Delhi High Court
M/S Omce Jordan vs Sudarshan Overseas Ltd & Ors on 31 May, 2012
Author: G.S.Sistani
Bench: G.S.Sistani
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CS(OS) 1719/2009, and Crl. M.A. No.11661/2009
% Judgment dated 31.05.2012
M/S OMCE JORDAN ..... Plaintiff
Through : Mr.Dhruv Mehta, Sr. Adv. with
Ms.Amrita Sanghi, Mr.Ram Krishan and
Mr.Sbhishek Kr. Singh, Advs.
versus
SUDARSHAN OVERSEAS LTD & ORS ..... Defendants
Through : Mr.Y.P. Narula, Sr. Adv. with Mr.Amit
Punj and Mr.Anirudha,
Adv. for defendant no.1.
Mr.Anil Sapra, Sr. Adv. with Mr.Saif
Mohd, Adv. for defendant no.2.
Mr.Rishi Kapoor, Advocate for the
defendant no.3.
CORAM:
HON'BLE MR. JUSTICE G.S.SISTANI
G.S.SISTANI, J. (ORAL)
I.A. Nos.15834 (by defendant no.1), 15837(by defendant no.2) & 15841/2009 (by defendant no.3) for leave to defend.
1. Plaintiff has filed the present suit under the Provisions of Order 37 of the Code of Civil Procedure for recovery of US $ 1482019.01 equivalent to INR 7,14,99,562/-. Three applications [I.A. Nos.15834/2009, IA.No.15837/2009 & IA.No.15841/2009] for leave to defend have been filed by each of the defendants i.e. defendants No.1, 2 and 3. Defendant no.1 is the company which placed the order, defendant no.2 is the Director of defendant no.1 and defendant no.3 is the collecting bank of CS(OS)No.1719-2009 Page 1 of 37 defendant no.1
2. The facts of the case necessary to be noticed for disposal of these applications are that the plaintiff as per the plaint, is a Jordanian company registered with the Ministry of Industry and Trade, Companies Control Department. The plaintiff manufactures conical tapered drums, which are suitable to contain food-stuff products in aseptic bags. The plaintiff claims to have worldwide reputation. On 22.02.2008 defendant no.1, company placed a demand with the plaintiff company for export of 35 FCL i.e. 47,889 conical drums for the forthcoming mango season. The defendant no.1 also sent to the plaintiff the intended requirements of the shipment. The defendant nos.1 and 2 also asked the plaintiff company to supply the first shipment of 10 FCL in the month of March, 2008, second shipment in the month of April 2008 and the third and the last shipment in the month of May, 2008. The plaintiff company sent its confirmation and also issued a performa invoice No.14A/2008 dated 23.02.2008 for 29 FCL i.e. 48.024 conical drums. As per the performa invoice No.14A/2008 dated 23.02.2008, the plaintiff company agreed to supply "48024 Conical Tapered Drums of Type Ra 8z, Capacity 225 ltrs, Thickness 0.8 mm for the Body And 0.6 mm For Bottom And Cover, 30 Drain Holes At One End, Inside Painted With Epoxy Phenolic Lacquer Fda Approved Suitable To Contain Foodstuff Products In Aseptic Bags Outside Painted In One Plain Color, One Body Bead, Fitted With Metal Cover And Metal Ring". The payment terms offered and accepted between the parties as per the Performa Invoice No.14A/2008 dated 23.02.2008:
"10% in advance and 90% in 180 days against document to the Plaintiff Bank".CS(OS)No.1719-2009 Page 2 of 37
3. It is also the case of the plaintiff that initially they agreed to supply the aforesaid conical tapered drums on payment through letters of credit, however, defendant no.1 showed unwillingness to open the letters of credit on the pretext that such a big quantity would additionally burden defendant no.1 financially. Defendant no.1 requested for amendment in the terms of payment i.e. 10% advance transfer and remaining 90% as cash against document. The cost of per unit was also enhanced from US$ 15.45 to 20.45, as the defendant company had demanded some additional printing of name and logo of their company on the drums. The plaintiff dispatched the first shipment vide bill of lading No.HLCUAMM080400043 dated 10.04.2008 as per performa invoice containing 16,560 conical tapered drums. The said drums were shipped in 10 containers and each container loaded with 1656 conical tapered drums. The plaintiff company also issued bill of exchange dated 29.03.2008 in respect of first shipment for the sum of US$338652.00 to the order of defendant no.3 bank. The plaintiff company also issued an invoice for the sum of US$338652.00, at a unit price of US$ 20.45, CIF value, at Chennai. Plaintiff also sent certificate of Marine Insurance and also certificate of origin to the defendant no.3, the collecting bank of defendant no.1.
4. Similarly, second shipment was dispatched vide Bill of Lading No.HLCUAMM080400613 dated 17.04.2008 by the plaintiff company with 24,192 conical tapered drums. The conical tapered drums were shipped in 14 containers, each container loaded with 1728 conical tapered drums. The plaintiff company had also issued Bill of Exchange dated 26.04.2008, in respect of the second shipment for the sum of US$ 494726.40 to the order of collecting Bank of defendant no.1 i.e. Axis Bank Ltd. Plaintiff company had also issued an invoice for the sum of CS(OS)No.1719-2009 Page 3 of 37 US$494726.40 at a unit price of US $ 20.45, CIF value, at Chennai. Plaintiff company had also sent certificate of Marine Insurance and also the certificate of Origin to collecting bank of defendant no.1, being Axis Bank Ltd.
5. Similarly, the third shipment was dispatched vide Bill of Lading No.HLCUAMM080400869 dated 08.05.2008, by Plaintiff Company with 39,744 conical tapered drums. The conical tapered drums were shipped in 23 containers, each container loaded with 1728 conical tapered drums. Plaintiff company had also issued Bill of Exchange dated 17.05.2008 in respect of the third shipment for the sum of US$680388.32, to Defendant no.1 through defendant no.3 bank. Plaintiff company had also issued an invoice for the sum of US$ 812764.80, at a unit price of US$ 20.45, CIF value, at Chennai. Plaintiff company had also sent certificate of Marine Insurance and also the certificate of Origin to the collecting bank of the defendant no.1 being defendant no.3 bank. It is pertinent to mention at this stage, that the Bill of Exchange was issued in the sum of US$ 680388.32 out of total invoice value of US$8,12,764.80. This figure was arrived at, after adjusting the advance payment of US$ 51,100.00 and also the payment of US$81276.40 as cash against document, to be paid by the Respondent Company, for the aforesaid conical tapered drums, while getting the conical tapered drums released.
6. As per the shipping terms, the payment was required to be made by defendant no.1 in cash against documents. However, defendant no.1 failed to comply with the shipping terms.
