Bangalore District Court
Dr. Bhargavram.B.N vs Chiguru Cancer Care Private Limited on 7 December, 2021
1
Com.O.S.No.8921/2018
In the Court of LXXXIV Additional City Civil and
Sessions Judge (CCH-85) (Commercial Court),
Bengaluru
Dated this the 7th day of December 2021
Present: Smt.H.R.Radha B.A.L., LL.M.
LXXXIV Addl. City Civil and Sessions Judge,
(CCH-85 Commercial Court) Bengaluru
Com.O.S.No.8921/2018
Plaintiff: Dr. Bhargavram.B.N., S/o Late B.Narase
Gowda, aged about 50 years, presently
working at Badar Al sama Hospital, Barka,
Muscat, Sultanate of Oman, Post Box No.516
& Postal Code 320.
Communication address in India:
No.1086, 10th Main, RPC Layout,
Hampinagar II Stage, Vijayanagar,
Bengaluru-560104.
(By Sri.S.Vivekananda for
Sri.Mohan Kumar K., Adv.)
Vs
Defendant: Chiguru Cancer Care Private Limited, A company
incorporated under the provisions of Companies
Act, 1956, No.99, Krishnaananda Nagar, Jaraka
Bande Kaval, Nandini Layout, Bengaluru-560096,
Represented by its Director Dr.Yathish Kumar
H.M., Having its registered office at No.46/1,
Industrial Suburb, Yeshwanthpur, 1st stage,
Bengaluru - 560002.
(By Sri.Sanjay H.Sethiya, Advocate)
Date of Institution 12-12-2018
Nature of the suit Recovery of money
2
Com.O.S.No.8921/2018
Date on which First Case
Management Hearing took 12-08-2021
place
Date of Commencement
of recording of evidence 22-09-2021
Date on which judgment
07-12-2021
pronounced
Time taken for disposal YEARS MONTHS DAYS
1) Total duration 02 11 26
2) From the date of first
case management 00 03 26
hearing
LXXXIV Addl. City Civil & Sessions Judge
(CCH-85 Commercial Court) Bengaluru
JUDGMENT
This is a suit for recovery of Rs.46,00,000/- from the defendant with Rs.37,26,000/- towards interest @ 12% p.a. from 2012 to 2018 and further interest at 12% p.a. till payment.
2. This suit was transferred from XV Addl. City Civil and Sessions Court, Bengaluru [CCH-3] to LXXXII Addl. City Civil and Sessions Court, Bengaluru [CCH-83 - Commercial Court] by notification dated 17.08.2020 and then to this court, by a subsequent notification dated 22.12.2020. 3
Com.O.S.No.8921/2018
3. The plaintiff's case in brief is that he along with Dr.Yathish Kumar H.M., Kuppuswamy and Venkatesh started the defendant company on 16.09.2009 and held 10,000 equity shares each as promoters out of the share capital of Rs.5,00,000/- which was divided into 50,000 equity shares of Rs.10/- each; his share holding increased subsequently. Apart from this he contributed towards, acquiring the property at Jarakabande Kaval under the registered sale deed dated 19-11-2009, to demolish the existing structure thereon and to construct a new building consisting of ground plus two floors to run the hospital which was inaugurated on 24-10-2011 under the name Karnataka Cancer Hospital.
3(a). That he worked both as a full time surgeon without receiving remuneration and also as the Managing Director of the company. He contributed Rs.15,00,000/- to pay the advance to buy Linac-Linear Accelerator for radio therapy required for treating cancer patients, offered his mother's property as security for borrowing balance 70% from Reliance Capital Limited; to construct bunker in another property which was taken on lease to place Linac-Linear Accelerator and paid the rents as well as interest towards 4 Com.O.S.No.8921/2018 the loan. Finally, the loan was jointly repaid by him, Kuppuswamy, foreign investor and Dr.Yathish Kumar. But, the differences arose after Dr.Yatish Kumar started siphoning off the money by personally billing the cancer patients who were treated under the Vajpayee Arogyasree Scheme.
3(b). That he had given deposits by way of money with the understanding that it should be returned on demand. The said amount of Rs.45,37,781/- was reflected as loan in the company's balance sheet as on 31-03-2012. On receiving his legal notice dated 04-10-2018, the defendant issued evasive and untenable reply; MOU dated 16-01-2013 has noting to do with his claim for repayment of deposits. O.S.4109/2014 filed for declaration with regard to the binding nature of the MOU, was withdrawn by Dr.Yathish Kumar and Smt Jyothi. He is also entitled for interest at 12% from April 2012 to December 2018 amounting to Rs.37,26,000/- and further interest at the same rate.
