Y L D 1962 (W (PLP)

This evidence has not been rebutted and considering the fact that the Company had been advised to confer authority on Mr. Khurshid Mahmood for filing the suit, there is no reason to doubt the genuineness of the two entries, as well as of the resolution. We are, therefore, of opinion that a notice was duly sent to the respondent on the 27th September 1951, for the proposed meeting of the Board of Directors, and that on the next day, namely, on the 28th September 1951, in a duly‑convened meeting of the Board the resolution, Exh. L. C./2A, of which Exh. P. W. 1/1 is a copy, was passed by the Board.

9. The respondent's counsel objected to the production, in evidence, of the entry of the despatch register (Exh. A. W. 1/1) on the ground that it was not a book of account and, as such, was not admissible in evidence. The appellant Company did not produce this document, as an account book under section 34 of the Evidence Act, but relied on it as a substantive piece of evidence. As the relevant entry has been proved by the evidence of Malik Fateh Muhammad Tiwana, the objection has no force and is, hereby, overruled.

10. For reasons given above, we hold that the finding of the trial Court on issue No. 2 is not correct and that Mr. Khurshid Mahmood, who had signed and verified the plaint and who was one of the Directors of the Company, had been authorised to institute this suit on its behalf.

11. Issues Nos. 3, 3‑A, 3‑B, 4 and 5 are inter‑connected and will be disposed of together. For decision of these issues it will be necessary to deal with the following points: - (ii) Was the payment, if any, made to Mr. Rafi Butt received by him on behalf of the appellant‑Company ? (iii) Did Mr. Rafi Butt agree with the respondent to transfer fn his favour shares of the value of Rs. 50,000 and' to supply him a complete cold‑storage plant for the balance of Rs. 50,000 ? (iv) Was Mr. Rafi Butt competent to enter into any such agreement, on behalf of the appellant‑Company, and is the latter bound by it ? (v) Did the appellant‑Company subsequently, ratify the agreement between Mr. Rafi Butt and the respondent, and if so, what is its effect ?

12. As stated earlier in this judgment, the case set up by the respondent in paragraph 3 of the written statement was different from that set up by him in his statement recorded by the Court on the 16th January 1954. In the written statement the respondent had alleged that the appellant‑Company owed him a sum of Rs. 1,00,000 and for payment of that amount an agreement was entered into on the 6th February 1949, which was to the effect that shares of the value of Rs. 50,000 would be transferred to him and that for the balance a cold‑storage plant would be delivered. He alleged further that in pursuance of this agreement, 500 shares were transferred to him by the appellant‑Company and on the 18th February 1949, some machinery, which was incomplete, was delivered to him for installing a cold‑storage plant. In paragraph 3, the respondent had not raised the plea that when the sum of Rs. 1,00,000 was paid by him to Mr. Rafi Butt deceased, any such agreement was entered into between him and the deceased. His case, at the time of filing of the written statement was that the appellant -Company owed him a sum of Rs. 1,00,000 and for liquidation of that debt an agreement was entered into between him and the Company on the 6th February 1949, long after the death of Rafi Butt.

13. In the statement made by the respondent on the l6th January 1954, before the framing of Issues, he gave a twist to his case and alleged that he advanced a sum of Rs. 1,00,000 to Mr. Rafi Butt, who had taken the amount in his capacity as Managing Director of the appellant‑Company, in pursuance of an agreement that he would allot shares of the value of Rs. 50,000 to him and would also supply him machinery of a cold‑storage plant for the remaining amount. Even in that statement the respondent admitted that when this arrangement was arrived at, the agreement was not reduced to writing and that, at the request of Mr. Rafi Butt, a crossed cheque for Rs. 1,00,000 was made out in his name.

