Lakshmi Ratan Cotton Mills Co. Ltd. vs. J.K. Jute Mills Co.

Ltd. (21.12.1956 - ALLHC) : MANU/UP/0096/1957

Hon'ble Judges/Coram:

M.C. Desai and Mirza Nasir Ullah Beg, JJ.

Authorities Referred:

Buckley on the Companies Act (12th Edition); Hulsbury's Laws of England

(Third Edition) Vol. 6 page 299, para 603

Case Note:

(i) Company - indoor management - Sections 293 and 292 of Companies Act,
1956 - person was the director of the defendant company, creditor and
delegate of the managing agency - could be authorized to enter into a loan
transaction whether there was any resolution to that effect or not - person
will be liable if he is really acting on behalf of the company.

(ii) Doctrine of ratification - Sections 292 and 293 of Companies Act, 1956 -
money borrowed by the agent on the behalf of the company for its benefit -
company is liable to pay.

1. This is a defendant's first appeal arising out of a suit for recovery of

money brought by the plaintiff-despondent, a company styled as J. K. Jute
Mills Company Limited, Kanpur against the defendant appellant also a
company known as Lakshmi Ratan Cotton Mills Limited, Kanpur. Both the
companies are limited liability companies, and have their registered offices
at Kanpur. The plaintiff company is one of the concerns owned by the family
of JuggilalKamlapat. Sir PadampatSinghania is the head of the said family.
The defendant company belongs to another group of industries known as
Beharilal Ram Charan group. Sri Ram Ratan Gupta is the head of that

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group. The defendant company was sued through two persons, namely, Sri
Ram Prasad Gupta and Sri Gulab Chand Jain both of whom are the
directors of the defendant company.

2. The plaintiff's case was that the plaintiff company had advanced a loan of
Rs. 1,50,000/-to the defendant company on the understanding that the loan
advanced would carry interest 1% higher than the current Bank rate, and
would be repaid together with interest within six months. Sri Gulab Chand
Jain, one of the Directors of the defendant company, sent a letter on 24-12-
1951 to Sir PadampatSinghania the governing Director of the plaintiff
company to advance the said loan. Sri Gulab Chand Jain also sent an
advance receipt to the plaintiff along with the above-noted letter. Thereupon
the plaintiff advanced a sum of Rs. 1,50,000/- as a loan to the defendant on
25-12-1951 through cheque No. 444821, dated 25-12-1951 drawn on the
Hindustan Commercial Bank Limited in favour of the defendant. A covering
letter of the same date was also sent by the plaintiff to the defendant along
with the above-noted cheque stating that the said loan was repayable within
six months with interest which was to be 1 per cent, higher than the current
Bank rate. After the expiry of the stipulated period of six months, the
defendant failed to pay the loan in spite of reminders sent to it. Accordingly,
the plaintiff filed the present suit praying that a decree of Rs. 1,55,671714/-
together with pendentelite and future interest be passed and that the costs
of the suit be also awarded in its favour.

3. The defendant denied that there was any transaction of loan between the
parties as alleged by the plaintiff. According to the case set up by the
defendant, Sir PadmapatSinghania had entrusted Sri Ram Ratan Gupta
with work of a personal nature involving a large amount of expenditure. As
Sri Ram Ratan Gupta had to meet these expenses from his own pocket on
behalf of Sir PadampatSinghania, the latter agreed to advance Rs.
1,50,000/- on the said account by remitting the amount of Rs. 1,50,000/-to

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the defendant company by way of temporary accommodation pending the
payment of the money due to Sri Ram Ratan Gupta. Further, in para 16 of
its written statement the defendant took the plea that no loan could be
taken as no resolution sanctioning the taking of loan was passed by the
Board of Directors. The defendant also alleged that the plaintiff company
owed an amount of RS. 2,005/12/- to the defendant company, and claimed
an adjustment in respect of this amount. The liability to pay interest was
also denied by the defendant company.

