Does a power under the Articles of Association to manage the whole business of a company include the power to institute legal proceedings on its behalf?
Code of Civil Procedure, 1908 — Order 29 Rule 1, Order 41 Rule 27(1) — Companies — Articles of Association — Authority of a Managing Director to institute a suit — Substantive rights not defeated on technicalities —
Code of Civil Procedure, 1908 — Order 29 Rule 1 — Articles of Association — power to manage the business includes suing —
Held: Where the Articles of Association delegate to a Joint Managing Director the power to manage the whole business of the company and its affairs, the institution of legal proceedings falls within the expression "to manage the business of the company". A suit instituted by such a person on behalf of the company cannot be said to be incompetent or unauthorised. (¶20, 21, 22)
Code of Civil Procedure, 1908 — Order 41 Rule 27(1) — substantive rights not to be defeated on technical grounds —
Held further: The Courts possess sufficient power under the Code to ensure that injustice is not done, and substantive rights ought not to be defeated on technical grounds. Where the authority of the signatory is questioned, the Court may permit production of additional evidence establishing that authority so that a genuine claim is not defeated, resulting in a miscarriage of justice. (¶17)
Code of Civil Procedure, 1908 — Order 29 Rule 1 — designation established from the company's own record —
Held further: Where the master data maintained by the Ministry of Corporate Affairs shows that the signatory of the plaint held the office of whole-time Director throughout the period during which the suit was instituted, the objection to the competence of the suit fails. Decree of the trial Court set aside and the suit decreed in part with interest. (¶18, 23)
Does a power under the Articles of Association to manage the whole business of a company include the power to institute legal proceedings on its behalf?
Yes. The institution of legal proceedings falls within the expression "to manage the business of the company". Where the Articles delegate to a Managing Director the power to manage the whole business and affairs of the company, a suit instituted by him on the company's behalf cannot be said to be incompetent or unauthorised. [¶21, ¶22]
May a Court permit additional evidence to establish the authority of the person who signed a plaint on behalf of a company?
Yes. The Courts possess sufficient power under the Code to ensure that injustice is not done, and substantive rights ought not to be defeated on technical grounds. The Court may permit production of additional evidence so that a genuine claim is not defeated, resulting in a miscarriage of justice. [¶17]
What evidentiary value attaches to the master data maintained by the Ministry of Corporate Affairs on the question of a signatory's designation?
It establishes the office held and the period for which it was held. Where the master data shows that the signatory of the plaint was designated a whole-time Director throughout the period covering the institution of the suit, and the Articles confer on that office the power to manage the business, the objection to the competence of the suit does not survive. [¶18, ¶20]
What did the Court finally decide?
The Court held the suit competent, set aside the judgment and decree of the trial Court which had rejected the suit, and decreed the claim in part, holding the plaintiff entitled to the sum found due together with interest at nine per cent per annum from the date specified until realisation. [¶22, ¶23]
Prepared by the LexStreak Editorial Desk — verify against the judgment.
“17. However, the Hon'ble Supreme Court in the judgment referred to supra, held that substantive rights ought not to be defeated on technical grounds and that the Courts are vested with the power to permit production of additional evidence, so as to ensure that the genuine claim is not, defeated resulting, in miscarriage of justice. In the present case, since the substantive right of the plaintiff in respect of the suit claim is already upheld in favour of the plaintiff, this Court, following the aforesaid dictum of the Hon'ble Supreme Court, permitted the plaintiff to produce the Memorandum of Articles of Association of the company and copy of the Master Data of the Director of Company, downloaded from the Ministry of Corporate Affairs in the form of additional type set of papers, by dispensing with the filing of the formal application, in view of the fact that the documents are public/official documents, as such presumed to be valid and the respondents have chosen not to contest the appeal and therefore, no objection is forthcoming for reception of the said documents.”
“20. From the Master Data of the appellant's company, downloaded from Ministry of Corporate Affairs, it is seen that the signatory of the plaint was designated as a whole-time Director from 11.08.2011 to 30.07.2019. Under the aforesaid Articles of the Memorandum of Articles of Association, the Managing Director is entrusted with the management of the whole business of the company and all its affairs and is empowered to exercise all powers and perform all duties in relation to the management of the affairs. The power to manage the business of the company, in the view of this Court includes the institution of the suit as well. In the considered view of this Court, the recovery of money due to the company form a part of the management of the business and affairs of the company.”
