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National Coal Co. Ltd. Vs. Gyan Ranjan Bhattacharya - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtKolkata
Decided On
Reported inAIR1927Cal299
AppellantNational Coal Co. Ltd.
RespondentGyan Ranjan Bhattacharya
Cases ReferredIrvine v. Union Bank of Australia
Excerpt:
- .....resolution of the company had been passed entrusting these powers to the managing director or the managing directors. i am not prepared to accede to this argument. this would involve an alteration of the articles themselves and i do not think that anyone dealing with the company is entitled to assume that such an alteration had been made. such alteration could only be. made by a special resolution which has to be filed with the registrar of joint stock companies and any one dealing with a company is fixed with notice of the powers of the company under its articles and of any modification in these powers created by any special resolution which has been passed. i think that this statement of the law is in accordance with the authorities and it is only nessessary to refer to one or two of.....
Judgment:

Greaves, J.

1. In this appeal the defendant company appeals against a judgment of my learned brother Mr. Justice Ghose decreeing the suit in favour of the plaintiff for a sum of Rs. 5,160-13-4 together with interest and costs. The suit was brought on a Hundi dated the 24th September 1923 which is in these terms:

Ninety days after sight without grace we promise to pay Babu G.R. Bhattacharjee or order the sum of rupees ten thousand only for value received.

2. It is signed for and on behalf of the National Coal Co. Ltd., J.N. Mookerjee Managing director, and accepted as due on 22nd December 1923, by the same gentleman, J.N. Mookerjee. The learned Judge in the Court below has found first that there was presentation to the company; and I think he was entitled to so find, having regard to the affidavit of Srimani which is an exhibit in the case; secondly he has found that the plaintiff paid to the company through J.N. Mookerjee a sum of Rs. 5,000 which was claimed in the suit; thirdly, that these moneys were utilised for paying the debts for which the company had incurred legal liability, and fourthly, he has found that the plaintiff's version as to what passed at the director's meeting held on the 10th October 1923 is correct and that the entry in the minute book is not correct. The effect of this last finding he holds is to establish the plaintiff's contention that Mookerjee's borrowing of the sum of Rs. 5,000 was confirmed by the directors of the company. As a result of these findings the learned Judge has applied the equitable principle that as legal liabilities of the company had been paid off out of the money advanced the plaintiff was entitled to stand in the place of these creditors who had been paid off with such money.

3. The main contentions urged on behalf of the appellant are as follows : (1) that the directors as a body under the Articles of Association had no power to borrow and consequently the directors' meeting of the 10th October 1923 had no power to ratify the borrowing. (2) There was no presentment to the acceptor or notice of dishonour to him and therefore no cause of action is disclosed on the pleadings. (3) Th'at on the facts the equitable doctrine applied by the learned Judge had no application (4) that the company were guarantors and not principal debtors and that if the sum in suit was taken by Mookerjee and spent to recoup himself for the money advanced by him to the company, the plaintiff had not in fact paid the company's debts as it was really money advanced to Mookerjee himself. The finding of the learned Judge as to the factum of the advance and as to the correctness of the entries in the minute book as to the resolution of the 10th October 1923 were also called in question and we were asked to hold that on the facts and circumstances of the case the equitable principle applied by the learned Judge should not have been applied. In my view the learned Judge was justified in finding on the evidence that the advance was made and that the plaintiff's version of the resolution of the 10th October 1923 was correct and I do not think we should be justified on the evidence in differing from these findings.

