Bombay High Court
Gopal Srinivasan vs National Spot Exchange Limited 19 ... on 5 May, 2016
Bench: Naresh H. Patil
Rng 1 APP.32.15.-30-04-2016.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO. 32 OF 2016
in
NOTICE OF MOTION NO.1388 OF 2014
in
SUIT NO. 781 OF 2014
with
NOTICE OF MOTION NO.73 OF 2016
Mr.Gopal Shrinivasan )
erstwhile Nominee Director of Dunar Foods Ltd)
having his residence at Old No.2, New No.3 )
West Side House Adyar Club Gate Road,
ig )
Chennai-600 028. .. Appellant
(Orig.Defendant no.14)
versus
1. National Spot Exchange Limited )
a public limited company incorporated )
under the Companies Act, 1956, having )
its registered office at FT Towers, CTS )
No.256 & 257, 4th Floor, Suren Road )
Chakala, Andheri (East) Mumbai-400 093. ) Respondent no.1
(Orig.Plaintiff)
2. P.D.Agro Processors Pvt.Ltd )
E-254, Lower Ground Floor, )
Greater Kailash II, )
New Delhi-110 048. )
3. Dulisons Cereals )
Through its Proprietor )
Mr.Duli Chand Narender Agarwal )
Near CWC Village, )
Karnal-132 001 HARYANA )
4. Dulisons Foods )
Through its Proprietor )
Mr Duli Chand Narender Agarwal )
Near CWC Village, )
::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:00:50 :::
Rng 2 APP.32.15.-30-04-2016.doc
Baida Jatan Road, )
Karnal-132 001 HARYANA )
5. Dunar Food Limited )
Dunar Food Ltd, Near CWC Jattan Road, )
Bazida, Karnal-132 001 )
6. Surender Gupta )
Managing Director of P.D.Agro )
Processors Pvt.Ltd )
and Dunar Foods having his )
residence at 2249, Sector 7,Karnal-132 001 )
HARYANA )
7. Deepak Sharma ig )
Additional Director of P.D.Agroprocessors )
Pvt.Ltd having his residence at )
1678, Sector 13, Urban Estate, Karnal-132 001 )
HARYANA )
8. Raju Sharma )
Additional Director of P.D.Agroprocessors Pvt. )
Ltd having his residence at H.No.119, )
Sector 14, Karnal-132 001 HARYANA )
9. Abhimanyu Veer Atri )
Additional Director of P.D.Agroprocessors Pvt. )
Ltd having his residence at D-8, Ground Floor )
Pamposh Enclave, Greater Kailash-I, )
NEW DELHI - 110 048. )
10. Sheetal Gupta )
Director and Shareholder in P.D.Agroprocessors)
C/O E-254, Lower Ground Floor, )
Greater Kailash II, )
NEW DELHI-110 048 )
11. Ranjeev Agarwal )
Director and Shareholder in P.D. )
Agroprocessors Pvt.Ltd C/O E-254, )
::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:00:50 :::
Rng 3 APP.32.15.-30-04-2016.doc
Lower Ground Floor, Greater Kailash II, )
NEW DELHI - 110 048. )
12. Sandeep Singla )
Shareholdler in P.D.Agroprocessors Pvt. )
Ltd, E-254, Lower Ground Floor, )
Greater Kailash II, )
NEW DELHI-110 048. )
13.Kanta Gupta )
Director of Dunar Foods having her )
residence at L-1/275, B DDA Flats, Kalkaji )
NEW DELHI 110 019. )
14. Kirti Dua ig )
Whole Time Director of Dunar Foods )
having her residence at L-1/275 B, )
DDA Flats, Kalkaji, )
NEW DELHI 110 019. )
15.Sankaran Balasubramanium )
Nominee Director of Dunar Foods )
having his residence at Flat B 23/f, )
Mayfair, 1 May Road, Mid-levels, )
Mayfair, Na, Hongkong. )
16. Charul Kapoor )
Company Secretary, Dunar Food Ltd )
113, Sector 8, Part II, Karnal-132 001 )
HARYANA )
17. Deepak Prakash Rane )
Auditor of P.D.Agroprocessors )
Pvt.Ltd, E-254,Lower Ground Floor, )
Greater Kailash II, )
New Delhi -110 048. )
18. Walker Chandiok and Co )
Auditor of Dunar Foods Limited )
having their address at L-41, Connought Circus,)
::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:00:50 :::
Rng 4 APP.32.15.-30-04-2016.doc
NEW DELHI -110 001.INDIA )
19. M/s Sudhir Sunil and Co )
Auditor of Dunar Foods Limited )
having their office at No.5/S )
South Delhi, Greater Kailash1, )
Delhi-110 048. )
20. Primezone Developers Pvt.Ltd )
having their office address at 109-110, )
Main Market, Sector 8, Urban )
Estate, Karnal, HARYANA - 132 001. ).. Respondent nos.2 to 20
(Orig,Deft nos.2 to 13 and 15 to 20)
with
ig APPEAL No.36 of 2016
in
NOTICE OF MOTION NO.765 OF 2014
in
SUIT NO. 781 OF 2014
WITH
NOTICE OF MOTION (LODG) NO.3698 OF 2015
Shankar Balakrishnan )
Nominee Director of Dunar Foods, )
having his residence at Flat B 23/f, )
Mayfair, 1 May Road, Mid levels )
Mayfair, Na Hong Kong ) .. Appellant
(Orig.Deft no.15)
versus
1. National Spot Exchange Limited )
a public limited company incorporated )
under the Companies Act, 1956, having )
its registered office at FT Towers, CTS )
No.256 & 257, 4th Floor, Suren Road )
Chakala, Andheri (East) Mumbai-400 093. ).. Respondent no.1
(Orig.Plaintiff)
2. P.D.Agro Processors Pvt.Ltd )
E-254, Lower Ground Floor, )
Greater Kailash II, )
::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:00:50 :::
Rng 5 APP.32.15.-30-04-2016.doc
New Delhi-110 048. )
)
3. Dulisons Cereals )
Through its Proprietor )
Mr.Duli Chand Narender Agarwal )
Near CWC Village, )
Karnal-132 001 HARYANA )
4. Dulisons Foods )
Through its Proprietor )
Mr Duli Chand Narender Agarwal )
Near CWC Village, )
Baida Jatan Road, )
Karnal-132 001 HARYANA )
5. Dunar Food Limited
Dunar Food Ltd, Near CWC Jattan Road,
)
)
Bazida, Karnal-132 001 )
6. Surender Gupta )
Managing Director of P.D.Agro )
Processors Pvt.Ltd )
and Dunar Foods having his )
residence at 2249, Sector 7,Karnal-132 001 )
HARYANA )
7. Deepak Sharma )
Additional Director of P.D.Agroprocessors )
Pvt.Ltd having his residence at } )
1678, Sector 13, Urban Estate, Karnal-132 001 )
HARYANA )
8. Raju Sharma )
Additional Director of P.D.Agroprocessors Pvt. )
Ltd having his residence at H.No.119, )
Sector 14, Karnal-132 001 HARYANA )
)
9. Abhimanyu Veer Atri )
Additional Director of P.D.Agroprocessors Pvt. )
Ltd having his residence at D-8, Ground Floor )
::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:00:50 :::
Rng 6 APP.32.15.-30-04-2016.doc
Pamposh Enclave, Greater Kailash-I, )
NEW DELHI - 110 048. )
10. Sheetal Gupta )
Director and Shareholder in P.D.Agroprocessors}
C/O E-254, Lower Ground Floor, )
Greater Kailash II, )
NEW DELHI-110 048 )
11. Ranjeev Agarwal )
Director and Shareholder in P.D. )
Agroprocessors Pvt.Ltd C/O E-254, )
Lower Ground Floor, Greater Kailash II, )
NEW DELHI - 110 048. )
12. Sandeep Singla
Shareholder in P.D.Agroprocessors Pvt.
)
)
Ltd, E-254, Lower Ground Floor, )
Greater Kailash II,
NEW DELHI-110 048. )
13.Kanta Gupta )
Director of Dunar Foods having her )
residence at L-1/275, B DDA Flats, Kalkaji )
NEW DELHI 110 019. )
14. Kirti Dua )
Whole Time Director of Dunar Foods )
having her residence at L-1/275 B, )
DDA Flats, Kalkaji, )
NEW DELHI 110 019. )
15.Gopal Srinivasan )
Nominee Director of Dunar Foods )
having his residence at Old No.2,West Side )
House, Adyar Club Gate Road, )
Chennai-600 028. )
16. Charul Kapoor )
Company Secretary, Dunar Food Ltd )
::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:00:50 :::
Rng 7 APP.32.15.-30-04-2016.doc
113, Sector 8, Part II, Karnal-132 001 )
HARYANA )
17. Deepak Prakash Rane )
Auditor of P.D.Agroprocessors )
Pvt.Ltd, E-254,Lower Ground Floor, )
Greater Kailash II, )
New Delhi -110 048. )
18. Walker Chandiok and Co )
Auditor of Dunar Foods Limited )
having their address at L-41, Connought Circus,)
NEW DELHI -110 001.INDIA )
19. M/s Sudhir Sunil and Co
ig )
Auditor of Dunar Foods Limited )
having their office at No.5/S )
South Delhi, Greater Kailash1, )
Delhi-110 048. )
)
20. Primezone Developers Pvt.Ltd )
having their office address at 109-110, )
Main Market, Sector 8, Urban )
Estate, Karnal, HARYANA - 132 001. ).. Respondent nos.2 to 20
(Orig,Deft nos.1-14, 16-19)
---
Mr.Iqbal Chagla Sr.Counsel a/w Mr.Himanshu Kane, Mr.Manvendra Kane,
Mr.Rahul Kadam, Ms.Niyati Jambaulikar i/b M/s W.S.Kane & Co for Appellant
in Appeal No.32 of 2016.
Dr.Birendra Saraf a/w Mr.Chirag Kamdar, Mr.Abhishek Kale, Mr.Asadulla
Thangal i/b.M/s Naik Naik and Co. for Respondent no.1.
Ms.Aditi Shukla i/b M/s Crawford Bayley & Co. for Respondent No.18.
Dr.V.V.Tulzapurkar Sr.Counsel a/w Mr.Vishal Kanade, Mr.Arun Siwach &
Mr.Jay Sanklecha i/b M/s Cyril A.Mangaldas for Appellant in Appeal No.36 of
2016.
