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HIGH COURT OF DELHI
38529/2024 NEERAJ KAINTH .....Plaintiff
Through: Ms. Tavishi Jain, Advocate
Through: Mr. Divye Chugh, Mr. Nimish Chib for D-2.
Mr. Sidharth Chaturvedi, Advocate for D-1.
Mr. Sukhmeet Lamba for D-3 & D-4.
Mr. Kirti Uppal, Sr. Adv.
JUDGMENT
1. The present application has been filed under Order 1 Rule 10 of the Code of Civil Procedure, 1908 (‘CPC’) on behalf of defendant nos. 5 and 6, seeking deletion from the array of parties on the ground that they are neither necessary nor proper party for the purpose of adjudication of the present dispute.
2. The present suit has been filed for recovery of dues for unpaid salary, travel reimbursement as well as share allotment and permanent and mandatory injunction. It is stated that the Plaintiff was the employee of Defendant No. l company and had signed inter-alia signed employment agreement(s) being ‘Amendment 0001 to Employment Terms 011221’, ‘Amendment 0002 to Employment Terms 0112217’, and ‘Amendment 0003 to Employment Terms 011221’. The claims for recovery of monies is against defendant nos. 1 and 2. The claim for share allotment is qua defendant nos. 3 and 4. It is stated in the plaint that defendant nos. 5 and 6 are persons in control of the affairs of defendant nos. 1 to 4.
3. In these facts, defendant nos. 5 and 6 have filed the captioned application seeking their deletion from the array of the parties.
3.1. It is stated in the application that defendant no.5 is the director of defendant no.1, company; and defendant no.6 is the manager of defendant nos. 3 and 4 companies as well as an advisor to the Board of the said companies.
3.2. It is stated that it is evident from the prayer clauses of the plaint that no relief has been sought against the applicants/defendant no. 5 and 6 in their personal capacity. The reliefs sought are only against defendant nos. 1 to 4, companies which are separate and distinct juristic person in the eyes of law.
3.3. It is stated that the applicants/ defendant no. 5 and 6 are not personally liable for the claims made against the defendant companies and hence, they are liable to be deleted from the array of the parties. Arguments on behalf of the non-applicant/plaintiff
4. Learned counsel for the plaintiff states that being the dominous litis in this matter defendant nos. 5 and 6 have been consciously made parties in their personal capacity due to their fraudulent promises and assurances given to the petitioner regarding the allotment of shares of defendant nos. 3 and 4 companies.
4.1. She states the relief sought in the prayer clauses ‘c’, ‘d’, ‘e’, ‘f’ of the plaint are maintainable against defendant nos. 5 and 6 since the shares promised to the plaintiff of defendant nos. 3 and 4 are under the control of defendant no.5 and 6, therefore, they are proper parties to the present suit.
4.2. She states that if defendant nos. 5 and 6 are allowed to be dropped at this stage of the suit, it would frustrate the relief of the plaintiff qua allotment of shares. She states that the plaintiff was serving as the CEO of the Defendant nos. 1 and 4 and has the knowledge as regards to internal management of these companies, she states that plaintiff apprehends that their deletion would further give them an opportunity to dispose of or alienate the shares of defendant nos. 3 and 4 companies since they are the chief controllers of these share. Therefore, the prayers made in the suit will be rendered otiose qua the allotment of shares.
4.3. She further states that right to file the written statement of the applicants/defendant nos. 5 and 6 have already been closed by this Court vide order dated 21.05.2024, and re-affirmed vide order dated 08.08.2024. Therefore, in such circumstances, the applicants cannot be allowed to question the pleadings and the prayers made by the plaintiff in the suit. She states that after closure of their right to file written statement, the applicants/defendants can only participate in the cross examination of witnesses and during the final argument of the present suit.
4.4. She states that as on date the applicants/defendant nos. 5 and 6 are to be treated as undefended in the suit and the pleadings made against them, as prima-facie true. In this regard, she places reliance on the recent judgment passed by the Supreme Court of India in C.A. No. 8935 of 2011 titled Thangam & Anr. v. Navamani Ammal[1].
4.5. She further states that the captioned application is also not maintainable solely on the ground that the affidavit filed along with the application I.A.2651/2024 by defendant no.5 is forged as defendant no.5 was not in India on 25.01.2024, therefore, he could not have got the affidavit attested on 25.01.2024. Arguments on behalf of the applicants/ defendant nos. 5 and 6
5. Mr. Kirti Uppal learned senior counsel appearing for the applicants/ defendant nos. 5 and 6 states that prayers of the plaint clearly specify that relief has been sought only against defendant nos. 1, 2, 3 and 4.
