Full Judgment Text
$~OS-1
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision : 20.08.2018
+ CS(COMM) 280/2017
M/S. FAITH MERCANTILE PVT. LTD. ..... Plaintiff
Through Mr. Rishabh Gulati, Adv.
versus
M/S SIMBHAOLI SUGARS LTD. & ORS ..... Defendants
Through Ms.Suneha Jain, Adv.
CORAM:
HON'BLE MR. JUSTICE JAYANT NATH
JAYANT NATH, J.(ORAL)
OA No. 166/2017
1. This appeal is filed on behalf of defendants No. 2 and 3 for setting
aside the order dated 16.11.2017 passed by the Joint Registrar dismissing the
application of defendants No. 2 and 3/appellants under Order 1 Rule 10
CPC.
2. The plaintiff has filed the present suit for recovery of
Rs.5,96,83,224/-. It has been pointed out in the plaint that purchase orders
were issued by the defendants and a High Sea Sales Agreement was
executed between the parties in 2012. The plaintiff had supplied the goods
and issued bills/invoices. Part payment on account of this has been received
by the plaintiff. C Forms have been issued by the defendants confirming the
receipt of goods. Balance payment remains payable. Hence, the present suit.
3. The plaintiff in the plaint also impleaded defendants No.2 and 3, the
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Director and the Managing Director of defendant No.1. Hence, defendants
No.2 and 3 filed the present application under Order 1 Rule 10 CPC seeking
to delete them from the array of the parties. By the impugned order the Joint
Registrar has dismissed the said application of defendants No.2 and 3.
4. A perusal of the impugned order dated 16.11.2017 would show that
the learned Joint Registrar noted that the suit is against defendant No.1
Company and its Director and Managing Director who have been impleaded
as defendants No. 2 and 3. The impugned order notes the averments made in
the plaint that defendants No. 2 and 3 and their representatives on behalf of
defendant No. 1 used to approach the plaintiff from time to time at its Delhi
Office. The plaintiff has also averred that on the assurance of defendants
No.2 and 3, the plaintiff had been dealing with defendant No.1 for the last
10 years. There are specific and categorical assertions/averments in the
plaint against defendants No. 2 and 3. It is also stated that defendants No. 2
and 3 are responsible for managing the day to day affairs of the company
and thus, they cannot escape from their liability of making the payment to
the plaintiff for the goods supplied to defendant No. 1 on their instructions.
The High Sea Sales agreement Dated 05.06.2012 is also said to have been
signed by defendant No. 2 on behalf of defendant No. 1. Hence, the
application filed by defendants No. 2 and 3/the appellants under Order 1
Rule 10 CPC was dismissed.
5. I have heard learned counsel for the parties.
6. Learned counsel appearing for the plaintiff/respondent has reiterated
his pleas that there are averments against defendants No. 2 and 3 in the
plaint and hence the impugned order has to be sustained.
7. Both sides have relied upon the judgment of this court in Tristar
CS(COMM) 280/2017 Page 2 of 6
Consultants vs. M/s. Vcustomer Services India P. Ltd. & Anr.,
MANU/DE/4031/2013, decided on 05.03.2007 in CRP No. 365/2006. This
court had held as follows:-
“19. It is settled law that a company is a juristic person.
Therefore, a company has to act through a living human being.
Collectively, decisions on behalf of the company, are taken by
the board of directors of a company. An individual director has
no power to act on behalf of a company of which he is a director,
unless there is a specific resolution of the board of directors of
the company giving specific power to him/her, or, where the
articles of company confer such a power.
20. Directors of companies have been described as agents,
trustees or representatives of the company because of the fact vis-
a-vis the company they act in a fiduciary capacity. They perform
acts and duties for the benefit of the company. Thus, directors are
agents of the company to the extent they have been authorized to
perform certain acts on behalf of the company.
21. But directors of a company owe no fiduciary or contractual
duties or any duty of care to third parties who deal with the
company.
22. This distinction has been ignored by learned counsel for the
petitioner.
23. Directors of a company are referred to as agents of the
company in the context of their fiduciary duty to the company
and therefore if they derive any personal benefit while purporting
to act on behalf of the company, they will be liable to the
company and its shareholders. But the directors cannot be treated
as acting as agents of the company, in the conventional sense of
an agent, vis-a-vis third parties.
