M/S Srinivasa Ferro Alloys ... vs M/S Vls Finance Limited
2011 Latest Caselaw 3522 Del

              IN THE HIGH COURT OF DELHI: NEW DELHI

+             CS (OS) No. 575/1999

                      Judgment reserved on 11th July, 2011

%                     Judgment delivered on 25th July, 2011

M/s SRINIVASA FERRO ALLOYS LIMITED                            ......PLAINTIFF

                           Through:     Mr. C.B.N. Babu, Adv.

                           Versus

M/s VLS FINANCE LIMITED                                  ..... DEFENDANT

                           Through:    Mr. Sukumar Pattjoshi, Mr. S.S.
                                       Rai and Mr. Ashok Kumar Sharma,
                                       Advs.

                           AND

              CS (OS) No. 624/1999

M/s SHRI GIRIJA SMELTERS LIMITED                        ..... PLAINTIFF

                           Through:     Mr. C.B.N. Babu, Adv.

M/s VLS FINANCE LIMITED                                  ..... DEFENDANT

                           Through:    Mr. Sukumar Pattjoshi, Mr. S.S.
                                       Rai and Mr. Ashok Kumar Sharma,
                                       Advs.

Coram:
HON'BLE MR. JUSTICE A.K. PATHAK

       1. Whether the Reporters of local papers                  No
          may be allowed to see the judgment?

       2. To be referred to Reporter or not?                     No

       3. Whether the judgment should be
          reported in the Digest?                                No


A.K. PATHAK, J.

1. M/S Srinivasa Ferro Alloys Limited (for short hereinafter referred

to as „SFAL‟) and its sister concern M/s Shri Girija Smelters Limited (for

short hereinafter referred to as „SGSL‟) have filed the above-noted suits

against the defendant for rendition of accounts. Both the suits are

based on similar facts and had been consolidated for trial vide order

dated 27th September, 2005. It was ordered that CS(OS) No. 575/1999

shall be treated as lead suit and the evidence be led in the said suit.

2. Case of the plaintiffs, as set out in the plaint(s), is that SFAL had

engaged defendant as a „Lead Manager‟ for carrying out the job of its

Public Issue vide Memorandum of Understanding dated 28th July, 1995

against the payment of management fee of `5 lakhs. SFAL paid a sum

of `30 lakhs to the defendant vide cheque no. 152 dated 28th February,

1996 drawn on Vyasya Bank, New Delhi towards the caution money on

the specific promise by the defendant that the same will be refunded

after the Public Issue work was over. Similarly, SGSL also paid a sum

of `45 lakhs to the defendant vide cheque no. 201 dated 28th February,

1996 drawn on Vyasya Bank, New Delhi towards the caution money.

Defendant had promised to return this amount as well after the Public

Issue work was over. Work of Public Issue was completed in the month

of April, 1996. However, the „caution deposit‟ was not refunded despite

repeated requests. Defendant avoided to refund the caution money on

one or the other pretext. SFAL vide letter dated 20th August, 1996

requested the defendant to refund the caution money of `30 lakhs.

Similarly, SGSL vide letters dated 5th July, 1996 and 20th August, 1996

requested the defendant to refund the caution money of `45 lakhs.

Aforesaid amounts were not refunded. Instead, vide fax reply dated 25th

August, 1996, defendant stated that it had paid the said amount to

their party as per their advice. Ultimately, legal notice dated 27th

December, 1996 was served on the defendant calling upon it to refund

`75 lakhs together with interest @ 24% per annum but to no effect.

Defendant sent reply dated 3rd February, 1997 stating therein that the

contents of legal notice were misconceived, misleading, false, frivolous

and unwarranted and that no amount was payable. Hence, the suits.