5.1. He states that defendant nos. 5 and 6 have been impleaded merely on the ground they are officials of the defendant nos. 1, 2, 3 and 4 companies and they cannot be held personally liable for the outstanding dues of companies towards the plaintiff unless there are any allegations of fraud against them. Therefore, impleadment of the applicants in a personal capacity is neither necessary nor proper for the purpose of the adjudication of the present suit filed by the plaintiff. In this regard he places reliance upon the judgment passed by this Court titled as Tristar Consultants v. Vcustomer Services India Pvt. Ltd.,[2] and Sanuj Bathla & Anr. v. Manu Maheshwari & Anr.[3]
5.2. Further merely by stating that the plaintiff knows the internal management of the defendant nos. 3 and 4, companies cannot be the reason of the impleadment. He states that the plaintiff has failed to disclose any cause of action against the said applicants entitling him to proceed against them.
5.3. With regards to the plaintiff apprehension, he states, on instruction, that defendant nos. 5 and 6 undertake to appear as witnesses in the trial as and when summoned by this Court and further undertake not take any steps in relation to the affairs of defendant nos. 1 to 4 so as to frustrate the reliefs sought by the plaintiff in the plaint by any acts or omissions during the pendency of the suit. Findings and Analysis
6. This Court has considered the submissions of the parties and perused the record.
7. The non-applicant/plaintiff has filed the captioned suit for recovery of dues pertaining to its alleged unpaid salary and travel reimbursement payable by defendant nos. 1 and 2. The plaintiff has also sought enforcement of its stock option claims of defendant nos. 3 and 4 arising under the 2007 SCC OnLine Del 359 Dated 12.04.2021 passed in C.R.P. 166/2018 & C.M. APPL.32378/2018 & 10441/2021 agreement being ‘Amendment 0003 to Employment Terms 011221’. It is the stated case of the plaintiff that the said agreement was executed in lieu of the services rendered by the plaintiff to defendant nos. 1, 2, 3 and 4.
7.1. Defendant nos. 2 is the sister concern of Defendant no. 1 company and is the payroll company of the plaintiff.
7.2. Defendant nos. 3 and 4 companies are based out of USA and are the sister concerns of Defendant no. 1 company.
7.3. It is pertinent to state that the employment agreements which were executed i.e., Amendment 0001 to Employment Terms 011221 has been executed between the plaintiff and defendant no. 1. Amendment 0002 to Employment Terms 0112217 has been executed between the plaintiff and defendant no. 1. So also, Amendment 0003 to Employment Terms 011221 has been executed between the plaintiff and defendant no. 1.
8. The prayer clauses in the plaint reads as under: a. A decree for recovery of dues pertaining to unpaid salary may kindly be passed in favour of the plaintiff and against the defendant no.1 and 2, to make payment of Rs. 2,48,65,104/- to the plaintiff. b. A decree of recovery of INR 31,700/-, due from and payable by Defendant No.1 and 2 to the plaintiff towards the travel reimbursement. c. A decree of declaration that the plaintiff is entitled for vesting of 500,000 shares of QuickLaunch LLC, Respondent No. 4 company, in accordance with the terms as contained in Amendment 0003 to Employment Terms 011221, and consequential delivery. d. A decree of declaration that the plaintiff is entitled for vesting of 350,000 shares of Unifyed LLC, Respondent No. 3 company, in accordance with the terms as contained in Amendment 0003 to Employment Terms 011221, and consequential delivery. e. A decree of permanent and mandatory injunction restraining the defendants, their agents/assignees/nominees from alienating 350,000 shares of Unifyed LLC, Respondent No. 3 Company. f. A decree of permanent and mandatory injunction restraining the defendants, their agents/assignees/nominees from alienating 500,000 shares of QuickLaunch LLC, Respondent No. 4 Company.
9. The plaintiff at prayer clauses ‘c’ and ‘d’ seeks declaration of his entitlement to vesting of 500,000 shares of defendant no. 4, company and 350,000 shares of defendant no. 3, company as per terms as contained under the agreement being Amendment 0003 to Employment Terms 011221.
10. The plaintiff at prayer clause ‘a’ has prayed for recovery of dues pertaining to unpaid salary as well as at prayer clause ‘b’ for recovery of expenses incurred in travel, from defendant nos. 1 and 2.
11. In its reply to the captioned application the plaintiff states that the presence of the applicants/defendant nos. 5 and 6 is sought for adjudication and enforcement of the decree of declaration sought at prayer clauses ‘c’, ‘d’, ‘e’ and ‘f’ in the plaint.
