Calcutta High Court
Ai Champdany Industries Ltd vs Duncan International (India) ... on 23 August, 2023
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION
ORIGINAL SIDE
BEFORE:
The Hon'ble Justice Soumen Sen
And
The Hon'ble Justice Ravi Krishan Kapur
APD/4/2015
in
CS/223/2008
IA NO: GA/4/2021
AI CHAMPDANY INDUSTRIES LTD.
VS
DUNCAN INTERNATIONAL (INDIA) LIMITED
APD/5/2015
in
CS/220/2008
AI CHAMPDANY INDUSTRIES LIMITED.
VS
ARINDAM INVESTMENT PVT. LIMITED
APD/6/2015
in
CS/221/2008
AI CHAMPDANY INDUSTRIES LIMITED.
VS
COSMOPOLITAN INVESTMENTS LIMITED
APD/7/2015
in
CS/222/2008
AI CHAMPDANY INDUSTRIES LIMITED.
VS
DISCIPLINED INVESTMENTS LIMITED
APD/8/2015
in
CS/224/2008
AI CHAMPDANY INDUSTRIES LIMITED.
VS
HALDIA INVESTMENT CO. LTD
2
APD/10/2015
in
CS/225/2008
AI CHAMPDANY INDUSTRIES LIMITED.
VS
NEW INDIA INVESTMENT CORPORATION LIMITED
For the appellant : Mr. Sabyasachi Chowdhury, Advocate,
Ms. Abhijit Guha, Advocate,
Mr. Syed E. Huda, Advocate,
Mr. Shounak Mukhopadhyay, Advocate,
For the respondent : Mr. Ranjan Deb, Senior Advocate,
Mr. Manju Bhuteria, Advocate,
Mr. Rajarshi Dutta, Advocate,
Mr. V.V.V. Sastry, Advocate,
Mr. Debargha Basu, Advocate,
Reserved on : 30.03.2023
Judgment on : 23.08.2023
Ravi Krishan Kapur, J.
Facts
1. These appeals arise out of a common judgment and decree dated 9 October
2015 subsequently modified by an order dated 14 October 2015 passed in
six different suits instituted for recovery of money lent and advanced
whereby the plaintiffs have been granted the principal amount including
simple interest @ 10% per annum from 10 October, 2008 till the date of
payment.
2. Briefly, the defendant/appellant was earlier known as Anglo India Jute
Mills Co. Ltd. (AIJM). The plaintiffs in all the suits are associate companies
of the JP Goenka Group of Companies. Till about 1994, both the plaintiff
and the defendant were group companies under the common management
and control of the JP Goenka Group of Companies. In or about 1987, the
defendant was declared to be a sick industrial undertaking within the
meaning of the Sick Industrial Companies (Special Provisions) Act, 1985
(the Act) and a proceeding (BIFR Case No.117 of 1987) was registered with
the Board for Industrial and Financial Reconstruction (BIFR).
3. Initially, a scheme for rehabilitation of the defendant was sanctioned on 28
March, 1989. By the 1989 scheme, the promoters were required to infuse
unsecured loans to the extent of Rs.225 lakhs with a portion of such loans
being interest free and the balance yielding 10% per annum. The scheme of
1989 also contemplated that the promoters would bring in another Rs.200
lakhs from their group concerns on a year to year basis for the period
1989-90 to 1997-98. The 1989 scheme eventually failed. Subsequently, a
fresh scheme of rehabilitation was sanctioned on 4 February, 1994 in
favour of Champdany Industries Limited which took over the management
of the defendant company and changed its present name to AI Champdany
Industries Limited. Thereafter, the defendant revived and ultimately came
out of the purview of BIFR.
4. All these suits have been filed by the plaintiff and its associates companies
for recovery of unsecured loans advanced under the scheme of 1989.
Paragraphs 4 and 5 of the amended plaint read as follows:
"4. In or about 1987 the defendant had become a sick industrial
company within the meaning of Sick Industrial Companies (Special
Provisions) Act, 1985 (hereinafter referred to as 'SICA')and a reference
relating to the defendant was made in accordance with the provisions
of SICA. A Scheme had been sanctioned by an order dated March 28,
1989 by the Board for Industrial and Financial Reconstruction
(hereinafter referred to as BIFR) for rehabilitation of the defendant. In
terms of the said Scheme and/or otherwise as recognized by scheme
the plaintiff and other associate companies of the plaintiff had
advanced various sums of monies as unsecured loans to the defendant
by cheque(s)."
