' MUNIB AKHTAR, J.--- The application that falls for determination has been filed by the defendant seeking rejection of the plaint under Order VII, Rule 11, C.P.C.. The suit is in fact an application under section 20 of the Arbitration Act, 1940 (read with section 41 thereof), seeking to refer to arbitration a dispute said to have arisen between the parties. The merits or otherwise of the main application are not germane to the issue raised by the present application. It suffices to note that the plaintiff is a private limited company registered under the Companies Ordinance, 1984. The sole ground on which rejection is sought is stated as follows in the application:--- "It is respectfully prayed on behalf of defendant above named that this Hon'ble Court be graciously pleased to reject the Plaint in the above Suit as the same has not been filed by a person duly authorized by a resolution of the Board of Directors of the plaintiff and as such is hit by the provisions of Order XXIX, rule 1, C.P.C. And the judicial pronouncements there under by the Superior Courts of Pakistan."
2. Learned counsel for the defendant submitted that it was well-settled that the specific situations listed in Order VII, Rule 11, C.P.C. Were not exhaustive, and the Court could reject the plaint even if otherwise so warranted. Learned counsel referred to Para 26 of the plaint (for convenience, the main application will be referred to herein as the "plaint"). This states as follows:- "26. That this application has been filed by the duly authorized officer of the plaintiff who is well conversant with the facts of the case."
' Learned counsel submitted that this statement by itself was insufficient to establish that the present proceedings had been competently instituted, i.e,, that the officer had been duly authorized by a resolution of the board of directors of the plaintiff. Reference was made to Order XXIX, Rule 1, C.P.C. And also to the relevant provisions of the Sindh Chief Court Rules (OS). Learned counsel also referred to section 196 of the Companies Ordinance.
3. By far the most important aspect of the submissions by learned counsel was a reference to and detailed examination of the case law, starting with the judgments of the Supreme Court in Muhammad Siddiq Muhammad Umar and another v. Australasia Bank Ltd. PLD 1966 SC 685 and Ifihikhar Hussain Khan of Mamdot v. Ghulam Nabi Corporation Ltd. PLD 1971 SC 550 and then moving chronologically to the present and ending with a single Bench judgment of this Court reported as National Insurance Corporation and others v. Pakistan National Shipping Corporation and others 2006 CLD 85. On the basis of the cases relied upon, learned counsel submitted that it was clear that the present proceedings had been incompetently filed and the plaint was therefore liable to be rejected. It will be convenient to list and consider the cited authorities later on.
4. Learned counsel for the plaintiff strongly opposed the application for rejection of plaint. It was pointed out that the application under consideration was not supported by an affidavit. Learned counsel also analyzed some of the judgments relied upon by the other side, especially the two Supreme Court decisions noted above. In particular, learned counsel submitted respectfully that in one of the cited judgments, being a single Bench judgment of this Court reported as Dumez Borie v.
International Forwarders Ltd. NLR 1983 UC 184, the relevant provisions had not been properly appreciated, which was unfortunate since this decision appears to have been influential in the approach taken in subsequent cases. Learned counsel submitted that the proceedings had been competently filed by a duly authorized person. I may note here that learned counsel submitted that the plaintiff's directors had passed the necessary resolution, which had in fact been annexed along with the vakalatnama of Mr. Jamshed Malik, learned counsel who had been briefed at the time that the proceedings were instituted; To this, learned counsel for the defendant had taken strong exception, since his submission was that when he had inspected the file there was no such board resolution on the record. According to him, the document was a subsequent insertion and an attempt was being made to improve the plaintiff's case in response to the present application. In order to rebut this objection, learned counsel for the plaintiff made detailed submissions, referring to various orders made as well as the record and certain other miscellaneous applications also filed and pending.
' However, for reasons that will become apparent later, it is not necessary for me to consider this aspect and resolve the controversy as to when the board resolution was filed or placed on record.
It is, therefore, not necessary to burden the record with a detailed statement of the submissions and counter submissions made in this regard.
4. I have heard learned counsel as above, considered the case law relied upon and examined the record. Before proceeding further, it will be convenient to list some of those decisions that are considered in detail below and indicate how they are cited herein. These are as follows:---
(a) Muhammad Siddiq Muhammad Umar and another v. Australasia Bank Ltd. PLD 1966 SC 685 ("Australasia Bank");
(b) Ifthikhar Hussain Khan of Mamdot v. Ghulam Nabi Corporation Ltd. PLD 1971 SC 550 ("Khan of Mamdot");
(c) Abdul Rahim and others v. United Bank Ltd. PLD 1997 Kar. 62 (DB) ("United Bank");
(d) Dumez Borie v. International Forwarders Ltd. NLR 1983 UC 184 (SHC; SB) ("Dumez Bone");
(e) Standard Hotels (Pvt.) Ltd. v. Rio Centre and other 1994 CLC 2413 (SHC; SB) ("Standard Hotels").
