Bombay High Court
RASHMIN MANILAL SHAHversusM. LAKHAMSI AND CO. AND ORS
- Decided
- Disposal
- Disposed Off
Holding
The directors are neither necessary nor proper parties and must be struck out, as the suit can be effectively adjudicated against the company alone.
Summary
The plaintiffs filed a suit to recover a loan of Rs. 55 lakh advanced to Efficient Data Pvt. Ltd., impleading the company and its two directors as defendants. The directors moved to strike their names from the suit under Order VII Rule 11(a) and Order I Rule 10 of the CPC, arguing that the claim was solely against the company and there were no allegations of fraud or personal guarantee. The trial court rejected the motion, holding that the directors were parties to the suit based on email exchanges. On appeal, the High Court examined the pleadings, held that the loan was credited to the company’s account, no cause of action existed against the directors, and that directors can be struck out unless fraud or veil‑lifting is pleaded. Relying on precedents such as Sanuj Bathla and Sumant Kathpalla, the court set aside the trial court’s order and struck out the directors, allowing the suit to proceed only against the company.
Issues considered
- Whether the directors of a company are necessary or proper parties to a suit for recovery of a loan advanced to the company.
- Whether the suit can be adjudicated and a decree passed without the directors being joined.
- Whether the absence of fraud allegations or personal guarantees justifies striking out the directors under Order I Rule 10 of the CPC.
Legislation cited
- Code of Civil Procedure, 1908 — s. Order 1 Rule 10, Order 1 Rule 3, Order 2 Rule 3, Order I Rule 10, Order VII Rule 11(a)
Subjects
- Corporate veil
- Director liability
- Necessary party
- Proper party
- CPC Order I Rule 10
- Striking out parties
- Loan recovery
- Separate legal entity
Judgment
2026:BHC-AS:41106
Renuka Thakur wp-1770-2019.docx
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 1770 OF 2019
Rashmin Manilal Shah and Anr. ...Petitioners
V/s
M. Lakhamsi and Co. and Ors. ...Respondents
________________
Mr. Jigar Parmar a/w Ms. Aishwarya Rajput i/b Mr. Vivek Arya for
Petitioners.
Mr. Bhavik Lalan with Ms. Preeti Gada i/b Preeti Gada and Associates for
Respondent Nos. 1 and 2.
________________
CORAM: SANDEEP V. MARNE, J.
DATED: 6 OCTOBER 2026.
Order:
1) By this Petition filed under Article 227 of the Constitution of
India, Petitioners/Defendant Nos.2 and 3 have challenged order dated 16
November 2018 passed by the learned Judge, City Civil Court at Bombay
rejecting Notice of Motion No. 1624 of 2018 filed by them for striking out
their names from the array of Defendants or in the alternative for
rejection of the plaint against them.
2) Respondent Nos.1 and 2 are the original Plaintiffs, who have
instituted S.C. Suit No. 2652 of 2016 in the City Civil Court at Mumbai for
recovery of amount of Rs. 68,53,482/- being the principal amount of Rs.
55,00,000/- and interest amount of Rs. 12,84,917/- and Rs. 68,565/-
towards arrears of TDS. Plaintiffs have impleaded Efficient Data Pvt. Ltd.
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as Defendant No. 1 and its directors (Petitioners) as Defendant Nos. 2
and 3. It is the case of the Plaintiffs that Petitioners had approached
them in May 2014 for seeking a friendly loan and Plaintiffs had advanced
certain amounts to the Defendants.
3) It appears that ‘no written statement’ order was passed
against the Defendants, which has been recalled by the City Civil Court
on 16 November 2018 and it appears that only Defendant No.1 has filed
its written statement. Petitioner/Defendant Nos.2 and 3 have not filed
written statement. Instead, Defendant Nos.2 and 3 filed Notice of Motion
No. 1624 of 2018 seeking striking of their names from the suit under
Order VII Rule 11 (a) read with Order I Rule 10 of the Code. The
Application was resisted by the Plaintiff by filing reply. By order dated 16
November 2018, the learned Judge of the City Civil Court has rejected
Notice of Motion No. 1624 of 2018. Order dated 16 November 2018 is the
subject matter of challenge in the present Petition.
