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TMI Blog1987 (5) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of summons for judgment, the petitioner-defendant put in appearance and sought leave to defend the suit under rule 3(5) of Order 37 mainly on the ground that the contract was hit by the provisions of section 299 of the Companies Act 1956, inasmuch as the plaintiff, a director of the defendant-company, never, disclosed his interest in the contract for supply of the yarn. As the correctness of the amount due had been already certified by the defendant, vide letter dated September 19, 1984, the trial court granted leave to defend on the deposit of this amount and furnishing security in the amount of Rs. 68,720.60 for due performance of the decree. Dissatisfied therewith, the defendant has come up in this revision. The principles applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y moonshine, then ordinarily, the plaintiff is entitled to leave to sign judgment and the defendant is not entitled to leave to defend; and ( e )If the defendant has no defence or the defence is illusory or sham or practically moonshine, then although ordinarily the plaintiff is entitled to leave to sign judgment, the court may protect the plaintiff by only allowing the defence to proceed if the amount claimed is paid into court or otherwise secured and give leave to the defendant on such condition, and thereby show mercy to the defendant by enabling him to try to prove a defence". The trial court is alleged to have acted illegally in the exercise of its jurisdiction on the ground that unless it was a case of no defence, as stated in pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entering into of a contract by a director with the company in his individual capacity or renders the contract illegal or unenforceable against the company. If that was so, there was no need to enact sub-section (5) which saves the operation of any rule of law restricting a director of a company from having any concern or interest in any contract or arrangement with the company. Instead, the only consequence of the failure on the part of the director to disclose the nature of his concern or interest is that he becomes liable to be punished with fine extending up to five thousand rupees. Learned counsel for the petitioner, however, urged that the director being in a fiduciary relationship with the company, a duty has been cast upon him to dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contract with the company and as they were not capable of being interested in a contract with the company, the contract itself must be held to be beyond the powers of the company to enter into. The contention was repelled with the following observations (at p. 368): "That is putting upon section 85 a construction which has never been put upon it for the last fifty years, and it appears to me inadmissible. The real truth is that the consequences of a director being interested in a contract with the company are as follows: First, there is the statutory consequence that he ceases to hold office; and secondly, there is what I may call the general legal consequence, that he cannot enforce, as against the company, any contract which he has e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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