4. The two main points which arise in this appeal are first whether the directors had any power to borrow; and secondly, whether, if there was no such power in the directors, the plaintiff was entitled to be put in the place of the creditors of the company who had been paid off with this money. As to the first point if there was no such power no question of ratification arises as there was admittedly no ratification by the company itself. The first point involves an examination of the memorandum and Articles of Association which so far as I can see was not placed before the learned Judge in extenso with the result that he was probably misled as to what they contained. (His Lordship then construed the different provisions of the Articles of Association and continued). It seems therefore clear that under the Articles themselves no power is given to the directors to borrow money on behalf of the company. Now, it appears that the first managing agents ceased to be managing agents some years ago and that no managing agents have been appointed in their place nor has the company appointed, as it was entitled to do under Article 85, any manager who as I have already stated under the provisions of that Article might be entrusted with the same powers as the managing agents. On behalf of the respondent two arguments have been addressed to us based on this. The first argument is that in the absence of managing agents or a manager the directors have an inherent power to borrow money on behalf of the company. My own view is that, if the Articles had been silent as to who was to exercise the borrowing powers, in a trading company this will probably be so though I should like to reserve consideration of the question as to whether this is so, if there is no general delegation of the company's powers to the directors such as are ordinarily to be found in properly drawn articles of association. But I think, if, as here, the Articles give borrowing powers in a certain manner, the shareholders and the corporation itself are entitled to say that the safeguards of the Articles should be observed. Now, under these articles, as I have already stated, the powers to borrow are in the managing agents or in the manager if in fact a manager was appointed. I think it may well be that it was the object of the framers of these Articles to provide certain safeguards in regard to borrowing, that is to say, to give these powers to the managing agents or the manager and to have a controlling power in the directors and I do not think it possible to say that you can abrogate the Articles so as to remove the safeguards which are laid down therein. I therefore think that upon a true construction of the Articles of Association of this company the directors in the present state of articles had no power to borrow

5. The second argument that has been raised is that the plaintiff as a stranger to the company is entitled to assume that a valid resolution of the company had been passed entrusting these powers to the managing director or the managing directors. I am not prepared to accede to this argument. This would involve an alteration of the Articles themselves and I do not think that anyone dealing with the company is entitled to assume that such an alteration had been made. Such alteration could only be. made by a special resolution which has to be filed with the registrar of joint stock companies and any one dealing with a company is fixed with notice of the powers of the company under its Articles and of any modification in these powers created by any special resolution which has been passed. I think that this statement of the law is in accordance with the authorities and it is only nessessary to refer to one or two of them. In the case of Biggerstaff and Howard v. Rowatts' Wharf, Ltd. [1896] 2 Ch. 93 the head-note states that

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.

6. As I have pointed out, without an alteration of the Article of Association no managing director has power to borrow under the Articles before us. The next case to which I would refer is the case of William Irvine and the Union Bank of Australia [1877] 2 A.C. 366. This I think is also an authority for the proposition I have just stated and Sir Barnes Peacock: in delivering the judgment in the case states (at p. 379):

In the present case, however, the Bank would, have found that by the Articles of Association the directors were expressly restricted from borrowing beyond a certain amount and they must have known that if the general powers vested in the directors by Article 50 had been extended or enlarged by a resolution of a general meeting of the shareholders under the provisions of Section 31 a copy of that resolution ought, in regular course, to have been forwarded to the Registrar of joint stock companies in pursuance of Section 53 of the Companies Act and would, have been found amongst his records.

7. The whole of the law is, if I may say so, admirably summed up in Vol. 1, Palmer's Company Precedents, 11th Ed., p. 81 which is edited by the late Sir Francis Palmer himself. The pages to which I would refer are pages 79, 80 and 81 and at the bottom of page 81 occurs this passage:

A parson dealing with the company must take the Articles to be such as appear at the office of the Registrar of Companies to be in force. If the Directors propose to do something in excess of their powers thereunder he is not entitled to assume that their powers have been extended by a special resolution for such a resolution, if passed, would be registered.