14. During the course of arguments when the contradictory nature of the respondent's case was pointed out, the learned counsel, who appeared for the respondent, contended that the statement dated the 16th January 1954, could not be used against the respondent, firstly, because it was not "evidence" within the meaning of the Evidence Act and, secondly, because when the respondent appeared as a witness in the case he was not confronted with that statement. In my opinion, these contentions have no force, because although the statement dated the 16th January 1954, was not "evidence" within the meaning of section 3 of the Evidence Act, it was a "matter" before the Court and according to the definition of "proved" given in section 3 of the Evidence Act, It could be considered by the Court for deciding the points in issue. For authorities reference may be made to Aung Hla and others v. Emperor (A I R 1931 Rang. 235) and Bhaironprasad and others v. Mahant Laxmi Narayan Das and another (79 I C 609). In the first‑mentioned case it was held that it is for the Court to determine, in the particular circumstances of each case whether the "matter" before it tending to corroborate the evidence of the approver is worthy of credence against the accused. In the second‑mentioned case it was held that the expression "matters before It" in section 3 of the Evidence Act, includes matters which do not fall within the definition of "evidence" as given in it, but that this expression must be read with that of "proved" given in the same section. There can, therefore, be no doubt that a "matter" which is before the Court can be taken into consideration for deciding whether a certain fact Is proved or not, although that "matter" may not be "evidence", as defined in the Evidence Act.

15. With regard to the second contention, namely, that without complying with the formalities of section 145 of the Evidence Act, the statement dated the 16th January 1954, could not be used against the respondent, a complete answer is furnished by section 21 of the Evidence Act, which lays down that admissions are relevant and may be proved as against the person who makes them. The statement dated the 16th January 1954, was not intended to be used for the purpose of contra dicting the testimony of the respondent and, therefore, it was not obligatory for the appellant‑Company to confront the respondent with that statement. It was intended to be used as an admission of the respondent, with a view to discredit his case and, as such, it was relevant under section 21 of the Evidence Act, and even though the formalities laid down by section 145 of the Evidence Act were not complied with, the admission contained in that statement could be used against the respondent.

16. Apart from the contradictory nature of the defence, which goes to the very root of the case, the evidence relied upon by the respondent, In support of his allegations, was so unsatis factory that no finding, in his favour could be given on that evidence. After a careful perusal of the record and after hearing arguments of the parties' counsel at considerable length, for reasons which we are about to state, we have come to the conclusion that no sum of Rs. 1,00,000 was paid by the respondent, to Mr. Rail Butt, In his capacity as Managing Director of the appellant Company, under an agreement that shares of the value of Rs. 50,000 would be transferred to him and that also he would be delivered a complete cold‑storage plant for the balance of the amount. From the evidence it Is, however, proved that some money was paid by the respondent to Mr. Rafi Butt, in his individual capacity, that on the 14th December 1948, some six months after the death of Mr. Rafi Butt, a sum of Rs. 57,360 was transferred from the Karachi office of the appellant Company to its Lahore office for being credited to the respondent's account, that a sum of Rs. 50,000 was debited to his account on account of the sale price of 500 shares belonging to one Mr. Inayatullah, which had been transferred in his favour, and that the balance of Rs. 7,360 was adjusted towards part payment of the price of some machinery for installing a cold‑storage, which had been delivered to the respondent on or about the 18th February 1949.

17. The evidence on which the respondent relied was that of Mr. Taqi Butt, who appeared as D. W. 1, his own statement recorded on commission and the statement of Mr. Bashir Abroad Ansari (D. W. 4), who, at the relevant time, was General Manager of the appellant Company. The relevant portion of the evidence of Mr. Taqi Butt read as follows: ‑ "Nawab Iftikbhr Hussain Mamdot, defendant in this case, gave a cheque of Rs. 1,00,000 to Rafi Butt, my brother, who was the Managing Director of the Company at that time. When I was the Managing Director of the Company we sold a cold‑storage to the defendant. Before the sale of this cold storage I had a talk with Mr. Muhammad Aslam, younger brother of the defendant. We agreed that out of the sum of Rs. 1,00,000, Rs. 50,000 should be considered the price of the cold‑storage and Rs. 50,000 would be considered as the value of the shares that were to be allotted to the defendant by the Company. In fact this agreement had taken place between my brother Rafi Butt and the defendant. I only informed the defendant that he could enforce the contract. The defendant was accordingly allotted the shares of the face value of Rs. 50,

000. The cheque that was given by the defendant was encashed and deposited in the Personal Account of my brother Rafi Butt in the Grindlays Bank when he was going abroad. The books are in possession of the plaintiff, but I know that Rs. 58,000 was transferred by Mr. Rafi Butt, from his Personal Account to the account of the plaintiff Company, out of this Rs. 1,00,

