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Ram Buran Singh Vs. Mufassil Bank, Ltd. - Court Judgment

LegalCrystal Citation
SubjectBanking
CourtAllahabad
Decided On
Reported inAIR1925All206a
AppellantRam Buran Singh
RespondentMufassil Bank, Ltd.
Excerpt:
.....directors from time to time. , page 607). the articles of association of the company define the power of directors as between themselves and the company, and unless there is anything in those articles limiting the powers of the board of directors in carrying on the ordinary business of the corporation, a third party who deals with the directors or with the managers acting under those powers, however irregularly, is protected if he acts in good faith in his dealing with them. but if any damage has accrued to the company by reason of the manager having acted beyond his authority in the ordinary discharge of his duties, the remedy of the company is against such manager, and the sales cannot be set aside to the prejudice of a third party, who has already paid ins good faith the..........the manager of the company by the articles of association, and, by a subsequent resolution of the board of directors, dated the 4th april 1917, he was also appointed one of its directors. on the 9th august 1916 a power of attorney was executed in his favour by the corporation, authorising him to sign and endorse on behalf of the company deeds, bonds and conveyances, and to transfer deoree3, negotiable instruments and other documents the transfer, assignment or endorsement whereof was sanctioned in writing by the board of directors or by any of the directors authorised in that behalf by the said board.3. there is no evidence to show that any sanction had been granted for the sale of these decrees by the board of directors or by any director authorised in that behalf by the said board......
Judgment:

Kanhaiya Lal, J.

1. These appeals arise out of proceedings in execution taken by the assignee of certain decrees and the question, for consideration is whether the assignment was valid and binding on the original decree-holder. The decrees in question had been obtained by the Kayasth Trading and Banking Corporation Ltd., against the present judgment-debtors. They were sold by B. Ram Gharib Lal, who was the manager of the company and one of its Directors, on behalf of the company, and the consideration paid by the assignee was credited in the accounts of the corporation.

2. The Articles of Association provided that there shall be a manager of the company whose duty shall be to conduct the whole business of 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. They further provided that the said manager shall be authorised to advance loans to the best advantage of the company of such amounts and to expend such sums to keep the bank, its branches and establishment going, as may be prescribed by the Directors from time to time. B. Ram Gharib Lal was appointed the Manager of the company by the Articles of Association, and, by a subsequent resolution of the Board of Directors, dated the 4th April 1917, he was also appointed one of its Directors. On the 9th August 1916 a power of attorney was executed in his favour by the corporation, authorising him to sign and endorse on behalf of the company deeds, bonds and conveyances, and to transfer deoree3, negotiable instruments and other documents the transfer, assignment or endorsement whereof was sanctioned in writing by the Board of Directors or by any of the Directors authorised in that behalf by the said Board.

3. There is no evidence to show that any sanction had been granted for the sale of these decrees by the Board of Directors or by any Director authorised in that behalf by the said Board. The sales, however, purported to have been effected on behalf of the corporation, and the real question is whether a third party, who deals with the Manager in the above circumstances, is bound to go behind his apparent authority to enquire whether the Manager had obtained the sanction of the Board of Directors to effect the sales.

4. The authority of the Directors is defined by the Memorandum of the Articles of Association; and they have no power to go beyond the authority given to them, or to undertake any transaction outside the scope of the business of the company. They have power to carry on the business of the company in accordance with the provisions therein contained, and if they do anything beyond the scope of the business of the company, their act is ultra vires and void, as the company would not be bound by any act done by the Directors for objects which the company has no power to entertain. But not only do the acts of the Directors bind the company, when done within the scope of their authority, but also where the acts of the Directors, however irregular, belong to a class of acts, which is authorised by the constitution of the company. A company is bound by its dealings with strangers, who act bona fide with the company; for, says Grant, a company is liable for acts done by its Directors, even though unauthorised by it, provided such acts are within the apparent authority of the Directors and not ultra vires The Ashbury Railway Carriage & Iron Co. v. Hector Riche (1875) 7 H.L. 653 and 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: Biggerstaff v. Rowatt's Wharf Ltd. (1886) 2 Ch. 93. All persons dealing with a company must ascertain the limitations imposed by the Articles of Association, but they are not bound to draw any direct or obvious inferences from the provisions they find there, nor is there any obligation cast upon them to see that such Directors are properly appointed or that they have acted exactly in accordance with the manner prescribed therein. (Grant's Law of Banking, 6th Edn., page 607). The Articles of Association of the company define the power of Directors as between themselves and the company, and unless there is anything in those Articles limiting the powers of the Board of Directors in carrying on the ordinary business of the corporation, a third party who deals with the Directors or with the Managers acting under those powers, however irregularly, is protected if he acts in good faith in his dealing with them.

5. It is urged on behalf of the judgment-debtors that the corporation had no power to mortgage much less to sell its properties except in the manner allowed by Section 109 of the Indian Companies Act (VII of 1913). But that section only limits the borrowing powers of the company or prescribes the manner in which that power is to be exercised and it does not prescribe a sale of property, where such a sale falls within the ordinary business of the company. A company, which deals in Banking business, has, for instance, the power not only to lend money but to sell any decree, which it may obtain in lieu of the debts advanced as a means of realising those debts. The sales in the present case were irregular, because they do not appear to have been; made with the sanction of the Directors, as required by the power of attorney which conferred the power of sale. But if any damage has accrued to the company by reason of the Manager having acted beyond his authority in the ordinary discharge of his duties, the remedy of the company is against such Manager, and the sales cannot be set aside to the prejudice of a third party, who has already paid ins good faith the consideration thereof, which the company has appropriated.

6. The lower Appellate Court has held that the effect of that appropriation was to1 ratify the sales, but it is not clear whether the appropriation was effected within the knowledge of the Directors or with their acquiescence. With the exception of Babu Ram Gharib Lal, the other Directors appear to have ceased to take any interest in the affairs of the company or with the manner in which the Manager was dealing with the business. But a notice appears to have been issued to the corporation, when the assignee applied for the substitution of his name under Order 21, Rule 16 of the Code of Civil Procedure; and no objection appears to have been taken by the company or its Directors at the time to the said sales. Their conduct on that occasion at any rate amounted to a ratification of the sales, and the decrees can now be executed in the same manner and subject to the same considerations, as if the application for the execution had been made by the original decree-holder himself. The judgment-debtors have to pay the money due by them and the substitution of the name of the assignee in the place of the original decree-holder after the issue of the notice to him, sufficiently protects them against the possibility of their being required to make the payment over again.

7. The appeals, therefore, fail and are dismissed with costs including fees in this Court on the higher scale.


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