Karnataka High Court
Maxlinear Technologies Pvt Ltd vs Aptamitra Consulting Private Limited on 22 January, 2026
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 22ND DAY OF JANUARY, 2026 R
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.34431 OF 2024 (GM - CPC)
BETWEEN:
1. MAXLINEAR TECHNOLOGIES PVT. LTD.,
REPRESENTED BY ITS
AUTHORISED REPRESENTATIVE
MR.SRIDHAR RAMAMURTHY (DIRECTOR),
HAVING ITS OFFICE AT:
7TH FLOOR, BLOCK G AND H (TULIP)
PARCEL 5, EMBASSY TECH VILLAGE,
DEVERACHIKKANAHALLI,
OUTER RING ROAD,
BENGALURU - 560 103.
2. MR. SRIDHAR RAMAMURTHY,
AGED 58 YEARS,
DIRECTOR OF FRENUSTECH PVT. LTD.,
NO.G7, MANACAMPBELL,
GREEN GLEN LAYOUT,
BELLANDUR
BENGALURU - 560 103.
AND ALSO DIRECTOR OF
MAXLINEAR TECHNOLOGIES PVT. LTD.,
7TH FLOOR, BLOCK G AND H (TULIP)
PARCEL 5, EMBASSY TECH VILLAGE,
2
DEVERACHIKKANAHALLI,
OUTER RING ROAD,
BENGALURU - 560 103.
3. PINKESH SHAH
AGED ABOUT 42 YEARS
DIRECTOR PHYSICAL DESIGN
MAXLINEAR TECHNOLOGIES PVT. LTD.,
7TH FLOOR, BLOCK G AND H (TULIP)
PARCEL 5, EMBASSY TECH VILLAGE
DEVERACHIKKANAHALLI, OUTER RING ROAD
BENGALURU - 560 103.
4. PRASHANT R. MURTHY
AGED ABOUT 46 YEARS
(EX DIRECTOR OF FRENUS TECH PRIVATE LIMITED)
7TH FLOOR, BLOCK G AND H (TULIP)
PARCEL 5, EMBASSY TECH VILLAGE
DEVERACHIKKANAHALLI
OUTER RING ROAD
BENGALURU - 560 103.
5. RAMESH BHAT
AGED ABOUT 46 YEARS
7TH FLOOR, BLOCK G AND H (TULIP)
PARCEL 5, EMBASSY TECH VILLAGE
DEVERACHIKKANAHALLI
OUTER RING ROAD
BENGALURU - 560 103.
6. SOUMYA HEGDE
AGED ABOUT 39 YEARS
EX DIRECTOR OF
M/S. FRENUSTECH PVT. LTD.,
NO.G7, MANACAMPBELL
GREEN GLEN LAYOUT
BELLANDUR, BENGALURU - 560 103.
3
7. AKSHARA MURALI
AGED ABOUT 27 YEARS
NOOJILA HOUSE
POST ARIYAPPADY SHENI
KASARGOD - 671 551
KERALA, INDIA.
8. BALAJI REDDY
AGED ABOUT 27 YEARS
HOUSE NO. 3-128
MANUKONDAVARIPALEM VILLAGE
CHILAKALURIPET, GUNTUR - 522 616
ANDRA PRADESH, INDIA.
9. DHANRAJ BASUR GADIAPPA
AGED ABOUT 31 YEARS
PURADAKERI, HALLUR
HAVERI - 581 119
KARNATAKA, INDIA.
10 . ELAYARAJU VELAYUDHAN
AGED ABOUT 34 YEARS
NO. S/10, RAILWAY COLONY
SRIRANGAPATNA, MANDYA
KARNATAKA, INDIA - 571 438.
11 . KAMALA GOWDRA RAJASHEKARAPPA
AGED ABOUT 33 YEARS
H.NO.1, LINGADAHALLY POST
AMRUTAPURA POST
HOLALKERE, CHITRADURGA - 577 557
KARNATAKA, INDIA.
12 . MANJUNATH CHITTAPUR
AGED ABOUT 39 YEARS
728, 4TH D CROSS,
7TH MAIN, 1ST BLOCK, HRBR LAYOUT
KALYAN NAGAR, BANASWADI
4
BENGALURU - 560 043
KARNATAKA, INDIA.
13 . RAVIKIRAN
AGED ABOUT 35 YEARS
NO.3/5, P AND T QUARTERS
KAVALBHYRASANDRA
BENGALURU - 560 032
KARNATAKA, INDIA.
14 . SAILI SUBHASH DESAI
AGED ABOUT 28 YEARS
B-1/2, CENTURY RAYON COLONY
MURBAD ROAD, SHAHAD
THANE - 421 103
MAHARASHTRA INDIA.
15 . SANKEERTH KUMAR VADAMADULU
AGED ABOUT 40 YEARS
23-8-18/2,
GANGA BATHULA VARI STREET
VISHAKAPATNAM URBAN - 530 001
ANDHRA PRADESH, INDIA.
16 . SATHYASHEELKUMAR SINGH
AGED ABOUT 40 YEARS
477/74/48, 2ND FLOOR
24TH 'B' MAIN, 3RD CROSS
HSR LAYOUT, SECTOR I
BENGALURU - 560 102
KARNATAKA, INDIA.
17 . MURALIDHAR
AGED ABOUT 35 YEARS
NO.53/1, 6TH MAIN
1ST CROSS,
ANANTHAPURA
BENGALURU - 560 064
5
KARNATAKA, INDIA.
... PETITIONERS
(BY SRI VIVEK HOLLA, ADVOCATE A/W.,
SMT. MAITREYI B.KANNUR, ADVOCATE)
AND:
1. APTAMITRA CONSULTING PRIVATE LIMITED
REPRESENTED BY ITS FOUNDER AND CEO
SRI MANJESH J. C.,
AGED ABOUT 45 YEARS
OFFICE AT NO. 792, 5TH BLOCK
17TH CROSS, HMT LAYOUT
VIDYARANYAPURA
BENGALURU - 560 097.
2. FRENUSTECH PVT. LTD.,
REPRESENTED BY
MR. SUNIL KUMAR H. V.,
NO. G7, MANACAMPBELL
GREEN GLEN LAYOUT
BELLANDUR, BENGALURU - 560 103.
3. SUNIL KUMAR H. V.,
AGED ABOUT 41 YEARS
ERSTWHILE DIRECTOR OF
M/S. FRENUSTECH PVT. LTD.,
NO. G7, MANACAMPBELL
GREN GLEN LAYOUT
BELLANDUR, BENGALURU - 560 103.
... RESPONDENTS
(BY SRI MANU P.KULKARNI, ADVOCATE FOR
SMT SUKANYA BASU MALLIK, ADVOCATE FOR R1;
NOTICE TO R2 AND R3 DISPENSED WITH VIDE ORDER
DATED 17/01/2025)
6
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO SET ASIDE THE
IMPUGNED ORDER PASSED BY THE LD COMMERCIAL COURT DTD
19 JULY 2024 IN THE COM.OS. NO.1495/2023 PENDING IN THE
COURT OF LXXXIV ADDL. CITY CIVIL AND SESSIONS JUDGE (CCH-
85) (COMMERCIAL COURT) ON I.A.NOS. 1 AND XVIII BENGALURU;
DELETE THE PETITIONER ABOVE NAMED FROM THE ARRAY OF
PARTIES IN THE COM. OS. NO.1495/2023 PENDING IN THE COURT
OF LXXXIV ADDL. CITY CIVIL AND SESSION JUDGE (CCH-85)
(COMMERCIAL COURT) BENGALURU.
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS, COMING ON FOR PRONOUNCEMENT THIS DAY, THE
COURT MADE THE FOLLOWING:-
CORAM: THE HON'BLE MR JUSTICE M.NAGAPRASANNA
CAV ORDER
The petitioners/defendant Nos.3 to 5 and 10 to 24 are before
this Court calling in question an order dated 19-07-2024 passed by
the LXXXIV Additional City Civil and Sessions (CCH-85)
(Commercial Court), Bengaluru on I.A.Nos.I to XVIII in Commercial
O.S.No.1495 of 2023, rejecting the applications filed by the
petitioners seeking their deletion from the array of defendants.
7
2. Facts, in brief, germane are as follows: -
2.1. The 1st petitioner/defendant No.3 is an Indian Company
engaged in the business of engineering services providing systems
on chip solutions used for broadband, mobile and wireline
infrastructure, data centre and industrial and multi-market
applications. Petitioner No.2 who is defendant Nos.4 and 5 is the
Director of the 1st petitioner Company and 2nd respondent
Company. Petitioner No.3/defendant No.10 is again Director of
Physical Design of 1st petitioner Company; petitioners Nos.4 to
6/defendant Nos. 11 to 13 are the erstwhile Directors of respondent
No.2 Company, petitioner Nos. 7 to 17/defendant Nos. 14 to 24 are
the erstwhile employees of 2nd respondent Company. The 1st
respondent is an Indian consulting Company specialized in
developing integrated hardware and software solutions for the
semiconductor industry. The 2nd respondent/defendant No.1 is a
Private Limited Company engaged in the business of engineering
consulting and product development and respondent No.3 is the
erstwhile Director of respondent No.2 Company.
8
2.2. In the month of November, 2021 one Manjesh, founder
and CEO of the 1st respondent Company approaches the 2nd
respondent Company offering assistance to the Company for
identification of potential M & A opportunities. It is the case of the
petitioners that during discussions, the 2nd respondent shared the
Company's profile with the 1st respondent, but no confidential data
or information was shared at that stage. After several rounds of
discussions and exchange of drafts, on 09-05-2022, the 1st
respondent Company/plaintiff and the 2nd respondent
Company/defendant No.1 enter into a Non-Disclosure Agreement
(NDA) and a Managed Services Partner Agreement (MSPA) on 25-
01-2022. The 3rd respondent/defendant No.2 being the Director
and authorized signatory of the 2nd respondent Company signed
and executed the said agreements on behalf of the Company. The
MSPA was valid for a term of three months during which period if
the 2nd respondent Company was contacted by any third parties
who were introduced through the 1st respondent Company, the 2nd
respondent was required to promptly inform the 1st respondent
Company regarding the same and the 1st respondent Company was
also entitled to success fees. The 2nd respondent Company
9
however states that their relationship with the 2nd respondent
Company was non-exclusive in nature. Prior to these agreements,
on 14-03-2022, the 2nd respondent Company also entered into an
NDA with Aptamitra USA Consulting LLC who was the US subsidiary
of the 1st respondent Company, which was valid for a term of
2 years.
2.3. Subsequently, several discussions ensue between the
2nd and 3rd respondent Companies regarding the employment of
the employees of the 2nd respondent Company in USA, for which
the 1st respondent Company with the help of its US subsidiary,
would facilitate in obtaining H1B visas for the employees. The two
companies also enter into an H1B Master Services Agreement for
the same. Out of the 45 employee profiles which were shared, 11
employees - the petitioner Nos.7 to 17, were selected for the HIB
visa process, all of which according to the 1st respondent Company
cost it a huge amount of money. This, the respondent No.1
Company states, increased the valuation of the 2nd respondent
Company. However, though the initial approvals for the 11
employees were obtained, the 2nd respondent company decided
10
not to proceed with the H1B visa engagement process and none of
the employees were thus placed. Even the draft Master Services
Agreement for the purported US based arrangements was never
executed.
2.4. In July, 2022 the 2nd respondent Company/defendant
No.1 comes in contact with the petitioner No.1 Company/defendant
No.3 which the Petitioner No.1 states happened without the
involvement of respondent No.1 Company and was unrelated to the
transactions between the 1st and 2nd respondent Companies. In
August, 2022 the term of the MSPA between the 1st and 2nd
respondent Companies expired and by September, 2022 the H1B
visa process culminated. The unilateral withdrawal from the H1B
visa process, causes a rift between the 1st and 2nd respondent
Companies, which the 1st respondent states, was caused by the
inducement of the petitioner No.1 Company, upon increase in
valuation of the 2nd respondent Company. Legal proceedings were
thus taken up by the 1st respondent/plaintiff by causing a legal
notice to petitioners 1 to 9 demanding ₹40/- crores on account of
loss of business opportunities and credibility. Mediation proceedings
11
were initiated under Section 12A of the Commercial Courts Act,
2015 by filing a mediation application before the competent fora
seeking ₹32/- crore damages on account of alleged breach of
contract. During mediation proceedings, the 1st respondent had
named only respondent No.2 and petitioners 1 to 9 as opposite
parties. The mediation proceedings failed. On failure of mediation
proceedings, a commercial suit comes to be instituted in
Commercial O.S.No.1495 of 2023 now arraigning respondents 2
and 3 and petitioners 1 to 17 as defendants 1 to 24 in the suit. The
Commercial Court directed issuance of summons to all the
defendants, the petitioners and respondents 2 and 3.