5. The manner in which an application seeking rejection) of the plaint is to be considered and the principles applicable are well-established. ##T## As is well-known, one of the most important rules is that every averment of fact made in the plaint is to be taken as true and correct and consideration of the plaint must proceed on this basis. Now, the key paragraph from the plaint for present purposes has been reproduced above. Learned counsel for the defendant sought to cast the issue as though it was a pure question of law, and that is why so much emphasis was placed on the case law. However, with respect, that is not so. The issue raised is at the very least a mixed question of law and fact. The factual aspect obviously includes the question whether the necessary board resolution was passed or not. If it was not passed at all, or if passed was not appended to the plaint, or was not placed on the record, either at all or at the relevant time, or if passed, what form did it take, are all matters that can entail legal consequences. But all these matters have a factual element, which obviously must also be ascertained. To the extent that paragraph 26 of the plaint relates to the factual aspect, that must at least for present purposes be assumed to be true.
It is asserted, as a matter of fact, that the officer (one Mr. M. Aslam Nasim) who filed the plaint was authorized. To the question, authorized how, by whom and when, the paragraph itself gives no answer. But as will at once be appreciated, these are all matters that contain an important factual element. Now, one way to approach the factual aspect, as presently relevant, is to apply the presumption of regularity that can be made under Article 129 of the Qanun-e-Shahadat Order, 1984 and in fact this was urged by learned counsel for the plaintiff. But in any case, the important question is this: can, or are, such factual issues to be resolved while considering an application for rejection of plaint? To this, in my view, the answer can only be in the negative. With respect, it therefore appears to me that the present application is at the very least premature and cannot be sustained at this stage. A resolution of the objection necessarily requires the answering of one or more questions of fact, which must either be deemed to be true or are such as cannot, or ought not, be gone into at this stage.
6. When the cases cited by learned counsel for the defendant are looked at from this perspective, they fall (except for one) into certain categories, which are distinct and different from an application under Order VII, Rule 11, C.P.C. The cited cases can, in this sense, be categorized as follows. Firstly, there are those cases which were appeals arising out of proceedings in which issues were framed, the matter went to trial, evidence was recorded and there was judgment either decreeing or dismissing the suit. It will be seen that in these cases all aspects, both legal and factual, as were in issue were considered in light of the evidence that had been led by the parties.
This category includes both judgments of the Supreme Court in Australasia Bank and Khan of Mamdot and another decision of the Supreme Court in Habib Bank Ltd. v. Zelins Ltd. And another 2000 SCMR 472 (rent proceedings that went to trial), a Division Bench judgment of this Court in Dr. S.M. Rab v. National Refinery Ltd. And another PLD 2005 Kar. 478 a Single Bench judgment of this Court reported as Abubakar Saley Mayet v. Abbot Laboratories and another 1987 CLC 367 (on appeal from a civil court judgment) and a Division Bench judgment of the Lahore High Court in Government of Pakistan v. Premier Sugar Mills and others PLD 1991 Lah.381.
7. In the second category come cases which were decided, again after the framing, of issues and a trial at which evidence was led, as suits filed on the original side of this Court. Again, it will be seen that in these cases all issues, both legal and factual, were considered in light of the evidence led at the trial. These cases are Dumez Borie, National Bank of Pakistan and others v. Karachi Development Authority and others PLD 1999 Kar. 260 and National Insurance Corporation and others v. Pakistan National Shipping Corporation and others 2006 CLD 85. (I may note that in the last mentioned decision, the issue of maintainability was decided first, but evidence was led on the issue: see at pp. 89-90.) In the third category are suits that were filed on the original side of this Court, but in which the defendant did not appear and which were therefore, fixed for final disposal.
The suits were decided on the evidence as produced by the plaintiffs. Again, although there was no trial as such, the matters proceeded on the basis of the evidence tendered. The cases are Taurus Securities Ltd. v. Arif Saigol and others 2002 CLD 1665 and Gulf Air v. Shakil Air Express (Pvt.) Ltd. PLD 2003 Kar 156, both decisions being of the same learned single Judge. To these cases one can also, with respect, add Investment Corporation of Pakistan v. Ajax Industries 2004 CLD 1733, decided by the same learned single Judge. The last mentioned case was a winding up petition, which was refused on the merits. In addition and towards the very end (at pg. 1740) the learned single Judge made certain observations with regard to the maintainability of the petition. I am respectfully of the view that the facts and circumstances of this case were far removed from those at hand. It therefore provides no assistance in resolving the issue raised by the present application seeking rejection of plaint.
8. In the next category comes the Division Bench decision of this Court in United Bank. This common judgment disposed of a number of appeals that arose out of banking suits under the Banking Tribunals Ordinance, 1984. The learned Division Bench observed (at pg. 78) that the "the learned Presiding Officer had decreed the suits without framing any issues, recording any evidence and meeting any of the objections taken by the appellants". Insofar as the present issue is concerned, the learned Division Bench dealt with the same in paras 35 to 37 (pp. 105112) and concluded as follows in para 38: "The learned Banking Tribunal accordingly when deciding the entire case afresh must call for the articles of the respondent [United Bank Ltd.] and decide this issue in terms of the guidelines mentioned above". The appeals were allowed and the matters sent back to the Banking Tribunal "to decide all or other issues in the suits and the suits...." Thus, even here, the factual aspect of the matter was paramount, and since it had not been properly addressed, the suits were returned to the trial forum.
9. The next decision is a Division Bench judgment of this Court reported as Razo (Pvt.) Ltd. v.
Director, Karachi Region Employees Old Age Benefit Institution 2005 CLD 1208. In this case (which was a constitutional petition), it was admitted that no board resolution had been passed at the time of the institution of the petition but reliance was sought to be placed on a subsequent ratification of the filing by the board. The learned Division Bench held that there could be no such ratification. As is obvious, the fact-situation of this decision was wholly different from the one at hand.
