Home › Allied Laws › Panchanan Dhara & Ors. v. Monmatha Nath Maity (Dead) through LRs. & Anr. 2006 (5) SCC 340/AIR 2006 SC 2281/MANU/SC/2287/2006

Panchanan Dhara & Ors. v. Monmatha Nath Maity (Dead) through LRs. & Anr. 2006 (5) SCC 340/AIR 2006 SC 2281/MANU/SC/2287/2006

Companies Act, 1956.
.S.46: Binding effect of deed executed by directors on behalf of company – Company is held liable and not the Director.-Plea of limitation which was raised for the first time was not allowed to be raised on the facts of the case . [Companies Act, 1956, S.48, Limitation Act, 1963, Art. 54, Indian Contract Act, 1872, S. 29]

Facts

Respondents 2, a company registered under the provisions of the Companies Act, 1956 entered into an agreement to sell executed through the hands of its  three directors its suit property to Respondent No. 1. However, the company later refused to execute a sale deed in favour of  Respondent No.  1  on  the  plea that the same became barred by limitation. A suit was filed by the Respondent No. 1    or through him for specific performance of the agreement. During the pendency     of the suit, the suit property was purchased by the Appellant, a third party, with full knowledge about the pending suit from Respondent No.2. The trial Court decreed the suit in Respondent No. 1’s favour. The appeal against same was also dismissed. Even the appeal to the High Court was dismissed. Hence the appeal before the Supreme Court against the order of the High Court.

 

Issue

Inter alia, the Court had to consider whether the agreement entered into by Respondent No. 2 with Respondent No. 1 was valid, keeping in mind the provisions of Section 46 and 48 of the Companies Act, 1956.

 

View

Once a deed is executed on behalf of the company, it is the company and not the persons signing who can sue or be sued. Even in absence of the company seal,     the company may still be held liable, having regard to the nature of transaction   and the authority of those whohad executed it.

 

Held

The agreement of sale with Respondent No.  1  was  entered into by  3  directors  of the Respondent No.2 company. The company never disputed the terms of the agreement nor raised the plea that the agreement was not binding on it. The

 

| Allied Laws – 26. Companies Act, 1956 |

 

 

contract was held to be executed in the name of the company and the appeal by  the company was dismissed. (CA No. 5187 of 2001dt. 12-5-2006)

Editorial: The ratio of this decision clarifies the rights and liabilities of a company when deeds are executed in its name by its directors, thus helping      in bringing about certainty in commercial transactions. It explains that the agreements executed by the directors for and on behalf of the company are valid and enforceable against and by the company and can not be backed out of by stating that they are not binding on the company.

“Glory lies in the attempt to reach one’s goal and not in reaching it.”

– Mahatma Gandhi