Delhi High Court

Ranbir Kumar Gugneja vs M/S Continental Engines Ltd & Ors. on 24 December, 2010

Author: V. K. Jain

         THE HIGH COURT OF DELHI AT NEW DELHI

%                   Judgment Reserved on: 22.12.2010
                    Judgment Pronounced on: 24.12.2010

+           CS(OS) No. 24/2005

RANBIR KUMAR GUGNEJA                             .....Plaintiff

                           - versus -

M/S CONTINENTAL ENGINES LTD & ORS. .....Defendant

Advocates who appeared in this case:
For the Plaintiff: Mr. Jasbir Singh
For the Defendant: Mr. Sanjiv Bahl and Mr. Eklavya Bahl

CORAM:-
HON'BLE MR JUSTICE V.K. JAIN

1.

Whether Reporters of local papers may be allowed to see the judgment? Yes

2. To be referred to the Reporter or not? Yes

3. Whether the judgment should be reported Yes in Digest?

V.K. JAIN, J

1. This is a suit for recovery of `63,65,103/-. The

plaintiff was appointed as the Chief Executive Officer of

defendants No. 1 to 4 vide appointment letter dated

September 1, 2000, followed by a supplementary letter

dated September 29, 2000. As per the terms and conditions

of his appointment, the plaintiff was entitled for a

compensation of `2.50Lacs per month in addition to 10%

profit of each of the four companies as also the benefits of

contribution to provident fund, accommodation,

transportation, medical expenses, entertainment expenses,

leave benefits, etc. The plaintiff continued in the

employment of defendants No.1 to 4 w.e.f. 30th September

2000 till 31st March 2002.

2. It is alleged that after numerous requests from the

plaintiff, requesting the defendants to clear his outstanding

dues, the defendants sent an e-mail letter dated 4th October

2003 to him attaching therewith a statement of account,

giving the amount which according to the defendants was

payable to the plaintiff. Vide that statement of account,

defendants agreed to pay a sum of `27,79,739/- towards

overdue payment of salary, special allowances, contribution

towards provident fund and reimbursement of expenses as

also towards severance compensation consisting of salary,

special allowance and contribution towards provident fund.

Since there was no mention of entitlement of the plaintiff to

10% profit, in the plaintiff's statement of account, he never

accepted that he was entitled to only to a sum of

`27,79,839/-. The plaintiff received a sum of `22,65,154/-

from the defendants, leaving a balance amount of

`5,14,585/- in terms of the settlement of account sent to

him by the defendants.

3. The case of the plaintiff is that defendant No.1 M/s

Continental Engines Ltd. made a profit of `2,11,31,856/-

whereas defendant No.2 M/s L.P. Castings Pvt. Ltd. made

profit of `4,86,563/- and, therefore, he is entitled to 10% of

the above profits amounting to `21,61,842/- for his service

tenure and a sum of `8,47,438/- towards profit of six

months for the severance period (calculated proportionate to

six months of profit of the year 2001-02). The plaintiff has

also claimed a sum of `2,62,000/- from the defendants

towards his salary, special allowance and contribution to

provident fund for the month of March 2002. Thus, besides

three principal sums viz. (i) `5,14,585/- being the unpaid

amount in terms of the statement of account sent by

defendants to the plaintiff (ii) `2,62,000/- towards salary,

contribution to provident fund and supplementary

allowance for the month of March 2002 and (iii)

`30,09,280/- towards profit, the plaintiff has also claimed a

sum of `25,79,238/- towards interest calculated at the rate

of 18% per annum, as on 31st October 2004, thereby

making a total sum of `63,65,103/-.