4. The trial Court held that an amount of Rs. 1,50,000/- was advanced by
the plaintiff company to the defendant by way of loan as alleged by the
plaintiff at the rate of interest and for the period mentioned in the letter sent
along with the cheque, and that the said loan was binding on the defendant.
As, however, the counsel for the plaintiff had made a statement that his
claim be reduced by Rs. 2,005/12/-, which was the amount of deduction
claimed by the defendant, the trial Court, accordingly, reduced the amount
due to the plaintiff by Rs. 2,005/12/-. It, accordingly, held that the plaintiff
was entitled to get Rs. 1,53,665/2/- from the defendant, and passed a
decree in respect of the said amount with pendentelite and future interest at
the rate of 3 per cent. per annum.

5. Dissatisfied with the said decree of the trial Court, the defendant has filed
this appeal in the High Court.

6. Having heard the learned counsel for the appellant, we are of opinion that
there is no substance in this appeal. Whatever the merits of the plaintiff's
case as initially set up might have been, the area of controversy has, in the
present case, been considerably narrowed down as a result of certain
statements made on behalf of the defendant at the preliminary stage of the
casein the trial Court. In order to appreciate this aspect of the case, it is

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necessary to refer briefly to the pleadings of the parties, and to the aforesaid
statements of the counsel of the defendant.

7. The plaintiff's case as set out by the plaint was based on the following
three allegations :

1. That the transaction in question was a loan advanced by the plaintiff to

the defendant ;

2. That the loan was negotiated on behalf of the defendant ;

3. That the loan was binding in law. In reply, the defendant controverted all
the aforesaid three points and pleaded that :

1. The transaction was not a loan but an adjustable accommodation ;

2. It was not negotiated on behalf of the defendant ;

3. It was not binding as no resolution sanctioning the said loan was passed
by the Board of Directors.

In view of the above pleadings, the Court framed issue No. 2 on the question
whether the alleged transaction was an adjustable accommodation as set
out in para 14 of the written statement and if so, its effect. This issue was
framed on 3-3-1953. On the 11th February, 1954, however, the defendant's
counsel made a statement that :

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"If Sir PadampatSinghania gives evidence on Special Oath on Issue No. 2
against the defendants then the amount in suit be deemed a loan subject to
the objection of authority of Shri Gulab Chand Jain. Loan, that is, the
amount which Shri Gulab Chand Jain has taken on loan 'on behalf of the
defendants' from the plaintiff."

The underlined (here into ' ') words "on behalf of the defendants" are
important, & should be borne in mind. On the same date, Sir
PadampatSinghania appeared as D. W. 1, and made the required statement
on Special Oath to the effect that J.K. Jute Mills gave Rs. 1,50,000/- to the
defendant by way of loan, and that this money was not to be adjusted with
anything.

8. As a result of the above proceedings, two of the above-mentioned three

points of contest between the parties must be taken to have been proved in
favour of the plaintiff. That is, it must be taken to be established that,
firstly, the transaction in question was not an adjustable accommodation
but a loan, and secondly, that the amount which was taken by Sri Gulab
Chand Jain was taken, as stated by the learned counsel for the defendant,
"on loan on behalf of the defendant from the plaintiff". The only point that
survived for contest between the parties was point No. 3. The result was that
the only plea that was left open to the defendant to plead was that the loan
could not be held to be binding on the defendant as no resolution
sanctioning the said loan was passed by the Board of Directors. The
defendant could therefore, contest the suit only on the ground that even
though Sri Gulab Chand Jain acted on behalf of the defendant the loan
could not be binding on them because of the want of a resolution of the
Board of Directors making him competent to enter into such a transaction.
On this point, therefore, the Court framed a fresh issue being issue No. 4
which related to the question of competency of Sri Gulab Chand Jain to
borrow the money on behalf of the defendant company.

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As stated above, the only ground of his incompetency pleaded by the
defendant was the want of a resolution authorising him to borrow the
money. The burden of proving that no such resolution was actually passed
by the Board of Directors lay on the defendant. They have not produced
their minute book, nor has Sri Gulab Chand Jain come in the witness-box
to state that no such resolution was actually passed by the Board of
Directors. The defendant having failed to produce any evidence in support of
the only plea that had survived, the plea must be taken to have failed for
want of evidence.