"5. The loans brought in by the plaintiff and their associate companies
were shown in the balance sheet of the defendant. The Scheme which
had been sanctioned by the BIFR by the order dated March 28, 1989
had failed and thereafter BIFR initiated steps for preparation of a fresh
scheme for rehabilitation of the defendant. The defendant was under
an obligation to repay the sums which were given as loan to the
defendant by the plaintiff pursuant to the Scheme and/or otherwise as
recognized by scheme which had been sanctioned by the BIFR in
1989."
5. The crux of the case of the plaintiff is that the scheme of 1994 provided for
freezing of loans amounting to Rs.386 lakhs which were claimed to have
been brought in by the erstwhile promoters under the scheme of 1989 and
advanced to the defendant by cheques as unsecured loans. This was also
recognized contemporaneously in the balance sheets of both the plaintiffs
and the defendant company. In all these six suits, the plaintiffs claim their
respective portions of Rs.386 lakhs reflected in the sanctioned scheme on
account of principal.
6. Prior to the filing of these suits, the plaintiffs had filed six separate winding
up petitions against the defendant to enforce their claims under the
scheme. By an order dated 18 January 2006, all the six petitions were
dismissed and the parties were relegated to their ordinary remedies
permissible under law. Hence, these suits.
7. In an application for summary judgment, under Chapter XIIIA of the
Original Side Rules of this Court, the defendant was directed to secure the
claim of the plaintiffs and the matter was remanded to trial.
8. At the trial, four issues were framed by Court:
i. Did the plaintiffs and the other associate companies of the plaintiffs
advance various sums of monies as unsecured loans to the
appellants/defendants by cheque(s) in terms of the scheme sanctioned
by the BIFR and/or otherwise as recognized by the scheme as pleaded
in paragraph 4 of the plaint?
ii. Are the respondents/plaintiffs entitled to claim the amount as claimed
in the plaint or any part or portion thereof?
iii. Are the claims of the respondents/plaintiffs barred by the laws of
limitation?
iv. To what relief/reliefs the respondents/plaintiffs are entitled?
9. There was only one witness adduced on behalf of the plaintiffs. In cross-
examination, the witness had admitted that Anglo India Jute Mills Co. Ltd.
was part of the JP Goenka Group of Companies. The witness also admitted
that there were no records to prove that loans had been given and the
cheques referred to in the plaint had been encashed. The only evidence
which the witness could rely on was a hand written statement prepared in
the year 1994-95 and typed thereafter. There were no other records of any
of the six plaintiff companies. The witness relied on the records of the
proceedings before the BIFR and the AAIFR as admissions of the fact that
moneys had been advanced to the defendant.The defendant chose not to
adduce evidence on the ground that the plaintiffs were unable to prove
their case and discharge the burden of proof.
10. By the impugned judgment, the Learned Judge held that the plaintiffs had
been able to adduce sufficient evidence to show that the sums have been
lent and advanced to the defendant. The Learned Judge relied on the
balance sheets of the defendant company at the time when both the
defendant and the plaintiffs were under the common control of the JP
Goenka Group of Companies. The Learned Judge also gave weightage to
the fact that the orders of the BIFR and the AAIFR had attained finality and
there were admissions in such proceedings that moneys had been
advanced to the defendant. In this context, the relevant finding by the Trial
Court is as follows:
"It is true that the plaintiffs have not been able to produce any
documents to support the transaction. But what has been produced by
the plaintiffs have to be evaluated along with the oral evidence of Mr.
Chandak. The plaintiffs have been able to prove from the records of
proceedings before the BIFR and AAIFR, its orders, the balance sheet,
the statements of accounts and so on that monies were lent and
advanced by them to Anglo India Jute. These loans were not repaid by
them. The Board and AAIFR declared this loan to be outstanding and
payable by them. This is enough to fix the defendant with liability. It
does not matter whether Mr. Chandak has been able to produce any
document or not. There is strong preponderance of evidence to suggest
the grant of loans and advances by the plaintiffs to the defendants as
claimed in the respective plaints."
The rival submissions
11. On behalf of the defendant it is contended that, the plaintiffs have been
unable to prove that there were any loans advanced to the defendant by
way of cheques or otherwise. The entries in the balance-sheets have not
been proved. Significantly, ever since Champdany Industries Limited
sought to participate before the BIFR they had disputed the contents of the
balance sheets and in particular, the purported loans shown in the books
of accounts of the defendant. In any event, AIJM was a subsidiary of the
J.P. Goenka Group at the contemporaneous point of time. Thus, the
entries of liabilities in the books of accounts of the defendant would
amount to self-serving admissions inadmissible under section 21 of the
Indian Evidence Act 1872.