4) Mr. Parmar, the learned counsel appearing for the
Petitioners submits that the City Civil Court has erred in rejecting the
motion preferred by the Petitioners. That the suit can be adjudicated and
an enforceable decree can be passed without the Petitioners as parties to
the suit. That the suit is filed by the Plaintiffs for recovery of loans which
it claims to have advanced to Defendant No.1-Company. That Defendant
Nos. 2 and 3 need not be made to go through the trial in respect of the
suit related to recovery against Defendant No.1-Company merely
because they hold positions as directors thereof. That directors are not
necessary or proper parties unless there are averments for lifting of the
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corporate veil or where the directors have made themselves personally
liable through the contract or guarantee. That the plaint lacks any
averments relating to fraud, need for lifting of corporate veil or any
guarantee/indemnity being given by the Petitioners. That the suit is
essentially against Defendant No.1 to whom the loan was allegedly
advanced. That the plaint itself averse that all monies were deposited in
the account of the company and that partial repayment is also done by
Defendant No. 1-company. That company is a separate and distinct
entity in the eyes of law and the directors cannot be held liable for any
amounts owed by the company.
5) Mr. Parmar further submits that there is no cause of action
made against the Petitioner/Defendant Nos.2 and 3 even if all the
averments in the plaint are taken to be true and correct. That the
impugned order is based on incorrect reasoning and that therefore, the
same needs to be set aside. In support of his contentions, Mr. Parmar
relies on judgment of this Court in Sanuj Bathla and Anr. V/s Manu
Maheshwari and Anr.1 and Shri. Sumant Kathpalla V/s Shri. C. S.
Subrahamanian Iyer2.
6) The Petition is opposed by Mr. Lalan, the learned counsel
appearing in Respondent Nos.1 and 2/Plaintiffs. He submits that the
plaint contains necessary averments for suing Defendant Nos.2 and 3. He
submits that Defendant No.2 has made admissions in various
correspondence in relation to the loan transaction. That the email
1 C.R.P. 166/2018 decided on 12 April 2021
2 Writ Petition No 10671 of 2026 decided on 7 May 2025
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correspondence is addressed by Defendant No.2 in his personal capacity
and not in capacity of a director. He submits that the approach for loan
itself was made by Defendant Nos.2 and 3. That therefore Defendant Nos.
2 and 3 are personally liable for repayment of the loan. He submits that
the Trial Court has rightly rejected the Notice of Motion after
appreciating the position that the suit is based on email exchanges. In
support, he relies on the judgments in Saurabh Exports V/s Blaze
Finlease and Credits Pvt. Ltd.3, Tristar Consultants V/s V. Customer
Services India P. Ltd and Anr4, Sinhar Estate Builders P. Ltd and Anr. V/s
B. Nataraj5 and Kasturi V/s Iyyamperumal and Ors. 6 He prays for
dismissal of the Petition.
7) Rival contentions urged on behalf of the parties, now fall for
my consideration.
8) Petitioners are aggrieved by order passed by the City Civil
Court on 16 November 2018 rejecting Notice of Motion No. 1624 of 2018,
by which they had sought striking of their names from the suit under
provisions of Order VII Rule 11(a) read with Order I Rule 10 of the Code.
Alternatively, Petitioners had sought a prayer for rejection of the plaint
against them. The Trial Court has proceeded to reject the Motion filed by
the Petitioners by recording following reasons:-
5. Upon considering the hearing it is evident that the allegations are
made against the defendants no. 2 and 3. It is subsequently alleged that
3 2006 (89) DRJ 372
4 C.R.P. No. 365 of 2006 decided on 5 March 2007
5 2008 SCC Online Mad 404
6 (2005) 6 SCC 733
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the defendants no. 2 and 3 approached the plaintiff for seeking
monetary assistance. It is further pleaded that the plaintiff no. 2 and
present defendants no. 2 and 3 are having friendly relations. Further the
relief is claimed by the plaintiff against all the defendants. Thus, it
cannot be stated that there is not cause of action and there is no
pleading against the defendants no. 2 and 3. Notice was also issued
against the defendants no. 2 and 3. Email were exchanged by the said
defendants with the plaintiff. Thus, considering all these circumstances
their names cannot stuck of from the plaint and accordingly I pass the
following order.
