Andhra HC (Pre-Telangana)
N.V.S. Naidu vs Sri Surya Teja Constructions Private ... on 25 February, 2015
Author: K.C. Bhanu
Bench: K.C. Bhanu
THE HONBLE SRI JUSTICE K.C. BHANU AND THE HONBLE SRI JUSTICE M. SEETHARAMA
CITY CIVIL COURT APPEAL No.189 of 2008
25-02-2015
N.V.S. Naidu .Appellant
Sri Surya Teja Constructions Private Limited .Respondent
Counsel for the Appellant: Sri A.Navamohan Rao
Counsel for the Respondent: Sambasiva Pratap
<Gist :
>Head Note:
?Cases referred:
AIR 1997 SUPREME COURT 3
THE HONBLE SRI JUSTICE K.C. BHANU
AND
THE HONBLE SRI JUSTICE M. SEETHARAMA MURTI
CITY CIVIL COURT APPEAL No.189 of 2008
JUDGEMNT: (Per M. Seetharama Murti, J.)
This appeal, by the unsuccessful defendant, is directed against the
decree and the judgment dated 04.04.2008 in Original Suit No.486 of 1998
on the file of the learned Additional Family Judge-cum-XXIII Additional
Chief Judge, City Civil Court of Hyderabad.
2. We have heard the submissions of the learned counsel for the
appellant/defendant and the learned counsel for the respondent/ plaintiff, and
we have perused the material on record.
3. In this appeal, the parties shall hereinafter be referred to, as the
plaintiff and the defendant as arrayed in the suit.
4. This Court of first Appeal being the last Court of fact, it is necessary
to first refer to, in brief, the pleadings of the parties.
5. The plaintiffs case, in brief, is as follows:
The plaintiff is a private limited company registered under the
provisions of the Companies Act, 1956. The main object of the plaintiff
company is to carry on business of constructing buildings, houses, flats,
shops and residential complexes, etcetera at a low cost for the benefit of the
middle class people belonging to the community of the promoters of the
company. With that object in view, it had entered into an agreement to
purchase with the owners of the land in an extent of Ac.6.00 in Survey
Number 151 Gandhi Nagar of Qutbullapur Village, Hyderabad. However,
as the Directors of the Company were busy in their personal businesses and
affairs, the defendant had acted as the Managing Director of the plaintiff
company and had supervised the construction activities of the buildings
mentioned supra, of the company. To achieve the object of the plaintiff
company, it was decided to construct A type, B type and C type flats;
and, vide advertisement in newspapers inviting proposals for sale of the flats
was given. There was no proper response from the public as the said sales
are restricted only to community members of the Directors and the
shareholders of the company. So, the sales were made open to the general
public. In response thereto, 290 persons had came forward to purchase the
flats. The defendant, who was the Managing Director of the plaintiff
company at the relevant time, had received advance amounts from the said
290 persons, who had booked flats, and had constructed C type flats
successfully and had completed the registration of the said flats in favour of
the purchasers. However, insofar as the other two blocks, the construction
was raised only up to the stage of pillars by the middle of 1996, and, later
the said activity had come to a stand still as the defendant had
misappropriated the money collected from the intended purchasers. A total
amount of Rs.80,10,800/- was collected by the defendant from the said
purchasers. However, as per the statement of account, only a sum of
Rs.57,26,712/- was spent by him. A sum of Rs.8,84,500/- was appropriated
towards the share capital of the company. The defendant had failed to
account for the balance amount of Rs.33,00,000/- to the company and had
misappropriated the said amount of the company. When the Directors of the
company questioned the defendant, he had admitted the said fact, and at the
instance of well wishers and all concerned, a Memorandum of
Understanding (MOU) dated 19.10.1996 was entered into where under the
defendant had agreed to pay the deficit amount in 3 instalments and had,
accordingly, paid a sum of Rs.10,00,000/- towards part-payment but had
failed to pay the balance. As such, he was removed from the Chairmanship
and also his position as the Managing Director of the plaintiff company; and,
after deducting his share capital of Rs.1,50,000/- and another sum of
Rs.58,000/-, which was due to him from the plaintiff company, it was
noticed that a sum of Rs.20,09,903/- was due by the defendant to the
plaintiff company. Since, he did not pay the said amount, the suit was laid.
6. The defendant, while resisting the suit had inter alia contended in his
defence as under.
He was the Managing Director of the plaintiff company. The plaint
allegations that as Director of the company, he had received advances and
instalments amounts from 290 persons, who booked the flats, are denied.
The advance and instalment amounts received from the purchasers were
credited to the account of the company. The averments that the construction
activity had come to a stand still and that he had misappropriated the amount
of the company for his personal use by diverting the funds, and that a sum of
Rs.80,10,800/- was received from the purchasers and an amount of
Rs.57,26,712.10 paise was spent on construction etcetera and that an amount
of Rs.33,00,000/- was due from the defendant to the company, are all
denied. The signature of the defendant was obtained on the MOU dated
19.10.1996 by force and coercion with the help of 20 muscle men and he
had not signed the MOU out of free will and consent. The said document is
not a valid document and is not true and binding on him. The defendant, one
Nageshwar Rao and T.Uma Maheshwar Rao visited the place of one
Y.Subbarayudu. There, the defendant had found 20 unknown persons; and,
they all, along with Subbarayudu, had forced him to sign on the said MOU,
and he was directed to complete the construction work with his own money.
