IN THE SUPREME COURT OF PAKISTAN

(APPELLATE JURISDICTION)

Present
Mr. Justice Faisal Arab
Mr. Justice Sajjad Ali Shah
Mr. Justice Munib Akhtar

Civil Appeal No. 91-K of 2017

(On appeal from the order dated
06.11.2017 passed by the High Court of
Sindh, Karachi in High Court Appeal No.
137 of 2017)

Rahat and Company thr. Syed

Naveed Hussain Shah (formerly
partner) residing at 52-A, Overseas
Cooperative Housing Society, Block
7 and 8, Karachi. …Appellant (s)

Vs.

Trading Corporation of Pakistan

Statutory Corporation, Finance and
Trade Centre, Shahrah-e-Faisal,
Karachi and acting through its
Secretary or Chief Executive Officer. …Respondent (s)

For the appellant: : Mr. Amir Raza Naqvi, ASC.

For the respondent: : Mr. Sarfraz Ali Metlo, ASC.

Dr. Raana Khan, AOR.

Date of hearing: : 08.08.2019

ORDER

Munib Akhtar, J.- At the conclusion of the hearing it was announced that the
appeal was being dismissed. The following are our reasons for having done so.

2. The appeal arises out of Suit 196/1996 filed on the Original Side of the
Sindh High Court. The plaintiff was originally the Rice Export Corporation of
Pakistan (“RECP”), a company registered under the law relating to companies,
and the present appellant (a partnership firm) was the defendant. RECP was
C.A.No.91-K of 2017 2

subsequently merged with the Trading Corporation of Pakistan (sometime in

2001), which is also registered as a company and is the present respondent.
Briefly stated, the claim was for settlement of accounts and for recovery of a sum
of Rs. 56,803,786.64 in relation to the delivery and supply of rice. In the suit
issues had been framed on 12.05.1997. On or about 16.10.2010 an application
under Order 14, Rule 5 CPC was filed by the appellant (i.e., the defendant) for the
framing of an additional issue, which was proposed in the following terms:

“Whether the suit has been competently filed without authorization

by the Board of Directors of Rice Export Corporation of Pakistan
(the original plaintiff) if not its effect?”

The application was allowed on or about 08.09.2016 and the issue was
framed in terms as prayed. It was directed that it be tried as a preliminary issue.
By an elaborate order dated 18.01.2017 a learned Single Judge, after considering
the evidence led on the issue and the case law relied upon by both sides decided
the issue against the defendant. The defendant preferred an appeal against the said
order, which was dismissed by a learned Division Bench of the High Court by the
impugned judgment dated 20.09.2017. Against this dismissal, leave to appeal was
sought and granted vide order dated 14.12.2017.

3. Before us, learned counsel for the parties reiterated the submissions made
on their respective behalf both before the learned Single Judge and the learned
Division Bench. Mr. Faisal Siddiqui, Advocate, was appointed as amicus curiae to
assist the Court, and we are grateful to both the learned counsel appearing for the
parties and the learned amicus for the assistance that has been rendered. The
learned amicus submitted that the matter of ratification of a suit filed without
proper authorization of a board resolution ought also to be taken up in this appeal.
Although it was conceded that such a question was beyond the scope of the
additional issue that had been framed in the suit, the learned amicus submitted
that it was touched upon by the learned Division Bench in the impugned judgment
and could therefore be considered. It was submitted that it was an important
question that required an authoritative pronouncement from this Court. The
learned amicus cited certain decisions not just from our country but also from the
English and Indian jurisdictions.

4. The issue now before us has come up repeatedly both before the High
Courts and this Court and the point in contention is succinctly stated in the
additional issue that was framed in the suit, as set out above. One of us (Munib
C.A.No.91-K of 2017 3

Akhtar, J.), while in the High Court, has had occasion to consider in some detail
the relevant case law in Pak Turk Enterprises (Pvt) Ltd. v. Turk Hava Yollari
(Turkish Airlines Inc.) 2015 CLC 1 (“Pak Turk”). The matter arose out of an
application under s. 20 of the Arbitration Act, 1940 (filed as a suit on the Original
Side of the High Court) and what fell for determination was an application under
Order 7, Rule 11 CPC seeking rejection of the plaint. The basis for the application
was the same as stated in the additional issue before us. After considering the
authorities, the application was dismissed. In particular, the following judgments
of this Court were considered at length: Muhammad Siddiq Muhammad Umar
and another v. Australasia Bank Ltd. PLD 1966 SC 685 (“Australasia Bank”),
Ifthikhar Hussain Khan of Mamdot v. Ghulam Nabi Corporation Ltd. PLD 1971
SC 550 (“Khan of Mamdot”) and Central Bank of India Ltd. v. Taj ud Din Abdur
Rauf and others 1992 SCMR 846 (“Central Bank of India”). Without intending
any disrespect to the High Courts, we will focus only on these judgments, and two
other judgments of this Court (not considered in Pak Turk): Telecard Ltd. v.
Pakistan Telecommunication Authority 2014 CLD 415 and Al-Noor Sugar Mills
Ltd. v. Federation of Pakistan and others 2018 SCMR 1792. Of these, in our view
it is the first two judgments that are pivotal and require the greatest attention.