2.5. The issue in the lis does not relate to the merit of the
matter before the concerned Court. In the concerned Court an
application is filed under Order 1 to Rule 10 r/w Section 151 of the
CPC by defendant No.15 seeking his deletion from the array of
parties. Likewise, other applications sprang under Order 1 Rule 10
of the CPC seeking their deletion from the array of parties. Those
applications were filed by the remaining defendants named in this
petition, barring defendants 1 and 2 and defendants 8 and 9. The
12
applications were preferred on the score that there is no cause of
action against the petitioners; no agreement between the
petitioners and the 1st respondent/plaintiff and that the 1st
petitioner/defendant No.3 is a separate entity. Written statements
were filed by the 1st petitioner and 2nd respondent. 3rd respondent
and remaining petitioners adopted the written statement filed by 1st
petitioner and 2nd respondent. The concerned Court, after hearing
the parties on the applications under Order 1 Rule 10 of the CPC,
rejected the applications seeking deletion of defendants from the
array of parties, in terms of the impugned order. Aggrieved by the
said order, the petitioners are before this Court in the subject
petition.
3. Heard Sri. Vivek Holla along with Smt. Maitreyi B. Kannur,
learned counsel appearing for the petitioners and Sri. Manu P.
Kulkarni along with Smt. Sukanya Basu Mallik, learned counsel
appearing for the respondent No.1.
4. The learned counsel appearing for the petitioners would
contend that the Commercial Court has failed to appreciate that the
13
real controversy in the case before it, is between the 1st
respondent/plaintiff and defendant Nos. 1 and 2. No relief is
claimed against these petitioners in the suit and no cause of action
is made out against these petitioners. The suit is filed for the
alleged breach of terms and conditions of two agreements dated
9-05-2022 executed only between the plaintiff and defendant No.1
to which the present petitioners are not parties or signatories.
There is no privity of contract except between the plaintiff and
defendant No.1. The allegations of breach of terms and conditions
of the MSPA and NDA, the two agreements, were only made against
the 2nd respondent/1st defendant. The learned counsel would submit
that mere discharge of duties by the Directors of the Company
would not make such Director necessary or proper parties to the
suit against the Company. Petitioner Nos. 7 to 17 are erstwhile
employees of the 2nd respondent. They are only beneficiaries of the
H1B visa process and they had no direct dealings with the plaintiff.
The learned counsel submits that the object of Order 1 Rule 10 of
the CPC is investing ample power upon the Court to strike out the
name of any party who has been improperly joined. He would seek
14
the petition be allowed and the petitioners be deleted from the
array of defendants.
5. Per contra, the learned counsel appearing for the
plaintiff/1st respondent would contend that the petition is preferred
by misrepresenting the facts. Respondent Nos. 1 and 2 entered into
an exclusivity agreement, whereby respondent No.1 was appointed
as the MSP for M & A pursuant to an agreement between the
plaintiff/ respondent No.1 and respondent No.2. There is a clear
admission of breach of exclusivity as obtaining in the terms of the
contract. Therefore, the 1st respondent/Company is only claiming its
legitimate fee as agreed upon in the agreements. He would contend
that the order of the Commercial Court is challenged belatedly after
about 3 months, only to protract the proceedings before the
concerned Court. He would submit that there is clear cause of
action against petitioner Nos. 2 to 6 as they are liable for inducing
the respondent No.2 to breach the MSPA and NDA. The petitioner
Nos.7 to 17 had the knowledge of the arrangements as evidenced
from multiple communications. He would contend that the plaintiff
being the dominus litus has a right to choose the person against
15
whom he wishes to litigate. The petitioners are liable for tortious
interference or tort of inducement of breach of contract. The
petitioners are also liable for committing the tort of civil conspiracy.
On this score he would submit that the petition be dismissed and
the order of the concerned Court be affirmed.
6. I have given my anxious consideration to the submissions
made by the respective learned counsels for all the parties and
have perused the material available on record.
7. The afore-narrated facts are a matter of record. They
would not require any reiteration. In furtherance whereof, the
issue that falls for consideration is whether applications filed by
these petitioners under Order 1 Rule 10 of the CPC seeking their
deletion require to be allowed or otherwise. The learned counsel
appearing for the 1st respondent would accept the fact that
petitioners 7 to 17/defendants 14 to 24 have no role to play and,
therefore, they could be deleted from the array of defendants.
Thus, what remains to be considered is whether petitioners 1 to 6
are proper and necessary parties to the lis. Therefore, the
16
examination of the impugned order is now restricted only to
petitioners 1 to 6.
8. Before embarking upon consideration of the issue on its
merits, I deem it appropriate to notice the statute and the
interpretation of the said statute by various Courts. Order 1 Rule
10 of the CPC reads as follows:
"10. Suit in name of wrong plaintiff.--(1) Where a suit
has been instituted in the name of the wrong person as plaintiff
or where it is doubtful whether it has been instituted in the
name of the right plaintiff, the Court may at any stage of the
suit, if satisfied that the suit has been instituted through a bona
fide mistake, and that it is necessary for the determination of
the real matter in dispute so to do, order any other person to be
substituted or added as plaintiff upon such terms as the Court
thinks just.
(2) Court may strike out or add parties.--The Court
may at any stage of the proceedings, either upon or
without the application of either party, and on such terms
as may appear to the Court to be just, order that the
name of any party improperly joined, whether as plaintiff
or defendant, be struck out, and that the name of any
person who ought to have been joined, whether as
plaintiff or defendant, or whose presence before the
Court may be necessary in order to enable the Court
effectually and completely to adjudicate upon and settle
all the questions involved in the suit, be added.
(3) No person shall be added as a plaintiff suing without a
next friend or as the next friend of a plaintiff under any
disability without his consent.
17
(4) Where defendant added, plaint to be amended.--
Where a defendant is added, the plaint shall, unless the Court
otherwise directs, be amended in such manner as may be
necessary, and amended copies of the summons and of the
plaint shall be served on the new defendant and, if the Court
thinks fit, on the original defendant.
(5) Subject to the provisions of the Indian Limitation Act,
1877 (15 of 1877), Section 22, the proceedings as against any
person added as defendant shall be deemed to have begun only
on the service of the summons."
(Emphasis supplied)
Sub-rule (2) of Order 1 Rule 10 provides the power to the
Court to either add parties as plaintiffs or defendants whose
presence, the Court deems is necessary for effective adjudication of
the suit or delete such parties if they were improperly joined.
INTERPRETATION OF ORDER 1 RULE 10 OF THE CPC:
8.1. The Apex Court in it's recent judgment in the case of
J.N. REAL ESTATE v. SHAILENDRA PRADHAN1 holds as follows:
".... .... ....
22. This Court in Mumbai International Airport (P)
Ltd. v. Regency Convention Centre & Hotels (P) Ltd., (2010) 7
SCC 417, explained the scope of Order I Rule 10(2) of the CPC.
In the unique facts which existed therein, there was a likelihood
that the appellant would secure a right/interest in the suit
property if the suit for specific performance instituted by the
1
2025 SCC OnLine SC 1015
18
respondent against the Airport Authority of India was dismissed.
It was held, that in such a factual circumstance and such being
the right asserted by the appellant, it cannot be made a party to
the suit for specific performance. While holding so, it was
observed that although the general rule is that the
plaintiff, being dominus litis, may choose the persons
against whom he wishes to litigate and seek relief, yet
this rule of impleadment would be subject to the
provisions of Order I Rule 10(2) wherein courts are
vested with the discretion to strike out or add parties to a
suit depending on whether their impleadment is deemed
necessary or proper. It was held that, even in suits for
specific performance, a court may, at any stage of the
proceedings, implead a person who is found to be a
necessary party or proper party.
23. In Mumbai International Airport (supra), this Court
explained the import of the expressions "necessary party" and
"proper party" as thus:
"14. The said provision makes it clear that a
court may, at any stage of the proceedings (including
suits for specific performance), either upon or even
without any application, and on such terms as may
appear to it to be just, direct that any of the following
persons may be added as a party : (a) any person who
ought to have been joined as plaintiff or defendant, but
not added; or (b) any person whose presence before the
court may be necessary in order to enable the court to
effectively and completely adjudicate upon and settle
the questions involved in the suit. In short, the court is
given the discretion to add as a party, any person who is
found to be a necessary party or proper party.
15. A "necessary party" is a person who
ought to have been joined as a party and in whose
absence no effective decree could be passed at all
by the court. If a "necessary party" is not
impleaded, the suit itself is liable to be dismissed.
A "proper party" is a party who, though not a
necessary party, is a person whose presence
would enable the court to completely, effectively
and adequately adjudicate upon all matters in
dispute in the suit, though he need not be a person
in favour of or against whom the decree is to be
19
made. If a person is not found to be a proper or
necessary party, the court has no jurisdiction to
implead him, against the wishes of the
plaintiff. The fact that a person is likely to secure a
right/interest in a suit property, after the suit is
decided against the plaintiff, will not make such
person a necessary party or a proper party to the
suit for specific performance."
(Emphasis supplied)
24. It is limpid in the aforesaid observation that if a
party is found to either a necessary or proper party, the
court would have the jurisdiction to implead him, even
against the wishes of the plaintiff concerned. In Mumbai
International Airport (supra) another pertinent question
that arose was whether there existed any conflict
between the three-judge bench decision of this Court
in Kasturi v. Iyyamperumal, (2005) 6 SCC 733 and the
decision of a two-judge bench in Sumtibai v. Paras
Finance Co. Regd. Partnership Firm Beawer (Raj.), (2007)
10 SCC 82.
25. In Kasturi (supra), the respondent nos. 1 and 4 to 11
respectively therein, based their claim to be added as party
defendants on an independent title and possession of the
contracted property. In such a backdrop, while rejecting the
applications for impleadment, this Court had expounded
the scope of Order I Rule 10(2) CPC and laid down certain
tests for determining whether a person is a 'necessary
party' for the purpose of impleadment in a suit for
specific performance as follows:
(i) First, that a bare reading of Order I Rule 10(2)
clearly indicates that the necessary parties in a
suit for specific performance of a contract for sale
or an agreement to sell, are the parties to the
contract or, if they are dead, their legal
representatives, as also persons who had
purchased the contracted property from the
vendor. A subsequent purchaser would be a
necessary party since his rights would be affected
irrespective of whether he had purchased the
contracted property, with or without notice of the
contract. However, it was clarified that a person
20
whose claim is adverse to the claim of a vendor, is
not a 'necessary party'. Therefore, two tests were
laid down by this Court, which must be satisfied
for determining the question as to who is a
necessary party -- (1) there must be a right to
some relief against such party in respect of the
controversies involved in the proceedings; (2) no
effective decree can be passed in the absence of
such party. The relevant observations read as
under:
"7. In our view, a bare reading of this
provision, namely, second part of Order 1 Rule 10
sub-rule (2) CPC would clearly show that the
necessary parties in a suit for specific performance
of a contract for sale are the parties to the contract
or if they are dead, their legal representatives as
also a person who had purchased the contracted
property from the vendor. In equity as well as in
law, the contract constitutes rights and also
regulates the liabilities of the parties. A purchaser
is a necessary party as he would be affected if he
had purchased with or without notice of the
contract, but a person who claims adversely to the
claim of a vendor is, however, not a necessary
party. From the above, it is now clear that two
tests are to be satisfied for determining the
question who is a necessary party. Tests are -- (1)
there must be a right to some relief against such
party in respect of the controversies involved in the
proceedings; (2) no effective decree can be passed
in the absence of such party."
