004-NLR-NLR-V-72-H.-C.-HENRY-SOYSA-and-others-Appellants-and-THE-JUPITER-CIGARETTE-AND-TOBACCO-.pdf
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SIRIMANE, J.—Soysa v. Jupiter Cigarette
and 2'obacco Co'. Ltd.
1968 Present : H. N. G. Fernando, C.J. and Sirimane, J.
C. HENRY SOYSA and others, Appellants, arid THE JUPITERCIGARETTE AND TOBACCO CO. LTD., Respondent
S. C. 156/66—D. C. Colombo, 9030/MB.
Company law–Dcbl incur; a l by irregularly appointed Directors—Ratification of itby the Company—Effect.
Mortgage—Concurrent mortgagees—Right to sue mortgagor in one action—Joinderof parlies and causes of action—Mortgage Act (Cap. SO), s. 65 (1) (a).
Wlioro an intra circs debt transaction on behalf of a Company is entered intoby its Directors concerning whoso appointmont as Directors thcro is so moirrogularity, tho transaction may bo ratified by Iho Company.
■Yhoro a single property is hypothecated in a singlo mortgago bond, two ormore lenders who have providod, in different proportions, tho money borrowedby tho mortgagor aro permitted by soction G;3 (1) (a) of tho Mortgage Act tosuo on tho bond in one action. In such a caso, it cannot bo contended that•thoro is a misjoinder of parties and causos of action.
Appeal from a judgment of the District Court, Colombo.
W. Jayeicardene, Q.Q., with Ben Eliyalamby, for the plaintifis-:Appellants.
■C. Ranganaihan, Q.O., with B. J. Fernando, for the defendant-respondent-.
Cur. adv. vult.
December 20, 196S. Sirimane, J.—
This was a hypothecary action filed bj' the three plaintiffs against thedcfciidant-Company claiming a sum of R.s. 125,000 on mortgage bondNo. 432 of 13th August 1960 (Pi).
The defendant-Company filed answer-pleading, inter alia, that theborrowing was not for the purposes of the Company, that there was noresolution or decision in terms of the Articles of the Company to borrow,that the borrowing was ultra vires, and that the bond was, therefore, notbinding on the Companj-.
According to the recitals in the bond PI, a meeting of members hadbeen held on 12th August 1960 and a resolution passed authorising theborrowing. .
SIRIMAXE, J-—Soyaa «>. Jupiter Cigarette13
and Tobacco Co. Ltd.
The learned District Judge dismissed the action on the ground thatthere was no meeting held on that day at which such a resolution waspassed.
The bond bears the seal of the Company, and has been signed by twopersons : E. A. P. Edirisinghe, and E. A. S. Appuhamy (by his thumbimpression) as Directors of the Company.
The evidence shows that at some time before 16th August 1960,
A. P. Edirisinghe was in reality the Company itself. He owned 3239shares out of 3241. His father, E. A. S. Appuhamy, and his motherowned one share each.
The money was lent to the defendant-Company by the plaintiffs onthree cheques, in all of which the defendant-Company is the payee.At the time of the borrowing, tile Company was in debt to the extent ofabout Rs. 122,000 according-to-Dl,-which is a statement of-affairs. of theCompany as at 31st May 1960. This sum includes loans advanced to theCompanj' by Directors among whom were the three plaintiffs andE: A. P. Edirisinghe.
P9 shows that this bond had been sent to the Registrar of Companiesfor registration as an instrument creating a charge over the Company’sproperty, as required by Section 7S of the Companies Ordinance,Chapter 145. The annual returns of the Company for the years 1961,1962 and 1963 sent to the Registrar of Companies (P7, P6 and PS) showthis sum of Rs. 125,000 borrowed on this bond as a debt due from theCompany.
At the time the bond was signed, E. A. P. Edirisinghe was admittedlya Director of the Company and his father E. A. S. Appuhamy, before hesigned as a*Director, had, according to the evidence, the terms of thebond explained to him by his ora lawyer.
E. A. P. Edirisinghe giving evidence on behalf of • thedefendant-Company stated that his father was a Director on 13th August1960, i.c., the day on which the bond was signed. This fact was never indispute. So that on the face of the bond and the defendant’s ownevidence relating to its execution, PI was a perfectly valid bond andwould be binding on the Company.
Was the borrowing ultra vires ?
In the Articles of Association of the Company, under the headingx‘ Powers and duties of Directors ”, Regulation 69 reads as follows :—-
“ The Directors may from time to time at their discretion raise or
borrow any sum or sums of money for the purposes of the Company in
such manner and upon such terms and conditions in all respects as
they think fit. Provided that the Directors shall not, without the
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SIRIMANE, J.—Soysa v. Jupiter Cigarette
and Tobacco Co. Ltd.
sanction of a General Sleeting of the Company, so borrow any sum ofmoney which will make tho amount borrowed by the Companj' andthen outstanding exceed the amount of tho subscribed capital for the. time being of the Company. Nevertheless no lender or other persondealing with the Company shall be concerned to see whether thi3 limitis observed.”