4. The defendants have contested the suit. They have

taken preliminary objections that the suit is bad for

misjoinder of defendant No.5 Sh. Amarjit Singh Bakshi and

that the suit is barred by limitation. On merits,

appointment of the plaintiff vide appointment letter dated

September 1, 2000 and issue of supplementary letter dated

September 29, 2000 has been admitted. As regards profits

of defendants No.1 to 4, it is stated in the written statement

that defendant No.1 M/s Continental Engines Ltd made

profit of `84.72Lacs and `55.27Lacs, respectively in the

years 2000-01 and 2001-02 whereas defendant No.2 M/s

L.P. Castings Pvt. Ltd. made profit of `1.71Lac and

`9.60Lacs, respectively during these two years. It is also

alleged that defendant No.3 M/s Continental Brakes Ltd.

incurred net loss of `18.75Lacs and `37.95Lacs during the

years 2000-01 and 2001-02, respectively, whereas

defendant No.4 M/s Bakshi Steels Ltd. made net loss of

`76.08Lacs and `132.89Lacs during this period. It is also

alleged in the written statement that profit, if any, was to be

paid to the plaintiff after considering the profit and loss of

all the four companies and since all of these companies did

not make any profit, no amount towards profit became

payable to the plaintiff. It is also alleged that since the

defendants were always ready and willing to pay the

legitimate due of the plaintiff despite his performance not

being up to the mark, they agreed to pay a sum of

`27,79,739/- in full and final settlement. The defendants

made a payment of `22,65,154/- to the plaintiff as per his

instructions and the balance amount of `5,14,585/- was

offered to him with a request to furnish a receipt for full and

final settlement, so as to keep the record straight. However,

the plaintiff, after receiving the aforesaid sum of

`22,65,154/-, became dishonest and sent a notice based on

false facts and claims.

5. The following issues were framed on the pleadings

of the parties:-

           (i)      Whether defendant No.5 is not a
                    necessary or proper party and if so
                    whether the suit is bad for misjoinder
                    of parties? OPD

           (ii)     Whether the suit        is   barred      by
                    limitation? OPD

           (iii)    Whether the plaintiff is entitled to a


                     decree for a sum of `63,65,103/-? OPP

           (iv)     Whether the plaintiff is entitled to

claim future and pendente lite interest, if so at what rate? OPP

(v) Whether the suit discloses no cause of action? OPD

(vi) Whether the defendants are liable to pay to the plaintiff only admitted sum of `5,24,585/-? OPD

(vii) Whether the plaintiff is entitled to 10% profit of each of the four companies as per supplementary letter dated 29th September 2000? OPP

(viii) Whether the plaintiff was responsible for the performance of all the four companies, if so to what effect? OPD

(ix) Relief.

6. Issue No.1

It is an admitted case of the parties that the

plaintiff was appointed by defendants No. 1 to 4 which are

four companies. Defendant No.5, who was a Director of

these companies is not personally liable to make any

payment to the plaintiff and there was no privity of contract

between him and the plaintiff. Defendant No.5 is, therefore,

neither a necessary nor a proper party to the suit. His

name is, therefore, struck of the array of defendants.

The issue is decided accordingly.

7. Issue No.2

In terms of the letter dated September 29, 2000,

the plaintiff was entitled to a share in the profit of

defendants No. 1 to 4. Share of the plaintiff in the profits of

defendants No. 1 to 4 was to be paid quarterly on a

provisional basis and adjusted at the end of the year i.e. in

the last quarter of the financial year. Referring to this letter,

it was contended by the learned counsel for the defendants

that the profit for the year 2000-01 became payable to the

plaintiff on 31st March 2001 and, therefore, having been file

don 30th November 2004, the suit, to the extent it pertains

to the claim of the plaintiff in the share of profits for the

year 2000-01, is barred by limitation. The learned counsel

for the plaintiff on the other hand contended that till the

balance sheet of the companies were prepared, the amount

of the profit of the company in a particular financial year

cannot be ascertained and consequently the exact amount

payable to the plaintiff towards his share in the profit could

not have been worked out before the balance sheets for the

year 2000-01 were actually prepared. However, on perusing

the balance sheets, the learned counsel for the plaintiff

conceded that the balance sheet of defendant No.2 for the

year 2000-01 having been prepared on 1st September 2001

and the balance sheet of defendant No.1 M/s Continental

Engines Ltd. having been prepared on 6th June 2001 as is

evident from the balance sheet Ex.DW1/2(colly) and

Ex.DW1/1(colly), the suit, to the extent it pertains to share

of the plaintiff in the profits of defendant companies for the

year 2000-01, has been filed after expiry of three years from

the preparation of balance sheets.

