1 July 2021
Recently, in the case of C. Krishniah Chetty and Sons Private Limited vs. Deepali Company Private Limited, the Karnataka High Court stated that in the absence of the Board Resolution, a Chief Financial Officer or any other Principal Officer of a Private Limited Company cannot institute a suit/appeal or any other legal proceedings on behalf of the Company against its shareholders on the strength of Order XXIX Rule 1 of the Code of Civil Procedure, 1908 (CPC).
The appellant, a Private Limited Company had filed before the trial court seeking a perpetual injunction restraining the respondents and persons claiming through or under them from using the trademarks “C. Krishniah Chetty Corp., C. Krishniah Chetty & Co., Chetty & Co. Chetty, C. Krishniah Chetty & Co.1869, Chetty & Co. 1869, Chetty 1869.”
The said criminal appeal was filed after the trial court observed that the appellant’s suit was not maintainable without the resolution of the Board of Directors of the company delegating authority to file the suit.
It is in common parlance that although a suit cannot be dismissed at its inception, or a party cannot be non-sued on the ground of technicalities while considering an application for interim orders or interim injunctions, the court must satisfy itself that “a triable case” is prima facie made out by the party approaching the court.
In other words, each case must be considered on the facts of the said case and merely because a suit cannot be thrown away at the inception level on the ground of technicalities, no party has the right to seek any interim orders or interim injunctions unless it satisfies the court regarding the maintainability of the suit.
Also, a duly incorporated company is a distinct and independent legal person, and its assets are separate from its members, it can sue and be sued in its name. However, it being a juristic person needs a natural person to act on its behalf and manage the affairs of the company.
The court observed that the said provision of CPC only defines the authorised person to sign or verify the pleadings on behalf of the company, and it does not in any way authorise any person mentioned therein to institute suits or appeals on behalf of the company. Therefore, it becomes applicable only after the proceedings have been validly commenced.
A reference was made to the case of the United Bank of India Vs. Naresh Kumar & others, wherein the Supreme Court had stated that a suit filed on the strength of Order XXIX Rule 1 of CPC needs authorisation which could be either express or implied.
The case of Alcon Electronics Pvt. Ltd. vs Celem S.A. was also referred in the wherein, it has been held that the defect in not passing any specific resolution authorising the Director to file a suit on behalf of the company against the defendant is a curable defect, which means such action needs to be ratified.
Thus, the defect in filing the suit or an appeal in the absence of a Board Resolution by a Company is curable and can be cured by an express or implied ratification by a Board Resolution.
However, in the present case, it was proven that the suit was instituted at the instance of the Managing Director alone without any specific power or authority in him to institute the suit and that he had no power either to institute the suit by himself or through his agent or to appoint any constituted attorney for the said purpose. Therefore, the suit was instituted without due and proper authority and thus liable to be dismissed on that ground alone and all interim orders are liable to be vacated.
Additionally, in the present case, the dispute was between the two branches of a family holding equal shareholdings in the company, that is, the case was initiated by the company’s Chief Financial Officer against 50% shareholders of the company. Under such circumstances, the possibility of curing the defect through ratification is completely ruled out and therefore, the defect in instituting the suit or appeal for want of Board Resolution of the company cannot be said to be a curable defect.
Thus, it was concluded by the court that in the absence of a Board Resolution, the suit or appeal was conclusively defective and therefore, there was no prima facie case made out for a trial in the suit and the absence of the party making out a case for trial, the request made by the said party for grant of interim orders/interim injunctions in such a suit cannot be favoured.
To conclude, a suit or any other legal proceeding can be instituted by a Director or Officer of a company only on the strength of Board Resolution by the company to the said effect and in the absence of such a Board Resolution, if a suit is instituted, then necessarily there must be a resolution passed by the company ratifying the defect, failing which the suit cannot be maintained.
The court firmly expressed that the legal proceedings initiated to protect the interest of the company against a third party and proceedings initiated on behalf of the company against its shareholders stand on altogether different footings.
Manisha Singh & Simran Bhullar write about the Kerala HC’s latest judgment in the case of C. Krishniah Chetty and Sons Pvt Ltd vs. Deepali Company Pvt Ltd which elaborated the scope of order XXIX of the Civil Procedure Code.
For further information, please contact:
Manisha Singh, Partner, LexOrbis
manisha@lexorbis.com
