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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
FIRST APPEAL NO. 1526 OF 2011
DISTRICT : NASHIK
M/s.Alcon Electronics Pvt. Ltd. )
Having its office at 34-B, M.I.D.C. )
Industrial Area, Satpur, Nashik – 422 007) ….. Appellant
VERSUS
Celem S.A. )
Having its office at : Le Village FOS )
34320 France ) ….. Respondent
Mr.P.S.Dani for the Appellant.
Mr.S.S.Bijlani, a/w. Mr.Manish Rai for the Respondent.
CORAM : R.D. DHANUKA, J.
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DATED : 2 SEPTEMBER, 2014
JUDGMENT
Admit. Learned counsel appearing for respondent waive service.
Returnable forthwith and is heard finally.
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2. This appeal is directed against the order and judgment dated 7 April, 2011
passed by the learned District Judge 1, Nashik allowing the application filed by the
respondent under order 7 rule 11(d) of the Code of Civil Procedure, 1908 and
thereby rejecting the plaint. Some of the relevant facts for the purpose of deciding
this appeal are as under :-
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3. On 18 August 2005 the appellant (original plaintiff) filed a suit against the
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respondent (original defendant) being Civil Suit No.216 of 2005 in the District
court Nashik inter alia praying for a declaration that the threats of the defendant of
infringement proceedings against the plaintiff are baseless and unjustified prayed
for perpetual injunction and money decree. In paragraph 35 of the plaint it is
averred that Mr.Siddharth Sachdev who is a director of the plaintiff company and
who is aware of and is able to depose the facts of this case has signed and declared
the plaint. The plaint is signed and verified by said Mr.Siddharth Sachdev on
behalf of the plaintiff company. Parties in this order are described as were
described in the impugned order.
4. Sometimes in the year 2006 the defendant filed an application under order
VII rule 11 of the code of civil procedure 1908 read with section 151 of the Code
of Civil Procedure 1908 in the said suit inter alia praying for dismissal of the suit
for want of jurisdiction without prejudice to its contention that the District Court at
Nashik did not have territorial jurisdiction to try entertain and dispose of the said
suit.
5. The said application was resisted by the plaintiff by filing a detailed reply.
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By an order dated 25 September 2006 passed by the learned District Judge II
Nashik the said application filed in the year 2006 by the defendant under order VII
rule 11 read with section 151 of Code of Civil Procedure came to be rejected. It is
ordered that the issue as to territorial jurisdiction will be framed and decided
alongwith other issues. The learned Distrcit Judge on perusal of the pleading,
document produced on record and admitted fact rendered a prima facie finding that
the defendant had issued letter to the plaintiff about alleged infringement of its
patent which gave cause of action for the plaintiff to file the said suit. The
defendant did not challenge the said order passed by the learned District Judge
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rejecting the said application filed by the defendant.
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6. On 28 October, 2009 the defendant filed an application under order VII rule
11(d) of the Code of Civil Procedure, 1908 inter alia praying for rejection of the
plaint. It is averred in the said application that the plaint was filed by Mr.Siddharth
Sachdev claiming to be a director of the plaintiff company. It is submitted that
order 29 rule 1 of Code of Civil Procedure does not authorise persons mentioned
therein to institute suits on behalf of the companies but authorises them only to
sign and verify the pleadings on behalf of the companies. The power to institute
the suit on behalf of the companies rests only with the board of directors. It is
submitted that there is no resolution of the board of directors of the plaintiff
company authorizing the filing of the present suit. It is submitted that there is no
averment in the entire plaint that the board of directors had authorised
Mr.Siddharth Sachdev to file the present suit and submitted that the said
Mr.Siddharth Sachdev had no authority to file the present suit on behalf of the
plaintiff company.
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7. The plaintiff resisted the said application by filing a reply on 26 April,
2010. The plaintiff contended that a similar application was filed for rejection of
plaint on the ground that the District Court at Nashik had no jurisdiction which
application was rejected by the learned District Court. It is averred in the reply
that the application did not fall under any of the clauses of rule 11 of order 7 and is
liable to be dismissed at the threshold.
8. The plaintiff in the said reply denied the averments made in paragraph 2 of
the application. It was denied that there was no resolution of the board of directors
authorising filing of the suit. It is submitted that the resolution of the board of
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directors for filing of the suit is not the requirement of law. The plaintiff denied
that Mr.Siddharth Sachdev had no authority to file the suit. In the meeting of the
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board of directors of the company held on 28 March, 2005 Mr.Siddharth Sachdev
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was appointed as a director of the plaintiff w.e.f. 1 April 2005. In the said meeting
a power of attorney executed in favour of Mr.Siddharth Sachdev was placed before
the board of directors which was duly approved by the board. It is submitted that
the said power of attorney specifically authorised Mr.Siddharth Sachdev to do
certain acts including initiating legal proceedings to protect the company's
interests. It is averred that the present suit is obviously to protect the interest of
the company. The plaintiff annexed a certified true copy of the minutes of the
meeting to the said reply duly certified by the chairman and managing director of
the company Mr.Anup Sachdev. Clause 4 of the said power of attorney is
extracted as under :-
“ 4. To initiate legal proceedings to protect the Company's
interests and in this regard to make, declare, swear, affirm,
sign, verify, initiate and facilitate civil suits, criminal
complaints and petitions on behalf of the company; appear
before appropriate government authorities, tribunals, courts;
and if thought fit to initiate arbitration and/or conciliation
proceedings in any matter and in all aforesaid matters, to retain
and appoint advocates, solicitors and other legal practitioners
and advisors, and to sign vakalatnamas and other all necessary
documents in this regard.”
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9. By an order dated 7 April 2011 the learned District Judge-1 Nashik allowed
the application (Exhibit 28) filed by the defendant under order 7 rule 11(d) of the
Code of Civil Procedure 1908 and rejected the plaint. The appellant has impugned
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the said order and judgment dated 7 April, 2011 in this appeal which order and
judgment is deemed to be decree within the meaning of section 2(2) of the Code of
Civil Procedure 1908 or is having force of a decree.
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10. Mr.Dani, learned counsel appearing for the plaintiff submits that the
application filed under order 7 rule 11(d) of Code of Civil Procedure 1908 itself
was not maintainable. It is submitted that under section 9 of Code of Civil
Procedure the courts have jurisdiction to try all suits of a civil nature except suits
of which their cognizance is either expressly or implied barred. It is submitted that
under order 7 rule 11(d) court has power to reject plaint only if from the statement
in the plaint the suit appears to be barred by any law. It is submitted that even if
the learned trial judge was right in holding that there was no specific resolution
passed by the plaintiff authorising Mr.Siddharth Sachdev to file suit against the
defendant, filing of such suit without any such specific resolution authorising a
board of director to file a suit, verify plaint etc. is not barred under any provisions
of law. Learned counsel submits that at the most it may amount to a defect which
is a curable defect and thus plaint could not have been rejected on that ground.
11. Learned counsel submits that the plaintiff company had already passed a
resolution approving the power of attorney empowering the said Mr.Siddharth
Sachdev to file legal proceedings to protect the interest of the company and in that
regard to declare, swear, affirm, sign, verify, initiate and facilitate civil suits etc. on
behalf of the company. A certified copy of the resolution approving the power of
attorney was filed before the trial court which was duly certified by the chairman
and managing director of the plaintiff company. It is submitted that the suit was
not filed by the said Mr.Siddharth Sachdev but was filed by the company and was
signed and verified by the said Mr.Siddharth Sachdev as a director of the plaintiff
company pursuant to such power of attorney duly approved by the plaintiff by
passing a resolution.
