Shashikanth Govindalal Mandanna vs Ykk India Private Limited

Petitioner who is not a party eo nominee to the ex-parte money decree dated 19.12.2013 entered in respondent’s suit in O.S.No.1332/2013 is

invoking the writ jurisdiction of this court laying a challenge to the order dated 28.03.2017 made by the learned XX Addl. City Civil Judge, Bengaluru

(CCH-32), a copy whereof is at Annexure-A, whereby his application in I.A.No.2 filed under Order 21 Rule 37 of CPC 1908 for recalling the

execution process by the mode of arrest & detention. The 1st Respondent having entered appearance through his counsel resists the writ petition, the

notice to 2nd Respondent having been dispensed with.

Learned counsel for the petitioner submits that the 1st respondent has obtained the money decree against the 2nd respondent-Company; though the

petitioner was the Director of the judgment-debtor company, the decree against the company cannot be executed against its Directors since it is a

cardinal principle of Company Law that a Company incorporated under the Companies Act, 1956 being an independent legal person is different from

its Directors; so arguing he seeks allowing of the writ petition by invalidating the impugned order.

Learned counsel for the contesting respondents per contra submits that this aspect of the matter having been duly considered by the Executing

Court at para 10 of the impugned order, there is no error apparent on its face warranting indulgence of this Court; a decree passed against a Company

should not be resisted by its Director on the ground that he is not a party thereto and an argument to the contrary would render such a decree only a

‘paper decree’ and therefore should not be countenanced. So contending, he seeks dismissal of the writ petition.

I have heard the learned counsel for the petitioner and the learned counsel for the contesting respondent-decree holder. I have perused the petition

papers and adverted to the rulings cited at the Bar.

The suit in O.S.No.1332/2013 was by and between two companies incorporated under the provisions of the erstwhile Companies Act, 1956;

although the petitioner herein was the Director of the defendant company, he was not a party to the suit nor the text of the decree dated 19.12.2013

now put in Execution Case No.1717/2014 has created the personal obligation on the part of the petitioner. The House of Lords in the famous case of

SALOMON vs. A.SALOMON & COMPANY LTD., (1896) UKHL 1, more than a century ago has held that the Company incorporated under law

has a legal personality different from and independent of its share holders/directors. The very purpose of incorporation of a company inter alia is to

trade with limited liability. Salmond on jurisprudence, Twelfth Edition, at Page 309 states:

“It is essential to recognize clearly that in neither of these forms of incorporation is the legal person identical with any single human being. A

company is in law something different from its shareholders or members. The property of the company is not in law the property of the shareholders.

The debts and liabilities of the company are not attributed in law to its members. The company may become insolvent, while its members remain rich.

Contracts may be made between the company and a shareholder, as if between two persons entirely distinct from each other. The shareholders may

become so reduced in number that there is only one of them left; but he and the company will be distinct persons for all thatâ€​.

The court below wrongly proceeds to approximate the liability of an incorporated company to that of a Partnership Firm, when former is an

independent legal person, whereas the later is nothing more than the sum of its individual members.

In the absence of a personal obligation being created under the decree qua the Directors of a Company, the decree obtained against the Company

per se, cannot be enforced against them, of course inter alia subject to “the doctrine of lifting the veil†into which the case of the petitioner

arguably does not fit. In the court below too, that was not the argument, either. The Allahabad High Court in the case of R.K.CHADDHA vs.

STATE OF U.P., 2016 (332) ELT 650 (ALL) has considered this aspect of the matter which is apparently in support of the case of the petitioner.

The reasoning of the court below especially at para 9 militates against the cardinal principle of corporate responsibility qua the personal

responsibility of the trustees/agents of the incorporated bodies. Thus there is an error apparent on the face of the record inasmuch as the court below

proceeds on an erroneous legal premises that the liability of the judgment debtor-company is the personal liability of its Directors, especially when the

doctrine of lifting the veil was not pressed into service from the side of the decree holder.

In the above circumstances, this writ petition succeeds; the impugned order is invalidated; a Writ of Prohibition issues restraining the court below from

enforcing the subject judgment & decree dated 19.12.2013 entered in O.S.No.1332/2013 against the petitioner herein.

It is needless to mention that this order shall not come in the way of execution of decree in question against the judgment-debtor, otherwise.