000. This Rs. 58,000 was shown as credit to the defendant. The remaining sum bad also been transferred to the account of the plaintiff Company from his personal account. On being cross‑examined, the witness admitted that the balance of Rs. 42,000 had not, in fact, been transferred to the account of the defendant and that that amount was lying to the credit of the heirs of Mr. Rafi Butt. This is what he stated in reply to one of the questions put in cross‑examination "Rs. 42,000 could not be transferred in the account of Khan Mamdot because Mr. Rafi Butt had meanwhile died and I could not transfer it without the sanction of the heirs of Mr. Rail Butt to the books. So this sum of Rs. 42,000 remained standing in the name of Mr. Rafi Butt in the books of the account of the plaintiff Corporation." The statement made by this witness is not supported by the account books of the appellant Company. For reasons, best known to the appellant's counsel, he did not question the witness about the relevant entries in the account books, which were made at the time when this witness was the Managing Director, nor was any such question put to him by the respondent's counsel. No entry of Rs. 42,000, standing in the name of Mr. Rafi Butt, was produced by either party in evidence and, therefore, the statement of this witness to the effect that such an entry does exist remains uncorroborated. At page 58 of the printed paper‑book is a copy of the ledger account of the respondent, which shows that on the 14th December 1948, a sum of Rs. 57,360, standing to his credit, was transferred from the Karachi office to the Lahore office. A further reference to that document would show that on the 5th February 1949, an entry of Rs. 50,000 was made, on the debit side on account of the price of the shares, leaving a credit balance of Rs. 7,

360. In the presence of these entries, the statement made by Mr. Taqi Butt could not be accepted at its face value. Moreover, at that time he had nothing to lose by making such a statement, because he had transferred his shares in favour of Malik Fateh Muhammad Tiwana, the present Managing Director of the appellant Company, and no liability could be fixed on him personally, or as a share‑holder on the basis of a false statement. In any case, It was the duty of the respondent, who was relying on the testimony of Mr. Taqi Butt, to show that a sum of Rs. 1,00,000 which is said to have been paid by him to Mr. Rafi Butt, was actually credited to his account in the books of the appellant Company, and that the sum of Rs. 57,360 which was, sub sequently, transferred to his account with the Lahore office of the Company was a part of that amount. As he did not do so, the only inference that can be drawn is that not more than a sum of Rs. 57,360 was paid by Mr. Rafi Butt to the appellant Company, on behalf of the respondent, and, therefore, the appellant Company cannot be made liable for any larger amount.

18. The respondent, in his evidence recorded on commission which has been printed at page 19 to 24 of the paper‑book, supported the allegations which he had made in his statement dated the 16th January 1954, recorded before framing of issues. The relevant portion of his statement reads as follows: ‑ "Mr. Rail Butt was the Managing Director of the said (appellant) Company. He approached me for associating me as a share‑holder 9n the plaintiff‑Company. I wanted to purchase a complete cold‑storage plant. The plaintiff‑Company was the Importer of such machinery. With the said Rafi Butt (who?) was Managing Director of the plaintiff‑Company I placed an order for the supply to me of a complete cold‑storage, the price of which Mr. Rafi Butt agreed to charge Rs. 50,

000. I further agreed with him to purchase shares worth Rs. 50,000 in the plaintiff‑Company. "In pursuance of this agreement, I paid to him in his capacity as Managing Director of the plaintiff‑Company a cheque worth rupees one lac which included the price of a complete cold storage plant and shares worth Rs. 50,000 in the plaintiff- Company. "The cheque was a crossed cheque drawn in the name of Mr. Rafi Butt. It was at the wish of Mr. Rafi Butt, that I Issued the cheque in his name . . . . . "After his death, his younger brother Mr. Taqi Butt became the Managing Director of the plaintiff‑Company . . . . Mr. Taqi Butt, as Managing Director of the plaintiff‑Company, affirmed the contract and said that the Company had received the full consideration for the performance of the contract. In pursuance of the said contract, the Company, through Mr. Taqi Butt, the Managing Director, supplied to me the goods stated in para. 3 of the plaint." This statement, in the absence of corresponding entries in the account books of the appellant‑Company, could not be of much help to the respondent in showing that a sum of Rs. 1,00,000 was paid by him to Mr. Rafi Butt, in his capacity as Managing Director of the Company. It is also not understood how the appellant‑Company could enter into an agreement for the sale of its own shares to the respondent. It was not the respondent's case that some un‑issued shares, belonging to the Company, had to be allotted to him. His case, on the other hand, was that issued shares, presumbly, held by other‑shareholders, were to be trans ferred in his favour against a payment of Rs. 50,

