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2014 (9) TMI 1202

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....int it is averred that Mr. Siddharth Sachdev who is a director of the plaintiff company and who is aware of and is able to depose the facts of this case has signed and declared the plaint. The plaint is signed and verified by said Mr. Siddharth Sachdev on behalf of the plaintiff company. Parties in this order are described as were described in the impugned order. 4. Sometimes in the year 2006 the defendant filed an application under order VII rule 11 of the code of civil procedure 1908 read with section 151 of the Code of Civil Procedure 1908 in the said suit inter alia praying for dismissal of the suit for want of jurisdiction without prejudice to its contention that the District Court at Nashik did not have territorial jurisdiction to try entertain and dispose of the said suit. 5. The said application was resisted by the plaintiff by filing a detailed reply. By an order dated 25th September 2006 passed by the learned District Judge II Nashik the said application filed in the year 2006 by the defendant under order VII rule 11 read with section 151 of Code of Civil Procedure came to be rejected. It is ordered that the issue as to territorial jurisdiction will be framed and decide....

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....ing of the board of directors of the company held on 28th March, 2005 Mr. Siddharth Sachdev was appointed as a director of the plaintiff w.e.f. 1st April 2005. In the said meeting a power of attorney executed in favour of Mr. Siddharth Sachdev was placed before the board of directors which was duly approved by the board. It is submitted that the said power of attorney specifically authorised Mr. Siddharth Sachdev to do certain acts including initiating legal proceedings to protect the company's interests. It is averred that the present suit is obviously to protect the interest of the company. The plaintiff annexed a certified true copy of the minutes of the meeting to the said reply duly certified by the chairman and managing director of the company Mr. Anup Sachdev. Clause 4 of the said power of attorney is extracted as under :-  " 4. To initiate legal proceedings to protect the Company's interests and in this regard to make, declare, swear, affirm, sign, verify, initiate and facilitate civil suits, criminal complaints and petitions on behalf of the company; appear before appropriate government authorities, tribunals, courts; and if thought fit to initiate arbitrati....

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.... but was filed by the company and was signed and verified by the said Mr. Siddharth Sachdev as a director of the plaintiff company pursuant to such power of attorney duly approved by the plaintiff by passing a resolution. 12. Learned counsel submits that similar attempt made by the defendant even earlier by filing an application under order 7 rule 11 for rejection of plaint came to be rejected and the said order has not been admittedly impugned by the defendant. 13. Mr. Dani learned counsel for the plaintiff submits that whether such resolution passed by the plaintiff authorised the said Mr. Siddharth Sachdev to file a suit on behalf of the plaintiff against the defendant herein or not would not be a lacuna for presentation of a plaint under any of the provisions of law and in any event was curable. It is submitted that even under the provisions of Companies Act, 1956 filing of such suit by a director is not barred. 14. It is submitted that in any event the resolution approving the power of attorney which empowered the said Mr. Siddharth Sachdev to file a legal proceeding on behalf of the plaintiff was an adequate compliance of the provisions of the Companies Act 1956. The compa....

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....rested against the same defendant may unite such causes of action in the same suit. Rule 6 enables the Court to order separate trials even in a case of misjoinder of causes of action in a plaint filed.  14. Order VII Rule 11(d) speaks of the suit being "barred by any law". According to the Black's Law Dictionary, bar means, a plea arresting a law suit or legal claim. It means as a verb, to prevent by legal objection. According to Ramanatha Aiyar's Law Lexicon, 'bar' is that which obstructs entry or egress; to exclude from consideration. It is therefore necessary to see whether a suit bad for misjoinder of parties or of causes of action is excluded from consideration or is barred entry for adjudication. As pointed out already, on the scheme of the Code, there is no such prohibition or a prevention at the entry of a suit defective for misjoinder of parties or of causes of action. The court is still competent to try and decide the suit, though the court may also be competent to tell the plaintiffs either to elect to proceed at the instance of one of the plaintiffs or to proceed with one of the causes of action. On the scheme of the Code of Civil Procedure, it ca....

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....96) 6 SCC 660 and in particular paragraphs 4 and 9 to 12 in support of his submission that the defect of the plaintiff company not having passed a resolution if any under order 29 rule 1 would be a curable defect and the suit would not suffer from any jurisdictional infirmity. Paragraphs 4 and 9 to 12 of the said judgment reads thus :-  4. On the pleadings of the parties the following issues were framed:  " 1. Whether the plaint is duly signed and verified by a competent person? OPP  2. Whether the defendant No. 1 raised a loan of Rs. 50,000 from the plaintiff bank on 12.4.84 and executed a demand promissory note, hypothecation of goods agreement, letter of loan and other documents in favours of the plaintiff bank? OPP  3. Whether the defendants No. 2 and 3 stood as guarantors for the repayment of the loan and if so, what is the extent of their liability? OPP  4. What is the balance amount? OPP  5. Whether the plaintiff varied the terms of loan and if so, its effect qua the liabilities of defendants No. 2 and 3, Onus on Parties.  6. Whether the statement of account produced by the plaintiff is admissible in evidence? OPP  7. W....