12. Learned counsel submits that similar attempt made by the defendant even
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earlier by filing an application under order 7 rule 11 for rejection of plaint came to
be rejected and the said order has not been admittedly impugned by the defendant.
13. Mr.Dani learned counsel for the plaintiff submits that whether such
resolution passed by the plaintiff authorised the said Mr.Siddharth Sachdev to file a
suit on behalf of the plaintiff against the defendant herein or not would not be a
lacuna for presentation of a plaint under any of the provisions of law and in any
event was curable. It is submitted that even under the provisions of Companies
Act, 1956 filing of such suit by a director is not barred.
14. It is submitted that in any event the resolution approving the power of
attorney which empowered the said Mr.Siddharth Sachdev to file a legal
proceeding on behalf of the plaintiff was an adequate compliance of the provisions
of the Companies Act 1956. The company being a juristic person has to act by
passing a resolution authorising the members of board to adopt such proceedings
and represent the company. It is submitted that the learned trial judge did not give
any opportunity to cure such alleged curable defect. It is submitted that the
plaintiff had already filed an affidavit before the learned District court denying the
allegation of the defendant that the said Mr.Siddharth Sachdev was not an
authorised director to file a suit against the defendant. The plaintiff had reiterated
that the said Mr.Siddharth Sachdev was authorised to file the said suit and the same
was maintainable.
15. Mr.Dani, learned counsel placed reliance on the judgment of Supreme Court
in case of Prem Lala Nahata and another vs. Chandi Prasad Sakaria AIR 2007
SC 1247 and in particular paragraphs 11, 14 and 15 and would submit that unless
the institution of the suit itself is barred under any provisions of law, application
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under order 7 rule 11(d) of the Code of Civil Procedure is not maintainable. It is
submitted that at the most the objections raised by the defendant could be
considered as a procedural objection which could be rectified at any stage of the
suit. Paragraphs 11, 14 and 15 of the said judgment of Supreme Court read thus :-
11. Thus, in a case where a plaint suffers from the defect of
misjoinder of parties or misjoinder of causes of action either in
terms of Order I Rule 1 and Order I Rule 3 on the one hand, or
Order II Rule 3 on the other, the Code itself indicates that the
perceived defect does not make the suit one barred by law or
liable to rejection. This is clear from Rules 4 and 5 of Order I
of the Code; and this is emphasised by Rule 9 of Order I of the
Code which provides that no suit shall be defeated by reason
of non-joinder or misjoinder of parties and the court may in
either case deal with the matter in controversy so far as it
regards the rights and interests of the parties actually before it.
This is further emphasised by Rule 10 of Order I which
enables the court in appropriate circumstances to substitute or
add any person as a plaintiff in a suit. Order II deals with the
framing of a suit and Rule 3 provides that save as otherwise
provided, a plaintiff may unite in the same suit several causes
of actions against the same defendant and any plaintiffs having
causes of actions in which they are jointly interested against
the same defendant may unite such causes of action in the
same suit. Rule 6 enables the Court to order separate trials
even in a case of misjoinder of causes of action in a plaint
filed.
14. Order VII Rule 11(d) speaks of the suit being "barred by
any law". According to the Black's Law Dictionary, bar means,
a plea arresting a law suit or legal claim. It means as a verb, to
prevent by legal objection. According to Ramanatha Aiyar's
Law Lexicon, 'bar' is that which obstructs entry or egress; to
exclude from consideration. It is therefore necessary to see
whether a suit bad for misjoinder of parties or of causes of
action is excluded from consideration or is barred entry for
adjudication. As pointed out already, on the scheme of the
Code, there is no such prohibition or a prevention at the entry
of a suit defective for misjoinder of parties or of causes of
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action. The court is still competent to try and decide the suit,
though the court may also be competent to tell the plaintiffs
either to elect to proceed at the instance of one of the plaintiffs
or to proceed with one of the causes of action. On the scheme
of the Code of Civil Procedure, it cannot therefore be held that
a suit barred for misjoinder of parties or of causes of action is
barred by a law, here the Code. This may be contrasted with
the failure to comply with Section 80 of the Code. In a case
not covered by Sub-section (2) of Section 80 , it is provided in
Sub-section (1) of Section 80 that "no suit shall be instituted".
This is therefore a bar to the institution of the suit and that is
why courts have taken the view that in a case where notice
under Section 80 of the Code is mandatory, if the averments in
the plaint indicate the absence of a notice, the plaint is liable to
be rejected. For, in that case, the entertaining of the suit would
be barred by Section 80 of the Code. The same would be the
position when a suit hit by Section 86 of the Code is filed
without pleading the obtaining of consent of the Central
Government if the suit is not for rent from a tenant. Not only
are there no words of such import in Order I or Order II but on
the other hand, Rule 9 of Order I, Rules 1 and 3 of Order I, and
Rules 3 and 6 of Order II clearly suggest that it is open to the
court to proceed with the suit notwithstanding the defect of
misjoinder of parties or misjoinder of causes of action and if
the suit results in a decision, the same could not be set aside in
appeal, merely on that ground, in view of Section 99 of the
Code, unless the conditions of Section 99 are satisfied.
Therefore, by no stretch of imagination, can a suit bad for
misjoinder of parties or misjoinder of causes of action be held
to be barred by any law within the meaning of Order VII Rule
11(d) of the Code.
15. Thus, when one considers Order VII Rule 11 of the Code
with particular reference to Clause (d), it is difficult to say that
a suit which is bad for misjoinder of parties or misjoinder of
causes of action, is a suit barred by any law. A procedural
objection to the impleading of parties or to the joinder of
causes of action or the frame of the suit, could be successfully
urged only as a procedural objection which may enable the
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Court either to permit the continuance of the suit as it is or to
direct the plaintiff or plaintiffs to elect to proceed with a part
of the suit or even to try the causes of action joined in the suit
as separate suits.
16. Mr.Dani placed reliance on the judgment of the Supreme Court in case of
United Bank of India vs. Naresh Kumar and others (1996) 6 SCC 660 and in
particular paragraphs 4 and 9 to 12 in support of his submission that the defect of
the plaintiff company not having passed a resolution if any under order 29 rule 1
would be a curable defect and the suit would not suffer from any jurisdictional
infirmity. Paragraphs 4 and 9 to 12 of the said judgment reads thus :-
4. On the pleadings of the parties the following issues were
framed:
“ 1. Whether the plaint is duly signed and verified by a
competent person? OPP
2. Whether the defendant No. 1 raised a loan of Rs. 50,000
from the plaintiff bank on 12.4.84 and executed a demand
promissory note, hypothecation of goods agreement, letter
of loan and other documents in favours of the plaintiff
bank? OPP
3. Whether the defendants No. 2 and 3 stood as guarantors
for the repayment of the loan and if so, what is the extent
of their liability? OPP
4. What is the balance amount? OPP
5. Whether the plaintiff varied the terms of loan and if so,
its effect qua the liabilities of defendants No. 2 and 3,
Onus on Parties.
6. Whether the statement of account produced by the
plaintiff is admissible in evidence? OPP
7. Whether the defendants agreed to pay interest if so, at
what rate and to what amount? OPP
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8. Whether the plaintiff has no cause of action? OPP
9. Relief. ”
9. In cases like the present where suits are instituted or
defended on behalf of a public corporation, public interest
should not be permitted to be defeated on a mere technicality.
