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TMI Blog1965 (1) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... efendant company on August 3, 1959, denying the hundi and the loan. The plaintiff filed the present suit on December 3, 1959, before the Small Cause Court, Calcutta. The trial court decreed the suit of the plaintiff in full with costs. The only contestant was the first defendant, the limited company. The acceptor did not appear. It is on record before the trial court, on the evidence of P.W. 1, Kishan Rathi, the plaintiff himself, that Naresh Chandra Mondal, director and the manager of the defendant-company, purchased the stamp for the defendant company in respect of the hundi, that Naresh wrote the hundi in his presence and affixed the company's rubber stamp on the hundi in his presence. On behalf of the defendant company, its director, Sambhu Nath Mondal, gave evidence. His evidence was that the hundi was not signed on behalf of the defendant company, that the account books of the defendant company, cash books and the balance-sheet showed that this money on the hundi, the sum of Rs. 1,000, never entered the till] of the company and even the rubber stamp was not of the defendant company. This Sambhu Nath Mondal is, however, a cousin of Naresh Chandra Mondal, the maker and drawer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiff, there was nothing to show that this money was borrowed in accordance with section 292 of the Companies Act. On that finding the Full Bench of the Small Cause Court came to the conclusion that Naresh Chandra Mondal, the manager and director of the limited company had no legal authority to borrow money to bind the company. Therefore, the Full Bench set aside the trial court's decree and dismissed the plaintiff's suit. The plaintiff now has applied under article 227 of the Constitution. The judgment and order of the Full Bench of the Presidency Small Cause Court cannot be sustained. It is based on a number of assumptions which are wrong in law and erroneous. The Full Bench failed to realise that the onus of proving that there was no resolution was upon the defendant company and not upon the plaintiff. The minute books and the book of resolution of the board of directors are books of the company and are not open to strangers and outsiders. This was also within the special knowledge of the defendant company. If the defendant company was trying to prove that its manager and director had no authority to borrow money, then it was for the company to prove from its own books of minu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board :--......... (e) the power to make loans." Reading section 292(1) of the Companies Act and articles 61 and 62 of the defendant company, it will be quite clear that they are not inconsistent. The articles do not say anything about the procedure by which the board of directors will act.) They grant the power to the directors to borrow money on a bill of exchange. The articles deal only with the director's powers to borrow on a promissory note or a hundi. They do not enjoin any particular procedure to exercise that power to borrow. The first error of the Full Bench of the Small Cause Court was, therefore, to hold that these articles are repugnant to section 292(1) of the Companies Act. If the articles had stated that the board of directors could exercise that power to borrow money without a resolution at a meeting of the board, then, of course, that provision would have been repugnant to this section. But articles 61 and 62 do not say so in the present case. The mistake of the Full Bench lay in confusing the provision for power with the provision of the procedure fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the company's balance-sheet marked Ext. D of 1958-59 cannot prejudice an independent third party stranger-creditor who is advancing money to the company on a bill of exchange. If a director or a manager with ostensible authority under the memorandum and the articles of association of the company practices a fraud upon his own company by not placing the money in the coffer of the company, that cannot defeat a bona fide creditor's claim against the company. This raises the important question of law relating to the internal management of the company. I shall presently deal with the law on the subject, but, before doing so, some reference to further clauses in the articles and the memorandum of the company will clear the ground. The first point to emphasise in this respect is that the director's power to borrow money for the company on a hundi or a promissory note or a bill of exchange is plainly recognised both in the memorandum and in the articles. I have already cited article 61 of the company. I shall refer here to clause 3 (h) of the memorandum specifying the objects of the company which include, inter alia, the object of-- "Borrowing or raising money in such manner as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r who, consistently with the company's articles, might have been, but who was not in fact authorised to sign bills or hundis is, upon the principle of the Royal British Bank v. Turquand [1856] 6 El and B1 327, entitled to assume that the director was "acting under its authority" when he signed the bill, and to recover on the bill or hundi against the company accordingly. If any authority is needed for the proposition, it is Dev v. Pullinger Engineering Co. [1921] 1 KB 77, dissenting from Premier Industrial Bank Limited v. Carltion Manufacturing Co. Limited & Crabtree [1909] 1 KB 106. In this connection a more recent decision in British Thomson-Houston Co. v. Federated European Bank Limited [1932] 2 KB 176 ; [1933] 3 Comp Cas 106 may also be seen. No doubt, if the bill is signed by a local manager or other persons who cannot properly be assumed to have, and is not held out as having authority to sign bills for the company, then the position is different, as pointed out in Kreditbank Cassel v. Schenkers [1927] 1 KB 826 . No doubt, again, if a person has not, in fact, knowledge of the existence of the power of delegation contained in the company's articles, he cannot rely upon its sug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at page 222 and in the more recent decision of the House of Lords in Morris v. Kanssen [1946] A.C. 459 ; 16 Comp. cas. 186 . It is exactly here that the Full Bench of the Small Cause Court went wrong in not realising that a bona fide creditor-stranger who lent money on a hundi or a bill of exchange has a right to assume as against the company that all requirements of the internal management have been duly complied with, such as, necessary resolutions are there on the directors book to make them regular and that the directors have acted according to the procedure enjoined in their board meeting. In this connection reference may also be made to the same edition of Buckley on the Companies Acts at page 83 in support of the view expressed above. There is also another relevant section of the Companies Act which the Full Bench of the Small Cause Court failed to notice. That is section 47 of the Companies Act. That section lays down that a bill of exchange, hundi or a promissory note shall be deemed to have been made, accepted, drawn or endorsed on behalf of the company if drawn, accepted, made or endorsed in the name of, or on behalf of, or on account of, the company, by any person ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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