Directors' authority to manage the company's affairs and the limitations on the General Body's power to interfere without a special resolution.

1. The appellant Bank had instituted a suit for recovery of amounts due from the defendants respondents herein under a promissory note executed by them jointly along with their father deceased Lonan on 21-3-49 for an amount of Rs 6563-3-0. Ex P-1 is the promissory note. The defence contention was that the promissory note had been executed not for any cash consideration but to secure a liability of the second defendant to indemnify the Bank against the loss caused to it by reason of the dishonour of a cheque which the second defendant discounted while he was the Agent of the Bank at its Pazhayannur Branch. The defendants further averred that several payments had been made by the second defendant in respect of this liability and that till 10-3-58 an amount of Rs. 6690/-had been remitted by him to the Bank. According to the defendants, in consideration of these payments and of the faithful and meritorious service rendered by the second defendant to the Bank, the General Body of the shareholders of the Bank had passed a resolution on 14th May 1960 resolving to write-off the balance amount due from the defendant under the promissory note and that in view of the said resolution the debt had become wiped off and no further amount was due by the defendants to the Bank. They, therefore, pleaded that the suit claim based on the promissory note was not sustainable.

2. The Trial court rejected the defence contention and held that the resolution of the General Body relied on by the defendants was a mere recommendation which was not binding on the Board of Directors of the Bank and that since the Board had decided to realise the full amount due by the defendants on the suit promissory note the defendants were liable to pay balance amount due on the promissory note. In this view, the suit was decreed by the trial court as prayed for in the plaint.

3. On appeal by the second defendant, the lower appellate court held that even though Ex. P-10 resolution passed in the General Body meeting held on 14-5-60 was couched in the form of a recommendation it was really a final decision taken on the matter by the General Body of shareholders and that the Board of Directors had no right to over-ride the said decision of the General Body. It, therefore, held that in the light of Ex. P-10 resolution the liability of the defendants under the promissory note should be deemed to have been fully remitted and that the Bank was not entitled to realise any further amounts from the defendants. In the result, the decree of the trial court was set aside and the suit was dismissed. The plaintiff-Bank has preferred this Second Appeal challenging the aforesaid decision of the lower appellate court.

4. Ex. D-1 is the Articles of Association of the plaintiff-Bank. It will be seen from Art.14 of Ex. D-1 that the business of the company is to be managed by the Directors who may exercise all such powers as are not required to be exercised by the company in general meeting. There is no provision in any of the articles enabling the General Body of shareholders to interfere in the day-to-day management, of the business of the Bank and the conduct of such business is left by the articles entirely in the Board of Directors. Ex. D-7 is a copy of the Rules and Regulations of the plaintiff-Bank, and Rule I states that subject to the provisions contained in the Memorandum and Articles of Association, the Board of Directors shall be in full control of all the business, finance and affairs of the Bank.

5. It is now well-established that unless anything contained in the Companies Act or in the Articles of Association of the company otherwise require the Directors to conform to directions given by the company in general meeting, the latter cannot, except by special resolution, take the conduct of the business out of the Directors or compel them to adopt a particular line of action. The legal position is stated thus in Halsbury's Laws of England, Third Edition, Volume 6 at page 2