10. As the above analysis makes clear, the overwhelming majority of the decisions cited by learned counsel for the defendant examined the issue of whether the suit was competently filed not as a pure question of law, but as an issue that could only be decided after evidence had been led and all the factual aspects brought before the Court. This is unexceptionable, and of course not at all the situation at hand. In my respectful view, there is a clear divergence between the conclusion that learned counsel for the defendant seeks to draw from the cited decisions, and what was actually decided therein, and especially the stage at, and basis on, which such decisions were made as opposed to the stage of the present proceedings.
11. The only case cited by learned counsel for the defendant that was decided in the specific context of an application seeking rejection of plaint was Standard Hotels, the 1994 decision of a single Bench of this Court. It is to be noted that the learned single Judge, after reserving order, gave permission to learned counsel for the plaintiff therein to file the Memorandum and Articles of Association of the plaintiff, which were considered in some detail. The learned single Judge also specifically relied on the Khan of Mamdot and Dumez Borie decisions. As already noted, in these cases the matter went to trial after issues were framed and evidence was led by the parties, which was then considered by the court. This was not merely the trial court but also the High Court (where additional evidence was recorded) and finally the Supreme Court in the first mentioned case and of course, this Court on its original side in the second case. This point has already been made above. With the utmost respect, the learned single Judge failed to appreciate that the context in and stage at which these two cases were decided was materially different from the position before him. Furthermore, as explained in detail below, in my respectful view, the learned single Judge has also not properly appreciated what was decided in the aforementioned two cases, especially the decision of the Supreme Court. In my respectful view, what has been said and decided in Standard Hotels requires reconsideration.
12. After having considered the cited decisions from the perspective just taken, I now turn to look at the key judgments separately and in some detail. These are the decisions listed in para 4 above. I start with the two foundational cases, the judgments of the Supreme Court in Australasia Bank and Khan of Mamdot.
13. Australasia Bank was a recovery suit filed at Lahore by the respondent bank against the appellants, who were its customer. The plaint was signed by one Mr. Muhammad Khan, who was described therein as the principal special officer and general attorney of the bank. One of the issues framed by the trial court was as follows: "Whether Mr. Muhammad Khan is competent to file this suit on behalf of the plaintiff bank?" At the trial, neither the Articles of Association of the bank, nor any resolution of the board of directors was produced. The only document produced wits a registered power of attorney whereby Mr. Muhammad Khan was appointed as a "general attorney" of the bank and to which the seal of the bank had been affixed. Mr. Muhammad Khan deposed that he had the authority to file the suit on such basis and on instructions received from the bank's managing director. The learned trial court decided the issue noted above against the plaintiff- bank. The issue on the merits was also decided against the bank, with the result that the suit was dismissed.
14. The bank preferred an appeal to the High Court. There was a difference of opinion between the two learned judges who heard the appeal and the matter was therefore referred to a third learned judge. The latter decided that in order to enable him to give decision additional evidence was required, in the shape of the Articles of Association of the bank and also the evidence of the managing director. Such evidence was recorded by and in the High Court itself. The Memorandum and Articles of Association were tendered in evidence, as was a resolution of the bank's board of directors, showing that the board had approved granting the power of attorney to Mr. Muhammad Khan, and they were empowered to do so. The managing director was also examined and indeed extensively cross-examined on his testimony. The third learned judge concluded that the suit had been competently filed and also gave decision on the merits in favor of the bank. The appeal was accordingly allowed.
15. Being aggrieved by this decision, the customer preferred an appeal to the Supreme Court. One question that arose for consideration was whether additional evidence ought at all to have been recorded in the High Court. To this the Supreme Court, after a detailed consideration, gave an affirmative answer. On the question relevant for present purposes, namely whether the suit had been competently instituted, the Supreme Court observed as follows (pg. 695, emphasis supplied): "It was apparent from the pleadings that the suit was being instituted by a constituted attorney of a public limited company. He could only do so if he was duly authorised in that behalf and occupied one or other of the offices mentioned in Rule 1 of Order XXIX of the Civil Procedure Code. A copy of the power of attorney had been produced which showed that Muhammad Khan had been empowered in that behalf but the question still remained to be ascertained as to whether those who gave him that power were competent to do so, as the authority was on behalf of a public limited company. For this purpose a reference to the Articles of Association of the company was certainly necessary see whether the Directors were competent to delegate such power. It was not necessary to see whether the Directors had in fact approved of the giving of such power-of- attorney to the person who presented the plaint. This was, however, proved by the production of the resolution of the Board of Directors as a matter of abundant caution. The additional evidence was to that extent, therefore, in our opinion, rightly admitted. This was all that was required. It was not necessary to call the Managing Director as the Court calling for the additional evidence itself realized subsequently. Even the production of the resolution could have been dispensed with, as it was not strictly necessary."
' Two points, of fundamental importance, require attention. Firstly, the Supreme Court held that an examination of the Articles of Association was necessary in order to ascertain whether the directors were empowered to delegate the power of instituting legal proceedings to someone else.
Secondly, and perhaps even more importantly, the Supreme Court observed that it was not necessary to see whether, in fact, the board had actually done so. The production of the resolution passed in this regard was considered to have been only "a matter of abundant caution", and it was expressly noted that it could have been dispensed with "as it was not strictly necessary".
