Bangalore District Court
S. Sreedhar vs Sree Mahabaleshwar on 20 February, 2021
IN THE COURT OF THE XXX ADDL.CITY CIVIL & SESSIONS
JUDGE, BENGALURU CITY (CCH.31)
DATED THIS THE 20 TH DAY OF FEBRUARY 2021
PRESENT:
SRI. MAANU K.S., B.Sc., LLB.
XXX Addl.City Civil & Sessions Judge,
Bengaluru.
O.S.NO.870/2003
PLAINTIFF/S : S. Sreedhar,
S/o T.Shamanna,
No.13, RBI Colony,
III Block, Jayanagar East,
Bengaluru-560 011.
(By Pleader Sri. S.Krishnaswamy,
Adv.)
/VS/
DEFENDANT/S: 1. Sree Mahabaleshwar,
Auto Industries Pvt. Ltd.
65 B, Bommasandra, Industrial
Area, II Phase, Bengaluru-562 158.
Representated by its Managing
Director, Sri. Sudhir Sirsi,
2. Sri. Sudhir Sirsi,
Managing Director,
Sree Mahabaleshwar,
Auto Industries Pvt. Ltd.
65 B, Bommasandra, Industrial
Area, II Phase, Bengaluru-562 158.
(By Pleader Sri. AGM, Adv.)
*****
2 O.S.No.870/2003
DATE OF INSTITUTION : 13-01-2003.
NATURE OF THE SUIT (Suit on : Suit for recovery of
Pronote, Suit for declaration and money.
Possession, Suit for injunction, etc.)
DATE OF THE COMMENCEMENT
OF RECORDING OF THE EVIDENCE : 14-11-2006
DATE ON WHICH THE JUDGEMENT
WAS PRONOUNCED : 20-02-2021.
TOTAL DURATION YEAR/S MONTH/S DAY/S
18 01 07
(MAANU K.S.),
XXX ADDL. CITY CIVIL & SESSIONS JUDGE,
BENGALURU CITY.
3 O.S.No.870/2003
JUDGEMENT
1. This suit is filed for recovery of a sum of Rs.5,60,000/- from the defendant together with interest at the rate of 18% p.a. compounded quarterly from the date of suit till realization with costs.
2. The brief facts of the case of the plaintiff is as follows:
(a). It is the case of the plaintiff that the defendant no.1 is a private limited company incorporated under the Companies Act, 1956, which originally comprised of Sri.Anant V.Albal, Smt.Kamala Albal, Sri. S.N.Sirsi, Smt.Sunanda Sirsi and Sri. N.A.Albal as shareholders and the authorized share capital was Rs.5,00,000/- with face value of each share being Rs.1,000/-. It is his further contention that he was a retired employee in a public sector undertaking and after his retirement, he has kept aside his savings for his old age and the Directors of the 1 st defendant company being related to him prevailed upon him to invest his savings in the shares of the 1 st defendant company and also lend some loan as it would benefit the working capital of the 1st defendant company and being lured by the mis-propaganda offered by the Directors of the 1st defendant company, he decided to invest in the shares and also provide loan to the 1 st defendant company and accordingly, made various payments as detailed in paragraph no.4 of his plaint through various cheques and also some cash payments. He has further contended that he has made various payments since 1999 by way of cheques 4 O.S.No.870/2003 amounting to Rs.8,27,100/- and has made cash payments amounting to Rs.94,450/- and out of the said Rs.8,27,100/-, a sum of Rs.5,00,000/- was paid towards the value of the shares to be allotted in his favour and along with these investments he is also entitled for a sum of Rs.54600/- towards salaries and conveyance, which were due to him.
(b). He further contended that by a resolution of the Board of Directors of the 1 st defendant company dtd. 05-07-1999, he was given the powers as that of the Managing Director, in all policy making decisions and it was also agreed upon by the 1 st defendant that he is entitled for salary and perquisites as detailed in paragraph no.5 (a) of the plaint. He further contended that as per Clause-7 of the said resolution, he brought in capital amount of Rs.5 lakhs as his share amount for allotment of 35 shares having vested value of Rs.1,000/- each at a premium and the 1 st defendant company was required to allot and issue share certificates to him which has not been done by the 1 st defendant till 13-01-2000. He further contended that since the working condition of the 1 st defendant company was not satisfactory due to unnecessary interference by all the Directors, he was forced to resign from the Directorship and by his letter dtd. 14-
1-2000, he resigned to be a Director of the company and invited attention of the 1st defendant company to resolution no.10, wherein it was resolved that "In the unfortunate event of the equity partner deciding to sell 5 O.S.No.870/2003 his shares he shall offer it to the existing share holders only" and since the share capital paid by him was Rs.5 lakhs as his contribution and since the production and sales of the company improved substantially after induction of additional share amount by him, he offered back to sell the shares for a sum of Rs.5,60,000/- and demanded the 1 st defendant to pay the said share amount of Rs.5,60,000/-, loan amount of Rs.3,27,100/-, the salaries and conveyance due of Rs.54,600/- and other dues amounting to Rs.94,450/- totally amounting to a sum of Rs.10,36,150/-.