4. The defendant has filed the written statement denying the plaintiff's claim and contending that the suit is for recovering the investments made by the plaintiff for the defendant company during incorporation, pre incorporation, 5 Com.O.S.No.8921/2018 and post incorporation stages for which there is no debt subsisting. The suit is not for recovery of money from the company, as such the claim for return of the investments cannot be adjudicated by the Civil Court and it has to be by the authority constituted under the Companies Act. The suit is time barred and the court fee paid is insufficient. 4(a). That the plaintiff and three others approached Dr.Yathish Kumar, who has specialized in cancer treatment, to set up a cancer hospital by forming a company. The plaintiff, Dr.Yathish Kumar, Kuppuswamy and Venkatesh were the founder Directors of the defendant. While Dr.Yathish Kumar and Kuppuswamy held shares worth Rs.6,33,330/- each, the plaintiff and Venkatesh held shares worth Rs.6,33,400/- and Rs.1,00,000/- respectively; and their shares increased from time to time. The plaintiff, Kuppuswamy and Venkatesh remained as investors without interfering with the activities of Dr.Yathish Kumar, as agreed. Dr.Yathish Kumar was not paid any remuneration for the services rendered. But the plaintiff and other two Directors enjoyed all the money that came into the defendant company. On 05-8-2010 Venkatesh resigned from the company and its Directorship; and was satisfied to the 6 Com.O.S.No.8921/2018 extent of his investment with the company. The remaining three continued as Directors with 31.67% of the share capital each.
4(b). That the plaintiff and Kuppuswamy with the help of rowdy elements forcefully obtained Dr.Yathish Kumar's signature on 4 e-stamp papers, resignation letter, ROC resignation letter, share transfer certificate, 11 blank cheques, 1 Form No.32, a few blank letter pads, records of the defendant company relating to investments/accounts and other documents. Therefore Dr.Yathish Kumar filed complaints with Nandini Layout PS on 26-03-2012 and 03-04-2012; FIR was registered on the basis of complaint dated 26-03-2012. Dr.Yathish Kumar's PCR No.7564/2012 was referred by VII ACMM, Bengaluru for investigation. He also filed O.S.3342/2012 for injunction and there was an interim order dated 01-12-2012. MFA 391/2013 filed against the said order by the plaintiff and Kuppuswamy, came to be dismissed on 04-01-2013. In the meanwhile the plaintiff and Kuppuswamy inducted two additional Directors, Syed Akber Hussaini and Vasu Annamalai, sold the hospital property to Vasu Annamalai and Govindaraj under registered sale deed dated 27-09-2012; opened and 7 Com.O.S.No.8921/2018 operated new account with IDBI Bank in the name of the defendant company.
4(c). That the plaintiff and Kuppuswamy realizing their misdeeds approached Dr.Yathish kumar for settling the matter, provided he withdrew the cases and complaints, offered him to take over the hospital as they had no expertise or knowledge in running the same, agreed to resign from the company along with Vasu Annamalai and Syed Akber Hussaini on payment of their respective shares. The plaintiff, Kuppuswamy and the other two Directors inducted by them had agreed to re-convey the hospital property and Dr.Yathish Kumar had to repay the loans raised by them. Accordingly, MOU dated 16-01-2013 came to be entered into. Dr.Yathish Kumar has paid the money to the plaintiff and others, repaid the balance loan amount for purchasing Linac -Linear Accelerator and completed his part of MOU. But the plaintiff and others continued to file false complaints against him and interfered with the day to day activities of the defendant company. After receiving all the moneys under the MOU, the plaintiff has no business to deal with the defendant. The plaintiff a man of business acumen understood the matter and resigned from the company by 8 Com.O.S.No.8921/2018 receiving the amount towards his investments. The claim is unfounded and the suit if filed to extort money from Dr.Yathish Kumar and the defendant is not liable to pay the same.
5. Based on the above, this court has framed the following:
ISSUES
1. Whether the plaintiff proves that his deposit of Rs.45,37,781/- is with the defendant?
2. Whether the plaintiff proves that he is entitled for Rs.37,26,000/-
towards interest at 12% p.a. from April 2012 to December 2018?
3. Whether the defendant proves that the suit is time barred?
4. Whether the plaintiff is entitled for Rs.46,00,000/- together with Rs.37,26,000/- towards interest upto the date of suit, current and future interest at 12% p.a. from the defendant company as prayed?
5. What decree or order?
6. The defendant has filed statement of admission and denial of documents as required under Order XI Rule 4 CPC admitting the company incorporation certificate, Sale deed 9 Com.O.S.No.8921/2018 dated 19-11-2009, Invitation for inauguration of Karnataka Cancer Hospital, Lease agreement dated 27-08-2010, notice dated 04-10-2018, postal receipts and acknowledgments, reply dated 16-10-2018 and the postal cover in which the reply was sent. Therefore, the same are marked for the plaintiff as Ex.P1 to P20 by dispensing with further proof thereof.
7. The plaintiff has filed affidavit in lieu of examination in chief, examined himself as Pw1. Ex.P21 to P38, Ex.P32(a), P32(b), P33(a) and P33(b) are marked for him.
8. The defendant's Director has affidavit in lieu of examination in chief, examined himself as Dw1; and Ex.D1 to D6, D1(a), D2(a), D2(b), D3(a, D3(b) and D4(a) to (h) are marked for the defendant.
9. The certified statement in respect of the defendant's A/c bearing No.3925002100011648 with the Punjab National Bank got summoned by the plaintiff, is marked with the consent of the parties as Ex.P39.
