Source: Allahabad High Court 

Why in News? 

A bench of Justice Ashutosh Srivastava held that there is no provision whereby a decree against a company can be executed against the employee/representative/ director of a firm.    

• The Allahabad High Court held this in the case of Dhanush Vir Singh v. Dr. Ila Sharma.  

What is the Background of Dhanush Vir Singh v. Dr. Ila Sharma Case? 

• In the present case the revisionist was the Vice- President of Benett Coleman. 
• He was duly authorized to enter into a lease agreement with one Ram Dev Bhaguna for rent for the period of 9 years.  
• The tenancy was terminated by the landlord and a request was made to the company to vacate the premises. It was not vacated, and the suit was filed was ejectment and recovery of mesne profits. 
• The Company on the other hand filed an application dated 10th September 2018 stating that it is willing to handover the possession, but the lessor is not taking the possession. 
• Accordingly, the keys were submitted to the Court. It is admitted that vacant possession of tenanted premises was handed over to the opposite party. 
• The earlier suit filed by the landlord was proceeded and there was an ex parte decree passed.  
• The decree holder filed an execution case against the judgment debtor. This case was filed against Sri Vijay Sahi, the then General Manager of M/S Benett Coleman and Co. Ltd.   
• The Executing Court held that the execution case cannot proceed against the Managing Director of the Company as he was neither party to the proceedings nor party to the lease agreement signed between the parties. 
• The decree holder filed an application praying for arrest or detention of the revisionist under Section 55 of Civil Procedure Code, 1908 (CPC). 
• The Additional District Judge allowed the application of the decree holder and issued a warrant of arrest against the revisionist. 
• Hence, the revision proceedings were instituted in the Allahabad High Court.    

What were the Court’s Observations? 

• The Court had to answer the question whether the Directors/Authorized Representatives of a Limited Company can be arrested or detained in civil prison for execution of a money decree against the company. 
• The Court after perusing the different provisions of CPC held that there is no provision in CPC that provides for execution of money decree against the judgment debtor by effecting arrest or detention of it’s employee, director or general manager. 
• Order XXI Rule 50 of CPC provides for execution of a decree against a firm from the assets of the partners of the said firm but there is no provision with respect to Director/employee/Representative of a company. 
• The Court held that the Executing Court cannot go behind the decree. The decree admittedly is against the Company and the executing court cannot execute the decree against anyone other than judgment debtor or against from the assets/properties of anyone other than the judgment debtor. 
• One of the grounds put forward by the decree holder in this case was lifting of corporate veil. However, the Court held that no ground for invoking the above principle has been made out in this case.  
• Thus, the High Court in this case held that money decree cannot be executed against the revisionist by virtue of being the Vice President of the Company
• The Court held that the decree holder may take recourse to the specific provisions of Order XXI Rule 41 of CPC and accordingly amend the Execution Application. 

What is the Law Regarding Execution of Money Decree under CPC? 

Section 51 of CPC: 

• Section 51 of CPC provides ways to execute a decree. 
• Section 51 provides that the Court may on application of decree holder order execution of the decree by following ways: 
  • by delivery of any property specifically decreed;  
  • by attachment and sale or by sale without attachment of any property;  
  • by arrest and detention in prison; 
  • by appointing a receiver; or 
  • in such other manner as the nature of the relief granted may require. 
• Proviso to Section 51 provides that where the decree is for the payment of money, execution by detention in prison shall not be ordered unless, after giving the judgment-debtor an opportunity of showing cause why he should not be committed to prison, the Court, for reasons recorded in writing, is satisfied- 
  • That the judgment-debtor, with the object or effect of obstructing or delaying the execution of the decree-  
    • is likely to abscond or leave the local limits of the jurisdiction of the Court, or  
    • has, after the institution of the suit in which the decree was passed, dishonestly transferred, concealed, or removed any part of his property, or committed any other act of bad faith in relation to his property, or 
  • That the judgment-debtor has, or has had since the date of the decree, the means to pay the amount of the decree or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same, or  
  • That the decree is for a sum for which the judgment-debtor was bound in a fiduciary capacity to account. 

