Bengaluru Court Orders Company To Pay ₹2.75 Lakh Legal Fees, Rejects Personal Liability Of Directors

The Bengaluru City Civil Court on 3 October held that directors cannot be held personally liable for a company's contractual debts merely because they hold office or manage its day-to-day affairs, unless an independent legal basis establishes their personal liability.

Additional City Civil and Sessions Judge Shirin Javeed Ansari partly decreed a suit filed by law firm Krishnamurthy & Co (K Law) against Moerheim Roses and Trading India Private Limited and its four directors, directing the company to pay Rs. 2.75 lakh in outstanding professional fees with interest at 9% per annum. The Bench held:

“The documentary evidence assumes considerable significance in the present case because the claim is not founded upon an uncertain or unliquidated demand. The claim is based upon identified invoices raised for professional services rendered by the Plaintiff.”

K Law, owned by Naina Krishna Murthy, sought recovery of Rs. 2.75 lakh in unpaid professional fees, along with interest at 24% per annum, for legal services rendered in connection with a writ petition before the Karnataka High Court.

The firm stated that the engagement began in January 2017 through Anand & Anand, New Delhi. It subsequently assisted in the proceedings, including by filing objections and an application seeking vacation of an interim stay.

It claimed to have raised invoices totalling Rs. 6.10 lakh, against which it received Rs. 3.35 lakh, leaving Rs. 2.75 lakh unpaid. It alleged that the defendants failed to clear the dues despite repeated reminders and a legal notice. It also relied on subsequent email correspondence that, according to it, acknowledged the outstanding liability and recorded proposed payment arrangements.

Despite service of summons, the company and its four directors failed to appear before the Court and were proceeded against ex parte.

The Court examined the engagement correspondence, invoices, account statements, legal notice and subsequent communications produced by K Law. It noted that the defendants had not disputed the invoices when raised and had made part payments towards the professional fees. Records of appearances by the firm's counsel in the writ proceedings also corroborated that the legal services had been rendered.

It held that the invoices and payment records established that Rs. 2.75 lakh remained outstanding. It also considered the defendants' failure to enter appearance and referred to the consequences under Order XXXVII Rule 2(3) of the Code of Civil Procedure.

On the directors' liability, the Bench observed that a company has a legal personality distinct from that of its directors. Its contractual obligations ordinarily remain those of the company unless the directors independently assume personal liability, execute a guarantee, become co-obligants or otherwise incur liability in their individual capacities.

It noted that K Law had primarily alleged that the directors were responsible for the company's day-to-day affairs. However, the firm had not specifically pleaded or established an independent contract, personal guarantee or undertaking showing that the directors had agreed to discharge the company's professional fee liability. It said:

“The allegation that Defendant Nos.2 to 5 were responsible for the day-to-day affairs of Defendant No.1 cannot, standing alone, constitute an independent contractual promise to pay the company's debt.”

Therefore, the Judge dismissed the claim against the four directors, finding no independent legal basis to hold them personally liable for the company's outstanding professional fees.

On interest, the Bench declined to award the 24% per annum claimed by K Law, observing that the material on record did not sufficiently establish an express contractual stipulation requiring interest at that rate.

However, it held that the firm was entitled to reasonable interest because the company had benefited from the legal services but had failed to pay the outstanding amount for a considerable period.

Accordingly, the Court partly decreed the suit with costs against the company and dismissed the claim against its four directors.

For Plaintiff: Advocate Shujath Ahmed