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Abdul Rahman Khan and anr. Vs. Mufassal Bank Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtAllahabad
Decided On
Reported inAIR1926All497; 95Ind.Cas.743
AppellantAbdul Rahman Khan and anr.
RespondentMufassal Bank Ltd. and ors.
Excerpt:
.....authority to enter into the transactions in question. acting on the power of attorney he accepted the transfer from the managing director, and, as his good faith has not been impugned, he is sufficiently protected in claiming the rights which the deed of conveyance transferred to him. the sale-deed, as it is called, by the kayastha trading and banking corporation was admittedly signed by the then manager, time was given to the dafendant-appellant to produce the articles of association of the kayastha trading and banking corporation, limited, to support his contention, and it appears that he failed to produce them. none of these authorities are applicable to a case like this where no articles of association have been put in evidence......a mortgage effected by mt. ulfat bibi and abdul rahman khan in favour of the kayastha trading and banking corporation limited, gorakhpur, on the 6th of march 1908. the managing director of the corporation was one b. ram gharib lal who on the 14th of march 1919, transferred the mortgagee rights held by the corporation for consideration to mazhar husain khan. mazhar husain khan subsequently transferred the same for consideration to the plaintiff.2. the main question for consideration in the case was whether b. ram gharib. lal, the managing director of the kayastha trading and banking corporation limited, had a right to transfer the said mortgage bond to mazhar husain,, and was the plaintiff, as a transferee from mazhar husain, entitled to sue for the recovery of the mortgage money, it.....
Judgment:

Kanhaiya Lal, J.

1. This appeal arises out of a suit brought by the plaintiff-respondent for the recovery of money due on a mortgage effected by Mt. Ulfat Bibi and Abdul Rahman Khan in favour of the Kayastha Trading and Banking Corporation Limited, Gorakhpur, on the 6th of March 1908. The Managing Director of the Corporation was one B. Ram Gharib Lal who on the 14th of March 1919, transferred the mortgagee rights held by the Corporation for consideration to Mazhar Husain Khan. Mazhar Husain Khan subsequently transferred the same for consideration to the plaintiff.

2. The main question for consideration in the case was whether B. Ram Gharib. Lal, the Managing Director of the Kayastha Trading and Banking Corporation Limited, had a right to transfer the said mortgage bond to Mazhar Husain,, and was the plaintiff, as a transferee from Mazhar Husain, entitled to sue for the recovery of the mortgage money, It appears that at or about the time when, the transfer was effected by the said Managing Director, the Kayastha Trading and Banking Corporation Limited was in an unsatisfactory financial position and the creditors of the Corporation were pressing it for the payment of their moneys. B. Ram Gharib Lal, the Managing Director of the Corporation, thereupon assigned various outstandings due to the Corporation to some of the creditors in lieu of the moneys due to them by the Corporation, and these transfers, or at least some of them, are said to have been subsequently ratified either by the Corporation or, in certain instances by the Official Liquidator who was subsequently appointed by this Court.

3. Neither party produced the Articles of Association of the Corporation in this case though time was taken for their production by the mortgagors or their representatives in interest. The trial Court found that the Managing Director had no authority to make the transfer, but the lower appellate Court held that the Kayastha Trading and Banking Corporation Limited never seriously supported the objection that their Manager and Secretary was not entitled to transfer the deed, and that in view of Section 114 of the Indian Evidence Act it should be presumed that he was duly empowered to do the same. It is admitted that after the institution of the present suit, to which the Kayastha Trading and Backing Corporation was made a party as a pro forma defendant, a suit was filed by the Kayastha Trading and Banking Corporation Limited itself for the recovery of the money due on their mortgage, hut by virtue of a compromise subsequently entered into between the Kayastha Trading and Banking Corporation Limited and the present plaintiff that suit was withdrawn on the 20th of August 1921. Before that the name of the Kayastha Trading and Banking Corporation Limited had already been removed from the present suit which was allowed to proceed.