7. It is also the case of the plaintiff that after dispatch of the third shipment on 08.05.2008 from Jordan, defendant no.1 started negotiating for change in the terms of the payment. Defendant no.1 also asked for changes in the Bill of Exchange of the first and the second shipment, which had already CS(OS)No.1719-2009 Page 4 of 37 reached in the first week of May and was incurring demurrage charges. Defendant no.1, asked the plaintiff company also for 80% waiver of demurrage from shipping line. Since goods had already incurred huge demurrage, it was not viable for the plaintiff to get the goods re-exported back to Jordan, thus the plaintiff company was compelled to agree to the terms proposed by defendant no.1. Defendant no.1 also started pressurizing the plaintiff company to make the amendments in the bills of Exchange and asked the plaintiff company to delete the name of the banks from the Bills of Exchange. Defendant no.1 further requested that 25% amount would be paid as cash against the document at sight and remaining within 180 days in respect of the first shipment. Similarly defendant no.1 also asked the plaintiff company to make amendment in the bills of Exchange of the second shipment i.e. 35% cash against documents and the remaining 65% within 180 days from the date of issuance. While acknowledging their liability to pay the remaining amount, defendant no.1 had also executed two promissory notes, both dated 19.05.2008 duly Apostiled with the Government of India, Ministry of External Affairs signed and executed by defendant no.2 each in the sum of US $ 321571.00 and US $ 253989.00 respectively in respect of the remaining sum towards first and the second shipment. Thereafter defendant no.1 collected the documents and received the goods. The promissory notes were in addition to the bills of Exchange and various other documents executed by defendant no.2 on behalf of defendant no.1 company. As per the plaint, the defendant no.2 together with his family members and his other companies are the maximum shareholder in the defendant no.1 company which is a closely held company of the defendant no.2. Accordingly, the plaintiff has impleaded defendant no.2 and according to the plaintiff defendant no.2 is jointly and severally CS(OS)No.1719-2009 Page 5 of 37 liable to pay the amounts due. Defendant nos.1 and 2 had also executed a promissory note on 19.06.2008 for the sum of US $ 680388.32 acknowledging their liability for the payment of the remaining sum of the third shipment duly Apostiled with the Government of India, which third shipment appeared at Chennai Port on 31.05.2008. Thereafter the defendant no.1 requested the plaintiff company to make changes in respect of the payment terms for the third shipments, and the following modifications in the bill of exchange for change in the terms of payment were requested:
Advance received US$ 51100.00 US $ 81276.40, as such against documents on sight. US $ 680388.40 on 120 days from the date of Bill of Lading. Promissory Notes may be deleted from Bill of Exchange.
8. It is also the case of the plaintiff that after receiving the shipment, defendant no.1 company started avoiding to make payment on one pretext or the other. The defendant despite repeated requests made by the plaintiff failed to make the payments. According to the plaintiff an amount of US $ 321571.00, US $ 253989.00 and US $ 680388.32 towards three promissory notes and the bills of Exchange in respect of the three shipments totaling to the sum of US$ 1255948.32 are due and payable towards payment in respect of the Conical Tapered Drums received and utilized by the defendant no.1, company.
9. The defendant no.2, who is the director of the defendant no.1 has been made a party being the maximum shareholder of the defendant no.1, which is also stated to be a closely held company of defendant no.2 as also for the reasons that all the promissory notes were executed by the defendant no.2 and thus defendant no.2 acknowledged his liability to pay the admitted dues.
CS(OS)No.1719-2009 Page 6 of 3710. The defendant no.3, bank has been impleaded as a party being the collecting bank of the defendant no.1, company, who had endorsed and approved the payment of US $ 680388.40. Defendant no.3 even on the maturity date failed to remit the aforesaid amount to the bank of the plaintiff and thus, the defendant no.3 bank is liable and equally responsible for the payment of the sum of US $ 253,989.00 and US$ 680388.40. It is also the case of the plaintiff that the defendant no.3 bank had endorsed and approved the payment by 180 and 120 days from the date of bill of lading of the first and third shipment which expired on 10.10.2008 and 05.09.2008 respectively.
11. It is also the case of the plaintiff that the defendant no.3, bank returned the unpaid bill of exchange for the sum of US $ 253,989 on 05.08.2009 which was received by the plaintiff in Jordan on or around second week of August, 2009. Plaintiff also claims 18% interest as also pendente lite and future interest.
12. Leave to defend is sought by defendant no.2 on the ground that the suit filed by the plaintiff is false, frivolous and misconceived. It is contended that the suit is not maintainable against defendant no.2, as the necessary ingredients of Order XXXVII of the Code of Civil Procedure are not made out against him. It is the contention of counsel for the defendant no.2 that a suit under Order XXXVII of the Code of Civil Procedure can be filed only against a defendant, who has himself / itself executed a bill of exchange, Hundi or promissory note or in case of debt or liquidated demand has executed a written contract or a guarantee. Mr.Anil Sapra, learned senior counsel for the defendant no.2 submits that defendant no.2 has neither executed any bill of exchange, Hundi or promissory note, nor entered into a contract, neither given any guarantee to the plaintiff in his individual capacity, thus, the defendant no.2 is neither a principal debtor CS(OS)No.1719-2009 Page 7 of 37 nor guarantor, nor a party to the contract between the plaintiff and the defendant no.1, as such he cannot be made personally liable to pay any amount, much less in proceedings initiated under the provision of Order XXXVII CPC and on this ground alone, the defendant no.2 is entitled to unconditional leave to defend. It is also contended that the dispute is primarily between the plaintiff and defendant no.1 and the defendant no.2 has been dragged into the litigation with a view to arm twist him and force him to mediate and settle the matter between plaintiff and the defendant no.1, company. It is submitted that the defendant no.2 is not a necessary or proper party and on these grounds the defendant no.2 would be entitled to unconditional leave to defend. Referring to the promissory notes and the Apostil that the plaintiff relies upon, Mr.Anil Sapra, learned senior counsel for the defendant no.2 submits that the same were signed by defendant no.2 for and on behalf of defendant no.1, company and not in his individual capacity, thus the defendant no.2 cannot be treated as a principal debtor nor a guarantor in the transaction in question. According to the application for leave to defendant, the defendant no.2 was a director of defendant no.1 company till 31.03.2008 on which date he resigned as a director. It is also the case of defendant no.2 that he was a friend of Dr.David Issah Manneh, who claimed himself to be the General Manager of the plaintiff company and with whom defendant no.2 had dealing since 2007. It is submitted that after the plaintiff and defendant no.1 company arrived at a preliminary understanding the plaintiff company started imposing harsh and arbitrary conditions for release of consignments. At that point of time the defendant no.1, company requested defendant no.2 to use his friendship and old business relationship with Dr.David Issah Manneh, to sort out the matter amicably and at the request of the defendant no.1, defendant no.2 intervened in the matter and Dr.David CS(OS)No.1719-2009 Page 8 of 37 Issah Manneh, insisted that the problem could be sorted out if promissory notes are executed on behalf of the defendant no.1, company and signed by the defendant no.2 and it is only on the insistence of Dr.David Issah Manneh and defendant no.1 that the promissory notes were signed by him, although by that date he had resigned as a director of defendant no.1, company. The plaintiff as also the defendant no.1 were fully aware that defendant no.2 had resigned, but both the parties were of the view that in case he signed the promissory notes it would lead to mutual trust and the transaction would be smoothly executed and timely release and delivery of consignment on agreed terms. Since the documents were not signed by defendant no.2 in his personal capacity, no liability can be fastened on him personally, even otherwise, the defendant no.2 is not the beneficiary to the transaction.
13. Mr.Dhruv Mehta, learned senior counsel for the plaintiff has submitted that defendant no.2 has neither raised substantial nor any triable issue, nor he has disputed the execution of the promissory notes or the liabilities acknowledged therein. There is no issue which has been raised, which would require trial for its adjudication and thus it is prayed that the application for leave to defend be dismissed. It is further contended by Mr.Mehta that defendant no.2 had not denied the execution of the promissory notes and as per his own averments, he retired from defendant no.1, company on 31.03.2008 and thus the promissory notes were executed by defendant no.2 in his individual capacity for the payment of the acknowledged sum. Even otherwise it is contended that defendant no.2 owns controls, manages and looks after the day-to-day affairs of defendant no.1 company, which is a closely held company of defendant no.2 and his family. Counsel further contends that on lifting the corporate veil it would be apparent that the defendant no.2 is the person acting, CS(OS)No.1719-2009 Page 9 of 37 dealing and managing under the corporate veil of defendant no.1, company. Mr.Dhruv Mehta, learned senior counsel has also contended that defendant no.2 has negotiated, settled and finalized the entire transaction including acknowledgement of payments. It has also been contended that defendant no.2 is the principal debtor and guarantor and party to the contract between the plaintiff and defendant no.1. Counsel also submits that defendant no.2 is personally liable to the plaintiff, as defendant no.2 along with his family is the maximum shareholder in the defendant no.1, which is a closely held family company and thus the defendant no.1 company is a quasi partnership and on account of dishonest act of defendant no.2, the corporate veil must be lifted and defendant no.2 must be held liable to pay the plaintiff its rightful dues. Counsel for the plaintiff also submits that the motives of defendant no.2 are highly dishonest as on 19.05.2008 and 19.06.2008 defendant no.2 signed the bill of exchange as a director, while in the leave to defend it has been stated that he resigned on 31.03.2008.