The sum borrowed is admittedly much less than the subscribed capital ofthe Company at that time. So that there was no necessity for a meetingor a resolution authorising the borrowing as long as it was done by twoDirectors for tho purposes of the Company. In these circumstances,
I do not think that it was necessary to decide whether, in fact, a meetinghad been held to authorise the loan and the exact time and place of themeeting. It could not be seriously contended that the money borrowedwas not utilized for the purposes of the Company. On tho contrary,Dl, PG, P7 and P8, referred to earlier, indicate that it was so used.
The three plaintiffs had themselves been Directors of this Company,and sold their shares to Edirisinghe. It was submitted that the moneyborrowed on the bond was for the purpose of purchasing these shares.The evidence, however, shows that Edirisinghe had plenty of money' ofhis own to buy these shares for himself, and the cheques D9 and DIO,D62 to DG4, D7I and D72 put this matter beyond doubt. These wereEdirisinghe’s personal cheques on which he purchased the shares.
According to the copies of the minutes P5, P10 and Pll, signed by allthe Directors including Edirisinghe, three meetings had been held on12th August 1960, and according to Po, a resolution was passedauthorising this Joan. The learned District Judge, on the evidence ofProctor Abcywardenc (who was alleged to have been present at thatmeeting, but who denied that fact), held that there was no meeting atwhich tho loan was authorized, and that tho defendant was, therefore,not liable. He said in his judgment,
*' On a consideration of the circumstances which I referred to, I holdthat no meeting of shareholders was held on 12.8.60 at which aresolution is said to have been passed with regard to the alleged loanPI. I hold that tiie evidence, real as well as circumstantial, issufficient to. contradict the recital in Pi although it is a notarialdocument atid also the minutes Po. In view of this the deftndnul-Company had no power to borrow.''
As pointed out earlier, under Regulation 69, no resolution wasnecessary to empower the Directors to raise tho loan, and once it wasadmitted that two persons, who were, in fact, Direc tors of the Companyat the time of its execution, signed this bond, I think that theCompany cannot avoid liability to repay the loan.
SIRIMAXE, J.—Sogsa v. Jupiter Cigarette15
and Tobacco Co., Ltd.
It is not suggested that this was auditing but an honest and bona fidetransaction. No shareholders were in any way prejudiced and allpersons concerned were aware of, and consented to, the transaction.
In these circumstances, I think that the learned District Judgeattached too much importance to the exact date of tlxe meeting at whichDirectors were appointed.
Even assuming that there had been some irregularity in thoappointment, the evidence {for example, P9, P6, P7 and PS) clearlyshoAvs that the Company ratified the borrowing of the loan on PI.
In Parker and Coper Limited v. Reading and James 1 it Avas held thatif all the individual corroboratory, in fact, assent to a transaction Avhichis intra vires the Company, although ultra vires the Directors, it is validalthough they had not met together in one room or place, but all ofthem discussed and agreed to do one Avith another separately. In the-course of his judgment, Astbury,. J. said._ “If Company Law enablesthe entirety of the corroborators to ratify an irregular intra virestransaction, why should this not protect an honest bona fide intra virestransaction entered into for the benefit of the Company ?”.
An issue as to Ahether there rcas a misjoinder of parties and causes ofaction had been left unansAvcred by the learned District Judge and someargument Avas addressed to us on this point. There is a single bond onwhich a single property is hypothecated. The fact that there were threelenders who provided the money borroAved in different i>ropertions, doesnot, in my view, preclude all three of them suing on tho bond in oneaction. I think section 65 (1) (a) of the Mortgage Act, Chapter 89,contemplates an action of this kind. That section reads as folloAVS :—
“ 65 (1). Where a mortgage bond is executed in favour of two or morepersons (each of whom is hereinafter referred to as a “ mortgagee ”) inconsideration of sums due or to be due to each of such persons by themortgagor,
any such mortgagee to Avhom any monies secured by themortgage aro due and payable, may institute a hypothecary actionfor the enforcement of the mortgage, and in such action join as adefendant, every such mortgagee., who is not a plaintiff in theaction.”
The judgment of the learned District Judge is set aside and judgmententered for tlie plaintiff as prayed for in the plaint. The plaintiffs areentitled to costs of this appeal.
N. G. Fernando, C.J.—I agree.
1 136 Law Time* 170.
Appeal allowed.