Companies remain liable for debts admitted by former directors despite subsequent changes in management.

The Plaintiff (Respondent No. 1), an MSME, was owed approximately ₹1.04 Crores by Defendant No. 6 for refractory materials. Due to liquidity issues, Defendant No. 6 offered DRI Lumps (Pellets) as payment. The Plaintiff reached an agreement where Defendant No. 1 (the Appellant company) would lift the materials from Defendant No. 6 and pay the Plaintiff directly.

Defendant No. 1 lifted materials worth ₹1,04,38,970 but failed to pay the full balance, leaving ₹99,00,000 outstanding.

Defendant No. 2 (then-Director of Defendant No. 1) issued 20 post-dated cheques and executed a mortgage deed to secure the debt.

Later, management shifted to Defendants No. 4 and 5, who denied liability, alleging that Defendant No. 2 acted in a personal capacity or colluded with the Plaintiff (a relative).

The Commercial Court decreed the suit against Defendants 1 to 5 jointly and severally. In the present appeal, the Appellants sought to introduce a counterclaim and additional evidence through interlocutory applications.

1. Whether a defendant can introduce a counterclaim via amendment at the appellate stage, particularly when directed against a co-defendant

2. Whether the suit was non-maintainable for non-compliance with the mandatory pre-institution mediation under Section 12A of the Commercial Courts Act, 2015

3. Whether the suit was validly instituted by the Plaintiff company in the absence of a specific Board Resolution

4. Whether the subsequent Directors (Appellants) could be held jointly and severally liable for debts incurred by the company under previous management

The court applied Order VIII Rule 6A of the CPC, which stipulates that a counterclaim must be filed before the defense is delivered or the time limit expires, a principle reinforced by Ashok Kumar Kalra v. Wing CDR Surendra Agnihotri, which generally bars counterclaims after issues are framed

It applied Section 12A of the Commercial Courts Act, 2015, noting that the mandatory mediation requirement established in Patil Automation Pvt. Ltd. v. Rakheja Engineers applies prospectively from 20.08.2022

Regarding corporate representation, the court applied Order XXIX Rule 1 of the CPC and the precedent in United Bank of India v. Naresh Kumar, holding that a Director may sign pleadings and a company may ratify such actions through its conduct during trial

Finally, the court applied the doctrine of "piercing the corporate veil" as articulated in Balwant Rai Saluja v. Air India Ltd. to address the misuse of corporate structures to avoid liability

The court rejected the application for amendment (counterclaim) because it was sought eight years after the transaction and after the trial's conclusion; furthermore, a counterclaim cannot be maintained solely against a co-defendant

Regarding Section 12A, the court found the suit maintainable as the Plaintiff had obtained an exemption for urgent interim relief in 2019, prior to the cutoff date for mandatory mediation set by the Supreme Court

On the issue of authority, the court held that the Plaintiff’s Director was competent to sign the plaint under Order XXIX Rule 1, and the company’s pursuit of the litigation for years constituted implied ratification

Addressing the liability of the Appellants, the court determined that the debt was a corporate liability of Defendant No. 1, evidenced by cheques issued by its then-Director. The internal change of management did not extinguish the company's legal obligations to third-party creditors, as the corporate entity remains distinct from its shareholders

It held that the suit was validly instituted and that the debt was an admitted corporate liability

The court affirmed the Trial Court’s decree, holding Defendants No. 1 to 5 jointly and severally liable to pay the sum of ₹99,00,000 along with interest to the Plaintiff