Managing Agents of the L.G.J.E.D. Co. Ltd. only, and if the latter is the ease, is defendant only liable for the payment of the debt?

7. The Additional Civil Judge held that the creditor had no separate cause of action against the sons of P.L. Jaitly. His property had vested in the Official Assignee and extended to the interest of the sons in the joint family property. The plaintiff must look to the Official Assignee so far as this property is concerned. There could be no doubt, the Additional Civil Judge found, that P.L. Jaitly had acted in the transaction as manager of the joint Hindu family; hence the entire family was liable and consequently his brothers and their sons were liable. The learned Judge then considered whether the transaction was entered into by him as Managing Agent of the L.G.J.E.D. Co. He held it clearly established that the major portion of the amount borrowed wag deposited by P.L. Jaitly in the High Court in order to secure the postponement of the appointment of a provisional liquidator. 'It may be,' he remarked,

that P.L. Jaitly contemplated that the debt would be paid out of the Company's funds and for this purpose he transferred certain cheques which the Company's customers had issued in its favour to the Behar Bank Ltd. (on which Bank Joshi Parshotamji had drawn the cheque for Rs. 25,000 in favour of P.L. Jaitly) with the direction to cash them and credit the money to Joahi Parshotamji's account. The amount thus paid back was more than Rs. 4000. The immediate object of the loan was to save himself and his family from being ousted from the lucrative position of Managing Agents of the Company. P.L. Jaitly borrowed the money and deposited it in the High Court to prevent the liquidator from taking possession of the concern.

8. The Additional Civil Judge in support of this view referred to an application made by P.L. Jaitly and his brother Kesri Narain to withdraw the money when subsequently a liquidator was appointed, (the application being dismissed). This showed, he thought, that the family recognised that the payment had been made on its behalf. As regards the alleged liability of the L.G.J.E.D. Co., the learned Judge referred to Section 89, Companies Act, and pointed out that there was nothing in the promissory note to show that it was executed on behalf of the Company. Though P.L. Jaitly was authorised to borrow money for the Company the fact remained that he did not choose to execute the promissory note for or on behalf of the Company.

9. The Additional Civil Judge accepted the evidence of the plaintiff's witness, Hari Krishna Bhatt (who is the son-in-law of Joshi Parshotamji) that the letter, Ex. 16, was written at the same time as the promissory note, but did not think that the statement therein that the money was borrowed 'for the requirement in connection with the L.G.J.E.D. Co.,' proved that the money was lent to the Company. P.L. Jaitly had referred in this letter to 'my pronote' and stated both in it and in the other letter, Ex. 15, that he had executed it. The learned Judge repelled the contention that the Company should be held liable because it benefited by the deposit of the money in Court. Learned Counsel for the appellant hardly disputed that so far as the suit is based on the promissory note the L.G.J.E.D. Co. could not be held liable, having regard to the provisions of Section 89, Companies Act. Indeed, we see from the judgment of the Court below that this was frankly conceded there. But he argued from the fact that the Company benefited and that the letter Ex. 16 showed that Joshi Parshotam knew for what purpose the money was being borrowed that the Company should be held liable. Undoubtedly the suit was not a simple suit on a promissory note; there was the additional security of the shares in the Gorakhpur Co. which had been pledged with the creditor. But this in no way affects the liability of the L.G.J.E.D. Co. It affects only P.L. Jaitly himself. It may, therefore, be thought doubtful whether the suit can be said to be based directly on the consideration also, so as to support the claim against the Company. But as it is clearly averred that the money was borrowed for the Company and that the Company benefited we are not disposed to take a very rigid view about this. It is with reference to these considerations and facts that we have examined a number of authorities cited on either side.