14. In support of his argument that a person cannot be allowed to approbate or reprobate with respect to the same case or cannot act to the detriment of others illegally and has relied upon Jai Narain Parasrampuria & Ors. v. Pushpa Devi Saraf & Ors., reported at (2006) 7 SCC 756, at page 780 Estoppel Issue "32. It may be true that no issue as regards title between Sarafs and the said S.N.Verma having been framed in OS No.267 of 1980, the principle of res judicata is not applicable. In the said proceedings, however, Sarafs as also the said S.N. Verma being parties, there cannot be any doubt or dispute whatsoever that a claim was laid by the Company that it was the owner of the property which was accepted not only by Verma but also by Sarafs. Sarafs or Verma did not deny or dispute the same. In fact the Company spoke only through Sarafs. The High Court overlooked the fact that the plaint was signed by Sarafs and the CS(OS)No.1719-2009 Page 10 of 37 Company was represented by them. It is they who had made solemn statement before a competent court of law that the Company was the owner of the property. Hence, they are bound by the said statement. The principle of estoppel and/or acquiescence would, thus, be applicable.
33. While applying the procedural law like the principle of estoppels or acquiescence, the court would be concerned with the conduct of a party for determination as to whether he can be permitted to take a different stand in a subsequent proceeding, unless there exists a statutory interdict. If the principle of estoppels applies, Sarafs will not be permitted by a Court of law to raise the contention that the company was not the owner of the property.
Lifting the corporate veil
48. In a case of this nature, keeping in view the facts and circumstances of the case, even the doctrine of lifting the corporate veil would be applicable.
49. We would, in this regard, notice some precedents operating in the field.
50. In Kapila Hingorani v. State of Bihar14 this Court opined:
(SCC p. 19, para 25) "25. It is now well settled that the corporate veil can in certain situations be pierced or lifted. The principle behind the doctrine is a changing concept and it is expanding its horizon as was held in State of U.P. v.
Renusagar Power Co15. The ratio of the said decision clearly suggests that whenever a corporate entity is abused for an unjust and inequitable purpose, the court would not hesitate to lift the veil and look into the realities so as to identify the persons who are guilty and liable therefor."
51. The application of the said doctrine becomes relevant in view of the fact that in the memorandum of association of the Company Sarafs alone were shown to be the subscriber members of the Company. In the article of association they were naturally CS(OS)No.1719-2009 Page 11 of 37 inducted as the first Directors. Subsequently, they included their son as a Director; and it was all the three of the Directors who executed the agreement for sale. There had, thus, been no shareholder except Sarafs. Since they had been attempting to use the personality of the Company for furthering their own personal object, the doctrine of lifting the veil is applicable. They did so in furtherance of their dishonest and fraudulent design. They in fact were the alter ego of the Company. It was, therefore, impossible for them to take a different stand vis-à-vis the interest of the Company.
Withdrawal of suit--effect of
52. One of the Judges of the High Court in the impugned judgment opined that in view of the fact that the appellant had withdrawn the suit questioning the said award and the decree subsequent to passing of the judgment and decree of the trial court, they became disentitled to raise the said question. In so opining, the High Court committed a manifest error. The appellant had contended that the said award and the consequent decree passed by the Delhi High Court was a fraudulent and collusive one. The appellants having obtained a decree, it was not necessary for them to obtain another decree. They might not have been able to file another suit, but the same would not mean that they were not entitled to question the validity or otherwise of the said award in the suit for specific performance of contract. If a judgment or decree is vitiated by fraud, the same would be a nullity. In such an event, Section 44 of the Evidence Act would be attracted. As a plea of fraud can be raised even in a collateral proceeding and the trial court having recorded a specific finding that the jurisdiction of the Delhi Court was created artificially by including a Delhi property, in respect whereof there was no dispute, the said decree must be held to have been obtained by Sarafs by concealment of material facts and by a collusive and fraudulent exercise.
15. In support of his plea that defendant no.2 is entitled to unconditional leave to defend, counsel for the defendant no.2 has relied upon Santosh Kumar Vs. Bhai Mool Singh 1958 SCR page 1211, wherein it was held that "in general, therefore, the test is to see whether the defence raised is real issue CS(OS)No.1719-2009 Page 12 of 37 and not a sham one, in the sense that, if the facts alleged by the defendant are established, there would be a good or even a plausible defence on those facts."
16. Counsel for the defendant no.2 has also placed reliance on Mrs.Raj Duggal Vs. Ramesh Kumar Bansal AIR 1990 SC 2218 and more particularly, paragraph 3, which reads as under:
"3. Leave is declined where the Court is of the opinion that the grant of leave would merely enable the defendant to prolong the litigation by raising untenable and frivolous defences. The test is to see whether the defence raises a real issue and not a sham one in the sense that if the facts alleged by the defendant are established there would be a good or even a plausible defence on those facts. If the Court is satisfied about that leave must be given. If there is a triable issue in the sense that there is a fair dispute to be tried as to the meaning of a document on which the claim is based or uncertainty as to the amount actually due or where the alleged facts are of such a nature as to entitle the defendant to interrogate the plaintiff or to cross-examine his witnesses leave should not be denied. Where also, the defendant shows that even on a fair probability he has a bona fide defence, he ought to have leave. Summary judgments under Order 37 should not be granted where serious conflict as to matter of fact or where any difficulty on issues as to law arises. The Court should not reject the defence of the defendant merely because of its inherent implausibility or its inconsistency."
17. Reliance is also placed on M/s.Sunil Enterprises and Anr. Vs. SBI Commercial and International Bank Ltd. (1998) 5 SCC 354 and more particularly paragraph 3, which reads as under:
"3. In this appeal it is contended that what should be examined at the stage of grant of leave to defend is whether there was a real or sham defence and whether the facts alleged by the appellants if established would be a good defence and the trial court should not go into the question whether the facts alleged were true or not, as that situation would arise only after leave was granted and at the trial. That a condition as to security could be imposed if CS(OS)No.1719-2009 Page 13 of 37 the Court was of the opinion that the defence was put forward with a view to prolong this suit."
18. Counsel for the defendant no.2 has also placed reliance on International Computers Consultants Vs. Home Computers Services (P) Ltd. 1997 V AD (DELHI) 662 and more particularly paragraph 14, which reads as under:
"14. The jurisdiction to grant leave or to refuse the same is to be exercised on the basis of the affidavit filed by the defendant. That alone at that stage is the relevant document and the inquiry is to be confined to the averments made in the affidavit. If the averments made in the affidavit disclose such facts which if ultimately proved to the satisfaction of the court would disentitle the plaintiff from judgment in his favour that by itself makes it obligatory upon the court to grant leave. At this stage the court is not required to record a finding on disputed questions of fact as at this stage defendant is not required to adduce proof with which he is going to support his defence ultimately. It is possible that the defendant may fail to make good the defence raised by him. It is only the plausibility of the defence raised and not the certainty of the same, that is relevant and sufficient to entitle the defendant to leave to defend the suit. It is immaterial that facts alleged and disclosed are controverted by the plaintiff because the stage to prove is yet to come though they may be considered by the court in evaluating if the defence is wholly untenable or vexatious."