9. Even if, however, the matter is approached from the legal stand point, we
are of opinion that the defendant's plea in this regard cannot be sustained,
as the plaintiff would be protected by the legal doctrine of internal
management. In order, however, to appreciate the legal aspect of this
matter, certain admitted or proved facts must be borne in mind.

It is admitted on behalf of the defendant that Sri Gulab Chand Jain was a
Director of the defendant company. It is also admitted by the defendant
company that Article 148A of the Memorandum of Association lays down
that Messrs. B. R. Sons Limited would be the Managing Agents of the
defendant company for a term of 20 years with effect from 15-7-1947. It is
also admitted that Sri Gulab Chand Jain was a Director of B. R. Sons
Limited, the Managing Agents. Further, it is also proved from Ext. 7, a copy
of the resolution passed at the Board of Director's meeting of B. R. Sons
Limited on 3-1-1951 that Sri Gulab Chand Jain and one Sri
SukhnandiDayalGarg were jointly and severally authorised to represent the
managing agency in the discharge of its functions as Managing Agents of the
defendant company and to make, draw, accept, endorse, and negotiate
cheques. hundis and all other negotiable instruments or mercantile
documents for and on behalf of the company.

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This resolution delegated the entire power of the managing agency to Sri
Gulab Chand Jain & Sri SukhnandiDayalGarg jointly and severally. Sri
Gulab Chand Jain thus represented the Managing Agency, and could
individually exercise all the powers of the managing agency when the
transaction in question took place. Thus at the relevant time Sri Gulab
Chand Jain combined within himself three-fold capacities. Firstly, he was a
director of the defendant company, secondly, he was also a director of the
managing agency, and thirdly, the entire power of the managing agency was
vested in him by a resolution passed by the Directors of the managing
agency.

There is also no doubt that the plaintiff creditor was throughout proceeding
in a bona fide manner, dealing as he was with the company through a
person who was armed with such formidable and all-embracing power on its
behalf. The creditor in the present case had, therefore, no reason whatsoever
to suspect the propriety, legality, or validity of the transaction. The
transaction was of a usual nature by a trading company through one of its
directors or managing agents who is the proper Person in the normal course
to represent the company in its dealings with third person and to act on its
behalf.

There was absolutely nothing in the circumstances they presented

themselves before the creditor to excite his suspicion, or to put him on his
guard, or to lead him to doubt the obviously legitimate nature of the
transaction.

10. A reference to the Memorandum of Association of the company shows

that the defendant company itself was a trading company. Para. 3 (n) of the
Memorandum of Association lays down that one of the objects of this trading

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company was to borrow money in connection with its business. The
transaction of borrowing was not, therefore, in the present case ultra vires of
the company. There is no bar in the Memorandum of Association or the
Articles of Association prohibiting either the directors or the managing
agents to enter into a transaction of loan on behalf of the company. On the
other hand according to para 3 (n) of the Memorandum of Association the
directors could borrow money on such terms as they considered desirable.

Further, there is no provision in the Memorandum of Association or the

Articles of Association prohibiting the delegation of the power to borrow by
the directors of the company to one of their own body or by the Managing
Agents to one of their own directors.

11. On the other hand, the Articles of Association point to the contrary. In
Article I of the Articles of Association it is stated that Directors are the
directors for the time being of the Company or such number of them as have
authority to act for the company.

The definition of the Managing Agents as given in Clause (1) of the Articles of
Association is that Managing Agents" include the person or persons
authorised by the Managing Agents of the Company to perform the duties of
such Managing Agents. Articles 72 and 73 of the Articles of Association
authorise the directors to borrow money within certain limits on such terms
and conditions as they think fit. Article 140 empowers the directors to
delegate their power to such member or members of their body as they think
fit. Article 142 lays down that the acts of the Board of Directors or
Committee shall be considered to be valid notwithstanding any defect in
their appointment.