(c). He further contended that to the said demand made by him, the Chairman of the 1st defendant company has issued a reply stating that he has to ascertain the exact amount paid by him and will make arrangement for the same. and when the 1 st defendant failed to repay the same, he got issued a legal notice dtd.25-03-2002, to which the 2nd defendant has made baseless allegations and also made insulting remarks on the advocate, who caused the legal notice. He further contended that under these circumstances, he filed a private complaint against the 2 nd defendant and another Director of the company Smt. Sunanda Sirsi, for the offences punishable under Secs.323, 420 and 500(b) of IPC, which was referred to Asst. Commissioner of Police of J.P.Nagar Police Station and the same was challenged by the 2nd defendant before the Hon'ble High Court of Karnataka, wherein the 2 nd defendant and the said Sunanda Sirsi have admitted 6 O.S.No.870/2003 that in the year 1999, the 1st defendant company needed funds and good assistance on the working side and further admitted that there was an ill will between them and himself and as such, they did not make any payment to him. He further contended that in the said circumstances, left with no option he resigned from the Board of Directors and sought for refund of his equity share value of Rs.5,60,000/- and since the defendants have failed to make the payment, left with no option, he has approached this Court for recovery of the said dues and in all, he calculated the particulars of dues to him at Rs.15,92,825/-, but restricted his claim only to the extent of Rs.5,60,000/- as he is not in a position to pay the Court Fees on the remaining claim amount and therefore prayed to decree the suit to the extent of Rs. 5,60,000/- within at 18% p.a. and miscellaneous expenses of Rs.2,000/-.
3. After service of suit summons, the defendants made their appearance and filed their written statement denying several averments made in the plaint and put forth their defence as follows:
(a). The defendants have specifically contended that the 1st defendant company came to be established in 1983, which is engaged in the manufacture of Valve Seal Inserts, a part of corresponding to Engine Valves used in Diesel Engines and the main customer M/s.Karmobiles cheated the company by not lifting the contractual quantity of manufactured goods, due to 7 O.S.No.870/2003 which the 1st defendant company went into difficulty and the same badly affected their revenue and in spite of the same, the Directors contributed their monies due to which the assets of the 1st defendant company grown considerably. That the plaintiff a retired official of the Reserve Bank of India himself offered to join the 1 st defendant company as a Director after visiting the factory and seeing all the documents and hence, on the resolution of the Board of Directors and subsequent agreement dtd.05-07-1999, he became a Director.
They have specifically contended that the plaintiff had paid a sum of Rs. 5 lakhs as joining fees and it was agreed that he should pay a sum of Rs. 35,000/- representing the value of 35 equity shares of Rs. 1,000/- each. They further contended that the company had expressed full confidence in the said person and when he saw that the assets of the company are considerable, the greed took better of him and he went on misbehaving with the staff and went on instigating the other agencies to take steps for immediate recovery, so that he would pay and take over the unit, which was witnessed by Mr.Harman Singh and Mis.Churadia- Auto Spare parts dealer.
(b). They further contended that between 06-05- 2000 to 30-10-2000, the plaintiff has also received a sum of Rs. 75,000/- by 10 cheques drawn by the company on its account at Vijaya Bank, the details of which are narrated at para-II(D), which were recovered by him by administering repeated threats to the 2 nd 8 O.S.No.870/2003 defendant by way of extortion punishable under IPC and the said fact has been suppressed by the plaintiff in the plaint. They further contended that the plaintiff was at the relevant point of time in-charge of Accounts and finance and has received a sum of Rs. 6,332/- by D.D. on 08-01-2000 and a sum of Rs. 27,000/- by way of cash making entry in the books which was collected towards payment of staff salary, but the plaintiff left the industry without informing the M.D. and against the protest of the staff supervisor and this amount of Rs. 32,500/- was also misappropriated by him punishable under Sec.409 of IPC.
(c). They further contended that thereafter there was no trace of plaintiff who 14-01-2000 sent a letter demanding monies which was suitably replied denying the liability of the company through its reply dtd.21- 01-2000 and thereafter, the plaintiff with an ill-will towards 2nd defendant and his wife, filed a PCR No.160/2001 before the CMM IV Court, Bengaluru against the 2nd defendant and his wife for the offences punishable under Secs.323, 420, 506(B) r/w Sec.34 IPC. alleging that the 2nd defendant has cheated and threatened him and requested a reference to the ACP of Jayanagar for investigation and the said Magistrate without applying his mind referred the said complaint to the Officer who in turn sent the same to one Mr.Md.Sajjid Khan, P.S.I. of J.P.Nagar police station and the said PSI without applying his mind has caused illegal arrest of 2nd defendant on 09-08-2001 and 9 O.S.No.870/2003 produced him before CMM V Court and thereafter, he obtained bail and challenged the same in Crl.Pt.No.2679/2001, wherein notice was issued and stay was granted and after appearance of the plaintiff, the matter was allowed by an order dtd.08-10-2001 and the matter was remanded back to the Magistrate to deal with the complaint and since the plaintiff never appeared, the matter died. They further contended that the 1st defendant in turn filed a PCR No.612/2001 against the plaintiff and his wife for the offences punishable under Secs.120-B, 408, 385, 386 388, 389, 195, 500 of IPC before the CCM IV Court, which has been referred for investigation and the said case is pending for investigation.
(d).So far as the suit claim of Rs. 5,60,000/- made by the plaintiff is concerned, the defendants contended that in the agreement dtd. 05-07-1999, the plaintiff had agreed to contribute a sum of Rs. 5,00,000/- in two installments and the same does not refer to grant of equity shares and as per the resolution of the Board, the same speaks of grant of 35 shares of Rs. 1,000/- each valued at Rs. 35,000/- to the new equity partner with a corresponding voting right as per the share holdings and the plaintiff was directed to receive the share certificate, but he postponed the same. They further contended that on different dates between 06-07-1999 to 13-08-1999 the plaintiff has paid different amounts totally amounting to Rs.
