Brig. R.C. Datta (Retd) vs Dr. Rajiv Anand And Anr.
2002 Latest Caselaw 1812 Del

JUDGMENT

S.K. Agarwal, J.

1. This order will dispose of application of the defendant under Order 37 Rule 3(5) read with Section 151 CPC for leave to defend the suit.

2. Facts in brief for disposal of the application are as follows: The plaintiff filed suit under Order xxxvII CPC for recovery of Rs. 5,67,240/- with pendente lite and future interest, pleading that he is a retired army officer; defendant No. 2 is a retired Air Commodore, from Indian Air Force and defendant No. 1 is son of defendant No. 2, who is a doctor. The defendants knew the plaintiff for the last more than 30 years. The defendants represented to the plaintiff, that defendant No. 1 was proposing to establish a "Tape Treatment Clinic in Hong Kong" under the aegis of a Company "Tabe Treatment Clinic Hong Kong Ltd."; that they had good relations and rapport with principals of the company; that they would form a company called "Tabe Treatment Clinic Hong Kong Ltd.", in which defendants were to hold unit up to 50% shares; that total share holding of the defendant in the company would be equivalent to US $ 1,00,000; and that they were looking for an associate, who could financially assist them in opening and operating the said clinic. On these representations the plaintiff agreed to take 10% equity in the said company. The defendants assured the plaintiff that share certificate of the company would be issued in his favor, and that the investment being made by him would be completely safe. They personally stood surety for the same. It was represented that in the eventuality of defendants failing to issue share equivalent to 10% of the authorised capital of the said company, the amount of Rs. 3,26,000/- would be returned with interest. The plaintiff, as required, on 13.6.1992 paid in cash Rs. 3,26,000/- to them. The defendants issued receipt for the same. The Receipt was executed by defendant No. 1, in his personal capacity and on the tacit assurance of defendant No. 2. Defendant No. 1 also issued a cheque bearing NO. 272793 dated 13.6.1992, for Rs. 3,26,000/- drawn on Citibank, N.A., Delhi in favor of the plaintiff in support of his assurance. It is also pleaded that this amount was 10% share capital of the company and was equivalent to US $ 10,000.00. The defendants failed to issue shares as promised, despite repeated requests pleading that in the eventuality of their failure, plaintiff would be entitled to the principal amount along with interest @ 24% per annum and the amount was fully secured. The defendants failed to pay the amount. After waiting for almost three years, plaintiff failed the above said suit on 07.7.1995 for recovery of Rs. 5,67,240/- along with interest with effect from 13.6.1992, till the filing of the suit. After service of summons under Order xxxvII, the defendants entered appearance and filed the application seeking leave to defend and contested the suit.

3. I have heard learned counsel for parties and have been taken through the record.

4. Order 37 provides for a summary procedure in respect of certain suits. The essence of the summary suit is that the defendant is not, as in an ordinary suit, entitled as of right to defend the suit. He must apply for leave to defend within ten days from the date of service of summons upon him and such leave can be granted only if the affidavit filed by the defendant discloses such facts which will make it incumbent upon the plaintiff to prove consideration or such other facts as the Court may deem sufficient, for granting leave to the defendant to defend the suit. If no leave to defend is granted, the plaintiff is entitled to a decree. The order is applicable to the suits in Negotiable Instruments Act, or when the plaintiff seeks only to recover a debt or liquidated demand in money payable by the defendant, with or without interest on a written contract or on an enactment, where the sum sought to be recovered is a fixed sum of money or in the nature of a debt, money or guarantee. The principles to be followed while considering the question of granting leave to defendant or not are well settled by the several authoritative pronouncements of the Apex Court. In Mechalec Engineers & Manufactures v. Basic Equipment Corporation, , it was 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 the judgment and the defendant is entitled to unconditional leave to defend.

(c) If the defendant discloses such facts as may be deemed sufficient to entitle him to defend that is to say, although the affidavit does not positively and immediately make it clear that he has 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 the 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 to 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 the defendant by enabling him to try to prove a defense."

5. Learned counsel for defendants firstly argued that as per the plaintiff's own case amount was given to defendant No. 1 on 13.6.1992 and the suit was filed much later on 1.7.1995, therefore, the same is barred by limitation. Learned counsel for plaintiff on the other hand argued that the courts were closed on account of summer vacation and limitation of three years for filing the suit expired during holidays, therefore, the suit was filed on the re-opening of the Courts on 1.7.1995. Section 4 of the Limitation Act, 1963 provides that if the limitation expires during the period when the Court is closed, limitation prescribed under the law gets extended till the date of re-opening, thus the contention raised by counsel for defendants is absolutely without merit and same is rejected.