000. A reference to the statement of Malik Fateh Muhammad Tiwana, Managing Director, who appeared as a witness before us, would show that the 500 shares transferred to the respondent belonged to one Malik Inayatullah, and the sum of Rs. 50,000 on account of the sale price of these shares was credited to the account of Malik Inayatullah after a debit entry, for that amount had been made in the ledger account of the respondent. The learned counsel for the respondent objected to the production, in evidence, of the copies of the account books, marked as Exhs. A. W. 1/6, A. W. 1/7 and A. W. 1 /8 relating to this transaction, but we do not find any force In this objection and over‑rule it, because this evidence, in our opinion, was necessary for a complete adjudication of the disputed points, and we would be justified in admitting it in exercise of the powers under Order XLI, rule 27 of the Code of Civil Procedure. A reference to these entries would show that the transferor in this case was Malik Inayatullah and not the appellant‑Company, and therefore, there could not have been any agreement between the appellant‑Company and the respondent for the transfer of these shares.

19. The story with regard to the alleged agreement to supply a complete cold‑storage plant for a sum of Rs. 50,000 is equally unbelievable. A cold‑storage plant is not a defined article and consists of several parts of machinery of various sizes and capacities. It is admitted that, on the date when the sum of Rs. 1,00,000 is said to have been paid by the respondent to Mr. Rafi Butt, the machinery, which was to be supplied under the alleged agreement, was not in possession of the appellant‑Company and that the same had yet to be imported. If the agreement was a genuine one and the appellant‑Company had agreed to supply a complete cold‑storage plant to the respondent, full particulars, giving specifications and capacity of the cold‑storage plant would have been intimated to the respondent in writing, and both parties would have known what kind of machinery was to be supplied. In the absence of any such specifications, the appellant‑Company, as a business concern, could not have been so foolish as to say that complete cold‑storage plant" would be supplied against a payment of Rs. 50,000, nor could the respondent have accepted any such assurance, unless he had known the kind of machinery that was to be supplied to him. All this would lend support to the appellant's contention that, in fact, no such agree ment was ever arrived at between Mr. Rafi Butt and the respon dent, and that what was received by the appellant‑Company, through Mr. Rafi Butt, was a specified amount of Rs. 57,360, which had been paid to him by the respondent, in his individual capacity.

20. If Mr. Taqi Butt had been confronted with the entries ref the respondent's ledger account, which have been printed at page 58 of the paper book (Exh. P. 3), it would have been difficult for him to reconcile those entries with his statement that the appellant‑Company had agreed to supply to the respondent a complete cold‑storage plant, in consideration of a sum of R s. 50,oca: If such had been the agreement, no debit entry, on account of the price of that machinery, would have been made in the account books of the Company. In fact, there are two such entries, one made on the 3rd May 1949 for Rs. 67,628‑7‑0 and the second on the 20th May 1949 for a sum of Rs. 10,253‑14‑