10 O.S.No.870/20034,79,000/- only towards the payment of joint fees of Rs. 5,00,000/-.
(e). They further contended that the plaintiff has acted as a director and represented the defendant company before different organizations like K.S.F.C., banks, etc., and at no point of time, did the plaintiff indicate that he has paid Rs. 5,00,000/- for 35 shares nor did he make that claim and as per the records maintained by the defendant No.1 company, it only shows that Rs. 35,000/- was taken towards share capital and hence, the claim made by the plaintiff is totally false and bogus and since the plaintiff has already received a sum of Rs. 75,000/- by way of 10 cheques besides en-cashing a DD for Rs. 5,000/- payable to the 1st defendant company, a sum of Rs. 27,000/- by way of cash which was kept towards salary of employees and has received a total Rs. 1,07,000/-, they are entitled to claim set off against his claim if any.
(f). They further contended that the plaintiff had instigated the State Bank of India to close down the account of the 1st defendant company and to take unnecessary steps, which caused a loss of Rs. 1,00,000/- to the defendants, hence, they are entitled to claim set off under this head also and 11 O.S.No.870/2003 towards the mental agony, wrongful arrest, loss of reputation caused by the plaintiff in compelling and extorting money from the 2nd defendant, the plaintiff is liable to compensate to a minimum amount of Rs. 5,00,000/- and they are entitled to claim that amount also by way of set off. Hence, with these back drop, they contended that they are not liable to pay any amount much less the amount claimed in the suit and by denying several other allegations made in the plaint as false and frivolous, they sought for dismissal of the suit.
4. On the basis of the rival contentions taken up by respective parties, the following issues have been framed by my Learned Predecessor in office for disposal of the case:
ISSUES
1. Whether the plaintiff proves that he has advanced a loan of Rs. 8,27,100/- to the defendant No.1 on different dates by way of cheques and out of it Rs. 5.00 lakhs was paid towards the value of the shares to be allotted in favour of the plaintiff?
2. Whether the plaintiff further proves that the defendants are liable to pay a sum of Rs. 54,660/- towards salary and conveyance due and Rs. 94,450/-
towards other dues?
3. Whether the plaintiff further proves that the defendants failed to repay the said amount and not allotted shares in spite of demand?
12 O.S.No.870/20034. Whether the defendants prove that the plaintiff has received a sum of Rs.
75,000/- by way of cheques in between 06-05-2000 to 30-10-2000 and also received a sum of Rs. 6,322/- by way of demand draft on 08-01-2000 and Rs.
27,000/- in cash?
5. Whether the defendants prove that the plaintiff has misappropriated a sum of Rs. 32,500/- and extorted Rs. 75,000/-
from defendants?
6. Whether the plaintiff is entitled for the recovery of the suit claim as prayed for?
7. What order or decree?
5. In support of his case, the plaintiff got examined himself as P.W.1 and got marked the documents as Ex.P.1 to 15 and after cross-examination, he closed his side evidence. To rebut the case of the plaintiff, the Managing Director of the defendant No.1 company who is the 2nd defendant herein, got examined himself as D.W.1 and got marked the documents as Ex.D.1 to D.8 and closed his side evidence after cross-examination.
6. Heard the arguments of the counsels appearing for the plaintiff and defendants. The defendants' counsel has also filed written arguments with decisions. Perused the record, the written arguments and decisions relied by both the counsels.
7. My findings on the above issues are as follows:
13 O.S.No.870/2003Issue No.1: In the affirmative.
Issue No.2: Deleted as the same does not survive for consideration.
Issue No.3: In the affirmative.
Issue No.4: In the negative.
Issue No.5: In the negative.
Issue No.6: Partly in the affirmative. Issue No.7: As per the final order for the following:
REASONS
8. ISSUE NO.1:- It is the specific case of the plaintiff that the directors of the 1st defendant company being his relatives prevailed upon him to invest his savings in the shares of the 1st defendant company and also to lend some loan contending that the 1st defendant would be benefited with the working capital and being lured by the mis-propaganda of the directors of the 1 st defendant company that the money brought in by him would be utilized for the benefit of the company and he will also reap out of his investments, he decided to invest in the shares and also provide loan to the 1 st defendant company and accordingly, made payments to the tune of Rs. 8,27,100/- by way of several cheques drawn on State Bank of India, J.P.Nagar branch and Federal Bank, J.P.Nagar branch, of various dates from 06-07-1999 to 11-11-1999 and another cheque drawn on RBI Employees Co-operative Bank dtd. 11-10-1999 as per the details mentioned in para-4 of plaint and examination-in-chief affidavit and out of the said amount of Rs. 8,27,100/-, a sum of Rs. 5,00,000/- was 14 O.S.No.870/2003 paid towards the value of the shares to be allotted in his favour and by resolution of the 1st defendant company dtd.05-07-1999, he was allotted 35 equity shares worth Rs.1000/- each and was also appointed as Director of the Company giving him, the powers as that of the Managing Director of the 1st defendant in all policy making decisions and that he would be entitled for a salary and perquisites to the tune of Rs. 4,000/- every month in the first instance and in the event of sales reaching a level of Rs. 2.5 lakhs p.m., a sum of Rs. 7,000/- be paid and accordingly, as per Clause-7 of the said resolution, he brought in capital amount of Rs. 5,00,000/- as his share amount for allotment of 35 shares of face value of Rs. 1,000/- each at a premium.
