Kerala High Court

M/S.Sree Gokulam Chit And Finance ... vs Ganesh.H on 14 September, 2021

              IN THE HIGH COURT OF KERALA AT ERNAKULAM
                               PRESENT
               THE HONOURABLE MR. JUSTICE GOPINATH P.
     TUESDAY, THE 14TH DAY OF SEPTEMBER 2021 / 23RD BHADRA, 1943
                         CRL.A NO.713 OF 2006

AGAINST THE JUDGMENT DATED 06.12.2005 IN C.C.NO.473/2003 ON THE FILE
OF THE JUDICIAL FIRST CLASS MAGISTRATE COURT, KAYAMKULAM.
APPELLANT/COMPLAINANT:

           M/S.SREE GOKULAM CHIT AND FINANCE CO.(P) LTD.,
           REGISTERED OFFICE AT NO.66 (OLD NO.356),
           ARCOT ROAD, CHENNAI-600 024,
           REPRESENTED BY ITS POWER OF ATTORNEY HOLDER,
           R.SANTHOSH CHANDRA KURUP,
           S/O.RAGHAVAN NAIR,
           CHAKOOR, KARUVATTA P.O.,
           ALAPPUZHA DISTRICT.

           BY ADVS.SRI.K.S.BABU
                   SMT.N.SUDHA


RESPONDENTS/ACCUSED:

     1     GANESH.H.,
           S/O HARINDRA IYER,
           T.C.37/776, B.P. STREET, FORT,
           THIRUVANANTHAPURAM.

     2     STATE OF KERALA
           REPRESENTED BY THE PUBLIC PROSECUTOR,
           HIGH COURT OF KERALA, ERNAKULAM.

    R1     BY ADV.SRI.BIJU BALAKRISHNAN

    R2     SRI.SANGEETH RAJ, PUBLIC PROSECUTOR

     THIS CRIMINAL APPEAL HAVING COME UP FOR ADMISSION ON 14.09.2021,
THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
 CRL.A NO.713 OF 2006
                                    -2-

                               JUDGMENT

This appeal has been filed by the complainant in a prosecution under

Section 138 of the Negotiable Instruments Act challenging the acquittal of

the 1st respondent accused in C.C.No.473 of 2003 on the file of the Judicial

First Class Magistrate Court, Kayamkulam. The reading of the impugned

judgment shows that the 1st respondent accused was acquitted principally

on the ground that the company was not properly represented before the

court and also on the ground that the complaint could not have been

maintained at Kayamkulam. The court also found that the cheque in

question was not issued in discharge of a legally enforceable debt in as

much as the complainant had failed to substantiate any consideration for

issuance of the cheque.

2. Before this Court, it is a case of the learned counsel appearing

for the appellant with reference to Section 85 of the Indian Evidence Act

and with reference to the contents of Ext.P1 power of attorney that when

there is a presumption under Section 85 of the Indian Evidence Act that a

power of attorney executed before a notary has been properly executed

and authenticated, the court should not have held that the complaint was

not maintainable. It is also contended that the complaint was perfectly CRL.A NO.713 OF 2006

maintainable at Kayamkulam and further that the finding of the trial court

that Ext.P2 cheque was not supported by consideration is completely

fallacious. It is submitted that the complainant was entitled to the

statutory presumption under Section 139 of the Negotiable Instruments

Act.

3. Section 85 of the Indian Evidence Act has no application.

While Section 85 of the Evidence Act, no doubt, provides that a power of

attorney executed before and authenticated by a notary public or other

officials mentioned in Section 85 is deemed to be so executed and

authenticated, that does not mean that a power of attorney executed by a

person purporting to represent a company should be deemed to be proper

authority to represent the company.