4. The question of the validity of the transfer made by B. Ram Gharib Lal as the Managing Director of the Corporation has been the subject of consideration in several cases, one of which (Execution Second Appeal No. 1783 of 1923) was decided by this Court on the 23rd of July 1924. It was held in that case after an examination of the Articles of Association of the Corporation that although the act of the Managing Director in conveying debts or decrees due to the Corporation without the sanction of the Board of Directors was irregular, the fact that a general power of attorney was executed by the Corporation in favour of B. Ram Gharib Lal on the 19th of August 1916, authorizing him to sign and endorse, on behalf of the Company deeds, bonds, and conveyances and so transfer decrees negotiable instruments and other documents, the transfer, assignment and endorsement whereof was sanctioned by the Board of Directors or by any of the Directors authorized in that behalf by the said Board, gave sufficient protection to persons who on the faith of that authority had entered into dealings with him in good faith without further inquiring whether the Manager had obtained from the Board of Directors the requisite authority to enter into the transactions in question. A reference was made in that case to certain authorities which laid down that though all persons dealing with a company were bound to ascertain the limitations imposed by the Articles of Association, there was no obligation cast upon them that the Directors had acted exactly in accordance with the manner prescribed by those regulations and that any persons dealing bona fide with a Director, who had the apparent authority to enter into the transaction, was entitled to assume that the Director had all such powers as he purported to exercise, if they were the powers which, according to the circumstances of the Company, he was entitled to have. As pointed out by Lindley, a distinction is drawn between cases where the Directors have no power to do at all and those in which they have power to do, provided certain conditions are complied with; or, in other words, between acts which, as regards the Company, are altogether ultra vires and those which are intra vires but irregular: and whilst it is held that companies are not bound by acts of the former class, it is held that they may be bound by acts of the latter class in favour of all persons dealing with the Directors bona fide and without notice of the irregularities of which they may be guilty. (Lindley on Companies Acts, Vol. I, 6th edition, page 213). Indeed outsiders are expected to know what Lord Hatherley called the 'external position of the Company,' but are not bound to know its 'indoor management.'

5. The Articles of Association in the present case as quoted in the decision already referred to, provided that there shall be a manager of the Company, whose duty shall be to conduct the whole business for the Company and to perform all such works and services as may be necessary to carry on the said Company or its branches and such as are usually performed by the Manager of a Banking Company. Babu Ram Gharib Lal was admittedly appointed by the Company as its Manager or Managing Director and a general power of attorney executed by the Corporation in his favour authorising him to make transfers or to execute a deed of conveyance in respect of any transaction sanctioned by the Board. Where the Articles of Association generally give the Manager certain powers of conducting the business, and he does certain acts in exercise of those powers, any person dealing with him may presume that he had power to deal with him and that he had taken the requisite steps to authorize him to enter into that particular transaction. There is nothing to show that the transfers was aware that the Managing Director had done nothing to obtain the requisite sanction for the transaction in question. Acting on the power of attorney he accepted the transfer from the Managing Director, and, as his good faith has not been impugned, he is sufficiently protected in claiming the rights which the deed of conveyance transferred to him.

6. The conveyance appears, moreover, to have been ratified in the present instance by the Corporation itself, which had filed a suit for the recovery of the money due on this mortgage and subsequently withdrawn it under the compromise entered into between it and the present plaintiff. The circumstances attending the compromise and the withdrawal of that suit fairly indicate that the Corporation has ratified the act of its Managing Director, and that ratification must be deemed to take effect from the date of the transfer. The appeal is, therefore, dismissed with costs.

Ashworth, J.

7. In this case the Mufassal Bank sued on a mortgage executed by the defendant-appellant in favour of the Kayastha Trading and Banking Corporation Limited, Gorakhpur. Their case was that this Corporation had transferred the mortgagee bond to one Mazhar Husain and that he in turn had transferred it to the Mufassal Bank, Limited, Gorakhpur. In para. 9 of his written statement the appellant-mortgagor denied that the transfer by which the Kayastha Trading and Banking Corporation, Limited, purported to transfer the bond to Mazhar Husain was valid. Apparently he relied on some provision contained in the Articles of Association to prove that a transfer by the Manager was only valid in certain circumstances and was not valid in this particular case. The sale-deed, as it is called, by the Kayastha Trading and Banking Corporation was admittedly signed by the then Manager, Time was given to the dafendant-appellant to produce the Articles of Association of the Kayastha Trading and Banking Corporation, Limited, to support his contention, and it appears that he failed to produce them.

8. The first Court came to the conclusion that the transfer by the Kayastha Trading and Banking Corporation to Mazhar Husain must be subject to some defect because of what it termed the suspicious conduct of the Kayastha Trading and Banking Corporation, Limited and the Mufassal Bank, Gorakhpur, in the course of the present litigation. In appeal the District Judge held that there was a presumption that a manager would have full power to transfer any security of the company of which he was the manager, and that this presumption had not been rebutted by any evidence produced by the defendant-appellant. Neither Court considered the question of ratification.