Procedural defects which do not go to the root of the matter
should not be permitted to defeat a just cause. There is
sufficient power in the Courts, under the CPC, to ensure that
injustice is not done to any party who has a just case as for as
possible a substantive right should not be allowed to be
defeated on account of a procedural irregularity which is
curable.
10. It cannot be disputed that a company like the appellant
can sue and be sued in its in its own name. Under Order 6 Rule
14 of the CPC 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 CPC, therefore,
provides that in a suit by or 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 CPC 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 an de hors Order 29 Rule 1 of the CPC, 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 CPC. 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
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can ratify the said action of its officer in signing the pleadings.
Such ratification can be express or 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.
11. The courts below could have held that Sh. L.K. Rohatgi
must have been empowered to sign the plaint on behalf of the
appellant. In the alternative it would have been legitimate to
hold that the manner in which the suit was conducted showed
that the appellant bank must have ratified the action of Sh.
L.K. Rohatgi in signing the plaint. If, for any reason
whatsoever, the courts below were still unable to come to this
conclusion, then either of the appellate courts ought to have
exercised their jurisdiction under Order 41 Rule 27(1)(b) of the
CPC and should have directed a proper power of attorney to be
produced or they could have ordered Sh. L.K. Rohatgi or any
other competent person to be examined as a witness in order to
prove ratification or the authority of Sh. L.K. Rohatgi to sign
the plaint. Such a power should be exercised by a court in
order to ensure that injustice in not done by rejection of a
genuine claim.
12. The Courts below having come to a conclusion that money
had been taken by respondent No. 1 and that respondent No. 2
and husband of respondent No. 3 had stood as guarantors and
that the claim of the appellant was justified it will be a travesty
of justice if the appellant is to be non suited for a technical
reason which does not go to the root of the matter. The suit did
not suffer from any jurisdictional infirmity and the only defect
which was alleged on behalf of the respondents was one which
was curable.
17. Mr.Bijlani learned counsel for the defendant on the other hand submits that
though the suit filed by the director of the company without any specific resolution
authorising the director Mr.Siddharth Sachdev to file suit against the defendant,
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such defect was a curable defect, the plaintiff did not bother to cure such defect
when such objection was raised by the defendant before the trial court by filing an
application under order 7 rule 11(d) of the Code of Civil Procedure, 1908. Learned
counsel invited my attention to the stand taken by the plaintiff in the affidavit in
reply filed opposing the application filed by the defendant in support of his this
submission. It is submitted that the defendant is entitled to raise such plea in the
suit filed by the plaintiff which plea goes to the root of the jurisdiction of the trial
court. It is submitted that though there is no specific bar under any of the
provisions of law from filing of such suit without passing a specific resolution by a
company authorising the office bearers to file a suit against a particular party, the
view taken by the Supreme Court and this court would support the plea of the
defendant that such suit was barred and thus application filed under order 7 rule
11(d) of the Code of Civil Procedure 1908 was maintainable.
18. Learned counsel placed reliance on section 291 of the Companies Act, 1956
then in force which is extracted as under :-
291. General powers of Board.
(1) Subject to the provisions of this Act, the Board of directors
of a company shall be entitled to exercise all such powers, and
to do all such acts and things, as the company is authorised to
exercise and do: Provided that the Board shall not exercise any
power or do any act or thing which is directed or required,
whether by this or any other Act or by the memorandum or
articles of the company or otherwise, to be exercised or done
by the company in general meeting: Provided further that in
exercising any such power or doing any such act or thing, the
Board shall be subject to the provisions con- tained in that
behalf in this or any other Act, or in the memorandum or
articles of the company, or in any regulations not inconsistent
therewith and duly made thereunder, including regulation
made by the company in general meeting.
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(2) No regulation made by the company in general meeting
shall invalidate any prior act of the Board which would have
been valid if that regulation had not been made.
19. Order 7 Rule 11(a) and (d) of Code of Civil Procedure, 1908 read thus :-
11. Rejection of plaint :- The plaint shall be rejected in the
following cases :-
(a) where it does not disclose a cause of action ;
(b) where the relief claimed is under-valued, and the
plaintiff, on being required by the Court to so correct the
valuation within a time to be fixed by the Court, fails to do so;
(c) where the relief claimed is properly valued, but the
plaint is written upon paper insufficiently stamped, and the
plaintiff, on being required by the Court to supply the requisite
stamp-paper within a time to be fixed by the Court, fails to do
so;
(d) where the suit appears from the statement in the plaint to
be barred by any law;
20. Learned counsel placed reliance on the judgment of Supreme Court in case
of M/s.Dale and Carrington Invt.(P) Ltd., and another vs. P.K.Prathapan and
others AIR 2005 SC 1624 and in particular paragraphs 11 in support of the plea
that since no specific resolution of the board of directors of the plaintiff company
was passed giving specific power to Mr.Siddharth Sachdev to file specific suit
against the defendant, suit was not maintainable as barred. Paragraph 11 of the
said judgment of he Supreme Court reads thus :-
Issue 1. Validity of allotment of equity shares
11. This is the main issue which arises for consideration in this
case. As already noted Ramanujam who was the Managing
Director of the company got allotted 6865 equity shares to
himself in a meeting of the Board of Directors of the company
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alleged to have been held on 24 October, 1994. Again on 26
March, 1997 he managed to get allotted further 9800 equity
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shares to himself. Prathapan has challenged these allotments of
shares in favour of Ramanujam as acts of oppression on the
part of Ramanujam, the Chairman and Managing Director of
the company for which he filed a petition under Sections 397
and 398 of the Companies Act before the Company Law
Board. A doubt has been cast about whether the alleged
meetings in which additional equity shares were allotted to
Ramanujam were held at all. In this behalf the following facts
are noticeable:-
(a) The appellants have filed a photocopy of the minutes of the
alleged meeting of the Board of Directors said to have taken
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place on 24 October, 1994. As per the photocopy the minutes
appear to be signed by Ramanujam as Chairman. The presence
of Suresh Babu as a Director of the Company has been shown
in the minutes. However, there is no evidence of presence of
Suresh Babu in the said meeting. Article of the Articles of
Association of the company requires that a notice convening
the meetings of the Board of Directors shall be issued by the
Chairman or by one of the Directors duly authorized by the
Board in this behalf. Suresh Babu filed an affidavit in the
proceedings before the Company Law Board wherein he has
categorically stated that at no point of time he was involved in
the affairs of the company and in running the business of the
company. Further he has stated in the said affidavit that at no
point of time he was informed that he had been appointed as
Director of the company. He had never received any notice of
any Board Meetings nor had he ever attended any Board
meeting. In view of this categorical denial by Suresh Babu
about attending any meetings of the Board of Directors of the
company, it was incumbent on the part of Ramanujam who
was the Chairman and Managing Director of the company and
was in possession of all the records of the Company, to place
on record a copy of a notice calling a meeting of the Board of
Directors in terms of Article No copy of the notice intimating
Suresh Babu about the meeting of the Board of Directors and
asking him to attend the same, has been placed on record to
show that Suresh Babu was informed about holding of the
meeting in question.