12. It is the stated case of the plaintiff that the applicants/defendant nos. 5 and 6 are ‘proper parties’ owing to the fact that they exercise full control and complete authority of the operations of defendant nos. 1, 2, 3 and 4, companies. It is stated that since applicants/defendant nos. 5 and 6 are the decision makers for the said defendant companies, therefore, the applicants are ‘proper parties’. In this regard the relevant pleading of nonapplicant/plaintiff in its reply to the captioned application reads as under: -
13. The applicants/defendant nos. 5 and 6 have sought their deletion from the array of parties on the plea that there is admittedly no relief sought in the plaint against either of the defendants in their personal capacity and the reliefs sought are only against defendant nos. 1 to 4 which are independent juristic entities and liable for their own actions.
14. Pertinently though the plaint alleges that the plaintiff has suffered mental agony and pain on account of the acts and omissions of the defendants which has been quantified at paragraph 54(k) of the plaint, however, the plaintiff has consciously omitted to seek the said monetary claim against the defendant nos. 5 and 6 despite the alleged acts and omissions. There is, thus, no claim under the law of tort against defendant nos. 5 and 6 in the plaint. In this regard it would be relevant to produce paragraph 54 of the plaint which reads as under and the relevant portion where the plaintiff elects to omit the said claim is underlined: -
(Emphasis Supplied)
15. In the aforenoted facts, it is admitted on record that there is no privity of contract between plaintiff and defendant nos. 5 and 6 with respect to the claims for recovery of dues for alleged unpaid salary and allotment of shares sought in the plaint. The plaintiff also admits that defendant nos. 1 to 4 are an independent juristic entity which is distinct from its shareholders and directors.
16. The plaintiff also does not dispute the law settled by Coordinate Bench of this Court in the judgments titled as Tristar Consultants (supra) and Sanuj Bathla & Anr. (supra) relied upon by the applicants/defendant nos. 5 and 6. In the said judgments this Court has unequivocally held that individuals who act as directors of the company are not personally liable for breach of contract by the company unless the directors have executed personal guarantees in favour of the claimant. The relevant findings of the Court in Tristar Consultants (supra) read as under:
13. 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.
14. 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.
19. It is settled law that a company is a juristic person. Therefore, a company has to act through a living human being. Collectively, 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 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 an power.
20. 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, directors are agents of the company to the extent they have been authorized to perform certain acts on behalf of the company.
21. But directors of a company owe no fiduciary or contractual duties or any duty of care to third parties who deal with the company.
24. As conventionally understood, a person acts as an agent for a principal and represents the principal before 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.
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 malfiescence and misfiescence 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.
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. The relevant findings of the Court in Sanuj Bathla (supra) read as under:
advanced in the name of the Company by a cheque. Instalments were being paid to the Plaintiff from the account of the Company. There is no allegation of fraud levelled against Defendant Nos. 2 and 3 and nor is there any averment that the Corporate structure was created as a mere facade or camouflage to avoid liabilities.
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 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.”
17. It would also be apposite to refer to a judgment of the Division Bench of this Court in Sanjiv Kumar Mittal v. Dy. Commissioner (TRC)4, wherein the Division Bench reiterated the well settled position that a company and directors are separate and distinct juristic entities and this distinction cannot be ignored unless there is a specific statutory provision to the contrary or till a case for lifting of corporate veil is made out. The relevant paras of the judgments reads as under:
(2021) 84 GSTR 124
21. From the above extract, it is apparent that the distinction between a company and its director cannot be jettisoned unless there is a specific statutory provision to the contrary or till a case for lifting of the corporate veil is made out. …..
27. Consequently, in the absence of a specific provision and given a company’s separate legal personality, the petitioner/ex-Director, even if having knowledge of affairs of the company, is not vicariously or jointly liable for the dues of the company. The onus of proof shall remain on the department/respondents to show that a Director is personally liable for the dues of the company at the stage of issuing show-cause notice under Section 73 of the Finance Act”
18. The doctrine of lifting of corporate veil is admittedly an exception and can only be applied when the plaintiff establishes the well-recognized exceptions set out in the judgments of the Supreme Court starting from Life Insurance Corporation v. Escorts Ltd. & Ors.[5] to Arcelormittal India Pvt. Ltd. Vs Satish Kumar Gupta & Ors.[6]
19. In the present case the plaintiff has fairly not contended in the plaint that this Court ought to lift the corporate veil of defendant nos. 1 to 4 and hold defendant nos. 5 and 6 personally liable for the reliefs sought in the plaint. This Court has perused the plaint and in the opinion of this Court the sum and substance of the allegations against defendant nos. 5 and 6 in this verbose plaint is only to allege that the said defendant nos. 5 and 6 are in complete and close control of the defendant nos. 1 to 4 companies and the plaintiff has acted discharging his obligations towards defendant nos. 1 to 4, companies under the instructions of defendant nos. 5 and 6. The said averments in the plaint if proved would only entitle the plaintiff to its claims against defendant nos. 1 to 4, however none of those averments entitle the plaintiff to array the applicants as defendant nos. 5 and 6 to this suit.
