The essential requirement of this provision is that the Company which is a juristic person must itself decide to sue.
Once that is done, it would authorise one of its Directors who is the agent of the Company or its principal officers the Secretary of the Company or the Managing Director to file the Suit. The suing in each case is a separate act. The Company acts only through its meetings. Hence the Board of Directors in the day to day management of the company must decide and resolve to sue or not to sue. A blanket authority cannot be given to a particular Managing Director or Director to sign the papers and documents, including the power to sue. The power to sue requires application of mind upon the particular cause of action. It requires the Company to pay the requisite Court fee. It requires the Company to be represented by a legal officer being an Advocate of the Court. It is an act which, therefore, is not a part of the day to day management of the Company. A Company would decide in a given case upon legal advice or otherwise whether or not it would sue upon a given cause of action. Such exercise is imperatively required to be performed if the intention of the Company, which is only a juristic person, is to be deciphered. That act, of course, may be undertaken even after the filing of the Suit and ratified by the Board as all other acts of management. However, the seminal requirement is to see the act of the Company though its Board or members (dependent upon whether the resolution is passed in the Board meeting or a general meeting) or is given by the Company itself (under its Articles of Association).
Bombay High Court
M/S.Hari Shree Enterprises vs M/s vikas housing ltd on 19 March, 2009
Bench: R. S. Dalvi
1. The Plaintiff in the Suit is the Partners hip Firm which has sued third parties for recovery of possession of the suit lands, payment of amou nt s by way of compens a tion for delay as well as by way of mesne profits. The Suit has been filed by one Jitendra Chand a r a n a shown as the Constituted Attorney of the Plaintiff- Firm. The Power of Attorney annexed to the Plaint has been executed by one K.V.Mohan shown as one of the partners of the Firm and as the authorised signatory of two other partner s of the Firm V. Rajagopal and Mr.Rajiv Sinha, one of whom, V. Rajagopal, has been adjudged insolvent. The Plaintiff- Firm stood dissolved prior to the filing of the Suit upon the said partner having been adjudged insolvent. The Plaintiff- Firm, therefore, could not sue as shown in the Plaint.
2. The Plaintiff itself has taken out the above Cham ber Sum mo ns for amendme n t to the Plaint, including the title of the Suit. The Plaintiff now desires to sue through one of its partner s as the partner of the Plaintiff- Firm, since dissolved.
The said K.V.Mohan has not sought the sue as a partner of the firm on behalf of the dissolved firm. The partner of the firm seeking to sue is a Limited Company. The Limited Company is sought to be represented by its Managing Director, the same K.V. Mohan. The Plaintiff has sought to join the other two part ners Rajiv Sinha and the Official Assignee on behalf of the insolvent partner V. Rajagopal as Defenda nt s. Mr.Kapadia on behalf of the Plaintiff argued that the Official Assignee should not be joined as party Plaintiff and hence is sought to be joined as Defenda nt. The consent of the Official Assignee to sue on behalf of the dissolved Firm for recovery of possession and monies from third party is not obtained. However it may be taken that the Official Assignee is brought on record only as a necessary and proper party, representing the insolvent partner of the dissolved Firm. Rajiv Sinha is stated to be residing in Bihar and is hence to be brought on record as a Defenda nt.
3. The Plaintiff has essentially relied upon a judgment in the case of Purusho t t a m Umedbhai & Co. vs. M/s.Manilal & Sons, AIR 19 6 1 SC 325 to show that the introduction of Order XXX of the Code of Civil Procedure (C.P.C.) is only an enabling provision and when the Firm, which cannot sue, has sued, it is in effect misdescribing the Firm which is compendious form for its partners and shows the defective description of the parties who could have otherwise sued. Conseque n tly, it is held that by way of an amendme n t either under Section 153 of the Code of Civil Procedure or under Order VI Rule 17 of the C.P.C. an amendme n t to the Plaint to enable a proper description of the Plaintiff could be allowed. Upholding the decision of Chief Ju stice Beaumont in the case of Amulakcha n d Mewaram vs. Babulal Kanalal, AIR 19 3 3 Bombay 30 4 , it was held that incorrectly suing in the name of the Firm rather than by the partner s suing as such on behalf of the Firm would be only a case of misdescription of the existing persons. In paragrap h 8 of that judgment, it is held that the Firm or a Firm name is merely a compendious description of all partners collectively.
Conseque n tly, it is held that when a Suit is filed in the name of a Firm, it is still a Suit by all the part ners of the Firm unless it is proved that all the partners had not authorised the Suit. It is observed that when the Suit is filed in the name of a Firm it is in reality of a Suit by all the partners of the Firm, the defect being they were described as a Firm.