6. Learned counsel next argued that the cheque issued by the defendant was dated 13.6.1992. It was never presented within the period of limitation and after the expiry of period of six months, the cheque became a waste piece of paper and no suit on such a cheque could be filed under Order 37. Learned counsel for plaintiff on the other hand argued that the suit is not based on cheque, but is based on the Receipt dated 13.6.1992 (hereinafter, 'the Receipt'). The cheque is a relied upon document. In order to appreciate the contentions, it is necessary to refer to the Receipt. It runs thus:-

"RECEIPT

I Rajiv Anand s/o. A.R. Anand R/o. D/222, defense Colony, N. Delhi have received the sum of Rs. 3,26,000 (Three lacs twenty six thousand) on from Brig. R.C. Datta R/o. C-60, defense Colony, N. Delhi.

I am to open TABE Treatment Clinic Hong Kong Ltd. based in Hong Kong of which I will be 50% (Fifty percent) share holder in the company and my investment being 1,00,000 US$ (one lac US Dollars) Brig. R.C. Datta would be given 10% (ten percent) of the total investment in the form of shares for his investment of Rs. 3,26,000 representing 10,000 US$ (ten thousand US Dollars). The document ceases., that is becomes null and void on issuing of the said shares for which Brig. R.C. Datta will have a 10% (ten percent) stake in the above stated company incorporated in Hong Kong.

Dt: 13-6-92

Sd/-    

(Rajiv Anand)"

7. The above "Receipt" is not denied. Mere perusal of the above receipt shows that Rajiv Anand (defendant No. 1) received Rs. 3,26,000/- from the plaintiff Brig. R.C. Datta, inter alia stating that he was to open TABE Treatment Clinic Hong Kong Ltd., and to have 50% share holding in the said company and that his investment would be Rs. 1.0 lac US dollar. The plaintiff would be given 10% share in the company i.e. ten thousand US dollar which was then equivalent to Rs. 3,26,000/-. And the Receipt would cease to have effect and would become null and void on issuance of shares of the company. Thus said amount was entrusted to defendant No. 1 for the share to be issued to the plaintiff of the proposed company of defendants. The shares were never issued, as company was never formed or incorporated.

8. 21;1HThe Receipt reveals that a written contract was entered by the defendants wit the plaintiff, therefore, suit under Order 37 for recovery of the liquidated demand of money from the defendants with interest, is maintainable.

9. Learned counsel for defendants also argued that "TABE Treatment Clinic Hong Kong Ltd." was to be opened in Hong Kong in collaboration with one Mr. Peter Anderson, who was owning the parent company in Australia and its franchise in India. He wanted to open similar clinics in Hong Kong and other crown colonies under Hong Kong jurisdiction. Under the arrangement between the defendants and Peter Anderson, they were to have 50% share in the company. It was also agreed between them that initially the said company will be in the nature of proprietary company in the name of Mr. Peter Anderson (keeping in view the restrictions in Hong Kong) and afterwards the company would be altered to a private limited company and defendant No. 1 will be formally allotted 50% of the shareholding. It was on the insistence of the plaintiff that the defendants were persuaded to give 10% shareholding on the clear understanding that the time frame for this process would not be less than six months because of gestational and teething process, or running a new business in a foreign country. Plaintiff expressed his inability to arrange the foreign exchange and requested defendant No. 1 to accept the equivalent amount in rupees. The amount was taken against the setting up expenses for the new company. This was essentially a gesture of goodwill on the part of defendant No. 1. It was made clear that all shareholders of the company would be entitled to the profit or loss of the company proportionate to their holdings; and that in the event of company venture becoming a failure, no claim will lie of any shareholder against the company. It is pleaded that Rs. 3,26,000/- was invested by defendant No. 1 in the proposed company, but within six months of the operation of the company (TABE Treatment Clinic Hong Kong Ltd.), Ministry of Health, Hong Kong, raised objections stating that "TAE Treatment Clinic" was contravening the Medical Advertisements Ordinance under Chapter 231 and were not allowed to establish the Clinic, consequently, the Clinic had to be closed; and as all the funds of the company were exhausted, shareholders and to suffer loss in the process. In nutshell the plea sought to be raised is that Rs. 3,26,000/- was invested by the plaintiff in the company proposed to be set up in Hong Kong towards the 10% of his capital share. The company failed to take off and defendants suffered losses, therefore, defendants are not liable to return said amount.

10. In my view, this defense cannot be accepted, in the facts of this case. The Receipt shows that the money was received in personal capacity by defendants, representing that he was to open a clinic in Hong Kong wherein he would be holding 50% shares, and that plaintiff would be given 10% of the total investment in the form of shares. The Receipt was to be laid only till the date of issuance of the shares of the proposed company in the name of plaintiff. The company was never established and shares were never issued, for whatever reasons. Therefore, the plaintiff is entitled to the suit amount. The facts disclosed by the defendants do not indicate that they have a substantial defense to raise which could be sustainable in law.

For the foregoing reasons, no case for grant of leave to defend the suit is made out. Application is dismissed.