3. In the written statement(s) defendant admitted that they were

engaged as „Lead Manager‟ by SFAL for its Public Issue, however, it was

denied that Memorandum of Understanding dated 28th July, 1995 was

executed between them in this regard. Defendant alleged that, in fact,

Memorandum of Understanding dated 24th August, 1995 was executed

between SFAL and defendant in this regard. In the prospectus dated

6th February, 1996 of SFAL for the Public Issue, no reference was made

regarding Memorandum of Understanding dated 28th July, 1995. It is

the Memorandum of Understanding dated 24th August, 1995 which was

referred to in the said prospectus under the heading „Material

Contracts‟. As per the Memorandum of Understanding dated 24th

August, 1995, a sum of `10 lakhs was to be paid by SFAL to the

defendant towards the management fee. There was no clause in the

Memorandum of Understanding dated 24th August, 1995 providing

deposit of caution money nor the same was ever paid. No caution

money was ever paid and/or deposited by SFAL and SGSL, therefore,

question of its refund did not arise. Had there been any caution money

deposited by SFAL and SGSL, the same would have necessarily been

reflected in the „Annual Reports‟ of the companies. The „caution money‟

had not been reflected in the Annual Reports of SFAL and SGSL for the

years 1996-97 and 1997-98. Suits had been filed aiming recovery of

`30 lakhs by SFAL and `45 lakhs by SGSL towards the alleged caution

money without paying court fee and was not maintainable. It was

alleged that SFAL and SGSL had given a sum of `30 lakhs and `45

lakhs to the defendant respectively for being further remitted to one of

their parties, that is, Mr. Princho Oberoi. Accordingly, on their advice

and instructions, defendant had paid `30 lakhs vide cheque no. 003616

and `45 lakhs vide cheque no. 003615 both dated 8th June, 1996,

drawn on Vyasya Bank, to Mr. Princho Oberoi, who had even

acknowledged the receipt thereof in writing. SFAL and SGSL were also

informed by the defendant vide letter dated 8th June, 1996 that the

above referred cheques had been handed over to Mr. Princho Oberoi on

their instructions. It was alleged that suits were bad for non-joinder of

necessary party as Princho Oberoi had not been impleaded in the suits.

SFAL and SGSL had filed the suits for rendition of accounts in order to

harass the defendant, inasmuch as, they were seeking to recover `75

lakhs (`30 lakhs + `45 lakhs) together with interest @ 24 % per annum

under the garb of suits for rendition of accounts and that too without

paying requisite court fee. Suits were not properly valued for the

purposes of court fee and appropriate court fee had not been affixed

thereon. It was specifically stated that there was no dispute regarding

„accounts‟ covered by the terms, conditions and clauses of the alleged

Memorandum of Understanding, thus, suits were not maintainable.

Receipt of legal notice dated 27th December, 1996 was admitted. It was

denied that plaintiffs were entitled to any amount. It was alleged that

no interest was payable. It was prayed that suits be dismissed.

4. In the rejoinder(s) filed by SFAL and SGSL to the written

statement(s) filed by the defendant, contents of the written statement(s)

were denied and averments made in the plaint(s) have been reiterated.

5. On the pleadings of the parties following issues were framed on

15th February, 2006 :-

"(1) Whether the suit of the plaintiff has been valued correctly for the purposes of court fee and jurisdiction and whether the plaintiff has paid the requisite court fee in accordance with law? OPP

(2) Whether the suit for rendition of account is maintainable as stated by the defendant in the written statement? OPD

(3) Whether the suit of the plaintiff does not discloses any cause of action? OPD

(4) Whether the plaintiff is entitled to the relief of rendition of accounts? If so to what amount and to what effect? OPP

(5) Whether the amount was paid to Mr. Princho Oberoi, with the consent of the plaintiff, as claimed by the defendant in the written statement? If so, to what effect? OPD

(6) Relief."

6. SFAL and SGSL have examined two witnesses, namely, Mr. Ravi

Shankar Mani, Resident Representative of SFAL as PW1 and Mr.

Manohar Rao, Deputy Manager (Finance) of SFAL as PW2. As against

this, defendant has examined Mr. Harsh Allagh, Representative of

defendant as DW1. Memorandum of Understanding dated 24th August,

1995 has been proved as Ex. PW1/D4. Letters dated 8th June, 1996,

written by defendant to Mr. C.S. Raju, Chairman-cum-Managing

Director of SFAL to the effect that a sum of `30 lakhs and `45 lakhs

had been paid to Mr. Princho Oberoi vide cheque nos. 003616 and

003615 both dated 8th June, 1996 drawn on Vyasya Bank respectively,

as per their instructions, have been proved as Ex. PW1/D3 and Ex.