“21. This view of the Court that institution of legal proceedings falls within the meaning of the expression “to manage the business of the company” is fortified by the judgment of this Court in the case of H.M.Ebrahim Sait vs. The South India Industrial, Limited, reported in (1938) 2 MLJ 568, this Court while referring to similar Memorandum of Articles of Association of a company held as follows:”
“22. In the present case, the Joint Managing Director has been delegated powers to manage the whole business of the company and its affairs under Article 192(f) of Memorandum of Articles of Association. Hence the suit instituted by him on behalf of the company cannot be said to be incompetent or unauthorised. Therefore, the issue is answered in favour of the plaintiff.”
“23. In view of the above discussions, the judgment and decree dated 01.07.2017 passed by IV Additional Judge, City Civil Court, Chennai in O.S.No.3534 of 2014 is setaside. The plaintiff is held entitled for a sum of Rs.8,72,298.50/- with interest at the rate of 9% per annum of the said amount from March 2000, till the date of the suit and for interest at the rate of 6% per annum from the date of the suit till the date of realization of the amount. Accordingly, the Appeal is allowed. No costs. 10-04-2026”
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The appeal is filed challenging the judgment and decree passed in O.S.No.3534 of 2014 dated 01.07.2017, rejecting the appellants suit for recovery of sum of Rs.10,03,322.50/- together with interest from the date of filing of the suit till the date of realisation.
For the sake of convenience the parties are alluded to as per their ranking before the lower Court.
The brief facts of the plaint are as follows: The plaintiff is the publisher of well known English Daily, ‘The Hindu’ and also other publications like ‘Frontline’, Hindu Businessline, Sportstar and hosts the website ‘The Hindu Online’ etc. The plaintiff in the course of its business engages agencies for obtaining advertisements for its publications which is a source of revenue for it. The plaintiff states that the normal business practise is to accept advertisements, through advertising agencies and thereafter publish it in its publications. The plaintiff further states that for the said purpose, space was reserved in its publications for advertising agencies for publishing the advertisements. According to the plaintiff, only those agencies which were accredited to the Indian Newspaper Society were eligible to place orders on behalf of its client. The plaintiff states that on publishing of the advertisement, the agencies accredited to the Indian Newspaper Society, were allowed 60 days credit from the last date of the month in which the advertisements were advertised in its publications. The plaintiff states that since the agency represented by the defendants was accredited by the Indian Newspaper Society, the defendants were engaged for obtaining advertisements and further the defendants were offered advertising space in the plaintiff's publications. The plaintiff states that the defendants were well aware of the aforesaid business practise since they were engaged by the plaintiff for about 3 years. The plaintiff states that the defendants enjoyed all the credit facilities offered by the plaintiff in the course of the business. The plaintiff states that the account between the plaintiff and the defendants was a running account and that the payments used to be made by the defendants, within the credit period of 60 days from the last date on which the advertisement appeared. In case of delayed payment, interest was charged at the rate of 23.5% per annum from the date the receipts fell due. The plaintiff states that in the course of business, the defendants placed various orders with the plaintiff for publishing advertisement in its publication, “The Hindu”. Whileso, bills amounting to Rs.8,72,298.50/- were outstanding for the period from November 1999 to March 2000. The plaintiff states that despite several remainders to the defendants to pay the outstanding amount, the defendants defaulted in payment of the dues to the plaintiff. Therefore, the plaintiff was constrained to issue a legal notice on 12.06.2000. Eventhough the legal notice was received by the defendants, they neglected to make any payment and also did not reply to the same. Under the said circumstances, the plaintiff was constrained to file the suit for recovery of Rs.10,03,322.50/- together with interest from the date of filing of the suit till the date of realisation and for cost.
The defendants filed written statement denying all the plaint averments, apart from stating that the deponent of the plaint had no authority to file the present suit. The defendants denied that the plaintiff extended any credit facility to them and also denied the liability towards interest at the rate of 23.5% per annum for default in payment. The defendants denied that total sum of Rs.8,72,298.50/- was due and payable by them towards principal as on 20.10.2000. The defendants stated that the alleged bills for the period November 1999 to March 2000, without the release orders for a sum of Rs.8,72,298.50/- was untenable. The defendants also denied the statements of the plaintiff as self serving and inadmissible in evidence. The defendants therefore prayed for dismissal of the suit.
Before the trial Court, the plaintiff examined one witness as P.W.1 and marked 23 documents, Ex.A1 to Ex.A23. The defendants neither examined any witness nor marked any document. The trial Court on the basis of the pleadings, framed necessary issues and later re-cast the issues as follows: 1. Whether the original suit had been instituted on behalf of the plaintiff’s company by the proper person as according to law? 2. Whether the plaintiff is entitled for the suit claim amount as prayed for? 3. Whether the interest claim is an excessive? 4. To what other reliefs the plaintiff is entitled to?