10. Heard arguments.
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Com.O.S.No.8921/2018
11. My findings on the above issues are:
Issue No.1: In the affirmative Issue No.2: Partly in the affirmative Issue No.3: In the negative Issue No.4: Partly in the affirmative Issue No.5: As per the final for the following REASONS
12. Issue No.1: There is no dispute that the plaintiff, Dr.Yathish kumar (Dw1), Venkatesh and Kuppuswamy were the promoters and founder Directors of the defendant company. It was incorporated on 16-09-2009 as evidenced from Ex.P1. The property shown as the registered address namely No.99, Krishnanada Nagar, Jarakabande Kaval, Nandini Layout, Bengaluru was purchased subsequently on 19-09-2009 as seen from Ex.P2.
13. Ex.P3 shows that 'Karnataka Cancer Hospital and Research Center' was inaugurated in the above property on 24-10-2011. Ex.P4 dated 27-08-2010 speaks about the defendant taking property on lease. The plaintiff's claim that it was taken on lease for constructing bunker to place Linac -Linear Accelerator Machine is not disputed by the defendant; Ex.P29 and P30 relate to construction of bunker. 11
Com.O.S.No.8921/2018
14. Ex.P5 is the plaintiff's notice claiming that he, as the promoter and first director of the defendant had paid Rs.46,00,000/- on the understanding that it would be repaid as and when demanded and therefore the same should be repaid with interest at 18% p.a. Ex.P5 shows that the copies of the notice were marked to the present Directors of the defendant i.e., Dw1 and his wife Smt.A.S.Jyothi.
15. Ex.P18 is the reply issued to Ex.P5 wherein Dw1 and his wife, while denying the plaintiff's claim have taken a definite stand that the company has not received Rs.46,00,000/- from the plaintiff. 56,667 shares of the plaintiff was purchased at Rs.3/- per share in order to put an end to all disputes and litigation/complaints under MOU dated 16-01-2013 and by paying Rs.1,70,001/-.They have refunded the entire investment made by the plaintiff and he has acknowledged and and confirmed the same. In the absence of details as to when, how and the manner of investment, and when it became due, they are not liable to pay the same.
16. Ex.D1 is the copy of the interim order of temporary injunction in OS.3342/2012 by the XXXIX Addl. City Civil & Sessions Court, Bengaluru, restraining the plaintiff, the 12 Com.O.S.No.8921/2018 defendant company and Kuppuswamy from alienating immovable properties of the company, tampering with the books of account, balance sheets and operating the company's bank account. Ex.D1(a) is the certified copy of the said order dated 01.10.2012.
17. Ex.D2 to D4 relate to the plaintiff resigning from the company and the directorship of the company. Pw1 has admitted that Ex.D2 is in his hand writing, the same as well as Ex.D3 and D4 bear his signatures as per Ex.D2(a), D3(a) and (b), D4 (a) to (h). In Ex.D3 the plaintiff has admitted and agreed to have resigned from the Directorship of the defendant company by receiving refund of the investments made by him earlier itself and a further sum of Rs.1,70,001/- towards sale of shares, Rs.30,000/- in full and final settlement by cash. In this letter as also in Ex.D4, the plaintiff has confirmed that there are no other claims against Dr.Yathish or the defendant company and declared that he has relinquished all the right, title and interest in the company.
18. Ex.D4 is the MOU dated 16.01.2013 entered into by Dr.Yatish Kumar with the plaintiff and Kuppuswamy. The number of shares held by each director, filing of 13 Com.O.S.No.8921/2018 OS.3342/2012, PCR No.7564/2012 and complaints before Nandini Layout police by Dr.Yathish Kumar, opening of the account in IDBI Bank in the defendant' name by the plaintiff and Kuppuswamy; they inducting additional Directors, Vasu Annamalai and Syed Akber Hussaini, selling the hospital property in favour of A.Vasu @ Vasu Annamalai and Govindaraju, the plaintiff and Kuppuswamy unsuccessfully challenging the order at Ex.D1 in MFA 391/2013 are all recited in this document. Vasu Annamalai and Syed Akber Hussaini have signed Ex.D4 as consenting witnesses and to fully relinquish their right, title and interest in the company. Pursuant to the MOU Ex.D4, Dw1 Dr.Yathish Kumar purchased 56,667 shares of the plaintiff at Rs.3/- per share and paid the consideration of Rs.1,70,001/- by cash and undertook to repay the loan of Reliance Capital Ltd within six months.
19. Ex.D5 dated 14.08.2013 shows that the loan of Reliance Capital Ltd was paid in full. By Ex.D6 dated 04.12.2013 the Reliance Capital Ltd informed that documents deposited to secure the loan would be returned only in the presence of applicants/co-applicants or their registered power of attorney holder. A copy of this letter 14 Com.O.S.No.8921/2018 was marked to Kuppuswamy, Anandan Vijyakumar, the plaintiff's mother B.H.Gangamma, the plaintiff and Dw1 Dr.Yathish Kumar requesting them to collect the documents within one month or else it would be returned based on the order/judgment/decree of the court.