19. On the question of liability of a director, Mr.Sapra, learned senior counsel for the defendant no.2 has placed reliance on Hrushikesh Panda Vs. Indramani Swain & Anr. AIR 1987 Orissa 79, and more particularly paragraph 12, which reads as under:
"12. Under the Company Law, in addition to their statutory duties, the directors owe to their company fiduciary duties similar to those owed by an agent to his principal. These duties are owed exclusively to the company of which the defendant is a director.CS(OS)No.1719-2009 Page 14 of 37
An action against a defaulting director may be brought by the company itself or where the breach of duty complained of is a breach of fiduciary duty by a member suing in a derivative action on behalf of himself and all other members of the company, his liability for breach of fiduciary duty by misfeasance proceedings in the company‟s winding up is well known. But directors owe no fiduciary or contractual duties nor any duty of care to persons who deal with their company unless they deal with the contracting party not on behalf of the company but on their own behalf. A director is therefore not liable to pay the debts incurred by the company. Even during the course of winding up proceeding of a company, the directos may be made personally liable by order of the court only if they are found guilty of fraudulent trading, i.e. an act of misfeasance or the like. Directors are not liable for breach of contracts by the company and the other party to a contract cannot make them directly liable by suing them in tort even for their mismanagement of the company‟s affairs. The liability of the directors even in common law is confined only where they have been guilty of a tort towards the creditors as well as breach of duty owed to the company. Consequently, directors are personally liable to persons who lend money to the company only if they obtain the loan by fraudulent misrepresentations. It is, therefore, obvious that directors are generally immune from liability to creditors of their company."
20. For the same plea, counsel for the defendant no.2 has placed reliance on Steel Authority of India Vs. M/s.Century Tubes Ltd. & Ors. 117 (2005) DLT 655 and more particularly paragraphs 7 and 8, which read as under:
"7. I do not find any averment in the plaint that defendant no.3 stood as guarantor. Merely because it is alleged in the plaint that defendant no.3 was a Director of defendant no.1 would not make him liable for any amount due from defendant no.1 to the plaintiff. Even the allegation that defendant no.3 signed some of the cheques drawn on the account of defendant no.1 would not make him liable in a civil action for recovery of amounts due from defendant no.1 to the plaintiff.
8. A company is an entity distinct from its Directors and Shareholders. In the absence of an instrument fastening CS(OS)No.1719-2009 Page 15 of 37 liability, liability can be fastened on Directors of a company only when malfesance or misfeasance is established."
21. Unconditional leave to defend is also prayed by defendant no.3 the collecting bank. It is contended by Mr.Rishi Kapoor, counsel for the defendant no.3 that being a collecting bank, defendant no.3 cannot be held responsible for non-payment by defendants no.1 and 2, as there is no privity of contract between the plaintiff and the defendant no.3, nor did it exchange any letter/ communication with defendant no.3 nor any legal notice was issued by the plaintiff to the defendant no.3. It is also the stand of defendant no.3 that defendant no.3 only acted as a collecting bank for and on behalf of Jordan Kuwait Bank and the plaintiff has failed to implead Jordan Kuwait Bank as a party. It is also submitted by counsel for defendant no.3 that as a collecting bank, the sole responsibility of defendant no.3 is to remit the amount collected to the remitting bank i.e. Jordan Kuwait Bank. Mr.Kapoor, counsel for the defendant no.3 has relied upon 16B of Uniform Rules For Collection (URC) which provides that a collecting bank will effect payment of the amount collected in favour of the remitting bank only. It is contended that in view of the provisions of URC the plaintiff cannot claim payment from defendant no.3 and in fact defendant no.3 is liable to be deleted from array of parties. Elaborating his argument further, counsel for the defendant no.3 has submitted that as per Uniform Rules For Collection, a collecting bank is any bank other than the remitting bank involved in the processing of the collection.
22. Counsel for the defendant no.3 further contends that defendant no.3 being a collecting bank could not have made payment of bills of exchange since the payment was not received by defendant no.3 from defendants no.1 and CS(OS)No.1719-2009 Page 16 of 37 2 and in the absence thereof, the defendant no.3 could not transfer the funds to the remitting bank. It is next contended that the defendant no.3 had received two bills of exchange dated 29.03.2008 and 17.05.2008. In both the bills of exchange only 75% of payment i.e. US $ 6,80,388.40 and US $ 2,53,989/- had to be made by defendants No.1 and 2. As per the instructions received from the remitting bank, the defendant no.3 released the documents. It is further contended that the defendants no.1 and 2 make payments of bills of exchange directly to the plaintiff which is evident from letter dated 20.07.2009 issued by the remitting bank to the defendant no.3. After receipt of letter dated 20.07.2009 from the remitting bank, the defendant no.3 sent the signed bills of exchange to them as demanded.
23. Counsel for the plaintiff per contra submits that defendant no.3 is liable to pay the amount duly endorsed by them on account of acceptance of bills of exchange and, therefore, defendant no.3 acted as a guarantor for the bills of exchange. It is also submitted that defendant no.3 accepted the bills of exchange as a guarantor and acted not as a banker on collection basis. Learned senior counsel for the plaintiff has drawn the attention of the court to the copies of the bills of exchange to show that defendant no.3 had explicitly accepted the payment of bills of exchange at its counter by putting its stamp on the bills of exchange, and by putting the aforesaid stamp they had donned the role of guarantor, in respect of endorsed bills of exchange and by such endorsement defendant no.3 represented that the holder of the drawer could have taken recourse to either the drawee/ acceptor or the bank as a guarantor, and it is only on the basis of the defendant no.3 acceptance of the bill of exchange the plaintiff has released the shipping documents for release of goods. Even otherwise, it is submitted that defendant no.3 has denied its liability and the evasive CS(OS)No.1719-2009 Page 17 of 37 denial is not a denial in the eyes of law. Counsel for the plaintiff has placed reliance in the case of Rajiv Saluja Vs. M/s.Bhartia Industries Ltd & Anr. reported at AIR 2003 Delhi 142 and more particularly paragraph 19, in support of his plea that evasive denial is no denial in the eyes of law, which is reproduced below:
"19. In the instant case the evasive denial by the defendants to the creation or a tenancy for six months has the effect of termination of tenancy by efflux of time. Whenever the period of lease was extended for a year, the plaintiff got the lease deed registered. It is unscrupulous on the part of the defendant to deny the extension of lease orally for a period of six months on compassionate ground as the petitioner did not feel the need of getting the lease registered and rightly so as such on extension of tenancy could have been agreed orally and even without unregistered lease deed under the provisions of Section 116 of the T.P. Act. Even on the premise of its own defence that the tenancy became monthly tenancy after the expiry of the registered lease period, the defendants stand on sticky wicket as even the said tenancy was validly terminated by the notice under Section 106 of the Act and, therefore, the occupation of the defendant after that period was unauthorized."
24. Another submission made by Mr.Dhruv Mehta, learned senior counsel for the plaintiff is that a negotiable instrument must be honoured, failing which it would lead to insecurity in commercial matters and has placed reliance in the case of Goaplat (P) Ltd. Vs. Chico Ursula D'Souza and Anr. reported at (2003) 3 SCC 232 and more particularly paragraph 3. Relevant portion of paragraph 3 is reproduced below:
"3..........The faith, which the legislature has desired that such instruments should inspire in commercial transactions would be completely lost if parties are as a matter of routine allowed to interdict payment by issuing instruction to banks to stop payment of cheques. In today‟s world where use of cash in day-to-day life is almost getting extinct and people are using negotiable instruments in commercial transactions and plastic money for their daily needs as consumers, it is all the more necessary that people‟s faith in such instruments should be strengthened rather than weakened.CS(OS)No.1719-2009 Page 18 of 37
Provisions contained in Sections 138 to 142 of the Act are intended to discourage people from not honouring their commitments by way of payment through cheques........"
