Tristar Consultants v. V. Customer Services India P. Ltd., (2007) 78 CLA 365 (Del)
Delhi High Court
2007
78 CLA 365
Contract / Company
~6 min read
Author: Gulzar Hashmi |
India |
Published:
PRIMARY_KEYWORDS: director liability; Section 230; agent not personally liable
SECONDARY_KEYWORDS: breach of contract; recruitment services; Delhi High Court; corporate personality
Slug:
tristar-consultants-v-vcustomer-services-india-p-ltd
Quick Summary
The Delhi High Court clarified that directors act as agents of the company. Unless a director clearly promises personal liability, claims for breach of a company contract lie against the company—not the director—because Section 230 of the Contract Act shields agents from personal liability.
- Directors are not personally bound by company contracts absent an explicit undertaking.
- Limited liability and separate personality must be respected.
- Emails/negotiations do not equal a personal guarantee.
Issues
- When can a director be sued personally for a company’s alleged breach of contract?
- Do negotiations and later emails by a director create personal liability?
Rules
- Section 230, Contract Act: An agent cannot personally enforce, nor be personally bound by, contracts made for the principal—unless the contract clearly says so.
- Company Law Logic: Directors are agents of the company to the extent authorised; they owe no contractual duty to third parties absent a personal covenant.
Facts (Timeline)
- Business: Plaintiff (Tristar) facilitated top-level hiring.
- Dealings: Defendant No.1 (company) interacted via Sanjay Kumar (director); proposals shared; meetings held.
- Contract: Plaintiff to identify and recommend candidates; defendant later cancelled.
- Emails: Post-cancellation, emails with Sanjay Kumar referenced a payment figure (fees + expenses + tax).
- Suit: Recovery of sums under invoices and damages for breach were claimed; personal liability of the director was urged.
Arguments
Appellant (Plaintiff)
- Director led negotiations and acknowledged dues; therefore personally liable.
- Company cancelled after services; compensation promised but unpaid.
Respondents (Company & Director)
- All actions were on behalf of the company; no personal undertaking by the director.
- Section 230 bars personal liability of agents without express agreement.
Judgment
The Court held that directors are agents of the company within their authority. They do not owe contractual duties to third parties dealing with the company. Without a clear personal covenant, a director cannot be made liable for the company’s breach. Reading the law otherwise would undermine separate legal personality and limited liability.
Ratio Decidendi
Section 230 creates a default shield: an agent (director) is not personally bound by a contract made for the principal (company) unless the contract clearly imposes such liability.
Why It Matters
- Preserves corporate limited liability in routine commercial contracts.
- Signals that emails and negotiations rarely equal a personal guarantee.
- Guides drafting: want a director liable? Write a clear personal undertaking.
Key Takeaways
- Section 230 Agents are not personally liable unless they agree to be.
- Clear Words Insert “personal guarantee/undertaking” if intended.
- Separate Entity Do not collapse company and director roles without basis.
Mnemonic + 3-Step Hook
Mnemonic: “A-G-E-N-T” — Agent default, Guarantee needed, Emails ≠ pledge, No duty to third party, Treat company as principal.
- Ask if there is a clear personal undertaking.
- Group all conduct as “on behalf of company” unless words say otherwise.
- Enforce against the company; sue the director only if the contract says so.
IRAC
| Issue | Can a director be made personally liable for damages for a company’s breach based on negotiations and emails? |
|---|---|
| Rule | Section 230: agents/directors are not personally bound unless the contract expressly imposes such liability. |
| Application | No clear personal covenant by the director; communications were on behalf of the company. |
| Conclusion | Director not personally liable; claim lies against the company, preserving separate legal personality. |
Glossary
- Agent
- A person who acts for another (principal); usually not personally liable for principal’s contracts.
- Personal Undertaking
- Express promise that an agent/director will be personally responsible.
- Separate Legal Personality
- A company is a distinct legal person from its directors and shareholders.
FAQs
No. Their duties run to the company. Third parties must show a clear, personal promise to sue directors personally.
Not usually. You need language showing the director accepted personal responsibility, not just wrote on company’s behalf.
Add a clear clause (e.g., “Director X personally guarantees payment...”) and have the director sign in a personal capacity.
No. Personal liability may arise for torts, fraud, statutory breaches, or explicit personal undertakings—just not for routine company contracts by default.
Popular & Recent Post
Comment
Nothing for now