M/S. Prabhudas Gurmukhsingh & Sons vs M/S.G.V. Films on 30 June, 2011

[Cites 10, Cited by 1]

Madras High Court

M/S. Prabhudas Gurmukhsingh & Sons vs M/S.G.V. Films on 30 June, 2011

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 30.06.2011 CORAM THE HONOURABLE MR. JUSTICE S. PALANIVELU C.S.No.237 of 2005 M/s. Prabhudas Gurmukhsingh & Sons rep. By its Partner Mr.Giridharilal Prabhudas ... Plaintiff Vs

1.M/s.G.V. Films rep.by its Director

2.M/s.Sujatha Films

3. Mrs.Sujatha Venkateswaran ... Defendants Civil Suit filed under Order XXXVII Rule 1 of O.S. Rules Read with order XXXIV Rule 1 of C.P.C.

	       For Plaintiff		      :	 Mr. G.Govindarajan

	       For Defendants  	      :  Mr. G.A.Thiagarajan
						 for M/s. Rugan & Arya

						
					JUDGMNET

The Civil Suit is filed for a judgment and decree against the defendants 1 to 3 for a sum of Rs.57,99,700/- together with further interest at 18% per annum on Rs.25,00,000/- from the date of the plaint till the date of realisation and for a preliminary mortgage decree against the defendants directing them to pay the decretal amount of Rs.57,99,700/- with further interest and costs.

2. The plaint averments, in brief, are as follows:-

2.(a) The plaintiff are dealing various business activities including money lending and for this purpose they have formed a syndicate consisting various members and along with them the plaintiff used to carry on its business activities, that the 1st defendant company approached the plaintiff's firm during October 1999 with requisition for financial assistance to the tune of Rs.25,00,000/- and offered to give the property held by the 2nd defendant company situate at Door No.18/1, 5th Street, together with super structure in Second Floor, Lake Area, Nungambakkam, Chennai 34, as security and agreed to pay the interest on the amount to be advanced @ 1.5% per month, that the same was favourably considered and a sum of Rs.25 lakhs was advanced by the plaintiff and a bond was executed by the Managing Director and Chairman of the first defendant company Late Mr.G.Venkateswaran on 20.10.1999 and that the 1st defendant company had handed over the original title deeds of the said property to the plaintiff to secure the loan by creating equitable mortgage thereon.

2.(b) Subsequent to the above said transaction, Mr.G.Venkateswaran, Chairman and Managing Director of the 1st defendant company had borrowed various amounts to the tune of several lakhs from the plaintiff on various dates and kept on paying the interest therefor promptly based on the same security, that at one point of time as the amount borrowed by the 1st defendant company became huge, the Managing Director of the 1st defendant company offered to give title deeds pertaining to the ground and first floors of the above mentioned property held by the 2nd defendant as collateral security in addition to the title deed pertaining to the second floor of the said premises on which mortgage was created already, that the same was agreed by the plaintiff as additional collateral security for the amount advanced to the 1st defendant company, that Managing Director of the 1st and 2nd defendant companies have addressed various letters and bond to the plaintiff evidencing the amount borrowed by them then and there on various dates, that the 3rd defendant, wife of the Managing Director of the 1st defendant company, stood as guarantor in her personal capacity for the amount borrowed by the 1st defendant company from the plaintiff.

2.(c) During the month of January 2003, the Managing Director of the 1st defendant company had repaid the amount borrowed by the 1st defendant company from the plaintiff to some extent and requested the plaintiff to return the original title deeds pertaining to the ground and floors of the above mentioned property and further requested the plaintiff to retain the title deeds pertaining to the second floor of the above mentioned property and an endorsement to that effect was made by the then Chairman and Managing Director of the 1st defendant company in the bond dated 29.3.2001 and that though the money transactions between the plaintiff and the 1st defendant company are on various occasions then and there, the same are overlapping in nature and the same were treated as single transaction as the security offered by the 1st and 2nd defendants for these transactions are one and the same.

