1929 (11) TMI 2 - HC - Indian Laws

Summary

Issues Involved:
1. Validity and binding nature of the agreement dated 18th April 1928.
2. Whether the agreement created a valid equitable charge.
3. The effect of the company's seal and the authority of the signatory.
4. Estoppel due to the company's actions under the agreement.
5. Registration requirements under Section 109, Companies Act.

Issue-wise Detailed Analysis:

1. Validity and Binding Nature of the Agreement Dated 18th April 1928:
The plaintiff alleged that the defendant company appointed him as treasurer or financial agent under an agreement dated 18th April 1928, which purported to create a charge on the outstanding bills due to the company. The defendant company admitted the agreement but denied its binding nature, claiming it was not properly executed as per the company's Articles of Association. The court found that although the seal of the company was affixed in the presence of only one director, the agreement was acted upon by the company and its directors, making it binding.

2. Whether the Agreement Created a Valid Equitable Charge:
The court examined whether the agreement created a valid equitable charge. It referred to the principle that "an agreement between a debtor and a creditor that the debt owing shall be paid out of a specific fund coming to the debtor will create a valid equitable charge upon such fund." The court found that the agreement allowed the plaintiff to collect all moneys due to the company and appropriate the same in satisfaction of his advances, thus creating a valid equitable charge.

3. The Effect of the Company's Seal and the Authority of the Signatory:
The court noted that the company's Articles required the seal to be affixed in the presence of two directors. The agreement had the company's seal but was signed by only one director. The court considered whether this irregularity invalidated the agreement. It concluded that the defect in sealing did not invalidate the agreement, as the company and its directors acted under the agreement, and the plaintiff was entitled to rely on the authority of the signatory.

4. Estoppel Due to the Company's Actions Under the Agreement:
The court held that the company's actions under the agreement gave rise to an estoppel. The company and its directors acted under the agreement, and the plaintiff provided advances and collected debts based on it. The court found that the company could not deny the validity of the agreement after acting upon it, thus estopping the company from disputing its binding nature.

5. Registration Requirements Under Section 109, Companies Act:
The respondent raised a contention that the agreement was not registered as required by Section 109 of the Companies Act. The court did not entertain this objection as it was not raised at the trial, and no notice was given to the plaintiff. The court stated that it was unable to allow such an objection at this stage.

Conclusion:
The court set aside the decree declaring the agreement as not binding on the defendant company and instead declared that the agreement was binding and created a valid charge in favor of the plaintiff on the outstanding bills and moneys realized by the receiver. The appeal succeeded, and the respondents, the Chowdhuries, were ordered to pay the costs of the appeal and the costs incurred by the plaintiff in the lower court. The receiver was discharged, and his accounts were to be passed.