Delhi District Court
Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd on 31 March, 2023
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
CS (Comm.) No. 636/2021
Mrs. Smriti Arora
W/o Mr. Sidhant Rupani
R/o M-602, Ambience Island Lagoon Apartments,
Gurugram-122002 .... Plaintiff
versus
1. Paratus Cafes N Caterers Pvt. Ltd.
Through its Director
Sh. Neeraj Kumar
Having its Registered Office at:
H-11, Connaught Circus,
Outer Circle, Delhi-110001
2. Mr. Neeraj Kumar
25, Garhi, New Delhi 110065
Also at:
D-45/A, East of Kailash,
New Delhi
3. Girija Nandni
B-56, Sangam Apartments,
Sector-9, Rohini,
New Delhi-110085
Also at:
D-45/A, East of Kailash,
New Delhi .... Defendants
Date of Institution : 02/09/2019
Arguments concluded on : 20/02/2023
Decided on : 31/03/2023
Appearances : Sh. Aman Bhalla, Ld. Counsel for plaintiff.
Sh.Vansh Gandotra, Ld. Counsel for defendants.
CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 1 of 30
JUDGMENT
1. Plaintiff had filed the present suit initially against four defendants i.e., above elicited three defendants and one Mr. Basant Kumar Singh as defendant no. 4 for recovery of Rs.32,50,000/- with interest and costs.
2. Adumbrated in brief, following are the relevant material facts of the case of plaintiff. Defendant no. 1 is a company registered under the Companies Act. Defendant nos. 2 to 4 are the Directors as well as shareholders in the defendant no. 1 company. Defendants approached the plaintiff to invest in the defendant no. 1 company which is running a restaurant under the name and style of "Mother India Restaurant" (hereinafter referred to as the Restaurant) at Connaught Place. Defendant nos. 2 and 3 met the plaintiff and her husband through some common friends and represented to them that they were running the Restaurant under the aegis of defendant no. 1 company and were looking for investment in said company for the said Restaurant in lieu of shareholding in defendant no. 1 company. Plaintiff with her husband met defendants at the addresses of Restaurant premises wherein details of the business and the projections of the Restaurant were discussed. In said meeting defendants assured the plaintiff that the Restaurant had applied for and was in the process of obtaining an excise/liquor license and the Restaurant had monthly turnover of Rs.27,00,000/-. Defendants had informed plaintiff that once the excise/liquor license was granted to the Restaurant the turnover of the Restaurant would increase by 50% and there would be a greater margin of profits to CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 2 of 30 be earned. Subsequently, during the course of few meetings wherein negotiations and discussions were held between the parties, defendants informed plaintiff that they were looking for an investment of around Rs.22-25 lakh as share purchase money as well as loan. In addition, defendants also offered a Directorship to plaintiff in defendant no. 1 company. Believing the representations and projections made by defendants, plaintiff agreed to invest a sum of Rs. 22,50,000/-. Thereafter Mr. Sidhant Rupani, the husband of plaintiff was in continuous communication with defendants over WhatsApp. Around August, 2017 a draft MoU was exchanged between plaintiff and defendant and with it a sum of Rs. 1,00,000/- was given in cash. Plaintiff along with her husband met the defendants on 03/09/2017 and paid further sum of Rs. 10,25,000/- in cash to defendants as their investment in the defendant no. 1 company which was duly admitted by the defendants. Rs.11,25,000/- was also deposited in the bank account of defendant no. 1 company by plaintiff in two tranches i.e., on 05/09/2017 and 26/09/2017 vide RTGS in pursuance of agreement between plaintiff and defendants. After monies were handed over to defendants, the defendants started delaying the commitments towards the plaintiff and did not issue the share certificate nor confirmed the Directorship of plaintiff in defendant no. 1 company. Defendants failed to upload the details with the Registrar of Companies and did not undertake the statutory requirements of appointing the plaintiff as Director. Plaintiff was constrained to repeatedly send reminders via WhatsApp to the defendants for the same through her husband. Finally, on 27/10/2017 plaintiff was made a Director in the defendant no. 1 company after repeated reminders CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 3 of 30 from her husband to the defendants. After her appointment as Director, defendants started demanding more money and investment from plaintiff for the money that was spent on the liquor license for the Restaurant. Husband of plaintiff through whom all the communications between the parties happened, informed defendants that at the time of the initial meetings and negotiation between the plaintiff and the defendants it was categorically agreed that the plaintiff would not be required to pay any monies for the purpose of the liquor license and other promotion(s) and it is in the light of the above proposal that the plaintiff had invested in the defendant no. 1 company as a premium. Sometime in the month of December, 2017 after having invested in the defendant no. 1 company for almost 5 months, the plaintiff through her husband requested the defendants to be shown the accounts and affairs of the Restaurant to ascertain the performance of the business as well as her entitlement to the share in the profits as was promised to the plaintiff by the defendants. Defendants failed to provide the detailed accounts and the profit and loss statement on timely basis due to which there was no clarity as to the profits being earned by the defendant no 1 company. Plaintiff began demanding the share of the profit in December and the same was delayed by the defendants on one pretext or the other and was not paid. The conduct of the defendants remained the same throughout the year 2018 wherein the defendants would update the sales and profits of the Restaurant