2.(d) As of April 2003, the 1st defendant company was due and liable to pay a sum of Rs.46,60,000/- towards principal and interest for which the 1st defendant company had issued ninety five post dated cheques in favour of the plaintiff drawn on State Bank of India, Alwarpet Branch, Chennai for various amounts totalling Rs.46,60,000/- in discharge of the above said liability to the plaintiff, that Mr.G.Venkateswaran, the Chairman and the Managing Director of the 1st defendant Company had committed suicide by hanging himself on 4.5.2003 and after that the plaintiff could not present the cheques issued by the 1st defendant company for want of instructions from the first defendant, that the plaintiff are given to understand that there are several claims as against the 1st and 2nd defendant companies by its various creditors and the 3rd defendant is taking secret steps to sell away the property mortgaged with the plaintiff to pay off the petty creditors who exert pressure on her, that as the mortgage with the plaintiff over the suit schedule property is only an equitable mortgage, the same will not reflect in the encumbrance certificate and that if the suit property is sold, the plaintiff being the mortgagee of the same will lose its security and ultimately they could not see the colour of the coin.

2.(e) The 1st defendant company as of today (i.e.,the date of filing of the suit) is due and liable to pay a sum of Rs.57,99,700/- to the plaintiff together with future interest at 18% per annum, that the defendants 2 and 3, who are guarantors are jointly and severally liable to pay the amount due by the 1st defendant company to the plaintiff and that the plaintiff therefore prays for a judgement and decree jointly and severally against the defendants 1 to 3.

3. In the written statement filed by the first defendant, the following are averred:-

3.(a) The 1st defendant company was being managed by a Board of Directors originally headed by one Mr.G.Venkateswaran, popularly known as G.V., who ended his life under tragic circumstances on 3.5.2003, probably under financial pressure exerted by his personal creditors, that after his sudden demise, all the other directors on the Board resigned, that the affairs of the 1st defendant company came to a grinding halt, that there was no one to manage the company and literally there was a total vacuum, that pursuant to a scheme sanctioned by this Court a new Board on 29.4.2004 in C.P.Nos.89 & 90 of 2004 was constituted and the new Board of Directors took over the management of the company and the new management appointed a committee to scrutinise and evaluate the affairs of the company especially the financial affairs that had culminated into various litigations, that the committee reported that there had been several irregularities in this regard and that it came to light that several creditors were making inflated and exorbitant claims on the first defendant company supported by documents purporting to contain the signature of the late G.Venkateswaran, either forged or obtained under coercive/collusive circumstances.

3.(b) From the records of the defendant it is found that there was no entry in the account books that the plaintiff had advanced amounts to this defendant, that the Board of this defendant have not authorised Mr.G.Venkateswaran or anyone else at any point of time to borrow any money from the plaintiff, that there were some transactions between the plaintiff and Mr.G. Venkateswaran in his personal capacity, that the plaintiff has not stated to whom and in whose name they lent money, that no statement of account has been filed along with the suit and that no statement of account to disclose the exact amount collected as interest from this defendant and such accounts have been deliberately not filed before this Court because the statement would reveal that the suit is barred by limitation.

3.(c) This defendant was not the owner of the property claimed to be given as security in the plaint, that the said property was attached by the Income Tax Department towards the dues of the original owner of the property and subsequently the said property was auctioned by the Income Tax Department, that this defendant is only a tenant in respect of the said property having paid substantial amount as advance and was in possession of the said property till they were dispossessed, that the defendant has nothing to do with the said property, that the defendant is not at all liable to pay any amount much less the suit claim, that the suit is liable to be dismissed in limine on the sole ground that it is barred by limitation, that the suit is also liable to be dismissed on the ground that this defendant has no privity of contract with the plaintiff and that the suit being bereft of any details of transaction. The plaintiff has not come with clean hands to this Court.

