The Judgment of the Court was delivered by
Varadaraja Iyengar, J.:— This second appeal is by 1st defendant and arises out of suit on a hypothecation-bond Ex. I dated 17-12-1102 executed by him for securing an overdraft account up to Rs. 420 with the 1st plaintiff, the Keraleeya Banking Co. Ltd., Tiruvalla, represented by its Managing Director Varki Thomas. According, to the plaint, an amount of Rs. 630 made up of the principal sum of Rs. 420 advanced under this account along with interest amounting to one half the principal had accrued due. This amount had been paid to the Bank by the 2nd plaintiff Thomas Alexanders as per Ex. G in 1121 and it was prayed, therefore, that decree may be passed in favour of the 2nd plaintiff.
2. The 1st defendant contested the suit mainly on ground of bar of limitation and also discharge by payment long previously on 7-4-1118 to the 4th defendant, who was a prior assignee of the bond from other earlier Managing Director Punnoose Oommen. Both the Courts below found against limitation and we are not concerned with it any further. On the plea of discharge the Courts below differed among themselves as to whether the 1st defendant had at all made actual payment as claimed of Rs. 325 in satisfaction to the 4th defendant and bona fide obtained Ex. I (a) endorsement on 7-4-1118. But they agreed that the assignment under Ex. II dated 18-10-1116 by Punnoose Oommen of Ex. I bond in favour of the 4th defendant was without proper authority and that therefore Ex. I was still enforceable against 1st defendant. In the result, both; the Courts decreed the suit in favour of the 2nd plaintiff as prayed for and hence this appeal by the 1st defendant as abovesaid. It should be added that the 1st plaintiff bank was since wound up and is being represented in this Court by the Court Liquidator.
3. The lack of authority in Punnoose Oommen to assign, relied on by the 1st plaintiff bank, was based on Ex. A resolution of the Board of Directors of the 1st plaintiff Bank on 11-10-1116, viz., a week before the assignment Ex. II recording the resignation of Punnoose Oommen from his office of Managing Director of the Bank and the appointment of Varki Thomas to that office instead. Varki Thomas was charged under the resolution, with the duty of getting extension till 20-10-1116, to make certain returns and himself raise necessary money and pay the filing fees before the Registrar of Joint Stock Companies within that time and thereafter take all the records, etc., from Punnoose Oommen.
4. The Bank's case was that Punnoose Oommen colluded with the 4th defendant who was another Director of the Bank and further a party to Ex. A resolution, to withhold Ex. I bond from the new Managing Director, Varki Thomas, with a view to their mutual gain and at the expense of the Bank, and so Ex. II assignment was brought into existence on 18-10-1116 for the low consideration of Rs. 200 in contrast to the Rs. 630 already accrued due thereon. It was based on those circumstances, that the Courts below had found against the 1st defendant.
5. Mr. Kuruvilla, learned counsel, appearing for the 1st defendant — appellant, urged before me that Punnoose Oommen's resignation cannot be held to/have taken effect by 18-10-1116, viz., the date of Ex. II assignment in the absence of positive evidence that Varki Thomas had by that time fulfilled his obligation under Ex. A resolution to raise money and pay the filing fees to the Registrar of Joint Stock Companies. Alternatively and assuming that the resignation took elect on 11-10-1116 the 1st defendant as a stranger acting bona fide was entitled to take it that Punnoose Oommen continued even thereafter to be the Managing Director and so had proper authority when he made the assignment Ex. II on 18-10-1116.
6. In either case the discharge granted under Ex. I (a) by the assignee 4th defendant was enough to absolve the 1st defendant from further liability under Ex. I. Taking up the main contention it appears clear from Ex. A terms that Punnoose Oommen had resigned his office as and from 11-10-1116, viz., the date of the resolution itself. No doubt, Varki Thomas had to pay the filing fees to the Registrar and thereafter get the records of the Bank from Punnoose Oommen but that did not mean that Punnoose Oommen continued in office until such payment.
7. Indeed Varki Thomas could not, as contemplated by Ex. A resolution, make necessary application before the Registrar for extension of time unless he was already the Managing Director. Further Ex. A resolution bespeaks the urgent necessity to meet certain threat of action by the Registrar of Joint Stock Companies on account of the default to submit returns and pay filing fees on the part, apparently, of the Managing Director. It is hardly likely that in such circumstances Ex. A was recording only a contingent and not an actual resignation. There can be no doubt, therefore, that Punnoose Oommen had ceased to be the Managing Director as and from the very date of the resolution. The argument of learned counsel on this aspect has to go.
8. Coming to the alternative ground, it is no doubt true that where a company is regulated by a memorandum and articles registered in some public office, persons dealing with the company are bound to read the registered documents and to see that the proposed dealing is not inconsistent therewith but they are not bound to do more. They need not enquire into the regularity of the internal proceedings — What Lord Hatherly called ‘indoor management’., See Royal British Bank v. Turquand, (1856) 6 El & Bl 327 (A), Ram Baran Singh v. Muffassil Bank Ltd., AIR 1925 All 206 (2) (B), Dehra Dun Mussorie Electric Tramway Co. Ltd. v. Jagmandar Das, AIR 1932 All 141 (C), Pratt, T.R (Bombay) Ltd. v. E.D Sasson & Co. Ltd., AIR 1936 Bom 62 (D).
9. So if there is a Managing Director and authority in the articles for the Directors to delegate their powers to him, a person dealing with him may assume that he has power to do what he purports to do provided that it is within the ordinary duties of a Managing Director. All he has to see is that the Managing Director might have power to do what he purports to do. See Biggerstaff v. Rowlatt's Wharf Ltd., (1896) 2 Ch 93 (E). But the rule cannot apply where the question, as here, is not one as to the scope of the power exercised by an apparent agent of the company, hut is in regard to the very existence of the agency.
10. For, Punnoose Oommen had to be found to have ceased to be Managing Director altogether when he executed Ex. II, assignment. Nor can the 1st defendant appeal to this rule, because he has not been dealing with Punnoose Oommen in his capacity as. Managing Director or at all his relations were with the 4th defendant who himself had fraudulently dealt with Punnoose Oommen in getting at the assignment. The fact stressed by learned counsel for the appellant, in this connection, that Punnoose Oommen passed on Ex. I original bond away from the Bank's custody and the Bank allowed Ex. I to so remain until 1st defendant got it discharged does not, in my judgment, affect the matter. Learned counsel for the respondent says in this connection that the 1st defendant cannot be allowed to invoke the Rule, also because he could not be said to have acted bona fide.
11. For, apart from the truth of 1st defendant's own; payment under Ex. I (a) to the 4th defendant, which was still being questioned, the 1st defendant could not have been unaware of the suspicious character of Ex. II from the very inadequacy of its consideration. There is a good deal of force in this contention but it is unnecessary to consider it in view of the conclusion I have already arrived at against the 1st defendant. In the result the second appeal fails and it is dismissed with costs.
K.S.B
12. Appeal dismissed.