1958 (4) TMI 25 - HC - Companies Law

Summary

Issues:
- Validity of the assignment of a promissory note by a manager of a company
- Authority of the manager to negotiate the promissory note
- Liability of the company in relation to the promissory note
- Whether the plaintiff is a holder in due course
- Necessity of making the company a party in the suit

Analysis:

The judgment in this case revolves around the validity of the assignment of a promissory note by a manager of a company. The plaintiff sued the defendants based on a demand promissory note executed in favor of a company. The lower courts concluded that the promissory note and its assignment were genuine and supported by consideration. However, the first appellate court found that a portion of the consideration had been discharged by one defendant before the assignment, which the plaintiff was aware of. This finding was deemed conclusive, leading to a modification of the decree to Rs. 600 plus interest.

The crucial issue addressed was the authority of the manager to negotiate the promissory note on behalf of the company. The company's articles of association provided that the managing director had the power to endorse such instruments and could delegate this authority. However, it was established that no delegation had been made to the manager in question. The court examined Section 89 of the Indian Companies Act of 1913, emphasizing that a person must act under the company's express or implied authority to bind the company. The burden of proof lay on the defendants to show that the manager lacked authority, failing which the plaintiff, as a holder in due course, would be entitled to enforce the promissory note.

Drawing on legal precedents, including Hindustan Assurance and Mutual Benefit Society Ltd. v. Gurdit Singh and Dey v. Pullinger Engineering Co., the court affirmed that a person acting under the company's authority, even if mistakenly assumed, could bind the company. The court rejected the distinction raised by the respondents' counsel regarding the validity of the negotiation in different scenarios, emphasizing that the plaintiff's status as a holder in due course was paramount. To address concerns about potential double liability, the court directed the plaintiff to execute an indemnity bond in favor of the defendants to safeguard their interests against any future claims by the company.

In conclusion, the judgment set aside the first appellate court's decision and modified the decree in favor of the plaintiff. The plaintiff was granted a decree for Rs. 600 plus interest, with costs to be allocated based on the parties' success in the case. The judgment underscored the principles of negotiable instruments law, implied authority, and the rights of a holder in due course while ensuring the protection of all parties' interests in the legal dispute.