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....can. on the basis of the evidence on record, and after taking all the circumstances of the case, specially with regard to the conduct of the trial come to the conclusion that the corporation had ratified the act of signing of the pleading by its officer.  11. The courts below could have held that Sh. L.K. Rohatgi must have been empowered to sign the plaint on behalf of the appellant. In the alternative it would have been legitimate to hold that the manner in which the suit was conducted showed that the appellant bank must have ratified the action of Sh. L.K. Rohatgi in signing the plaint. If, for any reason whatsoever, the courts below were still unable to come to this conclusion, then either of the appellate courts ought to have exercised their jurisdiction under Order 41 Rule 27(1)(b) of the CPC and should have directed a proper power of attorney to be produced or they could have ordered Sh. L.K. Rohatgi or any other competent person to be examined as a witness in order to prove ratification or the authority of Sh. L.K. Rohatgi to sign the plaint. Such a power should be exercised by a court in order to ensure that injustice in not done by rejection of a genuine claim. &n....

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....or otherwise, to be exercised or done by the company in general meeting: Provided further that in exercising any such power or doing any such act or thing, the Board shall be subject to the provisions contained in that behalf in this or any other Act, or in the memorandum or articles of the company, or in any regulations not inconsistent therewith and duly made thereunder, including regulation made by the company in general meeting.  (2) No regulation made by the company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation had not been made. 19. Order 7 Rule 11(a) and (d) of Code of Civil Procedure, 1908 read thus :-  11. Rejection of plaint :- The plaint shall be rejected in the following cases :-  (a) where it does not disclose a cause of action ;  (b) where the relief claimed is under-valued, and the plaintiff, on being required by the Court to so correct the valuation within a time to be fixed by the Court, fails to do so;  (c) where the relief claimed is properly valued, but the plaint is written upon paper insufficiently stamped, and the plaintiff, on being required by the Court to su....

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....ved in the affairs of the company and in running the business of the company. Further he has stated in the said affidavit that at no point of time he was informed that he had been appointed as Director of the company. He had never received any notice of any Board Meetings nor had he ever attended any Board meeting. In view of this categorical denial by Suresh Babu about attending any meetings of the Board of Directors of the company, it was incumbent on the part of Ramanujam who was the Chairman and Managing Director of the company and was in possession of all the records of the Company, to place on record a copy of a notice calling a meeting of the Board of Directors in terms of Article No copy of the notice intimating Suresh Babu about the meeting of the Board of Directors and asking him to attend the same, has been placed on record to show that Suresh Babu was informed about holding of the meeting in question.  Here reference is required to be made to certain other Articles of the company which are relevant for the controversy. Article provides that shares of the company shall be under the control of the Directors who may allot the same to such applicants as they think de....

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....f Association of the company, which unfortunately neither the Company Law Board nor the High Court considered. We cannot help referring to them, particularly in view of the fact that the Articles of a company are its constituent document and are binding on the company and its Directors.  The facts on record show that the company was being run as one man show and Ramanujam was maintaining the Minutes Book of meetings of Board of Directors only to comply with the statutory requirement in this behalf. The minutes were being recorded by him according to his choice and at his instance. The minutes do not reflect the actual position. Article mandated that a book should be maintained to record presence of Directors at meetings of the Board of Directors. If a book for recording signatures of Directors attending meetings of the Board of Directors was not maintained, it was in clear violation of Article of the Articles of Association of the company. The Company Law Board without going into these relevant aspects, proceeded on an assumption that a meeting of the Board of Directors did take place on 24th October, 1994. This assumption of the Company Law Board is clearly without any basi....

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....ulated. The High Court was right in holding that the entire manipulation of records of the company by Ramanujam was an act of fraud on his part.  (d) We may also test the alleged act of allotment of equity shares in favour of Ramanajum from a legal angle. Could it be said to be a bona fide act in the interest of the Company on the part of Directors of the Company?  At this stage it may be appropriate to consider the legal position of Directors of companies registered under the Companies Act. A company is a juristic person and it acts through its Directors who are collectively referred to as the Board of Directors. An individual Director has no power to act on behalf of a company of which he is a Director unless by some resolution of the Board of Directors of the Company specific power is given to him/her. Whatever decisions are taken regarding running the affairs of the company, they are taken by the Board of Directors. The Directors of companies have been variously described as agents, trustees or representatives, but one thing is certain that the Directors action behalf of a company in a fiduciary capacity and their acts and deeds have to be exercised for the benefi....