0. The existence of these entries indicates clearly that no such agreement, as is being alleged by the respondent, had been entered into between the parties and that the Company throughout had been dealing with the respondent on the assumption that he had to pay the price of whatever machinery had been supplied to him, after giving him credit for a sum of Rs. 7,360, which was lying with the Company, in his account. 20‑A. If this had not been so, the invoice, Exh. P. 1 dated the 3rd May 1949, which is printed at page 50 of the paper‑book, the letter dated the 9th May 1949 (Exh. P. 8), which is printed at page 51 of the paper‑book and the second invoice dated the 17th May 1949 (Exh. P. 2), printed at page 52 of the paper‑book, would not have been sent by the appellant‑Company to the respondent. These documents clearly establish that the machinery had not been supplied against payment of a sum of Rs. 50,000, and that the respondent had been informed, from the very beginning, that he would have to pay the price of the machinery, which was being supplied, after the amount standing to his credit was duly adjusted. The respondent's counsel denied the receipt of the two invoices, Exhs. P. 1 and P. 2, and the letter, Exh. P. 8, and for this purpose relied on the respondent's statement recorded on commission, as well as on the statement of Mr. Bashir Ahmad Ansari (D. W. 4), the then General Manager of the Company, who had deposed that, so far as he recollected, the two invoices, Exhs. P. 1 and P. 2, were not sent to the respondent. As will be presently seen Mr. Bashir Ahmad Ansari is not a truthful witness, and much reliance cannot be placed on his testimony because in the office copy of the letter, dated the 9th May 1949 (Exh. P. 8), which Mr. Bashir Ahmad Ansari admitted having initialed, a reference is made to the invoice, Exh. P. 1, dated the 3rd May 1949, bearing No. 201/107. If that invoice had not been despatched to the respondent, no reference to it could have been made in the letter, dated the 9th May 1949, Exh. P.

8. This fact alone would indicate that the invoice, Exh. P. 1, was actually despatched from the office of the appellant‑Company to the respondent. 20‑B. Apart from all this, the fact remains that the twos invoices appear to have been prepared in due course of business of the appellant‑Company and as there is nothing on the record to indicate that these two invoices were withheld, in view of the provisions of section 16, read with Illustration (f) of a section 114 of the Evidence Act we would be justified in presuming that the two invoices and the letter were actually despatched to the respondent, at, or about, the time mentioned therein. This conclusion is supported further by the contents of the notices, dated the 19th April 1951 and the 13th June 1951 (Exhs. P. 4 and P. 6), which have been printed at pages 53 to 54 and 55 to 56 of the paper‑book, in which a demand was made for payment of the price of the machinery. Receipt of the letter, dated the 19th April 1951, Exh. P. 4, is, again, denied by the respondent, but not the receipt of the letter, dated the 13th June 1951 (Exh. P. 6), for which the acknowledgement receipt, Exh. P. 7, was also produced. If, as is now the respondent's case, nothing was due from him, he would have, at once, repudiated the claim and would have informed the appellant Company that he had already paid Rs. 50,000, an account of full payment of price of the machinery, and that nothing was due from him. The fact that no such action was taken by the respondent shows that the defence now set up by him is an after‑thought and that even until the 19th of June 1951, when the notice, Exh. P. 6, was received by him, it was not his case that he had already paid the full price of the machinery supplied to him.

21. As against all this is the respondent's bare denial, sup. ported as it is by the contents of the letters Exh. L. C./1, dated the 21st February 1949, and Exh. L. C./2, dated the 17th March 1949, printed at pages 59 and 60 of the paper‑book, and the alleged admission contained in the letter, dated the 18th March 1949 (Exh. L. C./3), signed by Mr. Bashir Ahmad Ansari. We have carefully gone through these three letters and have come to the conclusion that they are not proved to have been written on the dates mentioned therein and that even until the 18th March 1949, when the third letter is said to have been written, it was not the respondent's case that the sum of Rs. 1,00,000 was advanced by him to Mr. Rafi Butt on the understanding that he would be supplied a complete cold‑storage plant for a sum of Rs. 50,000 and for the balance he would be given 500 shares of the appellant Company. At that stage, the respondent's case was that the alleged agreement was entered into between him and Mr. Taqi Butt after the death of Mr. Rafi Butt, and that previously no such agreement was in existence. The opening words of the letter, dated the 21st February 1949 (Exh. L. C./1), and especially the words italicised by us, make this position quite clear. This is what the respondent wrote in this letter: ‑ "On the 6th instance when my brother Muhammad Aslam Khan concluded negotiations with Mr. Taqi Butt, the Managing Director of your firm, regarding the settlement of the sum of rupees one lakh paid by me to his brother the late Mr. Raft Butt by cheque No. L. A. 510605 dated the 7th of June 1948 on the Habib Bank Ltd., Lahore, it was agreed that since Mr. Taqi Butt was not in a position to pay back the said sum, the firm Ghulam Nabi Corporation would sell me a complete cold‑storage plant for rupees fifty thousand and for the balance I would be made a partner in the firm."