5. As regards Australasia Bank, Khan of Mamdot and Central Bank of India,

it was held in Pak Turk as follows (paras 12-26, pp. 8-15; emphasis by way of
underlining of paras 23 and 24 supplied; elsewhere, in italics, in original):

“12. … 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 was 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
C.A.No.91-K of 2017 4

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”.
C.A.No.91-K of 2017 5

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.
C.A.No.91-K of 2017 6

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 favor 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 favor of the company and against the
Khan of Mamdot. The other points were also decided in favor 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
C.A.No.91-K of 2017 7

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. 695-97, 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
C.A.No.91-K of 2017 8

convened board meeting. But even this clearly has a factual element. It is
only once the facts have been 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 … in [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.”

After considering the cases decided by the High Courts (only one of which
requires attention as set out later in this judgment below), it was concluded as
follows in Pak Turk (pg. 22):

“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
C.A.No.91-K of 2017 9

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 favor 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.”

6. The foregoing observations and conclusions are approved. They correctly

state what was decided by this Court in the three judgments considered, as well as
the conclusions of law that are to be derived from the same.

7. We turn now to consider Telecard Ltd. v. Pakistan Telecommunication

Authority 2014 CLD 415 (“Telecard”). It is a short judgment comprising of only
two paras. The relevant extract, from the first para, is as follows (emphasis
supplied):

“… admittedly the appellant is a limited company and the appeal has not
been filed by someone having due authority under the articles of
association of the company authorization by the board resolution. It is a
settled law that a lis cannot be initiated on behalf of the company which is
a juristic person, without having due authority either in terms of the
articles of association or by the board resolution. This is conspicuously
missing in the present case.”

In our view, the foregoing is simply an application of what has been called
the general rule in the Australasia Bank case in Pak Turk and approved as above.

8. The last judgment requiring attention is Al-Noor Sugar Mills Ltd. v.

Federation of Pakistan and others 2018 SCMR 1792. An objection was taken by
the respondents that the relevant board resolutions regarding the filing of the
appeals before this Court were not timely filed, but were presented only
subsequently (para 12, at pg. 1799). After reproducing the judgment in Telecard,
and referring to Australasia Bank (from which also a passage was extracted) and
C.A.No.91-K of 2017 10

considering the record before the Court it was held that the objection taken was
without merit. In our view, there is nothing in this decision as is contrary to what
was held in Pak Turk and as approved herein above.

9. The facts and circumstances of the present case in our view are covered by
the general rule laid down in Australasia Bank. The present appellant is clearly a
third party dealing at arm’s length with the respondent (or, more pertinently, its
predecessor, the RECP). The doctrine of indoor management is clearly applicable
here. Thus, there was, as such, no need even to frame an issue regarding whether
a board resolution had been passed or not. Attention is again drawn to para 23 of
Pak Turk, reproduced above. All that was required was to consider the Articles of
Association. Since the Articles are a public document, they could have been
produced before the Court at any stage, even without being formally tendered in
evidence. Indeed, for future guidance of the courts, we hold and direct that if any
objection of the nature as encapsulated in the issue under consideration is taken at
any stage (i.e., whether in a written statement at the trial stage or in para wise
comments or reply filed at the appellate or other similar stage), the court should
refrain from straightaway framing an issue or recording an objection in this
regard. Experience shows that such objections are, more often than not, frivolous
and an abuse of the process of the court, intended only to delay, derail or frustrate
consideration of the dispute on the merits. The court should, if at all it considers
this necessary, require the Articles of Association to be produced. If an
examination of the same, and an application of the doctrine of indoor
management as explicated in Australasia Bank satisfy the Court that the
suit/appeal etc. has been properly instituted then any objection taken in this regard
should be regarded as concluded in favor of the company. It is only if, after such
examination and consideration, the court is of the view, for reasons to be
recorded, that the matter still remains unresolved that an issue should at all be
framed (or the objection otherwise entertained for further consideration at the
appellate etc. stage) and evidence led or the record summoned (as the case may
be) and the parties heard accordingly.

10. We turn now to consider a Division Bench judgment of the Sindh High
Court, in Abdul Rahim and others v. United Bank Ltd. PLD 1997 Kar 62 (“United
Bank”) that was also considered in Pak Turk. The reason for doing so is that this
High Court judgment in particular is still cited from time to time. It was observed
in Pak Turk as follows (pp. 17-20):
C.A.No.91-K of 2017 11

“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) at pp. 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
C.A.No.91-K of 2017 12

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”.