10. In Dehra Dun-Mussoorie Electric Tramway Co., Ltd. v. Jagmandar Das : AIR1932All141 the first case cited by the learned Counsel for the appellant, a Bank allowed the Company at the request of the Managing Agent an overdraft. He showed the Bank the minute book of the Company showing that a resolution had been passed so empowering him. Subsequently it transpired that there had not been a properly convened meeting of the Board. It was held that persons contracting with a Company and dealing in good faith may assume that acts within the powers of the Company have been properly and duly performed and are not bound to inquire whether acts of internal management are regular. In the present case there can be no doubt that P.L. Jaitly was empowered by the Articles of Association to borrow money for the Company and if he did obtain this loan for the Company in the sense that credit was given by Joshi Parshotam to the Company and not to P.L. Jaitly himself there would be nothing more to be said. What we have to consider is whether this was not a loan to the Company but a loan to P.L. Jaitly himself and in answering this question we have to take into consideration : (1) the circumstances of the Company and the admitted fact that its credit had been impaired by the winding up application; (2) the fact that the promissory note was executed in the name of P.L. Jaitly alone, without any addition suggesting that he might be acting on behalf of the Company, not even the addition of the words 'Managing Agent, L.G.J.E.D.Co.' (though even such addition might not be enough to bind the Company); (3) the fact that the additional security taken in the form of shares was P.L. Jaitly's personal property. It is clear that the case cited can have no bearing on the present case.

11. The next ease cited was a recent Privy Council case, Mohan Manucha v. Manzoor Ahmad Khan . This case may have some bearing on the question whether we should be entitled to regard the suit as based on the consideration and not on the promissory note, but otherwise it does not, we think, assist the appellant. The question was whether restitution should be ordered under Section 65, Contract Act, where the mortgage on which the suit was based was found to be invalid. The Chief Court of Oudh refused to make such an order on the ground that no such claim had ever been pleaded and left the plaintiffs to seek their remedy by separate suit. Their Lordships expressed the opinion that this attitude towards the question of pleading was unduly rigid:

A defendant who when sued for money lent pleads that the contract was void can hardly regard with surprise a demand that he restore what he received thereunder.

12. This dictum too can have no bearing on the present case unless it is first found that the money was lent by Joshi Purshotamji to the company. Certainly, on that finding, restoration should be made, but then there would be no question of the loan being invalid so as to make it necessary to apply Section 65. The appellant's learned Counsel strongly relied on Secy. of State v. G.T. Sarin & Co. ('30) 17 A.I.R. 1930 Lah. 364. In that case the plaintiff, a contractor, supplied food for the horses of a cavalry regiment. The officer who gave him the contract was not authorised to do so under the provisions of Section 30(2), Government of India Act. It was held that under Section 70, Contract Act, the plaintiff having lawfully supplied the food and not having intended to do so gratuitously, and the latter having enjoyed the benefit thereof was entitled to compensation.

13. It seems to us that this case goes no further. The ruling is based entirely on the fact that the food was supplied by the plaintiff to the person sued. Before the L.G.J.E.D. Co. can be held liable it must be found not only that the money came into their hands but that it was in effect put into their hands by the plaintiff through the managing agents, it being understood by both parties when the promissory note was executed that the company would be liable for repayment.

14. In answer to the contention that there was such an understanding it may well be asked how the plaintiff thought the company could be liable when P.L. Jaitly had personally assumed sole liability and could in law alone be held liable on the promissory note. The learned Counsel could only reply, when this question was put to him, that both P.L. Jaitly and the lender may have thought, though wrongly, that the company would be bound by P.L. Jaitly's signature. As there is no indication whatever on the promissory note that Jaitly was acting for anyone but himself we find it difficult to believe this. Clearly the mere fact the company benefited is not by itself sufficient to bind the company. If B borrows money from A in order for his own purposes to lend it to C, C cannot be held liable to A, even if A knew with what object the money was being borrowed. Before he can be held so liable it must be found that the loan was actually a loan to o. All the indications in the present case are that the loan was made to Jaitly personally and on his personal security, there being very good reasons why Joshi Parshotamji should not lend the money to the company.