9) Perusal of the plaint filed in S.C Suit No. 2652 of 2016 would
indicate that Plaintiffs are seeking recovery of alleged loan amount of Rs.
55,00,000/- alongwith interest. The plaint contains specific averments
that the loan was availed by Defendant No. 1. This is clear from
averments in paragraphs 8 and 9 of the plaint, which read thus:
8. The Plaintiffs states that at the end on the first half of the financial
year 2014-2015, based on the friendly assistance extended to the
Defendant No. 1 company, the Defendant No. 1 company was duty
bound to pay to the Plaintiffs a total Sum of Rs. 3,60,834/- (Rupees
Three Lakh Sixty Thousand Eight Hundred and Thirty Four Only). The
Defendant No. 1 in partial discharge of the obligation to pay the
Interest on the First Principal Amount (from 1st October, 2014 to 31
March, 2015 = 182 days; amounting to Rs. 1,51,667/-) as also balance on
the repaid amount, on the Second Principal Amount (from 1* October,
2014 to 31% March, 2015 182 days; amounting to Rs. 1,51,667/-) and on
the Third Principal Amount (from 30th December, 2014 till 31st March,
2015 = 92 days; Rs. 57,500/-) Defendant No. 1, on 31st March, 2015,
forwarded to the Plaintiff a sum of Rs. 3,24,750/- (Rupees Three Lakh
Twenty Four Thousand Seven Hundred and Fifty Only) as and by way of
interest accrued and calculated on the end of the financial year 2014-
2015. The balance Sum of Rs. 36,084/- came to be deducted by the
Defendant No. 1 as and by way of TDS, which was undertaken to be
deposited by the Defendant No. 1 with the Income Tax Authorities.
9. The Plaintiffs state that, as on 1st April, 2015, the Plaintiffs had
aggregately assisted to the Defendant No. 1 company said with a
composite amount of Rs. 55,00,000/- (Rupees Fifty Five Lakhs Only), in
three installments, which amounts have been duly acknowledged and
accepted by the Defendant No. 1 Company ["AGGREGATE PRINCIPAL
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AMOUNT" (i.e. First Principal Amount + Second Principal, Amount +
Third Principal Amount)]. The Plaintiff states that the entire aggregate
principal loan came to be advanced to the Defendant No. 1. In the
humble submission of the Plaintiff, the entire aggregate principal
amount has been advanced for the purpose of enabling the Defendant
No. 1 to expand and solely at the instance on the Defendant Nos. 2 and
3 and in view of the long standing relationship subsisting inter se. The
Defendant No. 1 has been since then enjoying and utilizing the
Aggregate Principal Amount.
10) The plaint further contains averments that the loan
amounts were credited in the bank account of Defendant No.1. There are
specific averments in paragraph No. 3, 4, 5 and 7 of the plaint about
various tranches of loan amounts being credited into the bank account of
Defendant No.1. In paragraph No. 8 of the plaint, there is an averment
that partial repayment of loan was made by Defendant No.1.
11) Thus, from holistic reading of the plaint, it clearly appears
that the loan amount is availed by Defendant No.1, the same is credited
in the account of Defendant No.1 and it is Defendant No.1 who has made
the partial repayment. Defendant Nos.2 and 3 are mere directors of
Defendant No.1. There is no averment in the entire plaint that
Defendant Nos.2 and 3 are personally liable to repay the loan amount
disbursed to Defendant No.1. Beyond pleading in paragraph 2 of the
plaint that Defendant Nos.2 and 3 had approached the Plaintiff for loan
and that there was long standing friendly relations between Plaintiff No.
2 and Defendant Nos.2 and 3, there are absolutely no averments in the
plaint alleging that the loan was actually availed by Defendant Nos. 2
and 3 by creating a corporate facade in the form Defendant No.1. There is
no allegation in the plaint about the transaction being fraudulent in
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nature. There is no averment for need to lift the corporate veil for the
purpose of holding that Defendant Nos.2 and 3 are the real beneficiaries
of the loan amount.