belatedly on the WhatsApp group created for the said purpose and did not deposit the share of the profits of the plaintiff on timely basis. During this period plaintiff kept requesting the defendants to issue the share CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 4 of 30 certificate in her favour in lieu of the investment but the same was not done by defendants. Defendants had issued an alleged share certificate purportedly dated 27/08/2017 in favour of plaintiff showing her to be the owner of 500 shares, so as to silence the plaintiff. The veracity of said document was doubtful and it seemed to be false and fabricated document; since plaintiff was not added as a shareholder in the financial records and statutory documents of the defendant no. 1 company. Since from the time plaintiff was made a Director in defendant no. 1 company, at no point of time plaintiff was called or given any intimation for any Board Meetings whatsoever. Plaintiff was paid certain amounts during the said period which were transferred in the account of plaintiff by informing that this was in nature of profits of the Restaurant, whereas on going through the accounts of the company, it seemed that the same had been deducted from the principal amount of the loan given by plaintiff to defendant no. 1 company. It came to the knowledge of the plaintiff that defendants were fudging the account books of the defendant no. 1 company and have been under reporting the sales and profits of the Restaurant with the malafide intention to give the plaintiff a lesser share of the profits. On coming to know about mishandling of the accounts of the defendant no. 1 company, plaintiff immediately approached the defendants who assured the plaintiff that there is no fudging in the accounts that was taking place and the true revenue and profits of the company were being reported. After the passage of few months, defendants absolutely stopped paying the plaintiff the share of the profits from June, 2018. Plaintiff repeatedly kept following up and requesting the defendants to transfer the rightful shares of the profits of the CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 5 of 30 plaintiff but to no avail. After having seen the conduct of the defendants and doubting the integrity and honesty of defendants towards plaintiff, plaintiff checked the records of defendant no. 1 company through her husband, as available on the website of Ministry of Corporate Affairs (in short MCA) and was shocked and surprised to find that the plaintiff was not shown as a shareholder in defendant no. 1 company as per the Annual Return of the financial year ending 31/03/2018 and also plaintiff was not even reflected as a Director in the records of the defendant no. 1 company. On getting above said information, doubts of plaintiff were clear and plaintiff understood the malafide intention behind the actions of the defendants and the fraud played by them upon plaintiff. Plaintiff also attempted to get in touch with the defendants repeatedly to demand an explanation for their actions as well as demand the refund of the monies invested by her in the defendant no. 1 company. Defendants absolutely ignored and failed to respond to the attempts of the plaintiff to communicate with them. Even as on date a sum of Rs. 10,71,060/- is shown in the books of account as loan outstanding towards the plaintiff. Plaintiff sent legal notice dated 22/05/2019 to defendants raising demand to return Rs. 22,50,000/-, which is the sum of the investment made by plaintiff as well as Rs. 10,00,000/- on account of the profits the plaintiff is entitled to in lieu of her investment along with up-to-date interest @ 24% per annum on above mentioned sums. Non payment of the amount demanded in the above said legal notice by defendants, resulted in filing of this suit.
3. On 16/12/2021 Ld. Counsel for plaintiff gave the statement CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 6 of 30 to drop defendant no. 4 Mr. Basant Kumar Singh from array of parties. Accordingly, as prayed, defendant no. 4 was dropped from array of parties.
4. Defendant nos. 1 to 3 in their filed written statements denied the averments of plaintiff in the plaint in toto and in particular. Defendants denied of having approached plaintiff to invest in defendant no. 1 company. Defendants stated that plaintiff herself had approached to be Director in defendant no. 1 company thereby advancing loan of Rs. 11,25,000/- to the defendant no. 1 company towards her contribution in defendant no. 1 company and herself suggested to treat her contribution as loan in the company. Defendants denied of plaintiff having paid herself or through her husband either Rs. 1,00,000/- or Rs. 10,25,000/- in cash as investment in defendant no. 1 company. Defendants denied of having entered into any MoU with plaintiff. It is the averment of defendants that defendant no. 1 company has fairly compensated plaintiff. Defendants also averred that defendant no. 1 incurred losses and as on date defendant no. 1 company is in loss of about Rs. 56,00,000/-. Defendants also averred that there is no privity of contract between plaintiff and defendant nos. 2 to
4. Defendants averred that plaintiff had been requesting to refund the loan amount and consequent to her requests the amounts were paid and same had been deducted from the principal amount of the loan given by plaintiff to defendant no. 1 company whereas there had been no contribution by plaintiff in terms of time in the affairs of the company rather it was namesake. Defendant no. 1 company had been requesting plaintiff to be more diligent and to contribute in the affairs and functioning of the defendant no. 1 CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 7 of 30 company but plaintiff miserably failed to do so. There cannot be a case where the Director of the company is liable to profits alone and not responsible for the losses of the company. It was prayed for dismissal of the suit with costs.
