J&K High Court | Legal Heirs of Company Director Lack Locus to Sue | Only Shareholders or Directors Can Maintain Action Over Company Property
Isabella Mariam
The High Court of Jammu & Kashmir and Ladakh, Single Bench of Justice Javed Iqbal Wani, delivered an order on 13 August 2025, allowing a revision petition and setting aside an earlier order passed by the Trial Court. The court directed the rejection of the suit filed by the respondents on the ground that the plaint failed to disclose a cause of action. The decision clarified that the respondents, who had filed the suit seeking permanent and mandatory injunctions, did not possess the legal right to sue, as the leased property and the industrial unit in question were held in the name of a registered company, a distinct legal entity.
The High Court concluded that only the company, through its authorized representatives such as shareholders or directors, could have instituted legal proceedings concerning the leased property and the industrial unit established thereupon. Consequently, the order of the Subordinate Judge/Forest Magistrate, Srinagar, which had dismissed the petitioner’s application under Order 7 Rule 11 of the Code of Civil Procedure, was set aside. The High Court held that the application for rejection of the plaint ought to have been allowed and accordingly rejected the suit.
The case originated when the respondents instituted a civil suit before the Court of the Civil Subordinate Judge/Forest Magistrate, Srinagar. The respondents sought permanent prohibitory and mandatory injunctions against the petitioner. The plaintiffs claimed that they were lessees in possession of a parcel of land measuring 18 kanals situated at the Industrial Estate, Khonmoh, along with a factory established thereon. The land had originally been allotted by the State Industrial Development Corporation (SIDCO) in 1985 to the father of the plaintiffs, who was the Managing Director of M/s Hamid Oil Mills Private Limited, a company incorporated under the Companies Act.
According to the plaintiffs, after their father’s death in 2009, they initiated steps to revive the industrial unit, which had remained non-functional for years due to his prolonged illness. The plaintiffs alleged that during this process, the defendant unlawfully encroached upon the property, stole various articles including four motors, caused loss and damage to the factory property, and attempted to usurp the unit with the aid of external elements described as “land mafia.” The plaintiffs claimed that repeated requests to the defendant to desist from such activities went unheeded, necessitating the filing of the suit.
In the plaint, the plaintiffs prayed for two specific reliefs. First, they sought a decree of permanent prohibitory injunction to restrain the defendant from entering into the factory premises, causing damage to property or machinery, and from interfering with the land or premises of Hamid Oil Mills Private Limited. Second, they sought a decree of mandatory injunction commanding the authorities, including officers of SIDCO, to restrain the defendant and initiate penal action against him.
In response, the defendant filed a written statement contesting the suit and simultaneously moved an application under Order 7 Rule 11 of the Code of Civil Procedure. The application sought rejection of the plaint on the grounds that the plaintiffs lacked the locus standi to maintain the suit. The defendant contended that the leased property had been granted by SIDCO to M/s Hamid Oil Mills Private Limited, a corporate entity distinct from the plaintiffs. Therefore, the company alone, acting through its directors or shareholders, was competent to institute legal proceedings concerning its property and business operations. According to the defendant, the suit disclosed no cause of action as understood under the law.
The plaintiffs opposed the application by filing objections. They maintained that they were in possession of the leased property and industrial unit by virtue of succession and were entitled to protect their rights against unlawful encroachment and interference by the defendant.
Upon consideration, the Trial Court dismissed the defendant’s application under Order 7 Rule 11 CPC, holding that the plaint disclosed a cause of action and was thus maintainable. This dismissal prompted the defendant to approach the High Court of Jammu & Kashmir and Ladakh by way of a revision petition filed under Section 115 of the Code of Civil Procedure.
The High Court heard arguments from both sides and perused the record, including the lease deed dated 4 May 1985 executed between SIDCO and M/s Hamid Oil Mills Private Limited, as well as the pleadings filed in the suit. The pivotal legal issue before the High Court was whether the plaint disclosed a cause of action and whether the plaintiffs had the right to sue in their individual capacity.