12) It is well settled that a company is a separate and distinct
legal entity in the eyes of law and the directors cannot be personally held
liable for amounts owned by the company. It may be possible to recover
amounts due and payable by the company from the directors in given
circumstances. However, directors of the company cannot be personally
sued when the claim is raised essentially against the company. It is only
in rare cases where there is any allegation of fraud or misrepresentation
against the directors of the company that they can be sued for the
purpose of holding that they are personally liable. There can also be a
need to lift the corporate veil on account of corporate structure being
created to perpetrate a fraud and, in that circumstance, as well, the
directors can be personally sued. The law in this regard is well settled in
Sanuj Bathla (supra), in which a single Judge of the Delhi High Court has
held in paragraphs 19 to 21 of the judgment as under:-
19. The averments at the highest are that Defendant Nos. 2 and 3 had
jointly and personally requested and persuaded the Plaintiff for
financial assistance for smooth functioning of the Company. The
Company is a Private Limited Company and Defendant Nos. 2 and 3 are
its Directors and Principal Officers in-charge and responsible for day-
to-day business affairs of the Company. It is further averred that the
loan amount was given to the Defendants on a certain rate of interest
and while the Defendants were making payment from time to time for
some time, but later stopped making the payments. The last payment
was made on 05.04.2010 by a cheque of Rs.5 Lakhs.
20. Allegations in plaint do not refer to any transaction with Defendant
Nos. 2 and 3 in their personal capacity apart from stating that they were
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known to the Plaintiff in a friendly capacity. Although it is claimed that
the money was advanced as loan due to personal relation with
Defendant Nos. 2 and 3, it is undisputed that the transaction was
directly with the Company and loan was advanced in the name of the
Company by a cheque. Instalments were being paid to the Plaintiff from
the account of the Company. There is no allegation of fraud levelled
against Defendant Nos. 2 and 3 and nor is there any averment that the
Corporate structure was created as a mere facade or camouflage to
avoid liabilities.
21. Learned counsel for the Defendant Nos. 2 and 3, in my view, has
rightly argued that in the absence of any allegations of fraud or
misrepresentation, Directors cannot be held personally liable. It is also
not the case of the Plaintiff that the Directors were personal guarantors
to the loan transaction or had assured to indemnify the amount. It is a
settled law that doctrine of lifting the corporate veil is available to the
Plaintiff where it is permitted by the Statute or Corporate structure is
instituted to perpetuate a fraud. The averments made in the plaint, in
my view, do not justify the lifting of the corporate veil to make the
Directors personally liable. The cryptic observation of the Trial Court,
that the facts and circumstances of the case attract the principle of
lifting the corporate veil, is not supported by the pleadings and I may
also note that the order does not even give any reasons for having so
held.
13) In Shri Sumant Kathpalla coordinate bench of this Court has
held in paragraphs 16 to 22 of the judgment as under:
16. A conjoint reading of the aforesaid provisions would indicate
that, though the plaintiff is dominus litis and may implead the parties
as defendant to the suit, against whom the plaintiff perceives to have
cause of action, the plaintiff does not have an unfettered choice. The
primary question that comes to the fore is, whether a party already
impleaded or sought to be added, is a necessary or proper party, to the
suit. A person who has no semblance of right or interest in the subject
matter of the suit, nor the decree passed in the suit has the effect of
affecting his rights or liabilities, can be impleaded as a party defendant
to the suit. The general rule of dominus litis is thus subject to the
provisions of order 1 Rule 10(2) of the Code, which provides for striking
out or addition of the parties.
17. It is well recognized that, the deletion or addition of the parties
to the suit is not a matter of initial jurisdiction, but that of judicial
discretion. Such discretion is required to be exercised keeping in view
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all the circumstances. Under the provisions of sub-Rule 2 of Rule 10 of
Order 1, the Court is empowered, at any stage of the suit, to add or
delete a party. From the phraseology of sub-Rule (2) of Rule 10 of Order
1, it becomes evident that, the person who can be added as a party to
the suit ought to be either (a) a person who ought to have been joined
as Plaintiff or defendant, but not impleaded or (b) any person whose
presence before the Court may be necessary in order to effectively and
completely adjudicate upon, and settle the questions involved in the
suit.