Section 55 of CPC

• Section 55 of CPC provides for execution of decree by arrest or detention. 
• Section 55 (1) provides that a judgment-debtor may be arrested in execution of a decree at any hour and on any day, and shall, as soon as practicable, be brought before the Court, and his detention may be in the civil prison of the district in which the Court ordering the detention is situate, or, where such civil prison does not afford suitable accommodation, in any other place which the State Government may appoint for the detention of persons ordered by the Courts of such district to be detained. 
• There are four provisos attached to Section 55 (1): 
  • Firstly, that, for the purpose of making an arrest under this section, no dwelling-house shall be entered after sunset and before sunrise; 
  • Secondly, that no outer door of a dwelling-house shall be broken open unless such dwelling-house is in the occupancy of the judgment-debtor and he refuses or in any way prevents access thereto, but when the officer authorized to make the arrest has duly gained access to any dwelling-house, he may break open the door of any room in which he has reason to believe the judgment-debtor is to be found; 
  • Thirdly, that, if the room is in the actual occupancy of a woman who is not the judgment-debtor and who according to the customs of the country does not appear in public, the officer authorised to make the arrest shall give notice to her that she is at liberty to withdraw, and, after allowing a reasonable time for her to withdraw and giving her reasonable facility for withdrawing, may enter the room for the purpose of making the arrest; 
  • Fourthly, that, where the decree in execution of which a judgment-debtor is arrested, is a decree for the payment of money and the judgment-debtor pays the amount of the decree and the costs of the arrest to the officer arresting him, such officer shall at once release him. 
• Section 55 (2) provides that the State Government may, by notification in the Official Gazette, declare that any person or class of persons whose arrest might be attended with danger or inconvenience to the public shall not be liable to arrest in execution of a decree otherwise than in accordance with such procedure as may be prescribed by the State Government in this behalf. 
• Section 55 (3) provides that  where a judgment-debtor is arrested in execution of a decree for the payment of money and brought before the Court, the Court shall inform him that he may apply to be declared an insolvent, and that he may be discharged, if he has not committed any act of bad faith regarding the subject of the application and if he complies with provisions of the law of insolvency for the time being in force. 
• Section 55 (4) provides that where a judgment-debtor express his intention to apply to be declared an insolvent and furnishes security, to the satisfaction of the Court, that he will within one month so apply, and that he will appear, when called upon, in any proceeding upon the application or upon the decree in execution of which he was arrested, the Court may release him from arrest, and, if he fails so to apply and to appear, the Court may either direct the security to be realised or commit him to the civil prison in execution of the decree. 

