Privity of contract and limitation rules barred recovery where a shareholder agreement could not impose company supply liability.

A board resolution authorising proceedings against one company did not extend to defendants 2 and 3, and the shareholder arrangement did not create direct privity of contract with the plaintiff. The limitation period for recovery of advance paid for undelivered goods ran from the date delivery ought to have been made under Article 13 of the Limitation Act, and the later agreement did not postpone that start date; on the facts stated, the claim was time-barred. The 24-1-1981 agreement was treated as a share-transfer arrangement and could not impose supply obligations on the company contrary to proved contractual terms and statutory limits on interested directors. The alleged advance and entitlement to interest were not proved on the evidence described.

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Issues: (i) Whether the suit was properly instituted and whether there was privity of contract between the plaintiff and defendants 2 and 3; (ii) whether the suit was barred by limitation; (iii) whether the agreement dated 24-1-1981 altered the contractual terms, established liability of the defendants, and entitled the plaintiff to recovery and interest.

Issue (i): Whether the suit was properly instituted and whether there was privity of contract between the plaintiff and defendants 2 and 3.

Analysis: The board resolution authorised institution of proceedings only against defendant No. 1. A company has a separate legal existence, and authority to sue one entity cannot be stretched to include other defendants without clear sanction. The agreement relied upon by the plaintiff was between the shareholders/vendors and defendants 2 and 3 in their personal capacity and did not create a direct contractual relationship with the plaintiff. The indemnity clause protected the vendors against liabilities to specified outside bodies and did not create an enforceable obligation in favour of the plaintiff.

Conclusion: The suit was not properly instituted against defendants 2 and 3, and there was no privity of contract between the plaintiff and defendants 2 and 3.

Issue (ii): Whether the suit was barred by limitation.

Analysis: The claim was for recovery of balance advance paid for goods to be delivered, so Article 13 of the Limitation Act, 1963 applied. The period commenced when the goods ought to have been delivered, not from the later agreement relied upon by the plaintiff. The delivery period expired on 2-2-1980, and the suit filed on 20-1-1984 was beyond three years. The asserted acknowledgements did not extend limitation on the facts proved.

Conclusion: The suit was barred by limitation.

Issue (iii): Whether the agreement dated 24-1-1981 altered the contractual terms, established liability of the defendants, and entitled the plaintiff to recovery and interest.

Analysis: The agreement dated 24-1-1981 was a share-transfer arrangement between the vendors and the incoming purchasers and could not bind the company to supply machinery on a no-profit-no-loss basis. Section 300 of the Companies Act, 1956 barred interested directors from participating in company decisions affecting their own interest. The plaintiff failed to prove the alleged advance of Rs. 4,05,000 and the disputed receipts were not accepted as reliable. The evidence established only receipt of Rs. 3,15,000, and the plaintiff did not prove any enforceable balance or entitlement to interest.

Conclusion: The plaintiff was not entitled to recover the claimed amount or interest.

Final Conclusion: The claim failed in its entirety, and the suit was dismissed with costs.

Ratio Decidendi: A contractual obligation cannot be enforced against a party who was not privy to the contract, limitation for recovery of advance paid for undelivered goods runs from the date delivery ought to have been made, and a shareholder agreement cannot impose supply obligations on a company contrary to its proved contract and statutory constraints on interested directors.

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