Appeal No 221 of 1956
Appeal from the judgment and decree dated August 51955 of the Bombay High Court in Appeal No 128X of 1954
section N Andley J B Dadachanji Rameshwar Nath and P L Vohra for the appellants 654 A V Viswanatha Sastri and Tarachand Brij mohan Lal
for the respondents
January 31
 J This appeal which has come to this Court with a certificate issued by the Bombay High Court raises for our decision a short and interesting question about the scope and effect of the provisions contained in section 89 of the Indian Companies Act 1913 in relation to the law of banking
This question arises in this way
The appellant the Oriol Industries Ltd hereafter called the company was incorporated on May 15 1945 and it appointed as its managing agents Ms Poddar Chack  Co Soon after its incorporation the company passed a resolution on May 21 1945 whereby it decided to open an account with the respondent the Bombay Mercantile Bank Ltd hereafter called the bank and in accordance with the said resolution an account was opened with it on May 28 1945
Twenty eight cheques were drawn on this account aggregating the total amount of Rs 28882 13 0 during the period between May 28 1945 and July 31 1945
These cheques were drawn by K Poddar and M J Chacko in pursuance of the authority conferred on them by the company
On September 28 1948 by its liquidator the company brought the present suit claiming to recover from the bank the said amount of Rs 28882 13 0
The case for the company as set out in the plaint was that the payment of the said amount had been made by the bank wrongfully and negligently and the amount drawn under the said cheques had been wrongfully debited to the company in its account kept by the bank
It appears that the resolution for winding up of the company was held by the court to be null and void and Bo the plaint was subsequently amended whereby the name of the liquidator was struck out and the suit then purported to be one which was instituted by the company itself The plea raised by the company that the cheques in question had been negligently and wrongfully honoured by the bank was 655 seriously disputed by the bank in its statement
Mr Justice Tendolkar who tried the suit on the Original Side of the Bombay High Court however upheld the plea raised by the company and came to the conclusion that the cheques had been wrongfully B honoured
Even so Mr Justice Tendolkar held that out of the total amount in dispute an amount of Rs 8882 13 0 had been actually received by the company and so on equitable grounds he rejected the company s claim in regard to the said amount
The company s claim was however decreed in respect of the balance of Rs 20000
The decree thus passed by Tendolkar J was challenged by the bank in its appeal whereas the rejection of the company s claim in respect of Rs 8882 13 0 by the trial judge gave rise to cross objections by the company
The Court of Appeal has reversed the finding of Tendolkar J and has held that the bank was not liable to repay any amount to the company since it had accepted and honoured the cheques issued on it in good faith
It may be stated at this stage that the plea of negligence which had been originally urged by the company in its plaint was expressly given up at the trial
Since the Appeal Court accepted the bank s case on the principal question of law it did not think it necessary to consider the question of limitation or the question about the applicability of the equitable doctrine on which the trial judge had relied
In the result the appeal filed by the bank was allowed the cross objections preferred by the company were rejected and the suit filed by the company was dismissed with costs
The company then moved the High Court for a certificate and on a certificate being granted it has come to this Court and on its behalf Mr Andley has urged that in coming to the conclusion that the company s claim was unsustainable the Appeal Court has misjudgedthe effect of the provisions of section 89 of the Indian Companies Act in relation to the conduct of the bank in the present case
That is how the principal question which falls for our decision is about the scope and effect of the provisions of s 89 of the Indian Companies Act
84 656 Before dealing with the said question of law it is necessary to dispose of a minor point raised by Mr Andley
He contends that the cheques issued by K Poddar and M J Chacko and honoured by the bank had not been issued in the form required by the resolution which gave them authority to operate on the company s account with the bank
The relevant resolution passed by the company provided that the banking accounts of the company be opened with the bank and another bank and that the said banks be and hereby authorised to honour cheques bills of exchange and promissory notes drawn accepted or made on behalf of the company by the Managing Agents Ms Poddar Chacko  Co by both the Directors of the Managing Agents firm namely Mr Keshavdeo Poddar and Mr M J Chacko and to act on any instructions so given relating to the account whether the same be overdrawn or not or relating to the transactions of the company
 The argument is that two conditions had to be satisfied before the bank could accept a cheque issued under this resolution the cheque had to be signed by both the Directors of the Managing Agents firm and it had to be drawn on behalf of the company
In point of fact all the cheques have been signed by the two individuals without describing themselves as Directors of the Manging Agents firm and without showing that they had drawn them on behalf of the company
These defects it is urged made the cheques irregular and inconsistent with the mandatory requirements of the resolution and the bank was there fore not justified in honouring the said cheques
In our opinion this argument is unsound
On a fair and reasonable construction of the resolution it is difficult to uphold the contention that the resolution required the drawers of the cheques to specify on each cheque that they were made or drawn on behalf of the company
The object of the resolution as well as its effect merely was to conform to the requirements of a 89 of the Indian Companies Act to which we will presently refer
It cannot be said that the resolution required that the drawers of the cheques had to comply with the said condition apart from the requirements of section 89  and so it would be unreasonable 657 to treat the said requirement as a condition prescribed by the resolution independently of section 89
In this connection the subsequent resolution passed by the company is significant