Here reference is required to be made to certain other Articles
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of the company which are relevant for the controversy. Article
provides that shares of the company shall be under the control
of the Directors who may allot the same to such applicants as
they think desirable of being admitted to membership of the
company. Article provides that allotment of shares "shall
exclusively be vested in the Board of Directors, who may in
their absolute discretion allot such number of shares as they
think proper..." Article requires that the Directors present at the
Board Meeting shall write their names and sign in a book
specially kept for the purpose. Article (iii) prohibits any
invitation to the public to subscribe for any shares or
debentures of the company. The above provisions of the
Articles of Association show that the Board of Directors have
an absolute discretion in the matter of allotment of shares. But
this pre-supposes that such a decision has to be taken by the
Board of Directors. The decision is taken by the Board of
Directors only in meetings of the Board and not elsewhere.
Ramanujam, the Managing Director cannot take a decision on
his own to allot shares to himself. If Suresh Babu was present
in the meeting, as is the case of Ramanujam, he must have
signed a book specially kept for recording presence of the
Directors at the Board Meeting in terms of Article Ramanujam
should have been the first person to produce such a book to
show the presence of Suresh Babu at the alleged Board
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meeting said to have been held on 24 October, 1994 specially
when Suresh Babu was denying his presence at the meeting.
Nothing has been produced. Thus neither a copy of a notice
convening the Board meeting nor the log book meant to record
signatures of Directors attending the meeting of the Board of
Directors were produced. In the absence of these documents
and any other proof to show that a meeting was held as alleged
we are unable to accept that a meeting of the Board of
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Directors was held on 24 October, 1994. If no meeting of the
Board of Directors took place on that date, the question of
allotment of shares to Ramanujam does not arise. We are
inclined to believe that photocopy of the minutes of the alleged
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meeting dated 24 October, 1994 produced by appellants, is
sham and fabricated. The alleged allotment of additional
equity shares of the company in favour of Ramanujam is,
therefore, wholly unauthorized and invalid and has to be set
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aside.
Normally this Court would not have gone into these questions
of fact. However, the learned counsel for the appellant in the
course of his arguments drew our attention to the various
Articles of Association of the company, which unfortunately
neither the Company Law Board nor the High Court
considered. We cannot help referring to them, particularly in
view of the fact that the Articles of a company are its
constituent document and are binding on the company and its
Directors.
The facts on record show that the company was being run as
one man show and Ramanujam was maintaining the Minutes
Book of meetings of Board of Directors only to comply with
the statutory requirement in this behalf. The minutes were
being recorded by him according to his choice and at his
instance. The minutes do not reflect the actual position. Article
mandated that a book should be maintained to record presence
of Directors at meetings of the Board of Directors. If a book
for recording signatures of Directors attending meetings of the
Board of Directors was not maintained, it was in clear
violation of Article of the Articles of Association of the
company. The Company Law Board without going into these
relevant aspects, proceeded on an assumption that a meeting of
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the Board of Directors did take place on 24 October, 1994.
This assumption of the Company Law Board is clearly without
any basis.
(b) When no meeting of the Board of Directors of the company
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was held on 24 October, 1994, the question of validity of the
meeting does not arise. On the relevant date Suresh Babu was
the only other Director of the company. He denies having
attended any meeting of the Board of Directors of the
company. There is nothing to rebut this stand of Suresh Babu.
In his absence no valid meeting of the Board of Directors
could be held.
(c) For considering this point let us assume that a meeting of
the Board of Directors of the company did take place as
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alleged by Ramanujam. First question that arises is whether
the company required additional funds for which the shares
were issued. We have already referred to Balance Sheets of the
st
company, copies whereof have been placed on record. Till 31
March, 1993 the Balance Sheets did not show any investment
of substantial amounts of money in the company. It is the
st
Balance Sheet for the year ending 31 March, 1994 which for
the first time shows an advance of Rs. 6,86,500/- towards
share capital pending allotment. Nothing has been placed on
st
record to show that during the financial year 1993-94 i.e. 1
st
April, 1993 to 31 March, 1994 suddenly need had arisen for a
substantial investment. The company was running a hotel, the
property whereof was owned by the company. No particular
reason for making a major investment has been shown.
Nothing has been shown as to how the amount of Rs.
6,86,500/- was utilised. It appears that Ramanujam who was
managing the affairs of the company single handedly, realized
that the company had turned around and the Hotel property
had appreciated in terms of its market value. He started
working on a strategy to get controlling shares in the company.
It was in furtherance of this objective that Ramanujam
managed to show the entry regarding advance against shares in
st
the Balance Sheet as on 31 March, 1994. For this amount, he
allotted equity shares to himself to gain control of the
company. In these facts it is difficult for us to appreciate that
the additional funds were required by the company. In our
view the finding of the High Court that no funds were needed
by the company is fully justified. The only purpose was to allot
additional shares in the company to himself to gain control of
the company and to achieve this objective, the books of the
company appear to have been manipulated. The High Court
was right in holding that the entire manipulation of records of
the company by Ramanujam was an act of fraud on his part.
(d) We may also test the alleged act of allotment of equity
shares in favour of Ramanajum from a legal angle. Could it be
said to be a bonafide act in the interest of the Company on the
part of Directors of the Company?
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At this stage it may be appropriate to consider the legal
position of Directors of companies registered under the
Companies Act. A company is a juristic person and it acts
through its Directors who are collectively referred to as the
Board of Directors. An individual Director has no power to act
on behalf of a company of which he is a Director unless by
some resolution of the Board of Directors of the Company
specific power is given to him/her. Whatever decisions are
taken regarding running the affairs of the company, they are
taken by the Board of Directors. The Directors of companies
have been variously described as agents, trustees or
representatives, but one thing is certain that the Directors
action behalf of a company in a fiduciary capacity and their
acts and deeds have to be exercised for the benefit of the
company. They are agents of the company to the extent they
have been authorized to perform certain acts on behalf of the
company. In a limited sense they are also trustees for the
shareholders of the company. To the extent the power of the
Directors are delineated in the Memorandum and Articles of
Association of the company, the Directors are bound to act
accordingly. As agents of the company they must act within
the scope of their authority and must disclose that they are
acting on behalf of the company. The fiduciary capacity within
which the Directors have to act enjoins upon them a duty to act
on behalf of a company with utmost good faith, utmost care
and skill and due diligence and in the interest of the company
they represent. They have a duty to make full and honest
disclosure to the shareholders regarding all important matters
relating to the company. It follows that in the matter of issue of
additional shares, the directors owe a fiduciary duty to issue
shares for a proper purpose. This duty is owed by them to the
shareholders of the company. Therefore, even though Section
81 of the Companies Act which contains certain requirements
in the matter of issue of further share capital by a company
does not apply to private limited companies, the directors in a
private limited company are expected to make a disclosure to
the shareholders of such a company when further shares are
being issued. This requirement flows from their duty to act in
good faith and make full disclosure to the shareholders
regarding affairs of a company. The acts of directors in a
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private limited company are required to be tested on a much
finer scale in order to rule out any misuse of power for
personal gains or ulterior motives. Non-applicability of
Section 81 of the Companies Act in case of private limited
companies casts a heavier burden on its directors. Private
limited companies are normally closely held i.e. the share
capital is held within members of a family or within a close
knit group of friends. This brings in considerations akin to
those applied in cases of partnership where the partners owe a
duty to act with utmost good faith towards each other. Non-
applicability of Section 81 of the Act to private companies
does not mean that the directors have absolute freedom in the
matter of management of affairs of the company.
