Telangana High Court
Indo Infotech Ltd., Srinagar Colony ... vs M/S. Lms International Nv At Belgium ... on 17 April, 2025
Author: Abhinand Kumar Shavili
Bench: Abhinand Kumar Shavili
THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI
AND
THE HON'BLE SMT. JUSTICE TIRUMALA DEVI EADA
CITY CIVIL COURT APPEAL No.64 OF 2009
JUDGMENT:(Per Hon'ble Smt. Justice Tirumala Devi Eada) This is an appeal filed by the appellants being aggrieved by the judgment and decree, dated 13.11.2008, passed in O.S.No.36 of 2004 by the learned III Additional Chief Judge, City Civil Court at Hyderabad (for short "the trial Court").
2. The appellants herein are the defendants and the respondent herein is the plaintiff before the trial Court and the parties herein are referred to as they were arrayed in the suit before the trial Court for the sake of convenience and clarity.
3. The brief facts of the case before the trial Court are that the plaintiff is the business organization engaged in designing, developing, selling, licencing and marketing various software systems for Vibro-accoustic CAE and Optimization and related documentation and also in the business of developing, selling and marketing the related consulting and customized development services. The 1st defendant company is registered under the Companies Act and defendants No.2 to 5 are its Directors on Board during the relevant period. The 1st defendant company AKS,J & ETD,J CCCA No.64_2009 2 desired to obtain the right to sub-license the software products of the plaintiff and to market the consulting and customized development services of the plaintiff in the Indian market and therefore, the 1st defendant company approached the plaintiff as distributor and the plaintiff appointed the 1st defendant company as its distributor vide agreement dated 01.06.1997. During the course of business, the 1st defendant placed various purchase orders and the plaintiff supplied them accordingly and the said relationship continued for a considerable period of time, after which the 1st defendant was terminated from the distributorship as it committed certain violations to the agreed terms and conditions. The plaintiff has not received the price of the software products supplied to the 1st defendant company under various invoices as mentioned in the plaint. Thus, the 1st defendant has fallen due to pay the suit amount. Inspite of several demands made by the plaintiff, the 1st defendant has not paid the amount. Finally, the plaintiff got issued a notice dated 05.04.2002 and the 1st defendant company instead of making the payments has replied on 09.04.2002. Thus, the present suit is filed claiming an amount of Rs.2,11,86,590/- with interest at 18%.
4. The 1st defendant has filed written statement denying the averments of the plaint and has contended that the defendants 2 AKS,J & ETD,J CCCA No.64_2009 3 to 5 are only the representatives of the 1st defendant company and that they have no personal liability. They admitted that 1st defendant is the distributor of plaintiff in India through an agreement dated 01.06.1997 and the defendant never violated the agreed terms and conditions of the agreement. Therefore, there is no cause of action to file the suit.
5. Defendant Nos.2 to 5 remained ex parte but the record shows that the 3rd defendant was permitted to participate in the trial without filing any written statement.
6. Based on the above pleadings, the trial Court has framed the following issues:
"1) Whether defendants 2 to 5 have no liability personally to the acts of the 1st defendant-
company? If so, whether it is a fit case to lift corporate veil of the 1st defendant-company?
2) Whether the 1st defendant violated terms of agreement dated 01-06-1997?
3) Whether the suit instituted on 15.12.2003 is not within time?
4) Whether as per the agreement, the Courts of Leuvan alone has jurisdiction to try the suit?
5) Whether the plaintiff is entitled to suit claim?
6) To what relief?"
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7. At the time of trial, the plaintiff got examined PW1 and got marked Exs.A1 to A46. On behalf of the defendants, DW1 got examined and Ex.B1 was marked.
8. Based on the evidence on record, the trial Court has decreed the suit Aggrieved by the said judgment and decree, the present appeal is filed by the defendants.
9. Heard the submission of Sri S.Ravi, learned counsel for the appellants and Sri K.Raghava Charyulu, learned counsel for the respondent.
10. The learned appellants counsel has submitted that the trial Court ought to have held that the plaintiff has failed to prove its case and that the defendants No.2 to 5 are not personally liable. They further contended that the suit claim is barred by limitation and that the trial Court failed to appreciate the same. He further argued that the concept of corporate veil can be pierced only when it is proved that a corporate entity is abused for an unjust and inequitable purpose but the averments of the plaint do not make out any case for lifting the corporate veil and no evidence was adduced by the plaintiff but still the trial Court has decreed the suit against defendant Nos.1 to 5, which is bad in law. He therefore, prayed to dismiss the suit by allowing this appeal AKS,J & ETD,J CCCA No.64_2009 5
11. The learned respondent counsel has submitted that the trial Court has appreciated the evidence on record and thus, decreed the suit and hence, prayed to uphold the same.
12. Based on the above rival submissions, this Court frames the following points for consideration:
1. Whether the plaintiff is entitled to recover the suit amount from the defendants? If so, from which of the defendants?
2) Whether the judgment and decree of the trial Court are sustainable in law and under the facts?
