Tanwar Marketing Services vs Zenith Rubber Limited
2002 Latest Caselaw 117 Del

JUDGMENT

V.S. Aggarwal, J.

1.Three separate suits have been filed bearing Nos. 886/98, 863/98 and 864/98. Though they are being tried separately but for purposes of the present order as the question involved is by and large identical therefore only for convenient sake one common order is being passed.

2. In Suit No. 886/98 M/s Tanwar Marketing Services, plaintiff, has claimed recovery of Rs. 94,21,816/- with interest at the rate of 20% p.a. A Civil suit has been filed under Order 37 of the Code of Civil Procedure. It has been pleaded that in early 1995 the defendant (Zenith Rollers Ltd) for setting up of its manufacturing unit, imported a second hand machinery through the plaintiff. Under documents signed/executed the defendant was to pay the value of the same within 180 days through their banker UCO Bank, Kirti Nagar Nazafgarh, New Delhi. Under the documents the defendant obliged to remit value of the same. On 19th October, 1995 defendant remitted part payment in a sum of USD 44,000 leaving a sum of USD 1,38,679 outstanding. Neither balance amount outstanding was released by the defendant nor documents accepted for payment were returned despite reminders and demand. The plaintiff had served a notice to the defendant. In answer to the above notice the defendant admitted that amount outstanding/remaining unpaid under above transaction was USD 1,38,679. Defendant pleaded that it has suffered a loss by way of penalty, charges paid to the custom, detention charges etc CCI etc. The plea of the defendant is alleged to be false.

3. In pursuance of the notice having been issued the defendant preferred an application under Order 37 Rule 3(5) of the Code of Civil Procedure seeking leave to defend. It had been alleged that suit is not maintainable under any clause of Sub-rule (2) of the Rule (1) of Order 37 Code of Civil Procedure. It has been pleaded that H S Paintal and Dashrath Singh Tanwar had joined hands to set up a project for manufacturing of steel and rubber rollers required by the paper and textile industry. They decided to promote a company for the said purpose. The name of the company was decided as Zenith Rollers Pvt. Ltd. Later on it became a deemed public limited company known as Zenith Roller Ltd. Dashrath Singh Tanwar was the promoter of this company and subscribed to the initial capital of the company stated in the Memorandum of Association and Articles. For purposes of commencing manufacturing activity of steel and rubber rollers the company was required to acquire the machinery. It was decided that machinery would be acquired/purchased and Dashrath Singh Tanwar undertook to make the arrangement and to acquire the same. The project for setting up manufacturing unit required investment for which it was agreed between the parties that investment would be so made that eh group holding in the company would be 55% by H S Paintal and his nominees and 45% by Dashrath Singh Tanwar and his nominees. Mrs. Sapna Tanwar was also appointed as a Director. For purposes of setting up of factory an industrial unit bearing No. D-10, Sector 8, NOIDA was proposed to be acquired from Uttar Pradesh Financial Corporation. It was resolved in the meeting of the Board of Directors held on 2nd January, 1995 that for acquisition and transfer of rights of the said factory the matter be pursued with Uttar Pradesh Financial Corporation. The role of Dashrath Singh Tanwar was also pervasive on the company that on 2nd May, 1995 the Board of Directors passed a resolution authorising his wife Mrs. Sapna Tanwar to sign, verify and execute any document on behalf of the company. As per the decision taken and the understanding arrived at between Dashrath Singh Tanwar and H S Paintal, Shri Paintal invested a sum of Rs. 112.50 lakhs in the company as his share of contribution in the investments. The loan application was filed with Uttar Pradesh Financial Corporation for grant of a loan of Rs. 1.50 crores but the Uttar Pradesh Financial Corporation had sanctioned a lone of Rs. 1.09 crores. The promoters equity as per the condition of the grant of loan was prescribed as Rs. 1.50 crores. Shri Dashrath Singh Tanwar in terms of the understanding had agreed to look for second hand machinery required for setting up the envisaged industrial project. Shri Dashrath Singh Tanwar reported to the company that he has acquired the machinery and that the same is being shipped for delivery in India. However for some oblique motive/design in the bill of lading instead of specifying the name of the defendant company as consignee the plaintiff deliberately mentioned the name of the consignee to be 'To Order'. The invoice was dated 26th February, 1995 and raised in the name of the defendant company. It is alleged that this mischief was created by the plaintiff with ulterior design of retaining the power to dispose of the machinery in case he could fetch a better price. There was delay in the implantation of the project. The defendant had to pay detention charges to the Container Corporation of India and Samrat Shipping Corporation. The defendant even had filed an appeal before the Customs Excise Gold Appellate Tribunal but because of the lapses on the part of the plaintiff it was dismissed. Plea has been raised that plaintiff as yet has not contributed his share of 45% towards the share capital. Shri Paintal in order to pursue the Uttar Pradesh Financial Corporation to release a part of the loan has in fact contributed towards the capital of the company. In order to keep cordial relations with the plaintiff and to persuade him to extend cooperation the defendants company remitted a sum of USD 44000 on 24th October, 1995. The defendant company made an arrangement to remit a further sum of USD 15000 to the plaintiff through their bankers but because of lack of instructions demand could not be made.