21. Learned counsel for the respondent placed reliance on the judgment of the
Supreme Court in case of Azhar Hussain vs. Rajiv Gandhi AIR 1986 SC 1253(1)
and in particular paragraphs 11 and 12 in support of the same submissions which
read thus :-
11. In view of this pronouncement there is no escape from the
conclusion that an election petition can be summarily
dismissed if it does not furnish cause of action in exercise of
the powers under the CPC. So also it emerges from the
aforesaid decision that appropriate orders in exercise of powers
under the CPC can be passed if the mandatory requirements
enjoined by Section 83 of the Act to incorporate the material
facts in the election petition are not complied with. This Court
in Samant N. Balkrishna and Anr. v. George Fernandez and
Ors. MANU/SC/0270/1969 : 1969 3 S.C.C. 239 , has
expressed itself in no unclear terms that the omission of a
single material fact would lead to an incomplete cause of
action and that an election petition without the material facts
relating to a corrupt practice is not an election petition at all.
So also in Udhav Singh v. Madhav Rao Scindia
MANU/SC/0302/1975 : [1976]2SCR246 , the law has been
enunciated that all the primary facts which must be proved by
a party to establish a cause of action or his defence are material
facts. In the context of a charge of corrupt practice it would
mean that the basic facts which constitute the ingredients of
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the particular corrupt practice alleged by the petitioner must be
specified in order to succeed on the charge. Whether in an
election petition a particular fact is material or not and as such
required to be pleaded is dependent on the nature of the charge
levelled and the circumstances of the case. All the facts which
are essential to clothe the petition with complete cause of
action must be pleaded and failure to plead even a single
material fact would amount to disobedience of the mandate of
Section 83(1)(a) . An election petition therefore can be and
must be dismissed if it suffers from any such vice. The first
ground of challenge must therefore fail.
GROUND B :
12. Learned Counsel for the petitioner has next argued that in
any event the powers to reject an election petition summarily
under the provisions of the CPC should not be exercised at the
threshold. In substance, the argument is that the court must
proceed with the trial, record the evidence, and only after the
trial of the election petition is concluded that the powers under
the CPC for dealing appropriately with the defective petition
which does not disclose cause of action should be exercised.
With respect to the learned Counsel, it is an argument which it
is difficult to comprehend. The whole purpose of conferment
of such powers is to ensure that a litigation which is
meaningless and bound to prove abortive should not be
permitted to occupy the time of the court and exercise the
mind of the respondent. The sword of Damocle need not be
kept hanging over his head unnecessarily without point or
purpose. Even in an ordinary Civil litigation the Court readily
exercises the power to reject a plaint if it does not disclose any
cause of action. Or the power to direct the concerned party to
strike out unnecessary, scandalous, frivolous or vexatious parts
of the pleadings. Or such pleadings which are likely to cause
embarrassment or delay the fair trial of the action or which is
otherwise an abuse of the process of law. An order directing a
party to strike out a part of the pleading would result in the
termination of the case arising in the context of the said
pleading. The Courts in exercise of the powers under the CPC
can also treat any point going to the root of the matter such as
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one pertaining to jurisdiction or maintainability as a
preliminary point and can dismiss a suit without proceeding to
record evidence and hear elaborate arguments in the context of
such evidence, if the Court is satisfied that the action would
terminate in view of the merits of the preliminary point of
objection. The contention that even if the election petition is
liable to be dismissed ultimately it should be so dismissed only
after recording evidence is a thoroughly misconceived and
untenable argument. The powers in this behalf are meant to be
exercised to serve the purpose for which the same have been
conferred on the competent Court so that the litigation comes
to an end at the earliest and the concerned litigants are relieved
of the psychological burden of the litigation so as to be free to
follow their ordinary pursuits and discharge their duties. And
so that they can adjust their affairs on the footing that the
litigation will not make demands on their time or resources,
will not impede their future work, and they are free to
undertake and fulfil other commitments. Such being the
position in regard to matters pertaining to ordinary Civil
litigation, there is greater reason for taking the same view in
regard to matters pertaining to elections. So long as the sword
of Damocles of the election petition remains hanging an
elected member of the Legislature would not feel sufficiently
free to devote his whole-hearted attention to matters of public
importance which clamour for his attention in his capacity as
an elected representative of the concerned constituency. The
time and attention demanded by his elected office will have to
be diverted to matters pertaining to the contest of the election
petition. Instead of being engaged in a campaign to relieve the
distress of the people in general and of the residents of his
constituency who voted him into office, and instead of
resolving their problems, he would be engaged in a campaign
to establish that he has in fact been duly elected. Instead of
discharging his functions as the elected representative of the
people, he will be engaged in a struggle to establish that he is
indeed such a representative, notwithstanding the fact that he
has in fact won the verdict and the confidence of the electorate
at the polls. He will have not only to wind the vote of the
people but also to win the vote of the Court in a long drawn
out litigation before he can whole-heartedly engaged himself
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in discharging the trust reposed in him by the electorate. The
pendency of the election petition would also act as a hindrance
if he be entrusted with some public office in his elected
capacity. He may even have occasions to deal with the
representatives of foreign powers who may wonder whether he
will eventually succeed and hesitate to deal with him. The fact
that an election petition calling into question his election is
pending may, in a given case, act as a psychological fetter and
may not permit him to act with full freedom. Even if he is
made of stern metal, the constraint introduced by the pendency
of an election petition may have some impact on his sub-
conscious mind without his ever being or becoming aware of
it. Under the circumstances, there is greater reason why in a
democratic set-up, in regard to a matter pertaining to an
elected representative of the people which is likely to inhibit
him in the discharge of his duties towards the Nation, the
controversy is set at rest at the earliest, if the facts of the case
and the law so warrant. Since the Court has the power to act at
the threshold the power must be exercised at the threshold
itself in case the Court is satisfied that it is a fit case for the
exercise of such power and that exercise of such powers is
warranted under the relevant provisions of law. To wind up the
dialogue, to contend that the powers to dismiss or reject an
election petition or pass appropriate orders should not be
exercised except at the stage of final judgment after recording
the evidence even if the facts of the case warrant exercise of
such powers, at the threshold, is to contend that the legislature
conferred these powers without point or purpose, and we must
close our mental eye to the presence of the powers which
should be treated as non-existent. The Court cannot accede to
such a proposition. The submission urged by the learned
Counsel for the petitioner in this behalf must therefore be
firmly repelled.
22. Mr.Bijlani learned counsel placed reliance on the judgment of Supreme
Court in case of Popat and Kotecha Property vs. State Bank of India Staff
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Association in Appeal (C) No.3460 of 2000 dated 29 August 2005 in support of
the same submission. The relevant paragraphs relied upon read thus :-
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Rule 11 of Order VII lays down an independent remedy made
available to the defendant to challenge the maintainability of
the suit itself, irrespective of his right to contest the same on
merits. The law ostensibly does not contemplate at any stage
when the objections can be raised, and also does not say in
express terms about the filing of a written statement. Instead,
the word 'shall' is used clearly implying thereby that it casts a
duty on the Court to perform its obligations in rejecting the
plaint when the same is hit by any of the infirmities provided
in the four clauses of Rule 11, even without intervention of the
defendant. In any event, rejection of the plaint under Rule 11
does not preclude the plaintiffs from presenting a fresh plaint
in terms of Rule 13.
The above position was highlighted in Sopan Sukhdeo Sable
and Ors. v. Assistant Charity Commissioner and Ors. (2004 (3)
SCC 137).