The said fact was brought to the notice of the other Directors in the Board
Meetings held on 26.10.1996 and 19.10.1996. As such, in the Board
Meeting held on 26.10.1996, it was decided that the MOU dated 19.10.1996
is not valid. The members of the Board had also pointed out that it was an
illegal document and that it was not signed by the defendant under the
authority of the Board of Directors of the company and that the said
document is not binding on the plaintiff company. It was also decided in the
said Board Meeting that the figure of Rs.33,00,000/- arrived as deficit
amount is not correct and is baseless. There was a deficit of the said sum
was also not approved. In the Board meeting held on 28.10.1996, the Board
had described that the obtaining of signature on the MOU is a grave
misconduct committed by Y.Subbarayudu. The members who attended the
meeting on 26.10.1996 had also noted that the MOU was created and that
the defendant had already invested his own funds amounting to
Rs.38,00,000/- in addition to the share capital contribution and that the
deficit amount is false. The averment that the defendant had paid a sum of
Rs.10,00,000/- on 01st November 1996 to the landlord i.e., towards the part-
payment of the deficit amount due from him under the MOU, is denied.
The said payment made to the landlord is in no way connected to the alleged
MOU and therefore, the averment to the contra in the plaint is false. The
suit is filed in collusion after expelling the defendant from the Board.
Therefore, the defendant had also filed an application before the Company
Law Board under Section 11 of the Companies Act, 1956. The plaintiff had
intentionally omitted to submit to the court the statement of financial
position as on 25.09.1998, by which time there was substantial progress in
the project work which was made by spending an amount of Rs.46,17,000/-
of the defendant. The company has to pay to the defendant a sum of
Rs.92,72,500/- as stated in paragraph (10) of the written statement. There is
no cause of action. The documents relied upon are illegal and not binding.
The plaint averments are fictitious and false. The plaintiff had neglected to
settle the claim of the defendant. Hence, the suit is liable to be dismissed.
7. At this juncture, it is appropriate to mention that before this Court, the
defendant had filed a miscellaneous petition requesting to receive the
additional written statement. By a separate order, the said application was
allowed. In the additional written statement, the defendant had inter alia
contended as follows:
K.Uma Maheswara Rao has no authority to represent the company.
This defendant had repaid the amount to the customers who paid the
amounts towards booking of the flats and the receipts are filed herewith as
proof of the same and after adjudication, exhibits B8 to B11 are to be
accepted. The suit is based on MOU, which is obtained under coercion and
is not binding. The defendant had filed Photostat copies of the minutes as
exhibits B8 to B11. The defendant had taken steps to call for the original
minutes by giving a notice to the company represented by the Director-
K.Uma Maheswara Rao. He had sent a reply through the lawyer stating that
the minutes were with late Subbarayudu; after the death of Subbarayudu, his
family members did not cooperate before the trial court. The documents are
presumed to be with the family members of Subbarayudu. A company
petition was filed under Sections 398 and 402 read with Section 111 of the
Companies Act against the plaintiff company and nine others for misdeeds
and mismanagement of the company by Subbarayudu and the said petition is
pending. The company secretary found that there was no company at the
site. A notice to produce documents issued by the Registrar of Companies
was not complied with. This shows that Subbarayudu played mischief.
8. Having regard to the original pleadings, the trial Court had framed the
following issues for trial.
(1) Whether the defendant did not account for Rs.33 lakhs from the amount
collected from the persons who booked the flats?
(2) Whether the MOU dated 19.10.96 is obtained by force and coercion and
whether it is not valid or binding on the defendant?
(3) Whether payment of Rs.10 lakhs made by the defendant on 1.11.96 is
towards partial discharge of the amount to be paid under MOU dated
19.10.96?
(4) Whether the suit is not maintainable under law?
(5) Whether there is no cause of action for the suit?
(6) Whether the plaintiff is entitled for recovery of sum of Rs.20,09,903/-
against the defendant and for subsequent interest @ 18% per annum?
(7) To what relief?
9. During the course of trial, PWs.1 and 2 were examined and Exs.A1 to
A3 were marked on the side of the plaintiff. DW1 was examined and
Exs.B1 to B22 were marked on the side of the defendant. Though DW2
was examined in-chief, he was not tendered for cross-examination and at the
request of the counsel for the defendant his evidence was eschewed.
10. On merits, the trial Court had recorded findings on all the issues in
favour of the plaintiff and decreed the suit against the defendant with costs,
as prayed for.