5. In replications to written statements of defendant nos. 1 to 3; plaintiff reiterated the averments of the plaint and denied the contentions put forth by defendants in their respective written statements. Following are the relevant brief material averments in filed replication. It was on the misrepresentations of the defendants that the plaintiff gave loan and agreed to invest in the company. It was defendant no. 3 who was in constant communication with the husband of plaintiff and was directly involved in the day to day affairs of the company. The entire structure of the transaction was developed by defendant nos. 2 and 3 who were the promoters and the whole sole in-charge of the company. Plaintiff denied that it did not have financial solubility to pay Rs. 10,25,000/- in cash to defendants. Plaintiff is entitled for refund of amounts invested by her and claimed amount in the suit. All communications with respect to the loan given and the investment of the plaintiff was being handled by her husband and he had repeatedly asked for the status and the affairs of the company. Defendants have failed to establish or evidence as to the manner in which the plaintiff has been fairly compensated. Not a single penny from the loan granted to defendant no. 1 company at the behest of other defendants, have been returned to the plaintiff. Defendant no. 1 company is not running into any losses and the plaintiff tendered her resignation only because she was neither added as a shareholder in the CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 8 of 30 financial records and statutory documents of defendant no. 1 company nor was shown as Director in the official records of the company. Also defendant no. 1 did not deposit the share of the profits of the plaintiff on a timely basis and was being kept away from the affairs of the company. Neither the loan granted to the company was returned by defendants to plaintiff. There is not a single document or communication to show that any requests for assistance was asked for by the defendants from plaintiff. Plaintiff was ready and willing to contribute in the functioning of defendant no. 1 company but defendants never informed plaintiff about any Board Meeting nor involved plaintiff in any manner whatsoever since it was always understood that since the defendants understand the business that the company was involved in and they would take care of the day-to-day affairs of the company. Plaintiff prayed for decree of the suit.
6. Plaintiff also filed an application under Order XIIIA Rule 4 read with Section 151 of The Code of Civil Procedure, 1908 (in short CPC) for summary judgment on claim of Rs. 11,25,000/- or in alternative to pass conditional order under Order XIIIA Rule 7 CPC against defendants for directing them to deposit Rs. 11,25,000/- in Court or giving security to plaintiff to the tune of said amount. Vide detailed order dated 07/04/2022 said application of plaintiff under Order XIIIA Rule 4 read with Section 151 of CPC for summary judgment was dismissed.
7. Order dated 02/05/2022 of Hon'ble Mr Justice C. Hari Shankar in CM(M) No. 408/2022 and CM No. 21064/2022 and 21065/2022 was received whereby pursuant to the restricting of CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 9 of 30 the relief by Ld. Counsel for petitioner therein/plaintiff herein to an observation by the Court that any proceedings before this trial Court shall be subject to the outcome of the proceedings of the said petition; it was ordered accordingly by Delhi High Court.
8. Case management hearing was done on 01/09/2022. After hearing husband of plaintiff, defendant no. 3, Ld. Counsel for the parties and on the basis of pleadings of the parties; following issues were framed:-
"ISSUES
1. Whether plaintiff is entitled for recovery of Rs.
22,50,000/- from defendants, as claimed? If so, from which of the defendants? OPP.
2. Whether plaintiff is entitled for any interest from defendants with respect to the amount mentioned in issue no. 1? If so, at what rate, for which period and from which of the defendants? OPP
3. Whether plaintiff is entitled for recovery of Rs.
10,00,000/- on account of the profits in lieu of investment, as claimant? If so, from which of the defendants? OPP
4. Whether plaintiff is entitled for recovery of any interest with respect to the claim of Rs. 10,00,000/- above said in issue no. 3? If so, at what rate, for which period and from which of the defendants? OPP
5. Relief."
9. Finding elements of settlements, matter was referred for mediation. For non-appearance of parties in mediation, the matter was sent back to this Court as 'Non Starter' with copy of proceedings dated 12/10/2022.
CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 10 of 3010. Plaintiff Mrs. Smriti Arora examined herself as PW1 and her husband Sh. Siddhant Rupani as PW2 in plaintiff evidence.
11. PW1 relied upon the following documents in her affidavit Ex PW 1/A in evidence:-
S.No Documents Exhibit/ Mark
1. Copy of bank account Mark 1/1
statement of plaintiff
from the period
01/07/2017 to
08/01/2019 of State
Bank of India, DLF
Phase III, Gurgaon
Haryana
2. Copy of Share Mark 1/2
Certificate of
defendant no. 1 in the
name of plaintiff
3. Copy of Auditors Mark 1/3
Report of the annual
return of defendant
no. 1 for financial
year ending
31/03/2018
4. Copy of Form No. Mark 1/4
DIR-12 from the
Ministry of Corporate
Affairs website
5. Legal notice dated Ex PW1/5
22/05/2019 sent by
speed post/courier to
defendants by Ld.
Counsel for plaintiff
12. Order XI Rule 6 (3) of the Code of CPC mandates the declaration on oath to be filed by a party specifying (a) the parties to such electronic record; (b) the manner in which such electronic record was produced and by whom; (c) the dates and time of preparation or storage or issuance or receipt of each such CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 11 of 30 electronic record; (d) the source of such electronic record and date and time when the electronic record was printed; (e) in case of e-mail ids, details of ownership, custody and access to such e- mail ids; (f) in case of documents stored on a computer or computer resource (including on external servers or cloud), details of ownership, custody and access to such data on the computer or computer resource; (g) deponent's knowledge of contents and correctness of contents; (h) whether the computer or computer resource used for preparing or receiving or storing such document or data was functioning properly or in case of malfunction that such malfunction did not affect the contents of the document stored; (i) that the printout or copy furnished was taken from the original computer or computer resource.
13. Originals of documents marked as Mark 1/2 and Mark 1/3 were not brought during deposition of PW1 on 18/10/2022; whereas in affidavit Ex PW1/A they were referred as Ex PW1/2 and Ex PW1/3; so, their copies were so marked as Mark 1/2 and Mark 1/3 respectively, which stand not proved.
