Company directors not personally liable for unpaid legal fees: Bengaluru Court

A Bengaluru civil court recently ruled in favour of law firm Krishnamurthy & Co. (K Law) in a suit seeking recovery of unpaid professional fees from Moerheim Roses and Trading India Private Limited, the Indian arm of a Dutch floriculture company. [K Law Vs Morheim Roses]

In a judgment delivered on October 3, Additional City Civil and Sessions Judge Shirin Javeed Ansari directed the company to pay ₹2.75 lakh towards outstanding legal fees, along with interest at 9 percent per annum.

However, the Court refused to hold the company's four directors personally liable for the dues.

"The mere fact that a person is a director of a company does not, by itself, make such person personally liable for every contractual or commercial obligation of the company," the Court observed.

The dispute arose from legal services rendered by K Law in connection with a petition before the Karnataka High Court in 2017.

According to the law firm, Moerheim Roses approached it through Delhi-based law firm Anand & Anand in January 2017.

K Law subsequently filed objections, moved an application seeking vacation of an interim stay and engaged senior counsel to represent the company's interests.

The firm raised invoices totalling ₹6.10 lakh, against which the company paid ₹3.35 lakh, leaving ₹2.75 lakh outstanding.

Despite repeated reminders and a legal notice, the outstanding amount remained unpaid.

K Law relied on email correspondence exchanged between 2021 and 2022 to establish that the company had acknowledged its liability and proposed payment arrangements.

The firm eventually approached the civil court in November 2023, seeking recovery of the outstanding amount with interest at 24 percent per annum.

The company and its directors failed to appear despite service of summons, following which the proceedings continued ex parte.

The Court found that the invoices, payment records and evidence of appearances before the Karnataka High Court established the outstanding liability.

However, it held that the directors could not be made personally responsible without evidence of an independent contractual undertaking or guarantee.

"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," the Court said.

The Court also rejected K Law's claim for 24 percent annual interest, finding no evidence of an agreement providing for that rate.

It instead awarded 9 percent annual interest from the date of institution of the suit until realisation, along with litigation costs.

Advocate Shujath Ahmed represented K Law

[Read Judgment]