9. My learned brother relies upon a power-of-attorney which was executed by the Directors of the Kayastha Trading and Banking Corporation in favour of their manager giving him general power to transfer securities to creditors of the Corporation, and refers to certain authorities to show that it is not necessary to prove that all formalities requisite for giving a Manager powers have been fulfilled. I consider that none of these authorities are relevant to this case. The decisions referred to show that when the Articles of Association declare that a manager or a Managing Director may be given generally certain powers and a certain person exercises those powers there is a presumption that he was given those powers, and it is not necessary to produce the resolutions or minutes of the company to show that he was given them. These decisions are based on the principle that a principal is bound by the acts of an agent within the apparent scope of his authority. The apparent scope is to be found in the Articles of Association, and a third party is not to acquaint himself with what has been termed the indoor management. None of these authorities are applicable to a case like this where no articles of association have been put in evidence.

10. As to the general power-of-attorney relied upon, in my opinion it would be necessary to show from the Articles of Association or the Memorandum of Association that the Directors could give such a general power-of-attorney before any reliance can be placed on it. There is no presumption that the Directors had such power arising from the mere fact of their exorcising it. Reference has been made by my learned brother to a previous decision of a Bench of this Court in respect of the Kayastha Corporation from which I gather that it was held that resolution by the Directors sanctioning a particular transfer might be inferred from the fact that the transfer had been signed by the manager, and that the Articles of Association allowed him to sign it if there was a resolution to this effect by the Directors. Reliance is placed on a passage in Buckley on the Companies Acts, p. 644. This passage is as follows:

Persons dealing with a Managing Director must look to the Articles to see whether he could have the power which he purports to exercise. If he could, that is enough for persons dealing with him bona fide, even if no power to do the act has in fact been given to him.

11. This passage is based on the decision in Biggerstaff v. Rowatt's Wharf (1896) 2 Ch 93. In that case, however, what was held was this. The Articles of Association authorized the Directors generally to give to the Managing Directors certain powers. The Managing Directors had exercised these powers and it was held that it must be presumed that these powers had been given to him by the Directors as permitted by the Articles of Association. I doubt this decision being authority for the view that where Articles of Association require the previous sanction by the Directors for a transfer, the previous sanction can be inferred from the mere fact that a manager has signed the deed of transfer. 'Where the Articles of Association provide that a manager may be appointed and may be given the ordinary powers of a manager, and a person is allowed to act as manager and exercises these ordinary powers, it is reasonable to infer that he was given them. I doubt it being permissible to infer from the fact of a manager making a transfer that transfer has received the previous sanction of the Directors which the Articles of Association declare to be necessary. In the one case the matter to be inferred is a mere formality; in the other it is an essential step (indicated as such by the Articles of Association) for the validity of the transfer.

12. At the same time I concur in the dismissal of this appeal. I concur with my learned brother that there is sufficient evidence on which to find that the Kayastha Trading and Banking Corporation Limited during the hearing of the suit out of which this appeal arises did ratify the act of their Manager in making the transfer to Mazhar Husain. It is proved when the Muffassal Bank Limited, Gorakhpur, brought the present suit made the Kayastha Trading and Banking Corporation a party. The Kayastha Trading and Banking Corporation denied the validity of the transfer by itself through its manager to Mazhar Husain The plaintiff thereupon exempted the Kayastha Trading and Banking Corporation from being a, defendant. That Corporation then brought a suit itself against the manager. It came to an agreement with the Kayastha Trading and Banking Corporation and withdrew the suit. It made no objection thereafter to the suit by the Mufassil Bank against the appellant nor did it ask to be made a party on its own initiative. These facts along with the oral evidence show sufficiently that the Kayastha Trading and Banking Corporation had agreed not to sue on the bond itself and to allow the Mufassal Bank to sue on it.

13. This must mean that it recognized the transfer in favour of Mazhar Husain.

14. For another reason also I consider that the appeal should be dismissed. In the course of the hearing of the suit the appellant took on himself the burden of proving that the transfer by the Kayastha Trading and Banking Corporation to Mazhar Husain was invalid. In para. 9 of his written statement he pleads its invalidity and does not merely put the plaintiff to proof of its validity. He got time from the Court to produce the Articles of Association and Memorandum of the Kayastha Trading and Banking Corporation. In my opinion the burden of proof should originally have been laid on the plaintiff, the Mufassal Bank, and the lower appellate Court was wrong in thinking otherwise; but when a party by its pleadings and conduct volunteers to bear the burden of proving a particular thing, it cannot afterwards turn round and say that the burden was on the other party, especially when, as in this case, his action in promising to produce certain documents must have had the effect of preventing the party on whom the burden would really have been placed to produce from producing these documents. For the above reasons I concur in the order proposed to be passed.

15. The appeal is dismissed with costs.


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