18. In the case of 'Mumbai International Airport Private Limited Vs.
Regency Convention Centre and Hotels Private Limited and Ors. the
Supreme Court, expounded the distinction between a necessary party
and a proper party in the following term:
"15. A necessary party is a person who ought to have been joined as a
party and in whose absence no effective decree could be passed at all
by the Court. If a 'necessary party is not impleaded, the suit itself is
liable to be dismissed. A proper party' is a party who, though not a
necessary party, is a person whose presence would enable the court
to completely, effectively and adequately adjudicate upon all matters
in disputes in the suit, though he need not be a person in favour of
or against whom the decree is to be made. If a person is not found to
be a proper or necessary party, the court has no jurisdiction to
implead him, against the wishes of the plaintiff. The fact that a
person is likely to secure a right/interest in a suit property, after the
suit is decided against the plaintiff, will not make such person a
necessary party or a proper party to the suit for specific
performance."
19. The Supreme Court also expounded the nature of the
jurisdiction exercised by the Court in the matter of addition or deletion
of the parties under Order 1 Rule 10(2) as under:
"22. Let us consider the scope and ambit of Order I of Rule 10(2) CPC
regarding striking out or adding parties. The said sub-rule is not
about the right of a non-party to be impleaded as a party, but about
the judicial discretion of the court to strike out or add parties at any
stage of a proceeding. The discretion under the sub-rule can be
exercised either suo moto or on the application of the plaintiff or the
defendant, or on an application of a person who is not a party to the
suit. The court can strike out any party who is improperly joined. The
court can add anyone as a plaintiff or as a defendant if it finds that
he is a necessary party or proper party. Such deletion or addition can
be without any conditions or subject to such terms as the court
deems fit to impose. In exercising its judicial discretion under Order
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1 Rule 10(2) of the Code, the court will of course act according to
reason and fair play and not according to whims and caprice.
(emphasis supplied)
20. Thus, the essential test to add a person as a party defendant to
the suit, is whether in the absence of such person no effective decree
can be passed in the suit, meaning thereby a necessary party, or though
no relief is claimed against a person, the presence of such person,
would assist the Court in completely and effectually adjudicating the
suit, meaning thereby a proper party. The concept of joinder of a party
is inextricably interlinked with the joinder of causes of action. A party
can be added to a proceeding, if there is any cause of action against
such party as well.
21. A profitable reference, in this context, can be made to the
decision of the Supreme Court in the case of 'Iswar Bhai C. Patel alias
Bachu Bhai Patel vs. Harihar Behera and Anr.2 wherein the Supreme
Court enunciated that the simple principle is that, a person is made a
party in a suit because there is a cause of action against him and when
causes of action are joined, the parties are also joined. The observations
in para Nos. 11 to 14 read as under:
"11. Order 1 Rule 3 as provides as under:
(extracted above)
12. This Rule requires all persons to be joined as defendants in a suit
against whom any right to relief exists provided that such right is
based on the same act or transaction of series of acts or transactions
against those persons whether jointly, severally or in the alternative.
The additional factor is that if separate suits were brought against
such persons, common questions of law or fact would arise. The
purpose of the Rule is to avoid multiplicity of suits.
13. This Rule, to some extent, also deals with the joinder of causes of
action inasmuch as when the plaintiff frames his suit, he impleads
persons as defendants against whom he claims to have a cause of
action. Joinder of causes of action has been provided for in Order 2
Rule 3 which provides as under :-
(extracted above)
14. These two provisions, namely, Order 1 Rule 3 and Order 2 Rule 3
if read together indicate that the question of joinder of parties also
involves the joinder of causes of action. The simple principle is that
a person is made a party in a suit because there is a cause of action
against him and when causes of action are joined, the parties are
also joined."
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22. In view of the aforesaid exposition of law, whenever defendant
seeks deletion of his name from the array of the defendants, the Court
is required to pose unto itself the question as to whether the said
defendant can be said to be either a necessary or proper party to the
suit. The said determination, would undoubtedly, hinge upon the
averments in the plaint and the documents annexed with it. If there is
slightest material to show the existence of a cause of action against
such person, he cannot be deleted from the array of the defendants for
the only reason, that, the plaintiff does not claim whole of relief against
such person. However, the necessary nexus between the defendants and
the lis ought to be, prima facie, evident.