(Emphasis supplied)
(ii) Secondly, as regards the meaning of "proper
party", it was observed that in case of a suit for
specific performance, the guiding principle for
deciding who is a proper party is that the presence
of such a party is necessary to adjudicate the
controversies involved in the suit for specific
performance of the agreement to sell. Such a
question has to be decided while keeping in mind
the scope of the suit for specific performance. If
the addition of that party enlarges the scope of
such suit so as to convert it into a suit for title,
then the presence of such a party cannot be said
to be necessary for the effective adjudication of
21
the controversies involved in the suit. The relevant
observations read as under:
"11. As noted hereinearlier, two tests are
required to be satisfied to determine the question who is
a necessary party, let us now consider who is a proper
party in a suit for specific performance of a
contract for sale. For deciding the question who is
a proper party in a suit for specific performance the
guiding principle is that the presence of such a
party is necessary to adjudicate the controversies
involved in the suit for specific performance of the
contract for sale. Thus, the question is to be
decided keeping in mind the scope of the suit. The
question that is to be decided in a suit for specific
performance of the contract for sale is to the
enforceability of the contract entered into between
the parties to the contract. If the person seeking
addition is added in such a suit, the scope of the
suit for specific performance would be enlarged
and it would be practically converted into a suit for
title. Therefore, for effective adjudication of the
controversies involved in the suit, presence of such
parties cannot be said to be necessary at all. Lord
Chancellor Cottenham in Tasker v. Small [(1834) 40 ER
848 : 3 My & Cr 63] made the following observations :
(ER pp. 850-51)
'It is not disputed that, generally, to a bill for a
specific performance of a contract of sale, the parties to
the contract only are the proper parties; and, when the
ground of the jurisdiction of Courts of Equity in suits of
that kind is considered it could not properly be otherwise.
The Court assumes jurisdiction in such cases, because a
court of law, giving damages only for the non-
performance of the contract, in many cases does not
afford an adequate remedy. But, in equity, as well as at
law, the contract constitutes the right, and regulates the
liabilities of the parties; and the object of both
proceedings is to place the party complaining as nearly
as possible in the same situation as the defendant had
agreed that he should be placed in. It is obvious that
persons, strangers to the contract, and, therefore,
neither entitled to the right, nor subject to the liabilities
which arise out of it, are as much strangers to a
proceeding to enforce the execution of it as they are to a
proceeding to recover damages for the breach of it.'
---xxx---
13. From the aforesaid discussion, it is pellucid
that necessary parties are those persons in whose
22
absence no decree can be passed by the court or that
there must be a right to some relief against some party
in respect of the controversy involved in the proceedings
and proper parties are those whose presence before the
court would be necessary in order to enable the court
effectually and completely to adjudicate upon and settle
all the questions involved in the suit although no relief in
the suit was claimed against such person."
---xxx---
15. [...] In the case of Vijay Pratap v. Sambhu
Saran Sinha [(1996) 10 SCC 53] this Court had taken the
same view which is being taken by us in this judgment as
discussed above. This Court in that decision clearly held
that to decide the right, title and interest in the suit
property of the stranger to the contract is beyond the
scope of the suit for specific performance of the contract
and the same cannot be turned into a regular title
suit. Therefore, in our view, a third party or a stranger to
the contract cannot be added so as to convert a suit of
one character into a suit of different character. [...]"
(Emphasis supplied)
(iii) Thirdly, an intervenor seeking to be impleaded
must be directly and legally interested in the
answers to the controversies involved in the suit
for specific performance of the agreement to sell.
It was held that a person is considered to be
legally interested in the answers to the
controversy, only if he can satisfy the court that it
may lead to a result that would legally affect him.
The relevant observations read as under:
---xxx---
"17. [...] Apart from that, the intervener
must be directly and legally interested in the
answers to the controversies involved in the suit
for specific performance of the contract for sale.
In Amon v. Raphael Tuck and Sons Ltd. [[1956] 1 All ER
273 : [1956] 1 Q.B. 357 : [1956] 2 WLR 372] it has
been held that a person is legally interested in the
answers to the controversies only if he can satisfy the
court that it may lead to a result that will affect him
legally."
(Emphasis supplied)
23
26. However, this Court, in its subsequent decision
in Sumtibai (supra), was faced with a factual scenario wherein
the sons of the original defendant were also prima facie found to
be co-owners of the contracted property. The sons were already
impleaded in their capacity of being legal representatives to the
deceased defendant who had entered into an agreement to sell
in favour of the plaintiff therein. In this background, it was
observed that it cannot be laid down as an absolute proposition
that in a suit for specific performance, a third party can never
be impleaded. It was opined that the decision of this court
in Kasturi (supra) must be seen in the context in which it was
delivered. Furthermore, some circumstantial flexibility is
necessary to be taken into account in each case, since an
additional or different fact may materially change the
conclusion. Therefore, the sons of the original defendant were
allowed to file an additional written statement and take the
defence of co-ownership which was available to them.
27. While distinguishing Kasturi (supra), it was held
in Sumtibai (supra) that if a third party can show a fair
semblance of title or interest, he can file an application for
impleadment in the suit for specific performance. The relevant
observations read thus:
"13. As held in Bharat Petroleum Corpn.
Ltd. v. N.R. Vairamani [(2004) 8 SCC 579 : AIR 2004 SC
4778] a decision cannot be relied on without disclosing
the factual situation. In the same judgment this Court
also observed : (SCC pp. 584-85, paras 9-12)
'9. Courts should not place reliance on decisions
without discussing as to how the factual situation fits in
with the fact situation of the decision on which reliance
is placed. Observations of courts are neither to be read
as Euclid's theorems nor as provisions of a statute and
that too taken out of their context. These observations
must be read in the context in which they appear to
have been stated. Judgments of courts are not to be
construed as statutes. To interpret words, phrases and
provisions of a statute, it may become necessary for
judges to embark into lengthy discussions but the
discussion is meant to explain and not to define. Judges
interpret statutes, they do not interpret judgments.
They interpret words of statutes; their words are not to
24
be interpreted as statutes. In London Graving Dock Co.
Ltd. v. Horton [[1951] A.C. 737 (HL)] (AC at p. 761)
Lord MacDermottobserved : (All ER p. 14 C-D) [...]'
---xxx---
14. In view of the aforesaid decisions we are of
the opinion that Kasturi case [(2005) 6 SCC 733] is
clearly distinguishable. In our opinion it cannot be laid
down as an absolute proposition that whenever a suit for
specific performance is filed by A against B, a third party
C can never be impleaded in that suit. In our opinion, if
C can show a fair semblance of title or interest he can
certainly file an application for impleadment. To take a
contrary view would lead to multiplicity of proceedings
because then C will have to wait until a decree is passed
against B, and then file a suit for cancellation of the
decree on the ground that A had no title in the property
in dispute. Clearly, such a view cannot be
countenanced."
(Emphasis supplied)
28. This Court in Mumbai International
Airport (supra) was also of the view that different
situations require the application of different facets of
Order I Rule 10(2) and consequently, held that there was
no conflict between the decisions of this Court
in Kasturi (supra) and Sumtibai (supra). It was reiterated
that that Order I Rule 10(2) CPC did not pertain to the
'right' of a non-party to be impleaded as a party but deals
with the 'judicial discretion' of the court to strike out or
add parties at any stage of the proceeding. In exercising
this judicial discretion, courts must act according to
reason and fair play and not according to whims and
caprice.
29. It was observed that the court may exercise
discretion in impleading a person who is a 'proper party'
upon an application by a non-party to the suit for specific
performance. If the court is of the view that the
impleadment of such a proper party will alter the nature
of the suit or introduce a new cause of action, it may
either refuse to implead such person or order for his
impleadment on certain conditions. However, even
otherwise, the court would not be precluded from
25
impleading a 'proper party' unconditionally in its
discretion. The relevant observations rendered in Mumbai
International Airport (supra) read thus:
"24.4 If an application is made by a plaintiff for
impleading someone as a proper party, subject to
limitation, bona fides, etc., the court will normally
implead him, if he is found to be a proper party. On the
other hand, if a non-party makes an application seeking
impleadment as a proper party and the court finds him
to be a proper party, the court may direct his addition as
a defendant; but if the court finds that his addition will
alter the nature of the suit or introduce a new cause of
action, it may dismiss the application even if he is found
to be a proper party, if it does not want to widen the
scope of the specific performance suit; or the court may
direct such applicant to be impleaded as a proper party,
either unconditionally or subject to terms. For example,
if D claiming to be a co-owner of a suit property, enters
into an agreement for sale of his share in favour of P
representing that he is the co-owner with half-share,
and P files a suit for specific performance of the said
agreement of sale in respect of the undivided half-share,
the court may permit the other co-owner who contends
that D has only one-fourth share, to be impleaded as an
additional defendant as a proper party, and may
examine the issue whether the plaintiff is entitled to
specific performance of the agreement in respect of half
a share or only one-fourth share; alternatively the court
may refuse to implead the other co-owner and leave
open the question in regard to the extent of share of the
defendant vendor to be decided in an independent
proceeding by the other co-owner, or the plaintiff;
alternatively the court may implead him but subject to
the term that the dispute, if any, between the impleaded
co-owner and the original defendant in regard to the
extent of the share will not be the subject-matter of the
suit for specific performance, and that it will decide in
the suit only the issues relating to specific performance,
that is, whether the defendant executed the
agreement/contract and whether such contract should
be specifically enforced.
25. In other words, the court has the
discretion to either to allow or reject an
application of a person claiming to be a proper
26
party, depending upon the facts and circumstances
and no person has a right to insist that he should
be impleaded as a party, merely because he is a
proper party."
(Emphasis supplied)"
(Emphasis supplied)
The Apex Court in the afore-quoted judgment while reiterating the
law laid down in it's earlier judgments in the cases of MUMBAI
INTERNATIONAL AIRPORT (P) LIMITED v. REGENCY
CONVENTION CENTRE & HOTELS (P) LIMITED2 and
KASTURI v. IYYAMPERUMAL3, holds that a necessary party is a
person who ought to have been joined as a party to the suit in
whose absence an effective decree cannot be passed by the Court.
A proper party is a person whose presence would enable the Court
to completely, effectively and properly adjudicate upon all matters
and issues, though he will not be a person in favour or against
whom a decree is to be made. If a person is not found to be a
proper or necessary party, the Court does not have the jurisdiction
to order his impleadment against the wishes of the plaintiff.
2
(2010) 7 SCC 417
3
(2005) 6 SCC 733
27
8.2. The test for determining who is a necessary party and
who is a necessary witness and the difference between the two, is
considered by the Apex Court, in it's earlier decision in the case of
RAMESH HIRACHAND KUNDANMAL v. MUNICIPAL
CORPORATION OF GREATER BOMBAY4 wherein it is held as
follows:
".... .... ....
14. It cannot be said that the main object of the rule is to
prevent multiplicity of actions though it may incidentally have
that effect. But that appears to be a desirable consequence of
the rule rather than its main objective. The person to be
joined must be one whose presence is necessary as a
party. What makes a person a necessary party is not
merely that he has relevant evidence to give on some of
the questions involved; that would only make him a
necessary witness. It is not merely that he has an
interest in the correct solution of some question involved
and has thought of relevant arguments to advance. The
only reason which makes it necessary to make a person a
party to an action is so that he should be bound by the
result of the action and the question to be settled,
therefore, must be a question in the action which cannot
be effectually and completely settled unless he is a party.
The line has been drawn on a wider construction of the
rule between the direct interest or the legal interest and
commercial interest. It is, therefore, necessary that the
person must be directly or legally interested in the action
in the answer, i.e., he can say that the litigation may lead
to a result which will affect him legally that is by
curtailing his legal rights. It is difficult to say that the rule
contemplates joining as a defendant a person whose only object
is to prosecute his own cause of action. Similar provision was
considered in Amon v. Raphael Tuck & Sons Ltd. [(1956) 1 All
4
(1992) 2 SCC 524
28
ER 273 : (1956) 1 QB 357] , wherein after quoting the
observations of Wynn-Parry, J. in DollfusMieg et Compagnie
S.A. v. Bank of England [(1950) 2 All ER 605, 611] , that their
true test lies not so much in an analysis of what are the
constituents of the applicants' rights, but rather in what
would be the result on the subject matter of the action if
those rights could be established, Devlin, J. has stated:
"The test is 'May the order for which the plaintiff
is asking directly affect the intervener in the enjoyment
of his legal rights'."
(Emphasis supplied)
8.3. The Apex Court, again in its later judgment, in
AIRPORTS ECONOMIC REGULATORY AUTHORITY OF INDIA v.
DELHI INTERNATIONAL AIRPORT LIMITED5 while summarizing
the principles of exercise of jurisdiction under Order 1 Rule 10 or
10(2) of the CPC, holds that a party would be a necessary party
only when such party would be bound by the result of the action
and has a direct or a legal interest in the proceeding. The Apex
Court observes as follows:
".... .... ....
