# Governor·General in Council v. Musaddi Lal Shah]. January JI - **Citation:** [1961] 3 S.C.R. 652 - **Court:** Supreme Court of India - **Decided:** 1961 - **Case number:** Civil Appeal No. 221of1956 - **Bench:** P. B. Gajendragadkar, K. N. Wanchoo, K. c. DAS GUPTA - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/governor-general-in-council-v-musaddi-lal-shah-january-ji-2064 - **Pages:** 11 ## Headnote Bank-Payment in company's account-Cheques drawn by authorised agents without so describing themselves or stating as on behalf of the company-Payment if wrongfully made-Indian Companies Act, I9I3 (VII of I9IJ), s. 89. The Managing Agents of the appellant company withdrew certain sums of money from its account with the respondent (1) (1918) I.L.R. 41 Mad. 871. (5) A.LR. 1923 Cal. 397. (2) (1921) !.L.R. 2 Lah. 133. (61 (1926) I.L.R. 5 Pat. 106. I . ) I (3) [1954] 56 Bom. L.R. 150. (71 (19531 I.L.R. l All. 64. I~ (4) I.L.R. [1958) A.P. 323. (8) (1929) I.L.R. B Pat. 545· 3 S.C.R. SUPREME COURT REPORTS 653 Bank, which the company had by a resolution authorised the r96r Managing Agents to operate on. The Managing Agents had no other account with the said Bank. The company brought the Oriol Industries suit, out of which the present appeal arises, against the Bank for Ltd. recovery of the said amounts on the ground that the cheques v. issued by the Managing Agents had been wrongfully honoured Bombay Mmantile by the Bank in that they were signed by them without describBank Ltd. ing themselves as Directors of the Managing Agents firm and on behalf of the company, as required by the resolution. The trial Judge decreed the suit except with regard to a part of the claim which he found to have actually been received by the company. The appeal court dismissed the suit holding that the Bank had paid in good faith and that the company was not entitled to rely on s. 89 of the Indian Companies Act. Held, that the court of appeal' was right in holding that s. 89 of the Indian Companies Act could not be invoked by the appellant in the present case. There can be no doubt that before a negotiable in·strument can be enforced against a company under s. 89 of the Indian Companies Act, it must on the face of it show that it was drawn, made, accepted or endorsed by the company, and this may be done either by showing the name of the company itself on the instrument, or by statement of the person making the instrument that he was doing so on behalf of the company. Sadasuk fanki Das v. Sir Kishan Pershad, (1919) I.L.R. 46 Cal. 663, applied. •The Bank of Bombay v. H. R. Cormack, (1880) I.L.R. 4 Born. 275 and Miles' claim, L.R. 9 Ch. App. 635, referred to. But the said principle is applicable only to the claim made against a company on a negotiable instrument and cannot be extended to a dispute between a bank and its constituent where the claim is not so based and proceeds on the basis that in honouring the cheques wrongfully drawn the bank acted improperly. Mahony v. East Holiford Mining Co., (1875) 7 Eng. & Irish Reports 869, referred to. Held, further, that the object of the resolution as well as its effect was merely to conform to the requirements of s. 89 of the Indian Companies Act, 1913, and not to prescribe any condition precedent independently of that section. ## Text Governor·General in Council v. Musaddi Lal Shah]. January JI. 652 SUPREME COURT REPORTS [1961) of the Limitation Act upon ss. 72. and 77 of the Railways Act and to hold that a suit 'for compensation for loss because of non-delivery of goods does not fall withins. 77. The view we have expressed is supported by a large volume of authority in the c.ourts in India. -for instance The Madras and Southern M ahratta Railway Co., Ltd. v. Haridoss Banmalidoss ('), Hill Sawyers and Co. v. Secretary of State('), Martah Ali v. Union of India('), Union of India v. M itayagiri Pullappa (' ), Assam Bengal Railway Co., Ltd. v. Radhika Mohan Nath(') and Bengal Nagpur Railu;ay Co. Ltd. v. Hamir .Wull Chhagan Mull('). The view expressed to the contrary in the Allahabad High Court in Governor-General in Council v ~ Mahabir Ram (7) and by the Patna. High Court in Jais Ram Ramrekha Das v. G. I. P. Railway('), is in our judgment erroneous. This appeal will therefore be allowed and the respondent's suit will stand dismissed. As the Union of India was permitted to appeal for obtaining the decision of this Court which may