14. Documents marked as Mark 1/1 and Mark 1/4 referred in Ex PW1/A as Ex PW1/1 and Ex PW1/4 were electronic record documents whereas on record requisite declaration in form of affidavit with specified information in terms of mandate contained in Order XI Rule 6(3) (a) to (i) CPC was not filed; so, these copies of electronic record documents were marked as Mark 1/1 and Mark 1/4 respectively. For want of originals of documents marked as Mark 1/2 and Mark 1/3; and for want of requisite mandatory certificate/declaration/affidavit with requisite CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 12 of 30 specified information compliant of Order XI Rule 6 (3) (a) to (i) CPC, copies of electronic record documents, above said marked as Mark 1/1 and Mark 1/4 respectively; stand not proved.
15. PW2 relied upon the following document in his affidavit Ex PW 2/A in evidence:-
S.No Document Mark
1. Copy of WhatsApp Mark 2/1
chats from 11/08/2017
to 19/12/2017 between
plaintiff and
defendant no. 3
16. Document Mark 2/1 referred in Ex PW2/A as Ex PW2/1 was electronic record document whereas on record requisite declaration in form of affidavit with specified information in terms of mandate contained in Order XI Rule 6 (3) (a) to (i) CPC was not filed; so, the copy of electronic record document was marked as Mark 2/1; which accordingly, as above said, stands not proved.
17. Ld. Counsel for plaintiff closed the plaintiff evidence vide separate statement on 19/10/2022.
18. Defendants in their evidence examined (i) Ms. Girija Nandini, defendant no. 3 as DW1 and (ii) Sh. Neeraj Kumar, defendant no. 2 and Director/AR of defendant no. 1 company as DW2.
19. DW2 relied upon in his affidavit Ex PW 2/A in evidence the CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 13 of 30 Copy of Board Resolution Ex DW2/1 of defendant no. 1 company dated 21/10/2020 authorizing DW2.
20. Ld. Counsel for defendants closed the evidence of defendants vide separate statement on 08/12/2022.
21. Written arguments along with precedents were filed on behalf of parties. Oral arguments were also addressed by Ld. Counsel for the parties. I have perused the record including the pleadings of the parties; documents filed and proved on record; written arguments on behalf of parties, relied upon precedents and have considered the rival contentions put forth by Ld. Counsel for the parties.
22. Ld. Counsel for plaintiff argued in terms of the averments in pleadings of plaintiff; evidence led and submitted that plaintiff is entitled to recovery of the amount of outstanding sum payable to plaintiff, as reflected in the books of account of defendant no. 1 as per law laid by Delhi High Court in the case of K.R. Impex vs Punj Lloyd Ltd., 2019 SCC OnLine Del 6667. Ld. Counsel for plaintiff also argued that Rs. 1,00,000/- was given by plaintiff in cash to defendants when a draft MoU was exchanged between the parties and thereafter Rs. 10,25,000/- were given on 03/09/2017 which is evidenced by text of WhatsApp messages exchanged between defendant no. 3 and husband of plaintiff. Ld. Counsel for plaintiff also argued that plaintiff was promised that she will be made a Director, shareholder in defendant no. 1 company in lieu of her investment and shall be entitled to profits from defendant no. 1 company whereas defendants underreported CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 14 of 30 the profits from defendant no. 1 company; also defendants failed to share the under reported profit in a timely manner and stopped any payment from June, 2018. Also was argued by Ld. Counsel for plaintiff that defendants had malafidely not paid to the plaintiff her share of profits from defendant no. 1 company as per their oral agreement and did not even disclose the revenue being generated from the business for which the investment was made. Ld. Counsel for plaintiff also argued that plaintiff is entitled for recovery of her investment of Rs. 11,25,000/- in defendant no. 1 company. Ld. Counsel for plaintiff also argued that plaintiff is entitled for recovery of Rs. 10,00,000/- on account of profits in lieu of investment made by plaintiff in defendant no. 1 company as she was assured that the restaurant had a monthly turnover of Rs. 27,00,000/- and plaintiff shall be entitled to a share of the revenue in lieu of her investment and also be made Director shareholder in the company. Ld. Counsel for plaintiff also relied upon the case of Sheela Sharma vs Mahendra Pal, 2016 SCC OnLine Del 4696 and argued that mere advancement of the sum in cash, may entail consequences for the party acting in breach of Section 269 SS of The Income Tax Act but that is not to be concern of the Court. Also was argued by Ld. Counsel for plaintiff that whether, or not, the plaintiff reflected the availability of the said amount given in cash in her Income Tax Return, is also not to be a matter of concern of the Court. That would again be an aspect to be considered by the Income Tax Authorities. It was also argued that transactions of payments of cash amount totaling of Rs. 11,25,000/- ipso facto is not illegal, not prohibited in law and such transactions are enforceable at law. Ld. Counsel for plaintiff argued for decree of the suit for CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 15 of 30 prayed for/claimed reliefs.
