Y.S.Mohan Rao vs Sri Satya Sai Chemicals And Feed And ...
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Telangana High Court

Y.S.Mohan Rao vs Sri Satya Sai Chemicals And Feed And ... on 1 May, 2025

Author: G.Radha Rani

Bench: G.Radha Rani

      THE HONOURABLE DR.JUSTICE G.RADHA RANI

                          C.C.C.A.No.157 of 2002

JUDGMENT:

This appeal is filed by the appellant - defendant No.2 aggrieved by the

judgment and decree dated 29.12.2001 passed in O.S.No.952 of 1993 by the

learned V Senior Civil Judge, City Civil Court, Hyderabad.

2. The respondent No.1 is the plaintiff and the respondent No.2 is the

defendant No.1. The appeal was dismissed for default against respondent No.2

- defendant No.1 on 21.10.2011.

3. The parties are hereinafter referred as arrayed before the trial court.

4. The respondent No.1 - plaintiff initially filed the suit against the

defendant No.2 alone for recovery of an amount of Rs.4,22,769/- under Order

XXXVII Rule 2 of CPC which contemplates summary procedure.

Subsequently he impleaded the respondent No.2 - defendant No.1 as per the

orders in I.A.No.1799 of 2000 dated 15.02.2001.

5. The plaintiff contended that the plaintiff was a registered firm carrying on

business of supplying poultry feed under the name and style of M/s.Sri Satya

Sai Chemicals and Feeds represented by its proprietor Sri K.V.S.S.Prasad Rao

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and the defendant was a company represented by Sri Y.Mohan Rao doing

business of poultry under the name and style of M/s.Mosaic Farms Private

Limited. The defendant was in need of poultry feed and approached the

plaintiff and requested him to supply poultry feed for his poultry farm. The

plaintiff was having good business in the market and possessing good reputation

and demanded the defendant to deposit some amount as advance. But the

defendant promised to the plaintiff that payments would be made by them very

promptly and requested to make regular supplies of poultry feed to his poultry

farm. The plaintiff believing the defendant made the supplies of poultry feed of

specified quality and quantity since then. The defendant regularly received the

material supplied by the plaintiff and became a regular customer, but never paid

the bills regularly. The plaintiff raised the respective bills of the material

supplied by them against the defendant to which the defendant part paid the

amount every time leaving some dues in the bills. The defendant always

expressed his satisfaction towards the standard, quantity and quality of the

material supplied by the plaintiff and never had any complaint whatsoever

against the supplies made to him. The defendant on 14.11.1991 approached

the plaintiff and pleaded that his farm was in financial problems and that he

could not make immediate payment of the bills and requested the plaintiff not to

stop the supplies to his farm till 07.12.1991 and that he would make the

payments on or before 08.12.1991 for the bills to be drawn upon him until

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07.12.1991. On repeated requests and pleadings of the defendant, the plaintiff

consented and made the requested supplies promptly from time to time till

07.12.1991. On 08.12.1991, the plaintiff demanded the defendant to pay the

bills drawn upon him and the due amount of Rs.11,998/- immediately. The

defendant did not choose to give any response to the plaintiff's demand. The

plaintiff submitted that they contacted the defendant number of times and

demanded to pay the due amount. On each occasion, the defendant merely

promised to pay and gained time, but never cared to pay the total due amount of

Rs.4,22,769/- with interest @ 18 % per annum on the principal amount of

Rs.3,23,346/-. Annoyed with the conduct of the defendant, the plaintiff issued a

notice dated 28.01.1992 demanding the defendant to make the payment

immediately. The plaintiff further averred that the defendant issued a reply

notice admitting the supply of poultry feed by the plaintiff worth of

Rs.3,23,346/- and that he was due to pay the money, but maliciously alleged

that the plaintiff had promised a discount of 5% and fraudulently alleged that

the material supplied by the plaintiff was of sub-standard. The plaintiff being

alerted by the malicious intention of the defendant, issued a second notice

demanding the defendant to make the payment immediately. But the defendant

intended to avoid payment of bills on some pretext or other and delayed the

payment of due amount to the plaintiff, as such, the plaintiff filed the suit for

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recovery of due amount of Rs.4,22,769/- with interest @ 18 % per annum on the

principal amount from the date of filing of suit till realization along with costs.