12. By letters dated 14 October, 1993 and 1 November, 1993 respectively, the
defendant had disputed the liability to the plaintiffs. This fact had also
been reflected in all the subsequent balance-sheets and the notes of
accounts post Champdany Industries Limited assuming management and
control of the defendant company. During the trial, the plaintiffs had
attempted to make out a new case in evidence inasmuch as the loan
payments were made prior to the scheme of 1989 and not pursuant
thereto. The liabilities arising out of such payments made before the
sanctioning of the scheme of 1989 would not bind the defendant since the
said scheme only provided for freezing of loans brought in pursuant to the
scheme of 1989. In support of their contentions, the defendant relied on
the decisions in CBI v. V.C. Shukla (1998) 3 SCC 410 and Chandradhar
Goswami v. Gauhati Bank Ltd.(1967) 1 SCR 898.
13. On behalf of the plaintiffs, it is contended that section 18(8) read with
Section 26 of the Act makes the scheme of 1994 and all provisions
thereunder binding on the parties and had attained finality. The plaintiffs
also submit that the entries in the balance sheets of the defendant are
corroborated by the books of accounts of the plaintiffs. In support of their
contentions, the plaintiffs relied on the decisions in Modi Rubber Limited v.
Continental Carbon India Ltd.2023 SCC OnLine SC 296 and Director General
of Income Tax v. Board for Industrial and Financial Reconstruction 2011 SCC
OnLine Del 1484.
Findings
14. A contract of loan for money is a contract whereby it can be shown that the
plaintiff had paid money to the defendant and there is an obligation on the
defendant to repay the same. Thus, in order to succeed in a claim for
money lent and advanced, the burden of proof is on the plaintiff to satisfy
the Court that the plaintiff had paid money to the defendant which has
now become due and payable and the defendant has refused to repay the
same.
15. Section 102 of the Evidence Act, 1882, embodies the test for ascertaining
on which side the burden of proof lies. The general rule, in civil cases is
that he who asserts must prove. Issues which are essential must be proved
by that party which asserts such fact in order to succeed in such an
action. It is true that the burden of proof as a matter of adducing evidence
is always unstable and shifts constantly throughout the trial. However, in
view of the averments in the plaint that moneys had been paid by the
plaintiffs to the defendant by cheques as unsecured loans, the burden of
proof was squarely on the plaintiffs to prove this fact whether pursuant to
the scheme or otherwise.
16. In the course of trial, the plaintiff only examined one witness, who relied on
a typed calculation sheet containing purported details of money alleged to
have been disbursed by the plaintiff. The witness unequivocally admitted
that there were no records to prove that any loans had been advanced by
way of cheques. There was also no evidence to suggest that the cheques
had been advanced from any of the accounts belonging to the plaintiffs.
The plaintiffs were unable to provide the particulars of the cheques or the
bank accounts in which the cheques were deposited for encashment, the
dates on which the cheques were encashed or the bank statements of
either of the plaintiff companies or the defendant which would have been
the primary evidence to prove such fact. It is no answer as contended by
the plaintiffs, that the books of accounts of the plaintiffs were not available
or that the records comprising of the cheque books and the bank
statements had been misplaced. The plaintiffs were simply unable to prove
that any amounts had been brought into the defendant company as
unsecured loans whether pursuant to the scheme of 1989 or otherwise. In
such circumstances, the entries in books of accounts per se are insufficient
and inadmissible to affix liability on the defendant.
17. During the trial, the plaintiffs placed strong reliance on the books of
accounts of the plaintiffs and the defendant to suggest that moneys had
been advanced by the plaintiffs and duly acknowledged by the defendant.
Manipulation of accounts or accounting fraud is a reality. How elementary
it is to debit the receiver and credit the giver or debit what comes in and
credit what goes out with the ultimate goal of attaining equality ought to be
known to any first year student of accountancy. At times, this becomes all
the more farcical, when both the receiver and the giver are under the aegis
of the same management and control. In this context, section 34 of the
Evidence Act, 1882 mandates as follows:
34. Entries in books of account when relevant.-- Entries in the
books of account, including those maintained in an electronic
form, regularly kept in the course of business, are relevant
whenever they refer to a matter into which the Court has to
inquire, but such statements shall not alone be sufficient evidence
to charge any person with liability.
