Borrowing powers and limitation in debt recovery: fixed-date deposits, ineffective acknowledgments, and no Section 14 exclusion

A company may borrow money for the business purpose authorised by its objects and borrowing clause, including from a director, provided the director makes full disclosure and the transaction remains fair. A deposit payable on a fixed date is not treated as a demand deposit under Article 60; the ordinary limitation period for money lent applies instead. Neither the board resolution nor the balance sheets operated as valid acknowledgments because they were ineffective and not properly proved as adopted accounts, so the claim remained time-barred. Section 14 did not exclude time because a winding-up petition based on inability to pay debts is not the same cause of action as a suit for recovery of a specific debt.

---

---

Issues: (i) Whether the company was authorised to borrow money for advancing it to traders and whether it could borrow from one of its own directors; (ii) Whether the claim was within limitation under Article 60 of the Limitation Act or saved by acknowledgment and balance sheets under Section 19 of the Limitation Act; (iii) Whether the winding-up application attracted Section 14 of the Limitation Act.

Issue (i): Whether the company was authorised to borrow money for advancing it to traders and whether it could borrow from one of its own directors.

Analysis: The objects clause and borrowing clause empowered the company to raise money for the purpose of advancing it to traders engaged in the cotton business. The company's power to borrow was therefore not ultra vires merely because the borrowing was for that business purpose. A company could also borrow from a director, but the director stood in a fiduciary position and had to make a full and frank disclosure of his interest. The transaction had to be fair and proper and the director could not take undue advantage of his position.

Conclusion: The borrowing was within the company's powers and borrowing from its managing director was not unlawful per se.

Issue (ii): Whether the claim was within limitation under Article 60 of the Limitation Act or saved by acknowledgment and balance sheets under Section 19 of the Limitation Act.

Analysis: Article 60 applied only to a deposit payable on demand. The receipt relied upon showed a fixed deposit payable on a fixed date and not on demand, so the suit was governed by the ordinary limitation period for money lent. The board resolution did not amount to an acknowledgment of liability, and in any event it was too late to extend limitation. The balance sheets also did not operate as acknowledgments because their filing and proof were defective, and the documents were not proved as validly adopted accounts. The suit was filed after expiry of the limitation period.

Conclusion: The claim was barred by limitation and was not saved by acknowledgment or the balance sheets.

Issue (iii): Whether the winding-up application attracted Section 14 of the Limitation Act.

Analysis: Section 14 applied only if the prior proceeding was founded on the same cause of action. A winding-up petition proceeds on the company's inability to pay debts, whereas the present suit was for recovery of a particular debt. The causes of action were therefore different, and the winding-up proceeding could not be used to exclude time.

Conclusion: Section 14 of the Limitation Act did not apply.

Final Conclusion: The appeal failed because the company's borrowing was valid but the suit for recovery was time-barred, and the attempted methods of saving limitation were ineffective.

Ratio Decidendi: A deposit payable on a fixed date is not governed by the rule for demand deposits, an acknowledgment must be made before limitation expires, and Section 14 applies only where the earlier proceeding rests on the same cause of action.

---