11. The learned counsel for the appellant/defendant would contend as
follows:
There is no cause of action for the plaintiff company to file the suit as
the documents Exs.A1 and A2 are not true, binding and enforceable. Exhibit
A1 was obtained under coercion with the help of 20 musclemen. DW1 had
categorically deposed that Ex.A1-MOU was not signed under the authority
of the Board of Directors of the plaintiff company and that the said
document does not bind the plaintiff company. PW1 had also stated in his
evidence that he had no knowledge of any official Board Meeting that had
taken place on 19.10.1996. In the absence of any Board Meeting or
Resolution, the company has no locus standi to file the suit for recovery of
the amount on the basis of the MOU. Though PW2 had stated in his
evidence that a Board Meeting had taken place on 19.10.1996, no such proof
is filed before the Court. The defendant had filed Exs.B8 to B11 and out of
the said documents, exhibits B9 and B10, in particular show the decisions
taken in the Board Meetings held on 10.10.1996 and 25.10.1996. The
contents of the said documents go against the contentions of the plaintiff and
would show that the MOU dated 19.10.1996 is illegal and not binding. The
trial Court ought to have placed reliance on Exs.B8 to B11 produced by the
defendant. The suit for enforcing Ex.A1 could have been laid only by the
individuals, but the individuals representing the company have chosen to file
the suit without sanction of the company by way of Resolution, and hence,
the plaintiff company has no locus standi to file the suit. The trial Court
ought to have seen that Ex.A1 was not executed with free will and consent
and the same was obtained under force and coercion. There is arbitration
agreement between the parties. Hence, the civil suit, which is filed ignoring
the arbitration clause, is not maintainable. The registered office of the
plaintiff company is situated at Quthbullapur, which is within the territorial
jurisdiction of the Court at Ranga Reddy, and, therefore, the civil suit filed
in the Civil Court, Hyderabad is not maintainable. The appeal be allowed
and the suit be dismissed after setting aside the judgment of the trial court.
12. On the other hand, learned counsel for the respondent/plaintiff
contended as follows: The recitals of Ex.A1-MOU would clearly lay bare
that the defendant had admitted his liability and had voluntarily executed the
said document. The defendant, having admitted the execution of the MOU
had contended that it was obtained under force and coercion, but had failed
to prove his defence, and, therefore, the trial Court had rightly held that
Ex.A1 is proved and it is true, valid and binding on the defendant. Exs.B8 to
B11 are only Photostat copies and when the said documents were sought to
be marked at the fag end of the trial and during the evidence of DW1, a
serious objection was raised about their admissibility and the very existence
and genuineness of the documents was questioned. And, on application by
the defendant, the trial Court had permitted to adduce secondary evidence
leaving open the question of genuineness of the said documents to be
decided during the course of trial. The trial Court, by assigning valid
reasons had held that the said documents are not true and valid. The witness
who was sought to be examined as DW2 did not come forward to support
the case of the defendant. The contentions regarding locus standi of the
plaintiff company, the authority of K.Uma Maheswara Rao to represent the
plaintiff company, the lack of jurisdiction of the trial Court to entertain and
try the suit, the further contentions based on some inapplicable provisions of
the Companies Act ignoring the provisions of the Code of Civil Procedure
and the other contentions, which are urged before this court have no factual
foundation in the original pleadings of the defendant. The contentions that a
notice to produce the documents was given and that K.Uma Maheswara Rao
had no authority to represent the plaintiff company are raised for the first
time before this Court as an afterthought and without any basis. All the
contentions now raised are also not urged in the grounds of appeal. The said
questions being mixed questions of fact and law, cannot be permitted to be
raised without a factual foundation in the pleadings and any basis in the
evidence adduced before the trial court. The contents of the MOU and the
facts of the case, when considered in juxtaposition with the provisions of
Order XXIX of the Code, do show that the suit as laid is maintainable and
that any alleged irregularities or defects pointed out for the first time before
this court are factually and legally not correct and there are no defects or
irregularities in the claim of the plaintiff. In any view of the matter, as
per
the provision of Section 99 of the Code, no decree shall be reversed or
modified for error or irregularity not affecting merits or jurisdiction. The
defendant could not show that there is a miscarriage of justice on any
ground. The MOU is a document, where under, in the presence of Directors
and at the instance of well wishers, the defendant had admitted his liability
and it is a document showing the admission of the defendant and his
liability. Further, no where in the defence filed by the defendant, the
exhibit
A2 statement of account was denied. A reading of exhibit A1 would show
that at that time, the parties have reviewed the position and the status of the
company in the presence of the well wishers; and that after reviewing the
audited accounts, the terms and conditions agreed to were reduced into
writing and only on that the MOU was signed by all the concerned. There is
no merit in any one of the contentions of the appellant. The trial Court,
having assigned valid reasons had recorded the sustainable findings on all
the issues. The well reasoned findings in the well considered judgment of
the trial Court do not call for interference by this Court. Therefore, the
appeal, which is devoid of merit, is liable to be dismissed confirming the
judgment and decree of the trial court.
13. In view of the contentions raised, the points that arise for
determination in this appeal suit are as under.
1) Whether the civil court is not having jurisdiction for the reason that the
subject dispute is arbitrable since covered by an arbitration agreement
between the parties? Whether the City Civil Court at Hyderabad has no
territorial jurisdiction?
2) Whether the MOU dated 19.10.1996 under exhibit A1 was obtained by
force and coercion, as contended by the defendant? Whether the MOU is
not true, valid and binding on the defendant?
3) Whether the payment of Rs.10,00,000/- made by the defendant on
01.11.1996 is towards partial discharge of the amount covered by exhibit
A1-MOU?
4) Whether the plaintiff is entitled to the suit amount or any part there of?
5) Whether the suit is not maintainable?