18. In Central Bureau of Investigation vs. V.C. Shukla AIR 1998 SC 1406, it has
been held as follows:
"18. From a plain reading of the section it is manifest that to make an
entry relevant there under it must be shown that it has been made in a
book, that book is a book of account and that book of account has been
regularly kept in the course of business. From the above section it is
also manifest that even if the above requirements are fulfilled and the
entry becomes admissible as relevant evidence, still, the statement
made therein shall not alone be sufficient evidence to charge any
person with liability. It is thus seen that while the first part of the
section speaks of the relevancy of the entry as evidence, the second
part speaks, in a negative way, of its evidentiary value for charging a
person with a liability. It will, therefore, be necessary for us to first
ascertain whether the entries in the documents, with which we are
concerned, fulfil the requirements of the above section so as to be
admissible in evidence and if this question is answered in the
affirmative then only its probative value need be assessed."
37.The rationale behind admissibility of parties' books of account as
evidence is that the regularity of habit, the difficulty of falsification and
the fair certainty of ultimate detection give them in a sufficient degree a
probability of trustworthiness (Wigmoreon Evidence $ 1546). Since,
however, an element of self interest and partisanship of the entrant to
make a person - behind whose back and without whose knowledge the
entry is made - liable cannot be ruled out the additional safeguard of
insistence upon other independent evidence to fasten him with such
liability, has been provided for in Section 34 by incorporating the words
such statements shall not alone be sufficient to charge any person with
liability."
19. Hence, entries in the books of accounts are per se insufficient to charge
any person with liability without independent evidence of their
trustworthiness. Similarly, there is no evidentiary value which can be
attached to the handwritten (subsequently typed) sheet relied on by the
plaintiffs. The evidence relied on by the plaintiffs was neither cogent nor
convincing [State of Andhra Pradesh vs. Cheelampati Ganeshwar Rao AIR
1963 SC 1850, Chandradhar Goswami & Ors. vs. Gauhati Bank Ltd. AIR
1967 SC 1058, Ishwar Dass Jain vs. Sohan Lal AIR 2000 SC 426].
20. There is also no merit in the argument on behalf of the plaintiffs that the
defendant had admitted the figures in their balance-sheets. A balance
sheet does not by itself prove the facts stated therein. Moreso, such
admissions were at a point of time when both the plaintiffs and the
defendant were under the same management and control of the JP Goenka
Group. Both the BIFR and the AAIFR relied on the balance sheet of the
defendant as on 31 March, 1991 when the same management was in
control of both the companies. Significantly, the said O.P. Chandak had
represented both the plaintiffs and the defendant at all relevant stages
before the BIFR. Accordingly, such self-serving admissions cannot be
treated as substantive evidence without any independent proof thereof.
[See Pattabhiram vs. M. Narayanamoorthy AIR 1922 PC 102, Smt.
Krishnavati vs. Shir Hans Raj AIR 1974 SC 280 and Idandas vs. Anant
Ramachandra AIR 1982 SC 127].
21. Even on the basis of the amended plaint, the plaintiffs were bound to prove
that moneys had been lent and advanced by cheques as unsecured loans
from the plaintiffs to the defendant pursuant to the scheme. In such a
situation, a Court is not to treat the recordings before the BIFR or the
AAIFR as biblical or sacrosanct. Even the submission made by the
Operating Agency (OA) before the BIFR on 8 September 1989 i.e. "Shri
Ganguly, representative of IFCI added that the promoters brought Rs.225
lakhs and a further sum of Rs.50 lakhs pursuant to the scheme 1989" was
not proved by any independent evidence during the trial of these suits. In
such circumstances, the onus of proof could not be discharged on the
basis of inferences, conjectures and assumptions.
22. There is no quarrel with the proposition laid down in the decisions in Modi
Rubber Limited v. Continental Carbon India Ltd.2023 SCC OnLine SC 296
and Director General of Income Tax v. Board for Industrial and Financial
Reconstruction 2011 SCC OnLine Del 1484 cited on behalf of the plaintiffs
as to the binding nature of a scheme inter-alia under section 18 of the Act.
It is also true that on a combined reading of sections 18(8), 19(3), 26 and
32 of the Act, schemes once formulated and having gone through the
process of sections 17 and 18 of the Act would have the force of law. Both
the aforesaid decisions are distinguishable and inapposite. In Income Tax
(Administration) vs BIFR (Supra) the question raised in a writ petition was
whether after discharge of the reference by BIFR and the company's net
worth becoming positive, the Income Tax Department could withdraw the
concessions which formed part of a sanctioned scheme. Similarly, in Modi
Rubber Limited vs. Continental Carbon India Ltd. (Supra) in a writ petition,
an unsecured creditor had challenged the scaled down value of its dues
and sought to recover its debt with interest post rehabilitation. However,
having filed these suits, the plaintiffs were obliged to prove that moneys
had been advanced by cheques to the defendant as unsecured loans and
had become repayable. This was the entire purpose behind filing of the
suits and going to trial. The burden of proof was squarely on the plaintiffs
and after a full-fledged trial the plaintiffs even post amendment were
unable to discharge the same.
