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Issues: Validity of assignment of decrees by the manager of a company without explicit authorization from the Board of Directors.
In this judgment, the High Court of Allahabad considered the validity of the assignment of decrees obtained by a company's manager without explicit authorization from the Board of Directors. The decrees were originally obtained by the company against the present judgment-debtors and were subsequently sold by the manager on behalf of the company. The key question was whether the assignment by the manager was valid and binding on the original decree-holder. The Articles of Association of the company outlined the manager's duties, including the authority to conduct business and make necessary transactions. The manager was also appointed as one of the Directors of the company. However, there was no evidence of specific authorization from the Board of Directors for the sale of the decrees. The central issue was whether a third party dealing with the manager was required to investigate the manager's authority to effect such sales without explicit Board approval. The judgment delved into the authority of Directors as defined by the company's Articles of Association. It emphasized that Directors must act within the scope of their authority, and any acts beyond that scope would be ultra vires and void. However, the company could still be bound by the acts of Directors if they fell within a class of acts authorized by the company's constitution. The judgment cited precedents to support the principle that third parties dealing in good faith with a Managing Director could assume the Director's apparent authority. It highlighted that while parties must be aware of the limitations set by the Articles of Association, they were not obligated to scrutinize the Director's appointment process or exact adherence to internal procedures. The Articles of Association were crucial in defining the powers of Directors concerning the company's ordinary business transactions, providing protection to third parties dealing with authorized Directors or Managers acting within their powers. Furthermore, the judgment addressed the argument that the company lacked the power to sell its properties without adhering to specific legal provisions. It clarified that while certain borrowing powers were limited by law, the company, especially one engaged in banking business, could sell decrees obtained as a means of realizing debts. The irregular sales in this case, conducted without apparent Director approval, did not automatically render them invalid. If the company suffered damages due to the manager's unauthorized actions, the remedy lay against the manager rather than invalidating transactions already completed in good faith by third parties. The judgment also discussed the issue of ratification, noting that the company's conduct, including the lack of objection during a legal process, could amount to a ratification of the sales, thereby upholding their validity. Ultimately, the High Court dismissed the appeals, affirming the validity of the assignment of decrees by the manager and holding the judgment-debtors liable to pay the assigned amounts. The court concluded that the substitution of the assignee's name in the place of the original decree-holder, with notice to the company, protected the judgment-debtors from potential double payments. The appeals were dismissed with costs, including fees in the court's higher scale.
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