---
::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:00:50 :::
Rng 8 APP.32.15.-30-04-2016.doc
CORAM: NARESH H.PATIL AND
G.S.KULKARNI, JJ
JUDGMENT RESERVED ON: 5th FEBRUARY, 2016
JUDGMENT PRONOUNCED ON: 5th MAY , 2016
---
JUDGMENT (Per G.S.Kulkarni, J)
1. These appeals arise from a common order dated 23
September 2015 passed by the learned Single Judge rejecting the
Notice of Motion's taken out by the Appellants (Defendant nos.14
and 15 in the suit), under Order 7 Rule 11 read with Order 1 Rule
10(2) of the Code of Civil Procedure, seeking rejection of the plaint,
qua the appellants for want of a cause of action. Respondent no.1 is
the original plaintiff.
2. To appreciate the case of the appellants it would be
necessary to consider the plaintiff's/Respondent no.1's case as
contained in the plaint. For the sake of convenience, in considering
the plaint, we refer to the parties as arrayed in the plaint.
Rng 9 APP.32.15.-30-04-2016.doc
Plaintiff's case in the plaint:-
3. The Plaintiff's suit is inter alia for the recovery of the
amount aggregating to Rs.680,239,7,706.55 to be jointly and/or
severally ordered and decreed to be paid by defendant nos.1 to 16
alongwith interest at 18% p.a. as per particulars of claim annexed as
Exhibit 'U' to the plaint and for a further relief that defendant no.20
be ordered and decreed to pay to the plaintiff a sum of Rs.29.20
crores along with interest at 18% p.a. from the due date of payment
and/or realization thereof as per prime zone agreement dated 10
February 2013.
4. As seen from the averments made in the Plaint, the
Plaintiff is a company incorporated under the Indian Companies Act,
1956 which carries on business as a "Spot Exchange", providing for
an electronic trading platform in spot contracts in commodities on
delivery basis. The Plaintiff commenced its business operations from
October, 2008. The Defendant no.1 is a trading cum-clearing
member of the Plaintiff and is inter alia trading in various
Rng 10 APP.32.15.-30-04-2016.doc
commodities including paddy, for itself and on behalf of its clients.
Defendant nos.2 and 3 are proprietary firms and are related entities
of Defendant no.1 being largely controlled by the same management
and/or proprietors. Defendant no.4 is a company incorporated
under the Indian Companies Act, 1956 and is a client of defendant
no.1 and is also stated to be largely controlled by defendant no.1.
Defendant no.5 was Director of defendant no.1 at the relevant time
when transactions/defaults had taken place and was also a Managing
Director of Defendant no.4. Defendant nos.6 to 8 are additional
Directors of Defendant no.1. Defendant nos.9 to 11 are the
shareholders of defendant no.1 who were stated to be responsible for
the day-to-day affairs and conduct of defendant no.1. Defendant
nos.12 and 13 are stated to be whole-time Directors of Defendant
no.4. Defendant nos.14 and 15 (Appellants herein) are the nominee
Directors of defendant no.4. Defendant no.16 is the Company
Secretary of defendant no.4 and Defendant no.17 is the Auditor of
defendant no.1 and Defendant no.18 was the Auditor of defendant
no.4 at the relevant time who resigned on 21 October 2013.
Rng 11 APP.32.15.-30-04-2016.doc
Defendant no.19 was also a Auditor of Defendant no.4 appointed in
place of defendant No.18 from 21 October 2013. Defendant No.20 is
a company incorporated under the Companies Act and is engaged in
the business of real estate/development of properties of which
defendant no.10 is a Director.
5. It is the case of the Plaintiff that there were defaults
committed on the plaintiff's exchange by Defendant No.1 and the
same have occurred with the active participation, knowledge and
connivance between the defendants. Plaintiff state that defendant
nos.5 to 16 (which includes appellants) have utilized the corporate
structure and identity of defendant nos.1 to 4 for their own personal
gains and are the real beneficiaries of the defaults that have occurred
on the exchange platform.
6. The plaintiffs states that on 10 June 2013 defendant no.1
executed an Agreement(at Mumbai) with the plaintiff's exchange
setting out the terms and conditions, representations, warranties,
Rng 12 APP.32.15.-30-04-2016.doc
covenants agreed between them interalia protecting rights of the
plaintiff's exchange and other members of the plaintiff exchange.
Trading at the plaintiff's exchange took place on the basis of this
contract. The trading members were permitted to purchase and sell
the commodities on the Exchange platform in the manner and on the
terms as specified in the contracts. The plaintiffs permitted defendant
no.1 to trade on its exchange platform in contracts of various
commodities. All trades conducted on the plaintiff's exchange were
through the accounts which were held by defendant no.1 in the
HDFC Bank-New Delhi, HDFC-Ludhiana and State Bank of India-
Karnal Branch details of which are set out by the Plaintiff in
paragraph 6(d) of the plaint. These bank accounts would
demonstrate that moneys were received by defendant no.1 towards
trades entirely executed by it on the exchange platform.
7. The case of the Plaintiff is that the defendant no.1 was
trading in paddy in Haryana and Punjab and has been executing T+2
and T+25 trades on the plaintiff's exchange. (T+2 would mean trade
Rng 13 APP.32.15.-30-04-2016.doc
is concluded on "T" day and delivery and payment would be effected on
second business day from"T" day by selling and buying member as the
case may be and for T+25 delivery and payment would be effected on
the 25th business day). These contracts were governed by Bye-laws,
Rules and Regulations of the plaintiffs. The defendant no.1 continued
to execute these T+2 and T+25 contracts and ledger balance of
defendant no.1 was reconciled on day-to-day basis and all obligation
reports were sent to defendant No.1 which indicate debit and credit
entries. This was never disputed by the defendant no.1 as was being
routinely followed by the plaintiff which included reconciliation of
ledger balance on daily basis from 6 February 2013.
8. The plaint further narrates that in April 2012, the
plaintiff received a show cause notice from the Ministry of Consumer
Affairs, Government of India alleging violation of conditions of
notification dated 5 June 2007 by which the plaintiff was allowed to
conduct trading in forward contracts of one day duration subject to
conditions as contained in the notification. The show cause notice
Rng 14 APP.32.15.-30-04-2016.doc
was received by the plaintiff vide letters dated 23 May 2012, 11
August 2012 and 8 July 2013 and 12 July 2013. By a letter dated 12
July 2013 the Ministry directed the plaintiff to furnish undertaking to
the effect that no further/fresh contracts shall be launched till further
instructions from the authorities and all the existing contracts will be
settled on due dates. In pursuance of this, the plaintiff issued a
circular dated 22nd July 1013 by bringing changes in the settlement
procedure with effect from 23 July 2013 by notifying that all
contracts settled by delivery and payment beyond 11 days will be
settled on T+20 basis and all contracts currently settled on "net
obligation" shall be settled on trade-to-trade basis which included E-
series contracts such as e-gold, e-silver, lead, e-nickel and e-platinum.
9. On 8 August 2013 the plaintiff decided to settle open
trades in which its members had defaulted. It was revealed that there
were many contra-entries in the account of the defendant no.1 and it
was seen that a large an amount of Rs.637,48,977,06.55 Crs. was
Rng 15 APP.32.15.-30-04-2016.doc
due and outstanding by the defendant no.1 from 19 July 2013. In
August 2013 the plaintiff appointed an independent agency namely
"SGS India Limited", to survey the stocks at various warehouses
including warehouses which were in control of defendant no.1.
However defendant no.1 did not allow the representatives of SGS
India Limited to enter the warehouses though it was mandatory
under the rules of the plaintiff exchange. An audit at the hands of
SGS India Limited was prevented to be undertaken by the defendant
no.1. The plaintiff called upon the defendant no.1 to make payment
which had become due and payable for the outstanding trades
undertaken by it on the plaintiff's exchange as settlement period had
come to an end and trades were required to be settled vis-a-vis
various buyers and sellers. It is the case of the plaintiff that from 19
July 2013 onwards the defendant no.1 failed to make payment and
as such had defaulted in payment of the installment amount. The
plaintiff in accordance with the bye-laws and rules of the plaintiff
took further steps to declare the defendant no.1 and other similar
trading members as defaulters.
Rng 16 APP.32.15.-30-04-2016.doc
10. The plaintiff has averred that the defendant no.1 on
behalf of itself and on behalf of its clients had admittedly entered
into outstanding trades and was liable to pay the amounts that had
fallen due thereunder along with interest at 18% p.a. from due dates
until payment and/or realization thereof. Defendant nos.1 to 4 had
acted upon the outstanding trades received benefits thereunder and
caused the plaintiff exchange as also the various counter party
investors to act in furtherance of the outstanding trades and the
same are therefore, binding upon the defendant nos.1 to 4 and thus
are estopped from disputing the liability thereunder. It is averred that
Defendant nos. 5 to 16 being directors and share holders and
defendant nos.1 and 4 respectively were in-charge of and responsible
for the affairs of defendant nos. 1 to 4 and as such they are also
liable to jointly and/or severally pay the amounts due from the
defendant nos.1 to 4 to various counter party investors under the
outstanding trades. The defendant nos.1 to 4 in collusion with
Managing Director of the plaintiff and some of the managerial staff
Rng 17 APP.32.15.-30-04-2016.doc
who directly reported to him have orchestrated and played a fraud
on the plaintiff and counter parties to the outstanding trades, by
seeking to represent and assuring that the commodities held
thereunder had been duly deposited in the warehouses designated by
the plaintiff which representations were false to their own
knowledge and which were deliberately and with an intent to
defraud the plaintiff and counter parties. This has caused counter
parties to the outstanding trades to part with their moneys and enter
into outstanding trades on the basis of such fraudulent
representations and assurances and have compounded the fraud so
played by refusing to allow access to the designated warehouses for
the purposes of inspecting the commodities that where purportedly
deposited and/or take possession thereof and for the purpose of
realization of the amounts from the defendant nos. 1 to 4 under the
outstanding trades. All these facts clearly demonstrate lack of
bonafides on the part of defendant nos.1 to 16 and if immediate
steps are not taken to secure the claim of the plaintiff the defendant
nos. 1 to 16 will take all available/possible steps to ensure that the
Rng 18 APP.32.15.-30-04-2016.doc
same is defeated. The defendant nos. 1 to 16 have already disposed
of/siphoned/shifted the commodities located in the warehouses and
have committed a grave breach of trust and have willfully defaulted
on its obligation towards the plaintiff's exchange as well as to the
various investors who have traded with the defendant no.1.