16. The reason why the Articles of Association had to be examined was because the power of attorney under which Mr. Muhammad Khan acted was given under seal, and as the Supreme Court observed, "as a rule the Articles of Association of a company contain special provisions prescribing for the manner in which the seal of the company may be affixed and that those who deal with a company are bound to see that the document on the face of it accords with those provisions of the Articles" (pg. 696). It was not enough for a person dealing with the company to be satisfied with the power of attorney as presented simply because, it had the company's seal affixed to it. Any person so dealing with the company had to satisfy himself that the seal had been affixed in the manner as prescribed by the Articles. But that was all that he was required to do. Anything else was covered by the rule of indoor management, which was explained as follows by the Supreme Court (pg.
696): "According to this rule persons dealing with a company are bound to read the public documents of a company, i.e, its Memorandum and Articles of Association, and to satisfy themselves that the transaction entered into or proposed to be entered into is not inconsistent therewith, but they are not bound to do more, nor are they required to enquire into the regularity of the internal proceedings or what has been called 'the indoor management of the company', for, they are entitled to assume that all other things have been done regularly."
' Having seen the Articles of Association of the respondent bank, and the formalities prescribed therein for affixing the bank's seal to an instrument, the Supreme Court was satisfied "that Muhammad Khan was properly and lawfully empowered by the Directors who themselves had express power given to them under the Articles of Association to delegate their authority and the delegation so made empowered Mr. Muhammad Khan to sign execute and present plaints on behalf of the company" (pg.697). The suit was held to have been competently filed. The customer- appellants also failed to satisfy the Court on the merits and the appeal was accordingly dismissed.
17. It is of great importance to note, and the relevance of this point will emerge later, that in Australasia Bank the litigation was between a company (the bank) and a third party (its customer), in a situation where the rule of indoor management was applicable.
18. I turn to consider the decision in Khan of Mamdot. This was also a recovery suit, but with a difference. The suit had been brought in or around 1952 by the respondent company against the Khan of Mamdot (who had passed away by the time of the Supreme Court appeal and was represented there by his heirs). The suit was brought to recover the unpaid amount in respect of a cold storage plant that the company stated had been sold and supplied by it to the Khan of Mamdot. The suit was defended, and it was pleaded that in fact, the company owed a sum of Rs,100,000 (as will be appreciated, a huge sum of money in those days) to the defendant. In settlement thereof, the company agreed to transfer shares in the company worth Rs,50,000 to the defendant and for the balance supply certain plant and machinery. The Khan of Mamdot averred in his defence that 500 shares worth Rs,50,000 were transferred to him but that the plant and machinery supplied was defective and incomplete.
19. It is crucial for present purposes to note that on becoming a shareholder (and member) of the company, the Khan of Mamdot also became its director. In the written statement, the defendant took the objection that no notice was received by him, as director, of the board meeting at which it was decided by the directors to sue him through one Mr. Khurshid Mehmood, who was himself a director of the company, and who was authorized to file the suit at the meeting. It was contended by the defendant that in such circumstances, Mr. Khurshid Mehmood had not been properly authorized and the suit had not been competently filed.
20. On these pleadings, the issue relevant for present purposes was as follows: "Was Mr. Khurshid Mahmood authorised by the Ghulam Nabi Corporation to institute the present suit on their behalf?"
The suit went to trial and evidence was led on this and other issues. This issue was decided against the company and while other issues were decided in favour of the latter, since it failed on the issue of institution, the suit was dismissed. The company preferred an appeal to the High Court. In respect of the above mentioned issue, additional evidence was recorded by and in the High Court and it was then decided in favour of the company and against the Khan of Mamdot. The other points were also decided in favour of the company, with the result that its appeal was allowed and the suit decreed.
21. Against the aforesaid decision, the Khan of Mamdot preferred an appeal to the Supreme Court.
One question raised was whether additional evidence could have been recorded by and in the High Court. The Supreme Court, relying in part on its earlier decision on this question in Australasia Bank, held that the additional evidence recorded was admissible, but only in part and to the extent as noted (see at pg. 558). On the issue whether the suit had been competently filed, the Supreme Court concluded that when the relevant evidence was considered (i.e,, as recorded by the trial court and the additional evidence to the extent held permissible and admissible), the suit had not been properly filed by a duly authorized person. This was because the Khan of Mamdot had not received notice of the meeting of the board at which the aforementioned Mr. Khurshid Mehmood had been authorized to bring suit against the former. It was observed as follows (pp. 559-60): "The question, therefore, is whether in such circumstances can it be said that the meeting of the 28th September, 1951, was properly held and any business done in that meeting was a valid one. In my opinion, the meeting held on the 28th September, 1951, cannot be said to be a proper meeting.
In Halsbury's Laws of England, Third Edition, Volume 6, at page 315, the following statement of law is made:- "A meeting of directors is not duly convened unless due notice has been given to all the directors, and the business put through at a meeting not duly convened is invalid. Whether or not there was a regular board meeting is immaterial for purposes of binding the company if all the shareholders consent to what is done. It is not necessary to give notice of an adjourned meeting. If no fixed notice is required, the notice must be fair and reasonable."
' In the case of H.M. Ebrahim Sait v. South India Industrials Ltd.
