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Rajendra Nath Dutta and ors. Vs. Shibendra Nath Mukherjee and ors. - Court Judgment

LegalCrystal Citation
CourtKolkata High Court
Decided On
Case NumberS.A. No. 654 of 1979
Reported in[1982]52CompCas293(Cal),85CWN1028
ActsCompanies Act, 1956 - Section 48
AppellantRajendra Nath Dutta and ors.
RespondentShibendra Nath Mukherjee and ors.
Appellant AdvocateDipankar Gupta, ;Saktinath Mukherjee and ;Amit Roy, Advs.
Respondent AdvocateMukul Prokash Banerjee and ;S.K. Seal, Advs. for respondent No. 2 and ;Ranadeb Chaudhuri and ;B.K. Rej, Advs.
DispositionAppeal allowed
Cases ReferredC) (Burland v. Earl
- the proper authority and it cannot invalidate the transaction for not affixing the common seal. mr. gupta relied upon the cases reported in air 1930 cal 782 (probodh chandra mitra v. road oils (india) ltd. and dehra dun-mussoorie electric tramway co. ltd. v. jagmandar das, air 1932 all 141; [1931] 1 comp cas 227. mr. gupta further contended that the scope of the second appeal is limited. the plea is that it was not embossed by the common seal. it was never raised and now it cannot be raised for the first time. it is argued by mr. gupta that neither section 48 of the companies act nor article 42 of the articles of association required the seal of the company.5. mr. gupta on behalf of the appellant contended that the court of appeal below held that the lease is void because the.....

P.K. Banerjee, J.

1. In the second appeal the defendant is the appellant. The plaintiffs along with the pro forma defendant No. 3 are the directors of M/s. Ahmedpur Rice Mills (Private) Ltd., which is a registered company being governed by the rules and regulations embodied in the memorandum and articles of association and the provisions of the Companies Act, 1956. In order to face the financial crisis of the company it was decided in a meeting of the board of directors on 19th October, 1974, to lease out the mill for a few years which was followed by a resolution passed by the shareholders on October 28, 1974, authorising plaintiff No. 2, the managing director, to finalise the negotiation of the lease with the principal defendants and that the said plaintiff No. 2 and another director of the company would sign and execute the deed consisting of 22 terms with an affixation of the common seal of the company. It is alleged that as per the said terms, the lease would remain in force for two years with an option of renewal for another two years. It appears, however, according to the plaintiffs, that due to mistakes on the part of the plaintiffs, plaintiff No. 2 for the first time came to know that the new term, being item No. 23, had been fraudulently and surreptitiously included by the defendants, and in collusion with the scribe during a temporary absence of plaintiff No. 2 from the Sub-Registry Office ; in the said term, it had been provided that the lease would be extended for another 20 years if the lessee makes improvement by modernising the mill, the other conditions remaining the same. It is alleged that no such modernisation of the mill was made by the defendant. Hence the suit filed by the directors to avoid the lease.

2. Defendants Nos. 1 and 2 filed written statements denying the material allegations. It is further contended that the defendants represented about the poor financial condition of the company due to the urgent financial necessity and an extraordinary general meeting of the shareholders was held on October 28, 1974, and it was resolved in the said meeting that the managing director would sign and execute the deed of lease containing 23 clauses on behalf of the company and an attested copy of the said resolution was made over to the defendants when there was no whisper of the alleged meeting of October 19, 1974. The court of first instance dismissed the suit. On an appeal, however, the suit was decreed. Hence the second appeal by the defendants.

3. Before I deal with the points raised by the parties in the second appeal it is convenient for me to state that the alleged mistake or misrepresentation or fraudulent insertion of term No. 23 into the deed has not been believed by both the courts and, therefore, the finding regarding Clause 23 cannot be challenged in the second appeal.

