ZULTECH (PRIVATE) LIMITED PAKISTAN Versus ARIF ALI HAIDER
DR. SYED FIAZ UL HASSAN SHAH, J.--- Through this 1st Appeal under section 96 Civil Procedure Code, 1908 (C.P.C.) , the appellant seeks setting aside the Judgment/Decree dated 08.03.2012 passed by learned V-Addl. District Judge, Karachi East (Trial Court) whereby Suit filed by the appellant under Order XXXVII Rule 1, C.P.C. was dismissed.
2. Precisely, the facts of the case are that the Appellant is a Private Limited Company incorporated in Pakistan having its offices at Karachi, Lahore and Rawalpindi. The Respondent joined the Appellant's Company as Senior Accountant whose responsibility is to receive cash and cheques for deposition in the bank, to prepare cash and bank vouchers and to support recovery department; however, instead of doing his job responsibilities, he committed misconduct and indulged in committing embezzlement of over Rs.32,00,000/-. When such fact of embezzlement was brought to the notice of Respondent, he admitted his guilt and issued as many as four post-dated cheque in lieu thereof; however, the cheques were dishonored on presentation. Since the Respondent remained fail to fulfill his promises; as such, the Appellant's Company lodged an FIR bearing No.438/2007 under section 408, P.P.C.; however, as a counter blast, the Respondent also registered FIR No.440/2007 under section 384 Pakistan Penal Code, 1860 which was later disposed of under "C" class. Thereafter, Suit No.42/2007 was filed by the Appellant which was dismissed by the learned trial Court through impugned Judgment and the present Appeal has filed.
3. During pendency of suit, the trial Court has granted leave to defend the suit through its Order dated 19.03.2008 with condition of security of Bank Guarantee in a sum of Rs.One Million and the Respondent has failed to comply with the leave granting order. Consequently, the learned trial Court have passed the Judgment dated 05.01.2008 and Decree dated 12.04.2008 for non-compliance. The Respondent challenged the said Judgment and Decree in 1st Appeal No.11/2008 and the same was allowed vide order dated 27.01.2009 by this Court by giving another opportunity to the Respondent to deposit the security of Bank Guarantee by remanding back the matter to the trial Court.
4. Afterwards, on 12.08.2010, the trial Court has framed issues and after recording the evidence of the appellant and the Respondent, rendered the findings on Issue No.1; however, no independent findings have been given on Issues Nos. 7 and 8 while placing reliance on interdependent Issue No.1 and the suit filed by the Appellant as plaintiff was dismissed through Judgment impugned before us solely on the ground that the appellant being plaintiff before the trial Court has not filed Memorandum and Articles of Association so also Resolution of the Board Directors of Messrs ZULTECH (Pvt.) Ltd. Company (appellant/Plaintiff) at the time of instituting the Suit and said suit was filed by unauthorized person without verification and no such Board Resolution/Authority/Power of Attorney were appended/attached therefore the trial Court dismissed the Suit instituted before it while placing reliance on the case of 2010 CLC 420.
5. We have heard the counsel for the Appellant while the Respondent has chosen to remain absent despite service of notice through all modes. We have carefully examined the record.
6. We have noted that the Appellant has filed an Authorization Letter with the plaint of Suit No.42 of 2007 presented on 01.09.2007 and same has produced in evidence and marked as Exh.P/2. We have further notice that the Appellant through a Statement dated 09.12.2010 (page 289 court file) has filed copies of Extract of Resolution of Board of Director and Memorandum and Articles of Association. Article 96 (8) of the Articles of Associations of the Appellant's Company allowed the Board of Directors to institute or defend the legal proceedings.
7. The document relied upon by the Appellant-namely, letter Exh.P/2 signed by Haider Ali Khan, Director of the Appellant's company is indecipherable, vague, and deficient in substance. It fails to refer to any specific meeting of the Board of Directors convened for the purpose of authorizing legal action. Furthermore, there is no supporting extract from the minutes of such meeting. nor do the Articles of Association confer authority upon the said Director to issue Exh.P/2 unilaterally.
8. Significantly, the Appellant's purported representative admitted during proceedings that no documentary evidence was produced to establish his designation as the "Company Secretary." This admission was duly noted and relied upon by the learned Trial Court in its judgment. The absence of corroborative documentation, coupled with the admitted failure to establish the representative's official capacity, renders the letter devoid of legal sanctity. The deficiency of a duly passed Board resolution further undermines the legitimacy of the proceedings initiated on behalf of the company. In view of this, Exh.P/2 cannot be accorded the status of a valid Board resolution, nor can it serve as a lawful substitute thereof.
9. Now moving towards Board Resolution and the Articles of Association which were filed almost after 03 years from the date of filing of the suit and as per rule laid down in Rahat and Company v. Trading Corporation of Pakistan (PLD-2020 SC 366) , it can be ratified at a later stage in accordance with law.