' [AIR 1938 Mad. 962] it was held that in law a meeting of directors is not duly convened unless due notice has been given to all the directors. On the facts of the present case, I am satisfied that due notice of the meeting was not given to the deceased appellant and, therefore, the resolution passed in the meeting of 28th September, 1951, cannot be said to be a valid one. In my opinion, no valid authority was conferred on Mr. Khurshid Mahmood and, therefore, he was not competent to institute the suit. I would, therefore, hold that the learned trial Judge was perfectly justified in dismissing the suit on this ground."
' It is to be noted that on the merits the Khan of Mamdot's appeal would have been dismissed but since the suit itself was not competently instituted the appeal was allowed. The Supreme Court itself regarded this as a "technical ground" and for this reason left the parties to bear their own costs (see at pg. 563).
22. It is of crucial importance to note the difference between Australasia Bank and Khan of Mamdot. The former case involved a third party and an application of the rule of indoor management. The latter case involved, as it were, an insider, i.e,, the defendant in his capacity as a director of the company itself. In such circumstances, the rule of indoor management could have no application. The Khan of Mamdot had two distinct capacities. One was as the putative defendant in the suit for recovery of the unpaid amount. The second was as a director of the company. Notwithstanding that (as presently relevant) the whole purpose of the board meeting was to resolve to sue him, the Khan of Mamdot qua director was entitled to a notice of the meeting.
The company was, in law, obligated to give him due and proper notice of that meeting, just as it would have been obliged to do in respect of any other meeting of the board. No matter that on such notice, he would have opposed the resolution or may (in the circumstances) have chosen not to attend the meeting at all. Due and proper notice had to be given. Since as a matter of fact it was found that no such notice had been given, that vitiated the meeting and the entire proceedings and any decision taken thereat. Mr. Khurshid Mehmood could not, in law, have been properly authorized and therefore the suit had not been competently filed.
23. In my respectful view, the position is clear. Australasia Bank and Khan of Mamdot lay down separate and distinct rules, which relate to different fact-situations. The two rules cannot and ought not be conflated or applied as though they relate to different aspects of the same fact- situation or are facets of the same principle. The rule laid down in Australasia Bank can be regarded as the general rule, applicable where the defendant in the suit (or other legal proceedings) is a third party, to whom or in relation to whom the rule of indoor management would apply. I again draw attention to what the Supreme Court said at pp. 69597, especially the passages reproduced in paras 15 and 16 above. Where the rule of indoor management applies, the Supreme Court has held that even production of the board resolution itself is, strictly speaking, not necessary. All that is required is to see whether, as a matter of form, the Articles of Association have been complied with, and that is all, for which purpose it is only an examination of the Articles that is required.
24. Khan of Mamdot can be regarded as a special rule, which applies when the defendant is, for one reason or another, an "insider" (as it were). There, it may be necessary (but this depends on the fact-situation) to actually examine and consider whether, in fact or in law, the board resolution was passed or not and if so, in what manner, e.g., at a properly convened board meeting. But even this clearly has a factual element. It is only once the facts have teen ascertained that the legal consequences that follow can be determined and applied.
25. It is also, in my view, highly significant that in Khan of Mamdot, Australasia Bank was not regarded as throwing any light as would be relevant for deciding whether the suit was competently filed, in the facts and 'circumstances of that case. As noted above, Australasia Bank was cited, but on a completely different point, relating to the recording of additional evidence in the High Court. It is also pertinent to note that the author of the judgment in Australasia Bank, Hamoodur Rehman, J., was a member (by then as Chief Justice) of the learned Bench that decided Khan of Mamdot.
Hamoodur Rehman, CJ., expressly recorded his agreement (at pg. 563) with the judgment (which was authored by Waheedudin Ahmed, J.).
26. Before proceeding further, it is also pertinent to note a decision of the Supreme Court (not cited by learned counsel for the defendant) in Central Bank of India Ltd. v. Taj ud Din Abdur Rauf and others 1992 SCMR 846 ("Central Bank of India"). The suit was filed by the appellant bank at Lahore for recovery of sums owed by the respondents. One of the objections taken, on which an issue was framed, was that the suit (which had been filed by an attorney) was not competently instituted.
Evidence was led and although the power of attorney was produced, it was concluded that neither the Articles of Association nor the board resolution by which the power of attorney had been granted were produced. The relevant issues were decided against the appellant and its suit was dismissed. An appeal was preferred to the High Court, but it was dismissed on the ground that the board resolution had not been produced. The bank preferred a further appeal to the Supreme Court, and leave was granted to consider whether the power of attorney as had been brought on record constituted sufficient authority for institution of the suit, in light of the decision in Australasia Bank. On a detailed consideration of the record, the Supreme Court concluded that at least the relevant portion of the Articles of Association, which dealt with the power of the directors to delegate their powers, had indeed been produced and brought on the record. It was held that a joint reading of these Articles and the power of attorney showed that the suit had been competently filed through the attorney. It was observed as follows (at para 10, pg. 853; emphasis supplied): "As held by this Court in [Australasia Bank], once it is proved that the power of attorney has been executed and the relevant articles under which the Directors can delegate their respective powers to institute and prosecute suits on their behalf have been proved, it is not necessary to prove the resolution by which the directors have resolved to grant such a power of attorney to the attorney". The bank's appeal was accordingly allowed. In my respectful view, this decision is a clear application by the Supreme Court of what I have described above as the general rule.