When the averments in the plaint are considered in the
background of the principles set out in Sopan Sukhdeo's case
(supra), the inevitable conclusion is that the Division Bench
was not right in holding that Order VII Rule 11 CPC was
applicable to the facts of the case. Diverse claims were made
and the Division Bench was wrong in proceeding with the
assumption that only the non-execution of lease deed was the
basic issue. Even if it is accepted that the other claims were
relatable to it they have independent existence. Whether the
collection of amounts by the respondent was for a period
beyond 51 years need evidence to be adduced. It is not a case
where the suit from statement in the plaint can be said to be
barred by law. The statement in the plaint without addition or
subtraction must show that is barred by any law to attract
application of Order VII Rule 11. This is not so in the present
case.
We do not intend to go into various claims in detail as disputed
questions in relation to the issue of limitation are involved.
The appeal is accordingly allowed with no order as to costs.
We make it clear that we have not expressed any opinion on
the merits of the case which shall be gone into in accordance
with law by the Trial Court.
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23. Learned counsel placed reliance on the judgment of this court in case of
Ashok Bampto Pagui vs. M/s.Agencia Real Canacona Pvt. Ltd. and Another
2007 Cri.L.J. 4645. Paragraphs 6 and 21 of the said judgment read thus :
6. However, in support of the complaint, one Nishakant
Pednekar was examined pursuant to a power of attorney given
by Shri Deelip Shirodkar and Vinod Shirodkar, Managing
Director and Director of the Complainant-Company,
respectively. The said power of attorney which was produced
on behalf of the Complainant at Exh.PW1/B indicated that the
said Nishakant Pednekar was appointed to act for and on
behalf of the Company pursuant to a Resolution dated 10-2-
2003. A copy of the said Resolution was not filed along with
the said power of attorney. Likewise, at the time of filing of the
complaint by the said Director Shri Prashant Shirodkar, no
Resolution nor any power of attorney was filed nor was there
any statement made in the said complaint to the effect that the
said Director Shri Prashant Shirodkar was authorized by the
Complainant- Company to lodge the said complaint.
21. A Director, as an individual Director, has no power to
act on behalf of the company. He is only one of a body of
Directors called the Board of Directors and alone he has no
power except such as may be delegated to him by the Board of
Directors or given to him by the articles of association of a
company. In the case at hand, the complaint was filed by one
of the Directors and as already stated by a Director who had
initially complained to the Police that the subject cheque was
forged by the accused, and, without any resolution of the
company or any authorization from the Board of Directors.
The view held by me is consistent with the views expressed in
the decisions referred to herein above, namely, those of the
Madras High Court in Ruby Leather Exports v. K.
Venu(supra), Andhra Pradesh High Court and Delhi High
Court which is now confirmed by the view held by the Apex
Court in Dale and Carrington Invt.(P) Ltd. and Anr. v. P. K.
Prathapan and Ors. (supra) and therefore I hold that the
complaint in this case was not filed by the company as
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required under Clause (a) of Section 142 of the Act and on
such a complaint no process could have been issued much less
a conviction imposed. The said Shri Prashant Shirodkar could
not have filed the same merely in his capacity of a Director. He
had to file the same only with authorization from the Board of
Directors. As already stated, prima facie, it appears that such
authorization was issued by the complainant company in
favour of Shri Pednekar as can be seen from the copy of power
of attorney produced.
24. Learned counsel for the respondent placed reliance on the unreported
th
judgment of this court dated 19 March 2009 in Chamber Summons No. 1705 of
2008 in Suit No. 3382 of 2007 in case of M/s. Hari Shree Enterprises vs.
Ms/.Vikas Housing Limited and others and in particular paragraphs 6 to 11 and
would submit that a blanket authority cannot be given to a particular managing
director or director to sign the papers and documents including the power to sue.
Paragraphs 6 to 11 of the said judgment read thus :-
6. In the case of H.P.Horticultural produce Marketing &
Processing Corp. Ltd. A 2000 HP 11 it was held that the onus
is on the person suing on behalf of the company as M.D. to
show the powers of management held by him either by virtue
of an Agreement, or a resolution of the company or under the
Memorandum and Articles of the Company, in the absence of
which the suit was held not filed by an authorised person on
behalf of the company and was dismissed. Similarly in the
case of M. Lakshman Vs. Shanmuga Priya Textiles Pvt Ltd.
2001 CC 121 (Mad) was held that a Criminal complaint u/ s
138 of the Negotiable Instruments Act could not be filed by a
person claiming to be a MD or a CA of a MD, if he was not
apparently authorised by a Resolution of the company and
consequently the complaint was held liable to be quashed.
7. It is argued by Mr.Kapadia that since he is the Managing
Director, he is entrus ted with substantial powers of
management and those powers of management include the
power to sue on behalf of the Company. The management of
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the Company would mean and include the day to day affairs of
the Company. A Company is not required to sue as a part of its
day to day affairs. The action in law is required to be filed only
upon the cause of action accruing in favour of the Company. It
cannot, therefore, be said that the power to sue is one of the
substantial powers of “management”. The power to sue must,
therefore, be separately given by the Company. Such power
can be given only under the Articles and Associations of the
Company. No such power is shown. If Articles empower the
Managing Director to file suits on behalf of the company, the
position would have been different. See All India Reporter
Ltd. Vs. Ramchandra Dhondu Datar, A 1961 Bom 292 in
which case upon such Articles of Association, the Managing
Director was held entitled to sue or execute an authority to
another to sue on behalf of the company. That power may be
given by the Company to any officer including a Director,
Managing Director, Secretary, etc. A Company acts only
through its resolution. Hence power of the Company can be
given only by the Company resolving to sue. That resolution
may be passed by the Directors in the Board meeting or by the
Company itself in its General Meetings. No resolution of the
Company to sue is shown. The contention of Mr.Kapadia that
because K.V. Mohan is the Managing Director he does not
need a resolution of the Company to sue cannot be accepted
aside from the fact that in this case K.V. Mohan, who has
sought to sue on behalf of the Company as its Managing
Director, is not shown to be appointed as such also.
8. K.V. Mohan has relied upon a copy of the Resolution dated
11.7.2001 of the Board of Directors of Four Season Farms Ltd.
resolving that the Managing Director of the Company is
authorised and allowed to sign papers and documents in
connection with acts and deeds of the Partnership Firm on
behalf of the Company in which the Company is a partner.
Mr.Kapadia contends that signing of the papers in the Suit is
th
included in that authority. The Resolution is dated 11 July
2001. A reading of the resolution does not show that the
Company at all contemplated in 2001 that its Managing
Director could sue in 2007 (the year in which this Suit was
filed). The Managing Director may have changed at such
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length of time. The Resolution cannot empower any Managing
Director at the relevant time to sue if the then Managing
Director K.V. Mohan was given the authority to sign the
papers and document s in connection with acts and deeds of
the Partnership Firm. Hence even through that resolution, the
resolution of the Company to sue is not shown.
9. In the case of Leela Capital and Finance Ltd., Mumbai
vs.Modiluft Limited, Mumbai, 2003 (1) Maharashtra Law
Journal 551 relied upon by Mr.Madon, the Director, who was
not specifically authorised by the Company to sue under any
resolution of the Company was held not so entitled. Relying
upon the case of M/s.Nibro Limited vs. National Insurance
Company Ltd., 1991 Company Cases page 388 , it was held
that the Director suing on behalf of the Firm is required to be
authorised by the Board Resolution to file a Suit. That
judgment observes that the question of authority to institute the
Suit on behalf of the Company was not a technical matter. It
has far reaching effects. It would affect the policy and events
of the Company. Unless the power to sue is conferred upon a
particular Director, he would have no authority to sue and such
a power could be conferred only by the Board of Directors by
passing a resolution in that regard.