4. In the light of the above said pleadings, the following issues have been framed by this Court:-

1. Whether the plaintiff is entitled to a preliminary decree for Rs.57,99,700/- with interest at the rate of 18% p.a. as prayed for?

2. Whether the suit is barred by Limitation?

3. Whether the interest claimed in the plaintiff is usurious in nature?

4. To what relief, the plaintiff is entitled?

Issue No.1

5. The plaintiff is a registered partnership firm under the provisions of Indian Partnership Act. The plaintiff's partnership firm engaged in various business activities including money lending business. A Syndicate has been constituted containing various members and along with them also the plaintiff used to carry on its business activities. The 1st and 2nd defendants company have been incorporated individually under the Companies Act. The 1st defendant company was represented by its Chairman and Managing Director late G.Venkateswaran. He was the Chairman and Managing Director of the 2nd defendant company also. In both the companies the 3rd defendant, wife of G. Venkateswaran is one of the directors.

6. Late G.Venkateswaran approached the plaintiff's firm during October 1999 with requisition for financial assistance to the tune of Rs.25 lakhs. The request was favourably considered by the plaintiff and a loan of Rs.25 lakhs was sanctioned and advanced by the plaintiff to the first defendant company. On receipt of the same, the said G.Venkateswaran executed Ex.P.4 bond for the said value in the 10 rupees non-judicial stamp paper, evidencing the receipt of the amount. He has also agreed to repay the loan in 10 equal monthly instalments alongwith interest at 1.50ps. per month. At the end of the bond, both G.Venkateswaran and the 3rd defendant have affixed their signatures. Ex.P.3 is the letter dated 16.10.99 addressed to the plaintiff in the letterhead of 2nd defendant by the directors G.Venkateswaran and V.M.Appunswamy. Both of them have signed in the letter. By means of this letter, the signatories had no objection in offering their property i.e., 2nd floor of plinth area 2786 sq.ft. in the building located at 18/1, V Street, Lake Area, Nungambakkam, Chennai-34 as security for availing the loan of Rs.25 lakhs from the plaintiff by Mr.G.Venkateswaran, Director of the company. Ex.P.2 is the letter from G.Venkateswaran in the letterhead paper of 1st defendant company addressed to the plaintiff, in which he has stated that he has enclosed the following documents and requested to speed up the loan as the purpose was for installing DTS before Diwali at their Thanjavur Theatres:

1. Memorandum and Articles of Association of Sujatha Films Ltd.,

2. Encumbrance Certificate.

3. Copies of Ground and First Floor of Goodluck

4. Copy of parent document

5. Original Document of II Floor will be given to you against payment.

7. It is the back bone of the defence of the defendant that the money was borrowed by Mr.G.Venkateswaran in his individual/personal capacity, that he was not authorised to avail loan, by any of the resolutions by the 1st and 2nd defendant companies and that there is no privity of contract between the plaintiff and the first defendant company. In order to infer and ascertain that the loan was obtained by late G.Venkateswaran was for the first defendant company, sufficient materials are available in this case. Under tragic circumstances Mr.G.Venkateswaran, popularly known as 'GV', committed suicide on 3.5.2003. Ex.P.4 portrays that he was acting on behalf of the 1st and 2nd defendant companies as Managing Director in the matter of availing loan from the plaintiff. In Clause No.2 of Ex.P.4, it is recited that he has requested the 2nd defendant company to offer the property held by them viz., the suit property as security towards which the director has issued a separate no objection letter. In the 3rd clause, it is mentioned that G.Venkateswaran, director of the 2nd defendant company has handed over original document as stated above and the same shall be kept by the plaintiff as collateral security until such time as the total loan together with interest with pending interest, if any, is cleared in full. In clause 5, it is stipulated that if he failed to pay full or any part of the loan, the plaintiff will be at liberty to enforce against the said premises, all or any of the remedies of a simple mortgage and he will co-operate to sign the necessary documents without delaying in the process. In Clause No.6 he has stated that he has requested his wife, the 3rd defendant to be a guarantor to the loan to which she has confirmed by signing at the foot of that letter. After the signature of the directors viz., G.Venkateswaran and the 3rd defendant a note has been suffixed as "I have this day handed over the original documents pertaining to the premises as mentioned above is a running mini preview theatre."

