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2008 Supreme(Mad) 1978
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE A.C. ARUMUGAPERUMAL ADITYAN
M/s. Sinhar Estate Builders (P) Ltd & Another
Versus
B. Nataraj
A.S.No.687 of 1998
Decided on : 25-06-2008
For the Petitioners:C. Seethapathy, Advocate.
For the Respondent:Mrs. Chitra Narayanan, Advocate.
The liability of a Managing Director for the debts incurred by a company, as established under the Companies Act, and the permissibility of a suit involving a Managing Director as a party based on the individual capacity and actions of the party.
Headnote:
Companies Act - Liability of Managing Director - Section 46, Section 434(1)(b) - The court held that the second defendant, as the Managing Director, is jointly and severally liable for the suit claim along with the first defendant. The court also found that the suit was not bad for misjoinder of party, as the second defendant had signed the memorandum of understanding in his individual capacity and had drawn cheques in favor of the plaintiff.
Fact of the Case:
The plaintiff, a sole proprietor, lent a loan to a Private Limited Company, of which the second defendant was the Managing Director, for acquiring an immovable property. Disputes arose, and a memorandum of understanding was entered into, but the cheques issued were dishonored. The plaintiff filed a suit for the recovery of the loan amount.
Finding of the Court:
The court found the second defendant jointly and severally liable for the suit claim and held that the suit was not bad for misjoinder of party. The court also directed the respondent to withdraw the remaining 50% of the suit amount from the fixed deposit.
Issues: a) Whether D2 is jointly and severally liable for the suit claim along with D1? b) Whether the suit is bad for mis-joinder of unnecessary party like D2?
Ratio Decidendi: The court relied on the Companies Act, specifically Section 46 and Section 434(1)(b), to establish the liability of the Managing Director for the suit claim. The court also considered the memorandum of understanding and the actions of the second defendant in drawing and dishonoring the cheques.
Final Decision: The appeal was dismissed, confirming the Decree and Judgment of the trial Judge. The respondent was permitted to withdraw the balance 50% of the suit amount from the fixed deposit without furnishing any security.
This appeal has been directed against the decree and Judgment in O.S.No.14562 of 1996 on the file of VII Additional Judge, City Civil Court, Chennai. The unsuccessful defendants have preferred this appeal.
2. The averments in the plaint sans irrelevant particulars run as follows: The first defendant is a Private Limited Company registered under the Indian Companies Act. The second defendant is the Managing Director of the first defendant Company. The plaintiff is the sole proprietor of Adhaye Finance And Investment. For the specific purpose of acquiring an immovable property, the first defendant had borrowed a loan of Rs.6,00,000/- from the plaintiff between the period 26. 1987 and 20.11.1987 as detailed below.
Date Borrowed Amount
26. 1987 Rs. 50,000
08. 1987 Rs.2,75,000
28. 1987 Rs. 25,000
111. 1987 Rs. 20,000
111. 1987 Rs. 50,000
20.11.1987 Rs.1,80,000
Out of the said amount of Rs.6,00,000/-borrowed from the plaintiff, the first defendant had repaid a sum of Rs.2,25,000/- i.e., a sum of Rs.50,000/- on 4. 1988 and Rs.1,75,000/- on 111. 1988. A sum of Rs.3,75,000/-remains to be paid by the first defendant against the said loan. The plaintiff had 1250 equity shares each to the value of Rs.100/- in the first defendant. The first defendant had diverted the funds of the company to other companies controlled by the second defendant and the second defendant had resorted to falsification of the accounts and under statement of income to promote the other companies at the cost of the first defendant. There arose a dispute between the plaintiff and his wife Mrs.Shantha Natraj and the second defendant, the Managing Director of the first defendant. Mrs. Shantha Natraj, wife of the plaintiff is one of the Directors of the first defendant, filed a company petition before this Court for certain relief. Subsequently, the said disputes were settled by entering into a memorandum of understanding dated 29. 1989 between the plaintiff, defendants and Mrs. Shantha Natraj, the wife of the plaintiff. In terms of the said memorandum of understanding dated 29. 1989, the second defendant issued five cheques as detailed hereunder.
Cheque No. Date Amount
104201 310. 1989 Rs.2,00,000
104202 310. 1989 Rs.1,75,000
104203 310. 1989 Rs.1,20,000
104204 310. 1989 Rs.1,30,000
104205 310. 1989 Rs.1,25,000
Total amount Rs.7,50,000
The above said cheques were deposited with one R.Srinivasan, the Mediator and the transfer forms signed by the plaintiff regarding the transfer of the said 1250 equity shares were also handed over to the said R.Srinivasan. In terms of the said memorandum of understanding, Mrs.Shantha Natraj was given a cheque dated 310. 1989 for Rs.1,000/- as the consideration for 100 equity shares held by her. She has also handed over the resignation letter to the mediator R.Srinivasan. On 310. 1989, the plaintiff presented the said cheques for encashment, the said five cheques were dishonoured by the bank on 11. 1989. After the presentation of five cheques, the plaintiff received a letter dated 30.10.1989 from the first defendant in the evening of 310. 1989 admitting the insufficiency of funds in his account. The plaintiff had also received another letter dated 11. 1989 from the first defendant contained untenable allegations. On 11. 1989, the plaintiff wrote a letter demanding the payment of Rs.7,50,000/- with interest at the rate of 18% per annum on the said amount. The reply received from the defendant is containing false and frivolous contentions. In respect of the transfer of 1250 equity shares, the plaintiff has done everything to the effect to transfer the same in the name of the second defendant. The plaintiff is entitled to the value of the said shares being Rs.1,25,000/- and also Rs.6,25,000/- as per the memorandum of understanding. Apart from that the first defendant has borrowed on various dates a total sum of Rs.25,000/-which liability he has acknowledged and issued a cheque dated 310. 1989 for Rs.25,000/-. This cheque was also di