35. 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).
C.A.No.91-K of 2017 13

36. 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.”

11. The foregoing observations and conclusions with regard to United Bank
are approved. With respect, the learned Division Bench there clearly made errors
of law with regard to its understanding and proper application of the judgments of
this Court. Accordingly, the view taken in United Bank is disapproved. It is not
good law and ought not to be followed or applied. Furthermore, and quite
obviously, anything contained in the other judgments of the High Courts, whether
those considered in Pak Turk or otherwise, that is inconsistent with what had been
held and approved herein above must also now yield to this judgment, and to that
extent must be regarded as disapproved and not good law.

12. We turn now to the request of the learned amicus that the matter of
ratification of a suit filed without competent authority (i.e., of a proper board
resolution) also be considered. The learned amicus correctly admitted that the
point does not, as such, arise here on the issue as presented in the appeal. His
contention that it is mentioned in passing in the impugned judgment by the
learned Division Bench (at para 11 thereof) is correct as far as it goes, but, with
respect, does not go far enough. However, the learned amicus has referred to
several decisions of the High Courts in this country where, according to him,
there is a conflict of views. In some cases it is held that the defect cannot be
ratified, while in others apparently an opposite conclusion is reached. On such
basis it is submitted that an authoritative pronouncement from this Court is
desirable.

13. In our view, since the matter does not as such arise in this appeal, an
definitive pronouncement is not possible. That must await a case where the issue
arises as such for determination. However, a tentative view may be expressed. As
C.A.No.91-K of 2017 14

noted above, the learned amicus has referred to certain decisions from the English
and Indian jurisdictions. Without considering the decisions of the High Courts of
our country in any detail (which analysis must be deferred to some other case
where the point actually arises), we are tentatively of the view that the stance
taken by the English Court of Appeal in Presentaciones Musicales SA v. Secunda
and another[1994] 2 All ER 737 and the Indian Supreme Court in United Bank of
India v. Naresh Kumar and others AIR 1997 SC 3, namely that any defect can be
cured by subsequent ratification, is correct and is to be preferred over any view to
the contrary. In the first cited case, the Court of Appeal held as follows (pg. 743):

“It is well recognised law that where a solicitor starts proceedings in the
name of a plaintiff - be it a company or an individual - without authority,
the plaintiff may ratify the act of the solicitor and adopt the proceedings.
In that event, in accordance with the ordinary law of principal and agent
and the ordinary doctrine of ratification the defect in the proceedings as
originally constituted is cured: see Danish Mercantile co Ltd. v
Beaumont[1951] 1 All ER 925, [1951] Ch 680, since approved by the
House of Lords. The reason is that by English law ratification relates back
to the unauthorised act of the agent which is ratified: if the proceedings are
English proceedings, the ratification which cures the original defect,
which was a defect under English law, must be a ratification which is valid
under English law.”

The view taken by the Indian Supreme Court in the above cited decision is
as follows (pp. 5-6; emphasis supplied):

“10. It cannot be disputed that a company like the appellant can sue and
be sued in its own name. Under Order 6 Rule 14 of the Code of Civil
Procedure a pleading is required to be signed by the party and its pleader,
if any. As a company is a juristic entity it is obvious that some person has
to sign the pleadings on behalf of the company. Order 29 Rule 1 of the
Code of Civil Procedure, therefore, provides that in a suit by against a
corporation the Secretary or any Director or other Principal Officer of the
corporation who is able to depose to the facts of the case might sign and
verify on behalf of the company. Reading Order 6 Rule 14 together with
Order 29 Rule 1 of the Code of Civil Procedure it would appear that even
in the absence of any formal letter of authority or power of attorney
having been executed a person referred to in Rule 1 of Order 29 can, by
virtue of the office which he holds, sign and verify the pleadings on behalf
of the corporation. In addition thereto and de hors Order 29 Rule 1 of the
Code of Civil Procedure, as a company is a juristic entity, it can duly
authorise any person to sign the plaint or the written statement on its
behalf and this would be regarded as sufficient compliance with the
provisions of Order 6 Rule 14 of the Code of Civil Procedure. A person
may be expressly authorised to sign the pleadings on behalf of the
company, for example by the Board of Directors passing a resolution to
that effect or by a power of attorney being executed in favour of any
individual. In absence thereof and in cases where pleadings have been
signed by one of its officers a Corporation can ratify the said action of its
officer in signing the pleadings. Such ratification can be express or
C.A.No.91-K of 2017 15

implied. The Court can, on the basis of the evidence on record, and after
taking all the circumstances of the case, specially with regard to the
conduct of the trial, come to the conclusion that the corporation had
ratified the act of signing of the pleading by its officer.”

14. For the foregoing reasons, the appeal stood dismissed.

Judge

Judge

Judge
Karachi, the
8th August, 2019
Approved for reporting
Saeed Aslam/-