20. Admittedly, as on the date of Ex.D5 neither the plaintiff nor Kuppuswamy were the Directors of the defendant and they had resigned from the company. The evidence elicited during Dw1's cross examination goes to show that due to his non co-operation, Kuppuswamy approached the consumer court and obtained necessary orders for the release of his property documents from the Reliance Capital Pvt. Ltd. Relying on the same the plaintiff's mother too approached them and got her property documents released.
21. In my considered opinion, none of the above, be it the differences between the parties or the disputes arising out of the same and the outcome of the ensuing litigation, are relevant for the purpose of this case. Because, the plaintiff, other directors of the defendant and Dr.Yathish Kumar (Dw1) have chosen to bury the hatchet by entering into MOU at Ex.D4.
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Com.O.S.No.8921/2018
22. Ex.P23 and P24, the ledger account extract of the defendant for the period from 01.04.2010 to 31.03.2011 and 01.04.2011 to 31.03.2012 and relating to the plaintiff speak to the effect that the defendant had received payments from the plaintiff by cash, cheque and through RTGS; and these payments were made from the plaintiff's personal account, for grade mix and also installments of the Reliance Capital Ltd. The closing balance of such receipts stood at Rs.45,37,781/- as on 31.03.2012.
23. Ex.P25 shows that it was informed by the defendant company to Siemens company, that the payments made by M/s Jaya Associates, SK Steel Industries, the plaintiff and Dw1 Dr.Yatish, by cheques dated 12.09.2009 was treated as promoters contribution by letter dated 24.09.2015; Ex.P26 to P28, P34 to P36 are the delivery challan cum invoice issued by Siemens Ltd. Pw1's evidence that he had paid advance of Rs.15,00,000/- towards purchase of Linac-Linear Accelerator Machine is substantiated by the said letter.
24. Ex.P31 is the audited balance sheet of the defendant as on 31.03.2010; authorized share capital was 50,000 equity shares of Rs.10/- each and the paid up capital was 40,000 equity shares of Rs.10/- each. The same is reflected 16 Com.O.S.No.8921/2018 in the Memorandum of Association at Ex.P37. The loan of Reliance Capital is shown as a secured loan and advances received from Directors is shown as unsecured loan. The amount advanced by each director is mentioned in Ex.P31 and as per this the plaintiff had advanced Rs.25,40,000/- during 2010-11.
25. Ex.P32 is the audited balance sheet of the defendant as on 31.03.2011. Here again the advance received from the Directors is shown as unsecured loan. During the said period the plaintiff's contribution had increased from Rs.25,40,000/- to Rs.31,27,230/-. Dw1 has admitted that he signed this balance sheet on behalf of the company and his signatures are at Ex.P32(a) and P32(b).
26. Ex.P33 is the audited balance sheet with statement of profit and loss, and notes forming part of the financial statement for the year ending on 31.03.2012. As per this both the plaintiff and Dw1, Dr.Yathish Kumar held 56,667 shares each in the defendant company. The unsecured loan including Rs.1,38,78,486/- received as the advance from Directors, was classified as long term loan. 17
Com.O.S.No.8921/2018
27. The group summary of unsecured loan which is a part of Ex.P33 shows that the plaintiff had advanced Rs.45,37,781/- as on 31.03.2012. Even this balance sheet is signed by the defendant, at Ex.P33(a) and P33(b) as admitted by Dw1 during cross examination. As such, the question whether Rs.45,37,781/- advanced by the plaintiff is a deposit or an investment which was fully paid and settled in terms of Ex.D4, needs to be examined.
28. The learned counsel for the plaintiff argues that the amounts received from the Directors was a deposit agreed to be repaid on demand. Rs.45,37,781/- advanced by the plaintiff was neither repaid before entering into the MOU nor at the time of MOU. The declaration in Ex.D3 and D4 with regard to payments made to plaintiff for all previous investments refers to Dw1 purchasing 6663 shares from the plaintiff earlier to the MOU and the plaintiff's deposit was not refunded at any point of time.
29. It is also argued for the plaintiff that the defendant, in spite of taking out notice to produce upto date financial statements from 2013, has deliberately not produced the same with the intention of withholding the information that Rs.45,37,781/- is reflected in the defendant's balance sheet 18 Com.O.S.No.8921/2018 as the the amount advanced by the plaintiff even to this day and the same would amount to acknowledgment of liability.
30. In support of his arguments Sri.S.Vivekananda relies upon the judgment in Asset Reconstruction company (India) Ltd Vs Bishal Jaiswal & Anr. reported in (2021) 6 SCC 366 wherein it is observed that -
"Filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory; the notes that are annexed to or forming part of such financial statements are also expressly recognized by Section 134(7) of the Companies Act. There is compulsion in law to prepare a balance sheet but no compulsion to make any particular admission. A document cannot be taken out of the purview of Section 18 of the Limitation Act merely on the ground that it is made under compulsion of law or in discharge of statutory duty. To come within Section 18, acknowledgment of liability need not be made to the creditor, nor should it be contained in a document addressed to the creditor, nor need it be a promise to pay the debt."