24. As conventionally understood, a person acts as an agent for a
principal and represents the principal before third parties. Such
contracts which are concluded by the agent on behalf of his
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principal with third parties would bind the principal to the third
party.
25. Section 230 of the Indian Contract Act 1872 reads as under:-
“230. Agent cannot personally enforce, nor be bound
by, contracts on behalf of principal:- In the absence of
any contract to that effect an agent cannot personally
enforce contracts entered into by him on behalf of his
principal, nor is he personally bound by them.
Presumption of contract to contrary.- Such a contract
shall be presumed to exist in the following cases:- (1)
where the contract is made by an agent for the sale or
purchase of goods for a merchant resident abroad;
(2) where the agent does not disclose the name of his
principal;
(3) where the principal, though disclosed, cannot be
sued.”
26. A perusal of Section 230 of the Indian Contract Act 1872
shows that unless an agent personally binds himself, an agent is
not personally liable for contracts entered into by him on behalf
of his principal.
27. I may note an exception. The exception is that where an agent
has contracted on behalf of a principal who is unnamed and
undisclosed, on properly constituted pleadings and on so
establishing, such an agent who acts on behalf of a undisclosed
principal may be personally liable for a contract entered into by
him.
28. To interpret the law as is sought to be projected by the
petitioner would mean negation of the concept of a company
being limited by its liability as per the memorandum and articles
of association of the company. Other than where directors have
made themselves personally liable i.e. by way of guarantee,
indemnity etc. liabilities of directors of a company, under
common law, are confined to cases of malfiescence and
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misfiescence i.e. where they have been guilty of tort towards
those to whom they owe a duty of care i.e. discharge fiduciary
obligations. Additionally, qua third parties, where directors have
committed tort. To the third party, they may be personally liable.
29. For example by making false representations about a director
induces a third party to advance a loan to the company. On proof
of fraudulent misrepresentation, a director may be personally
liable to the third party.
30. But this liability would not flow from a contract but would
flow in an action at tort. The tort being of misrepresentation of
inducement and causing injury to the third party having induced
the third party to part with money.”
8. In Mukesh Hans & Anr. v. Smt.Uma Bhasin & Ors. , RFA 14/2010,
decided on 16.08.2010, this court held as follows:
“11. ............... It is equally well settled that a Director of a
Company though he owes a fiduciary duty to the Company, he
owes no contractual duty qua third parties. There are, however,
two exceptions to this rule. The first is where the Director or
Directors make themselves personally liable, i.e., by execution
of personal guarantees, indemnities, etc. The second is where a
Director induces a third party to act to his detriment by
advancing a loan or money to the Company. On the third party
proving such fraudulent misrepresentation, a Director may be
held personally liable to the said third party. It is, however, well
settled that this liability would not flow from a contract, but
would flow in an action at tort, the tort being of
misrepresentation and of inducing the third party to act to his
detriment and to part with money.”
9. Hence, the directors of the company are agents, trustees or
representatives of the Company. Under Section 230 of the Indian Contract
Act, unless an agent personally binds himself, an agent is not personally
CS(COMM) 280/2017 Page 5 of 6
liable for the contracts entered by him on behalf of his principal. Similarly,
personal liability of a director would only arise where he makes a false
averment regarding the company and induces a third party to advance a
loan/money to the company. It is only on proof of fraudulent
misrepresentation that a director may be personally liable to a third party. In
that case, there would not be a liability under the contract but it would be an
action in tort.
10. A perusal of the plaint here would show that there is no such
allegation being made against defendants No. 2 and 3. The plaint merely
narrates facts and events which the said defendants No. 2 and 3 have
undertaken as agent/directors of the defendant Company.
11. In my opinion, defendants No. 2 and 3 are neither necessary nor
proper parties for adjudication of the disputes.
12. According I set aside the impugned order and allow the present
application.
13. Defendants No. 2 and 3 are deleted from the array of parties.
14. The appeal stands disposed of.
IA No. 13544/2017
In view of the above order, the present application is infructuous.
CS(COMM) 280/2017
List for framing of issues on 29.11.2018.
JAYANT NATH, J
AUGUST 20, 2018
rb
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