Debt Recovery Appellate Tribunal - Madras
Indian Bank vs City Hospitals And Anr. on 23 April, 2007
Equivalent citations: IV(2007)BC61
ORDER
K. Gnanaprakasam, J. (Chairperson)
1. The OA filed by the appellant/applicant Bank before the DRT-II at Chennai, was dismissed against defendants 4 and 5 by its order dated 27.9.2006. Aggrieved by the same, this appeal has been filed.
I have heard the learned Advocates for the appellant and the respondents.
2.The principal question involved in this appeal is whether the Power of Attorney executed by the Managing Director of the 4th defendant company to give any guarantee or provide any security without a special resolution of the company is valid under law.
The appellant's case is that the defendants 3 to 5 through their power agent the 2nd defendant in the OA, deposited the title deeds relating to their immovable properties on 26.8.1990, with the appellant's Anna Nagar Branch, Madras, with an intention to create equitable mortgage. The defendants 3 to 5 have also executed Memorandum of deposit of title deeds on 28.8.1990, confirming the deposit of title deeds on 26.8.1990, and the creation of equitable mortgage and, therefore, the defendants 4 and 5 are liable and the order passed by the DRT otherwise is not proper and valid.
3.The learned Advocate for the 4th defendant has pointed out that the Power of Attorney executed by the Managing Director of the 4th defendant company, viz. Dr. T.M. Paul, in favour of the 2nd defendant in the OA, giving power to mortgage the schedule mentioned properties to raise loans in Banks and financial institutions, among other powers, is not valid under law. Dr. T.M. Paul, who claims to be the Managing Director of the company was not authorised by the company by a special resolution to give guarantee or provide any security of the property as required under Section 370 of the Companies Act, which states, "No company (hereinafter in this section referred to as "the lending company") shall-
(a) make any loan to, or
(b) give any guarantee or provide any security, in connection with a loan made by any other person to, or any other person by, any body corporate, unless the making of such loan, the giving of such guarantee or the provision of such security has been previously authorised by a special resolution of the lending company. This section clearly postulates that unless it is authorised by the special resolution of the lending company, no company can make any loan or give any guarantee or provide any security. Admittedly, the 4th defendant company has not passed any resolution authorising Dr. T.M. Paul, to give General Power of Attorney to mortgage the property and to raise loans in Banks and financial institutions. Though the General Power of Attorney is a registered one, in the teeth of Section 370 of the Companies Act, the Managing Director of the company, in the absence of any special resolution, cannot give Power of Attorney to create a mortgage or encumber the property for the purpose raising loan and, therefore, the Power of Attorney said to have been given by Dr. T.M. Paul, on behalf of the 4th defendant company is not valid.
4. The learned Advocate for the 4th defendant has further submitted that the property set out in the Power of Attorney is situated at Ernakulam and Dr. T.M. Paul, Managing Director of the 4th defendant company was residing at Cochin, but whereas the Power of Attorney was executed at Madras, Saidapet in Chengleput District Sub-Registrar, Office, Central Madras, and the same is invalid under law. Of course, Dr. T.M. Paul, has ingeniously inserted his address at if he is residing at Madras and there is an inter lineation in the Power of Attorney, which reads, "Presently staying in No. 31, Chitaranjan Road, Teynampet, Madras." was intentionally made by Dr. T.M. Paul, to create a jurisdiction to execute a Power of Attorney at Madras, as the Power of Attorney otherwise cannot get registered. Section 33 of the Registration Act, 1908, clearly states that the following powers of attorney shall alone be recognised namely-
(a) if the principal at the time of executing the Power of Attorney resides in any part of India, in which this Act is for the time being in force, a Power of Attorney executed before and authenticated by the Registrar or Sub-Registrar within whose district or sub-district the principal resides;
(b) if the principal at the time aforesaid resides in any other part of India in which this Act is not in force a Power of Attorney executed before and authenticated by any Magistrate;
(c) xxx xxx xxx where it has been held in unequivocal terms that the Power of Attorney will be recognised, if the principal at the time of executing the Power of Attorney resides in any part of India in which the Power of Attorney executed before the authenticated by the Registrar or Sub-Registrar within whose district or sub-district the principal resides.