8. The case of the plaintiff is that the principal

amount claimed by him including share in the profits of

defendant companies formed part of his wages. Article 7 of

the Limitation Act provides that the suit for wages in case of

any person other than a seaman will be 3 years from the

date when the wages accrued/due. The amount claimed by

the plaintiff, though under different sub-heads, formed part

of his wages and, therefore, constituted one single debt. It

cannot be said that the share in the profits, to be paid to the

plaintiff, constituted a debt distinct from and independent of

other payments required to be made to him, as part of his

pay package. Computed from the date on which the balance

sheets of defendant Nos. 1 and 2 for the year 2000-01 were

signed by the Auditors of these companies, the suit, to the

extent it pertains to share of the plaintiff in the profits of

defendant Nos. 1 and 2 for the period from 1 st April, 2000 to

31st March, 2001would be barred by limitation. However,

payments have, thereafter, been made by the defendants to

the plaintiff from time to time and those payments

admittedly were made in writing and within the period of

limitation prescribed for a suit for wages. As provided in

Section 19 of the Limitation Act, payment on account of a

debt made before the expiry of the prescribed period of

limitation by the person liable to pay the debt or by his

agent duly authorized in this behalf extends a fresh period

of limitation from the time a payment is made. When

confronted with this, the learned counsel for the defendants

did not press this issue further during the course of the

argument.

The issue is decided accordingly.

9. Issue No.8

Being the CEO of these companies, the plaintiff

was expected to give his best to his employers and make all

possible efforts to increase their profit and improve their

performance. Obviously, the quantum of the profit payable

to the plaintiff out of the profits of defendant companies

would increase or decrease, as the case may be, depending

upon the financial performance of the companies. But, a

perusal of the appointment letter Exh. PW1/2 and the

supplementary letter dated 29th September, 2000 would

show that payment of wages including share in the profits of

the companies was not linked to the performance of the

plaintiff. None of the amounts payable to the plaintiff

including share in the profit of defendant companies was

dependant on his individual performance qua the employer

companies. In terms of the appointment letters, he was to

be paid salary of `1,00,000/- per month, special allowance

of `1,50,000/- per month besides contribution to provident

fund, residential accommodation, transportation, leave

travel expenses, medical expenses, travel expenses etc. the

payment of 10% share in the profits of the employer

companies was linked to the profits of these companies and

not to the quality of the performance of the plaintiff. The

defendant companies, if they were not satisfied with the

performance of the plaintiff as their CEO, could have

dispensed with his services, but, having not done that, they

cannot deny his share in profit of the companies to him on

the ground that his performance was not up to the mark.

Therefore, it is not necessary for this Court to examine

whether the plaintiff was responsible for the performance of

his employer companies.

The issue is decided accordingly.

The relevant portion of the supplementary letter

dated 29th September 2000 (Ex.PW-1/3) issued by the

defendant companies to the plaintiff provided that the

plaintiff would be paid 10% of the profits of each of the

companies in which he was appointed as the Chief

Executive Officer.