31. Per contra, the learned counsel for the defendant argues that the plaintiff's case is inconsistent in so far as 19 Com.O.S.No.8921/2018 the nature of claim. In one breath the plaintiff claims it to be a deposit and in the other, as advance. But all investments made by the plaintiff have been paid and the same is duly acknowledged by him in Ex.D3 & D4. Therefore the plaintiff is estopped by his conduct and record from claiming otherwise. The declaration made in Ex.D3 and D4 that the plaintiff relinquishes all his right, title and interest in the company amounts to waiver of the right if any to claim the amount reflected in the company's balance sheet.
32. In this context, Sri Sanjaya H.Sethiya relies on paras 32, 35, 36 and 38 of the judgment in B.L.Sreedhar and Ors. Vs K.M.Munireddy (dead) and Ors. reported in AIR 2003 SC 578 which read as under:
(32) The essence of waiver is "estoppel"
and where thee is no "estoppel" there can be no "waiver", the connection between "estoppel" and "waiver" being very close. But, in spite of that, there is an essential difference between the time and that is whereas estoppel is a rule of evidence waiver is a rule of conduct.
Waiver has reference to man's conduct, while estoppel refers to the consequences of that conduct."
(33) ........
20
Com.O.S.No.8921/2018 (34) .........
(35) "21.The essential element of waiver is that there must be a voluntary and intentional relinquishment of a known right or such conduct as warrants the inference of the relinquishment of such right. It means the forsaking the assertion of a right at the proper opportunity. The first respondent filed suit at the proper opportunity after the land was transferred to him, and no covenant to treat the appellants as Thika tenants could be shown to have run with the land. Waiver is distinct from estoppel in that in waiver the essential element is actual intent to abandon or surrender right, while in estoppel such intent is immaterial. The necessary condition is the detriment of the other party by the conduct of the one estopped. An estoppel may result though the party estopped did not intend to lose any existing right. Thus voluntary choice is the essence of waiver for which there must have existed an opportunity for a choice between the relinquishment and the conferment of the right in question. Nothing of the kind could be proved in this case to estop the first respondent."
(36) "Estoppel is a rule of equity flowing out of fairness striking on behaviour deficient in good faith. It operates as a 21 Com.O.S.No.8921/2018 check on spurious conduct by preventing the inducer from taking advantage and assailing forfeiture already accomplished. It is invoked and applied to aid the law in administration of justice. But for it great many injustice may have been perpetrated. Present case is a glaring example of it. True no notice was given by the seller but the trial court and the appellate court concurred that the pre-
emptor not only came to know of the sale immediately but he assisted the purchaser-appellant in raising construction which went on for five
months. Having thus persuaded, rather mislead, the purchaser by his own conduct that he acquiesced in his ownership he somersaulted to grab the property with constructions by staking his own claim and attempting to unsettle the legal effect of his own conduct by taking recourse to law. To curb and control such unwarranted conduct the courts have extended the broad and paramount considerations of equity, to transactions and assurances, express or implied to avoid injustice."
(37) ........
(38) It cannot be doubted that there may be cases in which there is deception by omission, silence may be treated as deception only where there is a duty to 22 Com.O.S.No.8921/2018 speak; in other words as Big low points out in his book "Big low on Fraud"
(Volume 1 at page 597), ground of liability arises wherever and only where silence can be considered as having an active properly that of misleading. "
33. The learned counsel for the defendant also relies on the decision in Sundara Bai & Ors. Vs Devaji Shankar Deshpande reported in AIR 1954 SC 82 in the context of his argument that the right could also be lost by reason for other circumstances and if the representation in the MOU is not merely representation of the intention but of fact with regard to the plaintiff waiving his right in respect of the company the same amounts to estoppel.
34. Relying on the judgment in In Re: M.A.Kesavan & Ors. Reported in (1969) Ker.L.J. 19 it is argued that the word 'share capital' and 'capital' are not defined in the Companies Act, but the term share as defined U/s 2(46) of the Act means share in the share capital of a company and includes stock, except where distinction between the stock and share is expressed or implied. The words capital and share capital since are synonymous, their meaning depends in the context in which the term is used. The plaintiff has 23 Com.O.S.No.8921/2018 received all the dues towards the investments in the defendant company and relinquished his right, title or interest and thereby waived his right to claim the amount shown as advance in the balance sheet at Ex.P33.
35. In the light of the above arguments it is necessary to examine whether there is inconsistency in the plaintiff's stand with regard to the nature of claim and if the same can go to the root of the matter, as sought to be canvassed.
36. The surrounding circumstances, the relationship and character of the transaction and the manner in which parties treated it will throw light on the true form of the transaction, as observed the Hon'ble Supreme Court in Ram Janki Devi & Anr. Vs M/s Juggilal Kamlapath reported in AIR 1971 SC 2551.
37. Pw1 while admitting due execution of Ex.D2 to D4 insists that the same was in relation to his shares and not towards other claims. The learned counsel for the plaintiff vehemently argues that the amount paid by the plaintiff is reflected under the head advance from directors in the defendant's balance sheet even to this day. 24
Com.O.S.No.8921/2018
38. In the Assets Reconstruction Company (India) Ltd case relied upon by the plaintiff, it is clarified that contrary entry in the notes annexed to and forming a part of the financial statements would dislodge acknowledgment of liability. To rebut the plaintiff's claim that the amount advanced by him are reflected even to this day in the balance sheet, the defendant ought to have produced the financial statement from 2013 onwards.
