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TMI Blog1961 (1) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... and interesting question about the scope and effect of the provisions contained in section 89 of the Indian Companies Act, 1913, in relation to the law of banking. This question arises in this way. The appellant, the Oriol Industries Ltd, (hereafter called the company), was incorporated on May 15, 1945 and it appointed as its managing agents Messrs. Poddar Chacko Co. Soon after its incorporation the company passed a resolution on May 21, 1945, whereby it decided to open an account with the respondent, the Bombay Mercantile Bank Ltd. (hereafter called the bank), and in accordance with the said resolution an account was opened with it on May 28, 1945. Twenty-eight cheques were drawn on this account aggregating the total amount of Rs. 28,882-13-0 during the-period between May 28, 1945, and July 31, 1945. These cheques were drawn by K. Poddar and M.J. Chacko in pursuance of the authority conferred on them by the company. On September 28, 1948, by its liquidator the company brought the present suit claiming to recover from the bank the said amount of Rs. 28,882-13-0. The case for the company as set out in the plaint was that the payment of the said amount had been made by the bank w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has misjudged the effect of the provisions of section 89 of the Indian Companies Act in relation to the conduct of the bank in the present case. That is how the principal question which falls for our decision is about the scope and effect of the provisions of section 89 of the Indian Companies Act. Before dealing with the said question of law it is necessary to dispose of a minor point raised by Mr. Andley. He contends that the cheques issued by K. Poddar and M.J. Chacko and honoured by the bank had not been issued in the form required by the resolution which gave them authority to operate on the company's account with the bank. The relevant resolution passed by the company provided that "the banking accounts of the company be opened with the bank and another bank and that the said banks be and hereby authorised to honour cheques, bills of exchange and promissory notes, drawn, accepted or made on behalf of the company by the managing agents, Messrs. Poddar Chacko Co., by both the directors of the managing agents firm, namely, Mr. Keshavdeo Poddar and Mr. M.J. Chacko and to act on any instructions so given relating to the account whether the same be overdrawn or not or relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andatory requirements authorised by the resolution cannot be accepted. That takes us to the principal question of law. In dealing with the said question it is first necessary to refer to section 26 of the Negotiable Instruments Act, 1881 (26 of 1881). This section provides that "every person capable of contracting, according to the law to which he is subject, may bind himself and be bound by the making, drawing, acceptance, endorsements, delivery and negotiation of a promissory note, bill of exchange or cheque." This section further provides, inter alia, that "nothing herein contained shall be deemed to empower a corporation to make, indorse or accept such instruments except in cases in which, under the law for the time being in force, they are so empowered." This section does not purport to make any provision of substantive or procedural law. The latter part of the section merely brings out that a company cannot claim authority to issue a cheque under its first part. The law in regard to the company's power to issue negotiable instruments has to be found in the relevant provisions of the Companies Act itself. We must, therefore, turn to section 89 of the said Act. Section 89 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the real name of the person liable on the bill. According to the Privy Council "sections 26, 27 and 28 of the Negotiable Instruments Act contained nothing inconsistent with the principles just set out, and there was nothing to support the contention urged before it that in an action on a bill of exchange or promissory note against a person whose name properly appears as a party to the instrument it is open either by way of claim or defence to show that the signatory was in reality acting for an undisclosed principal." This decision was no doubt given under section 27 of the Negotiable Instruments Act, but the principles enunciated in it apply with equal force to a negotiable instrument issued under section 89 of the Indian Companies Act. The inevitable consequence of this requirement is that wherever a negotiable instrument is issued without complying with the said requirement it would not bind the company and cannot be enforced against it. In The Bank of Bombay v. H.R. Cormack [1879] I.L.R. 4 Bom. 275 it was held by the Bombay High Court that in order to make a company liable on a bill or note it must appear on the face of such bill or note that it was intended to be drawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the company by the bank in its accounts has been improperly and wrongfully debited ? It would be noticed that the principle underlying section 89 which is a very healthy and salutary principle affords to the companies protection against claims made on negotiable instruments defectively or irregularly drawn ; but, when we deal with a dispute between a company and the bank of which it is a constituent it is difficult to extend the said principle. The said principle in terms is applicable only when a claim is made against a company on a negotiable instrument; in other words, it is only in the matter of enforcement of negotiable instrument against a company that the principle comes into play. It is, therefore, difficult to see how the principle enunciated in section 89 can be extended to a claim made by the company against the bank. In our opinion, therefore, the High Court was right in coming to the conclusion that section 89 cannot be invoked by the company against the bank in making the present claim. The decisions on which the company relied are all decisions in cases where a negotiable instrument was sought to be enforced against the company and had thus given rise to a caus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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