PW2/D1 respectively. Annual Reports of SFAL for the years 1996-97

and 1997-98 have been proved as Ex. PW1/D1 and Ex. PW1/D2

respectively. Letters dated 8th June, 1996 written by defendant to Mr.

Princho Oberoi regarding handing over the cheques for `30 lakhs and

`45 lakhs, on the instructions of SFAL and SGSL, have been proved as

Ex. DW1/1 and Ex. DW1/2 respectively. Letters dated 8th June, 1996,

written by Mr. Princho Oberoi to defendant acknowledging the receipt of

aforesaid amount on behalf of SFAL and SGSL, have been proved as Ex.

DW1/3 and Ex.DW1/4. Legal notice dated 27th December, 1996, has

been proved as Ex. DW1/X-B. Reply of the defendant to the legal notice

has been proved as Ex. DW1/X-A. Prospectus of SFAL has been proved

as Ex. D1.

7. I have heard learned counsel for the parties and have perused the

record and my issue wise findings are as under:-

Issue Nos. 2 and 4:

8. First of all I will deal with Issue nos. 2 and 4 as they go to root of

the matter and require detailed discussion which may also be helpful

for returning findings on the other issues as well. In nutshell, case of

SFAL and SGSL as set out in the plaint(s) is that defendant was

engaged by them as „Lead Manager‟ for carrying out the job of Public

Issue against the management fee of `5 lakhs. As agreed, a sum of `30

lakhs was paid by SFAL and `45 lakhs was paid by SGSL to the

defendant towards caution money. Defendant had promised to refund

the same after Public Issue work was over. After completion of Public

Issue work, this amount was not refunded despite repeated requests.

Legal notice dated 27th December, 1996 did not bring any fruitful

results. Defendant was also liable to pay interest @ 24% per annum on

the above amount from the date of completion of work i.e. April, 1996.

PW1 has deposed that plaintiffs had agreed to deposit caution money of

`30 lakhs and `45 lakhs with defendant on the specific promise that the

same will be refunded after the Public Issue work was over.

Accordingly, plaintiffs had deposited `30 lakhs and `45 lakhs

respectively with the defendant vide cheque nos. 152 and 201 both

dated 28th February, 1996 drawn on Vyasya Bank, New Delhi, towards

the caution money. Public Issue work was completed in the month of

March-April, 1996, however, the caution money was not refunded

despite repeated requests. Legal notice dated 27th December, 1996

requesting the defendant to refund `75 lakhs together with interest @

24 % per annum did not bring any fruitful results. Defendant vide

reply dated 3rd February, 1997 denied the contents of entire legal

notice. Similar is the statement made by PW2.

9. From the above it is clear that neither in the plaint(s) nor in the

deposition of PWs any reference has been made that there existed any

fiduciary relationship between the plaintiffs and defendant. On the

contrary, during the course of arguments it was admitted that

relationship between the plaintiffs and defendant was that of principal

to principal. It is not the case that defendant was agent of SFAL and

SGSL and mutual account was to be maintained or that defendant had

to render any accounts to them. Memorandum of Understanding dated

28th July, 1995, on which reliance has been placed by the plaintiffs, has

remained unproved. Defendant has placed on record Memorandum of

Understanding dated 24th August, 1995 and has proved the same as

Ex.PW1/D4, a perusal whereof makes it clear that relation between the

plaintiffs and defendant was that of principal to principal. Defendant

was engaged as „Lead Manager‟ by SFAL to supervise its Public Issue

work as against management fee of `10 lakhs. It is not the case that

the fee was to be adjusted against the alleged deposits, inasmuch as, no

document has been placed on record to show that any caution money

or security deposit was to be made by SFAL or SGSL which was to be

refunded after adjusting the amount that may become due and payable

to the defendant. Ex. PW1/D4 does not talk about the payment of any

advance, caution deposit or security deposit much less an amount of

`75 lacs. No document has been placed on record to indicate that

mutual and running account was to be maintained between the

plaintiffs and defendant in connection with the issuance of Public Issue

or any account was to be rendered by the defendant to SFAL after

completion of work. On the contrary, vide legal notice dated 27th

December, 1996, amount of `75 lacs was claimed together with interest.

Defendant was not called upon to render any accounts. Even the

plaint(s) is silent on this aspect. On the contrary, specific averments

have been made that defendant was liable to pay `75 lacs with interest

@ 24% per annum.

