Andhra HC (Pre-Telangana)
Vikas Jalan vs Nucon Industries Private Limited, ... on 20 August, 1998
Equivalent citations: 1998(5)ALD402, [2001]103COMPCAS343(AP)
ORDER
1. This is an application filed under Section 433 (c) of the Companies Act for winding up the respondent/Company on the ground of its inability to pay debt.
2. It is a matter of record that on 14-10-1997, Vikas Trust through its trustee S.K. Jalan had filed this application alleging that the respondent/Company was indebted to the petitioner to the extent of Rs,6 lakhs as principal and Rs.2,80,000/- as interest calculated at the rate of 10 percent per annum as on 30-9-1987 totalling to Rs.8,80,000/-which amount the respondent/Company did not pay inspite of demand made through registered notice dated 20-9-1987 and statutory notice under Section 434 of the Indian Companies Act, (for short 'the Act') dated 17-11-1987. On 28-9-1988, on the application of Vikas Jalan in CA 171 of 1988 for deleting the name of Vikas Trust and substituting his name in the place of Vikas Trust as the petitioner on the ground that he was the sole beneficiary in the Trust and since he had attained majority on 2-6-1988, as per the terms of the deed, Vikas Trust stood dissolved and the property had vested in him, this Court allowed the application in the absence of opposition by the trustees and observed that the objection of the respondent/Company regarding the maintainability of the petition on the ground of non-joiner of the other trustees at the time of institution of the petition can be, gone into at the hearing of the petition. Thus the name of Vikas Jalan has been substituted in the place of Vikas Trust as the petitioner.
3. The respondent/Company through its counter has denied the claim of the petitioner. O.P. Jalan, and R.K. Jalan are the sons of S.K. Jalan. They constituted a joint Hindu family with two more sons of S.K. Jalan. The petitioner, is the son of O.P. Jalan. This joint Hindu family had 2/3rd share in Deccan Enterprises P. Ltd. (for short 'Deccan', Deccan Polymer Ltd. (for short, 'Polymer'), respondent/Company Nucon Industries Pvt. Ltd. (for short, 'Nucon') and 20 per cent equity/stroke in Amintit Rubber Industries Ltd. (for short, 'ARIL'). This joint Hindu family also got 67 per cent share in the partnership firm named and styled as the Secunderabad Commercial Company (for short, 'SCC'). These private limited Companies and the partnership firm were floated by R.K. Jalan and one R. Khemka whose family had 33 per cent in Deccan, Nucon, Polymer and SCC. The father of the petitioner, namely O.P. Jalan, was appointed Managing Director of Deccan on 1-2-1969. He was also appointed Managing Director of Nucon. He was looking after the affairs of SCC. He worked in that capacity till 14-12-1984. Thereafter, R.K. Jalan had become the Managing Director of these Companies.. The said O.P. Jalan had badly mismanaged the affairs of the Companies due to which it was put to heavy losses. He had borrowed substantial amounts from Andhra Bank and had given an undertaking to it on 26-6-1991 not to withdraw the unsecured loans worth Rs.32 lakhs from Nucon. Similar undertaking was given in the year 1983. On 12-10-1981, the petitioner, Vikas Trust was appointed as the selling agents of Nucon for a period of 5 years and Vikas Trust had deposited a sum of Rs.6 lakhs with Nucon which had agreed to pay interest at the rate of 10 per cent per annum to Vikas Trust. Later, Vikas Trust had agreed that no interest would be paid in future by Nucon to any one of the selling agents after the month of March, 1983. The petitioner, Vikas Trust, was liable to bear the proportionate losses which had been incurred by Nucon during the period of subsistence of the agreement of Agency that is from 12-10-1981 to 11-10-1987. The respondent/Nucon had lent large sums of money to the applicant Vikas Tnist and as on 1-3-1988, a sum of Rs.2,09,052.71 was due to Vikas Trust. SCC had also advanced money from time to time to Vikas Trust and as on 20-10-1984, Vikas Trust was liable to pay Rs.2,68,000/- to SCC. There is an agreement for arbitration in the event of dispute between Vikas Trust and the respondent/Nucon Company. It is also alleged that besides S. K. Jalan. there are two more trustees. The sum of Rs.6 lakhs represent the contribution of O.P. Jalan to make up the losses incurred by Nucon. Vikas Trust did not procure a single order to boost the sales and marketing of Nucon as a result of which Nucon has suffered losses. The loss is to be adjusted against the sum of Rs.6 lakhs of Vikas Trust. It is lastly alleged that the application has been filed with ulterior motives and the financial condition of Nucon is not at all alarming. It is making profits.
