Final Order 7

Order Details: COPY OF ORDER
Pdf Text: 27 CS (COMM.) 643/24
NICHOLAS HEALTHCARE LIMITED Vs. TGB BIOSCIENCES PVT
LTD AND ORS
25.07.2025
Present: Sh. Rajat Mathur, Ld. Counsel for plaintiff through VC and
Sh. Areen Gulati and Sh. Rishabh, Advocates physically
present in court.
Sh. Abhishek Tyagi, Ld. Counsel for defendant No.1
(Defence already struck off vide order dt. 09.07.2025)
1. Perusal of record reveals that defendants No.2 & 3 are Directors
of defendant No.1.
2. The law with regard to personal liability of Director(s) of a
private limited company is quite settled in the teeth of provisions of Section
230 of Indian Contract Act, 1872, whereby Directors owe no fiduciary or
contractual duties or any duty of care to third parties, who deal with the
company. In this regard, reference could be had to the law laid down in the
following judgments:
(i) Case reported as, “CRP No.365/2006”, titled as, “Tristar Consultants
V/s Vcustomer Services India Pvt. Ltd. & Ors.; (DOD: 05.03.2007),
wherein the Hon’ble High Court of Delhi has been pleased to lay down as
under:
xxxxx
“12. Sub-rule 2 of Rule 10 of Order 1 permits a Court, at any
stage of the proceedings, either upon or without any
application of either party to strike out a person improperly
joined as a defendant.
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
-- 1 of 11 --
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.”
xxxxx
xxxxx
“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.”
xxxxx
(ii) Further, in case reported as, “CS (Comm.) No.280/2017”, titled as,
“M/s Faith Mercantile Pvt. Ltd. V/s M/s Simbhaoli Sugars Ltd. & Ors.”;
(DOD: 20.08.2018), the Hon’ble High Court of Delhi in para 9 thereof has
been pleased to lay down as under:
xxxxx
“9. Hence, the directors of the company are agents, trustees
-- 2 of 11 --
or representatives of the Company. Under Section 230 of the
Indian Contract Act, unless an agent personally binds
himself, an agent is not personally liable for the contracts
entered by him on behalf of his principal. Similarly, personal
liability of a director would only arise where he makes a
false averment regarding the company and induces a third
party to advance a loan/money to the company. It is only on
proof of fraudulent misrepresentation that a director may be
personally liable to a third party. In that case, there would
not be a liability under the contract but it would be an action
in tort.”
xxxxxx
(iii) Somewhat similar observations have been made by
Hon’ble High Court of Delhi in cases reported as, “CS (OS)
No.1712/2012”, titled as, “ACE Innovators Pvt. Ltd. V/s Hewlett Packard
India Sales Pvt. Ltd. & Ors.”; (DOD:04.10.2013) and “CS (OS)
No.1779/2010”, titled as, “Parsvnath Developers Limited V/s Kiran
Industries & Investment Company & Ors.”; (DOD: 06.5.2019);
(iv) Even, recently, the Hon’ble High Court of Delhi in case
reported as, “CRP No.166/2018”, titled as, “Sanuj Bathla & Anr. V/s Manu
Maheshwari & Anr.” (DOD: 12.04.2021) has been pleased to observe as
under:
xxxxx
28. Learned counsel for the Petitioner has rightly relied on
the judgment of the Co-ordinate Bench in Mukesh Hans
(supra), which, in my view, squarely covers the present case
and fortifies the view taken by this Court. Relevant passages
from the judgment are as follows :-
“10. The short question which arises for consideration in the
present appeal is as to whether the appellants as erstwhile
Directors of the Company, M/s. Dawson Leasing Limited (In
Liquidation) can be made liable in a suit for recovery of
money when the Directors have not made themselves
-- 3 of 11 --
personally liable by extending any guarantee, indemnity, etc.
11. Indubitably, 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 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 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.