11. On account of the failure to maintain the goods/pay the
outstanding amounts as required, the Economics Offences Wing of
the Mumbai Police had arrested the then Director of defendant nos.1
to 4, Mr.Sunder Gupta and on 5 July 2014 holding him responsible
for the defaults committed on plaintiff exchange by the defendant
nos. 1 to 4. It is averred that defendant nos. 1 to 4 have siphoned off
the amounts and utilised the same towards buying real estate and
towards producing movies. It is averred that the defendant nos.1 to
4 in connivance with defendant nos.5 to 16 will deal with the assets
which are in their control and possession and exchange their moneys
and/or their assets in such manner to defeat the claim of the plaintiff
exchange. The defendant nos.5 to 16 as Directors/shareholders are
Rng 19 APP.32.15.-30-04-2016.doc
in effective control of defendant nos.1 to 4 and are therefore in
charge of the day-to-day affairs of defendant nos.1 to 4. Further
inquiries by Economic Offences Wing indicates that persons in-
charge of defendant nos. 1 to 4 have utilized the moneys and that
with ulterior motives and are seeking to defeat the claim of the
plaintiffs. It is therefore, necessary, expedient and in the public
interest as well as interest of all the stake holders that the claim of
the plaintiff is required to be secured by restraining the defendant
nos.5 to 16 from dealing with, disposing of or transferring or
creating any third party rights or encumbering the property in
possession and in control of the consortium of banks in any manner
whatsoever.
12. The defendant nos. 5 to 16 have equally benefited from
the defaults that have occurred on the exchange platform. The
plaintiff states that the defendant nos. 5 to 16 and directors of
defendant nos.1 to 4 have also benefited from the moneys deposited
in the bank accounts of the defendant nos. 1 to 4 and that the
Rng 20 APP.32.15.-30-04-2016.doc
defendant nos.1 to 4 are in fact simply vehicles to perpetuate the
illegalities which are conceived by the defendant nos.15 to 16 and
such illegalities were for the sole benefit of defendant nos.5 to 16.
13. The plaintiffs have prayed for diverse reliefs and reliefs
which are prayed for against defendant nos.14 and 15 (appellants)
are as under :
a. that the Defendant Nos.1 to 16 be jointly and/or severally
ordered and decreed to pay to the Plaintiff a sum of
Rs.680,23,97,706.55 (Rupees Six hundred and Eighty Crores Twenty
Three Lacs Ninety Seven Thousand Seven Hundred Six and Paisa Fifty
Five only), along with interest thereon at 18% per annum from the due
date of payment until payment and/or realization thereof, as per the
Plaintiff's Particulars of Claim contained in Exhibit "U" hereto;
c. that pending the hearing and final disposal of the Suit, Hon'ble
Court be pleased to direct the Defendant Nos.1 to 16 jointly and/or
severally secure an amount of Rs.680,23,97,706.55 (Rupees Six
Hundred and Eighty Crores Twenty Three Lacs Ninety Seven Thousand
Seven Hundred Six and Paisa Fifty Five only), along with interest
thereon at 18% per annum from the due date of payment until the
date of providing security by way of a bank guarantee or in such other
manner as this Hon'ble Court may deem fit and proper;
f. pending hearing and final disposal of the suit, this Hon'ble
Court be pleased to order and direct the Defendant Nos.1 to 16 to
disclose, on affidavit and within such time as this Hon'ble Court may
deem fit and proper, all their movable and immovable assets, properties
and assets including bank accounts with all details of funds debited
and credited, for a minimum period of last 3 years;
h. pending hearing and final disposal of the suit, this Hon'ble
Rng 21 APP.32.15.-30-04-2016.doc
Court be pleased to issue an injunction/ direction/ order restraining
the Defendant Nos.1 to 16 from disposing of, alienating, encumbering,
parting with possession of and/or otherwise creating third party rights
in respect of their movable and immovable assets as would be disclosed
by the Defendant Nos.1 to 16 in terms of prayer clause (f) above;
l. pending hearing and final disposal of the suit, this Hon'ble
Court be pleased to issue an injunction/ direction/ order restraining
the Defendant Nos.1 to 16 from and in any manner dealing with the
funds deposited by them in various Banks as may be disclosed to this
Hon'ble Court in accordance with prayer (f) above;
m. An injunction restraining Defendant Nos.1 to 16, their agents,
representatives from dealing with, selling, transferring, alienating
creating third party rights, in respect of and/or encumbering their
movable/immovable properties/assets mortgaged/charged which may
be disclosed as in possession and/or control of various Banks in any
manner whatsoever;
(p) An order appointing the Court Receiver, High Court, Bombay,
with all powers under Order 40 Rule 1 of the Civil Procedure Code, of
the assets of the Defendant Nos.1 to 16 and such assets as may be
disclosed and found including the power to take possession of the same
and also with the power to the Court Receiver to sell the same and
deposit the sale proceeds in this Hon'ble Court / make payment of the
sale proceeds to the Plaintiff;
r. an order appointing the Plaintiff as Agent of the receiver and
permitting the Plaintiff to auction the various commodities as available
in the said warehouse/property as mentioned in Exhibit "AA" and
appropriate the amounts therefrom towards the said outstanding
amount due from the Defendant Nos.1 to 16 to the Plaintiff.
s. pending hearing and final disposal of the suit, this Hon'ble
Court be pleased to an order to direct the Defendant Nos.1 to 16 to file
within such time as this Hon'ble Court may deem fit and proper, their
respective financial statements and Income Tax returns and sales tax,
and VAT returns for the previous 3 financial years preceding the filing
of the present suit;"
Rng 22 APP.32.15.-30-04-2016.doc
14. The defendant nos.14 and 15 respectively took out
Notice of motions in the above suit interalia praying for the following
reliefs :
Prayers in the Notice of Motion of Defendant No. 14
(a) that plaint in the above suit being Suit (Lodging) No.328 of
2014 be rejected qua Defendant No.14;
(b) that the name of Gopal Srinivasan being Defendant No.14 in
the above suit being Suit (lodging) No.328 of 2014 and its
(c)
proceedings be struck out;
that pending the hearing and final disposal of the above
Notice of Motion to above suit being Suit (Lodging)No.328 of 2014
be stayed qua Defendant No.14;
Prayers in the Notice of Motion of Defendant No. 15
"(a) that the Plaint in Suit(L) No.328 of 2014 be rejected qua Defendant
No.15/Applicant;
(b) that the name of Defendant No.15/Applicant be struck out of Suit
(L) No.328 of 2014;
(c) that pending the hearing and final disposal of the Notice of Motion
the suit be stayed qua Defendant No.15/Applicant;
(d) for ad-interim relief in terms of prayer clause (c) above;
(e) for such further and other relief as the nature and circumstances of
the case may require; and
(f) costs."
Rng 23 APP.32.15.-30-04-2016.doc
Case of Defendant nos 14 and 15 in the Notice of Motions.
15. The case of Defendant Nos.14 and 15 for the above
reliefs as prayed in their respective Notices of Motion to reject the
plaint qua Defendant Nos.14 and 15 is basically on the contentions
that there are vague and unsubstantiated allegations against these
defendants in paragraphs 2,7, 9, 14, 15 and 27 of the plaint. As the
entire case of the Appellants is based on the averments as contained
in these paragraphs, it would be relevant as also convenient to
extract the contents of these paragraphs which read thus:-
"2. ... .. ... ... The acts leading to the defaults committed on
the Plaintiff Exchange could not have occurred without the
knowledge and active participation of these Defendants. As will
be demonstrated herein below, the Defendant Nos.5 to 16 have
utilized the corporate structure and identities of Defendant
Nos.1 to 4 for their own personal gain and are the real
beneficiaries of the defaults that have occurred on the exchange
platform. ... ... ..."
7. (zz)... ... ... The Defendant Nos.5 to 16 are the Directors
and shareholders of Defendant No.1 and 4 respectively and are
in charge of and responsible for the affairs of the Defendant
No.1 to 4, and as such, they are also liable to jointly and/or
severally pay the amounts due from the Defendant Nos.1 to 4
to the various counter-party investors under the Outstanding
Trades. In any event, Defendant Nos.1 to 4 in collusion with the
Rng 24 APP.32.15.-30-04-2016.doc
erstwhile Managing Director of the Plaintiff and some of the
managerial staff who directly reported to him have orchestrated
and played a fraud on the Plaintiff and the counter-parties to
the Outstanding Trades by seeking to represent to and assure
them that the commodities sold thereunder had been duly
deposited in the warehouses designated by the Plaintiff, which
representations were false to their own knowledge and which
were deliberately and with an intent to defraud the Plaintiff
and the counter-parties, and have thereby caused the counter-
parties to the Outstanding Trades to part with their monies and
enter into the Outstanding Trades on the basis of such
fraudulent representations and assurances, and have
compounded the fraud so played by refusing to allow access to
the designated warehouses for the purpose of inspecting the
commodities that were purportedly deposited and/or taking
possession thereof for the purpose of sale and realization of the
amounts due from the Defendant Nos.1 to 4 under the
Outstanding Trades.
9. The Plaintiff submits that the aforesaid facts clearly
demonstrate the lack of bona fides on the part of Defendant
Nos.1 to 16. The Plaintiff states that if immediate steps are not
taken to secure the claim of the Plaintiff, Defendant Nos.1 to 16
will take all available/possible steps to ensure that the same is
defeated. The Plaintiff submits that Defendant Nos.1 to 16
having already disposed of/siphoned off/shifted the
commodities located in the said warehouse/property, has
committed a grave breach of trust and has wilfully defaulted on
its obligations towards the Plaintiff Exchange as well as to the
various investors who have traded with Defendant No.1
through the Plaintiff Exchange. The Defendant No.1 has traded
Rng 25 APP.32.15.-30-04-2016.doc
on the Plaintiff's Exchange on its own behalf and on behalf of
Defendant Nos.2 to 4 and have siphoned of the amounts
received by them from the Plaintiff Exchange on account of the
trading done, which liability is clearly admitted by the
aforesaid letter dated 1st August,2013 and also after having
committed to the schedule of settlement have failed and
neglected to pay the same. The Plaintiff states that on account
of the failure to maintain goods/ pay the outstanding amounts
as required, the Economic Offences Wing of the Mumbai Police
have arrested the then Director of Defendant Nos.1 and 4 i.e.
Surender Gupta on 5th March 2014 holding him responsible for
the defaults created on the Plaintiff Exchange by Defendant
Nos.1 to 4. It is pertinent to mention that the investigating
authorities namely Economic Offences Wing and Enforcement
Directorate have stated in various newspaper articles that
Defendant Nos.1 to 4 have siphoned off the aforesaid amounts
and utilized the same towards buying real estate and towards
producing movies. In view of the above, the Plaintiff
apprehends that, the Defendant No.1 to 4 in connivance with
Defendant Nos.5 to 16 will deal with the assets in their control
and possession and therefore exhaust the monies and/or their
assets in such manner to defeat the claim of the Plaintiff's
Exchange. The Defendant Nos.5 to 16, as
Directors/Shareholders/Company Secretary, are in effective
control of Defendant Nos.1 to 4 and are therefore in charge of
the day to day affairs of the Defendant Nos.1 to 4. It is
submitted that the enquiry by the EOW clearly indicates that
the persons in charge of Defendant Nos.1 to 4 have utilized the
monies for their own ulterior motives thereby seeking to defeat
and defraud the claim of the Plaintiff. This is clearly borne out
Rng 26 APP.32.15.-30-04-2016.doc
by the fact that the EOW has recently arrested Mr.Surender
Gupta, as noted above. It is submitted that in light of this fact
a clear case for protection of the monies siphoned off by
Defendant Nos.1 to 4 is made out, particularly in light of the
various news reports/ statements made by the officers of the
EOW investigating the matter. Hereto annexed and marked
Exhibit "BB" and "CC" are the copies of the said newspaper
articles. The Plaintiff therefore submit that it is necessary,
expedient and in the interest of the public as well as in the
interest of justice that this Hon'ble Court be pleased to pass the
necessary orders/directions to secure the claim of the Plaintiff
by restraining Defendant No.1 from disposing of, alienating,
encumbering, parting with possession and/or otherwise
creating third party rights in respect of its assets, both movable
and immovable, details of which are contained in Exhibit AA
hereto.