11. The contention of learned counsel for the plaintiff

was that his share in the profits was to be worked out

individually with respect to each company and that if two

companies out of the four who had employed him made

profits whereas the remaining two incurred losses, the

losses suffered by the loss making companies were not to be

set off against the profits made by the profit making

companies, for the purpose of computing the profit payable

to the plaintiff. In this regard, he emphasized on use of the

words 'profits of each companies' in the letter dated 29 th

September, 2000. On the other hand, the contention of the

learned counsel for the defendants was that since the

plaintiff was appointed as Chief Executive Officer of all the

four companies by a common appointment letter and the

wages agreed to be paid to him were a composite wages,

payable by all the four companies, without any bifurcation

as to how much would be paid to him by M/s Continental

Engines Ltd., how much by M/s L.P. Castings Pvt. Ltd., how

much by M/s Continental Brakes Ltd. and how much by

M/s Bakshi Steels Ltd, the intention of the parties was to

pay to him 10% of the profits, if any, made by the profit

making companies after setting off the losses incurred by

the loss making companies. It was also pointed out by the

learned counsel for the defendants that though the letter

dated 29th September, 2000 provided that the share of profit

will be paid to the plaintiff quarterly on provisional basis

and adjusted at the end of the year i.e. in the last quarter of

the financial year, the plaintiff despite being CEO of the

defendant companies, did not draw any amount towards his

share in the profits of defendant Nos. 1 and 2, either on

quarterly basis or at the end of the financial year, which

clearly indicates that he was to be paid out of cumulative

profit, if any, of all the four companies and that is why no

amount was drawn by him towards his share in the profits

made by defendant Nos. 1 and 2 despite there being a

stipulation for payment of profit to him on a quarterly basis.

12. It was also pointed out by learned counsel for the

plaintiff that the defendants have artificially depressed the

profits made by defendant No.1 and inflated the losses

incurred by defendant Bakshi Steels Ltd, in order to deprive

him of his share in the profits. It was pointed out that while

computing the cumulative profit/loss of defendant No.1,

M/s Continental Engines Ltd, for the year 2001-02, though

the net profit comes to `16,247,736/-, a sum of

`10,000,000/- paid towards dividend, `10,20,000/- paid

towards tax and surcharge on dividend as well as the

amount provided for payment of income tax were deducted

so as to reflect a net profit of `5,527,986/- though, in fact,

the net profit comes to `16,247,736/-. I have no doubt that

in my mind that in order to work out the share of the

plaintiff in the profits of the defendant companies, the

amount of dividend, tax on dividend or income tax could not

have been deducted. The profit made by the company

exclusive of dividend, tax on dividend and income tax etc. is

the amount representing the net profit made by the

company in a particular financial year. The dividend can be

paid only out of net profit of the company and income tax

also is payable on net profit. Therefore, the profit of

defendant No.1 for the year 2001-02 would be

`16,247,736/- and not `5527986/-.

It was also pointed out by the learned counsel for

the plaintiff that as would be evident from the report of

Auditors, Chordiya and Company of Bakshi Steels Ltd., the

liability towards employees, pertaining to the previous year,

has been taken into consideration while working out the

profit and loss of by `67.84Lacs. Had the liability of the

previous year not been taken into account during the

financial year 2001-02, the profits of the company would

have been higher by that amount or the losses would have

been lowered by that amount, as the case may be of M/s

Bakshi Steel Ltd for the financial year 2001-02.

13. I, however, feel that I need not go into the question

as to whether the plaintiff was to be paid only if profits were

made by defendant companies on a cumulative basis i.e. by

setting off the loss incurred by loss making companies

against the profits made by the profit making companies or

he was to be paid 10% of the profits earned by the profit

making companies irrespective of the losses incurred by loss

making companies, since the evidence on record shows that

the plaintiff had agreed to accept the amount of

`27,79,739/- from the defendants in full and final

settlement of all his dues.

14. Vide letter dated 14th April, 2003 (Ex.PW-1/DA),

the plaintiff wrote to Mr Alok Dutta of Continental Engines

Ltd., referring to his request for settling his accounts and

summarizing the areas of agreement as also the areas of

difference between him and Mr Alok Dutta. The areas of

difference pointed out in this letter were (1) severance

(terminal) amount (a) related to house rental of `4.5lacs, (b)

transport (personal) and other benefits of `1.3lacs and (c)

supplementary allowance for six months; (2) profit share,

and (3) interest on overdue payments. He also requested Mr

Alok Dutta to refer the differences to Shri A.S. Bakshi for

final decision. Similar letter was written by him to Shri A.S.