Hence it is held that to clarify matters the Court would permit an amend me n t by striking out the name of the Firm and replacing it with the name of the persons forming the partner s hip. It is further observed that that would not be a case of adding parties or substit u ting parties. Consequen tly, it is observed in paragrap h 11 of that judgment that a Suit filed by a Firm, which could not sue, is not a nullity. It was only a Suit instituted in the Firm name.
Conseque ntly, the law, as laid down in this case, is that if a Firm cannot sue by virtue of the legal disability, it having been dissolved purs u a n t to the adjudication of one of its partners as an insolvent, the Suit could be maintained by the partner s suing on behalf of the Firm. If one or some of them are not available to sign the plaint, they could be joined as Defenda nt s.
3. There are 3 partner s of the Firm: a Company called Four Season Farms Ltd., V. Rajagopal (the undisch a rged insolvent) and Rajiv Sinha.
4. This application is taken out by the Partner s hip Firm itself and not by the partners or even by one of the partner s as the Applicant seeking to be a party Plaintiff in the place and stead of the Firm, since dissolved. However it may be taken that the application is indeed being made by the partner of the Firm seeking to be the Plaintiff. That partner is the Company, Four Season Farms Ltd. It is sought to be epresented by its Managing Director K.V. Mohan.
5.The authority of K.V. Mohan as Managing Director is also challenged. K.V. Mohan has not shown how he was appointed Managing Director of the said Compa ny. Section 2 (26) of theCompanies Act defines the Managing Director thus:-
"(26) "managing director" means a director who, by virtue of an agreement with the company or of a resolution passed by the compa ny in general meeting or by its Board of directors or, by virtue of its memora n d u m or articles of association, is entru s ted with subst a n tial powers of the manageme nt which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called :
Provided further that a managing director of a company shall exercise his power subject to the superintenden ce, control and direction of its Board of directors."
The Managing Director K.V. Mohan must, therefore, show how he was entrus ted with subst a n tial powers of manageme nt and whether such powers include the power to sue. That has not been shown. Since which date he was appointed as Managing Director has also not been shown. His contract of employment with the Compa ny as such Managing Director is not produced.
The resolution under which he was appointed Managing Director is also not shown. K.V. Mohan in his Affidavit- in-
rejoinder has relied upon the Minutes of the meeting of the Board of Directors dated 8.9.2000 in which he is referred as the CEO and MD empowering him to execute the docume nt s to represent the Company before SEBI and other places.
ig That resolution merely shows that he was a Managing Director earlier appointed as such but his appoint me nt has not been shown. Hence by virtue of which resolution or agreement with the Compa ny he came to be entr us ted with the powers of the Managing Director is not shown. He, therefore, cannot be taken to be a Managing Director as claimed by him.
6. In the case of H.P.Horticultural produce Marketing & Processi ng Corp. Ltd. A 200 0 HP 11 it was held that the onus is on the person suing on behalf of the company as M.D. to show the powers of managemen t held by him either by virtue of an Agreement, or a resolution of the company or under the Memoran d u m and Articles of the Company, in the absence of which the suit was held not filed by an authorised person on behalf of the company and was dismissed.
Similarly in the case of M. Lakshman Vs. Shan muga Priya Textiles Pvt Ltd. 20 0 1 CC 121 (Mad) was held that a Criminal complaint u / s 138 of the Negotiable Instru me n t s Act could not be filed by a person claiming to be a MD or a CA of a MD, if he was not apparently aut horised by a Resolution of the company and conseque ntly the complaint was held liable to be quas he d.
7. It is argued by Mr.Kapadia that since he is the Managing Director, he is entrus ted ig with subst a n ti al powers of management and those powers of manageme nt include the power to sue on behalf of the Company. The managemen t of the Company would mean and include the day to day affairs of the Company. A Company is not required to sue as a part of its day to day affairs. The action in law is required to be filed only upon the cause of action accruing in favour of the Company. It cannot, therefore, be said that the power to sue is one of the subst a n ti al powers of "manageme nt". The power to sue must, therefore, be separately given by the Company. Such power can be given only under the Articles and Associations of the Compa ny. No such power is shown.
If Articles empower the Managing Director to file suits on behalf of the compa ny, the position would have been different. See All India Reporter Ltd. Vs. Ramchandra Dhondu Datar, A 19 6 1 Bom 292 in which case upon such Articles of Association, the Managing Director was held entitled to sue or execute an authority to another to sue on behalf of the company. That power may be given by the Company to any officer including a Director, Managing Director, Secretary, etc. A Company acts only through its resolution. Hence power of the Company can be given only by the Compa ny resolving to sue. That resolution may be passed by the Directors in the Board meeting or by the Company itself in its General Meetings. No resolution of the Company to sue is shown.
ig The contention of Mr.Kapadia that becau se K.V. Mohan is the Managing Director he does not need a resolution of the Company to sue cannot be accepted aside from the fact that in this case K.V. Mohan, who has sought to sue on behalf of the Company as its Managing Director, is not shown to be appointed as such also.
