2017 (8) TMI 1630 - HC - Indian Laws

Seeking direction to petitioner being directors to disclose their personal movable and immovable assets - direction for issuance of bailable warrants was ordered to be kept in abeyance - HELD THAT - Once the decree against the respondent No.2 cannot be executed against the petitioners as its directors the next question is whether under Order XXI Rule 41 of the CPC a direction to the directors to disclose their personal movable and immovable assets can be issued. The direction impugned is evidently under sub-Rule (2) of Order XXI Rule 41. However what the said rule permits is a direction for disclosure of the particulars of the assets of the judgment-debtor and not assets of any other person. Though Order XXI Rule 41(1) also permits the Court to examine any other person but the words any other person are absent from sub-Rule (2) of Rule 41 which permits a direction only against the judgment-debtor where the judgment-debtor is a corporation against any officer thereof and disclosure as aforesaid of assets of the judgment debtor only and not of personal assets of such officer - Once the directors of a company are not judgment-debtor in a decree against a company there can be no direction to them to disclose their assets. The direction contained in the impugned order dated 23rd February 2017 directing the petitioners to on affidavit disclose their personal movable and immovable assets as distinct from the assets of the respondent no.2/judgment-debtor thus cannot be sustained and is set aside. Axiomatically the impugned order dated 17th March 2017 of issuance of bailable warrants against the petitioners for non-compliance with the directions dated 23rd February 2017 also has to go - Petition allowed.

Summary

Issues:
1. Whether directors of a company can be held personally liable for the dues of the company in an execution proceeding under Order XXI Rule 41 of the CPC.
2. Whether a direction can be issued under Order XXI Rule 41 of the CPC to disclose personal movable and immovable assets of directors of a company in a decree execution process.

Analysis:

Issue 1: The judgment deals with the issue of whether directors of a company can be held personally liable for the dues of the company in an execution proceeding. The court emphasized the principle that a company is a separate legal entity from its directors and shareholders. It cited various legal precedents, including the classic case of Solomon Vs. Solomon & Co. Ltd., to establish that directors and shareholders are not automatically liable for the debts of the company. The court held that unless there is evidence of fraud, improper conduct, or an agreement by directors to be personally liable, the decree against a company cannot be executed against its directors.

Issue 2: The judgment also addresses the question of whether a direction can be issued under Order XXI Rule 41 of the CPC to disclose personal assets of directors in a decree execution process. The court analyzed the provisions of Order XXI Rule 41 and highlighted that the rule permits disclosure of assets of the judgment-debtor or officers of a corporation, not personal assets of directors. The court referred to legal precedents and emphasized that such directions should only be issued in exceptional circumstances and after giving notice to the party involved. In this case, the court found that the direction to disclose personal assets of directors was not permissible under the law and set aside the order.

In conclusion, the judgment clarifies that directors of a company cannot be held personally liable for the company's debts in an execution proceeding unless specific circumstances, such as fraud or improper conduct, are proven. Additionally, the court established that directions under Order XXI Rule 41 should be limited to the assets of the judgment-debtor or officers of a corporation, not personal assets of directors. The judgment provides a comprehensive analysis of the legal principles involved in executing a decree against a company and its directors, emphasizing the importance of upholding the separate legal identity of a company from its directors and shareholders.