39. Order 1 Rule 10 CPC grants the court the power
to strike out or add parties. The rule provides that the
court may either with or without the application of the
party, add the name of the party who ought to have been
joined or whose presence before the court may be
necessary for the court to effectively adjudicate upon the
5
(2024) 15 SCC 345
29
questions involved in the suit. [ Order 1 Rule 10(2):"10. (2)
Court may strike out or add parties.--The Court may at any
stage of the proceedings, either upon or without the application
of either party, and on such terms as may appear to the Court
to be just, order that the name of any party improperly joined,
whether as plaintiff or defendant, be struck out, and that the
name of any person who ought to have been joined, whether as
plaintiff or defendant, or whose presence before the Court may
be necessary in order to enable the Court effectually and
completely to adjudicate upon and settle all the questions
involved in the suit, be added."] This Court has sufficiently
dealt with proper and necessary parties referable to
Order 1 Rule 10CPC. A necessary party is defined as
someone who is indispensable to the suit and without
whom the suit cannot effectively proceed. A proper party,
on the other hand, is a party who has an interest in the
adjudication of the suit though they may not be a person
in whose favour or against whom a decree ought to be
made. [ See Vidur Impex & Traders (P) Ltd. v. Tosh Apartments
(P) Ltd., (2012) 8 SCC 384 : (2012) 4 SCC (Civ) 1; Thomson
Press (India) Ltd. v. Nanak Builders & Investors (P) Ltd., (2013)
5 SCC 397 : (2013) 3 SCC (Civ) 1] This Court has further
held that a party would not become a necessary party
merely because she has an interest in the correct solution
of the question involved. She would be a necessary party
only when she would be bound by the result of the action
and has a direct or a legal interest in the proceeding. [
See Ramesh HirachandKundanmal v. Municipal Corpn., Greater
Bombay, (1992) 2 SCC 524, para 14; Also
see Kasturi v. Iyyamperumal, (2005) 6 SCC 733] In view of the
judgments of this Court in CCI [CCI v. SAIL, (2010) 10 SCC
744] and Dabholkar [Bar Council of Maharashtra v. M.V.
Dabholkar, (1975) 2 SCC 702] , a statutory authority would
have a legal interest in appeals against orders made by it
in discharge of its regulatory duty."
(Emphasis supplied)
30
8.4. The High Court of Bombay in AAKASH EDUCATIONAL
SERVICES LIMITED v. LATA BHAGWANJI SHAH6 while
considering a case where the defendant seeks deletion from the
array of parties on the score that there is no cause of action
projected against the said defendant, holds as follows:
".... .... ....
19. In light of the aforesaid submissions, the core
question that arises for consideration is, whether the
impleadment of Defendant Nos. 2 and 3 as party-
Defendants is justifiable. A useful reference, in this
context, can be made to the relevant provisions contained
in the Code.
.... .... ....
24. A conjoint reading of the aforesaid provisions
would indicate that, though the plaintiff is dominus
litis and may implead the parties as defendants to the
suit, against whom the plaintiff perceives to have cause
of action, the plaintiff does not have an unfettered choice.
The primary question that comes to the fore is, whether a
party already impleaded or sought to be added, is a
necessary or proper party, to the suit. A person who has
no semblance of right or interest in the subject matter of
the suit, nor the decree passed in the suit has the effect
of affecting his rights or liabilities, can be impleaded as a
party defendant to the suit. The general rule of dominus
litis is thus subject to the provisions of Order 1 Rule
10(2) of the Code, which provides for striking out or
addition of the parties.
25. It is well recognized that, the deletion or
addition of the parties to the suit is not a matter of initial
jurisdiction, but that of judicial discretion. Such
discretion is required to be exercised keeping in view all
6
2025 SCC OnLine Bom 4194
31
the circumstances. Under the provisions of sub-Rule 2 of
Rule 10 of Order 1, the Court is empowered, at any stage
of the suit, to add or delete a party. From the phraseology
of sub-Rule (2) of Rule 10 of Order 1, it becomes evident
that, the person who can be added as a party to the suit
ought to be either (a) a person who ought to have been
joined as Plaintiff or defendnat, but not impleaded or (b)
any person whose presence before the Court may be
necessary in order to effectively and completely
adjudicate upon, and settle the questions involved in the
suit.
26. In the case of 'Mumbai International Airport Private
Limited v. Regency Convention Centre and Hotels Private
Limited [(2010) 7 SCC 417] the Supreme Court, expounded the
distinction between a necessary party and a proper party in the
following term:
"15. A 'necessary party' is a person who
ought to have been joined as a party and in whose
absence no effective decree could be passed at all
by the Court. If a 'necessary party' is not
impleaded, the suit itself is liable to be dismissed.
A 'proper party' is a party who, though not a
necessary party, is a person whose presence
would enable the court to completely, effectively
and adequately adjudicate upon all matters in
disputes in the suit, though he need not be a
person in favour of or against whom the decree is
to be made. If a person is not found to be a proper
or necessary party, the court has no jurisdiction to
implead him, against the wishes of the plaintiff.
The fact that a person is likely to secure a
right/interest in a suit property, after the suit is
decided against the plaintiff, will not make such
person a necessary party or a proper party to the
suit for specific performance."
27. The Supreme Court also expounded the nature of the
jurisdiction exercised by the Court in the matter of addition or
deletion of the parties under Order 1 Rule 10(2) as under:
32
"22. Let us consider the scope and ambit of
Order I of Rule 10(2) CPC regarding striking out or
adding parties. The said sub-rule is not about the
right of a non-party to be impleaded as a party,
but about the judicial discretion of the court to
strike out or add parties at any stage of a
proceeding. The discretion under the sub-rule can
be exercised either suo moto or on the application
of the plaintiff or the defendant, or on an
application of a person who is not a party to the
suit. The court can strike out any party who is
improperly joined. The court can add anyone as a
plaintiff or as a defendant if it finds that he is a
necessary party or proper party. Such deletion or
addition can be without any conditions or subject
to such terms as the court deems fit to impose. In
exercising its judicial discretion under Order 1
Rule 10(2) of the Code, the court will of course act
according to reason and fair play and not
according to whims and caprice.
(emphasis supplied)
28. Thus, the essential test to add a person as a
party defendant to the suit, is whether in the absence of
such person no effective decree can be passed in the suit;
meaning thereby a necessary party, or though no relief is
claimed against a person, the presence of such person,
would assist the Court in completely and effectually
adjudicating the suit; meaning thereby a proper party.
The concept of joinder of a party is inextricably
interlinked with the joinder of causes of action. A party
can be added to a proceeding, if there is any cause of
action against such party as well.
29. A profitable reference, in this context, can be made to
the decision of the Supreme Court in the case of 'Iswar Bhai C.
Patel alias Bachu Bhai Patel v. Harihar Behera2 wherein the
Supreme Court enunciated that the simple principle is that, a
person is made a party in a suit because there is a cause
of action against him and when causes of action are
joined, the parties are also joined. The observations in para
Nos. 11 to 14 read as under:
....... ....... .......
33
30. In view of the aforesaid exposition of law,
whenever defendant seeks deletion of his name from the
array of the defendants, the Court is required to pose
unto itself the question as to whether the said defendant
can be said to be either a necessary or proper party to
the suit. The said determination would, undoubtedly,
hinge upon the averments in the plaint and the
documents annexed with it. If there is slightest material
to show the existence of a cause of action against such
person, he cannot be deleted from the array of the
defendants for the only reason, that, the plaintiff does
not claim whole of relief against such person. However,
the necessary nexus between the defendants and the lis
ought to be, prima facie, evident.
31. The nature of the Suit also assumes material
significance. In the case at hand the Plaintiffs seek to
primarily recover the unpaid licence fee and damages for
alleged unlawful occupation of the Suit premises and also
for having allegedly caused damage thereto. The Suits
are in relation to the recovery of licence fee. The Suits
broadly fall in the category of Suits for recovery of
possession and licence fee of the demised premises."
(Emphasis supplied)
The High Court of Bombay holds that whenever the defendant
seeks deletion of his name from the array of defendants, the Court
is required to pose on to itself the question as to whether the said
defendant can be said to be either a necessary or a proper party to
the suit. The Court further holds that, the decision would
necessarily hinge on the averments in the plaint and the documents
34
annexed to it. Further, the Court holds that, though the plaintiff is
dominus litis to the suit and may implead the parties as defendants
to the suit, against whom the plaintiff perceives to have cause of
action, the plaintiff does not have an unfettered choice.
LIABILITY OF DIRECTORS IN SUITS AGAINST A COMPANY:
9. Since petitioner Nos.2 to 6 are all Directors of either
petitioner No.1 or respondent No.2 company, it becomes apposite
to notice the law on liability of the Directors of a Company, for their
impleadment, in suits against the Company.
9.1. In MAHENDER KUMAR AGGARWAL v. ANSAL
BUILDWELL LTD.7, the High Court of Delhi, holds that in a suit for
damages where the Company has been made a party, the Director
and General Manager of a Company are not necessary parties as no
relief was claimed against them and their presence was not
necessary for effective disposal of the suit. The High Court observes
as follows:
"2. Record shows that the present suit is a suit for recovery of
of damages for a malicious prosecution. It had been filed by
7
2011 SCC OnLine Del 4474
35
Mr. Mahender Aggarwal arraying M/s Ansal Buildwell Ltd. as
defendant No. 1. There is no dispute to the factum that
M/s Buildwell Ltd. is a duly incorporated company.
Defendants No. 2 & 3 Gopal Ansal and Anurag Verma
were the Managing Director and General Manager of the
said company; averments made in the present suit have
been perused. This is a suit for damages on account of
malicious prosecution and defamation; contention is that
defendant No. 1 had filed a false and malicious complaint
against the plaintiff pursuant to which an FIR had been
registered which FIR had been quashed by the order of Justice
S.N. Dhingra on 28.09.2007. While quashing the said FIR, it
had been noted that the defendants had committed a misuse of
the judicial process; it was in these circumstances that the
present suit for malicious prosecution came to be filed by the
plaintiff against defendant No. 1; defendants No. 2 & 3 have
also been arrayed in the memo of parties. In the body of the
plaint in para 10 it had been stated that it is clear that conduct
of the defendants was to hatch a criminal conspiracy against
the plaintiff; the defendants as per para 10 makes a reference
to the defendants. Relevant would it be to extract the FIR and
the averments made therein. It is not in dispute that pursuant
to the present complaint made under Section 156(3) of the
Code of the Criminal Procedure; the criminal machinery had
been set in motion and the aforenoted FIR bearing No.
612/2010 had been registered on the asking of the Magistrate.
The complaint had been filed by defendant No. 1 under Section
384/506/120-B IPC; this FIR as noted supra has since been
quashed.
3. The body of a plaint necessarily deciphers what the
plaintiff has to state; the impugned order has correctly
noted this and recorded that there is no specific
averments against defendants No. 2 & 3 and as such the
joinder of defendants No. 2 & 3 is misplaced. Defendant
No. 1 is admittedly an individual; he being a company
and having an identity of its own. The plaint did not
disclose any cause of action against defendants No. 2 &
3; the twin test for deciding an application under Order 1
Rule 10 of the Code had also been adverted to; a
necessary party would be a party against whom a relief
is sought or in the absence of that party no effective
36
decree can be passed. Applying the said test, the Court
had correctly noted that defendants No. 2 & 3 are liable
to be deleted as no relief against them has been claimed
and their presence is also not necessary for effective
disposal of the suit; the impugned order in no manner
suffers from any infirmity."
(Emphasis supplied)
9.2. Again, in ACE INNOVATORS (P) LTD. v. HEWLETT
PACKARD INDIA SALES (P) LTD.8, the High Court of Delhi holds
that under Section 230 of the Indian Contract Act, 1872, the agent
of the defendant Company who has not entered into a contract with
the plaintiff Company cannot be sued for damages for breach of
contract. Further while deciding an application under
Order 1 Rule 10 of the CPC, the averments in the plaint have to be
read by way of a demurrer. The High Court observes as follows:
"5. It is well settled that for deciding the application
under Order VII Rule 11 CPC r/w Order I Rule 10CPC the
averments made in the plaint have to be read by way of
demurrer. The only averments in the entire plaint against the
Defendant No. 3 is that the Defendant No. 3 is the authorized
distributor and supplied the products of HP company, that the
Defendant No. 3 delivered to the Plaintiff 127 HP laptops
instead of 215 HP laptops, did not deliver the remaining 88
laptops and finally after great persuasion 127 HP laptops were
picked up by the representative of the Defendant No. 3 on 23rd
November, 2011. Admittedly there is no privity of contract
8
2013 SCC OnLine Del 4019
37
between the Plaintiff and the Defendant No. 3. Further
admittedly the Defendant No. 3 is an agent of Defendant no. 1
Company, its authorized distributor/supplier. It is in the light
of these averments it is to be seen whether the
Defendant No. 3 is a necessary party or not. Section 230
of the Indian Contract Act (in short 'Contract Act')
provides as under:--
230. Agent cannot personally enforce, nor be bound
by, contracts on behalf of principal. - In the absence of
any contract to that effect an agent cannot personally
enforce contracts entered into by him on behalf of his
principal, nor is he personally bound by them.