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Article 145 of the Articles of Association states that the business of the
company shall be managed by the Directors and, subject to their control
and supervision, by the Managing Agents, if any. Article 146 specifies the
area of the powers of directors in so far as they are not exclusively vested in
the agents. Clause 21 of this Article also empowers the directors to appoint
Attorney or Attorneys of the Company by a Power of Attorney under the seal
of the Company. Further, according to Article 149 of the Memorandum of
Association the general management, of the company shall be vested in the
Managing Agency subject to the control and supervision of the Directors.

As a part of this general management, the Managing Agents, among other

powers, have been vested with the power:

"to sign, endorse or negotiate Bills of Exchange, promissory notes, cheques

and other negotiable instruments or mercantile documents on behalf of the
Company and to operate on all banking accounts of the Company, to recover
and receive Interest on all banking accounts of the company, and to recover
and receive interest and dividends on Government Promissory Loan Notes,
War Bonds and securities of all kinds belonging to the Company".

12. Article 150 runs as follows :

"The Managing Agents shall have power to Sub-delegate all or any of the
powers, authorities and discretions for the time being vested in them, and in
particular from time to time to provide, by the appointment of an attorney or
attorneys, for the Management and transaction of the affairs of the
Company in any specified locality, in such manner as they think fit."

13. In view of the above provisions, there can be no doubt that Sri Gulab
Chand Jain who was the director of the defendant company, the director of
the managing agency and also a delegate of the managing agency could be
authorised to enter into this transaction. Under the above circumstances,

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even supposing that there was no actual resolution authorising him to enter
into this transaction on behalf of the defendant company either by the
Board of Directors or by the Board of Managing Agents, the claim of the
plaintiff who was a creditor cannot be affected.

DOCTRINE OF INDOOR MANAGEMENT: A creditor dealing with a

trading company is required by law to be conversant with the terms of
its Memorandum and Articles of Association and no more. If it is found
that the transaction of loan into which the creditor is entering is not
barred by the charter of the Company or its Articles of Association, and
could be entered into on behalf of the Company by the person
negotiating it, then he is entitled to presume that all the formalities
required in connection therewith have been complied with. If the
transaction in question could be authorised by the passing of a
resolution, such an act is a mere formality. A bona fide creditor, in the
absence of any suspicious circumstances, is entitled to presume its
existence. A transaction entered into by the borrowing company under
such circumstances cannot be defeated merely on the ground that no
such resolution was in fact passed. The passing of such a resolution is a
mere matter of indoor or internal management and its absence, under
such circumstances, cannot be used to defeat the just claim of a bona
fide creditor. A creditor being an outsider or a third party and an
innocent stranger is entitled to proceed on the assumption of its
existence; and is not expected to know what happens within the doors
that are closed to him. Where the act is not ultra vires the statute or
the company such a creditor would be entitled to assume the apparent
or ostensible authority of the agent to be a real" or genuine one. He
could assume that such a person had the power to represent the
company, and if he in fact advanced the money on such assumption, he
would be protected by the doctrine of internal management.

14. The leading case on the subject is that of the Royal British Bank v.
Turquand (1856) 119 ER 886 (A) . The judgment of Jervis C. J. in the said

10
case contains the following significant observations relevant to the present
case :

"And the party here, on reading the deed of settlement, would find, not a
prohibition from borrowing, but a permission to do so on certain conditions.
Finding that the authority might be made complete by a resolution, he
would have a right to infer the fact of a resolution authorising that which on
the face of the document appeared to be legitimately done". (p. 888).

15. In Ram Baran Singh v. Mufassil Bank Ltd. MANU/UP/0099/1924 :

AIR1925All206 , it was laid down that :

"The Articles of Association of the company define the power of Directors as

between themselves and the company, and unless there is anything in those
Articles limiting the powers of the Board of Directors in carrying on the
ordinary business of the corporation, a third party who deals with the
Directors or with the Managers acting under those powers, however,
irregularly, is protected if he acts in good faith in his dealing with them."
(208).