10. In the case of Nibro Limited vs. National Insurance
Co. Ltd., AIR 1991 Delhi 25 , it has been held, upon
considering the scope of Section 291 of the Companies Act,
that unless a power to institute the Suit is specifically
conferred on a particular Director, he has no authority to
institute the Suit on behalf the Company.
11. The essential requirement of this provision is that the
Company which is a juristic person must itself decide to sue.
Once that is done, it would authorise one of its Directors who
is the agent of the Company or its principal officers the
Secretary of the Company or the Managing Director to file the
Suit. The suing in each case is a separate act. The Company
acts only through its meetings. Hence the Board of Directors in
the day to day management of the company must decide and
resolve to sue or not to sue. A blanket authority cannot be
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given to a particular Managing Director or Director to sign the
papers and document s, including the power to sue. The power
to sue requires application of mind upon the particular cause of
action. It requires the Company to pay the requisite Court fee.
It requires the Company to be represented by a legal officer
being an Advocate of the Court. It is an act which, therefore,
is not a part of the day to day management of the Company. A
Company would decide in a given case upon legal advice or
otherwise whether or not it would sue upon a given cause of
action. Such exercise is imperatively required to be performed
if the intention of the Company, which is only a juristic person,
is to be deciphered. That act, of course, may be undertaken
even after the filing of the Suit and ratified by the Board as all
other acts of management. However, the seminal requirement
is to see the act of the Company though its Board or members
(dependent upon whether the resolution is passed in the Board
meeting or a general meeting) or is given by the Company
itself (under its Articles of Association).
25. Learned counsel for the respondent submits that in so far as judgment of
Supreme Court reported in AIR 2007 SC 1247 relied upon by Mr.Dani learned
counsel for the plaintiff is concerned, the said judgment does not apply to the facts
of this case as the same deals with mis-joinder of parties or causes of action. In
this case the authority of Mr.Sidddharth Sachdev to file the suit on behalf of the
plaintiff itself is in dispute. Learned counsel distinguished the judgment of the
Supreme Court reported in 1996 (6) SCC 660 on the ground that the Supreme
Court was considering a case of a public limited company whereas in this case
plaintiff is a private limited company.
26. In rejoinder Mr.Dani learned counsel for the appellant submits that even if
the trial court would have come to the conclusion that specific resolution was
required to be passed by the plaintiff authorising a director to file a specific suit
against the defendant, such defect being a curable defect, the learned trial judge
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could not have rejected the plaint on that ground. Learned counsel distinguished
the judgments relied upon by the learned counsel for the respondent.
27. Questions that arise for consideration of this court is (i) whether suit could
be filed by the plaintiff company against the defendant through one of the director
without passing a specific resolution empowering a director to file a suit against a
particular party and if no such resolution is passed, what is the consequence thereof
(ii) whether application under order 7 rule 11(d) was at all maintainable on the
ground that suit was bad for want of specific resolution in favour of a director to
file a such suit against the defendant company (iii) whether defect if any was
curable and plaint could not be rejected on that ground.
28. The learned counsel for the defendant placed reliance on section 291 of the
companies act 1956. The defendant did not produce any copy of the memorandum
of association or articles of plaintiff company providing for passing of a specific
resolution by the board of directors empowering a director to file a specific suit. A
perusal of section 291 of the Companies Act makes it clear that the board of
directors of a company are entitled to exercise all powers and to do all things and
acts as the company is authorised to exercise and to do subject to the provisions of
the Act and unless the memorandum and articles of company provides for
compliance of any other condition. The learned counsel appearing for the
respondent could not point out any provisions in the Companies Act or any other
provision which mandates passing of any such specific resolution for filing a suit
against a particular party.
29. The plaintiff has produced on record before the trial court certified true copy
of the minutes of the meeting of the board of directors of the plaintiff company
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th
held on 28 March 2005. In the said meeting a power of attorney executed in
favour of Mr.Siddharth Sachdev was placed before the board of directors which
was duly approved by the board. The learned trial judge has referred to clause 4 of
such power of attorney in the impugned order. A perusal of clause 4 of the power
of attorney clearly indicates that Mr.Siddharth Sachdev was authorised by the
plaintiff company to initiate legal proceedings to protect the interest of the
company and in that regard to make, declare, swear, affirm, sign, verify, initiate
and facilitate civil suits etc. on behalf of the company.
30. It is not the case of the respondent that the suit is filed by the said
Mr.Siddharth Sachdev. The submission of the respondent is that though the suit
was filed by the company, such suit could not have been filed without specific
resolution. The plaint is verified by the said Mr.Siddharth Sachdev. It is not in
dispute that the said Mr.Siddharth Sachdev was a director of the plaintiff company
when the suit was lodged against the defendant. The authority of Mr.Siddharth
Sachdev to file such suit has been already confirmed by the plaintiff company in
the affidavit in reply filed opposing the application made by the respondent under
order 7 rule 11(d) of the Code of Civil Procedure, 1908. In my view the board of
directors of the said company having confirmed the authority in favour of
Mr.Siddharth Sachdev to file such suit against the respondent, plea of the
defendant could not have been accepted by the trial court. Be that as it may, since
there is no specific bar under any provisions of the law from filing such suit
without any specific resolution to file a suit against a particular party, in my view
application under order 7 rule 11(d) itself is not maintainable. In my view the said
provision can be invoked only when the suit appears from the statement in the
plaint to be barred by any law. While dealing with any such application under
order 7 rule 11, court has to consider the averments made in the plaint. A perusal
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of the plaint does not indicate that any statement made therein would indicate that
the suit was barred by any law. In my view the learned trial judge has thus
committed a patent illegality in entertaining such application which is not
maintainable under order 7 rule 11(d) of the Code of Civil Procedure, 1908 at all.
31. Be that as it may, it is not in dispute that the defendant had already filed an
application in the same suit in the year 2006 under order 7 rule 11(a) of the Code of
Civil Procedure, 1908 relying upon the averments made in the plaint and inter alia
praying that the plaint did not disclose any cause of action and was thus liable to be
rejected. The defendant never raised any issue at that stage that the plaint itself
was liable to be rejected on the ground that no specific resolution was passed by
the company authorising the director to file specific suit against the defendant. The
learned District Judge after considering the submission of both parties rejected
application under order 7 rule 11(a) of the Code of Civil Procedure, 1908. It is not
in dispute that the respondent did not challenge the said order passed by the
th
District Court as far back as on 25 September 2006. It is thus clear that the
defendant had accepted the fact that no such specific resolution was required to be
passed authorising a director to file specific suit against the defendant. In my view
the respondent not having raised such issue in the earlier application filed under
order 7 rule 11(a) of Code of Civil Procedure, 1908 and having relied upon the
plaint could not have file another application under order 7 rule 11(d) though
earlier application having been rejected holding that the plaint disclosed cause of
action.
32. A perusal of the record indicates that after expiry of about three years the
respondent filed this frivolous application under order 7 rule 11(d) for rejection of
plaint obviously with the purpose of delaying the outcome of the suit filed by the
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plaintiff.
33. Supreme Court in case of Union Bank of India (supra) after considering
order 29 rule 1 of the Code of Civil Procedure has held that as a company is a
juristic entity, it can duly authorise any person to sign the plaint or written
statement on its behalf and that would be regarded as sufficient compliance with
the provisions of order 6 rule 14 of the Code of Civil Procedure. It is held that even
if any pleading is signed by a director without passing a resolution to that effect,
the corporation can ratify the said action of it's officer in signing the pleadings.