Presumption of contract to contrary. - Such a contract
shall be presumed to exist in the following cases:--
(1) Where the contract is made by an agent for the sale or
purchase of goods for a merchant resident abroad;
(2) Where the agent does not disclose the name of his
principal;
(3) where the principal, though disclosed, cannot be sued."
6. It is thus evident that in terms of Section 230 of
the Contract Act, in the absence of any contract to that
effect an agent cannot personally enforce contracts
entered into by him on behalf of his principal, nor is he
personally bound by him. Further there is no
presumption to the contrary as the name of the principal
is known to the Plaintiff. In the present case, the agent,
that is Defendant No. 3 has not entered into the contract
with the Plaintiff and thus cannot be sued for the
damages for breach of contract by Defendant No. 1.
In Prem Nath Motors Limited (supra) the Hon'ble Supreme
Court held:
"7. Section 230 of the Contract Act categorically makes
it clear that an agent is not liable for the acts of a
disclosed principal subject to a contract of the
contrary. No such contract to the contrary has been
pleaded. An identical issue was considered by this
Court in the case of Marine Contained Services South
(P) Ltd. v. Go Go Garments, where a similar order
passed under the Consumer Protection Act was set
aside by this Court. It was held that by virtue of
38
Section 230 the agent could not be sued when the
principal had been disclosed. A similar view has been
expressed by a three judge Bench of this Court in Civil
Appeal 6653/2005 arising out of S.L.P. (C) No. 19562/2004."
This court in Tristar Consultants (supra) held:
"26. A perusal of Section 230 of the Indian Contract Act,
1872 shows that unless an agent personally binds
himself, an agent is not personally liable for contracts
entered into by him on behalf of his principal.
27. I may note an exception. The exception is that where an
agent has contracted on behalf of a principal who is unnamed
and undisclosed, on properly constituted pleadings and on so
establishing, such an agent who acts on behalf of a
undisclosed principal may be personally liable for a contract
entered into by him.
28. To interpret the law as is sought to be projected by
the petitioner would mean negation of the concept of a
company being limited by its liability as per the
memorandum and articles of association of the
company. Other than where directors have made
themselves personally liable i.e. by way of guarantee,
indemnity etc. liabilities of directors of a company,
under common law, are confined to cases of
malfeasance and misfeasance i.e. where they have
been guilty of tort towards those to whom they owe a
duty of care i.e. discharge fiduciary obligations.
Additionally, qua third parties, where directors have
committed tort. To the third party, they may be
personally liable.
29. For example by making false representations about
a company, a director induces a third party to advance
a loan to the company. On proof of fraudulent
misrepresentation, a director may be personally liable
to the third party.
30. But this liability would not flow from a contract but
would flow in an action at tort. The tort being of
misrepresentation of inducement and causing injury to
the third party having induced the third party to part
with money."
7. In the facts of the case, though the plaint is not liable to
be rejected for mis-joinder of Defendant No. 3 however, the
39
Defendant No. 3 is liable to be deleted from the array of parties
as he is neither a proper party nor a necessary party.
Application is disposed of deleting the Defendant No. 3 from
the array of parties."
(Emphasis supplied)
9.3. The Division Bench of the High Court of Gujarat in
PASCHIM GUJARAT VIJ CO. LTD. v. MANIBHADRA ISPAT
LTD.9, while upholding the order of the trial Court, striking out the
Directors from the array of parties on the ground that, Directors
cannot be held liable for acts of the Company and due to lack of
cause of action in the plaint, discusses the Doctrine of Lifting of
Corporate Veil and observes as follows:
"22. Thus, the dictum of law as laid by the Supreme
Court in the aforesaid decision is that the court can strike
out any party who is improperly joined. The court may
also add anyone as a plaintiff or as a defendant if it finds
that such person is a necessary party or a proper party.
In exercising its judicial discretion under Order 1 Rule
10(2) of the Code, the court should act according to the
reasons and fair play and not according to the whims
and caprice.
...... ...... ......
24. Indisputably, a company incorporated under the
Companies Act, whether as a private limited company or
a public limited company, is a juristic entity. The
decisions of the company are taken by the Board of
9
2019 SCC OnLine Guj 6933
40
Directors of a company. The company acts through its
Board of Directors, and an individual Director cannot don
the mantle of the company by acting on its behalf,
unless he is so authorized to act by a special resolution
passed by the Board or unless the Articles of Association
so warrant. It is equally well settled that a Director of a
company though he owes a fiduciary duty to the
company, he owes no contractual duty qua the third
parties. There are, however, two exceptions to this rule.
The first is, where the Director or Directors make
themselves personally liable, i.e. by execution of
personal guarantees, indemnities, etc. The second is,
where a Director induces a third party to act (to his
detriment by advancing a loan or money to the company.
On the third party proving such fraudulent
misrepresentation, a Director may be held personally
liable to the said third party. It is, however, well settled
that this liability would not flow from a contract, but
would flow in an action at tort, the tort being of
misrepresentation and of inducing the third party to act
to his detriment and to part with money.
25. This is the settled position ever since 1897 when the
House of Lords decided the case of Salomon v. Salomon & Co.
Ltd., [1897] A.C. 22, and Lord Macnaghten, observed as
under:
"...the company is at law a different person altogether
from the subscribers to the memorandum; and, though it
may be that after incorporation the business is precisely
the same as it was before, the same persons are
managers, and the same hands receive the profits, the
company is not in law the agent of the subscribers or
trustee for them. Nor are the subscribers as members
liable, in any shape or form, except to the extent and in
the manner provided by that Act."
26. However, with the passage of time inroads have
been made into the aforesaid legal principle that the
company is a legal entity distinct from its shareholders
and directors and certain exceptions have been carved
out. One such inroad is commonly described as the
lifting or piercing of the corporate veil. This has been
succinctly put by the Supreme Court in Tata Engineering and
41
Locomotive Co. Ltd. v. State of Bihar, (1964) 6 SCR 885, as
follows:
"..The true legal position in regard to the
character of a corporation or a company which owes
its incorporation to a statutory authority, is not in
doubt or dispute. The Corporation in law is equal to
a natural person and has a legal entity of its own.
The entity of the Corporation is entirely separate
from that of its shareholders; it bears its own name
and has a seal of its own; its assets are separate
and distinct from those of its members; it can sue
and be sued exclusively for its own purpose; its
creditors cannot obtain satisfaction from the assets
of its members; the liability of the members or
shareholders is limited to the capital invested by
them; similarly, the creditors of the members have
no right to the assets of the Corporation. This position
has been well established ever since the decision in the
case of Salomon v. Salomon and Co. was pronounced in
1897; and indeed, it has always been the well-recognised
principle of common law. However, in the course of time,
the doctrine that the Corporation or a Company has
a legal and separate entity of its own has been
subjected to certain exceptions by the application of
the fiction that the veil of the Corporation can be
lifted and its face examined in substance. The
doctrine of the lifting of the veil thus marks a
change in the attitude that law had originally
adopted towards the concept of the separate entity
or personality of the Corporation. As a result of the
impact of the complexity of economic factors,
judicial decisions have sometimes recognised
exceptions to the rule about the juristic personality
of the corporation. It may be that in course of time
these exceptions may grow in number and to meet
the requirement the theory about the personality of
the corporation may be confined more and more."
...... ...... ......
28. The question therefore in the instant case is - Can
the corporate veil be lifted in the present case to reveal
the identity of the person or persons behind it? The
plaintiff in its plaint has not made out any such case to
justify the piercing of the corporate veil. The plaint is
absolutely silent as regards the personal liability of the
42
Directors to pay the dues of the plaintiff. There is not
even a whisper in the plaint in this regard.
29. Ultimately, the moot question which needs to be
answered is, whether the respondents nos. 2, 3 and 4 herein
as the Directors could be said to have made themselves
personally liable for the dues of the company.
30. The Delhi High Court, in the case of Tristar
Consultants v. Customer Services India Pvt. Ltd., reported
in (2007) 139 DLT 688, has explained the position of law. The
observations made in paragraphs 28, 29 and 30 of the said
judgment read thus:
"28. To interpret the law as is sought to be projected
by the petitioner would mean negation of the concept of a
company being limited by its liability as per the
memorandum and articles of association of the company.
Other than where directors have made themselves
personally liable i.e. by way of guarantee, indemnity, etc.
liabilities of directors of a company, under common law,
are confined to cases of malfeasance and misfeasance i.e.
where they have been guilty of tort towards those to
whom they owe a duty of care ie. discharge fiduciary
obligations. Additionally, qua third parties, where directors
have committed tort. To the third party, they may be
personally liable.
29. For example by making false representations
about a company, a director induces a third party to
advance a loan to the company. On proof of
fraudulent misrepresentation, a director may be
personally liable to the third party.
30. But this liability would not flow from a
contract but would flow in an action at tort. The tort
being of misrepresentation of inducement and
causing injury to the third party having induced the
third party to part with money."
...... ...... ......
32. It is not in dispute that in the case at hand, there is no
assertion in the plaint that the respondents nos. 2, 3 and 4 as
Directors of the company had extended any contract of
43
guarantee or had even undertaken to make payment to the
plaintiff company of the dues towards the electricity charges.
33. It is also well settled that fraud, if alleged, must
be pleaded meticulously and in detail and proved to the
hilt. A mere assertion that fraud has been committed is
neither here nor there. Precisely and in what manner
fraud has been committed is required to be delineated
by the party alleging the same if the plea of fraud is to
be made the basis of a decree against the other party.
Bald assertions and vague allegations will not be
countenanced by the courts. Rule 4 of Order VI
specifically lays down that the particulars of the fraud
alleged (with dates and items, if necessary) shall be
stated in the plaint.
...... ...... ......
35. A Division Bench of the Allahabad High Court, in the
case of Meekin Transmission Limited (supra), has dealt with
the issue exhaustively. The decision of the Allahabad High
Court is under the following heads:
"- Concept of Companies - History of Incorporation of
Companies and relevant statutes:
- Status of Company, Directors and Shareholders -
individually and inter se in Common Law as well in the Act:
- Doctrine of Piercing of Veil (Lifting the Corporate Veil) :
Exception to the Law of Separate Entity:
- Initial burden for application of the doctrine of "Piercing
of Veil":
36. We may quote the relevant observations made in the
aforesaid decision thus:
"Concept of Companies - History of Incorporation of
Companies and relevant statutes:
...... ...... ......
Status of Company, Directors and Shareholders -
individually and inter se in Common Law as well in the
Act
...... ...... ......
44
23. The position of a Director vis a vis company
has been equated with an Agent in as much as, the
company cannot act in its own person but has to act
only through Directors who, therefore, have the
relationship of an Agent qua company. However, the
Managing Director has been held to have a dual
capacity inasmuch as being a Director he is an agent
of the company but he is also an employee. In Shri
Ram Pershad v. C.I.T., (1972) 2 SCC 696 : AIR 1973 SC
637, the Apex Court held:
"It is again true that a director of a company is
not a servant but an agent inasmuch as the
company cannot act in its own person but has only
to act through directors who qua the company have
the relationship of an agent to its principal. A
Managing Director may have a dual capacity. He
may both be a Director as well as employee......"
24. The work, performance and responsibility of
Directors, Managing Directors and other Officers of the
company is provided in the various provisions of the Act
and it is not necessary for us to go in further details of
those provisions for the purpose of present case.
25. From the above discussion the position as
culled out is that the word "Company" imports an
association of number of individuals formed for a
common purpose. When such an association is
incorporated, it becomes a body corporate, a legal
entity, separate and distinct from such individuals.
Such incorporation must owe its existence to a
statutory authority. The corporation/Company, in
law, is equal to a natural person and has a separate
legal entity of its own. Once incorporated, the entity
of the corporation is entirely separate from that of
the share holders, It bears its own name; has a seal
of its own; its assets are separate and distinct from
those of its members; it can sue and be sued
exclusively for its own purpose; the liability of the
members or share holders is limited to the capital
invested by them; the creditors of the Company
cannot obtain satisfaction from the assets of the
share holders/members of the company and
similarly creditors of the members/share holders
have no right to the assets of the Company. This
position was recognised in Salomon v. Salomon and
45
Co., [1897] A.C. 22 and since then has always been
well recognised as a principle of common law. The
effect of registration of the company is provided
under Section 34 of the Act.