9. To prove the said averments, he has examined himself as P.W. 1 and by reiterating the plaint averments, got marked the agreement signed on 05-07-1999 along with the Board of Directors Resolution as per Ex.P. 6, declaration made by the Managing Director of the 1st defendant company stating that a sum of Rs. 3,00,000/- has been raised by the 1 st defendant company from the plaintiff herein on an interest of Rs. 9,000/- as per Ex.P. 7, loan sanction order issued by the Federal Bank in his favour as per Ex.P. 9, letter executed by the plaintiff in favour of Federal Bank depositing the title deeds for the purpose of obtaining loan upon the security of the property belonged to him which is dtd.10-08-1999 as per Ex.P. 10, resignation letter submitted by the plaintiff on 14-01-2000 as per 15 O.S.No.870/2003 Ex.P. 1, letter addressed by the 1st defendant to the plaintiff on 24-01-2000 as per Ex.P. 2, letter dtd.08-12- 2000 issued by the 1st defendant in favour of plaintiff as per Ex.P. 3, copy of the legal notice dtd.25-03-2002 as per Ex.P. 5 and statement of accounts including the balance sheet, audit reports of the 1st defendant company as per Ex.P. 12 to P.14 and Form No.23AC as per Ex.P. 15.
10. A perusal of Ex.P. 6 clearly discloses that the defendants and the plaintiff have entered into an agreement, whereby the defendants have agreed to issue 35 number of shares of Rs. 1,000/- each valued at Rs. 35,000/- to the plaintiff terming him as a new equity partner by passing a resolution in the Board of Directors Meeting and that the plaintiff has agreed to pay a sum of Rs. 5,00,000/- towards the contribution to become a new equity partner in the 1 st defendant company as per the terms mentioned in the said Board of Directors Resolution. Though the plaintiff has not produced and marked any documents to prove all the said payments narrated by him at para-4 of the plaint and examination-in-chief affidavit, the contribution of Rs. 5,00,000/- made by the plaintiff towards the allotment of 35 new equity shares to him by the 1 st defendant company, is not much seriously disputed by the defendants and they have in clear and unequivocal terms in the letter dtd.24-01-2000 addressed to the plaintiff admitted that the plaintiff has contributed a sum of Rs. 5,00,000/- towards share 16 O.S.No.870/2003 capital of the 1st defendant company. They have also admitted that apart from the said investment of Rs. 5,00,000/- towards share capital, the plaintiff had also paid a sum of Rs. 3,00,000/- as loan to them and that the company has agreed to pay a sum of Rs.9,000/- as interest on the said loan as could be seen from Ex.P. 7.
11. Apart from the admissions made in the said documents, the defendants in their written statement have also clearly admitted that the plaintiff had paid a sum of Rs. 5,00,000/- to them as joining fees and that it was agreed that the plaintiff would pay a sum of Rs. 35,000/- representing the value of 35 equity shares of Rs. 1,000/- each as per the said agreement and resolution of the Board marked as Ex.P. 6. Therefore, from the above said admission made by the defendants in the written statement and also in Ex.P. 6, P.7 and P.2, this Court is of the opinion that the plaintiff has proved that he had advanced a sum of Rs. 8,27,100/- to the defendant No.1 on different dates by way of cheques and out of the same, a sum of Rs. 5,00,000/- was paid towards the value of the shares to be allotted in his favour. Hence, there is no hesitation for this Court to answer issue No.1 in the affirmative. Accordingly, I answer issue No.1 in the affirmative.
12. ISSUE NO.2:- Though the plaintiff has contended that apart from the above said amounts, the defendants are also liable to pay a sum of Rs. 54,660/- towards the salary and conveyance which were due to him and Rs.
17 O.S.No.870/200394,450/- towards other dues, since, he has restricted his claim only to the tune of Rs. 5,60,000/- and has not made any claim in respect of the other dues including the dues which are narrated above, answering this issue does not survive for consideration. Hence, issue No.2 is hereby deleted as the same does not survive for consideration.
13. ISSUE NO.3:- It is the further case of the plaintiff that even after collecting a sum of Rs. 5,00,000/- from him as per the agreement dtd.05-07-1999 marked as Ex.P. 6 and even after passing the resolution in the Board of Directors Meeting admitting him as a new equity partner and to allot him 35 shares of Rs. 1,000/- each, the defendants have not issued any share certificate pursuant to the said agreement cum Board of Directors resolution marked as Ex.P. 6 nor have kept the said share certificates ready for delivery and have also not repaid the said amount collected by them. The said fact is also not in dispute as could be seen from Ex.P. 2 reply letter addressed by the Managing Director of the 1st defendant company to the plaintiff wherein the defendants have clearly admitted that they have not issued share certificates to the plaintiff, but they have contended that though they have requested plaintiff to come and receive the share certificates, the plaintiff himself has refused to collect the same saying that he will collect those certificates together with increased quota by contribution of Directors.