10. In Rahat and Company (Supra), the Hon'ble Supreme Court has comprehensively interpreted and rationalized the precedents laid down in Mohamed Siddiq Mohammed Umar and another v. Australasia Bank Ltd. (PLD 1966 SC 685) and Iftikhar Hussain Khan of Mamdot v. Ghulam Nabi Corporation Ltd. (PLD 1971 SC 550) . In the Australasia Bank case, the suit was instituted through a registered power of attorney without a supporting board resolution. Although the trial court dismissed the suit, the High Court, during appellate proceedings, admitted additional evidence including the Memorandum and Articles of Association and the board resolution, and subsequently set aside the trial court's judgment. The Supreme Court upheld the High Court's decision and further clarified that under the doctrine of indoor management, particularly in cases involving third parties, the existence of a board resolution is not mandatory where a valid power of attorney has already been executed. Conversely, in the Khan of Mamdot case, the appellant had acquired company property through auction and became a shareholder. Upon filing suit, a specific objection was raised regarding anomalies in the board resolution, including the failure to issue notice to all directors. Although the High Court admitted additional evidence and reversed the trial court's dismissal, the Supreme Court ultimately held that at both stages-trial and appellate the suit was not properly instituted by a duly authorized person. Accordingly, the suit was dismissed on technical grounds due to lack of proper authorization.
11. The Hon'ble Supreme Court has extensively interpreted the judgments in Australasia Bank Ltd. (supra) and Khan of Mamdot case (supra) , distinguishing their application based on differing factual contexts. In Australasia Bank , the Court laid down the general rule that where the Memorandum and Articles of Association of a legal person confer authority upon a natural person , and the lis involves a third party (someone not directly connected with the company), the doctrine of indoor management applies allowing the company to presume that internal formalities have been duly complied with. In such cases, a board resolution is not mandatory, provided a valid power of attorney has been executed and confers the claimed authority. However, the power of attorney must be scrutinized to ensure its proper execution to make it admissible evidence and to prove it. Conversely, where the Articles of Association of a legal person vest authority in an artificial person such as the Board of Directors, Managing Committee, or Trustees the production and proof of a board resolution passed in a duly convened meeting becomes a mandatory requirement. In the absence of such resolution, the suit is not maintainable and must be dismissed and the requirement to produce or to prove a power of attorney is not a substitute for board authorization.
12. The Supreme Court reconciled the earlier interpretations in Australasia Bank and Khan of Mamdot , holding that in cases like Australasia Bank and Central Bank of India Ltd. v. Tajuddin Abdul Rauf and others (1992 SCMR 846) , the Articles of Association conferred authority on a legal person, thereby validating proceedings without a board resolution but authorization/power of attorney must be produced and proved. Conversely, where authority is conferred on an artificial body, such as a board or committee, the resolution must be produced and proved. The Court expressly disapproved the principles laid down in Abdul Rahim and others v. United Bank Limited (PLD 1997 Karachi 62) as incorrect law. Further held that any principles in Pak Turk Enterprises (Pvt.) Ltd. v. Turk Hava Yollari (Turkish Airline Inc.) (2015 CLC 1) , inconsistent with the approved precedents must be regarded as disapproved and not a good law.
13. In Sui Northern Gas Pipelines Ltd. v. Messrs Noor CNG Filling Station (2022 SCMR 1501) , a two-member bench of the Hon'ble Supreme Court reaffirmed the settled legal principle originally laid down in Messer Muhammad Siddiq Muhammad Umar v. Australasia Bank Ltd. (PLD 1966 SC 684) and reiterated in Rahat and Company v. Trading Corporation of Pakistan (PLD 2020 SC 366) that where a valid power of attorney is executed pursuant to the Articles of Association empowering directors to delegate authority, it is not necessary to ceparately prove a board resolution authorizing such delegation but where party failed to establish the execution of any general power of attorney, thereby disentitling themselves from the benefit of these precedents. The Court emphasized the imperative of strict compliance with procedural requirements under the Civil Procedure Code, particularly Order XXIX Rule 1, Order VI Rules 14 and 15, Order III Rule 4, and Order XLI Rule 1, which mandate that pleadings and appeals must be signed and verified by duly authorized persons, and no such A document was presented before either the trial or appellate court, rendering the proceedings legally defective.
14. Beside the above legal proposition, the Hon'ble Supreme Court in Rahat and Company (surpa) has settled second legal proposition that the subsequent production of the Articles of Association and Board Resolution may be ratified during trial or through additional evidence, particularly where the doctrine of indoor management applies. While the Appellant's case may fall within the scope of this doctrine, the benefit of ratification recognized in Australasia Bank Ltd. (supra) was not availed, as neither the Articles of Association nor the Board Resolution were produced during trial or through additional evidence. This omission attracts an adverse inference under Article 129(g) of the Qanun-e-Shahadat Order, 1984, that there was inconsistency among the Board of Directors regarding the institution of the recovery suit. The Board Resolution must be filed either at the time of institution of the suit or proved during trial. The reliance placed by the learned counsel for the Appellant on Trading Corporation of Pakistan (Pvt.) Ltd. v. Merchant Agency (2007 CLC 1811) is misplaced and stands overridden by the authoritative findings in paragraph 11 of the Rahat and Co. judgment. We hold that the Appellant bore the legal and evidentiary burden under Articles 117 and 122 of the Qanun-e-Shahadat Order, 1984, to prove the Board Resolution dated 10.05.2007, which was not discharged due to failure to produce or prove the same during evidence, rendering the suit procedurally defective and legally untenable.
15. Therefore, this appeal fails on both accounts i.e, failure to present with plaint or failure to produce during evidence and failure to prove the execution and validity of such Board Resolution. No ground is made out warranting interference with the impugned Judgment.
16. Consequently, the First Appeal stands dismissed.
UN/Z-6/Sindh Appeal dismissed.