25. Mr.Y.P. Narula, learned senior counsel appearing on behalf of the defendant no.1 prays for unconditional leave to defend and submits that the present suit is false and frivolous and no cause of action has accrued in favour of the plaintiff. It is contended that the present suit filed on behalf of the plaintiff M/s.OMCE Jordan is not maintainable in as much as the plaintiff is neither a juristic person nor a legal entity and as such cannot sue in its own name. It is submitted that M/s.OMCE Jordan is nothing but a trade name and even otherwise M/s.OMCE Jordan has been registered as trade name owned by a company called Jordanian, Italian Drum Ltd. and in the absence of any document showing that the plaintiff, M/s.OMCE Jordan is a company incorporated or registered under the laws of Jordan, the present plaint is liable to be rejected. It is next contended that the present suit is liable to be dismissed as the plaintiff has not approached this court with the clean hands, the suit raises disputed questions of fact which can only be effectively adjudicated upon once the parties lead their evidence and prove their rival contentions. Mr.Narula, learned senior counsel for defendant no.1 submits that it is not in dispute that the defendant company agreed to purchase conical drums for storage of mango pulps from a company, trading in the name of M/s.OMCE Jordan. A contract/ agreement for 29 FCL, 48.024 conical drums was signed by the parties on various terms and conditions. According to Mr.Narula, it was agreed that 10% payment would be made in advance and 90% on credit of 180 days. The logo / company name was to be printed on the drums and the agreed rate was US $ 15.45 per drum. It is also disputed that the letter of credit was ever offered, neither there was CS(OS)No.1719-2009 Page 19 of 37 any agreement that logo and name of the company to be printed for which US $ 5 would be charged extra. It is the case of the defendant no.1 that the plaintiff had agreed to print the company logo and name at the agreed price of US $ 15.45, which was not done. It is submitted that from the very beginning the plaintiff indulged in illegal and arbitrary activities and thus committed various breaches of the terms of the agreement by unilaterally and deliberately varying its terms. It is contended that the first shipment of 10 FCL - 1656 numbers drums was made by the plaintiff, however, the plaintiff did not adhere to the terms of the agreement and unilaterally changed the terms and the invoice of a higher rate and unit price was made, logo/ company name was not printed on drums; and the payment terms were violated from 10% advance and 90% credit to 10% advance 90 CAD/ bank guarantee. The defendant no.1 immediately brought to the notice of the plaintiff vide e-mail dated 15.04.2008, the breaches committed by them. Without rectifying the breaches the plaintiff dispatched the second ship and again flouted the terms and conditions of the agreement by shipping extra quantity than the agreed 10 FCL, whereas 14 FCL were shipped; advance for 10 FCL each of 1656 numbers drums were released, whereas 14 FCL with 1728 numbers drums were shipped which were extra in quantity. The rates were charged higher i.e. 20.45 US$ per unit, whereas the agreed rate was 15.45 US $ per unit. The plaintiff also sent documents to the bank with changed terms of payments, without the concurrence of the defendant no.1.
26. Mr.Narula, learned senior counsel for defendant no.1 submits that without resolving the disputes, the plaintiff forced the third shipment on the defendant no.1 of 23 FCL (18 FCL extra), without defendant no.1 paying any advance. The plaintiff also did not allow the defendant no.1 to get CS(OS)No.1719-2009 Page 20 of 37 custody of lot one and lot two and insisted that the documents would be released only if the third lot is accepted and also additional payment of lot 2 and 3 was released. Plaintiff also threatened to forfeit the advance and having no option, the defendant no.1 released the additional payments, as the defendant no.1 had already contracted for purchase of fruits from farmers and suppliers and fruits being perishable in nature, the drums were necessary. Even otherwise, the third consignment contained rusted, damaged and sub-standard drums. Knowing fully well that the defendant no.1 required the drums urgently, the plaintiff black-mailed and forced the earlier director of the answering defendant no.1, who happened to be a good friend of Dr.David Mannah, to sign the promissory notes and apostil and to create a liability on the company. It is also contended that the execution of the promissory notes as well as apostil was not the part of the original agreement, but the defendant no.1 was forced and threatened that in case the promissory notes were not executed they would forfeit the advance, knowing fully well that the mango pulp which had been procured by the defendant no.1 would start rotting, being perishable in nature. It is submitted that even otherwise defendant no.2 could not fasten any liability on the defendant no.1, company as he had no authority on behalf of the defendant no.1 to execute such documents. Simply being an old friend of Dr.Mannah he could not have bound the company. It has also been stated that plaintiff has forged some of the e-mails in order to falsely fasten the liability upon the defendant.
27. Mr.Mehta, learned senior counsel for the plaintiff has submitted that the grounds raised by defendant no.1 in their application for leave to defend are sham, moonshine, baseless and without any merit. It is contended that the submissions of defendant no.1 that M/s.OMCE Jordan is a trade-name and is not a company, reeks of dishonesty with the objective of depriving CS(OS)No.1719-2009 Page 21 of 37 the plaintiff of its rightful payment due to them. All the three defendants have continuously referred to the plaintiff, as M/s.OMCE Jordan, including in the shipping document including in the bill of lading dated 10.04.2008 dated 17.04.2008 and 08.05.2008; invoices, letter seeking amendment in the bill of exchange, duly executed apostil promissory notes, SWIFT messages. Copies of all the above documents are on record and thus to raise a defence that plaintiff is not a legal entity, is misplaced.
28. It is vehemently submitted by Mr.Mehta, learned senior counsel for the plaintiff that the plaintiff ever exerted undue influence over the defendant no.1 or its director as both the companies had equal bargaining power. It is contended by Mr.Mehta, learned counsel for the plaintiff that the defence sought to be raised by defendant no.1 that the rates agreed were 15.45 US $ but unilaterally changed to 20.45 US $, is also unacceptable being sham and dishonest, which is evident from the fact that the bills of exchange were drawn on the amount calculated at the rates 20.54 US $ at a date subsequent to the date of intimation of the increase in rates, which would show that parties had agreed that the final rate would be 20.45 US $ and at no point of time the defendants no.1 and 2 contested this raise in rates in the communication to the plaintiff. The submission of Mr.Narula, learned senior counsel for the defendant No.1 is further belied from the fact that the promissory notes and bills of exchange were executed for an amount calculated at the rate of US $ 20.45, nor the issue of price was raised in the letter dated 23.05.2008. With regard to the submissions made by Mr.Narula, learned senior counsel for the defendant no.1 that the goods were defective, Mr.Mehta, learned senior counsel for the plaintiff has drawn attention of the Court to Section 42 of the Sales of Goods Act, which reads as under:
CS(OS)No.1719-2009 Page 22 of 37"Section 42- "The buyer is deemed to have accepted the goods when the intimates to the seller that he has accepted them, or when he the goods have been delivered to him and he does not act in relation to them which is inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them."
29. It is also contended that defendant no.1 has accepted the goods and further used them without any objection as to its quality, thus the defence is baseless sham and has been made with an intention to defraud the plaintiff from their legitimate money. It is also submitted that the plea of defective goods cannot be a defence in an order XXXVII suit, especially when the goods have been accepted by the defendants unconditionally. In support of this plea, Mr.Mehta, learned senior counsel for the plaintiff has placed reliance in the case A.M.K.M.K. Muthukaruppan Vs. Habib Moh. AIR 1955 Madras 43 and more particularly paragraphs 2 and 4, which are reproduced below:
"All that the defendants could allege in the affidavit in support of his leave application was that there was a conspiracy between one Dorairaj and others, the object of which was to inveigle this inexperienced defendant by their wily tricks into various unwholesome activities so that they might make money out of it. Though there are some allegations in para 14 of the affidavit in support Of the petition that the price of the motor cars was inadequate, we are not Inclined to think that there is any arguable case on that point.
Moreover it is not very clear from the affidavit that the plaintiff was a party or privy to the so-called conspiracy. If the conspiracy took place after the sale of the cars by the plaintiff to the defendant, then the further activities of Doralraj and others cannot be let in evidence in the case. Under these circumstances we feel that most of the allegations contained in the affidavit are matters on which no evidence can be let in the suit itself.CS(OS)No.1719-2009 Page 23 of 37
4. In addition the question whether the consideration for negotiable instrument is adequate or not cannot be the subject matter of controversy in the suit when once it is admitted that the negotiable instrument had been executed by the defendant and there was some consideration for it. See the commentary in Bashyam and Adtga's Negotiable Instruments, at page 81 where the learned authors say that inadequacy of consideration Is neither sufficient to invalidate a negotiable instrument nor is it a good defence to an action on it, though the adequacy or otherwise of it may be taken into consideration in order to ascertain the bona fides of. the transaction. The case in --'Solomon v. Turner', (1815) 1 Stark 61 (B) and others have been cited in support of this proposition.
