2021 (6) TMI 587 - HC - Companies Law

Enforceability and validity of Oral Agreement - oral agreement for lifting water, exists or not - time limitation - Section 297 of Companies Act - HELD THAT - Section 46 of the Act must be read along with Section 297 of the Companies Act. It has been established in evidence that the defendant company was having paid-up capital of not less than one crore. Therefore, the prior approval of the central government was required for entering into a contract, in which, the director of the company or his relative is having an interest. The suit well belongs to the appellant Subahani and her brother Mohammed Thasthakir was the managing director of the defendant company. Therefore, two conditions will have to be fulfilled - The first Appellate Court rightly came to the conclusion that there has been a breach of Section 297 of the Companies Act. Since I have held that a oral contract of this nature cannot bind the defendant, the question of avoiding such a contract also does not arise. Time Limitation - HELD THAT - Filing of the suits by the defendant cannot operate as stay or suspension of the operation of the period of limitation for the claim of the plaintiff regarding the arrears of rent for lifting of water on the basis of oral contract. So, the allegation in the plaint that the earlier suits filed by the defendant operate as stay or suspension of right of claim of arrears cannot be sustainable and is liable to be rejected. This suit has been filed for the recovery of rent arrears for lifting of water on the basis of oral agreement entered into between the plaintiff and defendant company only in the year 1999 after the expiry of three years from the date on which the arrears of rent become due from the defendant company and as such the suit barred by limitation under Article 52 of Limitation Act. The suit agreement was clearly not binding on the respondent herein - substantial questions of law are answered against the appellant - Appeal dismissed.

Summary

Issues:
1. Enforceability of oral agreement for water lifting against defendant company under Section 297 of Companies Act
2. Barred by limitation - Suit for arrears of rent for water lifting

Enforceability of Oral Agreement:
The plaintiff claimed the defendant owed arrears for water drawn from the plaintiff's well based on an oral agreement. The defendant contended the contract was void as it was not approved by the board of directors due to the plaintiff's brother being the managing director of the defendant company. The trial court decreed in favor of the plaintiff, but the first appellate court set aside the decision. The second appeal raised substantial questions of law regarding the enforceability of the contract under Section 297 of the Companies Act. The court analyzed Sections 46 and 297, emphasizing the need for board approval and central government consent for contracts involving interested directors. As these conditions were not met, the court held the oral contract was not binding on the defendant company, leading to the dismissal of the appeal.

Limitation Issue:
The appellate court also addressed the limitation aspect, noting the plaintiff filed the suit in 1999 for arrears from 1993 to 1999, beyond the three-year limitation period under Article 52 of the Limitation Act for rent arrears. The plaintiff argued that pending suits by the defendant suspended the limitation period, but the court rejected this argument, stating that the suits did not prevent the plaintiff from filing within the limitation period. Consequently, the court found the suit barred by limitation under Article 52. The judgment upheld the appellate court's decision, confirming the dismissal of the second appeal without costs.

In conclusion, the judgment focused on the enforceability of an oral agreement under the Companies Act and the limitation period for rent arrears, ultimately ruling against the appellant on both issues. The court emphasized the statutory requirements for contracts involving interested directors and applied the limitation provisions strictly, leading to the dismissal of the appeal.