6) Whether the decree and judgment of the court below are unsustainable
under facts and in law?
7) To what relief?
14. We have given earnest consideration to the facts, the evidence and the
submissions made. We have carefully gone through the oral and
documentary evidence brought on record.
15. POINT No.1:
Whether the civil court is not having jurisdiction for the reason that the
subject dispute is arbitrable since covered by an arbitration agreement
between the parties? Whether the City Civil Court at Hyderabad has no
territorial jurisdiction?
15. (a) Coming to the first aspect and the contentions of the defendant
that the subject dispute is an arbitrable one and that the civil suit filed by
the
plaintiff, without referring the parties to arbitration, is not maintainable, it
is
to be seen that no plea in that regard was raised in the written statement.
Even after receiving the summonses in the suit, the defendant did not
approach the trial Court stating that the dispute covered by the suit is the
subject matter of an arbitration agreement and had failed to apply, before
submitting his first statement on the substance of the dispute, to refer the
parties to arbitration and had failed to take recourse to the provision of
Section 8 of the Arbitration and Conciliation Act, 1996. The provision of
Section 8 of the said Act reads as under:
Section 8: Power to refer parties to arbitration where there is an arbitration
agreement:
(1) A judicial authority before which an action is brought in a matter which
is the subject of an arbitration agreement shall, if a party so applies not
later than when submitting his first statement on the substance of the
dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall not be entertained
unless it is accompanied by the original arbitration agreement or a duly
certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section
(1) and that the issue is pending before the judicial authority, an arbitration
may be commenced or continued and an arbitral award made.
In the case on hand, the defendant did not at all file an application, much less
before filing the written statement, requesting the trial Court to refer the
parties to arbitration. The Section of Law ordains that any application
requesting to refer the parties to arbitration shall be filed not later than the
party submitting the first statement on the substance of the dispute.
Therefore, even assuming for a moment that the dispute is arbitrable one,
since the defendant had failed to exercise the right available to him under
Section 8 of the Act and had submitted to the jurisdiction of the Civil Court,
it follows that the defendant had waived his right. Therefore, the contention
that the civil suit is not maintainable as the dispute is arbitrable one, cannot
be countenanced.
15. (b) The next contention of the defendant is in regard to the lack of
territorial jurisdiction. The learned counsel for the defendant would contend
that the trial court has no jurisdiction to entertain and try the suit and that
the
present suit ought to have been filed in a civil Court within the territorial
jurisdiction of Ranga Reddy District, as the registered office of the plaintiff
company is situated at Quthbullapur and that therefore, the civil suit
instituted in the City Civil Court, at Hyderabad is not maintainable. It is to
be noted that the said defence was not taken in the written statement and was
also not raised before the trial Court and also in the grounds of objection in
the memorandum. As rightly pointed out, as per the provision under Section
21 of the Code, no objection as to the place of suing shall be allowed by any
appellate or revisional court unless such objection was taken in the court at
the first instance at the earliest possible opportunity and in all cases where
issues are settled at or before such settlement. Further, the section of law
lays down that such an objection as to the place of suing shall not be allowed
unless there has been a consequent failure of justice. The law is well settled
that objection as to territorial jurisdiction, if not taken at or before
settlement
of issues, it shall be deemed that such objection as to territorial jurisdiction
has been waived. In this case, neither an objection as to the want of
territorial jurisdiction of the trial court was raised nor consequent failure of
justice was shown to have been caused. Therefore, the contention in regard
to lack of territorial jurisdiction of the trial court is rejected being devoid
of
merit.
15. (c) Viewed thus, we find that the suit is maintainable and that the
contentions of the defendant on these points are devoid of merit. The point
is accordingly answered against the defendant and in favour of the plaintiff.
16. POINTS 2, 3 & 4:
Whether the MOU under Ex.A1was obtained by force and
coercion, as contended by the defendant, and whether the MOU
is not true, valid and binding on the defendant?
Whether the payment of Rs.10,00,000/- made by the defendant
on 01.11.1996 is towards partial discharge of the amount
covered by MOU dated 19.10.1996?
Whether the plaintiff is entitled to the suit amount or any part
thereof?