4. Mr. Dipankar Gupta on behalf of the appellant contended that the common seal of the company is not necessary for the validity of the document. Assuming that it is required, then according to Mr. Gupta, the affixation of the seal is directory and not mandatory. The seal, according to him, is a method of identification of the person concerned or the company when it is not disputed that it was registered by the proper authority and it cannot invalidate the transaction for not affixing the common seal. Mr. Gupta relied upon the cases reported in AIR 1930 Cal 782 (Probodh Chandra Mitra v. Road Oils (India) Ltd. and Dehra Dun-Mussoorie Electric Tramway Co. Ltd. v. Jagmandar Das, AIR 1932 All 141; [1931] 1 Comp Cas 227. Mr. Gupta further contended that the scope of the second appeal is limited. The plea is that it was not embossed by the common seal. It Was never raised and now it cannot be raised for the first time. It is argued by Mr. Gupta that neither Section 48 of the Companies Act nor Article 42 of the articles of association required the seal of the company.

5. Mr. Gupta on behalf of the appellant contended that the court of appeal below held that the lease is void because the seal and the signature of the two directors were not in the deed of lease. It is argued that the affixation of seal is not necessary. Assuming there is no such seal, the document is still binding as it was executed on the basis of the authorisation by the extraordinary general meeting dated October 28, 1974. Mr. Gupta contended that under Section 54 of the Companies Act a document or proceeding requiring authentication by a company may be signed by a director, the manager, the secretary or other authorised officer of the company and it need not be under its common seal. It is argued by Mr. Gupta that Section 48 makes it clear that only in a case where a power-of-attorney is being given to execute a deed by the company to any person, then and then only the common seal is required and not otherwise.

6. Mr. Chowdhury on behalf of the respondent contended that the affixation of the seal is a must in order to bind the company. Under Table A, Regulation 84, of the Companies Act, 1956, it has been provided that the seal is to remain in the safe custody of the company and shall not be affixed to any instrument except by the authority of a resolution of the board and except in the presence of at least two directors and of the secretary or such other person as the board may appoint for the purpose.

7. Mr. Gupta in reply contended that there was an extraordinary general meeting of the shareholders by which the managing director of the company was directed to execute the lease and he on the basis thereof executed the lease. Therefore, in the premises, in my opinion, Mr. Gupta is not correct. It is clear from the resolution on which Mr. Gupta relied that the common seal must be affixed in place of two directors as contained in Article 42 of the articles of association and one director may sign. But the question is whether, after the board of directors is appointed in accordance with law, the shareholders or, for that matter, the general meeting of the shareholders has no say in the articles of association. The board of directors once appointed or elected in accordance with the articles of association and in accordance with the Companies Act has all the powers of the company and can act on behalf of the company but in so acting they must follow the articles of association. In the articles of association, Article 42 for the purpose of signing or executing a document (to be) binding on the company, two directors along with the common seal must sign the document, and, in my opinion, the directors of the company are bound in executing any document in accordance with Article 42 of the articles of association. It is argued by Mr. Chowdhury that if the general meeting's resolution is contrary to the articles of association, then such resolution cannot bind the director of the company.

8. Mr. Chowdhury relied upon the case reported in [1948] 1 All ER 21 at 29; [1948] 18 Comp Cas 236, 248 (CA) (Grundt v. Great Boulder Proprietary Gold Mines Ltd.). Their Lordships of the Court of Appeal held, inter alia, that' even a resolution of a numerical majority at a general meeting of the company cannot impose its will upon the directors when the articles have confided to them the control of the company's affairs. The directors are not servants to obey directions given by the shareholders as individuals, they are not agents appointed and bound to serve the shareholders as their principals. They are persons who may by the regulations be entrusted with the control of the business, and if so entrusted, they can be dispossessed from that control only by the statutory majority which can alter the articles. Directors are not, I think, bound to comply with the directions even of all the corporators acting as individuals.' I entirely agree with the observation made by Cohen L.J. in the judgment at p. 29. It is to be noted that the observation as quoted is also to be found in the case reported in [1908] 2 KB 89, 105, 106 (CA) (Gramophone and Typewriters Ltd. v. Stanley) and in Buckley on The Companies Acts, 11th Edn., p. 723.