12. This is the settled position ever since 1897 when the
House of Lords decided the case of Salomon vs. Salomon &
Co. Ltd. 1897 AC 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.”
-- 4 of 11 --
13. 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 lifting or piercing of the corporate
veil. This has been succinctly put by the Supreme Court in
“Tata Engineering and Locomotive Co. Ltd. v. State of
Bihar”, as follows:
"24. 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
-- 5 of 11 --
may be that in course of time these exceptions may
grow in number and to meet the requirements of
different economic problems, the theory about the
personality of the corporation may be confined more
and more."
14. Similar observations were made by the Supreme Court in
the case of New Horizons Ltd. v. Union of India: (1995)1 SCC
478 :
"27. The conclusion would not be different even if the
matter is approached purely from the legal standpoint.
It cannot be disputed that, in law, a company is a
legal entity distinct from its members. It was so laid
down by the House of Lords in 1897 in the leading
case of Salomon v. Salomon & Co. Ever since this
decision has been followed by the courts in England
as well as in this country. But there have been inroads
in the doctrine of corporate personality propounded
in the said decision by statutory provisions as well as
by judicial pronouncements. By the process,
commonly described as "lifting the veil", the law
either goes behind the corporate personality to the
individual members or ignores the separate
personality of each company in favor of the economic
entity constituted by a group of associated
companies. This course is adopted when it is found
that the principle of corporate personality is too
flagrantly opposed to justice, convenience or the
interest of the Revenue. (See : Gower's Principles of
Modern Company Law, 4th Edn., p.112.) This
concept, which is described as "piercing the veil" in
the United States, has been thus put by Sanborn, J. in
US v. Milwaukee Refrigerator Transit Co.4:
'When the notion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation as
an association of persons.'
-- 6 of 11 --
15. 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 respondents
in their plaint have not made out any such case to justify the
piercing of the corporate veil. Therefore, this matter is not
required to be dwelt upon by this Court any longer.
16. The next question which arises for consideration is
whether the appellants as Directors made themselves
personally liable for the dues of the Company. Reference in
this context may be made to the judgment of this Court in
Tristar Consultants vs. Customer Services India Pvt. Ltd. And
Anr., 139 (2007) DLT 688. Paragraphs 28 to 30 of the said
judgment, which are apposite, read as under:-
“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
-- 7 of 11 --
with money.”
17. In the case reported as Space Enterprises vs. M/s.
Srinivasa Enterprises Ltd. 72 (1998) DLT 666, this Court
while dealing with the liability of the Directors of a company
for the dishonor of cheques of the company, in a suit filed
under Order XXXVII of the Code of Civil Procedure, made the
following observations:-
“11. In so far as the liability of defendant No. 2 is
concerned, the effect of the registration of a company
under Section 34 of the Companies Act is that it is a
distinct and independent person in law and is
endowed with special rights and privileges; a person
distinct from its members. Consequently, the company
is enabled to contract with its shareholders also, to
use common seal and acquire and hold property in its
corporate name. The company is distinct from its
shareholders and its directors. Neither the
shareholders nor the director can treat the companies
assets as their own. Directors of a company are liable
for misappropriation of company's funds and other
misfeasance, but not for an ordinary contractual
liability of the company. The liability of the members
or the shareholders or the directors is limited to the
capital invested by them. So long the liability is not
unlimited under Sections 322 and 323 of the
Companies Act and no special resolution of the
limited company making liability of the directors or
the managing directors unlimited is alleged. The
doctrine of lifting of the corporate veil could be
applied in cases of tax evasion, or to circumvent tax
obligation or to perpetuate fraud or trading with an
enemy are concerned. It is not alleged that the
director has lost the privilege of limited liability and
has become directly liable to the plaintiff i.e. creditor
of the company on the ground that with his knowledge
the company carries on business six months after the
number of its members was reduced below the legal
minimum number. In absence of such a case it would
-- 8 of 11 --
be totally inappropriate and improper to say that
defendant No. 2 is patently covered under Order 37
CPC.