16. (a) The suit is filed for recovery of money based on Ex.A1-MoU
and Ex.A2-statement of account. At the outset, it has to be restated and
noted that though the defendant had contended in the written statement that
the MOU was obtained under force and coercion, he did not make a whisper
about Ex.A2-statement of account, which is also referred in Ex.A1-MOU
and had not denied the correctness of the said exhibit A2-statement of
account. PW1, having deposed in line with the pleadings in the plaint had
maintained his stand in the cross-examination and had denied the
suggestions which were given in line with the defence. No important points
were gained in cross-examination of PW1. PW2, who is a supporting
witness, corroborated the evidence of PW1. PW2 was admittedly present
when exhibit A1 has come to be executed. This witness affirmed on oath
that on 19.10.1996, a meeting was held and that the defendant had signed
exhibit A1-MOU in the presence of the Directors and that he had also signed
the said MOU. The defendant though had denied at one breath the
averment that he in his capacity as Managing Director had received advance
and instalment amounts from 290 persons, who had booked the flats, had at
another breath, pleaded that the advance and instalment amounts received
from the purchasers were credited to the account of the company. This
admission in the written statement would clearly show that he had received
advance and instalment amounts; but the defendants case is that he had
credited the same to the account of the company. The fact that he was in-
charge of the affairs of the company as Managing Director and was
supervising the construction activity is not in dispute. Even in his cross-
examination, he had admitted that he was controlling the affairs of the
company and that as per the records of the company, 290 persons had
booked flats and that the said allottees who had booked the flats had paid
amounts to him and he had passed receipts acknowledging the same. It is
also admitted that under his supervision, the construction of the flats was
started. He had also admitted that he had spent money on the construction of
flats. Therefore, he was dealing with the receipts of monies as well as
expenditure on the construction activity, is borne out by the evidence
brought on record; and, the evidence on record sufficiently established that
the defendant was the Managing Director of the company since inception
and was controlling the affairs of the company and that he had collected the
amounts from 290 persons, who had booked the flats and had passed receipts
acknowledging the payments of money received from them. So, it is for the
defendant to prove that he had credited to the account of the company, the
entire amount received by him. The defendant is liable to account for the
money collected, the same being the money of the company and he is also
liable to account for the receipts and expenditure. The evidence brought on
record would show that only one block was completed and the other two
Blocks (A type and B type) were not completed. When the intended
purchasers made hue and cry and when there was no progress in the
construction, the other Directors of the Board questioned the defendant. In
fact, criminal cases were also registered against the defendant. The
defendant had admitted in his evidence that Central Bureau of Investigation
(CBI) had filed a charge sheet against him for the offences punishable under
Sections 120 B and 420 of the Indian Penal Code, 1860 (IPC) and that C.C.
No.2 of 2002 is taken on file by a competent court and is pending. The
charge sheet in the said Calendar Case is exhibited as Ex.B19. In fact, after
full fledged trial, he was sentenced to undergo rigorous imprisonment for a
period of 5 years is also admitted. Ex.B20 is the record relating to another
case registered against him by the CBI. When there were demands from the
intended purchasers of the flats, the other Directors of the plaintiff company
had questioned the defendant and on that there were discussions; and, at the
intervention of well-wishers, the defendant had admitted that there was a
deficit of money and also his liability. In the said circumstances, the MOU
under Ex.A1 has come to be executed. A perusal of the same would show
that on verification of the audit report, which was approved and accepted by
the Managing Director, a sum of Rs.33,00,000/- was found to be the deficit.
Under clause (2) of the said MOU, the defendant had agreed that there was
deficit of Rs.33,00,000/- and the same was with him and had further agreed
to repay the said amount to the plaintiff company in 3 instalments, viz., (i)
Rs.10,00,000/- being the first instalment payable on or before 30.10.1996;
(ii) Rs.10,00,000/- being the second instalment payable on or before
10.11.1996 and (iii) the balance being the last instalment payable on or
before 20.11.1996. The recitals of the exhibit A1-MOU coupled with the
exhibit A2-statement of account and the evidence on record are sufficient to
come to a safe conclusion that the plaintiff proved its case by adducing the
required standard of evidence and discharged the onus of proof as well as the
legal burden, which is upon the plaintiff.
16. (b) Be that as it may, in view of the admission of the signature on
the MOU and in the light of the defence that the MOU was obtained by force
and under coercion, it is for the defendant to establish his defence. The
defendant did not adduce any credible evidence in support of the said
defence. Except his interested testimony, there is no other evidence on
record to establish the same. If really Ex.A1-MOU was obtained under
force and coercion, the defendant ought to have taken legal action, at least
by lodging a police report. But, he did not do so. The contention of the
defendant that keeping in view the reputation of the company, he did not
lodge a report cannot be countenanced, in the facts and circumstances of the
case. According to him, he along with R.Nageshwar Rao and Uma
Maheshwar Rao went to the place of Y. Subbarayudu, who is one of the
Directors, and that at that place, 20 unknown persons were there, and that at
that place he was forced by the said Subbarayudu and others to sign on the
exhibit A1-MOU and that he was warned by the members of the Board to
complete the construction work with his own money. But, the defendant
had not examined either R.Nageshwar Rao or Uma Maheshwar Rao to
substantiate his contention. Though, the said R.Nageshwar Rao was sought
to be examined as DW2 and his affidavit in lieu of examination-in-chief was
filed, the said witness was not tendered for cross-examination and his
evidence, in part, was eschewed at the request of the counsel for the
defendant. Therefore, what remained on record is the self-serving statement
of the defendant. It is pertinent to note that the defendant had further
relied
on Exs.B8 to B11, which are said to be the photostat copies of the minutes of
meeting of the Board of Directors. Among those documents, the defendant
had placed particular reliance on Ex.B10 minutes, where under it appears to
have been stated that the defendant had complained to the other Directors
regarding the fact that his signatures were obtained by force on Ex.A1-MOU
on 19.10.1996 and that the Directors present at the meeting had accepted that
the said document was obtained without any authority of the Board of
Directors and that it is an illegal document and that the same is not binding
on the company. The plaintiff had seriously disputed not only the
genuineness but also the very existence of such minutes under Exs.B8 to
B11. Exhibits B8 to B11 are not original minutes, but they are only
photostat copies of the minutes of the meetings allegedly held on the
respective dates. The said documents were not confronted to PWs.1 and 2
and the same were produced only at the fag end of trial and when the
defendant was examined. Even when an objection was raised on behalf of
the plaintiff for marking of the said documents, no efforts were made to
secure the originals by following the procedure contemplated under law.