Order XXI of CPC

• Order XXI Rule 10 provides for the application of execution to be made by the decree holder. 
  • It provides that where the holder of a decree desires to execute it, he shall apply to the Court which passed the decree or to the officer (if any) appointed in this behalf, or if the decree has been sent under the provisions hereinbefore contained to another Court then to such Court or to the proper officer thereof. 
• Order XXI Rule 11 A provides that where application is made for arrest or detention of the judgment debtor it should state the grounds on which arrest is applied for. 
• Order XXI Rule 30 provides that every decree for the payment of money, including a decree for the payment of money as the alternative to some other relief, may be executed by the detention in the civil prison of the judgment-debtor, or by the attachment and sale of his property, or by both. 
• Order XXI Rule 37 provides that where application for execution of decree of payment of decree by arrest instead of issuing the warrant of arrest the Court may issue a notice calling upon him to appear before the Court and show cause why he should not be arrested. Where no appearance has been made in obedience of notice the Court may issue a warrant for arrest of the judgment debtor. 
• Order XXI Rule 38 provides that every warrant for arrest shall direct the officer entrusted to bring before the court the person liable with all convenient speed. 
• Order XXI Rule 40 provides for proceedings on appearance of judgment debtor in obedience to notice or after arrest.  
  • Clause (1) provides that when a person is brought or appears before Court on notice or arrest, the Court shall proceed to hear him and take all evidence in support of application for execution and shall give the judgment debtor opportunity of showing cause why he should not be committed to civil prison. 
  • Clause (2) provides that pending the conclusion of the inquiry under sub-rule (1) the Court may, in its discretion, order the judgment-debtor to be detained in the custody of an officer of the Court or release him on his furnishing security to the satisfaction of the Court for his appearance when required. 
  • Clause (3) provides that upon the conclusion of the inquiry under sub-rule (1) the Court may, subject to the provisions of section 51 and to the other provisions of the Code, make an order for the detention of the judgment-debtor in the civil prison and shall in that event cause him to be arrested if he is not already under arrest: 
  • Provided that in order to give the judgment-debtor an opportunity of satisfying the decree, the Court may, before making the order of detention, leave the judgment-debtor in the custody of an officer of the Court for a specified period not exceeding fifteen days or release him on his furnishing security to the satisfaction of the Court for his appearance at the expiration of the specified period if the decree be not sooner satisfied. 
  • Clause (4) provides that a judgment-debtor released under this rule may be re-arrested. 
  • Clause (5) provides when the Court does not make an order of detention under sub-rule (3), it shall disallow the application and, if the judgment-debtor is under arrest, direct his release. 

How is a Decree Against a Company Executed? 

Rule 50 of Order XXI of CPC: 

• Order XXI Rule 50 of CPC provides for execution of decree against firm. 
  • Clause (1) provides that where a decree has been passed against a firm, execution may be granted-  
    • against any property of the partnership;  
    • against any person who has appeared in his own name under rule 6 or rule 7 of Order XXX or who has admitted on the pleadings that he is, or who has been adjudged to be, a partner;  
    • against any person who has been individually served as a partner with a summons and has failed to appear:  
      Provided that nothing in this sub-rule shall be deemed to limit or otherwise affect the provisions of section 30 of the Indian Partnership Act, 1932 (9 of 1932). 
  • Clause (2) provides that where the decree-holder claims to be entitled to cause the decree to be executed against any person other than such a person as is referred to in sub-rule (1), clauses (b) and (c), as being a partner in the firm he may apply to the Court which passed the decree for leave, and where the liability is not disputed, such court may grant such leave, or, where such liability is disputed, may order that the liability of such person be tried and determined in any manner in which any issue in a suit may be tried and determined. 
  • Clause (3) provides that where the liability of any person has been tried and determined under sub-rule (2) the order made thereon shall have the same force and be subject to the same conditions as to appeal or otherwise as if it were a decree. 
  • Clause (4) provides that save as against any property of the partnership, a decree against a firm shall not lease, render liable or otherwise affect any partner therein unless he has been served with a summons to appear and answer. 
  • Clause (5) provides that nothing in this rule shall apply to a decree passed against a Hindu Undivided Family by virtue of the provision of rule 10 of Order XXX. 

V.K. Uppal v. Akshay International Pvt. Ltd. (2010): 

• The Delhi High Court in this case laid down the law regarding the execution of a decree against a company. The Court laid down the law as follows: 
  • Though Order XXI Rule 50 of CPC provides for execution of decree against the firm from the assets of the partners but there is no provision with respect to directors of the company. 
  • The Executing Court cannot go behind the decree. 
  • If the decree is against the company, the executing Court cannot execute the decree against anyone other than the judgment debtor company or against the assets of anyone other than the judgment debtor company. 
  • The identity of a director or shareholder of a company is distinct from the company (Solomon v. Solomon (1897)) 
    • Over time the principle laid down in Solomon v. Solomon (1897) has been watered down as the concept of lifting of corporate veil evolved. In cases of fraud and improper conduct the corporate veil can be lifted (Singer India Ltd. V. Chander Mohan Chadha (2004)) but the case regarding the same has to be made out.