10. In K.C. Skaria Vs. Govt. of State of Kerla & Another (2006) 2

SCC 258, Supreme Court has held as under :-

"15. It is now well settled that the right to claim rendition of accounts is an unusual form of relief granted only in certain specific cases

and to be claimed when the relationship between the parties is such that the rendition of accounts is the only relief which will enable the plaintiff to satisfactorily assert his legal right. [vide Jowahar Singh v. Haria Mal (1899) 60 P.R. 1899, followed in Gulam Qutab-ud-din Khan v. Mian Faiz Bakhsh AIR 1925 Lah 100, State of Jammu & Kashmir v. L. Tota Ram AIR 1971 J&K 71, Triloki Nath Dhar v. Dharmarath Council AIR 1975 JK 76]. The right to seek rendition of accounts is recognized in law in administration suits for accounts of any property and for its administration, suits by a partner of a firm for dissolution of the partnership firm and accounts, suits by beneficiary against trustee (s), suits by a member of a joint family against the karta for partition and accounts, suits by a co- sharer against other co-sharer (s) who has/have received the profits of a common property, suits by principal against an agent, and suits by a minor against a person who has received the funds of the minor.

16. Even where there is no specific provision for rendition of accounts, courts have recognized an equitable right to claim rendition of accounts.

In Narandas Morardas Gaziwala v.

S.P.Am.Papammal AIR1967SC333 this Court considered the maintainability of a suit by an agent against the principal for accounts. Negativing the contention that only a principal can sue the agent for rendering proper accounts and not vice versa (as Section 213 of the Contract Act provided that an agent is bound to render proper accounts to his principal on demand without a corresponding provision in the Contract Act enabling the agent to sue the principal for accounts), this Court held:

"In our opinion, the statute is not exhaustive and the right of the agent to sue the principal for accounts is an equitable right arising under special circumstances and is not a statutory right."

Though an agent has no statutory right for an account from his principal, nevertheless there may be special circumstances rendering it equitable that the principal should account to the agent. Such a case may arise where all the accounts are in the possession of the principal and the agent does not possess accounts to enable him to determine his claim for

commission against his principal. The right of the agent may also arise in an exceptional case where his remuneration depends on the extent of dealings which are not known to him or where he cannot be aware of the extent of the amount due to him unless the accounts of his principal are gone into"

17. To summarise, a suit for rendition of accounts can be maintained only if a person suing has a right to receive an account from the defendant. Such a right can either be (a) created or recognized under a statute; or (b) based on the fiduciary relationship between the parties as in the case of a beneficiary and a trustee; or (c) claimed in equity when the relationship is such that rendition of accounts is the only relief which will enable the person seeking account to satisfactorily assert his legal right. Such a right to seek accounts cannot be claimed as a matter of convenience or on the ground of hardship or on the ground that the person suing did not know the exact amount due to him, as that will open the floodgates for converting several types of money claims into suits for accounts, to avoid payment of court fee at the time of institution."

11. In Hari Gokal Jewellers vs. Satish Kapur 2006 (88) DRJ 837,

legal notice was issued by the plaintiff to the defendant thereby

claiming a definite amount of `17,39,169/- with interest @ 12%. No

claim with regard to rendition of accounts was raised in the notice nor

was there any averment made in the plaint in this regard. In these

facts, a Division Bench of this Court has held that the suit for rendition

of accounts would not be maintainable more so, when in the plaint

there was no reference to any fiduciary or other relationship like master

or servant, employee and contractor, regular mutuality of accounts

maintained in the normal course of business where a party holds the

goods in trust or otherwise and members of the trust. It was specifically

observed that since plaintiff had himself given a notice for a definite

amount, there was no basis for instituting a suit for rendition of

accounts. Before the plaintiff could call upon the defendant to render

the accounts, plaintiff has to satisfy the Court that he has a legal right

to claim rendition of accounts. Plaintiff cannot be allowed to file a suit

for recovery of money in the garb of a suit for rendition of accounts.