22. If, as is now the respondent's case, the agreement for the sale of a cold‑storage plant and for the transfer of shares had been entered into between him and Mr. Rafi Butt deceased and a sum of Rs. 1,00,00D was paid by him, to the latter, for this purpose, there was nothing to prevent him from saying it in so many words. The fact that no reference to such an agreement was made in the letter, dated the 21st February 1949, would indicate that no such agreement ever existed and that it was only in satisfaction of a debit, which Mr. Rafi Butt had owed, that his brother, Mr. Taqi Butt, agreed to the arrangement mentioned in this letter. This document, instead of supporting the respondent's case, negatives the contention raised by him in his statement, dated the 16th January 1954.

23. The only other evidence on which reliance was placed by the respondent was that of Mr. Bashir Ahmad Ansari, who appeared as D. W.

4. This witness,, like Mr. Taqi Butt, had nothing to lose by making a statement against the appellant Company, and having been dismissed from services by the appellant‑Company, he could not be considered to be an unbiased witness. Moreover, at least, in one respect, his statement is altogether false, namely, about the non‑despatch of the invoice, Exh. P. 1, a reference to which, as stated above, was made in the office copy of the letter, dated the 9th May 1949, which, admittedly, was initialed by this witness. Further, a reference to the letter, dated the 18th March 1949 (Exh. L.C./3) would show that there is nothing in the records of the appellant Company to Indicate that any such agreement, as is being now alleged by the respondent had been entered into between him and the deceased. No doubt, under section 91‑D of the Companies Act, it was not obligatory for the Managing Director to reduce into writing the verbal agreement arrived at between him and the respondent the Company being a private Company, but in the ordinary course of business, some record of the agreement would have been kept. The fact that the records of the Company are altogether silent can only mean that when the respondent had paid money to Mr. Rafi Butt he was not acting on behalf of the appellant Company, that the money paid to him was received by him in his personal capacity, and that it was only after his death that his brother, Mr. Taqi Butt, agreed to compensate the respondent for the amount which had been actually transferred to the account books of the Company, namely, Rs. 57,360.

24. For reasons given above, we hold that some money, possibly, though not necessarily, a sum of Rs. 1,00,000 was paid by the respondent to Mr. Rafi Butt, before his departure to America, in the month of May or June 1948, that this payment was not received by him on behalf of the appellant‑Company and that he did not agree with the respondent that shares of the value of Rs. 50,000 would be transferred to him, or that he would supply him a complete cold‑storage plant for a sum of Rs. 50,

000. We, however, hold that out of the money received by Mr. Rafi Butt, from the respondent, in his individual capacity, a sum of Rs. 57,360 was transferred to the appellant‑Company and that the Company was liable to account for this amount only, without being under any obligation to transfer shares, or to supply machinery to the respondent and, therefore, the respondent was liable to pay the price of the machinery supplied to him.

25. Having held that no agreement was entered into between the respondent and Mr. Rafi Butt, for supply of machinery and for transfer of shares, it is not necessary for us to determine whether he was competent to enter into such an agreement. As, however, both parties had addressed arguments on the legal question as to whether, as Managing Director, Mr. Rafi Butt could, or could not, enter into such an agreement, it would be proper to, briefly, deal with the legal aspect of the case.

26. Being creatures of a statute, corporations are what are known as non‑sovereign bodies and cannot do anything in violation of their constitution, namely, the Memorandum and Articles. Generally speaking, a limited company, even in its general meeting, cannot do something which is not permitted by its Memorandum and, similarly, its directors are not competent to do something which they are not empowered to do by the Memorandum and the Articles. There are, however, certain exceptions to this rule, especially, where the rights of third parties come into play. The legal position has been summed up, in the following words, in Halsbury's Laws of England, Third Edition, Volume 6, at page 431: ‑ "Where there is a power of delegation to a committee of directors or a managing director, a person contracting with the company may assume that that power has been duly exercised. Where there is a power of delegation to agents, a person is only entitled to assume that such powers as are usually vested in such an agent have been so delegated; but where an agreement entered into by a director is unusual, a person contracting with the company through that director is put upon inquiry as to whether the necessary power has been delegated to that director."

