1972 (10) TMI 55 - HC - Companies Law

General provisions with respect to memorandum and articles - Effect of memorandum and articles, Bills of exchange and promissory notes

Summary

Issues:
1. Suit for recovery of money under a promissory note.
2. Liability of company for promissory note.
3. Resolution requirement under Companies Act for borrowing money.
4. Transfer of liability under promissory note to a new shareholder.
5. Limitation period for filing suit.

Analysis:
1. The suit was filed for the recovery of a sum of Rs. 4,000 due under a promissory note executed by the 1st defendant. The plaintiff claimed that the money was borrowed for the company's benefit. The defendants resisted, arguing that the promissory note was not executed on behalf of the company. Both lower courts rejected the defense and decreed the suit in favor of the plaintiff.

2. The appellants contended that since the promissory note was not executed in the name of the company, the company should not be held liable. However, the court held that the vernacular description on the promissory note indicated it was executed on behalf of the company, relying on Section 47 of the Companies Act, 1956, and a previous Full Bench decision.

3. The appellants argued that there was no resolution by the board of directors authorizing the managing director to borrow money on promissory notes as required by the Companies Act. The court found that the memorandum and articles of association permitted borrowing by directors, and the managing director had the authority to enter into such transactions on behalf of the company.

4. It was contended that the new shareholder did not take over the liability under the promissory note, and the suit was time-barred. However, the court noted that the new shareholder had made a payment towards the promissory note and endorsed it as the managing director of the company, indicating the transfer of liability. The suit was filed within the limitation period.

5. The court dismissed the appeal, upholding the lower courts' decisions and finding no merit in the appellants' contentions. The second appeal was rejected, and no costs were awarded.