12. There is no contract between the plaintiff and
defendant No. 2. therefore, case against defendant
No.2 is not based on any contract nor there is any
such liability on defendant No.2. Consequently, there
is no cause of action against defendant No. 2. Since
there is no cause of action against defendant No. 2,
the plaint is liable to be rejected so far as defendant
No. 2 is concerned.”
18. In the instant case, there is admittedly no assertion in the
plaint that the appellants had extended any contract of
guarantee or had even undertaken to make payment to the
respondents of the loan amount on behalf of the company,
M/s. Dawson Leasing Limited. No case of joint and several
liability is, therefore, made out and the liability, if any, is the
sole liability of the Company, which is stated to be under
liquidation. There is also no denial to the fact that the
respondent No.4 himself was one of the Directors of the
Company and therefore part and parcel of the Company.
When the decision to invite secured non-convertible
debentures was taken by the Board, the names of the
respondent No.4 and his brother appeared in the offer
document issued on behalf of the Company. In such
circumstances, merely because the respondent No.4
subsequently resigned as a Director, it is not open to the
respondents to allege that they have been deceived and
defrauded.
19. 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
-- 9 of 11 --
Order VI specifically lays down that the particulars of the
fraud alleged (with dates and items, if necessary) shall be
stated in the plaint.
20. To conclude, the instant case is not one in which the
appellants could have been held jointly and severally liable as
Directors to pay the amount invested by the respondents in the
Company. The appellants are not even alleged to be
guarantors or indemnifiers for payment of the amount due
from the Company nor it is pleaded in the plaint that the
respondents had undertaken to make payment on behalf of the
Company. As stated above, no particulars of fraud are set out,
presumably for the reason that the respondent No.4 himself
was a functional Director of the Company responsible for the
day-today affairs of the Company. In such circumstances, in
my considered opinion, it is the Company and the Company
alone upon whom the liability can be fixed at all.”
xxxxx
3. In view of the law laid down in the aforesaid authorities,
defendants No.2 and 3, being Directors of defendant No.1 company are not
personally liable, particularly when defendant No.1 is a listed company. The
defendants No.2 and 3 accordingly stands deleted from the array of parties.
4. Let amended memo of parties be filed by the plaintiff during
the course of the day.
5. I have heard final arguments advanced at bar by Ld. Counsel
for plaintiff. Ld. Counsel for defendant, on the other hand, submits that he
has so far not obtained certified copy of order dated 09.07.2025 which he
wants to challenge before the Hon’ble High Court. Ld. Counsel for
defendant further submits that he is not in a position to advance final
arguments in the matter.
6. Put up for judgment at 4.00 P.M. today itself.
(Vinod Yadav)
District Judge (Commercial Court)-02
North-West/Rohini Courts/25.07.2025
-- 10 of 11 --
At 4.00 P.M.
25.07.2025
Present: Sh. Rajat Mathur, Ld. Counsel for plaintiff through VC and
Sh. Areen Gulati and Sh. Rishabh, Advocates physically
present in court.
Sh. Abhishek Tyagi, Ld. Counsel for defendant No.1.
Vide separate judgment dictated and announced in open court
today, a decree in the sum of Rs.13,38,901/- (Rupees thirteen lacs thirty
eight thousand nine hundred one only) along with interest @ 12% per
annum from 01.09.2021 till recovery is passed in favour of plaintiff and
against only defendant No.1.
Plaintiff is entitled to costs of the suit. Plaintiff is further
entitled to counsel’s fee which is quantified as Rs.22,000/-.
Decree Sheet be drawn accordingly, subject to payment of
requisite court fees, if any.
File be consigned to record room after completion of
necessary formalities.
(Vinod Yadav)
District Judge (Commercial Court)-02
North-West/Rohini Courts/25.07.2025
-- 11 of 11 --