It appears that on October 22 1945 a resolution was passed by the company authorising M J Chacko to sign cheques for the company and when this resolution was communicated to the bank it was told that the cheques on behalf of the company would thereafter be signed as it For and on behalf of the Oriol Industries Limited For Poddar Chacko  Co in other words by this communication the bank was told that it is only cheques signed by M J Chacko in the manner specified in the communication that the bank should honour
This communication affords an eloquent contrast to the communication made by the company to the bank in regard to the earlier resolution by which Ms Poddar and Chacko were authorised to issue cheques on its behalf Therefore in our opinion the argument that the impugned cheques accepted by the bank were inconsistent with the specific mandatory requirements authorised by the resolution cannot be accepted
That takes us to the principal question of law
In dealing with the said question it is first necessary to refer to section 26 of the 26 of 1881
This section provides that  every person capable of contracting according to the law to which he is subject may bind himself and be bound by the making drawing acceptance endorsements delivery and negotiation of a promissory note bill of exchange or cheque This section further provides inter alia that  nothing herein contained shall be deemed to empower a corporation to make indorse or accept such instruments except in cages in which under the law for the time being in force they are so empowered
 This section does not purport to make any provision of substantive or procedural law
The latter part of the section merely brings out that a company cannot claim authority to issue a cheque under its first part
The law in regard to the company s power to issue negotiable instruments has to be found in the relevant provisions of the Companies Act 658 itself We must therefore turn to section 89 of the said Act
Section 89 provides that  a bill of exchange hundi or promissory note shall be deemed to have been made drawn or accepted or endorsed on behalf of a company if made drawn accepted or endorsed in the name of or by or on behalf of or on account of the company by any person acting under its authority express or implied
 It is clear that in order that a company may be bound by a negotiable instrument purporting to have been issued on its behalf two conditions must be satisfied the instrument must be drawn made accepted or endorsed in the name of or by or on behalf of or on account of the company and the person who makes draws endorses or accepts the instrument must have the authority given to him by the company on that behalf
This authority may be either express or implied
There is thus no doubt that before a company can be bound by a negotiable instru ment one of the essential conditions is that the instrument on its face must show that it has been drawn made accepted or endorsed by the company
This may be done either by showing the name of the company itself on the instrument or by the statement of the person making the instrument that he is doing so on behalf of the company
In other words unless the plain tenor of the negotiable instrument on its face satisfies the relevant requirement the instrument cannot be validly treated as an instrument drawn by the company
This position is not disputed
The importance and significance of the said requirement can be illustrated by reference to a decision of the Privy Council which had occasion to consider a similar requirement under section 27 of the 
The said section provides that every person capable of binding himself or of being bound as mentioned in Section 26 may so bind himself or be bound by a duly authorised agent acting in his name In Sadasuk Janki Das vs Sir Kishan Pershad 1 the Privy Council held that the name of the person or the firm to be charged upon a negotiable document should be stated clearly on the face or on 1 Cal
659 the back of the document so that the responsibility is made plain and can be instantly recognised as the document passes from hand to hand
It is not sufficient that the name of the principal should be in some way disclosed it must be disclosed in such a way that on any fair interpretation of the instrument his name is the real name of the person liable on the bill  According to the Privy Council  sections 26 27 and 28 of the contained nothing inconsistent with the principles just set out and there was nothing to support the contention urged before it that in an action on a bill of exchange or promissory note against a person whose name properly appears as a party to the instrument it is open either by way of claim or defence to show that the signatory was in reality acting for an undisclosed principal
 This decision was no doubt given under section 27 of the  but the principles enunciated in it apply with equal force to a negotiable instrument issued under section 89 of the Indian Companies Act
The inevitable consequence of this requirement is that wherever a negotiable instrument is issued without complying with the said requirement it would not bind the company and cannot be enforced against it
In The Bank of Bombay vs H R Cormack 1 it was held by the Bombay High Court that in order to make a company liable on a bill or note it must appear on the face of such bill or note that it was intended to be drawn accepted or made on behalf of the company and no evidence dehors the bill or note is admissible under section 47 of the Indian Companies Act X of 1866 equal to section 89 of the present Act
In support of this decision Sargent CJ has cited the observations of Lord Justice James in Miles  Claim 2  that it is the law of this country and always has been the law of this country that nobody is liable upon a bill of exchange unless his name or the name of some partnership or body of persons of which he is one appears either on the face or the back of the bill
 Thus there can be no doubt that the failure to comply with the essential requirements of section 89 must necessarily mean that thenegotiable instrument in question 1 Bom
2 643 660 defectively issued cannot be enforced against the company
But the question which arises for our decision is whether this principle can be invoked in the present case where the action is not based on a negotiable instrument
The present dispute is between the bank and its constituent the company and the claim made by the latter proceeds on the assumption that in honouring the cheques irregularly drawn the bank has acted improperly and exposed itself to the charge that it has honoured the cheques wrongfully and improperly
In considering this question it may be relevant to recall that both the courts below have found that the bank has acted bona fide and that the charge of negligence levelled against it by the company had been expressly given up