6. The defendant (the appellant herein) filed written statement calling for

strict proof that the plaintiff was a registered firm and without registration, the

suit under Section 69 of the Indian Partnership Act was barred. He further

contended that while describing it as a registered firm, the plaintiff stated that it

was represented by its proprietor, which was incorrect and unsustainable. The

cause title was erroneous and the suit was liable to be rejected on the said

ground.

6.1. The defendant further contended that his correct name was Y.S.Mohan

Rao, but the plaintiff deliberately wrongly mentioned his name as Y.Mohan Rao.

The plaintiff described the defendant as a company by name M/s.Mosaic Farms

Private Limited, but filed the suit against the defendant, who was only a

Director of the Company. The defendant had no personal liability in respect of

any transaction of the said M/s.Mosaic Farms Private Limited. The suit was

liable to be rejected on the said ground also and prayed to decide the same as

preliminary issue and to reject the plaint.

6.2. The defendant further denied and called for strict proof that the plaintiff

supplied poultry feed and that he promised to make the payment promptly and

contended that since no supply was made, he was not liable to make any

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payment. He further denied that he expressed his satisfaction towards the

standard, quantity and quality of the material supplied and contended that to the

best of his knowledge, the bone of contention that arose between the plaintiff

firm and the firm of M/s.Mosaic Farms Private Limited was that the plaintiff

had supplied the poultry concentrate alleging it to contain 35% of the protein,

however, their company found that the chicks / eggs were not up to the mark

and launched a detailed investigation and sent the samples for test report to two

different reputed laboratories at Vijayawada and Bengaluru and it was revealed

that the protein content in the poultry concentrate supplied by the plaintiff to the

said company was only 25%. Obviously, the plaintiff had passed off his goods

with inferior quality and not up to the mark. The said issue when brought to the

notice of the plaintiff, the plaintiff admitted the mistake and was initially ready

to make good the loss. The relationship between the plaintiff and the said

company broke off since then. Thereafter, the plaintiff did not come forward to

settle the issue. The defendant further contended that the settlements were made

on bill to bill basis, as such the suit was not maintainable, as each bill was a

separate cause of action. He denied that the defendant left some amount due in

each bill to be paid and contended that to the best of his knowledge 5% discount

was allowed by the plaintiff on each bill as per the understanding and therefore

the bills would represent 5% discount given by the plaintiff and the claim on the

same was neither tenable nor sustainable. The claim was made malafidely and

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the defendant was not liable for payment of the said amount. He further

contended that the provisions of Order XXXVII is not attracted to the case, as

the case was not based on any negotiable instrument. None of the documents

filed were within the ambit of being termed as negotiable instrument and the

suit was liable to be rejected on the said ground. The defendant was not liable

for the suit claim or interest or costs and prayed to dismiss the suit against him.

7. Subsequently, M/s.Mosaic Farms Private Limited represented by its

Director Sri Y.Mohan Rao was impleaded as defendant No.1 and the appellant

herein was shown as defendant No.2 in his personal capacity.

8. On such impleadment, the defendant No.1 filed written statement

contending that it was not in receipt of any notice of its impleadment in the suit

until the publication was seen. The defendant No.1 was wrongfully added as a

party to the suit belatedly, without giving any opportunity of hearing before

such impleadment. The defendant No.1 was added after the period of limitation

was expired. The plaintiff impleaded defendant No.1 through a back door

method and sought to claim amounts allegedly due to it, after the period of

limitation. The framing of the suit under Order XXXVII of CPC was untenable.

8.1. The defendant No.1 also contended that there was no record before it

intimating about the registration of the plaintiff firm. The plaintiff claiming

itself to be a registered firm in the same breath, claimed himself to be a

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proprietor. The defendant No.1 company had no representative by name

"Y.Mohan Rao" at any point of time. But the defendant No.1 admitted that he

was doing poultry business. The statement of the plaintiff that the defendant

was a regular customer, but the bills were not paid regularly, was contradictory.