23. In the course of hearing of these appeals, the plaintiffs had also filed six
applications under Order XLI Rule 27 of the Code of Civil Procedure, 1908.
In such applications, the plaintiffs had sought leave to adduce additional
documents including bank statements reflecting encashment of cheques by
the defendant. The parties were directed to exchange affidavits. After
exchange of affidavits, the plaintiffs withdrew all such applications and the
same stood dismissed as withdrawn. Significantly, the stand taken by the
defendant was that, on the basis of the allegations made in these
applications it was a mathematical impossibility that any money had been
advanced by any of the plaintiffs to the defendant. In each of such
applications, it was averred as follows:
12. In course of such enquiry and searches made, your petitioner got hold of
some old records in connection with the transaction-in-question which was
never disclosed as the same was not traceable in spite of all efforts were
made by Sri O P Chandak who was in-charge of this litigation since its
inception. In spite of his exercise of due diligence, such documents, which
were old documents, could not be traced out and produced before this
Hon'ble Court on an earlier occasion. In fact, upon being confronted, it had
come out in evidence that since the documents were not handy at that
moment, the same could not be produced. For the first time, your petitioner's
representative on 20 April 2019 got hold of some old records in connection
with the transaction-in-question.
17. The said documents have been discovered in course of the searches
made by your petitioner's representative Sri Pranab Maity during the period
March and April 2019. Even otherwise, since the documents referred to
hereinabove would throw light on the genuineness of the transaction-in-
question, in order to pronounce judgment in a more detailed manner and to
do substantial justice, these documents may be permitted to be relied upon
by your petitioner in support of its case of money lent and advanced by
cheque. The documents, in any event, establishes beyond reasonable doubt
the transaction of money lent and advanced by your petitioner to the
appellant and the genuineness thereof.
24. If filing the above applications was a mistake, withdrawing the same was
hara-kiri. It left more than a lurking doubt even on the balance of
probabilities that the plaintiffs did not have the requisite evidence to prove
the case made in the plaint. As a Court of Record, the averments made in
these applications cannot be brushed aside nor ignored. In Mohd. Seraj vs.
Adibar Rahaman Sheikh AIR 1968 Cal 550 it has been held as follows:
"In sum, suits may come and go, withdrawn with or without liberty to sue
afresh, dismissed or decreed, - no matter which, - but statements made
therein, - no matter where, in pleadings, petitions affidavits, or evidence -
remain for ever and for all purposes too allowed by law such as to be
proceeded with as admissions, when they are found to be such, so long as
they are not rebutted, (section 17 et seq., Evidence Act), or to be confronted
with under section 145 ibid. Otherwise the court, no less the party interested,
will be deprived of very valuable evidence, nothing to say of a premium being
put on reckless allegations with no apprehension of the makers thereof
coming to grief in future for such glibness."
25. For the foregoing reasons, the impugned judgment and decree is liable to
be set aside. The plaintiffs have been unable to prove an essential aspect of
the case i.e. any money had been lent and advanced by the plaintiffs to the
defendant by cheques. In view of this fact not being proved, all other issues
become irrelevant and unnecessary.
26. In passing the impugned judgment and decree, the Trial Judge with utmost
respect, ignored a vital aspect of the matter i.e. that the claim in all the
suits did not have any actual basis. The strong preponderance of evidence
to suggest the grant of loans and advances remained unsubstantiated.
27. In view of the aforesaid, all these appeals are allowed. The impugned
judgment and decree in all the six suits are set aside.
28. Liberty is granted to the defendant/appellant to forthwith withdraw the
security furnished in terms of the orders of Court both in the form of bank
guarantees and cash lying with the Registrar, Original Side, Calcutta. GA 4
of 2021 filed in APD 4 of 2015 also stands dismissed as infructuous. In
view of the aforesaid, APD/4/2015, APD/5/2015, APD/6/2015,
APD/7/2015, APD/8/2015 and APD/10/2015 stand disposed of. However,
there shall be no order as to costs.
I agree:
(Soumen Sen, J.) (Ravi Krishan Kapur, J.)