4. On 25-2-1994 by a separate order, the Company Petition was admitted. It was observed that if during the enquiry it was found that the petitioner is liable to pay Rs.2,09,052.71 to the respondent as also Rs.2,68,000/- to the sister firm that is SCC, it would be a valid and substantial defence applicable to the respondent/Nucon to oppose the winding up, but that cannot be decided unless the parties adduce evidence before the Court. The order admitting the application dated 25-2-1994 was challenged in appeal OSA 35 of 1994. The appellate Court stayed only passing of the final order. The evidence of Vikas Jalan was recorded on 4-1-1995 and 5-1-1995 while the evidence of R.N. Jalan, Managing Director of the respondent/Nucon was recorded in parts on 8-3-1995, 15-3-1995, 25-7-1995, 28-7-1995 and 11-8-1995. "The appellate Court in OSA 35 of 1994 ordered that the Company Court may proceed with the hearing of the case and should deliver the judgment but directed tliat whatever order is passed should not be implemented. The respondent/Company filed an application CA 224 of 1996 for staying the proceedings or in the alternative for dismissal of the petition on the ground that it has abused the process of the Court. The application was rejected on 4-10-1996 and the Company Court directed tliat advertisement of the petition should be made in newspapers. This order was challenged in appeal in OSA 15 of 1996. The appellate Court ordered that the Company Judge should examine and record its finding as a preliminary issue whether in fact there is a debt due to be paid to the rcspondcnl/Nucon. If the debt is found to be genuine, further proceedings of publication of winding up the Company shall be gone through and the matter be decided in accordance with law and accordingly the appeal was disposed of.
5. I have heard Shri, Y. Ratnakar, learned Advocate on behalf of the applicants well as Shri S. Ravi, learned Counsel of the respondent/Nucon Company.
6. It has been argued on behalf of the applicant tliat in pursuance of the agreement, Ex.A3, dated 12-10-1981, Vikas Trust had furnished a cash security deposit of Rs.6,00,000/- with the respondent/Nucon through cheque and the respondent/Nucoti has issued a receipt-on 31-10-1981, Ex.A4. The agreement was for a period of 5 years from 12-10-1981. The amount of security deposit carried interest at the rate of 10 per cent per annum payable quarterly. The balance sheet of the respondent/Nucon, Ex.A19, shows in Schedule 'D' deposits from dealer amounting to Rs.45 lakhs which includes Rs.6 lakhs deposited by Vikas Tmst. In the books of the respondent/Nucon, an amount of Rs.2,04,997.69 has been shown at the outstanding credit in the name of Vikas Trust. As per the agreement 2 per cent interest per annum was agreed to be paid by the respondent/Nucon to Vikas Trust after the expiry of the agency period. Therefore, as on 12-11-1997, the applicant was entitled to claim Rs. 1,15,93,904.52.
7. On the other hand, it has been contended on behalf of the respondent/Nucon that there is evidence on record which shows that Deccan, Nucon - the respondent/Company, and Polymer had been floated by the joint Hindu family consisting of S.P. Jalan and his two sons, namely Q.P. Jalan - father of the petitioner, and R.N. Jalan, Managing Director of Nucon as also two other sons. SCC is also the property of the said joint Hindu family. Vikas Trust was also a joint family business. O.P. Jalan being the Managing Director of the said Companies, was incharge of the affairs of all the Companies and the firm SCC, and used to make entries in the books of accounts of and on as desired by him and he was also responsible for the losses caused to the Companies and, therefore, until the accounts arc finalised, it cannot be said that Vikas Tmst is entitled for any amount from the respondent/ Nucon. It has also been contended that Vikas Tmst had actually no funds to advance to the respondent/Nucon because there is no evidence on record that Vikas Trust had sufficient funds to make the security deposit of Rs.6 lakhs on 12-10-1981. It has also been contended that Vikas Tmst was liable to pay Rs.2:09,052.71 to the rcspondcnt/Nucon and Rs.2,99,359.85 to SCC. Similarly Subhkarcm Omprakash, a joint Hindu family of which the applicant is a member, is indebted to SCC in the sum of Rs.3,02,001.15 and these amounts are liable to be adjusted against the alleged deposit of Rs.6 lakhs. Under these circumstances, a bona fide case has been set up by the respondent/Nucon and, therefore, the application for winding up ttie Company cannot be admitted. It lias further been contended by the learned Counsel of the rcspondcnt/Nucon that the application is not maintainable because the other two trustees of Vikas Trust were not impleadcd in the application in contravention of Section 48 of the Tmst Act. It has been lastly contended on behalf of the respondent/ Nucon that as per the Trust Deed, Smt. Kavita Jalan had equal share with the applicant in the Trust property and without joining her the petition is not maintainable under Section 45 of the Contract Act.