The petitioner relied on judicial precedents, including the decision of the Supreme Court in Dahiben v. Arvindbhai Kalyanji, reported in (2020) 7 SCC 366, which laid down the principles governing rejection of plaints under Order 7 Rule 11 CPC. The petitioner argued that the Trial Court had erred by ignoring the settled law and by failing to scrutinize whether the plaintiffs had any legal right to sue.
On the other hand, the respondents reiterated their claims of possession and alleged illegal encroachment, contending that the plaint disclosed sufficient cause of action to proceed with the trial.
The High Court, after analyzing the pleadings, documents, and legal precedents, ultimately concluded that the plaintiffs had no locus to maintain the suit. The court found that the land and industrial unit were indisputably leased to the company, which was a separate legal entity under the Companies Act, and therefore the plaintiffs could not claim the status of lessees in their personal capacity.
Justice Javed Iqbal Wani extensively examined the provisions of Order 7 Rule 11 of the Code of Civil Procedure and cited the principles laid down by the Supreme Court. The judgment recorded that “the power conferred on a Court to terminate a civil action is a drastic one and that the conditions enumerated in Order 7 Rule 11 CPC are required to be strictly adhered to.” The court further stated that “under Order 7 Rule 11, CPC a duty is cast upon the Court to determine ‘inter alia’ whether the plaint discloses a cause of action by scrutinizing the averments in the plaint read in conjunction with the documents relied upon.”
It was noted that “when a document referred to in the plaint forms the basis of the plaint, it should be treated as a part of the plaint.” In this regard, the court stated that “if the allegations in the plaint prima facie show a cause of action, the Court cannot embark upon an inquiry whether the allegations are true.” However, “if on a meaningful reading of the plaint, it is found that the suit does not disclose right to sue, a cause of action or is barred by any law, the Court has no option but to reject the plaint.”
The judgment also observed that “it is the substance in the plaint and not merely the form which is to be looked into and that the plaint has to be construed as it stands without addition or subtraction of words.” In applying these principles to the present case, the High Court scrutinized the lease deed of 1985, which explicitly conferred leasehold rights upon M/s Hamid Oil Mills Private Limited, represented by its Managing Director.
Justice Wani recorded: “Since the land in question admittedly stands leased out to the M/s Hamid Oil Mills Private Limited pursuant to the lease deed dated 04.05.1985 and the factory/unit as well indisputedly stands in the name of said M/s Hamid Oil Mills Private Limited, the plaintiffs/respondents herein could not by any sense of imagination said to be possessed of a right to sue in the first place.”
The judgment further noted: “The plaint disclosing a cause of action more so in view of the fact, it could have been either a shareholder or the Director of the M/s Hamid Oil Mills competent alone to maintain the suit against the defendant for and on behalf of the said M/s Hamid Oil Mills which admittedly being a company, as a distinct legal entity could have sued the defendant.”
Reference was made to the Supreme Court judgement in S. S. Dhanoa v. Municipal Corporation Delhi, reported in (1981) 3 SCC 431. The High Court cited this precedent to reinforce the principle that a company is a distinct legal entity and that its rights must be enforced through authorized representatives, not private individuals claiming under personal capacity.
In conclusion, Justice Wani observed: “Having regard to the aforesaid position obtaining in the matter, the only inescapable conclusion that could be drawn that the plaintiffs/respondents herein did not have any right to sue inasmuch as the plaint as well did not disclose the cause of action. The Trial Court having overlooked these fundamental aspects in the matter seemingly has grossly erred in the law, while passing the impugned order.”
Based on the above observations, the High Court issued directives. Justice Wani stated: “Viewed thus the petition succeeds, as a consequence whereof the impugned order is set aside.” The judgment directed that “the application filed by the defendant/petitioner herein for rejection of plaint before the Trial Court is allowed.”
The court further ordered: “The plaint/suit filed by the plaintiffs/respondents herein is rejected for non-disclosure of cause of action.”
Advocates Representing the Parties
For the Petitioners: Mr. Shariq J. Reyaz, Advocate; Mr. Taha Khalil, Advocate
For the Respondents: Mr. Fayaz Ahmad Mir, Advocate
Case Title: Mir Mouzam v. Farhana Dilshad and Others
Case Number: CR 12/2023; CM 2466/2023
Bench: Justice Javed Iqbal Wani
