1966 (3) TMI 52 - SC - Companies Law

Whether XXIX, rule 3, of the Code, did not provide for any penalty in case the director required to appear in court failed to do so? Whether the court can, as it did in the present case, strike off the defence of the appellant for the default made by its director to appear in court Held that - There is nothing in Order XXIX of the Code, which, expressly or by necessary implication, precludes the exercise of the inherent power of the court under section 151 of the Code. We are, therefore, of the opinion that in a case of default made by a director who failed to appear in court, when he was so required under Order XXIX, rule 3, of the Code, the court can make a suitable consequential order under section 151 of the Code as may be necessary for the ends of justice or to prevent abuse of the process of the court. It is not necessary in this case to define the exact relationship of a director qua company. The acts of the directors within the powers conferred on them may be binding on the company. But their acts outside the said powers will not bind the company. It is not possible to hold that the director, in refusing to respond to the notice given by the court, was acting within the scope of the powers conferred on him. He is only liable for his acts and not the company. If it was established that the company was guilty of abuse of the process of the court by preventing the director from attending the court, the court would have been justified in striking off the defence. But no such finding was given by the courts below. Thus the orders of the courts below are not correct. Appeal allowed.

Issues Involved:

1. Jurisdiction of the court under Section 151 of the Code of Civil Procedure (CPC) to strike out the defense.
2. Interpretation of Order XXIX, Rule 3 of the CPC regarding the personal appearance of a director.
3. Applicability of penalties for non-compliance under Order XXIX, Rule 3.
4. Liability of the company for the default of its director.
5. Abuse of the process of the court.

Issue-wise Detailed Analysis:

1. Jurisdiction of the court under Section 151 of the Code of Civil Procedure (CPC) to strike out the defense:

The appellant argued that the Code of Civil Procedure provides express power for a court to strike out defense against a party under specified circumstances, and therefore, Section 151 cannot be invoked to strike out the defense in other circumstances. The court discussed the scope of inherent powers under Section 151, referencing previous decisions (Padam Sen v. State of Uttar Pradesh, Manohar Lal Chopra v. Raja Seth Hiralal, and Arjun Singh v. Mohindra Kumar). It concluded that the inherent power of the court is in addition to and complementary to the powers expressly conferred under the Code, but it should not conflict with or override specific provisions of the Code. The court emphasized that inherent powers could be exercised to prevent abuse of the process of the court.

2. Interpretation of Order XXIX, Rule 3 of the CPC regarding the personal appearance of a director:

The appellant contended that Order XXIX, Rule 3, did not empower the court to require the personal appearance of a director other than the one who signed and verified the pleadings. The court analyzed the language of Rules 1, 2, and 3 of Order XXIX, which use the term "any director." It concluded that the adjective "any" indicates that any director with the requisite qualifications can perform the functions laid down in each rule. Thus, "any director" in Rule 3 need not be the same director who signed and verified the pleading or on whom summons was served.

3. Applicability of penalties for non-compliance under Order XXIX, Rule 3:

The appellant argued that Order XXIX, Rule 3, did not provide for any penalty for non-compliance. The court acknowledged that while specific penalties are provided for certain defaults under other provisions (Order IX, Rule 12, Order X, Rule 4, Order XI, Rule 21, Order XVI, Rule 20, and Order XVIII, Rules 2 and 3), the absence of such a provision in Order XXIX does not preclude the court from exercising its inherent power under Section 151. The court held that in cases of default by a director under Order XXIX, Rule 3, the court could make a suitable order under Section 151 to prevent abuse of the process of the court.

4. Liability of the company for the default of its director:

The court examined whether the company could be held liable for the director's default in appearing in court. It noted that a company and its directors are different legal entities, and the acts of the directors within their powers may bind the company. However, the director's refusal to respond to the court's notice was not within the scope of his powers. The court found no evidence of collusion between the company and the director to prevent the latter from attending court. Therefore, it concluded that the company could not be held constructively liable for the director's default.

5. Abuse of the process of the court:

The respondent argued that the director's recalcitrant attitude and defiance of court orders constituted an abuse of the process of the court. The court agreed that the director had abused the process of the court by persistently failing to comply with orders. However, it emphasized that without a finding of collusion between the company and the director, the company could not be penalized for the director's actions. The court concluded that the Subordinate Judge's order to strike out the defense was not justified in the absence of such a finding.

Conclusion:

The Supreme Court set aside the orders of the Punjab High Court and the Subordinate Judge, directing the Subordinate Judge to proceed with the suit in accordance with the law. The appeal was allowed without costs.

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