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P. Rangaswami Reddiar and anr. Vs. R. Krishnaswami Reddiar and anr. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtChennai High Court
Decided On
Case NumberSecond Appeal No. 1398 of 1969
Judge
Reported inAIR1973Mad251; [1973]43CompCas232(Mad)
ActsCompanies Act, 1956 - Sections 47 and 292
AppellantP. Rangaswami Reddiar and anr.
RespondentR. Krishnaswami Reddiar and anr.
Cases ReferredL. R. Cotton Mills Co. v. J. K. Jute Mills Co.
Excerpt:
- - 1956 requires that a promissory note shall be deemed to have been made accepted, drawn or endorsed on behalf of the company if drawn accepted made or endorsed in the name of or on behalf of the company by any person under its authority express or implied......by a resolution dated 8-4-1959 was appointed as the managing director of the company. the suit promissory note was executed by the 1st defendant on 12-8-1960 and he described himself as the proprietor of sri rajagopal transports. subsequently on 29-7-1961 all the shares of the company were transferred in the name of the 2nd defendant and his son rajaram. it was the case of the plaintiff that the money was borrowed by the 1st defendant for the purchase of a bus for the company and that when the shares were transferred to the 2nd defendant the 2nd defendant also took over the liabilities on the promissory note. the 2nd and 3rd defendant resisted the claim and contended that the suit promissory note has not been executed in the name of or for and on behalf of the 3rd defendant.....
Judgment:

1. Second and third defendants are the appellants. The suit was filed by the plaintiff-1st respondent for the recovery of a sum of Rs. 4,000, due under a promissory note dated 12-8-1960. The promissory note was executed by the 1st defendant. The 3rd defendant Rajagopal Transports Pvt. Ltd. was incorporated on 7-4-1959 with the 1st defendant on 7-4-1959 with the 1st defendant and his two wives as its only shareholders. The 1st defendant by a resolution dated 8-4-1959 was appointed as the Managing Director of the company. The suit promissory note was executed by the 1st defendant on 12-8-1960 and he described himself as the proprietor of Sri Rajagopal Transports. Subsequently on 29-7-1961 all the shares of the company were transferred in the name of the 2nd defendant and his son Rajaram. It was the case of the plaintiff that the money was borrowed by the 1st defendant for the purchase of a bus for the company and that when the shares were transferred to the 2nd defendant the 2nd defendant also took over the liabilities on the promissory note. The 2nd and 3rd defendant resisted the claim and contended that the suit promissory note has not been executed in the name of or for and on behalf of the 3rd defendant company and that therefore the suit was not maintainable against the 2nd and 3rd defendants. The second contention was that there was no resolution of the company as required by Section 292(c) of the Companies Act. 1956 for borrowing the money on promissory note. The 3rd contention was that the liability under the promissory note was not taken over by the 2nd defendant and that in any case the suit was barred by limitation. Both the Courts below have rejected the contentions of the defendants and decreed the suit as prayed for. In this appeal the learned counsel for the appellants raised the same contentions.

2. The promissory note is written in Tamil and in the description of the promissory note the promisor is stated as 'Sri Rajagopala Transport Bus proprietor Ramanatha Reddiar.' The contention of the appellants is that since the promissory note is not executed in the name of the company or for and on behalf of the company the suit is not maintainable against the company. Section 47 of the Companies Act. 1956 requires that a promissory note shall be deemed to have been made accepted, drawn or endorsed on behalf of the company if drawn accepted made or endorsed in the name of or on behalf of the company by any person under its authority express or implied. It is clear, therefore, that in order to make the company liable the instrument on the face of it must show that it was executed on behalf of the company. Normally if the promissory note had been in English one would have expected a recital that the promisor is executing the document for and on behalf of the company. But the promissory note is in vernacular and the promisor is given as Sri Rajagopal Transport bus proprietor Ramanatha Reddiar. If really the promisor was not executing the document on behalf of the company it would not have been necessary for giving such a description. It is true that no evidence de hors the instrument would be admissible to prove that the promissory note was executed on behalf of the company. But in my opinion since the promissory note is in tamil and 'the description is Sri Rajagopal Bus transport proprietor Ramanatha Reddiar, the intention is made clear in the instrument itself and shows that the instrument was executed on behalf of the company.

3. A similar question came up for consideration before a Full Bench of this Court in Sivagurunatha v. Padmavathi AIR 1941 Mad 417. It was held in that case that when in a promissory note written in Indian language the person after giving his own description adds that he is the acting as the other's agent in the matter of execution of the document. This decision concludes the point against the appellants.

4. The next contention of the appellant is that there is no resolution by the Board of Directors of the company in terms of Section 292(c) of the Companies Act enabling the Managing Director to borrow money on promissory notes. Apart from the fact that this plea had not been raised in the written statement there is no substance also in this contention. It is not disputed that the memorandum and Articles of Association allow borrowing by the directors. The transaction is a loan which is therefore authorized under the Memorandum and Articles of Association. Article 21 of the Memorandum provides that the directors may raise or borrow money on promissory notes. By resolution 4 of Ex. A.2 which is a certified copy of the registration of resolutions, the 1st defendant was appointed as the managing director. Resolution 6 vested in him full powers for the management of the company's affairs and also authorized him to sign all papers of the company. The transaction is therefore, one which could be entered into on behalf of the company by the first defendant. In such a circumstance the creditor is entitled to presume that all formalities required in connection therewith have been complied with. A bona fide creditor in the absence of any suspicious circumstance is also entitled to presume its existence. The creditor being an outsider or a third party so far as the company is concerned is entitled to proceed on the assumption of the existence of such a power. In fact the money was utilized for the purpose of the company is not in dispute and the 2nd defendant himself has made a part payment towards this promissory note. In this connection it is also useful to refer to the decision of the Allahabad High Court in L. R. Cotton Mills Co. v. J. K. Jute Mills Co. : AIR1957All311 . It was held in that case that even where there was no actual resolution authorizing a director to enter into a transaction on behalf of the company either by the Board of directors or by the Board of managing Agents a claim of a creditor could not be affected if the terms of its memorandum and Articles of Association authorized such a transaction. It was also held that in such a case the person negotiating with a company is entitled to presume that all the formalities in connection therewith have been complied with. There is no dispute in this case as to the bona fides of the plaintiff. This contention of the appellants is therefore unsustainable.

5. It is next contended by the learned counsel for the appellants that the second defendant had not taken over the liability under the promissory note when the shares were transferred to him and the suit was also barred by limitation. As already stated that the money was utilized for the purpose of the company was not in dispute. In fact and 2nd defendant himself has paid a sum Rs. 280 towards the promissory note on 24-8-1962 and has made an endorsement in his own hand in the promissory note describing himself as the Managing Director of Sri Rajagopal Transports Pte. Ltd. This endorsement would save the limitation as the suit itself was filed on 24-8-1965. The finding of the Courts below also is that the second defendant had taken over the liability under the promissory note when he purchased the entire shares of the company.

6. For the foregoing reasons, the second appeal fails and it is dismissed. No costs. No leave.

7. Appeal dismissed.


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