4. The learned counsel for the 1st respondent accused would

submit that the court below has correctly found that the complaint was not

maintainable at the instance of the power of attorney holder. It is

submitted that with reference to the judgment of the Supreme Court in

Dale and Carrington Investment (P) Ltd. v. Prathapan [2005 (1)

SCC 212] and the judgment of this Court in Basheer M.K. V. State of

Kerala and another [2016 (3) KHC 873] that unless there was CRL.A NO.713 OF 2006

evidence to show that the person executing the power of attorney was

himself duly authorised to represent the company, the complaint filed

through the power of attorney could not be held as maintainable. It is also

submitted that the complaint was clearly not maintainable at

Kayamkulam and further that the finding of the court that the cheque in

question was a blank cheque issued at the time of releasing the amount

under a chitty is completely justified.

5. The questions relating as to whether the complaint was

maintainable at Kayamkulam and also as to whether the cheque was

supported by consideration is required to be considered only if it is found

that the complaint itself was maintainable.

6. It is settled law that in so far as a company is concerned, it is a

distinct juristic personality and it can be represented by persons who may

be authorised terms of provisions contained in the Articles of Association

of the company or in terms of a resolution duly passed by the Board of

Directors of the Company. It is clear from a reading of the impugned

judgment that the person who executed the power of attorney was not

described in any manner to be the person authorised either by the Articles

of Association of the company or by a valid resolution to represent the CRL.A NO.713 OF 2006

company. In Dale and Carrington's case (supra), it was held in

paragraph 15 as follows:-

"15. At this stage it may be appropriate to consider the legal position of directors of companies registered under the Companies Act. A company is a juristic person and it acts through its directors who are collectively referred to as the board of directors. An individual director has no power to act on behalf of a company of which he is a director unless by some resolution of the board of directors of the company specific power is given to him/her. Whatever decisions are taken regarding running the affairs of the company, they are taken by the board of directors. The directors of companies have been variously described as agents, trustees or representatives, but one thing is certain that the directors act on behalf of a company in a fiduciary capacity and their acts and deeds have to be exercised for the benefit of the company. They are agents of the company to the extent they have been authorized to perform certain acts on behalf of the company. In a limited sense they are also trustees for the shareholders of the company. To the extent the power of the directors are delineated in the Memorandum and Articles of Association of the company, the directors are bound to act accordingly. As agents of the company they must act within the scope of their authority and must disclose that they are acting on behalf of the company. The fiduciary capacity within which the directors have to act enjoins upon them a duty to act on behalf of a company with utmost good faith, utmost care and skill and due diligence and in the interest of the company they represent. They have a duty to make full and honest disclosure to the shareholders regarding all important matters relating to the company. It follows that in the matter of issue of additional shares, the directors owe a fiduciary duty to issue shares for a proper purpose. This duty is owed CRL.A NO.713 OF 2006

by them to the shareholders of the company. Therefore, even though S.81 of the Companies Act which contains certain requirements in the matter of issue of further share capital by a company does not apply to private limited companies, the directors in a private limited company are expected to make a disclosure to the shareholders of such a company when further shares are being issued. This requirement flows from their duty to act in good faith and make full disclosure to the shareholders regarding affairs of a company. The acts of directors in a private limited company are required to be tested on a much finer scale in order to rule out any misuse of power for personal gains or ulterior motives. Non applicability of S.81 of the Companies Act in case of private limited companies casts a heavier burden on its directors. Private limited companies are normally closely held i.e., the share capital is held within members of a family or within a close knit group of friends. This brings in considerations akin to those applied in cases of partnership where the partners owe a duty to act with utmost good faith towards each other. Non applicability of S.81 of the Act to private companies does not mean that the directors have absolute freedom in the matter of management of affairs of the company."

7. The judgment of this Court in Basheer M.K.. also takes the

view (though in slightly facts and circumstances) that the power of

attorney holder has to clearly establish the delegation of authority to

represent the company.

8. In the light of the above, I am of the opinion that the power of

attorney holder representing the company in the proceedings before the

court below had failed to establish that he was duly authorised to CRL.A NO.713 OF 2006

represent the company. This is because the person who executed the

power of attorney himself did not disclose any authority given either by

the Articles of Association of the company or by resolution of the company

to represent the company. In the light of the above, it is not necessary to

consider any other point raised.