1978 (4) TMI 183 - HC - Companies Law

Company liable for loan repayment despite lack of authorization. Heirs' liability clarified. Interest modification allowed for heirs.

The company was held liable to repay the loan despite the lack of explicit authorization for the managing director to execute the promissory note. The ... Managing director – Tenure of appointment Issues Involved:1. Liability of the company to repay the loan.2. Authority of the managing director to execute the promissory note.3. Liability of the heirs of the guarantor, Shri Binay Krishna Rohatgi.4. Requirement of presentment under Section 64 of the Negotiable Instruments Act.5. Consideration for the guarantee under Section 25 of the Contract Act.6. Proof of promissory note and letter of guarantee.7. Proof of entries in the bank's ledger under Section 34 of the Evidence Act.8. Enforcement of liability against the heirs of Shri Binay Krishna Rohatgi.9. Interest liability of the heirs of Shri Binay Krishna Rohatgi.Detailed Analysis:1. Liability of the Company to Repay the Loan:The court held that the company is liable to repay the loan advanced by the bank. The promissory note dated June 23, 1959, was executed by the chairman of the company, and it bore the company's seal. Despite the absence of a resolution authorizing the managing director to execute the promissory note, the company cannot repudiate its liability as the money borrowed was used for the benefit of the company. The court referenced T.R. Pratt (Bombay) Ltd. v. E.D. Sassoon & Co. Ltd. and Shri Kishan Rathi v. Mondal Brothers and Co. (P.) Ltd., establishing that even without explicit authorization, the company is liable if it benefited from the borrowed money.2. Authority of the Managing Director to Execute the Promissory Note:The court dismissed the argument that the promissory note was invalid due to the lack of a board resolution. It was noted that the managing director had executed the promissory note on behalf of the company, and the company had received and acknowledged the loan amount. The court emphasized that internal management issues cannot defeat the bona fide claims of creditors.3. Liability of the Heirs of the Guarantor, Shri Binay Krishna Rohatgi:The court affirmed that the heirs of Shri Binay Krishna Rohatgi are liable for the debt under the guarantee executed by him. The guarantee was co-extensive with the liability of the principal debtor, and the heirs cannot be absolved from this liability. However, the liability is limited to the properties that devolved upon the heirs after the death of Shri Binay Krishna Rohatgi.4. Requirement of Presentment under Section 64 of the Negotiable Instruments Act:The court held that the suit was not premature despite the promissory note not being physically presented for payment. The company had waived the right of presentment under the Negotiable Instruments Act through a letter dated June 23, 1959. The demand made by registered letters was deemed sufficient.5. Consideration for the Guarantee under Section 25 of the Contract Act:The court rejected the argument that the guarantee was without consideration. It was established that the bank had advanced Rs. 1,62,000 to the company, which constituted valid consideration. The court referenced Ibrahim Mallick v. Lalit Mohan Roy, stating that a fresh promise in respect of an old debt is valid and enforceable.6. Proof of Promissory Note and Letter of Guarantee:The court found that the promissory note and letter of guarantee were properly proved. Witness No. 3, who had seen the execution of earlier promissory notes, was competent to prove the signatures. Both documents were exhibited without objection, making it improper for the appellants to challenge the mode of proof at this stage.7. Proof of Entries in the Bank's Ledger under Section 34 of the Evidence Act:The court held that the entries in the bank's ledger were proved in accordance with the Bankers' Books Evidence Act, 1891. A certified copy of the ledger containing the relevant entries was filed and marked as an exhibit without objection. The court noted that the entries were supported by other evidence, including the promissory note and receipt.8. Enforcement of Liability against the Heirs of Shri Binay Krishna Rohatgi:The court clarified that the liability under the guarantee can be enforced against the properties that devolved upon the heirs after the death of Shri Binay Krishna Rohatgi. The liability cannot be enforced against the personal properties of the heirs or their shares in joint family properties.9. Interest Liability of the Heirs of Shri Binay Krishna Rohatgi:The court modified the decree regarding the interest liability of the heirs. The heirs are liable to pay interest from the date of the filing of the suit, not from the date of the execution of the promissory note. The company, however, remains liable for interest from the date of the promissory note.Conclusion:The appeal filed by the company (F.A. No. 409 of 1967) was dismissed, affirming the company's liability to repay the loan. The appeal filed by the heirs of Shri Binay Krishna Rohatgi (F.A. No. 386 of 1967) was allowed in part, modifying the interest liability and clarifying that the liability is limited to the properties that devolved upon them after the death of Shri Binay Krishna Rohatgi. Each party was directed to bear their own costs.