27. Out of a large number of authorities cited by the parties' counsel during arguments, reference, for this purpose, may be made to the following English cases. Biggerstaff. Rowatt's Wharf, Limited ((1896) 2 Ch. Div. 93) and British Thomson‑Houston Company, Limited v. Federated European Bank, Limited ((1932) 2 K B 176). In the first‑mentioned case it was held that persons dealing bona fide, with a managing director are entitled to assume that he has all such powers as he purports to exercise, if they are powers which according to the constitution of the company a managing director can have. In the second mentioned case it was held that although a person who contracts with an individual director or servant of a company, knowing that the board of directors has power to delegate its authority to such an individual, may, under certain circumstances, assume that that power of delegation has been exercised and that he may safely deal with the individual in question as representing the Company, he cannot rely on the supposed exercise of such power if he did not know of the existence of the power at the time that he made the contract, and that if there was something so unusual in an agreement to apply the money of one company in payment of the debt of another the plaintiffs were put upon inquiry to ascertain whether the person or persons making the contract had any authority, in fact, to make it. Reference may also be made to Underwood (A.L.) Limited v. Bank of Liverpool and Martin's ((1924) L T R 271), in which, dealing with a case of a similar kind, the following observations were made, at page 273: ‑ "Now, what is the law as to this point ? What must persons look to when they deal with directors. They must see whether according to the constitution of the company the directors could have the powers which they are purporting to exercise. Here the articles enabled the directors to give the managing director all the powers of the directors except as to drawing, accepting, or indorsing bills of exchange and promissory notes. The persons dealing with him must look to the Articles, and see that the managing director might have power to do what he purports to do, and that is enough for a person dealing with him bona fide." Reference may also be made to the following authorities from this sub‑continent. Ram Buram Singh v. Mufassil Bank, Ltd. (1), Dehra Dun Mussoorie Electric Tramway Co., Ltd. and another v. Jagmandar Das and others (2) and Probodh Chandra Mitra v. Road Oils (India) Ltd. and others (3). In the last‑mentioned case it was held that when an agreement on behalf of a Company is entered into with a stranger by one of the directors, then if it was possible under the Articles of Association for authority of all the directors to be delegated to one and the stranger is aware of no facts to the contrary, the agreement will bind the Company irrespective of whether such delegation of power has taken place or not. Somewhat similar views have been expressed in the other two cases referred to above.

28. The law seems to be well established that before a stranger, who enters into an agreement with a director of a Company, can enforce that agreement he has to show : (A I R 1925 All. 206 (2)) that be acted bona fide, (A I R 1932 All. 141) that he knew that the power which the director purports to have exercised, could be delegated to him, and (A I R 1930 Cal. 782) that such a power normally was delegated to the directors. In the absence of proof of all these facts an agreement entered into between a director and a stranger would not be binding on the Company unless the director was empowered by the Articles to enter into such an agreement.