5. As Dr. T.M. Paul, was not residing within the city limits of Madras, the Power of Attorney said to have been executed by him in favour of the 2nd defendant on 3.8.1990, is not valid. In support of his submission, the respondent/4th defendant relied upon the decision in the case of Anantha Pillai v. Rathnasabapathy Mudaliar and Ors. 1968 Madras Law Journal Reports 574, wherein it was held, "The general principles regarding the construction of a Power of Attorney are well settled. Power of attorney must be strictly construed as giving only such authority as they confer expressly or by necessary implication. Where on act purporting to be done under the Power of Attorney is challenged as being in excess of the power, it is necessary to show that on a fair construction of the whole instrument either by express terms or by necessary implication. Some of the principles governing the construction of a Power of Attorney are: (1) the operative part of the deed is controlled by the recitals; (2) where an authority is given to do particular acts, followed by general words, the general words are restricted to what is necessary for the performance of the particular acts; (3) the general words do not confer general powers but are limited to the purpose for which the authority is given and are construed as enlarging the special powers only when necessary for that purpose; (4) a Power of Attorney is construed so as to include all medium powers necessary for its effective execution. There is no magic in the nomenclature of a Power of Attorney being a general Power of Attorney. The scope of the power has to be gathered from the language of the document.
(Held on facts that the Power of Attorney executed by Janaki Ammal in favour of the first defendant on 30th June, 1937 did not authorise the first defendant to execute Exhibit A-1 on behalf of Janaki Ammal and, therefore, the said document is not binding either on Janaki Ammal or the 2nd defendant)". The ratio decidendi in the said judgment is squarely applicable to the case on hand.
6. In the case of Dale & Carrington Invt. (P) Ltd. and Anr. v. P.K. Prathapan and Ors. , wherein the Hon'ble Supreme Court held, That the Directors and Board of Directors act in the fiduciary capacity within which they have to act enjoined upon them a duty to act on behalf of the company with utmost good faith, utmost care and skill and due diligence and in the interest of the company. The Directors have no power to get individually unless by some resolution of the Board of Directors of the company by which specific power is given therefor. In our case, no specific power has been given by any resolution of the 1st defendant company to Dr. T.M. Paul, and therefore, the Power of Attorney executed by him in favour of the 2nd defendant is invalid under law and, therefore, it is needless to say that the mortgage said to have been executed by the 2nd defendant as a power agent of Dr. T.M. Paul, is a non-est, and the same is not valid and binding upon the 4th defendant and, therefore, the 4th defendant is not liable to the claim of the appellant.
7. As far as the 5th defendant is concerned, he has not offered the properties as a collateral security and he was unaware of the transaction alleged to have been taken place between the defendants and the appellant-Bank. But the 5th defendant had stated that he has deposited the title deeds with the 2nd defendant on a private loan taken from the 2nd defendant, and the same has nothing to do with the transactions between the appellant-Bank and the defendants. 5th defendant also did not authorise D2 the Power of Attorney, to create any equitable mortgage and in the absence of the any express provision in the deed of Power of Attorney, D2 has no authority to create any equitable mortgage on behalf of D5. It also appeared that the said Power of Attorney was duly cancelled on 12.12.1991, by registered instrument to the knowledge of the D2. As such, there is no valid equitable mortgage in favour of the appellant-Bank and as such, the claim made against him has to fail and it is decided in favour of D5 and against the appellant and there is absolutely no infirmity in the said finding.
8. In the result, the final order passed by the DRT against D4 and D5, do not suffer from infirmity, which warrants interference by this Tribunal.
9. In the result, the appeal is dismissed.