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M.N. Clubwala v. Fida Hussain Saheb, 1964

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M.N. Clubwala v. Fida Hussain Saheb, (1964) 6 SCR 642, 651 This case interpretation/case summary is written by Ms. Swati Sharma a student at the Faculty of Law (Delhi University). If you also want to publish your articles or case interpretations/summaries, send your work to  niyamskanoon09@gmail.com . Case Details PETITIONER:  MRS. M. N. CLUBWALA AND ANR. Vs. RESPONDENT: FIDA HUSSAIN SAHEB AND ORS. DATE OF JUDGMENT: 03/02/1964 BENCH: MUDHOLKAR, J.R. SUBBARAO, K. CITATION: 1965 AIR 610 1964 SCR (6) 642 Introduction   The case of M.N. Clubwala v. Fida Hussain Saheb (1964) under the Delhi Rent Control Act is a landmark judgment that clarifies the distinction between a lease and a license and the jurisdiction of the Rent Controller. The primary issue in this case was whether the agreements between the landlord (M.N. Clubwala) and the shopkeepers (Fida Hussain Saheb) created a lease or a license.  Facts of the Case M.N. Clubwala (Landlord) used his building as market by
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Re Introductions, Ltd. Introductions, Ltd. v. National Provincial Bank Ltd. [1969]

Re Introductions, Ltd. Introductions, Ltd. v. National Provincial Bank Ltd. [1969] Case Summary

Introduction 

A bank with full knowledge of the objects and power mentioned in the MoA of a company provided a sum of credit. On a simple reading of the clause of MoA, the bank satisfied itself that the company is empowered to borrow but they further did not enquire and provide credit to the company. The Court observed that the clauses of the MoA based on which the bank gave the loan were not an object but only a power, and that should be used for the particular purpose or object mentioned in the MoA. The power to borrow can not be an object of a company.

Facts 

The appellant company was incorporated in 1951 to provide facilities for British festivals to people who come from abroad. Subsequently, for some years, the company connected its business with deck chairs at a seaside resort. In 1961 the company transferred its share and elected a new board who decided to be involved in the business of "pig breeding".

New directors of the appellant company approached the National Provincial Bank Ltd. (Respondent) to open a bank account and credit for its new business of "Breeding Pig". Very soon the bank account became overdrawn therefore the company offered two debentures secured by the company's assets when a security was demanded by the bank. The company also presented its MoA and AoA before the bank and the bank was well aware that the money borrowed was getting used for an ultra vires act. 

The respondent bank depended on the words mentioned in sub-clause (N) of the MoA of the company which empowered the company in general terms to borrow, in particular by the issue of debentures, and to secure the loan by charge. Also in the memorandum it was expressly declared that each of the preceding sub-clauses shall be construed independently of and shall be in no way limited by reference to any other sub-clause and that the objects set out in each sub-clause are independent objects of the company.

The new venture proved a disastrous failure, and the company was ordered to be wound up in 1965. The bank asked for their credit but was denied by the liquidator.

Bank contended 

  • We read the memorandum but there was a sub-clause (N) in the memorandum which says: The company can borrow or raise money by issuing debenture, it gives an express power to borrow money 
  • Each of the precise sub-clauses shall be construed independently. 
  • The company's director can carry on any trade that is advantageous for the company in the opinion of the director as per sub-clause (D) of the memorandum. 
Issue 
  1. Whether the debenture held by the bank is valid against the liquidator?
  2. Whether in borrowing the money in question the company was acting within its powers and could give the bank a valid security.

Ratio Decidendi 
  1. The power given under subclause (N) to borrow money does not mean the power to borrow for any purpose.
  2. Power or an object to borrow money is not an and in itself and must be for some purpose of the company within the MoA. A bank must satisfy itself by its purpose.
  3. As said In "Re David Payne & Co. Ltd., Young v. David Payne Co., Ltd. [(1904)";
    1. Where the company has a general power to borrow money for its business, a lender is not bound to enquire into the purpose for which the money is required and the misapplication of the money does not avoid a loan in the absence of knowledge of the part of lender that the money is misapplied. 
    2. But In the present case, the bank knew that borrowing was not for legitimate purposes.
  4. The company's director can carry on any trade but is subject to the memorandum. As per section 4, the memorandum is a charter of the company. 
  5. The borrowing must be for a legitimate or intra vires to the object laws of the company.
  6. As per  Justice Buckley: the power given under sub-clause (N) differs from the object clause of the company.
  7. Power has to be exercised in the limit of the object clause. 
Judgment 
  • The appeal was dismissed as the bank knew about the Ultra Vires act of the company. 

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Ashbury Railway Carriage and Iron Co. Ltd. v. Riche (1875)

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Workmen of Dimakuchi Tea Estate v. Dimakuchi Tea Estate, AIR 1958 SC 353

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