16. In Dehra Dun Mussorie Electric Tramway Co. Ltd. v. Jagmandar Das
MANU/UP/0214/1931 : AIR1932All141 , a Bench of this Court held that :

"A company is liable for all the acts done by its directors even though
unauthorized by it, provided such acts are within the apparent authority of
the directors and not ultra vires of the company. Persons dealing bona fide
with a managing director are entitled to assume that he has all such powers
as he purports to exercise if they are powers which, according to the
constitution of the company a managing director can have". (head-note).

17. In T. R. Pratt (Bombay) Ltd. v. E. D. Sassoon and Co.

MANU/MH/0170/1935 : AIR1936Bom62 , it was held that where the act of

11
borrowing is ultra vires the directors, and not ultra vires the company, the
company is liable to pay. Further it was held that:

"If it is shown that a particular act was ostensibly authorised by the statute,
the Memorandum and Articles of Association, persons dealing with the
company are not concerned to see that the company has put itself into a
position to exercise its Power properly." (p. 80).

The reason of this rule was stated to be "that it would be disastrous if

contracts made with companies could be impeached on account of matters
known to the company but not to the other contracting party", (p. 80).

18. In Biggerstaff v. Rowatt's Wharf Ltd. (1896) 2 Ch D 93 (E), it was held

that : "Persons dealing bona fide with a managing director are entitled to
assume that he has all such powers as he purports to exercise, if they are
powers which according to the constitution of the company a managing
director can have".(head-note).

19. Further, it was held in that case that if the director could have the
power, or might have the power to do what he purported to do, then a
creditor proceeding in a bona fide way could assume that he had the power
to do what he actually did.

20. To the same effect is the law laid down in Dey v. Pullinger Engineering
Co., 1921 1 KB 77 (F).

21. In Buckley on the Companies Act (12th Edition) the law relating to
indoor management is stated at page 375 as follows :

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"Outsiders are bound to know what Lord Hartherley called the 'external
position of the company'; but are not bound to know its 'indoor
management'. If persons are held out as and act as directors, and the share-
holders do not prevent them from so doing outsiders are entitled to assume
that they are directors, and as between the, company and such outsiders,
the acts of such directors, de facto will bound the company".

22. On behalf of the appellant in the present case strong reliance was placed
on two cases reported in Houghton and Co. v. Nothard, Lowe and Wills Ltd.,
1927 1 KB 246 (G) and Kredit Bank Cassel G. M. B. H. v. Schenkers, Ltd.
1927 1 KB 826 (H). In our opinion, the facts of both these cases were
different. In the former case, the transaction was of an unusual kind. There
were on the face of it, facts which should have put the plaintiff on suspicion.
The entire transaction was not done by the Director. The Secretary had also
come into picture.

There were circumstances which should have put the plaintiff on enquiry. In
spite of this, however, the plaintiff did not make any enquiry at all. In the
present case, no such suspicious circumstances exist. The latter case is also
distinguishable on facts. In this case, the transaction was done not by the
directors at all but by a branch manager; and this branch manager had
acted in fraud of the company, and had committed forgeries in the
perpetration of the fraud. In the present case, the transaction was not
entered into by a branch Manager, but by Sri G. C. Jain who was the
director.

Moreover it is not alleged by the defendant that Sri Gulab Chand Jain, the
director, had acted in fraud of the company.

23. On behalf of the appellants, our attention was drawn to Ext. 2, the
receipt of the money and it was argued that in this receipt Sri Gulab Chand

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Jain had described himself only as the director of the Managing Agency, and
not the director of the defendant company. A perusal of the receipt, however,
shows that it contains the name of the defendant company printed in bold
letters as its heading. It also appears that the words 'B. R. & Sons' at the
bottom are buried under the seal affixed on this receipt.

The first and the obvious impression created on a cursory observation of the
receipt is that it, was issued on behalf of the company and the word
'director' might have reference to the defendant company. In any case, the
manner in which Sri Gulab Chand Jain described himself in the receipt is
quite immaterial, if, in fact, he was really acting on behalf of the company.
We have already pointed out that he was acting on behalf of the company.
This point, as already observed, stood conceded on behalf of the defendant
as a result of the statements made by their counsel on 11-2-1954.