The defendant No.1 denied that he used to keep some amount due to the

plaintiff at all points of time. He further contended that the plaintiff and

defendant had no mutual or current account amongst them. Therefore, the claim

for opening balance of Rs.1277/- was neither true nor correct. Even according

to the plaintiff, the transactions were individual in nature and therefore the same

could not be aggregated.

8.2. The defendant No.1 further submitted that as per the understanding

between the parties, the defendant was entitled to 5% discount on the supplies

made by the plaintiff and therefore the invoice amount in each of the case would

have to be deducted by 5% as special discount. As per the records of the

defendant company, the requirement of the supplies should confirm to 35%

protein. However, on usage of the supplies of the plaintiff, it was found that the

chicks / eggs were not up to the mark and did not grow to the required standards.

When the samples of the plaintiff were tested in two different laboratories at

Bengaluru and Vijayawada, the defendant company was shocked to know that

the protein content was hardly 25%. Obviously, the plaintiff had supplied

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below standard of quality supplies to the defendant. The same had been brought

to the notice of the plaintiff. Realizing their error, the plaintiff agreed to make

good the loss, however thereafter, the plaintiff failed to do so and did not settle

the matter. The plaintiff himself admitted that the supplies broke off abruptly

after a period pointing out to the fact that the plaintiff had supplied sub-standard

material. Therefore, after having waited for long, the plaintiff got instituted the

suit malafidely.

8.3. The defendant No.1 further contended that the amount of Rs.4,22,000/-

was never due as claimed and the claim for interest was also untenable. The

claim of aggregating bills was not agreed upon and the same was liable to be

rejected. The records would reveal that the notice of the plaintiff had been

suitably replied basing on the material facts available on record and true

transaction between the parties. The plaintiff having promised a discount of 5%

on the supplies and having promised to look into the sub-standard quality of

supplies made, was now trying to make wrongful gain from the defendant and

prayed to dismiss the suit against him.

9. Basing on the said pleadings, the trial court framed the issues as follows:

1) Whether the plaintiff is entitled for recovery of the suit amount, as prayed for?

2) Whether the suit is barred under Section 69 of the Indian Partnership Act?

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3) Whether the supplies were not up to the mark?

4) Whether the suit under Order XXXVII was maintainable?

5) To what relief?

10. The Proprietor of the plaintiff firm by name Sri K.V.S.S.Prasad Rao was

examined as PW.1. Exs.A1 to A80 were marked on behalf of the plaintiff. On

behalf of the defendant No.1 company, one of its Directors by name Chartla

Krishna was examined as DW.1. The defendant No.2 had not adduced any

evidence. No documents were marked on behalf of the defendants.

11. On considering the oral and documentary evidence on record, the learned

V Senior Civil Judge, City Civil Court, Hyderabad decreed the suit for

Rs.4,22,769/- with costs against defendants 1 and 2 with interest @ 12 % per

annum from the date of suit till realization.

12. Aggrieved by the said judgment and decree dated 29.12.2001 passed in

O.S.No.952 of 1993, the defendant No.2 preferred this appeal.

13. Heard Sri H.Srikanth, learned counsel representing Sri V.Hariharan,

learned counsel for the appellant on record and Ms.Neha Madinur, learned

counsel for the respondent - plaintiff representing Smt.Manjari S.Ganu, learned

counsel for the respondent on record.

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14. Learned counsel for the appellant submitted that the trial court did not

appreciate the principles of Company Law, wherein a Director of a Company

has no personal liability to the creditors of the company. The decree passed

against the appellant / defendant No.2 was contrary to the well laid principles of

Company Law, where the Director was not answerable to the company's default.