The trial Court on consideration of the entire evidence on record dismissed the suit, despite its finding that the defendants were liable to pay the plaintiff a sum of Rs.8,72,298.50/- with interest at the rate of 9% for the due amount from March 2000 till date of the suit and interest at the rate of 6% per annum from the date of suit till the date of realisation of the due amount. On the basis of its finding on issue No.1, that the suit filed by the Joint Managing Director was without proper authorisation by the company and that the defect was incurable, the suit was dismissed as not maintainable. Aggrieved by the judgment and decree of the trial Court, the plaintiff has filed the above appeal.
Since notice through Court could not be served on the respondents, paper publication was permitted in Tamil daily “The Hindu Tamil” on 13.02.2023. Despite such paper publication, the respondents have not appeared either in person or through counsel and therefore the appeal is heard in their absence.
Heard the learned counsel for the appellant and perused the materials placed on record.
The point for determination in this appeal is whether the trial Court was justified in dismissing the suit on the ground that the suit was not instituted on behalf of the plaintiff company by a proper person as per law?
The circumstances of the case are these: The plaintiff is Kasturi and Sons Ltd. The suit has been filed by; its Joint Managing Director; the respondents is an advertising agency. The claim against the respondents was a sum of Rs.10,03,322.50/- with interest, being the advertising cost for publication of advertisements of the respondents clients in its publications. In defense, the respondents raised various contentions, and the most important was that the suit was filed without proper authorisation, in asmuchas the plaint was signed by the Joint Managing Director, without proper authorisation to file the suit.
Before adverting to the contentions of the learned counsel for the plaintiff, the provisions of Order 6 Rule 14 and Order 29 Rule 1 of CPC are referred. Order 6 Rule 14 of CPC reads as follows:
“14. Pleading to be signed. – Every pleading shall be signed by the party and his pleader (if any): Provided that where a party pleading is, by reason of absence or for other good cause, unable to sign the pleading, it may be signed by any person duly authorized by him to sign the same or to sue or defend on his behalf.” Order 29 Rule 1 of CPC reads as follows:
“1.Subscription and verification of pleading.- In suits by or against a corporation, any pleading may be signed and verified on behalf of the corporation by the secretary or by any director or other principal officer of the corporation who is able to depose to the facts of the case.” From a reading of the above provisions, it is clear that the pleadings are required to be signed and verified by the party and his pleader, if any. Since a company is a juristic entity, the pleading on behalf of the company should be signed by a person authorised in this behalf. Under the provisions of Order 29 Rule 1 CPC, in a suit filed by a corporation, the pleading may be signed and verified on behalf of the corporation by its secretary, director or other principal officer of the corporation, who is able to depose on the facts of the case. That the provisions of Order 29 Rule 1 CPC is applicable to a company, is settled by the judgment of the Hon'ble Supreme Court in the case of Hakam Singh vs. M/s.Gammon (India) Ltd., reported in (1971) 1 SCC 286. The Court while interpreting the expression 'corporation' in Explanation II of Section 20 of CPC, held that the expression 'corporation' includes a company registered under the Indian Companies Act. The Court referring to Order 29 Rule 1 of CPC, held that there was nothing in the Code of Civil Procedure that could restrict the expression 'corporation' referred to under Order 29, to mean only a statutory corporation and not company registered under the Indian Companies Act. The relevant extract of the judgment is as follows:
“6. The argument of counsel for the appellant that the expression “corporation” in Explanation II includes only a statutory corporation and not a company registered under the Indian Companies Act is, in our judgment, without substance. The Code of Civil Procedure uses the expression “corporation” as meaning a legal person and includes a company registered under the Indian Companies Act. Order 29 of the Code of Civil Procedure deals with suits by or against a corporation and there is nothing in the Code of Civil Procedure that a corporation referred to under Order 20 means only a statutory corporation and not a company registered under the Indian Companies Act.” From the aforesaid judgment, it is clear that the plaintiff company, registered under the Companies Act is covered by the provisions of Order 29 Rule 1 of CPC. However, the controversy in the appeal is whether in the absence of a Board Resolution or Memorandum of Articles of Association of the company, a person referred to in Order 29 Rule 1 CPC can, by virtue of his office sign and verify the pleadings and institute the suit on behalf of the company.
The learned counsel for the plaintiff contends that the Joint Managing Director, by virtue of his office is competent to file a suit, even in the absence of Board Resolution or Memorandum of Articles of Association of the company. The learned counsel further submitted that the defect if any, is only a procedural defect which could be rectified by ratification either implied or express by the company. The learned counsel relying on the judgment of the Hon'ble Supreme Court in the case of United Bank of India vs. Naresh Kumar and others, reported in (1996) 6 SCC 660, submitted that this Court sitting in appeal, is empowered to call for additional evidence to establish the authority to prove the ratification. The learned counsel relying on the same judgment further submitted that the trial Court having declared the substantive right of the plaintiff to the suit claim, ought not to have defeated the claim on technical grounds of procedural irregularity.