It is also supported by other circumstances. The plaintiff also appears to

have taken the negotiation to be on behalf of the company. This is borne out
by the fact that the cheque for the entire amount of loan was drawn in
favour of the defendant Company. The receipt of the said amount was also
executed on the printed receipt book of the defendant company. The
defendant company also admitted in para 3 of its written statement that the
cheque for Rs. 1,50,000/- was received by the defendant company. On 11-2-
1954 the defendant's counsel further admitted that the cheque was credited
in the books of the defendant.

These facts were also admitted in evidence. Under the circumstances, there
can be no manner of doubt that Sri Gulab Chand Jain was actually
purporting to act on behalf of the defendant. In view of this fact, the manner
in which he described himself in Ext. 2 has hardly any bearing or value.

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24. For the above reasons, we are of opinion that the transaction of
loan is binding on the defendant. This is quite enough to entitle the
plaintiff to a decree in the present case.

25. On behalf of the plaintiff, reliance was further sought to be placed on the
two other doctrines viz., the doctrine of benefit and the doctrine of
ratification. Regarding the doctrine of benefit, it was argued on behalf of the
respondent that in the present case it is admitted that the money went into
the coffers of the company. Reliance in this connection was placed on para 3
of the written statement which states as follows :

"It is admitted that cheque for Rs. 1,50,000/-was received by the defendant
from the plaintiff".

26. On 11-2-1954 Sri Amba Prasad Gupta the defendant's counsel further
admitted that the amount of Rs. 1,50,000/- was credited in the books of the
defendant company." It was further admitted in evidence by the defendant's
witness Sri B. C. Gupta, who is an accountant of the defendant company
that this amount of Rs. 1,50,000/-was shown in the balance sheet. No
doubt this witness also stated that this amount was gradually debited to the
account of BeharilalRamcharan. Once, however, the payment is received by
the defendant company, the receipt of the money itself is a benefit to the
company, and the creditor is not concerned with what is done with the
money by the company subsequently.

On this point also we are in agreement with the argument advanced on

behalf of the plaintiff, and are of opinion that the admitted facts are enough
to sustain the plaintiff's case based on this plea.

27. In MANU/MH/0170/1935 : AIR1936Bom62 , it was held :

15
that even if the borrowing by the agent of a company is unauthorised, the
company would be liable to pay if it is shown that the money had gone into
the coffers of the company. The lender having not advanced the money as a
gift but as a loan, and the borrower having received the benefit of the
money, the law implies a promise to repay. On the establishment of these
facts, a claim on the footing of money had and, received would be
maintainable.

28. There are a number of English cases also in support of the contention of
the respondent. In Re-David Payne & Co. Ltd.; Young v. David Payne & Co.
Ltd. 1904 2 Ch 608 (I), it was laid down that where a company has a general
power to borrow money for the purposes of its business, a lender is not
bound to enquire into the purposes for which the money is intended to be
applied. At page 613 Buckley J.'s view is given as follows :

"The borrowing being effected, and the money passing to the company, the
subsequent application of the money is a matter in which the directors may
have acted wrongly; but that does not affect the principal act, which is the
borrowing of the money."

This view of Buckley, J., was upheld in appeal.

29. In Reid v. Rigby & Co. (1894) 2 Q B 40 (J), it was held that where it is
shown that the money had come into the hands of the defendant and used
for its benefit, the defendant would be liable even though the act of
borrowing was unauthorised.

30. In Hulsbury's Laws of England (Third Edition) Vol. 6 page 299, para 603,
it is stated that :

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"Apart from ratification, the company will be answerable for any property
which has come into its possession through the unauthorised acts of the
directors".

In the present case, therefore, even supposing for a moment that the action
of the directors was unauthorised, the defendant company would be liable
because it is admitted by the defendant company that it did come into
possession of the money advanced by the plaintiff and the said money had
gone into its coffers.