Admittedly, the supplies made by the plaintiff was to the defendant No.1

company, as such, the suit ought not to have been decreed against the appellant

herein. The burden of proving that the suit was filed against a company

registered under the Indian Companies Act would be on the plaintiff. The trial

court placing the burden on the defendants to produce the Certificate of

Registration, was not proper. The observation of the trial court that defendant

No.2 failed to adduce any evidence was not proper, as no relief or claim can be

claimed against the appellant - defendant No.2. The trial court committed an

error in coming to the conclusion that the supplies were made to Y.Mohan Rao,

as directed by M/s.Mosaic Farms Private Limited, which was not the case of

either of the parties. The trial court erred in opining that the defendants 1 and 2

were one and the same, which was not tenable in law nor an issue was framed in

the said regard. The trial court having accepted the evidence of DW.1 that the

appellant left the firm much earlier, would not have multed the appellant with

any liability on the ground that he represented defendant No.1 company at some

point of time. The observation of the court below that the defendants 1 and 2

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were jointly liable, was misconceived. The court below erred in appreciating

that when it was the case of the plaintiff that the plaintiff was a registered firm,

therefore, the burden of proving that it was not a partnership, was on the

plaintiff. The trial court failed to observe that when defendant No.1 was made

as a party to the suit, the alleged liability against defendant No.2 would stand

dissolved and relied upon the judgment of the Hon'ble Apex Court in Ram

Prasad Dagduram v. Vijay Kumar Motilal Mirakhan Wala and Others 1,

and of the Full Bench judgment of the High Court of Andhra Pradesh in The

Ongole Byragi Butt, Ongole and Others v. Inala Kannayya and Others 2 and

of the High Court of Delhi in Sanuj Bathla and Others v. Manu Maheshwari

and Others 3.

15. Learned counsel for the respondent on the other hand contended that all

the transactions were made through the appellant only. The appellant or the

respondent No.2 - defendant No.1 admitted receipt of goods. They had taken a

plea that the goods were of sub-standard quality, but failed to prove the same.

The appellant was the only one interacting with the plaintiff and assuring

regarding payments. There were pleadings of malfeasance and fraud in para

Nos.8, 9, 10 and 11 of the plaint. The appellant was the only Director of the

AIR 1967 SC 278

AIR 1960 AP 98

MANU/DE/3911/2021

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company at that time. No evidence was adduced by the appellant to show that

he resigned from the company or that the constituency of the Directors of the

company was changed. The appellant failed to enter into the witness box to

show that when he resigned. The trial court on rightly observing all the aspects

decreed the suit against the defendants 1 and 2 jointly and prayed to dismiss the

appeal.

16. Now the points for consideration in this appeal are:

1) Whether the appellant - defendant No.2 can be made personally liable for the amount due by the company?

2) Whether the judgment of the trial court is in accordance with law or liable to be set aside?

3) To what result?

17. POINT No.1:

Whether the appellant - defendant No.2 can be made personally liable for the amount due by the company?

As seen from the written statement filed by the appellant - defendant

No.2, he was the Director of the company by name M/s.Mosaic Farms Private

Limited and also admitted that there were transactions between the plaintiff's

firm and his company M/s.Mosaic Farms Private Limited. He contended that he

had no personal liability in respect of any transaction of the said M/s.Mosaic

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Farms Private Limited. He further contended that the poultry feed supplied by

the plaintiff firm was not of good quality. It ought to have contained 35% of

protein, but the feed supplied was containing only 25% of protein, as such

inferior quality of goods were passed off. Another contention taken by the

defendant was that the plaintiff had assured to give 5% discount on each bill,

but was now claiming the same, which was not tenable.

18. The proprietor of the plaintiff firm was examined as PW.1 on 18.08.2000.

The defendant No.1 was not impleaded as a party to the suit even by the date of

examination of PW.1. Only during the course of trial after PW.1 was examined

in chief and documents were marked, a petition vide I.A.No.1799 of 2000 was

filed by the plaintiff to implead M/s.Mosaic Farms Private Limited as defendant

No.1 and the same was allowed on 15.02.2001. PW.1 in his cross-examination

conducted by the appellant - defendant No.2 on 12.06.2001 stated that

defendant No.2 personally came to his office and orally requested to supply

poultry feed, accordingly he supplied and Mohan Rao asked him to supply

poultry feed to M/s.Mosaic Farms Private Limited, but not signed on any

guarantee form.