Bakshi on 07th May, 2003, which is Ex.PW-1/DB. In both

the letters, he pointed out that according to Mr Alok Dutta,

there was no profit generated during the period October,

2000 to March, 2003. Vide e-mail dated 27th May, 2003, Mr

Amarjit Bakshi informed the plaintiff that he had viewed

each area with great details. As regards profits, he stated

that since no profit had accrued (accumulative) of the four

companies, no share in the profits was payable to him. As

regards interest, he stated that since the delay in settling it

was not on account of Bakshi Enterprises, this was not

payable. He also requested him to conclude the matter by

confirming the settlement proposed in his e-mail and

informed the plaintiff that immediately on receiving his

confirmation, they would arrange to release the payment as

mutually agreed. The communication from Mr Bakshi was

acknowledged by the plaintiff vide his e-mail dated 04th

June, 2003 to Mr Alok Datta.

15. Vide e-mail dated 09th September, 2003, Mr Alok

Dutta sent to the plaintiff, final calculations of the amount

payable to him and also stated that on receipt of a letter

from him accepting that final settlement, they would initiate

the payment in line with their discussion. Vide e-mail dated

30th September, 2003 sent to Mr Dutta, the plaintiff sought

revised settlement in line with his discussion with Mr Dutta.

Vide e-mail dated 31st March, 2004, sent to the plaintiff, Mr

Alok Dutta sent corrected statement to the plaintiff. The e-

mail shows that the amount of supplementary allowance

was amended and Mr Dutta thanked him for pointing out

the error. It is quite clear from a perusal of the above-

referred correspondence between the parties that the

plaintiff sought intervention of Mr Amarjit Bakshi for a

decision on the areas of difference which remained

unresolved between him and Mr Alok Dutta, Mr Amarjit

Bakshi informed the plaintiff that he was not entitled to any

share in the profits since the defendant companies did not

make any profit on cumulative basis and no interest was

payable to him. A careful analysis of the e-mails dated 30th

September, 2003 and 04th October, 2003 would show that

the only mistake pointed out by the plaintiff in the final

calculations sent to him by Mr Alok Dutta on 09 th

September, 2003 was with respect to supplementary

allowance and that mistake was corrected in the revised

Statement of Accounts to the plaintiff on 04th October, 2003.

It is quite apparent from the consideration of these e-mails

that the plaintiff did not insist on claiming a share in the

profits of the defendant companies while responding to the

final calculations sent to him by Mr Alok Dutta on 09 th

September, 2003. Also, the plaintiff did not insist on

payment of salary for the month of March, 2002, while

responding to the final calculations sent to him by Mr Alok

Dutta. It is an admitted case that the plaintiff started

receiving payments from the defendant companies after

receipt of final calculations from Mr Alok Dutta vide e-mail

dated 09th September, 2003. In his cross-examination, the

plaintiff has admitted having received payments from the

defendants after 09th September, 2003. He has also

admitted that after 09th September, 2003, he did not write

any letter to the defendants demanding either salary for

March, 2002 or a share in the profits of defendants 1 and 2.

If the final calculations sent to him by Mr Alok Dutta on 09 th

September, 2003 were not acceptable to the plaintiff in full

and final settlement of his claim, he should either not have

accepted any payment from the defendant companies

thereafter or he should have at least accepted payments

under protest or reserved his right to claim salary for

March, 2002 and share in the profits of defendants No.1

and 2. The conduct of the plaintiff in pointing out no

mistake other than with respect to supplementary allowance

in the calculations sent to him by Mr Alok Dutta on 09th

September, 2003, coupled with his acceptance of part

payments from the defendants, from time to time, without

any protest and without reserving any right to claim salary

for March, 2002 and a share in the profits of defendants

No.1 and 2 clearly shows that he had agreed to accept the

amount of `27,79,739/- from the defendants in full and

final settlement of all his claims. The plaintiff, therefore, is

now estopped from raising any further claim against the

defendant companies with respect to his wages, including a

share in the profits of defendants No.1 and 2. He, therefore,

is entitled only to the admitted amount of `5,24,585/- from

defendants 1 to 4.