Before adverting to the contentions of the learned counsel for the plaintiff, the reasoning of the trial Court for dismissing the suit on the technical ground that the Joint Managing Director was not authorised to institute the suit is taken up.
The trial Court in its judgment found that the plaintiff did not file the Memorandum of Articles of Association or Board Resolution passed in the meeting by the Board of Directors or any agreement with the company, empowering the Joint Managing Director to initiate the suit proceedings. The trial Court relying on the judgment of this Court in the case of M/s.Schmenger Gmbh and Company vs. Saddler Shoe Private Limited, held that the question regarding the authority to institute the suit is not a mere procedural defect, but a defect going to the root of the suit. The trial Court in the absence of Board Resolution or Memorandum of Articles of Association of the company, dismissed the suit by relying on the said judgment of this Court.
The learned counsel for the plaintiff placing heavy reliance on the judgment of the Hon'ble Supreme Court in the case of United Bank of India vs. Naresh Kumar and others, put forth three fold submission. One, that there is sufficient power in the Courts, under the Code of Civil Procedure, to ensure that injustice is not done to any party, who has a just cause, two, that the plaintiff's substantive right should not be defeated on account of technical defect and three, that this Court as an Appellate Court has ample powers to call for additional evidence, to prove the ratification or the authority of the Joint Managing Director to institute the suit.
Before proceeding further, the relevant portions of the Hon'ble Supreme Court Judgment, in the case of United Bank of India vs. Naresh Kumar and others, reported in (1996) 6 SCC 660, are extracted:
“9. In cases like the present where suits are instituted or defended on behalf of a public corporation, public interest should not be permitted to be defeated on a mere technicality. Procedural defects which do not go to the root of the matter should not be permitted to defeat a just cause. There is sufficient power in the courts, under the Code of Civil Procedure, to ensure that injustice is not done to any party who has a just case. As far as possible a substantive right should not be allowed to be defeated on account of a procedural irregularity which is curable. 10. It cannot be disputed that a company like the appellant can sue and be sued in its own name. Under Order 6 Rule 14 of the Code of Civil Procedure a pleading is required to be signed by the party and its pleader, if any. As a company is a juristic entity it is obvious that some person has to sign the pleadings on behalf of the company. Order 29 Rule 1 of the Code of Civil Procedure, therefore, provides that in a suit by or against a corporation the Secretary or any Director or other Principal Officer of the corporation who is able to depose to the facts of the case might sign and verify on behalf of the company. Reading Order 6 Rule 14 together with Order 29 Rule 1 of the Code of Civil Procedure it would appear that even in the absence of any formal letter of authority or power of attorney having been executed a person referred to in Rule 1 of Order 29 can, by virtue of the office which he holds, sign and verify the pleadings on behalf of the corporation. In addition thereto and dehors Order 29 Rule 1 of the Code of Civil Procedure, as a company is a juristic entity, it can duly authorise any person to sign the plaint or the written statement on its behalf and this would be regarded as sufficient compliance with the provisions of Order 6 Rule 14 of the Code of Civil Procedure. A person may be expressly authorised to sign the pleadings on behalf of the company, for example by the Board of Directors passing a resolution to that effect or by a power of attorney being executed in favour of any individual. In absence thereof and in cases where pleadings have been signed by one of its officers a corporation can ratify the said action of its officer in signing the pleadings. Such ratification can be express or implied. The court can, on the basis of the evidence on record, and after taking all the circumstances of the case, specially with regard to the conduct of the trial, come to the conclusion that the corporation had ratified the act of signing of the pleading by its officer. 11. The courts below could have held that Shri L.K. Rohatgi must have been empowered to sign the plaint on behalf of the appellant. In the alternative it would have been legitimate to hold that the manner in which the suit was conducted showed that the appellant-Bank must have ratified the action of Shri L.K. Rohatgi in signing the plaint. If, for any reason whatsoever, the courts below were still unable to come to this conclusion, then either of the appellate courts ought to have exercised their jurisdiction under Order 41 Rule 27(1)(b) of the Code of Civil Procedure and should have directed a proper power of attorney to be produced or they could have ordered Shri L.K. Rohatgi or any other competent person to be examined as a witness in order to prove ratification or the authority of Shri L.K. Rohatgi to sign the plaint. Such a power should be exercised by a court in order to ensure that injustice is not done by rejection of a genuine claim.” Upon reading of the aforesaid judgment, it is clear that the issue before the Hon'ble Supreme Court, related to signing and verification of the plaint by an unauthorised person and not the very authorisation to institute the suit. Therefore, the trial Court was right in relying on the judgment in M/s.Schmenger etc. to hold that absence of authorisation to institute the suit is not merely a procedural irregularity which can be cured, but a defect going to the root of the suit.