Though it is contended in the additional written statement filed before this
court that a notice to produce the documents was given, the said contention
is only a belatedly introduced as an after thought and no such document
evidencing the fact that a notice to produce the documents was given was
exhibited. Be that as it may. The trial court while allowing the application
of the defendant requesting for permission to adduce secondary evidence had
left open the question of the genuineness of the documents and had only
considered the request for permission to adduce secondary evidence.
Therefore, though permission was accorded to exhibit photostat copies, i.e.,
exhibits B8 to B11, the defendant was required to prove the genuineness of
the said documents. Even according to the defendant, the said documents
were filed in the proceedings before the Company Law Board. So far as the
other exhibits are concerned, the defendant had obtained the certified copies
and exhibited the same. But, insofar as Exs.B8 to B11 are concerned, no
such certified copies were obtained and filed. The said documents do not
contain the signatures of the Board Members, who had attended the Board
Meetings, which were allegedly held. According to the defendant, the said
documents under exhibits B8 to B11 were served on the defendant in the
proceedings pending before the Company Law Board. The documents only
show that they are endorsed as true copies by one R.Nageswara Rao. But,
the said R. Nageswara Rao is not examined. Therefore, whether the said R.
Nageswara Rao had signed and certified them as true copies is very much
doubtful. No explanation is forthcoming from the defendant as to why the
Directors, who were said to be present at the alleged meetings, had not
signed the originals of Exs.B8 to B11, if really the minutes as contained in
exhibits B8 to B11 were true and were recorded in such meetings. Virtually,
there is no evidence to prove that the meetings as evidenced by Exs.B8 to
B11 had taken place. Though it was sought to be contended that the
Nageswara Rao was present at one of the Board Meetings, these documents
were not confronted to the said Nageshwara Rao. Further, the incomplete
evidence of DW2 was eschewed. Even these documents were not
confronted to PW2, who was said to be allegedly present at the meetings.
The author of the documents is not examined. The defendant had stated in
his evidence that he does not know the author of the said documents. When
the plaintiff company had seriously disputed the very existence and
genuineness of the defendants documents, the defendant ought to have
examined a witness who according to him is associated with the alleged
meetings and the minutes of the meetings under exhibits B8 to B11.
Therefore, the non-examination of a witness, much less the material
witnesses, coupled with the failure to confront the said documents to PWs1
and 2 would show that the defence based on the documents in exhibit B
series is not true and is invented. The defendant himself had created the
copies of the minutes under exhibits B8 to B11 and had pressed them into
service at the fag end of the trial and that the said documents, which are not
proved to be genuine, are self serving documents is a contention which is
more probable and merits consideration in the light of the discussion coupled
with reasons. Therefore, in the absence of any proof of the existence of the
originals of exhibits B8 to B11 and in the absence of any proof to accept that
the said documents are true and genuine, no reliance can be placed on the
documents relied upon by the defendant. On an overall consideration of the
evidence, the defence that the MOU under exhibit A1 was obtained under
force and coercion cannot be countenanced. Therefore, on an analytical
examination of the evidence, we are of the well considered view that exhibit
A1-MOU was entered into and was signed by the defendant voluntarily and
not under coercion and force and that therefore, the same is true, valid and
binding on the defendant.
16. (d) There is one more aspect, namely, the part payment of
Rs.10,00,000/- said to have been made by the defendant. The evidence on
record also would lay bare that the first instalment of Rs.10,00,000/- is to be
paid to the landlord i.e. to the person from whom Ac.6.00 of land was
purchased by the plaintiff company. Under the MOU, the 1st instalment of
Rs.10,00,000/- is payable on or before 30.10.1996. A payment of
Rs.10,00,000/- was admittedly made by the defendant to the landlord.
Therefore, the plaintiff contends that the MOU was acted upon by the
defendant and the 1st instalment was duly paid and that the other two
instalments are payable. Since this payment was admittedly made to the
landlord on 01.11.1996, the defendant in his written statement had
contended that the said payment was in no way concerned with the
memorandum of understanding. Therefore, the defendant sought to contend
that the said payment is not made in pursuance of the liability under Ex.A1-
MOU, but the said payment was made for some other purpose unconcerned
with the MOU. But, the defendant did not adduce any evidence and is not
able to establish as to what was the other purpose for which the said
payment was made. In the absence of any explanation much less a valid
explanation and evidence on the side of the defendant in support of the
contention that the said payment was made towards some other purpose
unconcerned with the MOU, the case of the plaintiff that the defendant had
made the part payment of Rs.10,00,000/- towards 1st instalment that was due
under the MOU deservers to be accepted. Accordingly, we hold that this
part payment of Rs.10,00,000/-, which was admittedly made by the
defendant to the landlord, was made only towards the first instalment
payable under the MOU as contended and established by the plaintiff. This
payment made by the defendant fortifies the contention of the plaintiff that
the MOU is true and is acted upon. Only after deducting this payment, the
suit claim was made.