...... ...... ......
27. A Company being an artificial juridical person
cannot act by its own. It acts through Directors. The
executive authority of the Company is vested
ordinarily in the Board of Directors which is
responsible for the proper management of the
Company. There are several duties and obligations
of the Board of Directors and Directors of the
Company which are enshrined in detail in various
provisions of the Act. The Directors are paid
remuneration for services they render but cannot
claim remuneration as of right and, instead, if it is
provided in the memorandum or Article of
Association, they would be entitled for such
remuneration as provided therein. The company is a
separate entity qua Directors also inasmuch as, the
Directors represent the company and may enter into
a contract of employment with himself in his
individual capacity and simultaneously acting for
company.
...... ...... ......
32. In brief, we can cull out the following:
(1) Company is a distinct and separate juristic
personality having its own rights of right to property
etc;
(2) The shareholders have no interest in any particular
asset of the company or the property of the company
except of participating in profits, if any, when the
company decides to divide them or to claim his share
when the company is wound down in accordance with the
articles of the company;
(3) A company is distinct from its Board of
Directors who cannot enforce a right in their
individual capacity which belongs to the
company (TELCO v. State of Bihar, AIR 1965 SC 40.
46
(4) The liability of the company simultaneously is
also not the liability of shareholders. The
shareholders cannot be made liable under a decree
against a company has held in Nihal Chand v. Kharak
Singh Sunder Singh, (1936) 2 Comp Cas 418 and Harihar
Prasad v. Bansi Missir, (1932) 6 Comp Cas 32.
Doctrine of Piercing of Veil (Lifting the Corporate
Veil) : Exception to the Law of Separate Entity:
...... ...... ......
78. In the nutshell, the doctrine of lifting of veil or
piercing the veil is now a well established principle which
has been applied from time to time by the Courts in India
also. There is no doubt about the proposition that
whenever the circumstances so warrant, the corporate veil
of the company can be lifted to look into the fact as to
whose face is behind the corporate veil who is trying to
play fraud or taking advantage of the corporate
personality for immoral, illegal or other purpose which are
against public policy. Such lifting of veil is also has to
implemented whenever a statute so provided. However, it
is not a matter of routine affair. It needs a detailed
investigation into the facts and affairs of the company to
find out as to whether the veil of the corporate personality
needs to be lifted in a particular case. After lifting the
veil, in a case where it is so required, it is not
always that the Directors would automatically be
responsible but again it is a matter of investigation
as to who is/are the person/s responsible and liable
who had occasioned for application of said doctrine.
Initial burden for application of the doctrine of
"Piercing of Veil":
...... ...... ......
39. Order 1 Rule 3 of the CPC requires that where
right to relief in respect of or arising out of the same act
or transaction or series of acts or transactions is alleged
to exist against various persons whether jointly,
severally or in the alternative and if separate suits were
brought against such persons, common questions of law
or fact would arise, such persons may be joined in one
suit as defendants.
40. Sub rule 2 of Rule 10 of Order 1 permits a court, at any
stage of the proceedings, either upon or without any
47
application of either party, to strike out a person improperly
joined as a defendant.
41. In a suit for recovery of money, only such persons
can be impleaded as defendants against whom
averments are made which, on proof, would entitle the
plaintiff to a decree whether jointly or severally or in the
alternative against the said persons named as
defendants.
42. The other facet of the aforesaid proposition of law is
that there must be a cause of action disclosed against a person
impleaded as a defendant.
43. The learned counsel for the petitioner did not
dispute that in the plaint there is no assertion against
the Directors of the company that they personally
undertook or agreed to clear any liability of the
defendant outstanding against the plaintiff. No
guarantee or indemnification has been pleaded. But, the
submission of the learned counsel for the petitioner is
that every Director acts as the agent of a company and,
therefore, as an agent, a Director would be personally
liable if he has acted on behalf of the company.
44. The learned counsel for the petitioner has relied upon a
decision of the Supreme Court in the case of Ram
Parshad v. Commissioner of Income Tax, reported in (1972) 2
SCC 696 : (1973) 1 SCR 985. The following passage has been
relied upon:
"Through an agent as such is not a servant, a servant
is generally for some purposes his master's implied agent,
the extent of the agency depending upon the duties or
position of the servant. It is again true that a director
of a company is not a servant but an agent
inasmuch as the company cannot act in its own
person but has only to act through directors who
qua the company have the relationship of an agent
to its capacity. Managing Director may have a dual
capacity."
48
45. It is a settled law that a company is a juristic
person. Therefore, a company has to act through a living
human being. Collectively, the decisions on behalf of the
company are taken by the Board of Directors of a
company. An individual Director has no power to act on
behalf of a company of which he is a Director, unless
there is a specific resolution of the Board of Directors of
the company giving specific power to him/her or, where
the Articles of company confer such a power.
46. The Directors of companies have been described
as agents, trustees or representatives of the company
because of the fact vis-a-vis the company they act in a
fiduciary capacity. They perform acts and duties for the
benefit of the company. Thus, the Directors are the
agents of the company to the extent they have been
authorized to perform certain acts on behalf of the
company. But the Directors of a company owe no
fiduciary or contractual duties or any duty of care to
third parties who deal with the company. This distinction
has been ignored by the learned counsel for the
petitioner.
47. The Directors of a company are referred to as the
agents of the company in the context of their fiduciary
duty to the company and, therefore, if they derive any
personal benefit while purporting to act on behalf of the
company, they will be liable to the company and its
shareholders. But the Directors cannot be treated as
acting as the agents of the company in the conventional
sense of an agent, vis-a-vis third parties.
48. As conventionally understood, a person acts as an
agent for a principal and represents the principal before
the third parties. Such contracts which are concluded by
the agent on behalf of his principal with third parties
would bind the principal to the third party.
...... ...... ......
50. A perusal of Section 230 of the Indian Contract Act,
1872, shows that unless an agent personally binds himself, an
agent is not personally liable for contracts entered into by him
49
on behalf of his principal. We may note an exception. The
exception is that where an agent has contracted on behalf of a
principal who is unnamed and undisclosed, on properly
constituted pleadings and on so establishing, such an agent
who acts on behalf of an undisclosed principal may be
personally liable for a contract entered into by him.
51. To interpret the law as is sought to be projected
by the petitioner would mean negation of the concept of
a company being limited by its liability as per the
Memorandum and Articles of Association of the
company. Other than where Directors have made
themselves personally liable, i.e. by way of guarantee,
indemnity etc., liabilities of Directors of a company
under the common law are confined to cases of
malfeasance and misfeasance, i.e. where they have been
guilty of tort towards those to whom they owe a duty of
care, i.e. discharge fiduciary obligations. Additionally,
qua third parties, where Directors have committed tort.
To the third party, they may be personally liable.
52. For example, by making false representations
about a company, a Director induces a third party to
advance a loan to the company. On proof of fraudulent
misrepresentation, a Director may be personally liable to
the third party. But this liability would not flow from a
contract but would flow in an action at tort. The tort
being of misrepresentation of inducement and causing
injury to the third party having induced the third party
to part with money. (see Tristar Consultants v. Customer
Services India Pvt. Ltd., reported in (2007) 139 DLT
688).
53. We are also not impressed by the submission of Ms.
Bhaya as regards the issue no. 9 framed by the Commercial
Court.
54. We are afraid, such an issue could not have been
framed. We fail to understand on what basis the Commercial
Court has framed the issue no. 9. The term 'issue' in a civil
court mean, 'a disputed question relating to the rival
50
contentions in a suit'. An issue in a case is a 'material
proposition' (means directly relevant and vital statement which
affirms or denies) of fact or of law. The term 'material
proposition' refers to the 'cause of action' of a case. The 'cause
of action' is a bundle of essential facts when considered against
the law applicable to such facts, gives the plaintiff a right to
seek some relief against the defendant in the case. The issues
are to be framed by the court from the following sources:
(1) Allegations of parties or on their behalf on oath;
(2) Allegations made in the pleadings/interrogatories;
(3) The contents of documents produced by both the
parties.
55. In the case on hand, as discussed in this
judgment, it is not the case of the plaintiff that the
Directors are also personally responsible for the
payment of the dues of the Board. It is not even their
case in the entire plaint in this regard. By merely saying
something in the prayer clause with regard to the
personal liability of the Directors the issue no. 9 could
not have been framed.
...... ...... ......
59. In view of the aforesaid discussion, we have reached to
the conclusion that we should not interfere with the impugned
order passed by the court below in exercise of our supervisory
jurisdiction under Article 227 of the Constitution of India.
...... ...... ......
62. If a particular defendant has no connection with the
cause of action pleaded against the other defendants, he is
certainly a person improperly joined entitling him to make an
application to have his name struck out. One of the grounds on
which such an application can be made is that the plaint
discloses no cause of action against the defendant. An
application may not be maintainable under Order 7 Rule 11(a)
of the CPC for a variety of reasons. For instance, in the present
case, it may not be maintainable as the Directors are not the
only defendants. The suit against the defendant no. 1, i.e. the
company, must proceed to trial. There is no application by the
company under Order 7 Rule 11 of the CPC. In such
circumstances, the law is that the proper course is to strike out
51
the names of the defendants against whom there is no cause of
action. However, a plea that the plaint discloses no cause of
action is essentially one on a demurrer. Such a plea ought to
be accepted only when the court comes to a conclusion that
even if the averments in the plaint are proved, the plaintiff
would not be entitled to the reliefs claimed. The court must,
therefore, presume that the facts stated in the plaint are
correct. In view of the drastic consequences of upholding such
a plea, it is axiomatic that it ought to be accepted only in clear
cases. Moreover, while considering an application for
striking out the name of a defendant on the ground that
the plaint discloses no cause of action against him, the
court ought to act with great circumspection and even
greater restraint.
(Emphasis supplied)
9.4. Yet again, the High Court of Delhi in SANUJ BHATLA v.
MANU MAHESHWARI, while observing that the Directors of a
Company cannot be held personally liable in the absence of
allegations of fraud or misrepresentation in the averments of the
plaint, holds as follows:
"21. Learned counsel for the Defendant Nos. 2 and 3, in
my view, has rightly argued that in the absence of any
allegations of fraud or misrepresentation, Directors
cannot be held personally liable. It is also not the case of
the Plaintiff that the Directors were personal guarantors to the
loan transaction or had assured to indemnify the amount. It is
a settled law that doctrine of lifting the corporate veil is
available to the Plaintiff where it is permitted by the
Statute or Corporate structure is instituted to perpetuate
a fraud. The averments made in the plaint, in my view,
do not justify the lifting of the corporate veil to make the
Directors personally liable. The cryptic observation of the
Trial Court, that the facts and circumstances of the case attract
52
the principle of lifting the corporate veil, is not supported by
the pleadings and I may also note that the order does not even
give any reasons for having so held."
(Emphasis supplied)
9.5. The High Court of Bombay in AAKASH EDUCATIONAL
SERVICES LIMITED supra also observes that the Directors of a
Company despite being the Managing Director or CEO are not
necessary parties to the suit especially when no allegations are
made against them and such Directors despite managing the day to
day affairs, cannot be made party-defendants to the suit when the
Company has already been made a defendant. The High Court
holds as follows:
"33. Applying the aforesaid principles to the facts of the
case at hand, evidently, the Defendant Nos. 2 and 3 have been
impleaded as party Defendants for the reason that they were
the Managing Director and CEO and Whole-time Director,
respectively, of the Defendant No. 1-company, with an
assertion that they were in-charge of and responsible for day
to day management of the affairs of the Defendant No. 1-
company. There is no assertion spelling out the particular role
of Defendant Nos. 2 and 3 in the transactions in question. The
submission on behalf of the Respondents-Plaintiffs that
the Defendant No. 2 has signed the Resolution passed by
the Board of Directors in the capacity of the Managing
Director of the Defendant No. 1-company or that the
Defendant No. 3 has issued the letter of authorisation to
execute the Leave and Licence Agreement on behalf of
the Defendant No. 1-company in the capacity of the CEO
and whole-time Director of the Defendant No. 1-
53
company and, therefore, they are necessary parties to
the Suit, does not merit acceptance. The Defendant No. 1-
company being a corporate entity can sue and be sued in the
said juristic character.