However, the Hon'ble Supreme Court in the judgment referred to supra, held that substantive rights ought not to be defeated on technical grounds and that the Courts are vested with the power to permit production of additional evidence, so as to ensure that the genuine claim is not, defeated resulting, in miscarriage of justice. In the present case, since the substantive right of the plaintiff in respect of the suit claim is already upheld in favour of the plaintiff, this Court, following the aforesaid dictum of the Hon'ble Supreme Court, permitted the plaintiff to produce the Memorandum of Articles of Association of the company and copy of the Master Data of the Director of Company, downloaded from the Ministry of Corporate Affairs in the form of additional type set of papers, by dispensing with the filing of the formal application, in view of the fact that the documents are public/official documents, as such presumed to be valid and the respondents have chosen not to contest the appeal and therefore, no objection is forthcoming for reception of the said documents.
From the Master Data of Director of Company, downloaded from Ministry of Corporate Affairs of the appellant company, it is seen that Joint Managing Director, was designated as a whole-time Director between the periods 11.08.2011 to 30.07.2019, which includes the relevant period when the suit was instituted before the trial Court. In the Memorandum of Articles of Association of the appellant company, in Article 192, the role and appointment of a Managing Director is provided. Under Article 192(e), the Board of Directors are empowered to designate any Managing Director or Director as Deputy Managing Director or Joint Managing Director or by such other designation as deemed fit. Therefore, unless the Joint Managing Director was appointed by Board of Directors, he could not have been shown as active Director in the Master Data of Director of Company, of the MCA, during the relevant period.
Further, Article 192(f), which is relevant to the present case reads as follows:
“192.f. Subject to the supervision, control and directions of the Board of Directors, the Managing Director/Managing Directors shall have the management of the whole of the business of the Company and of all its affairs and shall exercise all powers and perform all duties and in relation to the management of the affairs, except such powers and such duties as are required by Law or by these presents to be exercised or done by the Company in General Meeting or by the Board and also subject to such conditions and restrictions imposed by the Act or by these presents or by the Board of Directors..”
From the Master Data of the appellant's company, downloaded from Ministry of Corporate Affairs, it is seen that the signatory of the plaint was designated as a whole-time Director from 11.08.2011 to 30.07.2019. Under the aforesaid Articles of the Memorandum of Articles of Association, the Managing Director is entrusted with the management of the whole business of the company and all its affairs and is empowered to exercise all powers and perform all duties in relation to the management of the affairs. The power to manage the business of the company, in the view of this Court includes the institution of the suit as well. In the considered view of this Court, the recovery of money due to the company form a part of the management of the business and affairs of the company.
This view of the Court that institution of legal proceedings falls within the meaning of the expression “to manage the business of the company” is fortified by the judgment of this Court in the case of H.M.Ebrahim Sait vs. The South India Industrial, Limited, reported in (1938) 2 MLJ 568, this Court while referring to similar Memorandum of Articles of Association of a company held as follows:
“14. It follows that the two persons mentioned have power either jointly or severally to "manage the business of the company". It appears to us that managing the business of the company would include institution of suits as well, when it becomes necessary in the course of management to recover moneys due to the company. The present one is a case of this kind. No authority has been quoted to show that institution of legal proceedings would not fall within the meaning of the expression "to manage the business of the company". As such management as has been delegated to them by the directors can be conducted by either of them the suit instituted by the respondent would certainly be a validly instituted suit.......
In the present case, the Joint Managing Director has been delegated powers to manage the whole business of the company and its affairs under Article 192(f) of Memorandum of Articles of Association. Hence the suit instituted by him on behalf of the company cannot be said to be incompetent or unauthorised. Therefore, the issue is answered in favour of the plaintiff.
In view of the above discussions, the judgment and decree dated 01.07.2017 passed by IV Additional Judge, City Civil Court, Chennai in O.S.No.3534 of 2014 is setaside. The plaintiff is held entitled for a sum of Rs.8,72,298.50/- with interest at the rate of 9% per annum of the said amount from March 2000, till the date of the suit and for interest at the rate of 6% per annum from the date of the suit till the date of realization of the amount. Accordingly, the Appeal is allowed. No costs. 10-04-2026
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