16. (e) Once it is held that Ex.A1 is proved, it follows that the
defendant is liable to pay Rs.33,00,000/- to the plaintiff company as per the
terms of the said MOU-exhibit A1. In view of the payment of
Rs.10,00,000/-, the balance still due and payable by the defendant is
Rs.23,00,000/-. After giving credit also to the share capital of the defendant,
which was appropriated at the time when the defendant was removed from
the posts of Chairmanship and as Managing Director of the company, the
suit is laid for recovery of the balance amount due i.e., Rs.20,09,903/- along
with interest. In the light of the discussion coupled with reasons, it follows
that the plaintiff company is entitled to a decree for the suit amount with
interest. Points 2, 3 and 4 are accordingly answered in favour of the plaintiff
and against the defendant.
17. POINT NO.5: The next contention of the defendant is that the suit
is not maintainable. It is a general contention.
17. (a) The above said defence is based on a set of submissions, which
are as under: Exhibit A1-MOU was not signed under the authority of the
Board of Directors of the plaintiff company and that the said document does
not bind the plaintiff company. Though PW2 had stated in his evidence that
a Board Meeting had taken place on 19.10.1996, no such proof is filed
before the Court. PW1 had also stated in his evidence that he had no
knowledge of any official Board Meeting that had taken place on
19.10.1996. In the absence of any Board Meeting or Resolution, the
company has no locus standi to file the suit for recovery of the amount on
the basis of the MOU. The said MOU was not executed between the
company on one hand and the defendant on the other. The MOU does not
bear the official seal of the company. The provisions of Sections 397, 398
and 399 of the Companies Act, 1956, would show that the suit filed by the
company against the defendant is not maintainable. The authorised
Director, Y. Subbarayudu, whose name was shown in the cause title, had
died during the pendency of the suit. Therefore, the suit as laid by the
company is not maintainable.
17. (b) On the other hand, the learned counsel for the plaintiff would
contend as under: That the MOU is not a contract and it is only a document,
where under the defendant had admitted his liability in respect of the amount
due and payable by him to the company. The admission of the defendant
and other terms agreed to between the parties are reduced into writing in the
form of MOU in the presence of all concerned and also the well wishers.
Thus, the MOU was entered into after reviewing the audited accounts and
after arriving at an understanding. The MOU was executed after the
accounts, which were verified by the auditor were approved and accepted by
the defendant in the presence of the Directors and the well wishers.
Therefore, the document, viz., MOU evidencing the admitted liability of the
defendant coupled with the statement of account-under exhibit A2, which
was not denied are rightly accepted by the trial court as true, valid and
binding. The trial court had rightly held that the suit is maintainable in all
respects. The said document, in the circumstances stated, and being only an
MOU, where under only an admission of liability was made by the
defendant, does not require the affixation of the seal of the company. The
company is a juristic person having its own entity and it can sue and be sued
in its name and there is no legal requirement that any named person be
shown in the cause titles as representing the company, and, the requirement
of law as per the provisions of order XXIX of the Code would be satisfied if
the pleadings are signed and verified on behalf of the company by the
Secretary or by any Director or other principal officer of the Corporation
who is able to depose to the facts of the case and that therefore, the
contentions of the defendant are devoid of merit. None of the Directors are
opposing the suit, and, on the other hand, all the Directors are interested in
realising the money due to the plaintiff company. Further, as per the
provision under Section 99 of the Code, no decree of a court is to be
reversed or modified for error or irregularity not affecting the merits of the
case or jurisdiction of the court. All the contentions in regard to
maintainability of the suit have no factual foundation in the defence. The
defendant could not show that on account of the alleged contentions now
raised and the alleged defects pointed out, the merits of the case are affected
and that any miscarriage of justice had occasioned. Therefore, the
contentions that the suit as framed and laid is not maintainable are devoid of
merit.
17. (c) We have given earnest consideration to the facts, the
submissions and the provisions of law referred to by the learned counsel.
Under point Nos.2 to 4, we have already held that exhibit A1-MOU is true,
valid and binding and that it was also acted upon. The defendant is
admittedly a party to the MOU and he had also admitted his signature on the
said document. He had also not denied exhibit A2, the statement of account.
A plain reading of the document would show that the same is made amongst
the Directors of the plaintiff company and the defendant after the parties
have reviewed the position and status of the company in the presence of all
concerned including the well-wishers. The said MOU on a plain perusal
also would show that after reviewing the audited accounts and discussing the
matters, the same was entered into. Further, the introductory portion of the
MOU would show that the Memorandum of Understanding was made
between the Directors of the company and that in the circumstances stated
therein the defendant had accepted the deficit amount of Rs.33 lakhs was
with him and had further agreed to repay the said deficit in three instalments
as detailed in the MOU. Therefore, a harmonious reading of all the clauses
of the MOU would lay bare that it was executed with the Board of Directors
of the company as parties to it, in order to fix the liability of the defendant
on his own admission in the presence of well wishers; and that the document
is intended to record the admission in regard to the deficit money, which is
with the defendant, and which is due from the defendant to the company and
not to any individual Director. The document is not a contract entered into
by the company with a stranger or a third party. A plain reading of the
Sections 397, 398 and 399 under Chapter IV of the Companies Act , which
were relied upon by the learned counsel for the appellant-defendant would
show that the said provisions deal with situations for relief in case of
oppression and the rights of the members of the company and the application
for relief in cases of mismanagement and the eligibility of the members of
the company, who shall have a right to apply under Sections 397 and 398;
and therefore, the said provisions which relate to rights of certain members
to apply in case of oppression and mismanagement have no relevancy to the
present suit filed by the company against a defendant, who was formerly the
Chairman and the Director who had dealt with the activities of the company.