settle the conflict of views even though the amount involved is small, we think that it is just and proper that there should be no order as to costs throughout. Appeal allowed. THE ORIOL INDUSTRIES LTD. v. THE BOMBAY MERCANTILE BANK LTD. (P. B. GAJENDRAGADKAR, K. N. WANCHOO and K. c. DAS GUPTA, JJ.) Bank-Payment in company's account-Cheques drawn by authorised agents without so describing themselves or stating as on behalf of the company-Payment if wrongfully made-Indian Companies Act, I9I3 (VII of I9IJ), s. 89. The Managing Agents of the appellant company withdrew certain sums of money from its account with the respondent (1) (1918) I.L.R. 41 Mad. 871. (5) A.LR. 1923 Cal. 397. (2) (1921) !.L.R. 2 Lah. 133. (61 (1926) I.L.R. 5 Pat. 106. I . ) I (3) [1954] 56 Bom. L.R. 150. (71 (19531 I.L.R. l All. 64. I~ (4) I.L.R. [1958) A.P. 323. (8) (1929) I.L.R. B Pat. 545· 3 S.C.R. SUPREME COURT REPORTS 653 Bank, which the company had by a resolution authorised the r96r Managing Agents to operate on. The Managing Agents had no other account with the said Bank. The company brought the Oriol Industries suit, out of which the present appeal arises, against the Bank for Ltd. recovery of the said amounts on the ground that the cheques v. issued by the Managing Agents had been wrongfully honoured Bombay Mmantile by the Bank in that they were signed by them without describBank Ltd. ing themselves as Directors of the Managing Agents firm and on behalf of the company, as required by the resolution. The trial Judge decreed the suit except with regard to a part of the claim which he found to have actually been received by the company. The appeal court dismissed the suit holding that the Bank had paid in good faith and that the company was not entitled to rely on s. 89 of the Indian Companies Act. Held, that the court of appeal' was right in holding that s. 89 of the Indian Companies Act could not be invoked by the appellant in the present case. There can be no doubt that before a negotiable in·strument can be enforced against a company under s. 89 of the Indian Companies Act, it must on the face of it show that it was drawn, made, accepted or endorsed by the company, and this may be done either by showing the name of the company itself on the instrument, or by statement of the person making the instrument that he was doing so on behalf of the company. Sadasuk fanki Das v. Sir Kishan Pershad, (1919) I.L.R. 46 Cal. 663, applied. •The Bank of Bombay v. H. R. Cormack, (1880) I.L.R. 4 Born. 275 and Miles' claim, L.R. 9 Ch. App. 635, referred to. But the said principle is applicable only to the claim made against a company on a negotiable instrument and cannot be extended to a dispute between a bank and its constituent where the claim is not so based and proceeds on the basis that in honouring the cheques wrongfully drawn the bank acted improperly. Mahony v. East Holiford Mining Co., (1875) 7 Eng. & Irish Reports 869, referred to. Held, further, that the object of the resolution as well as its effect was merely to conform to the requirements of s. 89 of the Indian Companies Act, 1913, and not to prescribe any condition precedent independently of that section. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 221of1956. Appeal from the judgment and decree dated August 5, i955, of the Bombay High Court in Appeal No. 128/X of 1954. S. N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the appellants, 654 SUPREME COURT REPORTS [I96ll r96r A. V. Viswanatha Sastri ,and Tamiharul Brijmohan Oriol Industries Lal, for the respondents. Ltd. 1961. January 31. The Judgment of the Court was v. delivered by Bombay M ercantilc Bank Ltd. GAJENDRAGADKAR, J.-This appeal which has come . -- to this Court with a certificate issued by the Boiμbay G•Jendragadkar J. High Court raises for our decision a short and interesting question about the scope and effect of the provisions contained in s. 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 a.s its managing a.gents M/s. 