1987 (5) TMI 341 - HC - Companies Law

Summary

Issues:
1. Whether the defendant is entitled to leave to defend the suit under Order 37 of the Code of Civil Procedure.
2. Whether the contract between the parties is void and unenforceable due to a director's failure to disclose interest under section 299 of the Companies Act.
3. Whether the contract is against public policy or forbidden by law.

Analysis:
1. The defendant sought leave to defend the suit under Order 37 of the Code of Civil Procedure, claiming the contract was hit by section 299 of the Companies Act. The trial court granted leave based on the defendant's deposit and security. The defendant challenged this decision, arguing that the conditions imposed were unwarranted unless there was no defense. The court referred to principles from previous cases to determine the defendant's entitlement to leave to defend.

2. Section 299 of the Companies Act requires directors to disclose any interest in a contract with the company. The defendant contended that the contract was void and unenforceable due to the plaintiff-director's failure to disclose his interest. However, the court held that section 299 does not render contracts illegal or unenforceable but imposes fines for non-disclosure. The court rejected the argument that the contract violated public policy under section 23 of the Indian Contract Act, as section 299 does not prohibit such contracts.

3. The defendant relied on a case to support the contention that contracts involving interested directors are void. However, the court distinguished the case by highlighting that Indian law does not prohibit directors from being interested in contracts with the company, only requiring disclosure. The court emphasized that failure to disclose interest does not render the contract void or unenforceable, dismissing the argument that the contract was against public policy. The court upheld the trial court's decision, dismissing the petition and leaving the parties to bear their own costs.