Company borrowing authority and internal resolutions: outsiders may presume regular compliance, and the company bears the burden of proof.

A company's articles and memorandum may validly confer power to borrow money and issue hundis or bills of exchange, and such power does not displace the statutory internal requirement that the board act by resolution at a meeting. A third-party creditor dealing in good faith may presume regular compliance with internal management formalities, and the company cannot avoid liability by relying on undisclosed internal irregularities. Because the existence of a board resolution lies within the company's special knowledge, non-production of the minute book or resolution book may justify an adverse inference against the company. The burden of proving want of authority rests on the company, not the outsider.

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Issues: (i) Whether the company was bound by the hundi executed by its manager and director. (ii) Whether the plaintiff was required to prove internal board resolutions authorising the borrowing and execution of the hundi.

Analysis: The articles and memorandum of association recognised the company's power to borrow money and to issue hundis and bills of exchange. The relevant articles did not conflict with the statutory requirement that the board exercise specified powers by resolution at a meeting; they conferred power and did not abrogate the internal procedure. The existence or absence of a board resolution was a matter within the special knowledge of the company, and the minute book and resolution book were documents in the company's possession. Their non-production justified an adverse inference against the company. A third-party creditor dealing with the company was entitled to assume regular compliance with internal management requirements, and the company could not defeat liability by relying on undisclosed internal irregularities or by showing that the borrowed money did not reach its coffers.

Conclusion: The hundi bound the company, and the absence of proved internal authority did not defeat the plaintiff's claim.

Final Conclusion: The order of the Full Bench of the Small Cause Court was set aside and the trial court decree in favour of the plaintiff was restored.

Ratio Decidendi: Where a company's constitution confers power to borrow and issue negotiable instruments, an outsider dealing in good faith may presume due compliance with internal requirements, and the company bears the burden of proving any want of authority within its exclusive knowledge.

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