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....ced reliance on the judgment of the Supreme Court in case of Azhar Hussain vs. Rajiv Gandhi AIR 1986 SC 1253(1) and in particular paragraphs 11 and 12 in support of the same submissions which read thus :-  11. In view of this pronouncement there is no escape from the conclusion that an election petition can be summarily dismissed if it does not furnish cause of action in exercise of the powers under the CPC. So also it emerges from the aforesaid decision that appropriate orders in exercise of powers under the CPC can be passed if the mandatory requirements enjoined by Section 83 of the Act to incorporate the material facts in the election petition are not complied with. This Court in Samant N. Balkrishna and Anr. v. George Fernandez and Ors. 1969 3 S.C.C. 239, has expressed itself in no unclear terms that the omission of a single material fact would lead to an incomplete cause of action and that an election petition without the material facts relating to a corrupt practice is not an election petition at all. So also in Udhav Singh v. Madhav Rao Scindia [1976]2SCR246 , the law has been enunciated that all the primary facts which must be proved by a party to establish a cause ....

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.... treat any point going to the root of the matter such as one pertaining to jurisdiction or maintainability as a preliminary point and can dismiss a suit without proceeding to record evidence and hear elaborate arguments in the context of such evidence, if the Court is satisfied that the action would terminate in view of the merits of the preliminary point of objection. The contention that even if the election petition is liable to be dismissed ultimately it should be so dismissed only after recording evidence is a thoroughly misconceived and untenable argument. The powers in this behalf are meant to be exercised to serve the purpose for which the same have been conferred on the competent Court so that the litigation comes to an end at the earliest and the concerned litigants are relieved of the psychological burden of the litigation so as to be free to follow their ordinary pursuits and discharge their duties. And so that they can adjust their affairs on the footing that the litigation will not make demands on their time or resources, will not impede their future work, and they are free to undertake and fulfil other commitments. Such being the position in regard to matters pertaini....

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....ourt has the power to act at the threshold the power must be exercised at the threshold itself in case the Court is satisfied that it is a fit case for the exercise of such power and that exercise of such powers is warranted under the relevant provisions of law. To wind up the dialogue, to contend that the powers to dismiss or reject an election petition or pass appropriate orders should not be exercised except at the stage of final judgment after recording the evidence even if the facts of the case warrant exercise of such powers, at the threshold, is to contend that the legislature conferred these powers without point or purpose, and we must close our mental eye to the presence of the powers which should be treated as non-existent. The Court cannot accede to such a proposition. The submission urged by the learned Counsel for the petitioner in this behalf must therefore be firmly repelled. 22. Mr. Bijlani learned counsel placed reliance on the judgment of Supreme Court in case of Popat and Kotecha Property vs. State Bank of India Staff Association in Appeal (C) No. 3460 of 2000 dated 29th August 2005 in support of the same submission. The relevant paragraphs relied upon read thus....

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....ead thus : 6. However, in support of the complaint, one Nishakant Pednekar was examined pursuant to a power of attorney given by Shri Deelip Shirodkar and Vinod Shirodkar, Managing Director and Director of the Complainant-Company, respectively. The said power of attorney which was produced on behalf of the Complainant at Exh.PW1/B indicated that the said Nishakant Pednekar was appointed to act for and on behalf of the Company pursuant to a Resolution dated 10-2-2003. A copy of the said Resolution was not filed along with the said power of attorney. Likewise, at the time of filing of the complaint by the said Director Shri Prashant Shirodkar, no Resolution nor any power of attorney was filed nor was there any statement made in the said complaint to the effect that the said Director Shri Prashant Shirodkar was authorized by the Complainant- Company to lodge the said complaint. 21. A Director, as an individual Director, has no power to act on behalf of the company. He is only one of a body of Directors called the Board of Directors and alone he has no power except such as may be delegated to him by the Board of Directors or given to him by the articles of association of a company.....

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.... Act could not be filed by a person claiming to be a MD or a CA of a MD, if he was not apparently authorised by a Resolution of the company and consequently the complaint was held liable to be quashed. 7. It is argued by Mr. Kapadia that since he is the Managing Director, he is entrusted with substantial powers of management and those powers of management include the power to sue on behalf of the Company. The management of the Company would mean and include the day to day affairs of the Company. A Company is not required to sue as a part of its day to day affairs. The action in law is required to be filed only upon the cause of action accruing in favour of the Company. It cannot, therefore, be said that the power to sue is one of the substantial powers of "management". The power to sue must, therefore, be separately given by the Company. Such power can be given only under the Articles and Associations of the Company. No such power is shown. If Articles empower the Managing Director to file suits on behalf of the company, the position would have been different. See All India Reporter Ltd. Vs. Ramchandra Dhondu Datar, A 1961 Bom 292 in which case upon such Articles of Association, ....