31. The respondent also relied on the doctrine of ratification. In this

connection, reliance was placed on behalf of the respondent on the
statement of the defendant's own witness namely, Sri R. C. Gupta, D. W, 2
who stated as follows :

"Every year the balance sheet is prepared. Auditors check it and sign it.
Directors also sign. There consolidated liability is shown. In trial balance the
details of liabilities are given. Rs. 1,50,000/- was shown in the balance
sheet. Directors signed it. Rs. 1,50,000/- was shown in the name of J. K.
Jute Mills. Balance sheet is put before the Directors in the meeting.
Shareholders pass the accounts. On 30-9-1952 shareholders approved the
balance sheet. Directors had approved".

It is argued on behalf of the respondent that this admission by D. W. 2 who

is an accountant of the defendant company makes out a plea of ratification.
On behalf of the appellant it is argued that these facts are not sufficient to
make out the plea of ratification, as ratification, in order to be good in law,
must have been made with full knowledge of the facts which invalidate the
transaction. Reliance in this connection is placed on Smt. Premila Devi v.
Peoples Bank of Northern India, Ltd. MANU/PR/0061/1938. If Sri Gulab
Chand Jain had authority, then the question does not arise.

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If he had no authority, then this fact must have been known to other
directors as well as to the share-holders. It is not possible to believe that
though the directors and the share-holders fully knew that such a large
amount of money had gone into the account of the company yet, they were
oblivious of the fact of the want of authority of the person responsible for the
inflow of such a large sum into its coffers. For the above reasons we find
ourselves in agreement with the argument advanced on behalf of the
respondent on this point as well.

32. On behalf of the appellant a grievance was made that the pleas of benefit
and ratification were not taken by the respondent in their written statement,
and hence they should not be allowed to be raised. There is a two-fold reply
to this objection. Firstly, these pleas are raised in reply to a new plea which
is adduced on behalf of the appellant itself, namely, that the transaction was
ultra vires of the company. Secondly, both these pleas are based on
admitted facts.

If facts admitted or established give rise to certain questions of law, the

Court is not debarred from giving effect to such pleas by any technicality of
procedure. On behalf of the respondent reliance in this connection is placed
on Srinivas Ram Kumar Firm v. Mahabir Prasad MANU/SC/0021/1951 :
[1951]2SCR277 and KedarLall v. HariLall MANU/SC/0064/1951 :
[1952]1SCR179 . In the latter case, Bose J., observed as follows :

"I would be slow to throw out a claim on a mere technicality of pleading

when the substance of the thing is there and no prejudice is caused to the
other side, however clumsily or inartistically the plaint may be worded.'' (p.
192) (of SCR) : (at p. 52 of AIR).

In the present case, the defendant cannot complain of any surprise nor has
any grievance on this score been made before us. In this situation we would

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uphold the contention raised on behalf of the plaintiff-respondent in this
regard. We may however, observe that the plaintiff is entitled to a decree in
the present case independently of the last two pleas on the grounds given in
the earlier part of our judgment.

33. The only remaining question that arises in this case relates to interest.
On behalf of the plaintiff it is alleged that along with the cheque a covering
letter was also sent to the defendant. The carbon copy of the said letter is on
the file of this case and it is marked as Ex. 4. It is mentioned in this letter
that the disputed loan was repayable within six months, and carried interest
at 1% higher than the current bank rate. The plaintiff examined Parshottam
Das and Mangal Sen Gupta as P.Ws. 1 and 2 respectively in support of his
case.

The defendant produced Sri S.N. Kapur D. W. 3 in rebuttal. The case set up
by the defendant appears to be quite improbable. We are of opinion that the
trial Court rightly disbelieved Sri S. N. Kapur, D. W. 3 on this Point and, in
agreement with the view taken by the trial Court, we have no hesitation in
holding that the original of Ext. 4 had been handed over to Sri S.N. Kapur
along with the cheque. In this connection, it may also be mentioned that the
plaintiff had demanded repayment of the disputed amount together with
interest in both the reminders Exts. 5 and 6 sent by him to the defendant.
On behalf of the defendant no evidence was produced to indicate that they
controverted the claim of the plaintiff in this regard at any time previous to
the suit. Under the circumstances, there appears to be no reason to discard
the plaintiff's claim on this ground.

34. For the above reasons, we are of opinion that there is no substance in
this appeal. We, accordingly, dismiss it with costs.

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