4. It is claimed that permission to contest should be granted because suit is totally misconceived. It is not maintainable under Order 37 Code of Civil Procedure. The plaintiff is not entitled to any amount. The defendant company has not been able to acquire or purchase all the necessary and required machinery for effective implementation of its project. The amount, if any, due to plaintiff can only be worked out on talking all the accounts. The actual loss suffered is Rs. 1.55 crores. Furthermore it is claimed that plaintiff has not disclosed the actual acquisition of purchase price of the machinery.

5. In the reply filed the assertions of the plaintiff as such have been controverter. It becomes unnecessary to go into the details of the same. Suffice to mention that they have been denied in the manner put forward by the plaintiff and it has been alleged that the defendant in any case cannot claim a set off and there is no ground to grant permission to contest.

6. In suit No. 863/98 M/s Tanwar Marketing Services, plaintiff, claims a sum of Rs. 14,98,630 against Zenith Rubber Ltd. defendant alleging that at the request of the defendant in their FAX message dated 23rd August, 1995 the plaintiff transferred a sum of USD 23713 by way of loan to the account of the defendant maintained with their bankers UCO bank, Parliament Street, New Delhi refundable with interest. The defendant has not taken any steps to pay the amount received. The defendant is continuing to avoid liquidation of the above amount received by way of loan. It is claimed that amount is due which has arisen out of a commercial transaction. Hence the said suit.

7. Since the suit had been filed under Order 37 of the Code of Civil Procedure an application had been preferred seeking permission to contest the same. Basic defense is in suit No. 886/98 which requires no repetition. It has been pleaded further that Dashrath Singh Tanwar in terms of the understanding had agreed to look for second hand machinery abroad required for setting up the envisaged industrial project. The condition was that machinery must be imported by a actual user. Shri Dashrath Singh Tanwar had reported to the company that he has acquired the machinery and that the same is being shipped for deliver in India. Similar other allegations as in the connected suit referred to above were raised and almost on similar counts permission to contest as such has been claimed.

8. In the reply the plaintiff denies the assertions of the defendant as put forward and claimed. It is asserted that it was the defendant who claimed and requested for transfer of the amount to the account of the banker. The plaintiffs bank certified particulars of remittances and as per the plaintiff keeping in view that the defendants were not coming up with correct facts there was no ground to grant permission to contest.

9. In suit No. 864/98 M/s Tanwar Marketing Services has filed the said suit against M/s Zenith Rollers Ltd., Zenith Rubber Ltd. Zenith International and Shri H S Paintal. It has been pleaded that defendants 1 and 2 are incorporated under the Companies Act while defendant No. 3 is incorporated under the Partnership Act. The business is being managed and controlled by defendant No. 4. He is the chairman of defendants 1 and 2 and managing partner of defendant No. 3 Defendants after corresponding/negotiating purchase of machinery (Wrapping Extruder Plain with M/s Italmatic SRS of Italy) approached the plaintiff for remitting the part of the amount to aforesaid supplier. The amounts desired from the plaintiff to be transferred were availed as temporary loans repayable with interest. The plaintiff transferred a sum of USD 65000 at different intervals. The amount is stated to have not been paid and therefore the suit under Order 37 Code of Civil Procedure had been filed. Herein also the application has been preferred seeking leave to contest. The pleas offered is basically the same as already referred to above pertaining to the setting up of project for manufacturing of steel and rubber rollers between H S Paintal and Dashrath Singh Tanwar. Rest of the assertions are by and large the same and indeed there is a denial on behalf of the plaintiff to the allegations as put forward.