16. It was contented by the learned counsel for the

plaintiff that payments from the defendants after 09 th

September, 2003 were accepted under duress and,

therefore, it cannot be said that the plaintiff had agreed to

receive the amount of Rs 27,79,739/- in full and final

settlement of all his dues. In support of his contention, he

has referred to the decision in National Insurance Co.

Ltd.Vs. Boghara Polyfab Pvt. Ltd. 2008 (12) Scale 654. I,

however, find absolutely no merit in this contention. No

duress or coercion on the part of the defendants has been

pleaded by the plaintiff. In the plaint, there is no allegation

constituting any duress or coercion on the part of the

defendants. Order 6 Rule 4 of CPC provides that that in all

cases in which the party pleading relies on any

misrepresentation, fraud, breach of trust, wilful default or

undue influence and any of other cases in which particulars

may be necessary beyond such as are exemplified in the

aforesaid forms, particulars shall be stated in the pleadings.

In Ranganayakamma and another Vs. K.S.

Prakash (dead) by LRs. and others; (2008) 15 Supreme

Court Cases 673, the Supreme Court referring to the

provisions contained in Order VI Rule 4 of the CPC held that

when a fraud is alleged, the particulars thereof are required

to be pleaded. It was observed that when a contract is said

to be voidable by reason of any coercion, misrepresentation

or fraud, the particulars thereof are required to be pleaded.

In Ramesh B. Desai Vs. Bipin Vadilal Mehta;

(2006) 5 SCC 638, Supreme Court observed that Order VI

Rule 4 of CPC requires that complete particulars of fraud

shall be stated in the pleadings. A similar view was taken in

Sangramsinh P. Gaekwad Vs. Shantadevi P. Gaekwad;

(2005) 11 SCC 314.

When duress is alleged, the allegation like fraud or

misrepresentation must be supported by particulars. It is

only after complete particulars of the alleged duress are

given that the Court can inquire into it and decide whether

it stands proved or not.

In the case of National Insurance Company

(supra), Supreme Court gave some illustration as to when

the claims of a contractor are arbitrable and when they are

not, when discharge of contract by accord and

+98satisfaction are disputed. One of the illustrations given

by the Supreme Court reads as under:

(iii) A contractor executes the work and claims payment of say Rupees Ten Lakhs as due in terms of the contract. The employer admits the claim only for Rupees six lakhs and informs the contractor either in writing or orally that unless the contractor gives a discharge voucher in the prescribed format acknowledging receipt of Rupees Six Lakhs in full and final satisfaction of the contract, payment of the admitted amount will not be released. The contractor who is hard pressed for funds and keen to get the admitted amount released, signs on the dotted line either in a printed form or otherwise, stating that the amount is received in full and final settlement. In such a case, the discharge is under economic duress on account of coercion employed by the

employer. Obviously, the discharge voucher cannot be considered to be voluntary or as having resulted in discharge of the contract by accord and satisfaction. It will not be a bar to arbitration.

(iv) An insured makes a claim for loss suffered. The claim is neither admitted nor rejected. But the insured is informed during discussions that unless the claimant gives a full and final voucher for a specified amount (far lesser than the amount claimed by the insured), the entire claim will be rejected. Being in financial difficulties, the claimant agrees to the demand and issues an undated discharge voucher in full and final settlement. Only a few days thereafter, the admitted amount mentioned in the voucher is paid. The accord and satisfaction in such a case is not voluntary but under duress, compulsion and coercion. The coercion is subtle, but very much real. The `accord' is not by free consent. The arbitration agreement can thus be invoked to refer the disputes to arbitration.

However, in the case before this Court, there is no

averment in the plaint that the plaintiff was hard pressed

for funds or was under economic duress and, therefore, was

compelled to accept payments from the defendants despite

the fact that they were offering the sum of Rs 27,79,739/-in

full and final settlement of all his claims. The plaintiff was

not a junior employee of the defendant companies and was

their Chief Executive Officer who was to be paid a

handsome salary running into lacs of rupees per month

even in the year 2000. Hence, no case of economic duress or

coercion has otherwise been made out by the plaintiff.

The issues are decided accordingly.