It is also clear that if the drawing, accepting or endorsing of a negotiable Instrument is supported by some consideration, then the Courts would not be justified in enquiring into the adequacy of such consideration though, as we stated, inadequacy of consideration may be evidence of fraud or bad faith -- 'Adibel Hinnawi v. Yacoub Fahmi Abuel Hudaei Faruqi AIR 1836 PC 139 (C). Such being the case even if the motor cars were not worth Rs. 10000 it was not open to the defendant to adduce evidence regarding the alleged exaggerated price which was fixed for these motor cars.
Having admitted the execution of the promissory notes and the receipt of the motor cars on faith of it and having also admitted that they were pledged and later, on sold for Rs. 3825 we are of opinion that defendant has no case to put forward as defence to the suit. The order of the lower Court holding that the alleged defence is a sham one is therefore correct and leave to defend had been rightly refused. The appeal fails and is dismissed with costs."
30. Reliance has also been placed by counsel for the plaintiff in the case of VKK Nair Vs. Kanchan Kawar AIR 2005 Madras 186 and more particularly paragraph 11, which is reproduced below:
"11. The respondent herein has issued notice dated 15-09-2001, prior to filing of the suit, calling upon the revision petitioner to pay the amount. The notice was received by the petitioner herein but he has not chosen to give any reply. It is stated by the petitioner that the execution of the promissory note is admitted but the same was executed in favour of one Gulecha; that he discharged the entire CS(OS)No.1719-2009 Page 24 of 37 amount payable under the Promissory note to Gulecha; that after his return from Kerala he tried to get back the promissory note from the legal heirs of Gulecha since he was dead, but it became vain. In respect of the said allegations, the trial court found that the petitioner has not placed any materials to support his case and no valid defence or triable issue established by the petitioner to consider grant leave. In my view, for the aforesaid reasons, leave to defend could not be granted. The court below is right in dismissing the application filed by the revision petitioner."
31. Counsel for the plaintiff has also placed reliance in the case of Indian Bank Vs. Cheese Wafers AIR 1998 76 DLT 892, in support of his submission that in the light of the defendant no.1 and 2 executing unambiguous and unequivocal acknowledgement of the liability, it is not open to the defendants at this stage to dispute their liability. Paragraph 9 of the judgment is reproduced below:
"9. I have given my careful consideration to the arguments advanced by the learned Counsel appearing for both the parties. In para-11 of the plaint, there is a specific averment made by the plaintiff that the defendants have admitted and acknowledged their liability and executed a letter of acknowledgement of debt on 7.2.1992 confirming the amount of Rs. 4,60,911.48 paise due and outstanding against the aforesaid loan account as on 31.12.1991. The defendants have also executed a letter of renewal on 17.2.1992 and a demand promissory note dated 17.2.1992 for a sum of Rs. 4,60,911.48 paise and promised to liquidate its liability shortly Photocopies of these documents are on pages 29 and 30 of the paper book. Can it be said that in view of their unambiguous and unequivocal acknowledgement of the liability it is open for the defendants to now claim and contend that they are not liable to pay the dues of the plaintiff Bank on account of certain adjustment not given by Bank. The answer is in the negative. Defendants did not raise even a whisper after signing this letter of acknowledgement of liability, Therefore, now to contend that the documents signed by the defendants were blank, which were subsequently filled up, is only an afterthought to cover their acknowledgement which they have made in the year 1992. Why the defendants chose to keep silent about their signatures having been obtained on blank documents. This plea was taken at the time of filing of the CS(OS)No.1719-2009 Page 25 of 37 application for leave to defend not earlier at any stage. Conclusion, Therefore, is that plea now sought to be raised by the defendants to the effect that the signatures were obtained on blank documents, is merely a sham plea and devoid of any force......"
32. In support of his plea that the defence of defective goods is not tenable in the eyes of law, Mr.Mehta, learned senior counsel for the plaintiff has relied in the case of KGL Systel Ltd. Vs. Fujitsu ICIM Ltd 92 (2001) DLT 88 and more particularly paragraphs 6, 12 to 14, which are reproduced below:
"6. In Mrs.Raj Duggal vs. Ramesh Kumar Bansal, AIR 1990 Supreme Court 2218, the Court had opined as follows:
"Court is of the opinion that the grant of leave would merely enable the defendant to prolong the litigation by raising untenable and frivolous defences. The test is to see whether the defence raises a real issue and not a sham one, in the sense that if the facts alleged by the defendant are established there would be a good or even a plausible defence on those facts. If the Court is satisfied about that leave must be given. If there is a triable issue in the sense that there is a fair dispute to be tried as to the meaning of a document on which the claim is based or uncertainty as to the amount actually due or where the alleged facts are of such a nature as to entitle the defendant to interrogate the plaintiff or to cross-examine his witnesses leave should not be denied. Where also, the defendant shows that even on a fair probability he has a bona fide defence, he ought to have leave. Summary judgments under Order 37 should not be granted where serious conflict as to matter of fact or where any difficulty on issues as to law arises. The Court should not reject the defence of the defendant merely because of its inherent implausibility or its inconsistency."
12. The disputes between the parties cannot be decided do hors the sundry provisions of the Sale of Goods Act. Part-payment to a CS(OS)No.1719-2009 Page 26 of 37 substantial extent has been made by the Defendant/Applicant. When a buyer such as the Defendant/Applicant asserts that the merchandise/goods were defective, it is not open to it to withhold payment once the delivery is accepted; since they are deemed to have been accepted by operation of law. In Nagandas Mathuradas vs. N.V. Valmamohomed and Others, : AIR 1930 Bom 249, in the opinion of the Bench, the Buyer was playing fast and loose inasmuch as the initial credit entry recorded in favor of the Seller was subsequently reversed. The fact that a substantial part payment had been made by the Defendant to the plaintiff was found very relevant, in this context. It reiterated the view approved by the House of Lords that "if a buyer orders goods of a certain description, and the seller delivers goods of a different description, it is open to the buyer to reject them. But if he does not reject them but keeps the goods, even if he does so in ignorance of the fact that they are of a description different from that provided for by the contract he is debarred from rejecting the goods thereafter, and can only fall back upon a claim for damages, as upon a breach of warranty." These observations apply, a fortiori, where the goods supplied were according to the specifications, and their price had been substantially paid. Autovesl and Isogen were ordered by name, and were supplied. Due to reasons of obsolescence, Pvelite was subsequently preferred by the Defendant, but this preference cannot be considered as a valid defense for withholding payment. It would still be so even if either Autovesl or Isogen proved to be of little usefulness to the Defendant, so long as what was supplied strictly corresponded to these two programmes/merchandise. Chapter IV of the Act must be kept in mind when disputes of the present nature call to be decided. In particular, Section 34 envisages that delivery of even a part of the goods would operate as a delivery of the whole, unless the former is clearly severed from the rest. The Defendant/Applicant should have recorded a caveat that the software could be treated as having been accepted only upon delivery of Pvelite. This could not be possible since Pvelite was not part of the contract. Alternatively, the Defendant/Applicant could have declined to accept the part delivery if that is how it viewed the situation. The intervening period of several months is significant and clearly fatal to the projected defense. The offer to supply Pvelite cannot have the effect of invalidating the initial contract.
13. Is the Court expected to take into consideration the dealings inter se the Defendant/Applicant and its customer, namely FACT.