27. I now turn to consider the judgment from para 4 above that is chronologically next in line, that of a learned single Judge of this Court in Dumez Borie. The case was a suit filed on the original side of this Court, which was dismissed. Five issues were framed and evidence was led accordingly. The third issue was as follows: "Has the suit been filed without authority by or on behalf of the plaintiffs?"
The learned single Judge considered this issue at pp. 189-91 and regarded it as "the most crucial issue on which the defence relied". It is pertinent to note that the plaintiff was found to be a partnership and the title of the suit was amended accordingly. The learned single Judge noted the difference between Order XXIX, Rule 1 and Order XXX, Rule 1, C.P.C. The former applied to corporations (including companies) and the latter to partnerships. It was noted that the former applied only to the question of the subscription and verification of pleadings in suits by or against companies. It did not, and could not authorize any of the persons named therein (the director, secretary, etc.) to "institute" the suit. However, the latter provision, relating to partnerships, enabled a partner to "sue", i.e,, to bring suit on behalf of the partnership without more ado.
28. The problem was that both the partners who comprised the plaintiff-partnership were companies. The suit was brought by a person (one Mr. Terras) who was stated to be authorized by a power of attorney issued by one of the partner-companies, and who had signed and verified the plaint. The right or power of this company qua partner (herein after referred to as the "partner- company") to bring the suit was not in dispute: that was covered by Order XXX, Rule 1. It was the right or power of the partner-company to bring any suit at all through the putative attorney that was disputed. This could not be covered by Order XXIX, Rule 1 for the reason stated above. This distinction, which the learned single Judge sought to draw in particular at paras 10-11 on pp.190-91 must be kept in mind. It was only if the partner-company had properly issued the power of attorney in favour of Mr. Terras that he could be regarded as authorized to bring any suit on its behalf, whether for itself or by it as a partner in the plaintiff-firm. Of course, Mr. Terras authority to do so also depended in part on what was contained in the power of attorney. This instrument was apparently tendered in evidence, but Mr. Terras did not appear as a witness nor were the Articles of Association of the partner-company produced. The learned single Judge doubted, on the language of the power of attorney, whether MD. Terras had the authority to bring a suit at all.
29. In my respectful view, the difficulty that, for present purposes, arises in relation to Dumez Borie is that while deciding the third issue against the plaintiff (and hence dismissing the suit) the learned single Judge referred to both decisions of the Supreme Court in Australasia Bank and Khan of Mamdot (see para 12 at pg. 191). The learned single Judge noted that in the former case, it was decided that in order to determine whether a power of attorney had been validly issued (in this case by the partner-company), the Articles of Association had to be looked at, and these had not been produced. However, the learned single Judge then went on to observe that the board resolution of the partner-company whereby Mr. Terras had been appointed as attorney had not been produced and, referring to Khan of Mamdot, observed that the "point is finally decided that even a Principal Officer of the company must have express authority by a resolution passed by the Board of Directors for instituting a suit".
30. While I do not doubt that the suit was rightly dismissed, with the utmost respect the learned single Judge fell into error in relying on both Australasia Bad- and Khan of Mamdot. The learned single Judge erroneously conflated the two decisions. The difference between the rules laid down in these two cases has been considered in detail above. Dumez Borie was clearly a case in which the controlling authority was Australasia Bank, since it involved a third party in circumstances where the rule of indoor management was applicable. Undoubtedly, the plaintiff-firm (suing as it was through the attorney of one of the partners, the partner-company) ought to have produced the latter's Articles of Association. That this was not done was sufficient in itself for the third issue to be decided against the plaintiff-firm. But as noted above, the reason why the Articles of Association ought to have been produced was simply to ensure that the power of attorney had been granted in the prescribed manner. It was "not strictly necessary" to produce the partner- company's board resolution, although this could have been done as "a matter of abundant caution" (see para 15 above). In my respectful view, what I have described as the special rule laid down in Khan of Mamdot was not engaged at all, and therefore the learned single Judge erred in referring to this decision. Certainly, and with the utmost respect, the broad ranging conclusion drawn from that decision by the learned single Judge (reproduced in the last preceding para) was not warranted.
31. The next case listed in para 4 above, chronologically, is Standard Hotels. This decision has already been considered in some detail in para 11 above. As noted, the learned single Judge relied on Dumez Borie and Khan of Mamdot. With the utmost respect and for the reasons stated above, such reliance was not warranted. Standard Hotels was also a case where what I have described as the general rule was applicable; the defendant was a third party and the circumstances were such that the rule of indoor management was applicable. The controlling authority was therefore, Australasia Bank alone.