3) To what relief? 13. POINT NO.1: a) The plaintiff's case is that the 1st defendant used to market
the 'consulting and customized development services' of the plaintiff in the Indian Market and the 1st defendant is the distributor of the software developed by the plaintiff, but the 1st defendant failed to repay the amount for the software services extended by the plaintiff, while the contention of the defendant is that the 1st defendant has never violated any terms and that it is not liable to pay any amount to the plaintiff. Admittedly, the defendant No.1 is a distributor to the plaintiff company for various software systems and they have entered into an agreement and AKS,J & ETD,J CCCA No.64_2009 6 according to the plaintiff, it supplied software to 1st defendant under invoices filed in Exs.A3 to A14.
b) A perusal of the said exhibits reveals that they are invoices and order forms and they clearly disclose that they are billed to Indo-Infotech, in pursuance of its purchase order placed with LMC. Thus, it reveals that the Indo Infotech placed a purchase order and in pursuance of which an order form was placed and a bill is issued to Indo infotech and the end users name is also printed on the right side column in the said invoices and the price under each bill is also displayed. Therefore, through these exhibits the plaintiff could place it on record that it supplied certain software services to the 1st defendant and the 1st defendant inturn was selling it to the end users. Several emails were sent to the 1st defendant under Exs.A29 to A31 and the 1st defendant is disputing these invoices and emails.
c) PW1 deposed about the said fact of invoices raised by the 1st defendant and nothing material could be elicited during his cross examination to disprove the said invoices. Ex.A2 is the copy of account extract. The contention of the defendants is that the emails attained the colour of secondary evidence and thus, the said emails are not proved but it is borne out by record that the plaintiff after obtaining orders of the Court to adduce secondary AKS,J & ETD,J CCCA No.64_2009 7 evidence with regard to emails they have filed the same, as the originals are not available with the plaintiff. Even if keeping these emails aside, the invoices under Exs.A3 to A14 prove that the 1st defendant is the distributor and it has placed orders to the plaintiff and received supplies accordingly.
d) DW1 in his cross examination has admitted the said transactions of receiving software from the plaintiff company and also about the non-payment of amount for the same.
e) Exs.A32 and A33 are addressed by defendant No.1 to the plaintiff company with a request for renewal of license to Sysnoise Software supplied to DMDE and there is also a reference to the purchase order. Ex.A40 is the legal notice issued by the defendant to plaintiff. At paragraph No.3 in Ex.A40 the defendant No.1 has admitted that they have placed an order for supply of SYSNOISE 5.4 software to DMDE, Hyderabad and that an amount of Rs.7.67 lakhs has been remitted by the 1st defendant on 19.05.2000 and also that the software was defective right from the day of delivery and that the plaintiff has not rectified the same. A perusal of the e-mails reveals that time and again a mail was being sent to the 1st defendant saying that they would wait for the pay back proposal before taking any additional commitment and it has also intimated through its mail on 12.12.2000 that the AKS,J & ETD,J CCCA No.64_2009 8 plaintiff company is not willing to give any additional commitment to Indo infotech regarding the training as long as they do not have any clarity from the defendant about paying back the dues to the plaintiff company. Thus, there has been a constant communication between the two companies.
f) Certain terms and conditions are laid down under Ex.A1 which is the Distributor Agreement for making payments. At clause No.8.3 of the said agreement, it is mentioned that the distributor will pay the plaintiff company by "bank transfer convertible to Belgian 'francs' and without further charges", within a period of 30 days following the date of delivery.
g) It is revealed from the emails that, repeatedly the plaintiff has been making demands for months together but the defendants have failed to pay the same. Therefore, there is a violation of clause No.8.3 in the terms and conditions laid down under Ex.A1. Thus, it is held that the defendant No.1 is liable to make payment to the plaintiff as claimed in the suit.
h) It is further elicited that defendant No.1 is a registered company and defendant Nos.2 to 5 are the directors. The trial Court has fastened the liability against defendant Nos.2 to 5 in their personal capacity along with defendant No.1.
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i) In Sunil Bharti Mittal v. CBI 1, the Apex Court has held that the directors/officers of the company cannot be made accused for corporate offences in the absence of allegations of their active involvement and also the same principle was reaffirmed in the case of Sanjay Dutt v. State of Haryana 2, wherein the Apex Court has held that the directors cannot be automatically held liable for the acts committed by a company unless specific statutory provisions impose such liability or their personal involvement is established.
j) In the light of the said decision and in the facts and circumstances of the case, it is held that the defendant No.1 company is liable to pay the amount claimed in the suit but defendant Nos.2 to 5 are not. Point No.1 is answered accordingly.
14. POINT NO.2:
In view of the reasoned findings arrived at point No.1, it is held that the judgment and decree passed by the trial Court need to be modified to the extent of fixing the liability only on defendant No.1, while exonerating the defendants No.2 to 5.1
AIR 2015 SC 923 2 2025 LiveLaw (SC) 32 AKS,J & ETD,J CCCA No.64_2009 10
15. POINT NO.3:
In the result, the appeal is partly allowed by modifying the judgment and decree, dated 13.11.2008 passed in O.S.No.36 of 2004 by the learned III Additional Chief Judge, City Civil Court at Hyderabad, by fixing the liability solely on defendant No.1 and exonerating defendants No.2 to 5 from the liability. No costs.
Miscellaneous Applications, if any, pending in this appeal shall stand closed.
________________________________ ABHINAND KUMAR SHAVILI, J ___________________________ TIRUMALA DEVI EADA, J Date: 17.04.2025 ns