CS(OS)No.1719-2009 Page 27 of 37The Purchase Order of FACT on the Defendant is dated 20th July, 1994; the plaintiff is not even mentioned therein. Thereafter the Defendant had issued its Purchase Order dated 2nd August, 1994 to the plaintiff at its New Delhi office and payment was to be made by the Defendant. FEDO was only mentioned in the context of delivery. The plaintiff's Invoice was issued to the Defendant, which was liable to clear the consideration and has infact made substantial payments. Although in the Delivery Clause there is an indirect mention that FEDO can claim damages for late supply by the Defendant, and that the latter can make a corresponding claim on the plaintiff, the present dispute raised by the Defendant at best concerns unsuitability of the software, and not late supply thereof. The Defendant has placed reliance on correspondence exchanged between itself and FEDO which is one year (Annexure-B) and two year later (Annexure-C). Such events cannot be taken into contemplation in an action for the price of goods, where the property in the goods has passed to the buyer and the buyer wrongfully neglects or "refuses to pay for the goods according to the terms of the contract" (see Section 55 of the Act). Sections 41 and 42 of the Act conjointly indicate that if defects in the goods are not recorded within a reasonable time, they will have been deemed to have been accepted. Furthermore, by making substantial payments for the price of the goods the Defendant has acted in a manner which would render it inconsistent for the plaintiff to still claim ownership thereon. On a careful reading of the Act, it appears that the intendment is generally that the price of the goods must be paid and if there is a subsequent defect (in contradistinction to a defect detected within a reasonable time of the delivery) the remedy that is envisaged is for the Buyer to sue for damages. This is obviously impregnated with sound commonsense and business ethics. In the present case, raising questions pertaining to the suitability of the supply after one year is not reasonable. A triable issue does not arise because what was supplied by the plaintiff was what was ordered by the Defendant, if it did not suit the latter's requirements the plaintiff cannot be made responsible and liable. Significantly, it has not been shown that any legal action has been filed even by FEDO for recovery of damages from the Defendant. Some prima facie evidence of such an action should have been filed by the Defendant to justify the grant of leave to defend.
14. Even if the defense as to delay in supply is considered, time allegedly being of the essence, this also does not raise a gamut of CS(OS)No.1719-2009 Page 28 of 37 disputed facts necessitating the holding of a trial. Section 11 of the Act prescribes that stipulations as to time are to be gathered from the contract. Since the Defendant has filed the Purchase Order with FEDO it can be perused; no stipulation that time is of the essence is immediately evident. The contract between the parties stipulate that delivery "should" be made by 10.8.1994, i.e. within four weeks of the Letter of Intent, and upon failure liquidated damages would be imposed. It would be reasonable to expect such a complaint to have raised at least within a month. To judicially countenance complaints raised after several months would tantamount to violating the legislatures intent of an expeditious disposal of commercial complaints. Leave to defend should be granted only if a valid defense, requiring a trial, is disclosed. Such a defense if entertained may be allowed subject to terms. However, in the present case the defense in essence is of the unsuitability of Autovesl and Isogen, and not delay in their supply. No triable issue has arisen. The present case is what was envisaged in category (d) of the decision of the Supreme Court in the M/s. Michalec Engineers case (supra)
33. I have heard counsel for the plaintiff and counsel for the defendants who have argued their applications for leave to defend separately. The facts of this case have been set out in detail in the paragraphs aforegoing. The defendant no.1, company had placed an order with the plaintiff for 35 FCL i.e. 47,889 conical drums and request was made to dispatch the first shipment of 10 FCL in the month of March, 2008; the second shipment was to be sent in the month of April, 2008; and the third and last shipment was to be dispatched in the month of May, 2008. Peforma invoice no.14A/2008 dated 23.02.2008 for 29 FCL i.e 48024 conical drums was issued. The parties also agreed on the mode of payment which was subsequently changed at the request of defendant no.1. It is not in dispute that the drums stand supplied by the plaintiff to the defendant no.1. In addition to the bill of exchange defendant no.2 as a director of defendant no.1 also signed and executed the promissory notes in favour of the plaintiff.
CS(OS)No.1719-2009 Page 29 of 3734. Defendant no.2 has sought leave on the ground that the present suit is not maintainable against defendant no.2, who never signed or executed any bill of exchange, hundi or promissory note, as a guarantor or in his individual capacity, thus the defendant no.2 cannot be termed either as a principal debtor or a guarantor. Defendant no.2 is also not a party to the contract between the plaintiff and defendant no.1. Thus the defendant no.2 cannot be made personally liable to pay the suit amount.
35. As per the plaintiff, defendant no.1 is closely held company of defendant no.2 and his family members. Mr.Mehta, learned senior counsel for the plaintiff has strongly urged before this court that the defendant no.2 owns, controls, manages and looks after the day-to-day affairs of defendant no.1, company and the court must lift the corporate veil and hold the defendant no.2 responsible and liable for making the payment. It is also the case of the plaintiff that the application seeking leave to defend filed by defendant no.2 should be rejected.
36. During the course of hearing it was pointed out by counsel for defendant no.2 that although the defendant no.2 signed the promissory notes as a director of defendant no.1, this was done only at the behest of the plaintiff and with a view to break the deadlock between the plaintiff and defendant no.1 on account of a dispute in mode of payment, and the defendant no.1 had requested defendant no.2 to take benefit of his friendship and old business relationship with Dr.David Issah Manneh of the plaintiff, and Dr.David Issah Manneh also requested the defendant no.2 to intervene in the matter and execute the promissory notes. It is also the case of the defendant no.2 that at that point of time the plaintiff was aware that defendant no.2 had since resigned as a director of defendant no.1. The promissory notes were signed not in his personal capacity or as a guarantor but only to comfort the plaintiff at their request. The CS(OS)No.1719-2009 Page 30 of 37 documents placed on record and the averments made in the plaint prima facie do not establish that defendant no.2 signed the promissory notes in his personal capacity or as a guarantor. As per the settled law a director is not liable to pay the debts incurred by a company. A company is distinct legal entity from its directors and shareholders. While there is force in the submission of counsel for the plaintiff that the Court can always lift the corporate veil and ascertain the role of the defendant, in my view the court is not powerless to carry out such an exercise, however, the matter would require recording of evidence and a decision cannot be arrived at in summary proceedings. Except for the statement made by the plaintiff that the company is a closely held company of defendant no.2, there is nothing on record for the court to draw such an inference. The defence which has been raised by defendant no.2 cannot be termed as sham or moonshine. In the case of Mechelec Engineers and Manufacturers v. Basic Equipment Corporation, reported at 1977 AIR (SC) 577, the Apex Court has held that in case a defendant raises a triable issue, indicating that he has a fair and bona fide defence, even though it is not a positively good defence, the plaintiff is not entitled to a decree and the defendant is entitled to unconditional leave to defend. The defendant no.2 has raised triable issue with regard to liability of a director for the debts of a company. This issue cannot be decided at this stage and the same would require recording of evidence. Accordingly the application of the defendant no.2 (IA. 15837/2009) is allowed and defendant no.2 is granted unconditional leave to contest the present suit.
37. Counsel for the defendant no.3 has also prayed for unconditional leave to contest the present suit on the ground that the defendant no.3 was only a collecting bank and being a collecting bank, defendant no.3 cannot be responsible for non-payment by defendants no.1 and 2 more so there is no CS(OS)No.1719-2009 Page 31 of 37 privity of contract between the plaintiff and the defendant no.3. It is the case of the defendant no.3 that being a collecting bank for and on behalf of Jordan Kuwait Bank the only responsibility of defendant no.3 was to remit the amount collected to Jordan Kuwait Bank.
38. Counsel for the plaintiff had drawn attention of the court to copies of the bills of exchange to show that the same were accepted by defendant no.3 as a guarantor and they had not acted as a banker on collection basis. Mr.Mehta, learned senior counsel for the plaintiff has drawn the attention of the court to the copies of the bills of exchange to show that defendant no.3 had explicitly accepted the payment of bills of exchange at its counter by putting its stamp on the bills of exchange, and by affixing the aforesaid stamp they have donned the role of a guarantor, in respect of endorsed bills of exchange and by such endorsement defendant no.3 represented that the holder of the drawer could have recourse to either the drawee/ acceptor or the bank as a guarantor, and it is only on the basis of the defendant no.3 acceptance of the bill of exchange the plaintiff has released the shipping documents for release of goods. It is also the case of the plaintiff that the denial of defendant no.3 is no denial in the eyes of law, as the denial is evasive. Mr.Mehta, learned senior counsel for the plaintiff has relied upon the case of Rajiv Saluja (Supra). There is no quarrel to the proposition which is sought to be raised by counsel for the plaintiff during the course of hearing that an evasive denial is no denial in the eyes of law.