14. The Plaintiff further states that the Plaintiffs have filed
complaints against the various defaulting Trading Members
with the Economic Offences Wing of the Mumbai Police, on
account of their failure to maintain goods at the said
designated warehouses as required, the Economic Offences
Wing of the Mumbai Police. The Plaintiff states that, one
Mr.Pankaj Saraf has also filed a complaint with the Economic
Offences Wing and on the said complaint, Economic Offences
Wing has filed an FIR bearing No.89 of 2013 on 30 th
September,2013. Pursuant thereto, Economic Offences Wing
have arrested the MD of Defendant No.4 i.e. Mr.Surender Gupta
on 5th March,2014 and thus reflecting that these representative
of the defaulting borrowing member/ clients were responsible
for the defaults created on Plaintiff exchange. As noted above
Rng 27 APP.32.15.-30-04-2016.doc
the recent newspaper articles together with the fact that the
EOW, upon investigation, has arrested Mr.Surender Gupta,
clearly demonstrate that the Defendant Nos.1 to 4 and their
Management (i.e. 5 to 16) are responsible for the siphoning off
the Plaintiffs dues. It is submitted that the news article dated
7th March 2014 published in India Today clearly indicates that
the enforcement directorate officials have noted to very
pertinent facts, firstly it is found that Defendant No.1 and
Defendant No.4 are sister concern and therefore, effectively
under common management and secondly it appears that the
Directors of Defendant No.1 and Defendant No.4 have made
categorical admission in relation to the diversion of the monies
received from the trades executed on the Plaintiff Exchange. The
Plaintiff states that the Enforcement Directorate and the EOW
are both statutory authorities.
15. The Plaintiff states that Defendant Nos.5 to 16 have
clearly benefited from the defaults that have occurred on the
exchange platform. The Plaintiff states that the Defendant
Nos.5 to 16 as shareholders and directors of Defendant Nos.1
to 4 have benefited from the monies deposited in the Bank
Accounts of Defendant Nos.1 to 4. Without prejudice to the
above, the Plaintiff states that the Defendant Nos.1 to 4 are in
fact simply vehicles to perpetuate the illegalities which were
conceived by Defendant Nos.5 to 16 and which illegalities were
of the sole benefit of Defendant Nos.5 to 16."
16. The Defendant Nos.14 and 15's case is that the above
averments lack credible details so as to seek a relief against
Rng 28 APP.32.15.-30-04-2016.doc
defendant nos.14 and 15 and defendant no.4 company. It was
contended that defendant nos.14 and 15 are nominee Directors. A
meaningful reading of the plaint would clearly reveal that the
grievances of the plaintiff are principally against Defendant no.1, the
Defendant no.4 on whose behalf Defendant No.1 executed various
trades, on the Plaintiff's exchange and Defendant no.5 who is the
Managing Director of Defendant No.4 and Director of Defendant
No.1, and Defendant nos.12 and 13 who were the Directors and
whole-time Director of defendant no.4 and defendant no.16 who is
the Company Secretary of defendant no.4 company and not against
defendant nos.14 and 15. Defendant no.14 contended that the
plaintiff did not disclose as to how defendant no.14 had utilized
corporate structure or identity of defendant no.4 for his own
personal gains or how he was the beneficiary of the alleged defaults
that occurred on the plaintiff's exchange and as to how he was in-
charge or responsible for the affairs of defendant no.4 company.
There were no material particulars of the role of defendant no.14 in
siphoning of commodities or alleged breach of trust in respect of
Rng 29 APP.32.15.-30-04-2016.doc
defendant no.4's obligation towards the plaintiff. These particulars
were lacking which were necessary make out a case and cause of
action against defendant no.14. There was no privity of contract
between Defendant no.14 and the plaintiff and thus defendant no.14
could not be held liable for any purported act committed by
defendant no.1 and/or defendant no.4 company. On 13 September
2013 the defendant no.14 was constrained to resign from the Board
of Directors of defendant no.4 with immediate effect and a copy of
Form 32 was filed by the defendant no.4 Company with the Registrar
of Companies in this regard. There was no cause of action against
defendant no.14 and therefore plaint deserves to be rejected against
defendant no.14.
17. The case of the defendant No.15 is similar to defendant
no.14 as noted by us above. Defendant No.15 contends that he is a
nominee Director of defendant no.4 and he has been improperly
joined as party defendant in terms of Order 1 Rule 10(2) of C.P.C. It
was contended that there was a statutory bar as to the jurisdiction of
Rng 30 APP.32.15.-30-04-2016.doc
the Court to decide the suit against defendant No.15 in view of the
provisions of Section 3 of the International Finance Corporation
(Status, Immunities and Privileges) Act, 1958. Defendant No.15 also
pleaded that the allegations made against defendant No.15 in the
plaint were vague, ambiguous and lacked specific particulars and
were in complete disregard to the requirements of Order 7 Rule 11
showing no cause of action as also requirement of Order 6 Rule 4 of
C.P.C. in relation to the allegation of fraud.
18. The learned single Judge by the impugned order has
rejected the notices of motions filed by defendant nos.14 and 15
repelling the contentions as urged on behalf of defendant Nos.14 and
15. The learned Single Judge held that the averments made in the
plaint as read in its entirety clearly reveals a cause of action against
defendant Nos.14 and 15. The learned Single Judge held that the
case in the plaint against Defendant Nos.14 and 15 was of fraud and
collusion and siphoning of fund. It is observed that substantial
reliefs are prayed against the defendants jointly and severally to pay
Rng 31 APP.32.15.-30-04-2016.doc
the Plaintiffs the amounts as claimed in the suit. As regards the
contentions on the part of defendant Nos.14 and 15 that the
averments in the plaint against these Defendants including allegation
of fraud are vague and not specific and have also been rejected. It is
observed that there submissions are not borne out from holistic
reading of the plaint. As regards immunity as claimed by Defendant
No.15 under the provisions of the International Finance Corporation
(Status, Immunities and Privileges) Act, 1958, the learned Single
Judge has observed that the case being of a fraud, the question of
immunity as a bar under the provisions of the Act, cannot be a issue
to be decided in an application under Order 7 Rule 11(a) of C.P.C.
19. On the above background, we have heard Mr.Iqbal
Chagla learned senior counsel for defendant no.14/appellant in
Appeal (Lodging) No.32 of 2015 and Dr,.V.D.Tulzapurkar learned
senior counsel for defendant no.15 in Appeal (Lodging) No.36 of
2015 and Dr.Birendra Saraf for plaintiff/Respondent no.1.
Rng 32 APP.32.15.-30-04-2016.doc
20. On behalf of the appellants/defendant nos.14 and 15 the
principal submissions are as follows :
(i) This is a clear case where the plaint was required to be
rejected qua defendant nos.14 and 15 as the plaint discloses no cause
of action against defendants.
(ii) As regards the allegations of fraud in the plaint the same
are wholly insufficient as they lack particulars, calling for rejection of
the plaint for want of a cause of action against the Defendant Nos.14
and 15. Bare allegation of fraud without particulars and details
thereof is not sufficient to maintain a suit against defendant nos.14
and 15).
(iii) The Directors of the defendant no.4 could not have been
held liable for action of defendant no.4.
(iv) Plain reading of the plaint shows that cause of action is
on the basis of contract as entered by the plaintiff with defendant
no.1. The cause of action on the basis of a contract is different from
cause of action in tort. In such a plaint purely on a contract for
recovery of the amount from the defendant no.1, a relief on a cause
of action under torts cannot be claimed qua defendant nos.14 and
15.
Rng 33 APP.32.15.-30-04-2016.doc
(v) The defendant no.15 is entitled to immunity by virtue of
the fact that the plaint is barred under the International Finance
Corporation (Status, Immunities and Privileges) Act, 1958 on
account of immunities available to the employees of the Corporation
in respect of acts performed in official capacity.
In support of their submissions, the learned Senior
Counsel for Defendant Nos.14 and 15 have placed reliance on the
these decisions in the case of Rajkot Municipal Corporation V.
Manjulben Jayantilal Nakum & Ors.1; "Mr.Rajiv K.Mehta Vs. Mrs.Rekha
H.Sheth"2; S.M.S.Pharmaceuticals Ltd. Vs. Neeta Bhalla & Anr. 3;
Mukesh Hans & Anr. Vs. Smt.Uma Bhasin & Ors. 4; Church of Christ
Charitable Trust Vs. Poniamman Educational Trust 5; Om Prakash
Khaitan Vs. Shree Keshariya Investment Ltd. 6; Shri.Amba Motors
Agencies Pvt.Ltd. Vs. Registrar of Companies decided on 18.10.1978 7;
Bishundeo Narain & Anr. Vs. Seogeni Rai & Ors. 8; Liverpool & London
S.P.&1 Vs. M.V.Sea Success Land & Anr.9
1(1997(9) SCC 552)
2 Judgment of Bombay High Court dated 24.3.2014 delivered in Notice of Motion No.368
of 2011 in Suit No.2521 of 2008
3 (2005)8 SCC 89
4 Judgement of Delhi High Court dated 16.8.2010 delivered in REA 14/2010 and CM No.495/2010
5 (2012)8 SCC 706
6 (1978 Company Cases Vol.48)
7 1978 Company Cases (Delhi) 89
8 (AIR 38 1951 Supreme Court 280)
9(2004)9 SCC 512.
Rng 34 APP.32.15.-30-04-2016.doc
21. On the other hand on behalf of Respondent no.1/plaintiff
Dr.Saraf would submit:
(i) that the contentions as urged on behalf of the appellants
are wholly misconceived as the plaint is required to be read as a
whole which makes it clear that the defendant nos.14 and 15 are
necessary parties in the light of the claim as made out in the suit.
(ii) Plaintiffs have clearly set out particulars of fraud. All
assertions of the plaintiff against the defendants including the
appellants can be proved in the suit.