39. Despite the plaintiff taking out notice in this behalf Dw1 has not complied with the same. He claims that the financial statements of the company are not produced to maintain sanctity, which is not a just cause for withholding upto date balance sheet. Therefore, I am constrained to infer that the balance sheet of the defendant is withheld as they carry entries favourable to the plaintiff with regard to advance of Rs.45,37,781/-
40. Therefore, what remains to be considered is whether the parties have understood the word 'investment' used in Ex.D3 and D4 as including the amounts advanced by the founder Directors, more particularly the plaintiff, since pre incorporation of the defendant.
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Com.O.S.No.8921/2018
41. Dw1 admits that the term investment is not defined in Ex.D4. Except Rs.1,70,001/- paid towards the shares, no other amount was paid to the plaintiff under the MOU. It is the defendant's suggestion to Pw1 that the share allotment depends on the investment made. Pw1 has replied the same by stating that based on the investment, he was allotted shares being one of the promoters of the company. Even according to Dw1 he has made payment for the shares allotted by the company and that is his investment.
42. Therefore, when the parties have understood the term investment as investment in shares, the contention of the defendant that the plaintiff has voluntarily relinquished his other claims and that amounts to waiver cannot be accepted. The ratio in Sundara Bai's case and B.L.Sreedhar & Ors.'s case is therefore not of any avail to the defendant.
43. According to Pw1 he was paid only for the shares under MOU and earlier to that. In Dw1's affidavit the number of shares held by the plaintiff is shown as 63,340 and as elicited during cross examination out of these, Dw1 purchased 6,663 shares from the plaintiff prior to execution of MOU and the remaining 56,667 shares were purchased subsequently at the rate of Rs.3/- per share on the date of 26 Com.O.S.No.8921/2018 the MOU by paying Rs.1,70,001/-.
44. It is interesting to note that, in order to escape from the consequences of such admission, Dw1 has made an attempt to claim that the plaintiff transferred 6663 share back to the company and the same is lying unused. Having claimed that share transfer certificate will be produced to establish the buy back, Dw1 has not produced any such document. Therefore, it can be safely concluded that Dw1 purchased 6663 shares from the plaintiff prior to Ex.D4 asa admitted by him and the remaining 56667 shares with the plaintiff were purchased on the date of the MOU.
45. It is seen from Dw1's evidence that on the date of Ex.D3 he paid Rs.30,000/- to the plaintiff as goodwill and not for resigning from the company. Thus, it is clear that even under Ex.D3, no amount was paid towards the advance received from the plaintiff as a director of the company.
46. Under the above circumstances, the only conclusion that can be arrived at is Clause 9 of Ex.D4 which reads as under, refers to settlement of the amount towards purchase of shares under the MOU and previously, and nothing more 27 Com.O.S.No.8921/2018 than that:
9. Apart from the aforesaid sums paid towards purchase of share, Dr.Bhargavaram B.N., has been paid with all his investments previously and he acknowledges receipt of the same. Dr.Bhargavaram B.N., further confirms that he has no claims against the first party or the company in whatsoever manner. Towards refund of the investments made by Kuppuswamy A, the following sums are agreed by him ......."
47. Even according to Dw1, the company was due a sum of Rs.45,37,781/- to the plaintiff as on 31.03.2012. It is not the case of the defendant that the same has been repaid. The evidence that MOU was entered into, after the plaintiff and others damaged the reputation of the company and nominal amount was paid to relieve them of the positions held, would also point to the payment under Ex.D3 and 4 to be in lieu of the plaintiff tendering resignation to the Directorship of the company and not for the repayment of Rs.45,37,781/-.
48. Dw1's cross examination reveals that it was his idea to start the company to start the hospital and the founder directors had to bring in funds to set up the hospital and for its growth. Having stated that there was no oral or written 28 Com.O.S.No.8921/2018 understanding to return of the amount so brought in once the company started making profit, Dw1 has not offered any acceptable explanation as to what should happen to such amount and how long the same was to remain with the company.
49. Though Dw1 states that the directors who brought in funds for setting up the company would get it back in the form of salary and perks, he goes on to admit that neither he nor the plaintiff received any remuneration. This fortifies the plaintiff's case that he was discharging duties in dual capacity, as the Managing Director and a full time surgeon, but was not paid for the services as a doctor. Thus it becomes clear that the directors were not paid any remuneration for the amounts they brought in to set up the company and also for its growth and it was not paid back in any form.
50. It is the specific case of the plaintiff that the money brought in by the directors for the growth of the company was not meant to be taken back immediately. Even Dw1 has admitted the same in para 26 of his cross examination by stating that the directors had brought in the funds for the company's use and with the intention of not taking it back 29 Com.O.S.No.8921/2018 immediately. Under such circumstances, the money advanced by the directors appears to have been shown under the heading 'long term loan' in the financial statements at Ex.P31 to 33.