8. The first point that falls for determination is whether Vikas Tmst had deposited as security deposit the sum of Rs.6 lakhs with the respondent/Nucon which carried interest of 10 per cent per annum?
9. I get from the evidence of Vikas Jalan, PW1, that on 12-10-1981, a selling, agency agreement between Vikas Trust and the respondent/Nucon was entered into vide Agreement Ex.A3 and in pursuance thereof, a security deposit of Rs.6 lakhs was furnished to the respondent/Nucon through cheque and receipt, Ex.A4 was issued on 31-10-1981 evidencing the receipt of Rs.6 lakhs from Vikas Trust. This amount carried interest at the rate of 10 per cent per annum payable quarterly. The agreement had expired after five years from 12-10-1981 as per Clause 3 of the Agreement, Ex.A3. I also get from his evidence that the Trust was created by the maternal grandfather of Vikas Jalan, namely C.P. Modi who had contributed approximately a sum of Rs.5,000/- in the year 1976 when he created Vikas Trust. It is pertinent to note that in Para 4(w) of the counter it has been specifically pleaded that in pursuance of the selling agency agreement between Vikas Tmst and the" respondent/Nucon executed on 12-10-1981, Vikas Tmst had deposited the sum of Rs.6 lakhs with the respondent/Nucon and it was agreed that this deposit shall cam' interest at the rate of 10 per cent per annum. Again in Para 5 of the Additional Counter Affidavit, it is shown that Vikas Trust has deposited Rs.6 lakhs with the respondent/ Nucon Company. R.K. Jalan, RW1 in his cxamination-in-chicf, has stated that C.P. Modi, the father-in-law of O.P. Jalan, had formed Vikas Trust and according to this witness, the initial corpus of Vikas Tmst was Rs.5,000/-. Till the year 1983, interest was credited against the credit entries of the Trust. In cross-examination, he has admitted that Vikas Trust was created for the benefit of the son and daughter of O.P. Jalan. He has also stated that as on 13-3-1992, the deposit received from .Yikas Trust shows a credit balance of Rs.2,04,997.69 in the books of the respondent/Nucon. It is pertinent to note that in the counter as also in the additional counter, it has not been alleged that Vikas Trust had no capacity to pay the amount of Rs.6 lakhs to the respondent/Nucon on 12-10-1981. Therefore, no amount of evidence can be looked into regarding the alleged incapacity of Vikas Trust to pay Rs.6 lakhs to the respondent/ Nucon on 12-10-1981.
10. As noted above, the respondent/ Company in Para 4(\v) of the Counter has specifically admitted that the amount of Rs.6 lakhs has been deposited by Vikas Trust with the respondent/Nucon and this amount carried interest at the rate of 10 per cent per annum. This clinches the issue. Therefore, it does not lie in the mouth of the respondent/Company now to urge that Vikas Trust had no funds to make the payment on 12-10-1981 or the amount was not deposited by Vikas Trust with Nucon.
11. As noted above, from the evidence of Vikas Jalan, PW1, and K.N. Jalan, RWI, it is established that Vikas Trust was created by C.P. Modi, the maternal grandfather of Vikas Jalan and his sister Kavita Jalan and, therefore, by no stretch of imagination, it can be said that Vikas Trust was created by the aforesaid joint Hindu family of Jalans.