15. The case in Krishnanand Nath v. Raja Ram Singh ('22) 9 A.I.R. 1922 All. 116 was referred to as showing that the managing member of a joint Hindu family can execute in his sole name a promissory note which shall be binding on the family as a whole. That no doubt is authority for the view taken by the Court below that P.L. Jaitly executed the promissory note as manager of the joint family, but there is no justification for extending the principle to a company, for which there is a special provision in Section 89. The Allahabad ruling was followed by another Bench the following year in Raghunath Singh v. Sri Narain ('23) 1 A.I.R. 1923 All. 424. A stricter view was taken by a Single Judge of the Calcutta High Court in Ramgopal Ghose v. Dhirendra Nath Sen : AIR1927Cal376 where it was held that a suit based solely on a promissory note can be brought only against the person signing it; but in a suit aptly framed; it was added, the plain, tiff might claim in the alternative the amount of the original debt for which the promissory note was given as security, proceeding against the property of the joint family as a whole. The view taken by the Privy Council in Abdul Majid Khan v. Sharaswatibai was that where a promissory note is signed by the manager of a joint Hindu family in his own name the money may have been borrowed by him for his own individual purposes or for the purpose of the joint family business. If the latter is pleaded it must be proved; there can be no presumption that it was. In the present case it is not disputed that P.L. Jaitly signed as manager of the joint family.

16. The general principle to be followed in cases of negotiable instruments was laid down by their Lordships of the Privy Council in Sadasuk Janki Das v. Sir Kishan Prasad ('18) 5 A.I.R. 1918 P.C. 146. It was that the name of a person or firm to be charged upon a negotiable document should be clearly stated on the face or on the back of the document, so that the responsibility is made plain and can be instantly recognised as the document passes from hand to hand. It is not sufficient that the name of the principal should be in some way disclosed; it must be disclosed in such a way that on any fair interpretation of the instrument his name is the real name of the person liable on the bill. In that case the hundi was signed by one Mohan Lal who added after his name 'Acting Superintendent of the Private Treasury of His Excellency Sir Maharaj the Prime Minister of H.H. the Nizam.' This was held not sufficient to make the Prime Minister liable.

17. Similarly in Sreelal Mangtulal v. The Lister Antiseptic Dressing Co., Ltd. : AIR1925Cal1052 it was held that hundis signed by 'Mitra and Sons' followed by the words 'Managing Agents, Lister Antiseptics and Dressing Co., Ltd.' did not. bind the latter company. Another case to much the same effect was that of In re Jajodia Cotton Mills Ltd. : AIR1927Cal612 where it was held that a promissory note signed by two directors of a company did not bind the company. The English case in Chapman v. Smethurst (1909) 1 K.B. 927 can be distinguished without difficulty for the promissory note in that case was signed by the managing director of the company in the following form - 'J.H. Smethurst's Laundry and Dye Works Ltd., J.H. Smethurst Managing Director,' this signature directly indicating where the liability lay.

18. As to the construction of Section 89, Companies Act, it was indeed held by a Single Judge of the Bombay High Court in In re New Fleming Spinning and Weaving and Weaving Co. Ltd. ('79) 3 Bom. 439 that a bill or note may be in a certain sense on behalf of or on account of a company, though there be upon its face no reference to the company, and a distinction was drawn between the contracting parties and third parties, it being said that so far as third parites are concerned a company can be made liable on a bill or note only where it expresses on the face of it that it was made, accepted or endorsed by or on behalf of or on account of the company or where that fact appears by necessary inference from what the face of the instrument itself shows. This was with reference to Section 47 of the Act of 1866. It is doubtful whether such a distinction would now be held sound. The decision in that ease that the company was not liable was upheld on appeal to a Bench : vide In re New Fleming Spinning and Weaving Co. Ltd. ('80) 4 Bom. 275. The suit had been brought by a third party in whose favour the note had been endorsed. The Bench did not refer to the distinction suggested by the learned Single Judge. They based their decision on the general principle which the Privy Council have since emphasised. In Dutton v. Marsh (1871) 6 Q.B. 361 four directors of a joint stock company signed a promissory-note and the company's seal was affixed at one corner of the note. It was held that they were personally liable, for there was nothing in the note itself to exclude this personal Lability. The fact that the company's seal was affixed was not sufficient to show that the note was signed on behalf of the company.