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, th.e Bombay Mercantile Ba.nk, 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:dratvn by K. Podda.r and M. J. Chacko in pursuance of the authority conferrad on them by the company. On September 28, 1948, by, its liquidator the company brought the p~esent 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 ma.de by the bank wrongfully and negligently and the amount drawn under the said cheques had been wrongfully debited to the company in its account kept by the bank. It appears that the resolution for winding up of the company was held by the court to be null and void, and so the plaint was subsequently amended whereby the name of the Iiquida.tl?r was struck out and the suit then purported to be one which was instituted by the company itself. The plea. raised by the company that the cheques in question had been negligently and wrongfully honoured by the bank was 3 S.C.R. SUPREME COURT REPORT& 655 seriously disputed by the bank in its statement. Mr. 1961 Justice Tendolkar, who tried the suit on the Original Oriol Industri" Side of the Bombay High Court, however, upheld the Lid. plea raised by the company and came to the conv. . clusion that the cheques had been wrongfully Bombay Mercanl•I• honoured. Even so, Mr. Justice Tendolkar held that Bank Lid. out of the total amount fo. dispute an amount of Gajendragadkar J. Rs. 8,882-13-0 had been actually received by the company and so on equitable grounds he rejected the company's claim in regard to the said amount. The company's claim was, however, decreed in respect of the balance of Rs. 20,000. The decree thus passed by Tendolkar, J. was challenged by the bank in its appeal, whereas the rejection of the company's claim in respect of Rs. 8,882-13-0 by the trial judge gave rise to crossobjections by the company. The Court of Appeal has reversed the finding of Tendolkar, J., and has held that the bank was not liable to repay any amount to the company since it had accepted and honoured the cheques issued on it in good faith. It may be stated at this stage that the plea of negligence which had been originally urged by the company in its plaint was expressly given up at the trial. Since the Appeal Court accepted the bank's case on the principal question of law it did not think it necessary to consider the question of limitation or the question about the appli· cability of the equitable doctrine on which the trial judge had relied. In the result the appeal filed by the bank was allowed, the cross-objections preferred by the company were rejected, and the suit filed by the company was dismissed with costs. The company then moved the High Court for a certificate, and. on a certificate being granted it has come to this Court ; and on its behalf Mr. Andley has urged that in coming to the conclusion that the company's claim was unsustainable the Appeal Court has misjudged the effect of the provisions of s. 89 of the Indian Companies Act in relation to the conduct of the bank in the present oase. That is how the principal question which fa.lls for our decision is a.bout the scope and effect of the provisions of s. 89 of the Indian Companies Act, 84 656 SUPREME COURT REPORTS [1961) r96r Before dealing with the said question of law it is necessary to dispose of a minor point raised by Mr. Oriol I ndust1'i1s A di H Ltd n ey. e contends that the cheques issued by v. · K. Poddar and M. J. Chacko and honoured by the Bomboy Mercantile bank had not been issued in the form required by the Bank Ltd. resolution which gave them authority to operate on . -- the company's aacount with the bank. The relevant Ga;endragadkar f. 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 M/s. 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 to the transactions of the company." The argument is that two conditions had to be satisfied before the bank could accept a cheque issued under this resolution ; the cheque had to be signed by both the Directors of the Managing Agents firm, and it bad to be drawn on behalf of the company. In point of fact, all the cheques have been signed by the two individuals without describing themselves as Directors of the Manging Agents firm and without showing that they had drawn them on behalf of the company. These defects, it is urged, made the cheques irregular and inconsistent with the mandatory requirements of the resolution, and the bank was therefore not justified in honouring the said cheques. In our opinion, this argument is unsound. On a fair and reasonable construction of the resolution it is difficult to uphold the contention that the resolution required .the drawers of the cheques to specify on each cheque that they were made or drawn on behalf of the company. The object of the resolution as well as its effect merely was to conform to the requirements