20. The plaintiff in its reply to the captioned application unequivocally admits that defendant nos. 5 and 6 are not necessary parties. The plaintiff alleges that defendant nos. 5 and 6 are proper parties and their presence is necessary for effective adjudication of the suit and to preserve the corpus of the shares of defendant nos. 3 and 4 to which the plaintiff stakes a claim.
21. In the considered opinion of this Court, the arguments of the plaintiff have the colour of reliefs sought in an application under Order XXXIX Rule 1 and 2 CPC wherein the Court would if a prima facie case is made out injunct defendant nos. 3 and 4 from dissipating the shares to which the plaintiff stakes a claim. However, the considerations of Order XXXIX Rule 1 and 2 CPC have no place while deciding an application under Order I Rule 10 CPC. The plaintiff has to show that it has any cause of action against defendant nos. 5 and 6 to array them as parties. In the facts of this case, the plaintiff on his own showing has no cause of action against defendant nos. 5 and 6. The cause of the plaintiff as pleaded in the plaint are against defendants nos. 1 to 4. This Court is also not satisfied that defendant nos. 5 and 6 are proper parties to the suit since in all suits filed against a corporate entity, for that reason, the individuals at the helm of the affairs of the corporate entity are not liable to be arrayed as defendants.
22. In the opinion of this Court, the impleadment of defendant nos. 5 and 6 to the plaint is without any merits and the said defendants are liable to be deleted from the array of parties.
23. The non-applicant/plaintiff has also raised objection with regards to maintainability of the captioned application on the ground that the application has been improperly and irregularly filed. The plaintiff alleged that the defendant no. 5 who has sworn the affidavit in support of the application was not in India at the relevant time i.e. on 25.01.2024, therefore, he could not have produced himself before the concerned notary public and hence the said affidavit is filed is fraudulent and forged.
24. The defendant nos. 5 has filed an additional affidavit dated 23.09.2024 to respond to the said allegations and has annexed his passport to show that he was in India at the relevant time.
25. This Court is not inclined to embroil itself in the aforesaid allegations as the powers of this Court to suo-moto delete a party is statutorily recognized under Order I Rule 10(2) CPC and this Court is satisfied that defendant nos. 5 and 6 are liable to be deleted from the array of parties. For this reason, the reliance placed by the plaintiff on the judgment of Thangam & Anr. (supra) is not relevant to the disputes in the present suit. The Court is empowered to pass the order of deletion on such terms as it deems fit. In this regard this Court proposes to issue following directions to defendant nos. 5 and 6 which are in conformity with the statement made by their counsel during arguments.
25.1. The plaintiff during arguments and its reply to the captioned application has submitted that it believes that defendant nos. 5 and 6 should step into the witness box to enable the plaintiff to prove its case pleaded in the plaint. In response, defendant nos. 5 and 6 during the course of arguments gave an undertaking that they shall appear as witnesses on behalf of defendant nos. 1 to 4 and depose as witnesses.
25.2. This Court accordingly binds down defendant nos. 5 and 6 to the aforesaid statement and directs that the said defendant nos. 5 and 6 shall appear as witnesses for defendant nos. 1 to 4 during the trial of the present suit.
25.3. Defendant nos. 5 and 6 through their counsel during the course of the hearing have undertaken that they will ensure that defendant nos. 3 and 4 do not undertake any acts or omissions which would frustrate the reliefs sought by the plaintiff qua declaration of vesting of shares in the said companies. Defendant nos. 5 and 6 are bound down to the aforesaid undertaking.
25.4. Defendant nos. 5 and 6 are directed to file an affidavit of undertaking acknowledging the aforesaid conditions within four (4) weeks. The affidavit will be filed by the said persons personally and not through a POA.
26. The application is disposed of with the aforesaid directions.
27. List on 28.04.2024.
MANMEET PRITAM SINGH ARORA (JUDGE) DECEMBER 20, 2024/mt/ms