23. Ld. Counsel for defendants argued in terms of the averments of the pleadings of the defendant nos. 1 to 3 and evidences of defendants brought on record. Ld. Counsel for defendant nos. 1 to 3 argued that plaintiff only paid Rs. 11,25,000/- by way of transfer by RTGS and no other amount was ever paid by the plaintiff as contribution towards her investment. Ld. Counsel for defendant nos. 1 to 3 argued that it is difficult to fathom that plaintiff could arrange for Rs. 11,25,000/- as cash and secondly hand over such a substantial amount without any acknowledgment or receipt of any kind to defendant nos. 2 and 3 whom she claims to have met only in year 2017; whereas as per Income Tax Rules, no transaction can be made over Rs. 2,00,000/- in cash. Ld. Counsel for defendant nos. 1 to 3 also argued that plaintiff has not been able to demonstrate the flow of cash and had relied upon WhatsApp chats which have not been proved as per law, so no reliance can be placed on them. On 27/10/2017 plaintiff was made a Director of defendant no. 1 company. Ld. Counsel for defendants argued that privity of contract was only between the plaintiff and defendant no. 1 company. Throughout the pleadings and the affidavits in evidence tendered by plaintiff witnesses, there is no whisper about any privity of contract between defendant nos. 2 and 3 and plaintiff and suit has been filed against four defendants, however, the plaintiff chose to delete the defendant no. 4 which clearly shows that plaintiff has filed the suit so as to harass the defendant nos. 2 and 3. Ld. Counsel for defendants argued that defendant no. 1 company had fairly compensated the plaintiff whereas CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 16 of 30 defendant no. 1 company incurred heavy losses and is in a loss of Rs. 56,00,000/- as on date. Also was argued by Ld. Counsel for defendants that no contribution was made by plaintiff in terms of time in the affairs and functioning of defendant no. 1 company whereas defendant nos. 2 and 3 had been requesting the plaintiff to be more diligent and to contribute in the affairs and functioning of the defendant no. 1 company. There cannot be a case wherein the Director of a company is entitled to profits alone and is not liable for the losses of the company. Ld. Counsel for defendants argued that defendants did not provide any personal guarantee to the plaintiff. The moment the plaintiff realized that the company was progressing towards losses, rather than supporting the same, the plaintiff decided to tender the resignation from the post of Director. Defendant nos. 2 and 3 never gave any personal guarantee to the plaintiff. Ld. Counsel for defendants argued that plaintiff has not asked for rendition of accounts and has assumed an imaginative figure of Rs.10,00,000/- for which she is unable to provide any sum and substance to. Also was argued that plaintiff has not made any communication in writing for rendition of accounts or evidencing the fact that she was actively involved in the running of the business. Ld. Counsel for defendants argued that plaintiff has also been unable to prove the balance sheet as per law and same cannot be relied upon. Ld. Counsel for defendants also relied upon the case of Mrs. Monica Sunit Ujjain vs Sanchu M. Menon & Ors., Criminal Revision Application No. 394 of 2015 decided by Bombay High Court on 02/08/2022 wherein in criminal appellate jurisdiction it was held that money lending without license is a cognizable offence and proceedings in case CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 17 of 30 of money lending business were not maintainable. Ld. Counsel for defendants argued that suit is based on false allegations, which has been filed to harass the defendants to extort money and defendants are not liable to pay any sum to the plaintiff and plaintiff is not entitled to any reliefs as claimed for; so suit is liable to be dismissed with exemplary costs.
24. My issue-wise findings are as under:-
Findings on issue no. 1
1. Whether plaintiff is entitled for recovery of Rs.
22,50,000/- from defendants, as claimed? If so, from which of the defendants? OPP.
25. Claim of plaintiff in the ambit of this issue comprises of two components. First component of claim is for entitlement to recovery of Rs. 11,25,000/- which was invested in defendant no. 1 company by transfer by RTGS. Second component of claim is for entitlement to recovery of investment of Rs. 11,25,000/-, in defendant no. 1 company allegedly/purportedly made in cash.
Finding on claim of plaintiff for entitlement to recovery of Rs. 11,25,000/- which was invested in defendant no. 1 company by transfer by RTGS.
26. In para 10 of plaint, plaintiff averred that Rs. 11,25,000/- was deposited in bank account of defendant no. 1 company by plaintiff in two tranches, i.e., on 05/09/2017 and 26/09/2017 vide RTGS. In the filed written statements defendants have admitted of receipt of Rs. 11,25,000/- by defendant no. 1 company vide RTGS from plaintiff as per averments in the plaint. In para 2 of CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 18 of 30 written statements of defendants, defendants have averred that plaintiff herself approached to be director in defendant no. 1 company whereby advancing a loan to defendant no. 1 company towards her contribution and to treat her contribution as loan in the company. In para 3 of the written statements of defendants also defendants have admitted that plaintiff had paid Rs. 11,25,000/- to defendant no. 1 company by way of transfer. Defendants also averred in the written statements that plaintiff had been requesting to refund the loan amount and consequent to her requests the amount was paid and same had been deducted from the principal amount of the loan given by plaintiff to defendant no. 1 company.
27. PW1 plaintiff reiterated the averments of her plaint in her affidavit Ex PW1/A in evidence. PW1 reiterated her claims in the suit for recovery of the monies from the defendants. In cross examination PW1 stated that she was unable to tell how much amount was received from defendant no. 1 as it was dealt by her husband. PW2, husband of PW1, corroborated the version of PW1 for transfer of amount Rs. 11,25,000/- vide RTGS by plaintiff to defendants in two tranches, i.e., on 05/09/2017 and 26/09/2017. In cross examination PW2 admitted that he only looked after the finances of his wife PW1.