19. Thus, PW.1 admitted that the supplies were made to defendant No.1

company by name M/s.Mosaic Farms Private Limited and defendant No.2 had

not signed on any guarantee form. He also admitted that all the bills were

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prepared in the name of M/s.Mosaic Farms. In his further cross-examination on

03.10.2001, PW.1 admitted that they supplied the feed to defendant No.1

company, but stated that at the request of defendant No.2, he supplied the

material to defendant No.1. He further admitted that defendant No.2 had not

given any letter in writing asking them to supply the feed to defendant No.1

company. He admitted that defendant No.1 never placed any order to them to

supply the feed to them and defendant No.2 used to call them over telephone to

supply feed to defendant No.1 company. He admitted that he addressed letters

under Exs.A1 and A3 addressing defendant No.2 representing defendant No.1.

20. One of the Directors of defendant No.1 company was examined as DW.1.

DW.1 stated that one Sai Kumari was the Managing Director of the company

and he was one of the Directors of the company. He stated that defendant No.2

resigned from defendant No.1 company five years ago and the feed was

supplied by the plaintiff company during the tenure of defendant No.2. He

denied that defendant No.2 was solely responsible for the suit transaction.

21. The documents marked under Exs.A1 and A3 are the letters addressed by

the plaintiff company to M/s.Mosaic Farms Private Limited, Vidyavanam, near

Pamarru, Krishna District (the appellant herein).

22. Ex.A2 is the reply given by Y.Mohan Rao to the plaintiff company.

Ex.A4 is the notice given by the counsel on behalf of the appellant Sri Y.Mohan

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Rao. All the transactions from Exs.A5 to A80, the invoices, delivery challans

and receipt of materials are in the name of defendant No.1 company -

M/s.Mosaic Farms Private Limited. None of the documents were signed by

defendant No.2 - appellant herein. These documents would disclose that the

invoices were issued in the name of the company, the goods were received by

the company and all the transactions were made in the name of the company.

After the amendment in the plaint including M/s.Mosaic Farms Private Limited

as defendant No.1, as per the orders passed in I.A.No.1799 of 2000 dated

15.02.2001, no amendments were made to the contents in the plaint. There was

no plea in the plaint that defendants 1 and 2 were jointly liable or that they had

colluded with each other. There was no pleading with regard to malfeasance or

fraud made by the plaintiff against defendant No.2 in his personal capacity.

Without a pleading of joint liability, the trial court granted the relief against

defendant No.2.

23. Admittedly, the company is a separate legal entity. The High Court of

Delhi in Sanuj Bathla and Others v. Manu Maheshwari and Others (cited

supra), while referring to its earlier judgment in Mukesh Hans and Another v.

Smt.Usha Bhasin and Others [MANU/DE/2160/2010], extracted the relevant

passages, which were also relevant to decide the present matter as follows:

"10. The short question which arises for consideration in the present appeal is as to whether the appellants as erstwhile Directors of the Company, M/s. Dawson

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Leasing Limited (In Liquidation) can be made liable in a suit for recovery of money when the Directors have not made themselves personally liable by extending any guarantee, indemnity, etc.

11. Indubitably, a company incorporated under the Companies Act, whether as a private limited company or a public limited company, is a juristic entity. The decisions of the Company are taken by the Board of Directors of a Company. The Company acts through its Board of Directors, and an individual Director cannot don the mantle of the Company by acting on its behalf, unless he is so authorized to act by a special resolution passed by the Board or unless the Articles of Association so warrant. 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.

12. This is the settled position ever since 1897 when the House of Lords decided the case of Salomon vs. Salomon & Co. Ltd. [1897 AC 22], and Lord Macnaughten, observed as under: -

"the company is at law a different person altogether from the subscribers to the memorandum; and, though it may be that after incorporation the business is precisely the same as it was before, the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided by that Act."