12. It is too well settled that private limited Companies are separate legal entities and they cannot, therefore, be legally called as the properties of the joint Hindu family, particularly when, according to the own showing of the respondent/Nucon, the said joint Hindu family of Jalans had only 2/3rd share in the names of different members of the joint Hindu family in Deccan, Nucon, Polymer and 20 per cent equity stroke in ARIL as also 67 per cent in SCC. Even for the sake of arguments, it is assumed that the said shares in those Companies are the properties of the joint Hindu family consisting of S.K. Jalan, O.P. Jalan, R.N. Jalan and two other sons of S.K. Jalan, the inter se dispute between these members regarding claim and counter claim is wholly inconsequential and irrelevant so far as the claim of the third party that is Vikas Trust is concerned, because, as noted above, Vikas Trust was not the property of the said joint Hindu family, but this trust was created by the maternal grandfather of the applicant, Vikas Jalan, for the benefit of the , applicant Vikas Jalan and his sister Kavita Jalan. Under these circumstances, even if the alleged liability of S.K. Jalan is to be worked out, on account of his alleged defaults in managing the affairs of Deccan, Nucon, Polymer etc., the liability cannot be fastened to the beneficiaries of the Vikas Trust, that is to say the applicant Vikas Jalan and Smt. Kavita Jalan.
13. Admittedly, there were other selling agencies of Nucon, There is no reliable evidence on record that Vikas Trust did not sell the goods of Nucon and, therefore, Nucon had a right to recover the alleged losses from Vikas Trust for its alleged inaction. There is also no material on record that after the expiry of the selling agency agreement on 12-10-1986, the respondent/Nucon had ever calculated the alleged losses due to the alleged inaction of Vikas Trust, much less filed a suit for recovery of the alleged losses.
14. It is settled law that a defendant can claim set off in an action for recovery of money only when two conditions are fulfilled, namely (1) that the set off must be for an ascertained sum of money and (2) the set off money must be legally recoverable from the plaintiff by the defendant. The respondent/ Nucon has not pleaded what is the actual amount of the alleged loss to be recovered from Vikas Trust and secondly there is also no material on record that a suit has been filed against Vikas Trust for the recovery of that amount within limitation. Therefore, it can be safely concluded that the alleged unascertained loss is barred by limitation. Under these circumstances, even if it assumed for the1 sake of arguments that the respondent/Company had a right to set off, the right is extinguished with the lapse of time. Similarly, the alleged claim of Rs.2,99,359.85 of SCC against Vikas Trust appears to be barred by limitation, because, on the own showing of the respondent/Company, this amount was due as on 24-10-1984 and no suit for recovery of the same has been filed. Therefore, it cannot be said that the respondent/ Company has got a bom fide and/or probable defence to make, because, even if the applicant is directed to go to the Civil Court, the respondcnt/Nucon shall not be able to claim set off for the aforesaid two reasons. Similarly, SCC shall not be able to claim set off because the alleged debt docs not appear to be legally recoverable now. It is also not out of place to mention that R.N. Man, RW1, has admitted in cross-examination that as on 31-3-1992, deposit received from Vikas Trust shows a credit balance of Rs.2,04,997,69 in the books of account of the respondent/ Nucon.
15. Tims, on assessment of the evidence on record, I reach the conclusion that the respondent/Company was indebted to Vikas Trust in the sum of Rs.8,80,000/- with interest as on 30-9-1987.
16. On perusal of the trust deed, it appears that there were three trustees in addition to S.K. Jalan. Clause 5 of the Trust deed says that when the beneficiaries Vikas Jalan and Kavita Jalan would become major the trustees shall pay in equal shares the trust properties and investments and with the majority of Vikas Jalan the trust shall stand dissolved.
17. Vikas Jalan, PW1, has testified that his sister Kavita Jalan had become major on 15-5-1985. This witness had become major on 2-6-1988. Thus, as per the terms of Clause 5 of the trust deed, Vikas Trust stood dissolved on 2-6-1988. Kavita Jalan was entitled to claim her half share in the trust property on attaining her majority, that is to say on 15-5-1985.