29. Keeping in mind these principles, the question arises whether Mr. Rafi Butt could legally enter into the alleged agreement relied upon by the respondent. A reference to Articles 15, 18, 19 and 20 of the Articles of Association of the Company would show that one of the Directors could be appointed as the Managing Director, with such powers and on such terms as the directors considered proper, that the business of the Company was to be managed by the directors and that the directors could raise or borrow money for or on behalf of the Company and could also secure its payment in such manner and upon such terms as they thought fit. There 1s nothing on this record to indicate that any of the powers of the directors had been delegated to Mr. Rafi Butt, when he was appointed as Managing Director of the Company. The learned counsel for the respondent, however, contended that as Managing Director of the Company Mr. Rafi Butt bad all the powers of management, and in pursuance of those powers he was competent to enter into any kind of agreement with the respondent. The learned counsel conceded that the resolutions, under which those powers had been delegated to Mr. Rafi Butt, were not on the minutes books of the Company, but contended that the appellant‑Company had, probably, removed the relevant resolutions from the minutes book. A reference to Resolution No. 2, passed in a meeting of the Board of Directors, held on the 2nd December 194F, would show that some such powers were being exercised by Mr. Rafi Butt, though the exact nature of those powers cannot be ascertained from the present record. This resolution is worded as follows: ‑ "It is resolved that Mr. M. Taqi Butt be vested with all such powers as have been delegated to the late Managing Director Mr. M. Rafi Butt, and mentioned in the Articles of Association of the Company. Further resolved that Mr. M. Taqi Butt, Managing Director, is empowered to raise, to discharge and to confirm loans, from the Central Exchange Bank Ltd., Lahore, Grindlays Bank Ltd., Lahore, and Grindlays Bank Ltd., Karachi, and any other Bank on behalf of the Company." In the absence of the original resolution, delegating certain powers to Mr. Rafi Butt, it cannot, on the strength of this resolution, be held that all the powers of management had been so delegated to Mr. Rafi Butt, and, consequently, the same powers could be exercised by Mr. Taqi Butt. Assuming that, in the normal course of business, Mr. Rafi Butt was entering into such business agreement with third parties, the question still remains as to whether the respondent was aware of the existence of that power and, as such, the agreement, if any, entered into between him and Mr. Rafi Butt, is binding on the Company. When the agreement was alleged to have been entered into, the respondent was not a share‑holder of the company, and, hence, he could (not) have been personally aware of the contents of the Articles of Association. It was, therefore, for him to show that, at that time, he was aware that powers to enter into such an agreement could be delegated to Mr. Rail Butt. No such evidence was given by him. He did not, even in his own statement, depose that he had read the Articles of Association of the Company, before the alleged agreement was entered into and, therefore, had come to know that such powers could be delegated to Mr. Rafi Butt. In the absence of this evidence, the rule laid down in Houghton and Company v. Nethard, Lowe and Wills, Limited ((1927) K. B. Div. 246) will apply, and, therefore, the alleged agreement cannot be held to be binding on the Company. We, therefore, hold that Mr. Rafi Butt was not competent to enter into any such agreement with the respondent and that even if he did so the appellant‑Company is not bound by it.

30. The existence of the agreement between the respondent and the appellant‑Company not having been established, the question of its subsequent ratification by Mr. Rafi Butt does not arise. Mr. Taqi Butt, no doubt, deposed that after the death of his brother, Mr. Rafi Butt, he had honoured the agreement which bad been entered into between him and the respondent, but, as stated above, Mr. Taqi Butt made that statement at the time when he had no interest in the Company and had nothing to lose by making such an admission. The alleged ratification by him of his brother's agreement cannot, therefore, bind the Company in any way.

31. For reasons given above, disagreeing with the trial Court, we hold that goods of the value of Rs. 77,882/5/‑ including sales -tax, were supplied by the appellant‑Company to the respondent, that no sum of Rs. 1,00,000 was paid to Mr. Rafi Butt, as Managing Director of the appellant‑Company by the respondent, that the appellant‑Company was not liable to account for any such money and that no agreement, as had been referred to m paragraph 3 of the written statement and the statement of the respondent made before the framing of issues, had been entered into between him and the appellant‑Company. Issues Nos. 3, 3‑A 3‑B, 4 and 5 are decided accordingly.

32. If the letters, dated the 21st February 1949, and the 18th March 1949. (Exhs. L. C/1 and L. C/3) are not taken into consideration, nothing remains on the file to show that the machinery supplied by the appellant‑Company to the respondent was, in any way, defective. As the genuineness of these letters is seriously in doubt, we are of opinion that the trial Court was not justified in coming to the conclusion that the machinery in question was defective. We, therefore, set aside the finding of the trial Court on this issue.

33. The finding of the trial Court on issue No. 7 was cot seriously challenged by the respondent. We are of opinion that, in accordance with the provisions of section 61 of the Sale of Goods Act and section I of the Interest Act, the appellant Company was entitled to recover interest at the rate claimed. We therefore, affirm the findind of the trial Court on this issue.

34. As a result of these findings, we accept this appeal, set aside the judgment and decree of the trial Court and grant the plaintiff a decree for Rs. 82,235/2/‑ with costs throughout. K. B. A. Appeal accepted,