Orissa High Court
Hrushikesh Panda vs Indramani Swain And Anr. on 18 November, 1986
Equivalent citations: AIR1987ORI79, AIR 1987 ORISSA 79, (1987) BANKJ 325 (1987) 1 ORISSA LR 62, (1987) 1 ORISSA LR 62
JUDGMENT H.L. Agrawal, C.J.
1. In this appeal against the judgment of a learned single Judge arising out of an execution proceeding, the question for consideration is as to whether the executing court can construe the decree.
2. A joint and several decree was passed in favour of respondent 1 by the trial court for Rs. 50,401.77 against the appellant and respondent 2, a limited company of which the appellant was the Managing Director, in Oct., 1974.
3. When the decree was put to execution and the decree-holder proceeded against the personal properties of the appellant-Managing Director, he filed an objection under Section 47 of the Civil P.C. challenging his liability in his personal capacity. The executing court upheld the objection, but, on appeal by the decree-holder, a learned single Judge of this Court, rejected the objection of the appellant.
4. The relevant facts may now be briefly stated.
The appellant as the Managing Director of the Judgment-debtor-Company (defendant 1) placed orders with the decree-holder for supply of some building materials. Payments were made from time to time, but ultimately a sum of Rs. 1,56,000/- is said to remain due to the plaintiff from the defendants and accordingly he instituted the suit.
The allegations regarding the liability of the appellant (defendant 2) were made in para 16 of the plaint as follows : --
"That as the orders were placed by defendant 2 the defendant 2 is also personally liable for the same".
In this connection, the allegations made in para 7 may also be usefully noticed : --
'That besides the construction work defendant 2 in the year 1967 on behalf of defendant 1 ordered for arranging carriage for carrying Asbestos sheets and machineries to the site of the defendant 1 at Khapuria. In the next para, the plaintiff stated that he accepted the order and "completed the same and submitted bills in the office of defendant I".
5. A joint written statement was filed by the defendants denying the liability to the plaintiff. The personal liability of defendant 2 was also denied and their case was that the plaintiff was overpaid by the company and thus was to refund the excess amount paid to him. The defendants accordingly instituted a separate money suit against the decree holder on that ground.
6. Both the suits were tried together, and on a perusal of the judgment, I find that no issue was framed regarding the personal liability of the appellant, nor do I find any discussion on this aspect of the matter in the entire judgment as to whether the appellant as the Managing Director of the Company was liable in his personal capacity as well.
In the operative portion of the judgment, while passing the decree for Rs. 50,401.77 paise, it is stated : --
"..................Both the defendants are jointly and severally liable to pay the aforesaid amount to the plaintiff........."
The suit by the appellant against the company and the decree-holder was, however, dismissed.
7. The executing courrt, as already stated, allowed the objection of the appellant and held that the appellant, having been impleaded only in the capacity of the Managing Director, was not personally liable for satisfaction of the decretal dues and that his personal properties could not be attached in the execution case. But the said order was set aside by the learned Judge in this Court.
8. The learn'ed Judge has made the following observation in para 2 of his judgment : --
".................. The allegations in the plaint further reveal that the plaintiff had clearly stated at some place therein that respondent 1 on account of his actions was personally liable. A reference to the judgment in the original money suit also shows that the trial court consciously passed the decree under execution holding both the respondents jointly and severally liable for the decretal dues............"
9. On the basis of the above observation, the learned Judge repelled the argument on i behalf of the appellant and observed that his description as the Managing Director in the cause title of the plaint was given only for the purpose of his address and it did not show that "he was impleaded only in the capacity of the Managing Director" particularly when the averments in the plaint and the prayer portion thereof the plaintiff specifically prayed for making respondent 1 personally liable for his dues. Taking this view, it was further found:
"Therefore, it was not open to the executing Court to go behind the decree."
10. The proposition that the executing court cannot go behind the decree is a non-issue and firmly established. Therefore, I need not enter into any discussion on this aspect. But at the same time it is equally well established that the executing court has got jurisdiction and power under Section 47, C.P.C. to construe a decree in order to ascertain its precise meaning acting, however, within its well known limitations. As there is no general rule for construing decrees, each case must depend upon its own facts. A general direction making the defendants 'jointly and severally' liable no doubt prima facie imposes a personal liability on all the defendants, but the above words are not conclusive of the question and empower the executing court to construe the decree and in case of a doubt benefit must tie given to the judgment-debtor in this regard.
11. I have deliberately referred to the I allegations made by the decree-holder against the appellant in the plaint as well as the findings in the judgment to find out as to whether any foundation for any personal liability was laid by the plaintiff in the plaint.
But I am afraid, I did not find any such case made out by the plaintiff nor do I find any specific discussion on this aspect of the matter in the judgment, and I venture to say that the observation made to the contrary by the learned single Judge in his judgment is based upon an error of record or has been made under some misapprehension. Once I come to this conclusion, the complexion of the controversy changes.
12. Under the Company Law, in addition to their statutory duties, the directors owe to their company fiduciary duties similar to those owed by an agent to his principal. These duties are owed exclusively to the company of which the defendant is a director.
An action against a defaulting director may be brought by the company itself or where the breach of duty complained of is a breach of fiduciary duty by a member suing in a derivative action on behalf of himself and all other members of the company, his liability for breach of fiduciary duty by misfeasance proceedings in the company's winding up is well known. But directors owe no fiduciary or contractual duties nor any duty of care to persons who deal with their company unless they deal with the contracting party not on behalf of the company but on their own behalf, A director is therefore not liable to pay the debts incurred by the company. Even during the course of winding up proceeding of a company, the directors may be made personally liable by order of the court only if they are found guilty of fraudulent trading, i.e., an act of misfeasance or the like. Directors are not liable for breach of contracts by the company and the other party to a contract cannot make them directly liable by suing them in tort even for their mismanagement of the company's affairs. The liability of the directors even in common law is confined only where they have been guilty of a tort toward the creditors as well as breach of duty owed to the company. Consequently, directors are personally liable to persons who lend money to the company only if they obtain the loan by fraudulent misrepresentations. It is, therefore, obvious that directors are generally immune from liability to creditors of thfeir company.
13. This being the liability of the appellant vis-a-vis the company, respondent No. 2, on the facts discussed above, it must be held that no personal liability is attached to the appellant in his individual capacity, and the executing court was, therefore, right in holding that the personal properties of the appellant could not be attached.
14. For the reasons given above, this appeal must succeed. The judgment and order of the learned single Judge is accordingly set aside and the appeal is allowed with costs.
R.K. Behera, J.
15. I agree with my Lord, the Chief Justice.