(iii) Plaintiffs have clearly averred in the plaint as regards the
breach of trust and that the appellants were responsible for the day-
to-day affairs as directors of defendant no.4.
(iv) Plaintiffs have clearly averred that appellants are the
beneficiaries of fraud and thus the reliefs in respect of the property
are categorically prayed for in the suit.
(v) Defendant nos.14 and 15 submitting that being nominee
Directors they have no liability, cannot be accepted as though
nominal directors, they have indulged in a fraud. In this regard
Rng 35 APP.32.15.-30-04-2016.doc
allegations as made out in the plaint are more than sufficient to show
that defendant nos.14 and 15 are necessary parties.
(vi) A suit involving cause of action on contract as also on
tort as set out in the plaint is definitely maintainable and thus the
defendant nos.14 and 15 cannot seek a relief for rejecting the plaint
qua these defendants under the provisions of Order 7 Rule 11 of the
Code of Civil Procedure 1908.
(vii) Under the International Finance Corporation (Status,
Immunities and Privileges) Act, 1958, reliefs cannot be claimed by
defendant no.15 when there is an allegation of fraud.
(viii) The learned Judge has appropriately considered all these
issues in rejecting the Notice of motion filed by defendant nos.14 & 15.
In support of his submissions, the learned Counsel for the
Respondents has placed reliance on the decisions in the case of
Sopan Sukhdeo Sable & Ors. Vs. Asstt. Charity Commissioner & Ors. 10;
Eva Drdakova Vs. Khemka Exports Pvt.Ltd, 11; Goa Industrial
Development Corporation Vs. Sadhana Builders Pvt.Ltd 12; Qar
Mohammed Zakir Hussain & Ors Vs. Municipal Corporation of
10(2004)3 SCC 137
11(2012)2 Bom.C.R. 634
12(2014)6 AIR Bom R. 734
Rng 36 APP.32.15.-30-04-2016.doc
Gr.Mumbai & Ors.13; Deepak Ansal Vs. Ansal Properties and Industries
Ltd. & Anr,14 ; Anjum Nath Vs. British Airways Plc. & Ors. 15; Clarinda
D'Souza Vs. Mccann Erickson India Ltd.16;
22. With the assistance of the learned counsel appearing for
the parties, we have gone through the plaint, the impugned order
passed by the learned Single Judge and the respective notices of
motions as filed by defendant nos.14 and 15 before the learned
single Judge and pleadings in that regard. As the issue as raised is
whether the plaint was required to be rejected against the Defendant
Nos.14 and 15, what would be relevant is as to whether a complete
reading of the plaint whether discloses a cause of action against
Defendant Nos.14 and 15.
23. Having perused the plaint, we have noted above the
relevant averments in the context of the issues as arising in the
present appeal. The averments in the plaint indicate that this is a
13 (2002(2) Vol.104(1) Bom.L.R. 120
14(2007) 138 DLT 560
15(2005)125 DLT 717
16(2003(2) Mh.L.J.373
Rng 37 APP.32.15.-30-04-2016.doc
composite suit where the plaintiff has sought reliefs of recovery of
the money claimed against the defendants on contract as also by way
of damages being a liability under the torts. This is clear from
several averments of connivance between the defendants and the
joint and several liability arising for payment as claimed by the
Plaintiff's in making the suit claim.
24.
In the context of these issues, the provisions of Order 1 of
the Code of Civil Procedure, 1908 need to be noted which pertains to
parties to a suit. Order I Rule 3 is as regards who may be joined as
defendant and reads thus:
"3. Who may be joined as defendants"- All persons may be joined
in one suit as defendant where
a) any right to relief in respect of, or arising out of the same act
or transaction or series of acts or transactions is alleged to exist
against such persons whether jointly, severally or in the
alternative and
b) if separate suits were brought against such persons any
common question of law or fact would arise.
Order I Rule 3 makes it clear that when a right to relief arises
out of same act or transaction or series of acts or transactions which
the plaintiff would allege to a extent against such persons whether
Rng 38 APP.32.15.-30-04-2016.doc
jointly or severally then such persons can be joined as defendants in
one suit. This position is made explicit from sub-rule (b) which
categorically provides that all such persons can be joined in one suit
as defendants even if separate suits were brought against such
persons common questions of law or facts would arise.
25. The next provisions is Order 1 Rule 4 which provides that
the Court may give a Judgment for or against one or more of the
joined parties. Clause (b) Rule 4 would be relevant in the present
context which provides that the Court may give a judgment against
one or more of the defendants as may be found to be liable against
the respective liabilities. Further Order 1 Rule 5 of the Code provides
that it shall not be necessary that every defendant shall be interested
as to all the reliefs claimed in any suit against him. Further Order 1
Rule 10 (2) also becomes relevant in the present context as it
provides that the court may strike out or add parties "at any stage of
the proceedings" either upon or without application of other party
and whether the plaintiff or defendant be struck out and that name
Rng 39 APP.32.15.-30-04-2016.doc
of any other person sought to be joined whether as plaintiff or
defendant or whose presence before the Court may be necessary in
order to enable the Court to effectually and completely adjudicate
upon and settle all the questions involved in the suit be added. Thus,
provisions of Order 1 throw a complete a light on the issue of
necessary parties to a suit. The plaint is therefore, required to be
considered in the present context in the light of provisions of Order 1
Rules 3,4 and 5 and 10 as would be relevant.
26. The next provision and under which Defendant Nos.14
and 15 seek a relief is Order 7 Rule 11 of the CPC which provides
for rejection of plaint and reads thus :
"11. Rejection of Plaint- The plaint shall be rejected in
the following cases:
(a) where it does not disclose a cause of action
(b) where the relief claimed is under valued and the
plaintiff on being required by the Court to so correct the
valuation within a time to be fixed by the Court fails to do
so,
(c) where the relief claimed is properly valued by the
plaintiff is written upon paper insufficiently stamped and
the plaintiff on being required by the Court to supply the
requisite stamp paper within a time to be fixed by the
Court fails to do so.
Rng 40 APP.32.15.-30-04-2016.doc
(d) where the suit appears from the statement in the
plaint to be barred by any law."
Relying on Order 7 Rule 11(a), defendant nos.14 and
15 /contend that plaint is liable to be rejected qua these defendants
as it does not disclose cause of action and more particularly for the
reason that there are no material particulars in the plaint to show
any connivance, collusion, fraud as alleged to be committed by these
defendants as regards the transactions of Defendant No.1 on the
plaintiffs exchange. In this regard learned Senior Counsel for the
appellants urge that under the provisions of Order 6 Rule 4, it is an
obligation on the plaintiff to give particulars of fraud when a case of
fraud and breach of trust is pleaded in the plaint. It is submitted that
these can be the averments against the defendant no.1 or for that
matter against the defendant no.4 but it can never be a case against
these defendants who were the nominee Directors of defendant no.4.
27. In this context, learned Senior Counsel for the appellants
have drawn our attention to averments in the plaint to submit that
Rng 41 APP.32.15.-30-04-2016.doc
these are sweeping averments sans particulars. The approach of the
Court when confronted with the issues as raised on behalf of the
appellants would be to consider as to whether any cause of action
arises against defendant nos.14 and defendant no.15 so that they can
be said to be the necessary parties to the suit, qua the relief being
claimed by the plaintiff. The endeavour of the Court would be make
a holistic and meaningful reading of the plaint and not superficial or
perfunctory reading in segments or in parts. The averments in the
plaint are required to be seen in their entirety to find out the real
cause of action. The Court would consider whether on a meaningful
reading of the plaint, the plaint is manifestly vexatious and merit less
so as to not disclose a clear right to sue, only in such a situation
power under Order 7 Rule 11 of the Code can be exercised by the
Court to reject the plaint against the defendants. It is a settled law
that there cannot be a compartmentalization, dissection, segregation
and inversion and language of the various paragraphs in the plaint
nor is it permissible to cull out a sentence or passage and to consider
the same in isolation. It is the substance and not merely the form
Rng 42 APP.32.15.-30-04-2016.doc
which is required to be looked into. The pleadings are required to be
construed as it stands without additions or substractions or words or
change of its apparent grammatical sense. The tenor and the
sentence of the pleadings is required to be seen as a whole. (See
Sopan vs. Assistant Charity Commissioner, Air Supreme Court
2004 page 180)
28.
In view of the above discussion, we apply the well-settled
rule that the plaint is required to be considered in its entirety to
ascertain cause of action and proceed to deal with the submissions as
urged on behalf of defendant nos.14 and 15. A holistic reading of
the plaint would demonstrate that the plaintiff has impleaded
defendant nos.14 and 15 who were directors and shareholders of
defendant no.4 so as to seek a relief against these defendants. The
plaintiffs have made averments in the plaint that at the relevant time
defendant nos.14 and 15 were in-charge and responsible for the
affairs of defendant no.4 and as such they were also liable to jointly
and/or severally pay amounts due from defendant nos.1 to 4 to the
Rng 43 APP.32.15.-30-04-2016.doc
plaintiff which was in fact the moneys of the counter-parties dealing
on the exchange as set out in para 7 (zz) of the plaint. It is pertinent
that the plaintiff in para 7 (zz) of the plaint has made categorical
averments that defendant nos.1 to 4 in collusion with erstwhile
managing director of the plaintiff and some of the managerial staff
who directly reported to him, have orchestrated and played a fraud
on the plaintiff and counter parties to the outstanding trades, by
seeking to represent and assure that the commodities held
thereunder have been duly deposited in warehouses designated by
the plaintiff which representations were false to their own
knowledge and which were deliberately and with an intent to
defraud the plaintiff and counter parties and have thereby caused
the counter-parties to part their moneys and enter into outstanding
trades on the basis of such fraudulent representations and assurances
and further have compounded the fraud so played by refusing an
access to the designated warehouses for parties of accepting
commodities that were purportedly deposited and/or taken
possession thereof for the purpose of sale and realization of the
Rng 44 APP.32.15.-30-04-2016.doc
amounts due from defendant nos.1 to 4 under outstanding trades. It
is categorically averred that defendant nos.1 to 4 have acted upon
these outstanding trades received benefits thereunder and that
defendant nos.1 to 4 are estopped from disputing the same and/or
its liability thereunder. It is further averred that defendant nos.5 to
16 are directors and shareholders of defendant nos.1 to 4
respectively and were in-charge of and responsible for the affairs of
defendant nos.1 to 4 and as such they are also liable to jointly and
severally pay the amounts due from defendant nos.1 to 4 to the
various counter party investors of the outstanding trades.
29. Further in para 9 of the plaint, the plaintiff have averred
that facts as set out in the plaint clearly demonstrate lack of
bonafides on the part of defendant nos.1 to 16 which includes
(appellants). It is further averred that if immediate steps are not
taken to secure the claim of the plaintiff, defendant nos.1 to 16 will
take all forcible/possible steps to ensure that the same is defeated.
