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TMI Blog1961 (4) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Indian Bank Ltd., Madras." It is common ground that no debentures were ever issued by the company. The first respondent was paid various amounts aggregating to Rs. 7,428. Apparently, the affairs of the company were not as satisfactory as they should have been and there was an attempt to put things into some order as a result of which we find a memorandum of agreement in regard to the affairs of the company (exhibit R. 4) which is dated December 10, 1950. The parties to this agreement were some of the directors of the company and the managing agents. None of the creditors of the company was a party. Paragraph 6 of the memorandum sets out the amounts due by the company and among the items is included the debt due to the first respondent. It is thus set out : "Rs. 23,445 besides interest at 12 per cent, per annum as from December 1, 1950, due as on this date from the company on proposed debenture account as per its books to Sri A. MK. MK. Karuppan Chettiar" The arrangement to pay off the creditors is set out in paragraph 8. It is not necessary to state that arrangement, as nothing came out of it. At a meeting of the board of directors held on December 12, 1950, it was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting of the board of directors at which the said memorandum of agreement was read and simply recorded. There was no formal resolution of the board of directors adopting the agreement. The minutes contained the following note : "It is stated and recorded that payment of amount due to Sri A. MK. MK. Karuppan Chettiar stands on a different footing from the other debts of the company. This amount was taken by the managing agents on behalf of the company on the distinct condition that the loan be treated as a first mortgage loan or that first mortgage debentures from the amount due should be given to the said creditor. Nevertheless, the creditor being willing to receive cash forthwith in repayment and in view of the assurance of early payment of party C (the appellant before us) the question of creating a charge in respect of A. MK. MK. Karuppan Chettiar's debt may be deferred for the present." As already mentioned, no debentures were ever issued by the company, nor was any charge specifically created in favour of the first appellant. In April, 1954, it was realised that the company could no longer carry on business and on May 30, 1954, the company went into voluntary liquidatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , on the net sale proceeds of the company's assets subject to the prior claims of the Government of Madras and the Municipality of Trivellore. The learned judge held that the amount of Rs. 20,000 was advanced to the managing agents on behalf of the company by the first respondent on the distinct understanding that the loan would be treated as a first mortgage loan or a first mortgage debenture for the amount due. The learned judge overruled the objection raised on behalf of the appellant that the managing agents had no authority to enter into an agreement to grant debentures, because there was no resolution of the directors authorising the managing agents to raise any money by the issue of debentures. The learned judge referred to clause (38) of the memorandum of association of the company and article 82 of the articles of association and the managing agency agreement, in particular, to clauses ( f ), ( g ) and ( h ) of paragraph 5 and came to the conclusion that the managing agents had the power to raise money on such security as may be necessary and they would, therefore, have also the power and authority to make the promise, which they did in their receipt passed to the first re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors, and within the limits fixed by them, a power to invest the funds of the company, and any delegation of any such power by a company to a managing agent shall be void." He contended that this provision, which is explicit and mandatory, makes the promise, which might be contained in the receipt passed by the managing agents legally unenforceable. The first respondent, even if he had brought a suit for specific performance, would be met with this bar on the powers of the managing agents and the court could not and would not have directed the managing agents to do something, which is specially prohibited by the above provision, section 87G. Learned counsel for the first respondent was compelled to concede that this contention was unassailable, but he attempted to get over this difficulty by contending that the company had promised to issue debentures and had thus either ratified the promise made by the managing agents, or had undertaken a fresh obligation. The facts, however, do not support this contention of the first respondent. It is true that in 1952, there was a tripartite agreement, which provided for the issue by the company of debentures, some of which were to be allotte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent. There is no evidence that any of these resolutions was communicated to the first respondent and that the first respondent agreed to the several proposals made from time to time. We have seen that at one time the company only authorised the execution of a promissory note. There was no mention of any charge or debenture. Subsequently, there was a proposal to issue debentures, but nothing came out of that proposal. On the facts and circumstances set out above, we are clearly of opinion that the first respondent did not obtain a charge, either by way of debenture or otherwise, to secure the amount due to him. If the first respondent were to take up his stand on the tripartite agreement, it cannot be overlooked that the same agreement provided pari passu for the issue of debentures to other creditors as well for total claims aggregating to about Rs. 1,25,000. That would have the effect of destroying the first respondent's claim to a first charge in the net sale proceeds of the company to the exclusion of other creditors. The learned judge disposed of this matter by observing that if the other creditors of the company are also entitled to similar rights, it was for them to pre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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