Kotla Venkataswamy v. Chinta Ramamurthy AIR 1934 Mad. 579

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CURGENVEN, J. – The plaintiff, who appeals, sued to enforce a mortgage bond for Rs.
1,000 purporting to have been executed on behalf of a company calling itself the South Indian
Agricultural and Industrial Improvement Co. Ltd., to one Venkatamma, who assigned her
interest to the plaintiff. The company subsequently went into voluntary liquidation and the
mortgaged property was sold and eventually purchased by defendant 4. The mortgage deed
was signed by the Working Director and by the Secretary to the Company (defendants 1 and
2). The plaint avers that the
“debt was regularly contracted in accordance with the powers and authority
possessed by the said director and secretary under the articles of the said company
and the special resolutions passed from time to time.”
Defendant 4 in his written statement says that he does not admit that the document was
executed by and on behalf of the company, defendants 1 and 2 not being competent to
contract loans, much less to charge the property of the company. Objection is taken to the
form of this statement, the contention being that it is not enough to say that a fact is not
admitted in order to put the plaintiff to the proof of it and an English case Rutter v. Tregent
[12 Ch.D. 758] is cited. But I have not been shown what are the terms of the rule which was
in question in that case, and it is clear that O. 8, R. 5, C.P.C. provides for the traversal of a
statement in the plaint in this form. There is a decision to this effect in Rajagopalachariar v.
Bhashyachariar [1924 Mad. 838].
The main point in dispute is whether the mortgage bond was validly executed so as to
make the company liable. Both the Courts below have answered this in the negative. It has
been sought to raise two further questions here assuming that it was not so valid. It is said in
the first place that the company subsequently ratified the instrument and secondly, that if the
money was applied to the company’s purposes the creditor would have an equitable charge
for the debt upon the company’s property. Neither of these two matters was made the subject
of an issue at the trial. The additional Subordinate Judge, as he says at the end of the para 9
of his judgment, thought that he was concerned only with the validity and the binding nature
of the mortgage deed, and although some traces of these alternative positions are to be found
in the plaint, it is clear that no issues were sought in regard to them. Whether or not the
subsequent action of the company amounted to ratification is clearly a question of fact. It is
also a question of fact whether defendant took a sale of the property in such circumstances as
would qualify the plaintiff to take advantage as against him of any equitable charge which
might exist over it. Since no satisfactory explanation is forthcoming for the failure to bring
these questions to trial, I do not feel justified in entertaining them in second appeal. Art. 15 of
the Company’s Articles of Association provides as follows:
“All deeds, hundies, cheques, certificates and other instruments shall be signed by the
Managing Director, the Secretary and the working Director on behalf of the
Company, and shall be considered valid.”
The suit document, as has been said is signed only by the Secretary and the Working
Director, and not also by the Managing Director. It is said, but not very satisfactorily proved,

that the Managing Director had been dismissed and was under prosecution on a criminal
charge at the time the document was executed. The mortgage in fact recites that part of the
money was wanted for the costs of this case. The mere fact however that the services of the
Managing Director were no longer available to the Company will not make execution by the
remaining officers any the more valid. It is suggested that this requirement in the Articles of
Association relates only to the formal process of signing and not to the power of sanctioning
exercisable on behalf of the company. I do not agree with this. In the absence of any specific
provision, S. 67, Companies Act then in force (6 of 1882) provides that a
“contract by law required to be in writing signed by the parties may be made on
behalf of the company in writing signed by any person acting under the express or
implied authority of the company.”
and R. (55) of the rules framed under the Act for regulation of a limited company (applicable
in the absence of specific rules made by the company itself) vests such a power in the
directors. Unless therefore Art. 15 is intended to authorize the three officers named to
execute deeds on behalf of the company that power must reside only in the body of directors
as a whole. I have no doubt therefore that the Secretary and the Working Director by
themselves were not legally competent to execute the mortgage deed. Some attempt appears
to have been made to show that the company had specially authorized these two officers to
borrow money, but the learned District Judge has found this not proved and this finding being
one of fact is final.
It is further argued that even if the execution of the bond was marked by irregularity, yet
the mortgagee is entitled to enforce it upon the general principle that there was every reason
to believe that the officers who executed it had authority to do so. This point has been
discussed by the learned District Judge and I think the view which he has taken of the law is
correct. There are undoubtedly cases in which the principle just referred to has been
recognized, the leading case being Royal British Bank v. Turquand [119 E.R. 474]. In that
case as between the directors and the share-holders the directors exceeded their authority, but
this was not known to the plaintiffs and no illegality appeared on the face of the bond, nor
were the share-holders prejudiced. If an illegality does appear on the face of the bond, the
plaintiff will not be thus protected. He must be taken to have read the Companies Act and the
Articles of Association of the company he is dealing with, and thus to have had constructive
notice of their contents.
Now it is evident in the present case that if the mortgagee had so informed herself she
would have discovered that a deed such as she took requires execution by the three specified
officers of the company and she would have refrained from advancing her money upon a
bond executed as is the suit bond. In place of the vague recital of authority which the
mortgage bond contains reference would properly have been made to the article empowering
the signatories to act in this respect. Notwithstanding therefore that the mortgagee may have
acted in good faith and that her money may have been applied to the purposes of the company
I find it impossible to differ from the view taken that the bond is nevertheless invalid, and that
the plaintiff cannot recover upon it, and since this is the only substantial issue which was
properly tried, the only course was, I think, to dismiss the suit. The second appeal is
dismissed with costs of respondent 4. The memo of objections is dismissed.