39. With regard to liability of defendant no.3, two submissions have been made by Mr.Mehta : firstly the defendant no.3 is liable to make the payment being a collecting bank and secondly in view of the endorsement made by defendant no.3 on the bills of exchange.
40. The submissions made by counsel for the plaintiff that a collecting bank is CS(OS)No.1719-2009 Page 32 of 37 liable to make the payment, cannot be accepted, in view of the uniform rules for collection and more particularly Article 16(b), that the Collecting Bank can only effect payment of the amount collected, in favour of the remitting bank only. Articles 16 (a) and 16 (b) read as under:
"Article 16 - Payment without Delay a. Amounts collected (less charges and /or disbursements and/or expenses where applicable) must be made available without delay to the party from whom the collection instruction was received in accordance with the terms and conditions of the collection instruction.
b. Notwithstanding the provisions of sub-Article 1(c) and unless otherwise agreed, the collecting bank will effect payment of the amount collected in favour of the remitting bank only."
41. As to the effect of the stamp on the bills of exchange and as to whether the document was stamped by the defendant no.3 or as to whether the document was stamped by defendant no.1 as an agent of defendant no.3 is unclear, as during the course of hearing counsel for the defendant no.3, bank, on instructions had submitted that the stamp on the bills of exchange was not affixed by the bank and if at all the same were affixed by defendant no.1. Surely at this stage leave cannot be declined to defendant no.3, as admittedly the defendant no.3 is only the collecting bank and there was no privity of contract initially between the plaintiff and the defendant no.3 and particularly when the bank has disputed affixing the stamp on the bills of exchange. Accordingly, the application of defendant no.3 (IA.No.15841/2009) is allowed and defendant no.3 is granted unconditional leave to defend, as defendant no.3 has been able to raise a triable issue which would require leading of evidence in the matter.
42. Mr.Y.P. Narula, learned senior counsel for defendant no.1, company has argued that defendant no.1 has raised a triable issue and a strong plausible CS(OS)No.1719-2009 Page 33 of 37 defence on the merits and thus defendant no.1 is also entitled to unconditional leave to defend. The stand of defendant no.1 is that the present suit is false and frivolous and no cause of action has accrued in favour of the plaintiff, the present suit is not maintainable as the plaintiff is not a juristic person, nor a legal entity, the plaintiff has forced and coerced the defendant no.1 into changing the terms of payment. It is also contended that the plaintiff had unilaterally changed the price from US$ 15.45 to 20.45 per unit, besides being in a dominating position, the plaintiff forced and coerced the defendant to execute the promissory notes, taking advantage of the advance payment having been made by the defendant no.1 and arm-twisting defendant no.1 by not releasing the goods which was incurring demurrage, until the promissory notes were signed.
43. Mr.Narula, learned senior counsel has also supported the defendant no.2 to the extent that defendant no.2 had resigned, but signed the promissory notes at the behest of the plaintiff and defendant no.1 to break the impasse between the parties with regard to the transaction. Another defence sought to be raised by defendant no.1 is that the goods were defective.
44. Counsel for the defendant no.1 has not been unable to satisfy this court as to how the present suit is not maintainable or as to how the present suit is false and frivolous. The receipt of consignment of the drums has not been disputed. It is also not in dispute that initially parties had agreed for making payment through bill of exchange which arrangements stood modified at the request of defendant no.1, and the following modifications were made:
Advance received US$ 51100.00 US $ 81276.40, as such against documents on sight. US $ 680388.40 on 120 days from the date of Bill of Lading.CS(OS)No.1719-2009 Page 34 of 37
Promissory Notes may be deleted from Bill of Exchange.
45. The execution of three promissory notes also has not been denied, thus the defence sought to be raised by the defendant no.1 that the present suit is not maintainable or is false and frivolous is without any basis. The argument of Mr.Narula, counsel for defendant no.1 that the plaintiff unilaterally changed the price from US$ 15.45 to 20.45 per unit, is baseless, as the documents executed by defendant would prima facie reflect the agreed price of the goods. There is also no merit in the submission of counsel for the defendant no.1 that the goods were defective.
46. Mr.Dhruv Mehta, counsel for the plaintiff submits that in case the goods were defective there is no explanation as to why the same were accepted by defendant and has rightly placed reliance on Section 42 of the Sale of Goods Act, which has been extracted above. There is not a single document placed on record that at any point of time defendant no.1 has raised the plea with regard to defective goods. The defendant no.1 has received the goods and the goods are in possession of defendant no.1.
47. The grounds sought to be raised by the defendant no.1 that the plaintiff is not a juristic person cannot be a ground by itself to grant unconditional leave to defendant no.1, especially in view of the fact that defendant no.1 has been dealing with the plaintiff which is evident from the documents placed on record. The submission made by counsel for the defendant no.1 that plaintiff forced the third consignment on defendant no.1 without resolving the disputes arising out of the first two shipments, and even before the defendant no.1 could get the custody of the first two consignments, requires consideration, as I find there is no explanation rendered by any of the parties as to why the third consignment was CS(OS)No.1719-2009 Page 35 of 37 dispatched by the plaintiff even in the absence of advance payment which was an understanding between the parties and even before release of the goods of the first and the second consignment to defendant no.1. In case the plaintiff had not received payment of the 1st and 2nd consignment, the plaintiff should have secured itself before dispatching the 3 rd consignment and more over when the first two consignments had still not been released. In the case of M/s.Mechalee Engineers (Supra), the Apex Court has drawn up the parameters to be considered by the court while dealing with an application for leave to defend. Relevant praras of the judgment reads as under:
"8. In Smt. Kiranmoyee Dassi and Anr. v. Dr. J. Chatterjee 49 C.W.N. 246 , Das. J., after a comprehensive review of authorities on the subject, stated the principles applicable to cases covered by order 37 C.P.C. in the form of the following propositions (at p.
253):
(a) If the Defendant satisfies the Court that he has a good defence to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the Defendant is entitled to unconditional leave to defend.
(b) If the Defendant raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the Defendant is entitled to unconditional leave to defend.
(c) If the Defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he has a defence, yet, shows such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiff's claim the Plaintiff is not entitled to judgment and the Defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security.CS(OS)No.1719-2009 Page 36 of 37
(d) If the Defendant has no defence or the defence set up is illusory or sham or practically moonshine then ordinarily the Plaintiff is entitled to leave to sign judgment and the Defendant is not entitled to leave to defend.
(e) If the Defendant has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the Plaintiff is entitled to leave to sign judgment, the Court may protect the Plaintiff by only allowing the defence to proceed if the amount claimed is paid into Court or otherwise secured and give leave to the Defendant on such condition, and thereby show mercy to the Defendant by enabling him to try to prove a defence."
48. The case of the defendant no.1 would fall in the proposition no.(c) & (e).
Accordingly application of defendant no.1 (IA.No.15834/2009) is partly allowed and defendant no.1 is granted leave on the condition of deposit of 50% of the suit amount with the Registrar General of this Court by 15th August, 2012.
49. In view of above, all the applications [I.A. No.15834 (by defendant no.1), I.A.No.15837(by defendant no.2) & IA.No.15841/2009 (by defendant no.3)] stand disposed of.
CS(OS) 1719/2009
50. Let the written statement be filed by the defendants by 15.08.2012, as prayed, due to intervening holidays. Replication be filed within thirty days thereafter.
51. List the matter before Joint Registrar on 30.08.2012 for further proceedings. List the matter before the Court on 28.09.2012.
G.S.SISTANI,J May 31, 2012 „ssn‟ CS(OS)No.1719-2009 Page 37 of 37