28. Both defendant witnesses i.e., DW1 and DW2 admitted of receipt of Rs. 11,25,000/- vide RTGS by defendant no. 1 company from plaintiff. DW 2 also admitted in cross examination that the aforesaid amount i.e., Rs. 11,25,000/- given by plaintiff to defendant no. 1 company, treated in books of CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 19 of 30 defendant no. 1 company as loan amount, was not returned back. Ledger account of plaintiff in books of defendant no. 1 company was neither filed by defendants nor proved in evidence. Defendant no. 1 company is registered under the Companies Act and is bound to follow its provisions and to maintain the books of account and get them audited. Since the ledger account of plaintiff in books of defendant no. 1 company has been withheld by defendants, including defendant no. 1 company, there remains no option with the Court but to presume that said evidence which could be and is not produced would, if produced, be unfavorable to defendants who withheld it, in accordance with illustration (g) of Section 114 of The Indian Evidence Act, 1872. The defendants have failed to prove of any amount having been returned to plaintiff as interest or principal or any kind of return otherwise to plaintiff in lieu of sum of Rs. 11,25,000/- transferred by plaintiff in bank account of defendant no. 1 company by RTGS, as above said and treated as loan there.
29. As per law laid by Delhi High Court in the case of K.R. Impex vs Punj Lloyd Ltd. (supra), plaintiff is entitled to recovery of amount reflected as outstanding and payable to her in books of accounts of defendant no. 1 company.
30. Delhi High Court in the case of Sheela Sharma vs Mahendra Pal (supra) inter alia held that mere advancement of the loan in cash, may entail consequences for the party acting in breach of Section 269 SS of The Income Tax Act but that is not to be concern of the Court whereas whether or not, the lender reflected the availability of the said amount in her Income Tax CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 20 of 30 Return is also not a matter of concern for the Court; since that would again be an aspect to be considered by the Income Tax Authorities. It was also held therein that advancement of loan in cash to the tune of Rs. 10,00,000/- is not prohibited in law and such transaction in cash is not illegal but is enforceable in law. Accordingly, I do not find force in the arguments of Ld. Counsel for defendants that Rs.11,25,000/- transferred by plaintiff in bank account of defendant no. 1 company by RTGS, as above said and treated as loan there by defendant no. 1 company, was either illegal or not enforceable in law for its return or recovery.
31. In this fact of the matter and from the pleadings and evidence on record plaintiff is held entitled for recovery of Rs. 11,25,000/- which was invested by plaintiff in defendant no. 1 company by transfer by RTGS.
Finding on claim of plaintiff for entitlement to recovery of investment of Rs. 11,25,000/- in defendant no. 1 company allegedly/purportedly made in cash.
32. It is the averment of the plaintiff in the plaint that around August, 2017 a draft MoU was exchanged between the plaintiff and defendant along with which a sum of Rs. 1,00,000/- was given in cash. Further averment in the plaint by the plaintiff made is that plaintiff along with her husband met the defendants on 03/09/2017 and paid further sum of Rs. 10,25,000/- in cash to defendants as their investment in the defendant no. 1 company.
33. Defendants in their written statement denied of plaintiff having paid herself or through her husband either Rs. 1,00,000/-
CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 21 of 30or Rs. 11,25,000/- in cash as investment in defendant no. 1 company; as alleged by plaintiff.
34. PW1 and PW2 reiterated the averments on facts on said facet in their affidavit Ex PW1/A and Ex PW2/A in evidence.
35. Plaintiff PW1 in her cross examination was asked by cross examining defendants' Counsel as to at what place such cash amounts of Rs. 1,00,000/- and Rs. 11,25,000/- were advanced to defendant no. 1 company; but her candid answer was that she did not remember the place where such amounts were so advanced to defendant no.1 company as was referred in para nos. 4 and 5 of Ex PW1/A.
36. PW1 also elicited in cross examination that she initially met with defendant nos. 2 and 3 for investment somewhere in year 2017 whereas later they met several times. PW1 herself volunteered to state that talks regarding investment were done by her husband with defendants and she had not done but her husband may have done due diligence or enquiries before investing in defendant no. 1 company. PW1 was also not aware whether the alleged investment of Rs. 11,25,000/- in defendant no. 1 company in cash as referred in paras 4 and 5 of Ex PW1/A was referred in Income Tax Return of PW1; saying that her husband i.e., PW2 may be knowing of it. PW1 was also not aware whether any receipts were obtained for aforesaid cash payments.
37. At the outset in his cross examination PW2 elicited that he CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 22 of 30 made investment of Rs. 22,50,000/- with defendant no. 1 in the name of his wife. PW2 further elicited that initially he approached defendant no. 3 for investment in restaurant business and then mutual discussions started for investment. PW2 elicited that he knew defendant nos. 2, 3 and 4 since year 2017 and he had made enquiries from one or two persons before investing in defendant no. 1 company. PW2 also candidly admitted that the investment made in defendant no. 1 company by plaintiff were not reflected in Income Tax Return of plaintiff and PW2; since as per PW2 there was no need for the same. PW2 also candidly admitted that no written guarantee was taken from defendants for investments in question.