It is also necessary to bear in mind that when the company opened its account with the bank it was furnished with a book of cheques and it is from the said book that the impugned cheques have been issued
Evidence also shows that K Poddar and M J Chacko had no other joint account with the bank so that it is clear that when the impugned cheques were issued the bank was justified in thinking that the said cheques must have been issued by the two drawers on behalf of the only account on which they could operate and that the bank thought was done in pursuance of the authority conferred on them by the company by its resolution
In such a case if the bank honours the cheques can it be said that the company on whose behalf the cheques were purported to have been issued can contend that the cheques should not have been honoured and that the amount debited to the company by the bank in its accounts has been improperly and wrongfully debited It would be noticed that the principle underlying section 89 which is a very healthy and salutary principle affords to the companies protection against claims made on negotiable instruments defectively or irregularly drawn but when we deal with a dispute between a company and the bank of which it is a constituent it is difficult to extend the said principle
The said principle in terms is applicable only when a claim is made against a company on a negotiable instrument in other words 661 it is only in the matter of enforcement of negotiable instrument against a company that the principle comes into play
It is therefore difficult to see how the principle enunciated in section 89 can be extended to a claim made by the company against the bank
In our opinion therefore the High Court was right in coming to the conclusion that section 89 cannot be invoked by the company against the bank in making the present claim
The decisions on which the company relied are all decisions in cases where a negotiable instru ment was sought to be enforced against the company and had thus given rise to a cause of action
No case has been cited before us in which section 89 has been extended to a claim like the present
On the other hand there is authority of the House of Lords in support of the view which the High Court has taken in the present case
In Mahony vs East Holyford Mining Co 1 a similar point arose for the decision of the House of Lords
One of the two points in that case had reference to eight cheques which had been defectively or irregularly drawn on behalf of the company and honoured by the bank
In reject ing the company s claim against the bank in respect of the amount covered by the said cbeques Lord Chelmsford observed as follows  With respect to the objection that the name of the company is not on eight of the cheques paid by the Bank and therefore by the Companies Act 1862 they are invalid and the official liquidator is entitled at all events to the amount of these cheques the short answer is that although the bankers might have perhaps required that these cheques should be made formally correct before they were paid yet having paid them upon the demand of the only persons whom they knew as representing the company in the operations upon the account there is not the slightes t pretence for insisting upon the liability of the Bank to repay the amount of these cheques on the ground of an unauthorised payment of them
 The Lord Chancellor Lord Cairns disposed of the point in these words  The question being merely as 1 1875 7 Eng
 Irish Reports 869 662 to the authority given to the bankers to make the payment it appears to me that when those who drew and those who honoured the cheque knew the account on which it was intended to operate the result was the same as if the account had been mentioned on the face of the cheque and that no distinction is to be made as to the money paid upon these cheques Lord Penzance agreed with this opinion and observed that  looking at the way in which the cheques were drawn and understood by those who drew them and by those who paid them they stand in no different way from the rest of the cheques in the case
 It would thus be clear that the authority of this decision of the House of Lords is in favour of the view taken by the High Court that the principle enunciated by section 89 of the Indian Companies Act cannot be extended to a claim made by a company against its bank on the ground that the cheque which the bank accepted and honoured was defective in that it did not comply with the requirements of section 89 and could not have been enforced against it
We ought to add that section 47 of the corresponding English Act of 1862 is exactly in the same terms as section 89 of the Indian Act
It also appears that Chalmers has expressed the same opinion for he says So too bankers may be justified in paying cheques out of the funds of a company where clearly by the form of the cheques the company would not be liable as drawers if they should not be paid  1
Similarly Halsbury approves of the same principle in these words  although documents omitting the name of the company therefore cannot be relied on as against the company monies paid under them to persons known to represent the company are not on that account payable over again  2
The result is the appeal fails and is dismissed with costs
Appeal dismissed
1 Chalmers on  Bills of Exchange  P 63
2 Halsbury s Laws of England 3rd Edn Vol  paragraph 830


Summary:
The High Court affirmed an order of acquittal of the respondent on a charge of murder under section 302 of the Indian Penal Code passed by the Sessions judge on the ground that the accused was of unsound mind
The prosecution case was that the accused committed the murder of his mother in law against whom he had borne ill will by severing her head from her body while she was asleep at dead of night
He made a confession of the crime but a plea of insanity was taken at the trial
On appeal with special leave by the State  Held that the crucial point of time at which unsoundness of mind should be established is the time when the crime is actually 1 ILR 19382 Cal 337
75 584 committed the burden of proving which lies on the accused in order to entitle him to the exemption provided under section 84 of the Indian Penal Code
It is not sufficient only to prove that the accused suffered from an epileptic type of insanity before or after the commission of the crime
Henry Perry 14 Cr
Appeal Rep 48 followed
There was nothing on the record of the instant case to show that at the moment when the crime was committed the accused was capable of knowing that what he was doing was wrong or contrary to law and as such he was not entitled to an acquittal under section 84 of the Indian Penal Code
Refusal by the High Court to interfere with an acquittal in the proved circumstances of the case could not be justified under any rule as to  impelling reasons