SortMyLawSchool | Header Banner
SortMyLawSchool | Header Banner
  1. Home
  2. / Subject
  3. /Company Law

KOTLA VENKATASWAMY V. CHINTA RAMAMURTHY, AIR 1934 MAD. 579

KOTLA VENKATASWAMY V. CHINTA RAMAMURTHY, AIR 1934 MAD. 579

 

FACTS

  • The plaintiff, who appeals, sued to enforce a mortgage bond for Rs. 1,000. The plaintiff, Kotla Venkataswamy, held a mortgage bond that had been executed by a company known as the South Indian Agricultural and Industrial Improvement Co., Ltd.
  • The plaintiff, asserted that the company had a consistent history of making payments toward both the principal debt and the associated interest to her.
  • The company subsequently went into voluntary liquidation and the mortgaged property was sold and eventually purchased by defendant 4. This mortgage bond had been signed by two individuals representing the company: the Working Director and the Secretary of the company. These individuals, identified as defendants 1 and 2, were the signatories on the mortgage bond.
  • The main point in dispute is whether the mortgage bond was validly executed so as to make the company liable. Both the Courts below have answered this in the negative.

 

ISSUE

  • Whether the mortgage bond, which was signed by the Working Director and the Secretary of the company (defendants 1 and 2), duly executed in accordance with the legal requirements and the company's governing documents?
  • Whether the plaintiff, Kotla Venkataswamy, has a legal remedy for enforcing her rights related to the mortgage deed. This involves an assessment of whether the plaintiff has a legitimate claim to the property or any other rights based on the mortgage agreement?

 

HELD
The Court held that the deed was not valid as the others were not competent to sign the deed and the plaintiff could not claim under the deed.

  • CURGENVEN, J, agreed with the lower courts, that the mortgage bond was not validly executed, making the company not liable. The judgement emphasised the importance of the valid execution of documents by a company. Article 15 of the Company's Articles of Association stipulated that certain documents, including deeds, must be signed by the Managing Director, Secretary, and Working Director to be considered valid.
  • In the present case , the mortgage bond was signed only by the Secretary and the Working Director, not by the Managing Director. Even though the Managing Director was allegedly dismissed and facing criminal charges at the time, the court held that this did not make the execution by the remaining officers valid. Additionally, the court found no evidence to support the claim that the company had authorised defendants 1 and 2 to borrow money.
  • The judgement referred to the Doctrine of Constructive Notice, which presumes that individuals dealing with a company have knowledge of its Articles and Memorandum. It was noted that individuals engaging with a company must be presumed to have read and understood the governing documents.
  • The court emphasised that the Articles of Association of a company play a crucial role in determining the authority of officers to execute documents on behalf of the company. Ultimately, the court found that the mortgage bond in question was not validly executed in accordance with the company's Articles of Association. Hence, Despite the plaintiff's good faith, the bond was considered invalid.
  • Given that the validity of the mortgage bond was the central issue and no other issues were properly tried, the court decided to dismiss the suit. The second appeal was also dismissed with costs awarded to respondent 4 (Chinta Ramamurthy).

 

COMMENTARY
“The memorandum and articles of association of every company are reg istered with the Registrar of Companies. The office of the Registrar is a public office and consequently the memorandum and articles become public documents. They are open and accessible to all. It is, therefore, the duty of every person dealing with a company to inspect its public documents and make sure that his contract is in conformity with their provisions. But whether a person actually reads them or not, he is to be in the same position as if he had read them. He will be presumed to know the contents of those documents. This kind of presumed notice is called constructive notice. Kotla Venkataswamy v Chinta Ramamurthy shows the practical effects of this rule. The articles of association of a company required that all deeds etc., should be signed by the managing director, the secretary and a working director on behalf of the company. The plaintiff accepted a deed of mortgage executed by the secretary and a working director only. It was held that the plaintiff could not claim under this deed. The court observed: “If the plaintiff had consulted the articles she would have discovered that a deed such as she took required execution by three specified officers of the company and she would have refrained from accepting a deed inadequately signed. Not withstanding, therefore, she may have acted in good faith and her money may have been applied to the purposes of the company, the bond is nevertheless invalid.”