10. The short question that comes up for consideration is as to whether leave to contest has to be granted to the defendants or not.

11. The principle of law is not subject matter of controversy. The Supreme Court in the case of Mechlaec Engineers & Manufacturers v. Basic Equipment Corporation while approving the decision of the Calcutta High Court in the case of Kiranmoyee Dassi v. J. Chatterjee (1945) 49 Calcutta Weekly Notes 246 had held:

(a) If the defendant satisfies the Court that he has a good defense to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the defendant is entitled to unconditional leave to defend.

(b) If the defendant raises a friable issue indicating that he has a fair or bona fide or reasonable defense although not a positively good defense the plaintiff is not entitled to sign judgment and the defendant is entitled to unconditional leave to defend.

(c) If the defendant discloses such facts as may be deemed sufficient to entitled him to defend, that is to say, although the affidavit does not positively and immediately make it clear that, he had a defense, yet, shows such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defense to the plaintiff's claim the plaintiff is not entitled to judgment and the defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to time or mode of trial but not as to payment into Court or furnishing security.

(d) If the defendant has no defense or the defense set up is illusory or sham or practically moonshine then ordinarily the plaintiff is entitled to leave to sign judgment and the defendant is not entitled of leave to defend.

(e) If the defendant has no defense or the defense is illusory or sham or practically moonshine then although ordinarily the plaintiff is entitled to leave to sign judgment, the Court may protect the plaintiff by only allowing the defense to proceed if the amount claimed is paid into court or otherwise secured and give leave to the defendant on such condition, and thereby show mercy to try to prove a defense.

12. In the cited case the facts were that the defendant therein had admitted the issue of cheque by its managing partner but denied any privity of contract with the plaintiff firm. The defendant had its own version as to the reasons and purposes for which the work was drawn. The leave was granted to contest. Subsequently in another decision rendered in the case of Sunil Enterprises and Anr. v. SBI Commercial and International Bank Ltd. the Supreme Court once again after referring to the case of Mechalec Engineers & Manufacturers (supra) further held that where the defense was that the bills of exchange had been executed without consideration as goods were not held or supplied permission to contest was granted. In other words, one has to see in such like circumstances that if the defense offered is illusionary or a moonshine ordinarily leave to contest would not be granted. The totality of the defense has to be seen and it has to be adjudicated if it discloses such facts as may be deemed sufficient to entitle him to defense.

13. Reverting back to the facts of the present case it is apparent that the defense offered by the defendant which has already been referred to above raises certain questions as to if there was a joint project between Dashrath Singh Tanwar of the plaintiff and H S paintal of defendant. Necessarily the defendant wants the veil to be lifted to see real transaction. They also raise question as to who are the subscribers and what is the effect thereto. It is true that the learned counsel for the plaintiff referred to the balance-sheets and documents so as to urge that payments had bene accepted. But as referred to above it has to be seen as a whole. The defense so raised as to whether there was a joint project to be executed between Shri Tanwar with others has yet to be adjudicated. It will have its reflection on the merits. The defense therefore cannot be rejected outright as a moonshine. Certain other pleas in this regard need not be gone into in detail because that would be embarrassing for the parties because expression of opinion in that regard will not be' called for.

14. For these reasons the I.A.11069/98 in Suit No. 863/98, I.S. 7069/98 in Suit No. 864/98 and I.A.7260/98 in Suit No. 886/98 are allowed. Leave to contest is granted.

15. List the suits before the regular bench for further directions on 11th February, 2002.