The plaintiff have also stated that defendant nos.1 to 16 have already
Rng 45 APP.32.15.-30-04-2016.doc
disposed of/siphoned off/shifted the commodities located in
warehouses/property and has committed a grave breach of trust and
have willfully disputed its obligations towards the plaintiff and the
exchange as well as various investors who have traded with
defendant no.1. The plaintiff have also stated that on account of
failure to maintain and/or pay outstanding amounts as required, the
Economic Offences wing of the Mumbai police had arrested the then
Director of defendant nos.1 to 4 Mr.Surendra Gupta on 5 th May 2014
holding him responsible for the defaults committed on plaintiff's
exchange by defendant nos.1 to 4. The plaintiff have further pleaded
that the investigating authorities namely Economic Offences wing
and Enforcement Directorate have stated in various newspapers
articles that defendant nos.1 to 4 have siphoned off the aforesaid
amounts as claimed by the plaintiffs in the suit and utilized the same
towards buying real estate and towards producing movies. In this
context, the plaintiff have stated that defendant nos.1 to 4 in
connivance with defendant nos. 5 to 16 would deal with the assets in
their control and possession and therefore, exhaust monies and/or
Rng 46 APP.32.15.-30-04-2016.doc
assets in such a manner to defeat the claim of plaintiff's exchange. It
is stated that defendant nos. 5 to 16 as Directors/shareholders are in
effective control of defendant nos.1 to 4 and are therefore, in-charge
of day-to-day affairs of defendant nos.1 to 4 and that enquiry of the
Economic Offences wing clearly indicates that persons in charge of
defendant nos.1 to 4 have utilized their monies for ulterior motives
and/or are seeking to defeat and defraud the claim of the plaintiffs.
This was borne out by the fact that the Economic Offences wing had
arrested Mr.Surendra Gupta Managing Director of defendant no.1.
30. Thereafter, in para 15 of the plaint, the plaintiff have
averred that defendant nos.5 to 16 have clearly benefited from the
defaults that have occurred on the exchange platform and that
defendant nos. 5 to 16 as shareholders and directors of defendant
nos.1 to 4 have benefited from the moneys deposited in the bank
accounts of defendant nos.1 to 4. and that defendant nos.1 to 4 were
in fact simply vehicles to perpetuate the illegalities which were
conceived by defendant no.5 which illegality was for the sole benefit
Rng 47 APP.32.15.-30-04-2016.doc
of defendant nos. 5 to 15. Accordingly on this factual background,
the plaintiffs have prayed for reliefs in prayer clauses (a) (c) (f) (h)
(m) (n) (p) (r) and (s) against defendant nos.14 and 15/appellants.
31. From the reading of the plaint, thus it is borne out that
although a contract was between the plaintiff and defendant no.1,
defendant nos.2 to 4 had also a role to play in the transactions being
related companies of defendant no.1. The defendant nos.2 to 4 are
largely controlled by the same management. The defendant no.1
admittedly had executed various trades in commodities for itself and
on behalf of its clients including defendant nos.2 to 4 on the
plaintiff's exchange. At the relevant time defendant no.5 was the
Director of defendant no.1 and also Managing Director of defendant
no.4 of which defendant nos.14 and 15 were Directors. Admittedly,
SGS which was an independent agency which was appointed to
survey stocks on various warehouses/property including warehouses
in control of defendant no.1 made a report that representatives of
SGS were not allowed to enter the warehouses of defendant no.1.
Rng 48 APP.32.15.-30-04-2016.doc
Further, defendant no.1 had failed to make payments which had
become due and payable for outstanding trades undertaken by
defendant no.1 on the plaintiff's exchange. These trades were
required to be settled during a specific settlement period and which
was qua various buyers/sellers. Defendant no.1 did not store the
required goods in warehouses. The plaintiffs have averred that
defendant no.1 had disbursed the same thereby committing a fraud
on the plaintiff to the extent of Rs.680 crores. It is the specific case
of the plaintiff that these fraudulent acts were not singular acts on
behalf of defendant no.1 but with active aid and participation of
other defendants which includes the appellants. Further, it is
specifically pleaded that defendant nos.5 to 16 being Directors and
shareholders of defendant nos.1 to 4 were in-charge and responsible
for affairs of defendant nos.1 to 4 and thus were liable jointly and/or
severally to pay the amounts due from defendant nos.1 to 4 to the
various counter parties investors under outstanding trades. The
specific allegation is that defendant nos.1 to 16 had already
disposed/siphoned/shifted off the commodities located in the
Rng 49 APP.32.15.-30-04-2016.doc
warehouses whereby committed a grave breach of trust and thereby
willfully defaulted towards its obligations on the plaintiff 's
exchange. The plaintiff have further stated that this large scale
defaults and fraud was also a subject matter of investigation of
Economic Offences wing (EOW). Articles appeared in newspapers
on this investigation of the EOW which further high-lighted that
defendant nos.1 to 4 and their management namely defendant nos.5
to 16 were responsible for siphoning the amount outstanding to the
plaintiff. The case of the plaintiff that these acts of defendants
committing fraud on the plaintiff's exchange could not have occurred
without the knowledge and active participation of the defendants.
32. The case of the plaintiff is also that the amounts
siphoned by defendant nos.1 to 4 again by playing fraud on the
plaintiff has been deposited in the bank account of the defendant
nos.1 to 4 and defendant no.5 to 16 Directors and shareholders of
defendant nos.1 to 4. It is the case of the plaintiff that in fact
defendant nos.1 to 4 are simply vehicles to perpetuate illegalities
Rng 50 APP.32.15.-30-04-2016.doc
conceived at the hands of defendant nos.5 to 16. It is thus, the case
of the plaintiff that defendant nos.1 to 4 along with defendant nos.5
to 16 are responsible for large-scale illegalities and thus defendant
nos.14 and 15 become necessary parties to the suit. It is clearly the
plaintiff's case that defendant nos. 5 to 16 (includes Appellants) have
utilised the corporate structure and identity of defendant nos.1 to 4
for their own personal gains and are real beneficiaries of the defaults
that have been committed on the Plaintiff's exchange platform.
33. We thus see much substance in the contention as urged
on behalf of the plaintiff. The case of the plaintiff is clearly of
illegalities on the part of defendant nos. 1 to 4 while trading on the
plaintiff's interest as also of a fraud played on the plaintiff. The
defendant no.1 is a company under the Companies Act. Defendant
nos.2 and 3 are proprietory concerns and defendant no.4 is also a
company under the Companies Act. When allegation of such mass
illegalities, siphoning of moneys, fraud etc are made against
defendant nos.1 and defendant no.4 obviously, it cannot be
Rng 51 APP.32.15.-30-04-2016.doc
overlooked that these legal persons are governed by the Board of
Directors who are responsible for the management of its day-to-day
affairs. It is not the case that the plaint is lacking averments, that
there was a collusion between defendant nos.1 to 4 with other
defendants i.e defendant nos. 14 and 15 who according to the
plaintiffs were in-charge of and responsible for the affairs of the
company. The plaintiffs have categorically averred that Directors of
defendant nos.1 and 4 are the beneficiaries of the fraud, which is
also stated to be revealed in the investigation of the EOW. This is the
cause of action for the plaintiff to file the present suit against
defendants/appellants. On a holistic reading of the plaint, we cannot
persuade ourselves to hold that there is no cause of action against
defendant nos. 14 and 15. We are therefore, not impressed with the
submissions made on behalf of the appellants that this is a case
where the plaint is required to be rejected by the Court for want of
cause of action against defendant nos. 14 and 15 in exercising
powers under order 7 Rule 11 of the CPC.
Rng 52 APP.32.15.-30-04-2016.doc
34. Now coming to the contention as urged on behalf of the
appellants that there is a specific requirement under the provisions of
Order 6 Rule 4 that the allegation of fraud, collusion was required to
be specifically pleaded with all supporting material and the plaint
lacks these averments and thus the plaint deserves to be rejected
against the appellants in our view, is also misconceived for two
reasons: firstly, for the reason that fraud which is played on the
plaintiffs is by defendant nos.1 to 4. Defendant nos.1 to 4 admittedly
are Corporate entities acting through Directors namely appellants
and others. It is not in dispute that at the relevant time, defendant
nos.14 and 15 were Directors of defendant no.4. An averment is
made that in fact they were responsible for the day-to-day affairs of
the management of defendant no.4. Further, there is an averment in
the plaint that these directors are the beneficiaries of the illegalities
and fraud which is perpetuated by defendant no.4 as also they are
beneficiaries of the amounts which in fact are amounts entitled and
liable to be paid to the plaintiff. We do not see as to how these
averments are not sufficient to satisfy the requirement of Order 6
Rng 53 APP.32.15.-30-04-2016.doc
Rule 4 of the C.P.C. Secondly, such submissions on behalf of
Defendant Nos.14 and 15 also cannot be accepted as these
submissions overlook a holistic reading of the plaint. If a holistic
reading of the plaint makes out a case of fraud, siphoning of funds
and such an activity is undertaken by a corporate entity like the
defendant no.4, then surely, it cannot be said that defendants and
defendant nos.14 and 15 had no concern whatsoever for their lack
of specific role and the plaint cannot be rejected for want of cause of
action.
35. If we consider the statements as made in the plaint as a
whole which we have noted above, it certainly demonstrates a case
of fraud of a large magnitude. The defendant nos. 14 and 15 would
not be correct in contending that the plaintiffs have not pleaded a
case of fraud, collusion in siphoning of the amount which may fasten
the liability on the defendants.
36. In the view which we have taken and more particularly
Rng 54 APP.32.15.-30-04-2016.doc
taking into consideration the case of the Plaintiff as is made out in
the plaint, we are of the clear opinion that the decision in the case of
"Bishnudeo Narain & Anr. Vs. Seogeni Rai & Ors." (supra) which
arose out of a partition dispute, would not be of any assistance to
Defendant Nos.14 and 15. In any event in paragraph 27 of the
decision, it is clearly observed that as regards the allegations of
coercion it was grounded on single allegation that the father was
threatened with death, and in the facts and circumstances of the
case, the Court of opinion that sans particulars such singular
allegations would not be of any assistance to the plaintiffs. The facts
in the present case can in no manner be comparable for application
of this decision. So also in the decision in the case of "Liverpool &
London S.P.&1 Vs. M.V. Sea Success Land & Anr." (supra) would
also not assist the Defendant Nos.14 and 15 in support of their
contention that a Director cannot be held vicariously liable for the
acts committed by Defendant No.4 unless these acts are categorically
and specifically attributed to such Director. This decision would not
be applicable in the facts of the present case inasmuch as the case in
Rng 55 APP.32.15.-30-04-2016.doc
hand, however, is of completely different complexion. The
magnitude and the complexities of the transactions are also of
peculiar nature. The interest of the Plaintiff in this case certainly
includes interest of large number of traders/and several other
connected persons who are directly or and/or indirectly related and
concerned with these transactions. Thus, the plaintiff's interest also
bears a interest of large number of investors who have entered into
bonafide transactions and which transactions failed on account joint
and several acts on the part of the Defendants as contented in the
plaint.