38. Pleadings and evidences of plaintiff witnesses PW1 and PW2 are shorn of any fact proved of source of the cash amounts of Rs. 1,00,000/- or Rs. 10,25,000/- allegedly paid by plaintiff/ husband of plaintiff to defendant no. 1 company through defendant nos. 2 and 3 in cash in August, 2017 and on 03/09/2017. As per PW2 there was no need for even mentioning of it in their Income Tax Returns. It is fact of the matter that no acknowledgement of defendants has been proved by plaintiff for cash sums, totaling Rs. 11,25,000/- allegedly paid by plaintiff/ husband of plaintiff to defendant no. 1 company through defendant nos. 2 and 3. Plaintiff has not led any oral evidence of any independent witness of such cash transactions of plaintiff PW 1 either herself or through her husband PW2 with defendants for handing over cash amounts so alleged; which can be tested on the anvil of reliability and credibility in terms of principles laid in The Evidence Act. Evidence of independent witness termed CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 23 of 30 highly credible for evidencing transaction of friendly loan advanced in cash was inter alia the premise for adjudication of the lis in case of Sheela Sharma vs Mahendra Pal (supra) before Delhi High Court. It is not so in the case in hand. On this facet law laid in case of Sheela Sharma vs Mahendra Pal (supra) will not come to the aid of plaintiff for recovery of alleged cash of Rs. 11,25,000/- from defendants.
39. Onus to prove this issue is on plaintiff. Plaintiff has not filed nor proved her balance sheet. Suit has not been filed by plaintiff for rendition of accounts by defendant no. 1 company or its Directors, defendant nos. 2 and 3 to plaintiff. Plaintiff failed to produce original share certificate whose copy Mark 1/2 was produced in the course of her evidence. Plaintiff also failed to prove the Annual Return for financial year of defendant no. 1 company as only its photocopy Mark 1/3 was produced in her evidence.
40. Plaintiff through her Counsel also did not serve any notice upon any of the defendants for production of account books of defendant no. 1 company. In this fact of the matter, by preponderance of probabilities, plaintiff is held not entitled for recovery of Rs. 11,25,000/- allegedly advanced in cash to defendant no. 1 company through defendant nos. 2 and 3 as alleged by plaintiff PW1 and her husband PW2.
41. Pleadings in the plaint find no mention of defendant nos. 2 and 3 having extended any contract of guarantee or having undertaken to make any payment to plaintiff for any amounts CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 24 of 30 paid by her to defendant no. 1 company either as loan or as an investment. There is no contract/agreement/documents signed/ executed between plaintiff on one side and defendant nos. 2 and 3 on the other side filed nor proved on record documenting/ evidencing the rights and liabilities of these parties.
42. In cross examination PW1 candidly admitted that neither defendant no. 2 nor defendant no. 3 nor deleted defendant no. 4 gave to her personally any guarantee for making payment in case payment is not made by defendant no. 1 for the investment allegedly made by plaintiff with defendant no. 1 company.
43. In his cross examination on 19/10/2022, PW2 became much wiser after cross examination of his wife plaintiff PW1 conducted that very day earlier and PW2 made considerable improvements in cross examination, narrating defendant nos. 2, 3 and 4 had given their personal guarantees for investments made by them (PW1 and PW2) in defendant no. 1 company whereas before investing in defendant no. 1 company, defendant nos. 2 and 3 in meetings told him "we are very God fearing persons, bhai tera paisa safe hai, jis din tujhe comfort nahi hoga, paise wapis chahiye honge toh hum sei wapas lei jaana". PW2 also stated that this was one of his conditions for so investing. Nothing of the sort; out of any of elicited above improved upon assertions, was even pleaded in the averments of plaint or even in replication by the plaintiff, PW 1, who before deposition of PW2 on 19/10/2022 in her cross examination; as elicited above had candidly admitted of none amongst defendant nos. 2, 3 and deleted defendant no. 4 had ever given personally any guarantee CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 25 of 30 for making payment in case payment is not made by defendant no. 1 for investment/loan advanced by plaintiff to defendant no. 1 company. Accordingly, this part of the deposition of PW2 is unreliable and untrustworthy by preponderance of probabilities; when his wife PW1 plaintiff feigns ignorance of any guarantees/personally promises made by defendant no. 2 and defendant no. 3.
44. In this fact of the matter, no case of joint and several liability is, therefore, made out against defendant nos. 2 and 3. Reliance is placed upon law laid in cases (i) Sanuj Bathla & Anr. vs Manu Maheshwari & Anr., C.R.P. 166/2018 & CM APPL. 32378/2018 & 10441/2021 decided by Delhi High Court on 12/04/2021; (ii) Mukesh Hans & Anr. vs Smt. Uma Bhasin & Ors., 2010 SCC OnLine Del 2776; (iii) Salomon vs. Salomon & Co. Ltd. 1897 AC 22; (iv) Tata Engineering and Locomotive Co. Ltd. v. State of Bihar [1964] 6 SCR 885; (v) New Horizons Ltd. v. Union of India: (1995) 1 SCC 478; (vi) Tristar Consultants vs. Customer Services India Pvt. Ltd. And Anr., 139 (2007) DLT 688 and (vii) Space Enterprises vs. M/s. Srinivasa Enterprises Ltd. 72 (1998) DLT 666.
45. In view of foregoing discussions, plaintiff is held entitled for recovery of Rs.11,25,000/- from defendant no. 1 company which was invested by plaintiff in defendant no. 1 company by transfer by RTGS. This issue no. 1 is decided accordingly.