32. I turn to consider the last of the cases listed in para 4 above, the Division Bench judgment of this Court in United Bank. As noted above, the issue of whether the suits by the company (i.e,, the respondent bank) were competently filed was considered at paras 35 to 37 (pp. 105-112). The learned Division Bench considered a number of decided cases (listed in para 35) and stated its conclusions in para 37. As presently relevant, it was observed as follows (para 37(v) atpp. 110-112): "[T]here appears to be some inconsistency as to how competence/authority of a person to institute a suit has to be determined. In [Australasia Bank] a Full Bench of the Supreme Court clearly stated that it is the articles of the company which have to be seen to assess as to whether a person filing the suit was properly authorized, while the requirement to produce a resolution of the Board of Directors could be dispensed with. In [Khan of Mamdot], the earlier case of [Australasia Bank] was not referred therein, a Full Bench of the Supreme Court took the view that in case a resolution from the Board of Directors is not passed and proved after a duly convened meeting, a suit filed even by a director-incharge is to be taken as an incompetently instituted suit. In the subsequent case of Central Bank of India the learned Judge of a Division Bench of the Supreme Court followed [Australasia Bank], however, no reference was made to [Khan of Mamdot]. In Central Bank of India it was emphatically stated that there was no requirement of law to prove resolution passed by the Board of Directors. In [Habib Bank Ltd. v. Green Garments Manufacturers PLD 1978 Kar. 1027] a learned Single Judge of this Court made an attempt to reconcile [Australasia Bank] and [Khan of Mamdot] by holding that in case a suit is filed in consequence of a power of attorney no resolution of Board of Directors is required. With due respect we cannot subscribe to this distinction or reconciliation as the same is not borne out from the principles of law extracted in the two decisions of the Supreme Court (referred supra). We would reconcile the two decisions of the Supreme Court on another plane. It is settled that the business and affairs of a company are to be conducted strictly in consonance with the articles of association subject of course to the operative laws. The business and affairs of a company include the power, competence and authority to institute legal action (See H.M. Ebrahim Saith v. South India Industries Ltd., AIR 1938 Mad.
962). By deduction, the factum of competence and authority to institute legal proceedings would also have to be determined strictly in consonance with the articles of the company. Such interpretation would also be in consonance with [Australasia Bank] and Central Bank of India wherein it has been categorically stated that where the competence to institute legal action is challenged reference has to be necessarily envisaged to the articles. Where articles of the Company confer power on a particular person or director to institute legal action and that person or director institutes the suit there can be no additional requirement of a resolution of the Board of directors for the simple reason that such power is to be exercisable by a real person. However, where the power to institute the suit is conferred upon an artificial person or body e.g. The Board of Directors or a Committee ... The requirement to produce and prove the resolution passed by that artificial person or body cannot be dispensed with since such a person can only take a decision as a body through a resolution passed in a duly convened meeting and not otherwise. The above principles would also become applicable in the case of delegation or sub-delegation of powers i.e, in case the delegator is a real person (when articles confer the powers to institute legal action on a real person) all that would be required would be to scrutinize the articles and then the power of attorney to see whether it has been properly executed and confers the power so claimed. There would be no requirement to produce or prove the resolution from the Board of Directors in this regard. If on the other hand, the delegator is an artificial person/body (when the articles confer the power to institute legal action on e.g. The Board of Directors or some committee) the resolution passed by that artificial person/body i.e, the Board/ Committee shall become indispensable.
' However, there would be no requirement to produce or prove a separate power of attorney. In this backdrop we would venture to reconcile [Australasia Bank], [Khan of Mamdot] and Central Bank of India by presuming that in [Australasia Bank] and Central Bank of India the articles conferred the power to institute or defend legal proceedings to a real person i.e, a director. Thus the requirement to produce or prove a resolution from the Board of Directors was dispensed with. However, in [Khan of Mamdot] the articles conferred the power to institute or defend legal proceedings upon an artificial person/body i.e, the Board of Directors in view whereof the requirement to produce and prove the resolution thereof authorising institution of the suit was found to be indispensable."
33. I have set out para 37(v) in its entirety because it requires careful consideration. With the utmost respect, the observation of the learned Division Bench that there is some inconsistency with regard to how the competence or authority of a person to institute a suit is to be determined, and a need to reconcile the judgments of the Supreme Court (Australasia Bank and Central Bank of India on the one hand and Khan of Mamdot on the other), needs reconsideration. It is to be noted that the learned Division Bench has first set out what it regards to be the correct principle. This is that where the Articles of Association empower a particular person or director to institute legal proceedings, then there is no need to produce any board resolution "for the simple reason that such power is exercisable by a real person". But where the power to institute legal proceedings is conferred on "an artificial person or body" such as the board itself or a committee thereof, then the requirement to produce and prove the resolution cannot be dispensed with "since such a, person can only take a decision as a body through a resolution passed in a duly convened meeting and not otherwise". After having laid down the principle, the learned Division Bench has, "in this backdrop", then sought to reconcile the Supreme Court judgments by "presuming" that in Australasia Bank and Central Bank of India, the relevant provisions of the Articles conferred the power to institute legal proceedings on a "real person", whereas in Khan of Mamdot, the Articles conferred this power "upon an artificial person/body".
34. With the utmost respect, the foregoing can hardly be the correct and proper manner to interpret and apply decisions of the Supreme Court. One does not (indeed, cannot) start by formulating a principle and then "reconcile" Supreme Court decisions to that principle or on the basis thereof, all the while making certain factual presumptions, which may or may not be correct.
Indeed, with the utmost respect, in Australasia Bank, the presumption is patently incorrect, since the relevant Articles have been stated in some detail in the judgment (see at pg. 696).
