Execution Proceedings | Directors Cannot Be Arrested For Company Debt Without Due Process : Madras High Court

The Madras High Court has reaffirmed the fundamental principle that directors of a company cannot be subjected to arrest in execution proceedings for a decree passed against the company alone. The judgment underscores the mandatory nature of means inquiry under Order XXI of the Civil Procedure Code and the legal distinction between a company and its directors, providing crucial safeguards against arbitrary arrest in debt recovery proceedings.

Background & Facts

The Dispute

The case originated from a decree passed by the Bombay High Court in Summary Suit No. 152 of 2009 against M/s Cheran Construction Ltd (the petitioner company). The decree was obtained through summary judgment, with the company being the sole defendant. The decree holders, M/s Hatim Glazing and Cladding Pvt Ltd, subsequently filed an Execution Petition (EP No. 197 of 2019) before the V Additional District Court, Coimbatore, seeking to enforce the decree.

Procedural Irregularities

The execution petition presented several legal infirmities:

• The petition arrayed three additional respondents - directors of the petitioner company - who were not parties to the original suit or the decree.
• No application was filed to proceed against the directors, nor was there any averment that they were guarantors or sureties for the company’s debt.
• The relief sought included the arrest of the company’s chairman, despite the absence of a means affidavit or a means inquiry as mandated by Order XXI Rule 40 CPC.
• The executing court proceeded ex parte against the respondents and ordered the arrest of the chairman without conducting the requisite inquiry.

Procedural History

The case progressed through the following stages:

• 2009: Summary suit filed in Bombay High Court against M/s Cheran Construction Ltd.
• 2019: Decree holders filed EP No. 197 of 2019 in Coimbatore District Court to execute the decree.
• 12.11.2025: V Additional District Court, Coimbatore, passed an ex parte order directing the arrest of the company’s chairman.
• 2025: The petitioner filed CRP No. 5962 of 2025 before the Madras High Court challenging the arrest order.

The Legal Issue

The central question before the court was whether directors of a company can be arrested in execution proceedings for a decree passed solely against the company, without:

1. A means inquiry under Order XXI Rule 40 CPC.
2. Proof that the directors were personally liable as guarantors or sureties.
3. Compliance with the procedural safeguards for arrest in execution.

Arguments Presented

For the Petitioner

The petitioner’s counsel, Mr. A.K. Sriram, advanced the following arguments:

• The decree was passed only against the company, which has a separate legal entity under the law. Directors cannot be held personally liable for the company’s debts unless they are expressly named as guarantors or sureties.
• The executing court failed to conduct a means inquiry, which is mandatory before ordering arrest under Order XXI Rule 40 CPC.
• The inclusion of directors in the execution petition was without legal basis, as they were not parties to the original suit or the decree.
• The order of arrest was passed ex parte without affording the petitioner an opportunity to file a counter, violating principles of natural justice.

For the Respondent

The respondents remained unrepresented, and no counter-arguments were presented.

The Court's Analysis

The Madras High Court conducted a meticulous analysis of the legal principles governing execution proceedings and the liability of directors for company debts.

Separate Legal Entity of a Company

The court reiterated the well-established principle that a company is a separate legal entity distinct from its directors or shareholders. Relying on the landmark judgment in Salomon v. Salomon & Co. Ltd., the court held that:

"When a decree is passed against a company, the execution proceedings must be confined to the company alone. Directors cannot be roped in unless they are expressly named as parties to the decree or are shown to be personally liable as guarantors or sureties."

In this case, the decree was passed solely against M/s Cheran Construction Ltd, and the directors were not parties to the original suit. The court emphasized that the executing court erred in extending the decree’s liability to the directors without legal justification.

Mandatory Nature of Means Inquiry

The court underscored the importance of Order XXI Rule 40 CPC, which mandates a means inquiry before ordering the arrest of a judgment debtor. The rule provides:

"Where an application is made for the arrest and detention in prison of a judgment-debtor, the Court shall, before ordering such arrest and detention, record its reasons for holding that the judgment-debtor, with the object or effect of delaying the execution of the decree, is likely to abscond or leave the local limits of the jurisdiction of the Court, or has dishonestly transferred, concealed, or removed any part of his property."

The court held that the executing court’s failure to conduct a means inquiry rendered the arrest order illegal and arbitrary. The mere filing of a means affidavit, without judicial consideration, does not satisfy the statutory requirement.

Procedural Safeguards and Natural Justice

The court also highlighted the violation of principles of natural justice in the executing court’s ex parte order. The petitioner was not afforded an opportunity to file a counter or present its case, which is a fundamental requirement in execution proceedings. The court observed:

"The executing court’s haste in ordering arrest without due process is impermissible. Execution proceedings must adhere to the rule of law, and arbitrary orders undermine the very foundation of justice."

The Verdict

The Madras High Court allowed the civil revision petition and set aside the order of arrest passed by the V Additional District Court, Coimbatore. The court directed the executing court to:

1. Provide the respondents an opportunity to file a counter.
2. Decide the execution petition on merits and in accordance with law.
3. Conduct a means inquiry before considering any coercive measures.
4. Confine the execution proceedings to the company alone, unless the decree holders establish the personal liability of the directors.

What This Means For Similar Cases

Directors Cannot Be Arrested Without Due Process

This judgment reinforces the principle that directors of a company cannot be subjected to arrest in execution proceedings for a decree against the company alone. Practitioners must ensure:

• The decree explicitly names the directors as parties or guarantors.
• A means inquiry is conducted before ordering arrest, as mandated by Order XXI Rule 40 CPC.
• The executing court adheres to principles of natural justice and provides an opportunity for the judgment debtor to be heard.

Execution Proceedings Must Respect Corporate Veil

The judgment serves as a reminder that the corporate veil cannot be pierced in execution proceedings without legal basis. Key takeaways include:

• A company’s debt cannot be automatically extended to its directors or shareholders.
• The decree holders must establish the personal liability of directors through evidence or legal provisions (e.g., Section 342 of the Companies Act, 2013).
• Courts must scrutinize execution petitions to ensure compliance with procedural safeguards.

Mandatory Compliance with Order XXI CPC

The judgment underscores the non-negotiable nature of procedural compliance in execution proceedings. Practitioners should note:

• Order XXI Rule 40 CPC requires a means inquiry before ordering arrest.
• Ex parte orders in execution proceedings are subject to strict judicial scrutiny.
• Failure to comply with procedural requirements may render the execution order void and unenforceable.