19. In the Privy Council case in Karmali Abdulla v. Karimji Jiwanji ('14) 1 A.I.R. 1914 P.C. 132 the facts were rather complicated. Separate hundis were executed by the partners in a joint venture of a strictly limited character and the question was whether one partner could be held liable for the hundis drawn by the other. Their Lordships held that in such circumstances, when there is no document of debt which on the face of it binds one partner, liability can only be enforced against him if it is shown that what he did was within the operations natural to the partnership and for the partnership. They held that it was so shown in that case and. further that the plaintiff knew the whole terms and conditions of the agreement between them. Reference was made in this case to Gouthwaite v. Duckworth (1810) 12 East 421. In that case purchases were made by two defendants on an agreement to share the goods with a third. All three had an interest in them by virtue of the agreement and it was held that all were liable for their value, even though the seller did not know of the agreement. A case of partnership recently came before a Bench of this Court of which one of us was a member. This was Lalmani Pande v. Gopal Sah : AIR1945All221 . Here a promissory note was executed by one of two partners (who were brothers), the money being borrowed for the joint partnership business, and the question was whether the other partner was liable. The Bench held, (referring to the provisions of Sections 11 and 22, Partnership Act) that both partners were liable. But it was made clear that there must be an intention to bind the firm and further that the lender of the money must have been informed at the time of execution that the money was being taken for the business and both partners would be jointly liable for it. Reference was also pointedly made to the fact that the Bench were not dealing with a case of an agent executing a document and the master being bound by it.

20. Even assuming that the same principles are applicable where money is borrowed on a promissory-note for a company by its managing agent it appears to us difficult on the facts of the present case to hold that there was an intention to bind the company, and that, even if Joshi Purshotamji was informed at the time of execution that the loan was being taken for the company, the company would be liable. The circumstances suggest just the reverse. We are also disposed to regard with the greatest suspicion the letter Ex. 16, for writing which on 22nd July 1984, there appears to have been no necessity at all. We are not prepared to accept the evidence of Hari Krishna Bhatt about this. We have little doubt that the letter was written later, probably with the object suggested by the company. For these reasons we are satisfied that the suit against the company was rightly dismissed. It was further contended on behalf of the appellants that a decree should have been passed against P.L. Jaitly's three sons, though, apparently by inadvertence, only two are referred to in this connection in the memorandum of appeal, these being Trilok Nath and Loknath (Amar Nath being excluded). The Additional Civil Judge observed that the Official Assignee was competent to seize the entire share of P.L. Jaitly and his sons in the joint family property. He assumed that he had done so and held that the creditor could not be allowed to bring a separate action against the sons. The learned Judge is no doubt correct in what he says about the powers of the Official Assignee. The Official Assignee can exercise the power which the father had of selling family property, including his sons' share, to pay his own private debts, provided they are not illegal or immoral : vide Narayana Chettiar v. Veerappa Chettiar ('17) 4 A.I.R. 1917 Mad. 989. But we do not know to what extent, if any, that power has been exercised, or whether in fact it has been exercised at all. We do not agree with the Additional Civil Judge that it can be assumed that the Official Assignee has seized all their shares. We think that the appellants are entitled to ask for a decree against these two respondents also; to the extent of their share in the family property.

21. It was objected that no such claim can be made against the sons unless the father is also impleaded and we were referred to certain authorities in support of this. But we find that this view was based on the belief that the obligation of a son to discharge his father's debts cannot be enforced during the father's lifetime, a belief which is no longer entertained. We are of opinion that P.L. Jaitly was sufficiently represented in the suit by the Official Assignee and that there is no force in the objection. Finally it was contended that no order could be passed for sale of the shares, in view of the provisions of Section 176, Contract Act, under which it is for the pawnee to dispose of the security himself. As to this we need only say that no cross-objection was filed and we are not therefore prepared to entertain the objection. In the result the appeal fails and is dismissed with costs, except as regards respondents 5 and 6, who are also made liable under the decree to the extent of the joint family property in their hands. As between these respondents and the appellants the parties will bear their own costs in both Courts.


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