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....udgment observes that the question of authority to institute the Suit on behalf of the Company was not a technical matter. It has far reaching effects. It would affect the policy and events of the Company. Unless the power to sue is conferred upon a particular Director, he would have no authority to sue and such a power could be conferred only by the Board of Directors by passing a resolution in that regard. 10. In the case of Nibro Limited vs. National Insurance Co. Ltd., AIR 1991 Delhi 25 , it has been held, upon considering the scope of Section 291 of the Companies Act, that unless a power to institute the Suit is specifically conferred on a particular Director, he has no authority to institute the Suit on behalf the Company. 11. The essential requirement of this provision is that the Company which is a juristic person must itself decide to sue. Once that is done, it would authorise one of its Directors who is the agent of the Company or its principal officers the Secretary of the Company or the Managing Director to file the Suit. The suing in each case is a separate act. The Company acts only through its meetings. Hence the Board of Directors in the day to day management of....

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....urt is (i) whether suit could be filed by the plaintiff company against the defendant through one of the director without passing a specific resolution empowering a director to file a suit against a particular party and if no such resolution is passed, what is the consequence thereof (ii) whether application under order 7 rule 11(d) was at all maintainable on the ground that suit was bad for want of specific resolution in favour of a director to file a such suit against the defendant company (iii) whether defect if any was curable and plaint could not be rejected on that ground. 28. The learned counsel for the defendant placed reliance on section 291 of the companies act 1956. The defendant did not produce any copy of the memorandum of association or articles of plaintiff company providing for passing of a specific resolution by the board of directors empowering a director to file a specific suit. A perusal of section 291 of the Companies Act makes it clear that the board of directors of a company are entitled to exercise all powers and to do all things and acts as the company is authorised to exercise and to do subject to the provisions of the Act and unless the memorandum and ar....

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..... While dealing with any such application under order 7 rule 11, court has to consider the averments made in the plaint. A perusal of the plaint does not indicate that any statement made therein would indicate that the suit was barred by any law. In my view the learned trial judge has thus committed a patent illegality in entertaining such application which is not maintainable under order 7 rule 11(d) of the Code of Civil Procedure, 1908 at all. 31. Be that as it may, it is not in dispute that the defendant had already filed an application in the same suit in the year 2006 under order 7 rule 11(a) of the Code of Civil Procedure, 1908 relying upon the averments made in the plaint and inter alia praying that the plaint did not disclose any cause of action and was thus liable to be rejected. The defendant never raised any issue at that stage that the plaint itself was liable to be rejected on the ground that no specific resolution was passed by the company authorising the director to file specific suit against the defendant. The learned District Judge after considering the submission of both parties rejected application under order 7 rule 11(a) of the Code of Civil Procedure, 1908. I....

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....aw Lexicon with approval which indicates that the expression "bar" would mean that which would obstruct entry or egress, to exclude from consideration. Supreme Court in the same Judgment has also given an illustration of Section 80 of the Code of Civil Procedure which provides for specific bar to the institution of the suit. It is held in such an event for want of notice under Section 80 which is mandatory, the plaint can be rejected if the same is indicated in the plaint itself. In my view, Court has to see while dealing with applications under Order VII Rule 11(d) of the Code of Civil Procedure 1908 whether plaint itself would indicate bar of such suit and its entry itself would indicate its exclusion from consideration. In my view, even if there is no specific resolution passed by the plaintiff company authorising its director to file a suit on behalf of the company, plaint cannot be rejected on that ground on the face of it. In my view, it may amount, at the most a procedural irregularity in filing a suit which can be cured even during the pendency of such suit and the plaint therefore cannot be rejected on such ground. 35. In so far as Judgment of Supreme Court in case of M/s....

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....ra) relied upon by the learned counsel for the respondent is concerned, it is held by this Court that a Director as an individual Director, has no power to act on behalf of the company. The Director in that case had filed a criminal complaint. The Power of Attorney produced by the Director indicated that he was appointed to act for and on behalf of the company pursuant to a resolution. A copy of the resolution however, was not filed along with the said Power of Attorney. In this case, the plaintiff company had already clarified by filing affidavit before the trial court bringing on record a copy of the resolution approving the Power of Attorney by which the Director was authorised to file a suit on behalf of the company and to file pleadings etc. Thus, the Judgment in case of Ashok Bampto Pagui (supra) does not assist the respondent and is clearly distinguishable in the facts of this case. 38. In so far as the Judgment of Supreme Court in case of Popat and Kotecha Property (supra) is concerned, the Supreme Court has held that disputed questions cannot be decided at the time of considering an application filed under Order VII Rule 11(d) of the Code of Civil Procedure. Such provisio....