34. In the absence of any material to show that, in
the absence of Defendant Nos. 2 and 3, the Suit cannot
proceed and no effective decree can be passed, or how
the presence of Defendant Nos. 2 and 3 is necessary for
effective and complete adjudication of the Suit, the
general allegations in the Plaint that the Defendant Nos.
2 and 3 were responsible for conduct of the business and
day to day affairs of the Defendant No. 1-company and
were liable for the acts of the company, are insufficient
to sustain the impleadment of Defendant Nos. 2 and 3 as
party-Defendants to the Suits.
...... ...... ......
36. In the backdrop of nature of the Suits, the
averments in the Plaint and the reliefs claimed therein,
the Defendant Nos. 2 and 3, do not appear to be either
necessary or proper parties to the Suits. If the
submissions on behalf of the Respondents-Plaintiffs are
readily acceded to and the Managing Director and CEO
and Whole-time Director of the corporate entity are
permitted to be impleaded sans any specific pleadings
qua them, then there is an imminent risk that the
Managing Director/CEO of the corporate entities would
be dragged into a multitude of proceedings even though
there is no cause of action qua such officers."
(Emphasis supplied)
9.6. Recently, the High Court of Delhi in SHUSHANT
MUTTREJA v. RAM KUMAR RATHI10, held that while deciding an
application under Order 1 Rule 10 of the CPC, the trial Court ought
10
2025 SCC OnLine Del 2809
54
to examine whether the allegations are primarily against the
Company or there is any personal liability of the Directors of the
Company. The High Court observes as follows:
"17. The facts in the present case are however, entirely
different. The suit filed before the learned Trial Court is a suit
for recovery of monies paid to the Company. The Application
filed by the Petitioners was dismissed by the learned Trial Court
relying on a wrongful interpretation of the Hariharnath
case that the directors of the Company (Petitioner Nos. 1 and
2) would be personally held as liable for the debts of the
Company. Thus, in order to ascertain personal liability,
the plaint and the averments as set out in the plaint,
were required to be looked into. There is no finding by
the learned Trial Court of the personal liability of the
Directors.
18. A perusal of the plaint shows that the allegations
in the plaint are primarily only against the Company. The
Petitioners have contended that there is no personal
liability of the Directors. It is further contended that
even as per the plaint, the money was only paid to the
Company. The learned Trial Court would have to
examine all these contentions as well.
18.1. In the case of Mukesh Hans v. Uma Bhasin [2010
SCC OnLine Del 2776], a Coordinate Bench of this Court has
held that the Directors are not personally liable for the
acts of the Company and owe no contractual duty qua a
third party. There are only two exceptions to this Rule viz. (a)
if there is a personal guarantee, indemnity etc. and (b) if
Director induces third party to act to his detriment by
advancing loan to the Company and third party proves
fraudulent misrepresentation. The relevant extract is
reproduced below:
...... ...... ......
21. The learned Trial Court is directed to examine the
Application under Order VII Rule 11, CPC afresh as against the
Petitioners/Directors of the Company. So far as concerns,
55
Application under Order VIII Rule 1 and Order I Rule 10
(2) of the CPC which were also dismissed by the learned
Trial Court by the Impugned Order/Order in Review, the
learned Trial Court is directed to examine these
Applications afresh given the findings of this Court."
(Emphasis supplied)
TORT OF INDUCEMENT OF BREACH OF CONTRACT:
10. The other submission is that these petitioners should
remain in the array of defendants for the tort of inducement of
breach of contract. To bring home the tort of breach of contract
what would be the requirements is recognized by the High Court of
Delhi in the case of AMWAY INDIA ENTERPRISES (PRIVATE)
LIMITED v. 1MG TECHNOLOGIES (PRIVATE) LIMITED11
wherein it has been held as follows:
".... .... ....
323. The tort of inducement of breach of contract traces
back its origin to the 19th century. The tort is enforced in a
manner in which performance of contractual obligations are
insisted upon even by third parties, who are not privy to the
contracts. Under this tort, initially malice was required to be
established for imputing liability. However, as Salmond and
Heuston5 puts it, the tort is now broad enough to
include any interference with contractual relationships.
The relevant extract is set out herein below:
"The tort had its origin in the action for
enticing away the servant of another. In Lumley v.
11
2019 SCC OnLine Del 9061
56
Gye, it was held that such an action lay even when
the contract, the breach of which has been
procured was not one of service in the strict sense
of the term. It was, however, for some time
believed that the principle so established was
confined to cases where (i) the defendant's action
was malicious and (ii) the contract in question was
one to render exclusive personal services for a
fixed period. But now it is perfectly well
established that the scope of the action is not
limited in either of these ways. Indeed, the
modern cases indicate that the tort has become so
broad as to be better described as unlawful
interference with contractual relations.
............
Proof of malice in the sense of spite or ill-will is
unnecessary......."
324. The interference with contractual
relationships need not only be direct, but it could also
be indirect interference. As held in Aasia Industrial
Technologies (supra), if any party procures breach of a
contract, that is sufficient to constitute inducement of
the breach, and make them liable under the tort. The
relevant portion of the judgment of the Bombay High Court, is
as under:
"16. Thus it is to be seen that the tort of
inducing breach of contract, as now developed in
England is that if the act of third party, either by
persuasion, inducement or procurement results in
breach of a contract, the third party would have
committed an actionable interference with the
contract. Again so far from persuading or inducing
or procuring one of the parties to the contract to
break it, the third party may commit an actionable
interference with the contract, against the will of
both and without the knowledge of either if with
knowledge of the contract, he does an act which if
done by one of the parties to it, would have been a
breach. Of this type of interference the case of
G.W.K. Ltd. (supra) affords a striking example. If,
instead of persuading B of unlawful action against
him, A brings about the break of the contract
between B and C by operating through a third
party. A may still be liable to C, provided unlawful
57
means are used. The act of the third party may be
against the will of both and without the knowledge
of either. It must however be with the knowledge
of the contract. But the plaintiff is not obliged to
prove that the defendant knew the precise terms
of the contract breached; it is enough if the
defendant's knowledge is sufficient to entitle the
Court to say that he has knowingly or recklessly
procured a breach. Proof of malice in the sense of
spite or ill-will is unnecessary. It is no justification
for the defendant to say that he had an honest
doubt whether he was interfering with the
plaintiff's contract, or that he acted without malice
or in good faith. It is enough to show that the
defendant did an act which must damage the
plaintiff; it need not be proved that he intended to
do so. It is certain that justification is capable of
being a defence to this tort, but what constitutes
justification is incapable of exact definition. It has
been said that regard must be had to the nature of
the contract broken, the position of the parties to
the contract, the grounds for the breach, the
means employed to procure it, the relation of the
person procuring it to the person who breaks the
contract, and the object of the person procuring
the breach.."
325. In Balailal Mukherjee & Co. (P) Ltd. v. Sea Traders
Pvt. Ltd., 1990 SCC OnLine Cal 55 another case which
recognised this tort, a ld. Single Judge of the Calcutta High
Court, observed as under:
"13. Mr. Mukherjee appearing in support of the
application relied strongly on the observations of Lord
Denning in the off cited Court of Appeal decision in the
case of Torquay Hotel Co. Ltd. v. Cousins reported in LR
(1969) 2 Ch. Div. In that decision Lord Denning
observed:
The principle of Lumley v. Gye (1853) 2 E. &
B. 216 is that each of the parties to a contract has
a "right to the performance" of it : and it is wrong
for another to procure one of the parties to break
it or not to perform it. That principle was extended
a step further by Lord Macnaghten in Quinn v.
Leeathem [1901] A.C. 495, so that each of the
58
parties has a right to have his "contractual
relations" with the other duly observed. "It is," he
said at page 510. "a violation of legal right to
interfere with contractual relations recognised by
law if there be no sufficient justification for the
interference................"
326. After reviewing the case laws, the Court held that
the conduct of one of the brothers, who was a partner in the
partnership firm, to induce breach by a Japanese customer of
its contract with the firm, constituted a tort and the injunction
was granted.
327. In the context of the present cases, e-
commerce platforms such as Amazon, Flipkart and
Snapdeal, carry out substantial sales of consumer
products from their platforms. They have invested
heavily in logistics and creation of a large network of
suppliers, third party service providers, delivery
personnel and warehousing facility, logistical support,
etc. The said parties ought to be conscious of the
sellers, whom they permit to operate on their platforms,
and the kind of products that are being sold. They are
not merely passive non-interfering platforms, but
provide a large number of value-added services to the
consumers and users. Upon being notified by the
Plaintiffs of unauthorised sales on their platforms, they
have a duty to ensure that the contractual relationships
are not unnecessarily interfered with by their
businesses. In the case of Amazon for example, the
Intellectual Property policy, excluded products' list etc.,
clearly shows that there is a policy in place, that only
authorised sellers can put up their products on the
Amazon platform for sale, with the consent of the brand
owners. The notices issued by the Plaintiffs, clearly, notified
the platforms, who were offering the Plaintiffs' products, inter
alia, as under -
....... ...... ......
329. The tort of inducement of breach of contract
and tortious interference with contracts is a well-
recognised tort. However, the application of the said
tort has to evolve with the changing practices of society
including the commercial world. E-commerce platforms
59
have an obligation, upon being notified, to ensure that they do
not induce breach of contracts in any manner. The least that
ought to have been done is adherence to their own Intellectual
Property Protection Policies and other policies such as
'Excluded products' list', 'Banned Products' List', and 'Terms of
Use'. The internal policies themselves being clear, the non-
insistence of Plaintiff's consent from the sellers who wish to
display the Plaintiffs' products on the platform, and non-
insistence of authorization or documents showing that the
seller on the platform was duly authorised to sell, by itself,
constitutes inducement of the breach. Moreover, even after
being notified the platforms refused to take down the products
and insisted that only if the Plaintiffs establish that the
products are counterfeit, they would be taken down."
(Emphasis supplied)
The High Court of Delhi in the afore-quoted judgment holds that
interference with contractual relationship need not be direct, but it
could also be indirect interference. If any party indulges in breach
of contract, that is sufficient to constitute inducement of the breach.
But there must be adequate material to demonstrate inducement
for breach of contract. In the absence of adequate material, breach
of contract or its inducement is unavailable.
10.1. In an earlier judgment, the High Court of Delhi in ICC
DEVELOPMENT (INTERNATIONAL) LTD. v. ARVEE
60
ENTERPRISES12, while discussing the essential elements for the
tort of breach of contract by inducement, holds that in the absence
of adequate material on record, the plea of inducement to breach
the contract is not sustainable. The High Court observes as follows:
"20. The essential element for a cause of action
based on breach of contract by inducement are (a)
interference in the execution of the contract, (b)
interference must be deliberate and (c) interference
must be direct. In the present case, none of these
ingredients have been made out. There is no averment in
the plaint to show that defendants were aware or had
knowledge of the contract between the plaintiff and the
sponsors. Not only this, neither the sponsors nor the
official tour operator and their agents have been
impleaded as parties in the suit. In the absence of
adequate material on record, the plea of inducement to
breach the contract is also not sustainable. The terms and
conditions with regard to the sale of tickets to the event, now
pleaded by the plaintiff, did not form part and parcel of the
agreement between the authorised agent of the Event and the
defendants. The question whether the said conditions were
known to the defendants or not, cannot be decided at this
stage. This is a question of fact which can be determined only
after the trial. (Lonrho Ltd. v. Shell Petroleum Co. Ltd., (1981)
2 ALL ER 456) and Merkur Island Shipping Corp. v. Laughton,
(1983) 1 ALL ER 334."
(Emphasis supplied)
10.2. Prior to the afore-quoted judgments of the High Court
of Delhi, the High Court of Bombay in its earlier judgment in the
12
2003 SCC OnLine Del 2
61
case of AMBIENCE SPACE SELLERS LTD. v. ASIA INDUSTRIAL
TECHNOLOGY PVT. LTD.13, holds as follows:
"7. The law regarding the Tort of Inducing breach of
contract has long been recognised by English Courts. Before
the English authorities are considered it would be appropriate
to set out the ratio laid down by Supreme Court in the case
of Jaylaxmi Salt Works (P) Ltd. v. State of Gujarat reported in
(1994) 4 SCC 1. In this case the Supreme Court has held that
injury and damage are two basic ingredients of the law of Tort.
The Supreme Court has held that the Tortious liability
are breach of duty primarily fixed by the law while in
contract they are fixed by the parties themselves. The
Supreme Court has held that the law of Torts being a
developing law its frontiers are incapable of being
strictly barricated. The Supreme Court has held that the
ambit of Tortious law keeps on widening on the
touchstone of fairness and practicality of the situation.