of s. 89 of the Indian Companies Act to which we will presently refer. It cannot be said that the resolution required that the drawers of the cheques had to comply with the said condition apart from the requirements of s. 89; and so it would be unre11osonable t I 3 S.C.R. SUPREME COURT REPORTS 657 to treat the said requirement as a condition prescribed z96z by the resolution independently of s. 89. Oriel Indw:ries In this connection the subsequent resolution passed Lid. by the comp!l.nY is significant. It appears that on v. October 22, 1945, a ·resolution was passed by theBombay M"'anlile company authorising M. J. Chacko to sign cheques Bank Lid. for the company, and when thi~ resolution was com- -- municated to the bank it was told that the cheques on Gajendragadkar J. behalf of the company would thereafter be signed as: " For and on behalf of the Oriol Industries Limited, For .Poddar Chacko & Co."; in other words, by this communication the bank was told that it is. only chcqu€S signed by M. J. Chaeko in the manner specified in the communication that· the bank should honour. This communication affords an eloquent contrast to the communication made by the company to the bank in regard to the earlier resolution by which M/s. Poddar and Chacko were authorised to issue cheques·;on its behalf. Therefore, in our opinion, the argument that the impugned cheques accepted by the bank were inconsistent with the specific mandatory 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 s. 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 pro'f'ision 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 rillevant provisions of the Companies Aot 658 SUPREME COUR1' REPOR1'S [1961] z96z itself. We must, therefore, turn to s. 89 of the said . Act. Oriol lndust,i1s Ltd. Section 89 provides that " a bill of exchange, hundi v. or promissory note shall be deemed to have been Bombay Mercantile made, drawn or accepted or endorsed on behalf of a Bank .Ltd. company if made, drawn, accepted or endorsed in the G . d -~k 1 name of, or by or on behalf of, or on account of, the •J•• raga "' • company by· any person acting under its authority express or implied." It is clear that in order that a company may be bound by a negotiable instrument purporting to have been issued on its behalf two conditions must be satisfied; the instrument must be drawn, made, accepted or endorsed in the name of or by or on behalf of or on account of the company, and the person who makes, draws, endorses or accepts the instrument must have the authority given to him by the company on that behalf. This authority may be either express or implied. There is thus no doubt that before a company can be bound by a negotiable instrument one of the essential conditions is that the instrument on its face must show that it has been drci.wn, made, accepted or endorsed by the company. This may be done either by showing the name of the company itself on the instrument, or by the statement of the person making the instrument that he is doing so on behalf of the company. In other words, unless the plain tenor of the negotiable instrument on its face satisfies the relevant requirement the instrument cannot be va:lidly treated as an instrument drawn by the company. This position is not disputed. The importance and significance of the said requirement can be illustrated by reference to a decision of the Privy Council which had occasion to consider a similar requirement under s. 27 of the Negotiable Instruments Act. The said section provides that "every person capable of binding himself or of being bound, as mentioned in Section 26, may so bind himself or be bound by a duly auU!orised agent acting in his name." In Sadasuk Janki Das v. Sir Kish.an Pershad (1) the Privy Council held that the name of the person or the firm to be charged upon a negotiable document should be stated clearly on the face or on (1) (1919) I.L.R. •6 Cal. 663. t I ., I I 3 s.c.R. SUPREME COURT REPORTS 659 the back of the document so that the responsibility is '96' made plain and can be instantly recognised as the Oriol 1'•4..,1,u, document passes from hand to hand. It is not sufficiLiil. ent that the name of the principal should be in some v. way disclosed; it must be disclosed in such a way thatBomb•.l' Mm•.Uilfi on any fair interpretation of the instrument his name Banh Lid. is the ~ea! name of. the perso.n liable on the bill. " G•j•n