Can't Order Civil Imprisonment Of Company Director/ Employee To Enforce Money Decree Against Judgment-Debtor Company: Allahabad High Court
The Allahabad High Court has held that civil imprisonment of a company official cannot be sought in order to enforce a money decree against the judgment-debtor company.The Court observed that Order 21 Rule 50 permits execution of money decree from the assets of partners, but not from an employee/representative/director. “Order 21 Rule 50 does provide for execution of a money decree against...
The Allahabad High Court has held that civil imprisonment of a company official cannot be sought in order to enforce a money decree against the judgment-debtor company.
The Court observed that Order 21 Rule 50 permits execution of money decree from the assets of partners, but not from an employee/representative/director.
“Order 21 Rule 50 does provide for execution of a money decree against a firm from the assets of the partners of the said firm mentioned in the Rule but there is no provision with respect to the Employee/Representative/Director of a Company. The Executing Court cannot go behind the decree and can execute the same as per the form only,” held Justice Ashutosh Srivastava.
Factual Background
Revisionist, working as Vice President of Benett Coleman, was authorized to enter into a rent agreement for 9 years w.e.f. from 1.06.2013 to 31.05.2022 at Rs. 15,000/- (to be enhanced by 15% after 3 years). Lessee (company) was entitled to terminate lease agreement with a 3-month notice.
Tenancy was terminated by the lessor vide notice dated 22.04.2016, with request made to lessee to vacate premises 30 days post notice, with mesne profits claimed at Rs. 2,500/- per day till delivery of actual possession. On non-vacation, suit was instituted by lessor in Small Causes Court for ejectment and recovery of mesne profits.
The company filed an applications stating it was willing to hand over premises but as the lessor wasn't taking possession, an Amin Commissioner be appointed. Vacant possession was handed over on 01.10.2019. By judgment and decree dated 05.08.2021, the company was directed to pay mesne profits amounting to about Rs. 30.58 lakhs from the day of filing suit till 01.10.2019. This order was challenged by the revisionist.
In the execution case filed by the Plaintiff/Opposite Party No.1, the Execution Court held that the case is not maintainable against the Managing Director but against the General Manager/ Manager who had signed the agreement. Accordingly, revisionist was impleaded in the proceedings. Thereafter, plaintiff filed application under Section 55 C.P.C. praying for arrest and detention of the revisionist which was allowed.
The order of the Additional District Judge, Court No. 6, Bareilly issuing a Warrant of Arrest against the revisionist was challenged before the High Court.
High Court Verdict
The Court observed that Section 51, Section 55, Order 21 Rules 10, 11, 21A, 30, 37, 38, 40, 41 and 50, CPC all apply to the judgment debtor alone, which in the present case is M/s Bennett Coleman & Co., and not the Revisionist. No provision in the Code permits arrest of employee to effect execution of a money decree by a company, held the Court.
The Court observed that Order 21 Rule 41(1) provides that a decree-holder can ask the Court to orally examine an officer of a Corporation where such corporation is the judgment-debtor regarding the paying capacity of the corporation regarding the decree. Order 21 Rule 41 (3) specifically provides that a person disobeying the order of the Civil Court to file affidavit quantifying assets of the judgment debtor under Sub-rule (2), may be directed to undergo civil imprisonment
The Court relied on the judgments in V. K. Uppal Vs. Akshay International Pvt. Ltd., Anirban Roy and Others Vs. Ram Kishan Gupta and others, (Liugong India Pvt. Ltd. Vs. Yograj Infrastructure Ltd. And others) by the Delhi High Court, and H.S. Sidona vs. Rajesh Enterprises by the Punjab and Haryana High Court where it was held that decretal amount cannot be recovered from the Directors/Managers of the judgment-debtor company unless they are personally liable for paying the amount.
The Court stated that it is not a case fit for lifting of the corporate veil. The Court referred to Supreme Court's decision in Delhi Development Authority Vs. Skipper Construction Company (P) Ltd. where it was held that corporate veil can be pierced where the company has only been established for the purpose of defrauding people.
Accordingly, the Court held that the money decree could not be executed against the Revisionist, as he is not responsible for the conduct of the company being its Vice President. It was held that the burden to show judgment debtor's assets against which recovery could be effected was on the decree-holder. It was held that such details could be obtained from the office of the Registrar of Companies.
The Court observed that the respondent is merely trying to effect recovery from an individual by seeking his arrest without trying to obtain details of the judgment-debtor's assets.
Accordingly, the order issuing warrant of arrest against the revisionist was set aside, with the revision allowed. However, the Court stated that the decree-holder may seek relief under Order 21 Rule 41, C.P.C. after suitably amending its execution application.
Case Title: Dhanush Vir Singh v. Dr, Ila Sharma And 3 Others [S.C.C. REVISION No. - 19 of 2024]