35. In my respectful view, for the reasons stated in detail herein above, there is no inconsistency between the Supreme Court judgments nor is there any need to reconcile them. The fact- situations and the relevant principles involved were separate and distinct and were dealt with accordingly by the Supreme Court. The learned Division Bench has specifically noted that in Khan of Mamdot, Australasia Bank was not cited (in any context relevant for present purposes), and in Central Bank of India, only Australasia Bank was cited. From these apparent omissions, the learned Division Bench appears to have concluded that the result has been some inconsistency, which requires reconciliation. Once it is appreciated that the principles involved are separate and distinct, the reason for Khan of Mamdot not referring to Australasia Bank (in the present context), and Central Bank of India referring only to the latter and not the former at once becomes clear. With the utmost respect, the learned Division Bench has proceeded on a miscomprehension of the judgments of the Supreme Court and has sought to resolve a perceived problem and reconcile a putative inconsistency that simply does not exist.
36. This brings me to the final, but no less important, aspect, which is that while sitting singly, I am differing with what has said by a Division Bench of this Court. The normal rule is of course well established: a single Bench of a High Court is bound by a Division Bench of that Court. Indeed, even a Division Bench is bound by a judgment of an earlier Division Bench. This is the established rule of precedent. I have very carefully considered the matter. In my respectful view, the present situation is one of the exceptions to the normal rule of precedent, and in order to explain the point, I must turn to English law, because the issue now at hand has been dealt with under that law, and the rules of precedent that we follow derive much assistance from English C authority. As is well known, the English Court of Appeal applies the same principle as noted here: a later Court of Appeal is bound by a decision of an earlier Court of Appeal. This was the rule established by the well known decision of Young v. Bristol Aeroplane Co. Ltd. [1944] 2 All ER 293. However, as is equally well known, there are certain exceptions to this rule. What if the earlier Court of Appeal purported to follow and apply a decision of the House of Lords, and in fact misunderstood and misinterpreted that decision? Would a later Court of. Appeal simply be bound by what the earlier Court of Appeal had said or done, or was it, being bound by the House of Lords decision, be bound to apply the latter correctly and properly? This issue arose in Holden v. Crown Prosecution Service [1990] 1 All ER 368 ("Holden"). The Court of Appeal was there confronted with its own earlier decision in Sinclair Jones v. Kay [1988] 2 All ER 611, which had interpreted and applied a House of Lords decision in Myers v.
Elman [1939] 4 All ER 484. The Court of Appeal concluded in Holden that the earlier Court of Appeal had misinterpreted and misapplied the House of Lords decision. Was it however, nonetheless, bound by its earlier decision? To this, a negative answer was given in the following terms (at pg.
374): "Ordinarily the rule in Young v. Bristol Aeroplane Co. Ltd. ... Applies only to the subsequent decisions of the House of Lords which are inconsistent with the previous decisions of the Court of Appeal.
'What is the position when the court is of the opinion that a decision of the Court of Appeal is inconsistent with the previous decisions of the House of Lords, which had been cited to that court and wrongly distinguished? This is described by Lord Wright in Noble v. Southern Railway Co. [1940] AC 583, 598, as a problem of some difficulty. He inclined to the view that our duty is to follow the law as we believe it to have been laid down in the previous decision of the House of Lords."
' The same view was taken by the Court of Appeal in another case, Rickards v. Rickards [1989] 3 All ER 193. In the House of Lords decision cited in the extract above, Lord Wright had observed as follows:--- "What a Court should do when faced with a decision of the Court of Appeal manifestly inconsistent with the decisions of this House is a problem of some difficulty in the doctrine of precedent. I incline to think it should apply the law laid down by this House and refuse to follow the erroneous decision."
37. In my respectful view, the foregoing observations correctly lay down an exception to the rules of precedent as they apply in this country as well. I am bound first and foremost by decisions of the Supreme Court. If a decision of a larger Bench of this Court is on any point "manifestly inconsistent" with a prior decision of the Supreme Court on account of having misunderstood or misapplied it, then that which binds me is the latter and not the former. Of course, this exception to the rules of precedent would only apply in rare circumstances and only where the inconsistency is clear and direct, and no other conclusion is reasonably possible. It is after a very careful consideration of what the learned Division Bench said in United Bank that, with the utmost respect, I have come to the conclusion that it is manifestly inconsistent with the Supreme Court decisions in Australasia Bank (and Central Bank of India) and Khan of Mamdot. I am bound to apply the latter and therefore, I have respectfully ventured to differ from the learned Division Bench.
38. Turning now, once again, to the facts and circumstances of the present case, in my view it is clear that the present proceedings involve, insofar as the present plaintiff is concerned, a third party (i.e,, the present defendant) in a situation to which the rule of indoor management is applicable. The controlling authority therefore is Australasia Bank and not Khan of Mamdot. As is clear, all that is required is an examination of the Articles of Association. The production of the board resolution is not, as such, strictly necessary, although it may be produced by way of abundant caution. The objection in the present application is not based on any non-production of the Articles of Association. In any case, this is a document that is in the public domain and may be produced at any time for examination and consideration by the Court.
39. To sum up the foregoing analysis and discussion, I conclude that the objection taken by learned counsel for the defendant necessarily has a crucial factual element, which cannot be decided at this stage or in any case (in view of paragraph 26 of the plaint) must be assumed in favour of the plaintiff, in line with the well established principles that apply when rejection of the plaint is contemplated. Furthermore, on a proper and correct reading of the cited cases, the controlling authority applicable in the present case is Australasia Bank, which does not require (or at any rate does not penalize) non-production of the board resolution. On either basis, the plaint cannot at this stage be rejected.
40. Accordingly, the present application fails and is hereby dismissed. The interim orders made earlier on the plaintiff's pending application for interim relief to continue till next date of hearing. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.