The amended cause title of the memorandum of appeal would show that the
company is now being represented by one of its Directors, K. Umamaheswar
Rao. Order XXIX of the Code deals with suits by or against Corporation.
Rule 1 of the said Order reads as under:
1. Subscription and verification of pleading :- In suits by or
against a Corporation, any pleading may be signed and verified on
behalf of the Corporation by the Secretary or by any Director or
other principal officer of the Corporation who is able to depose to
the facts of the case.
Appendix A dealing with pleadings and title of the suit in a case filed
by the
plaintiff company reads as under:
The A.B Company, Limited having its registered office at ..
Section 99 of the Code reads as under:
99. No decree to be reversed or modified for error or irregularity not
affecting merits or jurisdiction: - No decree shall be reversed or substantially
varied, nor shall any case be remanded, in appeal on account of any misjoinder
or non-joinder of parties or causes of action of any error, defect or
irregularity
in any proceedings in the suit, not affecting the merits of the case or the
jurisdiction of the Court.
Provided that nothing in this section shall apply to non-joinder of a
necessary party.
Further, in the decision in United Bank of India v. Naresh Kumar , the
Honble Supreme Court considered the question as to whether the suit for
recovery of money filed by the appellant Bank was properly instituted. The
Supreme Court had also considered the question whether the plaint was duly
signed and verified by a competent person. Having regard to the legal
position, the Supreme Court had held as follows:
In cases like the present where suits are instituted or defended on behalf of a
public corporation, public interest should not be permitted to be defeated on a
mere technicality. Procedural defects which do not go to the root of the matter
should not be permitted to defeat a just cause. There is sufficient power in the
Courts, under the Code of Civil Procedure, to ensure that injustice is not done
to
any party who has a just case. As far as possible a substantive right should not
be
allowed to be defeated on account of a procedural irregularity which is curable.
It cannot be disputed that a company like the appellant can sue and be sued in
its
own name. Under Order 6 Rule 14 of the Code of Civil Procedure a pleading is
required to be signed by the party and its pleader, if any. As a company is a
juristic entity it is obvious that some person has to sign the pleadings on
behalf of
the company. Order 29 Rule 1 of the Code of Civil Procedure, therefore, provides
that in a suit by against a corporation the Secretary or any Director or other
Principal officer of the corporation who is able to depose to the facts of the
case
might sign and verify on behalf of the company. Reading Order 6 Rule 14
together with Order 29 Rule 1 of the Code of Civil Procedure it would appear
that
even in the absence of any formal letter of authority or power of attorney
having
been executed a person referred to in Rule 1 of Order 29 can, by virtue of the
office which he holds, sign and verify the pleadings on behalf of the
corporation.
In addition thereto and de hors Order 29 Rule 1 of the Code of Civil Procedure,
as
a company is a juristic entity, it can duly authorise any person to sign the
plaint or
the written statement on its behalf and this would be regarded as sufficient
compliance with the provisions of Order 6 Rule 14 of the Code of Civil
Procedure.
A person may be expressly authorised to sign the pleadings on behalf of the
company, for example by the Board of Directors passing a resolution to that
effect
or by a power of attorney being executed in favour of any individual. In absence
thereof and in cases where pleadings have been signed by one of it's officers a
Corporation can ratify the said action of it's officer in signing the pleadings.
Such
ratification can be express or implied. The Court can, on the basis of the
evidence
on record, and after taking all the circumstances of the case, specially with
regard
to the conduct of the trial, come to the conclusion that the corporation had
ratified
the act of signing of the pleading by it's officer.
Having regard to the provisions of law, the ratio in the decision of the
Supreme Court and the facts of the case, we are of the considered view that
the contention of the defendant that the suit is not validly instituted and that
the suit is not maintainable is devoid of merit. Accordingly, the contentions
of the defendant/appellant are rejected and the point is accordingly answered
against the defendant/appellant.
18. POINT No.6:
We have carefully gone through the judgment of the trial Court. The
trial Court, having assigned sufficient and valid reasons in support of its
findings had answered all the issues in favour of the plaintiff and against the
defendant. For the said reasons and also for the reasons now assigned and
the findings recorded by us on the aforesaid points 1 to 5, supra, we find that
there is no infirmity in the decree and the judgment of the court below
calling for interference. We therefore, hold that the decree and judgment of
the trial Court are sustainable under facts and in law.
19. POINT NO.7:
In the result, and in view of the findings under points 1 to 6, the
appeal suit is dismissed. No costs.
Miscellaneous Petitions pending, if any, in the appeal shall stand
closed.
_________________
K.C.BHANU, J
_________________________ M.SEETHARAMA MURTI, J 25.02.2015