51. The argument of the defendant that, repayment of equity share capital is not permissible U/s 43 of the Companies Act has no application to the facts of the case as the plaintiff is not seeking refund of the equity share capital but the money advanced for the growth of the company. Ex.D3 and D4, in my considered opinion, do not amount to waiver of the plaintiff's right to seek repayment of the funds so brought in during pre incorporation, during incorporation and post incorporation stages of the defendant.
52. When a sum of Rs.45,37,781/- is admittedly accepted as the fund brought in by the plaintiff and shown in the balance sheet of the defendant as advance from the director and a long term unsecured loan, the defendant cannot be permitted to deny the the same by playing with words to describe it as loan/deposit/investment etc., as sought to be done. Therefore, the issue for consideration is answered in the affirmative.
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53. Issue No.2: Section 2(31) of Companies Act and Rule 2(1)(v) define 'Deposit' as including any receipt of money by way of deposit or loan or in any other form. As per Rule 17 of Companies (Acceptance of Deposits) Rules, 2014 every company shall pay a penal rate of interest of 18% p.a. for the overdue period in case of deposits, whether secured or unsecured, matured and claimed, but remaining unpaid.
54. As discussed earlier the plaintiff's Rs.45,37,781/- lying with the defendant became payable on demand by virtue of the notice at Ex.P5. However, the evidence on record demonstrates that the same has remained unpaid and the plaintiff filed this suit on 12.12.2018 for its recovery. Though the rules provide for levy of 18% interest on unpaid deposit, the plaintiff is entitled for the interest at 12% p.a., from April 2012, since he has claimed the same at that rate. It works out to Rs.36,47,372/- on the principle amount of Rs.45,37,781/- for the period from 31.12.2012 to 12.12.2018. Therefore, the issue for consideration is accordingly answered in favour of the plaintiff.
55. Issue No.3: In para 13 of the plaint it is pleaded that the cause of action arose on 04.10.2018 when the plaintiff issued legal notice to the defendant for payment of deposit, 31 Com.O.S.No.8921/2018 when the notice was served on the defendant company and when the defendant company failed to make payment to the plaintiff by issuing reply notice dated 16.10.2018 and all other dates, the defendant company failed to make payment to the plaintiff. The suit is within limitation.
56. It was argued for the defendant that when the plaint is read as a whole, the plaintiff's cause of action arose on the date of execution of Ex.D4. The amount is shown as loan in Ex.P33 and therefore, the suit ought to have been filed within three years when the loan was made as provided under Article 19 of the Limitation Act or when the money was paid as provided under Article 23; the suit filed in 2018 is therefore, time barred.
57. Per contra, the learned counsel for the plaintiff argues that Article 23 and 19 are not applicable to the facts of the case. Because even according to the defendant the amount was not to be taken back immediately and it was not a loan. It was meant to be repaid as and when demanded, has to be inferred from the facts and circumstances of the case.
58. According to Pw1, he was told at the time of execution of Ex.D4 that the money would be repaid, but Ex.D.4 is 32 Com.O.S.No.8921/2018 silent on this aspect. However, Pw1's evidence that there was an understanding amongst the directors that the deposit should be taken back only after the company gets established and on demand, has remained unchallenged. Even Dw1 states in clear terms that the funds were brought in by the directors for the use of the company with the intention of not taking it back immediately.
59. It is not the case of the defendant that at the time of entering into the MOU, the plaintiff demanded for the money advanced by him for the establishment and growth of the defendant company. Therefore, unlike a loan there is no immediate obligation to repay the deposit. This position is clarified in Abdul Hameed Sahib & Ors. Vs Rahmath Bi reported in AIR 1965 MAD 427 in the following terms "The deposit is also a loan, but loan is repayable the minute it is incurred while it is not so with deposit. The repayment will depend upon the maturity date fixed therefor or the terms relating to the demand, on making of which the deposit becomes payable. In other words, In the instant case there was no such maturity date fixed, as could be gathered from the evidence on record"
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60. Clause 3(c) and (d) of Ex.P38, the Articles of Association prohibit invitation or acceptance of deposits from persons other than members, directors or their relatives and also issuance of public subscription of shares or debentures. Clause 21 of Ex.P37 permits receiving money, securities, valuables of all kinds on deposits or safe custody (not amounting to the business of banking as defined under the Banking Regulation Act 1949) and to borrow or raise money, or to receive money on deposit at interest or otherwise in such manner as the defendant company may think fit, for the purposes of financing the business of the company and in particular the issue or sale of any bonds.
61. Therefore, surrounding circumstances, relationship between parties, character of transaction and the manner in which the parties treated the transaction decide whether the transaction is a deposit of money or loan. The distinction between loan and deposit is explained in M/s Sharada Talkies (Firm) & Anr. Vs Madhulata Vyas & Ors., reported AIR 1996 MP 68 :
"In case of loan the debtor has to request the creditor to advance 34 Com.O.S.No.8921/2018 certain amount for meeting his requirement. In the case of deposit, the requirement of the depositee is neither relevant nor material."