The Supreme Court has held that truly speaking the
entire law of Torts is founded and structured on morality
i.e. that no one has a right to injure or harm others
intentionally or even innocently. The Supreme Court has
held that therefore it would be primitive to class strictly
or to give finality to the ever-expanding and growing
horizon of Tortious liability. The Supreme Court has held
that a liberal approach to Tortious liability by Courts is
more conducive for social development, orderly growth
of the society and cultural refineness.
..... ..... .....
13. Thus it is to be seen that the Tort of Inducing
breach of contract, as now developed in England, is that
if the act of third party, either by persuasion,
inducement or procurement results in breach of a
contract, the third party would have committed an
actionable interference with the contract. The act of the
third party may be against the will of both and without
the knowledge of either. It must however, be with the
knowledge of the contract. The same would be the result
13
1996 SCC OnLine Bom 586
62
if the third party places a physical restraint upon one of
the parties so as to prevent him from carrying out his
part of the contract. It is to be seen that such action
would be a direct invasion. It is to be further seen that
this direct invasion need not necessarily lead to the
conclusion that there should be monetary compensation.
Such direct interference would itself be a wrongful act
and would amount to an actionable interference of
course any act honestly done by a person in furtherance
of his own trade/profession, will not amount to a Tort of
Inducing breach of contract, merely because it has
induced such a breach. This because free and fair
competition cannot be curtailed. The difference in all such
cases is whether the act is done solely to carry on one's own
trade or whether the act was done with intent to induce a
breach or profiteer from somebody else's efforts."
(Emphasis supplied)
The High Court of Bombay in the afore-quoted judgment observes
that the tort of inducing breach of contract, as developed in
England, is that if the act of a third party, either by persuasion,
inducement or procurement results in breach of a contract, the
third party would have committed an actionable interference with
the contract. The act of the third party may be against the will of
both and without the knowledge of either, but it must however, be
with the knowledge of the contract.
11. On the bedrock of the principles laid down by the Apex
Court and several High Courts in the afore-quoted judgments what
63
would unmistakably emerge is that the role of the defendants must
be seen by the concerned Court when an application is filed seeking
impleadment of a defendant or deletion of a defendant and it is also
to be seen whether the party who is sought to be impleaded is a
necessary or party or a necessary witness. Further, Directors or
employees/agents of a company cannot be held liable for acts of
the company unless the plaint averments reveal that the Directors
have committed fraud, misrepresentation or a tort of inducement of
breach of contract.
12. What is to be seen now, is whether the order dated
19-07-2024, of the concerned Court, rejecting the applications of
the petitioners under Order 1 Rule 10 of the CPC, filed for deletion
from the array of defendants, can be sustained in light of the law
laid down as discussed above. The order reads as follows:
"44. Point No.1: The learned counsel for these
defendants have submitted their written arguments, basing
on the contents of the application and affidavits annexed to
these applications. They have pointed out towards the
provisions of Order I Rule 10 of CPC. The defendant Nos.1 to
14 applied for job, but, they have been impleaded as
defendants without any cause of action and without any
reasons. The defendant Nos.3 to 24 are the employees of
defendant No.2. The suit is filed by the plaintiff for alleged
breach of the terms and conditions of the MSPA dated
09.05.2022 and NDA dated 09.05.2022. As per the say of
64
the plaintiff there was an alleged Agreement between the
plaintiff and the defendant No.1 in respect to facilitation of
H1B Visa approval for the employees of the defendant No.1
i.e. defendant Nos.11 to 24. They have also draw my
attention towards the contents of the applications as well as
affidavits as stated supra. These defendants are not
necessary parties.
45. During their arguments, they have relied upon
some decisions reported in (1992) 2 SCC 534 in Ramesh
Hirechand Kundanmmal Vs Municipal Corporation of Greater
Bombay. 2007 SCC Online Del 758 in Arjun Nath Vs British
Airways.
46. Per contra, the learned counsel for the plaintiff has
also submitted his arguments and he has pointed out
towards the statement of objections filed to these
applications. All these defendants are necessary parties to
adjudicate the matter. He has pointed out towards the plaint
averments as well as the defence raised by the defendant
Nos.1 and 3 and other defendants have adopted these
written statement.
47. During his arguments, he has relied upon the
decisions reported in Hardeva Vs Ismail
(MANU/RH/0036/1970). Udit Narain Singh Mlpaharia Vs Addl.
Member, Board of Revenue, Bihar (MANU/SC/0045/1962),
Mumbai International Airport Pvt. Ltd. Vs Regency
Convention Centre & Hotels Pvt Ltd. in (2010) 7 SCC 417,
Kasturi Vs lyyamperumal in (2005) 6 SCC 733, Firm
Mahadeva Rice and Oil Mills Vs Chennimalai Gounder
(MANU/TN/0192/1968), Anil Kumar Singh Vs Shiv Nath
Mishra in (1995) 3 SCC 147 and Abdul Jaleel Vs Aishabi in
AIR 1992 Kar 380.
48. After hearing the learned counsel for the plaintiff
and after going through the written arguments submitted by
the learned counsel for the defendants, I have gone through
the pleadings of the parties. This suit is filed by the plaintiff
for the relief of recovery of a sum of Rs.40.00 Crores from
the defendants. There are 24 defendants in this suit.
65
49. After going through the contents of these IAs and
affidavits annexed to these applications, it is as good as the
contents of the application filed under IA No.1 and contents
of the affidavit annexed to it. The say of these defendants is,
unnecessarily they have been made as parties to the suit.
There are no grounds to implead them as defendants.
50. After going through the materials on records,
defence raised by the defendant Nos.1 and 3, which is
adopted by the other defendants, it is clear that, some of the
defendants were the Ex-employees of the defendant No.1
company, there are some Agreements between the plaintiff
company and some of the defendants. The 2nd defendant is
the Managing Director of the defendant No.1 company. The
1st defendant initiated a NDA i.e. Non Disclosure Agreement
and MSPA i.e. Master Services Partner Agreement with the
plaintiff company. The 1st defendant initiated the H1B MSA
Agreement on 10.06.2023 for business collaboration
regarding the deployment of H1B candidates and cunningly
obtained the plaintiff's signature. It is forthcoming in the
plaint averments. The defendants have denied these
allegations made in the plaint.
51. I have gone through the decisions relied
upon by the learned counsel for the defendant Nos.3 to
24. The principles laid down in these decisions are well
founded. I have gone through the decisions relied
upon by the learned counsel for the plaintiff company.
The principles laid down in these decisions are well
founded. These decisions come to the aid of the
plaintiff company at this juncture of the suit. Since the
defendant Nos.3 to 24 have filed their defence.
Therefore, a full dressed trial is required, without the
presence of these defendant Nos.3 to 24, the suit may
not be adjudicated effectively. Therefore, in the light
the discussions made supra, the defendant Nos.3 to 24
have not made out grounds to delete them from the
suit. Accordingly, I answer the Point No.1 in the
negative.
52. Point No.2: In view of the discussions made
supra, I made the following:
66
ORDER
The applications filed on behalf of the defendant Nos.3 to 24 U/Or. I Rule 10 CPC, as I.A.Nos. I to XVIII are hereby rejected."
(Emphasis added) The concerned Court in the afore-quoted order fails to observe the specific role of each defendant in the plaint and without sufficient reasons rejects the applications under Order 1 Rule 10 of the CPC. I therefore, deem it appropriate to notice the individual role of each petitioner as averred in the plaint.
12.1. Role of petitioner No.1 Company/defendant No.3:
There are allegations against the 1st petitioner/defendant No.3 Company in the plaint for inducement of breach of contract. The plaint averments show that the petitioner No.1 company despite knowledge of the existing contract between respondents 1 and 2 Companies, induced respondent No.2 and acquired respondent No.2 during the exclusivity period. A prima facie case and cause of action for the tort of procurement of breach of contract is made out against petitioner No.1 Company/defendant No.3 and petitioner 67 No.1 would be required for effectively deciding the case and providing the necessary reliefs to the plaintiff.
12.2. Role of petitioner No.2/defendant Nos.4 and 5:
There the plaint averments reveal no allegations against petitioner No.2/defendants 4 and 5 regarding the involvement of petitioner No.2 in inducing the breach of contact. Further, if required, it is always open to the concerned Court to direct petitioner No.2 to appear as a witness in the case before the Court. Therefore, though petitioner No.2 might be a necessary witness he is not a necessary party to the case, as no cause of action has been made or pleaded against petitioner No.2. The relief claimed by the plaintiff and the dispute between the parties, can be effectively adjudicated without the presence of petitioner No.2 as a party to the case.
12.3. Role petitioner No.3/defendant No.10:
The only allegation against petitioner No.3 in the entire plaint is that petitioner No.3 in the capacity of Director, Physical Design of petitioner No.1 company, had replied to respondent No.1/plaintiff when the M&A between Respondent No.2 and petitioner No.1 was finalized. This action of petitioner No.3 cannot constitute the tort of 68 inducement of breach of contract, since petitioner No.3 was only acting as an agent of petitioner No.1 company while responding to the plaintiff. There are no other allegations to satisfy the tests set by various Courts for inducement of breach of contract, and no cause of action has been made out in the suit against the petitioner No.3. It is always open to the concerned Court, if required, to direct Petitioner No.3 to appear as a witness in the case before the Court and this by itself does not make him a necessary party, as no specific claims or reliefs are made against petitioner No.3. Further, the suit can be adjudicated effectively without the presence of petitioner No.3 as a party-defendant to the case.
12.4. Role of petitioners 4 to 6/defendants 11 to 13:
Petitioners Nos. 4, 5, and 6 being the erstwhile Directors of respondent No.2 Company are merely agents of the said Company. They were not party to the contract between respondent No.1 and respondent No.2 Company and owe a fiduciary duty only to respondent No.2 Company and not to other third parties. The plaint averments reveal no assertions regarding how they have breached the contract and therefore, no cause of action has been made out 69 against petitioner Nos. 4 to 6. They can all however, be brought in, as witnesses by the concerned Court, if required, during the course of the trial. The relief claimed and the dispute in the case can be effectively adjudicated without the presence of petitioners Nos. 4 to 6 as party defendants to the case.
12.5. Role of petitioners 7 to 17/defendants 14 to 24:
Petitioner Nos. 7 to 17 being the ex-employees of respondent No.2 Company are merely agents of the Company and have no connection to the dispute between the parties and no cause of action has been made out against them in the entire plaint. Further, the learned counsel appearing for the respondent No.1 Company himself submits that he does not have any objection to petitioner Nos. 7 to 17 being deleted from the array of defendants.
13. The concerned Court while rejecting the applications does not advert to the role of petitioner Nos. 2 to 17 to keep them in the array of defendants or delete them. In the light of their role being restricted as noticed hereinabove; no cause of action being made out against them; they not being signatories to any of the agreements and merely being Directors of the Company, they 70 cannot be permitted to undergo the rigmarole of judicial proceedings. As against petitioner No.1 Company, there are specific allegations in the plaint against the said company and is required for effectively adjudicating the matter and providing necessary relief's as claimed by the plaintiff.
14. In the light of absence of pleadings with regard to the specific role of petitioner Nos. 2 to 17, the order of the concerned Court which rejects the applications not withstanding their roles as narrated above, cannot be sustained. A case of tortious inducement of breach of contract having been made out against petitioner No.1 Company, the Petitioner No.1 Company does not deserve to be deleted from the array of parties. In that light, the applications under Order 1 to 10 of the CPC, filed by petitioner Nos.2 to 17, ought to be allowed.
17. For the aforesaid reasons, the following:
ORDER
(i) Writ Petition is allowed in part. The order dated 19-07-2024 passed by the LXXXIV Additional City Civil 71 and Sessions Judge (CCH-85) (Commercial Court), Bengaluru on I.A.Nos. I to XVIII in Commercial O.S.No. 1495 of 2023 stands quashed qua all other defendants, except defendant No.3/petitioner No.1.
(ii) The applications filed by the petitioner Nos. 2 to 17 under Order 1 Rule 10 of the CPC are allowed.
Petitioners Nos. 2 to 17 who are defendant Nos. 4, 5 and 10 to 24 before the concerned Court stand deleted from the array of parties/defendants.
(iii) Any observation made in the course of the order is only for the purpose of consideration of the impugned order qua the applications under Order 1 Rule 10 of the CPC. The observations in no way influence pending proceedings before the concerned Court qua the remaining parties.
Consequently, I.A.No.1 of 2025 also stand disposed.
Sd/-
(M.NAGAPRASANNA) JUDGE bkp CT:SS