37. As regards the contention as raised on behalf of the defendant
nos.14 and 15 that they are nominee Directors and therefore, they cannot
be held liable for any contractual defaults on the part of the company, we
see no merit in this contention. The learned single Judge has rightly
observed that such a contention can never be a ground for rejecting the
plaint and/or striking name of the defendant nos.14 and 15 as it can never
be an absolute proposition that there can never be any action whatsoever
against nominee Directors or even if Directors have played a fraud. The
averments in the plaint in that regard cannot be overlooked which
Rng 56 APP.32.15.-30-04-2016.doc
are of collusion/siphoning of moneys and fraud and the defendant's
directors being the beneficiaries of these moneys which were liable
to be paid to the plaintiffs. Reliance on behalf of the appellants on
the decision of the Delhi High Court in the case of "Omprakash
Khetan vs.Shree Keshaviya Investment Ltd., (1978 Vol.48
Company Cases 85)", therefore, is completely misconceived as it
was not a case under Order 7 Rule 11 of the C.P.C., but it was a case
under section 633 of the Companies Act which requires factual
inquiry in the conduct of the Directors so as to ascertain whether the
Directors have acted honestly and reasonably. This requirement
under the Companies Act is quite different from the scope of the
inquiry under Order 7 Rule 11 or Order 1 Rule 4 of the C.P.C. The
learned single Judge has rightly rejected the contention of the
appellants.
38. On behalf of defendant no.15, there is an additional
issue which is urged namely that defendant no.15 is entitled to
immunity by virtue of the provisions of Section 3 of the International
Rng 57 APP.32.15.-30-04-2016.doc
Finance Corporation (Status, Immunities, Privileges) Act,1958, in
respect of the acts performed in official capacity. It is thus contended
that the plaint is barred under the provisions of this Act. Even on
this count, we find that the contention has no merit. The learned
Single Judge has rightly observed that the defendant no.15 cannot
seek immunity when there is an allegation of collusion and fraud and
that defendant no.15 becomes beneficiary. The learned Judge has
appropriately observed that the fraudulent actions can never be
stated to be committed in an official capacity and thus, no question
of immunity can arise on account of provisions of the said Act and
such issue can be decided at the trial stage. The learned Judge is
justified in observing and in the facts of the case that such a plea on
the part of Defendant No.15 is too far fetched. IN this context
learned Counsel on behalf of Plaintiff/Respondent No.1 is justified in
placing reliance on the decision of the learned Single Judge of this
Court in "Ms.Eva Drdakova Vs. M/s.Khemka Exports Pvt.Ltd." that
such a question cannot be gone into at this stage under Order 7 Rule
11 of C.P.C. and is required to be decided on a trial. This would be
Rng 58 APP.32.15.-30-04-2016.doc
the correct position as, in our opinion, for the reason that such an
issue would be a mix question of law and fact and cannot constitute
an express or implied bar on the jurisdiction of the Civil Court. A
learned Single Judge of this Court in the case of "Goa Industrial
Development Corporation Vs. Sadhana Builders Pvt.Ltd, (2014)5
BCR 135" in adverting to the principles of law laid down in "Popat
and Kotecha Property Vs. State Bank of India Staff Association,
(2005)7 SCC 510" has observed that the immunity cannot be
claimed when there is a pleading of fraud and collusion, and that
while deciding an application under Order 7 Rule 11 the Court
cannot decide the disputed question of fact and law and, thus, even a
plea of such immunity would become a mix question of law and fact
would be decided at the trial of the suit.
39. In our view, this is a case where the facts speaks for
themselves as seen from the averments in the plaint which indicate
that it is not only the contract entered by the Plaintiff with Defendant
No.1 which has given rise to the cause of action for the suit but
Rng 59 APP.32.15.-30-04-2016.doc
something which is beyond the contract and involving actions of
Defendant Nos.2 to 16 which are all interconnected. The plaint
pleads of a large scale and well thought-out design to cause losses to
the Plaintiffs in the extensive manner as set out in the plaint.
Further, the distinctive feature is that this money which is being
claimed by the Plaintiff is the money which are the claims and
entitlement of the other members on the exchange for whose benefit
the transactions came to be entered at the Plaintiffs' exchange. The
plaintiff owed an obligation to these members and their legitimate
entitlement to have the goods traded on the plaintiff's exchange
which except for the breach of the obligation and by a systematic
mechanism of a fraud as practiced on behalf of the defendant and
pleaded by the plaintiff could not be discharged. The Plaintiff was
the trustee of the monies of the buyers and sellers at the exchange.
It is in this context the plaint is required to be seen and held on its
averments qua the reliefs claimed and the evidence led by the
Plaintiff to seek such relief. If this be the case, then, we are of the
opinion that the averments made in the plaint make out sufficient
Rng 60 APP.32.15.-30-04-2016.doc
requirements of Order 6 Rule 4 of the C.P.C. In "Thakur Gajendra
Shah and another Vs. Thakur Shankar Bux Singh and another,
(AIR 1935 Oudh 16)", their Lordships of the Division Bench had
observed that where the transactions speak for themselves and
furnish internal proof of a well thought-out design, the omission to
set forth particulars of conspiracy by which fraud is committed does
not contravene provisions of Order 6 Rule 4 of C.P.C.
40. We may also usefully make a reference to the
observations in the case of "Bishunath Tewari and others Vs.
Mst.Mirchi, (AIR 1955 Patna 66)" wherein in a majority judgment
of the learned Chief Justice it is observed as under:-
"8..... It has been pointed out on more occasions than one
that pleadings in India are not to be strictly and literally
construed. In "Gopi Narain Khanna Vs. Babu Bansidhar, 32
Ind App 123 at page 132(PC) (A), their Lordships of the
Judicial Committee pointed out that if the plaint contains
a statement of all the material circumstances constituting
fraud, but the prayer is inartistically framed, the Court can
give appropriate relief if the Plaintiff is otherwise entitled
Rng 61 APP.32.15.-30-04-2016.doc
to it. I am, therefore, inclined to the view that the Court
of Appeal below was not right in its remarks that the
Plaintiff had not alleged fraud in the plaint."
41. Thus, the approach of the Appellants/defendants in reading
of the plaint, in our view, is not correct. As the pleadings are not to be
strictly interpreted in the manner in which the each and every allegations
is brought out in the plaint, what is necessary is to plead all material and
relevant facts on which the case of the Plaintiff would stand. Also in
Ramswaroop Gupta Vs. Bishun Narayan & Anr., AIR 1987 SC 1242"
(Read) their Lordships have observed that the pleadings should receive a
liberal construction, no pedantic approach should be adopted to defeat
justice on hair-splitting technicalities. It is held that whenever the
question about lack of pleadings is raised, the enquiry should not be so
much about the form of the pleadings but the endeavour of the Court
should be to ascertain the substance of the pleadings. In ascertaining
whether the plaint shows cause of action, the Court is not required to
elaborate the inquiry in the doubtful or complicated question of law and
fact. The endeavour of the Court would be to ascertain whether on
the allegations a cause of action is shown and so long as the plaint
Rng 62 APP.32.15.-30-04-2016.doc
discloses the same cause of action, and so raises a question, fit to be
decided by a Judge. Order 7 Rule 11(a) of C.P.C. though would
confer a power on the Court to reject a plaint on failure on the part
of the Plaintiff to disclose a cause of action, but such power should
not be exercised when averments made in the plaint and the
documents upon which the reliance has been placed would disclose a
cause of action.
42. As regards the contention as urged on behalf of
defendant nos.14 and 15 that there is no cause of action against
Defendant Nos.14 and 15, inasmuch as this suit is based on a
contract between the plaintiff and Defendant Nos.1 and that the
relief which is being sought against Defendant Nos.14 and 15 is on
tort and that such a relief cannot be claimed against Defendant
Nos.14 and 15 in a suit on the basis of a contract. This submission
on behalf of the Appellants is not well founded. In our view, the suit
is properly framed and there is no mis-joinder of causes of action.
On a careful reading of the plaint what we may note that the suit
Rng 63 APP.32.15.-30-04-2016.doc
clearly falls within the provisions of Order 1 Rule 3 of C.P.C. as the
reliefs arise out of a case of a breach of the contract as against
Defendant No.1 and in tort against the other defendants which right
to relief was available to the plaintiffs. Order 1 Rule 3 is not
confined to joinder of parties above but would also encompass
joinder of causes of action. A conjoint reading of Order 1 Rule 3 and
Order 2 Rule 3 of C.P.C. would indicate that it is permissible to join
different causes of action against the different defendants in one suit.
A holistic reading of the plaint in the present case indicate that the
plaintiff has sought reliefs against the defendants which arise out of
the transaction which would involve not only Defendant Nos.1 to 4
but also the other defendants which includes Defendant Nos.14 and
15 and accordingly, they can be joined, jointly and/or severally in the
alternative in one and the same suit. The requirement of Order 1
Rule 3, therefore, would stand satisfied read with the provisions of
Order 2 Rule 3 which would permit joinder of causes of action. It
was, therefore, permissible for Plaintiffs to join causes of action on
the plea of breach of contract which is against Defendant No.1 In
Rng 64 APP.32.15.-30-04-2016.doc
taking this view, we are also supported by the decision of the
Division Bench of Calcutta High Court in the case "Shew Narayan
Singh Vs. Brahmanand Singh & Ors., (AIR 1950 Calcutta 479)" in
which their Lordships have observed thus:-
18. The last argument on behalf of the petitioner may be
stated thus. The cause of action against the original defendant is
based on contract while the cause of action against the other
defendants is based on tort. Causes of action so differently based
cannot be joined. I am not prepared to accept this view. There is
nothing in the provisions of the Code of Civil Procedure which
supports it. As pointed out above the Code permits a joinder of
different causes of action against different defendants. The fact
that so far as the different defendants are concerned, their
liability arises out of their different legal relationships with the
plaintiff would not, in my opinion, bar this suit and drive the
plaintiff to institute separate suits. Order 1 R.3 and O.2 R.4 are
directed towards avoiding multiplicity of litigation. What would
be the result of giving effect to the view propounded / The
plaintiff would first have to institute a suit, against defendant 1
alone and establish a breach of contract. If he succeeded in so
doing, he would then have to institute another suit against
defendant 1 and the added defendants and again establish, first,
the breach of the contract because the other defendants not being
parties to first suit would not be bound by any decision arrived at
therein; he would also have to establish conspiracy. It may be
that in the second suit the added defendants may succeed in
showing that there was no breach of contract. This would lead to
Rng 65 APP.32.15.-30-04-2016.doc
conflicting decision on the same issue. It is to avoid such
anomalies and inconsistencies that the Code has provided that
one suit is permissible. It is true that the claim against defendant
1 is based on the breach of a contractual right while the claim
against the other defendants is based on the breach of a common
law right, but the right to relief is available in respect of both sets
of defendants because the contractual right has been infringed. If
it had not been infringed no question of tort would arise. In such
a case one suit against all is in my opinion permissible. This view
has been taken by a Special Bench of the High Court at Rangoon
in the case of P.B.Boss V.M.B.N.Chettyar Fir, AIR (25) 1938 Rang
185 at p.188: (1938 Rang LJ 303 S.B.) Dankley,J. Observes :
"The learned Judge appears to have thought that there was a mis-
joinder of defendants in the original suit, and that a decree based
on a breach of contract against one defendant and a decree of
damages in tort against another defendant cannot be made in the
same suit. With the greatest respect, this is a misconception of
the law. There was no mis-joinder of defendants in this case; the
provisions of O.1 R.3, Civil P.C., cover the joinder of the three
defendants in the suit in the Township Court. There is no reason
why a decree for damages for breach of contract against one
defendant and a decree for damages in tort against another
defendant should not be pased in the same action; in R.T.Grant V.