12. In this case, in legal notice dated 27th December, 1996

(Ex.DW1/X-B), SFAL and SGSL had in no uncertain terms asked the

defendant to make payment of `75 lakhs together with interest. Overall

reading of plaints also makes it clear that SFAL and SGSL seek recovery

of this amount allegedly paid towards the caution money. Neither in

the notice nor in the plaints it has been mentioned that defendant was

liable to render any accounts to the plaintiffs. No evidence has been led

to satisfy the Court that plaintiffs have a legal right to claim rendition of

accounts. Plaintiffs cannot be permitted to file a suit for recovery under

the garb of suit for rendition of accounts. In my view, the suits for

rendition of accounts are, thus, not maintainable. Consequently, in my

view, plaintiffs are not entitled to any relief of rendition of accounts.

Both these issues are answered in favour of defendant and against the

plaintiffs.

13. In CS (OS) No. 624/1999, plaintiff SGSL stated that the value of

the Suit for the purpose of the jurisdiction is fixed tentatively at `45

lakhs and for the purpose of Court Fee is fixed tentatively at `200/- on

which Court Fee of `20/- is being paid. Similarly, in CS (OS) No.

575/1999, plaintiff SFAL has stated that the value of the suit for the

purpose of court fee is fixed tentatively at `30 lakhs and interest

thereupon @ 24% per annum and a prescribed court fee under

Section 7(4)(f) of the Court Fees Act, 1870 is being paid. While

answering Issue nos. 2 and 4 it has already been held that the suits

for rendition of account are not maintainable since plaintiffs were

aware of definite amount which they sought to recover from the

defendant. Indubitably, so far as the valuation for the purpose of

court fee is concerned, in a case of rendition of accounts, it has to be

left open to the plaintiff to affix valuation. At the same time, this

valuation cannot be fixed arbitrarily. In the present case, perusal of

notice, plaint(s) and depositions of PWs clearly show that plaintiffs

were well aware of the amount it sought to claim and for which

amount suits were valued for the purposes of pecuniary jurisdiction.

Thus, in my view, suits had to be necessarily valued, for the

purposes of court fee, at `45 lakhs and `30 lakhs respectively and ad

valorem court fee thereon was payable. Accordingly, this issue is

decided in favour of the defendant and against the plaintiffs.

14. Careful perusal of plaint(s) clearly indicate that plaintiffs have

not made any averment that defendant was liable to render accounts

to the plaintiffs nor any evidence in this regard has been led. While

deciding Issue Nos. 2 and 4 it has already been held that suits for

rendition of accounts were not maintainable since plaintiffs had

failed to make out a case that they were entitled to seek relief of

rendition of accounts from the defendant. A detailed discussion in

this regard has already been made. For the forgoing reasons and in

absence of any averment made in the plaint(s) and deposition of PWs

that defendant was liable to render accounts, in my view, plaint(s)

does not disclose cause of action for filing suits for rendition of

accounts. This issue is also decided in favour of the defendant and

against the plaintiffs.

15. Case of the defendant is that SFAL and SGSL had paid a sum

of `30 lakhs and `45 lakhs respectively to the defendant to remit it to

one Mr. Princho Oberoi. Onus to prove this issue was upon the

defendant. However, defendant has failed to prove this issue. Mr.

Princho Oberoi has not been produced in the witness box to depose

that he had received `75 lakhs from the defendant. It has remained

unproved that the alleged cheques had been duly encashed.

Relevant entries in the bank‟s statement in this regard has not been

proved, inasmuch as, records of the bank had been destroyed after

eight years. In the letters Ex.D1/3 and Ex.D1/4 even the address of

Mr. Princho Oberoi has not been mentioned. Defendant has failed to

prove that it had received any instructions from the plaintiffs with

regard to the remittance of the said amount to Mr. Princho Oberoi.

Mere fact that Ex.PW1/D3 and Ex.PW2/D3 had remained unreplied

by itself is not sufficient to prove the payment of such a huge

amount to Mr. Princho Oberoi that too on oral instructions of Mr.

C.S. Raju, Chairman-cum-Managing Director of plaintiffs. Evidence

led by the defendant on this point is insufficient to prove this issue.

This issue is, accordingly, decided in favour of the plaintiffs and

against the defendant.

Relief

16. In view of the findings on Issue Nos. 1 to 4, both the above

suits are dismissed. No order as to cost.

A.K. PATHAK, J.

JULY 25, 2011 ga