1956 (12) TMI 15 - HC - Companies Law

Dismissal of Second Appeal Due to Lack of Authority in Hypothecation Bond Assignment

Varkey Souriar Versus Keraleeya Banking Co. Ltd.

The second appeal in the case involving a hypothecation bond resulted in a dismissal, affirming the lower courts' decision in favor of the second ... Articles of association - Regulations required in case of unlimited company, company limited by guarantee or private company limited by shares, General provisions with respect to memorandum and articles - Effect of memorandum and articles and Managing director – Tenure of appointment Issues:1. Discharge of liability under a hypothecation bond.2. Lack of authority in assigning the bond.3. Effect of resignation of a managing director.4. Application of the rule of 'indoor management' in company dealings.5. Bona fide actions of the parties involved.Analysis:1. The second appeal involved a suit on a hypothecation bond, where the first defendant contested the suit on grounds of limitation and discharge by payment to a prior assignee. Both lower courts found against limitation, and while they differed on whether the payment was made, they agreed that the assignment of the bond was without proper authority. The courts decreed the suit in favor of the second plaintiff, leading to the appeal by the first defendant.2. The lack of authority in assigning the bond was based on a resolution of the board of directors, which recorded the resignation of the managing director and the appointment of a new director. The first plaintiff bank argued that the assignment by the former managing director was collusive and for low consideration, making it unenforceable against the first defendant.3. The main contention revolved around the effect of the managing director's resignation on the validity of the assignment. The court determined that the resignation took effect on the date of the resolution itself, and the subsequent assignment by the former director was invalid due to lack of authority.4. The rule of 'indoor management' in company dealings was discussed, emphasizing that individuals dealing with a company must ensure the proposed dealings align with registered documents. However, this rule does not apply when the question pertains to the existence of the agency itself, as was the case with the unauthorized assignment in this scenario.5. The court considered the bona fide actions of the parties involved, highlighting that the first defendant could not invoke the rule of 'indoor management' as he was not dealing with the former managing director directly. Additionally, the suspicious nature of the assignment's consideration raised doubts about the first defendant's bona fide actions. Ultimately, the second appeal was dismissed, affirming the lower courts' decision in favor of the second plaintiff.