8. K.V. Mohan has relied upon a copy of the Resolution dated 11.7.2001 of the Board of Directors of Four Season Farms Ltd. resolving that the Managing Director of the Company is authorised and allowed to sign papers and document s in connection with acts and deeds of the Partners hip Firm on behalf of the Company in which the Compa ny is a partner. Mr.Kapadia contends that signing of the papers in the Suit is included in that authority. The Resolution is dated 11 th July 2001. A reading of the resolution does not show that the Company at all contemplated in 2001 that its Managing Director could sue in 2007 (the year in which this Suit was filed). The Managing Director may have changed at such length of time. The Resolution cannot empower any Managing Director at the relevant time to sue if the then Managing Director K.V. Mohan was given the authority to sign the papers and documen t s in connection with acts and deeds of the Partners hip Firm. Hence even through that resolution, the resolution of the Company to sue is not shown.
9. In the case of Leela Capital and Financ e Ltd., Mumbai vs. Modiluft Limited, Mumbai, 200 3 (1) Maharashtra Law Journal 55 1 relied upon by Mr.Madon, the Director, who was not specifically aut horised by the Company to sue under any resolution of the Company was held not so entitled. Relying upon the case of M/s.Nibro Limited vs. National Insuranc e Company Ltd., 199 1 Compan y Cases page 388 , it was held that the Director suing on behalf of the Firm is required to be authorised by the Board Resolution to file a Suit. That judgment observes that the question of aut hority to institute the Suit on behalf of the Company was not a technical matter. It has far reaching effects. It would affect the policy and events of the Company. Unless the power to sue is conferred upon a particular Director, he would have no authority to sue and such a power could be conferred only by the Board of Directors by passing a resolution in that regard.
10. In the case of Nibro Limited vs. National Insurance Co.
Ltd., AIR 199 1 Delhi 25 , it has been held, upon considering the scope of Section 291 of the Companies Act, that unless a power to institute the Suit is specifically conferred on a particular Director, he has no authority to institute the Suit on behalf the Company.
11. The essential requiremen t of this provision is that the Company which is a juristic person must itself decide to sue.
Once that is done, it would authorise one of its Directors who is the agent of the Company or its principal officers the Secretary of the Company or the Managing Director to file the Suit. The suing in each case is a separate act. The Company acts only through its meetings. Hence the Board of Directors in the day to day manageme nt of the compa ny must decide and resolve to sue or not to sue. A blanket authority cannot be given to a particular Managing Director or Director to sign the papers and docume nt s, including the power to sue. The power to sue requires application of mind upon the particular cause of action. It requires the Company to pay the requisite Court fee. It requires the Company to be represented by a legal officer being an Advocate of the Court. It is an act which, therefore, is not a part of the day to day management of the Company. A Compa ny would decide in a given case upon legal advice or otherwise whether or not it would sue upon a given cause of action. Such exercise is imperatively required to be performed if the intention of the Company, which is only a juristic person, is to be deciphered. That act, of course, may be undert ake n even after the filing of the Suit and ratified by the Board as all other acts of manageme n t. However, the seminal requireme nt is to see the act of the Company though its Board or members (dependent upon whether the resolution is passed in the Board meeting or a general meeting) or is given by the Company itself (under its Articles of Association).
12. The authority given to an individual as a Managing Director 6 years before filing of the Suit cannot be taken to be the authority given by the Company to file a particular action in law. It is, therefore, seen that K.V. Mohan, who has sought to represent the Company Four Season Farms Ltd. as a partner of the Plaintiff- Firm and who has taken out this application under his Affidavit dated 18 th November 2008 has had no aut hority of the Company to sue as such.
13. In any event if K.V.Mohan is himself the part ner of the firm who, on behalf of the other partners, executed the power of attorney in favour of Jitendr a Chand a r a n a to sue as CA of the firm, it is not understood, why he has not sought to sue as a partner on behalf of the firm himself.
14. Mr.Madon has tendered a further affidavit showing that neither K.V. Mohan nor the Four Season Farms Ltd is a partner of the Plaintiff firm. Since the affidavit is sought to be filed after the argume nt s are over and the order is dictated it is not considered. The Defendan t s may take separate appropriate proceedings, if required.
15. The Chamber Sum mon s, as filed, is not tenable. The Chamber Summo ns is, therefore, dismissed. No order as to costs.
(SMT.ROSHAN DALVI, J.)