8. Then the learned author refers to Irvine v. Union Bank of Australia [1877] 2 A.C. 366 to which I have just referred.

9. Suppose, therefore, in this case that the plaintiff was entitled to assume that a valid resolution of the Company had been passed appointing a manager who under the articles had the power of borrowing to which I have referred, he is met with this difficulty that the promissory note or hundi is signed not by .any manager of the Company but by the Managing Director who, acording to the Articles, according to my reading of them, had no power to borrow whatsoever. So I do not think that this is a case in which one is entitled to say that the plaintiff was justified in assuming that the internal regulations of the Company had been so used as to confer a power of borrowing upon the Managing Director having regard to the terms of the Articles to which 1 have referred. I therefore think, as I have already stated, that there was no power to borrow and the the plaintiff was not entitled to assume that the Managing Director had such powers.

10. This, however, does not dispose of the case for one has got to consider whether the equitable principle to which the learned Judge has referred in his judgment, which is not disputed, has any application to the facts and circumstances of the present case. This involves a consideration of the accounts which are in evidence and especially of the account for September. (After examining the accounts His Lordship continued.) I think therefore in this state of things that it would be impossible to apply the equitable principle which the learned Judge refers to in his judgment and which he himself has applied.

11. Two other points were, however, urged on behalf of the respondent; first, the question of estoppel; and, secondly, the question of acquiescence; and the learned Counsel who appeared for the respondent argued that if we were against the respondent we should remand the casein order that the question of estoppel might be considered. But 1 do not think it is open to us to do this. Issue 9 of the issues which are set out fully in the judgment of the learned Judge expessly raises this question of estoppel and it does not seem to me that on the evidence any question of estoppel is made out.

12. Then it was sought to argue that the Company had acquiesced. I am afraid the unfortunate Company in this case never had any chance of acquiescing or otherwise for I cannot find on the evidence in this case that any proper meeting was held, that any proper accounts or balance sheets circulated to the share holders or that the shareholders were ever kept informed of the circumstances and position of the Company. In these circumstances, I do not see how the shareholders or the Company can be said to have acquiesced in anything that was done or purported to be done on their behalf by the Managing Director.

13. The only question that remains is the question of presentment which was raised by the learned Counsel for the appellant. I do not think it is necessary for us in the view I take to decide this question; but I should have been inclined, I think, so far as I can see at the present time, to decide this in the plaintiff's favour having regard to the fact that Mookerjee was merely an accommodation acceptor; but I do not desire to express any final opinion on that point.

14. The result, therefore, is that I think that there was no power in the Managing Director to borrow and that there is no case made out for applying the equitable principle referred to in the judgment of the learned Judge.

15. In these circumstances the appeal succeeds and the suit will be dismissed with costs here and below.

16. Either the warbonds deposited by the defendant under the Court's order dated the 18th of March 1925 will be returned or the value thereof will be refunded.

Rankin, J.

17. I agree.

18. It does not appear to me that upon the regulations of this Company it was possible for the borrowing power to be exercised by the Managing Director. The plaintiff was not bound to concern himself with what is called the indoor management of the Company but he was bound to concern himself with the external position as disclosed by the regulations. The instrument in question purported to be signed by Mookerjee as the Managing Director and the evidence of the plaintiff shows that he took Mookerjee to be exercising powers of the Managing Director. There is no evidence that Mookerjee purported to have; any other type or kind of position and it seems to me, therefore, that one would be casting away altogether the principle that a stranger is obliged to look to the external position if we were to hold that in this case the doctrine allowed the plaintiff to secceed.

19. As regards the question whether this loan has been applied to discharge liabilities due by the Company it is for the plaintiff to make out his equity. To my mind it is clear on the evidence and on the account that this loan was taken for the purpose of paying off Patel and Mookerjee and for no other purpose. (His Lordship discussed the evidence on the point and proceeded.) In substance this money was borrowed and used to pay off an alleged debt due to Patel and Mookerjee which has not bean proved. The money came out of no banking accounts and went into no banking account. Patel and Mookerjee credited the Company with receipt of these sums. In these circumstances, I do not think that the plaintiff has established the equity upon which the learned Judge has given a decree.

20. I agree that this appeal should be allowed and the suit should be dismissed with costs.


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