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13. However, with the passage of time inroads have been made into the aforesaid legal principle that the company is a legal entity distinct from its shareholders and directors and certain exceptions have been carved out. One such inroad is commonly described as lifting or piercing of the corporate veil. This has been succinctly put by the Supreme Court in Tata Engineering and Locomotive Co. Ltd. v. State of Bihar [1964] 6 SCR 885 as follows:

"24. The true legal position in regard to the character of a corporation or a company which owes its incorporation to a statutory authority, is not in doubt or dispute. The Corporation in law is equal to a natural person and has a legal entity of its own. The entity of the Corporation is entirely separate from that of its shareholders; it bears its own name and has a seal of its own; its assets are separate and distinct from those of its members; it can sue and be sued exclusively for its own purpose; its creditors cannot obtain satisfaction from the assets of its members; the liability of the members or shareholders is limited to the capital invested by them; similarly, the creditors of the members have no right to the assets of the Corporation. This position has been well established ever since the decision in the case of Salomon v. Salomon and Co. was pronounced in 1897; and indeed, it has always been the well-recognized principle of common law. However, in the course of time, the doctrine that the Corporation or a Company has a legal and separate entity of its own has been subjected to certain exceptions by the application of the fiction that the veil of the Corporation can be lifted and its face examined in substance. The doctrine of the lifting of the veil thus marks a change in the attitude that law had originally adopted towards the concept of the separate entity or personality of the Corporation. As a result of the impact of the complexity of economic factors, judicial decisions have sometimes recognized exceptions to the rule about the juristic personality of the corporation. It may be that in course of time these exceptions may grow in number and to meet the requirements of different economic problems, the theory about the personality of the corporation may be confined more and more."

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14. Similar observations were made by the Supreme Court in the case of New Horizons Ltd. v. Union of India: [(1995) 1 SCC 478] :

"27. The conclusion would not be different even if the matter is approached purely from the legal standpoint. It cannot be disputed that, in law, a company is a legal entity distinct from its members. It was so laid down by the House of Lords in 1897 in the leading case of Salomon v. Salomon & Co. Ever since this decision has been followed by the courts in England as well as in this country. But there have been inroads in the doctrine of corporate personality propounded in the said decision by statutory provisions as well as by judicial pronouncements. By the process, commonly described as "lifting the veil", the law either goes behind the corporate personality to the individual members or ignores the separate personality of each company in favor of the economic entity constituted by a group of associated companies. This course is adopted when it is found that the principle of corporate personality is too flagrantly opposed to justice, convenience or the interest of the Revenue. (See : Gower's Principles of Modern Company Law, 4th Edn., p.112.) This concept, which is described as "piercing the veil" in the United States, has been thus put by Sanborn, J. in US v. Milwaukee Refrigerator Transit Co.4:

'When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons.'

15. The question therefore in the instant case is - Can the corporate veil be lifted in the present case to reveal the identity of the person or persons behind it? The respondents in their plaint have not made out any such case to justify the piercing of the corporate veil. Therefore, this matter is not required to be dwelt upon by this Court any longer.

16. The next question which arises for consideration is whether the appellants as Directors made themselves personally liable for the dues of the Company. Reference in this context may be made to the judgment of this Court in Tristar

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Consultants vs. Customer Services India Pvt. Ltd. And Anr,. [139 (2007) DLT 688]. Paragraphs 28 to 30 of the said judgment, which are apposite, read as under:-

"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 malfeasance and misfeasance 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 company, 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."

17. In the case reported as Space Enterprises vs. M/s. Srinivasa Enterprises Ltd. [72 (1998) DLT 666], this Court while dealing with the liability of the Directors of a company for the dishonor of cheques of the company, in a suit filed under Order XXXVII of the Code of Civil Procedure, made the following observations: -

"11. In so far as the liability of defendant No. 2 is concerned, the effect of the registration of a company under Section 34 of the Companies Act is that it is a distinct and independent person in law and is endowed with special

Dr.GRR, J ccca_157_2002

rights and privileges; a person distinct from its members. Consequently, the company is enabled to contract with its shareholders also, to use common seal and acquire and hold property in its corporate name. The company is distinct from its shareholders and its directors. Neither the shareholders nor the director can treat the companies assets as their own. Directors of a company are liable for misappropriation of company's funds and other misfeasance, but not for an ordinary contractual liability of the company. The liability of the members or the shareholders or the directors is limited to the capital invested by them. So long the liability is not unlimited under Sections 322 and 323 of the Companies Act and no special resolution of the limited company making liability of the directors or the managing directors unlimited is alleged. The doctrine of lifting of the corporate veil could be applied in cases of tax evasion, or to circumvent tax obligation or to perpetuate fraud or trading with an enemy are concerned. It is not alleged that the director has lost the privilege of limited liability and has become directly liable to the plaintiff i.e. creditor of the company on the ground that with his knowledge the company carries on business six months after the number of its members was reduced below the legal minimum number. In absence of such a case it would be totally inappropriate and improper to say that defendant No. 2 is patently covered under Order 37 CPC.