18 O.S.No.870/200314. That apart, the way in which the defence is raised by the defendants in the written statement, wherein they contended that after absorbing the plaintiff as one of the Directors, he was empowered to do all acts equal to that of the Managing Director as per the agreement and resolution dtd.05-07-1999, but the plaintiff started misbehaving with the staff and other agencies to take steps for immediate recovery, so that he would pay and take over the unit and several other allegations of misappropriation including lodging of the private complaint, discloses that the defendants have not issued the share certificates. Though it has been contended that the plaintiff was directed to receive the share certificates and the plaintiff himself has postponed the same, they have not produced any evidence before this Court that they had issued share certificates to the plaintiff or that the share certificates were kept ready for delivery and plaintiff was intimated to receive the share certificates. If really the defendants had issued share certificates or kept the share certificates ready for delivery, nothing prevented the defendants to produce the same before this Court and to get them marked. They have not even produced any other documents except the copy of Ex.P. 6, which has been marked as Ex.D. 4 to show that they have allotted the shares to the plaintiff and have kept ready for delivery and it is the plaintiff who himself refused to collect the same. Hence, in view of the failure on the part of the defendants to produce the documents to the effect that they have kept the share certificates ready 19 O.S.No.870/2003 and thereby to substantiate the defence set up by them, this Court is of the opinion that the plaintiff has proved that the defendants have not issued the share certificates to him in spite of collecting a sum of Rs. 5,00,000/- towards allotment of 35 equity shares of Rs. 1,000/- each. The plaintiff has also proved that the defendants have not repaid the said amount as could be seen from Ex.P. 2 where the defendants have denied to refund the same. Hence, there is no hesitation for this Court to answer issue No.3 in the affirmative. Accordingly, I answer issue No.3 in the affirmative.
15. ISSUE NOS.4 & 5:-Since these two issues are interconnected with each other, to avoid repetition of averments and appreciation of evidence, these two issues are taken up together for discussion.
16. The defendants by denying their liability to pay the suit claim made by the plaintiff, have specifically contended that during the period from 06-05-2000 to 30-10-2000, the plaintiff has received a sum of Rs. 75,000/- by way of cheques as mentioned in paragraph-II(D) of the written statement at page No.3 and apart from that, he has also received a sum of Rs. 6,332/- by way of DD on 08-10-2000 and a sum of Rs. 20,000/- by way of cash by making an entry in the book and the said amount of Rs. 27,000/- was collected by the plaintiff towards the payment of staff salary, but he left the industry without informing the Managing Director and also against the protest made by the staff supervisor and apart from 20 O.S.No.870/2003 that he has also misappropriated a sum of Rs. 32,500/- thereby committed an offence punishable under Sec.409 of I.P.C. and as such, they have filed a private complaint in PCR.No.160/2001 against the plaintiff and his wife Geetha for extortion of Rs. 75,000/- misappropriation of Rs. 32,500/- and also for causing serious threats in the Court premises before the CMM IV Court and the same is pending for investigation with the A.C.P. However, to prove the said contentions, the defendants have not produced any documents except the oral testimony of the 2 nd defendant who has made several improvements in his examination-in-chief affidavits filed on more than 3 occasions without there being any pleadings to that effect. Though defendants have got marked 8 documents as Ex.D. 1 to D.8 both through D.W. 1 and also by way of confrontation to P.W. 1, absolutely nothing is placed before this Court to prove the said averments.
17. Per contra, the plaintiff himself has produced Ex.P. 3 letter dtd.08-12-2000 issued by the 2 nd defendant on behalf of the 1st defendant company, wherein the above said payments narrated by the defendants in their written statement have been shown as the payments made by the defendants to the plaintiff, but there is no such details as to, towards which transactions the said payments have been made by the defendants. Since it is the specific case of the plaintiff that he had invested more than Rs.8,27,000/- with the defendants and that 21 O.S.No.870/2003 even though he is entitled to recover a sum of Rs. 15,92,825/- towards the loan amount, salary and conveyance, other dues and the share amount, since, he is unable to pay the Court Fees on the entire amount, he has restricted his claim to Rs. 5,60,000/-, this Court cannot come to the conclusion that the said payment shown in Ex.P. 3 made by the defendants to the plaintiff is towards the refund of the amount of Rs. 5,00,000/- paid by the plaintiff towards allotment of the equity shares in his favour, in respect of which, the present suit is filed. Hence, in the absence of any specific evidence produced by the defendants, it cannot be held that the defendants have proved the said payment of Rs. 75,000/- to the plaintiff.
18. So far as the other amounts are concerned, absolutely, no material has been placed by the defendants to show that the plaintiff has collected a sum of Rs. 27,000/- by way of cash which was to be paid to the employees as salary or that he has received a sum of Rs. 6,332/- by way of D.D. on 08-01-2000 and that he has misappropriated a sum of Rs. 32,500/- or that he has extorted a sum of Rs. 75,000/- from them. They have not even produced the certified copies of the said private complaint said to have been lodged by them or orders passed in the said case to show as to what happened to the said case. Hence, in view of the failure on the part of the defendants to prove the said payments and the alleged misappropriation, there is no hesitation for this Court to answer issues No.4 and 5 in 22 O.S.No.870/2003 the negative. Accordingly, I answer issues No.4 & 5 in the negative.
19. ISSUE NO.6:- The plaintiff has already proved that he had advanced a sum of Rs. 8,27,000/- to the defendant No.1 on different dates and out of the said amount, he had paid a sum of Rs. 5,00,000/- towards the value of 35 equity shares to be allotted in his favour and in spite of the said payment made by him towards the allotment of the said 35 equity shares, the defendants have not issued the share certificates nor have repaid the said amount to him and this Court has already answered issues No.1 and 3 in the affirmative. Hence, naturally he would be entitled for refund of the amount invested by him had he simply sought for refund of the said amount of Rs. 5,00,000/- invested by him towards allotment of the said equity shares. But, since the plaintiff has sought for decree for recovery of a sum of Rs. 5,60,000/- by contending that the assets of the 1st defendant company has improved net worth of the company and that there is an improvement in the production during the last 6 months after the investment made by him and as such, he is entitled for the appreciation value in respect of the said shares held by him to the tune of Rs. 5,60,000/- and since the defendants have seriously objected for recovery of the said sum on various grounds, it has become just and necessary to examine the entitlement of the plaintiff for recovery of the said sum of Rs. 5,60,000/- as claimed 23 O.S.No.870/2003 by him in the light of the objections and various questions of law raised by the defendants.
