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TMI Blog1931 (5) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... of the consideration by the company. The overdraft of Rs. 25,000 was undoubtedly utilized for the necessary purposes of the company. The defendants have no objection to treating the plaintiffs as unsecured creditors but plead that the company is not bound by the mortgage deed for various reasons which we shall have to consider in detail. The trial court held that the mortgage was valid and binding upon the company and decreed the plaintiffs' suit. The defendants in appeal have pressed the same points that were taken in the court below in support of their contention that the mortgage deed is not valid and binding upon the company. The first question is whether Mr. Beltie Shah had authority to borrow Rs. 25,000 from the plaintiffs on behalf of the company. This question formed the subject of the first issue in the trial court. The Board of Directors undoubtedly had power under the articles of association to borrow money for the purposes of the company and to secure the loan by a mortgage. The appellants rely upon article 104 of the articles of association which lays down that "The Board may delegate any of their powers, other than powers to borrow and make calls, to committees c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not prohibit the managing agent from incurring a temporary loan in an emergency, for protecting the interests of the company. Even if Mr. Beltie Shah, acted ultra vires in obtaining this loan, it appears that his action was clearly ratified by the Board of Directors. We cannot lay stress upon the resolution which purports to have been passed at a meeting of the Board on the 2nd of June, 1923, as it appears to us (for reasons which we shall presently give) that this resolution was not passed by a properly convened meeting of the Board. The directors' report to the shareholders for the period ending the 31st of March, 1923, submitting the audited accounts for that period, shows the item of Rs. 24,454-3-8 as due to Bhagwan Das and Company (the plaintiffs) as an unsecured loan. This report purports to be signed by four of the directors of the company at a meeting dated 17th September, 1923, and it has not been argued that this meeting was not properly convened. We take it, therefore, that the Board of Directors clearly ratified the loan to the plaintiffs in their report dated the 17th of September, 1923. Similarly the directors' report for the period ending the 31st of Marc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ips held that a mere defect in respect of the seal does not make the document for all purposes bad, even if it was intended to be under seal. The next question is whether Mr. Beltie Shah was authorised to execute the mortgage on behalf of the company. The minute book of the company (page 121 of the printed record) sets forth a resolution which purports to have been passed by the directors of the company on the 2nd June, 1923, in these terms : "Resolved that the Board of Directors of the Dehra Dun Mussoorie Electric Tramway Company, Limited, approve of the proposal of the managing agents to the effect that in order to secure the overdraft of Rs. 25,000 obtained by the company from Messrs. Bhagwan Das Company, bankers at Dehra Dun, the company's land known at the Khazanchi Bagh, near the Dehra Dun Railway Station, be legally assigned to the said Messrs. Bhagwan Das Company on such terms and conditions as may be settled between the managing agents and Messrs. Bhagwan Das Company. The Board of Directors authorize Mr. Beltie Shah to enter into the agreement and give the necessary deed to Messrs. Bhagwan Das Co.: "and to sign and seal and deliver the deed on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany who were pressing for repayment and wanting security Mr. Beltie Shah enclosed a draft resolution (to the same effect as the resolution appearing in the company's minute book on the 2nd of June, 1923) asking Mr. Sen to sign it and to get it signed by Mr. Rao and Sardar Bakhshish Singh. In view of this letter, we think, it is clear that there could not have been a-properly convened meeting of directors on the 2nd June, 1923, which passed the resolution set forth above. The next question is whether the plaintiff knew that there could have been no properly convened meeting of directors on the 2nd June which passed the resolution mentioned. The appellant contends that the plaintiff Jagmandar Das knew perfectly well that no meeting had been held on the 2nd June and that the resolution was a mere bogus resolution. He relies mainly on the letters, Exhibit Q and Exhibit CC. Exhibit Q (page 135) is a letter from Mr. Beltie Shah to the plaintiff, dated the 12th June, 1923. Mr. Beltie Shah complains that the plaintiff is unreasonably impatient to obtain security for his loan and states that the company are doing everything in their power to meet the plaintiff's wishes and adds : "You ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and because he had said that money was being expected from Nabha every day." In all the circumstances of this case, we think it was very possible that Buggan Lal and the plaintiff were deceived by Mr. Beltie Shah. One must remember that in June, 1913, there was no suspicion that the company would go into liquidation and the plaintiff had no reason to suspect Mr. Beltie Shah of being a tricky and unreliable man. Subsequent events have no doubt cast a lurid light upon his character and methods and in the light of such subsequent events it may be argued that the plaintiff and Buggan Lal ought not to have put so much trust in Mr. Beltie Shah. It is easy to be wise after the event, but in the circumstances, we think that Mr. Beltie Shah who appears to have been a very capable and plausible man persuaded the plaintiff that the execution of the mortgage had really been sanctioned by a properly convened meeting of the directors. Buggan Lal and the plaintiff may have thought it strange that Mr. Beltie Shah did not refer to the resolution in his letter of the 12th June but he seems to have explained to them that he was in daily expectation of receiving large sums of money from Nabha out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is bound by the mortgage so far as company law is concerned. The law on this point is laid down in Halsbury's "Laws of England," Volume V, page 302, as follows : "The persons contracting with a company and dealing in good faith may assume that acts within the power of the company have been properly and duly performed and are not bound to enquire whether acts of internal management have been regular." The case of the Royal British Bank v. Turquand [1856] 6 Ellis and Blackburn 327 is one of the most important cases on this point. In that case the Directors of the company were authorized in certain circumstances to give bonds but the company sought to escape liability on the ground that there had been no resolution authorizing the making of the bond in suit. It was held that the plaintiff was entitled to judgment having a right to presume that there had been a resolution at a general meeting authorizing the borrowing of the money on the bond. For an Indian decision on this point we may refer to the case of Ram Baran Singh v. Mufassil Bank Limited 83 Ind. Cas. 142 ; AIR 1925 All. 206; 6 LRA 27 in which it was held that a company is liable for all acts done by i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tramways Act, 1886, and the Tramway Order of 1921 made under subsection (3) of section 6 of that Act by the Local Government. "Promoter" is defined in the Act as meaning a Local authority or person in whose favour an order has been made and includes a Local authority or person on whom the rights and liabilities conferred and imposed on the promoter by this Act and by the order and any rules made under this Act as to the construction, maintenance and use of the Tramway have devolved. Beltie Shah was undoubtedly a "promoter" and is expressly referred to as the promoter in the Tramway order. The question is whether the rights and liabilities conferred and imposed upon him have legally devolved upon the company. It is argued for the respondent that they have not legally devolved upon the company because the Local Government did not give their previous consent to the transfer of the undertaking by Beltie Shah to the company. On the 22nd of December, 1921, an agreement was entered into between Beltie Shah and the company (Exhibit H, p. 53) whereby the company agreed to take over the benefit and liability of Beltie Shah under the Tramway order. It was argued that there was no proof of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e undertaking can only be transferred with the assent of Government previously obtained but does not specify any form in which such assent should be expressed. In our opinion, a demiofficial letter such as that of the 9th July, 1921, by a Secretary to Government in the P.W.D. intimating that Government will have no objection to the transfer is sufficient to convey the previous assent of Government. We take it, therefore, that the company did become a "promoter" in place of Beltie Shah. The next question is whether the land mortgaged formed part of the "undertaking." The land was bought by the company on the 15th of May, 1922, for the purpose of a tramway depot. "Undertaking" is defined as including all movable and immovable property of the promoter suitable to and used by him for the purposes of the tramway. The fact that the land near the railway station was "suitable" for the purposes of the tramway can hardly be disputed. It was obviously necessary that the tramway company should have some administrative offices and a car shed, and a site near the railway station was obviously suitable. It is argued, however, that at the time of the mortgage the property was not used by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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