Findings on issue no. 2
2. Whether plaintiff is entitled for any interest from CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 26 of 30 defendants with respect to the amount mentioned in issue no. 1? If so, at what rate, for which period and from which of the defendants? OPP
46. There is no written contract filed nor proved on record embodying terms of interest with respect to amount of Rs.11,25,000/- transferred by RTGS from account of plaintiff to defendant no. 1 company. Evidence of parties is shorn of any document proved with respect to any agreed rate of interest on aforesaid amount.
47. Order VII Rule 2A of CPC in respect of a commercial dispute of a specified value was brought in by way of amendment in respect of the requirements of pleadings where interest has to be claimed by the plaintiff accordingly.
48. Under Section 34 of CPC it is provided that where the liability in relation to the sum so adjudged had arisen out of commercial transaction, the rate of such further interest may exceed 6% per annum but shall not exceed the contractual rate of interest or where there in no contractual rate, the rate at which moneys are lent or advanced by nationalized banks in relation to the commercial transactions.
49. Transactions of RTGS transfer of amount of Rs. 11,25,000/- by plaintiff to defendant no. 1 company is commercial in nature. Plaintiff has claimed interest @ 24% per annum.
50. Keeping in view the above discussion, in my opinion, plaintiff has not been able to justify the claim of pendente-lite CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 27 of 30 and future interest @ 24% per annum on the sum of Rs. 11,25,000/- which per se is exorbitant. It has been established that it has been commercial transaction. In my opinion, keeping in view the prevalent rate of interest in nationalized banks in such transactions, interest of justice will be served if plaintiff is allowed pendente-lite and future interest @ 12% per annum. Plaintiff is accordingly held entitled for pendente-lite and future interest @ 12% per annum on the sum of Rs. 11,25,000/- payable by defendant no. 1 company. Issue no. 2 is decided accordingly.
Findings on issue no. 3
3. Whether plaintiff is entitled for recovery of Rs.
10,00,000/- on account of the profits in lieu of investment, as claimant? If so, from which of the defendants? OPP
51. Adjudication of claim of plaintiff for recovery of Rs. 22,50,000/- is in the finding of issue no. 1, above said. In these findings, plaintiff has only been held entitled for recovery of claim of Rs.11,25,000/- which was invested by plaintiff in defendant no. 1 company by transfer by RTGS whereas plaintiff has been held not entitled for her claim for recovery of alleged amount of Rs. 11,25,000/- paid in cash to defendants. Evidence led on record by plaintiff is shorn of any mechanism or basis of calculation of quantum of Rs. 10,00,000/- on account of profit in lieu of alleged investment of plaintiff in defendant no. 1 company. Plaintiff did not seek production of any account books of defendant no. 1 company during defendants' evidence led when defendant no. 3 as DW1 and defendant no. 2 who is also AR of defendant no. 1 company, as DW2 entered the witness CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 28 of 30 box. There was no impediment in the way of plaintiff or her Counsel to seek production of documents of defendants' either from defendants or from elsewhere in evidence of parties in order to prove claim of plaintiff, if any, towards any profits in lieu of any investments. It is not proved on record that plaintiff made any investments in cash amounting to Rs.11,25,000/- as has been held in the finding of issue no. 1. For the amount of Rs. 11,25,000/- invested by plaintiff in defendant no. 1 company by transfer by RTGS, plaintiff has been held entitled for its interest in terms of findings on issue no. 2.
52. In view of foregoing discussions and in view of findings on issue nos. 1 and 2, above, plaintiff is not entitled for any amount out of claimed amount of Rs.10,00,000/- on account of profits in lieu of any investments, as claimed by her. This issue is answered accordingly.
Findings on issue no. 4
4. Whether plaintiff is entitled for recovery of any interest with respect to the claim of Rs.
10,00,000/- above said in issue no. 3? If so, at what rate, for which period and from which of the defendants? OPP
53. In view of findings on issue no. 3, plaintiff is held not entitled for any interest with respect to claim of Rs. 10,00,000/-, above said, in issue no. 3. This issue is decided accordingly.
54. Plaintiff has also claimed the cost of the suit. Keeping in view Sections 35 and 35A of CPC, it has been established that defendant no. 1 failed to pay the amount despite service of CS (Comm.) No. 636/2021 Mrs. Smriti Arora vs Paratus Cafes N Caterers Pvt. Ltd. & Ors. Page 29 of 30 summons. Therefore, defendant no.1 itself is responsible for the cost of the litigation to the extent of court fee on amount of Rs. 11,25,000/- and lawyers fee etc. as per rules. In my view plaintiff is accordingly entitled for the cost of litigation against the defendant no. 1 to above said extent.
Relief.
55. In view of the above discussions, suit for recovery of money is decreed in favour of the plaintiff and against the defendant no. 1 company for an amount of Rs. 11,25,000/- along with interest @ 12% per annum from the date of filing of suit till the date of decree and from the date of decree till realization of the decretal amount. Cost is also awarded in favour of the plaintiff and against the defendant no. 1 company to the extent of court fee on amount of Rs. 11,25,000/- and advocate's fee as per rules.
Decree sheet be prepared accordingly.
File be consigned to the record room.
Digitally signed by GURVINDER PAL GURVINDER SINGH
PAL SINGH Date: 2023.03.31
14:08:11 +0530
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
st
On 31 March, 2023. Patiala House Court, New Delhi.
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