20. At one breath the plaintiff tried to contend before this Court that even though share certificates have not been issued in his favour, he held 35 equity shares with him and the value of the said equity shares have been considerably increased in the past 6 months earlier to issuance of Ex.P. 1 letter of resignation, hence, he offered the 1st defendant company to sell all the said 35 shares purchased by him for Rs. 5,60,000/- and therefore, he is entitled for the said sum. At another breath, during the course of arguments, the counsel for the plaintiff argued that since the share certificates have not been issued within 3 months as per the provisions of Sec.113 of the Companies Act of 1956, the plaintiff could not have been termed as a shareholder in the eye of law and as such, there is no bar for plaintiff to claim for refund of the amount invested by him and therefore, being a creditor, the plaintiff is entitled for refund of the money invested by him from the defendants with interest.
21. On the other hand, the defendants have strongly contended that even though physical share certificates were not delivered to him, the said share certificates were ready with them and they offered the plaintiff to collect the said share certificates, but the plaintiff himself went on prolonging the collection of the same and the plaintiff was not only granted with the shares 24 O.S.No.870/2003 by resolution passed by the Board of Directors of the 1 st defendant company, but he was also given the status of a Director equivalent to the powers of a Managing Director and he has also exercised the said power as a Director of the 1st defendant company and when such is the situation and when the plaintiff himself has admitted in a Company Petition filed before the Company Law Board and also in his cross-examination and also in the very plaint itself being a shareholder of the 1st defendant company, the plaintiff could not have offered to sell the shares held by him to the 1 st defendant company in violation of the provisions of Sec.77 of The Companies Act of 1956 as there is a bar under the said provisions for a company to purchase its own shares and such act has been made punishable under the provisions of Sec.77(4) of The Companies Act of 1956, as such, at no point of time, the defendants have accepted the said offer made by the plaintiff to purchase the said shares in response to the offer made by the plaintiff in Ex.P. 1, hence, the plaintiff is not entitled to claim the said sum of Rs. 5,60,000/-.
22. During the course of arguments,it has been vehemently argued by the counsel for the defendants that the plaintiff has to prove his case on the strength of his own documents and he cannot rely on the weakness of the defendants and relied on the decisions of the Hon'ble High Court of Karnataka reported in AIR 1953 Mysore 44 in the matter between Hanumantha & 25 O.S.No.870/2003 Others Vs. Gowdaiah and another, wherein it has been held that plaintiff must establish his title to the property independently of the weakness of defendant's case. He further argued that the plaintiff cannot take contrary stands and that the plaintiff cannot approbate and reprobate at the same time and as such, he is estopped from claiming the reliefs sought in the plaint. Once the plaintiff has admitted himself to be a share holder of the defendant No.1 company both before this Court and also before the Company Law Board, merely because physical share certificates have not been delivered to him, the plaintiff cannot contend that he is not a share holder and hence, he could not have offered 1st defendant company to purchase his share in violation of Sec.77 of Companies Act, 1956, as there is a bar under the provisions of Sec.77 of The Companies Act of 1956 and since the plaintiff has already acted not only as a share holder, but also as a Director, the offer made by him to purchase the shares cannot be entertained and this Court cannot direct the 1 st defendant company to purchase the said shares and pay the said amount of Rs. 5,60,000/- as claimed by the plaintiff nor the plaintiff can claim for refund of the said amount contending that he is the creditor of the 1st defendant company as there is a bar for him being the Director of the 1st defendant company to become a creditor of his own company and in support of the said arguments, he relied on the provisions of Sec.77 of The Companies Act of 1956 and also the decisions of the Hon'ble Supreme Court of India reported in AIR 1951 26 O.S.No.870/2003 Supreme Court 41 in the matter between Charanjit Lal Chowdhury Vs. The Uninon of India & Others , AIR 1955 Supreme Court 74 in the matter between Mrs.Bacha F.Guzdar, Bombay Vs. Commissioner of Income Tax, Bombay, AIR 1972 Calcutta 50 in the matter of Assiatic Oxygen Ltd. and AIR 1962 SC 1821 in the matter between R.K.Dalmia Vs. The Delhi Administration.
23. He further argued that the amount paid by the plaintiff cannot be returned to him as the same has been collected from him as a joining fees, which has been kept in a separate account called share capital premium account and at the most, the plaintiff is entitled only for issuance of share certificates or refund of the share money of Rs.35,000/- being the value of 35 equity shares worth Rs.1000/- each and in support of the said contentions, he relied on the decision reported in AIR 1966 SC 1393 in the matter between Commissioner Income Tax Vs. Standard Vaccum Oil Co. He further argued that even the subsequent events which took place during the pendency of the suit could be considered and in the present suit the plaintiff, by his own conduct in filing a petition before the Company Law Board admitting that he is the share holder, has sought for the intervention of the Company Law Board, which has been dismissed as per Ex.D. 7 and as such, the plaintiff is not entitled for the relief sought and relied on the decision reported in AIR 1975 SC 1409 in the matter between Pasupuleti Venkateswaralu Vs. 27 O.S.No.870/2003 The Motor & General Traders. Apart from that he has also brought to the notice of this Court, the provisions of Sec.267 and 270 of the Companies Act and contended that since the plaintiff has committed the offences involving moral turpitude after being appointed as a Director and has also not acquired the specified share qualification, he could have continued as the Director of the company and he has acted against to the interest of the 1st defendant company being the agent of the 1st defendant and as such, he is not entitled for any relief from the hands of this Court.
