2008 (6) TMI 353 - HC - Companies Law

Liability to pay the suit amount - whether the second defendant is not a necessary party to the suit? Held that - The second defendant is jointly and severally liable for the suit claim along with the first defendant. 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 A11 are the cheques drawn by the second defendant in favour of the plaintiff which were on presentation dishonoured by the bank. Under such circumstances, it cannot be said that the suit is bad for misjoinder of party, i.e., the second defendant. The decree and judgment of the learned Seventh Additional Judge, City Civil Court, Chennai in O.S. No. 14562 of 1996 need not be interfered with for the reasons stated in the memorandum of appeal. The respondent is permitted to withdraw the balance 50 per cent of the suit amount which is lying in the fixed deposit with accrued interest without furnishing any security.

Issues Involved:
1. Joint and several liability of the second defendant (D2).
2. Misjoinder of the second defendant (D2).
3. Validity of the trial court's judgment and decree.

Detailed Analysis:

Issue 1: Joint and Several Liability of the Second Defendant (D2)
The appellants argued that, according to Clause III of Exhibit A1 (Memorandum of Understanding), only the first defendant (D1) was liable to pay the suit amount to the plaintiff, not the second defendant (D2), who was the managing director of D1. They cited Section 46 of the Companies Act, which outlines how contracts on behalf of a company should be made and binds the company, not the individual acting on its behalf. They also referenced Section 434(1)(b) of the Companies Act and case law (Electronics Corpn. of India Ltd. v. Secretary, Revenue Department, Government of Andhra Pradesh and Tata Engg. & Locomotive Co. Ltd. v. State of Bihar) to support their claim that D2 was not personally liable for the debts of D1.

However, the court noted that Clause IV of Exhibit A1 specifically required D2, in his capacity as managing director, to deposit cheques for certain amounts with a mediator. The plaintiff's claim was based on the dishonored cheques issued by D2 as per the terms of Exhibit A1. The court also pointed out that D2 did not testify to establish his case, and the witness for the defense admitted that D2 managed all affairs of D1. Consequently, the court held that D2 was jointly and severally liable for the suit claim along with D1.

Issue 2: Misjoinder of the Second Defendant (D2)
The appellants contended that the suit was bad for misjoinder of D2, arguing that D2 was not a necessary party. The court examined Exhibit A1 and noted that D2 signed the Memorandum of Understanding in his individual capacity, despite being the managing director of D1. The cheques in question were drawn by D2 and were dishonored upon presentation. Given these facts, the court concluded that the suit was not bad for misjoinder of D2, as he was a necessary party to the suit based on his individual actions and commitments under Exhibit A1.

Issue 3: Validity of the Trial Court's Judgment and Decree
The court reviewed the evidence and arguments presented and found no reason to interfere with the trial court's judgment and decree. The trial court had meticulously examined the evidence and found in favor of the plaintiff, decreeing the suit as prayed for with costs. The court upheld this decision, confirming the trial court's judgment and decree.

Conclusion
The appeal was dismissed, and the trial court's judgment and decree were confirmed. The respondent was permitted to withdraw the remaining 50% of the suit amount, which was in a fixed deposit with accrued interest, without furnishing any security.

← Previous Next →