Case Analysis: M/S Ram Chand & Sons Sugar Mills v Kanhaya Lal Bhargava & Ors. on 10 March 1966.

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IN THE SUPREME COURT OF INDIA Civil Appeal No- 166 of 1966

Decided on- 10.03.1966

Honorable Judges: K. Subba Rao, Vaidynathier Ramaswami, JJ.

Appellant: Ram Chand & Sons Sugar Mills Pvt. Ltd.

Respondent: Kanhaya Lal Bhargava & Ors.

Prior History: This special leave is directed against the order of Punjab High court confirming that of Subordinate Judge, Delhi striking out the defence of the appellant under section 151 of Code of Civil Procedure, 1908.

FACTS OF THE CASE

The first respondent filed a suit against the Appellant Company in the Court of Subordinate Judge, First Class, Delhi for recovery of sum of money. Pending the earlier suit, the respondent filed a suit under Order XI Rule 21 read with Order XXIX Rule 3, thereof, for striking off the defence as the court directed the director of the company to appear in the court but he did not after various adjournments.

Finally on 25 February, 1965, the said court issued a notice to the appellant to show the cause why his defence should not be struck off. On May 16, 1965, after hearing the arguments, the court held that Jugal Kishore, one of the directors of the company had failed to comply with the orders of the court and was persistent in his default despite the chances given to him and on that finding of the court, it truck off the defence of appellant with its rights to exercise its inherent powers under Section 151 of Code of Civil Procedure, 1908.

The High Court, on revision, held that Jugal Kishore did not appear in Court in spite of orders to that effect and that the learned Subordinate Judge had jurisdiction to strike out the defence of the appellant.

ISSUES RAISED

Q.1 Whether the court can, as it did in the present case, strike off the defence of the appellant for the default made by its director to appear in the court?

Q.2 The director who signs and verifies the pleadings can only be required to appear personally to answer material questions related to the suit?

Q.3 Discuss the scope of Section 151 of Code of Civil Procedure?

ARGUMENTS RAISED

Q.1 Whether the court can, as it did in the present case, strike off the defence of the appellant for the default made by its director to appear in the court?

Ans- Learned Counsel for the Respondent argued that both the courts i.e. Subordinate Court, First Class and High Court found that the director of the company was guilty of uncooperative attitude and also that he abused the process of the court. In context to this, the Subordinate Judge was well with in the Jurisdiction for rightly exercising his inherent power in striking off the defence of the appellant. Learned Counsel contended that Jugal Kishore, one of the director of the company, purposely for one reason or other, disobeyed the orders of the court on the exercise of illness and had abused the process if the court. In answer to the above contentions, the Supreme Court said that both the courts would have been well within their powers to take action against him, but neither the High Court or the Subordinate Court found that appellant was responsible for director not attending the court. Except there is a finding of conspiracy between the appellant and the director in that the former prevented the latter from attending the court.

In view of the Supreme Court, it was difficult to make the company constructively liable for the default of one of its directors. It cannot be disputed that a company and the directors of the company are different legal personalities. The company derives its powers from Memorandum of Association (MoA). For some purposes the directors are said to trustees and for some others to be agents or managers of the company. The acts of the directors within the powers conferred on them may be binding on the company. It is not possible to hold that the director is refusing to respond to the notice given by the court which was acting within the scope of its powers conferred on them. The director is only liable for his own acts and not the acts of the company.

Q.2 The director who signs and verifies the pleadings can only be required to appear personally to answer material questions related to the suit?

Ans- The arguments raised by the Learned Counsel for Appellant with respect to Order XXIX Rule 1, 2 and 3 of Code of Civil Procedure, 1908. In view of Honorable Supreme Court, this contention seem to be reasonable but cannot be accepted as a sound argument. Let’s take a look at the aforementioned provision of Code of Civil Procedure, 1908:-

Order XXIX, Rule-1- In suits by or against a corporation, any pleading may be signed and verified on behalf of the corporation by the secretary or by any director or other principal officer of the corporation who is able to depose to the facts of the case.

Rule-2- Subject to any statutory provisions regulating service of process, where the suit is against a corporation, the summons may be served—

(a) on the secretary, or on any director, or other principal officer of the corporation, or

(b) by leaving it or sending it by post addressed to the corporation at the registered office, or if there is no registered office then at the place where the corporation carries on business.

Rule-3- The Court may, at any stage of the suit, require the personal appearance of the secretary or of any director, or other principal officer of the corporation who may be able to answer material questions relating to the suit.

If we take a look at the provision, Rules 1, 2 and 3 of Order XXIX use the words “any director”. Here the adjective “any” specifies that any one of the directors with the required qualifications, mentioned under Rules 1, 2 and 3 can perform the functions laid down in each if the rules.

One can imagine a situation where a director who signs and verifies the pleading may not be in a position to answer certain factual questions relating to the suit. If so there is no reason why the director who may be able to answer such material questions is excluded from the scope of Rule 3. Such an interpretation will defeat the purpose of said rule. Therefore, “any director” in Rule 3 need not be the same director who has signed and verified the pleading or on whom summons has been served. It can be any one of the directors who will be in a position to answer material question relating to the suit.

Q.3 Discuss the scope of Section 151 of the Code of Civil Procedure, 1908?

Ans- Section 151 of the code reads- “Nothing in this code shall be deemed to limit or otherwise affect the inherent power of the court to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of court”.

As per SC[1], the word of the section appears to be rather wide. In Padam Sen v State of Uttar Pradesh[2], the court observed that the inherent powers of the court are in addition to the powers specially conferred on the court by the code. They are complementary to those powers and therefore it must be held that the court id free to exercise them for the purposes prescribed in Section 151 of the code, when the use of these powers is not in any way in conflict with what has been expressly provided in the code or against the meanings of legislature.

SC again in Manohar Lal Chopra v Rai Bahadur Rao Raja Seth Hiralal[3] observed that the inherent powers are not controlled by the provisions of the code as has been specifically stated in Section 151 itself. But those powers are not to be exercised when their use may be in conflict with what had been expressly provided in the code or against the intentions of the legislature.

JUDGMENT RAISED

Supreme Court held that the orders of the Subordinate Court and High Court are not correct. SC set aside the orders and directed the Subordinate Judge to proceed with the suit in accordance with the law. The appeal is allowed but seeing the circumstances of the case, without costs.

  1. Supreme Court
  2. 1961) 1 SCR 884, 887
  3. (1962) Suppl. 1 SCR 450