9. It appears that the English Companies Act of 1948, Table A, Article 113 more or less is in similar terms with our Companies Act, 1956, Schedule I, Table A, para. 84. In his commentary on Company Law it has been stated as follows : ' If the seal is affixed without authority, the act is not that of the corporation and the corporation is not bound unless it be by estoppel. A document bearing a genuine impression of the company's seal but affixed without authority is a forged instrument.' In the present case, it has already been held by the appellate court that the seal was not there and two directors did not sign. In Palmer's Company Law, 21st Edn., at p. 53, on which Mr. Chowdhury relied, it has been said that the articles of association is a public document and any person who has a dealing with a registered company must be taken to have notice of the same. At p. 243 also, the learned author has stated that the powers of a company are limited to those derived expressly or impliedly from its memorandum of association. By the operation of the doctrine of constructive notice every person dealing with the company is treated as having actual or constructive knowledge of the contents of the memorandum. A company, it has been held by the learned author, being an artificial person, can act only through agents. A person dealing with the company should, therefore, in addition to examining the powers of the company, ensure that the necessary powers have been given by the company to its agents. The agents will normally be the directors or executive employees of the company. At p. 244 it has been held by the learned author that while an act which is ultra vires the company is incapable of ratification, an act which is intra vires the company but outside the authority of the directors may be ratified by the company in proper form. In the present case, I think, Mr. Chowdhury rightly argued that the execution of the document by the managing directors, without the common seal, is an ultra vires act and a subsequent resolution cannot ratify it.

10. Mr. Gupta, however, relied upon Ghosh's Company Law and argued that the document of lease is a contract and further argued that under Section 46 of the Companies Act, on the basis of the Division Bench judgment reported in : AIR1952Cal915 (Dinendro Mullick v. Union of India) the manner of execution is only directory. Mr. Gupta relied on the commentary of the learned author at p. 218, Article 340. It has been said that except in special cases where a seal is required by the provisions of the Act or the company's articles to be affixed to an instrument executed by the company, a contract or other instrument may be executed on behalf of the company without the seal in the manner stated. In Article 341 it has been stated that if there is a provision for the affixation of seal in the articles of association, it is a must. I have already stated that under Article 42 of the articles of association the seal must be embossed in order to bind the company. In that view of the matter, in my opinion, as the deed was executed in violation of Article 42 of the articles of association it cannot prima facie bind the company.

11. But it appears that the suit was not filed by the company but the two directors of the company. One of them gave his signature on the lease on their behalf and, under the articles of association of the company, the company is a juristic person and must sue and be sued in the name of the company. A director of the board of directors or a managing director cannot file a suit, unless it is by the company, in order to avoid any deed which admittedly was executed by one of the directors and admittedly also the company accepted the rent for the whole of the period of lease, that is, four years, but only a particular term of the lease was sought to be challenged on the ground that the said term 23 was fraudulently inserted. The case as made out in the plaint was not made by the company but by some of the directors of the company and the company is not even a plaintiff. If the company is aggrieved, it is the company which is to file the suit and not the directors. In the present case, as I have already said, the company has not come forward as the plaintiff to file the suit but only the two directors have come forward to challenge the lease. As the company is a distinct legal personality, as distinguished from its shareholders and/or directors, the company, if aggrieved by some wrong done to the company, must sue or be sued in the name of the company. In the case reported in [1902] AC 83 at 93 (PC) (Burland v. Earl) it has been held that it is clear law that in order to redress a wrong done to the company, the action should be brought by the company. There are exceptions to the general rule. However, in this case, the exception does not apply, more so when both the courts held as a fact that there was no fraud. In that view, I agree with Mr. Gupta.

12. In the result, the suit as framed is not maintainable and the appeal is allowed. The suit is dismissed without costs.

13. The oral prayer for stay of operation of the order is rejected.

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