8. Ex.P.1 is the sale deed in original dated 7.10.1998 in favour of the second defendant with respect to the suit property. Ex.P.15 is the Encumbrance Certificate given by G.Venkateswaran to the plaintiff with respect to the suit property. Exs.P.1 to P.4 and P.15 would go a long way to show that G. Venkateswaran obtained loan from the plaintiff, offering the suit property with the consent of 3rd defendant and with the intention of creating equitable mortgage in favour of the plaintiff. On subsequent occasions G. Venkateswaran has given Exs.P.5 to P.14 letters to the plaintiff requesting to arrange for additional loan on various amount for which he offered the properties which have already been offered as security to continue. Ex.P.8 is the bond for receipt of Rs.25 lakhs on 29.3.2001 from the plaintiff and he was authorised to keep the same as security over his personal loan, that he has requested his wife to be a guarantor to the loan to which she has confirmed by signing at the foot of that letter. Both G. Venkateswaran and his wife 3rd defendant have signed. Ex.P.9 is the writing in Ex.P.8 by G.Venkateswaran that he has received the original document pertaining to the ground floor of the property and requested the plaintiff to continue to remain the document No.392 of 1999 for the suit property as collateral security till the total liability with pending interest, if any, is cleared in full.

9. G. Venkateswaran had handed over post dated cheques for the repayment of loan with interest spreading to the future period with various dates numbering 95 which have been marked as Ex.P.16 series. They are for the total value of Rs.46,60,000/-. In all the cheques G.Venkateswaran has put his signature in the capacity of Chairman and Managing Director of the first defendant company. The seal of the first defendant company is affixed with his signature in all the cheques.

10. In view of the above said documentary evidence on record, it is to be observed that there had been a valid contract between the plaintiff and G.Venkateswaran in the capacity of Chairman and Managing Director of both 1st and 2nd defendant. The contention that there is no privity of contract between them is not acceptable. It is contended that G.Venkateswaran was not authorised by the defendant company to get the loan from the plaintiff and that there was no resolutions empowering him to incur loan. In this context, the learned counsel for the defendants would cite the following provision in Section 292(1)(c) of the Companies Act 1956, which is as follows:

292. Certain powers to be exercised by Board only at meeting-

(1) The Board of Directors of the company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board:-

(a) ... ... ... ...

(b) ... ... ... ...

(c) the power to borrow moneys otherwise than on debentures."

11. It is true that a director or official or personnel of a company shall be authorised by the resolutions passed at the meeting of the Board of Directors to borrow loans. In the cross examination, D.W.1, the executive of the 1st defendant company would say that payments made by the first defendant to the plaintiff were entered in the personal account of the former Managing Director Mr.G.Venkateswaran, but they have no records in the company to show that. This piece of oral evidence would show that personal accounts of G.Venkateswaran are also available with the defendants, but they have not been produced. Had they been produced, the Court would have had an opportunity to see whether the amounts were debited/credited in the personal account of G.Venkateswaran.

12. The next limb of contention of the learned counsel for the defendant is that the plaintiff has admitted that he is engaged in money lending business and hence he has to get the licence under the Tamil Nadu Money Lenders Act 1957 and in the absence of the same, the money dealings by him will be prohibited. But the position is otherwise. There is no prohibition in the Money Lenders Act that money lending business can be done only after getting the licence under the Act. But the Act provides penalty for the money lending without licence. Section 17 of the Act is as follows:

"17. Penalty for carrying on business without licence:-Whoever carries on the business of money-lending without a licence or otherwise than in conformity with the terms and conditions of a licence shall be punished with fine which may extend to one thousand rupees:

Provided that a person shall not be deemed to carry on the business of money lending but was taking steps to recover any loan advanced by him."