14) In the present case, once a question is posed as to whether
the suit can be adjudicated and whether an enforceable decree can be
passed without presence of Defendant Nos.2 and 3, the answer would
emerge in the affirmative. Defendant Nos. 2 and 3 are thus neither
necessary nor proper parties to the suit which can be effectively
adjudicated and an enforceable decree can be passed against Defendant
No.1.
15) Mr. Lalan has relied upon judgment of Delhi High Court in
Saurabh Exports (supra) in which case an emphatic finding is recorded
that Defendant No.1-Company therein was only a front for the business
of Defendant No.2. It is held in paragraph 18 of the judgment as under:
18. In reply to para 2 of the plaint setting out the fact that
defendants No. 2 and 3 are the Directors of the company holding 10
equity shares each of Rs. 10/- amounting to Rs. 100/- each, the same are
unconditionally admitted in the written statement. It is, thus, obvious
that defendant No. 1 company was only a front for the business of
defendant No. 2. The role of defendant No. 4 could not clearly emerge in
view of the evidence placed on record though he did execute certain
document on behalf of defendant No. 1. Defendant No. 4 also did not
have any standing on paper in defendant No. 1 company though his
wife defendant No. 3 was a Director. Defendant No. 3 is only a house-
wife and did not even appear in the witness box. It is, thus, obvious that
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defendant No. 2 was running the business in the name of defendant No.
1 company possibly with the help of defendant No. 4.
16) Thus, the judgment in Saurabh Exports is clearly
distinguishable as there is no averment in the plaint that Defendant No.
1-Company is only a corporate front created by Defendant Nos.2 and 3.
17) Reliance by Respondent Nos.1 and 2/Plaintiffs on judgment
of single Judge of Delhi High Court in Tristar Consultants, far from
assisting their case, actually militates against them. The Delhi High
Court has held in the judgment as under:
Order 1, rule 3 of the Code of Civil Procedure requires that where the
right to relief in respect of or arising out of the same Act or transaction
or series of acts or transactions is alleged to exist against various
persons whether jointly, severally or in the alternative and if separate
suits were brought against such persons, common questions of law or
fact would arise, such persons may be joined in one suit as defendants.
Sub-rule (2) of rule 10 of Order 1 permits a court, at any stage of the
proceedings, either upon or without any application of either party to
strike out a person improperly joined as a defendant.
In a suit for recovery of money, only such persons can be impleaded
defendants against whom averments are made which on proof would
entitle the plaintiff to a decree whether jointly or severally or in the
alternative against the said persons named as defendants.
The other facet of the aforesaid proposition of law is that there must
be a cause of action disclosed against a person impleaded as a
defendant.
Learned counsel for the petitioner did not dispute that in the plaint
there is no assertion against defendant No. 2 that he personally
undertook or agreed to clear any liability of the defendant outstanding
against the plaintiff. No guarantee or indemnification has been pleaded.
But, submission of learned counsel for the petitioner is that every
director acts as the agent of a company and therefore as an agent, a
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director would be personally liable if he has acted on behalf of the
company.
Learned counsel for the petitioner has relied upon a decision of the
Supreme Court in Ram Prashad v. CIT [1972] 86 ITR 122; (1973) 1 SCR
985. Following passage has been relied upon (page 127):
"Though an agent as such is not a servant, a servant is generally
for some purposes his master's implied agent, the extent of the
agency depending upon the duties or position of the servant. It
is again true that a director of a company is not a servant but an
agent inasmuch as the company cannot act in its own person but
has only to act through directors who qua the company have the
relationship of an agent to its capacity. A managing director may
have a dual capacity."
I am afraid, learned counsel for the petitioner has got it all wrong.
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 an power.
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 authorised to perform certain
acts on behalf of the company.
But directors of a company owe no fiduciary or contractual duties or
any duty of care to third parties who deal with the company.
This distinction has been ignored by learned counsel for the
petitioner.
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.