24. That apart, the counsel for the defendants also vehemently argued that the suit is highly barred by limitation as the plaintiff has not filed the suit well within 3 years from the date of investment being 05-07- 2009 or within 3 years from the date of his resignation i.e. 14-01-2000 and though he filed the suit on 13-01- 2003 by paying only a sum of Rs. 10,000/- as Court Fees and paid the balance Court Fees of Rs. 26,975/- only on 03-02-2003 on which date, the suit has been registered, the suit filed by the plaintiff is to be deemed as filed only on 03-02-2003 and therefore, the suit is barred by limitation and that this Court has got no jurisdiction to try this suit as per the provisions of Companies Act, 1956. Hence, for all these reasons, he contended that the plaintiff is not entitled for the relief claimed by him and prayed to dismiss the suit.
28 O.S.No.870/200325. On the other hand, the counsel for the plaintiff has vehemently argued that the plaintiff has paid Rs. 5,00,000/- for purchase of 35 equity shares of the 1 st defendant company which included the premium amount even though the face value of each share was Rs. 1,000/- as could be seen from Ex.P. 2 and despite passing a Board Resolution and entering into an agreement on 05-07-1999 as per Ex.P. 6, the defendants have not issued the share certificates within 3 months from the date of allotment and thereby they have violated the terms of Sec.113 r/w Sec.53 of Companies Act of 1956, but the defendants have falsely contended that the said share certificates were kept ready in the office and the plaintiff himself has not collected the same and as such, they cannot be held responsible for the same which is false and if really the defendants have issued the share certificates to the plaintiff as per the provisions of Sec.75, the defendants ought to have filed the returns within 30 days with the Registrar informing the allotment, the numbers, the nominal amount of the shares comprised in the allotment, the name, address and occupation of the plaintiff/allottee and the amount paid by him, but a perusal of the statement of accounts and the audit reports and the returns filed by the defendants, the certified copies of which are marked as Ex.P. 12 to P.15 discloses that the defendants have not at all issued any share certificates nor they have filed the returns to the Registrar intimating the allotment of shares with the prescribed number and price of the said shares, which 29 O.S.No.870/2003 clearly falsifies the case put forth by the defendants and as such, the defendants are duty bound to make good the loss as per the provisions of Sec.113 of the Companies Act of 1956. In support of his arguments, he has relied on the following decisions as to how the share certificates have to be issued and the same will have to be delivered in terms of Sec.53 of the Companies Act.
1. 2002 108 Comp Cases 680 Cal. in the matter between Inter Sales Vs. Reliance Industries Ltd.
2. Supreme Court judgment dtd.15-12- 1999 in the matter between H.V.Jayaram Vs. Industrial Credit And Investment Corporation of India Ltd.
3. 2000 99 Comp Cases 145 Raj. in the matter between Herdillia And Ors. Vs. Ms.Aparajita Chauhan.
26. The counsel for the plaintiff further argued that the suit is filed well within limitation from the date of resignation of plaintiff and that this Court has got jurisdiction to try this suit and though the company petition filed by him came to be dismissed before the Company Law Board and even the appeal filed before the Hon'ble High Court of Karnataka in Company Appeal No.3/2011 came to be dismissed, the Hon'ble High Court of Karnataka has made it clear that dismissing of the company petition will not come in the way of the 1st defendant company to show plaintiff's name as holder of 35 shares in lieu of the investment 30 O.S.No.870/2003 or the plaintiff continuing his efforts before this Court for recovery of any amount on whatever premises he is putting forth if he is so entitled, hence, the dismissal of the said company petition and company appeal will not come in the way of pursuing the above matter before this Court and since the defendants have not issued the share certificates, the plaintiff could not be termed as a valid share holder inspite of he himself declaring to be a share holder and nothing prevented him from filing this suit before this Court for recovery of the amount invested by him and merely because he has stated that he has offered the 1st defendant company to sell his shares, the same cannot bar him from recovering the amount invested by him as he had not become a shareholder in the eye of law as per the provisions of Companies Act. Hence, with these set of arguments the counsel for the plaintiff prayed to decree the suit.
27. As rightly argued by the counsel for the plaintiff since the defendants have not issued the share certificates within 3 months from the date of the said allotment as per Ex.P.6, resolution passed by the Board of Directors of the 1st defendant company in terms of Sec.113 r/w Sec.53 of The Companies Act of 1956 nor have the defendants shown in the returns submitted to the Registrar within 30 days as per the provisions of Sec.75 of The Companies Act of 1956 at any stretch of imagination, it cannot be held that the plaintiff had acquired the status of a shareholder of the 1 st 31 O.S.No.870/2003 defendant company despite the admission and declaration made by him to the effect that he is the shareholder of the 1st defendant company. As such, he could not have offered the 1st defendant company to sell his alleged non-existing share holdings to the 1 st defendant company to purchase its own share in gross violation of the provisions of Sec.77 of The Companies Act of 1956. Moreover, 1st defendant company has not even accepted the said offer. Hence, the plaintiff is not entitled for recovery of a sum of Rs. 5,60,000/- as claimed by him. But nevertheless, he is also not debarred from claiming for refund of the amount of Rs. 5,00,000/- invested by him and the defendants cannot be permitted to take undue advantage of their own wrong in not issuing the share certificates and to benefit themselves by means of unjust enrichment and to retain the amount invested by the plaintiff wrongfully.