It is for the authorities concerned to take proceedings under the provisions of the Act. As already stated there is no prohibition for individual or establishment to advance loans to others on interest.

13. The learned counsel for the defendant also pleads that Section 10-A(3) of the Tamil Nadu Money-Lenders Act, 1957 would contemplate the consequences and contravention of Section 10-A(1). Section 10-A reads as under:-

10-A. Entry of wrong sum in bond, etc., to be an offence:- (1) No money-lender, whether licensed or not, shall take from a debtor or an intending borrower any note, promise to pay, acknowledgement, power of attorney, bond, security or other document which does not state the actual amount of the loan, the rate of interest charged and the time, if any, within which the principal is stipulated to be repaid in full, or which states any of such particulars incorrectly, nor shall he take from any debtor or an intending borrower any document in which any entry is left blank for completion at a later date.

(2) Whoever contravenes the provisions of sub-section (1) shall be punished with imprisonment which may extend to six months or with fine which may extend to one thousand rupees or with both.

(3) Notwithstanding anything contained in section 21 or in any other law for the time being in force, any note, promise to pay, acknowledgement, power of attorney, bond, security or other document referred to in sub-section (1) shall be void and unenforceable.

14. Another leaf of contention of the learned counsel for the defendants is that it is the admission of the plaintiff in his re-examination that the syndicate lent amount to G.Venkateswaran through him, that the company has forwarded the money, that all the repayment made by the first defendant was directed to plaintiff and not to syndicate and that the syndicate has no personal acquaintance with the first defendant. In the cross examination, he says that the plaintiff is maintaining the accounts of amounts received from the syndicate, that in the Income Tax Returns, the loan amount received from the Syndicate will not be reflected, that only commission account would be reflected in the Income Tax and he acted as agent to Syndicate, that the plaintiff firm made the suit claim, so the syndicate did not claim entire amount suit claim and that he has shown the loan amount in the suit claim so that the syndicate cannot claim in the plaintiff firm. In this context, it is argued by the defendants that the suit is bad for non-joinder of the necessary party for the reason that the syndicate has not been impleaded. In the considered view of this Court, the syndicate need not be impleaded, because, it is in evidence that the syndicate has no personal acquaintance with the first defendant and the entire dealings were between the plaintiff and G.Venkateswaran and that the syndicate is not in picture. For the amount received from the plaintiff, G.Venkateswaran has executed necessary documents and he has also effected equitable mortgage with the plaintiff by the deposit of title deeds. Hence for the suit for recovery of money, the syndicate has no role and it is for the plaintiff to say all the affairs with regard to the transactions. The syndicate is not a necessary nor proper party for this suit and its impleadment will not in any way help the Court for final adjudication.

15. The learned counsel for the plaintiff Mr.G. Govindarajan would contend that the plaintiff bona fide believed that G.Venkateswaran represented both 1st and 2nd defendants in getting the loan from him and in this context the plaintiff need not be expected to probe into all internal affairs of the companies and hence the "doctrine of indoor management" would come to his rescue. To put it in a nutshell, the doctrine of indoor management is that a lender need not investigate whether the articles of the company have conferred power upon its official to borrow and he need not inquire into the internal proceedings. This principle emerged in an English Case in Royal British Bank v. Turquand, which has been referred in an earlier judgment of this Court in 1945 INDLAW MAD 21 [P.V. Damodara Reddi and another v. Indian National Agencies]. The operative portion of the judgment containing the principle is as follows:

"In the first place, I consider that the applicants are entitled to rely on the rule laid down in The Royal British Bank v. Turquand. (1856) 6 E. & B. 327 In that case, the articles of the company gave power to borrow with the sanction of a general meeting and it was held that a lender need not enquire whether such sanction had, in fact, been given. He was entitled to assume that it had and it was held further that the absence of sanction could not affect his position. The rule is stated as follows in Palmer's Company Precedents, Fifteenth Edition, at page 70:

This rule is that where a company is regulated by an Act of Parliament, general or special, or by a deed of settlement or memorandum and articles registered in some public office, persons dealing with the company are bound to read the Act and registered documents, and to see that the proposed dealing is not inconsistent therewith; but they are not bound to do more; they need not inquire into the regularity of the internal proceedings--what Lord Hatherley called 'the indoor management.' They are entitled to assume that all is being done regularly.

12. Applying these rules to the present case, I, hold that the applicants were entitled to assume that the directors were acting regularly and that the sanction of the company in general meeting had, in fact, been obtained."

16. At the first instance, the defendants have not produced the Articles of Association of 1st and 2nd defendants companies to show that one of the directors G.Venkateswaran was not authorised to incur loans for the company and consequently, the plaintiff could not be found fault with his dealing with G.Venkateswaran, who acted on behalf of both 1st and 2nd defendants in getting loans. In this context, the contention that G.Venkateswaran was not authorised to get loan on behalf of the companies cannot be countenanced.

17. In view of the above said observation, I am of the considered view that G.Venkateswaran on behalf of the 1st defendant effected equitable mortgage by deposit of title deeds in favour of the plaintiff with respect to the suit property on receipt of Rs.25,00,000/- for which 3rd defendant stood as guarantor. All the contentions put forth by the plaintiff have been established. Hence, it is held that the plaintiff is entitled to get preliminary decree as prayed for with interest. This issue is answered in affirmative.

Issue No.2

18. A defence has been taken that the suit is barred by limitation. The date of mortgage loan was 20.10.1999 for which deposit of title deeds were made on 14.10.1999 and 16.10.1999 as evident from Exs.P.2 to P.4. The suit for recovery of money on mortgage has to be filed within 12 years. The suit was filed on 9.3.2005. Hence, the suit is well within time . It is not barred by limitation. I answer this issue in the negative.

Issue No.3

19. Mr.G.Venkateswaran has executed Ex.P.4 bond in favour of the plaintiff on receipt of Rs.25 lakhs as loan and he agreed to pay interest at Rs.1.50ps. per month. The agreement for interest at the rate of 18% is not at all usurious, but it is only in the course of commercial money dealings. Hence this issue is answered that the interest claimed in the plaint is not usurious. This issue is answered in the negative.

Issue No.4

20. On account of an elaborate discussion under Issue No.1, this Court has reached a conclusion that the plaintiff is entitled for a preliminary decree. It is stated by the defendant that the plaintiff has not produced any statement of accounts. But in unambiguous terms G.Venkateswaran, on behalf of 1st and 2nd defendants, has executed Ex.P.4 bond in favour of the plaintiff. He has delivered post dated cheques Ex.P.16 series, 95 in number, to the plaintiff agreeing to pay principal and interest spreading to various dates. In this regard, there is no necessity for filing of any statement of accounts. The suit is not barred by limitation. The plaintiff is bound to get interest at the rate of 18% p.a.

21. It is also argued that the suit property was attached for the dues payable by the 2nd defendant to the Income Tax Department and the same was auctioned by the said department. Hence no decree could be passed on the mortgaged property. The learned counsel for the plaintiff also submits that a personal money decree may be passed against the defendants. Hence, a money decree viz., a personal decree ought to be passed against the defendants jointly and severally. This issue is answered accordingly.

22. In the result, the decree for recovery for Rs.57,99,700/- is passed with costs together with further interest at 18% p.a. on Rs.25,00,000/- from the date of plaint till the date of realisation against the defendants who are jointly and severally liable.

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