62. The evidence on record amply demonstrates that the founder directors voluntarily advanced the money for establishment and growth of the defendant; the money was admittedly not advanced at the request of the company. As such the same cannot be treated as a loan and in my opinion Article 19 or 23 of the Limitation Act are not applicable.
63. As rightly argued by the learned counsel for the plaintiff, use of the terms loan and deposit may not in itself be conclusive, but the circumstances should be taken into account. In the totality of the evidence, it can be concluded that the amount advanced by the directors was meant for the business purpose of the company and had to be repaid only on demand. The suit is filed within three years from the date of demand which is by way of issuing the notice at Ex.P5. Therefore, the suit is filed within three years from the such date and it is in time as provided under Article 22 of the Limitation Act. Accordingly, the issue for consideration is answered in the Negative.
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64. Issue No.4: The learned counsel for the defendant argues that repayment of the capital is permissible in the event of winding up as per explanation (ii)(b) of Section 43 of the Companies Act, as such the suit falls in the realm of adjudication by the competent authority under the act i.e., NCLT and this court's jurisdiction is expressly ousted by Section 430 of the Companies Act. The plaintiff has filed the suit seeking refund of the amounts advanced to the company for its use and growth and not seeking repayment of the capital or for winding up of the company. Therefore, the argument of the defendant cannot be accepted.
65. For the forgoing reasons and in view of my view of findings on issues 1 and 2, I am of the considered opinion that the plaintiff is entitled for recovery of Rs.45,37,781/- with Rs.36,47,732/- towards interest at 12% p.a. from April 2012 till the date of the suit i.e., Rs.81,85,513/- in all from the defendant together with current and future interest at 9% p.a., cost of litigation and notice charges of Rs.20,000/-. The issue for consideration is accordingly answered.
66.Issue No.5: In the result, I pass the following: 36
Com.O.S.No.8921/2018 ORDER Suit of the plaintiff is decreed with cost.
The plaintiff is entitled to Rs.81,85,513 with current and future interest at 9% p.a. on Rs.45,37,781/-
and notice charges of Rs.20,000/-.
Draw decree accordingly.
Issue copy of the judgment to the parties through e-mail as provided U/o XX Rule 1 of CPC if mail ID is furnished.
(Dictated to the stenographer, transcribed and typed by her, corrected and then pronounced by me in the open court on this the 7th day of December 2021) (H.R.Radha) LXXXIV Addl.City Civil and Sessions Judge, (CCH-85 Commercial Court) Bengaluru ANNEXURE List of witnesses examined for the Plaintiff:
Pw1 Dr. Bhargavram B.N. List of documents marked for the plaintiff:
Ex.P1 Copy of the Incorporation Certificate Ex.P2 Copy of the Sale Deed Ex.P3 Inauguration Invitation 37 Com.O.S.No.8921/2018 Ex.P4 Copy of Lease Deed Ex.P5 Legal Notice dated 04.10.2018 Ex.P6 to P11 Postal Receipts Ex.P12 to P17 Postal Acknowledgments Ex.P18 Reply notice dated 16.10.2018 Ex.P19 Postal Receipt Ex.P20 Postal Cover Ex.P21 Copy of letter dated 05.08.2021 Ex.P22 Statement of accounts pertaining to A/c No.64037527063 Ex.P23 & P24 Ledger accounts extracts. Ex.P25 Copy of receipt dated 29.09.2019. Ex.P26 to P28 Copies of delivery challans of Siemens Company.
Ex.P29 Application of the owner of the
property
Ex.P230 Receipt dated 10.12.2010
Ex.P31 Copy of balance sheet for the year
ending on 31.03.2010
Ex.P32 Copy of balance sheet for the year
ending on 31.03.2011
Ex.P32(a)&(b) Signature of the defendant Ex.P33 Copy of balance sheet for the year ending on 31.03.2012 Ex.P33(a)&(b) Signature of the defendant Ex.P34 to P36 Copy of invoices issued by Siemens Company Ex.P37 Copy of the Memorandum Of Associations Ex.P38 Copy of Articles of Association Ex.P39 Summary of current accounts extract 38 Com.O.S.No.8921/2018 List of witnesses examined for the defendant:
Dw1 Dr. Yathish Kumar H.M. List of documents marked for the defendant:
Ex.D1 Copy of the Order in
O.S.No.3342/2012 dated 01.10.2012
Ex.D1(a) Cc of the Order in O.S.No.3342/2012
dated 01.10.2012
Ex.D2 Letter dated 08.01.2013
Ex.D2(a) Plaintiff's Signature
Ex.D3 Resignation letter dated 16.01.2013
Ex.D3(a) & (b) Plaintiff's Signatures Ex.D4 Memorandum of Understanding Ex.D4(a) to (h) Plaintiff's signature on MOU Ex.D5 Intimation letter dated 14.08.2013 Ex.D6 Letter of Reliance Capital Ltd., dated 04.12.2013 Ex.D7 Cc of Board resolution dated 20.12.2018 (H.R.Radha) LXXXIV Addl.City Civil and Sessions Judge, (CCH-85 Commercial Court) Bengaluru.