Union Of India, Ministry Of Railways & Anr. vs M/S. Shyam Sel & Power Ltd. & Ors.

This is an application for deletion of the names of the defendant nos.2 to 6. The suit is filed against a public company in which the defendant nos.2 to 6

are the Directors and the principal officers. The suit is based on a contract. The plaintiffs have sued the defendant no.1 on a contract. The plaintiffs

alleged that the company has made declarations which are false and consumed the iron ore for purposes other than domestic consumption. This is in

breach of various circulars forming part of the contract.

On such allegation, the plaintiffs filed the suit in which the plaintiffs have impleaded the principal officers of the defendant no.1. In paragraphs 30 and

32 of the plaint the plaintiffs have alleged that the defendant no.1 company at the instance of its Board of Directors having control over the day-to-day

management and activities of the company have deliberately evaded the payment of legitimate Railway freight by obtaining lower freight rate on

providing inaccurate, false and misleading information on oath to Railway Authorities. As such, the defendant no.1 and the directors thereof have

rendered themselves jointly and severally liable for evaded freight along with incidental additional charges. Defendant nos. 2 to 6 being the directors of

the defendant no.1 company have exercised their control over the affairs of the defendant no.1 company and accordingly, are jointly as well as

severally liable and responsible for payment of the evaded quantum of freight.

Mr. Hirak Kumar Mitra, learned senior counsel appearing on behalf of the applicants has submitted that the suit is based on contract and if any one is

responsible under the contract, it is the defendant no.1 which is a juristic entity and the principal officers individually have no liability to discharge nor

they are individually liable. The principal officers are neither necessary nor proper parties in such a suit. Mr. Mitra refers to two unreported decisions

in this Court namely, Union of India & Anr. vs. M/S. Rashmi Metaliks Limited & Ors. and Union of India & Anr. vs. Rashmi Ispat Limited & Ors.,

one of which was decided by this Court namely, GA No. 577 of 2015 which is as follows:

“This is a suit for recovery of money against the defendant No.1. In the said suit an application has been filed by the defendant Nos.2 to 5 for

dismissal of the suit against the said defendant Nos. 2 to 5; in the alternative the petitioners have prayed for deletion of their names. Mr.Sabyasachi

Chowdhury, learned Advocate appearing on behalf of the applicant submits that a bare perusal of the plaint would show that no relief is claimed

against the said defendants inasmuch as in law, the plaintiffs cannot have any cause of action against the said defendants. It is submitted that the plaint

does not disclose any cause of action against the defendant Nos.2 to 5.

Per contra learned Counsel appearing on behalf of the plaintiff submits that the defendant Nos.2 to 4 are the Directors of the company and the

defendant No.5 is the company Secretary of the defendant No.1 who is vested with the powers and functioning of the day-today activities of the

defendant No.1 company. It is stated in the plaint that the said defendants are jointly and severally liable along with defendant Nos.2 to 4 for every

action of the defendant No.1 company.

It is a well-settled principle of law that a company is a juristic entity. A company acts through its various organs. Unless there is a pleading to the

effect in the plaint that the said defendants are personally liable in relation to the transactions and are guilty of committing fraud, the said persons

individually in the capacity as director or secretary could not be impleaded as a party in the suit. Order XXXIX of the Code of Civil Procedure refers

to suit by or against corporations. It states that in a suit by or against a corporate entity any pleading may be signed or verified on behalf of the

corporation by the secretary or by any director or other principal officer of the corporation who is liable to depose to the facts of the case. It further

provides that subject to any statutory provisions where a suit is against a corporation, the summons may be served upon the secretary or any director

or any principal officer of the corporation. Code of Civil Procedure does not contemplate that in a claim against a company, individual directors or

secretary are required to be made parties. Merely that a service of the writ of summons can be effected upon the secretary or the director of a

company, does not make the said person a necessary or a proper party in the proceeding.â€​

In similar vein, Justice Banerjee in His Lordship’s Order dated 5th October, 2006 has stated that the principal officers are not necessary parties.

There cannot be an absolute proposition that in a suit of this nature, the principal officers may not be liable at all but for that necessary pleadings are

required. It is well settled that in case of economic tort involving fraud and evasion of duties in an appropriate situation, the directors may be held liable

which would be tortuious and not strictly regulated by the contract.

In absence of any such pleading I am prepared to accept the submission made on behalf of the applicants that the plaint does not disclose any cause

of action against the defendant nos.2 to 6. Under such circumstances, the names of the defendant nos.2 to 6 shall be deleted from the plaint. The

application succeeds. The department shall delete the names of the said defendants within a period of two weeks from date. Since no affidavit is

called for, allegations made in the petition are deemed to have been denied.