12. There is no contract between the plaintiff and defendant No. 2. therefore, case against defendant No. 2 is not based on any contract nor there is any such liability on defendant No.2. Consequently, there is no cause of action against defendant No. 2. Since there is no cause of action against defendant No. 2, the plaint is liable to be rejected so far as defendant No. 2 is concerned."

18. In the instant case, there is admittedly no assertion in the plaint that the appellants had extended any contract of guarantee or had even undertaken to make payment to the respondents of the loan amount on behalf of the company, M/s. Dawson Leasing Limited. No case of joint and several liability is, therefore, made out and the liability, if any, is the sole liability of the Company, which is

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stated to be under liquidation. There is also no denial to the fact that the respondent No.4 himself was one of the Directors of the Company and therefore part and parcel of the Company. When the decision to invite secured non- convertible debentures was taken by the Board, the names of the respondent No.4 and his brother appeared in the offer document issued on behalf of the Company. In such circumstances, merely because the respondent No.4 subsequently resigned as a Director, it is not open to the respondents to allege that they have been deceived and defrauded.

19. It is also well settled that fraud, if alleged, must be pleaded meticulously and in detail and proved to the hilt. A mere assertion that fraud has been committed is neither here nor there. Precisely and in what manner fraud has been committed is required to be delineated by the party alleging the same if the plea of fraud is to be made the basis of a decree against the other party. Bald assertions and vague allegations will not be countenanced by the Courts. Rule 4 of Order VI specifically lays down that the particulars of the fraud alleged (with dates and items, if necessary) shall be stated in the plaint.

20. To conclude, the instant case is not one in which the appellants could have been held jointly and severally liable as Directors to pay the amount invested by the respondents in the Company. The appellants are not even alleged to be guarantors or indemnifiers for payment of the amount due from the Company nor it is pleaded in the plaint that the respondents had undertaken to make payment on behalf of the Company. As stated above, no particulars of fraud are set out, presumably for the reason that the respondent No.4 himself was a functional Director of the Company responsible for the day-today affairs of the Company. In such circumstances, in my considered opinion, it is the Company and the Company alone upon whom the liability can be fixed at all."

24. In the present case also admittedly, there is no assertion in the plaint that

the appellant - defendant No.2 had extended any contract of guarantee or

undertook to make the payment due by the defendant No.1 company. As such,

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this is not a case of joint and several liability and the liability if any is that of the

company defendant No.1 alone. There was no assertion in the plaint as to any

fraud was committed by the appellant - defendant No.2 and in what manner the

fraud was committed to hold the appellant - defendant No.2 jointly and

severally liable to pay the amounts due by the company to the plaintiff.

25. Accordingly, point No.1 is answered holding that the appellant -

defendant No.2 cannot be made personally liable for the amount due by the

company.

26. Point No.2:

Whether the judgment of the trial court is in accordance with law or liable to be set aside?

As the judgment of the trial court is not in accordance with the principles

laid down under the Company Law, the same is liable to be set aside.

27. Point No.3:

To what result?

In the result, the appeal is allowed setting aside the judgment and decree

dated 29.12.2001 passed in O.S.No.952 of 1993 by the learned V Senior Civil

Judge, City Civil Court, Hyderabad against the appellant - defendant No.2.

Dr.GRR, J ccca_157_2002

No order as to costs.

As a sequel, miscellaneous applications pending in this appeal, if any,

shall stand closed.

_____________________ Dr. G.RADHA RANI, J Date: 01st May 2025 Nsk.