Australian Knitting Mills Ltd., (1936)AC 85 : (AIR (23)1936 PC
34) the Privy Council madea decree against the retailer of the
underwear for breach of contract and against the manufacturer of
the underwear in tort."
The Privy Council decision is R.T.Grant V. Australian Knitting
Mills Ltd., and it is also reported in AIR (23) 1936 PC 34. The
Rng 66 APP.32.15.-30-04-2016.doc
Privy Council upheld a decision of the Australian Court awarding
damages in the same suit against a retailer for breach of contrast
and against the manufacturer for the negligence of tort. I would
refer to p.39 of the report where the Lordship said:
"The liability of each respondent depends on a different cause of
action though it is for the same damage. It is not claimed that
the appellant should recover his damage twice over."
The claim against both retailer and manufacturer was upheld.
This principle would apply to the present case.
19. I would also refer to the case of Frankenburg V. Great
Horseless Carriage Co. (1900)1 QB 504 at p.509: (69 LJ QB
147) where the Court of Appeal refused to give effect to a similar
technical objection. They said:
"In substance the shareholder had one grievance. Call its cause of
action or what you like, and in substance he has cue complaint
and all the persons he sues have, according to him been guilty of
conduct which gives him a right to relief in respect of that one
thing which they have done, namely, the issuing of a prospectus."
The position here is the same. The plaintiff has one grievance viz.
That the contract has been broken and he alleges that all the
defendants have joined or conspired together in causing this
breach. I can see no reason why one suit against all should not be
allowed."
43. Further in this context on behalf of the Appellants the
reliance on the decision in Rajkot Municipal Corporation vs
Manjulaben Jayantilal Nakum & Ors (1997) 9 SCC 552 , would
Rng 67 APP.32.15.-30-04-2016.doc
not assist Defendant Nos.14 and 15. In this case the Respondent
Manjulaben had filed a Suit, claiming damages against the Municipal
Corporation on the ground that the Municipal Corporation had failed
in its statutory duty to check the healthy condition of trees, as her
husband had died by falling of a a tree which, according to
Majulaben was not maintained in a healthy condition by the
Municipal Corporation. It was her claim that the statutory duty of the
corporation gave rise to a tortuous liability. In this context, the Suit
filed by Manjulaben was decreed by the trial Court for a sum of
Rs.45,000/-. The decree was confirmed by the Division Bench in
appeal. In this context, the Supreme Court in paragraph 10 of this
decision made observations that tort and contract are
distinguishable. It was observed that in tort, liability is primarily
fixed by law while in contract further observed that if the claim
depends upon proof of the contract, action does not lie in tort and if
the claim arises, from the relationship between the parties,
independent of the contract, an action would lie in tort at the
election of the Plaintiff although he might alternatively have pleaded
Rng 68 APP.32.15.-30-04-2016.doc
in contract. In our opinion, this decision would certainly not avail to
the benefit of the Appellant as these observations of the Supreme
Court itself make it clear that even if a claim between the parties
arises independent of a contract still an action would lie in tort at the
election of the Plaintiff. In the present case, the Plaintiff's suit against
Defendant no.1 may be on contract nonetheless, the Plaintiff could
very well maintained his suit against the Appellant/Defendant nos.
14 and 15 diverse the contractual relations between the parties.
44. This takes us to the other issue as urged on behalf of
Defendant Nos.14 and 15 that they do not become personally
responsible for the acts of the Company. In this regard reliance is
placed on behalf of Defendant Nos.14 and 15 on the decision of the
learned Single Judge of Delhi High Court in the case "Tristar
Consultants vs Customer Services India Pvt.Ltd. & Anr., 2007
Delhi 157". There cannot be a dispute on the proposition as
contained in paragraph 19 to 23 of the decision that individual
Director would have no power to act on behalf of the company of
Rng 69 APP.32.15.-30-04-2016.doc
which he is a Director unless so authorised. In the legal position as a
Company stands, the Directors of the Company would have no
fiduciary or contractual duty towards a third party who deals with
the company. However, as observed by us above,the present case is
not a case which merely rests on the contractual terms but according
to the plaintiffs, it is a collusion fraud and the defendants becoming
beneficiaries of such acts. It is for these reasons, the normal role of a
Director in the normal course, as canvassed on behalf of the
defendant nos.14 and 15/Appellant would not become applicable in
the facts of the present case. In considering such pleas, the facts and
circumstances as borne out in the pleadings in each case are required
to be considered so as to determine as to whether any cause of action
is made out or otherwise before exercising power as conferred under
Order 7 Rule 11(a) of C.P.C.
45. The Appellants reliance on the decision of the Supreme
Court in the case of S.M.S.Pharmaceuticals Ltd vs Neeta Bhalla &
anr)17 is in support of their submission that merely because the
17 (2005) 8 SCC 89
Rng 70 APP.32.15.-30-04-2016.doc
Appellants were Directors of Defendant no.4 Company, there cannot
be any monetary liability on the Directors and the liability would be
of the company. The Supreme court observed that there is no
universal rule that a Director of a company would be in-charge of its
day-to-day affairs. However, the Supreme Court at the same time
observed that as to what was the role of the Director of a Company is
a question of fact depending on the peculiar facts in each case. This
decision arose out of the proceedings initiated under sections 141,
138 of the Negotiable Instruments Act, 1881 and in that context, the
Supreme Court had made these observations that to fasten a criminal
liability a specific case should be spelt out in the complaint against
the person who has sought to be made liable. Parameters of the
pleadings in a criminal complaint case cannot be made applicable to
the facts of the present case where the issue is under Order 7 Rule
11(a) and Order 1 Rule 10(2) of the Code of Civil Procedure.
46. In the case of Mukesh Hans (supra) the learned Single
Judge of the Delhi High Court was considering a case arising out of
Rng 71 APP.32.15.-30-04-2016.doc
the decision of the trial Court decreeing a summary Suit against the
Directors of a company incorporated under the Companies Act. The
Company had failed to redeem the convertible debentures issued to
the plaintiffs. The decision to issue these debentures was of the
Board of Directors of the Company through whom the Company was
acting. In these circumstances, the Court held that the directors
cannot be held to be responsible when there was no assertion in the
plaint that the Directors had undertaken to make payment to the
plaintiffs of the loan amount on behalf of the company. There was no
case made out for piercing of the corporate veil. Further if fraud was
to be made the basis of the decree when the plaint did not have
sufficient particulars in that regard. These being the facts this
decision would not be applicable as in the present case there are
allegations of fraud and connivance. The facts are peculiar as seen
from the plaint. The Court cannot in applying the principles under
Order 7 Rule 11(a) and Order 6 Rule 4, be unmindful of the
enormity and the complexity of the cause as reflected in the plaint.
This would not permit defendant nos.14 and 15 to justify their case
Rng 72 APP.32.15.-30-04-2016.doc
under Order 7 Rule 11 to rely on this decision of the learned Single
Judge of the Delhi High Court.
47. In this context, the reliance on behalf of the learned
Counsel for the Plaintiff on the decision of the learned Single Judge
of the Delhi High Court in the case of "Deepak Ansal Vs. Ansal
Properties and Industries Ltd. & Anr." (supra) and also the decision
of the learned Single Judge of this Court in "Clarinda D'Souza Vs.
Mccann Erickson India Ltd." (supra) is well founded inasmuch as
the Court would be required to consider all the averments in the
plaint in relation to the reliefs as prayed for in the suit. In the present
case as we have noted above there are sufficient averments for us to
conclude that interference under the powers of the Court under
Order 7 Rule 11(a) read with Order 1 Rule 10(2) is not warranted at
this stage.
48. In view of our above observations, the reliance in the
decision of "Church of Christ Charitable Trust and Educational
Rng 73 APP.32.15.-30-04-2016.doc
Charitable Society Vs. Ponnoamman Educational Trust, (2012)8
SCC 706" would also not assist the Appellants. We are in complete
agreement with the contentions as urged on behalf of the
Plaintiff/Respondent No.1 that the plaint has made out a cause of
action against defendants Nos.14 and 15. The reliance on the part of
the Plaintiff on the decision of the Supreme Court in the case "Sopan
vs Assistant Charity Commissioner" (supra) in support of the
proposition that the intention of the party concerned is to be
gathered primarily from its tenor and terms of the pleadings taken as
a whole and no pedantic approach should be adopted to defeat
justice on hair-spitting technicalities, is well founded.
49. We may thus observe that the plaint in the present case
contains a statement of all the material circumstances constituting
fraud. It is trite law that an application under Order 7 Rule 11 read
with Order 1 Rule 10 (2) can be moved at any stage of the suit. We
are not persuaded to form an opinion at this stage that the
averments made in the plaint are thus not sufficient for the purpose
Rng 74 APP.32.15.-30-04-2016.doc
of seeking relief as claimed in the suit against Defendant nos.14 and
15. It also cannot be overlooked that some facts are within the
special knowledge of these defendants. These facts cannot be
expected to be pleaded by the Plaintiffs.
50. In the light of the above discussion, we are of the clear
view that these appeals lack merit. The Appeals are accordingly,
rejected. No order as to costs.
51. As the appeals are dismissed, Notice of motion no.73 of
2016 and Notice of motion (L) No.3695 of 2015 taken out by the
appellants in these appeals do not survive and are accordingly
disposed of.
(G.S.KULKARNI, J.) (NARESH H. PATIL, J.)