18. Learned Counsel of the respondent/ Company has argued on the strength of Section 48 of the Trust Act, 1942 (for short, 'the Trust Act'}, that there were three trustees of Vikas Trust, therefore, one of the trustees, namely S.K. Jalan alone had no right to file this application for winding up the respondent/ Company. The other two trustees were necessary parties to the application. Even assuming that they had not agreed to file the application, the remedy of S. K. Jalan was to make them as co-respondents so that all the parties should have been on record for proper adjudication of the dispute. Reliance has been placed on the case of Vedakannu Nadar & Others v. Nanguneri Taluk Singikulam Annadana Chatram and others, AIR 1938 Madras 9S2, Ramesh Chandra Roy v. Hemendra Kiunar Roy, AIR (36) 1949. Calcutta 519, H. E. H. The Nizam's Jewellery Trust, AIR 1980 SC 17 and Dull Chand v. M/s. Mahabir Pershad Trilok Chand Charitable Trust, AIR 1984 Delhi 145. It has also been argued that under Section. 45 of the Contract Act, the co-promisees should join hands for action for promise breaker and if one of the joint promisees docs not join hands with the other one, he should be made as a co-defendant so that the necessary and proper parties should be on record. A single person cannot sue for the other joint promisees. AH the living joint promisees must be joined in a suit to enforce a debt due to them. Because Kavita Jalan has not been made a party either as the applicant or as the respondent, the application for winding up deserves to be dismissed, because, Vikas Jalan is alone not entitled to take action against the respondent/ Company on the strength of the claim of Rs.6,00,000/- for which amount Kavita Jalan was also entitled to.
19. True that all the trustees must join in I execution of the trust. In other words, in case I of co-trustees, the office being joint, all the trustees should jointly take action against any person in relation to the trust property and only one trustee is not empowered to execute the trust unless the instrument of the trust so provides. But the defect is of a formal nature and omission to include other trustee amounts only to irregularity. It has been held in the case of S. V. Daniel v. G. W. Friendly Trust, AIR 1959 All. 571, that the defect can be allowed to be removed at any stage of the proceedings. Where co-trustee has not been impleadcd as a party to the proceedings, even if the suit is not initially entcrtainable by the Court, it has got jurisdiction to allow the amendment of the plaint by impleading the other trustees, vide Duli Chand (supra).
20. As noted above, the trust was dissolved during the pendency of these proceedings on 2-6-1988 and Vikas Jalan has been substituted in the place of the Trust. This subsequent event cannot be lost sight of. Vikas Man has stated in his evidence that the share of Kavita John had been paid to her after she had attained majority. Therefore, it is only he who is entitled to claim the remaining properties of Vikas Trust including the claim made in this application. He has not furnished any documentary evidence on record in support of his say. He has also not examined Kavita Jalan to corroborate his testimony. If 50 per cent of share of Kavita Jalan has been discharged on her attaining the majority, it cannot be said that the application is bad for non-joinder of Kavita Jalan, on the strength of Section 45 of the Contract Act. No issue had been framed regarding the maintainability for non-joinder of the co-trustees and the nonjoinder of Kavita Jalan, It was not specifically pleaded by the rcspondent/Nucon that the application is not maintainable because co-trustees were not made parties to the application. Though it has been stated that there are other two trustees, the effect of not joining them has not been categorically pleaded. Similarly, there is no pleading that the application is bad for non-joinder of Kavita Jalan. Under these circumstances, it appears that Vikas Jalan had no occasion to file and prove documents evidencing payment of the share to Kavita Jalan on her attaining majority as also to examine her in an attempt to corroborate his statement. The effect of not joining the trustees in the light of the dissolution of the Trust on 2-6-1988 is also a serious question to be decided.
21. Whether the rcspondent/Nucon was indebted to Vikas Trust in reality or not is a separate question and whether Vikas Trust or Vikas Jalan is entitled to recover that amount is altogether a different question. At the time of admission of the petition, the limited question that falls for determination is whether the debt is genuine and whether the respondent/Nucon has got a bona fide and probable defence to make on facts and law.
22. For the reasons aforesaid, I reach the conclusion that only after giving an opportunity to the applicant to lead evidence regarding the payment of half share to Kavita Jalan or in the alternative after giving him an opportunity to make an application for addition of necessary parties, the question of maintainability of the petition on account of non-joinder of necessary and proper parties can be decided, particularly when this question docs not appear to be necessarily decided at the time of deciding the preliminary issue as the appellate Court in the impugned order dated 29-10-1996 in OSA 15 of 1996 has clearly ordered that the Company Court shall decide whether the debt is genuine or not and if the debt is found to be genuine one, further proceedings of winding up shall be gone through and the matter be decided according to law. Therefore, the other matter that is regarding the maintainability is to be decided in accordance with law after the publication is made as I have found that the debt is genuine.
23. In the result, I order that the making of this order of the admission of the petition should be advertised in one issue of Deccan Chronicle an English daily, and one issue of Eenadu, a Telugu daily as per rules and proof of publication should be filed by the next date.