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18) Thus, the Delhi High Court has held in Tristar Consultants
that a company is a juristic person and that directors of a company do
not owe fiduciary or contractual duties or any duty of care to third
parties, who deal with the company. It is further held that in a case
where directors derive any personal benefit while purporting to act on
behalf of the company, they can be held liable. But the directors cannot
be treated as acting as agents of the company in conventional sense of
an agent vis-a-vis third parties.
19) In Sinhar Estate Builders P. Ltd., relied upon by Mr. Lalan, a
single Judge of the Madras High Court has held that the second
Defendant therein had signed the memorandum of understanding only
in his individual capacity though he was described as managing director
of Defendant No.1-Company. In that case, seal of the company did not
find place below signature of the concern Defendant. The Madras High
Court has held in paragraph 16 of the judgment as under:
16. Even though there was no specific issue framed before the trial court
as to the fact, whether the suit is bad for misjoinder of party like the
second defendant, it was contended before this court that the second
defendant is not a necessary party to the suit. But on a perusal of
exhibit A1 memorandum of understanding itself, will go to show that
the second defendant has signed in the memorandum of understanding
only in his individual capacity, even though in the memorandum of
understanding at clause 1, it is stated that the second defendant is a
managing director of Sinhar Estate Builders P. Ltd. (DI), the seal of the
company does not find a place below the signature of the first
defendant at page 4 of exhibit A1. The plaintiff has filed the suit only on
the basis of exhibit A1 memorandum of understanding wherein as per
clause IV, the second defendant has to draw six cheques and to hand
over the same to the mediator Thiru R. Srinivasan exhibits A6 to All are
the cheques drawn by the second defendant in favour of the plaintiff
which were on presentation dishonoured by the bank. Under such
Page No.14 of 16
6 OCTOBER 2026
Renuka Thakur wp-1770-2019.docx
circumstances, it cannot be said that the suit is bad for misjoinder of
party, i.e., the second defendant. Point No. 2 is answered accordingly.
20) In the present case, promissory note has been signed by
Defendant No.2 only in his capacity as director of Defendant No.1-
Company. There is specific endorsement for "Efficient Data Pvt. Ltd"
above the signature of Defendant No.2. Thus, Defendant No.2 has not
signed the promissory note in his personal capacity.
21) Lastly, reliance by Mr. Lalan, on judgment of the Apex Court
in Kasturi (supra) is again inapposite. The Apex Court has led down twin
tests for determining as to who is a necessary party under Order 1 Rule
10 of the Code viz. (i) There must be a right to some relief against such
party in respect of controversies involved in the proceedings or (ii) no
effective decree can be passed in his absence. In the present case none of
the two tests are satisfied there is no right of any relief against
Defendant Nos.2 and 3 in respect of controversy involved in the
proceedings. The right is claimed only against Defendant No. 1, who has
allegedly availed the loan. In the present case, effective decree can be
passed in absence of Defendant Nos.2 and 3. Thus, Defendant Nos.2 and
3 are not necessary parties to the suit, they are not even proper parties to
the suit. The City Civil Court has erred in rejecting the Notice of Motion
by referring to email exchange without appreciating the position that the
emails are returned by Defendant No.2 in his capacity as director of
Defendant No. 1-Company. In my view therefore, the impugned order
dated 16 November 2018 is indefensible and liable to be set aside.
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22) The Petition accordingly succeeds and I proceed to pass the
following order:
(i) Order dated 16 November 2018 passed by the City
Civil Court in Notice of Motion No. 1624 of 2018 is set aside.
(ii) Notice of Motion No. 1624 of 2018 is made absolute in
terms of prayer clause (a) therein.
(iii) Accordingly, names of Defendant Nos. 2 and 3 are
struck out from the array of parties in the suit.
(iv) The Suit shall continue only against Defendant No. 1.
23) The Petition is allowed in above terms. However, considering
the facts and circumstances of the present case, there shall be no order
as to costs.
[SANDEEP V. MARNE, J.]
Signed by: Renuka S Thakur
Page No.16 of 16
Designation: PA To Honourable Judge 6 OCTOBER 2026
Date: 09/10/2026 18:07:10
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