28. The arguments canvassed by the counsel for the defendants are not acceptable for the reason that none of the said arguments and the contentions raised by the defendants have been supported by any documentary evidence or by any law for the time being in force. The decisions relied by the counsel for the defendants are not applicable to the case on hand as the facts and circumstances of said cases and present case are entirely different. Mere dismissal of the Company Petition before the Company Law Board and also the Company Appeal before the Hon'ble High 32 O.S.No.870/2003 Court of Karnataka will not come in the way of plaintiff pursuing this matter before this Court as the civil jurisdiction of this Court has not been ousted and this Court has got the jurisdiction to try this suit.
29. Another contention of the defendants that the amount collected by the plaintiff to the tune of Rs. 4,65,000/- has been kept in a separate share premium account and that the same cannot be disbursed or returned to the plaintiff cannot be accepted for the reason that when the defendants have not delivered or issued the share certificates to the plaintiff within the stipulated time of 3 months, it is the bounden duty of the defendants to return the share application money along with the share premium amount also. Therefore, this Court is of the opinion that though the plaintiff has not made out a ground for grant of a decree for recovery of a sum of Rs. 5,60,000/-, definitely he has made out a ground for refund of a sum of Rs. 5,00,000/- invested by him for allotment of the shares from defendant No.1 company.
30. So far as liability of defendant No.2 is concerned, he is admittedly the Director of defendant No.1 company and since he has not transacted with the plaintiff in his individual capacity, he is not personally liable to pay the above amount due to the plaintiff by the defendant No.1 company, but his liability will only be in his official capacity as Director of the 1 st defendant company. Hence, with this observation, this Court is of 33 O.S.No.870/2003 the opinion that the plaintiff is entitled for recovery of a sum of Rs. 5,00,000/- from defendants.
31. Since the transaction between the plaintiff and defendants was in relation to a commercial/industrial transaction, the plaintiff is entitled for interest on the invested share money of Rs.5,00,000/- by treating the same as a deposit made by the plaintiff in the 1st defendant company as an investment and as such, this Court is of the opinion that if interest at the rate of 12% p.a. from the date of suit till realization is awarded along with the refund of the said principle amount of Rs. 5,00,000/- invested by him, that would meet the ends of justice. Accordingly, I hold that the plaintiff is entitled for recovery of a sum of Rs. 5,00,000/- with interest at the rate of 12% p.a. from the date of suit till realization. Accordingly, I answer issue No.6 partly in the affirmative.
32. ISSUE NO.7: In view of the above discussion and my answers to the above issues, the suit of the plaintiff deserves to be decreed in part with proportionate costs. Accordingly, I proceed to pass the following:
ORDER The suit of the plaintiff is hereby decreed in part with proportionate costs.
The plaintiff is entitled for recovery of a sum of Rs.5,00,000/- (Rupees Five Lakhs only) from defendants along with interest at 34 O.S.No.870/2003 the rate of 12% p.a. from the date of suit till the date of realization.
The defendants are hereby directed to pay the decreetal amount within 3 months from the date of passing of this judgment and decree. However, it is made clear that the liability of defendant No.2 to pay decretal amount is only in his official capacity as Managing Director of 1st defendant company and not in his personal capacity.
Draw decree accordingly.
(Dictated to the Judgment Writer, transcribed thereof, corrected, signed and then pronounced by me in the open Court on this THE 20 th DAY OF FEBRUARY 2021).
( MAANU K.S.), XXX Addl. City Civil & Sessions Judge, Bengaluru City.
35 O.S.No.870/2003ANNEXURE WITNESSES EXAMINED FOR THE PLAINTIFF/S:
P.W. 1 : S.Sreedhar.
WITNESSES EXAMINED FOR THE DEFENDANTS/S:
D.W.1 : Sudhir Sirsi DOCUMENTS MARKED FOR THE PLAINTIFF/S: Ex.P.1 : Resignation letter dtd.14-01-2000. Ex.P.2 : Reply. Ex.P.3 : Letter of 1st defendant dtd.08-12-2000. Ex.P.4 : Office copy of legal notice. Ex.P.5 : Reply. Ex.P.6 : Agreement. Ex.P.7 : Letter. Ex.P.8 : Copy of letter dtd.8-12-2000. Ex.P.9 : Copy of Sanction Letter dtd.04-08-1990. Ex.P.10 : Copy of the letter issued to the Federal bank. Ex.P.11 : Copy of Sale Deed dtd.22-01-2005. Ex.P.12 to 14 : Notices, Balance Sheets and Auditors reports. Ex.P.15 : Form No.23AC.
DOCUMENTS MARKED FOR THE DEFENDANTS/S:
Ex.D.1 & 2 : Letters written by the plaintiff. Ex.D.3 : Letter addressed to M.Sathyanarayana.
Ex.D.3(a) : Relevant Contents. Ex.D.4 : Prelude of defendant No.1 company. Ex.D.5, 6 & 7 : Copies of the petition, order sheet &
affidavit filed in Com.Pt.No.57/2007. Ex.D.8 : Certified Copy of the order sheet.
(MAANU K.S.), XXX ADDL.CITY CIVIL & SESSIONS JUDGE, BENGALURU CITY