Such ratification can be expressed or implied. In my view the plaintiff company
having filed an affidavit before the learned trial judge confirming the authority of
the director Mr.Siddharth Sachdev to file such suit, such act on the part of the
director having been ratified by the plaintiff, the learned trial judge could not have
rejected the plaint. In my view the suit did not suffer from any jurisdictional
infirmity and even if there was any such defect in not passing a specific resolution
for filing a suit against the defendat, the same was curable and thus plaint could not
have been rejected on the ground of non compliance of passing of a specific
resolution.
34. Supreme Court in case of Prem Lala Nahata and Anr. (supra) has quoted
the dictionary meaning of “bar” from the Black's Law Dictionary and also quoted
the meaning of “bar” according to Ramanatha Aiyar's Law Lexicon with approval
which indicates that the expression “bar” would mean that which would obstruct
entry or egress, to exclude from consideration. Supreme Court in the same
Judgment has also given an illustration of Section 80 of the Code of Civil
Procedure which provides for specific bar to the institution of the suit. It is held in
such an event for want of notice under Section 80 which is mandatory, the plaint
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can be rejected if the same is indicated in the plaint itself. In my view, Court has to
see while dealing with applications under Order VII Rule 11(d) of the Code of
Civil Procedure 1908 whether plaint itself would indicate bar of such suit and its
entry itself would indicate its exclusion from consideration. In my view, even if
there is no specific resolution passed by the plaintiff company authorising its
director to file a suit on behalf of the company, plaint cannot be rejected on that
ground on the face of it. In my view, it may amount, at the most a procedural
irregularity in filing a suit which can be cured even during the pendency of such
suit and the plaint therefore cannot be rejected on such ground.
35. In so far as Judgment of Supreme Court in case of M/s Dale and Carrington
Ivvt. (P) Ltd. and another (supra) is concerned, the Supreme Court has considered
the provisions of Section 397 and 298 of the Companies Act and has held that a
company is a juristic person and it acts through its Directors who are collectively
referred to as the Board of Directors and has no power to act on behalf of a
company of which he is a director unless by some resolution of the Board of
Directors of the Company specific power is given to him. It is held that the
Directors of the companies have been variously described as agents, trustees or
representatives, but one thing is certain that the Directors act, on behalf of a
company in a fiduciary capacity and their acts and deeds have to be exercised for
the benefit of the company. It is held that as agents of the company they must act
within the scope of their authority and must disclose that they are acting on behalf
of the company. A perusal of the resolution produced before the trial Court
clearly indicates that the Director of the company was given Power of Attorney by
the company to file a suit and to represent the company. The Judgment relied
upon by the learned counsel appearing for the respondent in case of M/s Dale and
Carrington Invt. (P) Ltd. (supra) thus does not assist the case of the respondent.
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36. In so far as Judgment of Supreme Court in case of Azhar Hussain v. Rajiv
Gandhi (supra) relied upon by the learned counsel for the respondent is concerned,
the Supreme Court has considered an election petition filed under the provisions of
Representation of the People Act. The supreme Court after considering the
provisions of the said Act and in particular Sections 83 and 86 which provide as to
what shall be the contents of the petition, held that an election petition can be
summarily dismissed if it does not furnish cause of action in exercise of the powers
under the Code of Civil Procedure. Supreme Court held that the plaint did not
disclose the cause of action and accordingly dismissed the plaint. There is no such
bar provided under any of the provisions of law as canvassed by the learned
counsel for the respondent in so far as filing of suit is concerned. The said
Judgment in case of Azhar Hussain therefore does not assist the respondent and is
clearly distinguishable in the facts of this case.
37. In so far as Judgment of this Court in case of Ashok Bampto Pagui (supra)
relied upon by the learned counsel for the respondent is concerned, it is held by
this Court that a Director as an individual Director, has no power to act on behalf
of the company. The Director in that case had filed a criminal complaint. The
Power of Attorney produced by the Director indicated that he was appointed to act
for and on behalf of the company pursuant to a resolution. A copy of the resolution
however, was not filed along with the said Power of Attorney. In this case, the
plaintiff company had already clarified by filing affidavit before the trial court
bringing on record a copy of the resolution approving the Power of Attorney by
which the Director was authorised to file a suit on behalf of the company and to
file pleadings etc. Thus, the Judgment in case of Ashok Bampto Pagui (supra)
does not assist the respondent and is clearly distinguishable in the facts of this case.
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38. In so far as the Judgment of Supreme Court in case of Popat and Kotecha
Property (supra) is concerned, the Supreme Court has held that disputed questions
cannot be decided at the time of considering an application filed under Order VII
Rule 11(d) of the Code of Civil Procedure. Such provision applies in cases only
where the statement made by the plaintiff in the plaint, without any doubt or
dispute shows that the suit is barred by any law in force. The averments in the
plaint are the germane, the pleas taken by the defendant in the written statement
would be wholly irrelevant at that stage. Supreme Court has held that it should
appear from the averments in the plaint itself that the same is barred by any law. It
is not the case of the respondent that the suit, from the averments in the plaint
itself, can be said to be barred by law. Learned counsel appearing for the
respondent does not dispute the statement of the appellant that the defect if any in
not passing any specific resolution authorising a Director to file a suit on behalf of
the company against the defendant is a curable defect. The Judgment of Supreme
Court in case of Papat and Kotecha Property (supra) in my view supports the case
of the appellant and not the respondent.
39. In so far as judgment of this Court in case of M/s Hari Shree Enterprises
(supra) relied upon by the respondent is concerned, it is held that a company which
is a juristic person must itself decide to sue. Once that is done, it would authorise
one of its Directors who is an agent of the company or its principal officers the
Secretary of the Company or the Managing Director to file the suit. It is held that
the suing in each case is a separate act. A blanket authority cannot be given to a
particular Managing Director or Director to sign the papers and documents
including the power to sue. In the said Judgment it is also held that that act, of
course, may be undertaken even after the filing of the suit and ratified by the Board
as all other acts of management. A perusal of the reply filed by the appellant
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before the trial Court in response to the application filed by the respondent under
Order VII Rule 11(d) would indicate that the appellant company has confirmed
before the trial Court the authority granted to its Director to file the said suit.
Once the company had accepted and confirmed the authority granted to one of his
Director to file such suit, the objection raised by the respondent was taken care of.
The learned trial Judge therefore could not ignore such confirmation on the
authority of the director or in the alternative ought to have render a finding about
ratification by the board of the acts of its Director for filing such suit on behalf of
the company. Be that as it may, the said affidavit itself was in the nature of a
ratification by the board of the acts of the director who had filed and signed the
plaint on behalf of the company. The Judgment of this Court in case of M/s Hari
Shree Enterprises thus does not assist the respondent.
40. In the result, I pass the following order.
(a) F.A. No.1526 of 2011 is allowed. Civil Application does not survive.
(b) Application dated 20/10/2009 'Exhibit 28' filed by the respondent
under Order VII Rule 11(d) of the Code of Civil Procedure is
dismissed.
(c ) Plaint is restored to file.
(d) The trial Court is directed to dispose of the suit expeditiously.
(e) There shall be no order as to costs.
(f) The R & Ps of the suit if called in this Court, shall be transmitted to
the trial Court immediately.
( R.D. DHANUKA, J. )
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