District: Dhaka

In the Supreme Court of Bangladesh

High Court Division

(Civil Revisional Jurisdiction)

  Present

Mr. Justice Md. Zakir Hossain

Civil Revision No. 3192 of 2022

Hasan Mahmud Raja and another .......Respondent-petitioners

-Versus-

Muhammad Iqbal Sharif, Managing Director of Impressive Trade World Limited and Consultant, Westmont Power (Bangladesh) Limited

......Plaintiff-Opposite Party

Mr. Tanjibul Alam, Senior Advocate with Mr. Kazi Ershadul Alam, Advocate

...... For the petitioners Mr. Ashim Kumar Mallik, Advocate

....... For the opposite party                

Heard on: 06.03.2024 Judgment on: 03.07.2024

Md. Zakir Hossain, J:

At the instance of the petitioners, the Rule was issued by this Court to examine the legality and propriety of the judgment and order dated 18.05.2022 passed by the learned Joint District Judge, Second Court, Dhaka in Money Execution Case No. 01 of 2020.

Facts leading to the issuance of the Rule are inter alia that in the aforesaid Money Execution Case, the decree holder included the petitioners as judgment debtor Nos. 6 & 7. The petitioners filed an application to the learned Joint District Judge, Second Court, Dhaka for striking out their names from the aforesaid Execution Case. Upon

hearing, the learned Joint District Judge was pleased to reject the said petition. Impugning the judgment and order of the learned Joint District Judge, the petitioners moved this Court and obtained the aforesaid Rule and stay therewith.

Mr. Tanjibul Alam, the learned Senior Advocate with Mr. Kazi Ershadul Alam, the learned Advocate for the petitioners referring to the case of  Makbulur Rahman and others v. Halima Textile Mills Ltd. Employees Provident Fund Trust, Cumilla and others reported in 14 BLD 429 submits that the Court below committed an error of law resulting in an error occasioning failure of justice inasmuch as the learned Court failed to appreciate that when a suit is filed against a company, the directors and shareholders are not the proper and necessary parties in that suit unless there are specific allegation of misappropriation of money against such director or shareholder.

He also submits that the Court below failed to appreciate that the petitioners do not hold any shares in the defendant No. 3-company, i.e. Westmont Power (Bangladesh) Limited of the original suit. The Petitioners are merely directors nominated by United Enterprises & Co. Ltd., which is a shareholder in the suit defendant No. 3-company, hence, the petitioners are in no way proper or necessary parties to the said Money Execution Suit in a personal capacity, hence, the impugned Order dated 18.05.2022 is liable to be set aside.

He further submits that the Court below committed an error of law resulting in an error occasioning failure of justice inasmuch as the learned Court below completely disregarded the fact that the petitioners were not parties in the money suit or the decree dated 14.07.2014, hence, addition of the petitioners as judgment- debtors in the money execution suit is not tenable in the eyes of law.

He next submits that the Court below committed an error of law resulting an error occasioning failure of justice inasmuch as the learned Court below failed to appreciate that nominated directors cannot be held personally liable on behalf of the company which nominated them in the defendant company unless commission of fraud or gross negligence is proved against them in conducting business of the company at the relevant time. The petitioners were not directors of Westmont Power (Bangladesh) Limited at the time of execution of the consultancy agreement or performance under the same. Hence, the decree cannot be executed against the petitioners as such an execution would amount to holding the petitioners personally liable for a conduct in which they had no role.

He further submits that the Court below committed an error of law resulting an error occasioning failure of justice inasmuch as the learned Court below failed to appreciate that a company is a juristic person and a separate legal entity, therefore, the petitioners cannot be held personally liable merely because they are nominated as director by a shareholder company in the defendant No. 1-company.

He also submits that the learned Joint District Judge, 2nd Court, Dhaka committed an error of law occasioning failure of justice inasmuch

the reason stated in the impugned order is manifestly erroneous and has no legal basis for there is no scope to hold the subsequent Directors of the company for the conduct of the previous director nor can the Directors be held responsible for the debt of the company.

He finally submits that the petitioners were not directors of the Westmont Power (Bangladesh) Limited at the time of execution of the agreement or the performance in the year 1998, from which the claim of the original money suit had arisen and as such, even if the corporate veil is lifted, it may be lifted for the persons who were in control of the company at the time of the alleged breach of the terms of the contract in 1998, not for the Petitioners who became members of the board of directors of Westmont Power (Bangladesh) Limited only on 27.07.2010. It is an established legal principle that directors and shareholders of a company are not liable for the dues of the company except to the extent permitted by law or in the case where fraud has been committed by such shareholder or director. As such, a routine direction against directors or shareholders of judgment-debtor companies turns the elementary principle of company law, a company being a legal entity, is distinct from its shareholders and directors, on its head.

Mr. Ashim Kumar Mallik, the learned Advocate for the opposite party submits that the petitioners are necessary parties in the Execution Case and therefore, the learned Joint District Judge rightly rejected the petition for striking out the names of the petitioners by assigning cogent reason and therefore, the same does not warrant for any interference.

The learned Advocate for the opposite party at the time of pronouncement of judgment frankly conceded the contention of the petitioners, but he candidly submits for issuance an appropriate order directing the executing Court to dispose of the Execution Case with utmost expedition.

Heard the submissions advanced by the learned Advocates of the petitioners and the opposite party at length and perused the materials on record with due care and attention and seriousness as they deserve. The convoluted question of law embroiled in this case has meticulously been waded through.

The directors owe neither fiduciary or contractual duties nor any duty of care to persons who deal with the company unless they deal with the contracting party not on behalf of the company, but on their own behalf, a director is therefore not liable to pay the debts incurred by the company. The directors may be made personally liable if they are proven to be guilty of fraudulent trading, i.e. the act of misfeasance or the like. The directors are not liable for breach of contracts by the company and other party to a contract cannot make them directly liable by suing them in tort  even  for  their  mismanagement  of  the company's  affairs.  The liability of the directors even in common law is confined only where they have been guilty of a tort towards the credits as well as breach of duty owed to the company only upon fraudulent conduct.

On consideration of materials on record, I am of the view that the petitioners are neither necessary or proper party to be added as judgment debtor in the Execution Case; therefore, I find substance in the submissions advanced by the learned Advocate for the petitioners.

In the result, the Rule is made absolute; however, without passing any order as to costs. The earlier order of stay granted by this Court thus stands recalled and vacated. The impugned judgment and order is hereby set aside. The application for sticking out the names of the petitioners from the Money Execution Case No. 01 of 2020 is allowed and accordingly, the names of the petitioners i.e. the judgment debtor Nos. 6 & 7 are hereby stricken out from the Money Execution Case No. 01 of 2020. The learned Joint District Judge, Second Court, Dhaka is directed to dispose of the Money Execution No. 01 of 2020 with utmost expedition preferably within 04 (four) months from the date of receipt of the copy of this judgment.

Let a copy of the judgment be transmitted to the Courts below at once for taking necessary step.

...............................................

Md. Zakir Hossain, J

Naser Po