Statutory safeguards for interested-director transactions defeated an oral water-supply contract and the related arrears claim was time-barred.

An oral arrangement for lifting water from a company's well could not bind the company where the transaction involved an interested director or relative and the statutory safeguards under the Companies Act, 1956-board consent and, where required, Central Government approval-were absent. The commentary also notes that a claim for recurring water-lifting charges accrued periodically and, filed in 1999 for amounts said to be due from 1993 onwards, was barred by the three-year limitation period under Article 52 of the Limitation Act, 1963; pending suits by the defendant did not stop limitation.

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Issues: (i) whether the oral agreement for lifting water from the suit well could bind the company in the absence of board consent and prior approval under the Companies Act, 1956; (ii) whether the suit for recovery of charges for lifting water was barred by limitation under Article 52 of the Limitation Act, 1963.

Issue (i): whether the oral agreement for lifting water from the suit well could bind the company in the absence of board consent and prior approval under the Companies Act, 1956.

Analysis: The company transaction had to be examined in the light of Section 46 and Section 297 of the Companies Act, 1956. A contract involving an interested director or his relative required compliance with the statutory safeguards, including consent of the Board and, where applicable, prior approval of the Central Government. The agreement in question was oral, and the required statutory approvals were not obtained. In such circumstances, an oral arrangement of this nature could not bind the company.

Conclusion: The issue was decided against the assessee and the oral contract was held not enforceable against the company.

Issue (ii): whether the suit for recovery of charges for lifting water was barred by limitation under Article 52 of the Limitation Act, 1963.

Analysis: The claim was treated as one for arrears becoming due periodically. The suit was instituted in 1999 for amounts alleged to have become due from 1993 onwards, well beyond the three-year period. Pending suits filed by the defendant did not suspend or stop limitation for the plaintiff's monetary claim. On that basis, the claim was time-barred.

Conclusion: The issue was decided against the assessee and the suit was held barred by limitation.

Final Conclusion: The dismissal of the second appeal was sustained, and the first appellate court's decision non-suiting the plaintiff remained undisturbed.

Ratio Decidendi: A company cannot be bound by an oral contract entered into in breach of the statutory requirements governing interested-director transactions, and a monetary claim for recurring arrears must be instituted within the applicable limitation period.

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