Liability of Directors

A bill of exchange was drawn upon a company and it was duly accepted by its two Directors. While impressing its acceptance on the bill, the word “Limited” in the name of the company did not appear in the bill. The bill was dishonoured by the company on the date of its payment. The holder demands the payment from the Directors who had accepted the bill. Will he succeed?

According to Section 147 of the Companies Act, 1956, where an officer of a company accepts a bill of exchange, on its behalf but   without describing its name fully in legible characters, he will be personally liable to repay it provided the company does not dishonour it. However, the provisions of this Section are not invoked, if such default is accidental.

In the given situation, it was clear that the stamp was longer than the bill and the omission of the word Limited was only accidental. The Directors have no intention to contravene the provisions of Section 147. They intended to  make the company liable on the bill and the company is liable to honour the bill on due date.

Hence the  holder of the bill cannot demand the payment from the Directors.

A Similar Case

Dermatine company Limited v. Ashworth

The Court held that the omission to mention the word “Limited” was an obvious error of the most trifling kind and was not willful or motivated by any ulterior motive and held the company liable to pay it.

In the given situation, the holder cannot demand the payment from the Directors, and they  are  not personally liable to pay it.